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1-7 BEHAVIOR OF PRICES " ON WALL STREET ~I'C ARTHUR A.MERRILL MARKET INCLINATIONS lHELP PREDICTION LpRODUCE PROFITS Published by The Analysis Press. Chappaqua. New York
All rights reserved including the right of reproduction in whole or in part in any form. Copyright © 1965 by Arthur A. Merrill. Printed in the United States of America. Published by Analysis Press, Chappaqua, New York. Library of Congress Catalog Card No. 64-25611.
1-9 DEDICATION: To ELSIE Always helpful; always inspiring.
THE BEHAVIOR OF PRICES ON WALL STREET - CONTENTSPART I - INTRODUCTORY - Chapter 1. How can you use this book for profit? Z. Can you forecast the market weather? PART II - BEHAVIOR AT CERTAIN TIMES - Chapter 3. When are the best times in the year to buy? To sell? (Including the Market Almanac for every day in the year.) 4. When are the best times in the month to buy? To sell? 5. When are the best times in the week to buy? To sell? 6. When are the best times in the day to buy? To sell? 7. Are there profitable seasonal differentials? 8. How does the market behave near holidays? 9. How does the market behave near income tax time? 10. How does the market behave after bad news? 11. How does the market behave after margin changes? PART III - BEHAVIOR IN CYCLICAL SWINGS: Chapter 12.. Does the market have trends? 13. Are there patterns of behavior in the weekly swings? 14. What is the Dow Theory? Is it profitable? 15. What is the Elliott Wave Theory? 16. How long should you expect a Bull Market to last? A Bear Market? A Primary Swing? A Secondary Reaction? (Including Life Expectancy tables. ) 17. Is the market influenced by earnings? 18. Is trend following profitable? 19. Are some prices preferable to others for purchase? For Sale? PART IV - CONCLUSIONS - Chapter ZOo Conclusions.
1-11 PART V - APPENDIXES FOR STUDENTS: ANALYSES FOR STUDENTS: Appendix AI: Are the D-J Industrials representative? AZ: Is the market random? A3: How should turning points be measured? A4: In Elliott's Theory. what are the variations? A5: Can the Elliott Theory be made specific? A6: How should swings be classified? A7: How do swings vary with price? DATA FOR STUDENTS: Appendix A8: The D-J Averages - weekly bar chart 1928-1964 A9: Dow Theory dates and data. AIO: Data and charts - Bull and Bear Markets, primary swings and secondary reactions. 1897-1963 All: Bibliography TOOLS FOR STUDENTS: Appendix A12: How to make the Chi Squared test A13:Elapsed Time Calculator A14: P!E Calculator A15: 300 Year Calendar
IN APPRECIATION - The suggestions made by the following friends have been especially helpful: A. Hamilton Bolton, Robert W. Breiling, Dr. Edward R. Dewey, Jack A. Dorland, Dernell Every, Devin A. Garrity, Floyd L. Hogan, Christopher R. Landmann, S. Jay Levy, William D. Merrill, Francis N. Millett, Richard Russell, George Seager, William P. Short, George E. Tener.
1-13 "I often say that when you can measure what you are speaking about, and express it in nurnbe r s, you know something about it; but when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely in your thoughts advanced to the stage of Science, whatever the matter may be. " Sir William Thomson, Lord Kelvin
1-15 (p.l-l) Chapter i. HOW CAN YOU USE THIS BOOK FOR PROFIT? Should stocks be bought today? Should purchase be delayed for a lower price? Should stocks be sold now? Should sale be postponed for a higher price? This book will concentrate on these four questions. There are two problems in investment; selection and timing. The latter problem, which is dealt with in this book, is considered by many to be the more important. Poor stocks will rise in a rising market; good stocks will fall in a declining market. There is profit in timing. This book is addressed to both the long term investor and to the short term speculator. All of the conclusions are in the twenty chapters. which are written for the non-mathematical investor. For serious students. the fifteen appendixes will supply analyses. data for research and some tools for further work. A body of folklore has been built up ar-ound the market through the years. Too often this folklore has not been put to the test. This book will try to separate fact from folklore, by the simple but laborious method of consulting the record. It isn It surprising, except to the scientific man in another field, that the material hasn't been thor.oughly sifted, for the size of the undertaking is frightening. But modern methods and the computer are now available.
