The Same Patterns Remain Even When the Market Index Changes
by Richard Evans
When the Dow was careening toward 5200 not too many weeks ago, a reporter from the Wall Street Journal called and asked what I thought. I replied that the Dow had simply retraced one-third of its prior advance, which is well within the confines of a secondary correction within a bull market. As it was, the low of the day was the end of the decline and the market promptly rebounded.
Apparently, though, the reporter was not impressed with my geometry that day, so he declined to use my information. However, the Dow Theory 1/3-2/3 concept, which I explained at some length just this past January in the AAII Journal, proved out once again.
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The concept also played out with other averages, such as the Nasdaq composite. While the Dow may be perceived as stodgy and the Nasdaq as the up-and-comer, both markets move in trends, and similar trend analysis is applicable.
Trend can be classified as to extent in terms of three trends: major, intermediate, and minor. We are most interested in the major trend, but it is changes in the intermediate trend that allow us to classify the major trend. This is illustrated in several charts. The major market trend is comprised of two intermediate uptrends, mid-January through late February, and then early April through early June. Figures 1 and 2 show these two intermediate trends.
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