MARKETS TRADE WITH GEOMETRIC SYMMETRY COPYRIGHT 2010 BY RAVEN CAPITAL MANAGEMENT LTD
CORE FRAMEWORK • MARKETS TRADE WITH GEOMETRIC SYMMETRY AND A NATURAL ORDER THAT CAN BE QUANTIFIED IN ALL TIME FRAMES • MARKETS GET EXTENDED TO EXTREMES DUE TO CROWD PSYCHOLOGY AND THE HERD MENTALITY • VOLATILITY REVERTS TO THE MEAN • MARKETS TRADE IN SQUARE ROOT RELATIONSHIPS
• HIGH PROBABILITY REVERSAL ZONES CAN BE IDENTIFIED WITH A POSITIVE MATHEMATICAL EXPECTATION OF SUCCESS 2
THE PRIMARY TOOLS •
The primary tools that I find most valuable in identifying high probability key price and time zones are:
1. SQUARE ROOT RELATIONSHIPS 2. FIBONACCI RATIOS, RETRACEMENTS, EXTENSIONS, NUMBER SERIES
3. Pi [3.1416] 3
PRIMARY TOOL GUIDELINES • It is difficult to predict with any high degree of success the extent or duration of a move • You can identify when a market hits a key price and time zone where it will either reverse, consolidate before accelerating to the next zone, or just trade right through the zone • This is why I always anticipate these zones in advance, because when a market nears these potential turning points you must look to other technical evidence to see if a reversal 4 is indeed supported
SQUARE OF 9 • Markets trade geometrically over time • Markets trade in square root relationships that measure both price and time
• The actual Square of 9 is essentially a square root calculator, but I will explain how to accomplish most of the same benefits using a regular calculator • The objective is to calculate the Square of 9 levels that are on the Gann Angles of 45, 90, 135, 180, 5 225, 270, 315, and 360 degrees
SQUARE OF 9 • The scale below lists the Factors that represent the Gann major angles Factors 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00
Angles 45 90 135 180 225 270 315 360
The best results are when you measure from significant market highs and lows using the .25 point multiples, but you should also measure using 1/8 point increments because sometimes markets will be in sync with the 1/8 point factors. 6
SQUARE OF 9 CALCULATION 1. 2. 3.
Square Root of 667 = 25.826343 25.826343 + .25 = 26.076343 26.076343 Squared = 680 [45 Deg Angle]
The factor for the 45 Deg Angle price is .25, and you would use the same calculation to find the other angles using the specific factors for each different angle 7
SQUARE OF 9 • The factors remain the same, but the multiples increase • The .25 factor is the .45 Angle, and 2.00 is the 360 Deg Angle, just as 2.25 is the 45 Degree Angle and 4.00 is the 360 Deg Angle as the multiples increased • My Square Root calculator on the next page shows the multiple progressions using a specific price to measure future price levels, the same as you would do using the actual Square of 9 • These same levels can be used to measure time. 8
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SQUARE OF 9 • The 10/11/07 bull market high was 1576, and the 360 Deg angle measured from 769 is 1578.54 [factor of 12.00] • There are 1827 calendar days from the 10/10/02 769 low to the 10/11/07 1576 high, and the 180 Deg angle [factor 15.00] from 769 is 1826, so price and time were in sync, which is always very strong symmetry
• The 360 Deg angle [factor 14.00] from 769 is 1741, and 1741 measured in time from 10/10/02 is 7/17/07 • The 7/16/07 SPX high was 1556, which declined -11.9% to the 1371 8/16/07 low • The 315 Deg angle [factor 11.75] from 769 is 1558.74 so there was price and time symmetry 12
Square of 9 • The Sept 1929 to July 1932 -90% SPX bear market depression low was 4.40 • You will get better results when you move the decimal for lower price stocks, and in the case of the SPX that would be 440 as the starting value. • The 90 Deg angle from 440 [factor 18.50] is 1558.37 and 135 Deg angle [factor 18.75] is 1578.17, so you see the consistent square root symmetry from any level to key market turning points • The decimal is also moved for high price markets like the INDU and Treasury Bonds • When starting with the 14,198 INDU high the starting value is 141.98, and using the 1/8 point scale you get a 6465 angle value versus the 3/6/09 6470 bear market low, as you can see on the 13 next slide.
