Thursday, November 1, 2012

The 100-Year Dow

The Dow Jones Industrial Average (DJII) is one of the oldest continual stock groups in the modern investing world. Actually the Dow Jones Transportation Average is the oldest (1984). The DJII was founded by Charles Dow in 1896 and represented the dollar average of 12 stocks from leading American industries. The original group of 12 stocks ultimately chosen to form the Dow Jones Industrial Average did not contain any railroad stocks, but purely industrial stocks. Of these, only General Electric currently remains part of that index.  Today the Dow is among the most closely watched U.S. benchmark indices tracking targeted stock market activity. Although Charles Dow initially compiled the index to gauge the performance of the industrial sector within the American economy the evolution of the modern multinational corporation has now made the Dow a global economic barometer.

Our chart is that of the yearly closes of the Dow Jones Industrial Average (DJII) spanning about 110-years. The lower histogram is a simple 10-year rate-of-change and the upper cycle overlaid on the Dow is the Coppock Curve which is a long-term price momentum or long cycle indicator used primarily to recognize major bottoms in the stock market. Very long term cyclic analysis displays important cyclic troughs in 1942 and 1982 along with a pending trough somewhere during the 2013–2014 time period.

These cyclic troughs tend to occur at the end of a secular bear of which we can identify the three as experienced by the Dow over the past 110 years. Most notable is the chirping of the professional bears that use the business media to preach their doom and gloom nonsense usually at the mid point of a secular bear. A doom and gloom message always attracts crowds.

The pending cyclic trough would effectively end the current 2000-2014 secular bear and introduce a long secular bull such as investors enjoyed during the 1942-1968 and 1982-2000 advances. Now is the time to be a long term investor and acquire quality growth companies and forget about that buy-and-hold is dead crap.

1 comment:

Shawn Severin said...

I agree with your long term analysis Bill, however, the oscillator remains in decline for the intermediate term (as it did during the late 70s and late 30s. Now that the "rebound bull" has concluded, one would assume we're in for some modest retracement or a mini-bear as the oscillator bottoms out.