US stocks indices remain solidly bullish
After the Christmas break, here I am back again.
I am writing before the close so things might change. Readers beware.
Under Schannep’s Dow Theory
The primary and secondary trend turned bullish on October 25th, 2019, as was explained here and here. The Industrials and the S&P 500 continue making higher highs. As of this writing we are far from a secondary reaction. The Transports is failing to make higher highs (last one on 11/07/2019), but with just two indices the confirmation requirement is met.
Here you have an updated chart
|Follow the trend, even though some times one can feel dizzy. A nice bull run.|
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 bearish, as there is an ongoing secondary reaction against the primary bull market. The orange rectangles display the secondary reaction. On 06/20/2019 the Industrials bettered their secondary reaction closing highs unconfirmed by the Transports. On 08/27/2019 the Transports violated their secondary reaction closing low unconfirmed by the Industrials, and, hence, no primary bear market was signaled.
The Industrials has continued making higher highs and the Transports have been badly lagging behind unable to break up above their secondary reaction closing highs. The longer it takes for confirmation to occur, the more suspect the primary trend becomes. We should not forget that the failure to jointly better the secondary reaction highs entails that we cannot declare the secondary reaction as extinguished, and hence the secondary trend remains bearish.
Here you have an updated chart:
|The Transports refuse to confirm the Industrials|
GOLD AND SILVER
The primary trend and secondary trend was signaled as bearish on 11/07/2019 as was profusely explained here
From their respective primary bear market lows (11/07/2019 for SLV and 11/11/2019 for GLD) there was a rally lasting 16 and 15 days, which fulfilled the extent requirement for a secondary reaction. However, it was lacking magnitude, as it merely retraced 13.21% of the primary bear market swing (for SLV) and 21% for GLD. By “primary bear market swing” I mean the distance between the last primary bull market high (top made on 09/04/2019) and the hitherto last primary bear market lows. Furthermore, SLV merely rallied percentage-wise a meager 2.22% whereas GLD just rallied 1.49% (all in all, well below the minimum volatility). This is why I display in green this rally that did not manage to qualify as a secondary reaction. I normally display rallies and pullbacks that qualify as secondary reactions either in blue (bullish ones) or orange (bearish ones). Green for me is the “neutral” color. It displays a rally or a pullback which did not manage to become a secondary reaction.
On 12/06/2019 SLV made a lower low unconfirmed by GLD. From the 12/06/2019 closing low SLV has rallied for 18 trading days (until the last reading made on 1/3/2020). Such a rally retraced ca. 48% of the previous primary bear market swing. The rally amounted to 7.26% which is well above the minimum volatility adjusted movement which currently stands at 4.59% for SLV. More about the entrails of volatility adjusted movements (it is not the same to deal with US stock indices with normally lower volatility than with other higher volatility ETFs) here.
From its 11/11/2019 closing low GLD has rallied for 36 trading days ((until the last reading made on 1/3/2020). Such a rally entails an almost 100% retracement of the previous primary bear market swing. The rally amounted to 6.42% which is well above the minimum volatility adjusted movement which currently stands at 3% for GLD. The spreadsheet below provides you with the exact figures.
All in all, both the time requirement (18 days for SLV and 36 trading days for GLD) and the extent requirement (either when measured as a retracement or just considering in terms of volatility) has been amply met and hence we can declare that SLV and GLD are under a secondary reaction against the primary bear market.
Even though I am writing before the close of January 6th, 2020, it seems that GLD is going to break up above its primary bull market closing highs; albeit on an unconfirmed basis which means that we cannot declare the secondary reaction (and primary bear market) as extinguished. As of this writing SLV is far from confirming.
The charts below display the top of the last primary bull market (left side of the charts), the secondary bearish reaction which followed, the primary bear market signal (red arrows in the middle of the charts) and the subsequent secondary bullish reaction against the primary bear market.
|The green rectangles display a very small rally which did not fulfill the extent requirement for a sec reaction|
While it is still too early to write about the bereavement of the current primary bear market, it is worth noting that from day “one” I was skeptical about this signal. Why? Because the secular trend (I call “secular” the trend when appraised using weekly bars) is bullish. In my pipeline of future posts there is one which shows that signals given against the higher order trend tend to be less profitable that those taken in alignment with the longer time frame trend. Hence, even though nothing is carved in stone and anything can happen with any specific trade, the odds are usually against trends that run contrary to the higher order trend.
Here you have an updated chart displaying the secular trend when appraised with weekly bars. As you can see since 7/01/2016 the secular trend is bullish. There was a secondary bearish reaction (orange rectangles). SLV violated it secondary reaction closing lows unconfirmed by GLD and, hence, no secular bear market was signaled.
|The trend taking the longer time frame: Appraised when using weekly bars. A bullish picture|
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:
|A secondary reaction within a primary bull market. Higher highs by SIL unconfirmed by GLD.|
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.
|It was close to a primary bear market signal. However, TLT refused to confirm and the primary bull market remains in force|
The Dow Theorist