carried above the Top of a precedingrally. A well-marked downtrend of this sort must be presumed to continue until thereis a marked change in the pattern and volume action. Notice the volume on the day“IC” broke the historically important 52 level; and subsequent action.
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60GRANITE CITY STEEL GRC5652481956
38
XD 75
40
XD 75
44
Sales100’s
125100755025AUGUSTJULYSEPTEMBER OCTOBER NOVEMBER DECEMBER14 21 28 4 11 18 25 1 8 15 22 29 6 13 20 27 3 10 17 24 1 8 15 22 29 5
FIGURE 230. Part of the Major Advance in Granite City Steel. Here we see thefamiliar phenomenon of Support and Resistance in almost every move through theperiod shown.The August–September Rectangle held for 6 weeks between the top limit of 47,which was reached on three occasions, and the bottom at 44. Like most Rectangles,it was marked by heavy volume at the start on July 19, and gradually decliningvolume as the pattern progressed. The breakout move on August 29 was on enormousvolume.After this breakout, there was a typical Flag-like reaction on sharply diminishedvolume; and while this move penetrated the top border of the Rectangle, the penetration was not decisive or significant, and the lower border was never violated. Nowsee how volume appears on October 15 as the old high is reached, and again at thetop of the move on November 14. The decline returns to the level of the Septemberhigh on a low-volume reaction. It is interesting how, on five occasions in this chart,the 52 level served as a Support or Resistance point: twice as Resistance on the wayup, and three times after the new October high, as Support.On the next rise, we see almost the same type of advance. In this case, the SupportResistance Level is about 57. Notice the approach to the critical level, the backingaway, the aggressive move into new high ground (in mid-December), and the recession to the Support at 57.Advances of this sort seem to represent the ebb and flow of the Minor Movesduring a Major Trend when there are no great “news developments” to change thenormal progress of the trend. Where there are frequent and important changes in themarket or in news affecting the industry, we may see long Consolidations or Secondary Reactions. But the Major Trend is durable. We must not assume a Major Reversalprematurely.
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517
48
403836
XD .30AND 50AND 4% STOCK
44
3432
MASONITE28
MNC
1956
XD .30
30
Sales100’s
125100755025JULYAUGUSTSEPTEMBER OCTOBER NOVEMBER DECEMBER7 14 21 28 4 11 18 25 1 8 15 22 29 6 13 20 27 3 10 17 24 1 8 15 22 29
FIGURE 231. During the same period that Granite City Steel was making the seriesof steps upward, as shown in Figure 230, Masonite was doing almost the same thingin reverse.To have continued to hope for a change in trend with a stock which was acting as“MNC” did through the latter part of 1956 would have required an unusual amountof optimism or innocence about the habits of stocks. Actually, of course, there wouldbe good reason for optimism if the stock had been sold short early in the trend.This is almost a perfect counterpart to the “GRC” chart. We have not only a seriesof declines with rallies which fail to establish even Minor highs above the previousTops, but we are also able to draw a trendline which has a number of points of contacton the way down, which is somewhat unusual in a down-trending situation.Notice the tendency of the rallies to stop short at the level of previous bottoms ina series of Support–Resistance Levels. We see such action at 44, at 41, at 38, and at 36.We would certainly not consider the breaking of the trendline on the upside in lateDecember as evidence of a Reversal. Such a break after a trend of this sort probablymeans no more than a Secondary Recovery. To be of greater significance, it wouldcertainly call for some volume showing, which was utterly lacking here; and beforewe would consider the stock again strong enough to buy there would have to besome sort of Reversal Pattern. A faltering rally back to around 40 would, in fact,suggest the advisability of further short sales.
