Dow Theory for the 21st Century

Dow Theory for the 21st Century includes everything that the serious investor needs to know about the stock market and how to become financially successful. Expanding upon Charles Dow's 20th century stock market theory, author Jack Schannep provides readers with a better understanding of the ingredients that make up the world of finance, specifically the American stock market, in order to help them achieve investment success.

Acknowledgments ix

Introduction: The What and Why of this Book xi

Part I The Traditional Dow Theory

Chapter 1 By Way of Background 3

Chapter 2 Signals Described 17

Chapter 3 A Look at the Record 25

Chapter 4 Give-and-Take about the Theory 37

Part II Bulls and Bears

Chapter 5 Bull Markets 53

Chapter 6 Bear Markets 61

Chapter 7 Bull and Bear Markets of the Twentieth and Twenty-First Centuries 69

Part III The Dow Theory for the Twenty-First Century

Chapter 8 Capitulation: The Selling Climax 79

Chapter 9 The Heart of the Theory 97

Part IV Other Important Indicators

Chapter 10 Schannep Timing Indicator: The Other Major-Trend Indicator 123

Chapter 11 “Three Tops and a Tumble”: Leading Topping Indicators 129

Chapter 12 Bonus Indicators 145

Part V The Epitome of Synergy

Chapter 13 The All-Inclusive Composite Indicator 169

Chapter 14 Practical Uses: Putting It All Together 177

Appendix A “Official” Complete and Detailed Record of the Original Dow Theory 183

Appendix B Capitulation Indicators Detailed Record 195

Appendix C CPA Verification of the Schannep Indicator 203

Appendix D Complete Record of the Composite Timing Indicator 207

About the Author 217

Index 219

"This book is the definitive guide to modern-day Dow Theory from probably its most consistently successful practitioner." (Investors Chronicle, June 2010)

Jack Schannep is the author and editor of the Schannep Timing Indicator & TheDowTheory.com Newsletter as well as a recognized Dow theorist. Prior to writing his market letter, Schannep was a stockbroker with Dean Witter in Phoenix. He opened and managed the Dean Witter Tucson offices from 1968 until retiring as senior vice president in charge of the southern Arizona offices in 1984.

The first stock index published by Charles Dow in 1884 was comprised of eleven stocks, nine of which were railroads. It was not until 1896 that the Dow Jones Industrial Average was born, with twelve "smokestack" companies. Dow saw the stock market and his ideas about how it moved—yet to be named by others as Dow's Theory—as an indicator of business activity. Today, over 100 years later, his theory is still relied upon by investors. In Dow Theory for the 21st Century, Jack Schannep expands upon this theory and brings it into the new millennium, providing the information that today's serious investor needs to achieve stock market success.

Schannep discusses the classic patterns of Dow Theory Buy and Sell signals and explains why they will be just as profitable in the future as they have been in the past—detailing bull-market buy and bear-market sell signals. He provides "a complete and detailed record" of the Dow Theory that shows how, with some few exceptions, Dow Theory Buy signals have preceded, confirmed, or reconfirmed all business expansions and bull markets during the twentieth century. Perhaps most importantly, Schannep explains capitulation—one of the most frightening times in the stock market's cycle, and at the same time, one of the most profitable—outlining its eight best indicators and their record of success. Along the way, the author also offers readers a valuable tool for identifying changes in the trend of price movements on the major stock averages: the Schannep Timing Indicator. Developed while the author was at Dean Witter (now Morgan Stanley), it became the major trend indicator used by the firm. And like the Dow Theory, it has a proven record of excellence.

Providing readers with a firm understanding of the original Dow Theory, a logical definition of bull and bear markets, and the ability to use capitulation to their advantage, this book ultimately formulates a Dow Theory for the twenty-first century that will help anyone invest more successfully as we move forward through Wall Street's next hundred years.

Praise for Dow Theory for the 21st Century

"Jack Schannep is simply the most accurate market timer I have ever known. I have read his commentaries religiously since 2002, and he has been right every step of the way. He perfectly called the market bottom in October 2002 and never wavered from his bullish stance until late in 2007... and again, he was 100% right to call an end to the five-year bull run. Jack's application of technical analysis in defining the primary trend of the market has been spot on."
—Stephen Reitmeister, Executive Vice President, Zacks Investment Research

"Jack Schannep is one of the finest Dow Theory analysts now practicing. This is easy to say in a time when praise is cheap. The real praise is that I rely on his work in my work."
—W.H.C. Bassetti, Adjunct Professor,

Finance and Economics, Golden Gate University; editor and coauthor, Technical Analysis of Stock Trends, Ninth Edition

"Dow Theory for the 21st Century offers individual investors a clear and practical approach to the big-trend (bull market-bear market) paradigm for long-term investing outperformance."
—Steve LeCompte, Managing Partner, The CXO Advisory Group

"If you want to understand the Dow Theory, this is the book to buy. Jack has done a superb job of not only researching the details of the Dow Theory, but in putting it in simple understandable language. In addition, he has done what readers really want—interpreted the theory to make money! His years of working with the Dow Theory give readers a unique edge in understanding one of the oldest stock strategies in existence."
—Dave Garrett, Principal, TimerTrac.com

"Updates and vastly improves the twentieth century's most famous trading strategy. Must reading for serious investors, market timers, technical analysts, and market professionals."
—Yale Hirsch and Jeffrey A. Hirsch, Stock Trader's Almanac