Dow Theory Update for January 26: Secondary (bullish) reaction for Gold and Silver against primary bear market signaled today

US STOCKS

The primary and secondary trend is bearish, as explained here:

http://www.dowtheoryinvestment.com/2015/12/dow-theory-update-for-december-14.html

Here is an additional post concerning the likely decline to follow primary bear markets signals:

http://www.dowtheoryinvestment.com/2015/12/dow-theory-special-issue-additional.html
 

No secondary reaction has developed yet, albeit it could happen any moment now as explained here.

GOLD AND SILVER

The primary trend is bearish as explained here.

However, today, SLV and GLD made higher closing highs. SLV has rallied since its lowest closing low of December 12^th, 2015 and GLD since its December 17^th, 2015 closing low. This amounts to 28 trading days for SLV and 26 trading days for GLD. Thus, the time requirement for a secondary reaction has been amply met today.

As to the extent requirement, both SLV and GLD have rallied more than the minimum move requirement .

As readers of this Dow Theory blog know, when one is dealing with stock indices such as the Industrials, the minimum meaningful movement to consider the existence of a secondary reaction is 3%. However, given that SLV and GDL exhibit a different volatility pattern than indices like the Transports or Industrials, we have to conduct a volatility adjustment that takes into account their volatility.

To calculate the volatility multiplier we take the 30 days average of the daily volatility (percentage change) of the SPY. We do, likewise, with SLV and GDL and divide SLV and GDL volatility by SPY’s volatility. Once we have the multiplier, we apply it to 3% (the minimum volatility for the SPY for a meaningful movement) to determine the minimum movement for SLV and GDL. The spreadsheets below give you the full math:

	30-Days avg volt			30-Days avg volt
SPY	1.15		SPY	1.15
GLD	0.79		SLV	1.07
RATIO	0.68695652			0.93043478
Min move	2.06086957			2.79130435

The following spreadsheet shows the price advance of both SLV and GLD

	SLV		GLD
SecReac High	13.82		107.24
Sec Reac Low	13.06		100.5
% Move	0.05819296		0.06706468

Hence, we see that both ETFs have rallied much more than the minimum volatility-adjusted movement.

Hence, the extent requirement has been met.

All in all, a secondary (bullish) reaction against the primary bear market has been signaled today.

Here you have an updated chart (blue rectangles display the secondary reaction).

Secondary reaction against primary bear market for SLV and GLD

GOLD AND SILVER MINERS ETFs

The primary trend is bearish, as explained here.

Sincerely,

The Dow Theorist