The Industrials and Transports have not confirmed SPY’s higher highs yet
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, Industrials, and
Transports 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 the day before-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. Here you have an updated
chart:
 |
| Lack of confirmation might be indicative of 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 and GLD closed down. 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. More information about alternative primary bear (bull) market
signals, on my yesterday’s post, which you can find here.
Gold and Silver miners ETFs (GDX and SIL)
As to the gold and silver miners ETFs, SIL 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.
For the reasons explained here, I was
doubtful as to whether we could declare a secondary (bearish) reaction for SIL
and GDX yet. Yesterday I wrote that any
decline below the 2/17/2015 closing lows would unambiguously prompt me to declare
the existence of a secondary reaction. Well, today such lows have been jointly
violated. Furthermore, GDX has declined -10.46% from its primary bull market
highs, which in volatility-adjusted terms is relevant, as it has confirmed SLV’s
decline. Read my recent posts to become more acquainted with the entrails of
this secondary reaction (which has not been an easy one to ascertain).
All in all, by all standards
we can declare that a secondary (bearish) reaction against the ongoing primary
bull market in SIL and GDX has been signaled today.
Here you have a chart:
 |
| Orange rectangle (right) shows ongoing secondary reaction which has been signaled today |
Now we have to wait for
subsequent market action.
Sincerely,
The Dow Theorist.
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