S TO CK O PT IO NS
T RA DI NG
S TR AT EG IE S
3-Digit Return Opportunities On Large Monthly Amplitude Cycles
Copyright 2015 by The Cycle Code, l.l.c.
Kindle Version 1st Edition December, 2015
All rights reserved. No part of this book may be reproduced in any form whatsoever, by photography, or xerography or by any other means, by broadcast or transmission, by translation into any kind of language, nor by recording electronically or otherwise, without the permission in writing from the author, except by a reviewer, who may quote brief passages in critical articles or reviews. Permission may be granted by writing to:
[email protected].
To Heidi - the lively, lovely love of my life whose patience with my two-decade stock cycle obsession was, in equal measure, divinely inspired and for too long devoid of reward.
i| INTRODUCTION
Three-digit monthly returns (over one hundred percent) are regularly possible in a couple of trading days. These returns are possible when large amplitude cycles form in markets – a phenomenon occurring regularly several times a year in markets with appropriately volatility.
The material in this book was the subject of a $2,500 seminar presented by Julian Sebastian, Juris Doctorate. He instructed his students, and now those in possession of this book, exactly how to identify, trade and profit greatly the price/time cycles forming in every appropriate time frame (fractal) of any market. Mr. Sebastian demonstrates on the most widely traded stock index – the SPY - how high probability, triple-digit option returns are regularly won over the course of just a couple of trading days – conventional wisdom to the contrary be damned.
Don’t miss out on Mr. Sebastian’s cycle and trading developments . Sign up to our e-mailing list HERE.
ii| ABOUT THE AUTHOR
The University of San Francisco is Julian Sebastian’s alma mater where he earned a Juris Doctorate. Preceding that, Mr. Sebastian earned a bachelor’s degree in government with a minor in economics from Saint Mary’s Col lege of California. He is a 15-year cycle researcher, a
veteran options trader, and a winemaker in the Napa Valley.
iii| TABLE OF CONTENTS
i | INTRODUCTION ii | ABOUT THE AUTHOR iii| TABLE OF CONTENTS 1 | TRADING FORTUNES: LEVERAGING CYCLES WITH OPTIONS 2 | HOW TO CALCULATE CYCLES 3 | HOW TO FORECAST CYCLES 4 | HOW TO TRADE CYCLES
Enter Trades On A Qualified Bar Break
When And How To Exit A Trade
Stop Losses
Profit More In Some Markets Than Others
Trade Cost Averaging
5 | CONSIDER YOUR OPTIONS
Selecting The Appropriate Expiration Dates
Theta Wars: Selling vs. Buying Options?
6 | WHY MARKETS ARE CYCLICAL
Composite Cycles
Amplitude vs. Trend
7 | CONCLUSION 8 | DISCLAIMER 9 | APPENDIX – SELECTED WORKS OF W.D. GANN
1| TRADING FORTUNES: LEVERAGING CYCLES WITH OPTIONS.
Large amplitude cycles permit the forecasting and trading of generous vectors that can make hundreds of percent gains in the course of just a few days in the weekly expiring options market of highly liquid index, individual stock, commodities, and derivative markets. Cycles can either form large, grand amplitude waves, or short choppy ones depending on the harmonic periodicity or destructive interference of its component cycles.
A cycle vector is a diagonal price/time trend line defined by the unidirectional trend of price from swing lows and highs. One cycle contains two vectors, measured from low to high and back to a low (tracing an “A” pattern), or measured from high to low and back to a high (tracing a “V” pattern). Three vectors will create two complete cycles, both of which share the middle vector, creating both an “A” and a “V” pattern within th em starting either short ( /\/ ) or long ( \/\ ).
Upon calculating authentic cycles geometric and mathematical harmonies are revealed whether the cycles are traced on daily bars, or some other natural fractal of price/time (e.g., the four, fifteen, thirty, hourly, half day, weekly, monthly, quarterly, or yearly charts). Analyzing these cycles and their mathematical relationships to each other as they unfold in price/time charts reveals where price is in its cycle - where it is going in its cycle - and when it’s going to arrive at cycle endpoints both in time and in price.
Cycles regularly expand with large amplitudes, and contract into small, choppy amplitudes. As large cycles form - as they invariably do in their regular course of cycle periodicity – and if they trigger a highly profitable trade entry opportunity (discussed later in Chapter 4 – HOW TO TRADE CYCLES), exceptional trades are possible with three-digit (one hundred and fifty percent and more) returns to be picked off in just days.
Cycle amplitude necessary for such trades repeat several times a year in all markets with appropriate volatility. Some markets, while still creating forecastable and regular cycles, do not have the volatility to build up sufficient amplitudes in their cycle waves to create these tripledigit short-term return opportunities.
The SPDR index (SPY) is one of the most actively traded markets. The SPY is a derivative, and is one-tenth in scale of the S&P 500 index. The SPDR index is highly liquid, as are its derivative options markets, making it an excellent trading instrument.
The following is a SPDR chart from November, 2014 through February, 2015. The black vector lines tracing the connected “A” and “V” cycle patters are calculated with mat hematical
precision by the price/time trend rules described later in Chapter 2 – HOW TO CALCULATE CYCLES. The rules described in Chapter 2 generated eight vectors within this chart, with seven cycles, and six vector price/time forecasts (highlighted with blue lines ending in green stars). The 1st long vector forecast overstated the time and price of its vector. However, the next five vectors hit their forecast in both price and time with phenomenal accuracy, as our forecasts so regularly do, right down to the precise time bar, and within a few cents of the vector’s end price – even occasionally down to the exact cent:
These forecasts were determined with exacting mathematical precision at the time of the formation of the first bar of each of their vectors - before the vectors began their journey to the concluding green stars of their forecasts. The blue lines begin at the price bar when their forecast were first able to first be generated under our vector calculation rules, and a trade was able to be entered. The blue lines end at the green stars of the vector’s price/time forecasts made at the first beginning bar of the blue trend line. These cycle forecasts were calculated completely from the precise mathematically based rule-generated vectors taught in the
following Chapter 2 – HOW TO CALCULATE CYCLES. The methods of forecasting are explained precisely in Chapter 3 – HOW TO FORECAST CYCLES.
The cycles in the SPDR chart above average around 4½% of the SPY index, or about nine dollars. The change in their weekly expiring options, however, dwarf that return, ranging from 100% to
nearly 500%, depending on the implied volatility priced in the option at the beginning of the trade, and the number of days we were required to hold the option.
2| HOW TO CALCULATE CYCLES
Enigmatic but brilliant early twentieth-century stock market cycle legend W.D. Gann taught some of the most exquisite means to determine cycle vectors, or changes in the major and minor trends in the market, as he preferred to say.
A price trend is most elementally based on just two factors: the price and time of just two price bars. When time is controlled for by being separated out into equal iterations, time is neutralized in trend analysis. Differences in price within exact equal iterations of time can, therefore, be independently scrutinized for relevant price trend changes that conclusively prove the conclusion of one cycle vector in one direction, and the beginning of another cycle vector in the opposing direction.
When time is controlled for by being separated into equal iterations, price has an equal opportunity in each time iteration to move up or down in an amount equal to the price energy existing in the market during that equal iteration of time. Changes in trend must show up first within just two equal time bars, whether you are analyzing a chart of daily bars or scrutinizing just two four-minute bars.
Price can move and react in a multiple of ways without providing decisive proof of any change in the then-current trend. The entire movement of price within a single equal iteration of time is to be considered the status quo for any immediately preceding price bar. Additional price
movement beyond the price movement of the concluded, immediately preceding bar, is required before any evidence of trend confirmation or reversal may be demonstrated.
When price makes a higher low during a short (downward) trend when compared to its immediately preceding time bar, this is weak evidence of trend reversal. When price makes a higher high when compared to its immediately preceding time bar during a short trend, this is superior evidence of a trend reversal. Taken together, a higher high price and a higher low price when compared to a bar’s immediately preceding time bar during a short trend, is even
better evidence of a reversal of the-then current short trend. However, even both a higher high price and a higher lower, taken together, while powerful evidence of a short trend reversal, still does not determine conclusively that the then-current short trend has been reversed.
A reversal of a short trend, and therefore the inauguration of a new long vector, requires three necessary, independent factors: a single bar with (1) a higher high when compared to its immediate preceding time bar, (2) a higher low in the same bar that makes the higher high when compared to its immediate preceding time bar, and (3) a close price higher than the last bar of the preceding vector, by any bar within the newly forming long vector. Nothing else will suffice to reverse the trend under our vector construction rules.
Each of the three rules are evidence of a change of trend. And each of the three rules is qualitatively more important than the former: e.g., a (3) close price above the last bar of the prior short vector is better evidence of a reversal of trend than (2) a higher high when compared to the prior bar, which, in turn, is better evidence of reversal of trend than (1) a higher low when compared to the prior bar. However, all three rules must be demonstrated before reversal of trend is confirmed, and a new long vector inaugurated.
Conversely, the mirror is true for reversing long trend, as always. The same trend/vector reversal rules equally apply to long and short cycle vectors: a long vector is only conclusively reversed with a single bar with (1) a lower low than its immediately preceding bar, and (2) a
lower high (in the same bar making the lower low) than its immediately preceding bar, and (3) a close by any bar in the newly forming short vector with a close beyond the last bar of the prior vector.
Gann only required a single bar with a high and low more extreme than its prior bar in the direction opposite of the then-current trend in order to determine a reversal in the trend. The SPDR index and other highly lucrative markets prove much too volatile for just these two reversal of trend rules. Too many times a higher high with a lower low will occur in these volatile markets without a true reversal in the short-term trend. I call these “head fakes”.
Common sense dictates that a more extreme high and low, without follow through with subsequent bars moving in an opposite trend, is not a real change in trend at all, but rather aberration bar(s) within a trend the causes of which are discussed later in Chapter 6 - WHY MARKETS ARE CYCLICAL.
The confirmation of a reversal of trend in addition to a high and low more extreme than its prior bar in the opposite direction of the then-current trend, by a close beyond the last bar of the prior vector works beautifully. The integrity of the close confirmation construction is proven up by the phenomenal harmony and accuracy of cycle forecasts based on the vectors constructed under my three-rule architecture discussed in the following Chapter 3 – HOW TO FORECAST CYCLES.
The chart above is the same time period used in the charts throughout this book – the SPDR index from November, 2014 through January, 2015. Every short vector (diagonal black trend lines running down) begins with a lower high and lower low bar when compared to its immediate preceding bar. And every long vector (diagonal black lines running up) begins with a higher high and a higher low bar when compared to its immediate preceding bar. All vectors are confirmed with a close beyond the last bar of its predecessor vector – either with the first bar of the new vector, or by a subsequent bar in the newly formed vector running in the opposite direction.
Cycle low swing endpoints the most extreme low price point between its two surrounding and adjacent cycle highs. Conversely, of course, cycle high swing endpoints are the most extreme high price point between its two surrounded adjacent cycle lows. The bar making the extreme cycle swing endpoint belong to both vectors as it is the ending bar of one vector, and the beginning bar of the next vector proceeding in the opposite direction.
Engulfing bars (highlighted by the second set of two arrows on the right of the chart, above)
have a higher high and a lower low when compared to its immediate preceding bar. The price of the new bar completely engulfs the price of its predecessor bar. Engulfing bars evidence more price/time energy coming into the market. The introduction of greater price/time energies into bars, and the rhythmic removal of price/time energies from bars within is a characteristic of the market – like breathing.
This expansion and contraction of price/time energy will change the amplitude of both price and time, and is ceaseless. It occurs at the bar level. And It occurs at cycle level causing entire cycles to grow larger and deflate smaller in their amplitudes when compared to prior cycles.
Engulfing bars can be an indication of reversal of trend especially when the open exceeds its prior bar’s high in the direction of the-then current trend, and the engulfing bar’s close exceeds
beyond its prior bar’s low in the opposite direction of the-then current trend. This is a reversal of trend indicator in classic Chinese candlestick analysis. The strength of this reversal indicator depends on the strength of its composition in surpassing its predecessor bar at both extremes. Often weaker engulfing bars that do not classically surpass its predecessor bar’s extreme with its own open and close, still often portends a change of trend.
However, too many times engulfing bars represent the mere movement of greater price/time energy coming into the market, and not necessarily a change of trend. So engulfing bars are treated by our rules as ambiguous, marginal evidence of changes of trend and do not rise to the level of being included in our cycle vector change in trend calculation.
Encompassed bars (highlighted by the first two arrows on the left of the last chart, above) have
a lower high and higher low than its immediate predecessor bar. It’s a smaller bar than its immediately preceding bar. Its price is completely encompassed by the price body of its immediate preceding bar. Encompassed bars represent price/time energy moving out of the
market. Encompassed bars are the yin to the yang of engulfing bars. Engulfed bars, too, contain some evidence that the trend is becoming exhausted and therefore often indicates cycle swing endpoints.
However, engulfing bars may also evidence price spiking too quickly within a trend supported by price/time energies with a more modest trend incline than the aberrant spiking bar embodies – especially when the encompassed bar resides at an extreme price/time point of the trend incline during a very vigorous movement in price. The price advance within the trend stalls until time catches up to continue the average vector incline supported by the actual price/time energies fueling the entire vector trend. This is why connecting the ends of bars (either consecutive bars or intermittent bar trend line connections) to form a trend line within a vector (at their tops or bottoms) will often foretell the price extremes of upcoming bars in the same vector.
