Thursday, March 3, 2016

Dow Theory Update for March 3: Primary bull market for SIL and GDX signaled today

Secondary reaction in US stocks continues unabated


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.


The primary trend is bearish as explained here.

The secondary trend turned bullish on January 26, as explained 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 current volatility levels of the SPY and GLD, is 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.

So now we have SLV and GLD set up for a primary bull market signal. If the GLD’S 2/11/2016 closing highs and SLV’s 2/12/2016 closing highs were jointly broken out, a primary bull market would be signaled.

On March 3, 2016, GLD managed to break above the secondary reaction closing highs (2/11/2016). However, SLV has not confirmed and, hence, no primary bull market has been signaled.

Here you have an updated chart:

SLV must better the closing high of the last secondary reaction (blue rectangle) for a primary bull market to be signaled


Today, finally, SIL deigned to break up above the closing highs of the last completed secondary reaction (horizontal red lines on the charts). While the current secondary reaction did not even manage to have a pullback (tiny orange rectangles on the right side of the chart) of sufficient magnitude to set up both ETFs for a primary bull market, Rhea’s alternative definition of a primary bull/bear market comes in handy. More about this less publicized alternative primary bull market signal here (and in the linked post, you’ll find additional links, as it is a five chapter saga).
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.

Here you have an updated chart. The red horizontal lines display the relevant price levels to be broken out. 

Primary bull market for SIL and GDX signaled today


The Dow Theorist

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