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The move down was an obvious five wave move, completing an Elliott wave movement, and when price took out the 2X1 angle down, on the weekly chart, from the 5/4/84 high, it was a good indication that the move down was over. When the 1X2, or slow moving angle down from the October high, was broken, this all but confirmed that the stock was in an up trend.
How much of a move in time could we expect? Since the stock is starting the move up from a strong position, we could assume a drive up of 90 days, or 90 degrees, of the cycle year. That would be the first assumption. The second is to look for change in 120 days, then 180 days or 26 weeks, and finally, a full year, or 360 days. The 360 day or degree cycle from the October, 1983 high is October 12, 1984.
On the thirteenth week from bottom, 9/21/84, a reversal week is shown with a high on the 90 day cycle. This reversal combined with the break of the 2X1 angle from the low, and sufficient evidence is there to close out long trading positions. We know that three weeks is the normal correction, and this would come into
&lay with the full year turning point from the October high. A ottom is found on that turning point or cycle, but price and time have overbalanced, and a weekly low is broken. This puts the move up in question. The setup is strong enough to play from the long side, but the bull trend is in question, and you would play it lightly and carefully. For four weeks, resistance is shown at 128, and then an outside reversal week down occurs. With that kind of evidence, you would be out of any long positions.
A valid turning point could be 180 calendar days from the June, 1984 low. Price moves down to the level of the May, 1984 high. IBM, then, moves to new highs in seven weeks, which is, also, 33 weeks or 225 calendar days from the low. The square of the range from the June 22nd, 1984 low, to the October, 1983 high oomes out in the week of 3/1/85. That square can be found by following the 45 degree angle up from the low in June, to the price of 134 1/4, which is the level of the October high. Price moves up into this week, and is below the recent high. This would be the week to go against the bull move. Besides the range squaring, price action is bearish, and reversal week occurred after the seven week move into high. This is not the type of price action which takes out old highs and then continues up. That occurs on extreme momentum.
Another seven week move into a low occurred from the top week. The low hit on the week of 6/21/85 is 360 degrees or 52 weeks from the June, 1984 low, and within a few days of 180 degrees from the December low. Notice the important square of the range from the February, 1985 high to the June, 1984 low. Price moved down to fifty percent of this range in price at the time of fifty percent of the range, and the price and time setup occurred. This is usually a good setup, and I have drawn a part of the square on the weekly chart.
October of 1985 was four years from a significant low, and two years from the high of the resulting bull trend. This is an
anniversary, and it is a time to look for change or a fast move to begin. Price, on the weekly chart, shows a sideways move into that time frame, with a sharp drop followed by two inside weeks. The trading assumption is to go with the direction of the price move out of the consolidation, because the cycle of years is indicating a fast move is likely to start. In the week of 10/18/85, price moves above the 1X2 angle down from the August 2riJ high, and is the first indication that the trend is over, and that a move up could be starting. A confirmation of this would be for price to exceed the high of the week. It does that the next week, but the close of the week is low in the range. Price does stay above the 45 degree angle from where the drive began, and thus, is still in a strong position. When the next week shows strength in the close (11/1/85), you could begin looking for an entry into a long position, if the high of that week was taken out.
On the daily ohart, you can see that the move is a strong one giving exact support on the daily angle on the 7th and 8th of November, with only one day correction. On December 2nd, price breaks that support angle. This break needs to be confirmed on the daily chart by the next days action. It takes out the low of the 2nd, which is not done in any decisive fashion on the 3rd, and 4th. Price recovers that angle indicating higher prices. This is the type of break and recovery of a daily angle that in a bull trend can cause an acceleration, and IBM, now, follows a faster angle from that low upward.
Now the question would be, when should you look for a top? Because price has moved up past the 60 calendar day cycle, the probable time for a top would be 90 calendar days. That is a high probability because this is accelerated move up and this type of move is almost always ended within the 90th to 99th calendar day from the low that starts the move. On the 96th calendar day from the low, IBM is, also, 330 calendar days from a top, and on that day price shows an outside reversal day down, breaking the support angle for the move up and closing below it, after a three day move up from the last correction. That previous correction, which started on 12/20/85, exceeded in price the previous daily corrections- although not in time. In any event, it is the time to exit any long position. The next rally lasts for three days and fails to reach the previous high, which is a bearish movement.
Remember that you can use the calendar day cycle counts as possible turning points. With that understanding of price movement, you can qualify whether to position on those turning points. View the calendar day cycles of 30, 45, 60, and 90 days as completions of movements. Note that 90 days from the top in May of 1986, points to a completion of the move down in early August in the same fashion that 90 days from the late September low of 1985 pointed to December of 1985.
I mentioned, earlier, that the square of the range is an excellent tool for judging turning points during consolidations on weekly charts. Look at the weekly chart and the dates of 7/26/85 for a high, 10/11/85 for a low, 5/2/86 for a high, and others.
We will continue to look at how to determine daily turning points with the S&P daily charts (Supplemental materials). What we are ultimately looking for, here, is a date that shows a conjunction of counts and divisions of ranges. This type of situation, when it arises, works best when price is moving sideways. When strong pitch, or momentum in a stock or index, as in this case occurs, very few good turning points develop.
Note on the S&P daily chart that on the initial drive up from the September, 1985 bottom, price never broke a swing low until December 23rd, Until that week, the largest correction in time was three days down. Notice, this drive up started at the beginning of the fall season, and had its first consolidation at the beginning of winter.
When the market or a stock has a sideways movement, as the S&P cash did in December and January, you should pay attention to all 30, 45, 60, 90 calendar day counts from all swing highs and lows during the sideways movement. If the stock or market is not showing a great deal of momentum, or appears to be in a consolidation, these cycles can be significant trading opportunities.
December 24th, 1985 was 90 calendar days from the September low. This third day was the low of the first overbalancing of price and time during the move up. This makes the next rally shortable. Price moved down for 11 days after the high on January 8th. The eleven day count, the smallest division of 90 which we use, is a good time to look at change. In this particular instance, it is 30 calendar days from the December low, or a portion of the 90 calendar day cycle. Finally, from the spike down on the 7th and 8th, the square of the range of that move comes on the 23rd.
At that point on the chart, or the evening of the January 22nd, you would ask yourself, "What would this chart look like if a bottom was found tomorrow, or the next day?" January 22nd, was a large range down and closed on a low, and a reversal day the following day would indicate a possible selling climax. That type of situation is typical of bull markets. If, at this point, price were to move above 206, it oould indicate a two wave move down, or an Elliott A-B-C correction. Again, this is typical bull market action during corrections. Notice that the lows for days up from the 1/23 bottom are above a 4X1 angle, and price is showing a strong acceleration.
These little one day selling climaxes, such as the one which occurred on the 22nd, are good, trading buy signals when used with other evidence. These appear as a large range down and a close at, or very near, the low for the day, and then the next day a reversal closing at, or near, the highs. We had this situation on 2/20, 3/5, 3/24. and on 4/7.
On this chart, you can see that in the run up from January, the corrections are one day, again, one day, three days, one day,
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