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This book was recommended by Dawn Bolton-Smith in Your Trading Edge magazine, April 2010. Dawn is the matriarch of technical analysis in Australia, with a career spanning 43 years. We are very proud of getting her recommendation. Please order your printed copy of the book HERE!
THE POINT AND FIGURE METHOD
OF ANTICIPATING STOCK PRICE MOVEMENTS
-
Volume 1
As we now publish this classic stock market book online in the year 2009 I cannot help but to draw parallells between DeVillier's and Taylor's foreword and the market we are facing today. When the book was first published, in the beginning of the 20th Century, the world had recently witnessed the stock market crash of 1929 and the following great depression. Today, 80 years later, we are again in the midst of a global recession, following the "Financial crisis" when stock prices crashed from the all time high of 2007.
Again, many investors and traders now turn to the literature of economics and market technique in order to get a better understanding of the principles underlying stock price movements.
We are delighted to present this method of stock charting and trading to a wider audience than ever through the Internet. The method we are presenting is as valid today as it was one decade, as well as one century ago. Unfortunately, with today's stock charting softwares and methods the underlying principles of stock price movement have been forgotten. Instead traders and investors are foolishly lured into believing that the bells and whistles of some of the stock charting softwares will make them profitable in their stock market campaigns. We would instead like you to forget about the flashing lights, the colorful indicators and lines, and instead begin focusing on the stock price itself like the professionals. The forces of supply and demand determine the stock price movement - let the same forces guide your way.
Unlike the times of the great traders like Jesse Livermore, R. Keene, W.P. Hamilton, Charles Henry Dow and others who had to keep track of the stock prices by hand or in their memory we now have the possiblity to follow their methods of making millions while utilizing the power of the computer. Along with this book we are delivering point and figure charting software. This means we are combining the proven methods of trading with modern ways of working with computers to simplify tedious repetitive tasks. We are publishing two types of computer software explicitly intended for point and figure trading. The first one is called "Bull's-Eye Broker", and the other one is called "Point and Figure for Microsoft Excel".
We now urge you to join the group of stock market professionals. Read this classic book, it's teachings are as valid today as ever before. Download the free trial of the software we are publishing. Let the point and figure method of trading become your own way of speculating successfully in stocks, commodities, currencies and forex.
Click here to order your copy of the book with both volumes.
pointandfigure.com
Wall Street, New York City October 2009
TABLE OF CONTENTS: Experiences of the
recent bear market which had its termination in July 1932 caused many
former investors and traders to turn to the literature of economics
and market technique in order to get a better understanding of the principles
underlying stock price movements. Many have come to realize the futility
of depending upon tips, rumors, and gossip to guide them in their market
commitments. Countless others have
come to the conclusion that statistics and fundamentals serve only to
aid the manipulators, banking sponsors and insiders to unload their
stock on the unwary. All will agree that a correct analysis of the technical
position of stocks and the market in general is the only key to consistent
profit from speculative and trading commitments. Until the publication
of the original edition of this work, it was the privilege of the few
who made fortunes from speculation to have the advantage of this, the
most logical and pragmatical of all methods used for the purpose of
plotting the price course of stocks and commodities. This Method has
been the keystone and bulwark of the plans of America's most successful
speculators and commentators, from Charles Henry Dow, the father of
the art of anticipating stock price movements, down to and including
those who have profited most during 1929 and subsequently. We offer
you the principles of this tried and proven Method because we feel that
a broad dissemination of this information will do much to prevent the
excesses of bull market peaks and also help avoid the unreasonable deflation
of values, as well as the vicious cycles of forced selling and the resultant
suffering of depression lows which so surely must follow. We desire to express
our appreciation to Mr. J. Martiney of the publisher's technical staff
for the many helpful suggestions given and his care in the preparation
of the charts used in this work. We gratefully acknowledge
our indebtedness to Charles Henry Dow, William Peter Hamilton, James
R. Keene and others whose works and achievements have been an inspiration
and a guide. Victor DeVilliers Owen Taylor New York City January 1934 The Point and Figure
Method had its beginning sixty years ago and subsequently has been used
by some of the eminently successful operators in their important stock
market campaigns. With the passing of the years, the Method has been
refined, improved and adapted to changed market conditions. The underlying
principles of the Method, however - based on the immutable Law of Supply
and Demand - are unchanging and are constantly effective.
The theory and practice
of the Method is fully treated in Vol. 1 The Point and Figure Method
of Anticipating Stock Price Movements (written in 1933 - revised in
1934) Vol. 2 Advanced Theory and Practice of the Point and Figure Method
(written in 1933 - revised in 1934) Vol. 3 The Time Tested Technique
of the Point and Figure Method (written in 1939- augmented in 1940 and
1941). The first two of these
three texts were written from the viewpoint of the individual stock
trader at a time when pool operators gave strong impetus to market movements.
Such operation injected a manipulative or artificial element into the
supply and demand relationships in the market. But Supply and Demand
- whether artificial or genuine, manipulative or otherwise, and whatever
their causes - are the forces that create price change. The Point and
Figure Method measures these forces and enables one to arrive at sound
and reliable conclusions as to subsequent price action. This Method, a generation
ago, was used largely to create profits through market operation. Today
it is used by some of the largest and highest ranking fund managers
whose objectives are capital and income conservation and growth. The
Method also is used by commodity processors for guidance in the purchasing
and hedging of their extensive inventory requirements. In placing these texts
in your hands we are conscious of their literary and technical limitations.
If some principles are treated dogmatically it is for the purpose of
fixing them firmly in your mind. If some of the many principles appear
to overlap or seemingly conflict with others, we ask you to disregard
it at the start and simply master each principle as it is expounded.
Weighing and coordinating these principles is the vital factor in Point
and Figure analysis. Development of skill in this technique will be
accomplished and hastened by practice on your part. Instances of extraordinary
success in investment account management and in commodity market operation,
through Point and Figure means exclusively, are constantly coming to
our attention. Such success is attributed to the skillful use of the
principles set forth in these modest texts. We mention this as an inspiration
to you and to emphasize that this work is of far reaching value and
importance. CHAPTER 1 Logic is the basis
of this Method Irrelevant fluctuations
eliminated How the Method got
its name Graphs are logical
and scientific Introductory summary
of important principles Needed accessories
are few Plotting a stock price
movement One point charts the
basis of the Method Accessories and working
tools Fifteen years before
the turn of the last century, Charles H. Dow, student, scientist and
philosopher, a brilliant economist and a well respected financial writer,
began to observe and study the phenomena of Stock Price Movements. He
was the founder of the Wall Street Journal. His writings, though
not prolific, are the beginnings of all price movement comment, his
observations the foundation underlying all technical methods, and his
studies and graphic records the seeds from which the Point and Figure
Method grew. The work of Dow was
ably carried on by his protege and successor, William Peter Hamilton,
who edited the Wall Street Journal until his death in 1929. The writings
of Hamilton form the principal source from which Dow's Theory of Stock
Price Movements has become available for study. See pages 36 and 153,
The Stock Market Barometer, by W. P. Hamilton. At or around the beginning
of the present century, when the expansion era was in full swing, a
group of speculators recognized in Dow's research a clear illustration
of price movements portrayed through the use of figures which showed
a repetition of pattern as it unfolded its tracings on Dow's graphic
records. The patterns thus formed were oft-times repeated, and established
a precedent and guide to future price movements. Here, then, was the
beginning of a truly scientific and logical method of anticipating stock
price movements. Fifty years of background, millions of dollars of profits
taken out of the stock market, and thousands of hours of study and development,
are historical events which commend this time tried Method to you. In explaining the basic
principles of the Point and Figure Method, we will show that the full
point and full figure fluctuations in variable equities, be they commodities
or stocks, are the vital statistics which hold the key to technical
position and the future price path. Professionals and others
who have been successful in their judgment and anticipation of market
action, have reached their conclusions by aid of recorded data of one
kind or another. In practically every field of endeavor, whether it
be in the arts or sciences, in the industrial world, or in the stock
and commodity markets, full and detailed records of past and current
essential data must be kept. It is of little consequence whether these
records are maintained as tabulated figures or by means of logs or charts,
which are merely graphic representations and plottings of those essential
records. Charts of stock price
movements are vital. There is an ancient Chinese axiom dating from the
Confucian era which states "A picture is better than a thousand words."
It is self-evident that a picture conveys a clearer and more detailed
message than a mass of words or columns of tabulated figures. Since
instant comparison and maximum condensation are vital to the art of
anticipating stock price movements, we endorse the practice of keeping
and maintaining up-to-date charts. Graphic representations of the fluctuations
of stock prices are vitally important to a critical analysis of technical
position and are the keystone of the Point and Figure Method.
LOGIC
IS THE BASIS OF THIS METHOD Few will dispute the
fact that the old fashioned custom of relying solely upon published
statistics of sales and earnings for market commitments, must now be
relegated to the past. All will agree that by the time these statistics
become available for public consumption, others, principally the insiders,
the sponsors and the manipulators, have already profited amply therefrom
and are ready to unload their commitments as the news becomes public
property. We must, therefore, find a method which will show us when
the insiders are buying and also indicate when they are commencing to
sell. Given the ability to recognize their acts on our charts, it follows
logically that we will be able to buy when the insiders buy and sell
out when they sell. The patterns portrayed
on our charts and application of the principles of the Point and Figure
Method will show us when buying is overcoming selling and vice versa.
If you are ready to agree that the present movement of stock prices,
as recorded on the ticker tape, is the best and surest indication of
the probable direction of the future price trend, then this Method can
be used to show the way. It should be needless for us to state that
some intensive study and a thorough understanding of the principles
are necessary before you can hope to capitalize on that knowledge. Once
a solid foundation is laid, your judgment will develop in a logical
manner, and you will quickly begin to recognize many profitable opportunities.
You will be more certain of yourself, and the courage of your convictions
will materially increase your capital. IRRELEVANT
FLUCTUATIONS ELIMINATED The market fluctuates
in countless fractional transactions which, in the final analysis, have
little or no influence on future price paths. One of the basic principles
of the Point and Figure Method is to eliminate the irrelevant and regard
only the important movements upon which our deductions are based. Only
full point changes are considered, and fractional variations are totally
disregarded. The Point and Figure
Method derives its name from the fact that we record by figures all
full point changes. This plan or system of plotting and recording the
movements of the market in general, and of selected individual stocks,
is a basic principle of this particular Method. In this one characteristic,
it is totally different from any other plan, method, or system of anticipating
stock price movements. GRAPHS
ARE LOGICAL AND SCIENTIFIC A casual glance at
the illustrations in this work will show a new kind of chart which,
in contrast to all others, has a scientific basis to recommend its use.
The Point and Figure graphic records are sometimes made up of a series
of symbols composed of X's, fives and zeros. Or - more often nowadays
- X's, O's for price changes, and the numbers 1-9 and A, B, C to
represent the month of the year. The special design of graph paper which
we suggest for use with this Method shows the relationship of these
symbols to each other and to the past and probable future price movement.
Familiarize yourself with the form and style of these important aids,
namely, the charts upon which we rely for our conclusions. Point and
Figure charts condense the price fluctuations in such a manner that
you will soon learn to recognize accumulation, mark-up, and distribution
and thus be able to make your commitments more profitable.
INTRODUCTORY
SUMMARY OF IMPORTANT PRINCIPLES The Method will be
fully explained in every detail as we proceed. Each step will be carefully
developed and clarified before we proceed with the next. All will be
illustrated with examples from recent market action, showing the application
of the principles. So that you may have a bird's-eye view of the scope
of the work, we list a summary of the important principles underlying
the Point and Figure Method. 1. The Method develops
the ability to recognize the technical position of individual stocks
and of the market in general. 2. The Method is consistent
and logical, definite and positive, eliminating, as far as possible,
guesswork and emotional influences. 3. The data is recorded
in such a manner as to create and force the development of true geometrical
and symmetrical patterns easily discernible and classified, and which
repeat themselves in the progression of the price path. 4. The patterns thus
formed create precedents by which subsequent price movements are easily
judged. 5. The Method disregards
fractions resulting from minor and irrelevant fluctuations. It also
ignores volume. The Method is simple and complete in itself. 6. The Method dispenses
with news, fundamentals, statistics, and the reasons for price movements.
It concerns itself primarily with cause and effect.
The data which we record
in order to create the basis for the application of this Method is,
primarily, all one point changes of the price movement as it fluctuates.
This principle is the same whether we apply it to stock price movements,
market indices, or commodities. As a matter of fact, the Point and Figure
Method of anticipating price movements may be applied to any form of
equity for which a free and open market exists, and in which there are
price fluctuations. When full point variations of the price movement
are known, they are recorded by figures. Our records are unlike the
conventional vertical line or bar charts in that they are created through
the use of symbols. The symbol "X" is used to record the price
changes in an uptrend and the symbol "O" is used to record price
changes when price is trending downwards. The figures 1, 2, 3, 4, 5,
6, 7, 8, 9, A, B, C are used to record the month of the year. At this
point, it would be well for you to examine the illustrations used in
this book in order that you may have a better understanding of this
elementary principle used in making our charts. The full figure one
point changes are recognized by the price fluctuations when they reach
each new full one point change. The change thus noted is recorded, whether
it be the next higher or the next lower figure, and the change must
be recorded each and every time it shows on the tape. At this point,
let us emphasize the fact that herein lies the vast superiority of this
Method over all others. When we record all full figure changes, we are
better able to detect accumulation, distribution, and the characteristics
peculiar to the particular stock or commodity under observation. Note,
here, that we disregard all movements of seven-eighths points or less,
when fluctuations are in eighths. In cases where fluctuations are in
tenths or dollars, we must determine whether we will plot the full one-dollar
changes or whether the changes in tenths would better serve our purpose.
PLOTTING
A STOCK PRICE MOVEMENT After we obtain the
full figure changes, we proceed to make our graphic record from that
data. We require for that purpose, graph or charting paper ruled for
quick and easy use. Ideal paper for this purpose is "Ideal Charting
Sheet Number 5001." This paper is ruled with vertical and horizontal
columns, arranged with shadowed symbols "0" and "5"
and with the horizontal columns for these important digits accentuated. The vertical columns
on our charts are used to limit the plottings of the price movement
as long as it continues in one direction without a reversal. As soon
as a reversal occurs, and we find the needed square already occupied,
we move to the next right-hand vertical column. This vital principle
must be fixed firmly in your mind, as it is the only one that may give
you difficulty later on when you proceed to make your own charts. The Point and Figure
Method relies on price changes only, and the graph paper is designed
to properly record those changes. The day-to-day time factor and daily
volume are ignored. The columns of squares are scientifically designed
so as to permit the plotting of true trend lines and to force the development
of true geometrical and symmetrical patterns which facilitate accurate
comparisons and dependable diagnosis. In the case of a stock
selling at $20 per share, we would record the zero in the square on
the 20 line. The next record would be made when the stock sells at flat
price 21, or at flat price 19. Should it go down to 19.22, or up to
21.11, no change would be made. ONE
POINT CHARTS THE BASIS OF THE METHOD When a series of full
figure one point changes of a price movement have been recorded, they
create a scientific basis from which to draw conclusions. Because of
the fact that similar causes usually create similar effects, our conclusions
have a dependable basis not available through the use of any other method.
In addition to the one point charts, one may easily prepare from them
either three or five point charts or both. These are helpful for gauging
the technical position of any and all issues, volatile or otherwise,
and for revealing the broader intermediate moves of stocks and the market.
In addition to graph
paper, one needs a record of the actual full figure changes garnered
from the most accurate source, the ticker tape. When using this especially
designed paper and the daily service which is available, it is a relatively
simple matter to keep current the needed changes on one hundred stocks
and the important popular averages or indices, in about thirty minutes
each day. Form this habit, as it will afford you an opportunity to analyze
the patterns as they unfold themselves on your charts and thus take
advantage of the implications which develop, first in one issue and
then in another. The little effort expended in keeping these charts
up to date will soon pay you handsomely, for you will be training yourself
in stock market technique in a way not afforded by any other method.
CHAPTER 2 Refined to coordinate
with present day markets Mystery and complications
have been clarified Expensive financial
and economic reports unnecessary Certain factors taken
for granted Analytical technique
easy to master Losses limited while
profits accrue Method weighs forces
of buying and selling The Point and Figure
Method has grown from a crude beginning which started more than one
hundred years ago. Charles H. Dow, the founder of the art of anticipating
stock price movements, created much which led to the development of
the technique of this Method. Dow, in his research, was interested primarily
in recognizing the main, broad, long term trend which results from the
movement of major capital into or out of common stock equities. This
main trend was rightly termed the "Capital Movement Trend"
by Mr. Edwin L. Ayres in his book Key to Stock Price Movements. The
secondary corrections to the main trend, though of interest to Dow,
were not the goal of his efforts. He considered the secondary movements
highly misleading and concluded that the shorter day-to-day swings were
unimportant. However, we must bear
in mind that since Dow's work was completed, the stock market and America's
financial structures have undergone revolutionary changes. Common stock
equities of American corporations have attracted a world-wide speculative
following, unprecedented in the history of finance and of speculation. In Dow's era, a move
of 20 to 30 points in the Industrial or Rail Index consummated in a
period of a few years was considered a complete bull cycle. Under present
day conditions, we note, on occasion, moves of 10 to 20 points in either
or both indexes completed in a few weeks. Three, nine or sixteen million
share days, such as were recently witnessed, were undreamed of at the
time when ten or a dozen stocks were the active trading mediums, and
volume was limited to a few hundred thousand shares a day. One can,
therefore, understand why Dow passed lightly over the minor and secondary
movements and sought only to ascertain the main trend. These minor and
secondary movements have now become all important. Their study, analysis
and the understanding of how to use them form the basis of the most
successful method of stock price anticipation. It has been intimated
that this Method was first successfully used by James R. Keene during
the merger of the United States Steel Corporation in 1901. Mr. Keene
was employed by the sponsors of the Steel Corporation to distribute
to the public the original stock of the corporation, which its real
founder, Andrew Carnegie, refused to take in payment for his equity
and profits resulting from the merger. Mr. Keene, originally a Western
mining promoter, was a skilled tape reader, a shrewd observer, and a
successful market operator. His ability has never been surpassed and
rarely, if ever, equalled. It has been stated by his close associates
that the Point and Figure Method was known to and used by him during
all of his successful campaigns. REFINED
TO COORDINATE WITH PRESENT DAY MARKETS Like all knowledge,
the Method has developed with the passing of years and has been refined,
improved, and coordinated with the ever changing conditions of stock
market action. The scientific basis of the fundamental principles underlying
the Method alone accounts for its survival while most other methods
have been relegated to the past. You may confidently depend upon the
Point and Figure Method knowing, first, that it rests upon a sound scientific
basis and, secondly, that it is vastly superior to any other plan for
anticipating stock price movements. In the past as well as at present,
it has been and is relied upon by many of Wall Street's most successful
interests. The data which should
be kept will be described in utmost detail. Bear in mind that there
is a great weight of authority behind this data, and we ask of you to
respect its implications. We have found by the trial and error method
those refinements needed to fit the basic principles to present day
markets. It was ascertained that a careful checking and rechecking of
the conclusions arrived at by means of this Method is of vital importance
and cannot be over emphasized. MYSTERY
AND COMPLICATIONS HAVE BEEN CLARIFIED The Point and Figure
Method, as here presented, is devoid of mystery and complications and
has proven itself of incalculable aid to your authors. We begin by reducing
the vast accumulation of transactions comprising market action to the
important and relevant moves, which are plotted on charts. From these
graphs showing the present market action, we are able to judge the probable
future direction and extent of a stock's movement. The Point and Figure
Method permits stock market trading to be considered a serious business
with a scientific, substantial, and definite background, based upon
actual facts rather than guesswork. Like all other businesses, it demands
the making and preserving of certain simple and vital records. It demands
that you study those records carefully and permit your judgment to be
based upon solid facts. None will deny the old copy book maxim "Practice
makes perfect." The Point and Figure Method actually compels practice
and extensive study which soon becomes a habit as well as a fascinating
hobby. EXPENSIVE
FINANCIAL AND ECONOMIC REPORTS UNNECESSARY This Method dispenses
entirely with the expense and labour involved in the purchase and maintenance
of bulky reports, statistics, balance sheets, earnings statements, and
other cumbersome paraphernalia hitherto associated with trading and
investing. The substitution of the simple records required by this Method
is, in itself, an important consideration and a welcome relief.
