Apr

19

Dow Theory, from Kim Zussman

April 19, 2008 |

5 Comments so far

1. George Parkanyi on April 19, 2008 12:03 pm

   Well Dr. Zussman,

   We may not have touched the “bear market” threshold, but we grazed it close enough to pick up a lot of the vibe by induction. I have a couple of stocks in the ol’ folio that went from the 40’s to the teens. Still felt one or two electric shocks.

   However, not to worry - have only done fractionally worse than the market overall, so it’s no big deal in the grand scheme of things. If the trend is your friend, then time is your guardian angel.

   Cheers,
   GP

2. Bob Johnson on April 19, 2008 12:15 pm

   Although not directly related to Kim’s post, I respectfully submit my thoughts on an interesting subject.

   Friday, during morning rituals, an online news scan uncovered a most unusual find; 5.2 earthquake rocks Illinois; felt 450 miles away. Now, Left-Coasters may scoff at such a seemingly mild event, until you realize seismic waves propagate much more efficiently through the comparatively uniform geology of the Midwest, than through the highly fractured and folded geology commonly found west of the Great Plains. Regionally, on a generational time-scale, this event was truly rare and historic; and for me a bit exciting, though fortunately not producing significant widespread property damage.

   A number of research seismologists posit that an earthquake similar to Friday’s could precipitate, albeit with unknown delay, a more energetic event, especially along the New Madrid (named for New Madrid, Mo.) area fault complex, which has a great store of potential energy, comprised of pent-up compression and shear forces. Violent energy released from New Madrid could cause far-reaching devastation, due to seismically deficient engineering found within civic infrastructure and architecture. Catastrophically affected areas would likely include prominent population centers such as St. Louis, Nashville, and Memphis (imagine Bam, Iran type masonry damage).

   Subconsciously, probably while savoring oft-touted LDL lowering Ch**rios along with strawberries and coffee, connections were made. Successful market participants should ascertain how the seismic waves of finance propagate through the varying geology of the markets, locate sources of potential energy and profit from detecting deficient financial infrastructure susceptible to devastation during violent energy release.

   However, to glean and utilize this information, problems need to be solved. What various market seismograms and strain sensor readings can a speculator study? With foresight, how does one discern a probable violent release of energy, from a more gradual dissipation process?

   RJ

3. steve leslie on April 19, 2008 2:53 pm

   I am very glad that Mssr. Zussman mentioned the Dow Theory. Richard Russell is one of the oldest supporters of Dow Theory first writing on this subject in 1958. That was one year after I was born. Many consider his insights to be very respected.

   I have often wondered who came up with the magical number of 20% to signify a bear market. Why doesn’t 15 or 18 percent suffice, why does it have to be 20?

   I think back to “Cool Hand Luke” when dragline played by George Kennedy asks Luke played by Paul Newman why he had to say he could eat 50 eggs in one hour when he could have said 30 or 35. Luke’s reply was “It seemed like a nice round number to me.”

   sl.

4. Craig Bowles on April 22, 2008 11:50 am

   FedEx is interesting to watch since it led the decline. Recently, it failed to make a new high when the Transports and overall market did. Also, the last two bouts of market weakness came after a month rally, so we’re at the telling point again. Previously, it was followed by 3 weeks of weakness. Arms index is similar to previous turns, so seems like a pretty significant place we’re at.

5. Craig Bowles on April 23, 2008 7:39 am

   Bob Johnson’s comments on the New Madrid fault are right on. Two books that I like to reread are Remnances of a Stock Operator and Climate and the Affairs of Man by Browning/Winkless. December’s highest tidal pressure in 92 years has a good chance of triggering the New Madrid fault, according to Browning. The increased gueyser activity in Yellowstone, increased earthquake activty, and increased volcanic activity are all the result of a more direct alignment of earth, sun, and moon (perihelion, perigee). The earth’s egg shaped orbit due to Jupiter’s pull comes closest to the sun around year-end, so that’s why we get the biggest triggers then. The moon orbit often slants, so when it comes in a more straight alignment, it adds a sharper pull. The tsunami that killed all those people was the previous increased tidal pull the year-end full moon. The more direct alignment shows up in the eclipse data over the next 10 years. We have 3 or more eclipses of the sun or moon in nearly every year it looks like. We haven’t had 3 or more since the 2001 recession. NASA’s data goes back to 1900 and you can see most of the financial problems came around 3 or more. The volcanic activity cools and makes for tougher growing conditions. I was talking with Gail Dudak a while back and she said she’s always noticed more earthquake activity in bear markets but didn’t know why. Browning’s book was written in the 1970s but is sometimes available on the web. He notes that the Mississippi is our major outlet for shipping grain, so the New Madrid fault can cause a lot of problems. Over 100 years ago, it rerouted the river leaving a nice big lake in Tennessee.