Today the focus of this post is US stock indexes and
US interest rates.
As to precious metals, gold and silver, and their ETF
miners continue making higher highs (at some point a secondary reaction will
develop) and last week’s analysis remains unchanged.
I am writing before the close, so things might change. Readers beware.
US STOCKS
Schannep’s
Dow Theory (more properly: The Dow Theory for the 21st Century)
The April 6th, 2020 Buy
signal (caused by a Bull market definition) was not an easy one to act upon, as it
was given at ca. 19% (for the S&P 500) off the bear market bottom. Fear
that the market was already overextended and fear of a significant loss should
the market decline revisiting the 03/23/2020 bear market lows resulted in some
investors expressing concern. An in-depth study about the viability of the Buy
signal of April 6th, 2020 is available in our June 1st, 2020 Letter
to Subscribers of thedowtheory.com. Since many followers of this blog have
become Subscribers, please read carefully the June 2020 Letter. For those still
sitting on the sidelines, I encourage you to become Subscribers.
Subsequent price action is, once again
proving that those fears were unwarranted. The current primary bull market
signal is very likely to end up as a winning trade (barring a huge overnight
gap down).
The secondary trend was declared bearish on
06/26/2020, as was explained here.
A setup for a primary bear market signal was completed
on 06/30/2020. The details thereof can be found in the Subscribers area of
thedowtheory.com
“Rhea’s
/classical" Dow Theory
A) Market
situation if one is to appraise secondary reactions not bound by the 3 weeks
dogma.
The primary
trend is bullish since 4/29/2020 as explained here. This primary bull market
signal was determined by just demanding 13 and 18 trading days for the
appraisal of the secondary reaction that led to the primary bull market signal.
I recently wrote a “saga” (here, here and here) where I made clear that neither the 15 days time requirement nor the 1/3 extent requirement is carved in stone. While most secondary reactions will last more than 15 days and retrace 1/3 of the previous swing, one should remain flexible, even under the “Rhea/classical” Dow Theory.
I recently wrote a “saga” (here, here and here) where I made clear that neither the 15 days time requirement nor the 1/3 extent requirement is carved in stone. While most secondary reactions will last more than 15 days and retrace 1/3 of the previous swing, one should remain flexible, even under the “Rhea/classical” Dow Theory.
As of this
writing, I see no secondary (bearish) reaction against the primary bull market.
Off the 06/08/2020 primary bull market highs both indices have declined for 14
trading days until 6/26/2020. In this specific instance, and given that the
decline has not reached extreme proportions (please mind that the Industrials
are far from having retraced at least 1/3 of the bull swing that got started
off the 03/23/2020 bear market lows), I am inclined to remain conservative and
wait until I either see some more days of decline and/or a confirmed
retracement of at least 1/3 in both indexes.
All in all, the primary and
secondary trend is bullish.
Here you have an updated
chart:
 |
| Grey rectangles display a pullback which I feel doesn't qualify as a secondary reaction |
B) Market situation if one
sticks to the traditional interpretation demanding more than three weeks of
movement in order to declare a secondary reaction.
For those strictly
demanding more than 15 confirmed days of declining prices, the primary bull
market would have been signaled on 5/26/2020. More details as to this
alternative signal are to be found in our June 1st,
2020 Letter to Subscribers.
Here you have an updated
chart:
As of this
writing, I see no secondary (bearish) reaction against the primary bull market.
Off the 06/08/2020 primary bull market highs both indices have declined for 14
trading days which falls short of the more than three weeks time requirement.
All in all, the primary and
secondary trend is bullish.
US INTEREST RATES
A) Market
situation if one is to appraise secondary reactions not bound by the 3 weeks
dogma.
If one appraised the
secondary reaction that led to the setup that resulted in the primary bull
market signal, the primary bull market was signaled on 11/19/2018. The signal of 11/19/2018 was obtained by being satisfied
with just 14 trading days for TLT and 15 days for IEF.
From the
03/09/2020 closing highs, both ETFs declined until a bottom was made on
3/18/2020. Hence, there has been just 7 days of decline, and, thus, the time
requirement for a secondary reaction against the strong bullish trend has not
been met. However, given the magnitude of
the shake-up, retracement
of the last bull market swing, and the total
percentage of the declines, I’d be inclined to shorten the time
requirement so that the 03/18/2020 closing lows become the lows of a
secondary reaction of just 7 trading days.
On 04/01/202,0
IEF bettered its last primary bull market closing highs of 03/09/2020
unconfirmed by TLT. On 4/21/2020, TLT equaled its last recorded primary bull
market high of 03/09/2020 but could not better it. One tenet of the Dow Theory
is that we need penetration, just one decimal or cent suffices (Rhea debunked
the notion that penetration had to be “decisive”). Hence, absent by a hair
confirmation by TLT, the primary bull market has not been reconfirmed and, if
we consider the last pullback as a secondary reaction, the secondary reaction
has not been canceled, and the secondary trend remains bearish.
Here you have
an updated chart. The red rectangles display the secondary reaction of just 7
days associated with big declines both in terms of retracement of the preceding
bull market swing (retracement of ca. 75% for TLT and ca. 50% for IEF)
and the total percentage of the pullback (huge volatility, so a big movement
percentage-wise). In my opinion, the charts are screaming at us “please
shorten the time requirement for a secondary reaction; at least for half of
your capital. Don’t ignore Rhea’s flexibility”.
B) Market situation if one
sticks to the traditional interpretation demanding more than three weeks of
movement in order to declare a secondary reaction.
The signal of
12/18/2018 was obtained by being strict and demanding on a confirmed basis at
least 15 trading days on both ETFs.
Since the
pullback from 03/09/2020 to 03/18/2020 spanned just 7 trading days, and in
spite of its huge magnitude, we cannot declare the existence of a secondary
reaction if bound by the three weeks time requirement dogma. Subsequent declines
have not managed to close below the 03/18/2020 closing lows and hence no
secondary reaction has been signaled yet.
All in all:
both the primary trend remains bullish, and the secondary trend continues
bullish if we stick with a 3 weeks’ time requirement for a secondary reaction.
Here you have an updated
chart:
Sincerely,
One Dow Theorist
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