A Line in Dow Theory is a sideways movement in one or both of the Averages (Dow Jones Industry & Transportation), which might last for 2 to 3 weeks or, sometimes, for as many months, in the course of which prices fluctuate within a range of approximately 5% or less.
The formation of a Line signifies that pressure of buying and selling is more or less in balance. Eventually, of course, either the offerings within that price range are exhausted and those who want to buy stocks have to raise their bids to induce owners to sell, or else those who are eager to sell at the “Line” price range find that buyers have vanished and that, in consequence, they must cut their prices in order to dispose of their shares.
Hence, an advance in prices through the upper limits of an established Line is a Bullish Signal and, conversely, a break down through its lower limits is a Bearish Signal. Generally speaking, the longer the Line (in duration) and the narrower or more compact its price range, the greater the significance of its ultimate breakout.
The direction in which prices will break out of a Line cannot be determined in advance of the actual movement.
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