Accumulation: from the Supply/Demand perspective is demand coming in to gradually overcome and absorb the supply and to support the stock at this level.

Automatic rally (AR): Following the Selling Climax one of two things may happen an Automatic rally (AR) or a lateral move. This is then followed again by one of two things either a Secondary Test (ST) of the Selling Climax or a continuation of the down move. To understand this we must go back to what happens on the Selling Climax: The Selling Climax is caused by panicky liquidation, panicky selling. The price is driven down too far and this creates a vacuum as soon as the down move has been stopped the stock should begin to rally. We call this the Automatic Rally (AR) because it occurs automatically. Generally, the (AR) lasts for only a few days to about a week. The rally may be weak or strong. It may be, however, so weak and the supplied press on the market so strongly that instead of being able to rally well the price simply moves sideways for a couple of days, or perhaps for as much as a couple of weeks and a lateral move will then continue the downtrend. If there is a simple lateral move the stock is FAR MORE LIKELY to continue the downtrend than if there is a good rally.

Automatic reaction (AR): Following the Buying Climax is the Automatic Reaction: As with the Automatic Rally, the time factor here is generally measured in days. The extent of the reaction depends on how completely the demand is exhausted and how extensive the first wave of short selling is. The (AR) will also be limited by renewed buying by those who see the reaction as a way of acquiring stock at bargain prices, and by the fact that the REACTION does not have any significant preparation in advance to sustain it.

Backup to the edge of the creek (BEC): is normally a potential (SOS), after jumping the creek the backup to the edge is usually the reaction of the jumping of the creek (rally) and comes to rest (find support) above the creek. The Backup to the edge is normally a potential Last Point of Support (LPS).

Minor Creek: lower branch, The minor creek very often occurs in the lower or the middle part of the T/R but is still somewhere in the T/R.

Major Creek: upper branch, The jump of the major creek is a larger move and it very often carries the stock above the old supply levels in the T/R often into new high ground.

Buying Climax (BC): The climax ending an uptrend is called a Buying Climax because it is the end of the condition where the buying is stronger than the selling. The buying gradually builds up & builds up and finally comes in with a RUSH and EXHAUSTS itself on the buying climax. The buying climax has increased volume and a widening spread as it moves up. Following a buying climax one of two things can occur, either a (AR) or a lateral move. This in turn is followed by one of two things: either a continuation of the uptrend or a Secondary Test (ST). If the supply is too weak to drive the stock down or demand too strong to allow it to go down instead of having the (AR) the stock will have the lateral move. Usually, however, it will have some form of an (AR). That (AR) may have increased volume, heavy volume, or no volume. It may have wide price spread, or relatively narrow price spread.

Climax: the peak, the extreme, or the end of something and as the point of highest dramatic tension or a major turning point in the action. Some synonyms are top, pinnacle, height, maximum, consummation, culmination, or turn of the tide. What does a climax do? A climax stops a trend either temporarily or permanently depending on the subsequent action. A climax is preceded by some sort of a trend.

Creek: relates to the flow of supply across the top of the trading range. The creek itself is a wiggly, squiggly trend line drawn freehand through the tops of the rallies within that trading range.

Cross or Jump the creek (JAC): either minor/major. To jump (rally) above the creek (drawn trendline) or flow of supply. This jump or crossing is a Sign Of Strength (SOS). Now, where is the creek? After much searching for the answer to this question, Mr. Evens finally reached the conclusion that the CREEK is WHERE the BOY JUMPED. Applying this to the market, the CREEK is WHERE the VOLUME CAME IN, where the EFFORT the PUSH the POWER came in. It is important to recognize that there is no one exact way of drawing these creeks. Do some experimenting with them, you may wish to draw the creek lightly in pencil on your chart and continue the creek as long as it is useful, then later, either erase the creek, or a branch of the creek, or perhaps remove it from your chart altogether. However, leave the important creeks on your chart as they can be EXTREMELY HELPFUL in drawing your attention to the MEETING of supply in a T/R and in assisting in defining the probable extent of the reaction, that is the BACKUP, which is likely to occur after a possible crossing of the creek. It will be especially helpful in drawing your attention to situations where a stock falls back into the edge of the creek, because every so often it does that and every so often that little old boy scout sort of drowns. Our problem and very often is NOT to drown with him.

Distribution: from the Supply/Demand perspective, Distribution area is where the Supply overcomes Demand and stops the upward move and eventually begins the downward move. Distribution refers to the elimination of a long investment or speculative position and often involves establishing a speculative short position by professional interests in anticipation of a decline of price. In the distribution area the professional investors or speculators who had previously had bought stock, sell there stock to the public. The public buys and it generally buys because of good news of various sorts. Good news on the company, its product, the economy or any news which will entice untrained people to rationalize there buying decision. The best news of all is the advancing of the price of a stock. Often the reason that untrained people buy is that they do not want to miss out on the anticipated profits they think there are going to get as the stock continues to move up. Or they may buy because the stock has reacted a few points from the top and they think they are getting a bargain. After having sold there long stock professionals have no reason to support the stock on reactions and so they cancel there bits under the market, they may not only cancel the bids but they may establish short positions in anticipation of a large decline in price. Distribution is usually accomplished in a relatively SHORT TIME, Whereas accumulation takes MUCH LONGER, sometimes over many years. MAJOR distribution occurs in only a few weeks or perhaps a few months very rarely over a several year period. Distribution is usually characterized by wide price movements and heavy volume and GREAT activity.

