100’s
125100755025JANUARY FEBRUARYMARCHAPRILMAY5 12 19 26 2 9 16 23 2 9 16 23 30 6 13 20 27 4 11 18 25 1
JUNE8 15 22 29
FIGURE 258. Daily, January through June 1963. Here is a good example of a Symmetrical Triangle as a Continuation Pattern. Triangles of this (Symmetrical) type maymark Consolidations in a Major Trend, or may constitute a Reversal Formation. Thecharacteristics in either case are an active move to the first turning point of theTriangle, and then, generally diminishing volume as the price fluctuates in a narrowing pattern. During this period, it could be said that the stock was in both an uptrend,marked by the lower boundary of the formation, and a downtrend, indicated by theupper boundary. Notice the increase of volume on the breakout, which, in this case,was on the upside. Also notice the reaction to the “cradle point” defined by theintersection of the two boundary trends of the Triangle. The advance of the stockfrom April to June measures just a little more than the height of the open side of theTriangle. The attainment of this “objective” does not necessarily mean the terminationof the Major Trend, however, and by August 1963 Cerro had reached 33¼.
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26CRUCIBLE STEEL CO. OF AMERICA XA242220191819631716Sales100’s
125100755025MARCHAPRILMAY9 16 23 30 6 13 20 27 4 11 18 25 1
JULYJUNEAUGUST8 15 22 29 6 13 20 27 3 10 17 24 31
FIGURE 259. Daily, March through August 1963. Here is a good example of anAscending Triangle, in which the rallies advance repeatedly to a given level, and thereactions find Support at gradually higher points. Such a pattern normally indicatesa potentially Bullish situation in the making, just as the reverse (Descending Triangle)implies a Bearish tendency. Notice the higher volume on the various peaks near 22,and the very high volume on the breakout move in August. If any further evidenceof the strength of this move was needed, the Breakaway Gap at the opening, Monday,August 12, would supply it. After a breakout of this sort, it would be quite normalfor the stock to suffer some profit-taking reaction, usually on light volume, and sucha reaction might run back to 22 or even a little below this without altering theessentially Bullish nature of this picture.
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140812801216
SUPERIOR OIL CO. (CALIF.)
SOC
1962
115210881024960896832768704Sales100’s
54321JUNEJULYAUGUSTSEPTEMBEROCTOBER NOVEMBER2 9 16 23 30 7 14 21 28 4 11 18 25 1 8 15 22 29 6 13 20 27 3 10 17 24
FIGURE 260. Daily, June through November 1962. Before commenting on the November breakout here, we should call attention to the fact that “SOC” was one ofthe stocks that held up fairly well during the Cuban crisis in October 1961, and didnot make a new low under the June bottoms. This chart picture is an excellentexample of a Double Bottom. It is not necessary that the two Bottoms be at exactlythe same level if they are reasonably close. The important thing is that the stock hasfound Support once, has rallied, then declined again, and has found Support at nearlythe same point. The Bottoms should be some distance apart; there should be at least6 weeks between them, preferably more. Also, the rally between them should bedefinite and should amount to at least a 15% gain at its peak. The formation doesnot acquire significance as a Major Bottom Pattern until the level of the top of therally is penetrated on substantial volume. This penetration took place on Tuesday,November 13, and from that time continued in a Major Bullish Trend, reaching 1559in May 1963, an advance of over 500 points from the close on the day of breakout.Double Tops have an opposite significance; they are similar to the Double Bottoms,but consist of two tops at approximately the same level, separated by some weeksor months, and with a decline between them, which must be penetrated to validatethe Top Formation.
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6430
60GENERAL STEEL INDUSTRIES, INC.56
GSI28
52
261962–1963
48
24
4440
20
38
19
36
18
3432
2 SPLIT1
30Sales100’s
5040302010NOVEMBER DECEMBERJANUARY FEBRUARY27 3 10 17 24 1 8 15 22 29 5 12 19 26 2 9 16 23 2
MARCHAPRIL9 16 23 30 6 13 20
FIGURE 261. Daily, November 1962 to April 1963. To the average person, unfamiliarwith the usual behavior of stocks in the market, the price fluctuations appear meaningless and entirely fortuitous. If they are aware of general trends lasting months oryears, they are often inclined to consider only the trend of “the Averages,” and arenot conscious of the fact that many stocks may be making large advances at the verysame time that others are sliding lower and lower. It is not always possible to lay astraight edge ruler along the trend and show that it makes a perfect straight line(though this does sometimes happen) but, as in the case of General Steel Industries,there is no question but that the advance is fairly consistent over a long period oftime, barring the relatively unimportant reactions, Consolidations, etc., along theway. You will notice, too, that the two-for-one split in early March did not materiallyaffect the upward trend except to show somewhat more volume, as might be expectedwith a greater number of (new) shares. For a contrasting (downside) trend, see thechart of Avnet Electronics, Figure 250.