CERTAIN
FACTORS TAKEN FOR GRANTED The following facts
are taken for granted by the Point and Figure Method: (a) That the correct
valuation of a stock, at any given time, is the price paid for it at
the time of the consummated sale. This is because the forces underlying
the law of supply and demand and the consensus of opinion of the buyers
and sellers have determined the value at the time the sale is made. (b) That the last published
price of a stock reflects all that is known by the general public at
the time when established, as a result of a sale and purchase which
consummates a transaction. (c) That the insiders,
who are presumed to know more about any particular stock than the public,
cannot completely conceal their future intentions with regard thereto. (d) That the plans
of the insiders will be revealed in due time by the technical action
of the stock itself. The Point and Figure Method is not a system for
"beating the stock market." It is the result of the rationalization
of logical principles successfully used by important market interests.
ANALYTICAL
TECHNIQUE EASY TO MASTER Assuming that the student
will keep the required records, there remains only the need of an understanding
of the technique of reading and interpreting them. In the pages to follow,
we illustrate for you in detail and with clarity the technique of interpreting
the patterns which develop on your Point and Figure Charts. While proficiency
may not come at first, yet, in a short time, through study, practice,
and observation, the habit of correct thinking in terms of the Point
and Figure Method will become apparent, and the resulting sound judgment
will soon replace uncertainty and confusion. It is confidently expected
that, as a result of this study, observation, and practice, the reader
will learn to properly appraise the price movements, analyze the technical
condition, and deduce therefrom plausible conclusions, the correctness
of which will soon exceed the errors you are apt to make. With proficiency
attained, your market operations cannot help but result in profit.
LOSSES
LIMITED WHILE PROFITS ACCRUE Success in trading
and investing, whether by method or by chance, comes not as a result
of being perfect, but in consequence of completing a sufficient number
of successful transactions netting substantial profits to offset the
few errors which may show limited losses. In order to limit
losses and to check possible errors, we employ the simple technical
aid known as "stop orders." It is unnecessary for us to go
into detail here, as the theory and application of stop orders are fully
described in many other works. In no other enterprise
or business is it possible to protect profits or check losses with the
same ease and facility as is possible in the stock or commodity markets,
through the simple expedient of stop orders. We strongly endorse the
use of stop orders except where "averaging" or "pyramiding"
is resorted to. Many admonitions have been given against averaging and
pyramiding, yet this Method not only tolerates, but, at times, presents
ideal points at which both may be resorted to, for the reason that each
commitment is independent and is made on its own merits. This will be
fully explained in a later chapter. A pyramid is created
when the profits accrued on a position are used to buy additional commitments.
This practice usually develops into an inverted pyramid when it is resorted
to in connection with credit - borrowed funds - used to finance a margin
account. An inverted pyramid is exceedingly dangerous because the load
gets top-heavy, as the human weakness to make huge and quick profits
invites an over-extended commitment, which, as a general rule, is wiped
out on the first technical reaction. We average a position
by buying additional quantities of stock as it sells lower in the price
range. This Method indicates ideal points at which to make additional
commitments for the purpose of averaging one's cost.
METHOD
WEIGHS FORCES OF BUYING AND SELLING The Point and Figure
Method actually measures the forces of supply and demand, and records
the support and resistances at all points. It permits of a wide range
of visualization through its lucid, graphic records which allows quick
and ready comparison of one stock with others and with the market in
general, as reflected by a good index and, most important of all, with
its previous technical action. These records, if properly compiled from
reliable sources, will indicate the true trend of the market and of
stocks, and will point out the best trading and investment opportunities. The Method indicates
when and what to buy. It also cautions when to get out, first, through
clear signals to act, then, through definite indications for the logical
placement of stop orders. It teaches you to adopt a professional approach
to your market transactions. Professionals may be considered as the
insiders, pools, independent operators, stock sponsors, bankers, and
others usually referred to as "they" by many market commentators.
CHAPTER 3 Speed and ease of recording
data The Method ignores
volume Price changes versus
volume Supply versus demand Volume easily manipulated Facility of this method The utter simplicity
of the records Manipulation readily
detected Use all full figure
changes in making charts Method is superior
to inside information Isolation develops
best results Our charts reveal plans
of the majority How the move begins Stock market trading
is a business Inside information
unnecessary One point charts show
all There are certain definite
and inherent advantages of the Point and Figure Method not possessed
by any other method. These advantages are: (a) the elimination of non-essentials,
(b) the ease of condensation, and (c) the speed by which results may
be achieved. These superior qualities are again stressed in order to
point out that the simplicity of this Method does not curtail its accuracy
and dependability. A simple machine with a few well constructed parts
will operate far more efficiently than a complicated mechanism with
ponderous accessories. So it is with the Point and Figure Method.
SPEED
AND EASE OF RECORDING DATA The Method provides,
amongst other things, clarity and simplicity in the keeping of its graphic
records. This results in the creation of logical and clean-cut patterns
on the graphs and higher speed in the plotting of the necessary data.
It will enable you to maintain the records of more stocks, and be a
source of checking and correlating all of the facts, with a view of
arriving at a correct interpretation of market activity and profiting
therefrom. The Point and Figure
Method entirely dispenses with the recording of the volume of sales.
Many have felt this to be a distinct deficiency under the belief that
volume is a dominant factor. We are unwilling to concede that volume
is the vital influence which, in the final analysis, governs the price
movement. It is conceded, however, that volume is an influence when
used as an aid in other methods. In our opinion, the Point and Figure
Method has proven itself so much more reliable, that we are satisfied
from our research and experience to conclude that the number of price
changes and the manner in which they combine themselves have a more
scientific foundation than the influence of volume in the anticipation
of price movements. Let us analyze the
effect of the influence of volume as against the effect of price change
only. What is the aim of all methods which seek to anticipate stock
price movements? Do we seek to know how many shares are exchanged? Or,
do we desire to determine whether stocks are passing from weak holders
into strong hands and vice versa? All will agree that it is the answer
to the latter question which will permit us to profit most from our
knowledge. Taking for granted the known fact, namely, that each transaction
printed on the tape is at the same time a purchase by one and a sale
by another, it is of little consequence to know the exact number of
these transactions. What we desire to ascertain is where in the price
scale they occur and their relationship to each other. Let us approach the
problem in a logical manner by taking note of the definitely known elements,
in order to determine whether price changes or volume have most influence. In a speculative market,
where the laws of supply and demand are operative, we must have fluctuations
in prices. These fluctuations are due mostly to differences of opinion
which cause what is technically known as the bid and asked spread. Experience
has taught us that a great number of fluctuations in a congestion
area usually indicates either accumulation or distribution.
When stock is offered for sale at the market, we must take the nearest
bid price; and when one is anxious to purchase a stock and offers to
take it at the market, he must pay the nearest asked price. The price
changes of a stock, as it moves from one price to another, are caused
by the difference of opinions of those who are buying and selling. These
fluctuations have proven themselves more informative for our purpose
than has volume. Furthermore, let us
consider the effect of supply and demand on any product or commodity,
be it stock, equities, or horseshoes. When demand is greater than supply,
prices move upward. Should supply be greater than demand, then prices
are forced downward. When demand has absorbed all the supply at any
given price, it will begin to absorb the supply available at the next
higher price at which offerings are available. As the demand increases,
prices correspondingly increase. Prices recede as a result of absence
of demand or an oversupply. These factors show that price, as such,
holds the key to supply volume as well as to demand volume. These fluctuations
or price changes, when plotted by means of the principles outlined for
you in this book, will more accurately indicate the technical condition,
the relationship of supply to demand, than any other known method which
can be used for the purpose. Volume, as well as
price fluctuation, can be artificially manipulated. Manipulations of
volume at any given price level are deceptive and cannot reveal the
difference between true and artificial demand. As contrasted with that
principle, consider how easy it is to detect artificial support resorted
to for the purpose of distribution when many changes in the price of
a stock show that it cannot absorb the supply at the upper registered
level, or that demand is insufficient to reach to the next level of
supply. This principle becomes more clearly apparent as you compare
these conditions in one particular stock with the market and other stocks.
Volume indications have a tendency to vary greatly with the changes
in the floating supply of stocks as well as changes due to the open
short interest in the market. We, therefore, conclude that price changes
of themselves, with their relationship to each other and to the market
and other stocks for comparison, are vastly superior than is volume,
used with any other combination. Herein, then, lies the vital and vast
superiority of the use of price changes and the Point and Figure Method.
This Method permits
and facilitates the easy recording of the essential data, and a simple
and logical method of analysis. The direction of the trend, the extent
of the move, and a reasonable approximation of the culmination thereof,
are all easily determinable. Through the aid of the one, three, and
five point charts, one may be reasonably certain of the shorter immediate
swings and the more profitable intermediate trend moves, as well as
the main broad swings of the bull and bear market cycles - the Capital
Movement Trend. We can visualize at
a glance, through the aids afforded by this Method, namely, the one,
three, and five point charts, the broad zones of accumulation and distribution
in the main swings, as well as the closer areas of supply and demand
of the narrower and more speculative intermediate trend moves. Our data
shows, at a glance, the moves by important areas, by months, by days,
by the all important dividend periods, by seasonal influences, and by
main business cycle influences. It also shows the results of speculative
influences, as well as the effects of long range investment buying and
selling. THE
UTTER SIMPLICITY OF THE RECORDS Examine now Chart Figure
3.1. This is an illustration of a hypothetical move from a start and
low of 50, to a high of 55, and a close at 54. Here we illustrate a
one day move which by other methods would not permit of technical analysis,
yet by the Point and Figure Method, we are given two possible price
paths, each of which would connote a different technical condition.
Fig 3.1 One point charts. Click the picture to open larger version. Click here to open in new window.
Note the upper half
of the illustration, which we diagnose as bearish. Study carefully the
three separate and distinct methods by which data may be recorded when
using this Method. The first plan is recording by figures. Trace the
move, 50, 51, 50, 51, 52, 51, 52, 53, 52, 53, 52, 51, 52, 53, 54, 55,
54, 53, 52, 53, to 54, the close. The pattern just to the right of the
figure chart is called a trend outline chart and illustrated the same
move. On the extreme right you may observe the geometrical chart of
the same move. Note now that all of this action may be recorded by one
day's market fluctuations in a fairly active issue in normal markets.
This illustration is bearish because it indicates stock in supply around
the 52, and 53, levels with a temporary push through to 55, near the
close. Now regard the lower
half of our illustration Figure 3.1. Trace the move, 50, 51, 52, 53,
52, 53, 54, 55, 54, 53, 54, 55, 54, 55, 54, 53, 54, 55, 54. This move
is diagnosed as bullish because it indicates scarcity of offerings below
55, and its ability to hold the advance above 53. The analysis above
is made on the actual movement of the issue as shown. If the immediate
previous action was plotted and available for comparison, our diagnosis
might change. Records of fluctuations,
upon careful analysis, reveal the manipulation. You have seen in the
foregoing paragraph how the action which takes place during any market
day is broken up into its important fluctuations, namely, its component
parts, in order that we may be able to detect what the manipulators,
pool operators, and insiders may be doing with the issue. No method
as yet devised will show manipulation as clearly and as surely as a
diagram made according to the principles of the Point and Figure Method. Stock sponsors and
operators vary their plans of campaign. Some prefer to depress a stock
and make it look very weak, even though it is their aim to mark it up
to substantially higher prices. Others, whose tactics are bolder and
more open, do not hesitate to bid up the price of a stock very rapidly,
taking all blocks offered on the way up, and thus creating a spectacular
move. The latter method is daring but very effective, because spectacular
moves attract wide public appeal through the aid of board room traders
and others who watch tape action, as well as comments in the newspapers
which usually follow spectacular moves as they develop on the tape. When operators resort
to such spectacular manipulation, lively tape action excites gossip
in board rooms and thus attracts a great following for the issue. No
matter what procedure is selected by the insiders in any stock, our
Point and Figure charts will reveal the areas in which they are accumulating
stock and will, with equal accuracy, show zones of distribution.
USE
ALL FULL FIGURE CHANGES IN MAKING CHARTS Build up your Point
and Figure data carefully, using for your purpose either the transactions
recorded directly from the tape or the full figure daily changes supplied
by the publishers of this book. When you plot all of the full figure
fluctuations, you have a true representation of what is taking place
in the issue. While Point and Figure charts may be compiled from the
financial page quotations of your local newspaper, records thus compiled
are not nearly as dependable for forecasting purposes as are those with
all of the full figure fluctuations. The charts built up
from authentic data consisting of the actual full figure changes, will
always develop patterns in the progression of a move which soon become
easy to recognize and classify. A careful study of past performances
recorded in the same manner will reveal to the student several important
factors which have vital forecasting significance - in that they show
the proper points at which to make commitments. These patterns are
created as a result of better buying than selling when the move is in
the upward direction, and, likewise, when the move is down, they reflect
the reverse - better selling than buying. Since a similar cause is always
followed by a like effect, these patterns, as they develop, are generally
followed by the same type of subsequent action. As we cannot build a
house without some kind of foundation, so a stock cannot advance materially
unless accumulation has first taken place. Since accumulation will always
register on our charts, it becomes but a matter of careful observation
and analysis to be able to recognize a move as it is developing and
before it really gets started. In addition, we are able to know the
exact point at which the risk may be limited while the profit possibilities
are preserved to their fullest possible extent. These characteristic
patterns on our Point and Figure Charts always develop, no matter what
the condition of the market may be. It is immaterial whether it be a
slow day with a half million shares as the average, or a fast session,
with five million shares as the average; our Point and Figure charts
will reveal, with accuracy, the technical condition of the price movement
as plotted and observed. METHOD
IS SUPERIOR TO INSIDE INFORMATION Since it is the purpose
of all market analysis to determine the balance between the forces of
supply and demand, we seek a means of accurately measuring those forces.
Whether demand be on the part of the well-informed insiders, stock sponsors,
manipulators, or the consensus of opinion; whether it be one or more
of the foregoing groups, or whether it result from sufficient outside
public participation, it will bring about the same results on our Point
and Figure charts. By means of the use of the Point and Figure Method,
anyone who will devote sufficient time to the mastery of its principles
can place himself in possession of the knowledge that will put him on
an equal footing with the influential forces, whether they be insiders
or outsiders. No basis for a movement in any stock can be completed
without leaving definite indications in its price path together with
their logical implications as the action of the stock traces its movements
clearly on our Point and Figure Charts. ISOLATION
DEVELOPS BEST RESULTS As a matter of fact,
those who apply the principles of this Method and handle their transactions
independently are in a better position than members of a syndicate or
a pool operation, for reasons later explained. Prices advance or decline
because of the operation of the forces of demand and supply. While it
is true that major interests, large scale operators, syndicates, and
pools can temporarily accelerate or retard a movement, we must, nevertheless,
keep in mind that no human force or group can very long obstruct the
real trend of the market as it moves, because of influences of general
economic cycles. In the last analysis,
all speculative operations, whether undertaken for trading profits or
for long term investment capital appreciation, must be in harmony with
the main trend of the capital movement cycle, or they will result in
grief and loss to those who undertake them. Those who operate with one
to five hundred share lots of a stock are in vastly better position
than are the large groups who must necessarily employ thousands and
perhaps hundreds of thousands of shares in their operation. The small
operator can reverse his position quickly, while the large scale operator
cannot quickly turn about, by reason of the very size and extent of
his commitment and the inability of the market to absorb so vast an
amount of stock into the floating supply without breaking the movement
wide open and causing a major reversal. Thus, you see that
the use of the principles of this Method is more reliable than inside
information. We have actual knowledge of the most potent and vital influence,
namely, the actual price changes, which must be considered as the verdict
of the market resulting from the consensus of all opinions which influence
the issue or commodity in which we are operating. Adhere to the principle
of isolation. Turn a deaf ear to all gossip, rumor, inside tips, and
other information. Your Point and Figure Charts are more reliable than
any other source of information available. OUR
CHARTS REVEAL PLANS OF THE MAJORITY Our charts reveal,
in a condensed form, all that is known to the insiders and unknown to
others, about the movement of a stock up to the very last moment. What
more can anyone wish to know? Authentic and reliable
inside information must not, and cannot be disclosed. Disclosure may
wreck costly plans. When such information is disclosed, it is no longer
inside information, and then it is not worth knowing, for it immediately
becomes common property and usually develops to be the most costly type
of information in Wall Street. It generally leaves you long of stock
while the insiders have sold their stock and are out of the market.
Remember, the news and information you get is only what the insiders
and sponsors wish you to know, and then only after they have profited
therefrom. In recent years, the
market has more quickly responded to combined public sentiment. Millions
of investors and speculators comprise that public. On occasions, their
demands have taken the market completely out of the hands of the insiders.
