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 CHAPTER 1

CAN ANYONE PREDICT THE FUTURE?

Do you believe anyone can accurately predict the future?

What if we predict that the sun will set in. the west tomor-
row afternoon? That is a prediction of the future, is it not?
'What if we predict that tomorrow morning's high tide will be
followed, in about six hours, by a low tide? Such predictions
are sure to come true, for those events have always occurred
in the past. We find that certain events in our world are
extremely predictable, since they are controlled by the pre-
cise Jaws of science and nature.
What if we predict that tomorrow will be cold because
the weather map shows a cold front moving toward us? This
prediction will probably come true, but it is not a certainty.
The cold front could unexpectedly change its direction and
never reach us. The predicted event has usually happened,
hut not always. This prediction is in the realm of probabili-
ties.
'What if we predict that the stock market will go up in-
flefinitely because of increasing inflation? Such a prediction
probably will not come true. The prediction is based on the
Assumption that inflation will become the most important
factor affecting the stock market. Careful research shows
that other factors in the stock market are frequently more
important than inflation. The predicted. event has never
3
 4 CAN ANYO:'1F: PRF.J)Jr.T 1118 FUTURF.?
happened, for past history shows that hull markets have
always been followed by hear markets.
What if we predict that the world will come to an end
next month because of tlle positions of the stars? There is
practically no chance at an of this prediction coming true,
for it has never happened in the past, and them is no logical
or scientific basis for Ihe prediction. This one is certain not
to come true.
We find there are fOIlT broad olassillcatlonsIn which pre-
dictlon~~~l!Ilu!,uallybeplaced for evaluation:
1. Predictions whfch are certain to come true.
-WlleIla"lJfPdietion is hase(j~~pre~ise laws of science
and nature, and tile event has always happened in the
p:lst, the prediction is sure to come true.
2. Predictions which probably will come true.
--wl;~I;-a prmjiction is based on logic and facts, and the
event has nsuallv happened in the past, then~ is a proha-
bility that it will come true,
3. r..!~edictioJ1swhichprobably will not pome true.
When a predicted event has seldom happened in the
past, and the prediction is not based on Iacts or logical
ideas, it prohahly will not corne true.
4. Predictions which certainly will not come true.
-When a predicted event"h;s never happened in the past,
and the prediction is based all suppositions r-ontrary to
the laws of science, and nature, it certainly will not come
true.
One of the most pnl1lid'7ed predictfons in recent ye:lrs was
in newspaper articles in March, 1962: At that time many
Holy Men of India were predicting the end of the world
would come in a matter of weeks, Their prediction was based
on the positions of the stars and planets. Many people in
India, and some people in other countries aetna Ily believed
CAN ANYONE PREDICT THJ<~ FUTIIRE? 5
the prediction. The Holy Men were greatly respected, and
they were unanimous in their prediction.
As the day of reckoning approached, thousands of people
were saying their last prayers on the shores of the Ganges
River. When the world failed to end, many people in India
said they had not helieved the prediction, but it did not hurt
to say a few prayers anyway.
When we stop to analyze that prediction, we find it was
not based on facts (unless you believe in astrology). lbe pre~
diction was based on false assumptions contrary to the natu-
ral laws of science, and the event had never happened
before. So that prediction was certain of failure.
Some predictions have great practical value. A sales man-
ager can freguently make an accurate prediction that a cer-
tain percentage of contacts made by his salesmen will result
in actual sales. Why? Because it has usually happened that
way in the past, and the salesmen consistently use methods
which have worked in the past.
Insurance companies can predict that drivers under the
age of 25 will have more accidents than drivers over 25.
Why? Because it has usually happened that way in the past,
and it is a fact that young drivers have a tendency to take
more chances than older drivers.
We can safely predict that the stock market will continue
to fluctuate, with every hull market followed by a hear mar-
ket. and every bear market followed by a hull market. Such
a prediction seems probable because it has always hap-
pened that way in the past. It seems logical to believe that
the large groups of people, who cause market fluctuations
with their huying and sP1]jng, will continue to experience
altemgting periods of excessive optimism and excessive pes-
simism.
Sometimes the facts on which predictions are based, are
not widely known. Such predictions can give the impression
 6 CA N ANYONF: PIIF.OlCT THE FUT"lJm:?
that the person involved might have extra-sensory abilities.
Let me tell yOIl the true slor)' of how I predicted fonr high
speed tire Failures in Four different automolnles.
The first time was in 1950 when I was a pnssenger in a car
being driven hy a y(·ung Indy in California. We were driving
along the twisting roads, way IIp in the brush-covered hills
above the Rose Howl in Pasadena. We were traveling about
50 miles per hom when r ,kteded a signal which enahled me
to predict that a tire WOld" blow out in a few seconds.
I shouted, "Slow down] Something is wrong with a tire."
My friend ohediently applied the brakes, and we had
slowed to about 20 miles per hour when the right front tire
blew out with a hang. "VI' were going so slnwly that the car
stopped safely without difflenlty.
My friend was amazed that I had predicff'd the hlow-out
before it happened. I tried to tell her there was a logical ex-
planation, but she insisted that I was olairvoyant-sthat J bumping sound was caused by the knob which swells up on
could sense thill~S heyond the normal ran~e of most people.
So who was I to argue with the young lady?
The second time was about a year later, again ill Califor-
nia. That time r was driving alone over the Cajon Pass, head-
ing for the (lesert country, I was cruising about 60 miles per
hour when I ddected the same signaL Agflin I predicted a
blow-out within a few seconds. I applied the brakes and
hrol1ght the car to an easy stop, but then~ wns no blow-out,
J got out and walked around the car, looking at the tires,
hut I could see nothing wrong; When I got down on my
hands and knees to look under the car, I saw where the trou-
hIe was.
H was the right rear tire. On the inside sidewall, there was
a knob thec;i7,p. of a baseball where the tire cords had
stretched and broke» to the point where a blow-out was only
a matter of a few seconds driving time. T immediately let
most of the air ant of the tire to prevent a blow-out while
CAN ANYONE PREDICT THE FUTURE? 7
I changed tires. In a few minutes the spare was on, and I
went safely on my way.
The third time was in Texas. Again I was driving alone,
heading for Florida. While cmising through the prairie land
at about 5.5 miles per hour I detected that ominous signal
again. I slowed down immediately, but I could not stop be-
cause I was going through an underpass. I crept lip the in-
cline, out of that underpass at only 20 miles per hom. The
car was about 200 feet from a place where it was possible to
get off the highway when the right rear tire blew out with a
bang. Again the slow speed at blow-out time prevented a
dangerous situation.
What was the signal that warned of an impending blow-
out? It was a high speed humping sound, coming from the
tire. The sound was not very loud, and could easily be
missed if one were talking or listening to the radio. The
the tire as the cords weaken and break inside tile tire. Most
people think a blow-out is always an instantaneous break in
a weakened tire, but frequently it takes several minutes for
the weak spot to deteriorate to the point of complete failure.
If you find it difficult to believe that tire blow-outs can be
predicted, ask a racing driver about it.
TIle fourth time was early in 1957 The location is better
e •
left unmentioned because of the speed involved. Lwas.driv-
ing a 1956 Thunderbird convertible way out in the country,
with a young lady seated beside me. It was a beautiful spring
morning, and the Toad was straight and level, Since it was
not a main highway, there was practically no other traffic.
r asked the young lady if she was willing, and she said
"Yes." So I stepped on the gas, and started the terminal
velocity run, We were going to find out how fast that Thun-
derhird could fly.
Pretty soon the telephone poles were going hy mighty fast.
 8 CAN ANYONF. PREmcr THE FUTUJm?
TIle speedometer neeelle touched 100, J J 0, J 20, and that was
the limit. We were a little disappointed, for we had expected
more from the T-Bird.
We stayed at top speed for only a few minutes, and then
started to slow down gradually. ' '1 p lind slowed down to
about 100 miles per hour when we heard a noise like a piece
of gravel being thrown against a fender. That was nothing
to get too upset about, hut I put hoth hands on the steering
wheel anyway.
Then, a seconc1l:tter, I noticed the signal. But this time it
'W~S a different signal. T smelled air escaping from a tire.
I did not know exactly what was wrong with the tire, hilt
I had to make the unpleasant prediction that one of our tires
would have no air left in it in just a few seconds. I had 110
time to wonder how the odor could get inside the car at 100
miles perhour. T knew that am lives depended on getting
that T-Bird slowed down Iwfore all tl]f~ air escaped from
the failing tire.
I took a really tight Wip on the steering wheel. deter-
mined not In let it get away from me. Then a gentle touch of
my foot on the rower hrakes, T watched the speedometer
needle slide down to f:l0, 80, 70. At 60 miles per hom the
air was completely gone, and we started houncing. 111en
even [ess rH~S.mre on the power brakes.
I could tell hy the hnnnoe that it was the left rear tire. I
was able to control the car, and we did nnt leave the road
until we had slowed down enough to pul] off on the shoulder
and stop.
An examination of the tire showed a hole right in tllf~hot-
tom of the tread wlwre a large nail had I)('en thrown (Jut of
the tire hy centrifugal force. The heat and high pressure
enlarged the hole to the point where air bel escaped rapidly.
The sound we had heard was the nail striking the fender.
CAN ANYONE PREDICT THE FUTIJRE? 9
Sometimes I wonder what would have happened that day
if I had not smelled the air escaping from that tire.
If you have not worked with tires, you may not know what
tire air smells like. In that case, let some air out of a tire.
You will notice a characteristic rubbery odor which is dif-
ficult to forget.
In addition to m), four predicted tire failures, I have ex-
perienced three blow-outs which I was unable to predict.
Once I stopped to examine my tires when the bumping noise
was just caused hy a series of peculiar bumps in the road. So
we can see that tire failure predictions are not certainties,
but are in the realm of probabilities.
WJ1en I thought about how I had been able. to predict
something as difficult to detect as an impending tire blow-
out, I started wondering why I should not try to learn how
to predict the course of the stock market. Had I not learned
how to predict not just one, but a series of tire failures? It
was the kind of prediction which many people would think
impossihle.
Why not analyze what it takes to make a correct predic-
tion and apply that analysis to the stock market? Could I
discover some facts about the market which were not gen-
erally known and nse those facts to accurately predict the
course of the stock market?
It would he nice to he able to predict the action of the
stock market with certainty, but that could not be possible,
for the stock market is not govemed by precise laws of sci-
ence and nature. The exact laws of science control chemical
reactions, gravity, and various basic physical phenomena in
our world.
The stock marketis not in the realm of pure science, for it
is an artificial phenomenon created by man, and govemed
by rules estahlished hv man. Stock market fluctuations are
caused by human actions resulting from human psychological

forces. Therefore, stock market predictions would have to be
in the range of probabilities or improbabilities, like weather
predictions.
In southern Florida, where I spend the winters, people
who have a knowledge of wind and weather patterns find it
quite easy to accurately predict the weather. In that area,
the changing winds usually shift around in a clockwise di-
rection. Each change of wind has a different meaning. The
prevailing \vind blows from the southeast and sOl1th, bringing
warm, pleasant weather.
When the wind changes and blows from the west, there
will he an increase in humidity with a strong chance of rain.
A west wind also usually means that a cold front is approach-
ing from the nnrt.rwest. '''hen the wind changes to north-
west, the cold front is upon us. Then the wind makes its next
clockwise shift to the north, and the cold, dry weather con-
tinues as long as the north wind prevails. ~en the wind
swings northeastward, we know the cold wave is ending, as
the weather system moves ant to sea, away from the main-
land.
TIle northeast wind hrings us slightly warmer, moist air
from the ocean. The northeaster frequently gets pretty rough,
and may blow for several days before swinging ar0110d to the
east. The east wind nsnally lasts only one day, then moves
to the southeast, and brings back the normal plensant
weather. The weather ff'mains pleasant until the next cold
front approaches, and the same pattern is ff~peate(l.
A knowledge of such wf'ather patterns and the significance
of wind dirf'ction is valuable to people who are strongly af-
fected hy the weather. One time I wan led to bring a sailing
yacht fr~m Nassau to Florida, hut a strong north wind was
blowing. I knew the 180 mile cruise would be mighty un-
pleasant, beattng into a north wind. I predicted that the
wind would swing arouml to the nortl1f'ast in two or three
days, and I decided to wait for that prediction to come true.
Sure enough, the dawning of the third day found me
powering out of Nassau Harbor. The sun rose as I cleared
the harbor entrance. Then the sails unfolded like the white
wings of a great bird and filled with a brisk northeast wind.
That turned out to be a wonderfully pleasant trip with fast
smooth sailing on a broad reach-all because of my successful
weather prediction.
Another t.ime I was leaving Miami with the same sailing
yacht, headmg for the island of Bimini, in the Bahamas. It
w~s early in the morning before sunrise, and still pitch dark.
I like to get an early start when heading for the islands, so
~he tri~ky approac.h to Bimini or Cat Cay can be navigated
m daylight. TIle tnp can take ten hours or more in a sailboat.
As I powered out the Miami inlet, I expected to find the
ocean fairly pleasant. for the previous day had been dead
calm. I was surprised to find a northeast wind starting to
freshen up, and the seas were running higher .than normal.
Then the stars disappeared behind heavy clouds. My crew
and I wanted to visit the islands, but as captain, I had to
~ake the prediction that a northeast storm might be raging
m a few hours.
On an ocean trip in a small boat, or in a stock market ven-
ture, I prefer to have the odds in my favor. So we turned
back to Miami. .. ';
It was still dark when we dropped our anchor in Miami
Harbor, and we went back to sleep. Several hours later,
when we awoke, it was raining and windy. The weather con-
tinued getting worse, until a real storm washlowing. There
was thunder, lightning, driving rain and winds over 40 knots.
We were mighty happy that we had turned back.
Later in the day we heard that two small boats had sunk
in the ocean, and two large ships had been driven aground
by the high winds. That turned out to be the worst north-
 12 CAN ANYONE PREDICT THE FlTTUTIE?
easter I had ever seen in Florida. The storm actuallv lasted
for Eve days. We could not get out in the ocean ag~in until
the sixth day.
These two boating incidents help to illustrate the altitudes
which might be developed hy an investor. ,i\'}len conditions
are not favorable, one should he patient enough to wait for
the right time to start on a venture. When the wind is right,
one should weigh anchor in confidence and raise all his sails
to take full advantage of the Favorable wind and current.
One should realize that Favorable conditions do not last
forever at sea, or in the stock market. So one should try to
make as much progress as possible when tho wind is hlowing
in the right direction.
The intelligent investor should also be willing to retreat
when danger threatens. He should realize the folly of at-
tempting to continue into an overwholming storm with all
sails set. Many investors completely disregard nil the warning
Signals and sail on blindly to their Ilnancial dcstrnction.
Knowledge is the key to rapid progress anr] safety. Even
if one is willing to he patient and heed warnings, he can not
do so without the knmvledge llf'edecl to understand the
situation and recognize the dnnger signals. One must study
all the aspects of An expeC'led venture to acquire the neces-
sary knowledge. One should possess enough knowledge to
make some accurate predictions of what will probahly hap-
pen in the near future.
I thought it might be profitable if I cOllld learn to predict
the stock market as well as T could predict the weather. The
basic elements of prediction could not be too different. I
reasoned, that to make prcdiotions with a strong prohahility
of coming true, one must have a thorough knowledge of the
subject, based on personal study and observation.
One must learn which are really facts and which are false
assumptions. One must he ahle to tell what is logical and
CAN ANYON.E J'RET>ICT TIlE FUTURE? 13
what is not. One must discover what patterns usually cause
certain actions. One must he perceptive enough to detect
signals which indicate that a change is starting to take place.
To successfully predict the future, one must know and un-
derstand what has happened in the past, and what is hap-
pening at present. Is not the future just a continuation of the
past and the present?
It is my helief that when a certain action bas consistently
been followed by a specific reaction, there is a probability
that the SAmerelationship between that action and reaction
will continue in the Intnre.
Predicting stock market fluctuations is much more difficult
than predicting the weather, for a great deal of false infor-
mation is circulated about the stock market. One could think
of the stock market as a hig game, with millions of players
bllying and sf'lJing stocks between themselves.
It is not a simple game, for many of us may be playing
only for small stakes, while some of our opponcnts are play-
ing for millions of dollars. Many of our crafty opponents are
highly experienced and intelligent, as they must be, if they
have become consistent winners.
Like the game of poker-the stock market game can he
pretty rough. Some of the players are not absolutely honest,
and will do things which would he called cheatiu'g in any
gmm~. A few of thAm are occasionally kicked out of the game,
::lnrlmay even end up in prison.
Some of the players will try to hluff you and provide you
with misleading ideas and information in their attempts to
win. One should expect such tactics in any game where the
stakes are high. '111e successful player must learn to cope
with the misleading tactics of his opponents.
The stock market, like poker, is a game of skill and luck.
an
If )'ou helieve it is luck, you can not become a consistent
winner. TIle successful player must follow a skillful strategy
14 CAN ANYONF. PHEnrr:T THE FlmmF.?

ba~ed on a knowledge of facts. Like other gmne<;,there must

be losers. The problem is to learn how to he one of the win-
ners. CHAPTER 2,
If you do not learn how to win, you will he playing only
to provide profits for the more skillful player~. No ~attf'r HOW IT STARTED
how inexperienced one might he, the other players WIll he
happy to have him in the game, for expert players could not
take much profit from a game in which all the players were
equally skillful.
My first few years in the stock market were not very profit-
ahle. The best that can be said about that period is that I
obtained valuable experience. During my· early days in the
market, I knew the basic rules, but I had not developed a
definite operating program. I was like a poker player who
was in the game with a knowledge of the rules, but no plan
of strategy to outwit the opponents.
In those early days I was like the majority of inveslors-
just trying to use my savings to make some money. I bought
stocks when they looked like they would go up. If they went
op, I took some profits. If they did not go up, I either sold
them in fear when they declined, or in impatience when they
just stagnated.
Sometimes I bought or sold as a result of the advice which
was offered from so many sources. There was so much con-
flicting advice that I was frequently confused and hesitant
about how to proceed. T experienced small profits and large
profits, as well as small losses and large losses. At various
times I owned just about every kind ofstockincIuding blue
chips, growth stocks and some that were just plain stinkers.
My adventures in the commodity market were more spec-
taoular, but not especially profitable. At various times I was
long or short in wheat, corn, oats, rye, soybeans, lard, cotton,
cocoa, eggs, flaxseed and wool tops. Back around 1950 I was
15

HOW TT ST ATUEll
long in wool tops and enjoyed some thrilling clays when they
went up the limit for five or six days in succession. One time
I had so much oats if wonld have taken a smnll freight traln
to transport the actlHtl grain if T had wanted to accept de-
livery of it.
I was just like the average investor, except maybe for one
slight difference-my determination to learn ahout the stock
market. I though! I had a good chance for success becanse of
my previous hackgro1\THl and experience.
When I was a youngster, mv mother, my hrother, and I
lived in a small town in Cnlifomia. We were not too well off
financiallY, and there were times when we were on the re-
ceiving e;ld of those bnskets of food which were passed out
to needv families at Christmas time. When my older hrother
graduated from school, he joined the U. S. Air' Force and was
sent to Hawaii. He sent home all the monev he conld to help
us out.
When T grndnate(l from high school at the age of seven-
teen, I went to work immediately with an oil prodncing com-
pany, doing ncconnting and clerical work. My interest in
mathematics was put to good lise, for I spent many hours at
the calculating machine, nmking out payrolls and monthly
financial statf'lTIf'nts. It was a lot of responsibility for a seven-
teen year old hoy.
I was still seventeen when my mother, my brother and I
pooled om mpager savings to Imy a little old c1i1apiclated
house in that small town. My mother and T fixed IIp that
bouse, with 11lP (loinft, the heavy work. of conrse. Vie sold it
for a good proRt when I "vas eift,hteen.
Then I really tool~ over as manager of our little real estate
operation. WP. honght ::l11othPf[rouse and sold it at a profit.
Then another. and another.
When I was nineteen, there was a fime when I honght
HOW TT STARTED 17
tlm~e houses in two weeks. Several of the houses were rented,
and J became a landlord at nineteen. I worked at a full time
job dming the days, and I worked on the houses at night
and on my days off, painting and repairing. It was hard work,
hut profitahle,
There was only one hank in our little town, and that is
where all the escrows and financial details were handled. I
could tell that the bank manager was amazed to see a boy
of nineteen buying and selling houses like an old pro, ar-
ranging complicated deals and refinancings, and borrowing
large amounts of money.
At the age of twenty-fom I was a building contractor. At
twenty-five I was president of a small corporation. I was the
manager, but my mother and brother were always partners
who would help out as much as possible.
With such a background, I regarded the stock market as a
personal challenge. I figured that if I studied hard enough,
I should learn how to be successful in the market.
I studied the stock market with detemlination, buying all
sorts of charts and books, and trying many advisory services.
My study program even included high priced lecture courses
on the market. There were so many different ideas about the
stock market that it was quite an effort to determine which
were really facts, and which were false assumptions.
When I realized there were so many conflicting ideas
about the stock market, I decided to approach my study of
the market from a slightly different angle. I decided to adopt
the methods used by a scientist when he tries to solve a prob-
lem in physics.
I would use deductive reasoning, cause and effect studies,
research, experiments and mathematics. I would cast aside
false nssurnptions and believe only what I could prove to be
true. I would draw inferences only from my own observa-
 HOW IT STARTED 19
HOW IT STARTED
Of course there were times when I WIlSso busy that all
tions, rather tll!ln mnko deductions from accepted premises. thoughts were concentmted on keeping the boat afloat for
In short, I determiTwd to study the market as a scif1ntist in- another few hours. However, when the storms had cleared
stead of an economist. there was plenty of time for basic thinking while runninz
Using the srientific approach, I gradunlly pieced together long compass courses on lonely night watches. g
various facts nnd hits of information to develop an under-
standing of how and why the stock market travels along in
its complex movement. J kept accurate records of what I
leamed and the ideas I developed, weldin~ everything of
real value into the complete theory which is presented in this
hook.
Some of tllA charts in this hook are reprod11dions of those
which I madp n long time ago, and then studied for years.
The charts have traveled many thousan(ls of miles with me,
so I could study the market wherever I went. The chnrts and
other study material were with me even when I lived on
boats and traveled far from civilization. Mv studies con-
tinued even when T cruised all over thp Great J .nkes, and
when I live(l on sniling yachts in the United States, 1'.1exico
and the TIahama Tslnnds.
I found that my understanding of the stock market in-
creased as my distance increased from the chattering ticker
tapes, rumors, advice and opinions.
Far ont at sell, I was in a different \""arld. a world of basic
physical phenomena. There was nothing but the sea. the sky,
the wind and my small hoat. 'rhere was time to think about
basic ideas.
It was not unusual for me to get ideM about the stock
market at sea. In fact, my best ideas seemed to arrive when
I was sailing out where the water was a thollsand fathoms
deep, with no land in sight. Out where the friendly por-
poises play is where I felt close to the [rnsic facts of life. In
the wilderness of the sea I felt close to the comprehension of
truths normally bflyond perCf'ption.

CHAPTER 3 . When an up trend continues for about a year or more, it
BULL ~flARKETS AND nEAH MAHKETS
I leampd that people invpst in the stock market for many
differpnt n~:lsons. Some peop1p are interpsted only in divi-
dond income, while others care only for capital gains. Still
others buy stocks [IS protection against inflation. There are
reopl(' who want stocks to give thpir children as an inhprit-
ance, and there are some who are trying to make a fortune.
There are hanks, corpnmt i011S,nniversiti('s, mntnal funds and
retirement fnn(ls-all in the market for their own reasons.
All these diITerent ppop1e and institutions are representf"d
by hrokers at the stock exchanges where many well known
stocks are hought and sold. The stock exchange works like
a contin11ons anction where the hrokers 1111van(l sell stocks
according to the instfllctions of their c\ipllls "frOlnall over the
world. If there are more 1111yorders, tlw price of stocks will
he hid upward, as 1111yerscompetc for the stocks. Jf there
are more sell orders, prices will go down. It is as simple as
that.
No matter who buvs or sells, or for "vhat l"f'aSOllS,prices
are dp,termined hv th~ aetn:l1 forces of hnying and selling on
the floor of the -'exchange, in accordance with the Jaw of
supply and demand. The resulting price changes are a con-
sensus of all the knowledge', opinions and hopes of all. who
buy and sell stocks, regardless of their pnrpose.
As a gpnpra1 rule, prices do not fluctuate aimlessly. There
20
RlILL MARKF.TS AND BEAR MARKETS 21
is 1Jsually a tendency for price changes to move in trends
which may go up or down, and sometimes sideways. When a
stock market trend becomes well established, the~e is a defi-
nite tendency for that trend to continue for some time.
.IS frequently called a bull market. V/hen a down trend as-
sumes major proportions, it is caned a hear market.
My research has shown that bull markets have lasted
from one to seven years. Bear markets have lasted as long as
five yea:s. I have found it extremely important to classify
all prevIOUS stock market action, dividing that action into
hull markets and bear markets. Since butt" markets and hear
markets have such completely different characteristics, it is
hetter to think of them separately.
THE BULL MARKET
When an up trend first starts from the bottom of a hear
market, it is dill1eu]t to tell whether it will turn into a bull
market, or if it is just a hig rally in a continuing bear market.
. ''''hen an up trend first starts, it must gain enough tech-
nicnl strength to pass a certain point. When that point is
passed successfully is when a bull market starts. Then the
~nternal strength of the market will attract important buy-
1Il? by t?e big money interests. The large volume and risiI;g
pnces WIll attract more buyers who are anxious to get in near
the sta:t. Thus, .tl~e.bull market is under way.
Dmmg that initial phase of a hull market, soon after it
passes that crucial point, is when the largest volume of a
hu.lI m~rket USIWlIy occurs. That is also when the up trend of
!mces IS strongest and smoothest. During that rapid advanc-
mg stage, the reactions are usually small.
The smooth, powerful first phase of a hull. market usually
ends when a large reaction occurs. That reaction may last
 22 RULL MATIKETS AND REIIR MARKETS nULL MAHKRTS AN]) BEAn MARKETS 23
two or tllr~e months. Then tliPre are more large ralli('~ ;11)(1 any more margin money, so their margined stock must be
reactions, as a top is heing formed. At thaI ~tage is when the sold at the market to protecl the lender.
hig profcssioual operators are selling their stocks to the pub- When stock market crashes occur, millions of people lose
He. billions of dollnrs, and Jose it much faster than they made it.
When the market makes its highest Iinnl top, the volume Then is when the brokers' board rooms are filled with people
is lower than previously, and the tf'dlllkfll strength is less wnlching prices decline and their savings go down the drain.
than it WIlS hefor«. That is when optimism is fit its height. TIHlt is when the typical investor sits there worrying, de-
Business is usually good at that time, and the [uture looks veloping ulcers and JlOping his heart will not attack him.
bright. There is frequently talk about a new era of penna- A hear market finally reaches bottom when everybody who
nent prosperity at that stage of the market cycle. could be frightened into seWng has sold out. About the only
ones left in the stock market are those who absolutely will
not sell on declining prices.
TIlE BEAR MARKET A hear market is one of the greatest hazards faced by
investors. Rapidly dropping bear markets have changed
When a down trend starts from some high point in 11 hnl]
millionaires into paupers in jnst a few weeks. There is no
market, there is sometimes no evidence that it is not just an-
telling how much dnmagc has been done to the physical and
other reaction in the bul] market until it passes a certain
mental health of investors by major market declines. Some
point. At that pt,int is where teclmical weakness hecomesim-
men have even committed suicide because of stock market
pressive enough to attract brge scale selling. There may be
crashes.
another rally or two after that point is reached. There may The stock market can he as cmel as the sea. One must re-
even be a new high registf'red hy the Dow-Jones Industrial spcct its power and navigate cautiously, There are times
Average. Such an unusual event has happened several times wl1(>n retreat is tIle ')(~st strategy.
in the past.
A good friend of mine S::lysthe big operators purposely
push -the DJTA 111' to a new high, at that point, in order to
fool the stickers.
''''hen a hear market really gets moving. it is an awesome
thing to hehold. Prices drop with frightening speed and
larg~ volume. The selling pressure f)11ildsnp until it feeds
on itself. As prices decline, stop loss orders are touched off
and become market orders to sell at the bost price avail ahle,
These frequently set off chain reactions of stop loss selling.
When the market declines rapidly, margin calls are sent
out to many people. Most of them will not, or can not, put IIp

CHAPTER 4 -.
VOLUME
When T speak of volume, T mean tIl(' total ''''eekly volume
of all stocks traderl on the New York Stock Exchange. All of
the statistkal data used in this book is 11nsed on the trading
activity of the NYSE, for it is the largest aud most important
stock exchange in tlw world,
Weekly volume is used hpca11Se it is more important than
daily or ~H)Tlthly volume in analyzing the movements of ~he
stock market. I consider weekly figures to he the most 1111-
portant in stock market annlysi~. No <hily .fignrps of flny kind
are used in this bOOK,as the dmly fluctuatlOllS of volume and
pricps tenrl to confuse the majority of investor-so
" A person can not oorrectlv visualize the size and shap,e
of a forest if he is ton closelv surroU!1rlp!l hy tlIP trees. It IS
the same in the stocK market. To 111H1C'rstalldtIl(' rr-al s<'Ope
and movement of thp market, one sho111d110tplace too much
importanC'P on the rlaily flnetl1ations.
Volume Indicates, in a gpnpntl way, the amount of s11pply
and c1emnnrl for stocks. \\Then the stocK market gops l1p on
heavy V0111111e, rhe rlcm:lnrl for slocks is much grcatPf thf1n
the s"upply. \Vhen the market gops clown on heavy VOll1111P,
the sl1pplv of storks is mnoh grpater th:111tIl<' r1~m"~l(l..
Mv stlHlips sho\>" thnt volume and price nction 111(}Jcates
mar1~et strength or weakness in the [ollnwing manner:
24
VOLUME
Stock market stmngth is indicated;
1. When the market g(~e~-~;p-<;l~heavy volume;
2. When prices decline on low volume.
Stock
----._.. market weakness-. is indicated' ~
-----._".~.~---'
.~,~.-.,._-..•..
1. When prices decline on heavy volume;
2. When the market goes up on light volume.
A study of long term volume charts shows that volume is
usually low when a bear market is in the process of making
a bottom, When a bull market starts, volume increases. The
volume builds up rapidly dnring the strong upward surge of
the early stage of a hull market. When the strong early surge
of the hull market is passed, the market continues upward
with decreased volume. At the peak of the bull market,
volume has usually decreased even more, thus indicating
that the big demand for stocks has been largely satisfied.
At that time, right near the top, the market is just coasting
upward on its momentum, like a rocket which has exhausted
its fuel. The rocket can continue climbing upward for quite
a distance without fuel, because of the powerful initial thrust.
But when the momentum is overcome by the pull of gravity,
the rocket must change its course and start downward-un-
less it turns out to he a multi-stage rocket. Sometimes, after
coasting for a while, a rocket ignites a sec-ond fuel charge
and thrusts strongly upward again.
The stock market, like a rocket, can only coast so far with-
out the thrust provided hy large volume, If that thrust is not
provided, the market will usually turn down. Yglug~SheI~
show that constil]gaction, wgll_!!l!:""ll~ark~~t_g?i!!K"!~P_~~~~.J!~-
crc~t~~~volume., !!~s:lPEe.~r-~d at every buIl_~~~Eket._~~p'"_~_~r-
i!~gthe last t~ve.l~!y=t\\:£..Y~llE~~
A study of the charts shows that there have been several
times when a hu 11 market turned out to be a multi-stage affair
after it had coasted for a while on decreased volume. At those
26 V01,1IME
N---'.--- _ - -t"""lC'll)r--t--~IO'" on .. . ~ .., 0
''"" 2 ~:'.l2 :! s '"'0
~-
times, a !"enf'wed incr8ase in volnme sent 'he market climh- 1
N
ing upward again, without the l1npleasant interrl1ption of a '"m
bear market. Sucl: rpnewals of strength and volume occurred
.~
,. ..
'. --
in d944-45, ;md again in 1854.1)5. I,

The hull market which laslpfl from Hl-19., to ]946 was a '"
m 5 ,
two-st:1ge hull markd which rpnewpd its strength nnrl vigor - -
I
- ---"- - - -
after coasting on low volume during the last pmt of 194:3- 0
~ - ,
The hull market which lnstrxl from 19,m to ]956 W:1Snlso
-
~
a two-stage bull market whkh came \'('ry dose to a major -- -- ~-
11 -
Interrnptlon in 195:3. Many analysts still S:1)'the dpcline in ~ 0 ~ ••
w •••
I
; ~~ l/>-~ x'"
:l~
1953 was a hahy 1)(':11'market. 'f. ..lot
0,,-
- - _ ...~
The hull market of ]958·59 was only a single stage affair, -
.
- >0
~ ..
and the hull market of 19(H was also a single stage adval1ce.
When lwar markets have started in the past, volmne was
e
e• ~ i-
,
.~~
4J
"z
..,0
J:

- .- -, -'1-' -
heavier on the declines nml lighter on thf' rallies. \Vlwn the
crash phase of a hear market flfweloped, volume increased
tremendously on t he rapid dr-cline, indicating panic selling.
r-
; ;;
;
..
1./
~
- ~
;-
. •

.i1
N

Panics [rave occllrred in thp past when people became so .2 -~ ~\

e l1) - .$
frightened of the possibility of losing all thr.ir money, that • - 00·- III
.
!
- -<0
they were willing to sf'11ant }It almost any price---jllst to get . __ rr __ . .: 0
a::
..-
..J
til
out of the declining mnrket. :J
My study of volume has left me with Ilw concll1sion that it "
~
I 13 f~
--
~
:(
a:: -
is an important genernl nlf'asnrement of sllpply and demand .- =. !_. -

and of market strength or weakness, hnt volume alone r-an

\:J l-i '11

not he used as a prcci~c timing device. Sometimes when the

••
?
~ .;
1i
;. " i>ll

<",1,
o
t-
.. -- _. _.
market coasts upward, after a long rise, the decreased vol- - -- it'
!O';'i ~
~ O~!: ~
ume will indirflle a top. At other times it will turn nn! 10 11e
a 1111111i-stage hull market W!Ji0h starts l1p flgain, for another
m
· I
~2!1 ~
~
8
o-~
-! 1 ,
-- -
I~ - ;i1
"-
)
'em- or two, after coastin\! for n while on light volume.
" ( .. ,

The most impn-11nt ohsf'rvfltion gairH'fl from my sllldy of

-
~. i
UJ r
•• >

Ii
i'
~"-'l >~
I

.
N

volume was that the top of every hllll market, during the
~
I Jl-
.,To £'
.'

