Wednesday, July 8, 2015

Dow Theory Update for July 8: Gold and Silver flirting with the bear.

GDX and SIL under a primary bear market.



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

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


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 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. If we are to judge according to recent action, we are very close to the joint violation of the secondary reaction lows. Silver violated yesterday its secondary reaction lows. Gold, though, refused to do so, and hence, unconfirmed movements have no relevance under the Dow Theory. If/when gold violates its secondary reaction lows, the primary bear market will be signaled.

Is paper gold dying? Some thoughts about this vital aspect (to be taken with a high dose of skepticism, as this is “fundamental” thinking) here.



As to the gold and silver miners ETFs,on 3/10/15 SIL violated its 12/16/2014 primary bear market closing low.

On 7/1/2015 GDX violated its secondary reaction lows of 3/10/2015, and hence, it confirmed the bearish action of SIL thereby signaling a primary bear market signal. I have to acknowledge that this is a weird signal. SIL violated months ago its last recorded primary bear market lows but refused to violate its secondary reaction lows. On the other hand, GDX, which did not confirm SIL’s violation of the last primary bear market lows, has violated its secondary reaction lows. No text-book (as far as I am aware of) says what to do in this specific juncture. However, what I see, is that the violation of a primary bear market low by SIL carries even more weight that the violation of a secondary reaction low, and hence “confirmation” has been fulfilled (SIL by violating its primary bear market low and GDX by violating its secondary reaction low). Of course, I’d have prefered a clear-cut signal (either joint violation of primary bear market lows or joint violation of secondary reaction lows) but the market does not always oblige.

Look at the charts below. The red horizontal lines display the primary bear market lows level for SIL and secondary reaction lows for GDX. Both lines have been violated.

Primary bear market for SIL and GDX

For those still doubtful about the existence of a primary bear market, a sensible course of action could be to cut in half current positions, and wait for the violation by SIL of the secondary reaction closing low (which is something which may occur any moment now).

The Dow Theorist

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