THE ULTIMATE

BOOK ON

STOCK MARKET
TIMING

VOLUME 5

TECHNICAL ANALYSIS
AND
PRICE OBJECTIVES

2
DEDICATION

This book is dedicated Charles Drummond, who has served as

my mentor in study of technical analysis. I am extremely
grateful for his work and how it has enhanced my own skills
as a market analyst and market timer.

7
 TABLE OF CONTENTS

Glossary of Terms Used in This

Book
Geocosmic Symbols and
Abbreviations
Acknowledgements
Tools That You Will Need To
Understand This Book and Apply
Its Methods
Introduction
Chapter 1: Trend Analysis and
Multiple Time Frames
Chapter 2: Investors, Traders, and
Their Charts
Chapter 3: Support and Resistance
Chapter 4: Price Targets For Long-
Term Investors
Technical Analysis and Price
Objective Calculations
Chapter 5: Price Objectives: Basic
Methods of Calculations
Corrective Retracements MCP Price Targets
Chapter 6: Price Objectives: More
Advanced Methods
Chapter 7: Price Objectives For the
Last Phase of a Three-Phase Pattern
Chapter 8: Price Targets for

10
Breakouts of Head and Shoulders
Chart Patterns
Chapter 9: Gaps, Measuring Gaps,
and Island Reversals
Chapter 10: Trendline Analysis
(and Gaps That Follow)
Chapter 11: Stochastics and their
Patterns: Identifying Cycle Troughs
and Crests
Chapter 12: Intermarket Bullish and
Bearish Divergence
Chapter 13: Moving Average as a
Trend indicator and Confirmation
Signal
Short-Term Trading Tools for the
Professional Trader
Chapter 14: The Formulas for
Short-Term Trading
Chapter 15: The Pivot Point (PP)
Chapter 16: The Trend Indicator
Point (TIP)
Chapter 17: Support and Resistance
for Short-Term Trading
Chapter 18: As Good As It Gets:
Position Trading
Chapter 19: As Good As It Gets:
Short-Term and Aggressive Trading
Chapter 20: Constructing the
Trading Plan
Chapter 21: Finis

11
 TABLES:

4-Year Cycle Occurrences in the

U.S. Stock Market
18-Year Cycles: High, Lows, and
Percent of Change
4-Year Cycles: High, Lows, Percent
of Change

12
 GLOSSARY OF TERMS USED IN THIS BOOK

The following represent terms that the reader will

find throughout this book.

Bearish Intermarket Divergence: Occurs when a

market makes a new cycle high, but is not confirmed by
a new cycle high in another closely related market. If
one makes a new high and the other does not during a
cyclic time band for a high, it is considered a “sell”
signal.

Bear Market: Consecutively lower troughs and lower

crests of the same cycle type; “left translation” patterns
of primary cycles. “Left Translation” means the crest
occurs in the first half of the cycle.

Bullish Intermarket Divergence: Occurs when a

market makes a new cycle low, but is not confirmed by
a new cycle low in another closely related market.
Examples would be Dow Jones Industrials and S&P
futures, or Gold and Silver, or Corn and Soybeans, or
Swiss Franc and Euro. If one makes a new low and the
other does not during a cyclic time band for a low, it is
considered a “buy” signal.

Bull Market: Consecutively higher crests and higher

troughs of the same cycle type; “right translation”
patterns of primary cycles. “Right Translation” means

14
the crest occurs in the second half of the cycle, past the
midway point of the two troughs that define the cycle.

Candlestick Patterns: A Japanese charting system that

analyzes chart patterns based on the open high, low, and
close of a financial market or security each day or week
(or even hour) over a certain period of time.

Coincident Indicators: Technical studies that are

designed to coincide with a low or high as it happens, or
very nearby, such as oversold and overbought
indicators.

CCI: Commodity Channel Index. A technical study

tool that measures overbought and oversold readings
based on the high, low, and close of a market over a
period of time.

Congestion: The price area between support and

resistance. When a market trades below a resistance
zone but above a support zone for several days, weeks,
or months, it is said to be in “congestion.” At these
times, traders will look to buy as prices fall nearby to
support, and then to sell when they rally nearby to
resistance.

Corrections: A counter-trend move following a cycle

high or low that has culminated in the direction of the
greater underlying trend. A correction is also known as
a “retracement.” It represents a percentage (less than

15
100%) of the prior move up or down.
For instance, if a market moves up from 50 to 100, that
is a gain of 50 points. If it pulls back less than 50
points, it is known as a “correction” or “retracement” of
the prior move.

Crest: A high in price; the peak of a cycle. It is the

highest price between the troughs that define the cycle.

Crossover Zone, Bearish: A very powerful area of

resistance. It occurs when the resistance range of a
current time period is completely below the support
range of the previous time period. The price range from
the low end of the current period’s resistance area to the
higher end of the prior period’s support area defines the
bearish crossover zone. Oftentimes this occurs when
there is a “gap down” between the two time periods.

Crossover Zone, Bullish: A very powerful area of

support. It occurs when the support range of a current
time period is completely above the resistance range of
the previous time period. The price range from the low
end of the prior period’s resistance area to the higher
end of the current period’s support area defines the
bullish crossover zone. Oftentimes this will occur when
there is a “gap up” between the two time periods.

Cycle: A measurable phenomenon that occurs

consistently at regular intervals of time. In markets,
cycles are measured from trough (low) to trough, unless

16
specified otherwise.

Cycle Pattern: There are three common cycle patterns:

1) The classical “three-phase” pattern, in which there
are three sub-cycles (or phases) of approximately ⅓ the
greater cycle length; 2) the classical “two-phase”
pattern consisting of two sub-cycles (or phases) of
approximately ½ the greater cycle length; and 3) a
“combination” pattern, which has sub-cycles at the ½
and ⅓ intervals of the greater cycle, thus making it
appear that there are 4 sub-cycles within the greater
cycle. In longer-term cycles, we may skip one cycle and
use 4-5 cycle phases to the greater cycle that is two
levels above or below, i.e. 18- to 4-year cycle, and 4-
year to 50-week cycles.

Double bottom: A chart pattern where the market

makes a trough (low in price), then rallies, and then a
few days (or weeks or months) later, it returns to that
same price area to form a second trough, known as a
“double bottom.” It is usually a bullish sign, and the
market will rise for awhile.

Double top: A chart pattern where the market makes a

crest (high in price), then declines, and then a few days
(or weeks or months) later, it returns to that same price
area to form a second peak, it is known as a “double
top.” It is usually a bearish sign, and the market will fall
for awhile.

17
Fibonacci: A series of sequential numbers, starting
from the number 1, that are added to one another
successively. For instance, 1, 2, 3, 5, 8, 13, 21, 34, 55
are all Fibonacci numbers that are derived by adding the
last number to the number the preceded it. After a
while, each number is 61.8% higher than the last. This
percentage, and 38.2% (the difference of 100% -
61.8%) are considered the basic percentages of most
market corrections. That is, if the market rallies 50
points in a bull market, the following correction is
anticipated to be 38.2 – 61.8% of that move up, or 19.2
– 30.9 points, a Fibonacci correction to the primary
swing. Other Fibonacci numbers include 23.6% and
76.4%. In addition to price ratios, these factors can also
apply to time factors, such as days or weeks. If a market
takes 100 weeks from a bottom to a top, it might then
decline a Fibonacci 38-62 weeks

Geocosmics: The study of the mathematical

relationships of planets to one another, as seen from
either the Sun (heliocentric) or Earth (geocentric). It
may also apply to the study of planets in relationship to
signs of the zodiac. Geocosmic studies are used to
determine critical reversal dates in financial markets. It
is a tool used in market timing – the timing of highs or
lows in financial markets.

Solar-Lunar Reversals: Refer to the sun-moon

combinations that change every 2.5 days. Certain sun-
moon combinations have a higher correlation to

18
reversals in financial markets than others, such as
certain new moons or full moons. These are different
than geocosmic correlations to market reversals because
they involve only sun-moon combinations, where as
geocosmic correlations involved planetary
relationships. Geocosmics have a much stronger
correlation to stronger reversals than do solar-lunar
reversal signatures.

Gap up: This occurs when the low of one time frame is
above the high of the previous time frame. If, for
instance, the high in a market on one day is 50.00, and
the next day the low is 51.00, it is a “gap up” day. The
entire price range of one day is completely above the
entire price range of the previous day.

Gap down: This occurs when the high of one time

frame is below the low of the previous time frame. If,
for instance, the low in a market on one day is 51.00,
and the next day the high is 50.00, it is a “gap down”
day. The entire price range of one day is completely
below the entire price range of the previous day.

Head and Shoulders Patterns: A bearish chart pattern

that is formed when a market makes a high, pulls back,
then makes a higher high, followed by another pullback
in the vicinity of the earlier pullback, and then makes a
lower high, in the vicinity of the first high. The first
high is known as a left shoulder. The higher high is
known as the head. The last high is known as the right

19
shoulder. The line connecting the two lows is known as
the neckline. When prices fall below the neckline, it is
considered a valid head and shoulders, and the market is
likely to fall harder.

An Inverse Head and Shoulders Pattern is a bullish

chart pattern that occurs when a market makes a low,
rallies a bit, then makes a lower low, followed by
another rally in the vicinity of the earlier rally, and then
makes another higher low in the vicinity of the first
low. The first low is known as a left shoulder. The
lower low is known as the head. The last low is known
as the right shoulder. The line connecting the two highs
is known as the neckline. When prices rally above the
neckline, it is considered a valid inverse head and
shoulders, and the market is likely to rally further.
Island Reversals: There are two types here; a bullish
and bearish island reversal. A bullish island reversal
occurs when there is a first a gap down in the market,
followed by lower prices. After the low forms, there is
then a gap up above the highest price that followed the
gap down, making it appear as if all the price activity
between the two gap days was in an “island” below the
rest of the market. A bearish island reversal occurs
when there is a first a gap up in the market, followed by
higher prices. After the high forms, there is then a gap
down below the lowest price that followed the gap up,
making it appear as if all the price activity between the
two gap days was in an “island” above the rest of
market. If prices fill the first gap before the second gap

20
occurs, the island pattern is negated.

Lagging Indicators: Technical studies that indicate a

bottom or top is in after it happens, such as a when a
market crosses above or below a particular moving
average. It is a lagging indicator because the buy or sell
signal is not generated until well after the high or low
have formed.

Long: Buying the market. When you take a position

that appreciates as that market goes higher. This is the
opposite of a short position, where one sells the market
at today’s price and makes a profit if the that market
declines in value.

Mid-Cycle Pause or MCP: A mathematical formula

for determining a price target that is above the market in
a bullish trend, or below the market is a bearish trend.

Moving Average: In this book, the simple moving

average is used. The length of a moving average used in
this book is usually one-half (and sometimes one-
quarter) of the cycle length when longer-term cycles are
employed. For shorter-term cycles, we will often use
25-day and 25-week moving averages simply because
our experience demonstrates that they work well for the
methodology outlined in this book. According to
www.investopedia.com, “This is the most common
method used to calculate the (simple) moving average
of prices. It simply takes the sum of all of the past

21
closing prices over the time period and divides the
result by the number of prices used in the calculation.
For example, in a 10-day moving average, the last 10
closing prices are added together and divided by 10.
Increasing the number of time periods in the calculation
is one of the best ways to gauge the strength of the
long-term trend and the likelihood that it will reverse.”

Oscillators: According to www.investopedia.com, “A

technical analysis tool that is banded between two
extreme values and built with the results from a trend
indicator for discovering short-term overbought or
oversold conditions. As the value of the oscillator
approaches the upper extreme value the asset is deemed
to be overbought, and as it approaches the lower
extreme it is deemed to be oversold.”

Overbought: A term used to describe a technical study,

like an oscillator, that shows the market has advanced
very rapidly and/or sharply to a certain high level as
measured by that oscillator.

Oversold: A term used to describe a technical study,

like an oscillator, that shows the market has declined
very rapidly and/or sharply to a certain high level as
measured by that oscillator, like a stochastic.

Phase: These are the sub-cycles within each cycle.

Each cycle is comprised of two or three sub-cycles, or
phases, which are approximately ½ or ⅓ of the greater

22
cycle’s length.

Pivot Points: The average of the high, low, and close

for a specific time period, like a day or a week.

Position Trading: Entering a market with the idea of

carrying it for several days, weeks, or even months.

Pyramiding: This is a trading strategy that adds on to

positions in the direction of trend whenever a new high
(buying) or new low (selling) occur within a cycle.

Resistance: An area above the current market price

where we expect prices to hold on rallies; a “ceiling”
for prices.

RSI: relative strength indicators.

Short Selling: Selling a market today with the idea that

it will fall and can then be bought back at a lower price.
A short seller is one who makes a profit when that
market falls in price.
Short Term Trading: Entering a market with the idea
of carrying it only for a few days, perhaps only 3 days
to three weeks. Aggressive short-term trading would
be even less, perhaps 1-4 trading days, and even day
trading.

Stochastics: A technical momentum indicator that

compares the closing price of a financial market to its

23
price range over a given time period. According to
www.investopedia.com, “The oscillator’s sensitivity to
market movements can be reduced by adjusting the time
period or by taking a moving average of the result.” In
this book, we use a 15- and 3-bar study for calculations,
as follows:

%K = 100[(C - L15)/(H15 - L15)]

C = the most recent closing price

L15 = the low of the 14 previous trading sessions
H15 = the highest price traded during the same 15-day
period.

%D = 3-period moving average of %K

Stop-loss: A market order that may be placed below the

current price after a long position, or above the current
price in a short position, in order to protect one in the
event the trade starts to move against the position. It can
be used to lock in profits or to prevent further losses.
For example, if one bought a stock at 25, but didn’t
want to risk more than 10% on the trade, he could
entered an “stop-loss” order to sell if prices drop to
22.50. This is known as a “sell stop,” but it is
effectively a stop-loss position. If the market hits 22.50,
his position is sold for a 10% loss, assuming it is in fact
sold at 22.50..

24
Support: An area below the current market price where
we expect prices to hold on declines; a “floor” for
prices.

Trailing Stop: This is where one continually adjusts his

stop-loss order based on the market’s moves. If he is
log, he may raise his stop loss higher and higher as the
market goes higher and higher. If he is short, he may
lower his stop-loss as the market continues to decline.
This is known as a “trailing stop,” and some traders use
this type of protective ordering to guard against a
sudden turn against their position, while still locking in
a profit. Of course, once a position hits the trailing stop,
the trader is taken out of that market.

Trend: Bull or bear (as above). Trend depends upon the

cycle you are studying. The trend is usually determined
by the next longest time frame or cycle than the one you
are studying. For example, the trend of the primary
cycle may depend upon the phasing of the 50-week
cycle; the trend of the 50-week cycle may depend upon
the phasing of the 4-year cycle. The first phase of cycle
is usually bullish and the last phase usually bearish.

(TIP): Trend indicator point. The average of the last

three-days (or weeks) high, low, and closes.

Trough: A low in price; the bottom of a cycle, from

whence the cycle ends and begins.

25
Trendlines: A line that connects two or more lows
(upward trendline) or highs (downward trendline) to
one another. It is then extended. There are no lows
below this trendline up, or above this trendline down.
When the price breaks the trendline, it is said to be a
signal that the trend of that cycle is over, but that is not
always the case.

Trend Run Down: There are two types used in this

book. One is based on two moving averages, where the
shorter moving average is below the longer moving
average, and the price is below each. The second is
based on the market closing three consecutive days (or
weeks, or whatever time frame is used) below the TIP
(trend indicator point), especially when the third day is
a down day on the close.

Trend Run Up: There are two types used in this book.
One is based on two moving averages, where the
shorter moving average is above the longer moving
average, and the price is above each. The second is
based on the market closing three consecutive days (or
weeks, or whatever time frame is used) above the TIP
(trend indicator point), especially when the third day is
an up day on the close.

26
 GEOCOSMIC SYMBOLS AND ABBREVIATIONS
USED IN THIS BOOK

Throughout this book, abbreviations and symbols may

be used to identify the various planets in the solar
system, and signs of the zodiac. Those abbreviations
and symbols are listed below. The name of the planet or
sign is given first, followed by its abbreviation, and
then followed by its astrological symbol. The
abbreviations and symbols are consistent with those
used in the study of astrology.

27
28
 ACKNOWLEDGEMENTS

The writing of Volume 5 took place over several

months and in several different locations. As a writer, I
do my best work with extreme quiet and visual
inspiration from nature, such as oceans, lakes, rivers,
mountains, and forests. Thus I travel in intervals of 2-6
weeks to go away to places that offer these inspiration
vistas and write.

This book started in Tucson, Arizona, in the rugged

mountains near Gates Pass, in a lovely large rental
home founded by my daughter Alexandra, who was a
student at the University of Arizona at the time. This
was followed by a three-week writing retreat on the
beautiful white beaches of the Emerald Coast in Destin,
Florida, in a stunning high rise condominium with
panoramic view of those lovely white sand beaches,
courtesy of client, friend, and fellow trader Leonard
Farina from Detroit, Michigan.

The next retreats would take place in Amsterdam,

Netherlands and Cari Campello in Switzerland - again
with the aid of two associates. In Amsterdam, I was
able to rent a wonderful, cozy apartment in central city,
not far from the Dam Square, with the aid of my Dutch
associate Irma Schogt, president of Schogt Market
Timing (www.schogtmarkettiming.nl). In Cari

29
Campello I was given use of a home on a mountain side
in southern Switzerland by client and trader Maurizio
Monti of Italy.

This was followed by a three-week visit to Miami, Fl,

where I wrote in the home of Bill and Lynn Hyde, right
on the stunning Biscayne Bay. And finally the book was
completed on a two-month visit to Europe, and the
homes of well-known astrologer Antonia Langsdorf,
and clients/friends Franco and Beatrice Bianchi of Lake
Constance, Switzerland.

To all of these wonderful people who supported my

desire to write in great places, I am eternally grateful.

I would also like to express my thanks to all the great

minds in technical and cyclical market analysis who
have contributed to my understanding of this fine art of
technical analysis and market timing throughout my
career, including (but not limited to): Walter Bressert
(www.walterbressert.com), Charles Drummond of
Nova Scotia (www.drummondgeometry.com, formerly
lived in Toronto when we met), Robert Krausz (now
deceased), Larry Brundage of Novi, Michigan, Patrick
Shaughnessy (now deceased), and Rick Lorusso, Citi
Bank technical analyst in New York City. I would
particularly like to thank both Ted Hearne (Birmingham
Michigan) and Charles Drummond, both of
“Drummond Market Geometry,” for their permission
and assistance on the short-term trading material

30
presented in this book related to the technical market
analysis concepts of Charles Drummond. Ted has co-
authored a learning course on the Drummond
methodology and can be contacted at
[email protected].

Furthermore I would like to thank my editors for the

time and care they have demonstrated in reading over
this book and making corrections so that it is clear and
understandable (not an easy job!). This was probably
the hardest book I have ever written, and it is not a
subject that can be easily incorporated with a cursory
glance. It will take some effort to master, but the
rewards in doing so are well worth it. Yet with the
expertise of these editors, I think we managed to make
the book both exciting and intriguing so that the reader
will be anticipating each new chapter after completing
the former one. The chief editor of this book has been
Ursula Godwin Niesmann of Munich, Germany.
Additional editing was conducted by MMA’s
exceptional Operations Manager, Amber Lundsten of
Farmington Hills, Michigan, my friend and astro twin
Carol McAndrews, of Birmingham, Michigan, and my
long-term editor of the annual Forecast Books, Roxana
Muise of Lacey, Washington.

Thanks also to graphics artists Tad Mann of Hudson,

NY ([email protected]) and Mark Demaagd
([email protected]) of Demaagd Designs in
Farmington Hills, MI for their combined efforts in the

31
design of the book cover.
And last but not least, I would like to give a very
special thanks to Laurel Humphries, Frank Bozzelli,
Diane Western. Laurel and Frank traveled with me to
many of these places to make sure I was healthy -
Laurel with massage and Frank with cooking. Diane
Western, who is a beautiful geek from Hewlett Packard
and one of the coolest and kindest people on the planet,
did many of the graphic illustrations that appear in this
book.

32
 TOOLS THAT YOU WILL NEED
TO UNDERSTAND THIS BOOK
AND APPLY ITS METHODS

A calculator, data vendor, and a market charting

program. Also, a good mind for numbers and to know
your temperament as a trader is invaluable. That’s it.

Any calculator that will add, subtract, divide and

multiply will do.

Any data vendor who provides daily, weekly, and

monthly high, low, and closing prices will be sufficient.
If your data vendor also provides intraday prices, such
as hourly, 30-minute, 5- and even 1-minute numbers,
that is even better. For daily, weekly and monthly
prices, this book uses MetaStock data,
(www.equis.com, owned by Reuters) and also data from
Commodity Services Incorporated (www.csidata.com)
of Boca Raton, Florida. For intraday figures, we have
used the Street Smart Program offered to clients of
Charles Schwab brokerage house (www.schwab.com).

Any charting program that will perform various

technical studies as outlined in this book will be useful.
The charts used in the book came from either
MetaStock charting services, FAR for the Galactic
Trader (www.galacticinvestor.com, or

33
www.mmacycles.com), or Street Smart by Charles
Schwab.

34
 INTRODUCTION

It’s time. It’s all about time. And “timing is everything”

in trading. Well, almost everything.

It’s been seven years since I wrote Volume 4 of “The

Ultimate Book on Stock Market Timing” series. When I
started the series in 1996, I promised five volumes. I
wrote the first four approximately every two years and
then I got busy. My business grew faster than I
anticipated. Demands for public appearances increased
markedly. The application of all my studies conducted
in Volumes 1-4 led me to spend more and more time
each year writing the annual Forecast Book, a yearly
analysis of world and national political and economic
trends, collective psychological dynamics, and financial
markets. The size of the annual Forecast Book doubled,
and the sales quadrupled during these years. The same
was true with my daily and weekly subscription
services. I ran out of time to write the final volume of
this Stock Market Timing series.

I was busy being a Capricorn. Totally immersed in my

career as a market analyst, I was independent and doing
what I enjoyed, which was researching and writing
about the correlation of geocosmic and cyclical studies
to financial markets and world affairs.

35
Yet there was something missing, something still
undone. In the back of my mind were two nagging
thoughts. The first was that I needed to complete my
promise of writing the fifth volume of the Stock Market
Timing series. After all, if a Capricorn makes a
promise, he has to fulfill it or he experiences guilt. It’s
just the way the instructions come when you are born a
Capricorn. Commitment for a Capricorn is an “all or
none” endeavor. It is why Capricorns seldom make a
commitment. But I did. I promised to write five
volumes, and I had stopped at four. And I knew it,
which meant I had a sense of being incomplete. I wasn’t
whole.

The second nagging thought was that I needed to

start training apprentices to my life’s work, students
who could carry on the basic principles of these studies
- these methods of market analysis - that I had
developed over the past 30 years. I needed to start
teaching. Otherwise, what was the real purpose of this
life? Almost as disturbing as not fulfilling a
commitment, was the idea of living a life that, in the
end, didn’t achieve a purpose - the potential - it had
defined for itself. But this later issue was very much
related to the first. I couldn’t in good conscience start
the teaching phase of my life until I finished writing the
complete set of books needed for instruction. It would
be like trying to build a house or an automobile (or
anything) without a complete set of tools. I needed to
write Volume 5 before I could confidently transition

36
into the role of mentor. I needed all my tools to be
available before I set out on the next – and perhaps last
– leg of my life purpose (well, one of my purposes in
life). And I wasn’t even sure if it was my plan not, but it
was something I started, something I promised to do,
something that had a purpose to it, and it wasn’t
complete. That made me uncomfortable because I am
not quitter or someone who doesn’t finish the job. I am
a Capricorn, a builder. It is time to finish the project and
get on with the next stage of this life.

For the past 30 years, and especially the last 15, I

have been immersed in understanding the “soul of the
stock market,” if such a thing is possible. Perhaps it
would be more precise to say I was driven by the desire
to experience the “pulse” of the stock market and by an
awareness of its interconnectedness to all of the people
on the planet that invest and trade in financial markets.
But beyond that I also experienced something even
more fascinating: the connection of both the stock
market and the people who make up this sector of
human activity with the forces of nature and the
cosmos.

The study of this correlation has never ceased to

amaze me. It provided the basis for the material
presented in the first four volumes. Through these
studies, I believe I have achieved the status of an
efficient and credible market timer. There is a rhythm to
the rise and fall of stock prices, and it correlates to the

37
rise and fall of man’s hopes for a better and more secure
future. This rhythm in the market correlates with
rhythmic cycles in human activity, which in turn
correlates with cycles in the cosmos. These are not only
valuable principles to understand, but they are essential
in one’s quest to become a competent market timer.
And as every successful trader knows, “timing is
(almost) everything” in trading. You have to buy AND
sell at the right time to make a profit.

You will notice that I stated “timing is (almost)

everything.” The word “almost” is important. One may
have a knowledge, or sense, of “when” to buy or sell,
but at “what price” do you buy and sell? Prices change
constantly during a market day. What is “too much” to
pay, or “too little” to sell, for a stock or commodity?
Where is the “support” that defines the price at which
buyers will enter the market and purchase, or sellers
will decide to no longer sell? Where is the “resistance”
that defines the price at which buyers will not purchase
any more, and sellers will come out to sell? This is the
subject of this final volume of the Stock Market Timing
series.

The first four volumes addressed the issue of “when”

to buy and sell. This fifth volume addresses the issue of
“at what price” to buy or sell in order to maximize
profit (or reduce loss). The first four volumes dealt with
the subject of market timing. This volume will focus
more upon the subject of technical analysis, chart

38
patterns, and price objectives for optimal buy and sell
points. Another way to view this is that these first four
volumes on market timing are akin to understanding
“leading indicators.” Technical analysis, on the other
hand, is more akin to understanding “coincident” and
“lagging,” or “confirming,” indicators.

This book is the last volume of this series of

instructional manuals on Stock Market Timing. For me,
it will represent the end of a phase of life, and the start
of a new one. One cycle in life is now complete, and
another begins with the publication of this book. This
book reveals the missing part of a successful trading
plan that combines “market timing” with “right price
for entry and exit,” the very edge that all traders seek in
trading financial markets. It is an invaluable way to
integrate market timing studies (like cyclical and
geocosmic analysis) with pattern recognition, trend
analysis, and technical studies. It is, after all, the final
volume in “The Ultimate Book on Stock Market
Timing.”

39
CHAPTER ONE

TREND ANALYSIS AND

MULTIPLE TIME FRAMES

You have a choice when trading. You can either go

with the flow, or go against it. In market terminology,
this means you can choose to either trade in the
direction of the trend, or against it. Most market people
will tell you that “the trend is your friend,” and you
should only trade in the direction of the trend. But there
are exceptions to this rule.

First of all, what defines a trend? Ask any ten market

analysts for a definition of the trend, and you will get
ten different answers. Secondly, there is the matter that
the sharpest price moves in the shortest amount of time
tend to occur in counter-trend moves. If you think it is a
bull market, you will soon realize that it takes a lot of
time for the market to move up in price, but a very short
time to move down. Markets move up in steps, but they
come down in elevators. It might take 15-20 weeks to
advance 100 points, but only two or three weeks to lose
50 of those points. In terms of maximizing trading time
efficiently, which is the better trade? Tying up your
money for 20 weeks to make $10,000 on the long side
of a trade, or two-three weeks to make $5000 by selling
short?

40
The answer depends greatly on your psychological
temperament, and how you approach markets. If you
are a long-term investor, then a 15-20-week time
horizon probably doesn’t matter. So what if the market
takes 15-20 weeks to move up 100 points, and then falls
50 points in the next two-three weeks? If it is a bull
market, it will go up again after that decline, so why
bother trading it? Trading takes time, attention, and
study. Not everyone has the time or discipline required
to engage in successful trading practices. On the other
hand, these types of price swings are very important to
those who have the temperament of a trader. A
professional trader’s creed is to find maximum profit
potential with minimal market exposure. To a trader,
sitting tight while the market makes sharp price swings
at regular time intervals is akin to a lost opportunity.

UNDERSTANDING MULTIPLE TIME FRAMES

Knowing the trend at any point in time is important to

successful trading. However, to a cycles’ analyst, the
“trend” depends upon which cycle you are analyzing.
The four-year cycle, for instance, may be in a bull
market (bullish trend). The trend may be up. But within
that four-year cycle may be two half-cycles of 23
months each. After the crest of the first half-cycle is
achieved, the trend of the 23-month cycle will be down
for several weeks, even months. So this is a case where
the longer-term cycle is still in an up - or bullish - trend,

41
whereas the smaller cycle within it may be down, or in
a bearish trend. So what is the correct trend? They are
both correct given certain qualifications.

The opposite can happen too. Perhaps the four-year

cycle has topped out, and is in its bearish phase down.
But that bearish decline may take several months to
complete. During that time, there may be two or three
50-week subcycles. After each 50-week subcycle is
completed, the market can rally for several weeks.
During that rally period, the market may be said to be
bullish, or in an upward trend. So what is the trend
then?

For this reason, it is important to understand the

concept of multiple time frames, or cycles within
cycles, and to correctly identify which phase of a cycle
the market is in at any given time. Not only does this
provide the investor and trader with a useful road map
for making an intelligent trading or investment plan, but
it also provides insight as to what the shorter-term,
intermediate-term, and longer-term trend is likely to be.
When all three time frames are in the same trend, one
can trade or invest with greater confidence.

Using multiple time frames as well as multiple cycles is

an essential task to successful trading and investing.
The first is important in the art of mastering technical
studies, and the second is important for mastering the
art of accurate cycles’ analysis. Together, these serve as

42
powerful tools in building a successful trading or
investing plan.

The multiple time frames for a technical analyst are

usually daily, weekly, and monthly charts. But a more
active trader will also want to apply these studies to
intraday charts too, such as a 60-, 30-, 15-, 5-, and even
1-minute, or tick charts. The idea is to choose the time
frame that is most suitable to your trading or investing
style. And then to make sure it is in alignment with the
next higher-up time frame, as well as supported by the
next lower time frame. Let’s give a couple of examples.

Let’s assume an investor is most comfortable holding a

position for about one year. His major time frame for
analysis may be a weekly chart. The next higher-up
time frame would be a monthly chart. The next lower
time frame would be a daily chart.

The first step is to analyze the monthly chart. Let’s

assume the monthly chart is bullish. The various
technical studies or chart patterns he examines point to
higher and higher prices. The majority of his studies on
a monthly chart are bullish, so he wants to be a buyer of
this particular stock or commodity. He wants to buy
when the weekly chart is also indicating the market will
go higher.

The next step is to examine the weekly chart. Again,

he examines his technical studies and chart patterns in a

43
quest to determine a favorable price to buy. When his
weekly studies have determined a level of support being
built, he is ready to buy. But to maximize his “best
entry” point, he would also be wise to wait for the daily
chart to indicate that the market is bottoming, and ready
to turn up. If the daily chart’s technical signals are still
pointing to lower prices, then it is best to wait a little
longer in order to get a potentially better price for this
long-term position.

The same principle works for short-term and

aggressive traders. Let’s assume a more aggressive
trader likes to be in a position for perhaps 1-4 days,
which seems common amongst many successful
traders. In this case, the three time frames to study
might be a daily, 30-minute, and 5-minute chart. Let’s
say this trader is looking to sell short a particular
market. He wants to wait for the 30-minute chart to top
out. For this set up to proceed smoothly, he should
determine that the daily chart is already in a bearish
mode. The daily chart indicators are pointing down.
Since he wants to sell short, he wants to make sure the
next highest time frame (the daily) supports this
position. Once it points to lower prices, he then waits
for the 30-minute studies to enter “overbought”
conditions. He is now ready to sell short. But to
maximize the potential profitability of this position, he
is advised to also wait for the 5-minute technical studies
to reach an overbought level, and then to start turning
down. Once the 5- and 30-minute studies have topped

44
out and are also pointing down (in the same direction as
a daily), he should be on board - or short - for a high
probability profitable trade of 1-4 days and maybe even
up to three weeks.

UNDERSTANDING MULTIPLE CYCLES AND

THEIR PHASES

Just as multiple time frames are important to successful

forecasting or trading by means of technical analysis
studies, so too is the ability to combine different cycle
periodicities important to the cycles’ analyst. This is
known as “cycles within cycles.”

The first rule to understand is that in the study of

financial markets, cycles are measured from trough to
trough. A trough is a clearly identifiable low in price on
a given chart. The mean length of time between these
two troughs is known as the cycle length, or periodicity.

In our use of these studies, a cycle is not static.

Cycles are dynamic. Each cycle has an orb of time
away from its “mean” length that is allowable.
Generally speaking, that “orb” is about 1/6 of the mean
cycle length. Thus if it is a six-week cycle, that does not
mean it occurs exactly every six weeks. It means it has
an allowable orb of about one week. When you apply
that orb to the mean cycle length, you get the “range” of
that cycle. Thus a 6-week cycle with an allowable orb
of one week has a range of 5-7 weeks in which the

45
cycle is likely to unfold.

In actual practice, a cycle may have an allowable orb

of slightly more or less than 1/6 its mean length. We
have “theory,” and we have historical data studies that
may support or refute the theory, or cause it to be
slightly modified. When we have a historical study to
refer to, we will use that body of knowledge over the
theory. In this book, we will try to identify the
differences between theory and historical studies as we
outline our points regarding price objectives.

When determining a mean cycle length, one should

use actual historical data whenever possible. For
instance, before I began my own historical studies for
this series on “The Ultimate Books on Stock Market
Timing,” the accepted “theory” was that the U.S. stock
market had a 4-year cycle. That is, every four years, the
U.S. stock market would make a pronounced trough,
and it was usually in the middle of a U.S.A. President’s
4-year term of office. The accepted belief was that stock
markets rose into a presidential election, and then fell to
the 4-year cycle trough in the middle of the president’s
term. The interval of time between the troughs was
thought to be about 4 years, or actually a wide range of
3-5 years. But was that conventional wisdom really the
case?

TABLE OF 4-YEAR CYCLES IN THE U.S.

STOCK MARKET

46
Cycle Number Date of Trough Number of Months
1. July 1893

2. Aug 1896 37
3. Sep 1900 49
4. Nov 1903 38
5. Nov 1907 48
6. Sep 1911 46

7. Dec 1914 39
8. Dec 1917 36
9. Aug 1921 46
10. Mar 1926 55
11. Nov 1929 44

12. July 1932 32*

13. Mar 1938 68*
14. Apr 1942 49
15. Oct 1946 54
16. Jun 1949 32*

17. Sep 1953 51

18. Oct 1957 49
19. Jun 1962 56
20. Oct 1966 52
21. May 1970 43

47
 22. Dec 1974 55
23. Mar 1978 39
24. Aug 1982 53

25. Oct 1987 62*

26. Oct 1990 36
27. Nov 1994 49
28. Sep 1998 46

29. Oct 2002 49

30. Jul 2006 45
31. Mar 2009 32*
Table 1: List of 4-year cycles (trough to trough) in the USA stock market, 1893-2009.
Column to the right indicates how many months this cycle lasted (low to low). * means it
was less than 36 months or greater than 56 months in length of time. These four-year
cycles are given in groups of the greater 18-year cycle. It is possible that the low of
March 2009 begins the current 18-year cycle group, instead of October 2002, as shown
here.

In Volume 1 of this series, sub-titled “Cycles and

Patterns in the Indexes,” this theory was tested. A list of
all 4-year cycle troughs since 1893 was given, along
with the number of months between each successive
cycle low.1 From 1893 through 2002 there were 28
instances of 4-year cycles with a range of 32-68
months. In the updated table shown on the previous
page, we now see 31 instances with the same range.
This demonstrates that the “mean” length of this cycle

48
is 50 months, with an orb of 18 months. However, when
determining a mean cycle length using historical data, it
is useful to eliminate the 20% of instances that are
extremely long or extremely short. In other words, the
correct mean cycle length will be determined best by
using only the instances that comprise the middle 80%
of the occurrences. If the two longest cycles (62 and 68
months) in this list were eliminated, as well as the three
shortest cycles (each 32 months), then the shortest and
longest of the remaining instances were 36 and 56
months. Using this revised list produced a mean cycle
length of 46 months, with a 10-month orb, based on
historical data. This is slightly different than the
“theory,” which would postulate a 4-year cycle with an
orb of 8 months.

But what about those cases that fall outside the

normal range for a mean cycle? How does one explain
that? And doesn’t that invalidate the cycle? The study
of cycles allows for these “distortions.” In fact,
historical studies validate that the vast majority of
distortions happen when a greater cycle is
simultaneously occurring. Readers may have noticed
that the most recent instance of a 4-year cycle (as of this
writing) occurred in March 2009. It did not occur within
the normal 36-56 month range when the 4-year cycle
was due. That strongly suggested an even greater cycle
was occurring than the 4-year cycle. It was at least a 6-
year cycle, and quite possibly an 18-, 36-, and 72-year
cycle as well. It will take some time to confirm those

49
longer-term cycles, though. A market cycle is seldom
confirmed until well into its first phase, or even its
second.

