This story originally ran in the May 2004 edition of Technically Speaking.
John Magee is one of the most well-known names in the field of technical analysis and is viewed as the leading authority on classical charting. All chart readers know the phrase “Edwards and Magee,” and John Magee is rightfully famous as the co-author of Technical Analysis of Stock Trends, originally published in 1948 and now available in its 8th edition.
Magee graduated from MIT in 1923 and worked in a variety of sales and marketing jobs, including a position as a Fuller Brush salesman, until he met Robert D. Edwards in 1942. Edwards was the brother-in-law of Richard W. Schabacker, a Forbes financial editor in the 1920s and later a New York Times financial columnist. When Schabacker died in 1935, Edwards took over Schabacker’s papers and the operation of the Schabacker Institute. In 1941, Edwards moved to Springfield, Massachusetts, where Magee joined him the next year.
Schabacker was the first to apply charting methods to individual stocks and not just the market indexes. Schabacker was Edwards’ and Magee’s intellectual mentor. Between 1930 and 1934, Schabacker had written three books. The 1930 classic, Stock Market Theory and Practice, devoted 250 out of nearly 800 pages to charting. The book was so highly regarded that Graham and Dodd in their 1934 Security Analysis referred readers to Schabacker’s 1930 book for an explanation of charting, even though they saw no value in “chart reading.”
Edwards and Magee added to Schabacker’s materials and greatly expanded that work, leading to the 1948 book, today recognized as the definitive book on charting. Edwards’ and Magee’s book has two parts. Part I, Technical Theory, is based on Schabacker’s charting work, but Part II, Trading Tactics, is based on Magee’s studies and personal trading experience. Part I is Edwards’ work. Part II is truly Magee’s work. This partnership lasted less than a decade before Edwards left in 1951 to become a high school science teacher in South Carolina.
Magee maintained daily charts on almost every stock on the NYSE and AMEX. He said, “Charts are the working tools of the technical analyst.” But he understood the limits of his craft, “A chart is not a perfect tool. It does not give all the answers quickly, easily and positively.” His understanding of the imperfect nature of charting could have resulted from his personal trading experience:
“Frankly, I haven’t done as well with my own investments, over the long haul, as I have with my recommendations to clients, but that’s because of a shaky beginning.”
In the early 1940s, he had lost $25,000 in the market.
Magee’s work focused on four basic and useful types of chart analysis:
- Area patterns or formations of price fluctuations that indicate consolidation of strength or an impending reversal of the price; formations give “get in” and “get out” signals.
- Trend and trendline studies which supplement analysis of area patterns or formations because stock prices tend to move in trends and once established, trends continue.
- Support and resistance levels which show where a move is likely to slow down.
- Broad market studies such as Dow.
Magee defined technical analysis as follows:
“Technical analysis is the science of recording, usually in graphic form, the actual history of trading price changes, volume of transactions, etc.) in a certain stock or in the averages and then deducting from that picture history the probable future trend. [T]he real value of a share of [a stock] is determined at any given tire solely, and inexorably by supply and demand, which definitely are accurately reflected in the transactions consummated on the floor of the New York Stock Exchange.”
In Magee’s opinion, supply and demand, and nothing else, moved the market. His philosophy was, “I will not be swayed or panicked by news flashes, rumors, tips or well-meant advice.” In 1958, Magee told market historian John Brooks:
“Before I came to work here, 1 was on my own, making my charts and operating in the market out of an office…where I had nothing hut a table, a chair, a telephone, a ticker and an air-conditioning machine. I sealed up the windows with boards and putty, so there would be no outside sights and sounds to distract inc. I had no fundamental information at my disposal whatever, which left me free to make up my mind solely on the basis of my charts.”
He felt that the successful analyst should be concerned with interpreting supply and demand, as shown in these two insightful quotes:
“The technical analyst’s task is to interpret the action of the market – the flux in supply and demand mirrored in the market. In this work, it doesn’t in the least matter what creates the supply and demand. The fact of their existence and the balance between them at all that count.”
“What does this action really mean in terms of supply and demand?”
Magee had a wall sign which read: “MY MIND IS MADE UP. DON’T CONFUSE ME WITH THE FACTS.” The facts were the “daily outpouring” of financial news and announcements. Except for the daily quotes, he only read two-week old Wall Street Journals. When TV arrived, his motto became, “We Follow the Tape Not the Tube.”
In later editions of his books, Magee pointed out that “the inherent nature of a competitive market does not change very much over the years, and that ‘the same old patterns’ of human behavior continue to produce much the same types of market trends and fluctuations.”
Magee enjoyed writing and teaching. He wrote two other books, The General Semantics of Wall Street and Wall Street – Main Street – And You. These books presented his market wisdom in a lighter, but educational, writing style. As for teaching, for eight years, Magee taught an investment course in the Springfield adult-education program titled “The Semantics of Wall Street.”
In December 1984, Magee attended the CMT Association’s monthly meeting.
Magee’s contributions to the study of technical analysis were formally recognized by the CMT Association in 1978 when he was named the recipient of the prestigious annual award. He died in 1987, at the age of 86.
This article is based upon research done by George A. Schade, Jr., CMT. He can be reached at aljschade@aol.com
