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The bull market should be given the benefit of the doubt, according to many of the Dow Theorists I monitor.

Before you make too much of this happy news, however, you should also know that some other Dow Theorists I track believe we're in a major bear market.

How can two followers of the same market timing system come to diametrically opposite conclusions?

Therein lies a story.

The Dow Theory, for those of you who aren't familiar with it, is the oldest stock market timing system that remains in widespread use today. It was created more than a century ago by Charles Dow (one of the co-founders of Dow Jones, the company) and William Peter Hamilton, the Wall Street Journal's editor for several decades until his death in 1929. They introduced their theory, and developed it over time, in numerous editorials in the WSJ. They never codified it into a series of specific, comprehensive and unambiguous trading rules, however.

That's why the Theory's followers today are sometimes unable to agree.

Nevertheless, almost all followers do agree on the Theory's broader principles. During bull markets, for example, a bear market sell signal is triggered when three hurdles are cleared:

    Both the Dow Jones Industrial Average  and the Dow Jones Transportation Average must undergo a significant decline after hitting new highs.

    In their subsequent significant rally following the decline referred to in step #1, either one or both of these Dow averages must fail to surpass their highs.

    Both averages must then fall below their lows registered at the bottom of the decline referred to in step #1.

    A buy signal in a bear market would be triggered by the mirror opposite three-step process.

    Perhaps the biggest source of contention is over the meaning of "significant" in steps #1 and #2. Not every squiggle on the charts counts, needless to say. Yet how long must a decline or rally last and what must its magnitude be in order to be counted as significant?

    Some Dow Theorists believe that, to be "significant," a pullback or rally must last between three weeks and three months and retrace between one-third and two-thirds of the market's previous move.

    To illustrate what that would mean currently, consider the stock market's decline since its late-April high -- a decline that, as of Monday's close, had taken 6.9% off the value of the Dow Industrials and 12.3% off the value of the Dow Transports. That decline therefore is "significant" by this definition, and thus satisfies step #1 of this three-step process.

    Step #2 has yet to be satisfied, however. It may have begun with the big rally on Tuesday of this week, though we won't know for sure unless the rally lasts long enough to be considered "significant." Unless and until it does, the most recent Dow Theory signal remains in effect. And, because the last signal generated by several of the Dow Theorists I monitor was a buy signal, they're still bullish.

    To other Dow Theorists, however, the Theory has been on a sell signal since late last year. They therefore are focusing on the just the reverse of the three-step process outlined above. The rally from the December lows to the April highs satisfied step #1, and the decline since those highs is setting up the precondition for step #2. If the current decline ends with either the Dow Industrials or Dow Transports above their December lows (step #2), and then both surpass their April highs (step #3), then a Dow Theory buy signal would be generated.

    Why even care about a market timing system with this much room for disagreement? Because, under at least some interpretations, the Dow Theory has an impressive long-term record. One study calculated its track record over a seven-decade period beginning with Hamilton's death in 1929. Conducted by Stephen J. Brown of New York University, William Goetzmann of Yale University, and Alok Kumar of the University of Miami, the study found that the Dow Theory over that period beat a buy-and-hold by an annual average of 4.4 percentage points.

    In any case, it's important not to exaggerate the extent of disagreements between the various Dow Theorists. For example, all Dow Theorists I track would consider the bull market alive and well if the major market averages were to reach new all-time highs, just as they would consider equities to be in a major bear market of the December lows were violated. In the meantime, the market is in purgatory, waiting for the judgment of the two Dow Averages.

    That can seem frustrating if you're impatient about receiving a black-and-white pronouncement of where the market is heading. But, from a very long-term perspective, the difference between the December lows and April highs is not all that great. And, sooner or later, and probably sooner, the market will violate one of those two levels.

    Just remember: Some theologians believe purgatory can last for over a thousand years. I'm willing to bet that the stock market will emerge from its purgatory within a matter of a few months -- if not sooner.

    Stay tuned.

    Mr. Hulbert was the founder of Hulbert Financial Digest, which closed in 2016. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at