Tuesday, September 6, 2016

Dow Theory Update for September 6: Silver and Gold, and their ETF miners, under a secondary reaction

Trends unchanged for stocks

I am writing before the close.


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

Recent declines did not fulfill the “time” requirement for a secondary reaction. I don’t even bother to calculate the “extent” requirement.


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

The secondary trend turned bearish (secondary reaction against the primary bull market) on August 31, 2016. This day GLD violated its July 20th, 2016 closing low, and hence finally fulfilled the “time requirement”.

As to the extent requirement, even without performing volatility adjustments, I can see it has been amply met. Thus, on 7/8/2016 GLD made its closing high of 130.52, and on 8/31/2016, it made a closing low of 124.78. Hence, GLD has declined -12.63% which is much more, even accounting for GLD’s (normally) larger volatility than the SPY.

SLV declined for 16 trading days from its 8/2/2016 closing high of 19.6 to a closing low of 17.62 on 8/24/2016, that is -10.10%.

Furthermore, if we look at both ETFs from a “classical/Rhea” Dow Theory perspective, we see that they have retraced more than 1/3 of the previous bull market swing (that is the price advance made of the lows of the previously completed secondary reaction until the closing highs).

Depending on the way SLV and GLD close, it is likely that the rally that started on 8/24 (SLV) and 8/31 (GLD) will set up both precious metals for a primary bear market signal. As I always insist: A setup is not the actual signal.

Here you have an updated chart:

Orange rectangles display the seconary reaction against the primary bull market


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

GDX and SIL are under a secondary reaction.

As to the time requirement, SIL has declined for 11 trading days. GDX has declined for 21 trading days. If I applied the “Rhea/Classical” strictly, the time requirement for a secondary reaction has not been met (no three full weeks for both indices). However, if I apply Schannep’s rules for determining a secondary reaction to SIL and GDX, we can see that both ETFs have rallied by more than 2 calendar weeks (well, SIL exactly two calendar weeks), and the average number of declining days amounts to more than 8 trading days.  

GDX has declined by -18.61% and SIL has declined -19.54%. I don’t need to perform volatility adjustments, as we are talking of big declines. Furthermore, even under a classical Dow Theory standpoint, we are very near confirmed retracements of ca. 1/3 of the previous bull market swing.

Thus, I feel that we can consider the existence of a secondary reaction.

Now we have to monitor the ongoing rally that started three trading days ago. Depending on how it closes today, it has all the looks of a primary bear market setup.

Here you have an updated chart.

Blue rectangles on the right side of the chart displays the current seconary reaction

The Dow Theorist

1 comment:

  1. I've found a typo: GLD declined from its closing high of 130.52 to its closing low of 124.78 just -4.40%. SLV's calculations are correct. The volatility-adjusted minimum threshold for GLD stood at the most recent closing lows at 5.16%. volatility-adjusted minimum threshold for SLV stood at the most recent closing lows at 10.75%. Thus, for both ETFs the current daily volatility reading is by a hair below their respective minimum volatility thresholds. On the other hand, from a "classical" Dow Theory perspective, the decline has retraced 1/3 of the previous advance, and the time requirement has been met, even under classical Dow Theory standards. My judgment call is to consider the existence of a secondary reaction, in spitel of the relatively modest decline underwent by gold.