Tags: stock market | dow theory | decline | sideways

That Stock Market Pullback Everyone Expected Might Have Just Happened

By    |   Friday, 19 June 2015 11:41 AM

We often forget that markets move in one of three different directions. We usually think of markets as moving in up or down trends. But prices can also move sideways.

Market historians trace the idea of the sideways trend to the work of Charles Dow in the early 1900s. Dow is best known for developing the Dow Jones Industrial Average and other indexes. He also developed an explanation of how market action unfolds that became known as the Dow Theory.

Under the Dow Theory, we know that prices are always trending and there are trends of various degrees. The most important is the long-term trend that lasts for years. Shorter term trends lasting weeks or months interrupt the long-term trend and result in what we commonly call pullbacks or corrections.

But Dow noticed markets sometimes move sideways for a few months rather than decline in a pullback. He explained the sideways trend served the same purpose as a decline. Both allowed the market to “rest” before continuing higher.

Since February, prices have moved sideways and on Thursday major market indexes broke above their sideways trends. This is bullish, at least in the short term.

In the long term, we should remain worried about Greece, the price of oil, quantitative easing and a number of other problems.

In the short term, we should expect major market indexes to move up by 3 to 5 percent over the next few months.

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MichaelCarr
We often forget that markets move in one of three different directions. We usually think of markets as moving in up or down trends. But prices can also move sideways.
stock market, dow theory, decline, sideways
239
2015-41-19
Friday, 19 June 2015 11:41 AM
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