Syndicate
The Dow Theory
The American analysts Dow, promoter of the Dow – Jones index of the New York stock exchange, distinguishes three types of tendencies in the evolution of the securities.
The primary tendency prolongs itself during a period that fluctuates in between 9 and 24 months. However, sometimes this period has lasted during several years. This tendency can be to the rise or to the fall. The primary tendency to the rise begins when at the end of the final pessimist and negative period. Great investors think that the crisis has come to an end. At that moment, an important group of investors begin their purchases and the volumes negotiated start to rise as do the quotations.
The favorable stock exchange climate and the improvement of the earnings of the companies make many investors to go to the market while quotations keep on rising. The most intelligent investors begin to think that the raise is beginning to be exaggerated and they begin to sell their securities to obtain a profit.
Quotations rise slower because in spite the sales investors of less experience that think that quotation could rise to a more important level keep on buying. When the hopes of gaining important profits are reduced, all the investors begin to think that the quotation have touched their ceiling and the massive sales begins. At that moment, quotations will experiment important descent with which the financial cycle of the primary tendency will have ended.
The study of this tendency is conclusive for the long term investors. The secondary tendency lasts from one week to three months. It has been demonstrated that usually during the primary tendency cycle there are small cycles that are important to analyze, above all if you are a short-term investor.
The existence of this tendency allows registering capital gains in very short periods of time, even if the primary tendency is on the fall. The tertiary tendency is the consequence of the relation between the offer and the demand in a specific session, and it is very difficult to analyze because it is influenced by phenomenon that are hard to explain and that are also unpredictable.