Dow Theory Update for October 14: A deeper look into the primary bear market signal for gold, silver and their miners

US stocks flirting with primary bear market signal (but not yet)

In my last post (October 4^th) I alerted about a primary bear market signal for gold, silver and their respective ETF miners.

Well, I’d like to further delve into the primary bear market signal and the outcome for the trade taken as per the Dow Theory.

As to SLV and GLD it was a profitable one.

The primary bull market signal was given on March 17^th, 2016. The entry price was 15.16 for SLV and 119.8 for GLD. The primary bull market survived one secondary reaction and went on to make higher closing highs. It could not, though, survive the next secondary reaction which ended on the primary bear market signal given on October 4^th, 2016.

Thus, the primary bull market signal has lasted roughly 6 ½ months. Please bear in mind that the trend as appraised with weekly bar remains bearish. The last bullish swing (primary bull market when appraised with daily bars) merely qualifies as a secondary bullish reaction against a primary bear market when appraised with weekly charts. In other words, the higher order trend remains bearish, and hence this was head wind any bullish position taken under the lower order daily bars. Here you have a weekly chart.

The primary trend when using weekly bars remains bearish. However, there is a distinct secondary reaction

In spite of “very long term almost secular” headwind, a hypothetical trade taken under the Dow Theory when applied to daily bars resulted this time in profits. Here you have the table:

	SLV	GLD
Entry	15.16	120.13
Exit	16.94	120.97
Profit %	0.11741425	0.00699242

SLV made 11.74% and GLD made a mere 0.69%.

As to SIL and GDX, the primary bull market was signaled on March 3, 2016. The entry price for SIL was 24.27 and the entry price for GDX was 19.82. By the way, the entry signal was not the “usual” one, namely (bear market lows, secondary reaction, pullback and final breakout of the secondary reaction highs) but rather the one mentioned by Rhea on page 77 of his book (Fraser Edition). This often neglected signal consist on the breaking out of the highs (lows) of the last completed secondary reaction (not the current one but the previous one). I dedicated five posts to this signal. To learn more about it click here.

I am glad I applied Rhea’s page 77 signal, as the bull swing was so strong that it did not generate a secondary reaction leading to the setup for a primary bull market signal. In other words, the bull swing that emerged from the primary bear market lows did not undergo a pullback of enough dimensions (both in time and extent) set up both ETFs for a primary bull market signal. Thus, we lacked the setup for the “normal” primary bull market signal. 

  

The primary bear market signal was given on October 4^th, 2016. Thus, the primary bull market lasted 7 months. Please mind that, as with GLD and SLV, the very long term trend when appraised by applying the Dow Theory to weekly bars remains bearish. The last bullish swing (primary bull market when appraised with daily bars) merely qualifies as a secondary bullish reaction against a primary bear market when appraised with weekly charts. In other words, the higher order trend remains bearish, and hence this was head wind any bullish position taken under the lower order daily bars. 

 Here you have an updated chart. 

The trend when appraised with weekly bars remains bearish. However, there is a secondary reaction

In spite of “very long term almost secular” headwind, a hypothetical trade taken under the Dow Theory when applied to daily bars resulted this time in profits. Here you have the table:

	SIL	GDX
Entry	24.27	19.82
Exit	39.76	23.4
Profit %	0.63823651	0.18062563

SIL made 63.8% and GDX made a 18.06%.

Outperforming buy and hold depends on the further decline following a primary bear market signal till the final bear market lows are made. The larger the subsequent decline, the higher the outperformance. Hence, for those trading under the Dow Theory, it would be good news a hefty decline for precious metals.

Sincerely,

The Dow Theorist