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CHAPTER
CAN CAN ANY ANYON ONE E
PRED PREDIC ICT T
1 THE THE
FUTU FUTURE RE??
Do you believe believe anyone anyone can accurat accurately ely predic predictt the future future?? What if we predic predictt that that the sun will will set in. the west west tomortomorrow aftern afternoon oon?? That That is a predi predicti ction on of the future, future, is it not? not? 'What if we predict predict that tomorrow morning's morning's high tide will be followed, followed, in about six hours, by a low tide? Such predictions predictions are sure to come come true, for those those events events have always occurred occurred in the past. past. We find that that cert certai ain n even events ts in our world world are are extrem extremely ely predic predictab table, le, since since they are contro controlle lled d by the preprecise Jaws of of science and nature. nature. What if we predict predict that that tomorr tomorrow ow will will be cold cold becaus becausee the weathe weatherr map shows a cold front front moving moving toward toward us? This This predic predictio tion n will will probabl probably y come come true, true, but it is not not a certaint certainty. y. The cold front front could could unexpect unexpectedl edly y change change its direct direction ion and never never reach reach us. The predicte predicted d event event has usuall usually y happen happened, ed, hut not always. always. This This predic predictio tion n is in the realm realm of proba probabil biliities. 'Wha 'Whatt if we pred predic ictt that that the the stoc stock k mark market et will will go up ininflefinitely flefinitely because because of increasing increasing inflation? inflation? Such a prediction prediction probab probably ly will will not come true. The predic predictio tion n is based based on the Assump Assumptio tion n that that inflat inflation ion will will become become the most most import important ant factor factor affect affecting ing the stock stock market market.. Carefu Carefull resear research ch shows shows that that other other factor factorss in the stock marke markett are freque frequentl ntly y more more import important ant than than inflat inflation ion.. The predicted predicted.. event event has never never 3
4
.J)Jr.T 1118 FUTURF.? CAN ANYO:'1F ANYO:'1F:: PRF.J)Jr.T
happ happen ened ed,, for for past past hist histor ory y show showss that that hull hull mark market etss have have always always been followed followed by hear markets. What What if we we predic predictt that that the the worl world d will will come come to an end end next next month month becaus becausee of tlle tlle position positionss of the stars? stars? There There is practi practical cally ly no chance chance at an of this this predict prediction ion coming coming true, true, for it it has never never happen happened ed in the past, past, and them is no no logical logical or scientific scientific basis for Ihe predic predictio tion. n. This This one is certai certain n not to come come true. true. We find there there are fOIlT broad olassillcat olassillcatlonsI lonsIn n which predictlon~~~l! dictlon~~~l!Il Ilu!,ual u!,uallybep lybeplaced laced for evaluatio evaluation: n: 1. Predictions Predictions whfch are certain certain to come true. -WlleI -WlleIla" la"lJf lJfPdi Pdieti etion on is hase(j hase(j~~p ~~pre~ re~ise ise laws laws of scienc sciencee and nature nature,, and tile tile event has always always happen happened ed in the p:lst, p:lst, the predicti prediction on is sure sure to come true. 2. Predictions Predictions which probably probably will come true. --wl;~ --wl;~I;I;-aa prmjic prmjictio tion n is base based d on logic logic and facts, facts, and the event has nsuallv happened happened in the past, then~ is is a prohaprohability bility that that it will will come come true, true, 3. r..!~edict r..!~edictioJ1s ioJ1swhich whichproba probably bly will not pome true. When When a predi predict cted ed even eventt has has seld seldom om happ happen ened ed in the past, past, and the predicti prediction on is not not based based on Iacts Iacts or logical logical ideas, ideas, it prohahly will not corne true. true. 4. Predic Predictio tions ns which which certai certainly nly will will not come true. -When -When a predic predicted ted event" event"h;s h;s never never happene happened d in the the past, past, and the prediction prediction is based all suppositio suppositions ns r-ontrary r-ontrary to the laws of science, and nature, it certainl certainly y will not come true.
One of the most pnl1lid'7ed pnl1lid'7ed predictfons predictfons in recent ye:lrs was in newspa newspaper per articl articles es in March, March, 1962: At that time time many many Holy Holy Men Men of Indi Indiaa were were pred predic icti ting ng the the end end of the worl world d would come in a matter of weeks, weeks, Their prediction was based on the the posi positi tion onss of the stars stars and and plan planet ets. s. Many Many peop people le in India, India, and some people people in other other countr countries ies aetna aetna Ily believed
CAN ANYONE ANYONE PREDICT THJ<~ FUTIIRE?
5
the prediction. The Holy Men were greatl greatly y respec respected ted,, and they were were unanimous unanimous in their prediction. prediction. As the the day of recko reckonin ning g approa approache ched, d, thousa thousands nds of people people were were saying saying their their last last prayer prayerss on the shores shores of the Ganges Ganges River. River. When When the world world failed failed to end, end, many many people people in India India said said they they had not helieve helieved d the predic predictio tion, n, but it did not hurt to say a few prayers anyway. anyway. When When we stop stop to analyz analyzee that that predic predictio tion, n, we find it was not based on facts facts (unless (unless you believe in astrology). astrology). lbe pre~ diction diction was based on false assumption assumptionss contrary contrary to the natural ral laws laws of scie scienc nce, e, and and the the even eventt had had neve neverr happ happen ened ed before. before. So that prediction prediction was certain of failure failure.. Some prediction predictionss have great practical practical value. value. A sales sales manager ager can freguen freguently tly make make an accura accurate te predic predictio tion n that that a cercertain tain percen percentag tagee of contac contacts ts made made by his salesme salesmen n will will result result in actua actuall sales. sales. Why? Why? Becaus Becausee it has usually usually happen happened ed that that way in the past, past, and the salesm salesmen en consis consisten tently tly use method methodss which which have worked worked in the past. Insura Insurance nce compan companies ies can predi predict ct that that driver driverss under under the age age of 25 will will have more more acci accide dent ntss than than driv driver erss over over 25. 25. Why? Why? Because Because it has usuall usually y happen happened ed that that way in the past, past, and and it is a fact fact that that youn young g driv driver erss have have a tend tenden ency cy to take take more more chance chancess than than older older driver drivers. s. We can safely safely predic predictt that that the stock stock market market will will contin continue ue to fluctu fluctuate ate,, with with every every hull hull market market follow followed ed by a hear marmarket. ket. and every every bear market market follow followed ed by a hull market. market. Such Such a pred predic icti tion on seem seemss prob probab able le beca becaus usee it has alwa always ys haphappened pened that that way in the past. past. It seems seems logical logical to believ believee that that the large groups groups of people, people, who cause cause market market fluctu fluctuati ations ons with with their their huying huying and sP1]jn sP1]jng, g, will will contin continue ue to experien experience ce altemgting altemgting periods periods of excess excessive ive optimism optimism and excessive excessive pessimism. Someti Sometimes mes the facts facts on which which predic predictio tions ns are based, based, are not widely widely known. known. Such prediction predictionss can give the impression
6
CA N
ANYONF:
PIIF.O PIIF.OlCT
THE
FUT"lJm:?
that that the person person involv involved ed might might have have extraextra-sen sensor sory y abilit abilities ies.. Let me tell tell yOIl the true true slor)' slor)' of how I predicte predicted d fonr fonr high high speed tire Failures in Four different automolnles. The first time time was in 1950 when when I was a pnsseng pnssenger er in a car being driven driven hy a y(·ung y(·ung Indy in California. California. We were driving driving along along the twisti twisting ng roads, roads, way IIp in the brush-co brush-cover vered ed hills hills above above the Rose Howl in Pasade Pasadena. na. We were were travel traveling ing about about 50 miles miles per hom when r ,ktede ,kteded d a sign signal al which which enahled enahled me to predi predict ct that that a tire tire WOld" blow blow out in a few seconds seconds.. I shouted, shouted, "Slow down] down] Something Something is wrong wrong with with a tire." tire." My frien friend d ohed ohedie ient ntly ly appl applie ied d the the brak brakes es,, and and we had slowed slowed to about about 20 miles miles per per hour hour when when the right front tire tire blew blew out with a hang. hang. "VI' were were going going so slnwl slnwly y that that the car stopped stopped safely safely without difflenlty. difflenlty. My friend friend was amazed amazed that that I had predicff predicff'd 'd the hlow-o hlow-out ut before before it happened happened.. I tried tried to tell tell her there there was a logical logical exJ plan planat atio ion, n, but but she she insi insist sted ed that that I was was olairvoyant-sthat could sense thill~S thill~S heyond heyond the normal ran~e of most people. people. So who was I to argue with with the young young lady? lady? The second second time time was about about a year later, later, again again ill Calif Califorornia. That time r was driving driving alone over the Cajon Pass, heading for the the (leser (lesertt countr country, y, I was cruisi cruising ng about about 60 miles miles per hour hour when I ddecte ddected d the same same signaL signaL Agfli Agflin n I predic predicted ted a blow blow-o -out ut with within in a few second seconds. s. I appl applie ied d the the brak brakes es and and hrol1g hrol1ght ht the car to an easy easy stop, stop, but then~ then~ wns wns no blow-o blow-out, ut, J got out out and walked walked around around the car, lookin looking g at the tires, tires, hut hut I could could see nothing wrong; When When I got down down on my hands hands and knees knees to look under under the car, I saw where the troutrouhIe was. H was the the right right rear rear tire. tire. On the inside inside sidewall sidewall,, there there was a knob knob thec thec;i ;i7, 7,p. p. of a base baseba ball ll wher wheree the the tire tire cord cordss had had stretc stretched hed and broke» broke» to the point point where where a blow-o blow-out ut was only only a matte matterr of a few seconds seconds drivin driving g time. time. T immediately immediately let most most of the air air ant of the tire tire to preve prevent nt a blow-o blow-out ut whil whilee
CAN ANYONE PREDICT THE FUTURE?
7 I chan change ged d tire tires. s. In a few few minute minutess the the spar sparee was was on, on, and and I went went safely safely on my way. The third third time time was in Texas Texas.. Again Again I was driving driving alone, alone, headin heading g for Flor Florida ida.. While While cmisin cmising g throug through h the prairie prairie land land at about 5.5 miles miles per hour hour I detecte detected d that that ominou ominouss signal signal again. again. I slowed slowed down down immedi immediate ately, ly, but I could could not stop because cause I was going going through through an underp underpass ass.. I crept crept lip the incline, cline, out of that that underp underpass ass at only 20 mile miless per hom. The car was was about 200 feet feet from a place place where where it was possible possible to get off off the the highway highway when when the right right rear rear tire tire blew out with a bang bang.. Agai Again n the the slow slow speed speed at blow-o blow-out ut time time prev preven ente ted d a dangerous dangerous situation. situation. What What was the the signal signal that that warned warned of an an impendin impending g blowblowout? out? It was a high speed speed humpin humping g sound, sound, coming coming from from the tire tire.. The The soun sound d was was not not very very loud loud,, and and coul could d easi easily ly be miss missed ed if one one were were talk talkin ing g or liste listeni ning ng to the the radi radio. o. The The bumpin bumping g sound sound was cause caused d by the knob knob which which swells swells up on the tire as the cords cords weaken weaken and break inside inside tile tile tire. tire. Most Most people people think think a blow-o blow-out ut is alwa always ys an instanta instantaneo neous us break break in a weake weakened ned tire, tire, but freque frequentl ntly y it takes takes several several minute minutess for the weak weak spot spot to dete deterio riorat ratee to the point of comple complete te failur failure. e. If you find find it difficult difficult to believe believe that that tire tire blow-o blow-outs uts can be predic predicted ted,, ask a racin racing g driver driver about about it. TIle TIle fourth fourth time time was early early in 1957 The locati location on is better better left unment unmentioned ioned because because of the speed involved. involved. Lwas.drivLwas.driving a 1956 1956 Thund Thunderb erbird ird conver convertib tible le way out in the countr country, y, with a young young lady seated seated beside beside me. It was a beautiful beautiful spring spring mornin morning, g, and the Toad Toad was straig straight ht and level, level, Since Since it was not a main highwa highway, y, there there was practica practically lly no other traffic. traffic. asked the young young lady lady if she was willin willing, g, and she said said r asked "Yes "Yes." ." So I stepp stepped ed on the gas, gas, and star starte ted d the the term termin inal al veloci velocity ty run, run, We were going going to find out how fast fast that that ThunThunderhir derhird d could could fly. fly. Pretty Pretty soon the telephone telephone poles were were going hy mighty fast. e •
8
CAN ANYONF. PREmcr
THE FUTUJm?
speedometerr neeelle neeelle touched touched 100, J J 0, J 20, and that was TIle speedomete the limit. limit. We were a little little disappointed, disappointed, for we had expected more from the T-Bird. T-Bird. We stayed stayed at top speed speed for only only a few minut minutes, es, and then p lind slow starte started d to slow down gradua gradually lly.. slowed ed down down to about about 100 miles miles per hour when when we heard heard a noise noise like like a piece piece of grave gravell being being thrown thrown agains againstt a fender fender.. That That was nothing nothing to get get too upset upset about, about, hut I put hoth hoth hands hands on the steerin steering g wheel anyway. anyway. Then, Then, a seconc1 seconc1l:t l:tter ter,, I noticed noticed the signal. signal. But this time time it 'W~S a different different signal. signal. T smelled smelled air escaping escaping from a tire. I did not know exactly exactly what was wrong wrong with with the tire, hilt I had to make the unpleasant predic predictio tion n that that one of our our tires woul would d have have no air left left in it in just just a few seco second nds. s. I had had 110 time time to wonde wonderr how the odor could could get inside inside the car at 100 miles perhour. perhour. T knew knew that am lives lives depend depended ed on gettin getting g that that T-Bi T-Bird rd slow slowed ed down down Iwfo Iwfore re all all tl]f tl]f~ ~ air air esca escape ped d from from the failing failing tire. I took took a really really tigh tightt Wip Wip on the stee steeri ring ng whee wheel. l. dete deterrmined not Inlet it get get away from from me. Then a gentle gentle touch touch of my foot foot on the rowe rowerr hrak hrakes es,, T watche watched d the speedo speedomet meter er needle needle slide slide down to f:l0, 80, 70. At 60 mile miless per per hom hom the the air air was was comp comple lete tely ly gone gone,, and and we star starte ted d houn hounci cing ng.. 111e 111en n even even [ess [ess rH~S.mr rH~S.mree on the power power brakes brakes.. I could could tell tell hy the hnnnoe hnnnoe that that it was the left left rear tire tire.. I was was able able to cont contro roll the the car, car, and and we did nnt nnt leav leavee the the road road until until we had had slowed slowed down enough to pul] off on the shoulder shoulder and stop. An examin examinati ation on of the tire showed showed a hole hole right right in tllf~hot tllf~hot-tom of the tread tread wlwre wlwre a large large nail nail had I)('en I)('en thro thrown wn (Jut (Jut of the the tire tire hy cent centri rifu fuga gall forc force. e. The The heat heat and and high high pres pressu sure re enlarg enlarged ed the hole to the the point point where where air bel bel escape escaped d rapidl rapidly. y. The The soun sound d we had hear heard d was was the the nail nail stri striki king ng the the fend fender er..
'''1
CAN ANYONE
PREDICT THE FUTIJRE?
9
Someti Sometimes mes I wond wonder er what what would would have have happen happened ed that that day if I had had not smelled smelled the air escapin escaping g from from that that tire. tire. If you have not worked worked with with tires, tires, you may not know what what tire tire air air smel smells ls like. like. In that that case case,, let let some some air out out of a tire tire.. You will will notice notice a charact characteri eristi sticc rubber rubbery y odor odor which which is difdifficult to forget. In additi addition on to m), four four predic predicted ted tire tire failur failures, es, I have experien perienced ced three three blow-o blow-outs uts which which I was unable unable to predict predict.. Once Once I stoppe stopped d to examine examine my tires tires when the bumping bumping noise noise was just just caused caused hy a series series of pecul peculiar iar bumps bumps in the road. road. So we can see that tire tire failur failuree predic predictio tions ns are not certai certainti nties, es, but are in the realm of probabil probabilities. ities. WJ1e WJ1en n I thoug thought ht abou aboutt how how I had had been been able able.. to pred predic ictt someth something ing as diffi difficul cultt to detect detect as an impendi impending ng tire tire blowblowout, out, I started started wonder wondering ing why I should should not try to learn learn how to pred predict ict the course course of the stock stock market market.. Had I not learne learned d how how to predi predict ct not not just just one, one, but a serie seriess of tire tire fail failur ures es?? It was the the kind of predic predictio tion n which which many many people people would would think think impossihle. Why not analyze analyze what what it takes takes to make make a correct correct predic predic-tion tion and and appl apply y that that anal analys ysis is to the the stoc stock k mark market et?? Coul Could d I discov discover er some some facts about about the market market which which were were not generally erally known known and nse those those facts facts to accurate accurately ly predic predictt the course course of the stock stock market market?? It would would he nice nice to he able able to predi predict ct the the acti action on of the the stock stock market market with with certai certainty nty,, but that that could could not be possib possible, le, for the the stock stock market market is not govemed govemed by precis precisee laws laws of sciscience ence and nature. nature. The exact laws laws of science science contro controll chemic chemical al reacti reactions ons,, gravit gravity, y, and various various basic basic physical physical phenom phenomena ena in our world. The stock stock marketis marketis not in the the realm realm of pure pure scienc science, e, for it is an an artific artificial ial phenom phenomeno enon n create created d by man, man, and goveme govemed d by rules rules estahlis estahlished hed hv man. Stock Stock market market fluctu fluctuati ations ons are caused caused by human human actions actions resulting resulting from human human psychologi psychological cal
forces forces.. Therefor Therefore, e, stock stock market market predic predictio tions ns would would have have to be in the the range range of proba probabil biliti ities es or impro improbab babili ilitie ties, s, like like weathe weatherr predictions. In south souther ern n Flor Florid ida, a, wher wheree I spend spend the the wint winter ers, s, peop people le who who have a kno knowl wled edge ge of win wind d and and weat weathe herr patt patter erns ns find find it quit quitee easy easy to accur accurat atel ely y pred predic ictt the the weat weathe her. r. In that area area,, the the chan changi ging ng wind windss usua usuall lly y shif shiftt arou around nd in a clock clockwi wise se didirect rectio ion. n. Each Each chan change ge of win wind d has has a diffe differe rent nt mean meanin ing. g. The The prevailing prevailing \vind blows blows from the southeast southeast and sOl1th,bringing sOl1th,bringing warm, pleasant pleasant weather. weather. When When the the wind wind chan change gess and and blow blowss from from the the west west,, ther theree will will he an increas increasee in humid humidity ity with with a stron strong g chance chance of rain. rain. A west west wind also also usually usually means means that that a cold cold front front is approac approachhing ing from from the nnrt nnrt.rw .rwes est. t. '''h '''hen en the the wind chan change gess to nort northhwest, west, the cold front front is upon upon us. Then Then the wind makes makes its next next cloc clockw kwis isee shif shiftt to the the nort north, h, and and the the cold cold,, dry dry weat weathe herr concontinu tinues es as long long as the the north north wind wind prev prevai ails ls.. ~en ~en the the wind wind swin swings gs nort northe heas astw twar ard, d, we know know the the cold cold wave is end endin ing, g, as the the weat weathe herr syst system em move movess ant ant to sea, sea, away from from the the main main-land. TIle TIle north northea east st wind wind hrin hrings gs us sligh slightl tly y warm warmer er,, mois moistt air air from from the ocean. ocean. The northeas northeaster ter freque frequentl ntly y gets gets pretty pretty rough, rough, and may blow blow for severa severall days days before before swingi swinging ng ar0110 ar0110d d to to the east east.. The The east east wind wind nsna nsnall lly y last lastss only only one one day, day, then then move movess to the the sout southe heas ast, t, and and brin brings gs back back the the norm normal al plen plensa sant nt weathe weather. r. The weather weather ff'mains m ains pleasa pleasant nt until the the next next cold cold front front approa approache ches, s, and the same pattern pattern is ff~p ff~peat eate(l e(l.. A knowle knowledge dge of such such wf'ather wf'ather patter patterns ns and the signif significa icance nce of wind wind dirf'c dirf'ctio tion n is valuab valuable le to peopl peoplee who are strong strongly ly affected hy the the weathe weather. r. One One time time I wan wan led to bring bring a sailing sailing yacht yacht fr~m fr~m Nassau to Flor Florid ida, a, hut hut a stro strong ng nort north h wind wind was was blow blowin ing. g. I knew knew the the 180 180 mile mile crui cruise se woul would d be mighty mighty ununplea pleasa sant nt,, beat beattn tng g into into a nor north th wind wind.. I pred predic icte ted d that that the the wind wind woul would d swin swing g arou arouml ml to the nort nortl1 l1f' f'as astt in two two or three three
days, and I decide decided d to wait for that that predict prediction ion to come true. Sure Sure enou enough gh,, the the dawn dawnin ing g of the the thir third d day day foun found d me powe poweri ring ng out out of Nass Nassau au Harb Harbor or.. The The sun sun rose rose as I clear cleared ed the the harb harbor or entr entran ance ce.. Then Then the the sail sailss unfo unfold lded ed like like the whit whitee wings wings of a grea greatt bird bird and filled filled with a brisk brisk northeas northeastt wind. wind. That That turn turned ed out out to be a wond wonder erfu full lly y plea pleasa sant nt trip trip with with fast fast smooth smooth sailin sailing g on a broad broad reachreach-all all becaus becausee of my success successful ful weather weather prediction prediction.. Anot Anothe herr t.im t.imee I was leav leavin ing g Miam Miamii with with the the same same sail sailin ing g yach yacht, t, head headmg mg for for the island island of Bim Bimin ini, i, in the Baha Bahama mas. s. It w~s earl early y in the the mornin morning g before before sunris sunrise, e, and still pitch pitch dark. dark. I like like to get an early early star startt when when head headin ing g for for the the isla island nds, s, so ~he tri~ky tri~ky approa approac.h c.h to Bimini Bimini or Cat Cay can be naviga navigated ted m dayli daylight ght.. TIle TIle tnp can take ten hours or more more in a sailbo sailboat. at. As I powe powere red d out out the the Miam Miamii inle inlet, t, I expec expecte ted d to find find the the ocea ocean n fair fairly ly plea pleasa sant nt.. for for the the prev previo ious us day day had had been been dead dead calm calm.. I was was surp surpri rise sed d to find find a nor north thea east st wind wind star starti ting ng to fres freshe hen n up, up, and and the the seas seas were were runn runnin ing g high higher er .than .than norm normal al.. Then Then the the star starss disa disapp ppea eare red d behi behind nd heav heavy y clou clouds ds.. My crew crew and and I want wanted ed to visi visitt the the isla island nds, s, but but as capt captai ain, n, I had had to ~ake ~ake the the predic predicti tion on that that a nort northe heas astt stor storm m migh mightt be ragin raging g m a few hours. On an ocean ocean trip trip in a smal smalll boat, boat, or in in a stock stock market market venventure ture,, I pref prefer er to have have the the odds odds in my favo favor. r. So we turn turned ed back to Miami. .. '; It was still still dark dark when when we dropp dropped ed our our anch anchor or in Miam Miamii Harb Harbor or,, and and we went went back back to sleep sleep.. Seve Severa rall hour hourss late later, r, when when we awoke, awoke, it was was rainin raining g and windy. windy. The weather weather concontinu tinued ed gett gettin ing g wors worse, e, unti untill a rea reall stor storm m wash washlo lowi wing ng.. Ther Theree was thun thunder der,, lightn lightning ing,, drivin driving g rain rain and winds winds over over 40 knots. We were were might mighty y happ happy y that that we had had turn turned ed back back.. Late Laterr in the the day day we hear heard d that that two two smal smalll boat boatss had had sunk sunk in the the ocea ocean, n, and and two two larg largee ship shipss had had been been driv driven en agro agroun und d by the the high high wind winds. s. That That turn turned ed out out to be the wors worstt nort northh-
12
CAN ANYONE PREDICT THE FlTTUTIE?
easter easter I had ever seen in Florida. Florida. The storm actual actuallv lv lasted lasted for Eve days. days. We could could not get out in the ocean ocean ag~in ag~in until the sixth day. These two boating boating incidents incidents help to illustra illustrate te the altitudes altitudes which might be developed developed hy an investor. investor. ,i\'}len ,i\'}len conditions conditions are not not favora favorable ble,, one should should he patient patient enough enough to wait wait for the right right time time to start start on a ventu venture. re. When When the wind is righ right, t, one should should weigh weigh anchor anchor in confid confidenc encee and raise raise all his sails sails to take take full advantag advantagee of the Favorabl Favorablee wind and current. One should should realiz realizee that that Favora Favorable ble conditi conditions ons do not last last fore foreve verr at sea, sea, or in the stoc stock k mark market et.. So one one shou should ld try try to make as much progress progress as possibl possiblee when tho wind is hlowing hlowing in the right direction. direction. The intellig intelligent ent invest investor or should should also also be willin willing g to retreat retreat when when dang danger er thre threat aten ens. s. He shoul should d real realiz izee the the foll folly y of attempti tempting ng to contin continue ue into into an overwh overwholm olming ing storm storm with with all sails set. Many investors investors completely completely disregard disregard nil the the warning Signals Signals and sail on blindly to their Ilnancial Ilnancial dcstrnctio dcstrnction. n. Knowle Knowledge dge is the the key to rapid rapid progre progress ss anr] anr] safety. safety. Even Even if one one is willi willing ng to he patient patient and heed heed warnin warnings, gs, he can not do so with withou outt the the knmv knmvle ledg dgee llf' llf'ed edec ecll to unde unders rsta tand nd the the situat situation ion and recogniz recognizee the dnnger dnnger signal signals. s. One must study study all the aspect aspectss of An expeC' expeC'led l ed vent venture ure to acquire acquire the necesnecessary sary knowledg knowledge. e. One should should posses possesss enough enough knowle knowledge dge to make make some some accurate accurate predic predictio tions ns of what what will will probahl probahly y haphappen in the near future future.. I thought thought it might might be profit profitabl ablee if I cOllld cOllld learn learn to predict predict the stock stock market market as well well as Tcould Tcould predic predictt the weathe weather. r. The basi basicc elem elemen ents ts of pre predi dict ctio ion n coul could d not not be too too diff differ eren ent. t. I reason reasoned, ed, that that to make make prcdio prcdiotio tions ns with with a strong strong prohah prohahili ility ty of comi coming ng true, true, one must must have have a thorou thorough gh knowle knowledge dge of the the subject, subject, based on personal personal study study and observation. observation. One must must learn learn which which are reall really y facts facts and which which are false false assu assump mpti tion ons. s. One One must must he ahle ahle to tell tell what what is log logic ical al and and
CAN ANYON.E J'RET>ICT TIlE FUTURE?
13
what what is not. not. One must discove discoverr what what patter patterns ns usuall usually y cause cause certai certain n action actions. s. One must must he perce percepti ptive ve enough enough to detect detect signal signalss which which indica indicate te that that a change change is star startin ting g to take place. place. To succes successfu sfully lly predic predictt the future, future, one must must know know and understa derstand nd what what has happened in the past, past, and and what what is hap hap-pening pening at presen present. t. Is not not the future future just just a contin continuat uation ion of the past and the present? present? It is my helief helief that that when when a certai certain n action action bas consist consistent ently ly been been follow followed ed by a specif specific ic reacti reaction, on, there there is a probab probabili ility ty that that the SAmerel SAmerelati ations onship hip betwee between n that that action action and reactio reaction n will continue continue in the Intnre. Predictin Predicting g stock market market fluctuati fluctuations ons is much more difficult difficult than than predic predictin ting g the weather weather,, for a grea greatt deal deal of false false inforinformation mation is circ circula ulated ted about about the stock stock market market.. One could could think think of the the stock stock market market as a hig game, game, with with millio millions ns of player playerss bllying bllying and sf'lJing sf'lJing stocks stocks between between themselve themselves. s. It is not not a simp simple le game game,, for for many many of us may be playi playing ng only only for small small stakes, stakes, while while some some of our opponcn opponcnts ts are playing for millio millions ns of dolla dollars. rs. Many Many of our our crafty crafty oppone opponents nts are highly highly experien experienced ced and intelli intelligen gent, t, as they they must must be, if they they have become become consistent consistent winners. winners. Like Like the game game of poke pokerr-th thee stoc stock k mark market et game game can can he pretty pretty rough. rough. Some Some of the players players are not absolu absolutel tely y honest honest,, and and will will do thin things gs whic which h woul would d he call called ed chea cheati tiu' u'g g in any gmm~.A few of thAm thAm are are occasionally occasionally kicked kicked out of the game, ::lnrlm ::lnrlmay ay even even end up in prison. prison. Some Some of the player playerss will will try to hluff hluff you and provid providee you with with misleadi misleading ng ideas ideas and inform informati ation on in their their attemp attempts ts to win. win. One should should expect expect such such tactics tactics in any game where where the stakes stakes are high. high. '111esucc '111esuccess essful ful player player must must learn learn to cope with the misleading misleading tactics tactics of his opponen opponents. ts. The stock market, market, like like poker, poker, is a game of skill skill and luck. luck. If )'ou heliev helievee it is a n luck, luck, you can not become become a consist consistent ent winner. winner. TIle succes successful sful player player must follow follow a skillful skillful strategy strategy
14
CAN
ANYONF. PHEnrr:T
THE FlmmF.?
ba~ed on a knowledge knowledge of facts. facts. Like other gmne<;,the gmne<;,there re must be losers. The problem is to to learn how to he one of the winners. If you you do not learn learn how to win, you will he playing playing only only to provide provide profit profitss for the more more skillf skillful ul player player~. ~. No ~attf'r ~attf'r how inexperi inexperienc enced ed one might might he, the other other player playerss WIll WIll he happy happy to have him in the game, game, for expert expert player playerss could could not take take much much profit profit from a game in which all the players players were were equally equally skillful. skillful.
CHAPTER
2,
HOW HO W IT STAR STARTE TED D
My first few years in the stock market were not very profitahle ahle.. The The best best that can can be said said about about that that peri period od is tha thatt I obtain obtained ed valuab valuable le experi experienc ence. e. During During my· early early days days in the mark market et,, I knew knew the the basi basicc rule rules, s, but but I had not not deve develo lope ped d a defini definite te operat operating ing progra program. m. I was like a poker poker player who was in the the game game with with a knowle knowledge dge of the the rules, rules, but no plan plan of strate strategy gy to outwit outwit the oppone opponents nts.. In those early early days days I was like the majori majority ty of inveslo inveslorsrs just just trying trying to use my savings savings to make make some some money. money. I bought bought stocks stocks when when they they looked looked like they they would would go up. up. If they went went op, op, I took some some profi profits ts.. If they did not not go up, up, I eith either er sold sold them them in fear fear when they they declin declined, ed, or in impat impatien ience ce when when they they just stagnated. Sometimes Sometimes I bought bought or sold as a result result of the advice which was offer offered ed from from so many many source sources. s. There There was so much conconflicti flicting ng advice advice that that I was frequentl frequently y confus confused ed and hesitant hesitant about how to proceed. proceed. T experience experienced d small profits profits and large profit profits, s, as well well as small small losses losses and large large losses losses.. At variou variouss times times I owned owned just about about every every kind ofsto ofstocki ckincI ncIudi uding ng blue blue chips, chips, growth growth stocks stocks and some some that were were just just plain plain stinke stinkers. rs. adventure uress in the commodi commodity ty market market were were more more specspecMy advent taoula taoular, r, but not especi especiall ally y profit profitabl able. e. At variou variouss times times I was long or short in wheat, wheat, corn, oats, rye, soybeans, soybeans, lard, cotton, cocoa, cocoa, eggs, flaxseed flaxseed and wool tops. Back around 1950 I was 15
HOW TT STARTED STARTED HOW HOW
TT STATUE STATUEll ll
long long in wool wool tops and enjoyed enjoyed some some thrill thrilling ing clays clays when when they they went went up the limit limit for five five or six days days in succes successio sion. n. One time time had so much much oats oats if won wonld ld have have take taken n a smnll freight freight traln I had to transp transport ort the actlHtl actlHtl grai grain n if T had had want wanted ed to acce accept pt dedelivery livery of it. Iwas just just like the average average invest investor, or, except except maybe maybe for one one slight slight diffe differen rencece-my my determ determina inatio tion n to learn learn ahout ahout the stock stock market. Ithough! Ihad a good chanc chancee for succ success ess becans becansee of my previous previous hackgro1\T hackgro1\THl Hl and experience. experience. When Iwas was a young youngst ster er,, mv moth mother er,, my hroth hrother er,, and and I lived lived in a small small town in Cnli Cnlifom fomia. ia. We were not too well off fina financ ncia iall llY, Y, and and ther theree were were time timess when when we were were on the rereceivin ceiving g e;ld e;ld of those those bnsket bnsketss of food food which which were were passed passed out to need needv v famili families es at Christ Christmas mas time. time. When When my older older hrothe hrotherr gradua graduated ted from from school, school, he joined joined the U. S. Air' Air' Force Force and was sent sent to Hawa Hawaii. ii. He sent home home all the the monev monev he conld conld to help help us out. out. When T grnd grndna nate te(l (l from from high high scho school ol at the the age age of seven seven-teen, Iwent went to work work immedia immediatel tely y with with an oil oil prodn prodncin cing g comcompany pany,, doin doing g ncco ncconn nnti ting ng and and cler cleric ical al work work.. My inter interes estt in mathem mathemati atics cs was put to good lise, lise, for Ispen spentt many many hour hourss at the the calc calcul ulat atin ing g mach machin ine, e, nmki nmking ng out out payr payrol olls ls and and mont monthl hly y financial statf'lTIf'nts. It was a lot of responsi responsibil bility ity for a sevenseventeen teen year year old hoy. hoy. Iwas was stil stilll seve sevent ntee een n when when my mothe mother, r, my brot brothe herr and and I pool pooled ed om mpag mpager er savi saving ngss to Imy a litt little le old old c1i1 c1i1ap apic icla late ted d hous housee in that that smal smalll town town.. My moth mother er and and T fixed IIpthat bouse, bouse, with 11lP (loinf (loinft, t, the heavy work. work. of conrse conrse.. Vie sold it for a good proRt proRt when when I"vas eift,hteen. Then Ireally really tool~ tool~ over over as mana manager ger of our our little little real real estate estate operation. operation. WP. honght honght ::l11othPf ::l11othPf [rouse and and sold sold it at a profi profit. t. Then Then anothe another. r. and another another.. When Iwas was nine ninete teen en,, ther theree was was a fime when Ihonght
17
tlm~e tlm~e hous houses es in two two weeks. weeks. Severa Severall of the houses houses were were rented rented,, and J became became a landlo landlord rd at ninetee nineteen. n. Iwork worked ed at a full full time time job job dmin dming g the the days days,, and and Iwork worked ed on the houses houses at night night and on my days days off, off, paint painting ing and repairin repairing. g. It was hard hard work, work, hut profitahle, profitahle, Ther Theree was was only only one hank hank in our our litt little le town town,, and and that that is where where all the the escrow escrowss and financia financiall detail detailss were were handle handled. d. I coul could d tell tell that that the the bank bank mana manage gerr was was amaz amazed ed to see see a boy of nine ninete teen en buyi buying ng and and sell sellin ing g hous houses es like like an old old pro, pro, ararrangin ranging g compli complicat cated ed deals deals and refinanc refinancing ings, s, and borrowi borrowing ng large large amount amountss of mone money. y. At the age of twentytwenty-fom fom Iwas was a bui build ldin ing g cont contra ract ctor or.. At twenty-five Iwas preside president nt of a small small corpor corporati ation. on. Iwas the mana manage ger, r, but but my moth mother er and and brot brothe herr were were alwa always ys part partne ners rs who would help help out as much much as possi possible ble.. With such a background, background, Irega regard rded ed the the stoc stock k mark market et as a personal personal challenge. challenge. Ifigu figure red d that that if Istudie studied d hard hard enough enough,, Ishould should learn learn how to be succes successfu sfull in the market. market. Istudie studied d the stoc stock k marke markett with with detemli detemlinat nation ion,, buying buying all sorts sorts of charts charts and books, books, and trying trying many many adviso advisory ry servic services. es. My study study program program even even included included high high priced priced lectur lecturee course coursess on the the market. market. There There were were so many many differ different ent ideas ideas about about the stock stock market market that that it was was quit quitee an effor effortt to dete determ rmin inee whic which h were were really really facts, facts, and which were were false false assump assumptio tions. ns. When Ireal realiz ized ed ther theree were were so many many conf confli lict ctin ing g idea ideass about about the stock stock market market,, Ideci decide ded d to appr approa oach ch my stud study y of the market market from from a slig slightl htly y differ different ent angle. angle. Idecide decided d to adopt adopt the methods methods used used by a scient scientist ist when when he tries tries to solve solve a probproblem in physic physics. s. Iwould would use deduc deductiv tivee reason reasoning ing,, cause cause and effect effect studie studies, s, resear research, ch, experi experimen ments ts and mathem mathemati atics. cs. Iwoul would d cast cast asid asidee false false nssurnpt nssurnption ionss and believe believe only only what what Icoul could d prov provee to be true. Iwoul would d draw draw infe infere renc nces es only only from from my own own obse observ rvaa-
HO HOW W HOW IT STARTED
tions, tions, rather rather tll!ln tll!ln mnko mnko deductio deductions ns from from accept accepted ed premis premises. es. In short, short, I determ determiTw iTwd d to study study the market market as a scif1n scif1ntis tistt instead of an economist. economist. Using Using the srienti srientific fic approa approach, ch, I gradun gradunlly lly pieced pieced togeth together er vari variou ouss fact factss nnd nnd hits hits of info inform rmat atio ion n to devel develop op an underunderstan standi ding ng of how how and and why why the the stoc stock k mark market et trav travel elss alon along g in its complex complex movement. movement. J kept kept accu accura rate te reco record rdss of wha whatt I leam leamed ed and and the the idea ideass I deve develo lope ped, d, weld weldin in~ ~ ever everyt ythi hing ng of real real value into the complet completee theory theory which which is presen presented ted in this hook. Some Some of tllA tllA charts charts in this hook are reprod1 reprod11di 1dions ons of those those whic which h I madp madp n lon long g time time ago, ago, and and then then stud studie ied d for for years years.. The charts charts have have travel traveled ed many many thousa thousan(l n(lss of miles miles with me, so I could could study the market market wherev wherever er I went. went. The chnrts and othe otherr stud study y mate materi rial al were were with with me even even when when I lived lived on boat boatss and and trav travel eled ed far far from from civi civili liza zati tion on.. M v studie studiess concontinu tinued ed even even when when T crui cruise sed d all all over thp thp Grea Greatt J .nkes, and when when I live(l live(l on snilin sniling g yachts yachts in the United United States States,, 1'.1ex 1'.1exico ico and the TIahama Tslnnds. Tslnnds. I found found that that my unde unders rsta tand ndin ing g of the the stoc stock k mark market et inincrease creased d as my dista distance nce increa increased sed from from the chatter chattering ing ticker ticker tapes, tapes, rumors rumors,, advice advice and opinions opinions.. Far ont at sell, sell, I was in a differ different ent \""arl \""arld. d. a world world of basic basic physic physical al phenom phenomena ena.. There There was nothi nothing ng but the sea. sea. the sky, sky, the the wind wind and and my small small hoat. hoat. 'rhe 'rhere re was was time time to thin think k abou aboutt basic ideas. ideas. It was not not unus unusua uall for for me to get get ideM ideM abou aboutt the the stoc stock k mark market et at sea. sea. In fact fact,, my best best idea ideass seem seemed ed to arrive arrive when when I was was sail sailin ing g out out wher wheree the the wate waterr was was a thol tholls lsan and d fath fathom omss deep deep,, with with no land land in sight sight.. Out Out wher wheree the the frie friend ndly ly porporpois poises es play play is whe where re I felt felt clos closee to the [rns [rnsic ic facts facts of life. life. In the wilder wildernes nesss of the the sea I felt close close to the compre comprehen hensio sion n of truths truths normally normally bflyond bflyond perCf'ption. perCf'ption.
IT STARTED
19
Of cour course se ther theree were were time timess when when I WIlSso WIlSso busy busy that that all all thou though ghts ts were were conc concen entm tmte ted d on kee keepi ping ng the the boat boat aflo afloat at for anot anothe herr few few hours. hours. Howe Howeve ver, r, when when the the stor storms ms had had clea cleare red d ther theree was was plen plenty ty of time time for for basic basic thin thinki king ng whil whilee runn runnin inzz long compass courses on lonely night watches. g
RlILL MARKF.TS AND BEAR MARKETS
CHAPTER
BULL
~flARKETS
AND
3 nEAH
MAHKETS
I leam leampd pd that that peop people le invp invpst st in the the stoc stock k mark market et for for many many differ differpnt pnt n~:lso n~:lsons. ns. Some Some peop1p peop1p are interps interpsted ted only only in dividond dond inco income me,, whil whilee othe others rs care care only only for for capita capitall gain gains. s. Stil Stilll others others buy stocks stocks [ISprotect [ISprotection ion agains againstt inflat inflation ion.. There There are reopl( reopl('' who want stocks stocks to give thpir thpir childr children en as an inhpri inhprittance ance,, and and ther theree are are some some who are are tryi trying ng to make make a fortu fortune ne.. There are hanks, corpnmt i011S, i011S,nniversiti nniversiti('s, ('s, mntnal funds and reti retire reme ment nt fnn( fnn(ls ls-a -all ll in the the mark market et for for their their own own reas reason ons. s. All these these diITer diITerent ent ppop1e ppop1e and instit instituti utions ons are repres represent entf"d f"d by hroke hrokers rs at the stoc stock k exch exchan ange gess wher wheree many many well well know known n stoc stocks ks are are hought hought and and sold sold.. The The stoc stock k exch exchan ange ge work workss like like a contin11o contin11ons ns anction where the hrokers 1111van(l sell stocks according according to the instfllction instfllctionss of their their c\ipllls c\ipllls "frOlnall "frOlnall over the world. world. If there there are more 1111yorders orders,, tlw price price of stocks stocks will will he hid upward, upward, as 1111 1111yer yersscompet competcc for the stocks stocks.. Jf there there are are more more sell sell order orders, s, pric prices es will will go down. down. It is as simp simple le as that. No matte matterr who who buvs buvs or sells sells,, or for "vhat "vhat l"f' l"f'aS aSOllS,prices are dp,ter dp,termin mined ed hv th~ aetn:l1 aetn:l1 forces forces of hnying hnying and sellin selling g on the the floo floorr of the -'exc -'excha hang nge, e, in accord accordan ance ce with with the the Jaw of supp supply ly and and dema demand nd.. The The resu result ltin ing g pric pricee chan change gess are are a conconsensus sensus of all the the knowle knowledge dge',', opinio opinions ns and hopes hopes of all. who buy and sell sell stocks, stocks, regard regardles lesss of their their pnrpos pnrpose. e. As a gpnpr gpnpra1 a1 rule, rule, prices prices do not fluctu fluctuate ate aimles aimlessly sly.. There There 20
21
is 1Jsu 1Jsual ally ly a tend tenden ency cy for for price price chan change gess to move move in tren trends ds whic which h may may go up up or down, down, and and some someti time mess side sidewa ways ys.. When When a stock stock market market trend trend become becomess well well establ establish ished, ed, the~e the~e is a defidefinite nite tenden tendency cy for that that trend trend to cont continu inuee for some some time. . When When an up up tren trend d cont contin inue uess for for about about a year year or more more,, it .IS freq freque uent ntly ly call called ed a bul bulll mark market et.. V/he V/hen n a down down tren trend d asassumes sumes major major propor proportio tions, ns, it is caned caned a hear hear market market.. My rese resear arch ch has has show shown n that that bull bull mark market etss have have last lasted ed from from one to seven seven years. years. Bear Bear market marketss have have lasted lasted as long long as five five yea yea:s :s.. I have have foun found d it extre extreme mely ly impo import rtan antt to classi classify fy all all prev prevIO IOUS US stoc stock k mark market et acti action on,, divi dividi ding ng that that acti action on into into hull hull market marketss and bear market markets. s. Since Since butt" market marketss and hear market marketss have have such such complete completely ly differ different ent charac character terist istics ics,, it is is hetter hetter to think think of them them separa separatel tely. y. THE BULL BULL MARKET MARKET
When When an up up tren trend d firs firstt start startss from from the the bott bottom om of a hear hear mark market et,, it is dil dill1 l1eu eu]t ]t to tell tell wheth whether er it will will turn turn into into a bull bull market market,, or if it is just just a hig hig rally rally in a conti continui nuing ng bear bear market market.. .''''h .''''hen en an up trend trend firs firstt start starts, s, it mus mustt gain gain enou enough gh tech tech-nicn nicnll stre streng ngth th to pass pass a cert certai ain n poin point. t. When When that that poin pointt is pass passed ed succ succes essf sful ully ly is whe when n a bull bull mark market et star starts ts.. Then Then the the ~nte ~ntern rnal al streng strength th of the the marke markett will will attr attrac actt impo import rtan antt buybuy1Il? by t?e big money money intere interests sts.. The large large volume volume and risiI;g risiI;g pnces pnces WIll WIll attrac attractt more more buyers buyers who are anxiou anxiouss to get get in near near the sta:t. sta:t. Thus, Thus, .tl~e. .tl~e.bull b ull market market is under under way. way. Dmmg Dmmg that that init initia iall phas phasee of a hul hulll mark market et,, soon soon afte afterr it pass passes es that that cruc crucia iall poin point, t, is when when the the larg larges estt volu volume me of a hu.lI m~rket m~rket USIW lIy occurs occurs.. That is also also when the up trend of !mces !mces IS strong strongest est and smooth smoothest est.. During During that that rapid rapid advanc advanc-mg stage stage,, the reaction reactionss are usuall usually y small. small. The smooth, smooth, powerf powerful ul first first phase phase of a hull hull.. marke markett usuall usually y ends ends when when a larg largee reac reacti tion on occu occurs rs.. That That reac reacti tion on may may last last
22
RULL
MATIK MATIKETS
AND AND
REIIR
MARKETS
two or tllr~e months months.. Then Then tliPre tliPre are more more large large ralli( ralli('~ '~ ;11)(1 reactions, reactions, as a top top is heing formed. At thaI ~tage is when the hig profcssi profcssioual oual operators operators are selling selling their stocks to the pub-
H e. When When the market market makes makes its highest highest Iinnl Iinnl top, top, the volume volume is lower lower than than previously, and the tf'dlll tf'dlllkfl kflll streng strength th is less less than than it WIlS hefor« hefor«.. That That is when when optimi optimism sm is fit its its height. height. Busine Business ss is usua usually lly good good at that that time, time, and the [uture [uture looks looks bright bright.. There There is frequ frequent ently ly talk talk about about a new era of penna penna-nent nent prospe prosperit rity y at that stage stage of the market market cycle. cycle. TIlE TIlE
BEAR BEAR MARKET MARKET
When When a down down trend trend starts starts from from some high point in 11 hnl] market market,, there there is somet sometime imess no eviden evidence ce that that it is not just anothe otherr reac reacti tion on in the bul] bul] market market unti untill it pass passes es a cert certai ain n point. point. At that that pt,int is where where teclmical teclmical weakness weakness hecomesimhecomesimpressive enough enough to attr attract act brge brge scale scale selling selling.. There There may be anothe anotherr rally rally or two after after that point point is reac reached hed.. There There may even even be a new high high regist registf'r f'red ed hy the Dow-Jo Dow-Jones nes Indust Industria riall Averag Average. e. Such Such an unusua unusuall event event has happen happened ed severa severall times times in the past. past. A good friend friend of mine mine S::lyst S::lysthe he big operator operatorss purpos purposely ely push -the DJTA 1 1 1 ' to a new new high high,, at that poin point, t, in order order to fool the stickers. ''''hen ' hen a hear market market really really gets gets moving. moving. it is an awesome awesome thin thing g to hehol hehold. d. Pric Prices es drop drop with with frig fright hten enin ing g spee speed d and and larg~ larg~ volume. volume. The sellin selling g pressu pressure re f)11il f)11ildsn dsnp p until until it feeds feeds on itself. itself. As prices prices declin decline, e, stop stop loss loss orders orders are touched touched off and become become market market orders orders to sell sell at the bost price availahle, availahle, These These freque frequentl ntly y set off chai chain n reacti reactions ons of stop loss selling selling.. When When the market market declin declines es rapidl rapidly, y, margin margin calls calls are sent out to many many people people.. Most Most of them them will not, or can not, put IIp
nULL MAHKRTS AN]) BEAn MARKETS MARKETS
23
any more more margin margin money, money, so their their margin margined ed stock stock must be sold sold at the market market to prote protecl cl the lender lender.. When When stock stock market market crashe crashess occur, occur, millio millions ns of people people lose lose billio billions ns of dolln dollnrs, rs, and Jose Jose it much much faster faster than than they they made made it. Then is when the brokers' board rooms are filled with people wnlching wnlching prices prices decline and their savings go down the drain. TIHlt TIHlt is when when the typical typical invest investor or sits sits there there worryi worrying, ng, developi veloping ng ulcers ulcers and JlOping JlOping his his heart heart will will not attack attack him. him. A hear market market finally finally reaches reaches bottom bottom when everybody who could could be fright frightene ened d into into seWng seWng has has sold out. About the only ones ones left in the stock stock market market are those those who absolu absolutel tely y will will not sell on declining declining prices. prices. A hear hear mark market et is one one of the greate greatest st haza hazard rdss face faced d by inve invest stor ors. s. Rapi Rapidl dly y drop droppi ping ng bear bear mark market etss have have chan change ged d mill millio iona nair ires es into into paup pauper erss in jnst jnst a few few week weeks. s. Ther Theree is no tellin telling g how much much dnmagc dnmagc has been been done done to the physica physicall and mental mental health health of inve investo stors rs by major major market market declin declines. es. Some Some men have even even commit committed ted suicid suicidee becaus becausee of stock stock market market crashes. The stock stock market market can he as cmel cmel as the the sea. sea. One One must must respcc spcctt its its power power and and navi naviga gate te caut cautio ious usly ly,, Ther Theree are are time timess wl1(>n retreat retreat is tIle ')(~ststrategy. ')(~ststrategy.
