Thursday, October 31, 2019

Dow Theory Update for October 31: Dissecting the new primary bull market signal for US stocks




Setup for primary bear market completed for precious metals and their ETF miners


US STOCKS

The primary  and secondary trend turned bullish on October 25th, 2019, as was explained here


Stocks were under a primary bear market (more about it here). Such a primary bear market did not have long legs and no sooner had been signaled, a secondary reaction against the primary bear market started. That secondary reaction finished on 09/13/2019 for the Industrials, on 09/11/2019 for the Transports, and on 09/12/2019 for the S&P 500 (blue rectangles in the middle of the charts). From those dates a pullback got started. The first index to decline more than 3% was the Transports (orange rectangle, after the blue rectangle of the middle chart) on 09/20/2019 followed by the other two indices. Hence, on 09/20/2019 the setup for a primary bull market had been completed.


On Thursday 24th, 2019 the S&P 500 broke up above its secondary reaction closing highs. The Transports confirmed on Friday 25th, 2019, and hence a primary bull market was signaled (under Schannep’s Dow Theory we need the S&P 500 and either the Industrials or the Transports confirming so that we get a signal). As of this writing the Industrials have not confirmed yet. However, under Schannep’s Dow Theory we just require two indices confirming each other (and the S&P 500 always present). We don’t need three indices confirming. Hence, unambiguously there is a primary bull market under Schannep’s Dow Theory.

Here you have charts of the Industrials (top), Transports (middle) and the S&P 500 (bottom) which depict the developments since 07/16/2019 to date. The orange rectangles on the left side of the charts show the secondary reaction that got started against the then existing primary bull market. The red arrows display the violation of the secondary reaction lows and primary bear market signal. Thereafter follow the blue rectangles (secondary reaction against the primary bear market) followed by the blue arrow on the right side which signal the primary bull market. 

Primary bull market for US stocks signaled on 10/25/2019 (blue horizontal lines broken up by 2 indices)


It goes without saying that the last primary bear market signal has been a whipsaw, as the re-entry (current primary bull market signal of October 25th) has been at a higher price than the exit, which is not normal (but can happen). More specifically, the entry price for the S&P 500 (close of October 25th, 2019 day where the Transports confirmed) was 3022.55 whereas the “exit” price due to the primary bear market signal of 08/14/2019 was 2840.6, which implies that our entry price has been 6.41% higher than our exit. This is performance lost, even if the current signal ends up being a winner. As I have repeatedly written, the Dow Theory outperformance is due to just one variable: The further decline following a primary bear market signal. Absent such a further decline, even if we can remain profitable, we will not outperform buy and hold. For an in-depth study of this issue, please go here.


GOLD AND SILVER


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.

On 09/04/2019 SLV and GLD made its last recorded primary bull market closing highs. From that date both ETFs declined and the secondary trend turned bearish (secondary reaction against the primary bull market) as explained in-depth here.


From the 09/30/2019 closing lows there has been a rally which has had enough magnitude to setup SLV and GLD for a primary bear market signal. On 10/25/2019 (last date when I performed a measurement), SLV had rallied 6.09% and GLD 2.29% (high made on 10/09/2019). SLV exceeded the minimum volatility-adjusted movement which stood at 4.90% on 10/25/2019. GLD, on the other hand, was below the minimum volatility, as you can see from the spreadsheet below. However, it merely suffices one index to rally above the minimum volatility to set up the ETFs for a primary bear market. Furthermore, with date 10/31/2019 the rally has made higher highs, and, thus, there is no doubt about the setup.



Please mind that a setup for a primary bear market signal does not imply that we are under a primary bear market. The secondary reaction closing lows (red horizontal lines) have to be jointly violated for a signal to be given.

Here you have updated charts



GOLD AND SILVER MINERS ETFs


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

On 09/04/2019 SIL and GDX made its last recorded primary bull market closing highs. From that date both ETFs declined and the secondary trend turned bearish  (secondary reaction against the primary bull market) as explained in-depth here.

From the 10/15/2019 closing lows there has been a rally which has had enough magnitude to setup SIL and GDX for a primary bear market signal. On 10/25/2019 (last date when I performed a measurement), SIL had rallied 8.37 % and GDX 5.92 %. SIL exceeded the minimum volatility-adjusted movement which stood at 7.37% on 10/25/2019. GDX, on the other hand, was below the minimum volatility, as you can see from the spreadsheet below. However, it merely suffices one index to rally above the minimum volatility to set up the ETFs for a primary bear market. Furthermore, with date 10/31/2019 the rally has made higher highs, and, thus, there is no doubt about the setup.



Please mind that a setup for a primary bear market signal does not imply that we are under a primary bear market. The secondary reaction closing lows (red horizontal lines) have to be jointly violated for a signal to be given.

