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Dove
Dove refers to a central banker, or any policymaker, who keeps interest rates low and tolerates a little more inflation in exchange for stronger growth and lower unemployment. Doves are more concerned about the actual economy, jobs, output, and credit conditions than about the price stability part of the mandate of a central bank—the reverse of a hawk.
Practically, the designations are slippery. The same individual may well sound dovish in recession and sound significantly more hawkish when inflation is beginning to get out of control.
The actual direction of movement is what actually matters to the markets, whether the committee in general is becoming more dovish or more hawkish, because this direction of movement drives expectations about future rate decisions, which in turn drives bond yields, currencies, and risk assets.
Example: In the years after the 2008 financial crisis, Janet Yellen was widely regarded as one of the more dovish voices on the Federal Reserve’s rate-setting committee. She continued to stress the amount of slack still in the labor market and that one should not take a leap by increasing rates.
Such positioning informed market expectations regarding the pace of any eventual tightening, with direct implications for bond markets and overall risk appetite.
Dow Jones Industrial Average
Dow Jones Industrial Average is the most quoted stock market figure in the world, as well as one of the most misconstrued. The Dow Jones Industrial Average is an index of 30 large American companies listed on the New York Stock Exchange and Nasdaq, names like Apple, Goldman Sachs, Boeing, and Coca-Cola.
It has been operating in one form or another since 1896, and that is one of the main reasons it receives as much airtime as it does. The methodology, however, is odd by modern standards.
The Dow, unlike most major indices, is price-weighted rather than market-cap weighted. Thus, a company with a higher share price has more influence on the index, even if it is much smaller.
That is an artifact of how indices were computed before the advent of computers. No serious analyst relies on the Dow as his main gauge of the market; the S&P 500 is much more indicative of what is going on in the market, but it remains the number that displays on the television screens when the markets are having a big day.
Example: When the Dow goes down 800 points in a session, the headline writes itself. What that number actually represents in percentage terms, normally something between 2% and 3%, is what most broadcasts omit, but it is what actually counts.
Dow Jones Industrial Average (DJIA)
One of the oldest indices that monitors the performance of 30 blue-chip companies in the US. It is a price-weighted index, commonly referred to as “the Dow”.
Dow Theory
Dow Theory is one of the oldest frameworks in technical analysis, developed from Charles Dow’s writings in the late nineteenth century and later formalized by other analysts after his death.
At its core, it holds that markets move in identifiable primary trends – lasting months to years – within which shorter secondary trends and minor daily fluctuations occur.
One of its most important principles is confirmation: a trend signal in one major index should be confirmed by another before it’s trusted. In Dow’s time, that meant the Dow Jones Industrial Average and the Dow Jones Transportation Average moving in the same direction.
If industrials were rising but transports weren’t, the move was considered suspect. It also holds that trends remain in place until there is clear evidence they have reversed – a deceptively simple idea that underpins much of modern trend-following.
Example: An analyst notices the industrial index making new highs, but the transportation index is lagging and still below its previous peak. According to Dow Theory, divergence is a warning – the rally lacks confirmation, and the primary trend may not be as healthy as the headline numbers suggest.
Down Tick
A down tick refers to a transaction that occurs at a price lower than the immediately preceding trade in the same security. It is the smallest possible unit of bearish price movement; a single trade that nudged the price downward, even if only by a fraction. The concept became particularly important in the context of short-selling regulation.
For much of the twentieth century, US rules required that short sales could only be executed on an uptick or a zero-plus tick; a rule designed to prevent short sellers from piling onto a falling stock and accelerating its decline.
That uptick rule was abolished in 2007 and partially reinstated in modified form after the 2008 crisis.
Down ticks are also used in market microstructure analysis, where the ratio of up ticks to down ticks over a period can offer insight into the underlying buying and selling pressure in a stock.
Example: A stock is trading at $45.20. The next trade goes through at $45.18. That is a downtick; a small move, almost invisible in isolation, but when downticks begin to consistently outnumber upticks throughout a session, it tells a story about who is in control of the tape.
Downtrend
Downtrend refers to a market that is fashionably establishing steadily lower highs and lows over time. That is the technical definition, and it is worth retaining since it is more accurate than merely stating that a price is falling.
One bad day is not a downtrend. A short-run pullback in an uptrend is not a downtrend. A downtrend is a directional movement in which every attempted recovery fails to reach the previous peak, and each subsequent sell-off undercuts the previous trough.
Traders use this to make decisions: in a confirmed downward trend, rallies are more likely to be selling opportunities than signs of a turnaround.
Downtrends occur in all timeframes, be it intraday charts or longer-term price history, and can affect individual stocks, sectors, currencies, or even whole markets.
Example: A technology stock records poor performance in January, crashes, then in February sees a half-baked recovery but fails to regain the January level, and then again in March falls to a new low.
That would be a sequence of lower highs, lower lows, which is a downtrend in the making, and technically, the trader would take any bounce with a grain of salt until the pattern breaks.
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