Dow Theory Tenets: Confirmation still valid
In the late 1800s, a journalist named Charlie Dow faced obstacles while trying to understand the stock market. Companies were reluctant to share information, claiming their business was private. Undeterred, Charlie identified two main types of companies in the market: those that made goods (called "Industrials") and those that delivered those goods (like the Railroads back then).
Charlie noticed something interesting: when both the Industrials and the Railroads were doing well, it usually meant the stock market was in good shape. But if one group was doing well while the other wasn't, it could be a sign that something was wrong. These ideas became known as Dow Theory, and they're still important today.
In fact, today we have two averages named after Charlie's ideas: the DJI (Dow Jones Industrial Average) and the DMT (Dow Transportation Average). Even though over 100 years have passed, Charlie's theories are still valid.
We've seen instances where these two indexes diverged before significant events. For example, before the 2008 Financial Crash and the 2019 Covid Crash, we saw divergence between these indexes. These events serve as reminders of the enduring relevance of Dow's theories in understanding and navigating the stock market.
Charlie noticed something interesting: when both the Industrials and the Railroads were doing well, it usually meant the stock market was in good shape. But if one group was doing well while the other wasn't, it could be a sign that something was wrong. These ideas became known as Dow Theory, and they're still important today.
In fact, today we have two averages named after Charlie's ideas: the DJI (Dow Jones Industrial Average) and the DMT (Dow Transportation Average). Even though over 100 years have passed, Charlie's theories are still valid.
We've seen instances where these two indexes diverged before significant events. For example, before the 2008 Financial Crash and the 2019 Covid Crash, we saw divergence between these indexes. These events serve as reminders of the enduring relevance of Dow's theories in understanding and navigating the stock market.
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