Illustration 4

This chart provides an excellent illustration of how a long-term decline can be just as profitable as a long-term advance. Without the presence of the 200-day moving average price line for guidance, an investor could have found himself riding this stock all the way down, a very unprofitable trip to say the least. However, the astute trader, after buying the stock at $98 in June 1958 on the evidence that the 200-day line had turned up following the earlier upside penetration, would have sold the stock at $100 in December 1958 following the earlier downside penetration and evidence that the 200-day line was flattening out following previous rise. Based on the later evidence of the failure of the stock to get back to the line in March 1959 and the ultimate downside penetration of the January 1959 support level all in the face of a declining 200-day line, the trader goes short at $97.50 in April 1959 (Sell Signal #7) and does not cover until the double bottom chart formation in January 1960, the stock never having scored an upside penetration of its 200-day line on this whole downswing.