Generally speaking, there is a 15-20% probability of

a market’s cycle distorting. However, when a greater
cycle is also bottoming, the probability that the lesser
cycles (i.e. the phases of the greater cycle) will distort
increases to about 50%, according to the studies
presented in Volume 1. That is why another rule
applies: the longer the cycle, the more difficult it will be
to pinpoint the exact time of its top or bottom (crest or
trough). When long-term cycles come due, the shorter-
term cycles will often distort and the market behavior
will appear to be most bizarre. This is useful
information. When you see this happening, it is wise to
consider that perhaps a longer-term cycle is about to
bottom. It also supports the theory that the greatest
opportunities for profit occur when the market is most
risky. At long-term cycle bottoms, markets are more
risky, patterns are more bizarre, cycles are more
distorted, and the opportunities for profit are greatest. It
is the time when most investors and traders are selling,
because the climate is fearful. But the smart money is
buying. However, that too is just a theory, because I am
not sure how one would define “smart money.” Any
position that is making money is obviously “smart
money.” As you will see, the conventional wisdom is
made up of a number of sayings espoused by market
players. The idea of “smart money” is one. “The trend

50
is your friend,” is another. And so is, “Bull markets
climb walls of worry.” Has there even been a time when
there was not a “wall of worry” to climb? Conventional
wisdom is nice, but ultimately it comes down to correct
analysis of the present and forecasting of the future.

Figure 1: The three basic types of patterns in any cycle. The left hand charts represent

51
the patterns of bull markets and right side the patterns of bear markets. The top two
are classical “three-phase” patterns. The middle graphs depict the classical “two phase”
pattern. The bottom charts depict typical “combination” patterns. From “Merriman on
Market Cycles: The Basics.”

Let us now return to the importance of using multiple

time frames, or cycles, in the pursuit of understanding
the trend of a market, which is so very important in
successful trading and investing. Let us start with the
concept that every cycle is comprised of smaller cycles,
known as subcycles, or phases. In general, every cycle
length, or periodicity, can be divided by the number two
or three to determine the subcycles, or phases of that
greater cycle. Thus any cycle is usually comprised of
two or three phases of approximately equal length.
These are referred to respectively as the “classical two-
phase” or “three-phase” cycles. But sometimes both
types unfold within a given cycle. That is, a cycle may
be comprised of three subcycles, with each equal to
about one-third of the greater cycle length. And it may
also be comprised of two cycles, each equal to one half
of the greater cycle length. Thus it may appear to have
four phases within the greater cycle. This is known as a
“combination” cycle. You can see these three patterns
in the diagram on the preceding page.

The trend of a market depends upon which phase of

the cycle it is in. The first phase of every cycle, for
instance, is always bullish. There are some exceptions
to this rule, but in the vast majority of cases, this rule
will be true. That is, the first phase of a cycle will tend
to exhibit the three characteristics of a bullish cycle,

52
which are:

1. Each crest will be higher than the previous crest

1.
within that phase of the cycle.
2. 2. Each trough will be higher than the previous
trough within that phase of the cycle.
3. 3. The structure of this phase of the cycle will be a
“right translation,” which means it will spend more
time going up in price than coming down (see
figure below).

Figure 2: Left (bearish) and right (bullish) translation.

Likewise, the last phase of every cycle is either

bearish, or contains the steepest decline within the
whole cycle, assuming it has been a bullish cycle up
until this phase. The three characteristics of a bearish

53
cycle are:

1. Each crest will be lower than the previous crest

1.
within this phase of the cycle.
2. 2. Each trough will be lower than the previous
trough within that phase of the cycle.
3. 3. The structure of this phase of the cycle will be a
“left translation,” which means it will spend more
time going down in price than going up.

In actuality, you may not see all three characteristics

of a bull or bear market present in a given cycle. Many
cycles contain mixed signals. But the most important
factor in determining a trend is where the cycle ends
relative to where it began. In a bull market, the lowest
price will always be the beginning of the cycle. In a
bear market, the lowest price will always be at the end
of the cycle. Thus once a market takes out the low that
began the cycle, the trend is bearish, regardless of
whether it has been a right translation pattern or with
more instances of higher highs within that cycle. The
end of the cycle determines the trend above all else.
Until it takes out the price that started the cycle, it is
still bullish. But once it breaks that starting point, it
turns bearish. One must adjust his strategy quickly from
bullish to bearish once the starting price of the cycle is
violated.

Cycles

54
Let us now discuss the various cycles in stock indices,
and see how to apply this concept of using multiple
cycles for developing a trading plan. In this book, we
will refer to three types of cycles: long-term,
intermediate-term, and short-term. For our purposes, a
long-term cycle will refer to the 4-year cycle and those
that are longer than 4 years. These will include the
following cycles, many of which were discussed within
the first volume of this Stock Market Timing series:

90-year
72-year
45-year (half cycle to the 90-year)
36-year (half-cycle to the 72-year)
18-year (half-cycle to the 36-year)
9-year (half-cycle to the 18-year)
6-year (one-third subcycle within the 18-year)
4-year (may be two phases within the 6-year, or may
include two or three phases within the 9-year)

The intermediate-term stock market cycles include

all the phases of the 4-year cycle, plus the 50-week
cycle. In other words, they include:

23-month (half cycle to the 4-year cycle, or one-third

phase to a 6-year cycle)
15.33-month (one-third phase of the 4-year cycle; it
may differ depending on which phase is in force, as the
1st phase is more of a 16.5-month periodicity)

55
50-week (half the 23-month cycle; there are usually 3-5
of these 50-week cycles within a 4-year cycle, and
mostly four phases)

The short-term stock market cycles include all the

phases of the 50-week and primary cycles, as follows:

Primary cycle (17 weeks, usually two or three within

the 50-week cycle)
Half-primary (9 weeks, half-cycle to the primary)
Major cycle (6 weeks, one-third phase to the primary)
Trading cycle (2-4 weeks, two or three phases within
the major cycle)

These short-term cycles can be further broken down

into 4-9 day alpha and beta cycles, which can then be
broken down into hourly and intraday cycles, etc. The
identification of primary, half-primary, trading, alpha
and beta cycles was originated by legendary cycles’
analyst Walter Bressert (www.walterbressert.com).

Regardless of what type of investor or trader one is

(long-term, intermediate-term, or short-term), the rule
for success with the use of cycles is the same. That is, in
order to understand trend and develop a sound trading
plan, you must first learn to tie in your analysis of any
given cycle with a cycle that is immediately above it and
the one that is immediately below it, in length. In other
words, you need to understand which phase of the
greater cycle your current cycle of study is in. Then you

56
need to also understand which phase your current cycle
is in, with regards to its subcycles. The idea is to make
sure the greater cycle, the current cycle, and its current
phase, are all pointed (or about to be pointed) in the
same direction for maximum probability of profit
potential.

Let us assume we are analyzing the 18-week primary

cycle in U.S. stocks for a possible trading position
(note: the primary cycle in the Dow Jones Industrial
Average is 17 weeks, whereas in the S&P and
NASDAQ Composite indices it is 19 weeks). To do this
correctly, we need to first of all analyze where the
market is in terms of the greater 50-week cycle. Is this
the first, second, or third primary cycle phase within the
greater 50-week cycle? If it is the first primary cycle
within the greater 50-week cycle, then the appropriate
strategy will be a bullish one. The trader will be looking
to buy all corrective declines to the “phases” of the
primary cycle that are above the price that started this
primary and 50-week cycle. If it is the third (and last)
primary cycle within the greater 50-week cycle, then
the strategy will begin to shift to bearish. The trader
will be looking for signs of a top to sell into, for even in
bull markets, the rule is that the steepest decline will
happen once the crest of this final primary cycle is
completed. In the case of the second phase, it is a little
more complex, because one does not yet know whether
the 50-week cycle will consist of two or three primary
cycle phases. That is, one does not know ahead of time

57
if the 50-week cycle will be a two- or three-phase
pattern – at least not without the help of weekly
technical studies.

The next step is to analyze the phases within the

primary cycle. Here too, the first phase of the primary
cycle will almost always be bullish. One does not want
to become bearish at the start of a primary cycle, even if
it is the last primary cycle phase within the greater 50-
week cycle. If it is to be a three-phase pattern, then it is
most wise not to start looking for signs to go short until
the second phase (the second 6-week major cycle within
the greater 18-week primary cycle), and again in the
third major cycle phase. If it is to be a two-phase
primary cycle with two half-primary cycles, one may
not want to start probing the short side aggressively
until the crest of the second half-primary cycle is being
realized. Once again, the understanding of technical
studies will help determine whether it is to be a two- or
three-phase primary cycle. These studies will be
covered in great detail later on in this book.

Mastering the ability to tie in at least three types of

cycles is essential for constructing a successful trading
or investing plan via the methodology outlined in this
five volume series of “The Ultimate Book on Stock
Market Timing.” With this understanding, one will be
able to more accurately identify the underlying trend,
the time bands when the trend is most likely to reverse,
and the optimal trading strategy to employ for the most

58
consistent profits. The next steps involve determining
the most favorable price to enter or exit the trade, and
recognition of both chart patterns and the set up of
various technical studies that would support the timing
of entry for maximum risk-reward ratios.
References:

1. Merriman, Raymond A., The Ultimate Book on Stock Market Timing, Volume 1: Cycles
and patterns in the Indexes, W. Bloomfield, MI, USA, MMA, Inc, 2005.

59
60
CHAPTER TWO

INVESTORS, TRADERS, AND THEIR CHARTS

Throughout this book we will be referring to investors

and traders. The majority of studies and techniques that
will be presented in this book will be for traders,
because for them, “timing is (almost) everything.” They
need all the tools available to gain an edge in perhaps
the most difficult of all market tasks: trading.

Yet a number of readers will not be interested in

short-term trading. It does not suit their temperament or
life style. There are a number of tools associated with
these market timing studies that can be invaluable for
investors too. Therefore, let’s refine this further into
three categories of market participants, according to the
strategies involving different cycles and different time
frames for chart analysis. The reason for making this
distinction is because investors and traders will use
different technical studies and chart patterns to
determine a favorable point to enter and exit a position.

Long-Term Investor

From a cycles’ perspective, a long-term investor is

one who will create an investment strategy with the
four-year cycle as the central focus. That means the 4-
year cycle will be used in tandem with a longer-term

61
cycle, such as an 18-year cycle, a cycle that is “above”
(longer than) the time frame of the 4-year. Additionally
the investor will use the subcycles or phases that unfold
within the 4-year cycle, as the next cycle of a lower
degree. That will involve the two- or three-phase
classical breakdown of the 4-year cycle, which may
include two 23-month cycles (with a usual range of 19-
27 months), and/or three 15.33-month cycles, with a
range that varies according to whether it is the first,
second, or third phase. As outlined in Volume 1, the
mean average of each phase of a 46-month cycle would
be 15.33 months. But historical studies show that the
first phase has a mean cycle length of 16.5 months with
a normal range of 13-20 months. The last phase,
however, is shorter, with a mean cycle length of only
14.3 months, with a very wide range of 8-23 months.
Because it is the last phase of a longer-term cycle, it is
not surprising that 54% of the historical cases of this
third phase occurred outside the “normal” range of 13-
20 months that were observed in the first phase.

In my own practice, I use the 18-year cycle as the

“greater cycle” containing four or five 4-year cycle
phases. In other words, historically there are usually 4
or 5 four-year cycles within the greater 18-year cycle.
There has been at least one instance of 6 four-cycle
phases within an 18-year cycle (see Table 1). The
“lesser degree” cycles I use in tandem with the 4-year
cycle are the 2- and 3-phase subcycles within the 4-year
cycle. These are the 23-month and 15.33-month

62
subcycles discussed previously. I will also use the 50-
week cycle to help time a long-term entry or exit point.
As demonstrated in Volume 1 of this “Stock Market
Timing” series, there may be anywhere from three to
five 50-week cycle phases within a 4-year cycle. Half of
the time (50%) the 4-year cycle will contain four 50-
week cycles. The other 50% of the time it will likely
contain three or five 50-week cycle phases. Thus one
starts with the idea that a 4-year cycle will contain four
50-week cycles, but at the same time be aware that it
might contract to include only three, or expand to
include as many as five 50-week cycles. The point to
understand is that a long-term investor who is applying
these methods to enhance investment performance will
use a 4-year cycle and tie it in with at least one longer-
term cycle and one shorter-term cycle.

The long-term investor will also examine charts of at

least three different time frames. The primary time
frame to be used for analysis might be the monthly
chart. Above that, he may tie it in with the yearly or
quarterly charts. Below that, he may tie in the monthly
studies with the weekly and maybe also the daily charts.
The point is that he wants to invest in the direction of
what his monthly charts are telling him. But he wants to
make sure this conforms to the trend direction
suggested by the yearly or quarterly charts and their
technical studies. He then wants to make sure that the
weekly chart is at a point of reversal, and ready to move
into the direction of both the monthly and longer-term

63
charts.

Intermediate-Term Investor

In actual practice, quarterly and yearly charts are not

that practical for investment purposes. An investor can
do just fine by concentrating on the weekly and
monthly charts, and then maybe using the daily chart to
fine tune entry and exit points. A distinction may be
made between a “long-term investor” and
“intermediate-term investor.” An intermediate-term
investor, in this case, may use the monthly, weekly, and
daily charts for applying technical studies in the pursuit
of optimal investment entry and exit points. At the same
time, he may use the 50-week cycle as his primary
frame of reference, and tie it in with the 4-year cycle
and its phases (a level above the 50-week cycle), and
the primary cycle (one level below the 50-week cycle).
This type of investor may be most comfortable holding
a position for several months, and maybe even 1-3
years.

In terms of geocosmic studies, the long-term investor

gives greater importance to not only longer-term cycles,
but also longer-term planetary cycles that are in effect.
As demonstrated in Volume 2 of this Stock Market
Timing series, 4-year or greater cycles usually take
place when there are major aspects unfolding between
the planets Saturn, Uranus, Neptune and/or Pluto. If
there are no major aspects between any two of these

64
four planets, the probability of a 4-year or greater cycle
unfolding is relatively small.

An intermediate-term investor may also apply some of

the geocosmic studies discussed in Volume 2 of this
“Stock Market Timing” series, which is subtitled:
“Geocosmic Correlations to Investment Cycles.” That
is, he may add signatures involving Jupiter to the list of
planetary cycles to be considered when preparing to
enter or exit the market. A major aspect between Jupiter
and one of the four most distant planets in the solar
system (Saturn, Uranus, Neptune, and Pluto) is
oftentimes present when a 50-week cycle, or one of the
phases of the 4-year cycle, unfolds. In fact, it is highly
unlikely that a 50-week or greater cycle will take place
unless there is a major aspect involving one of these 5
planets, as demonstrated in Volume 2.

The basic rule in Financial Astrology, regarding the

correlation of planetary cycles to financial market
cycles, is this: the longer the planetary cycle that is in
effect, the longer the market cycle that is due to unfold.
Or, longer-term market cycles require the presence of
longer-term planetary cycles in order to culminate. As
above, so below. Or in other words, astrology is
essentially the correlation of planetary cycles to cycles
in human activity.

Position Trader, or “Trader”

65
Throughout this book, the term “position trader” will
refer to one who intends to be in a position less than one
year but usually at least two weeks. This trader will
primarily be focused upon the daily chart. But in
assessing an entry or exit point, he will tie this in with
the weekly chart (one time frame above), and quite
possibly an intraday chart (one time frame below the
daily chart), such as a 60- or 30-minute type. In reality,
it seems that most position traders are not concerned
about intraday charts. They use mostly daily and
weekly charts, and perhaps some will use monthly
charts, just as investors will.

In terms of cycles, this type of market participant would

be advised to use the primary cycle as the central point
of analysis, and combine it with both the 50-week
longer-term cycle (one level above the primary), and
the major and/or half-primary cycle phases within the
primary cycle (one level below the primary). If entering
the first primary cycle within the greater 50-week cycle,
the trader may elect to hold onto this position for
several months. If entering the final primary cycle
phase of the greater 50-week cycle, he may elect to hold
onto the position for only 2-8 weeks.

Short-Term Trader

Most professional traders are short-term or even

aggressive traders. Their basic goal is to enter a trade
that – according to their studies – has maximum profit

66
potential with minimal market exposure. Their average
duration in a trade may range from one day to three
weeks, sometimes more.

The short-term trader will use the same time frame

charts as the position trader. But he will tie in different
multiple cycles in choosing his entry and exit points.
That is, the daily chart will likely be the primary chart
for reference. Against that chart, he will integrate
studies from the weekly chart (one level above) and
perhaps a 30- or 60-minute chart (one level below the
daily). He wants to trade in the direction of the trend
indicated on the weekly chart. If the weekly chart
studies suggest rising prices, then he wants to enter the
market when the daily chart signals are bottoming and
exhibiting signals that it is ready to turn up. He will
then use the 60- or 30-minute charts to fine tune his
entry point.

In terms of cycle studies, the short-term trader may use

the 6-week major cycle as the central point of focus.
The level above the major cycle to use in this endeavor
would be the 18-week primary cycle, and the cycle to
use on the next lower level would be the 2-4 week
trading cycle, or even the 4-9 day alpha-beta cycles. If
the primary cycle is in its early stages, the short-term
trader will look to buy on any corrective decline to a
major or trading cycle trough. He may use the alpha and
beta cycles to help him make this decision.

67
In terms of Financial Astrology, the short-term trader
will pay great attention to any grouping of multiple
geocosmic signatures that unfold in a rather tight time
band. These time bands are known as “geocosmic
clusters,” and are the basis for determining a critical
reversal date, +/- 3 trading days. When a critical
reversal date unfolds in a time band when a cycle
trough or crest is due, it is a powerful leading indicator.
It is a time when the trader wants to pay great attention
to technical studies that will assist in determining the
optimal price of entry, or exit, during this critical
geocosmic and cyclical reversal time band. The precise
rules for identifying these time bands were discussed at
length in Volume 3 of this Stock Market Timing series.
But in this book, the technical tools and setups that can
support successful trading during these highly charged
critical reversal zones will be discussed at great length.
In fact, that is the major objective of this book.

Aggressive Short-Term Traders

In my daily and weekly market reports, parameters are

provided for both “position traders” and “short-term
aggressive traders.” These suggestions for aggressive
traders are for those willing to go against the trend of
the primary cycle. Or, in some cases, it will refer to
those who wish to be enter a trade for perhaps only 1-4
days on average.

An aggressive short-term trader is going to use a host of

68
intraday charts to find the right technical set up for
entry and exit. He may be most focused upon a 30- or
60-minute bar chart. The next level up to tie his analysis
in with may be the daily chart. He should always try to
trade in the direction of the daily chart, except when he
believes the daily chart is about to reverse. Because he
is willing to “bottom pick” or “pick the top” of a move
before the reversal is confirmed, he is an aggressive
short-term trader. Often he is picking the top or bottom
of a move before it has actually reversed. He
understands that the sharpest price moves in the shortest
amount of time occur when the market reverses its trend
and starts a counter-trend move. This is especially true
in bull markets when prices are making a crest. The
decline is usually sharp and vicious at the end of the
rally to the cycle’s crest. However, the decline is also
brief in comparison to how long it took to reach the
crest. That is why the most successful traders are
willing to sell short at certain points in a bull market.
Investors would (almost) never think of such an
unconventional and risky approach. But aggressive
short-term (and professional) traders know that the
greater the risk, the greater the profit potential as well.

Below the 30- or 60-minute chart, this aggressive trader

may use a 5- or even 1-minute chart to fine tune entry-
exit points, and maybe even a “tick chart,” which
records each and every trade as it is being made. This
trader studies the technical signals of these very short-
term charts, and waits until they are also ready to turn

69
against the trend of the daily chart, as well as the 30-
and/or 60-minute charts.

There are no three cycles to tie in with one another for

this type of aggressive speculator, unless one uses
intraday cycles, like 50-minute, or 3-hour cycles, which
are not within the scope of this book. However, an
aggressive short-term trader may use the fast moving
solar-lunar phases, within the field of geocosmic
studies, to help determine days when 4% or greater
reversals, lasting 1-4 days, are most likely. The Sun-
Moon combination changes every 2-3 days, and many
of these combinations have very high historical
correlations to 4% or greater price reversals in various
stock indices. These studies were reported in Volume 4
of this Stock Market Timing series, titled: “Solar-Lunar
Correlations to Short-Term Reversals.” For the
aggressive short-term trader, the studies in this book are
invaluable for knowing when to enter and exit a 1-4 day
trade that has a higher than normal probability of
success, assuming the very short-term technical studies
are set up properly. Once again, the primary purpose of
this book is to know how to identify such a compatible
technical set up.

Summary

The importance of using multiple time frames and

multiple cycles to establish a successful trading plan
cannot be underestimated. It is the most important

70
factor in determining the trend. It is only through an
understanding of where the market is in terms of its
trend that one can consistently realize profitable trades
or investments. But trend means different things to
different people. It means different things to a cycles’
analyst too. The trend to a short-term trader may be
completely opposite the trend to a long-term investor.
The key to understanding trend is to focus on a
particular time frame or cycle, and to tie it into a time
frame or cycle that is “above” that level, and also one
that is “below” that level.
The idea is to first of all determine when the “up one
level” chart or cycle is in a clearly defined trend. Then
patiently wait for the next lower time frame or cycle to
finish a contra trend move (i.e. retracement) and
indicate it is ready to begin a thrust in the direction of
the “up one level” chart or cycle. When it appears the
lesser cycle is ready to move in the direction of the
greater cycle trend, then time the entry (or exit) to
coincide with the “below one level” chart entering an
oversold (if buying) or overbought (if selling) technical
pattern. The central and “below one level” time frames
or cycles should also be in a time band when a cyclical
trough (if buying) or crest (if selling) is due, or recently
completed. It should also be in a time band when
appropriate geocosmic signatures correlating with a
reversal are present. This concept will be repeated over
and over again, for these are the steps within the
methodology of this series that make the market timing
studies work. These are the steps that provide the

71
structure in which market timing can be a very valuable
tool to the success of any investor or trader, regardless
of one’s market temperament. But as with all successful
endeavors in life, it requires work. It requires planning
and proper analysis, and the correct implementation of
these rules, plus perhaps a few of the reader’s own. But
the rewards are worth it, and it is an exciting process.

The following list represents suggested time frames and

cycles to use in this endeavor for each type of market
participant. The first time frame or cycle listed in each
group represents the next “higher level” type to use.
The middle time frame given will be highlighted in
bold. It represents the suggested primary time frame to
use for trading or investing. The last time frame given
represents the suggested “lower level” type to use to
fine tune one’s optimal entry and exit point for
maximum profit potential.

Buy and Hold Long-Term Investor (6+ years)

Cycle: 72- or 90-year, 18-year, 4-year

Charts: Yearly, monthly, weekly – concerned with
percentages.

Long Term Investor (2+ years buy and hold):

Cycle: 18-year, 4-year, 50-week

Charts: Yearly, monthly, weekly

72
Investor (1-3 year position):

Cycle: 4-year, 50-week, primary

Charts: Monthly, weekly, daily

Position Trader (2 weeks – less than one year)

Cycle: 50-week, primary, half-primary or major

Charts: Weekly, Daily, 30- or 60-minute

Short-Term Trader (3 days – 3 weeks, sometimes as

long as 6 weeks)

Cycle: Primary, major, trading

Charts: Daily, 30- or 60-minutes, 5- or 15 minutes

Aggressive Short-Term Trader (1-4 days, sometimes

longer, sometimes shorter)

Cycle: None. This speculator looks for

contra-trend moves based on technical set
ups, but may use Sun-Moon studies as a
leading indicator.
Charts: Daily and perhaps 60-minutes, 30-
minutes, 5-minute or 1-minute, and even tick
charts.

Determine which of these best fits your own

psychological temperament and life style. It is possible
to utilize more than one of these types. It is possible to

73
utilize all of these types for various purposes and at
various times. I do. But make the effort to define which
approach you are taking with each investment, with
each trade. Once that is determined, apply the suggested
time frames to that type of investment or trade for the
best and most consistent results.

74
CHAPTER THREE

SUPPORT AND RESISTANCE

The field of technical analysis can be defined as the

study of market prices. According to the website
wordnetweb.princeton.edu/perl/webwn, technical
analysis is “… the analysis of past price changes in the
hope of forecasting future price changes.” The website
en.wikipedia.org/wiki/Technical_analysis states
“Technical analysis is a security analysis discipline for
forecasting the future direction of prices through the
study of past market data…” Another website,
en.wiktionary.org/wiki/technical_analysis, defines this
study as follows: “A stock or commodity market
analysis technique which examines only market action
such as prices, trading volume and open interest.”

The one thing all definitions of technical analysis have

in common is this: it is the study of price behavior in
financial markets, with the idea of uncovering patterns
or formulas that will help determine a future price.
There are literally hundreds – maybe thousands – of
different technical studies that aid one in determining
the future course of a market’s price activity. Many of
these studies involve very complex mathematical
formulas involving open, high, low, and/or closing
prices, such as MACD (moving average

75
convergence/divergence), RSI (Relative Strength
Index), Stochastics, and other oscillators. Many involve
simple mathematical formulas, like simple moving
averages which take the closing prices of the certain
number of days, weeks, months, or even minutes, and
divide the total accumulation of those prices by the
number of time frames involved to get a “moving
average” for the current time frame. For a list of various
books, just go to Google and type in “technical analysis
for financial markets.” Scores of books on this subject
will appear. Many of these are excellent studies and
compilations.

For this book, only a few technical studies will be

discussed in detail and you will see how they may be
used effectively in timing an optimal point of entry or
exit into any market. The technical tools that will be
used herein are not necessarily the most sophisticated
ones available, or even the “best.” But they work
extremely well within the context of the market timing
methodology developed in the first four volumes. How
do I know this? Because I have been using them
successfully to analyze, forecast, and trade financial
markets for over 30 years. If they didn’t work, I
wouldn’t use them, and I would not maintain a
successful practice as a market analyst. Because if there
is one thing the market doesn’t tolerate, it is lack of
adequate performance. Nevertheless, if the reader has
other technical studies and tools that he finds valuable
in identifying potential tops or bottoms in market

76
prices, by all means use those in combination with the
market timing tools presented in this Stock Market
Timing series. For the record, my specialty is timing
tops and bottoms in financial markets by means of cycle
and geocosmic studies. That is my niche as a market
timer. That is where my reputation has been built over
many years of market analysis and trading. But I find
the use of pattern recognition studies and technical
analysis tools as excellent compliments to market
timing methodology. Without a doubt, they enhance
one’s ability to forecast accurately with consistency.
Thus they are the subject matter of this fifth and final
volume in the Stock Market Timing series.

Let us now begin our journey into the field of technical

analysis, which is the study of market prices.

INTRODUCTION TO SUPPORT AND

RESISTANCE

At any point in time, a financial market is in one of

three states. It is either in a trend run up (bullish), trend
run down (bearish), or congestion (neutral, in a trading
range). What determines a market’s current status is the
relationship of its current price to levels of support or
resistance. In a trend run up, it will keep breaking above
resistance and hold above the support zones. In a trend
run down, it will keep breaking below support zones
and stall on rallies into resistance zones. In a neutral or
congestion market, it will trade between support and

77
resistance. This rule can be applied by every type of
investor or trader, and to every cycle or time frame
being studied. Although I have not done a formal study,
my observation is that about 70% of the time, the
market is in congestion. The trend is uncertain or
unclear, especially in the shorter time frames. To be a
successful trader or investor, it is important to be patient
until all of one’s studies are setting up for a high
probability successful trade. That means that
approximately 70% of the time, there is no optimal
traded to take. One has to patiently wait until the studies
are in agreement.
Whether you are an investor, position trader, or short-
term trader, you are concerned about the price of any
financial vehicle you are about to buy or sell. Price is
important for all types of buyers and sellers. In financial
markets there are two pieces of conventional wisdom
that are oftentimes spoken: in bull markets no price is
too high to pay, and in bear markets no price is too low
to sell. In spite of these maxims, everyone strives to buy
low and sell high. However this is all relative to where
prices have been, where they are, and where they are
going to be in the future.

The study of price begins with an understanding of

support and resistance. Support represents a price in
which buyers will enter the market because they think
the asset is of value at that time. It is also a point where
sellers will no longer sell, because they feel the value is
greater than this price, and if they wait, they will get a

78
higher price. Thus it defines a low in price, a “floor” to
the price of that asset. Every time prices decline, the
asset finds “support’ in this price range. It won’t go
below this price easily. When it does go below this
price, it is referred to as “downside breakout.” What
was support is now broken, and it henceforth becomes
resistance.

Resistance represents the price where sellers will

emerge because they think the asset is becoming too
pricey, too expensive. They may sell here because they
believe they will be able to buy it back at a lower price
in the future. It is also the point at which buyers stop
buying. They too feel the cost of the asset is now too
high. They won’t pay more for it, and hence the rise in
price stops here. It represents a top in the market, a
ceiling in which prices cannot easily go any higher.
Every time the market rallies to the resistance zone, the
advance stops. When prices do exceed the resistance
zone, it is said to be an “upside breakout.” What was
resistance now becomes support.

This, then, brings up another rule in technical analysis

and market trading: once support is broken, it becomes
resistance. Once resistance is broken, it becomes
support. Sometimes a market will briefly break above
resistance and then immediately trade back below it. Or
sometimes a market will briefly trade below support,
and then quickly trade back above it. These are known
as “fake-outs.” For this reason, it is oftentimes

79
necessary to see two (or even three) consecutive daily
(or even weekly and monthly) closes above resistance
or below support before it is declared a real “breakout.’
Until then, it may be just a “fake out.” There are several
geocosmic signatures that seem to have a higher than
usual correlation to periods when fake outs are more
likely, such as during periods of Mercury retrograde, or
hard aspects between Uranus and other planets.

As an example, let’s look at a monthly chart of the

Japanese Nikkei index from 1990 through 2003, as
shown below. You will notice that the 14,000 area
defined support for over 8 years, except in one brief
instance in late 1998. Once it penetrated below 14,000
in late 2000, that level then became resistance which
turned back future rallies. You can also notice from this
chart that the Nikkei defined resistance between 20,800
and 22,750 (A-B-C). Thus we could say that the market
was neutral, or in congestion, between 14,000 and
22,750 for these eight years. Finally in late 2000, the
Nikkei commenced a “downside breakout” of the
14,000 support level. It then became resistance to future
rallies (4).

80
Figure 3: Example of support. Once it breaks, it becomes resistance. Note that the
market found support around 14,000 in mid 1992 and mid-1995 (1 and 2). It broke
below it temporarily in late 1998 (3), but then quickly rallied back to this 14,000 area. It
finally closed well below this support level in late 2000. When it rallied again in 2001,
the 14,000 area marked resistance. Support became resistance.

DETERMINING SUPPORT AND RESISTANCE

BY CHART PATTERNS

There are many ways to determine price support and

resistance. The easiest way is simply by viewing a chart
(daily, weekly, monthly, or really, any time frame), and
just noting instances of double bottoms or double tops.
In the monthly chart of the Nikkei shown in Figure 3,
the lows at 1 and 2 are an example of a double bottom.
In other words, the market makes a clearly defined low
that holds up over several days, weeks, or months. It
then goes back to test that area again, and it holds. In
this case, the Japanese Nikkei fell from an all-time high
of 38,957 in December 1989 to an initial low of 14,194
in August 1992. It then rallied for nearly two years to

81
21,753 in June 1994 before falling again back to the
14,000 area. It declined to a low of 14,295 in July 1995,
very close to the 14,194 low of three years earlier. Once
again this level held. These two lows just above 14,000,
in June 1992 and July 1995, qualify as a “double
bottom,” a chart pattern that defines a long-term support
zone. The idea is that every time prices return near this
area, one can buy with a stop-loss below there.
However, once it breaks, it will be either a “downside
breakout” or a “fake out.”

After the double bottom in July 1995, the Nikkei again

approached the low 14,000’s at the end of 1997. Again
it held, and then rallied above 17,000 in the next three
months. Once again it fell back to the 14,000 area in
August 1998. This time it closed below it. In fact, it
sold off to 12,787 into October 1998. This was a “fake
out,” because it didn’t stay below 14,000 for long. By
November 1998, it was back above, and 14,000 was
again an important support zone. The next time it broke
below 14,000, it was a true “downside breakout.” Why?
Because after breaking 14,000 in late 2000, it fell all the
way to 11,433 in March 2001. The rally that followed
then tested the 14,200-14,300 area in May 2001. That
former support area was now resistance. It could not
close above there on the monthly chart. Instead it fell
hard, falling all the way to the 7600 area in April 2003.

We can use this same chart to illustrate the

effectiveness of a double top as well. After completing

82
its first leg of the double bottom in August 1992 (1), the
Nikkei soared to a high of 21,573 in June 1994, shown
as A on the graph in Figure 3. It then declined back to
the low 14,000’s for the second leg of the double
bottom in July 1995 (2). Following that, it rallied once
again to test the 21,573 high. In fact, it went a little
higher, to 22,750 in June 1996, thus forming a double
top. This would now act as resistance to a congestion
zone defined as a range of 14,000 on the low side and
about 22,750 on the high side. The idea here is that
investors can buy as the Nikkei tests 14,000, and sell
when it approaches slightly over 20,000. You will note
that the rally into April 2000 stopped just slightly short
of 21,000, which is below this double top resistance
area.

Thus the easiest way to spot support and resistance is to

just look at a price chart for clearly identifiable lows
and highs. If the low is tested again and holds, it is a
“double bottom” chart pattern, which is an excellent
area to buy. A double bottom defines support. But once
it breaks, it becomes resistance – unless it was a “fake
out.” If a clearly defined high is tested again and holds,
it creates a “double top,” which is a bearish chart
formation. It means that prices will decline when they
approach this level, and investors and traders can be
sellers. But once it starts closing above the double top
resistance area, it usually becomes an “upside
breakout.” The range that defines the double top now
becomes support.

83
Once a double bottom support area or double top
resistance area is broken, one of two things tends to
happen. It either becomes a legitimate “breakout,” or a
“fake out.” You will usually know within the next few
days, weeks, or even months, depending on how long
the time is between these two double bottoms or double
tops. In the case of the Japanese Nikkei monthly chart
shown in Figure 3, one would know within the next 5
months. That is, the 14,000-14,500 support area of the
1992-1995 double bottoms broke twice. The first
instance (1998) was a “fake out,” because within five
months, the Nikkei closed back above 14,000-14,500. It
didn’t just re-test the former support area and turn back
down. It tested it and then started closing back above it.
That is what happens in “fake outs.” If it was a real
“breakout,” then the former support area would now
become resistance. It didn’t in the first break of the
14,000-14,500 area. But it did in the second case (late
2000). This time when it broke below, it rallied back
and retested the old 14,000-14,500 support area a
couple of months later, and this time it couldn’t close
above it. This time the former support area did act as
resistance. It was therefore a legitimate downside
breakout.

What can traders and investors learn from this example?

When you have a double bottom formation, you can
usually buy whenever that support area is tested. Once
it breaks, however, you need to reverse to bearish

84
strategies. Look for prices to rally and re-test that
former double bottom support zone again within the
next few months (or weeks, or days, depending on your
time frame of chart analysis). If it is a legitimate
breakout, it will not close significantly back above this
former support zone that has now become resistance.
The opposite is true in the case of double tops that are
broken. Those resistance zones now become support.
Within a few days, weeks, or even months after
breaking out above a double top formation, prices will
oftentimes go back and test that area again as support. If
it is a legitimate upside breakout, the test to those
former highs will hold. If it is a fake out, prices will
soon start closing well below those former double top
resistance zones.

Fortunately, double top and double bottom chart

formations are quite common. In Volume 1 of this
Stock Market Timings series, it was reported that 66.2%
of primary cycle troughs in the U.S. stock market
exhibited a double bottom formation within a time band
extending six weeks before, through three weeks after,
the correctly labeled primary bottom. In other words, if
you missed the buy signal generated from the first
bottom in a primary cycle trough formation, chances are
2:1 you have another chance to buy on a re-test of that
bottom within the next 9 weeks. The same is true with
regards to primary cycle crests. In the study discussed
in Volume 1, there was a double top formation to the
primary cycle crest in 64.7% of the instances observed.

85
These double tops, however, had a much wider range of
completion. They could unfold in a range extending
from 10 weeks before to ten weeks after the correctly
labeled primary cycle crest. In most cases, the range
was six weeks before through six weeks after.

There is another fortunate feature of these studies

related to “breakouts” that comes from the study of
Geocosmic principles, or Financial Astrology. It is my
observation that the support zones of double bottoms
and resistance zones of double tops are more apt to be
broken when a transit involving Uranus is taking place.
That is, if prices are testing support or resistance at a
time when Uranus turns retrograde, direct, or forms a
major aspect with another planet, be careful. These are
times when breakouts of support and resistance are
more likely. Uranus has a dynamic of not behaving
according to conventional rules. It is a rule-breaker. In
markets, this means that support and resistance zones
are oftentimes violated, or broken through.

Further Thoughts

The field of technical analysis uses only prices in its

analysis. Many traders and analysts use only technical
analysis in their trading and market analysis, which
means they are constantly studying the mathematics
derived from various price combinations. Since there
are so many successful technical analysts, there is
obviously something to be said about the credibility of

86
this form of analysis.

