A w cohen three point reversal method of point figure stock market trading

In this example, the buy signal took place at a higherlevel than in the two previous ones, although all three chart patterns started with a... THE BEARISH SIGNAL FORMATIONThe Bearish Sig

Sfock Market Trading

B Y A W G O H E ] I

PUBL'ST]ED AV}

FOR SALE & EXCHANGE

HOW TO USE THE

Three-Point Reversal Method of

Sfock Market Trading

B Y A W C O H E ] I

Copydght - 1968, 1978, 1982, & 19&4 by Chartcraft, [nc.nrUtisnea by Chartcraft, Inc., Larchmont, NY

Library of Congress Catalogue Number: 68-54093

EIGHTH REVISED EDITION

The material contained herein is not to be taken as advice to buy or sell specific securities The information presented is based on sources weUltieve to be reliable and has been carefully checked for completeness andaccuracy, but cannot be guaranteed.

Section One - The Poj.nt & Figure Chart and Construction n

B

1 1L2

The Point & Figure Chart

C h a r t i n g A Very Low-Priced Stock

The Double Top & Double Bottom Formation (# 1)

The Double Top & Double Bottom Formation (#2)

The Bullish Signal Formation

The Bearish Signal Formation 2 2

2 4

T h e B u l l i s h & Bearish Symmetrical TriangLes

The Triple Top Formation 2 6

Variations On The Triple Top & Triple Bottom Formations .

The Broadening Formation

T h e S p r e a d Triple Top & Bottom Formations

B u l l i s h & Bearish Cataputt Formations

The Bearish & Bullish Signal Reversed F'ormations

3 6

3 B40

S e c t i o n Three - Trend Lines

The Bullish Support Line 4 34 4

The Horizontal & Vertical Count

Section Five - Relative Strength

Section Six - Industry Groups

S e c t i o n Seven - The Dow-Jones

Section Eight - Trading Tactics

6 1

6 5Industrial Average 6 9

Section Eight (continued)

Stocks With A High Short Interest. 80

80

E 1858990

9 19293949596979899100101

Volume.

Section Nine - Convertible Bonds

Section Ten - Over-The-Counters

Section Eleven - Technical Indicators

The Cumulative Daily Advance-Decline Line

The High-Low Index

The On-Balance Volume Index

The Odd-Iot Balance Index

The Odd-Lot Short Sales lndex

The 10-Day Advance-Decline Ratio

The 10-Day Upside-Downside Volume Ratio

The 200-Day DJIA Momentum Index

The DJIA One-Year To Chart

The Index of Speculative Confidence

The Gold Mining Disparity lndex

The Short Interest Ratio

The % of NYSE Stocks Above Their 10-Week Moving Average '

The lO-Week Most Active Stocks Ratio

The NYSE Bullish Percentage

The DJIA Bullish Percentage

General Motors as a Bellwether Stock

Section Twelve - Puts and Calls

Section Thirteen - Commodities

Section Fourteen - Adjusting a Chart for a Stock Split

r02103104105106107

1 1 3125126

Section Fifteen - The S-Point Reversal Chart

The basic principles of "How to Use the Three-Point Reversal Method of Point & Figure Stock Market ing" were ftrst published in 1947 under the trtle "Stock Market Timing " When the Chartcraft Weekly Service was started in 1948, the name of the book was changed to "The Chartcraft Method of Point & Figure Trading."

Trad-In August 197E, we published the sixth revised edition of this book which included revised chapters dealing with the Dow'Jones Industrial Average, Over-The-Counter Stocks, and Technical Indicators In March 1980, the Seventh edition was published containing a revised chapter on Option Trading.

This is the eighth revised edition It contains revised sections on Price Objective, Relative Strength, nical Indicators, Options, and Commodities.

Tech-Although future editions are constantly in the planning, the basic principles remain the same.

