On July 23, 2009 the primary trend, in accordance to classical Dow theory, was confirmed as bullish. To date, nothing has occurred to invalidate that setup. According to Dow theory, once the primary trend is established, that trend must be considered intact until it is "authoritatively" reversed, which in this case would require a joint move by the averages back below their previous secondary low points. Since that has yet to occur, the primary trend must still be considered bullish. That said, the longer-term Dow theory work still suggests that this is a bullish primary trend change that has occurred within the context of a much longer-term secular bear market and to date, nothing has occurred to invalidate that setup either.

Shorter-term, the Dow theory non-confirmation that was born in early January still remains intact. While this non-confirmation continues to serve as a warning, it does not necessarily mean that a turn is inevitable. I have heard it said that upside non-confirmations are always bearish or that it must be the Industrials that does not confirm the Transports in order for it to have meaning. None of this is true and non-confirmations are not sell signals. They are warnings and it is what develops in the wake of this non-confirmation that is now important. Please refer to the chart of the Industrials and the Transports below.

In light of the ongoing Dow theory non-confirmation and the confusion that seems to be surrounding this non-confirmation I want to share a few quotes with you from our Dow theory founding fathers on this subject.

William Peter Hamilton - "The movement of both the railroad and industrial stock averages should always be considered together. The movement of one price average must be confirmed by the other before reliable inferences may be drawn. Conclusions based upon the movement of one average, unconfirmed by the other, are almost certain to prove misleading."

William Peter Hamilton - "Dow's theory stipulates for a confirmation of one average by the other. This constantly occurs at the inception of a primary movement, but is anything but consistently present when the market turns for a secondary swing."

William Peter Hamilton - "When one breaks through an old low level without the other, or when one establishes a new high for the short swing, unsupported, the inference is almost invariably deceptive."

William Peter Hamilton - "Indeed it may be said that a new high or a new low by one of the averages unconfirmed by the other has been invariably deceptive. New high or low points for both have preceded every major movement since the averages were established."

William Peter Hamilton - "The two averages may vary in strength, but they will not vary materially in direction especially in a major movement. Throughout all the years in which both averages have been kept, this rule has proved entirely dependable. It is not only true in the major swings of the market, but it is approximately true of the secondary actions and rallies. It would not be true of the daily fluctuations, and it might be utterly misleading so far as individual stocks are concerned."

Robert Rhea - "The most useful part of the Dow theory, and the part that must never be forgotten for even a day, is the fact that no price movement is worthy of consideration unless the movement is confirmed by both averages."

Robert Rhea - "The Dow theory deals exclusively with the movement of the railroad and industrial stock averages, and any other method would not be

Dow's theory as expounded by Hamilton."

Robert Rhea - "A wise man lets the market alone when the averages disagree."

Robert Rhea - "When the averages disagree they are shouting 'be careful.'"

So, my point here is that this while this upside non-confirmation may be construed to have at least temporary negative implications, nothing has occurred within the context of Dow theory to invalidate the existing bullish primary trend. Also, it should be clear from the quotes above, non-confirmations represent periods of uncertainty. Further confirmation of a reversal is required and in the meantime, the existing bullish primary trend must still be considered to be in force until it is authoritatively reversed.

Now I want to look within the Transportation sector itself in order to see where the underlying strength and weaknesses lie. In the next chart below I have included the Dow Jones Transportation Average along with the Dow Jones Marine Transportation Average. As you can see, the Marine average is stronger than the overall Transportation Average.

Next, I have the Dow Jones Transportation Average along with the Dow Jones Air Freight Average. The Air Freight Average is the second strongest of the individual transportation sectors in that while it is diverging with the overall Dow Jones Transportation Average, it is not as weak in that it is much closer to its high.

The overall Dow Jones Transportation Average and the Dow Jones Rail Road Average is next. In this case, the rails are pretty much in step with the overall Transportation average as they are performing pretty much in lock step. So, I have to rank them 3rd within this sector.

Lastly, I have included a chart of the Dow Jones Transportation Average along with the Dow Jones Trucking Average. It is pretty obvious here that the Truckers are the weakest sector within the overall Transportation sector in that they have moved below their January lows, which has thereby created the most significant non-confirmation within the Transportation sector.

If the non-confirmation between the Industrials and the Transports is going to be mended, then we should begin to see a strengthening within these individual sectors. If not, then we should see the non-confirmation by the overall Dow Jones Transportation Average grow, which could lead to something more meaningful.

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