US stock indexes remain bullish
GOLD AND SILVER
I refer to my last post, as the technical situation for gold and silver has not changed.
GOLD AND SILVER MINERS ETFs
A) Market situation if one is to appraise secondary reactions not bound by the three weeks dogma.
The primary trend was signaled as bearish on 11/23/2020, as was profusely explained here.
On 2/17/2021, GDX broke down below its 11/24/2020 bear market lows unconfirmed by SIL. An array of successive unconfirmed lower lows continued until 3/1/2021. On 3/30/2021, SIL finally broke down below its 11/24/2020 bear market lows, and hence, albeit somewhat belatedly, the primary bear market has been reconfirmed. Such lower confirmed lows have turned the secondary trend bearish, as the secondary (bullish) reaction against the primary bear market is hereby canceled.
Unlike silver and gold, no line has formed as no tight range has occurred.
Off the 3/1/2021 primary bear market lows, GDX has been rallying for 33 trading days. Off its 3/30/2021 lows, SIL rallied for 12 trading days. So, if we accept that secondary reactions don’t necessarily have three confirmed weeks or more, the time requirement for a secondary reaction would be met.
As to the extent requirement, let’s look at the table below:
We observe that the rally greatly exceeds the volatility-adjusted minimum movement.
My rule of thumb is that the greater percentage-wise the rally or decline, the less stringent I should be with the time requirement. In this specific instance, the extent of the rally amply exceeds the minimum volatility. Hence, I feel that we can declare a secondary reaction with just 12 trading days for SIL. Furthermore, 33 trading days for GDX and that SIL’s 3/30/2021 lower low was not confirmed by GDX further advocates for the existence of a secondary reaction. The secondary trend is now bullish, and the primary trend remains bearish.
Now we have to wait for a pullback in order to have the setup for a primary bull market signal. What if we don’t get such a pullback, and SIL and GDX continue making higher highs? We have to pay attention to the closing highs of the last completed secondary reaction (blue horizontal lines in the charts below). I have discussed on many occasions on this Dow Theory blog the importance of the highs (lows) of the last completed secondary reaction as critical points to determine a change of the primary trend (i.e., here and 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.
The primary trend turned bearish on March 30rd, 2021, when SIL finally broke down below its 11/20/2020 secondary reaction lows (details about the secondary reaction and the rally that set up both ETFs for a primary bear market signal here and here). GDX had already violated its 11/20/2020 secondary reaction lows on 2/17/2021. Thus, somewhat belatedly, we got confirmation, and a primary bear market has been signaled.
More details about the setup that led to the current bear signal here.
All in all, the primary and secondary trend of SIL and GDX is bearish.
The current rally that started off the 3/1/2021 (GDX) and 3/30/2021 (SIL) does not qualify as a secondary reaction. If we strictly demanded more than three weeks for a secondary reaction to exist, SIL would have to rally some more days.
US INTEREST RATES
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 TLT 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 is to appraise secondary reactions not bound by the three 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 3/18/2021, a lower confirmed low was made, so the primary bear market was reconfirmed.
In the last few weeks, and after months of systematic bearish readings, there have been three moderately bullish developments.
a) A line (narrow range) has formed which has been broken topside.
b) IEF’s lower low on 3/31/2021 was not confirmed by TLT.
c) Furthermore, a secondary (bullish) reaction against the primary bear market has been signaled.
Let’s examine them.
The table below (and charts) explain the development of a line.
As you can read, the line has lasted more than 2-3 weeks (minimum time requirement), and its width is tight enough. When dealing with US stock indexes, Rhea required a range of 5% or less to declare the existence of a “line”. Since TLT and IEF have (usually) lower volatility than US stock indexes, we have to perform a volatility adjustment. As you can see in the table above, both ETFs remain within the volatility-adjusted maximum width.
The line was broken topside on April 15th, 2021. Rhea
wrote that such a breakup entails at least a movement of secondary proportions
(that is, a secondary reaction against the primary bear market). Even if we
considered this line alone, we would conclude that the secondary trend has
On 3/31/2021, IEF made a lower low unconfirmed by TLT. Such a non-confirmation increases the odds for a change of the secondary trend.
As to the secondary reaction, I refer to the table below:
As you can read on the table, TLT rallied 4.8%, and IEF rallied 1.48%. Both exceed the volatility-adjusted minimum movement. As to the time requirement, TLT rallied for 19 days and IEF for ten days. Given the existence of a line broken topside and the non-confirmation of IEF lower low, I feel we can declare with confidence that the secondary trend has turned bullish.
Here you have the charts displaying the current technical picture. The white line highlights the line, whereas the blue rectangles display the ongoing secondary reaction:
While, according to the Dow Theory, no primary bull market signal has been given, those brave of heart might test the waters by starting a modest long position. I see two positives for such a trade:
a) Our stop loss point would be placed at the 3/18/2021 lows (TLT) and 3/31/2021 (IEF), which is a pretty tight stop (-4.5% for TLT and -1.45% for IEF). So risk would be contained.
b) Three moderate bullish developments have occurred: A non-confirmation, a bullish breakup of a line, and a bullish secondary reaction. While the addition of three “moderate” bullish factors does not result in a primary bull market, I see, though, that something is changing on the charts.
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 were signaled as bearish on January 6th, 2021, as was explained here.
I also feel that the secondary trend has changed from bearish to bullish when one strictly demands three or more weeks for a secondary reaction to exist. Why?
Rhea made clear that the breakup of a line entails a change of the secondary trend. The “mainstream” application of the Dow Theory does not preclude the appraisal of lines. Lines are part and parcel of the Dow Theory (another issue is that many “classical” Dow theorists miss them).
Thus the breakup of the line implies a change of the secondary trend, even though the time requirement for a secondary reaction would not be met.
Now we have to wait for a pullback to get the setup for a primary bull market signal.
Here you have the updated charts.
(One Dow Theorist)