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HOWTO USETHE
Three-Point Reyersal Method of
Pof,mt6
Sfock Market Trading
BY A. W. GOHE]I
ffi@ffiM' GHARTCRAFT,
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Three-Point ReversalMethod of
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Sfock Market Trading

BY A. W. COHE]I
A TECIIIIICAI.
APPR(IACH
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Copydght
- 1968,1978,1982,& 19&4by Chartcraft,[nc.
nrUtisneaby Chartcraft,Inc., Larchmont,NY
Catalogue
Libraryof Congress Number:68-54093
EIGHTH REVISED EDITION
The material containedherein is not to be taken as advice to buy or sell

specific securities. The information presented is based on sources we
Ultieveto be reliableand hasbeencarefullycheckedfor completeness and
accuracy,but cannot be guaranteed.
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TABLE OF CONTENTS
Page
Foreword D
Introduction 6
Section One - The Poj.nt & Figure Chart and Construction n

a
The Point & Figure Chart B
Charting A Very Low-Priced Stock 11
Chart Construction L2
15
The Double Top & Double Bottom Formation (# 1) 16
The Double Top & Double Bottom Formation (#2) 18
The Bullish Signal Formation 20
The Bearish Signal Formation 22
The Bullish & Bearish Symmetrical TriangLes 24
The Triple Top Formation . . 26
The Triple Bottom Formation 2B
Formations In Combination 30
Variations On The Triple Top & Triple Bottom Formations . 32
The Broadening Formation 34
The Spread Triple Top & Bottom Formations . 36
Bullish & Bearish Cataputt Formations . 3B
The Bearish & Bullish Signal Reversed F'ormations . 40
Section Three - Trend Lines 43
The Bullish Support Line 44
The Bullish Resistance Line 48
The Bearish Resistance Line 50
The Bearish Support Line 53
Section Four - Price Objectives .
55
The Horizontal Count Db
The Vertical Count
5B
The Horizontal & Vertical Count
60
Section Five - Relative Strength
61
Section Six - Industry Groups .
65
Section Seven - The Dow-Jones Industrial Average
69
Section Eight - Trading Tactics
73
Establishing The Trade
74
Profitability Tables
74
The Pu]lback
75
Profitability Tables
76
Stoploss Orders
77
Taking Profits
78
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SectionEight (continued)
StocksWith A High Short Interest. 80
Volume. 80
SectionNine - ConvertibleBonds . E1
SectionTen - Over-The-Counters. 85
SectionEleven - TechnicalIndicators 89
The CumulativeDaily Advance-DeclineLine . 90
The High-Low Index 91
The On-BalanceVolumeIndex 92
The Odd-Iot BalanceIndex 93
The Odd-Lot Short Saleslndex 94
The 10-DayAdvance-DeclineRatio . 95
The 10-DayUpside-DownsideVolume Ratio 96
The 200-DayDJIA Momentum Index 97
The DJIA One-YearToChart . 98
The Index of SpeculativeConfidence 99
The Gold Mining Disparity lndex 100
The Short Interest Ratio . 101
The % of NYSE StocksAbove Their 10-WeekMoving Average ' r02
The lO-WeekMost Active StocksRatio 103
The NYSE Bullish Percentage 104
The DJIA Bullish Percentage. 105
GeneralMotors as a Bellwether Stock. 106
SectionTwelve- Puts and Calls . 107
SectionThirteen - Commodities. 113
SectionFourteen- Adjusting a Chart for a StockSplit 125
SectionFifteen - The S-PointReversalChart 126
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FORWARD
The basicprinciples of "How to Use the Three-PointReversalMethod of Point & Figure StockMarket Trad-
ing" were ftrst published in 1947under the trtle "StockMarket Timing. " When the Chartcraft Weekly Service
was started in 1948,the name of the book was changedto "The ChartcraftMethod of Point & Figure Trading."
In August 197E,we publishedthe sixth revisededitionof this bookwhich includedrevisedchaptersdealingwith
the Dow'JonesIndustrial Average, Over-The-Counter Stocks,and TechnicalIndicators.In March 1980,the
Seventheditionwaspublishedcontaininga revisedchapteron OptionTrading.
This is the eighth revisededition. It containsrevisedsectionson Price Objective,RelativeStrength,Tech-
nical Indicators,Options,and Commodities.
Althoughfuture editionsare constantlyin the planning,the basicprinciplesremainthe same.
Specialacknowledgment is made to ProfessorRobertEarl Davisof PurdueUniversity.He was kind enough
to let us read his lengthy manuscript, "Proft and hobability-Technical Analysis of the Price Fluctuations of
'
CommonStocks,' and haspermittedus to usehis figureson the profit potentialof the varioustrading formations
containedin this book. All the formationswere programmedfor an IBM 7094computerand the results were
obtainedon the basisof tradingfrom buy signalto sellsignal,and sell signalto buy signal,with trend lines taken
into account,
A. W. Cohen
July 1982
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INTRODUCTION - THE TWO APPROACHES
ar companycanbeapproached
T h e p r o b l e m o f t h e p u r c h a s e o f s t o c k i n a n y p a r t i c u l"should
way is to pose the problem as: I buy the stock of
in either of two ways. One "When shall I buy the stock
theXyZ Companyi" The other is to pose the problem as:
of the XYZ ComPanY?"
"Should I?" is taking the fundamental approach
The person who asks the question "When shall I?" is
to the stock market analysis. The person who asks the question
taking the technical approach to stock market analysis'
The fundamental analyst concerns himself with financial statements, history,

position
quality of management, earnings, dividends, popularity of products, relative
in the industry,. etc.
The technical analyst concerns himself with suppiy and demand, accumulation
and distribution. Practicaliy all stocks have substantial moves at one time or another'
"blue chip" as of a "cat and dog. " No stock goes up
Fluctuation in price is as true of a
in price of its own accord. Before a stock goes up it goes through a period of accumu-
"insiders, rr it is passing from "weak hands" into "strong hands" until demand
trtio.r by
is greater than supply and the upward move is on its.way' Bef.ore a stock drops in price'
"insiders. " It is passing from
it goes through " p""ioA of distribution by the same
"slrong handi" into "weak hands. " When support is withdrawn, supply overcomes
is concerned with
demand and the panicky downward move is on. The tecbnical analyst
to determine the
the right time to Uuy and the right time to sell short. He attempts
situation. He is an
moment when either supply or demand has taken control of the "insiders" are doing'
,,outsider" making ,r"" oi various techniques to determine what the
a
When should a stock be bought? The broad answer to this question is that
stocks egeneralmarketisinanuptrend,(2)theindustry
group of which it is a member is in an uptrend, and (3) the stock itself is in an uptrend.
- the price of a market average, the price of
ffptrlnO, as used herein, refers to price
cash
the industry group index, the price of tne stock. It does not refer to earnings,
the
fJ.ow, growth, etc.; such factors may answer the question what to buv but never
question when to buY'
When should a stock be sold short ? The broad answer to this question is that
astockslrouIdu.@thegenera]marketisirradowntrend,(2)the
(3) the stock itself is
industry group of which it is a member is in a downtrend, and
in a downtrend. The trader or investor who does not like the short side of the market
should at Ieast be out of stocks in such a situation. Here again, downtrend refers only
to.price and nothing else.
The tools used by the technical analyst in nraking such determinations are
of
primarily charts - charts of a particular stock, charts of an industry group, charts
a market Average or Index. There are three types of charts: line, bar, and Point and
Figure. This book is devoted to Point and Figure charting and interpretation. It is
the oldest form of charting used in the stock market, it is indigenous to and grew out
of the stock market, and once n:astered and understood it is also the simplest and
clearest method of determining the right tinre to buy and the right tiure to sell. The
Point and Figure chart shouts where other charts merely stutter.
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SECTION ONE
THE POINT AND FIGURE CHART AND ITS CONSTRUCTION
In Figure # 1, we have a Point and Figure chart "under the aspect of eternity. "
By this, we mean that both vertical and horizontal coordinates are based on price
changes. In the usual line or bar chart, the vertical coordinate is based on price and
the horizontaL coordinate is based on time (day, week, or monttr). This is not the case
in a Point and Figure chart. Chronology has no significance in it. The only thing it
concerns itself with is a stockrs price changes independent of the time in which these
changes take place. The chart patterns that this chart develops are independent of the
time it takes for their eoming into being, whether it is a matter of days, weeks, months,
or years. Their significance for the future remains the same.
Although we will include chronological data in the body of the Point and Figure
chart, as wiLl be seen in the ensuing pages, this wilL be done merely to establish a
frame of reference.
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THE POINT AND FIGURE CHART
Figure # 2 is a reproduction of a Point and Figure chart of Bucyrus-Erie. Let

us examine it closely and learn how it is constructed'
Each square ( not line) on the chart represents a unit of price.
Under 20, each square stands for |-point or one-half dollar.
From 20 to 100, each square stands for 1-point or one dollar.
When the price of a stock is going up, we use Xs to indicate the price changes.
When the price of a stock is going down, we use 0s to indicate the price chatrges.
Vertical columns of Xs and 0s alternate. We n.roveone colutrln to the right

each time there is a change in direction - from up to down or from dorvn to up. Xs and
0s never appear in the same column. Each colun.tn represents either an upnlove or a
downmove, it cannot represent both. (Daily highs and lo'tls ale used fol determining
upmoves and downmoves and not closing prices).
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In no vertical column are there ever less than 3 squares of Xs or 3 squares of 0s.
Thismeansthatinordertorecordacna@anupmovetoadownmove,
or vice versa, there must first be a price change equal to at Ieast 3 squares.
Over 20, therefore, a price change of 3 points or three dollars would be necessary
for a trend reversal. If the price of a stock has gone up to 50, it must go down to 47
before we car record the 0s in the next vertical column.
Under 20, a reversal of 1-j points or one-and-one-half dollars would be neces-

sary. If the price of a stock has gone down to 14, it must go up to 15-| before we can
record the Xs in the next vertibd column.
At the borderline of ,20t 3 squanes may represent only 2 ot 2'l points, but a
reversal occupying 3 squares is drryays necessary.
In the same trend, however, each point or |-point is added as the stock continues
on lts way up or down.
Over the 20 price square, we have'no fractions at all on our chart. If a stock has
gone up from 32 to 39-?/8, the highest X in our column will be in the 39 square. If a
stoct< has gone down from 57 to 43-1/B ttre lowest 0 in our column will be in the 44th
square (it never made an even 43).
Under the 20 price square) the only fractions we have are in |-point units. If a
stock has gone rpi"orn tO-i to L3-7 18, the highest X wilt be in the 13-| square; and
if it has gone down from 16 to 13-5/8, the lowest 0 will be in the 14 square (it never
made an even 1g-*).
Over 100, each square should represent 2 points or two dollars. The 3 squares
necessary for a trend reversal will therefore stand for 6 points or six dollars except,
of course, at the borderline of 100.
It is very important to indicate that a Point and Figure chart is a one-dimen-

sional chart. In the usual stock market chart, whether bar or line, the vertical axis
represents price and the horizontal axis records time. In the Point and Figure chart
both the vertical and horizontal a:<is record price. The chronological data that it
may contain is of no importance either to its construction or interpretation. It is used
only as a matter of convenience. In the chart of Bucyrus-Erie, we have indicated the
passage of time by the numerals L to L2 (1 representing January, 2 representing
February, etu. ). The appropriate numeral has been substituted for an X or an 0 the
first time a price change is entered in a new month. When this coincides with a 3-box
price reversal, the numeral is entered in the third square up or down as the case
may be. Years are indicated at the foot of the chart. If all this chronological data
were omitted, the chart would be just as valid. The Point and Figure chart is indig-
enous to the stock market; it was used to graphicaUy record price changes, perhaps
as far back as the 1-880s. It is the oldest type of chart used in stock market trading.
Ttre Polnt and Flgure chart, as ne have constnrcted lt, becauee of the 3-box
rerrergal necessary for a change ln dlrectLon, elLmlnatee all mlnor and confuelng
moves. It 18 eLople, clear and conclge. It lends ltself easlly to correct ln-
terpretatlon. It 18 sLnple to conatnrct and malntaln.
lfote: Charts compiled by Electronic Computer substitute A, B and C for 10,

11 and 12 as symbols for the months October, November and December.
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Figure # 3 is a Point and Figure chart of Union Carbide. It illustrates the units
of charting when the price of a stock rises and falls above 100.
Below 100, each square stands for 1-point or one dollar.
Above 100, each square stands for 2-points or two dollars.
A 3-box reversal below 100, would be equal to 3-boxes or three dollars.
A 3-box reversal above 100, would be equal to 6-points or six dollars.
At the borderline of 100, the 3-box reversal may sometimes equal 4 dollars
and at other tin-res 5 dollars.
The important fact to keep in mind is that above 100 we have only even units
and no odd units. Thus if a stock goes up to 115, the high on our chart would be 114;
if a stock goes down to 107, the low on our chart would be 108.
In all other respects, the chart is basically the same as that of Bucyrus-Er.ie,
in Figure # 2.
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CHARTING A VERY LOW-PRICED STOCK
In discussing the charting of stocks under the price of $20.00, we have laid
down the general rule that such stocks should be charted in Il2 point units by a l-ll2
point reversal. However, there are occasions when charting very low-priced stocks in
this manner wiII not give any discernible chart patterns over long periods of time.
This is especially true of stocks under $5.00 that are not too active.
To overcome this defect, such a stock may be charted in smaller units. Each
square can be made to represent ll4 point with 3/4 point necessary for a change in di-
rection.
Such a chart is illustrated above. It is a chart of Lehigh Valley Industries. By

charting it in the smaller units, chart patterns appear more frequently and most of the
time they are just as accurate and useful as the chart patterns appearing in stocks chart-
ed on larger units.
Once the price gets above $5.00 then we go back to the standard 1/2 point unit.
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CHART CONSTRUCTION
The Point and Figure chart of Bucyrus-Erie was constructed from the daily
stock tables appearing in the Wall Street Journal. Any newspaper reporting the daily
highs and lows may be used. Because the 3-box reversal eliminates the minor and
insignificant price changes, there is no need to subscribe to any special price change
service in order to construct and maintain a chart of this type.
We are appending below the daily high and low figures of Bucyrus-Erie for
the year 1961. We have also added a column showing the chart entries to be made from
these figures. This rvill enable you to practice making a chart. We suggest that you
cover the column marked chart entries and only use it to check your own postings. The
figure after the colon represents eighths of a point; the figure in parenthesis represents
the month, i. e., (i) January, (2) Februarv, etc.
Chort Chort
Dote High Low Entries Dote !rs! Low Entries
Jon. 3 t4 l3:4 13t-14 21 19 l8:5
4 14:7 13:7 (t)l4i 23 l8:6 l 8 :I
5 l5:4 14:7 l5-l5l 24 l8:4 l7:7
6 l5:5 14:7 27 l8:6 l 8 :I
9 l5:6 l5:5 28 lP:4 l 8 :I
l0 |5 : 7 l 5 rI
Mor. I l8z2 t8
ll l5:4 l5:2
2 l8:4 l8
t2 |5:2 l5
J l8:3 l7:6
l3 |5:2 t5
6 19:7 1725 (3)le j
l6 15:2 l4:7
7 2023 l9:2 20
t7 l5 14:6 8 20 19:4
l8 l5:4 l 5 :I 9 20:3 20
l9 l 6 ;I 15'4 16 l0 20:7 2022
20 |5t7 l5:5 l3 22 2l::2 2l-22
23 l6:2 15:7
l4 21:7 20.5
24 16:2 l6
l5 19:7
20:7
25 l 6 :I 15:7 t6 21:3 20:6
26 |5 : 7 15:4 17 2l:2 20:2
27 l5:5 l5:4
20 21:2 203
30 |5:7 l5:4
21 2l 20:4
3l l5:6 l5:2 22 2l 20:3
Feb. I l5.2 l5 23 2l:3 2024
2 l5:6 l5:3 24 21:6 2 lt l
3 |5:4 15:2 27 22:2 2l:7
6 l5:3 l 5 :I 28 22:1 2l:6
7 l5:2 l4:7 n 2l:7 2l:3
I l5:3 14:7 30 2l:7 2l:3
Y l5:3 l5 April 3 2 lz 7 2123
l0 |5:2 l 5 :I
4 2l:3 2l
l3 l5:3 l 5 :I
5 2l:1 20r4
t4 l5t7 l 5 :I
6 20:I 19:6
l5 l6:2 l5:6 7 19:7 l8:4 2t-20-(4)t9+-19-
l6 17:4 l6:3 (2)16+-t7-t7l
l8*
t7 l8:3 l7:5 18
t0 2023 l9:5 19-19+-20
20 l9 r8 l8+-le ll 20:5 20:l
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Chort Chort
Dote High !9w Entries Dote Esb Low Entries
April 12 20:3 19:6 26 20:6 20

l3 ?0 l9:5 27 20:2 19:6
14 19:7 19:4 28 2027 20
17 1 9z 7 l 9 :I n 2026 20
l8 l 9 :I l8:5 30 20t7 2026
l9 2022 19:2 July 3 2025 202
20 22:l 2l:4 2l'22 5 20:6 20:I
21 23 22:3 23 6 2023 2021
24 22:7 2l:5 7 20:2 20
25 22:5 2l:6 l0 20:1 l9:3
26 23:4 22:3 ll l9:3 le (nte
27 23zl 22:l 12 19z2 19
28 2227 22;1 l3 19:6 18z7
Moy I 2 3 :I 22:6 t4 l9:5 19z2
2 23:1 22:5 l7 l9:3 l8:5
3 22:7 22:3 l8 f 8:5 t7A t8*-18-t7t
4 22:6 2225 19 17:6 t7 17
5 22:6 2223 20 t8 17z5
8 24 22:7 (5)24 21 t8 17z4
I 25 24 25 24 l8:3 l 8 :I
l0 24t6 24:l 25 19z4 l8:5 l7l-18-18}'-le-
ll 2423 23:5 re+
t2 242 23:7 26 19z7 l 9 :I
l5 24:2 23:7 27 20 19:| 20
l6 24:6 24 28 20 1924
t7 2422 24 3l t9l 19z4
t8 24:l 2326 Atrg. I l9:6 19z4
l9 2327 2324 2 1927 19z4
22 24 2326 3 19:4 l8:6
23 24zl 23:4 4 19z4 l9
24 2327 2324 7 19:4 19:2
25 23:3 23:I I l9:3 l8:6
26 2324 23zl I l8;5 17:5te'..1e-(8)18*-18
3l 23:4 23:2 l0 l8 l7z6
June I 2322 23 ll t8-.2 17:7
2 23:1 2226 14 t82 l8
5 23:l 22r5 t5 l8:4 18z2
6 2225 2221 l6 l8:5 l8:3
7 2222 2t:5 24-23-(6)22 t7 l8:4 17z7
I 2l:7 2l:1 t8 l8:3 t8
9 2l:7 21 2l 2l l8:3 l8:l
12 2l:6 21:2 22 18z2 17:7
l3 2lz6 2027 23 l8 1725
t4 212 2Qz5 24 17:6 17z4 lTlz
l5 20:3 l9:7 20 25 17z7 l7:4
l6 2025 20:I 2A 17z6 17z5
l9 20:4 t9z2 19* n l7$ 17z4
20 20:4 t9-.6 30 lTzS 17z1
2l 20:5 20:3 3l 17z5 17z2
22 20r'. 20
23 20:4 20
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Chort Chort
Dote High Low Entries Dote High Low Entries
Sept. I 171.3 17:2 Nov. I l6:6 l6:2
5 17:3 17:l 2 1722 1624
6 17:l l6z7 (e)17 3 17:3 t7
7 17:1 l6:6 6 172 l6:7
8 172 l6z6 I t8 1 7 2 2 | 7 - 1 7 + - (ll) l 8
ll l6:6 l6-2 t6+ I l8:3 l8
12 l6:5 l 6 :I l0 l9:5 l8.2 l8*- l9-l9+
l3 172 l6.4 l3 20zl t9$ 20
l4 17:6 lTzl t4 19:7 - 192
18:5
l5 1 7z 5 17:3 t5 19:7
l8 17:4 l6:7 l6 l8:4 r8 re+-re-r8+-r8
l9 1 7t l l6:5 l7 l8:6 l8:2
20 l6:5 l6:4 20 l8:6 l8:3
21 l7:3 l6t6 2l l8:4 t82
22 17:2 t7 22 l8:2 l7:6
25 17:3 l6z6 24 t8 17$
26 17:3 l6:5 27 17:7 l7:4 l7l
27 lTzl 16:7 28 17:7 17:4
28 l7:l l7:1 n 17,:6 17:3
n 17:l l6:7 30 17:5 17z3
Oct. 2 l7:1 l6:6 Dec. I 17z5 17:3
3 16:6 l6:5 4 l8:4 l7:5
4 l6t7 l6:5 5 l8:4 l7:5
5 lTtl l6:6 6 17:6 l7:4
6 l7:l t7 7 t7l.3 17:2
9 1 7 17 I l 8 :I 17:2
l0 t7 t7 ll l8:4 l8:2
II lTzl l6:7 t2 l8:6 18:2
12 lTtl l6z7 t3 l8:4 l8:2
f3 l7z2 17:l l4 l8:4 l8:3
16 17:6 171.3 l5 l8:4 l8
17 17:6 17:2 l8 l 8 :I l7:5
l8 t7A lTzl l9 17:5 l7z5
t9 172 t7 20 t8 17z5
20 l7z2 l6:5 2l t8 17:6
23 16z7 l6:5 22 17:7 17z6
24 lTzl l6:5 26 l8 17z6
25 l7 l6:4 27 17t7 17:5
26 16:6 16:4 28 17:7 t7A
27 16:5 l6:4 n 17.5 17:2
30 16:7 l6:3
3l 16;4 l6:3
This method of charting is based on the elimination of the minor and insignifi-
cant intra-day moves.
If your last chart entry is an X, then look at the daily high. If the stock has
gone up enter the additional X or Xs and forget about the lows. If the stock has not
gone up then look at the low for a 3-box reversal.
If your last chart entry is an 0, then look at the daily J.ow. If the stock has
gone Iower enter the additional 0s and forget about the highs. If the stock has not gone
Iower then look at the daily high for a 3-box reversal.
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THE DOIJ-BLE TOP AND DOUBLE BOTTOM FORNIATION (#1)
Example A is an illustration of the Double Top formation (#1). It is the basic

