Page 348 - How to Make Money in Stocks Trilogy

224 A WINNING SYSTEM

sional 12% or 15%. After several sharp downward adjustments of this
nature, and after at least two years of a bull market have passed, heavy vol-
ume without further upside progress in the daily market averages could
indicate the early beginning of the next bear market.
Since the market is governed by supply and demand, you can interpret a
chart of the general market averages about the same way you read the chart
of an individual stock. The Dow Jones Industrial Average and the S&P 500
are usually displayed in the better publications. Investor’s Business Daily
displays the Nasdaq Composite, the New York Stock Exchange Composite,
and the S&P 500, with large-size daily price and volume charts stacked one
on top of the other for ease of comparing the three. These charts should
show the high, low, and close of the market averages day by day for at least
six months, together with the daily NYSE and Nasdaq volume in millions of
shares traded.
Incidentally, when I began in the market about 50 years ago, an average
day on the New York Stock Exchange was 3.5 million shares. Today, 1.5 bil-
lion shares are traded on average each day—an incredible 150-fold increase
that clearly demonstrates beyond any question the amazing growth and suc-
cess of our free enterprise, capitalist system. Its unparalleled freedom and
opportunity have consistently attracted millions of ambitious people from
all around the world who have materially increased our productivity and
inventiveness. It has led to an unprecedented increase in our standard of liv-
ing, so that the vast majority of Americans and all areas of our population are
better off than they were before. There are always problems that need to be
recognized and solved. But our system is the most successful in the world,
and it offers remarkable opportunities to grow and advance to those who are
willing to work, train, and educate themselves. The 100 charts in Chapter 1
are only a small sample of big past investment opportunities.
Normal bear markets show three legs of price movement down, but
there’s no rule saying you can’t have four or even five down legs. You have to
evaluate overall conditions and events in the country objectively and let the
market averages tell their own story. And you have to understand what that
story is.

Additional Ways to Identify Key Market Turning Points
Look for Divergence of Key Averages
Several averages should be checked at market turning points to see if there
are significant divergences, meaning that they are moving in different direc-
tions (one up and one down) or that one index is advancing or declining at a
much greater rate than another.