Their inactivity has, at times, upset many well laid plans of some of
the best banking and financial brains in the country. When these millions
begin to act or show tentative signs of activity, the alert major interests
- the sponsors, bankers, pool operators, and insiders - endeavor to
anticipate their demands. The insiders and operators can only anticipate
and start the move by quickly completing their positions and temporarily
taking stock out of the floating supply. This operation is often completed
in secrecy during inactive markets, when all offerings are soon absorbed
without indications of demand appearing on the tape. Then follows the
demand or the beginning of the demand of the outside public. After this
buying has commenced, sponsors continue to accelerate the advance in
harmony with the trend, buying and selling on balance, so that the value
of their position, completed at the lower level, increases, as prices
are forced higher. As an illustration, a syndicate operation may own,
let us say, 10,000 shares of a certain issue at an average price of
$10 per share. As the price begins to advance, the manager of the syndicate
buys and sells on balance, yet always holds at least the amount originally
accumulated, until the market price of the stock is far above the average
cost of his position. At the predetermined higher price level, he begins
to sell more than he buys and only buys a sufficient quantity to hold
the price of the stock at approximately the level at which he wishes
to distribute his inventory, accumulated substantially lower down.
These operations are always apparent from the patterns formed by the
price changes and portrayed on our Point and Figure Charts. When
you possess this information, remember, you, too, may be considered
one of the insiders. Students who take this
Method seriously and apply themselves to a better understanding of it
are in a more advantageous position than the insiders, since, at the
first signs of danger, their smaller positions can be quickly liquidated,
enabling them to stand aside while the large scale interests are struggling
to complete their campaign. STOCK
MARKET TRADING IS A BUSINESS Again, we wish to emphasize
this important fact - stock market trading or investing is a serious
business and requires careful study and application. No other business
offers similar opportunities for gain as often or as quickly as does
the stock market. No other business permits one to limit loss or to
insure ultimate success as do your transactions in the market, when
you thoroughly understand market technique. Remember, your stock market
transactions may be closed out quickly or you may reverse your position
or protect it by placing strategic stop loss orders. In business, it is
the major interests who dominate, and the larger the unit, the more
efficient can be its management; yet that is not applicable to the stock
market. Here, a very large commitment may prevent quick action when
speed is essential. It is well to remember
when you hear of inside information that is unsupported by positive
confirmation from your Point and Figure Charts that many insiders have,
in the past, made serious errors. Testimony before governmental committees
has revealed only a few of the grave mistakes made by many well grounded
in the fields of finance, economics, and banking. Inside opinion, inside
judgment or so-called inside information, may on occasion be very good,
but if your transaction is not properly timed, you may be wiped out,
notwithstanding the good intentions of your informant.
INSIDE
INFORMATION UNNECESSARY It is best, at all
times, to rely upon logical judgment, the result of conclusions arrived
at through a careful analysis of actual facts. It is far more dependable
than guesswork, tips, rumors, or so-called inside information. Your
full figure changes, your knowledge of their implications, the direction
of the trend, and your faith in your own self, is all you need when
you employ the principles of the Point and Figure Method. Inasmuch as market
knowledge, by and large, is not an exact science, errors of interpretation
cause errors of judgment, and hence faulty conclusions may occur on
occasions. The most positive indications may be reversed almost momentarily.
Therefore, if in the beginning you err occasionally, do not be discouraged.
Profit from your mistakes, note the error carefully and resolve never
to commit it again. Bear in mind, as you proceed, that coming events
are usually anticipated or discounted by major interests and the insiders.
When, in the face of bad news on a particular issue, formations indicative
of accumulation develop, despite such adverse news, it is wiser for
you to follow the insiders than to pay attention to the news, which
may have been deliberately released in order to cause the uninformed
to dispose of their stocks at a low level. The one point figure
changes, as they register on your charts, reflect all of the buying
and selling. When such price changes have completed the pattern, the
picture thus formed is the best sort of inside information, since it
may be indicative of an impending up move or down move, as the case
may be. When your three point charts confirm the conclusions reached
by a study of your one point charts, you will then have corroborative
proof, and your judgment is thereupon confirmed. Should the implications
of your one point charts be confirmed by the three point and also by
the five point charts of the same stock, then you may consider your
knowledge absolute and definite, and you must act accordingly. Be ever
alert and study at all times. Remember, the patterns which are traced
on your charts result from the action of individuals. Your chart discloses
the balance of all influences. It tells you what is taking place and
when to prepare for the move as well as how to take advantage of that
information. Vital point I - recording
full figure changes Vital point II - only
full figure changes Vital point III - suitable
graph paper Vital point IV - use
of horizontal and vertical columns Vital point V - trend
reversals Vital point VI - only
one symbol to a square Vital point VII
- move over diagonally Vital point VIII -
skip no squares Vital point IX - formation
of congestion area Vital point X - the
full fulcrum Vital point XI - first
buying point Vital point XII - the
catapult Vital point XIII -
secondary buying point Vital point XIV - the
semi-catapult Vital point XV - third
buying point Vital point XVI - watch
for distribution Vital point XVII -
trend lines Vital point XVIII -
forecasting the extent of the move The one point price
fluctuations are the starting base of this reliable and time tried Method
of anticipating stock price movements. For the purpose of clarifying
the basic principles, we reiterate and codify these principles so as
to avoid any possibility of doubt or question. The Vital Points underlying
the Point and Figure Method are as follows: I Record all full figure
fluctuations registered on the tape. II Plot these changes
on suitable graph paper through the use of symbols representing the
full figure changes. III Make no record
of a transaction unless a flat full figure change has actually been
registered. IV Use horizontal columns
for specific price levels and vertical columns for price movements continuing
in the same direction. V When a reversal of
the price movement develops, move over to the first right-hand column
and plot the subsequent changes of prices. VI A square already
occupied by a symbol cannot again be used to accommodate another. VII A move to the next
right-hand vertical column must be in a diagonal direction, either one
square higher or one square lower than the last recorded full figure. VIII No square may
be skipped; the pattern traced must be a continuous joining of squares. IX Be alert to recognize
and observe the formations known as congestion areas. X Analyze congestion
areas in order to properly take advantage of a developing full fulcrum. XI Make commitment
near base of a full fulcrum with a stop just below lowest point of support. XII Watch for the development
of the full catapult point. XIII Make commitment
at the catapult point with a stop close below. XIV Watch for the development
of the semi-catapult. XV Make commitment
at the semi-catapult point with a stop close below. XVI After an extended
advance, be on the alert for first signs of distribution. XVII Learn the technique
of the use of trend lines. XVIII Study and master
the principle of the Count to gauge the extent of future moves.
VITAL
POINT I - RECORDING FULL FIGURE CHANGES We have set forth as
Vital Point I the fact that we must record all full figure fluctuations
which have registered on the tape. Many persons, after a casual study
of the Point and Figure Method, may reach the conclusion that Point
and Figure Charts prepared from newspaper data, that is the opening,
the high, the low, and the close which are published daily in financial
sections of newspapers, are sufficient from which to gather the full
figure changes necessary to prepare our one point charts. However, this
is not the case. One is not able to obtain all of the full figure changes
from newspaper quotations. All full figure changes are necessary because
only by recording all of them are we able to develop the proper congestion
areas, which, in turn, show full fulcrums and subsequent catapult and
semicatapult formations. There is little advantage
to the study and use of this Method unless you make records of all full
figure fluctuations. Furthermore, it is absolutely essential to record
all of the full figure changes if we are to depend upon the count method
for the purpose of anticipating the extent and probable culminating
point of the next move. The technical terms used herein are more fully
explained in subsequent chapters of this work. While it may be truthfully
stated that some of the low priced stocks do not fluctuate a full point
during the day, and, therefore, the needed data could be obtained from
the newspaper, it must be emphasized that even though we be interested
in a low priced stock which does not fluctuate actively during a trading
day, we must plot the movement of the active stocks in order to get
the pulse of the market and thus be able to judge the trend and turning
points. Even in low priced stocks, it is difficult to get an accurate
analysis of all full figure changes unless one has access to the tape
so as to know whether the high or low was first established and their
exact relationship to the close. VITAL
POINT II - ONLY FULL FIGURE CHANGES No transaction is recorded
on our charts unless it be a flat, full figure change to the flat full
figure above or below the last recorded price. A stock may fluctuate
seven-eighths points above its last recorded figure, and seven-eighths
points below, giving it a total fluctuating band of one and seven-eighths
points, before we enter a new change on our graphic records.
VITAL
POINT III - SUITABLE GRAPH PAPER Graphs or charts, whichever
you choose to call them, are absolutely essential to this Method. These
condensed pictorial representations of the course of the price movement
with its oscillations, its advances and declines, are absolutely essential
to a scientific study of stock price movements. Charts may be made on
any kind of paper which is suitably ruled for the purpose. We especially
recommend Ideal Charting Sheets for Point and Figure Charts, because
they have been carefully designed in order to facilitate the preparation
of the charts and permit instantaneous analysis after the records have
been completed. VITAL
POINT IV - USE OF HORIZONTAL AND VERTICAL COLUMNS The recommended graph
paper for use with this Method is laid out in columns of squares vertically
and horizontally arranged similar to a checker board. The lines dividing
the vertical divisions are all of uniform thickness. These vertical
columns are used for containing the price movement as they continue
in the same direction. The horizontal columns of squares are used to
represent specific price levels. The lines dividing the horizontal columns
vary in their thickness, for we accentuate the columns for the "5'
s" and heavily accentuate the columns for the "10's." The
plan for accentuating the "5" and "10" squares is very
helpful for swift recording and quick analysis. In addition, this especially
designed paper has silhouetted figures representing the "10's"
and "5's" which facilitate quick placement of these particular price
levels on the page. VITAL
POINT V - TREND REVERSALS Vertical columns are
used to include the price movements in one direction, up or down, until
a reversal develops. When a reversal does develop and we require a symbol
to be placed in a square that is already occupied, it is necessary for
us to move over to the next immediate adjoining right-hand column. After
the first figure is recorded in a new column, we may proceed either
upward or downward from that point, but not both. We must be especially
careful to note that in every case we must have more than one symbol
in a vertical column. VITAL
POINT VI - ONLY ONE SYMBOL TO A SQUARE Since no square can
be used twice, it is essential that upon reversal of the trend of the
stock price movement we move over to the next right-hand column.
Fig 4.1 XYZ: one point
chart Each reversal in trend
which calls for an "X" to be placed in a square already occupied
requires that we move over to the next right-hand column. In cases where
a reversal requires only a one point change, after which the trend is
again established in the previous direction, it is not necessary to
move over to the next column, for the change in trend would require
a plotting in a square above or below the first one used in the new
column. This square, above or below, being empty, we proceed to plot
our next symbols. Thus, you will see that in no case can we have only
one "X" in a vertical column. To cite an example,
let us analyze the move in XYZ, Figure 4.1. We start plotting the action
of this stock at full figure 34, and indicate an upward move to full
figure 36. After 36, a reversal to 35 is required, but since the 35
square is already occupied, we move over diagonally, (never horizontally)
to the next right hand vertical column. Now the up move is again established
and we continue in the same column plotting our symbols above the 5,
first figure recorded in the new vertical column group. A similar situation
develops on the reaction from 38, back to 37, from the second column
in use to the third column. Another like example occurs on the one point
reaction from the first full figure 40, down to the second 39. Now we
come to a difference which develops after the stock rallies from 39,
to 40. A sharp subsequent reaction develops and carries back down to
35. Here you see how in one instance a one point change moves over to
the first right-hand column, while another one point change continues
in the same column with subsequent changes again moving over to the
next right-hand column. This is one of the
most important principles to be carefully observed in preparing your
Point and Figure Charts. Study it carefully and know it thoroughly before
you proceed with the work. Unless you thoroughly understand the principles
of making these important one point records, you cannot hope to correctly
analyze formations which are developed. You cannot hope to arrive at
proper and reliable conclusions if you base analysis and deductions
on incorrectly prepared data. VITAL
POINT VII - MOVE OVER DIAGONALLY This point needs very
little further explanation, for it is carefully indicated for you on
illustrations throughout the book and fully detailed in our previous
paragraph. VITAL
POINT VIII - SKIP NO SQUARES In the progression
of symbols across our graph paper, no square may be skipped. The pattern
traced must be a continuous joining of squares of those above, below
or adjacent to the diagonal corners. It is only through the proper development
of the price path patterns that the important zones of accumulation
and distribution will become recognizable. Moreover, trend lines cannot
be accurately plotted unless the patterns are likewise accurate and
symmetrical. VITAL
POINT IX - FORMATION OF CONGESTION AREA The most important
pattern that will develop on your charts is that which is known as the
congestion area. It represents what is technically known as a trading
range and shows the struggle between the forces of supply and demand,
either at the bottom of the move where accumulation is being completed
or at the top of the move where distribution is taking place. At intervening
points on the rallies and declines, congestion areas of minor significance
form as a result of temporary consolidation. You will soon learn to
recognize the importance of the several different types of congestion
areas which are formed on your charts. VITAL
POINT X - THE FULL FULCRUM The most important
congestion area to form on your charts will be the full fulcrum. A full
fulcrum congestion area develops after an extended down move when the
forces of demand overcome the forces of supply and a base is formed,
followed by two or more attempts to rally. The first indication of strength
occurs after accumulation begins at the bottom, when a sharp upmove
develops and subsequently fails with a recession to the previous support
point or to a point slightly above the previous support level. Here,
after a little backing and filling, the stock develops technical strength
and a new rally carries it higher than the last previous high point,
at which point, a full catapult develops. VITAL
POINT XI - FIRST BUYING POINT When you are sure that
a full fulcrum is in the process of formation, it is wise to make a
commitment as near to the base of the congestion area as is possible,
with a stop placed just below the lowest point of support. This is the
best place to establish your long position, for here you have the opportunity
of gaining the greatest number of points advance with the least possible
risk, limited through the employment of a "stop order."
VITAL
POINT XII - THE CATAPULT The second important
place to establish your long position "on stop" is the full
catapult point. The law of probability strongly points to the fact that
you will quickly see profits after establishing your position at this
point. The true full catapult which develops after a full fulcrum has
been completed, normally shows from 3 to 6 points profit before a technical
correction registers a paper loss on your position. The "stop"
used to protect this long position should be placed one point below
half way between the low of the base in the fulcrum and the full catapult
point. VITAL
POINT XIII - SECONDARY BUYING POINT Never fail to take
advantage of every full catapult as it develops on your chart. Occasionally
you may err and suffer temporary paper loss, but in the vast majority
of cases, the full catapult point always develops quick profits for
a position established there, especially at the inception of an intermediate
or main uptrend following a protracted period of declining prices.
VITAL
POINT XIV - THE SEMI-CATAPULT The semi-catapult is
somewhat similar to the full catapult with the exception that it develops
during the advance. After a stock moves off the base known as a full
fulcrum and an extended move is in progress, it hesitates and forms
temporary congestion areas on the way up. These small congestion areas,
usually resulting from minor technical reactions during the advance,
create semi-catapult positions as soon as the strength in the stock
registers a new high price over the high previously established before
the technical reaction. VITAL
POINT XV - THIRD BUYING POINT Make a long commitment
at the semi-catapult point each time it develops. Protect this position
with a "stop order" placed just below the lowest point established
on the technical reaction preceding the semi-catapult figure. You may
occasionally lose one or more of these positions and suffer the loss
of a point or two between the semi-catapult price and your stop order.
However, your losses will be limited while your chances for profits
are far in excess of the probability of loss. Profits will accrue to
this position in more than six out of ten times established, which profits
should be far in excess of losses, especially if the "stop order"
suggestion is followed. VITAL
POINT XVI - WATCH FOR DISTRIBUTION After an extended advance,
be on the alert for the first signs of distribution. A trading range
or congestion area which is built up after a sharp advance in price
will be the point for you to watch for first signs of distribution.
Use a "stop order" if you are in doubt; or sell on strength
soon after you have recognized the beginning of distribution. Technical
aids for determining signs of distribution will be found in Volume 2
entitled Advanced Theory and Practice of the Point and Figure Method.
VITAL
POINT XVII - TREND LINES Trend lines are helpful
technical aids to use in conjunction with your Point and Figure Chart.
The technique of the use of trend lines is fully described in the advanced
book prepared for students who have already mastered the principles
outlined in this book. VITAL
POINT XVIII - FORECASTING THE EXTENT OF THE MOVE The "count"
principle of gauging the extent of future movements can be applied by
those who have thoroughly mastered the elementary technique of the Point
and Figure Method. Through the use of certain well established scientific
principIes, your Point and Figure Charts will show the probable culmination
point of the next move. The system of the "count" is highly
technical in its character and fully described in the Advanced Theory
of this Method. CHAPTER 5 The ticker tape Source of all data Daily full figure fluctuations
available Method ideal for those
at distant points Application of the
data How to prepare and
collate the needed data Proper graph paper
helpful Arrange charts orderly How to select the issues
to record Clarifying the use
of the symbols Moving to next vertical
column Use of symbol "0" One cardinal principle Gaps are not recorded How the gap occurs Plotting the gap The one point chart The three point and
five point charts Condensing the one
point moves Other helpful aids The method substitutes
for tape reading Trend outline and geometrical
charts The proper issues to
chart Commodity price movements
We have made clear
to you the fact that this time tried Method depends for its accuracy
upon a radical and entirely different principle. Price changes, that
is the fluctuations in the price of a stock, are more important as the
basis upon which to judge its technical condition than are either volume
or price range. Price range is the zone between the high and the low
which the stock registers each day. A carefully compiled transcription
of these price changes will point the way to more consistent and greater
profits, with less guesswork and more confidence in your market commitments. Before we begin to
make the chart, it is most important that we obtain the exact price
changes in the order in which they occur, and that we be certain of
the source of our data. It is vital and most important to the proper
application of this Method that we obtain all of the price changes and
plot them all. The most vital signals given by this Method are those
occurring in the trading ranges, the congestion areas, either at the
termination of moves at bottoms and tops, or in the consolidation areas,
during the advance or decline. A trading range is
the zone in which a stock backs and fills, i.e. fluctuates above the
level of support where sufficient buying is encountered to absorb all
offerings and the resistance level above where the demand is unable
to absorb the supply. A trading range is sometimes called a "line
movement" especially when it is used to describe this action on
the part of a market index. In the latter case it shows the base, that
level at which sufficient capital is available and desirous of being
exchanged for stock, and the resistance level above where the holders
of stock desire to exchange their equities for cash. It, therefore, becomes
evident and is of vital importance that all fluctuations be obtained
from reliable sources and that they be carefully recorded in the order
in which they occur. Many years ago, Stock
Exchange authorities recognized the importance of creating and preserving
actual records of all transactions as they occur on the floor of the
Stock Exchange. It was then that the ticker tape, as we know it today,
was conceived. In the beginning, the records were crude, but as the
market broadened in the number of corporate issues traded and this country
grew in wealth and importance, the ticker became more highly developed,
so that now it is capable of high speed, and the price fluctuations
are printed almost as quickly as they occur. It is only on rare occasions
that the new, high speed ticker lags, a few minutes at most, behind
the actual transactions. The ticker tape is
the official Stock Exchange record of all transactions, and it automatically
becomes the source of all data for this or any other method of anticipating
stock price movements. Whether you are guided by vertical line bar charts,
by moving averages, by statistical information, business conditions,
or by the actual technical condition of the stock itself, the source
of all information as to the price, the range, the daily closing, daily,
weekly, monthly, or yearly, high and low prices, or actual price fluctuations,
the ticker tape is the original source of all information. All errors
which occur in the recording of the transactions effected on the floor
of the New York Stock Exchange are quickly corrected on the tape, sometimes
within a minute or two after the error occurs. The ticker tape, therefore,
is considered the very best source from which to get the price fluctuations
so vitally necessary to the use of the Point and Figure Method.
