FIG. 1
FIGs. 2 & 3
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FORWARD This memorandum is presented for informative purposes only. It does not constitute an offer for sale or the solicitation of an offer to buy any security. The material herein was obtained from various sources which we consider reliable but is not guaranteed by us as to accuracy. Additional information is available at our office and will be furnished upon request. |
The Fundamental Approach The Technical Approach
The Dow Theory
The Elliott Wave Theory
CHARACTERISTICS OF THE MARKET CYCLE
General Market --- Accumulation, Progression Phase I, Phase I Correction, Progression Phase II, Phase II Correction, Progression Phase III, Distribution, Reversion Phase I, Correction Phase I, Reversion Phase Il.
Industry Groups
Individual Stock Cycles
Summary of Cycles
Construction of Vertical Line Charts
Chart Reading --- Resistant Area, Support Area, Trendlines, Change of Intensity, Channels, Saucers, V Formation, Head & Shoulder, Double Top & Bottom, and Triangles
POINT AND FIGURE AND MOVING AVERAGE CHARTS
Point and Figure Charts
Moving Average Charts
Yield Spread
Short Interest Ratio
Advance-Decline Line
The Standard & Poor's 500 Stock Average
New Highs
New Lows
The Dow Jones Industrial Average, NASDAQ, etc
The purpose of this booklet is to show how profits may be achieved through price forecasting using technical methods. To forecast prices using technical methods, one must understand charts. This text shows how charts can be constructed and analyzed. It must be remembered that technical analysis is not the ultimate or magic answer to investing but is an additional source of information about which investors should have some knowledge before making investment decisions.
The fundamental approach forecasts price movements by logical cause and effect thinking. Consideration is given to all accounting methods and ratios, future earnings possibilities, current news events and various other pertinent facts about a company and its industry. Although this approach may seem quite logical, there are certain disadvantages in thinking only as a fundamentalist. For instance, accounting methods are often misleading. The assets and liabilities of a balance sheet may be undervalued or overvalued, depending upon a company's accounting policy. Future earnings are often difficult to predict because there are many known and unknown facts that must be taken into consideration. It is also difficult to analyze what effect news events will have on prices, for most market information refers to a situation that has happened in the past, which market prices have probably already discounted.
While the fundamental approach is based on logic, prices do not necessarily move based on logic, because people are also affected by emotion. Price movements are directly related to supply and demand. Through technical analysis, supply and demand can best be measured.
Price change reflects strength in either supply or demand depending on the direction of the price movement. The technician believes that all factors are reflected in price, that each investor's fundamental knowledge and emotions are shown through price movements. Thus the price is the end result of all economic and psychological pressures. By studying these price movements, the technician attempts to forecast future price swings by charting the prices of stocks and interpreting their formations and trends using historic precedent as a guide.
The following material deals with cycle theory, the characteristics of cycles in the general market, groups and individual stocks, vertical line charts point and figure charts, moving average charts, and technical market indicators, illustrating the technical approach.
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FIG. 1
FIGs. 2 & 3
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Charles H. Dow is considered to be the first person to recognize that cycles occur in the stock market. Because of this he is considered father of technical analysis. Today the theory he developed, and that which was later expanded on by William Hamilton and Robert Rhea, is known as the Dow Theory. Dow recognized that stock prices did not drift aimlessly but seemed to rise and fall in definite patterns. He noticed over the years that stock prices moved in trends which had definite characteristics and that these trends repeated themselves. To help prove his theory, he formulated what is known today as the Dow Jones Averages. By careful observation of these averages, he concluded that the stock market moved in three simultaneous movements. He compared these movements to the ocean, its main trend being the tide, its secondary movements being waves, and the minor fluctuations being ripples. Dow's first movement in the stock market is the primary trend (See Fig. 1). This movement may last for many years. It is either a rising 'Bull Market' or falling 'Bear Market'. There are secondary movements against the primary trend lasting for only a few days to a few months. These are Dow's second simultaneous movements. Dow's third simultaneous movement is the daily fluctuations of the market which he believed to have little significance.
Dow also observed that the primary trend went through three phases. In the case of a 'Bull Market' these phases (See Fig. 2) would be Phase 1, a rebound from depressed prices bringing them back to their more logical value; Phase II, a further rise in prices due to the recognition of better business; and Phase III, the last rise of prices on the speculation that the future will continue to be prosperous. During this latter period investor's tend to be overly optimistic about the future.
