The Dow Theory Today

[HenryTo]

Dear all,

I am appalled at the recent lack of reporting/coverage of the most flagrant divergence in the Dow Industrials and the Dow Transports in history since the historic non-confirmation of the Dow Industrials by the Dow Rails in the 1933 to 1937 rally.

I really am. This flagrant divergence in the Industrials and the Transports is trying to tell us something, and yet we ignore it or even worse, we say things like: "The Dow Theory is antiquated or that the 30 companies are not relevant anymore." I have read such claims before - these claims are not new but the most amazing thing is that these claims have been around since William Hamilton started writing his editorials for the WSJ nearly 100 years ago!

The Dow Theory has worked for practitioners that have been patient and that have learned the history of the Dow Theory. It is not a wise thing to abandon the study of the Dow Theory now - especially since I believe the Dow Theory is trying to tell us something right at this very minute!

[texfly101]

I remember back in the 80's, when I wasn't investing and made the mistake of thinking I was a potential rental owner/manager, about an article that showed a hand drawn graph by an unknown author that was produced in the 20's or 30's regarding the rise and fall of the Dow. It was said to correlate the Dow to generational cycles with harmonics based on the populations of the main trading nations. Does this have any credibility?
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dj

[texfly101]

Henry,
Thanks for the welcome, its been very informative. I'll do my best to keep my posts appropriate and in the beginning, they will be mostly asking questions as I get a better grasp on the relationship between theory and actual market movements. I agree that the history of the Dow indices are one of the best and most attractive things about the Dow Theory. Imo, the market is not always about stocks as much as it is about how people feel about stocks. The indices tell how people have reacted in the past, both recent and long ago, which is valuable information about the future if you know how to apply it, right? That's my quest. Right now the only sector in that I have a knowledge base is aviation as I work for Boeing. That has proven to be a stock education in itself, it being a Dow 30 and a huge international import/export corporation at the same time. Anyway, I'll keep reading and asking questions. Thanks for putting the time into the website. Dallas
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dj

[HenryTo]

Hi DJ,

First of all, welcome to the Board. We appreciate your participation here!

I think if one understands the all the businesses and the financials of the Dow 30 components one will not only get a sense of how the global economy is doing today, but like you said, how the global economy is interconnected - such as who is producing what, the biggest customers of commodities and emerging market labor, the biggest growth areas in the world, today, etc. From studying the Dow 30's businesses, you can also ask much better and more insightful questions - which allows you to dig dipper in a more efficient way.

e.g. It is meaningless to look at emerging market population growth, real disposable income growth, etc., if you don't know where all the spending is going to. Surveys and samples can only do so much. But if you study Coke's or MCD's statements, then you can get a better (and much more accurate) idea - even if increased EM earnings did not result in higher coke sales, etc.

Also, another good thing about studying the Dow Industrials and the Dow Transports is that it has a rich and accurate price and dividend history going back to the 1890s - which virtually all other indices cannot boast about.

Best regards,

Henry

[texfly101]

I was just reading past posts and was caught by the comment that the idea of others is that a "Top 30" was obsolete. I agree with your contention that it is not, that the Dow 30 are still relevant. Maybe they are even more important to watch as in today's connected marketplace, corporations of that size are so interconnected to big and small and to the overall international economy and that their movements are indicative of something happening in the world's economies.
I feel that they operate like a sampling of the world's economic health. Kind of like taking a poll, you can use a sample size of 500 out of a class of 2 million and derive significant information regarding the state of the overall class. Its just that the difficulty is understanding what the significance is about.
Is my reasoning sound? I, of course think that they have relevance, and that is a major reason why I am reading as much as I can here. Just wanting to try and understand as much as I can. Thanks
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dj