3 10 17 24 1 8 15 22 29 5 12 19 26 3XD .625XD .625XD .625
OTIS ELEVATOR CO.
“The Same Old Patterns”
Published and Distributed by JOHN MAGEE, Inc. Technical Analysis of Stock Trends, 360 Worthington Street, Springfield 3, Massachusetts
COPYRIGHT 1961 BY JOHN MAGEE, SPRINGFIELD, MASS.
Type RU
FIGURE 246. A typical stock chart on TEKNIPLAT charting paper. Allowing for ex-dividends, “OT” never significantlyviolated the apex of the Triangle. The advance ultimately added 60% to the value of the stock. (Continued on page 530.)
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FIGURE 246 (Continued from previous page). This chart, in its long, mostly sideways movement, is a good example of the importance of making allowance for theex-dividend drop in the price. During the first 5 months shown, we see an almostperfect Symmetrical Triangle. The first critical point would be on the slight breakdown in the middle of May. The lower border of the Triangle was violated just atrifle, even if we had allowed for the 62½¢ March dividend. If one had sold the stockhere, who could blame him? And no great or immediate harm would have beendone. However, an experienced technician might have taken into account the insignificant volume at this point and waited a bit, with a stop at, say, 60. (See thesomewhat similar situation in the chart of “LA,” Figure 233.) If “OT” had been held,the volume pickup on the rally would have shown that the trend had not yet reverseditself. The second critical point came in late September and early October at the timeof President Eisenhower’s illness. However, if we allow for the two dividends whichwent ex in July and October, the break did not violate the May Bottom. Furthermore,it was on relatively light volume. If the stock was still held, there was no valid reasonfor selling on this decline. From here on, breaking upward sharply from the October–November Island, “OT” resumed the Major Advance interrupted by this longperiod of Consolidation, and advanced to the equivalent of over 100 (adjusted fortwo-for-one split) in 1956.
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550540Close520.77Jul 12
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FIGURE 247. The Broadening Top in the Dow–Jones Industrial Average whichformed in May, June, July, and August 1957. Although Broadening Tops have appeared many times in individual stocks, and, as a rule, have carried out their Bearishimplications, such a chart pattern has never before been completed in the IndustrialAverage. (Continued on the following page).
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FIGURE 247 (Continued from previous page). In 1929, on two occasions, therewere patterns which began to show Broadening tendencies, but since these wereinterrupted by continuation moves, about all one can say of them is that they mayhave indicated a growing technical weakness in the market.The 1957 situation, on the other hand, was very definite and was fully completed.During the early stages of the pattern, several of our friends wrote, calling attentionto the possible Broadening Top, among them Charles E. Carden of Fort Worth, TX,who has handled Dow Theory comment and analysis for the Fort Worth Star Telegram.The chart shown in Figure 247 is adapted from one of Mr. Carden’s charts and isreproduced with his permission.The first significant point after the February 12 Bottom was the Minor Peak ofTuesday May 21, marked (1). The Minor Decline from this point on Tuesday, May28 (2) was quite normal, as was the renewed advance to Monday, June 17 (3).The first sign of a broadening tendency was when the Average closed on Monday,June 24 (4), below the May 28 bottom. However, this by itself did not indicate aReversal. The advance was resumed, and surmounted the May 21 and June 17 MinorTops, reaching a high closing figure of 520.77 on Friday, July 12 (5). The Broadeningpicture was now quite evident, and the completion of a Broadening Top requiredonly a close below the June 24 Bottom.On Tuesday, August 6, the Industrial Average closed decisively below the June 24Bottom, signaling the completion of the Broadening Top. This, of course, was anindication of Major weakness, a warning not to be taken lightly.The Broadening Top, as we have pointed out previously, is an indication of a wildlygyrating market, a market without leadership or definite trend. The presumption isthat heavy distribution is going on under cover of the rallies, and the breakout moveis seldom a false one.Since we are dealing, here, with an Average, rather than a single stock, we wouldconsider that any closing below point (4) after the peak at (5), regardless of how slightthe margin might be, would constitute a valid breakout, since Averages are lesssensitive than individual stocks, and it is customary to consider even slight penetrations at signal points (as in Dow Theory) as perfectly satisfactory. You will noticealso that, although it would be possible to draw the Broadening Top through theextreme ranges of the price, as we have done with the wide-dashed line, we haveused the closing prices as marked by the narrow-dashed line. This, too, is in linewith Dow Theory practice, where only closing prices are considered.The implication of the pattern here was Bearish for the “market-as-a-whole.” Asmight be expected, a majority of stocks showed weak patterns of trends at this time.However, as always, it was necessary to examine each stock separately on its merits,since, as we will show in the following pages, not all stocks behaved alike even inthis extremely weak market situation.
