The Averages Discount Everything (Except "Acts of God")

• All known or anticipated events are priced into the market. Only unexpected events take the market by surprise.
  
  

Markets Move in Trends

• The majority of stocks move together in trends. When the market (or a stock) is making higher highs and higher lows, the trend is up; when it is making lower highs and lower lows, the trend is down. Three trends exist: the primary trend, usually lasting for over a year; secondary, or intermediate trends, which interrupt the major trend and can last anywhere from several weeks to several months; and minor trends, which are day-to-day fluctuations. The primary trend (up or down) is called a "bull" or a "bear" market. The secondary trends consist of corrections and recoveries. A trend is presumed to be continuing until its reversal is confirmed.
  
  

Three Phases

• Primary trends consist of three phases: accumulation, markup and distribution. Obviously, every transaction involves a buyer and a seller and so transactions are viewed from the standpoint of professional market operators with ready access to considerable funds. During accumulation, these operators acquire cheap stocks from the public. The markup stage is a period of rapid price increases that attract small investors in large numbers. Distribution is the selling of the marked-up stocks to the general public at a profit.
  
  

Confirmation

• A market trend is confirmed when two different averages move in the same direction. For example, when the economy is expanding, the volume of goods transported grows. The uptrend is therefore confirmed when the Dow Jones Industrial Average and the Dow Jones Transportation Average move in the same direction.
  
  

Volume

• The volume of trades confirms the price trend. In a bull market, stocks rise on high volume and drop on low volume; the opposite is true in a bear market. Volume readings indicate probabilities and are indicative of long-term trends; daily fluctuations may deviate from the pattern.
  
  

Closing Prices

• Even though daily price ranges (highs and lows) are important, only closing prices are used to determine the trends.