~~ '"
~~ :;~-•• •• 3
0
~~ £
1'l,s,t..'wenty-two years, has been accompanied by lower vol- ~f-!!t!~~: ~g~~~~:~
i~~~~§~~~~g~~~~ I

ume than occurred earlier during that bull market. vVhen

'one stops to think nhout it, such action seems completely
 VOLUME 29
logicnl. It wnnlr] seem that a bull market could not end as
long as the volume increased along with the rising prices,
because that would indicate a continuously increasing de-
mand for stocks.
The Jaw of suppl), and demand states that prices must rise
when ths demand exceeds the supply. Therefore, before the
bull markst can end, demand must gradually ease off to the
point where it is exceeded by supply. Such a gradual easing
of demand is indicated by declining volume as prices con-
tinue to rise.

AnQ!he~._90nc.l~ls.i2.~ ..L~~!'l9!!~slwa~.lhat.1J~a.r markets are

~t usually st~r.t~g..~Y'_s..!:l_qde!!l_1!..~~~Rected_qy.£.nt~uc!~~
~.ars., disasters.j, IJre.s!cl!;nt~J!~gtr..tatt;!ckWl!:. e~~gj:1LtU!llilJJ!
of a President. The evidence indicates that bull markets are
only tempornrily interrupted by such unexpected shocks.
Then, after a sharp reaction, the bull market again continues
its upward climb until the power of its thrust has been lost.
Only then can a hear market begin.
The majority of people seem unablsm understand that the
stock mnrket cycle is not really governed by news items and
business conditions. The life of a bull market is c1etCI111inecl
by its own infernal condition and the balance of supply and
demand for 8tncks. Many people, quite understandably, arc
misled to the point of complete confusion by daily price
fluctuations, conflicting opinions, rumors and misinformation.
I suspect that part of the confusion may be caused pur-
posely by SOme of the high stake players who have been in
the game for a long time and want to keep on winning. They
have a definite advantage if their opponents are hindered by
confusion, fear and ignorance.
In the era hdore the Securities and Exchange Commission
became active, profeSSional stock pool operators actually
hired rumor spreaders to frequent the board rooms to pass
 VOLUME 31
out tips and spread propaganda about the stocks being ma-
nipulated by the pools. In those days the big bad boys used
Jl'MAMJJASONDJFMAMJJASONlJJFM everytIling but guns to separate the suckers from their
660
money.
680
There are stiJl some skunks in the woodpile, trying to
660 660
ambush you-so take care.
6Lo

620 DOW-.I!l11FS
, TIle most aCClIrflteway I found to evaluate the trend of
INWSnm.1 AVERAGE . 600 [,weekly volume was to use a six week moving average of
600
'weekly volume. The moving average eliminates the more
580 . 580 :~rratic fluctuations, and smooths out the weekly volume
560
'changes into a fluently moving line. The moving line clearly
560
'Shows when weekly volume decreases as the market moves
upward. .
Presented here is 11 chart showing the action of the Dow-
Jones Industrial Average, and the six week moving average
of volume during tJle bull market of 1958-59. The first thing
!l80 . to understand on this chart, is when the top of the bull mar-
ket occurred. The DJIA reached its highest point of the bull
market in the first week of January,' 1960. But that was not
15 the top of the hull market.
The majority of investors think the DJIA is a true indicator
WF:lIKLY VOLUME
::lIT \'IF,FJ( MOVINn AVlffiAGE
of stock market trends. hut there are times when it is not an
flCCllmteindicator, and one of those times was in january,
10 10 H160. That was a false move of the DJIA.
If yOllwill examine charts of the New York Times Average.
19"8 19')9 1960 the Herald Trihnne Average, Standard & POOl'SAverage and
J F II A II J J A SON D J F II A II J ,7 A SON D J F II
Moody's Average. you will Iind all of them SllOWAugust.
19.59 as the highest point in the bull market. Why did the
DJTA make the false move to a new high in January, 1960?
I can think of only two possihle reasons:

1. Investors were more anxious to buy the thirty stocks in

30
32 VOf,tJJ\fE

the DJT A than tho stocks in any of the nrher market

averages
2. The DJTA was puslwd up to a new higll hy hig operators
in order to fool the puhlic into thinking that the bull
market was still going strong.
I have no evidence on which to base a choice between the
two reasons, so I will just have to continl1c wondering about
it.
The chart clearly shows the strong, smooth rise of the
DJIA during the early part of the bl111markf'!, as it 'was
pushed upward by the powerful thrust of increasing volume.
Then, in emly 1959, the market continuf'd upward on de-
creasing volume.
Notice how the voll1me line made a 1lf'Wlow in May, 1959
at the same time the nJTA m::lClea new high. At the vef)' top
of the hull market in Jnly, 1959, the volnrno was considerahly
lower than it had heen earlier in the l-ull market.
This chart is a classic example, showing how volume 11S11-
ally decreases at the top of a hl111market, Such volume ac-
tion is uswllly Found in all hun markets. In this CflSC, the
volume peak' ocenrred eight months hdore the top of the
hull market. In other 1)1111markets, the volurne peak oc-
curred at different times. Following is a record of the time he-
tween voll11lle peaks and hl111market tops.
null Market
Top Dnte
\V1H'nVOllllllPPeak Occnrred

Jammry, HJ46-Fivc months hdore the top Jnne, 1946

JaUllaf)', Ul55-Fourtefm months before t!1f' top March, )956
Conrtesy of the New York Herald Tribune.
Novernlwr, 1958-Eight months before the top Jnly, 1959
March, H161-Eight months l)('£ore the top November, Hl61

WeeklY Vol11111e is shown on accnrate charts which are

published " every Snndny in the New York Herald Trihnne and
33
 VOLUME
35
the New York Times. Dming some 111111 markets, the volume
peak on the newspaper chart is obvious and easily recog-
nized. At other times, the greater detail of a six week moving
avcragc chart is needed.
I like to examine the Sunday stock market charts in the
Herald Trihuno and the New York Times frequently, espe-
cially at important tnming points. It is a good policy to fre-
quently compare the action of the different stock averages
with the movement of the Dow-Jones Industrial Average.
If the DJIA would he the only stock average to make a
new high in a hull market-while the other averages failed
to make new highs, one could consider that to be a false
move of the DJTA.

34
 THE TIME ELEMENT 37
A precise understanding of bull and hear markets will help
us to form a correct analysis of future market action
The seven year long bull market which lasted fr~m 1949
to 19.56 seems to indicate that there is no maximum length
CHAPTER 5 for a hull market. The maximum duration of a bull market
is not dctenn.ined by the time element, but by the market's
THE TIME ELEMENT own p.rogresslve weakness. which develops as a result of the
changmg forces of supply and demand.

Time is one of the two basic elements which combine to

In my exhaustive chart studies, I noticed that time was a
significant factor in hull markets. During the last twenty-two
years, every hl111markd lasted a different length of time.
The length of hull markets varied from one to seven years.
The important consistency nbout the time element is that
every bull market lnstf'd for one year or more. The minimum
length of a hull market was never less than one year.
It seems that when enough strength is generated to start a
bull market, a powerfl11 force is created which is difficult to
stop. It appears that a year is the minimum time rpquirf'd for
the life span of a hull market. It takes time to accumlllate
the strength needed for the rapid early growth of a bull
market. Time is also required for the market to go through
its dying strnggles of the wide swinging rf'aetions IlSl1al1y
found in the top area.
The one yenr minimum length measuremen! should start
from the time of the lowest price reached by the market. and
form trends. The other element is price. One could make the
statement in the fonn of an equation like this:
Time + Price = Trend.
The changing prices and the passing of time gradually bring
about the formation of a trend. '
Such trends can he understood best by visual observation
on a cha~t. A line chart presents a picture of time and price
changes m a balanced perspective. Charts can be valuable
aids in analyzing many kinds of data in relation to the pass-
ing of time.
We should understand that time is an element with three
tenses: past, present and f1Iture: We should know what has
~ll1Pfened in the past in order to understand .what ishappen-
mg 111the present and plan what action to take in the future.
'Ve.mu~t rea HzI' that the future will soon be the present.
Tf action IS not tnken at the proper time, the opportunitv
may slip into the past and he lost forever. .I

should end at the time of the highest price reached by the

market. The large rallies of 194R and 1957 diel not even last
six:months, so they can not he thought of as hllll markets.
The recognition of a one year minimum )ife span for bull
markets does not seem like a very import::mt item, hilt every
step we take which helps to dispel confusion, also helps. to
clarify our l1n(lerstnncling of the factors WI' must work WIth.
36

CHAPTER 6 Then therA were the methods which applied moving aver-
DEVELOPTNG A -METHOD
The m()n~ I Ipflrned ahout the stock market, the more T
wanted to follow a methml for gelling in and out of hull
and bear markets. A person can not exppcl to he successful
in the l11flrket, or anywhere else, without a ddinite plan of
::lction. \\Tithont a definite method of operation, how ('0111<1 I
he strong enough to sell out when hllsiness and economic
conditions look so good at the top of a hull market?
If I h::ul no method to help me, how could I he hrave
enough to buy ncar the hottom of a hpar market \",·hen
things look so bad, and everyhody is pcssimist~e? H~w could
I be reasonably SlHB of taking action ::It the nght tlllW?
I felt that the only wnv to safely navignte the treachenHls
tides of the stock mark~t was to have a set of Tnles as a
guide for huying or selling as close as possihh~ to the right
times. f 1
I examined all the existing methods T could find, for 1 e t
sure that somebody mnst have devf'1opNl n good mf'lho(l for
consistently identifying the heginning and ending of h1111 and
henr m::lrk~ts. Aft~r an, stock markets as such have heen
opemting since shorilv after the Revolutionary War.
Of course, there was the Dow T11eof)l. T have great respect
for the now Theory, as it was one of the first major attempts
to scientifically measure the movements of the stock market.
It brought sot"ne semhlance of order to the interpretation of
38
DEVELOPING A MF.THOD 39
market fluctuations, hut it did not seem to be accurate
enough for me. The Dow Theory occasionally produces
some false signals, and some of its true signals are a long
way from the top or bottom.
ages to the Dow-Jones Industrial Average. There were also
methods based on volume studies, group ratios, odd lots
and so on. Many of those methods were basically sound, but
they seemed to have a common fault. Practically all the
technical methods had frequent whipsaws, resulting in small
losses, during the times when the market would experience
indecisive rallies and declines.
I wanted a method that would only signal the actual he-
ginning and the end of bull markets and bear markets.
One of the problems with some methods was that too
much emphasis was given to the trend of the Dow-Jones In-
dustrial Average. How can an average of thirty hIgh grade
stocks show what the whole market is doing? None of the
popular averages can show exaetly wbat is happening to the
entire market, for there are more than 1,500 stocks traded on
the New York Stock Exchange.
No stock average, by itself, can reveal the technical
strength or weakness of the whole market. But it is ex-
tremely important to know what the DJIA is doing, for the
majority of investors believe that it really indicates the true
movement of the market. It is wise to keep track of the
DJTA, so onf' can know what the majority might think the
market is doing.
About that time I came to the conclusion that it was not
practical to place the main importance of a method on any
stock average. I reasoned that the only really practical thing
would bA to develop an accurate method of measuring the
technical strength and weakness of the whole market.
The only indicators I knew that would cover the whole
 ' DEVELOPING A MF.THOD 41.
DEVELOPING 1\ METHOD
tl H' zero l me As T ,'t tl'
exactly the ~am'e p'r'olI °1 lIS, seven years later, J still follow
t

market had berm right in front of me for a long time, hut I , .. ,. ce( 11re,
had never paid lTl1Ich attention to them.
Every Sunday the flnnndnl section of the llewspaper car-
ried a Jist showing hoy,' many stocks had mndf' new highs EXAMPLE: NF.\V HIGH - NEW Low INDEX

during the past week, ::mclhow many had made new lows
during the week. Also shown were the number of stocks , •.. I

,
300
which had advaTwecl during tlw weck, the numher which had r-; N i 1/\
declined and how rnnny had rr.mnincd nllchanged. Those 200
figures showed what was happening to all the stocks traded L ~ot1
~ .• iN ~
on the NYSE.
100
o
[4
~
~
'" t: -.:I
I started ,'"arking with new highs and new lows and soon V V \
had figured how to get an nccnrnte measurement from thf'm, 100
I began charting tllf'm in a form which I eallcd the Index of 200
Weekly Net New Highs and New Lows. In the interest of 1961
brevity, I referncd to it as the NH-NL Index. TTpre is how I
J F M A M JIJ A S 0 N D
.•
obtained the net figmes: .'

If there were more new higlls \llan new lows. I suhtracted

the new 10\'''s from the new highs to obtain the number of J quickly charted a NH-NL Index '
and found that it was indeed' n i covermg several years,
net new highs for that week ing technical market 'streng~tl an ImPkn°rtantfactor in measur-
1'1 ' .' " lor wea ess.
New Highs 100 .. ien I started working with a 1
EXAMPLE: found that the number 0'£ t k ( vluoh i and declines. I soon
New Lows -20 , s oc S w rich re lned I
seemerl to have no at,' ' , . mame UDe langed
Net New Highs 80 / pparen importanc I .
ing onlv with the advances .d 1 ce, so continued work-
, . ~ . vances an t ie de l' I 1 1
If there wen' more new lows 111al1new highs. I suhtracted net filluTes just the sa ' 1 ..ln o meso ca cu ated the
If 't'here we , ., ~,e als WIt 1 t ie net new highs and lows.
the Dew highs from the new lows to ohtain the 1111Jllhf'x
of net , ire moi e ac vance tl d I'
week, I subtracted Ihe'd 1', fS 1anI ec Illes during the
new lows for that week. .' co Illes rom t ie alb
'lIP numher of net I, ,. < ( vances to 0 tain
, '. H( vances.
New Lows 60
EXAMPLE:
New lIighs -40
EXAMPJ,E: Advances 900
Nri New Lows 20 Declines -300

On the chart T placed all wef'kly net new high entries Net Advances 600
above the zero [ine, and all weekI\' net new low entries below
 nEVF.T.OPING A MEnlOn 43
2 nEVFJ .OT'ING A MF.TTTOn
4 cd
are (lccliTws IlIs
ran ~H vance, I, .<;uhtnlcl EXAMPLE: ADVANCE & DECLINE INDEX

If there weff~ III the declines to ohtain the nl1mher of net

the aclvaneps .1 am
declines Ior the week.
I
11,000
Declines 650 J\
EXAMPLE:
Advances -600 ,.",1I\ •••
Net Declines 50
10,000
r ~
~'l 1
. ( t
1 De l' Index to show the rise 9,000
t ~ '\
I wantce.l Ihis j\ elvanee anr k' ('t'C1.Il~~~
f 1 11and 1eaf
1 mar e s c
way; that would r-om-
•
I V L~
ancI f a 0 111 c .'
11
..1 k crages so
pnrc with sl'oe av ~ , "'1'1 . ,I'
v.
I 1 1 to mnkc it a Cl1m111atIve
rae c
I slmtpcl with a figure of 8,000
/
ind £ t 1 anees anr c ec meso . i
Inc ex 0 ne n< vr ' . I 11 1 tl18 number of net
t' (f figure ac c cc .
zero. To t I10 star mh
.' '
weekly advances, o·
'
r suhtracted the nU111)er a
[1 Po
1 [ net weekly
I In'pt a larcf.e sheet of 7,000 l 1961
1
.
dec meso ( . P
T) kee tnlck 0' t w I1gnres,
1 1 Illations
. t'
every week. I
I
paper on ,,,,,hich T recorc ec I re ca curr . 'J F M A M J J A S 0 N D
called it the data sheet.
Total 9,fl38 For comparison purposes, I also charted the Dow-Jones
EXA~frLE: Net Declines -12 Industrial Average on the same sheet of paper. Timing my-
Allgust 20,1961 --_.-
Total 9,621 self on several occasions, I found that it took me exactly

Al1gl1st27, 1961
Net Declines
Total
-
-209
9,352-
three minutes a week to make all the calculations and chart
the entries on the NH-NL Index, the Advance and Decline
Index and the DJIA. Anyone who wishes to do the same will
+2.32-
Net Advances find low priced chart paper available at many drug stores
Scplcmher 3, 19(3]
Total 9,584
and dime stores.
-372-
Seplember 10, 1901
Net Declinp$
Total
-
9,212-
Back in 1956, when I developed the Index of Net New
Highs and New Lows and the Advance and Decline Index, I
Net Declines -154 thought I had discovered something which no one else knew
Srpteml1ef 17, 1961 about. At that time I had never seen or heard of an Advance
Total 9,058
and Decline Index, or a New High-New Low Index. When I
. kly totals. I still do it exactly asked my broker if he knew where' I could obtain lists of
Tlwn T charted on 1]Y t 1(>, wee figures, going back through the years, showing weekly ad-
the same way.
 DEVF,LOPING A METHOD 45
44 DEVEY,OPINr. A METHOD
that they accurately identified the beginning and the end of
. leklv new highs and new lows, he
vances and dechnes a 11< .WIe .'t lking about. This lerlme to bull and bear markets in this manner:
did not even know w 1iat was a . The start of a,b!Jll m~~~,et~as signyled ....:~hen_q~~4dv~p._~~
} I 1 an original discovery. and Decline Index tt~~I_l~5L':Ipw~Es!J?y240.9_poLJ;ll§.,and the
belTiel:~~n1~~:;~\:n]jzed that I was not the firs! tfo diS. COerV NH -NL Jndex registered at least 80 net new highs. The start
. li I 1 for I ounr 1 1Ut t 1
eek1 Advance and Dee me nc ex, of a bear market ~_~i1£1aled when the Advance and Decline
the w " Y . l' tent advisors were also
some market analysis anr mvesm. .nnl sts used daily !.n(l~x!~r.!led 5:l<?~~!:d by: 2400 UQj.I~ and the NH-NL In-
. dvance and decline indexes. Some an, y.. .. 1 11 dex registered at least 80 net new lows.
~smg a 1i;~ others used weekly indexes. It was pro ra 1. y Examples of these trend change signals can be found in
mdexes, wl 1 J iust had not heard ahol\t It.
developed many years ago, am . l·· . 1 nd new lows the Chart Review chapter.
Some analysts also use indexes of new hlg rs a kl·· l' A quick look at the chart can show what is happening, but
" . 1 ·t I· sec or hear of a ,vec' y mr ex grp,ater nccurncy is achieved by using the figures on the data
rit(>tlm JlflVeye o see J
bu t as Iw . ' , I lik the onf) (1e- .
v hi 11s amI 11ew lows exact y Ie' sheet to pinpoint the 2400 point reversal of the A & D Index.
of net nev . g . ' 1 .1 of anyone other than my-
I could not believe that such a simple formula could apply
veloped. To date, I IlHlVCll ~ lean anner which consistently
self llsing tlwse inc exes 111am·, 1 .11 . Is to all types of markets, so I gathered the necessary statis-
. 1 nthem'llwa . 11v precIse . 1)n\ aJ
1 J(
( se sIgn. a .. 1 tical data to check hack for several years. I found that my
pr;(;~::~~:~lthat when'the ;\(1vanc'e an:1 nec1in~t l:.(~~~(t;~~ simple trend following method had indeed run into several
1 NIl-NT Tndex hoth advanced COIlSlslently, 1. 1 . small losses dming rapidly changing trends in 1951 and 1953,
t }f)' k were rising nnc1 s }owmg However. the large profits that could be obtained by follow-
an indicat.ion that ~os. t, stoc ,.s. .' of a hun market.
1 h 1 i1HIlCatmg t 1ie presence ing that simple method would completely overshadow the
strengt 11, t wre) .' I' 1 the ;\ & 11 Index and the small losses, and that simple method did not produce any
It also seemed logIcal t la! W)(,11.' l' WOlllrl he an
NH-NL 11Hlex hoth dceIine(l conslstP111~): It 1 1 . losses at all from 19,54 to 1964.
. ' .' st stocks were deel1Tlmg am s IOwmg At that point I had achieved what I originally started out
)lJehcatlOn thnt mo. 1 r:p of a hear market. to do. I had dr'veloped an easy method for following stock
k tl Nehy indicating t 18 presPll .. . < ,< . •

wea ness, 1, ~ " . flhA charts showed tllat the 1111- market trends with reasonable accuracy, I had never heard of
A carefl11 eX:l111mflt1On or ' 1. nt
. . 1 1 A & D Index was t ie amon anv method which could achieve a record of more than 75%
f ortant consideratIon wit I t le
I ich thE' weekly totals changed thell' (hrechon, t..
Jy -; 1. ' f rend. When I started a new A &
.... hereh
6 accuracy, so T helieved that rate of accuracy was about all
that could reasonably be expected from any method.
indlCalmg a r:hange 0 t k l'fference whether I startp,d I realized that absolute perfection was hardly possible, but
Index chart, it did not rna e l111y(1 ' , f ~ 000 or a figure of
'1 Po f zero a figure () .J, c
I wanted to see if the method could be improved. I wanted
the chart WIt 1 a llgure 0." . The e tent of the signals to identify only the start of major trends, so I
5000 It (lid not matter what the totals were., . 18 ex .
." f di ction was the important thmg. went to work on the problem of eliminating the Signals which
the change 0 l~e'l _ 1 'th these indexes, I [onnd were followed by minor trends.
During my ongma rescmc 1 WI
 6 DEVV.T.OPTN(; A l\lETJl()P ,'_
4 '. , li7(~that mv simple trpnd [0110\\
At thai tilllP T d1(l not lPa 1" 1 ,m'D Ill(' [ol1lH1ation on
It" ate v weo ,.
ing method won 11( II rrn: '', 1,t theory of stock market
which 1 constrndf'd a comP1f' C • a complete unrler- CHAPTER 7
1 which hroug It to me,· k
trends-a t )pmy . t f the stock mar d.
standing of the complex rnOVPll1ens 0 YIELD

In my efforts to improve my method of trend determina-

tion, I spent many hams analyzing basic facts and ideas. I
was engaged in a pursuit of truth and logic.
My preference h::Jd always been for technical analysis of
(he stock market, because technical methods provide the
element of precise timing. Now, however, I had to accept the
idea that it was prohahly not possible for an)' purely techni-
cal method to avoid the small losses caused by the market
moving lip and down indecisively without establishing a
definite trend.
Then the thought occurred that it might be possible to
combine a fundamental approach with the technical method
which I had developed, A fundamental approach might give
thA general condition of the market, and the technical
method could providf' t11f' exact timing. It sounded logical,
Imt what fundamental consideration should be used?
The idea which provided the answer came to me far out
at sea when I was cruising in the Bahama Islands. I was
sailing in an area called the Tongue of the Ocean, where the
water was ten thousand feet deep, and there was no land in
sight. There was nothing out there but the sea and the sky-
and the flying fish.
I had been watching the flying fish for several hours as
they played around the hoat. I noticed that, when the)' broke
47
 YIELD
8 ~nn 49
4 , tl ov flew only about I1fty feet, Iundamontal measurement of basic Investment values. You
out of the ',vater,' SOInPtlInP S 1, f'r as t\VO hundred fC'C't. prohah1y have a good understanding of yield already, but
, r res t hp.y r('was 1 a . ,
while at at 10f In, "I edllnab1e 10 get hig H'r just to be sure, Jet us define what yield is. Simply stated,
Regardless of the distanC'l,\ I H'Yseem yield is the percentage of net income realized from an
' f 1T feet above the water. ,
than I1iree or 01 1 1 t'f 1 C'n~nlllrC'swere tncapn- investment or a savings account.
1 rhnt sue 1 ieau lU
It was a S lame ". I it 1 III T wondered whv a If yOIl have a savings account in a bank, the annual inter-
f 1 ' higher a 111me,e) ,
T
i est rate paid on yonr savings is the yield on your capital in
hIe 0, reac llng aI' 11 to flv as' high as a bird. T ley
flying fish should not le a 1 e l' f anl\ril)T, C01J1d it he that account.
1 1 1 'pet to the same aw 0 M' 1 '
were lot 1 SII1) ',' I' . , ilar altitudes hf'cause of I Jell' The dividends paid on a stock during one year is the yield
11 at rf"1Cl sum a "
that they Call ( n ," .1 f ravitv? 'Vas their clifTcr- on the market price of that stock. Stock prices and dividends
differf'nt relationshIp to, the aw °
gIl their diffC'rf'nt capa-
T
are always changing, so the yields are also in a constant state
° , ' ,
, t gravlt)T goveme( ,\
ent relations 1lip ' of change as the market moves up or down,
bilities?, Ilvi n 1 ,"rmillC'cl a maximum alti- If a slock sells for $100, a share, and the yearly dividends
'1'1 f a vmg us 1 p" 1
The capfl 1J1 I )' 0. .' 'he' ca ' ahilit of a sea gull mig 11
T amount to $5.00 a share, the yield is 5%. If that same stock
Inde of three or four feet. l' 1', P 1 fc~t 111e capability of rises in price 10 $200, a share, and the yearly dividends in-
' 1 t of severa 1 lOU sam ,.", I' f
permit a 1wIg'. "" c 't a maximum altitur e a crease to $6.00 a share, the yield has declined to ,3%, Ob-
the highest f1ymg all'p1ane perm I s ,
vions1y, as far as dividend income is concerned, the stock
more than 100,000 feet. "1 ' atter of relnUvity. 'Maxi- was a better vn 1118at $100. a share than at $200. a share.
,
The sC'wntls ist
WOII1/1 say .
c , '
t s a III ' '
, 1 '1'1 " The ohtaining of dividend income is the most fundamental
, 1 ' ' 1 hv relal1ve capa 11 I y.
mum height IS c etennmec .1' hout the capability of the reason for many people to invest their savings in the stock
a
Well thC'n, I thought, " la~ l 1,." it onhow high the market.
'certam y a 11111
stock market ? Tl iere IS " limit there would For many years, yields have been calculated and pub-
k l)pcause if there were no , l' 1
mar et can go "", ,I l' it on maximum fl tltm e, lished for the more important stock averages such as the
he no hear markets. wu 1011~a 1m, r ~11rhe time ''l"ith- Dow-Jones Inrlustrin] Average, Standard and POOl'S and other
1 ' st oc k market would conlll1ue gOIng np c -
the averages. In my research, T used the yield on the DJIA, for.
out ~l1Ym~Jnr 1 .
, 'nlelTllIltions
, ,.., t lies J had noticer a
1
, I t e:nl!pr III my s U( ., that average is the most widely known and followed,
1 I
I rornorn )('re( 'l::l.' IT. t on the maxi-
. , 1
. , ,
1 I havo a. l11n1lmg e ec An examination of vield charts showed that yields. decrease
n
,

factor whl(' 1 seemec Ok Tl t Factor was yield. I recallNl as a 1m market moves upward, and that yields increase as
mum height nf hllll11l~r ets'
l
ia 11k In rise'high enough to a hear market moves downward. Generally speaking, yields
that h1111markets ha(l never l1f'f>n..,~ T h:,rl' nover heflrc1 of rt are low at tbe top of bull markets, and higher at the bottom
. ,11 much less t ian .)n. ' " . , 11
Proc1llee a )l]e 1c,' 1 1 ,'"1 gOllP, l'lIg'1 enougall to IJrO(lu('f>a YlC .
( of hear markets,
1)1111 rnarlwt W nc 1 lac 'I
L t which c1etAnnined the _~._ca~~fl~!
__~_tu~l.LC?LJongterm yield charts sh9wed that,
o f 21Lot rvhvhe )Tielc1was the ac or
f .'
'?-I(J •. (~,
~_Uling the Ja~t 19. Y~~~,_~,_!!13jor bJ111 mi!!"ket~2p._.h~sL~ElY<::!"
capahility of the stock market. 1 iC'lc1is an important declined to less than 4%. Dur-
.~~curred before.th,e yi(;l1.g.)!a..5!
I h:'1(1known for many years t iat y
 YIELD
51
ing four of the six huH markets during that 40 year period,
the yield declined to Iess than 3% at some time during the
huH market, before the top was reached. Following is a tabu-
lation of fhe lowe~t yield reached during those six hull
mnrkets.

Dnte of
Lowe~t
Lowe~t Yield When Lowe~t Yield
Yield
jan., 1929
- Was Reached
June, 1936
2.88% ------
9 months before the top
2.80
June, 1946 .'3.2,'~ 9 months before the top
Scpt., 19.55 Right at the top
3.91
Aug., 19,59 22 weeks before the top
2.92
Nov., 1961 Right at the top
2.97
One week before the top

As 1 write this, the lowest yield reached so far during the

seventh bull market, was :3.09% in January, 1964.
I11~_J()West]ie!d.._.t.:~a~h~5.L.Q~.fQ!.~!~nor
tQQ.Q.[ 1953_!Y!!§
1·~5%.T}~~refore, I lJaV:~~~Y~_~sidered that.J2.2j!!UQJla~
E.~e.rl.a_~~JI!,!.a~~,:_u.?p,
and 1 have never considered the de-
cline of 195,'3as a hear market, because no buJJ market during
the last 40 years had ever made a top until the yield had
declined to less than 4%.

