Sample Letter


«For those properly prepared in advance, a bear market in stocks is not a calamity but an opportunity»
(Sir John Templeton)

Overview: Let’s recap. On 2/22/22, the Dow Theory for the 21st Century (DT21C) signaled a SELL @4,304.76. First warning. On 4/11/22, the Schannep Timing Indicator (STI) triggered a SELL @4,412.53 too. Second warning. Despite the two warnings on 4/11/22, we still could label the dip as a nasty correction. However, on 6/13/22 our Bear market definition was met (see our email in the Appendix to this Letter). No more correction, but a full-fledged Bear market. So what to expect now? As explained HERE, the average drop for the Dow Industrials for the past 30 Bear markets (since 1901) has been 32.49% (median 27.45%). That would make a target of 26,698 (if we take the median) for the Dow Industrials. More importantly, as we explain in our Special Report, the further average loss following a Bear market definition until the final bottom amounts to 13%, which implies a price target of 3,262.17 for the S&P500 and 26,549.56 for the Dow Industrials, a good fit for our average price objective (3,339.0) in case a recession is on the horizon.

JULY1Speaking of targets, let’s review where we stand now. In our May 1st Letter, we talked about several bearish price targets. We distinguished between the “normal” and the “dire” scenario. As shown in the Table (left), all “normal” downside targets, which refer to a typically non-recessionary environment, have been more than achieved. The first “dire scenario” target, our Rule of 7 third target, has also been reached. More about the uncanny ability of the Rule of 7 in determining price objectives and how to calculate them in our Special Report.

And what about the time? This Bear market started on 1/3/22 (S&P500), so it’s been running for almost six months. Seven of the last 10 Bear markets ended in less time than this one has taken. By the 20% rule, it was 6 of the previous 8. So-o-o yes, this one could end soon. Mark Hulbert (MarketWatch) has good news: Bear markets that started at high valuation levels (like ours) do not necessarily last more than bear markets that start at more modest valuations. So the end could be nigh (and lower). As we show in the weekly chart below of the S&P500, the Bear market is rolling over and heading down towards its potential ultimate bottom.

JULY2If the current down leg of the Bear market (from point 4 to 5) is to resemble the previous one (from point 2 to 3), as is often the case, we could experience a final plunge until we near 3,446. Perhaps we need a final down thrust to create absolute despair among investors and bring them to Capitulation (and to the completion of our “dire” price targets). A drop to 3,446 in the next few weeks would undoubtedly meet our Capitulation levels. Around the lows of mid-June (and even those of May), many market students have been declaring the existence of Capitulation. However, our Capitulation indicator, which has an unblemished record in calling Bear market bottoms, refused to trigger, making it likely that the worst is not over yet. Remember that the last 10 Bear markets since 1987 have ended in Capitulation, and our Indicator has signaled them all. Could it be different this time? Yes, as we deal with probabilities, not certainties. Yet, the record is too good to be ignored.

If our “recessionary” price targets are in the process of being met, this implies that the market is anticipating a recession. Let’s dig further in. The Conference Board “Consumer Confidence Index” (CCI) plunged in June to 98.7 for a total of -30.2 points since its June 2021 highs. Our Special Report on the CCI explains that following a decline of -32.5 points from the top, a recession has ALWAYS ensued. So, we are very near the “danger zone”. Furthermore, a peak in the CCI has preceded on average a Bear market by 5 months (already fulfilled), and a recession by an average 11.4 months. So 11.4 months after the end of June 2021 implies that by Mid-May 2022 could have seen the top of economic activity, i.e., the start of a recession.

As our Special Report explains, Bear markets start an average of 8.7 months ahead of recessions. The current bear market began on 1/3/22 (S&P500) or 1/4/22 (Dow Industrials). 8.7 months later would be by September 21st– THIS quarter. Furthermore, 76.66% of Bear markets have been followed by a recession or semi-recession (i.e., 1Q1967 to 3Q1967).

