Dow Theory Bear Market Signal CORRECTION

Dow Theory bear market signals require hitting of new lows by both the Industrial average and the Transportation average, an upward correction where both averages do not hit new highs, then another move down where both averages hit new lows. In a previous post we said:

...both the Dow Jones Industrial Average and the Dow Jones Transportation Average hit lows this year, then turned around. The DJIA then hit a new high, but that was not confirmed by the DJTA. Such a non-confirmation raises a red flag. And now that both the DJIA and the DTIA have fallen below previous lows, a bear market signal has been given.

That's not correct. Caught up in the frenzy of the heavy action last week, we must have slipped into a hallucinatory state, imagining the scenario described. Or was it a lack of focus on the charts? Because upon checking up on ourselves, we notice that what happened was that the Industrials hit a new high, unconfirmed by the Transports, followed by a divergence between the two where the Industrials headed up and the Transports headed down. Eventually, both did hit new lows.

It's a difference that makes a difference.

And while we read a number of commentaries about how the action above was bearish, that's not exactly a bear market signal, just bearish action.

Again, a difference that makes a difference.

So here's what to look for now. Both averages having hit new lows have begun to ascend. If both achieve new highs, we're back in the bull. If one or neither does, and both then reverse and hit new lows - to be clear, exceeding the previous, just hit lows - then we face the bear.