Dow Theory Update for July 8: Primary and secondary trend for US indices bullish

Primary trend for gold, silver and their ETF miners bullish. Secondary trend remains bearish

US STOCKS

The primary trend as per Schannep’s Dow Theory is bullish since March 1^st, 2019 when both the Industrials and the S&P 500 closed at +19% from the 12/24/2018 bear market closing lows.

However, “capitulation” suggested the opening of a partial commitment to stocks on the very day of the market bottom (12/24/2018). More about that partial commitment here.

  

And more about “capitulation” in general in the following links:

http://www.dowtheoryinvestment.com/2019/03/dow-theory-special-issue-capitulation.html

http://www.dowtheoryinvestment.com/2019/03/dow-theory-special-issue-capitulation_22.html

http://www.dowtheoryinvestment.com/2019/05/dow-theory-special-issue-capitulation.html

The secondary trend turned bullish (official end of secondary reaction) on 06/20/2019, when both the Industrials and the S&P 500 broke up their respective primary bull market closing highs, and, hence, the secondary reaction which was signaled on May 9, 2019 as explained here. and here was ended.

Here you have an updated chart. 

End of secondary reaction displayed by the blue arrows

As per the Rhea/classical Dow Theory, the secondary reaction has not changed. Since the Classical Dow Theory uses only two indices (Industrials and Transports) and the Transports, and the Transports have not bettered their primary bull market closing highs, the secondary reaction remains in force, and, hence, the setup for a primary bear market has not changed.

Here you have an updated chart as per the “Rhea/Classical” Dow Theory.

As per the "Rhea/Classical" Dow Theory the secondary reaction remains in force

 

GOLD AND SILVER

The primary trend is bullish since 12/24/2018 as explained here. No changes. We finally got a secondary reaction on 4/16/2019 when GLD violated its 03/07/2019 closing lows (and confirmed SLV which had done so some days ago). More about the entrails of such a secondary reaction here and here.

Furthermore, currently SLV and GLD setup for a primary bear market signal as was explained here.

On June 18^th, 2019 GLD managed to break up above the closing highs of the primary bull market unconfirmed by SLV. Hence, we cannot declare the end of the secondary reaction. However, since the primary trend has been bullish (we only have a secondary reaction), the primary trend remains bullish. However, the longer it takes for SLV to confirm the more suspect the higher highs made by GLD will look.

Here you have an updated.The blue horizontal lines display the last primary bull market highs. As you can see, SLV is seriously lagging behind gold. 

SLV weaker than GLD refuses to confirm. Secondary reaction remains in force. Primary trend is bullish, though

  

GOLD AND SILVER MINERS ETFs

The primary trend is bullish since 12/18/2018 as explained here. No changes. 

The secondary trend is bearish (secondary reaction) since 4/18/2019 when GDX violated its previous 03/06/2019 closing lows (and confirmed SLV which had done so several days before), as was explained here. and here

Furthermore, currently SIL and GDX setup for a primary bear market signal as was explained here.

On June 17^th, 2019 GDX managed to break up above the closing highs of the primary bull market unconfirmed by SIL. Hence, we cannot declare the end of the secondary reaction. However, since the primary trend has been bullish (we only have a secondary reaction), the primary trend remains bullish. However, the longer it takes for SIL to confirm the more suspect the higher highs made by GDX will look.

Here you have an updated chart  The blue horizontal lines display the last primary bull market highs. As you can see, SIL is seriously lagging behind GDX. 

SIL much weaker than GDX refuses to confirm. Secondary reaction remains in force. Primary trend is bullish, though

 

Sincerely,

The Dow Theorist

Dow Theory Special Issue: Capitulation The ultimate bottom indicator (IV)

Shortening of the time requirement for secondary reactions

As a reminder, I have been writing about capitulation in the following posts.

http://www.dowtheoryinvestment.com/2019/03/dow-theory-special-issue-capitulation.html

http://www.dowtheoryinvestment.com/2019/03/dow-theory-special-issue-capitulation_22.html

http://www.dowtheoryinvestment.com/2019/05/dow-theory-special-issue-capitulation.html

As I explained in the past, “capitulation” is a mean reversing tool. When markets get severely oversold, we derogate from trend following, and bet for a trend reversal. The track record of the “capitulation” indicator is outstanding. It works.

However, “capitulation” is not just a tool to signal the opening of a partial long commitment, it also serves to shorten the time requirement needed to declare the existence of a secondary reaction. Of course, if capitulation serves to shorten the time requirement for a secondary reaction indirectly it serves to set up stocks for a primary bull market signal. As we know, for a primary bull market signal to exist, we need first to get a secondary reaction (and thereafter, a pullback and subsequent breakout). Thus, capitulation not only implies the opening of a partial long position at the very moment it is signaled, but also “eases” the requirements for a primary bull market signal by shortening the time requirement.

Schannep in his newsletter to subscribers of November 1^st, 2008, shortened the time requirement for a secondary reaction to just 1 week following capitulation. In other words, following the last lows after or at capitulation, just ONE week of a rally exceeding 3% (confirmed by at least two indices) will suffice to declare a secondary reaction.

 

It is good to recall Schannep’s requirements for a “normal” secondary reaction in order to derive the specific rules for the “shortened” secondary reaction.

Here are the rules for a “normal” secondary reaction:

A secondary reaction which interrupts the primary trend must last a minimum 10 calendar days on 2 of the 3 indices with at least 8 trading days as the average of all three indices (Dow Jones Industrials, Transports, and the S&P500)

Hence, if we halve the time requirement. We could rewrite the rules for a shortened secondary reaction as follows:

A secondary reaction which interrupts the primary trend must last a minimum 5 calendar days on 2 of the 3 indices with at least 4 trading days as the average of all three indices (Dow Jones Industrials, Transports, and the S&P500).

This is why, after the capitulation event of December 24^th, 2018, I was looking for a secondary reaction as soon as we had had a rally lasting four trading days, as was explained here

All in all, capitulation not only prompt us to act by opening a partial long commitment, but also serves us to shorten the time requirement for a secondary reaction which results in full primary bull market signals being signaled earlier.

Sincerely,

The Dow Theorist