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Dr. Alex Castaldo

Review: W. G. Bretz: Juncture Recognition in the Stock Market (Vantage Press, 1972)

I looked at this book after it was favorably mentioned by Mr. Argyle. I hoped to find some new ideas; I found instead that it is the traditional technical analysis that was largely discredited in the 1960s by academicians like Roberts and is criticized in PracSpec for its lack of clear definitions and tendency to circular reasoning. On the one hand we are told that prices have been moving up recently because we have been in a bull market, on the other hand that as long as prices keep moving up the bull market continues. It is true enough, but non predictive, non falsifiable and not very useful. The title of this post (quoted from page 134) is another example of this kind of intelligent sounding but scientifically empty statement.

A brief summary of the book:

Page 50. The history of the United States since the 1920s shows that whenever the yield on the DJIA moves past the 3.5% mark and into the 3% area, it is a danger signal which should always set the investor double checking other information to see what else might be wrong. It also appears that a yield on the DJIA in excess of 6.5% represents bargain prices for the long term investor. Such a yield is not likely to be seen again, however, until inflation is completely stopped .

Page 51-80 The author, apparently inspired by Milton Friedman but never mentioning his name, presents a variety of money supply statistics and tries to relate them to the stock market. I found the idea interesting, although some of the indicators (like the ratio of time deposits to demand deposits or the ratio of money supply to U.S. gold holdings) seem quaint and probably no longer meaningful. Main conclusion: p67: When the rate of money expansion (demand deposits plus currency) is falling sharply, caution is advisable .

Throughout the book, the author presents charts of the Dow Jones average at the top of the page and a chosen indicator at the bottom. He then discusses the relationship between the two. Perhaps because I haven t looked at the charts long enough (or because the author has looked at them too long) I don t always see the same wonderful predictions that the author sees.

p119 Recommend looking at the crossover of 10 week and 30 week moving averages of the DJIA.

p137 What Mr. Argyle likes: industry groups. Measure how broad a group of industries is participating in a market movement, because a strong market must be characterized by a preponderance of industry groups moving upwards. As long as there is a rotation of interest which propels a majority of industries to increasingly higher prices the bull market is sound . The index is calculated by counting the number of industries that advanced during the week and adding it to a previous total; the number of industries that declined in the week s trading are subtracted from that total. It is the trend of this indicator that is important; during bull markets draw trendlines along the series of bottoms formed by the index, and become very wary when the trend breaks .

P149. General Motors is more important than any other common stock .

P239. Another highlight of the book according to Mr. Argyle: how to identify trends. Basically it is what some other books call a Channel: you draw a straight line above the DJIA chart and another parallel straight line below. The two lines hugging the index on either side. As long as the index stays in this channel we can say that the trend is continuing, if it goes outside we can say that the trend has been broken. Saying these things sounds very intelligent but it does not seem very useful to me.

In conclusion I am embarrassed about this book, I really am. When I put it back on the shelf I am going to put it in backward so the spine doesn't show and when my co-workers walk by they cannot see that I have such a stupid book.



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