VOLUME
CHAPTER
4
VOLUME
When T speak speak of volume, volume, T mean tIl(' tIl(' total total ''''eekly eekly volume volume of all all stocks stocks trader traderll on the New York Stock Stock Exchan Exchange. ge. All of the statist statistkal kal data data used used in this this book book is 11nsedon 11nsedon the tradin trading g activi activity ty of the the NYSE, NYSE, for it is the the larges largestt aud most most import important ant stock stock exchan exchange ge in tlw world world,, Weekl Weekly y volum volumee is used used hpca11S hpca11Seit eit is more more import important ant than than daily daily or ~H)Tl ~H)Tlthl thly y volum volumee in analyz analyzing ing the movemen movements ts of ~he stock stock market. market. I consid consider er weekly weekly figure figuress to he the most most 11111111portant portant in stock market annlysi~. annlysi~. No
sho\>"" thnt thnt volume volume and price price nction nction 111(}J 111(}Jcat cates es mar1~et mar1~et strength strength or weakne weakness ss in the [ollnwing [ollnwing manner: manner: 24
Stock Stock market market stmngth stmngth is indicated; indicated; 1. When the market g(~e~-~;p-<;l~heavy volume; 2. When prices prices declin declinee on low volume volume.. Stock Sto-ck market mar ket weakne wea kness ss is indic in dicate ated' d' ~ ---._.. - . -. .~,~.-.,._. . • . . -----._".~.~---' 1. When When prices prices declin declinee on heavy heavy volum volume; e; 2. When the market market goes goes up on light light volume volume..
A study study of long long term term volum volumee charts charts shows shows that volum volumee is usuall usually y low when when a bear bear market market is in the process process of making making a bottom bottom,, When When a bull bull market market starts starts,, volum volumee increa increases ses.. The The volume volume builds builds up rapid rapidly ly dnring dnring the strong strong upward upward surge surge of the early early stage stage of a hull hull market. market. When When the strong strong early early surge surge of the hull hull market market is passed passed,, the market market contin continues ues upward upward with with decr decrea ease sed d volu volume me.. At the peak peak of the bull bull mark market et,, volume volume has usuall usually y decrea decreased sed even even more, more, thus thus indica indicatin ting g that that the big demand demand for stock stockss has been been largel largely y satisf satisfied ied.. At that that time, time, right right near near the top, the market market is just just coastin coasting g upward upward on its its moment momentum, um, like like a rocket rocket which which has exhaust exhausted ed its fuel fuel.. The rocket rocket can contin continue ue climbi climbing ng upward upward for quite quite a distance distance without without fuel, fuel, because because of the the powerful powerful initial initial thrust. thrust. But when when the moment momentum um is over overcom comee by the pull of gravi gravity, ty, the rocket rocket must must change change its cours coursee and start start downw downward ard-un -un-less less it turn turnss out to he a multimulti-sta stage ge rocket rocket.. Someti Sometimes mes,, after after coasti coasting ng for a while, while, a rocket rocket ignite ignitess a sec-ond sec-ond fuel fuel charge charge and thrust thrustss strong strongly ly upward upward again. again. The stock stock market market,, like like a rocket rocket,, can only coast coast so far far withwithout the the thrust thrust provid provided ed hy large large volume volume,, If that that thrust thrust is not provid provided, ed, the market market will will usually usually turn turn down. down. Yglug~SheI~ show that constil]g constil]gacti action, on, wgll_!!l wgll_!!l!:""l !:""ll~ar l~ark~~t_ k~~t_g?i!! g?i!!K"!~P K"!~P_~~~~ _~~~~.J!~.J!~crc~t~~~volume., crc~t~~~volume., !!~s:lPEe.~r-~d at every buIl_~~~Eket._~~p'"_~_~rbuIl_~~~Eket._~~p'"_~_~ri!~gthe last t~ve.l~!y=t\\:£..Y~llE~~ t~ve.l~!y=t\\:£..Y~llE~~ A study study of the charts charts shows shows that that there there have have been been severa severall times times when a hu 1 1 market market turned turned out to be a multimulti-sta stage ge affair affair after after it had coasted coasted for a while while on decrea decreased sed volume volume.. At those
26
V01,1IME N --'.---
times, times, a !"enf' !"enf'wed w ed incr8 incr8ase ase in volnme volnme sent sent 'he market market climhclimhing upward upward again, again, without without the l1nple l1npleasa asant nt interr interrl1p l1ptio tion n of a bear bear market market.. Sucl: Sucl: rpnewa rpnewals ls of stre strengt ngth h and volume volume occurr occurred ed in d944-45, ;md again again in 1854.1)5. The The hull hull mark market et whic which h lasl laslpf pfll from from H l-1 9 ., to ]94 ]946 was a two-st two-st:1g :1gee hull markd markd which which rpnewp rpnewpd d its stren strength gth nnrl nnrl vigor vigor after after coasti coasting ng on low low volum volumee during during the last pmt pmt of 194:3The hull market market which which lnstrx lnstrxll from from 19 ,m to ]956 W:1Snlso W:1Snlso a twotwo-st stag agee bull bull market market whkh whkh came came \'(' \'('ry ry dose dose to a major major Interr Interrnpt nptlon lon in 195:3. Many analys analysts ts still still S:1)'the S:1)'the dpclin dpclinee in 1953 was a hahy 1)(':11' 1)(':11' market. The hull market market of ]958·5 ]958·59 9 was only only a single single stage stage affair affair,, and the hull hull market market of 19(H was also also a single single stage stage adval1 adval1ce. ce. When When lwar lwar market marketss have have star starte ted d in the the past past,, volm volmne ne was was heavie heavierr on the declin declines es nml ligh lighter ter on thf' thf' rallies. rallies. \Vlwn \Vlwn the crash crash phase phase of a hear hear market market flfwel flfwelope oped, d, volume volume increa increased sed tremen tremendou dously sly on the rapid rapid dr-cli dr-cline, ne, indicati indicating ng panic panic sellin selling. g. Panics Panics [rave occl occllrr lrred ed in thp thp past when people people became became so fright frightene ened d of the possibility of losin losing g all thr.ir thr.ir money, money, that that they they were were willin willing g to sf'11a sf'11ant nt }Italmost }Italmost any price-price---jl -jllst lst to get out of the declin declining ing mnrket mnrket.. My study study of volum volumee has left left me with with Ilw concl concll1s l1sion ion that that it is an an import important ant genern genernll nlf'as nlf'asnre nremen mentt of sllp sllpply ply and demand demand and and of mar marke kett stre streng ngth th or wea weakn knes ess, s, hnt hnt volu volume me alon alonee r-an r-an not he used as a prcci prcci~c ~c timing timing device device.. Someti Sometimes mes when when the market market coasts coasts upward, afte afterr a long long rise rise,, the the decr decrea ease sed d volvolume will indirf indirflle lle a top. top. At other other times times it will will turn turn nn! 10 11e a 1111111i-stage i-stage hull market W!Ji0h starts starts l1p flgain, flgain, for another 'em- or two, after coastin\! coastin\!" for n while on light volume. volume. ) The most impn-1 impn-11nt 1nt ohsf'r ohsf'rvfl vfltio tion n gairH' gairH'fl f l from from my sllldy sllldy of volu volume me was was that that the the top top of eve every ry hlll hlllll mark market et,, duri during ng the the 1'l,s, 1'l,s,t..' t..'wentyw enty-two two years, years, has been accomp accompani anied ed by lower volvolume ume than than occu occurr rred ed earl earlie ierr duri during ng that that bull bull mark market et.. vVhe vVhen n 'one 'one stop stopss to think think nhou nhoutt it, it, such such acti action on seem seemss comp comple lete tely ly
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VOLUME
29
logicnl. logicnl. It wnnlr] seem seem that that a bull bull mark market et coul could d not not end end as long long as the volume volume incr increas eased ed alon along g with with the the risi rising ng price prices, s, becaus becausee that that woul would d indic indicat atee a conti continuo nuous usly ly incr increas easin ing g dedemand for stocks. stocks. The Jaw of suppl) suppl),, and demand states states that prices prices must must rise rise when ths demand demand exceeds exceeds the supply. supply. Therefor Therefore, e, before before the bull bull marks markstt can end, demand demand must must gradu graduall ally y ease ease off off to to the the point point where where it is exceed exceeded ed by suppl supply. y. Such Such a gradu gradual al easin easing g of demand demand is indic indicat ated ed by declini declining ng volum volumee as prices prices concontinue tinue to rise rise.. AnQ!he~._90nc.l~ls.i2.~ ..L~~!'l9!!~sl wa~.lh wa~.lhat. at.1J~ 1J~a.r a.r markets markets are st~r.t~g..~Y'_s..!:l_qde!!l_1!..~~~Rected_qy.£.nt~uc!~~ ~t usually st~r.t~g..~Y'_s..!:l_qde!!l_1!..~~~Rected_qy.£.nt~uc!~~ ~.ars., disasters.j, IJre.s!cl!;nt~J!~gtr..tatt;!ckWl!:. ~J!~gtr..tatt;!ckWl!:. e~~gj:1LtU!llilJJ! Presid ident ent.. The The eviden evidence ce indi indicat cates es that that bull bull mark market etss are are of a Pres only only tempor tempornr nril ily y inte interr rrup upte ted d by such such unexpe unexpect cted ed shoc shocks ks.. Then, Then, after after a sharp sharp reaction, reaction, the bull market market again again continu continues es its its upwar upward d clim climb b until until the the power power of its its thrust thrust has been been lost lost.. Only Only then can a hear market begin. begin. The majority majority of people people seem seem unablsm underst understand and that the the stock stock mnrket mnrket cycle cycle is not not really really governe governed d by news items and busine business ss conditi conditions. ons. The life life of a bull bull market market is c1etCI1 c1etCI111in 11inecl ecl by its its own own infe infern rnal al condi conditi tion on and the balan balance ce of supp supply ly and demand demand for 8tncks. 8tncks. Many Many people, people, quite quite underst understanda andably bly,, arc misl misled ed to the point point of compl complete ete confu confusi sion on by daily daily pric pricee fluctuations, fluctuations, conflicting conflicting opinions, opinions, rumors and misinformati misinformation. on. I susp suspect ect that that part part of the the confu confusi sion on may be cause caused d purpurposely by SOme of the the high stake stake playe players rs who have been been in the the game game for for a long long time and want want to keep keep on winni winning. ng. They They have a defini definite te advanta advantage ge if their their opponents opponents are hind hindered ered by confusion, confusion, fear and ignorance. ignorance. In the the era hdore hdore the Securi Securitie tiess and Exchange Exchange Commiss Commission ion active, profeS profeSSion Sional al stock stock pool operators operators actuall actually y became active, hire hired d rumor rumor spre spreade aders rs to frequ frequent ent the the boar board d room roomss to pass pass
31
VOLUME
Jl'MAMJJASONDJFMAMJJASONlJJFM
680
66 0
66 0
66 0
out tips tips and spread spread propag propagand andaa about about the stocks stocks being being manipula nipulated ted by the pools. pools. In those those days days the big bad boys boys used used ever everytI ytIli ling ng but but guns guns to sepa separa rate te the the suck sucker erss from from thei theirr money. There There are stiJl stiJl some some skunks skunks in the woodpi woodpile, le, trying trying to ambush ambush you-s you-so o take take care. care.
6L o D O W-.I!l11FS
620
INWSn m.1
600
AVERAGE
. 60 0
58 0
. 580
56 0
56 0
, TIle TIle most most aCClIr aCClIrflt flteway eway I found found to evaluat evaluatee the trend of [,week [,weekly ly volume volume was to use a six week week moving moving averag averagee of 'weekl 'weekly y volume. volume. The moving moving averag averagee elimin eliminate atess the more more :~rrat :~rratic ic fluct fluctuat uation ions, s, and smooth smoothss out the weekly volume 'changes 'changes into into a fluently fluently moving moving line. The moving moving line clearly when weekly weekly volume volume decrease decreasess as the market market moves moves 'S h o w s when
u p w ar d .
!l80 !l80 .
15 W F :lIK LY V O L U ME ::lIT \'IF,FJ( MOVINn AVlffiAGE AVlffiAGE
10
10
19"8 J
.
Presented Presented here is 1 1 chart chart showin showing g the action action of the DowJones Industrial Industrial Average, Average, and the six week moving moving average average of volume volume during tJle bull market market of 1958-59. The first thing to under understa stand nd on this chart chart,, is when when the top of the bull market occurr occurred. ed. The DJIA DJIA reache reached d its highes highestt point point of the bull market market in the first week of January,' January,' 1960. But that was not the top of the hull market. market.
F
II II
A II
J
J
19')9 A
SO SO N
D
J F
II A I I J
, 7 A SO SO N
1960 D
J F
II
The majority majority of investor investorss think the DJIA is a true indicator indicator of stoc stock k market market trends trends.. hut there there are times times when when it is not an flCCll flCCllmtei mteindi ndicat cator, or, and one of those those times times was in januar january, y, H160. That That was a false false move of the DJIA. DJIA. If yOllwill examine charts of the New York Times Average. the Herald Trihnne Trihnne Average, Average, Standard & POOl'SAverage and Moody' Moody's Averag Average. e. you will will Iind Iind all of them SllOW SllOWAug August ust.. the highest highest point point in the bull bull market. market. Why did the 19.59 as the DJTA DJTA make make the false move move to a new high high in January January,, 1960? 1960? I can think of only two possihle possihle reasons: reasons: 1. Invest Investors ors were were more more anxiou anxiouss to buy the thirty thirty stocks stocks in
30
3
VOf,tJJ\fE
2
the the DJTA DJTA than than tho tho stoc stocks ks in any any of the nrhe nrherr mark market et averages 2. The DJTA DJTA was was puslwd puslwd up to a new new higll higll hy hig operat operators ors in orde orderr to fool fool the the puhl puhlic ic into into thin thinki king ng that that the the bull bull market market was still going strong. strong. I have have no evidence evidence on which which to base base a choi choice ce betwee between n the two reason reasons, s, so I will will just just have to continl continl1c 1c wonder wondering ing about about it.
The The char chartt clea clearl rly y show showss the the stro strong ng,, smoo smooth th rise rise of the DJIA DJIA duri during ng the the earl early y part part of the the bl11 bl111ma 1mark rkf' f'!, !, as it 'was 'was pushed pushed upward upward by the powerf powerful ul thrust thrust of increa increasin sing g volume volume.. Then Then,, in emly emly 1959 1959,, the marke markett cont contin inuf uf'd 'd upwa upward rd on decreasing creasing volume. volume. Notice Notice how the voll1me voll1me line line made a 1lf'W 1lf'Wlow low in May, May, 1959 1959 at the same same time time the nJTA m::lCl m::lCleea new new high. high. At the vef)' vef)' top of the the hull market market in Jnly, Jnly, 1959, the volnrno was considerah considerahly ly lowe lowerr than than it had had heen heen earl earlie ierr in the the l-ull market. This This chart chart is a class classic ic exampl example, e, showin showing g how volume volume 11S1111S11ally ally decrea decreases ses at the top of a hl111 hl111mar market ket,, Such Such volume volume action tion is uswllly uswllly Found in all all hun mark market ets. s. In this this CflSC, the volu volume me peak peak'' ocenr ocenrre red d eigh eightt mont months hs hdor hdoree the the top top of the the hull hull mark market et.. In othe otherr 1)11 1)1111 11 mark m arket ets, s, the the volu volurn rnee peak peak ococcurred curred at differ different ent times. times. Follow Following ing is a reco record rd of the the time time hetween voll11lle voll11lle peaks and hl111marke hl111markett tops. \V1H'nVOllllllPPeak Occnrred Jamm Jammry ry,, HJ46 HJ46-F -Fiv ivcc mont months hs hdo hdore re the the top top JaUllaf)', Ul55-F Ul55-Four ourtef tefm m months months before before t!1f' t!1f' top Novernlwr, 1958 1958-E -Eig ight ht mont months hs befo before re the the top Marc March, h, H16 H1611-Ei Eigh ghtt mont months hs l)(' l)('£o £ore re the the top top
null Market
Top Dnte Jnne Jnne,, 1946 1946 March, March, )956 Jnly Jnly,, 1959 1959 Nove Novemb mber er,, Hl61 Hl61
WeeklY WeeklY Vol11111e Vol11111e is sho shown wn on accnr accnrat atee char charts ts whic which h are are publis published hed" every every Snndny Snndny in the New York York Herald Herald Trihnn Trihnnee and
Conrtesy Conrtesy of the New York Herald Herald Tribune. Tribune.
33
VOLUME
35
the New York Times. Times. Dming Dming some some 1 1 1 1 1 1 market markets, s, the volume volume peak peak on the newsp newspape aperr chart chart is obvio obvious us and easil easily y recog recog-nized. nized. At other other times, times, the greater greater detail detail of a six six week moving avcra avcragc chart chart is need needed ed..
I lik likee to exam examin inee the the Sunda Sunday y stock stock mark market et chart chartss in the Hera Herald ld Trih Trihuno uno and the New York York Times Times freq frequen uentl tly, y, espe espe-cial cially ly at impor importa tant nt tnmi tnming ng poin points ts.. It is a good good policy policy to frefrequent quently ly comp compar aree the the actio action n of the the diff differ erent ent stock stock avera averages ges with with the movemen movementt of the Dow-Jo Dow-Jones nes Industr Industrial ial Average. Average. If the the DJIA DJIA woul would d he the the only only stock stock aver averag agee to mak makee a new high high in a hull hull market market-w -whi hile le the the other other aver average agess fail failed ed to make make new new high highs, s, one one coul could d cons consid ider er that that to be a false false move move of the the DJTA. DJTA.
34
THE TIME ELEMENT
CHAPTER
5
THE TIME ELEMENT
In my exha exhaus usti tive ve char chartt stud studie ies, s, I noti notice ced d that that time time was a signif significa icant nt factor factor in hull hull market markets. s. During During the last twenty-t twenty-two wo year years, s, ever every y hl11 hl111ma 1mark rkd d last lasted ed a diffe differe rent nt leng length th of time time.. The The leng length th of hul hulll mark market etss vari varied ed from from one one to seven seven year years. s. The importa important nt consis consisten tency cy nbout nbout the time time elemen elementt is that that every every bull bull market market lnstf' lnstf'd for one one year year or more. more. The minimu minimum m leng length th of a hul hulll mark market et was was neve neverr less less than than one one year year.. It seem seemss that that when when enou enough gh stre streng ngth th is gene genera rate ted d to star startt a bull bull market market,, a powerf powerfl11 l11 force force is creat created ed which which is diff difficu icult lt to stop. stop. It appears appears that that a year year is the minimum minimum time time rpquir rpquirf'd f'd for the the life life span span of a hull hull mark market et.. It take takess time time to accu accuml mlll llat atee the the stre streng ngth th need needed ed for for the the rapi rapid d earl early y grow growth th of a bull bull mark market et.. Time Time is als also o requir required ed for for the mark market et to go thro throug ugh h its its dyin dying g strn strngg ggle less of the wide wide swin swingi ging ng rf'a rf'aet etio ions ns IlSl IlSl1a 1al1 l1y y foun found d in the top top area area.. The The one one yenr minim minimum um leng length th meas measur urem emen en!! shou should ld star startt from from the time of the the lowest lowest price price reache reached d by the market market.. and shou should ld end end at the time time of the the high highes estt price reached by the market market.. The large large rallie ralliess of 194R 194R and 1957 1957 diel not even even last last six:mo six:month nths, s, so they they can not he though thoughtt of as hllll hllll market markets. s. The The reco recogn gnit itio ion n of a one one year mini minimu mum m )ife )ife span span for for bull market marketss does does not seem like a very import:: import::mt mt item, item, hilt hilt every every step step we take take whic which h help helpss to dispe dispell conf confus usio ion, n, also also helps helps.. to clarify clarify our l1n(lerstnncli l1n(lerstnncling ng of the factors WI' must must work work WIth. WIth. 36
37
A pre preci cise se unde unders rsta tand ndin ing g of bul bulll and and hear hear mark market etss will will help us to form form a correct analys analysis is of future future market market action action The The seve seven n year year long long bull marke markett whic which h last lasted ed fr~m fr~m 1949 1949 to 19.5 19.56 6 seem seemss to indic indicat atee that that ther theree is no maxim maximum um leng length th for for a hull hull mark market et.. The The maxi maximu mum m dura durati tion on of a bull bull mark market et is not not dctenn dctenn.i .ine ned d by the time time elem elemen ent, t, but but by the mark market et's 's own p.rogre p.rogressl sslve ve weakne weakness. ss. which which develo develops ps as a resu result lt of the the changm changmg g forces forces of supply supply and demand demand.. Time Time is one one of the two basic basic elem elemen ents ts whic which h comb combin inee to form form trends. trends. The other element element is price. price. One could could make make the statem statement ent in the the fonn of an equat equation ion like like this: this: Time + Price Trend. The changi changing ng prices prices and the passing passing of time time gradua gradually lly bring bring about the formation of a trend. ' Such Such trends trends can he under understo stood od best best by visual visual observ observati ation on on a cha~ cha~t. t. A line line char chartt pres presen ents ts a pict pictur uree of time time and and pric pricee chan change gess m a bala balanc nced ed pers perspe pect ctiv ive. e. Char Charts ts can can be valu valuab able le aids aids in analyz analyzin ing g many many kind kindss of data data in rela relati tion on to the pass pass-ing of time.
=
We shoul should d unde unders rsta tand nd that that time time is an elem elemen entt with with thre threee tens tenses es:: past past,, pres presen entt and and f1Itur Iture: e: We shou should ld know know what what has has ~ll1Pf ~ll1Pfene ened d in the past past in order order to underst understand and .what .what ishapp ishappenenmg 111the present present and plan what what action action to take take in the future future.. 'Ve.mu 'Ve.mu~t ~t rea HzI' that that the the futu future re will will soon be the the pres presen ent. t. Tf action IS not not tnke tnken n at the prop proper er time time,, the the oppo opport rtun unit itv v may slip into into the past and he lost lost forever. forever. .I
DEVELOPING A MF.THOD
CHAPTER
DEVELOPTNG
6
A -METHOD
The m()n~ I Ipflr Ipflrne ned d ahou ahoutt the the stoc stock k mark market et,, the the more more T want wanted ed to foll follow ow a meth methml ml for for gell gellin ing g in and out out of hull hull and and bear bear mark market ets. s. A per perso son n can can not not expp exppcl cl to he succ succes essf sful ul in the l11flr l11flrke ket, t, or anywh anywher eree else else,, with withou outt a ddini ddinite te plan plan of ::lcti ::lction. on. \\Tith \\Tithont ont a definite definite method method of operat operation ion,, how ('0 111< 1 I he strong strong enou enough gh to sell sell out out when when hlls hllsin ines esss and and econ econom omic ic condit condition ionss look look so good at the top of a hull market market?? If I h::u h::ull no no meth method od to help help me, me, how how coul could d I he hrave hrave enou enough gh to buy ncar the the hott hottom om of a hpar hpar mark market et \",· \",·he hen n buy ncar things things look look so bad, bad, and everyhod everyhody y is pcssi pcssimis mist~e t~e?? H~w could could I be reasonably reasonably SlHB of taking taking action action ::Itthe ::Itthe nght tlllW? tlllW? I felt felt that the only wnv to safely safely navign navignte te the treach treachenH enHls ls tide tidess of the the stoc stock k mark mark~t ~t was was to have have a set set of Tnle Tnless as a guide guide for huyin huying g or sellin selling g as close close as possi possihh~ hh~ to to the right right times. f 1 I examined examined all the existing existing method methodss T could could find, find, for 1 e t sure sure that that somebo somebody dy mnst mnst have have devf'1 devf'1opN opNll n good good mf'lho( mf'lho(ll for consis consisten tently tly identi identifyi fying ng the hegin heginnin ning g and endin ending g of h 1 1 1 1 and henr henr m::l m::lrk rk~t ~ts. s. Aft~r Aft~r an, an, stoc stock k mark market etss as such such have have heen heen opemti opemting ng since since shorilv shorilv after after the Revolut Revolution ionary ary War. War. Of course course,, there there was the Dow T11eof T11eof)l. )l. T have have great great respec respectt for the the now Theory Theory,, as it it was one of the the first first major major attemp attempts ts to scient scientifi ifical cally ly measur measuree the movemen movements ts of the the stock stock market. market. It broug brought ht sot"ne sot"ne semhla semhlance nce of order order to the interp interpret retati ation on of 38
39
mark market et fluc fluctu tuat atio ions ns,, hut hut it did not not seem seem to be accu accura rate te enou enough gh for for me. The The Dow Dow Theo Theory ry occa occasi sion onal ally ly prod produc uces es some some fals falsee sign signal als, s, and and some some of its its true true sign signal alss are are a long long way from the top or bottom bottom.. Then Then therA therA were were the methods methods which which applie applied d moving moving averaverages ages to the Dow-Jo Dow-Jone ness Indu Indust stri rial al Aver Averag age. e. Ther Theree were were also also meth method odss base based d on volum volumee stud studie ies, s, grou group p rati ratios os,, odd odd lots lots and so on. on. Many Many of thos thosee method methodss were were basica basically lly sound, sound, but they they seem seemed ed to have have a comm common on faul fault. t. Prac Practi tica call lly y all all the the techni technical cal method methodss had freque frequent nt whipsa whipsaws, ws, result resulting ing in smal smalll losses losses,, during during the times times when when the market market would would experi experienc encee indeci indecisiv sivee rallie ralliess and declin declines. es. I wan wante ted d a met metho hod d that that woul would d only only signal signal the the actu actual al heheginnin ginning g and the end of bull bull markets markets and bear market markets. s. One One of the the problems with with some some meth method odss was was that that too too much much emph emphas asis is was was give given n to the the tren trend d of the the DowDow-Jo Jone ness InIndust dustri rial al Aver Averag age. e. How How can can an avera average ge of thir thirty ty hIgh grade stoc stocks ks show show what the the whol wholee mark market et is doin doing? g? None None of the the popula popularr averag averages es can show show exaetly exaetly wbat is happen happening ing to the the entire entire market market,, for there there are more more than 1,500 1,500 stock stockss traded traded on the New York York Stock Stock Exchan Exchange. ge. No stoc stock k aver averag age, e, by itse itself lf,, can can reve reveal al the the tech techni nica call stre streng ngth th or weak weakne ness ss of the the whol wholee mark market et.. But But it is extrem tremel ely y impo import rtan antt to kno know w what what the the DJIA DJIA is doi doing ng,, for for the majori majority ty of inves investor torss believ believee that that it reall really y indica indicates tes the true move moveme ment nt of the the mark market et.. It is wise wise to keep keep trac track k of the the DJTA, so onf onf'' can know know what what the the majo majori rity ty migh mightt thin think k the the market market is doing doing.. Abou Aboutt that that time time I came came to the the conc conclu lusi sion on that that it was was not not prac practi tica call to plac placee the the main main impo import rtan ance ce of a met metho hod d on any stock stock averag average. e. I reas reasone oned d that that the only really really practi practical cal thing thing woul would d bA to deve develo lop p an accur accurat atee meth method od of meas measur urin ing g the the techni technical cal streng strength th and weakne weakness ss of the whole whole market market.. The The only only indic indicat ator orss I knew knew that that woul would d cove coverr the the whol wholee
DEVELOPING
1\
DEVELOPING A MF.THOD
'
METHOD
41 .
tl H'ctly l me~am'e ,'t tl' zero er As'eTp'r'ol exactl exa y o the ~am r 'o,'t Il °1 lIS, lIS, seve seven n years years later, later, J still follow t
mark market et had had berm berm right right in fron frontt of me for a long long time time,, hut hut I had never never paid paid lTl1Ich attent attention ion to them. them. Every Every Sunday Sunday the flnnnd flnnndnl nl sectio section n of the the llewspap llewspaper er carcarried ried a Jist Jist showi showing ng hoy, hoy,'' many many stoc stocks ks had had mndf mndf'' new new high highss duri during ng the the past week week,, ::mc ::mclho lhow w many many had had made made new new lows lows duri during ng the the week week.. Also Also show shown n were were the the number of stocks stocks which had advaTwecl advaTwecl during tlw weck, weck, the numher numher which which had decl declin ined ed and and how how rnnn rnnny y had had rr.m rr.mni ninc ncd d nllc nllcha hang nged ed.. Thos Thosee figure figuress showed showed what what was happe happenin ning g to all the the stocks stocks traded traded on the NYSE. NYSE. I start started ed ,'"a ,'"ark rkin ing g with with new new high highss and and new new lows lows and and soon soon had figured figured how to get an nccn nccnrnt rntee measur measureme ement nt from from thf'm, thf'm, I bega began n char charti ting ng tllf tllf'm 'm in a form form whic which h I eallcd eallcd the the Inde Index x of Week Weekly ly Net Net New New High Highss and and New New Lows Lows.. In the inte intere rest st of brev brevit ity, y, I refer refernc ncd d to it as the NH-NL NH-NL Inde Index. x. TTpr TTpree is how how I
,
.. ,.
ce( 11re,
,
300 300 200 200
L
I
1 / \
~o t1
100 [4
~
EXAMPLE:
New Highs Highs New Lows Net New Highs Highs
100 -20
80
If there there wen' wen' more more new lows lows 111al1 111al1new n ew highs. highs. I suhtrac suhtracted ted the Dew highs highs from from the new lows lows to ohtain ohtain the 1111Jl 1111Jllhf lhf'x 'x of net new lows for that that week. week. EXAMPLE:
New Lows Lows New lIighs lIighs Nri New Lows Lows
60
-40 20
On the char chartt T plac placed ed all all wef'k wef'kly ly net net new new high high entr entrie iess above above the zero zero [ine, [ine, and all weekI\' weekI\' net new low entries entries below below
~
~
o
V
V
10 0
200 200
,
. • iN ~
'"
t:
-.:I
\
1961 J F M
A
M
JIJ . '
net net new new high highss for for that that week week
INDEX
•..
r-; N i
obtain obtained ed the net figmes figmes:: If there there were were more more new higlls higlls \llan \llan new lows. lows. I suhtract suhtracted ed the the new new 10\' 10\'''''ss from from the the new new high highss to obtai obtain n the the numb number er of
Low Low
NF.\V HIGH - NEW
EXAMPLE:
A
S
0
N
D
.•
J quickly ch charted a NH-NL I nd ndex ' and and found found that that it was was indeed indeed'' n i coverm covermg g severa severall years, years, ing technical technical market market 'streng~ 'streng~tl tl an ImPkn°rtantfac ImPkn°rtantfactor tor in measur1 '1 ' .' " lor lor wea wea ess. ess. .. ien ien I star starte ted d work workin ing g with with a 1 found found that that the number number 0 '£ t k ( vluoh i and decline declines. s. I soon soon , s oc S w rich re lned I seemerl to have no at,' ' , . mame UDe langed / pparen importanc I . ing ing onlv onlv with with the the adva advanc nces es .d 1 ce, ce, so cont contin inue ued d work work-, . ~ . va vances an t ie de l' I 1 1 net net fil filluTe luTess just just the the sa sa ' 1 ..ln ..ln o meso eso ca cu ated ted the the If 't' 't'here h ere we we , ., ~,e ~,e alsWI alsWItt 1 t ie net new highs highs and lows. lows. ac vance tl d I' , ire moi e ac fS 1anI week week,, I subt subtra ract cted ed Ihe' Ihe'd d 1', 1', anI ec Ille Illess duri during ng the the .' co Ille Illess rom rom t ie ie alb 'lIP numher of net I, I, ,. < ( vances vances to 0 tain , '. H( vances. EXAMPJ,E:
Advances Declines Net Advances Advances
90 0 -300
6 00
43
nEVF.T.OPING A MEnlOn
2
nEVFJ .OT'ING A MF.TTTOn
cd lIran s ~H vance, I, < are (lccliTws (lccliTws I . ;uhtnlcl If there there weff~ weff~ III the decline decliness to ohtain ohtain the nl1mher nl1mher of net net the aclvaneps aclvaneps .1am declin declines es Ior the week.
4
-600
Net Declines Declines
J\
,.", 1 I\
10,0 10,00 00 0
50
1De l' Inde Index x to show show the the ris risee I wantce.l Ihis elvanee anr k' ('t'C1.Il~~~ way; way; that that would would r-omr-om11an 11and d 1eaf 1e mar e s c • 1 af mar ancI f a110f 1111 c I 1 1 to mnkc it a Cl1m Cl1m11 111a 1atI tIve ve .' .. 1 k crages so so rae c pnrc with sl'o sl'oee av ~ , v. "'1' "'1'1 . ,I' ,I' I slmt slmtpc pcll with with a figu figure re of ind t 1 ane anees es anr anr c ec meso eso . £ Inc Inc ex ex 0 ne n < vr ' . I 11 1 tl18 number of net t' ac c cc cc . (f figure zero zero.. To t I 10 10 sta starr mh 1 [ net we weekly ' .' ' r suhtracted the nU111)er a weekl eekly y adv advan ance ces, s, o· [1 I In'pt a larcf. larcf.e sheet sheet of Po . T) kee tnlck 0' t w I1gnres, . t' dec 1meso ( . P 1 1 Illations every week. I . paper paper on ,,,,,hic ,,,,,hich h T recorc ec Ire ca curr j\
t
9,000
r
~
I /
8,000
7,000
INDEX INDEX
I
11,000 11,00 0
650
Declines Advances
EXAMPLE:
ADVANCE & DECLINE
EXAMPLE:
~
.
••• (t
~'l 1 V L~
'\
i
l
1961
I 'J F M
A
M
J J A
S
0
N
D
called called it the the data data sheet. sheet. EXA~frLE:
Allgust 20,1961 Al1gl1st27, Al1gl1st27, 1961 Scplcm Scplcmher her 3, 19(3] Seplember Seplember 10, 1901 Srpteml1ef l1ef 17, 1961 1961
Total Net Declines Declines
9,fl38
Total Net Declines Declines
9,621
Total Net Advances Advances
-12
--_.-
-
-209
9,3529 ,352+2.32-
Total Net Declinp$ Declinp$
9,584 -372-
Total Net Declines Declines
9,2129 ,212-
Total
-154 9,058
. kly totals. totals. I still do it exactl exactly y Tlwn T char charte ted d on 1]Y t 1(>, wee the same way.
For For comp compar aris ison on purp purpos oses es,, I also chart charted ed the the DowDow-Jo Jone ness Indu Indust stri rial al Aver Averag agee on the the same same shee sheett of pape paper. r. Timi Timing ng mymyself self on sever several al occa occasi sion ons, s, I foun found d that that it took me exac exactl tly y thre threee minu minute tess a week week to mak makee all all the the calc calcul ulat atio ions ns and and char chartt the the entrie entriess on the the NH-N NH-NL L Inde Index, x, the the Adva Advanc ncee and and Decl Declin inee Index Index and the DJIA. Anyone Anyone who wishes wishes to do the same will find find low low price priced d char chartt pape paperr avai availa labl blee at many many drug drug stor stores es and dime stores stores.. Back Back in 1956 1956,, when when I devel develop oped ed the the Inde Index x of Net Net New New High Highss and and New New Lows Lows and and the the Advanc Advancee and and Decl Declin inee Inde Index, x, I though thoughtt I had had discove discovered red someth something ing which which no one else else knew abou about. t. At that that time time I had neve neverr seen seen or hear heard d of an Advan Advance ce and and Decli Decline ne Inde Index, x, or a New New High High-N -New ew Low Low Inde Index. x. When When I aske asked d my brok broker er if he knew knew wher where' e' I could could obta obtain in list listss of figu figure res, s, goin going g back back thro throug ugh h the the year years, s, show showin ing g week weekly ly adad-
DEVF,LOPING
44
DEVEY,OPINr. Y,OPINr.
A METHOD METHOD
. leklv new highs and new lows, he vances vances and dechnes dechnes a 11< .WIe .'t lk lking ing about. This This lerlm lerlmee to did no not ev even kn know w 1iat was a . } I 1 an orig origin inal al dis disco cove very ry.. V belTie belTiel:~ l:~~n1 ~n1~~: ~~:;~\ ;~\:n] :n]jze jzed d that that I was was not the firs! tfodiS. COer . li I 1 for I ounr 1 1Ut t 1 eek1 eek1 Adva Advanc ncee and and Dee Dee me nc ex, ex, the w " Y . l' tent advisors were also some ome marke markett anal analys ysis is anr anr mves mvesm m. .nnl .nnl sts sts use used da daily ily . dvan dvance ce and and decl declin inee inde indexe xes. s. Som Somee an, an, y.. y.. .. 1 11 11 ~smg ~smg a 1i;~ 1i;~ othe others rs used used week weekly ly inde indexe xes. s. It was was pro pro ra 1. y mdexes, wl 1 J iust iust had had not heard heard ahol\t ahol\t It. devel evelop oped ed man many yea yearrs ago ago,, am . l·· l·· . 1 nd new new low lows Some Some ana analy lyst stss also also use use inde indexe xess of new new hlg hlg rs rs a kl·· kl·· l' " . 1 ·t I · sec sec or hea hearr of a ,ve ,vec' c' y mr ex ex r i t ( > t l m J l f l V e y e o s e e . 1 J bu t as Iw . ' I l i k the onf) ( e, v hi 11samI 11samI 11ew 11ew lows lows exac exactt y Ie' Ie' of net nev . g . ' 1 .1 of anyone ot other th than m my yvelope veloped. d. To date, I IlHlVCl IlHlVCll ~l lean lean anne annerr whic which h cons consis iste tent ntly ly self l ls lsing tlwse inc exes 1 11 11 am am·, 1 . 11 11 . Is . sIgna .. 1 nthem'llw.a 11v precIs. e 1)n\ 1 (aJJ( se sIgna . 1 pr;(;~ pr;(;~::~ ::~~:~ ~:~lth lthat at when't when'the he ;\(1va ;\(1vanc' nc'e an:1 an:1 nec1in nec1in~t ~t 1 NIlNIl-NT NT Tnde Tndex x hoth hoth advan advance ced d COIl COIlSl Slsl slen entl tly, y, 1. 1 . t }f)' k were were risi rising ng nnc1 nnc1 s }owm }owmg g an indi indica cat.i t.ion on that that ~os.t, ~os.t, sto stocc ,.s. .' of a hun market. 1 h i1HIlCatmg t 1ie presence I' 1 strengt 11, t wre) .' the the ;\ & 11 Inde Index x and and the the It also also seemed seemed logIca logIcall t la! W)(,1 W)(,11.' 1.' WOlllr WOlllrll he an NH-N NH-NL L 11Hl 11Hlex ex hoth hoth dceI dceIin ine( e(ll cons consls lstP tP11 111~ 1~): ): It 1 1 . . ' .' st stocks were de deel1Tlmg am s IOwmg )lJehcatlOn thnt mo mo. 1 r:p of a hear market. k tl Nehy Nehy ind indicat icatin ing g t 18 pres presP Pll .. . wea n es ess, 1, ~ " . flhA charts showed tllat t he he 11 1111A carefl11 eX:l111mflt1On or ' 1. nt nt . . 1 1 A & D Index Index was was t ie amon ortant ortant consideratI consideratIon on wit I t le .... hereh I ich thE' weekly weekly totals totals changed changed thell' thell' (hrec (hrechon hon,, t.. Jy -; 1 . ' f rend rend.. When When I star starte ted d a new new A & indlCalmg indlCalmg a r:hang r:hange 0 t k l'ffere ferenc ncee wheth hether er I star startp tp,d ,d Inde Index x char chart, t, it did did not not rna e l11 l111y 1y(1 ' , f ~ 000 or a figure figure of Po '1 f zero zero a fig figur uree () c . the chart chart WIt 1 a llgure 0." The The e tent tent of 5000 5000 It (lid (lid not not matte matterr what what the the tota totals ls were were., ., . 18 ex . ." f di ction was the important thmg. the change change 0 l~e'l _1 'th these indexes, I [onnd Duri During ng my ong ongma ma resc rescmc mc 1 WI
l:.(~~~(t;~~
1
l '
<
f
,<
.
•
6
.J ,
A METHO METHOD D
45
that that they they accura accurate tely ly iden identi tifi fied ed the the begi beginn nnin ing g and and the the end end of bull bull and bear market marketss in this manner: manner: The start of a,b!Jll m~~~,et~as m~~~,et~as signyled signyled ....:~hen_ ....:~hen_q~~4dv q~~4dv~p._~~ ~p._~~ and Decline Index tt~~I_l~5L':Ipw~Es!J?y 240.9_poLJ;ll§., 240.9_poLJ;ll§.,and and the the NH -NL J ndex ndex regist registere ered d at least least 80 net net new highs. highs. The start start of a bear bear market market ~_~i1£ ~_~i1£1al 1aled ed when when the Advan Advance ce and Decline Decline !.n(l~x!~r. !.n(l~x!~r.!led !led 5:l
6
DEVV.T.OP DEVV.T.OPTN( TN(;;
A l\lETJl()P
,'_
4
'. , li7(~ that mv simple trpnd [0110\\ At thai thai tilllP T d1(l d1(l not not lPa lPa 1" 1 ,m'D Ill(' [ol1lH1ati [ol1lH1ation on on ate v weo ,. It " ate rrn: '', '', 1,t ing ing meth method od won won 1 (1 II rrn: 1,t theo theory ry of sto stock ck mark market et • a complete which 1 cons constr trnd ndf' f'd d a comP1 comP1f' f' C complete unrlerwhich hroug It to me,· k trends-a t 1)pmy . t f the stock mar d. standing standing of the complex rnOVPll1en rnOVPll1enss 0
CHAPTER
7
YIELD
In my effort effortss to improve improve my method method of trend trend determ determina ina-tion tion,, I spen spentt many many hams hams anal analyz yzin ing g basi basicc fact factss and and idea ideas. s. I was engag engaged ed in a purs pursuit uit of truth truth and logic. logic. My prefer preferenc encee h::Jd h::Jd always always been been for techni technical cal analys analysis is of (he (he stoc stock k mark market et,, beca becaus usee tech techni nica call meth method odss prov provid idee the the elemen elementt of precis precisee timing timing.. Now, Now, howeve however, r, I had had to accep acceptt the idea idea that that it was was prohahl prohahly y not possib possible le for an)' an)' purely purely techni techni-cal cal metho method d to avoid avoid the the smal smalll loss losses es caused caused by the the mark market et movi moving ng lip lip and down down inde indeci cisi sive vely ly with withou outt esta establ blis ishi hing ng a definite definite trend. trend. Then Then the the thou though ghtt occu occurr rred ed that that it migh mightt be possi possibl blee to combin combinee a fund fundame amenta ntall approa approach ch with with the techni technical cal method method which which I had developed, A fundam fundament ental al approa approach ch might might give give thA thA gen gener eral al cond condit itio ion n of the mark market et,, and and the the tech techni nica call method method could could provid providf' f' t11f'exa t11f'exact ct timing timing.. It sounde sounded d logica logical, l, Imt what what fundam fundament ental al consid considera eratio tion n should should be used? used? The The idea idea which which prov provid ided ed the the answ answer er came came to me far out at sea sea when when I was was crui cruisi sing ng in the Baha Bahama ma Isla Island nds. s. I was was sailin sailing g in an area area called called the Tongue Tongue of the the Ocean, Ocean, where where the wate waterr was was ten thousa thousand nd feet feet deep deep,, and and ther theree was was no land land in sigh sight. t. Ther Theree was was nothin nothing g out out ther theree but but the the sea sea and and the the skyskyand the flying flying fish. fish. I had had been been watc watchi hing ng the the flyi flying ng fish fish for sever several al hour hourss as they they play played ed around around the hoat. hoat. I notice noticed d that, that, when when the)' the)' broke broke 47
8
4
YIELD
~nn
,
t l ov flew flew only only about about I1fty feet,
out of the ',vater,' ',vater,' SOInPtlInP SOInPtlInP S 1, f'r as t\VO hundre hundred d fC'C't fC'C't.. , r res t hp".Iy r ('w1 as a . , whil whilee at at 10f In, edllna edllnab1e b1e 10 get hig H'r Regardless Regardless of the the distanC'l,\ distanC'l,\ IH'Yseem ' f 1T feet above the water. , 1iree than I or 01 1 1 t'f 1 C'n~nll lrC'swere tncapn1 rhnt sue 1 ieau lU It was was a S lame ". Iit 1 III T wond wonder ered ed whv whv a i high higheer a 111 111me,e) e,e) , 1 ' hIe 0,f reac llng a I' I' 11 to fl flv as' high as a bird. T ley flyi flying ng fish fish sho shoul uld d not not le a 1e l' f anl anl\r \ril il)T )T,, C01J C01J1d 1d it he 1 'pet 'pet to the the same same aw 0 M' 1 ' I ' . , i lala r altitu were were 1lot lot 1 1 SII SII1) ',' altitudes des hf'cau hf'cause se of IJell' 11 at rf"1C rf"1Cll sum sum a " that they Call ( n ," .1 f ravitv ravitv?? 'Vas 'Vas their their clifTc clifTcrrdiffer differf'n f'ntt relati relations onshIp hIp to, the aw gIl their diffC'rf'n diffC'rf'ntt capa, t grav gravlt lt)T )T gove goveme me(( ,\ ent ent relations 1 lip T
° , ' ,
°
T
'
bilities?, Ilvi n 1 ,"rmillC'cl a maximum altif a v m g u s 1 p" 1 1 '1'1 The capfl capfl J1 I )' 0. .' 'he' ca ' ahilit of a sea gull gull mig 11 Inde Inde of thre threee or fou fourr feet. feet. l'l' 1', 1', P 1 fc~t fc~t 111e 111e capa capabi bili lity ty of ' 1 t of I' of seve severa ra 1 lOU sam ,.", f permit a 1wI wIg'. "" c 't a maxi maximu mum m altit altitur ur e a the highes highestt f1ymg f1ymg all'p1 all'p1ane ane perm I s , T
more more than than 100, 100,00 000 0 feet feet.. "1 ' atte atterr of reln relnUv Uvit ity. y. 'Ma 'Maxi xi-1 /1 t s a III ' ' ist The The sC'w sC,'wnt ntls ls WOII WOII .say '1'1 " c , ' , 1 '1'1 , 1 ' ' 1 hv re relal1ve ca capa 11 I y. mum mum heig height ht IS cetenn cetennme mecc .1' .1' hout hout the capa capabi bili lity ty of the a 1 ,." it onhow h ig h the Well Well thC'n, thC'n, I thou though ght, t, " la~ la~ l 'certam y a 11111 stock market market ? Tl iere IS " limit there would l)pcause if i f there were no , l' k 1 mar et can go go "", ,I l' it on maxi maximu mum m fl tltm tltm e, he no hear hear market markets. s. wu 1011~a 1m, r ''l"ith~11rhe time ''l"ithconlll1ue gOIng np c market would conlll1ue the th1e' st ock 1 , 'nlelTllIltions t lies J had noticer a out ~l1Ym~Jnr 1 . , ,.., e:nl!prr III my s U , I t e:nl!p ( ., Irornorn 'l: : l. ' . ,, IT . t on the maxirornorn )('re( )('re(1 I maxi. , 1 1 I havo havo a. l11n1lmg e ec fact factor or whl( whl('' 1 seem seemec ec Ok Tl t Fact Factor or was was yie yield ld.. IrecallNl ia In rise'h mum height height nf hlll hllll11 l11l~r l~r ets' ets' rise'high igh enough enough to l that h1111markets ha(l never l1f'f>n..,~ T h:,rl' nover heflrc1 of r t . ,11 much much less less t ian .)n. ' " . , 11 lC ( , l' 1 all to IJrO(lu('f>a Y lC Proc1llee a )l]e 1c,' 1 1 ,'"1 gOllP lIg' enoug . t 1 ) 1 1 1 1 rnarlw W nc 1 lac t whic which h c1et c1etAn Anni nine ned d the the 'I rvhvhe )Tielc1was the f ac or .' o f 21Lot '? -I(J •. (~ , capa capahi hili lity ty of the the stoc stock k mark market et.. 1 iC'l iC'lc1 c1is an an impor importa tant nt I h:'1(1 h:'1(1kn know own n for for many many year yearss t iat iat y
1 1k
L
49
Iund Iundam amon onta tall meas measur urem emen entt of bas basic ic Inve Invest stme ment nt valu values es.. You You proh prohah ah1y 1y have have a good good unde unders rsta tand ndin ing g of yie yield ld alre alread ady, y, but but jus justt to be sure sure,, Jet Jet us defi define ne what what yiel yield d is. is. Simp Simply ly stat stated ed,, yiel yield d is the the perc percen enta tage ge of net net inco income me real realiz ized ed from from an invest investmen mentt or a saving savingss accoun account. t. yOIl have have a savi savings ngs accoun accountt in a bank, bank, the annual annual interinterIf yOIl est est rate rate paid paid on yonr yonr savi saving ngss is the the yiel yield d on your your capi capita tall in that account. account. The dividen dividends ds paid paid on a stoc stock k during during one year year is the the yield yield on the the market market price price of that that stock. stock. Stock Stock prices prices and divide dividends nds are alway alwayss changi changing, ng, so the the yields yields are also in a consta constant nt state state of cha chang ngee as the the mark market et move movess up or down, down, If a slock slock sells sells for $100, $100, a share, share, and the yearly yearly divide dividends nds amount amount to $5.00 a shar share, e, the the yiel yield d is 5%. If that that same same stock stock $200, a share, share, and the yearly yearly divide dividends nds inrises in price 10 $200, crea crease se to $6.00 $6.00 a share share,, the the yiel yield d has has decl declin ined ed to ,3%, Obvion vions1 s1y, y, as far far as divi divide dend nd inco income me is conce concern rned ed,, the the stoc stock k was a better vn 1118at $100. a share than at $200. a share. The ohtainin ohtaining g of divi dividen dend d income income is the the most most fundam fundament ental al reas reason on for for many many peop people le to inves investt thei theirr savi saving ngss in the stock market. For For many many year years, s, yiel yields ds have have been been calc calcul ulat ated ed and and pubpublish lished ed for for the the more more impo import rtan antt stoc stock k aver averag ages es such as the the Dow-Jones Inrlustrin] Averag Average, e, Standa Standard rd and POOl'S and other averag averages. es. In my research, T used the the yiel yield d on the DJIA, for. that that averag averagee is the most widely widely known known and follow followed, ed, An examination of vield vield charts showed showed that that yields yie lds decrea decrease se . as a 1m market market moves moves upward, and that yields yields increase increase as a hear hear market market moves moves downwa downward. rd. Genera Generally lly speaki speaking, ng, yields yields are lo w at tbe tbe top top of bull market markets, s, and higher higher at the bottom bottom of hear markets, markets,
n
,
_~._ca~~fl~! __ ~_tu~l.LC?L ~_tu~l.LC?LJongt Jongterm erm yield charts charts sh9wed sh9wed that, bJ111 mi!!"ket~2p._.h~sL~ElY<::!" ~_Uling the Ja~t 1 9 . Y~~~,_~,_!!13jor .~~curred .~~curred before.th,e before.th,e yi(;l1.g.)! yi(;l1.g.)!a..5! a..5! declin declined ed to less less than 4%. Dur-
YIELD
51 ing four four of the the six six huH huH marke markets ts durin during g that that 40 year year perio period, d, the yield yield decl decline ined d to Iess than than 3% at at some some time time duri during ng the the huH market, market, before before the top was reache reached. d. Followi Following ng is a tabutabulowe~tt lati lation on of fhe lowe~ mnrkets.