In a Bear Market (See Fig. 3) Phase I would be a return of prices to their more logical value. This would be a price, less the hopes and expectations expressed in Phase III of the Bull Market. Phase II would be the further decline of prices due to a down turn in business. Phase III would be the last decline in prices due to overly pessimistic business prospects.
R. N. Elliott believed, like Dow, that cycles occurred in the stock market. Elliott further believed that the stock market cycles moved in certain law-abiding, mathematical relationships that repeated themselves in a rhythmic pattern. In his theory Elliott describes cycles in great detail and how they can be broken down into smaller and smaller cycles; and the use of patterns, time, and ratios in prices forecasting. The most important part of this theory deals with the wave count of a primary trend.
Elliott observed in primary trends that every Bull Market has five impulses (See Fig. 4) with three moves up and two moves down. He also observed that each Bear Market had three impulses with two moves down and one move up. (See Fig. 4)
The following section deals with the characteristics of the market cycle, taking into consideration the Dow and Elliott Theories and some common observations. Although the market cycle is not always consistent, the following characteristics are generally prevalent.
The market cycle can be broken down into four distinct phases. (See Fig. 5). The first phase is Accumulation, which occurs when prices resist going lower or higher after a general decline of prices. This phase is followed by the Progression phase, which is characterized by a rise in prices, generally in three phases with two corrections. The Distribution phase, which occurs when prices resist going higher or lower after a general rise, is the fourth phase. The last phase is referred to here as Reversion, a decline of prices generally in two phases with one correction.
The general market, the individual market groups (technology, airlines, etc.), and individual stocks move generally through these phases. Because of this, it is important to know in what phase of a cycle a particular stock, its group, and the general market is in.
The general economy has gone through a continuing cycle of prosperity and recession. Why these fluctuations take place is not the major concern to the technician. To understand why the economy fluctuates, a person would have to study all forms of psychological and economic theory. It is higly probable that the cycle of prosperity and recession will continue. History proves this to be true.
The stock market shows a group opinion of what people believe the general economy and corporate earnings may be like in the future. In general the stock market moves ahead of the actual economic cycle by about six months. Since the stock market is only a prediction of the economy, it is sometimes wrong. Whether the stock market predicts the economy correctly or not, each phase of the general market cycle has certain characteristics. These characteristics are helpful in recognizing the phase of the general market cycle and, therefore, helpful in forecasting future price movements.
Accumulation: This segment of the general market cycle occurs after the market has come down from its highs and, after making new lows, the market resists going lower. Price trends tend to move sideways for a period of time lasting anywhere from weeks to years. Neither good nor bad business news affects prices appreciably in this period. Volume tends to be small. Yields on stocks are relatively high. During this period people are generally pessimistic about the general economy.
Progression Phase I: Progression begins when stock prices begin to move upward, outside the base of Accumulation. "Blue Chip" stocks generally lead the move up, on higher volume. Yields on stocks at this level are at or about the same as bonds. The investing public begins to think that maybe business is not as bad as was thought. Stock prices return to more realistic values.
Phase I Correction: The correction of Progression Phase I develops under generally lower volume. This correction is usually caused by profit taking.
Progression Phase II: During this phase stock prices move above the high of Phase I. This rise in prices is a result of the recognition that the business situation has improved. Volume is high and the Blue Chips are still leading the upward market trend.
Phase II Correction: This phase is primarily the same as Phase I Correction.
Progression Phase III: In this phase market prices rise over those of Phase II. Generally investors are optimistic about the market going higher. This rise is based on the hopes and expectations that future earnings will increase. Most bad business news is largely disregarded. Speculative stocks become popular. Blue Chips set new highs, subsequently moving back from those highs.
Distribution: At this point the market hesitates. Volume is often erratic. Blue Chips have moved down from their highs while speculative less quality stocks make new highs. Corporate news is good. Average yields are relatively low. At this point the investing public buy stocks in large volume with the theme, "The future couldn't look brighter!"
Reversion Phase I: In this phase market prices fall on larger volume, returning to more realistic values. Blue Chips generally hold up better than the rest of the market. The market reacts downward on bad news while largely disregarding good news.