If a recession is coming, earnings should be the bellwether. Mike Wilson (Morgan Stanley) contemplates earnings declining “by at least 20%”. Less pessimistic, Henry McVey, Head of Global Macro and Asset Allocation for KKR, expects the S&P500 earnings to drop “only” by 5% in 2023. While on the surface the real estate market remains hot, Louis S. Barnes ( reports distress in the mortgage-backed securities (MBS) which went “no-bid” on 6/12/22 and points to a heavy landing for housing. And if housing goes bad, so goes the economy. The chart below displays the relative performance of the Homebuilders ETF, XHB (blue) v. the Dow Industrials (yellow) YTD. It seems the market is discounting a slowdown in housing.


Sabrina Escobar (Barron’s) reports that U.S. retail sales fell for the first time in five months. U.S. retail and food services sales for May dropped by 0.3% month over month. The drop is even more ominous if we adjust for inflation, which would imply a drop larger than 1%. Are credit cards running out of steam? If consumer spending sags, then the forecasts for an impending recession may be proven right.

Rising interest rates will not help the consumer or the entire economy. Since the hawkish stance started, there have been three rises, of which the third one has been a significant 0.75%. This reminds us of the “three steps and a stumble” rule, according to which, following a third tightening by the Fed, the market tends to underperform in the next 12 months. While the first hike does not typically result in a sagging market, as our January 1st Letter explains, three raises do. By the way, the last three hiking periods (1999-2000, 2005-2007, and 2016-2019) heralded recessions. Will the Fed, this time, engineer a soft landing? We doubt it. To add insult to injury, Steve Goldstein of MarketWatch (6/10/22) provides additional background and reminds that “there has never been a soft landing when inflation has been above 4.5%”.

On 6/29/22, we learned that the U.S. economy shrank in 1Q2022 GDP at a 1.6% annual pace (and by a larger margin than expected). The culprit: A record surge in the U.S. trade deficit. One quarter of negative growth doesn’t qualify as a recession, as we need two as per the official definition, but it certainly shows that the economy is slowing down.

Recessions are coupled with unemployment. Weekly claims bottomed on 4/2/22 @170,500 and have been rising steadily until now, reaching 231,750 (Source: Federal Reserve of St. Louis). The change from decreasing Weekly Claims to increasing is, at this point, pretty subtle.  It is a leading indication of actual changes in the unemployment rate, which for now has quit dropping but not yet rising.  It will increase in a recession, and all indications warn us that it will be soon.

Some say inflation has peaked. Hopefully, since we know high inflation is kryptonite to the stock market as it is being manifested this year. You may find an in-depth study of how inflation is detrimental to the stock market performance and favorable to our Timing Indicators in our June 1st and July 1st 2021 Letters. Dr. Michael Stamos, CFA, and Nicolas Hengstebeck, MBA (Allianz Global Investors) produced a solid piece of research that further proves that inflation benefits trend-following (momentum) strategies like ours. You may read the full report HERE.

The last domino to fall would be an inverted yield curve. We are far from seeing inversion in the relationship between the three-month Treasury bill and the ten-year note. We keep monitoring. 

And what about valuations? The S&P500 remains far from being cheap, even assuming that earnings hold. The Price-to-Earnings ratio (P/E) stood one year ago at 37.26. On 6/24/22, the P/E stands at a more modest 20.49 (source: WSJ accessed on 6/28/22). Based on eight valuation models, Mark Hulbert on the WSJ concludes that stocks are not a good value yet.

We are active on Linkedin. While I will never publish the “full picture” I give in these Letters, I post valuable tidbits of information, on Linkedin (i.e., discussions on the 60% stocks/40% bonds portfolio, insights into sector investing with the DT21C, etc.). You can follow me on Linkedin here:

Clarification: All references below to days and prices refer to trading days and closing prices.

