Tuesday, September 26, 2017

Dow Theory Update for September 26: The Transports make higher highs and hence the threat of a secondary reaction is postponed

SLV and GLD complete setup for primary bull market

US Stocks

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

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

Today, the Transports have bettered July 14th, 2017 closing highs. The Industrials and the S&P 500 made their latest closing highs on September 20th, 2017. Higher closing highs tells us that no secondary reaction is in sight. The same holds true for the Rhea/Classical Dow Theory, being both the Industrials and Transports at new highs, we have to wait at least three weeks to even consider the existence of a secondary reaction (and the extent requirement should be fulfilled as well).

All in all, we talk of a very old cyclical bull market (which got started on 2011) and an old cyclical bull market should be headwind for the current primary bull market (roughly, very roughly one cyclical bull market contains two primary bull markets, more about the relationship between cyclical bull markets and primary bull markets as per the Dow Theory here). However, bull markets (cyclical and primary) tend to die of old age. Don't understimate the power of trends.

The charts below displays with blue ellipsis the last recorded closing highs. 

Since April 13 (lows of last secondary reaction), a primary bull market swing.


The primary trend was declared bearish on July 7th, 2017, as explained here and here
The secondary trend is bullish, as was profusely explained here.

All the rallies that we saw until September 7th, 2017 notwithstanding, no primary bull market has been signaled, as explained in depth here. GLD bettered the closing highs of the last primary bull market, but SLV failed by a wide margin to do so.

On the other hand, the pullback that got started as from September 8th, 2017 has, in my opinion, setup both precious metals for a primary bull market signal. Let’s recap. The primary trend is bearish. We had a rally which unambiguously qualified as a secondary reaction. The rally even managed to exceed the previously recorded primary bull market highs on an unconfirmed basis (GLD while SLV did not confirm). SLV has declined by -6.96% (orange rectangle on the right side of the charts). GLD has declined by -4.25%. Furthermore, SLV has retraced ca. 50% of the previous advance (the secondary reaction). As far as time is concerned the most recent pullback has been going on for more than 10 trading days. All in all, I feel that the pullback has had sufficient magnitude and time (theoretically only two trading days suffice) to set up both GLD and SLV for a primary bull market signal.

Thus, if the last recorded secondary reaction highs (red horizontal lines) were jointly bettered a primary bull market would be signaled. 

So now two three things may occur:

 Either both SLV and GLD jointly better the highs of the secondary reaction (red horizontal lines on the right side of the charts).

Or, failing GLD to better  its secondary reaction highs (red horizontal line), SLV manages to exceed the highs of its last primary bull market (blue horizontal line). In this case, the "alternative" Dow Theory signal (highs of the last primary bull market broken up) would apply. This "alternative signal" has been fully analysed for GLD and SLV here.

Or, if the decline gains momentum, the last primary bear market lows are violated in which case, the primary bear market would be reconfirmed

So now we have to see and wait further developments.

Please mind that the trend when applying the Dow Theory to weekly bar, the primary trends remains bearish which is headwind. And please do mind as well that the primary trend (bearish right now) deserves the benefit of doubt until reversed by a clear primary bull market signal.

Here you have an updated chart. The red horizontal lines on the right side of both charts display the levels to be bettered for a primary bull market to be signaled.

With the current pullback an alternative way to signaling a primary bull market signal has been set up


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

The secondary trend is bullish as explained here

For the same reasons given when analyzing SLV and GLD, no primary bull market has been signaled for SIL and GDX, as explained here. GDX did not better its secondary reaction closing highs by a hair, but it failed to do so. Furthermore, SIL is very far from its secondary reaction closing highs. All in all, no primary bull market signal in sight.

Here you have an updated chart

SIL and GDX very far from signaling a primary bull market

The Dow Theorist

No comments:

Post a Comment