chart pattern in a bul1 market. Chart picture shows a first top at 38. This is followed
b1'a decline to 31, which in turn is again followed by a ratly to 38. The trvo tops at 38
comprise the double top. A breakout above this double top to 39 registers a buy signal.
This point is indicated on the chart by the letter B.
Example B is an illustration of the Double Bottom formation (#1). It is the basic

chart pattern in a bear market. Chart picture shows a first bottorn at 38. This is fol-
lowed by a rally to 45, which in turn is again followed brr a. decline to 38. The two
bottoms at 38 comprise the double bottom. A breakout below this double bottom to 37
registers a sell signal. On the chart, this point is indicated b,v the letter S.
These two basic formations consist of three vertical columns. It is impossible

to have a chart pattern that consists of less than three columns. All other chart patter
are derivations from and combinations of these two basic patterns. As will be seen in
the following pages, they necessarily consist of more than three vertical columns.
Since all other formations are derived from these two basic formations they
may contain the Double Top or the Double Bottom formation as part of their chart pat-
terns. The trader will then have a choice to act on the original breakouts or on those
occurring later in the more complex formations.
-16-
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THE DOUBLE TOP AND DOUBLE BOTTO}I FORMATIONS (#2)
The formations illustrated above are variations on the Double Top and Double
Bottom formations #1 in Figure #6.
In example A, the breakout at 35 takes place after two bottoms have been made
at the same level instead of merely one bottom. The first bottom at 31 was retested
and held. Then came the rally for the breakout on the Double Top formation. This
t1'pe of Double Top formation is more common than a straight upmove from a single
bottom.
In example B, the breakout at 41 occurs after two tops have been made at the
same leve1 instead of merelv one top. The first top at 45 was retested and held.
Then came the decline for the breakout on the Double Bottom formation. This type
of Double Bottom formation is more common than a straight downmove from a single
top.
These patterns usuallv appear at market tops and market bottoms.
In these #2 formations four vertical columns are required for their completion.
These chart patterns mav also appear as integrai parts of more complex formations
and the trader or investor has the choice of acting on these breakouts or on the
breakouts that occur in the more complex formations.
-18-
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FOR SALE & EXCHANGE
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THE BULLISH SIGNAL FORMATIO\
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The Butlish Signal formation is one of two classic chart patterns used in timing
a stock purchase. The significant feature of this chart pattern is a higher bottom
followed by a higher top. As long as a stock continues to make higher bottoms and
higher tops it is bullish. The first time it makes a higher top after making a higher bot-
tom is the signal that the stock may be bought. It is teiling us that Demand has overcome
Supply and that the stock, which hitherto may have been bearish and in a downtrend, is
now ready to make its upward move. Accumulation bt'those in the know has been com-
pleted.
For the three most common patterns of the Bullish Signal formation, see Fig-
ure # B. In example A, we have a bottom at 31 and then a higher bottom at 33; it also
has one top at 36 and then a higher top at 37. When the higher top is made at 37, the
stock, in technical parlance, has had an upside breakout and has given a buy signal.
In aII of the three examples, the point at which the buy signal is given is indicated by
the letter B.
In example B, we have a bottom at 31 and then a higher bottom at 32; we also

have a top at 35 and then a higher top at 36. The higher top at 36 is the signal that the
stock may be bought. In this case, it took place at a lower level than in the first ex-
ample, although both chart patterns started from the same low of 31.
In example C, we again have a bottom at 31 and then a higher bottom at 34; we

also see a first top at 37 and then a higher top at 38. The higher top at 38 is the signal
that the stock may be bought. In this example, the buy signal took place at a higher
level than in the two previous ones, although all three chart patterns started with a
bottom at 31.
Four vertical columns are required for the Bullish Signal formation.
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THE BEARISH SIGNAL FORMATION
The Bearish Signal formation is one of two classic chart patterns used in timing
a stock sale. The significant feature of this chart is a lower top and a lower bottom.
As long as a stock continues to make lower tops and lowerbottomsitisbearish. The
first time it makes a lower bottom after making a lower top is the signal that the stock
may be sold. It is teiiing us that Supply has overcome Demand and that the stock,
which hitherto may have been bullish and in an uptrend, is now ready to make a down-
ward move. Distribution by those in the know has been completed.
For the three most common patterns of the Bearish Signal formation see Fig-
ure # 9. In example A, we have a top at 45 and then a lower top at 43; it also has one
bottom at 40 and then a lower bottom at 39. When the lower bottom is made at 39, the
stock, in technical parlance, has had a downside breakout and has given a sell signal..
In all three examples, the point at which the sell signal is given is indicated by the
Ietter S.
In exampie B, we have a top at 45 and then a lower top at 44; we aLso have a
bottom at 41 and then a lower bottom at 40. The lower bottom at 40 is ttre signal that
the stock may be sold. In this case, it took place at a higher level than in the first
example, although both chart patterns started'from the same high at 45.
In example C, we again have a top at 45 and then a lower top at 42; we also see
a first bottom at 39 and then a lower bottom at 38. The lower bottom at 38 is the signal
that the stock may be sold. In this example, the sell signal took place at a lower level
than in the two previous ones, although all three chart patterns started with a high at
45.
Four vertical columns are required for the Bearish Signal formation.
-22-
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THE BULLISH AND BEARISH SYMMETRICAL TRIANGLES
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The Bullish and Bearish Symmetrical Triangles are basically mere variations
on the BuIIish and Bearish Signal formations. However, since triangles have always
occupied an important role in technical analysis, we have decided to deal with these
two formations separately.
In example A, we have the BuIIish Symmetrical Triangle formation. First, we

should note the standard Bullish Signal formation of higher bottoms and higher tops. We
see the bottom at 31then a higher bottom at 33. We see a top at 36 then a higher top at
37. This higher top at 37, indicated by the letter B, gives the buy signal. The addi-
tional factor that makes a triangle out of this formation is the top at 38 and the iower top
at 36. When trend lines are drawn fr:om the bottom at 30 and from the top at 38, they
form a symmetrical triangle.
In example B, we have the Bearish Symmetrical Triangle formation. Here, too,

we should first note the regular Bearish Signal formation of lower tops and lower bot-
toms. We have a top at 45 then a lower top at 43. We have a bottom at 40 then a lower
bottom at 39. The lower bottom at 39 gives the sell signal and is indicated by the
letter S. The feature that makes this formation a triangle is the bottom at 38 and the
higher bottom at 40. If trend lines are drawn from the bottom of 38 and the top of 45
they form a Symmetrical Triangle.
These Symmetrical TriangLe formations require a minimum of five vertical

columns. Variations can be worked out where they have seven verticaL columns, nine
vertical columns, or even more.
The Bullish Triangle formation is profitable 71. 4Toof. the time for an average
gain of 30.9%. The average time for the gain is 5.4 months. The Bearish Triangle for-
mation is profitable 87. 5Toof. the time for an average gain of 33.3T0:the average time for
the gain is 2. 5 months.
-24-
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ic Corp. (GP)
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THE TRIPLE TOP FORMATION
The Triple Top formation is the second of the two classic chart patterns used in
timing a stock purchase. Unlike the Bullish Signal formation, it is only the action of
the stock at previous tops that is important, not at bottoms. No higher bottoms are
necessary in this formation. A11 that is necessary is the penetration of two previous
tops. The penetration of two previous tops by a third top compensates for the fact that
the chart formation has no higher bottom. Because of the higher bottom in the Bullish
Signal formation, the penetration of only one previous top was necessary. This for-
mation must have a minimum of five vertical columns.
In example A, we see a base of accumulation between 31 and 34. There are

two level tops at 34. The buy signal was given at 35 when these two tops had been
penetrated. At this point Demand has overcome Supply and the extension of the upmove
is to be expected.
In example B, we have a base of accumulation between 31 and 35. The first top
is at 35 and the second top at 34. The buy signal was given at 36 when these two tops
had been exceeded.
In example C, we have another base of accumulation between 3l and 35. How-

ever, here the first top is at 34 and the second top at 35. The buy signal was given at
36 when these two tops had been exceeded.
In none of the above examples have we higher bottoms. All of these formations
have level bottoms at 31. We compensate for the lack of a higher bottom by waiting for
the penetration of two previous tops.
Examples B and C contain Double Top formations within them, but many traders
wait for the Triple Top breakout.
-26-
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HillerAviation(HlL) HowardJohnson(HJ)
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Eastern
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THE TRIPLE BOTTOM FORMATION
l'igure # 12
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The Triple Bottom formation is the second classic chart pattern used in timing
a stock sale. Unlike the Bearish Signal formation, it is only the action of the stock
at previous bottoms that is important, not at tops. No lower tops are necessary in
this formation. AIl that is necessary is the penetration of two previous bottoms. The
penetration of two previous bottoms by a third bottom compensates for the fact that
chart formation has no lower tops. Because of the lower top in the Bearish Signal for-
mation, the penetration of only one previous bottom was necessary. This formation
must have a minimum of five vertical columns.
In example A, we see a top distribution between 45 and 42. There are two level
tops at 45. The seII signal was given at 4L when these two bottoms had been penetrated.
At this point Supply has overcome Demand and an extension of the downmove is to be
expected.
In example B, we have a top of distribution between 45 and 41. The first bottom
is at 41 and the second bottom at 42. The setl signal was given at 40 when these two
botcoms had been exceeded.
In example C, we have another top of distribution between 45 and 41. However,

here the first bottom is at 42 and the second bottom at 4L. The sell signal was given
at 40 when these two bottoms had been exceeded.
In none of the above examples have we lower tops. AII of these formations
have
level tops at 45. We compensate for the lack of a lower top by waiting
for the penetra-
tion of two previous bottoms.
Examples B and C contain Double Bottom formations within them, but many
tt'addrs weit for the Triple Bottom breakout.
-28-
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FORMATIONS IN COMBINATION
Example A isan illustrationof both the Bullish Signal formation and the Triple
Top formation combined into one. It contains the essential elements of both formations.
It has both higher bottoms and higher tops plus the penetration of three tops. The buy
signal which takes place at 38 (indicated by the letter B) is both a buy signal on a BuII_
ish Signal formation and a Triple Top formation. This chart patternoccurs less fre-
quently than either of the two separately, but when it does occur it is usually
a very
strong buy signal. This formation is profitabte ?9.510 of.the time for an average gain
of 360/o. The average time for such gain is g months.
Example B is an illustration of both the Bearish Signal formation and the Triple
Bottom formation combined into one. It contains the essential elements of both for-
mations. It has both lower tops and lower bottoms plus the penetration of three bottoms.
The sell signal which takes place at 38 (indicated by the letter S) is both the sell signal
on a Bearish Signal formation and a Triple Bottom formation. This chart pattern occurs
Iess frequently than either of the two separately, but when it does occur it is usually
a very strong se1l signal. It is profitable 83. 3o/oof the time for an average gain of
22.9o/0. The average time for such gain is 3.4 months.
In both examples of this formation, a minimum of five vertical columns is nec-

essary for its completion.
- 3 0-
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VARIATIONS ON THE TRIPLE TOP AND BOTTOM FORMATIONS
Example A shows the upside penetration of not merely three tops but actually
four tops. Sometimes you may have a penetration of.five or more tops. From a timing
point of view, this has no more significance than the penetration of merely three tops.
The stock cannot be bought until the penetration occurs and it occurs at the same point
no matter how many previous tops are penetrated. The difference in the formation is
important when trying to estimate the extent of the subsequent move. We will deal with
rrcounts" to estimate the probable extent
this more fully when we discuss the various
of the move. But brief mention should be made of this here. Since you have more
vertical columns in this variation of the Triple Top formation, any horizontal count
across the formation will necessarily show a greater potential upmove.
Example B shows the penetration of not merely three bottoms, but actually
four bottoms. Everything we said above about example A appties to example B, but
in reverse, of course.
"tail" down. Note the
Example C shows a Triple Top formation with a long
downmove in the fourth vertical column before the final upmove in the fiftl eolumn to
give the buy signal on the penetration of the Tripte Top. This formation also occuis
frequently in chart patterns. It is an unusually strong formation. The reason for this
is that what at first appears to be a heavy overhanging supply of stock (between 35 and 38)
was not actually so. There actually was no supply of stock to interrupt the upward move
"tail" down was not due to an overhead supply but,
towards the breakout. The long
perhaps, to some news factor that was interpreted incorrectly (or sometimes even to
some misleading news), or to some dramatic international or national event also in-
correctly interpreted for the moment. The move up after such a happening is usually
very dynamic and profitable.
"tail" up. Everything
Example D shows a Triple Bottom formation, with a long
that was said about example C applies to this example as well but in reverse, of course.
-32-
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THE BROADENING FORMATION
re#15
The chart patterns in Figure # 15 are actually a Triple Top formation in exam-
ple A and a Triple Bottom formation in example B. In example A, we have the pene-
tration of three tops with the buy signal at 40. In example B, we have the penetration
of three bottoms with a sell signal at 36. But they have a certain characteristic about
them which singles them out for special attention.
In example A, the breakthrough on the Triple Top takes place as follows: 1) We

have the first top at 38. 2) Then we have the first bottom at 35. 3) The second top
takes place at 39, at a !!g!gr level than the first top. 4) The second bottom takes place
at 34, at a lower tevel thanthe first bottom. 5) And finally we have the breakout at a
higher top at 40. We have a broadening price pattern: a top followed by a bottom, then
fa@er top and a lower bottom, and finally the upside breakout on a still higher top.
These five points must be kept in mind in distinguishing this Triple Top formation from
the usual Triple Top formation. It occurs most frequently not at the bottom of an up-
-
move, but during an upmove which already may have gone a long way. This type of for
"blow-off" formation by bar-chartists and, therefore,
mation is usually classified as a
bearish. In Point and Figure charting, however, it has always proved to be very bullish
"blow-off" usually occurs at a much, much higher level and thus allows
as the so-ca11ed
for a handsome profit. This variation on the Triple Top formation does not occur
too frequently. It should be watched for very carefully and taken advantage of when it
"taiL"
does occur. This broadening bullish pattern and the Triple Top with the long
down can be classified as the best of the Triple Top formation.
Example B is the same broadening type of formation with the breakout on the
downside. It goes from a bottom at 38 to a top at 4L, then a lower bottom at 37, and a
higher top at 42, then the final breakdown on the third lower bottom at 36. This bearish
formation occurs so infrequently that it is not worthwhiiillooking for. In a bear market,
the ordinary Triple Bottom formation serves the purpose very weII (here, too, the best
"tail" up).
of the Triple Bottom formations, is the one with the long
-34-
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Honeywell,
MarquetteCementMfg. (MaC) UniversalOit Products(UOp)
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THE SPREAD TRIPLE TOP AND BOTTOM FORMA
re# 16
This is a very broad

Example A illustrates the spread Triple Top formation.
in it, from six up' The buy ..
formation and can have any number of vertical columns
These tops are not consecutive
signal takes place on the penetration of three level tops.
example above the three tops are at
but have intervening moves between them. In the
B).
37 and the buy signat is at 38 (indicated by the letter
Example B illustrates the spread Triple Bottom formation. Thi's is a very broad
from six up. The sell
formation and can have any number of vertical columns in it,
These bottoms are not
signal takes place on the penetration of three level bottoms'
example above, the three
consecutive but have intervening moves between them. In the
bottoms are at 39 and the sell signal is at 38 (indicated by the letter S)'
may have
In both of these formations buy and sell signals on other formations
patterns. The time involved in building a spread
occurredduringthebuilding of the chart
than in the chart formations
Triple Top or Bottom formation is usually much longer
years' (See charts
heretofore discussed. It may take from several months to several
first top took place in April
on facing page. ) In the chart of columbia Broadcasting the
1961 and the buy signalinDecember 1962. In the chart of J' C' Penney, the time elapsed
the market, a lesser pe-
was from February-1g62 to March 1964. On the sell side of
riod of time is usuaIIY involved.
Both of the above formations, contain Double Top and Double Bottom patterns
within them. However, many traders prefer to wait for the final breakout'
-36 -
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System(CBS) IncoLtd. (N)
J. C. Penney(JCp)
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BULLISH AND BEARISH CATAPULT FORMATIONS
igure # 17
Example A is an illustration of the BuIIish Catapult formation. This formation

starts with the classical Triple Top formation. Note the original buy signal at 35 on a
Triple Top formation. Instead of proceeding straight upwards, it only raLIied to 36
and then pulled back three points. The stock then proceeded to rally once more and ex-
ceeded its previous high at 36. When it does this, it registers a new buy signal (indi-
cated by the letter B at 37).
Example B is an illustration of the Bearish Catapult formation. This formation

starts with the classical Triple Bottom formation. Note the original sell signal at 41 on
a Triple Bottom formation. Instead of proceeding straight downwards, it only declines
to 40 and then pulls back three points. The stock then proceeded to decline once more
and penetrated its previous bottom at 40. When it does this, it registers a new sell
signal (indicated by the letter S at 39).
To qualify as a Bullish or Bearish Catapult formation the move from the original
breakout, whether up or down, cannot exceed seven points. Neither can the pullback
from the original breakout decline below a previous bottom in the Bullish Citapult for-
mation or exceed a previous top in the Bearish Catapult formation. If either of these
two happen, then there is no possibility of this type of formation.
These formations occur about 50% of the time after an original Trip1e Top or
Triple Bottom formation. It is often worthwhile to wait for such a chart pattern to save
time that may elapse in waiting out a pullback. It is sometimes better to sacrifice a
number of points for the sake of better timing and less risk.
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THE BEARISH AND BULLISH SIGNAL REVERSED T'ORMATIONS
In example A, the Bearish Signal Reversed formation, we start with a perfect

Bearish Signal formation. However, instead of consisting of merely four vertical col-
umns, it contains seven vertical columns. The first six columns give us the classic
pattern of lower tops and lower bottoms. The seventh column, however, shows a price
reversal by a steady influx of demand without forming any sort of a base of accumula-
tion. Because of this unexpected reversal, the buy signal takes place at 38, the first
time the price penetrated a previous top. The momentum of this straight upward rever-
sal in the seventh column usually carries far enough in the same direction to yield a sub-
stantial profit.
In example B, the Butlish Signal Reversed formation, we start with a perfect

