Intermediate Movements in the Stock Market
Thus far we have been dealing with major market swings, which are governed by fundamental conditions in business and finance and which last for two or three years. There are other swings, however, that ordinarily extend over periods ranging from a few weeks to three or four months, which present sufficiently uniform phenomena to warrant some treatment in a discussion of scientific forecasting.
These shorter swings may be called intermediate movements. They occur in all free markets in which the forces of supply and demand vary, and are caused not by fundamental business conditions but by current business news and by the so-called technical condition of the market itself, by the shifting balance between demand and supply. All speculative markets at times get "overbought" or "oversold," supply pressure exceeding demand intensity in the one case, and vice versa in the other.
Stocks, however, are peculiar commodities. As regards trading in the market at any given time, there is no consumption and no production in the sense that there is of steel, cotton, and the like. There are no separate producers and consumers, no separate quantity supplied and quantity demanded. The seller and the buyer are, or may be, the same person. Thus demand and supply in the stock market are peculiarly interrelated and depend on much the same forces. Consequently changes in demand and supply have a cumulative effect.
Since we cannot separate demand and supply in the usual way, by quantitative measurements, there are only two recourses. In the first place, we can deduce the balance between demand and supply from the action of the market itself.