Tuesday, September 5, 2017

Dow Theory Update for September 5: Now everyone is bullish on gold. And the Dow Theory?

In spite of recent declines, no secondary reaction for US stocks yet (or never)

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

In spite of recent declines, no secondary reaction has been signaled, as explained here

In spite of recent declines, technically nothing has been accomplished


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.
SLV pulled back for 3 trading days (from 8/11 to 8/15), whereas GLD pulled back for 2 trading days (from 8/14 to 8/15). 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 nor GLD have declined at least -3%.

From the 8/15/2017 closing lows (which did not setup precious metals for a primary bull market signal), both SLV and GLD have made higher closing highs.

We note that GLD has bettered on August 28th the closing highs of the last primary bull market (blue horizontal line). Rhea explains that the breaking up of the last primary bull market closing highs constitutes an alternative way to signal a primary bull market signal. However, SLV has failed to do so (it is well below the blue horizontal line). Thus, lack of confirmation means that no primary bull market has been signaled. More patience is required. Either SLV breaks above its last primary bull market highs (look at the ellipse on the top chart highlighting the level which must be exceeded by SLV), or we get a proper setup (in the way of a decent pullback) that sets up the precious metals for a primary bull market (that is the more usual signal). 

GLD (blue arrow) exceeded the last primary bull market highs. SLV has not done so (blue ellipse highlight the distance separating SLV from its last primary bull market highs)

I know everyone has turned bullish on gold and, more moderately, silver. Today, Zero Hedge features two very bullish articles. One, written by Phoenix Capital, which is very sound technically, explains that gold is breaking out of a massive triangle which took many years to form. The breakout is bullish, with long term implications. The article goes on to explain that GDX/GLD ratio has likewise turned bullish long term, which is bullish for gold itself and the miners.

The other article, penned by Palisade Research, focuses on gold stocks says the “stocks are poised to blast off”. Based on the relative strength of the gold stocks versus gold, the author concludes that “we expect gold stocks to once again continue its precipitous ascent.”

So, why, this Dow Theory blogger truly yours, has not declared a primary bull market in gold yet?

I know that strength in the miners is good for the metal. And I agree with the interpretation of the charts. I also know that the miners tend to lead the metal, so bullishness in the miners is a good omen for gold. However, I also know, that if there were a bull market in paper gold (please mind the word “paper”. More about the word “paper”, as per FOFOA, here), silver, more or less, should also be bullish.

However, silver is not confirming, and under a world of paper gold (which is good for physical silver), the lack of confirmation tells me that, under the Dow Theory, no primary bull market has been signaled yet.

Furthermore, if we take a look at the gold and silver miners EFTs, what I see is a primary bear market, with a secondary (bullish) reaction, and a completed setup for a primary bull market signal. Recent rallies (hence the “bullishness” and enthusiasm now evident on the internet) make more likely that the secondary reaction highs are going to be jointly bettered, and, hence, a primary bull market be signaled. However, as of this writing, this has not happened in spite of all the bullishness that oozes the internet. Even GDX, all the alleged bullishness notwithstanding, still remains below the February 8, 2017 secondary reaction closing highs (blue horizontal line).

If there is a real bull market, then prices should go up, and if they go up, the relevant levels (blue horizontal lines in all the charts below) should be sooner or later exceeded. Once this happens, I’ll see a bull market.

It is worth remembering that the trend when appraised with weekly bars using the Dow Theory is bearish for precious metals and their miners. 

I am agnostic when it comes to the markets. I really have no idea about future prices. So maybe we are already in a huge bull market and it has escaped my attention. It could well be. However, I know that the Dow Theory (hitherto the best “crutch” I have found) will let me know.


I have already said some things about SIL and GDX when talking about SLV and GLD.

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.

While technically nothing has been accomplished, price action of the recent days has put GDX close to breaking up above its secondary reaction closing highs (look at the ellipse at the bottom chart highlighting the relevant level to be broken up). SIL, nonetheless, seems to be very far from doing so. All in all, we are still far from a primary bull market signal.

Here you have an updated chart:

GDX (bottom chart) is very close to breaking up its seconday reaction highs. SIL still far away from doing so. Blue ellipses highlight the gap to be filled for a primary bull market signal to be signaled.

The Dow Theorist

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