Bullish Signal formation. However, instead of consisting of merely four vertical col-
umns, it contains seven vertical columns. The first six columns give us the classic
pattern of higher bottoms and higher tops. The seventh column, however, shows a price
reversal by a steady influx of supply without first forming a top of distribution. Because
of this unexpected reversal, the sell short signal takes place at 38, the first time the
price penetrated a previous bottom. The momentum of this straight downward reversal
in the seventh column usually carries far enough in the same direction to yield a sub-
stantial profit.
Both of these formations usually prove most profitable. They do not occur too
often, but they should be taken advantage of when they do happen.
-40-
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In the previous pages, we have dealt with the most common trading formations
that occur both in bull and bear markets. We have by no means exhausted all their pos-
sible combinations and permutations. Recognizing trading formations is just a matter
of study and practice. The more you study charts the more formations you will discover.
Some may prove to be more profitable than others. You will probably find some new
chart patterns on your own. If you chart enough stocks, you may be able to limit your
own trading to one or two formations that you think best.
We must warn you, however, that chart patterns are not always in themselves
"faLse" breakouts. A
guarantees of successful trades. You have probably heard of
breakout from a base of accumulation does not automatically guarantee a profit on the
long side of the market; nor does a breakout from a top of distribution automatically
guarantee a profit on the short side of the market. There are otler technical factors
that have to be taken into consideration.
In the next section of this book we deal with one of these factors, namely, trend
Iines. The importance of trend lines cannot be overemphasized. It is one of the most
"false" breakouts.
important tools that can be used in recognizing and avoiding
-42-
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SECTION THREE
TREND LINES
The chart patterns discussed in Section Two are but the first step in deciding
whether a stock should be bought or sold. The next step is to determine whether or not
thesignalstheyare giving are in agreement with the basic trend in the stock. And this
is where trend lines assume their importance.
The two most important trend lines to watch are:
1) The basic Bullish Support Line

2) The basic Bearish Resistance Line
The subsidiary trend lines are:
1) The minor Butlish Resistance Line

2) The minor Bearish Support Line
The following pages are devoted to a discussion of the importance of these trend
Iines and their proper functions will be iLlustrated in actual stock charts.
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THE BULLISH SUPPORT LINE
The chart of American Airlines shows a low of 15i in October 1962. Its first
buy signal was given in November at 19 on a Double Top formation and its second in
January 1963 at 19{ on a BuIIish Signal formation. ABuliishSupportLinemay now be
drawn. It is indicated by the broken line on the chart. It is drawn from the square be-
Iow the October low and is extended as far to the right as the chart paper will allow .
This line does not connect points. It is a line drawn from the lowest point made
after the completion of a bear market or a significant downmove. It intersects succes-
ive ascending corners of the squares on the chart. It is a predictive line because it can
be drawn immediately when an uptrend begins and one does not have to wait to connect
bottoms. This line rarely has to be changed. A line connecting points constantly has
to be revised as its points change. There is no rationale either behind a trend line
connecting points or one drawn in this manner. Both are different methods of draw-
ing a straight line. In a 3-box reversal point and figure chart, this type of line gives
better results than a line connecting points.
As you can see in the above chart, theBullishSupportLine was not changed once.
-{s long as the chart pattern remains above this line, the stock is long term bullish.
Once this line is finally penetrated on the downside all bullish positions inthestockshould
be closed out. A long term trader can stay with a stock as long as the BullishSupport
Lineisnot violated. Any sell signals given above this line are apt to prove false, espec-
cially if given close to the line. It is best not to take any short positions as long as the
cnart pattern remains above this line. This rule can onlybe violated by a "scalper"
'*'ho goes for a point or two.
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In the above chart of Bausch & Lomb we have an October L962low at 22 followed
by higher tops and higher bottoms with a buy signal at 29 in February 1963. We are now
ready to draw the BuIIish support Line. Again it is drawn connecting each successive
corner of the square above from the lowest point'
The Bullish Support Line in this illustration shows how, on several occasions, the
price came down to the line and then bounced right off it. This happened in November
1963 and in June 7964. (In January 1963, it actually gave a false sell signal on a Double
Bottom formation).
This chart points out two important factors: 1) donrt take a sell signal close to
the BullishsupportLine and, 2) tne touching of theBultishSupportLine can, if one so de-
sires, be used as an additional buy point. If one uses such action as an indication of an
additional buy point, then one should place a stoploss order immediately beneath the
t rend line.
In this case, too, the long investor can keep his long position as long as the price
action of the stock remains above the BuIIish Support Line.
The chart of Bausch & Lomb shows three main buy signals j the first one at 29 in
February 1963 on a Bullish Signal formation, the next one at 35 in December 1963 on a
Triple Top formation, and another one at 40 in July 1964 on a Triple Top formation.
They were all successful formations and money would have been made on any of them,
but it is always advisable to get in on the first formation. This assures you tl-regreatest
possible profit and protects you against a sudden change in trend.
You donrt need any special tool to draw the trend line. You just draw the line
through each higher corner of a square as you move to the rlght.
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The chart of U. S. Gypsum illustrates both the ostensible and the true penetration
of a major support line.
The Bullish Support Line was drawn from the low at 66 made in October 1962.
This was the final bear market for this stock.
In January 1964, this trend line was ostensibly penetrated by one point when the
price declined to 84. The trend line passed through the B5 square. The reason we
classify this as only an ostensible but not a true penetration of the trend line is based on
the chart pattern at that juncture. At that particular time, based on the chart formation
alone, the stock did not turn bearish. The buy signal given at 91 on a Triple Top for-
mation was still in effect. The decline to 84 did not in any way change the pattern from
bullish to bearish - a bearish signal could only have been given by a decline to 83, the
penetration of a previous bottom. Since the chart formation was still bullish, the pene-
tration of the BullishSupportLineby only one point did not change the trend of the stock.
A penetration of this kind is not valid and should be disregarded.
On the other hand, in June 1964, we have a true penetration of theBullishSupport

Line. When this line was penetrated at 90, the chart pattern was already bearish; it had
already given a sell signal at 92 on a Bearish Signal formation. The penetration this
time was valid and confirmed the se1l signal given previously. Such a penetration must
be heeded for, as was subsequently borne out by the chart, a downmove was under way.
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The above chart of Jones & Laughlin illustrates a possible exception to the gener-
aI rule never to make a short sale above a Builish Support Line.
Here, too, the main Bullish Support Line was drawn to connect each higher cor-
ner as you move to the right from the October low of 39.
On the way up, four sell signals were given above the bullish trend line. The
first one was in June 1963 at 53, seven points above the trend line. The second one was
in November 1963 at 59, nine points above the trend line. The third one was in August
1964 at 79, nineteen points above the trend line. And the fourth one was in November
1964 at 78, 16 points above the trend line.
If we were following our general rule never to sell short above the BullishSup-
portLine, then all of these sell signals should have been disregarded.
The first two signals should have been disregarded evenifwewanted to make an
exception to this rule because they were too close to the builish trend line. They did not
warrant a short sale because the profit p66Ti6l-was not commensurable with the risk
involved. However, the sell signals given later might have warranted the risk because
of the greater profit potential But even here, only the fourth sell signal turned out to
be profitable.
The rule to be gleaned from the above is, therefore, that at times where a signal
is given at a considerable distance from the main BullishSupportLine, a sell short sig-
nal may sometimes be profitable. But if undertaken, the risk involved should always be
borne in mind and allowed for.
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THE BULLISH RESiSTANCE LINE
The chart of Atlantic Refining illustrates two bullish lines - a Bullish Support
Line with which we are already familiar and a Bullish Resistance Line, which we are
introducing for the first time.
The lower line on the chart is, of course, the Bullish Support Line. The upper
line is the Bullish Resistance Line. This trend line is drawn in the same manner as
the Bullish Support Line. It is a bullish line because its trend is upward. It is a re-
sistance line, because there is a tendency on the part of the price pattern to stop or
meet resistance at this line.
When and how is it drawn? It is drawn after a break out from a bullish chart pat-
tern. In the chart illustrated above, there was a breakout on a Triple Top formatiqn at
50 in September 1962. When this happened, the Bullish Resistance Line was drawn.
Where was it drawn from? It was drawn from the extreme left of the formation where it
runs into a sort of waII of 0s. It is always drawn from the top of the highest X next to
t'wall. "
the
If you will study the chart, you will see that eight upmoves stopped near or atthis
Bullish Resistance Line. This does not mean that the long term trader need step out of
his position every time this line is approached. He should hold his position as long as
the Bullish Support Line remains intact. The short term trader, however, may at times
use this line for in-and-out trading or scalping - selling when the Bullish Resistance Line
is approached and buying when the price falls back near the Bullish Support Line.
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THE BULLISH RESISTANCE LINE
The chart of Sinclair Oil illustrates the fact that theBullishResistanceLine isnot
as immune to penetration as is the Bullish Support Line.
The Bullish Support Line,which was drawn from the October 1962 low, is still
intact.
The firstBullishResistanceLinewas penetrated within a couple of months after
it nas drawn. In November 1962, stock gave a buy signal at 35 on a Triple Top forma-
tion. The first BultishResistance Linewas drawn by going to the extreme left of the for-
mation to the wall of 0s. It crossed through the 39 square; this was penetrated on the
upside in January.
A second buy signal took place in March l-963 at 41 on a Spread Triple Top for-
mation. This new signal, plus the fact that the first BullishResistance Linewas pene-
t r a t e d , n e c e s s i t a t e d t h ed r a w i n g o f a s e c o n d B u ] l i s h R e s i s t a n c e L i n e . T h i s w a s a g a i n d o n e
by going to the extreme left of the formation to a waII of 0s. This second BuIIishResist-
ance Line is stitl in effect and has not been penetrated.
A penetration of a firstBullishResistanceLinemay be used as a new buy signal.
This is an optional procedure; we prefer relying on the standard chart patterns described
in Seetion Two.
There is one other important feature in this chart that should be studied, and that
is the double top at 45 in February and May of 1961. A double top inPoint andFigure
work is not necessarily interpreted bearishly. It may be bearish for the immediate
future but it also acts as a magnet for the next upward move in the stock. Thus, when
Sinclair OiI gave its first buy signal at 35 in November L962, an intermediate term price
objective of 45 could have been set for the stock. This was reached by April 1963.
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THE BEARISH RESISTANCE LINE
The chart of Hunt Foods illustrates the Bearish Resistance Line. It should be
compared with Figure # 19, the chart of American Airlines, which illustrates the Bullish
Support Line. One is the exact opposite of the other.
Hunt Foods gave a sell signal in January 1962 at 65 on a Double Bottom formation
and a second signal at 5g on a Bearish Signal formation.
A trend line - in this case a Bearish Resistance Line - was drawn from the high
of.72. It is a line intersecting the corner of each successive lower square as you move
to the right.
It is important to point out that this line was not penetrated during the entire rise
of the market from June 1962 to May 1965. At no time should this stock have been bought.
The fewbuysignalsthat appeared below this line should have been ignored. This illus-
trates the value of the trend line - whether up or down. In the case of Hunt Foods, you
were alerted to the fact that buy formations below the Bearish Resistance Line would
probably prove false and should not be acted upon. This was a stock to avoid. If you
wanted to buy a stock, then you should have bought one that had penetrated its Bearish
Resistance Line.
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The above chart of Mesta Machine should be compared to the chart of U. S.

Gypsum (Figure #21). It illustrates the same basic principle, but in reverse.
The Bearish Resistance Line was drawn from the high of 82 made in July 1959.
This was the final bull market high made by this stock.
There were two ostensible penetrations of this 1ine, the first at 56 in August 1961,
and the second at 52 in January 1962. In neither of these cases was the previous high
exceeded when this penetration took place. These penetrations were, therefore, not val-
id and should have been disregarded. The chart patterns remained bearish during both
these penetrations.
It should be pointed out that in the buIl market of 1961, the price just about reach-
ed the Bearish Resistance Line. Any buy position taken in January 1961 at 51 on a Dou-
ble Top formation was limited by the Bearish Resistance Line. A trader or investor
rvho realized this might have looked for another stock in which to take a buy position.
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The above chart of Dow Chemical should be compared to the chart of Jones &
Laughlin (Figure f 22). It illustrates the same principJ.e, but in reverse.
The Bearish Resistance Line is a trend line drawn from the high of 85 in
in August 1961. This stock gave a sell signal in October 196I at 77 on a Bearish Signal
formation. It made its final low at 40 in June 1962.
In August L962, the chart pattern shows a buy signal at 48 on a Bullish Signal
formation. Should this buy signal have been taken? Was it valid? The general rule is
that it should have been disregarded because it took place below the Bearish Resistance
Line. The long term investor should adhere to this rule under all circumstances. He
can find buy signals in other stocks that take place after the penetration of the Bearish
Resistance Line. An exception can, however, be made in favor of the short term trader.
Because the Bearish Resistance Line is so far above the point where the buy signat is
given, he might step in andbuythestock - always bearing in mind that the downward 1ine
wiII limit the upward move. The stock may move to the line, may actually .reach it, or
faII far short of it. In this case, the price of Dow Chemical came up to the line and the
trade would have been very profitable. This type of trade can only be recommended to
the short term trader who fully realizes the basic risk involved.
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THE BEARISH SUPPORT LINE
In the above chart of Gibraltar Financial, we have two bearish or downward trend
Iines. The top line is the Bearish Resistance Line which has already been discussed.
The bottom line is the Bearish Support Line.
If you will refer to Figure fi 23, you will see that the Bearish Support Line is the
converse of the Bullish Resistance Line. The Bullish Resistance Line gave us an indi-
cation as to where the upward move might encounter temporary resistance. The Bearish
Support Line gave us an indication as to where the downward move might meet with
temporary support.
The Bearish Support Line is drawn in the same manner as the Bearish Resis-
tance Line. It is drawn, in the above illustration, after a sell signal is given on a
Bearish Signal formation. It is drawn from the extreme left of the formation where
it encounters a "wall" of Xs.
Since a downmove is usually sharper and of shorter duration than an upmove, the
move does not usually stop exactly at the line but may penetrate it by a point or more.
This happened four times in the chart of Gibraltar Financial. However, this support line
sti1l serves as a guide that can be used to determine where buying support might come
in to temporarily halt the downmove. The short-term trader can use this guide to cover
his short position and to reinstate it, once more, when the price movesclosertothe Bear-
ish Resistance Line. The long term trader may disregard it and stay with his position as
Iong as the price pattern remains below the upper Bearish Resistance Line.
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FOR SALE & EXCHANGE
Mirrors:
www.forex-warez.com
Contacts
Skype: andreybbrv
lection.com
ICQ: 709re6-6c4o3l3
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THE BEARISH SUPPORT LINE
In the above chart of Fibreboard Paper we have three bearish trend lines. The
top one is the main Bearish Resistance Line. The two lower ones are Bearish Support
Lines. See and compare Figure # 24 which deals with Bullish Resistance Lines.
In June 1959, we have a sell signal on a Triple Bottom formation at 51. We go

to the extreme left of the formation to a "wallt' of Xs and draw a line down intersecting
each lower square as you move to the right. This was penetrated by one point at 46
and then the price rallied back to 56. The first Bearish Support Line indicated the point
at which the downward move might have stopped temporarily.
The next sel1 signal took place in January 1960 at 45 on a Spread TripJ.e Bottom
formation. Here, again, we go to the extreme left of the formation and draw a 45 degree
line down. This was again penetrated by the chart pattern which formed from July tJ
November 1960 and some support did come in for a ten point rally from 25 to 85. The
final Iow of Fibreboard Paper was made in June 1962 right at the second Bearish Support
Line.
In a bear market, usually more than one Bearish Support Line has to be drawn.
Sometimes two and even three may have to be drawn. This is due to the fact that a down
move is sharper and takes less time than an upmove. More Bearish Support Lines are
penetrated on the way down than BuIIish Resistance Lines are penetrated on
the way up.
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SECTION FOUR
PRICE OBJECTIVES
Section Two and Three were devoted to the problem of timing - when a stock
should be bought and when a stock should be sold short. The next logical question is,
having bought the stock at the right time, how much of an upside move can be expected ?
And, conversely, having sold a stock short at the right time, how much of a downside
move can be expected? This section will attempt to answer these questions. It witl deal
with:
1. Trend Lines
2. The Horizontal Count
3. The Vertical Count
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THE HORIZONTAL COUNT
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In the chart of American Telephone & Telegraph, reproduced above, we have a

buy signal in November 1962 at 58 on a Triple Top formation. price then rallied to bg in
December and penetrated the Bearish Resistance Line.
How high should one expect the price to go ? What are the guides to determine
this ?
First, we have the trend lines. The stock is considered to remain in a long term
bullish trend as long as tlre Bullish Support Line is not violated. This is the lowest bot-
tom trend on the chart. Above this basic trend line, we have two Bullish Resistance
Lines - the first is usually penetrated and the second sometimes holds for the entire bull
move. This was the case in the chart of American Telephone & Telegraph. These Bull-
ish Resistance Lines give ybtl " clue as to how far the upward move might go and where
supply might come in, first to temporarily halt the move, and then to indicate a possible
final top area.
We can also use a horizontal count on this chart. When the stock gave a buy sig-
nal at 58 on a Triple Top formation, it broke out of a base eight vertical columns wide.
Since this is a 3-point reversal chart, we multiply this width of eight squares by 3, which
gives us a product of 24. We then add the 24 to the lowest point of the base, which in
this case is 50. This gives us a Price Objective of.74. Price of American Telephone &
Telegraph reached 74 in January 1964.
A glance at the chart shows that 74 was a good point at which to take a profit in
the stock. Although it subsequently made a high of 75 in July, it had fallen as low as 6?
before then and as low as 66 afterwards. The Price Objective, determined by the horizon
tal count, was an excellent guide to follow. Not al1 Price Objectives work out as well as
ihis one, but they are useful even if they miss by a few points.
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THE HORIZONTAL COUNT
The chart of Admiral Corporation, reproduced above, illustrates the horizontal

