140-year Old Strategy Is Working

JC Parets
February 21, 2024

Back in the late 1800s, Charlie Dow was a journalist in Springfield Massachusetts.

His job was to write about the stock market. But when he would go knocking on doors asking companies questions, they would tell him, "Our business is none of your business".

So how could poor Charlie do his job then?

Well, he concluded that there was a better way to do this.

He recognized that there were a select group of stocks that, "Made the goods", and he called those the Industrials.

And then there was the group of companies that, "Delivered those goods". At the time, they were the Railroads.

If one of these groups of stocks were going up in price, and so was the other group, then things are moving in a positive direction together. Those were good signs for the market.

It was specifically when one of those groups were rising, but the other one wasn't, that something was likely wrong.

And boy was he right.

Decades after his death, these indexes were renamed the Dow Jones Industrial Average and Dow Jones Railroad Average. The latter was ultimately renamed again to the "Transportation" Average, as by then there were other methods of delivery outside of Railroads.

And so here we are today.

Charlie would be so proud of us.

The chart below shows the Dow Jones Industrial Average making new highs, as recently as last week. But the Dow Jones Transportation Average has not been able to do that at all.

Here's the Dow Theory Divergence in real time that Charlie Dow was writing about almost 140 years ago:

If you've gone back and studied major turning points in markets over the years, you'll notice how often this divergence is front and center.

You saw it right before the GFC in 2008. You saw it right before the Tech bubble peaked in 2000. You even saw it before the COVID crash in 2020.

And now you're seeing it again.

So if it was just one divergence among an ocean of bullish characteristics, then that would be one thing.

But it's not.

The key here is to put this information above within the context of everything else that's happening in the market.

And if you've been paying attention, the weight-of-the-evidence has already suggested that a period of lower stock prices and spiking volatility is upon us.

The market is acting accordingly and many of the most important stocks and indexes have been making lower highs and lower lows for months.

You're only now starting to see the deterioration at the index level, particularly over the past couple of weeks.

Dow Futures, for example, are down every week this month. And for perspective, we'll be in March next week.

The Nasdaq100 looks even worse.

This analysis above is what we refer to now as "Dow Theory".

It's the first thing you want to learn when you start investing in markets, whether you're a short-term trader or long-term investor.

And here's the thing. This Dow Theory Tenet described above, where the Industrials are diverging from the Transports, is definitely the most popular of all the Dow Theory Tenets.

But I've spent decades studying the work of Charlie Dow, and those who came after him, guys like Edwards & Magee, Richard Russell, Ralph Acampora and others.

Here's what I learned. This particular tenet described above is not even in the top 5 most important Dow Theory Tenets.

For years, I would wake up every morning and read 1 Dow Theory Letter a day, the ones Charlie would publish in the Wall Street Journal back in the late 1800s.

I can assure you that there are very few people alive today that can explain Dow Theory to you better than me. And if there are some who can do a better job, I'm probably good friends with them and can tell you exactly who they are.

I'm telling you guys, this stuff is really helpful. I don't know how anyone invests without it.

Lucky for you, this is exactly what I'll be discussing tonight in my 3-hour Technical Analysis Bootcamp.

This is everything you need to know about Trend Recognition, the Top/Down Technical Approach, Intermarket-Analysis, Breadth Analysis, Momentum, Relative Strength and the most important tools and strategies that every investor can incorporate in their own portfolios.

Also, as part of your Technical Analysis Bootcamp, you'll receive 1 FREE Month of Allstarcharts Premium Research & Trade Ideas.

So what that means is that throughout the entire bootcamp tonight (which will be recorded for you as well), I will be using current market examples with each lesson.

In other words, not only will you learn everything you need to know about Technical Analysis, but you'll walk away with a series of actionable trade ideas, and an entire team of Professionals Traders and Analysts to navigate the market with you moving forward.

Register Here for tonight's Technical Analysis Bootcamp.

We'll get going LIVE @ 5PM ET.

See you there! Bring you questions.

JC

 

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