Continued reading from from Tape Reading & Market Tactics.
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Chapter 9
Steel, The Market Leader
Watch Steel
There is a saying: “As Steel goes, so goes the market.” There is no question that X is the market leader, its bellwether. American Can, General Electric, Westinghouse, American Telephone, and a few other stocks, are also termed market leaders. They are, but the market will follow Steel when every other stock loses its leadership. This was particularly well illustrated, I think, in October, 1930, during the period of persistent liquidation. For days, American Can did not break; it held like a rock. Steel, however, led the market in the decline, or at least sagged simultaneously. I believe that if Steel had withstood the pressure, the market would have halted its drift likewise.
By the way, when you hear loose talk about “support-orders” in Steel, Can, and other leaders—when you are told: “They are going to support the market”—take out your pencil, add up the volume of transactions, and figure the millions “they” would need in order to support the market. Think in the same way when you hear stories to the effect that “they are going to run Steel up ten points.” I do not imply that Steel is not ever supported, or that powerful interests do not push Steel forward at times—for they do—but they do it when the market is technically set for the maneuver. There are no interests in Wall Street powerful enough to stem the tide of wholesale public liquidation (this was proved in October, 1929); nor have they enough money to run Steel up 10 points, when they know from the market’s position that thousands upon thousands of shares of Steel would be offered for sale all the way up. It is simple enough to sit around a brokerage office and glibly spin yarns about the “big fellows.” Forget it; if any of your informants knew them well enough to know what they were doing, they would not be sitting in a broker’s office talking to you and me.
To return to Steel: watch Steel closely at all times. Pay the same attention to its action that you do to your own stock. Your stock will probably rally with the market, if your selection has been correct; it may follow the market, or advance ahead of it; but it should not go against the trend. (If it does, check your position quickly, because when the general list does not follow Steel it is quite likely that many stocks are being sold under cover of strength in Steel.) Steel is a particularly helpful indicator because it is always active, thousands of shares being traded daily; and it never swings wildly, its market usually moving by eighths of a point.
If you hold an inactive stock (which is not recommended for short-turn trading), and for some time there have been no transactions in that stock, yet in the meanwhile Steel has reacted two or three points, it is well to “quote” your stock (obtain the bid and offered prices from the floor through your orderclerk). This will give you your “market;” otherwise, you may be disappointed when you finally see a transaction some dollars away from the last sale. Of course, if Steel is advancing and you are long, you need not feel uneasy; but it is none the less a comfort to have the “quote.”
If you intend to watch the tape constantly, it is good practice to obtain the market on Steel, the bid and offered prices, shortly after the opening. From these you can detect whether Steel is being bid for, or whether it is offered below the bid price. Let me explain: assume that the market on Steel at five minutes after 10 o’clock is 149¼ bid and 149½ asked. If you notice 3,000 shares of Steel pass soon after at 149¼, you know at once that someone has “hit the bid,” that in this block of Steel the selling has been more urgent than the buying. If it happens the other way about, with the transaction at 149¾, you will know that someone is bidding for stock and is willing to pay more than the asked price.
