Howt oMake theStockMar ket MakeMoneyforY o u FOURSTARBOOKS,I NC. Grants Pass, Oregon TEDWARRENCopyright 1966,1993 by Ken Roberts Allrightsreserved.Noportionof thisbookmaybe reprintedinanyformwithoutwrittenpermissionin advance fromthe publisher,except inthecaseof a reviewer who wishes to quote brief passages in connec-tion with a review in a newspaper, magazine or journal. Library of Congress Catalogue Card Number 66-26075 First Edition,First Printing1966 SecondEdition,First Printing1993 Second Edition,Second Printing1994 Second Edition, Third Printing 1995 ManufacturedintheUnitedStatesof America Editor'sNote (1966Edition) There is no intent in the pages of this book to state definitely that the directors, management officials, owners or other employees of a company or corporation are the particular"insiders,""spon-sors," or "manipulators" of the stock of that corporation. It is not the purpose of this book to identify thousands of ethical companies, their personnel or managing officials with abuses, but rather to point out that abuses do exist and that stocks are controlled by people who quite plausibly may befar removedfromthedirectorship, ownership, management or employ of a particular firm. There is always risk in the purchasing of securities for profit. The methods presented here are not represented as being absolutely foolproof or entirely "safe," nor can there be any iron-clad guar-antee of profit from following them. This approach to stock and commodities speculation is offered as a reasoned and practical guide to enhance as much as possible an individual's chance of success in the market. Editor'sNote (1993Edition) This is a special edition of Ted Warren's brilliant work originally published in1966. That firstand only printing never reached the public, Mr. Warren claimed, because "the manipulators" bought it up and kept it out of public circulation. Although it has taken 27 years for this classic manual to become widely available,themethod it teaches is universal and timeless. The Ken Roberts Company offers unique, interactive educational courses that demonstrate how to apply the powerful investment method embodied in this book to today's stock and commodity markets. May this guide be your next stepontheroadto financialsuccess. 333 s.w. 5th Street Grants Pass, Oregon 97526-2513 541-955-2700 FAX:541-955-2730 Course Enrollment Line: 800-234-1663 (24 hours) Acknowledgments Thepublisherwishestoexpressitsappreciationtothef ol l owi ng: NOT E: HereattheKenRobertsCompanyweuseourownUni t edStates ChartCompanyforbothstockandcommodi tycharts.Wecreated themtoincludeeverythingTed Warrenwantedinachartingservice. Cal l ,wri t eorfaxfori nf ormati on: TheNational Associationof InvestmentClubs,publishersof "Better Investing, "andDavi dL.BabsonandCo.,Boxt onforpermissionto reprintthearticle"Accounti ngPractices." M.C.Horsey&Co.,Inc. ,publishersofTheStockPicture,for permissiontouti l i zetheirchartsthroughoutthisbook. TheCommodi t yResearchBureau,NewYork,forpermissionto uti l i zetheirchartsinthesectionofthisbookdealingwi t hfutures trading. Li t t l e,Brown,andCo.,Bostonforpermissiontoquotef r omHow toBuyStocksbyLoui sEngel. U.S.Cha r tCompany,333s.w.5thStreet,GrantsPass,OR97526 Offi ce:541-955-2885 StockChartsubscri pti on:800-230-2427 Commodi t yChartsubscri pti on:800-230-7862 Fax:541-955-2889 Dedicatedtothemillionsofinvestorsandspecu-latorswhoarestrivingtogainalittleextrafrom ourcapitalisticsystem. T a b l eo fC o n t e n t s I N T R O D U C T I O N P A R TONE 15 21 28 H O WT OB EA NI N V E S T O L A T O R H O WT OB U YI NT H EL O W E RP R I C ER A N G E S C O N S O L I D A T I O N S :StocksPr e pa r i ngf oraRi se H E A DA N DS H O U L D E R SB O T T O M S :StocksB u i l d i n g Te c hni c a lSt r engt h S T OCKST H A TR E S I S TG E N E R A LM A R K E TB R E A K S F A L S ES U P P O R TL E V E L S :Enc our a g i ngA c t i o nT h a tHi de s T r o u b l eAhe a d T R E N DL I N E S :Yo u rBuyandSel lSignal s S E L L I N GS H OR T W H YY O US H O U L DC ON S I D E RB U Y I N GO NM A R G I N V O L U M E :T h eI mp o r t a n tMessagesb e h i n dt heFi gur es S T O C KS P L I T S T H ED OWJ O N E ST R E N D S W H E R EY O UC A NO B T A I NL O N GR A N G ES T O C KC H A R T S M A K I N GT H EM A R K E TM A K EM O N E YF O RY O U 63 69 82 88 105 109 119 128 133 145 150 P A R TT WO F U N D A M E N T A L I S T SVS.C H A R T I S T S E A R N I N G SA N DF U T U R EP R O S P E C T SV S .S T O C KA C T I O N 165 177 11 TABLEOFCONTENTS A D V I S O R YS E R V I C E S :ASpi der' sWe bofCl ai ms a ndConf us i on T W OB I GA D V I S O R YS E R V I C E S :MyPr edi c t i onsa ndTh e i r s T H EP R O SA N DC O N SO FI N V E S T M E N TC O U R S E S W H YY O UC A ND I S T R U S TT R U S TF U N D S A D V I C EF R O MB O O K S ? T H EA B U S E SO FF L O O RT R A D I N G M YE X P E R I E N C E SW H I L EH E L P I N GO T H E R ST OM A R K E T S U C C E S S S A M P L EC H A R T SA N DC O M M E N T S F I F T YP R E D I C T I O N SF R O MM ET OY O U I N D E XO FS T O C KC H A R T S I N D E XO FC O M M O D I T YC H A R T S 317 318 12 184 200 212 217 222 229 240 253 267 279 299 305 P ARTT H R E E P O V E R T YT OW E A L T H :MyExperi encesi nFut ur e s W H A TY O US H O U L DK N O WA B O U TT R A D I N GF U T U R E S S A M P L EC H A R T SA N DC O M M E N T S H o wt oM a k e t h eS t o c kM a r k e t M a k eM o n e yf o rY o u I n t r o d u c t i o n Thepurposeofthisbookistopassontoyoutheknowl edgeofthe stockmarkett hatIhaveacqui redoverat h i r dofacentury.Thi s knowl edgedi dnotcomeeasilytoonewi t hasi xt hgradeeducati on. Iwasor i gi nal l yacommonl aborer,yetIwasabletoret i reinlate 1940. Iwi l lteachyoui nsi mpl elanguage(theonl yk i n dIknow)a reasonablysafemet hodofbuyi ngsecuritiesandsoundreasonsf or expecti nga2 00%ormorerise.Thi smet hodis,i nmyopi ni on,the onl ypracti calmet hodthekeytostockmarketsuccess. Iwi l lteachyoutot hi nki namannerthatmostpeoplenever heardof amet hodbasedonknowl edgeofmarketmani pul at i on andthepsychologyofthepubl i c.Bytheuseofreadi l yavailable l ongrangestockchartsyouwi l ll earnhowthepubl i creactsto varioustypesofcont r ol l edpri ceactions.Theseactions,l i kehi story, repeatthemselvesoverandover;theymayber el i eduponandused wi t hconfidence. Inordertounderst andthetechni calc ondi t i onorphasethata stockisi n ,youmustl earntobelievethateverystockisunderthe guidanceof"sponsors"whowi l lmani pul at eitspri cemovementsi n awaythatwi l linfl uencetheunstable,emot i onalpubl i ci nt obuyi ng dur i ngthetops,andsel l i ngoutataloss.Wh oelsebutthepubl i c buysthesestocksbythemi l l i onsofsharesinthet oprange? Perfecti oni nthisfi el dcannotbeat t ai ned,therewi l lalwaysbe someri sk,butIwi l lteachyouhowtobuysecuritieswhentheyare abargai n,andtohol dwi t hpatienceforthei nevi t abl erise.Tobe 16I NTRODUCTI ON successfuli nthemarketyoumustadheret oyouror i gi nalcommon senseconceptofbuyi ngl owandsel l i nghi gh.Youmustl earnto recognizeyourowng ul l i bi l i t ywheni ttendst ooverwhel myouand tocul t i vat epatience,yourbest asseti f youhavei t . Iwi l lteachyouthemanypi t f al l softhemarket .Whe nyouknow howtoavoi dthese,yoursuccessispar t l yassured. Ther eis,tomyknowl edge,nosaferwayofdet er mi ni ngwhento buysecuritiest hanf ol l owi ngmyi nst ruct i onsasout l i ne di nthi s book.Ifyouhavebeenal ongt i me" f undament al i st "youmayf i nd i tverydi f f i cul tt oabandonyourwayoft hi nk i ngandgetaboardmy t r ai noft hought .Youneednotbea"geni us"norhavea" f l ai r "to makemoneyi nthestockmarket ,nordoyouneedalargeamountof capi tal . Iwi l lwar nyouofthehazardsofshortt er mspeculating,butwi l l teachyouhowt omakel ongrangeprof i t abl epredi cti ons.Wi t hpa-tienceandunemot i onalcommonsenseyouwi l ldiscovert hatyou havearoadmaptosuccessinthestockmarket . Ithasbeensaidthatyoumustknowagreatdealaboutthecom-panyi nwhi c hyouareabouttoinvest.Youmayl earnagreatdeal, butwi l lthisknowl edgei ndi catewi t hanydegreeofcert ai nt ywhat di r ect i onthepri ceofitsshareswi l lmove?Wi l lthi sknowl edge f orewarnyouthatitsstockistoohi gh,mayhavebecometechni cal l y weak,andissubjecttopanicsel l i ngwi t h i namat t erofonl yweeks? Ofcoursenot . Th efallacyofknowi nga"greatdeal "aboutacompanyliesi n thefactt hatthisknowl edgemaybetool i t t l eandtoolate.Youmay beyearsbehi ndwhatthedi rectorsknow.Al so,amet hodofaccount-i ngmayhavebeenchosenthatcanexaggerateorhi dethet ruepic-t ureu n t i ltoolate. Iwi l lteachyout hati ti sbettertobuyasecondratestockwhen i ti sunpopul arandunwanted-bythepubl i ct hatis,andseemingly unabl etorise,t hani ti stobuythebluestofthebl uechipsafterthey havesoared. Iwi l lteachyouthat"i nsi ders"cancont r olthepri ceact i onofa stockandtheemot i onalpubl i cmoreeasilyt hantheycont r olthe earningsofacompany. Iwi l lteachyouhoweasyi tistoavoi dbei nga" hi g hl eveli n-vestor." Iwi l lt el lsomeverysoundreasonsforopeni ngamar gi naccount, insteadofpayi ngf oryourstocki nf u l l . Iwi l lteachyout ostandonyourownfeeti nf or mi ngyour I NTRODUCTI ON 17 opi ni ononthef ut ur ecourseofastock,insteadofr el yi ngonthe averagebrokeroranadvisoryservice.The yaretoounrel i abl e.Some ofthel atterattimesIsuspectaremerel ytouters. Iwi l lteachyoutoi gnoregrandiosereportsonthef ut ur epros-pectsofacompany.To oof tentheyarealsowr i t t e nbyexperttouters. Ihopeyouwi l lforgi vemei fIamrepet i t i ousattimes.Buti sn' t r epet i t i onaprovenmet hodofteaching?Pract i ci ngaphysicalact, whetherinwor korsport,isnecessarytobeprof i ci ent.Surelyrepe-t i t i o ni sj ustasi mpor t anti nment alt r ai ni ng. Iwrot ethisi nt r oduc t i oni nOctober,1965whi l ebei ngchecked t hr oughtheMayoCl i ni catRochester,Mi n n . ,previoustoami no r operat i on.Whi l emi nor ,i tdi drequi reaspecials ki l lwhi c hwasde-vel opedattheMayoCl i ni c. TheMayoBros.perhapshadl i t t l ebetterbackgroundt hanmany otherM. D. ' shave.Buttheymusthavehadthedri veandsi nceri ty ofpurposetoputouttheextraefforttohel pt hei rf el l owman. InmyownstudyofthestockmarketIhadthedri vet oputout thatextraeffort,andIacqui redanunderst andi ngthatfarexceeded myearlyi magi nat i on.Iti snowmysinceredesiretopassontoyou thebenefitofthisknowl edgesothatyoumayacqui resomeofthe extracomfortsi nl i f e. Wh i l eonemaybenefitf r omtheknowl edgeandski l lattheMayo Cl i ni cdi rect l yontheoperat i ngtable,i ti suptoyoutoputoutthe efforttol earnhowtobenefitf r ommythi rty-f i veyearsofexperience i nthestockmarket . Ther ei snot hi ngmoredi f f i cul tt hansuccessi nthestockmarket , yetthissuccessisat t empt edbysomanywhoaresounqual i f i ed.But i fyoucanreadaroadmap,youcanreadmyi nst ruct i onsandshare i nthebenefitsofourcapi tal i sti csystem,underwhi c hhasdeveloped thehigheststandardofl i v i ngeverk no wntoman. Par tOne H o wt oB ea nI n v e s t o l a t o r DOI NGWH A TCOME SN A T U R A L L Y .I tisastrangefactthatwhenthe maj or i t yofpeoplet hi nkper t ai ni ngtot hei rstocksi nawaythat comesnat ural l y,i ti susual l ywrong. Ifapersonknowsastockhasbeenl yi ngqui et l yandl owfora l ongt i mei ti snat ur alforh i mt oquesti onthereasont hati tstays theresol ong,event houghitmaybepayi ngahi ghrateofr e t ur n.He issuspiciousthattherearesomedet r i ment alfactsaboutwhi c hheis not aware.Sohepassesupabargai