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

Source: http://ozstock.blogspot.com

Here is the next monthly update on the Dow and All Ords using Gann angles to analyse future trend. Before looking into the charts, a quick check of the Seasonal Time Periods from Gann shows that we are nowhere close to any important dates. We are now between the August 5th and the September 22 dates (see future blog for complete Seasonal Time Periods)

Firstly, looking at the All Ords, the last 4 weeks has clearly broken the Gann +1/2 angle, question is if it will drop down. The past 4 weeks have also convincing broken the Gann -32 downtrend line and has pushed the 20 day moving average envelope to the limits. So this has been a strong trend that may retrace back to the Gann +1/2 but currently there is no evidence to suggest a stronger, longer pullback although the news seem to suddenly turn negative in the media.



Secondly, the Dow show a similar behaviour, in the past 4 weeks, it convincingly broke the Gann -10 downtrend angle. It may still plunge towards the intersection of the Gann -10 and Gann +10 angles but there is no current evidence to support this. It is also between the two major uptrend Gann angle of Gann +10, Gann +20. Should the upward trend continue, the Gann -5 downtrend angle may be a good reference to look for.



This week will see many Australian companies release their annual results. This will truly test the sentiment and so even though the trend is strongly upward over the last 4 weeks, the fundamentals may have a say this week.

Technical Analysis (Gann Charts) - Dow and All Ords refuses to fall

Source: http://ozstock.blogspot.com

About a month ago, my article (in June) was titled "All Ords headed for June fall?" As you may have guessed, I am bearish, and in the market following my own advice last month. The market actually dropped for a few weeks as forecasted by previous blog, but my mistake was not using a stop loss. Over the last week the market surged strongly. Let's have a look at what the Gann angles say.



Looking at the All Ords graph first, I've added a new (Green line) angle of ratio 32:1 downwards from the 2007 all time high. The angle gradient of 32 is a power of 2, and I've tried others like 16:1, 8:1 and they were quite far off so I settled on 32:1. But see how it turn out to be a resistance angle to the previous rallies since Oct 2007?

Looking closely, it turns out the June fall hugged the 32:1 angle closely and the recent surge broke the resistance emphatically. In absolute terms, the rise is quite small, but the fact that it broke the line warrants further watch, or even good reason to speculate of further rise.




It's only now after the new green line (32:1) has been added to the All Ords, that I realize the Dow Jones chart's pink line marks out a very similar trend. In the Dow Jones chart, the June fall and mid-July rise follow the same pattern along the Gann -10 line as the All Ords. The resistance is not only broken but appears prominently on the up side.

In summary, if the current rise in the market can be sustain for at least two weeks, there is a good case for a strong rally in this bear market.

Technical Analysis - Gann Angles on Australian All Ordinaries Index

Gann analysis using angles is performed here. One of the strongest signals according to Gann is the 45 degree Price vs Time angle. In other words, this main line has a gradient of 1:1. Then Gann suggest drawing secondary lines which is usually fractions of this main angle such as a gradient of 1:2 or 1:3 to get lower angles.

The two charts below are for the monthly and weekly Australian All Ordinaries Index. I found that the literature on Gann angles a little inadequate especially when they talk of 45 degree angles. This is because the points on each individual stock or index has such a different range that we cannot just speak of a gradient of 1:1 (45 degrees). In other words, one unit of price with one unit of time does not usually make 45degrees depending on what range of x, y values are displayed on the graph.

Instead, for the monthly chart, I have chose for the primary line, a gradient of 10:1 and half of that which is 5:1. For the weekly chart, I used the same ratio but rationalised to weekly -> 10 * 12mths / 52 weeks = gradient of 2.3. The secondary line is then half which is 1.15:1. To emphasize, the line on the graphs are NOT chosen by line of best fit by looking at the data. Instead they are chosen using specific gradients such as 10:1, which happen to fit remarkably with the trend.

As shown in the charts, the monthly is almost touch the primary line, while the weekly has just broken through. The charts is taken from the Low Point in December 1990 to present December 2008.




The question of where the share market goes from here is a question of whether the primary line acts as a strong support or it is headed down to the secondary line.

The call is yours to make .....