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Technical Analysis of Stock Trends
242220191817161514DELAWARE, LACKAWANNA & WESTERN
DL
1312
1945–1955
11Sales100’s
125100755025NOVEMBER DECEMBERSEPTEMBER OCTOBER4 11 18 25 2 9 16 23 30 6 13 20 27 4 11 18 25 1
FEBRUARYJANUARY8 15 22 29 5 12 19 26
FIGURE 232. Very often you will hear the question, “But how can you tell whethera technical formation or a breakout is valid?” In many cases, and in a great majorityof upside patterns, the volume gives such a decisive answer that all doubts areremoved. Not always is the volume confirmation as clear as in this chart of Delaware,Lackawanna & Western, but this is typical of a good many breakouts in uptrends.You will see that the volume was generally light during the Rectangle, in which wesee five plainly marked Tops and Bottoms.On Thursday, November 4, the volume increased sharply as the price moved upto the top of the Rectangle and closed at that point. The following day, Friday, wesee good volume again with a close beyond the top border. From this point on, themove is obviously upward.There was no indication of Reversal at any time after the breakout. A Top wasreached in March at 25½.This was an especially vigorous move as it came out of the Rectangle. Normally,we would look for Minor Setbacks such as the series of reactions in “GRC,”Figure 230. And if these had occurred, it would in no way have weakened the BullishPattern.
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519
2220191817161514AMERICAN LOCOMOTIVE
LA
13
Sales100’s
XD 25C
11
XD 25C
1954
12
25020015010050JULYAUGUSTSEPTEMBER OCTOBERNOVEMBER DECEMBER3 10 17 24 31 7 14 21 28 4 11 18 25 2 9 16 23 30 6 13 20 27 4 11 18 25
FIGURE 233. The situation, somewhat similar to “DL” in Figure 232, presents alittle complication. The problem would have been whether to sell or continue to hold“LA” after the late October break down through the Bottom of the Rectangle. Therewas no important volume on this drift move, and on only one day did the price closebarely 3% below the bottom of the pattern. A holder of the stock might well havesold it, might even have executed a short sale.Suppose now, that you had actually sold the stock short. Observe the volume andthe price action on Thursday, November 4 and Friday, November 5. Notice thevolume and the price on the following Monday and Tuesday as it reacted slightly.Then see the quick pickup in volume as the price advanced on Wednesday, the weekand a half of dull Consolidation, and the larger volume on the move up on Friday.Surely by the middle of the first week of December, if not before, you would haveseen the danger signals and closed out your short.Such a turnabout does not need to be a tragedy nor even a discouragement. Someeasily discouraged traders would be so concerned about the small loss realized ontheir unsuccessful short sale that they would not be ready to seize the opportunityto reverse position and buy the stock after the strong up signals. This move carriedto 26¾ in March 1955.
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52FANSTEEL METALLURGICAL
FNL
4844
40383634323028261955 – 19562422Sales100’s
25020015010050F
M
A
M
J
J
A
S
O
N
D
J
F
M
A
M
J
J
FIGURE 234. Bottoms normally take longer to complete than Tops. That is onereason we have this chart of Fansteel on a weekly basis, so that a year and a half ofthe action can be shown. The pattern shown at the left is a Consolidation formedafter a rise from the 1953–54 Multiple Bottoms around 21. The top of the AscendingTriangle corresponds roughly with the April 1953 peak.Of course, at the time this Triangle started, in early 1955, it was not possible toidentify it as such — particularly since the February high ran a little higher than thehorizontal Tops that eventually formed. However, during the 7 months that precededthe first breakout move, it became increasingly clear that each rally to the neighborhood of 32½ was followed by a reaction on low volume, and that these reactionswere forming a series of Rising Bottoms.In the first week of September we see a clean penetration upside, and from hereon, the advances and declines fit into the typical pattern of a Major Advance. Noticethe Breakaway Gap in November, and the low volume throughout the December–January–February reaction.
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521
24
22
20
17
XD .40
18
XD .40
19
1615
TEXTRON
TXT
1956–1957
14Sales100’s125100755025
AUGUST SEPTEMBER OCTOBER NOVEMBERDECEMBERJANUARY11 18 25 1 8 15 22 29 6 13 20 27 3 10 17 24 1 8 15 22 29 5 12 19 26 2
FIGURE 235. Here, in a daily chart, we see once again the dramatic sequel to aDescending Triangle. Here is the typical series of declining Tops on rather lowvolume, with retreats between the rallies to a horizontal line.Notice that the important Support here was violated with heavy volume on Friday,January 25. Although the degree of penetration was not great, in view of the generallyBearish reaction to this point we would sell at once. A Descending Triangle hasBearish implications even before the breakout. There was no substantial Pullbackafter the breakout. Since it is not possible to count on such a recovery after a breakthrough Support, it is safest to sell long holdings immediately or to place a very nearstop on them as soon as a close outside pattern occurs (in this case, outside the patternas adjusted for ex-dividend).Notice the pickup of volume as the price drops into a tailspin at the end of January.Heavy volume is not necessarily a feature of important downside moves, but it may,and often does, accompany them, and when it does, it simply underscores thesignificance of the move.Question: Does Textron look like a “bargain” to you at the end of January on thischart? Would you be tempted to buy this stock because “it can’t go down any more,”or because it is “due for a rally,” or because it is “selling below its true value”?Suppose that “TXT” did have a technical rally, which seems quite likely after themove shown. How far would you look for it to go? Would you expect it to penetratethe 20 level in the near future? Would you call this a Bullish Situation at the end ofJanuary 1957?
