1983 November Journal Arthur Merril

!
Fllll:~~IAN
ASSOCIATION
JOURNAL
Issue 16 November 1983
MARKET TECHNICIANS ASSOCIATION JOURNAL
MTA Journal/November 1983 1

MARKET TECHNICIANS ASSOCIATION JOURNAL
Issue 16 November, 1983
Editor: James M. Yates

Bridge Data Company
10050 Manchester Road
St. Louis, Missouri 63122
Contributors: Roger G. Clarke

Arthur A. Merrill
John J. Murphy
Henry 0. Pruden
David L. Upshaw
Publisher: Market Technicians Association

70 Pine Street
New York, New York 10005

0 Market Technicians Association 1983

MTA JOURNAL - NOVEMBER, 1983
TABLE OF CONTENTS
Title Page
MTAOFFICERS . . .. . .. . .. .. . .. .. . . .. .. . .. .. .. . .. .. . . . . .. . .. .. .. . .. .. . .. . .. . .. .. . .. .. . . .. . 6
MEMBERSHIP AND SUBSCRIPTION INFORMATION .. . .. . .. .. . . . . .. . .. .. . .. . .. . .. . .. .. . . .. . 7
STYLE SHEET FOR SUBMISSION OF ARTICLES . .. . .. . . . . . .. .. . . .. . . .. .. . .. . .. . .. .. .. . . . 8
MTA LETTER FROM THE EDITOR . . .. .. . . . . .. . .. . .. .. . . .. .. .. . .. . .. .. . .. . .. .. . . . .. . .. 9

James M. Yates
THE USE OF INTRA-DAY PRICE CHARTS FOR STOCK INDEX FUTURES . .. .. . .. .. . .. . . . .. ... 11
John J. Murphy
A DISCUSSION OF APPLIED MODERN PORTFOLIO THEORY:

ITS FUNDAMENTAL AND TECHNICAL ASPECTS . .. . .. .. .. . .. .. . .. .. . .. . .. . .. . .. . .. . .. . .. .. . .. . 23
Roger G. Clarke
FOUR NEW INDICATORS . .. . .. . .. . .. .. . .. .. . .. . .. .. . .. . . . . .. .. . .. .. . .. . .. .. . .. .. . . . . .. . 27

Arthur A. Merrill
PRICEVOLUMEDIVERGENCE .. .. . . .. .. . .. .. . .. .. . .. .. . .. . .. .. . .. .. . .. .. . .. .. . .. . .. .. . .. . .. . .. 35
Henry 0. Pruden, Ph.D.
KEEPING SCORE ON INFLATION .. . .. .. . .. .. . .. .. .. . .. . .. .. . .. . .. .. . .. .. . . .. . . . .. .. . .. . .. . .. . 47

David L. Upshaw, CFA

1983-84 MARKET TECHNICIANS ASSOCIATION
OFFICERS
PRESIDENT
Fred Dickson SECRETARY
Millburn Corp. Gail Dudack
212398-8489 Pershing & Co.
212/902-3322
VICE PRESIDENT
John Greeley
212i747-1520 TREASURER
Robert Simpkins
VICE PRESIDENT (SEMINAR) Delafield Harvey Tabell
Richard Yashewski 609/924-9660
Butcher & Singer
516/627-l 600
COMMITTEE CHAIRPERSONS
PROGRAMS ETHICS & STANDARDS/PUBLIC RELATIONS

John Greeley Tony Tabell
212/747-l 520 609/924-9660
NEWSLETTER PLACEMENT
Robert Prechter John Brooks
404/536-0309 404/266-6262
JOURNAL COMPUTER SPECIAL INTEREST GROUP

James Yates John McGinley
314/821-5660 203/762-0229
CERTIFICATION FUTURES SPECIAL INTEREST GROUP

Charles Comer John Murphy
2128254367 212/724-6982
MEMBERSHIP SAN FRANCISCO TECHNICAL SOCIETY

Cheryl Stafford SPECIAL INTEREST GROUP
617/227-9500 Henry Pruden
415/459-1319
LIBRARY
Ralph Acampora
212l747-2355

MEMBERSHIP AND SUBSCRIPTION INFORMATION
REGULAR MEMBERSHIP - $50 per year plus $10 one-time application fee.
Receives the MTA Journal, the monthly MTA Newsletter, invitations to all meetings, voting member status, and a dis-
count on the Annual Seminar fee. Eligibility requires that the emphasis of the applicant’s professional work involve
technical analysis.
SUBSCRIBER STATUS - $50 per year.
Receives the MTA Journal and the MTA Newsletter, which contains shorter articles on technical analysis. The sub-
scriber receives special announcements of the MTA meetings open to The New York Society of Security Analysts
and/or the public, plus a discount on the Annual Seminar fee.
ANNUAL SUBSCRIPTION TO THE MTA JOURNAL - $35 per year.
SINGLE ISSUES OF THE MTA JOURNAL (including back issues) - $15
The Market Technicians Association Journal is scheduled to be published three times each fiscal year in approxi-
mately November, February, and May.
An ANNUAL SEMINAR is held each Spring.
Inquiries for REGULAR MEMBERSHIP and SUBSCRIBER STATUS should be directed to:
Membership Chairman
Market Technicians Association
70 Pine Street
New York. New York 10005

MTA Editorial Policy
The Market Technicians Association Journal is published by the Market Technicians Associ-
ation, 70 Pine Street, New York, New York 10005 to promote the investigation and analysis of
price and volume activities of the world’s financial markets. The MTA Journal is distributed to
individuals (both academic and practitioner) and libraries in the United States, Canada, Europe
and several other countries. The Journal is copyrighted by the Market Technicians Association
and registered with the Library of Congress. All rights are reserved. Publication dates are
February, May, and November.
Style for the MTA Journal
All papers submitted to the MTA Journal are requested to have the following items as pre-
requisites to consideration for publication.
Short (one paragraph) biographical presentation for inclusion at the end of the accepted article
upon publication. Name and affiliation will be shown under the title.
All charts should be provided in camera ready form and be properly labeled for text reference.
All tables should be properly labeled and in camera ready form.
Paper should be submitted typewritten, double-spaced in completed form on 8% by 11 inch

paper. If both sides are used, care should be taken to use sufficiently heavy paper to avoid
reverse side images. Footnotes and references should be put in the end of the article.
Greek characters should be avoided in the text and in all formulae.
One submission copy is satisfactory.
Manuscripts of any style will be received and examined, but upon acceptance, they should be
prepared in accordance with the above policies.

The MTA Journal is meant to be a chronicle of the information derived from the activity of the
financial markets in which the collective capital of the world is invested. No part is safe from
the inspection of the marauding technicians. Technicians of the markets have the liberty to inspect
any compendium of information. These lucky people have only the discipline of results, the
discipline of the wizard wh6 must make sense of the unexplainable, and the discipline of those
who search with no predetermined rules. Indeed, market technicians must have the discipline
to examine a dynamic arena where rules can and do change.
It’s no wonder that people question the technicians’ efforts. It’s no wonder that there are fewer
technical analysts than their fundamental cousins. It’s no wonder that the technicians them-
selves have a difficult time grappling with the subject of qualifying one of their own. Or how is
it that you identify ingenuity in relating information and test for common sense? How is it that
you make reference to the ability to discern representative patterns?
This is not to say that the technicians are undisciplined. In fact, the most successful are the
most highly disciplined analysts. It is the seeming inconsistency of the insatiable appetite for
new data and new ways of examining that data with the dogmatic stance of maintaining and
examining a favorite indicator the same way regardless of the situation that proves the rule.
The question is, “What is the rule?” The answer is, of course, “There are no rules.”
Instead of the centerfold, we have this month the interfold. Several charts, some explained,
some not, are interspersed among the work. Feel free to contribute your most interesting
examples for future issues.
Please note the inclusion of a style sheet designed to improve the professional presentation
of the MTA Journal. It will be extremely helpful if contributors to the Journal follow the simple
rules in this style sheet.
In order to make a previous point, we will break the above rule with the February, 1984 Journal.
The February issue will contain every Market Letter’s market prediction for 1984 that we are
given permission to print. We would like to include at least 50 of these, one page for each. They
will be reproductions of the actual Market Letters, not necessarily in their entirety, but the salient
portions relative to the predictions for the market or individual securities. Everyone’s assist-
ance in contributing or recommending contributors is appreciated.
As with all MTA Journals, this one would not have appeared without the brave souls who spent
the time to write down a coherent examination of an interesting market item. In addition, special
thanks to Pam Hollrah, who again typed every word; Sheldon Hoffman, who continued to improve
the text-editor-to-typeset program; Fred Zaegel, who again applied ink to the paper with perfection;
and most of all, to Sally Ruppert, who once again made it all work together.
James M. Yates
Editor

This page left intentionally blank for notes, doodling, or writing articles and comments for the MTA Journal.

THE USE OF INTRA-DAY PRICE CHARTS FOR STOCK INDEX FUTURES
John J. Murphy, JJM Technical Advisors
Presentation to the 8th Annual Market Technicians Association

Seminar, Amelia Island Plantation, Amelia Island, Florida.
May 15,1983
Since this is a technical audience, I’m sure you’re aware of the need to “close gaps”. I would
like to take about a minute of my allotted time to close a rather large gap in the biography that
was handed out to you.
While it is true that I began as a stock market technician in 1968 and while it is also true that
I went out on my own in 1981 as an independent commodity trading advisor, I would like to
assure you that I did do some work in the intervening 13 years.
Actually, I made the transition to commodities in 1970 with Merrill Lynch’s Commodity Division
where I spent most of the next ten years. I spent about half of that time in the research area,
during which time I served as director of Merrill’s Commodity Technical Analysis Department.
I then made the switch from research to the “real” and more difficult world of trading and be-
came a managed-account trading advisor for the last few years with that firm. Therefore, I have
worked as both a stock and commodity technician and have done both research and trading.
Since I also teach a course on Commodity Technical Analysis at the New York Institute of Fi-
nance, I am often asked if the principles of technical analysis are the same for both stocks and
commodities. That’s actually a difficult question to answer. I would say that the basic concepts
are the same. We use the same charts and rely on most of the same tools and indicators. How-
ever, there are some very profound differences. Perhaps the most profound are the time di-
mension and the nature of the futures contract itself. Since all futures trading is done on margin,
which is usually less than 10% of the value of the underlying contract, leverage becomes an
extremely important factor. Leverage, of course, is a double-edged sword. It can work for or
against you very quickly This is why it is possible to either make or lose large sums of money
in a very short period of time.
This high leverage factor has some important implications for the use of technical analysis in
the futures markets. First, timing becomes extremely important. It is not enough to be right on
the general direction of a given market. It is quite common to be right on the direction of a mar-
ket and still lose money. The specific timing of entry and exit points is absolutely critical to suc-
cessful futures trading. Therefore, futures technicians have been forced to fine tune their technical
tools to a very fine edge. We deal of necessity in a very short time dimension that would prob-
ably surprise most stock market traders.
Another implication is that timing is almost purely technical. In futures trading, more so than in
stocks, some knowledge of technical analysis becomes absolutely essential at some point in
the decision-making process.
Just as an aside here, I should mention that we no longer like to be called “commodity” traders.
We’re now “futures” traders. With the tremendous growth in financial futures, including interest
rates, foreign currencies and stock index futures, the shift in emphasis has been away from
the traditional image of commodities such as corn, soybeans or porkbellies. The term “futures”
is much broader in scope and is the preferred usage in the futures industry today.

The subject of this panel presentation is “Using Stock Market Futures.” I realize that the au-
dience here today is mainly stock market oriented, and that the concept of futures trading is
new and somewhat intimidating to most of you. I have had the very strong impression in my
dealings with MTA members since the introduction of stock index futures about a year ago that
there is a great deal of concern, and almost alarm, as to how to deal with the shorter time di-
mension, the higher leverage and increased volatility of stock index futures. I hope that my
presentation here today will shed some light on the subject.
What I propose to do is to show you one of the ways that we as futures traders deal with the
short-term trading by the use of intra-day price charts. The charts that I will show you have
been taken from the ADP Comtrend-Videcom system which is a very widely used video re-
trieval system in the futures industry
Figure 1 shows the standard daily high, low and closing bar chart that we’re all most familiar
with. I have chosen to use the June Standard & Poor’s contract for my examples since it is by
far the most actively traded stock index futures contract as measured by volume and open in-
terest.
Most analysts and traders are familiar with the bar chart on a daily basis. I am, therefore, be-
ginning with the chart we are most familiar with, which shows the past 90 days of trading activity
for perspective. The table in Figure 1 shows that is is possible to move into different time di-
mensions depending on what the trader is interested in.
One of the most important things to realize when moving from one time dimension to another
is to always begin with the longer term view and move to the shorter term. It does not work
very well in the other direction. We’re going to look at three different bar charts starting with
Mode 39 showing 90 days, then Mode 37 showing the most recent five days, and then Mode
36 showing only one day Figure 1 shows the last 90 days. Notice the last 5 trading days marked
off by the box. These 5 days are as of two weeks ago, from May 2nd to the 6th. Not too much
detail is shown except for a small dip early in the week and new highs later in the week.
Now let’s look at Figure 2 where we will zero in on those 5 days. Figure 2 is a high, low and
last bar chart with each bar representing fifteen minute intervals. Notice the increased detail.
The near term selloff on Monday, the “double bottom” upside reversal on Tuesday, the trian-
gular consolidation on Thursday and resumption of the uptrend on Friday. Suddenly, support
and resistance levels become clearer and chart patterns begin to appear. Trendline analysis
becomes possible and can be shown to be very effective in identifying trading turns. To the
technical trader, the timing of entry and exit points becomes a good deal easier.
Let’s zero in further and put Tuesday under the microscope. Since Tuesday was the day the
corrective dip terminated, it is the most critical trading day of the week.
Figure 3 shows every 5 minutes of price action. Take note of how well this chart follows stan-
dard charting principles. Notice the almost perfect “double bottom” which was completed with
the breakout over 16250 after 2:15. An even earlier “buy” signal was given about ten minutes
sooner when prices broke through initial resistance at 16220. Notice the large pullback around
3:15 from 16330 which retraced almost exactly 50% of the previous runup and stopped just
above the 16250 breakout level--all standard chart analysis. Elliott Wave advocates will notice
a very clear five-wave advance from 12:15 to the end of the day.
Chartists who see these charts for the first time are often surprised to see how well chart anal-
ysis works on such a short term basis. As a matter of fact, if I didn’t tell you this was a one-day
chart, you would never suspect it from the price action alone, since it could just as easily be a
chart of six months’ action.

