Dow Theory Special Issue: Putting 2014 in perspective II

 Gold, Silver and their miners ETFs.

The first part of this study concerning US Stocks can be found here.

Gold and Silver

2014 began with an ongoing primary bear market in gold and silver which had been signaled by this blogger truly yours on December 20^th, 2012 (as explained here). The primary bear market signal was not reversed until January 16th, 2015, as explained here.

2014 is over and precious metals have suffered losses during that year. Thus, we can talk of a successful primary bear market signal, in the sense that investors have been spared losses. I insist; the beauty of the Dow Theory lies not so much in “outperforming” nicely ascending markets (as stocks in 2013 and 2014) but rather in determining the onset of a primary bear market soon enough so that losses are avoided. 

Here you have a chart displaying 2014 (GLD), from January 2nd (first trading day) to December 31st.

Out of the market, it was a primary bear market for GLD

Now let's have a look at losses, as shown in the spreadsheet:

	BUY AND HOLD			DOW THEORY
	GLD			GLD
Jan 2	118.00		Jan 2
dec 31	113.58		dec 31	out of the market
loss	-0.03746		loss	No loss

Dow Theory outpeformance

0.03746

Well, since according to the Dow Theory we were on the sidelines during the whole year, no losses were incurred by those investors who decided to follow the trend versus -3.746 % lost by buy and hold (and with hair-curling temporary declines far exceeding the overall -3.746% loss). So the outperformance (as loss avoided) for the Dow Theory is clear. Furthermore, you have to bear in mind that during 2013 we were also on the sidelines, hence avoiding a whopping -28.83% loss for that year.

As to SLV, Here you have a chart displaying 2013, from January 2nd (first trading day) to December 31st. 

 

SLV: Same as GLD. We didn't toch it.

Now let's have a look at profits, as shown in the spreadsheet:

	BUY AND HOLD			DOW THEORY
	SLV			SLV
Jan 2	19.23		Jan 2
dec 31	15.06		dec 31	out of the market
loss	-0.21684		loss	No loss

Dow Theory outpeformance

0.21684

Since according to the Dow Theory we were on the sidelines during the whole year, no losses were incurred by those investors who decided to follow the trend versus -21.684% lost by buy and hold. So the outperformance (as loss avoided) for the Dow Theory is clear. Furthermore, you have to bear in mind that during 2013 we were also on the sidelines, hence avoiding a whopping -37.46% loss for that year.

If you were skeptical about my claims that the Dow Theory outperformance is built upon avoiding losses rather than by making outsized gains (i.e. by beating buy and hold and good years) here you have the living proof with precious metals. Thus, those that might be feeling unsatisfied with the relatively modest performance by stock indices traded in pursuance with the Dow Theory during 2013 and 2014 versus buy and hold, now can see the looks of a real bear market and how it can result in drawdowns exceeding 50% (as with silver).

Gold and Silver miners

2014 began with an ongoing primary bear market in gold and silver miners ETFs (GDX and SIL) which had been signaled by this blogger truly yours on November 20^th, 2013, as explained here and here.

Thus, we stood on the sidelines the whole year, as the primary bear market was not reversed during that year (it has been recently reversed by a primary bull market signal on January 12, 2015)

 

Here you have a chart displaying 2013 (GDX), from January 2nd (first trading day) to today December 31st. 

Whole 2014 under a primary bear market spell: No positions taken

 

Now let's have a look at profits, as shown in the spreadsheet:

	BUY AND HOLD			DOW THEORY
	GDX			GDX
Jan 2	22.03		Jan 2
dec 31	18.38		dec 31	out of the market
loss	-0.1657		loss	No loss

Dow Theory outpeformance

0.1657

So the Dow Theory helped us avoid a -16.57% loss in GDX.

And what happened with SIL?