DAILY
FULL FIGURE FLUCTUATIONS AVAILABLE It is not necessary
for you to be in your broker's office in order to procure all of the
full figure fluctuations. The publishers of this book provide that service,
and it is published daily. In order to insure the accuracy of the information,
they have a trained and skilled staff of men who read closely all transactions
on the ticker tape. Each morning, the previous
day's changes are carefully checked against data supplied by the Stock
Exchange blue sheet and the three most reliable daily financial publications.
Errors, if any occur, are carefully noted by the service on the succeeding
day in a special errata column. In the less volatile
issues it is possible to approximate the full figure changes from the
stock market quotations as published in your daily newspaper. Price
fluctuations compiled from newspaper openings, highs, lows, and closes,
are not nearly as dependable as the information garnered directly from
the tape. In one case, you are assured of all full figure fluctuations,
while in the other, a great number of full point changes may be missed.
This is vital and important because as you proceed with your work, you
will soon realize that complete campaigns of accumulation and distribution
can be effectuated in one, two or three market days. As a general rule,
Point and Figure Charts compiled from newspaper quotations will rarely
show a complete fulcrum, catapult or semi-catapult formation. These
formations will develop when you plot all of the full figure fluctuations.
Just as a house cannot be built unless a foundation or base is first
laid, so a stock cannot rally to any degree, as a general rule, without
first creating a congestion area or base from which to advance. Therefore,
you must realize that in order to have fullest advantage from your knowledge
of the Point and Figure Method it is absolutely essential that you record
all of the full figure fluctuations. METHOD
IDEAL FOR THOSE AT DISTANT POINTS For students and observers
at distant points, this Method offers a splendid opportunity for observation
and study. Even though your "Full Figure Daily Data" may be
three or four days late in arriving, your charts will always tell the
story in ample time for you to have fullest advantage of moves as they
develop. If you are a great distance from New York City and cannot get
the accurate full figure changes, we suggest the following procedure.
Obtain from your brokerage office, customers man or daily newspaper,
your tentative full figure fluctuations, and enter them on your charts
by making pencil dots in the squares representing the temporary and
estimated changes. A day or two later when you receive your accurate
full figure changes, carry forward your chart in ink. Thus, you will
have the opportunity of being right up to the minute on the few stocks
in which you may have a commitment, and when authentic figures arrive,
you are assured of having the correct changes for inking in your graphic
records for future reference and study. After you are certain
that you are obtaining all of the authentic full figure fluctuations,
it is well for you to form the habit of recording the changes each day.
It is best to maintain charts of at least fifty, and if possible, one
hundred active stocks, as well as of the following averages, namely,
the Dow Jones Industrials, the Dow Jones Rails, the Dow Jones Utilities
and the New York Herald Tribune Index of 100 Stocks. A one half point chart
compiled from figures representing the half hourly running line of the
Dow Jones Industrial Averages is also very informative of the nearby
minor swings. Elsewhere in the book, we supply full detailed explanations
of this half point, half hourly running line index. For the sake of emphasis
and clarity and in order to give the student a proper start, we describe,
hereunder, the different types of charts which may be built up from
the basic data, namely, the one point figure changes.
HOW
TO PREPARE AND COLLATE THE NEEDED DATA It is of vital importance
that you keep all the needed data in a uniform, neat, and compact arrangement.
The authors have devoted serious thought to this problem and the publishers
have designed a series of special charting papers which are ideal for
the purpose. We recommend and use,
exclusively, "Ideal" charting sheets #5001, printed on white
paper, for our one point charts; #5003, printed on buff paper, for our
three point charts; and #5005, printed on blue tinted paper for our
five point charts. No. 5001.5, our half point paper, is especially recommended
for fractional Point and Figure Charts. Nos. 5001, 5003, and 5005, are
printed on good quality rag stock, 8" x 11, and are perforated for
the conventional three-ring binder. These sheets are convenient to inspect,
easy to remove, and ideal for the purpose of study and comparison. The
ruling, especially designed, presents a simple arrangement for the digit,
cyphers and full figure fives. The sheet is so laid
out that it may be read at a glance with the minimum probability of
error. The price level is quickly realized, so that in going through
your binders of charts, your attention can be concentrated on a study
of technical conditions rather than on irrelevant details. All of the charts reproduced
in this book were drafted on these special "Ideal" charting
sheets. The sheets are printed in a special color of ink which permits
you to make your charts in pencil or in ink. When using pencil, the
special color of the background graph lines permits the pattern to stand
out in contrast to that background, even though you use a hard #3 pencil,
which permits the plotting to be made without smudging, as is sometimes
the case when a softer pencil is used. As you progress with
your work, you will soon be able to keep a graphic record of the movements
of 100 stocks and five averages within the one half hour period.
The charts kept in
your loose leaf binder should be segregated into one, three, and five
point groups. Since the sheets are printed on different colored paper
stock, one may easily differentiate them and quickly select the desired
chart. The arrangements within the binder may be altered in accordance
with your personal preference. We have found it more convenient to group
the charts in alphabetical order according to the name of the stock.
In this way, comparisons and daily changes are made quickly and easily. One need not feel that
the pressure of other affairs will prevent one from mastering this Method.
Primary records, the one and three point charts, can be kept and maintained
by any clerk or stenographer. Any intelligent assistant, after a little
preliminary study of the principles of this Method, can keep all the
needed data and pass on the finished work for study and analysis.
HOW
TO SELECT THE ISSUES TO RECORD In selecting your group
of stocks, it is well to include a minimum of fifty of the most actively
traded issues. Whether or not you intend to trade in any or all of these
stocks is of no consequence. In addition to the individual issues which
it is important for you to keep, it is wise to record the movements
of at least three or four of the important popular averages. We suggest
the Dow Jones 30 Industrials, the Dow Jones 20 Rails, the Dow Jones
20 Utilities and the New York Herald Tribune Averages. The Dow Jones
Averages are shown and quoted wherever American stocks are traded in.
The Herald Tribune Average is a weighted index of 100 stocks and a better,
truer, and more ideal cross section of the market as a whole. It is
less volatile and more dependable due to the fact that it is not easily
manipulated. In addition to the
four indexes suggested above, your authors keep and observe a one half
point chart of the Dow Jones 30 Industrials, calculated on a half hourly
interval. The running line half point half hourly index is a very helpful
aid in determining the short swing trends and their terminations. While
at first glance it may appear that the necessary data herein before
outlined will cause an insurmountable amount of work, nevertheless,
we want to call your attention to the important fact that the greatest
losses in the stock market were occasioned by hasty judgment, want of
incentives, and lack of knowledge of actual market action. Investment and trading
is a serious matter. If you desire to succeed and take profits from
the stock market, you must expect to work and study. The work is interesting,
the necessary materials inexpensive, and the compensation far in excess
of the value of the effort and time consumed. If you want to have
the greatest benefit from your knowledge of this time tried Method,
we urge you, once more, to keep and maintain the one point moves in
100 stocks and five averages and the three point moves for the same
group. Five point charts, which were mentioned before, are not absolutely
essential. They are helpful and can be used for the important indices
in order to aid in judging the main trend, and as condensation charts
for the more volatile issues. CLARIFYING
THE USE OF THE SYMBOLS Recording these price
movements, as we have already explained, is done through the use of
three simple symbols, "X," "5," and "0."
The symbol "X," stands for any full figure which does not
include a five or a cypher. Therefore, the symbol "X" may
stand for the digits one to four, six to nine, eleven to fourteen, sixteen
to nineteen, and so forth and so on. The symbol "5" represents
all the multiples of five, such as five, fifteen, twenty-five, thirty-five,
etc. Note here, that the figure "5" is used only where the
figure ends in five and not when it ends in zero. The symbol "0"
is used to represent all multiples of ten in the progression of the
price movement, 10, 20, 30, 40, 50, 60, 70, etc. Examine, now, one or
more of the charts included in this book in order to get a better and
clearer understanding of the use of these symbols. Charts show in clear
and simple manner how to use the "X," the "5," and
the "0," in their proper places in the price progression and
the pattern formation which it creates. Examine Figure 4.1, headed "XYZ:
one point chart." Note how we have illustrated the use of all three
of the symbols. The first and lowest "X" represents the full
figure 34. The first figure, "5," immediately above the first
"X," represents the full figure 35 and indicates a progression
in an upward direction from 34, to 35, as the stock moves upward. The
"X" above the first single figure "5" stands for
36. This shows a move of two points from full figure 34, to full figure
36, or a move to 36 7/8, which would be the fullest extent
of an upward move represented by an "X" in the 36 square.
The second full figure "5," indicated in the next right-hand
column, again represents the price progression and a reversal of the
former trend. MOVING
TO NEXT VERTICAL COLUMN Note, here, one of
the most important principles in plotting the price movements by the
Point and Figure Method. When the trend direction of a stock changes
and the required square is already occupied by a symbol, it is necessary
to move over to the next adjacent right-hand column. This is very important
and one of the principal stumbling blocks which may give you trouble
if you do not thoroughly understand it. The chart of "XYZ"
at this point indicates a move in a downward direction, from the previous
36 full figure or 36 and a fraction, to the full figure 35 or 34 and
fractions above the flat full figure 34. After plotting the
symbol in the 35 square, the trend again changes, and the price movement
progresses in an upward direction. The next full figure required is
a 36. Since the 36 square is open, we may plot this by recording our
"X" just above the "35" most recently recorded.
The move then continues in an upward direction registering 37 and 38,
before a reversal takes place. Thereafter, we are required to indicate
a downward move to 37 or fractionally lower, and since the 37 square
in the column is already occupied, we are required to move over to the
first right-hand column. Again the trend changes. Now we require a 38
indication, and the symbol "X" is placed in the square just
above the 37 most recently recorded. The move continues
upward, 39, and full figure 40, is registered. Here we have the first
opportunity of using the symbol zero. "0," then, is placed
in the square above the 39, on the 40 horizontal line. Thereafter, a
down move to full figure 39 is recorded and we find it necessary to
move over to the next right-hand column, because the 39 square is already
occupied. The stock then rallies to 40, and we plot the 40 above the
39 already recorded. A sharp down move follows, and the stock registers
full figure 35, before a change in trend takes place. This requires
symbols to be placed in the 39, 38, 37, 36, and 35 squares. Since the
39 square is already occupied, we move over one vertical column to the
right and indicate the down move to full figure 35. The stock then rallies
to 39, requiring symbols in the 36, 37, 38, and 39 squares in the next
adjacent right-hand column. Now a one point reversal is recorded, requiring
us to move over to the next adjacent vertical right-hand column where
we plot an "X" in the 38 square. The stock then rallies sharply,
making full figure 44, and we proceed with our recording, placing an
"x" in the 39, "0" in the 40 square, "X"
in 41, 42, 43, and 44 squares. Now a reversal takes place, and the stock
sells off making the full figure 41. Again we are required to move over
to the next right-hand column in order that we may record our "X"
in the square for 44, and we carry to 43, 42, and 41, terminating the
move as indicated. In order to make it clear for you, we have designated
the direction of the move by showing a black line superimposed over
our symbols on this illustration. Note that we have used the symbol
"X" to indicate the prices 34, 36, 37, 38, 39, 41, 42, 43,
and 44. The symbol "5" indicates the price 35, and the symbol
"0" indicates the price 40, in recording the full figure changes. When we commence to
plot the movement of a stock with the full figure 34, no change is made
until either full figure 35 or full figure 33 is registered on the tape.
Thus, should the stock go down from 34 to 33.22 no change on our records
would be made. Similarly, a move upward to 34.88 would be disregarded.
You see, therefore, that a stock may fluctuate less than 1 points without
requiring any change on our Point and Figure data.
Fractional fluctuations
are disregarded unless a new flat full figure is completed. We urge
you to trace carefully, again, the move in XYZ by one point fluctuations
as illustrated in Figure 4.1. Note the fact that fractional fluctuations
are completely disregarded. A move which fails to record a new flat
full figure is considered of no importance and, therefore, not taken
into consideration. Since vertical line
bar charts have come into wider vogue, several technicians have laid
down certain principles based upon the phenomena known as gaps. Gaps
on a bar chart are created as a result of a thin market and occur (1)
when the high of a day is lower than the low of the preceding day, and
(2) when the low of a day is higher than the high of the succeeding
day. Thus, you see, one gap is created by strength which leaves an opening
between the low of the new day and the high of the previous day, and
the other by weakness, which leaves a gap between the low of the preceding
day and the high point made after the weakness developed. In vertical line technique,
commentators have noted that gaps created by a thin or unusual market
are, as a rule and in the majority of instances, closed over sooner
or later by subsequent market action. The principle of gaps and their
subsequent closings is not to be relied upon in all instances. While
it is customary for gaps to close shortly after they are left by market
action, it is not a fixed rule, and cannot be thoroughly relied upon.
Gaps exist in many issues, both above and below present market action.
In rare cases, some take years before subsequent action will close the
gap. The Point and Figure Method completely disregards the gap phenomenon
and its theory. Since we are interested in price fluctuations and the
recorded trail of the price path, the mere fact that no transaction
takes place at any particular point in that path is of little consequence
and is not taken into consideration. Let us illustrate and
show you an actual example of how the Point and Figure Method provides
for gaps in the price track of a price movement. Let us assume, for
instance, in XYZ, that full figure 38, recorded at the bottom of the
fifth rally when the stock moves down from full figure 39 to full figure
38, represents the closing at a particular day, and that overnight some
bullish news is released unexpectedly and a sudden demand is created
for the stock of the XYZ company. A news item such as "XYZ dividend
rate raised from $2 to $4" might create such a situation. Let us
suppose that some trader wishes to buy one thousand shares quickly believing
that subsequent market action will show good profit for a new position
established at this point. He places an order with his broker to buy
1,000 shares of XYZ, "at the market." The quotation on XYZ,
is: "38.5" bid, offered at 40." The block of shares offered
at 40 is only 200, and, therefore, the broker must take 200 at 40, 100
at 40.25, 100 at 40.75, 300 at 41, 100 at 41.20, and 200 at 41.75.
This transaction on
the tape would have appeared as follows: With the previous close
having been registered at 38, these transactions shown on the tape would
require the following changes in our graph: Following the 38 in
the vertical column and above, an "X," would be plotted in
39, even though no transaction appeared between the previous 38 and
the opening 40. The next symbol recorded would be the zero in the 40
square, and then the "X" in the 41 square, representing transactions
up to and including the 200 shares sold at 41.75. Subsequent action of
XYZ for the rest of the day included a continuation of the strength
up to 44.85, followed by a reaction to 41.0 where the stock closed.
That action on the tape would be illustrated by a continuation of plotting
"X's" in the vertical column up to and including the "X"
representing the figure 44, and then the reversal of the trend showing
the "X" in 43 moving over to the next right hand column, then
42, and finally 41, where the stock closed. Thus, you see, in order
to develop the proper technique for creating reliable patterns on our
Point and Figure Charts, we disregard the theory of gaps since it has
no influence on our conclusions. Since all conclusions
and subsequent records are compiled from your one point charts, it is
the best policy to keep them with greatest care. One point charts should
be made in the simplest manner possible and by means of the "X,"
"5," and "0", symbols hereinbefore described. While any square ruled
paper may be used for this purpose, it is better to use the specially
designed paper which is available for this purpose and which will permit
the accurate plotting of trend lines and the quick recognition of the
5 and 10 levels, as well as the full fulcrum, the catapult, and semi-catapult
as they develop. In order to get a better and clearer conception of
market action, it is advisable also to compile a substantial quota of
charts and keep them up to date, since a comparison of the patterns
formed on the individual charts will enable you better to judge the
important trends and the vital turning points. No matter what your plans
may be, whether you trade for the shorter swings or invest for the longer
pull, you will require these one point charts. No reliable analysis
of technical condition can be made without them. It is from the one
point charts that we are able to recognize zones of accumulation, the
beginning of the mark-up, the vital points at which to place long positions,
the critical points at which stop orders should be placed, and, finally,
indications of distribution. THE
THREE POINT AND FIVE POINT CHARTS In addition to these
one point charts, we will require, as a check on our work, three point
charts of the same stocks and averages which we have plotted by one
point moves. Three point charts are a resume of the action and are compiled
solely from the moves indicated on your one point records. These three
point charts enable you to keep a clear picture of the intermediate
swings of most stocks. They give a true basis for analysis of the more
volatile issues. CONDENSING
THE ONE POINT MOVES Three point charts
eliminate minor technical fluctuations and show the broader congestion
areas. In making your three point chart, you must always remember that
your one point records must show a move of not less than three points
in the opposite direction before it is recorded on your three point
condensation chart. For example: We start with the figure 40. Your one
point chart must show a move to the figure 43, before any record whatsoever
is made on your three point chart. This move from 40, to 43, would be
plotted on your three point chart in the same manner as it is plotted
on your one point chart. From 43, before we could plot a reversal on
the three point chart, your stock must register a reaction to 40, or
lower. However, should it react to 42, or 41, no change would be made
on the three point chart. Now, in minor technical reactions to 42, or
41, followed by a subsequent rally, which would go above the previous
43, the move would be plotted by one point moves in the same column
on your three point chart as the price advances above 43. Let us say,
for example, that the stock rallies to 47, without a full three point
reversal from 43. The added figures on your three point chart would
be 44, 45, 46, and 47. Thus, you see that your three point chart will
show a straight run from 40, to 47, with no other indications recorded.
