Saturday, September 23, 2023

Dow Theory Update for September 23: Primary bear market in U.S. bonds reaffirmed on 9/21/23

 The bear market in bonds continues…

General Remarks:

In this post, I thoroughly explained 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. 

As I explained HERE, the primary trend was signaled as bearish on 9/20/22. Following the October 2022 bear market lows, a rally ensued, qualifying as a secondary (bullish) reaction against the primary bear market. Finally, a pullback set up TLT and IEF for a potential primary bull market. This post contains all the details.

On 1/12/2023, IEF pushed through its 12/7/22 secondary reaction highs unconfirmed by TLT. The lack of confirmation implied that the trend had not changed from bearish to bullish. I explained in this post the details concerning the failed breakup, which incidentally was a great shorting opportunity.

After the unconfirmed breakup by IEF, both ETFs headed lower for several months. On 9/19/23, IEF penetrated its 10/20/22 primary bear market lows. On 9/21/23, TLT broke down below its 10/24/22 lows, providing confirmation. The Table below shows you the details:

So, the implications of the newer lows are as follows:

1) The secondary reaction against the primary bear market has been terminated. Now the secondary trend is also bearish.

2) The setup for a potential primary bull market has been canceled

3) The primary bear market signaled one year ago, on 9/20/22 has been reaffirmed.

The charts below provide a visual representation of price action in the market over the past year, spanning from the lows observed one year ago to the present day. The blue rectangles on the charts indicate the secondary (bullish) reaction against the primary bear market. In contrast, the brown rectangles represent the initial pullback that set up both ETFs for a potential primary bull market. Notably, the blue arrow highlights IEF’s breakout above its secondary reaction highs, a move that was not confirmed by TLT, thereby protecting us from a whipsaw. The red horizontal lines highlight the primary bear market lows of October 2022, which have been recently pierced.

Therefore, it appears that the bond market is currently not factoring in the likelihood of an imminent recession. Recessions typically compel the Fed to ease, while demand contraction tends to squelch inflation.

Another noteworthy observation is that the recent decline in bond prices occurred concurrently with a sharp drop in the stock market. This type of price movement mirrors what was observed in the 1970s and is characterized by a term: Stagflation.

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 this specific instance, the price action that was explained above fully applies to the “longer term” rendering of the Dow Theory. In other words, look at the table and charts above, as they fully explain what has been going on when we take a longer view. Therefore, the primary and secondary trend is bearish.


Manuel Blay

Editor of

Tuesday, September 19, 2023

Dow Theory Update for September 19: No changes in trends but something is going on with gold

 All the last updates I produced for gold/silver, GDX/SIL, and TLT/IEF and the U.S. stock market remain unchanged. Markets are like a coiled spring, and the final breakout will likely carry out significant follow-through. 

However, while markets remain range-bound, something is going on with physical gold. I recently found a Bloomberg article indicating that Shanghai's gold is commanding a $120 premium over international prices. Is this normal? Is there a shortage of physical gold and an overabundance of paper gold? I still don't know, but the chart is telling. 

Furthermore, I got to know that premiums for gold bars in Switzerland are also going to the roof. Temporary scarcity of physical vs. paper gold? Future events will shed more light.


Manuel Blay

Editor of