Dow Theory Update For August 27: Secondary Reaction For Stocks Continues

Aug. 27, 2013 4:48 PM ETSPY, DIA, IYT, GLD, SLV, GDX, SIL
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Contributor Since 2012

Co-Editor of the top-ranked investment  Letter  thedowtheory.com

Investor and Trader As an investor I'm deeply influenced by Dow Theory, especially by the book "The Dow Theory for the 21st Century". I focus on the primary trend (1-2 years). My trading is short-term based (avg trade duration 4-5 days).


In addition to US stock indexes, I have successfully expanded the application of the Dow Theory to precious metals, their miners, and US interest rates. The Dow Theory is a more accurate timing device that moving averages, breakout systems, etc.

GDX fails to confirm SLV's breakup

Let's get started with our commentary in this Dow Theory blog.

Stocks

The SPY, Industrials, and Transports closed down.

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

The secondary is bearish, which implies an ongoing secondary reaction against the primary bullish trend, as explained here.

Today's volume was higher than yesterday's. Since stocks closed down, surging volume has a bearish connotation, as lower prices were confirmed by volume. I'd label current volume readings as neutral.

Gold and Silver

SLV, and GLD closed up. SLV managed to break above the secondary reaction closing high that preceded the last primary bear market leg. If GLD had done likewise, a primary bull market signal would have been signaled. The longer GLD fails to confirm SLVs break up, the more suspect the current secondary reaction against the primary bear market becomes. Here you have an updated chart. The blue horizontal lines show the relevant price levels to be penetrated by SLV and GLD for a primary bull market to be signaled.

 

 

GLD refused to confirm SLV's breakup. Primary trend remains bearish.

For the reasons I explained here, I feel the primary trend remains bearish. 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.

GDX and SIL closed strongly down. The pattern I see on the charts is an "outside reversal bar" (see chart below). While this kind of bar is extraneous to the Dow Theory, it clearly has a short term bearish connotation. Please mind, I wrote "short term", and thus it lack magnitude to change neither the primary nor the secondary trend.

 

 

Outside reversal bar (blue ellipse) for both SIL and GDX. Time to take a breather?

SIL and GDX, unlike GLD and SLV, are unambiguously in a primary bull market under the Dow Theory, as explained here and here. The secondary trend is bullish as well.

Sincerely,

The Dow Theorist

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