RAILROAD STOCKS MAIN TREND OR MAJOR SWINGS

The Railroad Curve is based on the Dow Jones’ 20 Railroad Stock Averages published by the Wall Street Journal. The issues used in these Averages are as follows; - Atchison, Atlantic Coast, B. & 0, Canadian Pacific, Ches. & Ohio; Rock Island, Del. Lackawanna&. Western, Erie, Illinois Central, Louisville & Nashville, N.Y. Cen­tral, New Haven, Norfolk & Western, Northern Pacific, Pennsylvania,Pere Marquette, Southern Pacific, Southern Railway, Texas & Pacific, and Union Pacific.

From the low in June 1921, to the high in November 1928, these Railroad Averages advanced nearly 80 points. They have made the highest price in history, getting above the extreme high level recorded in 1906. The fact that they advanced into new territory in the latter part of 1928 shows the possibility of many rails, which are in strong position going higher during 1929. But the fact that during prosperous times the railroads have been unable to earn an average of 6% on their capitalization does not make them very attractive from a speculative standpoint. Only those, which have merit and show large earnings, will have very big advances during 1929.

The fluctuations between extreme high and extreme low during 1929 are not likely to be less than 20 points and the average may be as high as 30 to 35 points, which means that many high - priced stocks will fluctuate 50 to 75 points between extreme high and low.

The Rails as a rule follow the forecast trend better than the Industrials because they represent only one group of stocks while the Industrials represent fifteen or twenty different groups. The Dow Jones’ 20 Railroad Stock Averages are representative of the railroad group and most of the railroads will follow Curve #1 very closely, therefore it is not necessary to give Curve #2 this year.

Railroad Curve #1, you will notice on page #2, runs down from January 2nd and bottom is indicated around the 5th to 7th. Top for the month of January is indicated around the 15th and after this date the main trend is down, prices working lower and reaching first bottom around March 9th to 11th and second bottom around March 28th to 29th. Accumulation should take place around this time and a bull campaign should start. First top is indicated around May 3rd to 4th; then a decline, followed by an advance with second top, possibly a little higher, around June 3rd. Then another decline and irregular market, reaching low level around June 28th and 29th. After that prices will work higher until around July 15th; then decline to the 22nd, followed by an advance to around August 8th to 9th, when final top on rails should be made for another big decline. After this top, prices will work lower from every rally. A big decline is indicated for September; another sharp decline in October, reaching bottom around the 23rd to 24th; then a rally running to around November 21st to 2nd followed by a decline to December 24th, when the 20 Rails will reach the lowest price of the year.

The following Rails are in the strongest position and should have the greatest advances at the times when the bull campaigns are indica

	Atlantic Coast Line Bangor & Aroostook Brooklyn Man. Transit Chicago Gt. Western C.M. & St. Paul Com. C.M. & St. Paul Pfd.	Del. Lackawanna & W. Erie Gt. Northern Pfd. Hudson & Manhattan Kansas City Southern Mo. Kansas & Texas	Missouri Pacific New Haven Northern Pacific Seaboard Air Line Wabash Common Western Maryland
	The Railroad stocks given below are those, which are in the weakest technical position; have had advances and show distribution. They will be the best short sales on rallies during the times that the Forecast indicates declines.
	Atchison Baltimore & Ohio Canadian Pacific Chesapeake & Ohio Rock Island Delaware & Hudson	Lehigh Valley Louisville & Nash. N.Y. Central Norfolk & Western Pere Marquette Texas Pacific Union Pacifi	AtchisoPittsburgh & W. Va Reading St. Louis & San Fran St. Louis & S.W Southern Pacific Southern Railway

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INDUSTRIAL STOCKS MAIN TREND OR MAJOR SWING

The Industrial Curve this year is based on the Dow Jones' 30 Industrial Stock Averages. Previously the Dow Jones' Averages, which are published by the Wall Street Journal, were based on 20 industrial stocks, but in the latter part of 1928, they changed from 20 to 30 and our Curve is based on the 30 Industrial Stocks. The stocks now used in these Averages are: Allied Chemical, Am.Can, Am.Smelting, Am Sugar, Am.Tobacco B, Atlantic Refining. Bethlehem Steel, Chrysler, Gen. Electric, Gen. Motors, Gen. Ry, Signal, Goodrich, Int. Harvester, Int. Nickel, Nash Motors, Mack Trucks, North American, Paramount, Postum, Radio, Sears Roebuck, Standard Oil of N. J., Texas Corp. Texas Gulf, Union Carbide, U.S. Steel, Victor Tk., Westinghouse, Woolworth, Wright Aero.

From the low level in August 1921, to the high level in November 1928, the 20 Industrial Stocks recorded an advance of about 230 points, the greatest advance in history. The fact that these Averages advanced nearly 100 points during 1928 is unparalleled in history. This year is like 1906, 1916, and 1919, when such violent fluctuations were witnessed and large volume of trading took place, only to be followed the year after by a panicky decline.

