Books by and about the geometrical techniques of Dr. Alan Andrews, developer of the Pitchfork, the ML Line and a number of excellent geometrically based tools.
Forex has become very popular, with trades not so limited by time and swings not as volatile as other commodities.
Forex is essentially a commodity, so its markets follow general commodity rules and many facets of Gann analysis work just fine for the Forex exchange.
We provide techniques, tools and systems particularly focused on the currency markets.
Law of Vibration
Research works or market systems based upon Gannís theory of the Law of Vibration. Includes many scientific and esoteric work getting into harmonics, cycles, and cosmology as it relates to causative systems of order behind the markets. Primary reference and research section for those studying deep Gann analysis.
Baumring Reading List
Dr. Baumring's reading lists were very comprehensive, covering all areas of the markets, sciences and metaphysical fields.
Baumring was an intensive scholar who read 1800 words a minute and had a photographic memory, thus extendinghis scope.
Baumring's 10,000 volume library included around 500 books which he saw as core information.
Kayser, the greatest scholar of harmonic science, was far ahead of his time, penetrating the depths of ancient esoteric Pythagorean Tradition to present a universal Law of Vibration.
His "Textbook of Harmonics" provides the most valuable insight into Gannís Law of Vibration of any resource.
We have so far translated four of his works into English.
Science of Vibration
W. D. Gann coined this term as a basis of his system of market forecasting. It explores theories of aether physics, vortex systems, and universal order as considered in the late 1800ís, incorporated with valuable elements taken from esoteric cosmology.
The theory posits that vibration underlies all phenomena, and that harmonic factors govern universal forces.
Eric Penicka: Gann Science
The author correlates Gann’s exact words to the science of Gann’s day to illustrate his phrase “stocks are like atoms”. Offering a system of “mathematical points of force” governing the structure through which the market moves, the emerging science of Periodic Table atomic elements provides a system of order through which to forecast.
W.D. Gann Works
We stock the complete collection of the works of W.D. Gann.
His private courses represent the most important of his writings, going into much greater detail than the public book series. Our 6 Volume set of Gann’s Collected Writings includes supplementary rare source materials, and is the most reliable compliation of Gann’s unadulterated vital work.
Dr. Jerome Baumring
The work of Dr. Baumring is the core inspiration upon which this entire website is based. Baumring is the only known modern person to have cracked the code behind WD Gannís system of trading and market order.
Baumring found and elaborated the system of scientific cosmology at the root of Gannís Law of Vibration.
There is no other Gann teaching that gets close to the depth of Baumringís work.
The Edson Gould Correspondences From the Hasbrouck Space/Time Forecasting Archives
The five year period, 1972-1976, was a good stretch for F&F clients.
The year 1972 witnessed the publication of "The Last 100 Points" which forecast a final rise in the Dow Jones Industrial Average ("DJIA") from the then 940 level to an eventual 1040 peak in early-1973.
The years of 1973 and 1974 should also have been good for those F&F clients who heeded our warning, in January, 1973 (with the DJIA then at 1025) to sell "at least 50% of all equity holdings" in anticipation of an upcoming major bear market.
The 1975 year, too, should have been good, as F&F clients were advised on 12/18/74 (just nine days after the DJIA reached its 1974-1975 bear market low of 570.01) to begin committing available cash reserves to new equity purchases.
Likewise, in 1976 we forecast the late-1975 rally from the 10/1/75 DJIA low of 780 . 54 to the 3/26/76 DJIA top of 1018.03.
We caught the 1018.03 top on 3/24/76 when F&F 4/7/76, headlined "Trim Sail", recommended "a 25%-30% reduction of equity holdings".
That Sale Recommendation looked good--too good, in fact--as the DJIA broke to a 6/7/76 low of 951.70. Although we hoped the market would go lower so a good solid bottom might be registered-the DJIA did not accommodate.
BARRON'S: The National Financial Weekly, May 19, 1941
A New Idea for Speculators
Applying the Principles of "Dynamic Symmetry" to the Stock Market
By EDSON BEERS
How many people do you know who have successfully handled their investments in recent years? How many economists can you point to who have been right in their business forecasts? How many statisticians, how many counseling organisations and other experts can you list as having successfully forecast the market? The list is pretty small, isn't it? Did you ever wonder why? Did you ever stop to think that out of all the literally millions of man-hours of effort that go into the study and analysis of securities, markets, trends and conditions comes not much more than a turgid flow of mouth filling words that are just about as effective in solving your and my investment problems as have been the Roosevelt Administration efforts (sic) to balance the budget.
Why is that so? These men are sincere. This array of economists, statisticians, financial writers and security specialists are intelligent, hard working and honest. They are doing their best. Why then does that best fall so far short of the least of our investment information advisory needs?
Do you know why? Their premises are fallacious. These men almost universally are basing their work on faulty assumptions. How can they build a successful structure of forecasting on a foundation that won't stand up?
Must Apprehend True Nature of Things
We cannot hope to succeed at anything unless we know the true nature of that thing. How far would Columbus, Copernicus, Da Vinci, Washington and Ford have gone had each not recognized the true nature of his particular problem?
Does the farmer plant corn in September and expect to harvest it in January? Do we look for apples in June and strawberries in December? What electrician would use rope to wire a house? What plumber burlap for pipe? Would you use biscuits on your roof or tin in your windows? Of course not.
We know about these things by experience, by study and research. What a world of confusion we would live in did we not know the true nature of the many things that go to make life not only easy and pleasant but actually livable and possible.
