Charles Dow’s Theory Still Valid for the 21st Century

by Jack Schannep

Charles Dow’s Theory Still Valid For The 21st Century Splash image

Every day we hear about the Dow rising or falling, but we may not stop to think who Dow was, what the Dow averages are all about and what the implications might be.

I’ll start with who Charles Dow was and then how his theory, which has served so well for over 100 years, can still be used in the 21st century as a guide to timing t

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Discussion

Jim Braun from California posted about 1 year ago:

The excessive headline driven volatility that investors have endured over the last 3 years has diminished the predictive power of the Dow Theory in my view.

I do agree though, that buy and hold has not worked for several years.


Dave Kent from Colorado posted about 1 year ago:

Great discussion. Thanks.


Werner Emmerich from Pennsylvania posted about 1 year ago:

If the Dow Theory is properly applied, even with such simple means as appropriate moving averages, it can greatly exceed a Buy & Hold approach.


Philip Faccenda from New Jersey posted about 1 year ago:

The corruption that nearly collapsed the world financial markets in 2008 has still not been called to account. The system within which any purported predictive theory operates will always be manipulated by that dark hand; thus, no prognosticating will ever be accurate...or reliable.


David Disick from New York posted about 1 year ago:

Have followed Richard Russell for years. Bought gold but still have not been able to benefit from stock market based on th Dow Thoery. Cashand Gold have been the bes position as Russell has said.


David Heffelfinger from Pennsylvania posted about 1 year ago:

In the sophisticated computer driven market of today's world volatility reigns supreme. Too Big to Fail investment firms with computerized algorithms can cause market disruptions and massive moves that destroy the basis for any theory, but this is a good lesson in how the market should work if an equal playing field existed (and it may work well - but for small & micro cap stocks if such a tracking system exists for them) Since transportation stocks are less likely to be manipulated, they might be more important to follow than the industrial's. And , in today's world, the service & tech sectors play a much bigger role in our economy than in the past. Their relationships to the Dow must also be taken into consideration when investing wisely. It is a much more complicated environment today than in the 1900s when manufacturing ruled the marketplace alone.


Fernando Robles from Florida posted about 1 year ago:

Are 19% and -16% the buy and sell signals, respectively?


Jack Schannep from Arizona posted about 1 year ago:

I use +19% and -16% attained by both the DJIA and S&P500 as the minimum levels to qualify as a Bull or Bear market for a number of reasons. In the article I mentioned they are reciprocal numbers, unlike the +/-20% traditionally used. In addition, when markets rise +19% they have gone on 93% of the time to at lease a +29% gain (one-half have risen over +80%). Conversely, when markets lose -16% they have gone on 81% of the time to at least a -24% drop and been followed 77% of the time by recessions. Therefore, IF a Dow Theory signal has not been completed by the time these levels are reached, I use that as a 'stop-point' to complete the signal. This is explained more fully in the free area of my website www.thedowtheory.com
Best to All,
Jack Schannep


Edward Mueller from Illinois posted about 1 year ago:

Does anyone know what we are in now? Is the Dow theory saying buy, or sell?


Charles Rotblut from Illinois posted about 1 year ago:

Edward,

In Jack's latest newsletter, he still has a buy signal.

-Charles


John from Illinois posted about 1 year ago:

I was a little disappointed the article didn't discuss the interaction between the Dow Industrial and Dow Transport indexes, and what it means when they are converging and diverging. Anyone know of another article in AAII that might cover that? I've seen other authors mention that the interaction between the 2 indexes is a key market indicator.


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