One of the most intriguing and often overlooked benefits of technical or chart analysis is its
application to virtually any time dimension, from the very long-term to the very short-term. In
my work, I usually advise stock market traders to shorten their time horizon especially if they
are dealing with stock market futures, and commodity traders, who tend to become too short-
term oriented, to lengthen their horizons for greater perspective.
The rest of the charts we will look at show the same price action, but in different formats. For
example, Figure 4 shows Tuesday’s action on a “tic” chart. Note all the different Modes avail-
able in each different format. Figures 5 and 6 show “trendline” charts, which are just modifi-
cations of the tic chart which uses an exponential smoothing curve drawn through the tics. I
personally prefer the trendline format. Since I do a fair amount of Wave Analysis, I feel that
waves show up more clearly when the connecting lines are drawn.
The last chart, Figure 7, is an intra-day point and figure chart which I’m sure you’re all familiar
with. Point and figure charts are especially popular among floor traders and those who trade
on a very near term basis. If the trader wishes to plot his or her own charts on graph paper,
another feature will print out the actual prices. The trader can specify any box and reversal size,
and the machine will do the rest. Incidentally, one of the reasons that point and figure charting
is not as widely used in futures trading is that the data is harder to obtain. There are no in-
expensive, commercially-available services that provide the intra-day information. Therefore,
traders are forced to rely on computer printouts which are more expensive and out of the reach
of many individual traders.
What I have attempted to do here today is to discuss one of the most important features of
stock index futures trading, namely the much shorter time horizon, and also to demonstrate to
you one of the most useful tools at our disposal--intra-day price charts.
I will leave you with a couple of positive thoughts on the role of technical analysis as it applies
to futures trading in general. The principles of technical analysis led themselves to virtually any
trading medium, be it in stocks or futures, and to virtually any time dimension as well. With the
proper tools, and sharpened reflexes, the chartist in stocks should be able to make the nec-
essary transition to futures trading. Finally, because of the increased emphasis on timing of
entry and exit points in the trading process, which is purely technical in nature, technical anal-
ysis is even more important in futures than it is in stocks.
All charts are courtesy of ADP Comtrend-Videcom, 25 Third Street, Stamford, CT 06905,
(203) 357-l 611.

J
i
FIGURE 1

..-, WI -4 e-4
::1::: ::I:, x:: w,
m 33 m i7.z
t:::1 xii:: ::x:o
::I:, L-4 -8:
““I: I-- II
I-- 4.
FIGURE 5

BIOGRAPHY
John J. Murphy entered the investment field in 1968 as a technical analyst for CIT Financial
Corp. Since 1981 he has worked as a consultant on commodity technical analysis under the
name of JJM Technical Advisors. John publishes his own technical market letter specializing
in financial futures, stock index futures, precious metals and energy futures. He is presently
conducting a course on Commodity Technical Analysis at the New York Institute of Finance.

INTERFOLD CHARTS
QCE (LS ) COMPARED TO QPE (LS 1

,34*,82& _____,________________________________________---------------------
I I
II I ;; I ;
; ; ; II 1111 ; II III1 III I I
567.3913- 1111-1 11111111 -III II------------- -------11,11,-- ;; ,----- I ,,,--------------, --I --
IIIII I IIIIIIII III III ,l1llll III1 I ill1 IIIII I
IIIIIIII 11111111 IIIIIII I; ; lIllllll IIIIII III1 I ; I IIIII I
111111111111111111 mlllllll I ,111 I II ; 11111111 I 111111 IIll I I I I IIIIIII II
400,0000- IIIIIIIIIIIIIIIIIIIIIIIIIIIII,IIIIIIIIII 1,1,1,1,1~1111111,1,11111(1((11(111)1111lllll,l,l~lllll,ll1,l~lll~l~l,l,l,l~lllll1lllllllllllll
I ‘II II III 111111 I 1111111 II II III ’ 11111 11111’111111 I I
‘I I Ill ‘III’1 ’ II ’ ’ ’ II I” IIIII II”1 III’ I
I’ II III1 I’
232*6OS7- --------------I!_~~____II------------------------lll-l --!-------.-
III ’
I
65.2174- ---J”N----+---JUL----+---~“G----+---SE~----+---OCT----+---HO”----+-
LAST 468.9655
ABOVE 62X 76%
.oooo 0% 0%
BELOW 38% 24% 3CE - Cal 1 Eouivaient Voiume Inoex
TOTALS 150 17431
ace/rs/aPe/daO/ls/tird/fil400 PPE - ?ut Ecuivalent Vo:urfle Index
aoxc t 36.93 (I.21 12.14 QDXC - OPTiON STOCKS FIVERRGE 7RZCE iNDEX
42.7600- -------,,l,----------------------------------------------------------
,I,II”I
11’11 I
I,I III IIII’lll ,I
41. 1275- nl’ll ,I ’ --- ,I -,I’1 ,,-- ,,lll, - ------ - --------- ------------ ---- ----- ---- -----
II II’ ” ‘I I I I I
I I ‘I’1 I ‘I
III’ I
39.4950- ----------------II -_ ,I -- ---- --- ----, ( ----I#---- II --------------------
IIIII I II I’ll1 ,IIIII #III1 8
“‘III1 ,IIIIIII ,#I ‘I II” III I II111
1’111” ’ “I III ‘I Ill ‘I ,I’ I
37.0625- _________ - -__- ---------I ‘I’--- 1, ,,,I ---- ~IfI---- 1,” --- ‘I,, ---e-w----------
‘Ill’ 1’1111 II I II ,111
‘I II, ~“1’~,‘#“1”‘,
’ ‘II III #II ’ ‘Ill
36.2300- -----------------------------------------------------“l’,,,l----------
921 H JUI t JUL t AUG t ,EP t , OCTI t NOVI t
I I, I 1 III I II I
- I II IIIII III ,I i; a; ; ,; I‘ll I ,IIII 1111111 #Ill lll/l1,1,1ll1 ,I I 8,llll 111111
- 11111111111111111111ll III 811 11111111111111111111111) IIII II llllllllllllllllll,llillllllllllllllllllllllillllllllllll IIIIIII
341- 11111111111111111111111 1lllllllllllllllllllllllllllllllllllllllllll lllllllllllllllllllllllllllllllllllllllllilllllllllllllll ,lllllllI
eoxc/bt/da/grd

A DISCUSSION OF
APPLIED MODERN PORTFOLIO THEORY:
ITS FUNDAMENTAL AND TECHNICAL ASPECTS
Roger G. Clarke
Modern portfolio theory has undergone a variety of changes since its foundations were laid in
the early 1960’s. The first attempt of the theory was to simplify and aggregate investor expec-
tations into a model giving a specific relationship between risk and return. Simplifications were
obviously needed to achieve such an ambitious task. But under the assumptions outlined by
Bob Vandell the CAPM (Capital Asset Pricing Model) was born -- expected return for an in-
dividual security was shown to depend on the relative price movement between the firm and
the market as a whole or the security’s beta. Subsequently, many have tried to test the model
to see if there was actually any detectable relationship between this measure of risk and the
resulting returns. The results have been encouraging but not totally satisfying. There is some
relationship on average but it is not perfect. Low beta stocks seem to do slightly better than
predicted and high beta stocks seem to do slightly worse.
The investment implications of the initial theory when combined with the notion of efficient mar-
kets suggest that the investor should hold the market portfolio average of stocks and borrow
or lend at the margin to achieve a desired level of risk. A risk averse investor would hold Treas-
ury bills and a little of the market in a portfolio. The less risk averse investor would hold much
more of the market or perhaps even borrow to invest. Though such a choice is theoretically
simple, following that prescription is not very exciting for investors.
Fortunately for active investors and unfortunately for the theory, the conceptual model was not
perfect. It was indeed an ambitious undertaking to try to explain the tradeoffs between risk and
return in one simple package. The more testing that was done the more researchers discov-
ered some unexplained anomalies in the theory between what was observed and what was
expected.
For example, the simple theory did not allow for different marginal tax rates between individ-
uals in the market or different tax treatment for dividends and capital gains. In practice not all
investors were in the same tax bracket, and securities with the same before-tax return would
not have the same after-tax return for all investors. Consequently, it may not be optimal for an
investor to just hold the market portfolio and a riskless asset. The theory did not allow for such
differences.
In addition, the simple theory required that information be freely available to all, that investors
agree as to the risk and return for each security available and that all investors have uniform
horizons for holding the assets. Here again the simple theory would break down when com-
pared with the realities in the marketplace.
Furthermore, the theory was a static construct. All the information relevant for decision-making
was known at the beginning of the time horizon. The marketplace was much more dynamic.
New information was arriving continuously and not all investors would agree on the content
and implications or adjust their portfolio at the same speed. Investors have a wide variety of
psychological profiles and some need more information and assurance before they act.
Finally, the theory required that all assets be easily tradeable. Some individual assets are hardly
tradeable at all. Markets are not always very liquid. Such restrictions have raised a great deal
of controversy as to whether the “market” was well defined and what should be included in it.

Nearly all of the simplifying assumptions of the model are violated to some extent in the prac-
tical world of investments. Though there are problems with the simple theory, the real question
is whether modern portfolio theory can contribute anything to portfolio and investment anal-
ysis. There are two primary ways in which the modern theory might be useful. FIRST, it may
help us to understand market forces a little better. SECOND, it may provide a benchmark for
us as we try for better relative performance.
In an effort to help us understand the market better adjustments can be made in the theory to
allow for differences in the tax treatment of investment income and for different investor tax
brackets. A variety of other attempts have been made to “fix” the theory in order to make it
more realistic. Such modifications of the theory raise some problems, however. Many modi-
fications can undo the critical underlying theory that holds the relationships together. What re-
sults often lack any notion of general price equilibrium or involve parameters that are not easily
measurable.
Even if the theory were totally consistent and the parameters were well identified, there would
still be some question as to whether good estimates of the important variables can be ob-
tained. In particular, the theory calls for an estimate of beta. Experience has shown us that
there is some noise in estimating this parameter. Estimation is sensitive to the length of the
measurement period. Often 5 years of monthly data is used in the estimation techniques, but
other periods of time could be used which would result in a somewhat different value. There
is also the question of what historical data to use as a proxy for the market and the riskless
rate. Should the S&P 500 be used as the market proxy or some other group? Should 30-day
Treasury bills be used for the riskless rate or go-day Treasury bills? The static theory does not
give much help in settling these questions.
Getting good estimates of the parameters is important because many of the investment strat-
egies depend on screening firms with particular characteristics. For example, a market timing
strategy which shifts funds between low and high beta stocks may not give very satisfactory
results if the supposedly high beta firms as measured initially do not really have high betas.
The investor who uses mdoern portfolio theory confronts many of these measurement issues.
An active program of trying to perform better than the market may look successful or unsuc-
cessful depending on whether there are significant biases in calculating how the portfolio should
have performed because the critical parameters are biased in their measurement or the “mar-
ket” portfolio is not correctly specified. This raises the question of whether we can hope to do
better than the “market” in risk adjusted terms if theory doesn’t give clear signals about what
is important to consider and how those variables relate to performance? Or should we just look
for something that seems to work even if only temporarily regardless of whether it has any the-
oretical foundations? If the latter, can we depend on being right consistently or do we have to
depend on being lucky?
Once we t-r-roveaway from pure theory to practical applications in an effort to explain what works
in the market, we confront many of the same issues a market technician sees. We are looking
for understandable patterns and signals in data, whether it comes fundamentally from prices,
earnings, dividends, etc.
Modern portfolio theory is an approach to organize this search for pattern recognition. It is not
completely successful. There is a great deal of noise and uncertainty in the data used. It is not
the final answer to investment analysis but depending on the analyst’s investment strategy and
philosophy, it may be able to contribute some insights.

BIOGRAPHY
Roger G. Clarke is an Associate Professor of Finance at the Graduate School of Management

at Brigham Young University. He holds several degrees, including an M.B.A. in Business
Administration and a Ph.D. in Finance.

INTERFOLD CHART
TW TRANS WORLD CORPORATION VOLATILITY OVER 26 WEEKS

76.5 - - 42
’ I * *
67.6 - ’ ** * - 34
” I * f” $1: **
*a,* I, * ****
***** ” * $
58.7 - I” * ‘1’1 ** - 26
III, # *’ 11’1 **
* ’ ,,a 111,’ I @I
*** ****“** ** * mllll’ ‘II
49.0 - ** 1 ** Ir Ill,’ II - 18
41+0 - 10
t 1982 t 1983
70.5 HIGH
46.8 LOW 47.9 LAST

FOUR NEW INDICATORS
Arthur A. Merrill
A research analyst can understand why an explorer explores. Like a prospector for gold, he
pushes into new territory. Usually he finds no gold, but occasionally he finds pay dirt.
This paper reports on four successful ventures; four new indicators are described.
Two parts (at least) of the descriptive material need explanation. If you are puzzled by any of
the rest of the material, please write.
First, the exponential average is described by a ratio such as 0.67/0.33. The slash mark is merely
a divider between two multipliers. To calculate an exponential for any week, multiply the av-
erage for the preceding week by the number in front of the slash mark. Then multiply the sta-
tistic for the current week by the number following the slash mark. Then add the two results to
get the average for the current week.
Second, the accuracy table needs description. The indicators were tested in every week from
1976 through 1982. The top line of the table reports on the success in forecasting the following
week. The number of times right is in column R, the number of times wrong in column W, and
the percent right in column % R. The last column is a measure of statistical significance. (chi
squared with one degree of freedom.)
The second line reports on success in forecasting whether the Dow was higher or lower five
weeks later. The remaining lines in the table report the longer range success. Did the indicator
forecast the Dow 13 weeks later? 26 weeks later? 52 weeks?
The indicators follow:
SECOND HOUR INDEX

Proposed by Arthur A. Merrill
Published weekly in TECHNICAL TRENDS
DEFINITION:
This is an index of the difference between the points change in the second hour of the trading
day and the average points change in all hours of the day. It’s a weekly index, so the total points
change in the second hour in a week is divided by the number of days in the week. To get the
average hourly change for all hours, the closing price for the preceding week is subtracted from
the closing price in the current week, and the difference is divided by the number of trading
hours in the week.
To make the index MORE convenient, the average points per hour is multiplied by 1000 and
rounded to the nearest integer. The final index is an exponential average (0.926/0.074) which
approximates a 26 week average.