But when we come to the stock market we act like the foolish farmer or the stupid plumber. We wander in a maze of inaccurate information, silly superstition and baffling bewilderment that must be fundamentally wrong. Why else would we not accumulate more worthwhile information? Why else is there no progress in economic and financial comprehension? How else can you account for the perfectly wretched record of forecasting except on the grounds that the fundamental beliefs on which forecasting has been attempted have been wrong?
What is the true nature of the market? It is simply this. The stock market is a living thing, a vital entity, a living, pulsating, vibrant organism. It responds to the laws of growth, development and enfoldment as accurately, as faithfully, as certainly as any organic matter. The same principles that govern the growth of plants, trees, beasts and men rule the stock market. The same laws that govern growth, motion, electricity and musical sounds apply to the stock market and other phenomena rooted in mass attitudes and actions.
Well, suppose that is so. What does it mean? What does it signify?
In the first place, it means that we can abandon the never-ending, everlasting fruitless search for cause and effect relationships. It means that we need not look farther than the market itself for the answers to our investment problems.
Secondly, it means that we have at hand a large body of information, knowledge, principles and law that we can bring to bear on our problem. We do not have to start from scratch and slowly and painfully build up, assort, analyze, study and weigh our data and evidence. Motion is still motion whether it is in a planet, an electron, a train, the price of a stock or commodity, or the rise or fall of a public idea. Forces may be no more than mental concepts, but they are quite as useful, quite as measurable, qualitatively, quantitatively and directionally, in markets and other social phenomena as in the physical fields of light, heat, electricity and sound.
Thirdly, it means that the problem of the markets is primarily mathematical. This must be so for the principles that govern physical phenomena, the laws of motion and those of biology can be expressed mathematically.
It follows further from this premise that since the market is a living organism we, as men, individually or in groups, by government, for instance, can have as little effect upon the course of the market as we have upon any other natural phenomena. We can no more stop a bear market than we can prevent a snow storm. We can no better induce a bull market than we can the sunshine.
Required reading for all students of the market should be "The Elements of Dynamic Symmetry", by Jay Hambidge. Hamidge's interest was in art and in the orderly and correlating arrangement of the parts that go to make up a pleasing whole. Hambidge was searching for the secret to the exquisite beauty of Greek architecural, sculptural and other artistic forms, a secret that had defied solution these many centuries. He found it in dynamic symmetry, a symmetry of areas rather than of lines, a symmetry of motion rather than of rest.
He shows how fully conscious the Greeks must have been of the mathematical laws governing growth because their artisitic forms so accurately conformed to these laws.
Hambidge contrasts "static" with "dynamic" symmetry. Static symmetry is that simple symmetry which is relatively fixed. It is that arrangement of units of form about a center such as occurs in a snow crystal. It is also found in diatoms, radiolaria, flowers, and seed pods. Dynamic symmetry, in contrast, is that type of orderly arrangement of members of an organism found in shells, or the arrangement of leaves on a plant or in the structure of the human figure. It is a symmetry suggestive of life and movement.
The mathematical key to dynamic symmetry is found in a curve long known to mathematicians and variously called the "logarithmic spiral", the "geometrical spiral", the "proportional spiral" and the "equiangular spiral." This spiral contains an inherent law of proportion, namely, any three radii vectors, equiangular distance apart, bear the relationship that the middle one is a mean proportional to the other two. The curve may be expressed by the peculiar and unusual series of whole numbers 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.
This is a summation series, each term is composed of the sum of the two preceding terms. It is also a geometric progression; each term divided by the previous yields the same ratio. This is more readily apparent when the more exact numbers 118, 191, 309, 500, 809, 1,309, 2,118, 3,427, 5,545, 8,972, 14,517, etc., are used rather than the whole numbers.
This series exhibits a number of curious relationships. Any term divided by the previous term equals 1.618. Any term divided into a third term equals 2.618, the square of 1.618, into a forth term the cube of 1.618, etc. Powers of 1.618 divided by two produce the summation series. The square of 1.618 equals 1.618 plus 1 or 2.618. The quantity .618 plus .618 squared equals 1. There are many more.
Everyone knows that stock price movements tend to be symmetrical, recurrent and periodic, but the dynamic nature of time cycles and price ranges has not been generally appreciated. This summation series 1, 2, 3, 5, 8, 13, etc., explains away many apparent inconsistencies and otherwise baffling situations.
Observe how well the series hit many of the pivotal turning points in time when applied to the 1932 bottom: (D J ind 40.56)
No. of mos. from bottom
Dow-Jones ind. average (high or low for month)
Again, in the market since the March, 1937, top: (D J ind 195.59)
No. of mos. from top
Dow-Jones ind. average (high or low for month)
If you will count off this series by days, by weeks, or by months, starting with important tops or bottom, you will find it a valuable guide to probable turning dates.
Nature abounds in pleasing symmetry, in dynamic symmetry, the fluid symmetry of life and of motion, and we find it pleasing because we, ourselves, are in harmony with that symmetry. The same principles that govern the construction of shells, leaves, plants, trees, birds and animals have entered in to our own construction, have made our skeleton, muscles, flesh and form. We call those things beautiful that are made like ourselves. We call those artists great who can reproduce those natural forms of which we are a part.
Music is not noise when it conforms to the laws of proportion. We delight in and thrill to music for the same reason that truly natural forms appeal to our vision. The rythmic cadences and harmonious chords awake their sympathetic response in us because we, ourselves, are examples of the same scheme of architecture that built the musical composition.
But these same laws of proportion, these same principles of growth, this same scheme of architecture are all at work in the market.