Effort versus Result (E/R): if you have an effort expressed the result should be in proportion to the effort. If a stock has been moving up every day with a two point spread every day with ten thousand shares and it breaks into the high ground with twenty thousand shares and a half point spread for a couple of days straight we know supply is coming in and is overcoming the demand. This is an effort that is not having an proportionate result, therefore the stock is likely to be in trouble and have a reversal in its movement.

Half-way-points (1/2): are used as a measurement of relative strength on a rally or reaction. Example, if a stock moves from $50 to $56 the distance of six points and then reacts, the half-way-point would be half of that six points or at $53. Reverse the process for calculating the half-way-point on a rally following a decline. Example, if a stock moves down from $30 to $21 a distance of nine points. The half-way-point would be at half of that distance and is $4 ½ points added to $21 gives a half-way-point of $25 ½. Do not expect the stock or index to go exact half-way-point at the exact 1/8th. It is sufficient to meet support or supply in the vicinity of that half-way-point. Always calculate Half-way-points mathematically do not guess, because your eyes will lead you astray.

Ice: The ICE is the FORMER SUPPORT AREA at the BOTTOM of the T/R which BECOMES a SUPPLY AREA. The ICE is shown by drawing a wiggley trendline across the various support points at the bottom of the range. In a manner similar to the creek which is drawn through the supply points at the tops of the rallies in the T/R.

Last Point Of Support (LPS): Should have a LACK OF SUPPLY indicated by a RELATIVE NARROWING of the SPREAD and a DECREASE IN THE VOLUME. The comparison is between the up move constituting the (SOS) and the REACTION FOLLOWING it, the (LPS). See the Back-up to the edge of the creek. What if the stock has a possible (SOS) indicated by a widening spread and increasing volume on the move up and is then followed by good supply on possible (LPS) indicated by wide spread and high volume on the reaction? This CANCELS the probability of the fist action being a (SOS) and the stock will probably continue in the trading range for additional testing.

Last Point Of Supply (LPSY): The (LPSY) is proceeded by the (PSY), (BC), (AR), (ST), (SOW) and then the (LPSY) occurs. The reaction preceding the (LPSY) must be a (SOW). any possible or potential (SOW) must be confirmed, denied or left in doubt by the SUBSEQUENT rally. If the rally has a relative lack of demand on IT, generally evidenced by a decreased spread and decreased volume, this would be CONFIRMATION and PROOF of a (LPSY). However, should demand still be strong on that rally as evidenced by good or increased volume as well as wide or widening spread, it is usually best to regard such action as a DENIAL of the (SOW) and such action may well leave the interpretation of the (SOW) and the (LPSY) in doubt. When this occurs DO NOT take a SHORT POSITION. It is better to miss a move then to run a great risk of being wrong. The (LPSY) rally will often stop just below the ½ way point. It is NOT particularly important where a (LPSY) stops on the rally, however, it very often turns in the vicinity of that that ½ way point. There is no one exact point in which to take a position. YOU MUST judge the (LPSY) as it occurs and attempt to establish a short position as close to the TURNING POINT as possible. Often you can tie this in with other principles, such as: The meeting of the supply line, The previous supply or support area and the ½ way point, Very often the (LPSY) will come in the same area as the (PSY) or the (BC).

Law of Cause & Effect (C/E): in order to have an effect you must first build a cause. The effect will be in direct proportion to the cause and cannot be separated from the cause. Very often the working of this law can be most easily seen in the figure chart.

Law of Supply & Demand (S/D): When demand is stronger than supply prices will rise. When supply is stronger than stronger than demand prices will fall.

Mark-down (MD): from the Supply/Demand perspective is, Supply that is greater than Demand.

Mark-up(MU): from the Supply/Demand perspective is, Demand that is greater than Supply.

Measuring Trends: At SMI we use three methods of measuring trends: Trend lines, which measure the angle, there are two types of trend lines: the normal use and the reverse use. Thrusts are used to measure each drive up & drive down. The third measurement is the Half-way-point which is an indication of comparative strength and weakness and the adequacy of the correction. When placing these measuring methods, do it with a great deal of exactness. However, do not expect the stock or index to observe or reach them perfectly .

Overbought (OB): the stock or the market goes through distribution.

Oversold: (OS) the stock or the market can go through accumulation.

Position Sheet: A tally sheet showing the trend positions of specific securities. The position within a trend shows where the price (position) is in the trend.

Preliminary Supply (PSY): is the FIRST important SELLING (or meaningful reaction) which is part of the distribution area (this indicates the first important wave of supply or selling is being brought to market) and which comes in to stop the upward trend TEMPORARILY. Usually there’s some form of a Buying Climax which stops the move and that is followed by a REACTION, (PSY), which has pronounced WEAKNESS or volume or preferably both (wide spread & high volume). The buying climax (BC), is part of the Preliminary Supply (PSY) this NORMALLY HAS LESS VOLUME THAN THAT ON THE FINIAL BUYING CLIMAX. The price reached on the (LPSY) after a sign of weakness very often is in the same area reached on the (PSY). Analytically the significance of the (PSY) is that if the entire area is distribution. That distribution may have begun in the area of the (PSY). Note: sometimes the (PSY) and the (BC) occur on the largest and longest leg of an upwards thrust of the uptrend.

Preliminary Support (PS): is a form of a selling climax and is an action in which important demand comes in to stop the down move even temporarily. The first important rally in a downtrend is the (PS) it may occur after the first oversold condition, and is especially likely as the stock or the market reaches its downside objective. The importance of the (PS) is as a warning that the end of the down move may be near. The significance of the (PS) is that if the entire base is accumulation the accumulation may have begun at the (PS) and continued throughout the base. Preliminary Support and the Last Point of Support (LPS) often occur at the same price level. The (PS) is sometimes obscured due to the violence of the price action and sometimes it is virtually missing. But usually on accumulation some form of (PS) is present.