An examination of the yield chaIt shows a yield of less than

:3% in 1934. Aftpr the yipld declined to less than
3% in 19.14,
the market experienced onlX a moderate price decline for
seven months. '['hen it started on a second stage and went
into a strong up trend which lasted more than two years.
Thp seven month decline turned out to be only an interrup_
tiOll hetween the two parts of a multi-stage bull market. That
was the only case T found where a yield of less tl1an 3% did
not indicate the proximity of a bull market top.
FOllowing is a tabulation of yields which occurred at bear
market bottoms.
 YIELD
YTF.LD
5,3
52- 13e£oroTstarted my careful study of yield, Thad expected it
Yield
Date to he an important factor for measuring the capability of the
10.3R%
JI11y~--1932 stock market to reach its maximum height. I found that to be
7.75
March, 193R true, but only in a general way which was not precise enough
7. SO
April, ]942 to snit me.
7.46
June, lU49 Thad started with the idea that a 3% yield would indicate
5.30
NO/., Hl~7 a good time to sell, but I had to abandon that idea,
Oct., 1960
a.so
4.35 Although a yield of 3% or less has frequently marked the
June, 1962 proximity of a hull market top, one could not say that a 3%
woltld ohserve th[ll: yidels variml tr~- yield would accurately indicate the top of every bull market.
At first glance, one . k t hottoms. However, it
1 l'fferent lw:u mar e. . There have been times when hull markets continued moving
mendously at t 18 (1· , H)!)7 all the bottoms w;re nccorn-
"P for a long time after a .'3%yield was reached. There have
1<1he seen that, hefon~ , .' 1~S7 Y1c1<lsat the
con. ". f 7% or more. Startmg m .' " also been times when bull markets have ended without the
panied by ywhls 0 ' . . . g demand for stocks,
yield declining as low as 3% .
. ll l' licntmg a nsm· f '
bottoms dec mer , m<· . 1. 1 f 'om increasing fear o m-
<1resu tee r . 'Ve must be careful to avoid interpreting statistics in a
The incrPHse<1 r1pma~, n ft' as wpll as an irl8rensmg
·1 r nmete ll . lIes,
p , . t't manner that will confirm a pre-conceived idea. When the
flatten sinpf' t IH'~pal ) .. t f nds and other J1lSI u-
c
number of mutua .unr s,
.
1 f 1 rptlremen.n
. the mat e. ..
"
.k t Institntional investors
'f kInO'
f.
r: facts show that an idea is not sound, that idea must be dis-
carded. If a person refuses to recognize the truth, he can not
tional Investors In ' 1 'tl the intentIOn 0 eep .:->
. 1 de stoc {S WI 1 '1 11 p_ develop a plan of action to deal with the awful truths he wiII
quentlv. [mv. 1llg 1. gra ..S ,eh actton
»
' re<111cesthe nvat ale su . he confronted with in the future.
~' It
them for a long nrne. 11, '1, and incrensed demand resu
L

11 of storks. Redl1ced SUP1?) I was rather surprised to find the most important thing I
Pin )higher pnc, cs anr I1mver":",)'JClds. 1 ions learned about yield was that it seemed to be the factor which
11 imllortant cone I1Sl0
From a C<lrel1 1 of
f 1 stuc y " ' , VIe ( some limited the ability of the stock market to start a major de-
cline. The limit worked in a precise manner. My research in-
C0111dhe re<lched: t f
'. . enera 1 me<lSll·
l'emen .. 0 (Heated that a hear market had never been able to get started
,des a gOOf 1 g t'
1 Yield nsun 11y prO' I.
.. , •
'1 d alone as a pref'lse im- when the yield was more than 5%. I could not find any ex-
.,' . 1 t r-an not 1e use •
mnrket values, HI. .. 11' ceptions to that oh~flrvation, so it seemed that a yield over 5%
. f 1
' g device or 111) h 1i110' and se mg.
1 4~ I some tirne, 1ie f 0,re would not permit the start of a bear market.
m 1 edtolesst1an ,oa ..
2 TIle yield has <ropp . . 1 .' g the last 40 years. As a result of my study of yield, I added one simple rule to
. 1 11market c UlIn t d
the operation of my method. I made a rule that there could
the top of every)\1 "1 arket h<ld never star e
. 1 t 40 years a lear m
3 Durin<1
. . h.
the as
11
. .,
~% or more. f
he no sell signal un'less the yield on the Dow-Jones Industrial
when t lw )'1P r was ri 1 "kl)' vield figmes,or Average>,was less than ,S%at the time of the signal. 111at one
se on y we".. . t
4 It is important to 11-~, gh \0 produce accura e simple rule pnt my method of technical timing under the
, . mont 11' 11s are not preCIse enou
1 y yJe ( . control of the most basic factor of fundamental value.
results.
 YIF.T,n
54
To find out how well rho improved lllelhod llad ,,,or1<ed
previously, I deciclc{1 to gather the statistical data necessafY
to exlfmd 'he indexes hack in time [nr a period of 15 Of 20
years. ThaI was a hrger project than T expeete(l. Tn ohta~n
the necessary infofmation, I hncl tn spend many long hours 111
lihraries, sp,;rching through old newspalwrs and microfilm
copies.
When I had completed r;athering research data hack to
1942, I checke(1 my improved method during those y(,~HS.1
found that, with the improved method, there were no whip-
saws at all, and no losses, going all Ill(' way hack 10 1942.
Every huy sign,ll and p,very sp,]l signal resulted in a profit,
whel~ usi;'g the now-Jones Industrial Average ::IS n trading
medium.
Here was something difficult to helicve. 1 had dew'loper] a
method which proven to he 100% accllrale dming the twenty-
two vear period from 1942 to ]964. It W::IS so simple that any-
one 'could easily lise the method, and only three minntes a
week were reql'lired to do the ca1cuhtious and charting.
1 fdt like 1 had made an important discovery. 1 had learned
how to interpret the stock market law of gravity.
CHAPTER 8
CONTRARY ACTION
M)' improved method satisfied me for quite a while. I felt
that was abont as far as I con1d go in developing an accurate
method for following the trends of the stock market. But
nfter a while, subconscious thoughts began haunting me-
thoughts that something more could be added to improve the
method. I. soon solidified those fleeting thoughts into a solid
question. "What about tops and bottoms?"
The thought of trying to find a way to identify the exact
tops and bottoms of hull and bear markets was almost too
much to contemplate. All the hooks I had ever read about the
stock market said it was impossible, and I agreed with them.
Trying to identify the exact tops and bottoms would be
like reaching for the moon. But hold on, just a minute. Isn't
~hat exactly w.hat am government is now planning and work-
Ill,!! on-reachmg for the moon? We have already sent men
and rockets Iar ant into space. Such things were thought to
hI' impossible [nst a few years ago.
I remember, about twenty years ago, my friends thought I
was slightly crazy when 1 told them I expected to see rockets
heading for other planets within my lifetime.: Twenty years
ago, there were only a few of us who believed that men could.
leave this planet on rocket ships. Now it is an accomplished
fact.
So T started on my own space project-trying to locate the
55
 CONTnllTW ACTION
top space and the bottom space in 111111 and heRr markets.
I wished T had an oleotronic computer to help me, hut then
I realized that man is eqnipped with something better than a
oornputer-va hrain which (sometimes) is capable of logical
thought. That hrnin pr()(llwcs conscious thought, l1nd even
works snhconscionsly while' we sleep. Consciously, suhcon-
sciously and unconsctouslyit took me qtrite a while to pro-
duce some logical r-onclusions on tops and hottnrns.
I reasoned that one might pick the top or hottorn by some
manner of contrarv action comhined with a method of timing
that action. The onntrnry aol ion would he [ust the opposite of
what the majority of people think the market will do nt the
top 01' bottom, for the mnjority is usually wrong at the top
and the bottom.
Right near the hottom of a hear rnarkot, the majority of
people US11a 11)'holievo that prices will (le'c1i~e Further. If ~hey
did not helieve it, they would not he seJJmg at that time.
Right near the top of a hl111market, th; majority of ~f'ople
usually lwlieve that the ma rket will go hll~her. Tf they (hd not
think so, they would not he lmying at that time.
TIlE MAJOnITY IS USUALLY WnONG
At first it may he (limeu1t to accept sllch a stHtement as fact.
So let us pursue the suhject a hit. Let 11':start hy d.ivid!ng the
poplllatioll of this planet into two gronps, the minoritv and
the majority. . formity. Many people are actually afraid to be different-to
It is not especially pleasant to mntf'mpbte that ~he n~aJor-
ity of people on this planet are not the most mtel~lg:nt
group. The minority m11St be smarter than the mUJ?f1ty.
Why? BeCflllse the majority are poor folks who am not 111ghly
edll'cated and must work hard to make a meager living. Many
of the majority are so poor that they are actllfilly stHrving.
Thl' minority 'is comparatively wealthy and has figmed out
CONTRARY ACTION 57
wavs to make n good living with less work. So the minority
must be smarter than the majority.
In almost any country, you would find that a large percent-
age of that country's wealth is controlled by only a small per-
centage of the people. A study titled "Characteristics of
Stock Ownership" was recently published by the University
of Pennsylvania's Wharton School. The report said that al-
most 50% of all the stocks held by individuals in the United
States were owned by approximately 1% of the American
taxpayers. .
lLwould seemthaLonly :,!2)_l~!l.9rtty_~.!~
..~.Jleople on this
[Jla~~Lh~v~_Q1e?:hilgy and ambition to ~~~dy..llUrd, to iig~!!~
?t~t ways to accuJl1~II~t.e..\y.~~Lth..~El..lqlaise their standard of
,!!ying. l1~_!!!.ajqr!.tY,_a..~~_.~pparent!yunable or unwilling..,!2
~cqlTi~~_~1.~_~12£~I~~g~ and take the action which 'Y0uld en-
able them to do the same.
'7'An~tj;~~dim~t~jty-~rtE~ majority is the herd instinct which
they follow. Tho desire to go along with a large group is evi-
dent among people and animals. This is caused by the idea
that there is safety in numbers-an idea which has persisted
since the primitive days of civilization. In modern life, people
fecI tIlere is safety in conformity-to think and act like the
majority of other people. Anyone who dares to be different
from the crowd is not considered to be "normal."
One of the big troubles with modern society is the con-
formity of ideas nml action. I call it the mediocrity of con-
pursue unusual ideas. Rut the road to success is paved with
unusual ideas, and traveled by unusual people who dare to
be different. In om modem society it frequently pays to be
unusual and different.
Another trouble with the majority is that they have a ten-
dency to believe what they are told, especially if something

CONTHAHY ACTION
is rcreal(~d Frequently- The majority find it is easier to :1ccept
the statements of others than to think for themselves.
The minority, who (10 not believe what they are told, must
put forth inte~sive effort in their search for tl~uth and lmowl-
edze. Sometimes tho qnest for knowledae is like sailing on an
111l~IJartcdsen with nothing to guide YO~lexcept the Facts yon
learn as you go along. The success of your voyage depends
on how well yon can separate facts from fantasy, how well
YOllcan analyze the facts you discover, nml how wdl you lise
them to reach the right conclusions.
In tho stock market, the majority nrc inclined to believe
what they are told in the form of tips, rumors and advice.
The minority helieve only what they know to he facts. and
then reach their own conclusions hy analyzing those facts.
Still another weaknE'ss of the majority is their dishelid in
change. 1\,10stpeople do not expect or prepare for Ch:1l1gE'S in
the status quo They believe that things will contitl11e indeli-
nitely just as they are right now. When Ihp. stock markPt gOE'S
up, the majority expect it to continlle going lip indefinitE'ly.
1118Ydo not bolher to think about the lime when the market
will chango its course and tum downward.
At tho same time, the minority know that change is inevi-
table, and they are looking nhend, trying to figllrp. how to tell
when the m;rkPt makes the change, and planning wlrat
action they will take at lhat time. Tlw minority know that
every 111111 market has been Iollowcd hy a hear market, nnd
that every hear market hns heen followed hy a hull market.
The slJ{'cessf1l1investor rnust possess a mind whif'11 is Aexihlfl
enough to accept changing conditions. . contrary action.
The m::ljority of investors are almost paralyzed by theH~
opinions, l)eca~lse it is diffienlt to change an opinion which is
well estahlished. 'V11en a person has a definite opinion, there
is the danger that he might not he ahle to change it until
too late to 'take the proper action.
CONTRARY ACTION 59
Almost everybody tries to form an opinion of the market.
Many investors are constantly gathering information to help
them form the correct opinion. As the opinion forms, the in-
ves~or subconsciously becomes more receptive to the ideas
which help to suhstantiate his opinion.
There are always plenty of arguments for both sides of a
c~se. Since the equal acceptance of arguments from both
SIdes would result in frustrating confusion, a person must
choose which to accept. Frequently a person accepts the
arguments which support his own opinion, and he ignores
the opposite side of the case. It is human nature to do so.
Many pe~ple actively consider and publicize only the argu-
ments which will support their opinions. The process is called
rationalization.
The majority seem to have an uncanny ability to buy near
the top of a hull market, and sell near thebottomof a'.bear
market. Apparently that is the way things must be, otherwise
who would the minority sell their stocks to near the top-and
who would they buy stocks from near the bottom?
. ~ne should try to think and actlike the minority, for there
IS httle hope for the success of the majority. There is not
enough room at the top for the majority.. .
Realizing that the majority is usually wrong in their action
near the tops of hull markets and the bottoms of hear mar-
kets, I looked for ways to recognize majority action at those
points. I also looked for a way of timing the contrary action
to he t~k(m at those poiT~ts. It would not be enough just to
recogn~ze when the majority was wrong. One must also
recogmze exactly when the majority is wrong enough to take
.

CONTRARY Ar:TION
60
TIm nOl~rnJ-.f BUY SICNAL
Careful studies of my charts reveakd a remarkahle phe-
nomenon of majority action which frequently occurred ~lear
the bottom of hear markets. It is called a "selling climax."
When a bear marl<et declines so far that people really get
frightened, a strange quirk of mass psychology causes many
people to decide, at the same time, that they have had
enough of the hear market. They want to get out before they
lose everything.
When sOmany people sell out at the same time, their com-
bined action creates a selling climax. During the selling cli-
max, prices decline drastically on tremendous volume-
usually the largest volume in yeflrs. The market also shows its
gn~atest technical weakness at that time.
Th~.§elling climax does not usually mark the exact bottom
?La_b_earmarket. The lowest point inthe hear mar~et!s usu-
~!y_~11~~~.2~ Jour weeks after the selling climax. The lo\",.,?§{
p_0.~~.i~ usually ..a_c?l)~p.al:!~1 )X}~()~~.VOl11lTle
of !rading.
The best way I found to identify the selling climax was by
the number of weekly net new lows. It was usually identifie<!
12)'-.1.'50 or more net new lows during that week. When 750
or more net new lows occurred during a wpck. I called it the
"first climax weel ." Sometimes there were much mom than
750 new lows.
To accurately and consistently pick the lwst time to buy, I
made a r111cto buy at the start of the fourth week after the
first climax wcek,' If, before the start of the Fourth week,
there was a week in which more new lows were marle than in
the first climax week, T would cancel the C011ntfrom the first
climax week. Then the time to buy w0111<1 he at the start of
the fonrth week nfter the wef'k which hnd the greatest nnm-
bel' of net new lows. I called this the Bntlmll Buy Signfll.
CONTRARY ACTION (h
A good example of changing climax weeks occurred near
the bottom in 19G2. On the last week in May, 1962 there
were ROO net new lows. The following week (the first week in
Jllne) there were], 141 net new lows, The Bottom Buy Sig-
nnl rule called for buying at the start of the fourth week aft~r
the climax week of ],141 new lows.
T~le Bottom .Buy Signal did not mark the bottom of every
hp'n! market since 1942 because some hear markets never
have a selling olirnax. There were Bottom Buy Signals on the
following dates: c.
Oct. 14, 1946
May 19, 1947
Nov. 25, 1957
June 25, 1962
The bottom signnls of 1946 and 1947 marked two of the
[our hottoms in the three year bear market which lasted from
1946 to 1949.
The bottom signals occurred near the bottom of three out'
of the five bear markets which took place during the twenty-
two year period between ]942 and 1964.
There was no Bottom Buy Signal in 1960 because there
was 110 selling climax in that hear market. Since there was no
selling climax, and the highest yield reached during that bear
market was only 3.80%, it would seem like that bear market
shol1ld have gone lower.
That 1960 hear market came to a sudden end right after
the election of President John F, Kennedy. Perhaps the re-
snlts of that election contributed to the premature end. of
that hear market. .
My research has shown that the following conditions are
frequently found at major hear market bottoms:
 CONTHAHV ACTTON
62
1. There is low volume of trading, and them is Iitt lo interest
in huying or selling stocks.
2. There is alack of puhlic pnrtlctpatiou in the stock market.
The plThlie is discouraged and apathetic toward the mar-
ket lwc:111seof large losses experknced in the drastic de-
cline from the previous hull market high.
3. There is widespread puhlicatioll of a pessimistic economic
olltlook, and then' is lTsllnlly much talk of a recession near
a major bottom.
4. Then' is a lack of new stock issues. Ver)' few new issues
are ofTen~dto the puhlic during a lwnr market hecause no-
body wants to buy them. There is no mlthllsiasm for such
high risk ventures.
5. There are many bankruptcies n~sulting from too mnny
compnnies expanding too rapidly during the previous
boom. There is too much competition.
6. Many well known promoters and "financial wizards" en-
counter difficulties. Some of their corporate empires crum-
hIe, and some of them even leave the country.
THE TOP SELL SIGNAL
My search for a way to identify tllA top of a hull market
was more difficult. There is usually some evidence to Indicate
when a top is near, l)11tit is extremely dirnclllt to consistently
identify tlw exaet top. On« reason for thn <limenlty is that top
areas frcqllf'ntly consist of large rallif's and declines which
may sometimes occupy a time period of six months or more.
My efforts to solve that problem required many months of
deep thought and hasic analysis of cX~H'llywhat happens at
the top of a hull market. There were times when T thought I
was being too presumptuous in hoping 10 achievA what the
vast majority of people thmTght was impossihle. But then I
thought, "Is not the majority llsually wrong?"
CONTRARY ACTION 63
A careful research showed that the following conditions
frequently were fmmd at the tops of major bull markets:
1. When the market reaches a top area, the bull market has
usually been in progress for a year or more.
2. The yield on the DJIA has reached a level of less than 4%
at some time during the bull market. During the last 40
years, .there has never been a major top with~Jtlt the yield
dropplTlg to less than 4%.
3. Sometimes there is divergence between the action of the
DJIA and the Advance and Decline Index. Divergence oc-
c,urs wh:-Il the DJIA goes to new highs on successive ral-
lies, while the A & D Index fails to make new highs on
those sam.e rallies. Such action shows that the majority of
p~ople thlJlk. tl~e stock market is strong and making new
Jughs, when It IS actually weakening.
4. There are fewer new highs than during the earlier part of
the bull market. l11e greatest number of new highs are
~ad~ ~vhen the market makes its most powerful upthrust.
5. 1 her e ISless volume at the top than during the earlier part·
of the hull market. The greatest volume usually occurs at
about the same time as the greatest number of new highs
are made.
6. ~ew issue fever grips speculators. Sometimes new stock
I~SlTe:are sold 011tso fast it is difficult to get all one orders.
For mstance, a speculator may read about a wonderful
new company planning to subdivide and sell lots on the
planet Mars. He may ask his broker to buy 500 shares of
Interplanetary Land Corp. when it is offered to the public.
A few days hltcr the hroker might say, "Sorry, there was
so mU?h demand for that issue we could only get 200
shares. Some of those new stock issues have doubled in
price within II few days or weeks after the public offering
7. There is talk of II new era such as the "roaring twenties":
 CONTRARY ACTION 65
CONTIlARY ACTION
Index made a lower low on the chart. To understand the fail-
tllA "soaring sixties", "a new plateau of permanent pros-
ure situation, one should realize that, near the top of a bull
perity." marke:, the A & D Index moves upward in a zig zag pattern
8. There is large puhlic participation in the stock market. A
of rallies and declines. The failure occurs when the index
tremendous number of small investors gf't into the market
line, in a downward movement, goes below the lowest point
-right near the top. of the last previous decline.
9. There is genf'ral enthusiasm and confidence in the [uture.
The couditions found at the top are general in their nature. EXAMPLE:
They provide nnrortant gtlidance in identifying a top area,
hut they do not indicate the exact time when the market
should reach its highest point. The prohlem was to (levelop a 3rd
precise method which would consistently identify the top, PEAK
and also provide accurate timing for selling as near as pos-
sible to the very top.
.A. & D INDEX
The kev to the solution occurred to me one day while I was
thinking 'ahollt how my hrother and J h:1(l freg'ucntly deter-
mined our exact position fit sea while we were cruising aloug
the coast of Mexico in om sailing yacht the "Callnnt Lady".
Quite often we calculated our position hy taking compass
hearings on two or three mountain J)f)aks. I would hold the
compass in my hands and call off the hearings as I sight()d
across it at the mountain tops. My hrother would write down
the bearings and calclllate om POSitiOll in relation to those
The first peak is the highest point reached by the A & D
moutain peaks, which were showll 011rmr c11arts.
Index before the Failure,
The rnr-ruorv of cnlclllating our position in relatio» to the
The second peak is the top of the next rally.
mountain peaks on the llf1l1tical charts caused me to look fit
The signal is completed, and the time to sell is when the
mv stock market charts a little diffpfPlltly. I noticed that
A & D Index has declined for two weeks and at least 300
sdmetimes in the top aff'as of bllll m:ukp\s, there were three
points from the top of the third peak.
or f01Jf distinctive peaks on the Advflnee and Decline Index.
J call this the Top Sell Signal.
The third peak "vas llsnall)' the higl1est point in a bull m:lrket.
In the zig zag movements of the A & D Index, a rally or
There were other peaks near the top nlso, but I [orrnd a
decline must consist of at least two weeks movement in the
wav to identify the right peaks. same direction, although the two weeks do not have to be
+he correct-location of the peaks was shown when the A &
consecutive. A one week movement can not be considered as
D Index had a failure. By a Iailure, I mean th:lt the A & D
 CONTnA HY ACTION
66
a rallv or n (lPdinf'. A one wp('k movernont is only an inter-
ruption in a ra l1y or a dp<:'1ine.
EXAMPLE:
ONE "WEEK
MOVEMENT
\ Signals (lid not occur, the market direction was accurately
TH:IS IS NOT THIS JS TH:IS :IS
A FAIIlJRE A FAILURE A FAILURE
To form the third Iwnk, Ihp A & D In<1f'xmust ndvanoe for
at least thrf'f' weeks.
There can he no Top s-n Signnl unless the yi~ld on ~hp
DITA has rP:1rhed n level of less than 4% n~ some lime dm:11lg
the bull market. In the pnst, WIH'1l a Inilure has oecmrpd
with a highrr yield, it has no! 11<1<1. ;111Ysigllfkan~e. ..
Volume must hf' 10wN on the tlllnllwa k Ihan lt was em her
in the hull market. The Top Sell Signal must also he. con-
finned hy the New High-New Low Index registf'rillg [ewer
new hiP.:(l<;than enrlier during the hull market,
The 1")1111 market shonhllw under way for nt least one yenr
before the Top Sell Sif(nal occurs,
In the pnsl it has trd,en the A & D Index from 19 to 29
vleeks to travel from the top of the first pea k to the top of the
third peak.
Tho Top Sell Signnl did not mark tl1P top of pvpr? hull
market since 1942 because the failure and three peak forma-
tion did not appe::lr at every top.
CONTRARY ACTION
There were Top Sell Signals on the following dates:
April 8, 1956
August 16, 1959
December 24, 1961
The Top Sell Signals occurred near the top of three out of
the four hull markets which ended during the twenty-two
year period between 1942 and 1964. When top and bottom
indicated hy the trend signals.
Trying to pick the exact top and bottom is like reaching
for the brass ring on a merry-go-round. One can not expect
to catch it pvery time around. But if one could pick the top
and bottom at Ipnst half of the time, he would have a tre-
mendous advantage over the majority of investors.
~Te must understand that there is no physical law which
says the third peak must always he the exact top of a bull
market. There is no law which says that the fourth week after
a selling climax must always be the exact bottom of a bear
market.
1110se indicators are the ones which have been the most
accurate in the past, and therefore should be used to deter-
mine approximately the best time for action. We should
always try for pinpoint Rccurflcy, but sometimes we must be
satisfied with something less.
To pick tho top and bottom, one must religiously follow
mathematically precise methods. One must not give any con-
sideration to optimistic or pessimistic opinions voiced by
others. nor should one form an opinion of the market. If you
fonn an opinion, yom subconscious pride will make it diffi-
cult to change your opinion-especially if you have men-
tioned it to others.
I have developed the attitude that anybody's opinion, in-
68 com'nAlW ACTI.ON CONTRARY ACTION 69
cllHling my own, is only guesswork r always try to a~ W •• Yd on which I hnd worked for years, so I gave it my
fonning an opinion of thp. market, for the tme state of; arne. I called it the Haller Theory.
market- can he determined consistently only by facts ~xt chapter will be devoted to a precise deRnWon of
opinions. I found that I achieved greater accuracy by ~r Theory, its concepts, and the rules which produce
compiling and annlyzing facts in a scientifically cons, :~~11Signals.
manner.
If )'OU want to evaluate opinions, read the second las
of the Wall Street Journal. Under the title "Market
are published the opinions of the professional experts
who rna ke a career of ana lyzing the stock market. Almos
day YOlI will find cnnnicting opinions offered by the eXE
Some say the market should go up-others say the m
should go down.
Everyone of those experts is extremely intelligent, e
encerl and oonsr-ientions. But somehodv must he wro
should make )'011 stop anr] think.
\VIH'n Tcompleted my work on tops and bottoms, I re
that I Imd accomplished much more than I had thoug
possible'. I had started to rh~Vf']npa method of following
market trends, but I harl pnded up with a group of me
and Facts which blended nicely to form a completely
and diffenmt theory of stock market- analysis.
The theory was hased on logical concepts and actual
of haliitual stock market behavior. There seemed to
chance of misinterpretnt.ion, for every Imy and sell sign .
clearly nnd precisely defined. The lheory was amaZing!'
curate in its operation. T had never seen or heard of any
that could match its sirnpllcity and ar'curacy. . .
Although some of the ideas in the theory are oompl
way in which huy and sen signals develop is simp
logical.
;:rhere were so many different factors in the theory:
was nnahle to think of a descriptive name for it. It w,

CHAPTER 9 highs than new lows, the trend of the market must be upward.
THE TIAI,I,ER TflEORY
The IInller Theory is an unusual com hi nation of three dif-
ferent approaches to stock market analysis:
1. Fllndmnent:ll investnH'nt values
2. Technical trends
3. Contrary action
FII11(!olllrmtal inlwstmenJ values are dcl(~rmined by mens-
lIring tlU' wf'ckly yidd on the Dow-~onf's Tndustri:ll Average
of 80 stocks. Yield nnnlysis is the snnplest way to measure
[nnrlnmenral va luns. It is an important [ar-lor in detpmlining
whether the market is in an area which is safe from decline,
or in an area which is dnngerolls and vulnerable to an im-
portant df'cline. Tlw market can not stnrt a mnj;r decli~le
unless the yield is low enongh to discomage lmymg by m-
veslors.
The yield must 1)(' l('ss than 5% for a Tlc]](l S~'l1Signal to.
occur, for no impnrl:lllt dpl'lil1f' hfls started, dnnng t.lw past
40 years, when the yield W:lS 5% or more. After the yIeld has
de~lincd to less than 4'7;', a Top Sell Signal can occur. 'Vllf'~1
the yield declines to l('ss than 3%, a major hear market 1S
11sn~lIv110tfar away.
Te('.·',niral trend eval1lation is obtained by charting weekly
advances and declines, and weekly new highs and new lows.
These technical indkntors are important in recognizing the
7°
THE HALLER THEORY 71
internal strength or weakness of the entire slock market.
'When there are more stocks consistently advancing than
there are declining, and there are more stocks making new
For the market to establish a down trend, the number of
declining stocks must consistently outnumber the advancing
stocks, and there must be more new lows than new highs.
These two indicators show the technical action of all stocks
traded on the New York Stock Exchange.
Couiraru action is cnlled for when panic selling in a bear
market is so intense that it produces a selling climax. The
selling climax can usually be identified by the number of
stocks making new lows for the year. Contrary action is also
called {or in a hull market when certain fundamental and
technical action indicates that the majority of investors are
wrong in their opinion of the stock market.
.These three approaches are combined into a working
theory which consistently produces mathematically precise
huy and sell signals.
There are Four different signals produced by following the
rules of the Haller Theory:
1. Trend Bny Signal
2. Trend Scll Signal
~. Bottom Buy Signal
4. Top Sell Signal
The Treml Bny Sigllnls and Trend Sell Signals are \1.''0(1 to
follow the basic trend of the stock market. They occur when
the trend of the market turns up, and again when the trend
turns down. These trend signals have marked every major
trend change during tl10.22 year period from 1942 to 1964.
During that period, no major trend has started without being
identified by a Haller Theory trend signal.
The Top Sell Signals and Bottom Buy Signals are based on
72 TIfF. HALLER nJEOnY
TIlE HALLER THEORY 73
contrary action, and are clpsigned to im}jeate a huy spol as 3. There can he no Trend Buy Signal until after there has
near as' possible to the hMtlJln of a bel1r miHket, amI a sell been a Trend Sell Signal.
spot as nf'ar as possihle to the top of a hull markel. Thf' top
and bottom signals do not always occur at pvery top and THEND SELL SIGNAL RULES
bottom, for wild panic selling does ~lOt ~:lk~ pl~ef' at .every
market hottom, and accurate techlllcal 111(1IcatlOnsme not 1. The yield on the Dow-Jones Industrial Average must be
less than .'5%at the time of the signal.
present at every top. 1 1
When the top and hottnm signals e10not oeem,. t ie tr.enc 2. The weekly Advance and Decline Index must tum down-
. I,S ,-\'J'11'Incl'Ie""t"c· ']1'" market direction and the time fOJ nc- ward by 2400 points.
SIgna I" ". •

tion. One should act on the signal which occurs first. Th.o sIg- 3. The weekly New High-New Low Index must register 80
nal which appears first and requires ar-liou, is A~l1ed~ pnmflry or more net new lows,
signal. The signal which is second is a confirmlllg SIgnal, and 4. There can be no Trend Sell Signal unless there has pre-
vionsly been a Trend Buy Signal. (A Trend Sell Signal can
does not require action. " . 1
In recent yems, easily identified top and hottom sIgna s not occur right after a Bottom Buy Signal.) Trend signals
have oCA11fre~1 very close to important stock mflrket tops ~n~l should follow each other in orderly, alternating fashion
he Tal) Sen Signal of December, 19n1 was 0- such as Trend Buy Signal, Trend Sell Signal, Trend Buy
b ott oms. T ' , , l f A '1 19A2 Signal, Trend Sell Signal, etc.
lowed and confinnecl by the Treml Se11Signa 0 pn" .• 1 •
Ri(rht near the very bottom of the 19A?, crash, there was a The weekly yield is published every Monday in theWaU
I:"' ti] 1 Bottom TIuy Signal in the last week of June, 1962.
b eau 1 n " 1 J 19A3
Street Journal on the next to the last page. It can he found
It was Aonflnnl"d h)' the Trend Buy Si~na in. annary,,). , under the title "Dow-Jones Closing Averages". Weekly yield
when t1ll>trend had definitely turned up. . figures can also he found in Barron's Financial Weekly, near
The Haller Theory was designed to identify only the major the rear, under the title "Market Laboratory". These financial
bull and bear m~rk~ts. Minor trend ehnnges do not usually newspapers can he fonnd in many public libraries. It is not
produce a buy or sell signal.. . . necessary to keep a yield chart, hut you may do so, if you
These are the rules for klentlfYlllg each slgn~l as it hap- wish.
Weekly advances and declines, as well as weekly new
pens:
highs and new lows, can be found in Barron's and on the
Hnancial pages of many Sunday newspapers. Not all Sunday
THEND BUY SIGNAL nULES
papers carry this information, however.
1. The wr-ekly Ae]vance and Decline J nrlex mus! turn upward If you compare different newspapers, you will find that the
weekly figmes for the advances and declines and the new
hy 2,'100,Pko1intNs.,II'O',ll New Low Inrlex must register 80 highs and new lows are not the same in all the papers. Differ-
2. The wee v ew .lh·· ,-

or more net new high~. ent papers seem to puhllsh slightly different figures. For the
 TIlE HAI,LER TIfEORY
THE HALT.EfI THEOTW 75
74 . 1'1 hut the two weeks do not have to he consecutive. A one
greatest accuracy, T wnulr]
" place my Inifh in Bnrrou s, w llC,'
II 1 wpek mOVPlmmt is not a rally or a decline.
has an excdlpnt' record of accuracy, and is the host wee c y
6. Take no action on the rally approaching the second peak.
financial puhlicnt ion in the United Stntes. , , " ,
It makes no dHfen~nce whether the second peak occurs
'T'1 net melhod of calclllating and C'hnrtmg the" ()pkl)
j ne ex.• " , ' 1' I I hefore or ::tfter the failure,
advances and declines, and the weekly n~w llg lS nne now
7. The A & D Index must rise for at least three weeks to
lows has already hcen deserihcd in an enrller chapter. form the third peak.
8. Sell when the A & D Index has declined for two weeks
BOTTOi\1 BUY SIGNAL HULES from the top of llw third peak. The A & D Index should
also decline at least 300 points below the lop of the third
When 750 or more net new lows are recorded in a week,
peak. H is usually s:lfe to assume that the third peak has
1. that week is the first climax week. 1111)' at the start of the
made a top when there has been a decline of two weeks
fourth week nlter the first climax w()ek.. ' and 300 points.
2 If before the start of tllP fonrth week, there IS a week ~1I
9. Weekly net new highs must be less on the fhird peak
, which rhere are mom net new lows than tllere were 1~
than earlier in the bull market. On the third peak, the
the first climax week, onncel the count from the first c1l-
hen huv at the start of the fourth week after weekly net new highs should not be much more thanhalf
mnx wee k .' T ' • f 1
the week which has the greatest rmml ier net new0 OW\ as much as the gre;Itpst number of weekly net new highs
recorded earlier in the bull market.
3. If tlH're is no Bottom Buy Signal. buv at the next Trent
10. Volume must be lowpr on the third peak than it was ear-
Buy Signal.
lier in the hull market. A six week moving average of
weekly volume is the most precise way of measuring
TOP SELL SIGNAL HUT,ES volume in connection with this Top Sell Signal.
The vield on tIl(' Dow-Jones Indllstrial Av~rage m~lst 11. If there is no Top Sf'1l Signal, sell at the next Trend SeII
Signal.
L Ilave " re::tch,
1 n(l " level
n
" of less
.. , than 4% at some time dllr1ng
the hl111market. , A IIhough there has never heen a false Top Sell Signa] dur-
2. The hull market shrmld have been under way for a ) ear ing the lnsr twentv-rwo years, such an event is possible and
or more. 1 f '1 should he considf'red. It mi,ght he wise to have a method of
3. The weekly A(lvnncp :11HlDecline In.lox rnusf 1:lV0 a :11· rerognizing such a false signal if it should occur.
It ~vollld probably hp safe to assume that a Top Sell Signal
4. 'The first ppak is tlw highest point r0:1dled by the A & D , Wasfalse if the sign::tl was followed hy the A & D Index rising
Index hefore the Failure. D to a new hull market high, at least 500 points above its high~
The second Denk is the top of the next rally of the A &.' est previous point.
5. ', '11• 1 I' of the A & D Index must consist
Index. A rat y 01 nee me I' , Another indication of a false signal would occur if the sig-
of at least two wpeks movement in the same r irection,
 THE HALLER THEORY
77
nn] was fnllmved hy the NII-NL Index: rising to a new huH
market high. Still another way of recognizing a false Top
Soil Signal would he for the six week moving average of vol-
lime to rise to a new hull market high, after the Top Sell
Signa! had occlIrred.