Correction Phase I: This correction phase results when many people who believe that the Bull Market has not ended continue to buy, creating a temporary return to prices. Those who sold short may be covering. To do this, they must buy the shares they were short, creating an artificial rise in prices. These moves are under generally lower volume.
Reversion Phase II: During this phase market prices break down completely. At this point prices decline more than might be logically expected. Selling hysteria drives stock prices to new lows. The general opinion is that a recession in the economy is near. Most good news is overlooked. Few people think the market will go up. After Phase II of Reversion, we are back to Accumulation and the cycle is ready to start again.
The general market may be divided into industry groups such as automobiles, steels, energy, aerospace, technology, airlines, drugs, paper, health-care, financials, retail stores, transportation, utilities, etc. Stocks within groups generally move together in cycles. They go through the phases of Accumulation, Progression, Distribution, and Reversion, which may or may not coincide with the same phases of the general market.
Generally there is a Blue Chip leader within the group that signals the beginning of Progression by breaking out of the base of Accumulation, accompanied by higher volume. The rest of the stocks of the group ordinarily follow this leader, in order of quality. During the Distribution phase of the group cycle, the higher quality stocks back away from their highs while the speculative stocks of the group make new highs. The first sign of Reversion occurs when these speculative issues break downward.
Groups tend to become popular and unpopular. One year a group may act better than the general market and the next year worse. Sometimes this action is logical, sometimes not.
When picking a particular stock, it is as important to not only know in what phase of cycle the general market is in but also what part of the cycle the stock's group is in. As a general rule, if a stock's group is not popular and not acting well when compared to the general market, it is quite probable that the stock will act no better than the general market.
The prices of individual stocks also go through the phases of cycle in much the same way as the general market and industry groups. Accumulation occurs after investors who have lost faith in a company's earning potential sell, and other investors, perhaps better informed about the Company's earnings prospects, buy.
As and when investors' interest increases, the company's stock moves up in Phase I of Progression. Some stockholders who had bought at lower prices sell, taking profits, resulting in the first Correction of Phase I. Progression Phase II may be attributed to improved business and earnings reports. Some investors who bought during Phase I now sell, taking profits, resulting in the Correction of Phase II. The rise of prices of Phase III may be attributed to an over estimation of earnings in the future.
During the Distribution Phase the price of the stock sells at relatively unrealistic levels. It does so and will continue to do so as long as it is supported from buying by perhaps less sophisticated investors who are attracted to the stock by the preceding rise in price in the Progression Phase.
When interest and consequently support from this group wanes, prices begin to drop back to more realistic levels. At a point during the Reversion Phase, the decline in prices appears to offer a good buying opportunity to certain investors, in turn resulting in a temporary flurry of buying activity and consequently resulting in an increase in the stock's price. Having tested recovery prospects and finding support only temporary, this ultimately leads to a further deterioration in the stock's price, even to the point of "panic selling." When the price falls below realistic levels, the cycle is ready to begin again.
In studying the cycles of the general market, industry groups, and individual stocks, it can be seen that all cycles have many things in common. Investors first underestimate earning power, depressing prices to unrealistic levels, and then overestimate earning power, boosting prices beyond their values. In Progression, there are corrections against the main trend caused by people who sell, taking profits. In Reversion there are always corrections caused by people who do not believe the bull market is over. It is interesting to note that even when earnings of a company remain fairly constant, prices still go through a cycle because people as a group are first underestimating and then overestimating earnings and growth potential.
A technician's main tool in price forecasting is the chart. Charts provide a graphic picture of price swings, the support and resistance areas, and various patterns that aid in forecasting price change. There are a wide variety of charts. The most frequently used is the Vertical Line Chart or Bar Chart. The Vertical Line Chart is easy to maintain and, at a glance, shows the high, low, and closing prices, and volume.
The Bar Chart's vertical scale shows price and the horizontal scale shows time. Volume is plotted on the bottom of the vertical scale. To make a price entry, the high and low are marked with a dot and connected by a straight line. A small horizontal line across the vertical line is used for the close. (See Fig. 6) The high, low, and closing prices can be charted for either daily, weekly, or monthly time periods, depending on the degree of detail desired by the chartist.
