Closing Prices

Only Closing Prices Used — Dow Theory pays no attention to any
extreme highs or lows which may be registered during a day and
before the market closes, but takes into account only the closing figures,
i.e., the average of the day’s final sale prices for the component
issues. We have discussed the psychological importance of the endof-
day prices under the subject of chart construction and need not
deal with it further here, except to say that this is another Dow rule
which has stood the test of time. It works thus: suppose an Intermediate
Advance in a Primary Uptrend reaches its peak on a certain day
at 11 a.m., at which hour the Industrial Average figures at, say, 152.45,
and then falls back to close at 150.70. All that the next advance will
have to do in order to indicate that the Primary Trend is still up is
register a daily close above 150.70. The previous intraday high of
152.45 does not count. Conversely, using the same figures for our first
advance, if the next upswing carries prices to an intraday high at, say,
152.60, but fails to register a closing price above 150.70, the continuation
of the Primary Bull Trend is still in doubt.
In recent years, differences of opinion have arisen among market
students as to the extent to which an Average should push beyond a
previous limit (Top or Bottom figure) in order to signal (or confirm or
reaffirm, as the case may be) a market trend. Dow and Hamilton evidently
regarded any penetration, even as little as 0.01, in closing price as a valid signal, but some modern commentators have required penetration
by a full point (1.00). We think that the original view has the
best of the argument, that the record shows little or nothing in practical
results to favor any of the proposed modifications. One incident in June
of 1946, to which we shall refer in the following chapter, shows a
decided advantage for the orthodox “any-penetration-whatever” rule.