Trends for SIL, GDX and US Stocks unchanged
US Stocks
The SPY, the Transports and
the Industrials closed up.
The primary trend remains
bullish, as explained here.
The secondary trend is bullish and it is too early to signal a secondary (bearish) reaction against the
primary bull market.
Gold and Silver
SLV and GLD closed down. The
primary bear market was
reconfirmed on October 3rd 2014, as GLD finally broke below the
June 27th, 2013 primary bear market closing lows (something which
SLV had already done on Sept 17, 2014). As
lower lows have been confirmed, the primary bear market has been reconfirmed.
And what about the secondary
trend? Well, the secondary trend has just changed.
Gold and silver have been rallying since November 5th.
In my Dow Theory Update of December 2, I reported that the time requirement had been fulfilled (more than
10 days of ascending prices). Nonetheless, the extent requirement had not been met. Now, thanks to:
(a) Shrinking 30-day average of daily volatility for the SPY, and
marginally higher volatility for SLV and GLD (which has reduced the volatility ratio,
and hence a lower magnitude rally qualifies for a secondary reaction).
(b) And higher prices since
December 2nd (thx to them, SLV has retraced ca. 20% of the last primary bear
market leg which started on 8/27/2013, and GLD has retraced almost 31%).
Hamilton accepted retracements as low as 20% of the last primary movement leg.
we can declare that SLV, and GLD are in
a secondary (bullish) reaction against the primary bear market. Please mind that the ongoing
movement has sufficient magnitude when we evaluate it either under Schannep’s rules, or even under a more classical Dow Theory standpoint (retracements).
Please mind that I lend more
credence to the volatility adjusted movements (which follows Schannep).
However, it is nice to see that the “classical” Dow Theory signals the
development of a secondary reaction as well. Here you have a chart displaying
SLV (top) and GLD (bottom) from the top of the last completed secondary
reaction (August 2013, left side of the chart) until today. There you can see the November 5th
lows and the current rally (secondary reaction). The horizontal lines show the
percentage retracements (more than 30% for gold and almost 20% for silver).
Any way I look at it, I see a secondary (bullish) reaction (right side) against an entrenched primary bear market |
When dealing with stock
indices, for a rally to be meaningful, the Dow Theory demands a minimum of a 3%
in at least two indices. However, since we are dealing with GLD and SLV (quite
a different beast), we have to adjust the minimum rally threshold to reflect
the greater daily volatility of gold and silver. If we’d satisfy ourselves with
a mere 3% rally, we would get lots of false signals given GLD and, especially,
SIL larger volatility. It’d be like just demanding a 1% for the SPY or the
Industrials. Noise would overwhelm signal.
GLD has rallied 8.38 %, and
SLV 12%. Both rallies exceed the minimum volatility-adjust threshold which
stands at 5.73% for GLD and 7.78% for SLV. Volatilities have been measured
taking the last 30 trading days. More details in the spreadsheet below:
30 days avg volatility | 30 days avg volatility | ||||
SPY | 0.00528 | SPY | 0.00528 | ||
GLD | 0.0101 | SLV | 0.0137 | ||
volatility ratio | 1.91287879 | volatility ratio | 2.59469697 | ||
Min Move | 5.73863636 | Min Move | 7.78409091 | ||
Highest close | 118.99 | Highest close | 16.42 | ||
Lowest close | 109.79 | Lowest close | 14.66 | ||
current rally % | 8.37963385 | current rally % | 12.005457 |
As I have countless times
said, a secondary reaction is not the real thing and could have short legs.
Thus, we just have to sit and wait for further price action to declare a primary bull market, namely:
(a) either at least SLV or GLD
undergo a pullback exceeding 5.73% (for GLD) or 7.78% (for SLV), and after such
a pullback the closing highs of the ongoing secondary reaction are jointly
broken up;
(b) or, if no pullback occurs,
then GLD and SLV continue their rally until the highs of the last completed secondary reaction
(8/27/2013) are jointly broken up. By the way, once again, I am using the
special rule mention by Rhea on page 77 of his book. More about this special Dow Theory rule here.
In spite of the secondary bullish
reaction, the primary trend remains bearish too.
Here I analyzed the primary bear market signal given on December 20, 2012. The
primary trend was reconfirmed bearish, as explained here. The secondary trend is bearish.
On a statistical basis the primary
bear market for GLD and SLV is old. Almost two years have elapsed since the
bear market signal was flashed. However, I am
extremely skeptical as to the predictive power of statistics. I prefer price
action to guide me, and the Dow Theory tells me that the primary trend remains
bearish until reversed. When will this vicious bear market end? I don’t
know, and I don’t need to know. I only know that the Dow Theory will see to my
being informed punctually when a new primary bull market is born.
As to the gold and silver miners ETFs, SIL and GDX closed down. The primary bear market was re-confirmed
on October 27th, 2014 as explained here. The primary trend for SIL and
GDX is clearly bearish, as was profusely explained here and here.
The secondary trend is bearish
too, and no secondary reaction has been signaled
yet.
Sincerely,
The Dow Theorist
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