PARAMETERS:
Bullish: above +91

Bearish: below -350
These are 0.67xstd.deviation, to approximate the quartiles.
EXAMPLE:
Data for week ended 02/l 883:

Total of 11 o’clock prices: 5449.40 (DJ Industrials)
Total of noon prices: 5455.44
Average second hour = (5455.44~5449.40)/5 = 1.208
Average hour in week = (1092.82-l 086.50)/30 = 0.211
Index for week= 1000(1.208-0.211) = 997
Exponential index = 0.926x1 54 + 0.074x997 = 217
WEIGHTS IN BALANCE: (Indicator No. 88)

1 WK:O 5 WKS:4 13 WKS:7 26 WKS:9 52 WKS:lO
t500
I
ACCURACY RECORD
SECOND INDEX HOUR .926/.074,26 week

O-l-2 FILE MT4 A7
Merrill Analysis Inc.
1971 to 1982
DJI R W %R CHI SQ
1 166 143 53.72 1.57
5 183 126 59.22 10.15
13 198 110 64.29 24.57 HIGHLY SIG
26 218 83 72.43 59.65 HIGHLY SIG
52 237 60 79.80 104.30 HIGHLY SIG

RESISTANCE INDEX:
DEFINITION:
This index measures the difference between resistance to downward swings and resistance
to upward swings. The resistance is measured in thousands of shares (NYSE) required to move
the Dow one point. In order to make a high figure bullish and a low figure bearish, resistance
to rises is subtracted from resistance ‘to declines.
To calculate this index, in each hour of the week calculate points change and not volume.
For all hours in which prices rose, total the points moved in one week and the volume. Divide
thousands of shares total by points.
Do the same for all declining hours to get decline resistance.
To get net resistance, subtract rise resistance from decline resistance. The final index is an
exponential average (0.86/0.14) which approximates a 13 week average.
PARAMETERS:
Bullish: above 230

Bearish: below -105
EXAMPLE:
Data for week ended 01/l 883:

18 rising hours totaling 41.84 points and 219,120,OOO shares.
Thousands of shares per point = 5237
12 declining hours totaling 35.52 points and 177,010,OOOshares.
Thousand shares per point = 4983
Net resistance = 4983-5237 = 254
Exponential index = .86x20.7 + .14x254 = 17.7

1 WK:O 5 WKS:O 13 WKS:O 26 WKS:O 52 WKS:6

1 I
INOEX
’ @
I ‘I
ACCURACY RECORD:
RESISTANCE INDEX: .86/.14, 13 week

1971 to 1982
DJI R W % R CHI SQ.
1 127 132 49.03 0.06

5 115 144 44.40 3.03 *
13 130 129 50.19 0.00 *
26 134 116 53.60 1.16 *
52 149 83 64.22 18.21 HIGHLY SIG
VOLATILITY INDEX:
DEFINITION:
This index measures volatility of the DJ Industrials in percent change per day. It’s a weekly in-
dex; daily changes for the week are averaged. To get a measure of the size of the move, rather
than direction, all of the changes are considered positive. To make the index more convenient,
percent change is multiplied by 1000 and rounded to the nearest integer. The final index is an
exponential (0.67/0.33) which approximates a 5 week average.

PARAMETER:
Bullish: above 888

Bearish: below 537
EXAMPLE:
Data for the week ended 01 /18/83

Average percent change per day multiplied by 1000:
= 1000( + .976 + .365 + .519 + .136 + .359)/5 = 471.
Exponential index = .67x975 +,.33x471 = 809
1 WK:l 5 WKS:2 13 WKS:5 26 WKS:4 52 WKS:O
, ,,.. ..,. . .._ . . . . . 6

I
cool I I .(,’ I . . . ..I(
ACCURACY RECORD:
VOLATILITY INDEX: .67/.33, 5 week

1971 TO 1982
DJI R W % R CHI SQ.
1 161 127 55.90 3.78

5 163 125 56.60 4.75 PROB. SIG.
13 180 104 63.38 19.81 HIGHLY SIG.
26 163 109 59.93 10.33 SIG.
52 136 128 51.52 0.19 *

MEMBER/ODD LOT INDEX:
DEFINITION:
This index compares the trading by members of the stock exchange with trading by the odd
lot group. The ratio of purchases to sales by the member group is divided by the ratio of
purchases to sales by the odd lot group. The sales by members is adjusted by deducting
odd lot sales and adding odd lot purchases:
The resultant formula is:
weekly index = (1 OO%xAxD)/(Cx(B-D + C))

Where: A = member purchases
B = member sales
C = odd lot purchases
D = odd lot sales
The final index is an exponential average (0.67iO.33) which approximates a five week av-
erage.
PARAMETERS:
Bullish: below 189

Bearish: above 224
EXAMPLE:
Data for week ended 04/08/83

Member purchases = 95816
Member sales = 100545
Odd lot purchases = 1867
Odd lot sales = 3321
Index for week = (100x95816x3321 )/( 1867x( 100545-3321+ 1867)) = 172
Exponential index = 0.67~222 +0.33x1 72 = 206
1 WK:O 5 WKS:O 13 WKS:O 26 WKS:l 52 WKS:O
MTAJournal/November 1983 32
350
@ ‘1
250
ACCURACY RECORD:
MEMBER/ODD LOT INDEX: .67/.33,5 week

1976 TO 1982
DJI R W % R CHI SQ.
1 71 85 45.51 1.08
5 75 81 48.08 0.16 l
13 77 76 50.33 0.00 *
26 58 83 41.13 4.09 PROB. SIG.
52 55 75 42.31 2.78 *

BIOGRAPHY
Arthur Merrill was awarded the coveted MTA annual award in 1977. Art is the publisher of
TECHNICAL TRENDS, a statistical stock market service. He pioneered in the study of sea-
sonal patterns of stock prices, and is the author of the book BEHAVIOR OF PRICES ON
WALL STREET, SEASONAL TENDENCIES IN STOCK PRICES, BEAR MARKET CHAR-
ACTERISTICS, and MARKET INDICATORS AND GROWTH COMPANY EARNINGS.
Among the indicators originated by Art is the ratio of ASE to NYSE volume, a device now
used by many technicians as a gauge of speculative activity.

A study of twelve years of price and volume data which examines the validity and reliability of
divergence as an early warning method for catching market turns.
Henry 0. Pruden, Ph.D.
The author wishes to acknowledge the valuable assistance of Mr.

Bruce Fraser, Registered Representative, Dean Witter, who was
formerly an M.B.A. student at Golden Gate University
BACKGROUND
A cardinal goal of technical analysis is to “buy low and sell high.” Fulfillment of this goal to its
utmost degree requires some sort of a method for anticipating trend changes in the market so
that buy and sell orders may be placed at or very close to turning points. One widely acknowl-
edged method for anticipating market turns is divergence analysis.
Divergence has long been used as an anticipatory or early warning device for catching trend
reversals as they develop. Within the tenets of the Dow Theory there has been the requirement
of confirmation by both the Transports and the Industrials. It was long ago recognized by Dow
Theorists that a non-confirmation of one average by the other was often the warning of an im-
minent reversal of trend [Stansbury].
Anticipating trend reversals through divergence analysis has developed far beyond comparing
the Dow Transportations to the Dow Industrials. Divergence studies now encompass confir-
mation/non-confirmations between the Industrials and the Advance-Declines, the Industrials
and the Utilities, and especially the Dow Industrials and the New York Stock Exchange Volume.
Finally, price/volume divergence has become the centerpiece of some popular technical sys-
tems [e.g., Granville].
SCOPE OF THIS STUDY
The purpose of this study is to present and interpret empirical data relating price to volume in
an effort to answer the two following questions:
(1) Are turning points in the market foreshadowed by a divergence

between price and volume?
(2) Does volume precede price?

The latter question is based upon the idea that just not any divergence is important, but that
there exists a cause-and-effect or lead-and-lag relationship whereby volume invariably pre-
cedes price. Moreover, we are not talking about just any gross measure of volume; rather, we
are focusing on a special treatment of volume, known as on-balanced volume [Granville].
The idea that on-balanced buying and selling of shares as an indicator of “smart money” ac-
cumulation or distribution has a fine pedigree. Jesse Livermore and the other old-time pool op-
erators knew all about manipulating a stock through buying and selling of shares on-balance.
Livermore would mark up a stock by making it active on rallies for the purpose of attracting a
public following. He would accumulate shares on-balance to spur surges in price and volume.
He would then sell on rallies and buy back on reactions, carefully accumulating on-balance
until he started a campaign of distribution as on-balanced selling at the top, which he would
then continue on the way down [Lefevre, pp. 244-2501.
To study on-balanced volume in the strict sense of Mr. Granville’s practice or in the usage of
the old-time pool operators is beyond the scope of this study. What is within the scope of this
study is to use an indicator which belongs to the specie of on-balanced volume. In no sense
should the results of this study be interpreted as a scientific test of the Granville method of on-
balanced volume.
METHOD
Data Collection
Data for this study were collected from the Stock Market Institute [SMI].* Daily price and vol-
ume data were extracted from SMI archives for the period July 1968 to April 1980. The data
were the Wyckoff Wave Index, which is the Institute’s proxy for the New York Stock Exchange’s
price movements. Also collected for the same time period were data for the Optimism-Pes-
simism Index which, for the purposes of this study, will be the indicator of on-balanced volume.
Definitions
Wyckoff Wave: A weighted price index of eight stocks deemed by the Institute to reflect market
leadership.
Around 1968, the components and weights of the Wyckoff Wave were:
Stock Multiplier
Chrysler 6.0
General Electric 4.0
International Business Machines 2.0
Penn Central 5.2
Standard Oil of New Jersey 4.0
Union Carbide 6.0
UAL, Inc. 6.0
U. S. Steel 8.0

in January, 1982, the components and weights of the Wyckoff Wave were:
Stock Multiplier
General Motors 6.0

General Electric 8.0
International Business Machines 8.0
Exxon 10.0
Merrill Lynch 6.0
Union Carbide 6.0
UAL, Inc. 6.0
Pepsico 4.0
Optimism-Pessimism Index (O-P): This is an index which portrays the volume transacted dur-
ing each buying and selling wave of the Wyckoff Wave recorded during the day. Below is the
official SMI procedure for calculating the O-P Index.
The O-P is determined by adding the UP volume and subtracting the DOWN volume. This vol-
ume is added or subtracted with the decimal point placed after the millions column, and the
final zero is eliminated. Therefore, the volume column will be changed as follows to determine
the O-P Index:
I II III IV V VI VII
WAVE TIME DUR PRICE CHN VOL O-P VOLUME O-P
OPENING 2762-l 14
1. 10:20 20 2773-5/8H +15-l/8 1430 593.91 H +1430 +1.43

2. 10:35 15 2757-314 - 15-718 810 593.10 - 810 - .81
3. 10:50 15 2770 +12-l/4 740 593.84 + 740 - .74
4. 1l:lO 20 2755 -15 940 592.90 - 940 - .94
5. 11:20 10 2765 +lO 700 593.60 + 700 + .70
6. 11:30 10 2754-l l2L -10-l/2 500 593.10 - 500 - .50
10 2767-l /4 + 12-3/4 360 593.46 + 360 + .36
;: 1140
11:55 15 2756-l I8 -11-l/8 540 592.92 - 540 - .54
9. 12:lO 15 2768 +ll-7/8 610 593.53 +610 +.61
10. 12:25 15 2756-518 -11-318 640 592.89 - 640 - .64
11. 12:35 10 2766-314 +10-l/8 300 593.19 + 300 + .30
12. 12:55 20 2756 - 1 o-314 660 592.53L - 660 - .66
13. 1:30 35 2764 +8 1000 593.53 +lOoo +l.OO
14. 1:50 20 2755-518 - 8-318 670 592.86 - 670 - .67
15. 2:oo 10 2759-518 +4 750 593.61 + 750 + .75
TOTAL VOLUME 10650
The Figures now contained in the O-P column are then added or subtracted from the O-P In-
dex of the PREVIOUS wave. Hence: the Optimism-Pessimism Index for Wave 1 is:
592.48 (previous day's final O-P) + 1.43 ( an UP wave) = 593.91

The O-P for Wave 2 (a DOWN wave) is 593.91 - 81 = 593.10. The remainder of the O-P
indexes for these Intra-Day Waves 3 to 15 are as follows:
593.10 + .74 = 593.84

593.84 - .94 = 592.90
592.90 + .70 = 593.60
593.60 - -50 = 593.10
593.10 + .36 = 593.46
593.46 - .54 = 592.92
592.92+ .61 =593.53
593.53 - .64 = 592.89
592.89 + .30 = 593.19
593.19 - .66 = 592.53
592.53 + 1 .oo = 593.53
593.53 - .67 = 592.86
592.86 + -75 = 593.61
The O-P Index for the last wave is the final O-P Index for the day, and is the figure which
is used to chart the O-P Index on the vertical line chart of the Wyckoff Wave.
The volume data for calculating the O-P Index is total New York Stock Exchange volume.
Procedure
All Wyckoff Wave movements of 5% or greater were examined to see if the move was pre-
ceded by a divergent relationship between the Wyckoff Wave and the Optimism-Pessi-
mism Index. What was noted was whether the divergence was caused by volume failing to
confirm price, or by price failing to confirm volume, or if the turn was preceded by a joint
confirmation of price and volume.
Somewhat more difficult was an effort to capture instances where divergences did occur
but were not followed by the predicted 5% rise or fall in the price index. Albeit hard to ac-
complish, an effort was made to find and report these whip-saw divergence signals.
Divergences were determined by comparing closing values for price and volume. So long
as they both jointly made a high or a low in an uptrend or a downtrend they were reported
as nondiverging or confirming. When one index or the other moved onto a higher or lower
closing value while the other refused to do so, an upside or downside non-confirmation would
be reported. Considerable leeway was needed in making divergent judgments since there
were sometimes multiple divergences, and sometimes immediately alternating or double
divergences, and sometimes such extreme inharmony between the speed of the move-
ment of the two indices that an essentially divergent relationship was established even though
a strict non-confirmation was missing.
DATA ANALYSIS
An assembly of the pertinent data items is reported in the Appendix. Please note that there
were 80 observations taken over the approximately twelve year period from July 1968 to
April 1980. Answers to the research questions were sought by cross-classifying the data
found in the Appendix. The results are in Tables 1 and 2.