count in a stock under twenty dollars.
As in the case of American Telephone & Telegraph, we first draw our trend lines.
The lowest line is the basic Bullish Support Line. Then we have two Butlish Resistance
Lines, the first of which is usually penetrated and the second of which usually holds.
Both resistance lines indicate where supply might come in to check the upmove, first
temporarily, and then permanently.
Admiral Corporation gave a buy signal in January 1963 at 13j on a combination
BuIIish Signal and Triple Top formation. If the stock was then bought, the purchaser
would naturally be interested to know how high the price of the stock might go. To deter-
mine this we take a horizontal count. We start with the column where the buy signal was
given and count across to the left to determine the width of the base of accumulation. We
find that there are twelve horizontal squares in this base. This can be seen either on
the 12| or 12th line. Since this is a l]-point reversal chart, we multiply twelve by 1*
and get a product of 18. We add the eighteen to the low of 9] and get a Price Ob;ective
ot 27|. The stock reached 28 by October 1963.
There was another buy signal on a Triple Top formation at 1gj in Aug. 1968. Here
is another place where we can ge! a horizontaL count. The base is seven squares wide.
We multiply this by li and get 10!. This is added to the lowest point of the formation at
16] and we get a Price Objective of.28. At times, you might get a higher price Objective
on the second horizontaL count, but in this case the original Price Objlctive was con-
firmed.
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THE VERTICAL COUNT
The above chart of B. V. D. Company illustrates the vertical count in a bull market,
just as the two previous charts illustrated the horizontal count
in a bull market.
The Bullish Support Line remained intaet since the low made in June Lg62,
The
basic trend of the stock was bu1lish. The Bullish Resistance Line
also held up fairly wel1
giving us a good idea as to where the price of the stock might go,
- and where ii mighl
meet with resistance as the ehart pattern moved to the right.
The vertical count is taken a-fter the double bottom at B|. If there
are two bottoms
at the same level, the count is taken after the second bottom. The first upmove
after the
final bottom was 13 squares. Since these squares were below 20
and, therefore, in *-
point units, we multiply 13 by 1l (since the 3 squares needed for
a reversa.L amount to
l]-points). This gives t" a iroa.tct of 19|. we trren aaa trre tn+L trr. r"* .r gr.
;"j g"t
a Price objective of 28. This price objective was made in June 1g6s.
There is no time limit within whieh a Price Objective has to be reached.
In the
case of B. V. D. the vertical count was taken from the bottom of the 1g62
bear market
and the Price Objective was reached three years later.
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THE VERTICAL COUNT
The above chart of Carrier Corporation also illustrates a vertical count in a bull
market.
The Bullish Support Line was drawn from the September 1960 low at 1B]. This
line even remained intact during the 1962 bear market. The Bullish Resistance Line also
gave one a good idea of how high the price of the stock would go as the chart pattern de-
veloped.
The first upward move after the September 1960 low consisted of 16 squares.
However, these squares were both above and below the 20 price so that they had different
values. This naturally would affect the vertica-l count and the method to be used in taking
it.
From 20 and below, we have 3 squares in ]-point units. These we multiply by 1]
and get aproduct of a|. Above 20, we have 13 squares in 1-point units. These we mul-
tiply by 3 and get a product of 39. 39 and 4] gives us a total of a3|. 43! added to the low
point of 18] gives us a Price Objective of. 62. It should be borne in mind that this count
was made in June 1961 after the first upmove of 16 squares had been completed in May.
In August 1965, the price of Carrier Corporation was 61. Here we have a Price Objec-
tive that was practically reached after a period of about 4f years.
The length of time it takes a Price Objective to be reached depends on how high it
is and what kind of a market is taking place. It will be reached in a matter of weeks or
months or years. Short term counts may be taken during the progress of the move. For
example, in May L964, the chart shows a buy signal at 38 on a Triple Top formation. A
horizontal count on this formation would be 5 x 3 added to 34, giving a Price Objective
o'f"dl-mis was reached by May 196b.
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THE HORIZONTALAND VERTICALCOUNT
The chart of ASE, reproducedabove,illustratesboth horizontal and vertical countsin a bear market.
A top of distribution formed after the stockreachedits all-time high at 91. After the sell signal at 79, we
were ableto determineboth horizontaland vertical pdce objectives.
Vertical count: The first downmoveafter the 91 high consistsof 9 squares.Multiplying this by 2r gives us a
product of 18which we subtractftom the top, giving us a count of 73.
Horizontal count: The top of distribution is 12 squareswide. Again we multiply this by 2| and subtract it
from the top at 91, which gives us a count of67.
As the top broadenedin the 75-81area, it becamepossible to computeadditional counts. A vertical count
from the E1 high worked out to 45 while the 11 horizontal squaresin this formation multiplied by 2 and sub-
tracted from El was 59.
r This was a changefrom previous editions in which we muliplied by 3. We still multiply upside price
objectivesby 3 as well as the DJIA.
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SECTION FIVE
RETATIVE STRENGTH
Relativestrengthmeasuresthe priceactionof a stockin relationto a marketaverage.To determinean individ-

ual stock'srelativestrength,we divide the price of the stockusingTuesday'scloseby Tuesday'sclosingDJIA
and plot the resultingfigure on a P&F sheet.
A, "n "*"-pte,lf a stoct is $80while the DJIA is 1000,we divide80 by 1000and get .0800.To makethe RS
figure comparableto that of a stock, we move the decimal 3 placesto the right and get 80.0. If the DJIA now
falls to 800and the stockto 72, we divide 72 by 800and get .0900,or 90.0 after moving the decimal' Postingthe
Trend Chart for the stockwould now show Os from 80 to 72, while posting the RS Chart would show Xs from
80 to 90.
This tells us that this stock is much stronger that the DJIA and is a strong candidatefor an advancewhen
the marketturns around.
''the market" as a factorin the priceof a stock,
Relativestrengtheliminates
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The relative strength chart of Great Atlantic & Pacific Tea Company, reproduced
above, illustrates how such a chart may, at times,cautionyouagainstbuyingastock which
may look good technically from every other angle.
In October 1964, Great A. & P. gave a buy signal at 42 on a Spread Triple Top
formation. At that point, the price pattern had also penetrated the Bearish Resistance
Line. A vertical count yielded a Price Objective of 50, and on a horizontal count one
of 59. On the basis of the trend chart alone, buying the stock at 42 would have been tech-
nically correct.
However, an examination of the relative strength chart for the same period would
have shown that the stock was acting weaker than the Dow-Jones Industrial Average. It
had not penetrated a previous top and, therefore, had not given any buy signal on the rel-
ative strength chart. This was additional technical information that could have been used
in deciding whether or not to buy the stock. Since it was an adverse technical factor, one
could have concluded that there were better stocks in which to invest onets funds at that
particular time.
The relative strength chart is derived by dividing the closing price of the stock by
the closing price of the Dow-Jones Industrial Average. Doing this once a week is suf-
ficient. The resulting ratio figure is then plotted on a regular Point and Figure chart,
The decimal point may be ignored.
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In Figure # 36, we have.the trend and relative strength chart of General Motors.
The relative strength chart plots the ratio figure obtained by dividing the closing price
of General Motors by the closing price of the Dow-Jones Industrial Average. This is
done once a week.
A relative strength chart is most useful at market turning points, either from
bearish to bullish or bullish to bearish.
An examination of the trend chart of General Motors shows that during April,
May and June of 1962, the price of the stock was going down. On the other hand, on the
relative strength chart we have an upmove during May and June of L962. In other words,
although the price of GM was actually dropping during that period, it was, nevertheless,
acting stronger than the Dow-Jones Industrial Average.
This contrary action of the trend and relative strength charts was putting us on
notice to watch General Motors. It was pointing to the possibility that once the bear mar-
ket was oveF, General Motors would be a very good stock to buy. The trend chart did
finally give its first buy signal at 51 in July 1962 on a Double Top formation and another
buy signal in November at 56 on a Triple Top formation. During all this time the rel-
ative strength chart had never turned bearish. In March 1963 it began almost a vertical
upward move showing extraordinary strength when compared to the Dow-Jones Industrial
-{verage.
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Figure # 37 illustrates another use that may be made of relative strength charts.
Here we have two relative strength charts, one of Sears, Roebuck and the other of
Montgomery Ward.
A comparison of the charts of the two companies can answer the question as to
which stock should be bought and sold at any specified time.
Montgomery Ward started out as the better of the two. It started acting stronger
than the Dow-Jones Industrial Average in September L962, while Sears, Roebuck only
started acting stronger than the Dow-Jones Industrial Average in May 1963. Thus, im-
mediately after the bear market of 1962, Montgomery Ward was a preferable buy when
compared to Sears, Roebuck.
However, Montgomery Ward stopped acting stronger than the Dow-Jones Indus-
trial Average in June 1963 and was definitely out of the running by October. Sears, Roe-
buck on the other hand continued to show more strength. At this time, then, it would
have been wise to switch out of Montgomery Wardinto Sears,Roebuck. As a matter of
fact, Sears, Roebuck continued to act better until May 1965 and did not turn bearish
until September. Montgomery Ward, on the other hand, has continued its weaker action
and is still in a downtrend.
Trend lines and trading formations should be used in interpreting relative strength
charts. But it should always be borne in mind that a column of X s means that the stock
is acting stronger than the DJIA and a column of 0 s means that it is acting weaker.
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SECTION SIX
INDUSTRYGROUPS
Thus far we have used the followingcriteria in determiningwhen to buy or sell a stock: 1) Breakoutsfrom
trading formations,2) TrendLines,3)PriceObjectives,and 4) RelativeStrength.
We now subjectour discussion,thus arrived,to Industry Groups.The stockwe buy shouldbe in an Industry
Groupanalysis.The stockwe buy shouldbe in an IndustryGroupthat is bullishand that is actingbetter than the rest
of the market.
Standard& Poor'ssuppliesindexfigureson 92 Industrygroups.Theseare the figures and groupswe usein our

analysis.Barron'sIndustryGroupscouldprobablybe usedas satisfactorily,but it hasonly about35 groups.
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In Figure # 38, we have two Industry Group charts, one of Drugs and the other of
Vending Machines. The purpose of this illustration is to point out the importance of se-
lecting a stock in the right Industry Group.
It wiII be sufficient, for our purpose, to examine both charts since the end of the
bear market in 1962.
The Drug stocks made their bottom in September 1962 and then gave a buy signal
in November. This was the go ahead signal, which meant that individual stocks in this
group could now be bought. The next step to be taken is to examine the individual
stock charts in the group in accordance with all the principles laid down previously -
trading formations, trend lines, price objective, relative strength - and to pick the best
tec'hnically situated stoc'ks for possible purchase.
The Vending Machines stocks made their bottom in October 1962. However, the
group chart dicl not give any buy signal immediately thereafter. There was no point then
in taking any position in any of the stocks comprising this group. A trader or investor
is always cronfrontedby a choice. And if he had to choose between the Drug stocks and
the Vending Machine stor:ks, an analysis of the group charts made his choicc obvious.
The Vending Machine Industry Group did not turn bullish until October 1964. This
was the first time that a trader or investor was confronted with the problem of whether
or not he should buy Vending Machines stoclis.
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In Figure # 39, we illustrate how relative strength charts can be used in choosing
between different industry groups (assuming that the trend charts in the same groups
have given buy signals).
The relative strength chart of the Air Transport group shows a buy signal in
February 1963. The relative strength chart of the Copper group does not show a buy sig-
nal until September 1964.
If in February 1963, we had to choose between these two groups for the investment
of funds, there would have been no question that the right group would have been the Air-
lines. This group started to act better than the market at that time and continued to do
so until March 1965, a period of over two years. Remaining invested in this group during
this entire period brought extraordinary profits.
The relative strength chart of the Copper group shows that it started to act worse
thanthe market as a whole in March 1960 and continued to do so untit September 1964.
It also indicates that it would not have been worthwhile to take positions in stocks in this
group during the entire bull market of 1961. The relative strength chart was saying that
there were much better groups for the commitment of funds even though some Copper
stocks may have been rising. It was not until September 1964 that the Copper group sig-
nalled that it was starting to act better than the rest of the market. Not until this signal
took place should investments have been made in Copper stocks.
The relative strength figure for an Industry Group is obtained by dividing Standard
& Poorrs Index figure for the group by Standard & Poor's 425 Industrials.
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MEAT PACKING
In Figure f 40, we have both a trend and a relative strength chart of the Meat
Packing Industry Group. The figures for the relative strength chart are obtained by
dividing the group index figure by Standard & Poor's 425 Industrials.
These charts illustrate the possibility of discovering seasonal patterns in certain

industry groups.
In the Meat Packing group, highsareusually made in February and lows in Octo-
ber. In the trend chart we see a high in March 1956, a low in November 1957, a high in
February 1960, a low in September 196Q a high in February L962, a low in October 1963,
and a high in March 1965. Even some of the minor moves make highs and lows accord-
ing to this seasonal pattern - a high in February 1959, February 1961, April 1963, and
Iows in October 1961, and October 1964.
The trend chart is the most important for determining the seasonal pattern. The
relative strength chart may be used as a check. It shows highs in February 1962, Feb-
ruary 1963, January 1964, and March 1965. The lows appear in Novembet 1962, Octo-
ber 1963, and October 1964.
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SECTION SEVEN
STOCK MARKET AVERAGES
The most well known of the Stock Market averages is the Dow-Jones Industrial Average. We keep thir
chart three ways:
The 2 X 6 point chart is used for very short term trends, the 5 X 15 point chart is used for intermediate term
trends, and the l0 X 30 point chart is used for long term trends. All 3 charts are posted through the daily hourly
figures of.LL, 12, l, 2, 3, and close.
The Dow-Jones Transportation Average is kept on a 2X6 point basis. It is useful as an indicator of the
trend of secondarystocks as opposedto the "blue chips" on the DJIA. This chart is also kept by using the daily
hourly figures of.Ll, 12, L, 2, 3, and close.
For Dow Theory, use the DJTA and the 10X30 point DJIA. When both give buy signals, you have a Dow
Theory bull market; when both give sell signals, you have a Dow Theory bear market.
Futures trading has begun recently in three other broader market averages: the Value Line Index, the S&P
500, and the NYSE Composite.
Our short-term chart of the DJIA is a ZXG point reversal chart. The readings are based on the hourly fig-
ures at ll,12, 1,2,3, and close. Each square represents 2 points, and 3 squares or 6 points are necessary for a
change in direction.
This chart of the DJIA should be used as you would a chart of an individual stock. It is buliEh when its
chart patCern shows a penetration of a previous top; it is bearish when its chart pattern shows the penetration of
a previous bottom. Bullish Support Lines and Bearish Resistance Lines are also of primary importance. These
lines show where an upmove may run into resistance and a downmove may encounter support. Vertical counts
and horizontal counts to deterrnine price objective may also be used.
This chart is an excellent tool for short-term traders and is especially useful for 50 point swinge the martet.
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DOW.JONES INDI]STRIAL AWRAGE (5 X 15)
-the
Out basic chart of the DJIA is a 5 x 15 point reversal chart. The readings are based on
hourly figures at ll, 12,| ,2, 3 andclose.Eachlquate represents5 points, and 3 15
squares_or points
"." n"""ir"ry for a change in direction. The 3b'clock was added October l, 1974,when trading
hourswereextendedto 4 pm.
This chart ofthe DJIA shouldbe used as you would a chart of an individual stock. It is bullish
when its chart pattern shows a penetrationof a previous top.; it is bearish when its chart pattern
showsthe peneirationof a previousbottom. Bullish SupportLines and Bearish ResistanceLines are
also of primary importance.Theselines showwhere an upmovem-ayrun into resistanceand a down-
-ou" tit"y eniounter support. The types of chart formations, whether triple tops, triple_bottoms'
bullish triangles, bearisiitriangles, etc., are also of significance. Vertical counts and horizontal
countsto determineprice objectivemay alsobe used.
Although the DJIA may sometimeslag behind other technical indicators at market tops,.it
usuallyleadiallindicatorsaimarketbottoms. In the few caseswhere it does not lead another tech'
nical indicator , it is coincident with it . It is not a laggard at market bottoms . This may be ttue becau-se
blue chip stocis are usually the last to fall at the end of a bull market and the first to turn up at the
end ofa bearmarket.
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DOW-JONESINDUSTRIAL AWRAGE (10 X 30)
Last time we analyzedour basic 5 x 15 point reversal chart of the Dow-Joneslndustrial

Average. This weekwe are dealingwith the 10 x 30 point reversalchart of the sameAverage. Each
squareon this chart represents10 points, and 3 squaresor 30 points are necessaryfor a changein
direction.The readingsarebasedon the figures atll,12,1, 2, 3 o'clockand close.
This chart of the DJIA showsthe longer term trends. It avoids many of the minor buy and sell
signals which show up on the 5 x 15 point chart. The buy and sell signals on this chart are, there-
fore, more significant and important to the longer term trader and investot. A comparisonof both
charts will showhow signalsmay differ or confirm eachother.
Besidessignals,BearishResistanceLines and Bullish Support Lines may also differ on the two
charts. The 10 x 30 chart will showlonger term trend lines and major support and resistancelines.
Signalsand trend lines that coincideon both charts are ofpractical significance.
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DO W.JONES TRANSPORTATION AW RAGE
On January l,1970, Dow-Jonesreplacedits Rail Average by a new Transportation Average.

.Elevenof the original railroad stockshavebeenretained. Six airline stocksand three trucking stocks
replacedthe nine railroad stockswhich were dropped. Dow Theorists, in the past, used the Rails to
confirm the actionofthe Industrials. Both averageshad to be bullish for a confirmedbull market and
both had to be bearishfor a confirmedbear market. They have continuedto use the new Transporta-
tion Averagein the samemanner.
Eachsquareon this chart represents2 full points and 3 squares,or 6 points, ate necessaryfor a
changein direction.The readingsare basedon the hourly figures at ll, 12, 1,2,3 and,close.The
3 o'clockprice was addedon Octoberl,1974, when trading was extendedto 4 pm.
This chart of the DJTAshould be usedin the sameway as the chart of an individual stockor the
chart of the Dow-JonesIndustrial Average.It is bullish when its chart pattern showsthe penettation
of a previoustop and bearish when it showsthe penetration of a previous bottom. Bullish Support
Lines and BearishResistanceLines are important fot longet term trends. When both the DJIA and
DJTA are in bullish ftends, the market as a whole is bullish; when both are in bearish trends, a bear
market is in progress. A divergence in trend between the DJIA and DJTA may signal a crming
changein trend.
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SECTION EIGHT
TRADING TACTICS
- the overall
The foregoing sections of the book were devoted to trading strategy
picture of when to buy a stock and when to sell a stock'
This section will deal briefly with trading tactics, such as:
1. Establishing the trade

2. The Pullback
3. The use of stoPloss orders
4. Taking Profits
5. Stocks with a high short interest
6. Volume
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D u r i n g a bull market, with the proper use of chart patterns, trend lines, price
o b j e c t i v e , e t c . the following average results might be achieved:
Formation % of Time Profitable Average % Gain Average Time
Double Top 80.3% 38.7To 11. 5 months

Bullish Signal. 80.40/o 26.510 B. 6 months
Buliish Triangle 7 I. 4Io 30. 910 5. 4 months
Triple Top 8 7. 9 T o 28. 7To 6. B months
Combinations 79.5q0 36.070 8.0 months
Spread Triple Top 85.710 It aa7^ 7. 7 months
Bearish Signal Reversed 92. 010 23.210 2.5 m.onths
As can readily be seen, there is a great variation in these formations; in per-

<'entageof times profitable, in average gain, and in the time necessary for such gain.
All the different elements are important. Some traders might regard the time element
as most important, as this allows a greater turn over of capital. Other traders might
place emphasis on the amount of gain, and still others on the degree of risk.
An average of all these formations shows: 1) a profitability ratio of 83.7%, 2) an

average gain of 29.5%, and 3) 7.2 months as the average time for such gain. We will
assume that the trading formations on which we have no statistics will fall into this
average pattern.
Conversely, during a bear market, the following results might be achieved:
Formation % of Time Profitable Average % Gain Average Time
Double Bottom 82. LTo 22. 7To 4. 7 months

Bearish Signal 88. 6To 2I.9To 4.9 months
Bearish Triangle 87.510 33.3To 2. 5 months
Triple Bottom 93. 510 23. OTo 3.4 months
Combination 83. 310 22.9f0 3. 4 months
Spread Triple Bottom 86. 5% 24. eIo 4. 6 months
A n a v e r a g e o f these bearish formations shows: 1) a profitability ratio of 86. 9%,

2') an average gain of 24.Bfo, and 3) 3.9 months as the average time for such gain.
N o w , i f w e p u t the average figures side-by-side we get the following:
Formations % of Time Profitable Average % Gain Average Time
Bull Market 83.7To 29.5T0 7. 2 months

Bear Market 86.97o 24. Blo 3.9 months
The conclusion to be drawn from this comparison is that there is less risk in
selling short in a bear market than in buying long in a bull market. The average gain in
a bear market is 4.7T0 less than in a bull market, but this is more than compensated by
the fact that the average time for the gain in a bear market is 3. 3 months shorter than
for a bull market. A trader, therefore, who does not sell short in a bear market is
acting contrary to his best interests. In a lesser period of time, at a lesser risk, if he
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sells short in a bear market, he will actually make more monev than when he buys long
in a bull market. His bull market profit is at the rate of 4.09% per month while his
bear market profit is at the rate of 6,3670 per month. A trader cannot afford to lose
such a profitable opportunity. He must learn to adjust his thinking and actions to both
bull and bear markets.
Although statistically the profit probabilities are on the side of the trader and
investor who follows the market strategy laid down in the previous pages' Iike any other
method, it can in no way lay claim to certainty. What we have thus far outlined may
be the Truth but, this in itself doesnotguaranteeCerta.inty or a profit. We still have
the twofold probtem of making the statistics and probabilities more certain when we es-
tablish a trade ( although 100% certainty will never be reached) and how to handle our
trades when they are not successful. It must always be borne in mind that 171oof the
bullish trades end in losses and that about LSolo of. the bearish trades are also unsuc -
cessful.
On the first problem of the degree of certainty we can perhaps lay down the fol-
lowing rules:
1. Never buy long unless the price is above both a BuIIish Support Line and a
Bearish Resistance Line. Make sure that a vertical or a horizontal count allows for a
profit of at least SOTo(average profit being 29.510\. Rely on vertical more than on the
horizontal count, where possible. If the Price Objective obtained by a count is more
than the 30%, then it is still better. Select your trade with the highest Price Objective
in mind. Make sure that the channel created by the Bullish Support Line and the Bullish
Resistance Line also allows for a move to at least 30%.
2. Never sell short unless the price is below both a Bearish Resistance Line and
a BuIIish Support Line. Make sure that a vertical or a horizontal count allows for a
profit of at least 25To(average profit being 24,8101. On a downmove, trend lines may be
even more important than vertical and horizontal counts. Make sure that the channel
created by the Bearish Resistance Line and the BuIIish Support Line allows for a move
of at least 25%.
3. Another tactic that can be used to increase the profit percentage is to buy long
or sell short, not on the original breakout, but to establish the trade on a pullback.- Let
us illustrate this in the chart below.
the buy signal at.38'

