Two-average confirmation before a primary reversal call

Keep the prior signal in force

A primary buy or sell is treated as valid only when both the industrial and transportation averages reverse. Until that joint reversal, the prior signal remains in force even if the two series drift apart over an intermediate stretch.

Confirmation requires both averages to complete the same reversal sequence. A move unique to one average is not treated as a market-wide primary signal. Divergence is a split in which one series makes new highs or new lows that the other does not confirm, leaving the primary-trend call unresolved.

Wait for the timed secondary or line

A sell construction requires both averages to fall at least 8-10 percent, then either retrace one to two thirds over three weeks to three months or form a line of about 5 percent or less lasting from two or three weeks to three months, and finally close below the initial low.

A secondary reaction is a rebound or pullback that retraces about one to two thirds of the prior swing over three weeks to three months and can set up that later closing break. A line is a narrow sideways band, typically about 5 percent or less and lasting from two or three weeks to three months, that may stand in for a secondary reaction if it consolidates the prior swing.

The initial low is the first trough after an important high. Only the later close below the first low can be labeled a secondary low when it prints. The earlier high, first low, and lower secondary high are identified only after that closing break.

A year-long split after October 1989

After October 1989, new industrial highs reaffirmed the buy already in force from the 1987 lows, but the transports' own decline left the two averages unconfirmed for nearly a year.

Because the industrials had repeatedly found support near 2500 after October 1989, an early-August pause above that shelf was not treated as enough to call a primary decline. A more conservative reading waits for a rally and a later close through the first trough.

Failed secondaries and failed lines

The industrials' rebound from the August 23, 1990 low retraced about 35 percent on an intraday basis and 29 percent on closes, yet lasted only days to two and a half weeks, so it failed the duration and closing-price tests for a valid secondary reaction.

Candidate line consolidations after the July 1990 high were judged too short, too wide, or too concentrated near the top of the range to substitute for a secondary reaction, so no valid sell had been generated by mid-January 1991.

A nine-day industrial pause near 2680 and an eight-day transport consolidation fell short of the two-week line minimum and were treated as too thin a basis for reversing a primary advance or resolving a year-long divergence.

Recast the October trough as an initial low

The October 1990 lows left an open classification problem. If both averages had already closed below valid secondaries, a primary decline would be in force, but a later split at those lows could instead mark the start of a renewed primary advance.

After the mid-October low, an inverted head-and-shoulders with a downward-sloping neckline completed a November 12 upside break. By year-end the industrials had retraced nearly half of the prior decline, recasting that trough as the initial low of a possible secondary recovery.

In this reading the inverted bottom is a later-stage pattern. A downward-sloping neckline break can recast the preceding trough as an initial low rather than as a completed primary-trend signal.