Tuesday, December 12, 2023

Dow Theory Update for December 12: Setup for a potential primary bull market in SIL and GDX completed on 12/11/23


General Remarks:

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


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

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

The primary trend for GDX and SIL turned bearish on 6/20/23. You may find an in-depth explanation HERE.

Following the 10/4/23 bear market lows a rally unfolded that qualified as a secondary reaction, as explained HERE.

This rally stopped on 12/4/23, and a pullback followed that lasted >=2 days and exceeded the Volatility-Adjusted Minimum Movement (more about the VAMM HERE) on at least one ETF to set up GDX and SIL for a potential primary bull market signal. We don't require confirmation When dealing with this kind of “setting up” pullback, as I explained in depth HERE.  Such a pullback set up both ETFs for a potential primary bull market signal. The Table below displays the relevant dates and prices:


Therefore, now we have the following options:

1. A primary bull market will be signaled if GDX and SIL jointly surpass their 12/4/23 closing highs.

2. If GDX and SIL continue going down and jointly break down below their 10/4/23 bear market lows, the primary bull market setup would be canceled, the secondary reaction terminated, and the primary bear market would be reaffirmed.

The charts below show the most recent price action. The blue rectangles display the current (bullish) secondary reaction against the still-existing primary bear market. The brown rectangles highlight the current pullback. The blue horizontal lines show the secondary reaction highs (Step #2), whose breakup would signal a new primary bull market, and the red horizontal lines highlight the bear market lows (Step #1), whose breakdown would reaffirm the bear market. The grey rectangles show rallies that did not qualify as a secondary reaction (and hence are ignored).


So, the primary trend remains bearish, and the secondary one is bullish (secondary reaction).


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, the primary trend was signaled as bearish on 6/20/23.

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. So, what I explained above applies fully to this section. The primary trend remains bearish and the secondary one is bullish. 


Manuel Blay

Editor of thedowtheory.com

No comments:

Post a Comment