Monday, January 10, 2022

Dow Theory Update for January 10: Primary bear market for US bonds signaled on 1/5/22



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 bullish on 11/30/21, as explained here.


On 12/3/21, TLT and IEF made their last recorded closing highs. Following such a top, a steady decline not punctuated by a meaningful rally followed. Accordingly, we had a secondary reaction and no setup for a primary bear market signal (absence of a rally). However, I have repeatedly explained that the lows of the last completed secondary reaction are a valid point to be broken down in order to signal a primary bear market (see  here, and here). The lows of the last completed secondary reaction come in handy when, as in the present case, while we make lower lows, we lack any meaningful rally, and hence no “traditional” setup for a bear market develops.



In our specific market juncture, the decline between 11/9/21 and 11/23/21 satisfied both the time requirement (10 trading days) and the extent requirement (-4.3% for TLT and -1.89% for IEF with VAMM of 2.65% and 1%, respectively. More here) to qualify as a secondary reaction.


Hence, the confirmed breakdown of the 11/23/21 closing lows would trigger a primary bear market signal.


On 1/3/22, TLT pierced its 11/23/21 secondary reaction lows unconfirmed by IEF. So no primary bear market was signaled. Confirmation came on 1/5/22 when IEF broke down below its 11/23/21. Accordingly, the primary trend was signaled as bearish on 1/5/22.


Below you have the updated charts. The brownish rectangles display the “last completed” (the previous one) secondary reaction, which was canceled by higher highs (actually the primary bull market signal). The breakdown of such a canceled secondary reaction entails a primary bear market signal. Here is additional information concerning the “alternative” signals (from a Buy perspective which can be reversed for Sells).



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.


In my 12/3/21 post, I wrote that the rallies that had until then developed did not qualify as a secondary reaction. The situation has not changed. IEF made lower lows, and TLT is very close to breaking down its 10/11/21 bear market low. So a not very bullish picture. Below you have updated charts. The red horizontal lines display the last recorded primary bear market lows. A confirmed breakdown of such lows would reconfirm the Bear market.





Manuel Blay

Editor of


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