n. Ifapersondoesbuyastockreasonablyl ow,butitdragsal ong qui et l yforyears,i ti snat ur alforh i mtogetdiscouragedandsell. Ifhedoeshol doutforthedur at i onofal ongbot t om,i ti snat-ur alf orh i mtofeell uckywhenhehasasmal lprof i tandsell.Ifhe i sthetypet hathel donpastthi sfirststage,i ti snat ur alforh i mto f al li nt othemistakeoft hi nk i ngi twi l lgohi gher,nomat t erhow hi ghi tgoes,especiallyi fhei swat chi ngi tcloselyandreadi ngal lthe rosyreportsandopi ni onsoni t .Th e nafteri thashi tthet opandhe hasf ai l edt osell,i ti snat ur alf orh i mt ot hi nki twi l lcomebackup andhewi l lsethissel l i ngpri cetoohi gh.Ifhewasl uckyenoughto havesoldastockinthet oprangeorsoonafter,thet hi nk i ngt hat comesnat ur al l ywi l li nduceh i mt obuyi ttoosoononthewaydown, becausei tappearsl owcomparedtoitsrecenthi gh. Ifheisal ertandwat chi ngf orastockabouttohaveafastrise, hewi l lnat ur al l ybuyonet hathasj ustshownsomeact i vi t yonthe upsideandt hen,soonafterheboughti t ,i treacts,andthemore t i mei tspendsdur i ngthisreact i on,themorenat ur ali twi l lbefor 21 22 h i mtot hi nkthathemadeamistakeandhewi l ltakealoss.Whe n astockhashadafastmoveandheavybuyi ngist aki ngplaceitis nat ur alforh i mt ot hi nkthatthemaj or i t ymustber i ght ,andhewi l l buy.Mo bpsychologyhasi nfectedh i mandheisbei ngl edtoslaugh-terwi t htherestofthelambs.Th e ni tcomesnat ur al l yforh i mtobe slowaboutmaki nguphismi n dthathemadeamistake,becausehe wassopositivethathewasr i ght .Nowwhereverhetakesalossitis nat ur alforh i mtot hi nki tisgoi ngl owerandhislosseswi l lnotgrow larger.A n dinthiscaseheisusual l yr i ght .Ifhemadeaqui ckdeci-siontosellataloss,shortl yafterbuyi nghisstock,itcomesnat ur al l y forh i mtot hi nkthathemadeamistakei fheseesaf ol l owi ngral l y. Ifheshoul dhavethestaminatocarryastockdownandi nt oa draggedoutbot t omhemaysellitbecausehehasacqui redahatred fori t ,areversalofhisemotionsf r omanearl iert i mewhenhehada largeprof i tonhisstockandhef el li nlovewi t hi t .Du r i ngpanic sel l i ng,thet hi nk i ngthatcomesnat ur al l yi stosell.Du r i n gweak appeari ngral l i es,suchasf ol l owedthe1957and1962panicitbe-comesnat ur altot hi nkthemarketcannotgoup. Whe napersonf ai l edtotakeaf ai rprof i tatacertai npri ce,it comesnat ur alforh i mtoselli twheni tagainreachesthatprice. Mor eoftent hannotthisi swr ong. Whe nconsi deri ngbuy i ngstocksi tcomesnat ur al l yt ot hi nki n termsoffundamental s.Fortheaveragepersont hatisahandi cap. Forgetthefundamental sandpi ckyourpurchasef r omthel ongrange chartswhereyoucanseewhentheyareonthebargai ncounter.If youdonotusechartsitcomesnat ur al l ytoaskyourbrokertosug-gestagoodstock.Don' t .Askh i mtosuggestasoundstockthatis pri cedreasonablyl owinstead.An dbelievei tornot ,i tcomesnat-ur al l ytol i stentotipsandrumors. Doesal lthisseemexaggerated?Takemywor dfori t .Iti snot .I l earnedi tthehar dway. W H A TisA N" I N V E S T O L A T O R " ?I nthestockmarkettherearet wodis-t i nctclassesofpeople,thespeculatorsandtheinvestors.Theper-centageofcasualtiesamongthespeculatorsisunbel i evabl e.Overa per i odoft i metheyhavel i t t l echance.The yareverymuc hl i ke thosewhobetonthehorses.The yt el laboutthetimeswhenthey wi n ,butseldomme nt i ont hei rlosses.Ho woftenhaveyouheard someonesay,"Iknowaf el l owwhoplaysthemarket ,andhedoes pret t ywe l l . "Itisasafebetthatheonl ygaveani mpressi onthathe d i d" pr et t y we l l . " HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU HOWTOBEANI NVESTOLATOR 23 Ther ei ssomeel ementofl uckamonginvestors,thet i mi ngof t hei rpurchasebei ngthemosti mpor t ant .Wasthestockhi ghorl ow whenhehadthei mpul setobuyit?Theearningsofsomeverygood companiescant u r nsour;otherscancomeupwi t hsomeverypleas-antsurprises.Theaverageinvestor'sl uckdependsagooddealon thesourceofhisadvice.Ittakesacert ai namountofcourageincus-tomerrel ati onsforabrokertorecommendastockwhenithappens tobegoi ngt hr oughaper i odofl owearnings,orissel l i ngatade-flatedpri ce. Th efirststockIeverboughtwasCaseThr es hi ngMachi ne, knowntodayasJ.I.Case.AsIl ookbacknowIrealizetheunder-l yi nginfluencethatcausedmetopi ckthisstock.Thewor d"Case" wasthefirsttradenameofwhi chIwaseveraware,wi t hitsi m-pressiveeaglesi t t i ngonaglobeofthewor l d.Asayoungboyina f ar mi ngc ommuni t yi nSouthDakotaIalwaysl ookedf or war dto threshi ngt i meandthefasci nati ngsightofthehugesteamtractor majesticallypul l i ngal ongtheevenlargergr ai nseparatorwi t hease. Ievent hr i l l e datthesightofitswi ndi ngtracksacrossthestubbl e fields.Iwasalsoi nfl uencedbyafactthatIalreadyknew,al i t t l e morebasic,butnotmuch;someonehadt ol dmethatthestock marketwas"veryl ow. "Iwi shsomeonehadt ol dmethatitwasgoi ng l ower,muchl ower.If oundt hatC T Mwassel l i ngbel ow$120a share,nearl y$400bel owits1929hi ghof$509. Ihadsavedmoneywhi l ewor ki ngi nl oggi ngcampsoutof Seattleandwasnowwor ki ngontheassemblyl i nei ntheol dFor d Mot orassemblypl antnearLakeUni o n.Ihadwor kedhar df ormy moneyandIhadavagueideathatIwant edmymoneytowor kfor me.Un t i lnowi twasveryvague.AtleastIhadthebeginner's commonsenseoft hi nk i ngi ntermsofbuyi ngl ow,andhadnot becomei nfectedbythespeculativefeverwhi chcanbecomecompul -sive.Thesymptomsofthistoo-commonai l mentshowupi nt hei r worstf or mwhentheycausethetradertobuydur i ngafastr i si ng market . Iopenedanaccountof$1,000tobegi nwi t h ,andbought35 sharesofCaseThr es hi ngMachi neat$118.Icannotrecal lwhyI di dn' tgothel i mi tandbuymore,asbuyi ngona15%mar gi nwas commonthen.Itwasnotl ongbeforeC T Mtouched133whereI hadaprof i tofover$500onpaperthatis. Ihadalwaysknownmyl i mi t at i onsasarel at i vel yuneducated f ar mboyandl aborer,andwashappyonthisj obasapr oduct i on worker.Aboutal lIknewwashar dwor k.Ineversquanderedmoney, HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU havi ngl earnedthevalueofadol l arthehar dway.Atthist i meIwas get t i ngthehi ghwagesof$7.20aday,veryhi ghforwhatcoul dbe t ermedascommonl abor.Aboutthist i meIbegantotakead i m vi ewofthel aborapproachtomaki ngal i v i ng.Myj obwast ur ni ng sour,orwasitIwhowast ur ni ngsouronmyjob?Ihadj ustdiscov-eredaneasywayofmaki ngal i v i ng;orsoIt hought .Iwashooked. Ihadbecomeaspeculator.Buti td i dnotoccurtomei nsuchwords. It houghti ntermsofbuyi ngl owandsel l i nghi gh.Verygoodlogic.I hadal otofexperiencebehi ndmebeforeIrealizedthatlogicisa factort hatisdisplacedbyemot i onwhenyoubecomeastockmarket speculator.Aspeculator'semoti onsarei nf l uencedbywat chi ngthe tape,andthedai l yquotati ons.Hedoeshist r adi ngbythat,andhe t hi nksi ti sgoodreasoningatthet i me.Fear,hope,wi shf ult hi nki ng , rumorsandmobpsychologyarealsoemot i onalinfluencesthatgui de h i m.Also,Ihadnotyetl earnedt hatthecasualtiesamongspecu-latorsareverycloseto100%. AnywayIhadmysightssetmuchhi gherforC T Manddi dnot sell.Ther ewasnoreasonf ormyunsophi sti catedment al i t ytoeven guesswewereheadedforadepression.Ihadneverheardofsucha t hi ng. AfewweekslaterIsoldoutC T Mwi t haloss.Inmyfirstvent ure i nthej ungl eofWa l lStreetIf ri ght enedqui ckl y.No wthepat t ern wasset. Apersonshoul dneverbuyastockj ustbecausehelikesi t ,or becausehehappenstohavethemoneyavail abl eatthet i me.Before maki ngapurchaseheshoul dcheckitscurrentpri cei ncompari son toitspri cerangei nthepast.Thesi mpl ewaytodothisi st hr ough theuseofachart.Theverybestofstockshavepri cedropsorreac-tions,of tenasmuc has5 0 %ormoreafteralargerise.Itisfarbetter towai tu n t i lyoucanbuymoresharesatal owerpri cewi t hahi gher rateofr e t ur n.Pat i entwai t i ngcanbewor t hal otevent houghyou misst woorthreeyearsofdi vi dends.Ther earemanyreasonswhy aninvestormayneedthemoneyandsodecidestosell.Thediffer-encebetweent aki ngalossorprof i tiswhet herornotthepurchase wasmadewhi l ethestockwasi nitshi ghorl owrange. Theinvestorentersthemar ketwi t hpatienceandsl owl ycollects hisdi vi dends.Th especulatorentersthemarketwi t hi mpati ence andeventual l yloses.Iwo ul dl i ketoseethespeculatorforgethis greata mbi t i ontogetr i c hqui ckl y.Hi si magi nat i ongoestoextremes, buthet hi nksi ti ssoundreasoning.Hi semoti onsalsor u ntoex-tremesasthemarketfluctuates.Asthesefluctuationscont r olhis 24 HOW TO BE AN INVESTOLATOR 25 emoti ons,mostofhistradesarebasedont hem.Whe nhetakesa lossitisbecauseheisaf rai dofaf ur t herdr opinpri ce.Whe nhis lossesarepi l i nguponh i m,heisprobabl yl osi ngsleep.Whe nhe sells,itisaf or mofrel i ef.Nowhislossescannotgrowlarger.Of t en, hesellsnearoratthebot t omofadi pandwhenthepri cerallieshe condemnshi msel fformaki ngthatmistake.Hehaslosthisposi t i on. Soi nvari abl yhebuysbackonaral l y.Ifitisonl yaral l y,hesoon findshi msel fagainwi t halossandagainwi l lsell.Thi scanhappen severaltimesi nsuccessionandcanhappeni nbot har i s i ngmarket andaf al l i ngone.Thi siscal l edbei ngwhipsawed. Whe naspeculatorhaspurchasedastock,especiallyifhehas hel dhisstockforsomet i me,heisapttotakeaprof i ttoosoon.Itis impossibletobeatthemarkett aki ngsmal lprofits.Ontheother handifhehashel dhisposi t i onbeyondthesmal lprof i tstagethere isastrongtendencytosethissightstoohi gh.Hi susualreacti on t hen,istot hi nkhisstockisgoi nghi gher.Heseesextremel yheavy vol umeandboi l i ngacti onorvi ol entfl uctuati onsonhisstock.I n -steadofassociatingthiswi t hothertopactionsthathehasseeninthe pasti tonl ybl i ndsh i mi nt oover-confidenceandwi shf ult hi nki ng. Nearl yal lthathehearsandreadsaboutthestockisfavorable.Any commentthatisunfavorabl eheignores.Thecompel l i nginfluence ofthemarketacti oncanbepowerf ul .Heisbeyondanyl ogi cal reasoning;evenhisbestfri endscan'tinfluenceh i m,iftheydisagreed wi t hh i m,butusual l ytheyhavebeencaughtupwi t hthesamel i ne oft hi nki ng. Ifhewasl uckyenoughtohavesoldoutnearthetop,hemay start"f eel i ngforthebot t om"fartoosoon.Whe nthestockhas dropped2 5 %i tmayappearcheaptoh i m,andofcoursehecanbe r i ghtattimes,but"f eel i ngfortheb o t t o m"i sanexpensivewayof f i ndi ngabargai n.Usual l ywhenastockhasreachedabot t omrange thespeculatorhasbecometoopessimistictobuyi t .Also,ifhedoes buywheni treachesthebot t omrange,hei sbuyi ngtoosoon.Ther e isl i kel ytobeal ongwai taheadbeforeanotherrise.Discouraged, thespeculatorwi l li nvar i abl ysell,usual l yataloss.Bynowyou shoul dbeawareofthefactthatIamagainstspeculating.Youare r i ght .Ifthespeculatorcantaketheadvicet hatIamabletopasson hecansavehi msel ff r omthesespeculativeheadachesandf i nanci al losses.Ma k i ngmoneyinthestockmarketcanbedoneasaspeculator i fyouknowhow,butgai ni ngthisknowl edgei sprobabl yoneofthe mostdi f f i cul tskillstoacqui re. Theaverageinvestorwhositst i ghtt hr oughi tal li slessaffected 26HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU bythehotandcol dwavesofemoti onst hatthespeculatorgoes t hr ough.Heleadsamoreserenel i f e.Hi smi n disnotdi vert edso muchandcangivebetterat t ent i ontohisregul aroccupati onand f ami l y.Ihaveseenthet i mewhenIwasrel uct anttogoonanex-tendedcampi ngt r i pwi t hfri endswhenIexpectedcri t i calacti oni n cot t onfutures.Theinvestor,asyousee,canevenenjoyhisvaca-tionsbetter. Mypurposehereistogetthespeculatortosi mmerdownand acqui rethepatienceofaninvestor.Thespeculatorisi ncl i nedto t hi nkoftheinvestorasa" f uddyduddy, "tooslowat hi