SQUARE OF 9
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FIBONACCI • As market technicians you are well aware of the Fibonacci basics and number series, but you might have doubts as to how important it is in your overall market evaluation • I find the Fibonacci principles to be invaluable in my work to identify high probability market turning points • I am a believer, based on experience , in the adage that Fibonacci rules Price, and Pi rules Time
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FIBONACCI • The following chart of my Fibonacci Calculator highlights the specific retracement, extension, and ratio levels that I find to be the most valuable in identifying key price and time zones • Keep in mind, it is the combined symmetry of Fibonacci, Pi, and Square of 9 relationships that will be most beneficial to your market evaluations 16
FIBONACCI CALCULATOR
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FIBONACCI • The previous SPX chart for the 2002 bull market Fib shows the 1576 high, and the high prior to that is the 7/16/07 1556 high. I failed to mark it, but it has significant longer term square root symmetry. • 10/10/02 [769] -7/17/07 = 1741 CD • The square root of 769 +14.00 [factor 360 deg] =1741 • The 7/16/07 1556 high declined -11.9% to the 8/16/07 1371 low • 3/24/00 [1553] -7/16/07 [1556] = 2670 CD • The square root of 1553 +12.25 [factor 45 deg] =2669 19
FIBONACCI • The next chart highlights the long term Fibonacci RT symmetry from 1576 to the 1982, 1974, and 1932 lows
• The SPX 665-605 zone was probably the most symmetrical reversal zone of all time, which resulted in the 667 3/6/09 bear market low 20
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FIBONACCI • The next chart outlines the Fib RT symmetry from the 667 low to the 1219.80 high. • It also highlights the Fib ratio symmetry from the 10/10/08 840 and 11/21/08 741 lows to the 3/6/09 667 low • Fib RT levels are in play both ways, and can act as both resistance then support on a pullback 22
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FIBONACCI • The next SPX chart highlights the symmetry of price and time using both Fibonacci and Square Root relationships
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FIBONACCI • Markets will often trade in sync with the Fibonacci number series [3,5,8,13,21,34,55,89,144,233,377,610, 987,1597] etc • The Gann Angles are also very significant for anticipating key time dates and they are: • 45, 90,135,180, 225, 270, 315, 360 26
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Pi 3.1416 • Pi is one of the most common constants in all mathematics, and is the circumference of any circle divided by its diameter • Pi is the most powerful tool to determine longer term time symmetry, especially when used with the 8.6 year cycle developed by Martin Armstrong 28
8.6 YEAR CYCLE • It is a global business cycle model, but it also very precise for catching significant market turns in all kinds of different markets • Armstrong discovered this cycle and it is known as the Economic Confidence Model • Pi [3.1416] x 1000 = 3141 days which is the 8.6 year cycle • Armstrong starts the cycle at 1929.75, so you can start there and calculate the subsequent 8.6 year cycles and see the precision of major events 29
8.6 YEAR CYCLE • Armstrong determined that the 8.6 year cycle exists in nature. He sites 3 examples which are: 1. From 1989-365AD [1624 years] there were 63 major earthquakes and 1624/63 =25.77777778 [3 x 8.6 = 25.8] 2. There were 26 financial panics in the 224 years from 1683-1907 and 224/26 =8.6153846 3. The 8.6 year frequency is also found in the Precession of the Equinoxes on which the Mayans based their long calendar, which is slightly less than 26,000 years, and 25,800 years is 3,000 8.6 year cycles
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8.6 YEAR CYCLE • The 8.6 frequency is also in sync with Fibonacci in that 224/26 =8.615384615, and 8/13 is 0.615384615 which is the same decimal of the 8.6 year calculation. Also, the square root of 5 =2.24 and 2.24 x 100 =224 years 31
8.6 YEAR CYCLE • The 8.6 year cycle breaks down into 3 individual waves with a time duration of 2.15 and 1.075 year periods for 1 leg • Six Waves of 8.6 years combine to form the 51.6 year major cycle • The chart of the Economic Confidence Model on the next slide demonstrates the 8.6 year wave cycles from 2002.85 through 2028.65 32
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8.6 YEAR CYCLE • For a cycle to be valid it has to be consistent over all time periods like 8.6 years, months, weeks, and even days and hours for day traders • The 8.6 year cycle using the full and half multiples of 8.6 from previous significant market highs and lows is what you will use for identifying key market turns, both major and minor, in addition to the Economic Confidence Model dates, which are measured from 1929.75 • Pi [3.1416] has been used like Fib ratios to measure price and time, but in the 8.6 year cycle you move the decimal and you look at periods of 3.14 years and months, in addition to 31.4 years and 31.4 months. The multiples of Pi are also used the same as it is with the 8.6 cycle
