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In the July, 2012 edition of the Safety in the Market monthly newsletter, I nominated July as a good area to watch for the yearly low on the Euro. Despite the negative news surrounding the continuing European debt crisis, the July low has held and looks set to be the yearly low.
The July, 2012 low on the Euro is an excellent example of W.D. Gann’s lesson on ‘Sections of the Market’. Students interested in revisiting this will find it on pages 40-41 of the Ultimate Gann Course as part of the ‘Position of the Market’ lesson, and also in Gann’s book ‘How to Make Profits in Commodities’, as part of Chapter 2, ‘Form Reading’.
Since the July low, the Euro has made what could now be considered the First Range Out from a major low. This range of 1132 points can be seen in Chart 1 below (EC-Spotv in ProfitSource):
Chart 1
click chart to enlarge
Using David Bowden’s lessons from Section 11 of the Number One Trading Plan, this range of 1132 points will be important to watch for the second (and likely third) sections of this current campaign.
Firstly however, we need the pullback from the 17 September top to complete and give us a big picture higher bottom. So the question is: where will this low to come in?
The Gann Retracement tool in ProfitSource can be used to give us a Ranges Resistance Card to help us look for support on the way down, as shown in Chart 2 below:
Chart 2
click chart to enlarge
I have circled the 50% milestone, which Gann said was always important to watch, as well as the 75% milestone, which is also important for the Euro.
At time of writing (1pm, Tuesday, 13 November, during the luncheon interval in the First Test), the Euro is trading around 1.2685, approaching the 50% milestone.
In terms of time, we had a run up of 55-days (24 July – 17 September) and a run down into a possible low today (13 November) would give us 57-days down. This would be a nice balance of time at the strong 50% retracement level. The Euro would also be close to a 1x2 angle from the July, 2012 low.
To back this up, the First Range Out from the 17 September high would have repeated 150%, as shown in Chart 3 below:
Chart 3
click chart to enlarge
David Bowden said he would often wait for a market to give him a First Range Out to give him an idea as to how the rest of the ranges might pan out. Should we get a low around 1.26 (which will be known by the time this article is published) and a strong trading setup out of the low, then we would have a big picture ABC to use as part of a forecast. This is illustrated in Chart 4 below, but keep in mind the low hasn’t happened yet on this chart:
Chart 4
click chart to enlarge
From Chart 4 we get a target price of around 1.3749, using the First Range Out of 1132 points and projecting forward. This could be a great place to take profits, although, as this is the second leg out, a run up to 133% (the ‘Gann Expansion’ milestone on the ABC Trading Plan) is a possibility.
Of course, real money is made from trading, not forecasting. Should the Euro continue down below 50%, the swing charts will tell the story and it is unlikely there would be a strong trading setup. The key is to always watch the swing charts.
For those students who are attending the December Gann Mastery Workshops in Sydney and Perth, we can continue this discussion there.
Be Prepared!
Mathew Barnes
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