TABLE 1
ARE TURNING POINTS IN THE MARKET

ANTICIPATED BY DIVERGENCES?
Number of Cases
Price/Volume Turn No-Turn
Divergence I 48 I 7 I
Confirmation I 25 I I
Total number of cases = 80
Table Number 1 shows that most turning points were preceded by a divergent relationship
between the Wyckoff Wave Price Index and the Optimism-Pessimism Volume Index. Di-
vergences preceded market turns by a ratio of almost 2-1 over instances of turns which had
no early warning from divergences. Moreover, when divergences did occur, the observer
could have acted upon these signals with confidence. Only seven cases out of a total of
fifty-five divergent relationships proved to be whip-saws or spurious predictions; good sig-
nals outweighed bad signals by a ratio of about 7-1, which were very favorable odds.
In general, the data in Table Number 1 tend to give an affirmative answer to the question:
“Are turning points in the market foreshadowed by divergence between price and volume?”
The data show divergence preceding turns on a much more than chance basis, though some
analysts may be disappointed because the odds were not overwhelming.
TABLE 2
DOES VOLUME PRECEDE PRICE?
Bull: Bear:
Turn Turn No
UP Down Turn
Divergent
l-
Price precedes
volume 12 cases 10 cases 6 cases
I
Volume precedes
price
Confirmed
5 cases
19 cases
21 cases
6 cases
1 1 case
Total number of cases = 80
In Table 2, one can observe an about even split between price, as measured by the Wyckoff
Wave, preceding volume, as measured by the Optimism-Pessimism Index, and on the other
hand, volume preceding price...there were 22 and 26 instances respectively. So from these

data we cannot simply accept the assertion that volume precedes price without qualifica-
tion. However, upon closer examination we can discern some distinctive lead-lag relation-
ships. As the data in Table 2 show, bottoms in the market are often composed of joint lows
by price and volume. What mostly happened over the period studied was for spike or V-
bottoms to find both indices plunging together and then, rising in tandem. The second most
common sort of bottom saw price preceding volume. Here we saw the price index refusing
to be pushed into lower ground despite heavy on-balanced volume selling pressure. At bot-
tom, when turn was preceded by a divergence (45% of the time), it was twice as likely for
price to lead volume (12 cases) than for volume to lead price (5 cases).
Top turning points did support the hypothesis that volume precedes price. Indeed, a pattern
of a higher closing Wyckoff Wave Price Index unconfirmed by the Optimism-Pessimism
Volume Index was a very reliable guide to anticipating downturns in the market. Not only
did volume non-confirmations (21) outpace price non-confirmations (lo), but also there was
only one instance where an upside non-confirmation by the O-P gave a false signal. Con-
trast this last relationship to the six instances where non-confirmations by the price index
resulted in spurious turn signals. An even closer scrutiny of the data showed that these spu-
rious price-precedes-volume signals were almost all false bottom signals. So while volume
leadership was not universally valid, it did seem much more reliable than price leadership.
CONCLUSIONS
If one cared to generalize based upon the limited sample and restricted scope of this study,
the following tentative conclusions could be drawn:
(1) Divergence as a method for anticipating market turns works about sixty percent of the
time.
(2) Price/volume divergence works best at tops; divergence signals tops about 80% of the
time, while at bottoms divergence is present less than 50% of the time.
(3) In about 40% of the cases there will be no advance warning of a turn emanating from
a divergence between price and volume. Rather price and volume will reconfirm an ex-
isting trend, then just reverse together.
(4) Calling bottom turning points is a treacherous undertaking:

(a) About 50% of the time there will be no advanced, divergent signal.
(b) Among the divergent signals, it will be price that more often gives the downside non-
confirmation.
(c) But about 30% of the price signals at bottoms are liable to be whip-saws.
(5) “Volume-precedes-price” is a special case of divergence; volume-precedes-price is a
divergent relationship frequently found at top turning points, but seldom at bottom turning
points.
(6) Volume-precedes-price, while not universally valid, seems more reliable than price
leadership because it flashes fewer false signals.
(7) Divergence is a highly elastic, variable method for comparing price with volume. Antic-
ipating turning points via price/volume divergence is a lot trickier than trend following.

APPENDIX
DATA ON THE WYCKOFF WAVE (PRICE) AND

THE OPTIMISM-PESSIMISM INDEX (VOLUME)
Dates of Wyckoff Price Level of

Wave Price Movement Wyckoff Wave Divergence Preceding Turn
Divergence
Non-Confir- Non-Confir-
mation by mation by
Start End Start End Confirmation Wyckoff Wave O-P Index
7168 3044 X X
7168 at68 3044 2762 X
a/68 10168 2762 3068 X
10168 l/69 3068 2784 X
l/69 2169 2784 2904 X
2169 3/69 2904 2648 X
3169 5169 2648 2851 X*
5169 7169 2851 2407 X
7169 a/69 2407 2548
(Whipsaw signal given in August 1969 by a dow:side non-confirmation
by price.)
3170 3170 2068 2167 X
3170 5/70 2167 1633 X
5170 6/70 1633 1856 X
6170 7170 1856 1625 X
7170 7/70 1625 1788 X
7170 8170 1788 1682
(Along the way up to October high would have occurred a spuriots sell signa1.A
small upward non-confirmation of volume by price took place between 8129 and
914170.)
at70 10/70 1682 2034 X
10170 lo/70 2034 1925
(Whipsaw signal. False bearish upside non-confrmation by the index.)
10170 4171 1925 2594 X
4171 at71 2594 2144 X
a/71 9171 2144 2450 X
9171 11171 2450 2136 X
MTAJournaVNovember1983 41
Divergence
mation by mation by
11/71 5172 2136 2752 X

5172 7172 2752 2504 X
7l72 ai72 2504 2698 X
6172 9172 2698 2508 * x
9172 12172 2508 2784 X*
12172 12172 2784 2632 X
12/72 l/73 2632 2818 X
l/73 9173 2818 2210 X
9173 1 O/73 2210 2544 X
10173 12173 2544 2106 X
12173 1I74 2106 2304 X
l/74 2174 2304 2084 X
2l74 3174 2084 2316 X
(Whipsaw buy signal given by a downside non-confirmation by the
price index.)
3174 5174 2316 2020 X
5174 6l74 2020 2212
(Whipsaw buy sig;;L;iven by idownside non-confirmation by price.)
6174 7174 2212
7174 7174 1960 2140 X
7l74 9174 2140 1600 X
9174 9174 1600 1776 X*
9174 10174 1776 1542 X
10/74 10174 1542 1864 X*
1 O/74 12/74 la64 1560
12174 3175 1560 2220 X
3175 4175 2220 2095
4175 5175 2095 2384 X
5175 6175 2364 2224
6i75 7175 2224 2404 X
7175 9175 2404 2188
Divergence
mation by mation by
9175 10175 2188 2404 X

1o/75 12175 2404 2280 X
12i75 3176 2280 2880 X
3176 4176 2880 2740 X
4176 7176 2740 2960 X
7176 8176 2960 2752 X
8176 9176 2752 2948 X
9176 11176 2948 2618 X
11176 l/77 2618 2848
(Whipsaw buy signal given in February 1977 by downward non:
confirmation by the price index. The Wyckoff Wave failed to
rally by 5%.)
(Whipsaw buy signal in June by downside non-confirmation by

price.)
(Whipsaw buy sell given in August by downside non-confirmation
by price.)
1I77 1l/77 2484 2178 X
1l/77 11177 2178 2302
(Whipsaw buy signal given by a downside non-confirmation by tXhe
price index in December 1977.)
11177 3178 2302 2068 X
3178 6/78 2068 2372 X
6178 7178 2372 2200 X*
7/78 9178 2200 2596 X
9178 1l/78 2596 2156 X
1 l/78 l/79 2156 2412 X
1I79 2179 2412 2242 X
2179 3179 2242 2424
(Whipsaw buy signal in May 1979 given by a doinward non-confir-
mation by price.)
3179 7179 2424 2240 X
7179 9/79 2240 2432 X
MTAJournal/November 1983 43
Divergence
mation by mation by
9179 1l/79 2432 2108 X
1 l/79 2180 2108 2432 X
2180 4180 2432 1894 X
TOTALS 25 22 26
l Cases with double divergence and/or inharmonious action judged to be

so close to divergent action that it was classified as a divergence.
REFERENCES
1. Joseph E. Granville, GRANVILLE’S NEW STRATEGY OF DAILY

STOCK MARKET TIMING FOR MAXIMUM PROFIT (Englewood Cliffs,
NJ, Prentice-Hall, Inc., 1976).
2. Joseph E. Granville, Editor, THE GRANVILLE MARKET LETTER.
3. Edwin Lefevre, REMINISCENCES OF A STOCK OPERATOR

(Burlington, Vermont: Books of Wall Street, A Division
of Fraser Management Associates, 1980. First published
1923 by George H. Doran Company, New York.)
4. Charles B. Stansbury, THE DOW THEORY EXPLAINED:

HOW TO USE IT FOR PROFIT (New York, NY:
Richard Russell Associates, 1960).
5. THE RICHARD D. WYCKOFF COURSE IN STOCK MARKET SCIENCE AND

TECHNIQUE, Volume Two (Wyckoff Stock Market Institute, Inc., 1968).
FOOTNOTES
l The author wishes to thank Mr. Craig Smith, Director of Research and the
staff of the Stock Market Institute for generously providing these data.

BIOGRAPHY
Dr. Pruden is a member of the MTA, a past president of the Technical Securities Analysts
Association of San Francisco, a Lecturer at Golden Gate University, and a private investor.

INTERFOLD CHART
cIMD ADVANCED MICRO DEVICES INC SHARE LIRUIDITY FOR 26 UEEKS

1,623- - 36
*
* * *
* * St* **
1,427- ' ',"I*$ - 28
I'*
I,$ t
I I
1,231- ’ ‘I - 20
1,035-
*******
839- - 4
+ 1982 t 1983
1~492 HIGH
967 LOU 1~177 LAST

KEEPING SCORE ON INFLATION
David L. Upshaw, CFA
SUMMARY
This report is about industry group index movements during six periods of rising and failing
rates of inflation from 1965 to 1983. The report shows that the S&P 400 performed better dur-
ing periods of disinflation than during periods of inflation. It demonstrates that knowledge of
price performances in two previous periods of inflation and two periods of disinflation would
have been helpful in selecting groups to own during a subsequent period of inflation and a sub-
sequent period of deflation. Some conventional wisdom about which groups “benefit” from in-
flation/disinflation is confirmed here. There are also several interesting surprises in the data.
Finally, some suggestions about using these data in forming portfolio strategies are offered.
U.S. CONSUMER PRICE INDEX
Annual Ranges of 12-Month Rate of Change
From 1959 Through August 1983

OVERVIEW
You read it many times each month: “We think that disinflation beneficiaries should do well in
the present market environment” or, at other times, perhaps, “In this unsettled climate, we ad-
vise overweighting in groups that usually do relatively well during periods of rising rates of in-
flation.” Sometimes these kinds of statements are followed by specific recommendations;
sometimes the writer leaves it to the reader to come up with investments to match the stated
opinion.
A lot of people spend a lot of time trying to figure out precisely which groups or issues will per-
form relatively well during periods of inflation and disinflation. Usually these studies are based
on economic theory and on the way different industries are impacted by the acceleration or
deceleration of the rate of inflation.
This report takes a different approach. It details, for six different periods of inflation and dis-
inflation, the actual price performance of 56 S&P Industry Groups and the S&P Short Maturity
Government Bond Index. The 56 industry groups account for over 80% of the value of the S&P
600. Some of the results appear to mesh with conventional wisdom as to what groups SHOULD
perform the best during inflation and disinflation, but there are some surprises in the data, too.
For example, Gold Mining is supposedly the prime beneficiary of an inflationary period. In fact,
the Gold Mining group did outperform the S&P 400 during two of the three inflationary periods
covered by this study. The surprise is that Gold Mining also outperformed the S&P 400 during
two of the three disinflation periods in the study
Using data generated by price performances during the first two inflation periods, a portfolio
was selected which should have outperformed the S&P 400 during the third inflation period.
It did.
Using data generated by price performances during the first two disinflation periods, a portfolio
was selected which should have outperformed the S&P 400 during the third disinflation period.
It did. In the aggregate, past performance during periods of inflation and disinflation did provide
valuable information about future performance.
With the results of three inflation and three disinflation periods in this report, readers now have
some objective data to go along with what economic theory says should happen. No claim is
made here that changes in the rate of inflation actually caused the price movements reported.
All the report shows is how groups actually performed during various periods of changing rates
of inflation. And the reader must still decide on which side to model his or her portfolio; nothing
in this report predicts when a period of inflation or disinflation will begin or end. That task is
altogether different from the topic of this report, and will be addressed in the near future.
THE SIX PERIODS STUDIED
Conventional wisdom, as I understand it, contains several things about stock prices and the
rate of inflation, some of them contradictory:
1. over the long term, stocks outpace inflation.
2. inflation means high interest rates, and the market does not do well against high returns from
fixed income investments.

3. a lessening in the rate of inflation (if it doesn’t turn into deflation) is good for stocks.
You can add other pieces of wisdom to this list, I’m sure. During the period of this study, De-
cember 1965 - July 1983, the stock market did better during disinflation periods than during
inflation periods. Table 1 illustrates these tendencies quite clearly
The six periods studied are shown on the charts of the S&P 400 which follow. Disinflation pe-
riod 3, 1980-1983, is subdivided into three periods, A, B, and C, as shown on the chart.
Montthy Av&age ‘Price,
-.i, :.,
/ II 59 1 IU sd / I 6i , 63 64 65 66 67 66 69 70 ,u7, , ;,72 / 1.73
6’ I

I began the study with December 1965 because the rate of inflation was on the threshold of
going above 2%. In my opinion, inflation rates of less than 5% to 2% between 1959 and 1965
did not have any appreciable impact on the stock market.
TABLE 1
THE SIX INFLATION/DISINFLATION PERIODS
Rate of Overall Overall

Time Number Inflation % Change, % Change,
From To of Months From To CPI S&P 400
Inflation 1 1265 02/70 1.9% 6.3% + 19.4% - 2.0%

Inflation 2 06/72 12/74 E 2.9 12.2 +24.3 -38.1
Inflation 3 12i76 03180 39 4.8 14.7 +37.6 + 2.7
---- -____ ---mm- -----_
Means 39.7 --;2O?& 11.1% +27.1% - 12.5%
Disinflation 1 02/70 06/72 28 6.3 2.9 + 9.8 + 26.2

Disinflation 2 12/74 12/76 24 12.2 4.8 + 12.2 + 55.5
Disinflation 3 03/80 07183 40 14.7 2.4 + 24.8 + 58.4
---- ____- -___ ---mm- -----_
Means 30.7 11.1% 3.4% +15.6% + 46.7%
INFLATION PORTFOLIO
It is December, 1976. You know that a period of disinflation is ending and that a period of in-
flation is beginning. Armed with that perfect foresight and the knowledge of which groups out-
performed the S&P 400 during each of the two previous inflation periods, you put together a
portfolio which you will hold until the inflation period ends. Table 2 shows your groups, how they
performed, and their mean percent change. On an equally-weighted basis, your groups gained
8% against a 3% gain by the S&P 400.
True, you probably could have earned a lot more than 8% by rolling over Treasury bills from
December 1976 to March 1980, but this report is about inflation, not asset allocation or market
timing. In the aggregate, knowledge of past performances during inflationary periods resulted
in better-than-market performance.

TABLE 2
PORTFOLIO FOR INFLATION PERIOD 3
Composed of Groups Which Outperformed

The S&P 400 During Inflation Periods 1 and 2
% Price Change
Group From 12/76 to 03/80
Distillers + 35%
Coal, Bitum -35
Containers, M + G -12
Copper +38
Drugs -4
Instrumentation +52
Semiconductors +13
Forest Products -20
Hospital Supplies - 7
Mist Metals +30
Oil Well Eq +93
Paper -25
Soaps -28
Tobacco +4
NG Pipelines +48
NYC Banks -25
Banks Outside NYC -18
Mean + 8%
S&P 400 + 3%
DISINFLATION PORTFOLIO
It is March, 1980. Having successfully weathered the latest attack of inflation, you now know
that a period of disinflation is beginning. You also know which groups outperformed the S&P
400 during each of the last two disinflation periods. You build the portfolio shown in Table 3.
From March, 1980 through July, 1983 (the lowest year-to-year rate of inflation so far in the pe-
riod) your portfolio gained 115% versus a gain of 58% by the S&P 400. Once again, an ac-
curate forecast of the direction of the rate of inflation, and knowledge of past performance has
resulted in great, not to say astonishing, performance.
Because disinflation period 3 included the last leg of a bull market, a bear market, and the first
leg of another bull market, I show in Table 4 the action of the portfolio during subperiods A, B,
and C. During the last leg of a bull market (3/80-l l/80) the portfolio lagged behind the S&P
400, + 24% vs + 30%. In the 1980-l 982 bear market, the portfolio was outstanding. It gained
1% while the S&P 400 was losing 22%. In the first leg of the current bull market (8/82-7/83)
the portfolio gained 75%, vs a 56% gain by the S&P 400.
Table 5 shows the action of all the groups studied, not just the portfolio, between 3180 and
7/83. The groups are listed alphabetically, and their performance rank is also shown.

