The Principle of Confirmation Can Save Your Skin (V) / Example 5: Bitcoin’s breakup that was a bull trap

 

Applying the Confirmation Principle to Bitcoin

In four earlier analyses (HERE, HERE, HERE , and HERE ), I showed how the Principle of Confirmation works across U.S. stock indexes, bonds, crypto, and precious metals. In each case, the principle proved invaluable in filtering out false moves. The idea is simple but powerful: a breakout or breakdown that is not confirmed by a related index or asset is highly suspect and prone to failure.

Today’s case study takes us back to the world of crypto.

I consider Bitcoin the main asset, and Ethereum the second asset from which I seek confirmation.

The starting point is the primary bull market, signaled on 5/8/25. Following what appeared to be a normal secondary reaction against the bull market (brown rectangles in the charts below), there was a rally (blue rectangles) that completed the setup for a potential bear-market signal. However, many potential bear signals never materialize, as there is no confirmed breakdown of the secondary reaction lows (red lines).

The rally that started on 8/29/25 for Bitcoin and 9/25/25 for Ethereum brought Bitcoin to higher highs —above its 8/13/25 all-time highs —on 10/3 and 10/6/25 (horizontal green line), thus setting new all-time highs. Many jumped the bullish bandwagon.

However, Ethereum failed to confirm the higher highs, as it did not surpass its 8/22/25 highs.

Lack of confirmation was a yellow flag: The bull market was NOT reconfirmed. So, it was not the right time to add and buy more Bitcoin. The bull market was questioned with a big question mark.

After such an unconfirmed high, both Bitcoin and Ethereum fell precipitously and jointly pierced their respective 8/29/25 (Bitcoin) and 9/25/25 lows on 10/16/25 and 10/17/25, respectively, thereby signaling a new bearish trend. Please note that the breakdown was confirmed. So, no excuses not to declare a new bear market.

The chart below displays the whole drama:

So, Bitcoin’s breakup was a bull trap. Fortunately, ETHE’s refusal to confirm proved to be our shield.

Sincerely,

Manuel Blay

Editor of thedowtheory.com

 

Gold and Silver Miners ETF at a critical juncture: Setup for a potential Bear market signal completed on 11/10/25

 

Overview: The gold and silver miners ETF reached a make-or-break moment on 11/10/25. The setup for a potential bear market is complete, and the line in the sand has been drawn. Please mind the word “potential”. Only if the two read lines I show in the chart below are jointly pierced, the trend will shift to bearish.

Gold and silver are showing such strength that they have not even entered a secondary reaction. Therefore, their primary and secondary trends remain bullish.

General Remarks:

In this post, I extensively elaborate on the rationale behind employing two alternative definitions to evaluate secondary reactions.

SIL refers to the Silver Miners ETF. More information about SIL can be found HERE.

GDX refers to the Gold Miners ETF. More information about GDX can be found HERE.

A) Market situation if one appraises secondary reactions not bound by the three weeks and 1/3 retracement dogma.  

As I explained in this post, the primary trend was signaled as bullish on 6/2/25.

Following the 10/16/25 highs for both SIL and GDX, there has been a pullback until 11/04/25. Such a pullback meets the time and extent requirement for a secondary (bearish) reaction against the still-existing primary bull market.

The rally that started at the 11/04/25 (SIL) lows and lasted until 11/10/25 set up both ETFs for a potential primary bear-market signal.

Thus, a confirmed breakdown of the 11/4/25 closing lows (SIL at 62.2 and GDX at 68.28) would signal a new primary bear market.

The table below gives you the most relevant information:

The chart below illustrates the latest price movements. The brown rectangles mark the secondary reaction against the primary bull market (Step #2). The blue rectangles indicate the rally (Step #3), positioning GDX and SIL for a potential bear market signal. The red horizontal lines show the secondary reaction lows (Step #2), where a confirmed break would signal a new primary bear market. The blue lines highlight the bull market highs (Step #1) whose confirmed breakup would re-confirm the still-existing primary bull market.

So, now we have two options:

1. If GDX and SIL jointly break down their 11/4/25 lows (SIL at 62.20 and GDX at 68.28), a new primary bear market would be signaled.
2. If GDX and SIL jointly surpass their 10/16/25 highs (SIL at 79.85 & GDX at 84.44), the primary bull market would be reconfirmed, and the secondary reaction and bearish setup would be canceled.

So, now, the primary trend is bullish, and the secondary one is bearish.

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.

I explained in this post that the primary trend was signaled as bullish on 6/2/25.

The current pullback has not reached 15 confirmed days by both ETFs, so there is no secondary reaction against the bull market.

So, the primary and secondary trends are bullish under the “slower” appraisal of the Dow Theory.

Sincerely,

Manuel Blay

Editor of thedowtheory.com

The Emperor’s Clothes Again

 

In our latest conversation, Andrew and I picked up right where we left off,  back in April, when I correctly called the market bottom. In this new interview, I’m not calling a top, since I still see room for the stock market to move higher. However, I’m now a more cautious bull: the rally since the April 8th lows has been torrid. At the same time, I don’t expect a full-fledged bear market either.

I also shared the reasons behind my tempered optimism about the U.S. economy and the key factor that could still derail it.

https://thedisciplinedinvestor.com/blog/2025/11/09/tdi-podcast-the-emperors-clothes-again-946/

Sincerely,

Manuel Blay

Editor of thedowtheory.com