Dow Theory Update for February 27: Some thoughts about the current long trade in US stocks

Trends unchanged

The primary and secondary trend is bullish since November 21^st, 2016, as explained here and here.

On February 15, the Industrials, Transports and SPY (SP 500) jointly made higher highs. Today, the SPY and the Industrials jointly made higher highs. Ergo, both the primary and secondary trend remains bullish.

Rhea wrote that from higher highs secondary reaction can develop swiftly. In other words, when stocks make higher highs, they usually are overbought which makes them susceptible to corrections.

Thus, I’d like to explore what would likely happen in case US stock indices were to develop a secondary reaction from the current highs, which later might turn out to be a primary bear signal.

As I wrote here, Schannep calculated that “sell” signals (primary bear market signals) on average start within 7.7% of the tops.

The SPY closed today at 237.11. If this level were the top, then our exit (primary bear market signal) would be at ca. 7.7% the current price. This implies a SPY level of 218.85.

Our entry was at 220.15 (close of November 21^st, 2016). Thus, if our hypothetical exit were an “average one”, we would exit this trade with very modest losses (exit at 218.85 versus entry at 220.15).

Of course, I am not talking certainties. First of all, maybe (and hopefully) we have not seen the top of this primary bull market yet. Secondly, if we had just seen the top, the exit could be at a lower level than 7.7%.  Or maybe less. Nobody knows. What I know, though, is that at the current price of 237.11 and with an entry price of 220.15 for the SPY, the odds favor modest losses on this trade or even modest gains should the current primary bull market be stopped on his tracks right now. In other words, while anything is possible (i.e. sudden crash of -20% overnight), it is unlikely that this trade turns out to be a big loser (i.e. losing more than -7%).

GOLD AND SILVER

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

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

GOLD AND SILVER MINERS EFTs

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

The secondary trend is bullish as explained here

SIL and GDX have been flirting with a primary bull market signal, as explained here. However, recent price action makes such a signal more unlikely in the coming days.

Sincerely,

The Dow Theorist

Dow Theory Update for February 21: Stocks continue making higher highs

When will the winning streak end?

I apologize for not having posted that much. I have been (and still “am”) extremely short of time due to my mother’s illness.

In any instance, primary trends have not changed during my days of absence.

US STOCKS

The primary and secondary trend is bullish since November 21^st, 2016, as explained here and here.

On February 15, the Industrials, Transports and SPY (SP 500) jointly made higher highs. Today, the SPY and the Industrials jointly made higher highs. Ergo, both the primary and secondary trend remains bullish.

Here you have an updated chart. It is worth mentioning that since November 21^st, 2016 (date of the primary bull market signal) three months have elapsed and hitherto no hint of a secondary reaction is to be seen on the charts. 

No seconary reaction in sight

 

GOLD AND SILVER

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

In my last post I wrote that SLV needed to better its last recorded closing highs of Jan 23 so that the time requirement for the secondary reaction is met. Well SLV has amply bettered such highs, and hence, given that GLD long time ago met the time requirement for a secondary reaction, we can declare that the secondary trend for SLV and GLD has changed to bullish (secondary reaction against the primary bear market).

If no pullback (at the very least exceeding 3% or more depending on volatility) developed, a primary bull market would be signaled when the closing highs of the last completed secondary reaction (highlighted with red horizontal lines) get jointly violated by both SLV and GLD. Below an updated chart. The blue rectangles display the ongoing secondary reaction. This is the “famous” alternative primary bull (and bear) market signal which Rhea explains on page 77 of his book “The Dow Theory”. More about it here

Strong seconary reaction. Hitherto no pullback hs set up SLV and GLD for the "usual" Dow Theory signal

GOLD AND SILVER MINERS EFTs

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

The secondary trend is bullish as explained here

The current decline could be setting up SIL and GDX for a primary bull market signal. I write “could” since I don’t have the time to measure percentagewise the current pullback. The time requirement for the pullback which sets up stocks for the primary bull market signal has been amply met.

GDX has exceeded the closing highs of the last completed secondary reaction on February 6^th, 2017. However, SIL has not confirmed, and hence based on Rhea’s alternative bull market signal, we cannot yet declare the primary trend as bullish.

Here you have an updated chart. The red horizontal lines display the closing highs of the last completed secondary reaction. The blue rectangles display the ongoing secondary reaction. 

 

If SIL exceeded the red horizontal line, a primary bull market would be signaled

Sincerely,

The Dow Theorist