We know how cell growth proceeds by halving and doubling. We know how the amoeba, a simple one cell organism splits in two, the two into four, the four into eight, etc. We know that in music octaves are obtained by doubling or halving vibrations per second. The same principle is at work in the market.
Observe how often stocks double in price or cut their price in two. Observe how often the Dow-Jones industrial average has doubled or halved its level. This average rose to 80, from 40, in 1932; to 110, from 50, in 1933, and from 95 in 1935 to 196 in 1937. The 1937 high was about half the 1929 high of 386 and the 1938 low of 97 was about half the 1937 high.
Observe the geometric series 3, 6, 12, 24, 48, 96, 192, 386 and see how well it marks off the movements of this average.
We have long heard of one-half and two-third reactions. Some claim the fraction should be five-eighths. The right figure is 61.8%, the primary relationship in the summation series 2, 3, 5, 8, etc.
Think of the market as an electrical current following the line of least resistance through a magnetic field created by points of energy generation spread regularly in the plane of time and price; each point sends out periodic waves as when pebbles are successfully thrown into water. Where the waves cross, symmetrical (static as well as dynamic) patterns are formed and the market flows in these patterns.
The result is the same as would be caused by a collection of pendulums swinging up and down along the price scale. The pendulums vary in amplitude (the distance traveled in one stroke), vary in period (the time required for a complete cycle) and vary in the angle at which they swing (not all swing perpendicular to a horizontal price line - that is, why the market comes down faster than it goes up).
This may sound pretty complicated but you will find the concept relatively simple and thoroughly practicable once you put it to use.
It becomes readily apparent why the "technicians", those who use charts and market behavior as a basis for their forecasts, have the edge on those who use more "fundamental" factors and reasoning. It is because the market lives, because life is a machine, and because life processes are mechanistic that recurrent, periodic, and symmetrical patterns are so evident in market behavior.
Dow did a wonderful piece of pioneer work in developing his theory; his disciple Hamilton made valuable contributions as have such men as Rhea and Collins, but we can take the further step or utilizing this dynamic concept of the market and thereby secure greater accuracy of time and level in our forecasting and project our forecasts over much longer periods.
A forecast (based on these principles), submitted to Barron's in June, 1935, and published in that magazine in the issue of April the 12th 1937, needs no apology. The forecast was for:
A bull market (began March, 1935) into October, 1936.
A minor bear swing into October, 1937.
A period of improvement reaching boom proportions in 1939 or 1940.
A panic and depression culminating in 1943.
This forecast has worked reasonably well to date, but now requires some modification, as appears in this conclusion.
The same article mentioned the natural division of economic history into time periods of around 34 months and traced the periods from August, 1921 into July, 1932. Bringing this up to date we have:
September, 1929-July, 1932, 34 months -- Steady liquidation and deflation. (Sowing the seeds for the New Deal).
July, 1932-May, 1935, 34 months -- Timid capital, lack of confidence, vacillating markets. (A period of adjustment to the New Deal).
May, 1935-March, 1938, 34 months -- The Roosevelt recovery and collapse.
March, 1938-January, 1941, 34 months -- Another period of timid capital, lack of confidence and subdued markets.
This is not a new bear market. Rather have we been seeing the winding up of the period of preparation prior to a new bull market. The Dow-Jones industrial-share level called for on the initial rise (not far off) is 165. After a sizable reaction the market should then begin its real climb up to the 300 level.
But what about the war? How about the defense effort, the billions to be spent, the heavy taxes? Suppose Britain is overcome. What then? Can stocks sell higher with such great uncertainties hanging over them?
I suppose the vast majority of investors will choose to continue a process self-torture with that kind of thinking. Maybe Schopenhauer was right in saying, "Every man takes the limits of his own field of vision for the limits of the world."
As for me, I will take my chances with the pendulums of dynamic symmetry.
BARRON'S: The National Financial Weekly, April 12, 1937
A most important investment principle is that cash (or its equivalent) is sometimes a more attractive holding than stocks.
By this time the prudent investor should have shifted from volatile stocks to stable investments (good grade preferreds) to be prepared to re-enter the speculative markets later this year, probably some time between July and October.
Reasons are lacking for changing the broad financial outlook outlined in June, 1935. These called for:
A bull market (began March, 1935) into October, 1936;
A minor bear swing into October, 1937;
A period of improvement reaching boom proportions in 1939 or 1940;
A panic and depression culminating in 1943.
For five months now we have witnessed the procession of tops in individual stocks and groups so characteristic of the distributive process. Many of the leaders of the 1935-36 bull swing reached their peak last November, but the market was given an appearance of strength during the winter months by rotation of activity in such groups as the coppers, steels and rails - typical tail-enders.
The June, 1935, forecast stated, "The well-advised investor, who held the best stocks from July, 1932, into February, 1931, then shifted into bonds, should by now have shifted into second-grade stocks to hold into the fall of 1936. If the foregoing schedule works out, he should then shift to more stable investment for a period of seven months to a year, and then be prepared to shift to thoroughly speculative issues."
Seven months from November, 1936, would be June, 1937, twelve months November, 1937. A buying opportunity some time between June and November appears a reasonable expectation. Duration of the recession will, of course, depend on the rate of decline. A recession to around the 160 level appears not-unreasonable expectation in view of the 100-point advance since early 1935.
Manifestly the best time for making selections for the next bull swing will be after the market has experienced the major portion of its recession, but it is perhaps not too early to consider likely candidates for purchase.
