This Tech Analysis Stock Move Nearly Doubled My Capital




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The Nicholas Darvas Stock Market Technical Analysis Success Story (part 44)

Being in the Far East, I could not possibly know of any rival organization being set up. Yet the technical analysis side of my system based on the price action had warned me to get out.

During all the time that I spent with LORIIXARD and DINERS' CLUB, I never neglected to follow the technical analysis of other stocks in Barron's. This began to show me that there was a great interest springing up in a stock called E. L. BRUCE, a small Memphis firm. The stock was quoted on the American Stock Exchange. During its technical analysis, I learned that the company made hardwood flooring. This most certainly did not fit my fundamental requirements, but the technical analysis pattern was so compelling that I could not take my eyes off it.

What amazed me was the movement of E. L. BRUCE on Street. It usually traded below 5,000 shares a week. Then it suddenly woke up and started to move. In the second week of April 1958, its volume rose to an astonishing 19,100 shares. Thereafter the weekly volume climbed to 41,500 - 54,200 - 76,500 shares, with the price jumping 5 to 8 points weekly, and its technical analysis was not showing any sign of downward reaction.

BRUCE went from 18 in February to 50 at the beginning of May. Only then came its first reaction, which carried it back to 43J4. I could not be sure, of course, but this reaction seemed to me only a temporary halt, a refueling. After consulting its technical analysis, I felt it would continue to rise. I tried to find a fundamental reason, but I could not. Still, the technical analysis showed that the volume was there, the price action was there, the rhythm of the advance was there.

I began to feel like a man sitting in a darkened theatre, waiting for the curtain to go up on a thriller. As I flew from Tokyo to Calcutta, I puzzled over the BRUCE technical analysis charts every hour of the way. It had a wider, freer range than most stocks, and I could not place a definite frame around it. Flying over the Indian Ocean, I made up my mind to make an exception. Fundamentals or no fundamentals, My technical analysistold me that if it went over 50, I would buy it, and I would buy a lot of it.

But I needed money. My DINERS' CLUB sale had released some of my funds, but that was not enough. I could have used my savings, but after the JONES & LAUGHLIN disaster I had decided never again to risk more money than I could afford to lose without ruining myself. Consequently I have never again added to my market funds from my show-business income.

The only possible thing to do was to take a close look at my old friend LORILLARD. Did my technical analysis show that was still behaving well?

It was not. Its penetrations were not decisive, its reactions were deeper. I decided to take my money out of LORILLARD and be ready to invest it in BRUCE. I sold my 1,000 shares the second week in May for an average price of 57 & three eighths. The total price on the sale was $56,880.45. My profit on the deal was $21,052.95.

My technical analysis showed that with the $10,000 I had made from DINERS' CLUB, meant that in five months I had nearly doubled my capital. I felt pleased and proud and ready, like a giant-killer, to deal with a powerful and erratic stock like BRUCE.  

 

This article is actually only a small snippet of Nicolas Darvas' work...

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