GeffaYou have no argument from me that the Dow is the most...

Geffa


You have no argument from me that the Dow is the most popular stock index. But I would argue it’s not necessarily the best indicator. However the original thread asks the merits of using Dow theory to determine the end of the bear market. (Which is a different issue).

Dow theory was developed over 100 years ago when America was not the industrial/economic/political power it is today. Just think how differently we do business now. Dow theory originally consisted of 12 industrial stocks and 12 transport stocks. It is also well known that on average, 20-25% of the trend move is lost in the time it takes to generate a confirmation signal. This system is not suitable for traders but more for long-term investors.

In my Opinion the Dow theory has lost its significance in today’s fast pace and technological savvy world. And there probably is a reason why Dow theory is the first topic taught at any respectable technical analysis course. And that is, this is history, this is how it all started, now get real and start trading sensibly.

Interestingly I don't now what the Dow transport chart looks like, but I do know in the last few years half the American airlines have gone bust or are about to.

http://www.djindexes.com/jsp/componentLinks.jsp?prodnum=8&cntrynum=1&currnum=1&groupnum=219&mktcaprngnum=1&compfile=uiComponentsRep.jsp?DESCMKTCAP=Broad&flag=Market®NCNTRY=1.1@USA+%28US%[email protected]+++++%28avg.+avail.+from%3A+26-May-1896%29+%5BDJI%5D+&MKTCAP=1

Above is a link to the Dow 30 component stocks. Interestingly, there is only one bank in the 30. And the ASX has 5 of the top ten companies Are financial services. Makes you wonder why we have a 65% correlation with the U.S. when our indexes are so different.