Dow Theory Update for March 30: GDX and SIL are in a secondary reaction against the primary bear market

Gold and silver remain in a primary bull market.

 

EXECUTIVE SUMMARY       

1. The primary trend for SIL and GDX when using the “short term” version of the Dow Theory turned bearish (secondary reaction) on 2/22/23. However, there is a secondary (bullish) reaction.

2. If we appraise the trend for SIL and GDX with the “long term” version of the Dow Theory, the primary trend remains bearish and the secondary one bullish.

3. Gold and Silver are in a secondary reaction against the primary bull market (as explained HERE)

 

General Remarks:

This post thoroughly explained the rationale behind using two alternative definitions to appraise secondary reactions. 

GOLD AND SILVER MINERS ETFs

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

As explained HERE, the primary trend was signaled as bearish on 2/22/23. Following the 3/9/23 closing lows, a rally ensued. Such a rally meets the time (at least ten trading days) and extent (in terms of volatility-adjusted minimum movement) requirements for a secondary reaction.

The table below shows the price action that led to the development of the secondary reaction (Step #2):

 

So, now we have three options:

1) if there is a pullback on both ETFs of at least two days that exceed the VAMM, the setup for a potential primary bull market will have been completed.

2) if no such pullback occurs, and both ETFs continue higher until jointly breaking up their 1/25/23 closing highs, a primary bull market will be signaled.

3) if SIL and GDX headed south and jointly broke down below their respective 3/9/23 primary bear market lows, the primary bear market would be reconfirmed, and the secondary reaction canceled.  

The charts below display the most recent price action. The brown rectangles show the secondary reaction against the then-existing primary bull market. The red arrows highlight the breakdown of lows of the last completed secondary reaction, which signaled the primary bear market. The blue rectangles show the current secondary (bullish) reaction against the bear market. The blue horizontal lines display the last recorded primary bull market highs whose breakup would signal a new primary bull market. The red horizontal lines show the 3/9/23 primary bear market lows, whose breakdown would cancel the secondary reaction and reconfirm the 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.

 

The primary trend was signaled as bearish on 3/7/23, as summarized in the Table below:

Following the 3/9/23 closing lows, a rally ensued. Such a rally meets the time (at least fifteen trading days) and extent (in terms of volatility-adjusted minimum movement) requirements for a secondary reaction.

The table below shows the price action that led to the development of the secondary reaction (Step #2):

 

So, as with the short-term rendering of Dow Theory, the longer-term version is confronted with three options:

1) if there is a pullback on both ETFs of at least two days that exceed the VAMM, the setup for a potential primary bull market will have been completed.

2) if no such pullback occurs, and both ETFs continue higher until jointly breaking up their 1/25/23 closing highs, a primary bull market will be signaled.

3) if SIL and GDX headed south and jointly broke down below their respective 3/9/23 primary bear market lows, the primary bear market would be reconfirmed, and the secondary reaction canceled.  

The charts below show the most recent price action. The brown rectangles highlight the secondary reaction against the then-existing primary bull market. The violet rectangles show the rally that followed the secondary reaction lows that set up SIL and GDX for a primary bear market signal. The red horizontal lines highlight the secondary reaction lows whose breakdown signaled the primary bear market. The blue horizontal lines show the primary bull market highs whose confirmed breakup would signal a new primary bull market. 

 

 So, in this specific instance, the trend's long and short-term appraisals give the same verdict: a secondary reaction and the same price levels for a primary bull market signal or a reconfirmation of the primary bear market.

Gold and Silver:

While not the object of this post, the primary trend for GLD and SLV is bullish, as explained HERE.

The table below gives a recap of the primary trend across the precious metals spectrum:

 

 Sincerely,

Manuel Blay

Editor of thedowtheory.com