Dow Theory Update and Values

At present, we have a Dow theory non-confirmation in place that began in mid-January. According to Dow theory, we must operate under the assumption that the previously established trend is still intact until it is reversed with a move above or below the previous secondary high or low point. In this case, a downside trend reversal would require a move below the previous secondary low point. Until such time, the primary trend change that occurred in conjunction with the March 2009 low still remains intact. Now, as for non-confirmations, they serve as warnings of a possible trend change. Non-confirmations do not mean that a trend change is inevitable, because it is possible that the non-confirmation can be corrected. It is also possible that the previous secondary high or low point will not be penetrated. The current non-confirmation can be seen on the chart below. If this non-confirmation is not corrected then I know from my trend quantification work that there are statistical guides that can be used to help us gauge the meaning of this non-confirmation as well as the expected outcome. I will cover that all in the research letters and updates if it continues to develop. For now, this is a warning that must simply be watched and measured against the statistical and other implications. Don’t confuse non-confirmations to automatically be a “sell signal” because in accordance with Dow theory, that is a misconception. There is much more to the story that just a non-confirmation. Rather, it is a process in which statistical and other structural evidence must be understood, weighed and considered.

In the last post here on January 14th I talked about bull and bear market relationships. In that post I explained some of the big picture reasons that the rally out of the March 2009 low must still be viewed as a longer-term bear market rally. (more)