changed.

Going back to the chart of the Dow Jones Averages, the last low was reached on June 1, 1929 at 293 1/2, and the final grand-rush and greatest advance in the history of the stock market followed from this point. The averages advanced and reached extreme top on September 3, 1929 at a high of 386, or a gain of 92 1/2 points in 14 weeks, from which the panicky decline started.

You will note that the numbers run down to 160 during the panicky decline culminating October 29, 1929. This was 150 points down from the top of September 3rd. A sharp 2-day rally followed to October 31, with averages up to 42 points. From October 31 to November 13, 1929, the greatest decline in history occurred, carrying the averages down 180 points, as you see on the chart. Then the followed the last greatest advance of 98 points. After that, the next greatest decline (before any important rally) culminated on December 17, 1930, with the averages down 90 points.

February, 1931, was top of the last big rally, with the averages up 4o points. After that the declines began to shorten and the rallies began to come more frequently. The decline whioh culminated on May 4, 1932, was 37 points down from the last high. After that the declines run 20 to 27 points on the down side. Then, after bottom was reached on July 8, 1932, in the sharp advance which followed to September, 1932 the averages advanced 40 points before a change in trend, the same number of points as on the rally to February, 1931.

After that, no movement carried the averages up over 20 points before a change in trend and a reaction of 7 to 10 points on averages until the advance of 27 points from June 1 to September 18, 1935.

ey using a balancing chart on any individual stock, you can often get the exact point where an advanoe will culminate or a decline will stop. It is another point to confirm other indications. Very valuable if you keep it up and study it."

Another method you can use to determine when the trend is changing from a bull to bear, or visa versa, comes from analyzing the price levels of consolidations during the trend. In a bull campaign, the market or stock will drive upwarda, then rest and move sideways for a matter of weeks. If you draw horizontal lines from the first top and bottom of this oonsolidation or sideways movement, you will be able to see this situation more clearly.

If there is space between these consolidations, the stock or market is in a strong (or weak) position. If the consolidation layer directly on top of each other, an up trend is still intact. However, if price moves back into the previous consolidation zone, you can assume the trend is changing and going into a topping (or bottoming) formation, or has seen top (or bottom). Drawing these horizontal lines will, also, help you determine the different stages of a bull movement. Look at the IBM weekly

chart from August, 1982, then go over fifty other stocks weekly charts and you will understand when and hew this technique can be applied. Illustration 2.1 shows this, as well, as the final consolidation before the shows price dipping back into the level of the previous consolidation.

When you are looking for a change in trend, a loss of momentum in either an up or down move, is a good indication. In a down trend, look at the amount of time a stock is taking for price to loose a certain number of points or dollars. If it is taking a longer time to loose, lets say, five points, then support is coming into the stock, and it may be significant. The same thing is true of highs, if the stock is moving up. Loss of momentum occurs when it takes the stock a longer time to move the same number of points up, as it did in a shorter time in the past. Once again, this is significant, and is added evidence for positioning in a stock, but it is not a good setup, or applicable to timing. Computers haye facilitated this type of momentum study, to a high degree, but channel lines are all that is necessary to visually represent the changes in momentum of price movement.

Finally, in trend changes, an immediate indication of change is the outside reversal. On a daily chart, this indicates the probability of a short term change in trend, and on the weekly, an intermediate term change. On the monthly, it is an indication of a long term change in trend. An outside reversal week down, as an example, is when price trades above the high of the previous week, then reversing directions and closing below the low of that same previous week. This is a sign of extreme weakness, if price is at a high level, or has been moving up. Reverse the price action, with price trading below the low, and above the high, then closing above the high at a bottom or lower point. This is an indication of extreme strength at a low level, or if price has been moving down. Outside days, weeks, and months which a re in the same direction as the trend, and in the middle of a move in the direction of the trend, are of little use.

Although, outside reversals in price are good indications that the trend has changed, you should not trade from just that one signal. Dont put a lot of weight on just this price action. The time factors discussed in the next chapter, are the most important part of any good analysis. Illustration 2.9 shows numerous reversal days.

One good rule to use in all trading is, it is usually prudent not to trade on the third day of any move for a continuation of that move. If you have missed a bottom or top, a three day move against the trend is the normal movement. Thus, to trade on the third day of a move such as this is to make a trade which entails a fair risk, because a three day, or three week, or even a three month move, which is counter to the trend, is a normal movement in the market. If ycu position on that third time period for a continuation of that move, you may find yourself buying tops, and selling bottoms. Therefore, this simple trading filter of not entering the market on the third day of a move, can help anyones

niustratioalf

Numerous reversal dayt in T-Boods are shown on this daily chart, many arc indicated by anowt, some aieixtt. Bonds do trade in die vobtile tehion <rf commodities, and oo will not see this many irversal dayt in most stocki.

trading performance. I do not want to belabor this point, but it is very important to your trading to be aware of the three day, three week, and three month moves against a trend in force. This, along with noting the number of points and days of previous corrections, should help you develop a feel for the markets and stocks. If you look at old chart books and apply that awareness to the price movements of today (in both bull and bear trends), you will see its value.