Dow Theory Update For August 5: No Primary Bear Market Signal For US Stocks (Yet Or Never)

Aug. 05, 2015 12:36 PM ETSPY, DIA, IYT, GLD, SLV, GDX, SIL1 Comment
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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.

Trends unchanged for US Stocks and gold universe

US STOCKS

The primary trend remains bullish, as explained here and here.

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

http://www.dowtheoryinvestment.com/2015/07/dow-theory-update-for-july-1-dissecting.html

All indices rallied more than 3% off their July 8th closing lows. So now either:

a) Stocks jointly violate their secondary reaction lows, in which case a primary bear market will be signaled.

b) Stocks jointly better their last recorded primary bull market highs (May 19th, for the INDU, May 21st, for the SPY, and May 18th for the TRAN), in which case the primary bull market will be reconfirmed.

On July 27th, the Industrials violated their July 8th secondary reaction lows. However, this was not a primary bear market signal because the SPY did not confirm. Furthermore, as explained here, under Schannep's Dow Theory the SPY must always be present for a primary bear/bull market signal to be valid.

All in all, in spite of recent declines, the lull continues.

GOLD AND SILVER

The primary and secondary trend is bearish as explained here.

http://www.dowtheoryinvestment.com/2015/07/dow-theory-update-for-july-15-primary.html

By the way, the steep decline that followed SLV's and GLD's primary bear market signal, confirms that one should not "hope" for a rebound following a primary bear market signal in an attempt to get a better "exit" price. Experience says that ca. 2/3 of the time, a small rally follows immediately after the primary bear market signal. However, 1/3 of the time, such a rally fails to materialize and we get an even steeper decline. The money won by not selling immediately is more than lost in the 1/3 of occurrences when a collapse follows a primary bear market signal (i.e. 1929 and 1987 crash among other instances).

Bottom line: One must react as soon as possible once a primary bear market signal has been flashed.

GOLD AND SILVER MINER'S ETFs

As to the gold and silver miners ETFs,on 3/10/15 SIL violated its 12/16/2014 primary bear market closing low. On July 8, 2015 SIL violated its March 10th, 2015 closing low.

On 7/1/2015 GDX violated its secondary reaction lows of 3/10/2015, and hence, it confirmed the bearish action of SIL thereby signaling a primary bear market signal.

Thus the primary and secondary trend for SIL and GDX is bearish.

By the way, my musings concerning the need to promptly and without hesitation honor the Dow Theory signals do fully apply to SIL and GDX. Price action after the primary bear signal offered no respite to sellers. No rally, no mercy.

Sincerely,

The Dow Theorist

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