Dnte Dnte of Lowe~t Lowe~t Yield jan jan., ., 1929 1929 June, June, 1936 1936 June, 1946 Scpt., Scpt., 19.55 19.55 Aug., Aug., 19,59 19,59 Nov., Nov., 1961 1961
yield yield
during
reach reached ed
Lowe~t
2.88% .'3 .2 ,'~ 3.91
2.92 2.97
six six hull
When Lowe~t Yield - Was Reached Reached
Yield 2.80
thos those e
-
9 months months before before the top 9 months months before before the top Right Right at the top 22 weeks weeks before before the top Right at the top One week before the top
As 1 write write this, this, the lowest lowest yield reac reache hed d so far far durin during g the the seventh seventh bull bull market, market, was :3.09% in Janu January ary,, 1964. 1964.
I11~_J()West]ie!d.._.t.:~a~h~5.L.Q~.fQ!.~!~nor tQQ.Q.[ 1953_!Y!!§ 1·~5%.T}~~refore, that.J2.2j!!UQJla~ T}~~refore, I lJaV:~~~Y~_~sidered and and 1 have have never never cons conside idered red the deE.~e.rl.a_~~JI!,!.a~~,:_u.?p, cline cline of 195,'3as a hear hear market, market, becaus becausee no buJJ market market during during the the last last 40 yea years rs had had ever ever made made a top until until the the yield yield had had
declin declined ed
to less less than than 4%. 4%.
An examina examinatio tion n of the the yield chaIt shows shows a yield yield of less than to less than 3% in 19.14,
:3%in 1934. Aftpr the yipl yipld d decl declin ined ed the the mark market et
expe experi rien ence ced d
onlX onlX a mod moder erat ate e
pric price e
decl declin ine e
for for
seve seven n months months.. '['hen h en it starte started d on a seco second nd stag stagee and and went went into into a stron strong g up trend trend whic which h last lasted ed more more than than two two year years. s. Thp Thp seve seven n month month decli decline ne turne turned d out out to be only only an interru interrup_ p_ multi-stage bull market. hetween en the two part partss of a multi-stage market. That That tiOll hetwe was the only case case T foun found d where where a yie yield ld of less tl1an 3% did not not indica indicate te the proxi proximit mity y of a bull bull marke markett top. top.
FOllowing is a tabula tabulation tion of yield yieldss which occurr occurred ed at bear bear m arket bottoms.
YIELD YTF.LD
5 2-
Yield
Date
JI 1 1 y ~ -- 1 9 32
10.3R%
March, March, 193R Apri April, l, ]942 ]942 June, l U 4 9 NO/., Hl~7 O ct ct. , 1 96 96 0 June, 1962
5.30
7.75 7.SO 7.46
a .s o 4.35
woltld woltld ohserv ohservee th[ll: th[ll: yidels yidels variml variml tr~tr~At first glance, on one . k t hottoms. Ho However, it 1 l'ffer f fereent lw:u lw:u mar mar e. . mend mendou ousl sly y at t 18(1· 18(1· , H)!) H)!)7 7 all all the the bott bottom omss w;re w;re ncco nccorn rn-1<1 1<1he see seen tha that, hef hefon~ on~ , .' 1~S7 ~S7 Y1c1 Y1c1 . 1 de stoc {S WI 1 '1 11 p_ llg 1 gra gra .. , h ' re<1 re<111 11ce cessthe the nvat nvat ale ale su . quentlv [mv 1llg It . . . S e actton ~' them them for a long long nrne. nrne. 11, 11, '1, '1, and and incren incrense sed d dema demand nd resu resu 11 of storks. Redl1ced Redl1ced S U P 1 ?) Pin )higher , I1mver )'JClds. 1 i on s cs higher pnc anr ":", 11 11 imllortant cone I1Sl0 of VIe( VI e( some so me 1 f 1 stuc y " ' , From From a C
r:
»
L
C0111dhe re
h .
5 ,3
13e£oroTstarted my carefu carefull study study of yield, yield, Thad expect expected ed it to he he an impor importan tantt factor factor for measur measuring ing the capabil capability ity of the the stock stock market market to reach reach its maximu maximum m height height.. I found found that that to be true, true, but only in a gener general al way which which was not precise precise enough enough to snit me. Thad Thad star starte ted d with with the the idea idea that a 3% yield would indicate indicate a good good time to sell, sell, but I had to abandon abandon that that idea, idea, Althou Although gh a yiel yield d of 3% or less less has freque frequentl ntly y marked marked the prox proxim imit ity y of a hul hulll mark market et top, top, one one coul could d not not say say that that a 3% yield yield would would accura accuratel tely y indica indicate te the top of every every bull bull market market.. There There have have been times when hull hull markets markets contin continued ued moving moving long time time after after a .'3% .'3%yie yield ld was reached reached.. There There have have "P for a long also also been been time timess when when bull bull marke markets ts have have ende ended d with withou outt the the yield yield declin declining ing as low low as 3%. 'Ve 'Ve must must be caref careful ul to avoi avoid d inte interp rpre reti ting ng stat statis isti tics cs in a mann manner er that that will will confi confirm rm a prepre-co conc ncei eive ved d idea idea.. When When the the fact factss show show that that an idea idea is not not soun sound, d, that that idea idea must must be disdiscarded carded.. If a person person refuse refusess to reco recogni gnize ze the truth, truth, he can not develo develop p a plan plan of action action to deal deal with the awful awful truths truths he wiII he confr confront onted ed with with in the the future future.. I was was rathe ratherr surp surpri rise sed d to find find the the most most impo import rtan antt thin thing g I learne learned d about about yield yield was that that it seem seemed ed to be the the factor factor which which limi limite ted d the the abil abilit ity y of the the stoc stock k mark market et to start start a major major dedecline. cline. The The limit limit worked worked in a precis precisee manner manner.. My resear research ch in(Heate (Heated d that a hear hear market market had never never been been able able to get get starte started d when when the the yield yield was was more more than than 5%. 5%. I could could not not find find any exexceptio ceptions ns to that that oh~flr oh~flrvat vation ion,, so it seemed seemed that that a yield yield over over 5% would would not permit permit the start start of a bear bear market market.. As a resu result lt of my study study of yield, yield, I added added one simple simple rule rule to the the oper operat atio ion n of my my metho method. d. I made made a rule rule that that ther theree coul could d he no sell sell signal signal un'less l ess the yield yield on the Dow-Jo Dow-Jones nes Indust Industria riall Averag Average>, e>,was w as less than ,S%at the time time of the signal signal.. 111at 111at one one simp simple le rule rule pnt pnt my meth method od of tec techn hnic ical al timi timing ng unde underr the the contro controll of the the most most basic basic factor factor of funda fundamen mental tal value. value.
YIF.T,n
54
To find find out how how well well rho rho impr improv oved ed llle lllelh lhod od llad llad ,,,or ,,,or1< 1
CHAPTER
CON CONTRA TRARY
8 ACTIO CTION N
M)' impr improve oved d method method satisf satisfied ied me for for quite quite a whil while. e. I felt felt that that was abont abont as far far as I con1d con1d go in develo developin ping g an accura accurate te meth method od for for follow followin ing g the the tren trends ds of the the stoc stock k mark market et.. But But nfte nfterr a whi while le,, subc subcon onsc scio ious us thou though ghts ts bega began n haun haunti ting ng memethough thoughts ts that that someth something ing more more could be added added to impr improve ove the method method.. I. soon soon solidifi solidified ed those those fleeti fleeting ng though thoughts ts into into a solid solid questi question. on. "What "What about about tops tops and bottoms bottoms?" ?" The The thou though ghtt of tryi trying ng to fin find d a way to iden identi tify fy the the exac exactt tops tops and bottom bottomss of hul hulll and and bear bear mark market etss was was almo almost st too too much much to cont contemp emplat late. e. All the hooks hooks I had had ever ever read read about about the stock stock market market said said it was was impossi impossible ble,, and I agreed agreed with with them. them. Tryi Trying ng to ide ident ntif ify y the the exact exact tops tops and bott bottom omss woul would d be like like reac reachi hing ng for for the moon moon.. But But hold hold on, on, just just a minut minute. e. Isn' Isn'tt ~hat ~hat exactl exactly y w.hat w.hat am govern governmen mentt is now plannin planning g and workIll,!! on-r on-rea each chmg mg for for the the moon? moon? We have have alre alread ady y sent sent men men and and rocke rockets ts Iar Iar ant into into space. space. Such Such thin things gs were were thou though ghtt to hI' imposs impossibl iblee [nst [nst a few years years ago. ago. I reme remembe mber, r, about about twenty twenty years years ago, my frie friends nds though thoughtt I was slight slightly ly crazy crazy when when 1 told told them them I expect expected ed to see rocket rocketss headin heading g for othe otherr planet planetss within within my lifetim lifetime.: e.: Twenty Twenty years years ago, ago, there there were were only only a few of us who who believ believed ed that that men could. could. leave leave this planet planet on rocket rocket ships. ships. Now it is an accompl accomplish ished ed fact. So T star starte ted d on my my own space space proje project ct-t -try ryin ing g 55
to loca locate te the the
57
CONTnllTW ACTION
CONTRARY ACTION
top top spac spacee and and the the bott bottom om spac spacee in 1111 111111 11 and heRr markets. markets. I wished T had an oleotro oleotronic nic comput computer er to help help me, hut then then I realiz realized ed that that man is eqnipp eqnipped ed with with someth something ing better better than than a oornpu oornputer ter-va -va hrain hrain which which (somet (sometime imes) s) is capa capable ble of logica logicall though thought. t. That That hrnin hrnin pr()(l pr()(llwc lwcss consci conscious ous though thought, t, l1nd l1nd even even works works snhcon snhconsci scions onsly ly while' while' we sleep. sleep. Consci Conscious ously, ly, suhcon suhcon-scious sciously ly and unconsc unconsctou tously slyit it took took me qtrite a whil whilee to proproduce some logical logical r-onclusio r-onclusions ns on tops and hottnrns. hottnrns. I reaso reasoned ned that that one might might pick pick the top or hott hottorn orn by some some manner manner of contra contrarv rv action action comhined comhined with with a meth method od of timi timing ng that action. action. The onntrnry onntrnry aol ion would would he [ust the opposi opposite te of what what the the majo majori rity ty of peo peopl plee thin think k the the mark market et will will do nt the top top 01'bott 01'bottom om,, for for the mnjor mnjorit ity y is usu usual ally ly wron wrong g at the top top
wavs wavs to make make n good good living living with with less less work. work. So the the minori minority ty must must be smarter smarter than than the majorit majority. y. In almost almost any countr country, y, you would would find find that a large large percen percenttage of that that countr country's y's wealth wealth is cont control rolled led by only a small small percent centag agee of the the peop people le.. A stud study y titl titled ed "Cha "Chara ract cter eris isti tics cs of Stock Stock Ownersh Ownership" ip" was recent recently ly publis published hed by the Univer Universit sity y of Penn Pennsy sylv lvan ania ia's 's Whar Wharto ton n Scho School ol.. The The repo report rt said said that that alalmost 50% of all all the stocks stocks held by individ individual ualss in the United United Stat States es were were owne owned d by appr approx oxim imat atel ely y 1% of of the Amer Americ ican an taxpayers. .
and the bottom. bottom. Righ Rightt near near the the hott hottom om of a hea hearr rnar rnarko kot, t, the the majo majori rity ty of people people US11a US1111)' a holievo holievo that prices prices will (le'c1i~eFurthe (le'c1i~eFurther. r. If ~hey did did not not heli heliev evee it, it, they they woul would d not not he seJJmg seJJmg at that that time time.. Right Right near near the top of a hl111 hl111mar market ket,, th; majori majority ty of ~f'op ~f'ople le usually usually lwlieve lwlieve that the ma rket will go hll~her hll~her.. T f they they (hd not think think so, they they would would not he lmyin lmying g at that time. time. TIlE TIlE
MAJO MAJOnI nITY TY
IS USU USUAL ALLY LY
WnON WnONG G
At first it may may he (limeu1t to accept accept sllch a stHtemen stHtementt as fact. So let us pursue the suhject a hit. hit. Let 11':start 11':start hy d.ivid!n d.ivid!ng the poplll poplllati atioll oll of this this planet planet into into two gronps gronps,, the minorit minoritv v and the majority. . It is not especially pleasa pleasant nt to mntf mntf'mp 'mpbte bte that that ~he n~aJor n~aJor-ity ity of peop people le on this this plan planet et are are not not the the most most mtel mtel~l ~lg: g:nt nt grou group. p. The The mino minori rity ty m11S m11Stt be smar smarte terr than than the the mUJ? mUJ?f1 f1ty ty.. Why? BeCflllse BeCflllse the majority majority are poor folks who who am not 111ghly 111ghly edll'c edll'cate ated d and must work hard to make make a meage meagerr living living.. Many Many of the the majority majority are so poor poor that that they they are actllfil actllfilly ly stHrvi stHrving. ng. Thl' Thl' minori minority ty 'is compar comparati ativel vely y wealth wealthy y and has figmed figmed out
:,!2)_l~!l.9rtty_~.!~ ..~.Jleo lLwould lLwould seemthaLo seemthaLonly nly ~ .Jleople ple on this [Jla~~Lh~v [Jla~~Lh~v~_Q1e ~_Q1e?:hil ?:hilgy gy and ambition ambition to ~~~dy..llU ~~~dy..llUrd, rd, to iig~!!~ iig~!!~ ?t~t ways to accuJl1~II~t.e .. ..\y.~~Lth..~El..lqlaise \y.~~Lth..~El..lqlaise their standard of ,!!ying. l1~_!!!.ajqr!.tY,_a..~~_.~pparen l1~_!!!.ajqr!.tY,_a..~~_.~pparent!yu t!yunable nable or unwilling..,!2 ~cqlTi~~_~1.~_~12£~I~~g~ and take take the action action which which 'Y0uld 'Y0uld enable able them to do the same. '7'An~tj; '7'An~tj;~~dim ~~dim~t~jt ~t~jty-~rt y-~rtE~ E~ majority majority is the herd herd instinct instinct which they they follow follow.. Tho desire desire to go alon along g with with a large large group group is evievident dent amon among g peop people le and and anim animal als. s. This This is cause caused d by the idea idea that that there is safety safety in numb numbers ers-an -an idea idea which has persis persisted ted since the primitive primitive days of civilizati civilization. on. In modern modern life, people people fecI fecI tIle tIlere re is saf safet ety y in conf confor ormi mity ty-t -to o thin think k and act act like like the majori majority ty of other other people people.. Anyone Anyone who dares to be differ different ent from from the crowd crowd is not not consid considere ered d to be "normal. "normal."" One One of the the big big trou troubl bles es with with mode modern rn soci societ ety y is the the conconform formit ity y of idea ideass nml nml acti action on.. I call it the medi medioc ocri rity ty of conconformit formity. y. Many Many people people are actual actually ly afraid afraid to be differ different ent-to -to pursue pursue unusua unusuall ideas. ideas. Rut the road to succes successs is pave paved d with with unus unusua uall idea ideas, s, and and trav travel eled ed by unusu unusual al peop people le who who dare dare to be diff differ eren ent. t. In om mode modem m soci societ ety y it freq freque uent ntly ly pays pays to be unusual unusual and different. different. Anothe Anotherr troubl troublee with with the majori majority ty is that that they they have have a tentendency dency to believe believe what what they they are told, told, especi especiall ally y if somet somethin hing g
CONTRARY CONTRARY CONTHAH CONTHAHY ACTION
is rcreal(~d Frequently- The majori majority ty find find it is easier easier to :1ccept :1ccept the stateme statements nts of other otherss than than to think think for them themsel selves ves.. The minorit minority, y, who (10 not believ believee what what they they are told, told, must put forth forth inte~s inte~sive ive effort effort in their search search for tl~uth tl~uth and lmowllmowledze. edze. Someti Sometimes mes tho qnest qnest for knowle knowledae dae is like like sailing sailing on an 111l~IJartc 111l~IJartcd dsen with with nothing nothing to guide YO~lexcept except the Facts yon lear learn n as you you go along along.. The The succ succes esss of your your voya voyage ge depe depend ndss on how how well well yon can can sepa separa rate te fact factss from from fantas fantasy, y, how how well well YOllca YOllcan n analyz analyzee the facts you discove discover, r, nml how how wdl you lise lise them them to reach reach the right conclu conclusio sions. ns. In tho stoc stock k mark market et,, the the majo majori rity ty nrc nrc incl inclin ined ed to believ believee what what they they are are told told in the the form form of tips tips,, rumo rumors rs and and advi advice ce.. The The mino minori rity ty heli heliev evee only only what what they they know know to he facts. facts. and and then then reac reach h thei theirr own own conc conclu lusi sion onss hy anal analyz yzin ing g thos thosee fact facts. s. Still Still anothe anotherr weaknE weaknE'ss 'ss of of the majori majority ty is their their dishel dishelid id in change change.. 1\,10s 1\,10sttpeople people do not expect expect or prepare prepare for Ch:1l1g Ch:1l1gE'S E'S in in the status status quo They They believ believee that that things things will will contitl contitl1 11e indelinitely nitely just just as they they are right right now. now. When When I hp.stock hp.stock markPt markPt gOE'S gOE'S up, the majori majority ty expect expect it to contin continlle going going lip indefi indefinit nitE'l E'ly. y. 1118Y 1118Ydo do not not bolher bolher to thin think k about about the lime when the market market will will chango chango its cours coursee and tum downwa downward. rd. At tho tho same time, the minority minority know know that that change change is inev ineviitable, table, and they are looki looking ng nhend, nhend, trying trying to figll figllrp.how rp.how to tell tell when when the the m;rk m;rkPt Pt make makess the the chan change ge,, and and plan planni ning ng wlrat acti action on they they will will take take at lhat lhat time time.. Tlw Tlw mino minori rity ty know know that that every 111111 11111market mar 1 ket has been been Iollow Iollowcd cd hy a hea hearr mark market et,, nnd nnd that that ever every y hear hear mark market et hns hns heen heen foll follow owed ed hy a hull hull mark market et.. The slJ{'cessf1l1 cessf1l1inves investor tor rnust possess possess a mind mind whif'11is 11is Aexihlfl enough to accept changing conditions. . The m::ljo m::ljorit rity y of investo investors rs are almost almost paraly paralyzed zed by theH~ opinio opinions, ns, l)eca~ l)eca~lse lse it it is diffie diffienlt nlt to change change an opinion opinion which which is well well estahl estahlish ished. ed. 'V11en 'V11en a person person has a definit definitee opinio opinion, n, there there is the the dange dangerr that that he migh mightt not not he ahle ahle to chang changee it unti untill too late late to 'take 'take the proper proper action action..
ACTION
59
Almost Almost everyb everybody ody tries tries to form form an opinio opinion n of the market. market. Many Many investor investorss are cons constan tantly tly gather gathering ing inform informati ation on to help help them them form form the correc correctt opinio opinion. n. As the the opinion opinion forms, forms, the inves~or ves~or subcon subconsci scious ously ly become becomess more more recept receptive ive to the ideas which which help help to suhst suhstant antiat iatee his opini opinion. on. Ther Theree are are alwa always ys plen plenty ty of argu argume ment ntss for for both side sidess of a c~se c~se.. Since Since the the equa equall acce accept ptan ance ce of argu argume ment ntss from from both both SIde SIdess wou would ld resu result lt in frust frustra rati ting ng conf confus usio ion, n, a person person must must choose choose which to accept. accept. Freque Frequentl ntly y a pers person on acce accept ptss the the argu argume ment ntss whic which h supp suppor ortt his his own opin opinio ion, n, and and he ignore ignoress the the oppo opposi site te side side of the the case case.. It is huma human n natu nature re to do so. Many Many pe~ple pe~ple active actively ly consid consider er and public publicize ize only only the arguments ments which which will will support support their their opinio opinions. ns. The process process is call called ed rationalization. The majori majority ty seem seem to have have an uncan uncanny ny abilit ability y to buy buy near near the the top of a hull hull marke market, t, and and sell sell near near theb thebot otto tomo moff a'.b a'.bea earr market market.. Appare Apparentl ntly y that that is the way things things must must be, otherw otherwise ise who would would the minori minority ty sell sell their their stocks stocks to near the top-an top-and d who would they buy stocks stocks from from near the bottom? bottom? . ~ne ~ne shou should ld try try to thin think k and and actlik actlikee the the minor minorit ity, y, for for there there IS httl httlee hope hope for for the succ succes esss of the the majo majori rity ty.. Ther Theree is not not enou enough gh room room at the top for the the major majorit ity. y... . Realiz Realizing ing that that the major majority ity is usuall usually y wrong wrong in their their action action near near the tops tops of hull hull mark market etss and and the the bott bottom omss of hear hear marmarkets, kets, I looke looked d for ways ways to recogn recognize ize majori majority ty action action at those those points points.. I also also looked looked for a way of timing timing the contra contrary ry action action to he he t~k(m t~k(m at thos thosee poiT poiT~t ~ts.It s.It woul would d not not be enou enough gh just just to reco recogn gn~z ~zee when when the the majo majori rity ty was was wron wrong. g. One One must must also also recogm recogmze ze exactl exactly y when when the majorit majority y is wrong wrong enough enough to take take contrary action. .
CONTRARY
60
CONTRA CONTRARY
Ar:TION Ar:TION
TIm nOl~r nOl~rnJ-.f nJ-.f BUY BUY SICNAL Care Carefu full stud studie iess of my my charts charts reve reveak akd d a rema remark rkah ahle le phephenomeno nomenon n of majori majority ty action action which which freque frequentl ntly y occurr occurred ed ~lear ~lear the the bott bottom om of hear hear mark market ets. s. It is cal calle led d a "sel "selli ling ng clim climax ax." ." When When a bear bear marl marl
ACTION
(h
A good good exampl examplee of chan changin ging g climax climax weeks occurr occurred ed near near the the bott bottom om in 19G2. On the last last week week in May, May, 1962 there were R O O net new lows. lows. The The follow following ing week week (the (the first first week week in Jlln Jllne) e) ther theree were were], ], 141 141 net net new new lows lows,, The Bott Bottom om Buy Buy SigSignnl rule rule called called for buyi buying ng at the start start of the the fourth fourth week week aft~r aft~r the climax climax week of ],141 new lows. T~le T~le Bottom Bottom .Buy Signal Signal did not mark mark the bottom bottom of every every becaus usee some some hear mark market etss neve neverr hp'n! market since 1942 beca have have a sell selling ing olirna olirnax. x. There There were were Bottom Bottom Buy Signals Signals on the c. following following dates: dates:
Oct. Oct. 14, 14, 1946 1946 May 19, 1947 Nov. Nov. 25, 1957 June June 25, 25, 1962 1962 The The bott bottom om sign signnl nlss of 1946 1946 and 1947 1947 mark marked ed two two of the the [our [our hott hottoms oms in the three three year year bear bear market market which which lasted lasted from from
1946 to 1949. The The bott bottom om sign signal alss occu occurr rred ed near near the the bott bottom om of thr three ee out' out' of the five bear bear market marketss which which took took place during during the twentytwentytwo year year period period betwee between n ]942 ]942 and 1964. 1964. Ther Theree was was no Bott Bottom om Buy Buy Sign Signal al in 1960 becaus becausee there there was 110 sellin selling g climax climax in that that hear hear market market.. Since Since there was no sellin selling g climax climax,, and the highes highestt yield yield reache reached d during during that that bear bear market market was only only 3.80%, 3.80%, it would would seem seem like like that that bear bear market market shol1l shol1ld d have have gone gone lower. lower. That That 1960 1960 hear hear mark market et came came to a sudd sudden en end end righ rightt afte afterr the elec electio tion n of Pres Preside ident nt John John F, Kenn Kenned edy. y. Perh Perhap apss the the reresnlt snltss of tha thatt elec electi tion on cont contri ribu bute ted d to the the prem premat atur uree end. end. of of that hear market. . My res resea earc rch h has has show shown n that that the the foll follow owin ing g cond condit itio ions ns freque frequentl ntly y found found at majo majorr hear hear market market bottom bottoms: s:
are are
62
CONTHAHV
CONTRARY CONTRARY
ACTTON
1. Ther Theree is low low volume volume of trad tradin ing, g, and and them them is Iitt lo interest in huying huying or selling selling stocks. stocks. 2. There is alack alack of puhlic puhlic pnrtlc pnrtlctpa tpatio tiou u in the the stock market. market. The plThlie plThlie is discou discourag raged ed and apatheti apatheticc toward toward the market lwc:11 lwc:111se 1seof of larg largee losses losses experkn experknced ced in the drastic drastic decline cline from from the previou previouss hull hull market market high. high. 3. There There is widesp widesprea read d puhlic puhlicati atioll oll of a pess pessimi imisti sticc econom economic ic olltlo olltlook, ok, and then' then' is lTsl lTsllnl lnlly ly much much talk talk of a recessi recession on near near a major major bottom. bottom. 4. Then Then'' is a lac lack k of new new stoc stock k issu issues es.. Ver) Ver)'' few few new new issu issues es are ofTen ofTen~dto ~dto the the puhlic puhlic during during a lwnr lwnr market market hecaus hecausee nobody body wants wants to buy buy them. them. There There is no mlthll mlthllsia siasm sm for such such high risk ventures. ventures. 5. The There re are are many many bank bankru rupt ptci cies es n~su n~sult ltin ing g from from too too mnny mnny comp compnn nnie iess expa expand ndin ing g too too rapi rapidl dly y duri during ng the the prev previo ious us boom. boom. There There is too too much compet competiti ition. on. 6. Many Many well well known known prom promot oter erss and and "fin "finan anci cial al wiza wizard rds" s" enencounte counterr diffic difficult ulties ies.. Some Some of their their corpor corporate ate empire empiress crumcrumhIe, hIe, and some some of them them even even leave leave the countr country. y. THE TOP SELL SIGNAL SIGNAL search ch for for a way way to iden identi tify fy tllA tllA top top of a hull hull mark market et My sear was more more diffic difficult ult.. There There is usuall usually y some some eviden evidence ce to Indicate when a top is near, l)11tit is extremely extremely dirnclllt dirnclllt to consistent consistently ly identi identify fy tlw exaet exaet top. top. On« reason reason for thn
ACTION
63
A care careful ful resear research ch showed showed that that the followi following ng condit condition ionss freque frequentl ntly y were were fmmd fmmd at the tops of major major bull bull market markets: s:
1. When When the the mark market et reac reache hess a top area, area, the the bull bull marke markett has has usuall usually y been been in progr progress ess for a year year or more. 2. The yiel yield d on the DJIA has reac reache hed d a leve levell of les lesss than than 4% at some some time time duri during ng the the bull bull mark market et.. Duri During ng the the last last 40 years, years, .there .there has never never been been a major major top with~J with~Jtlt tlt the the yield yield dropplTlg dropplTlg to less than than 4%. 3. Some Someti time mess ther theree is dive diverg rgen ence ce betw betwee een n the the acti action on of the the DJIA DJIA and the Advan Advance ce and Decli Decline ne Index. Index. Diverg Divergenc encee occ,urs c,urs wh:-Il wh:-Il the the DJIA DJIA goes goes to new highs highs on success successive ive ralrallies lies,, whil whilee the the A & D Inde Index x fail failss to make make new new high highss on those those sam.e sam.e rallie rallies. s. Such Such action action shows shows that that the majority majority of p~ople p~ople thlJlk thlJlk.. tl~e tl~e stock stock market market is stron strong g and making making new Jughs, Jughs, when when It IS actually actually weakening. weakening. 4. There There are are fewe fewerr new new highs highs than than duri during ng the the earl earlie ierr part part of the the bull bull marke market. t. l11e l11e grea greate test st numb number er of new new high highss are are ~ad~ ~ad~ ~vhen ~vhen the the market market makes makes its most most powerfu powerfull upthru upthrust. st. 5. 1 her e ISless ISless volu volume me at the the top than during during the earlier earlier part· part· of the hull hull market. market. The greates greatestt volume volume usuall usually y occurs occurs at abou aboutt the the same same time time as the the grea greate test st numb number er of new new high highss are made.
6. ~ew ~ew issu issuee feve feverr grip gripss spec specul ulat ator ors. s. Some Someti time mess new new stoc stock k I~SlTe: I~SlTe:are are sold 011tso 011tso fast it is difficul difficultt to get all one orders. orders. For For mstanc mstance, e, a speculator may may read read abou aboutt a wonde wonderf rful ul new new comp compan any y plan planni ning ng to subd subdiv ivid idee and and sell sell lots lots on the the plan planet et Mars Mars.. He may ask ask his his brok broker er to buy buy 500 shares shares of Interp Interplan laneta etary ry Land Land Corp. Corp. when when it is is offe offered red to the the public. public. A few few days days hltc hltcrr the the hrok hroker er migh mightt say, say, "Sor "Sorry ry,, ther theree was was so mU?h mU?h dema demand nd for for that that issu issuee we coul could d only only get get 200 200 shar shares es.. Some Some of tho those se new new stoc stock k issu issues es have doub double led d in price within within II few days days or weeks weeks after after the public public offeri offering ng 7. There There is tal talk k of II new era such such as the the "roari "roaring ng twenti twenties" es"::
CONTRARY CONTRARY ACTION ACTION
CONTIlARY ACTION
tllA tllA "soari "soaring ng sixtie sixties", s", "a new platea plateau u
of perman permanent ent
prospros-
perity." 8. There There is larg largee puhl puhlic ic part partic icip ipat atio ion n in the the stoc stock k mark market et.. A tremen tremendou douss number number of smal smalll investor investorss gf't into into the market market -right -right near near the top. top. 9. There There is genf'r genf'ral al enthus enthusias iasm m
and confid confidenc encee in the the [uture [uture..
The couditio couditions ns found found at the top are general general in their their nature. nature. They They prov provid idee nnro nnrort rtan antt gtli gtlida danc ncee in iden identi tify fyin ing g a top top area area,, hut hut they they do not not indi indica cate te the the exac exactt time time when when the the mark market et should should reach reach its highes highestt point. point. The prohlem prohlem was to (leve (levelop lop a prec precis isee meth method od whic which h woul would d cons consis iste tent ntly ly iden identi tify fy the the top, top, and and also also provi provide de accu accura rate te timi timing ng for for sell sellin ing g as near near as pospossible to the very top. The kev to the the soluti solution on occurr occurred ed to me me one day while I was thinki thinking ng 'aholl 'aholltt how my hrother hrother and J h:1(l freg'ucntly ucntly deterdetermined mined our exact exact positi position on fit sea while while we were cruisi cruising ng aloug aloug the coast coast of Mexic Mexico o in om sailing sailing yacht yacht the "Calln "Callnnt nt Lady". Lady". Quite Quite often often we calcul calculate ated d our posit position ion hy taking taking compas compasss hearin hearings gs on two two or three three mounta mountain in J)f)ak J)f)aks. s. I would would hold hold the comp compas asss in my hands hands and and call call off off the hear hearin ings gs as I sight( sight()d )d across across it at the the mounta mountain in tops. tops. My hrother hrother would would write write down down the bearin bearings gs and calclllat calclllatee om POSitiOl POSitiOlll in relat relation ion to those moutain moutain peaks, peaks, which were showll showll 011rmr 011rmr c11arts. c11arts. The rnr-ru rnr-ruorv orv of cnlcl cnlcllla llatin ting g our positi position on in relat relatio» io» to the mounta mountain in peaks peaks on the llf1l1ti llf1l1tical cal charts charts caused caused me to look look fit mv stock stock mark market et char charts ts a littl littlee diff diffpf pfPl Pllt ltly ly.. I notic noticed ed that that sdmeti sdmetimes mes in the the top aff'as aff'as of bllll bllll m:ukp\s m:ukp\s,, there there were were three three or f01Jf distin distincti ctive ve peaks peaks on the the Advfln Advflnee ee and Decline Decline Index. Index. The third peak "vas llsnall)' llsnall)' the higl1est higl1est point in a bull bull m:lrket. Ther Theree were were othe otherr peak peakss near near the the top top nlso nlso,, but I [orrn [orrnd d a wav to identi identify fy the right peaks. peaks. +he correct correct-lo -locat cation ion of the the peaks peaks was shown shown when when the A & D Inde Index x had had a fail failur ure. e. By a Iail Iailur ure, e, I mean mean th:l th:ltt the the A & D
65
Index Index made made a lower lower low on the chart. chart. To unde underst rstand and the failfailure ure situ situat atio ion, n, one one shou should ld real realiz izee that that,, near near the the top top of a bull bull mark marke: e:,, the the A & D Index Index move movess upwa upward rd in a zig zag patter pattern n of ral ralli lies es and and decl declin ines es.. The The fail failur uree occu occurs rs when when the the inde index x line, line, in a downwa downward rd moveme movement, nt, goes goes below the lowest lowest point point of the the last previous previous decline. decline. EXAMPLE:
3rd PEAK
.A. & D I N DE DE X
The The firs firstt peak peak is the the high highes estt poin pointt reac reache hed d by the A & D Index before the Failure, Failure, The second second peak peak is the top of the next next rally. rally. The The sign signal al is com compl plet eted ed,, and and the the time time to sell sell is when when the the A & D Index Index has has decl declin ined ed for for two two week weekss and and at least least 300 300 points points from from the top of the the third third peak. peak. J call this the Top Sell Signal. Signal. In the zig zag zag movem movemen ents ts of the the A & D Inde Index, x, a rall rally y or decl declin inee must must cons consis istt of at at leas leastt two two week weekss move moveme ment nt in the same same dire direct ctio ion, n, alth althou ough gh the the two two week weekss do not not have have to be consec consecuti utive. ve. A one week week movemen movementt can not not be consider considered ed as
CONTRARY
CONTnA CONTnA HY ACTION
66
a rallv or n (lPdinf (lPdinf'.'. A one wp('k wp('k movernon movernontt is only only an interinterruptio ruption n in a ral1y or a dp<:'1in dp<:'1ine. e.
ONE "WEEK MOVEMENT
\
A F AI Il JR E
THIS THIS JS A FAILURE
TH:IS :IS
A FAILURE
To form form the third Iwnk, Iwnk, Ihp A & D In<1f' In<1f'xmust x must ndvano ndvanoee for at least thrf'f' weeks. weeks. s- n Signnl Ther Theree can can he no Top s-n Signnl unless unless the yi~ld yi~ld on ~ hp rP:1rhed n level level of less than than 4% n~some lime dm:11lg dm:11lg DITA has rP:1rhed the the bull bull mark market et.. In the pnst, pnst, WIH'1l a Inilure Inilure has oecmrp oecmrpd d with with a high highrr rr yield, yield, it has has no! 1 1 < 1 < 1 . ;111 ;111Y Y sigl sigllf lfka kan~ n~e. e. .. Volume Volume must must hf' 10wN 10wN on the the tlllnl tlllnllwa lwa k I han han lt was was emher in the hull hull market market.. The The Top Top Sell Sell Signa Signall must must also also he. conconfinned finned hy the New High-Ne High-New w Low Index regist registf'r f'rill illg g [ewer [ewer new hiP.:(l<; hiP.:(l<; than than enrlie enrlierr during during the hull market, The 1 " ) 1 1 1 1 market market shonhl shonhllw lw under under way for nt least least one yenr before before the Top Sell Sell Sif(nal Sif(nal occurs, In the pnsl pnsl it has has trd, trd,en en the the A & D Inde Index x from from 19 to to 29 vleeks vleeks to travel travel from from the top of the the first first pea k to the top of the third peak. Tho Tho Top Top Sell Sell Signn Signnll did did not not mark mark tl1P tl1P top top of pvpr? pvpr? hull hull market market since since 1942 1942 beca because use the failure failure and three peak peak formaformation did not appe::lr appe::lr at every every top.
Ther Theree were were Top Top Sell Sell Signa Signals ls on the the foll follow owin ing g date dates: s: April April 8, 1956 August August 16, 1959 1959 Decemb December er 24, 1961 1961
EXAMPLE:
TH:IS IS N O T
ACTION
The The Top Top Sell Sell Sign Signal alss occu occurr rred ed near near the the top top of thre threee out out of the the four four hull hull mark market etss whic which h ende ended d duri during ng the the twen twenty ty-t -two wo year year period period betw betwee een n 1942 1942 and 1964 1964.. When top top and and bott bottom om Signal Signalss (lid not not occur, occur, the market market direct direction ion was accura accuratel tely y indicated indicated hy the the trend signals. signals. Tryi Trying ng to pick pick the the exac exactt top top and and bott bottom om is like like reachi reaching ng for for the brass brass ring ring on a merr merryy-go go-r -rou ound nd.. One One can can not not expe expect ct to catc catch h it pver pvery y time time arou around nd.. But But if one one could could pick pick the the top top and and bott bottom om at Ipnst Ipnst half half of the time time,, he would would have have a tretremendou mendouss advant advantage age over over the majori majority ty of inves investor tors. s. ~Te must must unde unders rsta tand nd that that ther theree is no no physi physica call law law whic which h says says the the thir third d peak peak must must alwa always ys he the exact exact top top of a bull bull market market.. There There is no law law which which says says that the fourth fourth week week after after a sel selli ling ng clim climax ax must must alwa always ys be the exac exactt bott bottom om of a bear bear market. 1110 1110se se indi indica cato tors rs are are the the ones ones whic which h have have been been the the most most accu accura rate te in the the past past,, and and ther theref efor oree shou should ld be used to deter deter-mine mine approx approxim imat atel ely y the the best best time time for for acti action on.. We shou should ld always always try for pinp pinpoin ointt Rccurf Rccurflcy lcy,, but someti sometimes mes we must must be satisfied satisfied with something something less. To pick pick tho tho top top and and bott bottom om,, one one must must reli religi giou ousl sly y foll follow ow mathematically precise method methods. s. One must must not give any any considera sideratio tion n to optim optimist istic ic or pessi pessimis mistic tic opinio opinions ns voiced voiced by others others.. nor should should one form form an opinio opinion n of the the market market.. If you fonn fonn an opinion, opinion, yom subcon subconsci scious ous pride pride will will make it diffi diffi-cult cult to chan change ge your your opin opinio ionn-es espe peci cial ally ly if you you have have menmentioned tioned it to others. I hav havee deve develo lope ped d the the atti attitu tude de that that anyb anybod ody' y'ss opin opinio ion, n, inin-
68
com'nAlW
ACTI.ON
r
always always try to a~ fonnin fonning g an opinion opinion of thp. thp. market market,, for the tme state state of; market market-- can he determ determine ined d consistently only by facts opinio opinions. ns. I found found that that I achieved achieved greate greaterr accura accuracy cy b y compil compiling ing and annlyz annlyzing ing facts facts in a scient scientifi ifical cally ly cons, cons, manner. If )'OU want want to evalu evaluate ate opinio opinions, ns, read read the second second la s of the Wall Wall Street Street Journa Journal. l. Under the title title "Marke "Markett are publi publishe shed d the opinions opinions of the the professional experts who rnake a career career of ana ana lyzing lyzing the stock stock market market.. Alm os day YOlI will find cnnnicting opinio opinions ns offere offered d by the eXE Some say say the market market shou should ld go upup-ot othe hers rs say say the m guesswork cllHling my own, own, is only guesswork
should should go down down..
Everyo Everyone ne of thos thosee expert expertss is extrem extremely ely intell intellige igent, nt, e encerl encerl and oonsroonsr-ien ientio tions. ns. But someho somehodv dv must must he wro should should make make
)'011
stop stop anr] anr] think. think.
\VIH'n Tcompleted my work on tops and bottoms, I re much more than that that I Im d accomplished than I had had thou thoug g possib possible' le'. I had starte started d to rh~Vf']npa method of following
market market trends trends,, but I harl pnde pnded d up with with a grou group p of me me and Facts which which blende blended d nicely nicely to form a completely and and diffe diffenm nmtt
theo theory ry
of stoc stock k marke markett- anal analys ysis is..
The theory was hased hased on logical concepts concepts and actual of haliit haliitual ual stock stock market market behavi behavior. or. There There seemed seemed to sign . chance chance of misint misinterp erpret retnt. nt.ion ion,, for every every Imy and sell sell sign clearly clearly nnd precisely precisely defined. The lheory was amaZing!' curate curate in its operation. operation. T had never never seen seen or hear heard d of an y that that could could match match its sirnpllcity and ar'curacy. . . Althou Although gh some some of the ideas in the theory theory are oompl way in which which huy and and sen sen sign signal alss deve develo lop p is simp simp logical. ;:rher ;:rheree were so many many differ different ent factor factorss in the theory theory:: was nnahl nnahlee to think think of a desc descrip riptiv tivee name name for it. it. It w,
CONTRA CONTRARY RY W
••
Yd
ACTION ACTION
69
on whic which h I hnd worked worked for years, years, so I gave gave it my arne. Icalled it the Haller Theory. Theory. ~xt ~xt cha chapt pter er will will be devot devoted ed to a precise deRn deRnWo Won n of ~r Theo Theory, ry, its concep concepts, ts, and the rules which produc producee Signals. :~~11
THE HALLER THEORY
CHAPTER
THE THE
TIAI TIAI,I ,I,,ER
9 TflE TflEO ORY
The II nller nller Theory Theory is an unusual unusual comhi nation nation of three three difdifferent ferent approa approache chess
to stock stock market market analys analysis: is:
Fllndmnen nent:l t:lll 1. Fllndm
invest investnH' nH'nt nt 2. Technic Technical al trends trends 3. Contra Contrary ry action action
values values
FII11(!olllrm FII11(!olllrmtal tal inlwstmenJ values are dcl(~r dcl(~rmin mined ed by mensmenslIring lIring tlU' wf'ckly wf'ckly yidd on the Dow-~onf's Dow-~onf's Tndustri:ll Tndustri:ll Average Average of 80 stock stocks. s. Yield Yield nnnlys nnnlysis is is the snnple snnplest st way to measure measure [nnrln [nnrlnmen menral ral valuns. It is an importan importantt [ar-lor in detpmlining detpmlining whethe whetherr the market market is in in an area which which is safe safe from from decline, decline, or in an area area whic which h is dnn dnnge gero roll llss and and vuln vulner erab able le to an import portan antt df'c df'cli line ne.. Tlw Tlw mark market et can can not not stnr stnrtt a mnj; mnj;rr decl decli~ i~le le unle unless ss the the yiel yield d is low low enong enongh h to disco discoma mage ge lmym lmymg g by m-
veslors. The yield yield must must 1)('l('ss 1)('l('ss than than 5% for for a Tlc]]( Tlc]](ll S~'l1Signa l 1Signall to. occur, occur, for no impnrl impnrl:ll :lllt lt dpl'li dpl'lil1f l1f'' hfls hfls start started, ed, dnnng dnnng t.lw t.lw past past 40 year years, s, when when the yield yield W:lS 5% or more. more. After After the yIeld yIeld has de~lin de~lincd cd to less than 4 '7 ;', a Top Sell Sell Signal Signal can occur. occur. 'Vllf' 'Vllf'~1 ~1 the the yiel yield d decl declin ines es to l('ss l('ss than than 3%, 3%, a major hear hear market market 1S 11sn~lIv110tfar away. Te('.·',niral trend eval1lation is obtain obtained ed by chartin charting g weekly weekly advanc advances es and declin declines, es, and weekly weekly new highs highs and new lows. Thes Thesee tech techni nica call indk indknt ntor orss are are import importan antt in reco recogn gniz izin ing g the the 7°
71
inte intern rnal al stre streng ngth th or weak weakne ness ss of the the enti entire re sloc slock k mark market et.. 'Whe 'When n ther theree are are more more stoc stocks ks cons consis iste tent ntly ly adva advanc ncin ing g than than ther theree are are declin declinin ing, g, and and ther theree are are more more stoc stocks ks maki making ng new new highs highs than than new lows, the the trend trend of the the market market must must be upward. upward. For For the the mark market et to est estab abli lish sh a down down tren trend, d, the the numb number er of declin declining ing stocks stocks must consist consistent ently ly outnum outnumber ber the advancin advancing g stoc stocks ks,, and and ther theree must must be more more new new lows lows than new new high highs. s. These These two indicat indicators ors show show the technica technicall action action of all all stocks stocks traded traded on the New York York Stock Stock Exchan Exchange. ge. Couiraru Couiraru action is cnll cnlled ed for for when pani panicc sell sellin ing g in a bear mark market et is so int inten ense se that that it produ produce cess a selli selling ng clim climax ax.. The The sell sellin ing g clim climax ax can can usua usuall lly y be ident identif ifie ied d by the numb number er of stocks stocks makin making g new lows for the year. year. Contrary Contrary action action is also also call called ed {or {or in in a hull hull mark market et when when cert certai ain n fund fundam amen enta tall and and techni technical cal action action indica indicates tes that that the majori majority ty of invest investors ors are wrong wrong in their their opinio opinion n of the stock market market.. .The .These se thre threee appr approa oach ches es are are comb combin ined ed into into a worki working ng theory theory which which consiste consistentl ntly y produc produces es mathem mathemati atical cally ly precis precisee hu y and sell signals. signals. There There are Four differ different ent signal signalss produc produced ed by foll followi owing ng the rules of the Haller Haller Theory: Theory: Trend Bny Signal Signal 1. Trend 2. Trend Trend Scll Scll Signal Signal ~. Bottom Bottom Buy Signal Signal 4. Top Sell Sell Signal Signal The Treml Treml Bny Sigll Sigllnls nls and Trend Trend Sell Sell Signals Signals are \1.''0(1 to follow follow the the basic basic trend trend of the the stock stock market. market. They They occur occur when when the the tre trend nd of the the mark market et turn turnss up, up, and and agai again n when when the the tren trend d turn turnss down. down. Thes Thesee tren trend d sign signal alss have have mark marked ed ever every y majo majorr tren trend d chan change ge duri during ng tl10 tl10.22 .22 year year peri period od from from 1942 1942 to 1964 1964.. During During that that period period,, no major major trend has started started withou withoutt being being iden identi tifi fied ed by a Hall Haller er Theo Theory ry tren trend d sign signal al.. The Top Sell Sell Signal Signalss and Bottom Bottom Buy Signals Signals are based on
72
TIlE HALLER THEORY
TIfF. HALLER nJEOnY
cont contra rary ry acti action on,, and and are are clps clpsig igne ned d to im}je im}jeat atee a huy spol spol as near near as' possib possible le to the hMtlJl hMtlJln n of a bel1r bel1r miHket miHket,, amI a sell sell spot spot as nf' nf'ar ar as poss possih ihle le to the top top of a hull hull mark markel el.. Thf' Thf' top and and bott bottom om sign signal alss do not not alwa always ys occu occurr at pvery pvery top top and and bottom bottom,, for wild panic panic sellin selling g does does ~lOt~:lk~ ~lOt~:lk~ pl~ef' pl~ef' at .eve .every ry market market hottom hottom,, and accurate accurate techll techlllca lcall 111(1I 111(1Icat catlOn lOnssme not present at every top. 1 1 When When the top and hottnm hottnm signal signalss e10not e10not oeem,. oeem,. t ie ie tr.enc tr.enc . IS, ,-\'J'11Inc ' l' l 'Ie""t"c· ']1'" market mar ket direct direction ion and the time fO J ncSIgna I " " . • tion. tion. One should should act on the signal signal which occurs occurs first. first. Th.o Th.o sIgsIgnal which which appear appearss first first and and requires ar-liou, is A~l1ed~ pnmflry signal signal.. The signal signal which is seco second nd is a confir confirmll mlllg lg SIgnal SIgnal,, and does not require action. " . 1 In recen recentt yems yems,, easi easily ly iden identi tifi fied ed top top and and hott hottom om sIgn sIgnaa s have oCA11fre~1 oCA11fre~1 very very close to import important ant stock stock mflrket mflrket tops tops ~n~l ~n~l 0 he Tal) Ta l) Sen Se n Sign Si gnal al of Decem Dec embe ber, r, was 19n1 b ott oms. T ' , , l f A '1 19A2 lowed lowed and confin confinnec necll by the Treml Treml Se11Si Se11Signa gna 0 pn" .• 1• Ri(r Ri(rht ht near near the the very very bott bottom om of the the 19A?, cras crash, h, ther theree was was a I:"' ti] 1 Bottom Bottom TIuy TIuy Signal Signal in the last week week of June, June, 1962. 1962. b eau 1 n J " 1 19A3 It was was Aonf Aonfln lnnl nl"d "d h)' h)' the the Trend Trend Buy Buy Si~na Si~na in. in. anna annary ry,,) ,,).. , when t1ll>trend had definitely turned up. . The Haller Haller Theory Theory was desi designe gned d to ident identify ify only only the major major bull bull and and bear bear m~rk m~rk~t ~ts. s. Mino Minorr tren trend d ehnn ehnnge gess do not usua usuall lly y prod produc ucee a buy or sell signal.. . . Thes Thesee are are the the rule ruless for for klen klentl tlfY fYll lllg lg each each slgn slgn~l ~l as it haphappens: THEN THEND D
BUY BUY SIGNA SIGNAL L
nULE nULES S
1. The wr-ekly wr-ekly Ae]vance and and Decline Decline J nrlex mus! turn upward upward hy 2,'100,Pko1intNs.,II'O',ll Pko1intNs.,II'O',ll New New Low Low Inrlex · · , 2. Th The we wee v ew .lh or more more net new high~. high~.
must register register 8 0
73
3. The There re can can he no Tren Trend d Buy Buy Sign Signal al unti untill afte afterr ther theree has has been been a Trend Trend Sell Sell Signal. Signal. THEND THEND SELL SELL SIGNAL SIGNAL RULES RULES 1. The The yiel yield d on the the DowDow-Jo Jone ness Indu Indust stri rial al Aver Averag agee must must be less than .'5%at the time of the signal. signal. 2. The The week weekly ly Adva Advanc ncee and and Decl Declin inee Inde Index x must must tum tum down down-ward by 2400 points. points. 3. The The week weekly ly New New High High-N -New ew Low Low Inde Index x must must regi regist ster er 80 or more more net new lows, lows, 4. The There re can can be no Trend Trend Sell Sell Signa Signall unle unless ss ther theree has has preprevionsl vionsly y been been a Tren Trend d Buy Signa Signal. l. (A Trend Trend Sell Sell Signal Signal can not occur occur right right after after a Bott Bottom om Buy Signa Signal.) l.) Trend Trend signal signalss shou should ld foll follow ow each each othe otherr in order orderly ly,, alte altern rnat atin ing g fash fashio ion n such such as Tren Trend d Buy Buy Sign Signal al,, Tren Trend d Sell Sell Sign Signal al,, Tren Trend d Buy Buy Signal, Signal, Trend Sell Signal, Signal, etc. The weekly weekly yield yield is publi publishe shed d every every Monday Monday in theWaU theWaU Stre Street et Journ Journal al on the the next next to the the last last page page.. It can can he found found under under the title title "Dow-Jon "Dow-Jones es Closin Closing g Averag Averages" es".. Weekly Weekly yield yield figure figuress can also he found found in Barr Barron' on's Financ Financial ial Weekly Weekly,, near near the rear, rear, under under the title title "Marke "Markett Labora Laborator tory". y". These These financ financial ial news newspa pape pers rs can can he fonnd fonnd in many many publ public ic libr librar arie ies. s. It is not nece necess ssar ary y to keep keep a yiel yield d char chart, t, hut hut you you may may do so, if you wish. Week Weekly ly adva advanc nces es and and decl declin ines es,, as well well as week weekly ly new new high highss and new lows lows,, can can be found found in Barr Barron on's 's and and on the Hnancial pages pages of many many Sunday Sunday newspa newspaper pers. s. Not all Sunda Sunday y papers papers carry this information, information, however. however. If you compar comparee differ different ent newspa newspaper pers, s, you will will find that that the week weekly ly figm figmes es for for the adva advanc nces es and and decl declin ines es and and the the new new highs highs and and new lows are not the same in all the the papers papers.. Differ Differ-ent papers papers seem seem to puhllsh puhllsh slight slightly ly differ different ent figure figures. s. For the
THE HALT.EfI
TIlE HAI,LER TIfEORY
THEOTW
74
.
