Saturday, March 6, 2021

Dow Theory Update for March 6th: news on the Dow Theory applied to US bonds


Trends for precious metals and US stocks unchanged

 

Time is in very short supply. So I cut to the chase.

 

US STOCKS


Schannep’s Dow Theory (more properly: The Dow Theory for the 21st Century)

 


 On 2/28/2020, the primary trend was bullish since April 6th, 2020, as was explained here.

The secondary trend is bullish since 11/13/2020 (successful termination of a secondary reaction), as was explained here.

 

Please mind that lots of interesting research is being published at thedowtheory.com. For example, our second profit objective has been recently met. We discussed a leading indicator that hints at the likely start of a secondary reaction, tests proving the value of the principle of confirmation, etc. So many things are going in our monthly Letter, which are not being published on this blog. So, I encourage you to become Subscribers, as you are missing a great piece of the action. Our "timing" has been spot on with a marked outperformance over buy and hold and a significant drawdown reduction. Finally, Subscribers are alerted in real-time of any impending Buy or Sell signal, secondary reactions, etc.

 

“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.

 

The secondary trend is also bullish, as was explained in depth here.

 

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.

 

The secondary trend is also bullish, as was explained in depth here.

 

GOLD AND SILVER ETFs & GOLD AND SILVER MINERS ETFs

 

Nothing has changed since my post of January 30th, 2021.

 

However, when one takes the longer time-frame for appraising trends in SIL & GDX, we see that we are very close to the signaling of a primary bear market signal. On 3/4/2021, SIL closed at 39.94 and, thus, was very close to breaking its secondary reaction closing low of 11/24/2020 (39.41). GDX violated its 11/24/2020 secondary reaction low on 2/17/2020. Look at the charts below. The top chart displays SIL, and the bottom chart displays GDX. By the way, there is talk about silver being scarce, being cornered, that SLV is manipulated, etc. If all this talk were true, then SIL, the miners, should notice it and go higher, not lower. So, if I am to believe the charts from a Dow Theory perspective, I see weakness.

 


The table below summarizes the current status of trends depending on the way one applies the Dow Theory. 


 

US INTEREST RATES

General Remarks:

 

In this post, I provided a thorough explanation concerning the rationale behind my use of two alternative definitions in order 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 TLT tracks middle term US bonds. A bull market in bonds entails lower interest rates. A bear market in bonds represents higher interest rates.

 

Readers of this blog know that I use TLT and IEF to appraise the trend of US bonds according to the Dow Theory. However, TLT and IEF have to minor flaws: Firstly, there is a downward bias due to the fees that “erode” the price of both ETFs. Secondly, both ETFs' inception date is 2002, so I have a limited time period to test. Inspired by one of our Subscribers of thedowtheory.com, I’m also going to use $TYX.X and $TNX.X, which track the interest rates for the 30 and 10 years bond, respectively. So a bull in interest rates is a bear in bonds and vice versa. By using these interest rates indexes I get pure price action not polluted by fees and the benefits of having a longer lookback period.

 

 

I also would like to inform you that I have tested the Dow Theory application to TLT and IEF since 2002 to date. This blog displayed the most recent trades in real-time. The results are really outstanding: A profit factor around 4.2, drawdown and volatility reduction, and an outperformance of ca. 2% p.a. versus buy and hold. And all this is achieved by being invested in the market roughly 50% of the time which further lessens risk. I hope to provide you with an in-depth report sometime in the future (if I only had more time!!!).

 

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

 

The primary trend was signaled as bearish on October 5th, 2020, as was explained in-depth here.

 

None of the small rallies that developed after the primary bear market signal resulted in a secondary reaction. On 2/25/2021 a lower confirmed low was made, so the primary bear market remains in force.

 

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

 

The primary trend and secondary trend was signaled as bearish on January 6th, 2021, as was explained here.

 

On 2/25/2021 a lower confirmed low was made, so the primary bear market remains in force.

 

Sincerely,

 

Manuel Blay

(One Dow Theorist)

Wednesday, February 10, 2021

An unsere deutschen Freunde: Danke für Ihre Treue! (To our German friends: Thx four your faithfulness!)

 

Ich möchte die Gelegenheit nutzen, alle in Deutschland ansässigen Follower dieses Blogs ausdrücklich zu begrüßen und für ihre langjährige Treue zu danken. Deutschland rangiert zusammen mit den USA bei den gelesenen Beiträgen auf Platz 1, wenn wir die Einwohnerzahl beider Länder unberücksichtigt lassen. Dies ist also eine beachtliche Leistung, wenn man bedenkt, dass der Hauptfokus dieses Blogs auf USD-denominierten Anlagen liegt. Eines Tages - in hoffentlich nicht allzu ferner Zukunft - hoffe ich, die Anwendung der Dow-Theorie auf deutsche Aktienindizes (z.B. DAX/MDAX) zu erforschen. Angesichts der Solidität der deutschen Wirtschaft, die zweifellos die stärkste und robusteste in Europa ist, halte ich die Anwendung der Dow-Theorie auf deutsche Aktienindizes für vielversprechend, um eine wachsende Wirtschaft zu erfassen und die gelegentlichen Bärenmärkte zu vermeiden. Da ich Deutsch spreche, ist es durchaus möglich, dass ich in Zukunft auch einen deutschen Abschnitt verfassen werde.

In der Zwischenzeit danke ich Ihnen für Ihr Interesse.

 

Mit freundlichen Grüssen

Manuel Blay

 

 

TRANSLATION: I greet all the followers of this blog based in Germany for your faithfulness. If we adjust for population, Germany ranks number one together with the USA in posts read. So this is quite a feat, given that this blog's primary focus is USD denominated assets. One day in the, hopefully, not so distant future, I hope to begin exploring the application of the Dow Theory to German stock indexes (i.e., DAX/MDAX). Given the German economy's solidity, undoubtedly, the best one in Europe, I feel the application of the Dow Theory to German stock indexes shows promise in capturing a growing economy and avoiding the occasional bear markets.  Given that I speak German, I might even write a German-dedicated section in Goethe's language.  In the meantime, I thank you for your interest.

Best regards,

Manuel Blay