Special acknowledgment is made to Professor Robert Earl Davis of Purdue University He was kind enough

to let us read his lengthy manuscript, "Proft and hobability-Technical Analysis of the Price Fluctuations of Common Stocks,' ' and has permitted us to use his figures on the profit potential of the various trading formations contained in this book All the formations were programmed for an IBM 7094 computer and the results wereobtained on the basis of trading from buy signal to sell signal, and sell signal to buy signal, with trend lines taken into account,

A W Cohen July 1982

I N T R O D U C T I O N - T H E T W O A P P R O A C H E S

T h e p r o b l e m o f t h e p u r c h a s e o f s t o c k i n a n y p a r t i c u l a r c o m p a n y c a n b e a p p r o a c h e d

i n e i t h e r o f t w o w a y s O n e w a y i s t o p o s e t h e p r o b l e m a s : " s h o u l d I buy the stock of

t h e X y Z C o m p a n y i " T h e o t h e r i s t o p o s e t h e p r o b l e m a s : " W h e n shall I buy the stock

, , o u t s i d e r " making ,r"" oi various techniques to determine what the " i n s i d e r s " are doing'

S E C T I O N O N ETHE POINT AND FIGURE CHART AND ITS CONSTRUCTION

In Figure # 1, we have a Point and Figure chart "under the aspect of eternity "

By this, we mean that both vertical and horizontal coordinates are based on price

changes In the usual line or bar chart, the vertical coordinate is based on price andthe horizontaL coordinate is based on time (day, week, or monttr) This is not the case

in a Point and Figure chart Chronology has no significance in it The only thing it

c o n c e r n s itself with is a stockrs price changes independent of the time in which thesechanges take place The chart patterns that this chart develops are independent of the

t i m e i t t a k e s for their eoming into being, whether it is a matter of days, weeks, months,

or years Their significance for the future remains the same

Although we will include chronological data in the body of the Point and Figurechart, as wiLl be seen in the ensuing pages, this wilL be done merely to establish a

f r a m e o f r e f e r e n c e

In no vertical column are there ever less than 3 squares of Xs or 3 squares of 0s.

T h i s m e a n s t h a t i n o r d e r t o r e c o r d a c n a @ a n u p m o v e t o a d o w n m o v e ,

o r v i c e v e r s a , t h e r e m u s t f i r s t b e a p r i c e c h a n g e e q u a l t o a t I e a s t 3 s q u a r e s

Over 20, therefore, a price change of 3 points or three dollars would be necessary

f o r a t r e n d r e v e r s a l I f t h e p r i c e o f a s t o c k h a s g o n e u p t o 5 0 , i t m u s t g o d o w n t o 4 7before we car record the 0s in the next vertical column

U n d e r 2 0 , a r e v e r s a l o f 1 j p o i n t s o r o n e a n d o n e h a l f d o l l a r s w o u l d b e n e c e s

-s a r y I f t h e p r i c e o f a -s t o c k h a -s g o n e d o w n t o 1 4 , i t m u -s t g o u p t o 1 5 - | b e f o r e w e c a nrecord the Xs in the next vertibd column

A t t h e b o r d e r l i n e o f , 2 0 t 3 s q u a n e s m a y r e p r e s e n t o n l y 2 o t 2 ' l p o i n t s , b u t a

reversal occupying 3 squares is drryays necessary

In the same trend, however, each point or |-point is added as the stock continues

on lts way up or down

O v e r t h e 2 0 p r i c e s q u a r e , w e h a v e ' n o f r a c t i o n s a t a l l o n o u r c h a r t I f a s t o c k h a s

g o n e u p f r o m 3 2 t o 3 9 - ? / 8 , t h e h i g h e s t X i n o u r c o l u m n w i l l b e i n t h e 3 9 s q u a r e I f astoct< has gone down from 57 to 43-1/B ttre lowest 0 in our column will be in the 44th

It is very important to indicate that a Point and Figure chart is a

one-dimen-sional chart In the usual stock market chart, whether bar or line, the vertical axisrepresents price and the horizontal axis records time In the Point and Figure chartboth the vertical and horizontal a:<is record price The chronological data that it

may contain is of no importance either to its construction or interpretation It is usedonly as a matter of convenience In the chart of Bucyrus-Erie, we have indicated thepassage of time by the numerals L to L2 (1 representing January, 2 representing

February, etu ) The appropriate numeral has been substituted for an X or an 0 thefirst time a price change is entered in a new month When this coincides with a 3-boxprice reversal, the numeral is entered in the third square up or down as the casemay be Years are indicated at the foot of the chart If all this chronological datawere omitted, the chart would be just as valid The Point and Figure chart is indig-enous to the stock market; it was used to graphicaUy record price changes, perhaps

as far back as the 1-880s It is the oldest type of chart used in stock market trading

