According to Dow's theory, what happens when conclusions are based on the movement of one average without confirmation?

In the context of Dow's theory, the situation where conclusions are drawn solely from the movement of one average without the need for confirmation from another average can indeed be misleading. Dow's theory emphasizes the importance of confirmation across multiple averages, typically the Dow Jones Industrial Average and the Dow Jones Transportation Average.

When one average shows a certain trend—whether it be upward or downward—it's essential to seek corroboration from the other average before making definitive conclusions about market direction. If one average is indicating a bullish or bearish trend while the other remains stagnant or moves contrary, any conclusions drawn solely from the active average should be approached with caution. This is because a lack of confirmation increases the risk of misjudging the overall market condition, leading to potentially erroneous trading decisions.

Thus, relying on a single average without the support of another creates a higher chance of misunderstanding the true market signals, making the conclusions drawn in this manner likely misleading. This is foundational to Dow theory, which advocates for a comprehensive analysis using multiple averages to confirm market trends.