Therefore, encompassed bars, while displaying some evidence of trend, is not a strong enough indicator to form the basis of inclusion into our vector/cycle trend changing rules. For purposes of cycle construction engulfed bars are ambiguous price bars, stronger evidence of the withdraw of price energy from the market, than clear-cut evidence of a trend continuation or reversal.
Engulfing and encompassed bars are treated, therefore, as ambiguous bars caused by either price energy leaving the market (encompassed bars), or coming into the market (engulfing bars), and causing changes in price amplitude, but not reliable changes in the trend of the market.
The more macro view of the trends of entire cycles are measured through major and minor trends. When the swing lows or swing highs are connected with a trend line, the trends of entire cycles come into focus. A major trend is caused by vectors in one direction with greater
price movement than the price movement of vectors in the opposite direction. The longer legs of the major trend cause the incline, or trend, of entire cycles to various degrees.
Gann taught that the 90-degree angle (the flat resistance lines of prior swing highs and lows) was the strongest trend line for support and resistance, followed by a 45-degree incline (long trends) or decline (short trends) – which mathematically indicates the perfect balance of the same movement of price with an equal duration of time. Lesser incline/decline trend lines were the 22.5 degree, and its corresponding 67.5-degree trend lines – splitting the difference between the 45 degree and 0 degree (cycle start point) angles, and splitting the difference between the 45 degree and 90 degree angles, respectively. While I do not doubt the validity of these trend line angles for support and resistance of cycle endpoints, their application does not enhance the profits of our cycle trading methods. They do not practically add any advantage to our trading rules, and, therefore, I do not include them in my methods for entering or exiting cycle trades.
For me, researching stock cycles for the past 15 years has approached a clinical neurosis, (at least according to wife; and she, in turn, has sometimes worked diligently to form that conviction within my broader family). Blood, sweat, and years (not to mention tens of thousands of dollars for every available credible stock cycle research material I could find and devour) has repeatedly led me back to an immutable conclusion regarding the changes of trend in stocks, commodities, indexes and derivatives: based on the elegant, intuitive indicator of W.D. Gann.
This method measures the price/time changes between two bars at both extremes. With a “close to confirm” addition to this classic trend change indicator, the vectors that result are
validated by calibrated cycles that give rise to absolutely phenomenal cycle forecasts resulting in the extraordinary three-figure option returns we can achieve in a matter of days. We turn next to that phenomenon of cycle forecasting . . . .
3| HOW TO FORECAST CYCLES
Forecasts are made by mirroring the last complete cycle constructed by the last two vectors. When forecasting an upcoming short vector, the exact same price/time amplitude of last long vector created by the two vectors forming the last “V” is flipped to be superimposed on the chart. This takes the exact price/time energy of the last long cycle and projects it forward to forecast the next forming short vector.
Mathematically this is achieved by taking the difference in both price and time between the last two cycle tops and adding those differences to the intervening cycle low to achieve an exact forecasted bar and price for the upcoming short vector.
Visually this is achieved by drawing a trend line connecting the two last cycle swing tops, and dragging that trend line, perfectly intact (representing the price and time difference between the two last cycle tops) and placing the left point of that immutable trend line down to the intervening swing low. The exact same trend incline (or decline) is therefore projected from the intervening cycle low. Therefore, the entire price/time energy that created the last long cycle is perfectly pinpointed at the short end of the cycle to the exact price and time bar by the right end of the forecasting trend line with astonishing results.
As above, so below. For long cycle vector forecasts do the opposite, of course. Clone a trend line created by the last two cycle swing bottoms and pull it up placing the left endpoint on the intervening swing cycle high. The right endpoint of that cloned cycle trend line will be our forecast of the upcoming long vector right down to the exact bar and cent in price. In this manner every upcoming vector may be forecasted to an exact price and time and the results are phenomenal:
I discovered this method independently while researching cycles. However, in my research I have come across the cycle forecasting work of J.R. Stevenson who described this technique in his book, Precision Trading With Stevenson Price and Time Targets (2004). Although Mr. Stevenson does not include in his method the application of forecasting principles to exacting, mathematically certain cycles, as we do here.
This method of forecasting takes the price/time architecture of entire cycles, calculated precisely, and accurately projects that same price/time energy into the next forming vector trend. When the market experiences approximately the same amplitude of its last cycle, as it so often does, the vectors move into the price and time foreordained by then-existing market cycle energies with brilliant accuracy.
Of course cycles are regularly expanding and contrasting, collapsing into subordinate component cycles and developing into superior component cycles in the never ceasing, breathing pattern of living organisms everywhere in nature, from the microcosm of mammals to the macrocosm of the entire universe.
To our very good fortune , the price/time amplitude of cycles repeats with such astonishing
regularity so as to permit expeditious prosperity for those with the knowledge and the initiative to use the phenomenon intelligently and with discipline.
Charting software with trend line cloning features is required to trade this method. TC 2000 has color coded trend line features and is excellent for this method. Worden.com’s TC200 is the real-time streaming intraday software I use to trade (about $100 per month). And FCharts (free from spacejock.com) is what I use to teach with (used for all the charts in this book and in my complimentary webinar series on trading The Cycle Code method).
Cycles constructed of daily bars are actually composite cycles – as are cycles constructed from price/time bars of all fractals (time charts) of all markets. These composite cycles are the product of complex sine waves from a myriad of component cycles that are both subordinate and superior to the averaged price and time amplitudes of the traded daily bar based SPY composite cycle. It is the varying periodicities of the various component cycles which can harmonize and amplify one another during one stretch of time (causing hefty time and price amplitudes in large profitable cycles), while causing destructive interference with one other during other spans of time (causing choppy, short, untradeable cycles).
So we wait patiently for sufficient price/time forecasted amplitudes to form within cycles. Or hunt other appropriate markets to find highly profitable forecasted cycle amplitudes.
And that leads us to how to trade my method - The Cycle Code method . . . .
4| HOW TO TRADE CYCLES
While cycle forecasts address a destination, strategic trade entry methods address when to climb aboard. Mastering both gives rise to the prospect of high probability trade success with regular 3-figure returns in just a matter of days – a proposition most investors and traders can only dream about.
For some, like myself, pictures (in my webinar) are worth the 22,600 words of this book. I have published a three series webinar on trading The Cycle Code – my cycle trading strategy. I invite you to sign up for this series HERE and learn by listening and viewing than reading, which is often my preference.
Enter Trades On A Qualified Bar Break By the time every element of a confirmed trend reversal is made evident too much of the profit
in the vector may be lost. There are high probability trade entry scenarios that reliably evidence the endpoints of cycles in advance of our close-confirmed reversal of trend rules. The additional trades made possible, and the additional profit made available, through these high probability reversal scenarios outweigh the risk of investing in false reversal “head fake” signals.
One high probability scenario i s the qualified bar break of the vector’s trailing price bar extreme. During a long vector the breach of an immediate preceding bar’s low price by the current bar’s real-time price action may qualify for trade entry, under certain conditions. And,
of course, the mirror is true for early tradable entry of the reversal of a short vector trends with a breach of the immediate preceding bar’s high price by the current bar’s real-time price action, under qualifying conditions described below.
If qualified by the following four rules, these “bar breaks” provide early entry points making otherwise untradeable vectors - due to lack of profit potential - highly lucrative, exponentially increasing the profitability of most tradable forecasted vectors.
What qualifies bar breaks are cycle conditions which heighten the probability that the bar break is a true reversal of trend, rather than just a “head fake” in a choppy market. The qualifications are:
1.
A breach by one cent of the trailing bar extreme price, while not previously having made a new extreme price in the direction of the-then current trend. This means, in a current long trend, that the current price bar breaks the bottom price extreme of its immediate preceding price bar, without first having made a high greater than its immediate preceding bar’s high. In a short trend this means that the current price bar breaks the high price extreme of its immediate preceding price bar, without first having made a low greater than its immediate preceding bar’s low.
2. There must be sufficient profitability in the forecasted vector measured from the bar break to the forecasted exit. I recommend only trading vectors that have at least a 2% forecasted move on the underlying security. Depending on the implied volatility and number of days that the options are forecasted to be held, there is strong likelihood of at least a 150% profit potential on weekly expiring options when there is a 2% move on the underlying security (discussed in greater detail later in Chapter 5 – CONSIDER YOUR OPTIONS).
While this second rule does not address the probability of a false trend reversal, it does address the probability of trading success by addressing appropriate risk/reward ratios.
3. The bar break is occurring near or after the time of a forecasted vector’s conclusion.
4. There have been no previous “head fakes” by any bar in the vector leading up to the current potentially traded bar break.
In this same chart of the SPDR index of November ’14 through February ’15 there were three qualified bar break method trades. The trades are highlighted by three blue lines which start at trade entry bars and conclude at the green star forecasted endpoints. We will go through each of these three trades, applying the qualified bar break rules and analyzing the option returns.
The first blue line highlights our trade entered on December 29 th, 2014. That bar break price bar occurred during a long vector and breached the low of its immediate preceding price bar when it traded for the first time at $208.22 – our potential short trade entry price. Applying the qualified bar break rules:
1. The price bar on December 29 th surpassed the low of its immediate preceding price bar (December 26th – low: $208.25) by three cents at its open price of $208.22. Of course it could not previously make a higher high than December 26 th at its open. So the bar
break satisfies the first rule by breaching the trailing extreme price by one cent without previously making a new high in the direction of the then-current trend. Now, the price bar on December 29th did reverse course that day and ended up making a higher high than its predecessor bar, ultimately forming an engulfing bar pattern vis-à-vis its predecessor bar.
However, at the time of the bar break, no such pattern existed, so it was a clean bar break at the time the December 26 th low was exceeded at the open. Had the new high been put on before breaching the predecessor’s low this rule would hav e disqualified a
short trade entry; and we would have had to wait for a clean bar break which occurred the very next trading day.
Nevertheless, the low price of a predecessor bar during a long vector was breached on December 29th, and no new high put on at the time this low was breached on the open. And our trade entry was exceptional, as December 29 th turned out to be the very bar both ending the long vector and inaugurating the new short vector.
2. The vector forecast price was $198.36, leaving $9.86 in short profit potential from trade entry to the forecasted conclusion. That calculates to a 4.7% movement on the SPY index, and just over 240% on SPY weekly options. This trade clearly passes our potential profit test.
3. Was the December 29th bar break occurring near or after the time of the forecasted completion date of the then-current long vector? While not viewable from this chart, the forecasted conclusion of the-then current long vector was eleven trading days – the difference between the two prior cycle swing lows (11 calendar days) added to the last cycle swing high (December 5th, 2014). The forecasted long vector end date was, therefore 11 calendar days later, or December 22, 2014. At the time of the open on
Monday December 29th, the forecasted vector end date is four calendar days overdue. Therefore, the December 29th bar break is qualified by the forecast time factor test.
4. Were there any false reversal signals or “head fakes” in any of the bars in the -then current long vector leading up to the December 29 th bar break? No, there were not. The second large, long bar in this long vector (December 17 th) and the fourth bar in this long vector (December 19th) were both encompassed bars vis-à-vis their respective immediate preceding bars. Of course that just makes them trend-ambiguous, as does engulfing bars, but not false reversal signals, or “head fakes” which require both highs
and lows more extreme than their predecessor bar in the direction counter to the-then current trend.
No bars prior to the December 29 th bar break advanced below the price of their immediately preceding bar’s low. So this December 29th bar break qualifies as being the only bar break in the vector leading up to it. If you notice the red oval on the left side of our last chart above during the first short vector on that chart, there is a head fake, with a higher high and a higher low than its predecessor bar during a short vector. This would disqualify any subsequent trade entry on a bar break later on in that short vector.
Head fakes are caused by what cycle researches describe as “superimposition of waves”
where multiple component cycles interfere destructively with the amplitude and direction of each other resulting in a choppy composite cycle market with aberrant spikes in price bar(s) before reaching a true composite cycle node with its consequential change in the authentic short-term trend.
The next bar break trade available on our chart was the third short vector starting on January
12, 2015 represented by the middle blue line. Let’s go through our qualified bar break trade criteria:
1. Bar break: this time it is clean. The SPY opened on January 12, 2015 at $204.60 during a long vector trend – ninety cents higher than the low of the previous trading day (January 9th low of $203.51). After putting on a minor retreat which was less than the mean of its predecessor bar, price moved down significantly moving through its prior day’s low and
making a significant lower low.
2. Sufficient profit: the bar breaks the long vector’s trailing bar low at $203.50 with a short forecasted target of $191.36 on January 16 th, 2015 – just five trading days following the bar break. With $7.20, or 5.9% on the SPY index, separating the bar break price from its target, and a potential of over 300% in at-the-money weekly expiring SPDR options this trade is rich with amazing potential profit.
3. However, the timing is off disqualifying this trade: the-then current long vector was forecasted to take 13 trading days and to end on January 16 th, 2015. The bar break occurred on the 9th bar count from the last swing high of Monday, December 19th. This bar break is six bars early and just 69% of the forecasted time for the-then current forecasted long vector to conclude. The bar break is coming too early by a significant margin. This is either a false bar break (it’s not), or the composite cycle is breaking down into the smaller amplitudes of newly conflicting component cycles (it is), which causes the natural, never ending pattern of expansion and contraction of cycles – like breathing.
So we’ll take a breath too, and not invest in this cycle because it violated our third
trading criteria of bar breaks at or near the time its potential predecessor vector was forecasted to end.
The bar break is disqualified for a trade entry for not occurring near or after the forecasted cycle endpoint.
