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This post was originally sent on Tuesday night, but it never made it. Eddie
Kwong informed me there is a problem with posts from MSN users. He fixed the
problem and forwarded this post on Wednesday. I have resent it for those of
you who did not get it.
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Sent: Tuesday, August 26, 1997 9:03 PM
To: 'Realtraders'
Subject: MKT: WD Gann Forecast - Major decline ahead
****(Please enlarge the document window to full screen for better viewing)****
For this discussion I am going to assume that you know who W.D. Gann was and
his contribution to the science of technical analysis of stocks and
commodities. If you do not know who he was, you owe it to yourself to find
out. He wrote many books, courses and letters on technical analysis over a
trading career of 40+ years.
This discussion is going to focus on the element of TIME. Gann felt TIME was
far more important than price when forecasting the future price action of a
stock, commodity or the general market.
In the winter of 1921 Gann wrote a letter entitled "Method for Forecasting the
Stock Market". In this five page letter he outlined his method of forecasting
and 12 time rules to follow when forecasting. I would like to quote a few
paragraphs of the letter that I find very relevant to the next 3-4 months.
Gann wrote:
"Every movement in the market is the result of a natural law and of a cause
which exists long before the Effect takes place and can be determined years in
advance. The future is but a repetition of the past, as the Bible plainly
states: "The thing that hath been, it is that which shall be; and that which
is done is that which shall be done, and there is no new thing under the sun."
-Eccl. 1:9.
Everything has a major and a minor, and in order to be accurate in forecasting
the future, you must know the major cycle, as the most money is made when
extreme fluctuations occur.
The major cycle of stocks occurs every 49 to 50 years. A period of "jubilee"
years of extreme high or low prices, lasting from 5 to 7 years occur at the
end of the 50-year cycle.
"7" is a fatal number referred to many times in the Bible and it is ruled by
the planet Saturn, which brings about contractions, depression, and panics.
Seven times "7" equals 49, which is shown as the fatal evil year, causing
extreme fluctuations."
My commentary:
The third and fourth paragraphs are the most important to understand. The
period of "jubilee" has just occured. The last major correction in the stock
market ended on October 11, 1990 at 2344.31 on the Dow. It is now 7 years
later and the Dow made a high on August 7, 1997 at 8298.79. That is a rally
of 354%. Not only has the stock market rallied virtually straight up for 7
years, but it went parabolic right into the summer of the "7" year. This is
extremely signicficant. I will explain later.
In November 1935 Gann wrote a letter entitled "Forecasting". This twenty one
page letter goes into great detail on how he used time cycles to forecast the
stock market. The most important cycle Gann used was the 60 year cycle. He
called it the "Great Cycle". Other cycles include: 50 years, 30 years, 20
years, 10 years, 7 years, 5 years, 3 years and 2 years.
Now we get to the good stuff. Let's put Gann and his forecasting claims to
the test. Let's see what happened in the major cycle years Gann said were
important. I can tell you the results are very interesting. I am going to
focus on the present time frame of the next 3-4 months. The question is:
What actually occured in the Dow Jones Industrial Average from the summer
months to the autumn months in those cycle years?
Dow Dow Dow
Cycle Year High Low Decline Rally
2 1995 Sept 15 4815.18 Oct 10 4659.74 3.29%
3 1994 Sept 15 3953.88 Nov 23 3638.63 7.97%
5 1992 June 3 3422.02 Oct 5 3097.41 9.48%
7 1990 July 17 3010.40 Oct 11 2344.31 22.12%
10 1987 Aug 25 2746 Oct 19 1738 36.7%
20 1977 June 24 933.77 Oct 25 792.79 15.10%
30 1967 Sept 29 951.57 Nov 9 846.28 11.06%
40 (20x2) 1957 July 16 523.11 Oct 22 416.15 20.04%
50 1947 July 25 187.66 Sept 9 174.02 7.27%
**60** 1937 Aug 14 190.38 Nov 23 112.54 *40.89%*
80 (20x4) 1917 June 9 99.08 Dec 19 65.95 33.44%
90 (30x3) 1907 May 3 85.02 Nov 15 53.00 37.66%
100 (50x2) 1897 Sept 10 55.82 Nov 8 45.65 18.22%
120 (60x2) 1877 Jan July 40 %
Data Sources:
The Dow Jones Averages Centennial Edition 1885 - 1985. Published by Dow Jones
Irwin.
The Foundation for the Study of Cycles.
Recent data - Worden Brothers, Inc.
My commentary:
What is obvious about the results is that there were no rallys from the summer
to the autimn in any of the important cycles. Cycles 2 - 60 are the most
important. I added a few more just for fun. The Dow declined 100% of the
time from the summer to the autumn. The most important cycle to key off of is
the 60 year cycle. That cycle produced a decline of over 40% only to the
November 23 low. The Dow went even lower into 1938. I hand made a chart that
displays these cycles clearly going back to 1821. This chart has enabled me
to forecast every major stock market move for the last 15 years. I have not
misforecast one major stock market move in the last 15 years. I have been long
all the way up and caught many small corrections along the way. The chart
even called every major move during the 60's and 70's, but I was too young to
trade then. I feel very lucky to have had the chart to help me. If it wasn't
for Gann and alot of hard work on my part I would not have known any of the
information I have shard with you today. Gann was right when he said, "Every
movement in the market is the result of a natural law and of a cause which
exists long before the Effect takes place and can be determined years in
advance." We are in the "7" fatal evil year that causes extreme fluctuations.
You have been forwarned.
Here is my unbridled forecast:
THE STOCK MARKET IS GOING DOWN HARD IN THE NEXT 3-4 MONTHS. THIS IS THE
HIGHEST PROBABILITY SITUATION THAT EXISTS. HISTORY SUGGESTS IT IS A 100%
PROBABILITY. GET OUT OF YOUR LONGS AND GO SHORT IF YOU HAVE NOT ALREADY DONE
SO. IF YOU DON'T WANT TO GET OUT OF THE MARKET, AT LEAST RAISE YOUR STOPS UP
TIGHT. IF YOU ARE AGGRESSIVE, THEN PYRAMID THIS DECLINE FOR ALL IT IS WORTH.
THIS HIGH PROBABILITY SITUATION WILL NOT VISIT US AGAIN FOR 20 YEARS.
Humbly,
dhpearson@xxxxxxx
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