GOLD AND SILVER MINERS EFTs
As I explained yesterday, the primary trend turned
bullish on 12/18/2018.
To recap: The primary trend was declared bearish on October
4th, 2016, as was explained here
and here.
On 11/10/2017 SIL violated its primary bear market
closing and GDX did not confirm. Lack of confirmation implied that the primary
bear market has not been reconfirmed. On August 15th, 2018 GDX
finally violated its December 15th, 2016 primary bear market lows.
Thus, the primary bear market was reconfirmed. As I wrote when commenting GLD
and SLV, please mind that this was not a signal to “sell”, as such a signal
(the indication of the change of the trend from bullish to bearish) was already
given on October 4th, 2016. The confirmed violation of the last
recorded primary bear market lows merely indicated a reconfirmation of the
existing trend.
Here you have the charts depicting the action since
the end of 2016 until the post I wrote on August 31st, 2018, when
precious metals were still under the grips of the bear market.
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| Situation at August 31st, 2018: Primary bear market |
On 09/11/2018 both ETFs made their final lows. From
such lows SIL rallied for 25 trading days (until 10/16/2018) and GDX for 30
trading days (until 10/23/2018), hence amply fulfilling the time requirement for a secondary
reaction.
As to the extent
requirement, the spreadsheet below contains relevant data:
As you can see, SIL rallied 9.52% and GDX 14.399% (rally
off the 9/11/2018 primary bear market lows to the secondary reaction highs). Their volatility (measured as daily percentage price change averaged
over 30 trading days) of both SLV and GLD slightly exceeded that of the SPY
over the same period measured (which hints at consolidation, since normally SIL
and GDX double the SPY’s volatility). The minimum volatility-adjusted movement amounted
to 4.56% for SIL and 4.04% for GDX (reading taken on the date of the secondary
reaction closing high). More about volatility adjusted movements here
Here you have the chart depicting the most recent action:
 |
| On 12/18/2018 a primary bull market was signaled |
Therefore, the rally exceeded the minimum threshold to
be meaningful and hence the extent requirement
for the existence of a secondary reaction was also met (shown as blue
rectangles on the right side of the chart)
From the secondary reaction highs a pullback developed
(orange rectangles on the right side of the chart). SIL violated its last
primary bear market lows of 9/11/2018 whereas GDX refused to confirm. Hence the
secondary reaction was not nullified
by lower lows and the primary bear market was not reconfirmed. Evidently, the
minimum percentage movement for the pullback was also met, as the pullback (at
least for SIL) was larger than the previous secondary reaction. In addition to
this, GDX also receded more than the minimum movement (at 11/13/2018 date when
the pullback for GDX was arrested, the minimum volatility adjusted movement
stood at 3.76%).
Once the pullback was completed we had the setup for a
primary bull market signal.
On 12/7/2018 GDX broke up on a closing basis its secondary
reaction high of 10/23/2018 unconfirmed by SIL. On 12/18/2018 SIL confirmed and, hence, a primary bull market was
signaled.
As of this writing there is no sign of an impending
secondary (bearish) reaction against the primary bull market.
By the way, this was a long primary bear market as it lasted more than 2 years. More than 2 years of relentless decline on the
“bear side” is a long stretch of time. The bear market had three secondary reactions.
It is good to bear this aspect in mind as some market observers tend to
narrowly focus on those occasional trades that last shorter than the average
trade being oblivious to the fact that no one single trade is “average”. Some
will be longer than average (as the current one) others will be shorter than
average. Some will be big winners (as this one if we compute loss avoidance)
and others may result in being whipsawed.
As with Gold and Silver, I like the bottoming action that has taken
place. We are not dealing with a dubious secondary reaction which barely lasted
3 weeks. The longer time for the secondary reaction to “ripen “and its “line-like”
(volatility compression) features (more market in GLD and SIL, truth be told)
seem to imply accumulation and that the subsequent primary bull market signal
has some “steam” to run. I have no idea as to price objectives but the charts
seem to suggest that some upward movement is more likely than not. The unconfirmed
violation by SIL of the primary bear market lows might also give more strength
(weak hands washed out) to the ongoing rally. Let’ see and observe the markets.
Interesting piece of information: The subsequent decline following the
primary bear market signal of 10/04/2016 until a bottom was made on 9/11/2018 was
-43.48% for SIL. The subsequent decline following the primary bear market
signal of 10/04/2016 until a bottom was made on 9/11/2018 was -24.91% for GDX. Given
that the primary bull market signal was given for SIL at +9.52% off the primary
bear market bottom “timing” the market resulted in bettering buy and hold (plus
interests earned when being out of the market and risk avoided). On the other
hand, given that the primary bull market signal was given for GDX at +14.39%
off the primary bear market bottom “timing” the market would have resulted in
bettering buy and hold too (further decline until bottom of -.24.91% versus an
entry at +14.39% from the bear market lows). Clearly, the primary bear market
that was signaled more than 2 years ago has resulted in a big loss avoidance.
This is one of the trades that over time build outperformance versus buy and
hold. Patience is key.
Sincerely,
The Dow Theorist
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