Stocks undergo secondary reaction.
US stocks
The Industrials, Transports
and SPY closed up. Yesterday, January 15, stocks closed down, and fulfilled the
time requirement for a secondary reaction. Thus, the Industrials, Transports
and SPY have declined by more than 3%, and such a decline has lasted (calculated as
the average of the three indices) more than 8 trading days. I don’t have the time
to give you the detailed calculations, but the chart below says it all:
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Stocks are losing momentum: Secondary reaction become more frecuent |
So now, we have to wait. A
secondary reaction is not a primary bear market; actually most of secondary reactions do not end up in a primary bear market, as the primary bullish trend reasserts itself.
Gold and
Silver
SLV and GLD closed up. SLV finally managed to better the secondary
reaction high. GLD bettered its secondary reaction closing high already four
trading days ago. Hence, according to one of the most important Dow Theory
tenets, a primary bull market has been
signaled, since SLV has confirmed higher highs.
Here you have
the relevant chart.
![]() |
At last, a primary bull market has been signaled for SLV and GLD |
While we don’t know whether this will be a “good”
signal or failed one (a ca. 30% probability), what we do know is that
technically and, more specifically, according to the Dow Theory, this is a bullish accomplishment.
The primary bear market lasted ca. 25 months, and the Dow Theory managed to
keep us out of danger all the time, as we were standing on the sidelines
since December 20, 2012, as explained here.
I have no idea as to the extent or duration of this
new primary bull market. Dow Theorist Rhea was clear about this. However, what
we do know is that we are aligning ourselves with the primary trend and that by
following the primary trend, as determined by the Dow Theory, on the long run
we are likely to make more than by merely being “buy and hope” (and, more
importantly, avoid killing drawdowns). One thing is clear: We have managed to
be out of gold and silver for more than two years (and a corresponding
monstrous decline) thanks to the Dow Theory, while many market pundits were
trying every now and then to call a bottom that stubbornly failed to
materialize. Rhea’s dictum, namely that “the
wish must never be allowed to be the father of thought”, comes
repeatedly to my mind.
However, I am willing to change my mind at the turn of
a dime. If the last recorded primary bear market lows of November 5, 2014 were
jointly broken, and in strict pursuance of the Dow Theory, I would immediately declare
the primary trend as bearish. The primary bear market lows of November must
hold.
Gold and Silver miners ETFs (GDX and SIL)
As to the gold and silver miners ETFs, SIL closed and GDX closed up,
and above the last recorded closing highs.
On January 12, 2015, a primary
bull market was signaled. More information as to the details of such a signal here.
The primary and secondary
trend is bullish.
Some days ago I wrote that I’d
feel more confident about the brand new primary bull market in gold and silver
stocks, if the precious metals themselves were soon in a primary bull market. Well,
now the entire precious metal universe is under a primary bull market. The
principle of confirmation also applies on this basis: Bullishness in the
stocks confirmed by the metals themselves (and vice versa) lends more credence
to each respective bull market.
Sincerely,
The Dow Theorist
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