99Apr
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7714.00
8055.00
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9169.009119.00
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9573.00
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“The Same Old Patterns”
FIGURE 247.1. The Broadening Top in the Dow in 1999-2000. If repetition is the heart of pedagogy the reader may die of heart diseasewith looking at the Dow Broadening Top. Especially if he was long at the time and either disregarded the signs, or was not educated asto their significance. And the lesson is always the same: Bad news is on the way. The numerous technical aspects of this historic markettop are discussed at length in other views of the Dow taken at this time. Remember. This time it’s different. The market paradigm haschanged, etc. etc., etc….Those who listen to fools will be fooled.
Oct
O=10239.84
Chapter thirty-seven:
9082.62
$INDU - Daily US L=10125.40 -114 .52 -1 .12%
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Published and Distributed by JOHN MAGEE, Inc. Technical Analysis of Stock Trends, 360 Worthington Street, Springfield 3, Massachusetts
COPYRIGHT 1961 BY JOHN MAGEE, SPRINGFIELD, MASS.
Type RU
INDUSTRIAL RAYON CORPORATIONILR
MARCHJANUARY FEBRUARYJUNEAPRILSEPTEMBER OCTOBER NOVEMBER DECEMBERJULYMAYAUGUST5 12 19 26 2 9 16 23 2 9 16 23 30 6 13 20 27 4 11 18 25 1 8 15 22 29 6 13 20 27 3 10 17 24 31 7 14 21 28 5 12 19 26 2 9 16 23 30 7 14 21 28XD .25 ¢XD .25 ¢XD .75 ¢XD .50 ¢
FIGURE 248 (Caption appears on facing page.)
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FIGURE 248. 1957 Bearish Trend in Industrial Rayon. At no time did this stockshow significant strength.Averages do not tell the whole story. Each stock has to be considered on its ownmerits. Long before the formation of the 1957 Broadening Top in the IndustrialAverage, Industrial Rayon was moving down in a Major Decline. You will find manycases where it is difficult to “see” what a stock is doing, or to determine its MajorTrend. But in such a situation as this (and this is not a rare case), it is perfectly obviousthat the trend is down. Although there were a number of Minor Rallies and Consolidations during the decline, the entire pattern was so obviously part and parcel ofthe same big decline that no one who was even slightly familiar with typical stockbehavior would have been tempted to buy the stock, even to cover shorts.On Monday, July 29, there was a sharp downward break with a gap on climacticvolume. This would have suggested the probability of a Minor Bottom, and for threeand a half weeks, the stock did stabilize at around 24. But even during this Consolidation, the continuing weakness showed up on the small Descending Triangle thatwas formed, and ultimately on Wednesday, August 21, the price broke sharply tocontinue the Major Decline.
Published and Distributed by JOHN MAGEE, Inc. Technical Analysis of Stock Trends, 360 Worthington Street, Springfield 3, Massachusetts
COPYRIGHT 1961 BY JOHN MAGEE, SPRINGFIELD, MASS.
Type RU
LORILLARDLL
JANUARYFEBRUARYAPRILJUNEMARCHMAYJULYAUGUSTSEPTEMBER OCTOBERNOVEMBER DECEMBER5 12 19 26 2 9 16 23 2 9 16 23 30 6 13 20 27 4 11 18 25 1 8 15 22 29 6 13 20 27 3 10 17 24 31 7 14 21 28 5 12 19 26 2 9 16 23 30 7 14 21 28XD .30XD .30
FIGURE 249 (Caption appears on facing page.)
