Intermediate confirmation outranks secular phasing

The confirmation pair

A confirmed primary trend at the intermediate horizon can disagree with a longer-horizon reading of bull and bear stages. The historical workflow below keeps those jobs separate.

A basic Dow Theory primary uptrend is confirmed when both the industrials and the transports better their previous secondary high. A primary downtrend is confirmed when both fall below their previous secondary low. Those secondary high points and secondary low points are intermediate swing extremes. The utilities average is not part of that pair.

When phasing and confirmation disagree

After the 2002 low, both averages bettered the first post-low secondary highs by June 2003. Under the basic rule, that joint move marked a primary uptrend. Longer-term market phasing around the 2000 top still framed the rise as possibly countertrend.

A joint break of prior secondary lows on February 25, 2000 had already marked a primary downtrend. The decline into 2002 was read by some observers as the first leg of a larger secular bear. That longer-horizon reading then overshadowed the 2003 uptrend confirmation.

Giving that longer-term phasing more weight than the 2003 primary-uptrend confirmation was later judged an error. Once a primary trend is confirmed, it remains the working assumption until a joint opposite confirmation appears.

Warnings stay warnings until both averages confirm

Joint nonconfirmations during the advance were treated as warnings rather than sell signals. A nonconfirmation is a state in which one average makes a new secondary extreme while the other does not.

After the July 19, 2007 joint high, an October 2007 nonconfirmation became a confirmed primary bearish change on November 21, 2007, when both averages closed below the August 2007 secondary lows.

That November 21, 2007 event was described as the first confirmed primary bearish trend change since the rally from the 2002-03 lows. The same confirmation rule then kept that bearish primary trend in force until a confirmed bullish negation.

Cycle work times the same horizon

The 2002-2007 sequence was used to argue that intermediate crossings of prior secondary highs and lows matter more than long-horizon phasing or short-term noise. Cycle work, while not part of Dow Theory, points to the same intermediate horizon.

A separate intermediate cycle-turn indicator was used as a trend filter. It was described as turning down near the October 2007 high, turning up at the November 2007 low, turning down in late December, and turning up in late January 2008. As of mid-February 2008 it remained positive against the November 21, 2007 primary bearish backdrop.

Editorial: keep that cycle-turn indicator on the same intermediate horizon as secondary-point confirmation, and use it to time that horizon rather than to rewrite the confirmation rule.