Major Movements In Prices

Stock prices move up and down in cycles. These are the major movements

in prices, but there may be many minor movements up and down within the

major movements. These stock price movements nearly always precede a

change in business conditions; that is, an upward movement in stock

prices is an indication that business conditions are going to improve,

and a downward movement in stock prices is an indication that business

onditions are going to get worse.

At the present writing, we are in a period of improvement. Stock prices

began to go up in August, 1921. The upward movement has been slow, but

gradual. In a period of seven months, forty representative stocks show

an upward movement of about 20 points, although business has not shown

much improvement. A steady upward movement in stock prices is a sure

sign that business conditions are beginning to improve, even though that

improvement is not noticeable.

These major stock movements are not an exact duplicate of any previous

ones, and it is impossible to tell how long they will last or just what

course they will take. Certain influences could change a period of

improvement into a period of prosperity very quickly.

A period of prosperity is noted for high prices, high wages, and

increasing production in all lines. Everybody is optimistic. Most people

spend their money freely, and that makes times better. As prices go up

and business increases, more money is required in business and interest

rates go up. As a consequence, when interest rates go up, bond prices go

down. During this period, speculative stocks are selling at their

highest prices; and under the influence of this movement, many stocks

that have no actual value sell up at high prices. Of course, wise

speculators sell all their stocks during this period.

Following a period of prosperity comes a period of decline. The first

sign of it usually is a severe break in the stock market. At that time

general business is running along at top speed and there is no sign of a

let-up, but this break in the stock market should be a warning. Most

people think the break is merely a temporary reaction--they may refer

to it as a HEALTHY reaction--and they start buying stocks again, and put

the market up, but it does not go up as high as it was before the break

occurred. When stock prices do not rally beyond the prices at which they

were before the break occurred, it is a sign that the turning point has

been reached and that the bear market has started, although the majority

of people do not realize this until a long time afterwards.

Next comes a period of depression, when we have low prices, low wages,

hard times, tight money, and many commercial failures. Many people who

lost all their money during the speculation period, become thrifty and

economize during the period of depression, and start in to save again.

Nearly everybody is pessimistic during this period. Trading on the Stock

Exchange is irregular and as a rule very light.

This is the time to get stock bargains, but the general public as a rule

doesn't take advantage of it. People are scared and think prices will go

still lower. The big interests accumulate stocks during this period, and

sell them during the period of prosperity.