A line formed in SLV and GLD, and primary bear market reconfirmed for SIL and GDX
US STOCKS
Schannep’s Dow Theory (more properly: The Dow Theory for the 21st Century)
On 3/16/2021, the primary trend was bullish since April 6th, 2020, as was explained here.
So the primary bull market signal is nearing one year old. We don't know when we will get a primary bear market signal as trends, once established, tend to last. We know, though, that a Buy taken according to Schannep's Dow Theory shows unrealized profits north of 50%. Who would have thought in April when everything was gloom and doom? It’s good to remember that in early April 2020, the prevailing sentiment was very bearish. On April 8th 2020, I posted in my Seeking Alpha blog an article explaining why a new bull market had been born. One reader in tune with the prevailing mood commented as follows:
What bull market you are referring to? Based on history? Based on the people’s jobs being lost and still upping? Based on all the business still being shut down Around the world? Based on record high debt across the board?
My answer, based on Schannep’s Dow Theory, was:
“I know it is difficult to swallow when so much misery surrounds us. However, no bull market is borne among optimism. Maybe, and I write “maybe” as I don’t have a crystal ball, the recovery is around the corner, and markets are anticipating it. I don’t know. What I do know is that the trend has turned bullish and that the Dow Theory detected the bear market quite timely. The new bull market, in itself, is not a guarantee of further advances but merely that the odds favor more advances. We have to embrace uncertainty. Furthermore, I can give you a number: 90% of bull markets as the one defined in this post (so-called “bull market definition” which entails a confirmed rally of +19% on both the SP500 and Industrials off the bottom) have made a total advance of at least +29% historically. The median gain has been 74% in 25.4 months. Could this new bull market belong to the 10% that does not make it? Who knows? We are just dealing with odds.
While right now all is gloom and doom, there are very well informed investors with proven backgrounds who are nevertheless optimistic and think the worse is already over. Calafia Beach Pundit is one of those no-nonsense writers who believe that. You might consider reading this post:
I make no pretense of knowing the future. What I know, though, is that more often than not, sound technical analysis outsmarts me.” (emphasis added)
The moral of this story is that we have to honor all trades. Skip one based on your “gut feeling,” and you risk missing the best one. Discipline is key to successful investing. Of course, to be disciplined, you must know inside out your trading system and have full faith in its soundness. This is why I blog. To cement further my faith and understanding in the Dow Theory.
The secondary trend is bullish since 11/13/2020 (successful termination of a secondary reaction), as was explained here.
While both trends are bullish, clouds are gathering on the horizon, and I wouldn’t be surprised that we are nearing a top. Whether it’ll be a significant top evolving into a bear market or just a minor one becoming a secondary reaction, nobody knows. What I do know, though, is that many technical warnings are piling up. The specific account of such technical warnings and their charts may be found in our April 1st Letter to Subscribers of thedowtheory.com. As an aside, it is worth mentioning that this blog alerted on January 24th, 2020, that a top was in the making. Likewise, Subscribers of thedowtheory.com were also advised to, at least, lighten up positions.
“Rhea’s /classical" Dow Theory
A) Market situation if one is to appraise secondary reactions not bound by the 3 weeks dogma.
The primary trend is bullish since 4/29/2020, as explained here. This primary bull market signal was determined by just demanding 13 and 18 trading days to appraise the secondary reaction that led to the primary bull market signal.
The secondary trend is also bullish, as was explained in depth here.
B) Market situation if one sticks to the traditional interpretation demanding more than three weeks of movement in order to declare a secondary reaction.
For those strictly demanding more than 15 confirmed days of declining prices, the primary bull market was signaled on 5/26/2020. More details about this alternative signal are to be found in our June 1st, 2020 Letter to Subscribers.
The secondary trend is also bullish, as was explained in depth here. As of this writing, both the Dow Industrials and Transportation continue making higher highs and, hence, no secondary reaction is in sight.
GOLD AND SILVER
The primary trend was signaled as bearish on 11/27/2020, as was profusely explained here.
The secondary trend is bullish (secondary reaction against the primary bear market), as was explained here. On 1/15/2021, the setup for a primary bull market signal was completed as explained here. Please mind that “setup” is not tantamount to the actual signal.
On 2/17/2021, SLV broke topside its 1/4/2021 secondary reaction highs unconfirmed by GLD, so no primary bull market was signaled. On 2/26/2021, GLD violated its 11/27/2020 primary bear market lows unconfirmed by SLV. All in all: tie, as both a bullish breakup and a bearish breakdown were not confirmed. However, one of the tenets of the Dow Theory is that, until reversed, the current trend remains in force, and the primary trend is bearish.
I spot on the charts the formation of a line (narrow range). For GLD (bottom chart) it jumps to the eye. For SLV, while not so apparent, it also fulfills the extent and time requirements for a line, namely a duration of at least 2 to 3 weeks and a range of approximately 5% (which for SLV could be a little bit more if we performed a volatility adjustment (more about it here) to account for SLV’s higher daily volatility versus US stocks indices).
