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Dow Theory Update For Oct 24: Bearish Day

|Includes: DIA, GDX, GLD, IYT, SIL, SLV, SPDR S&P 500 Trust ETF (SPY)
Stocks: Primary trend remains bullish. Secondary trend bearish.

Let's get started with our Dow Theory analysis for today.

Today this post in this blog is going to be short, since I just posted some time ago an in-depth study as to whether the gold and silver miners ETFs are experiencing a secondary reaction. You can find the details here

The stock market was clearly down today. All the three markets we monitor were down in unison (SPY, Transports and Industrials).

Volume today was bullish since it was lower than yesterday's and hence negates the downward movement of today. However, as I wrote extensively yesterday, the overall pattern of volume short term (i.e. 2-10 days) remains bearish.

In my previous post, I struggled to qualify the downward movement of the gold and silver miners ETF as a secondary reaction because the total amount retraced didn't even reach 1/3. This is not the case with stocks. The Industrials have retraced ca. 35% of the previous up leg. The SPY has retraced ca. 32% (which is almost 1/3). So their pullback is a Dow Theory text-book example of a secondary reaction.

As to gold and silver and their respective ETFs all of them closed down today, save SLV. Furthermore, SIL refused to violate the lower boundary of its line by just a few ticks. So in spite of the rout we are seeing, the silver universe is displaying good relative strength. I always think that stronger silver is subtly showing that the world is not ending.

Bottom line: Nobody said that secondary reactions are sweet. Even though they can be nerve wrenching, what we are witnessing is "mild" by Dow Theory standards, and it can get even worse (i.e. see a retracement of 70% of the previous primary up leg).

However, the primary trend of stocks, gold, silver and their miners remains bullish.

Tomorrow I will try to talk about the bonds and the vital BLV/GLD ratio. For the time being bonds have dodged the technical bullet that was threatening them.


The Dow Theorist