Thursday, January 8, 2015

Dow Theory Update for January 8: In spite of increased volatility, trends remain unchanged

In spite of Russell’s bullishness for gold, no primary bull market signal has been signaled.

I am writing before the close, so there could be small changes concerning the "close".

I owe the followers of this Dow Theory blog two articles. The first one, is the last chapter of the brainstorming made by Schannep and I concerning the last primary bear market signal. The second one, is the Dow Theory review for 2014. As with 2013, the Dow Theory helped us stay most of the time in tune with the prevailing trend, which was tantamount to being most of the time invested in stocks while shunning gold, silver and their miners.

US stocks

The Industrials, Transports and SPY closed up. Stocks receded for a few days before staging a powerful 2 days rally, and such a movement doesn’t qualify as a secondary reaction.

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

The secondary trend is bullish.

Gold and Silver

SLV 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. Furthermore, SLV and GLD completed the setup for a primary bull market, as explained here.

In spite of the secondary bullish reaction, the primary trend remains bearish too. So, once again, Richard Russell, of the Dow Theory letters is being prematurely bullish, as he’s been recently writing that gold is prepared for a big move. Maybe yes (if the primary trend turns bullish) or maybe not (if it is just a secondary reaction that will fizzle out). If we are to judge from past forecasts, Russell has been proven repeatedly wrong as far as gold (and stocks) is concerned. Of course, even a broken clock is right twice a day, and eventually Russell will call gold’s bottom. I personally prefer not to jump the gun, and the Dow Theory rules (of which Russell is very conversant) tell me that we should not confuse a secondary bullish reaction with a primary bull market. So I patiently wait. Russell should heed Rhea’s dictum, namely that “the wish must never be allowed to be the father of thought.


On the other hand, here you can find an article posted on Seeking Alpha which makes a much better (and less wishful thinking than Russell) analysis of the gold and silver markets.

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. 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.

Gold and Silver miners ETFs (GDX and SIL)

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