Thursday, February 15, 2018

Dow Theory Update for February 15: US Stocks have fully set up for primary bear market signal

Secondary reaction now without doubt in existence

The setup for a primary bear market signal I will write about, does not depend on today’s close.


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 my last post, with the market situation at February 7, I discussed whether we had or not a secondary reaction. I wrote that Schannep’s interpretation was “yes”, albeit,   it was not so clear-cut.

Well, the Industrials and the S&P 500 declined until February 8th, and the Transports until February 9th. Thus, even if we consider January 29th as the starting date to count “calendar days decline”, now we fully have had 10 calendar days on at least two indices. From January 29th to February 8th (both included) we get 11 calendar days for both the Industrials and the S&P 500. All in all, no doubts about the existence of a secondary reaction anyway you appraise it.

From their February 8th closing lows the Industrials and the S&p 500 have rallied (not counting today) for 4 trading days. Both have also rallied by more than 3%. The Transports have rallied for 3 trading days and have also rallied by more than 3%. The table below gives you the exact percentages.

As per Schannep’s Dow Theory, both the extent (at least one index should rally by more than 3%) and the time requirement (minimum 2 days rally) have been met in order to set up US stocks for a primary bear market signal. Of course, “setup” is not tantamount to the actual signal, if stocks were to better their last recorded primary bull market highs, then the primary bull market would be reconfirmed.  In other the get a primary bear market signal the S&P 500 together with other index should violate their primary bear market closing lows (February 8 for the SP500 and Industrials and Feb 9 for the Transports).

Here you have an updated chart:

Secondary reaction and primary bear market setup completed



In spite of all the turbulences that seem to afflict markets. The precious metals have not even changed their secondary trends.

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.


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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