Thursday, January 16, 2020

Dow Theory Update for January 16: The Transports make higher highs thereby officially ending secondary reaction as per the Classical Dow Theory




Trends unchanged for precious metals and in Schannep's  Dow Theory.

US STOCKS

Under Schannep’s Dow Theory


The primary and secondary trend turned bullish on October 25th, 2019, as was explained here and here. The three US stock indices continue making higher highs, now with the Transports joining the parade. As of this writing we are far from a secondary reaction. As Schannep is fond of saying, now stocks are “in the clear”.

Here you have an updated chart:

A primary bull market which has not had a secondary reaction yet


Under the Rhea/Classical Dow Theory

If we appraise the trend under the “Rhea/classical” Dow Theory, the primary trend is bullish since April 1st, 2019, as was explained here

The secondary trend is now bullish, as the Transport bettered on January 14, 2019 their secondary reaction closing highs (of 04/29/2019) hence confirming the Industrials.  The primary bull market has been reconfirmed.

All in all, now both the primary and secondary trend is bullish.

Here you have an updated chart:

 
After a long lag, the Transports finally confirmed the Industrials.

Some "blame" the roaring bull market on QE. Maybe they are right but I feel this is immaterial. For whatever reason there is demand and stocks are bid, and hence there is a bullish trend. It is not the object of the Dow Theory to determine the “morality” of trends, but, rather, to timely detect the change of a trend.

GOLD AND SILVER


The primary trend and secondary trend was signaled as bearish on 11/07/2019 as was profusely explained here

The secondary trend is bullish (secondary reaction against the primary bear market) as was profusely explained here.

Here you have an updated chart:

GLD bettered its primary bull market highs unconfirmed by SLV. Primary bear market continues
 
GOLD AND SILVER MINERS ETFs


The primary trend is bullish since 12/18/2018 as explained here. No changes. This specific signal is now more than one year old. Hence, we are dealing with a trade whose duration seems quite in line with what is to be expected under the Dow Theory (trades lasting more than one year on average, please mind the word “on average”).

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. The secondary reaction closing lows were jointly made on 10/15/2019

On 10/25/2019 the setup for a primary bear market has been completed as explained here

From that date GDX flirted with violating its secondary reaction closing lows which it did not. SIL was much stronger and has hitherto remained at a safe distance of those lows.

On 12/24/2019 SIL bettered its primary bull market closing highs unconfirmed by GDX. (blue arrow on the right side of the upper chart). Hence, we cannot declare the secondary reaction as extinguished. Thus, we remain in a primary bull market with an ongoing secondary reaction.

Here you have an updated chart:

GDX is not confirming SIL. We cannot declare the secondary reaction as ended


US INTEREST RATES

As it was explained here, TLT and IEF (two ETFs that relate to US interest rates) are in a bull market (since 12/18/2018 or 11/19/2018 depending on the way one appraises the secondary reaction). I also explained that they are currently under a secondary reaction.

If you look carefully at the charts below you will see two different kind of rectangles superimposed. The orange and larger ones display the secondary reaction. The green and shorter ones display the first pullback which did not manage to fulfill the time requirement, and hence did not reach the status of a secondary reaction. This is why I highlight them but don’t “code” them with the color given the bearish secondary reactions (orange).

Off the 11/08/2019 closing lows (secondary reaction lows) both ITFs rallied for several days. TLT rallied +4.61% (blue rectangle) which amply exceeds the volatility adjusted requirement for a minimum movement (which stands at 2.87%). Since it is only necessary that one index fulfills the minimum movement for the rally that follows the lows of the secondary reaction, we can declare that the setup for a primary bear market has been completed. However, “setup” is not the actual signal. Both ETFs have to violate their secondary reaction closing lows (red horizontal lines) for a primary bear market to be declared.


On 12/23/2019 IEF violated its secondary reaction closing low unconfirmed by TLT. This lack of confirmation entails that no primary bear market was signaled. All in all, we remain in a primary bull market which is currently undergoing a secondary (bearish) reaction.


Here you have an updated chart.

The secondary reaction against the primary bull market continues
 

Sincerely,
The Dow Theorist

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