or ripplewhich leaves the chart analyst completely at sea. The best thing to do in suchcases is go away and look for something more promising elsewhere in yourchart book.And a third tricky point is that it becomes necessary sometimes to redrawone or both boundaries of a Triangle before it is finally completed (i.e., beforeprices break out and move away from it in a decisive fashion). This canhappen, for example, when, after the first two Rally Tops have establisheda down-slanting upper boundary line, the third rally starting from the lowerboundary pushes up and through the original Top line by a moderate marginand then, without developing a recognizable breakout volume on this move,stops short of surpassing the highest level of the preceding (second) patternTop. When prices subsequently drop back again into pattern, it is necessaryto abandon the original upper boundary line and draw a new one across thehighs of the first and third rally tops.
How Prices Break Out of a Symmetrical TrianglePrices may move out of a Symmetrical Triangle either up or down. There isseldom, if ever, as we have said above, any clue as to direction until themove has actually started, i.e., until prices have broken out of their triangular“area of doubt” in decisive fashion. In a very general way, the precepts wehave laid down for breakouts from Head-and-Shoulders Formations applyhere as well. For example, the margin by which prices should close beyondthe pattern lines is the same, roughly 3%. It is equally essential that an upsidebreak in prices be confirmed by a marked increase in trading volume; lackingvolume, do not trust the price achievement. But a downside breakout, againas in the case of the Head-and-Shoulders, does not require confirmation bya pickup in activity. As a matter of record, volume does visibly increase inmost cases, but in a majority of down breaks, not to any notable extent untilafter prices have fallen below the level of the last preceding Minor Bottomwithin the Triangle, which, as you can see, may be several points lower thanthe boundary line at the place (date) of the actual breakout.The curious fact is that a downside breakout from a Symmetrical Trianglewhich is attended right from the start by conspicuously heavy volume is muchmore apt to be a false signal rather than the start of a genuine downtrend that
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8076
JOHNS – MANVILLE
JM
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FIGURE 46. Johns-Manville’s Primary Trend Reversal in 1942 developed out of aSymmetrical Triangle which had also some aspects of a Head-and-Shoulders Patternwith a long right shoulder. Although this is a weekly chart, the volume here is worthyof detailed study in connection with the price action. “JM” (old stock) advanced morethan 100 points in the next 4 years.
will be worth following. This is particularly true if the break occurs afterprices have worked their way well out into the apex of the Triangle; a highvolume crack then frequently — we might even say usually — develops intoa 2- or 3-day “shakeout” which quickly reverses itself and is followed by agenuine move in the up direction.All of the above the reader will have undoubtedly found most disconcerting. Here is a very pretty technical pattern and it cannot always betrusted. Unfortunately, Symmetrical Triangles are subject to false moves to afar greater extent than the Head-and-Shoulders or any of the other formations we have discussed or will discuss later. Unfortunately, some of thesefalse moves cannot be identified as such until after a commitment has beenrisked (although good trading tactics should prevent their occasioning muchmore than a trivial loss). And, unfortunately again, even a typical shakeout,such as we described in the preceding paragraph, may produce a doublecross, proceeding right on down in a genuine decline. No technical chartformation is 100% reliable, and, of all, our present subject is the worstoffender.But most Symmetrical Triangles — lacking an actual statistical count,our experience would suggest more than two thirds of them — behavethemselves properly, produce no false signals which cannot be spotted before
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13DELAWARE & HUDSON
DH
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FIGURE 47. Logarithmic price scaling on weekly chart emphasizes important technical developments at low price levels. “DH’s” Symmetrical Triangle Bottom starteda Bull Market which reached 57 in 1945. Note Throwback to apex of Triangle, a notuncommon development. The apex itself is a strong Support (Chapter 13).
any damage is done. Upside breakouts on high volume may be prematurein the sense that prices return to pattern and do some more “work” therebefore the genuine uptrend gets under way, but they seldom are false. Weshall have a little more to say about false signals in this chapter and morelater on what we trust will be helpful in developing the experience a traderneeds to defend himself against them.