Primary Growth Trend: sometimes it is a downward slanting trend. This is the general direction or rate of growth the market: an index, a stock, or the economy, or company is taking.

Price/down: There are two ways price can go down: price can go down and have an increased supply meet a superior force of demand at that point. Or price can go down and simply drift and drift and drift until it stops and ultimately rallies. Mentioned on tape #2 side B: along with reverse trend lines.

Principle: is a comprehensive and fundamental law, doctrine or assumption. It is an unchanging rule.

Profit/Risk Ratio: Should never be less than 3:1, This means that for every point below the purchase price the stop is placed, three points of profit are anticipated. So for a stop that is placed three points below the purchase price, nine points of profit are anticipated. It is BETTER PRACTICE to LEAVE your STOP underneath the PRIOR support area and IF NECESSARY GET-OUT BEFORE that stop is reached.

Rally: A short term advance in the price of any securities or class of securities. When rallies, or uptrends are stronger than the reactions, Demand is stronger than Supply. You will be able to judge the Supply & Demand on basis of the Price action, Volume and Time. There is a widened spread and an increasing volume on the rallies. On the reaction there will be decreased volume and a comparatively narrow spread compared to the rally, indicating less selling on the reaction then there was buying on the upside. In an up-trend you should not have prolonged price weakness or massive dumping of stocks on the reactions.

Reaccumulation: Takes place within a sizable upward trend when a stock goes into a trading range and in the process builds a count for a higher objective, usually confirming a prior base count. It goes into a resting stage and the professionals continue to absorb the supply. Also called a STEPPING STONE.

Reaction: A short term decline in the price of any securities or class of securities. When reactions, or downtrends are stronger than the rallies, Supply is stronger than Demand. You will be able to judge this on the basis of the Price action, the Time and the Volume. Volume should remain good, strong, on the downside, the rallies however should be relatively weak indicating a lack of Demand. There should not be wide spread or increased volume or sustained increased volume and it might take quite a bit of time on the rallies. The main point is that you have a unbalanced condition in the Supply and Demand with Supply good on the downside and a lack of Demand, weak Demand on the rally.

Secondary Test (ST): Immediately follows the (AR). There should be less selling than on the Selling Climax. Evidenced by the decreased price weakness, the narrowing of the Spread and especially by the Decreased Volume. At that point the down move has been stopped. The stock may go through redistribution, accumulation, or a trading range in which nothing of importance is going on. There may be repeated secondary tests depending upon the ability of the professionals to absorb the supply and the continued existence of that supply.

Self Reliance: learn to rely on yourself alone. This is a lone wolf business. Learn to make your own decisions, discuss them with no one. Stick to your guns and follow through until the commitment is completed.

Selling Climax (SC): A situation characterized by the highest intensity of speculative supply occurring within a downtrend. This situation occurs only after a move has been in effect for some time. This condition marks the end or the approaching end of a particular downtrend. This panic selling creates an extreme expansion of the price spread and an expansion of the volume, this action may occur over one day or over several days. If it does NOT HAVE THIS IT IS NOT A SELLING CLIMAX. The Wyckoff principle of the selling climax does not always occur at the end of every decline. All that the (ST) of the (SC) does is STOP the DOWNMOVE.

Sign Of Strength (SOS): is an ACTION which shows that DEMAND is in control. The (SOS) should have GOOD DEMAND on the UP MOVE, a WIDE SPREAD and INCREASING VOLUME on the UPSIDE. Now let us deal briefly with the (SOS). The Sigh of Strength and the Crossing of the Creek are often two ways of looking at the SAME ACTION and the BACK UP to the edge of the CREEK very often is the (LPS) Last Point of Support. This (SOS) is usually is preceded by a T/R and a stock can continue in a T/R until it either has a (SOW) or a (SOS). The (SOS) shows that DEMAND is in CONTROL the Price & Volume characteristics are that it has WIDENING SPREAD and an INCREASE in VOLUME evidence of the good DEMAND. This is PROVEN and followed by the REACTION to the (LPS), that (LPS) should have a NARROWING of the SPREAD and a DECREASED of VOLUME compared to the (SOS) indicating the LACK of SUPPLY on the REACTION

Sign Of Weakness (SOW): is an action which shows that SUPPLY is in control. The reaction will decline with a widening spread, increased price weakness, and increased volume, evidence of increased and heavy selling, this is BEARISH. The (SOW) is usually proceeded by a T/R. If the T/R was in an uptrend it would have been stopped by the (PSY), (BC), (AR), (ST). The T/R will end, on the far right hand side, it may end its move with a classic (UT) or (UTAD) or it may NOT. It may simply have a (SOW) and a (LPSY) with perhaps lower tops and lower bottoms. Any possible or potential (SOW) must be confirmed, denied or left in doubt by the SUBSEQUENT rally. The critical thing is NOT HOW FAR the stock rallies, the critical thing is HOW it RALLIES. If it rallies with a gradual decrease in demand, evidenced by a narrowing spread and decreased volume, and with a lower top this COMPARATIVE lack of DEMAND would PROVE and CONFIRM that the previous reaction was a (SOW). Thus DO NOT take a speculative position until you see an (UT) or an (UTAD), or where there is no (UT), the first place to take a position is on the (LPSY) after the (SOW) and aim to pyramid with the coming trend.

