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24 PACSE 70 price and in time from the square of the high. You should then go to the daily charts to locate the shorter, cycle expirations and possible other resistance level. For instance, on the square of nine thirteen to 31 is 360 degrees, and the 180 day cycle didnt expire until a few weeks later. In addition, there was a significant low at 13 in December of 1974. So, when the 45 degree angle from the high crossed the price level of 13, the range of movement from 1974 through 1978 was squared out. This occurred in May, 1981 (Point A). That range from 13 to 45 3/4 was 32 3/4, and fifty percent of that range was 29 3/4. Therefore, in May of 1981, a major range equared out in time, while price was at fifty percent of that range. Just as with this exercise, you will find that a majority of the time, the further you analyze the situation, the more compelling the evidence will be, if a trade is justified.  . " ««« « « * 1 1* ** 1*» 1 1 } Q nO] « 1 e e mOIm Ot> nO OiO OmOi4 * OO ! <1 01 *iOOr*9 t,.e4 I)«« oDOlenel. «v t>al O e4e4«vlA oD Oiel <f VlA Q OnMP•ei«v ot>tQ O <f<fn9 Q On
On the General Motors nranthly chart (Illustration 4.1), the fifty percent of the high price, and fifty percent of time setup, which price moves into nicely. This is not an unusual occurrence. When that price and time hit, you can position in the apposite direction of the trend, and count on, at least, a three month move against the trend from the monthly charts. In this case, the move lasts for a longer time, and you could play that by moving your protective stops up. However, you would have to keep in mind the resistance at 5/8 of the high, and on the 1X2 angle down from the high. Count the months of moves on the GM chart. Most of the money is made in three months. They sometimes last four months, and sometimes six months. But, the three month fast moves are where the money is made. You should always be aware of the situation when price is up (or down) for 90 or 120 days. Maybe in February of 1979, the market is starting to move and you are looking for something to buy. Notice that GM is twelve months from the low of February of 1978, six months from the high in August of 1978, price and time are squared out on the 45 degree angle down from top. You are at 2/3 of the high in price and 1/3 of the high in time. You have held support for four months. When the two by one angle down from the August high is taken out, price is already above the 1X1 from the high and in a strong position from top. You could look for a long trade here. In February of 1979, price breaks down through the level of the previous bottom, and often times a fast move up will result from a false break down in price. Fast moves down, also, will result from a false break out to the upside in stocks. Once price has broken down through a bottom (this is much more apparent on the daily charts), and then recovers that level, you can look for a strong move up. This is not a setup, but just a general rule of price action. Next, we will study the Amoco monthly chart (go back to Illustration 3.9). This stock went through a very hard sell off, and didnt break through the 2X1 down from the high until April of 1983. After overcoming that angle, the price moved up to test the fifty percent level, breaking tnrough, and failing, then breaking through it, again. One-half of the square of the high came in January, 1985, and price sold off for three months into that time and was at fifty percent of the high. Again, this is a setup. Price comes down and finds support on the 45 degree angle up from zero. Price is already above the 45 down from top, and in a strong position. How many times can you expect to see this? Often! Now, the question here is, if you knew that you had this setup, would you have the confidence to position? I might have looked for a long position in the month of June of 1981, because I always look for support to show at 50 percent of the high, and the first time against that price level. Of course, the 2X1 angle down had not been broken, so this would be a high risk position. On this stock, price did break the fifty percent of the high level on the third time against it. The third time
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