(p.1-2) Chapters 3. through 11. will deal with the behavior biases of the market at certain specific times. You will find many unsuspected tendencies in the market, and corresponding suggestions for profit. The market will be found to behave with the characteristics of a warped roulette wheel. Sometimes it has a definite bullish or upward bias - at these times you should move with celerity in purchase, and should delay sale. At other times it has a definite bias downward; at these times sell promptly and delay purchase for profit. Chapters 12. through 19. deal with the behavior of the market in swings and trends. There are some suggestions for profit from this knowledge. This book doesn't deal with individual stocks, but with the averages. However, most stocks tend to move with the spirit of the market. The Dow-Jones Industrial Average is used as an index. (An analysis of this selection is in Appendix AI) This is a picture book. To paraphrase the old Chinese saying: One chart tells more than a thousand statistics! To make it easier for you, we have inserted a few blank pages, to bring the charts next to the corresponding text. May your profit increase.
1-16 (p. Z-l) Chapter 2: CAN YOU FORECAST THE MARKET WEATHER? The conclusion of this book is that there are certain inclinations or leanings in the behavior of the market. A knowledge of these inclinations is very useful in the improvement of timing of purchase or sale. We will be dealing with probabilities, not with certainties. But these probabilities, if known, can be used for profit. A bent roulette wheel may be biased toward the even numbers; despite this bias it will produce many odd numbers. But the bias is profitable to the acute customer. The casinos at Monte Carlo employ statisticians to check the accuracy of the wheels from the record. They would like to replace a wheel before a customer discovers the bias! The knowledge of bias in the stock market is rarely sufficient, in itself, to justify a short term speculation. However, this knowledge can help the speculator and the investor by improving timing and profit. It is important to consider significance. All of the biases noted in this book could have occurred by pure chance. If you throw a handful of a hundred coins on a table, it is possible to find them all "heads ". However, if this score occurs, you would have some reason to suspect some double-headed coins! To measure the significance of a score, statisticians compare the actual score with the expected score, and ask themselves "How many times would I have to repeat this experiment to expect such a difference by pure chance?" There are mathematical means of obtaining the answer; one of the simpler methods is outlined in Appendix AIZ. In our text, which is addressed to non-mathematicians, we will use the following words: "Probably Significant": The bias would be expected by chance only once in twenty repetitions of the experiment. "Significant"; The bias would be expected by chance only once in a hundred times. "Highly Significant": The bias would be expected by chance only once in a thousand repetitions of the entire experiment.
(p.3-1) IS EASONAL --1896 -1963 I 80 (Pere ent ot years in which 0 -J Industrials Increased in the month.) 70 60 48 Feb. Mar. Apr. May June July Aug. 51% 5Z% 55% 50% 68% 10% 4S"l. Sep. Oct. Noy. Dec~ 55"1. 61"1. 75"1.1 Fig.3A Fig.3B -- SEASONAL-- \6 PRESIDENTIAL ELECTION YEARS I I-- - l- ........... .... .~~~~~.~~:~.8.~t. ..... ..... ..... .... ..... ..... 1e"l. 44"1. 11"1. 5°~1 31"1. Jon Feb. Apr. May Sep. Mar. June July Aug. Oct. Nay. Dec 81% Ci6% 63'70 81% 75% 6S% 63% - '-- - .......... 70 60 50 % 80 40
1-14 (p.3-2) Chapter 3. WHEN ARE THE BEST TIMES IN THE YEAR TO BUY? TO SELL? Figure 3A summarizes the seasonal tendency of the market for the 67 years from 1896 through 1963. The most favorable month is December. In this month the market increased in 75% of the 67 years. The summer rally months, August and July win the second and third prizes. August rose 70% of the time; July increased in 68% of the years. For maximum profit, of course, one should try to buy before the strong months and sell before the weaker months. Figure 3B presents the record for the 16 presidential ebection years from 1900 through 1960. There are some interesting differences between these years and the total in the preceding c har t; January, April and September have been significantly weak in election years; March, August and October are notably strong.
