Thursday, November 30, 2017

Dow Theory Update for November 30: First anniversary of the current bull market signal celebrated by confirmed higher highs

Precious metals, true to trend following, still in the grips of the bear

The primary trend is bullish since November 21st, 2016, as explained here and here. So we light a candle since the first (and probably last) anniversary has been accomplished.

It goes without saying that the current signal (barring a huge overnight gap down) is very likely to finish as a winner. The SPY has advanced more than 20% since the November 21st, 2016 entry. Even if the bull market were to stop now and we got an exit price around 8% below the current highs (which would imply a secondary bearish reaction of this magnitude), this would result in a winner of ca. 12%. However, the market has the last word. We just take what the market has to give us.

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

In past posts I stressed that the Transports were diverging, and that this was a warning sign. Well, the Transports have stopped diverging. On November 29th, the Transports made higher highs bettering their 10/12/2017 closing highs. The Industrials and the S&P 500 did also confirm.

All in all, for the time being no secondary reaction is in sight. As somebody said “bull markets don’t die of old age”. While the market is overbought (short term), the cyclical bull market that got started on 2011 is more than old, the current bull market swing (which got started off the lows of the last secondary reaction (05/17/2017) is statistically old (which means that the odds favor a secondary reaction), the current primary bull market stubbornly refuses to finish. This is why, as I have written several times, I don’t care much for statistical indicators and I live and die by actual primary bull and bear markets signals. By the way, the current primary bull signal approaches statistical middle age (not old yet) and maybe this explains its sturdiness.

Rhea wrote that secondary reactions develop quite often very quickly after the market has made higher highs. He said that for good reason because usually higher highs imply a short term overbought market.

Here you have an updated chart:

Anatomy of a bull market.


Today Zero Hedge was writing the stocks are going “full bitcoin” meaning that, as with the crypto currency, stocks are going ballistic. Well, precious metals clearly are not going “full bitcoin”. The primary bear markets that engulf precious metals are acting like kryptonite to Super Man.

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. In the meantime, SLV is making lower lows (of no technical significance under the Dow Theory, though). 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.

Is not so easy to escape a bear....


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, another candle to light). 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 bullishness 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).

Precious metals languishing

The Dow Theorist

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