A Typical Triangle DevelopmentThe several actual chart examples of Symmetrical Triangles that illustratethis chapter will serve, we trust, to give the reader a working acquaintancewith their appearance in various manifestations. Yet it may help to clear upsome of the more important points if we describe in detail just how a typicalpattern develops step by step. Let us suppose that you are watching a stockon your charts which has climbed, with only the normal, brief hesitationsand inconsequential reactions, from around 20 to 30, 32, 35, and is still
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28CUBAN – AMERICAN SUGAR
G−G
CSU
261945
24
G
22201918
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125100755025JULYAUGUST7 14 21 28 4 11 18 25 1
SEPTEMBER OCTOBER NOVEMBERDECEMBER8 15 22 29 6 13 20 27 3 10 17 24 1 8 15 22 29
FIGURE 48. Triangles often form as a part of a larger and more important patternof some other type. Here a symmetrical figure constitutes the latter half of a RoundingTurn. Note premature breakout October 17, return to pattern, and then final breakaway on November 8.
moving up. (Let’s hope you bought it at 20!) Lower down, its turnover ranbetween 300 and 600 shares daily, but now, above 30, it has attracted quitea following, and daily volume has increased to around 1000. As it approaches40, activity shoots up to nearly 2000 shares, the market “churns” between39 and 40, and then prices begin to drop. As they fall back, you (especiallyif you own the stock) watch it with some concern, but you know it is hardlylikely that it is going to go straight down again to 20; stocks don’t act thatway. (EN9: Sometimes they do now, in the 21st century.) If the trend of this issuehas actually been reversed, it should, nevertheless, spend some more timeand effort around its top levels, make some sort of a Distribution Pattern.The decline continues for 10 days with the turnover also declining quiteappreciably. By the time prices have worked back to 33, volume is runningat about 700 shares daily. At 33, it may pick up again for a single day to800 or 900 shares, but the reaction stops there, and after a day or two, pricesbegin to climb again with little change in their turnover rate. In 8 or 9 days,quotations have gotten back into the upper 30s and activity increases andreaches, say, 1200 shares on the day 39 is reached. Instead of going on to40 or beyond, however, a new reaction sets in and prices drift back to 37.(Perhaps you will find this growing picture easier to visualize if you pencilits development on a scrap of chart paper.) Now it is evident that a secondTop has formed at 39; you can now draw a tentative pattern line (there areother names for this, as we shall see later) on your chart across the two
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24NATIONAL GYPSUM
NG
22201918171615194514Sales100’s
125100755025FEBRUARYMARCHAPRILMAY3 10 17 24 3 10 17 24 31 7 14 21 28 5 12 19 26 2
JUNEJULY9 16 23 30 7 14 21 28
FIGURE 49. Prices in this Symmetrical Triangle squeezed way out into the apexbefore erupting. Breakout at that stage is unreliable; above is a fair sample of thefalse moves that occur there. Real move was down.
extreme high ranges (not closing prices) which will slant downward fromleft to right. So far you have only one Bottom point so you can draw no linesfrom that. But this second decline brings out even less trading activity thanthe first. Volume ebbs to 400 shares and the down move halts at 34; the pricetrack “rounds out” and turns up again; trading is very dull, but begins topick up as 36 is reached.This action defines a second Minor Bottom and now you can draw aBottom “tangent,” an up-slanting line across the extreme low prices registered on the two reactions, the first at 33 and the second at 34. Your twopattern lines will converge, meeting near the 36½ level about 4 weeks ahead(i.e., to the right) on your chart. You have a Symmetrical Triangle — but youdon’t know whether prices are going to fall out of it eventually or shake offpresent doubts and push up in a new advance worth following. You canonly watch further developments very closely and be prepared to take whatever action is, in due time, indicated.The second rally picks up a little in activity, attains a daily turnover ofabout 700 shares, and pushes up to 38 and on for part of a day to 38½. Thisnudges through the previously drawn pattern line by perhaps a quarter ofa point (since each swing is shorter in points traveled and, accordingly, in
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241937–193822201918171615NORTH AMERICAN CO.
