Sample J39 from William O'Connor. Stocks, Wheat and Pharaohs. New York: Wener Books Company, 1961. Pp. 82-89. 0010-1820 A part of the XML version of the Brown Corpus2,039 words 115 (5.6%) quotesJ39

William O'Connor. Stocks, Wheat and Pharaohs. New York: Wener Books Company, 1961. Pp. 82-89. 0010-1820

Note: oversubscribed [1720] over-subscribed [1730]Typographical Errors: intial [0050] cocao [0510]good natured [0160] comittment [1690]

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But briefly , the topping configuration must be examined for its inferences . Then the fact that the lower channel line was pierced had further forecasting significance . And then the application of the count rules to the width ( horizontally ) of the configuration gives us an intial estimate of the probable depth of the decline . The very idea of there being `` count rules '' implies that there is some sort of proportion to be expected between the amount of congestive activity and the extent of the breakaway ( run up or run down ) movement . This expectation is what really `` sold '' point and figure . But there is no positive and consistently demonstrable relationship in the strictest sense . Experience will show that only the vaguest generalities apply , and in fine , these merely dwell upon a relationship between the durations and intensities of events . After all , too much does not happen too suddenly , nor does very little take long .

The advantages and disadvantages of these two types of charting , bar charting and point and figure charting , remain the subject of fairly good-natured litigation among their respective professional advocates , with both methods enjoying in common , one irrevocable merit . They are both trend-following methods . Even if we strip their respective claims to the barest minimum , the `` odds '' still favor them both , for the trend in effect is always more likely to continue than to reverse .

Of course , many more things are charted besides prices . The foregoing have been methods of charting prices , but now let us look at some of the other indices that are customarily charted , and which are looked to for their forecasting abilities . The quest for methods The search for forecasting formulae is ceaseless . Correlations have been worked up between the loading of freight cars and the course of stock price . The theory behind this is , of course , fundamentalist in character . As the number of reported freight car loadings increased , this was taken to indicate increased industrial activity , and consequently increased stock earnings , implying fatter dividends , and implying therefore increased stock market prices . We now know that things rarely ever work out in such cut-and-dried fashion , and that car loadings , while perhaps interesting enough , are nevertheless not the magic formula that will always turn before stock prices turn .

But the quest for such an index goes on ceaselessly , with all manner of investors and speculators participating , ranging from the sedate institutional type virtually to the proverbial shoe-string operator , all seeking doggedly , studiously , daily -- and often nightly -- for the enchanting index that will foretell the eternal secret : Which way will the market move -- up or down ? ? It recalls to mind the quest of olden times for the fountain of youth , a quest heavily invested in , during the days of wooden ships . Just as heavily invested are the endeavors of multitudes of modern men who carry on the quest for the enchanting index . The quest offers careers . Much of this goes on in offices high up in Wall Street's lofty wind-swept towers .

There sit men who make moving averages of weekly volume , monthly averages of price-earnings ratios , ratios of the number of advances to the number of declines , ratios of an individual stock's performance to overall market performance , ratios of rising price volume to falling price volume , odd-lot indices , and what not . They are concerned with all things traded in , securities , bonds , cocao , coffee , soybeans , cotton , tin , oats , etc. .

And along Chicago's West Jackson Boulevard , La Salle Street , and around the Merchandise Mart Plaza there sit men who chart crop reports , who divide the number of reported lady-bugs by the number of reported green-bugs , and the number of hogs by the amount of corn . They plot the open interest curves , rainfall curves , and they even divide Democratic congressmen by Republican congressmen . All these things and countless more enter into their calculations , and yet , the enchanting index remains non-forthcoming . Not , at any rate , in the fuller sense of the word .

The markets are far too subtle , and the last word in these endeavors will doubtless never be written , for the enchanting index is about as nebulous as the fountain of youth .

But whereas civilized men no longer pursue the fountain , they never abandoned their pursuit of the enchanting index .

We mentioned odd-lot indices a few paragraphs ago . In the stock market , the normal trading package is a hundred shares , just as 5,000 bushels is the standard grain contract package . A stock transaction for less than a hundred shares is executed via a special odd-lot broker on the floor of the exchange . This results in a separate record being made , distinguishing these trades from the overall volume of trading .

According to the theory underlying odd-lot indices , the trader who trades odd lots is most likely a small trader , one who can't afford to trade round lots . Or , to use the cynical phraseology of one odd-lot index enthusiast , they represent a sampling of the least sophisticated echelon of traders . Falling most easily prey to an adverse market movement , for this rank of traders can least afford to lose , virtually anything the odd-lot traders do , marketwise , is taken to exemplify the `` wrong '' thing to do .

Figures reporting the volume of odd-lot purchases and odd-lot sales are released by the stock exchange and carried in the newspapers . Odd-lot index observers then make graphs of the data according to their particular statistical recipe . They might , for example , plot it exactly as is , or they might make ten day moving averages of it , or longer moving averages , or they might simply plot the ratio of odd-lot purchases to odd-lot sales . The particular recipe is a matter of individual taste . The data is now interpreted in conjunction with a price chart , usually of a popular stock average .