Ttre Polnt and Flgure chart, as ne have constnrcted lt, becauee of the 3-boxrerrergal necessary for a change ln dlrectLon, elLmlnatee all mlnor and confuelngmoves It 18 eLople, clear and conclge It lends ltself easlly to correct ln-terpretatlon It 18 sLnple to conatnrct and malntaln

l f o t e : C h a r t s c o m p i l e d b y E l e c t r o n i c C o m p u t e r s u b s t i t u t e A , B a n d C f o r 1 0 ,

1 1 a n d 1 2 a s s y m b o l s f o r t h e m o n t h s O c t o b e r , N o v e m b e r a n d D e c e m b e r

9

-F i g u r e # 3 is a Point and -Figure chart of Union Carbide It illustrates the units

o f c h a r t i n g w h e n t h e p r i c e o f a stock rises and falls above 100

B e l o w 1 0 0 , e a c h s q u a r e stands for 1-point or one dollar

A b o v e 1 0 0 , e a c h s q u a r e s t a n d s f o r 2 - p o i n t s or two dollars

A 3 - b o x r e v e r s a l below 100, would be equal to 3-boxes or three dollars

A 3 - b o x r e v e r s a l above 100, would be equal to 6-points or six dollars

A t t h e b o r d e r l i n e of 100, the 3-box reversal may sometimes equal 4 dollars

a n d a t o t h e r t i n - r e s 5 d o l l a r s

T h e i m p o r t a n t fact to keep in mind is that above 100 we have only even units

a n d n o o d d u n i t s T h u s i f a s t o c k g o e s u p to 115, the high on our chart would be 114;

i f a stock goes down to 107, the low on our chart would be 108

CHART CONSTRUCTION

T h e P o i n t a n d F i g u r e c h a r t o f B u c y r u s - E r i e was constructed from the dailystock tables appearing in the Wall Street Journal Any newspaper reporting the daily

h i g h s and lows may be used Because the 3-box reversal eliminates the minor and

i n s i g n i f i c a n t p r i c e c h a n g e s , t h e r e i s n o n e e d t o s u b s c r i b e t o any special price change

s e r v i c e i n o r d e r t o c o n s t r u c t and maintain a chart of this type

W e a r e a p p e n d i n g b e l o w t h e d a i l y h i g h and low figures of Bucyrus-Erie for

t h e y e a r 1 9 6 1 W e h a v e a l s o a d d e d a c o l u m n s h o w i n g t h e c h a r t entries to be made from

t h e s e f i g u r e s T h i s rvill enable you to practice making a chart We suggest that you

c o v e r t h e c o l u m n m a r k e d c h a r t e n t r i e s and only use it to check your own postings The

f i g u r e after the colon represents eighths of a point; the figure in parenthesis represents

t h e m o n t h , i e , ( i ) J a n u a r y , ( 2 ) F e b r u a r v , e t c

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If your last chart entry is an X, then look at the daily high If the stock has

gone up enter the additional X or Xs and forget about the lows If the stock has not

gone up then look at the low for a 3-box reversal

If your last chart entry is an 0, then look at the daily J.ow If the stock has

g o n e I o w e r e n t e r t h e additional 0s and forget about the highs If the stock has not gone

-Genisco Tech (GES) G e n e r a l M i l l s ( G l S )

T H E D O U B L E TOP AND DOUBLE BOTTO}I FORMATIONS (#2)

T h e f o r m a t i o n s i l l u s t r a t e d a b o v e a r e v a r i a t i o n s o n t h e D o u b l e Top and Double

B o t t o m f o r m a t i o n s # 1 i n F i g u r e # 6

I n e x a m p l e A , t h e b r e a k o u t a t 3 5 t a k e s p l a c e after two bottoms have been made

a t t h e s a m e l e v e l i n s t e a d o f m e r e l y one bottom T h e f i r s t b o t t o m a t 3 1 w a s r e t e s t e d

a n d h e l d T h e n c a m e t h e r a l l y f o r t h e b r e a k o u t on the Double Top formation T h i s

t 1 ' p e o f D o u b l e T o p f o r m a t i o n i s m o r e common than a straight upmove from a single

b o t t o m

I n e x a m p l e B , t h e b r e a k o u t a t 4 1 o c c u r s after two tops have been made at the

s a m e l e v e 1 i n s t e a d o f m e r e l v o n e t o p T h e f i r s t t o p a t 4 5 w a s r e t e s t e d and held.