The minimum between extreme high and extreme low during 1929 for the 30 Industrial stocks will not be less than 50 points and the maximum fluctuation may be as much as 90 to 100 points. This means that many of the high-priced stocks will fluctuate 150 to 200 points between extreme high and extreme low prices. The lower priced stocks will move in a narrower range and will not make as much as the minimum between extreme high and low.

Most of the Dow Jones’ 30 Industrial Stocks will follow Curve #1 very closely. The high point for most of these stocks will be reached around January 12th. After that time, prices should gradually work lower and the trend should be down until around March 28th to 29th, when bottom will be reached for another bull campaign. Many stocks will reach bottom around March 14th to 15th and remain in a narrow trading range until the bull campaign starts in April. When the advance gets under way, some stocks will reach top for the year in May, others in June and some of the others, which are behind the market, will reach final high in August as shown by Curve #1 and Curve #2. A large majority of stocks will not go any higher than the highs reached in the month of July. After July and early August, the main trend will be down and some sharp declines will take place, prices working lower and reaching first bottom around September 27th to 28th. From this level follows a fair - sized rally and a trading market running into the early part of November. After that, the big bear campaign will get under way and stocks continue to work lower, reaching extreme low level for the year around December 23rd to 24th.

There are now over 1500 stocks listed on the New York Stock Exchange and often in one day over 800 different issues are traded in. Therefore, the 30 Industrials and 20 Rails do not always represent the main trend or curve of the market and many stocks will run in opposition to this trend. That is why I am giving you Curve #1 and Curve #2 on Industrial stocks.

Industrial Curve #2 represents the stocks which are in strong position and many of which are not included in the Dow Jones’ 30 Industrials. Many of these stocks have declined during 1928 and have been accumulating. They will advance while other stocks decline. Curve #2 indicates low around January 2nd fol­lowed by an advance up to January 31st; a decline to February 7th and high of next rally around February 15th. Then prices will work lower, making bottom around March 11th. Watch the stocks that make bottom at this time, as they will be the ones to lead the advance. After the low in March, this Curve continues to work higher with only moderate reactions until high is reached around May 17th to 18th. From this top a bigger decline will take place. The last low is indicated around June 22nd. From this level the stocks, which are in strong position and behind the market will gradually work higher, some of them reaching top during July while others will not reach final top until August 14th to 15th. After this top is reached heavy liquidation will start and prices will work lower from every rally. First decline culminates around September 30th; then a rally making top on October 2nd, followed by a decline to October 24th; then a final top around November 2nd to 4th, followed by a big decline, reaching bottom around December 18th to 20th; then a rally to the end of the year.

Below is a list of stocks in strong position, which should follow closely Industrial Curve #2. They will be the best stocks to buy on reactions:

	Ajax Rubber Amerada Am. Agri. Ch. Am. Beet Sug. Am. Bosch Mag Am. Brake Sh.. Am. Ship & Com. Am. Steel Fdy. Am. Sugar Am. Woolen Anaconda Armour A Assd. Dry Gds. Austin Nichols Barnsdall A Beechnut Bethlehem St. Booth F. Briggs Cal. & Hecla Central Alloy Cerro de Pasco Chandler Clev Chile Copper Congoleum Cons. Textile Sun Oil:p Am. & For. Pr.	Cont. Baking A Cont. Motors Cuban Am. Sug. Curtiss Aero. Davison Chem. Dome Mines Fisk Rubber Foundation Glidden Goodrich Goodyear Granby Gt. Nor. Ore Gt. West. Sug. Hupp Indian Ref. Inspiration Int. Comb. Eng. Int. Mar. Pfd. Jones Tea Kelsey Hayes Kennecott Kresge S.S. Lago Oil Loews Loft Elec. Storage	Lee Rubber Lehn & Fink Louisiana Oil Mack Trucks Magma Marland Mex. Seab. Mid-Cont. P. Nat. Pr & Lt. Nevada Cons. N.Y. Airbrake Otis Steel Packard Panhandle Pan Pete B Park Utah Pathe Ex A Phillips P. Pillsbury Fl. Reo Motors Republic Iron Reynolds Spg. Royal Dutch Shell Union Simms Pete Sinclair Oi Maracaibo	So. Porto Rico Sug. Spicer Mfg S.O. of Calif S.O. of N.J S.O. of N.Y Tennessee Cop Texas Corp Texas Pac. C. & O Texas Gulf Sul Transcont. Oil U.S. Rubber U.S. Smelt Va. Car. Chem Ward Banking B Warner Pictures Westinghouse Elec White Eagle White Motors Willys Overland Wilson & Co Worth Pump Wright Aero Yellow Truck Producers & Ref Elec. Pr & Lt. Mallinson Superior Oil
	The stocks given in the list below are the ones, which have been distributed and are the best to sell short around the dates indicated for the top on Curve #1. These stocks will have the greatest decline, especially in the early part of the year and again from August to December when a big bear campaign is indicated.