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551
32302826
24UNITED ARTIST CORPORATION
22
UNA
1963
2019Sales100’s
2502001501005016 23 2
APRILMAYMARCH9 16 23 30 6 13 20 27 4 11 18 25 1
JUNEJULY8 15 22 29 6 13 20 27 3 10
FIGURE 262. Daily, February to August 1963. This is an interesting study of Supportand Resistance phenomena. Incidentally, it is also an example of a Bearish Stock (andnot the only one by any means) in what was generally considered a Bullish Market,during the spring and summer of 1963. We would point out several rallies to 31 inMarch and April, and the breakdown in early May. In May and June, the stock rallied,but stalled at about the level of the March low. Then there was another drop, and inthe rally this time came back to the late April low. The next drop, in July, was followedby a little rally to the June Bottom at 25. This is fairly typical Support–Resistancebehavior. The price level which has been a support tends to become a resistance oncethe support has been substantially broken. Vice versa, as regards overhead Resistance;after it has been broken, it tends to serve as a support level.
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19181716UTAH – IDAHO SUGAR CO.
UIS
1514
1963
13121110
9Sales100’s
125100755025JANUARYFEBRUARY5 12 19 26 2 9 16 23 2
MARCHAPRILMAY9 16 23 30 6 13 20 27 4 11 18 25 1
JUNE8 15 22 29
FIGURE 263. January through June 1963. Sometimes a move happens all of asudden and does not result in a continuing long trend. In this case, it is not possibleto say whether the long-term trend will be up or not. The purpose of showing thischart is to point up the remarkable action that can follow a break through an important Support or Resistance Level. You will notice that the entire period from midJanuary to Tuesday, May 14, can be regarded as a Rectangle on the chart, with Bottomsat about 10⅛ or 10¼, and Tops at about 11¾. Notice the increase of activity on theseveral rallies during the formation. The move, which was a “situational” thing insugars, affected all sugars in May, and turned out to be somewhat of a flash in thepan. Nevertheless, it was a spectacular one, and a trader with courage and acuitymight have picked up this stock as a speculation after the close of Tuesday, May 14.The next 5 trading days advanced the price from Wednesday’s opening at 12 toTuesday, May 21, close at 17½, an advance of 46%. This is a type of market tradingwe would not recommend generally; it calls for courage, experience, and the willingness to take a number of small losses in order to secure one substantial gain.However, the in-and-out trader, who observed the action on May 21 and noticed theOne-Day Reversal with abnormal volume and a gap, could have secured maximumquick profits either by selling his stock at the opening of the next day, or by placinga stop-loss order just under the close, say at 17⅜.
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553
64WEDGE
6056524844
40383634CONTROL DATA CORP.
CDA
3230196528262422Sales100’s
500400300200100APRILFEBRUARY MARCH13 20 27 6 13 20 27 3 10 17 24 1
MAYJUNEJULY8 15 22 29 5 12 19 26 3 10 17 24 31 7
FIGURE 264. There are some warning signs in “CDA” in the Minor Breakdownsof late March and early May. What seems especially significant, though, is the natureof the recovery move in May and early June 1965. The two convergent boundariesof the Recovery Trend form an up-sloping Wedge, which has rather definite Bearishimplications. If the Wedge had been pointed down, it would strongly suggest thepossibility of a decisive upward breakout. Notice that on the 2 days when the highestprices were attained during this Wedge Pattern, the stock closed near the Bottom ofthe day’s range. The subsequent history here, the collapse on heavy volume, showsclearly how dramatic a break from this not-too-common formation can be.
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256
64
240
60
224
56
208192
U.S. SMELTING, REFINING &MINING CO.UV
176160152
524844
4 SPLIT1
40196538
144
36
136
34
128
32
120
30
112
28
10496
24
88
22
Sales100’s
500400300200100NOVEMBER DECEMBERJULYAUGUST SEPTEMBEROCTOBER3 10 17 24 31 7 14 21 28 4 11 28 25 2 9 16 23 30 6 13 20 27 4 11 18 25
FIGURE 265. Here is a chart that shows several interesting technical features. InJuly, August, and most of September, “W” was in a period of dormancy. The breakoutof September 27 was followed by a week of inaction, and then a strong continuationof the move on big volume. Notice the October–November Consolidation, whichtook the form of a large Symmetrical Triangle. If we draw the upper boundary ofthis Triangle, and the lower, we see that the breakout signaling a continuation of themove, on Wednesday, December 1, was decisive both in price and volume action. Atno time during the advance from 28½ to over 62 was there any indication of potentialweakness.
