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Now lets look at the move down in the same perspective. Price moves down for 5 days- into July 8th- followed by a two day rally, then three down and up five days, sideways three days, below the level of the July 10th high, falling within the 7 to 11 day probability of being a countertrend move. After the small distribution pettern, there was a big break in price and a two day rally, then seven days down into August 8th. Notice that this is nearly the opposite of the move up. Two days up against the trend creates another lower high, and just as we see rieing bottoms on the way up we are now seeing lower tops on the way down. Remember that fast moves come from the 3rd or 4th lower high, and on September 2nd a two day rally against the trend terminates, leaving the 4th lower high. Next, five daye of price moving down, and then a one day correction on the 9th of September, indicates another blow off move or acceleration in progress.
Now, how far in time from the Gann cycles could you assume this move would last? Thirteen weeks or 90 days is always a good possibility considering the cycles that brought in the high. Since this is obviously an acceleration, you can use the 7 week or 45 day death zone from the 8/12/86 high. All these assumptions as to the move down work out nicely due to the termination phase being one year from the previous lows of 9/16/85 to 10/1/85, or the lows from which this movement started.
How long would any rally laet from this perceived low? The first probability is 30 days. How far up in prioe? The~ chart shows resistance at 44 to 45, which are the lows of the topping pattern the stock broke down from. The next time objective is 45 days, which could be 49 to 52 if an acceleration in price movement upwards is ehown, then 60 to 62 days, and 78 to 90 daye. But to help determine which cycle will end the move, it is helpful to understand the prioe movement and to read the charts. Noting corrections, strength of moves, and time, is very important. You, also, have the weekly and monthly charts to give even better evidence from angles and long cycle turning points. Even without thoee angles, charts, and cycles, repeating this type of exercise, along with other daily charts, plus viewing the time of correction and advances, and swing highs and lows, is exceptionally valuable to any technical trader.
Now uee the Disney weekly ohart (Illustration 6.8). Notice the week of 6/27/86 is 52 weeks from a high, and that the week of 7/4/86 is 104 weeks from a low. So, there are two yearly cycles coming out in this time period. Also, at this time, there was a 13 week cycle from the start of the acceleration, and price was eeven weeks up from the last low to terminate the longer cycles. On the monthly chart, you oan see that June of 1981 was high, making June of 1986 a five year cycle from high. So, a one year cycle from high is present, price moves up into it, also blowing off a five year cycle from high, and the low of June, 1977, is 108 months or 9 years. Nine years, two years, one year, 270 days from low, 90 days from the start of an acceleration, and a 45 day move up into the high price, are all expiring cycles. With this type of
evidence, you might have expected a 90 day move down, at a minimum.
One valid technique which works with fast moving stocks and commodities, is to draw a 45 degree angle down from the first swing low in a down trend such as this, and to anticipate support on that angle. If you draw that angle down from the 7/18/86 low, you will see that it intersects price on the week of 9/19/86 on the weekly chart.
The 45 degree angle from the high crosses the level of the 5/16/86 low during the week of 10/3/86, squaring that range. If you had been short this stock for this move, you would have been looking for a low at 90 days, or 13 weeks from high, or, poesibly, 11 weeks or 78 3/4 days. Prioe found support on the weekly chart for three weeks at 36. That should have been sufficient evidence to indicate that the eleven week cycle was the effective one from high to low.
Now look at the monthly chart- specifically 2/27/76 (Illustration 6.9). One of the rules we work with is, the first time pricemoves to fifty percent of the high price, when it takes years for the stock to accomplish this move up from a low level, it is a very high probability short trade. Price moves up for six months, or 180 days, and a three month or 90 day move, cape the six month move into that resietance zone. Remember, time is the meet important part of thie analysis, and look at all charts with that in mind. The move up to the reeietanoe zone ende with a trend change, and prioe movee down for one year.
In looking at the longer term cycles on the Disney monthly chart, we have eeen that the five year period is a valid time to look for change, if price moves in the right faehion into that time frame. All of these cycles oen work from low to high, or high to low, or high to high, etcetera. So, in January of 1978, when price was sixty months or five years from a high, there was probability that the down move was over.
The low in 1975 wae 24 months from high, end the last high in the stock wae 24 monthe from low. Theee cycles repeat with stocks, and the market (see July for repetition of cycles on the Value Line weekly). Gann eaid that this repetition can be forecast with the uee of the spiral charts or the Square of 9, and the hexagon chart.
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