The DOW THEORY for the 21stCentury (DT21C): This Indicator is RED (SELL) as of 2/22/22 at 33,596.61. For more details, please see our March 1st Letter. The average annual gain for this Indicator since 1953 would have been 14.16% vs. 10.95% for Buy and Hold. We held a 25% position from 10/25/19 and bought on 4/6/20 the remaining 75% for an average buy of 23,749.50. We sold on 2/22/22 at 33,596.61 for a gain of 41.46%. For details about what happened during June, please read our 6/13/22 email to Subscribers in the Appendix to this Letter below. On 6/13/22, all three Indexes broke downside their last recorded lows (5/19/22), and accordingly:

  1. The secondary reaction (Step #2, Table in the Appendix below) was terminated.
  2. The SELL signal and the Bear market were confirmed.
  3. If the last secondary reaction highs (Step #2, Table in the Appendix) were broken topside by ALL three indexes (not just the S&P500 and one other Index), a Buy would be triggered (Rule #5 first paragraph, second line of our Special Report). So, our new potential BUY would be triggered if the 6/2/22 highs for the S&P500 (@4,176.82) and the Dow Industrials (@33,248.28) and 6/7/22 for the Dow Transportation (@14,573.52) were jointly broken up.

On 6/16/22, the S&P500 made its last lows. The Dow Industrials & Transportation did so on 6/17/22. A rally followed until 6/24/22 that did not meet the time requirement for a secondary reaction (10 calendar days on two Indexes and at least 8 trading days as the average of all three indexes, Rule #1 of our Special Report). The Table below depicts the most recent developments:


The charts below display the most recent price action. The green horizontal lines highlights the highs of the last completed secondary reaction (blue rectangles) to be broken up by all three Indexes for a new BUY. The red dotted lines show the 5/19/22 market lows that were jointly breached (red arrows) and canceled the then-existing secondary reaction (blue rectangles). The grey rectangles on the right side of the charts show the current rally, which right now does not qualify as a secondary reaction against the bearish trend for want of the time element.


As usual, we will alert you via email and if there are any changes.

Can the DT21C be used on the short side? One question frequently posed by Subscribers is whether the signals derived from the DT21C are suitable for shorting. The answer is YES (with caution). I carried out the following test. The rules for shorting are straightforward:

1.Sell short when the DT21C signals a SELL.

2.Cover 100% when we get either Capitulation or a standard Buy signal.

Start Capital: USD 100K. The test starts on 4/13/62 and finishes on 6/22/22, so slightly more than 60 years. Below are the key highlights:


  • Despite a predominately bullish bias, through all the period tested, shorting made a decent profit (2.92% CAGR or $465,443) by being in the market only 24% of the time.
  • The profit factor amounts to 2.33, a very decent one, albeit lower than the one we get on the long side.
  • The test confirms that DT21C Sell signals entail significant further declines (average of 11.5%), which attests to the accuracy of the DT21C in appraising the bearish trend.
  • Drawdowns are contained and similar in deepness to those of the DT21C when long.
  • The good news is that drawdowns on the short side are not correlated with those occurring when being long. In other words, whereas DT21C had its worse drawdown (around -18% on a closed trade basis) in 2008-2009, the short side of the DT21C was scoring higher equity highs since shorts were making a killing. On the other hand, the short side experienced its deepest drawdown on a closed trade basis in 2016 (-21.60%) after the stock market went up for several years. This lack of correlation opens up opportunities for portfolio construction.

Caveat: Actual shorting results will likely be less than our tests. When shorting, you have to pay shorting fees to your broker and interests and pay the dividends distributed while being short. A possible option could be an inverse ETF like SH or futures. However, shorting is not for the faint of heart.

In a future Letter, we’ll show you what happens when one combines the long and short sides of the DT21C. Spoiler alert: Outperformance goes to the roof with a slightly higher maximum drawdown.

The Original Dow Theory: Charles Dow’s Theory is RED (“SELL”) as of 2/22/22 at 33,596.61 from a BUY on 5/26/20 at 24,995.11. For more details, please see our March 1st Letter. The average annual gain for this indicator since 1953 would have been 11.36% vs. 10.95% for Buy and Hold. Off their 6/17/22 lows (Step #1), the Dow Industrials and Transportation bounced until 6/24/22 for just 4 days (Step #2). Accordingly, the time requirement for a secondary reaction has not been met. As to the extent requirement given that both Indexes rallied >=3% it has been fulfilled. Absent the time requirement, no secondary reaction has been signaled. So now the situation is as follows:

  • If both Indexes break up above the highs of the last completed secondary reaction (3/29/22) at 35,294.19 (Dow Industrials), and 16,718.54 (Dow Transportations) a Buy signal will be triggered (Step #2 in our May 1st Letter)
  • If both Indexes plunged and broke down below the 6/17/22 lows (Step #1 Table below), the 2/22/22 SELL signal would be reconfirmed.