Below are the daily high, low, closing prices, and volume of a stock as it would appear in a daily newspaper and how this would be charted: (See Fig. 6)
|
Date |
High |
Low |
Close |
Volume |
|
Nov. |
$ |
$ |
$ |
(thousands) |
|
1 |
65 |
63 |
64 |
15 |
|
2 |
66 |
64 |
65 |
20 |
|
3 |
67 |
66 |
66.50 |
25 |
|
4 |
67.50 |
66.25 |
67 |
30 |
|
5 |
66.50 |
65 |
65.50 |
23 |
|
8 |
67.50 |
64.75 |
64.75 |
35 |
|
9 |
65.50 |
62.25 |
63 |
3 0 |
|
10 |
63.50 |
62 |
62.50 |
15 |
|
11 |
63 |
62 |
62.25 |
10 |
|
12 |
63 |
62.50 |
62.75 |
11 |
Daily, weekly, and monthly charts of the same period may appear very different from each other. If one is interested in forecasting long term trends, monthly charts are recommended. Weekly charts are used for intermediate term; daily charts for short term. It is suggested that all three types be kept for each trend influences the other. (Of course, to keep a daily, weekly, and monthly chart for many stocks is very time consuming. To solve this problem, various chart services are available.)
Chart reading is relatively simple and easy to understand. The picture on a chart is worth a thousand words. Every price movement tells a story and has a meaning.
Resistance areas are formed by human emotion. (See Fig. 7) When a person buys a stock at a certain price (A, B) and that stock price goes down to (D), chances are that when the price returns to the original purchase price (E), that person will be anxious to get his money back and will sell. If a lot of people bought at about the same price (A, B) as in the above example, (See Fig. 7) they will tend to act the same way. This area where people have a tendency to sell is called a Resistance Area.
(See Fig. 9) When a group of people buy a stock at a certain price (A, B) and the stock goes up to (D) and the price then returns to the purchase price (E), the stock will usually receive support at that level. This is because the people who purchase at price (A, B) have conditioned themselves to only sell at a profit and now will not sell to just break even on their investment. Also to many people the old price (A, B) appears to be a bargain price at which to buy.
Each base area is a potential resistance or a support area. When prices return to the base area, they will tend to be stopped in this area. If prices break through the base area, they will tend to stop at the next resistance or support area.
Stocks tend to move in a particular direction over a period of time. This direction is called the stock's trend. When stock prices are generally rising, the trend is said to be up and conversely when prices are generally dropping, the trend is said to be down. If neither is the case, the trend is said to be sideways.
Once a stock starts moving in a trend, it will tend to continue to move in that way, resisting change. Stock prices act in this way because during an uptrend, people will be attracted to buying a stock because it is going up, causing it to go up further and attracting more buying interest, etc. During the downtrend, the decrease of prices will tend to keep possible purchasers away from the stock, causing the price to go down further which causes the price to go down further still. When a stock moves sideways, it attracts neither the buyer nor the seller and continues to move sideways.
Trends tend to move along a straight line. This is a unique and useful characteristic of price movements. (See Fig. 9)
The purpose of the trend line is twofold. First, it shows very clearly what kind of a trend is currently being experienced. Secondly, if the trend line is broken, it shows that there has been a change in the direction of the trend. We are primarily concerned with the trend line connecting the bottoms of an uptrend and the tops of a downtrend because the breaking of this trend line shows that there has been a change in direction of the trend. To confirm that the trend line has been broken, the trend line must be broken by at least three per cent, and on high volume.
The main trend line may be difficult to identify and may be confused by minor trends until it is fairly well established. (See Fig. 10) Some experience is necessary before one is able to distinguish between minor and major trends, but once mastered, the trend line can be a useful and faithful tool.
Trend lines can also be drawn joining the tops of the waves of an uptrend or joining the bottoms of the waves of a downtrend. (See Fig. 11) Breaking of this trend line shows a change in the intensity of the trend. Stock prices will usually move up in the case of an uptrend and go down in the case of a downtrend at a faster rate than previously experienced.
Channels are formed when a trend line connecting the highs of a wave runs parallel to the trend line connecting the lows of a wave. (See Fig. 12)
This formation does not occur often, but when it does, the trendlines of the channel are often quite a significant factor in the price movement of the stock. Breakout rules apply as previously described.
Sometimes trends move along curved lines. This is most significant on the bottom or top of a cycle. These formations are called saucers. (See Fig. 13)
Saucers reflect a gradual change in opinion regarding the future outlook of the company. Volume on saucers should decrease on the old trend and pick up upon starting the new trend.
