Dow Theory : Visiting the phases of bear market

Time to visit the Dow Theory again.


I am summarizing it from the Technical Analysis book by Edwards and Magee.


3 Phases The Bear Market

1. Distribution Phase

– Starts from the later stage of the preceding Bull Market

– Farsighted investors sense the fact that business earnings have reached an abnormal height and unload their holdings at an increasing pace.

2. Panic Phase

– Buyers begin to thin out

– Sellers become more urgent

– Downard trend of prices suddenly accelerates into an almost vertical drop

– Volume mounts to climactic proportions

– There may be sideway movements after this and then…. the third phase begins

3. Final and ‘dump them’ phase

– More discouraged selling on those who have hold their ‘gems’ till the last or have bought it in the Panic Phase because it is cheap

– Business news now begins to deterriorate

– Downward movement is less rapid

– Better-grade stocks decline more gradually

– And it will be over before the last of the bear news is out

What do you think? Do you agree that we are now in Phase 2?

I have attached SPX chart to highlight the phases that I think we are in.