Dow Theory – Day 5

The market has three movements
– main movement, medium swing and short swing
Market trends have three phases
– The accumulation phase (phase 1) is a period when investors “in the know” are actively buying (selling) stock against the general opinion of the market. During this phase, the stock price does not change much because these investors are in the minority demanding (absorbing) stock that the market at large is supplying (releasing). Eventually, the market catches on to these astute investors and a rapid price change occurs (phase 2). This occurs when trend followers and other technically oriented investors participate. This phase continues until rampant speculation occurs. At this point, the astute investors begin to distribute their holdings to the market (phase 3)
The stock market discounts all news
-Stock prices quickly incorporate new information as soon as it becomes available. Once news is released, stock prices will change to reflect this new information. On this point, Dow theory agrees with one of the premises of the efficient-market hypothesis.
Stock market averages must confirm each other
Trends are confirmed by volume
Trends exist until definitive signals prove that they have ended