Tuesday, August 10, 2021

Dow Theory Update for August 10: Primary bear market for SIL & GDX signaled on 8/9/2021

 Gold and Silver in a primary bear market as well



A) Market situation if one appraises secondary reactions not bound by the three weeks dogma.

The primary trend was bullish since May 7th, 2021, as explained here.


The secondary trend is bearish, as I explained in my post of June 21st, 2021.


On 8/4/2021, I explained that the setup for a potential primary bear market signal had been completed.

Following its 7/29/2021 rally highs, SIL declined sharply and on 8/9/2021 broke down below its 7/20/2021 secondary reaction lows. As for GDX, following its 8/3/2021 rally highs, on 8/9/2021 GDX broke down below its 7/23/2021 secondary reaction lows. Accordingly, a primary bear market has been signaled.


Here you have the updated charts:


This trade has been a losing trade. A 50% position on each precious metal would have resulted in a -13.95% loss, as you can see in the table below. The previous trade was a winner of 31.85%. 



Yesterday I wrote:

“Please mind that we should not focus on the outcome of any given trade. One of the Dow Theory tenets is that it is not infallible (if it were, it would self-destruct, as all traders would immediately pile in). Thus, we have to wait for several trades to see a pattern of consistent profits. Of course, the more trades we generate (i.e., by trading several markets and with alternative definitions of secondary reactions), the less time our portfolio will be in a drawdown. Followers of this blog are surely acquainted with our long-term performance since 2012 when I started discerning “live” the trends using the Dow Theory. There has been consistent outperformance versus Buy and Hold and a pronounced drawdown reduction for all markets I have followed. The following link contains the analysis of the results of all signals. As you can see, there have been winners and losers in the past, but the aggregate effect is apparent: outperformance versus buy and hold and, more importantly, significant drawdown reduction.”


I feel that we will not see a stellar performance in precious metals and their ETF miners until SIL & GDX enter into a secular bull market. As of this writing, the secular trend for both ETFs remains bearish. For me, “secular” means the trend as discerned by applying the Dow Theory to weekly bars. More info about this vital aspect 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.


The primary trend was bullish since May 7th, 2021, as explained here.


I explained about the secondary trend turning bearish (secondary reaction against the primary bull market) and the rally that set up both ETFs for a primary bear market signal in my post of 8/4/2021.


The charts and the outcome of this trade coincide with our explanation under the letter “A” above. In this specific instance, both the “longer-term” Dow Theory and the “shorter-term” one coincide.



Manuel Blay

Co-Editor of thedowtheory.com



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