Saturday, July 23, 2022

Dow Theory Update for July 23: Primary bull market in U.S. bonds signaled on 7/22/22


The primary & secondary trend for precious metals remains bearish



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 bearish on 1/5/22, as I explained here.

Following a secondary (bullish) reaction against the bearish trend which was explained here. The setup for a primary bull market signal was completed on 7/8/22, as we explained in this post.

On 7/22/22, TLT and IEF broke topside their 7/5/22 secondary reaction highs (Step #2 in the table below), and, hence, a primary bull market was signaled. We cannot predict whether this new bull market will have long legs or not. What we know is that when we take several trades, a pattern of significant outperformance and drawdown reduction versus Buy and Hold emerges, as explained in these three posts:



A new bull market (at least in our time frame) seems to indicate that inflation will be tamed through a recession

Below you have the updated charts.


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.

The rally off the 6/14/22 closing lows lasted 26 trading days. Therefore, the time requirement for a secondary reaction has been met. As to the extent requirement, if we require 1/3 confirmed retracement of the previous bear swing, the retracement is around 20% for TLT and 24% for IEF. On the other hand, if we just require that the rally exceed the Volatility-Adjusted Minimum Movement (more explanations here), the extent requirement would have been met. Up to each trader to make a judgment call.


Manuel Blay

Editor of

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