Schannep says yes. Heed his word.
I am bedridden with the flu. So I lack the energy to make lengthy
considerations. I am writing before the close of February 7. So things might
change (especially the +3% rally)
US STOCKS
The SPY (and the S&P 500) and the Industrials made their last recorded
closing highs on Friday, January 26, 2018. The first day of decline was Monday,
January 29, 2018. One of the requirements of Schannep’s Dow Theory for a
secondary reaction to be declared is 10 calendar days of decline on at least
two indices. The Transports have declined more than that. And what about the
Industrials and the S&P 500? Well, here it is where it gets subjective.
My understanding of 10 calendar days of decline was that the “decline days”
were to be counted as from the first day of decline. In other words, day “1” of
decline was of course day number 1. If we counted calendar days from January
26, 2018 (which was the first day of decline) then the count of 10 calendar
days would have been reached today, Wednesday, February 7th. Since
today’s close has not been the lowest point of the current pullback, no
secondary reaction would be in place.
However, Schannep’s sees things otherwise. In his email to subscribers of
February 6th, Schannep considered the closing lows made on Monday,
February 5th as enough to declare the existence of a secondary
reaction. Since it didn’t fit with what I thought was the right interpretation of
the rules to declare a secondary reaction, I sent him an email. Being Jack the
gentleman he is, I got an answer within minutes. Well, Jack Schannep takes a
reference the last closing highs which were made on Friday January 26th.
Of course, this is not “day 1” of
the decline. However, Schannep considers Saturday Jan 27th and
Sunday Jan 28th as the two
first days which are to be counted as start of the secondary reaction,
which is also legitimate, as there cannot be “limbos”. Friday 26th
was “up”, Monday 29th was “down”. The uptrend finished on Friday 26th,
and hence, the next two calendar days (Sat 27th and Sunday 28th)
are already counted as part of the decline. Schannep’s rule for determining a
secondary reaction reads exactly as follows:
“A secondary reaction which
interrupts the primary trend must last a minimum 10 calendar days on 2 of the 3
indices with at least 8 trading days as the average of all three
indices (Dow Jones Industrials, Transports, and the S&P500), which is equal
to a minimum of 10 calendar days and sometimes 12 or 13 depending on weekends
and holidays . The timeframe is shortened to half that for the first bounce
following capitulation.
To qualify as a secondary reaction the price change must be at least 3% on
two of the three indices.” (emphasis supplied)
Thus, what happened on Saturday 27th and Sunday 28th
may be rightly considered an “interruption”. Of course, if on Monday 29th
we had had an “up” day, we would have forgotten the two calendar days of the
weekend. However, Monday 29th was a down day, and the two calendar
days between such down day and Friday 26th the last up day, are
included by Schannep in the count leading to 10 calendar days.
This blog is not an ego trip. It merely serves to force become a better
investor. And hence I am very willing to learn from the best (Schannep) in
order to become more profitable in my own endeavors. Thus, I accept Schannep’s verdict: On Monday February 5th, we had had 10 calendar days of “interrupting”
prices in both the Industrials and the S&P 500. Furthermore, in the last
few Letters to Subscribers, Schannep has been warning that the current bull
market may be coming to an end. By the way, if you want to become a real good
investor, subscribe to Schannep’s Newsletter. It really has no match.
The Transports have declined (until Monday, February 5th) for 16
trading days, the Industrials and S&P 500 declined for 6 days, which makes
an average of 9.33 days, which also fulfills Schannep’s 8 trading days rule.
As to the extent requirement it has been amply fulfilled (-7.9% for
the SPY). By the way, if the exit signal were to be some -8% from the top, this
would be a very “normal” exit. The only thing that can kills us dowtheorists
(and any other market participant too) is a sudden opening gap of, let’s say, -15%.
This would be ugly. What we saw yesterday is immaterial.
So from now on, we have to
wait until at least one index rallies more than 3% off the February 5th
closing lows (The Industrials seems to do so today, but we have to wait until
the close). Once, this happens, will get the setup for a primary bear market
signal.
The primary trend was reconfirmed on July 3rd, 2017 as was
explained here
Here you have an updated chart. The orange rectangle depicts the current
decline.
GOLD AND SILVER
In spite of all the turbulences that seem to afflict markets. The precious
metals have not even changed their secondary trends.
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.
GOLD AND SILVER MINERS EFTs
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.
Sincerely,
The Dow
Theorist
thankyou for your time and effort
ReplyDelete