Here you have updated charts




Sincerely,
The Dow Theorist

Monday, October 28, 2019

Dow Theory Update for October 28: Primary bull market for US stocks signaled on October 25th, 2019




Maybe, and I say, maybe, precious metals and their stock miners ETFs have set up for a primary bear market signal

Sorry, but, as usual, time in very short supply. If I can, I’ll try to pen an in-depth post in the coming days.

For now, please be advised that on Thursday 24th, 2019 the S&P 500 broke up above its secondary reaction closing highs. The Transports confirmed on Friday 25th, 2019, and hence a primary bull market was signaled (under Schannep’s Dow Theory we need the S&P 500 and either the Industrials or the Transports confirming so that we get a signal). 

The most recent assessment of the market situation was made here

 All in all, the primary and the secondary trend is now bullish. Now both Schannep's Dow Theory and the "Rhea/classical" are in sync (as far as the primary trend is concerned, as the "classical" is still under a secondary reaction against the primary bull market). Both are bullish. The "indecision" I was referring to in my last post has vanished.

Here you have an updated chart

 
Primary bull market signaled on Oct 25th, 2019. The Transports confirmed the S&P 500

As to precious metals, recent rallies might have completed the setup for a primary bear market signal. I have to perform my volatility-adjusted studies to be sure of it. Hence, I cannot say for sure now.The last assesment of the situation was made here

Sincerely,
The Dow Theorist

Wednesday, October 23, 2019

Dow Theory Update for October 23:Indecision for US stocks




Precious metal under full-fledged secondary reaction against primary bull market



US STOCKS

A primary bear market for US stocks was signaled on August 14th, 2019 as explained here.

A secondary reaction against the primary bear market was signaled on August 30, as explained here.

The setup for a primary bull market (rally after the secondary reaction) was completed on 09/19/2019 as was explained here


From 09/19/2019 US stock indices have been hesitant neither the secondary reaction closing highs nor the last lows of the primary bear market have been broken. All in all, we have to wait, and in the meantime the primary trend as per Schannep’s Dow Theory remains bearish.

Here you have an updated chart. The blue horizontal lines display the secondary reaction highs which are the relevant levels to be broken up so that a primary bull market is signaled. US indices are near the blue lines but not there yet.

 
If the blue lines were jointly broken up, a primary bull market would be signaled
As to the Rhea/Classical Dow Theory there are no changes. The primary trend remains bullish (as explained here)

The secondary trend is bearish, as we remain in the midst of a secondary (bearish) reaction against that primary bullish trend. The Industrials made higher closing highs bettering their secondary reaction highs unconfirmed by the Transports and, hence, the primary bull market was not reconfirmed and the secondary reaction was not extinguished. On August 23rd, 2019 the Transports violated their secondary reaction closing lows unconfirmed by the Industrials, and accordingly no primary bear market has been signaled. So the trend of the stocks when appraised under the Classical Dow Theory remains bullish but inconclusive. Lack of confirmation by the Transports prevented both the reconfirming of the primary bull market and the signaling of a primary bear market.

The charts below display the current situation under the “Rhea/Classical” Dow Theory

The primary trend is bullish. If the red horizontal lines were jointly violated, a primary bear market would be signaled
  
Bottom line: The primary and secondary trend is very indecisive. If we take the somewhat larger time frame of the “Rhea/classical” Dow Theory the primary trend is bullish whereas the secondary trend is bearish. The exact opposite is the reading when applying Schannep’s Dow Theory (which due to its definition of secondary reaction which requires less time and extent, tends to be slightly shorter term oriented). So we are at crossroads. Furthermore, as I mentioned above, when applying the classical Dow Theory we have seen a bullish breakout unconfirmed and a bearish breakdown unconfirmed another sign of indecision.

GOLD AND SILVER


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.

On 09/04/2019 SLV and GLD made its last recorded primary bull market closing highs. From that date both ETFs declined and the secondary trend turned bearish (secondary reaction against the primary bull market) as explained in-depth here.


 
GOLD AND SILVER MINERS ETFs


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

On 09/04/2019 SIL and GDX made its last recorded primary bull market closing highs. From that date both ETFs declined and the secondary trend turned bearish  (secondary reaction against the primary bull market) as explained in-depth here.

From 09/30/2019 to 10/08/2019 both ETFs staged a rally. That rally, however, lacked the necessary amplitude to setup SIL and GDX for a primary bear market signal (such a rally is highlighted with a green rectangle on the charts below). From that minor rally highs both ETFs declined and extended the secondary reaction by making lower lows on 10/15/2019 (big orange rectangle on the right side of the charts). From that date there was a three trading days rally. Such a rally felt short of the minimum volatility-adjusted requirement in order to set up both ETFs for a primary bear market signal, as shown on the spreadsheet below. More about volatility adjustments here. Hence we have a full-fledged secondary reaction. 



 
Two orange rectangles superimposed: both show the secondary reaction as it unfolds

Sincerely,
The Dow Theorist