Technical Analysis (Gann Charts) - Dow and All Ords Nervous

It's been some time since I last put up the monthly graphs and I just thought it was time to revisit both monthly and weekly graphs.




Things to note from the All Ords monthly graph:
i) x=80 is March 1991 and x=280 is Nov 2007
ii) The two gradients Gann +7.5 and Gann+10 has acted as an envelope for most of the 1990s decade.
iii) The period of early 2000s saw the irrational exuberance indicated by the large peak breakout of the envelope.
iv) The GFC made a low but supported by the Gann+7.5 line. The bull run from March 2009 until now saw it rising steeply from the Gann+7.5 and is now just over the Gann+10.
v) Big question is will the Gann+10 act as a resistance or will it break through? The key is to wait for a definite signal.

It is interesting to note that the Gann angles not only act as "Barriers" (ie resistance or support lines) but also as a "Tracker" where the graph actually fluctuates along it.



On the Weekly All Ords graph - If you have been following my blog, about two article ago, I wrote on the "Squaring of Time and Price of the Global Financial Crisis GFC" (Sep 2009). In that article I found that a factor of 52 was key to revealing the square relationship between time and price. So for this Weekly graph, you will notice that I changed the Gann-32 line into a Gann-50 line (tracking the GFC down) and added a Gann+50 line (tracking the post March 2009 recovery). I used 50 because I did some recalculation and the results were better than 52, not to mention 50 is a nice round number.

The result of these changes (compare with previous blogs) is that the new Gann+/-50 track the graph even better. We can use this graph to confirm a change in trend if the current bull run is to end.



On the weekly Dow Jones, we see the graph approaching the Gann-5 and there's no reason why it should not at least touch that line before any pullback. The intersection between Gann-5 and Gann+10 would be interesting to watch.

The recent bull run has gone on for almost 8 months. The bears have become bulls while the bulls have become a little nervous. Many are expecting a pullback of some degree. However, the weekly graphs based on the Gann angles shown here do not indicate any strong resistance soon, with the exception that the monthly All Ords just broke through and important resistance. The market has dropped in the last few days but the key is to wait for confirmation of trend if we are to jump in the opposite direction.

Notes on the Techniques of W.D. Gann

1. Special Number Sequences

1.1 The Full Circle 360

To some, there seems to be something magical about the circle in the way it stands for completeness and repeatability. But putting all mysticism aside, a circle has 360 degrees. Mathematically, there are many consequences that follow from the completeness and repeatability of a circle. Any high school student would have seen how a sine wave is traced out by a circle.

Sequence 1: Circle-16ths

A circle can have its angles equally divided into 4, 8 and 16 as

Degrees         0.0   22.5   45.0   67.5   90.0   112.5   135.0   157.5   180.0   202.5   225.0   247.5   270.0   292.5   315.0   337.5   360.0

Percentages   0.0   6.25   12.5   18.75  25.0   31.25    37.5   43.75    50.0    56.25   62.5    68.75    75.0    81.25   87.5     93.75   100.0

Sequence 2: Circle-12ths

A circle can have its angles equally divided into 3, 6, 12 as

Degrees         0.00   30.0   60.00   90.00   120.0   150.0   180.0   210.0   240.0   270.0   300.0   330.0   360.00

Percentages   0.00   8.33   16.67   25.00   33.33   41.67   50.00   58.33   66.67   75.00   83.33   91.67   100.00

Gann used the Circle-16ths sequence quite often. Why should the numbers in Circle-16ths be so special in the squaring of Price and Time? The reason is that the US dollar is divided into quarters, and not too long ago it had 1/8ths. The stocks in US are also denominated in fractions of 1/4, 1/8 etc. Hence it is natural to use this division. In angles terms, they are represented by 22.5, 45.0, 67.5, 90.0 degrees and so on.

1.2 Seasonal Time Periods

The year starts on March 21 which is the start of Spring Season. The important intervals are:

    May 5  ends   1/8   or 6 1/2 weeks from   March 21 

    Jun 21  ends   1/4   or 13    weeks from   March 21

    Jul  23  ends   1/3   or 17    weeks from   March 21

    Aug 5   ends   3/8   or 19 1/2 weeks from   March 21

    Sep 22 ends   1/2   or 26      weeks from   March 21

    Nov 8   ends   5/8   or 32 1/2 weeks from   March 21

    Nov 22  ends   2/3   or 35     weeks from   March 21

    Dec 21  ends   3/4   or 39     weeks from   March 21

    Feb 4    ends   7/8   or 45 1/2 weeks from   March 21 

    Mar 20  ends   1 year or 52     weeks from   March 21

Technical Analysis - Summary of MACD

Below is a summary of the MACD technique to watch for confirmation in trends and possibly reversal in certain circumstances. The following is an excerpt from Andrew Page's article from Trading Tutors.

1. The MACD line signals upward momentum when in positive territory, and downward momentum when negative. Use this to validate an observed trend in price.

2. The MACD line can signal overbought and oversold positions. The further the line deviates away from zero, the more likely it is we will see a correction in price. Try drawing support and resistance lines for you MACD line to work out what levels typically represent overbought / oversold positions.

3. Buy signals are generated when the MACD line crosses above the signal line. Buy signals are reinforced when the MACD line is in positive territory.

4. Sell signals are generated when the MACD line crosses below the signal line. Sell signals are reinforced when the MACD line is negative.

5. Divergence between the price and MACD histogram signal weakness in the trend (loss of momentum). When you start to see the two diverge, look to the other MACD signals to confirm the end of a trend.