In example A, we have the spread Triple Top formation with "pullback"
only 39 and then pulled back to 35. This
After the signal, the price rose to"dis;unt, " 3-points lower than where the original
enabled one to n"V ttt" stock at a
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l
buy signal took place. Since the average percent gain in the preceding tables was based
on buying at the point of the signal, buying on a pullback will increase the percentage
of gain. A pullback takes pLace at least 500/oof. the time in all trading formations and if
one has enough patience and keeps enough charts trading opportunities of this kind will
be plentiful.
In example B, we have the Spread Triple Bottom formation with a sell short sig-
nal at 38. After the signal, the price declined only to 3? and then pulled back to 41.
Here again, the pullback enables one to sell the stock short at a better price. In the case
of a short sa1e, the pullback should always be looked for. A stock cannot be sold short
when it continues to fall uninterruptedty - it must be sold short at an up tick of at least
1/8 of a point. The putlback assures you of establishing your short sale.
4. What about losses ? The trading forrnations described above, with all the
ramifications of the proper conditions under which a trade should be established, still
do not guarantee a profit every time a trade is made. The trader and investor should
also consider the probability of losses and how they should be handled. The loss proba-
bilities are as follows:
Formation % of Time Unprofitabte Average % Loss Average Time
Double Top L5.37o t3. tqo 4.6 months

Bullish Signal 16. 9Io L0. 4To 4.9 months
Bullish Triangle 24.6t0 5.40/o 3.0 months
Triple Top 12. lTo B, ZEO 2. 2 months
Combination 15. 410 B, LlO 3. B months
Spread Triple Top 14.3T0 7. 310 2. 5 months
Bearish Signal Reversed B. Olo IO. Oolo 1. 5 months
Taking an average, these bullish formations are unprofitable 1b. 2!o of the time,
for an average loss of g/o; the average time for this loss is 3 months.
The probabitities of losses when establishing short sales are as follows:
Formation % of Time Unprofitable Average % Loss Average Time
Double Bottom I 7. 9 1 0 9. Wo 5.5 months

Bearish Signal 1,0.7To IO.4lo 3. 5 months
Bearish Triangle L2.5To 5.410 4. 1 months
Triple Bottom 6.5T0 B.7To 3.4 months
Combination 16.7% LO.BTo 3.0 months
Spread Triple Bottom 13.070 9.54/o 3.0 months
On average, then, short sales are unprofitable 1S{oof the t i m e f o r a n a v e r a g e

I o s s o f 9 . 7 1 o :t h e a v e r a g e t i m e f o r t h i s l o s s i s 3 . B m o n t h s .
We can summarize these statistics thus:
Bull Market Formations Bear Market Formations
Toof Time Profitable 8 4 . 2% % of Time Profitable 86.910

To of Time Unprofitable 1 5 .2o/o % of Time Unprofitable L3.Oo/o
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Bull Market Formations Bear Market Formations
Average oloGain 29.5olo Average 1o Gain 24.81o

Average % Loss 9,Oa/o Average 1o Loss 9. lolo
Average Time for Gain 6.5 months Average Time for Gain 3. 9 months
Average Time for Loss 3.0 months Average Time for Loss 3.8 months
Two rules can be deduced from the above statistics: 1) Never let your loss go
beyond 10%, and 2) give your trade a little over three months to start working in your
favor - if it doesnrt do it by that time, close it out. These are general rules for cutting
Iosses short and switching to trades that might prove more profitabJ.e. The use of stop-
loss orders will be discussed below.
5. Another way to increase average profits and keep losses as low as possible
is to take positions only in the most profitable trading formations. Taking into consider-
ation the percentage of time a formation is profitable and unprofitable, its average gain
and loss, and the average time for such gain and loss, the best trading formation is the
TRIPLE TOP formation in a buIl market and the TRIPLE BOTTOM formation in a bear
market.
The statistics on this formation are:
Triple Top Trip1e Bottom
% of Time Profitable 87.9To % of Time Profitable 93,5T0

% of Time Unprofitable L2. Llo % of Time Unprofitable 6.50/o
Average % Gain 2B.7To Average oloGain 23.0T0
Average % Loss 8.310 Average % Loss 8.7T0
Average Time for Gain 6. B months Average Time for Gain 3.4 months
Average Time for Loss 2. 2 months Average Time for Loss 3.4 months
By restricting oners trading to this formation, average profit should be increased

and the average loss should be smaller. The time factor in this forrnation is also very
important as it can lead to a rnore rapid turnover of capital - less money will do more
work.
6. What about stoploss orders ? Stoploss orders are criticized on the grounds
that they often lead to abandonment of positions which ultimately turn out to be very
profitable or to "whipsaws" - the getting in and out of positions at a loss or lesser profit
until the right positions is established. This may be true but one should consider stop-
loss orders as the insurance one pays against being completely wrong. In reviewing
our trading formations, a buy signal, of some sort, is always given when the chart
pattern shows the penetration of a previous high, and a sell signal when the chart pattern
shows the penetration of a previous 1ow. If you are long of a stock, the logical point
for a stoploss order would be one square below the previous bottom; if you are short
of a stock, the logical point for a stoploss order would be one square above a previous
top. This will cut your losses short - and all the statistics referred to above are based
on just such stoploss orders, which is in effect, trading from signal to signal.
There may, however, be occasions when a stoploss order does not have to be
used as mechanically as outlined above. This is especially true for the long term trader
and investor. If you are long of a stock and its price pattern continues to fluctuate
above the Bullish Support Line, you may disregard any sell signal that takes place above
this trend line. It is only when this Bullish Support Line is penetrated that a stoploss
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order should be placed or the trade closed out. It is also important that the industry
group of which the stock is a member and the market as a whole be bullish. The con-
verse is true when you are short of a stock. No stoploss order need be kept as long as
the price pattern fluctuates beLow the Bearish Resistance Line. It is onLy when this
trend line is penetrated that a stoploss order should be used or the trade closed out.
Also, make sure that the industry group of which the stock is a member and the market
as a whole is a-lsobearish. When not using a stoploss order, the exercise of careful
judgment is required and emotions kept under control. If you feel you cannot do this,
then use a stoploss order.
7. When should profits be taken? We have two guides on this point: 1) the
Price Objective, and 2) the average profit based on probabilities outlined in this sec-
tion. When establishing a trade, make sure that your Price Objective ( on a vertical or
horizontal count ) is above the 29. Sfo profit probability in a bull market, and above the
24.81o profit probability in a bear market. Once your profit is above the average, stay
with your trade to see whether the higher Price Objective will be reached. Uere you
might use stoploss orders arbitrarily to clinch at Least the average profit. When the
price reaches the Price Objective ( which is above the average profit you might close
)
out your positions and be satisfied or continue to hold with arbitrary close stoploss
orders,
HOWARD JOHNSON (HJ)
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CHART ILLUSTRATION OF THE ABOVE PRINCIPLES
we wifl use
In Figure # 44, bn page ?B) we have a chart of Howard Johnson-
principles outlined in this section'
this chart to illustrate some of the
first buy signal in
Howard Johnson made a low of 31 in June 1962 and gave its
We would not have recommended a purchase at
July at 38 on a Double Top formation.
that point because it was still below a Bearish Resistance Line.
A Bultish Support Line was drawn from the June low'
the Bearish
The first time Howard Johnson gave a buy signal after penetrating
1963. This buy signar
Resistance Line was at b0 on a Triple iop formation in August
Line and the Bearish Resistance Line' The
took place above both the Bullish support
or one could have exercised patience and
stock could have been bought on this breakout
percentage. After going to 55' the price
waited for a pullback to increase his profit
just this in November 1963'
pulled back to 48 giving us the opportunity to do
how
Before establishing our buy position, however, we would have to determine
the June 1962 low
high the stock might go. A vertical count on the first up-column after
place
g"rr" rr" a Price 5f;u-.tin" of ?3 ( 14 x 3 added to 31 ). With the breakout taking
than the aver-
at 55, this gave a possible profit of 18 points or 32.7010.This was higher
formation. This met another qualification
age percentage gain of 29.|Vo on a bullish
.r6""""".y for establishing the trade. If we bought on the pullback to 48 we could even
expect a profit of. 37.50/0.
Line we
Since the price pattern continued to fluctuate above the Bullish Support
patiently for our Price Objec-
did not need any stopfoss order and could proceed to wait
in February 1964
tive to be reached. we did not have to accept the sell signal given
which was just above the Bullish Support Line.
While waiting for our Price Objective of 73 to be reached, we got another buy
signal at 61 in September 1964 on a Triple Top formation. This would have given us
more confidence ifr"t tftu pric6 of ?3 would be reached. It was reached two months later
in November.
Having reached our original Price Objective we could have taken our profit and
have been quite satisfied with it. Or we could have elected to remain with the stock and
follow it upwith stoploss orders. This would stop us out of our position on the next sell
points that
signal. This would have occured at ?? in March 1965. The few additional
holding on
would have been gained did not actually warrant the additional time involved in
sat-
to our position. Taking profit at our Price Objective of 73 would have proven more
isfactory and we would have looked for another trading opportunity for the employment
of our funds - using the same principles over again in the new situation.
The chart also shows three Butlish Resistance Lines creating possible channels
within which the price might move. We could expect the first Resistance Line to be
penetrated, and even the iecond might have been broken on the upside. But waiting for
the third Resistance Line to be penetrated would be too optimistic, although it may happen
in a few cases.
There is one other important fact that should be pointed out on this chart. At
times more than one vertical count can be taken to determine a Price Objective. The
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first vertical count was taken from the June 1962 low which was the lowest point reached
after the sell signal at 54 in January 1962 on a Double Bottom formation. A new ver-
tical count may be taken after another sell signal is given and the final low made. Such
a sell signal was given in February 7964 at 47 on a Bearish Signa1 formation. The low
was made the same month at 46. A verticaL count, therefore, taken on the first upmove
( or next column of Xs ): 14 x 3 added to the low of 46 gives another price Objective
of
88. In January 1965 the price reached B?. It ultimately reached BB in Augusi.
One more rule that might be of use - be content with a profit one point below
your Price Objective. In many cases, the Price Objective is missed by just one point.
B. Stocks with a high short interest. Once a month, both the WaII Street Journal
andBarron|spub1ishacomprehensiveIistofstoekswiththenumberoffi
have been sold short during the previous month. A similar list of the American Stock
Exchange may be obtained free of charge directly from the American Stock Exchange. A
short sale is accomplished by borrowing a stock from an owner (your broker does this
tbr you) and selling it. The short seller hopes to make a profit by buying the stock 1ater
at a lower price and returning the stock to the lender.
There is a general rule that a stock with a rising short interest is buLish and a
stock with a falling short interest is bearish. The reasoning behind this is that the
greater the short interest the greater the number of people that will be compelled
to buy
the stock at some future date.
We would not recommend using the rule as a technical tool for trading in stocks.
There have been too many instances when a stock has had a rising short interest for
months and the stock, nevertheless, continued to decline. Brunswick Corporation (BC),
during 1961 and 1962 is a good example of this.
Furthermore, a rising short interest is rnore important in a bull market

than in
a bear market. A rising short interest during a bull market usually leads to "panic"
buying as shorts rush to buy stocks in order to cut their losses.
There is one use, however, that can be made of the short interest in stocks.
Make a list of those stocks that have a short interest of. Ilo or more of their
outstanding
shares. There are usually about two dozen of such stocks. Never sell these stocks
short. Use these stocks for buy positions with our Bearish Signal Reversed formation
(see page 40). Such stocks can provide the opportunity
for substantial and fast profits.
9. Volume - We have not deaLt with the question of volume in

any of the pre-
ceding pages. The Point and Figure analyst has always maintained that price
makes
volume and volume does not make price. The price of a stock wilt both
attract and repel
volume. Other technical analysts pay a good deal of attention to volume
and have de-
vised many systems on how to use volume, such as on-balance
volume, ultra high vot-
ume, large lot volume, etc. Applying these techniques to individual
stocks requires a
great deal of work. Assuming that they had some merit,
we still do not feel that the
difference in results obtained by their use, when compared
to the simple point and Fig-
ure chart, would warrant the extra work involved. The time could
be more beneficially
spent in keeping more point and Figure charts.
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SECTION NINE
CONVERTIBLE BONDS
A convertible bond can be converted into the related common stock at a spec-
ified share-to-share ratio, either indefinitely or up to a specified date.
A convertible bond, bought at the right price and at the right time, combines
most of the safety of a bond, the yield of an ordinary bond, and the appreciation potential
of a common stock. A convertible bond has an approximate price floor but no price
ceiling.
Because of the relative safety of certain convertible bonds, banks wiLl often lend
up to B5lo of the market price of a convertibte. With only a L51omargin required, the
gain potential on a cash investment may thus be larger than on the related common stock.
The interest paid on the loan is fully tax deductible.
This section will be devoted to the problem of ehoosing a convertible bond for
trading and investment purposes by Point and Figure charts. AJ.so,does the chart of a
convertible anticipate or follow the chart of the related common and how can thev be used
in conjunction with each other.?
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Figure # 45 is a chart of the convertible bond of Richfield Oil (5 3/Bs '83). It is
constructed exactly as the chart of a stock. Since its price range is above 100, each
square represents two points with three squares or six points necessary for a change in
direction. The chart is based on the daily highs and lows of the convertible appearing in
the Wall Street Journal.
@istanceLinewaspenetratedinApri11963at136.Thefirstbuy
signal, afterthispenetration, tookplacein August at 132 on a Double Top formation and
one immediately thereafter at 138 on a Spread Triple Top formation. These signals
were both valid since they took place after the penetration of the Bearish Resistance Line
and above the Bullish Support Line. The Bullish Support Line was drawn from the
October 1962 low of 108.
A verticai count on the first up-column after the October 1g62 low yields a price
Objective of. I92. There are 14 Xs in that column each representing 2 points; since the
reversal consists of 6 points we multiply the 14 by 6 and get a product of 84. If
we add
this 84 to the low of 108 we get a total of 192. This is the Price Objective.
Afterthebuysignals indicated were given, we could have waited for a pullback.
During September, October and November the price actually pulled back to I24,
a much
better point to buy than at the original breakouts.
None of the sell signals had to be acted upon since they all took place above the
Bullish Support Line. The Price Objective of 192 was reached in January 1g65.
The
Bullish support Line was finally penetrated in April 1965.
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BOEING COMPANY
The chart of the convertible bond is constructed as we wouJd the chart of a com-
mon stock. The Bearish Resistance Line and the Bullish Support Line are the con-
ventional trend lines described previously.
In most cases there is very little difference between the chart of the common
stock and the chart of the convertible. The overall similarity can be seen in the charts
of Boeing. Both have thus far held above the Bullish Support Line.
In the case of Boeing, one could have bought the convertible bond just on the ac-
tion of the common stock. As a matter of fact, acting only on the chart of the common
would have resulted even in greater profits because the trade would have been estab-
lished much earlier. The common stock penetrated its Bearish Resistance Line in
December 1963, while the convertible bond did not penetrate its Bearish Resistance Line
until May 1964. Actually, however, the dynamic upmove both in the common and in the
convertible did not start untit May 1964, and acting on the chart of the convertible would
have been much better from a timing point of view. Capital could have been employed
elsewhere between December 1963 and May 1964.
The difference in these two charts is of minor importance although some differ-
ence in timing is evident. The same holds true for most charts and a person could buy
the convertibte bond when getting the proper signal on the common stock. However,
there are occasions when there is a significant difference between the two charts. Such
a difference is illustrated in the following charts of American Distilling.
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AMERICAN DISTILLING
The chart of the convertible bond of American Distilling is constructed in the

same manner as that of a stock. It is a 3-point reversal chart. One exception
was
made, however, above 100, one-point units are used. This is because of the relative
inactivity of the bond.
Trend lines are used in the same manner as on a chart of a stock. The convert-
ible has a Bearish Resistance Line. A trader or investor, with this chart in his pos-
session, would never have purchased this convertible bond. Its price pafiern never
penetrated this Bearish Resistance Line.
The person who only had a chart of the common stock might have acted different-
Iy. The Bearish Resistance Line was penetrated and the stock grrr" " buy signal
in
January 1963 at 37 on a Triple Top formation. A vertical count from the June 1g62
low
yielded a Price Objective of 49. On the basis of this chart alone, he might have
decided
to buy the convertible in order to obtain more leverage because of the lower margin.
The person who had both of these charts would have bought neither the convertible
nor the common. He could have used the convertible chart to confirm
the action of the
chart of the common. Since an investor in convertibles is usually more sophisticated
and knowledgeable than the average trader, he would have seen the
lack of confirmation
by the convertible chart and, therefore, refused to take position
a even in the common.
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SECTION TEN
OWR.THE-CO UNTER STOCKS
For every one issue of stock traded through recognizedStock Exchangesthere are about nine
issuestraded in the Over-the-CounterMarket. Besidestrading in industrial and utility stocks, it is
also the main market for insuranceand bank stocks.
Can Over-the-Counterstocksbe charted in Point and Figure? The answer is yes. And they are
even simpler to chart than stockslisted on recognizedexchanges.
Bid and askedpricesfor Over-the-Counterstocksmay be found daily in The Wall Street Journal
and The New York Times. To chart these stocks, we use only the bid price. The following 3 pages
illustrate such charts. Since these charts were produced by computer, the months October,
Novemberand Decemberare indicatedby the letters A, B and C, instead of the numerals 10, 11 and
12. Thesechartsare reproducedfrom our quarterly O-T-CChart Book.
The charts reproduced on tlte following 3 pages arc from "The

Chartcrart O-T-C Point and Figure Chart Book," published
quarterly.
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SECTION ELEVEN
TECHMCAI INDICATORS
"technical"
Besides analyzing stock chart patterns, technical analysis has also developed
indicators-tools designedto aid in the determinationof generalmarkettrends. A completecount of
such indicatorswould probably reachto 200or more.
We are presenting here those that we believe to be the most valuable and the most popular.
They are:
The CumulativeDaily Advance-DeclineLine

