Friday, January 19, 2018

Dow Theory Update for January 19: Is a secondary reaction about to start for US stocks?

Trends unchanged

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

Stocks have taken a pause.

On January 12th, 2018 the SPY, Industrials and Transports made their last confirmed closing highs.

Thereafter, The Industrials and the SPY made higher closing highs but the Transports did not confirm.

The longer the Transports do not confirm, the more likely that the current bull swing (not primary bull market) is coming to an end, and that a secondary reaction is about to start. However, we have to wait.


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. SLV made lower lows (of no technical significance under the Dow Theory, though, since it was not confirmed by GLD). For the time being, the primary bear market lows have not been jointly revisited and hence the primary bear market has not been reconfirmed. The longer the non-confirmation persists, the more likely that the primary bear market could be nearing its end. However, we wait until we get a real signal.

As it happened in September 2017, there seems to be growing bullishness around gold. In September, thanks to the Dow Theory, I remained skeptical and I was proven right. Let’s see what happens now.

Thus, yesterday, Zero Hedge featured an article entitled “A Golden Opportunity for Precious Metals”. The article basically says that gold is about to break above a descending trend-line, and silver is just about to break above a multiyear triangle. Go and read the article.

While the article is technically sound, I’d rather stick to the Dow Theory, if SLV breaks above its triangle, it will also certainly break above the secondary reaction closing high. On the other hand, if GLD breaks above its descending trend-line, it will certainly break above its secondary reaction closing highs. I feel, though, that the patterns of the Dow Theory are more solid, especially when coupled with the principle of confirmation.

In the same bullish vein, GoldCore announces that “Gold may have room to run as Chinese new year looms”. Maybe yes, maybe not. I only now that I don’t need so much guesswork about the Chinese and gold in order to see a bull market.

All in all, if there is serious bullishness in precious metals both SLV and GLD should break above their respective secondary reaction closing highs, which are highlighted in the charts below with horizontal blue lines. Until this happens, the primary trend remains fully in force. 

Until both blue lines are not broken up, there is no primary bull market. Period.


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, and, as with GLD and SLV,  the longer it takes for GDX to confirm the higher the likelihood that the primary bear market may be nearing its end.

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.

The Dow Theorist

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