Sunday, December 31, 2006

Dow Theory – Again? – Yes – Again!

In the ever-shrinking world of “are we there yet” the answer is always a resounding “no” and “I told you to go before we left.” But that aside there are people out there who still adhere to the Dow Theory. That theory insists that the transportation index has to confirm the Industrial index in a “you complete me” kind of way. Sort of the way dysfunctional relationship’s work – (or, for that matter, most relationships). And the cult of Dow probably wants to burn me at the stake - but I’m not buying it.

The way I look at it the Dow theory in the last 16 years or so has exactly predicted 5 of the last 1 collapses of the Industrials. And that one is iffy at best.

Here you can see for yourself. I’ve scribbled all over this picture to show my utter contempt for a theory that was worn out in the 40’s but still has true believers today

As you can see the Trans index is once more seeming to signal impending doom for the Industrials – will it really happen this time or … stay tuned.

But it is the 50-year that best tells the story that I want to get across to you – the EMA 4 very seldom dips below the EMA 21 on the quarterly charts(which means, of course that the price very seldom does either) and once it comes back up for air – it seems to stay on top for a lonnng time.

For those of you with a short attention span - here is the last 50 years of the Industrials.