Friday, May 31, 2019

Dow Theory Update for May 31: Secondary reaction for stocks continues

No primary bear market has been signaled for precious metals


The primary trend as per Schannep’s Dow Theory is bullish since March 1st, 2019 when both the Industrials and the S&P 500 closed at +19% from the 12/24/2018 bear market closing lows.

However, “capitulation” suggested the opening of a partial commitment to stocks on the very day of the market bottom (12/24/2018). More about that partial commitment here.

And more about “capitulation” in general in the following links:

The secondary trend turned bearish on May 9, 2019 as explained here.

Since that date stocks have further declined. No rally in at least one index exceeding +3% has occurred and, hence, the setup for a primary bear market signal has not been completed yet. This means that US indices can fall further without signaling a primary bear market. However, we should bear in mind that if both the S&P and the INDU declined more than -16% on a confirmed basis a primary bear market would be signaled.

Here you have an updated chart. The green triangles show the weak rally that occurred which failed to reach +3% in at least one index.

Ongoing secondary reaction against the primary bull market
As per the “Classical/Rhea” Dow Theory the secondary trend is now bearish too (secondary reaction against the primary bull market). The Industrials have been declining since 04/23/2019 whereas the Transports have declined since 04/24/2019. More than one month of confirmed declines amply fulfill the time requirement under the classical Dow Theory.

As to the extent requirement the declines greatly exceed on a confirmed basis -3%. Furthermore, the Industrials have retraced ca. 38% of the previous bull swing (which started on 12/24/2018) and the Transports have retraced ca. 55%. Since more than 1/3 of the previous bull swing has been retraced on a confirmed basis, we can conclude that there is no doubt about the existence of a secondary reaction.

Here you have an updated chart displaying the rally that got started on 12/24/2018, the ongoing secondary reaction (red rectangles) and the Fibonacci retracements (horizontal lines).

Red rectangles on the right side of the charts display ongoing secondary reaction as per "Classical" Dow Theory


The primary trend is bullish since 12/24/2018 as explained here. No changes. We finally got a secondary reaction on 4/16/2019 when GLD violated its 03/07/2019 closing lows (and confirmed SLV which had done so some days ago). More about the entrails of such a secondary reaction here and here.

The charts below display with green rectangles a tiny rally which did not managed to even attain +3% (even before adjusting for volatility) and hence did not qualify to set up SLV and GLD for a primary bear market signal. The same applies to the ongoing rally which got started some days ago.

On 05/28/2019 SLV made a lower low which was unconfirmed by GLD. All in all the secondary reaction continues.

No rally highlighted with green rectangles managed to set up SLV and GLD for a primary bear market


The primary trend is bullish since 12/18/2018 as explained here. No changes. 

The secondary trend is bearish (secondary reaction) since 4/18/2019 when GDX violated its previous 03/06/2019 closing lows (and confirmed SLV which had done so several days before), as was explained here. and here

The charts below display to small green rectangles which are rallies which did not manage to set up SIL and GDX for a primary bear market signal. SIL merely rallied 2.4% and GDX, while managed to rally 3.76%, it did not reach the volatility-adjusted minimum volatility which at 05/13/2019 (end of the green rectangles) stood at 6.14%. More about volatility-adjusted reading for precious metals, here. Hence, no setup. Following such a mini rally, SIL made lower lows which were unconfirmed by GDX, hence suggesting that the secondary reaction may be nearing its end.

Secondary reaction going on.

The Dow Theorist

No comments:

Post a Comment