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Category Archives: Charles H. Dow
Pending Home Sales, What Do They Know?
Posted in 50% principle, Charles H. Dow, Dow Theory, Housing, Roy Wenzlick
Tagged members
Richard Russell on the Transports & Dow Theory
Posted in Charles H. Dow, DJIA, DJT, Dow Theory, Richard Russell, Richard Russell Review
The Canadian Economy
Posted in Bloomberg Commodity Index, Canada, Charles H. Dow, commodities, Dewey, Dow Theory
Eli Lilly Downside Targets
The data covered is from February 8, 2018 to March 12, 2024.
Dow: Spanish Flu vs. Covid-19
A comparison between the Dow Jones Industrial Average during the Spanish Flu Pandemic and the Covid-19 Pandemic. Continue reading
Energy Sector Q&A #OOTT $WTI
A reader asks:
“What could trigger this downside? Just a technical ‘reversion to the mean’?”
Our response:
We are not sure of the catalysts that could trigger the move to the downside. As an example, this from September 7, 2015 on the prospects of where the price of oil would go:
"...lurking in the background is the extreme downside target of 575.41. Since our experience has been that the extreme downside target is commonly achieved, we hazard to guess what would happen globally to the oil market in order to decline to such a low point."
At the time, we had no clue that a pandemic was on the horizon. The only thing we had was the price and the potential for the downside bases on the work of Edson Gould. We can’t dispute the reversion to the mean reality. However, Gould's work on PRICE points to situations that are far beyond just mean reversion.
Another example was our April 26, 2012 posting titled “A Warning for Chesapeake Energy Stockholders.” Based on the work of Edson Gould, the indication was that:
“If CHK falls significantly below the $4.94 level, then the stock has a high likelihood of going all the way $0.67.”
At the time, Chesapeake Energy was trading at $18.10 and ultimately filed for bankruptcy on June 29, 2020.
Gould’s work on price highlights what S.A. Nelson (coined the term Dow’s Theory) has alluded to in the work of Charles H. Dow regarding the tendency for prices to not only mean revert but go to an extreme after achieving the mean. Nelson called it artificial advance and artificial depression. Our 2009 examination of this concept, which has developed greatly since, can be found here.
Thanks for the great question. We really appreciate the feedback.
see also:
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XOI Index Review September 7, 2015
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A Warning for Chesapeake Energy Stockholders April 26, 2012
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Values According to S.A. Nelson November 28, 2012
Posted in Charles H. Dow, CHK, Crude Oil, Edson Gould, S.A Nelson
Dow’s Downside Targets for the Nifty 50
Below are the downside targets based on the work of Charles H. Dow. Continue reading
Posted in Charles H. Dow, Dow Theory, downside, India, Nifty 50, Nifty Fifty
DJIA Downside Targets Using Dow Theory and Gould
This posting will cover the downside targets for the Dow Jones Industrial Average using Dow Theory and Edson Gould’s Speed Resistance Lines [SRL].
Dow’s Theory: 2020-2021
Applying Dow Theory from the March 23, 2020 to September 2, 2021 period, the downside targets for the Dow Jones Industrial Average are: Continue reading
Dow Doubling Rate:1900-2020
In a August 18, 2020 MarketWatch.com article written by Brett Arends titled “Uh-oh: Investors predict ‘Dow 50,000’ — in just five years”, it states:
“…a sample of 1,500 people here in the U.S. who manage their portfolios, the average person expected the stock market to generate sky-high returns of 15.4% a year over the next five years.
“After accounting for dividends, that would mean stock prices would nearly double by 2025…”
The conclusion of the article:
“It is, ominously, generally near market peaks when investors are most bullish. Whether we’ll have a crash or a bear market is another matter.
“Yes, 15% could technically happen. But I wouldn’t bet on it.”
One element that is missing is the actual doubling rate data of the Dow Jones Industrial Average. Below is Doubling Rate of the Dow starting when the Dow Jones Industrial Average was at 55 on July 2, 1900 until 2020.
The actual doubling rate data suggests that the conclusions arrived by Mr. Arends are incorrect.
Our next article on this topic will break down the key elements to understand about the data presented which will make it clear that, doubling from the current level might be a modest proposal.
Posted in Charles H. Dow, Doubling Rate, Dow Industrials
On This Day: Charles H. Dow
On this day, Charles H. Dow of the Wall Street Journal, said the following:
“The true currency of commerce is credit. A part of this credit is represented by cash, but the larger part is represented by book entries on the ledgers of banks and merchants, representing the intangible credit of the borrower.”
-George W. Bishop. Charles H. Dow: Economist. Dow Jones Books. 1967.
Posted in Charles H. Dow, credit, On This Day, WSJ
On This Date: Charles H. Dow
On this date in 1900, Charles H. Dow, in the Wall Street Journal, said the following:
“The iron trade, while improving from one point of view, is in a position where the surface is unfavorable. When it is decided to reach bedrock prices by allowing everybody to make prices to suit himself, it means the survival of the fittest. The process of crushing out the least fit will be unpleasant for the victims and will make the situation appear worse than the facts really are.”
-Laura Sether. Dow Theory Unplugged. W&A Publishing. 2009.
Posted in Charles H. Dow, On This Day, WSJ
Bear Market Duration
In terms of duration:
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“The majority of bear markets have lasted from ⅓ to ½ as long as the preceding bull market (Russell, Richard. Dow Theory Letters. February 6, 1970. page 3).”
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“…most bear markets last around one-third as long as the preceding bull market (Russell, Richard. Dow Theory Letters. August 22, 1990. page 2)."