We remind you that the “original” Dow Theory is not our main thrust in these Letters, as the DT21C is an even superior timing system. We just monitor the original Dow Theory.


Schannep ­TIMING↓INDICATOR (STI): This proprietary market timing Indicator would have had an average annual increase since 1953 of 13.18% vs. 10.95% for Buy and Hold. We held a 50% position from 2/19/19 at the 25,891.32 level and bought 50% on 4/6/20 at the 22,679.99 level for an average of 24,285.65. We sold on 4/11/22 at 34,308.08 for a gain of 41.27%. This Indicator changed to SELL mode (RED) on 4/11/2022 at 34,308.08. Momentum is negative while the monetary status after a third sizeable hike of 0.75% is neutral. This Indicator will remain in a Sell mode until either 1) the market drops enough for a capitulation Buy to occur, or 2) its momentum rises enough to return to a Buy. We will, of course, advise you by email should a change occur.

The COMPOSITE Timing Indicator: This is our primary major-trend timing Indicator which we follow in our real-money portfolio shown at the end of each Letter.  It would have shown an average annual increase of 13.88% vs. 10.95% for Buy and Hold since 1953. We went on 4/6/20 fully invested at the 24,022.57 average level from the STI and the DT21C Buys. 50% was sold on 2/22/22 (DT21C SELL) at 33,596.61, and 50% was sold on 4/11/22 (STI SELL) at 34,308.08 for a total gain of 41.34% in just under two years! The portfolio stands $14,370 above a year ago, up 1.74% from last year’s same month, with the market lower by 10%. It is in a RED mode after the 2/22/22 DT21C and the 4/11/22 STI SELL signals. Therefore, it is 100% in cash/money market funds and will not change until one or the other of the above two Indicators changes, at which time we will advise you.

The BOTTOM LINE: The first cracks in the economy are appearing. Consumer spending is losing steam, trouble is starting to brew in the real estate market, etc., and our own analysis based on past Bear markets and the Conference Board Consumer Confidence Index (CCI) seems to point at an imminent recession. Margin debt made a lower low in May (reported in June), which hardly contributes to a constructive environment for stocks, and the labor market starts to soften.

Despite the bad news, we could be nearing soon (and lower) the end of the Bear market, which is no contradiction, as Bear markets anticipate recessions but finish before the recession has ended. 100% of Bull Markets in the 20th-21st Century have been accompanied by or followed shortly thereafter (4.3 months on average) by economic expansions, as explained HERE. In other words, while still bearish, we must be ready to flip sides quickly if our Indicators prompt us to do so, as price action precedes fundamentals.

Our Subscribers should feel elated because, since 4/6/20, we went 100% invested, and we rode the bull until its completion. We avoided the bulk of the Bear market that started on 1/3/22 (for the S&P500) and, very likely, our next Buy (whenever it comes) will be significantly lower than our average Sell price. For any trend-following system to outperform Buy & Hold (B&H), deep corrections and Bear markets are a must. If the markets go up in a straight line without drawdowns, it is impossible by definition to beat Buy and Hold (B&H). A study in my private blog shows that the best years for the Dow Theory are the worst years for B&H, and vice versa. The good news is that in the best years for B&H, we are likely to underperform (no drawdown= no decimation for B&H= no chance of outperforming), but “underperformance” does not mean “lack of performance” since we continue to perform, but slightly less than B&H. We state the obvious because it is easy to feel “great and smart” when we outperform, but we should not get depressed when we encounter the occasional rough patch. On the long run, we get both outperformance and drawdown reduction. Discipline is vital.

Historically we have tracked the performance of one of Jack’s ACTUAL ROTH IRA portfolios, fully following the Composite Timing Indicator’s signals which is currently 100% in cash or cash equivalents.