(p.3-3) Figure 3C applies the microscope to the summer rally. The behavior by days is charted. Two periods are included, to verify the conclusions, and to note changes in characteristics. The principal difference between the two curves is in the middle of July. This period did not appear weak in the 1922-1942 period; it is notably weak in the 1943-1963 period. The agreement between the two curves is more significant than the differences. The strength in the early part of July and in the middle of August is present in both curves. 'I(, 100 90 80 10 60 40 30 THE TWO 21-YEAR 1943-1963 JULY (5 Ooy centered average) AUGUST Fig.3C
1-12 (p.3-4) The next two charts (Figs. 3D, 3E) extend the microscopic view to the entire year. Here is a Market Almanac for every day in the year, based on the performance on each of 19.253 trading days in the last 67 years. On any day in the year. you can consult the chart and find the average market weather for that time of the year. For example, note January 31. The bar extends to 580/0. which means that the market at that date rose 580/0 of the time and declined 42% of the time. There are many interesting and significant points on these charts. We will highlight some of them in the chapters which follow. Note the summer rally in July and August; note the year-end rally in December. Footnotes for students: (1) The data have been smoothed by a five day centered average. (2) The bars are measured from the 500/0 level. but should also be compared with the average for the entire period (530/0), which is indicated by a horizontal line. (3) The significance levels are marked on the right hand scale (See Appendix AI2).
(p. 3- 5) % 70 65 ·0.1% 1% 6 JANUARY FEBRUARY 5% -0.1% 70 65 0.1% 1% 5% MARCH -0.1"'" 55 60 ... 50~~~W@lllJ~1llJlD'"~"'" I 25 ..... !~> 20 30 ; <II 5% APRIL 1% 70 65 O.l"l0 1% 6 5% 5% -''I. -0.1% JUNE MAY ... o z ~~ 5°f.....-'t1F[rrIJ1r~~.lfWw-eVJw~11~UJ~TT".J1lJ1wm ..... - > z ... ..... 5 iii 55 45 Fig. 3D
(p.3-6) (Percent 01 yeors 1897-1963 in which the D-J Industriols posted on increose lor the doy. - - 5 doy centered averoge.) COPVRIGHT 1'84- AATHUft A MERRILL -O.lor. GO - lor. - ,or. JULY 50 1 ' 45 'eu " eo es 30 I AUGUST -5". - I'll. -o.rs, % 70- 65- -0.1% 60- - lor. - ,... SEPTEM BER OCTOBER % 70 65 -0.'''' -I'" 60 - s... 55 .. <> 2 ~~.... "j -> 2 .. 30 1 -sor. 45 NOVEMBER DECEMBER -1'110 1-10 Fig.3E
(p.4-1) whr ~lIrkrt iUmlinar -- wh, Silt r k , t SI (I nth (Percent of mcnr hs Jon. 1697 - June 1964 in w~ic~ t~e O-J Industrials posted on rn e re o s s for the day.) 0/0 70 - .. -' .. > .. 16171819202122232425262728 17181920212223242526272829 18 19 20 21 2223 24 2526272829 3 19202122232425262728293031 I 2 3 4 5 6 7 8 9 10 II '2 13 14 15 .. u z .. HALF OF MONTH - -5% -1% -0.1% z .. ;;; -0.'%• -.% -5% 49.1 56.'3 - FI RST 51.6 50.3 62.6 562. 55.9 54 41.0 MONTH - 49.9 1j5.6 65- _ LAST HALF OF 60- FEB. - { APR,JUNE, 1 16 SEPT.,NOV.r-'6 17 OTHERS.-IB 17 18 -- - DAY OF THE MONTH - - - Fig.4A
1-8 (p.4-2) Chapter 4. WHEN ARE THE BEST TIMES IN THE MONTH TO BUY? TO SELL? Does the market have a bias based on the day of the month? The record has been examined - every day from 1897 through June. 1964. The result is presented in Fig. 4A. The chart has been split in the middle. Because of the important beginning-of-the-month behavior. the first of the month has been placed in the center of the chart. The conclusion is clear. There is a definite bias in the market near the beginning of the month. Note the strong market on the first two days. Here is a bullish bias which is highly significant. If behavior is typical, then, one should try to buy for profit before the last three days of a month, and sell for profit after the first three days of a month.