Here is a list qf the HnlIer Theory primm)' signals which

o required action. There arc no conflnning Signals included in
'0

this list.

Signal Date DJIA

---~~-----------------
*
~
,.,
g
Trend Ruy Signal
Trend Sell Signal
Rottom Buy Signal
September 19, 1942
July 27, 1946
October 14, 1946
107.50
197.63
168..'37
~
Top Sell Signal· April 8, 1956 521.05
~ Bottom Buy Signal November 25, 1957 438.68
8
'0
Top Sell Signal August 16,19.59 658.74
~ Trend Buy Signal January 9,1961 615.66
•..IE Top Sell Signal December 24, 1961 720.87
Ho'tom Buy Signal June 25, 1962 . 535.4~
~ '"" o
'" There w-pre only nine signals which required action during
~ ~~ the twenty-two years from 1942 to 1964.
?~
~~
r ~

'"
.:1
 THE TTAT.T.En THF,OnY
78
H~n~ is n list of :11!th" signals prodllced by the l lnllor
Theory dnring the pf'riml from 1942 to 1964. CHAPTER 10
Signfil Datp . A
DTT Typ(~ of Signal
- ,-.--
--·--·1-- S' -1----S;'-I;-i-0,1942 I07.50 Primary CHART REVIEVV
Trcnc Buy : Igna -
Trend s-u Signal J 11Iv z97,r , 1";ffJ
"
1"
,
]97.03
lRR.37
Primary
Primary
Oct .. I ",,,.,1)
At'
Bottom Buy Signal
(} ]047 ]71 f52 Confirming
Bottom I'ny Sigrnal May .I 0,' .
- - 19 '7 ] R477 Confirming
Trpnd BlIYSignal Jnly 12, . 't" .
.
Top Sf'll Signal . I
Apri 0,. 0 ] ""'''
;}.)O 0!i2105
•. 0 Primary In this chapter is presented a review of stock market action
Trend s-u Signal Mav 2G,]95fi 472.49 Confirming during the last twenty-two years, showing how I analyze the
Bottom nllY,Signa I Nov. - 2'" ,oJ,.
]9"',7
00 4~R.fiR Primary market and recognize b11Y and sell signals, according to the
Trend Bny Signa! Jan. 207,105R 4!i0.fJ() Confirming rules of the Haller Theorv.
AI1g. 10), ]9 "'9 O!"'lR.74 Primary
1'0\) Sell Signa! -.. ), When reading this chapter, it would be wise to frequently
-
Trend SP11Signal r::
Sept. .J, .0 0)' ]9"'9 "r::21
,).) . R. Confinning
Q 1""1 f,IS.G6 rrimary consult the accompanying charts to better understand the
Treml Bny Signal Jan. " ,,,) actions descrihed in the text. I wiII describe the market ac-
. ,." 19"] 720 R7 Primary
1'O!1 Spl\ Si~1J1al Dec. :;"', . I)- •
,.., 1()" 19"2 A-/920 Confirming tion at length to help you understand every detail of the
TrpneI Sf'll Signal Apri /":J, •n .1_0.
Bottom Buv Signal Juno ()'" 1""2
/.,0), ,,,)
r::,,'"4"
oJ.)'). - oJ
rrimary Haller Theory.
On some of the charts, the Advance and Decline Index
Trend nllY . SignaI .Jan. G J,
1n03
• J,
G02.23 Confirming
went IIp so far that I had to reduce the scale to keep it on
the chart. On a few of those reduced scale charts, there was
snv- tlmt action shollld, he! important trend-changing action which I wanted to show in
1'1.1(' 1"11I('S O.f tl] v. T·TallerTheory
O
.
the larger scale, for greater detail. To accomplish this pur-
taken on the prinwry signal, which occurs first. The. ~Igna
pose, I used reduced scale and regular scale for different
which nC('lIrs secolH! is a confirming signal, and rf'(llllles no
time periods on the same chart in several cases. In that way
action. If there is no top or hottom si~'.n<ll,one should take
I was able to confine the use of reduced scale to the periods
action on 11]('next Irem1 signal.
when there were no important buy or sell signals to illustrate.
EXAr-.f1"lF.: Sf"lIing was (';]l1c(l for on lhe Top Sdl Signnl of The nurnhers in the scale of the A & D Index go up to
D('c. 94, 1961. The Trr-nrl Sell Signal, which f~)ll()\\'ed on 9,000. 111en Ihey start over again with 0000 - 1,000 - 2,000-
A..-pl1
·'120 IC}62 W<lSa connnnin<1 siznnl, and re(l'llrccl no
",' , , b 1:' ) 24 rm- 3,000 etc. It WaS done that way as a reminder that the A & D
. f since sr-llinz llad already I<lken place on T cc. , Index is a cumulative index. The numbers of the A & D Index
I
tlf'TaCIOlI,< ." h

]961. do not have any importance as definite numbers, but rather

as units of measurement which are used to measure the
am01111tby which the A & D Index changes its direction,
79
 1942
19113 .- _ - ..__ .. n.TIll 19"" ~-
~~--
1945 DJIA.
--_ .._-- 1.<;0
-- ---
- -"- 200

~- l- ~-
I-
I- -f...- I-
•...
-- -_ .. - - -e--j /\
~------ -~- e-
V-\ 1 190
1-- -
,- _. JlID.ISTRIAL AVF.RWE
DOW-.JONFS 1---
FJ ~
'V
I\::; V-- 1.
I- _

--~'--r-
DOW-JONES
I NIlUS TIl IAL
-
A VF.RAOF.
j
180
~ -- ----
I-
V" f...- - .-- _.- - 1------ ·-1-- /
i-
-- - -
A&:D - -- - - I- - .-1-
----
1....-
N ~ fJ' v -1-1 120 A&D -
6000
..
II i'\ II
170

8000 1-1-- I ~
'-
7000
6000
~-
1--

~ -
~
\ --
/~
.-
~
~
f' ""
1--
-187lt
.-
1\
- 1--.

-'
110 5000 ---
sooo -- _.- - _. --1-- -
1/
/
1/ to
j
1/
'" 160

5000
booo
_. ~ -- -- -'17
~ <,
V
f-- l- I-
1-.-
- I--
j
IN
- - -,
DECLINE IlIllJi:X
1-1-- --
- 1 00 3000
20001- --1-
7
k"
-+~ .--1--
,/'
V
.
1.••..•-..1
lho
3000 - - -- Anv~NCE
" -- 1000
ll' /--
I~,
-r
2000 I- -- -- J -- _.-
REJ)\JCF.D SCAI,E IN 19lt3--
-...,-- - -- - ‫סס‬oo .--- -- N - - .---.- ~.
II
-- I- --- .- ._-----
1000
‫סס‬oo
--
- --
-_ .. ·--1-
._ .. - -- - --- -- I- r\ ~I
j
-I-
f-- >-..
--- ._-_. -- I- - 1·- I- - - I- 9000
8000
-' '\
-- ~- • ..-
IN -1000
I- --1--' I-

9000 I- I··· TRE1lD BUY SIONAT,

- r -'- - -- -'-" --- I- I-
--l-
-- - I-
I- ---- .-1--
7000 -- --
6000
-- -_.
-- --- - - .-1-
}oJ I
L- ._- -_.- 1-
._-
ADVAIIOE &: DECLINE I.IIDEI
[\-
_c'

I- - _.--. 5000 - ..-1- - - ---I- -. V01'10

f7
.

.- - --_._- :-::: ' .._'-- 1-.- - --f-

._- . ._- -- 'f, _ 4000 .- ...'

~tEl.
. y
8000 .•....+2h5o ..
- ~ --I- ---
- ,'- ._. -- -"--- _. _ .. I- - y IELD 3000 f- LV - -- - ,-
7000 - ._e'_·

'tJ
f-
IIEW
r~
-
-
--1- ._- --
1- --' - .-- -- -- -- ,.0 2000
- - - -
_J
~

lti .'--. -
- _.-- _.--- 1- - I- j,- HI{I- -~ -
- ..•
- ,.'} 1000 - ~
- - - -"-- -- - --
I- --V .",-
6.0 ‫סס‬oo .. ~[.L - -- - mw
6.,
....
6000 -'
~ f'}
-- .. - --I- -1- ,/ -_. J')
I- !-1 L.•.••• , . ---- - _.-. ---'- _.f- 9000 II -1600 - ...- 1--
YIEID _1-1.----
f- _ •....•- ~--,..- ...:: ~ ..
~- --I-- 1--- 4.0

.-
7.0 000
L.,.- - --l- 8

.-~--
.- I-- -
i- ---- I-" -- -- _.- - 7.'} -- . 1-- b.5
~ L-
- - - - -- - -f...- - 5·0

g\
-- --1-
. _1-· - - .-----
-- -- -- - 1-- -~-
..-1·-
-1- .. -- ._--I- -- -1-- ---- 5.S
-- ! •.
- -- -- - --_. -
boo -- .. ' f- -- -- -- - -f -- I- -- -- -----.- -- -
i- i..
·· - I- - -- -" - 500 ._-- --+-_ ...
300 - 92 1 1-
86 A -
--- I- - - ~ hoo
200 -
1 .-J '\
~.J
•.
I l- .- ~ L-o. 0t; I ••.•
100 --I· -I-
... II' 3001--
r J1
[t IVlJ
o '-'-- ..- - 200 -
r\J -- -I- ---- ..
INDElC I
100
~ -I- T NEW HIGH-NEW LOW
-rr-- .-- ..... .. - .--- --1-- 100 ?\;:;J II
.-
_ __
V·~
.- -' .--- --- o
200 .. .

-I- -I- f...- --I- I-- _.1- -- I-.

300 --- - .- I- I- -I- 100
I
-- - -~I- -- I- -'-
!too ."
.--- - - - ._. ._- J , II: A II J J~ SON D J F II: J. II J J J. SON D
I- .-- --l- I- -- - ---
N D J F II A 1/ J J A S 0 N D
A S 0
J r 1/ A II J .1

81
80
 -p----f-
r

-+----
J F II A II J J A SON D J --
F -II -A --
'" -J ,I A SON D

82
 1951 :.;
. ,'j: 1952
---1- - .- 1953 _. I---
_. ! - -- _c.
--[f1]'-1~ ~:
19,0 f-- ..
- •.... .-
-" _- .. , .._.' ,---- - .. _- 4!f I 1-- DJIA
':It ><;<
-- -- - # D01'I'-JONJiS

1-. ._-
.... -.
D01'I'- ,TOIlES
TNlJUSTRTAl, HOOGE
.-

1\
...
'~-. ~
i~
~."iNnIJSTRIAL
I-
AVERAGE
I--- --

II - -
'\:~/
IU t-;
2 90

2 60
I \
,
..
\
'

. 'itH • J N
-- ..
J I·' 'if: ~~- - 1-

l\:tI ~\
J . ,.,~?f I,: 7~ ._- .- 2 70
.. -·1- -. ... .. ..• - --"-'-

I
r:.. I
~ j
_.,,--- f- _. ---- ~ -- -_. 1.\ J
A &D - ---,.". ~_.
- ..

_. - ~ START OF
- - -!-- I \ ),
1\
rv ijhl 1-
2 60
2 000 1-. KORF,A.NI'/ill .1 v
~.
'-,;,: ...•.. f--. -l- I- -- - - .- -

~A~= _ .. ~
I---
.- ~
1 _. , ~
..... .'
1000 ~ ~
,~
~" ..
-
.. 1-. -~
1-
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A D INlJl':{_. Ii" \ I
‫סס‬oo . . A ; t~ -_.- -- I--.
J 7 ~ -·1- - ..
r
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-
r'\
1\
- ~ .-' -_ . •.. '"
"

_. -' f '\ [1
9 000 7 V- :~1J -- -- .- -l- I--
,t.r'
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,,
-/ - .- r J .I-
_. - ;~
8000

7000
f-
.•. i- I-- - -- ..

.- I- I-
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f
~r ...

1- -
.. ~_..
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'"
D INDEX ..
.
.:~

"~l

-~,
1>t
.
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l

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..

c'
.1'4
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-- -- I---
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I

6000 --- .. I- ..• .. L _ -_ ... - .- -1- _. ' "

;,-;"

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--- -

,..._. {£1. ~,'

..
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--- .~- 1-. -_.- 1-. - . , 5.L5 y IEID
"000 .- - - '-1

1,000
-:,..-' ~
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...

-
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-'
-
--
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._..:....~

--- -
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-
-

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,
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rw~~
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6 .S
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.,..... ;;'" 1"- I.--- .,.....
--_ .. _._- V ~ ~i\ r... .•..... .
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'/ '.
.- - ---
.. - •. 1--- .. - -- -I--- - ._.- Il>
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. -1-· -- _.- .. - .• - ._-- ---
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1101" I" "\. 1 '>' -L J...-_. e-.
. -- .- -'-. ~ 1-·· ..
~ f~
~
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300
200 l\~ .y, A J
. ~?
(f= ~
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.,-,
,'.'. 1 •..

--- _. r" ..
JI
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'--
100 -
~
_ r.
~ ~.~
1\ r. .;
~; ,I
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- .'
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--
.. ... - ._- --1-- . _- _. ... _- .- - .~ ~
"

i:l,NII- Nt TOOl':{
100
T- - -- --
'

._- ,.. .-
200
.. __ .. ~.- -f-- -- ... 1-'"
N!I .. I'lL IJIIJEX iI I
300 ,
_....l_
i l
.-
.~ -'-r--i' I
.- - , I I I \ , l k"
b,
•
, , !f " "
~
-;h-rIT- J A III 1J J[.l 5 I0 Ilf
. !
I IJ I J I F I liT.I. I !II J i" J A 5 i a I JI D I
 '---- D.HA.
,10
195h 1955 ,00
-- -- -

~;~1~[-~-~~-
490
460
1170
],{,(J
- - - - - - ~SO 11,0
- ~ -- IIho
tG"·,JONP.'
IN1l'~rnl"!l.t. AUF'PAI1F. 430

7000

6000 _~~=z
-I _n~wmE _1L
-2280- --- - --- ----
- - - )2S
---
==- -I -- - -- - )00
2000 ---1---1-- - - . ,- --- .-
A & D INDEX

'-1-1-1-

-~ _.
- 1'-[::- ..... coo :
--.- -
~I-I-------
--~- --

L__~~~=
~: -
--.- ---, --_.
- -

-- ,\1--
.- -
-l-l-

BOTTQyr_j,lI
AnVlNCE ~ UEC!-TNE nT1lf1:
RF.lJ1IGF,n BCA.LY. IN 1r>51J
L
_ -
~.91
-- ----
-_ -- --- -- -- --- TmD
).$
•
>000 __
-i-
= ,--.'
-f- -- I!E:'!' _ --i-

............•
sur5ro~:~Lk
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r~
4.,
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s.e

5.0 ~-j---
-- --
f-+- _ -----.- _+_1- -- '-"-.
---------------~~5$
_ ,.0

$.> ~-7~~~
o
P\A 7~ 1.1.-----
~ ~ ~A~~W- ~ ,\
II-I- h
200
~
Loo -
-- -

_.
---

- --+ ------
'--\f-
- ----
-- -
,/
- ---
-,:. --
,00- -- -. - ~-~ .2~r:x-----. - ---
600 .- ---- - --- ----- ._- -- --f--f-- - --- ----- . -
100 -----+-. --.- 1--
NDJFMAlfJJASOnDJF. BOO . - ------ 6,6.... _..
JFIlA.IlJJAS OllDJFIIAlIJJA50HD
-- ---

1\6
 _____
N=~=-
,_'-- OOWJONES
IImISTRUJ, AVF.RAGF, ,.,'
""; j:;:r I
\/\ 710

____ .. _ f- _ .... - J\ iF \ - _. ~:
__ ... __ ....• _._. _.. V 680

=
\ _ _ ... _ .. . I 670

'".rr =:= /~--=: -_. -r/- fFiK

.- -' ;;;" _. fu~

E:~~
HD.. \ .. ',. :; \- - ~., - _. -. c:-- 6Ilo

1000 \ 'j~=._ \ =::1- - - ~17- ..'j.: =: I=:-~

‫סס‬oo - _= _ ~.._.~ ._:~ .1' •••• t- ..- 7' ..610

8000 ..
'i---.-- - -.-.--
9000------'-

1- -- --.. -- ~i61O -f-

.I\V

-- L
I
/----\.'\.~

-~-+-"--.
FAIUJP.EV
...
1_...
..~~. 'ro~
::'!.2
5: ~

570
-J. . - ~-
7000 -

6000
.._

-
.. _

'11 ./"
---."..V
=: r;. t i '.~.=
... -, .,- -1-

. -r '-.J
~'~:NAL

-- .-
SELL 560

SION~

.. ~_ '-- -i-- ..

:==~=~~~~=!~~------_
...--
J. &0 D INDEX

't
----- _.- ., .- _. -'2.97
T" - fUr.D
':::---- -_ ... _. __ .__ .. ~-- •••.•.3.0
--- .. ',,-,::;.r=:;~::::' --.. ---- 3.5
.. - -- -- YIELD --- ---. b.o
_. - - -_.- _.-~ -
300 .- -_......I· -- ..
- .- ....
_- ,---
200
100 .
t
o
100 ~
1
200
300 ._ __. ~I- Nfl - NL INDEX

hoo JF MAuii A s'0 NDJ F-JiAf-NI J IJIJ. I·so II D

88 89
 -- H-- III --1- 1964
-
1965 _. - 1-
DJIA
.- -- OOW-JOliffl 900
IIIUJSTRIAL HF.RAOF.
- 660
- - ._. -_.,.- - --- 660
- -- _. I 640

V_~
.-'\
\ 1- .... ._-
- - f-.
620
600
7 ~ - -- 760
A~lJ
7 .- )rd - -- -- -- - r- - 760
PEAK
~
2000 ..

--
I-
n ''\
_. - - -
7&0

1000

""
--
,I. '-f--. _. l -
_.
- -- - ~
‫סס‬oo _ .._-
-- -- --_ . .. --- -
-- --. -
1- ..- -
-- - -
).09
1-
A & D IIlDEX
-

-T
-~=='~~ YIElD
- --. .- - - -
_ ... .- _ ...
- --
...

- -
.-
_
- -- _.
.

.• -
-
-- -

- YIELD
-
'f.

).0
_. - '-
~-

1\
.~ ....-: ---- -- - -- -- - - JS
- -- --- ..- -.-- _.- .- - -- b.o
)00 - -- f-- - - .- -- - - -
200 ... .- _. .- - -- _. -- - - -
,IJ ~
100
II' .r ~ 1 - .- -- - -
o
100 ---- -'--- ~-
1I1l-1lL IIlDEX
M

.... .- _ .

200 -- .-~- - _. - - ---- -_. _ ..

.... ._- - - - .-
)00 -... .- - -' .- --.'-- -- ._-- - -' .- - '- - _.'-
. - ...
--
".__ ..
'\- --
-- -- - ...._-
._- -- --_. _ ..~- - - _.- 28
26 _._- ----
;;:;, -~-
_ ..~_ .. -- - -- 26
24 .Ie- -~
17- --- -v---
-- --'- - - -- 2b
22 - - - --- -- -- - -- - 22
20 1-
16
16
--
- - - :1== ~=.=
-_.-
-- - --- -- --
--_._._- -
--
- -
20
18
16
14 -- VOWIIE
6 lIEEK VOVIIiO AVERAOE
1b

J F II AIIIIJ
I
~1~ " 'n J F II A II J J A S 0 II D

go
 I:HA TIT nEVmW
1942
The yield of the Dow-Jones Industrial Average was more
than 5% during the entire year of 1942. So there could he no
Top SeH Signal or Trend Sell Signal during that year. The
rules state thnt tllere can only he a Trend SeU Sigmll when
the yield is less than 5% at the time of the signal. Then~ can
not be a Top Sell Signal unless the yield has decreased to
less than 4% at some time during the hull market.
During the first part of ] 942, the stock market continued
the big decline which had started several years before. The
lowest point of the market was reached in April.
There was no Bottom Buy Signal because there was no
selling climax. The greatest number of net weekly new lows
reached during 1942 was only 420, which was considerably
less than the 750 net weekly new lows required to indicate
a selling climax.
A Tr~nd Buy Signal occurred on Septeml)(~r 19, 1942 whIm
the A & D Index had risen 9,,1.50 points from its lowest pre-
vious point. Enough net weekly new highs to confirm the
signal had already occurred several months previously, dnr-
ing the second week of Jllly, when 86 net weekly new higlls
were recorded.
During the rest of Hl42, Ih0 stock market rose stl~adily and
strongly.
]943
Tho vield was more than F)r'!r, (lnring the entire year of 1943,
so tJ1f'r~ could be no sell signals of any kind.
Dming the first part of the year, the market made a smooth.
and powerful rise, accompanied by increasing volume. It was
characteristic nf the early stage of a bull market when great
strength is displayed. The last half of 1943 was typical of
CHART REVIEW 93
market top areas with the NH-NL Index past its peak, and
slmwing weakness. Volume had also reached its peak about
the same time as the NH-NL Index.
The A & D Index was having large reactions, and made a
lower low in November. That lower low was a failure, hut
the yield had not declined to less than 4%, so a Top Sell Sig-
nal was not possible, The high yield prevented the start of a
hear market, even though the market action was typical of
top areas.
There were no Signals of any kind during 1943. The only
action required was to maintain the long position established
in 1942.
1944
The yil'ld was more tlwn 5% most of the year, declining to
less than 5% during the last few months. So no type of sell
signal was possible until Octoher. From October on, it was
possihle to have a Trend Sell Signal. The yield remained
more than 4%, so a Top Sell Signal was not possible.
During the middle of the year, heavy volume appeared
and started off the second sta~e of the bull market. The
thrustkept the market heading upward strongly in the sec-
ond hRH of 1944. There were no Signals of any kind during
tlmt year.
1945
The yield was less than 1)% during the entire year, so a
Trend Sell Signal was possible at any time. The yield de-
creaser'! to less than 4% in September, so a Top Sell Signal
was possible after that time.
The strong upward movement, which is characteristic of
thf' early stage of a bull market, continued during the first
half of 1945. There was a fairly large reaction in July. That
 CfTAHT nEVTKW
94
reaction only carri('d the A & n Index downward 2014 points
from ifs highest pr('vions point. so it did not callSe a Trend
Sell Signal, which requires a decline of 2400 points find 80
net we('kly l1('Wlows.
\Vl1('n the A & D Index declined in [uly, it was not a fail-
ure because the previous low in May was made on a one
week movement. A one week movement does not constitute a
rallv or decline. It lakes a movement of two w('pks in the
sa~e direction to make a rally or decline.
Toward the end of t118year, the market resumed its strong
upward movement. Th('r~ were no signals of any kind rlur-
ing 194!).
';f1w natural dcath of President Frnnklin D. Roosevelt on
April 12, 194!) was not tno much of a surprise and t1.1f'I'dore
did not shock tlw stock market. It caused only a minor de-
dine.
1946
The vidd was less than 4% during the entire year. so it was
possih1~ to have a Top Sell Signal or a Trend Sell Signnl at
any time during 1946.
Doring 'March the stock market ('xj)('rieneed its largest re-
action iJ~ several yenrs. At tho bottom of the reaction the
A & D Index had onlv r1eclinpd IGOO points from its highest
point, so no tnmd signal occ11rred---even thOllgh there were
170 w('pkl" riot new lows made during that reaction.
TIl(' hiE;IH'st point of the bull market 'vas made in June
when the DTIA reac11Pd 212.50. It was a level remembered
for years bymany sad investors.
At tI,e top of the bull market, tlw volume was much lower
than it had heen durin?: the strong nclvance of Jan11ary and
Fehrnarv, ]946. Th« NH-NL Index also was far holow its pre-
vions peak when the hull market reached its top. The greatf'st
CHAnT REVIEW 95
number of net new highs occurred in January and February,
at the same time as the greatest volume appeared.
There was a failure of the A & D Index in July, but there
was no Top Sell Signal, because the market started down,
and never recovered to complete the top signal formation.
A Trend Sell Signal marked the start of a bear market on
JIIly 27, 1946. At that time the cumulative net weekly de-
clines reached 2700 points helow the previous high point of
the A & D Index. On the same date there were 285 net
weekly new lows recorded, which was far more than the 80
required for a complete signal.
Right after the sell signal, the market had a weak rally
which lasted only, two weeks. Then came the crash , with
prices going down rapidly on large volume. It was the worst
market decline in many years. -
Then came a clearly defined selling climax when 758 net
new lows were recorded during the third week in September.
The Bottom Bny Signal called for buying on October 14,
1946, which war; the starr of the fourth week after the selling
climax. At that time the DJTA was at 168.37.
During that fonrth week the DJIA reached its lowest point
in 1946, which was 163.12. The lowest point in 1947 was
Hl:1.21. Tho very lowest point of the entire three year bear
market was destined to occur in 1949 when the DJIA reached
161.GO. During the three year hear market. which continued
after the Bottom Bny Signal of 1946, the DJ1;\ never went as
mnoh as seven points lower than the 168.:37 recorded at the
time of the buy signa 1.
- ~
Dnring 1946 the Haller Theory Trend Sell Si~nal clearly
indicated the start of the hear market and the time to sell out
the long position estahlished in 1942. That was also the time
for those interested in short sales to establish a short posi-
tion. Then the Bottom Buy Signal indicated the exact time
to cover shorts and take a long position.
 CHART :REVIEW
96
1947
There were large rallies and declines during 1947, hut the
market could not gather enough strength to sustain a 111111
market.
Durinz the first h::J1fof the year, the A & D Index went into
a big de~Jinc wlrich went down 5000 points. The yield was
less than 5%, so there could have been a Trend Sell Signal if
we did not have a rule which prevents us from giving up a
good long position tahm at a Bottom Buy Signal.
The rule ~tates that a Trend Sell Signal can not follow a
Bottom Buy Signal. A Bottom Buy Signal must be followed
by a Trend Buy Signal hdore there can he a Trend Sell
Signal. .'
Bear markets are sonH'times charnctenzed by WIde reac-
tions, upward and downward. Some of the declines may carry
prices below the point ",'here one had. hought at a Bottom
Buy Signnl. But the huying opportumty offen,d hy a ~):ar
market selling climax Is so outstanding that the pOSItIOn
shon ld not be giVl'll up f'asily. . 1948
If one had heen frightpnl'd into splling on that 5000 pomt
decline of the A & D Index in early 1947, he would have been
offered :1.nother Imving opportunity in a fpw wpeks. at even
lower prices. Ano'ther selling clim:lX occurred during the
third ~~'~ek of April, whr-n 780 net weekly new lows were
recordf'd.
'111emles called for hllying at the start of t1H-~ fourth week
aftAr the climax week. The date for lmying was May 19,
1947. At thnt time the nJTA was 171.52. That week turned
out to he the lowest point reaf'hed hy the stock market duro.
jng 1947. -.
On May ~9 some stocks were slightly highe; than they,
were in Octoher, 1946, hut most stocks were shghtly lower,
on 'May 19, 1947. For an investor who had already hmlght on;
CHART REVIEW 97
the Bottom Buy Signal of H146, the Bottom Buy Signal of
1947 offered a good opportunity to do additional buying at
the lowest prices of 1947.
A Trend Buy Signal occurred on July 12, 1947 when the
A & D Index had advanced 3750 points from its low, and the
NIT-NL Index registered 90 net weekly new highs. An ad-
vance of 2400 points is all that is required of the A & D Index,
but the signal was delayed by the inability of the NH-NL
Index to reach 80 or more net weekly new highs. That buy
signal was a confirming signal, and no buying was called for,
because bllying had already been accomplished on the Bot-
tom BlI)' Signal which had occurred before it.
During the last part of 1947 the A & D Index went into a
3600 point decline. There was no Trend Sell Signal because
when the A & D Index had declined more than 2400 points
in the first week of December, the yield was 5.08%. The fol-
lowing week the yield increased to 5.33%. Then the yield of
the DJTA remained more than 5% for almost seven years.
The yield on the DJTA was more than 5% during the en-
tire year, so there could be no sell signals of any kind.
Dming the first week in April the A & D Index recorded an
advance of 9A50 points from its low, and the NH-NL Index
showed 210 net new highs for that week. It would have been
a Trend Buy Signal except for the fact that there had been
no Trend Sell Signal since the Trend Buy Signal of July,
1947.
The rules state that there can not be a Trend Buy Signal
until after there has heen a Trend Sell Signal, because there
is no need for a Trend Buy Signal when a long position has
already been established, and is still being maintained. The
trend signals must follow each other in orderly progression.

cn" TIT J1EVTRW
98
During fhp third wf'pk of Angnst tllP A & n Index had df'-
clined 2ROO points from its high, rind there were J 00 net
weekly new lows. But th('rp c(mld nol hI' a Trend Sf'1l Signal
becanse the yic1d was more than 5%.
The stock market had a fairly good rally in 194R, hut the
market could not muster (mongh strf'ngth to sustain the ad-
vance and get a hull market started. Tlw big rally of ]948
turned nut to he only a secondary reaction in a three year
bear market.
Of COlJnW that was not 8pparent unt il aflerwnnls. At the
time it bpppnf'd, it rml!Iy looked like the start of a new Iml1
market. The years of 1947 and 1948 were pnzzling and fJ'1lS-
trating to most investors, for it was difficult to nnderstnnd
what was hflppening.
The Haller Theory did not call for fiction of any kind dur-
ing 194R, f'xcept to'm::Tintain the long positions f'st:.Jhlislwd
at the wonderful hnying opportnnities identiflf'd hy 111f'J3n!:·
tom Buy Signals of UW) and 1947.
Ul49
Tlie yi('ld was more tlwll 5r:1J dl1l'ing the entire )'f'ar, so no
sell sigrds of any kind were possihle.
J 949 stflrted 011tto h(' ::111
at her bear market year. The mar-
ket driflr(J down until JII11('.Tn Jnne tl]('r(' was a small sP11ing
climax, hnt not enongh to meet the n~qnir('mf'nts of tllP HnJlcr
Theory. So no action WflSc:111e<1 for.
During (he [ourll: week of July the A & D Index h:Hl :1(1.
vanced 24fJO points from il~ low, and tllPre were 110 net new
highs. H was not a Trf'nrl B1\Y Signal because it was not
preceded by n Trend SP11Signal. An investor following the
Haller Theory would still have the long positions initiated in
194A and 1947 at lower prices.
Looking hack, we can see that it would have heen a good
CHAHT REVIEW 99
spot for additional huying, hut there was no way to know
that at the time, unless one had noticed the higl~ yield. In
June, 1949 the yield had increased to 7.46%, which was a his-
torically high level. ThPfe have only been a few times in this
century when the yield went over 8%.
During the last lUlU of 1949 the market continued moving
up strongly on increasing volume. By the end of the year,
the market had gone so much higher Ulan the 1948 peak
that it looked like a major hull market was under way.
TIle Haller Theory called for no action in 1949, except to
maintain tlw long positions established on the bottom signals
of 1946 and 1947,
1950
The yield was more than 5% during the entire year, so 110
sell signals of any kind were possible. .
The market moved up on increasing volume, interrupted
hy a large reaction in July. That reaction was caused by the
entry of the United States into the Korean War on [une 27.
I remember spending much time in a broker's office, watch-
ing the panic develop.
Dming the panic in July, there was a failure of the A & D
Index. Since the .'yield had not declined to less than 4% ,
,,' -
'·here could be no rfop Sf'l1 Signal. Therefore the failnre had
no significance at aB. The panic did not cause a sell signal or
end the hull market. When the reaction ended, the market
moved upward again on good volume, through the end of the
year.
The HaBer Theory required no action during 1950, except
to maintain the previously established long positions.

