Tape Reading and Market Tactics by Humphrey B. Neill

Author:Humphrey B. Neill [Neill, Humphrey B.]
Language: eng
Format: azw3
Publisher: Golden Springs Publishing
Published: 2016-10-21T04:00:00+00:00

You often read that “good buying was apparent on the tape today.” It is my opinion that this phrase is used too loosely at times by financial writers, because it is probably the most difficult conclusion to arrive at correctly from reading the tape. A definition of “good buying” is necessary. I understand it to mean buying by important interests—perhaps institutional investment-buying, or purchases made by some banking group.

Also, pool accumulation would be called good, or important, buying, in that the pool would buy with the purpose of holding for a substantial advance. Opposed to this good buying, are the purchases made by the short interests in the market, who buy to cover their previous short sales. Likewise, speculative buying by scalpers, who take profits of one and two points, could not be called good buying.

Broadly stated, good buying absorbs stocks which will not be thrown upon the market at the first signs of a rally. Sometimes, of course, a banking group who are sponsors for a stock will support their stock with purchase-orders, and will expect to sell all or a part of the stock when the market rallies; but, having supported the stock, they would not sell the next day, as it would undo the good they had done.

Important selling, on the other hand, comprises liquidation of important accounts, as contrasted with marginal selling, which originates from overextended trading-accounts and from fear on the part of the public.

Indications on the tape which would tell the tape reader whether the buying or selling is important or not, are difficult to make out. The important time to look for them is following either a substantial reaction or a substantial rally. What the volume alone tells us is not always a dependable index; so we have to look at price-action as well. Short-covering plus speculative buying, following a decline or reaction, causes faster price-action than investment-buying. The rally may be started by support-buying, investment-buying, short-covering, or a combination of all three. The action at the turning-point has been well covered in previous illustrations. After the turn, the extent and character of the movement tells the tale. An exceedingly rapid recovery denotes short-covering, or buying for a quick turn, or often both. A more gradual advance with constant volume of transactions, as opposed to spurts and wide price-changes, indicates a better quality of buying.

After the initial rally, watch the secondary reaction, if one occurs, for the character of the price-changes and of the volume. During the stabilization periods preparatory to a further advance, you may be able to detect important blocks taken here and there. By and large, the distinction is fine, except in those apparent cases where the market rallies in points between sales; then, of course, you know it is mostly short-covering, and that it cannot hold. Do not overstay these sudden rallies (or fast reactions, if you are short); they have a habit of dying out suddenly.

Margin-selling, as contrasted with liquidation, has similar ear-marks. The pace is swifter, and prices drop rapidly between sales.

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