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FIGURE 249. 1957 Bullish Trend in Lorillard. Although most stocks declined in1957, there were a number of strong issues like this one which appeared to be totallyunaffected by the general pessimism.Averages do not tell the whole story. It will come as a shock to many readers, whorightly regard the latter half of 1957 as a Major Bear Market, to see Lorillard makinga typical Bull Market Advance. Lorillard moved up from 15⅝ to 34 during the year —and reached 54⅛ during the first 3 months of 1958. It is hard to believe that this chartand the Industrial Rayon chart we just looked at cover the same period, that is, theyear 1957.The majority of stocks did suffer severe depreciation. But there were a good manyissues which, like Lorillard, enjoyed a generally Bullish Trend all year. Among theimportant stocks that moved up consistently in 1957 were American Chicle, AnchorHocking Glass, Colgate-Palmolive, General Foods, General Cigar, Grand Union, National Biscuit, Parke Davis, Penick & Ford, Plough, Inc., Proctor & Gamble, Ruberoid,Vick Chemical, Winn-Dixie Stores, and Zenith Radio.Whatever theories we may have as to the condition of the “market-as-a-whole,”we must always realize that we are buying and selling individual stocks. (EN: Unlesswe are trading Index Shares.) We may get a picture of extreme Bullishness or extremeBearishness in the “general market,” but if this picture conflicts with the clear evidence in a particular stock, we must recognize that it is the stock, not the Average,that we have to deal with. We cannot assume that a stock “must” follow the Average.And it is often possible to obtain greater stability and safety by buying a few strongstocks in a Bear Market or by selling short a few weak stocks in a Bull Market, thanby attempting to maximize profits with an “all-out” position one way or the other.
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686460AVNET ELECTRONICS CORP.
AVT
56524844403836343230281961262422Sales100’s
500400300200100MAYJUNE6 13 20 27 3 10 17 24 1
JULYSEPTEMBEROCTOBERAUGUST8 15 22 29 5 12 19 26 2 9 16 23 30 7 14 21 28
FIGURE 250. During the latter 9 months of 1961, some well-known market Averages continued to show new all-time highs. However, the Evaluative Index (seeChapter 38), in this period did not indicate any such overall strength; many stockswere in almost continuous decline for the 9 months. These included such importantissues as Air Reduction, Allied Chemical, Allis-Chalmers, Aluminum, Ltd., FansteelMetallurgical, Flintkote, Heyden Newport Chemical, Sperry Rand, Texas Instruments, Trans World Airlines, Universal Match, and many others. At such times it isbest to choose stocks selectively and maintain adequate liquid reserves.
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4038
BURNDY CORPORATION
BDC
363432302819612624Sales100’s
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JULYAUGUST8 15 22 29 5 12 19 26 2
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FIGURE 251. A familiar Top Pattern. From the end of 1957 to the spring of 1961,Burndy Corporation moved from below 10 to 37 in a generally Bullish Trend. Theadvance accelerated sharply on the post-election rally of late 1960 and early 1961.But with Burndy, as with many other stocks, the rally ended in the early months of1961. Here, we have not only a perfect example of the Head-and-Shoulders Top inthe price action, but we have the typical volume confirmation. The early April rallywas on heavy volume. The rally in the last week of April was on somewhat disappointing volume, although a new high was made at that time. We have a definiteincrease of volume on the retreat from this peak, and practically no enthusiasm inthe final rally of the first week of June. The breakdown on Monday, June 19, accompanied by heavier volume and a definite gap in the price track, confirmed the TopFormation. Although Burndy held around the 30 level for a time, and after a furtherdrop recovered to 31, the Major Trend had definitely been reversed. By June 1962Burndy was selling at 11¾.
COPYRIGHT 1961 BY JOHN MAGEE, SPRINGFIELD, MASS.
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FIGURE 252 (Caption appears on facing page.)
TEKNIPLAT Chart Paper
Published and Distributed by JOHN MAGEE, Inc. Technical Analysis of Stock Trends, 360 Worthington Street, Springfield 3, Massachusetts
FM
BRUNSWICK CORPORATIONS
AMJJASONDJ′62FMAMJAS
BC
540
Technical Analysis of Stock Trends
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FIGURE 252. Weekly chart of Brunswick Corporation showing the final stages ofthe long Bull Market in “BC,” the Climactic Top in March 1961, the distributive phasethrough December 1961, and the ultimate breakdown.For 5 years, from 1956 into early 1961, Brunswick advanced in a great Bull Marketsurge. During this period, the stock was split four times. In the first week of March1961, terminating the post-election rally, “BC” made a new high on extraordinaryvolume, but closed the week nearly at the bottom of the weekly range. The OneWeek Reversal might well have served as a warning to the market trader.However, assuming that the owner of shares in Brunswick was not a trader, andwas interested in the stock from a long-term point of view, he might have held thestock through the breakdown from the Symmetrical Triangle formed in March andearly April. He might have continued to keep his shares through the summer andfall of 1961 and the rally of September and October. If so, and if he had been watchingthe action of the stock, he would realize that the 50–52 level was a critical area. Thata break through this previous Bottom would represent a serious failure of Support.And certainly, the decisive violation of the 50 level in the first week of January 1962(with heavy volume) could be recognized as a very dangerous Reversal Signal, callingfor immediate sale of the stock regardless of capital gains tax or anything else.Although this move preceded the general collapse of the market by several months,it was a clear technical indication of extreme weakness and extreme danger in Brunswick, regardless of the action of other stocks at that time. If an investor had notedthe break but decided to “wait for a rally” to sell his stock, he would have had nochance to get out. Brunswick never recovered, never rallied, and by October 1962 itwas selling at 17.
