Monday, March 21, 2016

Dow Theory Update for March 21: More on the primary bull market signal for SLV and GLD

Not setup for primary bull market in stocks yet


The primary trend is bearish, as explained here:

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

The secondary trend is bullish (secondary reaction against primary bearish trend) as explained here.

No setup for a primary bull market signal has materialized yet. Hitherto, no index has declined for more than two days and more than 3% from the last recorded secondary reaction highs. We patiently wait and see.


The primary trend and secondary trend is bullish, as reported here.

On February 16th, GLD after having declined for two days, and going from a closing high of 119.06 to a closing low of 114.77, set up both precious metals for a primary bull market signal. GLD declined -3.6%, which in volatility adjusted terms, given the then current volatility levels of the SPY and GLD, was a movement of sufficient magnitude. More about the rationale of volatility adjustments and how I perform them, here.

SLV did not even manage to decline for two days. However, to set up markets for a primary bull/bear market it suffices to have just one index. The principle of confirmation does not apply on this specific instance, as was explained in depth, here.

On March 3, 2016, GLD managed to break above the secondary reaction closing highs (2/11/2016). However, SLV refused to confirm for some weeks, until March 17, 2016, when it finally managed to break above its secondary reaction highs, and hence signaled a primary bull market.

SLV has rallied ca. 16% from its 12/14/2015 closing lows. GLD has rallied almost 21%. I quote what I wrote in my post of March 3, 2016, which is applicable to the current (and for this matter, “all”) primary bull/bear market signals:

“Please readers mind that I am not engaged in giving trading advice (see disclaimer at the footer of this Dow Theory blog). I am merely saying that according to my reading of the Dow Theory the primary trend for SIL and GDX has turned bullish today. Some traders may decide to take a long position. Others, may decide to stay on the sidelines. It’s up to each investor. I am just discerning trends; not advising anyone to act on my interpretation of the Dow Theory. This blog's aim is to instruct, and to prompt readers to think. I personally would have never "acted" on the opinions of a blogger (nor on the opinions of anyone, no matter how "expert", for this matter). This is why, many years ago, I decided to master as good as I could the Dow Theory so that I would never be dependent on anyone's else advice. There are no shortcuts.

Furthermore, I make this “additional” disclaimer, as I personally don’t take any trade suggested by the Dow Theory. I discriminate. Why? Because not all Dow Theory signals offer the same risk reward ratio. Like in baseball, I am not obliged to be batting all the time. If the “buy” signal (primary bull market signal) comes at a reasonable distance percentagewise from the primary bear market bottom, I’ll take the signal. If the signals occurs after a long and steep rally (with no breather, clearly overbought conditions) I may pass. So there are personal judgment calls.

SIL has rallied a whopping 57.49% from its 1/19/2016 closing low. GDX has rallied 58.94%. So clearly, this is not an easy trade to take. Each investor has different risk tolerances, and circumstances. If I were a fundamental investor convinced of the brilliant future for precious miners stocks (I am not, since I tend to dismiss any fundamental judgment), I’d maybe close my eyes and step in, since technically today things seem to have changed. Other traders may decide to take a smaller than usual position, as the Dow Theory stop loss (more about such a stop, here) is fixed at the primary bear market lows of 1/19/2016.
Other traders might wait for SIL and GDX to start a secondary reaction with a view to buying somewhat below the current price levels. However, there are no guarantees that we will see a pullback of moderate proportions.”

Although I see this specific SLV and GLD signal endowed with a better risk/reward ratio than that we saw on March 3 with SIL and GDX, it is worth remembering that each investor should do his homeworks.

Here you have an updated chart depicting the secondary reaction (blue rectangles) against the then existing primary bear market, the subsequent pullback (red rectangles) which set up both precious metals for the primary bull market and the subsequent breakouts (closing prices above red horizontal lines).

Primary bull market for SLV and GLD signaled on March 17, 2016


The primary and secondary trend is bullish as explained here:

The Dow Theorist

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