Tackle Today: The Origin of Indexes
April 19, 2022
«All hail Charles Dow.»
Traders,
Yesterday we introduced the first step of our 7-Step Guide to Trading: Start at the Top of the Markets.
Indexes lie at the top of the markets and are the benchmarks professionals follow for a quick take on market posture. We often take for granted how easy it is to pull up a chart of the S&P 500 or Nasdaq to check on market health. But it wasn’t always this way.
Pre-1896, Indexes didn’t exist. The only way to track the stock market was to follow individual companies. If you wanted to get a sense of how the entire market was doing, you would have to go through a few dozen (or hundred) charts. If the majority were in uptrends, then you could conclude the market was bullish.
Then Charles Dow came along and invented a new, better way of doing things.
He combined 12 top industrial companies into a basket and tracked their aggregate performance. He named it the Dow Jones Industrial Average. Later, he did the same thing using transportation stocks. Thus was born the Dow Jones Railroad Average. Charles Dow was a price follower and analyzed both indexes. His research and findings became known as “Dow Theory” and forged the way for future technical analysts.
The prominence of the Dow Jones Industrial Average among the public has to do with it being the first and oldest U.S. index. It’s evolved over time and now consists of 30 giant companies.
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Mickey is looking sicky. That $130 support break is a classic bear breakout pattern.
Today’s line up
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