It is noteworthy that this new bar break vector was subsequently forecasted to end five days later, and it did – to the exact bar. Notice how the new broken down cycle ended up concluding its new short vector (as forecasted) on January 16th. As you may recall January 16th was the srcinal long vector forecasted conclusion date of the prior broken down long vector – so the cycle broke down with harmonic, synchronistic timing based on a time pattern srcinally forecasted for the srcinal long vector!
If you begin to follow the timing of forecasts of all cycles, with and without profitable amplitudes, your mind will begin to be blown by how often these cycles match their forecasted price and timing targets, or break down with sympathetic resonance to the srcinal forecasts of cycles breaking down – exceptions that prove the rule of the harmonics being played out by these market cycles.
4. Head fakes: none of the bars in the long vector leading up to our potential traded bar break formed a false indicator head fake. The second bar in this long vector of January 7th, had a much higher low, but an equal high to its predecessor bar (the bar creating the low endpoint and start of the long vector). The next bar on January eight formed both a higher high and a much higher low as it gaped up significantly. The last bar of the long vector created an engulfing pattern vis-à-vis its predecessor bar. Not a brilliant clean vector with all bars exceeding their predecessor with more extreme highs and lows. But no head fakes, either. So this bar break trade was qualified with respect to our fourth factor by containing no head fakes in any bar leading up to the bar break.
Note that since a bar break may trigger a trade before concluding, there will be times that bar breaks reverse course and end up creating an engulfing bar pattern before the trading day concludes. That risk is justified by the enormous profits gained by getting into trades as is early as is statistically warranted. As we see from our first blue line trade, engulfing patters are still evidence of trend reversals, and end up nicely marking cycle endpoints.
The final bar break trade occurred on January 26th, 2015 highlighted on our last chart above by
the third and last blue line. Taking our bar break trade criteria in order once again:
1.
Bar break: the long vector concluding on January 22nd, 2015 was followed by an encompassed bar (lower high and higher low) on Friday, January 23 rd. The next trading day, Monday, January 26th opened at $204.71 – ten cents below its predecessor bar’s low. It broke its predecessor bar on the open without first putting on a higher high, satisfying our first criteria at open. It ended up closing higher than its open, but within the body of its predecessor bar ’s price range. Ultimately the bar break bar put on both a lower high and a lower low than its predecessor bar. The short vector was confirmed the next day with a close below the encompassed bar of January 23rd. Nevertheless, the bar break occurred at the open on Monday, January 26 th, 2015.
2. Sufficient profit: the bar break price was $204.80 on January 26th, 2015. The vector forecasted price target was $198.39 on January 29th, 2015 – just three trading days after trade entry. The difference between trade entry and our forecasted vector target was $6.41 – a 3.1% move on the SPDR index, and a move of over 400% on the weekly expiring SPDR options. The option’s yield is more here vis-à-vis because implied volatility was low when the trade was entered on January 26 th, and the trade was held for just three days reducing theta costs (the daily option price disintegration due to the cost of time decay. 3. “Timing is everything” and the timing is perfect in this trade. While the bar break trade enter trigger formed two days later, the long vector was forecasted to end on January 22nd, and that is the exact day of the cycle high. As is so often the case in this chart, and in markets everywhere in all fractals, The Cycle Code forecast method called the end of the cycle to the exact time bar.
4. Vector head fakes: there are none. The long vector leading up to this the bar break for this trade was ideal – all bars in the long vector contained higher highs and higher lows. The set up could not be more ideal.
Price broke vigorously in the expected short vector coming within .29 cents to our short vector price forecast on the short vector forecasted date of January 29 th, 2015. Price fully breached our forecasted target two days later on expiration day, Friday February 2, 2015.
Trade Exit Strategy
To capture the lion’s share of every forecasted vector traded exit the trade at 7/8 ths of the entire forecasted vector.
Dividing cycles by 8ths in both time and price is not random. Gann taught his students to divide stock cycle retracements into eights – with the endpoints, halfway points, quarter points, and one-eighth points being the most significant, in that descending order.
The scale of eights is the octave and the diatonic music scale . The eight’s scale has enormous resonance with human arts, science, nature, cosmology, and mass consciousness. Of course the most convincing evidence that using the eight’s scale for price and time resistance in s tock
cycles is that it is statistically proven to work. It’s the most profitable exit strategy for Cycle Code trades in all markets and all natural market fractals. My opinion on this is not just an educated guess. It is formed from my extensive research and analysis studying copious stock, commodity, and derivative markets.
Moreover, the octave of the scale of eights is brilliant at measuring the harmonizing endpoints of expanding cycles. Entire cycles not only contract to divisions based on the scale of eighths, they expand so commonly by a factor of one full or one half times the amplitudes of their immediate predecessor cycles so as to dismiss coincidence and recognize the mathematical facts.
Measuring the 7/8ths point of forecasted vectors is easy enough with the common Fibonacci retracement tool widely available on stock charting software. These tools may come preprogramed to Fibonacci retracement levels, but can be programmed to the 7/8 ths level with little fuss. The 7/8ths level expressed as a percentage required in these tools is 87.5%. And, of course, you can just divide the entire forecasted vector from its swing endpoint ( not the trade entry point) to its forecasted target by eight to determine the amount to subtract from the entire vector and exit the trade.
Don’t let option trade home runs turn into losers – they do – very, very quickly! I’ve done the
research. Bulls make money. Pigs get slaughtered. Exit at 7/8ths, please! Both winning bar break trades in our last example chart approached within a fraction of their forecasted targets. A full target exit strategy would have seen both trades come so close to their targets, but they quickly and violently experienced price retreats. These are highly volatile markets and most of the time you have one opportunity to surgically slice off the spikes of these cycle endpoints. On the other hand, capitalizing on a 7/8 ths exit strategy won exceptional three-digit option returns in a few days each.
The market energies necessary to move a stock or index over 2% into a harmonic price target too often reaches a zone of slightly over 7/8ths to slightly under 1 1/8ths. Exiting at 7/8ths is the most conservative and consistent way to capitalize on all high probability cycle-ending scenarios when the market does follow through with subsequent cycles of equal or greater amplitude than its predecessor cycle. We need to capitalize on the tradable cycles that do not break down into their harmonic component parts, avoiding the temptation of grasping at the last 1/8th of price and escaping defeat being snatch from the jaws of victory.
Stop Losses
I have learned through much financial pain that attempting to manage losers with stop losses by closing option positions at a fraction of their purchased value because the market seems to
have moved against you is a fool’s errand. Options are too volatile. When a market moves
against expectation there is always the possibility that the market will reverse again and your trade will end up profitable, or at least your losses significantly trimmed if you just let the weekly expiring options do their thing and either hit your 7/8 ths target or expire trying.
It is absolutely heartbreaking to get out of a trade prematurely just to experience an aberration of the market moving against our forecasted direction where it recovers and returns a trade to profitability. Stay with the forecasted trade plan. If price falls short of our 7/8ths mark, wait until weekly option expiration to see if it comes back. It might. And you can make more winners and pair more losses with this strategy. Pulling the plug early is counterproductive.
Profit More In Some Markets Than Others
The three-month SPY chart I have used consistently throughout this book was chosen because it contains repeating cycles of approximately the same amplitude which are easily to visualize, and, therefore, aids in effectively communicating the concepts of The Cycle Code trading method. But this chart was by no means unrepresentative of The Cycle Code trade successes. And the SPY by no means is the only appropriate market for trading cycles.
I teach to limit trades with highly liquid option opportunities of 150% or more (more on how to forecast option prices in the next Chapter 5 – CONSIDER YOUR OPTIONS). These option trades have considerable risk. We require rewards that significantly offset that risk. The SPY options market meets the volatility and options market liquidity required by my trading criteria. Several other markets meet that criteria as well,
My point is that, while active, this four month chart we’ve been referencing throughout this book is not a cherry-picked aberration of the size or consistency of the profits in Cycle Code options trading. There were nine trades in the SPY that met my options trading criteria for all my advanced trade entry methods (including the bar break method). My options trading criteria for any market is that:
1. the trade meets all the criteria of an early trade entry trigger including the bar break method discussed earlier in this Chapter; and,
2. the size of the forecasted movement, from trade trigger entry to our conservative 7/8 ths exit, is at least a 2% move on the underlying security; and,
3. the option is forecasted to make a minimum of 150% (more on this in the next Chapter 5 – CONSIDER YOUR OPTIONS); and,
4. The option market is very liquid – trading a minimum of 10,000 options contracts a day, with one cent spreads.
The SPY alone for 2015 produced exactly nine such trades for the bar break entry method as well as the advanced entry methods I teach my clients in THE CYCLE CODE | Seminar . Seven made money. Not all of them hit their target, but eight either hit their target, or expired profitably. The trades were exited on:
1/6/15 - 208% put option profit from entry to the 7/8th of the vector exit (as are all of the following);
1/16/15 - a -94% put option loss;
1/22/15 – 181% call option return;
1/29/15 – 301% put option return;
3/27/15 – 148% put option return;
8/7/15 – a -100% call option loss;
8/21/15 – 361% put option return;
9/4/15 – 38% put option return;
10/30 – 19% put option return.
Two trades, with potential entries on January 30 th, 2015, and March 18 th, 2015 had forecasted entry-to-7/8ths exit percentage movements of 2.6%, and 2.4%, respectively. However, because of the elevated cost of those options caused by high implied volatility, and the length of time required to hold them, their forecasted returns were 129%, and 88%, and their actual returns were 135%, and -100%, respectively. Since their forecasted returns were not a minimum of 150%, the trades were not entered.
There were no other trades in the SPY in 2015 that meet The Cycle Code trade criteria. Please don’t take my word for it. You can research all the vectors, measure all the potential trades, calculate the forecasted options and confirm this for yourself.
Seven out of nine, or 77% of the qualifying trades were profitable. The average percentage win was 179%. When your maximum loss is 100% and wins are able to make 361% returns or more, like the SPY options trade on September 19, 2015 did, it not too difficult or too time consuming to compound a fortune.
And, of course, the Cycle Code option trading success is not limited to the SPY. It works on any markets with sufficient volatility and option market liquidity. Applied to the I-Shares 20+ year US Treasury Bond EFT - the TLT - 10 trades have met The Cycle Code criteria in 2015. While the win to loss ratio is currently split 50/50, the average win is 175%, while the average loss is 78.2%. Any reasonable money management will compound capital like a colony of rabbits when the strategy wins twice as much as it loses and wins 50% or more of the time.
Trade Cost Averaging
The maximum per-trade investment I recommend for these trades is 10-15% of a high risk portfolio. A high risk portfolio should be a reasonable part of a much larger, well-diversified investment portfolio. I use my high risk portfolio as an engine to build wealth for safe keeping in my well-diversified portfolio. I highly recommend doing the same.
Investing the exact same percentage of your high risk portfolio in every trade protects the downside portfolio risk by requiring a smaller dollar amount from a slightly smaller capital pool when suffering any losses, especially multiple losses. Conversely, trade cost averaging permits the very considerable wealth building power of compounding returns to work its magic on your fortune on all winning trades.
Trade cost averaging, and the power of compounding cannot be over-emphasized and are money management keys to investment fortunes. Since The Cycle Code is a winning cycle trading system, we have to preserve our high risk capital so that The Cycle Code system has enough room to do its statistically proven job of compounding returns over the long term.
5| CONSIDER YOUR OPTIONS
The stock option trades chronicled in the last Chapter delivered returns from 50 to 132 times the profit possible in trading the underlying SPY index directly. Options trade returns vary greatly depending on the implied volatility of the options at the time of their purchase, and the length of time options are required to be held for each particular trade. Options are an integral part of leveraging The Cycle Code trades to maximum profitability. Option fundamentals, however, are beyond the scope of this book. The CBOE has excellent tutorials on options for those not sufficiently familiar with them here and here. Investopedia also has good basic options information here.
Expiration Dates
I hope I am stating the obvious here: select weekly expiration dates for Cycle Code option trades that expire after the time the forecasted vector is to complete. There is a trade-off in how far away from the expiration date is selected beyond the forecasted vector completion week. The more time the expiration has remaining; the less expensive theta is – the cost of time decay of options. Each day options are held their value diminishes simply by the passage of time. For SPY weekly options theta will cost in the mid-.20s cents per day during expiration week. For at-the-money options costing about $1, these costs are substantial, to say the least, if the option does not make the expected move. Even if the stock does move as expected, option buyers are still making a very significant investment, paying a hefty premium in theta costs for the opportunity to hit the home run when the market and its options do take off.
Options held for a trade and exited the week before expiration will have theta costs of less than half of options traded in the week of their expiration. Options traded and exited with two weeks, one month, or longer, will have reductions in their per-day theta costs in similar fractional magnitude. However, the option price is more expensive the more time remains in an option because all that daily theta costs, while less expensive on a day-by-day cost, remains
pent-up in the overall cost of the option. So SPY at-the-money options, for example, costing $1.00 the Friday before expiration (7 days to expiration), will cost about $2.00 with an expiration two weeks out, and $3.00 for an expiration a month out all with the same at-themoney strike price.
The price movement of these same strike options with varying calendar expirations vis-à-vis the movement of the price of the SPY index (the delta) will be virtually the same. However, the percentage movement will be drastically different because of the difference in their base price. So, there is a trade-off in choosing sooner rather than later expiring options: risk higher theta costs for the chance at larger percentage returns.
I’m not trading these options to hedge my portfolio risk, (at least not with these Cycle Code
trades). I’d rather risk the extra money on theta costs with earlier expiring options in order to achieve a return on my option’s trade that makes the most powerful impact on my high-risk portfolio. So I am much more interested in making the most of these high risk trades when they are right, rather than save a few cents trying to micro-manage theta costs. I trade the expiration of the same week as my vector is forecasted to expire for maximum returns when the cycle performs as expected.