T h e n c a m e t h e d e c l i n e f o r t h e b r e a k o u t o n the Double Bottom formation T h i s t y p e

o f D o u b l e B o t t o m f o r m a t i o n i s m o r e common than a straight downmove from a single

t o p

T h e s e p a t t e r n s usuallv appear at market tops and market bottoms

I n t h e s e # 2 f o r m a t i o n s four vertical columns are required for their completion

T h e s e c h a r t p a t t e r n s mav also appear as integrai parts of more complex formations

a n d t h e t r a d e r o r investor has the choice of acting on these breakouts or on the

b r e a k o u t s t h a t o c c u r in the more complex formations

1 8

-FOR SALE & EXCHANGE

Consolidated Mining & Smetling Continental Air Lines (cAL)

THE BULLISH SIGNAL FORMATIO\

The Butlish Signal formation is one of two classic chart patterns used in timing

In aII of the three examples, the point at which the buy signal is given is indicated by

t h e l e t t e r B

In example B, we have a bottom at 31 and then a higher bottom at 32; we alsohave a top at 35 and then a higher top at 36 The higher top at 36 is the signal that thestock may be bought In this case, it took place at a lower level than in the first ex-

a m p l e , a l t h o u g h b o t h c h a r t p a t t e r n s s t a r t e d f r o m t h e s a m e l o w o f 3 1

In example C, we again have a bottom at 31 and then a higher bottom at 34; wealso see a first top at 37 and then a higher top at 38 The higher top at 38 is the signalthat the stock may be bought In this example, the buy signal took place at a higherlevel than in the two previous ones, although all three chart patterns started with a

Borden (BN) American Zinc, Lead & Smelting (ZA)

Sunbeam Corporation (SMB) Volume Merchandise (VLM)

THE BEARISH SIGNAL FORMATION

The Bearish Signal formation is one of two classic chart patterns used in timing

a stock sale The significant feature of this chart is a lower top and a lower bottom

A s l o n g a s a s t o c k c o n t i n u e s t o m a k e l o w e r t o p s a n d l o w e r b o t t o m s i t i s b e a r i s h T h efirst time it makes a lower bottom after making a lower top is the signal that the stockmay be sold It is teiiing us that Supply has overcome Demand and that the stock,which hitherto may have been bullish and in an uptrend, is now ready to make a down-ward move Distribution by those in the know has been completed

F o r t h e t h r e e m o s t c o m m o n p a t t e r n s o f t h e B e a r i s h S i g n a l f o r m a t i o n s e e F i g ure # 9 In example A, we have a top at 45 and then a lower top at 43; it also has onebottom at 40 and then a lower bottom at 39 When the lower bottom is made at 39, thestock, in technical parlance, has had a downside breakout and has given a sell signal

-In all three examples, the point at which the sell signal is given is indicated by the

I e t t e r S

In exampie B, we have a top at 45 and then a lower top at 44; we aLso have abottom at 41 and then a lower bottom at 40 The lower bottom at 40 is ttre signal thatthe stock may be sold In this case, it took place at a higher level than in the firstexample, although both chart patterns started'from the same high at 45

In example C, we again have a top at 45 and then a lower top at 42; we also see

a first bottom at 39 and then a lower bottom at 38 The lower bottom at 38 is the signalthat the stock may be sold In this example, the sell signal took place at a lower levelthan in the two previous ones, although all three chart patterns started with a high at

4 5

Four vertical columns are required for the Bearish Signal formation

International Business Machines (l BM) International Rectifier (lRF)

Union Carbide Corporation (UK) Dravo Corp (DRV)