nkertobein hisfastcompany,butthepi tf al l saretoonumerousforthespecu-l atortocopewi t handhecanrarel yescapet hemal l .Now,i fhewi l l admi tdefeatandj o i nrankswi t htheinvestorIwi l lt ryandbea l i t t l emoreonthepositiveside.Iwi l ladmi tthatIhavesounded qui t enegativeonthesubjectofspecul ati on,andwi l lalsoadmi tthat i thasbeenpurel yi nt ent i onal . Iwoul dl i ketocoi nawor dthatwi l ldescribeanewcategoryof shareholder.Thi spersonwoul dbeclassedbetweentheinvestorand speculator.ThebestideathatIcancomeupwi t hisacombi nat i on ofthet wopresentclassifications.Iwoul dt ermapersoni nthist h i r d classificationaninvestolator.Ani nvestol atorwoul dbuyl i kean investors houl dandselll i keaspeculatorhopesto.Heshoul dhave thepatienceoftheinvestorbutwi t hhissightssetf oralarge,l ong t er mcapi talgai n.1 Itshoul dnotbeverydi f f i cul tfortheinvestortochangetothis newi nvestol atorcategory,butoncehehasandgetsusedtothe changeofpace,hemustbeverycarefulnottobeattractedi nt othe rol eofaspeculator.Thespeculatorwi l lf i ndi tmoredi f f i cul ttobe convertedandstayconverted.Hehasbeenusedtomaki ngmanyde-cisions.Hewi l lbei ncl i nedtowatchthemarkettoocloselyandmay f al lbacki nt ohisol dhabits.Ifthishappens,hehadbetterj o i n "SpeculatorsAnonymous" ! Tobeaninvestol ator,youmustalsobechartconscious.Ido notmeant hatyoushoul dkeepdai l ychartsandt rytoi nt er pr eteach j uggl eandcurl ycue.Italmosttakesi n t u i t i o nt ounderstandwhy 1CapitalGai nisatermusedbytheU.S.TreasuryDepartmentto describeforincometaxpurposesaprofitgainedfromthesaleofstocks, realestatepropertiesetcetera(otherthanbyadealer),whichhavebeen heldforsixmonthsandonedayormore,onlyhalfofwhicharetaxable. Profitsf romasaleheldforlessthansixmonthsaretermedasashort termcapitalgain,andaretaxedinf ul lasregularincome. HOW TO BE AN INVESTOLATOR 27 certai nactionsdiscourageapersoni nt osel l i ngandotheractions i nci t eh i mi nt obuyi ng.Fewcanbegi nt oi nt er pr ettheseshortt er m actions. Thechartsyouwi l lstudyi nthisbookare" l ongrange"charts. Manyofthesechartsshowcurvesthat,f r omamoneymaki ngpoi nt ofvi ew,areasattracti veassomeofthecurvespi ct ur edinPlayboy. Whi l ethecurvesyouseeinPlayboyaref ormedbynature,the curvesyouseeinthesechartsaref ormedbythemachi nati onsofthe stockmarket ,andtheemoti onsofthepubl i c. Youwi l lbefascinatedbythesepicturesbecauseyouwi l lseeata glancewhet herstocksarei nt hei rhi ghorl owpri cerange.Youwi l l real l ybecomepri ceconscious.Stocksthatyoumayhavebeent hi nk-i ngofbuyi ngbecausetheywere"good"stocksyoumayeasilyrecog-nizearetoohi gh. Ifyouwi l lstudythesepi ctureswi t hanopenmi n d ,Iwi l lshow whythe"sleepers"arethebargains,andt hattheyaretheonesthat havethelargestpot ent i alprofits. H o wt oB u yi nt h eL o w e rP r i c eR a n g e s T H EL ONGRANGESTOCKCH ART.I fanovicei nthestockmarketwas toleaft hr oughthisbookhemi ghtbedismayedbythenumberof charts.Hemi ghtj u mptotheerroneousconcl usi onthatthesecharts aresomethi ngtootechni calandcompl i cat edforh i mtounderstand. Act ual l ytheyaresi mpl eandclearlyshowthepastpri cerangeofa stockoveraperi odofmanyyears.Al sotheyshowthef or mat i onof patternsofact i onoveragi vent i mewhi c hi ndi catet hatthepri ce changetof ol l owwi l lbesi mi l artoearl ierpatterns. CurtissWrightCorp.( CW) Youwi l lseei nthechartofCurtissWr i g h tCorp.( CW)that eachchartedl i neshowsthepri cerangeofthestockforamont h. Thefirstr owoffiguresbel owtheyearsindicatestheearningsfor eachyear.Attimesthereisa" d "aheadofthefigure,i ndi c at i nga defi ci tfort hatyear.Thenextl i nedownshowstheamountofdi vi -dendspai d,i fany. Attheupperr i ghtcorneri stheti ckertapesymbol( CW)used bybrokers.Attimestherewi l lalsobean"a"whi c hindicatest hat thestockistradedontheAmer i canExchange;otherwiseitistraded ontheNewYor kExchange.Ifi thappenst obetradedoverthe countertherewi l lbean"o-c." 28 HOW TO BE AN INVESTOLATOR 29 CURTI SSWRI GHTCORPORATI ON THEFOURPHASESOFTHESTOCKPRICECYCLE.T h eStockpr i cesof ever yc o mp a n yf l uc t uat et h r o u g hacycl ec ons i s t i ngoff o u rphases. I nt hec ha r tofCur t i s sWr i g h ty o uw i l lno t i c e ,i no r de r ,t hebase, ( T ) ;t herise,( Y) ;t hetop,( U) ,a n dt hef o l l o w i n gdrop,( Z) .T h i s cycl ecanbec o mp a r e dt ot heg r o wt ho fa na ppl et r ee.T h eq u i e t , l ow- l e v e lp e r i o dc a l l e dt hebasecanbet e r me dt heaccumulation p e r i o d ,s i mi l a rt ot hed o r ma n tp e r i o do ft het r eed u r i n gt hewi n t e r . T h eri seo fCWi sc a l l e dt hemarkupanal ogoust ot hep e r i o dw h e n t hesapi sf l o wi ngi nt het r eea n di t sg r o wt hi swe l lu n d e r wa y .T h e t o pr angei sc a l l e ddistribution,r e s e mb l i n gt het i mewh e nt hef r u i t s oft het r eearehar ve s t e da n dt heg r o wt hceasesf o rt heseason.T h e i n e v i t a b l ed r o pi npr i c ew h i c hf o l l o wsi sk n o w na smarkdown,d u r -i n gw h i c hphaset heleavesa n du n c o l l e c t e df r u i to ft het r eeared r o p -p i n g . R e me mb e rtheset e r ms :basea c c u mu l a t i o n r i sema r k u p t o pd i s t r i b u t i o n d r o pma r k d o w n No t i c et h a tCur t i s sWr i g h ti sb e g i n n i n gan e wcycl ei nt hebase r ange. Wh i l et hecyclesofayear,ors t eama n dgas ol i neengi nesare exact ,pr i c echangesares ov a r i a b l ea n di nc ons i s t e nti nt i mea n d a mo u n tt h a tf e whavel e a r ne dt h a tthesecyclesdoexi st .Byt heuse ofg r a p h i cchar t s ,u s i n gt hemo n t h l ypr i c er a ng eofast ock,i ti so f t e n possi bl et oseebyc e r t a i npa t t e r nsofpr i c eac t i onsoverap e r i o dof 30 HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU yearswhatphaseofitscycleastockisi n ,gi vi ngyouacluetowhat itsnextphasewi l lbe.Thesepri cecyclesdonotj usthappen.They aregui dedj ustassurelyasyougui deyourcarintraffic. G I M B E LB R O T H E R S ,I N C . G I M B E LB R O T H E R S ,I N C . Thet wochartsofGi mbe lBrothers,Inc.( GI )clearlyshowthe topsofonecyclein1937( A) ,thet opofthenextin1946(B)anda t h i r dcyclet hathasnotyetended(C).Itmayendwi t havi ol ent HOWTOBUYI NT HELOWERPRI CERANGES 31 boomandbustal ongwi t htherestofthemarketsi mi l artothe1929 debaclewhenGIt oppedat24andthel owcamein1932at. B A S E S . Abaseisf ormeddur i ngaperi odofaccumul at i on. Thi sis whentheinsidersandothers" i ntheknow"arebuyi ngthestockat bargai nprices. Soundbasesareeasilyseenwhenthepricesofstocks havebeenextremel yqui etinal owrangeforaperi odofatleast threeyears.Astockisneverabargainunlessitisinarangewhereitis changingfromweaktostronghands,changi ngtothosewhoK N O W whattheyaredoi ng,andwhy. Iti suptoyoutodet ermi ne,wi t hthe useofcharts,wherethatrangeis. Itmaybeextremel yl ow,orat timesitmaybeneartheal lt i mehighsofastock,farabovethepreviousbot t omrange. I nthischapterIwi l lexpl ai nonl ythebasesi n thel owrange.Inordertodet ermi newhatphaseofitscycleastockisi n ,you mustunderstandthepubl i csenti mentconcerni ngi ti nthepastand atthepresent. I fyoucandet ermi nethis,youwi l lknowwhati twi l l doi nthef ut ur e,gi vent i me. Tounderst andthisyoumustrealize thatthepri ceacti onofastockiswhatinfluencesthepubl i ctobe bul l i s horbeari sh.1 Anyonebui l di ngatemporaryshacki nthewoodswoul dnotput muchefforti nt obui l di ngareal l ysoundf oundat i onunderi t . Buti f apersonwastoobserveaverydeepexcavationinwhi chanextremel ysol i df oundat i onwasbei ngpoured,hewoul dknowthata hi ghrisebui l di ngwasbei ngbui l t . Anexpertarchi tectcoul deven makeaf ai restimateastohowmanystoriesitwoul dbe. Anyone woul dknowthatthisextensivef oundat i onwasnotbei ngb ui l tfora mereshack. Butfewpeoplerealizethataqui etbaseofmanyyears isthef oundat i onforahi ghrise,notforamereral l y. You,asan investolator,canl earntodevelopfai rj udgmenti nmaki nganestimateofhowmuc hofarisecanbeexpectedf r omthevarioustypes ofbot t omactions,andthet i mei nvol veddur i ngtheseactions. These f oundati onsarenotmadewi t hconcreteandsteel;t hei rbui l t i n strengthi sderi vedf r omi nduc i ngthepubl i ctosellout . Thehi gher percentaget hataresoldout ,thesounderthebase. It' sassi mpl eas that.Therecanneverbeasoundbase,unlessalargepercentageofthe 1T h e s ear et e r msc o m m o n l yus e dt ode s c r i beape r s on' so p t i mi s t i c ( b u l l i s h )a t t i t u d et o w a r dt h ema r k e t ,o rhi sp e s s i mi s t i c( b e a r i s h)a t t i t u d e .32 HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU publichasforonereasonoranothersoldout.Thi sisaccomplished bypri ceactionsthataredi scouragi ngtot hem.Manydi fferenti l l us-trati onsofthismaybeseent hr oughoutthisbook. SunshineBiscuits,Inc.andParmeleeTr ans por t at i onCo.com-pl etedt ypi calbasesi n1942.Si mi l arpatternsofactionswi l lbej ust assoundinthef ut ur eastheyweret hi r t yyearsago.Itisuptoyou towatchf ort hemandtorecognizet hemf orwhattheyrepresent. Seldomwi l labrokeroradvisorpoi ntt hemouttoyou. P A R M E L E ETRANS P ORTATI ONCO. ParmeleeTransportationCo.( P T E ) Thi sbaseacti onwasthemostcommonpat t ernwi t hsl i ghtvaria-tionsendi ngi n1942(D)whennearl yal lstockswereunderaccumu-l at i on.Th esponsorsofthisstocknodoubtpi ckedupmanyshares dur i ng1938-39whenthediscouragedpubl i cweresel l i ngoutwi t h heavylossesbecausethecompanywasoperat i nginthered.(Not e thed's,whi chi ndi catedeficitsdur i ngtheyears1938-39-40i nthe earningsl i ne. ) Th epessimisticpubl i csoldheavi l yaftertheGermansi nvaded France,Bel gi um,andtheNetherl andsi nMay,1940(E).Thei n-siderspi ckedupt hei rbestbargainsafterPearlHar bori nDecember, 1941(F).Thi sf i nalshockcausedmoreweakshareholderstosell out . Thef i nalt woyearsofthisfiveyearaccumul at i onper i odwere distressingtothepubl i c.ItisnotnecessarytohaveaPearlHar bor , HOWTOBUYI NTHELOWERPRI CERANGES 33 orforthecompanytobei nther edtodistressthepubl i c.Anyex-tremel yqui etacti on,especiallyi fi ti si nadownt r end,worri esthe maj or i t yi nt osel l i ng.Th eperfectsignaltobuycameat75cents whenthedownt r endwasbr okeni n1942(G). Thebegi nni ngofthenextcyclei nP T Ewasi n1947( H)wi t ha sevenyearbase. SunshineBiscuits,Inc.(SUS) SUShadaperfectfiveyearaccumul at i onbase.Itmadeitsl owa yearbeforePearlHar bor .Af t eritssmal lr al l yi nlate1941( I ) ,i t t henspentayearqui et l yact i ngasifitwastooweaktogoup(J). Thi si soneofthei mpor t anthi ghl i ght sofmarketpsychologyf or youtol earn.Whe nastockappearsunabl etoriseaboveanapparent "resistancel evel , "thi si salmostpositiveprooft hati teventual l ywi l l , becausethisact i oninducespubl i csel l ing.Th eperfectbuysignal wasat10( K)whenthisresistancelevelwasf i nal l ybroken. Themoret hant woyearbasei n1947-48( L)provedtobea goodone,butthisacti onwasnotl ongenoughorthetypethatyou coul dhavecompl eteconfidencei n . Du r i n gthesel ongqui etperiodsthemani pul at orsarequi et l y buyi ngwhi l ethepubl i caresel l i ngt hei rstocksf r omfeart hatthey wi l lgol ower,ori ndi sgustataloss.Thesebaseshavebeenf or mi ng peri odi cal l yovertheyears,b utfewpeoplerecognizet hemassuch. 34 HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU Shoul dn' titbeobviousthatthesebaseswereinal owpri cerange? Thesequi etactionsgiveanalmostpositiveassurancethattheywi l l bef ol l owedbyaveryprof i tabl erise,prof i tabl ef orthoseinvestol atorswhowi l lsel lwhentheyshoul d. P OWD RE L L&A L E XA N D E R ,INC. P ARME L E ETRANSPORTATI ONCO. Powdrell&Alexander,Inc.