Dow Theory Update for September 6: Secondary reaction against primary bear market for gold and silver

 

Secondary trend for SIL and GDX turned bearish too. It'll be updated on my next post

GOLD AND SILVER

 

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

The primary trend was signaled as bearish on 8/6/2021, as was explained here.

 

On 8/20/2021, SLV made a lower low unconfirmed by GLD. This was a warning that a change of the secondary trend might be at hand.

 

Off their respective bear market lows (8/10/2021 for GLD and 8/20/2021), GLD and SLV rallied for 19 and 10 trading days, respectively. As to the extent, as you can see in the table below, both precious metals have amply exceeded the volatility-adjusted minimum movements (VAMM). More about VAMM here.

 

 

So we can declare the existence of a secondary reaction as both the time requirement (19 and 10 trading days is enough) and the extent requirement (both precious metals are above their respective VAMM) have been met. 

 

Below the charts showing the most recent development: The breakdown of the secondary reaction lows (red horizontal lines) that resulted in a primary bear market signal, and the most recent rally (blue rectangles on the right side of the charts) that qualifies as a secondary reaction against the ongoing bear market

 

Remark: As you can read here, my real-time application since 2012 of the Dow Theory to gold and silver yielded promising results (less drawdown and more performance than Buy & Hold). However, I would not be surprised to see even better results if we used three ETFs (i.e., GLD, SLV and GDX), as it is likely that we would have more signal and less noise. So maybe the final word about applying the Dow Theory to precious metals has not been said yet, as I aim to do even better.

  

B) Market situation if one sticks to the traditional interpretation demanding more than three weeks of movement in order to declare a secondary reaction.

 

Nothing has changed.

 

The primary trend was signaled as bearish on 11/27/2020, as was explained here.

 

Off the 11/30/2020 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).

 

If we stick to a very strict (or rather misguided) interpretation of the classical Dow Theory, the change of the primary trend from bearish to bullish will occur if either one of the two alternatives below materializes:

 

1. The first one entails the breakup of the last secondary reaction closing highs (1/5/2021). SLV broke them up on 2/1/2021, unconfirmed by GLD. So, once GLD broke up its 1/5/2021 secondary reaction highs, it’d be indisputable that the primary trend has turned bullish.

 

2. The second one entails the breakup of the highs of the last completed secondary reaction (the first one of the current bear market). I have written profusely (i.e., here and here) about the importance of the highs/lows of the last completed secondary reaction (not the current one, but the previous one). The closing highs of such a reaction were made on 11/6/2020 for both SLV and GLD. On 12/7/2020, SLV broke up above its closing highs, unconfirmed by GLD. Once GLD confirmed, the primary trend would be bullish.

 

Sincerely,

Manuel Blay

Co-Editor of thedowtheory.com