4. Stock market averages must confirm each other

In Dow's time, the US was a growing industrial power. The US had population centers but factories were scattered throughout the country. Factories had to ship their goods to market, usually by rail. Dow's first stock averages were an index of industrial (manufacturing) companies and rail companies. To Dow, a bull market in industrials could not occur unless the railway average rallied as well, usually first. According to this logic, if manufacturers' profits are rising, it follows that they are producing more. If they produce more, then they have to ship more goods to consumers. Hence, if an investor is looking for signs of health in manufacturers, he or she should look at the performance of the companies that ship the output of them to market, the railroads. The two averages should be moving in the same direction. When the performance of the averages diverge, it is a warning that change is in the air.

Note:
Dow dalam hal ini setuju dengan adanya inter market correlation. Menurut dow Pergerakan indeks saham dari suatu sektor/kelompok harus diikuti juga dengan gerakan searah dari sektor/kelompok laiinya yang mendukung sektor/kelompok pertama tersebut. Dan harus ada keterkitan yang kuat antara dua sektor tersebut

Dalam studi kasusnya dow menggunakan 2 jenis index saham yaitu
Dow Jones Industrial Averages
dan Dow jones Tranportation Averages

Menurut Dow Jika terjadi kenaikan dibidang prodoksi maka otomatis akan terjadi kenaikan juga dari sisi transportasi (Transportasi dibutuhkan untuk distribusi barang)



Jika tidak terjadi konfirmasi antara 2 index tersebut sangat dimungkinkan akan terjadi perubahan gerakan dari salah satu index tersebut.