Temporary declines of less than three points are ignored on this chart,
and continued subsequent advances above the previous high prices, should
they occur, are carried forward by one point registrations in the same
column. Three point charts are plotted only of trend reversals which
are three or more points in extent. In all other respects, your three
point charts are made in the same manner as are your one point charts. The five point charts
condense the price changes to moves of five points or more but not less.
They are helpful in connection with the indices when prices fluctuate
broadly and when they register in the higher price ranges, such as was
witnessed in 1929. Five point charts are also very helpful in that they
simplify the interpretation of the wider moving highly volatile stocks.
Issues which advance or decline thirty to fifty points in a single intermediate
market cycle must be plotted by five point moves, since these charts
give the most dependable and satisfactory presentation of the technical
condition of the issue. Five point charts are also helpful for the determination
of the main and long term trends. They condense the time factor and
show long term accumulation and distribution, thus indicating the trend
or movement of capital as it comes into variable equities - common stocks
- near the bottom of a bear market, and as it moves out of variable
equities into bonds or other forms of wealth, at or near the top of
a bull market. Five point charts are not necessary for all stocks and
need only be kept of the highly volatile issues and the market indices. The technique of preparing
five point charts is exactly the same as that of preparing three point
charts with the exception that it requires a reversal in trend direction
of five or more points before that reversal is plotted. Continuations
of direction of trend are plotted by one point moves until a full five
point reversal is recorded on your one point chart.
The three types of
charts enumerated above may be considered the foundation and scientific
keystone upon which this Method is based. In addition, it is sometimes
advantageous to make half point charts of complete half point movements
in low priced stocks which do not fluctuate sufficiently by full one
point moves to give a satisfactory record on one point charts. Furthermore,
half point charts are helpful in plotting the Dow Jones Industrial Index
on an hourly, as well as on a half hourly basis.
THE
METHOD SUBSTITUTES FOR TAPE READING The half point charts
are very helpful for many purposes. They permit the exponents of this
Method to entirely eliminate from their operations the need for watching
the tape. Under present day market conditions, half point charts of
individual stocks, as well as half hourly changes, of the Dow Jones
Industrial Index comprise a better and far more reliable basis for judgment
than can be had from tape reading. Half point and quarter point charts
are more sensitive and give an understandable basis for a detailed record
which is vastly superior to the memory of any human being. A running line of the
Dow Jones Industrial Index, compiled on a half hourly basis, is very
helpful as an aid in determining the narrow swings of the market. The
running line index will be fully explained elsewhere in this work. In
plotting commodities, it is sometimes helpful to compile your charts
on the basis of quarter point moves or half point moves, as the occasion
requires. In some instances, when the commodity prices fluctuate in
money values as expressed in units and tens, our primary data charts
can be made of each tenth penny fluctuation. Since we ignore fractions
when making our one point primary charts, we would ignore fractions
between the full figure and the half figure in making half point charts.
Quarter point charts would be made by ignoring all one-eighth point
moves. We urge you, when making
your Point and Figure Charts, to be sure to get all of the fluctuations.
TREND
OUTLINE AND GEOMETRICAL CHARTS Students and observers
who are beginning to recognize the importance of a sound knowledge of
stock market technique will find the trend outline and geo- metrical
charts exceedingly helpful. Though not absolutely essential in the application
of this Method, they are easy to read and very helpful. Geometrical
charts are especially helpful since they show the trading range congestion
areas and manipulation. They are also of great assistance to those who
wish to use "stop orders," for the reason that a clear picture
of the trading range limitations is always indicated. Trend outline charts
are made by merely joining the tops and bottoms, the extremes of the
moves, with a diagonal line. They are illustrated in Figures 4.1 and
5.1. These charts differ from vertical line charts and are sometimes
used by vertical line technicians as a condensation of the conventional
vertical line charts. They enable one to eliminate the time factor and
show the important swings of prices - the trend of speculation. The geometrical chart
is made by plotting the extremes of moves with horizontal lines and
joining these horizontal lines by vertical lines, thus creating a geometrical
pattern. (See Figure 5.2.) Both geometrical and
trend outline charts may be superimposed upon your one, three and five
point charts by plotting the trend outline or the geometrical Fig 5.1 XYZ: one point
trend outline Fig 5.2 XYZ: one point
geometric pattern over your symbols
either in ink, or in crayon of different color from that which you use
for the purpose of recording your basic data. When preparing a set
of charts, it is natural and wise to plot the foremost market leaders.
From time to time, market leadership will change. Therefore, as one
group or one issue loses its popular investment or speculative following,
it will be necessary to start charts on the new leaders. The following
issues are suggested, at this time, as a good grouping, and, if carefully
compiled and analyzed day by day, will guide the student and observer
to a proper and prompt recognition of the vital turning points in the
market: Air Reduction Allied Chemical American Can American Smelting American Sugar Refining American Telephone American Tobacco "B" Atchison Auburn Automobile Case Threshing Machine Celanese Consolidated Gas Dome Mines DuPont General Motors International Harvester National Biscuit New York Central Sears Roebuck Standard Oil of N.J. Union Pacific U.S. Industrial Alcohol U.S. Steel Western Union Woolworth
No two technicians
would select or agree upon the same list of leaders; therefore, we leave
it to your individual selection to plot and record those issues which
suit you best. However, keep a broad group so that the influence of
their united action, both from the investment and speculative angles,
will guide you in the recognition of important zones of accumulation,
the trend of the market, as well as the zones of distribution.
In a subsequent volume,
the authors of this book will show in full detail, application of the
Point and Figure Method to the analysis of commodity price movements.
The Point and Figure Method has been used successfully as an aid in
anticipating the future price movements of wheat, cotton, corn, grain,
silver, and any other basic commodity dealt in on any Exchange where
a free and open market exists and price change fluctuations are carefully
and accurately recorded. As the work applying to commodities is more
highly technical and more advanced, this subject cannot be discussed
now. Those desiring to use the Point and Figure Method for the purpose
of anticipating commodity price movements should and must master thoroughly
all of the principles explained in this work as well as in the book
Advanced Theory and Practice of The Point and Figure Method. CHAPTER 6 The fulcrum Leverage Watch for a fulcrum The ideal full fulcrum Down trend a prerequisite
to fulcrum formation Supply equals demand Advantage of figure
charts The buying points The broad fulcrum The recoil fulcrum The catapult The true catapult The false catapult The semi-catapult Use "stops"
to protect position We have stated that
three scientific principles of mechanics known as the fulcrum,
catapult, and semi-catapult are important to this Method
and form the keystones upon which it is based. In the science of mechanics,
the fulcrum is defined as "the support on which a lever turns and
the means by which influence is exerted." Leverage is defined as
"the mechanical power gained by using a lever." A lever in mechanics
is any rigid bar capable of turning about a fixed point and having counteracting
forces applied at two other points. Since the purpose of
all observation and study of stock price movements is the determination
of the important points from which the rallies and declines have their
inception, the pattern known as the fulcrum must be carefully regarded
when it develops on your Point and Figure Chart. The fulcrum may develop
as a base or as a ceiling near the top of the move where it will form
in reverse. It invariably forms at the extremes of an intermediate cycle.
As in mechanics, where
the principle of leverage is operative through the fulcrum point, so
on your Point and Figure Charts, leverage is created when a congestion
area forms a fulcrum after an extended move in the price of a stock.
As the course of the price path builds up patterns on your Point and
Figure Chart, you will begin to notice three types of fulcrums which
occur and recur at the vital turning points in the price movement. These
patterns repeat themselves very often and with such regularity that
you will soon reach the conclusion that no advance or decline of proportions
worthwhile anticipating can occur unless the inception of the move arises
from one of these three types of fulcrums which we will later describe
in detail. After a base has formed
and it develops to be a fulcrum, the leverage there exerted creates
a rally of such force and extent that the stock soon reaches the catapult
point from which it quickly develops a further sharp upward movement.
Therefore, it becomes one of the cardinal principles of this Method
to be on the alert and heed carefully the development of a fulcrum formation
on your chart. Three types of fulcrums will develop: (a) the ideal
fulcrum, (b) the broad fulcrum, (c) the recoil fulcrum.
The ideal full fulcrum
always develops at the bottom of secondary culminations and at the top
of major swings in new high territory (see Figures 6.1 and 6.2). It
may be considered as the head and shoulder formation at the top and
the reverse head and shoulder formation at the bottom. It develops as
a result of forces, which, when they occur, always create two ideal
positions for students of this Method to observe carefully and make
long commitments from which quick and substantial profits soon accrue.
Fig 6.1 The ideal fulcrum Fig 6.2 The ideal fulcrum
DOWN
TREND A PREREQUISITE TO FULCRUM FORMATION The ideal full fulcrum
develops after a down trend has been halted and the price path builds
up a pattern which moves over in the trend channel from the lower trend
line to the upper trend line as a result of a series of rallies and
declines. This action builds up a congestion area with a flat base.
From this series of minor rallies and declines, two to five points in
extent, which halt within a limited range developing a flat base, a
sharp quick rally occurs that may result either from short covering
or actual buying which creates the sharp run-up because of the absence
of offerings overhead. This sharp advance is then usually followed by
a temporary corrective decline which is arrested at a point above the
low level established before the first run-up. Subsequent to the second
series of rallies and declines, another sharp advance develops which
must exceed the high point of the previous rally. The second high point,
which is a full figure above the previous rally top, then becomes a
catapult point. Once the stock has
developed sufficient strength to hurdle the catapult point, it usually
and speedily develops a substantial advance to higher levels, and the
reverse occurs when this formation appears near the top of an extended
advance. The full fulcrum develops
at the point where the center of gravity shows the balancing of the
forces of supply and demand. A down trend channel
formed prior to the fulcrum point indicates that the supply of stock
exceeds the demand. At the fulcrum point, the forces begin to balance.
After the first rally where the reaction holds above the previous base
level, equilibrium is regained and a new up trend channel is in process
of being established. Here, demand begins to overcome supply, and a
catapult point eventually develops. At the catapult point, demand has
overcome supply, and the advance to substantially higher levels begins.
Complete fulcrums may
develop in the market action of one or two days or possibly may take
several weeks. On many occasions, Point and Figure Charts will show
this ideal formation developing while conventional vertical line charts
show nothing more than a temporary halt in the down trend. And, in reverse,
at the top of a move such conventional vertical line charts would show
merely a failure to penetrate the previous top, while your Point and
Figure Charts would show a complete fulcrum formation in reverse.
Two important buying
points are indicated as the fulcrum develops on your chart. One is in
the base, with a stop order placed to limit loss from one to three points
below, and the second is at the catapult point with a stop placed below
the 50 per cent correction level, which must be considered a normal
reaction. The broad fulcrum (see
Figure 6.3), which will develop on your charts, requires close observance
and careful analysis. It develops as a result of two or more rallies
after the base has been formed and will occur after a full catapult
has developed but failed to carry through. Broad fulcrums may indicate
one of two conditions: either the lack of aggressive sponsorship, i.e.
the absence of aggressive buying, or Fig 6.3 The broad fulcrum
the close balance between
the forces of supply and demand. It is well to protect closely a position
which has been established in a fulcrum that later develops to be a
broad fulcrum. Seek the first opportunity to close out the position
by the "stop order" method after the stock has advanced above
your cost price. The recoil fulcrum
(see Figure 6.4) develops subsequent to a sharp and direct down move
after a base forms with ascending bottoms instead of flat bottoms. This
type of base usually develops a symmetrical triangle with the vertex
occurring just below the catapult point. You will observe that in the
recoil fulcrum a catapult position usually occurs a point or two over
the vertex of the triangle. Note, then, that this formation develops
as a result of a sharp decline followed by sharply descending tops and
sharply ascending bottoms. Fig 6.4 The recoil
fulcrum The next important
principle in the Point and Figure Method is the catapult which develops
after the formation known as the full fulcrum. The encyclopedia describes
a catapult as "an ancient military engine used for hurling missiles."
The word "catapult" is also defined: "to rush suddenly."
A catapult point on your Point and Figure Chart is that price from which
a sharp rally should develop. A catapult develops directly as the full
fulcrum is completed and is that point just above the previous rally
top created before the completion of the full fulcrum. Catapults are
of two types: (a) the true catapult, (b) the false catapult.
The true catapult (see
Figure 6.5) invariably develops profits without registering a reaction
which would cause loss to a commitment established at that point. A
minor, temporary, technical reaction from the catapult point or one
or more points above the catapult position is a normal occurrence, and
tolerable allowance should be made for it when establishing your position
at the catapult point. Occasionally, during
a period of indecision and uncertainty, near the bottom of a secondary
correction or near the top of a major move in a bull market, a new high
level above previous highs will be established, and either a false catapult
(see Figure 6.6) or semi-catapult develops. When a false catapult develops,
we must be on the alert, for a stock which creates false catapults is
in the act of changing its technical position. The failure of a catapult
to develop profits immediately is an indication that the congestion
area immediately preceding, which you may have diagnosed to be a full
ideal fulcrum, is developing into a zone of distribution and must be
carefully watched lest the previous base level be violated. In the great majority
of instances, your false catapult position will permit you to close
out your commitment without loss. A stock which has created a false
catapult will, in many instances, come back close to that point so that
you can sell out your position with but a fractional loss. This position
may be protected with a "stop" below the congestion area or a
"stop" just below the 50 percent reaction point after the
catapult has been developed. In either case, subsequent strength
Fig 6.5 The true catapult Fig 6.6 The false catapult
should be used to move
up your "stop-order" so that the failure of the position to develop
into a true catapult will not cause you serious loss.
In addition to the
two important points for establishing commitments, namely: (1) in the
base of the full fulcrum, (2) at the full catapult point; there develops
a third which is known as a semi-catapult position (see Figures
6.7 and 6.8). The semi-catapult position develops during an advance
in stock as a result of a minor, narrow and limited trading range congestion
area usually built up on your Point and Figure charts and from which
a stock has a minor technical correction. A semi-catapult point, in
this instance, develops after a technical setback when the stock rallies
and creates a new high above the immediate preceding congestion area
top. There are both true and false semi-catapults which
develop in the price progression (see Figures 6.7 and 6.8).
USE
"STOPS" TO PROTECT POSITION The semi-catapult position
is the third important point at which to place your commitment. It usually
develops profits quickly for you. The proper place for "stop-order"
protection on this commitment would be below the low made during the
technical correction. After strength develops, the "stop"
thus placed below the technical reaction level should be advanced to
an "at the flat" position, thereby insuring the commitment
against loss. Fig 6.7 The true semi-catapult Fig 6.8 The false semi-catapult
CHAPTER 7 The one point chart Move to next column Signs of a fulcrum Technical aids The three point chart Determining three point
moves The use of five point
charts For the purpose of
giving you a clear understanding of the plan by which the charts are
made according to the Point and Figure Method, and illustrating the
coordination of the one with the three point or the one with the three
and five point charts, we show an hypothetical move in the common stock
of the XYZ corporation. Figure 7.1 is a one
point chart illustrating a theoretical move of the common stock of the
XYZ corporation. The first full figure change shown on that chart is
the symbol "5" recorded at the top of the first vertical column.
This indicates that the stock sold at 25 or between 25 and 257/8,
both inclusive, on the first day in January. In order to indicate
that this was the first full figure in the month of January, instead
of using the symbol "5," we substitute therefore the symbol
"J." "J" indicates that this transaction is the
first full figure transaction to be recorded in the month of January. From the level of 25,
the stock sells down to 21, or fractionally lower, but not below 20.88
before it rallies. This calls for symbols in the squares representing
24, 23, 22, and 21. From the low on this reaction, the stock rallies
and makes 24, or fractionally higher, but not above 24.80, before a
reversal is recorded. Therefore, to plot the rally, we put the symbol
"X" in the squares for 22, 23 and 24.
Note, here, that the
rally requires moving over to the next right-hand column, because the
square 22, in which we were to place the symbol "X" was already
occupied, and we move over to the second vertical column. We proceed
to plot 22, 23 and 24, and then a one point reversal calls for a symbol
in the 23 square, which, being already occupied, requires us to move
once more to the next right hand column. Moving up, we place a symbol
"X" in the 24 square, and the symbol "5" in the
25 square. Then weakness develops which is stopped at 20, or above the
flat figure 19. This requires symbols to be placed in the 24, 23, 22,
21, and 20 squares. In the 20 square, we place the symbol "0"
as indicated on the chart. From 20, a rally develops to 23 and a fraction,
requiring symbols in the 21, 22, and 23 squares. Thereafter, further
pressure develops and a reaction during the latter part of the month
carries XYZ down to 15. We place symbols in the 22
Fig 7.1 XYZ: one point
chart and 21 squares, a zero
in the 20 square, "X's" in the 19, 18, 17 and 16 squares,
and since the full figure 15, is registered on the first day of February,
we use the symbol "F" to show that the full figure 15, was
the first full figure registered in the month of February. A rally then
develops to 18, which is plotted as indicated; a reaction to 15, plotted
as shown; another rally to 17; a reaction to 15, which is the first
full figure change registered in the month of March; a rally to 16;
a reaction to 15; and then a sharp short covering rally to 19.
Here we have the first
indication that a fulcrum is forming since the congestion area has moved
the pattern over to the upper trend channel line. A short covering rally
carrying the stock to 19, meets the requirements of our ideal fulcrum
formation. After the rally, a sell-off carries the stock back down to
16, rally to 17, reaction to 15, rally to 18, reaction to 16, rally
to 17, reaction to 16, rally to 19, reaction to 18, rally to 19, reaction
to 18, and then a rally establishing a full catapult position at 20,
which promptly carries through to 25. Here develops a minor technical
reaction to 23, a rally to 24, reaction to 23 and another rally establishing
another full catapult position at 26. The stock now rallies sharply
from the full catapult at 26, until it makes a high of 36, for the move.
Then there is a reaction to 31, a rally to 35, reaction to 32, a rally
to 34, and then a reaction to 27. These moves are clearly illustrated
on the one point chart, Figure 7.1, which we ask you to study carefully.
In addition to
the symbols, "X," "5," and "0," we use
the first letter of each month to show the first whole figure recorded
in that month. Dividend payments and ex-dividend dates are registered
by plotting a circle to encompass the first full figure registered on
or after the ex-dividend date. When the stock sells in a zero square,
on or after the ex-dividend date, instead of using a circle to encompass
the square, which might complicate matters, we use a dash in the center
of the zero symbol used to indicate the multiples of tens on our charts.
