Dow Theory Update for November 14: Primary bear market for Gold reconfirmed today

Primary bear reconfirmed for SIL and GDX on November 13

US STOCKS

The primary and secondary trend (when appraised using Schannep’s Dow Theory) is bearish as explained here.

The Industrials and Transports have amply exceeded their respective last recorded primary bull market closing highs. However, the SP500 (and SPY) have refused to do so, and hence no primary bull market signal has been given.  If/when the SPY confirms, a primary bull market will be signaled.

Look at the chart below. The red horizontal lines on top of each index displays the closing highs of the last primary bull market. As you can see both the Industrials (top) and Transports (middle) have amply bettered such highs. However, the SPY is lagging. 

The SPY (bottom) has not confirmed the Industrials (top) and Transports (middle): No new primary bull market yet (as per Schannep's Dow Theory)

 

If we were to appraise the primary trend as per the “Rhea/Classical” Dow Theory (which only uses two indices, namely, the Industrials and Transports), the primary trend is unambiguously bullish, as explained here.

As I explained here

[I]t is possible for different Dow Theory “flavors” (Rhea and Schannep’s) to diverge. At critical junctures (changes of trend) this may happen as one Dow Theory variation may be reacting earlier than the other. Furthermore, the current ranging environment favors contradictory signals depending on the Dow Theory “flavor” applied, as no clear and clean trend is able to emerge. Under such a hesitant market, is it perfectly possible to have contradictory readings, as, i.e. slightly changing the time requirement for a secondary reaction will result in totally different readings. This is due precisely to the lack of clear trends. If there were a strong trend, irrespective of measuring secondary reactions with two or three weeks or utilizing 2 indices (classical Dow Theory) or 3 indices (Schannep’s) we would have identical readings. In most instances Schannep’s would be somewhat earlier at signaling the new trend but the Rhea/Classical Dow Theory would follow suit.

Thus, the fact that we can derive so many divergent trends depending on the way we apply the Dow Theory is a warning as to the very unusual situation we are currently living. Something similar is happening with moving averages. If there were a clear trend, the gauging thereof would not be particularly parameter sensitive. In other words, irrespective of the use of 200, 150 or 230 days as lookback period, the trend is going to be bullish. However, when markets range, prices tend to cluster around the very same moving average, and hence slight variation of the parameters may result in different trend readings. Something similar happens to the Dow Theory, albeit, as I have explained before, it is much less prone to whipsaws than moving averages, and hence avoids overtrading.

Thus, those being tempted to lambast the Dow Theory (of any flavor whatsoever) as unreliable because I am displaying several alternative readings, should rather stop, think, and see that noise is overwhelming the signal.

As Schannep explains in his book “The Dow Theory for the 21^st Century” (pages 97-99), the S&P 500 is a very important index and hence should not be neglected. 

Hence, I cannot see any real bull market which does not include the S&P 500. Either the S&P 500 joins the parade, or the current rally rather than a brand new bull market might be a vicious bear market rally. Time will tell and in the meantime each investor must take his own decisions. Follow the classical Dow Theory? Schannep’s? Schannep’s as per his current stance?

GOLD AND SILVER

The primary and secondary trend is bearish, as was explained here and here. The primary bear market was signaled on September 30rd, 2016

After what can be considered a secondary (bullish) reaction against the primary bear market (the rally retraced more than 1/3 of the previous decline on a confirmed basis), newer lows (breaking down below the last recorded primary bear market closing lows) has re-confirmed the primary bear market on November 14^th, 2016. Look at the red horizontal lines on the right side of the charts. They display the previously last recorded primary bear market lows. The blue rectangles on the ride side of the charts display the secondary reaction which eventually fizzled out. The breakdown of such primary bear market lows is not a new bear market signal but merely a reconfirmation of the already existing primary bear market. 

Here you have an updated chart:

First two red arrows display the primary bear market signal. Red arrow on the right side displays bear market reconfirmation

 

GOLD AND SILVER MINERS ETFs

The primary and secondary trend is bearish, as was explained here and here.

After what can be considered a secondary (bullish) reaction against the primary bear market (the rally retraced almost 1/3 of the previous decline on a confirmed basis), newer lows (breaking down below the last recorded primary bear market closing lows) has re-confirmed the primary bear market on November 13^th, 2016. Look at the red horizontal lines on the right side of the charts. They display the previously last recorded primary bear market lows. The blue rectangles on the ride side of the charts display the secondary reaction which eventually fizzled out. The breakdown of such primary bear market lows is not a new bear market signal but merely a reconfirmation of the already existing primary bear market. 

Here you have an updated chart:

First two arrows display the primary ber market signal. The red arrow on the right side displays bear market reconfirmation

 

General observation for US Stocks, gold and silver and their ETF miners

The trend, when appraised by the Dow Theory when using weekly bars, is bearish for all the above mentioned markets.

Sincerely,

The Dow Theorist