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Dow Theory for the 21St Century

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Dow Theory for the 21St Century Dow Theory for the 21st Century TECHNICAL INDICATORS FOR IMPROVING YOUR INVESTMENT RESULTS Jack Schannep John Wiley & Sons, Inc. ffirs.indd iii 4/25/08 9:51:44 AM ffirs.indd ii 4/25/08 9:51:44 AM Dow Theory for the 21st Century ffirs.indd i 4/25/08 9:51:44 AM ffirs.indd ii 4/25/08 9:51:44 AM Dow Theory for the 21st Century TECHNICAL INDICATORS FOR IMPROVING YOUR INVESTMENT RESULTS Jack Schannep John Wiley & Sons, Inc. ffirs.indd iii 4/25/08 9:51:44 AM Copyright © 2008 by Jack Schannep. All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4470, or on the web at www .copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/ go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com. Library of Congress Cataloging-in-Publication Data Schannep, Jack, 1934 - Dow theory for the 21st century : technical indicators for improving your investment results / Jack Schannep. p. cm. Includes index. ISBN 978-0-470-24059-5 (cloth) 1. Investment analysis. 2. Stock price forecasting. 3. Speculation. I. Title. HG4529.S33 2008 332.63'2042--dc22 2008006125 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 ffirs.indd iv 4/25/08 9:51:45 AM To Helen, the love of my life and my life ’ s partner, I dedicate this book on the occasion of our 50th wedding anniversary. To our wonderful and successful family, Bart and Marcella, Dwight and Christy, Tim and Mary Beth, and Marie and Mark Manor. To our eight terrific grandchildren, Rob and bride Robin, Kayla, Sarah, Allison and Jack Schannep, and Zach, Mitch and Brett Manor. To investors everywhere, may your financial success be increased with the help of the concepts and indicators from this book. ffirs.indd v 4/25/08 9:51:45 AM ffirs.indd vi 4/25/08 9:51:45 AM Contents Acknowledgments ix Introduction: The What and Why of this Book xi Part I The Traditional Dow Theory Chapter 1 By Way of Background 3 Chapter 2 Signals Described 17 Chapter 3 A Look at the Record 25 Chapter 4 Give-and-Take about the Theory 37 Part II Bulls and Bears Chapter 5 Bull Markets 53 Chapter 6 Bear Markets 61 Chapter 7 Bull and Bear Markets of the Twentieth and Twenty-First Centuries 69 Part III The Dow Theory for the Twenty-First Century Chapter 8 Capitulation: The Selling Climax 79 Chapter 9 The Heart of the Theory 97 vii ftoc.indd vii 4/25/08 6:26:55 PM viii Contents Part IV Other Important Indicators Chapter 10 Schannep Timing Indicator: The Other Major-Trend Indicator 123 Chapter 11 “Three Tops and a Tumble”: Leading Topping Indicators 129 Chapter 12 Bonus Indicators 145 Part V The Epitome of Synergy Chapter 13 The All-Inclusive Composite Indicator 169 Chapter 14 Practical Uses: Putting It All Together 177 Appendix A “Official” Complete and Detailed Record of the Original Dow Theory 183 Appendix B Capitulation Indicators Detailed Record 195 Appendix C CPA Verification of the Schannep Indicator 203 Appendix D Complete Record of the Composite Timing Indicator 207 About the Author 217 Index 219 ftoc.indd viii 4/25/08 6:26:56 PM Acknowledgments Thanks to: Charles Bassetti, editor and coauthor, Technical Analysis of Stock Trends , and Zoe Arey of Taylor & Francis Croup, LLC for permission to use excerpts from the eighth edition. Dave Garrett, Principal, TimerTrac.com, for monitoring the record of my indicators since 1998. Mark Hulbert, editor, Hulbert Financial Digest , for monitoring the record of my indicators since 2002. Steve LeCompte, Managing Partner, CXO Advisory Group LLC, for permission to include his “ Trading Calendar ” and for tracking the record of my newsletter. Kelly O ’ Connor, Development Editor, John Wiley & Sons, Inc., for attempting to make a readable book from my writings. Jim O ’ Shaughnessy, President, O’ Shaughnessy Asset Management, author, What Works on Wall Street and others, for suggesting I get in touch with John Wiley & Sons to publish my book. Stephen Reitmeister, Executive Vice President, Zacks Investment Research, and Jon Knotts for including me in their “ Featured Experts ” section, where many have been introduced to my newsletter and book. Bart Schannep, Principal, Schannep Investment Advisors, for his computer and investment knowledge and attempts to edit my early efforts. Tim Schannep, Vice President, CBIZ Wealth Management and Business Retirement Division, for his efforts on my behalf with publishers and agents. ix flast.indd ix 4/25/08 9:52:22 AM x Acknowledgments Mark Shepardson, President, Fraser Publishing Company, for permis- sion to quote liberally from Robert Rhea’ s The Dow Theory. Stacey Small, Senior Editorial Assistant, John Wiley & Sons, Inc., for help in walking this novice author through the maze of publishing and developing the book ’ s cover. Johnathan Stein, subscriber and e - mail friend, for producing a number of the charts in the book, a task I was unprepared to under- take on my own. Ron Surz, President and CEO, PPCA, Inc., for permission to use “ History for Common Stocks (Adjusted for Infl ation). ” Dr. Gerald Swanson, Professor of Economics, University of Arizona, author, America the Broke and others, a personal friend, for giving me advice on dealing with a publisher. Aaron Task, Correspondent, Yahoo! TechTicker, formerly Editor at Large, TheStreet.com, and Jordan Goldstein, Vice President, for per- mission to include “ Dow Theory: It ’ s Alive! Alive! And Bullish! ” flast.indd x 4/25/08 9:52:22 AM Introduction: The What and Why of this Book A person watching the tide coming in and who wishes to know the exact spot which marks the high tide, sets a stick in the sand at the points reached by the incoming waves until the stick reaches a position where the waves do not come up to it, and finally recede enough to show that the tide has turned. This method holds good in watching and determining the flood tide of the stock market. Charles H. Dow wrote those words over 100 years ago on January 31, 1901, and they are as true for the twenty - fi rst century as they proved to be for the twentieth century. No book on the Dow Theory should start or fi nish without his classic quotation, as it is the very essence of the theory . For the record, the rest of the quote that appeared in the Wall Street Journal that day continued: “ The aver- age of twenty stocks is the peg which marks the height of the waves. The price - waves, like those of the sea, do not recede at once from the top. The force which moves them checks the infl ow gradually and time elapses before it can be told with certainty whether high tide has been seen or not. ” I wrote this book so that a serious investor will be able to fi nd almost all he or she needs to know about the stock market and how to become fi nancially successful in one place. I don ’ t pretend to know all there is to know about either subject, but I have been an avid market student and successful personal investor all my profes- sional life. If you have aspirations to know the important things about the stock market and are not interested in the fl uff, then this book is for you. xi flast.indd xi 4/25/08 9:52:22 AM xii Introduction You will soon recognize that most of this book is not sexy or even exciting, and some of it may not even be interesting to you, but it con- tains a wealth of valuable insights, historical precedence, and useful and usable information. I am not a writer by trade, so I apologize up front for any shortcomings in that department.
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