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9

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First notice the consolidation or sideways movement during September and October of 1982. You see that there is not a great deal of validity. Volatility largely being, weekly ranges and fast up and down movement. Now, look at the November to December consolidation of the same year and notice the increase in volatility. Except for one clue, which is price being to the left side or above the 2X1 angle, this would be an indication of topping. The 2X1 angle rises at two points per week. This situation meant that the consolidation had very bullish implications. Now, look at sideways consolidation during March and April of 1983. Note the small weekly ranges. A significant top seldom, if sver, comes from that compressed form of a consolidation. Finally, look at the top in July of 1983 and see the large weekly ranges showing increased volatility.

Bottoms in the market and stocks tend to be a bit more difficult to locate, exactly. Spike lows will come more often than spike highs. The same changes in the momentum of price, as those tops, occur during this type of formation. Both bottoms and tops often come in with exhaustion types of movements. A stock after a bear trend may suddenly show a wide range heavy volume move down that is not followed by lows the next day. Generally this indicates an exhaustion of sellers, as a spike high indicates an exhaustion of buyers. Rounding or saucer bottoms are often excellent indications of a good price increase in the near future.

One of the price setups which I look for is that of a third or forth higher bottom. This situation does not occur often in any particular stock or market, but if you are following a number of stocks, you will see it often. In this type of formation, look for a fast move to start from the third or fourth higher bottom. The initial bottom being counted as zero, with the first higher bottom being counted as one and so forth. I also like to see a space develop between the low of bottom number three of four and the previous swing high. This is a very reliable pattern, but price must drop down into this formation. Illustration 2.8 shows an example of this pattern.

VOLUME OF SALES

The vol ume of sales is t he re a 1 d r i vi ng powe r be hi nd the market and shows whether supply or demand is increasing or decreasing. Large buying or selling orders from professional traders and fund managers or any other source of supply and demand are bound to be registered on the tape and shown in the volume of sales.

Therefore, a careful study of Ganns volume of sales analysis will enable you to determine very closely a change in trend, especially if you apply all of the other rules for ludging position according to the formations, resistance levels and time.



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