Bull market indication (A): According to the Edwards and Magee book Technical Analysis of Stock Trends, the Dow Theory bull market began on October 10, 1910 when the Dow Industrials and Transports exceeded the August 17, 1910 resistance levels of 81.41 and 115.47, respectively. The NLO team believes that the bull market began at point (C) when the Dow Jones Industrial Average and Transportation Average exceeded the July 22, 1910 resistance levels of 77.78 and 110.51, respectively. From the point (C) of the bull signal to the respective market tops, the DJI gained +10.61% and the DJT gained +11.98%.
We also believe that after a bear market signal was issued at point (D) on August 2, 1911, a new bull market indication was issued at point (E), on November 6, 1911, when the Dow Jones Industrial Average closed at 79, above the previous resistance level of 78.34 established on October 16,1911. The Transportation Index had already gone above the previous resistance level of 114.13 set on October 20, 1911 by closing at 114.46 on October 31, 1911. From the point (E) of the bull signal to the respective market tops, the DJI gained +19.13% and the DJT gained +6.01%.
Bear market indication (B): According to Edwards and Magee, the bear market began on January 14, 1913. At the time, the Dow Jones Industrial Average was at 84.96 while the Transportation Average was at 115.01. Edwards and McGee never indicated that in between October 10, 1910 and January 14, 1913 there are any other bull and bear signals according to Dow Theory.
However, in our view, as we mentioned above, we believe that a bear market indication was given on August 2, 1911 point (D) when the DJI and DJT were at 84.80 and 120.71, respectively. The Industrials and Transports fell -13.98% and -9.03% from the August 2, 1911 levels.
After getting a second bull market indication at point (E), a second bear market indication was triggered on November 4, 1912 point (F) when the Dow Jones Industrial Average declined below 90.38 on September 11, 1912. The Transportation Average had already given the bearish indication on October 25, 1912 by falling below 120.44. From point (F) to the June 11, 1913 low, the Dow Jones Industrial Average declined –20.21% while the Dow Jones Transportation Average declined –16.55%.
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Based on the dates given by Edwards and Magee (point A to point B), the Dow Industrials gained +4.36%.
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Based on the NLO interpretation, the Dow Industrials gained (point C to point D) +10.61 and (point E to point F) +19.13%.
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