Theta Wars: Selling Options Instead Of Buying Them?
I have carefully analyzed the economics of reversing these trades on their head - by shortselling deep-in-the-money options against the expected vector trend at the time of a trade trigger and getting paid the theta to boot.
Theoretically, this would work by selling deep-in-the money options against the direction of the expected move while the value of the option sold short is quickly decimated by the movement of the change of trend vector: selling deep in-the-money calls (equivalent to the forecasted short price movement) when a short vector is triggered, and selling deep in-the-money puts (designed to equal the forecasted long price movement) when a long vector is triggered.
The risk of this “naked” option selling could theoretically be managed by putting on stop losses .01 cent beyond a cycle swing extreme behind the entry trigger; and only trade cycles with attractive risk/reward ratios given the potential target gain versus the stop loss risk on any given trade.
One uncontrolled risk in this options short-selling theory is opening prices gaping beyond stop loss levels - not an uncommon occurrence in these volatile markets. Gaping opens should occur in equal probabilities beyond stop losses, and beyond price targets, thus theoretically balancing out their risk in the long term. But the gaping open risk does not seem reasonably practical to me. Also, naked option writing requires tying up about 25% of the value of the optioned underlying security in broker margin requirements – another significant shortcoming when compared to the explosive returns in buying options for Cycle Code trades.
Another option writing strategy is deep-in-the-money credit spreads. Instead of just shorting a deep-in-the-money option with the expectation that its value will tank, you buy, as a hedge, a second option which is bought (cheaply at the time of purchase) out-of-the the forecasted target money. This would narrow margin requirements to the difference between the two strike prices of the two hedged options - the hefty-priced one sold in expectation of watching its value drain with the movement of the change of trend vector, and the cheap one bought to hedge and significantly reduce trade capital requirements.
The problem with designing deep-in-the-money credit spreads with the Cycle Code is that the target price is usually spiked through very quickly. The expiration of the forecasted vector rarely corresponds to the Friday expiration of the weekly options. And closing deep-in-themoney options by buying them back is prohibitively expensive, cutting deep into profits. Theoretical profits are attractive if both options are priced and expire to forecasted perfection. The realities of the market are just not suited for deep-in-the money credit spreads for Cycle Code trades in my opinion.
I have also experimented with variously priced long and short option legs in and out of the money. And I do not see a way to have them outperform a simple, straight option purchase given the dynamics of high price amplitude Cycle Code trades.
Even when priced and timed to perfection deep-in-the-money credit spreads will not outperform straight-out purchased options. Even with the latter’s expensive theta costs, the high price amplitude cycles resulting in the violent, quick moves of forecasted vectors overcome theta costs with richly rewarding intrinsic option value. The cost of theta is overwhelmed by the change in intrinsic value, making a straight option purchase the best method for capturing the most profit.
When an options trade moves against you, let it run its course, even if you lose everything on any given trade. That’s the risk of these trades. Many trades that cannot hit our 7/8ths target still expire profitably in the money. The risk of loss is limited to 100% of the investment in the trade. The reward is not so limited. So I recommend that you stick with the forecasted plan. If a weekly expiration option’s trade comes up short of the 7/8 ths mark, keep it until expiration
and see where it ends up that Friday. D on’t pull the plug early. My opinion is empirically based on a decade of daily price A/B testing - and not just with the SPY, but on dozens of indexes, stocks, and derivative markets.
6| WHY MARKETS ARE CYCLICAL
A comprehensive discussion of the academic causes of stock market cycles is beyond the scope of this book (and my seminars and services, for that matter) which focus on practical trading. Since all methodologies of my trading, some of which are described in this book, are based on stock market cycles I feel a failure to give at least an abridged foundation of the “whys and wherefores” of stock market cycles, as W.D. Gann would say, would leave a large, glaring, and inappropriate hole in this work. This chapter, while admittedly perfunctory, addresses that pink elephant in my trading room.
Cycle researchers far more illustrious and intelligent than myself – the likes of legendary 20th century’s W.D. Gann, Edward R. Dewey, George Bayer, and the more contemporary Dr. Jerome
Baumring and Daniel T. Ferrera, to name just a few - have all concluded that there are sympathetic resonances between natural time cycles and stock market cycles. By natural time cycles I don’t just mean the pendulum swings of a grandfather clock’s brass
balls (although that time is derived from a cosmic source – i.e., Earth’s spin on its axis). I mean time as time was created in all of its solar system glory – the hands of which are the orbiting musical spheres of our entire planetary system as infamous 17 th century mathematician Joannes Kepler described.
Earth spins on its axis once every 24 hours and the implications on the human race and mass psyche is, well . . . “astronomical” – the least of which is that our civilizations have divided that interval to calculate days, hours, and minutes. Every chart we look at is delineated by a naturally occurring planetary calculus. Any and every bit of trend information that can be gleaned from looking at any chart of daily bars, or lesser fractals, is a result of the subdividing of this natural, planetary axis rotation.
Of course, the Earth’s rotation on its axis is not the only natural rotation or orbit naturally
occurring in our reality. The moon orbits the Earth every 28 days and its resonance with the
human/Earth complex is undeniable and extraordinary – everything from feminine cycles to ocean tides.
More to the point, multiple university research studies have found “strong lunar cycle effects in stock market returns.” (Lunar Cycle Effects in Stock Market Returns, (August 2001) Llia D.
Dichev, Emory University – Goizueta Business School & Troy D. Janes, Purdue University – Rutgers School of Business, Camden.) Dichev & Janes found that returns around the new moon were double that around the full moons . “This pattern of returns is pervasive; we find it for all major U.S. stock indexes over the last 100 years and for nearly all major stock indexes of 24 other countries over the last 30 years.” ( Ibid.)
The exact same conclusion resulted from a 2002 University of Michigan – Ross School of Business study:
“We find strong global evidence that stock returns are lower on days around a full moon
than on days around a new moon. The magnitude of the return difference is 5.4 percent per annum based on our 15-day window analysis of the global portfolio. The return difference is not due to changes in stock market volatility. Moreover, the lunar effect is independent of other calendar-related anomalies such as the January effect, the day-of-the-week effect, the calendar month effect, [and] the holiday effect. We also find that the lunar effect is not due to the returns around lunar holidays.”
(Are Investors Moonstruck? Lunar Phases and Stock Returns, (September 2002), Kathy Yuan, Lu Zheng, and Qiaoqiao Zhu, University of Michigan Business School.)
The sympathetic resonance of celestial energies with stock markets - once viewed as superstitious and preposterous by conventional wisdom – is now being carefully researched and corroborated by our society’s most prestigious and powerful institutions.
The U.S. Federal Reserve Bank of Atlanta commissioned research which concluded that solar wind geomagnetic storms had a “statistically and economically significant effect” on stock
markets worldwide:
“[A] large body of psychological research has shown that geomagnetic storms have a
profound effect on people’s moods, and, in turn, people’s moods have been found to be related to human behavior, judgments and decisions about risk. * * * Specifically, people affected by geomagnetic storms may be more inclined to sell stocks on stormy days because they incorrectly attribute their bad mood to negative economic prospects rather than bad environmental conditions. Misattribution of mood and pessimistic choices can translate into a relatively higher demand for riskless assets, causing the price of risky assets to fall or to rise less quickly than otherwise. The authors find strong empirical support in favor of a geomagnetic-storm effect in stock returns after controlling for market seasonals and other environmental and behavioral factors. Unusually high levels of geomagnetic activity have a negative, statistically and economically significant effect on the following week’s stock returns for all U.S. stock
market indices. Finally, this paper provides evidence of substantially higher returns around the world during periods of quiet geomagnetic activity.”
(Playing the Field: Geomagnetic Storms andthe Stock Market, (October, 2003), Anna Krivelyova, Boston College & Cesare Robotti, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Atlanta Working Paper 2003-5b.)
There are more hands in our solar system clock than just the sun, moon and Earth. Mercury’s
year is ninety days. The Venus annum is 7½ months. Turning to the spheres orbiting outside of Earth’s own – Mars makes its trip around the sun in two years, Jupiter in twelve, Saturn in
thirty, Uranus takes 84 years, and Neptune – 165.
There are, of course, many other important number of celestial time periods. The procession of the equinoxes – The Great Year – measures the movement of the axis of the Earth pointing to each of the twelve constellations on the ecliptic in its 25,800-year reverse 360-degree wobble (Earth has a slow wobble in the opposite direction of how it spins on its axis just as toy spinning tops do).
Legendary cycle researchers have taken great pains to establish sympathetic resonances between the energies associated with movements, activity, and interacting angles of various celestial bodies and stock market cycles.
For instance, 20th century cycle research legend W.D. Gann was very en igmatic about the basis of his master time factors he used in his widely distributed public stock trading courses. These time factors aligned exactly with the movement of planets in their orbit, and certain angles of planets to each other, especially Jupiter and Saturn.
He published annual stock market index forecasts that were astonishingly accurate, often foreshadowing the year accurately, but even more often showing when reverses in trend would occur during the year (reproduced and included in the Appendix of this book). Daniel T. Ferrera does a magnificent job of revealing exactly how Gann forecasted the stock market index in his work W.D. Gann’s Mass Pressure Forecasting Charts, (2004) from the Sacred Science Institute.
In private writings Gann was less cryptic about the nature of his methods, like his March 19, 1954 letter regarding the $8,729 high in May Coffee Santos D where he plainly discusses the relation of the price of coffee to the geocentric and heliocentric movement of Saturn, as well as the harmonic movements of other planets, the average movements of planets, and anniversary dates of celestial bodies when prior highs and lows in coffee were made.
Let me respectfully offer a warning. A journey through the relationships of natural time cycles with stock market cycles is a rabbit hole – or a black hole, to mix metaphors - with an alluring financial elixir. The expedition, in my experience, can be quite demoralizing.
I have consumed every cognizant work (and too many incongruous works) I could locate on the causes of stock market cycles, devoting over 15 years of my life and six figures of my treasure. I do not delude myself into believing that I have mastered all the causes of stock market cycles in all of its dispiriting complexities.
However, one does not have to master all the secrets of the universe in order to achieve spectacular results trading cycles. My understanding is now sufficient to identify cycles, develop objective methodologies to capture fantastic profits, and thereby succeed in trading cycles competently and with great success, and, following my methods, you will too.
I believe is the best legitimate treasure trove for the academic research of stock market cycles is the astro-financial section of the Sacred Science Institute found at SacredScience.com.
Be forewarned – you can spend many, many years of your life, and many, many thousands of dollars, as I have, developing an academic understanding of stock market cycles with these materials, and yet come up short in obtaining the practical knowledge and skills necessary to translating the knowledge into an executable methodology to actually profit from trading, notwithstanding the claims accompanying some of these works.
Composite Cycles
There is no stock market cycle. There are only composite cycles because stock market cycles have complex influences. There is never just one cause for stock cycles occurring on any fractal, but multiple causes for all cycles. Cycles are made up of multiple influences with both inferior cycles in time and price amplitude to the composite cycle under review, and superior cycles in time and price amplitude to the composite cycle.
A single cyclical component of an entire composite cycle has a sine wave influence on the entire composite cycle. A sine wave will gradually snake its price/time amplitude influence through the composite cycle’s median line – whether that line be inclining, declining or flat during any
given periodicity. And that single component sine wave will snake through the composite cycle’s median line in equal amplitudes of price and time above and below the composite cycles
current median line. All cyclical influences of the composite cycle do likewise, but they each have different amplitudes of price and time.
There are periods when the composite cycle is large and smooth (and highly investible), caused by the simultaneous movement of component cycles moving in the same direction which happens periodically. And there are periods when the composite cycle is choppy and erratic, caused by the destructive interference of the movement, direction and periodicity of component cycles – like an EKG during a heart attack – not very pleasant for the short term.
A contemporary cycle researcher has identified 16 component cycles in the Dow Jones Industrial Average, each with sympathetic resonances associated with a separate celestial natural time period, and all with varying degrees of price and time amplitude. ( Wheels Within Wheels, (2001) Daniel T. Ferrrera, Sacred Science Institute.)
Amplitude Versus Trend
Through the constant changing relationship between cycle components in a composite cycle, the trend direction and the amplitude of price and time in a composite cycle is in a constant state of flux.
The trend direction and the price/time amplitude are two separate phenomena, however. The periodic increase and decrease of price and time amplitudes does not necessarily correspond to a change in the trend – just a change in the amount of price and time energy that is being periodically experienced by a composite cycle.
For example, notice how large the first long vector is in the chart of the SPY (6/30/15-8/10/15) below – it measures $9.08 in nine trading day bars:
The average mean price of the first long vector is $208.65 delineated by the first horizontal line. In the next long vector measured just $5.19 and lasted just four trading days. The second long vector measured from end to end is just 57% of the price of the first long vector, and 44% of its time. Yet, the average mean price of the two vectors are almost identical: $208.65 versus $208.86 (delineated by the first and third horizontal lines on the chart from the left). While the price and time amplitude decreased by about half, the average mean price of these two long vectors stayed about the same.
So amplitude can either swell price and time, or cut it in half and that phenomenon has no particular impact on the direction of the cycle trend. Therefore, amplitude and trend direction are thought of and analyzed independently of each other in our approach to trading cycles.
