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Manuel Blay
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Investor and Trader As investor I'm deeply influenced by Dow Theory. I focus on the primary trend (1-2 years). My trading is short-term based (avg trade duration 4-5 days).
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Dow Theory Investment
  • Dow Theory Update For July 31: Stocks Are Flirting With A Secondary Reaction  0 comments
    Aug 1, 2014 7:28 AM | about stocks: SPY, DIA, IYT, GLD, SLV, GDX, SIL
    But we are not there yet.

    US Stocks

    The Industrials has been declining for 11 trading days. The Transports for 6 days and the SPY for 5 days. Thus, in spite of today's big decline, it is still too early to signal a secondary (bearish) reaction against the primary bullish trend. Let's remember the rules (under Schannep's Dow Theory flavor) for a secondary reaction:

    1) 8 trading days as the average decline of the three indices.

    2) At least two indices must decline by 3% or more.

    3) The decline must last a minimum of 10 calendar days (that is two full weeks) in at least 2 indices.

    The average decline has been: 11+6+5/ 3 = 7.33 days. So we still have to wait. Furthermore, neither the SPY nor the Transports have fulfilled two full calendar weeks of declines.

    Remember that it is good not to jump the gun. Peruse old posts of this Dow Theory blog and you will see that my reluctance to override the Dow Theory signals has served me well in the past (i.e. by timely declaring the primary bear market in gold and refusing to change my view in spite of the permanent bullish views on gold of Richard Russell, or by sticking to the primary bullish trend in stocks in spite of the bearish views on stocks of Richard Russell).

    All in all, according to the Dow Theory I cannot declare a change of trends.

    The primary trend remains bullish, as explained here, and more in-depth here.

    The primary trend was reconfirmed as bullish on October 17th, 2013, and November 13th, 2013 and March 7th, 2014, for the reasons given here, here and here.

    So the current primary bull market signal has survived three secondary reactions.

    The secondary trend is bullish too, as explained here and here.

    Gold and Silver

    Gold and silver (GLD and SLV) are still far from signaling a primary bull market signal .Thus, if volatility remains normal, any new primary bull market signal (which implies bettering the secondary reaction highs) is not in sight.

    For the reasons I explained here, and more recently here the primary trend remains bearish.

    For the primary trend to turn bullish, SLV and GLD should jointly break above the secondary (bullish) reaction highs. As a reminder, the secondary reaction closing highs were made on August 27th, 2013. From such highs the market declined without jointly violating the June 27th, 2013 primary bear market lows.

    Here I analyzed the primary bear market signal given on December 20, 2012. The primary trend was reconfirmed bearish, as explained here. The secondary trend is bullish (secondary reaction against the primary bearish trend), as explained here.

    On a statistical basis the primary bear market for GLD and SLV is old. More than 1 and ½ year elapsed since the bear market signal was flashed. However, I am extremely skeptical as to the predictive power of statistics. Each bull and bear market have their own idiosyncrasy and hence past durations do not necessarily help us time a change of trend. I prefer price action to guide me, and the Dow Theory tells me that the primary trend remains bearish until reversed. However, the secondary bullish reaction against such old primary bear market is also getting quite old. Tie and price compression.

    Furthermore, the June 27, 2013 lows remain untouched. The longer this situation lasts, the higher the odds that something might be changing. But I wait for the verdict of price action.

    Gold and Silver miners ETFs (GDX and SIL)

    On July 11th, I alerted the followers of this Dow Theory blog that SIL and GDX were close to signaling a primary bull market. Go to the relevant post and chart here. On July 22nd, I explained that the signal did not materialize yet, as you can read here.

    On July 31st, the situation remaines unchanged. SIL and GDX have not fallen out of bed, but remain unable to rally with conviction.

    The secondary trend is bullish, as explained here. In spite of short term bullish accomplishments, SIL and GDX are not in a primary bull market.

    The primary trend for SIL and GDX remains, nonetheless, bearish, as was profusely explained here and here.

    The secondary trend is bullish, as explained here. In spite of short term bullish accomplishments, SIL and GDX are not in a primary bull market.

    The primary trend for SIL and GDX remains, nonetheless, bearish, as was profusely explained here and here.

    Sincerely,

    The Dow Theorist

    Themes: Dow Theory Stocks: SPY, DIA, IYT, GLD, SLV, GDX, SIL
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