The Dow Theory
Indicator: NEUTRAL
Oct 24th 2007: There appeared to be a probable peak reached in Jul 2007. Both ^DJI and ^DJT made a sharp down-turn in Jul 2007 after a prolonged bullish trend. Both appear to have leveled out in Aug 2007, and both appear to bounce back during Aug and Sep. Should the indices reach peaks below the previous highs and begin a sharp downward trend, a bearish indicator would trigger. However, the ^DJI briefly punched through its previous high before turning down again, and the ^DJT has remained relatively flat. As this point, no bearish indication is triggered by this model, but it'd be worthwhile monitoring the trend in the coming days.
Graph:
Most recent load: ^dji: 2008-03-24 and ^djt: 2007-12-14
Redraw graph: 2001 2003 2005 2006Theory:
The Dow Theory purports to identify and measure changes in important cyclical trends in stock prices on the basis of movements in the Dow Jones Industrial Average and the Dow Jones Transportation Average.
Indicators:
- The industrial average and transportation average must confirm one another.
- Following a substantial market decline, a buy signal is established as follows: a rise by each of the averages to points substantially above their major lows; than a decline by each of the averages of some minimum length that does not penetrate their previous lows. Finally, each average must rebound from this second intermediate low and establish a new cyclical recovery high.
- Following an extended market advance, a bear market is signalled in precisely the opposite manner: a decline by each of the averages to points substantially below their major highs; then an advance by each of the averages of some minimum magnitude that does not surpass their previously established highs. Finally, each average must decline from this second top o a new cyclical low.
Credibility:
The Dow Theory requires the observer to define a set of criteria against which the trend of the market is determined. However, this criteria is difficult to define, and many Dow theorists have defined many different criteria for buy and sell signals. Although many analysts have tried to use the Dow Theory for prediction purposes, it's really best used for identifying the present trend.
Data Source:
The Dow Jones Industrial Average index (^dji) is retrieved from Yahoo! and Dow Jones Transportation Average index (^djt) data are retrieved from Yahoo! using the daily closing values.
Discussion:
| 1 | ccheung | From web admin: Please feel free to add comments about the efficacy of this model. | 2006-08-22 16:37:06 |
| 4 | momojungi | This is a very interesting site. It's very informative and I learn a lot from it. I'm glad I found this site...keep up the good work. | 2006-08-23 01:49:07 |
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