Dow Theory Update for November 18: U.S. bonds under a secondary reaction against the still-existing bearish trend.

Dow Theory Update for November 18: U.S. bonds under a secondary reaction against the still-existing bearish trend.

General Remarks:

In this post, I thoroughly explained the rationale behind using 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.

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. Accordingly, the primary bear market was confirmed, as I explained more in-depth HERE.

Following the 10/19/23 bear market lows (Step #1 in the Table below), a rally ensued. The rally has been going on for 21 trading days, which satisfies the timer requirement for a secondary reaction. Regarding the extent requirement, TLT and IEF bounced 8.78% and 4.02%, respectively, which amply exceed the Volatility-Adjusted Minimum Movement (more explanations about VAMM here). Accordingly, a secondary (bullish) reaction against the still-existing primary bear market has been signaled. The table below shows you the relevant data:

100 table tlt ief bonds dow theory Nov 18 2023

So, now we are waiting for a pullback on both ETFs which would set up TLT & IEF for a potential primary bull market signal (Step #3, not market in yellow because we are not there yet). In the meantime, we wait. I noticed that volume has noticeably increased during the rally, which is normally suggestive of just a secondary reaction, not a new bull market. Volume during the pullback, and more importantly after that will give us further indications.

The chart below shows the most recent price action. The blue rectangles highlight the current secondary reaction against the bear market. The red lines show the last primary bear market lows, whose penetration reconfirmed the primary bear market.

101 chart TLT IEF dow theor nov 17 2023 edited

The Dow Theory has been tracking accurately this bear market (and avoiding losses or making profits for those shorting) as explained HERE and HERE.

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 trend is bearish and secondary one is bullish.


Manuel Blay

Editor of

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