Spring: a spring is a refinement of Mr. Wyckoff ‘s concept of a Terminal Shake-Out and grew out of that concept. A spring is a penetration below a previous support area which enables one to judge that quality and quantity of that supply on that penetration. The CRITICAL thing that is shown by the SPRING or the TERMINAL SHAKEOUT is the AMOUNT of SUPPLY that COMES OUT on the DRIVE to NEW LOW GROUND and HOW WELL that SUPPLY IS ABSORBED. Remember this vital point, it is important. The main difference between the spring and the terminal shake-out is how far it penetrates into new low ground. Example: in a $50 dollar stock if the drive into new low ground is 4 or 5 points and then it turns around, we would call that a terminal shake-out. However, if it reacted or penetrated ¾ or a point, a point or a point and a ½ or a much shorter penetration we would call this a spring. Additional definitions: As the stock goes into new low ground one of two things will happen. Either overwhelming supply will come in or no supply. Overwhelming supply is a 1-spring, it is evidenced by a wide open break in price action and very heavy volume. A 3-spring is with no significant price weakness and low volume on the penetration into new low ground. There is a very large area between these two extremes. We call these number 2-springs and a 2-spring is very similar to a terminal shake-out in that both have supply and both must be tested by a secondary test. It is VERY IMPORTANT to understand that there is NO CLEAR CUT LINE of demarcation between a #1 spring and a #2 spring, a #2 spring and a #3 spring. The CRITICAL FACTOR is NOT the TERMINOLOGY, the CRITICAL FACTOR is YOUR UNDERSTANDING of the relationship of SUPPLY to DEMAND in the BASE area and on the SPRING.

#1 SPRING: The #1 SPRING has OVERWHELMING SUPPLY which is indicated by a EXTREME PRICE WEAKNESS and heavy selling. The PRICE and VOLUME characteristics are that there is a WIDE SPREAD and HEAVY INCREASE in VOLUME. This is EVIDENCE of an ABUNDANCE of SUPPLY. The stock goes through the T/R on the DOWN SIDE and continues DOWN until the DOWNTREND can FINELY be HAULTED. If the stock has been under accumulation, usually it will REQUIRE EXTENSIVE further PREPARATION before the stock is READY TO MOVE OUT of the accumulation area. Usually however, the #1 SPRING is PRECEDED by at least MINOR DISTRIBUTION and OFTEN, INTERMEDIATE or MAJOR DISTRIBUTION. The #1 SPRING is FAR MORE LIKELY to occur in stocks which are in MAJOR and SUSTAINED DOWNTRENDS then they are to occur in UPTRENDS. HEAVY SUPPLY and small demand a #1 spring.

#2 Spring: now there’s a VERY LARGE AREA in-between the #1 and the #2 SPRING in which there is SOME SUPPLY. We call this a #2 SPRING. The SUPPLY on the #2 SPRING is evidenced by SOME INCREASE in PRICE WEAKNESS, in other words SOME INCREASE IN THE WIDENING of the SPREAD as it goes INTO NEW LOW GROUND and SOME INCREASE in the VOLUME over the GENERAL level of TRADING. SUPPLY is not absent, it is NOT OVERWHELMINGLY ABUNDANT.

That SUPPLY will either be ABSORBED, in which case it will be a #2 plus SPRING, or a 23 spring, (supply on the #2 spring itself and then a LACK of SUPPLY on the S/T), or it will not be absorbed and SUPPLY will persist and persist and persist driving the PRICE DOWN and will have the SAME effect as a #1 SPRING. This alternative we call a #2 minus SPRING, or a 21 spring, (the weight of SUPPLY is increased & increased until the demand simply cannot handle it). The #2 minus SPRING has the SAME effect as the #1 SPRING in that the SUPPLY persists and persists and persists and DRIVES the PRICE of the stock DOWN, DOWN and DOWN until it is finally halted and has to start a NEW SUPPORT LEVEL all over again. SUPPLY DEMAND is more in balance with a #2 spring, hence the need for a secondary test. Incidentally the PRICE and VOLUME indications on a #2 SPRING are LESS LIKELY to be CLEAR CUT then on a #1 spring or a #3 spring. The classic illustrations are FEW and FAR in-between. This is why it is necessary to STUDY MANY EXAMPLES and to have examples from different periods of market history.

#3 Spring: The second alternative is that NO SUPPLY is DUMPED on the market. No INCREASE in SUPPLY can COME OUT on the DRIVE into NEW LOW GROUND we call this a #3 SPRING. The #3 Spring is evidenced by lack of a INCREASE in the general level of trading. Any INCREASE in volume if at all is very, very MINOR. And there is a lack of IMPORTANT PRICE WEAKNESS as it goes into NEW LOW GROUND and the SPREAD does NOT materially WIDEN. Small supply and HEAVY DEMAND a #3 spring.

(ordinary) Shakeout (OS): the DIFFERENCE between the Terminal Shakeout and a ordinary Shakeout is that the ordinary Shakeout occurs in an UPWARD trend. The Terminal Shakeout occurs at the END of the ACCUMULATION area and at the END of a TRADING RANGE or a SUPPORT AREA. While the ordinary Shakeout occurs in an UPWARD trend. An ordinary Shakeout maybe defined as a sharp DOWNWARD THRUST occurring in an UPWARD TREND without extensive previous preparation. It is executed for the purpose of buying all the stock possible from WEAK or VULNERABLE holders, it is PRECEDED By an UPWARD move. The ordinary Shakeout is characterized by PRICE WEAKNESS and usually an INCREASED VOLUME. In other words a WIDE SPREAD and some INCREASE in VOLUME. However, the VOLUME maybe HIGH, MEDIUM or LOW. When there is SUPPLY on the Shakeout itself it must be tested by a SECONDARY TEST. The secondary test should have a NARROW SPREAD and a DECREASED VOLUME compared to that of the ORDINARY SHAKEOUT. This indicates that there was less SUPPLY on the secondary test then there was on the Shakeout and the buyers then KNOW that the stock is AGAIN prepared to MOVE UP with relative SAFETY.

