Dow Theory Update for February 6: Secondary reaction for gold and silver signaled today

Primary trends unchanged

US STOCKS

The SPY, Industrials and Transports closed down. On Thursday, January 29, the Industrials violated their secondary reaction lows (which puts us very near to a primary bear market signal). On Friday 30, the Transports did so. However, lack of confirmation as the SPY has 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 bearmarket” in order to understand why the proper interpretation of Schannep’s Dow Theory negates a primary bear market (at least for the time being).

Stocks set up for a primary bear market signal on January 23^rd, as explained here. However, as “set up” is not the “real” thing. So we have to wait.

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, very down. The primary trend is bullish as explained here. The secondary trend has turned bearish today (secondary reaction), since:

            a) we have had 11 trading days of declining prices.

b) the current decline has retraced more than 1/3 of the previous primary bull market swing (the one that started at the bear market lows of November 5^th, 2014 and finished, at least temporarily, at the January 22^nd, 2015 closing highs

c) the volatility-adjusted decline exceeds the minimum threshold for a secondary reaction to be declared. More about volatility adjustments here.

 

Please mind that either “b” or “c” suffice to declare the secondary reaction. However, I like it better if both “b” and “c” requirements are met.

Here you have the volatility adjustment calculations:

	30 days avg daily volatility
GLD	0.0109		SLV	0.01551
SPY	0.00849		SPY	0.00849
Volt ratio	1.28386337			1.82685512
Min Movement	3.85159011			5.48056537
High	125.23			17.61
Low	118.64			16.03
% decline	-0.05262317			-0.08972175

And here you have the updated chart. The red rectangles on the right highlight the secondary reaction.

Secondary reaction for SLV and GLD signaled today

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.

I cannot say the secondary trend has turned bearish because:

a) the volatility-adjusted decline for GDX does not reach 9.89% (which is the minimum volatility-adjusted movement). The current decline is a mere -0.07%. Since ,according to the Dow Theory, we need the two indices (ETFs) to exceed the minimum volatility-adjusted decline, I didn’t even bother to measure SLV’s volatility-adjusted decline.

b) GDX has retraced a ca. mere 25%, which falls short of the 1/3 minimum requirement.

So, whatever measure I take in order to ascertain a secondary reaction, it is still too early yet.

Here you have the calculations for GDX:

GDX	0.028
SPY	0.00849
Volt ratio	3.29799764
Min Move	9.89399293
High	22.94
Low	21.33
% decline	-0.07018309

Sincerely,

The Dow Theorist