1' 1
place place my Inifh Inifh in Bnrrou Bnrrou s, w llC,' accura racy cy,, T wnulr] " greatest accu II 1 has has an excdl excdlpn pnt' t' reco record rd of accu accura racy cy,, and and is the the host host wee wee c y financial puhlicnt ion in the United St Stntes. , , " , 'T'1 net melh melhod od of calcll calclllat lating ing and C'hnrtmg C'hnrtmg the" the" ()pkl) ()pkl) ne ex .• " , ' 1' I I adva advanc nces es and and decl declin ines es,, and and the the week weekly ly n~w n~w llg llg lS nne now lows lows has already already hcen hcen deseri deserihcd hcd in an enrlle enrllerr chapte chapter. r. j
BOTT BOTTOi Oi\1 \1
BUY BUY SIGN SIGNAL AL
HULE HULES S
When When 750 750 or more more net net new new lows lows are record recorded ed in a week week,,
1. that that week week is the first climax climax week. 1111)' at the start start of the the fourth week nlter the first climax w()ek.. ' ~1I 2 If befo before re the the star startt of tll tllP P fonr fonrth th week week,, ther theree IS a week week ~1I , which which rher rheree are are mom net net new new lows lows than than tlle tllere re were were 1~ the first clima climax x week, onncel onncel the count count from from the first first c1lc1lhen huv at the start start of the the fourth fourth week week after f 1after mnx week .'T ' • the week week which which has the greates greatestt rmml rmml ier net new 3. If tlH'r tlH'ree is no Bottom Bottom Buy Buy Sign Signal al.. buv buv at the next next Tren Trentt
0
OW\
Buy Signal. Signal. TOP TOP SELL SELL SIGN SIGNAL AL
HUT,ES
The The viel vield d on tIl(' tIl(' DowDow-Jo Jone ness Indl Indlls lstr tria iall Av~r Av~rag agee m~ls m~lstt L Ilave " re::tc1hn lev les dllr1ng g , (l n " level " el of less ..s, than 4% at some time dllr1n the hl111market. , 2. The hull hull marke markett shrm shrmld ld have have been been unde underr way way for for a )ear or more. A(lvnncp ncp 3. The weekly weekly A(lvn
Decline :11Hl :11HlDecline
In.lox In.lox rnusf
1 1:lV0
f '1 a :11·
4. 'The first first ppak ppak is tlw tlw highest highest point point r0:1dl r0:1dled ed by the the A & D , Index hefore the Failure. D The second second Denk Denk is is the top of the next rally rally of the A &.' 1 5. ', 1 I' of the A & D Index must must consis consistt '1 • Index. Index. A rat rat y 01 nee me I' , of at least least two two wpek wpekss move moveme ment nt in the same same r irec irecti tion on,,
75
hut hut the the two two week weekss do not not have have to he cons consec ecut utiv ive. e. A one one wpek mOVPlmmt mOVPlmmt is not a rally or a decline. 6. Take no actio action n on the the rally rally approa approachi ching ng the second second peak. peak. It makes makes no dHfen~ dHfen~nce nce wheth whether er the second second peak peak occurs occurs hefore hefore or ::tfter the failure, failure, 7. The The A & D Index Index must must rise rise for at least least thre threee week weekss to form the third peak. 8. Sell Sell when when the the A & D Index Index has has decl declin ined ed for for two two week weekss from from the top top of llw llw third third peak peak.. The The A & D Index should should also also decline decline at least least 300 points points below below the lop of the third peak. H is usuall usually y s:lfe s:lfe to assu assume me that that the third peak peak has made made a top top when when ther theree has has been been a decl declin inee of two two week weekss and 300 points. 9. Wee Weekl kly y net net new new high highss must must be less on the fhir fhird d peak peak than than earl earlie ierr in the the bull bull marke market. t. On the third third peak peak,, the the weekly weekly net new highs should should not be much much more more thanha thanhalf lf as much much as the the gre;Itps gre;Itpstt number number of weekly weekly net new highs highs record recorded ed earlie earlierr in the the bull bull market market.. 10 . Volume Volume must must be lowpr lowpr on the third third peak peak than than it was earlier lier in the hull market market.. A six six week week movi moving ng aver averag agee of week weekly ly volu volume me is the the most most prec precis isee way way of measu measuri ring ng volume volume in conne connecti ction on with with this this Top Sell Sell Signal. Signal. 11 . If there there is no Top Sf'1l 1 l Signal Signal,, sell sell at the next Trend Trend SeII SeII Signal. A IIhough hough there there has never never heen heen a false false Top Sell Sell Signa] Signa] durduring the lnsr twen twentvtv-rwo rwo years, years, such such an event event is possib possible le and shou should ld he consid considf' f're red. d. It mi,ght mi,ght he wise to have have a method method of rerognizin rerognizing g such a false false signal if it should should occur. occur. It ~volll ~vollld d probab probably ly hp safe safe to assume assume that that a Top Sell Sell Signal Signal Wasfalse Wasfalse if the the sign::tlwas sign::tlwas follow followed ed hy the A & D Index Index rising rising to a new new hull hull market market high, high, at least 500 points points above above its high~ high~ est previous previous point. point.
Anothe Anotherr indica indicatio tion n of a fals falsee signal signal would would occur occur if the sig-
THE HALLER HALLER
THEORY THEORY
nn] was fnllmved hy the the NIINII-NL NL Inde Index: x: risin rising g to a new new mark market et high high.. Stil Stilll anot anothe herr way way of reco recogn gniz izin ing g a false false Soil Soil Sig Signa nall woul would d he for the the six six week week movi moving ng aver averag agee of hull market market high, high, after the the Top Top lime lime to rise to a new new hull Signa! Signa! had occlIrred.
o
'0
77 huH huH Top Top vol vol--
Sell Sell
Here Here is a list list qf the HnlIer HnlIer Theory primm) primm)'' signal signalss which which requi require red d acti action on.. Ther Theree arc arc no confl conflnn nnin ing g Sign Signal alss incl includ uded ed in this list. list. Signal
Date
DJIA
September 19 19, 1942 July 27, 1946 October 14, 1946 April 8, 1956 November 2 5, 5, 1957 August 16,19.59 January 9,1961 December 24 24, 1961 June 25, 1962 .
107 .5 .50 197.63 168 ....'3 7 521.05 438.68 6 5 8 .7 4 615.66 720.87 535.4~
~ ~ -
*
,. ,
Ruy Signal Trend Ruy Trend Sell Signal Rottom Buy Signal Top Sell Signal· Bottom Buy Signal Top Sell Signal Trend Buy Signal Top Sell Signal Ho'tom Bu Buy Signal
g
~ ~ ~
8 '0
~
•I .E.
~
'" "
~
~~
o
'"
?~ ~~ r
~
'"
.:1 .:1
There There w-pre w-pre only only nine signal signalss which which requir required ed the the twent twentyy-tw two o year yearss from from 1942 1942 to 1964. 1964.
action action during during
78
THE
TTAT.T.En T.T.En THF,On THF,OnY Y
H~n~ H~n~ is n list list of :11! :11!th th"" sign signal alss prod prodllced
the llnllor llnllor by the
Theory Theory dnring dnring the pf'riml pf'riml from from 1942 1942 to 1964. 1964. D T Typ(~ of Signal Signfil Datp .T A - ,-.---·--·--· -·11--S' -1--1-----S; S;''-I; I;-i -i-0 -0,1 ,194 942 2 Trcnc rcnc Buy Buy : Igna Igna 97 1";ffJ I J 11v z r , " , Trend s- u Signal , 1" Oct .. I ",,,.,1) Bottom Buy Signal (} ]047 Bott Bottom om I'ny I'ny Sigr Sigrna nall May May I. 0,' . 19 19 '7 Trpn Trpnd d BlIYS BlIYSig igna nall Jnly Jnly 12, 12, . 't" . .Apri I 0,. Top Sf'll Signal Signa l Trend s- u Signal Mav 2G, ] 95 95fi - 2'" ]9"',7 ]9"',7 Nov. Bott Bottom om nllY nllY,,Signa ignaI ov. ,oJ,. 00 Tren Trend d Bny Bny Sign Signa! a! Jan. Jan. 207, 207,105R 1 05R "'9 AI1g. 10), ]9 - .. .. ) , 1'0\) Sell Signa! r : : ] 9 " Trend Trend SP11 SP11Signal Signal Sept. Sept. .J, .0 0) 0')9' Q 1""1 Trem Tremll Bny Bny Sign Signal al Jan. Jan. " ,,,) ,,,) . ,." 19"] 1'O!1 Spl\Si Spl\Si~1 ~1J1 J1al al Dec. Dec. :;"' :;"',, . I),.., 1()" 19"2 Trpn TrpneISf' eISf'll ll Sign Signal al Apri Apri n ()'" 1""2 ""2 Bottom Bottom Buv Signal Signal Juno ()'" . I J G 1n03 Trend nllY Signa . an a n. J, • J,J, At'
0
]"" '''
/":J,
/.,0),
;}.)O
•
,,,)
I07. I07.5 50 ]97.03 lRR. lRR.3 37 ]71 f5 f52 ] R477 . !i2•. 00 5 0 •.1 05 472.49 4~R.fiR 4!i0.fJ()
O!"'lR.74 "r ",)r.:):2.1 R. f,IS.G6
720 R7 • A-/920 .1 _ 0 . r::, r:):,,' ,'"4" oJ.)'). '). - oJ G02. G02.23 23
Prima rimary ry Primary Prima rimary ry Confirming Confirming Primary Confirming Primary Confirming Primary Confinning rrimary Primary Confirming rrima rimary ry Conf Confir irmi ming ng
T·Tall T·TallerT erTheo heory ry snv tlmt tlmt action action sholll shollld d, he! . 1'11(' . 1"11I('S O.f tl] v. take taken n on the prin prinwr wry y sign signal al,, whic which h occu occurs rs firs first. t. The. ~Ign ~Ignaa which which nC('lI nC('lIrs rs secolH secolH!! is a confir confirmin ming g signal signal,, and rf'(ll rf'(lllll llles es no action action.. If there there is no no top or hottom hottom si~'.n si~'.n
action action on 11]('next next Irem1 signal. signal. Sf"lIing Sf"lIing was (';] l1 c (l for for on lhe Top Sdl Sdl Sign Signnl nl of D('c. D('c. 94, 1961. 1961. The Trr-nr Trr-nrll Sell Sell Signal Signal,, which f~)ll()\\'ed on ..- ·'120 ·'120 IC}62 W
EXAr-.f1"lF.:
I
]961.
CHAPTER
CHAR CHART T
10
REV REVIEVV IEVV
In this chapt chapter er is presen presented ted a revi review ew of stoc stock k market market action action during during the last twenty twenty-tw -two o years, years, showin showing g how I analyz analyzee the market market and recognize b 11Y and sell sign signals als,, accord according ing to the rules rules of the Haller Haller Theorv Theorv.. When When readin reading g this this chapter, chapter, it woul would d be wise to frequen frequently tly cons consul ultt the the acco accomp mpan anyi ying ng char charts ts to bett better er unde unders rsta tand nd the the acti action onss desc descri rihe hed d in the the text text.. I wiII wiII desc descri ribe be the the mark market et acaction tion at lengt length h to hel help p you you unde unders rsta tand nd ever every y deta detail il of the the Haller Haller Theory. Theory. On some some of the the char charts ts,, the the Adva Advanc ncee and and Decl Declin inee Inde Index x went went IIp so far far that that I had had to reduc reducee the the scal scalee to keep keep it on the the char chart. t. On a few few of those those redu reduce ced d scal scalee char charts ts,, ther theree was was import important ant trendtrend-cha changi nging ng action action which which I wanted wanted to show show in the the large largerr scal scale, e, for for great greater er deta detail il.. To accomp accompli lish sh this this purpurpose pose,, I used used redu reduce ced d scal scalee and and regu regula larr scal scalee for for diff differ eren entt time periods on the the same same char chartt in seve severa rall case cases. s. In that way way I was able able to confine confine the use of reduc reduced ed scale scale to the period periodss when when there were were no importa important nt buy or sell sell signals signals to illust illustrat rate. e. The The nurn nurnhe hers rs in the the scal scalee of t h e A & D Index Index go up up to 9,000. 9,000. 111en 111en Ihey Ihey start start over over again again with with 0000 0000 - 1,000 1,000 - 2,0002,0003,000 3,000 etc. etc. It WaSdone WaSdone that that way as a remi reminde nderr that that the A & D Index Index is a cumu cumulat lative ive index. index. The number numberss of the the A & D Index do not have have any importa importance nce as defini definite te number numbers, s, but rather rather as unit unitss of meas measur urem emen entt whic which h are are used used to meas measur uree the the am01111t by whi which ch the the A & D Index change changess its directi direction, on, 79
19113
-
~ ----~--1 - -
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- -f...e -I
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DOW-.JONFS JlID.ISTRIAL AVF.R WE
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I:HA TIT nEVmW
1942
The yield yield of the the Dow-Jone Dow-Joness Indust Industria riall Averag Averagee was more more than than 5% during during the entire entire year year of 1942. 1942. So there there could could he no Top Se H Sign Signal al or Trend Trend Sell Sell Signa Signall duri during ng that that year year.. The The rules rules state state thnt thnt tllere tllere can only he a Trend Trend SeU Sigmll Sigmll when the yield yield is less less than 5% at at the time time of the signal signal.. Then~ Then~ can not not be a Top Sell Sell Sign Signal al unle unless ss the the yiel yield d has has decr decrea ease sed d to less less than 4% at at some some time time during during the hull hull market market.. During During the first part part of ]942, the stock market market contin continued ued the big decli decline ne which which had started started severa severall years years before. before. The lowest lowest point point of the the market market was reache reached d in April. April. Ther Theree was was no Bottom Bottom Buy Buy Sign Signal al beca becaus usee ther theree was was no sellin selling g climax climax.. The greatest greatest number number of net net weekly weekly new lows reache reached d during during 1942 1942 was only 420, 420, which was consider considerabl ably y less less than than the 750 net net weekly weekly new lows requir required ed to indicat indicatee a selling climax. climax. A Tr~nd Buy Signal occurred on Septeml)(~r Septeml)(~r 19, 19, 1942 whIm the the A & D Inde Index x had had rise risen n 9 ,,1 .5 0 points points from from its lowest lowest prepreviou viouss poin point. t. Enou Enough gh net net week weekly ly new new high highss to confi confirm rm the the signal signal had alread already y occurr occurred ed severa severall months months previo previousl usly, y, dnrdnring the second second week week of Jllly Jllly,, when when 86 net weekly weekly new higlls higlls were recorded. recorded. During During the rest rest of Hl42, Ih0 stock market rose stl~adily stl~adily and strongly.
CHART REVIEW
93
market market top areas areas with the NH-NL Inde Index x past past its its peak, peak, and and slmwin slmwing g weakne weakness. ss. Volume Volume had also also reached reached its peak peak about about the same same time time as the NH-NL Index. The The A & D Inde Index x was was havin having g larg largee reac reacti tion ons, s, and and made made a lowe lowerr low low in Nove Novemb mber er.. That That lowe lowerr low low was was a failu failure re,, hut hut the yield yield had not declined declined to less than than 4%, so a Top Sell Sell Signal was was not not possibl possible, e, The high high yield yield prevente prevented d the start start of a hear hear marke market, t, even even thou though gh the the mark market et acti action on was was typi typica call of top areas. There There were were no Signals Signals of of any kind during 1943. 1943. The only only action action required required was to maintai maintain n the long position position establ establish ished ed in 1942.
1944 The yil'ld yil'ld was more more tlwn tlwn 5% most most of the year, declin declining ing to less less than than 5% dur durin ing g the the last last few mont months hs.. So no type type of sell sell signal signal was was possib possible le until until Octohe Octoher. r. From From Octobe Octoberr on, it was was possihle to have a Trend Trend Sell Sell Signa Signal. l. The The yiel yield d rema remain ined ed more more than than 4%, so a Top Top Sell Sell Signal Signal was not possib possible. le. Duri During ng the the midd middle le of the the year year,, heav heavy y volu volume me appe appear ared ed and and starte started d off off the the seco second nd sta~ sta~ee of the bull bull mark market et.. The The thru thrust stke kept pt the the market market head headin ing g upwa upward rd stro strong ngly ly in the secsecond hRH of 1944. There There were were no Signal Signalss of any kind kind during during tlmt year.
1945 ]943
Tho vield was more more than F ) r ' ! r , (lnring (lnring the entire entire year of 1943, so tJ1f'r~ could could be no sell sell signals signals of any kind. Dming Dming the first first part part of the the year, the market market made made a smooth smooth.. and powerf powerful ul rise, rise, accompa accompanie nied d by increas increasing ing volume volume.. It was characteristic nf the early stage stage of a bull bull market market when when great great stre streng ngth th is dis displ play ayed ed.. The The last last half half of 1943 1943 was typi typica call of
The yield yield was less than 1) % duri during ng the the enti entire re year year,, so a Tren Trend d Sell Sell Sign Signal al was was poss possib ible le at any time time.. The The yiel yield d dedecrease creaser'! r'! to less less than than 4% in September, so a Top Sell Sell Signal Signal was possible after after that that time. time. The stro strong ng upward upward moveme movement, nt, which which is chara characte cteris ristic tic of thf' thf' earl early y stag stagee of a bull mark market et,, cont contin inue ued d duri during ng the the firs firstt half half of 1945. 1945. There There was a fairly fairly large large reacti reaction on in July. July. That That
94
CfTAHT
CHAnT REVIEW
nEVTKW
reacti reaction on only only carri('d carri('d the A & nIndex Index downwa downward rd 2014 2014 points points from from ifs high highest est pr('vi pr('vions ons point. point. so it did not callSe callSe a Trend Trend Sell Signal, Signal, which requires a decli decline ne of 2400 2400 poin points ts find find 80 net we('kly we('kly l1('Wlows. l1('Wlows. \Vl1('n \Vl1('n the A & D Index Index decl declin ined ed in [uly [uly,, it was was not not a failfailure ure beca becaus usee the the prev previo ious us low low in May was was made made on a one week week moveme movement. nt. A one week week moveme movement nt does does not constitu constitute te a rall rallv v or decl declin ine. e. It lake lakess a move moveme ment nt of two w('pk w('pkss in the sa~e sa~e direct direction ion to make make a rally rally or declin decline. e. Toward Toward the end of t118ye t118year, ar, the market market resume resumed d its stro strong ng upwa upward rd move moveme ment nt.. Th(' Th('r~ r~ were were no signa signals ls of any any kind kind rluring 194!). ';f1w ';f1w natura naturall dcath dcath of Pres Preside ident nt Frnnkl Frnnklin in D. Rooseve Roosevelt lt on April April 12, 194!) was was not not tno muc much h of a surprise and t1.1f' t1.1f' I'd I'dore did did not not shoc shock k tlw tlw stoc stock k mark market et.. It caused caused only only a minor minor dededine. 1946
The vidd was less less than than 4% during during the entire entire year. year. so itit was was poss possih ih1~ 1~ to have have a Top Sell Sell Signa Signall or a Trend Trend Sell Sell Signnl Signnl at any any time time duri during ng 1946 1946.. Doring Doring 'March 'March the stock market market ('xj)( ('xj)('ri 'riene eneed ed its larges largestt reacti action on iJ~ iJ~ seve severa rall yenr yenrs. s. At tho bottom bottom of the reac reacti tion on the the A & D Index had onlv onlv r1ecli r1eclinpd npd IGOO points points from from its highest highest point, point, so no tnmd tnmd signal signal occ11r occ11rred red-----eve even n thOllgh thOllgh there there were were 170 w('pkl" p kl" riot riot new lows lows made made during during that that reacti reaction. on. bull market 'vas 'vas made made in June TIl(' hiE;IH'st hiE;IH'st point of the bull June when when the DTIA reac11Pd 212.50. It was a level rememb remembere ered d for year yearss bymany bymany sad inves investor tors. s. At tI,e tI,e top of the bull market, market, tlw volume volume was much lower lower than than it had had heen heen duri durin? n?:: the the stro strong ng nclvance of Jan11ary and Fehrna Fehrnarv, rv, ]946. ]946. Th« NH-NL NH-NL Index Index also also was far holow holow its preprevions peak when when the hull hull market market reache reached d its top. top. The greatf greatf'st 'st
95
number number of net new highs occurred occurred in Janu January ary and Februa February, ry, at the the same same time time as the the greate greatest st volume volume appear appeared. ed. Ther Theree was was a fail failur uree of the the A & D Index Index in Jul July, y, but but ther theree was was no Top Sell Sell Sign Signal al,, beca becaus usee the the mark market et star starte ted d down down,, and never never recove recovered red to compl complete ete the top signal signal format formation ion.. A Tre Trend nd Sell Sell Sig Signa nall mark marked ed the the star startt of a bear bear mark market et on JIIl JIIly y 27, 27, 1946 1946.. At that that time time the the cumu cumula lati tive ve net net week weekly ly dedeclin clines es reac reache hed d 2700 2700 poin points ts helo helow w the the prev previo ious us high high poin pointt of the the A & D Inde Index. x. On the the same same date date ther theree were were 28 5 net week weekly ly new lows lows recor recorde ded, d, whic which h was was far far more more than than the the 80 requir required ed for a compl complete ete signal signal.. Righ Rightt afte afterr the the sell sell sign signal al,, the the mark market et had had a weak weak rall rally y whic which h last lasted ed only only, two week weeks. s. Then Then came came the the cras crash h , with with prices prices going going down rapidl rapidly y on large large volume volume.. It was the worst worst mark market et decl declin inee in many many year years. s. Then Then came came a clear clearly ly define defined d sellin selling g climax climax when when 758 net new lows lows were were record recorded ed during during the third week week in Septem September ber.. The The Botto Bottom m Bny Bny Sign Signal al call called ed for for buying buying on Octo Octobe berr 14, 14, 1946, 1946, which which war; war; the the starr of the the fourth fourth week week after after the selling selling climax climax.. At that that time time the DJTA was was at 168.37. During During that that fonrth fonrth week week the DJIA DJIA reache reached d its lowest lowest point in 1946 1946,, which which was was 163. 163.12 12.. The The lowe lowest st poin pointt in 1947 1947 was Hl:1.21. Tho Tho very very lowe lowest st poin pointt of the the enti entire re thre threee year year bear bear market market was destine destined d to occur occur in 1949 when when the DJIA DJIA reache reached d During the three three year year hear hear market market.. which which contin continued ued 161.GO. During after after the Bottom Bottom Bny Signal Signal of 1946, 1946, the the DJ1;\ DJ1;\ never never went went as mnoh mnoh as seve seven n points points lower lower than than the 168.:37 reco record rded ed at the time time of the buy signa signa 1. 1. ~ Dnri Dnring ng 1946 1946 the the Hall Haller er Theo Theory ry Tren Trend d Sell Sell Si~na Si~nall clea clearl rly y indica indicated ted the start start of the hear market market and the time time to sell sell out the long long positio position n estahl estahlish ished ed in 1942. 1942. That That was also the time time for for tho those se inte intere rest sted ed in shor shortt sale saless to establ establis ish h a short short posi posi-tion. tion. Then Then the Bottom Bottom Buy Signal al indi indica cate ted d the the exac exactt time time Buy Sign to cove coverr shorts shorts and take take a long positi position. on.
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96
CHART REVIEW REVIEW
CHART :REVIEW
1947 There There were were large large rallies rallies and declin declines es during during 1947, 1947, hut the mark market et coul could d not not gath gather er enou enough gh stre streng ngth th to sust sustai ain n a 1111 111111 11 market. Durinz the first h::J1f h::J1fof of the the year, the A & D Index Index went went into into a big big de~J de~Jin incc wlri wlrich ch went went down down 5000 5000 poin points ts.. The The yiel yield d was was less less than 5%, so ther theree could could have have been been a Trend Trend Sell Sell Signal Signal if we did not have have a rule rule which which prev preven ents ts us from from givi giving ng up a good good long posit positio ion n tahm tahm at a Bottom Bottom Buy Buy Sign Signal al.. The The rule rule ~tat ~tates es that that a Tren Trend d Sell Sell Signa Signall can can not not foll follow ow a Bottom Bottom Buy Signal Signal.. A Bott Bottom om Buy Signal Signal must be followed followed by a Trend Trend Buy Sign Signal al hdore hdore ther theree can can he a Trend Trend Sell Sell Signal. .' Bear Bear market marketss are sonH'ti sonH'times mes charnc charncten tenzed zed by WIde reacreactions, upward and downwar downward. d. Some Some of the decline decliness may carry carry pric prices es belo below w the the poin pointt ",'h ",'her eree one one had. had. houg hought ht at a Bott Bottom om Buy Buy Sign Signnl nl.. But But the the huyi huying ng oppo opport rtum umty ty offe offen, n,d d hy a ~):ar ~):ar market market sellin selling g climax climax Is so outs outsta tand ndin ing g that that the the pOSI pOSItI tIOn On shon ld not be giVl'll up f'asily. . If one one had heen fright frightpnl pnl'd 'd into into spllin splling g on that 5000 5000 pomt pomt declin declinee of the A & D Index Index in early early 1947, 1947, he would would have have been been offere offered d :1.noth :1.nother er Imving Imving opport opportuni unity ty in a fpw wpeks. wpeks. at even lowe lowerr pric prices es.. Ano' Ano'th ther er sell sellin ing g clim clim:l :lX X occu occurr rred ed duri during ng the the third third ~~'~ekof ~~'~ekof April, April, whr-n 780 780 net net week weekly ly new new lows lows were recordf'd. '111emle '111emless called called for hllyin hllying g at the start of t1 H -~ fourth fourth week aftA aftArr the climax climax week week.. The The date date for for lmying lmying was was May May 19, 19, 1947 1947.. At thn thntt time time the the nJTA nJTA was was 171. 171.52 52.. That week week turn turned ed out out to he the lowes lowestt poin pointt reaf reaf'h 'hed ed hy the stoc stock k mark market et duro duro.. -. jng 1947. On May ~9 som somee stoc stocks ks were were slig slight htly ly high highe; e; than than they they,, were were in Octo Octohe her, r, 1946 1946,, hut most most stoc stocks ks were were shgh shghtl tly y lowe lower, r, on 'M ay 19, 1947 1947.. For an investo investorr who had alread already y hmlght hmlght o n ;
97
the the Bottom Bottom Buy Buy Sign Signal al of H146, the the Bott Bottom om Buy Buy Sign Signal al of 1947 1947 offe offere red d a good good oppo opport rtun unit ity y to do additi addition onal al buyi buying ng at the lowest lowest prices prices of 1947. 1947. A Tre Trend nd Buy Buy Sign Signal al occu occurr rred ed on July July 12, 12, 1947 whe when n the the A & D Index Index had advanced advanced 3750 3750 points points from from its low, low, and the NITNIT-NL NL Inde Index x regi regist ster ered ed 90 net net week weekly ly new new high highs. s. An advance vance of 2400 2400 points points is all that that is requir required ed of the the A & D Index, but but the the sign signal al was was dela delaye yed d by the the inab inabil ilit ity y of the the NH-NL Inde Index x to reac reach h 80 or or more more net net week weekly ly new new high highs. s. That That buy buy signal signal was a conf confirm irming ing signal signal,, and no buying buying was called called for, for, becaus becausee bllyin bllying g had already already been been accomp accomplis lished hed on the the BotBottom BlI)' BlI)' Signa Signall which which had occurr occurred ed before before it. Duri During ng the the last last part part of 1947 1947 the the A & D Inde Index x went went into into a 3600 3600 poin pointt declin decline. e. There There was no Trend Trend Sell Sell Signal Signal becaus becausee when when the the A & D Index Index had had decl declin ined ed more more than than 2400 2400 point pointss in the first first week week of Decem December ber,, the yield was 5.08%. 5.08%. The folfollowing lowing week week the yield yield increa increased sed to 5.33% 5.33%.. Then Then the yield of the DJTA DJTA remain remained ed more more than than 5% for for almost almost seven seven years. years. 1948
The The yiel yield d on the the DJTA DJTA was was more more than than 5% dur durin ing g the the enentire tire year, year, so there there could could be no sell signals signals of any kind. kind. Dming Dming the first first week week in Apri Aprill the A & D Index Index recorded recorded an advance advance of 9A50 poin points ts from from its its low, low, and and the the NH-NL Index showed showed 210 net new highs for that week. week. It would would have have been been a Tren Trend d Buy Buy Signal Signal exce except pt for for the the fact fact that that ther theree had had been been no Tren Trend d Sell Sell Signa Signall sinc sincee the the Tren Trend d Buy Buy Sign Signal al of July, July,
1947. The The rule ruless stat statee that that ther theree can can not not be a Tren Trend d Buy Buy Sign Signal al until until after after there there has heen heen a Trend Trend Sell Sell Signal, Signal, becaus becausee there there isno need need for for a Trend Trend Buy Buy Sign Signal al when when a long long posi positi tion on has has alread already y been establish established, ed, and is stil stilll being maintain maintained. ed. The trend trend signals signals must must follow follow each each other other in orderly orderly progre progressi ssion. on.
98
cn"TIT
J1EVTRW
During fhp third third wf'pk p k of Angns Angnstt tllP tllP A & n Index Index had df'clined 2ROO poin points ts from from its its high high,, rind rind there there were were J 00 net weekly weekly new lows. But th('rp th('rp c(mld nol hI' a Trend Trend Sf'1lSignal 1 lSignal beca becans nsee the the yic1 yic1d d was was more more than than 5%. 5%. The The stoc stock k mark market et had had a fairl fairly y good good rall rally y in 194R, hut the market market could could not muster muster (mongh (mongh strf'ngth n gth to sustai sustain n the advanc vancee and and get get a hull hull marke markett star starte ted. d. Tlw Tlw big big rall rally y of ]948 ]948 turned turned nut to he only only a secon seconda dary ry reac reacti tion on in a three three year year bear bear market market.. Of COlJnW that that was was not 8ppare 8pparent nt unt unt il aflerw aflerwnnl nnls. s. At the time time it bpppn bpppnf'd f'd,, it rml!I rml!Iy y looke looked d like like the start of a new Iml1 market market.. The years of 1947 and 1948 1948 were were pnzzli pnzzling ng and fJ'1lStratin trating g to most most invest investors ors,, for it was was diffic difficult ult to nnderst nnderstnnd nnd what was hflppening. hflppening. The Haller Haller Theory Theory did not call for fiction fiction of any kind durduring 194R, f'xcept f'xcept to'm::Tint to'm::Tintain ain the long positions positions f'st:.Jhlis f'st:.Jhlislwd lwd J' 3n!:· at the the wonder wonderful ful hnying hnying opport opportnni nnitie tiess identi identiflf flf'd 'd hy 111f' 111fJ3n!:· tom Buy Signals Signals of UW) and 1947. Ul49
Tlie Tlie yi('ld yi('ld was more more tlwll tlwll 5 r : 1 J dl1l'i dl1l'ing ng the entire entire )'f'ar )'f'ar,, so no no sell sell sigrd sigrdss of any any kind kind were were possihle. stflrted 011tto h(' ::111 at her bear market market year. year. The marJ 949 stflrted ket driflr(J down until JII11('. JII11('.Tn Tn Jnne tl]('r(' r(' was a small small sP11ing sP11ing climax, climax, hnt not enongh enongh to meet meet the n~qnir('mf'nts n~qnir('mf'nts of tllP tllP HnJlcr HnJlcr Theory. Theory. So no action action WflSc:111e<1 c:111e<1 for. During During (he [ourll: week week of July the the A & D Index Index h:Hl h:Hl :1(1. vanced 24fJO points points from from il~ low, low, and tllPre tllPre were were 110 net new high highs. s. H was not not a Trf'nrl n rl B1\Y Sign Signal al beca becaus usee it was not preced preceded ed by n Tren Trend d SP11Si SP11Signa gnal. l. An inves investor tor follow following ing the Haller Haller Theory Theory would would still still have have the long positi positions ons initia initiated ted in 194A and 1947 at lower lower prices. Look Lookin ing g hack hack,, we can see that that it woul would d have have heen heen a good good
CHAHT REVIEW
99
spot spot for addi additi tion onal al huyi huying ng,, hut hut ther theree was was no way to know know that that at the time, time, unle unless ss one one had had noti notice ced d the the higl higl~ ~ yie yield ld.. In June, June, 1949 1949 the yield yield had increase increased d to 7.46%, 7.46%, which which was a hishistorica torically lly high high level. level. ThPfe ThPfe have have only only been been a few times times in this this cent centur ury y when when the the yiel yield d went went over over 8% . During During the last last lUlU of 1949 the marke markett contin continued ued moving moving up stro strong ngly ly on incre increas asin ing g volu volume me.. By the the end end of the the year year,, the the mark market et had had gone gone so much much high higher er Ulan Ulan the 1948 1948 peak peak that that it look looked ed like like a major major hull hull mark market et was was unde underr way. way. TIle TIle Halle Hallerr Theo Theory ry call called ed for for no acti action on in 1949, 1949, excep exceptt to mainta maintain in tlw long long positio positions ns establ establish ished ed on the bottom bottom signal signalss of 1946 1946 and 1947, 1947,
1950 The The yiel yield d was was more than than 5% duri during ng the the enti entire re year year,, so 110 sell signals of any kind were possible. . The market market moved moved up on increas increasing ing volume volume,, interr interrupt upted ed hy a larg largee reac reacti tion on in July July.. That That reac reacti tion on was was caus caused ed by the entr entry y of the the United United Stat States es into into the Kore Korean an War War on [une [une 27. 27. I rememb remember er spendi spending ng much much time time in a broker broker's 's office office,, watchwatching the the panic panic develo develop. p. Dmin Dming g the the pani panicc in July July,, ther theree was was a fail failur uree of the the A & D Inde Index. x. Sinc Sincee the the .'yiel yield d had had not not decl declin ined ed to less less than than 4%, '·here '·here could could be no rfop rfop Sf'l1 l 1 Signal Signal.. Theref Therefore ore the failnr failnree had no signif significa icance nce at aB. The The panic panic did not cause cause a sell sell signal signal or end end the the hull hull market market.. When When the the reac reacti tion on ende ended, d, the the mark market et moved upward again again on good good volume, volume, throug through h the end of the the ,, '
-
year. The HaBer HaBer Theory requir required ed no action action during during 1950, 1950, except except to mainta maintain in the previous previously ly establ establish ished ed long long positi positions ons..
100
"TTATIT REVTEW
1951
The yield yield was more tl18115% duri during ng the entire entire year, year, so no no sen signrlls signrlls of any kind kind were were possib possible. le. The The grea greate test st volu volume me of the the bull bull mark market et occu occurr rred ed in Janu Janu-ary. J 9!'i1. During During the rest rest of the the year, the market market experi experienc enced ed large large reacti reactions ons and rallies rallies.. During During much much of 1951 1951 the market market moved moved upward upward on decr decreas eased ed volume volume.. Such Such action action usuall usually y is typi typica call of top top area areas. s. But But the the yiel yield d on the DJTA never never went went belo below w 6.2% 6.2% duri during ng the the enti entire re year year,, so the the mark market et coul could d not not top out on such a high yield. yield. Ther Theree was was a fail failur uree of the the A & D Index Index in May, May, but but ther theree coul could d he no Top Sell Sell Sign Signal al beca becaus usee the the yiel yield d had had not not dedeclined clined to Ip.sstha Ip.ssthan n 4%. On the third third week week in May there there ,,,au ,,,auld ld have have heen heen a Tren Trend d Sell Sigllnl Sigllnl if the the yield yield had had not not heen heen more more than than 5%. 5%. Then Then ther theree woul would d have have hep. hep.n n a Trend Trend Buy Buy Sign Signal al on the thir third d week week in Augus August. t. S11ehacti S11ehaction on would would have have result resulted ed in a whipwhipsaw, saw, with a smal smalll loss loss.. That That is a good good exam exampl plee of how how the the rtrles rtrles about about yield yield have have preven prevented ted losses losses.. Ther Theree were were no signa signals ls of any any kind kind dmin dming g 1951 1951.. The HalHaller ler Theor Theory y requ requir ired ed no acti action on,, exce except pt to main mainta tain in the the prepreviously viously estah1ishe estah1ished d long positions. positions. 1952
The The yiel yield d was was more more Ihan Ihan 5% dmi dming ng the the enti entire re year year,, so no sell sell signa signa Is of nnv kind were were possib possible. le. Ther Theree were were fair fairly ly larg largee reac reacti tion onss dmin dming g the the year year,, and and the the market continued 10 work work higher higher on df'rrease r reased d volume volume.. There There was was a Inil Inilur uree of the the A & D Index Index in May, May, and and agai again n in oc-: tobe tober. r. but but ther theree coul could d not not he a Top Sell Sell Sign Signal al bera berans nsee the. the.,, yield yield had not decline declined d to less less than than 4%. Ther Theree were were no sign signal alss of any any kind kind duri during ng 1952 1952.. The only only
CHART REVIEW
acti action on call called ed for for by the Hall Haller er Theo Theory ry was was to main mainta tain in long long positio positions ns estahl estahlish ished ed in 1946 and and 1947. 1947.
101
the the
1953 The The yield yield was was more than 5% dur durin ing g the the enti entire re year year so it was not not possible possible to have have any kind of sell sell signal signalss in 1953The The mark market et reac reache hed d its its highe highest st poin pointt earl early y in the year. year. Then Then starte started d the larg. larg.est est second secondary ary reacti reaction on experi experienc enced ed by any any hull hull mark market et duri during ng the the 22 year year peri period od from from 1942 1942 to 1964 1964.. Some Some peopl peoplee stil stilll say say it was was a baby baby bear bear mark market et.. The The Haller Haller Theory Theory indica indicates tes that that it was was a temp tempora orary ry interr interrupt uption ion betw betwee een n the the two two stag stages es of a seven seven.. year year long long hull hull mark market et,, hecnns hecnnsee the yield yield was never never less less than 5.45% 5.45% at any time time durduring 19.53. . Hegard Hegardles lesss of what what anybod anybody y says says or think thinks, s, the fact is that that It was was a Imge Imge de~l de~lin inee whic which h last lasted ed six six mont months hs from from top top to bottom bottom.. The declme declme was a. real real test test of cour courage age for invest investors ors who wanted wanted to maintai maintain n their long positions. positions. was one one of those those year yearss in which which.. ther theree was was litt little le,, if 1953 was any, any, progr progress ess for long long term term invest investors ors.. The market market ended ended the year year lower lower ~han ~han where where it starte started. d. Such Such acti action on is upse upsett ttin ing g ~nd ~nd Frust Frustra rati ting ng for for the majo majori rity ty who who are are impa impati tien entt to see Import Important ant l:rogr l:rogre.s e.s~. ~. The The succes successfu sfull invest investor or must must be patien patientt and and hold Ius Ius pOSIt pOSItIO IOnas nas long long as it is right right for for him him to do so. so. . Ther Theree was was a .fai .failu lure re of the the A & D Index Index in April April,, hut hut the the yield was too hIgh hIgh to permi permitt a Top Top Sell Sell Signal. Signal. J f the the yiel yield d had had not not been been more more than than 5%, 5%, ther theree woul would d have have been been .a Tre Trend nd Sell Sell Signa Signall on the four fourth th week week in April April.. At that time the the A & D Index Index had declined declined 3000 3000 points points,, and there were were 510 net net new new lows lows for for the the week week.. Ther Theree were were 720 720 net net new new lows lows duri during ng the the seco second nd week week in Ju~e Ju~e.. It was not enou enough gh of a sell sellin ing g clim climax ax to meet meet the the re-' re-' quirer quirernen nents ts of a Bott Bottom om Buy Signal Signal,, so no actio action n was called called
J02
cHAnT Im"T!':W
for. T),,, Ihird w('l·k in S('ptel1lhc S('ptel1lhcrr also H>cnrrh'd H>cnrrh'd 71() nr ll1('W lows. There There were were ]10 signal signalss of any kind rIming rIming lH5:1. The only only acti action on reqI reqIli lire red d hvth hvthee Hall Haller er Theo Theory ry W
1954 vieM was was more more than than 5% dllf dllfin ing g Ilw Ilw Iirs Iirstt half half of the 1'h(' vieM veal veal', ', s~ it was was not not poss possib ible le to have have any any kind kind of sell sell sign signal al 11rin g I he firs firstt ldf ldf of 1954. The yield yield W
;1
year that mal
The The yiel yield d was was less less than than 5% duri during ng the the enti entire re year year,, so Q' Trend Trend Sell Sell Signal Signal was possih possihle le at flny flny time time dming dming Hl55. Hl55. The;
CHAIIT 111<:VIEW
103
yield yield was 3.91% 011 the the four fourth th week week of Sep Septe temb mber er,, so a Top Top Sell Sell Signal Signal was possibl possiblee at any time after after that. that. The The larg larges estt volu volume me duri during ng'' the the seco second nd stag stagee of the the hull hull mark market et occu occurr rred ed dllf dllfin ing g the the firs firstt two two mont months hs of 1955. 1955. The mark market et went went IIp IIp stro strong ngly ly at that that time time.. Ther Theree were were wide wide swingi swinging ng reacti reactions ons in the the second second half half of the year as the the marmarket worked worked upward on decrea decreased sed volume. volume. The The stoc stock k mark market et made made its its highes highestt peak peak of the the year year righ rightt Ilea Ileal' l' the the end end of 1955 1955,, hut at the same same time time,, the the NH-N NH-NL L InIndex dex made made its its lowest lowest peak peak of the the year. year. The The tren trend d of the the NHNHNL Inde Index x was was down downwa ward rd for for the entire entire year year.. Each Each peak peak of net net new new high highss was was 10\, 10\,,' ,'(' ('1' 1'than t han the the prev previo ious us peak peak.. It was typica typicall top area action action.. The A & D Index Index had had a fail failur uree duri during ng the the seco second nd half half of 1955, 1955, and just lwfore lwfore the failure failure was a movem movement ent which which was not not a fail failur ure. e. Sinc Sincee the the two two are are side side by side side on the the char chart, t, this this is a good good opportun opportunity ity to use it as an examp example le to point point out the diff differe erence nce betwee between n a real real failur failuree and a false false failur failure. e. First let us disCIISS disCIISSthe false failure. failure. The A & D Index Index made made a lowe lowerr low low in Allg AllguS uSt, t, hut hut the the low low of the the prev previo ious us decl declin inee was produc produced ed hy a one week week movement movement.. The rules state that that a one one week week move moveme ment nt of the the A & D Index Index is not not a rall rally y or a declin decline. e. A rally rally or docli docline ne must must consis consistt of at least least two weeks weeks moveme movement nt in the same same directio direction. n. Theref Therefore ore,, the lower lower low ill ill August August was not a failure failure.. The real real Failure was was in Oct Octob ober er when when the the A & D Index Index clea clearl rly y made made a lowe lowerr low. low. The yiel yield d had had reac reache hed d 3.91 3.91% % in Septem September ber,, so the the failure failure was an indicati indication on to start start watchi watching ng closel closely y for a Top Sell Sell Signal Signal.. The TIlles TIlles state state that that the time to sell sell is on on the third third of three three peak peaks. s. TIle firs firstt peak is the the high highes estt poin pointt reac reache hed d by the A & D Inde Index x 1Jef 1Jefor oree the the fail failur ure. e. The The firs firstt peak peak was was on the fourth fourth week week in Sept Septemb ember. er. The second second peak peak was reach reached ed on
CHART REVIEW
the second second wer-k wer-k in n(~('f'l n(~('f'llIl lIl1Pr 1Pr.. The third third peak peak was Oil the fourth w('rk of j\,f:ueh,HI j\,f:ueh,HI!lG. !lG. The shock shock of President 1~isen 1~isenhow hower' er's heart heart attack attack in OctoOctoher efl11se efl11sedthe dthe stock stock marker marker to drop drop sharpl sharply y in a quick quick panic. panic. At tha thatt time time the the A & n Index declined declined 2 ,2 R O poilll poilll~ ~ from from its high high,, That That was was not enon enongh gh to mee meett Ihe Ihe requi require reme ment ntss of a 2400 2400 point point declin declinee nC'cded c ded to create create a Treml Treml Sell Sell Signal, Signal, so them them was no Trend Trend Soll Soll Sign Signal al during during 1~55. 1~55. The The fail failur uree in 195:5req 195:5reqll llir ired ed a clos closee wntch wntch of the the A & D Inde Index x to see if the the Ihn~ Ihn~ee pcak pcakss w011 w0111dfo 1dform rm lwfo lwfore re a Tren Trend d Sell Sell Signal Signal would would in(lie in(lieate ate the start start of a hpar hpar market market.. No selling selling action action was required in 1955. 1955. Them Them was was no reareason to dislm dislmh h the long posHions estahl estahlish ished ed ill Hl16 Hl16 anrl1941 anrl1941.. 1956
The The viel vielll ll was was less less than !'i% duri during ng the the enti entire re year year,, so a Treml Treml Sell Sell Signal Signal wns possihl« nt anvtim anvtimee rlming rlming 1956. 1956. The yield hr«l reached reached ~,m% ill Sept Septemh emher, er, 1955. 1955. so it was possihle sihle to have have a Top Top Sell Sell Signal Signal at any time dming dming HI:56,even HI:56,even thou gh 1 he yield was never less less than 4 0 /" dming dming 19;)6. 19;)6. The The nile niless stat statee that that,, in orde orderr to have have a Top Top Sell Sell Signn Signnl, l, the yield on the DJTA must must have have rparl] rparl]('r ('rll a levd levd of less less than 4% 'at 'at some time time'd 'dmi ming ng the the 1)11 1)1111 11 mnrk m nrket et.. Thnt Thnt nile nile W:lS W:lS clesigned clesigned tn m;!~((1 allown;lc ;lcee for the the fnrt fnrt that that tllP tllP lowes lowestt yif'ld yif'ld 1 allown of a hull hull market market is someti sometimes mes renche renched d as long long as nine nine months months belore belore Ihe act11n1tn act11n1tnp p of a hllll market market.. At the the start start of H J;5 'o WflSIhe WflSIhe time to Sf''' if there there wOlllrl wOlllrl h(' a third third pe:1Kof pe:1Kof thf' thf' A & l)Index Index lwforf lwforf'' rhr-re rhr-re was was n Tren Trend d Sell Sell Sign Signal al.. The The firs firstt l1pw l1pwar arrl rl move moveme ment nt :lpp :lppen enre rerl rl in the Orst Orst w~ek w~ek of Fehru Fehruat atv. v. It was only only a one week move moveme ment nt 11rwarr warrl, l, so itit was not the the srar srartt of the the rall rally y towa toward rd tho tho thir third d
peak
On the first first week week in Marc March h the the A & D Inde Index x had had move moved d
1°5
upwa upward rd for for thre threee week weeks. s. So it was was appa appare rent nt.. nt that that time time,, that that the the thir third d peak peak rall rally y had had star starte ted. d. The The thir third d peak peak rall rally y prog progre ress ssed ed perf perfec ectl tly, y, reac reachi hing ng its its highe highest st poin pointt on the the last last week in March. March. The The 1lI1 1lI18scnl 8scnlkd kd for for sdli sdling ng when when the the A & n Index Index had decl declin ined ed for for al leas leastt two two week weekss and and 300 300 point pointss from from the the top top of the the thir third d peak peak.. That That was was acco accomp mpli lish shed ed,, and and the the Top Top Sell Sell Signal Signal was comple completed ted on April April 8, 1956. 'Twent 'Twenty-f y-five ive weeks weeks were were spent spent in the the progress progress of the A & D Inde Index x from from tlw tlw top top of the the firs firstt peak peak to the top top of the thir third d peak peak.. When When the the top top of the the thir third d peak peak was was reache reached, d, all all the of a Top Top Sell Sell Signa Signall had had been been met. met. requirements 1. The The yiel yield d of the the DJIA DJIA had had decl declin ined ed to less less Ulan Ulan 4% at some some time during during the bull market. market. 2. The bu U mark market et had had been been unde underr way way for for a year or mor more. e. 3. There There har] heen heen a fail failur uree of the the A & D Index. Index. 4. Week Weekly ly net net new high highss were were less less on the the thir third d peak peak than than earlie earlierr in the the hull hull market market.. 5. Volu Volume me was was lowe lowerr on the the third third peak peak than than it was was earl earlie ierr in the hull market. market. Righ Rightt afte afterr the the Top Top Sell Sell Sign Signal al the the mark market et went went into into a two month month declin decline, e, which which result resulted ed in a Treml Treml Sell Sell Signal Signal 011 26, 1956. 1956. On that that (lat (latee the the A & D Index Index had declin declined ed May 26, 2500 2500 poin points ts from from its its high. high. and and ther theree were were 290 290 net week weekly ly new new lows lows.. The The Tren Trend d S('J] Sign Signal al conf confir irme med d the the star startt of a hear market. market. 1 '1 1 1 " tren trend d sign signal al did did not not requ requir iree any any acti action on,, for sell selling ing had nlre:H nlre:Hly ly heen heen done done au the Top Sell Sell Signal. Signal. In August August the the n .T J A adva advanc nced ed to almo almost st the the same same heig height ht had reac reache hed d in Marc March, h, but but the the A & D Inde Index x had had only a H had 2000 2000 point point rise, rise, and did not go near near its prev previou iouss peak. peak. TI;ere TI;ere were were fewe fewerr net net new new high highss on that that rall rally, y, and and the the volu volume me was was lowe lowerr than than it had heen heen on the thir third d peak peak rall rally. y. Ther Theref efor ore, e, the rally rally was weaker weaker than than indica indicated ted by the DJIA. DJIA.
