Friday, September 19, 2014

Dow Theory Update for September 19: Gold and Silver are very close to re-confirming primary bear market

Stocks, well (at least technically), as usual.

I devote this post to gold and silver.

As you can see on the chart below, silver (SLV) is clearly below the red line, which is a horizontal projection of the June 27th, 2013 primary bear market lows. However, hitherto gold (GLD) has not confirmed and remains above (barely) its primary bear market lows. 

SLV lower low remains unconfirmed by GLD

If the primary bear market gets re-confirmed the odds favor a drastic decline of SLV and GLD, since the secondary (bullish) reaction against the primary bear market has lasted more than 14 months (and counting).

Gold and silver weakness is also taking its toll on GDX and SIL (the ETF miners). GDXJ, though, still displays greater relative strength (in spite of going down) than its senior peer GDX. More about GDXJ’s relative strength here.

While I personally have a fundamental bullish bias towards gold, I am not blind, though, and I can look at the charts, which prove my fundamental bias wrong. At least, “paper” gold looks weak. As to silver, better not to mention it.

Price action since the June 27th, 2013 primary bear market lows has proven the Dow Theory, and more importantly, the discipline to stick to it and not jumping the gun too early, right. Many market pundits were prematurely considering the onset of a new bull market, when, in fact, we only had (and still have right now) a secondary bullish reaction against a primary bearish trend. If you have followed this blog, and while acknowledging medium term (secondary reaction) bullishness, I refused to consider the primary bear market as dead. Ditto for GDX and SIL, while there were very close to signaling a primary bull market signal, they didn’t, and, accordingly, I refused to label the primary trend as bullish, since the Dow Theory was preventing me to do so.

I am not bragging because the statistical record (at least for stocks) of the Dow Theory has also its losing trades (ca. 30%). It is not so important to be always right. What is important is to minimize losses when wrong (which the Dow Theory does) and let profits run when right (which the Dow Theory also accomplishes). And of course, given than the Dow Theory tends to be more right than wrong, it is important not to jump the gun, and anticipate signals, as the benefit of doubt should be always given to the existing trend (as it is currently happening with stocks). Don't try to outsmart the Dow Theory, as you would have been long gold and silver too early, while shunning stocks under a torrid bull market. A primary bear market remains a primary bear market, all secondary reactions notwithstanding, until a primary bull market signal has been flashed. Patience is a virtue. 

Gold and silver are at crossroads. An interesting juncture to monitor.


No news. All trends are bullish. Once again many market pundits have been wrong. I'd rather omit to give names (hint: the two worst offenders begin by "R" and "G").

The Dow Theorist.

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