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Category Archives: Dow Theory
Dow’s Theory on Markets and Manipulation
As we repeatedly say, based on the work of Charles H. Dow (co-founder of the Wall Street Journal and the respected Indexes), markets can be manipulated in the short term. However, in the long run, everyone learns the truth.
"...manipulation in a stock cannot be permanent, and, in the end, the investor learns the approximate truth."
- Charles H. Dow, Wall Street Journal, October 18, 1901.
But the question is constantly asked, “how do you know?” and “what is your proof?”
Our favorite example is the aggressive actions of Japan from 1989 to 2009 in an effort to stem the decline in the economy.
The above graphic outlines rate cuts, stimulus, and QE for over 10 years and contrasts that with the stock market. These are all tools of manipulation aimed at restoring the economy. The natural reaction is, “well, of course the stock market and the economy are two separate things and are completely unrelated.” This is an important distinction because while all of the above policy was directed at the economy, it is possible that a recovery might not be seen in the stock market while the economy recovers.
Posted in Dow Theory, manipulation
Dow Theory
It should go without saying that we aren’t the hopeful types.
Munger, Buffett, and Dow Theory
Posted in BRK-A, Charlie Munger, Dow Theory, Warren Buffett, Wesco Financial, wsc
Tagged members
Dow Theory Downside Targets
Long Term Targets Continue reading
The Canadian Economy
Posted in Bloomberg Commodity Index, Canada, Charles H. Dow, commodities, Dewey, Dow Theory
Canadian Natural Resources Downside Targets
Below are the downside target for Canadian Natural Resources applying Dow Theory.
Eli Lilly Downside Targets
The data covered is from February 8, 2018 to March 12, 2024.
Twitter Tape: Raising Rates & QT
It was mentioned that in order to save the banking system, it is necessary to raise interest rates.
“Either they raise rates rapidly to save the bond market — or they lose the whole banking system. This will become obvious and existential (soon)”
As we’ve noted in the past, the history of rising rates has been very good for markets under the right conditions. However, the real question is, how is it beneficial to have Quantitative tightening (QT) or a balance sheet unwind?
One of our favorite examples is found in the unwind of the Reconstruction Finance Corporation.
When the government gets out of the business of bailing out, the reverse of the “crowding out effect” takes place. As noted by us:
This is consistent with Dow Theory which says, when the government gets involved, they take away the risk portion of the market. This could mean that the market crashes due to government meddling. However, according to Dow Theory, it typically means that whatever the government got involved in will trade more like a government bond, flat to middling at best.
This concept of trading like a bond can best be seen in nationalization of railroads during the period 1918-1921. This is also seen in the performance of Fannie Mae.
In this case, the wild upside potential before government control in 2008 cannot and will not be seen after government control. This in spite of the fact that from the 2009 lows, Fannie Mae has jumped +600%. Again, contrast that with +6,000% move before 2005.
See also:
Posted in Dow Theory, interest rates, QT, Quantitative tightening, Twitter Tape
Balance Sheet Unwind and Dow Theory
On February 2, 2024, we said the following:
“True bears aren't impressed with this faux low in the Fed's Balance sheet. Neither are we. However, the lower it goes, the less government crowding out, the more markets boom.”
We also included the following posting to support our view:
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