TABLE 3
PORTFOLIO FOR DISINFLATION PERIOD 3
Composed of Groups Which Outperformed

The S&P 400 During Disinflation Periods 1 and 2
% Price Change
Group From 03/80 to 07183
Aerospace + 56
Autos ex GM +124
Soft Drinks + 72
Cosmetics + 20
Elec Equip + 77
Major Electrical +114
Household Furn Ap +216
Instrumentation +153
Semiconductors +123
Agri Mach - 19
Constr Mach - 5
Newspapers +196
Radio TV +157
Restaurants +182
Dept Stores +231
Gen Mdse Chains +161
Air Transport +137
Banks Outside NYC + 81
Mean 7 15%
S&P 400 + 58%

TABLE 4
THE THREE MARKET SWINGS DURING DISINFLATION 3
Percent Changes
A B C
3/80-l 1 I80 1 l/80-8/82 8182-7183
Aerospace + 27% - 30% + 76%

Autos ex GM ‘-18 0 +172
Soft Drinks +lO +35 + 16
Cosmetics +21 -26 + 35
Elec Equip +29 0 + 38
Major Electrical +29 +4 + 59
Household Furn Ap +32 +31 + 84
Instrumentation +44 -12 +lOl
Semiconductors +52 -28 +105
Agri Mach +27 -60 + 59
Constr Mach +25 -41 + 29
Newspapers +35 +5 +107
Radio TV +24 +14 + 82
Restaurants +31 +45 +48
Dept Stores +23 +35 +100
Gen Mdse Chains +4 +22 +106
Air Transport +22 +5 + 85
Banks Outside NYC +18 +lO + 47
___ ___ ____
Means + 24% + 1% + 75%
S&P 400 + 30% - 22% + 56%
TABLE 5
3180 - 11180 11180 - 8182 8182 - 7183

GROUP % CNG RANK % CNG RANK % CNG RANK
S&P 400 + 30.47 21 -22.23 37 + 56.12 28

IND DIGEST + 40.46 11 + 4.51 20 + 87.30 12
SHORT GOVTS + 4.51 57 + 2.03 24 + 5.21 60
AEROSPACE + 26.97 26 -29.78 43 + 75.50 17
ALUMINUM + 18.47 42 -38.61 46 + 59.98 21
AUTOMOBILES - 4.70 59 - 6.25 28 + 90.74 10
AUTOS EX GM - 17.96 60 + 0.27 25 +171.80 1
BREWERS + 30.65 19 +48.23 1 + 44.14 42
DISTILLERS + 30.61 20 -17.05 33 + 49.81 36
SOFT DRINKS + 10.20 52 +35.07 4 + 15.72 58
BLDG MATLS + 26.80 27 -27.67 41 + 64.20 20
CHEMICALS + 18.41 43 -22.59 38 + 52.13 34
COAL BITUM +25.17 30 -46.04 54 + 33.47 50
CONT MET&GL + 15.98 47 -16.46 32 + 54.76 29
COPPER + 7.26 54 -17.20 34 + 57.82 24
COSMETICS +21.10 36 -26.22 40 + 34.64 49
DRUGS + 28.29 25 + 3.12 23 + 31.76 53
ELEC EQUIP + 28.62 24 - 0.27 26 + 37.67 45
EL MAJOR CO + 28.90 23 + 4.12 21 + 59.38 22
HSLD FURN AP +31.58 17 +30.70 5 + 83.60 15
INSTRUMENTN + 43.67 10 -12.08 30 + 100.69 7
SEMICONDUCT + 52.07 6 -28.43 42 +105.30 5
FOODS + 14.07 48 +28.52 7 + 33.26 51
FOREST PROD + 9.59 53 -32.69 44 + 57.77 25
GOLD MNG +71.14 1 -59.57 58 +137.12 2
HOSP SUPPL + 38.42 13 +27.69 8 + 36.69 47
MACH AGRI + 26.54 28 -59.59 59 + 59.32 23
MACH CONSTR + 24.70 31 -40.55 50 + 28.81 55
MACH INDUSTR + 62.19 4 -48.64 56 + 45.06 40
METALS, MISC + 32.65 16 -39.82 49 +103.32 6
COMP & BUS EQ + 18.56 41 -19.84 35 + 86.96 13
COMP EX IBM + 18.00 45 -42.65 52 + 88.13 11
OIL CRUDE + 51.60 7 -47.30 55 + 74.98 18
OIL DOM + 53.88 5 -49.91 57 + 54.36 30
OIL INTL + 25.98 29 -41.25 51 + 39.65 43
OIL WELL EQ + 69.26 2 -61.86 60 + 57.36 26
PAPER + 20.47 39 -23.32 39 + 56.14 27
PUBLISHING + 38.50 12 +11.69 15 +iOO.Ol 8
NEWSPAPERS + 35.39 15 + 5.26 18 +107.43 3
RADIO-TV + 23.95 32 +13.75 14 + 82.32 16
RESTAURANTS + 31.20 18 +44.96 2 + 48.27 37
RETDEPTSTR + 22.79 33 +35.10 3 + 99.60 9
RET FOOD CHN + 13.53 49 +25.92 9 + 51.37 35
RET GEN MDSE + 3.57 58 +22.38 11 +106.05 4
SOAPS + 10.33 51 +18.44 12 + 28.85 54
STEEL + 22.05 35 -39.50 48 + 36.88 46
TIRES + 46.58 8 +16.58 13 + 52.99 32
TOBACCO + 43.82 9 + 3.59 22 + 21.13 57

3180 - 11I80 11180 - 8182 8182 - 7183
GROUP %CNG RANK %CNG RANK %CNG RANK
ELEC UTIL + 6.55 55 +23.45 10 + 13.33 59

NG DISTRIB +29.34 22 -34.33 45 + 32.08 52
NG PIPELINES +35.87 14 -43.82 53 + 52.30 33
TELEPHONES + 5.18 56 + 8.52 17 + 21.68 56
AIR TRANS +22.08 34 + 4.95 19 + 85.03 14
RAILROADS +67.66 3 -39.11 47 + 74.69 19
NYC BANKS + 12.30 50 + 9.89 16 + 47.01 38
BANKS OUR NY + 18.15 44 -20.78 36 + 46.32 39
LIFE INS +18.58 40 +28.66 6 + 36.06 48
MULTI-LN INS +20.97 37 - 1.28 27 + 38.21 44
PROP CAS INS + 16.35 46 - 7.67 29 + 53.42 31
DJIA +20.80 38 -15.49 31 + 44.97 41
WHAT ABOUT NOW?
Table 6 shows the scores generated by each group during the six periods in the study. You
may be surprised, as I was, to learn that INSTRUMENTATION and SEMICONDUCTORS
are the only groups to beat the S&P 400 during all six periods. Truly, these two groups have
been all-weather groups for many years now.
Table 7 combines the scores from Table 6 just as a matter of interest. I suppose one could
say “If I have no opinion whatsoever of the direction of the rate of inflation, I should just buy,
and hang on to, groups rated 6, 5, and possibly 4, in Table 7.” That is certainly a possible
strategy, but I don’t think you need to have a perfect forecast of the direction of inflation in
order to use the data in Table 6. The inflation/disinflation trends covered in this report lasted
from 24 to 50 months. Even if you are several months late in recognizing a change of trend
(and most of you probably will be late), the data contained in Table 6 should be of some
value to you. There’s no need for a compromise, know-nothing, portfolio, which is really
what is listed in Table 7.
The two portfolios shown earlier could not have been exactly duplicated in the real world.
They were shown to illustrate that some knowledge of performance during four inflation/
disinflation periods would have been useful during two subsequent periods. I hope that these
data, from six periods, will be useful to you in the future.
Note: Standard & Poor’s Corp. has recently renamed two group indexes. The old “Office
and Business Equipment” has become “Computers and Business Equipment.” “Office and
Business Equipment excluding IBM” is now “Computers and Business Equipment exclud-
ing IBM.” In this report, the old names are used except in Table 5.
TABLE 6
THE NUMBER OF TIMES EACH GROUP

OUTPERFORMED THE S&P 400
(3 = Highest possible score)
Three Inflation Periods Three Disinflation Periods
Distillers
Copper
Instrumentation
z
3
Autos ex GM
Soft Drinks
Elec Equip
3
3
3
Semiconductors 3 Major Electrical 3
Mist Metals 3 Household Furn Ap 3
Oil Well Eq 3 Instrumentation 3
Tobacco 3 Semiconductors 3
NG Pipelines 3 Newspapers 3
Radio TV 3
Aluminum 2 Restaurants 3
Bldg Matls 2 Dept Stores 3
Coal, Bitum 2 Gen Mdse Chains 3
Containers, M + G 2 Air Trans 3
Drugs 2
Elec Equip 2 Indicator Digest 2
Forest Prod 2 Aerospace 2
Gold Mining 2 Autos 2
Hosp Suppl 2 Brewers 2
Industrial Mach 2 Distillers 2
Oft Eq ex IBM 2 Cosmetics 2
Oil, Domestic 2 Drugs 2
Oil, lntl 2 Foods 2
Paper 2 Gold Mining 2
Newspapers 2 Agri Mach 2
Radio - TV 2 Constr Mach 2
Soaps 2 Publishing 2
NG Distrib 2 Soaps 2
Railroads 2 Tires 2
NYC Banks 2 Tobacco 2
Banks Outside NYC 2 Banks Outside NYC 2
Multi-Line Ins 2 Prop Cas Ins 2
Indicator Digest 1 Aluminum 1

Short Govts 1 Bldg Matls 1
Aerospace 1 Chemicals 1
Brewers 1 Coal, Bitum 1
Soft Drinks 1 Forest Prod 1
Chemicals 1 Hosp Suppl 1
Cosmetics 1 lndust Mach 1
Household Furn Ap 1 Mist Metals 1
Foods 1 Office Eq 1
Agricultural Mach 1 Crude Oil 1
Constr Mach 1 lntl Oil 1

Three Inflation Periods Three Disinflation Periods
Office Eq 1 Oil Well Eq 1

Crude Oil 1 Paper 1
Publishing 1 Food Chains 1
Restaurants 1 Steel 1
Dept Stores 1 Elec Util 1
Food Chains 1 NG Distrib 1
Gen Mdse Chains 1 NG Pipelines 1
Steel 1 Railraods 1
Tires 1 NYC Banks 1
Telephones 1 Life Ins 1
Prop Cas Ins 1 DJIA 1
DJIA 1
Short Govts
Autos Containers, M + G
Autos ex GM Copper
Major Electrical Oft Eq ex IBM
Elec Util Domestic Oil
Air Trans Telephones
Life Ins
TABLE 7
COMBINED SCORES
FROM TABLE 6 SHOWING
THE TOTAL NUMBER OF TIMES EACH GROUP
OUTPERFORMED THE S&P 400
(6 = highest possible score)
Instrumentation 6 Foods 3
Semiconductors 6 Forest Prod 3
Hosp Suppl 3
Distillers 5 Agri Mach 3
Elec Equip 5 Constr Mach 3
Newspapers 5 Industrial Mach 3
Radio TV 5 lntl Oil 3
Tobacco 5 Paper 3
Publishing 3
Soft Drinks 4 Tires 3
Drugs 4 NG Distrib 3
Household Furn Ap 4 Air Trans 3
Gold Mining 4 Railroads 3
Mist Metals 4 NYC Banks 3
Oil Well Eq 4 Prop-Cas Ins 3
Restaurants 4
Dept Stores 4 Autos 2
Gen Mdse Chains 4 Chemicals 2
Soaps 4 Containers, M + G 2
NG Pipelines 4 Office Eq 2
Banks Outside NYC 4 Office Eq ex IBM 2
Multi-Line Ins 4 Crude Oil 2
Domestic Oil 2
Indicator Digest 3 Food Chains 2
Aerospace 3 Steel 2
Aluminum 3 DJIA 2
Autos ex GM 3
Brewers 3 Short Govts
Bldg Matls 3 Elec Util
Coal, Bitum 3 Telephones
Copper 3 Life Ins
Cosmetics 3
Major Electrical 3

DETAILS OF EACH PERIOD
Those who are interested in individual group performances will find the details in this sec-
tion. For each of the six periods, there is a page showing group performances listed in al-
phabetical order and in rank order. These pages were used to compile the scores shown
in Table 6.
A recent list showing the components of each industry group index is at the end of this sec-
tion. It is not completely up-to-date but will serve as a guide to readers who may not be
completely familiar with the S&P universe.

