Harmony in your Analysis

Welcome back all Safety in the Market clients and Trading Tutors Newsletter readers. The market action on the Stock Indices over the past week has given us some indication that we are in for some volatility over the next few weeks, perhaps months.

Volatility conjures up various emotions within those who follow the markets. I personally love when markets are volatile, as that indicates we are likely to see some sharp moves in both directions, offering excellent opportunities for profit. During these times you need to be on your toes and stops become more important than ever. It is great timing for this to be the first newsletter back for 2004 as I have some very interesting analysis to share with you on the Dow Jones.

One thing that is clear to the more experienced Gann analyst is the importance of harmony when putting together a price forecast. By harmony I mean two or more price Pressure Points coming out around the one region. A challenge to the Gann analyst is the number of ways of determining where Pressure Points in price exist. The key to simplifying this array of numbers is to look for areas of agreement. In my education with Safety in the Market a significant lesson was drummed into me, ‘Focus on major things for major results, focus on minor things for minor results’. This lesson taught me the importance of starting with the bigger picture, before considering anything else, when looking for the big turns in the market.

During 2003 we put together a number of articles highlighting the success of the Tubbs Swing Rule. In Chart 1 you can see where I have applied the Tubbs 2 Point Swing Tool to the 2 December 2002 top (9040) and the 12 March 2003 low (7420). This gives a total range from top to bottom of 1620 points. I have labelled points 1 and 2. The Tubbs Swing Rule then adds this number of points to the high to give a price Pressure Point of 10660. The Dow futures contract made a major top on 13 March 2002 of 10695 indicated by the green horizontal line. This gives us a price cluster of the Tubbs Swing Rule with this old top. A point to note for any experienced and budding Gann trader is that the 10695 top occurred on 13 March 2002, the low that started this rally was 12 March 2003, basically 360 degrees apart, or an anniversary.

The Dow futures contact topped last Monday at 10687, a double top with the 10695 top. A subtle point to note is that on this occasion the second of the tops is just below the first, a sign of weakness. The Dow and SPI200 sold off quite heavily last week and on the SPI200 in particular, under high volume.

The bears in stock index markets from March 2003 have not had much to crow about. The Dow and SPI200 have given a number of false indications on the downside without following through. What we will be looking for this time around is a clear ‘Overbalance’ of price and time as an indication to whether this is the real deal or not. For those that have made good profits on the long side of the market it may be time to tighten the stops, but once again, your rules dictate how you manage your trades. We’ll be sure to revisit this chart over the coming months to see how things unfold.

Until next week......

Noel Campbell