TIME FOR ACCUMULATION AND DISTRIBUTION And that a big downward move would take place. In the previous June, 1919, after U. S. Rubber had advanced from 45 in December, 1917, it showed that it had reached a level where heavy selling had commenced, but the tape could not tell when this selling would be completed, and all the stock distributed. But it did tell the final story in February, 1920, when it broke under 112 and promptly declined to 92, and never rallied above 115 again until it sold at 41 in August, 1921. All the way down the selling pressure was plainly indicated, and the stock continued to make lower tops and lower bottoms. The tape was telling part of its story all the time, but it did not show that it had finished until Novem ber, 1921, when, after three months in a narrow range, the stock moved up into new high territory. Thus you see that after any big advance or big decline, it requires time to tell when the next big move is going to start, and the man who expects to read this from the tape, day by day, will get fooled many times. Therefore, he should wait until he gets a definite indication before deciding that the big trend has turned and a major move started. The larger the capital stock of the Company, or the more shares outstanding, the longer it requires to complete accumulation or distribution. The length of time, as well as the total number of points that a stock has moved up or down from high or low levels, must be considered in judging whether accumulation or distribution is taking place. After U. S. Rubber was up 100 points from the low and had reacted from the same high level for eight months and after the panicky decline in November, 1919, had plainly shown that the bull market was over, you would not expect that U. S. Rubber making a new high, was going to very much higher levels. But you should wait a few days to see whether the price could be maintained before going short. The daily high and low, weekly high and low chart and the total volume of sales will help you to determine when a false move of this kind is made, and the trend reverses, because a move of this kind into new high territory, causes all the shorts to cover and leaves the stock in a weak technical position. When a stock uses up several months' time either in accumulation or distribution, it will require then several months for the run between accumulation and distribution. All of the stock is not sold on the first rally, nor even on the second or third. Stock has to be bought and the market supported on the way up until it reaches a level where the supply is greater than the demand and the insiders are willing to sell out. Then it hesitates and moves up and down over a narrow or wide range, according to the kind of stock, until distribution is completed. The same occurs when a stock starts down. It requires a long time to convince people that after a stock has been selling at 140, it is going down 100 points. Some people buy when it is down 10 points, others buy on 30,40 and 50-point reactions, believing the stock cheap because they remember the price at which it formerly sold — -14o, with the result that when it continues downward, they all get scared and sell out, causing the last rapid decline which may be anywhere from 10 to 30 points. If people would only learn to watch and wait, they could make a lot more money, but they are in too big a hurry to get rich, and the result is they go broke. They buy or sell on hope, without a reason. pick stock ~ currency converter |