cycle for a long time to come. On the other hand, we do not expect a low-out on this component for another 28 months, which wiH place it in the vicinity of the first quarter of 1971. The push from this cyclic model element wffl be slightly up-to sideways-over the near term.

Now glance at Figure II-2. The low of 817.61 on this chart occurred during the week ending March 22, 1968. In the text accompanying Figure II-4, this low was shown to be due to the nominal 18-month cyclic component of our model-and is the last such low before the present date of November 1,4968. Thus, we know we are 32 weeks along on tiiis component, which (as shown in Chapter Two) has been averaging 71 ±4 weeks in the near past. A top-out is expected m this cycle at approxunately 35 to 36 weeks, leaving only three to four weeks on the upside at most

Comparing Figures II-2 and II-3, we see that the latest low of the 26-week component of our model occurred at the point marked "J" in Figure -3, The Average reached a low of 863.33 at this time, the week ending 9 August 1968. We are now 12 weeks along on this cycle, which was shown in Chapter Two to have averaged 21.4+3.5 weeks in the near past. Thus we expect this component to have topped out one to two weeks ago-and to be gently on the downside by now.

Without going further we can state several conclusions regardmg our trading operations in the near future starting 1 November 1968:

• The 4.5-year cycle is only several months from a top.

• The I S-rrronth cycle is three to four wedcs from a top.

• The 26-week cycle has already topped out one to two weeks ago.

• The combination of sUght upward momentum from the 4.S-year and 38-month components should temporarily overweigh the 26-week component-but only for the next three to four weeks, after which both the 18-month and 26-week cycles will be downside, with only a flattening 4.5-year cycle to buck out.

• We expect a last near-term push to the market, followed by considerable downside activity!

• We should trade long for about a month-then switch to the shcart side of the market as our action signals develop!

• For the immediate future, were looking for buying opportunities, ftar-were going to be very cautious, keep the trades short, and be ready to reverse our stance quickly. We wiU not expect large yields per trade, since we are in the vicinity of a market top4)ut.

Here is an excellent example of the aid a minimal computational effort can provide. Since our cyclic analysis tells us we are approaching the market at a non-idsal time (conflicting action of several major cyclic components), we would like an independent evaluation of our conclusion regarding a short-term upside movement. We will apply the technique of half-span averages to give us this confirmation.

Figure VIIl-1 is an expanded weekly plot about the 21.4-week cycle low of 9 August 1968. Using a ten-week moving avera (as a close approximation to a half-span for 21.4 weeks), we see that the low of August 9 is indeed a low of the 21.4-week cycle. One-half of the half-span average span of ten weeks is five weeks. Five weeks from August 9 puts the DJIA in the neighborhood of 930. The action of the DJIA and

1015

1001

DJIA WEEKLY FIGURE

CONJUNCTION POINT-

PREOrcTION

RANGE

HALF-SPAN AVERAGE

T-I- 12

T I I I

SEPT

T-I-I-

1-(-

6 1968

1010 lOOC 990 f 980

970 960 950 940 930

910 900 890 880 870 860

Analyzins The Dow

the tenrweek moving avera since that time confinns a conjunction point, the week ending 27 September 1968, at 932. We expect the move from the low of 863 to 932 to be one-half of the total move, which should continue to total 138±14. This would take the DJIA to 1001+14, or 987 to 1015 with a target of 1001. The closing vahie on Friday, 1 November 1968, was 948.4, so we are anticipating a minimum move of 39 points to maricet top-out.

This analyas neatly confirms the conclusions derived from cyclic status-and we can feel free to continue as planned.

SELECTING THE ISSUE

Scanning the Mansfield charts of 1 November 1968, the techniques of Chapter Seven bring Screw and Bolt Corporation (New York Exchange) to our attention, among others.

This stock, after trading between 8 and 14 for 15 months, broke out to 18 in late September. As of November 1, the price has pulled back steadily for five weeks-and is now trading between 14 and 15. Pronounced cyclicality is evident in past price motion, suesting shnplified analysis requirements. The average volume is 30,000 shares per week-weU over the minimum required to assure investor interest. A quick check with a bit of scratch paper confirms imminence of an edge-band buy signaL

Dicing deeper, we find that volatility is assured by the above-average %/inch figure for the scale on the left side of the Mansfield chart Capitalization is a small 1,663,000 shares, which along with the high average volume both explains and assures continued rapid price motion.

The quality rating of and a cost-earnings ratio of 20 denote acceptable stability. Of still gj«ater interest in this regard is the earnings growth trend:

CUMULATIVE 4-QUARTER EARNINGS

2nd quarter, 1967 0.83

3rd quarter, 1967 0.66

4th quarter, 1967 0.41

1st quarter, 1968 0.43

2nd quarter, 1968 051

3rd quarter, 1968 0.72

Earnings are seen to have reversed a downtrend and established a brisk rate of growth.

This issue (along with about 20 others of similar interest) is selected by the scan for further analysis from all issues on both the New York and American Exchanges for this particular Friday-November 1, 196S.

THE NEXT STEP IS ANALYSIS

Lets follow Screw and Bolt through initial and detailed transaction timing analysis.