The Dow Theory Today by Richard Russell
This is a tiny book if judged by its size. I checked it out 2003 from Amazon. Recently I read it to see if there is a great bear market caused by the credit problems in the sub-prime mortgage and bond insurers. Based on my understanding of the Dow Theory, there are no clear signs yet for the primary bear market. Some of the basic points of the Dow Theory are listed below.
One: the Dow Jones Industrial Average has reflected all known information which is related to the market conditions.
Two: There are three simultaneous movements in the average: the primary trend, secondary actions, and minor fluctuations. The primary trends are either the bull market or bear market. The secondary actions are corrections to the primary trends. The minor fluctuations are just noises.
Three: There are three phases in a primary bull market: the value discovery, the earning recovery, and the exuberance. In the value discovery phase, depressed assets from the previous bear market are picked up by value investors. In the earning recovery phase, investors are increasing their bets in the stock market based on the improved business earnings. In the exuberance phase, investors are pouring money into any stock that is going up in prices.
Four: There are three phases in a primary bear market: the diminished expectation, decreasing corporate profits, and the capitulation. In the diminished expectation phase, investors sell stocks due to reduced hopes and expectations of the previous bull market. In the decreasing corporation profit phase, investors sell any stocks that have reduced earning conditions. In the capitulation phase, investors sell all stocks in order to go through the up-coming rainy days.
There are six more basic points dealing with the technical analysis of the average. I think the technical points are just the graphic representations of the above four major points. I have watered through several primary bull and markets in the United States and Asian countries, the major points in the Dow Theory are just like a pre-print of the reality.
This is a book written almost half a century ago. But its visionary observations made by the early market observers are so vividly true.
One: the Dow Jones Industrial Average has reflected all known information which is related to the market conditions.
Two: There are three simultaneous movements in the average: the primary trend, secondary actions, and minor fluctuations. The primary trends are either the bull market or bear market. The secondary actions are corrections to the primary trends. The minor fluctuations are just noises.
Three: There are three phases in a primary bull market: the value discovery, the earning recovery, and the exuberance. In the value discovery phase, depressed assets from the previous bear market are picked up by value investors. In the earning recovery phase, investors are increasing their bets in the stock market based on the improved business earnings. In the exuberance phase, investors are pouring money into any stock that is going up in prices.
Four: There are three phases in a primary bear market: the diminished expectation, decreasing corporate profits, and the capitulation. In the diminished expectation phase, investors sell stocks due to reduced hopes and expectations of the previous bull market. In the decreasing corporation profit phase, investors sell any stocks that have reduced earning conditions. In the capitulation phase, investors sell all stocks in order to go through the up-coming rainy days.
There are six more basic points dealing with the technical analysis of the average. I think the technical points are just the graphic representations of the above four major points. I have watered through several primary bull and markets in the United States and Asian countries, the major points in the Dow Theory are just like a pre-print of the reality.
This is a book written almost half a century ago. But its visionary observations made by the early market observers are so vividly true.
posted by Unknown at 9:52 AM
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