Financial History Issue 114 (Summer 2015) | Page 33

Up, Distribution and Marking Down.
Although government regulation later
curtailed the overt influence of pools, the
stage model retained its viability because
regulatory actions do not trump human
nature. Manipulation can change its form,
but it does not disappear.
The “most satisfactory method of studying past and current market action is
through the medium of charts.” While
he was “an ardent believer in the efficacy
of charts,” they “are not the magic key to
stock market success” as charts can mislead and impart a sense of false security.
In 1930 Schabacker identified seven
“cardinal forecasting formations,” visible
on a price chart, which show investors’
accumulation of stocks, namely:
1. Head and Shoulders Bottom
2. Common Upward Turn
3. Triangular Bottom
4. Ascending Bottom
5. Double Bottom
6. Complex Bottom
7. Broadening Bottom
When these formations are reversed,
they indicate distribution or stock selling.
Formations forewarn either continuation
or reversal of a price trend. For example,
the common head-and-shoulders pattern
usually signals a reversal in trend.
Stock prices move in trends. A trend
remains in the direction it is moving until
it reverses. As Schabacker explained at a
meeting of the American Statistical Association on April 24, 1934, in New York City: