Dow Theory Update for May 19th: Secondary reaction for GDX and SIL signaled 5/16/23

 SIL and GDX in a secondary reaction against the bull market

Executive Summary:

1. The primary trend for gold and silver is bullish, and the secondary one is bearish.

2. The primary trend for SIL and GDX was signaled as bullish on 4/4/23. SIL and GDX are under a secondary bearish reaction against the still-existing primary bull market.

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. 

The primary trend was signaled as bullish on 4/4/23, as explained HERE.

On 4/13/23, GDX and SIL made their last closing highs. Following such highs SIL dropped for more than 10 days, unconfirmed by GDX. On 5/16/23, GDX made a lower low, confirmed SIL, and accordingly, a secondary (bearish) reaction against the primary bull market was signaled. As to the extent requirement, it has also been fulfilled as GDX and SIL have amply exceeded the Volatility-Adjusted Minimum Movement (more about the VAMM HERE). 

The Table below shows the most recent developments. 

 

So, now we have the following options:

1) The most likely outcome is that we will get a >=2 days rally sooner or later, which exceeds the VAMM, thereby setting up both ETFs for a potential primary bear market signal.

2) if the two ETFs continue falling with no intervening rally, the joint penetration of the 3/9/23 closing lows (at 26.68 for GLD and 25.60 for SIL) would signal a new primary bear market. Such are the lows of the last primary bear market.

The charts below (top SIL, down GDX) display the most recent price action. The blue horizontal lines show the price level of the 1/25/13 closing highs, whose breakup signaled a new primary bull market on 4/4/23. The brown rectangles highlight the current secondary reaction. The read horizontal lines highlight the lows of last primary bear market (3/9/23).

Therefore, the primary trend is bullish, and the secondary trend is bearish.

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 bullish on 4/4/23, as explained HERE.

http://www.dowtheoryinvestment.com/2023/04/dow-theory-update-for-april-6-primary.html

In this specific instance, the trend appraisal using the “long-term” version of the Dow Theory yields the same results as the “short-term” one. The pullback amply exceeds 3 weeks, and the extent requirement is also met.  

Therefore, the primary trend is bullish, and the secondary trend is bearish.

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: 

 

We will see whether the ongoing secondary reactions will evolve into something worse: a primary bear market.

 Sincerely,

Manuel Blay

Editor of thedowtheory.com