Dow Theory Update for September 6: Secondary reaction against primary bear market for gold and silver

 

Secondary trend for SIL and GDX turned bearish too. It'll be updated on my next post

GOLD AND SILVER

 

A) Market situation if one appraises secondary reactions not bound by the three weeks dogma.

The primary trend was signaled as bearish on 8/6/2021, as was explained here.

 

On 8/20/2021, SLV made a lower low unconfirmed by GLD. This was a warning that a change of the secondary trend might be at hand.

 

Off their respective bear market lows (8/10/2021 for GLD and 8/20/2021), GLD and SLV rallied for 19 and 10 trading days, respectively. As to the extent, as you can see in the table below, both precious metals have amply exceeded the volatility-adjusted minimum movements (VAMM). More about VAMM here.

 

 

So we can declare the existence of a secondary reaction as both the time requirement (19 and 10 trading days is enough) and the extent requirement (both precious metals are above their respective VAMM) have been met. 

 

Below the charts showing the most recent development: The breakdown of the secondary reaction lows (red horizontal lines) that resulted in a primary bear market signal, and the most recent rally (blue rectangles on the right side of the charts) that qualifies as a secondary reaction against the ongoing bear market

 

Remark: As you can read here, my real-time application since 2012 of the Dow Theory to gold and silver yielded promising results (less drawdown and more performance than Buy & Hold). However, I would not be surprised to see even better results if we used three ETFs (i.e., GLD, SLV and GDX), as it is likely that we would have more signal and less noise. So maybe the final word about applying the Dow Theory to precious metals has not been said yet, as I aim to do even better.

  

B) Market situation if one sticks to the traditional interpretation demanding more than three weeks of movement in order to declare a secondary reaction.

 

Nothing has changed.

 

The primary trend was signaled as bearish on 11/27/2020, as was explained here.

 

Off the 11/30/2020 bear market lows, both SLV and GLD rallied for 24 trading days until 1/5/2021. So the time requirement was more than met. As to the extent requirement, it was fully met. Both percentage-wise, as in terms of retracements of the previous bear market swing, which started on 11/6/2020. Please spare me the calculations as the chart patterns speak for themselves.

 

So the secondary trend is bullish (secondary reaction against the primary bear market).

 

If we stick to a very strict (or rather misguided) interpretation of the classical Dow Theory, the change of the primary trend from bearish to bullish will occur if either one of the two alternatives below materializes:

 

1. The first one entails the breakup of the last secondary reaction closing highs (1/5/2021). SLV broke them up on 2/1/2021, unconfirmed by GLD. So, once GLD broke up its 1/5/2021 secondary reaction highs, it’d be indisputable that the primary trend has turned bullish.

 

2. The second one entails the breakup of the highs of the last completed secondary reaction (the first one of the current bear market). I have written profusely (i.e., here and here) about the importance of the highs/lows of the last completed secondary reaction (not the current one, but the previous one). The closing highs of such a reaction were made on 11/6/2020 for both SLV and GLD. On 12/7/2020, SLV broke up above its closing highs, unconfirmed by GLD. Once GLD confirmed, the primary trend would be bullish.

 

Sincerely,

Manuel Blay

Co-Editor of thedowtheory.com

Dow Theory Update for August 10: Primary bear market for SIL & GDX signaled on 8/9/2021

 Gold and Silver in a primary bear market as well

 GOLD AND SILVER MINERS ETFs

 

A) Market situation if one appraises secondary reactions not bound by the three weeks dogma.

The primary trend was bullish since May 7^th, 2021, as explained here.

 

The secondary trend is bearish, as I explained in my post of June 21^st, 2021.

 

On 8/4/2021, I explained that the setup for a potential primary bear market signal had been completed.

Following its 7/29/2021 rally highs, SIL declined sharply and on 8/9/2021 broke down below its 7/20/2021 secondary reaction lows. As for GDX, following its 8/3/2021 rally highs, on 8/9/2021 GDX broke down below its 7/23/2021 secondary reaction lows. Accordingly, a primary bear market has been signaled.

 

Here you have the updated charts:

 

This trade has been a losing trade. A 50% position on each precious metal would have resulted in a -13.95% loss, as you can see in the table below. The previous trade was a winner of 31.85%. 

 

 

Yesterday I wrote:

“Please mind that we should not focus on the outcome of any given trade. One of the Dow Theory tenets is that it is not infallible (if it were, it would self-destruct, as all traders would immediately pile in). Thus, we have to wait for several trades to see a pattern of consistent profits. Of course, the more trades we generate (i.e., by trading several markets and with alternative definitions of secondary reactions), the less time our portfolio will be in a drawdown. Followers of this blog are surely acquainted with our long-term performance since 2012 when I started discerning “live” the trends using the Dow Theory. There has been consistent outperformance versus Buy and Hold and a pronounced drawdown reduction for all markets I have followed. The following link contains the analysis of the results of all signals. As you can see, there have been winners and losers in the past, but the aggregate effect is apparent: outperformance versus buy and hold and, more importantly, significant drawdown reduction.”

http://www.dowtheoryinvestment.com/2021/07/dow-theory-special-issue-assessing-dow.html

I feel that we will not see a stellar performance in precious metals and their ETF miners until SIL & GDX enter into a secular bull market. As of this writing, the secular trend for both ETFs remains bearish. For me, “secular” means the trend as discerned by applying the Dow Theory to weekly bars. More info about this vital aspect here.