BASED ON ABSOLUTE PRICES OVER THE 50 MONTHS FROM 12/65 TO 02/70
INFLATION 1
GROUP % CNG RANK RANK ORDER % CNG
S&P 400 - 1.98 34 1 HOSP SUPPL + 354.35

IND DIGEST - 7.89 36 2 COSMETICS +121.08
SHORT GOVTS - 10.57 38 3 COAL BITUM +118.96
AEROSPACE - 55.10 SO 4 FOREST PROD + 104.08
ALUMINUM - 11.65 39 5 OFFICE EQUIP + 98.83
AUTOMOBILES - 34.66 55 6 SOFT DRINKS + 76.90
AUTOS EX GM - 35.84 57 7 OIL WELL EQ + 70.97
BREWERS + 64.96 9 8 OFC EQ X IBM + 68.04
DISTILLERS + 38.74 12 9 BREWERS + 64.96
SOFT DRINKS + 76.90 6 10 INSTRUMENT + 53.75
BLDG MATLS + 37.81 13 11 DRUGS + 52.20
CHEMICALS - 48.22 59 12 DISTILLERS + 38.74
COAL BITUM +118.96 3 13 BLDG MATLS + 37.81
CONTMET&GL + 7.26 25 14 SEMICONDUCT + 35.14
COPPER + 10.25 21 15 SOAPS + 34.71
COSMETICS + 121.08 2 16 PROP CAS INS + 22.45
DRUGS + 52.20 11 17 NYC BANKS + 20.62
ELEC EQUIP + 10.47 20 18 METALS, MISC + 13.22
EL MAJOR CO - 22.45 48 19 MULTI-LN INS + 10.91
HSLD FURNAP + 5.61 29 20 ELEC EQUIP + 10.47
INSTRUMENTN + 53.75 10 21 COPPER + 10.25
SEMICONDUCT + 35.14 14 22 RET DEPT STR + 10.20
FOODS - 2.46 35 23 BANKS OUT NY + 9.35
FOREST PROD + 104.08 4 24 NEWSPAPERS + 8.51
GOLD MNG - 8.18 37 25 CONT MET&GL + 7.26
HOSP SUPPL + 354.35 1 26 PAPER + 7.04
MACH AGRI - 35.73 56 27 TIRES + 6.81
MACH CONSTR - 20.20 45 28 RESTAURANTS + 6.29
MACH INDUSTR - 18.85 42 29 HSLD FURN AP + 5.61
METALS, MISC + 13.22 18 30 TOBACCO + 5.28
OFFICE EQUIP + 98.83 5 31 RADIO-TV + 4.58
OFC EQX IBM + 68.04 8 32 NG PIPELINES + 3.11
OIL CRUDE - 15.74 41 33 RET GEN MDSE + 3.00
OIL DOM - 19.29 43 34 S&P 400 - 1.98
OIL INTL - 25.81 50 35 FOODS - 2.46
OIL WELL EQ + 70.97 7 36 IND DIGEST - 7.89
PAPER + 7.04 26 37 GOLD MNG - 8.18
PUBLISHING - 24.43 49 38 SHORT GOVTS - 10.57
NEWSPAPERS + 8.51 24 39 ALUMINUM - 11.65
RADIO-TV + 4.58 31 40 RET FOOD CHN - 15.37
RESTAURANTS + 6.29 28 41 OIL CRUDE - 15.74
RET DEPT STR + 10.20 22 42 MACH INDUSTR - 18.85
RET FOOD CHN - 15.37 40 43 OIL DOM - 19.29
RETGEN MDSE + 3.00 33 44 NG DISTRIB - 20.04
SOAPS + 34.71 15 45 MACH CONSTR - 20.20
STEEL - 30.12 53 46DJIA - 20.96
TIRES + 6.81 27 47 TELEPHONES - 21.74

INFLATION 1
(continued)
TOBACCO + 5.28 30 48 EL MAJOR CO - 22.45

ELEC UTIL - 28.49 52 49 PUBLISHING - 24.43
NG DISTRIB - 20.04 44 50 OIL INTL - 25.81
NG PIPELINES + 3.11 32 51 RAILROADS - 28.42
TELEPHONES - 21.74 47 52 ELEC UTIL - 28.49
AIR TRANS - 45.69 58 53 STEEL - 30.12
RAILROADS - 28.42 51 54 LIFE INS - 32.46
NYC BANKS + 20.62 17 55 AUTOMOBILES - 34.66
BANKS OUT NY + 9.35 23 56 MACH ARGI - 35.73
LIFE INS - 32.46 54 57 AUTOS EX GM - 35.84
MULTI-LN INS + 10.91 19 58 AIR TRANS - 45.69
PROP CAS INS + 22.45 16 59 CHEMICALS - 48.22
DJIA - 20.96 46 60 AEROSPACE - 55.10

INFLATION 2
GROUP % CNH RANK RANK ORDER % CNG
S&P 400 - 38.08 34 1 GOLD MNG +115.34

IND DIGEST - 61.94 53 2 OIL WELL EQ + 46.79
SHORT GOVTS - 5.25 6 3 OIL DOM + 31.86
AEROSPACE - 45.55 39 4 STEEL - 1.97
ALUMINUM - 18.42 13 5 TELEPHONES - 4.55
AUTOMOBILES - 58.68 51 6SHORTGOVTS - 5.25
AUTOS EX GM - 56.45 45 7 COPPER - 6.21
BREWERS - 70.75 59 8 MACH AGRI - 7.45
DISTILLERS - 34.35 30 9 COAL BITUM - 10.88
SOFT DRINKS - 62.10 54 10 FOREST PROD - 12.02
BLDG MATLS - 58.21 50 11 PAPER - 16.68
CHEMICALS - 24.86 21 12 NG DISTRIB - 17.98
COAL BITUM - 10.88 9 13 ALUMINUM - 18.42
CONT MET&GL - 21.91 19 14 DRUGS - 18.93
COPPER - 6.21 7 15 RAILROADS - 20.26
COSMETICS - 68.0 58 16 NYC BANKS - 20.34
DRUGS - 18.93 14 17 MACH INDUSTR - 21.23
ELEC EQUIP - 54.28 43 18 NG PIPELINES - 21.28
EL MAJOR CO - 57.05 47 19 CONT MET&GL - 21.91
HSLD FURN AP - 64.30 57 20 SOAPS - 22.52
INSTRUMENTN - 33.15 29 21 CHEMICALS - 24.86
SEMICONDUCT - 25.64 24 22 METALS, MISC - 25.51
FOODS - 32.25 28 23 TOBACCO - 25.60
FOREST PROD - 12.02 10 24 SEMICONDUCT - 25.64
GOLD MNG +115.34 1 25 MACH CONSTR - 26.36
HOSP SUPPL - 36.12 31 26 OIL INTL - 26.88
MACH AGRI - 7.45 8 27 RET FOOD CHN - 30.10
MACH CONSTR - 26.36 25 28 FOODS - 32.25
MACH INDUSTR - 21.23 17 29 INSTRUMENTN - 33.15
METALS, MISC - 25.51 22 30 DISTILLERS - 34.35
OFFICE EQUIP - 49.83 41 31 HOSP SUPPL - 36.12
OFC EQ X IBM - 57.16 48 32DJIA - 36.63
OIL CRUDE - 46.35 40 33 BANKS OUT NY - 37.80
OIL DOM + 31.86 3 34 S&P400 - 38.08
OIL INTL - 26.88 26 35 PROP CAS INS - 39.44
OIL WELL EQ + 46.79 2 36 LIFE INS - 42.19
PAPER - 16.68 11 37 ELEC UTIL - 44.24
PUBLISHING - 63.86 56 38 MULTI-LN INS - 45.10
NEWSPAPERS - 59.58 52 39 AEROSPACE - 45.55
RADIO-TV - 58.20 49 40 OIL CRUDE - 46.35
RESTAURANTS - 62.64 55 41 OFFICE EQUIP - 49.83
RET DEPT STR - 55.55 44 42 TIRES - 52.01
RET FOOD CHN - 30.10 27 43 ELEC EQUIP - 54.28
RET GEN MDSE - 57.00 46 44 RET DEPT STR - 55.55
SOAPS - 22.52 20 45 AUTOS EX GM - 56.45
STEEL - 1.97 4 46 RET GEN MDSE - 57.00
TIRES - 52.01 42 47 EL MAJOR CO - 57.05
INFLATION 2
(continued)
GROUP % CNH RANK RANK ORDER % CNG
TOBACCO - 25.60 23 48 OFC EQ X IBM - 57.16

ELEC UTIL - 44.24 37 49 RADIO-TV - 58.20
NG DISTRIB - 17.98 12 50 BLDG MATLS - 58.21
NG PIPELINES - 21.28 ‘18 51 AUTOMOBILES - 58.68
TELEPHONES - 4.55 5 52 NEWSPAPERS - 59.58
AIR TRANS - 74.73 60 53 IND DIGEST - 61.94
RAILROADS - 20.26 15 54 SOFT DRINKS - 62.10
NYC BANKS - 20.34 16 55 RESTAURANTS - 62.64
BANKS OUT NY - 37.80 33 56 PUBLISHING - 63.86
LIFE INS - 42.19 36 57 HSLD FURN AP - 64.30
MULTI-LN INS - 45.10 38 58 COSMETICS - 68.10
PROP CAS INS - 39.44 35 59 BREWERS - 70.75
DJIA - 36.63 32 60 AIR TRANS - 74.73

INFLATION 3
S&P 400 + 2.67 26 1 GOLD MNG + 167.51

IND DIGEST + 20.65 17 2 AEROSPACE +116.20
SHORT GOVTS - 24.89 46 3 OIL CRUDE +115.19
AEROSPACE +116.20 2 4 OIL WELL EQ + 93.49
ALUMINUM + 39.54 10 5 OIL DOM + 62.26
AUTOMOBILES - 37.12 55 6 INSTRUMENTN + 51.70
AUTOS EX GM - 39.16 56 7 OIL INTL + 51.44
BREWERS - 27.45 51 8 NG PIPELINES + 48.28
DISTILLERS + 35.14 12 9 PUBLISHING + 39.89
SOFT DRINKS - 23.27 44 10 ALUMINUM + 39.54
BLDG MATLS + 9.54 21 11 COPPER + 37.59
CHEMICALS - 26.39 49 12 DISTILLERS + 35.14
COAL BITUM - 35.47 54 13 METALS, MISC + 30.40
CONT MET&GL - 11.72 35 14 MULTI-LN INS + 28.97
COPPER + 37.59 11 15 RAILROADS + 25.52
COSMETICS + 22.93 42 16 NG DISTRIB + 22.49
DRUGS - 3.75 28 17 IND DIGEST + 20.65
ELEC EQUIP + 3.28 25 18 NEWSPAPERS + 19.87
EL MAJOR CO - 7.48 30 19 RADIO-TV + 17.06
HSLD FURN AP - 44.49 58 20 SEMICONDUCT + 12.75
INSTRUMENTN + 51.70 6 21 BLDG MATLS + 9.54
SEMICONDUCT + 12.75 20 22 MACH INDUSTR + 8.38
FOODS - 23.08 43 23 OFC EQX IBM + 7.90
FOREST PROD - 20.23 39 24 TOBACCO + 3.77
GOLD MNG + 167.51 1 25 ELEC EQUIP + 3.28
HOSP SUPPL - 6.71 29 26 S&P 400 + 2.67
MACH AGRI - 9.18 33 27 RESTAURANTS - 2.72
MACH CONSTR - 14.90 36 28 DRUGS - 3.75
MACH INDUSTR + 8.38 22 29 HOSP SUPPL - 6.71
METALS, MISC + 30.40 13 30 EL MAJOR CO - 7.48
OFFICE EQUIP - 8.02 32 31 PROP CAS INS - 7.86
OFC EQX IBM + 7.90 23 32 OFFICE EQUIP - 8.02
OIL CRUDE +115.19 3 33 MACH AGRI - 9.18
OIL DOM + 62.26 5 34 LIFE INS - 10.63
OIL INTL + 51.44 7 35 CONT MET&GL - 11.72
OIL WELL EQ + 93.49 4 36 MACH CONSTR - 14.90
PAPER - 24.78 45 37DJIA - 17.29
PUBLISHING + 39.89 9 38 BANKS OUT NY - 17.60
NEWSPAPERS + 19.87 18 39 FOREST PROD - 20.23
RADIO-TV + 17.06 19 40 RET FOOD CHN - 20.64
RESTAURANTS - 2.72 27 41 AIR TRANS - 22.44
RET DEPT STR - 30.47 53 42 COSMETICS - 22.93
RET GOOD CHN - 20.64 40 43 FOODS - 23.08
RET GEN MDSE - 54.35 59 44 SOFT DRINKS - 23.27
SOAPS - 28.15 52 45 PAPER - 24.78
STEEL - 42.34 57 46 SHORT GOVTS - 24.89

BASED ON ABSOLUTE PRICES OVER THE 39 MONTHS FROM 12176 TO 03180
INFLATION 3
(Continued)
TIRES - 55.86 60 47 NYC BANKS - 24.99

TOBACCO + 3.77 24 48 TELEPHONES - 25.26
ELEC UTIL - 27.24 50 49 CHEMICALS - 26.39
NG DISTRIB + 22.49 16 50 ELEC UTIL - 27.24
NG PIPELINES + 48.28 8 51 BREWERS - 27.45
TELEPHONES - 25.26 48 52 SOAPS - 28.15
AIR TRANS - 22.44 41 53 RET DEPT STR - 30.47
RAILROADS + 25.52 15 54 COAL BITUM - 35.47
NYC BANKS - 24.99 47 55 AUTOMOBILES - 37.12
BANKS OUT NY - 17.60 38 56 AUTOS EX GM - 39.16
LIFE INS - 10.63 34 57 STEEL - 42.34
MULTI-LN INS + 28.97 14 58 HSLD FURN AP - 44.49
PROP CAS INS - 7.86 31 59 RET GEN MDSE - 54.35
DJIA - 17.29 37 60 TIRES - 55.86

BASED ON ABSOLUTE PRICES OVER THE 28 MOTNHS FROM 02/70 TO 06/72
DISINFLATION 1
S&P 400 + 26.19 30 1 RESTAURANTS + 203.31

IND DIGEST - 0.11 50 2 OIL WELL EQ + 126.19
SHORTGOVTS + 7.50 44 3 NEWSPAPERS +112.27
AEROSPACE + 29.84 28 4 TOBACCO + 105.43
ALUMINUM - 30.18 59 5 OIL CRUDE + 97.95
AUTOMOBILES + 18.61 39 6 HSLD FURN AP + 87.93
AUTOS EXGM + 46.14 20 7 GOLD MNG + 82.30
BREWERS + 62.67 14 8 RET GEN MDSE + 74.93
DISTILLERS + 30.54 27 9 AIR TRANS + 74.55
SOFT DRINKS + 68.04 11 10 SOAPS + 73.75
BLDG MATLS + 9.94 43 11 SOFT DRINKS + 68.04
CHEMICALS + 64.51 12 12 CHEMICALS + 64.51
COAL BITUM + 19.50 38 13 PROP CAS INS + 63.86
CONT MET&GL - 21.35 57 14 BREWERS + 62.67
COPPER - 33.02 60 15 MACH INDUSTR + 59.00
COSMETICS + 26.97 29 16 RADIO-TV + 53.16
DRUGS + 33.69 24 17 MACH CONSTR + 52.46
ELEC EQUIP + 52.34 18 18 ELEC EQUIP + 52.34
EL MAJOR CO + 44.21 21 19 RET DEPT STR + 47.59
HSLD FURN AP + 87.93 6 20 AUTOS EX GM + 46.14
INSTRUMENTN + 31.58 26 21 EL MAJOR CO + 44.21
SEMICONDUCT + 42.44 22 22 SEMICONDUCT + 42.44
FOODS + 4.63 48 23 BANKS OUT NY + 34.92
FOREST PROD - 18.64 56 24 DRUGS + 33.69
GOLD MNG + 82.30 7 25 MACH AGRI + 32.74
HOSP SUPPL + 5.77 45 26 INSTRUMENTN + 31.58
MACH AGRI + 32.74 25 27 DISTILLERS + 30.54
MACH CONSTR + 52.46 17 28 AEROSPACE + 29.84
MACH INDUSTR + 59.00 15 29 COSMETICS + 26.97
METALS, MISC - 21.99 58 30 S&P 400 + 26.19
OFFICE EQUIP + 17.23 41 31 OFC EQ X IBM + 25.16
OFC EQ X IBM + 25.16 31 32DJIA + 24.41
OIL CRUDE + 97.95 5 33 OIL DOM + 22.66
OIL DOM + 22.66 33 34 OIL INTL + 22.63
OIL INTL + 22.63 34 35 NYC BANKS + 21.58
OIL WELL EQ + 126.19 2 36 MULTI-LN INS + 21.48
PAPER - 5.98 53 37 RAILROADS + 19.57
PUBLISHING + 2.29 49 38 COAL BITUM + 19.50
NEWSPAPERS + 112.27 3 39 AUTOMOBILES + 18.61
RADIO-TV + 53.16 16 40 LIFE INS + 17.31
RESTAURANTS + 203.31 1 41 OFFICE EQUIP + 17.23
RET DEPT STR + 47.59 19 42 NG PIPELINES + 16.74
RET FOOD CHN + 4.77 46 43 BLDG MATLS + 9.94
RET GEN MDSE + 74.93 8 44 SHORT GOVTS + 7.50
SOAPS + 73.75 10 45 HOSP SUPPL + 5.77
STEEL - 4.24 52 46 RET FOOD CHN + 4.77

