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In viewing the Aetna charts, (supplemental materials) we will use some of the techniques we have discussed in previous chapters. You must remember that we are not attempting to call every movement in the price of a stock, but only developing or noting specific setups in time and price which are evidence of trend reversal. The idea is to take from these techniques what they will give us and nothing more. By using the long term cycles and squares, we may qualify the extent and duration of the price movement to some degree. We know to look for a change after 3 months or 90 calendar days especially when price moves against the trend for that length of time, and 12 months or 365 days (360 degrees of one year) and multiples of such.
We will look for change on multiples of the low price in both
rice and time. We will look for angles to cross previous tops and ottoms whiph indicates a square of the range or divisions of the range as a 45 degree angle or 1x1 angle would square the range. A 2x1 angle is one half the square of the range, and a 1x2 is the second square of the range. We will give greater emphasis to the squares of ranges when still trading within the prioe range of that square, and we will use the counts to indicate natural times to look f r ha nge. We wil 1 look at sq ua res of h ighs, put ti ng emphasis on the square of the high in severe downtrends.
We will pay attention to the weekly counts in the square of 90 and 52, paying close attention to the square of 144 and 90 on monthly charts.
We will look for resistance and support at previous bottoms and tops, and look for multiple bottoms and tops as signs of support and resistance. Well look for false breaks from those levels as an indication of a fast movement. We will look for angles to offer support and resistance, and, of course well always be aware of our fifty percent marks and the angles from those points. We will monitor true trend lines on all series of charts.
If you look at the month of October, 1984 on the Aetna monthly chart, you will see the 12th square of the October, 1974 low of ten dollars. That month was also the 120th month from the low or the end of the ten year cycle. This is confirmation from two sources of a possible change.
In July of 1984, Aetna had shown support at the 45 degree angle from zero from the time of the April, 1982 top by giving a strong reversal, and by October, 1984, price had moved above the 1x2 angle coming down from the April, 1982 high which put the stock in a stronger position from that top. Price was also showing support on a 2x1 angle from the July, 1984 bottom. This shows price in a strong position from bottom.
Now move to the Aetna weekly chart. You will see that the 7/27/84 low was marked by an outside reversal week up during the week before a 90 count. By Ganns original trading plan, the fourth year of the decade is to be a year of bottom, laying the foundation for a bull market in the fifth year. You would be
looking for stocks which were showing signs of a bottom forming and then a bull trend starting. The outside reversal week up for a low price was a good indication of higher prices to come. Moreover, breaking 32 and recovering that price set up a "false break-fast move" probability.
At the start of October, the month of the 10 year cycle and the twelfth square of the low, price had been moving down. In the week of 10-12-84, and 130 weeks or 2 1\2 years from the high of April, 1982, from which the 45 degree angle from zero on the monthly chart wes drawn, Aetna had a second outside reversal week up, following a three week consolidation. Support was shown on a 1x2 angle and, also, at a division of 90 or 11 weeks from a low. It, also, held above 50 percent of the swing producing a higher bottom. The stock could be purchased at that time with a protective stop one point below the swing low, or 32 1\2.
On the weekly chart Ive numbered the higher lows. Notice hew price either bottoms on top of the previous high or leaves a space indicating the probability of a fast move.
Again look at the Aetna monthly chart, and we will look at time periods, angles and general tools. There is a high at 27 in November, 1972, then another high at 27 in 1964 (not on this chart). So when price moved to 27 in October, 1973, there was a possibility of a double top 11 months apart at the level of an old top of 10 years standing and a third attempt at that level. This evidence leads to the understanding that the outside reversal month down at the price level of 27 was a good indication of trend change. Of course, the next move against 27 would be the fourth test, and likely go through. After that month, resistance was. shown at angles from top. Price moves down through 50 percent of high to find support on a 45 degree angle, starting at zero from, the date of the high, in the 12th month from top(almost exactly 365 calendar days from top). The sharp reversal up was an obvious indication of trend change, and was confirmed by price moving above the 45 degree angle down from top. \
In July, 1975, price shows resistance at 50 percent of the« range both price and time. The preceding month, price showed resistance against the true trendline. This was followed by a three month correction (90 calendar days) down into a conjunction of angles moving up from zero in September, 1975, giving a higher bottom.
In the twentieth month from the low, price made another higher bottom at the time of the second square of the low, and, 12 months from June, 1975 top. This low price came against the 1x2 angle from zero from the date of the 10/73 high, which had proven support before. Note the outside reversal month up. Again, a three month correction down into the third square of the low in April, 1977" brought price down tc a 45 degree angle from zero, from the date of the September, 1975 low, and was marked by an outside reversal month up in which price moved through the 45 degree angle down f roir-the December, 1976 top.
Price turned down in the 45th month from top, and proceeded to find bottom during the month of the fourth square of the low which was, also, six months from a high. Price gave another higher bottom. April of 1982 was the 9th square of the low and a 90 month count from the same low, which was a time to look for a fast movement. Price had moved from the February, 1981 low- up, finding a low in the sixth month of the drive and a high in the ninth month, and by the anniversary date of that low in February of 1982, price had been moving sideways for three monthe in a volatile fashion. The monthly chart is showing price resistance at the high set in November of 1981, and support on the 45 degree angle up from the February low.
Now move to the weekly ohart. Again, the weekly charts show there is significant resistance to price advance. It shows this for four monthe, with two attempts at $48 per share, three months apart. So, there is a possible double top on the week of 3/5/82 and the high of the week of 12/4/81 squares with low on 8/28/81, as shown when a 45 degree angle from 12/4 top crosses $35 price level. When that same angle crosses the price level of $30 (the low of the week of 2/20/81), it shows the square of a major range and price gave the possibility of triple top at that time.
So, in the week of 4/9/82, with a major weekly range squaring out, and knowing that if prioe moved down it would produce a triple top on the chart, you may have been looking for a trade. You might have added to this evidence by the fact that this week was 52 weeks from the first higher low in the drive up (the week of 4/10/81). You will find that as a trend reverees or during a long sideways pattern, the one year cycle from most highs and lows can produce tradable vibrations. If the trend is down then look for low to high or for high to high from one year cycles. Again, as the general rule, the third move through that zone ueually results in a fast movement in the opposite direction. The forth movement against a zone will usually go through that price.
In the week of 4/9/82, you could have positioned short at the old top with stop three points above it. A second method of positioning would have been to wait until the low of that week was broken. The next week produced a fast move down into the price level of the monthly 45 degree angle at 44, which was broken, but offered some support.
There is another very good set-up showing here. Whenever a stock or market hits a hign price, reverses, then trades in a narrow range on light volume, as Aetna did in the time frame of 4/23/82 through 5/7/82, and then breaks down through that range on increased volume, it is a very good sign of lower prices. So in the week of 5/14/82 there was a further indication of lower prices from the breaking and its inability to recover the monthly angle. This followed by the high, and then sideways movement at a lower level, and on light volume, and finished by the breaking of the low of the sideways movement, backs this up further. Since price moved through the monthly 45 degrees angle up from low, and was wsll below the 45 degree angle from top on the weekly chart, it
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