(p. 5-1) Fig.5A
1-6 (p.5-2) Chapter 5. WHEN ARE THE BEST TIMES IN THE WEEK TO BUY? TO SELL? The market prior to 1952 was open on Saturdays. The span since that time, with a five day week, has been reported in Figure 5A. The result is interesting. Monday is truly a blue day. The market rose only 43.3% of the time, which is a highly significant amount below the average for all days in the period. Friday, on the other hand, is highly significant in a bullish direction. This is contrary to the lore of the market, since Friday is supposed to be a day when traders "unload to free their minds for the weekend. " These tendencies through the week will be examined hour- by-hour in the next chapter.
(p.6-1) - wq.r Ailarkr. ~lmanac • ill h r Slarkr. lay anb • rrk -' ... (Percent 01 trod ing days Jon. 1962 th,oug h Jun. 1964 in -' .. which the D-J Industrials posted an ine ree se from Ihe preceding hou r . ) ;; ;;: % z " 7 .. t 0.1% 63.2 1% 81.1 61.• 60 59.1 5% MO N DAY &<.1 55.2 ....... •••••• ~~~~.~~E:.-••~~.I.~ .1.. ...... ...... 50 Open II 12 2 Close Open II 12 2 Close 47.3 44.' TUESDAY 5% 40 ,... 38.2 0.1% 36.1 31.8 34.4" 30 70 61.2 O.I~ 61.3 ,% 60.5 60.5 60 '9.7 .... 54.8 54.5 54,8 .... .. ..... ...... ...... 50 Open II 2 Close Open II 12 2 Close W EON ES DAY - .... 43.1 40 4L5 ,% THURSDAY 40.3 0.1"1. 30 70 Ol} -I 60 '9.0 57.9 0.1 .. I ;; 5 -'-' .. 50 -' .. Open Close 5 .. I e 46.8 0.1 5 FRIDAY TOTAL ALL DAYS I 1; 40 40.9 (625 DAYS) 0.1 J:: Fig.6A 30
1-4 (p.6-2) Chapter 6. WHEN ARE THE BEST TIMES IN THE DAY TO BUY? TO SELL? In this chapter we will note that the market has a bullish bias in certain of the hours in the week; it has a bearish bias at other times. Figure 6A summarizes the action of the market on 625 trading days (January 1962 through June 1964). There are many interesting and significant hours in the week: (I) Note the strong opening on Monday, and the relatively strong openings on Wednesday and Friday. The average for the opening (The chart in the Southeast corner) is significantly bullish. (2) Note the strong first hour to llAM on Thursday and also on Tuesday and Wednesday. The average for this hour is significantly bullish. (3) Note the weak close, which is evident on every day except Friday. The average close for all days of the week is highly significant in the bearish direction. Are these differences consistent through the entire period? If we divide the record into three parts (1962, 1963, 6 months 1964) and record the bullish hours with a "plus" and bearish hours with a "minus", here is the record: open 11 12 1 2 close 1962 -+ + 1963 + + + 1964-6m. + + + Total + + l' Note the unanimity in the bullish hour to llAM, and the bearish hours to IPM and to the close. The overall record is quite consistent.
I SEASONAL (p.7-1) 01 FFER ENTI A LS I Percent of times D-J Industrials increased in speci f ied period -- 0/0 80- 70- 60- 50 4.0- 47 % 30- ROSH HASHANA to YOM KI PPUR (1934 -1963) JULY FOURTH to LABOR DAY (1897-1963) THANKSGIVING to NEW YEARS (1897-1963) Fig.7A
1-2 (p.7-2) Chapter 7. ARE THERE PROFITABLE SEASONAL DIFFERENTIALS? Some market sayings are founded on the seasonal tendency. Chart 7A reports on three of these Seasonal Differentials. The first is "Sell at Rosh Hashana; buy back at Yom Kippur." This is based, perhaps, on the lack of buying by orthodox Jews in this period. It is, also, in the midst of the September bearishness. This "saying" has been checked back through thirty years. The re sult is at the left of Figure 7A. The market produced a decline in 53% of the cases, and gained in 47"0. This checks the "saying"; however, the difference from expected is not significant. Another"saying": "Buy on July Fourth and sell on Labor Day and Pay Your Expenses for the Year." This recommendation has been checked for every year back to 1897. The score is good. The market rose in this period, which is the summer rally season, 68% of the time. However, the difference from the average for all months in the period (58%) does not rate significance. We have tried our hand at creating a "saying": "Buy at Thanksgiving and Sell at New Years and Pay Your Christmas Bills." This is an obvious way to collect on the usual December rise. The score is excellent - 750/0 success for the period 1897 through 1963. This is sufficiently different from average to justify the rating: "probably significant".