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555
16151965–19661413121110
9
8
7LVO
LIVINGSTON OIL COMPANY
6
Sales100’s
500400300200100J
F
M
A
M
J
J
A
S
O
N
D
J
FIGURE 266. The weekly chart of Livingston Oil from January 1965 into January1966 is a good example of a Major Bottom. Just how weak the stock was during theearly months of 1965 can be judged by the clear Downside Gap during the monthof May. Also, you will notice that the volume on this whole headlong collapse wasrather heavy. However, from July to the middle of October, the trading activity “driedup,” and the stock fluctuated in narrower and narrower swings, forming a Symmetrical Triangle. The pickup of volume on the October breakout was spectacular, andan observant investor would have had a “second chance” to buy on the reaction inthe first week of November, when the stock drifted back to the top of the Triangle.
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3028PACKARD – BELL ELECTRONIC CORP.
PKB
2624222019181716151965–196614131211Sales100’s
500400300200100OCTOBERAUGUST SEPTEMBERNOVEMBER DECEMBER14 21 28 4 11 18 25 2 9 16 23 30 6 13 20 27 4 11 18 25 1
JANUARY8 15 22 29
FIGURE 267. Here is a beautiful picture of technical market action in Packard–BellElectronics from August 1965 into January 1966. The first point of interest is the FlagConsolidation in September and October, a classic example (“The Flag flies at halfmast”) and on the resumption of the up-move, the stock did duplicate the earliermove, and a bit more. (Compare with the 1945 chart of Martin–Parry, Figure 223.)Notice the nearly flat Tops and the rising Bottoms from October to January, withgenerally declining volume (Ascending Triangle), and the magnificent breakout movein the second week of January 1966. In this case, we can see no evidence calling forselling the stock all the way from September into January.
PARKE, DAVIS & COMPANY
1969–1970
XD .25
XD .25
APRILMAYJUNEJULYAUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARYMARCH5 12 19 26 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 7 14 21 28 4 11 18 25 2 9 16 23 30 6 13 20 27
PDC
“The Same Old Patterns”
FIGURE 268. This could be regarded as a very flat Head-and-Shoulders Top or as a long Rounding Top. The breakdownthrough 66 was a warning, and certainly the sharp break below 60 in February was a definitely Bearish signal.
1000800600400200
Sales100’s
22
24
26
28
30
4038363432
44
48
52
56
60
Chapter thirty-seven:
XD .25
76726864
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383634323028262422
2019181716ADA
ASTRODATA INC.15141969–197013
890
Sales100’s
708620
11
689
18281072 988
12
125100755025OCTOBERDECEMBERNOVEMBERJANUARYFEBRUARY4 11 18 25 1 8 15 22 29 6 13 20 27 3 10 17 24 31 7 14 21 28
FIGURE 269 (Caption appears on facing page.)
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FIGURE 269. A complete collapse in one day, Astrodata in January 1970. Not thesort of action you see every day, or every month. But it is “normal” in the sense thatit is a phenomenon we have seen many times in the past and which will undoubtedlybe seen many times in years to come. When it does happen, it should be heeded. Itmeans trouble. “ADA” was doing well in what appeared to be a typical and perfectlyhealthy uptrend. After a one-day suspension on January 15, it reopened many pointslower and never recovered. Trading was halted in late September. Some readers mayremember other downside moves of this nature in the past. In Mack Trucks, in FifthAvenue Coach, and some may even recall, many years ago, a break like this inAmerican Woolen. Such a break is, of course, due to some sudden development orchange in company affairs; but it is not necessary “to know the reasons”; the chartspeaks for itself. As Lady Macbeth put it (in another connection), “Stand not uponthe order of your going, but go at once.” There was a good example of this type ofa “Gap Move” in Villager Industries on April 30, 1971, when the stock dropped 42%,from 7⅜ to 4¼ in one day. Such moves as we are discussing here are nearly alwayson the downside; we do not often see comparable upside gap moves. And after thistype of break, although there may be brief rallies, the stock nearly always resumesthe downtrend, and in many cases, is delisted from the Exchange. Anyone caughtholding such a stock should not feel that he had made a mistake in buying it, norshould he look for evidence of weakness before the big breakdown, for ordinarily,there is none. But he should get out immediately to avoid further loss. And by wayof reassurance, it can be repeated that this kind of collapse is a rather rare occurrence.
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Oracle Corporation-(Nasdaq NM) 12.21 –0.08 –0.65%76.565.554.543.532.5
1999-2004 Prophet Financial Systems, Inc. I Terms of use apply.
