Dow Theory Update for August 20: Recent declines in Gold and Silver (and their ETF miners) do not qualify as a secondary reaction yet

Future important post

When I find time (oh time!!!), I’d like to write about the market conditions where the Dow Theory (and specially Schannep’s Dow Theory) might “suffer” and underperform buy and hold. In previous studies (see here), I have shown that the Dow Theory tends to underperform buy and hold when markets display nice up trends (of course, if the market only goes up, nothing is better than buy and hold) whereas most of the outperformance is predicated on declining markets (where buy and hold losses big, and the Dow Theory cut losses short, and opportunistically buys at a much lower "post crash" price). However, I'd like to further deepen this issue, as there is a third market condition which (while not fatal) may result in temporary underperformance for the Dow Theory and demoralize does not really acquainted with the “guts” and inner workings of the Dow Theory.

Of course this “third market condition” afflicts all Trend following strategies. Furthermore, the Dow Theory is very well endowed to ride through the adverse condition quite successfully, as “underperformance” does not mean losing one’s shirt (as does buy and hold when the market crashes).

US STOCKS

The primary and secondary trend is bullish as explained here and here

GOLD AND SILVER

The primary trend is bullish (Dow Theory signal of March 17^th, 2016), as reported here and here.

The secondary trend is also bullish as explained here

Recent declines in SLV and GLD do not qualify as a secondary reaction. The time extent has not been met (GLD just declined 7 trading days and currently stands above the last minor recorded closing low July 20^th).

Find below an updated chart which displays all price action since the primary bull market signal of March 17^th, 2016 (left side of the chart). As you can see there was a secondary (bearish) reaction (red rectangle in the middle of the chart) against the primary bull market which was resolved by confirmed higher highs. Thus, the primary trend is bullish. The current decline (small blue rectangles on the right side of the chart) are a mere minor decline. 

The current decline does not qualify as a secondary reaction

 

GOLD AND SILVER MINERS ETFs

The primary and secondary trend is bullish as explained here, and more recently here

SIL and GDX have been relentlessly making higher highs. Recent declines do not qualify as a secondary reaction. The chart below displays SIL and GDX price action since the primary bull market signal of March 3^rd, 2016. As you can see hitherto no secondary reaction has occurred yet. The small blue rectangles on the right side of the chart display the ongoing decline, which, I have said, does not qualify as a secondary reaction against the primary bear market. 

 

Powerful primary bull market swing: A secondary reaction has not occured yet

Sincerely,

The Dow Theorist