Primary and secondary trend for gold and silver unchanged
Well, yesterday, February 24, was a day full in Dow
Theory relevant events. Let’s get started. Last week I wrote that I wanted to pen a post concerning
the last primary bull market in gold and silver. Such a post will have to wait as I
prioritize current market action.
US STOCKS
Under Schannep’s Dow Theory
The secondary trend turned bearish yesterday
(February 24th, 2020). So now we have a secondary reaction against
the primary bull market.
Let’s look at the entrails of this secondary reaction
as it is a bit tricky.
The last recorded (primary bull market highs) for the
Industrials were made on 2/12/2020. Hence the Industrials have declined
for 7 trading days. The S&P 500 made
its last recorded highs on 2/19/2020. Hence the S&P 500 has declined for 3
trading days. The Transports, our sempiternal (everlasting) laggard, made its
last primary bull market highs on 01/16/2020, and, hence it has been declining
for 24 trading days. Two observations:
Please mind that last Monday, February 17 there was no trading as it
was NYSE holiday. All references made to “highs” mean “closing highs” as you know that a tenet of the Dow Theory is that
we just take into account the close. Intraday action is misleading.
Under Schannep’s Dow Theory for the time requirement
to be met, we need an average of all three indices of at least 8 trading days which has been amply met. Here you have the
math:
(7+24+3)/3 =
11.33 days.
Furthermore, Schannep demands that at least two indices
must have declined for a minimum of 10 calendar (not trading, just normal)
days. This requirement has been met as well. Both the Transports and the
Industrials have declined much more than 10 calendar days.
All in all, the time
requirement for a secondary reaction to be declared has been fulfilled.
And what about the extent requirement? It has also been met on a confirmed basis (it
takes at least two indices to decline at least 3%), as shown on the spread
sheet below:
All in all, US stocks are now under a secondary
(bearish) reaction.
Please mind that both Schannep (with a wealth of price
objectives having been met as he explained in his last newsletter to subscribers appropriately
named “In the Target Zone”) and I (more modestly) based on the behaviour
observed in my own short term trading have been warning that at least some
correction was at hand. The odd behaviour I was seeing in my trading doesn’t
always imply a change of primary trend, but it has always been a
harbinger of a secondary reaction in the past, as we are seeing now. You can read my
warning made on January 24th, 2020, here.
Here you have an updated chart. The orange rectangles
on the far right (no pun intended) of the charts display the current secondary
reaction. Next to the current secondary reaction we see the orange rectangles
of the preceding secondary reaction. Two secondary reactions is such a short
time attest to the underlying weakness of the market. If you look at the middle
chart (Transports) you will see that the current secondary reaction engulfs the
preceding one, as you can see a larger orange rectangle with a smaller one
within. This is due to the fact that the Transports, unlike the Industrials and
the S&P 500 were unable to better their primary bull market highs in
February.
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| Here we go again. New secondary reaction declared on February 24th, 2020 |
Under the classical/Rhea
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
bullish, as the Transport bettered on January 14, 2019 their secondary reaction
closing highs (of 04/29/2019) hence confirming the Industrials. Hence, no
secondary reaction yet.
GOLD AND SILVER
The primary and secondary
trend were signaled as bullish on 02/19/2020, as explained here.
By the way just
three trading days have elapsed since the signal was given and there has been a nice run
up. The moral is clear: Honor the Dow Theory signal as soon as it is given. Don’t
expect that by delaying your entry (or exit) you are going to get a better price.
I plan to write in the future about the impact on performance by delaying the
entry/exit. Another project in my pipeline.
Here you have an updated chart:
 |
GOLD AND SILVER MINERS ETFs
The primary trend is
bullish since 12/18/2018 as explained here. On 02/24/2020 the primary bull market has been
reconfirmed, as both SIL and GDX have bettered their last recorded primary bull
market highs.
On 09/04/2019 SIL and GDX
made its last confirmed 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.
On 12/12/2019 SIL
bettered its primary bull market closing highs unconfirmed by GDX. Finally, on 02/24/2020 GDX bettered its
09/04/2019 primary bull market closing highs, and hence the primary bull market
has been reconfirmed. We can now declare the secondary reaction as finished,
and hence the secondary reaction is also bullish now.
Here you have an updated
chart. The blue horizontal lines depict the 09/04/2019 last recorded primary
bull market highs (relevant levels to be jointly broken in order to declare the
secondary reaction as extinguished). The blue round arrows highlight the
specific day each ETF broke up above its respective primary bull market high.
 |
By the way, this is the
secondary reaction that is successfully overcome (I mean that does not end up in being a primary bear market), and hence this primary bull
market is becoming a text-book example as far as the duration of the primary
bull market and number of secondary reactions is concerned. Will it survive the
next secondary reaction? We will see…
US INTEREST RATES
Depending on the way one
appraises the secondary reaction that led to the setup that resulted in the
primary bull market signal, the primary bull market was signalled either on
11/19/2018 or 12/18/2018. Rhea wrote that the definition of secondary reaction
is not carved in stone. The signal of 11/19/2018 was obtained by being
satisfied with just 14 trading days for TLT and 15 days for IEF. The signal of
12/18/2018 was obtained by being strict and demanding on a confirmed basis at
least 15 trading days on both ETFs. It’s up to each investor to decide what to
do (i.e. to commit to each signal 50% of one’s equity or go fully invested with
just one signal).
On 11/08/2019 as
secondary reaction was signaled, as explained here.
On 02/21/2020 TLT
bettered its last recorded primary bull market highs of 08/28/2019. On that
date IEF equalled (but did not better) its last recorded primary bull market
highs of 09/04/2019, and hence there was no confirmation. On 02/24/2020 IEF did
better its primary bull market highs and, therefore, we can declare the
secondary reaction as ended, and the primary bull market as reconfirmed.
All in all, the primary
bull market is now more than one year old.
Here you have an updated
chart depicting the last primary bull market highs, the secondary reaction that
follow and the final breakout.
Sincerely,
One Dow Theorist
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