Volume (Billions)
Jul
Oct
97
Apr
Jul
Oct
98
Apr
Jul
Oct
99
1.210.60.60.40.20
FIGURE 269.1. Lest one think that the air pocket gap does not still exist, here is anexample from the turn of the century (third millennium). These gaps, caused bydisappointing earnings, were so prevalent at the end of the century at the top of thatBull Market, that one could short vulnerable stocks before earnings reports with littleupside risk and often collect nice scalps like this one.FIGURE 270 (Figure appears on facing page). A typical electric and gas utility stock.There are a great many stocks in this group, serving various municipalities or regions.They tend to show similar market behavior because they are basically similar in nature.There is, of course, a relation between the earnings of a company and the dividendspaid, and the market price of the shares. However, neither earnings nor dividendsalone are sufficient to constitute a complete determination of “value,” since there aremany other factors that can affect the “value” considered from different angles, suchas dependability of earnings, future prospects, taxability, research and developmentinvestment by the company, and so forth.The electric and gas companies, enjoying a regulated monopoly position in mostcommunities, have a sure and steady income; and they are also in a definite “growth”situation because of the constantly increasing demands for power by users. Mostutilities will show a record and pattern of trading over a period of years very similarto that of “PEG.” You will notice that reported earnings have been larger each yearfrom 1959 through 1970. Also, the dividend rate has been increased each year exceptin 1970, when it was unchanged from the year before. Anyone basing his estimateof “value” on a simple index such as “price–earnings ratio” would conclude that thestock was 2½ times as good a buy in 1970 as it had been in early 1965.Obviously, there is more to it than that. The big funds and other large holders ofstock are not giving up “bargains” of that sort lightly and for no reason. The depressed chart is undoubtedly reflecting the whole thorny outlook facing the utilityindustry, including costly new facilities, antipollution devices, and other problemsincluding deregulation.
19591.14.9019601.35.92
THOUSANDS OF SHARES
19611.601.02 1219621.871.12 12
9/1 SPLIT
19631.961.22 12
19642.061.31 12
19652.231.38 12
PUBLIC SERVICE ELECTRIC & GAS
19662.391.48
PEG
19672.541.55
19682.571.61
19692.601.64
19702.631.64
“The Same Old Patterns”
FIGURE 270 (Caption appears on facing page.)
EARN.DIV.
25020015010050
12
14
1816
20
22
24
26
3028
32
Chapter thirty-seven:
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3836
40
48464442
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FEBRUARYDECEMBER JANUARYMARCH APRIL MAYJUNEJULYAUGUSTSEPTEMBER OCTOBER NOVEMBER23 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 7 14 21 28 4 11 18 25 2 9 16 23 30 6 13 2 27 4 11 18 25 1 8 15
1969–1970
FIGURE 271. Although 1969 was Bearish for most stocks, “MRX” was enjoying the final fling of a dramatic 4-year advance. Notice theIsland-like Top in November, December, and January, and the low volume all through this period. The Breakaway Gap in early Februaryspeaks for itself. See also Figure 269.
200016001200800400
Sales100’s
48
52
56
MEMOREX CORP. MRX
562
60
64
68
72
76
80
88
96
104
112
120
128
136
144
152
160
176
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4440381969, 1970, 19713634FLYING TIGER CORP
FLY
323028262422
201918171615141312
1170 71
69 7025020015010050O
N
D
J
F
M
A
M
J
J
A
S
O
N
D
J
F
FIGURE 272. From a 1967 high of 48½, “FLY” started a downtrend that lasted2 years and took the stock down to 11¼. But during the spring and summer of 1970,the stock found bottom, made a Head-and-Shoulders Reversal, and took off in askyrocket move that, by February 1971, had recovered nearly all of the 2-year drop.
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444240383634
ACTION IND, INC.
ACX
321971–197230282624222019181716151413
Sales100’s
340
11
365 424335
12
25020015010050NOVEMBER DECEMBER JANUARYFEBRUARY MARCHAPRIL23 30 6 13 20 27 4 11 18 25 1 8 15 22 29 5 12 19 26 4 11 18 25 1 8 15
FIGURE 273. Here is a familiar pattern you have seen many times before in the pagesof this book or in your own charts. Here we see a large Ascending Triangle in the dailychart of Action Industries, formed in December of 1971 and January of 1972. Notice thetypical breakout and reaction moves and the continued uptrend into April of 1972.
8990919293
94
95
96
97
98
99
00
“The Same Old Patterns”
FIGURE 273.1. Two things are remarkable here. One, the amazing story of a business emerging from a college dorm room — a computerbusiness, of course — and two, the regular occurrence of air pockets, which will be seen better on the next chart. Not a stock for thosewho dislike carnival rides and surprises. One should fit his portfolio to his digestion. Dell broke its long term trendline, which the readermay easily draw here with a ruler, and after setting a bull trap, went to 20, displaying several major warning downside gaps (see nextchart). The out of