DISINFLATION 1
(Continued)
TIRES - 1.75 51 47 NG DISTRIB + 4.63

TOBACCO + 105.43 4 48 FOODS + 4.63
ELEC UTIL - 6.40 54 49 PUBLISHING + 2.29
NG DISTRIB + 6.40 47 50 IND DIGEST - 0.11
NG PIPELINES + 16.74 42 51 TIRES - 1.75
TELEPHONES - 13.28 55 52 STEEL - 4.24
AIR TRANS + 74.55 9 53 PAPER - 5.98
RAILROADS + 19.57 37 54 ELEC UTIL - 6.40
NYC BANKS + 21.58 45 55 TELEPHONES - 13.28
BANKS OUT NY + 34.92 23 56 FOREST PROD - 18.64
LIFE INS + 17.31 40 57 CONT MET&GL - 21.35
MULTI-LN INS + 21.48 36 58 METALS, MISC - 21.99
PROP CAS INS + 63.86 13 59 ALUMINUM - 30.18
DJIA + 24.41 32 60 COPPER - 33.02

BASED ON ABSOLUTE PRICES OVER THE 24 MONTHS FROM 12174 TO 12/76
DISINFLATION 2
SP 400 + 55.48 36 1 PUBLISHING + 162.19

IND DIGEST + 87.92 12 2 RADIO-TV + 135.03
SHORT GOVTS + 7.10 56 3 AEROSPACE +130.11
AEROSPACE +130.11 3 4 AUTOMOBILES + 127.55
ALUMINUM + 87.64 13 5 NEWSPAPERS + 112.69
AUTOMOBILES + 127.55 4 6 HSLD FURN AP + 109.88
AUTOS EX GM + 87.26 14 7 BLDG MATLS + 106.61
BREWERS + 5.65 58 a PAPER + 98.77
DISTILLERS + 6.76 57 9 FOREST PROD + 95.49
SOFT DRINKS + 68.77 21 10 RESTAURANTS + 94.62
BLDG MATLS + 106.61 7 11 COAL BITUM + 89.56
CHEMICALS + 50.01 39 12 IND DIGEST + 87.92
COAL BITUM + 89.56 11 13 ALUMINUM + 87.64
CONT MET&GL + 45.32 44 14 AUTOS EX GM + 87.26
COPPER + 15.91 55 15 TIRES + 82.86
COSMETICS + 58.12 33 16 MACH CONSTR + 82.01
DRUGS - 5.52 59 17 AIR TRANS + 80.62
ELEC EQUIP + 68.36 22 la MULTI-LN INS + 76.59
EL MAJOR CO + 71.32 20 19 RET DEPT STR + 76.41
HSLD FURN AP + 109.88 6 20 EL MAJOR CO + 71.32
INSTRUMENTN + 63.36 28 21 SOFT DRINKS + 68.77
SEMICONDUCT + 55.80 34 22 ELEC EQUIP + 68.36
FOODS + 67.11 23 23 FOODS + 67.11
FOREST PROD + 95.49 9 24 STEEL + 66.79
GOLD MNG - 17.00 60 25 OIL INTL + 66.50
HOSP SUPPL + 17.15 53 26 BANKS OUT NY + 65.05
MACH AGRI + 59.28 31 27DJIA + 63.39
MACH C~NSTR + 82.01 16 28 INSTRUMENTN + 63.36
MACH INDUSTR + 36.71 49 29 ELEC UTIL + 60.42
METALS, MISC + 49.46 40 30 NG DISTRIB + 59.99
OFFICE EQUIP + 52.75 37 31 MACH AGRI + 59.28
OFC EQX IBM + 26.71 51 32 RET GEN MDSE + 58.79
OIL CRUDE + 40.95 47 33 COSMETICS + 58.12
OIL DOM + 47.20 42 34 SEMICONDUCT + 55.80
OIL INTL + 66.50 25 35 NG PIPELINES + 55,71
OIL WELL EQ + 40.87 48 36 S&P 400 + 55.48
PAPER + 98.77 a 37 OFFICE EQUIP + 52.75
PUBLISHING + 162.19 1 38 TELEPHONES + 50.29
NEWSPAPERS + 112.69 5 39 CHEMICALS + 50.01
RADIO-TV + 135.03 2 40 METALS, MISC + 49.46
RESTAURANTS + 94.62 10 41 PROP CAS INS + 48.94
RET DEPT STR + 76.41 19 42 OIL DOM + 47.20
RET FOOD CHN + 45.87 43 43 RET ~00~ CHN + 45.87
RET GEN MDSE + 58.79 32 44 CONT MET&GL + 45.32
SOAPS + 21.64 52 45 RAILROADS + 45.16
STEEL + 66.79 24 46 LIFE INS + 44.39

DISINFLATION 2
(Continued)
TIRES + 82.86 15 47 OIL CRUDE + 40.95

TOBACCO + 31.27 50 48 OIL WELL EQ + 40.87
ELEC UTIL + 60.42 29 49 MACH INDUSTR + 36.71
NG DISTRIB + 59.99 30 50 TOBACCO + 31.27
NG PIPELINES + 55.71 35 51 OFC EQX IBM + 26.71
TELEPHONES + 50.29 38 52 SOAPS + 21.64
AIR TRANS + 80.62 17 53 HOSP SUPPL + 17.15
RAILROADS + 45.16 45 54 NYC BANKS + 16.44
NYC BANKS + 45.16 54 55 COPPER + 15.91
BANKS OUT NY + 65.05 26 56 SHORT GOVTS + 7.10
LIFE INS + 44.39 46 57 DISTILLERS + 6.76
MULTI-LN INS + 76.59 18 58 BREWERS + 5.65
PROP CAS INS + 48.94 41 59 DRUGS - 5.52
DJIA + 63.39 27 60 GOLD MNG - 17.00

BASED ON ABSOLUTE PRICES OVER THE 40 MONTHS FROM 03/80 TO 07183
DISINFLATION 3
S&P 400 + 58.41 34 1 RET DEPT STR +231.12

IND DIGEST + 174.94 7 2 HSLD FURN AP + 215.75
SHORT GOVTS + 12.19 53 3 PUBLISHING + 209.39
AEROSPACE + 56.47 35 4 NEWSPAPERS + 195.61
ALUMINUM + 16.34 51 5 RESTAURANTS + 181.99
AUTOMOBILES + 70.42 27 6 BREWERS + 179.14
AUTOS EX GM + 123.58 14 7 IND DIGEST + 174.94
BREWERS + 179.14 6 8 TIRES +161.42
DISTILLERS + 62.30 33 9 RET GEN MDSE + 161.42
SOFT DRINKS + 72.26 26 10 RADIO-TV + 157.06
BLDG MATLS + 50.60 36 11 INSTRUMENTN + 153.49
CHEMICALS + 39.44 43 12 HOSP SUPPL + 141.62
COAL BITUM - 9.85 59 13 AIR TRANS + 137.06
CONT MET&GL + 49.94 37 14 AUTOS EX GM + 123.58
COPPER + 40.17 41 15 SEMICONDUCT + 123.45
COSMETICS + 20.29 48 16 RET FOOD CHN + 116.40
DRUGS + 74.32 25 17 EL MAJOR CO + 113.89
ELEC EQUIP + 76.59 24 18 LIFE INS + 107.58
EL MAJOR CO +113.89 17 19 FOODS + 95.36
HSLD FURN AP +215.75 2 20 NYC BANKS + 81.41
INSTRUMENTN + 153.49 11 21 TOBACCO + 80.46
SEMICONDUCT + 123.45 15 22 RAILROADS + 78.32
FOODS + 95.36 19 23 OFFICE EQUIP + 77.67
FOREST PROD + 16.38 50 24 ELEC EQUIP + 76.59
GOLD MNG + 64.06 31 25 DRUGS + 74.32
HOSP SUPPL + 141.62 12 26 SOFT DRINKS + 72.26
MACH AGRI - 18.52 60 27 AUTOMOBILES + 70.42
MACH CONSTR - 4.50 58 28 SOAPS + 68.38
MACH INDUSTR + 20.83 47 29 MULTI-LN INS + 65.06
METALS, MISC + 62.30 32 30 PROP CAS INS + 64.81
OFFICE EQUIP + 77.67 23 31 GOLD MNG + 64.06
OFC EQX IBM + 27.32 46 32 METALS, MISC + 62.30
OIL CRUDE + 39.80 42 33 DISTILLERS + 62.30
OIL DOM + 18.99 49 34 S&P 400 + 58.41
OIL INTL + 3.37 55 35 AEROSPACE + 56.47
OIL WELL EQ + 1.59 56 36 BLDG MATLS + 50.60
PAPER + 44.23 40 37 CONT MET&GL + 49.94
PUBLISHING + 209.39 3 38 ELEC UTIL + 49.07
NEWSPAPERS + 195.61 4 39DJIA + 48.00
RADIO-TV + 157.06 10 40 PAPER + 44.23
RESTAURANTS + 181.99 5 41 COPPER + 40.17
RET DEPT STR + 231 .I 2 1 42 OIL CRUDE + 39.80
RET FOOD CHN + 116.40 16 43 CHEMICALS + 39.44
RET GEN MDSE + 161.14 9 44 TELEPHONES + 38.89
SOAPS + 68.38 28 45 BANKS OUT NY + 36.96
STEEL + 1.08 57 460FC EQX IBM + 27.32
TIRES +161.42 8 47 MACH INDUSTR + 20.83

BASED ON ABSOLUTE PRICES OVER THE 40 MONTHS FROM 03108 TO 07/83
DISINFLATION 3
(Continued)
TOBACCO + 80.46 21 48 COSMETICS + 20.29

ELEC UTIL + 49.07 38 49 OIL DOM + 18.99
NG DISTRIB + 12.18 54 50 FOREST PROD + 16.38
NG PIPELINES + 16.25 52 51 ALUMINUM + 16.34
TELEPHONES + 38.89 44 52 NG PIPELINES + 16.25
AIR TRANS + 137.06 13 53 SHORT GOVTS + 12.19
RAILROADS + 78.32 22 54 NG DISTRIB + 12.18
NYC BANKS + 81.41 20 55 OIL INTL + 3.37
BANKS OUT NY + 36.96 45 56 OIL WELL EQ + 1.59
LIFE INS + 107.58 18 57 STEEL T 1.08
MULTI-LN INS + 65.06 29 58 MACH CONSTR 4.50
PROP CAS INS + 64.81 30 59 COAL BITUM - 9.85
DJIA + 48.00 39 60 MACH AGRI - 18.52