Taking a Position in a Stock: if important accumulation or distribution in a stock is going on it is very difficult to hide it, this will normally show up on the charts. When it is not clear stay out! When indications are clear take a position with the timing and the profit risk ratios in your favor. Your first job is to protect your capital, your second job is to obtain a profit when the risk is in your favor.

Terminal Shake-Out (TSO): is a sharp downward thrust through a previous support area. A spring is a refinement of Mr. Wyckoff ‘s concept of a Terminal Shake-Out and grew out of that concept. It is executed for the purpose of buying all the stock possible from weak or vulnerable holders. It is PRECEDED by a TRADING RANGE or a SUPPORT LEVEL or at the end of ACCUMULATION area. It is FOLLOWED by an attempted to begin the markup phase of the cycle. The Terminal Shakeout is a drive down through the support level for the purpose of SHAKING-OUT all of the people who can be scared-out or forced out of the market and forced to sell. The CRITICAL thing that is shown by the Terminal Shakeout is the AMOUNT of SUPPLY that comes OUT on that Shakeout and whether or not that SUPPLY is ABSORBED. Remember this vital point, it is important.

Thrust: measures the price progress the stock or index makes on each wave within the trend. The thrust is the price difference between consecutive tops in up trends, or between consecutive bottoms in down trends. To measure the thrust we draw a series of horizontal lines at the level the highs and lows are reached on the drives within the trend and connect them with a vertical line.

Trading Range(TR): a condition characterized by temporary price trends, which are offset by ensuing moves in the opposite direction, and by a persisting equilibrium in the supply-demand relationship. Behavior of: Generally in the first part of the trading range the price swings are rather wide. Then in the later part of the trading range the price action usually begins to narrow down. The stock gets dull. What happens to the volume or the general level of trading, usually in the early part of this range there is rather high volume sometimes rather erratic volume both the price and volume action maybe somewhat erratic and very difficult to analyze. Then in the latter part the closer you get to the end of the trading range or leaving the trading range the volume begins to dry up. As the floating supply or the flow of orders come into the market and begin to decrease the general level of the daily volume should decrease. Actually you do not know for certain that the T/R is distribution until it goes through the testing process as in 3rd area. the T/R maybe accumulation, distribution, or nothing, nothing being an area in which no one is preparing for a large move, thus a stock may remain in the T/R indefinitely until it has a (SOS) followed by a (LPS) indicating an Upward move, or a (SOW) followed by a (LPSY) indicating a Downward move. Furthermore the early part of the T/R maybe nothing and only the later part of distribution. This is why it is extremely important that you NOT establish a long or short position in the T/R unless the stock has clear indications of leaving the T/R and beginning a NEW TREND.

Trend: to have or to take a particular direction, it is the underlying or prevailing tendency of inclination of movement-a tendency to move in a particular direction. There are three primary types of trends classified as direction of movement: a upward trend, a downward trend and a sideways trend or treading range. Remember, that the longer that the trend is in progress and the nearer you are to the end of the trend the more risk attends buying, or selling short on the corrections around the ½ way area. Your greatest profit potential and your least risk will occur when the stocks are leaving the accumulation, or distribution areas or are very early in the trend, it is at this point where your profit risk ratio will be the greatest and you will be able to use liberal stops. A trend may be corrected by an ordinary shake-out.

Trend lines (TL): in an uptrend the bottom line is called the support line and the top line is called the supply line. In a downtrend the top line is called the supply line and the bottom line is called the support line. In a trading range the bottom line is called a support line and the top line is called a resistance line. The breaking of a trend line may result in establishing a slower or faster trend in the same direction or in a completely new trend. The Supply/Demand relationship will determine the continuing trend, it can change rapidly and must be watched closely. The price failing to reach one line in a trend channel during rallies & reactions leaves the other vulnerable to being broken. A helpful tool to use is to draw an arrow from a stopping point to the trend line to indicate the failure to reach that particular trend line.

Reverse Trend lines (RTL): There are two kinds of trendlines: the normal use and the reverse use. In the normal use of trendlines in an upward trend we draw the support line first through two consecutive reactions. The supply line is drawn second through the rally that is between the two consecutive reactions, and parallel to the support line. With the reverse use of trend lines used in an upward trend, we draw the supply line first, through two consecutive rallies followed by a support line drawn second through the reaction that is between the two consecutive rallies, and parallel to it. In a downtrend using the reverse use of trendlines the support line is drawn first through two consecutive support points and the supply line is drawn parallel to it through the top of the rally occurring between those two support points. The importance of the reverse use of trend lines is that it is determined by points a which the opposition came in to stop the move. The reverse use of trend lines is drawn through where it is stopped, where the opposition came in and actively stopped the trend, to stop it and reverse it even on a temporary basis. Later on demand might come in at the same angle to stop the move.

Trends of four primary kinds: the intraday, the minor, the intermediate, and the major

INTRADAY TRENDS: are caused by very small fluctuations those fluctuations occurring within a day. There maybe several of these occurring within one day. Intraday trends are usually a day or two in duration.

MINOR TRENDS: are made up usually of three or more intraday trends and are moves of up to approximately ten percent of the price of the stock. Usually they last up to a couple of days to a couple of weeks and are moves of up to approximately 10% of the price of the stock.