( PDR) Not ethatthebasesofPowdrel l&Al exander,Inc.endi ngi n 1944andofParmeleeendi ngi n1954arealmosti dent i cali nacti on andperi odoft i mei nvol ved.Theonl ynotabl edifferencei sthatthe HOWTOBUYI NTHELOWERPRI CERANGES 35 lasteighteenmont hs( M)ofthebaseofPDRtookplacesl i ght l y abovethepreviouspri cerange,whi l ethelast18mont hsofP T E remai nedi nthesamepri cerange.PDRdevelopedaf ourt eenmont h resistancelevelthatasusualprovedtobefalse.Theset wocharts shoul dconvinceyouthatveryoftenstockpri ceactionsareonl y hi storyrepeati ngitself.Abasesi mi l artotheseandothersthatare pi ct ur edasstrongbaseswi l lbej ustassoundandrel i abl efi ftyyears f r omnowinotherstocksastheywereinthepast. Whe nIrefertoa" buysi gnal , "Imeanthatwhenthepri ce movesabovecertai ntypesofpastacti onf oral ongbase,iti nvar i abl y signalsanupwar dbreakawayf r omthatacti on.Usual l y,i ti sthevery begi nni ngofa2 00%ormoreriset hatwi l lrequi reseveralyearsto takeplace. Asaninvestolator,onoccasion,youshoul dadoptamet hodof buyi ngoftenusedbyspeculators,especiallyifyouareoutofcontact wi t hthelatestquotati ons.Forinstance,i fyouhadnotboughtdur-i ngthebaseofParmeleeTr ans por t at i onCo.endi ngin1954,asthe pri ceroseto8( N)youcoul dhaveplaceda"st opbuy"orderat9.1 Thi swasthebuysignalwheni troseabovetheprevioushighsdur i ng 1952.Anot hergoodsignalwasat18(O)inJanuary,1957.Astopbuy at23woul dhavecaughtthefastriseperfectly.Asl ongastherehas notbeentoolargearise,oradi s t r i but i onacti onhasnottakenplace, astopbuycanbeusedwi t hreasonablesafety. ThePowdrel l&Al exanderbasehadt wobreakawaysignalswhere stopbuyscoul dhavebeenstrategicallyplaced,at2 (P)and4( M) . Ifyourmoneyi si dl e,whywai tf orthesesignals?Thel ongperi odof quietnessissignalenoughthattheriseistof ol l ow.Wh ywait?I f , asof tenhappens,thereisafinalshakeout,youmusti gnorei t ,and hol donwi t hdet er mi nat i on. Tobeasuccessfuli nvestol atoryoumustl earntorecognizewhat k i n dofacti onisdi scouragi ngandt henf or macontraryopinion. Youmustl earntowar doffthepessimisticsenti mentt hati sbound t or uboffonyou.Whe nyouhavemasteredthi syouwi l lhave steppedoutofaj ungl eofuncert ai nt y.Self-confidencewi l lhave arri ved.Yourout l ookwi l lbecomparabl etomi newhen,asac hi l d afterhur t i ngmyselfforthefirstt i me,If ai l edtocry.Thi swasa bi gmi l estonei nmyl i f e;If el tthatIhadout gr ownachi l di shweak-1Astopbuyisanorderthatyoumayenterforaperiodofuptot hi rt y days,butisremovable.Whenyourstatedpriceisreached,yourorderbe-comesan"atthemarket"orderandisexecutedatonce.Thi sordermay becancelledorchangedatanytime. 36 ness.Ami l estonei nyourl i f ewi l lbethet i mewhenyouhave l earnedtoi mmuni zeyourselfagainsttheinfluenceofmarketactions andareabletot hi nki ntermsthatareoppositetothegeneralpub-l i c. Th elateMr .BernardBaruchhasbeengi vencredi tf orsaying t hatnobodycant el lwhetherstocksaretoohi ghortool ow,and thatnobodycandet ermi newhattheyarewor t h.Itcoul dbesaid thatastockiswor t hwhatsomeoneiswi l l i n gtopayfori t .Atleast thebuyercoul dbelievethis.Butmostl i kel ythemot i veforthe purchasewasthebel i eft hatthepri cewoul dgohi gher,nomat t er whatitscur r entpri ce.A n dassoof tenhappens,asellerwi l lsellhis stockfarbel owitsrealval ueoritsvaluebasedonitsearnings.He doesnotreal l yhaveal ogi calmot i vefordoi ngso.Heisf ri ght ened. Hecan'tstandthepressureofhol di nghisstockwhi l evi sual i zi ng thepossi bi l i tyofi tgoi ngl ower. Onl yab l i n dpersoncoul df ai ltoseewhethermanyofthestocks asshowninthel ongrangechartsareei thertoohi ghortool ow.Just acompari sonbetweenthet woextremesshoul dbeenough. Itcanbesaidthatastockisnevertoohi ghtobuyifitisgoi ng hi gherorisnevertool owtosellifitisgoi ngl ower.Manytimesa traderwi l lhavebeencorrectwhenbuyi ngatahi ghpri ceorwhen sel l i ngl ow.Butwoul dhehavesoldataprof i twhentheoppor t uni t y presenteditself,orboughtbackatal owerpri ceafterhavi ngsold? Surpri si ngl yof ten,hewoul dhavef ai l edt of ol l owt hr ough.Thi s courseistoori skytof ol l ow. Thepr obl emistodecidewhenastockisl owenoughtobuyor hi ghenoughtosell.Atbot hextremesthestocki sunderorover pri ced.Bytheuseofl ongrangechartsyouwi l ll earntosi mpl i f y thispr obl emtoadegreethatmostpeoplewi l lnotrealizehasbeen possible. Thepurposeofthischapteristoshowhoweasyitistodet ermi ne thedifferencebetweenastockwhi c happearstobepri cedl owand onet hatisreal l yl ow.Moststocksmayappeartobel owcompared wi t ht hei rrecenthighsl ongbeforetherealbot t omhasbeenreached. Toavoi dbuyi ngwhenastockonl yappearsl ow,neverbuyduringa downtrend.Itisassi mpl easthat.Yourguesscoul dber i ght .But fartoooftenyouwoul dbewr ong. Asani nvestol atortheoddswi l lbewei ghtedheavi l yi nyourfavor ifyoubuyastockafteralowpricerangeorbaseofseveralyears, especially,afterithasturnedextremelyquietformanymonths. Studythesechartscareful l y. HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU HOWTOBUYI NTHELOWERPRI CERANGES 37 ArmstrongCorkCo.( ACK) Fr omthesoundbaseofA C Kwhi chextendedseveralyearspre-viousto1949(R)youshoul dexpectatleasta2 00%prof i tifyouhad boughtitat$9.Mov i ngabove10(S),apositivebuysignalwasgi ven. Thenextfiveyearsonl ystrengthenedi ttechni cal l ywhenmore peoplesoldout .Youwoul dt henbej ust i f i edi nrai si ngyoursights another100%f r omitsbasepri ceof9. Anot herbuysignalwasgi venat13or14( T)whenthet woyear downt r endl i newasbrokeni nearly1958. Th enextconsol i dati onofni net eenmonthsar ound22( U)again strengtheneditstechni calcondi t i on.Younowwoul dbej ust i f i edi n expecti ngatleastanother5 0 %riseforat ot alof350%.A C Know hadat ot alofsixteenyearsofaccumul at i onandconsol i dati on.The mai nriseorma r kupwass t i l lahead. Thenextriseto37(V)wastooslowtobedi s t r i but i on,andwas onl y12poi ntsaboveitslastconsol i dati onperi od.Toosoontosell. T h e ncamethesharpbreakdur i ngthepani cselloffi n1962( W) . Herei swhereaninvestolatormustreassurehi msel fthatA C Khad notyettopped.Theacti onar ound35wastooqui etfordi s t r i but i on. Thesellsignalcameat60( X) ,whenthet woyearsteepupt r e nd l i newasbrokeninSeptember,1964.Youmustacceptthissellsignal. Tof ai lwoul dbef ol l yi nmostcases.A5 5 0%prof i twastakeni f boughtat9.Toexpectmorewoul di ndi cateb l i n dgreediness.You ARMSTRONGCORKCOMPANY 38 coul dhavesoldat70sixmont hslater,buttherewasnoreasonto expectasecondarytop. Totheaveragemarketaddi ctmyexpl anati onsseemcontraryto popul aropi ni on.Af t ergi vi ngmyversionofwhycertai nl ongrange actionsgivethestocktechnicalstrength(becausetheweakholders aresel l i ngout ) ,hewi l li nvar i abl yask," Wha tmakesyout hi nkthe stockwi l lgoup?"Helooksatqui etbot t omactionswi t hsuspicion. Helooksf oraf undament alreasonforitbei ngsol ow.Isthecom-pany'sbusinessdr oppi ngoff?Maybetheyaregoi ngtocutt hei r di vi dend.Whe napersoni si nthatframeofmi nd ,i ttakesal otof expl anat i ontoconvinceh i mthatthestocki ssoundandthati ti s sel l i ngatabargai n. ANACONDACOMPANY(THE) AnacondaCompany(The)(A) Itissometimesdi f f i cul ttodet ermi newhenastockismaki ng bot t om,suchasseeninthechartofAnaconda.Thet i meel ementon eachdi pistooshort.Whyguesswhentherearesoundbasestobe seen?Leavethe guessingtothespeculators. Theni neyeardownt r endl i newhenbrokeni nSeptember,1964 (Y)gavethebuysignalwhenthepri cecrossed50.Longt r endlines l i kethi sel i mi nat emuchguesswork. Ihavehadyouconcentrateonlongbases.Somestockshavehad verygoodrisesafterabot t omoflesst hanayear.AnacondaCopper forinstance.Itisnotnecessarytohaveal ongbase,butithelps. HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU HOWTOBUYI NTHELOWERPRI CERANGES 39 Anacondaisveryspeculative.Whe ncopperisl owthereasoningis thattheearningsareboundtobel owalsosothespeculatorssell t hei rstock.Th e i rsel l i ngi sconcentratednearthebot t om.Whe n copperpricesarehi gh,thetheoryis,andr i ght l yso,thatthecom-pany'searningswi l lbehi ghalso,soagainthecr owdiswr ong.They buynearthetop.Cont i nuetoconcentrateonthel ongbasesfora buyi ngspot.Youcanseethese,andposi ti vel y.Youareonl yguess-i ngattheothers.Youwi l lnoti cethatwhi l ethereareheal thyrises thatdevelopf r omthesequi cki ebases,seldomdotheyhaveariseto theextentthatthosewi t hthel ongbaseshave.General l yt hen,i ti s A S S O C I A T E DD R YG O O D SC O R P . V A N A D I U MC O R P O R A T I O N 40 HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU obviousthatthesounderthebase,thebetterchanceofalargerise. Besidesbuyi ngl owandoftenavoi di ngthewor r yofhol di nga stockataloss,hereisanexampl eshowi ngthei mport anceofbuyi ng l ow.Supposeyouhadenoughcashtobuy200sharesofstockat$5. Int i meyouwereabletosellat25,aprof i tof$4,000or400%.But supposeyouprocrasti natedu n t i llaterandboughti tat10.Perhaps theacti onat10appearedmorepositivethanitdi dat5.Youcon-sideritisst i l lasafebuyat10becauseofitsqui etconsol i dati on acti on.Wi t hthesameamountofmoneyyounowcanbuyonl y100 shares.A n dsel l i ngat25youhavemadeonl y$1500or150%.Be-sidesmi ssi ngoutonthe$2500prof i t ,youmissedal otofdi vi dends, pr ovi di ngi tpai dany. AssociatedDryGoodsCorp.(DG) Af t erwr i t i ngthelastparagraphIl ookedforachartthatcoul dfi t thi sexampl e.Changethebuyi ngfiguresto10(Z),and20(B)and youwi l lseethatAssociatedDr yGoodsfitsmywor dpi ct ureper-fectly.Thesalepri ceis50(C).Thi sshoul dimpressonyouthe i mport anceofbuyi ngl ow.Butdonotgetcarri edawaybythisat t i -tudeandstartbi ddi ngtool ow.Whe nyouseether i ghtf or mat i on, buy"atthemarket."Thi st er misusedtoexpl ai nthesi t uat i onwhen thebuyerdoesnotwanttori skbi ddi ngforastockatal owerprice. Itmaynotselldownt ohisbi dpri ce. VanadiumCorp.( VCA) Theverylackofr al l yi ngabi l i t yofVCAabovethef ourt een mo nt hfalsesupportl evelin1963(D)isacti onthatisverydepress-i ng,andworri estheshareholdersi nt ot aki nglossesforfeari twi l l gol ower.Thi sacti ondoesnotj usthappen.Iti sgui dedthiswayfor thepurposeofappeari ngweak.Not i cethet wowavesofstrengthat previoushi gherlevels,whi chbai t edthepubl i ctobuybackafter manyoft hemhadsoldoutprevi ousl ydur i ngweakness.Thi salso, d i dnotj usthappen. Pl ent yofstockcameoutforsalear ound14dur i ngthisqui et peri od.Whe nsel l i ngslowed,thepri cewasl etdownmerel yby wi t hhol di ngpurchases.Whe nthepri cebrokethesupportl evel ,a newwaveofsel l i ngcameout ,andmorebargainschangedf r om weaktostronghands. Thi sbasebeganwi t hthe1962panicselloffandcont i nuedwhi l e thegeneralmarketwasri si ng.Not i cethedifferencebetweenthis HOWTOBUYI NT HELOWERPRI CERANGES 41 sharpbreakin1962anditscont i nuedweakness,pr ovi ngthestock wasinweakhands,whi l esuchstocksasBriggs&St rat t on,Col umbi a Broadcasting,Dr . Pepper,GeneralMot orsandGr eyhoundproved tobetechni cal l ystrong,ori nstronghands,byrecoveri ngqui ckl y.Whi l eVC Abeganitsbasei n1962,anotherstock,EvansProducts endeditsbase. Thi si stheadvantageofhavi ngmi xedtrendsi n stocks. Ther eisnearl yalwaysabargai n,andbytheuseofl ong rangecharts,theymaybeseen.S T U D E B A K E RC O R P O R A T I O N StudebakerCorp.