Here you have the chart for 2014:

SIL also on a bear market. No positions takes during 2014

We also stood on the sidelines for the whole year 2014, and hence we kept our powder dry. Let’s have a look at SIL’s performance  for buy and hold versus the Dow Theory:

	BUY AND HOLD			DOW THEORY
	SIL			SIL
Jan 2	11.62		Jan 2
dec 31	9.26		dec 31	out of the market
loss	-0.2031		loss	No loss

Dow Theory outpeformance

0.2031

So the Dow Theory helped us avoid a -20.31% loss in SIL.

Conclusions:

When it comes to precious metals ETFs, it is clear that the Dow Theory did a good job at keeping us safe. Once again, you can see that the Dow Theory outperformance is bred by bear markets by avoiding drawdowns.

Furthermore, you can see that signals are not displayed so often. For the precious metals universe no signal was flashed at all during 2014.

Finally, if you look at the precious metals chats you will see that some pretty strong rallies occurred which tricked several market analysts (Russell, and others come to my mind) into becoming prematurely bullish. You can see that the Dow Theory was not tricked at all, because it has the uncanny ability to tell the difference between a secondary reaction and the real thing (a primary bull market).

No more words are necessary as the facts speak for themselves.

Sincerely,

The Dow Theorist

Dow Theory Update for February 6: Secondary reaction for gold and silver signaled today

Primary trends unchanged

US STOCKS

The SPY, Industrials and Transports closed down. On Thursday, January 29, the Industrials violated their secondary reaction lows (which puts us very near to a primary bear market signal). On Friday 30, the Transports did so. However, lack of confirmation as the SPY has refused to violate its secondary reaction lows) prevents us from declaring a primary bear market. Some market analysts have declared the existence of a primary bear market. Read my post “It is not a primary bearmarket” in order to understand why the proper interpretation of Schannep’s Dow Theory negates a primary bear market (at least for the time being).

Stocks set up for a primary bear market signal on January 23^rd, as explained here. However, as “set up” is not the “real” thing. So we have to wait.

The primary trend remains bullish, as explained here and here.

The secondary trend is bearish as explained here.

Gold and Silver

SLV and GLD closed down, very down. The primary trend is bullish as explained here. The secondary trend has turned bearish today (secondary reaction), since:

            a) we have had 11 trading days of declining prices.

b) the current decline has retraced more than 1/3 of the previous primary bull market swing (the one that started at the bear market lows of November 5^th, 2014 and finished, at least temporarily, at the January 22^nd, 2015 closing highs

c) the volatility-adjusted decline exceeds the minimum threshold for a secondary reaction to be declared. More about volatility adjustments here.

 

Please mind that either “b” or “c” suffice to declare the secondary reaction. However, I like it better if both “b” and “c” requirements are met.

Here you have the volatility adjustment calculations:

	30 days avg daily volatility
GLD	0.0109		SLV	0.01551
SPY	0.00849		SPY	0.00849
Volt ratio	1.28386337			1.82685512
Min Movement	3.85159011			5.48056537
High	125.23			17.61
Low	118.64			16.03
% decline	-0.05262317			-0.08972175

And here you have the updated chart. The red rectangles on the right highlight the secondary reaction.

Secondary reaction for SLV and GLD signaled today

Gold and Silver miners ETFs (GDX and SIL)

As to the gold and silver miners ETFs, SIL closed and GDX closed down.

On January 12, 2015, a primary bull market was signaled. More information as to the details of such a signal here.

The primary and secondary trend is bullish.

I cannot say the secondary trend has turned bearish because:

a) the volatility-adjusted decline for GDX does not reach 9.89% (which is the minimum volatility-adjusted movement). The current decline is a mere -0.07%. Since ,according to the Dow Theory, we need the two indices (ETFs) to exceed the minimum volatility-adjusted decline, I didn’t even bother to measure SLV’s volatility-adjusted decline.

b) GDX has retraced a ca. mere 25%, which falls short of the 1/3 minimum requirement.

So, whatever measure I take in order to ascertain a secondary reaction, it is still too early yet.

Here you have the calculations for GDX:

GDX	0.028
SPY	0.00849
Volt ratio	3.29799764
Min Move	9.89399293
High	22.94
Low	21.33
% decline	-0.07018309

Sincerely,

The Dow Theorist