All trends remain unchanged.
Many days have passed by without my giving you a trend
update as per the Dow Theory rules.
The reason is simple: too little time and no change of
trends. Furthermore, my focus has been on analyzing the last controversial Dow
Theory signal, as you can read here and here.
Please bear in mind that the primary trend (and even
the secondary one) as determined by the Dow Theory does not change very often. Thus,
we'd better use our time in really becoming proficient with the Dow Theory
(i.e. by learning how to apply it in real time) rather than becoming obsessed on
a daily basis with the trend. Of course, any Dow Theorist worth his salt must
check the trends daily even though many months may pass by and no action is to
be undertaken. However, when it comes to writing, and time is not abundant, I
have to make choices. I personally, check for myself the markets daily, but I don’t have the time to always post
about what I see on the charts; especially when trends have not changed.
US Stocks
The SPY, the Transports and
the Industrials closed up. The Industrials made a higher high unconfirmed by
the Transports and the SPY.
The primary trend remains
bullish, as explained here.
The secondary trend is bullish and no secondary reaction is in sight.
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.
Eventually, the tug of war
between an eternal secondary (bullish) reaction against the primary bear market
and the primary bearish trend has been resolved in favor of the continuation of
the primary trend. The old adage comes to my mind: “don’t fight the trend”.
Well, I am happy that I didn’t
fight the trend and, while reporting the existence of a secondary bullish
trend, I warned my readers that a secondary reaction is not the real thing and
hence, we had to wait until the actual primary bull market signal, which, as we
now see, has failed to materialize.
All in all, my strict
application of the Dow Theory prevented me from become erroneously bullish (as
famed Richard Russell, of the “Dow Theory Letters” wrongly did). We were close
to a primary bull market signal, but being close means nothing under the Dow
Theory.
And what about the secondary
trend? After all, precious metals have been rallying since November 5th.
Well, the answer is that no secondary reaction against the primary bear market
has occurred yet. While the time requirement has been fulfilled (more than 10
days) the extent requirement has not
been met. Given gold and silver higher volatility, the minimum threshold for a
movement to be significant has not been reach.
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
a mere 6.18%, and SLV just 9%. Both rallies lie well below the minimum
volatility-adjust threshold which stands at 7.56% for GLD and 11.21% for SLV. Volatilities
have been measured taking the last 30 trading days. More details in the
spreadsheet below:
30 DAYS
avg volat
|
30 DAYS
avg volat
|
|||
SPY
|
0.00435
|
SPY
|
0.00435
|
|
GLD
|
0.01097
|
SLV
|
0.01626
|
|
RATIO
|
2.52183908
|
RATIO
|
3.73793103
|
|
MIN MOVE
|
7.56551724
|
MIN MOVE
|
11.2137931
|
|
Highest
|
116.58
|
Highest
|
15.98
|
|
Lowest
|
109.79
|
Lowest
|
14.66
|
|
Current
|
1.06184534
|
Current
|
1.09004093
|
|
rally
|
rally
|
Thus, the secondary 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 getting old. Almost years have elapsed
since the bear market signal was flashed. However, as price action has just
shown, 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 for the same reasons given for GLD and SLV, no secondary reaction has
been signaled yet. Here you have the relevant spreadsheet with volatility and
rally calculations:
30 DAYS
avg volat
|
30 DAYS
avg volat
|
|||
SPY
|
0.00435
|
SPY
|
0.00435
|
|
SIL
|
0.0388
|
GDX
|
0.0367
|
|
RATIO
|
8.91954023
|
RATIO
|
8.43678161
|
|
MIN MOVE
|
26.7586207
|
MIN MOVE
|
25.3103448
|
|
Highest
|
10.34
|
Highest
|
20.39
|
|
Lowest
|
8.23
|
Lowest
|
16.59
|
|
Current
|
1.2563791
|
Current
|
1.22905365
|
|
rally
|
rally
|
Sincerely,
The Dow Theorist
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