But just as important as price (and more important,

really, in my view) is time. This is the forte upon which
market timing is founded. Markets go up and down.
They reverse at consistent intervals of time, known as
cycles. And sometimes – oftentimes – these cyclical
turns are synchronistic with a confluence of geocosmic
signatures, which is the basis for Financial Astrology,
or Geocosmic studies. One who primarily uses Cycle or
Geocosmic studies as the basis for their market analysis
is known as a market timer. Unlike technical analysis,
there are not so many market analysts who are market
timers, which is odd.

Time and price are both important in successful trading.

To use one without the other would be like using a
partial set of tools to build a house. You can do it, but
you could do a better job with all the tools at your
disposal. Or, to an astrologer, it would be akin to doing
an astrological analysis with only an entity’s birth data
(date and time) but not location of birth. Just as a
complete astrological analysis is based upon both the
factors of time and space, so is the most accurate
market forecasting based upon the factors of both time
and price. You may have quite a bit of success using
one without the other, but the integration of each – and
even the use of other tools like fundamental analysis,
pattern recognition, and trend analysis - leads to even
more accuracy and success as a market analyst, trader,

87
or investor. The purpose of this book (Volume 5) is to
now bring price analysis – technical studies – into our
set of market timing tools (Volumes 1-4), in order to
create the most optimal methodology for successful
market analysis. Although each may be used
successfully as a stand-alone system, the fact is that
each enhances the other in a synergistic way. It is as if 1
+ 1 = 3. Market analysis using both fields of study
(technical analysis and market timing) has an
exponential effect on results.

88
CHAPTER FOUR

PRICE TARGETS FOR LONG-TERM INVESTORS

Long-term investors are oftentimes referred to as “buy

and hold” types. They buy a stock, commodity, bond, or
some form of financial asset with the purpose of
holding it for a very long time. The belief is that this
purchase is indeed an investment that will appreciate
over time. For them, owning stocks or bonds, or even
Gold and Silver, is like owning a house. Although
everyone likes a bargain when they purchase and a
profit when they sell, the long-term investor isn’t
necessarily obsessed with buying at the absolute low or
selling at the absolute high, with the sole objective of
attaining the maximum profit. It is enough to buy when
the financial climate suggests that this asset will
appreciate smartly over a period of many years. It is
enough to sell when the financial climate suggests that
this asset will no longer appreciate smartly over the
next several years. Therefore the rules for determining a
favorable price to enter or exit are not as complicated or
complex as in the case of traders. In theory, the general
principle is that the longer the term of expected
ownership, the simpler the rules for price determination
regarding entry and exit. Or, the shorter the expected
term of ownership of a financial asset, the more
complex and detailed the rules become for establishing

89
a favorable price in which to buy and sell.

For a long-term investor, there are basically three

factors used in determining a favorable price to enter
and exit a financial asset, such as a stock. They are:

1. 1.Identify the time frame in which a long-term

cycle is due to bottom or peak.
2. 2. Identify long-term support or resistance by
observation of double bottoms or double tops that
extend over a long period of time, when this time
band is entered.
3. 3. Identify historical percentages of gains and losses
in cycles lasting 4 years or greater.

When the value of a stock or asset has appreciated or

depreciated percentage-wise within the historical norm,
or has exhibited a double bottom or top during the
normal time band for that cycle’s high or low, it is time
to buy or sell. That is all the long-term investor needs to
know.

Since the other books in this series established rules

for the timing of a cycle trough or crest, and the
previous chapter covered double bottoms and tops, this
chapter will focus on understanding the historical range
of percentage declines and gains pertinent to long-term
cycles. In particular, this chapter for long-term investors
will examine the 4- and 18-year cycles and especially

90
the range for historical percentages of increase and
decrease. After all, long-term investors think in terms of
percentages, not in terms of complex mathematical
formulas to identify exact support and resistance, as
traders require.

THE 72- AND 90-YEAR CYCLES

There are not many investors who are going to purchase

a stock or commodity with the intent to hold it for the
crest of the 72- or 90-year cycle. Yet it is important to
understand the historical percentage gains and losses
that occur with these cycles because they represent the
next important level up from the 18-year cycle for
purposes of applying these percentages. As discussed in
the previous chapters, it is always important to tie any
cycle to a greater cycle above it and to a cycle below it,
in order to understand the status of a trend (i.e. “phase”
of a cycle). Thus here too one is advised to use the
concept of multiple time bands or multiple cycles when
figuring out when to buy, and in what price range to
make the purchase or sale.

Calculating the historical percentage of gain in a cycle

this long is “off the charts.” By this, I mean two things.
First, there really is no limit as to how high a stock or
stock index will go from the start (bottom) to the top of
a 72- or 90-year cycle. A bullish trend that long will
have a hard time being confined to a reasonably narrow
percentage gain. For example, at the 72- and 90-year

91
cycle convergence on July 8, 1932, the price of the Dow
Jones Industrial Average was at 40.56. As this is being
written the all-time high of the DJIA, reached on
October 11, 2007, was at 14,279.96 (theoretical) or
14,198.10 (actual). Since all of the figures we used in
previous volumes were expressed in theoretical prices
(i.e. the price of the DJIA when each of the stocks that
comprised it formed their highs of that day), we will use
the 14,279.96 high. In that case, the market appreciated
nearly 3500%! It would be useless to advise someone to
purchase a stock or index at a 72- or 90-year cycle
bottom with the pronouncement to hold it until it
appreciated 3500%.

Secondly, there are only three or four cases of a 72- or

90-year cycle in the history of the U.S. and British stock
markets. These are not enough cases to even consider a
valid historical norm and not enough cases to consider
either cycle as even existing. But since we do have
many more cases of cycles with a multiple of 18 years,
it is probable that one or both of these longer-term
cycles are indeed valid, given a range of a few years
(i.e. our rule is that most cycles may have an orb of
approximately one-sixth their mean cycle length, hence
a 90-year cycle might have an allowable orb of up to 15
years and a 72-year cycle an orb of up to 12 years).

In the possible case of the 90-year cycle, we can

observe its presence in 1762, 1842, and 1932. These
few instances cover a range of 80-90 years. In the case

92
of a 72-year cycle, we note the historical lows of 1784,
1857, 1932, and possibly 2009. These instances have a
range of 73-77 years so far. In all cases since 1857, the
72-year cycle has also exhibited a two-phase pattern of
36-year half cycles (1857, 1896, 1932, 1974 and
possibly 2009), with an orb of six years either side of
the mean due date.

Figure 4: Long-term chart of the British and USA stock prices, since the late 1600’s, in
logarithmic form, from the Foundation for the Study of Cycles, and as printed in
Volumes 1 and 2 of the Stock Market Timing Series.

Although it is of little use to project the percentage of

gains from the trough to the crest of the 72- and/or 90-
year cycles, it can be very useful to know the
percentage of declines in these cases. In the case of the
long-term cycle troughs in 1842 and 1932, the

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percentage of decline from the preceding crests of the
same cycle type was approximately 80 and 90%
respectively. In looking at major declines in various
commodities like Silver and Crude Oil, we could make
a case that very long-term cycles usually witness a
decline in the range of 77-93% from their previous all-
time highs. This can be a general point to keep in mind
when it seems apparent that the stock market is going to
fall into such a long-term cycle low.

However, the more outstanding rule to apply is this:

if a market has been bullish and it is entering the phase
of the cycle where its long-term cycle trough is coming
due, then the decline into that trough will be the largest
percentage decline of the entire cycle. That is, if one
were to examine all the phases of that long-term cycle,
it would be noted that the largest decline (percentage-
wise) took place in the last phase. As an example, one
can study all the longer-term cycles within the 72-year
cycle that started in 1932. The 36-year subcycle
bottomed in 1974. It represented a decline of 46.6% in
the DJIA. Its second and final 36-year phase would be
due 30-42 years later, in 2004-2016. According to the
rule just given, the decline from the crest of this second
36-year cycle to its trough (which will coincide with the
72-year cycle trough) will be more than 46.6%. As of
March 2009, that has already proven to be correct, as
the DJIA fell 54.4% from its high of October 2007.

So how does a long-term investor use this

94
information? It is really quite simple. If the 18-year
cycle is to coincide with the 72- or 90-year cycle, the
investor would patiently wait until the DJIA declined
more than 46.6% from its all-time high before
considering a long-term investment. Ideally this
investor would like to see the decline be as great as 77-
93%. But at 46.6% or more, he is starting to get
interested in a long-term buying strategy.

The investor might do one of two things here. First,

he might start to invest as the market declines to the
50% level. Why? Because in every case in history (that
we can find), once the U.S. stock market has declined
50% from a prior crest, it always returns to that 50%
mark within 5 years and usually much sooner. In nearly
all cases, it will soar well above that 50% point and
even appreciate another 50% beyond that. In actuality,
this percent of decline may be slightly less than 50%
(say 48%) and the ensuing rally may be slightly less
than 50% above this mark (say 48% again), but more
study is required to verify this observation.

For a recent example (as of this writing), consider the

all-time high of 14,198 in the DJIA, recorded on
October 11, 2007. The market would have realized a
50% loss at the 7099 mark. Let’s assume an investor
bought then, on the premise that once the market has
lost 50%, it will soon afterwards rebound back to that
point and even appreciate another 50%. In hindsight, we
can now see that the market hit 7099 on February 27,

95
2009. It eventually bottomed a few days later at
6469.95 on March 6. By April 26, 2010, it was up to
11,258, an appreciation of 58.5% above that 50% mark
of 7099. It has rallied even further by the end of 2010,
and above 12,000 by early 2011.

To find another example of the market dropping at

least 50%, one would have to go back to 1937-1938.
From a high of 195.60 in March 1937, the DJIA
dropped to 97.5 one year later, in March 1938. The 50%
point would have been 97.8. By November 1938, just 8
months later, the DJIA was up to 158.90. From the 50%
down mark of 97.8, this was an appreciation of 62.5%
in just 8 months.

The time before that was a little more challenging. It

corresponded with the start of the Great Depression,
and the crest and trough of the previous 72- and 90-year
cycle. In September 1929, the U.S. stock market,
represented by the Dow Jones Industrial Average,
reached a record high of 386.10. The 50% loss mark
would thus be half of that, or 193.05. In November
1929, just two months after the crest, it fell to 195.40, a
decline of 49.4%. Five months later, in April 1930, it
was back up to 297.30, an appreciation of 52%. But
then it fell much more than 50% (which would have
been 148.65) as it plunged to its 72- and 90-year cycle
lows of 40.60 in July 1932. It took 2-1/2 years to get to
the 148.65 area again. It eventually rallied to 195.60,
which was only 31.5% above the 50% mark of this

96
instance. It took nearly 5 years – to the highs in March
1937 – before it made it back to the 50% mark from the
high of September 1929, which would have been
193.05. But it did make it back - and then proceeded to
fall 50% from that mark into March 1938, as described
above.

Prior to that, we would have to go back to the end of

the 19th century to see a 50% loss in the DJIA. The
point is, it doesn’t happen too often. Perhaps it is a
phenomenon that happens only when 72- and/or 90-
year cycle troughs are in process. But when the set up
does occur, a long-term investor can start to buy once
the stock market has lost 50% of its value at the high
with a fair degree of confidence that the market will
bounce back to that level and probably another 50%
above that level, within a few months afterwards,
according to this brief history. The exception might be
in the final plunge down to the extreme low of the 72-
and/or 90-year cycle bottom. But even then, it tends to
make it back within five years.

THE 18-YEAR CYCLE

The longer-term 72- and/or 90-year cycles are too long

for constructing a historical norm for price appreciation
from cycle trough to crest. However, the 18-year cycle
is more practical for this purpose. On the top of the next
page is a listing of these cycles in the U.S. stock market
since 1797. This is an update of the table presented in

97
Volume One of this series on “The Ultimate Book on
Stock Market Timing.” The reader is encouraged to go
back to that book and review the patterns and filtered
wave graphs of this cycle.

Let’s review the three factors for determining a

favorable price to enter and exit the stock market for a
long-term investor. They are: 1) identify the time frame
in which a long-term cycle is due to bottom or peak, 2)
identify long-term support or resistance by observation
of double bottoms or double tops that extend over a
long period of time, once this time band is entered, and
3) identify historical percentages of gains and losses in
4 year or greater cycles.

We will focus on points 1 and 3 here, for in the case

of an 18-year cycle, prices will oftentimes fall well
below a previously defined double bottom and rise well
above a previously defined double top. Those chart
patterns will be more valuable when we deal with the 4-
year cycles.

In regards to the first point, one will note that all

twelve of the 18 year cycles have a range of 13-21
years. There is a possibility that the last one, as of this
writing, expanded to 22 years, although the
probabilities are just as high that it fell on time in
October 2002, the 15th year. The other possibility is that
the expanded version of this cycle is still unfolding as
of summer 2010 and it was not completed in March

98
2009.

Next, one is directed to note the number of years

from the start of the 18-year cycle to its crest. The time
band of the rally extends from a minimum of 6 years to
a maximum of 20. If you omit the two longest and
shortest durations of the rally, you will note a “normal”
range of 9-19 years. Thus, in terms of timing long-term
entry and exit strategies, the following can be deduced:
Long-term investors can look to purchase stocks for the
long-term every 13-21 years when the 18-year cycle
trough comes due. Long-term investors can look to hold
those positions for 9-19 years afterwards, when this
cycle is due to make its crest. It should be pointed out
that this is not necessarily in conformity to basic cycle
rules, as discussed in Volume 1. But long-term
investors are not interested in these rules, which apply
primarily to shorter-term traders or intermediate-term
investors. They are interested in actual results. What is
the range of a normal rate of return one can expect by
investing in the stock market near its 18-year cycle
trough? How long will that take? What is the normal
percentage of decline from a high into the 18-year cycle
low, at which point an investor should prepare to enter
the market?

TABLE OF 18-YEAR CYCLES

Cycle Yrs Yrs
Trough Crest Trough Low* High* Low* % Up* %Dn*
# Up Dn
1. 1797 1806 1813 9 7 3.0 8.0 4.0 166.7% 50.0%
2. 1813 1824 1829 11 5 4.0 15.0 10.5 275.0% 30.0%

99
 3. 1829 1835 1842 6 7 10.5 25.0 5.0 138.1% 80.0%
4. 1842 1852 1857 10 5 5.0 22.0 8.0 340.0% 63.6%
5. 1857 1873 1877 16 4 8.0 36.0 22.5 350.0% 37.5%
6. 1877 1889 1896 12 7 22.5 50.0 27.0 122.2% 46.0%
7. 1896 1906 1914 10 8 27.0 102.0 52.0 277.7% 49.0%
8. 1914 1929 1932 15 3 52.0 386.1 40.6 642.5% 89.5%
9. 7/32 1/53 9/53 20 1 40.6 295.10 254.00 626.8% 13.9%
10. 9/53 1/73 12/74 19 2 254.00 1067.20 570.00 320.1% 46.6%
11. 12/74 8/87 10/87 12 1 570.00 2746.70 1616.20 381.9% 41.2%
12. 10/87 1/00 10/02 12 3 1616.20 11,908.50 7181.50 636.8% 39.7%**
12A 10/87 10/07 3/09 20 2 1616.20 14,279.96 6440.08 883.5% 54.9%

Table 2: List of 18-year cycles in U.S. stock market, showing number of years between
trough and crest, then number of years between crest and trough and percentage of
each move. * Means that up until 1932, all prices quoted here are approximations.
Staring with cycle #9, prices and percentages are exact. ** Means 12 or 12A could be
the correct 18-year cycle trough as of this writing. Prices are theoretical, not actual,
which would be slightly less than shown above.

Now let’s consider the third point by examining the

historical percentage norms of price declines and
appreciation for this cycle. The next to last column
shows the percent of the up move from the 18-year
cycle trough to crest. Here one will observe that the
price appreciation has historically been in a range of
122-883%. If the last case is omitted – which assumed
the last 18-year cycle expanded to March 2009 instead
of forming on time in October 2002 – it will be seen
that the range for appreciation has always been within
122-642%. And since 1896, it has always been 277-
642%. In fact, in most instances, the DJIA has
appreciated 275-382%. The times that it exceeded
382% have coincided with the first or last 18-year cycle
phase of the greater 72- and/or 90-year cycles.
Normally there will be four or five 18-year cycle phases

100
within the 72- and/or 90 year cycles, so only in about
half of those cases (first and last phase of the 72- and/or
90-year cycles) should one be prepared for rallies
exceeding 382%.

From this study, we can add another rule: Once an

18-year cycle has bottomed, one can expect an
appreciation in stock prices of at least 122%, and more
likely 275-382%, in the next 9-19 years.

If, for instance, the last 18-year cycle trough as of

this writing occurred in October 2002 at 7181.50, then
the crest of the new 18-year cycle would be expected to
attain at least 15,942.90 (122% increase) in 9-19 years,
or 2011-2021. A “normal” appreciation of 275-382%
would give an upside price target of 26,930-34,615
during this same period.

But something happened along the way, which needs

to be discussed within the context of cycles’ theory. The
stock market fell to a lower low before attaining this
upside target. This means one of three things: either the
correct starting point of the 18-year cycle is the lower
low attained on March 6-9, 2009 at 6440.10, or that 18-
year cycle low is still unfolding as of this writing (and
expanding), or this is a newer 18-year cycle trough
following the low of October 2002, and it will not
follow the historical norm. That is, this current 18-year
cycle may be bearish and not due to bottom until 2015-
2023. Its crest is already in (at 14,280 on October 11,

101
2007, theoretical value), and it will be the shortest and
the weakest in history so far. The crest was only five
years in the making (October 2002 to October 2007),
and its appreciation was only 98.8%. If this later
possibility is valid, then this will be the shortest and
weakest rally in the history of the 18-year cycle to date.

In the case that this is a newer 18-year cycle that

started on March 6-9, 2009 at 6440.10, the long-term
investor could apply these rules of probability investing
as follows: the stock market (as measured by the Dow
Jones Industrial Average) would likely top out in 9-19
years (2019-2029) at a level equating to a 275-382%
appreciation of that low, or 24,150 – 31,041, with a
possibility of going much higher.

In the case that the 18-year cycle bottomed in

October 2002, the market has already broken below the
low of its starting point. That means the crest is already
in, for one of the basic rules of cycles is this: once a
market takes out the low that started its cycle, it will be
bearish and not realize its lowest price until the cycle
ends. There are some historical exceptions to this rule,
but they are rare and far between. A rally above the
14,280 high of October 11, 2007 would negate this, but
more than likely it would affirm that the 18-year cycle
expanded by one year to bottom in March 2009. Until
that happens, a labeling of an 18-year cycle low in
October 2002 means 1) the high is in as of October
2007, and 2) the market has not yet seen its bottom and

102
won’t until before prices fall below 6440 in the DJIA,
perhaps not until 2015-2023 when the next 18-year
cycle trough would be due as measured from October
2002.

More important than determining the crest is to identify

the bottom of the 18-year cycle. The first step to
building a long-term portfolio of stocks is to make the
purchase. Therefore one must look at the history of
those cycle lows. From Table 2, it is already known that
the historical time band for most 18-year cycle troughs
is 13-21 years with a possibility of expanding slightly.
One can also observe that historically the time of
decline for the crest to trough of the 18-year cycle
ranges from 1 to 8 years so far (in a database going
back over 200+ years).

The last column in Table 2 shows the history of the

percentages of those declines from crest to trough. Note
that these declines have been as benign as 13.9% in
1953 to as much as 89.5% in the stock market crash
coinciding with the Great Depression, from its high in
September 1929 to its low in July 1932. If we take those
two extreme cases out, we will see the range narrow to
30-80%. We already know from the early discussion on
the longer-term 72- and/or 90-year cycles, that the
decline is usually 77-93% when they come due. If we
omit those extreme longer-term cycle lows of 1842 and
1932 plus the 13.9% of 1953, we get a “normal” range
of decline of 30.0-63.3%. Even if we omit the 30% case

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that took place in 1829, we get an even more narrow
and probable range for declines of 37.5-63.3%. As an
analyst who continually observes the manifestation of
Fibonacci ratios in financial market prices, I believe this
is a useful range to apply when expecting a decline into
an 18-year cycle trough that does not coincide with a
greater 72- or 90-year cycle trough. That is, Mr.
Fibonacci would expect declines of 38.2-61.8%. In
comparison, the history of the 18-year cycle points to
evidence of declines from 37.5-63.3%. That is close
enough for Dr. Fibonacci’s students to feel proud of his
mathematical discovery.

Thus we can construct a guide for long-term investors

using the 18-year cycle for entering and exiting the U.S.
stock market and probably many other world stock
markets.

1. Identify a time band for the 18-year cycle trough.

1.
It will usually be 13-21 years after the previous
one and mostly only 15-21 years. It is possible to
expand as much as 26 years, although so far there
have been no confirmed historical cases in which
this has occurred.
2. 2. When entering this time band, prepare to buy
stocks if the price has fallen 37.5-62.5% from the
high (cycle crest) of at least one year before. If it is
to coincide with a longer-term 72- or 90-year
cycle, then the decline may be more, perhaps 77-
93% as noted in cases of long-term cycle troughs

104
 in other financial markets. It will be the steepest
decline since the longer-term cycle began, more
than any of the other 18-years within the longer-
term cycle.
3. 3. If at any time the stock market falls 50% from a
prior crest, the long-term investor can look to buy
with the expectation that prices will soon thereafter
return to that 50% level and appreciate even
another 50% or more beyond it. The exception
may be when the 18-year is coinciding with either
72- and/or 90-year cycle.
4. 4. Once the 18-year cycle has bottomed, the long-
term investor may buy, and stay in that position for
at least 6 years and probably 9-19 years.
5. 5. The market will likely appreciate at least 122%
from that low in the next 9-19 years and usually
more like 275-382%, with a possibility of
exceeding even 600% if it is the first or last 18-
year cycle phase to the greater 72- and/or 90-year
cycles.
6. 6. Once that time frame is entered and the price
range of appreciation is realized, the investor needs
to think about exiting, or hedging, and waiting for
the market to decline over the next 1-8 years. The
amplitude of the decline is likely to be 37.5-63.3%
from those highs, at which time the investor may
then plan to re-enter. If an even longer-term 72-
and/or 90-year cycle trough is also due, then the
decline may exceed 63.5%. It tends to plunge 77-
93% from the prior all-time high.

105
 TABLE OF 4-YEAR CYCLES
Cycle Mo Mo
Trough Crest Trough Low* High* Low* % Up* %Dn*
# Up Dn
1. 7/1893 9/1895 8/1896 26 11 44.0 63.0 27.0 43.2 57.1%

2. 8/1896 4/1899 9/1900 32 17 27.0 78.0 52.5 188.9% 32.7%

3. 9/1900 6/1901 11/1903 9 29 52.5 79.0 42.5 50.5% 46.2%
4. 11/1903 1/1906 11/1907 26 22 42.5 102.0 53.0 140.0% 48.0%
5. 11/1907 9/1909 9/1911 22 24 53.0 101.5 72.0 91.5% 29.1%
6. 9/1911 9/1912 12/1914 12 27 72.0 93.0 52.0 29.2% 44.1%

7. 12/1914 11/1916 12/1917 23 13 52.0 115.0 66.0 121.2% 42.6%

8. 12/1917 10/1919 8/1921 22 22 66.0 125.0 64.0 89.4% 48.8%
9. 8/1921 2/1926 3/1926 54 1 64.0 175.0 145.0 173.4% 17.1%
10. 3/1926 8/1929 11/1929 41 3 145.0 386.1 195.0 166.3% 49.5%
11. 11/1929 4/1930 7/1932 5 27 195.4 297.3 40.6 52.1% 86.3%

12. 7/1932 3/1937 3/1938 56 12 40.6 195.6 97.5 381.8% 50.2%

13. 3/1938 11/1938 4/1942 8 41 97.5 158.9 92.7 63.0% 41.7%
14. 4/1942 5/1946 10/1946 49 5 92.7 213.4 160.5 130.2% 24.8%
15. 10/1946 6/1948 6/1949 20 12 160.5 194.5 160.6 21.2% 17.4%
16. 6/1949 1/1953 9/1953 43 8 160.6 295.1 254.4 83.7% 13.8%

17. 9/1953 4/1956 10/1957 31 18 254.4 524.4 416.2 106.1% 20.6%

18. 10/1957 11/1961 6/1962 49 7 416.2 741.3 524.6 78.1% 29.2%
19. 6/1962 2/1966 10/1966 44 8 524.6 1001.1 735.7 90.8% 26.5%
20. 10/1966 12/1968 5/1970 26 17 735.7 994.7 627.5 35.2% 36.9%
21. 5/1970 1/1973 12/1974 32 23 627.5 1067.2 570.0 70.1% 46.6%

22. 12/1974 9/1976 3/1978 21 18 570.0 1026.3 736.8 80.1% 28.2%

23. 3/1978 4/1981 8/1982 37 16 736.8 1031.0 770.0 39.9% 33.9%
24. 8/1982 8/1987 10/1987 60 2 770.0 2746.7 1616.2 256.7% 41.1%

25. 10/1987 7/1990 10/1990 33 3 1616.2 3024.3 2344.3 87.1% 22.5%

26A 10/1990 1/1994 4/1994 39 3 2344.3 4002.8 3520.5 70.7% 12.0%
26B 10/1990 1/1994 11/1994 39 10 2344.3 4002.8 3612.1 70.7% 9.8%
27A 4/1994 7/1998 9/1998 51 2 3520.5 9412.6 7379.7 167.4% 21.6%

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 27B 11/1994 7/1998 9/1998 44 2 3612.1 9412.6 7379.7 160.6% 21.6%
28. 9/1998 1/2000 10/2002 16 33 7379.7 11,908.5 7181.5 53.2% 39.7%

29A 10/2002 5/2006 7/2006 43 2 7181.5 11,709.1 10,658.3 63.0% 8.9%

29B 10/2002 10/2007 3/2009 60 17 7181.5 14,280.0 6440.1 98.8% 54.9%
30A 7/2006 10/2007 3/2009 15 17 10,658.3 14,280.0 6440.1 34.0% 54.9%
30B 3/2009 ???? ???? 26??? ?? 6440.1 ???? ???? ???? ???
Table 3: List of the dates of each 4-year cycle trough and its crest since 1893. It also
shows the number of months the market rose from the beginning trough to the crest,
and the number of months it declined into its next trough. It gives the low price at the
beginning of the cycle (trough), the crest, and the end of the cycle (trough), and the
percentage of each move up and down. The asterisks (*) above indicate that all prices
prior to the 1929 crest are estimated. The grouping (between paragraph spaces) is based
on 18-year cycles. Each group contains the 4-year cycles within each 18-year cycle. It is
possible that the last grouping ended in March 2009, not October 2002, and contains 29
(A or B) and/or 30A. 30B is unfolding as this is being written and could be the start of a
new 18-year grouping if the 18-year cycle ended March 2009. Prices of the DJIA are
theoretical, not actual, which would be slightly lower.
THE 4-YEAR CYCLE

Within the 18-year cycle are either two half-cycles

lasting 7-11 years each (also known as a 9-year cycle)
or three 6-year cycles, which have an historical range of
5-8 years each. The first is known as a “two-phase
cycle” and the second a “three-phase cycle.” Sometimes
both patterns are present in the same cycle. That is,
there may be cases of 18-year cycles containing three
troughs at the 5-8 year intervals, as well as a steeper
decline than the first two at the 7-11 year interval. In
these cases, it is referred to as a “combination cycle.”
These three patterns are present in all cycles in almost
all cases. If I had to make a guess, I would say one of
these three patterns occur in over 95% of all cycles
throughout the modern history of financial markets.

Within most 6-year cycles, and almost all 9-year cycles,

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are two 4-year cycle phases. Sometimes a 6-year cycle
will be exactly the same as the 4-year cycle, especially
when the 6-year cycle is on the short side, say less than
6 years, and/or the 4-year cycle has expanded well
beyond 4 years, as might be the case in 29B shown in
the Table 3 of 4-year cycles on the previous page. It is
the 4-year cycle that is important to a long-term
investor, for here too one can find consistency not only
in the length of time between trough to trough, trough
to crest, and crest to trough, but also consistency in
percentages of price appreciation and depreciation into
the lows and highs respectively. With minimum time
and price targets, one can make astutely calculated
investment decisions, which is the objective of the long-
term investor.

The 4-year cycle is also valuable to the long-term

investor who would use the 18-year cycle as his core
cycle for investing. If the concept of using at least three
cycle periods (“tying in multiple cycles”) is applied to
the long-term investor, he may find it most useful to
adopt the 72- and/or 90-year cycle as the higher level
cycle, and the 4-year cycle as the lower one, with the
18-year cycle used as the core. This is the combination
of multiple cycles to be advised in this book for the
long-term investor. Since the 72- or 90-year cycle is not
the immediate cycle above the 18-year cycle, nor is the
4-year cycle the immediate one below the 18-year
cycle, it will require a modification of the rule given
before. It requires an understanding that there can be

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other patterns within the 18-, 72-, and 90-year cycles
beside the “two-phase,” three-phase,” and
“combination” types. And even with this modification,
it will still be very valuable to also use the two and
three-phase intervals of each of these longer-term
cycles for optimal understanding of where one is in
each cycle, and hence which strategy to employ. For
instance, one should still be cognizant of the 36-year
half-cycle to the 72-year cycle, or the 45-year half-cycle
to the 90-year cycle, when considering the cycles above
the 18-year. Likewise one should also be aware of the
6- and 9-year subcycles within the 18-year cycle when
considering the cycles immediately below it. Thus, in a
sense, we are suggesting that most of the attention for
long-term investing be directed at the 18-year cycle,
with the higher cycle to be used as two levels above it
(72- and/or 90-year) and the lower one to be used as
two levels below it (the 4-year cycle) This is a variation
of the normal cycle patterns based on the division of a
cycle by the numbers 2 or 3, or both.

Table 3 on the prior page gives a list of all 30 of the 4-

year cycles recorded since 1893 in the Dow Jones
Industrial Average. The first point to note is that all of
these cycles have lasted 32-68 months. An exception
may be 29B (October 2002-March 2009), which may
have lasted 77 months if it is valid. If all cycles other
than 29B were used, then, the mean length would be 50
months. But in the study of cycles, we don’t use all
cycles to obtain the mean length. We use the middle

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80+% of cases. Those that fall out of this 80% range are
considered “distortions,” which are given special
significance as discussed in great detail in Volume 1 of
this series, as well as the primer titled “Merriman on
Market Cycles: The Basics.” Since Table 3 identifies 30
instances of 4-year cycles, we will want to reduce it to
at least the middle 24 cases to obtain the 80% “normal”
range for this cycle’s occurrence. That is done by
omitting the 2 or 3 longest and shortest samples from
our list (review Table 1 earlier in this book).

By adding the columns titled “months up” to “months

down” in Table 3, one derives the length of each cycle
(or go back to Table 1). One will note that there are
three cases of only 32 months (#11, 15, and 30A).
These are the shortest on record. The two longest shown
here would be instances #12 and 24, which were 68 and
62 months respectively (again, if we omit 29B, which
for purposes of this discussion we will assume is not to
be included). The other 25 cases of the 4-year cycles
unfolded at the 36-56 month interval. Thus the
“normal” mean length would be 46 months with an orb
of 10 months. Or, it could be said that in 83.3% cases of
the 4-year cycle, the range was 36-56 months. Any 4-
year cycle falling outside of this range will be referred
to as a “distortion.” If it occurs prior to 36 months, it is
a distortion referred as a “contraction” of the cycle. If it
occurs later than 56 months, it is a distortion known as
an “expansion.” You will notice that in the five cases of
“distortion” shown in Table 3, four had exceptionally

110
large price appreciations or declines, far more than the
norm. The two longest ones, for instance (the
“expanded” 4-year cycles) had the two largest price
appreciations of all 4-year cycles. The 1932-1937
instance saw the DJIA appreciate 381.8% from low to
high. The 1982-1987 instance, 50 years later, witnessed
a price increase of 256.7% from trough to crest.
Additionally, these two cases contained the longest
periods of growth in the bull market phase of the 4-year
cycle. In the former case, the market did not reach its
crest until 56 months after the cycle began. In the later
case, it took 60 months from the start of the cycle to its
crest. The same would be true if case 29B is a valid
“expanded’ 4-year cycle. It too topped out in the 60th
month.

So how can Table 3 be of use to a long-term

investor? Let’s start with a study of the length of time it
takes the 4-year cycle to reach its crest, followed by an
understanding of what type of increase the stock market
tends to make during this period. From the column
titled “Months Up,” one can see a range of 5-60 months
in which the DJIA rallied from the trough that started
the 4-year cycle to its crest. That is, the shortest period
for the bullish phase of a 4-year cycle has been 5
months (November 1929 through April 1930). The
longest bull market within this cycle lasted 60 months
(August 1982 through August 1987 and possibly
October 2002-October 2007). Once again, we can omit
the shortest and longest cycles until we get the middle

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80% cases. The shortest rallies lasted 5-9 months. The
longest ones lasted 54-60 months. If we eliminate those
from the study, we will see that in 80% of the cases, the
4-year cycle rallied 12-51 months. In other words, it
could be said that in 90% of instances (27 out of 30
times), the DJIA stock index rallied for at least one year
after it completed its 4-year cycle trough. In fact, there
have been no cases since 1938 where this has not been
the case, as of this writing. In most cases, the duration
of the bull market phase will last considerably more
than one year. In 80% of the instances shown here (24
of 30), the stock market appreciated at least 20 months.
In over half of the cases (16), the rally lasted at least 30
months.

Thus we come to our first rule for long-term

investors. Once the 4-year cycle bottoms, the ensuing
rally will last at least one year (90% probability and
usually at least 20 months (80% probability).

The next matter of importance to the investor is the

amount of appreciation that one can expect from an
investment nearby to the 4-year cycle trough. If he is to
hold the position for at least 20 months, what is the
normal range that the price will appreciate? For this, we
look to column titled “% Up.” Here one will note that
the stock market has appreciated anywhere from a low
of 21.2% (October 1946 to June 1948) to a high of
381.8% (July 1932 through March 1937). If we omit the
three lowest percentage increases, we will see that in

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90% of these cases, the stock market appreciated at
least 35%. Furthermore, there are only six cases where
it did not appreciate at least 50%.

Thus we come to the second rule for long-term

investors in regards to the 4-year cycle. Once the 4-year
cycle bottoms, the stock market will rally at least 35%
(90% probability), and usually at least 50% (historical
rate of frequency for this is 80% probability).

The next step involves determining where, and at

what price, to actually enter the market based on the
four-year cycle. It has already been established that the
normal interval between 4-year cycle troughs is 36-56
months. Once the stock market enters this time band,
the investor begins looking for opportunities to buy.
There are two columns in Table 2 that would appear to
be helpful in this task. The first is titled “Months
Down,” or the time it took for the market to decline
from its 4-year cycle crest to trough. The second would
be the last column, titled “% Down.” Unfortunately, the
column titled “Months Down” will not be of much use,
for the time bands of the bearish phase of the 4-year
cycle have varied greatly, from as short as 1-3 months
(in 7 instances, with five occurring only since 1987,
thus making it a relatively more recent phenomenon), to
over 2 years (there have been 6 instances in which the
decline lasted 24-41 months). That would leave 17
instances in which the bear market lasted 5-23 months.
It can also be observed that in 19 of these 30 cases

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(63.3%), the market declines 7-24 months. Perhaps that
is the norm for the decline within the 4-year cycle, but it
is not frequent enough to be of reliability for the long-
term investor. It would be better for him to simply
outline the 36-56 month time band from the start of the
cycle, to identify the period of time in which the next
bottom is due. Then apply the historical range of
“percentage of decline” from the crest within that time
frame in order to ascertain a favorable price in which to
enter the market.

In the last column titled “% Down,” it will be

observed that the range of decline from crest to trough
in four-year cycles has had a range of 8.9% to 86.3%.
Upon closer inspection, one will note that in the two
cases in which the decline was less than 12%, there is a
possibility they were part of an ongoing cycle low in
which the decline was more than 12%. If we remove
these cases, we will see that the next three lowest
percentage declines were 12-17.1%. There was another
at 17.4%. After that, it jumps to 20.6%. Thus we can
say that the bearish phase of the 4-year cycle will find
stock prices declining at least 20% off its crest. The rate
of frequency for this 20+% decline has been 86.7%.
Likewise, if we remove the most extreme decline – the
86.3% loss from April 1930 - July 1932 (#11) – we
would discover that in 25 of the 30 historical cases, the
bearish phase of the 4-year cycle declined 20.6-57.1%.
Or, said another way, the mean percentage of a decline
into the 4-year cycle trough is nearly 40%. It is 38.85%

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+/- about 18%. This is about right, for one will note that
in 14 cases (about half), the decline has been at least
39.7%.

