|  MAR 1991

Dow Theory: Bullish Or Bearish? by Jack Rusin

Dow Theory: Bullish Or Bearish? by Jack Rusin Most people are familiar with the Dow Jones Industrial Average (DJIA), but relatively few are familiar with the Dow theory, Charles Dow's major contribution to the study of the stock market. Utilizing forerunners of today's DJIA and Dow Jones Transportation Average (DJTA), the newspaperman worked out his system of analysis and published his original material in a series of intermittent editorials in The Wall Street Journal around the turn of the century. The Dow theory pertains only to the movement of high-capitalization stocks and not to the more speculative small-capitalization issues, although the theory's principle can be applied to that market sector as well. AVERAGES IN RELATIVE TANDEM The basic premise of Dow theory is that during major market moves, the DJIA and DJTA will move in relative tandem, and it is only when both averages reverse direction that a valid buy or sell signal is given. This aspect of the theory recognizes that conditions unique to one sector of the market may not properly be attributed to the market in general. Until a new, valid buy or sell signal is given, the old one is presumed to be in force, though each sector may move independently of the other over an intermediate term.

by Jack Rusin