INTERMEDIATE TRENDS: which are made up of three or more minor trends and are movements of around fifteen to twenty percent of the stock. They usually run for a couple of weeks to a couple of months and are movements of around 15% to 20% of the stock.

MAJOR TREND: is made up of three or more intermediate trends and is a movement of over twenty-five percent of the price of the stock. Usually major trends will last for several months or perhaps much longer and is a movement of over 25% of the price of the stock.

Upthrust (UT): : An Upthrust is a sharp price movement ABOVE a prior supply level which does NOT HOLD, but immediately reacts below that previous level. Usually on the Upthrust the spread will be narrow and the volume will be increased, this is evidence of the supply overcoming demand. Suppose a stock moves up from $50.00 to $51.00 and it takes 10,000 shares to do it and then moves to $52.00 and it takes 20,000 shares to do it. The volume, the supply has increased in strength relative to demand. If the volume doubles the price progress should be double and when it does not the inference maybe drawn that the SUPPLY is OVERCOMING the DEMAND. Suppose a stock moves up one point on 10,000 shares and then moves up a ½ point on 20,000 shares, here the narrowing of the spread and the supply coming in to overcome the demand is much more emphatic. This usually is what occurs on a Upthrust. The confirmation that it is an Upthrust is in the promptness and in the manner in which it reacts, it should react promptly to show that the attempt to leave the T/R on the Upside has failed and generally it will react with either a lack of demand or with the pressure of supply coming in on the downside. The Upthrust itself is the sign of weakness (SOW) and the Last Point of Supply (LPSY) all in the same action. It is normally followed by a more important (SOW) and a (LPSY).

Upthrust After Distribution (UTAD): The Upthrust after distribution is a special type of distribution in which the stock goes up! Stops going up, builds a cause and then tries to leave that T/R on the upside, fails and then begins the downtrend. In applying the rules you must use some judgment and some flexibility. The Upthrust After Distribution is a special market phenomena or a principal which Mr. Evens defined through his Wyckoff studies. Perhaps the most important problem that you will have with the Upthrust After Distribution (UTAD) is that you must avoid looking for examples, or expecting examples of the (UTAD) to occur all the time, they simply DO NOT. However when they do occur the (UTAD) can be an extremely helpful and profitable tool. Let us read the rule itself. After a stock index or a commodity has moved up, has Climaxed, has then moved laterally and built a POTENTIAL cause and is then moved into new high ground on a increase in volume and a relative narrowing of the spread to then return to the AVERAGE level of closes would indicate that the entire lateral level was NOT accumulation, but was distribution instead. MEMORIZE THIS RULE, in Mr. Evan’s original rules he stated: it moves sideways for a period of four to twelve weeks. However, to put these constraints on the rule has proved to limit the understanding of this excellent rule. Therefore we have modified the rule and have used: “The building of a potential cause”. The only other change in the rule is that we now say that it has moved into new high ground on a “relative“ narrowing of the spread, we have added this word relative because a widening or a narrowing of the spread is RELATIVE to the VOLUME. The spread MUST BE COMPARED to the VOLUME. Every word in the rules for the (UTAD) had been designed for a purpose.

Volume: What is the difference between climax VOLUME and that which is known as BREAKOUT VOLUME or ABSORPTION VOLUME ? Both generally have an WINDENING SPREAD and INCREASED VOLUME. However, the CLIMAX VOLUME is stopping a trend which is out in open territory and has been in progress. ABSORBTION VOLUME ( progress/price action & push/volume) however, occurs with a WIDENING SPREAD and INCREASED VOLUME as the stock is breaking through a previous SUPPLY AREA and is simply absorbing ALL of the SELLING that takes place as it moves up to NEW HIGH GROUND. This process also occurs in reverse on the downside.

Volume Off The Bottom: Volume off the bottom is caused by the professional man simply absorbing all the supply thrown off the market and moving the stock UP. It usually indicates a turnaround.

Wave: Intraday, Minor, Intermediate, Long term, Fluctuations that build-up & build-down and form trends. Actually every upward or downward swing in the market whether it amounts to many points, or only a few points, or fractions of a point consists of numerous buying & selling waves. These have a certain duration, they run just so long as they can attract a following. When this following is exhausted for the time being that wave comes to an end and a contrary wave sets in. These waves represent the shifting relationship of Supply to Demand.

THESE TERMS ARE DEFINED IN RELATIONSHIP TO THE MANNER IN WHICH THEY ARE USED IN THE TEXT AND AT WYCKOFF SMI.

Absorption: The reduction of the floating supply caused by persistent longer term buying within a trading range.

Accumulation: The establishment of an investment or speculative position by professional interests in anticipation of an advance in price.

Advance: A rise in price or an upward movement in a stock, index, security, etc.

(Short) Against the Box: A protective action in which one sells short a security which he currently owns. The purpose of this action is that of eliminating risk during a period of market uncertainty.

Angle of Advance: The inclination of a rising price trend.

Angle of Decline: The inclination of a lowering price trend.

Apex: The focal point of converging support and supply lines. (See dead center, hinge, pivot, wedge).

Average: A numerical representation which purports to reflect the mean (average) price of a particular class of stocks.

Averaging:
(1) Dollar Averaging: a periodic investing of a definite number of dollars irrespective of the number of shares involved;
(2) Share Averaging: periodic purchases of the same number of shares irrespective of the number of dollars required.
(3) Averaging Up: periodic purchases on a rising scale whose purpose generally is to pyramid profits; and
(4) Averaging Down: periodic purchases as a price declines, which has the general purpose of lowering the mean cost of the stock.

