The venerable Dow Theory, which has been around since the late 1890s, focuses exclusively on the performance of the Dow Jones Industrial and Dow Jones Transportation Averages. What the Theory likes to see are those averages moving in unison, thus confirming the trend.

Interestingly, the Dow Theory flashed a "bull market" signal recently when the Dow Industrials and Dow Transports both went above their previous important highs established this past January.

The development is significant. Indeed, the Dow Theory had been bearish since October 1999.

Investors should be aware, however, that the best time to buy after a Dow Theory bull-market signal is on price declines. In that way, you can buy with confidence knowing that the decline is a pullback within a bull market and thus likely to be fairly short-lived.

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