The short vectors in this sideways trending chart show the same. The first short vector measures $6.92 in 5 trading days with an average vector mean price (at the second horizontal
line) of $209.71. The second short vector measures $4.58 in 5 trading days with an average vector mean price of $209.16. Price amplitude has collapsed by 66%; time amplitude has remained the same; and the median vector price of both short vectors is just .56 apart. Changes in amplitude do not equate to changes in trend direction, but merely evidence the increase and decrease of price and time energy coming into and leaving the market independent of cycle direction or trend.
As an aside, note that the number of bars in the first cycle from low to low is 14 bars. As time amplitude collapses, it does so harmonically, as the number of bars from the first cycle high to the third cycle bottom is 14 bars as well.
The trend-neutral increase and decrease of price amplitude exits at the bar level as well as the vector/cycle level. Notice the engulfing bar in the SPY (12/26/14-12/29/15) chart above with the exact same mean price. Price and time amplitude will constantly expand and contrast. It is their living nature to breath in and exhale these energies. Unless the independent trend reversal rules, discussed in Chapter 2 – HOW TO CALCULATE CYCLES, are met, there is no change in trend notwithstanding significant changes in price/time amplitudes.
6| CONCLUSION
In this book I have given you all the specialized knowledge required to identify consistent 3figure trade opportunities with all the tools necessary to make them successfully.
As I have shown the TLT and SPY offer many such trading opportunities every year. Of course our trading efforts may be repeated in many other markets that have all the necessary characteristics of appropriate volatility and options liquidity. But many listless, low volatility markets, while still showing fidelity to price and time cycles, do not have the volatility to make my Cycle Code trades worthwhile.
I offer a complementary 3-series webinar to go over visually in greater detail with more examples how to trade my Cycle Code method. Please feel free to enroll in that series HERE.
Those with interest in all of my advanced Cycle Code trading methods, both to enter more trades with advanced methods in the cycles discussed in this book, and for consistent two-digit Cycle Code day trade opportunities I have never before taught, I invite you to check out THE CYCLE CODE | Seminar and learn everything I know on how to compound wealth as powerfully
as I know how.
If I have given you far more value from this book than you have paid for, which is my aim with all of the research and products I share with customers and clients, would you take a few minutes to give this book a review on Amazon.com? I am careful to read all reviews submitted. Several reviews have helped me improve the communication of my work. And your review will help me and my work reach a greater audience. For those who take me up on this request, thank you in advance!
7| DISCLAIMER
Most option traders lose money. You may lose money making any investment or trade. Option trading is inherently risky, much more so than stocks, and other less volatile, non-derivative investments. Past performance is no guarantee of future results. You may or may not achieve the type of results described in this book. Many factors could contribute to your not achieving similar results, such as taking no action, taking ineffective action, stock market history and cycles that fail to repeat themselves as expected, lack of option trading experience, or any other number of circumstances or occurrences that may or may not be able to be foreseen.
Julian Sebastian, The Cycle Code, l.l.c., TheCycleCode.com, their employees, agents, and/or successor in interest (hereinafter, “PRODUCER”), do not accept any responsibility for trade or investments you enter after or during your reading of this book, or any other material offered by PRODUCER. You take full responsibility for your own research, investment, and, or trade decisions, and agree, as a condition of accessing this book, or any other material offered by PRODUCER, to hold the PRODUCER harmless. This material is for educational purposes only, and is not intended to be relied upon, without your independent research and assumption of full responsibility for your own trade and/or investment decisions. Trade at your own risk.
8| APPENDIX – SELECTED WORKS OF W.D. GANN
What follows in this appendix is a perfunctory cross-section of some of the works of W.D. Gann: his 1929 and 1922 market forecasts, some charts he kept up with on various markets, and insights into how he used natural time lines to forecast commodities like coffee.
Gann developed various public courses on trading using mathematical and geometric angle rules that correlated to various natural cosmic time lines. Gann was very secretive and enigmatic about the basis of his time factors and price/time angle analysis. Nowhere in his published books nor other public works would Gann attribute the relationship of his cycle analysis to natural cosmic time lines. Only high-paying students could access these “whys and wherefores” as Gann was fond of saying.
His annual forecasts were subsequently back-engineered to disclose composite charts of the average stock movement of specific previous years of the same stock or index that Gann expected to have a periodicity influence on the price movements of the forecasted year.
Important years of periodicity for repeating influence in the market for Gann were “The Great Year” cycle of 60 years (1 synodic cycle of Jupiter and Saturn – e.g., the length of time it takes
these two bodies to realign in their respective orbit to the same position relative to each other), 20 years (synodic trine of Jupiter and Saturn), and 10 years (synodic sextile – 1/6th - of the same).
The repeating influence of the Jupiter/Saturn sextile (1/6 th of their synodic 360-degree cycle) was so strong for Gann that he assigned general market characteristics (e.g., bullish, bearish, or a sideway/choppy annual market reaction) to each year in the decade (years ending in 0, 1, 2, etc. through 9) that he expected to repeat ad infinitum.
Other cycles Gann found to be very important for markets, but somewhat less influential, were 30 year cycles (one 360 degree sidereal orbit of Saturn); 15 years (half of the same); 7 years (near one quarter of the same, and 1/12th of the sidereal orbit of Uranus); 5 years (sextile – 1/6th - sidereal movement of Saturn); 42 years (one-half of the 360 degree sidereal orbit of Uranus); 45 years (one and one half of 360 degree synodic Jupiter/Saturn cycles); 23 months (one 360 degree sidereal orbit of Mars); 1 year – the movement of Earth in its solar orbit; and the new and full moon influence which is so very obvious in his month-by-month market descriptions in his forecasts, and mathematically proven in the modern era by the statistical analysis of the various University studies cited earlier in Chapter 6 – WHY MARKETS ARE CYCLICAL.
Gann would develop annual forecasts and “market curves” by combining the time factor influences of a given stock or index by taking their average percentage movements from relevant past years (e.g., 5, 7, 10, 20, 30 and 60, years ago). In this way steep market movements for any given past cyclical periodicity Gann expected to repeat in the coming year would be reflected in his stock forecasts created from composite percentage changes in the relevant prior years.
General Outlook for 1929 This year occurs in a cycle, which shows the ending of the bull market and the beginning of a prolonged bear campaign. The present bull market campaign has lasted longer than any previous campaign in the history of this country. The fact that it has run longer and prices have advanced to such abnormal means that when the decline sets in, it must be ininproportion the advance. The yearheights 1929 will witness some sharp, severe panicky declines many hightopriced stocks. The history of the stock market has always been that it discounts prosperity and that in doing so prices always advance too far. In other words, the stock market runs too far ahead of prosperity and the first decline is only a readjustment back to what stocks should sell according to their merit and investment return. Then, when business depression sets in and earnings start to show a falling off, stock prices continue to go lower, discounting unfavorable business conditions. But such groups of stocks as the oils, sugars, rubbers and some of the agricultural stocks, which have been depressed and declined while other stocks advanced, will record much higher prices in 1929. New and popular industries will continue to prosper, such as, radio, airplane, chemical and electrical concerns. is the electrical age. quickly to new those which provideThis for the convenience and People comforttake of living. This will inventions, increase theespecially earnings of concerns manufacturing new cleotrica1 appliances. Many stocks will be distributed and will work lower while the stocks in strong position work higher. With such a varied list of stocks representing so many industries in different parts of the country, it is not reasonable to suppose that they would follow the same trend by any means. More and more business is getting into the lines of mass production, mergers and consolidation. The big companies are getting the business while the smaller companies find it harder to get business enough to return a fair amount on their capital stock. During the early part of the year, business conditions will not be up to general hopes and expectations. In the in spring andofsummer, willwill improve outlook generally cheerful. But again the fall the year,business depression set inand and the unfavorable business will be conditions will cause big declines in stocks. Money rates will be high the greater part of the year. During the year 1928, the public has entered the stock market on the largest scale ever known in history. Foreigners have bought our stocks more than at any time since or prior to the outbreak of the World War. The American public is no longer making safe investments in stocks. They have the gambling fever and are buying everything regardless of price, simply buying on hope that stocks will continue to go up. This is a dangerous situation and has always resulted in a big decline. There will be no exception in this case. The man who makes money buying stocks in 1929 will have to use greater discrimination than ever before in selecting the right stocks to buy. When once stocks have reached final top and
start on the way down, they will continue to work lower and rallies will get smaller. Those who hold on and hope will have big losses. The markets will move over a very wide range and sharp, severe declines will be followed by quick rallies. It will be necessary most of the time for a trader to be very nimble and change position quickly in order to take advantage of the opportunities as they develop in an active market.
WHAT WILL CAUSE THE NEXT DEPRESSION IN BUSINESS AND DECLINE IN STOCKS? PROSPERITY! The great wave of prosperity, which this country has experienced during the past few years, has been in many ways responsible to the stock market. The great increase in the value of stocks has increased the borrowing power of various companies and has permitted expansion and even inflation. The pendulum has swung so far in one direction that many people have forgotten that it can ever swing back in the other direction, but one extreme always follows another and it will not fail at this time. Stocks, like water, always seek their level. The great earnings of many large corporations during the past year cannot be expected to continue. Over confidence is just as bad as extreme pessimism. It is just as easy for a big man to make a mistake, as it is a little man. In my judgment many of the wisest speculators who have made large fortunes out of this bull campaign will overstay their market and be caught just the same as they have in the past. Then when the decline gets under way and they try to liquidate in a bear market, they will bring about a real smash in prices. It is one thing to mark stocks up to dizzy heights and quite another thing to be able to sell all of them near top prices. As stocks decline, forced selling both by pools and the public always comes into the market and causes prices to go lower than they naturally would if there had not been over speculation. The public never has been considered good leaders in a bull market. The fact that they are now in the market in greater numbers than ever before makes the technical position of the market more dangerous. INFLATION: The volume of trading on the New York Stock Exchange during 1928 was the
largest in history and at this writing the total sales for the year have exceeded 750,000,000 shares and will approach 900,000,000 by the end of the year. Stock Exchange seats have had the greatest advance in history. Brokers’ loans doubled in 1927 and 1928. Such enormous volume of trading at extreme high levels with feverish markets and wide fluctuations can mean only one thing, - that the pools and insiders have taken advantage of public buying to liquidate stocks and when once they have sold all they have to sell, they will not support the market. With the public so heavily involved in such large numbers and being unable to support the market, when once the decline gets underway, it will be more sharp and severe than ever before. Loans will be called and bankers will make new loans only on the very best security. We will hear of many stocks being thrown out of loans. Another contributing factor to inflation was our large holding of gold but this has changed materially during 1927 and 1928 when more than half a billion of gold has flowed out to foreign countries and there are no prospects that it will not continue during the next few years. INSTALMENT BUYING: People are still living beyond their means and installment buying
continues on a large scale. We believe it will yet prove to be the greatest menace to business and
to the prosperity of the country. When depression sets in and unemployment increases and people are unable to pay for goods which they have bought on a credit, buying power will be reduced and many companies will not only lose business but will lose money on goods sold on a credit. AGRICULTURAL SITUATION: Has been so unfavorable during the past few years that the
Government has had to devise means to help the farmer and no doubt President Hoover will see that somecrop lawfailures is passed remedy condition. wetoare in a cycle, which is likely produce orto a series ofthis small crops forHowever, some years come. This will reduce the to purchasing power of the farmer and help to bring about deflation in stocks. PROSPERITY COMPLEX: The recent wave of seeming prosperity has been due to the
psychological effect on people. They have watched stocks go wild in the past three years until they are hypnotized into believing that every concern and everybody is prosperous, but facts do not confirm it. During 1927 about 45% of all concerns making income tax returns showed a loss in business and 1928 will not be much better. It is now a survival of the fittest. The small businesses are failing more every year. Conditions are changing so fast that many old firms are being forced out of business. Electricity and oil are taking the place of coal and wood. Automobiles supplanted the horse, and the railroads, despite the large increase in population and business, have not shown as great earnings as they did 20 years ago. Many industries have not been prosperous for some time.recently. The textile, andindustry agricultural industries have suffered. oil situation has been bad until Thecoal rubber has been demoralized by low The prices. Sugar has been at low levels for the past two years. When people realize that prosperity is not general and confined to only a few lines, and then they will have the “pani c complex." PUBLIC CONFIDENCE: As long as the public believes that everything is all right, they will
hold on and hope, but when public buying power has exhaust itself and the largest number of stock gamblers in history lose confidence and all start to sell, it requires no stretch of imagination to picture what will happen. When the time cycle is up, neither Republican, Democrat, nor our good President Hoover can stem the tide. It is a natural 1aw. Action equals reaction in the opposite direction. We see it in the ebb and flow of the tide and we know that from the full bloom of summer follows the dead leaves of winter. Gamblers do not think; they always gamble on hope and that is why they lose. Investors and traders must pause and think, look and listen, and get out of stocks before the great deluge comes. WAR: Our great prosperity has caused jealousy throughout the world, and as conditions get
worse in foreign countries, greed and, jealousy will lead to war. It is the hungry dog that starts the fight. A study of the rise and fall of nations shows that when any country enjoys unusual prosperity for a long period of time, war is one of the main causes of the start of depression. While we hear a lot of talk about peace, the facts show that many of the leading foreign countries as well as our own country, are spending more money preparing for war than ever before in their history. When a man or a country is armed and gets ready to fight, he usually gets what he is ready for.
FOREIGN COMPETITION: Germany is rapidly coming back and competition for trade will
be keener in the coming year. Many of the other foreign countries are making desperate efforts to regain their pre-war trade and will make progress along these lines, which will hurt our business.