(SK) ThechartofSKremai nsthesameasitdi dbeforethe1for5 reversespl i t. Thedifferenceisthatthepri celineshavebeeni ncreasedfivefold,andashareholderwhoprevi ousl yowned100shares, nowownsonl y20,butatfi vetimesitsf or mervalue.Whe nthe1for5reversespl i twasannouncedtheshareholders wereaffectedbearishl yandtheysoldheavily. Thepri cebreakwas evenworsewhenthenewpri ceof2 7 cameontheti ckertape. Th e stockwast henunderaccumul at i onbelowthefalsesupportl evelat 30. Th ediscouragedpubl i cweret hent aki ngheavylosses.Metro-Goldwyn-Mayer,Inc.( MGM) Ani nvestol atormustl earntorecognizethatj ustbecausethe pri ceofastockapparent l ystabilizesafteralargedr op,itdoesnot necessarilymeant hati ti sunderaccumul at i on. Thi sfouryearpe42 r i o dofM G M(1948-1951)wastooactive(E).Veryl i t t l et i mewas spenti nthel owerpartofitsrange.Thenumerousralliesgavethe i mpressi onthattherewasanefforttomovei tup.Thef i nalral l y carri edabovearesistancelevelgi vi ngafalsebuysignalasitdi dso. Th eaveragecharti stwoul daut omat i cal l yhaveaccepteditassuch andbeenhooked.Butani nvestol atorshoul drealizethatthisacti on wastoobuoyantf orabase.Theweakertheral l i es,themoreasound baseisi ndi cated.Itist henthatthepubl i cisi nducedtosellout . Chris-Craft Ind. Inc.( CCN) The1947-49baseofCCNappearedtobeareasonablysound base,butapparentl ywasnot(F).Di dthisapparentaccumul at i on acti onf ai ltoi nducethepubl i ctosellaccordi ngtoplan?Thi scoul d bet rue,becausetheearningswerefarhi ghert hanontheprevious top.Thef ol l owi ngrisewasonl y100%abovethebasepri ceof10 (G).Di dthesponsorst henbelievet hattheycoul daccumulateata hi gherlevel?Cert ai nl ythatqui etacti onar ound20al lthoseyears di dnotappeartobedi s t r i but i on.Agai nperhapsthehi ghearnings wereat t ract i ngtoomanyinvestors.Wi t htheai dofdeficitsand passeddi vi dends,thesponsorswereabletoi nducemanytosellout overaf ouryearperi odatal owerprice( H) .Nowtherewasani n-centivet omovei tupwhi chtheyapparentl ydi dnothavedur i ng thoseyearsofextremel yhi ghearningsratios.Sonowtheyreal l y madehaybyi nduc i ngthespeculatorstob i dthepri ceupover350% HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU M E T R O-G O L D W Y N-M A Y E R ,I N C . HOWTOBUYI NTHELOWERPRI CERANGES 43 to66whentheearningsfortheyearwereonl y$1.42( I ) .The speculatorstookanexcepti onal l ybadbeati ng,sel l i ngasl owas$9.00 t woyearsl ater(J). Ho wwoul dyouasani nvestol atorhavefaredonthisaction?If youhadst ri ct l yf ol l owedmyi nstructi onsyoumayhavehadthe couragetobuydur i ngthef i nalquietnessi nearly1949.Ifnot ,you shoul dhaveboughtat14asitroseabovetherecenthighs.Whe n thesqueezewasputontheshareholdersbycut t i ng,t henpassingthe di vi denddur i ngthemi d'50'syoushoul dnothaveal l owedthist o CHI CAGOY ELLOWCABCO.,I NC. C H R I S - C R A F TINDUSTRIES,INC. 44 HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU wor r yyoui nt oselling.Cert ai nl ytherecoul dnothavebeenheavy di s t r i but i onwhi c hwoul dwarrantalargerdrop.Thi sexampl eof CCNi sabouttheworstthatcoul dhappentoaninvestolator. Onthefastriseyouwoul dhavetomakeaqui ckdecisiontosell. Youshoul dhavehadthenervetohol dontoatleast40.Ifyouhad soldabove50youtookachanceofnotsel l i ngatal l .Hesi t at i ngtoo l ongi ndeci di ngtosellonthi sk i n dofamovemayleaveyouhol d-i ngtool ong.Not et hatCCNsoaredwhenearningswereonl y$1.47 butdi dnotriseabove23whenearningswere$4.80. ChicagoYellowCabCo.,Inc.( CYC) Iti snotf ai rtoshowonl ychartsofthoseactionsthatt ur nedout perfectly,ornearperfectlyfortheinvestolator.Ani nvestol atormust bepreparedfordi sappoi ntmentswhi l ewai t i ngforhisstocktoget underway.Fol l owi ngthelogicofani nvestol atortheremaybenone t hatwoul dhavet ri ckedyouworset hanCYC,hadyouboughti t dur i ngthequi etperi odi nearly1952( K) .Thef ol l owi ngbreak woul dhavef ri ght enedyou.Ha dyousoldataloss,youwoul dhave lostyourposi t i onatapri cewhereitwoul dhavebeenbettertobe buyi ng.Ha dyouboughtanotherstock,youmayhavehadtowai t evenlongerfori ttogetunderwaytoitsul t i mat etop.Mor a l :an i nvestol atorshoul dNEVERsellataloss. Let'sanalyzetheCYCacti onprevioustothist woyearqui et peri od.The1948acti ondi dnotappearheal thy( L) .Thesharpr al l y f r om10to15aftersuchashortperi odoft i menearthe10levelhad theappearanceofent i ci ngthesoldoutpubl i ctobuybacki nt othe market .Inotherwordsastockremai nsri skywheni tral l i estoo sharplywhentherehasbeennosubstantialbase.Whe ni tr al l i ed againf r om10,afterhavi ngspentonl yafewmont hsi nthisl ow l evel ,ithadthesuspiciousappearanceofhavi ngafalsesupportl evel , especiallyatanevenfiguresuchas10,easilynot i cedbythemaj or i t y whothenbecameconfi dentbuyers.Sofarnotagoodpi ct ure,not enoughquietnessi nitsl owrange.Thi swasnottheact i onthati n-ducesthepubl i ctosellout ,whi c hisnecessaryforabot t omacti on. Thet woyearsofquietnessar ound12( M)coul deasilyhavebeen mi stakenforthef i nalperi odofanaccumul at i onbase.Wi t hthe comi ngofreducedearnings,thepri cewasal l owedtoreal l ydr op i nt othebargai nbasement,andsel l i ngbythepubl i cwasnodoubt veryheavy. Onthef ol l owi ngriseyoushoul dhavesoldCYCar ound35.If HOWTOBUYI NTHELOWERPRI CERANGES 45 notyoushoul dhavesoldwhenthefalsesupportlevelat32was broken( N) .Theexci t i ng13poi ntrisekeptthespeculatorssteamed upandi nabuyi ngmoodforni nemonths,wi t hthehopesofseeing anotherfastrise.Iti sbeyondt hei rconcepttounderst andwhythe riseshoul dcometoadeadstop.Theydonotunderstandt hatthe smartmoneysmoothl yandobl i gi ngl yf i l l edthedemandasusual afterafastrisewhi l ethepubl i c' ssightsforsel l i ngwassetf r omone tot went ydollarshi gher. Fr omchartsl i kethis,youwi l lrealizethati ti snotnecessarily hi ghearningsthatst i mul at ebuyi ngathi ghprices;i ti sthehi gh pricethatstimulates. Wh yshoul dCYCriseto38whenearningswerel ow,whi l ei t coul dnotriseabove13i n1949-50wi t hhi ghearnings?Because therewasnotenoughstockinstronghandsin1950towarranta largemove.Bytheendof1956thiscondi t i onhadended.Theac-c umul at i onperi odwasnowcompl ete.Itwasnowonl yamat t erof goodmani pul at i onasthi schartofCYCdemonstrates.Whe nyou realizethatthemani pul at orshavepatience,youmustl earntobe pat i entwi t ht hem. Al soyoumustbeconvi ncedbyst udyi ngthesecharts,thatthe speculatorsleadatempestuousl i f e.Tha tisnotf oryou. Backedbythel ogi caluseofl ongrangechartsyouwi l ldevelop thestrengthofmi n dt obuywhenyoushoul dandt osellonl ywi t h largeprofits.Ifnot hi ngelseyoushoul dbeabletokeepyourselfout ofserioust roubl e. C o n s o l i d a t i o n s :S t o c k s P r e p a r i n gf o raR i s e Thereisnobetterproofthatastockwillgoup,thanwhenitactsas ifitcan't.Consol i dat i onacti onofastockmeansj ustthat:Itiscon-sol i dat i ngitsgai ni npricef oraf urt herrise.Dur i ngaperi odof consol i dati onthetechni calstrengthofastockisbei ngi mproved.It isacti onthattendstoimpressthepubl i cthatthestockhaslostits abi l i t ytorisef urt her,oftenbydevel opi ngaperfectresistancelevel t hatafterat i meseemsi mpenet rabl e.Thi sisthewaythemaj or i t y areimpressed,andmanywi l lthensellout . Inthepastarehundredsofconsol i dati onactionsofvaryi ngpe-ri odsoft i meandlevels,al labovet hei rbases,al lpr ovi ngthesere-sistancelevelstobefalse.Thi sisoneoftheeasiestactionstoi nter-pret,andi ti st henasi mpl emat t ertof or macontraryopi ni on. Schenley Industries, Inc. (SH) SH,aftercompl et i ngaperfectbasein1941atthe$3level,(O) hadthreeshortert hanusualconsolidationsonthewayup.Thi srise producedapossibleprof i tof2500%.Iftheaverage,unsophisticated personhadhel dthisstockthatl ong,hewoul dhavemissedthet op, becausehewoul dhaveexpectedevenmore.Fol l owi ngtherulesof ani nvestol atoryoumayhavevol unt ar i l ysoldonthefastriseto29. Butf ol l owi nganotherr ul e,sel l i ngwhenanupt r endl i newas broken,youwoul dnothavesoldbecausenot woprerequisiteswere f ul f i l l ed:thefastrise,andthemoret han2 00%mi n i mu mprof i tt o 46 CONSOLI DATI ONS:STOCKSPREPARI NGFORARISE 47 S C H E N L E YI N D U S T R I E S ,I N C . beexpectedf r omasoundbase.Ifyouhel dbeyondt hatyouwoul d havebeenl ucky.Ani nvestol atorshoul dneverhavelosthishead andcarri edhisstocktool ongonthisone. Aconsol i dati onofonetothreeyears,onl ymoderatel yabovethe basepri ce,givethei nvestol atorani dealoppor t uni t ytobuybefore itscompl et i on.T i mi n gofapurchasecanbeperfectwhenastock breaksoutontheupside,analmostpositivei ndi cat i onthatthebi g P F E I F F E RB R E W I N GC O M P A N Y 48 HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU riseisagainei therget t i ngunderway,ormovi ngupasteptoanew consol i dati on. PfeifferBrewingCo.( PFB) TheextremequietnessofPFBin1942endedaperfectbaseat 2(P).Af t erthreeshortconsolidations,whi chappeartobethree perfectsteps,PFBdevelopedanearl yt woyearconsol i dati ont hat endedwi t hafalsestarti n1947(Q)wheni tbrokeoutontheupside. Thi sfalsestartearnsitsnamebecauseofthefactt hatthepri cef el l backi nt oitsf ormerlevel.Thi sisacommonmaneuvertoimpress theshareholderst hatthepri cerisewasunabl etocont i nue,again i nduc i ngmoresel l ing. Ifyouhadbeenwai t i ngforabreakawaybuysignali n1947,i t cameat8dur i ngthisfalsestart.Asani nvestol atoryoushoul dnot havebeendi st urbedbythispremat urepurchase,onl ydi sappoi nted. Fr omastudyoftopsyouwel lknowthattherecentactionsonPFB coul dnothavebeendi s t r i but i on,becausetheyhavenotbeenactive enough,andthereforethei mpor t antma r kupmustbesomewhere ahead.Thenextandf i nalconsol i dati onendi ngi nMar ch,1949(R) hadamorei rregul arpat t ernt hanmost,buttheacti oni ndi cat ed thati twasonl yanotherstepdur i ngitsmar kup. Youwoul dhavebeenj ust i f i edi nsel l i ngat15aftera5 00%mark-up.Ifyouhadbeenf ort unat eenought ohavehel di ti nt othenext rise,thereshoul dhavebeennodoubtaboutsel l i ngi t .Onl ydoubt , atwhatprice?Ithassincesoldbel ow4. AssociatedDryGoodsCorp.( DG) AssociatedDr yGoodshadt wothreeyearconsol idationswhi c h gavei tgreattechni calstrength.Thi senabl edi tt obemovedupt o 57in1961(S),on5centslessearningst hanin1946whenthehi gh wasonl y18. Theseconsolidationswerenearl yperfect,wi t hthel atterhavi ng afinalshakeout,orfalsemove,whi c hcanalwaysbeexpected.At timesthesefalsemovesmaybemoredrasticandofl ongerdur at i on. Obj ect:afi nalat t empttof r i ght enshareholdersi nt osel l ing. Theslow,sluggishrecoveryf ol l owi ngthisshakeoutgivesthe tapewatcher(onewhowatchespri cechangescloselyinthebrokers' offices)andothersani mpressi onofweakness.Thi sverydullnessand weakappearanceindicatestoani nvestol atort hatthereisagreat CONSOLI DATI ONS:STOCKSPREPARI NGFORARISE ASSOCI ATEDDRYGOODSCORP. b ui l dupofunder l yi ngstrength.Ifani nvestol atorshoul deverbe-comeexci ted,itiswhenheseesactionsofthistype. Thecuetosellcameafterthet womo nt hfastrisei n1961( T) , ei thertosell"atthemarket , "orwhenthesteeperupt r endl i newas brokeninearly1962atabout50.Becauseofthet wol ongconsolida-tions,ahi ghert hannor malrisewasexpected.Nei t herqual i fi cati ons forasel l i ngpoi nt( amountofriseorspeed)hadbeenf ul f i l l ed previoustothe40level. Thel ongt er m,hi ghlevelconsol i dati onsofsixtotenyearsare tremendousl ystrongbasesforverylargerises.Fewpeople,Iamsure, recognizet hemassuch.No tevenactivetraders.Theactivetraders cannotvisualizethatfaraheadbecausetheydon' tcheckbackthat faronpastactions;norwoul dtheybeabletoproperl yi nt er pr etthis l ongt er macti oni ftheydi d. Fr omthesebasesitissafetobuyatnew,al l -t i mehighswhenthe pri cemovesoutontheupside.Butfewknowthis,andthepri ce movesupi nasluggishmanner,of tendr oppi ngbackbel owits f ormerresistancelevel,gi vi ngthei mpressi ont hati tlackedsufficient buyi ngpowertocont i nuehi gher. Remarkssuchasthiscanbeheardinbrokersofficesdur i ngaset-backofthistype:" I tt r i edt ogoupbutcoul dn' t . "TheBorg-Warner chartshowsthistypeofacti on.Thi sacti ondoesgiveaweakappear-ance,butbelieveme,asprof i tt aki ngbythepubl i ctakesplace,itis overcomi ngits"weakness"bytheweek.Itsstrengthwi l lonl ybe apparentandconvi nci ngtothemaj or i t yatfarhi gherprices. 