The high on May 2 was 12,876, after a bottom on March 6, 2009. Consider the Dow sequence from the March 2009 bottom to the May 2011 high. The simple square root, which we all learned in grade school, is an integral hinge on which the markets turn, but because it’s hidden just under the surface, it’s not immediately apparent. However, when we take the square root of that figure, we get 37.77, which Fibonacci enthusiasts will recognize as the derivative of 377. On the surface, that means absolutely nothing. In the case of the BTK, the first important pullback in the bull move off the Nov. Going back to our ’87 crash example, consider the stock index price rise that followed the bottom.Īnother progression in the study of price and time work is the square root. However, when it does, it usually leads to a powerful trend, as it did in the case of BTK. What should be understood about this mystery is it does not materialize every day. This is just another example of how Gann’s principle of time and price balance out. The market had a range that was equal to the date of the origin of the pattern. What was the date of the high? It was May 13, or 5-13. The peak of this market was on May 13, 2011, with a price of 1514.60. Take, for instance, the 2011 bear market in the BTK Biotech Index (see “Tech crunch,” below). But as it is with the study of pivots, the Gann calculations themselves are decidedly simple. However, as complex as this appears, markets can get even more complicated. A 21-year, 1,108-point range in a market could identify a turn 1,108 weeks later - as it did with the 1987 stock market crash. For example, a common manipulation is the decimal point - a Dow range of 7,728 points can square with a rally 77 weeks down the road. Markets are enigmas, and this attribute demands a great deal of flexibility when working with price and time studies. Here, we’ll delve deeper into time and price studies. Gann’s master forecasting methods,” (February 2011) we examined several aspects of Gann analysis. However, the proper application can be tricky. In short, when the duration of a move squares with the extent of a move, price trends tend to change. Gann, a well-known analyst from the first half of the 20th century, considered the squaring of price and time his most important discovery. While it’s not always clear why a time and price symmetry identified a market turn, such symmetries do indeed exist. These techniques have proven instrumental in pinpointing and explaining market tops and bottoms. One class of analysis methods that works over time involves the studies of W.D. So if fundamental and traditional technical analysis can’t nail the turn consistently, what can? While these are important indicators, markets can and will overshoot their technical target, and the study of patterns can give us only a rough idea of when and where a market might turn. Examples of key technical tools are moving averages, trendlines and Andrew’s pitchfork. Technical analysis is the study of price patterns and the visual representation of emotion in the market.
To solve this riddle, many turn to technical analysis. A price/earnings ratio can tell us whether the market, or particular stock, is cheap or expensive at a specific point in time, but it has zero capability of telling us when the turn will come.
Markets march to their own drummer with a language all their own.Ĭertainly, fundamental valuations play their part in determining where we might be in the cycle. Bull and bear markets surge relentlessly along their path until one day they reverse course and set sail in an entirely new direction, never looking back. The trading community is relentless in its pursuit to find out how and why the market turns.