Bear: A speculator who concludes that the probable future trend will be one of declining prices.

Bear Market: A market condition characterized by declining prices.

Breakthrough: A price movement above/below a previous supply/support area.

Bulge: A sudden expansion of price or volume. (However, bulge generally is used in reference to volume.)

Bull: A speculator who concludes that the probable future trend will be one of advancing prices.

Bull Market: A market condition characterized by advancing prices.

Buying Climax: A situation characterized by the highest intensity of speculative demand occurring within an uptrend. This situation occurs only after a move has been in effect for some time. This condition marks the end or the approaching end of the particular uptrend.

Campaign: An organized market operation for the purpose of moving the price of a stock.

Close: The last price of a security, issue, index, etc. for a specific time period. Generally, the last price of the day.

Commitment: A market position in a stock or other trading medium.

Common Stock: Securities which represent an ownership interest in a corporation. If the company has also issued preferred stock, both common and preferred have ownership rights, but the preferred normally has prior claim on dividends .and, in the event of liquidation, assets. Common stockholders assume the greater risk but, generally, exercise the greater control and may gain the greater reward in the form of dividends and capital gain.

Composite Average: An index composed of a number of stocks which is used to represent the general market. Normally constructed by adding the prices of a limited but fixed number of stocks, adjusting for splits, etc., then dividing by the number of stocks making up the average.

Composite Man: The term used to refer to the sponsors or large professional interests in the stock market, also called composite operator.

Corner: A condition in which the available supply of stock is held by a single speculative interest for the purpose of effecting a controlled price rise. The purpose of a corner is that of forcing those who have sold the stock short to pay an inordinately high price to cover their short position.

Cover: The act of buying a security previously sold short. (See short sale, short covering).

Culminating: The ending of a move.

Day Order: An order to buy or sell which is good only on the particular day on which it is made.

Dead Center: The focal point of converging support and supply lines. (Also, apex, hinge, pivot wedge).

Deduction: The form of logic or reasoning which proceeds from the general statement to the specific case.

Distribution: The elimination of a long investment or speculative position.

Dividend: The payment designated by the Board of Directors to be distributed pro rata among the shares outstanding.

Down Tick: A transaction with a price lower than that of the last preceeding transaction.

Ex-Dividend: (Without Dividend) The condition of a stock in which the purchasers are not entitled to the most recently declared dividend. (Abbreviated xd)

Figure Charts: A chart of a stock, commodity or index, which takes into consideration price movements and fluctuations. Volume and regular time intervals are not generally used in the construction of figure charts.

Floating Supply: The supply of stock that is normally available for purchase during a given period of time.

Force Index: An index developed by the Stock Market Institu te to portray the investment factors during continuous periods of market history.

G.T.C. (Good ’til Cancelled): A customer’s order to his broker to buy or sell securities at a specified price. The order remains in effect until it is either executed or cancelled.

Hedge: A condition in which both long and short positions are maintained by the same interests.

High: The highest price of a security, issue, index, etc., for a specific time period. Generally , the highest price of the day.

Hinge: The focal point of converging support and supply lines. (See apex, dead center, pivot, wedge).

Hypodermics: A deliberately forced, fast mark-up in the price of a common stock. The purpose of hypodermics is the stimulation of uninformed buying in order to facilitate distribution.

Index (Price): A statistical instrument which is used to determine the trend of a particular class of security. This is not an average.

Induction: The reasoning process or logic which begins with specific cases and proceeds to a broad generalization.

Inside Day: A day for which the high and low prices are, respectively,lower and higher than those of the preceding day.

Institutional Investors: Generally, large corporate investors such as banks, insurance companies, investment trusts, mutual funds, pension funds, colleges and universities, and charitable foundations.

Intermediate Trend: A price movement which has two basic characteristics. These are (a) a move of approximately 15% of its value and (b) a duration of two weeks to two months.

Intra-Day Wave Chart: A continuous line chart reflecting the price swings occurring entirely within a single day’s trading (IDWC).

Investment Position: Securities holdings established for investment purpose only.

Law of Supply and Demand: The basic economic law used to explain the cause of all price changes.

Limit Order: An order to buy or sell only at a specified price or at one more favorable than the specified price.

Line of Least Resistance: The trend of security prices, whether it be advancing or declining.

Liquidation: The process of converting securities and/or other property into cash.

Locked-In: A psychological state of mind which exists when an individual believes that he cannot afford to liquidate a security position.

Long: The ownership of securities.

Long-Sale: The sale of a long security position.

Long Terms: Financially , it is considered to be a five year investment; the tax definition is six months.

Low: The lowest price of a security, issue, index, etc., for a specific time period. Generally, the lowest price of the day.

Maintenance Margin: The minimum margin required in order to maintain a previously established position.

Margin: The amount of money deposited by a customer when he uses credit to buy securities, the balance being financed or advanced by the broker.

Mark-Down: A sustained downward price movement.

Market Order: An order to buy or sell at the best price available at the time the order is received at the appropriate trading post.

Mark-up: A sustained upward price movement.

NYSE: New York Stock Exchange.

Odd Lot: An amount less than the established round lot for any class of security.

Option: A contractual right to buy or sell a security at a specified price within a specified period of time.

Optimism-Pessimism Index: An index developed by Wyckoff SMI which reflects the optimism due to buying and pessimism due to selling during any specific period of market history.

Overbought: A condition in which the supply – demand relationship for a particular class of securities is such that normal equilibrium between economic forces exists only at a price below that at which the current trades are being made.