INDUSTRIAL STOCKS MAIN TREND OR MAJOR SWING The Industrial Curve this year is based on the Dow Jones' 30 Industrial Stock Averages. Previously the Dow Jones' Averages, which are published by the Wall Street Journal, were based on 20 industrial stocks, but in the latter part of 1928, they changed from 20 to 30 and our Curve is based on the 30 Industrial Stocks. The stocks now used in these Averages are: Allied Chemical, Am.Can, Am.Smelting, Am Sugar, Am.Tobacco B, Atlantic Refining. Bethlehem Steel, Chrysler, Gen. Electric, Gen. Motors, Gen. Ry, Signal, Goodrich, Int. Harvester, Int. Nickel, Nash Motors, Mack Trucks, North American, Paramount, Postum, Radio, Sears Roebuck, Standard Oil of N. J., Texas Corp. Texas Gulf, Union Carbide, U.S. Steel, Victor Tk., Westinghouse, Woolworth, Wright Aero. From the low level in August 1921, to the high level in November 1928, the 20 Industrial Stocks recorded an advance of about 230 points, the greatest advance in history. The fact that these Averages advanced nearly 100 points during 1928 is unparalleled in history. This year is like 1906, 1916, and 1919, when such violent fluctuations were witnessed and large volume of trading took place, only to be followed the year after by a panicky decline. The minimum between extreme high and extreme low during 1929 for the 30 Industrial stocks will not be less than 50 points and the maximum fluctuation may be as much as 90 to 100 points. This means that many of the high-priced stocks will fluctuate 150 to 200 points between extreme high and extreme low prices. The lower priced stocks will move in a narrower range and will not make as much as the minimum between extreme high and low. Most of the Dow Jones’ 30 Industrial Stocks will follow Curve #1 very c losely. The high point for most of these stocks will be reached around January 12 th. After that time, prices should gradually work lower and the trend should be down until around March 28th to 29th, when bottom will be reached for another bull campaign. Many stocks will reach bottom around March 14th to
15th and remain in a narrow trading range until the bull campaign starts in April. When the advance gets under way, some stocks will reach top for the year in May, others in June and some of the others, which are behind the market, will reach final high in August as shown by Curve #1 and Curve #2. A large majority of stocks will not go any higher than the highs reached in the month of July. After July and early August, the main trend will be down and some sharp declines will take place, prices working lower and reaching first bottom around September 27 th to 28th. From this level follows a fair - sized rally and a trading market running into the early part of November. After that, the big bear campaign will get under way and stocks continue to work lower, reaching extreme low level for the year around December 23rd to 24th. There are now over 1500 stocks listed on the New York Stock Exchange and often in one day over 800 different issues are traded in. Therefore, the 30 Industrials and 20 Rails do not always
represent the main trend or curve of the market and many stocks will run in opposition to this trend. That is why I am giving you Curve #1 and Curve #2 on Industrial stocks. Industrial Curve #2 represents the stocks which are in strong position and many of which are not included in the Dow Jones’ 30 Industrials. Many of these stocks have declined during 1928 and have been accumulating. They will advance while other stocks decline. Curve #2 indicates low around January 2nd followed by an advance up to January 31st; a decline to February 7th and high of rallythe around February 15thbottom . Then prices lower, bottom around 11thnext . Watch stocks that make at this will time,work as they willmaking be the ones to lead theMarch advance. After the low in March, this Curve continues to work higher with only moderate reactions until high is reached around May 17th to 18th. From this top a bigger decline will take place. The last low is indicated around June 22nd. From this level the stocks, which are in strong position and behind the market will gradually work higher, some of them reaching top during July while others will not reach final top until August 14 th to 15th. After this top is reached heavy liquidation will start and prices will work lower from every rally. First decline culminates around September 30th; then a rally making top on October 2nd, followed by a decline to October 24th; then a final top around November 2nd to 4th, followed by a big decline, reaching bottom around December 18th to 20th; then a rally to the end of the year. Below is a list of stocks in strong position, which should follow closely Industrial Curve #2. They will be the best stocks to buy on reactions:
Ajax Rubber Cont. Baking A Loft Sinclair Oil Amerada Cont. Motors Lee Rubber So.Porto Rico Sug Am. Agri. Ch., Cuban Am. Sug. Lehn & Fink Spicer Mfg. Am. Beet Sug. Curtiss Aero. Louisiana Oil S.O. of Calif. Am. Bosch Mag. Davison Chem. Mack Trucks S.O.of N.J. Am. Brake Sh. Dome Mines Magma S.O.of N.Y. Am. Drug Elec. Pr & Lt. Mallinson Sun Oil Am. & For. Pr. Elec. Storage Maracaibo Superior Oil Am. Ship & Com. Fisk Rubber Marland Tennessee Cop. Am. Steel Fdy. Foundation Mex. Seab. Texas Corp. Am. Sugar Glidden Mid-Cont. P. TexasPac.C.&O. Am. Woolen Goodrich Nat. Pr & Lt. Texas Gulf Sul. Anaconda Goodyear Nevada Cons. Transcont.Oil Armour A Granby N.Y. Airbrake U.S. Rubber Assd. Dry Gds. Gt. Nor. Ore Otis Steel U.S.Smelt. Austin Nichols Gt. West. Sug. Packard Va. Car. Chem. Barnsdall A Hupp Panhandle Ward Banking B Beechnut Indian Ref. Pan Pete B Warner Pictures Bethlehem Inspiration Park Utah WestinghouseElec. Booth F. Int.&Comb. Eng. Pathe Ex A White St. Eagle Briggs Int. Mar. Pfd. Phillips P. White Motors Cal. Hecla Jones Tea Pillsbury Fl. Willys Overland Central Alloy Kelsey Hayes Reo Motors Wilson & Co. Cerro de Pasco Kelvinator Republic Iron Worth Pump Chandler Clev. Kennecott Reynolds Spg. Wright Aero Chile Copper Kresge S.S. Royal Dutch YellowTruck Congoleum Lago Oil Shell Union Producers&Ref. Cons. Textile Loews Simms Pete The stocks given in the list below are the ones, which have been distributed and are the best to sell short around the dates indicated for the top on Curve #1. These stocks will have the greatest decline, especially in the early part of the year and again from August to December when a big bear campaign is indicated.
Allis Chalmers Chrysler Int. Harvester Timken Allied Chemical Coca Cola Kroger Tobacco Products American Can Cont. Can Mathieson Al. Union CarbideAm. Intern’l Corn Products Mont. Ward U.S.Ind.AlcoholAm. Linseed Dupont Reynolds “B” U.S.Steel Am. Locomotive Gen. Electric Sears Roebuck Vanadium Am. Radiator Gen. Motors Shattuck F.G. Victor Talking Am. Smelting Hudson Motors Stewart Warner Woolworth A.M. Byers Houston Oil Studebaker
RAILROAD STOCKS MAIN TREND OR MAJOR SWINGS The Railroad Curve is based on the Dow Jones’ 20 Railroad Stock Averages published by the Wall Street Journal. The issues used in these Averages are as follows; - Atchison, Atlantic Coast, B. & 0, Canadian Pacific, Ches. & Ohio; Rock Island, Del. Lackawanna&. Western, Erie, Illinois Central, Louisville & Nashville, N.Y. Central, New Haven, Norfolk & Western, Northern Pacific, Pennsylvania Pere Marquette, Southern Pacific, Southern Railway, Texas & Pacific, and Union Pacific.
From the low in June 1921, to the high in November 1928, these Railroad Averages advanced nearly 80 points. They have made the highest price in history, getting above the extreme high level recorded in 1906. The fact that they advanced into new territory in the latter part of 1928 shows the possibility of many rails, which are in strong position going higher during 1929. But the fact that during prosperous times the railroads have been unable to earn an average of 6% on their capitalization does not make them very attractive from a speculative standpoint. Only those, which have merit and show large earnings, will have very big advances during 1929. The fluctuations between extreme high and extreme low during 1929 are not likely to be less than 20 points and the average may be as high as 30 to 35 points, which means that many high priced stocks will fluctuate 50 to 75 points between extreme high and low. The Rails as a rule follow the forecast trend better than the Industrials because they represent only one group of stocks while the Industrials represent fifteen or twenty different groups. The Dow Jones’ 20 Railroad Stock Averages are representative of the railroad group and most of the railroads will follow Curve #1 very closely, therefore it is not necessary to give Curve #2 this year. Railroad Curve #1, you will notice on page #2, runs down from January 2nd and bottom is indicated around the 5th to 7th. Top for the month of January is indicated around the 15 th and after this date the main trend is down, prices working lower and reaching first bottom around March 9th to 11th and second bottom around March 28th to 29th. Accumulation should take place around this time and a bull campaign should start. First top is indicated around May 3 rd to 4th; then a decline, followed by an advance with second top, possibly a little higher, around June 3 rd. Then another decline and irregular market, reaching low level around June 28th and 29th. After that prices will work higher until around July 15th; then decline to the 22nd, followed by an advance to around August 8th to 9th, when final top on rails should be made for another big decline. After this top, prices will work lower from every rally. A big decline is indicated for September; another sharp decline in October, reaching bottom around the 23rd to 24th; then a rally running to around November 21st to 2nd followed by a decline to December 24th, when the 20 Rails will
reach the lowest price of the year. The following Rails are in the strongest position and should have the greatest advances at the times when the bull campaigns are indicated:
Atlantic Coast Line Del. Lackawanna & W. Missouri Pacific Bangor & Aroostook Erie New Haven Brooklyn Man. Transit Gt. Northern Pfd. Northern Pacific Chicago Gt. Western Hudson & Manhattan Seaboard Air Line C.M. & St. Paul Com. Kansas City Southern Wabash Common C.M. & St. Paul Pfd. Mo. Kansas & Texas Western Maryland The Railroad stocks given below are those, which are in the weakest technical position; have had advances and show distribution. They will be the best short sales on rallies during the times that the Forecast indicates declines.
Atchison Lehigh Valley Pittsburgh & W.Va. Baltimore & Ohio Louisville & Nash. Reading Canadian Pacific N.Y. Central St. Louis & San Fran. Chesapeake & Ohio Norfolk & Western St. Louis & S.W. Rock Island Pere Marquette Southern Pacific Delaware & Hudson Texas Pacific Southern Railway Union Pacific
POSITION OF THE VARIOUS GROUPS With the large number of stocks now listed on the New York Stock Exchange representing the various industries throughout this country and foreign countries, and as these different groups of stocks are affected by supply and demand and the varying conditions in the different parts of the United States and by events which transpire in foreign countries, it is impossible for them to all reach extreme high or extreme low on the same date or even in the same year or the same month. The different time element of the various stocks and groups of stocks will cause some to advance while others decline. Therefore, it is well to watch the individual stocks. Watch those that make top in May, those that make top in June and those that make top in August. The ones that make top in the early part of the year and fail to reach higher levels in July or August, will be the ones to lead the decline, because they will have had longer time for distribution. Guard against selling short the late movers until they have had time to complete distribution. You will receive a list of stocks in strongest position and those in weakest position with the Supplement on the first of each month. The Dow Jones’ 30 Industrial stocks are representative of the active Industrials and most of them will follow the Industrial Curve very closely, but some of the individual stocks which are in strong or weak position will vary from this Curve and make tops and bottoms at different times. These special stocks and their position will be covered in the Supplements each month.
The New York Herald Tribune Averages on 70 stocks are a more active and reliable trend guide now than the Dow Jones’ 30 Industrials. I am giving the stocks used in these Averages because I will often refer to them in the Supplements issued on the first of each month during the year. The range of these 70 stocks between extreme high and low should not be less than 40 points and will
probably reach as high as 70 to 80 points. They take in the representative stocks from the following groups: COPPERS: Am. Smelting, Anaconda, Cerro de Pasco, Calumet & Ariz., Greene Cananea,
Kennecott and Tennessee Cooper & Chemical. EQUIPMENTS: Am. Car & Fdy., Baldwin Loco, Gen. Ry Signal, Pullman. FOODS: Am. Sugar Pfd., Armour & Co. of Del Pfd., California Packing, Corn Products, Nat.
Biscuit. MANUFACTURING: Allied Chemical, Allis Chalmers, Am. Can, Am. Radiator, Am.
Tobacco, Burroughs Add. Machine, Chicago Pneumatic Tool, Coca Cola, Columbian Carbon, Eastman Kodak, Endicott Johnson, General Electric, Int. Bus. Machine, Int. Harvester and U.S. Rubber. MOTORS: General Motors, Chrysler Motors, Chrysler Motors Pfd., Jordan, Hudson, Mack
Truck, Stewart Warner, Stromberg, Studebaker, White. OILS: Atlantic Refining, California Petroleum, Houston, Marland Oil, Pan American Pete “A” , Pure Oil Pfd., Standard Oil of Calif., Standard Oil of N.J., Texas Company and Union Oil of California. STEELS: Bethlehem, Crucible, Gulf States, Sloss Sheffield, U.S. Steel, Vanadium. STORES: Gimbel Bros., Macy, Montgomery Ward, Sears Roebuck and Woolworth. UTILITIES: American Express, Am.Tel. & Tel., B’klyn Edison, Columbia Gas, Cons.Gas,
Detroit Edison, Peoples Gas, Western Union.
