Monday, April 5, 2021

Dow Theory Update for April 5: Minor non confirmation in Precious metals may be indicating a temporary respite of the current downswings.


A minor non-confirmation of lower lows spotted on TLT and IEF as well


I only have time to post concerning SLV and GLD. The pattern on non-confirmation and even divergence I’ll explain below for SLV and GLD is also applicable to SIL and GDX, and to a minor extent to US bonds. Maybe by the end of this week, I’ll be able to pen a new post.



Please go to my previous post:



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 11/27/2020, 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 Dow Theory tenets is that, until reversed, the current trend remains in force, and the primary trend is bearish.


I spot, though, three developments on the charts.


Firstly, GLD is slightly diverging. Take a look at the charts below. Following the 3/5/2021 closing lows, SLV trended downwards. On the other hand, following the 3/8/2021 closing lows, GLD trended slightly upwards.


Secondly, starting 3/23/2021, SLV violated its 3/8/2021 minor low (please mind the word “minor”) for several days until 3/30/2021. All this array of lower lows was not confirmed by GLD, whose primary bear market low 3/8/2021 remains unpierced.


Thirdly, I explained the formation of a “line” (narrow range) on my April 1st, 2021 post.  Such a line was broken by SLV unconfirmed by GLD, which, if not bullish, is undoubtedly not bearish, at least short-term.


So, while it is much too early to declare the primary bear market dead, I see for the first time since late November 2020 the first “green shoots” within a primary trend that remains bearish to this day. A confirmed breakup of SLV’s line top (3/17/2021 @24.42) and GLD’s (3/17/2021 @163.61), 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. We have to mark the vital 3/17/2021 closing highs on our charts.


Here you have the 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.



The Dow Theorist

No comments:

Post a Comment