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522
30
Technical Analysis of Stock Trends
LIBBY, McNEILL& LIBBY
CHRYSLER150
50
25
120
40
20
90
30
15
60
20
10
30
10
1927 1928 1929 1930
1927 1928 1929 1930
EAGLE-PICHERLEAD
1927 1928 1929 1930
FIGURE 236 (Left, above). Libby, McNeill & Libby showed no serious effects atthe time of the October 1929 panic, and went on to new highs in March and April 1930.FIGURE 237 (Middle, above). Chrysler, one of the great market leaders, made itsBull Market Top in 1928, more than a year before the Panic, and had already lost60% of its value before October 1929.FIGURE 238 (Right, above). Eagle–Picher Lead never enjoyed any Bull Market atall. Aside from an unimpressive rally in 1928 it was in a downtrend all the way.The examples given are not rare exceptions. There are many others involvingimportant stocks which did not follow the pattern set by the Averages. This varietyof behavior is typical of the market. It is to be seen today. They are not “all the same,”and each stock must be studied individually. In Figures 239, 240, and 241 are a fewexamples showing disparate action during the years 1953–56. There are hundreds ofothers that would illustrate the point equally well.
Not All the SameAlthough a majority of stocks will participate in a big market trend, theywill not all move at the same time nor to the same degree. Some will movequite independently and contrary to the Averages. There was a “boom” inthe 1920s. And there was a Panic in October 1929. But these are inadequatestatements, half-truths if you will, and can be very misleading if they areswallowed whole. A technician, following the individual behavior of stocks,would have been able, through a balanced and diversified portfolio, toprotect himself against irreparable loss.
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50
“The Same Old Patterns”
WEST INDIESSUGAR
100
WESTINGHOUSEELECTRIC
523
KRESGE (S.S.) CO.
50
40
80
40
30
60
30
20
40
20
Sales100’s
Sales100’s
Sales100’s
750500250
300020001000
600400200
1953 1954 1955 1956
1953 1954 1955 1956
1953 1954 1955 1956
FIGURE 239 (Left, above). West Indies Sugar broke out of its “Scalloping” Patternin late 1956 to make its own Bull Market at a time when action in the Averages wasapathetic and generally weak.FIGURE 240 (Middle, above). Although the Averages continued to make new highsthrough the spring of 1956, Westinghouse Electric made its top and went into a MajorDecline more than a year earlier.FIGURE 241 (Right, above). Here is a companion piece to Eagle–Picher’s chart ofmore than 25 years ago, shown above it. Kresge, like a number of other “blue chips,”did not participate in the Bull Market Moves of 1953–56.These six charts were adapted from “Graphic Stocks” (F.W. Stephens, New York).The 1927–30 charts are from a Special Edition covering nearly 700 stocks through theperiod 1924–35. The 1953–56 charts are from a later edition of “Graphic Stocks.”
The facts are that of 676 stocks we have studied through the period1924–35, only 184 made a Bull Market Top in August–September–October 1929and suffered Major Declines in October and November of that year. Therewere 262 stocks actually in Major Downtrends before the year 1929. Another181 stocks made their Bull Market Tops in the first 9 months of the year andwere already moving down before the end of the summer. Five stocks did notstart their decline until after 1929. And 44 stocks continued to make new highsafter 1929. In Figures 236, 237, and 238 are three stocks showing very differenttrends during the years 1927–30.