IMPORTANT DATES FOR CHANGE IN THE MAJOR TREND The following dates should be watched for important changes in the major trend of both Industrial and Railroad stocks. If any stock makes top or bottom around any of these dates, you can expect a reversal in trend, especially if there is a sharp decline or a sharp advance around these dates: Feb 8 th to 10th, March 21st to 23rd, May 3rd to 7th, June 20th to 24th, August 3rd to 8th, Sept 21st to 24th, Nov. 8th to 11th, Dec. 20th to 24th. These dates are based upon a permanent cycle, which does not change. Important dates are based upon a permanent cycle, which does not change. Important tops and bottoms are made in many stocks every year around these times. Watch the stocks that reach extreme high or low levels around these dates.
DATES FOR ACTIVITY AND WIDE FLUCTUATIONS The following dates indicate times when stocks will be very active and have wide fluctuations, making tops and bottoms. While all stocks will not make tops and bottoms around these dates,
some of the most active ones will and if you watch the ones that turn around these dates, it will prove helpful in your trading: January 5th to 7th, 12th to 15th, 18th to 24th February 9th to 12th, 20th to 22nd, and 27th to 28th. th, very important for change in trend; 21st to 22nd important; 28th to 29th another March 10th to 11date very important for change.
April 3rd, 9th to 10th, 13th to 15th, 21st to 23rd. May 3rd to 4th – watch stocks that make top around this date; 9th to 11th another important date when some stocks will make bottom and other stocks will make top. 22 nd to 23rd and 29th to 31st – very important dates for change in trend; watch for stocks that will make top around this date. June 1st to 2nd – quite important; 7th to 10th another important change; 21 st to 23rd a more important change. July 3rd to 5th – very important for change in trend; 9th to 10th also quite important; 21st to 24th more important. August – one of the most important months for change in trend. Many stocks will start on their long down trend. 7th to 8th – quite important; 16th to 17th important; 23rd to 24th important, 29th to 30th of minor importance. September 2nd to 3rd important; 16th to 17th important, should be bottom of a panicky decline. 21 st to 24th important for top; 27th and 28th important for bottom of a big break. October 2nd; 8th to 9th; 18th to 20th very important, - which stocks which start to decline and go with them; 26th to 28th minor importance. November 10th to 22nd – a very important period for wide fluctuations. Airplanes, radio and some electrical stocks may have sharp advances. Other important dates for changes are 1 st to 2nd, 17th to th, and 24th to 25th. December 1 st to 2nd important; 16th to 17th of minor importance; 23 rd to 24th 19 greater activity and of major importance.
The above dates are not only important for changes in trend and times when bottoms and tops should be reached, but on these dates important news is indicated and some will be of a sudden, unexpected nature, at times favorable and at other times unfavorable, but causing stocks to be active and fluctuate, making tops and bottoms and changing trend.
HOW TO TRADE WITH THE FORECAST The time given for tops and bottoms is the most important factor for you to know and watch. It makes no difference about the price a stock is selling at. So long as you KNOW WHEN it will reach low or high levels you can buy or sell and make money. When the Forecast indicates
bottom at a certain date and stocks decline, you should buy the ones given as in strong position or the ones we recommend buying and place a stop loss order 3 to 5 points away according to the price the stock is selling at. With stocks that active and have wide fluctuations, making tops and bottoms. While all stocks will not make tops and bottoms around these dates, some of the most active ones will and if you watch the ones that turn around these dates, it will prove helpful in you trading: January 5th to 7th, 12th to 15th, 18th to 24th. February 9th to 12th, 20th to 22nd, and 27th to 28th. March 10th to 11th, very important for change in trend; 21st to 22nd important; 28th to 29th another very important date for change. April 3rd, 9th to 10th, 13th to 15th, 21st to 23rd. May 3rd to 4th - watch stocks that make top around this date; 9 th to 11th another important date when some stocks will make bottom and other stocks will make top. 22nd to 23rd and 29th to 31st - very important dates for change in trend; watch for stocks that will make top around this date. June 1st to 2nd - quite important; 7th to 10th anther important change; 21st to 23rd a more important change. July 3rd to 5th - very important for change in trend; 9 th to 10th also quite important; 21st to 24th more important. August - - One of the most important months for change in trend. Many stocks will start on their long down trend. 7th to 8th quite important; 16th to 17th important; 23rd to 24th important; 29th to 30th of minor importance. September 2nd to 3rd important; 16th to 17th important, should be bottom of a panicky decline. 21 st to 24th important for top; 27th and 28th important for bottom of a big break. October 2nd; 8th to 9th; 18th to 20th very important, - watch stocks which start to decline and go with them; 26th to 28th minor importance. November 10th to 22nd - a very important period for wide fluctuations. Airplanes, radio and some electrical stocks may have sharp advances. Other important dates for changes are 1 st to 2nd, 17th to 19th, and 24th to 25th. December 1st to 2nd important; 16th to 17th of minor importance; 23rd to 24th greater activity and of major importance. The above dates are not only important for changes in trend and times when bottoms and tops should be reached, but on these dates important news is indicated and some will be of a sudden,
unexpected nature, at times favorable and at other times unfavorable, but causing stocks to be active and fluctuate, making tops and bottoms and changing trend.
HOW TO TRADE WITH THE FORECAST The time given for tops and bottoms is the most important factor for you to know and watch. It makes no difference about the price a stock is selling at. So long as you KNOW WHEN it will reach low or high levels you can buy or sell and make money. When the Forecast indicates bottom at a certain date and stocks decline, you should buy the ones given as in strong position or the ones we recommend buying and place a stop loss order 3 to 5 points away according to the price the stock is selling at. With stocks that sell at $200 to $300 per share, it is often necessary to use a stop loss order 10 points away because you have an opportunity to make large profits and can afford to take a greater risk. Watch the action of stocks around the dates when the Forecast shows that tops or bottoms are indicated and when they hesitate for a few days and fail to make new high or low levels, you should get out and reverse position. Keep up charts and follow the rules in my book, Truth of the Stock Tape, and you will be able to follow the Forecast to better advantage and make more profit. Do not expect the Averages or individual stocks to advance or decline as many points as shown on the graph or Projected Trend. This is only a guide to show you when big swings and activity are indicated. For example: - Industrial Curve #1 begins at “O” on January 2nd and runs down to “7” on January 5th to 7th, a decline of 7 points on Averages. Some high - priced stocks may decline 10 to 20 points at this time while other low and medium - priced stocks will decline only 2 to 5 points. While some stocks which are late movers and in very strong position will follow Curve #2 and move up during January at the same time that high - priced leaders decline, the main thing is that Curve #1 shows a sharp advance from January 5th to 7th up to January 12th and Curve #2 shows up trend all the month of January. Therefore, you should watch for a decline and buy the strong stocks around January 5 th to 7th; then watch for top January 12 th to 15th, sell out and go short of the stocks, which are in our short sale list. Then on January 30th, if there has been a big decline as shown by Curve #2, you should cover shorts and buy for a rally and if stocks advance to February 13th to 15th, watch for top, sell out longs and go short because Curve #1 indicates a big decline the last half of February and during March. The big buying opportunity will come in March. Around March 10th to 11th and 28th to 29th, you should buy the best stocks to hold for the spring bull campaign into late May. Both Curve #1 and #2 indicate a big decline from July and August to December, therefore from July and August you should play the short side and wait for rallies to sell short rather than buy on breaks because the main trend will be down and you should never buck the trend but go with it. Remember you must buy and sell at the right time regardless of prices. No matter how high stocks are, if they are going higher, you should buy. It makes no difference how low they are; if the trend is down and they are going lower, you must sell short and go with the trend. Take a loss
quickly if you see that the Forecast is off or you have picked the wrong stock. Do not hold on and hope. Delays are dangerous. It is easy to make back small losses, but hard to regain big ones. Fo11ow the rule cut short your losses and let your profits run. Learn to act quickly. How much better to take action now than to trust uncertain time. You can always get in the market again so long as you have money. New opportunities always come if you have patience and cash to take advantage of them.
1929 PREVIEW JANUARY, FEBRUARY AND MARCH While the New Year opens under favorable conditions and you will hear much about great prosperity and the newspapers will be optimistic for the future, the bright outlook is likely to be clouded with war or complications in foreign countries. Trouble is threatened to the United States thru Mexico or Japan. Peace pacts are likely to be broken. Spain and France will arouse opposition. Agitation over religion in some of the foreign countries will disturb peaceful conditions. Great storms are indicated in the south and southwestern parts of the United States during the early spring. Much loss and damage by fire. In March when President Hoover takes office, if some law has not already been passed, he will advocate having one passed to help the farmers. This will cause an advance in commodities and in turn help agricultural stocks. Airplane concerns will make rapid progress in the spring and from a panicky depressed stock market in February and March, a spring bull campaign will take place. Steel business will be quite active. Electrical concerns will do a large business and there will be a boom in oil stocks.
APRIL, MAY AND JUNE The spring quarter indicates unfavorable weather for starting crops. Storms, rains, and danger of a tidal wave along the Gulf of Mexico. Commodity prices will advance and business in general will improve. A wild wave of speculation in oils, coppers, rubbers, sugars and airplane stocks will make this a very active period. Along in May or June, foreign competition will begin to hurt business in some lines in this country. This will cause a depressing effect on stocks and they will decline.
JULY, AUGUST AND SEPTEMBER During this period, some of the foreign countries will prosper and we will have great competition to face. War or trouble with foreign countries, is threatened. A very mixed market during this period with some stocks advancing while others decline. Speculation will shift from stocks to commodities on account of short crops. Foreign crops will be short in some of the countries. Storms and unseasonable weather will cause damage.
August will be marked by many electric storms and damage by fire. Some new discoveries will help chemical stocks around this time. Germany and France will make great strides in aviation. September: - A great change in business conditions will set in around this time which will cause a severe decline in the stock market. Textile and woolen stocks will prosper and these will be among the last stocks to advance. During the months of April, August, September and October, there is danger of war and trouble thru foreign countries.
OCTOBER, NOVEMBER AND DECEMBER Settlement of the debt question with France will again come to the front. Other countries will arrange some favorable agreement in regard to trade, which will cause business depression here. A great change in the business outlook will set in as we near the end of the year. Corporation earnings will show depreciation and be disappointing. The month of October indicates some advance in mining stocks. The oil and sugar stocks will be among the last to advance around this time. During November the chemicals and oils will have a boom for a short time and make final top. In December foreign business with South American countries will be good, but we will have competition from some of the European countries.
MONTHLY INDICATIONS JANUARY The New Year starts off under favorable conditions, but profit taking will start and stocks will sell off sharply the first few days. Then food buying will appear and an advance will start. The oils, rubbers, chemicals, and airplanes will lead the advance, reaching top around the 12th to 15th. Around the 18th to 24th some rails, electrics and steels will advance. Some trouble in foreign countries, probably Germany or France, will have an unfavorable effect and will help to start the decline here. Watch for top; sell out long stocks and go short. Quite a decline will take place to the end of the month. INDUSTRIAL STOCKS indicate extreme high for the month around the 12 th to 15th; extreme lows around the 5th to 7th and 30th. Minor moves: - January 2nd decline should start; 5th to 7th bottom of decline. Heavy buying should start around this time and a sharp advance should take place-making top around the 12th. 19th bottom of decline; 24 th top of rally; then follows heavy selling and a sharp decline, reaching bottom around the 30th. RAILROAD STOCKS indicate extreme high for the month around the 15 th; extreme low around the 5th to 7th and 30th. Minor moves - January 2 nd top, when decline should start; 5 th to 7th bottom for quite a rally; 15th top of strong rally, when another decline should start; 21st bottom of decline; 24th top of rally. From this top a big decline should take place reaching low for the month around the 30 th.
Dates to watch for change in trend: - the dates marked “XX” are the most important and indicate a major change in trend. You should watch for important changes around these dates. The dates marked “X” only indicate minor changes in trend, which will only last for a few days. – January 5th – 7th XX, 11th – 12th X, 25th – 26th XX, 31st X.
FEBRUARY Business will fall off and we will hear some discouraging reports. The Federal Reserve Bank will make some change or threaten to curb speculation. There will be talk of new banking laws, which may be averse to speculation. The general list of high - priced stocks will decline this month, although the market will be mixed. Sugars, rubbers and late movers will have some advances. The railroad, airplane, radio and electric stocks will rally from every decline. Around the 12th to 13th of the month some of the oils, rubbers and sugars will be quite strong. The general list of old time leaders; however, will work lower from every little rally. INDUSTRIAL STOCKS indicate extreme high for the month around the 13 th to 14th and extreme low around the 28th. Minor moves: 1st to 4th advance; then follows a decline to the 8th, when bottom should be reached for another quick rally; 13th to 14th top, sell out and go short. Expect heavy liquidation and a sharp, severe decline reaching bottom around the 28 th for a moderate rally. RAILROAD STOCKS indicate extreme high for the month around the 15 th and extreme low around the 28th. Minor moves - 1 st to 5th advance and make top for a moderate decline; 9th bottom of decline; expect quick rally in some rails, reaching high around the 15 th, followed by a sharp decline making bottom around the 28th. Dates to watch for change in trend: - 9th to 12th XX; 19th to 20th XX; 23rd to 24th X, 28th X.
