Tags: stock market | bear | charles dow | market timing

Dow Theory Says Bear Market Just Started

Dow Theory Says Bear Market Just Started

By    |   Friday, 21 August 2015 06:24 AM

Dow Theory might be the oldest market timing strategy used by investors. It was developed by Charles H. Dow in the early 1900s and was designed to forecast the economy.

Dow believed stock prices would change direction ahead of the economy. He created the Dow Jones Industrial Average and Dow Jones Transportation Average to help him make economic forecasts.

Dow’s theory was that when the economy was strong, both of his averages would be in up trend. In a weak economy, both averages would be bearish. He defined bullish as making new highs and bearish as setting new lows. It’s a simple theory that makes sense and still works today.

Economic growth requires the production of goods which is reflected in the Industrial Average. The Transportation Average consists of companies that deliver raw materials to producers and finished goods to consumers. In a growing economy, industrial and transportation companies should be doing well. When they break to new lows, the economy is usually slowing.

On Thursday, Dow Theory gave a sell signal. The last signal occurred in the summer of 2012 as stocks were in the midst of an 8 percent decline. A timely signal in 2007 helped followers avoid almost the entire bear market.

This signal comes with prices just 6 percent below their all-time highs. Technical analysts point out that momentum and breadth have been weak for months and now Dow Theory confirms those signals.

Based on history, it’s likely the bear market started to accelerate on August 20, 2015.

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MichaelCarr
Dow Theory might be the oldest market timing strategy used by investors. It was developed by Charles H. Dow in the early 1900s and was designed to forecast the economy.
stock market, bear, charles dow, market timing
252
2015-24-21
Friday, 21 August 2015 06:24 AM
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