prices, lasting from several months to several years. 2. Secondary or intermediate trends are caused by short-term deviations of prices from the underlying trend line. These deviations are eliminated via corrections, when prices revert back to trend values. 3. Tertiary or minor trends are daily fluctuations of little importance.   Figure 12.2 represents these three components of stock price movements. In this figure, the primary trend is upward, but intermediate trends result in short-lived market declines lasting a few weeks. The intraday minor trends have no long-run impact on price. Figure 12.3 depicts the course of the DJIAduring 1988, a year that seems to provide a good example of price patterns consistent with Dow theory. The primary trend is upward, III. Equilibrium In Capital Markets 12. Market Efficiency The McGraw−Hill Companies, 2001           346 PART III Equilibrium in Capital Markets     as evidenced by the fact that each market peak is higher than the previous peak (point F versus D versus B). Similarly, each low is higher than the previous low (E versus C versus A). This pattern of upward-moving "tops" and "bottoms" is one of the key ways to identify the underlying primary trend. Notice in Figure 12.3 that, despite the upward primary trend, intermediate trends still can lead to short periods of declining prices (points B through C, or D through E). In evaluating the Dow theory, dont forget the lessons of the efficient market hypothe- sis. The Dow theory is based on a notion of predictably recurring price patterns. Yet the EMH holds that if any pattern is exploitable, many investors would attempt to profit from such predictability, which would ultimately move stock prices and cause the trading strat- egy to self-destruct. Although Figure 12.3 certainly appears to describe a classic upward primary trend, one always must wonder whether we can see that trend only after the fact. Recognizing patterns as they emerge is far more difficult. More recent variations on the Dow theory are the Elliott wave theory and the theory of Kondratieff waves. Like the Dow theory, the idea behind Elliott waves is that stock prices can be described by a set of wave patterns. Long-term and short-term wave cycles are su- perimposed and result in a complicated pattern of price movements, but by interpreting the cycles, one can, according to the theory, predict broad movements. Similarly, Kondratieff waves are named after a Russian economist who asserted that the macroeconomy (and thus the stock market) moves in broad waves lasting between 48 and 60 years. The Kondratieff waves are therefore analogous to Dows primary trend, although of far longer duration. Kondratieffs assertion is hard to evaluate empirically, however,