"TTA TIT REVTEW
100
1951
The yield was more tl18115% during the entire year, so no
sen signrlls of any kind were possible.
The greatest volume of the bull market occurred in Janu-
ary. J 9!'i1. During the rest of the year, the market experienced
large reactions and rallies. During much of 1951 the market
moved upward on decreased volume. Such action usually is
typical of top areas. But the yield on the DJTA never went
below 6.2% during the entire year, so the market could not
top out on such a high yield.
There was a failure of the A & D Index in May, but there
could he no Top Sell Signal because the yield had not de-
clined to Ip.ssthan 4%.
On the third week in May there ,,,auld have heen a Trend
Sell Sigllnl if the yield had not heen more than 5%. Then
there would have hep.n a Trend Buy Signal on the third
week in August. S11eh action would have resulted in a whip-
saw, with a small loss. That is a good example of how the
rtrles about yield have prevented losses.
There were no signals of any kind dming 1951. The Hal-
ler Theory required no action, except to maintain the pre-
viously estah1ished long positions.
1952
The yield was more Ihan 5% dming the entire year, so no
sell signa Is of nnv kind were possible.
There were fairly large reactions dming the year, and the
market continued 10 work higher on df'rreased volume. There
was a Inilure of the A & D Index in May, and again in oc-:
tober. but there could not he a Top Sell Signal beranse the.,
yield had not declined to less than 4%.
There were no signals of any kind during 1952. The only
CHART REVIEW 101
action called for by the Haller Theory was to maintain the
long positions estahlished in 1946 and 1947.
1953
The yield was more than 5% during the entire year so it
was not possible to have any kind of sell signals in 1953-
The market reached its highest point early in the year.
Then started the larg.est secondary reaction experienced by
any hull market during the 22 year period from 1942 to
1964. Some people still say it was a baby bear market. The
Haller Theory indicates that it was a temporary interruption
between the two stages of a seven. year long hull market,
hecnnse the yield was never less than 5.45% at any time dur-
ing 19.53.
. Hegardless of what anybody says or thinks, the fact is that
It was a Imge de~line which lasted six months from top to
bottom. The declme was a. real test of courage for investors
who wanted to maintain their long positions.
1953 was one of those years in which. there was little, if
any, progress for long term investors. The market ended the
year lower ~han where it started. Such action is upsetting
~nd Frustrating for the majority who are impatient to see
Important l:rogre.s~. The successful investor must be patient
and hold Ius pOSItIOn as long as it is right for him to do so.
. There was a .failure of the A & D Index in April, hut the
yield was too hIgh to permit a Top Sell Signal.
J f the yield had not been more than 5%, there would have
been .a Trend Sell Signal on the fourth week in April. At
that t ime the A & D Index had declined 3000 points, and there
were 510 net new lows for the week.
There were 720 net new lows during the second week in
Ju~e. It was not enough of a selling climax to meet the re-'
quirernents of a Bottom Buy Signal, so no action was called

J02 cHAnT Im"T!':W
for. T),,, I hird w('l·k in S('ptel1lhcr also H>cnrrh'd 71() nr l
lows.
There were ]10 signals of any kind rIming lH5:1. The only
action reqIlired hvthe Haller Theory W<lS to maintain the
long positions ('stalllisllf'd at the hO!tOlTIS of HMo and Ul47.
1954
1'h(' vieM was more than 5% dllfing Ilw Iirst half of the
veal', s~ it was not possible to have any kind of sell signal
;111rin g Ihe first ldf of 1954. The yield W<lS les~ than :1%
f1l1fingthe last half, so a Trend Sell Signal was pass~hle dlJr~ng
that Iimp. The vlekl was not less thrill 4% at any rune dnrIng
the yp:lr, so a '£'op Sell Signal was not possihle during 1054.
E~rlv in 1954 the second stage of the hnll market started.
The sl~ck market blasled upward like a rocket, wilh con-
rinously incre:1sing volume. The lnrge move llpwanl was
smoo1h and strong dnring the entire year. It was the kind of
year that mal<cs investors happy.
Dnring the fonrth week in Jannal)! the A & D Index had
turned l;p 4000 points from its low poin;, and there ~..,ere
120 net weekly new 11ighs. It was not a [rend Bny SIgnal
hecause there had not heen a Trend Sell Signal before it. A··
long position had already heen estahlislwd, years hofore, so
a Trend TIny Sign:ll was not necessary.
Tl1('re w~re no signals of any kind (hlrillg 1951. The only
action ('alled for h)~Ihf' Haner Theory was to ll1aintnin the
long positions estai)1ishcd in ]946 :md H).17.
1955
The yield was less than 5% during the entire year, so Q'
Trend Sell Signal was possihle at flny time dming Hl55. The;
CHAIIT 111<:VIEW 103
yield was 3.91% 011 the fourth week of September, so a Top
l1('W
Sell Signal was possible at any time after that.
The largest volume during' the second stage of the hull
market occurred dllfing the first two months of 1955. The
market went IIp strongly at that time. There were wide
swinging reactions in the second half of the year as the mar-
ket worked upward on decreased volume.
The stock market made its highest peak of the year right
Ileal' the end of 1955, hut at the same time, the NH-NL In-
dex made its lowest peak of the year. The trend of the NH-
NL Index was downward for the entire year. Each peak of
net new highs was 10\,,'('1'than the previous peak. It was
typical top area action.
The A & D Index had a failure during the second half of
1955, and just lwfore the failure was a movement which was
not a failure. Since the two are side by side on the chart,
this is a good opportunity to use it as an example to point out
the difference between a real failure and a false failure.
First let us disCIISSthe false failure. The A & D Index made
a lower low in AllguSt, hut the low of the previous decline
was produced hy a one week movement. The rules state that
a one week movement of the A & D Index is not a rally or a
decline. A rally or docline must consist of at least two weeks
movement in the same direction. Therefore, the lower low ill
August was not a failure.
The real Failure was in October when the A & D Index
clearly made a lower low. The yield had reached 3.91% in
September, so the failure was an indication to start watching
closely for a Top Sell Signal.
The TIlles state that the time to sell is on the third of three
peaks. TIle first peak is the highest point reached by the
A & D Index 1Jefore the failure. The first peak was on the
fourth week in September. The second peak was reached on
 CHART REVIEW 1°5
upward for three weeks. So it was apparent. nt that time,
the second wer-k in n(~('f'llIl1Pr. The third peak was Oil the
that the third peak rally had started. The third peak rally
fourth w('rk of j\,f:ueh,HI!lG.
progressed perfectly, reaching its highest point on the last
The shock of President 1~isenhower's heart attack in Octo-
week in March.
her efl11sedthe stock marker to drop sharply in a quick panic.
The 1lI18s cnlkd for sdling when the A & n Index had
At that time the A & n Index declined 2,2RO poilll~ from its
declined for al least two weeks and 300 points from the top
high, That was not enongh to meet Ihe requirements of a
of the third peak. That was accomplished, and the Top Sell
2400 point decline nC'cded to create a Treml Sell Signal, so
Signal was completed on April 8, 1956.
them was no Trend Soll Signal during 1~55.
'Twenty-five weeks were spent in the progress of the A & D
The failure in 195:5 reqllired a close wntch of the A & D
Index from tlw top of the first peak to the top of the third
Index to see if the Ihn~e pcaks w0111d form lwfore a Trend
peak. When the top of the third peak was reached, all the
Sell Signal would in(lieate the start of a hpar market.
requirements of a Top Sell Signal had been met.
No selling action was required in 1955. Them was no rea-
son to dislmh the long posH ions estahlished ill Hl16 anrl1941. 1. The yield of the DJIA had declined to less Ulan 4% at
some time during the bull market.
1956 2. The bu U market had been under way for a year or more.
3. There har] heen a failure of the A & D Index.
The vielll was less than !'i% during the entire year, so a 4. Weekly net new highs were less on the third peak than
Treml Sell Signal wns possihl« nt anvtime rlming 1956. The earlier in the hull market.
yield hr«l reached ~,m% ill Septemher, 1955. so it was pos- 5. Volume was lower on the third peak than it was earlier in
sihle to have a Top Sell Signal at any time dming HI:56, even the hull market.
thou gh 1he yie ld was never less than 40/" dming 19;)6.
Right after the Top Sell Signal the market went into a
The niles state that, in order to have a Top Sell Signnl,
two month decline, which resulted in a Treml Sell Signal 011
the yield on the DJTA must have rparl]('rl a levd of less than
May 26, 1956. On that (late the A & D Index had declined
4% 'at some time'dming the 1)1111mnrket. Thnt nile W:lS
2500 points from its high. and there were 290 net weekly
clesigned tn m;!~(1 allown;lce for the fnrt that tllP lowest yif'ld
new lows. The Trend S('J] Signal confirmed the start of a
of a hull market is sometimes renched as long as nine months
hear market. 1'111" trend signal did not require any action,
belore Ihe act11n1tnp of a hllll market.
for selling had nlre:Hly heen done au the Top Sell Signal.
At the start of HJ;5'o WflSIhe time to Sf''' if there wOlllrl h(' a
In August the n.TJA advanced to almost the same height
third pe:1Kof thf' A & l) Index lwforf' rhr-re was n Trend Sell
H had reached in March, but the A & D Index had only a
Signal. The first l1pwarrl movement :lppenrerl in the Orst
2000 point rise, and did not go near its previous peak. TI;ere
w~ek of Fehruatv. It was only a one week movement 11r-
were fewer net new highs on that rally, and the volume was
warrl, so it was not the srart of the rally toward tho third
lower than it had heen on the third peak rally. Therefore,
peak the rally was weaker than indicated by the DJIA.
On the first week in March the A & D Index had moved
 elf Anr REVIEW
106
By tl\(' e11d of 1H;:)(Jthe /\ & D Index and the NIT-NT. In-
dex had pxpprienced lnrw~ cloclines. and were showing the
we8kness of t}e market, At the same time thc DJIA had 110t
yet r-stah1ished a down t rend, and was less than 25 points he-
low its Im11market high.
In If).'1Gthe seven year long, two stage 111111 market came
to an end with a Top 5('11 Signal. At that time tl1f~Hallpr
Theory called for a sale of the long position, held since 1846
and 1947. The Top Sell Signal also indicated the time to
initiate short sales for investors intereste(l in selling short.
1957
The lwhavior of tlw stock market in ]f}.f)7 was pnzz1ing to
many investors. Tlw market experienced a decline in Fehrn-
ary. Then the DJT/\ went up until it was almost exactly the
same height as its highest point in H).50. The difference he-
tween the DJIA at the 1956 top and the lW57 top was less
than two points. Therdore, the majority of investors thought
the big rally of 1957 was still part of the seven year long 1)\111
market.
The Haller Theory told a completely differpnt story. The
A & D Index only made a small move upward in 1857, which
was not enough to even come close to a Trend nllY Signal.
That wns an imlica!ion that the DJT/\ was making; a false
move.
'fhe hig rise of the DJT;\ in 18.'17W;1S just a large rnlly in a
benr mn rket, When the market started 1110ving oownward
from its 1957 high, there was so 11111eh weakness that the de-
cline turned irtp a panic. The DJIA took a sh:1fp drop ill the
last half of 1957.
Near the bottom of thp decline, tllP liquidation was so
intense tlwt a sdling climax developpd. The climax week was
the fourth week in Octohpr when R!)(} net new lows were
cnAnT HEVIEW 107
recorclod. The Haller Theory caned for hnyillg (and cover-
ing short snles ) on Novemher 2.5, 1957, which was the start
of the fourth week after the climax week.
1958
There was a Trend Buy Signal on the Fourth week of [ann-
~ry when the A & D Index had advanced 2700 points' from
Its low, and there were RO net weekly new highs. It was a
~onHnning signal, and no action was called for because buy-
mg had already hoen done 011 the Bottom Buy Signal in
November, 1957. '
Dnring the first tl]ff~e months of ID58 the upward move-
ment of the market was hesitant until enough strength ac-
cumulated to send it soaring upward like a rocket heading
toward outer space. Everything was perfect for the market
during the last nine months of the year. Volume increased
steadily as prices rose, and there were no large reactions.
The increasing volume and the strong, smooth ~1imb of the
market was typical of the strength which usually exists dur-
ing the first phase of n hull market. '
The NIT-NL Index acted well until ncar the end of the
year when it showed that the strongest part of the upward
thrust might have ended. The greatest volume of the bull
market wasin Octohpr and Nov~mber.
The yield was less than 5% during the last half of 1958,
so i: would have heen possible to have a Trend SeIl Signal
dllnng the last half of the year.
Th~ only action re(JlJire~1 by the Haller Theory during
195R was to maintain the long position established at the
bottom of the hear market in November, 1957.

r.TTAHT nEVIE'V
108
1959
The yield was less than ,1%during the f',ntire year, s~ it was
possihle to have a Top Sell Signal or a 1rend 5('11SIgnal nt
any time dming 1959. . .
During the first half of the year the DJTA was rlSlI1g on
declining volume. ''''.1hen thn highest point of th~ hnll market
was reached in August, the volnme was consl(krnhly less
than it h~H1been in Octoher and November of UJ58. The
market f'xperienced a large decline in Septemher.
Then the DJTA advanced dming the last three m()n~hs of
the vear to make a new high in '[anuary, ]960. Many mves-
torsfhouzht the highest point of the hul] market was in
[anuary, 19GO when the DJI A made thilt new high. But this
was not 11m case, for that rallv was a Inlse move of the DJTA.
Many we]] known stock a'vemges nnd the Hilll~r Theory
show that the real top of th" hull market occurred 1Tl August,
1959. TI", false move of the DJIA was one of the penoliarities
of the stock market which heliJs to keep the majority of inves-
tors in a state of confusion.
The weakness of the year-end rally of tlw DJIA was indi-
cated by the action of tlH' NH-NL Index. On that rally there
wen' no net weeklv new highs at aJ1uulil the very last week
of the rally, when 'there were only 10 net weekly new highs.
The weflk~ess of that rallv was also rev('fl1f-d hy the A & n
Index which fldvanced ~111y GOO points during the entire
length of the rally. ....
During the last h:l1f of 1959 the 'wld(, sWl11gmi!reactions,
the necreasen volume. tIH~weakness of tlH~A & D Index, and
the deerf'nse in net weekly new highs was typical of top area
action. Divergellce, whiel, is frequently found at a top, oc-
cnrred in April, May, JIlIy ~md August when the A & n Index
failed to make new highs while the DJI A went on to new
highs.
CHART REVIEW log
The [nilnre of tIl(' A &: n Index in May was not too obvious,
Im! it was clenrlv identified by strictly following the rules.
After til(' A &: n Index reached its highest point in March,
the index had n two week downward movement, which con-
stituted a decline, flccording to the rules. Then there was a
three week movement upward, which constituted a rally.
Please note thnt one of those three weeks was a downward
movement, which was just an interruption of the rally. Since
there were two weeks of upward movement, the whole three
weeks must he considered as a rally.
The rules state that a Top Sell Signal should consist of
three peaks of the A &: D Index. The first peak is the highest
point reached hy the A & D Index before the failure, The sec-
ond peak is the top of the next rally. The third peak is the top
of the third rally. So the first peak was on the third week in
March. The second peak was on the fourth week in April.
The third peak was on the first week in August.
The rules call for sdling when the A & D Index bas de-
dined for at least two weeks and 300 points from the top of
the third peak. That was accomplished, and the Top Sell
Signal was completed on August 16, 1959. All the require-
ments of a Top Sell Signal had been met by that time.
Nineteen weeks were spent in the progress of the A & D
Index from the top of the first peak to the top of the third
peak.
TIw yield was only 2.92% at the top of the third peak. It
was the lowest yield in twenty-three years.
night after the Top Sell Signal the market went into a de-
cline which resulted in a Trend Sell Signfl] on the third week
in September. On that date the A & D Index had declined
3100 points from its high, and there were 330 net weekly new
lows.
The Trend Sell Signnl confirmed the start of a bear market.

110
No fnrthrr action was required. for selling had alrearlv hcen
done at tllA Top Sell Signal.
In 19S9 the bull market onrne to an end witl) a Top Sell
Signn1. At that time the ITnller Theory oallod for a sale of the
long position initiated :It lhe hear mar~ct hotto0~. in 19f;~.
The Top Sell Signal also indicated the lime to 1Il111ateshort
sales for those jnten~sted in selling short.
1960
Th0 vie1<l "as loss than 4% during the entin~ year. The
market"declined steadily dming the first half of 1960, hut
there was a strong rally in August. Then the market went on
dO\vn to reach its lowest point in October. . week helore the top.
The mirl-vear rally of the stock market F(Jokel many mves-
tors into thinking the hCflT market was ended. In AU~llst,
19GO the 01IA ralliccl to a higher high. nnd other well known
stock aver~ges also made higher highs. The A & D. Ind?x
made a higher high, and the NIT-NT, Index was defi11ltely m
an lip trend, making two higher highs. . peak was in December, The Iailnre and the three peaks of the
At that time I also mailllained many elmly charts. All the
daily charts looked very bullish, especially the daily a(lvances
and (1ec1ines.
Despite ,,11 tllf~hllllish charts and higher hig11S,the Haller
Theory did not produce a Trend BlIY Signal, for the A & D
Index advanced only IG70 points from its low. There were no
signals of any kind during HJRO.
The only 'action eallcd for by the ITaller Theory was to
maintain the short position, in case one had sold short at the
top in Augnst, 1959.
1961
There was a Trend Rll)' Signal on Jrlnnary 9 when the A &
D Index rldvalwcd 2950 points from its low point, and there
CHAnT HEVIEW 111
were 170 net weekly new highs. The buy Signal correctly
indicated the start of a hull market, and the time to cover
shorts and initiate a long position.
III typical fashion, the first phase of the bull market was a
strong, smooth rise accompanied by increasing volume and
an increasing nmnher of new highs.
During the second half of HJ61 the market advanced on
decreased volume. There were wide swinging reactions, and
there were fewer new highs. There was divergence when the
A & D Index failed to make new highs while the DJIA made
new highs. It was typical top area action.
The highest point of the hull market was reached in No-
vember. The lowest yield was 2.97%, which was recorded one
The yield was Jess than 4% during the entire year, so it was
posxihle to have a Top Sell Signal or a Trend Sell Signal at
any time dming 1961.
There was a failure of the A & D Index in Tune, The first
peak was in May. The second peak was in AuWJst. The third
A & D Index were very dearly defined, and almost perfect in
their formation. The divergence was obvious and easily no-
ticed.
At the time the third peak fanned, all the requirements of
a Top Sell Signal such as decreased volume, etc. had been
met. The third peak reached its highest point on the second
week in December.
The rules called for selling when the A & D Index had de-
clined for at least two weeks and 300 points from the top of
the third peak. That was accomplished, and the Top Sell Sig-
nal was completed on December 24, 1961. The Haller Theory
called for liquidation of long positions on that date, and short
sales for those who might be interested in selling short.
Twenty-nine weeks were spent in the progress of the A &

112 CHART TIEVtR"r
D Index from thp, top of the first peak to the top of tho third
peak. Tt was the longest time interval hotweon the first peak
and lhe third peak since 1942, anrl it was followed by the
most severe h(':1r market since 1942. That interesting fact
causes me to wonder if that time interval onn be llsed to fore-
.
cast the smrcrity of tlH' bear market which usually. follows a
Top Sell Signal.
There was almost a Trend Sell Signal in September,
before the third pf'~lk was started. AI that lime the A & D In-
dex df'clined 2284 points from its high, and there were 75 net
new lows. Those figures did not meet the requirements of a
2400 point decline and 80 net new lows, so there was no sell
sign:J1.
III nddition to the tpclmical indicntions near the top. there
was also large pnhlie participation in the stock market nt that
time. Thr-r« was much wild specnlalion in new issues dnring
HlGI.
lD62
There was one rnllv lelt in the stock market. Then the
markf'! went down If/prodnce a Trend Sell Signal on April
29, 19R2. AI thnt tirno the A & n Index had declined 2708
points from irs high, nnrl there Wf'H' :100 net npw lows. The
yif'ld wns less than 4,?{· at that t imr-. It wns a confirming sig-
nal, all(l no nr-Hon was required. Sr.J1ing had nlrendv heen
done on the Top Sen Signn] of Df'C'elllher, 1961.
"lhr-n r-ame llw r-rnsh. It wus 'he' worst stock mmkc·t crash
since Hl20 Manv illVf~stors, large ~\1l(1small, failed to recog-
nize ~he d1.nger· signals and took no action to protect their
capital. Millions of people lost hill ions of clollms in that crash.
As the crash nppronched its haltom, the pnnic sp.lling be-.
came so illtenSf'. that a sdling olimnx developed.
The first climAX wef'k was inclka!f'd when there were 800
net weekly new lows recorded during the Fourth week in
en ATIT REVIEW 113
May, The following week there were 1141 net new lows, so
that was the second climax week. The rules call for huying,
and covering short sales at the start of the fourth week fol-
lowing the week with the greatest number of net new lows.
In this case the second climax week had the greatest number
of net new lows. .
The Bottom Buy Signal called for buying on June 25. ]962.
At that time the market was within a few points of the abso-
lute low of the 1962 hear market.
The Bottom Bll)' Signal was followed by a rally in July and
August. Then a Inrge decline in September and October. In
November and December the market went up strongly.
There was almost a Treml Buy Signal on the second week in
December, hut there were only 70 net new highs, which was
not quite enough to produce a Signal.
1963
The yield was lASSthan 4% during the entire year, so it was
possible to have a Top Sell Signal or a Trend SeU Signal at
any time after the Trend Buy Signal.
There was a Trend Buy Signal on January 6. 1963 when
the A & D Index had risen 4800 points from its low, and there
wero 79 net weekly new highs. The rules require 80 net new
highs, but 79 is close enough. The signal was delayed for
more than a month by the reluctance of the NH-NL Index to
rise to the requiredIove].
The signal was a confirmation of the start of the 1963 hull
market. No action was required, for buying had already been
done on the Bottom Buy Signal of June 25, 1962.
In typical fashion, the first phase of the bull market was a
strong. smooth rise accompanied by increased volume and an
increasing number of new highs. The strong first phase ended
when a large reaction occurred in June and July.
114 CHART REVmW
CHART HEVJEW 115
During the sr-cond half of Flf).l, (he.stoe!' ~lIn~'kptdis.played
dosed in mid"sf',s·;jrm since the day ill 1933 when there were
typica 1 top nrea action. There were w1(:e SWlllg11lg rallies and
gas fumes on tllP floor of the exchange.
declines, and there were fewer 11m" hIghs, although volume
All stock exclwnge,,, in the United States remained closed
had not decreas(xl.
on the following Mondny to give investors a chance to regain
In Ootober, Novomhor and December tlw DJIA went lip to
fllpir p(!'li1ihriul11. When the markets opened on Tuesday, a
higher highs, hut the A & D l nclox failed to make new highs.
big rally erased most of the losses caused by the panic.
Su~h divergence is frequently Iound ncar mark!'! tops.
Then the upward movement of the 1963 bull market was re-
There was a failure of the A & J) Index in November. It
snmed.
indic[l!C(\ tlie start of a Top Sell SigMJ1. The hig!wst point
It is important 10 recognize the fact that the terrible shock
reacllf'd hy the A & D Index belore the [ailure was the second.
of the assassination and the stock market panic which fol-
week ill September. That was th(' first peak. Tlw second peak
lowed did not end the hull market. No bun market in the last
was on the third weck in Octo her.
twenty-two yellrs has been ended by a shock or an important
It is interesting to note that tho second peak was formed in
world-shaking event. Such shocks have only caused tem-
('xadly the same waY:1s the second peak of the 1959 top. The
porary interruptions in bull markets.
bottom of the decline from the seoonr] pell k ooonrrerl on the
A cnTPflll sturlv of the charts seems to prove my contention
Fourth we0k in Novornlror, which wns tlH' week in which
that a bull markpt is a powerful entity which can not be
President Kennedy was assassinnterl.
ki11ml hy shock, and it will no! die of old age. Apparently the
'1'110 panic s811i~p; caused hy the S11(I(1en dpatl, of Ill(' Presi-
only tlJi~lg capahle of ending a hull market is its own progres-
clenr almost produced :J Trend Sell Signal. At that time the;
sive weakl1('ss-·a wcaknes» that can be recognized hy the
A & n Inrlex had decliJwd 2215 poinls from its highest point,
Haller Theory.
and there were ]~O lI('\' weekly IIPW lows. The rules require
a 2-100 point (~ec1ine, so there was nil trPml signn1.
1964
The llT1fxper/pd flSS~lssinfltion of Presirlen! Kennedy took
pbc(' (,:1rly ~n Ihn aflrrnoon of Friday, November 22, 1963. At the time of fhis writing, the lowest yield recorded so far
It was thp worst s!Jo('k ('VIOl' ~o l1il Ihe stock cxchanges of the in the hull T11::1rlwt was on 'fIJI" rirst week of 1964. The yield
Unifpd States, whi('h w('r(' in rni(lsps(;Jo)1 :1f' Ih(' time. The was .1.0Q10 (It that f ime. So it was possihle to havc a Top Sell
panic sellin?; was so rTrent that S()!1lP stocks dropp('cll.O% ?t Si~nI or a Trend Sell Signal at any time dming HJ64.
H')0(, in a matter I)f miuutes. Tl10 D] l A dropped 24 points In Dnring the firsthalf of HJG4, there were wide swinging re-
26111i1111tes. actions of the A & D Index, and there were fewer new highs
At 9,:07 P.M. I lint nftf'l1looll, the Board of COVCl1l0rs of the than earlier in the hull market. It was typical top area action.
New York Stock Ex('h~m~e annnnnr-erl that they harl closed The Top Sell Signal formation continued, with the third
trrlcling bp('rlIlSe of t11f' flood of orders, 'Within ~inl1lcs, trad .•: peak of the A & D Index reaching its highest point on the
ing stopped on nil the major stock nnrl commodity exehanges third week of ApriL By the time the A & D Index had de-
in the United States. It was the first time the NYSE had clined two weeks and .300 paints from the top of the third
 CHAnT TIEV1F.W CTIt\1IT REVIEW

penk, it was ohvions Ihn! the VOJlIlllP had not only f:Jill'() to rksritp fhe m:'I11y unexpected events and international
decline, hut had reachorl a new hIgh. Thp grcntesl: volume of crises, the Haller Theory correctly identified every major
the entire lmlJ market or-ourrerl OIJ tlw third pe:lk. tnrning point in 'he stock market. Every signal was followed
The Top Sell Signal rules SrlY that volume on tlIP third !l)'rh~r0 were no losses.
a profltahle move of the Dow-jones Industrial Average.
peak must he lower than earlier in tIlf~ hull mnrkct. So there .
c0111d not he a Top Sell Signal at Ihat time.
This was the Ilrst time in twenty-two year.••that the stock
market did not reach its highest point on th0, third peak after
a low yield [ailllTe of fhe A & D Index. Even though the
event I;ad not happened hefoH\ the situation was adequately
covered hy the rule ahout volume.
There were also too many new IJighs on the tIlird peak.
The rules say that the nnmher of "'PPkly net new high. s on
the third pf'ak should n()tl)(~ rnuo]: more than half as many as
the gTP::Jfrst number of nI'l new highs recorded f'nrlipr in the
Imll·mnrket. The Z3g 111'1: new highs on the thinI peak
eqll al ('(179% of the ,1m net new highs recorded in ;\fay, J9G3.
It mny Iw signiflcant to ohserve that the stock market rally
of .Tn1y, 1964 went up In a new hi~~h on .~ltarply reduced
volume,
As of the time of this wriling, tlH'rf' were no Haller Theory
sir.:nals
IJ.
of any kind rl'conll'd '"vet durlnv 19G4. No action was.
t",

called for during the first half of HI(J4, f'xcept to rnaintain the
long position eslnhlishcd :1t flw hottom of the hoar market in;
.TIme, 1902.

The twentv-two YCflr period, from lCJ,12 to J!)A4, which was

rpvipwf'd hp~p, incluclos every conepiva111c type or stock mar-:
h:t ac~ion, from Iioom to hnst. Durin!.; the period ImrieI' re-
"ipw, tIl(' market survivorl World War n, the death of Presi~!
dent Hoo<;eve!t. the Korean 'Val', 111(' Suez crisis, tl](' Rerlui;
blocknrlc President Fiscnho\vcr's heart attaok, \11e Cuban;
blocbdc' with its nuclear oonfrontation. and the :1ssassinrltioin
of President Kf'nncCly."·
 RESULTS 119

If 111('rekId 1)('('11 no short sales during the 22 year period,

lhe Haller Theory results would show a proBt of 1,052.14
pain Is odJRO%.
en i\ PTF.R 11 If $10,000. lwd heen invested in the 30 stocks of the DJIA in
1912, and !H'!d continuously, it would have grown to $76,200.
hy May 3, 1861.
HESULTS By following the Haller Theory signals and re-Investing
capital gains, the $10,000. would have gro\\'ll to $275,865. by
May 3, ]9(34.