The High-Iow Index
The On-BalanceVolume Index
The Odd-Iot Balancelndex
The Odd-Iot Short SalesIndex
The 10-DayAdvance-DeclineRatio
The 10-DayUpside-DownsideVolumeRatio
The 200-DayDJIA Momentum Index
The DJIA One-Year7oChart
The Index of SpeculativeConfidence
The Gold Mining Disparity Index
The Short Interest Ratio
The % of NYSE StocksAboveTheir 10-WeekMoving Average
The l0-Week Most Active StocksRatio
The NYSE Bullish Percentage
The DJIA Bullish Percentage
General Motors as a Bellwether Stoct
All these indicatots, and mote, ate covered" every two weeks in
"The
Chartcraft TechnicalIndicator Review.
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CUMULATIVEADVANCE/DECLINE
LINE
This lndex is a non-Price measure of the trend of the narket. It ls based upon the nwber of NysE
lssues advancing and decliolng and not upon the prlce of these lssues. Every day the dif?erence between the
lssues advanclng and lssues decllnlng is calculated. If nore issues advanced than decllned, the dlfference
is added to the Precedlng dayrs total; tf Eore laaues decllned than advanced, the dlfference is subtracted
fron the previous dayrs total. The advance-decllne line nay be started wlth any arbLtrary nmber. Each square
on our chart rePresents 500 and 3 squres, or 1500, are necessary for a change in dlrection.
The dlrection taken by the advance-decllne llne is always conpared to that of the Dow-Jones rndus-
trial Average' When both are advanclng' the Mrket is bulllsh.When both are declinlng, the narket ls bearlsh.
A dlvergence ln directlon between the two usually lndicates a comlng change ln trend.
It should also be borne ln mind that the dally advance-decLlne line has a bearlsh blas. It mde
tts hlgh In March l'956 and thls hlgh has never been exceeded. since then, at least up to Decaber 1974, every
bull mrket hlgh and bear mrket low has been lower than the prevlous one.
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HIGH.LOW INDEX
C O N S T R U C TOI O
FN I F T H ED A I L YN E | ,HJ I G H SA N DD A I L YN E WL O W S '
I N D E X : D I V I D ET H ED A I L YN E | ^HJI G H SB Y T H ES U I 'O
T H ER E S U L T I NPGE R C E N T AFG
PLACE i GEU R E GV E R A GAEN DP O S TT O C H A R T .E A C HS Q U A ROENT H EC H A R T
O NA I O . D A YM O V I NA
OSR6 %A R EN E C E S S AFROYRA C H A N GI N
R E P R E S E N2T%S, A N D3 S Q U A R E E DIRECTION'
OE
T H EE X T R E MPEE R C E N T A G SH I S C H A RA
NT E0 %( O C C A S I O N AA
T R EA B O V 9 LLBY
O V8 I (OCCASIONALLY
TO % )A N DB E L O II'O
BELO2
W0 % ) .
EW N M OA
I N T E R M E D I ADTO VN T H I S P E R C E N T AI S
SB E A RM A R K E TUSS U A L LEYN DW H E N
ED G EB E L O W LEVEL' INTER-
THE'IO%
M E D I A TU AS
EP M O V E N DB U L LM A R K E TUSS U A L LEYN Dl , l H E N E H E9 0 %L E V E L .
G EA E O V T
T H I S P E R C E N T AI S
G EB E L O IT' IH E ' I O %
T H EP E R C E N T AI S
T H EB E S TT I M ET O G OL O N GI S W H E N U P ' T H I S I S A B U L LA L E R T
L E V E LA N DT U R N S
AD
T O S I T I O NSSH O U LBDE C O V E R E
S I G N A L . S H O RP N DL O N GP O S I T I O NTSA K E N . A R I S E I N T H EP E R C E N T AAG
BE E PREVIOUS
O VA
E H E5 0 %L E V E LI S A B U L LC O N F I R MS
T O PO RA B O V T EIDG N A L .
G EA B O V T
T H EB E S TT I M ET O S E L LS H O R ITS I I H E NT H I S P E R C E N T AI S D O W N 'T H I S I S A B E A R
EH E9 0 %L E V E LA N DT U R N S
DU TA N DS H O RP
A L E R TS I G N A L . L O N GP O S I T I O NSSH O U LBDE C L O S EO A. D R O PI N T H EP E R C E N T A G E
T O S I T I O NESS T A B L I S H E D
S B E A RC O N F I R MM
T H E5 0 %L E V E LS I G N A L A
B E L O IA^ IP R E V I O UBSO T T OOMRB E L O W EDARKET.
, / D E XI S O N E0 F T H EB E T T E M
T H EH I G H - L O I[ N INDICATORS'
R A R K ETTR E N D
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ON.BALANCE VOLUME INDEX
CHARTCONSTRUCTION:
t,lHENTHEDOW-JONES INDUSTRIALAVERAGE CLOSES HIGHER,ADDTHETOTALNYSEVOLUI4E FORTHATDAYTO
THEFREVT0UST-AFS-CIJM-4ULATIVE
ToTALi IÎHEN
THEAVERAGE cLoSis LowEn,-iuaiRAir rHE rorAl NysE voLUMEFoRTHATDAy FR0t4THE
-
PREVIoUS
DAY'SCUMULATIVE-ToTAL.,
EACH SQUARE0N THECHART REPRESENTS 20,000,000 SHARES,AND3 SQTARES OR60,000,000
SHARES
ARENECESSARY
FORA CHANGE IN DIRECTION.
T H EO N - B A L A N C E HART S H O U LB DE U S E DM A I N L YA S C O N F I R H A T I O R
N N O N - C O N F I R M A TOI O
FTNH EA C T I O NO F T H ED O W - J O N E I NSD U S T R
A V E R A G E .I F T H ED J I A P E N I T R A T EASP R E V I O UTSO PW I T H O UTTH EO N - B A L A N C VEO I - U NO
EO T I ET H ES A M E ,T H E NT H EU P I , I O VI S
E SUSPECT.
ANDvlcE vERsA'IF THEDJIAPENETRATESA PREvIous
B0TT0I4
wrrHouT ini oN-eAinNcEvoluueootno'rHE-snNe,THEDowNt4ovE
ri sus-
l59I:--F9l-A BULLMARKET'
B0THTHEDJIAANDTHEON-BALANCE V0LUME sHoULDGIvEBULLIsH STGNALS;Fonn eennMARKET,BoTHTHE
AVERAGE ANDTHEON-BALANCEVOLUI'4E
SHOULDGIVEBEARISH gi
SIGNALS.R sIGIIAI. oI'II-yONEoR THEofxEn Ts NOTENOUGH
fo cHnnei
THEEXISTINGTREND. THIS IS ACTUALLY
A MODIFICATION
OFTHEDOt.lTHEORYBY SUBSTITUTING ON-BALANCEVOLUMEFORORADDINGIT
TOTHETRANSPORTATIONAVERAGE.
VOLUHI
ACTION
SOMETIMES
OFTHEDOW-JONES lEqgqgqsPRICE
ACTIONi
AT THESE
TII'IES
THEON-BALANCE
VOLUME
CHART
wILLANTIcIPATE
THEDIRECTIoN
INDUSTRIAL
AVERAGE.
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ODD-LbTBALANCEINDEX
CONSTRUCTI0N: DIVIDETOTAL DAILY-0DD

LOTSALES (INCLUDING SH0RT SALES)BY ODD-LOTPURCHASESANDPLACE
PERCEX-TACETN_T-TO-DAY
RESULTING MOVINGAVEMGE.PLOTTEDONA CHARTEACHSPACEREPRESENTS 2%AND3 SQUARES OR6%ARE
IORA CHANGE
NECESSARY IN TREND.
THE0DD-L0T
|,IHEN BALANCEIS ABOVE
100%,IT INDICATES SELLINGBY0DD-L0TTERS;WHEN 100%IT
IT IS BELOt,l
INDICATES
ODD-LOTTERS AREBUYING ONBALANCE.
IT HASBEEN I'IIANY
YEARSSINCEODD-LOTTERS
HAVEBOUGHT ONBALANCE.
THEINTERPERTATION THATODD-LOTTRADERS
AREALI'JAYSt.lRONG
SHOULD BE AVOIDED.THEYHAVETENDED TO INCREASE
THETRSELLINGIN RE{ENTYEARSNEARTOPSIIHILE SELLINGLESSl,tHENTHEMARKET I'IASD0WN.THEPARAMETERS 0N THESE0CCASI0NS
HAVESHIFTEDOVERTHEYEARS ANOTHEREARENOSET POINTSTO I,IATCHFORAT PRESENT. THEYDOSELLHEAVILYEVERY DECEMBER.
T H I S I N D I C A T OH
RA SL O S TI 4 U C H I NS R E C E NY
OF ITS USEFULNES TE A R S .
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ODD.LOTSHORT SALES INDEX
T H I S I N D E XI S C O N S T R U CBTY
ED I V I D I N GT H ED A I L YO D D - L OSTH O RS
TA L E S
B Y T H ED A I L YO D D . L OTTO T A LS A L E S . T H ER E S U L T I N G
M T I O O RP E R C E N T AI S
G ET H E NP L A C EO
D NA 5 - D A YM O V I NA
GV E R A G ET. H I S M O V I NA
GV E R A GFEI G U R E
I S P L O T T EODNT H EC H A R T .T H E
O F T H EC H A R ITS . 2 % A N D3 B O X E O
SCALE S R . 6 %A R E ' N E C E S S A
FROY
RA C H A N GI E
N D I R E C T I O NT. H ES C A L E
O F T H EC H A RH
T A SA L S OB E E N
R E V E R SS
EOD T H A TU N U S U A LHLE
YA V Y
O D D - L OSTH O RS
TE L L I N G
A P P E A RASS A B O T T OAMN DV E R YL I G H TO D D - L OSTH O RS
TE L L I N G
A P P E A RASS
A TOP.
T H I S I N D ] C A T OHRA SU N D E R G OANMEA J O C
R H A N GI E
N R E C E NYTE A R S
D U ET O T H EE X I S T E N C
OEF L I S T E DP U T SA N DT H EG R A D U A
ELX -
P A N S I OO
NF T H EN U M B EORF P U T SO F F E R EFDO RT R A D I N G .
I T M A YB E S E E NT H A TT H EP A R A M E T EHRASV ER A P I D L C
Y HANGE
SDI N C ET H E1 9 6 0 ' S . T H E1 9 6 6 B E A RM A R K EETN D E W
D I T HO D D - L O T
S H O RSTA L E SR E A C H I N9G
9 0 O F T O T A LO D D - L OSTA L E S . I N T H EN E X TD E C A DPEE A KL E V E L S
DROPPE
GDR A D U A LTLO
Y3 . 8 % I N I 9 7 5 .
V E R YL I G H TO D D - L OSTH O RS
TE L L I N G
W A SU S U A L LIY
N D I C A T EW
DH E T
NH EP E R C E N T Al .G
l AESA T . 4 . T H I S O C C U R RIENDD E C E I , 4 B
I 9E6R2 ,
M R C H1 9 6 5 , J A N U A R1Y9 6 6 A N DD E C E M B1E9R6 9 . T H EL A S TT H R E E
WERG
E OOD
IND1CATION
OSF M A R K ETTO P S . S I N C ET H A TT I M E , H O W E V E R ,
i E H A V EH A DA W H O LSEE R I E S
O F S U C HI N D I C A T I O N SO
. N L YD E C E M EIE9R
72 INAUGURAT
AEM
DA J O R
D O I , I N M O VI N
E . J U L YI 9 7 6 , P E R C E N T A G E
E T A C H E. 2
D% . A D O W N M OI N
VET H ED J ] A F R O M ' I O 2TOO 7 5 0 F O L L O W E D .
A S A G E N E R ARLU L E ,I T C A NB E S T A T ET
DH A TO D D - L O T T ESRESL LS H O RV
TE R YL I T T L EA T M A R K ETTO P SA N DS E L LS H O RQ
TUITE
. : T V I L Y A T I 4 A R K EBTO T T O M
- SA T B O T H] N T E R M E D I AATNEDM A J O T
RU R N I NP
GO T N T S .O V E R
T H EL A S TF E t ,Yl E A R ST, H ] S I N D I C A T OHRA S
. , 5 I S O MO
EFI T S R E L I A B I L I T Y .
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1o-DAYADVANCE/PECLINERATIO
The above point and flgure chart is constructed as follovs: Each day divlde the dal1y Advances by the total of
dally Advances and Decllnes. Place the resultlng ratio on a 10-day hoving average and plot the resulting flgure on the
chert. Each square equals LZ and 3 squares ot 37. are neceasary for a change ln dlrection,
Chart interpretation conslsts of the followlng eldents: (L) dlrectlon of the Doveent, (2) penetratlon of a
prevlous top or botton, (3) whether above or belov the 502 level, (4) upstde and domslde paraDetere, and (5) coopa!1son
of directlon of rcveDedt wlth that of the Dow-Jonea Industrlal Average.
Thig tndex changes dlrectlon earl.ier than the DJIA. When the percentage ts 602 or higher, mrket is entering
an ovelbought area and a change in the l@edlate trend ls not too far avay. This change 1e conflmed by the lndex turning
dom, penetratinS a prevlous botton and/or declining below the 502 level. Thls signlfles a change in the lmediate trend
fron bulllsh to bearleh. When the percentage ls 352 or lower, @rket ls entering an overeold a!ea, and a change in the
lmedlate trend ls not too far away. ThiB change ls conflmed by fhe lndex turnlng up, penetrating a previous top, and/or
rialog above the 502 leveL. Thl6 slgnlfles a change ln the imedlate trend of the @rket fron bearlsh to bulllsh.
This lndicator ehould be uaed to antlclpate or conftm only the l@edlate trend of the mrket vithout any con-
ideratlon of shether thls trend la olnor, lntemedlate or MJor.
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IO.DAYUPSIDE.DOWNSIDE
VOTUMERATIO
Chart Construction: Each day dlvlde Upeide Volme by the sw of Upslde and Domside Volume. Place the resulting
ratio on a 10-day movlng average. Each squere equls lZ and 3 squres or 3Z are necessary for a change ln directlon.
The lnterpretatlon of this indicator ls siniLar to that of the 10-day Advance-Decllne Ratlo. It often leads the
latter both up and dom. Both of these lndlcators should be {n gear, one confLmlng the actlon of the other.
When the percentage ls 602 or higher, the mrket ls entering an overbought area and a change Ln trend ls not too
distant. This change Ls confl.rmed by thts ratlo turning down, penetratlng a prevlous botton end/or dropplng bel-ow the
502 level.
I'Ihen thls percentage ls 352 or lower, the narket Ls enterlng an oversoLd area and a change ln tretrd should be
expected. This ls conflmed by the ratio turning up, penetratlng a prevj.ous top and/or rislng abwe the 502 level.
This lndlcator ls ueed only to Judge the lmediete market trend, without any conBl.deratlon of whether lt ls
linor, lntemedlate or najor.
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2OO.DAY
OJIA MOMENTUMINOE)(
THISINDEX THECURRENT
BY DIVIDING
IS CONSTRUCTED DOW-JONES
INDUSTRIAL BY ITS 2OO.DAY
AVERAGE MOVING
PERCENTAGE
AVERAGE.THERESULTING ONTHECHART. EACHSQUARE
IS THENPLOTTED I% AND3 SQUARES
REPRESENTS OR3%
IN DIRECTION.
FORA CHANGE
ARENECESSARY
MOVING
THE2OO-DAY AVERAGE
LINEIS ALWAYS ABOVE
RULE,A PERCENTAGE
AT IOO. AS A GENERAL IOOINDICATES
ANDA PERCENTAGE
IS IN PROGRESS,
THATA BULLMARKET BELOt,l THATA BEAR
IOOINDICATES MARKET AT
IS IN PROGRESS.
TIMES, A CHANGE
VARIOUS MY BE ANTICIPATED
iN TREND THEIOO LEVELIS PENETRATED
BEFORE ORDOWNWARDS.
EITHERUPWARDS
A BULLISH MAYBE GIVEN

SIGNAL IOOBYTHEPENETRATION
BELO!{ TOP; A BEARISH
OFA PREVIOUS MAYBEGIVEN
SIGNAL ABOVE
.IOO
OFA PREVIOUS
BYTHEPENETRATION BOTTOM.
MARKET
BEAR BOTTOMS TAKEPLACE
USUALLY BELOW AT 78, IN AUGUST
I{ASMADE
85. IN JUNE1962,THEBOTTOM AND
BOTTOM
1966,A DOUBLE
0CT0BER }JASMADE l,lASI4ADE
AT 83; IN MAY1970,THEBOTTOM 1974' THE
AT 80; ANDIN 0CT0BER
IN FEBRUARY
MDEAT 73. HOWEVER,
t.lAS
BOTTOM v{ASMADE
1978,THEBOTTOM AT 89.
AT 87 ANDIN MARCH]980
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INDUSTRIAL
DOW-JONES PERCENT
AVERAGE:ONE'YEAR
THISINDEX IS CONSTRUCTED BYTAKING THECLOSING PRICE

IÎEEKLY OFTHEDOW-JONES AVERAGE
INDUSTRIAL
-rirrT By THEconnrspolotne wEEKLYPRIcEoNEYEAR AGo. (THESEFIGURESl'lAYBE OBTAINEDFROM
orvioiue
^6*5;;t-i
nno
REsulrrnez is rHErupLoTTED0N THEcHART.EAcHSQUARE REPRESENTS I% uP r0 100AND2%
RAOVE IOO. 3 SQUARES AREREQUIRED FORA CHANGEIN DIRECTION.
OCCUR ABOVE 120%ANDBOTTOMS AT 80%ORLOt,lER.ONCE THEPERCENTAGE HASGONEABOVEI2O%'

TOPSUSUALLY
wATcH FoRA BEARISH 0F A pREvlous
srennl-- iHE pENETRATIoN B0TToM.THIs BEARISH Is O0NFIRMED
II'IPLICATI0N
A BEARMARKET
ONOPS-STLOI'I_IOO%. IS THENIN EFFECT. ONCETHEPERCENTAGE HASGONE TO
WHEN THEPERCENTAGE pENETRATIoN
iowEn, ltATcHFoR A s0lt-rsH -
rNDrcArroN rHE 0F A PREvIousr0P. THISBULLISHIMPLICA-
iioz on
iion is coNriRuroWHEN THEPRIcERIsESABovEl00%. A BULLMARKET IS THENIN EFFEcT'
1962, FEBRUARY I9T4 (FALSE

I957, JULY1970' JANUARY -
BULLTSH TNDICATT0NS WERE GIVENIN NoVEMBER
RE NATB O Vl E
N E V EW I 9Y7 5 A N DM A R C H ' I 9 7 8 .
O O % )J, A N U A R
SHOl'lS THATA BEAR MARKET USUALLY ENDSIIHENTHEPERCENTAGE OFI'JHERE
IS 80%ORLOI'JER
THIS INDICATOR
rT llASA vEARAGo- THEAvERAGE FIGURE Is 74%. wniHrurs Lot'tpERcENTAcE BEGIN
LEvELIs REAcHED' LOOKING
FORA CHANGE IN TREND.
lOO IEVEI RNETTWRNOFAREETI.IEEN.ALL SUCHSIGNALSSINCE

BUYSIGNALSBELOW
1958ARELISTED
BELO}J:
2/58 Buy @96 Sell 6/59G 134 7/70 9uy G 83 - Sell 6 1 7 1@ 128
l / 6 1 B u y@9 5 Sell l 2 1 6 1G l 1 8 1/74 Buy G 85 - Sell 7/74 @ 87
l l / 6 2 B u yG 8 5 Sell I l / 6 3 @1 1 7 1/75 9uy @76 - Sell ?/76 @ 1 3 5
2/67 Buy @86 Sell I / 6 8 @] 0 5 '|4/78 Suy 0 85 - Sell 4/79 G I 0 4
I Bui 0 93 - sell 2/8? @ 87
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INDEX OF SPECULATIVE
CONFIDENCE
This Index is constructedby dividing Standard& Poor's LowPriced Stock Index by S & P's High
GradeCormon
Stock Index. The resulting percentage,or ratio, is plotted on the chart. Eachsquare
representsI% below100 and 2%above100, and 3 boxes(3%or 6%)are necessaryfor a changein direction.
I'lhenthis Index rises, Iow priced stocks are outperforminghigh gradestocks; whenthis Index is
d e c l i n i n g , t h e r e v e r s ei s t r u e .
I'lhenlow priced stocks are outperforminghigh gradestocks, there necessarily is greater public
participation and speculation. Speculativeconfidencein the future upwardtrend of the marketis increas-
ing. tlhenhigh grade stocks are outperforminglow priced stocks and the Index is declining, speculative
confidencein the future uptrendof the nnrket is waning.

