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No tipster, 50-year-old Robert Rhea likes to regard his subscribers as students, tries to teach them to read the auguries themselves. He warns them that the theory is not infallible, is not very definite, shows direction not distance, often gives no positive signal until much of the movement has passed. That it has worked for High Priest Rhea, Certified Public Accountant O. M. Williams certifies as follows: "I have audited the accounts of Robert Rhea and those of a corporation and two trusts operated by him and for his benefit. . . . My findings were that on total transactions [over nearly a ten-year period] involving 601,612 shares, a gain of $436.19 was realized for each $100.00 of loss." Aside from trading, his 5,565 clients at a yearly fee of $40 a head provide a neat income.
The Theory—which is in fact less a theory than an empirical rule of thumb— is simple enough in itself, not so simple in application. It presumes three simultaneous movements of stock prices, which may be compared to 1) tides. 2) waves. 3) ripples. Speculators try to ride the tides, sometimes duck in & out of the big waves; only the reckless try to profit by the day-to-day ripples. To judge whether the tide is ebbing or flowing, an observer watches the height to which successive waves lap on the beach; if the tide has been coming in, and the waves fall shorter & shorter. he suspects the tide has changed. Dow Theorists indeed watch two beaches, note the waves of both industrials and rails, do not act until one confirms the other.
In March 1937, High Priest Rhea. although he could not say definitely that a bear market was beginning, cautioned his subscribers to think of protecting profits they had made in the bull market since 1932. Six months later, the Dow Theory gave a definite signal that the U. S. was in a bear market (ebb tide), had been in it since March. Thus, because it was succeeded by a wave with a lower crest and a lower trough, the March wave was proved to have been the high mark of the 1932-37 incoming tide. When September's definite signal was given, the Dow-Jones industrial average was at 165; speculators who then sold stocks have avoided a loss of more than 50 points (industrials ended last week at 114).
By last week, though the tide was still indicated as ebbing (i.e., primary movement tending downward), a 7-point rise in the industrial average since May 31 encouraged a bullish hope that ripples might top previous crests of 121 for the industrials, 23.5 for the rails, thus show the current wave to be coming in. This week's Rhea letter said that every upward zig-zag step, if confirmed by both averages, would be bullish, but a downward zigzag prior to penetration of 121 and 23.5 would mean danger.