Here is a lahnh(ion sllOwing the resnlts which would have

hccn ohtained hy following the Primary Signals of the Haller
Theorv during the 2,2 yp:1r period from 1942 to 19G1. These
filTnrf'S do not inc-lude calculations of dividends, commmis- Tlw following resnlfs would have been obtained if the Top
sions or taxes. Thes!' results are from hnying and sdling short $p!l Signal lwe! not heen included in the procedure:
the Dnw··Tones
. . of:lO stocks.
Industrial AVCf<1l4f'
Type of Signal Date DJIA ProGt Loss
TVl1P
. J
of Sigl1:l.1 Date DJIA Profit Loss
. ---~'" __ .----
.. ------_._--~---- '--- _._-- ------- Trend nuy Signal Sept. 19, 1942 107.50
Tnmd Buy Signa! Sept. 19, HH2 107 ..'10 'l'ronr] SPi! Signa! .July 27, 194fl 197.63 90.13 0
Treml Sf'1I Signal July 27, HJ4A 107.A.1 no 1.'3 0 Bottom Bnv Signal Oct, 14, 1946 168.37 29.26 0
Bottom Buy Signn! o«. 14, UJ46 1118.87 29.26 0 Trend Sell Signn! May 26, 19!5G 472.49 304.12 0
Top Spll Signal April fl, HJ5A r121.05 .'352.l1fj 0 TIoUqm nuy Signal Nov. 2!5, 19.57 438.68 33.81 0
Bottom Bny Signal Nov. 2.'5, 19.57 -1'38.A8 .82..'37 0 Twnd SpIJ Signal SPpt. 5. UJ.'i9 652.18 213.!50 0
Top S0!! Signal Ang. Hj, HJ.')9 R!1R. 74 2'W.06 0 Trr-nr] 11n)' Sign:ll .Jan. 9, 19111 615.66 3fU)2 0
Trend Huy Sii!nal Jail. g, 19A1 m 5.(J(J 4,'1.08 0 Trend SpIJ Signal April 29, 19R2 672.20 5654 0
Top S"" Signal Dr'(·. 24, 19(JJ 720.R7 1O!1.21 0 1loltom TIny Signn] J 111lf' 25, 1962 535.43 J30.77 0
Botlo111 lilly Sigl1:l! Jnn!' 2f5, HJ(j2 ;-;85.4.'3 1R;-;.4'~ 0 Hf'cpnt Price 3, 819.49 0
Mnv 1961 284.06
Hecent Price Mav 3, 19(11 819.19 2RHJ6 0

If II(> DJf A h8rl 11('('11 held oon tillolls1y for 11w 22 year
I
This procod 11re prorluced excellent results, even without
tl1PIlse of the Top S('ll Signal.
periorl. Ihe nrof!t on Mny .3, 1964 wonk! have heen 7LJ.99
points or 66~%.
If 111(' DJ11\ h'ld h('Pll hought, ancl sold short accon1in}~ to
1118 Primarv Silrnals of the Haller Thoorv, the 22 year profit
woulrl l1:lv~ tot~ led 1,403.1:1 points or i,30!')%. ~
118
J20 RESVLTS RESULTS 121

Tho following results would hnvn he en obtained hy 11sing stocks which will move with the market, and even outper-
only the Trend Signals of the Haller Theory: form the market. One should try to avoid stocks that might
go down when the market goes up. One of the greatest dan-
Type o[ Signal Date DJTA Prollt Loss gers in selecting a stock is the possibility of buying stock in a
Trend Buy Signal Sep!. 19, 1942 107 ..'50 company whose fortunes are declining, and may ultimately
Trend Sdl Signal July 27, J94A 197.6.'3 90.13 0 go bankrupt. In that case, the stock would go down, and
Trend Buy Signal J lily 12, 1947 1134.77 12.Rfl 0 never rise again.
Trend Sell Signnl Mnv 2fl, ]956 472.49 287.72 0 How can one avoid dangerous stocks? Keep away from
Tremel nny Signn] Jnn. 27, H).'58 450.66 21.83 0 them. Don't even get interested in them. It is just as easy to
Trend Sell Sir;nal Sept. 5, 19.'59 6.'52.18 201.52 0 buy the higllest grade blue chip stocks as it is to buy the "cats
Trend Huy Signal Jan. 9, 1961 615.66 3fJ.52 0 and dogs".
Trend Sell Signal April 29, ]962 672.20 56..'54 0 It may take some sales resistance ifa high pressure sales-
Trend Buy Signal Jan. 6, 196.'3 6fl2.2.'3 9.81 0
man telephones yOll, long distance, offering the chance of a
Recent Price May 3, 1964 819.49 157.2R 0
lifetime to get info Lower Siobhovian Mines, Ltd. He may
These extra tabulations are presented to show the nmnzing even gllanmtf'e that the price of the stock will double in a
accuracy of the Hallpr Theory, even when only part of the few weeks because the insiders are forcing it lip. The insiders
theory is followed. The three different tabulations of results may be forcing it lip all right, but when they hire salesmen to
illustrate that, during the 22 year period, every huy signal call the suckers, that means they are ready to dump it.
and every sell signal, regardless of whether it was n Primary It is amnzing to Sf'C how many fraudulent stock promoters
Signal or a Confrrming Signal, was followed by a profltahle are brought to justice by our alert Securities and Exchange
move of the DJTA. There were no losses, regardless of 'which Commission. It is difficult to understand how the "Boiler
Signals were followed. Room" salesmen can get people to buy such risky stock.
Mayhe it is because the salesmen offer a chance to get rich
The average persoll does not llS11f11Jy
find it practical to buy quick.
the thirty stocks in the DJIA, and would flnd it too r-urnber- People frequenfly believe what they want to believe. TIley
some to ~manage such a 'large portfolio. For practical pur- can even find good reasons to rationalize what they wish to
poses, one must choose individual r-quities in which to invest helieve.
his capital. Some vears ago a friend of mine, who was a hard worker
The munl'ier of stocks in a portfolio must lJf~left entirely in the low income group, enthusiastically told me how he had
np to the indivirJnaJ. If one holds many stocks, his risk is just invested $ 1.000. in a wild-cat oil well. He thought it was
diversified among many different companies. But it is difficlllt his hig chance to get rich quick. A year later, all the investors
to keen tr::lck of manv stocks at the same time. had lost their money. Nobody was cheated in that case,
Thc~·eis also the problem of selecting stocks which will though. There simply was no oil where they drilled.
move with the market. The ideal situntion would 1)(' to hold The person who likes to gamble with the odds against him
 nF:SULTS RF~sULTS
122

does not have much c1wllce of S11CC("'~.A s11c('essf111slrategy rnrporflte income. and the first call on corporate assets, in
calls for :lCcepting a risk only when 1110 odds fire in yom [nvor. case of liquidation. Next are 810,740 shares of preferred
A good policy might he 10 avoid mnr~infll companies. find stock. which get second call on corporate income and assets.
just stick to the highest quality stocks. One example of a high Next fire 7,40:3,82.5 shares of common stock, which are third
quality stock which provides anint('r('sling investment me- ill line for income and assets.
dium is Trt-Contincntal Corporation. It is a closed emJ invest- Then, at tllP hnttorn of the corporate structure. there are
ment company whose stock is tradocl on the New York Stock 728,160 warrants. Since the warrants are at the bottom, they
Exchange. have a greater range of price fluctuation than the senior se-
Tri-Cont inental has a history of j'cing able to follow the curities of the company. The securities at the top experience
market fnid)' well. A large' investment rompnny li!w '11:11' 11S11- the smallest price fluctuations. .
ally carries a portfolio of more than 100 securities in TI1fmy To iIlnstrate the efr~ct of leverage, let us examine some
diflerr-nt industries. Their portfolio usua lly inclmles over-rho- price changes of the Dow-Jones Industrial Average, of Tri-
counter stocks. common stocks traded 011 the NYSE and the Continental common stock, and Tri-Continental warrants.
American Exchange, preferred stocks, industrial honds find In December, 19!)1 the Dow-Jones Industrial Average was
government bonds, at 2A5. Ten years later, in December, 1961 the DfIA was at
One of my f'lvorites is Tri-Coutinontnl warrants. They are 730. The 4A5 point gain equals 176%. A $10,000. investment,
perpetual warrants which do not have an expirat.ion date, as continuously held in the DJIA, would have grown to $27,600.
do many other warrants. It might he wise to mention, at this in that ten yen I' period.
point, thflt a warrant is a cel·tif1~ate giving tlw holder the In December, 19!)1 Trl-Continental common stock sold at
right to purchase a cortn in amonnt of the stock of a corpora- 14. Ten years Inter, in December, 1961 TY common sold at
tion at a certain pric~ within a specifbl time limit, or perpet- ,1';2. The 38 point gflin equals 272%. A $10,000. investment, can-
ually. tinnously held in TV common, would have grown to $37,200.
In this ense, the Tri-Continental wnrrnnt givps the holder in tha t ten year period. .
the right to purchase 1.27 shares of TY r-ommon stock nt allY Tn Decem her. 1851 Trt-Continental warrants sold at 4. Ten
time at $17.76 per share A warrant does not give the holder yeflrs later, in December, 1961 the warrants sold at 44. The
the right 10 cast n vote in ('orporate affflirs. and warrants do 40 point gain equnls 1,000%. A $10,000. investment, con-
not pay dividends. tinnuslv held in TV warrants, would have grown to $110,000.
Then. yon may ask, "H TY warrants (10 not carry a vote, in that ten year period.
and do not pay dividends. what makes them so attractive?" In addition to great leverage, Tri-Continental warrants rep-
Thf' answer is "leverage". 1.everage exists when the corporate resent diversification in more than 100 different common
strnorure r-rmtn ins more ~hfln one type of security. stocks, preferred Slacks, and bonds usually held by Tri-Conti-
In this case, Tri-Cont iur-ntal has [our types of securities in nental Corporation. The warrants have a history of moving
its structure. At the lOp fire 20 million dollars worth of de- with tlH'l market, and outperforming the market.
bentures. the holders of which are entitled to the first call on Since Tri-Continental warrants do not pay dividends, they
 TIESULTS 125
TIF.SULTS
124
am intPrp.sting to rhose \,,110 might wish to sen short in a hear
market. When a person sf>lIsshort, he must pny the dividr.nds
If Tri-Continental common stock had been bought on Sept.
on the stock lH~has sold short. T1H~ party who loaned the
19, UH2 and heldcontlnuously until May 3, 19G4, the profit
stock to the short seller is entitled to the dividcnck Tlwre-
would have been 46 points or 4,600%. A $1,000. investment
fore, oiddf'nd expense must lie adrl(,d to commission expense
in TY common, continuously held during that 22 year period,
to calculate tll(>cost of selling short.
would have grown to $47,000. .
If a pp.rson maintains a short position for a. ye:lr or more
If Tri-Continentnl common stock had been trudedlong and
in a.stock paying largp. dividends, the stock might have to de-
short, acconling to the Haller Theory signals ouring that
cline 1()% or more for the short seller to jnst hreak even.
same 22 year period, the proHt would have been 90.39 points
With TV warrants a short seller does not have to pay nny
or 9,039%.
divi(lends, so his only expense would he for commissions.
By following the Haller Theory signals, buying and selling
Let us examine a taliulation of the results which would
short, and re-investing capital gains, the $1,000. investment
have hwm obtained hy investing in Tri-Continp.ntal common
would have grown to $190,529. by May 3, 1964.
stock am1 Trl-Continentn] warrants. according to the huy nnd
During the 22 year period there would have been only
sell signn ls of the IT nller Theory. Tn the following studies,
one small loss amounting to 3.15%.
stock priCp.s nrc prr'sentcd in decirnn ls for more accurate ral-
If Tri-Continental common stock had been hought on Dec.
clllntiollS. Tn newspapers, stock prices are qllotp.d in fractions.
24, ] 961 and held continuously until May 3, 1964, the action
would have produced a loss of 10%.
Tm-CON'TJNF.NTAT. COMMON STOCK Tf TY common stock had been traded long and short, ac-
Cnpital cording to the Haller Theory signals, with re-investment of
Type of Signal Dall'
capital gains, from Dec. 24, 1961 to May 3, 1964, the action
nllY Siglnl S"rt. 10, )949.. LOO s 1,000.
Trend
9.5ll f!.50 o s.soo, would have produced a profit of 78%.
Trend S,,11 Signal July 27, HH6 12,.'302.
Bottom Buy Signll! Oct. 14, H116 6.!10 3.00 o
Top Sell Si~nfll April R. 1956 27.r1'3 21.]3 o 53,133.
2R!)() n .87 5] ,459 .
Bottom Buy Sir-na! Nov. 2'1. Hl57 72.1)12.
A ng. ](1, 19!19 39.Hil 11.Sf! o
Top Sell Signal
Ian. n, 1901 37.:'0 2.Sf! o 70,364.
Trend Buv Signa!
Top Spll Signal ·DI'I'. 24. 19(H 52~'R J4.8fl o JOn,900.

Bottom Buv Signal Jnne 25, ] 962 3!1.]3 17.25 o 142,186.

May ~l. ]904 47.00 11.f!7 o $190,S29.

Recent Price
Totals !lO.39 .f!7

Thpsp studies do not include cal('1!lations of cHvirlp.nds,

taxes or commissions.
 I1F$ULTS 12 7
nESULTS
lZ()

"\'nl-(;OiYTlNFNTAI, 'V,\I1I1ANTS

Prie" l'roflt r .oss C"l'ila,- Fol.lowin~ is a list of some well known hln« chip stocks,
_Typr> ,,[ Signal nat"
,OOZ;, $ 1.000, showmg pnce eh::mges and total results for trading with the
Trnnd Btl)' Signal S"pL In. 1n42 oR,nOO,
4,2S 4.1R7~ 0 Haller Theory signals. All stock prices have been acljuste(l for
Inly 27, i'HO D:1,'lOR,
Trelld Sf·11 Signal 1.(,2 0
0,,1. 1'1, 1!l4G 2,O3
Boltom IIny Signal D,H7 0 ,11n,OG3, stock splits. "P" stands for profit. "1..." stands for loss.
April R, IDGO 12.50
Top S,,11 Signal 0 1,00 411',:\78,
Nov, 2'5, 1<)'57 13.GO
Bol\om I\n)' Signal 14,75 0 R;,7,fl90,
2R.2,r:; American
Top s"lI Sipnal Ang, 111, 10'"i9 \Hfl.fJR0,
25,,50 2,75 0
Jan, D, InG! Pont
Trend illly'Signal
41.00 1R.;'O 0 ] ,G?,:i,(12R. Can Dl1
.1)(1",2,1, lnG!
Top S"ll Signal 17,75 0 2,27X,731.
Jllne 25, j902 20.25
Bonom I\n)' Signal
37.03 11.3R 0 3,2G7,700, Price PorI.. Price PorL
May 3, ID!34
TIr>cent Price
RO.SO 1.00
Tolals 28.50
1311)' Sept. W, I!H2, 16.75
Sell J uly 27, ] 94fl 2.'3.81 P 7.06 52.50 P 24.00
If Tri -Contin~111 al warrants
had 1H'f'1l lion ght on Sept. 19, 4.').00 p 7.50
Buy Oct. 14, 194H 20.50 P 3.31
J 942 and hdd continuously until 1\1ay 3, ] 964, th~ profit
P27.63 235.25 P 100.25
Sen April S, 19.58 48.13
wOllld hflVP been 37,;-'7 points or GO,lOO%. A $1.000. invest- 37.6.'3 174.00 P 61.25
Bny Nov. 2,'), 1957 P 10.50
ment in TY warrants. continuously hdd (lming lhnt 22, vear 44.88 P 7.25 268.50 p 94.50
Sen Allg. Hl, 1959
periocl, would have grow'n to $602.000. Buy Jan. R, 19f1l 3.':;'50 P 9.38 192.00 P 76.50
If Tri-Continental wmrants had been tmd~cllong nIHl ~hnrt, Sell Dec. 24. ]961 415.75 P 10.2.5 241.00 p 49,00
according to the TT~lkr Theory signflls during tlwt S::tHlP 22 Buy J line 2.'), ] 962 41.25 P 4,50 172.00 P 69.00
year period, there wonld have been many profits and one •• May 3, 1964 43.50 P 2,2I5 258.00 P 86.00
small loss, which adcl up to 80.80 points or 129,250%. PROFITS 82,13 658.00
Bv following tlw TTfll!0l' Theorv signnls, Imving and sdling T.OSSF.S 0 o
shOJ~t ~nd l'e-i~vesting capital g~ins, the $l,OOOc, invpslment 658.00
NET PROFITS 82.13
would have gmwn to $:~.267,700. hy }.lfly 3, JQG4.
Dnring tlw 22 year ppriod there would have IJPf'n only one 490% Profit 2,310% Profit
small lo~s amOllllting to R%. Tb« sblrling price of .Ooc:~;)is
e Recent Price
equal to 111 (\ tho
If Tri-Conlincntal warrants l1ad 1)('('11 honghl on Dcc. 24,
] 961 nnd hdd conHnnously until M fly 3, H)G4, thp ;ldion
1
would have prOd1H'f'd n loss of 14 /:>%
If TY wnr;ants h::Hl hN'J1 tra(led long nncl shorl, wilh cnpi-
tal gnins rpinvested, from Dec. 24, 1961 to May 3. ] 964, ac-
cording to the Hfll1f'r Theory signals, the action wonlcl have
prodl1Cccl a proflt of 101%.
 128 RESULTS
RESULTS 129

If an investment had been held continuously in

Can durinj- the 22 year period, :1 profit of 160% W General General
result (')(1. ' Electric Motors
Buying and sdling short, during the same 22 ye
Price PorL Price PorL
according to the Haller Theory signals, would have,'
1I11mCTOIIS gains which add up to H total profit of 4 Sept. lfJ, 1942 8.83 6.25
out re-investing capital gains. There were no losses" July 27, 1946 15.54 P 6.71 .l0.87 P 4.62
If American Can had heen bought on Aug. 16,' Oct 14, 1946 12.67 P 2.87 8.50 P 2.37
held for more than four years until May 3, 1964, April 8, 1956 63.00 P50.33 . 45.13 P 36.6.'3
rnenr 'would have shown a small loss. Nov. 25. 1957 60.88 P 2.12 36.63 P 8.50
If American Om had been traded long and s Aug. 16, 1959 81.50 P20.62 5.5.00 P 18.37
Aug. 16,1859 to May 3,1864, according to the Hall Jan. 9, 1961 72.75 P 8.75 42.00 P 13.00
Dec. 24, 1961 74.38 P 1.63 55.75 P 13.75
sign::!ls, the Four profitable trades would have sho
June 2.'), 1962 57.38 P 17.00 46.13 P 9.62
gain of 26.38 points, which is equal to 58% profit:
.:J May 3, 1964 &'3.00 P25.62 87.88 P41.75
PROFITS
--
135.65
--
148.61
A 9.2 year continuous investment in Du Pont
LOSSES 0 0
shown a profit of 805%.
Buying and seJling short, according to the Hall , NET PROFITS
--
135.65
--
148.61
signals, during the same 22 year period would have 1,536% Profit 2,377% Profit
numerous gains resulting in a total profit of 2,310
re-investing capital gains. There were no losses,
If D11 Pont had hpcn hought on Nov. 25, 1957 e figures in these studies do not include calculations of
continuously for almost five years un til June 25, 1 I dividends, commissions or re-investment of capital
vestment would have shown a small loss.
If Du Pont kHl bpf'l1 traded, long and short, fro
1957 to Tune 2.1), 1962, ;:l('ronling to the Haller Thea
the four profltahlc tnnles would have shown a tot
289.00 points, which is equal to 166% profit. .,
If Du P(,nt had been· traded only long (wltI1'
snles ) during that same period, t11e two trades W
143!'iO points or 83% profit,"
 TIF.SULTS RESULTS 131

If an investment had heeri hcld oontinnously ill Ceneral

Electric during the 22 ),ear period, there would have heen a Standard Oil
profit of R40%. Goodyear Tire of New Jersey
Buying and selling short", rluring the same 22 year perirxl, Price PorI.. Price PorI..
according to the Haller Theory signflls, would have produced
numerous gains which F1dd up to a total profit of 1,5.'36%. Buy Sept. 19, Hl42 1.70 6.56
Sell July 27, 1946 5.29 P 3.59 12.87 P 6.31
There were no losses.
Buy Oct 14, 1946 4.45 P .84 11.16 P 1,71
If General ElectriC' had !lccn bought on Nov. 2,5, 1957 find
Sell April R 1956 24.33 P 19.88 62.13 P 50.97
held COlllinucusly for almost five years until june 25. 1062, Buy Nov. 25, 1957 26.42 I.. 2.09 49.50 P 12.63
the investment would Ira \,P shown a small loss. Sell Aug. 16, 1959 44.87 P 18.45 52.2.5 P 2.75
If GF hart I)('PlI tn:Hled long and short from N ov. 25. 19:'7 BllY Jan. 9, 1961 36,00 p 8.87 42.50 P 9.75
to [nne 25, 1962 according to the Haller Theory signflls. the Sell De~. 24, HJ61 4.3.00 P 7.00 50.75 P 8.25
f01;r prolltnble trades w0l11d have shown a total gain of 48 BII)' Jllne 25, 19G2 31.00 P 12.00 4U.00 P 1.75
e r.,1ay 3, 1964
points, which is eqll::l1 to 79% profit. 41.87 P 10.87 87.2.5
_ ... ~ P38.25
--
PROFITS 81.50 132.37
A 22 year conf inuous investment in Conernl Motors would I,OSSES -2.09 0
have ~h~l\vn a profit of 1,:106%.
NET PROFITS
--
79.41
--
132.37
Buying and ~elling short, during the S::l1lH' 22 year pf'riod,
according fa the Haller Theory sign::lls, would have produced 4,671% Profit 2,018% Profit
numerous gains, which nrld up to a total profit of 2,377%. e Recent Price
There wore no losses.
If GM llad heen hOllght on April A, 10.56 and held for six
years unt il June 25, ]862. the investment would hnve sho'."11
a gain of one point or 21f,.
If Gl'f had lieen trarlf'd long and short, [lC'conJing tn the
Haller Theory, dnring thnt same pf'rinrl, the five prnfitahle
trnrles wonlr] hnvr- shown n total gain of 6~.24 points whieh
is eqllfJl to 140% profit.
 RESULTS RESULTS 133

Texaco U. S. Steel
Price PorL Price PorL
If an investment llflfl been held continuously in Goodyear
Tire during the 22 year period, there would have heen a Buy Sept. 19, 1942 4.47 7.68
Sell July 27, 1946 8.00 P 3.53 14.50 P 6.82
profit of 2,363%. .67 11.46 P 3.04
Buy Oct. 14, 1946 7.33 P
B1J)Jing and selling short, dnring the same 22 year period,
Sell April 8, 1956 33.50 P 26.17 60.00 P 48.54
according to the Haller Theory signals, would have produced 5.00
Buy Nov. 25, 1957 30.87 P 2.63 55.00 P
numerous gains and one loss resulting in a total profit of P 12.13 100.50 P 45.50
Sell Aug. 16, 1959 43.00
4,671%. 9, 1961 42.00 P 1.00 79.50 P 21.00
Buy Jan.
If Goodyear had heen bought on Aug. 16, 1959 and held Sell Dec. 24, 1961 56.00 P 14.00 78.00 L 1.50
continnously for more than four years until M ay 3, J 964, the Buy June 2.5, 1962 48.00 P 8.00 43.13 P 34.87
investment would have shown a loss of 6.7%. I/>
Mav 3, 1964 78.87 P 30.87 55.38 P 12.2.'5
If Goodyear had heen traded long and short from Ang. 16, PROFITS
--
99.00
--
177.02
1m')!) to May 3, 1964 nccording to the Haller Theory signals, l.OSSES 0 -1.50
the four trades would have shown a total profit of R6%. --- --
175.52
NET PROFITS 99.00
If Coodvear had he en traded only long (with no short
2,216% Profit 2,285% Profit
sales) during that same period, the two trades would have
shown a profit of 39.8%. " Il ecen t Pri ce

A 22 year continuol1s investment in Standard Oil of New
Jersey would have shown a profit of 1,230%.
Buying and selling short, accordin~ to the Haller Theory
sign:lls, durinj; the same 22 year ppriod would hnve produced
m~ll1p.rous gains resulting in a tot:ll profit of 2,018%. There
were no losses.
If Standard of Jersey had been 1l0ught on Nov. 2.;', 1!}i)7
and lwld continn;mslv for almost five" years until June 25,
19(;2. the investment "vould have shown a small loss.
1f Standnnl of Jersf'Y had been traded, long and short, ac-
cording to the Ihller Theory signals fluring that same period,
the f01;r trades w0111dhave shown a total profit of 45.5%.
If an investment had been held continuously in Texaco
during the 22 year period, there would have been a profit of
1,665%.
Buying and selling short, eluring the same 22 year period,
according to the Haller Theory signals, would have produced
numerous ~ains which add up to a total of 2,216% profit.
There were no losses.
A 22 year continuous investment in U.S. Steel would have
shown a profit of 621%.
Buying and selling short, according to the HaUer Theory
signals, during the same 22 year period, would have produced
numerous gains and one small loss which add up to a total
profit of 2,285%.
If U.S. Steel had heen bought at the bottom of the hear
]34 nESIJLTS

111:1rl«'1011Nov. 25, 19!'J7 rllld held c01tfil111011Sh,lor 11l0l"('Ih:l11

six )'cars until May 3, HlG4, the invpslnw;lf wonlr] hnvo
shown a profit or less tlum half a point.
If U.S. Slpd had 1)('011 Irnded, '()1l~~rind short, :wcording CTJt\PTrm 12
to tIl(' Tbll('r Theorv sign:ds dnring fhal same period or more
Ih:111six vr-nrs, tho nvp tr:Hlcs woulc] h:l\1c shown :I 101:11j~ain VARfOlfS ,VAYS TO USE THE TJIEORY
of Jl2 ':i points, which is c<jll:ll 10 2(H"{'.
If H,S. Stcel had l)('clI lraded only 011 Ill(' IOllg side (with
no shod sales) dming that same pPrior] or more 111;111six
V0:11'S ,lie thr0(' IOIl[Y(r:1<10Swould h:n'(' shown r1 profl( or
!J(;.25'poinfs, which i~'f'qlJ:l1 to 102%. An important item 10 conskler, in addition to the liuv nnd
s"l1 sigll:lls or the Huller Theory, is the general market k;w\",l-
edge on whic-h the theory is hased, That knowledge f'nahlcs
us 10 ;lIwlyzf' 'he slof'k market anr] understand rhe market ac-
tion at :111)' time. An 111Hlcrstanding of volume, yield, pricf'
1ll0V01llr11t. the' A &: n Inrlex anr] the NH-NL Index shouk]
cn:lhlc one 10 \(>11 :It n glnnel') what is taking pbcf' in fhl')
market.
In the Chart Hr-vir-w chapter are many n~pdilions or ('pr-
rain antinns h('(':ll1s(, al1 h1l11markets and hear markets which
occurred in '11(' last twenty-two years have h~ld remarknhle
simila riries.
1'11(' first pll:1s(, of ('v(,1''' Imll mnrl«- has hp.cn a strong.
smooth 11]1"':1n1 movement arr-ompanied lly inrrpnspd vol-
limp. amI inr1'f'nsrr! new highs. Lnrgc rene-lions have (r('-
quently pn<!ed 111" first phase. At the tops of fh(' lmll markets
have lIsn:dly appeared wide swinging reactions, dpcrensed
volume anr] [pwer lWW highs, -
During most of Ill(' hear 111:1r1<('I,.; there hnve I>('pn large
rallies, some of which wcrp fn]sl') moves of the DJTA. Dming
the crashes tho action was nSl1:111ysimilar with smooth, sharp
movements downward. accompanied hy large volume, Sell-
ing climaxes have hePD very similar in their ndioD. Low vo]-
ume was present at the bottom of every hear market.

135
 VAm01JS 'VAYS TO USE TIlE THEOHY
VAHIOUS WAYS TO ~JSF. TTIE TlIF.OIlY

max sho"ld help him to form intelligent conclusions, based

Of r-oursc, evpry hl111market and every hcnr m.rrkr-t is
on fads. .
slizhtlv (]ifrcrcnl from lIle others, 1 have never seen two
t, " For theInvestor who may he detpnnined to huy only the
which were f'x:1ctly alike. Dill the renwrknhlc consis!rncy of
highest rplality stor-ks, and hold them for the rest of his life,
the similflrities makes it relatively simple'. to nnalvzc tl)(' stock
n knowlAclge of tl10 Haller Theory might help him to buy
market when one possessps !lw rp(l'Jired knowledge. It is a
near thA bottom, anr] avoid huying near the top. For instance,
wonderfnl reeling to he n11k to correctly nnnlvze the fldioll of
almost any long term investor would have found it prudent,
the market find nnderstnnd Ill(' signif]canr(' or each faclor as
in tlw past, to avoid hn)'ing after the A & D Index had a
it appears on t1H~scene.
When vnn wish to nnnlvzo the market. a('cnrcling to th(' [allure with a vidd of lpss than 4%.
The BoHon'; Bu)' Signals. in thp past, have ir1fmtificd out-
HaHN Tl;('nry, yon might ~01Tlpan~the current market action
sl:lnding hu)'ing opportunities which would have heen ex-
with simiLn' action on the charts ill this hook. Thnn rp~1clwhat
trernr.ly profitable, f'ven if the long term investor had not
is saiel flhout that action in Ihe Chart Review chaptor. Soon
YOl1should he able to make an accnratr~ analysis wi thnnf follmved any other part of the theory.
" . A knowledge of the Haller Theory might also hpnpfit thA
rderpncp tn the text.
investor who is onlv in!erAsted in huying growth stocks, and
\V1H'n 1 make an nnalvsis, I stflrt (lff with thoughls like
this: "I will not form an ~pini(ln ahol1t tllf' mnrkr-I, find Twill holding them for J1l:lny years. With an understanding of hull
and hear markets, such an investor might improve his results
not consider 1110opinions of others. J will hp neither optimis-
tif>or pes~imistic. J will only ('onsider fads. as interpreted by
hy flvoiding purchases when the market is in a dangerous top
area. Even growth stocks can suffer large rledines in a stock
the Haller Theory."
I wonld not wish to sav thlt evervonp ill the market should market crash.
To illustrate tlw point. let us pX~lTniTle the rf'eent history of
stridl" follow evrry mfe :lncl sigt;:ll of Ill(' Haller Theory.
Some imTp,tors lnrv s!o(·ks pnly for divi(],.nd income. Others IBM, which m:my l)eor1f~ silid was the greatpst growth stock
of :lll time. Tn November, 1961 IBM re:lched a price of $600.
hl1Y storks only for eflpilfll gflin. Some :lrp swing Ir:1(l('rs,
JJPr slinr«. Thcn it d('r!in('d dra.,tirn lIy in the crash of 1962.
some nre short tC'rm hndprs. nnd some m'C'jllst plain gflm-
The lowest point of it., dedine was in"June, 1962 when IBM
hlors. sold :It $:100. pN sharr-a decline of r50% from its high. By
Mnnv i1Tvp,<;!orsdo not wnnt 10 sell s!Jnr! llwlp1' any dr-
Nnv('mlwr 17. Hl6.1 IBM sold flt $485. per share. .
011msfn'n('('s. n11(l 'hnt is !h('ir pri\'ilpgc~. F'vr-rvonr: should have
Those who hotlght IB1\1. the world's great('st growth stock,
his own J,nsi(~pl'ogmm to en it his rflr!irll1:ll' I"sl('s nml nhjoc-
in November. 19R1 :mrl h('ld it for two years until Novemher,
tivp~.
Im~~had only lossos to show for tlwir "trollhle. If an investor
\\'h:1t 1 \\'ish to poinl out is \11:1\ :11most anvone ill!p1'PS!f'ct
h:Hl sold IBT\l at thp Top Sf'll Signal of Decemher. 19f1l and
;11thr, slo,.l, m:lrkf'! might hpneRI from :1 knowkdge of tllP
I1H'n honght it hnck ilt tll(' RotlO111Buv Signal of [nne, Hl62,
Haller Tl.oory find th" fad'; nn whiel, it is hasC'cl. F,,"'n if n
he w01l1rl hflve J1l:lrle a good profit "during thflt two vear
person d;r1 not wish to follow any of Ihp signflls, an llndpr-
pprio(l.
stamlini! nf yield, volume, A & D [ailuro and the selling eli-
 v A HHHT~ ,V A YS TO 11SF: '1'1IE TTTF.onV
If an investor wish", 10 ad\,;IIl';l~;f' of \hl' low prirr-s
1:lkp
near the holtom of a lienr market, he can not remain fnlly
investr-rl lhnmgh a major marker rlor-lino. Tlw pf'fson who re-
mains fnll.1' invested lias no capitfll availahlf' to I)\]y near the
bottom.
1'111" swing trader might want to follow 11lf' hny nm] scll
sigmtls as closely as possihle' to take fllll :ldv:1lltagp. of tlte up
:u;d down movements of !ltt""'market,
If a pf'rson felt tJwt tJIP nsf' of 111('Top Sf'JI SignnJ rf'qllirf'(1
too much dfort or was too dirnclilt to uurlerxtnnr], llC might
r-onsirlr-r nsing jllSt tlw Trend Signals ancl the Bottom Buy
Signals 10 Jwlp him dccide when to huv or sell.
Thf' investor who dops nn! believe in any kind of contrarv
action, and wants to Follow on 1)' w('1I-;stahlis1wd trends,
mig11t prpff'r to IlSP only t Iw Trend Signals.
A knowlf·r1ge of Ill(' Tl:dlr'r Theory woulcl hf' valllal11(' to
eorpor:11f' f'x('Clltivps wllo might wish to raise f'apit:'d hy offf'r-
ing a nr-vv st ook issue to tl\(' pnhlif'. Npw iSSllPS do 110t sPlI
very well during hear markets, and it is n waste of f'orrorntp
fllnds to attempt to sPlI a n8W iSS1J(~during a S8Vf'rf' market
dedine. TIl(' astute r-xooutive could uso a lmowlf'dgfl of mar-
kf't nnnlvsis to O{ff'r his II('W issue near tile top of a bnl] mar-
ket w11('~1pnhJie f'TltJllIsi:lsrn and optimism is fit its height.
TIl(' financial t vooon miVhl do w('11 to think nhoTlt hnl] nod
hem mnrkf'ls ill ;'elalion In his ncqn ist ion progrnllls. When a
tvcoon nftf'mp!s to gnin ronl rnl of n oorpornt lon, 11(' 11111Sl
f;'f'rpll'nt1v huv J::lri!e amounts of thaI oorporatton's stock in
the Op('11 mnrkr-t to :1ehlev'" his ohjrctivp. Frr-qur-nl lv th.p
amount of mrnu-v reqllirrrl is so grf':lf that 11f' may find It
lH~Cf'SS;'HV to horrow l:lr~~pnmouut s of 1ll01l8Yin onl"r 10 COI1-
H11118hi.s nrogram.
If h!" sho1l1(1 starl sm·ll an aggrf'ssi"p program, nnd streich
llis crf'dil tn Ihf' limit right :1\ the Hmr- whf'll a l)('ar market is
sbHling. he would '1SS1'1111(' trpmpndolls risks. \i\JIlPn a henr
V" HTOos w AYS TO nSF: TTlF: TTTF.OnV 139
mnrkef C:ll1SPSstock pri('f'S tn dr clinc, Ill(' hankers who might
hnvo loaned him money, would require additional f'ollateral
to protf'd their loans.
If the tycnon hns strf'tcher! his resources 10 the point where
hr~ can not provir]r- tllP relpJinxl collateral, the bankers would
havp to sPlI thp s~od< or oflwr :1sspfs which he Iwcl plr>dgf'cl on
thf' loans, Sllch :wHon might result in a loss of millions of
dollars (0 lltf' lvr-nnn,
The well-in(orJ1lPd ~'yf'oon who can idf'ntify stock market
lrends m;gh~ !lr>hr>Hf'r ofF ~o deb)' the start of an nggressh'e
acqnisition progrnm lln~iI n hoar market has nm i~s course,
'Vhen a new 111111 nmrkr-I stnrts, the possihility of Tp.cp;ving
margin ca lis is milch Ipss than it won 1<1lJp at t h" start of a
hear rnnrkr t. Also the f'ost of acqtrisition miP-". ht 1)(>11111('hless,
.. l"'
lH'f'allsP til(' prief' of thp stock might hI" lower.
The short tprlll lr:tcler might lIS£-'the concepts of fhp ITaller
Theory 10 help him initinlp his trades in accordance with the
trend of ~hp stor-k markr-t. npst rpslll!s am usnally obtained
when only Jong posltlnns are initiated dnring a hull market,
and short positions nr~ established dming a hear market. Seil-
ing short in :1 [iul] market is a clangenms venture.
',Vhilc Wf' are on thr sllhj('d, ilmight hf' interesting to rlis-
f'llSS SOIllP of tIl(' ;Jd\'nntages and disndvantnges of short sell-
ini-(. TJlp main mlvantngr is ihn.t SllOft selling is a practice
which offen; the possihilily of itlf'rensing one's ('arit;JJ during
a lx-ar market,
TllP main disa1lvnnt[lgf's are thnt a short position dnr~s not
h:n'p tltp possihililv of rf':llizing as largfl a profit ns a long
position, and Ihp pPTson with a short position risks a larger
potential Joss than one with a long position. It is a case of
simple mathematics.
The pf'r.son wit l; a short position can not possilily make
morr- than 100% profit on a short sale (without trading on
1l)<lrgin), IWf';IllSP a stocK can not decline more than 100%.
 v Anrons WAYS TO lJSE THE TIIEORY
vxnrorrs WAYS TO USF; TIm THEORY
sive, Adequate kJl0wleclge could 1]1"]1'the small investor to
Then' is no limit to how much a stock can rise, so it is possi-
protect his capital from severe losses during bear markets,
hIe for a person with a long position to n~aliz(' a profit of
and to increase his capital rlming hull markets.
500% or even 11,000% or more. Since there is no limit to how
T~lmy own case, J place great value on the peace of mind
much a stock can rise, thf' sllOrt seller risks the possihility of
which my thr-ory has hrought to me. T never worry about the
an unlimited loss which could amount to much more than
stock market any more, for now I seem to unr1e;stand what
the oril!irwl invf'st!mmt.
,'\ the mnrk of is doing at flll times. Tknow how to recognize dan-
Another disadvantage of short selling is the income tax
ger?l~S fop areas, and J can also recognize the huying oppor-
treatment. PIORtahle short sales can not he tre::lted as long
tunities when tlll')' appear.
tenn cnpital gnins. regardless of how Inng the short position
is held. Even if one should maintain a profltahle short posi-
tion for a ye::lr or longer, it would still he a short term capital
gain.
Despite the rlisadv:1lltnQ/~s,many aggressive investors sell
short in an ::lttempt to make profits in a hear market. Some
people treat short sales differently than long positions. If I
sell short, J do not like to trade on mnrgin (horrowed
money). nncl T nm not anxious to put all my resources into a
short position. When J initiate what appears to he a good
long position, T sometimes put all my resomces into it, nnd
then huy on full margin.
Manv conservative investors do not even consider short
sales. 'i'heir ohjective, in a hear market, is to protect and
preser,,!' their capital. To accomplish that, one might put his
capila1 into governmcnt homls or govemment insured SAV-
ings accounts until the next huying opportunity appears.
One could nlso follow fI comhination of progrmns in A hear
market. He might make fl small short sale v..rhile keeping the
bulk of his cal~ital in govemmp,nt insnn,(l s:wings.
J helieve that small investors con 1(1l)('nel1t much from a
kno\:vleclge of fhe IT:111erThe0T)" The heginners and the small
investors are frrqucntlv confused hy all the conflicting advice
and opinions with which they fire rleluged from all sides,
'\Vhen S1Ifficiently confuspcl, the normal person USllally takes
the wrong action, or none at all. Such a course may he f'xpen-

