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


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.


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.


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

The Dow Theorist

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