Dow Theory Update for June 20: Trends remain unchanged

Narrow ranges prevail

I am writing before the close of June 20^th.

There is lot of noise in all markets. Basically, all longer term trends fail to reassert themselves and markets are caught in trading ranges. This is the typical environment when trading with moving averages (or breakout systems) may prove to be devastating, as many whipsaws are likely to occur. No wonder most trend following systems (and hedge funds) are undergoing a rough patch. However, the good thing of the Dow Theory is that, while not completely immune to whipsaws, it is not so easy to change the status of the primary trend, and hence many false signals are avoided. In my post “DowTheory versus Moving Averages” you will find a study proving the net superiority of the Dow Theory versus moving averages when it comes to avoiding whipsaws.

Thus, while on the surface it seems difficult to discern the long term trend, we give the benefit of doubt to the current long term trend (i.e. bullish for stocks, gold and silver and their miners). Until reversed by a Dow Theory signal, the ongoing trend (last Dow Theory signal) is to be respected.

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. The Industrials, the Transports and the SPY have rallied by more than three percent. Thus, unambiguously the set up for a primary bear market is beyond questioning. However, at the same time, it seems more likely that such strong rallies (while setting up the market for a primary bear market signal) are harbingers of a break up above the last recorded primary bull market highs of April 20^th. We will not jump the gun, and wait for market action. Until now only the SPY (and S&P 500) has broken up its previous primary bull market highs. Thus, anything may happen.

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).

GOLD AND SILVER

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

The secondary trend is bearish (secondary reaction against the primary bull market), as explained here.

On June 9^th, SLV and GLD set up for a primary bear market signal, as explained here. Subsequent market action has not changed the current picture.

 GOLD AND SILVER MINERS ETFs

The primary and secondary trend is bullish as explained here

The most recent decline experienced by SIL and GDX did not qualify as a secondary reaction. Recent confirmed higher highs have set the clock for a secondary reaction to zero (more about it here).

Sincerely,

The Dow Theorist