The spreadsheet below summarizes the key data concerning the line.
On 3/29/2021, SLV violated the line lows unconfirmed by GLD. So no conclusions can be inferred.
If SLV’s line top (3/17/2021 @24.42) and GLD’s (3/17/2021 @163.61) were jointly broken up, and depending on the time of the rally that would lead to such a breakup, one could consider a change of the primary trend from bearish to bullish. Now it’s too early. We have to note, though, the vital 3/17/2021 closing highs on our charts.
Here you have updated charts:
B) Market situation if one sticks to the traditional interpretation demanding more than three weeks of movement in order to declare a secondary reaction.
The primary trend was signaled as bearish on 11/27/2020, as was explained here.
Off the 11/30/2021 bear market lows, both SLV and GLD rallied for 24 trading days until 1/5/2021. So the time requirement was more than met. As to the extent requirement, it was fully met. Both percentage-wise as in terms of retracements of the previous bear market swing which started on 11/6/2020. Please spare me the calculations as the chart patterns speak for themselves.
So the secondary trend is bullish (secondary reaction against the primary bear market).
Now we have an instance when both the “shorter-term” interpretation of the Dow Theory and the longer-term one is in gear. Thus, all I explained under the heading “A” is fully applicable here: We have a setup for a primary bull market signal and there are three alternatives (see above). Furthermore, a “line” has formed. The charts are the same as under the heading “A” so no need to include them here.
GOLD AND SILVER MINERS ETFs
A) Market situation if one is to appraise secondary reactions not bound by the 3 weeks dogma.
The primary trend was signaled as bearish on 11/23/2020, as was profusely explained here.
The secondary trend is bullish (secondary reaction against the primary bull market), as was explained here.
Following the 1/5/2021 closing highs for SIL and 1/4/2021 for GDX, a huge pullback materialized until 1/27/2021. Please spare me the calculations, as it is more than evident that such a pullback amply exceeds the volatility-adjusted minimum movement. So, the setup for a primary bull market signal has been completed.
On 2/17/2021, GDX broke down below its 11/24/2020 bear market lows unconfirmed by SIL. An array of successive unconfirmed lower lows continued until 3/1/2021. On 3/30/2021, SIL finally broke down below its 11/24/2020 bear market lows, and hence, albeit somewhat belatedly, the primary bear market has been reconfirmed. Such lower confirmed lows have turned the secondary trend as bearish, as the secondary (bullish) reaction against the primary bear market is hereby canceled.
Here you have updated charts:
B) Market situation if one sticks to the traditional interpretation demanding more than three weeks of movement in order to declare a secondary reaction.
The primary trend turned bearish on March 30rd, 2021 when SIL finally broke down below its 11/20/2020 secondary reaction lows (details about the secondary reaction and the rally that setup both ETFs for a primary bear market signal here and here). GDX had already violated its 11/20/2020 secondary reaction lows on 2/17/2021. Thus, somewhat belatedly, we got confirmation and a primary bear market has been signaled.
More details about the setup that led to the current bear signal here.
All in all, the primary and secondary trend of SIL and GDX is bearish.
Here you have the updated charts:
Overview:
The spreadsheet below displays the primary trend in the pairs SLV/GLD and SIL/GDX when we appraise it with either the “shorter-term” or "longer-term" interpretation of the Dow Theory. If one committed ideally 25% to each pair and trading style (shorter or longer-term) we would currently be 100% on cash. Red color displays a primary bear market (cash), and blue color displays a primary bull market.
US INTEREST RATES
General Remarks:
In this post, I provided a thorough explanation concerning the rationale behind my use of two alternative definitions in order to appraise secondary reactions.
TLT is the iShares 20 years
+ Treasury bond ETF. More about it here
IEF is the iShares 7-10 years Treasury bond ETF. More about it here.
Thus, TLT tracks longer-term US bonds, whereas TLT tracks middle-term US bonds. A bull market in bonds entails lower interest rates. A bear market in bonds represents higher interest rates.
A) Market situation if one is to appraise secondary reactions not bound by the 3 weeks and 1/3 retracement dogma.
The primary trend was signaled as bearish on October 5th, 2020, as was explained in-depth here.
None of the small rallies that developed after the primary bear market signal resulted in a secondary reaction. On 3/18/2021 a lower confirmed low was made, so the primary bear market remains in force.
B) Market situation if one sticks to the traditional interpretation demanding more than three weeks and 1/3 confirmed retracement in order to declare a secondary reaction.
The primary trend and secondary trend were signaled as bearish on January 6th, 2021, as was explained here.
On 3/18/2021 a lower confirmed low was made, so the primary bear market remains in force.
Sincerely,
Manuel Blay
(One Dow Theorist)
No comments:
Post a Comment