106
elf Anr
cnAnT
REVIEW
By tl\(' e11dof 1H;:)(J 1H;:)(Jthe the /\ & D Index and the NIT-NT. NIT-NT. InIndex had pxpprience pxpprienced d lnrw~ cloclines. and and were were show showin ing g the the we8kness we8kness of t}e market, At the the same same time time thc thc DJIA DJIA had had 110t 110t yet r-stah1i r-stah1ishe shed d a down trend, and was less than than 25 point pointss helow its Im11market Im11market high. high. In If).'1 If).'1G Gthe seven year year long, long, two stage stage 111111 111111 market market came came to an end with with a Top Top 5('1 5('11Sign 1Signal al.. At that that time time tl1f tl1f~Ha ~Hall llpr pr Theory Theory called called for a sale sale of the the long long positio position, n, held held since since 1846 1846 and and 1947 1947.. The Top Sell Sell Signa Signall also also indica indicate ted d the the time time to initia initiate te short short sales sales for inve investo stors rs intere intereste ste(l (l in sellin selling g short. short. 1957
The lwhavio lwhaviorr of tlw tlw stock stock market market in ]f}.f)7 was pnzz1ing pnzz1ing to many many invest investors ors.. Tlw marke markett experi experienc enced ed a declin declinee in Fehrnary. ary. Then Then the the DJT/\ DJT/\ went went up until until it was was almo almost st exac exactl tly y the the same same height height as its its highes highestt point point in H).50. H).50. The differ differenc encee hetwee tween n the the DJIA DJIA at the the 1956 1956 top top and and the the lW57 lW57 top top was was less less than than two point points. s. Therdo Therdore, re, the majori majority ty of invest investors ors though thoughtt the big rally of 1957 1957 was still still part part of the the seven seven year year long long 1)\111 1)\111 market. The Haller Haller Theory Theory told told a comp complet letely ely differ differpnt pnt story. story. The A & D Index Index only only made a small small move upward in 1857, which was was not enou enough gh to even even come come clos closee to a Trend Trend nllY Signal. That That wns wns an imlic imlica! a!io ion n that that the the DJT/ DJT/\\ was was maki making ng;; a fals falsee move. 'fhe 'fhe hig rise rise of the DJT;\ in 18.'17 1 7W;1S just just a large large rnlly rnlly in a benr benr mn rket, When When the the market market star starte ted d 1110 1110ving oownward from from its 1957 high high,, there there was so 11111eh 11111eh weakne w eakness ss that that the dedecline cline turned turned irtp irtp a panic panic.. The DJIA took took a sh:1f sh:1fp p drop drop ill the last last half half of 1957. 1957. Near Near the the bott bottom om of thp thp declin decline, e, tllP tllP liqu liquid idat atio ion n was was so intens intensee tlwt tlwt a sdli sdling ng climax climax develo developpd ppd.. The climax climax week week was the the four fourth th week week in Octo Octohp hprr when when R!)(} net net new new lows lows were
HEVIEW
107
The The Hall Haller er Theo Theory ry cane caned d for for hnyil hnyillg lg (and (and cove coverring short short snles snles ) on Novemher Novemher 2.5, 2.5, 1957, 1957, which which was the start start of the fourth fourth week week after after the climax climax week. week.
recorclod.
1958
There There was a Trend Trend Buy Signal Signal on the Fourth Fourth week of [ann[ann~ry ~ry when when the the A & D Inde Index x had had adva advanc nced ed 2700 2700 point points' s' from from Its Its low, low, and and ther theree were were R O net net week weekly ly new new high highs. s. It was a ~onHnn ~onHnning ing signal signal,, and no action action was called called for beca because use buybuymg had had alre alread ady y hoen hoen done done 011 the Bottom Bottom Buy Signal Signal in November, 1957. ' Dnring Dnring the first first tl]ff~e tl]ff~e months months of ID58 the the upward upward movemovement ment of the the market market was was hesit hesitan antt unti untill enou enough gh stre streng ngth th acaccumu cumula late ted d to send send it soar soarin ing g upwa upward rd like like a rock rocket et head headin ing g towa toward rd oute outerr spac space. e. Ever Everyt ythi hing ng was was perf perfec ectt for for the the mark market et duri during ng the the last last nine mont months hs of the the year year.. Volu Volume me incr increa ease sed d stea steadi dily ly as pric prices es rose rose,, and and ther theree were were no larg largee reac reacti tion ons. s. The The incr increa easi sing ng volu volume me and and the the stro strong ng,, smoo smooth th ~1im ~1imb b of the market market was typi typical cal of the the strengt strength h which which usuall usually y exists exists durduring the first phase of of n hull market. ' The The NITNIT-NL NL Inde Index x acte acted d well well unti untill ncar ncar the the end end of the the year year when it show showed ed that that the the stro strong nges estt part part of the the upwa upward rd thrust migh mightt have have ende ended. d. The The grea greate test st volu volume me of the the bull bull market market wasin wasin Octohp Octohprr and Nov~mb Nov~mber. er. The The yiel yield d was was less less than than 5% dur durin ing g the the last last half half of 1958, 1958, so i: woul would d have have heen heen poss possib ible le to have have a Trend Trend SeIl SeIl Sign Signal al the last last half half of the year year.. dllnng the Th~ Th~ only only acti action on re(J re(JlJ lJir ire~ e~1 1 by the the Hall Haller er Theo Theory ry duri during ng was to mai maint ntai ain n the the long long positi position on esta establ blis ishe hed d at the 195R was bott bottom om of the the hear hear mark market et in Nove Novemb mber er,, 1957 1957..
CHART REVIEW 108
r.TTAHT nEVIE'V
1959
The yield yield was less than than ,1%duri ,1%during ng the f',ntire f',ntire year year,, s~ it it was poss possih ihle le to have have a Top Top Sell Sell Sign Signal al or a 1 rend rend 5('11SIgnal 1 1SIgnal nt any time dming 1959. . . Duri During ng the the firs firstt half half of the year year the the DJTA DJTA was was rlSl rlSlI1 I1g g on declin declining ing volume volume.. ''''.1hen ' .1hen thn highest highest point point of th~ hnll market market was was reac reache hed d in Augu August st,, the the voln volnme me was was cons consl( l(kr krnh nhly ly less less than than it h~H1 h~H1be been en in Octoh Octoher er and and Nove Novemb mber er of UJ58. The market market f'xper f'xperien ienced ced a large large declin declinee in Septem Septemher her.. Then Then the the DJTA DJTA adva advanc nced ed dmin dming g the the last last three three m()n m()n~h ~hss of of the the vear vear to mak makee a new new high high in '[anuary, ]960. ]960. Many Many mvesmvestorsfhouzht the the high highes estt poin pointt of the the hul] hul] marke markett was was in [anuary, 19GO when when the the DJI DJI A mad madee thil thiltt new new high high.. But But this was not 11m case, case, for that that rallv rallv was a Inlse move move of the DJTA. Many Many we]] we]] known known stock stock a'vemg a'vemges es nnd the Hilll~ Hilll~rr Theory Theory show show that that the real real top of th" th" hull hull market market occurr occurred ed 1Tl August, 1959. 1959. TI", TI", false false move of the the DJIA DJIA was one of the penoli penoliari aritie tiess of the the stock stock market market which which heliJs heliJs to keep keep the majority majority of inves inves-tors in a state of confusion confusion.. The weaknes weaknesss of the year-e year-end nd rally rally of tlw DJIA DJIA was indicated cated by the action action of tlH' tlH' NH-NL NH-NL Index. Index. On that rally there wen' wen' no net net weeklv weeklv new highs highs at aJ1uul aJ1uulil il the very last week of the the rally, rally, when when 'there 'there were were only only 10 net weekly weekly new highs. highs. The weflk~ weflk~ess ess of that rallv rallv was also also rev('f rev('fl1f l1f-d -d hy the A & n Index Index which which fldvan fldvanced ced ~111y G O O poin points ts duri during ng the the enti entire re length of the rally. .... During During the last h:l1f h:l1f of 1959 1959 the 'wld(, sWl11gmi!reactions, the necreasen necreasen volume. volume. tIH~weakn tIH~weakness ess of tlH~A & D Index, Index, and the deerf' deerf'nse nse in net net weekly weekly new highs was typical typical of top top area area acti action on.. Dive Diverg rgel ellc lce, e, whie whiel, l, is freq freque uent ntly ly foun found d at a top, ococcnrred cnrred in April, April, May, JIlIy JIlIy ~mdAugus ~mdAugustt when when the A & nIndex fail failed ed to make make new new high highss whil whilee the the DJI DJI A wen wentt on to new new
highs.
log
The [nilnre of tIl(' A &: nIndex Index in May was not too obvious, obvious, Im! it was was clenrlv clenrlv identi identifie fied d by strictl strictly y follow following ing the rules. rules. After til(' A &: n Index Index reache reached d its highes highestt point point in March, March, the the index index had had n two two week down downwa ward rd move moveme ment nt,, whic which h conconstit stitut uted ed a decl declin ine, e, flcc flccor ordi ding ng to the the rule rules. s. Then Then ther theree was was a thre threee week week move moveme ment nt upwa upward rd,, whic which h cons consti titu tute ted d a rall rally. y. Plea Please se note note thnt thnt one one of tho those se thre threee week weekss was was a downw downwar ard d moveme movement, nt, which which was just just an interr interrupt uption ion of the the rally. rally. Since Since there there were were two weeks weeks of upwa upward rd moveme movement, nt, the whole whole three three weeks weeks must must he conside considered red as a rall rally. y. The The rule ruless stat statee that that a Top Top Sell Sell Sign Signal al shou should ld cons consis istt of thre threee peak peakss of the the A &: D Index. Index. The first peak peak is the the highes highestt point reached reached hy the A & D Index Index before before the failure failure,, The second peak peak is the top of the next rally. rally. The third third peak peak is the the top of the the thir third d rall rally. y. So the the firs firstt peak peak was was on the thir third d week week in Marc March. h. The The seco second nd peak peak was was on the the four fourth th week week in Apri April. l. The third third peak peak was on the first first week week in August August.. The The rule ruless call call for sdl sdlin ing g when when the the A & D Index Index bas bas dededine dined d for for at least least two two week weekss and and 300 poin points ts from from the the top top of the the thir third d peak peak.. That That was was acco accomp mpli lish shed ed,, and and the the Top Top Sell Sell Sign Signal al was was comp comple lete ted d on August August 16, 16, 1959 1959.. All All the the requ requir ireements ments of a Top Top Sell Sell Signal Signal had been been met by that time. time. Nine Ninete teen en week weekss were were spen spentt in the the prog progre ress ss of the the A & D Inde Index x from from the top top of the the firs firstt peak to the top top of the the thir third d peak. TIw TIw yield yield was was only only 2.92% 2.92% at the top top of the the thir third d peak peak.. It was the the lowest lowest yield yield in twentytwenty-thr three ee years. years. nigh nightt afte afterr the the Top Top Sell Sell Sign Signal al the the mark market et went went into into a decline cline which which result resulted ed in a Tren Trend d Sell Sell Signfl Signfl]] on the third third week week in Sept Septem embe ber. r. On that that date date the the A & D Inde Index x had had decl declin ined ed 3100 3100 point pointss from from its high high,, and there were were 330 net net weekly weekly new lows. The Trend Trend Sell Sell Signnl Signnl confir confirmed med the start of a bear bear market market..
CHAnT CHAnT
110
No fnrth fnrthrr rr action action was requi required red..
for sellin selling g had alrear alrearlv lv hcen hcen
done done at tllA tllA Top Sell Sell Signal Signal.. In 19S9 the the bull bull mark market et onrn onrnee to an end witl) a Top Sell Sell Signn1 Signn1.. At that that time time the ITnller ITnller Theory Theory oallod oallod for a sale of the long long positi position on initia initiated ted :It lhe lhe hear hear mar~ mar~ct ct hott hotto0 o0~. ~. in 19f;~. The Top Sell Sell Signal Signal also indicat indicated ed the lime to 1Il111ate 1Il111ateshort short sales sales for those those jnten~ jnten~ste sted d in selling selling short. short. 1960
Th0 vie1
1961 There There was a Trend Trend Rll)' Rll)' Signal Signal on Jrlnn Jrlnnary ary 9 when when the A & D Index rldvalwcd 2950 2950 points points from from its low low point, point, and there there
HEVIEW
111
were 170 net net week weekly ly new new high highs. s. The The buy buy Sign Signal al corr correc ectl tly y indi indica cate ted d the the star startt of a hull hull marke market, t, and and the the time time to cove coverr shorts shorts and initiate a long positio position. n. I I Itypica typicall fashio fashion, n, the first first phase phase of the the bull market market was a strong, strong, smooth smooth rise accompanie accompanied d by increa increasin sing g volume volume and an increas increasing ing nmnher nmnher of new new highs. highs. Duri During ng the the seco second nd half half of HJ61 the the marke markett adva advanc nced ed on decrea decreased sed volume volume.. There There were were wide wide swingi swinging ng reacti reactions ons,, and there there were fewer fewer new highs. highs. There There was diver divergen gence ce when when the A & D Index Index fail failed ed to mak makee new new high highss whil whilee the the DJIA DJIA made made new highs. highs. It was typical typical top area action action.. The The high highes estt poin pointt of the the hull marke markett was was reac reache hed d in NoNovember vember.. The lowest lowest yield yield was 2.97%, 2.97%, which which was recorde recorded d one week week helore helore the top. The yield yield was Jess Jess than than 4% duri during ng the entire entire year, year, so it was was havee a Top Sell Sell Signa Signall or a Trend Trend Sell Sell Signa Signall at posxihle to hav any time time dming dming 1961. 1961. Ther Theree was was a fail failur uree of the the A & D Inde Index x in Tune, Tune, The firs firstt peak peak was in May. The second second peak peak was in AuWJst. AuWJst. The third third peak peak was in Decem December ber,, The Iailnre Iailnre and the three three peaks peaks of the the A & D Inde Index x were were very dearly dearly define defined, d, and almost almost perfect perfect in their their form formati ation. on. The diverg divergenc encee was obviou obviouss and easily easily noticed. At the the time time the third third peak peak fann fanned ed,, all all the the requ requir irem emen ents ts of a Top Top Sell Sell Sign Signal al such such as decr decrea ease sed d volu volume me,, etc. etc. had had been been met. met. The The thir third d peak peak reac reache hed d its its highe highest st poin pointt on the seco second nd week in December.
The rules rules called called for selli selling ng when when the A & DIndex Index had declined clined for at least least two weeks and 300 poin points ts from from the the top top of the third third peak. peak. That That was accomp accomplis lished hed,, and the Top Sell SigSignal was comple completed ted on Decemb December er 24, 1961. 1961. The The Haller Haller Theory Theory called called for for liquid liquidati ation on of long long position positionss on that that date, date, and short sales sales for thos thosee who might might be interes interested ted in selling selling short. short. Twen Twenty ty-n -nin inee week weekss were were spen spentt in the the progr progres esss of the the A &
112
CHART TIEVtR"r
D Index Index from from thp, thp, top top of the first peak peak to the top of tho third third peak. peak. Tt was the longes longestt time time interv interval al hotweo hotweon n the first peak peak and and lhe lhe thir third d peak peak sinc sincee 1942 1942,, anrl anrl it was was foll follow owed ed by the the most most seve severe re h(': h(':1r 1r mark market et sinc sincee 1942 1942.. That That inte intere rest stin ing g fact fact causes causes me to wond wonder er if that that time time interv interval al onn be llsed llsed to foreforecast cast the smrcrity smrcrity of tlH' bear bear market market which which usuall usually y. follow followss a
.
Top Sell Signal. Signal. Ther Theree was was almo almost st a Tren Trend d Sell Sell Sign Signal al in Sept Septem embe ber, r, before before the third third pf'~lkwas pf'~lkwas started. started. AI that that lime lime the the A & D Index df'cl df'cline ined d 2284 2284 points points from from its high high,, and there there were were 75 net net new new lows lows.. Thos Thosee figu figure ress did did not not meet meet the the requ requir irem emen ents ts of a 2400 2400 point point declin declinee and 80 net new lows, lows, so there there was no sell sell sign:J1. I I I ndditi nddition on to the the tpclmi tpclmical cal indicn indicntio tions ns near near the top. top. there there was also also large large pnhlie pnhlie partic participa ipatio tion n in the the stock market market nt that that time. time. Thr-r« Thr-r« was was much wild wild specnl specnlali alion on in new issues issues dnring dnring
enATIT
REVIEW
113
following g week week there there were were 1141 net net new new lows lows,, so May, The followin that that was the second second climax climax week. The rules rules call call for huying huying,, and and cove coveri ring ng shor shortt sale saless at the start start of the the four fourth th week week folfollowi lowing ng the the week week with with the the grea greate test st numb number er of net net new new lows lows.. In this this case case the second second climax climax week had the greatest greatest number number of net new lows. . The Bottom Bottom Buy Signal Signal called called for buying buying on June June 25. ]962. ]962. At tha thatt time time the the mark market et was was with within in a few few poin points ts of the the abso abso-lute lute low of the 1962 1962 hear market market.. The Bottom Bottom Bll)' Bll)' Signal Signal was follow followed ed by a rally rally in July July and Augu August st.. Then Then a Inrg Inrgee decl declin inee in Sep Septe temb mber er and and Octo Octobe ber. r. In Nove Novemb mber er and and Dece Decemb mber er the the mark market et went went up stro strong ngly ly.. There There was almost almost a Trem Tremll Buy Signal Signal on the second second week week in Decemb December, er, hut there there were were only only 70 net net new highs, highs, which which was not not quite quite enou enough gh to prod produc ucee a Sign Signal al.. 1963
HlGI. lD62
Ther Theree was was one one rnll rnllv v lelt lelt in the stoc stock k mark market et.. Then Then the the mark markf' f'!! went went down down If/p If/pro rodn dnce ce a Tren Trend d Sell Sell Signa Signall on Apri Aprill 29, 19R2. AI thnt thnt tirn tirno o the the A & n Index Index had declin declined ed 2708 points points from from irs high, high, nnrl nnrl there there Wf'H' H ' :100 net npw lows. The yif'ld yif'ld wns less less than than 4 ,?{· at that that t imr-. imr-. It wns a confirmi confirming ng sigsignal, nal, all(l all(l no nr-Hon was requir required. ed. Sr.J1i Sr.J1ing ng had nlrend nlrendv v heen heen done done on the Top Sen Signn] Signn] of Df'C'e Df'C'elll lllher her,, 1961. 1961. "lhr-n r-ame r-ame llw r-rnsh. r-rnsh. It wus 'he' worst worst stock stock mmkc·t mmkc·t crash crash
since Hl20 Manv illVf~stors illVf~stors,, large ~\1l(1 ~\1l(1small, failed to recogrecognize nize ~he d1.nge d1.nger· r· signal signalss and took took no action action to protect their capital. capital. Millions Millions of people people lost hill ions of clollm clollmss in that crash. crash. As the the crash crash nppron nppronche ched d its haltom haltom,, the pnnic sp.lli sp.lling ng be-. be-. came so illtenS illtenSf'. f'. that a sdling sdling olimnx olimnx developed. developed. The first first clim AX wef'k wef'k was inclka!f inclka!f'd 'd when when there there were were 80 0 net net week weekly ly new new lows lows record recorded ed duri during ng the the Four Fourth th week week in
The yield yield was lASSthan than 4% duri during ng the entire entire year, year, so it was was poss possib ible le to have have a Top Top Sell Sell Signa Signall or a Trend Trend SeU SeU Sign Signal al at any time time after after the Trend Trend Buy Signal. Signal. Ther Theree was was a Tren Trend d Buy Buy Sign Signal al on Janu Januar ary y 6. 1963 1963 when when the A & D Index Index had risen risen 4800 4800 points points from from its low, low, and there there wero wero 79 79 net net weekly weekly new highs. highs. The rules require require 80 net net new high highs, s, but 79 is clo close se enou enough gh.. The The sign signal al was was dela delaye yed d for for more than than a month month by the reluct reluctanc ancee of the the NH-NL Index Index to rise to the requiredIove]. The signal signal was a confi confirma rmatio tion n of the the start start of the the 1963 1963 hull market market.. No action action was requi required red,, for buyin buying g had alread already y been been done done on the the Bottom Bottom Buy Signal Signal of June June 25, 1962. 1962. In typic typical al fash fashio ion, n, the the firs firstt phas phasee of the the bull bull mark market et was was a strong strong.. smoot smooth h rise rise accomp accompani anied ed by incre increase ased d volume volume and an increa increasin sing g number number of new new highs. highs. The strong strong first first phase phase ended ended when when a larg largee reacti reaction on occurr occurred ed in June June and July.
114
CHART
REVmW
CHART
d is.played Duri During ng the the sr-c sr-con ond d half half of Flf).l, (he.stoe!' ~lIn~'kptdis.played typica 1 top nrea actio action. n. There There were were w1(:e SWlllg11lg rallies rallies and decl declin ines es,, and and ther theree were were fewe fewerr 11m" hIghs, hIghs, although although volume volume had not decreas(xl. decreas(xl. In Oot Ootob ober er,, Novo Novomh mhor or and and Decem Decembe berr tlw tlw DJI DJIA A went went lipto high higher er high highs, s, hut hut the the A & D lnclox lnclox fai faile led d to make make new new high highs. s. Su~h Su~h diver diverge genc ncee is freq freque uent ntly ly Iound Iound ncar ncar mark mark!' !'!! tops tops.. Ther Theree was was a fail failur uree of the the A & J) Inde Index x in Nov Novem embe ber. r. It Top Sell Sell SigMJ1. The hig!ws hig!wstt point indic[l!C(\ tlie s ta ta rtrt o f a Top reacllf'd hy the A & D Index Index belore the [ailur [ailuree was the second. week ill Sept Septem embe ber. r. That That was was th(' th(' first first peak. peak. Tlw Tlw seco second nd peak peak was was on the thir third d weck weck in Oct Octo o her. her. It is inte intere rest stin ing g to not notee that that tho tho secon second d peak peak was was form formed ed in ('xa ('xadl dly y the the same same waY: waY:1s 1s the secon second d peak peak of the the 1959 1959 top. top. The The bott bottom om of the the decl declin inee from from the the seoo seoonr nr]] pell pell k ooonr ooonrre rerl rl on the the Four Fourth th we0k we0k in Novor Novornl nlro ror, r, whic which h wns wns tlH' tlH' week week in whic which h Presid President ent Kenned Kennedy y was assass assassinn innter terl. l. '1'110 panic s811i~p; caused hy the S11(I(1en S11(I(1en dpatl, of Ill(' Presi:J Tren clenr clenr almost produced produced Trend d Sell Sell Signa Signal. l. At tha thatt time time the; A & nInrlex Inrlex had decliJ decliJwd wd 2215 2215 poinls from from its highes highestt point, point, and and ther theree were were ]~O ]~O lI('\' weekly IIPW lows. lows. The rules rules requir requiree a 2-100 2-100 poin pointt (~ec1i (~ec1ine, ne, so there there was nil trPml signn1. signn1. The llT1fxper/ llT1fxper/pd pd flSS~lssi flSS~lssinflti nfltion on of Presirlen! Presirlen! Kennedy took pbc(' (,:1rly ~n Ihn Ihn afl aflrrn rrnoo oon n of Fri Frida day, y, Nove Novemb mber er 22, 22, 1963. 1963. It was thp worst s!Jo('k ('VIOl' ~o l1il Ihe stoc stock k cxch cxchan ange gess of th e Unifpd States, whi('h w('r(' in rni(lsps(; rni(lsps(;Jo)1 Jo)1 :1f' Ih(' Ih(' time. time. Th e
?t
panic panic sellin sellin?; ?; was so rTrent rTrent that that S()!1lP stocks stocks dropp('cll.O% cll.O% H')0(, in a matter matter I)f miuutes. Tl10 D] l A dropped dropped 24 points points In
26111i1111tes. ' l1looll, At 9,:07 9,:07 P.M. I lint nftf'l Board d of COVCl1l0rs of th e the Boar New York York Stock Stock Ex('h~ Ex('h~m~e m~e annnnnr-erl that they harl closed closed trrlcling bp('rlIlSe of t11f' flood of orders orders,, 'Withi 'Within n ~inl1l ~inl1lcs, cs, trad trad .•:
ing ing stopp stopped ed on nil the major major stock stock nnrl commodity exehanges in the the Unit United ed Stat States es.. It was was the the firs firstt time time the the NYSE NYSE h a d
dosed dosed in mid"sf',s·;jrm
HEVJEW
since the day
115
ill
1933 1933 when there there were were
gas fumes fumes on tllP floor of the exchange. exchange.
All stock stock exclwn exclwnge, ge,,, ,, in the United United States States remain remained ed closed closed on the the follow following ing Mondny Mondny to give give invest investors ors a chance chance to regain regain fllpir fllpir p(!'li p(!'li1ih 1ihriu riul11 l11.. When When the market marketss opened on Tues Tuesda day, y, a big rally rally erased erased most of the losses losses caused caused by the panic. panic. Then Then the upward upward move moveme ment nt of the the 1963 1963 bull bull market was resnmed.
It is important 10 recogn recognize ize the fact that the terribl terriblee shock shock of the the assa assass ssin inat atio ion n and and the the stoc stock k mark market et pani panicc whic which h folfollowed lowed did not end the hull hull market market.. No bun market in the last yellrs has been twenty-two yellrs been ended ended by a shock shock or an import important ant worl worldd-sh shak akin ing g even event. t. Such Such shoc shocks ks have have only caus caused ed temtemporary interruptions in bull markets.
A cnTPflll sturl sturlvv of the charts charts seems to prove m y contention that that a bul bulll mark markpt pt
is a pow power erfu full enti entity ty whic which h can can not not be ki11ml hy shock, shock, and it will no! no! die of old old age. age. Appa Appare rent ntly ly the the only only tlJi~lg tlJi~lg capahl capahlee of endin ending g a hull hull market market is its own progressive sive wea weakl kl1( 1('s 'sss-·a ·a Haller Haller Theory. Theory.
wcak wcakne nes» s»
that that
can can
be recog recogni nize zed d
hy the
1964 At the time time of fhis writing, writing, the lowe lowest st yiel yield d reco record rded ed so far far in the hull hull T 1 1 ::1 rlw t was was on 'fIJI" rirst week week of 1964. 1964. The The yield was .1.0Q10 (It that f ime. ime. So it was poss possih ihle le to havc havc a Top Top Sell Sell
Signal at any time dming HJ64. Si~nI Si~nI or a Trend Sell Signal Dnring Dnring the firsthalf of HJG4 HJG4,, ther theree were were wide wide swin swingi ging ng rereaction actionss of the A & D Index, Index, and there there were were fewer fewer new highs than than earl earlie ierr in the the hull hull marke market. t. It was typical top area area action action..
The Top Top Sell Sell Signal Signal formati formation on contin continued ued,, with with the third highest point on the its highest third week of ApriL By the Index had dethe time time the A & D Index clined clined two weeks weeks and .300 .300 paints paints from from the top of the third third reaching peak peak of the A & D Index reaching
CHAnT
TIEV1F.W
CTIt\1IT REVIEW
not only f:Jill'() to penk, penk, it was was ohvions Ihn! Ihn! the VOJlIlllP had not declin decline, e, hut had reacho reachorl rl a new hIgh. Thp grcnte grcntesl: sl: volume volume of the entire entire lmlJ lmlJ market market or-ourr or-ourrerl erl OIJ tlw tlw third third pe:lk. pe:lk. The Top Top Sell Signal volume me on tlIP third Signal rules S rlY that volu
peak peak must must he lower lower than earlie earlierr in tIlf~ hull mnrkct. mnrkct. So there Signal a t I h a t t im c0111d not he a Top Sell Signal im e. e. This was the Ilrst time time in twenty-two twenty-two year.••that the stock marke markett did did not not reach reach its its highe highest st point point on th0, third third peak peak after after though gh the the a low yield yield [ailll [ailllTe Te of f he he A & D Index. Index. Even Even thou event event I;ad I;ad not happened happened hefoH\ the situatio situation n was adequa adequatel tely y covered hy the rule ahout volume. volume. tIlird peak. Ther Theree were were also also too many many new new IJighs on the tIlird The rules rules say that the the nnmhe nnmherr of "'PPkly net net new new high.s high.s on the third pf'ak pf'ak should should n()tl) n()tl)(~ (~ rnuo] rnuo]:: more than than half as many many as the gTP::Jfrst numb number er of nI'l new highs highs record recorded ed f'nrlipr in the Imll Imll·m ·mnr nrke ket. t. The The Z3g 111'1: new highs on the thinI peak
recorded in ;\fay, eqll al('(179% of the ,1m net new highs recorded ;\fay, J9G3. It m ny Iw signif signiflca lcant nt to ohse ohserve rve that that the stock stock market market rally of .Tn1y, 1964 w en en t u p In a new new hi~~h on .~ltarply reduced volume, As of the time time of this wriling, wriling, tlH'rf' were were no Haller Haller Theory sir.:n sirIJ .:nals als of any kind kin d rl' conll' c on ll' d vet durlnv durln v 19G4. 19G 4. No action action was. was. . '" called called for duri during ng the first first half half of HI(J4, HI(J4, f'xcept to rnaintain rnaintain the long position position eslnhlish eslnhlishcd cd :1t flw flw hotto hottom m of the the hoar marke markett in; in; .TIme, 1902. t",
The twentv-two twentv-two YCflr period period,, from lCJ,12 to J!)A4, which was type or stock mar-: rpvipwf'd rpvipwf'd hp~p, incluclos incluclos every conepiva111 conepiva111cc type ac~ion, from Iioom hnst. Durin!. Durin!.;; the period ImrieI' reh:t ac~ion, Iioom to hnst. "ipw, tIl(' market market survivorl survivorl World War n, the death of Presi~! dent Hoo<;eve!t. the Korean Korean 'Val', 111(' Suez crisis, tl](' Rerlui; Rerlui; Presid Presiden entt Fisc Fiscnh nho\v o\vcr' cr's heart heart attao attaok, k, \11e Cuban; blocknrlc blocbdc' blocbdc' with its nuclear nuclear oonfrontation. and the :1ssassinrltioin of President Kf'nncCly."·
unexpecte cted d events events and international rksritp fhe m:'I11y unexpe crises crises,, the Haller Haller Theory correctly correctly identified identified every major tnrnin tnrning g point point in 'he h e stock market market.. Every signal signal was follow followed ed a proflt profltahl ahlee move move of the the Dow-jo Dow-jones nes Indust Industria riall Averag Average. e.
! rh~r0 l)' rh~r0 were no
losses.
.
RESULTS
If 111('rekId 111('rekId
lhe Haller
1)('('11
119
period, no short short sales sales during during the 22 year period, would would show show a proBt of 1,052. 1,052.14 14
resultss Theory result
pain Is odJRO%. odJRO%.
en
If $10,000. lwd heen heen inve invest sted ed in the 30 stoc stocks ks of the the DJIA DJIA in 1912, 1912, and and !H'!d ! d conti continuou nuously sly,, it would would have have grown grown to $76, $76,200. 200. hy May 3, 1861. 1861.
11
i\ PTF.R PTF.R
HESULTS
signals and re-Investing By foll follow owin ing g the the Hall Haller er Theo Theory ry signals $275,865. by gro\\'ll to $275,865. capita capitall gains, gains, the $10,0 $10,000. 00. would would have have gro\\'ll May 3, ]9(34.
Here Here is a lahn lahnh( h(io ion n sllO sllOwi wing ng the the resn resnlt ltss whic which h woul would d have have hccn ohtained ohtained hy following the Primar Primary y Signal Signalss of the Haller Theo Theorv rv duri during ng the the 2,2 yp:1r peri period od from from 1942 1942 to 19G1. These
filTnrf'S
of dividends, com m m iscalculations sion sionss or taxe taxes. s. Thes Thes!' !' resu result ltss are are from from hnyi hnying ng and and sdli sdling ng shor shortt do
no t
inc-lude
the Dnw··Tones Dnw··Tone s Industrial Industrial .
of Sigl1:l.1
TVl1P . J .
~ '" .. _ _ . -
Date
DJIA
19, HH2 27, HJ4A HJ4A o«. 14, UJ46 fl, HJ5A April Nov. 2.'5, 19.57 Ang. Hj, HJ.')9 g, 19A1 Jail. Dr'(·. 24 , 19(JJ Jnn!' 2f5, HJ(j2 3, 19(11 Mav
107 ..'10 '10 107.A.1
Sept. July
If I II(> DJf A h8rl h8rl nrof!t !t Ihe nrof
of:lO stocks. stocks.
------_._--~---- ' - _ ._ --
Tnmd Buy Signa! Treml Sf'1I Signal Bottom Buy Signn! Top Spll Signal Bottom Bny Signal Top S0!! Signal Trend Huy Sii!nal Top S"" Signal Signal Botlo111 lilly Sigl1:l! Hecent Hecent Price
periorl.
.
AVCf<1l4f'
11('('11
Type of Signal
Loss Profit -
no
0
R !1 R . 74
2'W.06 4,'1.08
720.R7
1O!1.21 1 R;-;.4'~
0 0 0 0 0
r121.05 -1'38.A8
m 5.(J(J
;-;85.4.'3 819.19
held held oon t ilil lolo l lsls 1 y
on Mny .3, 1964 1964 wonk! wonk!
2RHJ6
0 0 0
f o r 11w 22 year have have heen heen 7LJ. 7LJ.99 99
points points or 66~%. h'ld h('Pll h('Pll hought If 1 1 1(' DJ11\ h'ld hought,, ancl ancl sold sold short short accon1 accon1in} in}~ ~ to 1118 Primarv Silrnals of the the Haller Haller Thoo Thoorv, rv, the the 22 year year profit ,3 0! 0! ') %. %. ~ woulrl l1:lv~ tot~ tot~ led 1,403.1 1,403.1:1 :1 points points or i ,3 1 1 8
Trend nuy Signal SPi! Signa! Bottom Bnv Signal Trend Sell Signn! TIoUqm nuy Signal Signal Twnd SpIJ Signal Trr-nr] 11n)' Sign:ll Trend SpIJ Signal 1loltom TIny Signn] Hf'cpnt Price 'l'ronr]
1 .'3 29.26 .'352.l1fj .82..'37
1118.87
Tlw follow following ing resnlf resnlfss would would have have been been obtain obtained ed
if
the Top
included in the procedure: procedure: $p!l Signal lwe! not heen included Date Sept. 19, .July 27, Oct, 14 , May 26, 2!5, Nov. SPpt. 5 . .Jan. 9, April 29, J 111lf' 25, 3, Mnv
1942
1 94 94 flfl 1 94 94 6 19!5G 19.57 UJ.'i9 19111 1 9R 9R 2 1962 1961
DJIA
ProG t
107.50 1 97 97 .6 .6 3 1 68 68 .3 .3 7 472.49 438.68
90.13
0
29.26
0 0
615.66
304.12 33.81 213.!50 3fU)2
6 72 72 .2 .2 0 535.43 819.49
J30.77 284.06
652.18
This procod 11re prorluced excellent results, Ilse of the Top S('ll Signal.
tl1 P
5654
Loss
0
0 0 0 0
0
even without
RESVLTS
RESULTS
Tho follow following ing result resultss would would hnvn hnvn he en obtain obtained ed hy 11sing 11sing only only the Trend Trend Signal Signalss of the Haller Haller Theory Theory::
stoc stocks ks which which will will move with with the the mark market et,, and and even even outp outper er-form form the market. market. One should should try to avoid avoid stocks stocks that might might go down down when when the market market goes goes up. One of the greatest greatest dandangers gers in selectin selecting g a stock stock is the the possib possibili ility ty of buyin buying g stock stock in a compan company y whose whose fortun fortunes es are declin declining ing,, and may ultima ultimatel tely y go bank bankru rupt pt.. In that that case case,, the the stoc stock k woul would d go down down,, and and never rise again. again. How How can can one one avoi avoid d dang danger erou ouss stoc stocks ks?? Keep Keep away away from from them. them. Don't Don't even even get inter interest ested ed in them them.. It is just just as easy easy to buy the higlles higllestt grade grade blue blue chip chip stocks stocks as it is to buy buy the "cats and dogs". It may take take some some sales resis resistan tance ce ifa high high pressu pressure re salessalesman telephones yOll, yOll, long long distan distance, ce, offeri offering ng the chance chance of a life lifeti time me to get get info info Lower Lower Siob Siobho hovi vian an Mine Mines, s, Ltd. Ltd. He may may even even glla gllanm nmtf tf'e 'e that that the the pric pricee of the the stoc stock k will will double double in a few week weekss becaus becausee the insiders insiders are forcing forcing it lip. The inside insiders rs may be forcing forcing it lipall right, right, but when they they hire hire salesm salesmen en to call call the sucker suckers, s, that that means means they they are ready ready to dump dump it. It is amnz amnzing ing to Sf'C how many fraudulen fraudulentt stock stock promot promoters ers are brough broughtt to justi justice ce by our alert Securi Securitie tiess and Exchan Exchange ge Commis Commissio sion. n. It is diffic difficult ult to understand how how the the "Boi "Boile lerr Room Room"" sale salesm smen en can can get get peop people le to buy such such risk risky y stoc stock. k. Mayh Mayhee it is beca becaus usee the the sale salesm smen en offe offerr a chance chance to get rich rich quick.
J20
Trend Buy Signal Tren Trend d Sdl Sdl Sign Signal al Trend Buy Signal Trend Trend Sell Sell Signnl Signnl Tremel nny Signn] Trend Sell Sir;nal Sir;nal Trend Huy Signal Trend Trend Sell Sell Signal Signal Trend Buy S ig ig na na l Recent Recent Price Price
DJTA
Date
Type Type o[ Signal Signal
Sep!. 19, 27, 12, M nv 2fl, Jnn. 27, Sept. 5, 9, Jan. April 29, 6, J an an . 3, May
July July J lily
1942 J94A
1947 ]956 H ).'5 8 19.'59
1961 ]962 196.'3 1964
107 ..'50 197.6.'3 1 1 3 4 .7 7 472.49 450.66 6.'52.18 615.66 672.20 6fl2.2.'3 819.49
Prollt
Loss
90.13 12.Rfl 287.72 21.83 201.52 3fJ.52 56..'54
0 0 0 0 0 0 0 0 0
9.81 1 57 .2R
These These extra extra tabulat tabulation ionss are prese presente nted d to show show the nmnzin nmnzing g accu accura racy cy of the the Hallp Hallprr Theo Theory ry,, even even when when only only part of the the theory i s follow followed. ed. The three differ different ent tabula tabulatio tions ns of result resultss illu illust stra rate te that that,, duri during ng the the 22 year year peri period od,, ever every y huy huy sign signal al and every sell signal, signal, regard regardles lesss of wheth whether er it was n Primary Primary Signal Signal or a Confrrm Confrrming ing Signal Signal,, was follow followed ed by a proflt profltahl ahlee move move of the DJTA. There There were were no losses, losses, regardl regardless ess of 'whic 'which h Signals were followed. The average average persoll persoll does not llS11f11Jy llS11f11Jy find it practic practical al to buy buy the thirty thirty stocks stocks in the the DJIA, DJIA, and would flnd flnd it too r-urnbe r-urnberrsome some to ~manage manage such such a 'large 'large portfo portfolio lio.. For practi practical cal purpurposes, poses, one must choose choose individual individual r-quities in which which to invest invest his capital. The munl'ier munl'ier of stocks stocks in a portfo portfolio lio must must lJf~le lJf~left ft entire entirely ly np to the indi indivi virJ rJna naJ. J. If one hold holdss many many stoc stocks ks,, his his risk risk is diversifie diversified d among many different companies. companies. But it is difficlllt difficlllt to keen keen tr::lc tr::lck k of manv manv stocks stocks at the same time. time. Thc~·e Thc~·eis is also also the problem of selec selectin ting g stocks stocks which which will will move move with with the marke market. t. The ideal situntio situntion n would would 1)(' 1)(' to hold hold
121
People freque frequenfl nfly y believ believee what what they they want to belie believe. ve. TIley TIley can even even find find good good reasons reasons to ratio rational nalize ize what what they they wish wish to helieve. Some Some vears vears ago ago a frien friend d of min mine, e, who who was was a hard hard work worker er in the the low income income group, group, enthus enthusias iastic ticall ally y told told me how he had just invested invested $ 1.000. in a wild wild-ca -catt oil well. well. He thought thought it was his hig chance chance to get rich quick. quick. A year year later, later, all the invest investors ors had had lost lost their their mone money. y. Nobo Nobody dy was was chea cheate ted d in that that case case,, though though.. There There simply simply was no oil where where they they drille drilled. d. The person person who likes likes to gambl gamblee with with the odds against against him
RF~sULTS
nF:SULTS
122
does not have much c1wllce c1wllce of S11CC("'~. S11CC("'~.A s11c('e s11c('essf111s ssf111slrat lrategy egy calls calls for :lCcep :lCceptin ting g a risk risk only when when 1110 odds odds fire fire in in yom [nvor. [nvor. A goo good d poli policy cy migh mightt he 10 avoi avoid d mnr~ mnr~in infl flll comp compan anie ies. s. find find jus justt stic stick k to the the highe highest st qual qualit ity y stoc stocks ks.. One One exam exampl plee of a high high qual qualit ity y stoc stock k which which prov provid ides es anin anint( t('r 'r(' ('sl slin ing g inve invest stme ment nt meme-
rnrp rnrpor orfl flte te inco income me.. and and the the firs firstt call call on corp corpor orat atee asse assets ts,, in case case of liqu liquid idat atio ion. n. Next Next are are 810, 810,74 740 0 shar shares es of pref prefer erre red d stoc stock. k. whic which h get get secon second d call call on cor corpor porat atee inco income me and and asse assets ts.. Next Next fire fire 7,40:3,82.5 shar shares es of com commo mon n stoc stock, k, whic which h are are thir third d ill line line for income income and asset assets. s.
stoc stock k is trad tradoc ocll on the the New New York York Stock Stock
Then Then,, at tll tllP P hntto hnttorn rn of the the corp corpor orat atee stru struct ctur ure. e. ther theree are are 728, 728,160 160 warra warrant nts. s. Sinc Sincee the the warra warrant ntss are are at the the bottom bottom,, they they
Exchange. TriTri-Co Cont nt inen inenta tall has has a his histo tory ry of j'c j'cin ing g able able to follo follow w the the mark market et fnid fnid)' )' well well.. A large large'' inves investm tmen entt romp rompnn nny y li!w li!w '1 1 :1 1 ' 11S11-
have have a gre great ater er rang rangee of pri price ce fluc fluctu tuat atio ion n than than the the seni senior or sesecuri curiti ties es of the the compa company ny.. The The secu securi riti ties es at the the top top expe experi rien ence ce the smallest price fluctuations. .
dium dium is Trt-Co Trt-Conti ntincn ncntal tal ment ment comp compan any y
Corpora Corporati tion. on.
whos whosee
It is is a closed closed emJ invest invest--
ally ally carri carries es a por portf tfol olio io of more more than than 100 100 secur securit itie iess difler diflerr-n r-ntt indust industrie ries. s. Their Their portfo portfolio lio usua usua lly inclml inclmles es coun counte terr stoc stocks ks.. comm common on stoc stocks ks trad traded ed Amer Americ ican an Exch Exchan ange ge,, prefe preferr rred ed stoc stocks ks,, govern governmen mentt bonds, bonds, One of my f'lvor f'lvorite itess
in TI1fmy over-rh over-rhoo-
the the NYSE NYSE and and the the indus industr tria iall hond hondss find find
011
To iIlns iIlnstr trat atee
the the
efr~ efr~ct ct of leve levera rage ge,,
let let us exam examin inee
some some
pric pricee chan change gess of the the Dow-J Dow-Jon ones es Indu Indust stri rial al Aver Averag age, e, of Tri Tri-Cont Contin inen enta tall comm common on stoc stock, k, and and Tri-Co Tri-Cont ntin inen enta tall warr warran ants ts.. In Dece Decemb mber er,, 19!)1 19!)1 the the Dow-J Dow-Jone oness at 2A5. Ten years years later, later, in Decemb December, er,
Indu Indust stri rial al Aver Averag agee was was 1961 the DfIA was was at
730. The 4A 5 point point gain gain equal equalss
at thi thiss
176%. A $10,000. investment, cont contin inuo uous usly ly held held in the the DJIA, DJIA, woul would d have have grow grown n to $27, $27,60 600. 0. in that that ten yen I' period.
poin point, t, thfl thfltt a warr warran antt is a cel· cel·ti tif1 f1~a ~ate te givi giving ng tlw tlw hold holder er the the righ rightt to purc purcha hase se a cort cortn n in amo amonn nntt of the stock stock of a corp corpor oraation tion at a cert certai ain n pric pric~ ~ with within in a spe speci cifb fbll time time limi limit, t, or per perpe pett-
In Dece Decemb mber er,, 19!) 19!)1 1 TrlTrl-Co Cont ntin inen enta tall comm common on stoc stock k sold sold at 1961 TY com 14. Ten Ten year yearss Inte Inter, r, in Decemb December er,, commo mon n sold sold at , 1 '; 2 . The 38 point point gflin gflin equa equals ls 272%. 272%. A $10,000 $10,000.. invest investmen ment, t, cancan-
ually.
tinn tinnou ousl sly y held held in TV comm common on,, in tha t ten year period.
perp perpet etua uall do man many y
warr warran ants ts
is Tri-Co Tri-Couti utinon nontnl tnl
whic which h
othe otherr warr warran ants ts..
warran warrants. ts.
They are
do not not have an exp expir irat at.i .ion on It mig might ht
he wise wise to ment mentio ion, n,
In this this ense, ense, the Tri-Co Tri-Cont ntin inen enta tall the the righ rightt to purchase 1.27 1.27 share sharess
wnrr wnrrnnt nnt
date date,, as
givp givpss the the hold holder er
of TY r-om r-ommo mon n
stoc stock k nt all allY Y
woul would d
Tn Dece Decem m her. her. 1851 1851 Trt-Co Trt-Cont ntin inen enta tall
have have grow grown n . warr warran ants ts
sold sold at 4. 4. Ten Ten
time time at $17.76 per share A warr warran antt
does does not not give give the the holde holderr
yefl yeflrs rs late later, r, in Dec Decem embe ber, r,
the right right 10 cast cast n vote vote in ('o ('orp rpor orat atee
afffl affflir irs. s. and and warr warran ants ts
con40 poi point nt gain gain equn equnls ls 1,00 1,000% 0%.. A $10,0 $10,000 00.. inve invest stme ment nt,, tinn tinnus uslv lv held held in TV TV war warra rant nts, s, woul would d have have grow grown n to $110,000. in that that ten year period period..
do
not pay divide dividends nds.. Then Then.. yon yon may may ask, ask, and and do not not
"H TY warrants (10 not warrants not carr carry y a vote vote,, pa y divi divide dend nds. s. what what make makess them them so att attra ract ctiv ive? e?""
Thf' Thf' answer answer
is "lever "leverage age". ".
1.ever 1.everage age
exists exists when the corpor corporate ate
strnor strnorure ure r-rmtn r-rmtn ins more more ~hfln ~hfln one one type type of securi security. ty. In this this case case,, TriTri-Co Cont nt iuriur-nt ntal al has has [our [our type typess of secu securi riti ties es its its stru struct ctur ure. e. bent bentur ures es..
