Thursday, January 29, 2015

Dow Theory Update for January 29: Stocks have dodged the bullet…at least for now

Trends remain unchanged in spite of rising volatility.

Last Friday January 23rd, stocks set up for a primary bear market signal, as explained here.

The SPY, Industrials and Transports closed up. Yesterday, the Industrials violated their secondary reaction lows (which puts us very near to a primary bear market signal). However, lack of confirmation (as neither the SPY nor the Transports violated their respective secondary reaction lows) prevent us from declaring a primary bear market. Today’s action has, for the time being, eloigned such a peril. So we have to further observe the market. Here you have an updated chart. The red horizontal lines (secondary reaction lows) should not be jointly penetrated:

Neither the SPY (bottom), nor the Transports (middle) have violated their secondary reacton lows

While not strict Dow Theory there is something, I don't like: Even though (as will later be explained in a future Dow Theory post) Schannep's Dow Theory tends to signal more secondary reactions than the "Rhea/Classical" one (which is advantageous, as shown empirically, and also looking forward to avoiding our worst future drawdown), in just one month two secondary reactions have been signaled. Too many secondary reactions in too short a time, which seems to suggest that the market is running out of steam.

Furthermore, if I were to look at the US stock market with "Rhea/classical" Dow Theory glasses, I'd see something closely resembling a "line" (narrow range), as stocks have been meandering nowhere. So the US stock market seems to be setting up for a strong move. The breaking of the narrow range will tell us in which direction.

The primary trend remains bullish, as explained here and here.

The secondary trend is bearish as explained here.

Gold and Silver

SLV and GLD closed down, strongly down. The primary trend is bullish as explained here. The secondary trend is bullish too (no secondary reaction in sight). So in spite of today’s action, not even the secondary trend has been changed if we are to look at the markets through Dow Theory lens.

Last weekend I posted some thoughts concerning the primary bull market signal for SLV and GLD. As you will read, I particularly like this specific signal in terms of risk reward and chart structure (which makes it easy to attain handsome rewards).

Gold and Silver miners ETFs (GDX and SIL)

As to the gold and silver miners ETFs, SIL closed and GDX closed down.

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.

The Dow Theorist

No comments:

Post a Comment