Dow Theory Update for March 14: Setup for a primary bear market signal for GLD and SLV completed on 3/13/23

 

Executive Summary:

1. The primary tend for gold and silver remains bullish.

2. However, the setup for a potential primary bear market signal was completed on 3/13/23

General Remarks:

In this post, I thoroughly explained the rationale behind my use of two alternative definitions to appraise secondary reactions.

GOLD AND SILVER

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

I explained HERE that gold and silver have been in a primary bull market since 12/1/22.

A few weeks ago, I spotted three technical developments that made the ongoing rally suspect and made a secondary (bearish) reaction against the primary bull market likely. On 2/15/23, we got the expected secondary reaction (as explained HERE).

 

Following the 2/24/23 (GLD) and 3/8/23 (SLV) lows, both metals rallied on a confirmed basis for >=2 days. Such a bounce has enough extent to set up both ETFs for a potential primary bear market signal, as the rally amply exceeds the Volatility-Adjusted Minimum Movement (VAMM, more about it HERE).

The Table below gives you all the relevant data.

 

 So, now we have two options:

a) if the rally continues until the 2/1/23 (GLD) and 1/13/23 (SLV) market highs are jointly broken topside, the secondary reaction will be canceled, and the primary bull market will be reconfirmed (Step #1 in the Table above).

b) if GLD and SLV start heading south and jointly violated their secondary reaction lows (Step #2 in the Table above), a primary bear market would be signaled.

The charts below display the current situation. The brown rectangles highlight the secondary reaction against the primary bull market. The violet rectangles show the most recent bounce that set up both precious metals for a potential primary bear market signal. The blue horizontal lines highlight the last recorded primary bull market highs. The red horizontal lines show the secondary reaction lows whose violation would signal a new primary bear market.

 B) Market situation if one sticks to the traditional interpretation demanding at least three weeks of movement to declare a secondary reaction.

I explained HERE that gold and silver have been in a primary bull market since 12/1/22. Finally, the pullback has met the time requirement for a secondary reaction as GLD declined for 16 trading days and SLV for 36 trading days. As you can see in the Table under section “A” above, the extent requirement has also been fulfilled, so there is a secondary reaction against the primary bull market. The following bounce (step #3 in the Table above) has also set up GLD and SLV for a potential primary bear market signal.

So, in this specific instance, the trend's long and short-term appraisals give the same verdict: the setup for a potential primary bear market has been completed.

Sincerely,

Manuel Blay

Editor of thedowtheory.com