March 1, 2004                        Interesting blurb from http://www.dowtheoryletters.com

Dow Theory — Often the best way to think is the simplest way to think. I started these reports back in 1958 based on classic Dow Theory. Classic Dow Theory states that when the Averages disagree, something is wrong. Classic Dow Theory states that a movement of one Average through a previous level, unconfirmed by the other Average, is meaningless for predictive purposes and more often than not — deceptive.

So saying, let’s turn to classic Dow Theory.

On January 22 the Transportation Average closed at 3080.32. It then turned down.

Industrials continued to rally. On January 26 the Industrial Average closed at a new high of 10702.51. This new high was not confirmed by the Transports.

The market then sold off to a February 4 low of Dow 10470.74, before rallying again.

On this rally the Dow rose to a February 11 new high of 10737,70. Again Transports refused to confirm, rising to a February 11 high of 2951.92. The February 11 Transport high was actually below its previous peak,

The Averages backed off again, and at present it appears that the Industrials may try for a third closing high above its February 11 peak of 10737,70.

If this happens, we will have to watch the Transports. It’s possible that a third Industrial high would be accompanied by a third lower peak in the Transports.

Thus, as matters stand, a Dow Theory interpretation of the price action allows for trouble ahead. To eliminate trouble, we would have to see a sustained rally on the part of the Transports.