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Technical Analysis of Stock Trends
383634323028NORTHROP AIRCRAFT
NOC
2624
1918Sales100’s
XD 40C
20
Adjusted for 2/1 SPLIT
22
1954–1955
25020015010050JANUARYMARCHDECEMBERFEBRUARY4 11 18 25 1 8 15 22 29 5 12 19 26 5 12 19 26 2
APRILMAY9 16 23 30 7 14 21 28
FIGURE 242. A beautiful Top Formation in Northrop Aircraft, 1954-1955. The movewhich ended here at 39¾ in January 1955 emerged from a Bottom in 1953 at 6¼.The Descending Triangle is marked by rather unusual volume at the peaks of ralliesin February and March. Otherwise it is typical of this sort of Reversal Pattern. As sofrequently happens, there was a Pullback effort after the March 14 breakout; but thisrally lasted only 2 days.You will notice that the volume on the breakout and throughout the downsidemove was not so spectacularly heavy, not nearly as heavy, in fact, as that on theMinor Rallies within the Triangle. However, as pointed out previously, we do notneed nor expect so much volume on a decline as we look for in an advance.Volume did not develop until the end of the first stage of the decline. It is quiteusual for heavy volume to show up at the end of a Minor Move whether on theupside or the downside.Notice the Flag formed on the subsequent rally in mid-April. The measuringimplications of this Flag were approximately carried out a month later.During the following year and a half “NOC” never reached 31 again.
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525
28262422NORTHROP AIRCRAFT20
NOC
1956–1957
19
XD 40C
17Sales100’s
XD 40C
18
125100755025AUGUSTDECEMBERJANUARYSEPTEMBER OCTOBER NOVEMBER11 18 25 1 8 15 22 29 6 13 20 27 3 10 17 24 1 8 15 22 29 5 12 19 26 2
FIGURE 243. Bearing in mind the 1954–55 chart of Northrop in Figure 242, we nowturn to the action in this same stock in the latter part of 1956 and the beginning of1957. The question, of course, is whether the Major Downtrend is still in effect orwhether an important upturn has taken place.As usual, it is the volume that must be watched and studied. Notice the MinorPeak on August 14, then the very heavy volume on August 24. See how the activitydries up during September, but resumes briskly as a new Minor Top is establishedin October. Observe the drying-up of volume on declines and the activity on ralliesto the 25½ level, which, by the middle of December, has become the horizontal Topof an Ascending Triangle.There was no question about the validity of the breakout move on December 10;and the subsequent reaction in the next 2 weeks confirmed this by the lack of activityon the decline. And again, in early February, we see volume pick up notably as anew high is registered.At the time this is written (EN: 1957), it is not possible to say whether or not “NOC”will continue this upward course and eventually smash the “31 barrier.” But we feelthere will be no doubt in the reader’s mind that at the beginning of February,Northrop was presumably moving in an uptrend, and must be presumed to be inthat trend until a definite change in its market action has taken place. It seems quiteprobable that if “NOC” should advance to the 30–31 level, there is likely to be aperiod of Consolidation with the formation of an Area Pattern before a successfuladvance above 31 is accomplished.As a sidelight on this chart, it might be mentioned here that during the period ofadvance shown above many aircraft stocks were moving lower.