STOCKS IN THE S6P 500 PRICE INDEX
- 400 INDUSTRIALS - HOSPITALSUPPLIES-Abbott Lab. Amer Hosprtal: Bard (C R J. TEXTILE PROOUCT~Burhngton lndus Colhns. Cone Mrlls
Baxter Travenol tab Becton. Drckrnson. Johnson & Johnson Lowenstem Sprrngs lndustrres Inc Stevens. West Pmnt-
AEROSPACE-Boemg. General Dynamrcs. Grumman. Martm Pepperell
HOTEL-MOTEL-Hrlton Hotels, Hohday Inns: Ramada Inns
Marretta, McDonnell Douglas, Raytheon Rockwell lntl Unded
HOUSEHOLO FURNISHING 6 APPLIANCES-Bassett Furndure TIRES6 RUBBER 600O~Fnestoce Gcodnch. Goodyear. Unnoyai
Technologres.
ind Maytag. Roper Corp Mohasco Corp Whrrlpool, Whrte TOBACCO-Amer Brands Inc Phrhp Morns, Reynolds lndus
ALUMlNUMdlcan Alummum. Aluminum Co of Amer. Karser
Consolrdated lnds Zemth TOYLColeco Inc Mattel Inc Mrlton Bradley. Tonka Corp
Alummum; Reynolds Metals
LEISURETIME-AMF Inc. Brunswrck. Coleman Co Handleman.
AUTOMOBILE-Amer Motors: Chrysler. Ford: Gen Motors.
Outboard Manne
AUTO F’ARTS(Afk?r Market&Champron Spark Plug. Echlrn Kfg
Genuine Parts; Sealed Power Corp
MACHINE TOOLS-Acme Cleveland, Brown & Sharpe. Cmcrnnatr - 40 PUBLIC UTILITIES -
Mrlacron. Cross & Trecker. Monarch Machrne Tool ELECTRIC POWER-Amer El. Pwr. Balt G & E.. Cent & So
AUTO PARTS (Original Equip.&Dana. Eaton: Lrb -Owens-Ford.
MACHINERY ~A~RICULTURAL~AIIIS Chalmers, Deere, Intl. Har- West. Corp Comm Ed : Con Ed : Detroit Ed Duke Power.
TRW Inc., Trmken Corp.
vester, Massey Ferguson Fla Power & Lrght. Middle So Utrl New Eng Elec Sys,
AUTO TRUCKS 6 PARTS-Cummrns Engrne: Fruehauf: Paccar Niagara Mohawk. No. States Pwr. Ohro Ed., Pat G & E., Phrla
NACHINERY (CONSTRUCTION 6 MATERIALS tMNOLlN6~Bucy~us-
IIIC
Erie: Cater. Trac Clark Equrp Hyster Co. Rexnord Inc Elec Pub. Serv E. & G.. Publrc Servrce of Indrana. So. Cahf
BEVERA6ES (BREWERS)-Anheuser-Busch. Coors (Adolph): Ed Southern Co., Texas Utrls.: Va. E. & P: WISC El. Pwr
MACtNNERVDNDUSTRIAL’SPEClALTV~Br~ggs & Stratton. Chrcago
Hedeman (G) Brewmg: Pabst Brew
Pneumatrc. Combustron Eng Cooper Indus.. Ex-Cell-O. Foster NATURAL 6AS DISTRIBUTOR~Bklyn Umon: Columbra. Consol-
BEVERA6ES tOISTILLERS~Brown-Forman Drstrllers, Nab Dust.: Wheeler. Ingersoll-Rand. Joy Mfg. rdated Natural, ENSERCH Corp., Oneok Inc.. Pat Lrght. Peoples
Seagram Ltd.: Walker. Energy
MEIALS MISC.-Amax Inc : Hudson Bay Mng ; INCO Ltd. Phibro
BEVERIIGES (SOFT ORlNKStCoca-Cola: Or Pepper. General Salomon Inc. NATURAL 6115 PIPE LINELAmer Natural Resources: El Paso
Cinema: PepsrCo Inc : Royal Crown Cos Co InterNorth Inc.: Panhandle Eastern: Sonat Inc Texas East
MISCELLANEOUSARA Servrces. AT&T.Apple Computer: Armstmng
BUILDING MATERIALS -American Standard. Crane: Fedders: Corp Texas Gas Trans
World: Black & Decker, Borg-Warner, Cornmg Glass. Eastman
Ideal Basrc, hm Walter: Karser Cement; tone Star Ind Masco: Kodak, Esmark. Fluor Corp. Grllette. Harris Corp. Honeywell TELEPHONE--‘AT&T: Centel Corp : Contl. Tel.: GTE Corp.. Unded
Masomte: Nat? Gypsum; Dane: U.S Gypsum. Inc MCI Commumcahons. Mrnnesota Mmmg, Owens-Coming. Telecommumcatrons
CHEMICAL&Dow: Du Pont (E.I.): Hercules, Monsanto: Stauffer Polarold: Shemrn-Willlams. Srgnal Cos.. Smger. Snap-on Tools:
Chem ; Umon Carbrde. Stanley Works: Tandy
CHEMICALS tMISC&AJhed Corp. Amencan Cyanamrd. Celanese MOBlLEHOME~Fleetwood Enterprrses. Redman Inds.: Skyhne. - 20 TRANSPORTATION -
Corp.: FMC Corp.: Grace (WR.1 &Co.; PPG. Inc Rohm & Haas OFFICE & BUSINESS EtlUIPMENT-Burroughs. Control Data. AIR FREIGHT -Emery Arr Frerght. Federal Express. Trger inter-
CW(BITUMlNOUS&Eastem Gas & Fuel. No Amet Coal: Pdtston. Data General. Datapornt Corp : Drgrtal Equrp.. lntl Bus Mach : natronal
Westmoreland. NCR Corp Pdney-Bowes. Sperry Corp. Storage Tech. Wang AIR TRANSPORT-AMR Corp.: Delta. Northwest. Pan Am. UAL.
COMMUNICATION~E6UIC/MFRS.-M A-Corn Inc Northern Lab Cl B. Xerox Corp Inc
Tefecom.; Rolm Corp.: Screntrfrc Atlanta. OFFSHORE DRILLING-Global Marme. Readrng & Bates, SEDCO; RAILRMDS-Burhngton Northern Inc. CSX Corp : Norfolk Southern
COMPUTER SERVICELAutomahc Data: Computer Sciences: Western Co of North America. Carp, Santa Fe industries. So Pac. Umon Pat Corp
Electromc Data Systems: lymshare. OIL (CRUOE PROOUCERSttoursrana Land & Exploratron; Mesa TRUCKERS-Consol Frerghtways. Overmte Transportatron.
CONGLOMERAlE~GuIf & Western: IC lndus Int’l Tel & Tel.. Pet, Pennzorl Co, Superror 011. Texas 011 &Gas Roadway Servrce: Yellow Frerght Sys.
Litton Indus., Northwest lndus, Teledyne; Tenneco Inc Textron OIL (INTEGRATED-OOMESTlCtAtl. Rrchfreld. Get@ 011. Occrdental lRANSPORWION fMISCELLANEOUSJ4easeway Transportatron.
CONTAINERS (METAL & 6USStAmer. Can, Contl Group, Crown Petroleum, Phrlhps. Shell, Stand 011 Ind Standard 011 Ohio: Ryder System
Cork: Natl. Can: Owens-Ill. Sun Co, Umcal Corp
CONTAINERS (PAPERtBemrs Co : Stone Contamer: Federal, OIL (INTEGRATED-INTERNATIONAL&Exxon Corp Gulf. Mobrl
Maryland Cup. Corp.. Royal Dutch. Stand Or1 Calrf. Texaco. - 40 FINANCIAL -
COPPER-ASARCO Inc.. Newmont Mrmng: Phelps-Dodge SCANAOIAN OIL 6 61s EXPLORATlOtCDome Petroleum. Gulf of BANKS (NEW YORK ClTVbBankers Trust New York. Chase Man-
Canada. Husky 011. lmperral 011 ttd hattan Chemrcal. Cdrcorp: Manufacturers Hanover: Morgan
COSYEllC%Afbertc&lver: Ibon: Chesebrough-Fond’s: Faberge
Inc.: Intl. Flavors & Fragrances: Revlon. OIL WELL EtlUIPMENT AN0 SERVICES-Baker lntl Dresser: f1.P) & Co
Hallrburton: Hughes Tool, McDermott Int’l.: NL Industries: BANKS fOUlSIOE NEW YORK ClTV&BankAmenca; Bank of Boston
ORU6S-Amer. Home; Bristol-Myers: Ldly (El0 Merck: Pfizer.
Schlumberger Corp : Cont‘l Ill. Corp.. Frrst Chrc. Corp.; hrst Interstate Bancorp..
Schenng-Plough; Searte (G. 0.1: SmrthKhne Beckman Corp.
PAPER-Crown Zell.. Int‘l Paper: Krmb-Clark, Mead; St Regrs. Frrst Penn., InterFirst Corp. Mellon Nat1 : NCNB Corp.. Northwest
Squibb Corp.; Sterhng; UpJohn Co.: Warner-Lambert.
Scott, Umon Camp: Westvaco Corp
ELECTRICAL EPUIPMENT-Emerson Electrrc: General Instrum..
Grainger tW W,): McGraw Edrson, Square D: Thomas & Betts POLLUTION CONTROL-Brownmg-Ferns: Peabody Int’l : SCA LIFE INSURANCE-Capkal Holdmg: Jefferson Pilot; Lmcoln National
Servrces. Waste Management Inc.: Zurn Ind Corp., USLIFE Corp.
ELECTRONICS MAJOR COS.--Gen. Elec.; RCA. Westinghouse Elec
PUBLISHINGDun & Bradstreet: Harcoud Brace lovanovrch. MULTI-LINE INSURANCE&tna Life & Cas.: Amencan Int’l Gmup:
ELECTRONICS (IN6lRUMENlAllONJ-Gould Inc.: Hewlett-Packard;
Macmdlan. McGraw-Hrll. Meredrth. SFN Co : Time Inc American General: CIGNA Corp.: CNA Financral. Travelers.
Perkin-Elmer: Tektronix.
PUBLISHING (NEWSPAPERS&Dow Jones: Gannett Co.. Kntght PROPERTY-CASUALTY INSURANCE-Chubb Corp.. Contrnental
ELECTRBNIS (SEMlCONOUCTORS/COMWNENTS&AMP Inc : Intel Corp.: St. Paul: Safeco Corp : USF E G Corp.
Rrdder Newspapers. Trmes Mrrror
Corp.: Motorola. Nat’1 Semiconductor: Texas Instruments
RAOIO-TV BROAOCASTERtAmerrcan. CBS Inc.. Caprtal Crtres SAVINGS 6 LMN HOLOING COS.-Ahmanson (H.0 Frrst Charter.
ENTERTAINMENT-Drsney (Walt). MCA MGMUA Entertamment
Comm.. Cox Commumcatron Corp.: Metromedra. Taft. Great Western.
Co.; Warner Communications.
RAILRMO EBUIPMENT-%F Ind., Amsted lndus : Gen. Srg. PERSONALLMN~Benefrcral; Household Int’l Inc
FERTILIZER~Beker Inds.; Frrst Miss. Corp : Intl. Mmerals &
RESTAURANTS-Church’s Frred Chrcken: Denny’s Inc. Marrrott. FINANCIAL-MISC.-Amencan Express; Heller (Walter E ): Merrill
Chem.; Wdliams Cos.
McDonald’s Corp Wendy’s Int’l. Lynch; Transamenca Corp.
FOODS-Amstar Corp : Archer-DameIs-Mrdland: Beatnce Foods,
Borden; CPC Int’l.; Campbell Soup: Carnatron. Consohdated RETAIL STORES tOEPI SlORES&-Afhed Stores: Assocrated: Carter l *BRONERA6E FIRM6-Donaldson Lufkm Jenrette; Edwards fA.G.1;
Hawley Hale Stores; Dayton Hudson: Federated: Macy: May Hutton fE.F) Group, Paine Webber, Inc.
Foods: Dart & Kraft Inc.; Gen. Foods: Gen Mills: Gerber Prod.;
Hemz (HJ.); Hershey Foods: Kellogg: Nabtsco Brands Inc: Dept Mercantde Stores. **INVESTMENT COMPANIES-Adams: Gen. Amer: Lehman:
Morton Simon; Pillsbury; QuakerOats: Ralston Rrrna. Stokely- RETAIL STORES (ORUGbEckerd (Jack): Revco D.S Inc Rrte Madrson, Tri-Cont.
Van Camp; Wrigley (Wm.). Ard: Walgreen Co. *‘INVESTMENT COS. (Bond Funds)-Amerrcan General Bond;
FOREST PRODUCT&Bofse Cascade: Champron lntl : Evans RETAIL STORES (FOOD CHAINS)-Amer. Stores Co.: Great A.&P: lntercaprtal Inc. Sec.: John Hancock Inc Sec.; Masshlutual
Products: Georgra-Pacrfrc: Loursrana-Pac., Potlatch Corp Jewel Compames. Kroger: Lucky Stores, Safeway; Wmn-Drxre Inc. Inv.. Montgomery Str. Inc. Sec.
Weyerhaeuser. RETAIL STORES f6EN. MDSE. CHAINS)-K mart; Penny (1.C.h “REAL ESTATE INVEST-Frrst Union Real Estate, Lomas &
t6AMlN6 COS.-Bally Mfg.: Caesars World: Resorts Int’l (Cl. Al: Sears. Wal-Mart Stores; Woolworth Nettleton Mtge. Inv.; Mass-Mutual Mtge & Realty: Mony Mtg..
Webb (Del. E.T. Wells Fargo Mortge. & Equdy
SHOELBrown Group: Genesco: Interco; Melvdle Carp
6010 MININGASA Ltd ; Campbell Red Lake; Dome. Homestake SUAP~Clomx: Colgate-Palmohve; Procter & Gamble: Undever
Mming. N.V.
HOMEBUILUlN6-Centex Corp.: Kaufman & Broad: U.S. Home STEEL-Armco: Beth Inland. Interfake, Natronal: Republrc: U S. tNot included rn 400 Industrials.
Corp. Steel: Wheehng-Prttsburgh. ‘Not mcluded m Utddy composde.
NOSPllNl YANlGEYENT-Amer. Med. Int’l; Hosprtal Corp. of TEXTN.ES(APPAREL MFRS&Blue Bell: Cluett Rabody: Hartmarx **Not mcluded m Financial composrte.
Amer.: Humana Inc.: Nat’1 Med. Enter. Corp.: Jonathan Logan: Levr Strauss: V.E Carp tSupplementary Groups and Changes on Preceding Page)

David Upshaw is a Vice President of Waddell & Reed, Inc., a Kansas City-based financial ser-
vices firm. He is the firm’s Director of Portfolio Strategy Research. David is a Founding Member
of the MTA and served as its fourth President. He is a Chartered Financial Analyst, and belongs
to the Kansas City Society of Financial Analysts and the New York Society of Security Analysts,
Inc.




1983 November Journal Arthur Merril

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

1983 November Journal Arthur Merril

Uploaded by

Copyright:

Available Formats

!

MTA Journal/November 1983 1

Editor: James M. Yates

Contributors: Roger G. Clarke

Publisher: Market Technicians Association

MTA Journal/November 1983 3

MTA Journal/November 1983 4

MEMBERSHIP AND SUBSCRIPTION INFORMATION .. . .. . .. .. . . . . .. . .. .. . .. . .. . .. . .. .. . . .. . 7

STYLE SHEET FOR SUBMISSION OF ARTICLES . .. . .. . . . . . .. .. . . .. . . .. .. . .. . .. . .. .. .. . . . 8

MTA LETTER FROM THE EDITOR . . .. .. . . . . .. . .. . .. .. . . .. .. .. . .. . .. .. . .. . .. .. . . . .. . .. 9

A DISCUSSION OF APPLIED MODERN PORTFOLIO THEORY:

FOUR NEW INDICATORS . .. . .. . .. . .. .. . .. .. . .. . .. .. . .. . . . . .. .. . .. .. . .. . .. .. . .. .. . . . . .. . 27

KEEPING SCORE ON INFLATION .. . .. .. . .. .. . .. .. .. . .. . .. .. . .. . .. .. . .. .. . . .. . . . .. .. . .. . .. . .. . 47

MTA Journal/November 1983 5

PROGRAMS ETHICS & STANDARDS/PUBLIC RELATIONS

JOURNAL COMPUTER SPECIAL INTEREST GROUP

CERTIFICATION FUTURES SPECIAL INTEREST GROUP

MEMBERSHIP SAN FRANCISCO TECHNICAL SOCIETY

MTA Journal/November 1983 6

SUBSCRIBER STATUS - $50 per year.

ANNUAL SUBSCRIPTION TO THE MTA JOURNAL - $35 per year.

SINGLE ISSUES OF THE MTA JOURNAL (including back issues) - $15

An ANNUAL SEMINAR is held each Spring.

MTA Journal/November 1983 7

Style for the MTA Journal

All tables should be properly labeled and in camera ready form.

Paper should be submitted typewritten, double-spaced in completed form on 8% by 11 inch

Greek characters should be avoided in the text and in all formulae.

One submission copy is satisfactory.

MTA Journal/November 1983 8

MTA Journal/November 1983 9

MTA Journal/November 1983 10

John J. Murphy, JJM Technical Advisors

Presentation to the 8th Annual Market Technicians Association

MTA Journal/November 1983 11

MTA Journal/November 1983 12

MTA Journal/November 1983 13

MTA Journal/November 1983 14

MTA Journal/November 1983 18

MTA Journal/November 1983 21

QCE (LS ) COMPARED TO QPE (LS 1

MTA Journal/November 1983 22

MTA Journal/November 1983 23

MTA Journal/November 1983 24

Roger G. Clarke is an Associate Professor of Finance at the Graduate School of Management

MTA Journal/November 1983 25

TW TRANS WORLD CORPORATION VOLATILITY OVER 26 WEEKS

MTA Journal/November 1983 26

The indicators follow:

SECOND HOUR INDEX

MTA Journal/November 1983 27

Bullish: above +91

Data for week ended 02/l 883:

WEIGHTS IN BALANCE: (Indicator No. 88)

SECOND INDEX HOUR .926/.074,26 week

MTA Journal/November 1983 28

Do the same for all declining hours to get decline resistance.

Bullish: above 230

Data for week ended 01/l 883:

WEIGHTS IN BALANCE: (Indicator No. 20)

MTA Journal/November 1983 29

RESISTANCE INDEX: .86/.14, 13 week

1 127 132 49.03 0.06