The next bull market, to begin later this year, should be fully as profitable as the two already witnessed in this recovery cycle (July, 1932-February, 1934 and March, 1935-November 1936) but proper selections will be highly necessary for profitable results. The search for likely issues should be among the more speculative shares, especially among those representative of companies in industries which for one reason or another have not yet joined the prosperity procession.
Average appreciation April 7, 1937, 142%.
Average appreciation Oct. 17, 1936, 154%
October prices are given because Mr. Beers in 1935 stated that the stocks he then recommended should be held only until October, 1936.
Four suitable candidates are the following:
Electric Bond & Share
U. S. Industrial Alcohol
Each of these companies is the dominant enterprise in its industry. Electric Bond and Share is the outstanding holding (and investing) company in the utility field; Southern Pacific, measured by first track mileage, the largest transportation system in the country; United Aircraft is one of the world's largest aircraft manufacturers; U. S. Industrial Alcohol is the dominant domestic alcohol producer.
These companies have thus far failed to participate in any large way in reviving prosperity, largely because of forces without the control of management, Electric Bond and Share because of political pressure, Southern Pacific because of difficulties common to the railroad industry; United Aircraft because of the infancy of the industry; U. S. Industrial Alcohol because of industry readjustments brought about by prohibition repeal and subsequent competition. These restrictions promise to dissolve in more or less degree over the next several years.
These four stocks well qualify under the 11 "stockholder demands" outlined in the June, 1935, article. All of the companies are in good financial position; all are reasonably well seasoned; number of shares outstanding is in each case reasonable. (Electric Bond and Share with 5,270,000 shares is slightly over the 5,000,000-share maximum.) Each of the stocks has some kind of leverage; none of the companies faces prospects of labor or raw-material difficulties. Consumer resistance to high prices is not a factor in the outlook.
All the stocks are medium-priced. (Southern Pacific is the only one above the 50 maximum.) Earnings in each case have been nominal in recent years. (Southern Pacific, which earned $3.84 last year, is an exception, but this stock, because of the territory served by the road, the substantial capital ahead of the common, and the company's wide interest in lumber, land, coal, steamship, oil, traction, mining and power companies, could show substantially higher earnings over the next several years.) None of the shares pays a dividend except United Aircraft (50 cents last year). All the companies possess good management.
These shares sold several times their recent prices in 1929. Electric Bond and Share sold for the equivalent of 567, Southern Pacific at 1571/2, U. S. Industrial Alcohol at 2436/8 and, although comparable figures are not available for the present United Aircraft stock, the parent-company shares, the old United Aircraft, sold as high as 162.
Seldom is a stock worth buying for an extended swing unless it shows prospects of doubling in value. Each of these stocks could easily double or better over the next several years; their average performance should compare favorably with that of the Dow-Jones averages.
In his earlier article Mr. Beers explains his market philosophy from which the forecast, repeated in the foregoing article, was developed, and enumerates the qualifications he requires of specific securities.
Throughout creation, there are eternal, everlasting laws of mathematical sequence.
Every created thing carries its own mathematics along with it. In other words, all things respond to the laws of their species. The stock market moves in accordance with its own set of laws: business activity responds to its set of laws; credit conditions are governed by their own laws; electrons, atoms, molecules, individuals, families, nations, the world, the solar system, the universe, all are and move because of perfectly definite, in many cases mathematically demonstrable laws.
All motion is the result of force.
The stock market is the resultant of many forces, but there are three dominant: A constant push downward (gravitational), a steady push to the right (time) and a variable force upward (manifestation of the will to buy - psychological). Since the first is a constant the laws governing the second and third forces will suffice - laws of time and laws of mass psychology.
This is logical, too, because these are the two most inflexible and nearly fixed immutable factors entering into any and all economic situations. Men are today dominated in their business actions by the primary emotions of greed and fear just as they have been for many thousands of years (psychology), and a year is only a few seconds different today than it was several thousand years ago (time).
It is vital that the investor have as a foundation a philosophy of investment that will be truly fundamental to his operations, that will not have to be modified with every superficial change in the political, financial and business situation, that will not have to be changed for inflations, wars, earthquakes or dust storms.
Space does not permit of expounding stock-market laws at length, but here are a few:
Law of Post-war Sequences: Developed and expounded by Colonel Ayres, the Law of Postawar Sequences has no exception in modern times. The sequence is a war boom, a sharp, short primary postwar deflation, a long period of reconstruction and urban prosperity, a severe and enduring secondary post-war deflation, a long period of prosperity. Commodity prices attained peak levels of war inflation in 1815, 1864 and 1920. The foregoing sequence was carried out in every case. In 1830, or 15 years after the peak inflation of that time, the nation emerged from the severe and prolonged secondary post-war depression. In 1879, or 15 years after the peak inflation, the nation emerged from the secondary postwar deflation. Fifteen years after the 1920 inflation is the year 1935. The law involves time and mass psychology.
Rule of 7-8 Year Cycles: There is a regular seven to eight year cycle in business and market activity. This is not a law because it cannot be phrased as to eliminate variations. It is a fact though that British business for the past 240 years shows average cycles from top to top and bottom to bottom of eight years. It was seven years from the bottom of 1896 to the panic of 1903; seven years from the panic of 1907 to the panic of 1914; seven years from 1914 to the panic of 1921, eight years to the peak of 1929; seven years from 1929 suggests 1936 as an intermediate peak; seven or eight years from 1932 suggests 1939 or 1940 as the peak of the current inflation.
