Tuesday, December 16, 2014

Dow Theory Update for December 16: Secondary (bearish) reaction of stocks signaled yesterday

No changes on the precious metals arena.

US Stocks

Yesterday, December 15th, 2014, the INDUSTRIALS and the SPY closed down. The Transports closed barely up.

All three indices have declined by more than 3%, and hence the extent requirement for a secondary reaction has been met. More exactly, all three indices have declined 4% or slightly more.

Furthermore, the time requirement was also met yesterday, since the declined spanned 10 calendar days on 2 indices (Industrials and SPY) (and 17 in the Transports). Furthermore, the declined has lasted an average of 8 trading days (6+6+12/3, corresponding to 6 days the Industrials, 6 days the SPY and 12 days the transports.

So, yesterday, December 15th, the time and extent requirements for a secondary reaction (as per Schannep’s Dow Theory) were met.

Here you have an updated chart. The orange rectangles display the ongoing secondary reaction, which begins at the last recorded closing highs.

Ongoing secondary reaction. Today prices closed even lower

So what next?

Three possibilities:

      1)  Not even one index rallies by more than 3% and stocks continue declining. In such case, the     secondary reaction will run deeper and deeper.

     2)  From the current levels, at least one index rallies by more than 3% and a subsequent breakdown of the current lows by the SPY plus another index (preferably the one that rallied more than 3%. Here Schannep and I have slightly diverged in the past). 

    3) Stocks break up to new closing highs, in which case the primary bull market would be reconfirmed.

So now it is still too early to declare a primary bear market and we have to wait further developments. 

Gold and Silver

SLV closed down, and GLD closed up. 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. 

For the reasons I explained here, and more recently here the primary trend remains bearish.

The secondary trend is bullish (secondary bullish reaction against the primary bear market), as explained recently here. From I cursory glance at the chart at feel that SLV has experienced a pullback of enough amplitude so that GLD and SLV have completed the setup for a primary bull market signal. I hope to provide you with more info tomorrow, as today I lack the time to make accurate measurements (volatility-adjusted ones).

 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.

The Dow Theorist

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