Thus we come to the third rule for long-term

investors. Once the stock market enters the 36th month
of its 4-year cycle (and even the 32nd month to be more
certain) and the stock market has fallen at least 20%,
investors can begin to look for opportunities to buy. The
exception to this rule would be when the 18-year cycle
is also due. In those cases, the decline is apt to be at
least 39.7%, as has been the case in at least six of the
prior seven instances. The actual low for the 4-year
cycle will usually be longer than 36 months (but not
usually longer than 56 months), and the actual
percentage of decline may be considerably more than
20% (the mean is 38.85%). But the long-term investor
is not so concerned with getting in at the exact bottom
(although that would be nice) in terms of time and
price. He is simply concerned about recognizing when
prices are in the area of a long-term low (i.e. good
value) and thus represent a favorable investment
probability over the long-term. These studies
demonstrate that this type of environment usually
comes around every 3-5 years, after a decline of at least
20%. And from that actual bottom, prices will usually
appreciate at least 50% over the next 20 months.

These three rules are simple enough to be of immense

use to an investor. In fact, they may be all that is

115
required for those who prefer simplicity. Yet they can
be refined to produce even greater probabilities of
success. Let’s now return to the concept of tying in
multiple cycles in order to increase the probability for
success.

We begin by once more asserting that the long-term

investor will use the 18-year cycle as his “core cycle”
for analysis and investment decisions. Although there is
not enough history to validate this tenet, it appears that
there are either four or five 18-cycle phases within the
greater 72- or 90-year cycles. That has been the case
since 1762, but in all, there are only three historical
cases to draw from. In all 3 cases so far, the highest
price of the longer-term 72- or 90-year cycles has been
attained in at least the fourth 18-year cycle phase. In the
two 90-year cycles (1762-1842 and 1842-1932) the
crest occurred in the fifth 18-year cycle phase. In the
three probable cases of the 72-year cycle (1784-1857,
1857-1932, 1932-2009), the crest has also been attained
in the fourth 18-year cycle phase (twice the 72-year
cycle has had four phases and once five). In looking at
Table 2, it will be noted that as of this writing there
have probably been four 18-year cycles completed so
far since the 1932 low, as of this writing, if we assume
the last was completed in March 2009. If there is yet to
be a 90-year cycle, then it will contain five 18-year
cycle phases.

Based on this idea that the 72- or 90-year cycles will

116
usually not top out before the fourth 18-year cycle
phase within them, the long-term investor will want to
consider two things: 1) hold onto stocks until the fourth
18-year cycle phase of these longer-term cycles, and 2)
plan to add onto positions at each of the first three 18-
year cycle troughs within the 72- or 90-year cycles. As
one can observe from Table 2, the last 18-year cycle
phase of these longer-term cycles tend to decline 63.6-
89.5% from crest to trough. But in the 18-year cycles
before the fourth phase of either of these longer-term
cycles, the decline from crest to trough is less, usually
only 30-50%. In one instance, it was only 13.9%, but
this is clearly a case of price distortion – it is not the
norm.

The 4-year cycle can now be used to refine one’s entry

and exit. As evidenced in Table 3, the 18-year cycle has
been comprised of as few as three 4-year cycle phases
or as many as five, since 1893. In fact, it is more often
comprised of five 4-year cycle phases. The 1974-1987
instance was the only one that contained just three 4-
year cycle phases. All instances prior to 1974 contained
five 4-year cycles. And the one since 1987 may have
contained 4, if it ended in 2002 or 5 if it ended in 2009.

Perhaps the most important point that may be derived

for the long-term investor from these studies is that the
crest of the 18-year cycle is not achieved before the
third 4-year cycle phase, according to Table 3. It is
possible that the only time in history it was achieved

117
before the third phase was in 1835. That would have
been the second 4-year cycle phase of that shortened
13-year interval which qualified as the 18-year cycle.
But in all cases since 1893, and probably all but one
since 1797, the crest of the 18-year cycle has unfolded
in the third (or later) 4-year cycle phase. In fact, with
the exception of the 1974-1987 instance (in which there
were only three 4-year cycles), the 18-year cycle crest
has unfolded in the 4th or 5th phase. The 1896-1914
cycle produced a double top in the third and fourth 4-
year cycle phases.

This information is valuable for the long-term investor

because it means that 4-year cycles can be used to time
additional purchases for the long-term. In other words,
as long as it is not the fourth or fifth 4-year cycle phase
within the 18-year cycle, the long-term investors can
buy at the lows of the 18-year cycle and the first two or
three 4-year subcycles within it. It is only after entering
the third 4-year cycle phase that the long-term investor
may consider exiting from long-term stock holdings.
And although there may be substantial declines along
the way, they will not take out the low that started the
18-year cycle, unless the longer-term 72- or 90-year
cycles are unfolding. In fact, it is rarely the case that a
4-year cycle trough will take out its starting point unless
it is the last phase of the 18-year cycle. That has only
happened once since 1921 (it happened in 1970). In
these cases, the stock market may decline 20-50% from
the crest of their 4-year cycles, but 1) they do not take

118
out the low that started the 18-year cycle, and 2) these
are additional buying opportunities for the long-term.

Summary

Putting it altogether then, the following represents an

investment plan for long-term “buy and hold” investors,
using the concept of cycles as postulated here.

1. 1.Identify the time band for an 18-year cycle

trough.
2. 2. When the market has declined at least 37.5%
from its crest prior to this time band, prepare to
buy. Usually this decline will be 40-50%.
However, it will be more than 50% if it is the last
18-year cycle within the greater 72- or 90-year
cycles. In that case, the decline may be as much as
77-93%.
3. 3. Plan to stay in this position for 9-19 years, or at
least until the third 4-year cycle phase within the
18-year cycle.
4. 4. Plan for the market to have appreciated at least
122% from the start of the 18-year cycle and more
likely 250-400%. This appreciation should not be
completed before at least the third 4-year cycle
phase. In cases where it is the first or last 18-year
cycle within the greater 72- or 90-year cycle, the
appreciation may exceed 600%. These will
generally be realized after the third 18-year cycle
phase of the longer-term cycles (i.e. fourth or fifth

119
 phases).
5. 5. Additional long-term purchases may be made at
the end of the first and second 4-year cycle phases
within the 18-year cycle and oftentimes at the end
of the third one too. In each case, the decline from
the 4-year cycle crest will likely be at least 20%
(usually 20-50%) and occur 36-56 months after the
prior 4-year cycle trough. If it is the 5th (and
sometimes even the 4th) four-year cycle within the
greater 18-year cycle, then the decline is likely to
exceed 40%.
6. 6. It may be anticipated that in the rally to the crest
of the new 4-year cycle, 1) the stock market will
not take out the low that started the 18-year cycle,
and 2) it will likely appreciate at least 50% over
the next 20 months (80% historical frequency).
The market has appreciated at least 35% for at
least 12 months in 90% of the historical cases
studied. The appreciation is usually more like 50-
200%, and the duration of the rally is usually more
than two years.
7. 7. After nine years have elapsed since the start of
the 18-year cycle, and after appreciation of over
122% (and preferably over 250%) in the value of
the stock index (DJIA) has been attained, and after
the market has entered the third 4-year cycle phase
of the 18-year cycle, the investor may begin to take
profits. His horizon for investing may now shrink
to study only the 4-year cycle. That is, he can still
buy the lows of the third and fourth 4-year cycle

120
 bottoms, but his position may only last 12-30
months, and the market may only appreciate about
50% from these lows. In fact, if the market is
entering the time band for an 18-year cycle trough,
the duration of the rally may be less than 20
months.
8. 8. The price appreciation in the fourth or fifth 4-
year cycle phase of the 18-year cycle may be
extremely powerful (70-250%) or very anemic
(only 20-50%). It may not make a new cycle high,
or it may explode, and then be followed by a
severe collapse.

TECHNICAL ANALYSIS

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“Sometimes it is very difficult to ignore the news
headlines and go about one’s business in a routine
fashion. Of course that is what a technician should
ideally always do… One of the cornerstones in
technical analysis is that price reflects all that is known,
anticipated, and discounted by all market participants
in exactly the right proportions on each and every day.”

- Chief Market Technician at a major world bank

(whose compliance department would not grant
use of his name for this quote).

122
123
CHAPTER FIVE

PRICE OBJECTIVES:
BASIC METHODS OF CALCULATIONS

There are many methods used by traders, which are

different from those used by long-term investors, to
calculate a price objective for a stock, index,
commodity, or financial asset. In this chapter, we begin
with the simplest methods based on chart patterns. They
are easy to see on a chart. Most “price objectives,” as
well as technical studies, are the result of mathematical
calculations involving past prices, especially previous
or historic highs, lows, and in some cases, closing
prices.

We will start with basic price objective theories.

These involve calculations used to project a “normal”
price range for a cycle trough or crest for trading
purposes. These calculations yield different results than
the percentages of appreciation and depreciation used
by investors. Then we will progress into the more
complex methods of determining support, resistance,
and narrower price objective zones. Just as it was
important to use three types of charts or cycles to
determine the underlying trend and the optimal strategy
to utilize for successful trading or investing, it is also
important to use more than one means for determining
price support and resistance. When multiple studies

124
yield price targets that overlap with one another, the
probability of defining a solid support or resistance area
- buy and sell points - becomes stronger. Then the
challenge is to wait until prices fall or rise into this
price range within the time bands identified for a
market reversal. This is the art of integrating time and
price factors for trading purposes.

To understand the basic price objective via the

methods outlined in these books, one needs to know
two things: 1) is it a bull or bear trend, and 2) what
cycle or cycle phase will be used to calculate a price
target? In a bull trend, we want to buy all corrective
declines at the end of the “phases” of that cycle. We
may also want to take profits when we reach a price
target zone for the crest of that cycle. In bear markets,
we want to sell all corrective rallies to the crest of those
phases of the greater cycle. We may also want to take
profits on shorts, or even reverse to the long side when
we reach a price target for a cycle trough, especially if it
is in within the time band for that cycle trough.

We will start this study by identifying the price of a

correction within a trend.

50% “Normal” Corrections:

When a market is in a bull or bear trend, it will make

“retracements” or “corrections” to that trend. Those
corrections within the trend are usually around 50% of

125
the previous thrust in the direction of the trend. Many
technical analysts like to use Fibonacci retracement
ratios to determine the price “range” of a retracement.
Fibonacci (named after the Italian mathematician) is a
sequence of numbers as follows: 0, 1, 1, 2, 3, 5, 8, 13,
21, 34, 55, 89, 144, etc. Each number in this sequence
is the sum of the two preceding numbers and the
sequence continues infinitely. One of the remarkable
characteristics of this numerical sequence, according to
www.investopedia.com, is that “… each number is
approximately 1.618 times greater than the preceding
number. This common relationship between every
number in the series is the foundation of the common
ratios used in retracement studies.” The most common
Fibonacci retracement percentages are 38.2, 50, and
61.8%. Others may include 23.6 and 76.4%.

To illustrate this concept, let us assume a stock is in a

bull market. The first leg up has advanced from 10 to
20, or 10 points. The 50% retracement theory would
suggest this stock would now give back about 50% of
its gain, or about 5 points. A correction back to around
15 would be a “normal” price retracement.

Now let us assume we wanted to calculate a “normal”

price range for this retracement. It would be 38.2-61.8%
of the 10-point gain, or 3.82-6.18 points. If we
subtracted this amount from the high of 20, we would
get a “normal” price correction back to 13.82-16.18,
which is “around” the 50% target of 15.

126
 In the same way, one can calculate a retracement in a
bear market. Assume the market topped out at 20, and
then declined all the way back to 10. It lost 10 points
before it found support. Assuming the trend is down, or
bearish, a “normal” corrective retracement (rally) would
take prices back up to 50% of its loss, or 5 points, to
15/share. Again, applying the “normal” Fibonacci
ratios, the “normal” price target for this retracement
would be 13.82-16.18.

Figure 5: An illustration of a “normal” correction in a bull market

Bull Market “Normal” Corrective Declines

In bull markets, each crest of the same cycle type is

higher than the previous one. Each low of the same
cycle type is higher than the previous trough too. In

127
other words, there are usually higher highs, and higher
lows of the same cycle type, in typical bull markets.
The decline to the phases within this cycle will tend to
be 50% of the swings up within that cycle, with a range
of 38.2-61.8% - assuming it is a three-phase pattern. A
prototype of this market behavior is shown in Figure 5.
The market goes up 50 points, and then has a corrective
decline of 25 points, +/- 11.8% of the 50-point move, or
+/- 2.95. Since the fundamental idea is to trade in the
direction of the trend – and it is determined that the
market is in a bull trend - traders will buy these
corrective declines at the troughs of the sub cycles (or
phases) within the greater cycle, in these price ranges.

The mathematical formula for determining a “normal”

price corrective decline in a bull market is as follows:
add the price that starts the cycle to the price that marks
the crest of this phase of the cycle. Divide it by 2. This
gives the 50% price target for the corrective decline.

To determine the “normal range” for this sub cycle

trough, take the crest minus the trough that began the
cycle, and multiple by .118. You will note that .118 +
50% (.50) = .618, or 61.8%. You will also note that
50% - .118 (or 11.8%) = .382, or 38.2%. These two
normal limits define the Fibonacci levels of support in a
corrective decline to a bull market.

Let us illustrate this calculation by referring to Figure 5.

In this figure, the cycle started at point A, at a price of

128
100. It achieved the crest of its first phase at point B,
which was 150. How far might it decline in a normal
retracement? The formula is:
(A + B)/2 = 50% retracement, or, in this example, (100
+ 150)/2 = 125.

What is the “range” for the expected corrective decline?

The formula is:
(B-A) x .118, or, in this example, (150-100) x .118, or
50 x .118 = 5.90. We now add and subtract this to the
50% mark, which was 125. Therefore the range for the
expected decline is 125 +/- 5.90, or 119.10-130.90.

Now let us apply this technique to a real example.

Figure 6 depicts a daily chart of the Dow Jones
Industrial Average. Specifically it identifies two 50-
week cycle troughs. The first trough (1) occurs on July
18, 2006, at 10,683.30. It is not only a 50-week cycle
trough, but it is also a 4-year cycle trough. Thus, it
starts the first 50-week cycle within the new 4-year
cycle. We know it will be a bullish cycle because it is
the first phase of a longer-term cycle, and almost all
first phases of cycles are bullish. Indeed this one is. It
rallied to a high of 12,795 on February 20, 2007. It then
commenced a decline of the entire rally. The calculation
for this corrective decline of the 50-week cycle is:
10,683.30 + 12,795.00 = 23,478.30.
23,478.30 ÷ 2 = 11,739.15

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Figure 6: DJIA daily chart, showing the primary move up from the 50-week cycle
trough on July 18, 2006 (1) through the crest of that cycle on February 20, 2007, and
then the corrective decline to the 50-week and primary cycle trough (PB, 2)) of March
14, 2007.

The 50% retracement point is therefore 11,739.15.

Now we want to find the orb, or range, for this price

target. To do that, take 12,795 – 10,683.30 = 2117.70.
This is the amount of the price move from low to high.
Now multiply it by .118 (2117.70 x .118 = 249.18).
This is the orb from the 50% price target that constitutes
the range for the corrective price decline. The price
target is thus 11,739.15 +/- 249.18, or, 11,489.97-
11,988.73.

As you will note from the chart in Figure 6, the actual

130
50-week cycle trough was 11,939.60, which is within
the “normal” range of a corrective price decline for the
50-week cycle trough in a bullish market.
Bear Market “Normal” Corrective Retracements
(Rallies)
In bear markets, each crest of the same cycle type is
lower than the previous one. Each trough of the same
cycle type is also lower than the previous trough. In
other words, there are usually lower highs and lower
lows of the same cycle type in typical bear markets. The
rallies to the crests of the phases within this cycle will
tend to be 50% of the swings down within that cycle,
with a range of 38.2-61.8% - assuming it is a three-
phase pattern. A prototype of this market behavior is
shown below in Figure 7.

Figure 7: An illustration of a “normal” corrective rally in a bear market

In this example, the market declines 100 points (550-

131
450), and then has a corrective rally of 50 points, +/-
11.8% of the 100-point move. Since the fundamental
idea is to trade within the direction of the trend, and it is
determined that the market is in a bear trend, investors
or traders want to sell these corrective rallies to the
crests of the sub cycles (or phases) within the greater
cycle.

The mathematical formula for determining a “normal”

price corrective rally in a bear market is as follows: add
the price that starts the cycle (A) to the price that marks
the trough of this phase of the cycle (B). Divide it by 2
to get the 50% price target.

To determine the “normal range” for this sub cycle

crest, take the crest that began the cycle (A) minus the
trough that ended the cycle (B), and multiple by .118.
You will then add and subtract this “orb” to the 50%
level, and that will give you the “range” of the projected
correction.

Let us illustrate this calculation by referring to Figure 7.

In this figure, the crest of the cycle started at point A, at
a price of about 550. It then declined to the trough that
ended its first phase at B, which was about 450. How
far might it rally in a normal retracement to the crest of
the next phase in a bear market? The formula is:

(A + B) ÷ 2 = 50% retracement, or in this example,

(550 + 450) ÷ 2 = 500.

132
 What is the “range” for the expected corrective rally?
The formula is:
(A-B) x .118, or, in this example, (550-450) x .118, or
100 x .118 = 11.80. We now add and subtract this to the
50% mark, which was 500. That is, the range for the
expected decline is 500 +/- 11.80, or 488.20-511.80.

Figure 8: DJIA daily chart, showing the primary move down from the crest of the 50-
week (and even greater) cycle on October 11, 2007 (A) to the 50-week cycle trough of
January 22, 2008 (B), and then its corrective rally to the crest of the next 50-week cycle
at C on May 19, 2008.

Now let us apply this technique to a real example.

Figure 8 depicts a daily chart of the Dow Jones
Industrial Average following its all-time high of
14,198.10 on October 11, 2007. This began a new bear

133
market that would last 17 months. The first wave down
ended with the 50-week cycle trough of 11,634.60 on
January 22, 2008. For those who study Financial
Astrology, this was the week that the 248-year Pluto
cycle entered Capricorn.

The move down from the prior 50-week cycle crest to

the 50-week cycle trough would represent the first step
of the calculation for the projected crest of the next 50-
week cycle. According to the formula given above, we
add A + B and then divide by 2, in order to get the 50%
level. Thus, (14,198.10 + 11,634.60) ÷ 2 = 12,916.35.
That is the midpoint of the price objective target for the
50-week cycle crest, and represents a 50% corrective
rally of the prior move down.

Now the range to this price target is determined by the

formula (A-B) x .118. In this case, it is (14,198.10-
11,634.60) x .118, or 2563.50 x .118 = 302.50. Thus
our price target for the crest of the 50-week cycle in this
bear market would be 12,916.35 +/- 302.50. The range
would therefore be 12,613.85-13,218.85. As one can
see in the chart, the actual crest occurred on May 19,
2008, at 13.136.70. It was indeed in the “normal” price
range for a corrective rally of the same cycle type (50-
week cycle crest).

Price Targets for Crests in Bull Markets (MCP)

Calculating the 50% retracements, and their 38.2-61.8%

134
Fibonacci ranges, is relatively easy. It is important to
know this because it keeps one’s mind focused on the
trend. In bull markets, one wants to know where to buy
any declines, and this formula is both simple and
effective. The idea is to “buy low.” In bear markets, one
wants to know when to get out of holdings, or to
establish new short positions in the direction of the bear
trend. The idea is to “sell high.” Once again, this
formula of calculating “normal” corrective declines and
rallies is a simple and effective means to establish
where to sell in a bear market, and thus stay in a
position that is headed in the direction of the trend.

What about identifying the price target for a crest in a

bull market, or a trough in a bear market? There is a
standard calculation for this as well that is relatively
simple. It is known as the Mid-Cycle Pause (MCP)
price projection. According to the HAL Bluebook by
Walter Bressert and Jimmy Jones,1 credit for the MCP
calculation goes to William Jiler in his book, How
Charts Can Help You in the Stock Market.

To calculate the MCP price objective of a crest in a bull

market, the market must first complete a phase within
the cycle. That is, it must have a cycle trough from
which to begin, followed by the crest of the phase of
that cycle, followed by a decline to the trough of that
phase. The rally to the crest of the next phase will then
be approximately equal to the rally in the first phase.
The swing up in both phases is approximately the same.

135
This concept is illustrated in Figure 9. Here you see the
first move up from the cycle low to the crest of the first
phase as A-B. It is about 200 points from a price of 600
to 800. It then makes a normal corrective decline of 100
points to C (down to 700). If we add the amount of the
move up (B-A, or 200 points) to C, we then get the
MCP price target for the crest of the next cycle phase at
D, or 900.

The mathematical formula that makes this computation

very simple is: (B+C) – A = D, where B is the crest of
the first cycle phase, C is the trough that ends the first
cycle phase, and A is the trough that begins the cycle. D
then becomes the projected crest of the second cycle
phase. In this case, that would be (800+700) – 600 =
900.

To find the allowable orb for this MCP price objective

crest, we take the distance between D and A (the crest
of the second phase, minus the trough that started the
cycle), and multiply it by .118. We then add and
subtract this from the MCP to get the Fibonacci range
for the projected price of this crest. In our example of
Figure 9, the MCP price target for the crest of the
second cycle phase at D would be calculated as follows:

(D-A) x .118, or (900-600) x .118 = 35.40. This is the

orb. We could say the MCP price target for D is 900 +/-
35.40. The range for the crest of this price target would

136
thus be 864.60 – 935.40.

Figure 9: A diagram showing the form of a projected crest in a bull market. The cycle
begins at A. It makes the crest of its first phase at B. It makes a corrective decline to the
trough of its first phase at C. The projected crest of the next phase is shown at D.

Now, let’s use a real example. Figure 10 on the

following page is a daily chart of the Japanese Nikkei
stock index from June 2006 through April 2007. On
June 14, 2006, the Nikkei made a primary cycle trough
at 14,045.50, designated on the chart as ‘A.’ It then
rallied to a primary cycle crest at B, on October 24,
2006, at a price of 16,901.50. The rally advanced the
index 2856 points (B-A). It then declined to its primary
cycle trough at 15,615.60 (C) on November 27, which
was within a normal price target for a corrective decline
in a bull market of 15,473.50 +/- 337. That is, by adding
the primary cycle trough that started the cycle

137
(14,045.50) to the primary cycle crest that followed
(16,901.50), you get a sum of 30,947. Divide that by 2
and the 50% correction for the next primary cycle
trough would be 15,473.50. The orb of allowance
would then be (15,473.50 – 14,045.50) x .236 = 337.

Our next task is to calculate the price range for the crest
of the next primary cycle, or D. This formula is as
follows: (B + C) – A = D, or (16,901.50 + 15,615.60) -
14,045.50 = 18,471.60.

The orb of this price target is then calculated: (D-A) x

.118, or, 18,471.60-14.045.50) x .118 = 522.28. Thus
we can say that the price objective for the crest of the
next primary cycle (D) would be 18,471.60 +/- 522.28.
The range for this price target would be 17,949.32 –
18,993.88. As shown on the chart in Figure 10, the
actual crest occurred at 18,300.40 on February 26,
2007. That was easily within the MCP price target
range just calculated.

138
Figure 10: Example of the MCP predicting the price target of the crest at D.

Price Targets for Troughs in a Bear Market (MCP)

To calculate the MCP (Mid-Cycle Pause) price

objective of a trough in a bear market, you need a cycle
crest from which to begin, followed by the trough of
that same cycle. You then need to see the completion of
the corrective rally to the crest of the next phase of that
cycle. The decline to the trough that ends the next cycle
phase will be approximately equal to the decline
witnessed in the prior phase. That is, the decline from
the crest of the first cycle phase can be subtracted from
the crest of the next cycle phase, in order to project the
price target for the trough of the next cycle phase in a
bear market. The swing down in both phases is
approximately the same.

139
This concept is illustrated in Figure 11. Here you see
the first move down from the cycle crest to the trough
of the first phase as A-B. It is a decline of 60 points,
from 350 down to 290. It then makes a normal
corrective rally to C of 30 points, up to 320. We
determine the amount of the move down (A-B, or 60
points) and subtract it from C, and get the MCP price
target for the trough of the next cycle phase at D, which
is 260.

A mathematical formula similar to that used in the

bullish market trend can make the computation very
simple. It would be: (B+C) – A = D, where B is the
trough of the first cycle phase, C is the crest of the next
cycle phase, and A is the crest of the first cycle phase.
D then becomes the projected trough of the second
cycle phase. In this case, that would be (290+320) –
350 =260.

140
Figure 11: A diagram showing the form of a projected trough in a bear market. The
cycle crest for this calculation begins at A. It makes the trough of its first phase at B. It
makes a corrective rally to the crest of its next phase at C. The projected trough of the
next phase is shown at D. The move from C-D is about the same as from A-B.

To find the allowable orb for this MCP price objective

crest, we take the distance between A and D (the crest
of the first phase, minus the trough of the second phase
of the cycle), and multiply it by .118. We then add and
subtract this from the MCP to get the Fibonacci range
for the projected price target of this crest. In our
example of Figure 11, the MCP price target for the crest
of the second cycle phase at D would be calculated as
follows: (350-260) x .118 = 10.62. Therefore the MCP
price target for this cycle trough is 260 +/- 10.62, or
249.38 – 270.62.

Now let us observe this in a real example. Figure 12,

shown on the next page, is another daily chart of the

141
Japanese Nikkei stock index. In this chart, A represents
the primary cycle crest at 10,767.00 on August 31,
2009. The market then declined to its second major
cycle trough at B, on October 6, 2009, at 9628.67. It
then rallied to the crest of the third major cycle phase at
C, on October 27, 2009, at a price of 10,397.70. The
decline to the third major cycle trough (which was also
the primary cycle trough), is shown at D.

To calculate the MCP price objective of the trough at

D, apply the formula given previously as: (B + C) – A =
D. In this case, that is (9628.67 + 10,397.70) –
10,767.00 = 9259.37. To get the accepted orb of this
MCP price target, we then take (A-D) x .118, or (10,767
– 9259.37) x .118 = 177.90. The MCP price target for
this major (and primary) cycle trough is therefore
9259.37 +/- 177.90, or 9081.47 – 9437.27. The actual
low, as shown in Figure 12, was 9076.41, which is very
close to the lower end of this Fibonacci projected price
range. It is not unusual to slightly overshoot a price
target as a primary cycle trough (or crest) is forming. In
fact, this leads to the understanding that multiple price
targets are often necessary in forecasting any move in a
financial market. It also enhances the understanding that
all the technical tools available are simply good
guidelines in helping one determine when to buy or to
sell a financial vehicle. The market seldom stops
exactly where a mathematical calculation says it should
stop. If it did, everyone would be profitable all the time.
Unfortunately, a silver platter of unlimited profits is

142
never a given when you compete against the brightest
minds in the world every day. You have to earn your
rewards in the markets, just as you do with any
endeavor in life and mastering the studies of market
timing and price projections are important keys for
those who trade or invest in financial markets.

Figure 12: The Japanese Nikkei Index, illustrating an example of the MCP price target
for a trough in a move down from primary cycle crest to primary cycle trough in late
2009.
References:

1. Bressert, Walter, and Jones, James. THE HAL BLUE BOOK, HALCO, 1981.

143
144
CHAPTER SIX

PRICE OBJECTIVES
MORE ADVANCED METHODS

The basic methods of calculating price objectives as

given in the last chapter are very useful, especially with
corrective retracements. However, they are only a few
of the many mathematical formulas that are used to
establish price targets. In real life trading, the basic
methods given in the last chapter probably will
accurately forecast price targets in less than half the
cases one will encounter. They are most effective when
markets attain these price objectives in time bands when
cycle troughs or crests are due, or when technical
studies indicate an overbought (high) or oversold (low)
condition. To attain the price objectives by these
methods before the “time” is right, usually means that
the market move is going to exceed the basic price
objective range. It is then that other methods of
determining possible price targets for cycle highs and
lows are required. To understand these new
calculations, one must first identify various chart
patterns, and what price targets would apply to each.

Corrective Declines That Exceed Normal Fibonacci

Ratios

145
Let us review the three basic chart patterns within all
cycles, as illustrated in Figure 1 earlier in this book.
Regardless of whether it is a bull or bear market in
terms of the longer-term cycle, we know that the first
phase of any cycle is usually bullish. If it is a classical
three-phase or combination pattern, the end of the first
phase is usually higher than the trough that began the
cycle. In fact, the end of that first phase is usually a
normal Fibonacci 38.2-61.8% corrective decline of the
rally to the crest of that first phase. If it is a classical
two-phase pattern, then sometimes the end of the first
phase is lower than the start of the cycle when the
greater cycle is bearish. Even so, the biggest rally takes
place in that first phase. Yet there are occasions when
the trough of the first phase is more than a 61.8%
correction. In fact, there are many cases when the
trough of that first phase is a double bottom to the
trough that began the cycle, and sometimes the second
bottom is even slightly lower than the first, especially in
a two-phase pattern.

In bull markets that exhibit a classical two-phase

pattern, the decline to the half-cycle trough is not the
usual 38.2-61.8%. It is more often a 45-85% correction
of the swing up from the start of the cycle to its half-
cycle crest. An illustration of this is shown in Figure 13.
Because the correction is oftentimes more than 61.8%,
it causes many technical analysts to pre-maturely
announce that the market has changed from bullish to
bearish. But it hasn’t - at least not until and unless the

146
decline takes out the low that started the cycle. That is
the major determinant for the cycle to be labeled as
bearish.

Figure 13: A typical two-phase primary cycle pattern in a bull market. Note that the
half-primary cycle bottom (1/2-PB) is very close to the low that started the cycle, but
still above it.

Nevertheless, this characteristic of two-phase cycles

makes them the most difficult of all cycles to trade.
Fortunately they only happen about 20% of the time.

Sometimes the trough of the first or second phase in a

three-phase pattern also exceeds 61.8%. When it
approaches, or even exceeds an 85% corrective decline,
it will appear as a double bottom formation. This sets
up a challenge in forecasting the price objective for the
crest of the following phase. If it is to be a bullish cycle,
the rally may exceed the price target generated by the
Mid-Cycle Pause (MCP) price objective. If it is to be a
bear market, the next rally may fail to meet the price
target of the MCP calculation. It may even fail to

147
exceed the crest of the previous (first) phase. Knowing
the possibilities of the next move up can help the
analyst determine the rest of the market behavior within
that cycle. Let us discuss these possibilities.

In the case of a bull market, let us assume the end of the

first cycle phase is a double bottom to the trough that
started the cycle. It is higher in price than the low that
started the cycle, so an MCP price objective can be
calculated, but it will yield a price range that will
essentially be a double top to the crest of the first phase.
Yet in a bull market, that rally will usually exceed the
area that would constitute a double top. In fact, the rally
to that second crest will more often be about 1.236,
1.382, or 1.618 times the rally that defined the crest of
the first phase. If it is a three-phase pattern, it may take
until the third phase before that price target is hit.

Let’s look at an example of how this works. In Figure

14, the Dow Jones Industrial Average (DJIA) made a
primary and 50-week cycle trough at 11,634.60 on
January 22, 2008. This is shown as ‘A’ on the chart.
The crest of the first major cycle phase was 12,767.70
on February 1, represented as ‘B’ on the chart. Four
weeks later, a double top formed at 12,756.60 on
February 27 (not marked on the chart). The market then
declined to the first major cycle trough (first phase of
this new primary cycle) on March 10, 2008, at
11,731.60 (labeled as ‘C’ on the chart). This was more
than the typical 38.2-61.8% corrective decline of the

148
move up from A to B. In fact, it is a double bottom to
A, the start of the primary cycle. The DJIA then began a
move up that exceeded the double top at 12,756 and
12,767. How high would it likely go? The answer is:
1.236, 1.382, or 1.618 of the move up from A to B,
added to C. The formula for each is:

(B-A) x 1.236 added to C will = D, or (B-A) x 1.381

added to C will = D, or (B-A) x 1.618 added to C will =
D

To get the range for this price target, we then take

(D-A) x .118. So let’s do each and see what we get.

(12,767.70 – 11,634.60) = 1133.10

1133.10 x 1.236 = 1400.51
11,731.60 + 1400.51 = 13,132.11 (D)

Then, D-A is 13.132.11 – 11,634.60 = 1497.51

The orb is thus 1497.51 x .118 = 176.70.

The price target for D is therefore 13,132.11 +/-

176.70. The actual high was 13,136.70, so this was a
very accurate price projection for this crest, via this
method.

149
 Figure 14: A case where the rally from C to D was 1.236 of the rally from A to B.

Had it gone much higher, we would then apply the

1.382 or 1.618 multiple to the rally in the first phase. In
this price target, we would again take the price
movement of A to B, or 1133.10. But this time we
would multiply that by 1.382 or 1.618 and add it to C.

Let us illustrate with the 1.618 multiplier as follows:

1133.10 x 1.618 = 1833.35
11,731.60 + 1833.35 = 13,564.95. This would be our
exact price target. But it has a range, so….

13,564.95 (D) - 11,634.60 (A) = 1930.35 x .118 =

227.78. The price target, had it gone higher, could next
be 13,564.95 +/- 227.78.

150
Bear Market Price Objectives for Troughs

These same methods can be used for rallies and

declines in bear markets too. That is, a normal bear
market rally will be a 38.2-61.8% retracement of the
prior swing down of the same cycle (or sub-cycle) type.
But in the case of a two-phase cycle, the retracement
rally can be as much as 45-85% of that swing down to
the half-cycle trough.

But how do you project the price target for the next
low in a bear market if the crest of the second phase in
either a two- or three-phase pattern is a double top?
Assuming the next leg down will exceed the low of the
first phase, it will likely fall in the range of a 1.236,
1.382, or 1.618 multiplier of the first leg down (i.e. of
the move from the first major cycle crest to the first
major cycle trough).

Let us view an example of calculating a bear market

price target for a cycle trough. For this illustration, let
us use the chart of the Dow Jones Industrial Average
following its then all-time high of 14,198.10 on October
11, 2007, shown in Figure 15. Here, the first crest
occurs on July 17 at 14,022, as denoted by ‘A’. This is
the crest of the 50-week cycle, which is also the crest of
the first primary cycle in a two-phase 50-week cycle
that began March 14, 2007. Following the crest of the
first primary cycle on July 17 (A), the DJIA fell for one

151
month into its primary cycle trough at 12,517.90 on
August 16 (B). That was above the level that began the
primary and 50-week cycle of March 14, which was
11,939.60. Note that this decline to the trough of the
first primary cycle phase of the 50-week cycle was
more than the “normal” 38.2-61.8% correction. This
alone is a clue that this 50-week cycle would likely be a
two-phase pattern, consisting of two primary cycles and
not a classical three-phase pattern. If it were to be a
normal three-phase pattern, the decline would usually
remain within the 38.2-61.8% retracement range. But
the decline was 72.2%, more than the normal 38.2-
61.8% corrective decline, but well within the norm for a
45-85% half-cycle retracement in a two-phase pattern.

The rally that followed to the crest of the second

primary cycle took prices up to a new all-time high of
14,198.10 on October 11, 2007 (C). This was less than
the normal price target of a Mid-Cycle Pause price
objective, which would have been 14,600.30 +/-
313.96. This was yet another clue that the market was
not as bullish as it had been over the past several years.
Still, it was exhibiting higher highs and higher lows of
the same cycle types, which is the basic pattern of a bull
market. But now each rally was less than the normal
price objective target for a bull market, and the declines
were deeper than the price target for a “normal”
retracement in a bull market. The confirmation that this
was turning into a bearish cycle would come if and
when prices took out the low that started the primary

152
cycle first (12,517) and the 50-week cycle next
(11,939). Both would happen within the second primary
cycle phase, in early January 2008.

Figure 15: Illustration of a decline in a bear market that fell 1.618 of the first leg down.

The all-time high at C was essentially a double top to

the crest of the first primary cycle at A. Now let’s
assume it would break below B, at 12,517. Where could
this market fall to? The answer is that it could fall
1.236, 1.382, or 1.618 times the distance of A-B,
subtracted from C. Or, in this case, let’s take these steps
using a 1.618 multiplier:
C - [(A-B) x 1.618] = D.
14,198.10 - [(14,022-12,517.90) x 1.618] = D.
D = 14,198.10 - [(1504.10) x 1.618]
D = 14,198.10 - 2433.63 = 11,764.46.

153
 To get the range for this price objective, once again
take the distance between the high and low of these
numbers and multiply by .118. In this case, it is (C – D)
x .118 = the orb of allowance for this price target, or
(14,198.10 – 11,764.46) = 287.17. The price target for
the trough of this primary and 50-week cycle trough,
then, is 11,764.46 +/- 287.17, if the 1.618 multiplier is
applied to the distance between A and B. This captured
the actual low. The multipliers of 1.236 and 1.382 could
also have been used, but the actual price was 11,634.80,
which exceeded both the 1.236 and 1.382 calculations.
As expected, the first phase of the new 50-week cycle
was bullish. But the whole 50-week cycle turned
bearish, and did not end until March 2009.

154
CHAPTER SEVEN

PRICE OBJECTIVES FOR THE LAST PHASE OF A

THREE-PHASE PATTERN

By now, there is a basic rule about price objectives and

market reversals that should start to be obvious. Once a
market reverses, it will do one of three things:

1. 1.If the greater cycle trend is intact, then a market

reversal may have a price target that is a “normal”
corrective calculation. This means it can retrace
38.2-61.8%, or 45-85% of the primary swing in a
trend of a classical three-phase, or a rarer two-
phase cycle type, respectively.

