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Dow Theory Update For December 3rd: Primary Bull Market For US Bonds Signaled On November 30

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Manuel Blay's Blog
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  • Despite the current pullback precious metals and their miners continue in a primary bull market.

Sorry for the delay in posting. I was immersed in the drafting of our December 1st Letter to Subscribers. Now, little by little, I begin to catch up. I don't have time today to write about precious metals. The current drop has not changed the primary bullish trend. Furthermore, GLD and SLV closing prices diverged on 12/1 and 12/2 which may imply a pause in the ongoing pullback.


General Remarks:

In this post, I provided a thorough explanation concerning the rationale behind my use of two alternative definitions to appraise secondary reactions.

TLT is the iShares 20 years + Treasury bond ETF. More about it here

IEF is the iShares 7-10 years Treasury bond ETF. More about it here.

Thus, TLT tracks longer-term US bonds, whereas IEF tracks middle-term US bonds. A bull market in bonds entails lower interest rates. A bear market in bonds represents higher interest rates.

A) Market situation if one appraises secondary reactions not bound by the three weeks and 1/3 retracement dogma.

The primary trend was signaled as bearish on 9/28/21, as was explained here.

In my 11/17/21 post, I informed about a secondary (bullish) reaction against the primary bear market and that a primary bull market setup had been completed. As it was explained in that post, the 11/19/21 closing highs for both TLT and IEF were the relevant highs to be jointly broken up for a primary bull market signal to be given.

On 11/30/21, TLT and IEF broke up above the 11/19/21 closing highs, and accordingly, a primary bull market was signaled.

Below is the table displaying the key dates and prices:

You may notice that the pullback that finished on 11/23/21 fulfills both the extent and time requirement for a secondary reaction(10 trading days confirmed) and more than the Volatility-adjusted minimum movement on a confirmed basis (more about VAMM here). This is important because our initial stop-loss stands at the 11/23/11 closing lows instead of the primary bear market lows (10/11 and 10/21 for TLT and IEF, respectively).

Below are the updated charts. The violet rectangles display the secondary reaction against the primary bear market and the brown ones display the pullback that set up both ETFs for a primary bull market signal. The blue horizontal lines show the secondary reaction highs that were jointly broken up on 11/30/21.

B) Market situation if one sticks to the traditional interpretation demanding more than three weeks and 1/3 confirmed retracement to declare a secondary reaction.

The primary trend was signaled as bearish on 9/28/21. A more aggressive and legitimate interpretation would have signaled the bear market on 9/24/21. The explanations here.

TLT rallied 21 trading days off its 10/11/21 bear market lows until 11/9/21. IEF only rallied 13 trading days off its 10/21/21 bear market lows until 11/9/21. So, if we adhere to the “strict” (and distorted) interpretation of the Dow Theory, on 11/9/21 there was not a secondary reaction as IEF only rallied for 13 trading days (not reaching 15). Following the 11/9/21 highs, IEF made a lower low on 11/23/21, unconfirmed by TLT. Since no secondary reaction had been signaled on 11/9/21, we start counting days for a secondary reaction for IEF from 11/23/21, so IEF is far from reaching 15 trading days.

Absent the time requirement, no secondary reaction has been signaled. Thus, both the primary and secondary trends remain bearish.

Absent the time requirement, no secondary reaction has been signaled. Thus, both the primary and secondary trends remain bearish.

Here you have the table depicting the current situation.

Below is an updated chart. I display the most recent rallies that did not qualify as a secondary reaction in grey.


Manuel Blay

Co-Editor of thedowtheory.com

Analyst's Disclosure: I/we have a beneficial long position in the shares of TLT either through stock ownership, options, or other derivatives.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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