Monday, December 23, 2024

Dow Theory signal: Bear Market for Gold and Silver Miners triggered on 12/18/24

 Analyzing the Impact of Powell’s Hawkish Stance on GDX and SIL

Overview: All markets, gold and silver miners included, reacted negatively to Powell’s more hawkish stance, as investors had anticipated more substantial and frequent rate cuts. The big drop GDX and SIL experienced on 12/18/24 triggered a primary bear market signal.

The precious metals themselves, gold and silver, are not in a Bear market, as SLV’s lower lows were not confirmed by GLD, which displayed good relative strength.  However, if GLD pierced on a closing basis, its 11/15/24 secondary reaction low at 236.59, a primary bear market would be signaled. So, the primary trend remains bullish, and the secondary one is bearish, as explained HERE.

General Remarks:

In this post, I extensively elaborate on the rationale behind employing two alternative definitions to evaluate secondary reactions.

SIL refers to the Silver Miners ETF. More information about SIL can be found HERE.

GDX refers to the Gold Miners ETF. More information about GDX can be found HERE.

A) Market situation if one appraises secondary reactions not bound by the three weeks and 1/3 retracement dogma 

As I explained in this post, the primary trend was signaled as bullish on 4/3/24.

My 11/19/24 post started to sound the alarms concerning a possible bear market signal on the horizon.

On 12/18/24, GDX and SIL jointly pierced their respective secondary reaction lows (11/13/24 for SIL and 11/15/24 for GDX), as shown in Step #2 in the table below. Such a confirmed breakdown shifted the trend from bullish to bearish.


So, the primary and secondary trends are bearish now.

The following charts depict the latest price movements. Brown rectangles indicate the secondary (bearish) reaction opposing the ongoing primary bull market. Blue rectangles highlight the recent rally that fulfilled the setup for a potential primary bear market (Step #3). Red horizontal lines mark the secondary reaction lows (Step #2). The blue horizontal lines show the bounce highs (Step #3), which independently also satisfy the time and extent requirement for a secondary reaction. A breach of these peaks would signal a new primary bull market, though this scenario appears unlikely in the near term.

So, the situation is as follows: At the current juncture, a breakup on a closing basis by both GDX and SIL of the 12/6/24 closing highs (Step #3) would signal a new bull market. Until this breakup occurs, we consider bonds in a bear market.

B) Market situation if one sticks to the traditional interpretation demanding more than three weeks and 1/3 confirmed retracement to declare a secondary reaction.

As I explained in this post, the primary trend was signaled as bullish on 7/31/24.

My 11/29/24 post started to sound the alarms concerning a possible bear market signal on the horizon.

In this instance, the long-term application of the Dow Theory coincides with the shorter-term version, so a primary bear market signal has been triggered on 12/18/24.

Sincerely,

Manuel Blay

Editor of thedowtheory.com

 

Beating the S&P 500: Why Your Stock Picks Might Be Falling Short

 The 40-Day Sweet Spot: Rethinking Your Stock Holding Period

Most S&P500 constituents fail to outperform the Index in the long run. The evidence provided by Kurtis Hemmerling in his LinkedIn post is compelling and highlights this challenge for individual stock pickers.

So, if you buy stocks for the long haul, the odds are greatly stacked against you. Buy and hold does not work. Neither for the Indexes, much less for individual stocks.

What to do to have a decent change of being a winner in the stock market?

1) Buy-and-hold investing in a portfolio of stocks is a recipe for underperformance. One cannot fall in love with a specific stock. The investor needs clear rules for when to buy and sell. The specific criteria for effective buying and selling will be addressed in a future discussion.

2) Shorten your holding period. Over shorter timeframes, such as a quarter, more stocks have the potential to outperform the S&P 500, even though eventually they will fizzle out. The table below, which I produced some months ago, shows that the “sweet” point for holding stocks is 40 days, as this holding period results in most stocks outperforming the index.

3) And last but not least, employ a reliable trend-following indicator. All stocks tend to decline during bear markets regardless of their individual merits. Our Composite Indicator does a great job in identifying market turns.

Interestingly, stocks are better timed by focusing on the overall market trend rather than their individual trends. This is because the signal-to-noise ratio of individual stocks is higher and more prone to false signals, while the market as a whole provides a more reliable indicator of its own trend and that of its constituent stocks (source: “Stock Market Cash Trigger“, David Alan Carter).

Does it entail more work? Yes, but the reward is less drawdowns and more outperformance. There are no shortcuts in the stock market, and success requires diligence and a well-thought-out strategy.

Sincerely,

Manuel Blay

Editor of thedowtheory.com


 

Thursday, December 19, 2024

Dow Theory Signals Bear Market in Bonds on 12/18/24

Powell’s Hawkish Tone Triggers Major Shifts in TLT and IEF

Overview: All markets, notably bonds, reacted negatively to Powell’s more hawkish stance, as investors had anticipated more substantial and frequent rate cuts. The big drop TLT and IEF experienced on 12/18/24 triggered a primary bear market signal.

Later today, or tomorrow, I will write about the bear market signal triggered also on 12/18/24 for the gold and silver miners ETFs (GDX & SIL).

General Remarks:

In this post, I extensively elaborate on the rationale behind employing two alternative definitions to evaluate secondary reactions.

TLT refers to the iShares 20+ Year Treasury Bond ETF. You can find more information about it here

IEF refers to the iShares 7-10 Year Treasury Bond ETF. You can find more information about it here.

TLT tracks longer-term US bonds, while IEF tracks intermediate-term US bonds. A bull market in bonds signifies lower interest rates, whereas a bear market in bonds indicates higher interest rates.

A) Market situation if one appraises secondary reactions not bound by the three weeks and 1/3 retracement dogma 

As I explained in this post, the primary trend shifted to bullish on 6/4/24.

My 11/29/24 post started to sound the alarms concerning a possible bear market signal on the horizon.

On 12/18/24, TLT and IEF jointly pierced their respective secondary reaction lows (11/13/24 for TLT and 11/6/24 for IEF), as shown in Step #2 in the table below. Such a confirmed breakdown shifted the trend from bullish to bearish.


 So, the primary and secondary trends are bearish now.

The following charts depict the latest price movements. Brown rectangles indicate the secondary (bearish) reaction opposing the ongoing primary bull market. Blue rectangles highlight the recent rally that fulfilled the setup for a potential primary bear market (Step #3). Red horizontal lines mark the secondary reaction lows (Step #2). The blue horizontal lines show the bounce highs (Step #3), which independently also satisfy the time and extent requirement for a secondary reaction. A breach of these peaks would signal a new primary bull market, though this scenario appears unlikely in the near term.


So, the situation is as follows: At the current juncture, a breakup on a closing basis by both TLT and IEF of the 12/6/24 closing highs (Step #3) would signal a new bull market. Until this breakup occurs, we consider bonds in a bear market.

B) Market situation if one sticks to the traditional interpretation demanding more than three weeks and 1/3 confirmed retracement to declare a secondary reaction.

As I explained in this post, the primary trend was signaled as bullish on 7/31/24.

My 11/29/24 post started to sound the alarms concerning a possible bear market signal on the horizon.

In this instance, the long-term application of the Dow Theory coincides with the shorter-term version, so a primary bear market signal has been triggered on 12/18/24.

Sincerely,

Manuel Blay

Editor of thedowtheory.com