1. In many cases, the reversal may lead to a re-test

2.
of the prior cycle crest or trough, resulting in a
double top or double bottom formation.

1. 3.In the third case, the reversal may lead to the

“breakout” of a defined support or resistance level,
which in itself is often determined by a double
bottom or double top formation. In these cases, the
trend of that cycle will shift from bullish to
bearish, or vice-versa and a slew of different
calculations may be used to compute the next price

155
 target.

We have introduced many of the standard

calculations used to project a price target at any time, in
any market. However there are yet other calculations of
the Fibonacci ratios that can be used for projecting the
price of a crest or trough that completes a three-phase
pattern in a bull or bear market respectively.

Calculating the Crest of the Third Phase in a Bull

Market

Let us begin with a discussion of this “third phase price

objective” for bull markets. For the purpose of this
chapter, we will be referring to the model of the
primary cycle. However, the concepts used to describe
the parts within the primary cycle can be applied to any
three-phase cycle pattern. In a classical three-phase
bullish primary cycle, a pattern similar to Figure 16
occurs. The market starts at a low, then rallies about 3-5
weeks to the crest of its first major cycle phase. In many
cases, this crest can be a re-test of the previous primary
cycle crest, thus forming a double top chart formation.
But if it is truly a bullish cycle, then a decline to the
trough of that first major cycle (MB) will only last 1-2
weeks, and represent only a 38.2-61.8% retracement of
the move up from the primary bottom (PB) to the first
major cycle top (MT).

156
 Figure 16: Classical three-phase primary cycle in a bullish market.
The move up to the crest of the second major cycle
phase will usually be to a Mid-Cycle Pause (MCP)
price objective level. It will be approximately equal to
the move up in the first phase. In some cases, it may
actually be much more. It can be as much as 1.618
times the move up to the crest in the first phase, and
sometimes even more. This rally usually lasts about 3-5
weeks. Once the crest of this second major cycle is
completed, the move down to the second major cycle
trough is about 38.2-61.8% of that move up to the crest
of the second major cycle. It lasts about 1-2 weeks.

Now we come to the third phase, where several

different things can happen. We know from previous
chapters that in a bull market the last phase of any cycle
is the most bearish. This only means that the steepest
decline of the entire cycle is likely to unfold in this last
phase. Instead of correcting 38.2-61.8% of the rally
from the start of this third phase, it will instead usually
correct 38.2-61.8% of the move up from the start of the

157
entire cycle. In terms of the primary cycle (as shown in
Figure 16), the correction would be from the start of the
primary cycle (PB, week #0) to its crest (PT, shown as
week #16 in the graph above), which is usually the
same as the crest of the third major cycle – but not
always. In fact, there are at least four different paths
that may unfold to the crest of the third or last phase in
a cycle, such as the third major cycle phase within a
primary cycle. They are as follows:

1. 1.The rally to the crest of the third phase within a

three-phase pattern can be corrective in nature.
That is, it may only rally 38.2-61.8% of the move
down in the second phase (from the second MT to
the second MB). This is not very common, but
theoretically it is possible because after all, the last
phase of any cycle in a bull market is the most
bearish. Therefore, the rally to the crest of this
phase may only be corrective in nature, because it
is a bearish characteristic. You can see this type of
pattern in the diagram that follows, which is
referred to as “Bull Market Phase 3 – Corrective
Rally.” The corrective rally is shown at 2-C.

158
1. 2.The rally to the crest of the third phase may be a
re-test (double top) to the crest of the second
phase. This is much more common. If a double top
does not happen here in a primary cycle, then
oftentimes it occurs in the first major cycle phase
of the next primary cycle. That is, a double top can
occur with the crests of the second and third
phases, or it can occur with the crest of the first
phase of a new primary cycle to the crest of the
previous primary cycle. The diagram below shows
illustrates this type of third phase pattern with a
double top, shown as B-C.

159
1. 3.The crest of the third phase may be well above
the crest of the second phase, but still within a
well-defined price target. It usually unfolds one of
three ways here, and often these will overlap with
one another price-wise:

• It can be a normal MCP (Mid-Cycle Pause) price

target based on the move up and corrective decline
in the second phase.
• It can be a .618 multiplier of the rally from the
start of the primary cycle to the crest of the second
major cycle, added to the trough of the second
major cycle.
• It can be a multiplier of 1.236 (and sometimes as
much as 1.382) of the decline from the crest of the
second major cycle to the trough of the second
major cycle, added to the trough of the second

160
major cycle. In Elliot Wave terminology, this third
option might be referred to as an “irregular ‘b’
wave rally” to new cycle highs.

We will discuss these last two calculations

shortly. A .618 multiplier of phases 1 and 2
for the crest of phase 3 is shown on the
prototype graph below. This might also be the
form if the crest of phase 3 is 1.236-1,382 of
the move down in phase 2 (B-2). We will use
1.236 for our examples here.

1.
4. The third major cycle phase is also where
“runaways,” “blow-offs,” and/or “bubbles” can
occur. These are just some of the names given
to markets that exhibit the “irrational

161
exuberance” once ascribed by former Federal
Reserve Board Chairman, Alan Greenspan. That
is, powerful rallies can occur, especially if there
is a well-defined resistance present and prices
“break out” above this area. In fact, there are
many chart patterns that can identify powerful
resistance areas, such as double tops, triangles,
wedge formations, and inverse head and
shoulders formations (bullish). That is why this
book will also include a discussion of patterns.
When certain patterns arise, it may indicate
something spectacular is about to happen in that
market. The point is that in the last phase –
usually the third phase – of a cycle these types
of “breakouts” tend to happen, although they
can occur in the second phase as well. When
they do occur, it is not easy to calculate where
the “blow-off” will end price-wise. It may be
1.382 or 1.618 of the move up in the first or
second phase, or 2.618 and even as much as
4.618. It may be a calculation that doubles the
move up to the “break out” point from the prior
cycle low. We never know for sure. However,
we do know that when “bubbles” or “blow-offs”
form in the third or last phase of a cycle, the
decline that follows will usually be devastating.
The cycle will not end well for investors, who
usually suffer huge losses. It is not unusual for
the decline in that third phase to come all the
way back to the trough of the second phase, and

162
 even more. It should also be pointed out that
when such a “blow-off” above a well-defined
resistance level occurs, there is usually a
powerful Level One geocosmic signature
involving Uranus nearby. The prototype of a
phase 3 blow-off in a bull market is shown
below, where the crest of the third phase (C)
represents a 1.618 of the move up witnessed in
phase 2. However, it can be more.

Let us look at some historical examples of these

various third phase patterns, and how their price targets
might have been calculated. For this example, we will
use the chart of the weekly German DAX Index, shown
in Figure 17.

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 Let us begin with the long-term cycle trough of
March 2003, at 2188.75. That could have been either a
4- or 6-year cycle trough, maybe even longer. What we
want to illustrate is how the then all-time high in July
2007, at 8151.57 might have been forecasted using
some of the calculations described herein.

Figure 17: Weekly DAX prices showing the all-time high in July 2007.

First of all, let us assume that we expected this to be

a 4-year cycle, comprised of three 78-week (or 18-
month) sub-cycles, or phases. You can see the first two
78-week cycle troughs listed as 2 and 3 on the chart.
Our first calculation for a crest of the third 78-week
cycle phase would be the simple MCP method. In this
case, it would be (B+3) – 2, or (6162.37 + 5243.71) –
3618.58 = 7787.50. The range would be (7787.50 –
3618.58) x .118 = 491.93, or 7787.50 +/- 491.93. The
high of July 2007 was 8151.57, which is in the top part

164
of this range.

We could have also made a calculation by

multiplying the rally from the start of the cycle to the
crest of the second phase by .618, and then adding it to
the trough of the second phase. From the chart, that
would be [(B – 1) x .618] + 3 = C, or [(6162.37 –
2188.75) x .618] + 5243.71 = 7699.41. Then, taking
(7699.41 – 2188.75) x .118, we get an orb of 650.25,
yielding a price target range for this crest at 7049.15 –
8349.66. The high of 8151.57 was also in this range.

Shorter-term, we could have also calculated the crest

of the second phase within the 78-week cycle. That is,
the German DAX has a 78-week cycle that sub-divides
into a classical two-phase pattern of 39-week half-
cycles. You can see this on the chart, where the third
78-week cycle begins at 3. The crest of the first half-
cycle is at 7040.20 in early March 2007 (marked ‘a’ on
the chart). The 39-week first half-cycle trough followed
one week later at 6437.25, marked as ‘i’ on the chart. A
simple MCP formula can then be constructed to
calculate the crest of the next 39-week half cycle (and
the crest of the entire 78-week cycle) as follows: (a + i)
– 3 = b, or (7040.20 + 6437.25) – 5243.71 = 8233.74.
Taking 11.8% of the distance between b and 3 gives us
our range: (8233.74-5243.71) x .118 = 352.82.
Therefore the target of this second 39-week cycle crest
becomes 8233.74 +/- 352.82. Again, the final high of
8151.57 was in this range.

165
 In summary, we used three different calculations to
identify a price range for a top. We can then take the
overlap of all three and derive an “ideal” price target as
follows:

1. 7787.50 +/- 491.93, or a range of 7295.57 –

1.
8279.43
2. 2. 7699.41 +/- 650.25, or a range of 7049.15 –
8349.66
3. 3. 8233.74 +/- 352.82, or a range of 7880.92 –
8586.56

You can see that all three ranges overlap in the

7880.92 - 8279.43 price zone. The actual high of
8151.57 was in the middle of this “ideal” price target
range.

Now let us apply these rules to a case when the third

phase resulted in a “blow-off,” a roaring bull market
that far exceeded the norm for a rising market. For this,
we go to the weekly chart of the Japanese Nikkei Index,
leading up to its all-time high of 38,957.40 on
December 29, 1989, as shown in Figure 18. We can
consider the low in October 1986 at 15,819.50 as the
start of a 4-year cycle trough. The first leg up in this 4-
year cycle was from October 1986 to October 1987 (1
to A). ‘A’ was a 48-week cycle crest, the first phase of
this longer-term cycle. The Nikkei topped out at

166
26,646.40. It then declined for 4 weeks to form its 48-
week cycle trough at 21,036.80. Now let us apply a
1.618 multiplier to that first phase rally and add it to the
low of that first phase. Remember that when we do this,
it does not have to be realized in the very next phase. It
may take a couple of phases before this price target is
met, assuming it is to be a bullish cycle.

Figure 18: Weekly Japanese Nikkei Index, showing its “blow-off” bubble formation for
an all-time high in late 1989.

The formula for this calculation would be: [(A-1) x

1.618] + 21,036.80. Or,
[(26,646.40 – 15,819.50) x 1.618] + 21,036.80 =
38,554.720.

The orb would be (38,554.72 – 15,819.50) x .118, or

2682.76

167
The price target would thus be 38,554.72 +/- 2682.76.

Not bad, when you consider the actual top turned out to
be 38,957.40. However, it would be another year before
that price target was realized.

Now let us do the same thing with the second 48-week

cycle. This one started with the low of 21,036.80 in
November 1987, marked as ‘2’ in Figure 18. From there
prices rallied to the crest of this second 48-week cycle
at 28,234.50 in August 1988, marked as ‘B’ in the chart.
The size of the rally was 7197.70. Now multiply this by
1.618 to get a result of 11,645.87. This will then be
added to the low of this 48-week cycle, which was
26,701.40, just four weeks later again, in September
1988. This gives us a price target of 26,701.40 +
11,645.87 = 38,347.27. If we take that figure, less
21,036.80 (the start of the second 48-week cycle), and
multiply it by .118, we get an orb of 2042.63. The price
target of this calculation is thus 38,347.27 +/- 2042.63.
Again, this is within the range for the all-time crest,
which was 38,957.40 on December 29, 1989.

We can go even one step further. The low of September

1988 (3) began a third 48-week cycle phase to the 4-
year cycle. Usually there will be four of these 48-week
cycles within a 4-year cycle, although there are several
cases of three or five instances. The crest of this third
48-week cycle occurred the week of June 2, 1990 at
34,337.90 (C). Two weeks later, it bottomed at

168
32,605.60, shown as 4 in the chart. Now let us do an
MCP calculation for the crest of the fourth and next 48-
week cycle. The formula is (C + 4) – 3, or (34,337.90 +
32,605.60) – 26,701.40 = 40,242.10. If we then
multiply that swing up (40,242.10 – 26,701.40) x .118,
we get the orb of allowance to this price target as
1597.80. The MCP price target for the crest of the
fourth 48-week cycle within the greater 4-year cycle is
thus 40,242.10 +/- 1597.80. So here too we have three
price targets that accurately identified the eventual all-
time top in the Japanese Nikkei as follows:

1. 1. 38,545.00 +/- 2681.60, or 35,863.40 – 41,226.60

2. 2. 38,347.27 +/- 2042.63, or 36,304.64 – 40,389.90
3. 3. 40,242.10 +/- 1597.80, or 38,644.30 – 40,242.10

The overlap of these three price targets is within this

last calculation, or 38,644.30 – 40,242.10. The actual
high was 38,957.40, right in this price range where all
three targets overlapped.

There is one other calculation we would like to

discuss in this section. This is where the crest of the
third phase of a cycle is about 1.236 times the decline in
the second phase. If you will observe the rally to the
crest of the first 48-week cycle phase, from 1 to A, you
will notice the crest of the second primary cycle
occurred in the week of June 19, 1987, at 25,929.40.
There were three primary cycle phases in this 48-week

169
cycle, although you cannot clearly see the end of the
first one on this weekly chart (you would need a daily
chart to see it clearly). From the crest of this second
primary cycle phase, the Nikkei declined to its second
primary cycle trough during the week of July 24, to
22,702.70. This represented a loss of 3226.70 points. If
we multiply that by 1.236 and add the result (3988.20)
to that second primary cycle trough (22,702.70), we get
an irregular ‘b’ wave price target of 26,690.90 for the
crest of the third primary cycle phase. The orb of
allowance to this price target would be (26,690.90 –
22,702.70) x .118 = 470.60. Thus, the price target
would be 26,220.29 – 27,161.50. As you can see from
the chart in Figure 18, the actual price for this 48-week
and primary cycle crest was 26,646.40, very close to the
exact price target via this calculation.

Calculating the Trough of the Third Phase in a Bear

Market

The same rules for finding the crest of the third and/or
final phase in a bull market, work in reverse for finding
the trough of the third and/or final phase in a bear
market. In a classical three-phase bearish primary cycle,
a pattern similar to Figure 19 occurs. The market starts
at a low, then rallies about 3-5 weeks to the crest of its
first major cycle. In many cases, this crest will be the
primary cycle crest, for in bear market cycles, a pattern
begins to unfold of lower highs and lower lows of the
same cycle type. Eventually, prices will break below the

170
start of the cycle, thus confirming it is a bear market.
Each successive rally will be to a lower high than the
crest of the same cycle type, and will usually be a 38.2-
61.8% retracement of the prior swing down. The lows
on the other hand fall lower and lower until the cycle
ends. The lowest price will be at the end of the cycle in
a bear market. So what will that price be?

Figure 19: Classical three-phase primary cycle in a bearish market.

The move up to the crest of the second major cycle
will usually last 3-13 days. It will then decline about 3-
5 weeks to the trough of the second major cycle. The
price of this trough will usually be to a Mid-Cycle
Pause (MCP) price objective level. It will be
approximately equal to the move down in the first
phase. In some cases, it may actually be more. It can be
1.618 times the move down from the crest to the trough
in the first major cycle phase. However, as
demonstrated before, sometimes that 1.618 price target
will not be seen for a couple more phases, and
sometimes it will be more than 1.618.

171
 Now we come to the third phase, where again almost
anything can happen. Here too are three basic market
moves that tend to unfold in this final phase.

1. 1.The decline to the trough of the third phase can

be a re-test (double bottom) to the trough of the
second phase. This is a common pattern as the
market prepares to enter the bullish first phase of
the new cycle, as illustrated in the prototype graph
shown below, at 2-3.

1. 2.The trough of the third phase may be well below

the trough of the second phase, but still within a
well-defined price target. It usually unfolds one of
three ways here, and often these will overlap with
one another price-wise:

172
• It can be a normal MCP (Mid-Cycle Pause) price
target based on the move down in the second
phase.
• It can be a .618 multiplier of the decline from the
crest of the primary cycle – if it occurred in the
first phase - to the trough of the second major
cycle, subtracted from the crest of the third major
cycle.
• It can be a multiplier of 1.236 (and in some cases,
as much as 1.382) of the rally from the trough of
the second major cycle to the crest of the third
major cycle, subtracted from the crest of the
second major cycle. In Elliot Wave terminology,
this third option might be referred to an “irregular
‘b’ wave decline” to new cycle lows.

We will discuss these last two calculations

shortly, but a prototype can be seen by two of
the graphs that follow.

173
1. The third major cycle phase is also where very
3.
powerful declines (panic selling) can occur,

174
especially if there is a well-defined support area
present and prices “break out” below this support
level. In fact, there are many chart patterns that can
identify powerful support areas, such as double
bottoms, downside channels, and necklines of head
and shoulders formations (bearish). The point is
that in the last phase (usually in the third phase,
but sometimes in the second phase) of a cycle is
where these types of “breakouts” tend to happen,
forming what is also referred to as a “spike”
bottom. When such panic selling occurs, it is not
so easy to calculate where the “breakdown” will
end price-wise. It may be 1.382 or 1.618 of the
move down in the first or second phase, even
2.618 or 4.618. It may be a calculation that doubles
the move down of the “break out” point from the
prior cycle high, especially if there is a “gap
down” along the way (to be discussed later). We
never know for sure. But this we do know: 1) it is
usually followed by a powerful rally once the next
cycle begins and 2) there is usually a powerful,
Level One geocosmic signature involving Uranus
nearby. Below is a prototype of a move down in
phase three (C-3) that is 1.618 of the move down
in phase 2.

175
 Let us look at some historical examples of these
various third phase patterns in bearish cycles, and how
their price targets may have been calculated. For this
illustration, we will study the chart of the DJIA as it
made its panic-selling low on March 6, 2009. We will
examine this based on the final 50-week cycle that
defined this low, and its three-phase structure consisting
of three primary cycle phases. As a point of reference,
this was also the final 50-week cycle phase of the
greater 4-year and 6-year cycles, and possibly the third
and final 6-year cycle within a greater 18-year cycle,
and maybe even longer cycles.

For this illustration, we start with the 50-week cycle

trough of January 22, 2008. The U.S. and world stock
markets were in a free-fall at this time, following the
all-time high of 14,198 on October 11, 2007. The sub-
prime mortgage crisis was being exposed as much

176
worse than anyone thought, and a rogue trader of a
large bank in France caused a massive default through
undetected large trading losses. Fears abounded that
more banks would follow with similar losses. This was
the week that Pluto moved into Capricorn for the first
time since 1762 (along with Venus). This combination
rules wealth (Venus) and debt (Pluto) in Capricorn
(loss). Pluto also rules revelations, and these large
losses and unexpected large debts were now being
exposed after initially being covered up. Yet as this
panic selling was taking place, the Federal Reserve
Board made some spectacular decisions to add massive
liquidity to the banking system, and the market
rebounded sharply. However, in terms of our work, this
was to be just a corrective rally at the beginning of a
new 50-week cycle that was destined to be the last 50-
week cycle within a bear market 4-year cycle (or
longer) that would not bottom until its end. And, as the
former 50-week cycle ended with panic selling on
January 22, 2008, so would this 50-week cycle end with
panic selling.

177
Figure 20: Daily chart of the DJIA as it fell to its “panic-selling” low of March 6, 2009,
shown as point 4 on the chart above..
From the low of 11,634.80 that started this 50-week
cycle on January 22, 2008, the DJIA rallied for nearly 4
months to its crest on May 19, at 13,136.70. That was
also the crest of the first primary cycle phase of this
new 50-week cycle. In bear markets, the crest of a cycle
usually occurs in its first phase. This was no exception.
In fact, after that crest, the market broke down below
the low that started the 50-week cycle. It fell to its
primary cycle trough on July 15, 2008 at 10,827.70.
That was a clear sign that the stock market was in
serious trouble, for once you take out the low that began
the cycle, it means the lowest price will not be realized
until the end of the cycle. And this was only the first
primary cycle phase of the longer-term 50-week cycle.
Let us begin by noting that the decline from May 19 (A)
to July 15 (2) was 2309 points.

178
 The rally to the crest of the second primary cycle
phase was corrective in nature, which was to be
expected since this was clearly to be a bearish 50-week
cycle after falling below the start of the cycle. The crest
of the second primary cycle was achieved 4 weeks later
on August 11, 2008, at 11,867.10. This was not far from
the low that started the 50-week cycle at 11,634.80 on
January 22. However, it was a rally that regained only
45% of the decline, which is a “normal” corrective rally
in a bear market (i.e. 38.2-61.8% retracement). A
“normal” decline to the MCP price target for the next
primary cycle trough would be (2 + B) – A, or
(10,827.70 + 11,867.10) – 13,136.70, which is 9558.10
+/- 422.27. That range was determined by multiplying
.118 of the difference between the previous crest
(13,136.70) and the projected primary low (9558.10).
But following the full-fledged banking crisis of
September and October 2008, the market fell much
further. It did not bottom until October 10, 2008, at
7882.51.

Now let us calculate other mathematical formulas

that often apply to “panic-driven” markets. Let us take
that first decline from May 19 (A) through July 15 (2)
of 2309 points, and multiply it by 1.618. This gives a
projected decline of 3735.96 points. Now subtract that
from the 11,867.10 high of August 11 (B). This yields a
“run away” price target to the downside of 8113.14.
Applying our formula for the allowable orb to this price

179
target (11.8% of the move down from ‘A’), we get a
price objective of 8113.14 +/- 590.65. The next primary
cycle trough was in this price target range. It was
7882.51.

The bear market still was not over. After the primary
cycle trough of October 10, 2008, the DJIA again
rallied only 4 weeks, to the crest of a third primary
cycle phase on Election Day, November 4, at 9653.95.
This was a rally of 1771.44 points. But the prior
primary swing down was 4044.59 points (from B to 3).
Thus the rally was a normal corrective type in a bear
market, recovering 43.8% of the swing down. From this
we can calculate an MCP downside price target of
5669.36 +/- 731.33 for the trough of the third primary
cycle phase. The final low of 6469.95 on March 6 was
near the very top side of this MCP target. But there
were other calculations that would get closer to the
actual low.

One of the most accurate means to calculate the

projected low for the third phase is to take .618 of the
distance down from the crest to the trough of the second
phase, and then subtract it from the crest of the third
phase. In the case illustrated in Figure 19, that would be
C - [(A-3) x .618] = 4, where ‘4’ is the final projected
low price target. Filling in the numbers, we would have
9653.95 - [(13,136.70 – 7882.51) x .618] = 4, or
9653.95 – 3247.09 = 6406.86. The allowable orb to this
price target would then be (13,136.70-6406.86) x .118 =

180
794.12. But the actual low was 6469.95, very close to
the exact price target calculated without much orb at all.

There was yet another calculation that came close to

identifying this exact bottom. If we dissect the final
primary cycle phases, we will see that the second major
crest was 9088.06 on January 6 and the trough of the
second major cycle phase was 7909.03 on January 23.
If we take 1.618 times the difference, we get (9088.06 –
7909.03) x 1.618 = 1907.67. If we then subtract that
from the crest of the third major cycle (8312.37 on
February 6), we get a downside “panic-driven sell-off”
to 6404.70 +/- 316.63. Again, the final low of 6469.95
was very close to this target. The fact that this level was
attained as Venus turned retrograde (a powerful Level 1
signature as identified in Volume 3) exactly on March 6
was a strong clue that our time and price targets were
converging. Another key was the rising stochastics as
the market was making a low. This is a powerful
technical indicator known as “bullish oscillator
divergence,” which will be discussed in a later chapter.

SUMMARY: INTEGRATING PRICE WITH TIME

With regards to price objective theory, the question

invariably arises: With so many calculations, how do
you know which price target will be the correct one?
You don’t know at first. If there was only one correct
price target calculation for any given market or cycle,
then everyone would be buying and selling at nearly the

181
same price. Unfortunately the market is not so static and
predictable.

This is why it is necessary to understand market timing

principles before mastering price objective calculations.
When a cycle begins, there are several price targets for
the subsequent moves that are possible, as just outlined
in the previous three chapters. One does not know if the
next move will be to a price target that reflects a
corrective retracement, a re-test of a former cycle top or
bottom, or a “breakout.” Furthermore, one does not
know which price target to use for a corrective
retracement or breakout, because there are several
calculations that will yield different price targets for
each type.

There is, however, a basic guideline to follow for price

projections within the concept of cycle studies as the
market unfolds. One may begin by calculating all of the
price target possibilities, or at least the first few. That is,
one may calculate a 38.2-61.8% “normal” price target
for a corrective retracement. One may also calculate a
45-85% retracement zone, which is common in two-
phase patterns. One should also always be aware of a
price area for a double top or double bottom to a prior
cycle crest or trough. And finally one may wish to
calculate at least an MCP price target, if not some of the
various Fibonacci multipliers (1.236, 1.382, 1.618,
2.618, etc).

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As the cycle unfolds, more price targets will be
calculated following the completion of each phase of
the cycle. There will be times when two or more of
these calculations overlap one another. These should be
noted, for the more overlap there is between different
calculations of potential price targets, the more likely
the market will eventually get to the price range of these
overlapping targets.

Yet that is not enough. It is not even the most important

consideration in determining the most likely price target
of a market move. The crux of these studies centers on
the idea of market reversals, those points in time where
a cycle or a phase of a cycle is completed, and the
market reverses in the opposite direction. If the market
has been rising, then we try to ascertain a time when it
is mostly likely to complete the crest of the cycle or
cycle phase. When the market is falling, then we try to
determine the most likely time when it will complete its
cycle trough, or the trough of this phase of the cycle.
Once we enter the time band for a cycle trough or crest,
then we determine which price target is the most likely
to halt the market move, and begin a reversal. In other
words, there is no one price target that will consistently
identify where a cycle will end once it begins. There are
several. But whichever price objective correlates with
where the market actually is at a pre-calculated time
band for a reversal, that is the price objective to use.

There will be some difficulties with this concept when

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longer-term cycles are used. From the studies in
Volume One, “Cycles and Patterns in the Indexes,” we
know that cycles are not static. They have an orb of
time when they can culminate. Generally this orb of
time is about one-sixth of the mean cycle length. In
other words, if we are trying to time the next 4-year
cycle in stocks, we have to allow an orb of up to 10
months from the time the cycle is ideally due. That is a
long time, and prices can change greatly during those
20 months. If we wish to identify an 18-week primary
cycle trough in Gold, we have to allow a time frame of
15-21 weeks after the last primary cycle trough. That is
more manageable than trying to pick the time and price
for a 4-year cycle in stocks. Yet within that 6-week time
frame, the Gold market may enter more than one
calculated price target range. But that time frame can be
narrowed as we complete the first two phases of a three-
phase pattern, or the first phase of a two-phase pattern.
It can be narrowed even further when we identify a
geocosmic critical reversal date, which has an orb of
three trading days (see Volume 3, “Geocosmic
Correlations to Trading Cycles”).

Once a market is within a time band for a cycle

completion, and once the most likely dates within that
cycle for the reversal to commence are identified (i.e.
“geocosmic critical reversal dates”), we only need to
wait until we get there, see what the price of the stock
or commodity is trading at, and then determine if it
satisfies one or more of the calculated price targets for

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that cycle. If it does, then we have the ideal set up
where time and price targets are being met. A trade can
be executed with greater confidence by knowing the
time of a “low risk, high reward” set up. You know
where your risk is, and you know the probability of a
reversal commencing during this time band is at a peak.
And even this set up can be maximized by applying just
a couple of technical studies that measure market
momentum, a subject that we will cover shortly.

These are important guidelines to understand in

regards to projecting price targets. There are so many
price targets that can be applicable, but in the end, the
only ones that matter are those that are being realized
when you enter a time band for a market reversal, or
cycle completion. When a market enters a price target,
and there are no cycles that are due to culminate, and no
geocosmic critical reversal dates in effect, chances are
that the market will just blow past that price target
without any meaningful retracement or reversal.
Therefore, despite the insistence of many market
trading coaches to clearly identify a profit objective
when entering a trade, the idea of exiting or entering a
position based solely on price is not really a useful
component in a market timer’s trading plan. Getting out
just because the market has reached a pre-determined
price target, when in fact the market is not in a time
band for a reversal, is in essence wasting an opportunity
for greater profit. It is far better to wait until you enter
the time frame for a cycle reversal, and then establish

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the price target for exiting a trade. In other words, in
this methodology, price is important. But time is more
important to us. Combining the two methods of study is
even better.

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CHAPTER EIGHT

PRICE TARGETS FOR BREAKOUTS OF HEAD AND

SHOULDERS CHART PATTERNS

A chartist is one who studies charts. In their studies,

chartists identify many “chart patterns.” These chart
patterns often coincide with certain market movements.
For example, a “bullish” chart pattern will imply higher
prices when its setup is activated. A “bearish” chart
pattern will indicate lower prices when the criteria for
its setup are activated. This field of market analysis is
known as “Pattern Recognition.” When certain chart
patterns are activated, they can also yield accurate price
targets.

This chapter will introduce some of those chart

patterns from which various price targets can be
calculated.

HEAD AND SHOULDERS PATTERN - BEARISH

The basic head and shoulders pattern is a bearish chart

formation. We begin with this chart pattern, and see
how it can establish a downside price target. An
illustration of the basic head and shoulders pattern via
filtered waves is shown in Figure 21.

This basic head and shoulders pattern begins with an

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isolated high, shown on the chart as LS, which stands
for “left shoulder.” From that crest, the market declines
to a low, shown on the chart as ‘A.’ This is the first
point of what is to be called the “neckline” of the head
and shoulders pattern. The market then rallies to a price
that is higher than the left shoulder (LS). This new price
high is known as the “head” of the head and shoulders
pattern, and is depicted as ‘H’ in the Figure 21. Prices
then decline again back to the area of ‘A’. This second
low is denoted by ‘B’ and is the second point of the
“neckline.” A line connecting A-B thus becomes the
neckline of this developing pattern. Following this low,
the market rallies again, back to the area that defined
the left shoulder (LS). It will however be below the
head (H). This crest becomes the right shoulder of the
head and shoulders pattern, as is identified as RS in
Figure 21. If the right shoulder is higher than the left
shoulder, it is considered a little less bearish. If it is
lower than the left shoulder, it is considered “drooping,”
and a harbinger of a more serious decline about to
occur. The pattern is now set up. The bearish head and
shoulders formation becomes activated when prices
start to close below the neckline (A-B). Prices will then
be expected to fall equidistance down below the
neckline, as it was between the head and the neckline,
especially as measured from the neckline on the date
that the head (H) of the head and shoulders pattern
formed.

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Figure 21: An illustration of a typical form for a bearish head and shoulders pattern.

You can see both the basic chart formation and

subsequent market activity with the downside price
targets, on Figure 21. The downside price target is
represented as the distance between H and X1, then
applied (subtracted) to the neckline at that point (date of
the head formation) to give a price target down to X2.
The usual rule for this calculation is to take the
difference between the price at the head (H) and the
price at the neckline that was in effect on the day the
head formed (X1). Then subtract that same amount from
the neckline that was in effect on the day the head
formed. This gives the first price target for the ensuing
decline, shown as X2.

You can then take the difference between the price at

the head and the price of this projected low, and

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multiply by .118 to get the range of the downside price
target. If that fails to hold the decline, then you multiply
the difference between the head and the neckline (H –
X1) by 2, then 3, 4, and 5 and so on (usually by 2 or 4 is
sufficient) until you reach a price target that
corresponds to the actual price of a falling market on a
critical reversal date, and in a time band when a cycle
trough is due.

In addition to the formula given above to calculate the

downside price target of a bearish head and shoulders
pattern, one can also construct a parallel line to the
neckline of the head and shoulders pattern. This parallel
line should be equidistant from head and the neckline,
below the neckline, and sloped at the same angle as the
neckline. You can see this line in Figure 21, in addition
to the horizontal line at x2. Both of these downside lines
can represent support to a market that is falling hard
after the neckline is broken.

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Figure 22: Example of a bearish head and shoulders pattern, where A-B is the neckline,
LS the left shoulder, H the head, and RS the right shoulder.

Another point to remember is that once the neckline is

broken, it then becomes resistance. The market can rally
back to this area, and sometimes even trade slightly
above it. Generally speaking, the market will not close
above it more than 2-3 consecutive days or weeks. If it
does, then the low may be in. Until then, the extension
of that neckline represents major resistance to all rallies
until this bearish pattern is negated. Until that happens,
the decline will usually go to one of the two downside
price targets just calculated, or else 2 or 4 times that
distance, or 2 or 4 parallel lines below.

Let us now look at an historical example of this, as

shown in Figure 22, which is the daily chart of the Dow
Jones Industrial Average following its then all-time

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high on October 11, 2007. In this chart, the left shoulder
(LS) formed at 14,022 on July 17, 2007. The market
then declined for a month to form the primary cycle low
at 12,517 on August 16. Then the market rallied to the
all-time high, leading the DJIA to its historic crest on
October 11, 2007, at 14,198. That became the head (H)
of the formation. The ensuing decline took prices down
to 12,724 on November 26, thus forming point B, and
second part of the neckline. After the rally to the right
shoulder on December 11, 2007 at 13,780 (RS), the
pattern was set up, and the line connecting A-B would
define the neckline. Note that the right shoulder (RS)
was below the left shoulder. This is known as a
“drooping shoulder,” and is more bearish than if RS had
been higher than LS. The DJIA then broke below the
neckline (A-B) at C. This downside breakout
“activated” the pattern, and provided downside targets
that would equal the distance between the head and the
neckline, subtracted from the neckline as it appeared on
October 11, the day of the high, or head. That distance
could be subtracted from the neckline, and then doubled
or quadrupled and subtracted from the neckline, to get
various downside price targets.

In this example, the head was 14,198.10. The neckline

on October 11, 2007, would have been 12,633.06 (the
value of line A-B on October 11). The difference is
1565.04. Thus, we can subtract that from the neckline at
12,633.06 to get our first downside price target. We can
also multiple 1565.04 by 2 or 4 (or even other

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multiples), to get lower price targets. So let’s do that:

First target is 12,633.06 – 1565.04 = 11,068.02 +/-

369.35
Second target is 12,633.06 – 3130.08 = 9502.98 +/-
554.02 (times 2)
Third target is 12,633.06 – 6260.16 = 6372.90 +/-
923.37 (times 4)

The first leg down took prices to 11,634 on January 22.

That wasn’t low enough to satisfy any of the downside
price targets just calculated. However, what is
interesting is the rally that followed over the next four
months, taking prices back to 13,136.70 on May 19,
2008. That was back to the extension of the neckline of
this head and shoulders formation that had been broken.
Once support breaks, it becomes resistance, and this
was a perfect example of that rule.

After the primary cycle crest of May 19, 2008, the DJIA
then began its historic collapse. It finally bottomed
nearly 10 months later on March 6, 2009 at 6469.95.
This was within the third price target range given
above, which represented a decline of four times the
value of the distance between the head and the neckline
on October 11, 2007. This is shown on the weekly chart
in Figure 23. When the DJIA closes back above the
extension of the former neck line, it will be a signal that
the long-term bear market is truly over.

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Figure 23, showing the collapse from the head and shoulders pattern that formed in late
2007 to its recovery rally back to A-B (May 2008), then final decline to the downside
price target shown by the 4 x decline to the horizontal line shown on graph (around
6372). It then shows the reverse bullish head and shoulders that formed off that bottom
(ls, h, and rs), as it broke above the new neckline at X-Y.

Figure 24: An illustration of an inverse (or reverse) head and shoulders pattern, which
is bullish. LS is left shoulder, H is head, and RS is right shoulder. A-B is the neckline
representing resistance. When it breaks, it projects a move up to the area of a parallel
line to A-B that starts at Y2, or a horizontal line that begins at Y2 and is the same
distance from the head to the neckline as above it (Y1-Y2 is same distance as H-Y1).

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The breakout above A-B usually goes at least into these two price areas.

BULLISH INVERSE (REVERSE) HEAD AND

SHOULDERS PATTERN

A bullish “inverse” head and shoulders pattern is like

an upside down conventional head and shoulders
pattern. Sometimes this is referred to as a “reverse”
head and shoulders pattern, but in either case, it means
the same thing. This pattern begins with an isolated
low, shown on the illustration in Figure 24 as LS. This
also stands for “left shoulder,” just as it was in the
normal head and shoulders formation that is bearish.
From that trough, the market rallies to a crest, shown on
the chart as ‘A.’ This is the first point of what is to be
called the “neckline” of the inverse head and shoulders
pattern. The market then declines to a price that is lower
than the left shoulder (LS). This new low is known as
the “head” of the inverse head and shoulders pattern,
and is depicted as ‘H’ in the Figure 24. Prices rally
again back to the area of ‘A.’ This second high is
denoted by ‘B’ and is the second point of the
“neckline.” A trendline connecting A-B thus becomes
the neckline of this developing pattern. Following this
crest, the market declines again back to the area that
defined the left shoulder (LS). It will be above the head
(H), however. This trough becomes the right shoulder
of the head and shoulders pattern, and is identified as
RS in Figure 23. If the right shoulder is higher than the
left shoulder, it is considered a little more bullish, and a

195
harbinger of a significant rally about to occur.