'l'974.
An important top was madein January1969. An important bottom was madein December
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GOLDMININGDISPARITY
INDO(
.IHIS
I N D E XI S C O N S T R U C TBEYDD I V I D I N GS T A N D A RADN DP O O R ' SG O L DM I N I N GI N D E XB Y T H E I N D E XO F 4 2 5 I N D U S T R I A L S .
--: ; : S | j L T I N GR A T I O ,W H I C HI S A C T U A L LAY R E L A T I V E
-:[ S T R E N G TFHI G U R EO F T H EG O L DM I N I N GG R O U PI,S P O S T E O D N T H EC H A R T
.:.- S C A L ER E V E R S E DE. A C HS Q U A RO EN T H E C H A R TR E P R E S E NIT SP O I N TA N D3 S Q U A R EOSR 3 P O I N T SA R E N E C E S S A R FOY RA
:,-:\':: :\ DIRECTION.
-,:
S C A L EI S R E V E R S ESDO T H A TA N U P M O VIEN T H E R E L A T I V E
S T R E N G TOHF T H EG O L DM I N I N GG R O UW P ILL APPEAR O NT H I S
.-I:-:: I OOI.NI{OF VOE RT H EM A R K EA TS A W H O L EAi N DA D O } ' I N M OI NV ET H E R E L A T I V E
S T R E N G TOHF T H EG O L DM I N I N GG R O UWP ILL
r::;!: : S A I U P H O VFEO RT H EM A R K EATS A W H O L E . G O L DM I N I N GS T O C KA SR E S U P P O S E DDLE -
YF E N S I VIEN C H A R A C T E RS T R O N G
--: rleKET
.F:\ IS }'IEAK A N DW E A K WHEN T H EM A R K E ITS S T R O N G .
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SHORTINTERESTRATIO
SHORT INTEREST BUILT

CLOSETO BOTTOM
U PT 0 1 . 9 0 . l s t R E V - OF SHORTS l'lHEN
CLOBBERED
(MY 's8) I966 BEAR
l,lrTH MARKET PRESIDENTJOHNSON
ERSAL AFTER
DJIA 470. I{ENT TO trlHICHDJIA NOTTO RUN.
DECIDES
ROSE I9O.POI
680 BY l2l59. DOIIHADTURNED
ALREADY,BUT
SHORTSDIDNOTBELIEVEIT
AND3OO-POINT
UPMOVEFOLLOI.IED.
1962 IIITH Dot,llABOUT
I{OVEMBER
ABOUT620. UPMOVE CARRIED TO
A80UT990 BY 2166.
AFTER
THEre60BEAR THE ttrl: hffitfFlrfl#f-tqql4
MRKET l! lql 4!qA.
0JrAHAD
A vERy suli TfFt l-ffiitr^+++Fffi9l0l-9l 399l]l.
sElEcrrvi
MRKETIN I95I. THISt,lASFOLLOWED
BY 1962BEARMARKET(730 TO 530
_TOPPERFECTLY.
ffi,rffi D R OIPN - D J I AT O P4 3 0 P T ,
DJIAAFTER..ppOP TO FOLLOW.
THETOTAL
BY DIVIDING
IS CONSTRUCTED
THISINDICATOR INTEREST
SHORT DAILYVOLUI'IE
BYTHEAVERAGE FOR
OFTRADING
FORI'IHICHTHESHORT
THEPERIOO IS REPORTED,
INTEREST USUALLY ONTHECHART
30 DAYS. EACHSQUARE
THEPREVIOUS REPRESENTS
OR.15%ARENECESSARY
.0s%AND3 SQUARES rT MY BE FoUND
rN DIRECTToN.
FoRA CHANGE IN BARRoNS'S
oNCEA MoNTH.THESHoRT
RATIOREPRESENTS
INTEREST OF DAYSTRADING
THENUI.IBER CANACCOUNT
THATTHEACTUALSHORTINTEREST POSITIONS
FORIF ALL SHORT
WERE AT THESAI'1E
COVERED TIME.
A COLUMN THEI.9O LEVEL
OFO'S AFTER HASBEEN IS A BULLISH
REACHED INDICATION HASHADA BIG DROP.
IF THEMARKET
SIGNALS I962, SEPTEMBER'I966,

IN MAYI957, NOVEMBER
PLACE
THATTOOK SEPTEMBER 1979t,lERE
I970, JANUARY SIGNALS.
ALLTIMELY
1969SIGNALS
THEAPRIL1966ANDOCTOBER I'|ERE HASA SUCCESS
NOGOOD.THISINDICATOR OF 71.4%(5 OUTOF7).
RATIO
A MOVEME
TONIT. O OO RL E S SI S A B E A R I SI N
HDICATION S L A T EI 9 5 6 , D E C E M BI 9E5R9 , N O V E M B E R . I 9 6 l ,
HI G N A LI N
S .U C S
MY I97I, FEBRUARY 1973ANDFEBRUARY

I973, OCTOBER 1976WEREALLGOOD I96I SIGNAL
SIGNALS.THEJANUARY t,llAs BUT
USEFUL,
'I972 7 OF9 TIMESOR77.7/".
PREMATURE,WHILE
THEJANUARY SIGNAL I,IAS t^lAS
NOGOOD.THISUSEOFTHEINDICATOR SUCCESSFUL
A HIGHSHORT
NOTE:YOUDONOTNEED FORA BEAR
INTEREST TOEND. SEEI973-'1974.I,IHEN
MARKET 7-9 TIMES
WERE
STOCKS
THEREt,lASVERYLITTLE SHORT
EARNINGS COINGTO 4-5 TII4ES EARNINGS
THEMFROM
SELLING,BUTTHATDID NOTPREVENT THEBEAR
WHEN
MARKET
ENDED.
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% ol NYSESTOCKSabovolhelr IGWEEK MOVINGAVERAGE
EVERY
TUESDAY,
AT THECLOSE
OFTHEMARKET,
CHARTCRAFT
MAKES
A COMPUTER
TALLYOFTHEPERCENTAGE
OF STOCKS
ABOVE
THEIRIO-WEEKMOVING
AVERAGE,THIS PERCENTAGE
IS PLOTTED
ONTHECHART. EACHSQUARE
REPRESENTS
2%AND3
OR6%ARENEEDED
SQUARES FORA CHANGE
IN DIRECTION.
THISINDEX
IS |ÎHAT
IS KNOI,IN
ASA DIFFUSION
INDEX. IT TENDS
TOCHANGE
DIRECTION
AHEAD
OF ITS AGGREGATE.
wHEN
IT STARTS
T0 or[lne FRoM
A HrGHLEVEL,THEAGGREGATE
ltrll suLL coNTTNUE
T0 RIsEANDcoNVERsELy,
wHENrr
BEGINS
TORISEFROM
A LOI,I
LEVTL,THEAGGREGATE
!{ILL STILLCONTINUE
TODECLINE,ONLY
AFTER
THEINDEX
CROSSES
THE
50%LEVEL
DOES
THEAGGREGATE
FOLLOI,I
THEDIRECTION
OFTHEDIFFUSION
INDEX.
UPMOVES
ENDI,IHEN
THEPERCENTAGE
RISESABOVE
THE7OZ,80%OR90%LEVEL
DEPENDING
UPONTHESTRENGTH
OFTHE
BULLMRKET. DOI'JNMOVES
TERI,IINATE
WHEN
THEPERCENTAGE
DROPS
BELOI.,
3O1",2O"IORIO%DEPENDING
UPONTHESTRENGTH
OF
THEBEAR
I.IARKET.
A COLUMN
0F Xs BELO}'I
THE509 LEVELMY BE REGARDED
AS AN UP-ALERT
SIGNAL;I'|HEN
THIS COLUI,|N
0F Xs RISES
A80vE50X0R PENETRATES
A PREVIOUS
TOP,IT l,lAYBE REGARDED
AS AN UP-C0NFIR|I|ED
SIGNAL.A C0LUMN
0F 0s ABOVE
50fl,
grftLD BE TAKEN
As A D0HN-ALERT
SIGNAL;
l.lHEN
THEC0LUMN
0F 0s DECLINES
BEL0W
50U,0RPENETRATES
A PREVIOUS
B0TTOI'{,
:- ITAYBE REGARDED
AS A DOWN-CONFIRI'IED
SIGNAL. BUYINGLONGSHOULD
BEGINl.lHENAN UP-ALERT
SIGNALHASBEENGIVEN
r.'..E THEPERCENTAGE
HASDROPPED
TO 30%ORLOWER.LONG
POSITIONS
SHOULD
BE CLOSED
OUTONA DOIilN-ALERT
SIGNAL
T''iq .1{TPERCENTAGE
HASREACHED
AT LEAST7O%. SHORT
POSITIONS
SHOULD
BE ESTABLISHED
I{HENIT LATER
DROPS
BELOI.I
THE
f,3 r_SYtt.
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1GWEEK MOSTACTIVESTOCKSRATIO
EACHWEEK THE20 MOST

EXAI4INE ACTIVESTOCKS THESE
ANDDECLINES.
FORADVANCES MAYBE FOUND
FIGURES IN
OFADVANCING
DIVIDETHENUMBER
BARRON'S. NUMBER
BYTHETOTAL
STOCKS ANDDECLINING
OFADVANCING STOCKS.PLACE
RATIO
THERESULTING ONA 1O-WEEK AVERAGE.
MOVING
MY BE USED
THISINDICATOR AS ANOVERBOUGHT.OVERSOLD
BOTH THATGIVESBOTH
ANDAS AN INDICATOR
INDICATOR
BUYANDSELLSIGNALS,
IN LONG-TERM BEARIT,IARKETS
SUCH MARKET
AS I969.'I974, OVERBOUGHT CANBE RECOGNIZED
CONDITIONS THIS MTIO
t,llHEN
GOESABOVE 60%ANDANOVERSOLD CONDITION IN DECLINES
l,|lHEN 35%. IN LONG-TERM
BELOW BULLMARKETS
SUCH AS 1975-
pnEsEnr 0vERBouGHT coNDITIoNscAN BE REc0GNTzED
I'4ARKET THERATI0 GoEsABoVE70%ANDAN OVERS0LD
r,rHEN c0NDITI0NI'IHEN
IT DR0PS BELOltl
45%.
TAKES
A BUYSIGNAL PLACE PENETMTES
PATTERN
IIHENCHART PLACE
TAKES
TOP. A SELLSIGNAL
A PREVIOUS CHART
I.|HEN
A PREVIOUS
PENETRATES
PATTERN BOTTOM.
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NYSE BULLISHPERCENTAGE
A S I T S N A M EI M P L I E S T
, H EA B O V E
I N D I C A T OI R
S BASED S T O C KOSNT H EN E t ,Yl |O R K
O NT H ED A I L YP E R C E N T AOGFEB U L L I S H
S T O CE A . S T O C IKS C O N S I D E RBEUDL L I S HI F I T S M O S T
KX C H A N G E R E C E NCTH A R P OFNA P R E V I O U S
T A T T E RSNH O WTSH EP E N E T R A T IO
T O P :A S T 0 C KI S C 0 N S I D E RB
EEDA R I S H
IF ITS MOST T A T T E RSNH O WTSH EP E N E T R A T I0OFNA P R E V I O UBS0 T T 0 M .T H E
R E C E NCTH A RP
N U M B EORF B U L L I S H
S T O C KISS T A L L I E DE V E R Y A N DB E A R I S H .T H I S
D A YA N DD I V I D E DB Y T H ET O T A LO F A L L S T O C KBSO T HB U L L I S H
P E R C E N T AI S
GET H E NP L O T T EODNA 2 %B Y 6 %P O I N TA N DF I G U R E S R 6 %A R EN E E D EFDO R
C H A R T .E A C HB O XE Q U A L2S% , A N D3 B O X E O
r C H A N GI N
E D I R E C T I O NT. H I S I N D I C A T Ol ^Rl A S BD
ORIGINATE Y CHARTCRAF , ., IN 1955.
I NTC
UPMOVE NH EP E R C E N T ARGI S
US U A L LEYN DW H E T E A E7 O % ,O R8 O % ,O R9 0 %L E V E L- D E P E N D I N
EE SA B O V T UGPON T H ES T R E N G T H
'IO%-
INO MOMENTUM
OF THEBULLMARKET.DOWNMOVES TERMINATE IIHENTHEPERCENTAGE DROPS BTLOl,ll3O%,OR 2O%,OR DEPENDING
-'ON THEMOMENTUM
OF THEBEARMARKET.
AFTERA LO|.lLEVELHASBEENMADE,A COLUMN

OF Xs BELOt.l AS A BULLALERTSIGNAL;
THE50%LEVELMAYBE REGARDED
. L i T T H EC O L U MONF X s R I S E SA B O V T
EH E5 0 %L E V E L ,T H I S M A YB E R E G A R DA
ESDA B U L LC O N F I R MS A H I G HL E V E L ,
EIDG N A L . A F T E R
: : C L U M0NF 0 s A B 0 V ET H E5 0 %L E V E LM A YB E R E G A R DAESDA B E A RA L E R TS I G N A Ll;, l H E N 5 0 % ,T H I S

BELoW
T H EC o L U M0NF 0 s D R o P S
I + . 3 E R E G A R DAESDA B E A RC O N F I R MS
EIDG N A L . A B U L LC O N F I R MS
EIDG N A L
M A YO C C UB T H E5 0 %L E V E LI { H E NA C O L U MONF X S
RE L O W
: ' : : : 9 S A P R E V I O UTSO P ;A B E A RC O N F I R MS EH E5 0 %L E V E LI ^ , H EAN C O L U MONF O S P E N E T R A TAE P

E H r uU N VO C C UARB O V T
EiD SR I V I O U S
- _ 1.
A N YU P T U RFNR O M T H E1 0 %L E V E LI S U S U A L LTYH ES I G N A LF O RA N E WE U L LM A R K E T .
BELOW
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BULLISHPERCENTAGE
DOW.JONESINDUSTRIALS
I N T H E3 O - D O ! J
GFEB U L L I S HS T O C K S
A S I T S N A M EI M P L I E S ,T H EA B O V EI N D I C A T O IRS B A S E DO N T H E D A I L Y P E R C E N T AO
BDU L L I S HI F I T S M O S TR E C E NC NH O l ^T
T H A R TP A T T E RS ON
l SH E P E N E T R A T I O F A PRE-
. S T O C KI S C O N S I D E R E
J O N E SI N D U S T R I A L S A
NH O WTSH E P E N E T R A T I o0N
T H A R TP A T T E RS BoTTof' l.
F A PREVIoUS
V I o U ST o p ; A S T 0 C KI S C o N S I D E R EBDE A R I S HI F I T S M O S TR E C E NC
THIS PERCENTAGE
RF B U L L I S HS T O C K ISS T A L L I E DI ' I E E K LAYN DD I V I D E DB Y 3 0 T O O B T A I NT H E B U L L I S HP E R C E N T A G E '
T H EN U M B EO
DO RA R E -
2 %A N D3 B O X E S0, R 6 % , A R EN E E D E F
DN A 2 % B y 6 % p O I N TA N DF I G U R EC H A R T . ( E A C HB O XE Q U A L S
I S T H E Np L O T T E 0
LFDIRECTION.)
V E R S AO
YH E S A M EA S T H A TO F T H EN Y S EB U L L I S HP E R -
OFNT H E D J I B U L L I S HP E R C E N T AIGSEB A S I C A L L T
T H E I N T E R P R E T A T IO
THE
DE M A D EF O RT H E F A C TT H A T , B E I N GB A S E DO N L YO N 3 0 S T O C K S1, T I S M O R EV O L A T I L ET H A N
. L L O W A N CSEHSO U LB
C E N T A G EA
BD
I SE T H A TI T C A NB E C A L C U L A T E IN A
Y T H EA V E R A GTER A D E R
B U L L I S HP E R C E N T ABGAES E DO N A L L S T O C K S . I T S B I G A D V A N T A G
F E WM I N U T E S .
AD
T H E 5 0 %L E V E LM A YB E R E G A R D E
A C O L U MONF X S B E L O W T H I S C O L U MO
S A B U L LA L E R TS I G N A L ;W H E N NF X S E X C E E D S
AD
NF X S O R R I S E SA B O V ET H E 5 0 %L E V E L , I T M A YB E R E G A R D E I G N A L ' A C O L U i l fOl F C S
S A B U L LC O N F I R M ESD
SO L U MO
A P R E V I O UC
AD
T H E 5 0 %L E V E LM A YB E R E G A R D E
ABOVE T H I S C O L U MO
S A B E A RA L E R TS I G N A L ;W H E N E SP R E V I O UC
NF O S P E N E T R A TA SO L U I {O
T IF
O S O R D E C L I N EB AD
T H E 5 0 %L E V E L , I T M A YB E R E G A R D E
SE L O W S A B E A RC O N F I R M ESD
IGNAL.
YI N D ST H E D J I B U L L I S HP E R C E N T AB
MS U A L L F
TO T T O U
A B E A RM A R K EB I O % . A B U L LM A R K ETTO PU S U A L L F
GEEL O W YI l I 3 S
ABOVI70%.
THEDJI BULLISHPERCENTAGE
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GENERAL MOTORS AS A BELLWETHER STOCK
General Motors is regarded as a bellwether of the stock market as a whole. The bellwether
theory holds that in a downtrend, whenever 4 months pass without General Motors declining to a
new intermediate low, the odds favor a conclusionthat the market's trend has turned upward.
Conversely,when the trend has beenupward, but 4 months passwithout GeneralMotors rallying to
a new intermediatehigh, the odds favor a conclusionthat the market itself will turn downward. The
theory's originator was StephenJ. Stanford and its present guardian and interpreter is Robert H.
Stovall, of Dean Witter Reynolds,Inc.
It should be borne in mind that no theory or technicalindicator works all the time. Witness the
fact that GM made a low in December 1973and 4 months elapsedwithout GM declining to a new
low. This would haveled to the erroneousconclusionthat the bear market was over. GM then made
a new low in Decembert974. Again GM made a high in April 1976, and then 4 months elapsed
without this high being exceeded.Was the bull market over?No, becauseGM then went on to make
a new high in September.The next intermediatehigh in GM was made in December.Four months
went by without a new high and a bear market signal was given in April 1977.This signal is still
in effect.
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SECTION TWELVE
PUTSAND CAI,LS
Buying
a stock + Buying
a Call
+
0
Writing
a Call 0
Selling a Buying 0 Writing

+ + a Put :
stock short a Put
The stock buyer gains when the stock rises and loses when the stock declines.
The Call buyer gains when the stock rises and neither loses nor gains when the stock
declines.
The Call writer loses when the gtock rises.and neither gains nor losses when the stock
declines.
The short seller gains when the gtock declines aDd loses when the stock rises.
The Put buyer gains when the gtock declinee and neither gains nor loses when the stock
rises.
The Put writer loses when the stock declines and neither gains nor loses when the stock
rises.
(Commisgion and option premiums are ercluded for clarity of presentation.)
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OPNON CONTBACTS
1. Types of Option Contracts
A CaI is an option to buy 100 shares of a specified stock at a fixed price on or before its expiration date.
A Put is an option to sell 100 shares of a specified stock at a fixed price on or before its expiration date.
The exercise price is the price at which the stock under option may be called or put.
The premium or option money is the amount the buyer pays for the option contract.
A straddle is an equivalent number of Puts and Calls covering the same underlying security and having
the same exercise price and expiration date.
2. Length of Option Contracts
Under present practices, each class of options is assigned to one of three expiration month cycles: the
January-April-July-October cycle; the February-May-August-November cycle; or the March-June-Septem-
ber-December cycle. Trading options of a particular expiration month normally coulmences nine months
earlier. No option purchaser can take advantage of the long-term capital gains period for tax purposes.
3. The Exercise Price and Premium
Exercise prices are generally fixed at 5-point intervals for stocks trading below 50, and 10 point inter-
vals for stocks trading between 50 and 200.
The premium on the price of an option is agreed upon between the buyer and writer of an option or
their agents. Options may be purchased or sold through securities brokers. The premium is determined in
the auction market. Both purchasers and writers pay transaction costs.
The exercise price is not affected by a dividend distribution; dividends are collected by the writer of the
option.
4. Buying a Call vs. Buying the Stock
Advantages - 1) The trader or investor can take a larger position in the stock than he might otherwise
be able to. l(X) shares of a $50.00 etockwould cost $5,fi)0; the sorneanount of money can theoretically buy
l0 calls on the snme stock; $5,fi)0 can do the work of S50,000during the contract period. 2) Buying a stock
means making money if the stock goes up and losi'g money if the stock goes down. Buyrng a call means
6nking mony if the stock goes up and not losing money if the stock goes down (excluding the premium, of
course, which has already been paid).
Disadvantages - The call must go up in price during the contract period; it may go up afber the con-
trrt period has expired. The holder of the stock has no time limit as to when the stock must move up for
hin ta lsls a profit.
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5. Buying a Put vs. Seling the Stock Short
The advantages and disadvantages in buying a Call vs. buyittg the stock apply as well to buying a Put
vs, sellingthe stock short.
6. Trading Formations and Call Options
In using trading formations as a guide to buying Calls, the time factor is of the utmost importance.
Because of the length of the option contract, the time factor is even more imporiant than percentage of time
a trading formation is profitable and the average percent gain. With this in rnind, trse trading formations
seem to be particularly applicable to buying calls: 1) the Bulligh Triangle fomation, and 2) the Bearish Sig-
nal reversed formation.
The Bullish Trainsle Formation (seepage 24)