Law of Three Times and Out: It is a psychologial law that human nature in mass makes three efforts, can stand only three failures. Result in market is three approaches to top - three approaches to bottom. Three declines remove the timid and fearful, leaving only courageous holders - no one is left to sell. Conversely, three rises use up all the hopeful capital. No buyers are left. In the anticipated rises from 1932 to 1939-40 expect three rises: 1932-1934; 1935-1936; 1937-1939 or 1940.
Law of 30-35 Months: Economic history divides into 30 to 35 month chunks of time. It appears to require two and one-half years to three years for a group of people to become accustomed to a change. No exceptions back to 1860. Recent divisions were:
August, 1921~July, 1924: 35-months. A period of hesitant, rising and declining markets, timid capital, political uncertainty at home and abroad.
July, 1924-March, 1927: 32-months. Return of confidence, rapid expansion of business, universal prosperity and rising markets.
March, 1927-September, 1929: 30-months. Rapidly rising markets, credit inflation resulting from easy money situation created by the Federal Reserve Board in its efforts to return Europe to the gold standard.
September, 1929-July, 1932: 34 months. Steady liquidation and deflation.
Thirty months from July, 1932, was January, 1935; and 35 months June 1935. The past three years have been characterized by timid capital, lack of confidence, vacillating markets. A change was to be expected in the period January-June, 1935. The market turned in March, 1935. The background changed in May with the Supreme Court decisions. Expect two and one-half to three years expanding business, increasing prosperity, higher markets.
Several dozen laws of measurement of time and psychology as they apply to the stock market are in back of the forecast at the beginning of this article. Application of the laws as we move into 1939-40 may justify minor changes in expectations, but the odds, mathematically calculated, are heavily in favor of the forecast.
The stock buyer becomes a partner in the enterprise into which he buys. What should he demand of this partnership?
Strong financial position.
A seasoned company.
A reasonable number of shares outstanding. (under 5,000,000).
Prior capital (leverage).
No potential labor difficulties.
No raw-material problems.
No consumer resistance to a high-priced product;
A reasonable price (50 or under),
A favorable outlook for the industry beware of companies with several years of profit behind the,.
A low or no dividend.
Speculation - Members on the New York Stock Exchange during the week of March 13 traded 6,874,405 shares for their own account, or 21.25% of total Exchange transactions, becoming to compilations of the SEC. In week of March 6 members traded 7,066,373 shares for their own account, or 21.39%, against 19.70% in the previous week.
Edson Gould's Letter to Muriel Hasbrouck
Nuveen Corporation, January 30, 1969 Mrs. Muriel Hasbrouck 319 East 50th Street New York, New York
Herewith the chart I spoke to you about, with the circles and ovals drawn in.
There are no dates on the chart, but it covers the DJIA from last September to today. The October-November decline from 974.27 to 936.54 exactly followed one of your lines. Also, the subsequent rise, also the January decline.
Note the equilateral triangles. As you know, 120° angles subtend 60° arcs. There are apparently large and small ones - all significant. I can't wait for the time to carry this on back, but with this very brief examination I am certain you have something here.
With kind regards and my best to Louis.
Sincerely, Edson Gould Vice President
Edson Gould's Letter to J.J. Dreyfus
October 13, 1967
Mr J. J. Dreyfus, Jr. Chairman of the Board The Dreyfus Corporation 2 Broadway New York, New York 10004
Dear Mr. Dreyfus:
Albert Rosenfelds' article in the September 29, 1967 issue of Life about you and your experience with and research into DPH fascinated me - especially your basic theory regarding electrically motivated causes of conditions which DHP has in so many cases cured.
For years my research in the stock market and related economic and monetary affairs has been predicated on the premise that the dominant variable is investor and public psychology. I have many times stated that more than 60% of the cyclical changes in stock prices are so caused.
Since my early training was in engineering, incidentally Lehigh, I early recognized that the patterns of changes in mass psychology were similar to those that occur in an electro-magnetic field. I hypothesized that these changes in psychology must be due to changes in an encompassing electro-magnetic field that induce sometimes worry and fear - sometimes hope, confidence and enthusiasm. These I have shown graphically on the Wiesenberger Senti-Meter with which you may be familiar.
I attempted at first to go back to "first causes" to obtain some measurement of change in this ' magnetic field, but very early found out that, at least for my purposes it was not necessary, that by applying the principles and mathematics of electricity and magnetism directly to the market yielded sufficiently good results to provide an above-average performance.
Enclosed is a current copy of FINDINGS & FORECASTS. On page 4 is a chart of the Dow-Jones industrial average with various lines. These lines are simple applications of several of the more elementary principles. Incidentally, your firm was our first subscriber to FINDINGS & FORECASTS about four years ago, for which I will always be grateful.
Subsequently, the service has grown quite satisfactorily.
But that is not my purpose in writing. I have two long time friends, Muriel and Louis Hasbrouck, who for years have conducting research in the causation of economic and financial changes. Their thesis is the same as mine that changes in attitudes, beliefs and feelings on the part of the mass that make for the changes in economic, monetary and financial affairs have their basis in the changes in the field of the great reservoir of energy that fills and charges the space between the sun and the earth field.
These they have measured and their results have been most impressive. I have followed them over a period of years. Naturally, any concept as novel and unorthodox as this is to most people meets with much resistance. Despite the quality of their work, it has not achieved the recognition it deserves.
I know you must be a very busy person. Nevertheless, if you could spare a few minutes to talk with them, I think it would be to your mutual advantage. If you agree, just let me know and I will set up an appointment.
