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The Dow Theory is now a century old. It is named for the developer of Dow Jones and company’s averages, Charles H Dow who died in 1902. The theory compares industrial and transportation indices. When industrial companies make things, they need shipping to places. Therefore, both indices should move up when the economy is strong, and down when it is weak. When one index diverges from the other, this is seen as a sign of an impending change and a signal to buy or sell.

 

 

 

 

 

 

Whilst I fully understand the theory I think that in practice it may be equally as unreliable as “red sky at night shepherds delight”. However, we are all in need of confidence as ultimately that is the only thing that will drive the recovery and I for one will take confidence wherever I can find it. My thanks to Bloomberg (and my i-Phone) for making me aware of the theory.