THE BULLISH AND BEARISH SYMMETRICAL TRIANGLES

-a t 3 6 W h e n t r e n d l i n e s -a r e d r -a w n f r : o m t h e b o t t o m -a t 3 0 -a n d f r o m t h e t o p -a t 3 8 , t h e y

f o r m a s y m m e t r i c a l t r i a n g l e

I n example B, we have the Bearish Symmetrical Triangle formation Here, too,

w e s h o u l d f i r s t n o t e t h e r e g u l a r B e a r i s h S i g n a l formation of lower tops and lower

bot-t o m s We have a bot-top abot-t 45 bot-then a lower bot-top abot-t 43 We have a bobot-tbot-tom abot-t 40 bot-then a lower

b o t t o m at 39 The lower bottom at 39 gives the sell signal and is indicated by the

l e t t e r S T h e f e a t u r e t h a t m a k e s t h i s f o r m a t i o n a triangle is the bottom at 38 and the

h i g h e r b o t t o m a t 4 0 I f t r e n d l i n e s a r e d r a w n f r o m the bottom of 38 and the top of 45

t h e y f o r m a Symmetrical Triangle

T h e s e S y m m e t r i c a l T r i a n g L e formations require a minimum of five vertical

c o l u m n s Variations can be worked out where they have seven verticaL columns, nine

v e r t i c a l c o l u m n s , o r e v e n m o r e

The Bullish Triangle formation is profitable 71 4To of the time for an average

g a i n of 30.9% The average time for the gain is 5.4 months The Bearish Triangle

for-m a t i o n i s p r o f i t a b l e 87 5To o f th e t i m e f o r an average gain of 33.3T0: the average time for

.H

K t o i,l H _HI I-r -l 4 - -I

t - *iat- 'i ot a

I

lnternational Harvester (HR) Georgia-Pacif ic Corp (GP)

THE TRIPLE TOP FORMATION

The Triple Top formation is the second of the two classic chart patterns used intiming a stock purchase Unlike the Bullish Signal formation, it is only the action ofthe stock at previous tops that is important, not at bottoms No higher bottoms arenecessary in this formation A11 that is necessary is the penetration of two previoustops The penetration of two previous tops by a third top compensates for the fact thatthe chart formation has no higher bottom Because of the higher bottom in the Bullish

S i g n a l f o r m a t i o n , the penetration of only one previous top was necessary This

for-m a t i o n for-m u s t h a v e a for-minifor-mufor-m of five vertical colufor-mns

I n e x a m p l e A , we see a base of accumulation between 31 and 34 There aretwo level tops at 34 The buy signal was given at 35 when these two tops had beenpenetrated At this point Demand has overcome Supply and the extension of the upmove

is to be expected

In example B, we have a base of accumulation between 31 and 35 The first top

is at 35 and the second top at 34 The buy signal was given at 36 when these two tops

h a d b e e n e x c e e d e d

In example C, we have another base of accumulation between 3l and 35 ever, here the first top is at 34 and the second top at 35 The buy signal was given at

How-3 6 when these two tops had been exceeded

In none of the above examples have we higher bottoms All of these formationshave level bottoms at 31 We compensate for the lack of a higher bottom by waiting forthe penetration of two previous tops

Examples B and C contain Double Top formations within them, but many traderswait for the Triple Top breakout

Hiller Aviation (HlL) Howard Johnson (HJ)

Eastern Gas & Fuel (EFU)

f-l i-T_ l Y l I L I I

ldealToy Co (lDi

THE TRIPLE BOTTOM FORMATION

T h e T r i p l e Bottom formation is the second classic chart pattern used in timing

a stock sale Unlike the Bearish Signal formation, it is only the action of the stock

a t p r e v i o u s b o t t o m s that is important, not at tops No lower tops are necessary in

t h i s f o r m a t i o n A I l that is necessary is the penetration of two previous bottoms Thepenetration of two previous bottoms by a third bottom compensates for the fact that

c h a r t f o r m a t i o n has no lower tops Because of the lower top in the Bearish Signal

for-m a t i o n , the penetration of only one previous bottofor-m was necessary This forfor-mationmust have a minimum of five vertical columns

In example A, we see a top distribution between 45 and 42 There are two level

t o p s a t 4 5 T h e seII signal was given at 4L when these two bottoms had been penetrated

At this point Supply has overcome Demand and an extension of the downmove is to be

e x p e c t e d

I n e x a m p l e B, we have a top of distribution between 45 and 41 The first bottom

is at 41 and the second bottom at 42 The setl signal was given at 40 when these two

b o t c o m s h a d been exceeded

I n example C, we have another top of distribution between 45 and 41 However,here the first bottom is at 42 and the second bottom at 4L The sell signal was given

a t 4 0 when these two bottoms had been exceeded

I n n o n e o f the above examples have we lower tops AII of these formations have

l e v e l tops at 45 We compensate for the lack of a lower top by waiting for the

penetra-t i o n o f penetra-two previous bopenetra-tpenetra-toms

Examples B and C contain Double Bottom formations within them, but many

tt'addrs weit for the Triple Bottom breakout

Manville CorP (MAN) Pittston ComPanY (PCO)