Oversold: A condition in which the supply – demand relationship for a particular class of securities is such that normal equilibrium between economic forces exists only at a price above that at which the current trades are being made.

Preparation: Transactions designed to affect the supply – demand relationship for a security order to facilitate its future price move.

Pressure: Sustained selling of a security.

Primary Distribution: The initial liquidation of a long position.

Process of Rotation: The principle that all securities of a class do not prepare, advance, or decline at the same time. Some stocks lead the various stages while others lag.

Puts and Calls: Options which give the right to buy or sell a fixed amount of a certain stock at a specified price within a specified time. A put gives the holder the right to sell and a call gives the holder the right to buy.

Pyramid: The use of accrued profits to enlarge a speculative position.

Rally: A short term advance in the price of any securities or class of securities.

Reaction: A short term decline in the price of any securities or class of securities.

Resistance: Opposition to advancing prices caused by an increase in the available supply.

Round Lot: A unit of trading. On the New York Stock Exchange the unit of trading is, generally, 100 shares in stocks and $5,000 par value in the case of bonds.

Secondary Distribution: The liquidation of a long security position occurring after primary distri­ bution but prior to the next mark-down phase. A plateau in a big down move.

Securities: Stocks, bonds, commodity futures contracts, or other issues which may be traded.

SEC: The Securities and Exchange Commission established in 1934 by Congress to regulate the investment industry.

Security Position: Securities held long and/or short by investors and/ or speculators.

Selling Climax: A situation characterized by the highest intensity of speculative supply occurring within a downtrend. This situation occurs only after a move has been in effect for some time. This condition marks the end or the approaching end of the particular downtrend.

Shakeout: A deliberately forced price reaction, whose purpose is that of stimulating pu blic selling in order to facilitate the accumulation of speculative positions.

Short Covering: Buying stock to eliminate or close out a short position.

Short Position: Securities and/or commodity future contracts sold short.

Short Sale: Sale of a borrowed stock by a person who believes the price will decline. i.e. You instruct your broker to sell short 200 shares of XYZ. Your broker borrows the stock so he can deliver the 200 shares to the buyer. The monetary value of the shares borroweu is deposited with the lender. You are later required to cover your short sale by purchasing the same amount to return to the lender.

SMI: Wyckoff SMI

Speculation: To assume a market risk in expectation of gam; especially, to buy or sell m expectation of profiting from market fluctuations.

Springboard: A condition in the price movement of a stock that has completed preparation and has been brought to a point where the stock may move into a mark-up or a mark-down period.

Stop Limit Order: An order to buy or sell which becomes a limit order as soon as the stock’s price reaches or sells through a specified stop price.

Stop Order: An order to buy or sell which becomes a market order as soon as the price of the stock reaches or sells through the specified price.

Straddle: Going long in one security or option and short in another.

Strength: A security or class reflects strength when its price shows the ability to advance.

Strong Technical Position: Condition in which normal available demand exceeds floating supply.

Supply Line: In a downtrend a line connecting at least two important points of supply.

Support: Opposition to declining prices caused by the increase in available demand.

Tape Reader: A person trained to determine the characteristics of market fluctuations, using data which he derives from the ticker tape.

Technical Position Barometer: A chart which graphs the number of stocks in the various positions as determined by the Wyckoff Position Sheet.

Technical Rally: A technical rebound. A part of a typical selling climax. (Automatic rally)

Technical Reaction: Opposite of technical rally-part of a typical buying climax.(Automatic reaction)

Technometer: An index developed by the WyckoffSMI for the purpose of indicating normal extremes in the supply – demand conditions.

Terminal Shakeout: A sharp downward thrust through a previous support area. Executed for the purpose of buying all the stock possible from weak or vulnerable holders.

Terminal Thrust: A temporary bulge through the top of a trading range which fails to hold.

Thrust: The price difference between consecutive tops in uptrends or between consecutive bottoms in downtrends.

Thrust Movement: A sharp run-up out of an area of distribution; or a temporary bulge through the top of a trading range which fails to hold (Synonym: upthrust).

Trade: To buy or sell stocks, securities, options, etc.

Trading Range: A condition characterized by temporary price trends, which are offset by ensuing moves in the opposite direction, and by a persisting equilibrium in the supply – demand relationship.

Trend: The line of least resistance. It is the direction in which a price is moving.

Trend Barometer: A statistical tool which is portrayed graphically and consists of the Momentum Index, the Force Index and the Technometer. This was developed by the WyckoffSMI.

Trend Charts: These are charts which graphically depict the trend of the market, an index, or an individual stock.

Turning Point: The place at which a security price trend reverses its direction.

Upthrust: A sharp price movement above a prior supply level, which does not hold, but immediately reacts below that previous level.

Vertical Line Charts: Charts which graph the volume, high, low, and closing prices for the day, week, month, or year of any security or class of securities.

Warrants: Rights to buy a stock at a specific price. Generally, issued for longer periods of time than ordinary stock subscription rights.

Weakness: The ability of price to decline.

Weak Technical Position: A condition in which normal available demand is exceeded by the floating supply.

Wedge: The focal point of converging support and supply lines. (See apex, dead center, hinge, pivot.)

Whipsawed: A situation in which a speculator is repeatedly wrong no matter what he does. It usually results from buying at the tops and selling at the bottoms.

Up-Tick: A transaction where the price is higher than that of the previous transaction.

Zero-Minus Tick: A transaction price identical to the preceding price(s) which itself had been a down-tick.

Zero-Plus Tick: A transaction price identical to the preceeding price(s) which itself had been an up-tick.