Allis Chalmers Allied Chemical American Can Am. Intern’l Am. Linseed Am. Locomotive Am. Radiator Am. Smelting A.M. Byers

Chrysler Coca Cola Cont. Can Corn Products Dupont Sears Roebuck Gen. Motors Hudson Motors Houston Oil

Int. Harvester Kroger Mathieson Al Mont. Ward Reynolds “B” Sears Roebuck Shattuck F.G. Stewart Warner Studebaker

Timken Tobacco Products Union Carbide U.S. Ind. Alcohol U.S. Steel Vanadium Victor Talking Woolworth

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Using Gann to Trade the Main Trend

Last month I wrote a broad-based article about Gann Theory. The piece described Gann Theory as the study of pattern, price and time relationships. This month's article covers the concept of pattern.

When writing about pattern under the context of Gann, the Gann Swing chart is the first pattern which comes to mind. The Gann Swing chart is also often referred to as the Gann Trend Indicator. Creating a Gann Swing Chart is an important first step in using Gann analysis because it identifies the trend and the important tops and bottoms from which to draw the Gann angles. In addition, the chart provides valuable information to the trader such as size and duration of the swings. This information helps the trader find price and time targets and to identify when the market is ahead or behind target.

Gann Swing Charts can be created for the minor trend or the main trend. Some analysts prefer the minor, intermediate and main trend outlook. For this article we will use the 2-bar swing chart as our main trend indicator. A 2-bar swing chart measures swings only after the market has made two consecutive higher-highs or two-consecutive lower-lows. A minor or 1-bar swing chart would follow the one day swings of the market.

Before we learn how to construct the 2-bar swing chart let's look at some of the benefits it has over a minor swing chart.

1. Main trend chart opportunities occur less frequently than minor trend opportunities. This keeps the cost of trading to a minimum.

2. Trading less frequently than the minor trend indicator makes the trader less likely to be whipsawed and also makes the possibility of a long series of losses less likely.

3. Main trend trading opportunities develop more slowly and more predictably than minor trend opportunities. This give the trader time to watch the formation and to make adjustments when necessary.

4. Although the same technique is required to create the main trend chart, and the minor trend chart, the amount of time devoted can be less especially if the market is in a steep uptrend or downtrend.

5. The mental exhaustion caused by frequently changing direction, overtrading, and taking a series of losses is not as common for the main trend trader as it is for the minor trend trader.

CONSTRUCTION

The main trend chart can be used to identify the main trend tops and bottoms for any time period. In order to avoid confusion about whether we are speaking exclusively of the monthly, weekly, daily, or intraday charts, we call each trading time period a bar.

The main trend swing chart, or 2-bar chart, follows the 2-bar movements of the market. From a low price each time the market makes a higher-high than the previous bar for two consecutive time periods, a main trend line moves up from the low two bars back to the new high. This action makes the low price from two bars back a main bottom.

Figure 1:












From a high price each time the market makes a lower-low than the previous bar for two consecutive time periods, a main trend line moves down from the high two bars back to the new low. This action makes the high price from two bars back a main top.

Figure 2:












The combination of a main trend line from a main bottom and a main trend line from a main top forms a main swing. This is important information, because when stop placement is discussed, traders will be told to place stops under main swing bottoms, not under lows, and over main swing tops, not over highs. Learn and know the difference between a low and a main swing bottom, and a high and a main swing top.

Once the first main top and bottom is formed, the trader can anticipate a change in the main trend. Starting from the first day of trading, if the main trend line moves up to a new high, this does not mean that the main trend has turned up. Conversely, if the first move is down, this does not mean the main trend is down. The only way for the main trend to turn up is to cross a main top, and the only way for the main trend to turn down is to cross a main bottom.

Figure 3:












In addition, if the main trend is up and the market makes a main swing down that does not take out the previous main swing bottom, this is a correction. If the main trend is down and the market makes a main swing up that does not take out the previous main swing top, this is also a correction. A market is composed of two types of up and down moves. The main swing chart draw attention to these types of moves by identifying trending up moves and correcting up moves, as well as trending down moves and correcting down moves.

In summary, when implementing the main swing chart, the analyst is merely following the two-bar up and down movements of the market. The intersection of an established downtrending line with a new uptrending line is a main swing bottom. The intersection of an established uptrending line with a new downtrending line is a main swing top. The combination of main swing tops and main swing bottoms forms the main trend indicator chart. The crossing of a main swing top changes the main trend to up. The penetration of a main trend bottom changes the main trend to down. The market is composed of main uptrends, main downtrends, and main trend corrections.

James A. Hyerczyk is a registered Commodity Trading Advisor with the National Futures Association. Mr. Hyerczyk has been actively involved in the futures markets since 1982 and has worked in various capacities from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis.

His published works include articles for Futures Magazine, Trader's World, SFO Magazine, Forex Journal, and Commodity Perspectives (Commodity Research Bureau), and, his book Pattern, Price & Time published by John Wiley & Sons, Inc. in 1998.

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