49 50 HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU Nat ur al l y,l i kethebases,theconsol i dati onactionswi l lvarya gooddeal.Don' texpectal lconsol i dati onbasestoshowperfectresis-tancelevels.Theyareprobabl ythemosteffectiveforthepurpose forwhi chtheyaremeantandtheyshoul dbeeasilyseenbyani n-vestolator.Studythevariousconsolidationspi ct ured.A l lareaffec-ti vei ni nduc i ngthepubl i ct osellout .Themore"ragged"onesonl y makei tsl i ght l ymoredi f f i cul tforthei nvestol atortopi npoi ntthe t i mi ngofitspurchase. B ORG - WARNE RCORPORATI ON Borg-Warner Corp. (BOR) Borg-Warnerhasthemostconvi nci ngfalseresistancelevelofal l t i me.Th a tfi nalqui etperi odbel ow50i n1965( W)wasthetip-off thatthi sf or mat i onwasaboutcomplete.Muc hstockwi l lhavebeen boughtbythesmartmoney.Manypeoplewerehappi l yt aki nga prof i tatthisl evel ,happyinthet houghtthatt hei rdecisionwasso easytocomeby.Isn' titcommonsensetosellastockthatdoesnot actverywel l ,andobvi ousl ycannotgoup?Isn' tsel l i ngi tthesmart t hi ngtodo?Youcan'tgobroket aki ngaprof i t(soitissaid). Du r i n g1964Iwasrecommendi ngBorg-Warnerbecauseithada perfectconsol i dati onwi t haflattop.Ivisualizeditsrecentacti onas aperfectl aunchi ngpad.Iwoul dconsideritawasteoft i medi ggi ng i nt othef undament alaspectsofthecompanyi nordertoconf i rmmy opi ni on,becausei twoul dmakenodifferencetomewhetherthey wereratedexcel l entorpoor.Iwoul dhol dtomypositiveopi ni on thatthisstockwasbei nggroomedf orabi grise.InMar ch,1964,as CONSOLI DATI ONS:STOCKSPREPARI NGFORARISE 51 showni nmysealedpredi cti ons,Idoubt edt hatthepri cewoul d breakoutontheupsideu n t i l1965.ThebreakawaycameonFebru-ary2,1965.Af t ersel l i ngat54,itf el lbacktoundergomoredis-couragi ngacti onbel ow50.Ihadnowayoff or et el l i ngthis.Thi s acti onindicatestomet hatthereares t i l ltoomanyweakhol dersi n i t .Whe nBORagainsellsabove50,f ol l owi ngthe1966general marketshakeout,i tshoul dreal l ybeonitswayup. Thebasisforthist hi nk i ngi sanunderst andi ngofthisgroomi ng process,aprocessdur i ngwhi c hthestockchangesi nt ostronghands. MyMar ch,1964predi cti onsonBORwerenotmerel ywi l d guesses.It r ytot hi nki ntermsofwhatacti onatthist i mewi l lbest servethepurposeofthemani pul at ors.Af ur t herqui etacti onin thi supperrangewoul di nducethepubl i ctosellout .No tadi f f i cul t deduct i on.Nearl yal lbases,hi gh,l ow,orconsolidationsendwi t ha qui etperi od.Patiencebythepubl i cgrowst h i ni nthisf i nalqui et peri od.Ani nvestol atorwhoreal l yunderstandsthissi mpl epi ct ure, knowsthatthisi spr i mebuyi ngt i me agenui nebargai nstock, al t houghi ti snoti nal owrange. Thet ermi nol ogytodescribethesel ongrangeresistancelevelsby the"wiseguys"ar oundbrokers'officesist hatthereis"t oomuch stockforsale."Thi si st rue,andremai nst rue,u n t i lcompl et i onof theconsol i dati onperi od. Du r i n gtheearlytopsitisthesmartmoneythatrepresentsthe oversupply,butwhentheresistancelevelhasbecomeobvi oustothe publ i c,thenitisthei rstockthatis"overhangi ng"themarket. Ex-Cel-O Corp. (XL) Ri si ngf r omasoundbase( A) ,XLhadaperfectt woyearconsoli-dat i on(B).Af t eramoderaterise,anothert woyearconsol i dati on(C) endedwi t haf i nalf r i ght eni ngshakeout( D) .Ani nvestol atorwhocan recognizethatasoundf oundat i onhasbeenb u i l tshoul dneveral l ow ashakeouttof r i ght enh i mi nt osel l ing.EandFrepresentt woshort periodsofconsolidations.XLhadnowentereditsmar kupphase whi chendedwhentheupt r e ndl i ne(G)ofover45degreeswas broken.Asaleshoul dhavebeenmadebel owthisbreakt hroughat nolesst han42. I fyouhadnotboughtXLdur i ngitsbot t omrange,yourcuet o buywasat9inOctober,1949.Du r i ngthelasthal fof1951itwas nowobvi oust hatthiswasconsol i dati on.Itshoul dhavebeenbought t henorat12whenthepri cebrokeoutontheupside.Anot hersig-naltobuycamei nFebruary,1953at14wheni tbroket hr oughthe 52 HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU EX-C E L L-OCORPORATI ON resistancelevel.Thi sprovedtobeafalsestartandwasf ol l owedby theshakeout.Thi sshakeoutiswheremostspeculatorswoul dhave soldout .Youasani nvestol atormusthavethecouragetohol don, knowi ngthatthemani pul at orsofthisstockhavenotyetsoldout . Yournextbuysignalcameat15.Ifyouhadtheconfidenceacqui red f r omtheknowl edgeofXL' spastacti onyoumayhaveboughtany t i medur i ng1953andearly1954. Inmyopi ni onbasedonhi ndsi ght ,thesponsorsprobabl ysold onl ypartoft hei rhol di ngsdur i ngtopsHandI ,andcert ai nl yvery l i t t l eatJ.AtKi twasnowcert ai nt hatXLwasb ui l di ngupasound hi ghlevelconsol i dati onbase.Itcoul dsafelybeboughtatanyt i me here.Theperfectbuysignalcameat50,breaki ngthefalseresistance l evelat49( L) .I twi l lriset oatleast150andwi l lnodoubtspl i t.XL hassinceri sento66andhasdroppedbackundertheinfluenceof the1966shakeout. GeneralCableCorp.( GK) TheriseofGKhasmoret hanf ul f i l l edpositivepredi cti onst hatI madei nearly1962,basedonitshi ghlevelconsol i dati on. Igaveal ectureonthestockmarketattheLosAngelesAdven-turersCl ub,ofwhi chIamamember.Amo ngot herpositivepredic-tions,It ol dt hemt hatGKwo ul dhavealargerisef r omthisbase, subjectofcoursetoasmal lsetbackatanyt i mebeforedoi ngso.T wo ofthemembersboughti t .Th e1962panicd i dcausei tt oreact( M) . CONSOLI DATI ONS:STOCKSPREPARI NGFORARISE G E N E R A LC A B L EC O R P O R A T I O N Asthi sbookgoestopress,ithassoldashi ghas75,andithasposi-t i vel ynotreachedthetop.Iknowthisbecausethevol umeofdai l y t r adi nghasincreasedonl ymoderatel y.Theinsiderscannotsellout u n t i lthepubl i carebuy i ngheavily.Thespeculatorshavenotyet becomeexcited.Theyhavenotyetbeengi venthebai t .Anot her spl i tisnowbei ngprocessed. General MotorsCorp. (GM) GMhadanunusualtwo-levelconsol i dati onper i odofoverseven years.Th esecondf ourmont hflatt opbel ow60( N)real l yconf i rmed G E N E R A LM O T O R SC O R P O R A T I O N 53 HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU CROWNZ E L L E R B A C HCORP. thebearishopi ni onsatthatt i mear oundthebrokers'offices.The 1962breakprovedt hemr i ght(O).That ' swhattheyt hought ,u n t i l thepositiveb u l lmarketsignalcamewhenGMproveditstechni cal strengthbybei ngoneofthefirsttosellatnewhi ghpricesf ol l owi ng the1962panicselloff.Thi sisoneofthemostpositivecuesthata substantialriseisabouttogetunderway.Itleadthewayi nt oanew phaseofthelongestb u l lmarketi nhi story. CrownZellerbachCorp.(ZB) ZBhadafalsestartin1952f r omitssl i ghtl yascendingt woyear consol i dati on(P).Afalsestartbecomesmorecommonasmore tradersl earntobuyonthese"breakaways."Thef ol l owi ngdown-t u r nwasforthepurposeofconvi nci ngthesetraderswho" j umpe d theg un"thattheyweretoohasty,andalsotoi nduceothernervous shareholderstosellout .Thi sselloffshoul dneverconcernyouasan i nvestol ator.Youhaveasoundreasonforyourconfidence.These soundbasesandconsolidationsarenoti l l usi ons. Ifyouhadhel dont oZBu n t i ltheperfectupt r e ndl i newas br okeni n1956(Q),i two ul dhavebeenasaleat60.Ifyouhad boughtat10inthebaserange,youwoul dhavehada5 00%prof i t ontwi ceasmanysharesasyouwoul dhavehadifyouboughtitat 20i ntheconsol i dati onrange,f r omwhereyouwoul dhavehadonl y a2 00%gai n. Not ethatbecauseofthe2-for-1spl i tandthe5 0 %stockdi vi dend 54 CONSOLI DATI ONS:STOCKSPREPARI NGFORARISE 55 thepri ceof20in1952was60andtheacti onwoul dappearmore activet hanthepresentchartwoul di ndi cate. Asthi sbookgoestopressitappearst hatZBisf or mi ngaragged hi ghlevelconsol i dati on.Iftherei sayearofqui etacti oni nthenear f ut ur eitshoul dbeasafepurchase.Itshoul dbeabargai nevenasit risest hr oughthe70level. C A R R I E RC O R P O R A T I O N Carrier Corp. (CRR) Thethreeyearacti onofCRRar ound40(R)appearedtobe perfectconsol i dati on,buti tt ur nedouttobeaveryraret opacti on. Iti sdoubt f ulthatmuchmorestockhadbeensoldtothepubl i cat theendofthreeyearsthanhadbeensoldtot hemdur i ngthefirst yearonthistop.Thesixmont hdr opi n1955actual l yappearedto beaccumul at i onacti on.Iti sdi f f i cul ttoi nducethepubl i ctobuy aftertherisehasapparentl ystalled.Theant i ci pat i onofhi gher pricesi sbei nglost.Perhapstoomanypeoplewerequi et l ybuyi ngi n ant i ci pat i onofanai rc ondi t i oni ngboom.Ifso,theywerer i ghtfar toosoon. Myversioni sthis.Insteadofal l owi ngthepri cetodr i f tdown-war di namorecommonmanner,i twashel dupu n t i lthet i mi ng wasr i g httocoi nci dewi t hthe1957panicselloff.Breaki ngdown sharpl yf r omt hatt oplevelbri ngsoutveryheavysel l ing.Perhaps moreshareswereboughtonthisacti ont hanwoul dhavebeenona dr i f t i ngdownwar dacti on.Eachmani pul at ordoesi ttosui thisidea HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU ofwhatisbest.Not ethattherewasalsothe1962panicselloffdur-i ngthisunusual l yactivebase. Nor ma l l yani nvestol atorshoul dbebuyi ngi nthel atterpartofa threeyearconsol i dati onperi od.Butbuyi ngshoul dbeconsidered onl ywhenthethreeyearconsol i dati onhastakenplaceafterasmall rise.Theconsol i dati onappearanceofCRRtookplaceafteralarge rise.Buyi ngonahi ghlevelconsol i dati onshoul dneverbeconsid-eredu n t i lafterami n i mu mofsixyears,andt henonl yi fthelast yearormorehasbeenqui etacti on. MEADCORPORATI ON(THE) MeadCorp.( MEA) ME Ahasb u i l tat erri f i chi ghl evelbasewi t hanearl yperfectre-sistancelevelat50. Not i cetheearningsdur i ngthefirstfiveyearsofthisconsolida-t i onarealmosti dent i caltothatofthethreeyearconsol i dati onof 1951-53,bel ow14.Hereisprooft hatearningsdonotnecessarily cont r olprices.Justbeforepubl i cat i onME Amadeafalsestartto55, t henf el lbackgi vi ngmyreadersaf i naloppor t uni t ytobuyi tata bargai n. FirestoneTi r e&RubberCo.( F I R) Whe nacharthasat r i pl etopsuchasF I Rshows,itmattersl i t t l e whattypeofacti onappearsdur i ngthisperi od.Itmustbeconsoli-dat i onforaf ur t herrise.Nodoubttherewassomedi s t r i but i onon 56 CONSOLI DATI ONS:STOCKSPREPARI NGFORARISE 57 thefi rstt wotops,buttheoveral lpi ct ureshowsmoreact i oni ndi cat-i ngaccumul at i onrat hert handi s t r i but i on.Wh yelsethet r i pl et op falseresistancelevel? TheF I Rpi ct ureindicatesaverysound,hi ghl evelbase.Buyany t i me"atthemar ket "orwheni trisest hr ough52f orthe"break-away."T i meonl ycant el lwhet heri twi l lhaveafalsestart.Thi s breakawaywi l lprobabl yoccurafterpubl i cat i onofthisbook. F I R E S T O N ET I R E&R U B B E RC O . TRI ANG L E S .Ther earechartswherebot hanupt r e ndanddownt r end l i nearef or medatthesamet i medur i ngaperi odofyears.Whe n theselinesmeettheyhavecompl etedatriangleorcoilf r omwhi ch alargerisewi l lbegi n.Ineffecttheyaresi mi l artoahi ghlevelcon-sol i dat i on.Of t enthepri cewi l lbreakbel owthel owert r endl i nei n thef or mofafalsemove,orcommonshakeout,BEFOREtherise. Du r i n gthel atterpartofthecoi lthepri cef l uctuati onsnarrow downtoaqui etrange.Themaj or i t yofthepubl i cj ustdoesnotbuy dur i ngthisd u l ltypeofacti on,sothi scannotbedi s t r i but i on.It mustbeaccumul at i on.Th emani pul at orsarebuy i ngbackwhatthey soldonthefirstt wotops. Al ongt er mtri angl eisapositivei ndi cat i onofalargerisetof ol -l ow,butitmaynotbeaslargeast hatf r omaqui etbaseofmany years.Asusual,asf r omanybase,donotexpecttherisetoshow speedt obegi nwi t h.Tha twoul dst i mul at ebuyi ngbythepubl i cat thewr ongt i me.Atthisstagetheslowriseandapparentsluggishness isi nt endedtoencourageprof i tt aki ngorsel l i ngbythoseearl ier buyerswhoarenowhappytoselloutwi t ho utaloss. 