Though Charles Dow’s theory is based upon just “a few hypotheses” and “definite theorems”, there are numerous interpretations still of the Dow Theory. We aim to clear the record by presenting:
The Fundamentals of the Traditional Dow Theory
On January 31st,1901 Charles H. Dow compared the stock market to the tides of the ocean when he wrote in the Wall Street Journal “A person watching the tide coming in and who wishes to know the exact spot which marks the high tide, sets a stick in the sand at the points reached by the incoming waves until the stick reaches a position where the waves do not come up to it, and finally recede enough to show that the tide has turned. This method holds good in watching and determining the flood tide of the stock market.”
Gains from Buy Signals
Follow the course of history to see how to profit from the gains of the Dow Theory. These charts show the results for the S&P 500 for 3 months, 6 months, 9 months, and a year after the BUY Signals with the average gains being +4.5%, +8.9%, +14.3% and +19.1% respectively. The average gain to the next SELL Signal was +23.6%.
Declines After Selling
A collection of data depicting why you should always pay attention to Sell signals.
The Dow Theorist’s Sweepstakes
Check out our interpretation of the Dow Theory as opposed to the competitions’. The Dow Jones Industrial Average is 5,962 points above where it was 14 years ago. Our Dow Theory interpretation has captured (including saved from losing) 7,281 points during that time. The three major Dow Theorists had been under a BUY signal for many years up until the SELL signal on August 4th, 1998, after which interpretations diverged.
The Complete Dow Theory Record
The following “Official” Detailed Record of The Dow Theory was compiled from articles in Barron’s, early editions of Technical Analysis of Stock Trends, and elsewhere as indicated by the “Note” opposite each Signal, and explained in detail at the end of the compilation. The type of Signal is indicated by (B-1), (S-2), etc, which are fully described in the Description and Results section. Results shown include dividends received and interest earned on 3 month Treasuries as received quarterly. Market levels are for the Dow Jones Industrial Average.