But briefly, the topping configuration must be examined for its inferences.
Then the fact that the lower channel line was pierced had further forecasting significance.
And then the application of the count rules to the width (horizontally) of the configuration gives us an intial estimate of the probable depth of the decline.
The very idea of there being "count rules" implies that there is some sort of proportion to be expected between the amount of congestive activity and the extent of the breakaway (run up or run down) movement.
This expectation is what really "sold" point and figure.
But there is no positive and consistently demonstrable relationship in the strictest sense.
Experience will show that only the vaguest generalities apply, and in fine, these merely dwell upon a relationship between the durations and intensities of events.
After all, too much does not happen too suddenly, nor does very little take long.

The advantages and disadvantages of these two types of charting, bar charting and point and figure charting, remain the subject of fairly good-natured litigation among their respective professional advocates, with both methods enjoying in common, one irrevocable merit.
They are both trend-following methods.
Even if we strip their respective claims to the barest minimum, the "odds" still favor them both, for the trend in effect is always more likely to continue than to reverse.

Of course, many more things are charted besides prices.
The foregoing have been methods of charting prices, but now let us look at some of the other indices that are customarily charted, and which are looked to for their forecasting abilities.
The quest for methods

The search for forecasting formulae is ceaseless.
Correlations have been worked up between the loading of freight cars and the course of stock price.
The theory behind this is, of course, fundamentalist in character.
As the number of reported freight car loadings increased, this was taken to indicate increased industrial activity, and consequently increased stock earnings, implying fatter dividends, and implying therefore increased stock market prices.
We now know that things rarely ever work out in such cut-and-dried fashion, and that car loadings, while perhaps interesting enough, are nevertheless not the magic formula that will always turn before stock prices turn.

But the quest for such an index goes on ceaselessly, with all manner of investors and speculators participating, ranging from the sedate institutional type virtually to the proverbial shoe-string operator, all seeking doggedly, studiously, daily -- and often nightly -- for the enchanting index that will foretell the eternal secret: Which way will the market move -- up or down?
It recalls to mind the quest of olden times for the fountain of youth, a quest heavily invested in, during the days of wooden ships.
Just as heavily invested are the endeavors of multitudes of modern men who carry on the quest for the enchanting index.
The quest offers careers.
Much of this goes on in offices high up in Wall Street's lofty wind-swept towers.

There sit men who make moving averages of weekly volume, monthly averages of price-earnings ratios, ratios of the number of advances to the number of declines, ratios of an individual stock's performance to overall market performance, ratios of rising price volume to falling price volume, odd-lot indices, and what not.
They are concerned with all things traded in, securities, bonds, cocao, coffee, soybeans, cotton, tin, oats, etc.

And along Chicago's West Jackson Boulevard, La Salle Street, and around the Merchandise Mart Plaza there sit men who chart crop reports, who divide the number of reported lady-bugs by the number of reported green-bugs, and the number of hogs by the amount of corn.
They plot the open interest curves, rainfall curves, and they even divide Democratic congressmen by Republican congressmen.
All these things and countless more enter into their calculations, and yet, the enchanting index remains non-forthcoming.
Not, at any rate, in the fuller sense of the word.

The markets are far too subtle, and the last word in these endeavors will doubtless never be written, for the enchanting index is about as nebulous as the fountain of youth.

But whereas civilized men no longer pursue the fountain, they never abandoned their pursuit of the enchanting index.

We mentioned odd-lot indices a few paragraphs ago.
In the stock market, the normal trading package is a hundred shares, just as 5,000 bushels is the standard grain contract package.
A stock transaction for less than a hundred shares is executed via a special odd-lot broker on the floor of the exchange.
This results in a separate record being made, distinguishing these trades from the overall volume of trading.

According to the theory underlying odd-lot indices, the trader who trades odd lots is most likely a small trader, one who can't afford to trade round lots.
Or, to use the cynical phraseology of one odd-lot index enthusiast, they represent a sampling of the least sophisticated echelon of traders.
Falling most easily prey to an adverse market movement, for this rank of traders can least afford to lose, virtually anything the odd-lot traders do, marketwise, is taken to exemplify the "wrong" thing to do.

Figures reporting the volume of odd-lot purchases and odd-lot sales are released by the stock exchange and carried in the newspapers.
Odd-lot index observers then make graphs of the data according to their particular statistical recipe.
They might, for example, plot it exactly as is, or they might make ten day moving averages of it, or longer moving averages, or they might simply plot the ratio of odd-lot purchases to odd-lot sales.
The particular recipe is a matter of individual taste.
The data is now interpreted in conjunction with a price chart, usually of a popular stock average.

