Dow Theory Investment

Thursday, June 6, 2019

Dow Theory Update for June 6th: Setup for primary bear market completed in US stocks

Primary trend for US stocks remains bullish

I am publishing on June 6^thbefore the open, what I wrote after the close of June 5^th

US STOCKS

The primary trend as per Schannep’s Dow Theory is bullish since March 1^s^t, 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 bearish on May 9, 2019 as explained here. and here

Yesterday I wrote that I was discerning a primary bear market setup in US stocks. Today, I had more time to look at it, and, yes, yesterday a primary bear market setup for US stocks had been completed. Both the Industrials and Transports had rallied for 2 days and the Transports, by a hair, had exceed the minimum movement threshold of 3% (not so the Industrials and S&P 500). Yesterday, the S&P 500 had only rallied by one day, hence not reaching the minimum 2 days requirement. However, as per Schannep’s Dow Theory to complete the setup only 2 days of rally following the secondary reaction lows on just two indices is necessary (which had been accomplished by the Industrials and the Transports). On the other hand, the +3% rally need occur only in just one index. No need of confirmation for that rally. This aspect has been explained in depth in this post.

If we take a look at today’s action (close of June 5th, 2019), we can even more clearly conclude that stocks have setup for a primary bear market signal. The Industrials and Transports have rallied for 3 days, whereas the S&P 500 have rallied 2 days. The Transports have rallied +4.44% , whereas the Industrials and the S&P 500 stand at 2.9% (please remember that we don’t need confirmation for this rally). Here you have the spreadsheet containing the calculations.

The spreadsheet below displays the decline underwent by each index from the primary bull market highs to the secondary reaction lows. A full-fledged secondary reaction decline.

Here you have one chart displaying market action since the 12/24/2018 primary bear market lows, which includes capitulation day, the subsequent signaling of a cyclical bull market, the top, and the secondary reaction (red oranges).

Big picture of the full primary bull market swing

The chart below is a close up of the current secondary reaction (red rectangles) and the rally (blue rectangles) that ensued which has setup US stocks for a primary bear market. If the blue horizontal lines got jointly broken up, the primary bull market would be reconfirmed and we will declare the ongoing secondary reaction as extinguished. If the red horizontal lines got jointly violated, a primary bull market would be signaled. So now we just have a binary outcome: Either reconfirmation of the bull market or new primary bear market.

The ongoing secondary reaction and subsequent rally that setup US stocks for primary bear market

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.

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.

Sincerely,

The Dow Theorist

Wednesday, June 5, 2019

Dow Theory Update for June 5th: Primary bear market setup completed for gold, silver and their miners’ EFT

I am writing on June 5th, 2019 before the close. So things might change by then. The charts shown have been produced at the close of June 4th, 2019

US STOCKS

The primary trend as per Schannep’s Dow Theory is bullish since March 1^s^t, 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 bearish on May 9, 2019 as explained here. and here

While today’s scarce time has been devoted to precious metals (read below), I feel that a setup for a primary bear market has been just completed on June 4^th, 2019 for US stocks. However, tomorrow I’d like to look more at the charts with more peace to give a final assessment.

GOLD AND SILVER

On 05/28/2019 SLV made a lower low which was unconfirmed by GLD. From that date SLV has rallied by 3.19%. GLD made its last low on 05/02/2019. From that date GLD has rallied by 4.34%. Oddly enough, both SLV and GLD’s daily volatility (30 days average) has been smaller than that of our benchmark the S&P 500. Hence, the volatility-adjusted minimum movement for SLV stands at 2.31% and that of GLD at 1.86%. When the volatility-adjusted minimum movement stands below 3%, I stick to one of the tenets of the Dow Theory that requires a minimum movement of 3%. More about volatility-adjusted readings here.

Here you have the spreadsheet displaying the calculations

Hence, SLV and GLD have completed a primary bear market setup. From this point two things can happen. Either the last recorded secondary reaction lows (shown with read lines in the charts below) are jointly violated in which case we will get a primary bear market signal or the last recorded primary bull market closing highs get jointly broken up (shown with light blue lines in the charts below) in which case the primary bull market will be reconfirmed.

Blue rectangles display the rally against the secondary reaction. Setup for primary bear market completed

Now we have to wait and see.

GOLD AND SILVER MINERS ETFs

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

On 05/22/2019, SIL made lower lows which were unconfirmed by GDX, hence suggesting that the secondary reaction may be nearing its end. From that date SIL has rallied by 8.9%. From 05/02/2019 (last recorded lows) GLD has rallied by 11.99%. Both ETFs have amply exceeded the volatility-adjusted minimum movement (see spreadsheet below) and hence the setup for a primary bear market has been completed.

From this point two things can happen. Either the last recorded secondary reaction lows (shown with read lines in the charts below) are jointly violated in which case we will get a primary bear market signal or the last recorded primary bull market closing highs get jointly broken up (shown with light blue lines in the charts below) in which case the primary bull market will be reconfirmed.