ST
1954–1955
XD 1.50
XD 1.00
JULYAUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARYMAYJUNEMARCH APRIL3 10 17 24 31 7 14 21 28 4 11 18 25 2 9 16 23 30 6 13 20 27 4 11 18 25 1 8 15 22 29 5 12 19 26 5 12 19 26 2 9 16 23 30 7 14 21 28 4 11 18 25 2
FIGURE 244 (Caption appears on facing page)
25020015010050
Sales100’s
11
12
13
14
CHICAGO, MILWAUKEE, ST. PAUL & PACIFIC
526
201918171615
22
24
26
28
30
38363432
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527
FIGURE 244. The 1954–55 advance in Chicago, Milwaukee, St. Paul & Pacific is anobject lesson in Bull Market technics. Where would such a trend (of which there aremany similar cases) leave the man who sells just “because he has a good profit,” sayat 15, or who feels “17 is too high a price”?Here is a chart that is worth considerable study, since it exemplifies a great manyfeatures of the “ideal” uptrend. In this full year of advance, there is no point at whicheven a tyro technician could find reasonable cause for anxiety or justification forselling the stock. And we should not overlook the tax advantages of long-term gains.Here, in August and September, we have a perfect example of the SymmetricalTriangle as a Consolidation. The volume is typically heavy at the start of the patternand shrinks to almost nothing as it progresses. The breakout volume is decisive. Thereaction after the breakout, also on lower volume, as it should be, runs right back tothe apex, the “cradle point” which is nearly always a strong Support on such areaction.Now follow the action from here. The two days of higher volume in the earlyNovember rally represent the penetration of the previous Minor Top, and the end ofthe rally, respectively. The reaction comes back to the previous top.The December rally is marked by heavier volume when the November top isexceeded, and again, to a lesser degree, at the end of the move. Once more there isa reaction, this time to the November top.A fast move near the end of December repeats the same price and volume action,and is followed by a typical low-volume reaction to the early December top. (Thisis becoming monotonous. But it is important. You are seeing here a long-term demonstration of Bullish technical action.)Next we have the January breakout. How far would you expect its Minor Reactionto go? Would you be surprised if it found Support at the level of the three little Topsformed early in the month at 17½?The following advance drives through the 20 level, and, in a series of small fluctuations, forms an Ascending Triangle. By the end of February, another new highhas been established. Can you estimate where to look for support on the reaction?And now we see the formation of the second Ascending Triangle (notice the relativelylow volume), which is broken on the upside in a burst of trading activity toward theend of April. The next reaction comes back to the support of the former Tops as youwould expect.Once again, an Ascending Triangle is formed, and you will see how the volumedries up throughout this pattern, coming to life emphatically on the breakout onWednesday, June 8.Many students, on first seeing this chart, remark, “Well, the trend wasn’t brokenuntil Tuesday, June 21.” Actually, of course, no break occurred on that day. The stocksimply went ex-dividend $1.50, which, as you will see if you adjust the price by thatamount, merely brings it back to the Support at the top level of the April–MayAscending Triangle.It is inconceivable that any such regular series of Bullish Patterns could appearthroughout a full year of trading in a stock “by accident.” This is part of the normalmechanism of the market, representing the judgments, opinions, fears, hopes, andtrading tactics of thousands of traders and investors. However, it should be addedthat it is not often that one sees such a long and “perfect” Major Advance as this.Normally, there are interruptions, distortions, or Secondary Reactions from time totime.
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Technical Analysis of Stock Trends
807672686460WESTINGHOUSE ELECTRIC & MANUFACTURING CO.5652WX
1955
Sales100’s
XD 50C
44
XD 50C
48
25020015010050MARCHFEBRUARY5 12 19 26 5 12 19 26 2
APRILMAYJUNE9 16 23 30 7 14 21 28 4 11 18 25 2
JULY9 16 23 30
FIGURE 245. Does it require second sight to perceive that this is a Bearish stock?If you were keeping a chart on Westinghouse Electric & Manufacturing, wouldn’tyou have recognized, long before the end of the period shown above, that the trendwas down, not up?It is one of the great delusions of the market that the stock we own must be “good.”As prices decline, the price–dividend ratio, based, of course, on past history, willimprove. And the price–earnings ratio likewise will look continually better. Investorswill begin to speak of “averaging their cost” by putting more money into a tumblingstock (instead of looking for something that is going their way). They will talkendlessly about improved outlook, new products, a forward-looking management.They will prove to you that it is selling “below its true value,” whatever that maymean. They will bend every effort to establishing that what is going on before theireyes is not true; that the very weak-looking stock is actually strong; that the Americanpublic is making a great mistake and is misjudging this stock; that the tape is wrongbecause they must be right.But values in the market are determined democratically and, by and large, probablyrepresent the best composite appraisal you can find. A move like this is not meaningless, nor is it possible today to attribute it to the machinations of a few manipulators. In the chart we are seeing the reflection of a collective evaluation which cannotbe lightly disregarded. Westinghouse reached 50⅞ in November 1956.
OT
DECEMBERJANUARYFEBRUARYAPRILJUNESEPTEMBERMARCHMAYJULYAUGUSTOCTOBER NOVEMBER4 11 18 25 1 8 15 22 29 5 12 19 26 5 12 19 26 2 9 16 23 30 7 14 21 28 4 11 18 25 2 9 16 23 30 6 13 20 27