Dow Theory Update for May 28: Gold and Silver under secondary reaction

Bizarre picture for US stocks

US STOCKS

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.

As I alerted here, US stocks have set up for a primary bear market signal.

Please mind that a setup for a primary bear market does not imply that a primary bear market is certainly coming. The secondary reaction closing low may not be jointly violated (or never be violated) in which case no primary bear market would be signaled. More about the different scenarios and how this time (should there be any primary bear market signal) the classical Dow Theory could be earlier than Schannep’s here (which is no flaw in Schannep’s Dow Theory, as its very rules say that “classical” Dow Theory signals are to be taken into account as well).

As you can see on the chart below, the Transports have rallied more than 3%, and hence it has set up stocks for a primary bear market signal. Please mind that in order to set up stocks for a primary bull/bear market signal the principle of confirmation does not apply. For a more in-depth information concerning the nuances to the principle of confirmation, please go here.

 

Anything can happen now

We are at a bizarre juncture. We have a primary bear market setup. The SPY has broken up its previous primary bull market closing highs. The S&P 500 has not achieved this feat yet but it is very close to doing it. Nor have the Transports and the Industrials. Thus, it seems likely that the S&P 500 could make a higher high which is likely to be unconfirmed (which would be bearish)…Let’s see what happens, and we’d better don’t jump the gun. What we do know is that any joint violation of the secondary reaction lows would entail a primary bear market.

GOLD AND SILVER

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

On May 24^th, I wrote that SLV and GLD were very close to signaling a secondary (bearish) reaction against the primary bull market. I wrote that the extent requirement had been fulfilled yet. Well, recent declines have seen to it. Now, the decline unambiguously qualifies as a secondary reaction.

Here you have an updated chart.

Secondary reaction against the primary bull market

Now we have to wait for subsequent action. No setup for primary bear market has materialized yet. 

 GOLD AND SILVER MINERS ETFs

The primary and secondary trend is bullish as explained here

The current decline has not fulfilled the time requirement, and hence I don’t lose my time examining whether the extent requirement has been met. I need both requirement to be met for a secondary reaction to exist. This is what we call the principle of internal confirmation (not only the two indices should confirm each other, but time and extent should also confirm)

If hope the market leaves me in peace some days, as my time (as usual) is getting very scarce.

Have a nice weekend

Sincerely,

The Dow Theorist