Saturday, February 28, 2015

Dow Theory Update for February 28: Primary bull market for stocks reconfirmed

However, I'd like it better if the Transports deigned to confirm the SPY and Industrials


The SPY, Industrials, and Transports closed down.

The SPY bettered on February 12nd its primary bull market closing highs. The Industrials confirmed on February 20th. The Transports have not confirmed yet.

So what should I say? Has the primary bull market been reconfirmed and, accordingly we can declare the secondary reaction a thing of the past? Or lack of confirmation by the Transports implies that the secondary reaction is not over yet?

If I adhered strictly to Schannep’s Dow Theory, I would say that an “in the clear” signal requires confirmation by the three indices, so we could not declare the secondary reaction as finished.

However, I feel that just two indices (especially, when one of the indices making new highs is the SPY) is enough for the primary bull market to be reconfirmed.

Please read carefully my post of September 3rd, 2014 wherein I amply reasoned the reasons that prompt me to depart from Schannep on this very specific point.

As you can read in the post I have linked, my interpretation of the Dow Theory which relies heavily on the lows of the last completed secondary reaction, as an alternative exit point, helps me being quite straightforward when it comes to declaring the secondary reaction as finished.

More about the vital alternative stop loss (exit point) as per Rhea’s Dow Theory, here.

All in all, armed with the lows of the last completed secondary reaction (red horizontal lines), I consider:

            a) The primary bull market as reconfirmed.
            b) The secondary reaction as extinguished.

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

Here you have an updated chart:

The lows of the last completed secondary reaction remain as a valid stoploss

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 here.

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.

The secondary trend is bearish (secondary reaction against the primary bull market), as explained here.

The Dow Theorist.

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