Towards the end of an intermediate or major rise, while the top is forming on the price chart, it is frequently observed that the odd-lot buying increases sharply.
This warns the chartist that the formation in progress is quite likely to be a top.
Similarly, at the opposite end of the market cycle, towards the end of an intermediate or major decline, usually while the bottom is being formed on the price chart, it is characteristic that an increase is noticed in odd-lot selling again alerting the chartist that a bottom is becoming a greater likelihood.
Thus, in the aggregate, the odd-lot trader is one who buys at the tops and sells at the bottoms, notwithstanding occasional individual exceptions.

While it had long been known in general, that "the public is always wrong", the use of odd-lot indices now puts the adage on a statistical basis.

One might well wonder why the "public is always wrong" and the question raised is about as awkward as the one concerned with the chicken and the egg.
Which came first?
Is it really that the "public" buys at the tops, and not that the market tops out when the "public" buys?
And the converse at bottoms.
Does the "public" usually sell at bottoms, or does the market usually bottom out when the "public" sells?

We have been using the word "public" in quotation marks, that is, in its vernacular connotation with reference to the odd-lot index theory.
Obviously someone has to sell in order for someone to buy, and vice versa.
And while all concerned are members of the literal public, somewhat less than all concerned, although still a majority, form the quotation marked "public".
And the public minus the "public" leaves the so-called "sophisticated" element -- the element on the other end of the "public's" transactions.

This element is often called "strong hands".
Strong hands differ from "weak hands" in that their operations are the primary movers.
They initiate campaigns, so to speak, even if this initiation is diffused among them, and their concerted action only psychologically organized.
Strong hands act;
weak hands react.
Strong hands move first;
weak hands ask, What is going on?
When strong hands buy, they are able to buy more, and they do it even in the face of bearish news reports.
They are able to sit more patiently with what they have bought.
Needless to say, strong hands are not eager to be joined by weak hands, for this increases the risk that they will have to absorb what these weak hands unload on the way up, at higher prices, during the run-up phase of the campaign.

Certain badly disillusioned market critics are often apt to feel that there is something somehow unfair, dirty, or even thoroughly criminal about this interplay of competitive forces.
But after all, can anyone imagine a market wherein the reverse of these things were true?
Try to imagine a market in which only a minority of traders would lose, and the majority would make consistent profits.
How much and how many profits could a majority take out of the losses of a few?

Moreover, the taunt concerning the "sophisticated" echelon and its alleged erudition is put to test during every campaign, and accrues only upon results;
not before.
It quite often happens that campaigns go askew, resulting in a most unflattering deterioration of strong hands into played-out hands, just as a member of a former campaign's "public" may emerge flatteringly "right" the next time.
Membership in the echelons fluctuates too.

The study of odd-lot indices is somehow akin to the spectacle of a man trying to outfox his own shadow, what with all observers trying to get on the side of the "few" at the same time.
The usefulness of this study and of configuration analysis as well, declines in direct proportion to the dissemination of its use.
It has to, by virtue of the very dictionary definition of the word "few".

Diametric opposition must persist as to the future course of prices, if there is to persist a market at all.
And the few must win what the many lose, for the opposite arrangement would not support markets as we know them at all, and is, in fact, unimaginable.
There need be no squeamishness about admitting this.
Anyone still doubting that this is the only way markets can be is invited to try to imagine a market wherein the majority consistently wins what the minority loses.

Mr. John Magee, whose work has been discussed in this chapter, was quoted in a New Yorker Magazine profile as saying: "Of course, you have to remember it's a good thing for us chartists that there aren't more of us.
If you got too many people investing by this method, their operations would begin to affect stock prices, and thus throw the charts off.
The method would become self-defeating".

Mr. Alexander H. Wheelan's Study Helps In Point And Figure Technique tells the readers: "We assure you that the total number of people using this method of market analysis is a very small portion of the sum total of those operating in the securities and commodities markets".

What with traders trading for so many different objectives, and what with there being so many unique and individualized market theories and trading techniques in use, and more coming into use all the time, it is hard to imagine how any particular theory or technique could acquire enough "fans" to invalidate itself.
Nevertheless, all theories and techniques lead but to one of two possible modes of expression, if they lead to a market committment at all.
In the final analysis, then, the user becomes either a bull or a bear in a given instance, notwithstanding any amount of forethought and calculation, however elaborate.
Thus while his theory or technique may not be oversubscribed, it is commonplace for bullish and bearish positions to become temporarily over-subscribed.
Though the methods of deciding may be profound and diverse, the possible conclusions remain but two.

Chapter 6, more methods
the hoaxes

The purpose set forth at the beginning of this book was first to introduce the reader to a general background knowledge of the various types and capabilities of the forecasting methods already in use, so that he might then be in a position to evaluate for himself the validity of the rather astonishing empirical correlation that is to follow, and to appraise the forecast that its interpretation suggests for the future of farm prices over the years immediately ahead.