The Geiergraph Stock Chart Service provides the same coverage in the form of daily high-low-close charts. This service is available from:

Geiergraph The Linden Building 1955 Merrick Road Merrick, New York (11566)

Both may be requested air mail and special delivery, which puts them in your hands early on the weekend no matter where you live in the continental United States, leaving plenty of time for issue selection by Monday morning.

If these services are utilized, you will find that the task of selecting the highest probability performers for the following week from every issue on both exchanges will require Uttle more than half a day. The rewards for this nominal amount of effort make it extremely worthwhile.

Let us assume that it is Saturday evening and you have the latest copy of one or both of these two services at your desk. The initial step in the selection process we will call the "scan." With a Uttle practice you wiU be able to accomplish the scan almost as fast as you can turn pages.

You are looking for two things:

1. Issues that display dramatic visual evidence of dominant cyclicality.

2. Issues in which the general trend over the entire chart has just rounded a bottom (if you are interested In the market on the long side), or have just bent over a top (for your "short" candidates).

If a stock does not meet these two simple tests, ignore it and pass on. If it does pass the test, stop and examine the chart more closely.

Note the average volume traded. If it is less than 10,000 shares per week (or about 2,000 shares per day), better candidates are available.

Observe the approximate status of a dominant cycle on which you would Uke to trade. If either an edge- or mid-band signal seems imminent, write down the name of the stock and continue.

You will normally find that your Ust contains 80 to 140 issues by the time you finish the scan. If not, or if you desire more, relax your standards or re-scan usmg alternative scanning criteria discussed in later sections of this chapter.

MAKING USE OF SCREENING CRITERIA

TypicaUy the scanning process wiU provide you with an over-abundance of issues from which to choose. AU are reasonable candidates, but what you want are the eUte of the flock!

The following screening factors are based on information contained in the Mansfield and/or Geiergraph services so that they are available at your fingertips. You may use all or any part of these, viith or without additions from your own background. Just remember this: whether or not you make money on a trade in one of these issues

is considerably more dependent on your skill and diligence in applying the price-motion model than in the process you use for selection. Selection is of importance only insofar as it serves to improve the already high probabilities of turning a profit because of the existence (and your knowledge) of cyclicality.

SELECTING CANDIDATES FOR VOLATILITY

There are three volatility factors of interest;

1. Capitalization: the number just under the stock name in Mansfield (in thousands of shares).

2. Percentage motion: the extreme left hand scale of Mansfield- Measure with a ruler the space between several scale marks and divide into the intervening percentage amount to get "percent per inch."

3. Siort interest: the latest number in the top row of figures at the bottom of the Geiergraph chart.

Volatility is a very important concept in the optimization of profit. A stock may have an A+ rating, sell at a very low price with respect to earnings, have a high yield, show all kinds of earnings grovrth, attract considerable investor interest, and still move slowly in terms of percent per unit time. The principal factor involved is capitalization.

Capitalization is the number of shares of the company outstanding. Anything below 1,( 0,000 outstanding shares indicates the capacity for high volatility, meaning that smaU amounts of buying can create enough demand to cause a large and rapid increase in price. One to three million shares is considered to be light capitalization from the standpoint of volatility. Three to six million represents medium capitalization. Over six million shares usually requires tremendous volimie to cause reasonable percentage moves. The lower the capitalization the better, as a measure of volatility.

Capitalization, however, is not the only key to volatility. An issue with three million shares outstanding may have two million of those diares held from circulation by corporate officers or other companies for the purpose of control, etc. Such an issue is the equivalent of one with only a million shares outstanding that are all available to supply demand. Average volume also affects the volatility potential of capitalization.

But a Mansfield chart has only so much space on which to plot two years of price action. If the plotting scales chosen are such that the price action runs off the chart, the entire chart must be replotted to a new scale. For this reason a rough measure of overall volatility is provided by the number of inches (or fraction of one inch) required to plot a one-percent change. This then is the meaning of the percent per inch measurement you have taken on the percentage scale. The larger the percent per inch number, the more volatile the stock.

Short interest is a measure of the number of shares that have been sold short (by borrowing shares to sell at current prices in the hope of replacing them at a later date with shares purchased in the market at a lower price). If an issue shows a high and increasing short interest, upward price motion, once started, may tend to be extremely volatile. As prices go up, the shorts rush to buy, causing extreme demand per unit time

APPLYING STABILITY FACTORS Four stabiUty factors are available from Mansfield:

1. Rating: in the extreme lower rjt-hand corner of the chart. This is given in the form of: A, A-, B+, B, B-, etc. If none is present, use the Standard & Poor Stock Guide Rating (available from your stock broker).

2. Price earnings ratio: the number on the left in the box in the upper left-hand corner of the chart.

3. Yield: the number on the right in the same box as the price earnings ratio.

4. Earnings growth: a series of rows of numbers just below the volume base line. The one you want is marked "c" (on the left). This is the accumulated quarterly earnings for the past four quarters. Note the sequence of these from left to right to determine the earnings growth trend.

In the process of winnowing down the number of issues you are interested in analyzing, if all else is equal you might as weU have a few of these so-called fundamental factors on your side.

The rating is a composite measure of the quality of an issue. It represents the considered jiidgment of fundamentals analysts as to the stability of the earnings and dividend potential of the issue. The higher the rating, the more desirable from a stability standpoint

The price/earnings ratio is the current per share price of the stock divided by the yearly per share profits earned by the company. While not a stability factor in the same sense as rating, a low price earnings ratio makes the stock more desirable in the eyes of many investors. In assessing how low this ratio is for a given stock, the historical values of the ratio should be considered for the particular stock in question. Mansfield shows these ratios for most price turning points on the chart.

Yield is the current per share yearly dividends expressed as a percent of present per share price of the stock. A high yield signifies large dividends, low prices, or a combination of both, and adds to the desirability of the issue for the purpose of our StabiUty .

The final stabiUty factor is earnings growth. Investors tend to discoimt in advance the earnings potential of a company. That is, if the issue shows steadUy increasing earnings, investors tend to buy with the intent of seUing when the earnings are higher still, thus causing the issue to command higher prices than those paid. (This effect is to be found as part of the relatively smooth 75% of price motion caused by fundamental factors.) The more rapid the earnings growth indicated by the cumulative four-<juarter earnings numbers shown in Mansfield, the higher the stabiUty of the issue (for our purpose).

and per unit volume. A high and increasing short interest indicates high potential volatility.