(p.8-1) • HCLIDAY BEHAVIOR - JAN. 1897 - June 1964 (Percent of occasions on which the D-J Industrials posted an increase for the day.) DAY BEFORE HOLIDAY: DAY AFTER HOLIDAY: Hoi i days 71.2 Long Holidays 67.7 All Holidays Fig. SA
Z-l (p.8-2) Chapter 8. HOW DOES THE MARKET BEHAVE NEAR HOLIDAYS? Chart 8A is an analysis of the performance on the day before and the day after all holidays in the last 67 years. It presents some very significant results. The usual market commentary preceding a holiday predicts a sell-off. "since traders like to be free of worries on the holiday." This is not checked by the facts. The actual count reports a tendency in the opposite direction. The day preceding a holiday is usually a good day. The market has risen two-thirds of the time. In the case of a long holiday. the market has risen 710/0 of the time on the preceding day. These ratios are highly significant; they would be exceeded by chance only once in several thousand repetitions of the 67-year history. The score for the day following is not significant. in the case of a short holiday. After a long holiday. the day is significantly inclined toward bearishness.
(p.8-3) -HOLIDAY BEHAVIOR1897· JUNE 1964 (PERCENT OF YEARS IN WH ICH THE D-J INDUSTRIALS POST E 0 AN INCREASE FOR THE DAY --) DAY DAY DAY DAY BEFORE HOll DAY AFTER BEFORE HOLIDAY AFTER HOLIDAY HOLIDAY HOLIDAY HOLIDAY a:~.11 WashinGton'. "'0 Birthday 0::. Election IIno ao •• ····0 Day Good c=J~~.' •• Friday D'" 79.1 aoU ThanksGivinG '0 '0 13.1 48.3 Memorial Day ~o'--'----------....,..-.,.o BO.6~ aoL--L-----------.:== '0. 49.3 r-- 54." 74. Independence ao •• Day 80.1 New Yean Day 55.0 .0 '0. "'0 Fig.8B !4.! La bor Total All •• aD '7'"'~~D Day 00 Holidays
2-3 (p.8-4) Figure 8B presents the score for each of the current holidays. The day before the holiday is especially bullish on the days before New Years, Memorial Day, Independence Day, Labor Day, and Christmas. The day after each of the holidays has a rather poor record. The day after Washington's Birthday is especially bearish. There are two exceptions: The day after Independence day, which is at the beginning of the summer rally season, is bullish. The trading day following Thanksgiving, which is usually a Friday, is also bullish. This may be a reflection of the tendency to rise on Friday. (See Chapter 5) If you are considering purchase near a market holiday, therefore, make your purchase at least two days prior to the holiday. If you are considering a sale, postpone it until 2 PM on the day preceding the holiday - and your chances for profit will be improved. (Footnote for students: The data in Figure 8B differ from the Market Almanac (Figures 3D, 3E) because the latter has been smoothed by a fi ve- day average. )
(p.8-5) WEEK PRECEDING ELECTION Percent of Days in which D-J Industrials INCREASED-- 80 70 60 50 40 I 56.2% I 75.0% 68.8'0 58.4% SUN- 81.2% ELECI 43.8% I I 43.8% DAY TION DAY 30 20 M Tu W Th F 5 5 M Tu Fig. Be
(p.8-6) Figure 8e reports the record for the week before election for the sixteen presidential election years from 1900 through 1960. The last part of these election weeks seems bullish. Thursday has a fine record. This day rose twelve times and declined four. The Monday preceding presidential elections is the most significant day. The market rose on thirteen of the Mondays and declined on only three. This ratio would be expected to occur by chance only once in 500 repetitions of the experiment. so that this day appears to have a highly significant bias in the bullish direction. we have typical: the preparation of this chart. election week. It was quite Down Down Down Up Up Up {Footnol e: Since passed the 1964 Monday: Tuesday: Wednesday: Thursday: Friday: Monday: Election Day. Z-5
(p.9-1) INCOME TAX TIME a THE MARKET 10. Trading Days Before Dote (March 15,1933 - 1954; April 15,1955-1963) Percent of Days in which D.-J. Ind. closed HIGHER: °/0 70- 60- 50 63.3 53.3"1. 53.3 40 30 63.3 56:7 40.0 55.2 62.1 41.4 AVERAG E ~ALL DAYS 62.1 59.1 1933-63 -10 -9 -B -7 -6 -5 -4 -3 -2 --DAYS- - -I Due Dote Fig.9A
2-7 (p.9-2) Chapter 9. HOW DOES THE MARKET BEHAVE NEAR INCOME TAX TIME? Selling near the income tax due date is supposed. according to market lore, to gi ve the market a bearish tinge. Unfortunately, the evidence in Fig. 9A does not support (or deny) this hypothesis. The evidence votes simply: "no demonstrated significant difference from average. The statistics cover the span from 1933 to 1963. Before this thirty year period, the income tax was not a major factor.