FORMATIONS IN COMBINATION

Example A isan illustrationof both the Bullish Signal formation and the Triple

T o p f o r m a t i o n combined into one It contains the essential elements of both formations

It has both higher bottoms and higher tops plus the penetration of three tops The buysignal which takes place at 38 (indicated by the letter B) is both a buy signal on a BuII_ish Signal formation and a Triple Top formation This chart patternoccurs less fre-quently than either of the two separately, but when it does occur it is usually a verystrong buy signal This formation is profitabte ?9.510 of the time for an average gain

of 360/o The average time for such gain is g months

Example B is an illustration of both the Bearish Signal formation and the TripleBottom formation combined into one It contains the essential elements of both for-

m a t i o n s It has both lower tops and lower bottoms plus the penetration of three bottoms.The sell signal which takes place at 38 (indicated by the letter S) is both the sell signal

on a Bearish Signal formation and a Triple Bottom formation This chart pattern occursIess frequently than either of the two separately, but when it does occur it is usually

a very strong se1l signal It is profitable 83 3o/o of the time for an average gain of

2 2 9 o / 0 The average time for such gain is 3.4 months

In both examples of this formation, a minimum of five vertical columns is

nec-e s s a r y f o r its complnec-etion

Allied Products (ADP) Aluminum Company of America (AA)

VARIATIONS ON THE TRIPLE TOP AND BOTTOM FORMATIONS

E x a m p l e A s h o w s t h e u p s i d e p e n e t r a t i o n o f n o t m e r e l y t h r e e t o p s b u t a c t u a l l y

f o u r t o p s S o m e t i m e s y o u m a y h a v e a p e n e t r a t i o n o f f i v e o r m o r e t o p s F r o m a t i m i n g

p o i n t o f v i e w , t h i s h a s n o m o r e s i g n i f i c a n c e t h a n t h e p e n e t r a t i o n o f m e r e l y t h r e e t o p s The stock cannot be bought until the penetration occurs and it occurs at the same point

Example B shows the penetration of not merely three bottoms, but actually

four bottoms Everything we said above about example A appties to example B, but

i n r e v e r s e , o f c o u r s e

Example C shows a Triple Top formation with a long "tail" down Note the

downmove in the fourth vertical column before the final upmove in the fiftl eolumn togive the buy signal on the penetration of the Tripte Top This formation also occuisfrequently in chart patterns It is an unusually strong formation The reason for this

is that what at first appears to be a heavy overhanging supply of stock (between 35 and 38)was not actually so There actually was no supply of stock to interrupt the upward movetowards the breakout The long "tail" down was not due to an overhead supply but,

p e r h a p s , t o s o m e n e w s f a c t o r t h a t w a s i n t e r p r e t e d i n c o r r e c t l y ( o r s o m e t i m e s e v e n t osome misleading news), or to some dramatic international or national event also in-correctly interpreted for the moment The move up after such a happening is usuallyvery dynamic and profitable

Example D shows a Triple Bottom formation, with a long "tail" up Everythingthat was said about example C applies to this example as well but in reverse, of course

r e # 1 5THE BROADENING FORMATION

The chart patterns in Figure # 15 are actually a Triple Top formation in ple A and a Triple Bottom formation in example B In example A, we have the pene-tration of three tops with the buy signal at 40 In example B, we have the penetration

exam-of three bottoms with a sell signal at 36 But they have a certain characteristic about

t h e m w h i c h s i n g l e s t h e m o u t f o r s p e c i a l a t t e n t i o n

