A confirmed Dow Theory Buy Signal has become one of the most interesting events for me to watch in the market since September of 2001. That was when I became acquainted with Jack Schannep, a seasoned market timer. Schannep's interpretation of Dow Theory, a tool that monitors movements of the Dow Industrials and Transports for the proper time to invest, has been used in Technical Analysis textbooks. His amazing track record warrants monitoring stocks movement above the 8,522 level, above which he believes the market should move in its next phase. Another Dow Theorist is looking for a move above 8,931 on the Dow Industrials for confirmation of a new bull. Richard Moroney, who is more focused on fundamentals of earnings growth and valuation would argue that the recent strength is simply another bear market head fake in a fully to over-valued market. Find out what these expert calls on recent market moves mean to you and their best recommendations for creating profits right now.

Multitude of and Composite Indicators

March was an exciting month by all accounts. Confidence in the inevitable victory of the coalition led by America in Iraq sparked a massive rally off of the March 11th lows. Over the next ten days, the Dow Industrial rallied from 7,524 to 8,521 before beginning a pullback. By 3/31, fear of a developing maelstrom in Iraq, continuing high oil prices, fear of SARS, and a general economic malaise set in as the market slumped to 7,992. However, the move above the high of 8,521 set the stage for Jack Schannep to inform his readers of the Dow Theory Buy Signal on May 2nd.

Dow Theory arose from Charles Dow's observations of movements between the Dow Industrials and Dow Transports while he was at the Wall Street Journal beginning at the end of the 19th century. While it was only later that his writings became a respected and codified theory, his observations of primary and secondary trends as the prevailing driver of market movements have become a powerful tool for timing the markets.

The close above 8,522 and the strength demonstrated in the Transports Index confirmed a Dow Theory Buy Signal for Jack Schannep, editor of Schannep's Timing Indicator and TheDowTheory. According to Schannep, this indicates that a new bull market, defined as a 19% up move from the previous lows, is in play right now. The previous lows were set on October 9th, at 7286 on the Dow Industrials, through a clear capitulatory market move. Schannep will concede that these have been set several times more frequently over the past couple of years than over the previous six decades, but he dispassionately follows his models that have guided him to excellent returns for over a generation.

Jack Schannep posted the following as his "BOTTOM LINE" on May 1st when he informed his subscribers of the market's setup for a bull market confirmation.

"As you know, I have felt since it happened that October 9th, 2002 was THE low of the 2002 Bear market. September 21st, 2001 was the low of the 2000-1 Bear market at 8235, which was followed by a 6 month +29% 'mini-Bull' market. After that first Bull market of the 21st century the second Bear market went to a lower low at 7286, below the first one's low. The same thing happened after the first Bull market of the 20th century. Now here's some food for thought: Of the 23 Bull markets in the 20th century, only 7 were followed by Bear markets that returned to below the prior starting point like happened on October 9th. When it happened for the first time in the 20th century it set the low for the century!!!"

Schannep is a technician and market historian who has laid out the most extensive comparison of various bull/bear market indicators I have seen, and back tested them. His "Capitulation Indicator" has been focused on the point when investors finally "throw in the towel", and is typically considered the "selling climax", at which point fears of margin calls and disgust with stocks result in the losers being jettisoned from investors portfolios. These points represent significant inflection, or turning points for the market.

Schannep also watches the consumer, which accounts for 2/3 of the US economy. His studies of peaks and valleys in consumer confidence points to a lag between a bear market low and an accompanying bottom in consumer confidence. The converse tends to be true for bull markets; the peak on confidence follows a market top. The trough in consumer confidence in March gives him confirmation that it is safe to invest like it is a bull market. Investors who have followed his research have enjoyed the 15% rally that began seven months ago.

Schannep uses a combination of Diamonds (ASE: DIA ) and Spiders (ASE: SPY ), the index tracking funds that follow the Dow Industrials and S&P 500, respectively, to play his timing signals. He notes that the two indices themselves have traded within a ½% over the long term. Utilizing a short term oscillator, and analyses of the relative valuation of each of the securities, Schannep determines which should be overweighted in order to capture the best average return. Presently, though, Schannep is recommending holding twice the weighting in Diamonds over Spiders.

Can There be a Bull Within a Bear?

Richard Moroney is editor of Dow Theory Forecasts. He is both a Dow Theorist and a stock-picker, but he professes in his most recent letter that, "nothing says the Dow Theory must be used in an all-or-nothing fashion." Moroney is looking for absolute confirmation that a new bull market has begun, but he has not stopped buying and selling stocks to gain exposure to strong industries throughout the three year bear market.

Moroney is currently looking for the market to move above 8,931 on the Dow Industrials and 2,421 on the Dow Transports. These are the market's post October highs, which they have failed to move above. The Dow Transports closed below their October lows in March, though the Industrials held their head above that point and the "retest" was successfully completed for many.

While Moroney sees the close above 8,521 as encouraging, he asks how high the market can move beyond that point. Pointing out that the 8,521 level is below 8,931, he refutes that the market has begun to chart a course of higher highs. Second, he sees the ten day whipsaw rally associated with the "war rally" as too quick, noting that significant bounces typically endure three to six month timeframes.

Trace Johnson is an analyst and writer for Zacks.com and the Zacks Advisor. He also co-hosts an hour on www.webFN.com on Thursdays at 1:00 PM EST and has appeared over thirty times on CNBC Europe with Simon Hobbs. He can be reached at tjohnson@zacks.com.