NA
14Sales100’s
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OCTOBERNOVEMBER DECEMBER9 16 23 30 6 13 20 27 4 11 18 25 1
JANUARYFEBRUARY MARCH8 15 22 29 5 12 19 26 5 12 19 26
FIGURE 50. Recovery rallies from “Panic” Bottoms are often capped by Triangles,for those are periods in which doubt and indecision are prevalent. The doubt in suchcases, however, is usually resolved in favor of renewed decline. “Panic” Bottomsseldom hold. This chart shows a typical Symmetrical Pattern topping the recoveryfrom the famous Selling Climax of October 19, 1937. Note Pullback to apex.
duration). But the volume on this Minor Penetration is less than on thepreceding Top (at 39), and buying again ebbs. As the price range line fallsback to 37 and 36, you had best now draw a new upper tangent across thefirst Top at 40 and the last Top at 38½. There is the suggestion here in thisslight “lift” that the balance may be swinging slightly to the demand side,but don’t count on it. Pinpoint accuracy is not to be expected; Triangles mustbe allowed some leeway.On the third reaction, activity dwindles away to the lowest yet. Theup-slanting Bottom boundary will be reached at about the 35 level if pricescontinue their present course. It is worth noting now if they will come allthe way down to it this time, because if they don’t — if their recession ishalted half a point or so above it — that action would give some significanceto the previous bulge through the upper boundary. But this doesn’t happen;the drift continues right on down to 35, and now volume is running at therate of only 200 shares daily, less than it ran in the early stages of the originaladvance above 20. This is a critical spot. The price track flattens out momentarily, turns up feebly but keeps on hitching up, crosses 36½, picks up activity,
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2624222019
VERTIENTES – CAMAGUEY SUGAR
VEC
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1946
16
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SEPTEMBERJUNEJULYAUGUST8 15 22 29 6 13 20 27 3 10 17 24 31 7 14 21 28
FIGURE 51. A Major Symmetrical Triangle Top in which prices squeezed out intothe apex and then produced a false move upside (see Figure 49). “VEC,” as a matterof fact, was a bad actor technically, but this particular breakout would be suspectanyway.
reaches the (new) upper Triangle boundary at 37½ and, on the next day,punches through on a turnover of 1500 shares to close at 39⅛. This is abreakout; the doubt is resolved and (barring a false move, unlikely at thispoint) the trend is once again up. Note that it was not necessary for pricesto surpass the previous high at 40 to produce this signal — that is one ofthe interesting things about Symmetrical Triangles.
Reversal or ConsolidationBut, we started to discuss Symmetrical Triangles as Reversal Patterns, andour example has turned out to be, instead, a Consolidation Pattern, i.e., onlya sort of resting stage in a continued uptrend. Well, three out of four of theseformations will turn out to be just that. The fourth is the dangerous one (ifyou own the stock). How would it differ?The example described might have been a Reversal instead of a Consolidation Formation any time up to the point of the decisive breakthrough to39. If it had been a typical Reversal, the first change would probably haveappeared shortly after the final rally started up from the third Bottom at 35.That rally would have petered out at about 36½, and prices would havestarted to drift back again. Then, with the activity increasing slightly, theBottom boundary would be penetrated. As quotations dropped to 34, daily
EAL1946–1947
NOVEMBER DECEMBER JANUARY FEBRUARY MARCHAPRILMAYAUGUST SEPTEMBERJUNEJULY2 9 16 23 30 7 14 21 28 4 11 18 25 1 8 15 22 1 8 15 22 29 5 12 19 26 3 10 17 24 31 7 14 21 28 5 12 19 26 2 9 16 23 30 6 13 20 27 4
EASTERN AIRLINES
110
FIGURE 52. The other side of the story — an imposing Symmetrical Triangle which failed badly, although for the alertand experienced technician, there were warnings of something amiss in March and April. Eastern Airlines built, in late 1946and early 1947, a formation which, so far as price pattern was concerned, left little to be desired. Prices broke out topsidedecisively in late March. A Throwback in April met normal Support at the upper Triangle boundary. But the subsequentadvance fell short, weakened, and finally broke down, producing an “end run” around the apex. Warnings referred to werehigh and irregular volume, particularly on reactions, in February and March — not characteristic of valid Triangle development — and failure of prices to push up rapidly and vigorously after the April 14 Throwback.