(p. 10-1) ·MARKET ACTION AT TIMES (U' BAD NEWS -OJI CLOSING PRICES; TWO TRADING DAYS PRIOR TO NEWS a FIVE OAYS FOLLOWING 100'4 CLOSING PRIOR TO NEWS-· 0/. 105 .....---~----------~-----------p Me KINLEY 100~---~ 95~----+-----------I>-\--.J---------l 92 9/4/01 9/5 9/6 9/7 91'J I 9/109/11 9112 I I 9113 9116 I 9/17 9/1 B 9/20 105 -r-'----,----------......... 105..------,----------....., HARDING DEATH ROOSEVELT DEATH IOO~-......,,-~--......~----____l 100~--=-"::::...---------_I BE FO R E NEWS 1-----4<-- AFTER NEWS 9 5 L_.l...._.L.._.L...._.L...._-L-_.l-~ 71311238/1 8/2 8/4 8/6 817 8/8 8/9 95L-.l--.L..-.l--.l--.l--L-~ 4/10/45 04/11 4112 4113 04/16 4/17 4/18 1II/19 105..----.....,----------....., KENNEDY DEATH 1001--==-4-----------1 1o-------+l.~AFTER NEWS -----.I Fig. lOA I I 11/22 11/26 11127 11129 1212 11121 BEFORE NEWS BEFORE NEWS 9/21155 9/22 9/23 9126 9/27 9/28 9129 9/30 EISENHOWER HEART ATTACK 95~---1__-+--I------__l
Z-9 (p.lO-2) Chapter 10: HOW DOES THE MARKET BEHAVE AFTER BAD NEWS? Figure lOA charts the market reaction to five cases of tragic news. The market has some very bad moments immediately following the news. Pric e s are dri ven down by selling to a surprising degree. However, when a day has passed, the market recovers from its panic, and sometimes works upward to a higher level
(p.11-l) Chapter 11. HOW DOES THE MARKET BEHAVE AFTER MARGIN CHANGES? Figures llA and lIB chart the market behavior after the last six margin reductions and the last six margin increases. In each case, the lower right hand part of the chart summarizes the behavior. In the case of margin reductions, the market tends to work higher in the four following weeks. The behavior in the fifth and sixth weeks is quite mixed. The average behavior in the case of margin increases is surprising - the market, on the average, tends to move upward in the nearby weeks. However, an examination of the individual charts reveals this to be a continuation of the preceding trend. In nearby weeks, then, the trend seems to be more important than the margin increase.