For longer-term results see The Composite Timing Indicator which we use for timing in our Portfolio versus Buy and Hold. FYI, over the last 67 years Buy & Hold has grown at a 10.95% annual rate whereas The Composite has grown at a 13.88% rate. The problem with showing this real-money Portfolio is that it represents only what Jack is doing, which could be very different from others.  Subscribers use this letter for Market Timing, which could include shorting, going long, even utilizing leveraged investments that could double or triple – in either direction.  These results have been monitored by several independent sources that track our performance such as Hulbert Financial Digest,, CXO Advisory Group and

This Letter concentrates on the big picture, the trend of the major stock market indexes which usually influences the price direction of most individual stocks.



Update for U.S. bonds, precious metals, and their ETF miners

U.S. BONDS (TLT & IEF): The primary trend was signaled as bearish on 1/5/22 or even earlier on 9/28/21, depending on the timeframe used, as explained HERE. In our June 1st Letter, we informed about a secondary (bullish) reaction against the primary bear market. Lower lows by TLT and IEF canceled the secondary reaction and reconfirmed the primary bear market. Off the 6/14/22 lows, a strong rally started until (for now) 6/30/22 (11 days) so the time requirement for a secondary reaction has been fulfilled. TLT rallied 5.57% and IEF 4.23% which amply meets the extent requirement for a secondary reaction. The bond market seems to be saying that the only way to quench inflation is by a recession. Such an outcome is not ruled out by the Fed. Until the setup for a primary bull market unfolds, a new primary bull market will be signaled by a confirmed breakup of 5/25/22 secondary reaction highs @119.33 (TLT) and 5/27/22 highs @104.41 (IEF). The primary trend is bearish and the secondary one is bullish (sec. reaction).

Gold (GLD) and Silver (SLV): The primary trend was signaled as bullish on 11/11/21, as was explained in our December 1st Letter. GDL and SLV made their last recorded market highs on 3/8/22 at 191.51 and 24.45, respectively. A sharp decline followed. GLD declined for 47 trading days until 5/13/22 @168.79. SLV fell until 5/12/22 @19.12 and 46 trading days. Following such lows, a rally ensued that set up both ETFs for a primary bear market signal. On 6/14/22, GLD closed @168.57 and broke down below its 5/13/22 secondary reaction lows. On 6/30/22, SLV confirmed and closed @ 18.64 below its 5/12/22 secondary reaction lows, signaling a primary bear market.

Gold and Silver miners’ ETFs (GDX & SIL): The primary trend was signaled as bearish on 6/23/22, when SIL confirmed GDX’ breakdown of the secondary reaction lows (Step #2) on 6/14/22. The Table below contains all the details from the market highs (Step #1) to the breakdown (Step #4). The primary and secondary trends are bearish.


These monthly updates on US Bonds, Gold, Silver and their mining ETFs are meant to be a helpful overview of their status from a Dow Theory point of view. When events unfold after the monthly Letter is published it is incumbent on the reader to follow his/her own positions. In the future we plan to follow these markets on a timelier basis just as we currently do with the American stock market.

Manuel Blay
Jack Schannep
Editor Emeritus                                                                  for Team

Please help keep an edge by not forwarding or otherwise distributing this Letter. Its contents are for the exclusive use of each Subscriber. If you find it useful, please give a referral. Thank you!

The Dow Theory is a form of technical analysis that relies on detecting trends in the stock market to determine an investment strategy. The detection of these trends may be interpreted differently by different analysts and the opinions expressed on this website may not be shared by other individuals who apply the same principles of The Dow Theory. Past performance is not an indication of future returns. It should not be assumed that any recommendations made will be profitable or without the risk of loss or will equal the performance of the benchmark portfolio. All investments involve the risk of potential investment losses as well as the potential for investment gains. The performance of any portfolio or investment strategy should be viewed in the context of the broad market and prevailing economic conditions.



APPENDIX: Emails sent to Subscribers in June 2022

Email 6/13/22: Bear market for stocks signaled today (6/13/22) & more.