The pattern is now set up. When prices start to close

above the neckline (A-B), this bullish chart formation is
activated. At this point, the upside price target can be
established. Prices are expected to rally equidistant
above the neckline, as it was between the head and the
neckline. You can see this on Figure 24 as the distance
between H and y1, which is added to the neckline at that
point to give a price target up to y2. The usual rule for
this calculation is to take the difference between the
price at the head (H) and the price at the neckline that
was in effect on the day the head formed (y1). Then add
that same amount from the neckline that was in effect
on the day the head formed. This gives the first price
target for the ensuing decline, shown as y2.

You can then take the difference between the price at

the head and the price of this projected high, and
multiply by .118 to get the range of the upside
“breakout” price target. If that fails to stop the rally,
then multiply the difference between the head and the
neckline (H – y1) by 2, then 3, 4, and 5 and so on
(usually by 2 or 4 is sufficient) until a price target is
attained that corresponds to the actual price of a rising
market on a critical reversal date, and in a time band
when a cycle crest is due.

In addition to the formula given above to calculate

196
the upside price target of a bullish reverse head and
shoulders pattern, one can also construct a parallel line
to the neckline of this pattern. This parallel line should
be equidistant from head and the neckline, above the
neckline, and sloped at the same angle as the neckline.
You can see this line in Figure 24, in addition to the
horizontal line at y2. Both of these upside lines can
represent resistance to a market that is rising after the
neckline is broken.

Another point to remember about a reverse head and

shoulders pattern is that once prices break above the
neckline, that neckline then becomes support. The
market can decline back to this area again, and
sometimes it even trades slightly below it. However,
generally speaking, it will not close below it more than
2 consecutive days (best to allow maybe three
consecutive days). If it does, then the high may be in.
Until then, the extension of that neckline represents
major support to all declines until this bullish pattern is
negated. Until that happens, the decline will usually go
to one of the two upside breakout price targets just
calculated, or else 2 or 4 times that distance, or 2 or 4
parallel lines above.

Let us now look at an historical example of this, as

shown in Figure 25, a daily chart of the DJIA. The
weekly configuration of both a bearish and bullish head
and shoulders pattern was shown in Figure 23, as a
frame of reference, and an example showing both types

197
of head and shoulders patterns, in the same market,
relatively close to one another.

In Figure 25, the left shoulder of the inverse head and

shoulders pattern was completed with the primary cycle
trough on November 21 at 7449.38. The rally that
followed took prices up to a primary cycle crest of
9088.06 on January 6, represented as ‘A’ on the chart,
and also as the first point of the neckline to this pattern.
From there the DJIA collapsed to its primary and long-
term cycle low of 6469.95 on March 6, 2009 (as Venus
turned retrograde, a very powerful Level 1 geocosmic
signature). This became the head (H) of the inverse
head and shoulders pattern. The market then rallied
three months to a primary cycle crest on June 11, 2009,
at 8877.93. This became the second point defining the
neckline A-B.

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Figure 25: The inverse head and shoulders pattern shown in the DJIA following its
long-term cycle low of March 6, 2009. Note that after the right shoulder formed at RS,
prices “broke out” above the neckline A-B. If the distance between the head (H) and the
price of the neckline on that day (Y1), is added to the neckline, we get the first upside
price objective, shown as Y2. That price target range was achieved with the high of
11,258 on April 26, 2010. When it exceeds 11,800, we then take twice the value of Y1 – H
and add it to Y1. After that, 4 times the value and add it to Y1.

The market then declined to the primary cycle trough

on July 8, 2009 at 8087.19, which became the right
shoulder (RS). This was also nearby to the conjunction
of Jupiter and Neptune, another very powerful long-
term Level 1 geocosmic signature, as discussed in
Volume 3.

At this point, readers might notice two bullish

characteristics as a clue the bear market was about to
end. First of all, this second shoulder (RS) is higher in
price than the first. Secondly, this primary cycle formed
a bullish “right translation” pattern. Its crest was higher
than the left shoulder and previous primary cycle crest
(LS), and it occurred past the midway point in the cycle.
That wasn’t the case in the former primary cycle. That
primary cycle was a bearish “left translation type,” and
the start of its primary cycle (LS) was lower in price
than the start of this one. The setup was now indicating
that the neckline would be broken, thus confirming the
end to the bear market, and the start of a new bull
market. Indeed, that “breakout” of the neckline
happened on July 21.

The old neckline can now be extended to define new

199
support. As long as prices remained above this
extension, the new bull market would be intact. If prices
started to close two or three consecutive days below, it
may instead have indicated the rally was a “fake out.”
The market might be returning to its bearish trend. But
that didn’t happen, as one can see from the chart. In
fact, the market did not decline to even re-test this
extended neckline over the following year.

The next step is to calculate the upside price targets of

this “breakout.” To do that, one must first determine the
price of the neckline as it would have been on the day
the head (low) formed. That was March 6, 2009 and on
that date, the value of the A-B line – as shown at Y1 –
was 9007.40. The difference between 9007.40 (Y1) and
6469.95 (H) is 2537.45. If this distance is then added to
9007.40 (Y1), the first upside price target of this
breakout becomes 11,544.85 (Y2, as shown on the
graph).

The range to this price objective can then be calculated

by taking the difference of Y2 and the head (H), and
multiplying by .118. That is, (11,544.85 – 6469.95) x
.118 = 598.83. Thus, the first price objective for an
important crest to this new bull market would be
11,544.85 +/- 598.84, or 10.946.01-12,143.69. On April
26, 2010, an important crest formed in this range – the
first leg up off this bullish pattern. In 2011, it exceeded
12,143, the upper end of this range. To find the next
price objectives suggested by this pattern, one will take

200
the difference of Y1 and H (2537.45) and multiply it by
2, and then again by 4. In this case, multiplying it by 2
gives an upside price target of 14,082.30. Multiplying it
by 4 gives a target of 19,157.20. Each of these targets
has a range that can be calculated using the formula
given above.

First target is 9007.40 + 2537.45 = 11,544.85 +/-

593.83
Second target is 9007.40 + 5074.90 = 14,082.30 +/-
898.25 (times 2)
Third target is 9007.40 + 10,149.80 = 19,157.20 +/-
1497.10 (times 4)

201
202
CHAPTER NINE

GAPS, MEASURING GAPS, AND ISLAND

REVERSALS

Once a market breaks out above or below a well-

defined resistance or support area, it is necessary to use
different mathematical formulas than standard
Fibonacci ratios for determining the price objective of
the ensuing move. This was observed in the last
chapter, as multipliers of the distance between the head
and neckline of a head and shoulders formation were
added or subtracted from the neckline price to
determine the next price targets.

The same mathematical calculations can be used for

other chart patterns that indicate that a “breakout” is
underway. But in all cases, the first step is identifying
the point of a breakout. Once that point is determined,
the distance between that “breakout” point and a
previous trough or crest is calculated. That distance is
then added or subtracted to the point of the breakout.
Multiples of that distance can be further added or
subtracted if the market exceeds the first price target.

At this point, it is useful to reiterate two basic rules for

price objective calculations. First, they are most
important when they are achieved in a time that

203
coincides with both a cycle culmination and a
geocosmic turning point. Price must coincide with time
to attain the highest probability of accuracy. If a price
objective is being realized at a time that does not
coincide with a projected cyclical high or low, or at a
time in which there is not a geocosmic critical reversal
date in effect, then the probability increases that the
move will continue to the next multiple for that price
target. One has to wait until a price target is being
realized within a time band for a projected market
reversal, for optimal success. Second, it is most
effective when there is an overlap of multiple price
target calculations. That means the market is more
likely to reverse from a well-defined price target if the
range of a price target was determined via more than
one calculation. If three or more calculations all
overlap, then chances are greater that the market will at
least pause in the overlap of those price targets, if not
make a substantial cyclical reversal from there.

Let us assume we are in the time band for a 15-21 week

primary cycle trough. Let us also assume there is a
cluster of geocosmic signatures present that centers on
the 18th week. We now have a time frame identified for
a primary cycle trough and a subsequent reversal. Next,
let us say we are able to calculate a Fibonacci price
target for this low. We may also calculate an MCP price
objective, and we note that there is some overlap in
these two price ranges. We might also notice a bearish
head and shoulders pattern from before and the

204
calculated price target from the breakout below the
neckline of that pattern also overlaps these two
previously calculated price targets. Now we have a case
of time (cycles and geocosmics) coinciding with price
(the overlap of three price target calculations). If the
market falls to the price range overlapping these three
price targets during the time band of this cyclical and
geocosmic reversal, it presents an exceptional risk-
reward set up. That is, one is able to buy low with a
well-defined price point that would negate this setup. If
correct, then the potential for reward is great, compared
to the monetary risk of loss. Usually, in setups like this,
the risk-reward is at least 1:4. That is, your profit
potential is at least four times your stop-loss risk.

In the last chapter, we covered one type of measurement

based on a breakout of support and resistance - the
break of the neckline of a head and shoulders formation
or a reverse head and shoulders pattern. In this chapter,
we want to examine other types of patterns and
breakouts that can yield certain price targets for a big
move, as suggested by the breakout. We will start this
discussion with the phenomenon of “gaps.”

GAPS

A “gap” is created when the price of a market trades

entirely outside the range of its previous time frame.
Usually “gaps” refer to daily or weekly time frames,
although there is no reason why it couldn’t also pertain

205
to monthly or hourly bars as well. By “bars,” we mean
the chart notation (vertical line) that identifies the high
and low of that time frame. Thus, when the high and
low price of one day is entirely above or below the high
and low price of the previous day, it becomes a “gap”
day. This has importance to a market technician,
because it often means a big move is underway. If so,
then it becomes a “measuring gap.” If not, it ends up
being an “exhaustion gap,” or “fake out.” Examples of
various “gaps” are shown in the prototype of Figure 26.

Figure 26. Examples of various “gap” days. Note that day 4 is a “gap up” above day 3.
Note that day 5 is a “gap down” below day 4. Days 3-5 therefore create a “bearish island
reversal” chart pattern where one day (4) is completely above the range of the prior day
(3) and the day after (5). Day 4 would also be an example of an “exhaustion gap,”
because the next day’s trading (5) was below the gap up on 3-4.

A “measuring” gap means the market price will

continue in the direction of the “gap” until it reaches a
certain price target. In other words, it is the start or
middle of a rather sizeable move in that direction. If it is
a “gap up,” then a measuring gap means prices will

206
continue to rally until its upside measuring gap price
target is achieved. If it is a “gap down,” then it means
prices will continue to fall until a level is reached that
satisfies its downside measuring gap price target. In
both cases, prices will not turn back and fill in the
empty price area created by the ‘gap’ for quite some
time - usually not before the measuring gap price target
is achieved.

An “exhaustion gap,” on the other hand, is a “gap up”

or “gap down” day where the empty price area is soon
filled. In other words, the “gap” area gets filled soon
after the gap formed. And instead of making a big move
in the direction of the gap, the market move fizzles,
prices quickly fill the gap and go the opposite way that
the gap had suggested. An “exhaustion gap” is thus a
“fake out.” This happens quite often, for instance, when
Mercury is retrograde, which fits with Mercury’s
reputation as a “trickster.”

Many technicians and chartists don’t know if and when

a “gap” is a “measuring” or “exhaustion” type until
after the fact. Cycle analysts have an advantage here
because “exhaustion gaps” happen near the end of a
cycle, whereas “measuring gaps” tend to happen earlier
in a cycle. That is, the later in a cycle, the more likely
that a “gap” up or down is a fake out. If a market is
making new highs and it is late in the cycle and there is
a “gap up” day, there is a good chance that gap will get
filled soon afterwards, thus negating its bullish signal.

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The same is true if the market is in the time band for its
cycle trough, and prices are falling to new lows, and
there is a day in which that market “gaps down” below
the low of the prior day. Chances are that the primary
bottom will be reached quickly, and prices will soon fill
that gap down as the new primary cycle gets underway,
since the first phase of every cycle is bullish.

MEASURING GAP TARGETS FOR “GAPS UP”

For this part of the book we will only use gaps as they
pertain to daily or weekly charts, since they are the
most useful for calculating price objective targets. In
fact, unless otherwise noted, we will refer to gaps only
in terms of daily charts, since weekly gaps are rather
rare. However, readers should know that weekly gaps
do occur and are even more powerful and meaningful
than daily gaps.

A “gap up” occurs when the lowest price of a day’s

range is above the high of a prior day’s range. There is
thus a “gap” between the high of the prior day and the
low of the current day. In Figure 26, this can be seen in
the price range between days 3 and 4. Day 4 is a “gap
up” above the entire range of day 3. As long as prices
do not close that gap, i.e. do not fall back to the high of
the day before, this is a “measuring gap” and points to
higher prices. If they do fall below that gap range, then
it is an “exhaustion gap.” In Figure 26, the gap up on
day 4 was an “exhaustion gap.” But if it were a

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“measuring gap” up, how high would the price be
expected to rally? This is determined by a specific
calculation, much like that used in calculating the price
target for a breakout of the neckline of a reverse and
head and shoulders formation. In other words, one will
take the difference between the high of the prior day
and the cycle low that preceded it, and then add that
difference to the low of the day on the “gap up.” This
gives the upside measuring gap price objective. The
distance between that price target and the previous
cycle trough can then be multiplied by .118 to
determine the range for this upside price target.

Figure 27: The circle above identifies the gap up in the DJIA on July 15. On July 14, the
high of the day was 8361.23. On July 15, the low of the day was 8363.95.
The best way to understand measuring gaps and their
price targets is to show examples. For this, let us look at
the daily chart of the DJIA on July 14 and 15, 2009, as

209
illustrated in Figure 27. A long-term cycle trough
occurred at 6469.95 on March 6 as discussed
previously. The market rallied to a primary cycle crest
on June 11, followed by a corrective decline to its next
primary cycle trough on July 8. This was in a time band
for both a primary cycle trough as well as a geocosmic
critical reversal date according to the rules outlined in
Volume 3. One of the main points to remember is that
measuring “gaps up” tends to occur most frequently at
the beginning of new primary cycles. But when they
happen extremely close to the start of the primary cycle,
the appropriate preceding low to use for the
measurement of upside price targets will be the
previous primary cycle trough (if it was lower), and not
the one that just unfolded. Why? Because the distance
from the high of the day before the “gap up” to the low
of the just-formed primary cycle trough is probably not
very substantial. It is not likely to produce a price target
that will overlap with a Mid-Cycle Pause (MCP) price
target or a Fibonacci-related price target based on other
price breaks. But if one uses the price of the previous
primary cycle trough that was lower, it will likely
produce a more probable upside price target for the next
primary cycle crest.

After the primary cycle trough of July 8 at 8087.19, and

a re-test of that low on Friday, July 10 at 8093.31, the
DJIA started to move up (as a side note, a re-test of an
important low two trading days later is not uncommon).
Two trading days later (July 14), the DJIA closed near

210
its high of the day at 8361.23. The following day (July
15), the DJIA “gapped up.” The range for that day was
a low of 8363.95 to a high of 8626.83. Note the low
was higher than the high of July 14. Therefore July 15
was a “gap up” day.

The “gap up” on July 15 can be seen in the ellipse

(circle) on the chart in Figure 27. If we subtract the low
of the primary cycle trough on July 8 (8087.19) from
the high on July 15, the day before the “gap up”
(8361.23), we get a difference of 274.04. If we then add
that to the low of the “gap up” day on July 15
(8363.95), we get a measuring gap upside price
objective of 8637.99. Applying our .118 multiple of this
distance between the July 8 primary cycle trough
(8087.19) and the upside price target of the measuring
gap (8637.99) gives us an orb of 64.99 to this upside
price target, or 8637.99 +/- 64.99. The range via this
calculation would be 8573.00-8701.98. The market
soared above that range the very next day, which simply
demonstrates the importance of using the previous
primary cycle low instead of the one just formed in a
bull market. So let’s do that.

Let us subtract the price of the previous primary cycle

trough on March 6, 2009, at 6469.95, from the high of
July 14 (8361.23), the day before the “gap up,” or
8361.23 – 6469.95 = 1891.28. Let us then add that to
the low of the “gap” day of July 15, which was 8363.95,
to get the upside price target for this “measuring gap

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up.” The calculation is 8363.95 + 1891.28 = 10,255.23.
Next, to find the range, multiply .118 times the
difference between this price target and low of March 6,
or (10,255.23 – 6469.95) x .118 = 446.66. Thus, the
range for this upside measuring gap is 9808.57-
10,701.89. A look at the chart in Figure 27 will show
that the next primary cycle crest occurred on October
21, at 10,119.50, which is within the measuring gap
price target range.

Now we check to see if there are other price target

calculations that overlap with this “measuring gap up”
price range. We could do a Mid-Cycle Pause (MCP)
calculation, for instance, and see that it overlaps this
range. In this case we would subtract the primary cycle
low of March 6 (6469.95) from the primary cycle crest
of June 11 (8877.93). That gives a value of 2407.98.
Add this to the primary cycle low of July 8 (8087.19)
and an MCP price target of 10,495.17 is achieved. To
get the range for this MCP, simply take (10,495.17 –
6469.95) x .118, and that gives an orb of 474.97. Thus
the MCP price target for the next primary cycle crest
was 10,495.17 +/- 474.97, or 10,020.20-10,970.15. If
we compared this to the upside “measuring gap” price
target range of 9808.57- 10,701.89, we see that both of
these price objectives overlap at 10,020.20-10,701.89.
The actual price of the primary cycle crest on October
21 was 10,119.50.

Until prices fill that gap up at 8361.23, there is a

212
possibility that the DJIA could go up two or even four
times the 1891.28 distance between the high of July 14
and the low of March 6. For example, a multiplier of 2
(2 x 1891.28 = 3782.56) could be added to 8363.95 to
give an upside target of 12,145.51, with an orb of
669.83. This produces a range of 11,475.68-12,815.34.
A multiplier of 4 times 1891.28 would equal 7565.12.
Adding that to 8363.95 gives the next higher price
objective at 15,929.07, +/- 1116.17. Eventually, those
levels could also represent important future resistance,
as long as the gap up on July 15, 2009 is not filled.

MEASURING GAP TARGETS FOR “GAPS

DOWN”

In a similar manner, a downside price target can be

calculated following a “gap down” day (or week). A
“gap down” occurs when the highest price of a day’s
range is below the low of a prior day’s range. In other
words, the entire day’s trading range is below the
trading range of the prior day. Thus, there is a “gap”
between the low of the prior day and the high of the
current day. This can also be seen in Figure 26, using
days 4 and 5. Day 5 had a range completely below the
range of Day 4. Its high was lower in price than the low
of day 4. Therefore day 5 is a “gap down” day. As long
as prices do not close that gap, i.e., do not rally back to
the low of the day before, this creates a downside
“measuring gap” and points to lower prices. If the
market were to rally and fill that “gap down,” then it

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would be an “exhaustion gap,” which is a “fake out.”
Assuming the gap down was not filled, then the extent
of the projected low is determined by taking the
difference between the low of the prior day and the
cycle crest that preceded it, and then subtracting that
difference from the high on the day of the “gap down.”
In the case of bear markets, it is often necessary to use
the cycle crest preceding the most recent one if the “gap
down” is very soon after a cycle crest. This difference
gives the downside measuring gap price objective. The
distance between that price target and the cycle crest
used for the calculation can then be multiplied by .118
to determine the range for this downside measuring gap
price target.

Once again, this setup and calculation is best illustrated

with an example. Let us look at the chart of the
Japanese Nikkei stock index during the “Panic of
2008,” as shown in Figure 28. First of all, notice that
the primary cycle crest that preceded the market
collapse occurred on June 6 at 14,601.30. This was a
“gap up” from the day before. The “gap” was between
14,329.60 (high of June 5) and 14,489.40 (low of June
6). But the very next day, which was Monday, June 9,
the Nikkei gapped down. The high that day was
14,278.80. When a “gap up” day is followed by a “gap
down” day, it is known as a “bearish island reversal.”
As the name implies, this is a very bearish signature,
especially when it occurs off of a primary cycle crest.
As you can see from the chart, this was indeed the case,

214
as the market had a prolonged decline following this
“bearish island reversal” at the primary cycle crest.
However, since the “gap down” occurred the day after
the primary cycle crest, it was too soon to construct a
downside measuring gap. Measuring gaps need some
time to elapse between the “gap” day and the cycle low
or high that is being used to calculate a measuring gap
price objective. The “gap down” on June 9 was just one
day after the primary cycle crest, so it could not be used
to calculate a reliable downside measuring gap price
target. Yet the fact that it happened the day after the
primary cycle crest was a strong indication that a sharp
down move would now commence, especially since it
was an even more bearish pattern known as the “bearish
island reversal.”

The more important “gap down” to use for the

downside measuring gap occurred several weeks later,
on October 6, 2008. In fact, that was a Monday and the
gap down became a weekly gap, which is even more
important. On Friday, October 3, the low of the day
(and week) was 10,938.10. The high of the next day
(Monday, October 6) was 10,839.50 and that was also
the high of that new week. Thus the Nikkei had a “gap
down” week from 10,938.10 to 10,839.50.

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Figure 28: Daily chart of the Nikkei, depicting 1) the bearish island reversal at the
primary cycle crest June 5-9, 2008, shown as A, and 2) the “measuring gap down” at B.
In fact, the gap down at B was a weekly gap down, which produced a downside
measuring gap target around the PB of October 28.

To calculate the downside measuring gap price target,

subtract the low of the day before the gap (10,938.10,
October 3) from the previous primary cycle crest, which
was 14,601.30 on June 6, or 14,601.30 - 10,938.10 =
3663.20. Next, subtract this from the high of the “gap
down” day, which was 10,839.50. The calculation for
the downside measuring gap price objective is thus
10,839.50 - 3663.20 = 7176.30. If we multiply the
difference between this and the 14,601.30 primary cycle
crest by .118, we get an orb of 876.15 to the price
target, or, (14,601.30 - 7176.30) x .118 = 876.15. Thus
the range for this downside measuring gap is 7176.30
+/- 876.15, or 6300.15 - 8052.45. You will note that the
low of the move was 6994.90 on October 28, which was

216
in the middle of the downside measuring gap price
range.

A variation of a Fibonacci downside price calculation

for the primary cycle trough of October 28 could be
constructed too. One could take the distance down from
the high of June 6 (14,601.30) to the major cycle trough
of September 18 (11,310.50), and multiply that
difference by 1.618. The calculation would thus be
(14,601.30 - 11,310.50) x 1.618 = 5324.51. Subtract
that amount from the major cycle crest of September 22
(12,264). This price objective would thus be 12,264 -
5324.51 = 6939.49. The orb of this price objective
would then be (14,601.30 – 6939.49) x .118 = 904.09.
Thus the downside price target range for this calculation
would be 6939.49 +/- 904.09, or 6035.40 - 7843.58.

If we take the ranges of these two downside price

targets just calculated (the measuring gap and the 1.618
Fibonacci calculation), we get an overlap of 6300.15-
7843.58. The actual low was 6994.90, right in the
middle of these two price objectives.

ISLAND REVERSALS

Although this book is primarily about prices, the entire

series of these five volumes is about market timing.
And one of the most important factors involved in
successful market timing is the recognition of certain
patterns that indicate a market is headed up or down. In

217
this regard, gaps can be very useful. For instance, once
a market is in the time band for its primary cycle
trough, it is not unusual for the market to start having
“gap up” days shortly after that bottom is completed.
The same is true in reverse at a primary cycle crest (or
any cycle trough or crest, and not necessarily just
primary types, although they are the most important for
trading strategies). In other words, once the primary
cycle crest is completed, it is not uncommon for
markets to exhibit “gap down” days shortly after.
However, because these “gaps” occur so close to the
actual primary cycle trough or crest, they cannot usually
be used to calculate a “measuring gap” price target.
They are simply an important chart pattern that alerts
the trader that a move is beginning in the direction of
that gap, and that the primary cycle trough or crest is
probably completed. This assumes that these gaps take
place in a time band when the primary cycle trough or
crest is due and ideally near (or immediately after) a
geocosmic critical reversal date.

One of the most powerful chart patterns involving

“gaps” is known as the “island reversal.” A “bearish
island reversal” was illustrated in Figures 26 and 28. It
occurred with the primary cycle crest of June 6, 2008
(day 4 in Figure 26). That was a “gap up” from the prior
day’s range of June 5. That is, the entire range of June 6
was above the entire range of June 5. And the following
day (Monday, June 9) was a “gap down” day. That is,
its high was below the low of June 6. So June 6 was a

218
“gap up” of the day before and followed by a “gap
down” the day after. Thus, June 6 is an “island” day. In
this case, it is a “bearish island reversal” because it
stands as an isolated high between the two days
surrounding it, and is both preceded and followed by
“gap” days. It usually means a top of significance has
just been completed. The market will now trend lower
and lower, unless that last “gap down” is filled.
“Bearish island reversals” that occur in the time band
for a primary cycle crest - and especially if nearby to a
geocosmic critical reversal date - are exceptional sell
signals. One can go short with a stop-loss above that
gap zone or at least above the close of the day of the
high. The times that bearish (or bullish) island reversals
should not be taken quite so seriously are when they
happen outside of a time band for a cycle crest or when
Mercury is retrograde. The later is a three-week
phenomenon that occurs 3-4 times per year and usually
denotes a market climate in which there is propensity
for numerous false technical and chart pattern signals.

It should also be pointed out that bearish or bullish

island reversals do not have to involve only a single day
that is preceded and followed by gaps. It is possible to
have a bearish island reversal if the market has had
several days trading above a “gap up” day that is then
followed by a “gap down day” below the low of this
group of days. Let us say, for example, that on July 1
the market “gaps up” above the high of June 30. It then
stays above here for the entire next week. But the

219
following week, it gaps down below the low of these
days of the past week. That is also a “bearish island
reversal.” It may be more powerful because it broke the
gap support of several days with a gap down. An
example of a bearish island reversal covering several
days can be seen in Figure 29 of the Japanese Nikkei in
2008, on the way down to “Panic” bottom low of
October of that year.

Figure 29: Illustration of a “bearish island reversal” in the Japanese Nikkei Index that
covered several days. Note that the market “gapped up” on day 1 (September 19). The
low of that day was 11,615. That low held for the next 6 trading days. Then on
September 30, shown as ‘2’ in the chart above, the market “gapped down” below the
lowest price since the “gap up” occurred. Thus all the days from September 19 through
September 29 are part of an “island.” When it “gapped down” on September 30, this
became a “bearish island reversal” and led to a steep sell off.

A “bullish island reversal” usually happens shortly

after a primary cycle trough has been completed. It can
actually happen after any type of cycle low has just
formed, but for our purposes as traders, we are mostly
interested in primary cycles, for they provide the best

220
times for initiating position trades that may be held for
several weeks. A “bullish island reversal” occurs when
market “gaps down” from its prior day’s range and then
“gaps up” the next day. The low of the move is an
isolated low (lower than the low of the day before and
day after). But not only that, it is the middle day
between first a “gap down,” and then a “gap up.” It
usually leads to a powerful rally that lasts for several
days, even weeks or months.

Sometimes the “gap down” day in a “bullish island

reversal” pattern can be followed by several days of
trading below the low of the day that preceded the “gap
down.” In other words, the price that created the “gap
down” is not filled for several days. Then, the market
suddenly “gaps up” above the range of these days, and
fills the “gap down” mark created earlier. This too is a
pattern known as a “bullish island reversal.” It usually
means the market is starting a torrid rally over the next
several days, weeks, even months, as long as a the “gap
up” is not filled on any decline. An example of a
“bullish island reversal” pattern is shown in Figure 30
of the market behavior in the German DAX in the
summer of 2005.

221
Figure 30: Illustration of a “bullish island reversal” set up in the German DAX in early
July 2005.

Note in Figure 30 how the DAX had a gap down

between July 6 and 7, listed as ‘1’ and ‘2’ in the graph.
The low of July 6 was 4607.57. The next day, July 7, it
gapped down to form a primary cycle trough at
4444.94. The high of that day was 4595.23, which was
below the low of the prior day, thus making it a “gap
down day.” The next day, July 8, the market traded up
as high as 4597.97 (see 3). This was still below the gap
down day of July 6. But on the next trading day, July 11
(Monday), the market “gapped up” above the highs of
July 7 and 8 (see 4). Its low was 4616.36, which also
filled the “gap down’ of July 6-7. Thus we have a
“bullish island reversal,” where the island was
comprised of two days (July 7 and 8), between a “gap
down” and a “gap up.” An impressive rally followed for
the next several weeks, as seen in this chart.

222
223
224
CHAPTER TEN

TRENDLINE ANALYSIS (AND GAPS THAT

FOLLOW)

Gaps are important, but not all gaps result in bullish

or bearish moves. Many are “fake outs,” as in
“exhaustion gaps.” But as seen previously, many gaps
can be followed by impressive moves in the direction of
the gap if they occur at critical times in a market cycle
or in combination with certain types of chart patterns.
For example, a gap above or below the neckline of a
head and shoulders pattern can lead to a very powerful
move. So can a bullish or bearish island reversal nearby
to a primary cycle trough or crest.

There are other chart patterns that can be broken by a

“gap,” that can also possibly lead to powerful price
moves. For instance, a “gap up” above a downward
trendline can signal that the bearish trend down is over
and the market has commenced a new bullish trend.
Likewise a “gap down” below an upward trendline can
occur when the market is commencing a new bearish
trend. The same is true when a market gaps above a
double top resistance area or below a double bottom
support area. It is also important if the gap is above or
below an important moving average, such as one that is
one-half or one-quarter of a cycle length. Each of these

225
technical studies defines an important support or
resistance zone. When a market gaps below or above
them, it is much more powerful as a reliable indicator
that the market is beginning a strong move in the
direction of the gap, which means it can be a
confirming signal that the previous trend has reversed.
These gaps are especially useful in calculating
measuring gap price objectives, because they usually
occur well after the completion of a primary cycle
trough or crest, but not at the end of those cycles.

In real life experience, however, gaps above or below

trendlines, double bottoms or tops, and moving
averages, are rare. This is especially true when using
cash indices, like the Dow Jones Industrial Average,
which rarely ever exhibits gaps. You will find gaps
much more common in commodity indices, or futures.
They are also more common in non U.S. stocks indices,
or even individual stocks. But when they happen to
occur above or below a well-defined resistance or
support zone, they are usually worth trading in the
direction of that gap.

More often than not, a market will close above or

below one of these important resistance or support
zones without a gap. But shortly afterwards, gaps begin
to happen. Sometimes a market will have a retracement
below or above that breakout point for a day or two
(even three) and then a gap in the direction of the
breakout. That is when one knows that the trend has

226
reversed, and the new trend is really underway. In other
words, it doesn’t require a gap beyond these support or
resistance points to signal that the new move has begun.
The gap can happen shortly afterwards. The primary
cycle that preceded these gaps can be used to calculate
measuring gap price targets. If the gaps occur shortly
after a primary cycle trough or crest, it may be
necessary to go back to the prior primary cycle for the
calculation, just as we did in the previous chapter on
gaps. We will examine this phenomenon of chart
patterns and their subsequent gaps throughout this book.
But primarily this and the following chapters will
introduce the concept of other chart patterns that can aid
the trader in understanding their importance - which in
turn indicate that a market is “breaking out” of an old
trend - and suggest that a new trend is underway.

TRENDLINE ANALYSIS

Trendline analysis is one of the most basic tools used by

chartists. But not all chartists use the same points to
construct a trendline, and not all trendlines are valid or
useful, especially for the purpose of calculating price
objectives.

227
Figure 31: 1-2 (and both are PBs, or primary cycle bottoms) is an example of an upward
trendline that was broken in early May 2010. Because it connects two primary cycles,
this is known as a “primary trendline up.” When a primary trendline is broken, it
usually confirms the end of the next highest cycle, or in this case, the 50-week cycle. The
trend is now down until a new trendline down forms, especially if it connects two
primary cycle crests.

A trendline connects at least two isolated highs or

lows to one another. When two lows are connected, and
the second low is higher than the first, it is known as an
upward trendline. The market is considered bullish until
it breaks below this trendline. You can see an example
in Figure 31. Conversely, when two highs are
connected, and the second high is lower than the first, it
is known as a downward trendline. The market is
bearish until prices close above this trendline. You can
see an example of this in Figure 32.

228
Figure 32: Example of a downward trendline, A-B-C, that broke after third point C.
Three-point or greater trendlines are very powerful indicators of a trend reversal when
broken. Still, there is usually a pullback shortly afterwards that will test the extension of
that former trendline. As long as that extension holds on the attempted pullback, the
market’s new bullish trend is reconfirmed and all the more likely to continue for some
time.

Occasionally there will be instances when the price

breaks slightly above or below a trendline. These are
“fake outs.” You can see an example of a “fake out” in
Figure 33. Usually a “fake out” will not violate a
trendline with two consecutive closes beyond it. If that
happens, then the trend represented by the trendline is
considered over.

Sometimes analysts connect two or more lows that are

successively lower, or two or more crests that are
successively higher. This too represents support and
resistance. However, these types of trendlines do not
identify new trends in the market. They only identify
support and resistance areas to the trend already

229
underway, or points at which an accelerated breakout
may occur. In many cases, these types of trendlines are
part of other chart patterns such as “channel trends” or
“triangles.” You can see an example of a channel trend
in Figure 34. Yet the trend isn’t really broken until
either a downward line connecting tops, or an upward
line connecting lows, is broken. And to be certain, this
break should occur on the closes of at least two
consecutive time frames (i.e. two consecutive days on
the daily chart or two consecutive weeks on a weekly
chart, etc.).

As suggested above, not all trend lines are equal or

useful. In the study of cycles, a valid trendline should
connect at least two lows or highs of the same cycle
type. In applying this rule, keep in mind that every
cycle is comprised of smaller cycles or phases. Thus an
upward trendline connecting a primary and major cycle
trough is valid because a primary cycle is also a major
cycle (three 6-week major cycles make up an 18-week
primary cycle). Nevertheless, in the study of cycles as
used in this series of books, a trendline is identified
according to the second shortest cycle that makes it up.
A trendline between a major cycle trough (6-week
cycle) and a primary cycle trough (18-week cycle) is
thus referred to as “the major trendline” or “major
upward trendline” if it connects lows that are
successively higher in price. A trendline connecting two
successively higher primary cycle troughs will be
referred to as “the primary trendline” or a “primary

230
upward trendline,” even if it connects with a third point
that is a major cycle trough.

But the important rule is this: when a trendline

connecting two cycles of the same type is broken, it
strongly implies the next longest cycle has just been
completed. Thus if an upward trendline connecting two
major cycle troughs is broken, it means the next longest
cycle (the primary cycle) has probably topped out. If an
upward primary trendline has been broken (i.e.
connecting two primary cycle troughs), it means the
next longest cycle - the 50-week cycle - has topped out.
This is important to note, because when one knows the
type of cycle just completed, one has a better
understanding of how long and how far the ensuing
move will go. A break of an upward trend line
connecting two major cycles means the market is
moving lower to a primary cycle trough. A break of an
upward trendline connecting two primary cycles means
the 50-week cycle has topped out, and the market is
moving to its 50-week cycle trough. If the breakout was
of a downward trendline connecting two major cycle
crests, then it is starting a move towards its primary
cycle crest. If a breakout of a downward trendline
connecting two primary cycle crests occurs, it means
the next longest cycle - the 50-week cycle trough - has
probably been completed, and the rally to the 50-week
crest is well underway.

Also very powerful are trendlines that connect at least

231
three points. Three-point or greater trendlines usually
represent strong support to declines or resistance to
rallies. Sometimes trendlines contain 4, 5, even 6 or
more points, as in Figure 34. The market just can’t close
beyond it. But when it does, the move in the direction
of the breakout can be substantial, especially if at least
two of those points involve primary cycles. But what is
even more powerful is when the break beyond a
trendline happens on a gap up or down day, or if a gap
above or below the trendline happens shortly after the
trendline was broken. That gap, then, gives an upside
measuring gap price objective for the move.

Let us look at examples of valid trendlines that were

broken and followed by “gaps” in the direction of the
breakouts. Figure 33 shows a daily chart of the Japanese
Nikkei Index in the middle of 2003. In this example, the
trend was bearish from the primary cycle crest (PT) in
early December 2002. A half-primary cycle crest (1/2-
PT) occurred in mid-February 2003. A downward
trendline connecting these two crests is thus a
downward “half-primary cycle trendline,” because the
second longest cycle is a half-primary cycle crest.
When prices break above it on two consecutive days, it
means that the next longest cycle - the primary cycle
trough - is completed.

