Setup for a primary bull market in SLV and GLD explained
US STOCKS
Under Schannep’s Dow Theory
The primary trend, signalled on 10/25/2019, remains
bullish as was explained
here and here. On February 5th, the S&P 500 bettered
its last recorded primary bull market highs unconfirmed. On February 6th, the
Industrials confirmed.
Under Schannep’s Dow Theory we just need confirmation
from two indices. Hence, the lack of confirmation of the Transports is
immaterial in order to declare the end of the secondary reaction. By breaking
above their last recorded primary bull market closing highs of 1/17/2020, the
primary bull market has been reconfirmed.
However, to be “in the clear” (and to be more
optimistic about the actual bullishness of the market) we need confirmation
from the Transports. I am personally bothered by the persistent weakness of the
Transports which have not been able to better their all-time closing highs of
09/14/2018, and, more recently, their last recorded primary bull market closing
highs of 1/17/2020 .
All in all, the primary bull market continues, and we “reset”
the clock to zero in order to appraise the next secondary reaction. Now both
the primary and secondary trend are bullish.
Here you have an updated chart:
It is important to note that Schannep, of
thedowtheory.com who normally sees the bottle half full, in his most recent
letter to subscribers has shown some skepticism as to the continuation of this
bull market. His last letter is a real tour de force which every committed
investor should read several times to let all the wisdom soak in. I also wrote
some days ago that my own personal trading reflects underlying weakness still
not fully manifested in the indices.
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.
GOLD AND SILVER
The primary 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.
Now, dear readers, pay
attention, as we have an interesting technical situation.
As you know, and as I wrote here, there are several
alternative primary bull (and bear) market signals. The most frequent one is
the following sequence: Primary bear market lows, rally (secondary reaction),
pullback and breakout above the secondary reaction closing highs.
However, there is also an alternative primary bull
(bear) market signal, namely that off the primary bear market lows a powerful
rally emerges without any pullback which finally breaks up the last recorded
primary bull market highs. The third one, not applicable in the current SLV/GLD situation, is the breaking out of the closing highs (lows) of the previously last completed secondary reaction.
Here you have the coarse chart depicting the three
alternative bull market signals.
Well, currently we are flirting with two alternative
primary bull market signals.
On the one hand, the have the “unusual” one, namely
that without any pullback, the last recorded primary bull market highs get
broken out. On 1/6/2020 GLD broke up above the last recorded primary bull
market highs unconfirmed by SLV. Lack of confirmation implies that we cannot
declare the end of the current primary bear market until SLV break up above its
primary bull market highs. In the charts below the blue horizontal lines depict
the relevant levels to be bettered. The charts below display the price action
from mid November 2019 to date. Please mind that this is one of the alternative
primary bull market signals.
On the other hand, more recently, the setup for a “normal”
primary bull market signal has been completed. Following the secondary reaction
closing highs of 1/7/2020, there was a pullback on both precious metals which
completed the setup for a primary bull market signal. The pullback of -4.95% complied
with the minimum volatility requirement which currently stands for SLV at
4.58%. Please mind that when I deal with assets other that US stocks I adjust
the minimum volatility requirement (3% for US stocks) to the volatility of the
asset concerned. In other words, if the daily percentage change, averaged over
a large number of days, of the asset “A” doubles that of the SPY (or S&P
500), for a movement to be meaningful I will demand a minimum percentage of 6% (2 x 3%). I
calculated the 1000 days average of the daily volatility for both SLV and the
SPY and the volatility adjusted figure reads 4.58%. Hence a pullback of -4.95%
is relevant and should be taken into account in order to conclude that the
setup for a primary bull market signal has been fulfilled. GLD, though, has not
reached the minimum volatility requirement. However, this is immaterial, as the
principle of confirmation is not applicable to the final pullback. More about
the nuances concerning the principle of confirmation, which are vital to a
proper application of the Dow Theory, here:
Here you have the spreadsheet with the specific dates
and calculations:
The charts below display the current situation. The
green thick horizontal lines display the price level of the last recorded
primary bull market closing highs. As I explained above GLD broke up above the relevant
level unconfirmed, and hence there was no signal, and there will never be, as the “normal” signal (blue horizontal line)
is at a lower level.
The blue horizontal lines display the secondary
reaction closing highs, which, as you can see, only GLD has broken. When or if
SLV breaks out above the blue horizontal line a primary bull market will be
signaled.
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| Two alternative primary bull market signals. The "normal" one (blue horizontal lines) will finally prevail |
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.
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. Here you have an updated chart displaying
the current situation. As you can see from the charts, both ETFs are close to
bettering their last recorded primary bull market closing highs.
 |
| US interest rates remain in a primary bull market and are close to reconfirming it |
Sincerely,
One Dow Theorist
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