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NATIONAL GYPSUM
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FIGURE 53. A weekly chart. The 7-month Consolidation area of 1944 — in “NG,”undefinable at first, developed eventually into a typical Symmetrical Triangle. Twomonths after the high-volume breakout in January 1945, prices reacted nearly to apexlevel, then pushed away rapidly. Minimum measuring implications of this Trianglewere satisfied at 16.
volume might mount to 600 or 700 shares. Any further decline would constitute a down signal and would result in a further pickup in turnover andan acceleration in the price decline as the stop-loss orders (to be discussedlater) spotted under 34 were “touched off.”Before we leave our typical example, we might make some mention ofthe post-breakout reactions or Pullbacks that sometimes occur. As in the caseof the Head-and-Shoulders Formation, the initial breakout move from aSymmetrical Triangle may halt before prices are carried very far away fromthe pattern and be followed by a Minor Reaction, usually lasting only 2 or3 days, which will carry quotations back to the nearest pattern boundary.Thus, in our first example in which the break, when it came, took our stockup through the top side to 39⅛, the next day might have seen a push on to40, and then prices might have backed off again in a couple of days ofdecreased activity to 37½ or 38. The up-move would then normally be
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U. S. INDUSTRIAL CHEMICALS
UD
4038
1944–1945
36Sales100’s
252015105OCTOBER NOVEMBER DECEMBERJANUARYFEBRUARYMARCH7 14 21 28 4 11 18 25 2 9 16 23 30 6 13 20 27 3 10 17 24 3 10 17 24 31
FIGURE 54. A small Symmetrical Triangle which tended toward the “Ascending”type. Note that the higher volume that developed within this pattern in early Januarycame on a rally. This sort of action is fairly typical of very “thin” stocks.
resumed with greater vigor. Downside breakouts are sometimes followed inmuch the same manner by pullbacks to the lower boundary of the pattern,after which the decline is resumed with an increase in volume. However,these post-breakout reactions occur less often with Triangles than they dowith Head-and-Shoulders patterns.Another matter we might take up, before going on to study the nextformation, is the rationale of the Symmetrical Triangle. It may help to fix itscharacteristics in mind if we try to deduce what sequence of events mighttypically produce it. Of course, any effort of this sort can result only in agross oversimplification which will not fit all of the Triangle’s various manifestations, but it is an interesting mental speculation — and one not withoutbenefit to our understanding of the general theory of chart formations. Letus turn back again to our typical example. We started with a stock that ranup rather steadily from around 20 to 40 and then reacted. It is fairly obviouswhat happened at 40: many investors had substantial paper profits,approaching 100%, at that price. (A “round figure” such as 40, 50, 75, or 100is apt to become a sort of mental profit objective and, hence, bring inincreased selling.) Some of them were ready to cash in and did so, temporarily swinging the technical balance from demand to supply; they sold lessfreely, of course, as prices receded. Other would-be investors had beenattracted to the stock, but too late to “get aboard” below 30. Unwilling to“chase” it up to 40, they welcomed the reaction and, by the time prices haddropped back to 33, enough of them were now ready to buy to swing thebalance back again to the demand side of the equation.Watching the ensuing rally, however, were the owners of the stock whohad failed to grab their profits near 40 on the previous advance and hadmade up their minds to be a little less greedy if given a second opportunity.
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FIGURE 55. An Ascending Triangle 10 months long which was the start of a MajorBull Trend, carrying “ABN” to 45. Refusal of prices to react to the lower patternboundary, as here in August 1942, is a frequent development in strong formations,a warning of near completion and breakout.
Their offerings began to come in above 37, say, and were sufficiently copiousat 39 to stem the advance at that level. Behind the scenes, we can imaginethis process repeated again and again, with new money constantly comingin and meeting supply from owners increasingly anxious to cinch theirprofits. Eventually, the offerings of the latter are all absorbed, or perhapswithdrawn, and then professionals, as well as hopeful investors, suddenlydiscover that there is no stock ahead on the books and rush to buy results.Since the advance (or decline) that follows the completion of a Symmetrical Triangle usually runs to worthwhile trading proportions (we shall discuss measuring implications later), there would be evident advantage to thetrader who could tell in advance of the breakout which way prices were
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5248
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44
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1946
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5040302010JANUARY FEBRUARYMARCHAPRILMAY6 13 20 27 3 10 17 24 3 10 17 24 31 7 14 21 28 5 12 19 26 2
JUNE9 16 23 30
FIGURE 56. Premature breakouts from Right-Angle Triangles, such as appeared inCelanese in March 1946, are temporarily disappointing to the trader who buys onthem, but work out all right eventually. Celanese, before its 1946 split, was subjectto frequent and peculiar shakeouts, as here on March 9 and 26.