MARCH Mr. Hoover will take the office of President of the United States this month and in the early part of the month there will be a demonstration in stocks and quite an advance, but it will not hold and a sharp, severe decline will take place in many stocks before the end of the month. Some trouble is likely to come up in connection with Spain or Mexico, which will upset the market. Airplane stocks will be quite strong during the dates indicated for advances to take place. The oils, sugars and chemicals will hold up better than other socks. Traction stocks will be strong and there is likely to be some development in connection with the subway fare, which will cause an advance in New York traction stocks. The steels, motors, rails and electrical issues will break during the early and latter part of the month. INDUSTRIAL STOCKS indicate extreme high for the month around the 4 th to 5th; extreme low around the 28th to 29th, although some stocks will reach low for the month around the 14 th to 15th. Minor moves: 1st to 5th strong advance. The market will be discounting President Hoover’ s inauguration. A sharp decline fo1lows, making first bottom around the 14 th to 15th; then a quick rally in many stocks reaching top around the 20th, followed heavy liquidation and a sharp decline to around the 28th or 29th when final bottom will be reached for another bull campaign. This is the
time to buy the stocks in strong position as they will have sharp advances and work higher into the summer. RAILROAD STOCKS indicate extreme high for the month around the 4 th to 5th; extreme low around the 9th to 11th and 28th - 29th. Minor moves: - 1st to 5th strong market. Stocks behind the market will lead the advance. From the top around the 4th to 5th quite a sharp decline will take place, culminating around the 9th to 11th; then follows a moderate rally reaching top around the th; then another decline, making final bottom around the 28 th to 29th when you should buy the 16 stocks in strong position for an advance which will last into the early days of May.
Dates to watch for change in trend: - 4th to 5th X; 10th to 11th XX; 16th X; 21st to 23rd X; 28th to 29th XX.
APRIL The public will again come into the market on a large scale and there will be a wild wave of speculation, especially in the oils, coppers, rubbers, sugars and airplane stocks. The chemicals, airplanes and radio stocks will have rapid advances. Some action by the Government on law passed will cause a break, which will run down to around the 15th. Money rates will be quite high. 16th to 30th - - General news will be more favorable and stocks will have better advances. Foreign trade will increase, especially with the South American countries. INDUSTRIAL STOCKS indicate extreme low for the month around the 12 th to 13th and extreme high around the 20th to 22nd. Minor moves: - 1st to 3rd top of quick advance; 12th to 13th bottom for another big advance; 20th to 22nd top of sharp rally; then follows a decline making bottom around the 26th to 27th when stocks should be bought for another advance, running to the end of the month and continuing into May. RAILROAD STOCKS indicate extreme low for the month around the 10 th to 11th and extreme high around the 20th to 22nd, although they will be quite strong and some will make higher just at the end of the month. Minor moves: - 1st to 3rd - 4th quick advance; then follows a moderate decline, reaching bottom around the 10th to 11th, when a sharp advance will take place, stocks running up fast and making top around the 20th to 22nd, followed by a reaction to the 25th; then a strong advance to the end of the month. Dates to watch for change in trend: - 2nd to 3rd X; 9th to 10th X; 13th to 15th XX; 21st to 23rd XX; 26th to 27th X.
MAY This is a month for great activity in the stock market. We will hear some very bullish news about general business conditions. There will be some large combines, consummation of mergers; large financial deals will take place and there will be much talk of continued prosperity, all of which will cause the public to buy stocks at the top. General news will be very bullish and stocks will fluctuate over wide ranges. Some stocks will reach high around the early part of the month and have a break around the middle of the month. Where will be a boom in rubbers, sugars, oils,
airplane, radio and electrical stocks? These will be the leaders. Watch for top and sell out. Do not overstay your market, as a big break will take place in June. INDUSTRIAL STOCKS indicate extreme high for the month around the 29 th to 31st and extreme low around the 9th to 10th. Minor moves: - 1st to 4th quick rally, making top for a sharp reaction; 9th to 10th bottom of decline; buy for another sharp advance; 16th top of rally, but only for a minor reaction; 20th - bottom of reaction. Stocks in strong position will have a rapid advance between the 10th and 29th. Watch for top around this time. RAILROAD STOCKS indicate extreme high for the month around the 3 rd to 4th; extreme low around the 11th to 13th, although some issues will go to extreme high around the end of the month. Minor moves; - 1 st to 3rd strong market, making top around 3 rd to 4th. Then follows a decline, making bottom around the 11th to 13th, followed by an advance making first top around the 25th for a moderate reaction to the 28 th; then rally to the end of month. Dates to watch for change in trend: - 3rd to 4 th X; 9th to 10th XX; 22nd to 23rd X; 29th to 31st XX.
JUNE A sharp decline and heavy liquidation in many stocks is indicated for this month. There will be war in foreign countries or war rumors. Strikes at home as well as abroad. Crop news will be unfavorable. Storms or earthquakes on the southern border and in Mexico will do damage and help to unsettle the market. The outlook for the summer business will be very much mixed. One of the major cycles and time factors runs out this month and a very important change in trend is indicated. High priced stocks will have rapid declines and many stocks will make extreme high for the year. The tin, oils and agricultural stocks and also the chemicals will break badly after reaching top in the early part of the month. Motors will also decline sharply. INDUSTRIAL STOCKS indicate extreme high for the month around June 1 st; extreme low around the 22nd to 24th. Minor moves: - 1st to 2nd advance and make top for a big decline; 10 th to 11th bottom of sharp decline; then follows a moderate rally reaching top around the 17 th, followed by heavy liquidation and sharp decline making bottom 22 nd to 24th. From the 24th to the end of the month many stocks will have quite a rally. RAILROAD STOCKS indicate extreme high for the month around the 3rd; extreme low around the 10th to 11th and 28th to 29th. The rails will not move in a very wide range this month, except a few of the very high - priced issues. Minor moves: - 1st to 3rd advance; 4th to 10th - 11th sharp decline; then follows a moderate rally, reaching top around the 21st to 22nd followed by liquidation and lower prices, making bottom for the month 28th to 29th.
Dates to watch for change in trend: - June 1st to 2nd XX; 7th to 10th X; 21st to 23rd XX; 28th X.
JULY Another advance will take place this month and many stocks will have sharp rallies and reach the final high for the year. The airplane companies will prosper and their stocks will advance. Electrical and chemical stocks will also record sharp advances. Pools will rush up stocks as fast as they can to unload. The late movers will be brought into line while distribution is taking place in the old time leaders. Sugars and rubbers should have some sharp advances. A very important major time factor ends at this time and indicates the starting of a big prolonged bear campaign. Remember that the last high for the year well occur in many stocks. A great deluge and panicky decline will follow the top at this time, resulting in a "Black Friday" in September. There are likely to be some labor troubles and strikes in the west and south, which will interfere with the business outlook. INDUSTRIAL STOCKS indicate extreme high for the month around the 20 th; extreme low around the 9th to 10th. Minor moves 1st to 3rd strong market, making top for a quick decline; 9th to 10th bottom of sharp decline; then follows a rapid advance, making top on the 20 th; decline reaching bottom on the 22nd; followed by a strong market to the end of the month. RAILROAD STOCKS: - The rails will move in a comparatively narrow range this month. Extreme low is indicated around the 9 th to 10th and 22nd; extreme high around the 15th. Minor moves: - 1st to 3rd advance; then follows a decline making bottom around the 9 th to 10th; a quick rally to the 15th; then follows a sharp decline reaching bottom on the 22 nd, followed by an advance to the end of July. Dates to watch for change in trend: - 3rd to 5th XX; 10th X; 21st to 24th XX; 30th to 31st X.
AUGUST A few of the late movers will advance this month and reach final high. Chemical stocks will be among the last to advance. The steels and oils will be strong for a while and the sugars and rubbers will make final top. Unfavorable news will develop which will start sharp declines and the long bull campaign will come to a sudden end. Money rates will be high and final top will be reached for a big bear campaign. Stand from under! Don't get caught in the great deluge! Remember it is too late to sell when everyone is trying to sell. There will be electric storms, which will cause damage to crops, and heavy losses are indicated thru fires. INDUSTRIAL STOCKS indicate extreme high for the month around the 7 th to 8th; extreme low 29th to 30th. Minor moves: - The first of the month starts in strong and prices run up fast reaching top around the 7th to 8th; then heavy selling will take place and a sharp decline will follow, bottom being reached around the 16 th to 17th, but only for a small rally; 23 rd to 24th top of rally, followed by heavy liquidation and lower prices, making bottom for the month around the 29th to 30th.
RAILROAD STOCKS indicate extreme high for the month around the 8 th to 9th, although some industrial stocks and rails among the late movers will hold up and not make top until the 14 th to 15th as indicated on Curve #2. Extreme low for the month for rails indicated around the 30 th to 31st. Minor moves: 1st - advance will start and prices will run up fast, making top around the 8 th to 9th; then follows a th fast reaching bottom around 2lst followed moderate rally to around the 25th;decline, then a sharp decline making lowthe for20 the to month on the 30by th to 31st.
Dates to watch for change in trend: - 7th to 8th XX; 16th to 17th X; 23rd to 24th XX; 29th to 30th XX.
SEPTEMBER One of the sharpest declines of the year is indicated. There will be loss of confidence by investors and the public will try to get out after it is too late. Storms will damage crops and the general business outlook will become cloudy. War news will upset the market and unfavorable developments in foreign countries. A "Black Friday" is indicated and a panicky decline is stocks with only small rallies. The short side will prove the most profitable. You should sell short and pyramid on the way down. INDUSTRIAL STOCKS indicate extreme high for the month around the 2 nd to 3rd; extreme low 27th to 28th. Minor moves: - 2nd to 3rd top of moderate rally. Heavy liquidation will break out around this time. Unfavorable news will develop and a sharp, severe decline will take place, reaching first bottom around the 16th to 17th, but only for a small rally. 20 th to 21st top of moderate rally followed by another heavy wave of liquidation, carrying prices down to extreme low levels around the 27th to 28th, from which level a moderate rally will follow. RAILROAD STOCKS indicate extreme high for the month around the 3 rd; extreme low at the end of the month. Minor moves: - 1st to 3rd advance. Liquidation will start around this time and a sharp decline will follow, carrying prices down to around the 16 th - 7th; then a moderate rally on short covering with top around the 23rd - 24th, followed by a sharp decline running down to the end of the month. Dates to watch for change in trend: - September 2 nd to 3rd XX; 16th to 17th XX; 21st to 24th X; 27th to 28th XX.
OCTOBER General business conditions will be getting worse and the country will suffer from the over speculation.
Money rates will be high and bankers will call loans, causing some sharp declines in stocks after rallies. The chemical, electrical and airplane stocks will hold up and have some quick rallies around the dates indicated for advances. INDUSTRIAL STOCKS indicate extreme high around the 18th to 19th; extreme low around the 8th to 9th and 26th to 28th. Minor moves: - October 2nd top of small rally from which a sharp decline will take place; 8th to 9th bottom of decline, when a better advance will take place, especially in th to 19th top of rally. Stocks in weak position will have a sharp the stocks in strong position; 18th decline, running down to the 26 to 28th; then. follows a moderate rally to the end of the month.
RAILROAD STOCKS indicate extreme high for the month around the 10 th to 11th; extreme low 23rd - 24th. Minor moves: - 1st to 4th decline and make bottom for a moderate rally; 10th to 11th top of rally; then follows a heavy wave of liquidation and lower prices making bottom around the 23rd to 24th, followed by a moderate advance to the end of the month. Dates to watch for change in trend: - 2nd to 4th XX; 8th to 9th X; 18th to 20th XX; 26th to 28th X.
NOVEMBER The oils, chemicals and rubbers will have a final advance this month and make top for another decline. Business conditions will be growing more unfavorable. There are likely to be earthquakes in Mexico or California. This will disturb the stock market and depress business. This is the month for war news from foreign countries and some great leader abroad will show his power. The latter part of the month is very unfavorable and some sharp declines will take place. But the airplane, radio and electrical companies and some of the rails will have an advance around the 10th to 22nd. INDUSTRIAL STOCKS indicate extreme high for the month around the 2 nd to 4th; extreme low around the 23rd to 25th. Minor moves: - follows heavy selling and a sharp decline, reaching bottom around the 11th to 12th, but only for a moderate rally; 18 th to 19th top of advance. From this level there will be another sharp, severe decline carrying prices down to low levels around the 23rd to 25th. Then follows a moderate rally to the end of the month. RAILROAD STOCKS indicate extreme high for the month around, the 21 st to 22nd; extreme low around the 27th to 28th.Minor moves; - 1st to 2nd top of moderate rally; then follows a decline, reaching bottom around the 9th to 11th; then a quick rally, making top around the 21st to 22nd followed by heavy liquidation and a sharp decline, making bottom around the 27 th to 28th. Dates to watch for change in trend: - 1st to 2nd XX; 11th to 13th X; 17th to 19th XX; 24th to 26th X.
DECEMBER Our business in some of the foreign countries will increase. Speculation will shift from stocks to
commodities. The U. S. Government is threatened with great opposition, if not danger of war. General business outlook will grow very much more unfavorable Panicky declines in stocks will take place. INDUSTRIAL STOCKS indicate extreme high for the month around the 2nd; extreme low around the 23rd to 24th. Minor moves: - 1st to 2nd advance; then follows a sharp, severe decline and heavy liquidation with indicated lasting one to two days, reaching extreme low around the 23rd to only small rallies 24th; then follows a quick rally reaching top on the 28th followed by decline to the 31st. RAILROAD STOCKS indicate extreme high for the month around the 2nd; extreme low around the 23rd to 24th. Minor moves: - 1st to 2nd advance; 3rd to 10th sharp decline, making bottom for only a moderate rally; 15th top of rally; then heavy liquidation and a decline running to 24th; then follows a rally to the end of the month. Dates to watch for change in trend: - 1st to 2nd XX; 16th to 17th X; 23rd to 24th XX; 28th X.
[END OF GANN 1929 FORECAST.]
