All trends remain unchanged.
Many days have passed by without my giving you a trend update as per the Dow Theory rules.
The reason is simple: too little time and no change of trends. Furthermore, my focus has been on analyzing the last controversial Dow Theory signal, as you can read here and here.
Please bear in mind that the primary trend (and even the secondary one) as determined by the Dow Theory does not change very often. Thus, we'd better use our time in really becoming proficient with the Dow Theory (i.e. by learning how to apply it in real time) rather than becoming obsessed on a daily basis with the trend. Of course, any Dow Theorist worth his salt must check the trends daily even though many months may pass by and no action is to be undertaken. However, when it comes to writing, and time is not abundant, I have to make choices. I personally, check for myself the markets daily, but I don't have the time to always post about what I see on the charts; especially when trends have not changed.
US Stocks
The SPY, the Transports and the Industrials closed up. The Industrials made a higher high unconfirmed by the Transports and the SPY.
The primary trend remains bullish, as explained here.
The secondary trend is bullish and no secondary reaction is in sight.
Gold and Silver
SLV and GLD closed DOWN. The primary bear market was reconfirmed on October 3rd 2014, as GLD finally broke below the June 27th, 2013 primary bear market closing lows (something which SLV had already done on Sept 17, 2014). As lower lows have been confirmed, the primary bear market has been reconfirmed.
Eventually, the tug of war between an eternal secondary (bullish) reaction against the primary bear market and the primary bearish trend has been resolved in favor of the continuation of the primary trend. The old adage comes to my mind: "don't fight the trend".
Well, I am happy that I didn't fight the trend and, while reporting the existence of a secondary bullish trend, I warned my readers that a secondary reaction is not the real thing and hence, we had to wait until the actual primary bull market signal, which, as we now see, has failed to materialize.
All in all, my strict application of the Dow Theory prevented me from become erroneously bullish (as famed Richard Russell, of the "Dow Theory Letters" wrongly did). We were close to a primary bull market signal, but being close means nothing under the Dow Theory.
For the reasons I explained here, and more recently here the primary trend remains bearish.
And what about the secondary trend? After all, precious metals have been rallying since November 5th. Well, the answer is that no secondary reaction against the primary bear market has occurred yet. While the time requirement has been fulfilled (more than 10 days) the extent requirement has not been met. Given gold and silver higher volatility, the minimum threshold for a movement to be significant has not been reach.
When dealing with stock indices, for a rally to be meaningful, the Dow Theory demands a minimum of a 3% in at least two indices. However, since we are dealing with GLD and SLV (quite a different beast), we have to adjust the minimum rally threshold to reflect the greater daily volatility of gold and silver. If we'd satisfy ourselves with a mere 3% rally, we would get lots of false signals given GLD and, especially, SIL larger volatility. It'd be like just demanding a 1% for the SPY or the Industrials. Noise would overwhelm signal.
GLD has rallied a mere 6.18%, and SLV just 9%. Both rallies lie well below the minimum volatility-adjust threshold which stands at 7.56% for GLD and 11.21% for SLV. Volatilities have been measured taking the last 30 trading days. More details in the spreadsheet below:
| 30 DAYS avg volat | 30 DAYS avg volat | |||
| SPY | 0.00435 | SPY | 0.00435 | |
| GLD | 0.01097 | SLV | 0.01626 | |
| RATIO | 2.52183908 | RATIO | 3.73793103 | |
| MIN MOVE | 7.56551724 | MIN MOVE | 11.2137931 | |
| Highest | 116.58 | Highest | 15.98 | |
| Lowest | 109.79 | Lowest | 14.66 | |
| Current | 1.06184534 | Current | 1.09004093 | |
| rally | rally | |||
Thus, the secondary trend remains bearish too.
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 bearish.
On a statistical basis the primary bear market for GLD and SLV is getting old. Almost years have elapsed since the bear market signal was flashed. However, as price action has just shown, I am extremely skeptical as to the predictive power of statistics. I prefer price action to guide me, and the Dow Theory tells me that the primary trend remains bearish until reversed. When will this vicious bear market end? I don't know, and I don't need to know. I only know that the Dow Theory will see to my being informed punctually when a new primary bull market is born.
As to the gold and silver miners ETFs, SIL and GDX closed DOWN. The primary bear market was re-confirmed on October 27th, 2014 as explained here. The primary trend for SIL and GDX is clearly bearish, as was profusely explained here and here.
The secondary trend is bearish too, and for the same reasons given for GLD and SLV, no secondary reaction has been signaled yet. Here you have the relevant spreadsheet with volatility and rally calculations:
| 30 DAYS avg volat | 30 DAYS avg volat | |||
| SPY | 0.00435 | SPY | 0.00435 | |
| SIL | 0.0388 | GDX | 0.0367 | |
| RATIO | 8.91954023 | RATIO | 8.43678161 | |
| MIN MOVE | 26.7586207 | MIN MOVE | 25.3103448 | |
| Highest | 10.34 | Highest | 20.39 | |
| Lowest | 8.23 | Lowest | 16.59 | |
| Current | 1.2563791 | Current | 1.22905365 | |
| rally | rally | |||
Sincerely,
The Dow Theorist