Stocks & Commodities V. 26:4 (19-24): Did Dow Theory Fail? by Tim W. Wood, CPA
Product Description
Did Dow Theory Fail? by Tim W. Wood, CPA
Here’s a look at the chain of events that have taken place since 2002 and what we can learn from them.
AS the Dow Jones industrials topped out in 2000 and plunged nearly 38% into the 2002 low, every indication, according to Dow theory, was that an extended secular bear market had begun. In addition, because of Dow theory phasing along with the normal bull and bear market relationships, indications were that this was the rally separating phase I from phase II of a much longer-term bear market. So what went wrong? I will examine the chain of events that have transpired since the 2002 low and in doing so look at where we are and what we have learned.
BASIC DOW
Let’s begin with a basic and nonsubjective principle of Dow theory. According to Dow theory, confirmation of a primary uptrend occurs when both averages better their previous “secondary high point.” At the opposite end of the spectrum, confirmation of a primary downtrend occurs when both averages fall below their previous “secondary low point.”
When I say “both” averages I’m talking in Dow theory terms, and this refers to the industrials and the transports only. The utilities are not and have never been a part of Dow theory. In fact, the utilities did not even come into existence until 1929, some 33 years after Charles Henry Dow developed the industrials and what was at the time known as the “rails,” what later became known as the transports.
Here’s a look at the chain of events that have taken place since 2002 and what we can learn from them.
AS the Dow Jones industrials topped out in 2000 and plunged nearly 38% into the 2002 low, every indication, according to Dow theory, was that an extended secular bear market had begun. In addition, because of Dow theory phasing along with the normal bull and bear market relationships, indications were that this was the rally separating phase I from phase II of a much longer-term bear market. So what went wrong? I will examine the chain of events that have transpired since the 2002 low and in doing so look at where we are and what we have learned.
BASIC DOW
Let’s begin with a basic and nonsubjective principle of Dow theory. According to Dow theory, confirmation of a primary uptrend occurs when both averages better their previous “secondary high point.” At the opposite end of the spectrum, confirmation of a primary downtrend occurs when both averages fall below their previous “secondary low point.”
When I say “both” averages I’m talking in Dow theory terms, and this refers to the industrials and the transports only. The utilities are not and have never been a part of Dow theory. In fact, the utilities did not even come into existence until 1929, some 33 years after Charles Henry Dow developed the industrials and what was at the time known as the “rails,” what later became known as the transports.
FOR THOSE ORDERING ARTICLES SEPARATELY:
*Note: $2.95-$5.95 Articles are in PDF format only. No hard copy of the article(s) will be delivered. During checkout, click the "Download Now" button to immediately receive your article(s) purchase. STOCKS & COMMODITIES magazine is delivered via mail. After paying for your subscription at store.traders.com users can view the S&C Digital Edition in the subscriber's section on Traders.com.
| Take Control of Your Trading. |
| Professional Traders' Starter Kit |
| All these items shown below only $299.99! |
| Click Here to Order |