Friday, February 12, 2016

Dow Theory Update for February 12: Silver and Gold miners ETFs under secondary (bullish) reaction against primary bear market

No secondary (bullish) reaction for stocks against primary bear market yet


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

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

On February 11, 2016 the Industrials and SPY violated their January 20 closing lows. So the primary bear market seems quite entrenched. 


The primary trend is bearish as explained here.

The secondary trend turned bullish on January 26, as explained here

No pullback has qualified in extent in order to set up SLV and GLD for a primary bull market. So we have to wait. 


The primary trend is bearish, as explained here.

The secondary trend is bullish (secondary reaction against the primary bear market). If we content ourselves with just 10 days (2 weeks) for a secondary reaction to be declared, then the secondary reaction was signaled on February 3. If we require 3 weeks of ascending prices (15 trading days) as per “classical” Dow Theory then the secondary reaction was signaled on February 11, 2016. The extent requirement has been amply fulfilled (even after adjusting for volatility). No setup for primary bull market signal has materialized yet, as we have not witnessed a pullback of a minimum of two days.

If the torrid rally continues, we could be faced with a primary bull market signal even in the absence of a pullback of at least two days. We should recall Rhea’s “alternative” primary bull/bear market signal, namely, the highs (lows) of the last completed secondary reaction. More about this often neglected signal, here.

I have displayed with red horizontal lines the closing highs of the last completed secondary reaction (that is the "alternative" Rhea primary bull market signal levels). As you can see GDX has broken out above its last completed secondary reaction closing highs. However, SIL has failed to confirm, and hence, even if we apply Rhea’s “alternative” primary bull market signal, we cannot declare the primary trend as bullish. Thus, we have to wait.

Here you have an updated chart

Strong secondary reaction for SIL and GDX

The Dow Theorist


  1. Given that you were very cautious (i.e. dubious) about the validity of the signal for the primary bearish call for the Gold & Silver Miners on 20th Jan 2016 (i.e., due to the fact that the Gold Miners took such a very long time to confirm the Silver Miners signal), if that signal was indeed a false one, would we still be waiting for SIL to exceed its previous secondary reaction high ( of 15th Oct 2015) in order to declare a primary bull in the PM miners? Just wondering; since if that signal of 20th Jan 2016 had not occurred, would we currently still be within that secondary reaction (against a primary bull), but still waiting for SIL to exceed its 15th Oct 2015 high (and confirm the recent GDX movement), in order to be back in a primary bull market for the PM miners? Thanks so much, I look forward to your updates whenever they come!

    1. Hi Mike,

      Yes I was dubious, and the quick rebound seemed to prove that this was a false signal. The issue is: would you have sold out at the (dubious) primary bear market signal? There are no fixed answers. If the answer is “no” and the investor held on to his ETFs, then you ride the current secondary (bullish) reaction, and keep the primary bear market lows as your Dow Theory stop. If the answer is that the investor sold out (which is what I tend to do by default, as all signals should be honored, and dubious or not, it was a primary bear market signal), then we have to find a good reentry point. In strict Dow Theory the reentry point will be either the typical set up (secondary reaction, pullback, and breaking out the secondary reaction closing highs) or the “alternative” Rhea’s signal, namely, the closing highs of the last completed secondary reaction.

      To be frank, if the precious metals ETF’s miners are in a real primary bull market, we will soon know (SIL should break out above the closing lows of the previously, last completed secondary reaction)…I rather prefer to be too late than too early. Please mind that all the fanfare with gold notwithstanding, and to a lesser extent, silver (now it seems that every Jill and Joe is bullish), the primary trend remains bearish, and, if you apply the Dow Theory with weekly bars, the very long term trend is clearly bearish for both gold and silver and their respective ETFs.

      You are right: If there had not been a primary bear market signal on January 20, we would still be in a secondary (bearish) reaction within a primary bull market, and waiting for SIL to exceed its October 15th closing high, which would imply a reconfirmation of the primary bull market. However, all this is fiction. Reality is that a primary bear market was signaled, and hence, the current move is a secondary (bullish) reaction within a primary bear market. Of course, it is left to each one to decide whether to jump the gun or not. Personally, I feel that if a real primary bull market is coming SIL should be able to exceed its October 15th closing high (which would signal a primary bull market).

      A final thought: Markets are not always obliging. Clearly the miners are not being obliging for the trader when it comes to price behavior. We are getting whipsaws, huge rallies deprived of pullbacks, which will result in belated primary bull market signals (and hence higher risk, as our Dow Theory stop remains in the beginning of the trade at the closing lows of the primary bear market). In trading, like in poker, we are not supposed to take all trades. We can pass. I don’t like the miners’ price structure. If I jumped the gun (that is I enter right now before a real primary bull market signal is signaled), I would have a somewhat tighter stop (less risk) but the distinct possibility of a rally that fizzles out; on the other hand, if I am orthodox and wait for the proper “buy” signal to be signaled, I risk an ample Dow Theory stop. All in all, I feel that the miners are not now an optimal trade.

      I hope this explanation is helpful to you.

      The Dow Theorist

  2. Hi Dow Theorist,

    Thanks very much for the comprehensive response to my question.

    Unfortunately for me, I do feel very whipsawed by the market, since I did indeed sell all my PM miners on 20th Jan 2016 according to the Dow Theory signal, and have now watched disconsolately as they have soared up again! But, I consciously sold according to the signal, since, otherwise what’s the point of investing dispassionately using Dow Theory, if you’re going to second guess it?!! So I’m content from a ‘discipline’ point of view, if somewhat aggrieved by the subsequent market action!

    I shall simply now wait to see if SIL exceeds its 15th Oct 2015 high; also (as additional confirmation), it will be interesting to see if the actual PMs themselves will start signalling a primary bull - I get the impression that the PM miners tend to pre-empt (i.e. act in advance of) the action of actual precious metals, so it’ll be interesting to see (if at all!) which of the actual PMs or the PM miners get into a primary bull first!