THE SEVEN ZONES OF ACTIVITY After Baldwin reached the low level of 62 3/8 in June, 1921, notice it began to rally on small volume, which showed that there was not much stock for sale and that it did not require heavy buying to put it up. The supply of stock in the hands of the public having passed into strong hands, it was easy to start the advance in this stock which continued until it reached 142 in October, 1922, where distribution again took place. This is how volume shows you when accumulation or distribution is taking place. The stock market can be divided into seven Zones which determine the different stages of activity. There are three Zones above normal and three below. The Normal Zone represents something near actual intrinsic value, as far as human judgment can be depended upon and as far as the ticker tape can analyze it from supply and demand. The line marked "normal" we consider as a place where buying and selling is about equal and fluctuations are very narrow, there being no incentive or reason apparent for any wild speculation up or down. Either accumulation or distribution may take place around the Normal Zone. Investment stocks or gilt-edge bonds may start downward from this zone, while speculative issues, which have prospects or exaggerated hopes of big earnings, may start up from this zone. The First Zone above Normal marks the period of quiet advancing prices which attracts very little attention. This zone may last one month, three months, six months or a year, according to the cycle the market is passing through in general conditions, because from Normal to the Third Zone at one time may be reached in twelve months and at another time may not be reached for five or ten years, viewing the market from a long swing standpoint. The Second Zone above Normal marks a period of greater activity when pools begin marking up stocks. You will hear reports of better business and the public will become interested in the market and buy on a small scale, but most people will wait for a reaction back to Zone I to buy. Of course, this reaction seldom ever comes. The Third Zone or highest above Normal marks a period of distribution. In this zone great activity takes place and extremely wide fluctuations. Stocks are very feverish; the public buy madly; reports of big earnings come in; dividends are increased and stock dividends declared. Everything is optimistic. Prominent men talk of the greatest prosperity ever known. Weeks and months go by and stocks continue to advance. Reactions are very small. People who wait for reactions become discouraged and buy at the market at any price. You hear of fortunes being made by the office boys, the bootblack, bookkeepers, stenographers. Everybody is rolling in wealth and all of them are dreaming of fortunes yet to be made. Most of the fortunes that they are counting on, of course, is paper profits. They have not yet cashed in, and not 10 per cent of them ever do cash in at this stage of the game. They get too full of hope to sell. This stage of the market occurred from August until the end of October, 1919. Many of my readers know what happened to them. stock photograpy ~ day trading |