Thursday, March 12, 2015

Dow Theory Update for March 12: Primary trend for Gold, Silver and their miners ETFs could change soon

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.


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

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

Gold and Silver

SLV and GLD continue declining. However, 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 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.

The Dow Theorist.

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