In example A, the breakthrough on the Triple Top takes place as follows: 1) Wehave the first top at 38 2) Then we have the first bottom at 35 3) The second toptakes place at 39, at a !!g!gr level than the first top 4) The second bottom takes place

at 34, at a lower tevel thanthe first bottom 5) And finally we have the breakout at ahigher top at 40 We have a broadening price pattern: a top followed by a bottom, thenfa@er top and a lower bottom, and finally the upside breakout on a still higher top.These five points must be kept in mind in distinguishing this Triple Top formation fromthe usual Triple Top formation It occurs most frequently not at the bottom of an up-move, but during an upmove which already may have gone a long way This type of for -mation is usually classified as a "blow-off" formation by bar-chartists and, therefore,bearish In Point and Figure charting, however, it has always proved to be very bullish

as the so-ca11ed "blow-off" usually occurs at a much, much higher level and thus allowsfor a handsome profit This variation on the Triple Top formation does not occurtoo frequently It should be watched for very carefully and taken advantage of when itdoes occur This broadening bullish pattern and the Triple Top with the long "taiL"down can be classified as the best of the Triple Top formation

Example B is the same broadening type of formation with the breakout on thedownside It goes from a bottom at 38 to a top at 4L, then a lower bottom at 37, and ahigher top at 42, then the final breakdown on the third lower bottom at 36 This bearishformation occurs so infrequently that it is not worthwhiiillooking for In a bear market,the ordinary Triple Bottom formation serves the purpose very weII (here, too, the best

of the Triple Bottom formations, is the one with the long "tail" up)

Abbott Laboratories, Inc (ABT) Honeywell, Inc (HON)

r e # 1 6THE SPREAD TRIPLE TOP AND BOTTOM FORMA

E x a m p l e A i l l u s t r a t e s t h e s p r e a d T r i p l e T o p f o r m a t i o n T h i s i s a v e r y b r o a dformation and can have any number of vertical columns in it, from six up' The buy signal takes place on the penetration of three level tops These tops are not consecutivebut have intervening moves between them In the example above the three tops are at

37 and the buy signat is at 38 (indicated by the letter B).

Example B illustrates the spread Triple Bottom formation Thi's is a very broadformation and can have any number of vertical columns in it, from six up The sellsignal takes place on the penetration of three level bottoms' These bottoms are notconsecutive but have intervening moves between them In the example above, the threebottoms are at 39 and the sell signal is at 38 (indicated by the letter S)'

In both of these formations buy and sell signals on other formations may have

o c c u r r e d d u r i n g t h e b u i l d i n g o f t h e c h a r t p a t t e r n s T h e t i m e i n v o l v e d i n b u i l d i n g a s p r e a dTriple Top or Bottom formation is usually much longer than in the chart formations

h e r e t o f o r e d i s c u s s e d I t m a y t a k e f r o m s e v e r a l m o n t h s t o s e v e r a l y e a r s ' ( S e e charts

on facing page ) In the chart of columbia Broadcasting the first top took place in April

1 9 6 1 a n d t h e b u y s i g n a l i n D e c e m b e r 1 9 6 2 I n t h e c h a r t o f J ' C ' P e n n e y , t h e t i m e e l a p s e d

w a s f r o m F e b r u a r y - 1 g 6 2 t o M a r c h 1 9 6 4 O n t h e s e l l s i d e o f t h e m a r k e t , a l e s s e r p e riod of time is usuaIIY involved

-Both of the above formations, contain Double Top and Double Bottom patternswithin them However, many traders prefer to wait for the final breakout'

Columbia Broadcasting System (CBS) Inco Ltd (N)

J C Penney (JCp)

Telecom Corp [IEL)

3 7

-i g u r e # 1 7BULLISH AND BEARISH CATAPULT FORMATIONS

Example A is an illustration of the BuIIish Catapult formation This formationstarts with the classical Triple Top formation Note the original buy signal at 35 on aTriple Top formation Instead of proceeding straight upwards, it only raLIied to 36

a Triple Bottom formation Instead of proceeding straight downwards, it only declines

to 40 and then pulls back three points The stock then proceeded to decline once moreand penetrated its previous bottom at 40 When it does this, it registers a new sell

s i g n a l ( i n d i c a t e d b y t h e l e t t e r S at 39)

To qualify as a Bullish or Bearish Catapult formation the move from the originalbreakout, whether up or down, cannot exceed seven points Neither can the pullbackfrom the original breakout decline below a previous bottom in the Bullish Citapult for-mation or exceed a previous top in the Bearish Catapult formation If either of thesetwo happen, then there is no possibility of this type of formation

These formations occur about 50% of the time after an original Trip1e Top orTriple Bottom formation It is often worthwhile to wait for such a chart pattern to savetime that may elapse in waiting out a pullback It is sometimes better to sacrifice anumber of points for the sake of better timing and less risk