The V Formation, as the name implies, look much like a "V". (See Fig. 14)
A V formation shows that there has been a sudden change in opinion about the company. This sudden change in trend is usually caused by a news event, accompanied by high volume at the climax.
The oldest, best known, and possibly most reliable formation that signals a change of trend is the Head & Shoulder formation. (See Fig. 15)
A sell signal is given when a head and shoulder top is formed and prices break the neckline; conversely a buy signal is given when head and shoulder bottom is formed and prices break the neckline (See Fig. 15). After prices break the neckline there is usually a quick retracement back toward the neckline, followed by another reversal and continuation of the basic trend.
Double tops and bottoms are signals of a trend reversal. (See Fig. 16)
A double top indicates that the stock is in a technically weak position because investors are unwilling to purchase a stock that hesitates to go up and make new highs. The double bottom shows strength because people tend to shy away from a stock that is falling in price. Once it shows resistance to further decline, investors begin purchasing again.
These formations can be dangerous if the investors tends to predict that a double top or bottom will be formed before the formation is completed. One can be fooled if prices slowly back away from "C" and then break on past that point. To protect oneself, the chart history of the company, the price action of other stocks in its group, and the trend of the general market should be checked first.
When converging trends meet, triangles are formed. (See Fig. 17) Triangles show a struggle between two factions, one tending to push prices up, the other tending to push prices down. When the trendline is broken on the upside, this indicates that the upside faction has won and that prices should continue to go up. Conversely when the trend line is broken on the downside, this indicates that the downside faction has won and prices should continue lower.
Generally speaking, ascending triangles and wedges will break out on the upside and descending triangles and wedges will break out on the downside. The symmetrical and expanding head triangles do not tend to break out in any established direction. Prices tend to break out of a triangle in the direction prices were going before its formation. However, no forecast should be made until the breakout occurs.
Point and figure charts are kept differently than line charts. The point and figure chart paper is a series of squares rathern than lines. Each square represents a unit of price. Volume is not kept on this chart. The value of each square is determined by the degree of detail desired and by the volatility of the stock. As a general rule the scale in Fig. 18 can be used.
FIG. 18
|
Price of Stock |
Value Per Square |
|
$3 and under |
$.12 |
|
$3 1/8 - $7 |
$.25 |
|
$7 1/8 - $19 |
$.50 |
|
$19 1/8 - $80 |
$1 |
|
$80 1/8 and over |
$3 - $5 |
|
Dow Jones Industrial Averages |
3 points |
|
Dow Jones Rail Averages |
2 points |
|
Dow Jones Utilities Averages |
1 points |
To indicate price, X's are marked in the square. (See Fig. 18) They are only marked when the price moves three squares in value. For example, if a stock was selling at $60, one would use the scale one box equals $1.00. The price would have to move $3.00 to $57 or $63 before the appropriate X's could be entered.
Entries are made in the same column as long as the price continues in that direction. But when the price changes three squares in value in the opposite direction, this is entered in the next column. For example, if a stock moved from $61 to $66 and then down to $63, it would be entered as in Fig. 19.
 |
 |
An example of a point and figure chart using the same figures as the line chart in Fig. 6 is shown above in Fig. 20. Point and figure charts may be read in much the same manner as line charts. However, they have two important distinguishing characteristics: i.e., the breakout and extent of move after breakout.
The breakout is a signal either for sale or purchase. It occurs when the column of X's rise above or below the previous column of X's by two as below: (See Fig. 21)
To measure the extent of any move after a buy or sell signal, one can count horizontally across the base of the breakout signal. Count straight across that base, counting even the empty squares. This horizontal count, when applied vertically from the breakout signal, will give the extent of the move. (See Fig. 22)
The point and figure charts have many advantages. They are easy to keep, the breakout signal is clear, and the extent of move can be made after a breakout. The count, however, may not always be relied upon to be accurate. The point and figure charts have some other disadvantages too. Because the price has to move three squares in value before an entry is made, some detail is missed and the vertical line chart will usually give signals sooner. Also, volume, which can be an important factor, cannot be used with point and figure charts.
