Guru Grades

Jack Schannep's Sweepstakes (Last Updated 2/26/10)

We evaluate here the market commentary of Jack Schannep, available via Zacks.com (since removed and now continued via MarketWatch) since July 2002. Jack Schannep, editor of The DowTheory.com and author of Dow Theory for the 21st Century: Technical Indicators for Improving Your Investment Results, claims that "[o]ur interpretation of The Dow Theory...and our proprietary Timing Indicator have successfully timed and beaten the stock market over many years." The table below extracts highlights from his commentary and shows the performance of the S&P 500 index over the 21, 63, 126 and 254 trading days after the publication date for each item. Red plus (minus) signs to the right of specific items indicate those that the market has subsequently proven right (wrong). We conclude that:

• As the title of his newsletter indicates, Jack Schannep is a Dow Theory market timer who uses Exchange Traded Funds (DIA and SPY) as trading vehicles.
• He sometimes cites historical parallels with very small samples and therefore low statistical significance. It is sometimes difficult to extract a testable stock market forecast from his commentaries.
• One of his forecasts proved to be about equally right and wrong, so we evaluated it "0" and graded him both right and wrong.
• Based on subsequent stock market performance and our judgments about the accuracy of Jack Schannep's forecasts, his bottom-line outlook for U.S. stocks has been right 63% of the time, which is pretty good. His forecast sample size is small, as is our confidence in this conclusion.
• Mr. Schannep offers on his web site a head-to-head "Dow Theorist's Sweepstakes" pitting his timing calls against those of Richard Russell and Richard Moroney starting in August 1998.

Here are additional notes to augment the tabular summary:

From MarketWatch (2/11/10): "He only lost half as much as the broad market averages during the 2007-2009 bear market, according to the Hulbert Financial Digest..."

From Peter Brimelow in MarketWatch (10/8/08): "Over the past five years, [TheDowTheory.com] has achieved a 7.31% annualized gain, vs. 6% annualized for the total return DJ Wilshire 5000."

In summary, Jack Schannep's U.S. stock market forecasting record is pretty good. Confidence in this conclusion is low.

In general, Dow Theory seems to us a blunt instrument, reactive (with delay) to changes in market behavior. However, see our blog entry of 11/4/05 for a carefully analytic reconsideration of Dow Theory as a momentum timing strategy by Stephen Brown, William Goetzmann and Alok Kumar.

This evaluation incorporates all adjustments described in our exchanges with Jack Schannep.

See Mr. Schannep's article "Market Timing and Current Market Conditions" for his own thoughts on forecasting.

See Guru Grades for a snapshot of the accuracy of various experts in predicting the direction of the U.S. stock market, including links to evaluations of the commentaries of other individual market pundits and gurus. For methodologies comparable to Mr. Schannep's, see especially Richard Moroney and Richard Russell.