On April 28, the primary cycle bottomed at 7603.76. Of

course, one does not know this at the time. The first
sign of this possibility would have been when the

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market rallied and broke above this trendline, which
took place on May 13 as prices rallied to 8339.07. But it
closed at 8190.26 that day, back below the trendline, so
it’s not confirmed. In fact, it may have been a “fake
out.” The next day it closed at 8244.91, which was
above the trendline, suggesting again the breakout to a
new trend may be underway. But it was not to be, for
the following six days it was back below it again, which
means that the high of May 13, the day it first went
above the downward trend line, was indeed a “fake
out.”

Figure 33: Example of a downward trendline in the Japanese Nikkei Index, broken with
a “gap up” and followed by another “gap up” above the recent high, creating an upside
measuring gap target near the primary cycle crest.

On May 20, it completed a major cycle trough. Then

on May 23, it “gapped up” above the trendline. That

233
gap held and was a strong signal that the primary
bottom was in, because it closed above the trendline for
the next two consecutive days (and more). The move up
was now looking like it might be underway.

On May 29, the Nikkei closed above the major cycle

crest of May 13. This was a further sign the primary
cycle trough was in. The next day, May 30, the Nikkei
rallied to a high of 8461.74. The next trading day, June
2, it “gapped up” with a low of 8488.89, which is
completely above the prior day’s trading range. The
move up is now truly underway. This gap up becomes
the basis for calculating an upside measuring gap price
target. It is shown on the graph with a circle around
those days. If we take the low of the primary cycle
trough on April 28 (7603.76) and subtract it from the
high of May 30 (the day before the gap up at 8461.74),
we get a difference of 857.98. The first upside
measuring gap price target then becomes 857.98 added
to the low on the “gap up” day, which was 8488.89.
That calculation is 8488.89 + 857.98 = 9346.86. By
multiplying the difference between that price target and
the primary cycle trough of 7603.76 by .118, the range
for this projected crest is determined. The price orb is
(9346.86 – 7603.76) x .118 = 205.68. The price target is
thus 9346.86 +/- 205.68, or the range is 9141.18 -
9552.54. The chart indicates that the Nikkei rallied to a
major cycle crest on June 18 at 9188.95, which is within
our price target for the measuring gap up.

234
However, the market can go higher as a long as 1) the
original gap up is not taken out on the next decline, and
2) the high of the first price objective zone is taken out
afterwards. Both of those conditions were met.
Therefore we can multiply the original distance
between the primary cycle trough and the high of the
day preceding the gap, by 2. We know that distance was
857.98. Doubling that distance gives us a greater move
up of 1715.96. If we add that to the low of the “gap up”
day, we get 8488.89 + 1715.96 = 10,204.85. We can
calculate the orb to allow for this price target as
follows: (10,204.85 – 7603.76) x .118 = 306.93. Thus,
the next upside measuring gap target is 10,204.85 +/-
306.93, or 9897.89 - 10,511.78. The primary cycle crest
was completed at 10,070.10 on July 10, which is within
the calculated price objective range.

This price range becomes more significant because it is

supported by other methods that were described earlier.
For instance, we know that this crest is occurring in the
third major cycle phase of the primary cycle. An MCP
upside price target could be calculated from the move
up in the second phase. In other words, the crest of
phase two was 9188.95 on June 18. The major cycle
trough that preceded it was 7962.37 on May 20. The
move up in phase two was thus 9188.95 – 7962.37, or
1226.58. If that is then added to the major cycle trough
that ended phase two at 8846.75 on June 26, an MCP
price target can be calculated for the crest of the third
major cycle phase at 10,073.33. The orb to this price

235
target would then be (10,073.33 - 7962.37) x .118 =
249.09. The range would have been 9824.24 -
10,322.42. The actual crest was right there, almost an
exact MCP price target.
A third calculation could also provide a price target
range that was met with this primary cycle crest. If the
rally to the crest of the second major cycle (9188.95 on
June 18) from the primary cycle low of April 28
(7603.76) was multiplied by .618 and then added to the
trough of the second major cycle (8846.75 on June 26),
the calculation is: (9188.95 - 7603.76) x .618 = 979.64.
Then, 8846.75 + 979.64 = 9826.40. The orb of this
price target would then be (9826.40 - 7603.76) x .118 =
262.27. The price target of this .618 calculation for the
crest of phase three would thus be 9826.40 +/- 262.27,
or a range of 9564.13 - 10,088.67.

Thus, three price targets for the primary cycle crest

have been calculated as follows:

Measuring gap upside target = 9897.89 - 10,511.78

MCP upside price target = 9824.24 - 10,322.42
Phase 3 is .618 of phases 1 & 2 = 9564.13 - 10,088.67

They all overlap at 9897.89 - 10,088.67. The actual

high of the primary cycle crest was 10,070.10, which is
within the ideal price target range where all three
studies overlapped.

Although this was an example of a breakout above a

236
downward trendline that was followed by a measuring
gap up, readers should understand that the importance
of trendline studies is the idea that they confirm a new
trend is underway. The old trend is over, at least until
the crest or trough of that new cycle is completed. That
could be relatively soon afterwards, or it may take
several weeks or even months, depending on 1) the type
of trendline that was broken (i.e. a major cycle, primary
type, or something else) and 2) the pattern that is
forming in this new cycle (i.e. left translation, right
translation, etc.).

Figure 34: Note the 4-point trendline up (1-4) and the upward channel it forms also
connects the highs of A-D (it went slightly above at C). When the lower line (1-4) of the
channel broke after D, it formed a primary bottom. But even then the rally failed
several times (5-7) after pulling back to the extension of the former upward trendline.

237
 Let us look at yet another trendline example (Figure
34), this time of an upward trendline (1-4) connecting
more than two lows (and is also part of an upward
channel where the highs can be connected, too). On this
chart, you will note the upward trendline connects lows
at 1-4. The third point (3) poked slightly below this
trendline, which will sometimes happen, perhaps due to
scalpers recognizing that there are resting stop-loss
orders there. They try to “run the market down,” to set
off those stop-losses and see if some momentum can be
generated for a sharp sell-off. In this case, it did not
work, as the DJIA recovered quickly and continued
back above the trendline that started at 1-2.

We can see this dynamic at work on the highs, which

also can be connected to one another, thus forming what
is called an “upward channel.” You can see the upper
line of this channel at A-D. Every time the market falls
to the lower channel (the trendline connecting more
than one low), it finds support, and rallies. The rally
carries it to the line connecting the highs, which is
parallel to the line connecting the lows, thus it is also
sometimes referred to as a bullish “parallel channel
line.” Theoretically, one buys every time it touches the
lower end of the channel, and takes profits (even sells
short) when it touches the upper line. However, since it
is an upward or bullish channel, the position trader is
only interested in buying and taking profits and not
selling short against the trend, which is clearly up in
this channel.

238
Figure 35: After the DJIA rallied back above the extension of the former upward
trendline 1-4, it then created a new three-point upward trendline (i-iii). Once it broke
below there, the extension of that shorter upward trendline (i-iii) then became
resistance, which ended nearby to the final move up at PT (Primary Top) on April 26.

Once again, we see that prices slightly exceeded the

upper line of a channel at C. Usually this means the
market will soar upwards much higher, or else it is a
“fake out.” In this case, it didn’t run away to the upside.
Instead, after a few days of trading slightly above,
prices returned into the channel, remaining there for
several days. Finally the market touched the upper
channel again at D to complete its primary cycle crest.
The DJIA sold off to the primary cycle trough in
February 2010, breaking below the upward trendline 1-
4 and thus breaking out to the downside of the channel.

239
This confirmed the primary cycle crest was in and
prices were falling to the primary cycle trough.

But then an interesting thing happened, which

demonstrates why trendlines yield important price
targets even after they are broken. As with all charting
indicators, once support breaks it becomes resistance.
Once the support of an upward trendline breaks, that
former trendline can still be extended. The extension
then represents resistance to future rallies. These rallies
are known as “pullbacks” and identify resistance to all
future rallies until the market can close back above the
extension of that former trendline. In Figures 34 and 35,
one can see that several rallies “pulled back” to the
extension of the former upward trend line (see 5, 6, and
7). In those three cases, the rally was halted at the
extension of the former trendline. Finally prices broke
above the extension of this former trendline, on the way
to the crest of the new primary cycle (PT, on April 26,
2010).

A new upward three-point trendline can now be

constructed. It is a shorter trendline identified as i, ii,
and iii in Figure 35. And after it broke, prices then
rallied back (“pulled back”) to the extension of this
former upward trendline i, ii, iii, topping out right at the
primary cycle crest denoted as PT on April 26, 2010.

This is one of those rare examples where the usual

corrective decline to the primary cycle trough in

240
February 2010 failed to work. The decline to the
primary cycle trough in February was more than the
usual range of 38.2-61.8% of the primary swing up.
That happens occasionally; it is simply a fact of life.
Nothing works all the time, and market forecasting is in
many respects based on probabilities, which themselves
are determined by historical rates of frequency. You try
to get the historical odds (i.e. we use mostly historical
rates of frequency of 80% or more) in your favor.

However, there was another calculation that did work in

identifying the low of February 2010. This was
calculated from the point where the trendline was
broken at X. If you take the point where an upward
trendline is broken, oftentimes the market will continue
to fall to a point that is equidistance below that trendline
as the crest was above it. In this case, the break of the
trendline at X was about 10,262.65. The prior high was
10,729.90. The distance from PT to the break at X was
thus 10,729.90-10,262.65 = 467.25. If we then subtract
that from the trendline break (10,262.65 – 467.25) we
get 9795.40. Another way to calculate this is to multiply
the break point (10,262.65) times 2, and subtract it from
the high, or 10,262.65 x 2 = 20,525.30. Then 20,525.30-
10,729.90 = 9795.40. Again, we can find the range of
allowance by multiplying the difference by .118. Thus
(10,729.9 - 9795.40) x .118 = 110.27. The range for the
expected line, based on this formula for price objectives
via trendline breakage is 9795.40 +/- 110.27, or
9685.13-9905.67. The low was 9835.09, which is in this

241
range for the primary bottom of February 5, 2010.

But what also worked in this example were the price

targets established by trendlines and the pullbacks to
their extensions after they broke. The pullback to the
extensions of former upward trendlines (one long, one
short) defined both of the primary cycle crests shown in
these graphs (Figure 34 and 35). We also know from
previous chapters that the crest on April 26, 2010
(11,258 in the DJIA) was an almost exact 61.8%
corrective rally of the bear market from its start on
October 11, 2007 to its low on March 6, 2009. We
could also calculate that the rally to the crest of April
was within the range of a 1.236 multiple of the previous
primary swing up (from 4 to D), added to the primary
cycle low of February 5, 2010. Thus we had at least
three studies indicating resistance there on April 26,
2010, and it just happened to also be in a very important
critical reversal zone defined by geocosmic signatures.
In fact, that was the exact date of the 45-year Saturn–
Uranus opposition, the fourth in a series of five
passages (between November 4, 2008 and July 26,
2010).
Since this example used the cash Dow Jones Industrial
Average, we had no “gaps up” or “gaps down”
following the break of the trendlines as we note in many
other markets. The cash DJIA just doesn’t do that very
often because all the stocks start trading at different
times. Hence the opening is usually not too far from the
prior day’s close. But this particular example served the

242
purpose of demonstrating how trendlines, channel lines,
and breakage of trendlines can be used to calculate yet
other price targets. Trendline analysis is also important
because it helps one establish 1) which type of cycle has
just formed, 2) which type of cycle is next to unfold and
hence how long the new trend is likely to last, and 3)
what type of trading strategies should now be employed
(bullish or bearish). In bullish strategies, the trader is
primarily looking to buy corrective declines. In bearish
strategies, the trader is primary looking to sell all
corrective rallies. To be a successful position trader via
the methods outlined in these books, one must abide by
this principle with only a few exceptions (selling
sometimes at the crest of primary or greater cycles in
bull markets, or buying sometimes at the trough of
primary or greater cycles in bear markets), depending
on the presence of certain technical conditions outlined
in this book.

243
244
245
CHAPTER ELEVEN

STOCHASTICS AND THEIR PATTERNS:

IDENTIFYING CYCLE TROUGHS AND CRESTS

Up until now, this book has focused on the task of

determining price objectives for optimal buying and
selling. In the last chapter, we introduced trendlines, a
technical study that aids in determining when a trend
has changed and a contra-trend has started. It can also
be used to identify certain price targets for lows and
highs, as well as identifying prices of near-term support
and resistance that will often result in a crest or trough
from which prices then reverse. We will now move into
the field of other technical studies and patterns that will
help you to time or confirm a cycle reversal. These
involve stochastic oscillators, bullish and bearish
divergence patterns, and moving averages. It is not so
much that these studies will yield specific price targets,
but mainly that they will identify when price targets are
valid. For instance, if a market has achieved a price
objective target, but one of these technical studies
strongly implies the move is not yet over, then that
price target is not likely valid. On the other hand, if the
market does stop there, it is only a short time before it
continues its trend, until the technical study indicates
that the momentum has finally reached an overbought
or oversold level.

246
My first experience with oscillators like stochastics
came from legendary cycles’ analyst Walter Bressert
(www.walterbressert.com), back in 1980-1982.
Although Bressert is most noted for his pioneering work
in cycles, he is often overlooked for his pioneering
work with oscillators in technical analysis. He was a
master at using these oscillators to determine more
precisely when to buy or sell when a cycle time band
for a bottom or top was in effect. However, the market
analyst most noted for his work on stochastic
oscillators, which are used in this book, is George Lane
(1921-2004).
In his book titled Using Stochastics, Cycles and RSI,
Lane described his famous indicator as follows:
“Stochastics measure the momentum of price. If you
visualize a rocket going up in the air - before it can turn
down, it must slow down. Momentum always changes
direction before price.”1 Often referred to as “The
Father of Stochastics,” Lane once stated in a lecture,
titled Getting Started with Stochastics, “As prices move
down, the close of the day has a tendency to crowd the
lower portion of the daily range. Just before you get to
the absolute price low, the market does not have as
much push as it did. The closes no longer crowd the
bottom of the daily range. Therefore, stochastics turn
up at or before the final price low.”2 For a calculation
of stochastics, please refer to the glossary of terms at
the beginning of this book. For further information on
the works of George and Caire Lane, the reader may go

247
to www.lanestochastics.com.
There are many different time frames that traders use in
their application of stochastics. The one that I use most
frequently - and hence the one that will be used
throughout most of the discussions on stochastics
referred to in this book - is known as a 15-bar (hour,
day, week, etc.) slow stochastic, with a three-bar
moving average of the 15-bar stochastic. Most market
charting software programs have a toolbox where one
can input parameters for a stochastic, like the one
shown below from MetaStock, one of the market
charting software programs that I personally use.

Figure 36: The set up page for stochastics in MetaStock software.

Notice that there are two values, one known as %K

(faster) and the other as %D (longer, or slower moving)
line. D is slower because it is a 3-day average derived
from K. When viewing charts in this book, you will
notice the stochastics on the bottom of many of these

248
graphs. You will notice two lines: a solid line (%K),
which moves faster and with greater amplitude and a
dotted line (%D), which moves with less amplitude
over a longer period of time. The default setting for the
Stochastic Oscillator used herein is 15 periods (days,
weeks, months, or an intraday timeframe). A 15-day
%K, for instance, would use the most recent close, the
highest high over the last 15 days and the lowest low
over the last 15 days. %D is a 3-day simple moving
average of %K. %K is plotted alongside %D and acts as
a signal or “trigger.”

Stochastics seem most useful on daily and intraday

charts. They can be valuable on weekly charts too.
However, my experience is that they are not so useful
on charts of time frames longer than weekly charts. For
instance, I do not use them for monthly, quarterly, or
yearly charts. I find that it takes too much time for these
longer-term stochastics to unfold in a clearly defined
buy or sell set up. From the time it is overbought or
oversold until the time it takes to develop a bullish or
bearish pattern, too much time has elapsed in these
longer time frames for trading purposes. During that
time the market will yield many favorable shorter-term
buy and sell signals. Which would you use? The answer
would be in the shorter-time frames. Therefore, it is the
weekly, daily, hourly, and even 30-minute time frames
that I find most effective for the use of stochastic
indicators. When certain stochastic patterns form in
these time frames, converging with other market timing

249
and technical studies, it yields a very reliable buy or sell
signal.

OVERBOUGHT AND OVERSOLD

On the chart itself, the stochastic values are displayed in

a range between 0% and 100%, where 0% is the
extreme oversold condition and 100% is the extreme of
overbought. This book will refer to any stochastic level
below 20% as oversold and any reading above 80% as
overbought. A reading between 42 and 58% may be
considered as “neutral,” which is important in
identifying the extent of many corrective rallies or
declines against the basic underlying trend. If the
stochastics start to move through the 42-58% neutral
area, they will usually continue until reaching below the
20% oversold or above the 80% overbought levels.
Thus, if a market has a certain price objective target and
it reaches that target when stochastics are between 20
and 42% and headed down, or 58-80% and headed up,
the chances are great that it will exceed that price
objective target and continue to the next lower or higher
one.

STOCHASTIC “BUY” PATTERNS

There are two set ups to initially look for. The first
occurs when the stochastics reach an oversold level
(below 20%). The second is when they fall back to the
neutral 42-58% range after having been above 80%. In

250
the first case, it is best to see an oversold condition
when a primary cycle trough is due, especially if the
longer-term cycle is still pointed up (in its earlier
phases). However, just because it is oversold - below
20% - does not mean that it is time to buy. One must
first determine if the time band for a cycle low is in
effect. It is also important to determine if a geocosmic
critical reversal time band is present as well, according
to the market timing methods outlined in this work.
Then one must determine if prices have yet attained a
calculated price objective range. If these factors are not
present, then buying (going long) just because
stochastics are below 20% will usually be pre-mature.
In most cases, the market will continue to fall lower in
price until these other factors are also in place.

In the second case, if the market is bullish, we of course

want to buy all corrective declines to phases (subcycles)
within that cycle. For example, if the market is only in
the middle two-thirds of its cycle, the trader should be
prepared (and willing) to buy any corrective declines to
a major and trading cycle trough. In these cases, the 15-
day slow stochastics may never decline as low as 20%.
But they will usually fall back to 42-58%. If they do
that in the time band for a trading or major cycle trough,
and if the price at that time is in the price range for a
normal corrective decline to these subcycles, then one
can start to probe the long side of that market.
Sometimes these subcycles will not retrace even 38.2-
61.8%. An example of this is shown in the chart in

251
Figure 37.

Let us begin our analysis of Figure 37 by looking at

the upward trendline 1-2-3. Note that 2 was probably a
short primary cycle trough. The DJIA was 10,368.60 on
January 24, 2005. It ran up to 10,853.40 on February 16
for a major cycle crest, the end of its first phase in this
new primary cycle. In the fifth week, on February 23, it
declined into its major cycle trough at 10,609 shown as
“3” in the chart. It was the 5th week of the cycle, so a
major cycle trough was due. A normal corrective
decline at this point would have been 10,611 +/- 57.20,
following the rules of earlier chapters. Therefore the
market had made a normal corrective decline for a
major cycle trough. Note that the 15-day slow
stochastics indicted %K was at 46.05% and below %D
at 56.26%. Both were in the neutral 42-58% range. It is
not necessary for both K and D to be in this range, but it
is best if both are.

We will come back to this chart in a moment, for it

displays many of the important points to consider when
studying the slow stochastics for optimal buy and sell
points, especially when used in combination with cycle
studies and price objective calculations.

252
Figure 37: Illustration of the Dow Jones Industrial Average depicting examples of
stochastics falling to neutral (3 and iii), exhibiting bullish looping formations (2 and iv-
v), bullish oscillator divergence (i-ii), and bearish oscillator divergence (2/16 and 3/7, as
well as the highs in May and June 2005).

Bullish Looping and Bullish Oscillator Divergence

Patterns
Now let us consider cases where stochastics are
oversold and exhibit patterns that indicate it is close to
the time to buy. There are two patterns of importance to
consider here. The first is known as the “bullish looping
pattern,” where stochastics fall below 20%. The %K
value (the solid line that moves more sharply) is below
%D. K then curls up and either touches D or rises
slightly above it (but not above the neutral 42-58% area
and it is best if not much above 25%). K then turns back
below D and crosses back under 25% and preferably
even below 20% again. This is the “looping pattern.” K
is below D, and then it crosses back above, then back
below again. When K crosses back above D the next

253
time, it is setting up for a bull run. But to confirm this, it
needs to cross back above 20% (and preferably 25%),
with K widening its distance above D. That is then a
buy signal, especially if it happens in a time band when
a primary cycle trough is due. On the graph shown in
Figure 37, you can see cases of a “bullish looping
pattern” in the stochastics at 2, i-ii and iv-v.

The second bullish stochastics pattern of importance is

known as “bullish oscillator divergence.” Oftentimes
this will occur along with a “bullish looping” pattern.
When it does, it is a very powerful buy signal - if a
primary cycle trough is due. A bullish stochastic
oscillator divergence happens when the price falls to a
low, rallies a little bit, and then falls to a lower low. But
the stochastics do not make a lower low on the second
move down. In other words, the price is lower but the
stochastics are higher. Think of it like this: the price is
the weight of an object and the oscillator (stochastics)
represents the number of people holding that weight up.
If you have more people (stochastics) holding up less
weight (market price), it is a case of bullish oscillator
divergence. Figure 37 shows an example of bullish
oscillator divergence at the first primary cycle trough on
October 25, 2004 (shown as 1 in the graph). Note that
the price was lower than it was in late September. But at
the low in late September, the 15-day slow stochastics
were lower than on October 25 (when prices were
lower). Lower prices with higher stochastics are a buy
signal, especially if a) they are below 20% at the first

254
low, and b) a primary cycle trough is due. You can also
see cases of bullish oscillator divergence at the primary
cycle trough on April 20 (ii, which was a lower price
than i, but a higher stochastic reading) and on July 7 (v,
which was a lower price, but higher stochastic reading
than the low of June 27). In each case, the stochastics
were below 20%, then rose a bit, then fell back to the
20% or lower level, but in the second move down, they
did not fall as far as the first low. Yet prices were lower
in the second move down. When they moved back
above 25%, and K widened its distance above D, a
strong rally followed.

This chart also illustrates the more powerful impact of a

bullish looping formation when the low of the second
loop is higher than the first. Or, when a bullish looping
pattern also contains a pattern of bullish oscillator
divergence, it is also usually more powerful. Look at
the primary bottom and bullish looping pattern that
formed at 2. It was a bullish looping pattern, but it was
not a case of bullish oscillator divergence too. As the
price made a new low at the second loop, so did the
stochastics. Still, the market rallied to a higher high on
March 7. But the rally was then followed by a decline
that took out the low that began the primary cycle. That
didn’t happen so fast in the cases of a bullish looping
pattern combined with a bullish oscillator divergence. It
is interesting to note that in this instance, the rally
following the bullish looping stochastics (without the
bullish oscillator divergence signal), was followed by a

255
rally to a primary cycle crest that contained both a
bearish looping pattern and bearish oscillator
divergence (to be covered next). These crests and
bearish stochastic patterns were evident on the highs of
February 16 and March 7.

If you look at the two primary cycle troughs in this

chart (2 and ii), you will see that not only did they
indicate the primary bottom coincident with bullish
stochastics, but they also fell into price targets that
could have been calculated from formulas given
previously. From the primary bottom of 9708.40 on
October 25, the DJIA rallied to a primary cycle crest of
10,868.10 on December 27. Using the formulas given in
earlier chapters (50% correction, +/- 11.8%), a normal
2-5 week corrective decline from the primary cycle
crest to trough could be calculated to take prices back to
10,288.25 +/- 136.85. The low on January 24, four
weeks later, was 10,368.60, which is within the price
target range. The stochastics were under 20% before
that, and prices had entered the price objective range a
little before that. But it took the bullish looping pattern
on stochastics to finally lift prices up afterwards.

At the second primary cycle trough (ii), the issues were

a little different. From the primary cycle crest of March
7 at 10,984.50, the DJIA started to fall sharply. In fact,
it gapped down below an upward trendline on March 16
(shown as 4 on the graph). As discussed in the previous
chapter, this is a very bearish development. Because it

256
was a primary trendline that was broken, it meant that
March 7 was a 50-week cycle crest (the top of the next
biggest cycle), and prices would now be down until the
50-week cycle bottomed, which was due later that year.
By April 4, the DJIA was down to 10,356.70 and
stochastics were well below 20% even the week before.
But this was too early for a primary cycle trough,
because it was only the 11th week, and the primary
bottom is normally 13-21 weeks in length. Yet this was
a re-test of where the cycle started 11 weeks earlier at
10,368.60 on January 24, so there was support there.
The DJIA rallied to 10,557.10 on April 7. It then broke
below the double bottom one week later, on April 14.
Now an MCP (Mid-Cycle Pause) price target can be
calculated for a low, using the high of March 7, the low
of April 7, and the high of April 14. The MCP price
target was 9923.30 +/- 125.22. It achieved this range on
April 18 as stochastics were forming a bullish looping
pattern below 20% and a possible bullish oscillator
divergence. Two days later, on April 20, it bottomed at
9978.74 with bullish oscillator divergence. On April 22,
the K line crossed above 25% and was widening its
distance above D, a confirming buy signal (see Figure
38 below, a zoom-in of Figure 37.). That is, the market
was now in a time band for a primary cycle trough. It
was in a price range for a primary cycle trough, and the
stochastics were exhibiting both a bullish looping
formation below 25% with the second loop higher than
the first - as prices were lower - and a case of bullish
oscillator divergence. That’s as good as it gets.

257
Figure 38. Note that stochastics made a low at 1, on April 18. But two days later, at 2
(April 20), prices dropped to a new intraday low, but stochastics did not make a new
low. Two-three days after that, April 22 and 25, the %K line widened its distance above
the %D line, as it surpassed the 25% level, thus giving a buy signal.

STOCHASTIC “SELL” PATTERNS

There are two set ups to initially look for here as

well. The first occurs when stochastics reach an
overbought level (above 80%). The second is when they
rally back to the neutral 42-58% range after having
been below 20%. In the first case, it is best to see an
overbought condition when a primary cycle crest is due,
especially if the longer-term cycle is still pointed down
(in its later phases). But just because it is overbought -
above 80% - doesn’t mean that it is time to sell. One
must first determine if the time band for a cycle crest is
in effect, which itself is not always as easy as
identifying a time band when a cycle trough is due. But

258
the matter is helped if a geocosmic critical reversal time
band is present and prices are rising into it. Then one
must determine if prices have yet attained a calculated
price objective range. If these factors are not present,
then selling (going short) just because stochastics are
above 80% will usually be pre-mature. The market will,
in most cases, continue to rally further in price until
these factors are also in place.

In the second case, if the market is in the bearish part of

its cycle, the trader will want to sell all corrective rallies
to the crest of phases (subcycles) within that cycle. For
example, if the market is only in the middle two-thirds
of a bearish cycle, the trader should be prepared (and
willing) to sell any corrective rallies to major and
trading cycle crests. In these cases, the 15-day slow
stochastics may never rise as high as 80%. But they
may rise to the neutral 42-58% in many instances. If
that happens in the time band for a trading or major
cycle crest and if the market at that time is in the price
range for a normal corrective rally to the crest of these
subcycles, then one can start to probe the short side of
the market. Sometimes these subcycles will not even
retrace 38.2-61.8% of their prior move down.

Bearish Looping and Bearish Oscillator Divergence

Patterns

When a market is in the time band for its primary cycle

crest (and often other types of crests, like a 50-week

259
cycle crest), the stochastics will not only be well above
the overbought 80% level, but they will form a bearish
looping pattern or display a case of bearish oscillator
divergence.

A bearish looping pattern happens when stochastics are

over 80%, and the K line begins to cross below the D
line. Prior to falling below 71% (a level that has been
determined simply by personal observation and has not
been formally tested by this author), the K line turns
back up and crosses back above D, thus creating the
“loop.” Now when the K line crosses back below D, the
market may turn down. But it is not really a valid
bearish looping pattern until K falls below 71% and
widens its distance below D. Once that happens, the
crest is confirmed. If the market then falls below the
neutral 42-58% level, we can assume the market will
continue lower until the stochastics fall below 25% and
usually even below 20%.

A bearish oscillator divergence pattern is exhibited

when there are two or more crests that form close in
time to one another. The second (or later) crest is higher
in price than the first. But the stochastics are at a lower
level than they were at the former (and lower) price
high. When prices are higher and stochastics are lower,
it is like having fewer people holding up a greater
weight. Eventually the weigh is too much, and the
object collapses. This condition is known as bearish
oscillator divergence and portends an almost imminent

260
decline in prices or at least a pause in the upward trend.

Both of these patterns are very important to recognize

when a primary cycle crest is due. It is also important to
recognize if one of these patterns is present when a
geocosmic critical reversal zone is also in effect and
furthermore if prices are trading within a calculated
price objective range (or an overlap of several price
target ranges) for a crest. When all of these factors are
in place, one can start to sell short. The confirmation
then comes when the stochastics drop below 71% with
K widening its distance below D. It is further confirmed
if the stochastics drop below 42%, but by then one
needs to start preparing to buy the market as it will soon
be under the oversold level of 25%.

The most effective sell pattern of all for stochastics is

when it forms a double looping pattern above 80%, and
the second stochastic high is also a case of bearish
oscillator divergence. That is, the second high is higher
in price, but lower in its stochastic reading. If this
happens in a geocosmic reversal zone, when a cyclical
crest is also due and when the price is within a
calculated price objective for a top, then it presents a
favorable risk-reward ratio to sell short.

Let us analyze an example that demonstrates these

principles. Figure 39 is a weekly chart of the Dow Jones
Industrial Average from late 2001 through mid-2005,
showing the 4-year cycle trough of October 2002 and

261
its half-cycle trough (22.5-month) in October 2004. The
first instance of bearish oscillator divergence is shown
at the highs of A-B. On the week of January 11, 2002
(shown as A), the DJIA topped out at 10,300.
Stochastics were at 96% for K and 91% for D, so they
were overbought. Prices fell and so did stochastics,
down to about 60% in February as the primary cycle
bottomed. But then the DJIA rallied to a higher high in
the next primary cycle, touching 10,673 during the
week of March 22, shown as B in the chart. On this
second high, the 15-week slow stochastics got to 95%
(K) and 89% (D). This was slightly lower than its levels
of January 11. Therefore this is a case of bearish
oscillator divergence (higher high, but lower
stochastics). Three weeks later, the stochastics fell
below 71%, with K widening its distance below D,
suggesting that at least a 50-week cycle crest had been
completed. Prices in fact were headed down into the 4-
year cycle trough, not to be realized until October 10,
2002.

The next instance involved a long series of bearish

looping patterns starting in mid-2003. Note that the first
stochastic high was attained the week of May 16 as K
reached 96.32% while D was at 84.04%. There was a
temporary high a month later (9th week of June 20), but
the stochastics never fell below 71%. They kept finding
support around the 80% level and eventually a second
stochastics top was realized the week of December 26,
2003, when K reached 97.48% and was above D at

262
94.64%. About 8 weeks later, during the week of
February 20, 2004, the DJIA topped out at 10,753.
However, by this time, the weekly stochastics were
registering K at 89.37% and slightly above D at
88.15%. They were lower than they were a few weeks
earlier, and they were looping. This was a case of
bearish looping stochastics above 80% and bearish
oscillator divergence. Four weeks later, the crest could
be confirmed as stochastics fell below 71% with K
widening its distance below D. February 22 would mark
the crest of the 22.5-month cycle in stocks, the half-
cycle crest to the 4-year cycle. The DJIA would
continue to fall to its 22.5-month cycle trough in
October 2004.

The next instance of a bearish stochastic pattern

would occur at E-F in December 2004 and March 2005.
This one was at first a bit of a fake out, for after the first
high (E) in the week ending December 31, 2004, when
stochastics were at 93.86% (K) and 92.70% (D), the
market fell for 4 weeks. The stochastics fell below 71%
with K widening its distance below D. K at least fell
below 71%, declining to 64.75%, while K held at
71.88%. But then it reversed, and over the next five
weeks the DJIA soared to a new cycle high the week
ending March 11 at 10,984. As it rallied, the stochastics
curled back up too. K climbed to a high of 91.79% and
was above D at 89.96%. But this was lower than the
stochastic readings of December 31 and thus a case of
bearish oscillator divergence and a case of a bearish

263
looping pattern as well. The very next week, stochastics
were in a free fall, declining below 71% with K
widening its distance below D. This confirmed that at
least a 50-week cycle crest had formed.

Figure 39: A weekly chart of the Dow Jones Industrial Average, showing several cases
of bearish and bullish stochastic patterns, as well as neutral 42-58% corrective
retracements.

This chart also illustrates a bearish case of stochastics

retracing from an oversold level to the neutral 42-58%
area, with prices then falling again. This can be shown
in combination with a bullish reverse head and
shoulders pattern at 1-2-3. After the cycle crest was
achieved at B and under a bearish oscillator divergence
sell signal, the DJIA fell to the left shoulder of this
bearish pattern, at 7532.66 on July 26, 2002 (1). One

264
can see a bullish looping formation and a bullish
oscillator divergence pattern as this low formed at 1.
For 4 weeks the market rallied strongly back to 9077
(the week ending August 23, 2002, denoted as X, which
would be the start of the neckline). But a look at the
stochastics pattern at this time revealed that K was at
44.88%, in the neutral range. It was above D at 38.45%.
Additionally, the 9077.10 high at that time was in a
normal corrective retracement range of the move down
from B (10,673.10) to 1 (7532.66). That price target
would have been 9102.88 +/- 370.57, so there was
bound to be some resistance there. Nevertheless, this is
an example of stochastics only getting back to a neutral
42-58% range in a bear market rally.

But let us continue the analysis, even though the issue

of a neutral stochastic reading ending a corrective
retracement has been demonstrated. In this chart, other
important factors can be observed. After the corrective
rally to X, the market then fell to a lower low, the 4-
year cycle trough on October 10, 2002 (as Venus turned
retrograde, which is one of the most powerful level 1
signatures as reported in the studies of Volume 3 of this
series). The DJIA was down to 7197.43 that day (shown
as 2 on the chart), thus lower than the 7532.66 low of
the week of July 26. This formed the head of the inverse
head and shoulders pattern. Yet the weekly stochastics
were slightly higher than during the low of July 26, for
a case of bullish oscillator divergence. A couple of
weeks later the market rallied back to 9043.37, thus

265
completing the second part of the neckline during the
week of December 6. The weekly stochastics got
slightly above the critical 80% overbought level and
immediately turned down from the double top and
neckline (X-Y).

At the time, the U.S. military commenced its Iraqi War

assault preparations. Stock markets all over the world
began to fall as the U.S. issued an ultimatum to Saddam
Hussein to give up his non-existent weapons of mass
destruction. (It was not known at the time he did not
have any. The issue became a point of intense political
tensions). Nevertheless, many stock markets of the
world fell to new 4-year cycle lows in March 2003,
whereas the DJIA did not make a new low. It fell to
7416.64 on March 12, which was above the low of
October 10 and completed the right shoulder of the
reverse head and shoulders pattern. This is shown as 3
in the chart of Figure 39. Notice at this low how the
weekly chart again displays a case of bullish looping
stochastics and bullish oscillator divergence. The
market is turning bullish as K rises above D just one
week later, and widens its distance above D.

The bottom was then confirmed further when the DJIA

closed above the neckline X-Y during the week of June
6. An upside price objective could then be established.
The neckline was at 9061.34 on the day the head
formed, October 10, 2002. If we take the distance
between that and the actual low (9061.34 - 7197.49 =

266
1863.85) and add it to the breakout of the neckline, we
get an initial upside price target of 9061.34 + 1863.85 =
10,925.19, +/- 439.86. The high that followed, shown
on this graph as F, was 10.984.50 during the week of
March 11, 2005. That high would hold until January
2006. It also represented at least a 50-week cycle crest
(and possibly a 4-year cycle crest), until the DJIA fell to
its 50-week cycle trough (and possibly a 4-year cycle
trough, depending on how one starts the count) in
October 2005. Therefore Figure 39 is an excellent chart
to study in regards to many of the technical studies and
price objective theories introduced in this book.

SUMMARY

Stochastics may not be a study used for obtaining

potential price objective targets, which is the primary
purpose of this book. But they are important to study
when they exhibit certain patterns within previously
calculated price objective ranges and time bands for
cyclical troughs and crests. In other words, when time
and price objectives are being realized, it is important to
also recognize if a stochastic pattern signaling a
possible reversal is occurring too. If so, then the
probability of an excellent risk-reward situation is
presented.

Of most importance to buyers is the recognition of

bullish looping patterns below 20% and/or bullish
oscillator divergence patterns in which prices fall to a

267
lower low than witnessed just a few days or weeks
before, but stochastics do not make a lower low. Shortly
after, stochastics rise above 20 and even 25%, with K
widening its distance above D. Buyers can also take
note when stochastics drop back to 42-58% after being
above 80%. This is a neutral area, but can indicate a
corrective decline is about to end a phase of the greater
cycle, which is still bullish.

To sellers, it is important to recognize bearish looping

patterns above 80% and bearish oscillator divergence
setups in which prices rise to a higher high than
witnessed just a few days or weeks before, but
stochastics not reaching a higher level than at the
previous high. Shortly after, stochastics decline below
80% and even 71%, with K widening its distance below
D. Sellers can also take note when stochastics rally back
to 42-58% after first being below 20%. This is a neutral
area, but can indicate a corrective rally is about to end a
phase of the greater cycle, which is still bearish.