Moving averages simplify price movements into one line, thereby eliminating erratic price swings and making the trend easier to analyze. The moving average of a stock is calculated by adding the closing prices for a certain number of days, such as 10, and then dividing that total by 10, the number of days, to find the average price for that time period. The next day the new closing price is added to that total, the lst day's closing price is subtracted, and the new total is divided by 10, again the number of days in the moving average. This is done every day and the average price for each 10 days is then plotted each day on a chart as a dot. When those dots are connected, the moving average line is formed.
The most commonly used moving average charts use from 5 to 200 days as their base period. The longer the time used, the less sensitive it will become to a change in trend. Generally speaking, if one is interested in a near term trend, a 10 day moving average may be used, for an intermediate trend a 50 day moving average, and for a long term trend a 200 day moving average.
The direction the moving average is slanted towards, indicates the direction of the trend. Moving averages are used mostly with vertical line charts. A change of trend is signaled when the stock breaks through the moving average line as shown on the following page.(See Fig. 23)
Technical market indicators give signals that a change in the trend of the stock market is about to occur. Some indicators show underlying strength or weakness in the market, while others show the investment attitude of a specialized group, such as the professional investor or the public.
It is unwise to depend on any one indicator for buy or sell signals, for no one indicator is always correct. It is best to use a combination of indicators. Following is a list of some of the most reliable market indicators which appear in either daily or weekly newspapers:
The Yield Spread shows the relationship between the dividend yield of the Dow Jones Industrial Average and the yield of top-quality, long term corporate bonds such as Standard and Poors AAA Composite Bond Index or Barron's High Grade Bond Average.
Because many investors are yield conscious, the yield spread between stocks and bonds affects their investment decisions. Over the past five years or so, stocks in general have tended to yield about one per cent less than bonds. When this spread is over minus one (-l) per cent, investors tend to invest more funds in bonds than stocks. Conversely, when this spread is under minus one (-1) per cent, investors tend to invest more funds in stocks rather than bonds. Therefore, the Yield Spread is technically bullish under minus one per cent and technically bearish over minus one per cent.
The Short Interest Ratio shows the relationship between the total short sale interest and the average daily trading volume. The Short Interest Ratio is bullish when the short interest is high because at some future date each short seller must ''cover" his short by buying stock. The Short Interest Ratio is bearish when it is low because in this instance there is not a great deal of future buying to be done. As a general rule, if the Ratio figure is above 1. 5, it is bullish and if it is below 1 it is bearish. The Short Interest appears once a month in Barrons weekly newspaper.
The Advance Decline (A-D) Line is the difference between the number of stocks that have advanced on a given day from the number of stocks that have declined on the same day, expressed as a running total. When there are more advances than declines, the difference is added to the running total. When declines are more numerous than advances, the difference is subtracted from the running total. The Advance Decline Line represents the overall market action of all stocks, whereas the Dow Jones Industrial Average is made up of only 30 stocks. By matching the moves of the Advance Decline Line against the moves of the Dow Jones Industrial Average, it may be determined whether or not the general market is confirming the moves of the averages.
A buy signal is given when the Advance Decline Line breaks the top of the last upwave before the Dow Jones Industrial Average breaks the same top. (See Fig. 24)
A sell signal is given when the Advance Decline Line breaks the bottom of the last down wave before the Dow Jones Industrial Average breaks the same bottom. (See Fig. 25)
The Standard and Poor's 500 Stock Average measures the price changes of 500 stocks in contrast to the Dow Jones Industrial Average's 30 stocks. Like the Advance-Decline Line, the Standard and Poor's 500 represents the general market and should confirm the moves of the Dow Jones Industrial Average if trends are to continue.
The number of daily New Highs shows the underlying strength or weakness of a market trend and is best kept as a 10 day moving average. When the trend of the New High Moving Average turns up, a buy signal is indicated. Conversely, when the trend turns down, a sell signal is indicated.
The number of daily New Lows also shows the underlying strength or weakness of a market trend and is also best kept as a ten day moving average. When the trend of the New Low Moving Average turns down, a buy signal is given; when the trend turns up, a sell signal is indicated.
The various indexes and averages themselves can be used as an indicator in forecasting the major general trend of the market. By applying the technical methods of cycles, trend, patterns, support areas, resistance areas and moving average chart patterns to these various averages and indexes and comparing the differences, an additional insight can hopefully be obtained into the prevailing major trend of the market. Be aware of the ever-increasing variety of averages and indexes that are available in different sectors of the market and the overall effect they have in forecasting price movements.