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63

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Look back at the Value Line weekly chart (Illuetration 9.5). You will see that, although it has different price levels, the range from the July, 1985 high to the low in 1982, has a 50 percent mark in this same week of 7/4/86. Furthermore, it has 50 percent of the range from the January, 1986 high to the January, 1984 low, in this week. Obviously, this is all in hindsight to the reader, but to show how accurate these methods are, during the time period leading up to this week, I was expecting a top to form with the high in that week of July 4th. The evidence wes there on both weekly indexes. The counts were the same, and the squares came out at the same time.

As this time period neared, the pattern on the S&P 500 was that of an upward tilting consolidation, which can be a bearish pattern. So, from the S&P weekly chart, with the range coming out in the week of July 4th, 1986, you would go to the daily chart in order to determine when to place the trade. Price moves up into the week, showing the bearish ascending triangle, whioh comes to its apex in the first day of July. On the second, price breaks slightly through the upper line from high to high, on the daily chart.

Look at the setup for the July 2nd high. The 2X1 angle down from the May 30th top, crosses the price level of the April 7th low on the second, squaring that range. The 90 calendar day count from the April low, comes in on the third of July. One hundred and eighty days from the January high ie the third of July. Time was, also, 45 to 52 calendar days from the May low, and thie is the seven week "death zone" setup with multiple cyclee expiring along with, the squaring of ranges. There was a series of counts lining up on this dfay from previous highs and lows, using the trading day counts from the square of 90. These were 112, 123, 33, end 11, all on the second and third. If you were looking at this week for a change, as I was at the time, these two days were the important ones.

One of the techniques that you can use on these charte, is to draw a trend line from high to high. Although it is not always accurate, it sometimes works well, as it did on this occasion. On the first of July, after the market had closed, I did this on my S&P weekly chart, using the high from the week of 4/25/86 and 5/30/86. This line croesed the week of 7/4/86 at a price of 253.20, or, there abcut. This was one of the resistance figures I used on the second of July. So, on July 2nd, there are definite signs for a change of price direction, and the advance is becoming labored, as is shown by the small range. But, because I wanted to play this as safely as poseible, I did not position on the eecond. I wanted the market to give a sign of weaknees. On the third, price moved below the low of the day before, which was the first time this had happened in nine trading days. When that low was taken out, I put on my short positions.

The Value Line, at this time, was showing a possible lower triple top, which was a bearish sign, and as this is a broad market index, it affords a better view of the overall market than the more



sslective Indexes.

From this, you can see how the techniques work together. I use this same technique on the daily and weekly charts of a large number of stocks. This helps to clarify turning points for the markets. When 60 or 70 stocks point to the same date, I know this is a valid turning point. Nonetheless, it is difficult to judge the magnitude of the change. When all of this work indicates a change- the division of range, market day counts, calendar day counts on the indexes, divisions of range, and counts on individual stocks- there is a great probability of change in the short term trend, or a reversal of price movement. I usually make the assumption that the reversal will be of no greater magnitude than previous reversals in the current drive. You should meaaure all sell offs, on the S&P daily chart since 1985, and prove to yourself, the value of this knowledge.

VALUE LINE (XVL)

Now, lets go back to the Value Line weekly chart to study the angles, cycles, and squares. (Illustration 9.5)

The first angle rising from the August, 1982 bottom is a 4X1 angle. Price rising above that angle means that the market is in a very etrong poeition. Once penetrated, the 3X1 angle would be the next support, then the 2X1, which gave support the week of 1/28/83. So, breaking angles that rise at a greater rate than a 2X1, on a weekly chart, does not mean a change in trend. Price can actually rise into those anglee for support, and, in fact, a market or etock in euch a etrong position (cr what we would refer to as showing exceptionally strong momentum), is almost always going to show support and an acceleration on the 2X1 angle up.

When a market or stock is in a very strong position, and moves into a 2X1 angle on a weekly chart, you can look at the daily chart and buy from a double bottom, a rising bottom situation, or any lew on the angle.

Again, on the Value Line weekly, once the 2X1 is broken, you can look to the position when price reaches the 1X1 or 45 degree angle. This will give you an idea of the risk in holding long poeitions at the time price meete that angle. The higher the price level up from the low- that a 2X1 or a 1X1 is broken- the more probable is a fast bear move to follow. Once a 45 degree angle from the low or start of the drive up is broken, then the trend will have changed. The same statement is true of 45 degree angles from zero, which are even more eignificant to the overall trend.

The higher in price the stock or market risee, the more volatile prioe action becomes. On a daily chart, price will break and recover angles many times. One of the better trading signals is, when price breaks an angle and immediately recovers it. That is usually a very good buy signal as 4/15/83 or 7/27/84 or, as a sell sign, 1/20/84, on the Value Line weekly chart. An excellent filter that I have found for the break and recovery of sngles is,



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