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44

GENERAL DYNAMICS

On the General Dynamics weekly chart (Illustrations 7.0 & 7.1), July 23, 1982, is the first square of the low of March 12, 1982. If you look at the 45 degree angle down, or the 1X1 angle from the May 7th top, you will see that it squares the range of movement in the same week. Now, at this time, July 23rd, you can look at the chart and say that the trend is probably changing to up because price broke a triple bottom to make the low in March, and then drove up, recovering that price of the previous bottom. This is a good sign of strength. The move down, before this bottom, was 52 weeks or 12 months in length into December of 1981. Then support was shown for three months with the break and recovery of that support at 22 coming three months later in March cf 1982.

So, this stock might have a bottom coming in at this time, and in July, price squares a range and the low in weeks. Price has been moving up for seven weeks since the previous bottom, and from the bottom in March, price moved up for seven weeks, as well. Therefore, with the squares coming out, the assumption is that price will change trend for the normal correction against an up move on the weekly ha rt - th ree week s. Now, th is wou Id be something of a high risk trade because of the consideration that this stock may well be, at this time, an up move, but you could play the trade in any event.

Being against the trend, this is a high risk trade. . If you were playing options on the etock, you would want to purchase an "in the money" put in order to effectively stop yourself out with a small loss, if the trade went against you. Of course, you would go to your daily chart to look for a daily turning point within that week for a high. You would either take the trade on that day, or see if you get the reaction you were expecting and then, take the trade.

During the second week of this trade, you would have to consider where fifty percent of the range of movement, from the March low to the July high, was in price. Figure that price by subtracting the high from the low, dividing by two, and then adding it to the low price. You could use that price level to get out of the trade.

Now you have your short position and know where to get out. However, you think the stock is in an up trend becauee of the obvious bottoming action, and on the third week, price does show support at fifty percent of the range. You should be out, but this third week is, also, against ah angle coming up from the low, a 1X4 angle, which shouldnt be extremely strong support. But, time is 22 weeks from the bottom, and one week short of 90 weeks from the top, and this is a slow moving stock, at this point in time. Therefore, the slow moving angles are important. If this is going to be a good move up in stock, that support at fifty percent of the range is critical, and if it is shown, it is a good reason to consider long positions.

The second square of the low comes on the week of December





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