At the the lOp lOp fir firee 20 mil milli lion on
the the holde holders rs
of whic which h
doll dollar arss
are are enti entitl tled ed
wort worth h
in
of dede-
to the the firs firstt call call on
In addi additi tion on rese resent nt
1961 1961 the warr warran ants ts
to $37 $37,2 ,200 00..
to grea greatt leve levera rage ge,,
dive divers rsif ific icat atio ion n
in more more
TriTri-Co Cont ntin inen enta tall than than
sold sold at 44. 44. The
warr warran ants ts
100 100 diffe differe rent nt
reprep-
comm common on
stocks stocks,, prefer preferred red Slacks Slacks,, and bonds usuall usually y held held by Tri-C Tri-Cont ontiinent nental al Corp Corpor orat atio ion. n. The The warr warran ants ts have have a hist histor ory y of movi moving ng with with tlH' tlH'll mark market et,, and and outp outper erfo form rmin ing g the the mark market et.. Sinc Sincee Tri-C Tri-Cont ontin inen enta tall
warr warran ants ts
do not not pay pay divide dividend nds, s,
they they
TIF.SULTS 4 am intPrp.sting intPrp.sting to rhose \,,110 might might wish wish to sen short short in a hear hear market. market. When a person person sf>lIs sf>lIsshort, short, he must must pny the dividr.nds dividr.nds on the stock stock lH~has lH~has sold sold short. short. T1H~ part party y who who loan loaned ed the the stoc stock k to the shor shortt sell seller er is ent entit itle led d to the divi dividc dcnc nck k Tlwr Tlwreefore, fore, oiddf'nd oiddf'nd expens expensee must must lie adrl( adrl(,d ,d to commissi commission on expens expensee to calculate calculate tll(>cost of selling selling short. short. pp.rson n maintai maintains ns a short short positi position on for a. ye:lr ye:lr or more If a pp.rso in a.stock a.stock paying paying largp. largp. divide dividends nds,, the stock stock might have have to decline 1 ()% or more more for for the the shor shortt sell seller er to jnst jnst hrea hreak k even even.. With TV warr warran ants ts a shor shortt sell seller er does does not have have to pay nny nny divi(l divi(lend ends, s, so his his only expense expense would would he for commis commissio sions. ns. Let Let us exami examine ne a tali taliul ulat atio ion n of the the resu result ltss whic which h woul would d have have hwm obtaine obtained d hy invest investing ing in Tri-C Tri-Cont ontinp inp.nt .ntal al common common stock am1 Trl-Continentn] warran warrants. ts. accord according ing to the the huy nnd sell sell signn signn ls of the IT nller nller Theory Theory.. Tn the follow following ing studie studies, s, stock stock priCp. priCp.snrc snrc prr'sent prr'sentcd cd in decirnn decirnn ls for more more accura accurate te ralralclllntioll clllntiollS. S. Tn newspapers, newspapers, stock prices are qllotp.d qllotp.d in fractions. fractions.
TIESULTS
125
12
Tm-CON'TJNF.NTAT. COMMON
nllY Siglnl Trend S,,11 Signal Signal Bott Bottom om
Buy Buy
Sign Signll ll!!
Top Sell Sell Si~nfll Bott Bottom om Buy Buy SirSir-na na!! Top Top Sell Sell Sign Signal al Signa! Trend Buv Signa! Top Spll Signal Bott Bottom om Buv Buv Sign Signal al Recent Price
Thpsp Thpsp studie studiess
Cnpital
Dall' l'
Type of Signal Signal Trend
STOCK
S"rt. S"rt. 10, )949.. )949.. July July 27, 27, HH6 Oct. ct. 14, H116 April
R.
1956
Nov. Nov. 2'1. 2'1. Hl57 A ng. ](1, 19!19 Ian . n, 1901 ·DI'I'.
J nn nn e May
LO O 9.5ll 6.!10 27.r1'3 2R!)()
21.]3
n
47.00
11.Sf! 2.Sf! J4.8fl 17.25 11.f!7
Totals
!lO.39
39.Hil
37.:'0 52~'R
24. 19(H 19(H 2 5, 5, ] 9 62 62 ~l. ]904
3!1.]3
do not includ includee
taxes or commissions. commissions.
f!.50 3.00
o o o .87
s
1,000.
s .s o o ,
12,.'302. 53,133.
5] ,459 .
o o o
72.1)12. 70,364. JOn,900. 142,186.
o
$190,S29.
o
.f!7
cal('1 cal('1!la !latio tions ns of cHvirlp. cHvirlp.nds nds,,
Tri-Conti ntinen nental tal common common stock stock had been bought bought on Sept Sept.. If Tri-Co UH2 and and heldco heldcont ntln lnuo uous usly ly unti untill May May 3, 19G4, the profit profit 19, UH2 woul would d have have been been 46 poin points ts or 4,600 4,600%. %. A $1,000. investment in TY common common,, contin continuou uously sly held held during during that that 22 year year period period,, would have grown to $47,000. . If Tri-Co Tri-Conti ntinen nentnl tnl common common stock had been been truded trudedlon long g and shor short, t, acco acconl nlin ing g to the the Hall Haller er Theo Theory ry sign signal alss ouri ouring ng that that same same 22 year year period period,, the proHt proHt would would have have been been 90.39 90.39 points points or 9,039%. By foll followi owing ng the Halle Hallerr Theory Theory signal signals, s, buying buying and selling selling short, short, and re-inves re-investin ting g capita capitall gains, gains, the $1,000. investment would would have have grown grown to $190,529. by May 3, 1964. Duri During ng the the 22 yea yearr peri period od ther theree woul would d have have been been only only one smal smalll loss loss amount amounting ing to 3.15%. If Tri-Co Tri-Conti ntinen nental tal common common stock stock had been hought hought on Dec. Dec. 24, ] 961 and held held contin continuou uously sly until until May 3, 1964, the action action would would have have produc produced ed a loss loss of 10%. Tf TY com commo mon n stoc stock k had had been been trad traded ed long long and and shor short, t, acaccord cordin ing g to the the Hall Haller er Theo Theory ry sign signal als, s, with with re-i re-inv nves estm tmen entt of capita capitall gains, gains, from from Dec. Dec. 24, 1961 to Ma y 3, 1964, the action action would would have have produc produced ed a prof profit it of 78%. 78%.
7
1 2
I1F$ULTS
nESULTS
lZ()
'V,\I1I1ANTS
"\'nl-(;OiYTlNFNTAI,
In. 1n42 i'HO 1!l4G April R, IDGO Nov, 2'5, 1<)'57 Ang, 1 1 1 , 10'"i9 InG! Jan, D, .1)(1",2,1, lnG! Jllne 25, j902 ID!34 M ay ay 3 , S"pL
Trnnd Btl)' Signal Trelld S f·11 Signal Boltom Boltom IIny Signal Signal Top S,,11 Signal Signal Bol\om Bol\om I\n)' I\n)' Signal Signal Top s"lI Sipnal Trend illly'Si illly'Signal gnal Top S"ll S"ll Signal Signal Bonom Bonom I\n)' I\n)' Signal Signal TIr>cent Price
27, 0,,1. 1'1,
Inly
If Tri -Conti -Contin~1 n~111 11 al al warrant warrantss 942 and and hdd hdd J 942
cont contin inuo uous usly ly
,OOZ;, 4,2S 2,O3 12.50 13.GO 2R.2,r:; 25,,50
in TY warr warran ants ts..
0
4.1R7~ 1.(,2
0 0
20.25 37.03
1,00 0 0 0 0 0
Tolals
RO.SO
1.00
41.00
ther theree
hdd hdd
(lmi (lming ng
sign signfl flls ls durin during g
have have
Hall Haller er Theo Theory ry sign signal als. s. All All stoc stock k pric prices es have have been acljuste( acljuste(ll stock splits. splits. "P" stands stands for profi profit. t. "1 ..." stands stands for loss. loss. American Can Can
\Hfl.fJR0,
or GO,lOO% GO,lOO%.. A $1.00 $1.000. 0.
cont contin inuo uous usly ly
wonl wonld d
Fol. Fol.lo lowi win~ n~ is a lis listt of some some well well know known n hln« hln« chip chip stoc stocks ks,, show showmg mg pnce pnce eh:: eh::mg mges es and tota totall resu result ltss for tra tradi ding ng with with the the
] ,G?,:i,(12R. 2,27X,731. 3,2G7,700,
had 1H'f'1l f '1l lion ght ght on Sept Sept.. 19, unti untill 1\1 1\1ay 3, ]964, ]964, th~ th~ prof profit it
to the the TT~l TT~lkr kr Theo Theory ry
year year peri period od,,
1.000, oR,nOO, D:1,'lOR, ,11n,OG3, 411',:\78, R;,7,fl90,
Se n
Sept. Sept. J uly uly Oct. Oct. Apri Aprill Nov. Allg.
been many many
invest invest--
lhnt lhnt 22, 22, vear vear nIHl nIHl ~hnrt, ~hnrt,
Buy
Jan.
Sell
Dec. Dec. 24. 24. ]961 ]961 J line 2.'), ] 962 May May 3, 196 1964 4
tlwt tlwt
prof profit itss
S::tHlP
and and
22
one one
Sell Buy Buy Sen Bny
Bu y
••
W, I!H2, I!H2, 27, 27, ] 94fl 14, 14, 194H S, 19.58 19.58 2,'), 1957 Hl, 1959 R, 19f1l 19f1l
smal smalll loss loss,, which which adcl adcl up to 80.80 80.80 poin points ts or 129,250 129,250%. %. Bv follow following ing tlw TTfl TTfll!0 l!0l'Theor l'Theorv v signnl signnls, s, Imving Imving and sdling sdling shOJ~t shOJ~t ~nd l'e-i~ve e -i~vesti sting ng
capit capital al
g~ins, g~ins, the
1 1 1 (\
l1ad l1ad 1)('('11 hong honghl hl on Dcc. Dcc. 24, 24, unti untill M fly fly 3, H)G4 H)G4,, thp ;ldi ;ldion on 1
tal tal gnin gninss rpin rpinve vest sted ed,, from from Dec. Dec. 24, 24, 1961 1961 to May May 3. ] 964, 964, acaccord cordin ing g to the the Hfll Hfll1f 1f'r 'r Theo Theory ry sign signal als, s, the the acti action on wonl wonlcl cl have have of 101%. 101%.
44.88
P 7.25 7.25 P 9.38 9.38 P 10.2.5 P 4,50 4,50 P 2,2I 2,2I55
3.':;'50 4 1 5 .7 5 41.25
43.50
NET PROFITS
Price 28.50 52.50 4.').00
235.25 174.00 268.50 192.00 241.00 172.00 258.00
PorL P 24.00 24.00 p 7.50 P 100.25 P 61.2 61.25 5 p 94.50 P 76.50 76.50 p 49,00
P 69.0 69.00 0 P 86.00 86.00
82,13 0
658.00
82.13
658.00
490% Profit e Recent Recent Price
woul would d have have prOd prOd1H 1H'f 'f'd 'd n los losss of 14 /:>% If TY wnr; wnr;an ants ts h::H h::Hll hN'J1 tra( tra(le led d long long nncl nncl sho shorl rl,, wilh wilh cnpi cnpi--
prodl1Ccc 1Cccll a profl profltt
P 10.50
c,
th o
If TriTri-Co Conl nlin incn cnta tall warr warran ants ts ] 961 961 nnd nnd hdd hdd conH conHnn nnou ousl sly y
37.6.'3
20.50
PROFITS
woul would d have have gmwn to $:~.267,700. $:~.267,700. hy }.lfly 3, JQG4. JQG4. Dnri Dnring ng tlw tlw 22 year year ppri ppriod od ther theree woul would d have have IJPf IJPf'n 'n only only one one smal smalll lo~s lo~s amOl amOlll lllt ltin ing g to R%. Tb« sblr sblrli ling ng pric pricee of .Ooc:~;)is
equal equal to
48.13
P 7.06 7.06 P 3.31 3.31 P27.63
T.OSSF.S
$l,O O O invpslment
Pont
16.75
2.'3.81
for
D l1
PorI..
Price 1311)'
peri perioc ocl, l, woul would d have have grow grow'n 'n to $602. $602.00 000. 0. If TriTri-Co Cont ntin inen enta tall wmra wmrant ntss had had been tmd~cl tmd~cllon long g acco accordi rding ng
C"l'ila,$
D,H7 0 14,75 2,75 1R.;'O 17,75 11.3R
wOllld wOllld hflVP been 37,;-'7 points points ment ment
r .oss
l'roflt
Prie"
nat"
_Typr> _Typr> ,,[ Signal
o
2,310% Profit
RESULTS
128
If an an inv inves estm tmen entt Can Can duri durinj nj-r e s u lt ( ') ( 1 .
RESULTS
had had been been held held cont contin inuou uousl sly y
the the 22 year year peri period od,,
:1
in
prof profit it of 160% W '
General Electric
and and sdling shor short, t, durin during g the the same same 22 ye to the Halle Hallerr Theory Theory signal signals, s, would would have,' 1I11mCTOIIS gain gainss whic which h add add up to H total total profit of 4 out re-investing re-investing capital gains. There There were no losses" bought on Aug. If Amer Americ ican an Can Can had had heen heen bought Aug. 16,' held held for for more more than than four four year yearss unti untill May May 3, 196 1964, 4, rnen rnenrr 'woul 'would d have have show shown n a smal smalll loss loss.. I f Am Ame ri ric an an O m h ad ad b ee een t ra rad ed ed lo ng ng a nd nd s Buyi Buying ng accord according ing
Price Sept. lfJ, 1942 J ul uly 27 27 , 1 94 94 6 Oct Oct 14, 1946 1946 April 8, 1956 Nov. Nov. 25. 1957 Aug. Aug. 16, 1959 1961 Jan. 9, 1961 Dec. Dec. 24, 1961 June 2.'), 1962 May 3, 1964
Aug. Aug. 16,1859 16,1859 to May May 3,18 3,1864, 64, acco accord rdin ing g to the the Hall sign:: sign::!ls !ls,, the the Four Four profi profita table ble trades trades would would have have sho sh o gain gain of 26. 26.38 38 point points, s, whic which h is equa equall to 58% 58% profit: . : J
D11
Pont Pont had had hpcn hpcn houg hought ht on Nov. Nov. 25, 25, 1957 1957
contin continuou uously sly for almost almost five year yearss un til til June June 25, 25, 1 vest vestme ment nt woul would d have have show shown n a sma small ll loss loss.. If Du Pont Pont kHl kHl bpf'l1 trad traded ed,, long long and and shor short, t, fro fro 1957 1957 to Tune 2 .1 ), 1962, 1962, ;:l('r ;:l('ronl onling ing to the Haller Haller Thea
the four profltahlc tnnles would have shown a tot 289. 289.00 00 poi point nts, s, whic which h is equa equall to 166% 166% prof profit it.. ., If Du P(,n P(,ntt had had been been·· trad traded ed only long (wltI1' snle snless ) durin during g that that same same peri period od,, points or 83% profit," 143!'iO points
trades W t11e two trades
8.83 1 5. 5. 54 54 12.67 63.00 60.88 81.50 72.75 74.38 57.38 &'3.00 PROFITS
A 9.2 9.2 year year cont contin inuo uous us inve invest stme ment nt in Du Du Pont Pont show shown n a profi profitt of 805% 805%.. Buyi Buying ng and and seJl seJlin ing g shor short, t, acco accord rdin ing g to the the Hall Hall signal signals, s, during during the same same 22 year period period would would have numer numerou ouss gain gainss resu result ltin ing g in a tot total al profi profitt of 2,3 2,310 10 re-inv re-invest esting ing capita capitall gains. gains. There There were were no loss losses, es,
If
129
LOSSES ,
NET PROFITS
General Motors
PorL
P 6.71 6.71 P 2.87 2.87 P50. P50.33 33 . P 2.12 2.12 P20.62 P 8.75 P 1 .6 .6 3 P 17.00 P25.62
135.65 0
135.65
1,536% Profit
Price
6.25 .l0.87 8.50 45.13 36.63 5.5.00 42.00 55.75 46.13 87.88
PorL
P 4.62 4.62 P 2.37 2.37 P 36.6.'3 P 8 .5 .5 0 P 18.37 P 13.00 P 13.75 P 9.62 P41.75
-
148.61 0
-
148.61 2,377% Profit
e figu figures res in these these studie studiess do not include include calcul calculati ations ons of divide dividends nds,, commis commissio sions ns or re-inv re-invest estmen mentt of capital capital
I
RESULTS
TIF.SULTS
If an an inves investm tmen entt had had heer heerii hcld hcld oont oontin inno nous usly ly ill ill Ceneral Elec Electr tric ic duri during ng the the 22 ),ea ),earr period period,, ther theree woul would d have have heen heen a
Standa Standard rd Oil
Goodyear Tire
p ro ro f itit o f R40%. Buyi Buying ng accord according ing
and and sell sellin ing g short short", ", rlur rlurin ing g the the same same 22 year year peri perirx rxl, l, to the Halle Hallerr Theory Theory signfl signflls, ls, would would have have produce produced d
numero numerous us gains gains which F 1 d d up to a total total There There were no losses. losses. If Gene Genera rall
Elec Electr triC iC'' had had !lcc !lccn n bough boughtt
held COlllinu COlllinucusl cuslyy the the inves investm tmen entt If GF hart hart
profit profit
of 1,5.'36%. 1,5.'36%.
on Nov. 2,5, 2,5, 1957 1957 find
for almost almost five years until june june 25. 1062, 1062,
woul would d
Ira Ira \,P show shown n
a sma small ll loss loss..
Price
Bu y
S ep ep t.t. 1 9, 9, H l4 l4 2
Sell
July 27, 1946
Buy
Oct 14, 1 9 4 6 Apri Aprill R 1956 Nov. Nov. 25, 1957 Aug. Aug. 16, 1959 1959 J an an . 9 , 1961 D e~ . 2 4, H J6 1 Jllne Jllne 25, 19G2 r.,1ay 3, 1964 1964
Sell
Buy Sell
tn:Hled long long and short from from Nov. 25 . 19:'7 to [nne [nne 25, 1962 according ing to the Haller Haller Theory Theory signfl signflls. ls. the 1962 accord
Sell
f01;r f01;r proll prolltnb tnble le
BII)'
point points, s,
whic which h
I)('PlI
trades trades
w0l11d have have
show shown n
a tot total al gain gain of 48
BllY e
is eqll::l1 to 79% profit profit..
131
1 .7 .7 0 5.29 4.45
24.33 26.42 44. 87 87 36,00
4.3.00 31.00 41.87
PorI..
Price
P 3.59 3.59 P .8 4 P 19.88 I.. 2.09 P 18 .4 .45 p 8.87 P 7.00 P 12.00 P 10.87
6.56 12.87 11.16 62.13 49.50 52.2.5 42.50 50.75 4U.00 87.2.5
_~ ...
A 22 year year conf conf inuous inve invest stme ment nt
PROFITS
in Coner Conernl nl
Moto Motors rs woul would d
I,OSSES
have ~h~l\vn a profi profitt of 1,:106% . Buyi Buying ng and and ~ell ~ellin ing g shor short, t, duri during ng the the S::l1lH' 22 year pf'riod, r iod, accord according ing fa the the Haller Haller Theory Theory sign:: sign::lls lls,, would would have have produc produced ed numer numerou ouss
gain gains, s, whic which h
nrld up to a total profit profit of 2,377%. 2,377%.
There wore no losses.
If GM llad llad heen heen hOllght
on April April A, 10.5 10.56 6 and and held held for for six six
years un t il June 25, ]862. the investment would would hnve hnve sho'."11 a gai gain n of one one point point or 21f,. If Gl'f Gl'f had had liee lieen n trar trarlf lf'd 'd long long and and shor short, t, [lC' [lC'co conJ nJin ing g tn the
Haller Haller Theory Theory,, dnring dnring thnt thnt same same pf'rinrl, trnrles wonlr] hnvrhnvr- show shown n
is eqllfJl to 140% profit.
the five five prnfitahle
n tota totall gain gain of 6~.2 6~.24 4 point pointss
whie whieh h
NET PROFITS
81.50 -2.09
79.41
4,671% Profit e Recent Recent Price
of New Jersey PorI..
P 6 .3 .3 1
P 1,71 P P P P P
50.97 12.63
2.75
9.75 9.75 8 .2 .2 5 P 1.75 P38.25
-
132.37
0
-
132.37
2,018% Profit
13 3
RESULTS
RESULTS
U. S. Steel
Texaco
If an investm investment ent llflfl llflfl been been held held contin continuou uously sly in Goodyea Goodyearr Tire Tire duri during ng the the 22 yea yearr peri period od,, ther theree woul would d have have heen heen a profit profit of 2,363%. 2,363%. B1J)Ji B1J)Jingand ngand sellin selling g short, short, dnring dnring the same 22 year year period period,, accord according ing to the the Haller Haller Theory Theory signal signals, s, would would have have produc produced ed nume numero rous us gain gainss and and one one loss loss resu result ltin ing g in a total total prof profit it of
4,671%.
If Good Goodye year ar had had heen heen boug bought ht on Aug. Aug. 16, 16, 1959 1959 and held held contin continnou nously sly for more more than than four four years years until until May 3, J 964, the invest investmen mentt would would have have shown shown a loss loss of 6.7% 6.7%.. If Goody Goodyear ear had heen traded traded long long and short short from from Ang. 16, 1m')!) to May 3, 1964 nccord nccording ing to the Haller Haller Theory Theory signal signals, s, the four four trades trades would would have have shown shown a tota totall profit profit of R6%. R6%. If Coodvear had had heen trade traded d only only long long (wit (with h no short short sale sales) s) duri during ng that that same same perio period, d, the the two two trad trades es woul would d have have shown a profit profit of 39.8%. 39.8%. A 22 22 year year contin continuol uol1s 1s invest investmen mentt in Standa Standard rd Oil of New Jers Jersey ey woul would d have have show shown n a prof profit it of 1,230%. Buying Buying and selling selling short, short, accord accordin~ in~ to the the Haller Haller Theory Theory sign:lls, durinj; the same 22 year year ppriod ppriod would would hnve hnve produc produced ed m~ll1p m~ll1p.ro .rousgain usgainss result resulting ing in a tot:ll tot:ll profit profit of 2,018%. There were were no losses losses.. Standa dard rd of Jers Jersey ey had had been been 1l0u 1l0ugh ghtt on Nov. Nov. 2.;', 1!}i)7 If Stan and and lwld lwld cont contin inn; n;ms mslv lv for for almo almost st five five"" year yearss unti untill June June 25, 25, 19(;2. 19(;2. the investm investment ent "vould "vould have shown shown a small small loss. loss. 1f Standn Standnnl nl of Jers Jersf'Y f'Y had been traded traded,, long long and short, short, accordin cording g to the the Ihller Ihller Theory Theory signal signalss flurin fluring g that that same same period, period, the f01;r f01;r trades trades w0111d w0111dhav havee shown shown a total total profit profit of 45.5%. 45.5%.
Price
Buy Sell Buy Sell Buy Sell Buy Sell Buy I />
Sept. July Oct. April Nov.
Aug. Jan. Dec. June Mav
19, 27, 14, 8, 25, 16, 9, 24, 2.5, 3,
1942 1942 1946 1946 1946 1956 1956 1957 1959 1961 1961 1961 1962 1964 1964
4.47 8.00 7.33 33.50 30.87 43.00 42.00 56.00 48.00 78.87
PROFITS
l.OSSES NET
PROFITS
PorL P P P P P P P P P
3.53 .67 26.17 26.17 2.63 12.13 12.13 1.00 14.00 14.00 8.00 30.87 30.87
-
Price 7.68 14.50 11.46 60.00 55.00 100.50 79.50 78.00 43.13 55.38
99.00 0 99.00
2,216% Profit
PorL P 6.82 P 3.04 P 48.54 48.54 P 5.00 P 45.50 45.50 P 21.00 21.00 L 1.50 P 34.87 34.87
P 12.2.'5 12.2.'5
177.02 -1.50
-
175.52 2,285% Profit
" Il ecen t Pri ce
If an inves investm tmen entt had had been been held held cont contin inuo uous usly ly in Texa Texaco co duri during ng the the 22 yea yearr peri period od,, ther theree woul would d have have been been a prof profit it of 1,665%. Buying Buying and selling selling short, short, elurin eluring g the same 22 year year period period,, accord according ing to the the Haller Haller Theory Theory signal signals, s, would would have have produc produced ed nume numero rous us ~ain ~ainss whic which h add add up to a tota totall of 2,21 2,216% 6% profi profit. t. There were no losses. losses. A 22 year year contin continuou uouss invest investmen mentt in U.S. U.S. Steel Steel would would have have shown a profit profit of 621%. 621%. Buying Buying and sellin selling g short, short, accord according ing to the HaUer Theory Theory signal signals, s, during during the same 22 year year period period,, would would have have produc produced ed nume numero rous us gain gainss and and one one smal smalll loss loss whic which h add add up to a total total profit profit of 2,285%. 2,285%. If U.S. U.S. Stee Steell had had heen heen boug bought ht at the botto bottom m
of the the hear hear
nESIJLTS
]34
111:1r l«'1011 Nov. 011 Nov. 25, 19!'J7 rllld rllld held c01tfil11101 c01tfil111011Sh, 1Sh,lo r 11l0l"('Ih:l11 six six )'ca )'cars rs
unti untill
show shown n a profi profitt If U.S. U.S. Slpd Slpd
May 3, HlG4, HlG4, the invp invpsl slnw nw;l ;lff
wonl wonlr] r]
hnvo
or
less tlum half half a point. point. had had 1)(' 1)('01 011Irn 1Irnde ded, d, '()1 '()1l~ l~~r ~rin ind d short short,,
:wco :wcord rdin ing g
to tIl( tIl('' Tbll Tbll(' ('rr Theo Theorv rv sign: sign:ds ds dnri dnring ng fhal fhal same same peri period od or more more Ih:111s Ih:111six ix vr-nrs, vr-nrs, tho nvp tr:Hlc tr:Hlcss woulc] h:l\1c h:l\1c shown :I 101:11 101:11j~ain j~ain of Jl2
':i ': i points points,,
which which is c
which i~'f'qlJ:l1to 102%.
12
CTJt\PTrm
VARfOlfS
,VAYS
An impo import rtan antt
TO
USE
item item 10 cons conskl kler er,,
s"l1 s"l1 sigll: sigll:lls lls or the Huller Huller Theory, Theory,
THE
in add addit itio ion n
TJIEORY
to the the liuv liuv nnd
is the general general
market market
k;w\",l-
edge edge on whic-h the the theo theory ry is hased, That That know knowle ledg dgee f'na f'nahl hlcs cs us 10 ;lIwl ;lIwlyzf yzf'' 'he slof'k slof'k market market anr] anr] understan understand d market et acacrhe mark tion tion at :111)'t :111)'tim ime. e. An 111Hl 111Hlcr crst stan andi ding ng of volume volume,, yiel yield, d, pricf pricf'' 1ll0V01llr 1ll0V01llr11t. 11t. the' A &: n Inrl Inrlex ex anr] anr] the the NH-N NH-NL L Inde Index x shou shouk] k] cn:lhl cn:lhlcc one 10 \(> 1 1 :It :It n glnn glnnel el') ') what what market.
is tak takin ing g
pbcf pbcf''
in fhl' fhl')
In the Char Chartt Hr-vir-w chap chapte terr are are many many n~pd n~pdil ilio ions ns or ('pr ('pr-markets which rain rain antinn antinnss h('(': h('(':ll1 ll1s(, s(, al1 al1 h1l1 h1l11mark 1market etss and hear markets
occurred in '1 1 (' last last twen twenty ty-t -two wo simila riries.
have h~ld remarknhle remarknhle
year yearss
1'11 1'11(' (' firs firstt pll: pll:1s 1s(, (, of ('v( ('v(,1 ,1'''''' Imll Imll mnrl mnrl««-
has has
hp.cn hp.cn a stro strong ng..
smooth 11]1"':1n1 movement arr-ompanied lly lly inrrpn inrrpnsp spd d limp limp.. amI amI inr1 inr1'f 'f'n 'nsr srr! r! new new highs highs.. Lnrg Lnrgcc rene rene-l -lio ions ns have have quentl quently y
pn
have have lIsn lIsn:d :dly ly appe appear ared ed wide wide volume volume anr] anr] [pwer lWW highs, Duri During ng
volvol(r(' (r('--
At the the tops tops of fh(' fh(' lmll lmll mark market etss swin swingi ging ng
reac reacti tions ons,,
dpcre dpcrens nsed ed
-
hnve I>('pn large
most most of Ill(' Ill(' hear 111:1 111:1r1< r1<(' ('I, I,.; there .;
rallies, some some of which wcrp wcrp fn]sl' fn]sl') moves moves of the DJTA. Dming the crash crashes es movements
tho actio action n
downward.
was nSl1:1 nSl1:111y 11ysimila similarr accompanied
ing climaxes have have hePD hePD very simila similarr ume ume was was pres presen entt
at the the bottom 13 5
with with
smooth smooth,,
sharp sharp
hy large volume volume,, SellSellin thei theirr
of ever every y
ndioD. ndioD.
hear hear
Low vo]-
mark market et..
VAHIOU HIOUS S
WAYS
TO
~JSF ~JSF.. TTIE TTIE
VAm01JS 'VAYS TO USE TIlE THEOHY
TlIF. TlIF.OI OIlY lY
Of r-ou r-ours rsc, c, evpr evpry y hl11 hl111ma 1mark rket et and and ever every y hcnr hcnr m.rr m.rrkr kr-t -t is sliz slizht htlv lv (]if (]ifrc rcrc rcnl nl from from lIle lIle other others, s, 1 hav havee neve neverr seen seen two two t, " which which were were f'x:1c f'x:1ctly tly alike. alike. Dill Dill the renwrk renwrknhl nhlcc consis consis!rn !rncy cy of the similflritie similflritiess makes it relatively relatively simple'. simple'. to nnalvzc nnalvzc tl)(' stock market market when when one possessp possesspss !lw rp(l'Ji rp(l'Jired red knowle knowledge dge.. It is a wonder wonderfnl fnl reelin reeling g to he n11kto correc correctly tly nnnlvz nnnlvzee the fldioll fldioll of the market market find find nnder nnderstn stnnd nd Ill(' Ill(' sign signif] if]can canr(' r(' or each each faclor faclor as it appears on t1H~scene. When When vnn vnn wish wish to nnnlvz nnnlvzo o the the mark market et.. a('c a('cnr nrcl clin ing g to th(' th(' nry, yon might ~01Tlpan~ ~01Tlpan~the the current current market market action action HaHN Tl;('nry, with with simiLn simiLn'' action action on the charts charts ill this this hook. hook. Thnn Thnn rp~1cl rp~1clwhat is saie saiell flho flhout ut that action action in Ihe Chart Chart Review Review chapto chaptor. r. Soon Soon YOl1s YOl1sho houl uld d he able able to make an accn accnra ratr tr~ ~ anal analys ysis is wi thnnf "
.
rderpn rderpncp cp tn the the text. \V1H' \V1H'n 1 make make an nnalvs nnalvsis, is, I stflrt stflrt (lff with with thou though ghls ls like like this: "I will not form an ~pini(ln ahol1t ahol1t tllf' mnrkr-I, mnrkr-I, find Twill not consider consider 1110opinions opinions of others. others. J will will hp neither neither optimisoptimistif>or pes~imistic. J will will only only ('onside ('onsiderr fads. fads. as inte interpr rprete eted d by the Haller Theory." Theory." I wonld wonld not wish to sav sav thlt thlt evervo evervonp np ill the market market should should stridl stridl"" follow follow evrry evrry mfe :lncl :lncl sigt;: sigt;:ll ll of Ill(' Ill(' Haller Haller Theory Theory.. Some Some imTp,t imTp,tors ors ln rv s!o(· s!o(·ks ks pnly for divi(] divi(],.n ,.nd d income income.. Others Others hl1Y hl1Y storks storks only only for eflpilfl eflpilflll gflin. gflin. Some :lrp :lrp swing Ir:1(l Ir:1(l('r ('rs, s, some some nre short short tC'rm tC'rm hndprs hndprs.. nnd some m'C'jlls m'C'jllstt plain plain gflmgflmhlors. do not wnnt Mnnv i1Tvp,<;!ors i1Tvp,<;!ors wnnt 10 sell sell s!Jnr! s!Jnr! llwlp1' llwlp1' any dr011msfn 011msfn'n('(' 'n('('s. s. n11(l n11(l 'hnt is !h('ir !h('ir pri\'ilpgc~. ilpgc~. F'vr-rvonr: should should
have have
his own J,nsi(~pl'ogm J,nsi(~pl'ogmm m to en it his rflr!irll1:l rflr!irll1:ll' l' I"sl('s I"sl('s nml nhjoctivp~.
\\'h:1t
1 \\'ish to poinl
out is \11:1\:11most \11:1\:11most anvone
ill!p1'PS!f'ct
thr, thr, slo,.l, slo,.l, m:lrkf'! m:lrkf'! might might hpneRI hpneRI from from :1 know knowkd kdge ge of tllP tllP Haller Haller Tl.oor Tl.oory y find find th" fad'; fad'; nn whiel, whiel, it is hasC'c hasC'cl. l. F,,"'n F,,"'n if n person d;r1 not not wish wish to follo follow w any any of Ihp Ihp signfl signflls ls,, an llndprstamlini! nf yield, volume, volume, A & D [ailuro [ailuro and the sellin selling g elieli;11
max sho"ld sho"ld help help him to form form intellig intelligent ent conclu conclusio sions, ns, based based on fads. . For theInvestor who who may he detpnn detpnnin ined ed to huy huy only only the the highes highestt rplali rplality ty stor-k stor-ks, s, and and hold hold them them for the the rest rest of his his life, life, n knowl knowlAcl Aclge ge of tl10 Haller Haller Theory Theory might might help him him to buy near near thAbottom thAbottom,, anr] anr] avoid avoid huying huying near near the top. top. For instan instance, ce, almost almost any long term invest investor or would would have have found it prudent, prudent, in tlw tlw past, past, to avoid avoid hn)' hn)'in ing g afte afterr the the A & D Inde Index x had a [allur [alluree with with a vidd vidd of lpss lpss than than 4%. The BoHon' BoHon';; Bu)' Signals. Signals. in thp past, past, have have ir1fmt ir1fmtifi ificd cd outsl:l sl:lnd ndin ing g hu)' hu)'in ing g oppo opport rtun unit itie iess whic which h woul would d have have heen heen exextrer trernr nr.l .ly y prof profit itab able le,, f've f'ven n if the the long long term term inve invest stor or had had not not follmved follmved any other part of the the theory. A knowle knowledge dge of the the Haller Haller Theory Theory might might also also hpnpfit hpnpfit thA invest investor or who is onlv onlv in!erAst in!erAsted ed in huyin huying g growth growth stocks stocks,, and holdin holding g them them for J1l:ln J1l:lny y years. years. With an unders understan tandin ding g of hull hull and hear hear market markets, s, such such an invest investor or might might improv improvee his result resultss hy flvoid flvoiding ing purchas purchases es when when the market market is in a dang dangero erous us top area. area. Even Even growth growth stocks stocks can suffer suffer large rledin rledines es in a stock stock market market crash. crash. To illustra illustrate te tlw point. point. let us pX~lTniT pX~lTniTle le the rf'eent e ent histor history y of IBM, IBM, which which m:my m:my l)eor1 l)eor1f~sili f~silid d was the greatp greatpst st growth growth stock stock of :lll :lll time time.. Tn Novemb November, er, 1961 1961 IBM re:lch re:lched ed a price price of $600. $600. JJPr JJPr slinr« slinr«.. Thcn Thcn it d('r!in d('r!in('d ('d dra.,ti dra.,tirn rn lIy in the crash crash of 1962. 1962. The lowest lowest point of it., dedi dedine ne was was in"June in"June,, 1962 1962 whe when n IBM IBM sold sold :It $:100. pN shar sharrr-aa decl declin inee of r50% from from its high. B y Nnv('m Nnv('mlwr lwr 17. Hl6.1 IBM sold flt $485. per share. . Those who hotlght hotlght IB1\1. the world' world's great( great('st 'st growth growth stock, stock, in November. 19R1 :mrl h('ld it for two years until Novemher, Novemher, Im~~had only only lossos lossos to show show for tlwir tlwir "troll "trollhle hle.. If an invest investor or h:Hl sold IBT\l at thp Top Sf'll l l Signa Signall of Dece Decemhe mher. r. 19f1l 19f1l and and I1H'nhonght I1H'nhonght it hnck ilt tll(' tll(' RotlO111 RotlO111Buv Buv Signal of [nne, Hl62, he w01l1rl w01l1rl hflve hflve J1l:lr J1l:lrle le a good good profit profit "durin "during g thflt thflt two vear vear pprio(l.
v AHHHT AHHHT~ ~
,V A YS
11SF: '1'1IE '1'1IE TTTF.onV TTTF.onV TO 11SF:
V" HTOos
If an inve invest stor or
wish wish", ", 10 1:lkp ad\,;I ad\,;IIl' Il';l~;f' ; l~;f' of \hl' \hl' low prirrprirr-ss near near the the holt holtom om of a lie lienr nr mark market et,, he can can not not rema remain in fnll fnlly y invest investr-r r-rll lhnmgh lhnmgh a major major marker marker rlor-lino. Tlw Tlw pf'f pf'fso son n who who reremains fnll.1' fnll.1' invested lias lias no capitf capitfll ll availa availahlf hlf'' to I)\]y near near the bottom. 1 ' 1 1 1 " swin swing g trad trader er migh mightt want want to follow 11lf' 11lf' hny nm] scll scll sigmtl sigmtlss as close closely ly as possih possihle le'' to take take fllll fllll :ldv:1ll :ldv:1llta tagp. gp. of tlte up :u;d :u;d down down moveme movements nts of !ltt !ltt""' ""'market, If a pf'rs pf'rson on felt felt tJwt tJwt tJIP nsf' of 111('Top Top Sf'JI SignnJ SignnJ rf'qllirf'(1 rf'qllirf'(1 too too much much dfor dfortt or was was too dirnc dirncli lilt lt to uurlerxtnnr], llC might r-onsir r-onsirlrlr-rr nsing nsing jllSt jllSt tlw Trend Signal Signalss ancl ancl the Bottom B uy Signals 10 Jwlp Jwlp him dccid dccidee when when to huv or sell. sell. Thf' Thf' invest investor or who who dops dops nn! believe in any kind kind of contr contrar arv v acti action on,,
and and
want wantss
to Foll Follow ow on 1)' w('1 w('1II-;s ;sta tahl hlis is1w 1wd d
tren trends ds,,
AYS S w AY
TO nSF: TTlF: TTTF.OnV
mnrkef C:ll1SPS C:ll1SPSstock pri('f'S pri('f'S tn dr clinc, Ill(' Ill(' hank hankers ers who might might hnvo hnvo loan loaned ed him him money, money, woul would d requ requir iree addi additi tion onal al f'ol f'olla late tera rall to protf' protf'd their their loans. loans. If the tycnon tycnon hns strf' strf'tch tcher! er! his reso resourc urces es 10 the point point where where hr~can not provir] provir]rr- tllP relp relpJin Jinxl xl colla collater teral, al, the bankers bankers would would havp havp to sPlI thp thp s~od< s~od< or oflwr oflwr :1sspf :1sspfss which which he Iwcl Iwcl plr>d plr>dgf' gf'cl cl on thf' thf' loan loans, s, Sllc Sllch h :wHo :wHon n migh mightt dollars (0 lltf' l vr-nnn, vr-nnn,
resu result lt
fllnds fllnds to attemp attemptt to sPlI a n8W iSS1J iSS1J(~ (~during during a S8Vf'rf' r f' market market dedine dedine.. TIl(' TIl(' astute astute r-xoou r-xooutiv tivee could could uso a lmowlf lmowlf'dg 'dgfl fl of marmarkf't nnnlvsis nnnlvsis to O{ff'r his II('W issu issuee near near tile tile top of a bnl] bnl] marmarket w11('~1 w11('~1pnhJie pnhJie f'TltJllI f'TltJllIsi:l si:lsrn srn and optimism optimism is fit its height. height. TIl(' financial t vooon vooon miVhl miVhl do w('11 w('11 to think nhoTlt nhoTlt hnl] nod hem hem mnrk mnrkf' f'ls ls ill ill ;'el ;'elal alio ion n In his his ncqn ist ist ion ion progr progrnl nlll lls. s. When When a tvco tvcoon on nftf nftf'm 'mp! p!ss to gnin gnin ronl ronl rnl rnl of n oorpor oorpornt nt lon, lon, 11(' 11(' 1111 11111S 1Sll stock in f;'f'rpll f 'rpll'nt 'nt1v 1v huv J::lri J::lri!e !e amount amountss of thaI oorpora oorporatto tton's n's Frr-qur-nl lv th.p the Op('11 Op('11 mnrkr-t mnrkr-t to :1ehle :1ehlev'" v'" his ohjrct ohjrctivp ivp.. th.p amoun amountt of mrnumrnu-v v reql reqlli lirr rrrl rl is so so grf' grf':l :lff that that 11f' 11f' may may fin d It lH~ Cf'S Cf 'SS;' S;' HV to horrow l:lr~~ l:lr~~pnmou pnmouut ut s of 1ll01l 1ll01l8Yin 8Yin onl"r
10 COI1-
H1111 8hi.s hi.s nrogra m. If h!" h!" sho1l1( sho1l1(1 1 starl starl sm·ll sm·ll an aggrf's aggrf'ssi" si"p p progra program, m, nnd streic streich h llis llis crf'dil crf'dil tn Ihf' limit limit right right :1\ the HmrHmr- whf' whf'll ll a l)('a l)('arr market market is sbHlin sbHling. g. he would would '1SS1' '1SS1'111 1111(' 1(' trpmpn trpmpndol dolls ls risks. risks. \i\JIl \i\JIlPn Pn a henr
in a loss loss of mill millio ions ns
of
The well-in(or well-in(orJ1lPd J1lPd ~'yf'oon ~'yf'oon who can idf'nti idf'ntify fy stock stock market lrends m;gh~ !lr>hr>Hf'r ofF ~o deb)' deb)' the the star startt of an nggres nggressh sh'e 'e acqni acqnisi siti tion on progr progrnm nm lln~ lln~iI iI n hoa hoarr mark market et has nm i~s course course,, 'Vhe 'Vhen n a new new 11111 111111 nmrkrnmr 1 kr-II stnrts stnrts,, the possihil possihilit ity y of Tp.cp; Tp.cp;vin ving g marg margin in ca lis lis is milc milch h Ipss Ipss than it won 1<1 1<1lJ lJp p at t h" star startt of a hear rnnrkr t. Also Also the f'ost f'ost of acqtris acqtrisiti ition on miP-". miP-". ht 1)(> 11111('hless, lH'f'alls f 'allsP P til(' til(' prief' prief' of thp stock stock might might hI" lower. lower. ..
mig11t mig11t prpff'r prpff'r to IlSPonly IlSPonly t Iw Trend Signals. Signals. A knowlf· knowlf·r1ge r1ge of Ill(' Tl:dl Tl:dlr'r r'r Theory Theory woulcl woulcl hf' valllal valllal11( 11('' to eorpor:11f' eorpor:11f' f'x('Cllti f'x('Clltivps vps wllo might wish to raise raise f'apit:'d f'apit:'d hy offf'ring ing a nr-vv stook issu issuee to tl\( tl\('' pnhl pnhlif if'. '. Npw Npw iSSl iSSllP lPS S do 110t 110t sPlI sPlI very very well during during hear hear mark market ets, s, and and it is is n wast wastee of f'orr o rrorntp
139
l"'
The short short tprlll tprlll lr:tcler lr:tcler might might lIS£-' lIS£-'the t he conc concep epts ts of fhp fhp ITaller Theo Theory ry 10 help help him init initin inlp lp his his trade tradess in acc accord ordan ance ce with with the the tren trend d of ~hp stor stor-k -k markr markr-t -t.. npst npst rpsl rpslll ll!s !s am usna usnall lly y obta obtain ined ed when when only only Jong Jong poslt posltln lnns ns are are init initia iate ted d dnrin dnring g a hul hulll mark market et,, and and short short posi positi tion onss nr~ nr~ est estab abli lish shed ed dmin dming g a hear hear marke market. t. Seil Seil-ing ing shor shortt in :1 [iul] market market is a clan clangen genms ms ventur venture. e. ',Vhil ',Vhilcc Wf' are on thr sllh sllhj( j('d 'd,, ilmi ilmigh ghtt hf' hf' int inter eres esti ting ng to rlis rlis-f'llSS f'llSS SOIll SOIllP P of tIl(' tIl(' ;Jd\ ;Jd\'nn 'nntag tages es and disndv disndvant antnge ngess of short short sellselliniini-(. (. TJlp TJlp main main mlva mlvant ntng ngrr is ihn.t ihn.t SllO SllOft ft sell sellin ing g is a pract practic icee which which offen; offen; the possihil possihilily ily of itlf' itlf'ren rensin sing g one's one's ('arit ('arit;JJ ;JJ during during a lx-ar market, market, TllP TllP main disa1l disa1lvnn vnnt[l t[lgf' gf'ss are thnt a shor shortt positi position on dnr~s dnr~s not h:n' h:n'p p tltp tltp possih possihil ilil ilv v of rf': rf':ll lliz izin ing g as largf largfll a profi profitt ns a long long posi positi tion, on, and and Ihp pPTs pPTson on with with a shor shortt posit positio ion n risk riskss a large largerr pote potent ntia iall Joss Joss tha than n one one with with a long posi positi tion on.. It is a case case of simple mathematics. short rt posi positi tion on can can not not possilily The pf'r.son wit l; a sho possilily make morrmorr- than than 100% profit on a short sale (without trad tradin ing g on 1l)
v Anrons vxnrorrs
WAYS TO lJSE THE TIIEORY
WAYS TO USF; TIm THEORY
Then' Then' is no no limit limit to how how much much a stock stock can rise, rise, so it is possi possi-hIe hIe for a perso person n with with a long positi position on to n~aliz n~aliz(' (' a prof profit it of more. Since Since there is no no limit to how 500% or even 11,000% or more. much much a stock stock can rise, thf' thf' sllOrt sllOrt seller seller risks risks the possih possihili ility ty of an unli unlimi mite ted d loss loss whi which ch coul could d amou amount nt to much much more more than than the oril!irwl invf'st!mmt. Anot Anothe herr disa disadv dvan anta tage ge of shor shortt sell sellin ing g is the the inco income me tax tax treatm treatment ent.. PIORta PIORtahle hle short sales sales can not he tre::l tre::lted ted as long tenn tenn cnpita cnpitall gnins. gnins. regard regardles lesss of how how Inng the short short positi position on is held held.. Even Even if one should should mainta maintain in a prof proflta ltahle hle short short posiposition tion for a ye::l ye::lrr or longe longer, r, it would would still still he a short short term term capita capitall , '\
gain. Despit Despitee the rlisad rlisadv:1 v:1llt lltnQ/ nQ/~s,ma ~s,many ny aggres aggressiv sivee invest investors ors sell sell shor shortt in an ::lt ::ltte temp mptt to make make prof profit itss in a hear mark market et.. Some Some peop people le trea treatt shor shortt sale saless diff differ eren entl tly y than than long long posi positi tion ons. s. If I sell sell short, short, J do not like like to trade trade on mnrgi mnrgin n (hor (horro rowe wed d mone money) y).. nncl nncl T nm not not anxi anxiou ouss to put put all all my resour resource cess into into a short short positi position. on. When When J init initia iate te what what appe appear arss to he a good long long posi positi tion on,, T some someti time mess put put all all my reso resomc mces es into into it, it, nnd nnd then huy on full margin. Manv Manv cons conser erva vati tive ve inve invest stor orss do not even even cons consid ider er shor shortt sale sales. s. 'i'h 'i'hei eirr ohje ohject ctiv ive, e, in a hear hear mark market et,, is to prote protect ct and and preser preser,,!' ,,!' their their capita capital. l. To accomp accomplis lish h that, that, one might might put his capila capila1 1 into into govern governmcn mcntt homls homls or govemm govemment ent insure insured d SAVings ings account accountss until until the next next huying huying opport opportuni unity ty appear appears. s. One could could nlso nlso follo follow w fIcomhina fIcomhinatio tion n of prog progrmn rmnss in A hear market market.. He might make make fl small small short sale sale v..rhile keeping keeping the bulk bulk of his cal~ita cal~itall in govemm govemmp,n p,ntt insnn, insnn,(l (l s:wing s:wings. s. J heliev helievee that that small small invest investors ors con1(1l)(' con1(1l)('nel nel1t 1t much much from from a kno\:vleclge of fhe IT:111erThe0T) T he0T)"" The heginn heginners ers and the small small invest investors ors are frrqu frrqucnt cntlv lv confus confused ed hy all the the conflict conflicting ing advice advice and and opin opinio ions ns with with whic which h they they fire fire rlel rlelug uged ed from from all all side sides, s, '\Vhen '\Vhen S1Ifficient S1Ifficiently ly confuspcl, confuspcl, the normal normal person person USllally USllally takes the wrong wrong action action,, or none none at all. all. Such a cours coursee may he f'xpen f'xpen--
sive, sive, Adequa Adequate te kJl0wl kJl0wlecl eclge ge could could 1]1"]1 1]1"]1'the t' he smal smalll inve invest stor or to prot protec ectt his his capi capita tall from from seve severe re loss losses es duri during ng bear bear mark market ets, s, and to increase increase his capit capital al rlming rlming hull hull market markets. s. T~lmy T~lmy own case, J plac placee grea greatt valu valuee on the peac peacee of min mind d which which my thr-ory thr-ory has has hroug hrought ht to me. me. Tnever worry worry about about the stock stock market market any more, more, for now Iseem seem to unr1e; unr1e;sta stand nd what what the mnrk of is doin doing g at flll times. times. Tknow Tknow how to recogn recognize ize dandanger?l~S ger?l~S fop areas, and J can also recog recogniz nizee the huying huying opporopportunities tunities when tlll')' appear. appear.
