‘Dow Theory’ Says Worst Isn’t Over for U.S. Stocks as YRC Falls (Eric Martin and Cristina Ales

  Feb. 21 (Bloomberg) -- A 125-year-old method for forecasting the market is telling investors the worst isn’t over for stocks.

  Dow Theory, which holds that simultaneous moves in industrial and transportation shares foreshadow economic activity, indicates the Dow Jones Industrial Average’s drop to a six-year low yesterday may presage more losses.

  The Dow industrials slumped to 7,365.67 on concern the deepening recession will force the U.S. government to bail out banks. Adherents of Dow Theory say the 30-stock gauge will fall farther because the Dow Jones Transportation Average has slipped to the worst level since September 2003.

  “When you have that confirmation in both legs, that’s clearly negative,” said Ryan Detrick, senior technical analyst at Schaeffer’s Investment Research in Cincinnati. “There’s some validity to Dow Theory."

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