As the averages advanced out of the February lows, it was the Transports that beat the Industrials back above the January highs. As a result, a Dow theory non-confirmation was born earlier this month. At the time of my last article posted here, I had received numerous e-mails about that non-confirmation as it seemed to draw a lot of attention and many were viewing it as a death sentence for the market. I warned that this non-confirmation was not necessarily as negative as it was being made out to be and that jumping to conclusions just because one average beat the other one back above its previous closing high was premature. I went on to explain that the non-confirmations are warnings of caution and that it is what develops from that point that would serve to either validate or invalidate the non-confirmation. As it turns out, that non-confirmation was in fact invalidated. In doing so, the bear market rally, which should prove to separate phase I from phase II of the longer-term secular bear market, lives on.

I have again included a chart of the Industrials and the Transports below. As of this writing we again have another Dow theory non-confirmation and this time it does not seem to be drawing any attention. That in and of itself may give it more weight. On March 18th both the Industrials and the Transports closed at new recovery highs. The averages declined into March 19th and on March 22nd the Industrials closed at yet another new recovery high. On March 23rd another recovery high was made by the Industrials, but the Transports continued to lag. In doing so, another non-confirmation has been put into motion and is noted by a small blue line on the chart below. Again, this non-confirmation is only a warning and it is what develops from here that is important. If the averages begin to breakdown from this point and it becomes much more apparent that this non-confirmation is going to stand, then at that time it will serve to give more merit to any such downturn. On the other hand, if this short-term non-confirmation is invalidated, then that will serve to reconfirm the ongoing bear market rally.

I have recently been asked by some of the readers here why I continue to say that this is a bear market rally. There are a number of reasons behind my belief that this is a bear market rally, one of which has to do with bull and bear market relationships.

I've covered this here before, but it has been a while so for the benefit of newer readers I will cover one of several reasons here again. The definitions of bull and bear markets differ from person to person. My definition is based on the works of the great Dow theorists, Charles H. Dow, William Peter Hamilton and Robert Rhea. As a result of my study of Dow theory combined with my study of cycles, which are not a part of Dow theory, I have drawn some very obvious conclusions about the nature of bull and bear markets.

As I studied the bull and bear markets of the late 1800's and very early 1900's, it became apparent that the bull markets Dow, Hamilton and Rhea wrote about were the upward movements of the 4-year cycle and the bear markets were the downward movements of the 4-year cycle. As our country grew, more and more people began investing and as a result the bull and bear market periods became longer. As a result, bull and bear markets evolved into a series of multiple 4-year cycle periods. For example, the first bull market to consist of multiple 4-year cycles ran from 1921 to 1929 and consisted of two 4-year cycles. The low in November 1929 was a 4-year cycle low. The rally, or "Secondary Reaction," that followed was the upside of a 4-year cycle that topped in only 5 months. Once this "Secondary Reaction" was over, the DJIA moved down below the previous 4-year cycle low and into the 1932 4-year cycle low, which proved to be the bear market bottom. I would also like to point out that the 1921 to 1929 bull market advanced a total of 568% from the 1921 4-year cycle low at 67 on the DJIA to the 1929 4-year cycle top at a high of 381 on the DJIA.

The next great bull market began with the 4-year cycle low in 1942 and ran to the 4-year cycle top in 1966. This time the "Primary" bull market was comprised of a series of six 4-year cycles and advanced a total of 1,076% from the 1942 4-year cycle low at 93 on the DJIA to the 1966 4-year cycle top at a high of 1,001 on the DJIA. Note that this bull market advance was roughly double the preceding great bull market advance. The bear market that followed was also a series of 4-year cycles. From the 1966 4-year cycle top, the bear market moved down into the 1974 bear market low. This was a series of two 4-year cycles.

Now, I want to focus on the bear market declines. Prior to the first great bull market that ran between 1921 and 1929, the bear markets averaged some one-third the duration of the previous bull market. This relationship has also held true with the extended bull market periods as well. For example, the 1921 to 1929 bull market was 8 years in duration and the 1929 to 1932 bear market was 3 years, making the bear market duration 37.5% of the preceding bull market. The 1942 to 1966 bull market was 24 years in duration and the 1966 to 1974 bear market was 8 years, which was 33.3% of the duration of the preceding bull market.

From a cyclical perspective, the last and greatest bull market of all time began with the 1974 4-year cycle low. Some say that it began at the 1982 low. However, from a cyclical and a Dow theory perspective the bull market began in 1974 and this was the actual low point of the 1966 to 1974 bear market. 1982 was when the bull market broke out and became apparent.

At the 2000 top, the associated Dow theory non-confirmation and confirmed primary trend change indicated at the time that this great bull market era had ended. Upon the primary trend confirmation in March 2000, all indications, according to Dow theory phasing, was that Phase I of a great bear market had begun. Also, based upon the historical relationships between bull and bear markets, that bear market was slated to run into the 2008 to 2010 timeframe, which was 33 to 37% of the preceding bull market. Again, when the rally out of the 2002 low began it appeared that this was simply the rally separating phase I from phase II of the bear market.

However, the powers that be threw everything they had at the market and in doing so they allowed the bear to claw its way out of existence and when both averages managed to better their 2000 highs, everything changed in accordance with Dow theory phasing. I said at that time "I can tell you that this confirmation does not signal a "new" bull market, but rather reconfirms the existing bull market." What I was saying here in early 2007 was that the bull market that began in 1974 was reconfirmed as still being intact when both averages jointly bettered their 2000 highs and that we had never entered into a true bear market. This was written in an article on February 29, 2007.

Anyway, the advance that followed this reconfirmation carried the averages up into their last joint high, which occurred in July 2007, and can be seen in the Dow theory chart below. From the July 2007 joint high the averages moved down into their August 2007 secondary low points. It was then from that secondary low point that things began to once again deteriorate and non-confirmations along with my cyclical and statistical turn points came together.

It was the non-confirmation in late 2007 that was followed by the initial decline and with the break below the August 2007 secondary low points on November 21, 2007 the Primary trend was once again confirmed as being bearish. That break once again put the market at risk of finally marking the top of the entire bull market advance that began in 1974 at 570 on the Industrials. As of the October 2007 high the bull market advance that began in 1974 has now run 33 years and has consisted of eight 4-year cycles with a total advance of 2,385%. Note that once again, this advance has been roughly double the previous bull market advance in terms of the percentage move out of the low in which the bull market began. Based on the data at hand today, I think that the 2007 high most likely marked THE bull market top. If so, then based upon the normal statistical relationships between bull and bear markets, this bear market would be expected to run some 33 to 37 percent of the duration of the preceding bull market. With the bull market having lasted some 33 years in duration, a typical bear market relationship would last some 10 to 12 years and not a mere 17 months as was seen into the March 2009 low.

This historical bull and bear market relationship is but one reason for my belief that this is a bear market rally. There is also the historical value lows, based on price earnings and dividend yields, that has not been seen. There is also the phasing aspects of Dow theory as well as cyclical and statistical indications that this is most likely a bear market rally and the longer it lasts, the more convincing it becomes. Consequently, once it tops and the phase II decline begins, the more damage it will do because few will be able to identify, understand or believe the turn once it occurs. I have gone back to 1896 and have identified specific statistical and cyclical markers that have occurred at all major tops. I am covering the developments of these markers in my newsletter and short-term updates. If /when they materialize, it should mark the end of the rally separating phase I from phase II.

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