Dow Theory Update for August 18: Stocks close to a secondary reaction, but not there yet

Recent pullback in SLV and GLD is not a setup for a primary bull market signal

US STOCKS

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

The primary trend was reconfirmed on July 3^rd, 2017 as was explained here

The Transports have been diverging from the SPY and the Industrials by declining whereas the other two indices continue making higher highs. On August 9th, I wrote that such a sustained divergence might be indicative of an impending secondary reaction. Well, on August 18^th, we almost have a secondary (bearish) reaction against the primary bull market.

     As you can see on the charts below, the Transports have been declining for 25 trading days. The Industrials and the SPY have just declined for 9 days. As per Schannep’s Dow Theory, the time requirement for a secondary reaction has been almost met. Schannep requires: 

        1) A decline that must last at least 10 calendar days on 2 of the 3 indices. The SPY and Industrials have declined for exactly 11 calendar days (from 8/8/2017 to today). 

          2) The average time of decline of the three indices measured in trading days must be at least of 8 trading days. In our case the Transports have declined for 25 trading days whereas the SPY and the Industrials have declined for 9 trading days. So the average decline amounts to 14.33 days, which clearly fulfills the average time of the decline. 

   

All in all, the time requirement has been met.

However, the extent requirement has not been met. At least two indices should decline by more than 3%. The Transports have declined ca. -6-6%. However, the SPY and the Industrial have declined less than 3%. Thus, the extent requirement has not been met. Either the SPY or the Industrials or both should further decline. 

The orange rectangles on the right side of the charts display the ongoing decline (which is not a secondary reaction yet).

Here you have an updated chart:

 

No secondary reaction yet

Therefore, there is only one last shoe to drop for a secondary reaction to be signaled. Either the SPY (SP 500) or the Industrials should drop a little bit more to reach the 3% threshold. Until then, no secondary reaction is in place.

And what about the “Rhea/classical Dow Theory”? As a reminder, the “classical” Dow Theory just uses the Industrials and the Transports. Well, it we demand three weeks (15 trading days), the time requirement has not been met, as the Industrials have just declined for 9 trading days. Even if we required just two weeks, we are yet to see 10 days of declines. Please mind that when Schannep uses the “Rhea/classical” Dow Theory, he demands 3 weeks of declining prices. Thus, the time requirement has not been met.

As to extent requirement, it hasn’t been met either.

GOLD AND SILVER

The primary trend was declared bearish on July 7^th, 2017, as explained here and here

The secondary trend is bullish, as was profusely explained here.

 

SLV pulled back for 3 trading days, whereas GLD pulled back for 2 trading days. While the time requirement for a pullback to setup both ETFs for a primary bull market has been met (at least two trading days), the extent requirement has not been met, as neither SLV not GLD have declined at least -3%.

So we have to wait.

Here you have an updated chart.

Solid secondary reaction (blue rectangles on the right side of the charts)

 

GOLD AND SILVER MINERS EFTs

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

The secondary trend is bullish as explained here

As was explained here, SIL and GDX have set up for a primary bull market signal.

Days pass by and nothing happens. Well, this is normal. Patience. 

Here you have an updated chart, so that you check the lack of action by yourself.

 

Nothing happens. Neither bull signal, nor reconfirmation of primary bear market

Sincerely,

The Dow Theorist