The following is excerpted from The Encyclopedia of Technical Market Indicators, Second Edition, McGraw-Hill Publishing, 2003, by Robert W. Colby and used with permission of the author. Editor’s note: The test results presented in this article may be out of date and are presented here as an example of the type of work that is possible with Dow Theory. The ideas merit further testing and could prove to be a very useful for technicians. The Dow Theory is a major corner stone of technical analysis. It is one of the oldest and best known methods used to determine the major trend of stock prices. It was derived from the writings of Charles H. Dow from 1900 to 1902 published in the daily newspaper he founded, The Wall Street Journal. Dow’s Theory was further refined by analysts and writers S. A. Nelson, William P. Hamilton, and Robert Rhea in the first few decades

With its roots in the nineteenth century, Dow Theory is among the oldest techniques in technical analysis. Some will argue that it has withstood the test of time and others will argue that it needs to be updated. Most debates in technical analysis will never be fully resolved to the satisfaction of everyone, but this one can at least be detailed and understood. Charles Dow developed indexes to track the stock market action and the economy, and his first effort at this became the Dow Jones Transportation Average (DJTA). This average can be traced back to July 1884 and it originally included eleven transportation companies, nine of which were railroads. The original components of the DJTA were: Chicago, Milwaukee and St. Paul Railway Chicago and North Western Railway Delaware, Lackawanna and Western Railroad Lake Shore and Michigan Southern Railway Louisville and Nashville Railroad Missouri Pacific Railway New York Central Railroad Northern Pacific Railroad Pacific Mail Steamship Company Union Pacific Railway Western Union Union

The MTA/MTAEF Library continues to grow at Baruch College. Last week Philip Roth, CMT, David Aronson, CMT, and I visited the Library with Baruch’s Head Librarian, Arthur Downing. For those newer MTA members who might not know, the Library was rebuilt after 9-11 with purchases, donations from publishers and the generous contributions of many members. Keeping the Library in Woodbridge NJ at the MTA’s “backup facility” was not ideal and became impractical when the MTA made the decision to return to NYC. After negotiations and with the critical assistance of David Krell, the Library and the materials from the Foundation for the Study of Cycles were moved to Baruch College under a bailment agreement (a legal relationship where the physical possession of the property is transferred but the ownership is retained). Baruch has carefully catalogued and maintained the approximately 5,000 volumes now housed on their campus. The collection is stored in

How would you describe your job? My current function is publishing The FRED Report. I do much of what I did at Robinson – Humphrey and Merrill Lynch, which is consulting with Financial Advisors and other clients, and write research. I also give several speeches and present at several events each year. What led you to look at the particular markets you specialize in as opposed to another tradable? In my research, I look at all tradable units. But, when I got into the business there were no ETF’s, so the most efficient way to trade indexes was the futures markets. With ETFs. this has changed, which makes everybody’s job more interesting as well as more complicated. Bottom line, I think this is a plus – as there are more hedging opportunities available to the average client, and more ways to balance a sector allocation. Do you look at any fundamental or economic inputs

A number of Nobel Prize winning theories start with the assumption that  investors are rational. In the real world, many investment professionals discover through their daily interactions with investors that there are occasional bouts of irrationality. In discussing the markets with the public, it’s important to understand this since questions and firmly held beliefs could be rooted in that irrational behavior. Rational investors most likely only exist in Modern Portfolio Theory. The argument makes sense intuitively. Investors will buy the portfolio that maximizes the potential returns while minimizing their personal preference for risk. But in the rule world, emotions like far and greed, infiltrate the decision making process. Potential returns are generally defined by discounting the future cash flows of an investment back to its present value. In theory, some investments will be undervalued and these should be bought. Others will be overvalued and would be avoided, or sold short if the

This is part of a series of case studies related to the MTA Code of Ethics. If you have any questions you’d like to see specifically addressed, please email them to editor@mat.org. QUESTION: Trudy Elliott Waverly is currently employed at ABC Investment Management. In her current position, she provides technical analysis of various markets and individual securities to the firm’s traders and frequently interacts with clients and prospective clients. She travels with the sales team on occasion and offers an overview of the firm’s short-term investment strategy. Follow-up with some of these prospects is required at times to address their individual questions, and client interaction is a large part of her job. Typically, Trudy believes that she spend about 75 percent of her time discussing market opinions with clients.  She has been offered a position and in the new position, she will be providing only written analysis. Sales reps and account representatives

The CMT Board of Governors (BoG) is pleased to announce the creation of the full time position of Director, CMT Studies. The immediate responsibility of this position is the development and integration of CMT study materials, including Learning Outcome Statements and a customized curriculum for our candidates. This full time staff member will also participate in coordinating the work of Subject Matter Experts in the preparation of CMT exams. This position will report to the Executive Director of the MTA, with a strong working relationship to the Chairperson of the BoG and the BoG itself. The ideal candidate will have, as a minimum, a graduate level degree and at least 5 years of relevant teaching experience, with an emphasis on distance learning. They will have a strong, comprehensive knowledge of the financial markets, with the Chartered Market Technician (CMT) designation preferred, but not required. This individual must have excellent verbal and