If you are interested in
knowing how the Dow Theory fared in 2014 with stocks and precious metals,
you might be interested in this post.
US STOCKS
The SPY, and
Transports closed up. The Industrials closed down. On Thursday, January 29, the Industrials violated their
secondary reaction lows. On Friday 30, the Transports did so. However, lack of
confirmation (as the SPY refused to violate its secondary reaction lows)
prevents us from declaring a primary bear market. Some market analysts have
declared the existence of a primary bear market. Read my post “It is not a primary bear market” in order to understand why
the proper interpretation of Schannep’s Dow Theory negates a primary bear
market (at least for the time being).
The SPY has for three
consecutive days (until yesterday) bettered its primary bull market closing highs. The Transports
and the Industrials have not confirmed yet. So we cannot say that the primary
bull market has been re-confirmed, and hence we cannot declare the secondary
(bearish) reaction as a thing of the past. One of the tenets of the Dow Theory is that the longer non confirmation persists, the higher the odds for a trend reversal.
Stocks set up for a primary
bear market signal on January 23rd, as explained here. However, a “set up” is not the “real” thing. So we
have to wait. Such a set up will be "deleted", once the SPY's higher highs get confirmed.
The secondary trend is bearish
as explained here.
Gold and Silver
SLV closed down and GLD closed up. The
primary trend is bullish as explained here.
The secondary trend turned
bearish on February 6th, 2015 (secondary reaction against the
primary trend) as explained here. The secondary reaction continues running its
course. SLV rallied modestly (from February 6 to February 13). However, such
rally was a meager ca. 3%, which in volatility-adjusted terms, is not enough to
set up SLV and GLD for a primary bear market signal. Had SLV have rallied by a
more ample amount (let’s say at least more than 5.4%, which is one recent volatility-adjusted
reading, as you can see here), then the set up would have been completed.
Thus, the subsequent violation
of the February 6th closing lows did not flash a primary
bear market signal. We still have to wait for a rally of sufficient
volatility-adjusted magnitude for SLV and/or
GLD (let’s say ca. more than 5.4% for SLV and 3.85% for GLD, as per recent
volatility readings) so that the set up for a primary bear market signal is completed.
In the absence of such a
rally, a primary bear market would be signaled if both SLV and GLD violated
their November 5th, 2014 closing lows (primary bear market lows). Please mind that there are several ways of declaring a primary bear market under the Dow Theory. The most common and classical sequence "primary bull (bear) swing, correction, rally (pullback) and final breakout", is just one of the ways of declaring a change of primary trend. As I wrote here:
" [a] primary bear market can be signaled in four alternative ways:
a) The
“classical”.
b) The -16%
decline.
c) The lows
of the last completed secondary reaction.
d) The
primary bear market lows (when a new primary bull market has been born, and no
secondary reaction has developed yet).
Cogitate
these 4 primary bear market signals, and you’ll greatly increase your odds of
being on the right side of the market. Please mind the words of Rhea: He
doesn't talk certainties but probabilities. Take your time in studying the four
signals, as it took me deep reading of Rhea and Schannep to be able to
systematize, digest and understand the deep meaning of these 4 signals."
When it comes to
precious metals, the -16% decline is not a valid primary bear market signal, as
such a figure was obtained empirically for just US stocks by Dow Theorist
Schannep, of "thedowtheory.com". However, the remaining three signals remain fully applicable to
precious metals.
Here you have an updated
chart:
 |
| Secondary reaction (red rectangles on the right of the chart) against primary bull market |
Gold and Silver miners ETFs (GDX and SIL)
As to the gold and silver miners ETFs, SIL and GDX closed up.
On January 12, 2015, a primary
bull market was signaled. More information as to the details of such a signal here.
For the reasons explained
here, I am doubtful as to whether we can declare a secondary (bearish) reaction
for SIL and GDX yet. Subsequent market action seems to negate a secondary
reaction. However, any decline below the 2/17/2015 closing lows would unambiguously
prompt me to declare the existence of a secondary reaction. So let's be alert.
Sincerely,
The Dow Theorist.
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