T'HOFIT IN
100%
APTER R en APTE
1() ()% PRO PRO FIT FIT
Now Now
th~t th~t yOIl yOIl have have
market market was ',I ill in progre progress, ss, with with 110 end end in sig sight ht.. Thor Thorr: r: had had heen heen a larg largee reac reacti tion on in Jnne Jnne and and JIIl JIIly, y, whic which h lI1a lI1ark rkrd rd the the end end of HIP strong, strong, early early phase phase of the the hull market. market. My anal analys ysis is of ear early ly Sept Septem embe berr was was that that 1110 1110ma mark rket et was was in the phase phase o[ wide wide swin swingi ging ng reac reacti tion ons, s, whic which h usna usnall lly y turn turnss
].') ].')
TN F o IJ It ]\110 NTH
rend rend many many
r'oun MONTHS
pngm pngm;; ahou ahoutt
theo theory ry
There had 110t yet been :1 Failur o ut ut t o he he a lop area, There Failuree of the A & D Index Index,, so the then~ n~ was no defi defini nite te sign sign of when when the the hull hull mark market et migh mightt end. end.
S
and and
When When the the m:11 m:11'k 'k(' ('tt is in in a possi possibl blee top top area area,, one can can not not exexpect pect to mak makee a profi profitt hy huyin huying g just just any any stoc stock. k. for the major major-ity ity of stoc stocks ks nsn: nsn:dl dly y decl declin inee in a top top area area.. Gre< Gre
logic logic and tl1f' tl1f'ore orelic licnl nl trades trades,, YOll YOll may he wonrlf' wonrlf'ring r ing whethe whetherr the the Hall Haller er Theo Theorv rv hns hns ever ever heen heen used used in rea reall ]ife ]ife with with cold cold,, lwrrl lwrrl ['aS11 ['aS11at at stnk;: stnk;:.. Yon 1I1ftyalso 1I1ftyalso he \vom]pri \vom]pring ng wllPlh wllPlhf'r f'r sllch sllch
1 decide decided d tlwt tlwt the stock stock I would buy woul would d have have to be one of the the stro strong nges estt stoc stock, k,.; .; in in the mark market et.. My tech techni nica call stre streng ngth th
nctual nctual use of the the theory theory was profirnh profirnhle, le, Thp Thp answ answer er is th:l th:ltt 1 have have nsed nsed the the Hall Haller er Theo Theory ry
indu indust stry ry
trad tradin ing, g, ment ments' s'in in
studies in art artll llal al
and and ils ils use has been been profi profita tabl blee to me. me. Iv1) Iv1)'' inve invest st-the the sloc slock k mark market et have have lwen lwen much much more more profi profifa fahl hlee
since since I starte started d lIsing lIsing tlw theory. theory. HJG·)hull market, market, my lise of tbe l Inller Inller Theory Theory Dllring the HJG·)hull ennhl ennhlrd rd me to to rea reali lize ze actu actual al cash cash profit profitss whic which h incr increa ease sed d the the
fit fit
I time show showed ed kif. time
the the stro strong nges estt line line warr warran ants ts
TV.' A ancl 111: 111:1n 1ny y ot11 ot11f' f'rr air airli line ness
was 'Illite [nvorah [nvorahl«. l«.
T\V T\V A is a larg largee comp compan any y the world.
with with the the
stnd stndy y
show showed ed
that that
were were
enjo enjoyi ying ng--
gwat gwatly ly
inin-
creased creased c::trnin,g c::trnin,gss in 1963. I dpci dpcidr drd d to 'iH lY T\VA T\VA warra warrant ntss heca hecaus usee it was was the strongest est issu issuee in thp thp strnng strnngrs rstt group group,, and and the the fnnd fnndmn mnen enta tall outl outlook ook
tl](' theory. Plp: Plp:ls lsee do not not thin think k
thf' thf'se se trar trarlc lcss
to hI" the the stro strong nges estt
A earc earcfl flll ll
issu issuee in thf thf'' Airl Airlin inee group group was was Tran Transs 'Vor 'Vorl< l<1 1 AirAirAu exam examin inat atio ion n of [unclamentals reVf~aled reVf~aled th:1t
tol:11 tol:1111e 11ett value value of rnv rnv stock acconn acconntt hy 100% in Iour month» month».. Iwill will use my most most r~cell r~celltt trades trades to ilIns ilInstrn trnte te the nctl1~ nctl1~ll lllSe lSe of that that I ment mentio ion n
the the Airl Airlin ines es
gro11 gro11p p in in the the market market..
T was also also influe influence nced d
hy the fact: fact: that that
whos whosee name name is known known
over over much much of
( )f hOfl intnnlinn hOflst stin ing. g. The The fact fact is tha thatt I woul would d ratl ratlle lerr no! no! divldl1,C divldl1,C tllc ddnils ddnils ;; r Illy trading trading nr-I ivit iex, h11t h11t T fed fed it is nece; nece;sar sary y to give:m actlln actllnll exampl examplee of how tllP tllP TTalJpr TTalJpr Theory Theory
Tdid not not want want to risk risk lllly llllyin ingg- T\V A war warra rant ntss at thr high highes estt poin pointt of n rnll rnllv, v, so Trnter Trnterrd rd an orde orderr to hny hny at a pric pricee of $10. $10. per per share share.. That That pdce pdce wa., wa.,1, 1,1% 1% helo helow w the high high for for the the year year,,
can lldp to make make monr-v monr-v in the market. market. V~lr1Vin Septrrnlwr, some cnpi cnpif: f:d d was was nvai nvaila lahl hle, e, H J6 .3 some
whic which h was was 11%. 11%. I Jikr Jikr the the idea idea of hlly hllyin ing g a rapi rapidl dly y risi rising ng stock stock when when it has 11 reac reacti tion on and and sell sellss at least least 10% belo below w its its highes highestt prirf~ prirf~ duri during ng the rise. rise.
and and 1
(If' (If'ri ridp; dp;ll to inv inves estt it in in the the stoc stock k mark market et.. T alre alread ady y had had long long posi positi tinns nns in sto stock ckss whic which h l1ad l1ad been been hnugh hnughtt em-l em-lie ierr in tIl( tIl('' hull hull
market. AI that that time time the TTnJJer TTnJJer Theory Theory
indica indicate( te(ll
tll:1 tll:1tt tIle tIle 1qGl hult
1\1y 1\1y orde orderr was was exec execut uted ed on Sept Septem embe berr 17, 17, 196, 196,'3 '3,, and and bough boughtt T\V T\V A warr warran ants ts on 50% marg margin in at a pri pric( c('' of J O. Mnoh Mnoh
to mv mv surpr surpris isee
and and
irri irrita tati tion on,,
T\VA T\VA
warr warran ants ts
I
concon-
145
100% PIlOFIT TN FOUR MONTHS J
44
H10% p!1rWlT TN FOUn l\!ONTIIS
III III Ihe stock stock
mark market et..
add to TIly TIly profita profitable ble
1 woul would d
posit position ion..
tin1lcd tin1lcd the (]pelin (]pelin r-, YVilhi YVilhin n two weeks weeks nner nner 111Y pllrch pllrchnsf nsf',', thev thev had t01wlHd a low (1f IW~.'l"1Inl low pdp" was hr-low hr-low IllP spnl
The maneu maneuver ver is someti sometimes mes calle called d pyrami pyramidin ding. g. T deci decide ded d to Pl1t Pl1t all all my my resou resourc rces es into into TWA warra warrant nts. s.
at whic which h
next next momi moming ng
one one wonld wonld
used used a slop slop orde order, r,
norma normall lly y 1 woul would d
plac placee
a stop stop loss loss order order..
have have been been stop stoppe ped d
on that declin decline. e. At the the low low of ~Wt ~Wt.TV .TV// A war warra rant ntss from from my purchnse 36%. 36%. Add nuoth nuothe! e!''
If Lhn Lhnd d
oul oul 'wit 'with h a loss loss
had had decl declin ined ed
nhon nhontt
1R% 1R%
pric price. e. On 50% mnr~ mnr~in in,, the the pnJwr pnJwr loss loss was was 4% for for commi commiss ssio ions ns and and inte intere rest st,, find find the the
tota totall pnlwr pnlwr loss loss was was nhout nhout Ml% Ml% of the the cnpi cnpita tall inve invest sted ed in tha thatt trad trade. e. T wasn wasn't 't pXfl pXflC' C'tl tly y lml1 lml1hl hlin ing g over over 'wit 'with h joy. joy. A time time like like that, that, wlwn wlwn
things things
go ~v1'Ong ~v1'Ong,, is when when
to hel help p him him out. out. The The Hall Haller er Theo Theorv rv,,
at tha thatt
n fello fellow w
time time,, stil stilll show showpd pd
IlPec1 IlPec1ss a theory theory the the 111l 111l11m 11mar ar--
kct kct to lw lw goin going g slro slro;l ;lg. g. with with no pud in sigh sight. t. T deci decide ded d
that that I
woul would d not not he frigh frighte tene ned d out out of my my posi positi tion on as lon long g as the the hull hull nwrkf nwrkf't 't was was in prog progre ress ss.. I rea reaso sone ned d that that T\VA T\VA wnrr wnrran ants ts were were more more vola volati tile le Ihm' Ihm';; T hnc1 hnc1 figm figmed ed.. fwd fwd ther theref efor oree suhi suhied ed to lnrge lnrgerr rend rend ions ions rhan rhan lr-ss vola volati tilp lp issl isslle les. s. 1 fig fignrcd they woul would d
stnr stnrtt goin going g np ngnin ngnin soon soon.. and m y dpds dpdsio ion n
My rf'aso rf'asonin ning g
prov proved ed
jllst jllst n frVl clay~ lalcr. T'V A 'war 'warra rant ntss were were spllin splling g ahov ahovrr 10. 10. Tlw Tlw 3dva 3dvanc ncee
to he he r-or r-orre rect ct,,
for for
had. had. snapp snapped ed h~(' h~('k, k, an~1 an~1 cont contmu mued ed slen slen(h (hly ly unti untill
1 l("h l("h~p ~phon honed ed my broke brokerr
margin in,, :50% marg I had had
usin using g all all the the pmcl pmcllf lfls lsin ing g
a posi positi tive ve
jrpJ jrpJin ing g
At that that lime lime the Halle Hallerr ness ness had occu occurr rred ed Dmin Dming g
seve severa rall
hfld hfld risen risen to new new high highss whil whilee new new high highs. s. nre nre not not
Dive Diverg rgen ence ce
risi rising ng
alon along g
with with
hnlo hnlow w
prof profit itah ahle le
mane manel1 l1ve vers rs
was was no
appe appear ared ed and and
the the A & the the
thn thn high high of 13%, and and
on the scene. scene.
Octo Octohe herr
nInde Index x
the the DJTA DJTA
fail failed ed
that that the the majo majori rity ty DJTA DJTA..
Such Such
that that
to mak makee of sto stock ckss
Fre-
divp divprg rgen ence ce
I was was hll)' hll)'in ing g
of mis missi sing ng
lwvp lwvprr nppe nppenr nred ed..
J had had miss missed ed
h y tr yi yi ng ng
t o h ll lly
for for a low lower er
went went
into into a rea react ctio ion n
me muc much h at nil nil,, for for I had had alrc alrc3d 3dy y
It was was a Irus Irus--
that that carr carrie ied d
That That reac reacti tion on deci decide ded d
w hi hic h
and and buy buy at
afte afterr my purch purchas asee
to ] 07/1'1. If T hnd hnd used used a stop stop loss orde order, r, out out on tha thatt decl declin ine. e.
pric price. e.
of a hull hull
o n a r ea ea ct ct io io n
agai again. n. A ff~w ff~w week weekss
to
not not stan stand d
a lar large ge part part
gpt in on on the bull bull move move.. pricp to gpt
J 2%, 2%, TvV TvVA A wan-a wan-ant ntss he(' he('n n stoppe stopped d
ton ton clos closee
coul could d
Then Then Thad Thad tn chas chasee the the soyb soybea eans ns
trn!ing trn!ing experience experience.. Then Then it happe happene ned d down
I sim simpl ply y
the the move move by tryi trying ng
a much much highf' highf'rr
to eXCC eXCCll llte te one of the the most most pote potent ntia iall lly y
ther theree
thnl thnl high high.. I did did it tha thatt way way beca becaus usee
On 11)(' day wl1Pn wl1Pn TVIl A warran warrants ts ff'flc ff'flclwl lwlll 13 on very very l~lg l~lgh h volum volume, e, T was was a lill lillIe Ie thri thrill llp( p(ll and and exci excit( t("( "(l. l. T was was not not cxcl cxclte ted d
high high flye flyer, r, J felt felt thnt thnt 1 had
stil stilll indic indicat ated ed
qnen qnentl tly y appe appell lll' l'S S in the the top top area area of a bull bull mark market et.. Treali Trealize zed d that that my purc purcha hase se price price of 12th 12th was was less less than 10%
in s oy oy he he nn nn s
to h:C' h:C'mn mnp p an out outst stan andi ding ng
up
up-al up-alll
Bnt the the firs firstt sign signss of wea weakk-
is a sig sign n
ma rk rk et et
stre streng ngth th
1, and and I loa loade ded d scra scrape pe
in Sept Septem embe berr
on the ATIler ATIleric; ic;t.n t.n Stnck Stnck F,y,'h F,y,'h;t. ;t.nge nge.. At a price price of 13, TIlVpaper profit profit was nrol11 nrol111(15S 1(15S% % of the the capita capitall illves illvest(' t('(1 ( 1 in !klt Ir3:1P.
lnrge prof profit its. s. It w~s 11e( 11e('a 'a1l 1lse se I reali realize zed d that that T harl harl a tig tiger er hy the tail, tail, ;1n(1I ;1n(1I knew knew exnetl exnetlv v wlint wlint Thad to do n1>0111 n1>0111it. O n th e dav wh en en I s ~w ~w that T\VA warrants had th e
rise rise to 18
I coul could d
\•... \•.I1!' I1 .. !'m m dive diverg rgen ence ce
week weekss
years years prpvio prpviousl usly y
other other
Theo Theory ry
end end in sig sight ht for for the h1l11mar h1l11marke ket. t.
Severa Severall
for T had experi experienc enced ed
dolla dollarr
woul would d
liquid d assets assets were were in T\V T\V A warr warrant ants. s. m y liqui
tIl( tIl('' tholl thollgh ghtt
profit profit,,
on Nov Novem emhe herr
at 12th. Ever Every y
to
at 12th on
at my my comm comman and. d.
that that the the warr warran ants ts
and double double my, monev monev.." My orde orderr was was exec execut uted ed 011the 011the warr warran ants ts
powe powerr
The The
an orde orderr
~pJlI1 ~pJlI1lY lY other other stocks stocks and buy more more 1"'" A warr warran ants ts
hte hte in Oct Octob ober er,, wlWl wlWlll tlw price price reac reachp! hp!ll 13. By then then TWA TWA w~rnmt w~rnmt~ ~ hildlH hildlH'rn 'rnme me one of the most most ilf'ti ilf'tivel vely y In1(1( In1(1('(1 '(1 iSSl1e iSSl1ess
hecal1 hecal1sp. sp. of the the lSond lSond paper paper
and and plac placed ed
I wou would ld
at
them them have have
did did not not hother hother
to mai maint ntai ain n
my long long
lOOt?{,
po<;il po<;iliol iolll llill illli lill
"\lO F I'!' INH NH lll\ l\l
!\10 N T IIS
l l nllr-r
[ h:nl h:nl :1 larg larg(' (' prof profit it or:l or:l
100,,! 0,,!,' ,'
'1'lwory '1'lwory sell
stg~\
I r rcd. 'I'hr-n h r-n th(' th(' slo( slo(ll llp; p;nl nlel el WClI WClItt inl inl o fl p:mi p:miee whr-u President Kf'l1Jwdy Kf'l1Jwdy was ;Jss~ssin: ;Jss~ssin:lt('d lt('d ill N(l\'C'l N(l\'C'lllIJP llIJPr. r. T W:1Sshocked W:1Sshocked anti
11;J ()('el ell
",nrri ",nrri('( ('(L L lik(~ lik(~ oll)(' oll)('r. r. investo investors, rs, B"t T did not ('OIls ('OIlside iderr selli selling ng on! ll('c: ll('c:lIl lIls(~ s(~ 1 \\,:l \\,:lS S dpter dpter1l1 1l1il ilH'd H'd to wait wait for a sell signal signal.. I alsO ' knew knew [rom [rom mv rese: rese:Hc Hch h Ihal Ihal a sll slldd ddel elll shoc shock k h"rl h"rl1H 1H'v 'vcr cr hcm .t ahk
10 ('lid ('lid a J,1l11 J,1l11mar markC' kC'!!- dllri dllrinf' nf':
\VIH'lI \VIH'lI lho panic panic ended ended
ill'; np :l~~ai :l~~ain, n, '1'\V1\ \ V1\ warran warrants ts nlld nlld I,e( I,e(': ':ll lll] l](' (' Ille Ille seco second nd
tl)(' tl)(' Insl Insl twellt twelltv-t v-two wo
nnrl Ille stock market
yelU1~
moy"~
sl:nled
nlso nlso rcsll rcslllll lll('d ('d
the npwnrt] mov~ issl isslle le Oil Oil the American'
most most ndiv ndivcc
Stor'k K'I·h:mge. K'I·h:mge. Oil .l:lll .l:llllla llary ry 18, Hl(l/! T solrl all/ all/lw lw
T\V; T\V;\\
warr warran anls ls
al 17% ~
(':1lIS" (':1lIS" Tfell Ih:1! tl w 111111 market market \\,:IS \\,:IS approa approachi ching ng nil import important ant climax climax of specll speclllat lativp ivp ar-tivit ar-tivitv v al 111:11 111:11t imc. imc. ThaI ThaI ide:\ ide:\ was c o rf n'd. n'd. for for manv manv fast fast movi moving ng'' sloc slocks ksma made de Ihoi Ihoirr high highss aroun~ J:1111ln1'y J:1111ln1'ylS. lS. High flVHS like Sylltex, Sylltex, SO" 1\lall 1\lallllf llfact actmin ming g
nml Dvmo Dvmo
i\T:v·l,(' i\T:v·l,('v Airlines, Airlines,
Dcnnt~: d i4
Il1dll Il1dlls1r s1rips ips t(~ppp t(~pppd d 0111and
no! approach approach lioso o highs highs agai again n d"ri d"rill llg g tIl( tIl('' next next six six montbi~ t lios j'lf! s~dr of T\VA warran warrants ts W:1S a mist mistake ake.. Aftrr Aftrr declin declinin~ in~ g,,1 my s~dr to lG, thov thov s{:l s{:lr(l r(l·d ·d ri<; ri<;in ing g agai again n to fina finall lly y renc rench h a high high of 3()W :1!Jont :1!Jont six '111on1h<; lnl<'r. r. ;rh~ Airlin« gro;l gro;lp p was was [ust [ust 100
s trO i il
In lop 0111in Jnll11:nv. 1<:"('11!!Jn11f, !Jn11f,:h, :h, m:HIf' m:HIf' many many slnnfi slnnfia1. a1. From From Ill" Ill" nrigin nrigin:d :d ranis ranis rosc rosc 7w;r, whilrwhilr- II)('l II)('ld d
. , mi<;!: mi<;!:t!, t!,ps, ps, mv proril proril was S U li) 1
p11rc! p11rc!J;r J;r<;( <;('p1'j 'p1'j(·p (·p or 10, T\VA T\VA wai~ thr-m thr-m l\lv l\lv profit profit 011Ihal 011Ihal parlic parliculr ulrii' ii'~
tr:1(I( tr:1(I('' wns over I Sf)";", 1Ir('n11Sr 1Ir('n11Sr T wn<; lradin!( lradin!( llmv llmv(' ('VI VI'{ '{
nile nile <;honl <;honld d no! phec phec
nil S O ''?{, mflr~
Ion Ion I11ll I11llch ch impo import rtan ance ce
on
thI th I
j"P<;111fs nl any any nur: nur: l1' l1'n< n<1p 1p.. The The happf happf'l 'll< l<;; In Ihe Ihe lota lotall net net valu valuee
prim primee rons ronsid ider er:l :lti tion on is wh~~ of :1 persoll's persoll's nce(1l11ll. nce(1l11ll. S t o c ; 1 j l
Im,!
1)~11: 1)~11:1I1 1I1C(' C(' or tll(' :1('('011111 :1('('011111..
10 it n<;thr n<;thr
('redi ('redi!!
Tlw Tlw Th11 Th11er er Tllf' Tllf'orv orv had had provi provide ded d mr- to Inkr n('ln: n('ln:d d
(':lsh (':lsh p1'ofl p1'oflls ls which which
Ihf' Ihf' gllid gllidnn nnl'(' Ihal helpCll helpCll in('J" in('J"('n ('n<;p <;pclIll clIll(' (' InIal InIal ~
vnlll vnlllee of mv neeo neeo11 11nl nl 1Iy 100 100% % in thc thc lour lour mout mouth h
peri period od
rr ~
Sepl Seplrl rlll llhe herr
17
[r )
1'1l0F 1l0FlT
IN FOIIH
l\f \f(lN lN T IISI/17
l:lllll:l1Y 1:~. I n <;hOlf. T h:ld dOlll,krl dOlll,krl
1111111\
moucv with llO losses. losses. Anothor inl('f inl('f"(' "('slilll s lilll(( rnd is Ihnl Ihnl pvcry pvcry sloe!' sloe!' T pllrck pllrckr<; r<;ed ed in was <;ol <;old d al :l prof profit it.. The The onlv onlv rr-a rr-aso sou u I h:ld h:ld hprn hprn ahll ahll'' to l!)(.n was avoid avoid lo,<;p lo,<;pss 'vas h('I': h('I':III III<;r <;r (If mv el)lln el)llnclP clPl)( l)('C 'C in flIP flIP l ln llr-r
T h e o rv .
'
Il ad 11Isl' 11Isl'r!<;I. r !<;I.np np foss orcl orcll'r l'rs. s. 1 would would have have !H'1'1 !H'1'1lsf lsfoppr opprd d (l1]t (l1]t nt Jr';)sl ,Im'(' ,Im'(' 11111(', 11111(',dllrimr, dllrimr, Hl(n, :1I1d :1I1d mv Ir:ldf Ir:ldf'<; '<; miphl miphl 1J;IVP 1J;IVP show shown n n lwl lnss lnss for Ill(' Ill(' vr-nr. I hnvo l'lOl! l'lOl!Jil Jilll( ll( ngai;I. ngai;I.<;t <;t ,lop ,lop not liko liko 10 I1r I1r sto stopp pped ed out out with with a IllSS dllrin~~ 1 do not re:1('fiol re:1('fioll. l. T do not lise stop stop onlrr onlrrss vr-r vr-rv v often often hchccause J Ihink Ihink T 11:1\" 11:1\"rr sOllwt sOllwtlti lting ng Iwlter Iwlter--I --Ihe he "alfe1 "alfe1'' Theory Theory.. Tt was a snti.< snti.<;fn ;fncli clion on to know tfla tflatt 1 Iwcl Iwcl ohta ohtain ined ed hrVf hrVf'' prof profit itss hv foll follow owin ing g 111) 111)'the 'thenr nry y and and the' the' ic1p; ic1p;l' l';; whi( whi(,h ,h T ha~l ha~l ~cve ~cvel( l()p )prd rd all all hv myse myself lf.. TIl( TIl('' venture venture had had he(' he('n n prri prrilo loll llss al times, times, hTlI hTlI Ilw TTnllP TTnllPl' l' Theo Theory ry llacl llacl hc1pcc hc1pcc1ll 1ll1c 1c 10 STlrvi\'r STlrvi\'r Ihr orders,
11II~
Ittcmpornrv
larg largee react reactio ions ns whic which h migh mighll hflv hflvee heen heen disf disfls lsfr frol ollS lS.. had 1101p 1101pni nirl rl nlfell nlfell!i !iol olll 10 anyon anyone' e'ss advi advicc cc nr opin opinio ion. n. nor nor J had \VA had had 1 he;m he;mll PI' PI' anvo anvonr nr-- rcco rccomm mmen endi ding ng Ille Ille pllrc pllrclt ltas asee of T\VA warran warrants. ts.
In fOd, , h:ld h:ld neve neverr
hoar hoard d
of T\V T\V A wnrrnnts nnl il
my slrcn, slrcn,glh glh slmlic slmlicss
hroll~ hroll~~hl ~hl tl1P11 tl1P111to 1to my atte attent ntio ion n in HlG1. Yon arc l1llfloTl l1llfloTlhf('rl hf('rllv lv 'vvOll(!Pri 'vvOll(!Pring ng how 'my slTf'nrr,lh nrr,lh sln,ljcs sln,ljcs
can uncovor uncovorsto stoolc olcss
devote ('on.s ('on.sidf idf'rn 'rnhle hle
which which
conll conllll Iweo1T Iweo1Tw w hi~~h hi~~h fivers fivers.. So 1 will will I'nrt If of this time, time, in I'nrt to a rlf'\aikd rlf'\aikd
explnl explnlla la/iO /iOll ll of 111f'1llf'I 111f'1llf'Ihod hod T dflvc1 dflvc1o!w o!wd d the slronge slrongest st
stocks stocks in fhf' marke market. t.
il 0 0 " ',
In llelp llelp me idenli idenlifv fv
WHAT
CHAPTER
'''fIA ' fIAT T
ABOUT BOUT
14
TIlE TIlE
FIJT FIJTIT ITRE RE??
I havp havp pff~se pff~sellt lltf'd f'd tlw tlw story story of how how thp Hnller Hnller Theory Theory has work worked ed in the the past past,, in theo theore reti tica call resu result lts, s, and and in adun adunll lise lise.. The adunl, adunl, n~alli n~allife fe exampl examples es were were more more profltahl profltahlee than than most most of the ,1wor{'ticf11trades. N O'\' it is time time for yOIl to wonde wonderr how the theory theory will will work in the the future. future. I wondm wondmed ed th(' th(' same thing thing about about five five years years ago. ago. It was grntif grntifyin ying g to s('e the the theory theory ::wcur ::wcurate ately ly idf'nl idf'nlify ify every every majo majorr turn turn of the the mark market et,, as it hap happe pene ned, d, duri during ng thos thosee five five years. The The hig hig qnes qnesti tion on is, is, "Ho "How w long long can can the the Hall Haller er Theo Theory ry go on calling calling every turn with(mt with(mt a mistake?" mistake?" must be realis realistic tic when when we try to pred predict ict how accurate accurate W« must the huy nnd sdl signn signn Is will will he in the Future. To get the right answer answers, s, it is necess necessnry nry to get down to hnsio hnsio truth truth ancllo ancllogic gic.. The onlv nhsoll nhsolllte lte certai certainti nties es in our world world nre in scient scientifi ificc fields fields rov~ rov~nxl nxl hy the the lwtmnlla lwtmnllaws ws of phys physir' ir's, s, chemis chemistry try and matlwm matlwmflt fltics ics.. For inst:l inst:l1lc 1lcf\ f\ when a perso person n jllmps jllmps from from an airplane, plane, he can he certai certain n thnt thnt he will lie ]Jul1f'd ]Jul1f'd down down 10 earth hy the force of gravi gravity. ty. \Vf' \Vf' can he certfl certflin in that that every every molemolecule cule of water water r-onta r-ontains ins two atoms atoms of hydr hydroge ogen n amI one atom atom of oxygen. We ran he certnin certnin that that fon~ fon~ plus [our will always always equal equal eight. eight. V\Te V\Tecan he sure sure that that malllP malllPmat matica ical, l, physic physical al anrl anrl chemica chemica 1reactions will cOlltin11eto cOlltin11eto he the same in the Future. In tl1f~stock stock market market there there can he no sure thing, thing, for it is a 14 8
AHmn'
nm
FFTInm?
149
man-ma man-made de Instif Instif ut ion, motiva motivated ted by human human action action,, anrl anrl snl» snl» jpd jpd to fluct fluctuat uating ing condit condition ions. s. Sinc~ Sinc~ tlw stock stock market market is not gove11 gove11led led bv th(' natur natural al laws laws of scien science, ce, its actions actions can not he anal analyze yzed d or pred predidc idcd d with with certai certainty nty,, If a person person demand demandss ahsolu ahsolute te gunran gunrantcl tcl's 's when when invest investing ing in the the stock stock market, market, he is not not hein heing g real realis isti tic, c, for for there there can can only only be proh prohah ahll llit itie ies, s, not not ('('rIa ('('rIa intil'S. To conti continue nue being being realis realistic tic and lruthfu lruthfu], ], it must must be pointe pointed d ou! that that future future accura accuracy cy of the the Haller Haller Theory Theory is in the the realm realm of probab probabili ilitie ties. s. It has workr«] workr«] well in the past, past, and I heliev helievee there there is a proh prohahi ahilit lity y that that it will will work work well in the future. future. Hut there there can he no gl1~rn gl1~rnnte nteee that that any stock stock market market theorv theorv will will work ork as well well in the the futu future re as as it did did in in the the past. ast. ' A good good record record of per perfo form rman ance ce can can not not guar guaran ante teee a good good futu future re perf perfor orma manc nce, e, hut hut a poor poor past past perf perfor orma manc nce, e, on the the othe otherr hand hand,, woul would d make make good good futu future re perf perfor orma manc ncee impr improh oh-ahle ahle.. Ther Theree is a prob probab abil ilit ity y that that a meth method od whic which h has has proproduce duce(l (l good good resu result ltss in the the past past will will produ produce ce bett better er futu future re resu result ltss than than a met metho hod d whic which h prod produc uced ed poor poor resu result ltss in the the past. When When a person person starts starts on an automob automobile ile trip, trip, there there is no cercertainty tainty that that he will will reach reach his desti destinat nation ion alive. alive. When a person start~ start~ walki walking ng across across a busy street street,, there there is no gnara gnarantl ntl'c 'c that that lle WIll WIll snfely snfely reach reach the other other side. side. There There are elemen elements ts of risk risk in all all phases phases of am lives. lives. only a few of \"hich \"hich can he entire entirely ly eliminated. Those Those are the fnds with with whiC'h whiC'h we must live, live, and i~is IIpto us to do the hest hest we can with with the the unce uncert rtai aint ntie iess of 0111 0111''ene nviro vironm nmen ent. t. As int intel elli lige gent nt huma human n bein beings gs,, we should should take take measur measures es to minim minimize ize the risks risks with which which we are confront confronted. ed. The The inte intell llig igen entt driv driver er has has deve develo lope ped d driv drivin ing g habi habits ts and and ~Pthod ~Pthod~ ~ which which reduce reduce the risks he m11Stface m11Stface.. By followi following ng his his hahit hahitss nnr] nnr] met metho hods ds,, he increa increase sess the the proh prohah ahil ilit itie iess of R safe safe jour journe ney. y. The The caut cautio ions ns pede pedest stri rian an has has deve develo lope ped d a
l'lTTlTl1E?
WHAT AB0I1T 'n ' nlE
crossin ing g a hlls hlls)' )' .'lrpl l rpl'1 '1.. Sllc Sllch h fnr rpr]llf'illg r!Jp risk of cross !Jnzarr1s, hut they I'an not comp compkt ktph' ph' c)jm c)jmin inat atrr fhr fhr !Jnzarr1s, inerpasf' ,1l(' prnlwhililips of safely reaclJing reaclJing a (Jr.s!in:ltion, ]'v ly wn v of minimizing tllP risk minimizing riskss in tl]( tl]('' slock slock mark market et was was [n 'liP TTaJlpr TTaJlpr Tlv-orv. Alt11011gli 111(' risks dovelop 'liP risks can nol 1)(' elim innlpd. 'lw Ihpop' 1I<'11's to increase the prohahilit prohahility y or llwlhnd
mf'lhorls
safely rp:1l'!Jin).'; my ohj(·(,ti\'p, DlII'inf~ f1lP twr-nlv-rwo
]nlllwIT, lD(H, accuTIlcy-fl
h ".
if
war
period from J,l1l11nry,
to cXJ)Pct:l
is \visp to mnin mnintn tnin in
HH2 to
Futuro Futuro
and and w~npr w~nprol olJS JS wlwu wlwu
RT
II
fanla1di(-, fanla1di(-, T 1Jf'lieve 1Jf'lieve it woulr] rCf'onl rCf'onl
of g!')n{, [lecl1r[ley.
n r-onservativo pxpe pxperfn rfnne ney y
T
of £ 1 1 -
Imp rpsl11l". When f wns a hllilding contra contracto ctor. r. T found it was when esti estima mali ling ng potc potcnl nlhl hl1 1 ,\ good good polic policy y 1o hp r-onsr-rvnt iv« when prof profit its, s,
PA
Thf'Ory achievr«] a rrconl of 100'?;,
P'" ICnn;H)('f' ",hi(,h is
rnorr- rp::llislic
tUnk
III(' TTallpr
esti estim: m:Jl Jlin ing g
plTl plTlen enli lial al
eosl eosls. s.
"rrIE S'rRONGEST'
INTRODUCTION
The The Slro Slronw nw's 'stt Stoc Stock k Conc Concep eptt is an intere interest stin ing g subj subjec ect, t, worthy worthy of extf'llsivf' llsivf' discussion discussion.. Ihad planned planned fa write write a sepaseparate rate hook hook ahout ahout it, hut hut after after some some seriou seriouss consid considera eratio tion, n, I decide decided d to inclu include de in this this hook a conden condensed sed summar summary y of the the Strongest Stock Concept. . Ifelt it was importa important nt to avoid avoid delay in tf'lJing l Jing you ahout ahout fhis fhis concept concept lwcnll lwcnll.se .se tlwr tlwree is a chance chance that that a knowle knowledge dge of how to idf'lIl idf'lIlify ify the stronges strongestt stocks stocks might possib possibly ly help help yOll to mnke some Inr,ge profits. profits. If yOll yOll have have traded traded ill the the stock stock market market for all) all)'' If'ngt If'ngth h of time, time, you know that that one good idea cOl1ldhe cOl1ldhe worll1 thonsnnds thonsnnds of dollars. dollars. There There is also also a possi possihil hilily ily that that one or more more of the l1J1IlS1W l1J1IlS1Wll ideas prcsenlpd prcsenlpd hen~ in ParI IT might might help help )'011 )'011 10 avoid Inrge losses. One Iiflk~ Iiflk~ mistak mistakee in tl)(' tl)(' slock slock market market can cost cost thouthousands of clollnrs. clollnrs. Therefore, Therefore, T will will reveal reveal some some of my idea ideass and mistake mistakess in conne connecti ction on with with the stronges strongestt stocks stocks.. Ihave have userl userl fhl' fhl' Stronges Strongestt Stock Stock Concep Conceptt ill comhi comhinat nation ion with with tllf:'Hall tllf:'Haller er Theorv Theorv,, and it worked worked nicely nicely.. Since Since the two metllO metllOds ds worked worked so w~lI w~lI toge togethe ther, r, it is approp appropria riate te to discuss discuss them them hoth hoth in the the same same hook. hook.
153
THE S'rnONGFBT STOCKS
and and e\!p e\!pn n high high qual qualit ity y
CHAPTER
THE STR() STR()NC NCE, E,ST ST
For whic which h r-onrs r-onrsee Stor Stork k
1 STO STOCKS CKS
spvera spverall yeilr. yeilr.~ ~ T Iwd notic noticrd rd a remn remnrkn rknlil lilee phenom phenomeno enon n or-on or-onrr rred ed rlC' rlC'gnl gnlml mly y in thl': stoc stock k mark market et.. Duri During ng the the New York of fI yenr yenr,, the 2,5(l() stocks stocks trfldf trfldf'd 'd on tlll' tlll': New Exch Exchan angp. gp. and and the the Amer Americ ican an Stoc Stock k Exch Exchan ange ge wonl wonld d
experi experienc encee difll' difll'rf'nt r f'nt kimh kimh of price price movements, WllPTl WllPTl a hull hull market market was in progres progress, s, ahon! ahon! (l!)% to 7!)% of the stocks stocks fHlvnn fHlvnnccd ccd.. Ahrmt 15% to 25']1' declin declined. ed. find find ;Ibout 10% rernninrrernninr-d d lmdHmgcd. lmdHmgcd. th(>stocks ks which which nrlvnnc nrlvnnced ed in price, price, the major majority ity usually usually OF th(>stoc adv: adv:mc mcpr pr!! less less thnn thnn 80% 80% ill ill n yea year. r. Only Only a small small numb number er of stocks stocks flrlvn flrlvnncp ncpd d more more thnn thnn 100%. 100%. Tlw Tlw [r-w [r-w higl higlll flyprs flyprs whkh whkh fldvflll('P fldvflll('Pr] r] more than 9.00% ronlrJ ronlrJ nsuall nsuallv v hf' cOlln cOlln!pd !pd on the fingfl fingflrs rs of nnp lnmd. Snnwli SnnwliTll Tllc.s c.s nne or Iwo slocks slocks wonld wonld rise rise man' t hnn hnn 500% 500% in fl vnnr. ant ant of the the 2/)00 Sf(ll'!
in this this conn! conn!ry ry.. ••
on lllf' lllf' two mnjor ('n·hflnl~ps only only a few few hppn hppnme me hi~rh hi~rh f!veTS. Those Those few ••
."'1
,.
stocks stocks will will he rememhe rememhercc rccll for many many )'cRr~ for thc:ir thc:ir nlll::lz nlll::lzing ing perfnr perfnrrnnn rnnnces ces.. Some Some investo investors rs made made [ortrm [ortrmr-s r-s hy hl1yin hl1ying g outoutstfm stfmdi ding ng stoc stocks ks like like Tlii Tliiok oko] o],, Amer Americ ican an Moto Motors rs,, Texa Texass Instrnrn strnrnont onts, s, Pohroi Pohroid d nnr1 nnr1 Brunswick,
A t first first I W;lS nfmid nfmid to ("'PI! cons conskl kler er lmyi lmying ng fl high high flye flyerr because T thOl thOllg lght ht that that a stoc stock k whic which h went went IIpmpirllv mpirllv could also also go down down rapi rapidl dly. y. TIH' TIH'n n I disco discove vere red d that that the the low low flye flyers rs,, 154
grow growth th
stoc stocks ks,,
coul could d
15 5 also also go down down
ra 1'irll)'. The The risk risk of loss loss exis existe ted d rega regard rdle less ss.. of which which stoc stock k was was bough bought. t. So J figure figurerl rl that that if the the risk coulcfn coulcfnot ot he elimina eliminated ted,, why should should T stra strain in my hrai hrain n musc muscle less tryi trying ng to mak makee a ~O % profit profit wlien wlien T m ig ig ht ht tr y f or or a 100% prof profit it with with the the same same amount amount of brain brain fnlign fnligne? e? The The risk risk in the st<~ st<~ckma ckmark rket et is so so grea greatt that that one one migh mightt he jnsli jnslifim fimll ill ill tryi trying ng for tlw tlw larges largestt possib possible le profit profit in an attempt attempt to ohtain ohtain adf'ql adf'qllil lilte te oornpe oornpensa nsatlo tlon n for taki taking ng the risk. risk. I dcr-.idf'd dcr-.idf'd that T WOlJ1r1 try try to deve develo lop p a met method hod of iden identi ti-fying fying poten potenti tial al high high flye flyers rs.. I stu studi died ed the the outst outstan andi ding ng stoc stocks ks of pre previ vious ous )'f' )'f'nr nrss in an an nHf' nHf'mp mptt to disc discov over er whnt whnt they they had had thnt thnt the the othe otherr stoc stocks ks did did not not have have.. <
I noti noticf cf'd 'd thnt thnt most most of the high flye flyers rs had in~ffmsed in~ffmsed earnings ings,, hut hut so did did many many of the the othe otherr stoc stocks ks whir whir), ), neve neverr heheramp ramp 11i~hflyNS 11i~hflyNS.. Som~ of the the well known known growth growth stocks stocks even even went went into into Inrge Inrge declin declinps ps despit despitee their their incrc: incrc::Js :Jsed ed earnings earnings.. My conc conclu lusi sion on was was that that incr increa ease sed d earn earnin ings gs was was an impor importa tant nt fact factor or,, Imt Imt it was was not the most impo import rtan antt clta cltarn rnct cter eris isti ticc of
the high flyers. flyers. I discov discovere ered d
that that there there was one 01Jtst 01Jtst~~l ~~ldin ding g char~c char~ct~r t~rist istic ic
possessed only hy ihe high {IJ:~rs.}!w.a~!he unusuallylarge exte extent nt of thei theirr incr increa ease se in prie prien. n. The The high flye flyers rs move moved d npnpwarrl warrl nmf' nmf'h h f;nl f;nlhe herr and and Iast Iaster er than than the the othe otherr .sto .stock ckS. S. A sto stock ck hppamA o111shmdill o111shmdillg' g' on 11'when when it demo demons nstr trat ater erll its its n hility to outperform thE') other stocks. ' While While pnnmin pnnming g that that line line of tltin tltinkin king, g, T kept kept in min mind d that that tJw hasirhasir- force force infhlP infhlPnci ncin~ n~ Ihe advance advance or df>clin df>clinee of n stoc stock k is the the supp supply ly and and dema demand nd for for that that stoc stock. k. If the the supp supply ly is grcn grcnte terr than than thf' thf' riema riemann. nn. a stoc stock k will will go down down.. If the the dedem an an d is g re rea te ter th an an th e su pp pp ly ly , a s la la ck ck wi llll g o " 1" 1" A cons consis iste tent nt incr increa ease se in net net dema demand nd will will be indi indica cate ted d by a consis consisten tentt rise rise in tIle tIle price price of n stoc stock. k.
156
STnONGF.c;T .c;T 'J1m STnONGF
TIm STnoNGF,ST STorKS
demand nd If tho tho nd dema
for for nTH' pari icular ~Io(·k ~Io(·k is eons;stPIlI ly greate greaterr than than t]](' t]](' net net (1fmlf (1fmlfl!H l!Hllfor any other other stm-k, stm-k, that parparticula ticularr srock srock will go up farther farther than than ::my other stock. stock. TIJPn~ TIJPn~-fore, fore, one can r-valu r-valunte nte tlw l"f,ln!ive l"f,ln!ive rlomand rlomand for di1fPrf'n di1fPrf'ntt stocks stocks hy {~ompa {~omparin ring g the pricf' pricf' change changess of t!Jose t!Jose stor-k stor-ks, s, The stocks stocks which experi experienc encee the grcalrs grcalrstt increa increase se in price price are the strongest strongest stocks stocks in the market. J lJ,"'!ievethe strongest chance of makin stocks have the best chance making g the largest largest gains. gains. To disc discov over er whic which h stoc stocks ks wen~ wen~ tllP tllP stro strong nges estt :1ml :1ml were were mo"";ing mo"";ing Il!wmrcl Il!wmrcl larther larther and faster faster th:1n the the otIH>rs, otIH>rs, Icompare pared d the perce percent ntaa e of .-ic .-icp p incr increa ease se of many many iHft iHft'e 'ere rent nt s oc s in a sped sped rc tim timee peri period od.. The The lime lime ppri pprioc oc can can vary vary acconlinl! acconlinl! to the wishes of tll(~ wrson wrson mflking mflking thp com rnrison. rnrison. ne p~'rson mig It wish 10 use use a t iree iree or' or' onr onr mont month h comcom•u:t=is •u:t=ison on pnio(l, pnio(l, while anotlwr pNson might prder a six month month period period of comparison comparison.. 11 1 prdere prderence nce is for a minimu minimum m comcompar!son par!son pcriod pcriod of six six months. months. YVlwn YVlwn I select selected ed T\VA T\VA warran warrant's t's as one of tlw strong strongest est issues issues in Ihe market, market, J was nsing nsing a cnmnl cnmnlati ative ve time time period period which which st;lrf st;lrfed ed on J arumrv n. 19():1, and PllCI( PllCI('cl 'clon on the seflreh n>seflreh..
STOCKS STOCKS
1'1111 down With With the the two two newspa newspape pers rs in fron frontt of me, me, ! down the list list of sfoc sfock k prices prices,, mnking mnking rnpid rnpid mental mental caloul caloulati ations ons of tTle tTle a 1)roxim )roximate ate wrcent wrcentage age of the the price price chan e of of eve eve r in which T nm int('rpsfPr!. \V If'T If'Tll spe spe a stoe stoe with with a l~rg l~rgee pric pricee increase, T pIll it on my list. . , check about Coin Coing g thro throug ugh h Ihe Ihe pnpe pnpef1 f1ha hatt way, way, I check about 1,000 1,000 slocks. slocks. When J fini finish sh,, I go go hack hack thro throug ugh h the the list list with with my slide slide rule, rule, Tllnki Tllnking ng aocnr aocnrate ate calcul calculati ations ons of the perc(' perc('ntnge n tnge pricf' pricf' increases. increases. ,!::,inn1Jy ,!::,inn1Jy,,T r('a r('arm rmng ngee my Jist Jist,, putti putting ng the the ~ITon~pst slacks fit the tgp. . On my list list of stronges strongestt stocks stocks ).' ;I do not includ inc..lude e stQcks stQ cks seJ)seJ);L .. .._"" .. .. ,. . .... • in under the the rric rricee of $10. $10. rer rer shar sh,.-.--,.~ aree beca becaus usee I fw'l thflr-such ow riee rieed d stoc stocks ks are are less less ue one one n ) a in )crfnrmnn )crfnrmnnce ce f ran 1 ] ( ' higher higher prie('( prie('( stoc stoc s. When llsing llsing m y strength strength studies, studies, m y policy policy is to. avoid avoid or 1211 1211stocks stocks whkh are suspend suspended ed or dclis dclisteu teu from from tradin trading> g> oir' oir' lhe exchang exchange. e. 1 preff' preff'r also also to avoid avoid or sell stocks stocks in which whic _ - . _ .h _--
.-,-
•
r
. . .
-"-'"
.
-
-
.0/.__ ......... .. ........•• _ .. ,
-_.....
stor-k stor-k Townrxl.
In Marc-h, Marc-h, 10R] T h:1rl :J long long positi position on in Bruns Brunswic wick. k. which which was one of the 1)('sfhigh 1)('sfhigh flyers flyers at at that that time. time. Stop Stop onlf'r onlf'rss were were harmed harmed in Brrmxw Brrmxwick ick sliort sliort lv after after it rcache rcache~l ~l its lligh8 lligh8st st .....• -'
Till':
STI10NCEST
THE STHONGF$T
STOCKS
price, price, whil·h whil·h was 74~/R. I sold sold Hrunswi Hrunswick ck the next next mornin morning g at 70, hecallsf~ hecallsf~ of tlw han. Tt inllnecliat inllnecliately ely stnrtecl stnrtecl a large decline decline which which 11fIs 11fIsoon oontin tinued ued fnr three three vcnrs. vcnrs. As 1 write write this, this, HmnsHmnswick sells nt 9. . Now yon mighl say say "Jus "Justt a minut minute, e, A hnn hnn on slop slop loss loss orde orders rs can can not not chnn chnnge ge the the trend trend of a sto stock ck"" My repl reply y is that that Oll are ahsolu ahsolutel telv v.' correc correct. t. The only only thlnz flwt. can can chan!!e chan!("., !e Y the the tren trend d of a stoc stock k is the the hn [nnr-e of tIll' tIll' supply supply and dplmmd dplmmd \~
for that stock. stock. A ban on stop orrler orrlerx x is :111Indica Indicatio tion n 10 mr- thnt thnt a high flyer flyer has rpndwd rpndwd tlw poin pointt whpre whpre its actio action n is domina dominated ted hy excess excessive ive specul speculati ation. on. That That frecJl frecJlJ(' J('ntly n tly turns 011t 011t to he the best time to sell sell a high high Over, for such such hectiC' specllbtiv specllbtiv(' (' aotivaotivity ity somet sometim imes es indi indica cate tess the the lop lop of the the move move for for n sfo sfoek ek and and the time to take contrary contrary nr-ti nr-tion. on. Althong Althongh h a l1a11 l1a11on stop orders ders does does not always always indica indicate te a good good time to sell, sell, it sometimes cOEl.esanwz cOEl.esanwzingly ingly close to the the exact top. HKn was Syntex. The most ontstan ontstandin ding g high high Oyer Oyer of HKn Syntex. The Americ American an Stock Stock Exch:: Exch::1ll 1llW~ W~banned banned stop stop orders orders in odd lots lots of Svntex OJ) Or-roher Or-roher 2:1, lO(n (The (The ASF ASF hns hns not not perm permil iltp tpd d stop stop orders orders in rnunr] lots lots of ::lnystock since since 19m.) That That did not turn turn nut to he a good timo to sp11,for sp11,for tllP stop stopk k contin continued ued going going 11r strong strongly. ly. Thnt Thnt han was rpscinc rpscinclec lecll on Decemh Decemher er 2,
190:1. The highes highestt price price H~ac'l H~ac'lwcl wclhy hy Svntex Svntex was 1D01/2, recorded on [annnrv l!'5 , lOG4.The nexl clny, on Jml11arv Jml11arv 16, stop orclors orclors in oclrl oclrl lots lots of Svnt Svntex ex were were harm harmed ed apli aplin. n. Then Then the the stoc stock k droppe dropped d like like n 1101ll11. EIght EIght weeks weeks later later Syntpx Syntpx was spl1in spl1ing g at 73, whic which h was rnor« rnor« than n r,n o -t" (/Pclinp (/Pclinp from its high. Here Here is a list list of stoc stocks ks in w1Jk w1Jkh h stor stor orde orders rs were were sussuspended pended 0n the the New York Stock Stock Exchang Exchangee dming dming the last five five ye::lr ye::lrs. s. The han heC'nm heC'nmee ('fT('c ('fT('ctiv tivee at the openin opening g on the date date shown.
