Reply #1: WrapUp by Tim W. Wood - THE DOW REPORT [View All]

[ozymandius]

Psychology of the Crowd vs. Dow Theory and Technical Analysis

In July 2001 I wrote an article that was later published in the November issue of Technical Analysis of Stocks and Commodities Magazine. In this article I forecasted that the Dow Jones Industrial Average would move below 7,400 in late 2002. At the time of this analysis the DJIA was at approximately 10,500. It was November 2002 before the article could make it through the pipeline and into print. By September 2001, the market had dropped to near 8,000. By the time the analysis appeared in November, the DJIA had recovered and was well over 9,000. People were arguing that the worst was over. We had seen the bottom. The article was discounted by many. After all, common knowledge was that the bottom had been seen. Sound analysis that was based in fact and statistical probability was useless bunk. In October 2002 this forecast came to be. As it turned out, the analysis was proven to be right and the collective wisdom of the masses once again was proven to be in error.

In the spring 2002 issue of Traders World Magazine, I forecasted that the CRB Index would find its 3-year cycle low in early 2002. I also forecasted that the Dollar was topping and that when the intermediate term cycle that was then at play topped we would have the 4-year cycle top in the Dollar. With commodity prices as depressed as they were at the time and the Dollar as high as it was, this forecast too was discounted by many. The popular delusion of the day seemed to call for a strong Dollar and weaker commodities. However, sound analysis once again won out as we all now know what has happened since that time.

<cut>
I have been pounding the table ever since the rally out of the March 2003 low began, that it was a bear market rally. I wrote an article which appeared in the October 2002 issue of Technical Analysis of Stocks and Commodities Magazine showing what to expect once the 4-year cycle low appeared. I explain that most would proclaim it to be a new bull market. I gave statistical relationships of previous bull and bear markets and showed what our expectation for this bear market should be. In my newsletter and articles I have used ideas and thoughts related to history, Dow theory and other technical studies to help the reader to understand the current conditions of the market. Just as Schaefer was called a “Perpetual Bull,” I have found myself and the few others that have warned of current market conditions called “Perma Bears” and even worse.

http://www.financialsense.com/Market/wrapup.htm