“The tape tells all” is a Wall Street bromide we’re all familiar with. It neatly summarizes the belief that the major averages discount everything pertaining to the business outlook. It’s also a basic tenet of Dow Theory.
Writing a century ago, Richard Wyckoff was one of the very first market pundits to put this belief in writing. “The tape tells the news minutes, hours and days before the news tickers or newspapers and before it can become current gossip,” he wrote. “Everything from a foreign war to the passing of a dividend; from a Supreme Court decision to the ravages of the boll-weevil is reflected primarily upon the tape.”
This sentiment was also eloquently summarized by author Robert Rhea over 80 years ago. Writing in his classic book, The Dow Theory, Rhea observed:
“The fluctuations of the daily closing prices of the Dow-Jones rail and industrial averages afford a composite index of all the hopes, disappointments, and knowledge of everyone who knows anything of financial matters, and for that reason, the effects of coming events (excluding acts of God) are always properly anticipated in their movement. The averages quickly appraise such calamities as fire and earthquakes.”
The late Joe Granville took this a step further by suggesting that the stock market represents the sum total of a nation’s intelligence across many different fields. He maintained that the market knows virtually everything worth knowing about the short-to-intermediate-term outlook.
Writing in September 2004, just after a devastating series of Florida hurricanes, Granville observed: “When the stock market turns down it is warning of trouble ahead. It doesn’t matter what the trouble turns out to be… For a look at the future it was only necessary to follow the market instead of hurricane reports.” In view of the vulnerable state of the market prior to the major hurricanes of 2005 and 2012 (Katrina and Sand), perhaps Granville was on to something.
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