Saturday, May 14, 2016

Dow Theory Update for May 14: Secondary reaction for stocks signaled on May 13

Precious metals’ trends unchanged


The primary trend (as determined by Schannep’s Dow Theory) is bullish, as explained here and here.

The secondary trend is bearish for the reasons given below.

Since April 20th, 2016 stocks have been declining. From the April 20th closing highs, the Industrials have declined -3.1% and the Transports have declined -7.42%. The SPY (SP 500) has not declined more than 3% yet. Under Schannep’s Dow Theory, we just need two indices declining more than three percent, and hence the Industrials and Transports decline suffice to declare the existence of a secondary (bearish) reaction against the primary bull market. So, the extent requirement has been met.

As to the time requirement, it has been amply met, as stocks have been declining for 17 trading days. By the way, 17 trading days, amounts to more than three weeks, which implies that under the “Rhea/classical” Dow Theory (which only uses the Industrials and the Transports) a secondary reaction has been signaled as well.

Well, now we have the following scenarios:

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 signaled.

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 secondary reaction).

So now we just have to wait and watch events unfold.

Here you have un updated chart displaying the current secondary reaction (red rectangles on the right side of the chart):

US Stocks under a secondary reaction


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

SLV has recently made higher closing highs which were unconfirmed by GLD. On April 29th, GLD made higher closing highs, and hence confirmed, which tends to be positive. However, such a confirmation has taken quite a long time (more than 2 weeks), and hence, it might be indicative that a secondary reaction is coming soon.


The primary and secondary trend is bullish as explained here

The Dow Theorist

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