en APTER ].')
1() ()% PRO FIT TN F o IJ It ]\110 NTH S
Now th~t yOIl have rend many pngm; ahout theory and
logic and tl1f'orelicnl trades, YOll may he wonrlf'ring whether
the Haller Theorv hns ever heen used in real ]ife with cold,
lwrrl ['aS11at stnk;:. Yon 1I1ftyalso he \vom]pring wllPlhf'r sllch
nctual use of the theory was profirnhle,
Thp answer is th:lt 1 have nsed the Haller Theory in artllal
trading, and ils use has been profitable to me. Iv1)' invest-
ments'in the slock market have lwen much more profifahle
since I started lIsing tlw theory.
Dllring the HJG·) hull market, my lise of tbe l Inller Theory
ennhlrd me to realize actual cash profits which increased the
tol:1111et value of rnv stock acconnt hy 100% in Iour month».
I will use my most r~cellt trades to ilInstrnte the nctl1~lllSe of
tl](' theory.
Plp:lse do not think that I mention thf'se trarlcs with the
intnnlinn ()f hOflsting. The fact is that I would ratller no!
divldl1,C tllc ddnils ;;r Illy trading nr-I ivit iex, h11t T fed it is
nece;sary to give:m actllnl example of how tllP TTalJpr Theory
can lldp to make monr-v in the market.
V~lr1Vin Septrrnlwr, HJ6.3 some cnpif:d was nvailahle, and 1
(If'ridp;l to invest it in the stock market. T already had long
positinns in stocks which l1ad been hnught em-lier in tIl(' hull
market.
AI that time the TTnJJer Theory indicate(l tll:1t tIle 1qGl hult
100% T'HOFIT IN r'oun MONTHS
market was ',I ill in progress, with 110 end in sight. Thorr: had
heen a large reaction in Jnne and JIIly, which lI1arkrd the end
of HIP strong, early phase of the hull market.
My analysis of early September was that 1110market was in
the phase o[ wide swinging reactions, which usnally turns
out to he a lop area, There had 110t yet been :1 Failure of the
A & D Index, so then~ was no definite sign of when the hull
market might end.
When the m:11'k('t is in a possible top area, one can not ex-
pect to make a profit hy huying just any stock. for the major-
ity of stocks nsn:dly decline in a top area. Gre<lt caution is
required wlren huying stocks at such a time.
1 decided tlwt the stock I would buy would have to be one
of the strongest stock,.; in the market. My technical strength
studies fit Ikif. time showed the Airlines to hI" the strongest
industry gro11p in the market. A earcflll stndy showed that
the strongest issue in thf' Airline group was Trans 'Vorl<1 Air-
line warrants Au examination of [unclamentals reVf~aled th:1t
TV.' A ancl 111:1ny ot11f'r airlines were enjoying- gwatly in-
creased c::trnin,gs in 1963.
I dpcidrd to 'iHlY T\VA warrants hecause it was the strong-
est issue in thp strnngrst group, and the fnndmnental outlook
was 'Illite [nvorahl«. T was also influenced hy the fact: that
T\V A is a large company whose name is known over much of
the world.
T did not want to risk llllying- T\V A warrants at thr highest
point of n rnllv, so T rnterrd an order to hny at a price of $10.
per share. That pdce wa.,1,1% helow the high for the year,
which was 11 %. I Jikr the idea of hllying a rapidly rising
stock when it has 11 reaction and sells at least 10% below its
highest prirf~ during the rise.
1\1y order was executed on September 17, 196,'3, and I
bought T\V A warrants on 50% margin at a pric(' of J O.
Mnoh to mv surprise and irritation, T\VA warrants con-
 100% PIlOFIT TN FOUR MONTHS 145
J 44 H10% p!1rWlT TN FOUn l\!ONTIIS
III Ihe stock market. 1 would add to TIly profitable position.
tin1lcd the (]pelin r-, YVilhin two weeks nner 111Y pllrchnsf', thev The maneuver is sometimes called pyramiding.
had t01wlHd a low (1f IW~.'l"1Inl low pdp" was hr-low IllP spnl T decided to Pl1t all my resources into TWA warrants. The
at which one wonld normally place a stop loss order. If Lhnd next moming 1 l("h~phoned my broker and placed an order to
used a slop order, 1 would have been stopped oul 'with a loss ~pJlI1lY other stocks and buy more 1"'" A warrants at 12th on
on that decline. :50% margin, using all the pmcllflsing power at my command.
At the low of ~Wt. TV/ A warrants had declined nhont 1R% I had a positive jrpJing that the warrants would rise to 18
from my purchnse price. On 50% mnr~in, the pnJwr loss was
and double my, monev."
36%. Add nuothe!' 4% for commissions and interest, find the
My order was executed on Novemher 1, and I loaded up
total pnlwr loss was nhout Ml% of the cnpital invested in that
011 the warrants at 12th. Every dollar I could scrape up-all
trade. T wasn't pXflC'tly lml1hling over 'with joy. A time like
my liquid assets were in T\V A warrants.
that, wlwn things go ~v1'Ong, is when n fellow IlPec1s a theory
At that lime the Haller Theory still indicated there was no
to help him out. end in sight for the h1l11 market. Bnt the first signs of weak-
The Haller Theorv, at that time, still showpd the 111l11mar-
ness had occurred \•...
I1!'m divergence appeared on the scene.
kct to lw going slro;lg. with no pud in sight. T decided that I
Dming several weeks in September and Octoher the DJTA
would not he frightened out of my position as long as the
hfld risen to new highs while the A & n Index failed to make
hull nwrkf't was in progress. I reasoned that T\VA wnrrants
new highs. Divergence is a sign that the majority of stocks
were more volatile Ihm'; T hnc1 figmed. fwd therefore suhied
nre not rising along with the DJTA. Such divprgence Fre-
to lnrger rend ions rhan lr-ss volatilp isslles. 1 fignrcd they
qnently appelll'S in the top area of a bull market.
would stnrt going np ngnin soon.
T realized that my purchase price of 12th was less than 10%
My rf'asoning and my dpdsion proved to he r-orrect, for
hnlow thn high of 13%, and that I was hll)'ing ton close to
jllst n frVl clay~ lalcr. T'V A 'warrants had. snapped h~('k, an~1
thnl high. I did it that way because I simply could not stand
were splling ahovr 10. Tlw 3dvance contmued slen(hly until
tIl(' thollght of missing the move by trying for a lower price.
hte in October, wlWll tlw price reachp!l 13. By then TWA
w~rnmt~ hildlH'rnme one of the most ilf'tively In1(1('(1 iSSl1es Several years prpviously J had missed a large part of a hull
on the ATIleric;t.n Stnck F,y,'h;t.nge. At a price of 13, TIlVpaper market in soyhenns hy trying to hlly on a reaction which
profit was nrol111(15S% of the capital illvest('(1 in !klt Ir3:1P. lwvpr nppenred. Then Thad tn chase the soybeans and buy at
On 11)(' day wl1Pn TVIl A warrants ff'flclwll 13 on very l~lgh a much highf'r pricp to gpt in on the bull move. It was a Irus-
volume, T was a lillIe thrillp(l and excit("(l. T was not cxclted trn!ing experience.
hecal1sp. of the lSond paper profit, for T had experienced other Then it happened again. A ff~w weeks after my purchase at
lnrge profits. It w~s 11e('a1lse I realized that T harl a tiger hy J 2%, TvVA wan-ants went into a reaction that carried them
the tail, ;1n(1I knew exnetlv wlint T had to do n1>0111it. down to ] 07/1'1. If T hnd used a stop loss order, I would have
On the dav when I s~w that T\VA warrants had the he('n stopped out on that decline. That reaction did not hother
strength to h:C'mnp an outstanding high flyer, J felt thnt 1 had me much at nil, for I had alrc3dy decided to maintain my long
to eXCCllte one of the most potentially profitahle manel1vers
 lOOt?{, "\lOFI'!' IN Hlll\l !\10NTIIS 100,,!,' 1'1l0FlT IN FOIIH l\f(lNTIISI/17

po<;iliolllilllil [ h:nl :1 larg(' profit or:l l l nllr-r '1'lwory sell stg~\ Seplrlllher 17 [r ) l:lllll:l1Y 1:~. I n <;hOlf. T h:ld dOlll,krl 1111111\

I r rcd.
11;J ()('ell
'I'hr-n th(' slo(llp;nlel WClIt inl o fl p:mie whr-u President
Kf'l1Jwdy was ;Jss~ssin:lt('d ill N(l\'C'lllIJPr. T W:1Sshocked anti
",nrri('(L lik(~ oll)('r. investors, B"t T did not ('OIlsider selling
on! ll('c:lIls(~ 1 \\,:lS dpter1l1ilH'd to wait for a sell signal. I alsO'
knew [rom mv rese:Hch Ihal a sllddell shock h"rl1H'vcr hcm.t
ahk 10 ('lid a J,1l11markC'!- dllrinf': tl)(' Insl twelltv-two yelU1~
\VIH'lI l ho panic ended nnrl Ille stock market sl:nled moy"~
ill'; np :l~~ain, '1'\V1\ warrants nlso rcslllll('d the npwnrt] mov~
nlld I,e(':lll](' Ille second most ndivc isslle Oil the American'
Stor'k K'I·h:mge.
Oil .l:lllllary 18, Hl(l/! T solrl all/lw T\V;\ warranls al 17% ~
(':1lIS" Tfell Ih:1! tlw 111111 market \\,:IS approaching nil important
climax of speclllativp ar-t ivitv al 111:11t imc. ThaI ide:\ was
n'd. for manv fast moving' slocksmade Ihoir highs aroun~
J:1111ln1'ylS. High flVHS like Sylltex, i\T:v·l,('v Airlines, Dcnnt~:
SO" 1\lallllfactming nml Dvmo Il1dlls1rips t(~pppd 0111and di
no! approach t lioso highs again d"rillg tIl(' next six montbi~ j'lf!
g,,1 my s~dr of T\VA warrants W:1S a mistake. Aftrr declinin~
to lG, thov s{:lr(l·d ri<;ing again to finally rench a high of 3()W
:1!Jont six '111on1h<;lnl<'r. ;rh~ Airlin« gro;lp was [ust 100 strOiil
In lop 0111in Jnll11:nv. . ,
1<:"('11!!Jn11f,:h , m:HIf' many mi<;!:t!,ps, mv proril was SUli)1
slnnfia1. From Ill" nrigin:d p11rc!J;r<;(' p1'j(·p or 10, T\VA wai~
ranis rosc 7w;r, whilr- II)('ld thr-m l\lv profit 011Ihal parliculrii'~
tr:1(I(' wns over I Sf)";", 1Ir('n11Sr T wn<; lradin!( nil SO''?{, mflr~
llmv('VI'{ nile <;honld no! phec Ion I11llch importance on
j"P<;111fsnl any nur: l1'n<1p. The prime ronsider:ltion is wh~~
happf'll<; In Ihe lotal net value of :1 persoll's nce(1l11ll. Stoc;1jl
Im,!<r'1's rP[rr 10 it n<;thr ('redi! 1)~11:1I1C(' or tll(' :1('('011111.
Tlw Th11er Tllf'orv had provided Ihf' gllidnnl'(' Ihal helpCll
mr- to Inkr n('ln:d (':lsh p1'oflls which in('J"('n<;pcl Ill(' InIal ~
vnllle of mv neeo11nl 1Iy 100% in thc lour mouth period
moucv with llO losses.
Anothor inl('f"('slilll( rnd is Ihnl pvcry sloe!' T pllrckr<;ed in
l!)(.n was <;old al :l profit. The onlv rr-asou I h:ld hprn ahll' to
avoid lo,<;ps 'vas h('I':III<;r (If mv el)llnclPl)('C in flIP l ln llr-r
Theorv. '
Il ad 11Isl'r!<;I.np foss orcll'rs. 1 would have !H'1'1lsfopprd (l1]t
nt Jr';)sl ,Im'(' 11111(',dllrimr, Hl(n, :1I1d mv Ir:ldf'<; miphl 1J;IVP
shown n lwl lnss for Ill(' vr-n r. I hnvo l'lOl!Jilll( ngai;I.<;t ,lop
orders, 11II~ 1 do not liko 10 I1r stopped out with a IllSS dllrin~~
It tcmpornrv re:1('fioll. T do not lise stop onlrrs vr-rv often hc-
cause J Ihink T 11:1\"r sOllwtlting Iwlter--Ihe "alfe1' Theory.
Tt was a snti.<;fnclion to know tflat 1 Iwcl ohtained hrVf'
profits hv following 111)' thenry and the' ic1p;l'; whi(,h T ha~l
corf ~cvel()prd all hv myself. TIl(' venture had he('n prrilolls al
times, hTlI Ilw TTnllPl' Theory llacl hc1pcc1ll1c 10 STlrvi\'r Ihr
large reactions which mighl hflve heen disflsfrollS.
4 J had 1101pnirl nlfell!ioll 10 anyone's advicc nr opinion. nor
had 1 he;ml PI' anvonr- rccommending Ille pllrcltase of T\V A
warrants. In fOd, , h:ld never hoard of T\V A wnrrnnts nnl il
my slrcn,glh slmlics hroll~~hl tl1P111to my attention in HlG1.
Yon arc l1llfloTlhf('rllv 'vvOll(!Pring how 'my slTf'nrr,lh sln,ljcs
can uncovorstoolcs which conlll Iweo1Tw hi~~h fivers. So 1 will
devote ('on.sidf'rnhle time, in I'nrt If of this il00"',
to a rlf'\aikd
explnlla/iOll of 111f'1llf'Ihod T dflvc1o!wd In llelp me idenlifv
the slrongest stocks in fhf' market.
thI
rr~

CHAPTER 14
'''fIAT ABOUT TIlE FIJTITRE?
I havp pff~selltf'd tlw story of how thp Hnller Theory has
worked in the past, in theoretical results, and in adunl lise.
The adunl, n~allife examples were more profltahle than most
of the ,1wor{'ticf11trades.
NO'\' it is time for yOIl to wonder how the theory will work
in the future. I wondmed th(' same thing about five years ago.
It was grntifying to s('e the theory ::wcurately idf'nlify every
major turn of the market, as it happened, during those five
years.
The hig qnestion is, "How long can the Haller Theory go
on calling every turn with(mt a mistake?"
W« must be realistic when we try to predict how accurate
the huy nnd sdl signn Is will he in the Future. To get the right
answers, it is necessnry to get down to hnsio truth ancllogic.
The onlv nhsolllte certainties in our world nre in scientific
fields rov~nxl hy the lwtmnllaws of physir's, chemistry and
matlwmfltics. For inst:l1lcf\ when a person jllmps from an air-
plane, he can he certain thnt he will lie ]Jul1f'd down 10 earth
hy the force of gravity. \Vf' can he certflin that every mole-
cule of water r-ontains two atoms of hydrogen amI one atom
of oxygen. We ran he certnin that fon~ plus [our will always
equal eight. V\Tecan he sure that malllPmatical, physical anrl
chemica 1reactions will cOlltin11eto he the same in the Future.
In tl1f~stock market there can he no sure thing, for it is a
148
WHAT AHmn' nm FFTInm? 149
man-made Instif ut ion , motivated by human action, anrl snl»
jpd to fluctuating conditions. Sinc~ tlw stock market is not
gove11led bv th(' natural laws of science, its actions can not
he analyzed or predidcd with certainty, If a person demands
ahsolute gunrantcl's when investing in the stock market, he is
not heing realistic, for there can only be prohahllities, not
('('rIa in til'S.
To continue being realistic and lruthfu], it must be pointed
ou! that future accuracy of the Haller Theory is in the realm
of probabilities. It has workr«] well in the past, and I helieve
there is a prohahility that it will work well in the future. Hut
there can he no gl1~rnntee that any stock market theorv will
work as well in the future as it did in the past. '
A good record of performance can not guarantee a good
future performance, hut a poor past performance, on the
other hand, would make good future performance improh-
ahle. There is a probability that a method which has pro-
duce(l good results in the past will produce better future
results than a method which produced poor results in the
past.
When a person starts on an automobile trip, there is no cer-
tainty that he will reach his destination alive. When a person
start~ walking across a busy street, there is no gnarantl'c that
lle WIll snfely reach the other side. There are elements of risk
in all phases of am lives. only a few of \"hich can he entirely
eliminated.
Those are the fnds with whiC'h we must live, and i~ is IIp to
us to do the hest we can with the uncertainties of 0111'en-
vironment. As intelligent human beings, we should take
measures to minimize the risks with which we are confronted.
The intelligent driver has developed driving habits and
~Pthod~ which reduce the risks he m11Stface. By following
his hahits nnr] methods, he increases the prohahilities of R
safe journey. The cautions pedestrian has developed a
 WHAT AB0I1T 'nlE l'lTTlTl1E?

llwlhnd fnr rpr]llf'illg r!Jp risk of crossing a hlls)' .'lrpl'1. Sllch

mf'lhorls I'an not compktph' c)jminatr fhr !Jnzarr1s, hut they
inerpasf' ,1l(' prnlwhililips of safely reaclJing a (Jr.s!in:ltion,
]'vly wn v of minimizing tllP risks in tl](' slock market was [n
dovelop 'liP TTaJlpr Tlv-orv. Alt11011gli 111(' risks can nol 1)('
eliminnlpd. 'lw Ihpop' 1I<'11's to increase the prohahility or
safely rp:1l'!Jin).'; my ohj(·(,ti\'p,
DlII'inf~ f1lP t wr-nlv-rwo war period from J,l1l11nry, HH2 to PA RT II
]nlllwIT, lD(H, III(' TTallpr Thf'Ory achievr«] a rrconl of 100'?;,
accuTIlcy-fl P'" ICnn;H)('f' ",hi(,h is fanla1di(-, T 1Jf'lieve it woulr]
h". rnorr- rp::llislic to cXJ)Pct:l Futuro rCf'onl of g!')n{, [lecl1r[ley. T
tUnk if is \visp to mnintnin n r-onservativo pxperfnney of £11-
Imp rpsl11l". When f wns a hllilding contractor. T found it was
,\ good policy 1o hp r-onsr-rvnt iv« when estimaling potcnlhl1
profits, and w~nprolJS wlwu estim:Jling plTlenlial eosls. "rrIE S'rRONGEST'
 INTRODUCTION

The Slronw'st Stock Concept is an interesting subject,

worthy of extf'llsivf' discussion. I had planned fa write a sepa-
rate hook ahout it, hut after some serious consideration, I
decided to include in this hook a condensed summary of the
Strongest Stock Concept. .
I felt it was important to avoid delay in tf'lJing you ahout
fhis concept lwcnll.se tlwre is a chance that a knowledge of
how to idf'lIlify the strongest stocks might possibly help yOll
to mnke some Inr,ge profits. If yOll have traded ill the stock
market for all)' If'ngth of time, you know that one good idea
cOl1ld he worll1 thonsnnds of dollars.
There is also a possihilily that one or more of the l1J1IlS1Wl
ideas prcsenlpd hen~ in ParI IT might help )'011 10 avoid Inrge
losses. One Iiflk~ mistake in tl)(' slock market can cost thou-
sands of clollnrs. Therefore, T will reveal some of my ideas
and mistakes in connection with the strongest stocks.
I have userl fhl' Strongest Stock Concept ill comhination
with tllf:' Haller Theorv, and it worked nicely. Since the two
metllOds worked so w~lI together, it is appropriate to discuss
them hoth in the same hook.

153

CHAPTER 1 bought. So J figurerl that if the risk coulcfnot he eliminated,
THE STR()NCE,ST STOCKS
For spveral yeilr.~ T Iwd noticrd a remnrknlile phenomenon
which or-onrred rlC'gnlmly in thl': stock market. During the
r-onrse of fI yenr, the 2,5(l() stocks trfldf'd on tlll': New York
Stork Exchangp. and the American Stock Exchange wonld
experience difll'rf'nt kimh of price movements,
WllPTl a hull market was in progress, ahon! (l!)% to 7!)% of
the stocks fHlvnnccd. A hrmt 15% to 25']1' declined. find ;Ibout
10% rernninr-d lmdHmgcd.
OF th(> stocks which nrlvnnced in price, the majority usually
adv:mcpr! less thnn 80% ill n year. Only a small number of
stocks flrlvnncpd more thnn 100%. Tlw [r-w higll flyprs whkh
fldvflll('Pr] more than 9.00% ronlrJ nsuallv hf' cOlln!pd on the
fingflrs of nnp lnmd. SnnwliTllc.s nne or Iwo slocks wonld rise
man' t hnn 500% in fl vnnr.
ant of the 2/)00 Sf(ll'!<strarkrl on lllf' two mnjor ('n·hflnl~ps
in this conn!ry. only a few hppnme hi~rh f!veTS. Those few
•• •• ."'1 ,.
stocks will he rememherccl for many )'cRr~ for thc:ir nlll::lzing
perfnrrnnnces. Some investors made [ortrmr-s hy hl1ying out-
stfmding stocks like Tliioko], American Motors, Texas In-
strnrnonts, Pohroid nnr1 Brunswick,
At first I W;lS nfmid to ("'PI! conskler lmying fl high flyer
because T thOllght that a stock which went IIp mpirllv could
also go down rapidly. TIH'n I discovered that the low flyers,
154
THE S'rnONGFBT STOCKS 155
and e\!pn high quality growth stocks, could also go down
ra 1'irll)'.
The risk of loss existed regardless. of which stock was
why should T strain my hrain muscles trying to make a ~O%
profit wlien T might try for a 100% profit with the same
amount of brain fnligne?
The risk in the st<~ck market is so great that one might he
jnslifiml ill trying for tlw largest possible profit in an attempt
to ohtain adf'qllilte oornpensatlon for taking the risk.
I dcr-.idf'd that T WOlJ1r1 try to develop a method of identi-
fying potential high flyers. I studied the outstanding stocks
of previous )'f'nrs in an nHf'mpt to discover whnt they had
thnt the other stocks did not have. <
I noticf'd thnt most of the high flyers had in~ffmsed earn-
ings, hut so did many of the other stocks whir), never he-
ramp 11i~h flyNS. Som~ of the well known growth stocks even
went into Inrge declinps despite their incrc::Jsed earnings. My
conclusion was that increased earnings was an important
factor, Imt it was not the most important cltarncteristic of
the high flyers.
I discovered that there was one 01Jtst~~lding char~ct~ristic
possessed only hy ihe high {IJ:~rs.}! w.a~!he unusuallylarge
extent of their increase in prien. The high flyers moved np-
warrl nmf'h f;nlher and Iaster than the other .stockS. A stock
hppamA o111shmdillg' on 11'when it demonstraterl its nhility to
outperform thE') other stocks. '
While pnnming that line of tltinking, T kept in mind that
tJw hasir- force infhlPncin~ Ihe advance or df>cline of n stock
is the supply and demand for that stock. If the supply is
grcnter than thf' riemann. a stock will go down. If the de-
mand is greater than the supply, a slack will go "1" A
consistent increase in net demand will be indicated by a
consistent rise in tIle price of n stock.
156 TIm STnoNGF,ST STorKS
If tho nd demand for nTH' pari icular ~Io(·k is eons;stPIlI ly
greater than t]](' net (1fmlfl!Hlfor any other stm-k, that par-
ticular srock will go up farther than ::my ot her stock. TIJPn~-
fore, one can r-valunte tlw l"f,ln!ive rlomand for di1fPrf'nt
stocks hy {~omparing the pricf' changes of t!Jose stor-ks,
The stocks which experience the grcalrst increase in price
are the strongest stocks in the market. J lJ,"'!ieve the strongest
stocks have the best chance of making the largest gains.
To discover which stocks wen~ tllP strongest :1ml were
mo"";ing Il!wmrcl larther and faster th:1n the otIH>rs, I com-
pared t he percenta e of .-icp increase of many iHft'erent
s oc s in a sped rc time period. The lime pprioc can vary
acconlinl! to the wishes of tll(~ wrson mflking thp com rnrison.
ne p~'rson mig It wish 10 use a t iree or' onr month com-
•u:t=ison pnio(l, while anotlwr pNson might prder a six month
period of comparison. 111 prderence is for a minimum com-
par!son pcriod of six months.
YVlwn I selected T\VA warrant's as one of tlw strongest
issues in Ihe market, J was nsing a cnmnlative time period
which st;lrfed on J arumrv n. 19():1, and PllCI('clon the <late
when T W:lSmaking the c-omparison. The time period which
I llSAd for my strAngth stl1rlies in the second 1IaIf of 1DR:]
changcrl fron~ six months, to seven months. to Aight months,
anrl so on, as tll" year pmgrpsse(l. Tlw minimum tirne period
J l1sf'd in lfl().1 W:1Ssix months.
,~/l1f'n T 111:1k('up n list "r thf' slronf!('st stocks, 1 shnl h)'
taldng the stoc.: market rngAs from the hlest l1f'wspnpcr.
Then I I:,kf' from mv Illes 11Ip sfock market -pnf';f's from a
m~wspnp('r of six mo,;fhs ngo, or nny other d,ltp T wish 10 nsf'
in tIl(' c()lnparison. 1 snvp Barron's or the nn:lllcinl sedion of
the Slll1dTV newspaper PV(1)' week, 10 provide :111fle{'llrntp
rpeonl ()f wel'1,h' stock pricf's. nllfl nll1l'r rhtn. Mv f1]8s go
hnck for severn1' years, and :1r8 n great I1f'lp in my n>seflreh.
'J1m STnONGF.c;T STOCKS
With the two newspapers in front of me, ! 1'1111 down the
list of sfock prices, mnking rnpid mental caloulations of tTle
a 1 )roximate wrcentage of the price chan e of eve r in
which T nm int('rpsfPr!. \V If'Tl spe a stoe with a l~rge price
increase, T pIll it on my list. . ,
•
Coing through Ihe pnpef1hat way, I check about 1,000
slocks. When J finish, I go hack through the list with my
slide rule, Tllnking aocnrate calculations of the perc('ntnge
pricf' increases. ,!::,inn1Jy,T r('armnge my Jist, putting the
~ITon~pst slacks fit the tgp. .
I do
On my list of strongest stocks ).';;L not
...._""
include
....
stQcks
.. ,. .....•
seJ)-
in under the rrice of $10. rer share because I fw'l thflr- such
.-,- ... ,.-.--,.~-"-'"
ow rieed stocks are less ue one n ) a in )crfnrmnnce f ran
1](' higher prie('( stoc s.
When llsing my strength studies, my policy is to. avoid or
1211stocks whkh are suspended or dclisteu from trading> oir'
•
lhe exchange. 1 preff'r also to avoid or sell stocks in which
r . _-._._--<-
- - .0/. __.................••.._, -_ .....
sJ:.Q.p loss QrdpfS 'iJre banue'J.
. .(
A suspension of sto 1 loss ordprs has fre uenrlv Imt not
always mar ed fhe end of a stock's status 11S a high flyer.
',;'1Ien the NYSE or th(' ASE bans a]1 stop orders in a stock, it
is ractic-allv fl lIhlic annnnnr-emenf that there is too much
spce1J ative activity in that stock, and it is heeomin difficult
to maintain an on ('I' y mar ('I ill it.
.- '''Theil excessi ve speclI lntive activitv dominates Ihe n.d ion
of a stock 'Ill' f'11d is usunllv not too' far away, eveu if stop
orrlPJ"sare not h:mllf'rl fit that time.
To illustrate mv point, here is an example of wlHlt hap-
pcned, and wlm! 1 dill whnn stop orders were hann('[l ina
stor-k T ownrxl.
In Marc-h, 10R] T h:1rl :J long position in Brunswick. which
was one of the 1)('sf high flyers at that time. Stop onlf'rs were
harmed in Brrmxwick sliort lv after it rcache~l its lligh8st
-' .....•
 Till': STI10NCEST STOCKS
THE STHONGF$T STOCKS 159
price, whil·h was 74~/R. I sold Hrunswick the next morning at
70, hecallsf~ of tlw han. Tt inllnecliately stnrtecl a large decline STOP T .oss ORDER SUSPENSIONS
which 11fIsoontinued fnr three vcnrs. As 1 write this, Hmns-
Sep' ('m1)!'r 8, 1f)~R
wick sells nt 9. . May 7, Hl!)9
Now yon mighl say "Just a minute, A hnn on slop loss October 2,9, ] gr)!J
orders can not chnnge the trend of a stock" My reply is that November 6, 1m)!}
YOll are ahsolutelv.' correct. The only thlnz flwt. can chan!!e
\~ ("., Fehruarv [,5, In()O
the trend of a stock is the hn [nnr-e of tIll' supply and dplmmd ~'f arch 11, 1960
for that stock. Jnn(' 21, H)()O
A ban on stop orrlerx is :111Indication 10 mr- thnt a high ;\ugust 11. !9RO
flyer has rpndwd tlw point whpre its action is dominated hy August ,QO,1960
Augnst ~1, 19m
excessive speculation. That frecJlJ('ntly turns 011t to he the
Jannary 20, 1961
best time to sell a high Over, for such hectiC' specllbtiv(' aotiv-
March 9,1961
ity sometimes indicates the lop of the move for n sfoek and May 9, 19m
the time to take contrary nr-tion. Althongh a l1a11on stop or- Fohruary 21, 190.'3
ders does not always indicate a good time to sell, it sometimes September 9, 19f1,'3
cOEl.esanwzingly close to the exact top. April 27, 10M
The most ontstanding high Oyer of HKn was Syntex. The
American Stock Exch::1llW~banned stop orders in odd lots of
Svntex OJ) Or-roher 2:1, lO(n (The ASF hns not permiltpd
stop orders in rnunr] lots of ::lny stock since 19m.) That did
not turn nut to he a good timo to sp11,for tllP stopk continued
going 11r strongly. Thnt han was rpscinclecl on Decemher 2,
190:1.
The highest price H~ac'lwclhy Svntex was 1D01/2, recorded
on [annnrv l!'5, lOG4.The nexl clny, on Jml11arv 16, stop orclors
in oclrl lots of Svntex were harmed aplin. Then the stock 1'1](' lnst strength study T made before buying TWA war-
dropped like n 1101ll11. EIght weeks later Syntpx was spl1ing at rants was on Septemher 1.5, 1963, It covered a period of nine
73, which was rnor« than n r,no-t" (/Pclinp from its high. and a half months. That study, and several others are pre-
Here is a list of stocks in w1Jkh stor orders were sus- sented here. ns examples.
pended 0n the New York Stock Exchange dming the last five
ye::lrs. The han heC'nme ('fT('ctive at the opening on the date
shown.
 THl': STTIONGKC;T STOCKS
TTlT': STHONCfo:ST STOCKS

THE STRONGE.':T STOCKS

Trm STI\ONGFSr STOCKS
On J f!mHlry 1, 196.'3 On March 17, 196.'3
Price On Price On %
Pric(' On Price On
Jll1y L 1902 Jan. l.l<Jm Gain Sept, 16, 1962, March 17, 19(jf1 Gain
----- .. -- ---_._-----------"--~-_._--
,,)1/2 11% ] 14'10 50(1 Linn Ilailrond 5% 14% 149%
Soo J .ine Hailroad 78th 1]4%
24 49 104% U. S. STnf~ltin~ e 3G%
U. S. Sm('lting ]13%
]:1 2-1% 91% Monon Rni]road "D" 5% 12%
Nationa 1 Airlir-es 61%
9% 177JR R5% Chrysler 56% 91%
Internafional Pack('rs
00 79% Shalrmoon 9V4 14% ,58%
Delti! Air T,ines :1~W2
7:1% 70% Austin Nirhoh 17 26% 53%
Chrysler 4:1V4
71/R 11% SS'7o Metromerlln 14% 20% 41%
Allq~hany Corp. :19%
H% 2:1% 50% Pan American \V. Airwavs 19V4 26%
Colmnhifl Pid1Tres 25%
]1 17 f);)~~ 1,VA Common 9% 12%
Motor Wheel
• Stop 10« OrclN" were banned in n. S. Smelting on Fobruary 21, H1A:l.
Tllis p:nfieular strC'ngth study does not ilwlll(ln any stocks At that timp it .<old nt 7.5.

on the Alllcricnn Stock Exchange.