In addition to indicating dividend payments with the circle and dash,
we make a memorandum at the foot of the column to show the amount of
the dividend paid, and the date the stock sells ex-dividend. This principle
of indicating dividend payments and dates is not illustrated on our
theoretical charts, but it will be found on other charts contained in
this book. Examine carefully this
one point chart of XYZ which we used to illustrate the move and which
we have traced with you. Note the fulcrum formation as well as the full
catapult position indicated by arrows. We shall proceed to
show you how a three point condensation chart is compiled from the one
point record just completed. Take the three point
chart of XYZ, Figure 7.2, and compare it with the one point chart, Figure
7.1. Let us trace the move. The three point chart starts with the first
full figure 25, records the reaction as noted on the one point chart
down to 21, as well as the rally to 24. The three point chart disregards
the reaction to 23, but Fig 7.2 XYZ: three
point chart when the rally from
23, to 25, registers 25, the three point chart properly shows the move
by adding a 5, above the 24 square already recorded. The next move which
is transferred to the three point chart is the reaction down to 20,
followed by the rally to 23, and then the reaction down to 15, because
each of these moves is three points or more. Since the rally to 18,
is three or more full points, we show it on our three point chart and
plot the move 16, 17, 18. This is followed by a decline to 15, again,
which is also plotted. Then comes a series of minor rallies and declines
less than three points in extent which are ignored by our three point
technique. The next move of importance
which is plotted on the three point chart is the rally which terminates
at the figure 19. Notice that we plot 16, 17, 18, and 19. The reaction
from 19, to 16, is also plotted on the three point chart, but the subsequent
rally to 17 is disregarded. Where the reaction from 17, to 15, occurs,
the fact that the 15, is lower than the 16, plotted on the three point
chart causes us to add the 5, below the last 16 recorded. The rally
from 15, to 18, being three or more points in extent, is plotted and
we add the squares 16, 17, and 18. There follows, then, a decline to
16, a rally to 17, another decline to 16, all of which are disregarded
until the subsequent rally to 19. This requires that we put an "X"
above the previously recorded 18, and our three point chart now shows
a rally from 15, up to 19. The minor rallies and declines of one point
from 19, to 18, and up to 19, down to 18, up to 19, again are all disregarded.
However, the move from 18, up to 25, is plotted on the three point chart,
but the reaction on the one point from 25, down to 23, rally to 24,
the next reaction to 23, all are disregarded, and the next move which
carries through the catapult point to 36, is plotted. The decline to 31,
is recorded, likewise the rally to 35, also the decline to 32, but the
rally to 34, being less than three points, is ignored. The decline which
follows carries down to 27, requiring on our three point chart the added
figures of the last decline calling for symbols in the 31, 30, 29, 28,
and 27 squares. Thus you have learned
that in compiling a three point chart from the moves already recorded
on your one point chart, we plot on the three point chart only rallies
or declines which are of three or more full points in extent. In order
to determine which are the moves to use, we consider the last recorded
figure as zero, and count one, two, three. If the move carries to the
third square or further, we record it. If it is less than three full
figures away from the previous point recorded, it is ignored. Notice,
also, a move which carries beyond the previous recorded point in the
same direction is carried forward when a further move of one point or
more past the previous high or low price is registered on the one point
chart. The principle involved
is as follows: Record all moves
of three or more points in extent. Disregard reactions or reversals
of less than three points. Continue the previous recorded direction
by one point plottings as soon as the price exceeds the previous low
or high. Three point charts,
in addition to their function of general condensation, form the basis
for analysis of the more volatile, highly speculative, medium and high
priced issues, and for the broader swings of the market. Three point
charts also show the worthwhile intermediate trend swings, because they
eliminate all minor technical corrections. Five point charts are
used to indicate broad zones of accumulation and distribution in the
main trend when plotting the market indices, and are used as basic condensation
charts for the more volatile issues which move 10, 20, or 30 points
in a single speculative cycle. Five point charts condense the time factor
and show long term accumulation and distribution, and are invaluable
guides to the Capital Movement Trends. Turn, now, to Figure
7.3, five point chart of "XYZ" Notice, here, that we plot from
the one point data only those moves which are of 5 or more points
extent. A stock must rally or decline to the fifth from the last recorded
square before our five point chart records a reversal. Nevertheless,
a continuation of the move in the already plotted direction is recorded
by one point additions until a full five point reversal occurs. In making
five point charts, we determine whether or not the move is plotted by
starting to count zero at the last recorded square, then, if the move
is to or beyond the fifth square, it is plotted. Compare your five point
chart of XYZ, Figure 7.3, with your one point chart, Figure 7.1, and
note how this Method provided a highly efficient condensation of the
time factor. Fig 7.3 XYZ: five point
chart
CHAPTER 8 The price path characteristics Patterns of the leaders
duplicated in the secondary issues Solid formations give
confidence Watch for changes in
activity Strong and weak technical
position Weak technical position Gauging the length
and culmination of the moves The count Coordinating your studies
After you have gained
a comprehensive understanding of the Method and the technique of making
the charts, the next step is to study the formations as they develop,
and then to classify and analyze them. It is important to know whether
a stock is under accumulation in a strong technical position, under
distribution in a weak technical position, or merely in an indeterminate
neutral position. THE
PRICE PATH CHARACTERISTICS In studying the movements
of stocks, it is well to have in mind the old saying, "Stocks
must fluctuate." Price paths on your one point charts will
develop patterns that reflect the peculiar characteristics of each stock.
You will begin to observe that a given advance in a certain issue is
usually followed by a definite type of technical correction. You will
be amazed to observe the harmonious rhythm with which certain types
of issues advance or decline, and which generally repeat themselves
in the price progression path. While some stocks move harmoniously,
other issues are very erratic with sharp advances followed by equally
sharp declines, and thus complete their technical correction.
PATTERNS
OF THE LEADERS DUPLICATED IN THE SECONDARY ISSUES You will note, again
and again, that the key issue in any group develops its characteristic
pattern, which is usually duplicated by the secondary issues in the
same group. A catapult developing in the leader of the group one day
will more than likely be followed by a similar formation in the secondary
issues soon thereafter. Study carefully the number of points advance
and the correction area which follows. Learn whether the correction
area is a reaction of 50 or more per cent of the advance or a congestion
area in which the stock fluctuates back and forth while it is consolidating
the move. The first correction which is greater in proportion to the
last advance than the previous corrections which occurred during the
advance is the first sign of distribution. Watch carefully for the first
more than normal reaction. SOLID
FORMATIONS GIVE CONFIDENCE During an advance,
we prefer to see fairly solid congestion areas after each markup. This
indicates each stage of the advance to be well consolidated before the
next up move develops. When the progression of the move proceeds with
only normal and minor technical reactions, it is an indication that
the technical condition of the stock continues strong. If the formations
are irregular and confusing, with no uniformity of pattern, we suggest
caution. It is an indication of conflict and uncertainty. Such formations,
during a major advance, give rise to hollow spaces similar to air chambers
beneath the congestion points. These occur as the technical corrections
over-extend themselves and create intervening blank spaces in the form
of arched ellipses, semi-circles or irregular hollow patterns. Such
formations are usually advance warnings of stubborn resistance to the
advance and indicate supply meeting demand at the higher levels, with
a strong possibility of a change of trend forthcoming. This indication
developing on the three point chart is particularly indicative of the
imminence of a reversal in trend. You will observe from
your charts that stocks fluctuate narrowly during periods of major accumulation.
Soon thereafter, activity, sharp advances and equally sharp technical
declines follow. This is usually a sign of the beginning of an extended
move. Watch carefully for it. When a stock alters its most recent fluctuating
habits, it is wise to be on the alert, for it is a sign of either accumulation
or distribution. STRONG
AND WEAK TECHNICAL POSITION The technical position
of a stock or the market, as represented by an index, is strong when
demand exceeds supply. This condition develops after a period of accumulation
which has followed a major decline. A strong technical condition also
exists after a mark up followed by a congestion area which develops
to be consolidation. When stock is purchased
and taken out of the floating supply, technical condition is very strong.
As a stock develops a strong technical position, the one point charts
should show an extended line of work in the congestion area, either
with a well formed, fairly solid, flat base, or a series of bases like
a descending stairway, the bottom base containing the greatest number
of squares along the support line. This type of base occurs very often.
An exceedingly strong base develops after a sharp decline when each
successive rally and decline builds up a triangle with its vertex to
the right. When this formation develops to be accumulation, an extremely
strong technical position exists. A weak technical position
develops after a series of extended advances which are uncorrected by
congestion areas of consolidation. As the move progresses, the advances
are not as vigorous as the early ones, and soon the ascending move begins
to give way to a series of confused and halting patterns created by
the churning motion near the top, which you will recognize as distribution.
This formation occurs when supply begins to overcome demand. At this point, it is
important to check against your three point charts in order to observe
the consolidated moves and to judge whether or not a real ceiling, which
is apt to precede a drastic reversal, has been formed. Should this formation
near the top of an extended move begin to develop reactions which leave
air pockets, arched ellipses and other hollow areas beneath the congestion
zone, it is an ominous sign and time to close out the position or to
protect it by close stops. GAUGING
THE LENGTH AND CULMINATION OF THE MOVES For the more advanced
students and technicians, the Point and Figure Method affords a purely
mechanical means of judging the length and culmination of future moves.
This system, although not absolutely accurate, is extremely helpful
in judging the proper moment to close out a position. It is truly mechanical
and involves little judgment to make it operative.
This system, an individual
characteristic of the Point and Figure Method, is popularly known as
"the count" to students and technicians. Because of the fact
that it is somewhat involved and requires a lengthy explanation with
multitudinous concrete examples and considerable study before it can
be understood, it is omitted from this volume and will be found in the
more advanced work entitled The Advanced Theory and Practice of the
Point and Figure Method, by the same authors. We have stated that
it is vitally important to record the action of the market by plotting
the important and popular indices, as well as the half hourly, half
point movements of the popular Dow Jones Industrial Index. The conclusions
which you will make resulting from the study of the charts of these
indices should be used to influence the opinion arrived at from the
study of individual issues. It is well to remember that you buy and
sell individual stocks; therefore, it is most important for you to make
your commitments based upon your analysis of the individual issues,
substantiating your judgment through the influences of the averages.
Always remember that we buy and sell stocks and not index numbers.
You have now completed a full and detailed course on the elementary
principles upon which the Point and Figure Method is based. In order
that you may get a clearer understanding of how to apply your knowledge
of the Method, we will proceed to take you through a complete intermediate
trend cycle move of several issues as illustrated in Chapters 9 and
10. In Chapter 11 you will learn how to plot and analyze the half point,
half hourly running index lines of the Dow Jones Industrial Averages.
In Chapter 12, by aid of the Point and Figure Method five point chart
on which are plotted the moves of the New York Times index, we will
show you how a knowledge and application of this Method would have avoided
drastic losses which many suffered in 1929, when the last bear market
had its inception. Lastly, we will take you through the campaign of
Atlas Tack, illustrating to you the application of the knowledge you
have acquired, and showing how such knowledge and application would
have permitted you to buy and sell with the insiders and share in the
sensational moves which were completed by the insiders in that campaign.
CHAPTER 9 The full ideal fulcrum The catapult position The semi-catapult position Consolidating the gains The final mark up The end of the move
- a reverse fulcrum The short positions Geometrical charts The trend outline charts The three point figure
charts The five point charts Summary
Examine chart Figure
9.1, which shows the one point moves of U.s. Steel during the primary
trend cycle of 1933. Fig 9.1 U.S. Steel: One point chart (January 1933 - January 1934, page 1)
Figure 9.1, shows all
one point moves in U.S. Steel from the first day of January 1933, up
to near the close of the month of June of the same year. Charts like
this are compiled from the Full Figure Daily Data supplied by the publishers
or from the one point moves which you may obtain from actual tape action.
In the previous chapters we have shown the correct procedure for the
plotting of one point moves. Examine this chart Figure 9.1. Notice the
congestion area between the column Marked "A" and the one marked
"B." You will recognize this to be an ideal full fulcrum, which
meets almost exactly the requirements as laid down in the definition
for this type of formation. The first column indicates an up move starting
with the first day in January, after which the action proceeds with
its backing and filling until the low point was reached, and which was
established before the fourth of March, when President Roosevelt was
inaugurated. The rally to full figure 33 was created after the bank
holiday, when the market opened up sharply and exceptional strength
developed. The subsequent correction which carried down to full figure
27, was completed later in March. In April the stock began to develop
new strength and a sharp up trend was recorded with ascending bottoms.
Notice that the pattern
from the beginning of the year until the column marked "B" indicated
the required down trend, the first rally followed by a technical correction
which holds above the previous base level and then a succeeding rally
which develops a catapult point, both of which are indicative of a trend
reversal. Note in column "C" the full figure 34, indicated
with an arrow. This is the most important of all signals given by the
Point and Figure Method. It is a full true catapult point. Observe that
ten points quick profit develops after a position is established at
this point. An order placed to "Buy U.S. Steel on stop at 34,"
would show ten points quick profit without registering even a small
paper loss. The congestion area
which begins to register in the column "D" and carries forward to
the column "E" is a temporary halting of the up trend. It is
the type of congestion area which develops a semi-catapult point. In
column "F", full figure 45 develops to be the semi-catapult
point and substantial profits accrue to this position without subsequently
showing any loss to a position thus established. While the move from
45 was not as spectacular as the one from 34, nevertheless, it developed
more than 18 points profit before the end of the move was completed.
Note the one point
decline and subsequent rally plotted in column "G." Here is
indicated a temporary supply of stock at the 49 level, which is blocking
further advance. The stock reacts from 49, to 47, rallies again to 49,
and then reacts to 46, in column "H." Column "I"
shows good buying around the 46 level because the second decline fails
to go lower and creates a double bottom at 46. Thereafter, the stock
develops strength, and in column "J," a new semi-catapult
develops. A reaction follows, in column "K." In column "L,"
it goes through to new high ground forming a new semi-catapult at 51.
A small reaction then follows and in column "M" a new semi-catapult
develops at 52. Now you will begin to notice that in the upper 50 zone
the stock is meeting definite resistance. The moves are not nearly as
sharp as they were previous to this point, and the progress, though
it goes somewhat higher to approximately 65 or 66, is made with great
effort and with many rallies and declines. New semi-catapults are developed
in column "N" at 55, and in column "0" at 57, when
a rally to 58 meets strong resistance and develops a double top, after
which the first extensive reaction is witnessed which carries the stock
in column "P" back down to the 51 level.
Here a sharp recovery
takes place which is plotted in column "Q." Such a sharp recovery
from a low of 51, indicates technical strength. The reaction from 58,
down to 56, is another bullish implication because it is a normal correction.
Then the stock rallies back to 58 making a quadruple top at this point.
The subsequent decline to 54, where another double bottom is established,
is bullish because it holds substantially above the previously recorded
low point at 51. New semi-catapults develop at 59, and at 61.
THE
END OF THE MOVE - A REVERSE FULCRUM Figure 9.2 shows the
continuation of the move of U.S. Steel which was carried forward from
the point left off in Figure 9.1. Notice the congestion area which builds
up around 65, and note further that for the first time we have a quintuple
top and a failure to carry through the resistance level at 66 and 67.
The actual top Fig 9.2 U.S. Steel:
one part chart (January 1933 - January 1934, page 2)
of this move is plotted
and indicated by the arrow at 67. Here is the end of the primary bull
trend of U.S. Steel in 1933. From this point forward,
the secondary correction commences, and we see between columns "T,"
and "V," the congestion area known as a ceiling or fulcrum
in reverse with its top point plotted in column "U" and the
reverse catapult position at 63, indicated by an arrow, in column "U."
In column "W" at 56, a reverse semi-catapult position develops,
and the profits of a down move quickly accrue. Examine, now, the extended
congestion area plotted between the columns "W" and "Z."
Here you see an indication of a close balancing of the forces of supply
and demand. In column "Y," the failure of the rally to carry
further is an indication of developing weakness. Notice the down trend
which develops soon thereafter. In order that you may
have an understanding of the application of the one point geometrical
chart, we have plotted a part of the one point moves of U.S. Steel by
geometrical technique. This is illustrated in Figure 9.3. Examine it
carefully and compare it with the one point chart and with vertical
line bar charts of the same move. This will give you a clear illustration
of the advantage to be gained from the application of the Point and
Figure Method to stock price movements. In Figure 9.4 we show
the plotting of a trend outline chart of the three point moves of u.s.
Steel. These charts, while not necessary in a technical analysis, are
sometimes very helpful to students who will take the time to draw them.
Fig 9.3 U.S. Steel:
one point geometric chart (January - August 1933) Fig 9.4 U.S. Steel:
three point trend outline chart (January 1933 - January 1934) Figure 9.5 is a three
point condensation chart compiled from the one point data of Figures
9.1 and 9.2, and shows the moves of U.S. Steel from the beginning of
the year 1933, up to the end of September of the same year. Notice how
the catapults and the semi-catapults develop on the three point chart
and how they confirm the conclusions arrived at through the study of
your one point charts. One Fig 9.5 U.S. Steel:
three point chart (January 1933 - January 1934)
should always compile
a three point chart for everyone point chart that he keeps. One and
three point charts are vital and essential to a proper application of
the principles of this Method. In Figure 9.6 we show
the five point moves of U.S.Steel. The five point data is obtained from
the one point charts Figures 9.1 and 9.2. Five point charts are very
helpful and show the broader zones of accumulation and distribution.
They should always be compiled to show the moves of the main indexes
and the volatile issues. When you attempt to
establish a long position near the base of a fulcrum, your stop must
be placed very close. Your position established at the catapult point
must allow for a 50 per cent correction of the last advance. The same
is true for the semi-catapult points. Note that the further the move
has extended itself from the full fulcrum base, the more dangerous it
is to establish a long position. After an extended advance, you run
the risk of a more than normal technical correction touching off your
stop. Be patient. Before you establish your position wait for the terminations
of secondary corrections in a bull market. Analyze your formations carefully;
then proceed with confidence as the full fulcrums and catapults develop.
Fig 9.6 U.S. Steel:
five point chart (January 1933 - January 1934)
CHAPTER 10 Selecting the fast
moving issues The full fulcrum base The catapult The semi-catapults The short positions Summary
One of the most widely
known multi-millionaire stock market operators, who lived and prospered
at the turn of the last century, used to counsel his friends to buy
Western Union Common whenever it was available around $50 a share. Western
Union common has a $100 par value and formerly paid an $8 annual dividend.
It was considered one of the prime blue chips. In the 1929 bull market,
Western Union sold above $270 per share. In 1932, at the bear market
low, its price registered $12.375. Hundreds of thousands of shares were
turned over at price levels far below $50, which was the level at which
the older generation of authorities counseled their friends to buy.
It sold at one quarter that price at the bear market low.
