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In this case, a higher low was made in 12/17/82, from which 180 days or 26 weeks gives the week of 6/17/83 to look for a change in trend. From the low in the month of March, 1980, the weekly count of 169, or 3 1/4 years, also, was indicated that same week in June of 1984. Also, notice the ten weeks of sideways movement which is sufficient time to allow for distribution and a change in trend.
There are two other noteworthy items on the weekly chart. First, if the down move started from the June, 1983 high, it would come from a false move up, or a move to a new high that quickly broke down, which is called a false break out. Fast moves often start from false breaks outs or breakdowns. Second, the 45 degree angle up from zero from where the bull move started in August of 1982 was broken the week of July 8th, 1983.
I have drawn some partial squares on the weekly chart. From the high of 6/24/83, the 45 degree angle crosses the price level of 17 1/2 during the week of 2/3/84 or 2/10/84. This is the square of the range from high to low, and is a turning point on the weekly chart. The low at 17 1/2 and the high at 49 1/2 gives a range of price movement of 32 points. Of course, 33 is a natural cycle, and you could look for support to be found in the 32nd or 33rd week and the square of the range in price, especially if it was 1 1/2 years from the low price, or 78 weeks. As it turns out, this was hardly a tradable setup.
The 45 degree angle up, from the level of the low prioe on the date of the high price (6/24/83), is the basis for the full square. The price level and date at which the 45 degree angle from the top traveling down, and the degree angle 45 from the price of the low on the same date as the high, traveling up, intersect is both 1/2 of the square of the range in price, and in 1/2 of that square in time. To visualize this another way, if you converted that range of price movement 32 points, to a circle, 16 weeks would be 180 degrees of movement around the circle from the starting date, and 16 points would be that same movement in price.
The sixteenth week after the high price was achieved would be considered a weekly turning point, but the easily tradable setup «ould be if price was, also, at 50 percent of the range, or 33 1/2. This would be the fifty percent price and time setup we have discussed before.
Fifty percent of the range of price movement at 33 1/2 in this instance, is very important support, and will signal whether the stock is in a weak or strong position. If the stock trades below fifty percent of the range, it is in a weak position and you would look to the square of the high price for support and timing after that 50 percent price on the range was broken. The high is at 49 1/2, and fifty percent of that high is 24 3/4. So for price support, 24 3/4 would become very important, and in time- the 24th to 25th weeks, and the 49th to 50th weeks.
On the American Express chart there is another range to «ork with from the low of 12 1/4 in March of 1980. If you havent already noticed, the high at 49 1/2 is at four times this low
price, and 24 1/2 vwuld be twice the level of that low.
Every time the 45 degree angle moving down from the 6/24/83 high, crosses the price level of a previous low (which occurred during the drive up to the high price), this indicates a square of the range in time. You can anticipate the probability of a price reaction during that week. These squares of ranges are marked on that angle with the small arrow. When this same angle reaches the level of zero in price, as it did in early June of 1984, this is the full square of the high in time, a powerful turning point if 50 percent of the range has been exceeded to the downside.
The 45 degree angle up from zero from the date of the 6/24/83 high completes the square of the high. Where the 45 degree angle down from the high and the angle up from zero cross, is 50 percent of the square of the high in both price and time. In time, this is considered a probable turning point, and in price, this level is important support. When the time of the full square of the high comes, price is at the fifty percent of the high support level, and on the 1X2 angle up from zero from the date of that high. This is a good setup to go long.
As it turns out, this long play would have been a difficult one for an option trader, or a short term trade. However, a stock trader could be looking for the start of a new bull move from the bear move down expiring at the square of the high in time. For a longer term stock trade, the long position could be taken from the setup here, and a stop placed one point below the fifty percent of the high price.
When a stock or an index is moving sideways, that is, it is not in a trending situation, the squares of minor ranges of movement become very important and accurate indications of a possible change in price action. This is the consolidation timing method. When 45 degree angle down from the May 18, 1984 high hits the level of the 6/1/84 low, a minor turning point is indicated. From the June low up to the level of that previous high in May, a better, weekly turning point is indicated. Of course price support was known that week, and the double bottom at 25 was a bullish setup. Price action from that week is a good indication that the trend could now be changing to up.
After that low at 25, as long as price remains within the range of movement from the 49 1/2 high to this low, the square of this range can be used to develop turning points and price support and resistance. Fifty percent the range in price is 37 1/4, By bouncing the 45 degree angle up from the 7/24/84 low off the level of the high, and back down to the level of the low, you have both the square of the range, and two times the square of the range in time. Of course, the 1X2 angle, or slower angle from the low, also, indicates the second square of the range when it crosses the level of the high.
The first square of the range is in the week of 1/18/85. and price was moving sideways into this time period just above the fifty percent of the range price level. In addition, price was showing increased support through a series of higher lows. Since
the low price is 25, the square of the low is the same week, and is indicated on the chart by the 45 degree angle up from zero, from the date of the low crossing the price level of the low. Of oourse, this is a good turning point, but with the price moving sideways, it becomes more difficult to judge the direction of the move out of the turning point. The support from the 1X2 angle from the low, and from 50 percent of the range is important support. Because of the sideways move, you would be looking to position with the direction of price movement out of this turning point in time.
The second square of the range and square of the low is just as interesting a setup as the first- with price near the old high. To make this even more interesting, note that from the June, 1983 high to the beginning of the basing formation for the low, is approximately 52 weeks. The drive up from the low price is very near the old high in the 104th week from the same old high. From that high in the week of 6/28/85, the drive down, in the 13th week, is showing a definite basing formation, for a 90 day correction to the bull trend.
Now use the Caterpillar monthly chart (Illustration 6.3) A significant square of range on this chart is from the 1981 high to the 1974 low. The 45 degree angle up from 26 1/4(the low price), and from the date of the high or 4/30/81, shows a range of 47 points and months when it crosses the level of the high. Where this angle from the low intersects the 45 degree angle down from the high, indicates fifty percent of the range in both price and time. This range of 47 points or months, when divided by 2 is 23 1/2. This added to the low of 26 1/4 gives you fifty percent of the range or 49 3/4, where those angles intersected. So when price moved into that zone of resistance for the first time in May of 1983, you could look for evidence to go short or to buy puts. Also, 150 percent of the low of 33, or fifty percent of the low of 33 added on to it, was 49 1/2, which made that price level even more significant. Another bit of evidence for change at this time, was price had moved up to the level of 24 points below the high in the 24th month from the high, giving a square of price and time. However, the important setup is the fifty percent in price, and fifty percent in time setup.
Also, you can see when Caterpillar was moving down in 1981, price found support in October, 1981, at fifty percent of this same range at 49 1/2 and gave a rally. How much of a rally can you expect when showing support at fifty percent of range? If you are dealing with the current swing range and 50 percent is hit within three months or 90 days, you could look for a significant bottom. But in most cases, when support is shown at fifty percent of range, you can be assured of a minimum movement to 5/8 of that range in price.
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