by Bo Polny, Silver Doctors:
What is the ‘Dow Theory’?
The theory was derived from 255 Wall Street Journal editorials written by Charles H. Dow (1851–1902), journalist, founder and first editor of The Wall Street Journal and co-founder of Dow Jones and Company.
The Dow Theory is a theory which says the market is in an upward trend if one of its averages (industrial or transportation) advances above a previous important high, it is accompanied or followed by a similar advance in the other.
Two (2) basic tenets of Dow Theory are described below:
Stock market averages must confirm each other. In Dow’s time, the US was a growing industrial power. The US had population centers but factories were scattered throughout the country. Factories had to ship their goods to market, usually by rail. Dow’s first stock averages were an index of industrial (manufacturing) companies and rail companies. To Dow, a bull market in industrials could not occur unless the railway average rallied as well, usually first. According to this logic, if manufacturers’ profits are rising, it follows that they are producing more. If they produce more, then they have to ship more goods to consumers. Hence, if an investor is looking for signs of health in manufacturers, he or she should look at the performance of the companies that ship the output of them to market, the railroads. The two averages should be moving in the same direction. When the performance of the averages diverge, it is a warning that change is in the air.
Trends exist until definitive signals prove that they have ended. Dow believed that trends existed despite “market noise”. Markets might temporarily move in the direction opposite to the trend, but they will soon resume the prior move.
Let us have a look at today, July 13, 2016…
DOW Theory states… ‘An upward trend if one of its averages (industrial or transportation) advances above a previous important high…’
Looking at the DOW chart, the DOW currently trades at 18,355 above the 2015 top, has a Bull new market has resumed?
DOW Theory also states… ‘It is accompanied or followed by a similar advance in the other (transportation)… a bull market in industrials could not occur unless the railway average rallied as well, usually first… The two averages should be moving in the same direction. When the performance of the averages diverge, it is a warning that change is in the air.’
So has a Bull new market has resumed? Before this question can be answered, based on DOW Theory, we must look at the Transportations. Looking at the DOW Transportations chart, the Transportations currently trades at 7,875 far BELOW the 2015 top! DOW Theory indicates… a warning that change is in the air!
Lastly, recall in 2015 we forecast an exact top on a US stock market using our 777 cycle calculation we provided within our videos (CLICK HERE FOR LINK). Our calculation was based on the NASDAQ specifically, see original calculations within the two (2) slides below. Beginning on March 24, 2000 the first 777 cycle put in the exact cycle top on the NASDAQ October 31, 2007.
Next, beginning at October 31, 2007 the second 777 cycle put in the exact and FINAL Top on the July 20, 2015 at 5231, the exact day of our Interview calling the top (LINK HERE).
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