Trends for stocks unchanged
Time remains in short supply.
The Transports have been diverging from the SPY and the Industrials by declining whereas the other two indices continue making higher highs. Such a sustained divergence might be indicative of an impending secondary reaction.
Here you have an updated chart. The chart in the middle displays the Transports which are clearly diverging.
The Transports might be signaling an impending change of secondary trend |
GOLD AND SILVER
The current rally qualifies as a secondary reaction against the primary bear market.
Both GLD and SLV rallied for 16 trading days, which is more than 3 weeks. So
the time requirement, any way you measure it (Schannep’s Dow Theory or “Rhea/Classical”
one) has been fulfilled.
On the other hand, as to the extent requirement the confirmed rally has retraced on
a confirmed basis more than 1/3 of the previous primary bear market swing. More
specifically, SLV has retraced ca. 40% of the previous bear market swing,
whereas GLD has retraced ca. 65%. Given such a solid retracement on a confirmed
basis I don’t need to use volatility adjustments in order to declare the
existence of a secondary reaction. The secondary reaction is displayed with blue
rectangles on the charts below. The retracements are shown by the thin
horizontal lines with numbers attached to them (0.00%, 23.60%, 38.20%, etc.)
The red rectangles highlight the pullback which
followed the secondary reaction closing highs of 7/31/2017. While in technical
analysis everything is debatable, I feel that the depth of the pullback is not
ample enough to set SLV and GDX for a primary bull market. As you can see on the spreadsheet below, GLD has
merely declined -1.02%, whereas SLV has declined a meager -3.58%. According to
the Dow Theory (when applied to US indices) a movement lesser than is to be
neglected. However, we also know that the pullback setting up stocks (or
precious metals) for a primary bull market signal need not be confirmed. In
other words, since SLV has declined more than 3% and GLD, while declining less
than 3% has not diverged from SLV, one might be tempted to say that the setup
has been completed.
The blue rectangles on the right side of the charts display the ongoing secondary reaction |
However, I feel that given that (a) GLD has barely
moved, (b) the pullback has lasted just a few days, we should at the very least
perform some kind of volatility adjustment. More about volatility adjustments
when one moves away from stock indices here
So let’s take a look at the spreadsheet below:
The SPY’s 30 days average volatility (close-to-close
percentage change) has been 0.2217%. SLV’s 30 days average volatility has been
0.8296%. So SLV has been almost 4 times more volatile than the SPY during the
last 30 days. Thus, if we multiply the minimum movement of 3% required for any
movement to be meaningful by 3.74 (the volatility ratio) we obtain a minimum adjusted
volatility of 11.22%. While I might be willing to settle with a somewhat lower
adjusted volatility, -3.58% is too far away from 11.22%. Hence, my judgment
call, is to consider the pullback as not relevant, and hence I cannot declare
the secondary reaction as finished. Today’s higher highs, are not a primary
bull market signal (as there was no setup), but, rather, higher highs made by
the ongoing secondary reaction.
I insist, everything is debatable. However, this is
the way I see things. Furthermore, in such not so clear-cut cases, is good to
remember that (a) The primary trend for GDX and SIL remains bearish and no
primary bull market signal is to be expected in the next few days; (b) the
trend for SLV and GLD when appraised with weekly bars by using the Dow Theory
is solidly bearish.
All in all, the primary trend remains bearish, whereas
the secondary trend is bullish (secondary reaction against the primary bull
market).
GOLD AND SILVER MINERS EFTs
The secondary trend is bullish
as explained here
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.
Time pass by and nothing happens. The bear deserves the benefit of doubt |
Sincerely,
The Dow Theorist
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