Thursday, August 31, 2023

Dow Theory Update for August 31: Gold and Silver may trigger a new primary bull market soon

The setup for a primary bull market was completed on 8/2/23

General Remarks:

In this post, I thoroughly explained the rationale behind my use of two alternative definitions to appraise secondary reactions.


A) Market situation if one appraises secondary reactions not bound by the three weeks dogma.

I explained HERE that gold and silver have been in a primary bear market since 6/21/23.

Following the June 2023 lows, a rally followed that qualified as a secondary reaction against the primary bear market. More details about the secondary reaction HERE.

A pullback followed. On 8/17/23, GLD broke down below its 6/29/23 primary bear market lows at 177.09 unconfirmed by SLV. SLV stopped its plunge on 8/16/23 at 20.56 without violating its 6/22/23 primary bear market lows at 20.53. As shown, in the table below the pullback lasted >=2 days and amply exceeded the Volatility-Adjusted Minimum Movement (more about the VAMM HERE). Thus, the setup for a potential primary bull market signal has been completed. The Table below shows the details:

a) A new primary bull market will be triggered if GLD and SLV jointly break topside their respective bounce highs (Step #2 in the above Table) at 183.64 and 23.10, respectively.

b) If SLV broke down below the 6/22/23 low at 20.53, confirming GLD’s previous breakdown, the primary bear market would be confirmed, and the secondary reaction would be terminated.

The chart below illustrates the most recent price action. The red lines show the primary bear market lows (Step #1). The blue rectangles display the secondary (bullish) reaction against the bear market (Step #2). The blue horizontal lines highlight the secondary reaction highs, which are the relevant levels to be jointly surpassed for a new bull market to be signaled. The brown rectangle displays the pullback on the date when the setup for a potential primary bull market was completed:

B) Market situation if one sticks to the traditional interpretation demanding at least three weeks of movement to declare a secondary reaction. 

As I explained HERE, the primary trend was signaled as bearish on 6/21/23.

The latest rally has not persisted for a minimum of 15 confirmed trading days, leading to the absence of a secondary reaction.

Consequently, both the primary and secondary trends remain bearish.


Manuel Blay

Editor of





Tuesday, August 15, 2023

Dow Theory Update for August 22: The Principle of Confirmation can save your skin (II). Example 2: IEF breakup turned into a bull trap.

In my previous post, I explained the principle of confirmation in action when applied to U.S. stock indexes. In this post, we will see its application to bonds.

The starting point is the primary bear market that was signaled on 9/20/22 (as explained HERE). Following the 10/24/22 bear market lows, a rally followed that qualified as a secondary reaction. On 1/12/23, IEF surpassed its 12/7/22 secondary reaction highs, but TLT did not confirm. In light of this lack of confirmation, the trend remained unaltered and did not transition to bullish, thereby refraining from triggering a Buy signal. Subsequent price movements distinctly leaned toward the bearish, effectively categorizing the earlier breakout as a bull trap. Fortunately, TLT's refusal to confirm proved to be our shield.

Incidentally, this situation also presented an excellent opportunity for shorting. The primary trend, which was bearish, invariably guides our actions under the assumption that the primary trend will ultimately dictate outcomes. In this context, the absence of confirmation following a bullish breakout indicated a higher probability of bonds trending downward. Around February 3rd, a prime shorting opportunity materialized: both TLT and IEF resumed their downward trajectory, while our stop-loss in case of a newly confirmed rebound was very near our shorting price (some ticks above the 2/2/22 highs). So, the risk-reward of that trade was huge.

To capitalize on this situation, I personally employed an inverse leveraged ETF (TBT) to leverage the tight stop-loss. I opted to exit the trade several days later, securing a significant reward relative to the risk undertaken.

The accompanying charts visually represent the price movements in question. 



Manuel Blay

Editor of

Dow Theory Update for August 15: The Principle of Confirmation can save your skin. Example 1. Dow Transportation breakdown

My next post will deal with a similar case in bonds

One fundamental tenet of the Dow Theory holds that the movement of one index, when not confirmed by another, should be disregarded. This principle underscores that a Buy or Sell signal originating from one index, such as surpassing a prior high or breaking down below a previous low, carries no significance if it lacks validation from another index.

A recent instance illustrating the significance of this principle involves the Dow Transportation (DJT) index. The trend has been bullish since 11/8/22. On 4/26/23, the DJT broke below the last recorded secondary reaction lows. However, the DJI (or the S&P500, for that matter) did not confirm. Such a breakdown was bearish, but unconfirmed did not have the power to reverse the trend. Hence, no Sell signal was given, and we continued being long stock indexes. The breakdown was a fake out, and thereafter all Indexes rallied higher until the last recorded bull market highs (green horizontal lines) were jointly bettered, and our 11/8/22 Buy signal was confirmed. All in all, the principle of confirmation helped us avoid a false sell signal and a nasty whipsaw.

The accompanying charts visually represent the price movements in question.


It's worth noting that the principle of confirmation extends beyond the confines of the Dow Theory. As I expounded upon HERE, it finds application in other trend-following techniques, including moving averages. Additionally, there are indications that it holds relevance in the realm of cryptocurrencies. It's important to note that my assessment is preliminary, as I would prefer a more extensive dataset, given that cryptos have a relatively short history. However, thus far, the principle seems to hold true.


Manuel Blay

Editor of