 

B) Market situation if one sticks to the traditional interpretation demanding more than three weeks of movement in order to declare a secondary reaction.

 

The primary trend was bullish since May 7^th, 2021, as explained here.

 

I explained about the secondary trend turning bearish (secondary reaction against the primary bull market) and the rally that set up both ETFs for a primary bear market signal in my post of 8/4/2021.

 

The charts and the outcome of this trade coincide with our explanation under the letter “A” above. In this specific instance, both the “longer-term” Dow Theory and the “shorter-term” one coincide.

 

Sincerely,

Manuel Blay

Co-Editor of thedowtheory.com

 

 

Dow Theory Update for August 9: Primary bear market for GLD & SLV signaled on 8/6/21

 SIL & GDX remain in a primary bull market

 

I am writing before the close, if SIL and GDX broke down below their respective secondary reaction lows, a primary bear market would be signaled. So please do your own homework. For more info, go to my last post:

 

http://www.dowtheoryinvestment.com/2021/08/dow-theory-update-for-august-4-setup.html

 

 

A) Market situation if one is to appraise secondary reactions not bound by the three weeks dogma.

While it’s subject to interpretation, I explained why I considered the primary trend bullish since 4/21/2021 here.

 

The secondary trend is bearish (secondary reaction against the primary bull market) as was explained here.

 

The setup for a primary bear market was completed in July 2021, as was explained here (short explanation) and here (longer explanation).

Following its 7/2/2021 rally highs, SLV declined sharply and on 7/16/2021 broke down below its 6/22/2021 secondary reaction lows unconfirmed by GLD. On 8/6/2021, GLD broke down below its 6/29/2021 closing lows (@164.83) and confirmed SLV. Accordingly, a primary bear market has been signaled.

 

Here you have the updated charts:

 

Anatomy of a primary bear market signal given on 8/6/2021

This trade has been a moderate losing trade. A 50% position on each precious metal would have resulted in a -5.45% loss, as you can see in the table below. The previous one was a nice winner of 16.36%

Please mind that we should not focus on the outcome of any given trade. One of the Dow Theory tenets is that it is not infallible (if it were, it would self-destruct, as all traders would immediately pile in). Thus, we have to wait for several trades to see a pattern of consistent profits. Of course, the more trades we generate (i.e., by trading several markets and with alternative definitions of secondary reactions), the less time our portfolio will be in a drawdown. Followers of this blog are surely acquainted with our long-term performance since 2012 when I started discerning “live” the trends using the Dow Theory. There has been consistent outperformance versus Buy and Hold and a pronounced drawdown reduction for all markets I have followed. The following link contains the analysis of the results of all signals. As you can see, there have been winners and losers in the past, but the aggregate effect is apparent: outperformance versus buy and hold and, more importantly, significant drawdown reduction.

 

http://www.dowtheoryinvestment.com/2021/07/dow-theory-special-issue-assessing-dow.html

   

B) Market situation if one sticks to the traditional interpretation demanding more than three weeks of movement in order to declare a secondary reaction.

 

Nothing has changed.

 

The primary trend was signaled as bearish on 11/27/2020, as was explained here.

 

Off the 11/30/2020 bear market lows, both SLV and GLD rallied for 24 trading days until 1/5/2021. So the time requirement was more than met. As to the extent requirement, it was fully met. Both percentage-wise, as in terms of retracements of the previous bear market swing, which started on 11/6/2020. Please spare me the calculations as the chart patterns speak for themselves.

 

So the secondary trend is bullish (secondary reaction against the primary bear market).

 

If we stick to a very strict (or rather misguided) interpretation of the classical Dow Theory, the change of the primary trend from bearish to bullish will occur if either one of the two alternatives below materializes:

 

1. The first one entails the breakup of the last secondary reaction closing highs (1/5/2021). SLV broke them up on 2/1/2021, unconfirmed by GLD. So, once GLD broke up its 1/5/2021 secondary reaction highs, it’d be indisputable that the primary trend has turned bullish.

 

2. The second one entails the breakup of the highs of the last completed secondary reaction (the first one of the current bear market). I have written profusely (i.e., here and here) about the importance of the highs/lows of the last completed secondary reaction (not the current one, but the previous one). The closing highs of such a reaction were made on 11/6/2020 for both SLV and GLD. On 12/7/2020, SLV broke up above its closing highs, unconfirmed by GLD. Once GLD confirmed, the primary trend would be bullish.

 

Sincerely,

Manuel Blay

Co-Editor of thedowtheory.com