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also, true of taking short positions in what is a general bear trend when price rallies above a fast rising angle. Those fast angles, both down from swing highs and up from lows, indicate extreme momentum, and you will seldom want to position against it.
On the 11th day from top, price is stopped by resistance at a 1X2 angle from top, and closes below that angle. The pattern could be considered a lower double top from the secondary high on the 7th. This is a decent setup with the 11 market day count with resistance being shown. Also, it is 30 trading or market days from the December 3rd low. The first objective would be the support level from the 1X1 or 45 degree angle from the January 8th bottom.
Notice that the 60 calendar day count from the January 22nd bottom, underlined on March 22nd, was the last low for a drive into top. Pay close attention to the 90 calendar day counts from significant dates on the daily charts. These may not always be accelerations into a top or bottom, but are often very significant time periods for any stock.
Lets get away from the chop of the daily charts and use the IBM monthly chart (Illustration 9.2). The first major range of movement we want to look at is the range between the February, 1973 high and the 1974 low. The 45 degree angle, or the angle which moves up at one point per month from that 1974 time when it crosses that high price level. You can, also, find that time by subtracting the low price from the high price, and then counting over the resultant number of months from tne low. The 1972 high is not on the chart, although the price level is indioated on the left hand margin of the chart.
The full square of that range comes out in March through April of 1979. April through March xs 6 months from the last low, 12 months from a low, and 45 months from a low. This is a series of significant tijne cycles. You should look at this chart, as we have done with other monthly charts, and note how the fast moves last for 90 days or three months, 120 days or four months, and 180 days or six months. Also, note how tops and bottoms will come out 12 months from previous tops and bottoms, on the cycle of the years.
So that you can see this better, I would like you to help me on this chart. Please use, not only the counts which I have placed on the chart, but count out those other six and 12 month periods from lesser highs and lows, and place those on the chart. The March, 1977 high gives the March, 1978 low and so on.
The next major range to square out, is from the April, 1979 high to the September, 1974 low, and this occurs in December of 1982. You expect a top to come in this month, except for one very important thing. Tops take time to form. Gann pointed out that "pitch" or momentum will overcome resistance, and this range squaring out, is resistance in time. So, there has been no time for a top to form in December of 1982, and time must be allowed for distribution. Price is rising above fast angles. Look at all of the tops on the chart, and you will see this. It would be unusual, indeed, if this stock was to reverse and move down in a high momentum move up- even with this range squaring out.
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Now look at the IBM weekly charts (Illustration 9.3 & 9.4). At what point would you etart using the counts from the square of 527 The first point to start from is the low of 10/30/81, and you would use it from the date of the start of the drive down on 6/11/82. Others are the high on 10/14/83, the lower high on 1/6/84, and the final high before the 7 week blow off move is on 5/4/84, as well as, the low of 6/22/84, 10/12/84, and 12/14/84, etc.
The counts from the square of 52 are the calendar day counts of three months, which is 13 weeks or 90 days, and 26 weeks, 39 weeks, and finally, the full cyclical move of 52 weeks or 360 degrees of the yearly circle. You would look for evidenoe during those turning points to position for trades, such as having other cycles expire and ranges square out, and the position of price in relation to previous highs and lows, and angles.
Notice, when the drive began in June of 1982, that the first consolidation or sideways move was during October, and the second was January to February. The low of that second consolidation stayed well above the high of the previous consolidation. This is a sign of strength. Then in July of 1983, price moves sideways, but there is no space between this move and the latest consolidation before that. In August, price dips back into that price level, a bearish implication. Here, price went down for five weeks, which is the longest correction in time, and 12 points, the deepest correction in price. This is an overbalance of price and time. It is an indication that the drive up has a good probability of being top. As there was a reasonable amount of sideways price action during July and August, the probability of a spike high being formed by the resultant move up is increased.
As price is driving up in September of 1983, you are asking yourself what the ideal time for a top would oe. The end of October is the expiration of a two year cycle. Ninety days from the early May low was the August low, and if this drive is an acceleration up, wa might look for high around the 49 calendar day time frame, plus or minus three days from the August low. So, the top would be possible in the time frame of October 14th to 28th.
You would look for evidence of top in that time frame. If you look back to the monthly chart, you will see that the range from the October, 1981 low squares out with the November, 1980 high, and this puts this late October time frame within a few days of a three year cycle. In the week of 9/30, price reverses, but the 2X1 angle up from the August low is broken, and the time period is not yet up. The cycles are not there to support this week as top, and price is still in a strong position. In the week of 10/14, price reverses again, and this is in the time frame for top. A break of that 2X1 angle up from the August low would mean that this drive is, at least temporarily over, and could indicate a change in trend due to previous price action. The week after 10/14/83, the 2X1 angle is at 131, and if broken, it would be a level to go short, although a more certain level would be the low of the previous week at 130 3/4. This occurs, and the drive down begins.
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