Note: All references to days and prices refer to trading days and closing prices.

Today (6/13/22) has been a relevant day.

Executive summary:

No action is needed, as our indicators are in “cash” since 2/22/22 (Dow Theory for the 21st Century –DT21C-) and 4/11/22 (Schannep Timing Indicator –STI-).

  1. U.S. stock Indexes entered a Bear market today as per our Bear definition.
  2. The DT21C Sell signal given on 2/22/22 has been reconfirmed today.
  3. The secondary reaction (Step #2 on the Table below) against the bearish trend has been cancelled today.
  4. The setup for a potential BUY we explained in our 6/9/22 email has been cancelled today.
  5. A new, more stringent setup for a potential BUY has been triggered today.
  6. Despite the big plunge, we are relatively far from Capitulation
  7. The STI is far from signalling a BUY.
  1. Bear market definition for U.S. stock indexes fulfilled today
    Our bear market definition, which has more forecasting power than the standard -20%, requires that the S&P500 and the Dow Industrials simultaneously close -16% below their last recorded closing highs (1/3/22 for the S&P500 and 1/4/22 for the Dow Industrials). Those magic numbers for the S&P500 are 4,029.11 and for the Dow Industrials, 30,911.62. You may find more information in our June 1st Letter and this Special Report.
  2. The 2/22/22 DT21C SELL has been reconfirmed today.
    No need to act. Today’s (6/13/22) breakdown of the 5/19/22 lows (Step #1 on the Table below) reaffirms our 2/22/22 Sell signal.
  3. The secondary reaction (Step #2) has been canceled by the breaching of the 5/19/22 lows (Step #1). The extinguished secondary reaction now becomes what we always call “the last completed secondary reaction”.
  4. The setup for a potential Buy signal we explained in our 6/9/22 email to Subscribers has been canceled by the lower lows.
  5. However, if the last secondary reaction highs (Step #2) were broken topside by ALL three indexes (not just the S&P500 and one other Index), a Buy would be triggered (Rule #5 first paragraph, second line of our Special Report). So, our new potential BUY would be triggered if the 6/2/22 highs for the S&P500 (@4,176.82) and the Dow Industrials (@33,248.28) and 6/7/22 for the Dow Transportation (@14,573.52) were jointly broken up.

Below is the updated Table illustrating the current situation:


Below are the updated charts (around 2:30 p.m). The blue rectangles display the canceled secondary reaction (Step #2). The green horizontal lines highlight the relevant price levels (Step #2) that ALL three Indexes must break up for a BUY. The red arrow shows today’s (6/13/22) breakdown below the lows of 5/19/22; the horizontal red dotted lines highlight those lows.


  1. Capitulation levels:
    Our Capitulation levels until Wednesday (included) June 15th 2022 are as follows:

DJIA: 29,144.00, NYSE:  13,926.00, S&P500: 3,666.7

  1. Schannep Timing Indicator (STI)

With strong negative momentum, no Buy signal is on the horizon.

Portfolio implications:

Our model portfolio remains 100% in cash.

We will keep you updated as events unfold.


Email 6/16/22: Capitulation price levels. 6/16/22 update

Capitulation levels:

Our Capitulation levels until Friday June 17th 2022 (included), are as follows (same as in our last email):
DJIA: 29,144.00, NYSE: 13,926.00, S&P500: 3,666.7

If at least two of the three Indexes close on the same day below the prices shown above, Capitulation will be signaled. We are writing some 45 minutes before the close; presently, only the S&P500 is below Capitulation levels. However, please check prices at the close.

If Capitulation were triggered today or tomorrow, the implications are as follows:

For those only following the Dow Theory for the 21st Century (DT21C): Buy 50% of the available funds.

For those only following the Schannep Timing Indicator (  STI): Buy 50% of the available funds.

For those following the Composite: Buy 50% of the available funds.

So irrespective of the specific timing indicator you use, Capitulation entails a 50% partially invested signal. Never a 100%

No need to act, unless Capitulation is triggered.

DT21C+Relative Strength strategy

If we get Capitulation, we will send you the ranking of the specific ETFs after the close.


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