Edson Gould Vice President
Psychology As A Major Stock Market Factor
Psychology As A Major Stock Market Factor
Thank you Humphrey - Ladies and Gentlemen:
It's a very real pleasure to be with you this weekend in this beautiful countryside and to see again so many old friends and to meet so many new ones. It is an especial pleasure to become personally acquainted with Humphrey Neill. Humphrey and I have corresponded for years and talked over the telephone, but this is the first time our paths have crossed.
I consider Humphrey one of the profound thinkers of our time and one who has contributed greatly, not only to the financial community, but to every thinking person who employs his Theory of Contrary Opinion to solve whatever problems he may have.
Jim has asked me to say a few words about Emotions and The Stock Market. I'll endeavour to do so.
Fundamental and Psychological Factors
More than a few years ago, when I came to Wall Street, the emphasis of security analysts and market analysts was primarily on fundaments - economic conditions and monetary factors. Accordingly, I devised and constructed a number of index numbers and barometers designed to permit concurrent analysis of the economic and monetary situation and permit their projection into the future. And they worked pretty well.
It did not take me long, however, to discover that even if one knew precisely what the economy was going to do, what the FRB index would do, what corporate profits would be, and where the level of interest rules and capital rates might be, one's batting average so far as obtaining the correct stock market answers was concerned was well below par. As a matter of fact the score was about 40%.
There had to be "something else" that was primarily responsible for making individual stocks, groups, and the market as a whole, move up and down in their cyclical movements. I hypothesized that, that could be the mass psychology of investors - the sum of all the hopes and fears, feeling and sentiments of investors that make the market.
In an effort to eliminate the economic and monetary factors and isolate the psychological factors that make the stock market I constructed many years ago what I call the Senti-Meter. It is simply the quotient obtained by dividing stock prices by dividends. I researched it by months back to 1871 and found out that the Senti-Meter, the marketprice of $1 of dividends, oscillated in a relatively well defined band.
At highs in the market when investors were confident to enthusiastic, the Senti-Meter, (the market price of $1 of dividends), rose above $30. At lows in the market, when sentiment was depressed and investors were worried or fearful it dropped to $15 or below.
It was not difficult to set up a kind of thermometer of investor sentiment based upon this market price of $1 of dividends. We print periodically the current Senti-Meter and its monthly record going back to 1900, which we call the Senti-Graph. Copies of our recent issue are available on the table at the rear.
Here's what it looks like. Up here at the right is the Senti-Meter, and here's the scale of investor emotion, in terms of the market price of $1 of dividends. A figure of $33 indicates Enthusiasm. One of $25, Confidence; $20 is Hope, $17, Caution; $14, Worry; $12 Fear; and $10 Panic.
The History of Stock Market Psychology
There have been nine times since the turn of the century that the market price of $1 of dividends has swung from roughly $15 to above $30. To be sure, while the investor's capitalization of dividends has alternately doubled and halved, the payouts themselves have expanded and shrunk. It is the product of these two factors that produces the wide swings in stock prices.
A peak in the index occurred in 1901, when investor enthusiam pushed the market price of $1 of dividends to $32.79. This, of course, was close to the top of the great bull market that began in 1896. It also coincided with our return to the gold standard under McKinley and the beginning of what was to be a generation-long era of corporate and financial prosperity.
This was followed by the "rich man's panic" of 1903, and that, in turn, by a great bull market into 1906. Then came the monetary panic of 1907 and a bear market into 1908. Sentiment was depressed for the next several years, as reforms instituted under Theodore Roosevelt became effective. The coming of World War 1, in 1914, set the stage for the return of high profits to U.S. industry and the bull market of 1915-16.
With our entry into the war in April 1917, sentiment plunged - and the market price of $1 of dividends with it - to an all-time low in November of that year. It was not until late 1928 that the figure rose above $30 to a new peak of $33.67. The subsequent panic and world depression drove it back to $10.02, close to the all-time 1917 low.
For the next 20 years - first under the Roosevelt New Deal, then the Truman Fair Deal - the index swung in wide arcs, from below $15 to above $30. Not until the election of Dwight D. Eisenhower in 1952 did investor confidence begin to move up in any sustained fashion.
Now - and most of the time for the past seven years - the market price of $1 of dividends has been above the $30 level. This Senti-Meter is no short cut to successful investing. It's not a forecasting device. But it does illuminate graphically and statistically a too-often-neglected dimension of the stock market.
After one has done one's homework on the economic and monetary factors, there still remains the problem of the capitalization ratio the market will accord earnings and dividends. And the psychological factors are often far more important, so far as the stock market is concerned, than the fundamental factors of business activity, money rates, earnings and dividends.
Practical Application of the Senti-Meter
Back in 1946, after the war had ended, Wall Street was generally bullish. Analysts were busy figuring how much General Motors, U. S. Steel and other leading corporations would earn and came up with very gratifying numbers. These estimates proved correct. From 1946 to 1949 earnings and dividends increased by 50%. But what did the stock market do? It went down by 25%! Confidence waned. The Senti-Meter declined from above $30 to below $15.
In early 1953, soon after Dwight Eisenhower look office, we published a piece called "Eisenhower as a Market Influence." The Dow-Jones industrial average was around 260. We projected level above 500. In 1956, the Dow went to 525.
In early 1963, when many investors were still shaken by the 1962 decline, we published a piece called "The Next 400 Points" and projected a 50% rise in stock prices into 1966. The Dow was around 640 at the time. It moved slightly above 1000 in '66.
I mention these cases simply as instances of the truly practical value of this psychological approach to the market, of how it, combined with fundamental analysis, can help get right answers.
