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THE DOW REPORT
More Non-Confirmations

Today we will apply the Dow theory concept of non-confirmation to a few more sectors. Understand that non-confirmations are warnings, not timing tools. Non-confirmations can exist briefly while one average hesitates temporarily before confirming the move of the other average. Or, the non-confirmation can remain, in which case it will ultimately mark a turning point. Although the great Dow theorist Robert Rhea did not put specific time limits on confirmations, he did explain that more authority is given to confirmations that occur sooner rather than later.

In the chart below we have the Dow Jones Industrial Average in the upper window and the Dow Jones Financial Index in the lower window. The intermediate-term top in February 2004 was marked with a non-confirmation between these two averages. Also, the March 2005 top was marked by a non-confirmation. Both of these non-confirmations are marked in blue.

Now we have a longer-term non-confirmation, marked in red, in the making. As long as this non-confirmation remains, it serves as yet another warning of at least intermediate degree.

The next chart below is of the Industrials and the Broker Dealer Index. Here too, we have an intermediate-term non-confirmation in place.

In the next chart below we have the Industrials vs. the Banking Index and here too, the story is the same.

Next, I want to follow up on the Retailers. In the chart below we have the Industrials in the upper window and the Retailers in the lower window. With us now less than two weeks from Christmas, the Retailers continue to lag the Industrials. Again, as you can see in this chart, non-confirmations between the Industrials and the Retailers have not historically been a very positive sign for the market. Yes, this non-confirmation can continue to build or it could even be corrected.

Tim W. Wood

In conjunction with these non-confirmations, I use my intermediate-term Cycle Turn Indictor for timing. This indicator is covered in Cycles News & Views as well as the web based updates. In the current issue of Cycles News & Views I also give updated statistical projections based on the advance out of the October intermediate term lows. For more information, please visit www.cyclesman.com.

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