N I -- • MARGIN R EDUCT ION S "0 -IN - .., , :H'C'~'''91 I r,om flVI c"'or'l rill 111101 ".7"» "'0 ",, 2120/e3 7e'l. TO eO'l. 100% = O,J.1. Close on Frldo~ precedlnQ the reduclio,.. 1041- , 0' 99 •• 97 "I \ eO'l. 'D' 102'- '02 '01 'DO .. to 9T to \! / I 10,,1 ............ 7 WEEKS ~------~~----'---~1105, I I •• T'" ~I"'" 'T ."," "T'O' ..(..... -C' ''OJ''' -,'" ·T·... "'I n J6 9 $ 10 I/!7 1/1!.4 Ill! 2/7 ttl" 2~li!1 2111 '" ~14 51(' l21 '6... I i I I '02 101 •• 9. 97 •• Pili OE C!lANGES IN NIARBY IO~ I 3/~0/49 r04 - 7~'l. TO ~O'l. '0' '02 '0' 2/1/<47 'OO'l. TO 7e'l. 9$1 ! I J 12/27 1/3 lifO 1117 1/24 1/31 211 2/1<4 2121 2/28 3/7 97"- 1/16/58 70'l. TO eo'l. 101'- •• .0 'IS.',. 11/1' '1110 'III' II] 1110 .", 1/14 VII ,I? 1'14 I~~$I~I" 1114 7/1 711 1/11 "" 7'11 "I Ifli 'III 111:1 "'I ':,L.',-.,.:...-.......-\tc'-tj--'-...L--.......--------l 1001 (\ 'D' 102'- 1041- 1104 1031- 1103,- ro s I i IO:i , 04 105, I Fig.llA
.... .... I :;;- ...., -- IN MEARJaY WIE"." 100"'OJ, Clo.. on F,idoy precedinQ the reduction After Il'\creose XNCIU,ASI&S ,. PInCE CHANGES 93 1 I , I I I , ~12.6 612 6/9 6/113 S/Z36/30 7/6 7/13712.07/27 8/3 8/10 12I'~ 12.2 /29 J/~ 112 I/S /2.6 2/2 /9 116 /2.1 3/2 1219 116 /22 /30 1/6 113 12.0 /27 2/3 flO 117 124 lIll AlGIN % '05 10+ 7/5/45 50~ to 75% 103 102 '01 100 99 98 97 96 95 r8efore lec r ee s e 94 % 105. i 8/5158 MAl i r MediOn\/ I, r " .........' .: s., _w-wo"., ....-.. x·· 11/5/G3 ~O% to 70"4 10/16/58 lie 1215 el! Ie fl~ /22 129 9/, /12 9~ /12 119 /26 10/3 flO 111 /24 131 11/7 114 If! 9/27 /4 III 118 lie 1111 50~ to 70~ '02 101 39 98 97 96 '04 1001 % 103 Fig. llB
2-13 [p, 12-1) Chapter 12. DOES THE MARKET HAVE TRENDS? IT the market has been moving up, should we expect a continuation - or a reversal? IT the market has been declining for two days; should we expect a decline on the third day? Some academic analysts have concluded that you can match a coin and get the answer. They admit that it should be a slightly warped coin, because the market spends more time rising than falling. But we have evidence in this book (See Appendix A2) that should interest the ac adernrci ans, We have found there are trends in the short term (hourly, daily) movements; the evidence for the longer periods isn't conclusive. Here are four conclusions from the data to improve your profits: (1) IT prices have moved up in the last hour, or two hours in a row, or three, the odds favor a rise in the next hour. (The statistics are highly significant. ) (2) IT prices declined in the last hour, or two hours in a row, or three, or four, or five, the odds favor a decline in the next hour. (The statistics are highly significant. ) (3) IT the market moved up on a certain day, the odds favor a rise on the next day. (highly significant) (4) IT the market declined on a certain day, or two days in a row, the odds favor a decline on the next day. (Highly significant. ) The weekly data have revealed no significant trendinclined bias. However, in Chapter 18, we will show that it can be profitable to follow a long-term trend in the market.
