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Continued from...Dow's Theory, applied to speculation.
A Useful DefinitionIn the same editorial Dow goes on to give a useful definition from which legitimate inferences may drawn. He says:"It is a bull period as long as the average of one high point exceeds that of previous high points. It is a bear period when the low point becomes lower than the previous low points. It is often difficult to judge whether the end of an advance has come because the movement of prices is that which would occur if the main tendency had changed. Yet, it may only be an unusually pronounced secondary movement". This passage contains, by implication, both the
idea of "double tops" and "double bottoms" (which I frankly confess I have
not found essential or greatly useful) and the idea of a "line," as shown
in the narrow fluctuation of the averages over a recognized period, necessarily
one either of accumulation or distribution. This has been found to be of
the greatest service in showing the further persistence of the main movement,
or the possible termination of the secondary movement, so apt to be mistaken
for the initiation of a new major trend. I shall, in a later chapter, analyze
such a "line," made in the stock market in 1914.
Successful ForecastIn subsequent discussions there will be no difficulty in showing, from the various studies in the price movement since 1902, standing for record in the columns of The Wall Street Journal, that the method for a forecast of the main market movement and for a correct discrimination between that and the secondary movement had been provided in Dow's theory, and that it has been used with surprising accuracy. A prophet, especially in Wall Street, takes his life in his hands. If his predictions are always of the rosy whatever the facts of the situation may be, he will at worst be merely called a fool for his pains. The charge against him will be far more serious if he sees that a boom has overrun itself, and says so. If he is bearish and right he will be accused of unworthy motives. He will even be held contributory to the decline which he foresaw, although his motives may have been of the highest and he may have not a penny of interest in the market either way."Recalling" a ProphetIs the American public so ungrateful to its Micaiahs and Cassandras as this? Yes, indeed, and more so. It does not like unpleasant truths. In 1912, when Colonel C. M.cD. Townsend of the United States Engineers, an army man with a brilliant record then and since, was president of the Mississippi River Commission, he predicted, from the height of the water in the upper rivers, one of the greatest Mississippi floods. He warned the city of New Orleans that the flood might be expected in a month's time, recommending the most vigorous and immediate steps to lessen the calamity. Was New Orleans grateful? Its citizens held an indignation meeting to demand from President Taft the recall of this "calamity howler" and "dangerous alarmist". Mr. Taft characteristically kept his head, and Colonel Townsend was not removed. A good deal of property in the Mississippi Valley was "removed," and it is needless to record that New Orleans did not escape. The railroads and great industrial concerns, where they were likely to be affected, took the warning seriously, with advantage to themselves. The mayor of New Orleans subsequently rescinded the resolution, with an apology. Anyone who knows one of the ablest and least advertised engineers in the United States Army will readily understand that Townsend regarded the mayor and the previous mass meeting with equal indifference.
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From The Stock Market Barometer by William P. Hamilton, published in 1922
| Dow's Theory, Applied to Speculation | Bull and Bear Period Definition and Forecasts |
| Dow's own application of his Theory | Trading on Averages |