Chapter 2 One glance is worth a thousands earnings forecasts. The title of this chapter is something I really believe in. All you have to do is look at a stock like General Motors, which have improving earnings in 1981 | CHAPTER 2 ONE GLANCE IS WORTH A THOUSAND EARNINGS FORECASTS The title of this chapter is something I really believe in. All you have to do is look at a stock like General Motors which had improving earnings in 1981 as it dropped from 58 to 34 or a stock like Greenwich Pharmaceuticals which moved from 3 to 19 in the 1986-1987 period while it registered deficits So remember it is really true that the tape tells all and our job is to learn how to listen properly. You are now ready to start working on your degree in technical analysis and to start learning how to apply my methods so the market can become less mystical and more profitable for you. Look at this Stage Chart Chart 2-1 . If ever the cliche that a picture is worth a thousand words was true this is a perfect example of it in living color Study Chart 2-1 for a minute. This is how you are going to start analyzing stocks and the market from now on. Once you grasp this profitable technique the market game for stocks options mutual funds commodities or you-name-it will become much easier and more profitable. You ll be able to flip through any chart book and immediately spot those few stocks worthy of further study and possible action while eliminating the scores of issues that aren t worth another moment of consideration no matter how exciting the newspaper headlines. Just remember this basic J fact any stock has to be in one of four market stages and the trick is to be able to identify each one. The four stages of a major cycle as illustrated in Chart 2-1 are 1 The basing area 2 the advancing stage 3 the top area and 4 the declining stage. 31 32 Chapter 2 STAGE 1 THE BASING AREA After stock XYZ has been declining for several months it eventually will lose downside momentum and start to trend sideways. What s actually taking place is that buyers and sellers are starting to move into equilibrium whereas previously the sellers were far stronger which is why the stock had plummeted. Volume will usually lessen dry up
