Think Dow Theory supports the equities markets having defeated bearish probabilities? Think again, says Dow Theorist Tim Wood

Dow Theory is Elliott Wave's precursor, and whenever I want to know what it's saying I only trust Tim Wood. He analyzes it rigorously in addition to his Cycles News and Views (see his site by that name in the list at right). Tim has posted another free look on this, in Market Observation - Tim W. Wood 11.06.2009, at http://www.financialsense.com/Market/wrapup.htm. Here's a quote to spur your interest:

With Dow theory, it is the joint movement of the Industrials and the Transports above and below previous secondary high and low points that matters. How much a previous secondary high or low point is penetrated is immaterial from a pure Dow theory perspective. Sure, we can argue that the greater the penetration the stronger the move, but from a pure Dow theory perspective, penetration by a fraction of a point is as good as penetration by 1 point, 100 points or even more. Now, Robert Rhea, the great Dow theorist of the 1930's did say that he preferred to see "penetration with velocity." By that he meant increased volume.

I don't know about you, but I'm concerned about the volumes in this rally - they never looked robust enough to convince me we've gotten past the worst. And the recent slide has seen an uptick in selling volumes - one of the bearish signs.

Bottom line is that Dow Theory agrees that the rally is a bear-market rally and won't prevent another slide lower when the time is right.