Gold and Silver
very close to secondary (bearish) reaction
The primary trend (as
determined by Schannep’s Dow Theory) is bullish, as explained here and here.
The secondary trend is bearish
(secondary reaction), as explained here.
Since I alerted on May 14th about the
existence of the secondary reaction, stocks have extended their declines.
Furthermore, no index has rallied more than 3% from the last recorded secondary
reaction lows. The Transports have been close to it, but the 3% threshold has
not been met. Thus, we derive two conclusions:
a) Given the absence of a +3% rally on at
least one index, US stocks have not setup for a primary bear market signal.
b) We cannot say whether the
lows of the secondary reaction have been made.
So, now we have the following
a) if at least one index
rallied by more than 3% and subsequently the SPY and another index (preferably the one that rallied more than 3%)
jointly broke the secondary reaction closing lows (which may not have been made
yet, as stocks may have further to decline), a primary bear market would be
b) if no stock rallied by more
than 3% and the declined continued, a primary bear market would be signaled at
the last primary bear market lows of February 11th, 2016 (SPY and
Industrials), and the January 20th (Transports). More about such
alternative (and the only one if the conditions set forth under letter “a”
above never materialize) primary bear market signal, here.
c) Stocks never break the
secondary reaction lows, and finally exceed the April 20th closing
highs (highs of the primary bull market), in which case the primary bull market
would be reconfirmed (and the clock set to zero in order to appraise the next
By the way, Schannep’s Dow Theory encompasses the “Rhea/Classical” Dow
Theory. What do I mean by that? I mean that in the rare cases when the “Rhea/Classical”
Dow Theory signals a new primary bull/bear market before Schannep’s Dow Theory does, we take the “classic/Rhea”
signal as a good one, and act accordingly.
In most instances, Schannep’s Dow Theory is more reactive due to two facts:
a) It uses three indices instead of two (which increases the odds for
declaring a secondary reaction or, once it exists, having an index rallying/declining
by more than 3%).
b) Instead of three weeks, it just needs an average of 8 trading days of declining/ascending
prices, with at least two indices having declined/rallied for a minimum of 10 calendar
However, on rare occasions, it may happen that the Industrials and Transports (classic Dow
Theory) flash a primary bull/bear market signal before Schannep’s. Why? The current market juncture is a good
Both the “Classical/Rhea” and Schannep’s Dow Theory have signaled a secondary reaction.
Let’s imagine that the Transports or the Industrials rally by more than 3%. A
setup for a primary bear market signal would have been completed for both Schannep’s and the Classical Dow
Theory. Let’s assume, though, that only the Industrials (or Transports) violated
the secondary reaction closing lows, whereas the SP 500 refused to do so. As
per Schannep’s Dow Theory (which requires the SP 500 to confirm, more about it
here) the SP 500 must always be present for a primary bull/bear market signal. Should the SP 500 refuse
to violate the secondary reaction lows, whereas either (or both) the
Industrials and Transports did so, a primary bear market would have been
signaled according to the “Classical/Rhea” Dow Theory, whereas according to Schannep’s would
I insist: Schannep’s rules include a vital one: On the rare occasions when
the “Classical/Rhea” Dow Theory signal a primary bull/bear market before Schannep's, we take the signal. I don’t have
Schannep’s book next to me, however, I recall that Schannep wrote that out of
44 signals, Schannep’s Dow Theory was “earlier” 42 times. However, this does
not imply that we should ignore the “classic” Dow Theory when it is reacting swifter.
All in all, we keep our eyes open and pay also attention to the “classic/rhea”
Here you have an updated chart displaying the current secondary reaction
(red rectangles on the right side of the chart):
|Let's keep an eye on the "Rhea/Classical" Dow Theory. It could be earlier this time|
GOLD AND SILVER
The primary trend and
secondary trend is bullish, as reported here and here.
GLD and SLV are very close to signaling
a secondary (bearish) reaction against the primary bull market.
The time requirement has been met by both precious metals, as the last
closing highs were made on April 20th, 2016. More than one month has
elapsed with declining prices.
As to the extent requirement, SLV has declined by -8.18% (yesterday’s
close 15.59; closing high of April 20th:
16.98). I performed my usual volatility adjustment, and if we compare SLV’s 30
days average volatility with that of the SPY, we reach a minimum movement of
-6.61%. Since SLV has declined by -8.18% de volatility-adjusted minimum
movement has been amply met.
However, GLD’s is falling
short of meeting such a requirement. GLD has declined by -3.46% (yesterday’s
close 119.37; closing high of April 20th: 123.65). However, the
volatility-adjusted minimum movement for GLD amounts currently to 4.04%.
Therefore, there is no
confirmation as to the extent of the decline. While the parameters concerning extent
are not carved in stone when departing from the realm of stocks, and it could
well be that ex post facto I am
proven wrong, my judgment tells me not to declare the secondary reaction yet.
GLD should decline a little bit more, until the volatility-adjusted minimum
decline is met.
More about volatility
adjustments and how to perform them, here.
Here you have an updated chart
displaying the current decline (orange rectangles) which I feel is not a secondary
|Very, very close to having a secondary reaction but, to the best of my knowledge, not there yet|
GOLD AND SILVER MINERS ETFs
The primary and secondary
trend is bullish as explained here
The current decline has not fulfill the time requirement (look by yourself at the chart. The small blue
rectangles on the right side display the embrionary declines worth considering
for determining a secondary reaction) and hence I don’t bother with calculating
the extent requirement. We are still time-wise quite far from a secondary
reaction against the primary bull market.
Here you have an updated chart:
|Unambiguously very far from a secondary reaction against the primary bull market|
The Dow Theorist