Towards the end of an intermediate or major rise , while the top is forming on the price chart , it is frequently observed that the odd-lot buying increases sharply . This warns the chartist that the formation in progress is quite likely to be a top . Similarly , at the opposite end of the market cycle , towards the end of an intermediate or major decline , usually while the bottom is being formed on the price chart , it is characteristic that an increase is noticed in odd-lot selling again alerting the chartist that a bottom is becoming a greater likelihood . Thus , in the aggregate , the odd-lot trader is one who buys at the tops and sells at the bottoms , notwithstanding occasional individual exceptions .

While it had long been known in general , that `` the public is always wrong '' , the use of odd-lot indices now puts the adage on a statistical basis .

One might well wonder why the `` public is always wrong '' and the question raised is about as awkward as the one concerned with the chicken and the egg . Which came first ? ? Is it really that the `` public '' buys at the tops , and not that the market tops out when the `` public '' buys ? ? And the converse at bottoms . Does the `` public '' usually sell at bottoms , or does the market usually bottom out when the `` public '' sells ? ?

We have been using the word `` public '' in quotation marks , that is , in its vernacular connotation with reference to the odd-lot index theory . Obviously someone has to sell in order for someone to buy , and vice versa . And while all concerned are members of the literal public , somewhat less than all concerned , although still a majority , form the quotation marked `` public '' . And the public minus the `` public '' leaves the so-called `` sophisticated '' element -- the element on the other end of the `` public's '' transactions .

This element is often called `` strong hands '' . Strong hands differ from `` weak hands '' in that their operations are the primary movers . They initiate campaigns , so to speak , even if this initiation is diffused among them , and their concerted action only psychologically organized . Strong hands act ; ; weak hands react . Strong hands move first ; ; weak hands ask , What is going on ? ? When strong hands buy , they are able to buy more , and they do it even in the face of bearish news reports . They are able to sit more patiently with what they have bought . Needless to say , strong hands are not eager to be joined by weak hands , for this increases the risk that they will have to absorb what these weak hands unload on the way up , at higher prices , during the run-up phase of the campaign .

Certain badly disillusioned market critics are often apt to feel that there is something somehow unfair , dirty , or even thoroughly criminal about this interplay of competitive forces . But after all , can anyone imagine a market wherein the reverse of these things were true ? ? Try to imagine a market in which only a minority of traders would lose , and the majority would make consistent profits . How much and how many profits could a majority take out of the losses of a few ? ?

Moreover , the taunt concerning the `` sophisticated '' echelon and its alleged erudition is put to test during every campaign , and accrues only upon results ; ; not before . It quite often happens that campaigns go askew , resulting in a most unflattering deterioration of strong hands into played-out hands , just as a member of a former campaign's `` public '' may emerge flatteringly `` right '' the next time . Membership in the echelons fluctuates too .

The study of odd-lot indices is somehow akin to the spectacle of a man trying to outfox his own shadow , what with all observers trying to get on the side of the `` few '' at the same time . The usefulness of this study and of configuration analysis as well , declines in direct proportion to the dissemination of its use . It has to , by virtue of the very dictionary definition of the word `` few '' .

Diametric opposition must persist as to the future course of prices , if there is to persist a market at all . And the few must win what the many lose , for the opposite arrangement would not support markets as we know them at all , and is , in fact , unimaginable . There need be no squeamishness about admitting this . Anyone still doubting that this is the only way markets can be is invited to try to imagine a market wherein the majority consistently wins what the minority loses .

Mr. John Magee , whose work has been discussed in this chapter , was quoted in a New Yorker Magazine profile as saying : `` Of course , you have to remember it's a good thing for us chartists that there aren't more of us . If you got too many people investing by this method , their operations would begin to affect stock prices , and thus throw the charts off . The method would become self-defeating '' .

Mr. Alexander H. Wheelan's Study Helps In Point And Figure Technique tells the readers : `` We assure you that the total number of people using this method of market analysis is a very small portion of the sum total of those operating in the securities and commodities markets '' .

What with traders trading for so many different objectives , and what with there being so many unique and individualized market theories and trading techniques in use , and more coming into use all the time , it is hard to imagine how any particular theory or technique could acquire enough `` fans '' to invalidate itself . Nevertheless , all theories and techniques lead but to one of two possible modes of expression , if they lead to a market committment at all . In the final analysis , then , the user becomes either a bull or a bear in a given instance , notwithstanding any amount of forethought and calculation , however elaborate . Thus while his theory or technique may not be oversubscribed , it is commonplace for bullish and bearish positions to become temporarily over-subscribed . Though the methods of deciding may be profound and diverse , the possible conclusions remain but two .

Chapter 6 , more methods the hoaxes The purpose set forth at the beginning of this book was first to introduce the reader to a general background knowledge of the various types and capabilities of the forecasting methods already in use , so that he might then be in a position to evaluate for himself the validity of the rather astonishing empirical correlation that is to follow , and to appraise the forecast that its interpretation suggests for the future of farm prices over the years immediately ahead .