Stocks and Markets You can add the name Richard Russell, King of the Dow Theorists to the bear camp. The Dow Theory is still as solid as it was back in the early days of the last century when it first burst on the scene and startled everyone with its simplicity as well as the sense to it. The core of the theory is so simple as to drive a mortal nuts. If you want to know the direction of the market just look at transportation because it is the trucks, trains, and (today) ships and planes that take goods to market and because goods have to get to market any drop in shipping is a dead bang tip that hard times are already here. Large Industrial stocks only act to confirm what the Transportation Index has already told you. Conversely if shipping moves up a recession is over. Dow theory rejects any effort to manipulate markets--they will come back to earth very fast when manipulation is in the market.

The market reflects all available information. Everything there is to know is already reflected in the markets through the price. Prices represent the sum total of all the hopes, fears and expectations of all participants. Interest rate movements, earnings expectations, revenue projections, presidential elections, product initiatives and all else are already priced into the market. The unexpected will occur, but usually this will affect the short-term trend. The primary trend will remain unaffected.

In other words: trade the numbers (price) and not the assholes on MSNBC and the Journal. There's a shitload more at the link above, but suffice to say that when Dow Theory talks, you better fucking listen. And it is screaming "Bear" at the top of its voice. Big Picture has a very quick "drive by" on the subject. Most important as Hamilton and Dow readily admit is that the Dow theory is not a sure-fire means of beating the market. It is looked upon as a set of guidelines and principles to assist investors and traders with their own study of the market. The Dow theory provides a mechanism for investors to use that will help remove some of the emotion. From the main link:

Hamilton and Dow readily admit that the Dow theory is not a sure-fire means of beating the market. It is looked upon as a set of guidelines and principles to assist investors and traders with their own study of the market. The Dow theory provides a mechanism for investors to use that will help remove some of the emotion. Hamilton warns that investors should not be influenced by their own wishes. When analyzing the market, make sure you are objective and see what is there, not what you want to see. If an investor is long, he or she may want to see only the bullish signs and ignore any bearish signals. Conversely, if an investor is out of the market or short, he or she may be apt to focus on the negative aspects of the price action and ignore any bullish developments. Dow theory provides a mechanism to help make decisions less ambiguous. The methods for identifying the primary trend are clear-cut and not open to interpretation.

Even though the theory is not meant for short-term trading, it can still add value for traders. No matter what your time frame, it always helps to be able to identify the primary trend. According to Hamilton (writing in the early part of the 20th century), those who successfully applied the Dow theory rarely traded more than four or five times a year. Remember that intraday, day-to-day and possibly even secondary movements can be prone to manipulation, but the primary trend is immune from manipulation. Dow sought a means to filter out the noise associated with daily fluctuations. He was not worried about a couple of points, or getting the exact top or bottom. His main concern was catching the large moves. Both Hamilton and Dow recommended close study of the markets on a daily basis, but they also sought to minimize the effects of random movements and concentrate on the primary trend. It is easy to get caught up in the madness of the moment and forget the primary trend.

A treasure trove is yours. Below: train wreck that is the S&P