Are US Stocks under a secondary reaction? Not yet.
Time remains in very short supply, so let’s
encapsulate the vital information.
I am writing before the close. So some of my musings
could be altered after the close.
US STOCKS
The SPY and the Industrials have been declining for 7
days. The Transports declined for 10 days. So the average decline has been 8
days (7+7+10/3), which fulfills one of Schannep’s rules in order to declare a secondary
reaction. When I say “days” I mean “trading days”. Furthermore, the three
indices have declined more than 3%, since the last recorded closing highs (as
you know, both under Rhea and Schannep, the minimum meaningful movement is
three percent), and at least two indices should decline 3% or more.
However, under Schannep’s Dow Theory, there is a
further requirement in order to declare a secondary reaction: At least two
indices must decline for 10 calendar days. The Transports clearly exceeds this
benchmark; however, the Industrials and SPY fall still short.
All in all, it is too soon to declare a secondary
reaction. Here you have an updated chart. The figures in small print below the
most recent lows display the number of trading days for the current pullback.
 |
| Too early to declare a secondary reaction. Primary trend remains bullish |
Gold and Silver
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 continue declining.
On 3/10/15 SIL violated its 12/16/2014 primary bear market closing low.
However, GDX did not confirm and remains above its primary bear market closing
low. As per the Dow Theory lower lows unconfirmed have no validity, and hence
we cannot declare a primary bear market. Since we cannot declare (at least “yet”)
a primary bear market, the primary trend remains bullish.
Here you have an updated
chart. As you can see GDX remain above its primary bear market lows.
 |
| SIL violated its primarybear market low. GDX did not confirm. Technically nothing has changed |
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.
Sincerely,
The Dow Theorist.
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