According to the six foundational tenets of Dow Theory formulated by Charles Dow, which of the following statements is TRUE regarding market trends and volume?

[ A ]The market has four trends, volume is completely un-correlated with price, and indices must always move in opposite directions.

[ B ]A trend is assumed to reverse every Monday morning regardless of price action or technical structure.

[ C ]The market has three trends (Primary, Secondary, Minor/Tertiary); Primary trends have three phases (Accumulation, Public Participation, Distribution); Major indices must confirm each other; and Volume must expand in the direction of the primary trend.[ CORRECT ]

[ D ]Dow Theory applies exclusively to physical agricultural grains and is banned for equity stock markets.

Takeaway

Option C is correct: The market has three trends (Primary, Secondary, Minor/Tertiary); Primary trends have three phases (Accumulation, Public Participation, Distribution); Major indices must confirm each other; and Volume must expand in the direction of the primary trend.

Derivation

Charles Dow's six core tenets form the foundation of modern technical analysis: (1) The Market Discounts Everything (all news is priced in). (2) The Market Has Three Trends: Primary (long-term, >1 yr), Secondary (intermediate corrections, 3 wks to 3 mos), and Tertiary/Minor (<3 wks noise). (3) Primary Trends Have Three Psychological Phases: Accumulation (smart money buys quietly), Public Participation (momentum builds, retail joins), and Distribution (smart money sells). (4) Indices Must Confirm Each Other (e.g., Nifty and Sensex must move synchronously). (5) Volume Confirms the Trend (volume expands with primary trend). (6) Trends Persist Until Definite Reversal. This tests Dow Theory. The common error is misstating the three phases or trend durations.

Why the others fail

A — The market has four trends, volume is completely un-correlated with price, and indices must always move in opposite directions.

Dow Theory identifies three trends (not four), emphasizes that volume confirms price, and requires index confirmation.

B — A trend is assumed to reverse every Monday morning regardless of price action or technical structure.

Tenet 6 explicitly states that trends persist until a clear, verified structural reversal signal occurs, not on fixed calendar days.

D — Dow Theory applies exclusively to physical agricultural grains and is banned for equity stock markets.

Dow Theory was originally developed on equity market indices (Dow Jones Industrial and Rail averages) and applies across all liquid markets.