Theso sturlies do 110t include a 11 of the stocks on t11(' New
York Stock EXC'\lnnge and the American Stock Exchnnge he-
cause J only watr-h about 1,000 of them. Tllf'Te were 11n-
dOllhterlly other strong stocks which I did not notice.
 162 TIm STHONGEST STOCKS TIlE STRONGF.'IT STOCKS

TIfF. Sl1l0NGF.<;T STOCKS

THE STRONGEST STOCKS
On J11IlC 30, 1963 On September 15, 1963
Price On Price On % Price On Price On %
Jrtn. 6, W63 June .'W, 1963 Cain Jan. 6, 1963 Sept.15,19R.1 Gain
Syntex 37% 81 118% Syntex 37V4 137 270%
Amr-r. Ag. Chemical 24% 45% 88% Monon Railroar] "H" 10 24% 146%
M etrom cd ia 16% 2R% 76% Control Data •• 36% •••• 89th 14.'5%
Soo Line Railroad 12% 21% (jg% T\"'A 'Warrants 4% 10% 137%
Pan Amerloan \V. Airways 21% 36% 68% ]\·f ptronlPdia 16% 34% 116%
Chrysler 38 •• (}.'3 (l()% 'Vestern Air Lines 30'AJ 64 113%
Cllicago & N. W. R R 14% 24% 66% Chicago & N. W. H. H. ].4% SO 104%
Monon Rnilroad "Il" 10 16 ()O% T\VA Common 11% 23% 103%
Eversharp 26% 41% 57% Pan American \V. Airways 21% 42% 9.5%
1,V i\ Common 11% J7Yz 54% Chrysler .'38 e e " 73'AJ 92%
Cenoral Motors 59% 7m~ 18% Soo Line Railroad 12% 23% 84%
IBM 397 4.'36% 10% Xerox ] R.'3 % 282% 73%
Ccnera 1 Motors 59% 77% 30%
"11,,· price of Chrysler Is adjusted for the 2 for] .•tock split. IBM 397 45.5lh 15%

GC1H'ra1 Motors and IBM were included on this list to com-
pare thpir lligh quality, h1JJe chip performance with the ac-
tion of t1m strongf'st stocks.
••stop loss orrlors were harmed in Control Data on September 9, HlA1.
At that time Control Data sold at 101.
N;;"J.'rice of March. j9fl3 when Control Data was first listed on the
• e e The price of Chrysler is adjusted for tIle stock split.
 TTlF. sTnONI:vsr STorKS lOS

rIll' .~ImIlW'.,<;! ai"1ilH~ iSSflf~ on Illy Jist'. Twas illlprrssed I),;, tlw
III flit' p:ls1 I did 1!l)lllSC mv Stroll!,,"s! S!ock C(Jlt('('p! :IS an
strenglh 01 Ih~ n irliuo ~n~np, because [our of tllf' top nine
ahso1IItely rigid system I ]ookf'd llPOll the s!rcnglh :tlld per-
s!ock~ on I11V h.sl W('I'(' nirlino stocks,
f01'n1:1""" c!l1npariS!lIlS :lS a l111'I11Od of h,'inging Iho <llmllgest
TT :.',' " ,-1., !--"i','" r "
r .1 . , ': -, ''1'1.,''_ T :d:· {1" f ,-.

19G:~ I SNiollsl." (,(]llSidered iJl'ying It,lliC reason J (i;(\ not \V('sl('1'11 Air Lines 113% Gain
hll)' Syntl"{ \Vas IJI:l! it was a foreign company, incorporated T\V A Common 1O~% Gain
in Pan:llJ1a, with 1wadqllnrlf'rs ill l'vrrxico. Now, ns 1100k hack, 'Pan Arnr-rican \V. Airwavs q:;7~ Gnin
T "~r' <;Dr 'h-'" 1"ne , T"'"'' ~,..:'c"r T ,T'-'- 1"·'·11'!..' [!h011' <:,,11"''1:.
.. . '"
••......
-, , ' ~. Thr- nir,line yrollp was so strong that it sef'lnpd Iikr a good
For l1ln1l1hs T frolt sad nhont Ih;11 misl;1kp, hec:Hlse Syntl'x opporll1111tv. So T honght TvVA warrants at a prief' of 10 on
gainf'd '),:10,.,{, hdwPl'll Septplllhcr If), 1D()~ nnd J:HlIl:ny 10, !)W'(, lll:ngin. '

I9fH. O:11111:11"Y l~ was on which T sold T\VA war-

Ih,' (hIp Wlien ] was n';ldy to make my secolld pnrchase of T\VA
rrrnts.] Tlnd T ])f'pll smart enollp.:h to llll)' Svnt ox. InV profit wnrru nl s at 12V? 011 Novornher 1, it was nhvions 10 TTH' thnt
wonld hnv« llCen 460,]{., hnying on ;;OSf, margin. (\'\'hcll J Svntox was the outstnnclinz stock of Hl60.11w night lwforP T
honght T\VA wnrrnnt s on ;'0% margin. T only lllndc a profil of marlo the purr-hose, T spent several hours consi(h,'rillg the rel-
al ivr- mr-ril s of Synlex and T\,VA warrants. '
lfJO'?{' on 11H~ trndr.)
r-.1ollon Hnih'oml "Jf' was 'hI' second strongest slr)('l< on my T rtnnl1y rkl'ided that 1'\"1 A wnrrnnts e011ld still go up much
list of S"ptf'mher 1!J. r did not consider huyinf'; it 1Jf'('flUSC it [nrthor. and 11]('v shonk1 hI' lwJped hv the trr-mendons
had hepl1 high 011 t!Jc list of strongest stocks (or manv monlhs, SI~Cl,lgth of the nir~in('grollp, T was sold on the i<]r.n of pynl-
and 1 IhollglJ1 if "\'o,,ld not lIP ahle 10 lnlwll lJiV1wr. Two ,,-0 nllflmg mv proflf 111 11)[' wnrrnnts. an(l T wns eOllVilH'('d Ih:lt
.ronths [nl er, Monon "H" had risen :lW'~, from its priep of thry wonld I~o 11p to Iii to donhle nll 111(' monov ill mv an-
SpptP11l1,f'r l!". h1l1 it slipprrl 11:]('k to n ~~nin d only 2R'Y"'(, hy r-ouul. '
JatlllnlY I~, 1\)(;4. 1 was right ahont Monon "n" Svntr-x 1wd ;l!rr:l(ly ~~(lIH' np so [n r ll1nt I did not he1ip\,p it
Conlrol Dafn was Ihe tllirrl slron\u'st- slock on 111V list of conlrl go np much highcr. Sn T houghl T\VA warrants. Twas
ScplPlll!lror IfJ T did not ('onsicler hllving if lwc;111sf' on Sr-p- nnrl rhev went 10 1R flllr' even
ril~hl aho1l1 t he warrants,
tPlllhcT q, H)():1,Ill'~ l'Jc\'J York Stpck F'(('h:111f~1' imposed fl aho1lt Sv~tpx ngain. Svnl ex mad I'
hi~~IH'r. 1\1111 was 'wrong
hnn Oll <fOp rJl'{krc ill Control Dnta. At tll:lI limp it ,sold :11 ;1 a11oll)('r 1rl'1llC1H]ons ga in, which would ha ve hccn exlrcmd v
pricr .ruu Control ]):11:1 gained onlv 12',f;,'?(, [rruu Sr']1lpll1- pmfi!allk
her 1;; In Jmluary 1:), so T W;lS right ill uo! ('onsidpl'ing tho TTpn' is :l stndy of tl](' s'Tongest stoeh dnring thr f'lltim
p11r('hns(' of Control Dnln in Seplf'ln11f'r. year of 1D0:1. 1 t shows which stocks were the top pE'rfornlf'rs
T\V A wnrr:1llls W;1StlH' Iourth str01l!!pst iSSIlf' on my list of of the )'par.
Septemlwr J!J. 'TW A Wflrrants lnokf'rl good to me, for it W;IS
 TTiF. STnONGF.:'iT STOCKS
TRF. STftONGEST STOCK~
\Vhen I included n 11stocks sPlling under $10. in tl1(~ corn-
Tim S'n\nNc-EsT STOCKS IN 10fn pnrisnn, TWA warrnnls slipped into third plnee, with Mackey
One Airlines in second place. Mar-key rose from a price of $1. per
Price On Pric(' On Year share to $R. per share in 1qG~. When I included stocks selling
J an. 0, H)W1 J ;l11. G, J!)01 Cain under $10 .. tIl(' f'op thrf'f' high flyers looked like this:
12% e 12fWz H31)% Svntr-x 9,35% f:nin
Syntex
T\VA Wnrrants 4% 1(}% 271)"/'. M aokev Airlines 700% f:nin
Monon ]lnilroa(] "B" ]() SO 200% T\V A Warrants 27.1% Gain
1W A Common ]1% 32::;' JR7%
Control Data 36'12 JO()% 176% Syntex reached a ltigh of 1901h on January 1.5, HJA4. The
Denntson Mfg. "A" W% !'i,'P4 ]72% next day Syntex was 1Inahle to open and did not trade at all
Western Air Lines 30% 78% J 62% that day. A flor frading was resumed in Syntex on Jannary 17,
Xerox 32,% •• R4'12 ]GO% it clcclinf'd rapidly until it reached 73 on March 10, J964.
Pan American '!\T. Airways 2,1% 54% 1:50% TWA wnrrnnts reached a high of 20% on [anuarv 14, HJ64.
Chrysler 3R ~ R~% 120% Then they c1pclined rapidly until they reached W·on Fehru-
Soo Line Hail road 12% 21% 70%
ary 5, 1964. (T\VA warrants later advanced again to reach a
U. S. Smplting 57% R8% S3%
high of :30lh on Jnly 10, 1964.)
Gem'ral Motors 59% 79 32%
.'118 30%
Mackey Airlines reached a high of 8% on January ]4, 1964.
IBM 397
24% Then it dediTwd rapidly to 6 on January 27, 1964,
Polaroid 147% 182V4
These top three high flyers of 1963 reached their Jannary
highs only 0118 dn)' apart. The proximity of those dates should
Polaroid W:lS ind1Hlpr1 on this list heoause, dming 19A3, make yOIl slop and think. I interpreted that action as a spec-
some flnnnr-ia] writers frpq1Jpntly mentioned it as a glnmor ulative climax in nIP. hllll market.
stock. M iH"key Airlincs became the number two high flyer of 196.1
despite a d"clillc in earnings. The company reported earnings
Soo Line' llailroad and U. S. Smelting appear on lIre li~t of of $10.109. ill 19112, nncl a loss of $104,978. in 196.1. Mackey
Strongest Slocks '11 10n1 only to show how much 1!J"ir rela- would lwve heen ::J good lmy ::Jt any time dllfing JnR~, but
tive strenlTlh declined from where it W:lS pnrlipr in ]!:lR3. some of the ol hr-r strong stocks selling rmrler $10. did not
At thf> ~'rl(l of 19A3 T compared Ihe lwrccntrtge gains of all turn our so well.
flw 2,500 srocks on tho NYSE and the ASK ~1y comparison To illustrate why J am not too enthusiastic about stocks
of stocks sp1Jing over $10. pPr share showed that Svntex was selling under $10.; let me point out that Mackey Airlines
the largest gainer. and T'VA warrants wns IIIP second largpst stock experienced 3 decline of 17% in one normal day's trad-
gainer of ]963. ing on [nnuarv 27, ]964. For the person who might have
 THF. STI10NGF.ST STOcrS ]69
] f)8 TIm STllONGFST STOCKS

hought iVf;lckpy ',)1 500(, Jll~rgin, th~117~r, dcclillP would h:1vP

PEHFOHMANCE OF EXHAusn~D HIGH FLYERS IN 1963
meant a p~lllf'r loss of :140;" in one day.
Then" 'W:1Sno genpn11 panic in the stock marker on tllnl Amrrrican Motors 4% Gain
American Photocopy 1% Loss
clay, or dming thflt wepk. I eonld not find anv reason for tIl('
Anken Chemical ,58% Loss
h1:ge drop in Mackey, except that Svntcx anr] T\VAw:1rrants
Avnot Electronics 39% Loss
also exp(~ri('n('e(1 large dcclines on tlUlt snnlf' day. H sPPIllPd
E. L. Bruce .~% Cnin
like the top three high [lvers were moving in unison. 38% Loss
Brunswick
Fairchild Camera 24% Loss
Golf American Land 31% Loss
EXHAUSTED TTIGlT FT,YEHS
Korvetto 17% Gain
Polaroid 24% Gain
While we are on th(' sub'eet of declines I wish to remind
Texas Instruments 32% Gain
) u that high lIyers ( 0 not go up [nrnvcr. 'V!len high flyers
Thiokol 39% Loss
~'lm 011t of steam and enel their fantastic advnnres, thov llSI1-
Transitron 23% Loss
a Iy 0 rlown nnr! do not c im 1 J:1C or at ('ast severn yenrs.
Universal Match 9% Loss
,,x aust ml hi 1h fI 'ers shOll Id he avoic ('( i P 1C P ague. Varian Associates 53% Loss
Thiol<ol mnde its high in H). , , am llPver went lac < I1p to
that level. Amorican Motors made its high in 1f)PlQ, nnrl llPver The list showing the performance of exhausted high flyers
went h:wk to Ihnl level. Texas Jnstnllllpnts mack, its high in in 1963 indicates that hargain hunting for the high Hyers of
1960, and never came hnck. Polaroid madc its high in 1960, previous years is not a very profitable venture.
and never cnrne hack. BrnllSwick mack if s high in 19m, and A high Oyer docs not usually tum out to he the kind of
never came hack. There are many others, too numermlS 10 stock that should he put away and held for many years by
the investor who is interested in maximum profits. Look what
mention.
M' , parch sh '11 exhausted hi r1l Hyers nrc less likd r happened to Bmnswiek. It dpclined from 74% to 9.
to stage a (rood grlvaucc than stocks whic I rave never reen Let llS consider, for a moment, the tragic case of the bar-
iil l
Hyers To illustrale this 11nus11al idea of mill!', 101 11.S gain hunter who might have honght Brunswick at 35. think-
examine 11)(' pplTent:lg0 prke changes of a gronp of ex- ing it wns a good hll)' hecnuse it was available at less than
hausted high flyers. . half of its previous price of 74%. The Fact that Brunswick had
rDw
followin!' ~tlJ(lv shows price gains ::lIld losses clnnng dcclinpd more than ,1'10% did not make it a good huy, and the
the tWAlvp mn~'h I)('ri()(l C1Hlillg Jamwrv G, 1<)f)4. \Vhile ex- stock continnAd moving downward.
amining this lisl, rememher that 1963 was a hull. I11nr1«'1vear, By the time Brunswick had declined to 17, the hargain
even though most of these stocks do not show It. hunter had n Joss equal to 50% of the capital invested in that
trade. Tf Ihe hnrgain hunter became disgusted after several
years, and fina 11y sold out around 12, he sustained a tremen-
170 THF. STnONGFSr STOCKS
dons loss, and his capif:ll was !it'd up for several yf'ars with-
ant prodncing a profit.
Some of Ihe cdla1lSted high flyers on tlle 19G3 pf'rform-
ance list were rf'f'omlllemlf'd frequently hy financial writers
in U)(}:1, hut I would not even consider huying an exhausted
high flyer. Tl10 odds nrc not in favor of success. Many inves-
tors have lost money on Ilwir purchases of fallen high flyf'rs.
Some of rhoso ]oss('s might have hef'n avoided if they had
known ahout my exhrmsted high flyPr theory.
The hasio trouble with exhausted high flyers is that the
supply of s!m·k is much greater than the demand. Demand is
light hecnnse the stock has stopped going up, and is no longer
a high flyer.
The reason so rnnoh sror-k is availnhle for sale is lJPc:1nse of
the "owrlwad supply". Overhead supply is 11](>brge amount
of stock pnrchnsf'd at higher prices, when the high Ilvcr was
hlasting 1Ipwnnl. Since 'h<' majority is usually wrong. we can
assume Ihnt the majority of investors did nor sell out near the
top. YV1H'nprices rlrx-line, many people arc holding long po-
sitions nt a loss.
\VI)('n the nverage person sees thnt his capital has been
tif'd up for two or thrpe venrs with nothing to shoyv for it hut
a loss, he Ilnnllv becomes disgusted and decides to spl] on the
next rally. So ,,~lwnf'ver a rally starts, the overhead supply is
there, trving to sell nut.
\VlWll' a high Ilver is on its wny up for Ilw first t ime, and is
in now high tprrilory, then' is no over1wnrl snpplv to contend
with ])('c[l1lse i! has never sold at thnt price lldorp. In that
situation, the only sdling rressnre camps from profit tnking
and short splling. That is why high flyers can go up so far and
so fns(--many ppoplp want to buy, and few people want to
sell.
CHAPTER 2
TIlE ULTIMATE WEAPON
As a result of my research and personal experience, J con-
eluded that the idea] time to bllya.high Ilyer might be when it
becomes the strongest stockin.-tJ1e 1Tl~I~~t)~ising farthe~ _and
faster than the other stocks. Then the time to sell would be
w~)en tile trend of tho high~i~~~~I~_S __~i;~~,~~:,vilen s_ome
other stock becomes_s.~rong{>,:t:..
To organize these ideas into an efficient operational pro-
cedure, I developed a mechanical method for trading in the
strongest stocks. It's more than just a method for making
profits. It's designed to he a method for selecting and trading
in tlw most oufsl:mding high flyers of all time. The method
might systematically put one into fantastic stocks like Thio-
kol, Texas Instruments and Syntex.
TIl(' method seems to he capahle of such interesting possi-
hilities that I call it the "Ultimate Weapon". To me it seems
more exciting than anything else I have ever heard of in con-
nection with the stock market.
Here are the details of the method:
1. Make a list of the strongest stocks about once a month, or
once eVf'ry two or th~ee montl~s.
Tl~;ti~le-i~i:~~;~j ~ould
vary according to the wishes of the person using the
method. Do not include stoc_~~_~~!!i1?:g
und~:J~.9..:.J2~!-sl~~!~:_
171

172 TTlE l1LTIJ\,{ATE WEAPON
2. BIl)' tllP one stock at the very top of the Strongest Stock
List.
3. When a new stock reaches the top position all the list, sell
out and switch into that new stock.
4. Continue switching into each new stock which reaches the
~op of the list.
5, Sell out if the trend of the stock turns down before a
switch is called for. The simple tT('Jl(l imlicnlor. which I
developed for use with the Ultimflte Weapon, says that
the trend of a stock turns down when that stock has a
daily dosing price which is 25% below the higl18st price
..recorded by that stock.
There are manv- mefhods for <kfennining slock tremls.
' 1I~ve ~?'OWIlto $8,180, by Jannary 22, 1964. TI;e profits oh-
There HH' 10 week moving HverHges, 20 week moving av-
eraw~s, 200 day moving nvemges, point and figure charts. and
bar charts. There an' head nnd sh01J1der fonmllions, triflnf,!;1<~s,
trend lines. and lower lows. None of tllPse ITPml dP!(mnining
devices are perfect. Sonw of them rf'l]uire a great deal of work.
If yon have a [nvnrit« lllefhml, hy all means feel hcf' to suh-
stitute it for the simple method I mentioned <J 110ve.
I do 110t claim that my 25% price dccline method is hetter
than the otllPr,<;.T jnst l1S('il hen' hecallsf' it is fns! :ll1d ensy
to work with,
The Ultimnte vVrapon method w0111d have achieved the
following Tl'SllllSin 1901, using lIlA SI rongest Stock Lists in
the previous chapter: (Those lists were compiled about once
every three months.)
On Jmmary 2, H)(j.3 Son Line Hailroa(l was tlle strongest
stock on my Jist. So it won 1(1have heen hought then at 11%.
Soo I ,ine was still Ilw strongest stock on the list of Mart-h 17,
so no action would have heen tnken nt rhat time.
On flIP list of Jnne :10, 1863 Sao Line had slipped to fonrth
THE T1T.TTMATE WEAPON 17:3
place, So if would have been sold then M 2Jlh, with a profit
of 8.1%.
Syntex was the strongest stock on the list of June 30, so it
would have heen honght then at a price of 81 Svnte,x '\,' as
_ ,.. • L
still Ihe strongest stock on the list of Septeml1Pr-15, so no
action would have heen taken at that time. The stock WlIS
split three for one in November, 1963.
The. trend of Syntpx turned down on Jm11lnry 21, ]864
when It closerl at 1.16, w1lidl was more than 25% helm" the
higllPst pricf' of 19m~. Syntex would have heen sold at the
openin~ the next morning at 1421h, with a proHt of 427%.
If this program had he en started in [anuary, 186.'3 with
$] ,000:, the init ia1capital wonld have gn;wn to :$1,780. when
Soo Line was sold. The $1,780. invested in Svntex would
hllllCd III 1f'SSllinn thirteen months would have amounted to
morA. than 800% of the initial capital, without tmding on
margm.
'l~llPre w<,mld have hePII only the two trades dming that
l)('1'!od of s1lghtl)' more than one yeHr. Each of fhe two trades
lastpd a 11011 1 six months. so all the profits would have been
eligihle for lon,{~term capital gain tax treatment.
It is inf~r{'stin~ to ohservp" that the Ultimate 'Venpon
method, with a SImple mathernatical procedure, achieved
much better results in 1961 than T did with my use of logic in
thp selpction of thc strongest stocks. .
. 'Vhen I sel('d<'d T~T A warrants from the strongest stocks
hy the use of logic, and hacked up my selection with cash I
\Va: also nsing the Ultimate 'Weapon' method to mnke th~o-
rctical trades on paper . .It was9(?:Y-Jlright irritating to see
s~lch a simple, .nnt!linki~lg_~~!.~?-~.P!~d~~~!!!g)~~g~i-E~~;fi~"
~::~I~s~Ol1ld with the !ota} ..~o.bi1!~~,ti,~!1~~!_.<J:IJ
..!!!y_l!!a.ill_~Ql:::
One should not assume that the Ultimate Weapon would
 174 THE TTLTlJ\fATE WEAPON
THE ULTIMATE WEAPON 175
achieve such fantastic profits in Ill('. Iulurc, Past performance TIJis ide" of mine is similar to Newton's first law of motion
is not a gnarnntpf) of futnre pf'l"formancc. There is no phpical liich S;lYS: "A hody tends to c07itlIl~e III H~ stat~of r~~t()~
law whi~h says thflt the strongest stock must continue going tlnjfon~l monon UI _._ L~.<;?-mpel!~4J~sJ.1~nge that state
up nfler vou huv it. by forces lmpresse on I . . .-.-----.

Sometimes the purc-hase of the strongpst stock would resnlt

in a loss. Belore lIsing such a method, or nny other method, a
person should consider thf' possibility of loss as well as the
possibility of profit.
A disadvantage of this method is that one can not say any
certain stock is the strongest until after the fact has heen
proven hy that stock rising more than any other stock. By
that time it has usually alrparly gone up ]00% or more. jvfnny
people would S3Y it is insane to think of Imying a stock after
it has already gone lip mom IlwlI 100%. T gllf~SST will h[lv0 to
plead insanity and hase my defense on thp. following fads:
When J hought TWA warrants at 10, they 11fld aJrprldy
gone up 117%. Then they went up another 1130% in the fol-
lowing six months to reach a high of 26. The warrants even-
tnnlly rear-hed n high of 30% on Jnly 10, HlR4.
When Soo Line became the strongest stock in [nnnary,
1963, it had already gone up 114% in six months. Then Soo
Line went up another ]]8% in the following six months to
reach a high of 25%. Son Line eventuallv reached n high of
43% on [nne 1, Hl64.
\,yhel~ Svntex lwr-ame the strongest srock in [nne, 196.1, it
had nlreadv gone np 118f':{, in six months, After Ihnl Svntex
went "p more Illnn 400% in tIlA following six ancl 3 hnlr
months.
I believe that when a stock achieves ::t velocity of upwnrr]
mo~:ement, which is greater than the velocity of any other
stock, it tends to continue moving upward at that speed nnri]
influenced by a force strong enough to terminate its move-
ment.
.".. _ This hnsif' thouuht
r: is the foundation of my_ Strongest
t

Stock Concept.
 ]I.{ A THEM A TICS OF TRADING 177
When Mackc)' Airlines rose from 1 to 8, the gain was 7
points. A 7 point gain in Mackey sounds pretty close to the
CUAPTER 3 8 point gain in T'VA warrants, hilt when you calculate the
percentage, yOll find that Mackey went up' 700%. No matter
rvt ;\ TIl E M ;\ TIC S 0 F T RAJ) 1N (: how much or how little money you might have had invested
in Mackey Airlines, it would have increased 700% dming that
time.
When a person says that a stock went up one point, that
statement, by itself, is practically meaningless. One point
I have hpen intp,resh'd in nwillematics ever since T was a could he ]% or ]0% or ]00%, depending on the price of the
teen-agel'. This interest was not in the higher forms of ma.th, stock. Instead of thinking ahont price changes in points, we
hilt rather in the practical applications of simple nwthemat~cs. should develop the habit of thinking ahout price changes in
1'1 . . nro many wavs in which the silll\ •.Jlest forms of nrit h- percentaw~s.
\e1c"" ,
metic can help to I~ake important decisions. MARGIN
When yOll hlly stock on margin, you are aCh1311y horrow-
PERCENTAGES
ing money from yom stock broker to Hnance part of your
In the previolls chapters, you may have wondered why I stock purchase. YOIl must pay interest on the money har-
. 1 hasi ,1 er t"ge
placed so muc 1 emp rasrs on . 1e pNC -n n' of 11ri('('
. ..,
chflnges
.; c"
rowed from a hroker, or any other commercial source. The
The reason is thnt one must use pen:ent::lges 10 ::1('£111 aroly interest rate varies in accordance with the rates of regular
recognize the extent of price changes in stocks. To illustrate lending institutions.
exactly what I mr-a n, I will use several actunl f'xmnples of The mflrgin requirement is determined I111C]announced
price changes in stocks during HJ63. . _ . pulilicly hy the Ff'deral Reserve Board. During recent years,
"Vhen IBM rose from fI price of 400 to ;)00, the gam was margin requirements have heen 50%, 70%, or \10%. When
]00 points. A ]f)0 point gain sounds quill" impressive, l~ut the stock mnrker is low, the FHH usually permits 50% mar-
when you lise percentflgc, you discover Ihat Ihe ] 00 point gins. When the market moves higher, the margin require-
gain :lmollntpd 10 only 25%. No matter how 1111lch or h;)\v ment is nsnallv rniserl to 70%.
little mnnr-v von might have had invested in TBM <1nrmg "rhml tIl(' market is oonsidered to he dangerously high, the
~hnt time, it ,~01l1cll':lve incrc:lsed hy 2S%-110 more. no less. margin requirement is usually raised to 90%. The FHB con-
Vlhen TYVA wnrnmts rose from 10 to 18, the gain was 8 trols Tllnrgin requirements to help stnbillze the market hI' dls-
points. An R point gnin dops not sound \'('1')' irnpres<;ivf', hut coumging eX('f'ssive speculative activity when the stock
in this f'nSC, it nmonnts to 80%. No mnt ter how mnch or how market is thought to 1m too high .
. III
little 111011£')'von Illig II In ve lac·1'IllV.S . in T'V A. wnrrnnts ,
e Ipd If yon huy stock on margin, and the stock declines drasti-
it would ll~,;e incrp:lsed hy 80% dming that time. cally, the broker will send out a margin call, asking yon to

176
 MATJIF.MATTCS OF TRADING 179
MATHF.MATTCS OF TRADlNG
If 11 person should experience two 01' three "small" losses
put up more money to protf'ct his loan to you. If you should
lik~ that in 11 row, it would add up to one big loss. Then his
not wish to put up ndrlitional monev, you can sell the stock
entire program would be seriously endangered.
instead. Brokers do not send. out m::lrgin calls to antagonize
If a person should lose 50% of his capital, he would then
their oustorners. It is a necessary pr::Jctiee which must he
have to ~ake a 100% profit just to regain the capital he
done to preserve the broker's flnancial responsihility.
started WIth. Because of this mathematical oddity, many peo-
VVI10Tla 50% margin requirement is in effect, a customer
ple have discovered it is difficult to make money in the stock
must put up half or the money nf'c<!cc1to pay for the stock he
market. That is why I try so hard to avoid even small losses.
buys. When a 70% margin requirement is in ellect, a cus-
Theyadd up too fast. .
tomer must put up 70% of the money to pay for the stock. If
a person buys $1,000. worth of stock on 70% margin, he must
put up $700. in cash, or other securities with n loan vnlue of RE-INVESTED PROFITS
$700.
~n il1te~esting peculiarity.ot!ll~~h~IEatics is the speed with
Buyiug stock on margin is a form of lr'Verage. By buying on
".'Inch re'l.nvested profits can accumulate, if n per~on is con-
50% margin, a person can buy twic« ::IS milch slof'k as he
sIstently nght. Ha person started with $4,000. and was able
could by paying all cash. Therefore. tlH' price fluctuations of
the stock hought on 50% m;1rgin would affect him twice as
to double his money pve'-tirnes~-lie\\rotlM ha~e '$ iis,ooo.
If a person started with $4,OOO:"and-~~;~hJ~to d(~uble his
much as the Ilur-tnntlons (If a stock for wlrir-h he had pnicl all
money eight limes:·11ewo~(n;a~C$I(j24060.
cash. For instance, if a stock honght on !'50% margin shonld
This lovely eqnationi.<; sl~~tl~~~d, fo/~itj~~ns of the United
go np 4!'5%, it would he a 90% gain on the invested capital.
States, by the federal income tax on capital gains. But in-
Before a person ventures forth to slay a dragon with this
vestors in Canada, England, the Bahama Islands and some
wondrons sword called "leverage", he should realize that
other countries do not have to pay taxes on capital gains. So
leverage is a donhle-edged sword. One should exercise great
the equntion could work for investors who live in countries
oaut ion in the use of such a weapon. Tf things go wrong, the
with a suirahle tax structure.
adventmer could he slain by his own weapon while the
I had this fascinating equation in mind wllE'o I made my
drngon still runs around, devoming maidens.
second purchase of T\VA warrants in November, 1963. At
If a person shonld huy a stock on !"lOo/" mnrgin. it would not thnt time T was diversified in several stocks. Bnt J sold the
11e11ll11Sna:1111" him to place a stop loss order al a pnint ap-
other stocks, and Pllt everything into TWA warrants. By do-
proximately 10% helmv his purchase price. Tf that stop order
ing that, T was able to double all my money in four m~nths.
was execntf'cl, thp loss would amount to 20%. Hut then one
must add about !'5% for the costs of trading. That makes a
totnl loss of 25% for the trade.
The costs include commissions. transfer taxes and interest
on the harrowed money. 5% is iust a tentative figore. Actual
costs could vnry from 1% to 15%.