I am writing before the close of 6/3/23. So readers,
beware, things may change.
Executive Summary:
1. The primary trend for gold
and silver is bullish, the secondary one is bearish, and the setup for a
potential primary bear market signal was completed on 6/1/23.
2. The primary trend for gold and
silver ETF miners (GDX and SIL) is bullish, the secondary one is bearish, and
the setup for a potential primary bear market signal was completed on 6/1/23.
General Remarks:
This post thoroughly explained the rationale behind using two alternative
definitions to appraise secondary reactions.
GOLD AND
SILVER
A) Market situation if one
appraises secondary reactions not bound by the three weeks dogma.
I explained HERE that gold and silver have been in a primary bull
market since 12/1/22.
The secondary trend is also bullish, as
explained HERE.
The table below gives you an update on the
current situation.
Following the 5/18/23 lows, a rally
ensued until 6/1/23. The rally being >=2 trading days and exceeding the
Volatility-Adjusted Minimum Movement (more about the VAMM HERE) on SLV completed the setup for a potential primary bear
market signal. Inquisitive minds may notice that the VAMM has not been
confirmed as GLD’s rally did not reach its VAMM (at 2.33% compared to a meager
rally of only 2%). So, am I doing away with the Dow Theory principle of
confirmation by merely demanding one index to rally more than the VAMM? I quote
what I wrote in my post of November 10th, 2012:
“Rhea wrote
that the principle of confirmation becomes more important the longer the time
frame. In other words, a primary bull market signal is meaningless without
confirmation. The same basically applies to secondary reactions. However, when
it comes to rallies (or small pullbacks in bear markets) which I would label
“tertiary movement," some Dow Theorists are lukewarm with the principle of
confirmation.
Here are two
quotes from Hamilton (contained in Rhea’s master book “The Dow Theory”) which
are illustrative:
“…Dow’s
theory….stipulates for a confirmation of one average by the other. This
constantly occurs at the inceptions of a primary movement, but is anything
but consistently present when the market turns for a secondary swing”
“This
illustration serves to emphasize the fact that while the two averages may vary
in strength they will not materially vary in direction, especially in a major
movement. Throughout all the years in which both averages have been kept this
rule has proved entirely dependable. It is not only true of the major swings of
the market but it is approximately true of the secondary reactions and rallies.
It would not be true of the daily fluctuation (…)”
So from the
two quotes, we can deduce that a rally may be considered in itself without
requiring confirmation. While this is not carved in stone, and confirmation is
always welcome, when we talk of a tertiary movement, we can be a little less
demanding with the principle of confirmation. Please mind that one of the
quotes even questions the inflexible application of the principle of
confirmation to secondary reactions. As far as I know, contemporary Dow
Theorists like Russell, and Schannep have not gone that far and require
confirmation for secondary reactions. So do I. “
So, now we have two options:
A) A breakdown by GLD and SLV of their 5/18/23
secondary reaction lows (Step #2) would signal a primary bear market.
B) A breakup by GLD and SLV of their 5/4/23 highs
(Step #1) would cancel the bear market setup, cancel the secondary reaction,
and confirm the primary bull market.
The charts below update the current situation. The
brown rectangles highlight the secondary reaction. The blue rectangles (right) show
the most recent rally that set up both ETFs for a potential primary bear market
signal. The red horizontal lines display the secondary reaction lows whose penetration
would signal a new bear market. The blue horizontal lines show the most recent
highs whose breakup would confirm the still-existing primary bull market.
B) Market situation if one sticks to the mainstream interpretation
demanding at least three weeks of movement to declare a secondary reaction.
I explained HERE that gold and silver have been in a primary bull
market since 12/1/22.
The current pullback being >=15
trading days meets the time required for a secondary reaction. The extent
requirement has also been met. 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, the setup for a
potential primary bear market signal has been completed. Please check the
table, charts, and explanation given above.
Therefore, the primary trend is
bullish, and the secondary trend is bearish.
Sincerely,
Manuel Blay
Editor of thedowtheory.com