As you can readily see, this concept fits Humphrey Neill's Theory of Contrary Opinion like a glove. For the time to be worried and fearful of the market is when the mass of investors are confident to enthusiastic. And the time to be confident and enthusiastic is when the mass of investors are worried or fearful. The Theory and Hypothesis
There's nothing particularly new about the idea, the concept, the premise, that mass psychology is a dominant influence affecting economic and financial changes. Many years ago
Jevons, an economist, correlated changes in cotton prices with sun spot activity and theorized that sun spot activity affected emotions and therefore cotton prices. My friend Edgar Lawrence Smith, author of Common Stocks As Long Term Investments in 1924, and at the time heralded as the prophet of the new era, postulated that environmental changes in the atmosphere affected emotions and sentiment and therefore caused changes in stock prices. My friends the Hasbroucks, Muriel and Louis, authors of Space-Time Forecasting agree regarding the importance of mass psychology, but go a step further by connecting and correlating changes in mass psychology and market action with variations in the electromagnetic field of the earth and sun which can be timed in advance.
Smith had an excellent record as far as his forecasting efforts were concerned. He called the top in '29, the top in '37 and the top in '46; The Hasbroucks have been right on every major turning point for the last 10 years.
I personally do not attempt to go back to first causes. After all one never can. But if one believes as I do that variations in mass psychology are a dominant factor affecting stock prices, then one can measure concurrently the level of investor sentiment and project what it may be in the future.
After all, no one knows precisely what electricity is, but a whole important body of theory has been built around electric and magnetic phenomena, and considerable progress has resulted therefrom. If one accepts the hypothesis, the premise, that mass psychology is a dominant influence affecting stock prices, then one can proceed to implement the theory in many pertinent and thoroughly practical ways. I'll cite a few specific instances of various principles I use in my approach to the stock market.
It is for instance a well known fact of psychology, especially mass psychology, that three efforts usually complete a move. The typical salesman rings three door bells and is turned down and then he goes to the movies. The typical fighter has three knock-downs and he stays down. If the salesman makes the fourth call or the fighter gets up after the third knock down they stand a good chance of becoming sales manager or champion.
So with the market. Typically in large and small form the market displays three efforts upward and downward. The great market of the '20's had three steps upward. So did the bigger bull market of 1942 to 1966.
The bear market of 1929 to 1932 was a double header. It comprised a domestic bear market into 1931, with three steps downward, when the Dow came from 386 to 120, one-third of its high. It was followed by another bear market, an international bear market following the devaluation of the British pound in September 1931, when the Dow in ten months again went to a third of its 1931 level to 40. The ensuing bull market also comprised three steps.
This is true of the market in large and small form, not only by years but by months, by weeks, by days and by hours. Occasionally one gets a fourth step, almost never more. The usual number is three. This is, of course, in accordance with Elliot's Wave principle of five waves comprising a move - three in the direction of a move and two countertrend.
Naturally the three steps are much more clearly recognizable after the fact than while they are occurring. But they are frequently concurrently discernible. With the Dow Jones Average at the present time a step in an intermediate move is usually one of 25 points or more.
The Unit Principle
Another principle based upon the concept of mass psychology is that which I call ''units.'' A bull unit for an average or a stock is formed when after a major bottom an initial rise occurs followed by a decline usually more than halfway back to the bottom and usually with the decline proceeding at a lower rate than the preceding advance. The decline in turn is followed by a rise to a high above the unit high. The unit comprises the difference between the bottom and the top of the initial rise.
The same is true of declining markets - an initial decline and a partway recovery and a projection below the initial bottom. Usually units are carried out four times, but in major long moves and in the case of highly volatile stocks there are often more than four units.
An outstanding example of the unit principle was the unit formed from the bottom in the Dow of 92.69 on April 28, 1942 and the subsequent rise over the next year to 146 and a fraction. This etched a unit of 54 points.
The Dow rose precisely eight units to 524 and a fraction high in 1956, 432 points. The subsequent decline was exactly two units, 108 points, to the 1957 bottom of 416. Then the Dow rose precisely twelve units above the 1942 bottom to a 1961 high of 741.30, 648 points, and then broke exactly four units, 216 points to 525 in June 1962.
In our work we rely importantly upon fundamental analysis and projection of economic and industry trends for our security selections. But we have found this unit principle truly invaluable in telling us when to step off. In these modern markets when stocks go to 30, 40, 50, 60, or more times earnings before reaching their highs there is really very little that fundamental analysis can do to tell you when the stock may be hitting its top. But by using these unit principles we have often been able to approximate the tops of high flying stocks within a point or two.
One-third Speed Resistance Lines
Another principle we have found practical and rewarding is what I call one-third speed resistance lines. In a mathematical sense I conceive of mass psychology in the market as an area, a rectangle, bounded by price change vertically and elapsed time horizontally. Its the area of the rectangle that counts. Thus, a fast price change in short time can demonstrate the same change in psychology that a slight price change over a longer time can demonstrate. We are, of course, dealing with forces and as we know from elementary physics, it is the diagonal of a combination of forces that measures their effect.
Thus, the diagonal represented by the line drawn from a bottom to a subsequent top measures that force, upward or downward as the case may be. Now draw a line in the case of a rising market, coming from the bottom at one-third the rate of advance from the bottom to the top.
A strong and rising market in a stock or an average will come down often precisely to that one-third line and then reverse and move back up to make a new high. If it goes through the line the chances are it will go to a new low.
Similarly in a declining market. Draw a line from the top at one-third the rate of decline from the top to the bottom and when the price of the stock or the average rallies back up to that one-third line, it will either turn around and go down, or go through.
