Evening star., 1930-06-28

E--a' - = p - the market broke,
George T. Hughes. partly at least, be-
cause business had
already turned for the worse.
The trouble with this theory is that
that it explains too much and too lit
tie. If last years break was a prophecy
Of business depression, what is to be
May and June OF 1890? Is it to be
assumed that there are still greater
depths of depression to be probed and
that the stock market is sounding a
warning to that effect? No one wants
to believe that, and as a matter of fact
no one does believe it.
Then, too, If the stock market is an
infallible guide to the future of busi-
ness, how did 1t happen that prices adj
vsnced so rapidly in February and
March that for a time it looked as
though the great bull movement of 1929
was again in progress? We know now
that any such Interpretation was false.
AS a matter Of fact, the market of
the late Winter and early Spring this
year was out OF step with conditions in
industry, as we now hope It is out of
step with the prospects for next Fall
and Winter. The truth Is that the
market forecasts the course of business
very imperfectly and that the signals
given can be read accurately only in
retrospect. Over longer period, prices
of stocks conform to changes in values,
but at any one time they may be much
ahead of or much behind those changes.
Averages Tell the Story.
The story of the past six months is
best summarized in the averages. TAX
ing the Standard Statistics industrial
vaN.S AVaIA NxrtAi ~ an
January laSt-1926 being taken as
100-the market reached the peak on
April 10, at 2024. In those three
months there were two minor reac-
tions, one eliminating on January II,
when the index was 1868, and one cul-
minating on February 30, when the
reading was ITS. It will be noticed
that the point of resistance at the end
of February was materially higher than
that of mid-January, which was taken
as a favorable indication by the spec
ulative element. The first important
setback from the April high came in
May, when the average dropped to 177.2,
still above the February low. Then in
the second. week in June, the larger
break carried the figure back to 1904,
or only fraction of point above
where it started in January. In other
words the market, in the middle of :he
sixth month, had Cancelled all its gains
since the first of the year.
In a general way the story told by
the railroad averages is similar. It is
unnecessary to give it in detail because
speculation nowadays runs SO largely to
the industrials. During the first quar-
ter the movement was roughly upward
and during the second quarter it was
downward. All the time the market
hod ~ Sfn IcRlif1n in
commodity prices, a continuous falling
of in railroad traffic and income state
ments which in the majority of cases
made unfavorable comparison with
these of the same period of the pre-
ceding year. In its favor 1t had only an
excessive money supply and consequent
low rates.
The renewed and violent decline of
the third week in June is fresh in every
ones mind. 1t took the averages back
to within striking distance of the No
vember low. On June 18 so industrials
sold at 153, or more than II points un-
der the level of January 2. Impor-
tant stocks, including United States
Steel, made new lows for the year and
the lack of resistance emboldened the
bear party.
From a purely technical point of view
however, the significant thing was the
decpeaSe in volume on each successive
slump. More and more the offerings
were coming from short sellers and less
and less they we're due to the closing
out of impaired margin accounts. AT
no time during the third week was
there any concerted effort to support
the market. It was allowed to take
care of itself. 1t was not the pressing
of stocks on the market that sent it
plunging downward so much as the lack
of demand.
Every favorable development was ig-
nored and every unfavorable one en-
pl1asized. 1t looked as if there was no
stopping of the downward movement
and the short account grew steadily
larger daily. This is what happens,
although in reverse order, at the height
of a bull campaign. When stocks are
rising it seems as If there is no top and
there are always more buyers at the
peak level and more sellers at the
minimum than at any other time. 1t
is a condition that invariably precedes
turn and this turn comes regardless
Of business or trade or anything else.
Stocks cannot go continuously in one
direction. Trees never grow to the sky
and it always stops raining some time,
Confidence Shaken in April.
The turn in April came with the
realization that the business depression
was more pronounced than 1t had ap-
peared and that the results on earn
ings were likely to be more serious than
had been expected. The two tangible
developments that shook confidence
were, first, the slump In railroad traf-
fic, and, second, the cut Sin the price
of copper metal. Taking up the latter
first, copper had been quoted early in
1929 at "a cents a pound, from which
figure it dropped to 18 cents and was
held there for year. 1t was held un-
changed all during the decline in other
commodities and toward the end of the
period at time when demand from
consumers was at the vanishing point
Then on April Is of this year the
price was cut at one blow to ID cents.
Even this failed to stimulate business
to the extent desired, and in the first
week OF May there was another cut of
a cent more, and a few days later a
reduction of q half cent further, at
which point a wave of foreign buying
began, sufficient to bring about record
sales for export account. In late June
the price was Shaded again, as surplus
stocks piled UP faster than buyers would
take them.
OF course, the result at first was
sharply lower prices for copper shares
and, secondly, lower dividends to share
holders. The effect was not confined to
the stocks of the corporations immedi-
ately concerned. 1t was an unsettling
influence throughout the whole market.
The attempt to maintain an artificial
price for the metal was doomed to fail
ure from the start. Every such attempt
has ended In disaster sooner or later.
To degree. the market had anticipated
what actually happened by the previous
sagging of the price of the copper
stocks, so that they were selling on a
higher yield basis than any other group,
but it had not discounted the outcome