SELECTING
THE FAST MOVING ISSUES In 1933, a remarkable
campaign developed in this issue. It began around the end of February,
or the beginning of March as shown on the chart, Figure 10.1. The stock
was available between $18 and $20 a share for many days during February,
March and April. In a very few weeks it advanced sharply and in a spectacular
manner from the level of 18, to more than $75 per share. Here you have
a move with a possibility of more than 300 per cent profit, since $1,800
invested in 100 shares of this stock would have grown to $7,500 in a
short time. Notwithstanding such a tremendous profit percentage, there
was nothing about the move which was not clearly indicated on the charts.
You too could have had your share of those profits which were made by
many who understood the technical condition of this issue. Your one
and three point charts indicated the move weeks in advance.
Figure 10.1 is a one
point chart of Western Union. Observe that the down move was arrested
near the end of February and the beginning of March and how a congestion
area base with a flat bottom was built up between full figure 18 and
20. Note the sharp rally in the middle of the fulcrum when the stock
advanced to 27, in one sharp, rapid up surge from the low of 18. Here
was a sign of technical strength, a 50 per cent advance in the price
of that stock within one day's market action. Surely no one could have
failed to recognize such a definite signal. Its confirmation was had
after the correction which held firmly in a double bottom formation
established at 18, near the end of March and the beginning of April.
Fig 10.1 Western Union:
one point chart (January - July 1933, page 1) Here a new base builds
up at a somewhat higher level and the formation begins to meet the requirements
of the ideal full fulcrum. In column "A," when the stock has
advanced to 26, this fulcrum is completed. The arrow in the next adjoining
right-hand column pointing at full figure 27 shows the first full catapult
position. Take particular notice
of the firm and definite up trend which the issue establishes as it
advances from 20, up through the catapult point and establishes another
semi-catapult position at 30. This sharp up trend and its angle of inclination
is a confirmation of the strength indicated in mid-March and connotes
sharp continuation of the up trend soon to come. The advance begins
to develop in column "B" from the semi-catapult point at 30.
The stock soon rallies sharply to 38. A new semi-catapult
position is developed at full figure 39, in column "C." Then
follows a minor technical correction and a rally which establishes a
new semicatapult position at full figure 40, shown at the arrow point
in column "D." The congestion area terminating with column
"D," shows an excellent solid consolidation of the advance
with the stock reestablishing a strong technical position and indicating
a further sharp up move soon to follow. The rallies and declines between
column "D" and column "E" create further consolidation,
establish additional strength, and create a new semi-catapult at 44,
shown in column "E." Another semi-catapult is shown in column
"F," and still another in column "G." Notice how
sharply the stock now advances. An additional semi-catapult position
is shown at 62 in column "H." Here one must be on guard. The
stock has advanced from 18 to 64, shown on Chart Figure 10.1, without
a worthwhile technical set-back. Proceed, now, to Chart Figure 10.2.
Observe that the correction sets in. A reverse fulcrum develops
with a short position catapult indication at 58. This is indicated with
an arrow in column "I." A reverse semi-catapult develops at
54, indicated in column "J." After the down move in column
"K," notice the congestion Fig 10.2 Western Union:
one point chart (January - July 1933, page 2) area that builds up
between the columns "K" and "L." This is an ideal full
fulcrum, always a sign of developing strength, and an indication of
the termination of an intermediate swing. It is always a signal to go
long of the stock at the next catapult point. A catapult develops at
full figure 53, indicated in column "M." Profits soon accrue
as the stock rallies to 57 and a fraction. Some little resistance is
met at that point, and the stock makes a double top at 57, after which
it sells down to 53. In the zones between columns "M" and
"N," one would be justified in being somewhat hesitant and in
doubt about the technical position. The formation is a neutral one until
a double bottom is established at 52. The decline which establishes
the first 52, creates a new low after the 53, previously recorded and
is to be considered a cautionary sign. However, when the stock rallies
in column "N" and creates a new semi-catapult at 58, we have
an indication of new strength developing. Notice the semi-catapult which
is built up between column "N" and column "0," with
its miniature full fulcrum at the bottom. Again an excellent semi-catapult
position is built up at full figure 59, indicated with the arrow in
column "0." The stock continues its advance, but meets with
some difficulty, however, between the zones of 60 and 63. When it establishes
a new low at 59, indicated in column "P" we must be on guard. Any position now established
must be stopped close beneath the low made on the move which was recorded
at full figure 64. The zone from column "0," to column "Q"
is a congestion area, of the type which sometimes develops to be the
culmination of the move. Be on guard, however, when the stock develops
a new semi-catapult at 64, in column "Q." It is a sign of
strength. Congestion zone between "Q," and "R,"
is a consolidation of the gain, and a new semi-catapult position is
established in column "R" at the 68 point. From the base at 49
to 50 the stock has again had a 25 point advance when it establishes
a semi-catapult position at 74, in column "S." The congestion
area to the right of column "S" is a sign of developing weakness.
Be on guard and ready to take your profits on further strength or when
subsequent weakness reaches your stop order which should be advanced
beneath the market as the move progresses upward.
We are sure, that from
a study of the one point moves in Western Union you would have been
able to detect and take advantage of an exceptional campaign without
the aid of tips, rumors or board room gossip. Examine your three point
condensation chart Figure 10.3. Notice how readily these two types of
charts are Fig 10.3 Western Union:
three point chart (January - July 1933) used in conjunction
with each other. See the indicated buying levels on your one point charts
as they develop confirmations on your three point charts. We show them
with arrows in columns "A", "B", and "C", in
Figure 10.3. Compare them with Figures 10.1 and 10.2. From these charts
you will learn that it is not necessary for you to listen to tips or
rumors which circulate about the board rooms and are printed in many
of your daily financial publications. Study well and master
the principles of this time tried Method and you will always be able
to anticipate stock price movements weeks before the tips and rumors
filter their way into the board rooms and financial columns.
CHAPTER 11 The half hourly index
of the Dow Jones Industrials The half point half
hourly log Half point technique Scientific tape reading Analyzing the half
point chart Ignore rumors and gossip Summary
Elsewhere in the book,
we have promised to give you the details and explain the methods used
in compiling a running action index line, which is considered a vital
aid by most experienced market technicians. THE
HALF HOURLY INDEX OF THE DOW JONES INDUSTRIALS For the purpose of
judging the day-to-day minor swings of the market, there is no technical
aid as helpful as a one half point figure chart of the half hourly position
of the Dow Jones Industrial Index. For the purpose of facilitating
the plotting of the action of this running line we have especially designed
a one half point chart sheet known as #5001.5. Students of the Method
will find this sheet ideal for the purpose. Messrs. Dow Jones and Company
have recently inaugurated the policy of publishing the hourly position
of their Dow Jones Industrial Index. Since the fall of 1931, your authors
have privately compiled this important index at each half hour interval
during every trading day. These computations form the basis for this
exceedingly helpful half point half hourly index. The data for carrying
this chart forward is supplied in the Full Figure Daily Data Service
available from the publishers. This most indispensible index represents
the fluctuations of the market as it actually moves from point to point
during the day. Notice that the maximum high established in the newspapers
and the maximum low are disregarded when we use a running action index
line. We are concerned only with the fluctuations of the index as it
moves in a continuous line throughout the day, and from day to day.
The total of the maximum highs of the stocks which comprise the index
highs, or the maximum lows which comprise the index lows, does not interest
us. We are concerned only
with the relative strength or weakness of the rallies and declines as
they develop and with the resultant congestion areas built up as the
index line fluctuates during each market session. Of course, knowledge
of the maximum high, the maximum low, and the close of each day is helpful
in judging the technical position of the market; but more important
for the technician is the information which is to be had from starting
and maintaining this important half point half hourly running line index
of the Dow Jones Industrial averages. THE
HALF POINT HALF HOURLY LOG Turn now to Figure
11.1. The half point figure chart plotted here for you represents the
technical action of the market, and, as continued on Figure 11.2 shows
the action from the beginning of the year 1933, to beyond the top established
in July. The chart terminates with the action indicated about the middle
of August at the right-hand edge of Figure 11.2.
Observe, here, that
half point technique is exactly like your one point technique, the only
difference being that the crossing of the half way zone and the full
figure zone calls for a new symbol. Thus, a move from 101 to 102.56
would require "X's" in the lower half of the 101 square, in
the upper half of the 101 square, in the lower half of the 102 square,
and in the upper half of the 102 square, showing that the move had reached
the half way point, or beyond. Should the move carry to 102.99, no additional
symbol would be needed, but the moment it registers 103, we would be
required to put a symbol in the lower half square of the 103 level showing
that 103 flat had been reached. We feel confident that you will understand
the technique of developing these half point charts, especially so if
you are sure of your one point technique. These valuable charts
are very helpful to the board room trader and other who attempt to catch
the shorter swings. They are far more reliable than an attempt at tape
reading. This half hourly running line index plotted by half points
is actually a visualization of the tape itself. It is dependable and
helpful. It is far more reliable than trusting to memory or hazarding
a guess. We urge upon everyone of our readers to establish and maintain
this half hourly log in half point form. It is a formidable tool and
invaluable as an aid in recognizing the day-to-day trend of the market.
As you proceed to study half point technique and its application to
the running action line, you will begin to realize that the vital mechanical
principles forming the basis of the Point and Figure Method, namely,
the fulcrum, the catapult and the semi-catapult are clearly recognizable
in your half point half hourly market log chart. Compile and maintain
this chart. Watch the trend lines on it as they develop. Notice the
congestion areas at the terminations of the swings as the market moves
up or down the trend channel. Fig 11.1 Dow Jones
Industrial Average: half hourly by one half points (January - July 1933,
page 1) Fig 11.2 Dow Jones
Industrial Average: half hourly by one half points (January - July 1933,
page 2)
ANALYZING
THE HALF POINT CHART Be on guard after a
sharp up surge when resistance to the advance is clearly indicated.
Be ready to buy stocks after an extended decline when a congestion area
builds up a fulcrum and a catapult develops. Consider the broader trend
channels on this index to show you the trend of the market. The closer
trend lines in the congestion areas will show you the danger zones after
an up surge, and the point at which to liquidate your long position.
The important buying levels indicated on this chart are in the bases
formed after a down move when a full fulcrum or a catapult develops.
Watch closely congested zones. Also, be on the alert to take advantage
of the semi-catapult position which may develop in the price progression
path of this important technical aid. If you maintain and
study this chart you will soon be able to disregard the advice of your
customers man or the board room habitues and the gossip in which they
indulge. If, in the face of bad news and pessimism, this important half
hourly index builds up a congestion area of accumulation, disregard
the bad news, ignore the rumors, establish your long position, and have
patience. Likewise, when all is enthusiasm and stock price advances
get on to the front pages of our newspapers, your half point chart will
either be showing a clear and already effected advance or the building
up of a congestion zone. Congestion zones give implications requiring
caution. Be ready to liquidate quickly at first signs of a ceiling developing
even though the news and all about you are rampantly optimistic.
It is well to remind
you, at this time, that you cannot trade in index numbers. The half
point half hourly running action index log is but a representation of
the market. You must trade in stocks. When your index line is bullish,
select the most bullish formations in individual stocks and place your
position in those stocks. Use this valuable Half Hourly Log as an aid
to reinforce your judgment. From it, analyze daily, the technical position
of the market.
CHAPTER 12 Historical background Analyzing the campaign
in Atlas Tack Important signal during
July break The first caution signal Board room observations The shorts began to
cover Point and Figure analysis
In order that you may
have an illustration of how the half point, Point and Figure technique
is applied to an individual issue, we shall take you through the recent
campaign in Atlas Tack. The sensational advance of this low priced stock
which advanced within a few weeks from $1.50 per share to $34.75, attracted
the attention of the Stock Exchange authorities and the Attorneys-General
of several States. The Atlas Tack Corporation
was first listed on the New York Stock Exchange at the beginning of
the last bull market during 1920 or 1921. There are issued and outstanding
98,000 shares of common stock of no par value. The bull market high
of 1929 was 177/8. The low of that year was 5. In the period
of 1930 and 1931, the high was 81/2, and the low 11/2.
The bear market low in 1932 was 1, and the high of that year 37/8.
In 1933, the low was 11/2, the high 343/4. In
the month of December, 1933, the high was 343/4 and the low
10. Here was an issue which
presented an ideal opportunity for unscrupulous market operators to
take advantage of the public. The small outstanding capital stock, with
most of the stock closely held, and an extremely small floating supply,
permitted easy manipulation. ANALYZING
THE CAMPAIGN IN ATLAS TACK Turn, now, to the Chart,
Figure 12.1. This is a one half point chart showing all the one half
point changes in Atlas Tack from the high of the year 1930 to the low
of the bear market and up to the high established on a recent date in
1933. Observe the zone between columns A, and D. Here you will see the
type of fulcrum which will always develop in low priced stocks when
you apply half point technique to their fluctuations. Give particular
attention to that formation. Notice the difference between it and the
one point fulcrums. The sell off in column
A, from the high of 81/2, was quite sharp, considering the
price level. At 11/2, some resistance to the decline was
met as the stock was picked up by the insiders. In the zone A, to B,
the stock was several years under accumulation with very few transactions
being registered on the tape. Little was heard or seen of Atlas Tack
during 1932. In the last quarter of the year, during the months of October,
November, and December, the stock sold down from 31/2 to
the actual low of 13/4, registered near column B. A few transactions
were effected Fig 12.1 Atlas Tack
Corp.: one half point technique (March 1930 - January 1934) in the month of February,
1933, around the price of 11/2. Later, a few thousand shares
changed hands at 13/4, to 2, and in the month of April, we
find a few shares changing hands during the first week of that month
at $3 per share. During the month of May, the price of the stock advanced
from 3 to 31/2 Thus, you see, between the months of October
1932 and the end of April 1933, Atlas Tack had a very thin market while
it was being accumulated by the insiders, when 7,500 shares comprised
the total transactions. At 4, shown in column B, the stock was on the
catapult. This was the first important buying signal. Things began to happen
during the last week of May 1933. It was at this stage, in the zone
marked C to D2, that the manipulators begin to take a real interest
in the issue. The advance from the bear market low to 101/2
the top of the rally in column D2, is to be considered a normal one
for a low priced stock of a company with fairly good prospects of future
earnings. The zone from column B, to column C, represents the final
stage of accumulation, C, being the June shake-out of the 1933, bull
market run-up. In column D1, we find the first semi-catapult occurring
at 81/2 in this issue. Another developed at 9, in column
D2. These two semi-catapults were buying points. The action of Atlas
Tack from the zone A to E represents a normal bull market action of
a low priced issue. Low priced issues always have best percentage advances
from a bear market low point. Accumulation was effected in the zones
A, to B, during the run-up in column B, and from B to D1. At the point
marked E, we consider that the manipulators had completed their line
and the stock formed a new semi-catapult at 11, which was another important
buying signal. This took place during the month of August while the
rest of the market was recovering from the drastic effects of the July
break. IMPORTANT
SIGNAL DURING JULY BREAK In the July break,
while the rest of the market lost twenty-five percent of the average
price, namely from 110.00 in the Dow Jones Industrial Index to 85.00,
a net change of approximately 25 points, Atlas Tack had but a slight
sell-off from 101/2 to 91/2, which constituted
the technical reaction between columns D2, and E. That was an important
and significant signal to the effect that big things were about to happen
in Atlas Tack. The negligible drop
in the price of Atlas Tack during the July break was much less than
normally would be expected and showed extremely strong sponsorship.
To those who observed its action by half point technique of the Point
and Figure Method, the next semi-catapult point would have suggested
an immediate purchase. Certainly, the fourth buying place, the semi-catapult
at 11, would have been the best point at which to go long of this issue.
The mark up in the zone column E, to F, was what might be termed "strong
arm work." While the averages were still below their July tops,
Atlas Tack was in this mark up phase. The ability of this issue to continue
its advance and to hold its reactions at less than normal correction
levels was indicative of a continuing strong sponsorship, especially
when one considers the fact that the price continued to advance persistently
during reactionary periods of the market. The first cautionary
signal carne at the zone G. There, when the stock reacted from 281/2
down to 251/2 we had the first sign of a change in the technical
structure. However, sponsorship was still apparent in the zone F, to
G, and, in fact, it continued until around the columns J and K. Some
distribution was going on in the zone G to K. Note, however, that the
sponsors were buying the stock on minor reactions and distributing it
at the upper levels, they were buying and selling on balance, meanwhile
reducing the size of their long position established in the zone A,
to D2. A new semi-catapult developed at 29, in column H. After the reaction
at G, all stops should have been advanced to a point close below the
low established on that sell-off. Subsequent to the semi-catapult at
29, one should have been on guard. Stops should have been advanced close
beneath the market. Surely one should not have allowed such an issue
to come back more than 2 1/2 to 3 points from its last high. Positions
established at 4, at 81/2 at 9, at 11, at 181/2
and at 201/2 all would now have shown substantial profits
and should have been closely guarded by stops. Notice, here, that the
main trend line "LT" intercepted the work area in column I, when
the stock backed and filled in the 30 level. That was the final warning.
Stops should have been advanced to just below the price of 30, and,
on subsequent strength, moved up close beneath the market. Compare the
mark up trend pitch with the pitch of its predecessors. The final mark
up trend line, "FM" clearly showed that the insiders had distributed
a great part of their stock to the public and were standing aside. The
public then held the bulk of the floating supply.
The mark up in column
F, when the stock advanced from 18 to 26, occurred on increased volume,
and it was there that many board room habitues, customers men, and others
were attracted to the performance of Atlas Tack. The churning in the
zone between F, and H, represented distribution on balance by the insiders
and some short selling on the part of the more experienced board room
traders. The mark up in column I, occurred on terrific volume. There
was another sign for board room traders. Great turnover in the number
of shares of this stock, many transactions in this issue which had theretofore
been extremely scarce, and rarely printed on the ticker tape as it unrolled
from day to day, were indications to the more informed tape readers
and board room observers that the end was close at hand in Atlas Tack.
Many began to sell the stock short from column H to column J. This condition
is always apparent on Point and Figure Charts when many half point changes
are recorded. In the zone K to L,
some board room traders who shorted this issue began to take in their
short lines, and the sell off in the stock met temporary support due
to short covering. However, the less cautious ones stayed short, for
they knew that even at $15 per share the common stock of the Atlas Tack
Corporation was still high in price. After the temporary demand on the
part of shorts who were covering around 15, was met, further supply
carried the stock down to 10, and, in the zone L to M, this issue found
a normal level consistent with its actual value and reasonable prospects.