It is by no means an infallible principle, but it works most of the time and it is particularly valuable when rearranging a portfolio and judging the relative strength of individual stocks on the declines from intermediate term rises.
There are many more principlcs and many index numbers and barometers based upon this concept that the emotions of investors and mass psychology are a dominant factor affecting the cyclical motion of stock prices, but time does not permit describing more now.
We do discuss them and explain them in our Service FINDINGS & FORECASTS, recent copies of which are also available on the table in the rear.
The Market Now
And now for the $64 question.
If I don't tell you now I know someone will ask, so I'll tell you now. What do I think of the market. I'll tell you. My view of the market has not changed for the past three years. I believed at the time and I believe now that the great bull market that started in April 1942 at 92.69 on the Dow, ended in February 1966 at 1001.11.
My reasons were partly psychological and partly monetary. In our opinion, the monetary situation which had been bullish for so many years had turned bearish. It's been bearish ever since. And our Senti-Meter in 1966 had gotten up above $34 for $1 of dividends.
So we took a cautious, not bearish, a cautiously conservative attitude. And ever since then, in the accounts that we manage, we have maintained balanced portfolios with about a third in inflation-deflation stocks - gold, silver, uranium, oil and real estate shares. One-third in selected common stocks representing companies with superior managements and well-above-average growth rates, generally in service and technologically oriented industries. And one-third in cash and equivalents.
These percentages have been varied by between 5% and 10% as the market has made intermediate tops or bottoms and, of course, continual changes are made in the portfolios. But that is the policy we have followed and we are still following the same policy.
We stated back in early 1966 that what we would probably see would be wide swinging markets, and that we have. I think we will continue to see them. It does not follow that a bull market must be followed by a bear market, at least not immediately. At no time since the top in early 1966 has the market acted like a bear market - that kind of a market in which investors jettison shares regardless of price, when your customers call you up before the opening and say "Get me out." It was not true in the declines of 1966 or 1967. It may come eventually, but I don't think it's upon us.
I discount the possibility of a prolonged sustained bull market from these levels. Manifestly, if we spin into a French or German or Brazilian type of inflation the DJIA could go to two thousand or more. I cannot believe that any administration or the monetary authorities could be so completely irresponsible.
At the same time, as long as the Fed continues to pump money into the economy, consumers will continue to buy, the insatiable demand for funds will be met, and business activity will be maintained.
A Time of Change
We are living through a time of great change - perhaps the greatest of all history. Populations are exploding, technological progress is proceeding at a geometric rate, and the nation and the world is rife with revolution. Not evolution - revolution-social, cultural, racial, educational, political and financial.
History has a way of breaking up into generations, about a third of a century.
There was the last third of the 19th century, from the Civil War onward. It was a time of soft money, recurrent money panics, a time when the robber barons were pushing the railroads west to lay the foundations of a great nation.
It terminated around the turn of the century when the nation went back On gold. Came the corporate era of the bankers. It lasted into 1929. Then came the greatest growth in the economy and the greatest period of prosperity ever hitherto seen. It collapsed in the stock market crash of 1929 and was buried in the panic of 1932.
Come the election of F.D.R. and the switch to a socialistic concept of government functions based upon Keynesian principles that has persisted since.
The significant point of the last generation is that the Keynsian principles, no matter what you may think of them, were used to serve political rather than economic aims. And they have failed. Certainly in an economic sense - possibly in a political sense. We soon will know.
Now something new will evolve. Just what form it will take can scarcely be known - but surely change, and great changes will come.
But change is what makes opportunities and creates risks. The greater the changes, the greater the opportunities and the greater the risks, and we are living through a time of great change.
Thus, the future is not to be deplored or feared, but to be welcomed, because of the opportunities it will create, especially investment opportunities.
The Near Term Outlook
So far as the near term outlook for the market is concerned, I personally have no specific projections. I often do, but I don't have any at the moment. Confidence has been rising in recent weeks and our Senti-Meter is around $31 per $1 of dividends. It could, depending on news and developments rise again to the $33 level of Enthusiasm which would take the Dow up another 60 points giving us a new high above one thousand.
It could quite as easily move back to the Confidence level of $25 where it got at the bottoms of 1966 and 1967. This would bring a decline of 180 points. Those are not good odds for the bull - one out of three.
According to my calculations this market is overbought and has been for the last several weeks. Therefore, I look for a reaction of 100 points or more over the next six or seven weeks, say into late-November or December.
Thereafter, I look for the usual year-end rise. It could carry into February. And then a decline which could prove more serious than what I think faces us now, into the second quarter of 1969.
That is the basis and hypothesis on which we are proceeding in the writing of our services and the management of our accounts.
Thank you again.
A Birthday Sonnet for Edson Gould
February 4th, 1969
If you have any doubts about your worth, Turn to PURSUIT (my book) page forty-two; There you will find the picture, clear and true, Of golden gifts you gathered at your birth. Those who succeed, kings, who can rule the earth, Great artists, thinkers, all the long list through, Chose, for their entry into human view, This area of magnetospheric girth: The space-time period that, in every year, Is charged with beauty, dignity, and skill, Making for happiness, defying fear, Lifting the torch of magic, power, and Will. So happy birthday, Edson -- our good friend -- May your good luck and wisdom never end!
M.B.H. and L.H.
Invoice to Nuveen Corporation for Edson Gould Forecast IV
Nuveen Corporation 61 Broadway New York, N.Y. 10006
(Attention Mr. Edson Gould)
In the amount of $300, being advanced payment for FORECAST IV (October 1, 1968 to September 30, 1969 with supplementary Letters and Bulletins)
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