A bear market usually lasts ¼ to ⅓ of the preceding bull market. It’s just a rule of thumb but it will be clear why this is needed. Let’s look at the data, based on Charles H. Dow’s requirements, and arrive at potential durations for the current bear market.
The bull market of 2002 to 2007 had a bear market that was 28% (in time) of the trough to peak.
If this bull market began in 2009 and ended on February 2020 and matched the length of the 2002-2007 bear market then the presumed equivalent would bring the end of the bear market out to July 2022 (approximately).
However, let's assume that this bear market is going to last 14% of the 2009-2020 period (half of the 28%), then that would bring us out to April 2021 (approximately).
Being as conservative on the bear market scenario as possible, if this bear market lasts 7% of the 2009-2020 period, then that would bring us out to September 2020 (approximately).
On April 3, 2019, we said that the 2014-2016 period might have been a recession (as outlined in a major publication). If we took 25% of the period from the February 2016 low to the February 23, 2020 peak as a separate bull market then the current bear market would end in December 2020.
This is going to be a long year even under the best case scenario with a bear market that ends approximately September 2020. When we say it ends in September 2020, we mean that the price of major indexes decline below the lowest levels already reached on March 23, 2020.
Posted in bear market, Charles H. Dow, Duration
Is Qualcomm Finally Untethered?
On April 16, 2019, Qualcomm (QCOM) and Apple (AAPL) agreed to settle their ongoing disputes. The outcome was significant for Qualcomm.
As Charles H. Dow, co-founder of the Wall Street Journal has said:
“The one sure thing in speculation is that values determine prices in the long run. Manipulation is effective temporarily, but the investor establishes price in the end. The object of all speculation is to foresee coming changes in values. Whoever knows that the value of a stock has run ahead of price and is likely to be sustained can buy that stock with confidence that as its value is recognized by investors, the price will rise (Dow, Charles H. Review and Outlook. Wall Street Journal. February 25, 1902.)."
For many years, the market price of QCOM appeared to be reflecting the neglect of speculators. In the meantime, investors slowly and selectively accumulated shares of QCOM in anticipation of the high risk proposition that QCOM would prevail against AAPL.
As seen in our chart below, QCOM has found its share price at the undervalued level several times since 2016. The September 13, 2018 announcement of the accelerated share buyback seems as though it was at an elevated prices. However, as our updated 10-Year price target indicates, the prospects for QCOM are far in excess of current levels.
In many respects, the price of Qualcomm has been at the mercy of Apple and their ongoing lawsuits. However, Charles H. Dow has the following to say of such conditions:
“The manipulator is all-powerful for a time. He can mark prices up or down. He can mislead investors inducing them to buy when he wishes to sell, and to sell, when he wishes to buy; but manipulation in a stock cannot be permanent, and, in the end, the investor learns the approximate truth. His decision to keep his stock or to sell it then makes a price independent of speculation and, in a large sense, indicative of true value (Dow, Charles H. Review and Outlook. Wall Street Journal. October 18, 1901.).”
We believe that Apple has played into the hands of value investors and we’re thankful for it. Now the test becomes whether Qualcomm will realize the overvalued targets that we have set for the stock, as seen here.
Posted in Charles H. Dow, Dow's Value Theory, qcom, Qualcomm
Dow, Hayek, and Graham: Price as Knowledge
Price conveys knowledge, that is the conclusion of Russ Roberts in an EconTalk podcast with Don Boudreaux dated October 28, 2013.
More specifically, Roberts was citing the work of F.A. Hayek’s “The Use of Knowledge in Society” dated 1945 and concluded that “price conveys knowledge” is the overall point of the paper.
Additionally, F.A. Hayek says:
“It is more than a metaphor to describe the price system as a kind of machinery for registering change...”
No reputable economist would want to associate their work with the actions or intentions of a speculator or investor. However, Charles H. Dow, co-founder of the Wall Street Journal and namesake of the Dow Jones Industrial Average, has said as much about price only 43 years before the work of F.A. Hayek.
On February 25, 1902, Dow said:
"The one sure thing in speculation is that values determine prices in the long run. Manipulation is effective temporarily, but the investor establishes price in the end. The object of all speculation is to foresee coming changes in values. Whoever knows that the value of a stock has run ahead of price and is likely to be sustained can buy that stock with confidence that as its value is recognized by investors, the price will rise (Dow, Charles H. Review and Outlook. Wall Street Journal. February 25, 1902.)."
This aligns with F.A. Hayek’s claim that:
“…the shipper who earns his living from using otherwise empty or half-filled journeys of tramp-steamers, or the estate agent whose whole knowledge is almost exclusively one of temporary opportunities, or the arbitrageur who gains from local differences of commodity prices, are all performing eminently useful functions based on special knowledge of circumstances of the fleeting moment not known to others.”
As Dow Theorist Richard Russell has repeatedly said, the only constant is change. The work of Charles H. Dow reminds investors that the “special knowledge of circumstances” around price helps to determine values, which are constantly changing. This explains why:
“…the major consideration for the investor is not when he buys or sells but at what price (Benjamin Graham, David L. Dodd, Sidney Cottle. Security Analysis, Fourth Edition. 1962. Page 70.).”
Graham would never tell an investor to time the market. However, a “special knowledge of circumstances” would compel an investor to determine a price (based on values) that is appropriate for consideration. This period for consideration is usually a “fleeting moment not known to [many] others.”
The work of Charles H. Dow covers almost all of the topics discussed by Hayek and Graham and thirty years beforehand.
More:
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Stocks to Consider with specific levels of undervaluation
Posted in Charles H. Dow, Dow's Value Theory, Graham and Dodd, Hayek, values