The Bullish Triangle formationfu profrtable 7l.4Vo of.thetime, for an average percent gain of 30.9V0.
The average time required for such profit is 5.4 months. This fonnation, therefore, lends itself to a &month
Call. If the Call can be purchased on the buy signal given by this fonnation, the profit potential is very
attractive. One should still be able to realize a profit of between 2 and 3 times the premium.
The Bearish Sigral Reversed Formation (see page 40)

The Bearish Signal Beversed formation is profitable 92Vo of.the time, for an average gain of 23.2Vo.
The average time required for such profit is 2.5 months. This formation, therefore, lends itself to a 3'month
Call. Here too, there is a potential profit of two or three times the cost of the premium.
7. Trading Formations and Put Options
Any bearish trading formation may be used for the purchase of Puts. The time element in these forma-
tions ranges from 2.$ months to 4.? months. A &month Put should, therefore, work out satisfactorily. How-
euer, you -ust be sure that a bear market has really begun. Don't buy all your Puts at one time; space them
weeks apart so that you spread your timing as advantageously as possible.
If you prefer to buy a 3-month Put, then restrict your action to the Bearish Triangle formation. This for-
mation is piofitable 87 ,|Vo of the time, for an average percentage gain of.33.3Vo. The average time for such
gain is 2.5 months.
8. Options vs. Stoploss Orders
Up to this point, we have discussed the purchase of options as vehicleg of speculations. There is, how-
ever, another use to which optioue can be put-a substitute for stoploss orders. In this case' an option is not
used for speculation but for insurance.
Suppose a person buys 100 shareg of a stock at S50.00 and decides that dl he wants to risk on this pur-
chaseis l07o of his capital (exclusiveof commissions,etc.). He has two altematives: 1) He can place a stop-
loss order at 45, or 2) Buy a Put on the same stod. We will assume he can obtain a six-month Put at $60.00
for al}Vo premium or $500.00.Inboth caseg,he is attemptingto limit his risk to l07o or S6fi).
Advantages of a Stoploes Order - f ) A stoploss order is permanent, it may be kept in effect as long as
fie e@ may be changed, it may be raised as the price of the stock rises and
thus not only limit losses but ingure profits.
Disadvantageg of a Stoploss Order - 1) A stoploss order may be touched by a temporary downmove in
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the stock aDd thereaf0er the price of the stock may start a dynamic upmove; the trader or invegtor thus loses
his position in the stock and has to repurchase it. 2) A stoploss order at 45 does not necessarily mean that
the trader or invegtor will necessarily receive S45 when the stock goes down; a stoploss order becomes a
market order when the stoploes order point is reached and the execution of the order may take place at a
much lower price, especially if there is a sudden and severe drop in the market as a whole.
Advantages of a Put - 1) Duringthe conhact life of the Put, the trader or investor is uot worried about
being whipsawed out of his basic position in the stock. 2) During the contract life of the Put, the trader or
investor is guaranteed of getting S50.00a share for his stock, no matter how suddenly or violently the mar-
ket may drop.
Disadvantages of a Put - The protection offered by a Put is limited in time; after the Put expires, the
trader or investor will have to buy a new Put or use a stoploss order.
When a person buys a stock and protects his position by a 6-month Put, he has in effect converted his
position into a 6-month Call.
9. The Option Writer-Selling Puts and Cals
The Option Writer ie a person who sells Puts and Cnlle either as an auxiliary to his investment program
or as a meaDs of speculation. A person who writes or sells a Put erpresses his willingness to buy i certain
stock at a certain price-to have the stock "put" to him at the contract price. A p"rsoo who writei or sellg a
Call erpresses his willingnegs to sell a certain stock at a certain price-to have the gtock "called" from him
at the conhact price.
An option writer who wdfps Qnlle and PuJs as an auxiliary to hie investment program is usually a
"covered
option" writer. A covered Put writer ig one who, so long as he remains oUtigea as a writer, holds
on a share-for-share bagis a Put of the same class as the Put writer where the exercGe price of the put is
held equal or greater than the erercise of the Put written. A covered Call writer is one iho, so long as he
lgpning obligated as a writer, owns the shares of the underlying security covered by the Call, or holde on a
share-for-share basig a Call of the same clasg ae the Call written where the exercisaprice of tire Call held is
equal to or legs than the exercise price of the Call written.
Suppose an inveetor wighes to accumulate shares of a certain oompany. Inslead of buying the stock
imrngdiatlgy, he writes hrte on the gtockg. Ae the writer of the option, he has obligated himself to buy the
stock at a stipulated price during the life of the conhact. For undertaking such an bblgation he receives a
premium. If the stock is "put" fp him, then he buys the stock at the stipulated price; his actual cost, how-
ever, is the price of the gtock less the premium he previously received. ff the stock rises in price during the
term of the contract, and as a regult is not "put" to hin, he pockets the premium. The writer of a Fut hi" to
deposit 6fl maintain a margin of 30Vo of.the price of the s0ock.
Suppoee an investor wishes to distribute stoc,kwhich he had previouely acanmulated. Ingoead of eelling
the stock outright, he writes Qnlle ea the stocl. As the writer of the option, he has obligated himself to seil
the etock at a stipulated price during the life of the contract. For undertaking his obligation he receives a
premiun- If the price of the stock goes up and is ' 'cqllerl " frsp hin, he receives the price of the stock as per
the optioi contract and also pockets the premium previously paid hin. If the etock-drops in price and the
option ie not exercised by the buyer, he pockets the prenium.
The hader or epeculator will sell a Call on a stock which he believes will not rise in price during the con-
tract period or sell a Put on a etocfr which he believes will not decline in price during the conhact perioa. n
the case of a Call, he deposits anfl rnaintnins a 30%nargin and in the case of a hrt, the sane margin ap-
plies. If he successfully judges the price action of the stock during the period of the coutract, he will rot
have the gtocke either "cnlled" from or "put" to hirn 6trd he will pocket the premiuns he received from
writingthe options.
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Wherever possible, Cqlls should only be written on stocks in Bearish fonnations and Puts should only
be written on stocks in Bullish fonnations. The option writer may not always have this choice, since oSi,on
trading is usually confined to the most popular and active stocks'
The option writer as a speculator may, however, protect his poeition and cut his losses short after
writing a Put or Call. ff he has written a Put, and the stock has declined lO7ofrom the contract price, he may
proteJ himself by closi.g out his position by buying a Put. If he hass'ritten a Call and the stock has risen
l\qo ,hemay protect himself by closrng out his position by buying back a call.
10. Where are Option Contracts Traded?
Options are traded on the Chicago Board Options Exchange ("CBOE"), the American Stock Exchange
(..AMftX"), the philadelphia Stock Exchange ("PHIJ("), the Pacific Stock Exchange ("PSE"), and the
Midwest Stock Exchange ("MSE").
Detailed quotations on options are provided by the above exchanges and printed daily in the Wall
Street Journal and the New York Times.
As of this writing, there are about 220 Calloptions and 20 Put optione. This number is to be increased
in the near future.
11. Certain Risk Factors
A Call or a Put is a diminishing asset. It is an asset for a limited time only and can be diminished in
value as its expiration date approaches.
The purchaser of a Call or a Put, therefore, runs the risk of losing his entire investment (the premiun
he paid) in a relatively short period of time.
The uncovered writer of a Call is subject to a risk of loss should the price of the underlying security
increase. The uncovered writer of a Put who does not have an equivalent short position in the underlying
security is subject to a risk of loss ehould the price of the underlying security decrease.
The writer of a Call who owng the underlying security has, in exchange for the premium, given up the
opportunity for gain resulting from an increase in the price of the underlying security above the exercise
price. The,writer of a Put who has a short position in the underlying security hast in exchange fortbe
premium, given up the opportunity for gain resulting from a decrease in the price of the security below the
exercise price.
Potential buyers of Puts snd Qnlls and potential writers of Puts and Calls should always bear the aborc
risks in mind and realize that trading in Puts and Calls is a highly speculative venture. The only pocatb
conserr/ative use of Puts and Calls is as a substitute for stoploss orders to prevent whipsaws.
With these precautions in mind, the Put and Call trader should always be aware of the trend of tle
market as a whole and the specific chart patterns of the underlying stock.
12. IMPORTANT INDICATORS
A potential trader in hrts and Qnlle slsuld be thoroughly acquainted with the underlying dod b .
taking a position in.
He should know whether the underlying gtock ie bunish or bearish; what its upside or dclib F
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objective is. He should also be familirar with its relative momentum (strength)-the Vo itis above or below
its B0-week moving average. He should also be familiar with its Beta or volatility factor. The higher the Beta
the more volatile the stock. This is important besause an option is limited in time.
The Charkraft Options Chart Book, published quarterly, can help you with the above factors. A sample
chart is reproduced below.
20
I9
l8
l 7
I6
I5
ll
l2
II
lo
I
1
6
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SECTION THIRTEEN
COMMODITY TRADING
point and figure chartson grains and other commoditiesare constructedin the same manner as the charts
units of charting have to be worked
on stocksexceptthe units of charting are different for eachcommodity.The
whipsaws are as few as possible'In
out in such a mannerthat not only a-rebuy and sell signalsgiven, but that
pJrcentage of unprofitable trades than in stocks' so it is
trading in commoditiesone must expect a greater
extreriely important to keeplosses small while letting profits run'
we have seenmany more long-

over the last decadevolatility has increasedin the commoditiesmarket and
made some changesin our approach
term trends, both up and dorrn,than in the past. As a result, we have
to trading
move trendlines following a
Trendlines have taken on much greater importance. It is also important to
chart'
sequenceof buy-sell-buyor sell-buy-sellsignalsas illustratedin the following
i l L
1 BULLISS L INE
HUPPORT
i:-i+fff'
S E L LB U TDO
more profitable to let yorr

We also found that price objectivesare not tenibly important here. It is much
This will sometimes
profits run, which is not possibleif you take small gains when pri-ceobjectivesate reached'
is reached,but in the long run yot
result in reducedprofits Lr evenlossesif the .o-r*dity t"acts after the P.O.
will do much better if you playfor the big move'
both long and shar'
Diversification is important. It is good to spread your money over a few situations,
rather than to concentrateeverythingin one commodity'
All charts ate kept on athree box tevetsalbasis'
In the following pages,we give the correcttrading unit for eachcommodity.
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WHEAT
i.lEAT JULY r9B2 (CBT) LIFE OF CONTRACT
5/28/BL
Wheat and the grains markets have been characterizedby large bull and bear markets in
recent years. Signalsin line with thesemain hends have been very profitable.
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GRAINS
COBN
OATS
SOYBEANS
t r l l l
5+/box
SOYBEANMEAL
SOYBEAI| (IL
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GOLD
coLD ( cl4x
) DECEMBER
1982 LIFE OF CONTRACT
" - _ .r :/ 3 0 / 8 1
E@ oqo.
i7{,
54/box
Gold and other precious metals make substantial moves, both up and down,
and, as a
result, have attracted a big following among speculators.
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METALS
PLATINUM
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HOGS
J U N E1 9 8 2 ( cB T ) LIFE OF CONTRACT
: :=+3/I/81
r#JTtrading
. . _ _ fb e g i n s1
, - ' - + r - . 1 + ! l l
.2tlbox1r-'-:
, ...lT-
Hogs and other meatshave had spectacularbull and bear marketswhich have turned quick-
ly. Note the small length of time it took to completethe bottom formation.
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FROZEN PORK BELLIES
CATTLE
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FROZEN ORANGE JUICE
FROZENORANGE
JUICE
Thesecontractshavehad more "weather-related" movesthan anv other commoditv,
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COFFEE
cocoA
POTATOES
f-flt]*ff-]_1-fi zazufi ll*ll*ft*f
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U.S. TREASURYBILTS
BY
S. TREASUR ILLS ( r M r i ) JUNET9B2 LIFE OFCONTRACT
Financial futures are a recent addition to commoditiesmarkets, but their popularity was
immediate.
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I
n
_ t
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CHANTCRAFTCOMMODTIES SERVICE
Explanationof Chart Scales
Commodity Value/Box Tradinglncremente $/Box

Corn 2A c/bu. $ 100
Oats l0 a/bu. 50
Soybeans 5c a/bu. 250
Soybean Meal $2 S/ton 200
Soybean Oil '2A aAb. t20
Wheat 2a a/bu. 100
Sugar .2a aAb. 224
Frozen Pork Bellies '2a anb. 76
Cattle .2A aAb. 80
Hogs '2A aAb. 60
Copper Y2A aAb. t25
Platinum $4 $/oz. 200
Silver 20a $/oz. 2N
Lumber $r $/1000bd. fr. 130
Plywood $1 S/1000sq. ft. 76
Gold s4 8/oz. 400
Cocoa $20 S/ton 2N
Coffee 2a a/tb. 750
Cotton %a aAb. 250
Frozen Orange Juice lc onb. r50
Potatoes '2a anb. r00
British Pound 1C $/Pound 250
Canadian Dollar .2A S/Can. $ 2m
JapaneseYen .00002a $/Yen (.00) 250
Swiss Franc '2Q $/Franc 250
W. GermanMark .2A $/Mark 250
HeatingOil .2e S/gal. 84
U.S. T-Bonds %pt. Voof.l00vo 500
G.N.M.A. Y, pt. 7o ol l007o 500
U.S. T-Bils .l pt. Voof lNVo 1000
Bank C.D.s .l pt. Voof,LffiVo 1000
Value Line Composite Index %pt. 250
S. & P. 5fi)Index '/, pt. 250
N.Y.S.E. CompositeIndex V, pt. 250
South African Gold Stocks $1 over S20
50c btwn. S5 & S20
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SECTION FOURTEEN
ADJUSTING A CHART FOR A STOCK SPLIT
In Figure # 54 we have the chart of a stock that has announced a two for onc sTffL
The original price sdale appears on the left hand side of the chart. The first thing to &
when you want to adjust a chart for the split is to draw the new scale on the right haqd
side of the chart. In the case of a2 for 1 split, you simply cut the.price of each squarc
in half. Using the right hand price scale, you now have a chart in f -point units witb a
1] point reversal both below and above the 20 price leveI.
The next step is to draw a new and correct price scale in j-point units belor 2O
and in 1-point units above 20. This is illustrated in Figure # 55. Working with the |-
point units in the old chart you draw your new chart according to the correct units. Thi6
has been done in Figure # 55. If you will trace each movement on the new chart and
compare it with the old chart you will soon learn how this is done.
Do not adjust a chart for less than a 10% stock dividend. If a stock has been split
3 for 2, each square is multiplied by 2/3rds, if it has been split 3 for 1, then each
square is multiplied by 1/Srd, etc.
In adjusting a chart, it should always be borne in mind that many of the chart pat-
terns in the old chart will disappear in the new chart. Sometimes, an adjustment will
even change a chart from bullish to bearish and vice versa.
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SECTION FIFTEEN
THE 5.POINT REVERSAL CHART
On the facing page we have two charts of Natomas covering the same time
period. The upper one is a 3-point reversal chart and the lower one is a S-point
reversal chart.
The 3-point reversal chart is spread over forty-four columns while the 5-
point reversal chart is condensed into eighteen columns. The 3-point reversal chart
gave ten buy and sell signals; the 5-point reversal chart gave only five such signals.
The 3-point reversal chart has four Bearish Resistance Lines; the 5-point reversal
chart has only one Bearish Resistance Line which is still in effect.
It is obvious, even at a glance, that the S-point Natomas chart is superior

to the 3-point reversal chart in that it is subject to much fewer whipsaws. Also,
if one follows the Bearish Resistance Line on the 5-point chart, one would never
have gone long of Natomas during this period.
Although the 3-point reversal chart works very well about 90% of the time,
there are some stocks which should be charted on a 5-point reversal. These are
usually the higher priced stocks, the very active stocks, and the so-called "glamour"
stocks. In such stocks the 3-point reversal method still shows minor moves; it
takes a 5-point reversal chart to eliminate them.
The long-term investor might also use the 5-point reversal chart on almost
all stocks, while the short-term trader must use the 3-point reversal chart.
The 5-point reversal chart is constructed from the 3-point reversal chart
by eliminating all moves under 5 points.
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T h e N A T I O N A L L YF A M O U S
O R G A N I Z A T I O NO F F E R ST H E S E E I G H T
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A. W. Cohen l6
l5
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6nt

Three-Point Reyersal Method of

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t HOW TO USE THE

Sfock Market Trading

EIGHTH REVISED EDITION

The material containedherein is not to be taken as advice to buy or sell

Section One - The Poj.nt & Figure Chart and Construction n

SectionTwelve- Puts and Calls . 107

SectionThirteen - Commodities. 113

SectionFourteen- Adjusting a Chart for a StockSplit 125

SectionFifteen - The S-PointReversalChart 126

The fundamental analyst concerns himself with financial statements, history,

THE POINT AND FIGURE CHART AND ITS CONSTRUCTION

Figure # 2 is a reproduction of a Point and Figure chart of Bucyrus-Erie. Let

Each square ( not line) on the chart represents a unit of price.

Under 20, each square stands for |-point or one-half dollar.

From 20 to 100, each square stands for 1-point or one dollar.

Vertical columns of Xs and 0s alternate. We n.roveone colutrln to the right

Under 20, a reversal of 1-j points or one-and-one-half dollars would be neces-

It is very important to indicate that a Point and Figure chart is a one-dimen-

lfote: Charts compiled by Electronic Computer substitute A, B and C for 10,

Below 100, each square stands for 1-point or one dollar.

Above 100, each square stands for 2-points or two dollars.

A 3-box reversal below 100, would be equal to 3-boxes or three dollars.

A 3-box reversal above 100, would be equal to 6-points or six dollars.

Such a chart is illustrated above. It is a chart of Lehigh Valley Industries. By

April 12 20:3 19:6 26 20:6 20

Example A is an illustration of the Double Top formation (#1). It is the basic

Example B is an illustration of the Double Bottom formation (#1). It is the basic

These two basic formations consist of three vertical columns. It is impossible

ControlData (cDA) HarcourtBrace (HBJ)

These patterns usuallv appear at market tops and market bottoms.

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In example B, we have a bottom at 31 and then a higher bottom at 32; we also

In example C, we again have a bottom at 31 and then a higher bottom at 34; we

DravoCorp. (DRV) UnionCarbideCorporation(UK)

In example A, we have the BuIIish Symmetrical Triangle formation. First, we

In example B, we have the Bearish Symmetrical Triangle formation. Here, too,

These Symmetrical TriangLe formations require a minimum of five vertical

In example A, we see a base of accumulation between 31 and 34. There are

In example C, we have another base of accumulation between 3l and 35. How-

ldealToyCo. (lDi Gas& Fuel (EFU)

In example C, we have another top of distribution between 45 and 41. However,

Rohm& Haas (ROH) MarkControls(MK)

In both examples of this formation, a minimum of five vertical columns is nec-

AmericanBrand (AMB) GeneralElectric (GE)

In example A, the breakthrough on the Triple Top takes place as follows: 1) We

MarquetteCementMfg. (MaC) UniversalOit Products(UOp)

This is a very broad

Example A is an illustration of the BuIIish Catapult formation. This formation

Example B is an illustration of the Bearish Catapult formation. This formation

Quaker Oats (OAT) Random House ( RH)

In example A, the Bearish Signal Reversed formation, we start with a perfect

In example B, the Butlish Signal Reversed formation, we start with a perfect

UnitedArtists (UNA) WarnerBrothersPicturesWB)

The two most important trend lines to watch are:

1) The basic Bullish Support Line

The subsidiary trend lines are:

1) The minor Butlish Resistance Line

On the other hand, in June 1964, we have a true penetration of theBullishSupport

The above chart of Mesta Machine should be compared to the chart of U. S.

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