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2402241962208192176
160152144136128120112104POLAROID CORPORATION
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FIGURE 253. A beautiful example of a Rectangle in Polaroid. Notice the lowvolume fluctuations between (approximately) 178 and 202. On Thursday, May 10, onthe highest volume of that year to date, Polaroid broke Support and plunged to 168.This was a clearly Bearish Move. It would have been fatal to “hold for a rally,” forthere was no rally. It can be very expensive to hold onto a stock wishfully when thesituation has changed radically, no matter how good it may have looked previously.Note that this break came more than 2 weeks before the “near-panic” of May 28. Bythat time, “PRD” had dropped 50 points and was headed for still lower levels.
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26241962
22
2019181716COPPER RANGE CO.
CPX
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JUNE9 16 23 31
FIGURE 254. At a time when a majority of stocks were already showing signs ofserious weakness, early in 1962, Copper Range was making vigorous new highs.Actually, the move did not get far; it never substantially broke above the 1961 Top.The evidence of weakness in “CPX” did not become apparent until, after the relativelyweak April rally, the stock broke through 19 on Monday, April 30, and closed at 17¾.This was, of course, the completion of a well-marked Head-and- Shoulders Top. Inthis case, there were 3 days of rally before the downward move really got under way,but it might have been dangerous to count on a rally after the clearly Bearish signal.Incidentally, this Top Formation was completed well before the precipitous dropof May and June.
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Technical Analysis of Stock Trends
U.S. SMELTING, REFINING & MINING CO.
UV
36196234323028262422Sales100’s
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JUNEJULYAUGUST SEPTEMBER9 16 23 30 7 14 21 28 4 11 18 25 1 8 15 22 29
FIGURE 255. Like practically all stocks, “W” went into a tailspin in the spring of1962. After the “bad day,” May 28, it continued to slide throughout the month ofJune. At this point, there started what could be considered no more than a technicalrally in a Bear Market. This rally stopped at 29 and was followed by a dull declinelasting about 2 weeks.The next move, in the second week of August, was marked by considerable volume,and while there was no obvious, clear-cut pattern, it seemed significant that the 29level, briefly touched on May 23, May 28, and July 12, was penetrated on August 6.Whether to regard this August 6 closing as an immediate buy signal, or to wait forthe completion of the breakout move and look for an opportunity to buy on a reaction,would be a problem. In this case, it would have paid to wait. Notice that the lateAugust reaction came back to the 29 level where it found Support, and then continuedits upward move.Considering the weakness of most stocks in this period, the action of “W” isremarkable. The important thing to recognize here is that individual stocks do notnecessarily follow “the main trend” of the Averages.
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FIGURE 256. Weekly, July 1961 through June 1962. This chart shows the Head-andShoulders Top Formation in the Industrial Average which preceded the collapse ofApril, May, and June 1962. Normally, and especially in the charts of individual stocks,there would tend to be heavier volume on the left shoulder. However, the pricepattern alone is sufficient to mark the pattern as a dangerously toppy situation.During the entire period in which this formation took shape, many individual stocksrepresenting important companies were showing Top Reversal symptoms, as mightbe expected. Note that so far as this Head-and-Shoulders Pattern is concerned, theReversal Signal is not definite until the neckline has been penetrated.
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ABC VENDING CORP.
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FIGURE 257. Daily, April through September 1961. Here is a rather confusing andcomplicated chart, but one which contains several points of interest worth a bit ofanalysis. Notice the beautiful little Head-and-Shoulders Top in April and May, especially the volume weakness on the final rally before the downside breakout. Noticealso that this stock was split 2-for-1 in June, but that such a split does not materiallyaffect the technical action of the stock, except that since there are now two shares ofstock (at half the market value) for each share of old stock, there may be some increasein the average number of shares traded per day. Notice also that once the downtrendwas established, the rallies (especially the mid-July rally) do not penetrate thetrendline drawn through the April and May peaks. This trend continued down forover a year after this, reaching a low of 11¼ in October 1962.
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3028262422201918CERRO CORPORATION
CDP
1963
17Sales