Category Archives: Dow Theory

In attempting to assess markets, Charles H. Dow’s April 27, 1899 commentary in the Wall Street Journal can be applied to any market where “price” is updated on a regular basis:

"The point of importance for those who deal in industrial stocks is whether the capitalization of the companies into which they propose to buy is moderate or excessive, when compared with the aggregate earnings of the various concerns forming the combination in a period of depression. It is probable that consolidated companies will be able to earn as much in the next period of low prices as the companies forming the combine were able to earn in the last one; hence the very foundation of investments in industrials should be knowledge of what these companies earned, say in 1893 to 1896, making, perhaps, reasonable allowances for economies under consolidation. Where the earnings so shown would have provided dividends for industrials now active, the fact must be regarded as a very strong point in favor of those stocks (George W. Bishop Jr., Charles H. Dow: Economist, Dow-Jones & Company,Princeton, 1967, page 11.)"

What does the above mean?  All market assessments need to start from the prior period of depression.  That period of depression sets the parameters for what to expect both on the upside and the downside.  In this case, we will start from the 2009 low and see how the Nasdaq price momentum compares to a major trough and peak in the market.

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