58 HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU Buyi ngonthecompl et i onofatri angl eshoul dbeaneasydeci-sionforani nvestol atortomake,buttosucceed,youmusthavethe patienceanddet er mi nat i ontohol dforalargerise.Th eri ski s almost n i l . WoodwardIronCo.( WOD) Thepri ceofWoodwar dI r o ni nitsapparentstrugglet omove upwar df r omthe1962panicsel l i ngl owpoi nt ,influencesthemaj or-i t ytobelievet hatitsslowriseisasignofweakness.Thi srisewas wi t hanextremel yl i ghtamountofdai l yt r adi ng;somedaysthere wasnot radi ng.Perhapsthereasoni ngofthepubl i csubconsciously is,whyshoul dtheybuyorhol dthisstockwhenobvi ousl yfewothers wantit? Thi sl ongt er mt ri angl e,toaninvestolator,i saperfectpi ct ure thatinsuresaverylargeprof i t .Fr omthispoi nton,al littakesispa-tienceandanabi l i t ytowar doffanybearishinfluences.Ariseof 2 00%f r omitsapexshoul dbeeasilyreached. NewYorkCentralRailroadCo.( CN) andKVPSutherlandPaper(KSP) Whe nyouseethetri angl eofNewYor kCent ralpr ovi ngitself, shoul dn' ti tbeobvi ousthattheshakeoutofKVPSut herl andPaper in1965-66isdupl i cat i ngthefinal1962shakeoutofN. Y.Central? Th epri ceofKVPshoul drisefarabovetheol dhi ghi n1955. CONSOLI DATI ONS:STOCKSPREPARI NGFORARISE 59 HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU CE NTRALSOYACOMPANY CentralSoyaCo.andEagle-PicherCo.( KGP) T i mewi l lt el li fthepri cerisef r omtheshortertrianglesof Cent ralSoyaandEagle-Picherwi l lcarryashi ghpercentage-wiseas thoseofl ongdur at i on. E A G L E - P I C H E RCOMPANY CanadianPacificRailwayCo.(CP) Youmayt hi nkthattheperfectt r i pl ebot t omofCanadi anPacific Rai l r oadwoul dhaveb u i l tupconfidenceamongitsshareholders, 60 CONSOLI DATI ONS:STOCKSPREPARI NGFORARISE61 buttheyweretoofaraparttohavethiseffect.Theshareholderson bot hsidesoftheborderwerei nfl uencedmorebytheapparenti n-abi l i t yofCPtorise.Itisthisapparentweaknessthatactual l ygives strengthtoastock.CPwi l lsellabove100beforetheendofourb u l l market. CANADI ANPACI FI CRAI L WAYCO. Kelsey-HayesCo.( KW) Fr omamereglanceatthechartofKelsey-HayesCo.youmay haveoverl ookedthei mperf ecttri angl e.Thi sisj ustassoundasa perfectone.Th a twasanunusual l ysharpf i nalshakeoutbeforethe K EL SEY - HAY ESCOMPANY 62HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU f i nalt ur nup.Ashakeoutaccomplishesmoret hanshakingoutweak holders.Becauseofthisshowofweakness,othersaremoreapttobe wi l l i n gsellersasthepriceralliestohi gherlevels. Iti si mpor t antnottooverl ookthesetrianglesastheyappeari n theacti onofastock.Over l ooki ngatri angl eisoverl ooki ngf ut ur e profits. H e a da n dS h o u l d e r sBo t t o m s : S t o c k sB u i l d i n gT e c h n i c a lS t r e n g t h Aheadandshouldersbot t omismerel yani nvert ed"headandshoul-ders"top,andi soneoftheoldestf ormat i onsknowntochartists.In l engt hoft i me,itsf or mat i oncanvaryf r omafewweekstooverten years.Thespeculatorswhousechartsarealwaysal ertforthesefor-mati ons.Ofcoursetheyseldomnoti cethel ongt er moneswhi chan i nvestol atorwoul dbei nterestedi n . Thedepressinginfluenceofaheadandshouldersbot t om,whi c h issonecessarydur i ngaccumul at i on,liesinthefactt hatthepubl i c aref ri ght eneddur i ngthefirstshoul derandthehead.Du r i n gthe secondshoul dertheyselli nfearthatthepri cewi l ldr opdownagain. Theyhavelosthopei nitsabi l i t ytogoup. United Shoe Machinery Corp. (USH) Th eheadandshouldersbot t omofUS Hi n1957-58i saperfect f or mat i oni nwhi c hthepubl i cbecameverybearishdur i ngthefirst orleftshoulder.Theyweret heni nc l i nedtopanicandsoldheavil y onthe25 %f ur t herbreak.Thi sf ormedthehead.Du r i ngther i ght shoulderatapproxi mat el ythesamepri celevelandthesamet i me peri od,thepubl i cwhost i l lhel dt hr oughtherecentf r i ghtarenow i ncl i nedtosellbecausethesl owi ngdownofthisr al l yleadst hemto believet hatthisisonl yaral l y.The yhavelostconfidenceina f ur t herrise.A n dsoanotheraccumul at i onperi odwascompl eted. Headandshouldersbottomsdonothavethevalueofl ongand qui etbases,probabl ybecausethereisseldomasmuc ht i mespent 63 64 HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU dur i ngtheper i odofwor r y i ngoutthepubl i c.Youwoul dnotbe j ust i f i edi nexpecti ngmuc hovera100%risef r omt hem.Ofcoursei f i ti si nconj unct i onwi t hanotherbasef or mat i on,t henyoumay raiseyoursightsinant i ci pat i ngalargerrise. Ther eispracti cal l ynowayofant i ci pat i ngaheadandshoulders bot t omu n t i li ti snearl ycompl ete,soyoucert ai nl ywoul dmissbuy-i ngdur i ngthehead,itslowestpri celevel.Infact,thecompl et i on ofitsheadamountstothesameasthebreaki ngofadownt r endl i ne. U N I T E DS H O EM A C H I N E R YC O R P . I N T E R N A T I O N A LP A C K E R S ,L T D . HEADANDSHOULDERSBOTTOMS 65 Buyi ngatat i mewhenthet r endl i neisf ai rl ysteepisnotasafe pol i cy.( Thi si sf ur t herdescribedi nthechapteronstocktrends.) Ther earenotmanyheadandshouldersbottomstobef oundi n areal l yl owbase,probabl ybecausetherearefarbetterbaseactions t hataccompl ishthepurposeofi nduc i ngthepubl i ctosellout . Boeing Co.(BA)andInternationalPackers,Ltd.( I PK) Boei ngCo.i n1959-60andI nt er nat i onalPackers,Lt d. ,i n1957 58developedgoodheadandshouldersbottoms.Bot hprovedtobe soundenoughf oramoderaterise. Aheadandshouldersbot t omneednotbeonthet ruebot t om. Mor eoftentheymaybeseenfarabovetheor i gi nalbaseofastock. Theseactual l yservethesamepurposeasconsolidations.Whe none isseenitaddsagooddealtotheor i gi naltechni calstrengthofthe stock.Onemaybecertai nthatthestockhasnotyetbeenunderdis-t r i but i o n. RepublicSteelCorp.(RS) Theheadandshouldersbot t omofRepubl i cSteeli n1953(S) real l yaddedstrengthtothispi ct ure,f ol l owi ngsocloselytothet wo yearconsol i dati on.Itreal l ywassi mi l art oconsol i dati on.Itadded techni calstrengthtoanalreadystrongstock. Not etheact i oni n1949( T)whi chcoul dbecal l edaheadand REPUBLI CSTEELCORPORATI ON66HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU shouldersbot t om,butcoul dbebetterdescribedasaV- bot t om.Thi s acti onalsocoul dbesaidtobethefinalshakeoutofathreeyearbase. What everyouprefertocal li t ,i tserveditspurposewel l . C O N T I N E N T A LO I LC O M P A N Y Continental Oil Co. (CLL) Fr omasoundbaseendi ngin1942andathreeyearconsol i dati on whi chi ncl udedaheadandshouldersbot t om,C L Ld i dnotmoveup verymuc hdur i ngthe1946markettop( U) .Cert ai nl yitsprevious soundacti onj ust i f i edafarlargerrise.Ani nvestol atorshoul dnot havehesitatedbuyi ngthisonthesetbacki n1946.C L Lwasslowi n maki ngnewhighsbuti tdi dresisttheselloffi nlate1946.Anot her headandshouldersbot t omdevelopedi n1948-49whi chgavef ur t her confidencei nitstechni calstrength. Wher eyouwoul dhavesoldi sdebatable.Youshoul dnothave consideredsel l i ngbel ow50.Youmayhavebecomenervousand soldi nNovember1951whenthet r endl i newassl i ght l ybr oken(V). Th efastriseabove60shoul dhavetri ggeredyoui nt osel l i ngbefore thet r endwasbroken. American Can Co. (AC) Thenearl yelevenyearheadandshouldersbot t omf or mat i onof ACi sprobabl yanal lt i merecordi nthemat t eroft i me.Thi spic-t urereal l yshowsthevalueofthistypeofacti onwhenthesponsors HEADANDSHOULDERSBOTTOMS 67 believetheyhavetoomuc hcompanyandaredet ermi nedtogetr i d ofmuc hofi t .Thesharpshakeoutof1960( W)accomplishedagood j obofthis.Th ef ouryearr i ghtshouldergavetheappearanceof bei ngunabl etocarryabovethel eftshoulder.Wi t hthememor yof theshakeout(head)andtheapparentlackofstrength,thepubl i c reasoningisveryi nc l i nedtobebearish.Thi sacti oncanbeconsid-eredmoreofahi ghlevelconsol i dati on. Not i cetheearningsrecordofAChasbeenexcepti onal l ysteady despitearat herjaggedstockpi ct ure. AMERI CAN CAN COMPANY EASTMAN K ODAKCOMPANY 68HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU Eastman Kodak Co. (EK) Theheadandshouldersbot t omofEKdur i ng1961-63( X)took placefar aboveitsbase. Thi sisanexampl epr ovi ngt hatthepri ceofastockshoul dnever beconsideredbyani nvestol ator.Youropi ni onshoul dbebaseden-t i r el yonthepastactionsofastock.Wh i l eEKwasabargai nat124 (beforeitspl i t )anotherstockmaybedangerouslyhi ghat24,even t houghitmaybeasoundcompany. Xerox Corp. Xer oxCorp.f or medanearperfectheadandshouldersbot t om whi c hi ncl udedthe1962panic.Th equi ckrecoveryandquietness intheupperrangewi t hafalseresistancel evelabove160gavea soundbase.Ani nvestol atorwoul dhavesoldaboutthet i mei tfirst h i tthe160rangeorwheni tbroketheupt r e ndl i ne.Thi si sone si t uat i onwhereyouwerej ust i f i edi nconsi deri ngbuyi ngbackata pri ceaboveyoursalepri ce.Nor mal l y,thisisaveryri skyprocedure. S t o c k st h a tR e s i s t G e n e r a lM a r k e tB r e a k s Ther ecomesat i mewhenpanicsel l i nghi tsthestockmarketasin 1946,1957,and1962.Whe nthepubl i cpanics,foraperi odofa mont horso,i ti sararestockt hatdoesnotdr opi nvalue.Somewi l l merel ysag,whi l eotherswi l lbreakwi deopen.Forothersthisbreak maybethebegi nni ngofal ong,dr awnoutaccumul at i onbase. Neverconsiderbuyi ngtheseweakstocksafterasharpbreakno mat t erhowl owtheymayappear.Thi schapterwi l lteachyouwhat typeofacti ontowatchf oratat i mel i kethis. Fol l owi ngtherulesofani nvestol atoryouwoul dhavesoldmost stocksin1946.Steepupt r e ndlineswerebr okenal lacrossthestock charts.The1946t opwasagenui nedi s t r i but i ont op,whereasdis-t r i b u t i o nt ookplacei nonl yapor t i onofthestocksdur i ngthegen-eralmarkettopssince1946. Af t ersel l i ngastockyouwi l lnat ur al l ybeaneagerbeavertoget backi nt othemarket ,andr i ght l yso.Butdonotal l owyoursel fto getcarri edawaybyyoureagerness.Rat hert hanbuy i ngstocksat whatappeartobel owpricesafterageneralbreak,checkthecharts closelyforthosethatresistedthegeneralmarketbreak.The yattract veryl i t t l eat t ent i onbyt hei racti on,buttheyshowoneofthemost positivei ndi cat i onsofi nt er naltechni calstrength.Heavysel l i ngfails todevelopi nthesebecausethemaj or i t yofMi l quetoastsandNerv-ousNel l i eshavel ongagosoldout .Thesel l i ngthatdoesappearis wel ltakenbythesmartmoney. 69 70 HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU L I O NO I LC O M P A N Y Li onOi l L i o nOi lshowedout st andi ngstrengthwheni tresistedthe1946 break(Y).L i o nOi lprevi ousl yhadaperfectthreeyearbase,t hen dur i ngthenextthreeyearswhi l enearl yal lotherstockswerebei ng markedup,i twentt hroughaperfectconsol i dati onpat t ern.Itf ai l ed tof ol l owthegeneralmarketrisebutwasactual l yst rengt heni ngits ownposi t i on.In1946whi l eotherswerequi t eactiveandunderdis-t r i but i o n,i tmoveduponl ymoderatel y. Besidesresistingthegeneralmarketbreakwheni tcame,i t provedtheupsidewasthel i neofleastresistancewhenitmadenew highsthreemont hslater.Itwasnowasafepurchaseatthishi gher pri ce.Ho wmuchbetterthi swoul dhavebeent hani fyoubought othersonthelowsof1946whenmostwereonl yent eri ngt hei r accumul at i onbases.Whi l ethesebaseswere" ma t ur i ng "youwere gai ni ngagoodprof i ti nL i o nOi l . BayukCigars,Inc.