(p.13-1) TWO WIII 'ATTII.NS 1924 - JUNE 1964 BE HAVIOR OF THE D-J IN DUS TR IALS IN HI E THIRD WEEK TWO WEEK PATTERN MOVED MOVED TOTAL PATTERN; NUMBER UP DOWN OCCASIONS Il1IiI 420 287 707 rnw 2 278 221 499 3 289 211 500 ImJ 4 220 177 397 Totals 1207 896 2103 " 57.4% 42.6% 100.0 % Fig.13A TBI.I.. W....I .ATT ...lI. 1924-JUNE 1964 BEHAVIOR O~ THE D-J INDUSTRIALS IN THE FOURTH WE EK THREE WEEK PATTERN MOVED MOVED TOTAL PATTERN: NUMBER UP DOWN OCCASIONS 240 180 420 2 163 124 287 Y 3 166 112 278 4 115 106 221 8 ULLISH I2fIiiI 5 180 109 289 6 114 97 21 I J 7 123 97 220 Imm 8 107 70 177 Totals 1208 895 2103 % 574% 42.6% 100.0t. Fig.13B
2-14 (p.13-2) Chapter 13 ARE THERE PATTERNS OF BEHAVIOR IN THE WEEKLY SWINGS OF THE MARKET? Are there habitual patterns of behavior in the weekly movements of the market? In the preceding chapter, we noted no significant tendency toward trends in the weekly movements. In this chapter we will examine the weekly behavior, in periods of two, three, four and five weeks, considering the usual mixture of upward and downward movements. First, consider a two-week pattern. There are four possibilities: UP-UP (up two weeks in a row) UPDOWN, DOWN-UP, DOWN-DOWN. How many times have these four situations occurred in the last forty years? What happened in the third week - the week following the pattern? Is there a bullish or a bearish bias in the week ahead? The answers are tabulated in Figure 13A. In the case of two rises in a row, for example, there were 707 cases in the forty year period. The market rose 420 times in the third week and declined 287 times. Unfortunately, the results for the two week pattern are not significantly different from the expected results. No bullish or bearish tags can be applied. Now - consider the three week period. There are eight possible patterns. These are in Fig. 13B. Here we find a bullish pattern in number 5: DOWN-UP-UP. If, in the last three weeks, the market has declined one week and risen two weeks, the odds favor a rise in the week ahead. In the forty year period, in a similar situation, the market rose 180 times and declined 109 times. Pattern number 4 in Fig. 13B is interesting. For an UP-DOWN-DOWN pattern, the record for the following week is UP: ll5 times; DOWN: 106 times. This appears bullish. Actually, it has a bearish tinge, because the expectation based on all patterns in all weeks, is UP: 127 and DOWN: 94. The market rose less than expected and declined more than expected.
(p.13-3) JOUR. Will. PATTIRN B 1924 - JUNE 1964 BEHAVIOR OF THE D-J INDUSTRIALS IN THE FIFTH WEEK FOUR WEEK PATTERN MOVED MOVED TOTAL PATTERN NUMBER UP DOWN OCCASIONS luiululul 134 106 240 wmIUfm 2 103 71 180 3 100 63 163 BEARISH~ 4 62 62 124 BULLISH~ 5 108 58 166 YhJ 6 66 46 112 Y 7 67 48 115 wm 8 G5 41 106 9 106 74 180 A 10 60 49 109 N II 65 49 114 12 51 4G 97 13 73 50 123 DO BEARISH 14 48 49 97 J 15 57 50 107 16 42 28 70 Totols 1207 896 2 103 % 57.4% 42.G% 100.0% Fig. isc
2-12 (p. 13-4) The four week patterns are charted in Fig. 13e. There are sixteen possibilities. Three patterns are especially interesting. Numbers 4. and 14. appear bearish, and Number 5. is bullish. Number 5. has a very impressive record. In the week following this pattern (UP-DOWN- UP- UP) the market rose 108 times and declined only 58 times.
(p. 13- 5) 'IVE Will: PATTIRNS 1924 - JUNE 1964 BEHAVIOR OF THE o-J INDUSTRIALS IN THE SIXTH WEEK FIVE WEEK PATTERN MOVED MOVED TOTAL PATTERN NUMBER UP DOWN OCCASIONS 77 57 134 2 68 38 106 my 3 66 37 103 4 40 37 77 00 BULLISH 5 67 33 100 8lJLL'SH~ 6 42 21 63 o 0 7 3B 24 62 00 o 0 0 8 37 25 62 9 55 53 lOB BEARISH~ 10 27 3 I 5B II 40 26 66 ~~ 12 20 26 46 00 13 39 2B 67 14 23 25 48 o 0 0 15 37 2B 65 16 24 17 41 17 5B 48 106 BEARI9H~ 18 35 39 74 19 35 25 60 o 0 20 24 25 49 21 40 25 65 BEARISH~ 22 23 26 49 23 27 24 51 24 29 17 46 ~~ 25 52 2\ 73 00 26 32 18 50 27 25 23 4B 2B 29 20 49 29 34 23 57 30 26 24 50 31 20 22 42 32 IB 10 28 Totals 1207 896 2103 Fig.13D " 57.4" 42.6°.4 100.0%