Trends unchanged for TLT and IEF
I don’t have much time to blog. Hopefully, by the end of next week I’ll be able to post some charts and provide you with more in-depth explanations.
US STOCKS
Schannep’s Dow Theory (more properly: The Dow Theory for the 21st Century)
At 09/14/2020, the primary trend was bullish since April 6th, 2020, as was explained here.
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). As with all bull markets, this one has to climb its own wall of fear.
The secondary trend was declared bearish on 06/26/2020, as was explained here.
On 7/20/2020, the S&P 500 bettered its 6/8/2020 primary bull market highs unconfirmed. On 8/4/2020 and 8/10/2020, the Transports and the Industrials confirmed, so the secondary reaction was canceled, and the primary bull market reconfirmed.
“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 to appraise 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.
On 8/4/2020 and 8/10/2020, the Transports and the Industrials bettered their 6/8/2020 primary bull market highs and, thus, the primary bull market was confirmed. Please mind that no secondary reaction was canceled by the higher highs, as the decline did not reach the necessary time and (more importantly) extent proportions to qualify as a secondary reaction (more details in this post)
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 was signaled on 5/26/2020. More details about this alternative signal are to be found in our June 1st, 2020 Letter to Subscribers.
Following the 6/8/2020 highs, both the Industrials and Transports declined for several days. However, neither index exceeded 15 trading days of decline, so the time requirement for a secondary reaction was not met. So no secondary reaction was signaled.
On 8/4/2020 and 8/10/2020, the Transports and the Industrials bettered their 6/8/2020 primary bull market highs and, thus, the primary bull market was confirmed.
GOLD AND SILVER
A) Market situation if one is to appraise secondary reactions not bound by the 3 weeks and/or 1/3 retracement dogma.
The primary was signaled as bullish on 02/19/2020, as explained here.
On September 23rd, 2020, the secondary trend turned unambiguously bearish (secondary) reaction. SLV declined for 31 days and GLD for 33. The amount retraced exceeds one third on a confirmed basis.
B) Market situation if one sticks to the traditional interpretation demanding more than three weeks of movement in order to declare a secondary reaction.
Personally, and in this specific instance, I wouldn’t trade precious metals this way. However, it is good to show my readers how I’d appraise the secondary reaction if one is to stick to the three-weeks time requirement dogma.
The primary was signaled as bullish on 02/19/2020, as explained here.
On September 23rd, 2020, the secondary trend has turned unambiguously bearish (secondary reaction against the primary bull market). SLV declined for 31 days and GLD for 33. The amount retraced exceeds one third on a confirmed basis.
So we can see that irrespective of the way one appraises secondary reactions, we have a very clear one.
GOLD AND SILVER MINERS ETFs
A) Market situation if one is to appraise secondary reactions not bound by the 3 weeks dogma.
One legitimate interpretation of the appraisal of secondary reactions under the Dow Theory let us conclude that the primary trend turned bullish on April 9th, 2020, as explained here.
SIL and GDX have been declining for 34 trading days. So the time requirement for a secondary reaction has been more than met. Both ETFs have retraced more than 50% of their previous primary bull market swing (that is the amount covered between the lows of the last completed secondary reaction and the last recorded bull market top). So, as with GLD and SLV, we have a text-book 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 wishing to adhere to a more strict interpretation when determining secondary reactions, the primary trend would have remained bearish (bearish signal given on March 11th, 2020, as explained here) until 05/15/2020. On 05/15/2020 SIL finally broke up its last recorded primary bull market closing highs of 12/26/2019, and a primary bull market was signaled. GDX had done so on 4/22/2020. Thus, even under the most restrictive interpretation of the Dow Theory, the primary trend was signaled as bullish on 05/15/2020.
As to the existence of a secondary reaction, both GDX and SIL declined for 34 trading days. So no doubts as to the fulfilment of the time requirement. As to the extent requirement, neither GDX nor SIL has managed to retrace 1/3 of the last primary bull swing (which started on 3/13/2020) until the top of 8/5/2020. So, for the time being, no secondary reaction yet.
US INTEREST RATES
Primary and secondary trends have not changed, irrespective of the way one appraises secondary reactions. I refer to my last analysis here.
http://www.dowtheoryinvestment.com/2020/09/dow-theory-update-for-september-11-long.html
Sincerely,
One Dow Theorist
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