going to move. The odds are, as we have already said, that the new movewill proceed in the same direction as the one prior to the Triangle’s formation.These odds are greatest, of course, in the early stages of either a Primary Bullor Bear Market, with the chances of Reversal increasing as those Major Trendsmature. But the charts of other stocks often furnish valuable collateral evidence. Thus, if at the same time you detect a Symmetrical Triangle in processof formation in “PDQ,” a majority of your charts are showing Saucers orHead-and-Shoulders Bottoms or Ascending Triangles or some other patternof typically Bullish import, it is a fair assumption that your SymmetricalTriangle will break out topside. There are times when advance indicationsof this sort are strong enough to justify taking a position on it.
The Right-Angle TrianglesWe mentioned Ascending Triangles in the preceding paragraph. The Ascending and Descending are the Bullish and Bearish manifestations, respectively,of our next class of patterns, the Right-Angle Triangles. In many respects, inmost in fact, they perform like their Symmetrical cousins, but with this verygratifying difference: they give advance notice of their intentions. Hence,their names, for the supposition always is that prices will ascend out of theAscending form and descend from the Descending form.The Symmetrical Triangles, as we have seen, are constructed of a seriesof successively narrower price fluctuations which can be approximatelybounded across their Tops by a down-sloping line and across their Bottomsby an up-sloping line. Right-Angle Triangles are distinguished by the fact
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26BRIGGS MANUFACTURING CO.
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FIGURE 57. A steep recovery from a Panic Bottom (the “Pearl Harbor” selling)flattened out into a fine Ascending Triangle. Note horizontal supply line at 19, abovea gradually rising demand line. The breakout at the end of September signaledinitiation of an advance of some consequence. It turned out to be a Primary BullMarket which took Briggs up to 53.
that one of their boundaries is practically horizontal, while the other slantstoward it. If the top line is horizontal and the bottom line slopes up to meetit somewhere out to the right of the chart (at the apex), the Triangle is of theAscending persuasion. If the bottom line is horizontal and the top line slopesdown, the Triangle is Descending.These formations are perfectly logical and easy to explain. The Ascending Triangle, for instance, pictures in the simplest and most normal formwhat happens when a growing demand for a certain stock meets a largeblock of shares for sale at a fixed price. If the demand continues, the supplybeing distributed at that price will eventually be entirely absorbed by newowners looking for still higher levels, and prices will then advance rapidly.A typical Ascending Pattern starts to develop in much the same way as the“ideal” Symmetrical Triangle previously described, with an advance in ourcertain stock from 20 to 40 where sufficient supply suddenly appears on themarket to fill the orders of all buyers and produce a reaction. Sensing thetemporary satiation of demand, some owners may dump their holdings onthe decline, but offerings are soon exhausted as prices drop back to, say, 34,and renewed demand then stimulates a new rally. This runs into supply
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112SEARS ROEBUCK
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JANUARYFEBRUARY MARCH9 16 23 30 6 13 20 27 6 13 20 27
FIGURE 58. Sears’ 1936 Bull Market Top was a Symmetrical Triangle, out of whichit declined 15 points. An Ascending Triangle then produced an Intermediate Recoveryto the Supply Zone (see Chapter 13) at the lower side of the top Triangle. Comparethis chart with the 1946 Top in Figure 45.
again at 40, and again, all buyers are accommodated at that level. The secondrecession, however, carries quotation down only to 36 before anotherup-move develops. But the pool or inside group that is distributing at 40still has some of its holdings left to sell, so it may take more time, anotherbacking away and another attack at the 40 line, before the supply there isexhausted and the trend can push along up.
A Planned DistributionThis type of market action evidences a planned campaign by owners of afairly large quantity of shares to liquidate at a predetermined price. It contains little of the element of doubt that we mentioned as characterizing theSymmetrical Pattern. So long as demand persists, the distributing poolknows it can ultimately cash in its entire line at 40 and need not sell for less.It is equally apparent, so long as demand keeps coming in at higher andhigher levels