STOP T Sep'
('m1)!'r
.oss
ORDER ORDER
STOCKS STOCKS
159
SUSPEN SUSPENSIO SIONS NS
8, 1f)~R 1f)~R
May 7, Hl!)9
Octobe Octoberr 2,9, 2,9, ]gr)!J Novemb November er 6, 1m)!} Fehrua Fehruarv rv [,5, [,5, In()O ~'f arch 1 1 , 1960 Jnn(' 21, H)()O H)()O
;\ugust 11. !9RO !9RO August August ,QO,1960 Augnst Augnst ~1, 19m Jannary
20, 1961
March 9,1961 May May 9, 19m Fohrua Fohruary ry 21, 190.' 190.'3 Septem September ber 9, 19f1,' 19f1,'3 Apri Aprill 27, 27, 10M 10M
1'1](' 1'1](' lnst lnst strengt strength h study study T made made before before buying buying TWA warwarrants rants was on Septe Septemhe mherr 1.5,1963, 1.5,1963, It It covered covered a perio period d of nine nine and and a hal halff mont months hs.. That That stud study, y, and and seve severa rall othe others rs are are prepresented sented here. here. ns examp examples les..
THl':
TTlT': STHONCfo:ST STOCKS
Trm
On
J
f!m !m H lry ry
..
-
Chrysler Allq~ha Allq~hany ny Corp. Corp. Colmnhifl Pid1Tres Motor Motor Wheel Wheel
Tllis p:nfieular on the Alllcr Alllcricn icnn n
On Marc March h
1, 196.'3
Pric Pric(' (' On Jll1y L 1902 Soo J .ine Hailroad U. S. Sm('lting Sm('lting Nationa 1 Airlir-es Internafion Internafional al Pack('rs Pack('rs Delti! Air T,ines
THE STRONGE.':T STOCKS
STOCKS
STI\ONGFSr
Pric Price e On Jan. l.l
STTIONGKC;T STOCKS
17, 17, 196.'3 196.'3
Pric rice On Price rice On Sept, 16, 1962, March 17, 19(jf1
Gain
-_ ._ -" ~ _ ._ -
,,)1 /2
24 ]:1 9%
:1~W 2 4 :1 V 4 71/R H%
]1
11 % 49 2 -1 % 177JR 00 7:1% 11 % 2:1% 17
] 1 4'1 0 104% 91 % R5%
79% 70 % S S '7o 50 % f);)~~
strC'ngth study does not ilwlll(ln ilwlll(ln any stocks Stock Stock Exchan Exchange. ge.
50(1 Linn Ilailrond Ilailrond U. S. STnf~ltin~ e Monon Rni]road Rni]road "D" Chrysler Shalrmoon Austin Austin Nirhoh Nirhoh
Metromerlln
Pan American American \V. Airwavs Airwavs 1,VA Common
5% 3G % 5%
14 % 78th 12 %
56%
91 %
9V4
14 % 26 % 20 % 26 % 12 %
17 14 % 19V4
9%
%
Gain 149% 1]4% ]13% 61 % ,5 8 % 53 % 41 % :19% 25%
• Stop 10« OrclN" banned in n. S. Smelting Smelting on Fobruary Fobruary 21, 21, H1A:l. OrclN" were banned At that that
timp timp it .
Thes Theso o stur sturli lies es do 110t 110t incl includ udee a 11 of the stocks on t11(' New York Stock EXC'\l American Stock Exchnnge heEXC'\lnng nngee and the American cause J only only watr-h watr-h about 1,000 1,000 of them. Tllf'Te were 11ndOllhterlly other other strong strong stocks stocks which which I did not notice. notice.
162
TIm
STHONGEST STOCKS
TIfF.
Sl1l0NGF.<;T
On
J11IlC
Eversharp 1,V i\ Common Cenora Cenorall Motors Motors IBM
STOCKS
THE
30, 1963 1963
Price On Jrtn. 6, W63 Syntex Amr-r. Ag. Chemical Chemical M etrom cd i a Soo Line Railroad Railroad Pan Amerloan Amerloan \V. Airways Airways Chrysler Cllicago & N. W. W. R R Monon Rnilroad "Il"
TIlE STRONGF.'IT STOCKS
Price ice On June .'W, 1963
Cain
37% 24%
81 45 %
118% 88%
16%
2R%
12%
21%
76% (jg%
21%
36%
68%
38 ••
(}.'3
(l()%
14%
24 %
66%
10 26 %
16 41% J7Yz 7m~ 4.'36%
11% 59% 397
"11,,· price price of Chrysle Chryslerr Is adjus adjusted ted for the 2 for] for]
%
thpi thpirr llig lligh h quality, h1JJe strongf'st stocks. stocks. tion tion of t1m strongf'st
with with
Syntex Monon Monon Railro Railroar] ar] "H" Cont Contro roll Data Data •• T\"'A 'Warrants ]\·f ptronlPdia
37V4 10 36% ••••
4% 16%
30'A J
()O%
57 % 54% 18 % 10%
Pan American American \V. Airway Airwayss Chrysler Soo Line Railro Railroad ad Xerox ]
21% 12% R .'3 %
Ccnera Ccnera 1 Motors
59%
.•toc .•tock k split. split.
chip performance
Pric rice On J a n . 6, 1963
'Vestern 'Vestern Air Lines Lines Chicago & N. W. H. H. T\VA Common Common
IBM
GC1H'ra1 Motors Motors and IBM were includ included ed on this list list to compare pare
STRONGEST STOCKS
On September September 15, 1963 1963
the the acac-
].4% 11% .'38
397
ee"
Price ice On Sept.1 5,19R.1
137
% Gain
270%
24% 89th 10%
137%
34%
116%
64 SO 23% 42 % 7 3'A J
113% 104% 103% 9.5% 92%
23%
282%
146% 14.'5%
84%
73%
77%
30%
45.5lh
15 %
••stop ••stop loss loss orrlo orrlors rs were were harmed harmed in Contro Controll Data Data on Septem September ber 9, HlA1. At that that time time Contro Controll Data Data sold sold at 101. 101. N;;"J. N;;"J.'ri 'rice ce of March. March. j9fl3 when when Cont Contro roll Data Data was was firs firstt liste listed d on the • ee
The The price price of Chrysl Chrysler er is adjust adjusted ed for tIle stock stock split. split.
TTlF. sTnONI:vsr
III flit'
p:ls1 I did
ahso1II ahso1IIte tely ly
1!l)lllSC
rigid rigid system system
f01'n1 f01'n1:1" :1""" ""
c!l1np c!l1npari ariS!l S!lIlS IlS
mv Stroll!,," Stroll!,,"s! s!
I ]ookf'd ]ookf'd :lS a
S!ock C(Jlt('('p!
the s!rcnglh s!rcnglh
llP O ll
r .1
. ,
19G:~ I SNiollsl." SNiollsl." (,(]llSidered iJl'ying
:tlld
an
per-
h,'inging h,'inging Iho
of
l111'I11Od
:IS
':
-,
reason
It,lliC
T :d:· :d:·
''1'1.,''_
J
(i;(\
rIll' .~ImIlW'.,<;! ai"1ilH~ iSSflf~ on Illy Jist'. Twas illlprrssed I),;, tlw 01 Ih~ n irliuo ~n~n ~n~np, p, beca becaus usee [our [our of tllf' top top nine nine
strenglh
s!ock~ s!ock~ on T T : .' ,'
not
<;Dr
'h-'"
1"ne
,
T"'"'' ~,..:'c"r T
,T '-'-
1"·'·11'!..'
••......
.. . ' "
-,
,
'
[!h011' [!h011'
honght honght
lfJO'?{' on
11H~ trndr.)
r-.1ollon Hnih'oml list list of S"p S"ptf tf'm 'mhe herr
T
only
llln lllndc dc a prof profil il of
"Jf' was 'hI' 'hI' second strongest slr)('l< on my consider er huyinf'; it 1Jf'('flUSC it r did not consid
1!J. 1!J.
had hepl1 high 011 t!Jc list of strong strongest est stocks stocks (or manv manv monlhs monlhs,, and 1 IhollglJ1 i f "\'o,,ld o ,,ld not lIP ahle 10 lJiV1wr. Two lnlwll lJiV1wr. [nl er, .ronths er, Mono Monon n "H" "H" had had rise risen n :lW'~,from its prie priep p of
,,-0
SpptP11l1 ,f'r
l!". h1l1 it slipprrl
11:]('k to n ~~nin ~~nin d only only 2R'Y"'(,
JatlllnlY I~, 1\)(;4. 1\)(;4. 1was right right ahon ahontt Mono Monon n "n" Conl Conlro roll Dafn Dafn was was Ihe Ihe tllirrl slron\ slron\u's u'stt- slock slock on
!--"i','"
{1"
f
, -.
r "
113% Gain 1O~% 1O~% Gain Gain
Air Lines Lines
T\V A Common
'Pan 'Pan
Arnr-ri Arnr-rican can
Thr- nir,line nir,line yrollp
. ~
Ih;11 Ih;11 misl;1 misl;1kp, kp, hec:Hl hec:Hlse se
T\VA T\VA wnrrnnt wnrrnnt s on ;'0% ;'0% margi margin. n.
nirlino nirlino stocks, stocks,
W('I'('
,-1 .,
q:;7~ Gnin
\V. Airwavs Airwavs
<:,,11"''1 <:,,11"''1:. :.
Syntl'x Pl'l 'll Septplllhcr gainf'd '),:10 ,.,{, hdw If), If), 1D()~ nnd J:HlIl:ny 10, I9fH. O:11111:11"Y l~ was Ih,' (hIp on which which T sold sold T\VA T\VA warwarrrrnts.] T ln ln d T ])f'pll sm art enollp enollp.: .:hh to llll)' Svnt ox. InV profit wonld hnv« hnv« llCen llCen 460,]{., hnying on ;;OSf, ;;OSf, margin. margin. (\'\'hcll (\'\'hcll J For l1ln1l1hs l1ln1l1hs T fr o lt sad nhont nhont
h.sl
\V('sl('1'11
comp compan any, y, inco incorp rpor orat ated ed ill l'vr l'vrrxi rxico. co. Now, Now, ns 1100k hack,
in Pan:llJ1a, Pan:llJ1a, with 1wadqllnrlf'rs
I11V
"
hll)' Syntl"{ \Vas IJI:l! it was was a forei foreign gn T "~r'
lOS
STorKS
hy
that that it sef sef'l 'lnpd npd Iikr a good prief ef'' of 10 on TvVA warrants at a pri
was was so stro strong ng
opporll1111t opporll1111tv. v. So T honght !)W'(, lll:ngin.
'
to make m y secolld
Wlie Wlien n ] was n';ldy
1, it was nhvions nhvions
wnrru nl s at 12V? 12V? 011 Novo Novorn rnhe herr Svnt Svntox ox was was the the outstn outstnnc ncli linz nz
m arlo arlo the purr-hose,
pnrcha pnrchase se
stoc stock k of Hl6 Hl60. 0.11 11w w
of T\VA T\VA
10
nigh nightt
thnt
TTH'
lwfo lwforP rP T
T spent several several hours consi( consi(h,' h,'ril rillg lg
the rel-
al ivr- mr-ril s of Synlex Synlex and T\,VA warrants. ' T rtnnl1y rkl'ided that 1'\"1 A wnrrnnts e011ld still go up much much [nrt [nrtho hor. r.
and and
11]( 11]('v 'v shon shonk1 k1
SI~Cl,lgth SI~Cl,lgth of the nir~in('grollp, nllflm nllflmg g thry thry
mv proflf
wonl wonld d
111
hI' lwJped hv the trr-me trr-mendo ndons ns T was sold on the i<]r.n of pynlpynl-
11)[' wnrrnnts.
a n( n( l T wn wn s eOllVilH'('d Ih:lt
I~o I~o 11p to Iii Iii to donhle donhle
n ll
1 1 1 (' monov
r-ouul.
Svntr-x
ill
mv anan'
1wd ;l!rr:l(ly
~~(lIH'
np so [n r ll1nt I did did not not he1i he1ip\ p\,p ,p it
tPlllhcT
q, H)():1,Ill'~
conlrl conlrl go np much highcr. Sn T houghl houghl T\VA warrants. warrants. Twas nnrl rhev went 10 1 R flllr ' even warrants, hi~~IH'r. 1\1111 1\111 1 was was 'wro 'wrong ng aho1l aho1ltt Sv~tpx ngain. Svnl ex mad I'
hnn
rl'1llC1H]onss ga in, a11oll)('r 1 rl'1llC1H]on in, whic which h
ScplPlll!lror
pricr her her
IfJ T did not ('ons ('onsicl icler er
hllving
111V
list
of
if lwc;111sf' o n S r -p -p -
fl l'Jc\' l'Jc\'J York York Stpck Stpck F'(( (('h 'h:111f~1' imposed rJl'{krc ill Control Dnta. At tll:lI limp it ,sold :11 ;1 12',f;,'?(, ? (, [rruu Sr']1lpll1.ruuControl ]):11:1 gained onlv 12',f;,'
Oll Oll
1;; 1;; In Jmluar Jmluary y
1:), 1:), so so T W;lS W;lS right right
ill ill uo! uo! ('on ('onsi sidpl dpl'i 'ing ng
p11r('hns(' hns(' of Control Dnln in Seplf'ln11f'r. A wnrr:1llls T\V wnrr:1llls W;1StlH' Iourth str01l!!pst str01l!!pst iSSIlf' iSSIlf' on Septemlwr
'TW A Wflrrants J!J. 'TW
tho
m y list of lnokf'r lnokf'rll good to me, for it W;IS
ril~hl ril~hl aho1l1 aho1l1 t he
woul would d
ha ve hcc hccn n
exlr exlrcm cmd d
pmfi!allk TTpn' is :l stndy of tl](' tl](' s'Tongest y ea ea r o f 1D0:1. 1 t show showss of the )'par. )'par.
whic which h
stoeh
dnring
thr f'lltim
stoc stocks ks were were the the top top pE'r pE'rfo fornl rnlf' f'rs rs
v
TTiF. STnONGF.:'iT STOCKS
TRF. STftONGEST STOCK~
Tim
S'n\nNc-EsT STOCKS
IN
Year
\Vhen \Vhen I includ included ed n 11sto 11stock ckss sPll sPllin ing g unde underr $10. $10. in tl1(~ cornpnris pnrisnn nn,, TWA TWA warr warrnn nnls ls slip slippe ped d into into third third plne plnee, e, with with Mack Mackey ey Airl Airlin ines es in sec secon ond d plac place. e. MarMar-ke key y rose rose from from a pric pricee of $1. per per shar sharee to $R. per per shar sharee in 1qG~. When When I includ included ed stocks stocks sellin selling g
Cain
under under
10fn One One
Pric Price e On
J an.
0, H)W1
Syntex T\VA Wnrrants
12%
Monon Monon ]lnilroa( ]lnilroa(]] "B"
]()
1W A Common Control Control Data Dennts Denntson on Mfg. Mfg. "A"
]1%
Western estern
Pric Pric(' (' On
J ;l11. G ,
e
4%
Air Lines Lines
Xerox Pan American American '!\T. Airways Chrysler Soo Line Line Hail Hail road road U. S. Smplting Smplting Gem'ral Gem'ral Motors Motors
J!)01
12fW z 1(}%
H31)% 271)"/'.
Svntr-x
SO 32::;'
200%
T\V A Warrants
JR7% 176% ]72%
36'12 W%
JO()% !'i,'P4
30% 32,% ••
78% R 4 '1 2
J 62%
2,1% 3R ~
54 %
1:50% 120%
12% 57%
21% R8 %
R~%
IBM
39 7
79 .'1 1 8
Polaroid
147%
182V4
59%
$10 $10 .. tIl(' f'op thrf'f' high high flye flyers rs looke looked d
]GO%
70%
S3 % 32%
24%
30%
M aokev aokev
9,35% Airlines Airlines
like like this this::
f:nin
700% f:nin 27.1% 27.1% Gain
Synt Syntex ex reac reache hed d a ltigh of 1901h 1901h on Januar January y 1.5, HJA4. The trade at all next day Synt Syntex ex was was 1Ina 1Inahl hlee to open and did not trade that that day. day. Aflor Aflor fradi frading ng was was resum resumed ed in Synt Syntex ex on Jan Janna nary ry 17, 17, clcclinf'd rapidly rapidly until it reache reached d 73 on March March 10, J964 J964.. it clcclinf'd
TWA wnrrnnts reache reached d a high high of 20% 20% on on [anuarv [anuarv 14, HJ64 HJ64.. Then Then they they c1pcli c1pclined ned rapidl rapidly y until until they they reache reached d W·on W·on FehruFehruary 5, 1964. (T\VA warrants ts later later advanced advanced again again to reach reach a (T\VA warran high of :30lh on Jnly Jnly 10, 1964.) 1964.) Mackey Mackey Airlines Airlines reache reached d a high high of 8% on Januar January y ]4, 1964. 1964. Then it dediTwd rapidl rapidly y to 6 on Januar January y 27, 1964, These These top three high high flyers flyers of 1963 1963 reache reached d their their Jannar Jannary y highs highs only only
Polaroid
W:lS
some flnnnr-ia] stock.
ind1Hlpr1 ind1Hlpr1 on this list heoause, heoause, dming 19A3, writers frpq1Jpntly mentioned it as a glnmor
Soo Soo Line' Line' llail llailro road ad
and and U. S. S. Sme Smelt ltin ing g
appe appear ar
on lIre li~t of
Strong Strongest est Slocks Slocks '11 10n1 only to show show how how much much 1!J" 1!J"ir ir rela rela-tive tive strenl strenlTlh Tlh declin declined ed from where where it W:lS pnrlip pnrliprr in ]!:lR3 ]!:lR3.. At thf> thf> ~'rl(l of 19A3 T compare comparedd Ihe lwrccntrtge gains of all
flw 2,500 2,500 srocks srocks on tho NYSE and the ASK ~1y comparison of stocks stocks sp1Jing over $10. pPr share share showed showed that that Svntex was the largest warrants wns IIIP second second largpst largpst largest gainer. gainer. and T'VA warrants gain gainer er
of ]963.
0118 dn)' dn)' apart apart.. The The proxi proximi mity ty of thos thosee date datess shou should ld think. I interprete interpreted d that that action action as a specslop and think. ulati ulative ve climax climax in nIP. hllll market. M iH"key Airli Airlinc ncss beca became me the the numbe numberr two two high high flyer of 196.1 196.1
make
yOIl
despite despite a d"clillc in earnings. earnings. The company company reported reported earnings earnings of $10.109. ill 19112, nncl nncl a loss of $104,9 $104,978. 78. in 196.1. 196.1. Mack Mackey ey woul would d lwve lwve heen heen :: J good lmy ::J t any time time dllfin dllfing g JnR~, but some some of the olhr-r strong strong stocks stocks sellin selling g rmrler $10. $10. did not not turn our so well. well. To illustrate illustrate why J am not not too enthusi enthusiast astic ic about about stocks stocks sell sellin ing g unde underr $10. $10.;; let let me poin pointt out out that that Mack Mackey ey Airl Airlin ines es stock experience experienced d 3 decl declin inee of 17% in one one norm normal al day' day'ss trad trad--
ing on [nnuar [nnuarv v
27, 27, ]964. For For the the pers person on who who migh mightt have have
]69
THF. STI10NGF.ST STOcrS
] f)8
TIm STllONGFST STOCKS
hought hought
iVf;lc iVf;lckpy kpy ',)1 500(, Jll~rg Jll~rgin, in, th~117 th~117~r, ~r, dcclil dcclillP lP would would
h:1vP h:1vP
PEHFOHMANCE OF EXHAusn~D
meant meant a p~lllf p~lllf'r 'r loss loss of :1 4 0 ;" in one day. day. Then Then"" 'W:1 'W:1Sn Sno o genp genpn1 n11 1 pani panicc in the the stoc stock k mark marker er on tllnl tllnl clay clay,, or dmi dming ng thfl thfltt wepk wepk.. I eon eonld ld not not find find anv reas reason on for for tIl( tIl('' h1:ge h1:ge drop in Macke Mackey, y, like like the top thre threee
H sPPIllPd
in unis unison on..
T T I Gl T F T ,Y ,Y E H S
EXHAUSTED Whil Whilee
on tlUlt tlUlt snnlf' snnlf' day. day.
high high [lve [lvers rs were were movi moving ng
we are are on th(' th(' sub' sub'ee eett
of dec decli line ness
I wis wish h
to rem remin ind d
) u t ha hat high lIye lIyers rs ( 0not not go up up [nrn [nrnvc vcr. r. 'V!l 'V!len en high high flye flyers rs ~'lm ~'lm 011t 011t of ste steam am and and enel enel thei theirr fant fantas asti ticc advnn advnnre res, s, thov thov llSI llSI11a Iy
rlow rlown n nnr! nnr! do not c im
0
1
J:1C
or at at ('as ('astt severn severn
yenrs yenrs..
,,x ,,x aust aust ml hi 1h 1h fI 'ers 'ers shOl shOllId lId he avoi avoicc ('( ('( i P 1C P ague. Thio Thiol< l
Jnst Jnstnl nlll lllp lpnt ntss
mack mack,, its its high high
The The list list show showin ing g in 196 1963 3 indi indica cate tess
in
the the perfor performa manc ncee that that harg hargai ain n
.~% Cnin
38% Loss Loss 24% Loss Loss 31% Loss Loss 17% Gain 24% Gain 32% Gain Gain 39% Loss Loss 23% Loss Loss 9% Loss Loss 53% Loss of exha exhaus uste ted d
hunt huntin ing g
Hyer Hyerss of
vent ventur ure. e. o ut ut to h e t he he
k in in d o f
previ previou ouss year yearss is not not a very very prof profit itab able le A hi hig h O ye yer d oc oc s n ot ot u su su al al ly ly tu m
neve neverr
s to to ck ck t ha hat sh ou ou ld ld h e pu pu t aw ay ay a nd nd h el eld the the inve invest stor or who who is inte intere rest sted ed in maxi maximu mum m
Ther Theree
mention. M' , parch sh
'11 exha exhaus uste ted d
to stag stagee a (roo (rood d grlv grlvau aucc cc Hyer Hyerss To illu illust stra rale le l
iil
exam examin inee hauste hausted d
rD w
too too numer numerml mlS S
10
hi r 1 l Hyers Hyers nrc less likd likd
r
I
prke prke
high high f l y e r s . follow followin! in!'' ~tlJ(l ~tlJ(lv v shows shows
chan change gess
of a gron gronp p
of exex-
. price price
gains gains
I)('ri()(l C1Hlillg Jamwrv
this this lisl, remem rememher her
even even thou though gh
othe others rs,,
than than stoc stocks ks whic whic rave rave neve neverr reen reen this this 11nus 11nus11a 11all idea idea of mill mill!' !',, 101 11.S
11)( 11)('' pplT pplTen ent: t:lg lg0 0
the tWAlvp tWAlvp m n~'h aminin amining g
are are many many
::lIld ::lIld losses losses clnnng clnnng
G , 1<)f)4. \Vhil \Vhilee ex-
that that 1963 1963 was a hull. hull. I11nr I11nr1«' 1«'1vea 1vear, r,
most most of the these se stoc stocks ks do not not show show It. It.
high high flye flyers rs
for for the high high
1960 1960,, and and neve neverr came came hnck hnck.. Pola Polaro roid id madc madc its its high high in 1960 1960,, and and neve neverr cnrn cnrnee hack hack.. Brnl BrnllS lSwi wick ck mack mack if s hig high h in 19m, and came came hack hack..
1963
4% Gain 1% Loss ,58% Loss 39% Loss Loss
Amrrrican Amrrrican Motors American American Photocopy Photocopy Anken Chemical Chemical Avnot Electronics E. L. Bruce Bruce Brunswick Fairchild Fairchild Camera Camera Golf Golf Americ American an Land Land Korvetto Polaroid Texas Instruments Instruments Thiokol Transitron Universal Universal Match Match Varian Varian Associate Associatess
except except that that Svntcx Svntcx anr] anr] T\VAw: T\VAw:1rr 1rrant antss
also also exp(~r exp(~ri(' i('n('e(1 n ('e(1 large large dcclin dcclines es
HIGH FLYERS IN
f or or m an an y y ea ear s b y profi profits ts.. Look Look what what
happened
to Bmns Bmnswi wiek ek.. It dpcli dpcline ned d from from 74% to 9. Let Let llS llS cons consid ider er,, for for a mom momen ent, t, the the trag tragic ic case case of the the barbargain gain hunte hunterr who who migh mightt have have hong honght ht Brun Brunsw swic ick k at 35. 35. thi think nk--
ing ing it wns wns a good good half half of its its pre previ vious ous dccl dcclin inpd pd
hll) hll)'' hecn hecnus usee it was was avai availa labl blee at less less than than pric pricee of 74%. The Fact that that Brunsw Brunswic ick k had had more more than than ,1 '1 0 % did did not make make it a goo good d huy, huy, and and the the
stock stock contin continnAd nAd moving moving downwa downward. rd. By the the time time Brun Brunsw swic ick k had had decl declin ined ed hunt hunter er
had had n Joss Joss equa equall
to 17, the the harg hargai ain n
to 50% of the the capi capita tall
inve invest sted ed
in that that
disgus uste ted d afte afterr seve severa rall became disg year years, s, and and fina fina 11ysold 11ysold out out arou around nd 12, he sustai sustaine ned d a trem tremen en--
trad trade. e.
Tf Ihe Ihe hnrga hnrgain in
hunt hunter er
170
THF. STnONGFSr
STOCKS
dons dons loss, loss, and his capif: capif:ll ll was !it'd up for seve several ral yf'ars yf'ars withwithant prodncin prodncing g a profi profit. t. Some Some of Ihe cdla cdla1l 1lSt Sted ed high high flye flyers rs on tlle tlle 1 9 G 3 pf'rformance ance list list were rf'f'o rf'f'omll mlllem lemlf' lf'd freque frequentl ntly y hy financ financial ial writer writerss in U)(}:1, hut I would would not even consider consider huying huying an exhaust exhausted ed high high flyer. flyer. Tl10 Tl10 odds odds nrc not not in favor favor of succes success. s. Many Many invesinvestors tors have lost lost money money on Ilwir Ilwir purchases of fallen fallen high high flyf'r flyf'rs. s. Some Some of rhoso rhoso ]oss(' ]oss('ss migh mightt have have hef' hef'n n avoi avoide ded d if they they had had known known ahout my exhrmst exhrmsted ed high high flyPr flyPr theor theory. y. The The hasi hasio o trou troubl blee with with exha exhaus uste ted d high high flye flyers rs is that that the the supply supply of s!m·k s!m·k is much much greate greaterr than than the demand demand.. Demand Demand is light light hecnns hecnnsee the stock stock has stopped stopped going going up, and is no longer longer a high flyer. flyer. The reason so rnnoh rnnoh sror-k is availnh availnhle le for sale is lJPc:1nseof lJPc:1nseof the "owrlwa "owrlwad d supply supply". ". Overhe Overhead ad supply supply is 11](> 11](>brge brge amount amount of stoc stock k pnrchn pnrchnsf' sf'd at highe higherr prices prices,, when when the high Ilvcr Ilvcr was was hlasti hlasting ng 1Ipwnn 1Ipwnnl. l. Since Since 'h<' 'h<' majo majorit rity y is usua usually lly wrong. wrong. we can assume assume Ihnt Ihnt the majority majority of inve investo stors rs did nor sell out out near the top. top. YV1H'n YV1H'nprices prices rlrx-l rlrx-line ine,, many many people people arc holding holding long long position sitionss nt a loss. loss. \VI \VI)( )('n 'n the nver nverag agee pers person on sees sees thnt his his capi capita tall has has been been tif'd tif'd up for two two or thrpe thrpe venrs venrs with with nothin nothing g to shoyv shoyv for for it hut a loss, loss, he Ilnnll Ilnnllv v becomes becomes disgus disgusted ted and decides decides to spl] spl] on the next next rally. So ,,~lwnf ,,~lwnf've 'verr a rally rally starts starts,, the overhe overhead ad supply supply is there, there, trving trving to sell sell nut. nut. \VlWl \VlWll'a l'a high Ilver Ilver is on its wny up for Ilw first first t ime, ime, and is in now now high high tprril tprrilory ory,, then' then' is no over1w over1wnrl nrl snppl snpplv v to contend contend with ])('c[l1lse ])('c[l1lse i! has has neve neverr sold sold at thnt thnt price lldo lldorp rp.. In that that situat situation ion,, the only only sdling sdling rressn rressnre re camps camps from from profit profit tnking tnking and short spllin splling. g. That is why why high flyers flyers can go up so far far and so fns( fns(---ma many ny ppop ppoplp lp want to buy, buy, and and few few peopl peoplee want want to sell.
CHAPTER
TIl TIlE
ULTIMA IMATE
2 WEAPON
As a resu result lt of my resear research ch and person personal al experi experienc ence, e, J coneluded eluded that that the idea idea]] time time to bllya bllya.hi .high gh Ilyer Ilyer migh mightt be when when it becomes becomes the strongest strongest stockin.-tJ stockin.-tJ1e 1e 1Tl~I~~t)~i 1Tl~I~~t)~ising sing farthe~ farthe~ _and fast faster er than than the the othe otherr stoc stocks ks.. Then Then the the time time to sell sell would would be w~)en tile trend of tho high~i~~~~I~ high~i~~~~I~_S _S __~i;~~,~~:,vi ~i;~~,~~:,vilen len s_ome other stock becomes_s.~ becomes_s.~rong{ rong{>,:t:.. >,:t:.. To organ organiz izee thes thesee idea ideass into into an effici efficien entt oper operat atio iona nall proprocedu cedure re,, I dev devel elop oped ed a mec mecha hani nica call meth method od for for tradi trading ng in the the stro strong nges estt stoc stocks ks.. It's It's more than than just just a meth method od for for maki making ng profit profits. s. It's It's designed designed to he a method method for sele selecti cting ng and trading trading in tlw tlw most oufsl: oufsl:mdi mding ng high high flyers flyers of all time. time. The method method might might system systemati atical cally ly put one into into fantast fantastic ic stocks stocks like like ThioThiokol, kol, Texas Texas Instru Instrumen ments ts and Syntex. Syntex. TIl(' TIl(' meth method od seems seems to he capahl capahlee of such such intere interesti sting ng possipossihili hiliti ties es that that I call call it the "Ultim "Ultimat atee Weap Weapon on". ". To me it seems more more exciti exciting ng than than anythi anything ng else else I have have ever ever heard of in in conconnectio nection n with with the stock market. market. Here Here are are the the deta detail ilss of the the meth method od::
1. Make Make a list list of the strong strongest est stocks stocks about once once a mont month, h, or
m o n t l~ s .
once once eVf'ry eVf'ry two two or th~ee Tl~;ti~le-i Tl~;ti~le-i~i:~~; ~i:~~;~j ~j ~ould vary vary acco accord rdin ing g to the wish wishes es of the the pers person on usin using g the the method. method. Do not include include stoc_~~_~~! stoc_~~_~~!!i1?: !i1?:g und~:J~.9..:.J2~!-sl~~!~:_ g 171
172
THE
TTlE l1LTIJ\,{ATE WEAPON
2. BIl)' tllP tllP one one stock stock at the very very top top of the Stro Strong nges estt Stoc Stock k List. 3. When a new new stock reaches reaches the top position position all the the list, sell sell out and switch switch into into that that new stock. stock. 4. Contin Continue ue switch switching ing into into each new stock stock which which reache reachess the ~op of the list. list. 5, Sell out out if the the tren trend d of the the stoc stock k turn turnss down down befo before re a switch switch is calle called d for. for. The simple simple tT('Jl tT('Jl(l (l imlicn imlicnlor lor.. which which I deve develo lope ped d for for use with with the the Ulti Ultimf mflt ltee Weap Weapon on,, says says that that the the tren trend d of a stoc stock k turn turnss down down when when that that stoc stock k has has a daily daily dosing dosing price price which which is 25% 25% belo below w the higl18st higl18st price price ..recorded recorded by that that stock. Ther Theree are are manv manv- mefh mefhod odss for for
to work with, with, The Ultim Ultimnte nte vVrapo vVrapon n method method w0111dhav w0111dhavee achiev achieved ed the following following Tl'SllllSin Tl'SllllSin 1901, using lIlA SIrongest SIrongest Stock Stock Lists Lists in the prev previou iouss chapte chapter: r: (Those (Those lists lists were were compile compiled d about about once once every every three three months months.) .) On Jmmar Jmmary y 2, H)(j.3 Son Line Hailro Hailroa(l a(l was tlle tlle strong strongest est stock stock on my Jist. Jist. So it won won 1(1have have heen heen hought hought then then at 11%. 11%. Soo I ,ine ,ine was still still Ilw stron stronges gestt stock stock on the list list of Mart-h Mart-h 17, so no action action would would have have heen heen tnken tnken nt rhat rhat time. time. On flIP list of Jnne :10, 1863 1863 Sao Line Line had slippe slipped d to fonrth fonrth
17:3
T1T.TTM T1T.TTMATE ATE WEAPON
plac place, e, So if if woul would d have have been been sold sold then then M 2Jlh 2Jlh,, with with a profi profitt of 8.1%. Syntex Syntex was the stronge strongest st stock stock on the list of June 30, so so it woul would d have have heen honght honght then then at a pri price ce of 81 Svnte ,x '\,as ' stil stilll Ihe Ihe stro strong nges estt stoc stock k on the list list of Sept Septem eml1 l1Pr Pr-1 -15, 5, so no acti action on woul would d have have heen heen take taken n at that that time time.. The The stoc stock k WlIS split split three three for one one in Novem November ber,, 1963. 1963. The. The. tren trend d of Syntp Syntpx x turn turned ed down down on Jm11 Jm11ln lnry ry 21, 21, ]864 ]864 when It close closerl rl at 1.16, 1.16, w1lidl w1lidl was more than than 25% helm" helm" the higllP higllPst st pricf' pricf' of 19m~. Synt Syntex ex woul would d have have heen heen sold sold at the the openin openin~ ~ the next morning morning at 1421h,with 1421h,with a proH proHtt of 427%. If this this progr program am had had heen starte started d in [anuar [anuary, y, 186.'3 with $],000:, ,000:, the the init init ia1capital ia1capital wonld wonld have have gn;wn gn;wn to :$1,780. when Soo Soo Line Line was was sold sold.. The The $1,7 $1,780 80.. inve invest sted ed in Svntex Svntex woul would d 1I~ve 1I~ve ~?'OWI ~?'OWIllto $8,180 $8,180,, by Jannar Jannary y 22, 1964. TI;e profit profitss ohhllllCd hllllCd III 1f'SS 1f'SSllinn thir thirte teen en mont months hs woul would d have have amou amount nted ed to morA. than 800% of the the initi initial al capi capita tal, l, with withou outt tmdi tmding ng on margm. 'l~llP 'l~llPre re w<,mld w<,mld have have hePII hePII only only the two trades trades dming dming that that l)('1' l)('1'!odof ! odof s1lght s1lghtl)' l)' more more than than one yeHr. Each Each of fhe two trades trades last lastpd pd a 110111 six six mont months hs.. so all all the prof profit itss woul would d have have been been eligih eligihle le for lon,{~ lon,{~ter term m capita capitall gain gain tax treatme treatment. nt. It is inf~r inf~r{' {'st stin in~ ~ to ohse ohserv rvp" p" that that the the Ulti Ultima mate te 'Ven 'Venpo pon n method method,, with with a SImple SImple mather mathernat natica icall procedure, achieved much much better better result resultss in 1961 than T did with my use of logic logic in thp thp selp selpct ctio ion n of thc thc stro strong nges estt sto stock cks. s. . . 'Vhen 'Vhen I sel('d< sel('d<'d 'd T~ T A warran warrants ts from from the stronges strongestt stocks stocks hy the the use use of logi logic, c, and hack hacked ed up my select selectio ion n with with cash cash I \Va: \Va: also also nsing nsing the Ultimate Ultimate 'Weapo 'Weapon' n' method method to mnke mnke th~oth~osee rctica rcticall trades trades on paper . .It was9(? was9(?:Y:Y-Jlr Jlrigh ightt irrita irritatin ting g to see _
,..
•
L
s~lch a simple, .nnt!linki~lg_~~!.~?-~.P!~d~~~!!!g)~~g~i-E~~;fi~" ~::~I~s~Ol1 ~::~I~s~Ol1ld ld with the !ota} ..~o.bi1!~~,ti,~!1~~!_.
woul would d
THE TTLTlJ\fA TTLTlJ\fATE TE WEAPO WEAPON
174
in a loss loss.. Belor Beloree lIsi lIsing ng such a meth method od,, or nny nny othe otherr meth method od,, a pers person on shou should ld cons consid ider er thf' thf' possib possibil ilit ity y of loss loss as wel welll as the the possibili possibility ty of profit. profit. A dis disad adva vant ntag agee of thi thiss metho method d is that that one can can not not say say any any cert certai ain n stoc stock k is the the stron stronge gest st unti untill afte afterr the the fact fact has has heen heen proven hy that that stoc stock k risi rising ng more more than than any any othe otherr stoc stock. k. By that that time time it has has usual usually ly alrpa alrparl rly y gone gone up ]00% or more. more. jvfnny jvfnny people people would would S3Y it is insa insane ne to think think of Imyi Imying ng a stoc stock k afte afterr 0% . T gllf~SST will it has has alre alread ady y gone gone lip lip mom Ilwl IlwlII 1 0 0% will h[lv0 h[lv0 to plea plead d insa insani nity ty and and hase hase my defe defens nsee on thp. fol follo lowi wing ng fads fads:: When When J houg hought ht TWA warr warran ants ts at 10, they 11fld aJrprldy aJrprldy gone gone up 117%. Then Then they they went went up anoth another er 1130% in the folfollowi lowing ng six six mont months hs to rea reach ch a hig high h of 26. 26. The warr warran ants ts even even-tnnl tnnlly ly rear rear-h -hed ed n high high of 30% on Jnly Jnly 10, HlR4. When When Soo Soo Line Line beca became me the the stro strong nges estt stoc stock k in [nnn [nnnar ary, y, 1963 1963,, it had had alre alread ady y gone gone up 114% 114% in six six mont months hs.. Then Then Soo Soo Line Line went went up anoth another er ]]8% ]]8% in the the follo followi wing ng six six mon month thss to reac reach h a hig high h of 25% 25%.. Son Line Line even eventu tual allv lv reac reache hed d n hig high h of 43% on [nne 1, Hl64. \,yhe \,yhel~ l~ Svnt Svntex ex lwr-am lwr-amee the stronge strongest st srock srock in [nne, 196.1, it had had nlre nlread adv v gone gone np 118f':{, in six six mont months hs,, Afte Afterr Ihnl Ihnl Svnt Svntex ex w en en t " p mo re re I lllln n 4 00 00 % in tIlA foll follow owin ing g six six ancl 3 hnlr months. Ibeli believ evee
that that when when a sto stock ck achi achiev eves es
::t
veloci velocity ty
of upwnr upwnrr] r]
mo~: mo~:em emen ent, t, whic which h is grea greate terr than than the the velo veloci city ty of any any othe otherr stoc stock, k, it tends tends to con conti tinu nuee movi moving ng upwar upward d at that that spee speed d nnri nnri]] infl influe uenc nced ed by a forc forcee stron strong g enou enough gh to ter termi mina nate te its its move move-ment me This hnsi hnsif' f' thou thouuh uht is the the found foundat atio ion n of my my_ Stro Strong nges estt ."..nt.. _ This r:t t
Stock Concept. Concept.
175
THE ULTIMATE WEAPON
achie achieve ve such such fantas fantastic tic profit profitss in Ill( Ill('.'. Iulurc, Past performance performance is not a gnar gnarnnt nntpf) pf) of futnre futnre pf'l"f pf'l"form ormanc ancc. c. There There is no phpic phpical al law law whi~h whi~h says says thflt thflt the stron stronge gest st stoc stock k must must cont contin inue ue goin going g up nfler nfler vou vou huv it. Somet Sometime imess the purcpurc-has hasee of the strong strongpst pst stock stock would would resnlt resnlt
TIJis TIJis ide" ide" of mine mine is simila similarr to Newt Newton' on'ss first first law of motion motion liich S;lYS: "A hody tends tends to c07itlIl c07itlIl~e ~e III H~ stat~of r~~t()~
by
tlnjfon~l monon UI _._ L~.<;?-mpel!~4J~sJ.1~nge that state
forc forces es lmp lmpre ress ssee
on
I.
.
. . .
]I.{ A THEM
When When Mack Mackc) c)'' poin points ts.. A 7 poin pointt CUAPTER
3
Airl Airlin ines es rose rose from from 1to 8, the gain was 7 gain gain in Mack Mackey ey soun sounds ds pret pretty ty clos closee to the the
gain gain in T'VA warr warran ants ts,,
8 poin pointt
perc percen enta tage ge,,
177
A TICS OF TRADING
yOll yOll find find that that
hilt hilt when when
Mack Mackey ey
went went
you you calc calcul ulat atee
the the
up' up' 700% 700%.. No matt matter er
how how much much or how how litt little le mone money y you you migh mightt have have had had inve invest sted ed in Mack Mackey ey Airl Airlin ines es,, it woul would d have have incr increa ease sed d 700% 700% dmin dming g that that
r v t ; \ TIl TIl EM;\ TIC TIC S 0 F T RAJ) RAJ) 1N(: 1N(:
time. When When I have have hpen hpen intp intp,re ,resh sh'd 'd
in nwil nwille lema mati tics cs
ever ever sinc sincee
T w as as a
teen teen-a -age gel' l'.. This This inte intere rest st was was not in the the highe higherr form formss of ma. ma.th th,, hilt hilt rather rather in the practi practical cal applic applicat ation ionss of simple simple nwthem nwthemat~ at~cs. cs. nro many many wavs wavs in whi which ch the the sill silll\ l\ •. Jles Jlestt form formss of nrit nrit h1'1 . . nro \e1c""
meti meticc
,
can can help help
to I~ak I~akee
impo import rtan antt
exac exactl tly y
what what
of pric pricee
chan change gess
I mr-a mr-a n, I will will use use seve severa rall
actu actunl nl
To illus illustr trat atee f'xmnp x mnple less
of
price price change changess in stocks stocks during during H J 6 3. . _ . "Vhe "Vhen n IBM IBM rose rose from from fI pric pricee of 400 400 to ;)00 ;)00,, the the gam gam was was points ts.. A ]f)0 point point gain gain sounds sounds quil quill" l" impre impress ssiv ive, e, l~ut l~ut ]00 ]00 poin point when when you you lise lise per perce cent ntfl flgc gc,, you you discover I hat I he he ] 00 point gain :lmollntpd :lmollntpd 10 only only 25%. 25%. No matt matter er how how 1111 1111lc lch h or h;)\v h;)\v litt little le
mnnr mnnr-v -v
~hnt time, time,
it
von von
migh mightt
,~01l1 ,~01l1cll cll':l ':lve ve
have have
had had
incrc: incrc:lse lsed d
inve invest sted ed in TB M <1nrmg hy 2S%-110 more more.. no less less..
Vlhen TYVA wnrn wnrnmt mtss rose rose from from 10 to 1 8, 8, t he he g ai ai n w as as 8 poin points ts.. An R point point gnin gnin dops dops not sound \'('1' \'('1')' )' irnpre irnpres<; s<;ivf ivf',', hut in this this f'nS f'nSC, C, it nmon nmonnt ntss to 80%. 80%. No mnt ter ter how mnch mnch or how how little little 111011£')' 111011£')'von Illi.g IIIII In ve lac·1'IllV.eS Ip.d in T'V A. wnrrnnts , 80% dmin it would would ll~,;e ll~,;e incrp: incrp:lse lsed d hy 80% dming g that that time time.. 176 176
stoc stock. k. Inst Instea ead d
should deve develo lop p
up one point point,,
that that
of thin thinki king ng ahon ahontt pric pricee chan change gess in poin points ts,, we the the habit of thin thinki king ng ahou ahoutt pric pricee chan change gess in
percentaw~s.
When When
in stoc stocks ks..
a sto stock ck went went
MARGIN
In the the prev previo ioll llss chap chapte ters rs,, you you may have have wond wonder ered ed why why I . c 11emp hrasrs asi on ,.11e pNC e-n r t"n g' e of 1.1..r,i('(' chf.l;ngc e"s plac placed ed so muc mu 10 ::1('£111 The The reas reason on is thnt thnt one one must must use use pen: pen:en ent: t::l :lge gess aroly the the exte extent nt
says says that that
deci decisi sion ons. s.
PERCENTAGES
reco recogn gniz izee
a pers person on
by itse statement, itself lf,, is prac practi tica call lly y mean meanin ingl gles ess. s. One One poin pointt coul could d he ]% or or ]0% or ]00% ]00%,, depe depend ndin ing g on the the pric pricee of the the
yOll yOll hlly hlly stoc stock k on margi margin, n,
you you are are aCh1 aCh1311 311y y horro horroww-
ing ing mone money y from from yom stoc stock k broker to Hnance part part of your your stock purchase. YOIl YOIl must must pay pay inte intere rest st on the mone money y harharrowe rowed d from from a hrok hroker er,, or any any other other comm commer erci cial al sour source ce.. The The inte intere rest st lending lending The The
rate rate vari varies es instituti institutions. ons. mflr mflrgi gin n
in acc accor orda danc ncee
requi require reme ment nt
with with
the the
rate ratess
is dete determ rmin ined ed
of regu regula larr
I111C I111C]]anno announ unce ced d
pulilicly hy the the Ff'dera d erall Rese Reserv rvee Board Board.. Duri During ng rece recent nt year years, s, marg margin in requ requir irem emen ents ts have have heen heen 50%, 50%, 70%, 70%, or \10% \10%.. When When the the stoc stock k mnrk mnrker er is low, low, the the FHH FHH usua usuall lly y perm permit itss 50% margins gins.. When When the the market move movess ment ment is nsnall nsnallv v rniser rniserll to 70%. 70%. "rhm "rhmll marg margin in
tIl( tIl('' mar marke kett requ requir irem emen entt
is oons oonsid ider ered ed is usua usuall lly y
trol trolss Tlln Tllnrg rgin in requ requir irem emen ents ts coum coumgi ging ng
eX(' eX('f' f'ss ssiv ivee
high higher er,,
requ requir iree-
to he dang danger erou ousl sly y rais raised ed
to 90% 90%.. The The
to help help stnb stnbil illz lzee
spec specul ulat ativ ivee
the the margin margin
acti activi vity ty
the the market market when when
mark market et is thoug thought ht to 1m too too high high . If yon yon huy stoc stock k on marg margin in,, and and the the stoc stock k cally, cally, the broker send out out a mar margi gin n broker will will send
high high,, the the FHB FHB conconthe the
decl declin ines es
call call,, aski asking ng
hI' dls dls-stoc stock k dras drasti ti-yon yon to
MATHF.M MATHF.MATTCS OF TRADlNG TRADlNG
put up more money to protf protf'ct 'ct his loan loan to you. you. If you you should should not not wish wish to put put up ndrli ndrliti tion onal al mone monev, v, you you can can sell sell the stoc stock k instea instead. d. Broker Brokerss do not send. send. out m::lrg m::lrgin in calls calls to antago antagoniz nizee thei theirr oust oustor orne ners rs.. It is a necess necessar ary y pr:: pr::Jc Jcti tiee ee whic which h must must he done done to preserv preservee the broker's broker's flnanc flnancial ial respon responsih sihili ility. ty. VVI10Tla 50% margin margin requir requireme ement nt is in effec effect, t, a custome customerr must must put up half half o r the money nf'c
MATJIF.MA MATJIF.MATTCS
OF TRADING
179
If 11 person person should should experi experienc encee two 01' three three "small "small"" losses losses lik~ lik~ that that in 1 1 row, row, it woul would d add add up to one big big loss loss.. Then Then his his entire entire progra program m would would be serious seriously ly endang endangere ered. d. If a perso person n shou should ld lose lose 50% of of his capit capital al,, he would would then then have have to ~ake ~ake a 100% 100% pro profi fitt just just to rega regain in the the capi capita tall he starte started d WIth. WIth. Becaus Becausee of this this mathe mathemat matica icall oddity oddity,, many many peopeople have have discov discovere ered d it is diffic difficult ult to make make money money in the stock stock mark market et.. That That is why why I try so hard hard to avoid avoid even even smal smalll loss losses es.. Theyadd up too fast. . RE-INVESTE RE-INVESTED D PROFITS PROFITS ~n il1te~esting il1te~esting peculiari peculiarity.ot ty.ot!ll~~h !ll~~h~IEat ~IEatics ics is the speed with ".'Inch ".'Inch re'l.nveste re'l.nvested d profits profits can accumulate, accumulate, if n per~on per~on is conconsIstently sIstently nght. Ha person person starte started d with with $4,000 $4,000.. and was able to double double his money money p v e '-ti rn e s~ -lie \\r o tlM ha~e '$ ii s, o o o . If a person person starte started d with with $4,OOO $4,OOO:"a :"and nd-~~;~hJ~to d(~uble d(~uble his money eight limes:·11ew limes:·11ewo~(n; o~(n;a~C$I a~C$I(j2406 (j24060. 0. This lovely eqnationi.< eqnationi.<;; sl~~tl~~~d, sl~~tl~~~d, fo/~itj~~ns fo/~itj~~ns of the United Stat States es,, by the fede federa rall inco income me tax tax on capit capital al gain gains. s. But But ininvest vestor orss in Can Canad ada, a, Engl Englan and, d, the the Baha Bahama ma Isla Island ndss and and some some othe otherr coun countr trie iess do not not have have to pay pay taxe taxess on capital gains. gains. So the equntio equntion n could could work work for invest investors ors who live live in countr countries ies with a suirahle suirahle tax structure. structure. I had had this this fascin fascinat atin ing g equa equati tion on in mind mind wllE wllE'o 'o I made made my seco second nd purc purcha hase se of T\V T\VA A warr warran ants ts in Novem Novembe ber, r, 1963 1963.. At thnt thnt time time T was diversi diversifie fied d in severa severall stocks stocks.. Bnt J sold sold the other other stocks stocks,, and Pllt Pllt everyth everything ing into into TWA warrant warrants. s. By dodoing ing that that,, Twas able able to doub double le all all my mone money y in four m~nths. m~nths.
