Dow Theory Confirmation And Divergence
by Richard L. Evans
According to one of the most important tenets of the Dow theory, the Dow Jones Industrial and
Transportation Averages must confirm each other to be able to derive forecasting significance from them.
In The Dow Theory, originally published in 1932, Dow theorist Robert Rhea states: "The movements of
both the railroad and industrial stock averages should always be considered together. The movement of
one price average must be confirmed by the other before reliable inferences may be drawn. Conclusions
based upon the movement of one average, unconfirmed by the other, are almost certain to prove
Intuitively, confirmation and divergence are acceptable as the bases of not only the Dow theory but of
much of modern technical theory. However, there are questions to be answered regarding confirmation
and other fundamentals of the Dow theory, as well as the critical question of interpretation.