Ask Colin

I read in Shares magazine this month (April 2001) your explanation that the All Ordinaries Index is in a trading range and, therefore, still technically in an uptrend. My recollection from what you taught me in your courses where Dow Theory was explained seems to lead me to a different view. It seems to me that the dominant peaks and troughs would indicate a downtrend, albeit still gentle.

While you are technically correct, using Dow Theory, experience has taught me that some judgement is needed to decide how much lower price action must go below the previous trough, before it is significant. Likewise with peaks. Otherwise, one tends to be "over-analysing", or relying on small differences rather than the more significant larger picture.

The way I am looking at the All Ordinaries Index is that since July 2000, it has formed a large basically rectangular trading range. It only broke down decisively this last week (week ending 23.03.01).

This view is not precise Dow Theory, but it seems to me that some judgement is needed to avoid "pushing the envelope" too hard. I prefer to await a very clear signal when both peaks and troughs are only marginally below the previous ones.

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