The Handbook of Technical Analysis + Test Bank_ The Practitioner\'s Comprehensive Guide to Technical Analysis ( PDFDrive )

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THE HAnDbook of TEcHnIcAl AnAlysIs

average. In Figure 2.20, we observe that the Industrials Average penetrated its
secondary peak at T1 while the Railroad Average penetrated its own secondary
peak a little later at T2. Hence the uptrend was only confirmed at time T2. As far
as Dow Theory is concerned, the uptrend was not confirmed until the Railroad
Average penetrated its own secondary peak at T2.
In Figure 2.21, we observe that the Dow Jones Industrial Average breached its
own secondary peak at T1, which was confirmed later by the Dow Jones Trans-
portation Average breaching its own secondary peak at T2. It is at T2 that the up-
trend in the markets was finally confirmed, according to the tenets of Dow Theory.
In Figure 2.22, we observe that the Dow Jones Industrial Average experienced
a weak non‐failure swing sell signal, signifying a change in the trend. The bearish
signal was not confirmed by the Dow Jones Transportation Average and this was
therefore regarded as a bullish indication. There is non‐confirmation of a reversal
in the trend. The Dow Jones Industrial Average subsequently resumed its uptrend
after penetrating its own secondary reaction peak.
The concept of confirmation may also be applied to closely correlated markets.
In Figure 2.23, we observe that the change in trend in silver was not as yet con-
firmed by gold, a closely correlated market. This may be viewed as either a bearish
signal for gold or a bullish signal for silver. A penetration of gold’s support would
generally be a bearish sign for silver.
In Figure 2.24, we see an example of the Russell 2000 Small Cap Index not
confirming the sell signals in the S&P500 Large Cap Index. This may be regarded
as bullish for the S&P500. Although both the S&P500 and Russell 2000 have ex-
perienced deep reversals, this non‐confirmation may be construed as an oversold
indication on the S&P500.


fIgure 2.20 Confirmation of the Averages.

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