( BYK) Thi sstockshowedanextremel ystrongresistancetopanicsel l i ng i nOctober,1957(Z).BYKsoldbel owitsconsol i dati onwi t hafi nal shakeoutt womont hsbeforethepanic,t henhel dfi rmi nthefaceof i t .T woperfectbuysignalsappearedat12i n1954(A)andat18i n 1958(B).Onaperfectbaseandconsol i dati onperi od(asshown here)itisnotnecessarytowai tforthebuysignal.Not etheprevious perfectaccumul at i onbaseofBYK. STOCKSTHATRESISTGENERALMARKETBREAKS 71 B A Y U KC I G A R S ,I N C . BeatriceFoodsCo.( BRY) BeatriceFoodsCo.( BRY)soldatnewlowsbel owitsconsolida-t i ononemont hafterthepanicselloff(C).Fourmont hslater,i t madeanewhi ghwhenitmadeitsbreakaway. Strangely,BRYspentmuchmoret i mei nconsol i dati ont hani t di ddur i ngitsshortbase.Theseconsolidationsreal l yb u i l dupthe strengthforcont i nuedrises.Theyareespeciallyi mpor t antwhen theyresistageneralmarketbreak.Theypresentasafepurchase whenperhapstherearenoothersavailable. B E A T R I C EF O O D SC O M P A N Y 72HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU AnchorHockingGlassCorp.( ARH) AnchorHoc ki ngGlassCorp.hel dupwel ldur i ngtheOctober, 1957panic( D) ,t heni mmedi at el yr al l i edi nt onewhi ghgr ound. CornProductsCo.( CPG) Cor nProductsCo.showedgreatstrengthbyresistingthe1957 generalmarketselloff(E).Al sointhefaceofthelate1960general marketselloff,CPGsoldhi ghereachmo nt h(F). STOCKST HATRESISTGENERALMAR KETBREAKS 73 ChromallyCorp.( CRO) Chr omal l yCorp.wastheleaderbymaki ngnewhighsthenext mont hafterthe1957panic(G),t henroseover150%dur i ngthe f ol l owi ngyearwhenithadadefi ci tof31cents.Neveral l owdeficits toconcernyou.Iti stheacti ont hatshoul dbeyourgui de. Collins&AikmanCorp.( CK) , andCrownCork&SealCo.( CCK) Bot hwereperfectl ysafebuyswhentheyf i r ml yresistedthegen-eralmarket' ssevereshakeoutinbot hthe1957and1960general marketselloff. Not et hatCCKrose1900%wi t houtpayi ngadi vi dend. CocaColaCo.( KO) ,andHersheyChocolateCorp.(HSY) Bot hoftheseactual l yswamagainsttheti dedur i ngthe1960 break.Al sobot hshowedi ndi v i dualstrengthbyrecoveri ngqui ckl y afterthe1957break. Atthet i meofpubl i cat i onHSYappearstobei nahi ghlevel consol i dati on.Wat c hf orthatyearormoreofquietnessi nitsupper rangewhi c hwi l li ndi cat ethati ti sneari ngitscompl et i on. Th epanicselloffin1962wassoseverethatevenmoststocksthat 74 HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU werei nastrongtechni calposi t i onsolddownsharplyforonemont h, buttheyrecoveredqui ckl y. Nearl yeveryonei nvol vedi nthestockmarketwatchesitsactions, whethertheyarechartistsornot .Themarketopi ni onsofmost shareholders,al t houghtheyarenotawareofi t ,arei nfl uencedby marketacti onrat hert hanbyfundamental s. Isn' tthe1962marketbreakproofofthis?Di dnotpubl i csenti-mentchangef r ombullishnesst onotmerebearishness,buti nt o STOCKSTHATRESISTGENERALMAR KETBREAKS 75 bei ngunreasonablypani ckyi nonl yt womont hs,f r omMar c ht o May?Di dthef undament alout l ookofourcorporati onschangedur-i ngthistime?Ofcoursenot .Itwasonl ypubl i csenti mentthat changed. Thelargestdropsi n1962werei nthosestockswhi chweretech-ni cal l yweak.Agai nthosestocksthatresistedtheselloffwerethe onestowatchfor. 76 HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU C O L U M B I AB R O A D C A S T I N GS Y S T E M B R I G G S&S T R A T T O NC O R P . STOCKSTHATRESISTGENERALMAR KETBREAKS 77 HOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU 78 M O N O G R A MI N D U S T R I E S ,I N C .M O N O NR A I L R O A DC O ." B " ManonRailroadCo.B( MON) , andMonogramIndustries,Inc.(MGP) Ther earethosewhomayargue," Wo u l d n' ti tbebettertobuy thoset hathadaseveredr oporthosethathaddroppedconsiderably beforethe1962panic?" Itwoul dhavebeenbetteri fyouhadboughtonel i keMo no n Rai l r oadCo." B" .Butthesewerefewatthatt i me.Ithadatypi cal threeyeardownt r endl i ne,endi ngwi t hafi nalshakeout.Thebreak-i ngofthist r endinNovember,1962wasaperfectbuysignal.Butby thisreasoning,youwoul dhaveboughtMonogr amIndustri es,Inc. atabout7,andfartoosoon.Youmayhavebeenverynervouswhen itsoldbel ow2( H) .Itwasafarbetterbuyatthesamepricet wo yearslater.Itwass t i l lagoodpurchaseat10threeyearslater. Briggs&Stratton,Col umbi aBroadcasting,Dr .PepperandGrey-houndprovedt hei runder l yi ngstrengthbymaki ngnew1962highs afterthemarket' svi ol entshakeout.Toseesignsoftechni cal strengthyoumustbeawareoftheseactionsandthei mport anceof thet i mi ng .Ther eisnof undament alstudyorsetofstatisticsthat cangiveyoutheseclues.Youcanseet hemonl yt hr oughtheuseof charts.Youmustwatchandcomparewhatishappeni ngtoother stocks.Studyt hemasifyouwereageneralinthefieldofbattl e wat chi ngforastrategicmove,andwatchforthosef ormat i onsthat haveproventhemselvesinthepast.Ifyouareunabl etobecome confi denti npicturesl i ketheseyouhavef ai l edtounderstandthe STOCKSTHATRESISTGENERALMAR KETBREAKS 79 t er m"t echni calst rengt h. "Wi t h o u t"t echni calst rengt h"astockcan-nothaveanyt hi ngbutami norral l y. FORDMOTORCOMPANY Ford Motor Co.(F) Thepri ceacti onofFor dMo t o rCo.afterthestockbecamepubl i c wi l ldemonstratewhatImean.Thepubl i cdemandwassogreatfor theofferi ngt hatbrokerswereforcedtor at i oni t .Butpubl i cdemand afteri twasontheopenmarketf ai l edtosti mul atei ttomorethana mi norral l y.Why?Becausetherewasnoonepreparedtomovei tup. Thestockwashel dbythepubl i candi twasthereforetechni cal l y weak.Itwasnat ur alt henforthedisenchantedshareholderstosell wheni tfai l edtorise.Thi swasj ustwhatIpredi ctedwoul dhappen atthet i me.Whe nenoughshareswerepi ckedupbythesmartmoney onthef ol l owi ngdecline,thepri cewasmarkeduptowherethe publ i cor i gi nal l yt houghti twoul dgo.Ani nvestol atormustrealize t hatafairpercentageofthepublicmustbesoldoutbeforeastock hasachanceforaprofitablerise.Otherwi setherewi l lbenospon-sors.Thosewhodonotunderstandthismaybedoomedtobe emot i onal l yi nspi redandgi venfalsecourageforvariousreasonsat thewr ongt i meandpri ce.T i mi n gofyourpurchasei sal li mpor t ant . Ifthet i mei sr i ght ,thepricemustber i ght . Asl ongasthemarketcontainssomanymi x e dtrends,atalmost anygi vent i metherewi l lbestockst hatshoul dbebought.Manyof t hemwi l lgivethecuetobuyt hr oughactionssuchasIhavede-8oHOW TO MAKE THE STOCK MARKET MAKE MONEY FOR YOU scribedtoyou.Whe nyoumakeapurchaseafterseeingoneofthese strongactions,rarel ywi l li tprovet obewr ong.Perhapsdi sappoi nt-i ngbeforepr ovi ngitself,butseldomwr ong.Lear nt obuywhena stockshowsqui etstrength,notdur i ngthevi ol entdisplaysofstrength i nthehi ghranges. Mysuccesshascomef r omthemanymistakesIhavemadeinthe past,andIamt r y i ngtogivesoundconservativeadvicet hatIhave gainedthehardway.Don' tl etanyoneswayyouwi t ht hei rknowi ng t al kaboutthefundamental sofacompany.Theyf or t i f ythemselves wi t h"facts"tobolstert hei ropi ni ons.Thefacti sthattheyoftenpi ck theveryfactsthatwi l lcoi nci dewi t ht hei ropi ni ons.Thesei nt u r n wereprobabl yf ormedemot i onal l yonthebasisofthepri ceacti onof astockorthemarketasawhol e.Wh oelsebutthesepeoplebuyhi gh andselllow? C H R Y S L E RC O R P O R A T I O N ChryslerCorp.(C) TheChryslerchartshowsoneofthemostout st andi ngendings ofanaccumul at i onperi odtobeseen.Ithadnearl yeveryt hi ngto bef ounddur i ngabot t omacti on.Thel ongslowdownt r end,the qui etweari ngoutacti oni n1960-61( I ) ,f ol l owedbyadoubl et op (J)andthesharpshakeoutdur i ngthe1962marketbreak( K) .The f ol l owi ngr al l ystalledatthepreviousresistancelevelof15.Here wasanunusualpi ct ure.Thr eepositivebuyi ngsignalsappeari ngat onet i me:breaki ngthel ongdownt r end,goi ngabovethet r i pl et op STOCKST HA TRESISTGENERALMARKETBREAKS8 l falsecei l i ngandr i si ngabovetheheadandshouldersbot t om. Sixteenwastheperfectbuyi ngpri ceonthisbreakaway.Nor ma l l yani nvestol atorwoul dhavesoldChrysleri ntheupper 40level. Thefast,threemo nt hrise( dur i ngextremel yheavydai l y t radi ng)to49shoul dhaveal ertedh i mtosellout . Event ual l yi t soldat67onareducedamountoft radi ng,butthiswastoomuc h t oexpect. Whe nyouhol doutfort hatextrarise,f ouroutoff i ve timesyouwi l lf i ndyourselfhol di ngthestocktool ongandtoolate.Lear ntorecognizethevari etyofbases,consolidations,trends, falseceilings,falsesupportlevels,falsestartsandshakeouts. Ther e arei nt er nalchangeswhi c htakeplace,al lofwhi c hhaveani mport antbeari ngonthef ut ur eacti onofastock. Ifyoucandetectthese f ormat i ons,youwi l lacqui rethe" knowhow"i nforecastingstock pri cemovements.Ho wmanytimeshavepeoplet i mi dl yboughtonl yaf ract i onof theshareswhi c htheyreal l ycoul daffordbecausetheylackedconfidenceint hei rchoiceofastockortheeconomiccondi t i onofthe country?Bytheuseofl ongrangechartstheyshoul dbeabletopi ck abargai n. Forgetthequesti onofeconomicheal thofthecorporationsorthecountry. Youronl yinterestshoul dbe,hasthestockact i onbeenacti nginawayt hathasbeenwor r y i ngtheshareholders i nt oselling?Doesthestocknowappeartobeinstronghands? Ther emaycomeat i mewhenastudyofthechartswi l li ndi cate thattherearenobargainsavailableandthatthewhol emarketistoo hi gh. Ifyouhavesoldout ,youmustdecidetostayout . Sitbackand watchtheprofitsgoby. Lat eryoucanwatchthepricesmel taway.Th a tcanbethemeansofavoi di ngheavylosses. Tha tisreal l ymore i mpor t antt hanmaki ngmoneyi nthemarket . Manypeoplefarevery wel lwi t houtcapi talgains,whereaslossescoul dleavet hemdesti tute.F a l s eS u p p o r tL e v e l s :E n c o u r a g i n g A c t i o nT h a tH i d e sT r o u b l eA h e a d THOR POWER TOOLCO. ThechartonT h o rPowerT o o lshowsoneofthebestexamplesofa falsesupportleveldur i ngtheyears1961-64.Du r i ngthisperi od therewerethreefastrisest hati ndi cat edattemptsati nduc i ngthe publ i ct obuythestock( L,M,N) .Not i cethatdur i ngtheseyears therewasl i t t l et i mespenti nthel owerpri cerange.Ther ewereno accumul at i onperiods.Whoeverwasresponsibleforitspart i cul ar act i vi t yboughtonl ythenecessaryamountt ogivei tsupporti nthe 82 FALSESUPPORTLEVELS 83 areaof25.T woratherfeebleralliesin1964werethelastattempts atdi s t r i but i onbeforethet r u t hbecameknownt hatthecompany wasi nt roubl e,andthepri cedropped5 0 %bel owthefalsebot t om. InSeptember,1964,theboardofdi rectorsofT P Tannounced anagreementforthesaleoft hei rcompanytoStewart-Warnerfor thepri ceof$28.40pershare,andlateronaskedtheshareholdersto votet hei rapprovalofthi ssale.Inl i t erat uret hatwasi nt endedto influenceafavorablevote,i twassaid," I nthel i ghtofearningsfor 1963andthefirstsixmont hsof1964,recentmarketpricesofthe Company'sstockof$18.45pershareasofJune30,1964,theBoard ofDi rectorsconcl udedt hatthepri cefi xedi n ,andthetermsofthe agreement,whi chwerearri vedatasaresul tofarms-lengthbargai n-i ngbetweentheofficersanddirectorsoftheCompanyandStewart-War ner ,werefai randi nthebestinterestofT h o rStockholders. " Thi s"arms-l ength"phrasesoundsasifsomeonewaswaryofthe deal.Infactf r omsubseq