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8.6 YEAR CYCLE • In the next few slides I will highlight the symmetry of the 8.6 year cycle and Pi measurements. • 1987 low-3/24/00 1553 top = 3141 TD • 7/20/98 low-2/24/07 [Sat] = 3141 CD, and the 1462 2/22/07 high declined -6.7% to 1364 The 10/10/02 769 low-2/23/07 is 1597 CD, which is a Fib number count, so the combination of 3141 and 1597 was strong symmetry 35
8.6 YEAR CYCLE • The 10/4/74 bear market low to the 3/6/09 bear market 667 low is 12,572 TD and 4 x 3141 = 12564 TD [ 4 x3141.6 = 12566 TD] • The Sept 1929 high to the July 1932 Depression low was 34.4 mo [4 x 8.6] • The 9/16/29 high to the 7/20/98 bull market high was 25,144 CD [8 x 3141] • 1981.35 [last 51.6 year cycle] +17.2 years [2 x 8.6] is 1998.55, which is the 7/20/98 bull cycle high 36
8.6 YEAR CYCLE • 17.2 months [2x8.6] from the 10/11/07 1576 bull market high to the 3/6/09 bear market 667 low is 3/10/09, which is just 2 TD past the 3/6 667 low [3/6 was a Friday] • 13 months from the march 667 low to the April 2010 1219.80 high, followed by a decline to a 1040.78 low as of 5/25/10 • The 13 months is Fib number symmetry, and the .618RT from 667 to 1576 is 1229, so that is significant price and time symmetry, especially in a market that was +83% from the 667 low • Continued on next slide
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8.6 YEAR CYCLE • All of this symmetry was anticipated long in advance, and at the 1219.80 high and .618RT zone the market was extremely extended by any measure, so it was a very high probability turning point • The NYA topped out first on 4/15/10, and the rest of the major indexes on 4/26/10 • There was also very significant April symmetry based on the 8.6 year Economic Confidence Model chart • 2007.15 +3.14 years = 2010.29 = 4/15/10 • 2009.3 +1.075 = 2010.375 = 4/17/10 • 9/11/01 – 4/18/10 = 3141 CD 38
8.6 YEAR CYCLE • From the 1932.72 depression low to 2010.1 is 77.4 years [9 x 8.6] • The 2010.1 SPX low was 1044.50 on 2/5/10, so it was a low with powerful long term symmetry • 1998.55 was the previous 8.6 cycle date prior to the 2007.15 date [8.6] It was the exact 7/20/98 1190.58 bull cycle high 39
8.6 YEAR CYCLE • The Great Depression was a 13 year decline from 1929-1942 • The 13 year decline was followed by a 17.2 [2x8.6] year rally into the 1966 high when the Dow first hit 1000 • From the lowest monthly close in 1970 there was a 31.4 month rally into the high of 1/11/73 establishing the major high for the 1970s 40
8.6 YEAR CYCLE • The 51.6 year [6 x 8.6] major cycle date is 1981.35 which is the exact 4/27/81 bull market top in the Dow • The 4/27/81 high preceded the decline to the 8/9/82 bear market low • The 1982 cycle low was the beginning of the secular bull market that ran just over 17.2 years to the 3/24/00 SPX 1553 secular bull market high 41
8.6 YEAR CYCLE • The Nikkei hit its all-time high on 1989.95 which is an 8.6 year cycle date • The index hit its most recent low 13 years later in early 2003, and its most recent high on the 2007.15 cycle date, which is 17.2 years from 1989.95 [2 x 8.6] • On a monthly level that is 206.4 months or [4 x 51.6] 42
8.6 YEAR CYCLE • There was a 17.2 month decline in interest rates from June 2007 to Dec 2008 as the $TYX went from a 54.08 high to a low of 25.18 in the flight to “so called quality” • The next to bottom in March 2009 after a 17.2 month decline was the equity market 43
8.6 YEAR CYCLE • The 2000 NASDAQ bubble top was preceded by a 17.2 [2 x 8.6] month advance from the 1998 bear market low
• The 2000 bubble top was followed by a Pi decline of 31.4 months into the 2002 bear market low
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KEY POINT • There is much more to this subject matter, but certainly not enough time to cover it all today. • I have highlighted the basics of the primary tools that I favor to measure price and time, in order to identify high probability market turning points • It was a shot gun approach because I wanted to show you in many different examples that it is not about coincidence because the markets do trade geometrically
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SUGGESTIONS •
I use a simple but effective date calculator that you can purchase for $25 at www.leithauserresearch.com
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The calculator enables you set up your own Sequences like the Fibonacci number series, Gann angle series etc, as well the normal days between dates, days until a specific date, day of the week etc
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It enables you to calculate both calendar and trading dates
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If you would like my Square of 9 calculator I will email the file to you [gratis] and you can save it to your desktop. You can email your request to me at
[email protected]
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I have followed Martin Armstrong since he first started publishing over 30 years ago. I suggest you Google him and it will lead you to a fascinating story that is quite hard to believe, but you will find his essays compelling.
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Use the combination of Fibonacci, Square Root, and Pi to enhance your work
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