Wednesday, November 15, 2017

Dow Theory Update for November 15: SIL violates its primary bear market closing lows unconfirmed by GDX

No secondary reaction for stocks yet

I am writing before the close.

US Stocks

The primary trend is bullish since November 21st, 2016, as explained here and here. So we are nearing the first (and probably last) anniversary for this signal.

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

On October 12th, 2017 the Transports stopped making higher closing highs whereas the Industrials and the S&P 500 made their last closing highs on 11/08/2017. Since that date the S&P 500 and the Transports have declined for five trading days. Hence, it is too soon to declare the existence of a secondary reaction as the time requirement has not been met.

In my two previous posts I warned of two things: Firstly, the current bull market swing has not been interrupted by a secondary reaction for more than six months. This makes the current bull swing old; secondly, the Transports have been diverging for a quite long time which quite often implies an impending secondary reaction.

Furthermore, we are dealing with an statistically old cyclical bull market which got started  in 2011.

All in all, while price action trumps all other considerations, it is likely that the current bull swing (not to be mistaken with primary bull market) might be coming to an end. Even the current cyclical bull market might be coming to an end (which may be good news for market timers, as we need a washout, and a new powerful cyclical bull market which on average contains two good and profitable Dow Theory primary bull markets)

Here you have an updated chart:

Transports divergence and old bull swing and old cyclical bull market make likely secondary reaction


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.

The pullback that got started on September 8th, 2017 has unambiguously setup SLV and GLD for a primary bull market. A quite different issue is whether the signal will be ever given.  An in-depth explanation here. Please mind that a “setup” is not the actual signal. So, if the primary bear market lows were jointly revisited the primary bear market would be reconfirmed.

Here you have an updated chart. The blue horizontal lines display the closing highs of the secondary reaction which are the relevant levels to be broken up for a primary bull market signal to be given.

Days pass by and nothing happens, which is normal.


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 was very far from its secondary reaction closing highs.

On 11/10/2017 SIL violated its primary bear market closing lows (red arrow on the right side of the chart). GDX has not confirmed. Lack of confirmation implies that the primary bear market has not been reconfirmed.

Therefore, the current situation remains unchanged. We have a primary bear market signaled on 10/04/2016 (more than one year old). There is an ongoing secondary reaction against the primary bear market and a setup for a primary bull market. Recent action seems to suggest that it is more likely a reconfirmation of the primary bear market than a breakup of the secondary reaction closing highs which would be a primary bull market signal. All in all, given that “the trend is your friend” it seems that we still have a bear market for some more time. 

In September 2017 there was bullishnes around precious metals. I was skeptical because neither the precious metals nor their stocks where displaying primary bull markets. We were merely seeing a bullish secondary reaction within a primary bear market. Subsequent price action has confirmed that trends tend to last longer than one might expect. Technical truth is that all the precious metals universe is still in the grips of primary bear markets. Maybe we don't see precipitous declines, but neither have we seen real bullish action which is only discernible when secondary reaction highs are jointly broken up. This is why the Dow Theory is important as it gives us an objective framework to work with.

Here you have an updated chart that displays all price action since the September 2016 (thus you can see the primary bear market signal of October 2016, the secondary reaction and the pullback –orange rectangles- that setup the miners for a primary bull market).

SIL violated its primary bear market lows (red arrow). GDX did not confirm

The Dow Theorist

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