Dow Theory Update for May 18: Primary bull market for US Stocks reconfirmed

 Trends unchanged in all markets.

US STOCKS

On 5/14/2015 the SPY bettered its last recorded primary bull market closing high of 3/2/2015. Today the Industrials has confirmed by exceeding its 3/2/2015 closing high.

As per my reading of the Dow Theory, stocks did not even enter into a secondary reaction, since the lowest confirmed closing lows of the downward movement were made 03/11/2015, and the time requirement (at least 8 days of declining prices as the average of the three indices) was not met on that date. From that point, the SPY and the Industrials refused to make lower lows, and hence the lower lows of the Transports were not confirmed. All in all, we didn’t even get a proper secondary reaction, and this is why I was labeling during all these weeks the secondary trend as bullish.

Here you have the chart depicting the most recent action:

Blue horizontal lines (primary bull market highs) jointly bettered by the Industrials and SPY

So, both the primary and secondary trend remains bullish.

I know that I am slightly departing from Schannep. According to Schannep, “in the clear” signals require confirmation by the three indices. Furthermore,  the Transports are not merely non confirming but diverging (that is going down, whereas the SPY and Industrials go up). Thus, according to Schannep’s Dow Theory, the primary bull market has not been reconfirmed, and we have to wait until:

a) Either the SPY violates the last recorded secondary reaction lows.

b) Or the Transports joins the bullish parade and breaks up above the last primary bull market highs.

For practical purposes, the difference between Schannep’s interpretation and mine is that I will begin to monitor the development of a new secondary reaction from the newer higher highs. The counting of days for gauging a new secondary reaction is set to zero. Thus, a practical implication of my way of applying the Dow Theory, is that it tends to produce “narrower” Dow Theory stops, as secondary reactions are appraised in some instances earlier than under Schannep’s Dow Theory. This is neither good nor bad. It just depends on the risk tolerance and global psychological and financial make up of the investor.

More about this issue here:

Gold and Silver

The primary trend is bullish as explained here.

The secondary trend turned bearish on February 6^th, 2015 (secondary reaction against the primary trend) as explained here.

The setup for a primary bear market signal was completed on March 24, 2015 as explained here.

Thus, now:

a) Either the primary bull market closing highs 01/22/2015 are bettered in which case the primary bull market will be reconfirmed.

b) Or the  secondary reaction lows are violated in which case a primary bear market will be signaled.

We have to wait and see.

Gold and Silver miners ETFs.

As to the gold and silver miners ETFs,on 3/10/15 SIL violated its 12/16/2014 primary bear market closing low. However, GDX did not confirm. As per the Dow Theory lower lows unconfirmed have no validity, and hence we cannot declare a primary bear market. Since we cannot declare a primary bear market, the primary trend remains bullish. Furthermore, the GDX and SIL staged a rally that set them up for a primary bear market signal on March 24, 2015 as explained here.

Thus, now:

a) Either the primary bull market closing highs 01/20/2015 are bettered in which case the primary bull market will be reconfirmed.

b) Or the secondary reaction lows (or the primary bear market lows of SIL, and secondary reaction lows of GDX) are violated in which case a primary bear market will be signaled.

Once again, we have to wait and see.

Sincerely,

The Dow Theorist