Notice that the zone
H, to K, represented a large number of figure changes while little progress
was made in the advance of Atlas Tack. This occurred during a period
when the balance of the market had shown considerable strength. The
opposite technical action occurred during the July break. That was the
final signal for students of the Point and Figure Method to close out
their positions. Increased volume with lessened progress, and sluggishness
in the advance, were all definite signs that the sponsors had unloaded
their stock on the uninformed public. It was time to get out of the
issue, and, as a matter of fact, to look for the first opportunity where
the price broke a previous support level at an inverse catapult or semi-catapult
and there go short of this issue. The sell off in Atlas Tack from the
actual high of 343/4 to 91/2 was indeed dramatic.
On Saturday, December 16, Atlas Tack opened at 331/2 and
soon sold down to 321/4. Trading in the issue was temporarily
halted. The next sale recorded was 4,800 shares at 25. That day, the
stock closed at 215/8, and a few days later declined to the
low of 10. Thus, you see that no matter where your stop would have been
in Atlas Tack, the positions established at the catapult point or at
any of the semi-catapult points before the advance would have netted
you $25 per share, a handsome margin of profit from the first position
established at 4, the second at 81/2, the third at 91/4,
or the fourth at 11. Of course, there is a big difference between $34
per share near the high and $25 per share, the point at which the first
block was sold after trading stopped. It is an indication of the danger
involved using stop orders in a thin market stock. Nevertheless, it
permitted the taking of mighty fine profits for those who took advantage
of the signals as they were clearly developed by Point and Figure technique.
CHAPTER 13 Critical culmination
points easily detected The one point chart
- the basis for analysis Interpreting an intricate
major culmination The first temporary
top Semi-catapult point
- unusually bullish pattern Strength carries through
objective level The change over of
technical action The top of the move
clearly indicated Indications of a major
culmination Bear trend technical
action The investor or long
term trader In order to illustrate
how the Point and Figure Method will aid you to judge the capital movement
trend and the major cycle crucial turning points, we have added Figures
13.1 and 13.2, one point charts of the New York Times Average from June
1929, to the now historical break which occurred in October of that
year. Figure 13.3 is a three point condensation chart of the same move
and Figure 13.4 is a five point condensation chart. The data used to
prepare the three and five point charts was taken from the one point
moves as plotted on Figures 13.1 and 13.2. CRITICAL
CULMINATION POINTS EASILY DETECTED The four illustrations,
Chart Figures 13.1 to 13.4, represent the top zone of the biggest bull
market ever witnessed in the entire history of finance. That top represents
an important and critical zone in which an ideal test of this Method
may be demonstrated. We have stated that the Point and Figure Method
provides the means for judging the major as well as minor culminations
of price movement trends. We add to this statement that this is the
only Method which will always aid you to recognize the turn of the major
cycle when the market changes from bull trend to bear trend.
THE
ONE POINT CHART - THE BASIS FOR ANALYSIS Figures 13.1 and 13.2
depict all of the one point moves of the New York Times Index during
the critical period from June 1929, to the break in October of that
year. In those few weeks some of the issues on the big board fluctuated
over a range of hundreds of points. The market from June, to September,
offered exceptional opportunities for profit on the long side and the
breaks of September and October duplicated those opportunities on the
short side. Not only did this Method clearly show the top and the reversal
from bull to bear trend at that time, but it will continue to do so
again and again as the price path leaves its tracings for posterity.
INTERPRETING
AN INTRICATE MAJOR CULMINATION The fifty stocks which
comprise the index compiled by the New York Times, and which we use
for the purpose of illustrating the reversal of the technical action
in 1929, were a fair cross section of the market, when it was fluctuating
around Fig 13.1 N.Y. Times
Average: one point chart (May - October 1929, page 1) Fig 13.2 N.Y. Times
Average: one point chart (May - October 1929, page 2) Fig 13.3 N.Y. Times
Average: three point chart (May - October 1929) Fig 13.4 N.Y. Times
Average: five point chart (May - October 1929) the higher zones during
the period under consideration. Any of the popular averages could have
been used for the same purpose - either the Dow Jones Industrial group,
the New York Herald Tribune, or the Standard Statistics group of ninety
stocks. Point and Figure Method technique may be applied to the movements
of any market composite index. For best results, we suggest that you
be sure the index you use is a true representation, a reasonable cross
section of the market, that it is fairly accurate and compiled by a
responsible organization. In the Spring and early
Summer of 1929, several widely known organizations began suggesting
the liquidation of long positions and the establishment of short positions
in anticipation of a major trend reversal. The vertical chart formations
of the action of some stocks during that time began to appear as though
the end was near to hand. You will see from the following discussion
that the Point and Figure Method would have prevented such conclusions
on the part of those who understood its technique. We ask you now to turn
to Chart Figures 13.1 and 13.2. In Figure 13.1 the zone A, to B, represents
a trading area in the month of June which misled many vertical line
technicians. We are sure that you will recognize it as a Point and Figure
pattern with a bullish implication. The run up from column A
to the high at 248, in the middle of the zone was a sharp one, and a
reasonable reaction should have been expected to correct so sharp an
up move. Therefore, the declines which terminated at 242, are to be
considered normal in view of the nature of the previous run up. It is
true that the small air pocket which occurred beneath the work area
around the figure 245, might have been considered a minor bearish implication,
but only so if the reaction would have carried substantially lower,
cancelling more than 50 per cent of the previous rally. In the area
above column B, however, you will notice a few rallies and declines
which began to show important bullish signals. The bottom at 242,
was tested, and the decline stopped at 243. Thereafter, the succeeding
decline stopped at 244, and the future rally created a catapult at 247,
and a major trend semi-catapult at 249. No student of the Point and
Figure Method would have failed to recognize the bullish implications
of market action at that time. No one would have sold out long positions
or established short ones. The technical action was decidedly bullish
and, in addition, the theory of "the Count" applied to
the congestion area between A, and B, implied substantially higher prices.
The Count method is more fully described in Advanced Theory and Practice
of the Point and Figure Method found later in this book.
SEMI-CATAPULT
POINT - UNUSUALLY BULLISH PATTERN The congestion area
A, to B, with its semi-catapult point at 249, was an unusually bullish
pattern. It implied substantially higher prices, and the run up B, to
C, followed. This mark up B, to C, was a spectacular run in of the shorts
who had established their positions during the Spring and early Summer
prior to the zone marked B. Those sharp advances are typical of major
operations and in this case they proved to be the means of obtaining
front page publicity for the market and an invitation which carried
many of the public at large, head over heels into the biggest bull market
ever witnessed. STRENGTH
CARRIES THROUGH OBJECTIVE LEVEL The implications of
the congestion area A, to B, suggested that the rally would run to at
least 266, or higher, and it is at that zone that you would have had
reason to begin to look for a possible top of the bull market. In the zone 265, to
270, however, the market continued exceedingly strong and no danger
sign occurred until the price area 275, to 280, began to develop. From
the last starting point, 242, at B, to the temporary top, 280, at C,
we have had no correction of consequence. Examine the three and five
point charts, Figures 13.3 and 13.4, and notice the sharp trend of the
rally B, to C. Active short swing traders, basing their judgment on
the one point moves, would have liquidated positions around the 275
zone, side stepping the market until either a correction was witnessed
or until the semi-catapult point at 281, was registered. The rally A,
to C, required either a congestion area of re-consolidation, or a reaction
sufficient to correct so sharp an up swing. The reaction which came
was of minor consequence, however, as is shown between columns C, and
D. It was clearly indicated at this point from the bullish pattern and
the solid formations which were witnessed between C, and D, that a further
advance in prices was in prospect. THE
CHANGE OVER OF TECHNICAL ACTION Observe carefully the
zones between D, and E, between E, and F, the final mark up F, to G,
the minor correction G, to H, and the false rally H, to I, with its
inverted recoil fulcrum. Note the signs of distributions subsequent
to the zone marked D. Observe that the highest squares between the work
areas are massed solid with the oft repeating sharp declines followed
by sharp rallies. These are always signs of the beginning of distribution
and the weakening of the technical structure of the market. Stocks in
this zone began to come out of the strong boxes, to pass from the hands
of the insiders and long term holders into the floating supply and to
the inexperienced public who buy at the top of rallies and sell on the
declines. Notice that the zone from D, to I, repeats again and again
the elongated hollow areas beneath the work zones as the price path
pattern progressed slightly higher and moved across our chart. Notice
the absence of solid zones of consolidation. Observe that the move was
struggling and meeting additional resistance as it worked higher. Note carefully that
patterns which have the form of the character "M," with the
congestion work areas at the tops of the "M" loops, when repeated
many times in rapid succession, are always to be considered of bearish
implication. On the other hand,
patterns which have the form of the character "W," with the
congestion work areas at the bottoms of the "W" loops, when
repeated many times in rapid succession, carry bullish implications.
The one point moves as depicted on the charts, Figures 13.1 and 13.2,
show many repetitions of the "M," pattern in the zone D, to
I. This, in accordance with the theorem set forth above, implies a weakening
technical condition and constitutes an important cautionary signal. On the three point
chart, Figure 13.3 the dips columns E, and F, indicate the beginning
of a weakened technical position of the market, but the unusually sharp
recoveries imply that the main top and reversal is to come from higher
levels. In column I, you will note the reverse of these dips when the
list rallied to 311, and quickly backed away. The action that quickly
followed confirmed the last inverted catapult which had developed at
296. Compare the one, three,
and five point charts at this point. Notice, on the five point chart,
Figure 13.4, that the final mark up trend line "FM," is soon
intercepted by the price pattern just above the 300 mark.
THE
TOP OF THE MOVE CLEARLY INDICATED The intersection of
the price path pattern, by the final mark up trend line "FM,"
on the five point chart was the all important danger signal, the final
caution. That signal was confirmed by the nature of the patterns on
the one point chart, from zone D, to zone G. This, together with the
failure of a mass zone of consolidation to develop between G, and I,
were all to be considered as warnings of the impending reversal. The
patterns recorded from column D, to I, constituted a change in the type
of technical action and were caution signals for students of this Method
to liquidate all long positions and stand aside until the previous rally,
A, to H, was fully corrected. The correction could have been effected
by either a congestion zone of consolidation or a reaction.
INDICATIONS
OF A MAJOR CULMINATION Notice carefully the
peculiar and extremely nervous state of the market as was indicated
on the one point chart between zones G, and I. Observe the triangles
on the one point chart between zones G, and I. Observe the triangles
at H, and I. Consider the fact that no consolidation of the final mark
up appeared. Consider the inverted fulcrum at G, and the false inverted
catapult at 296. Notice that the last push through at I, was accomplished
without the previous formation of a firm solid base at 300. Also, consider
the inverted catapult point at 292, between columns I, and J. These
were all vital and important signals for students of this Method; they
clearly indicated the top of the bull market and its impending reversal.
Having reached the
conclusions outlined in the foregoing paragraphs that the zones D, to
I, represented a change in technical action, no student of this Method
could have failed to recognize in the sell off from I, to J, and the
rally J, to K, definite signs of an impending bear market and bear trend
technical action. The top at I, is a typical inverted recoil fulcrum
which you will recall always implies swift action. On the way down in
the decline, full figure 303, represents the inverse catapult point.
An additional inverse catapult is developed at 298. Certainly the failure
of the decline to hold 299, and consolidate above that zone is an exceptional
example of the imminence of a big break and an additional confirmation
that buying power had been exhausted. You will remember,
that a recoil fulcrum, whether upright or reverse, always connotes a
sharp move impending. Therefore, either at 303, or at 298, you would
have established short positions, especially so, if you were trading
for the shorter swings based on conclusions and analysis of the one
point moves as depicted in Figures 13.1 and 13.2.
THE
INVESTOR OR LONG TERM TRADER The longer term trader,
although he would have been out of the market, might have waited for
further confirmation or an opportunity to analyze subsequent technical
action before establishing his short position. The decline I, to J,
which started in September, and terminated temporarily in the beginning
of October, was typical bear trend action. The recovery J, to K, was
final and definite confirmation that the bull market was finished and
the bear trend started. The congestion area which built up after the
rally in column J, in the zone around 295 to 300, above the symbol "K"
showed definite resistance and plentiful supply of stock for all buyers
who wished to take it. The failure of the rally J, to K, to penetrate
the main trend was a final confirmation of the bear trend even for the
more cautious long term traders who would have been out of the market
during the decline I, to J. After the rally J, to K, with its inverse
catapult at 289, inverse semi-catapults at 286, and 272, none could
have doubted that the bear market was under way.
CHAPTER 14 The change to an up
trend The change to a down
trend By observing the number
of full point or half point changes recorded daily, either by individual
issues or by a market index, and by studying the technical action throughout
the day's trading and its relationship to immediately preceding market
action, we are able to judge minor swing turning points.
After a period of decline
in a bull market, a turning point from down trend to up trend
usually develops in the following manner: 1. The number of full
figure changes dries up (lessens) on the declines. 2. The number of full
figure changes increases on the rallies. 3. A test of the last
established low point follows, which test must hold at a level above
the last low or at the same point as the last low. The latter technical
action is known as a double bottom, the former as a higher bottom. 4. After the test establishing
a higher bottom or a double bottom, the succeeding rally develops sufficient
strength to penetrate the preceding rally top. (Students will note
that the foregoing type of technical action exactly meets the requirements
of the Point and Figure fulcrum formation.) After a period of decline,
it is customary, during periods of accumulation, for market activity
to subside to such a degree that often many days may pass in succession
wherein only 20 or 25 issues of the 100 most actively traded will show
but one full figure change daily. Students must remember that a limited
number of full figure changes after a decline is an indication of an
impending turning point. In such a period, one should not feel that
the market is inactive, or to use the colloquial expression, "doing
nothing." It is at such times that important accumulation is being
completed. Changes in trend occur when the half point half hourly index
hovers around a given level and builds up a congestion area from the
few half point changes which register each day. This is especially indicative
of a change over of trend when it occurs at or near one of the trend
lines. After a period of advance
in a bull market, a turning point from up trend to down trend
usually develops in the following way: 1. The number of full
figure changes increases within a congestion area while the rest of
the list rallies - buying power is temporarily exhausted as stocks pass
into the hands of weak holders. 2. The number of full
figure changes increases on the successive declines. 3. A test of the last
established high point follows, which test must fail at or lower than
the last high point. The former technical action is known as a double
top, the latter as a lower top. 4. After the test,
the succeeding decline gathers momentum as it goes down and breaks the
support point of the last previous decline. (Students will recognize
this to be the type of technical action which meets the requirements
of an inverted fulcrum.) After an advance, it
is customary, during periods of distribution, for activity to increase.
In such periods, stocks fluctuate with increased numbers of full figure
changes but make little further progress or the rate of progress is
greatly reduced as the number of fluctuations increase.
Success in every field
of endeavor is but the result of assiduous effort towards a definite
objective. In order to attain success, we must apply the principles
which have aided others. In applying these principles to our own problems,
we are, in effect, making the experiences of others our own. Oft times the progress
is slow and discouraging moments arise. When such obstacles do occur,
the mettle of the individual is put to test. If he permits discouragements
to impede his progress and concludes that he is incapable of accomplishment,
he drops by the wayside and is overtaken and passed by those whose tenacity
of purpose and determination to succeed is uninfluenced by temporary
discouragement. To the successful these obstacles are merely additional
incentives. In the preceding chapters,
we have endeavored to teach and to illustrate the basic principles of
the Point and Figure Method of anticipating stock price movements. This
Method has run the test of time and has not been found wanting. Since
a proper assimilation of the principles of this Method and their correct
application to market action are the keystones to the mastery and acquisition
of a knowledge of a stock market technique which cannot but pay handsome
dividends, we urge you to keep the following guides before you at all
times: 1. Apply yourself to
a serious study of this Method. Ground yourself thoroughly in all of
its principles and their application as set forth and illustrated in
the text. 2. Apply the acquired
knowledge to past as well as present market action. Test and retest
your reasoning and conclusions. Money need not be involved at first.
Theoretical trades will be found interesting and instructive. They will
give you the required familiarity with the proper application of the
principles, and thus you will be instilled with that confidence so essential
to success. 3. Having acquired
a mastery of the principles of this Method, and a knowledge of their
correct application, be sure to follow their implications. Have the
courage of your convictions, and do not permit yourself to be influenced
by outside opinions, rumors, or gossip. The success achieved
and the profits derived from your stock market transactions will be
in proportion to the enthusiasm with which you study the principles
of this Method and their application, your understanding of the technical
action of the stock market, the intelligent application of these principles
to your own market operations.
PREFACE TO THE ONLINE EDITION
PREFACE TO FIRST EDITION
INTRODUCTION TO FIRST EDITION
Chapter 1 - THE PRINCIPLES OF THE POINT AND FIGURE METHOD
Chapter 2 - THE WEIGHT OF AUTHORITY BEHIND THIS METHOD
Chapter 3 - ADVANTAGES OF THIS METHOD OVER OTHERS
Chapter 4 - THE VITAL POINTS
Chapter 5 - APPROVED METHOD OF ASSEMBLING AND MAINTAINING PROPER DATA
Chapter 6 - THE SCIENTIFIC FUNDAMENTALS
Chapter 7 - THE PRINCIPLES OF CHARTING
Chapter 8 - ANALYZING TECHNICAL POSITION
Chapter 9 - ANTICIPATING THE ACTION OF U.S. STEEL
Chapter 10 - ANALYZING A CAMPAIGN IN WESTERN UNION
Chapter 11 - JUDGING THE MINOR SWINGS
Chapter 12 - HALF POINT TECHNIQUE IN ATLAS TACK
Chapter 13 - THE MAIN TREND AND MAJOR CYCLE CULMINATIONS
Chapter 14 - TECHNICAL INDICATIONS AT A TURNING POINT
THE
PRINCIPLES OF THE POINT AND FIGURE METHOD
THE
WEIGHT OF AUTHORITY BEHIND THIS METHOD
ADVANTAGES
OF THIS METHOD OVER OTHERS 
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APPROVED
METHOD OF ASSEMBLING AND MAINTAINING PROPER DATA 
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THE
SCIENTIFIC FUNDAMENTALS 
THE
PRINCIPLES OF CHARTING 
ANALYZING
TECHNICAL POSITION
ANTICIPATING
THE ACTION OF U.S. STEEL 
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ANALYZING
A CAMPAIGN IN WESTERN UNION 
JUDGING
THE MINOR SWINGS 
These charts are also available as an Excel file here. Figure 11.2 starts where indicated in yellow.
HALF
POINT TECHNIQUE IN ATLAS TACK
This chart is also available as an Excel file here.
THE
MAIN TREND AND MAJOR CYCLE CULMINATIONS 
TECHNICAL
INDICATIONS AT A TURNING POINT
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