There are many other stochastics parameters that can be

applied than discussed here. And there are hundreds of
other oscillators that can be used in combination with
the market timing indicators and price objective
calculations given in this chapter. Two others that I
would highly recommend studying are the Commodity
Channel Indicator (CCI), using a standard calculation of
18 days or time frames, and an RSI (Relative Strength
Indicator). In my own trading, I might use both of these.

268
But my favored one for stock indices is the 15-bar slow
stochastics and the patterns formed as described herein -
especially when cycles and geocosmics point to a time
frame for a reversal. If a market is not in such a time
frame for a reversal, I do not pay a great deal of
attention to these technical studies, for they can give
false buy and sell signals when the time for a reversal or
cycle culmination is not yet ready.
References:

1. 1. Lane, George, Using Stochastics, Cycles, and RSI, Watseka, IL., Investment
Educators, 1986.
2. 2. Lane, George, from lecture entitled, “Getting Started with Stochastics,” 1998,
confirmed in conversation with Caire Lane of Investment Educators.

269
CHAPTER TWELVE

INTERMARKET BULLISH AND BEARISH

DIVERGENCE

Markets behave in strange ways. One of the more

unusual patterns that can occur is when one stock index
makes a new multi-week, multi-month, or multi-year
low or high, while other indices in the same region (or
sector) do not. Market analysts are divided over what
this means. In some cases, it indicates the first market to
exhibit the new high or low is simply the leader, and
others will follow shortly afterwards. But in many cases
that is not the case, especially when primary or greater
cycles are unfolding. And it doesn’t matter if the
interval between these new lows or highs lasts weeks,
months, or even several years.

In this chapter we will study this phenomenon, which is

known as “intermarket bullish or bearish divergence.”
We then use it as an indicator - not so much to predict
prices - but rather to recognize that an important trough
or crest is forming, what to do about it, and what risks
are involved in taking action as a result.

For our purposes, intermarket divergence refers to stock

indices in the same region of the world (Europe, Asia,
United States, etc.) as well as cash versus futures
indices. For instance, intermarket divergence can be

270
noted when either the Dow Jones Industrial Average,
S&P, or NASDAQ Composite indices make a new high
or low - but not all three at once. It can be noted when
the cash or futures index of one makes a new high or
low, but not both (such as cash S&P versus S&P futures
or even cash DJIA versus S&P futures). In Europe,
there may be times when the German DAX makes a
new high or low, but the Swiss SMI, Netherland’s
AEX, or London FTSE indices do not. In Asia, the
Japanese Nikkei may make a new high or low, but the
Japanese Topix (TPX) does not. The same can be true
between the Hang Seng stock index of Hong Kong and
the Shanghai (SSE) Stock index of China. When this
happens, it either means the others will soon follow or
else they won’t. When others do not follow, the market
reverses and this becomes a reversal indicator. But it is
only valid at certain times, such as when a cycle low or
high is due. When a cycle high or low is not due, it
usually means the others will soon follow and make
new cycle highs or lows.

INTERMARKET BULLISH DIVERGENCE

When a primary or greater cycle trough is due, the

market will often exhibit a double bottom. In Volume 1
of this Stock Market Timing series, studies showed that
in 66.2% of cases dating from 1982 through 2005, a
double bottom pattern formed from a time band 8
weeks before through 6 weeks after a primary cycle
trough in the cash DJIA.

271
Figure 40: Note the bullish divergence at the lows in 2002 and 2009. The low in March
2009 was lower in the DJIA than the low in October 2002. It was not lower in the
NASDAQ Composite. There was also a bearish intermarket divergence at the highs in
2000 and 2007. The DJIA made a new all-time high in October 2007, taking out its high
in early 2000, but the NASDAQ Composite did not.

In about 70% of those instances (or about 45% in all

instances), it was also a case of intermarket bullish
divergence to the S&P futures. If the NASDAQ cash or

272
futures were included, the rate of incidents would have
been higher. That is, at the time of a double bottom to a
primary cycle trough, there were many cases where not
all three of these indices made a low during the same
week (it is most effective when intermarket divergence
between markets does not occur during the same week -
at least one week apart is more valid). For some, the
low was on the first leg of the double bottom, and for
others it occurred on the second leg down. Sometimes
the second low is not actually a double bottom. It may
be too high or too low in price compared to the first
low. However, of most importance are those times
when one of the legs occurs when the time band for the
primary cycle trough is in effect AND a geocosmic
critical reversal date time band is also in effect. To be
most valid, the market must then close in the upper
third of a day’s (or week’s) range before both take out
those lows.

Although the use of intermarket bullish divergence is

most valuable during the completion of primary cycles,
they are often noted during the completion of longer-
term cycles too. Therefore, they can be used by long-
term investors as well as position traders, providing that
other factors are in place for the culmination of those
cycles as described elsewhere in this book and other
volumes in this series. For example, consider the two
possible 18-year cycle troughs of October 10, 2002 and
March 6, 2009 (see Figure 40). These were double
bottom formations in the cash NASDAQ Composite, in

273
which the first leg in October 2002 was lower than the
second in March 2009. In the Dow Jones cash market,
the low in March 2009 (second leg) was considerably
lower than its first low in October 2002. In both cases,
geocosmic critical reversal dates were in effect.
However, that is not so important to a long-term
investor. What is more important is 1) the NASDAQ
fell nearly 80% from its high in March 2000 to its low
in October 2002, qualifying it as a long-term cycle
trough, and 2) it did not take out that low in March
2009, whereas the DJIA did, falling more than 50%
from its all-time high of October 2007 (the largest
decline since the Great Depression), thus forming a case
of intermarket bullish divergence. That is one of the
reasons that made the low in March 2009 an excellent
time for an investor to buy.

As stated previously, cases of intermarket bullish

divergence are most useful during primary cycle
troughs. To have the DJIA, S&P, or NASDAQ
Composite make a low in that time band (but not all
three making a new low below a previous and recent
low), is the set up that has to unfold. It is important that
one or both of these lows occurs within the time band
for a primary cycle trough. It is more effective when
one, or both lows, happens during a geocosmic critical
reversal date time band. And it is even more effective if
the market(s) making the lower low do so with a bullish
stochastic pattern. Figure 41 shows an example of this
ideal set up in the U.S. stock markets.

274
 In this example, the stock market was falling sharply
following the all-time high on October 11, 2007. The
threat to banks around the world, related to the sub-
prime mortgage fiasco in the USA, spread to Europe in
January 2008. It was the first wave of the crisis after the
all-time highs had been realized. The Dow Jones
Industrial Average bottomed at 11,634.80 on January
22, 2008. The S&P bottomed a day later, at 1270.05.
Both markets then rallied strongly as the Federal
Reserve Board hastened to add liquidity to the financial
system and lowered interest rates dramatically to
0-.25% for member banks. That only worked for a little
while. By the end of February, another wave down
started. It would take the S&P cash to 1256.98 on
March 17, a lower low than realized in January.
However, the DJIA did not fall quite as hard. It formed
a secondary bottom on March 10 at 11,731.60, clearly a
double bottom to the low of January 22, but this second
leg was higher, for a case of intermarket bullish
divergence between the two indices.

275
Figure 41: Note the case of intermarket divergence between the cash DJIA and cash
S&P at 1 and 2. The DJIA made its primary cycle trough on January 22, 2008 as both
markets formed a bullish looping stochastic pattern (but the second stochastic low was
lower than the first in both cases, which suggested another decline would likely happen
soon). On March 10 and 17, both markets made a double bottom, but in the case of the
S&P, the second low (2) was lower than the first (1). This makes it a case of intermarket
bullish divergence. Furthermore, the March 10-17 period was a three-star geocosmic
critical reversal zone and a case of bullish oscillator divergence in the S&P, which made
this an excellent buy signal.

In this example, the March 17 low in the S&P

provided two cases of intermarket bullish divergence to

276
the DJIA. First, it was lower than the low of March 10,
whereas that was not the case in the DJIA, and they
were at least one week apart. Secondly, the low of
March 17 in the S&P took out its low of January 23,
whereas the DJIA did not, which is yet another - and
stronger - case of intermarket bullish divergence
between these two markets. Additionally, March 17 was
within the time frame of a geocosmic three-star critical
reversal date for U.S. stocks, AND the stochastic
pattern in the S&P exhibited a classical case of bullish
oscillator divergence. You can see that both markets
then rallied for several weeks, reaching a primary cycle
crest on May 19. At that time, the DJIA especially
exhibited a very strong bearish oscillator divergence
stochastic pattern, leading to the next wave down in the
financial and banking crisis of 2008.

INTERMARKET BEARISH DIVERGENCE

According to the studies presented in Volume 1 of this

series, there were 44 cases out of a possible 67
instances, when a primary cycle crest was accompanied
by a double top from 1982 through 2005. In 39 of those
cases, the double top was between six weeks before
through six weeks after the primary cycle crest. This
study furthermore determined, “Intermarket bearish
divergence also occurred frequently at primary cycle
crests - in fact, more frequently than at primary cycle
troughs. In 39 of 67 instances of primary cycle crests
(58.2%) the S&P futures topped out slightly before or

277
slightly after the Dow Jones Industrial Average. In the
majority of cases, the two tops were five or fewer
weeks apart from one another.

An intermarket bearish divergence occurs when the

DJIA or S&P cash or futures (or even the NASDAQ
Composite cash or futures) makes a new high
unaccompanied by one of the other indices. The pattern
is validated when each of the markets then closes in the
lower third of a day’s (or week’s, or month’s) range
before all make new highs. If this happens in a time
band for a primary (or greater) cycle crest, it often
marks the culmination of the cycle crest. This is further
supported if the high of either one of these indices (and
best if both) occurs within three trading days of a
geocosmic critical reversal date, as outlined in Volume
3 of this series. When this set up unfolds, it is usually a
strong signal to sell, as a significant decline to a
primary or greater cycle low is vulnerable to
commencing.

As in the case of intermarket bullish divergence, cases

of intermarket bearish divergence can also be noted in
cycles longer than primary cycles. If you look at the
monthly charts of the DJIA and NASDAQ Composite
shown in Figure 40, you will see two cases of
intermarket bearish divergence. In the first case, the
DJIA made a long-term cycle crest (perhaps an 18-year
cycle crest) on January 14, 2000. But on March 10,
2000, the NASDAQ made a higher all-time high, and

278
the DJIA failed to do the same. This was a case of
intermarket bearish divergence and led to both indices
falling hard to their 6- or even 18-year cycle lows of
October 10, 2002. But an even greater case of
intermarket bearish divergence was realized on October
11, 2007 when the DJIA made its new all-time high, but
the NASDAQ Composite was well off its high from
March 2000. This case of intermarket bearish
divergence led to an even greater decline in the DJIA
into March 2009 (but the Composite did not make a
greater decline then).

279
Figure 42: Illustrating intermarket bearish divergence in the same region. The German
DAX and Swiss SMI stock indices both made new yearly highs on April 15, 2010. On
April 26, the DAX made a higher high, but the SMI did not. By the next day, both
closed in the lower third of the day’s range, thus creating a valid case of intermarket
bearish divergence. Note that the DAX also exhibited bearish oscillator divergence at
the high on April 26 (as well as bullish oscillator divergence on the low of May 25 in
both indices). Both also exhibited a bullish island reversal at the low on May 25.

Yet, the concept of intermarket bearish and bullish

divergence is more useful to position traders than to
longer-term investors, for by the time the set up is
realized in a long-term chart, the opportunity to take
advantage of this pattern has already largely passed. In
the case of primary cycles accompanied by supporting
geocosmic signatures of a reversal (critical reversal
zone), a favorable risk-reward trading opportunity can
be taken advantage of in a fairly timely manner. Let us
look at a case of this as shown in Figure 42.

On April 15, 2010, both the German DAX and Swiss

280
SMI stock indices made a new yearly high. They are in
the same region (Central Europe), so these are two
markets that track fairly close to one another. After a
slight decline, the DAX soared to a higher high on April
26 (as did most world stock indices on this date, as
Saturn was in exact opposition to Uranus). But the SMI
was well off its high of April 15. Additionally, as the
DAX made a new high, it was under much lower
stochastic readings, creating a case of bearish oscillator
divergence. April 26 was also within three trading days
of a three-star geocosmic critical reversal date (April
22) and late enough in the cycle where a primary cycle
crest could occur. The next day, both indices closed in
the lower third of the day’s range, thus validating this as
a case of intermarket bearish divergence. Both markets
then fell hard into May 6, finally finding their cycle
troughs on May 25 (in the case of the DAX) and July 5
(in the case of SMI) for a new case of bullish oscillator
divergence.

SUMMARY

Intermarket bullish or bearish divergence patterns

represent favorable opportunities to trade if certain
conditions are met. The following is a list of some of
the factors that strengthen (or weaken) the argument for
a case of intermarket divergences.

1. 1.There should be at least one week between the

two highs or lows that make up the intermarket

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 divergence pattern. The highs or lows should not
occur in the same week. However, it is OK if one
occurs on a Friday and the other on the following
Monday.
2. 2. The market should be in a time band when a
primary cycle trough or crest is due.
3. 3. The market should be in a time band when one of
the lows or highs occurs during which a geocosmic
critical reversal date is also in effect, +/- 3 trading
days. Sometimes it can expand to as many as five
trading days.
4. 4. If it is a case of intermarket bullish divergence,
then both markets need to close in the top third of
a day’s trading range that day or very soon
afterwards (before the lows are taken out), which
would then be bearish and negate the signal.

- Oftentimes this will be a case of a double bottom.

- Oftentimes this will be a case of bullish oscillator
divergence on the second bottom with the market
that makes the lower low.

1. 5.In the case of intermarket bearish divergence,

both markets need to close in the lower third of a
day’s trading range that day or very soon
afterwards (before the highs are taken out), which
would then be bullish and negate the signal.

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- Oftentimes this will be a case of a double top.
- Oftentimes this will be a case of bearish oscillator
divergence on the second crest with the market that
makes the higher high.

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CHAPTER THIRTEEN

THE MOVING AVERAGE AS A TREND INDICATOR

AND CONFIRMATION SIGNAL

Not all technical studies involve complex mathematical

calculations. The previous chapters outlined several
techniques used to calculate price targets, which are
necessary to provide an idea of when to buy or sell in
the future. Like cycles and geocosmic studies, these
calculated price targets are akin to “leading indicators,”
because they address the future of the market. Several
technical studies and chart patterns were also discussed,
like stochastics and intermarket bullish or bearish
divergence signals. These are known as “coincident
indicators” because they frequently coincide with
important highs or lows from which reversals occur,
especially when they unfold in the time and price target
zones of a reversal indicated by market timing and price
objective studies.

But in many cases, a cycle doesn’t end when a market

timing signal is in effect, or a pre-calculated price
objective is attained, even if coincident technical studies
of a reversal are also present. Instead of reversing at
that point, the market may simply pause and go
sideways. Sometimes it even “breaks out” and
accelerates in the direction of the trend already in force.
In other words, it doesn’t reverse as these signals

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suggested. This is where the use of other technical
studies known as “lagging” or “confirming” indicators
can be very valuable. They identify certain price areas
that must be attained after the reversal has taken place
to affirm that a cycle high or low has indeed
culminated. Until prices decline (or rally) to these pre-
determined price levels, the cycle high or low cannot be
confirmed. The purpose of this chapter, then, is to
understand these “confirming” indictors, and to
establish price levels that need to be met before one can
assume that the cycle did culminate, as the leading and
coincident indicators suggested. Furthermore, these
confirming indicators may also act as “triggers.” That
is, they can provide the trader with minimum price
targets that will likely be met once a reversal has indeed
taken place, even without exhibiting the necessary
“confirming” criteria.

Simple Moving Averages

One of the most useful of the “confirming” or “lagging”

indicators is the simple moving average. If a particular
moving average relevant to a particular cycle is touched
or broken after a cycle has culminated, then it
“indicates” that cycle’s completion. If it closes two
consecutive time periods below or above this moving
average, it “confirms” that the cycle crest or trough has
been completed. This is not a 100% reliable indicator,
but it is valid often enough that it can be a valuable tool
for market analysis, especially when used in

285
combination with cycle time bands and other technical
studies.

According to Investopedia.com, “A simple, or

arithmetic, moving average, is calculated by adding the
closing price of the security for a number of time
periods and then dividing this total by the number of
time periods.” But the question for analysts and traders
is: what moving average is most useful to use? Here we
have the same situation as discussed between long-term
investors and short-term traders regarding theory and
practice. That is, there is a theory as to which moving
averages should work best, and then there is the actual
practice of which works best. The theory in regards to
optimal moving averages to use with cycle analysis is
this: A moving average that is half the length of the
mean cycle is most optimal. The reality in practice is
that moving averages other than half the length of the
mean cycle are sometimes more useful indicators as to
how a market behaves, especially during a trend run.
Not always, but sometimes.

Another distinction that is important to note is the

difference between the moving average as an
“indication” that a market cycle has topped or
bottomed, versus the moving average as a
“confirmation” of a cycle completion. The difference is
this: once a market cycle has been completed, it will
generally return to at least “touch” the relevant moving
average associated with that cycle. This is an

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“indication” that the cycle has topped out or bottomed.
But it is not a confirmation. It is only a minimum
requirement of a cycle completion. A “confirmation,”
on the other hand, occurs when the market has two
consecutive closes back above (in the case of
confirming a trough) or below (in the case of
confirming a cycle crest) this moving average. Thus,
once a market returns to its appropriate moving
average, we have to consider that the recent cycle top or
bottom is in. Once a market exhibits two consecutive
closes beyond this moving average, we can be more
certain, for that is considered the confirmation of the
cycle completion, and the move to its next trough or
crest is well underway. This will be demonstrated
shortly.

In the effort to identify the moving average(s) that best

meets what one needs for accurate analysis, an analyst
or trader is advised to consider the following points:
When a cycle low is due, the price is usually below this
moving average (but not always, as in the case of the
early phase of a strong bull market cycle). Once you
enter the time band for the cycle low and prices are
below this moving average, then that cycle trough will
be confirmed when prices close back above this moving
average. Ideally the price will close above this moving
average on at least two consecutive days (or weeks or
months). Sometimes it may require three consecutive
closes back above it to confirm.

287
 When a cycle crest is due, the price is usually above
this moving average (but not always, as in the case of a
strong bear market cycle). Once you enter the time
band for the cycle crest and prices are above it, then
that cycle crest will be confirmed when prices close
back below this moving average. Ideally that will
happen on at least two consecutive closes (daily,
weekly, or monthly, depending on which type of chart is
being analyzed). Sometimes it may require three
consecutive closes back below it to confirm.

Theoretical Versus Form Fitting

What moving average should be used? Which are most

useful? The theoretical rule is this: use a moving
average that is half the mean length of the cycle you are
trying to identify. For example, if you want to identify
the completion of a major 6-week cycle in stocks, then
use a 15-day moving average. That is, there are 30
market days in 6 weeks (5 market days/week times 6 =
30 days). Of course there are exceptions when holidays
take place. The theoretically correct moving average to
use to measure the 6-week cycle, then, is 15 days (one-
half of 30 market days in 6 weeks). If an 18-week cycle
is being studied, then the correct theoretical moving
average to use is 45 days. That is, in 18 weeks there are
90 market days. One-half of 90 days is 45 days.

But sometimes other moving averages are valuable for

determining support, resistance, or minimal price

288
objectives to a reversal of a trend. They may not be the
same as the theoretically correct moving average to use
based upon cycles. These moving averages are based
upon “form fitting.” That is, one may find a moving
average that consistently stops all rallies or declines
based on personal studies. This moving average seems
to “fit the form” of that market’s movements, so it is a
“form fitting” moving average. For instance, in many
stock markets, a 25-day moving average has been used
to identify support and resistance consistently. But
unless there is a consistent 10-week cycle phase to that
market, it is not the theoretically “ideal” moving
average to use.

In actual practice, one will often find that the moving

average of half a cycle’s length is the best ‘form fit” to
that market. Therefore, the theoretical moving average
and the ideal “form fitted” moving average are often the
same or very close to one another.

Long-Term Cycles and Moving Averages

Moving averages are most useful when a market is

first in a time band for a particular cycle trough (or
crest). In the case of a cycle trough, we want to see the
actual price at least touching (and preferably below) a
moving average that is associated with that particular
cycle. In the case of a cycle crest, we want to see the
actual price at least touching (and preferably above) a
moving average that is associated with that particular

289
cycle. As stated before, this criterion for a cycle trough
or crest does not work 100% of the time. But it happens
often enough that it can be considered a reliable
indicator of a minimum price move that a market will
make as it heads to its cycle trough or crest. Breaking
above this moving average on two consecutive closes
also serves as a confirming indicator that the cycle
associated with it has indeed bottomed. As it breaks
below this moving average in two consecutive time
periods, it serves as a confirming indicator that a cycle
crest associated with that average has topped out.

To illustrate these points, let’s address two long-term

cycles (cycles longer than the primary cycle). For this
exercise, we will examine the 4-year and 50-week
cycles in the Dow Jones Industrial Average.

We will start with the 4-year cycle in U.S. stocks, via

the DJIA. As discussed in an earlier chapter, the 4-year
cycle in the Dow Jones Industrial Average is actually a
46-month mean cycle. That is, in over 80% of cases
examined, the range of this cycle has historically lasted
36-56 months (trough to trough). The midway point
between the extremes of this 80% range is thus 46
months with an orb of 10 months either side.
Theoretically, then, the appropriate moving average to
use in order to determine 1) the completion of this
cycle’s high or low, as well as 2) the minimum price
target for the next high or low, is one-half of the mean’s
cycle length, or 23 months. In the case of the 4-year

290
cycle trough, we expect to see the DJIA trading below
this moving average after the 36th month (unless it
contracts to 32-35 months, which is rare). In the case of
the crest of a 4-year cycle, we expect to see the DJIA
trading above this moving average at least 5 months
after the trough has been realized (and ideally, much
longer than 5 months afterwards). Furthermore, once
the 4-year cycle trough or crest has been realized, we
then anticipate that the reversal will find prices rising or
falling to at least this moving average in the future. It
becomes a minimum price target for the new trend.

Figure 43: Monthly chart of the Dow Jones Industrial Average, depicting the 4-year
cycle troughs (1-7) and the 23-month simple moving average.

Let us look at the long-term monthly chart of the

DJIA, as shown in Figure 43, and see how this has

291
worked out between 1987 and 2010. We will begin with
the 18-year cycle trough of October 1987. Notice how
the DJIA was above the 23-month moving average prior
to October 1987 after attaining an all-time high just two
months before. From its high in late August 1987, the
DJIA plummeted 40% to its 4-year (and greater) cycle
low just two months later, on October 20, 1987. Such a
short decline into a 4-year cycle trough is very unusual.
As one can see from Table 3 (page 32), that was one of
the shortest declines ever for a 4-year cycle trough. But
prices broke below the 23-month moving average,
which is one of this signal’s criteria for confirming that
the crest of the 4-year cycle had been attained. Two
consecutive closes below this average is a stronger
criterion for confirmation. It meant that prices were
headed into the 4-year cycle trough. That happened the
next month, November 1987, even though the low was
not lower in price than October. That trough of October
1987 would nonetheless be confirmed when the DJIA
had two consecutive monthly closes back above the 23-
month moving average, assuming that happened at least
5 months past the low.

The DJIA had its first monthly close above the 23-
month moving average in June 1988, eight months after
the low. Therefore June 1988 was an initial signal that
the 4-year cycle trough occurred in October 1987. But
by the next month, it was back below it again, so it
wasn’t a confirmation. It did, however, serve as initial
resistance, and a minimum price target following the 4-

292
year cycle trough. Finally in January and February
1989, it closed two consecutive months above this
average, thereby fulfilling the moving average criterion
that the 4-year cycle had bottomed in October 1987.
Now prices would head to the crest of the new 4-year
cycle.

We can establish a minimum price range for this

crest based on the history of prior 4-year cycles, as
discussed in Chapter 4. In over 80% of cases studied,
the minimum price appreciation between the 4-year
cycle trough and the crest of the next 4-year cycle was
at least 50%. The 4-year cycle low in October 1987 was
at 1616. Therefore the minimum price target for the
crest of the new 4-year cycle would be 2424. That is,
once the DJIA exceeds the 23-month moving average in
two consecutive months, we would look for prices to
continue higher (to at least 2424) before the new 4-year
cycle crest was attained. In February 1989, the 23-
month moving average was 2179. The close that month
was 2258. There was still room and time for the DJIA
to rise further, before it closed two consecutive months
below this moving average and thus confirmed the
crest.

In fact, the DJIA continued higher into July 1990,

when it finally topped out at 3024, an appreciation of
87%. This was in the normal range of historical
appreciation. The crest would be confirmed when prices
closed below the 23-month moving average in two

293
consecutive months. But even touching this moving
average would be an indication that the crest might
already be completed. The first close below this moving
average following the high of July 1990 occurred in
September 1990. This was the first indication that the
crest had been attained. The close of October 1990 was
the second consecutive month below this moving
average, thus confirming that the 4-year cycle crest was
in.

The DJIA was now headed to the 4-year cycle

trough. The next challenge would be to confirm that the
4-year cycle had bottomed. We know from previous
chapters that 4-year cycles will bottom in 36-56 month
intervals in over 80% of cases studied. Measured from
the start of the 4-year cycle in October 1987, the next
trough of this cycle would be due October 1990-June
1992. We also know that in over 80% of the cases
studied, the decline would be at least 20% off of the
highs of that cycle. The crest of this particular 4-year
cycle in July 1990 was at 3024. During the time band in
which this cycle was due (October 1990-June 1992),
our minimal price target for the 4-year cycle trough
therefore would be at least 2419 (20% loss from the
high). That level was reached in September 1990. Thus,
by October 1990, as prices fell lower, the DJIA had
already fulfilled the minimum time and price objectives
for the trough of this 4-year cycle.

The next step was to confirm the October 1990 low

294
as the 4-year cycle trough. With the use of the 23-
month moving average, this confirmation signal would
occur once 1) the market was at least 5 months past the
low and 2) it completed two consecutive monthly closes
above the 23-month moving average. The reader should
understand that this confirmation becomes invalidated if
at any time the market declines back below the start of
the cycle during the time band in which the cycle low
could still be unfolding, or if it falls lower during the
36-56 month interval when the 4-year cycle trough is
due. That is a scenario not likely to happen, but it must
always be understood as a possibility.

In our continuing example, it didn’t take long for the

DJIA to close two consecutive months above this
moving average. It did so in December 1990 and
January 1991. In March 1991 (the fifth month following
the low), it was still closing above the 23-month
moving average, so the 4-year cycle trough could now
be confirmed with the low in October 1990 at 2344. It
was more than 20% off the prior high (actually a
decline of 22.5%), and it was in the time band for the 4-
year cycle trough (October 1990-June 1992), and there
were at least two consecutive monthly closes back
above the 23-month moving average after the 5th month
following the low. Therefore October 1990 was
confirmed as the 4-year cycle trough. The next step,
then, was to confirm the crest of the new 4-year cycle.

Once again, the two minimum criteria are that prices

295
1) test the 23-month moving average after the fifth
month, and 2) appreciate at least 50% off of the cycle
low. Keep in mind that there are exceptions to this latter
rule, but it has been the case in over 80% of historical
instances studied between 1893 and 2009 and these
forecasts (and rules) are based on historical rates of
frequency like these. Since the market bottomed at 2344
(a 50% appreciation), it means that the minimum price
objective for the crest of the new 4-year cycle would be
3516. This would represent another new all-time high
for the DJIA. It didn’t take long for the DJIA to close
back above the 23-month moving average. It did it in
December 1990, just two months later. But our 50%
appreciation level was not attained until May 1993. The
setup then began to confirm the crest of the 4-year
cycle. That is, we waited for two consecutive months of
closing below the 23-month moving average to confirm
that the crest was in and a decline of at least 20% was
attained. This instance would not fulfill these particular
criteria. But it would fulfill some of the other minimum
criteria for a 4-year cycle crest, such as touching the 23-
month average.

First of all, note that the high of this new 4-year cycle
occurred in January 1994 at 4002. This was a 70.7%
increase in prices off of the 2344 low of October 1990,
so it fulfilled the minimum price target for a 4-year
cycle crest (50% appreciation). Three months after the
high, in April 1990, the DJIA declined to the area of the
23-month moving average. It did not close below it,

296
which would have been a stronger signal that the top
was in if it happened over two consecutive months. Nor
did this decline represent a 20+% depreciation of prices
off the high of that cycle. But this brings up a very
important point about moving averages, and in
particular between confirming criteria and minimum
criteria for establishing the culmination of a cycle. Even
though the confirmation requires two consecutive closes
below the moving average to confirm a cycle crest, that
doesn’t always happen. The minimum criterion is
simply that the price touches (or comes very close to)
the moving average. In other words, a 4-year cycle crest
may never be followed by two consecutive closes below
the 23-month moving average (which would be the
confirming signal). But prices might only touch (or
come very close to touching) this moving average when
the low of that cycle actually unfolds. That was the case
this time, and that is why the moving average would
also serve as a minimum price criterion for a cycle
trough (or crest).

In April 1994, the DJIA dropped to 3520. The 23-

month moving average was 3506. It was close, but it
did not close the month below this important moving
average. Therefore, we conclude only that it might be
the 4-year cycle trough, and it might mean the crest of
the 4-year cycle was in, because the minimum criterion
was achieved (test of the moving average). But this low
could not be confirmed as the 4-year cycle trough since
there were not two consecutive closes below this

297
moving average.

In November 1994, the DJIA traded below the 23-

month moving average, which was a stronger signal
than that of April 1994. But once again it didn’t close
below this average, so it wasn’t confirmed. In
December 1994 (second consecutive month), it again
traded below this moving average, but again it didn’t
close below. So once more the DJIA yielded a signal
that the 4-year cycle might have topped out in January
1994, and bottomed in April or November 1994, but
still no confirmation.

Unfortunately, the confirmation of both the 4-year

cycle crest and trough did not come about until 1) prices
exceeded the crest of January 1994, and 2) after it
passed beyond the time band for a 4-year cycle trough
(the 56th month) without lower prices unfolding below
the 23-month moving average. That is, we were not
able to confirm the 4-year cycle crest at 4002 in January
1994, or its trough in April 1994 or November 1994 at
3520 and 3612 respectively, until February 1995, when
the monthly close was above 4002. In fact, these cycles
could not be confirmed until after the 56th month (or
June 1995), when the market exited the normal time
band for the 4-year cycle trough without making a
lower low and without ever closing below the 23-month
moving average. Thus, the important point to note here
is that 1) the market did touch (or came close to
touching) the 23-month moving average as the 4-year

298
cycle bottomed, and 2) it happened within the normal
36-56 month time band for a 4-year cycle trough
(October 1993-June 1995). That is, the minimum
criteria and the confirming criteria are different. In this
case, the minimum criteria for a 4-year cycle crest and
trough were met, but the confirming criteria were not
met until after the time band elapsed for the 4-year
cycle.

In the next 4-year cycle, the confirming indicators

were once again achieved for a 4-year cycle trough and
crest. The DJIA continued soaring to new record highs
after the 56th month and never (during that time band)
went back to the 23-month moving average. From a
double bottom low of 3520 in April 1994 and 3612 in
November 1994, the DJIA exploded to its 4-year cycle
crest of 9412 in July 1998. This represented an
appreciation of over 160%, well above the minimum
standard of 50%. This crest was then almost confirmed
when the DJIA closed below the 23-month moving
average in August 1998. It went lower in September
1998, down to 7379, for a loss of 21.6% off the high of
July 1998. This satisfied the 20% loss of value criterion
for a 4-year cycle trough. Even though prices then
rallied to close the month back above the 23-month
moving average, they then fell again into October 8,
1998 to 7399 for a double bottom. Consequently, the
DJIA never fulfilled the criterion of two successive
monthly closes below the 23-month moving average,
but it satisfied the other minimum criteria for this to be

299
the 4-year cycle trough. It was off by over 20% from
the high. It occurred exactly in the 46th month of the
cycle, and prices at least touched the 23-month moving
average and even closed below it once while trading
below it for three successive months. By January 1999,
the DJIA was making new all-time highs, well above
the 9412 high of July 1998, thus confirming that the 4-
year bottom was in with the 7379 low of September 1,
1998.

The next 4-year cycle low would thus be due 36-56

months later, or September 2001-May 2003. But prior
to that, the crest would occur. We knew that this crest
would likely be at least 50% higher than the low of
7379 that started the cycle, or 11,068 (80+%
probability). A look at the monthly chart in Figure 43
shows that this cycle topped out with another new all-
time high of 11,908 on January 14, 2000 (that was the
theoretical high; the actual high was 11,750, and from
this point onwards, we will use actual prices unless
identified otherwise). The DJIA suggested that this was
the high when it declined back to the 23-month moving
average. It first did this one month later, in February
2000. It went even lower in March 2000, but neither of
these forays were below the 23-month moving average
witnessed a close below there. Thus, even though prices
started back up again, it was unlikely that March 2000
was the 4-year cycle trough because it was much too
early. It was not due until at least September 2001, the
36th month. We really needed to get to September 2001

300
before considering that the bottom was in.

In September 2001, following the 9-11 attack on the

World Trade Center, the DJIA fell sharply to 7926 on
September 21, 2001. This was the 36th month, so it was
entering the time band of the 4-year cycle trough. Thus,
it represented a decline of 33.4% off the all-time high of
January 2000. Thus two important criteria for a 4-year
cycle were being met. It looked very promising by
March 2002 when prices closed above the 23-month
moving average. However, the very next month the
DJIA closed well below this moving average, so the
bottom could not yet be confirmed. As one can see from
the monthly chart, the DJIA then declined even further,
to 7197 (actual) on October 10, 2002. This was an even
better fit, for it was closer to the middle of the normal
time band for this trough (October was the 49th month).
It also occurred on the day of Venus retrograde, one of
the most powerful and consistent geocosmic signatures
correlating to significant market reversals as outlined in
Volume 3 of this series.

This 4-year cycle trough would be confirmed when

prices closed back above the 23-month moving average
in two consecutive months and continued closing above
it past the 56th month. Two consecutive monthly closes
above this average occurred in July and August 2003.
This was also well past the 56th month of May 2003.
The DJIA was now well into its new 4-year cycle and
headed for the crest of this new cycle.

301
 The minimum price target for the crest of this new 4-
year cycle would be 50% above the low of 7197. That
means we would now look for a multi-month (even
multi-year) rally to at least 10,795. That was attained by
December 2004. The challenge now would be to
confirm the crest of this new 4-year cycle and look for
the low that would define the next trough, due 36-56
months after October 2002, or October 2005-June 2007.
The first step would be to see prices decline back to the
23-month moving average, preferably in October 2005
or later (the 36th month of the 4-year cycle). This would
not actually confirm the 4-year cycle crest, but it would
be a minimal criterion for a 4-year cycle trough. On
October 13, 2005, the DJIA broke slightly below the
23-month moving average when it plummeted to 10,098
in the theoretical price, and 10,156 in the actual price.
Besides not closing below the 23-month moving
average for two consecutive months, here was another
problem with this low. It was only 7.5% down from the
high (actual) of the cycle at 10,984 on March 7, 2005.
That would make it the smallest decline in history. Yet
in retrospect, that would be the case.

302
Figure 44: A replica of Figure 43 in actual prices and with less months showing. Note
the lows of 6 and 6A as possible 4-year cycle troughs. Neither witnessed two consecutive
closes below the 23-month moving average, nor a 20% decline from the prior high, but
ultimately the low was one of these, for the DJIA soared to a new high after the time
band ended for a low.

There are actually two possibilities for the 4-year

cycle trough in this instance. The first was on October
13, 2005, as just described. The second would be July
18, 2006, at 10,683 (actual), or 10,653 (theoretical) the
month before (June). The crest that preceded this one
was at 11,670 (actual) on May 10, 2006. Time-wise,
this was a better fit for the 4-year cycle trough because
it occurred in the 45th month, much closer to the mean
of this 46-month cycle. Also, the decline represented a
loss of 8.45% - still well short of the 20% minimal level
sought, but a little better price-wise than the 7.5% of
October 2005. The 23-month moving average in the
actual market was 10,674, so the low of 10,683 was

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close enough to be considered “touching it.” In
retrospect, one could consider either October 2005 or
July 2006 as the 4-year cycle trough. Both were in the
time band for this low, but in neither case did prices fall
at least 20%, nor close two consecutive months below
the 23-month moving average. But by the time the
DJIA completed its 56th month (June 2007), there were
no other options available. The DJIA was on its way to
another new all-time high in October 2007, thus
confirming one of these prior dates (October 2005 or
June-July 2006) as the 4-year cycle trough.

The next 4-year cycle would be due 36-56 months

following October 2005 or July 2006. The first case
would equate to October 2008 - June 2010; in the
second case, it would equate to July 2009-March 2011,
assuming they were to unfold in their “normal” cycle
time bands. But this case could be distorted, for the
even longer-term 72-year cycle was also due (2004 +/-
12 years, as measured from the last instance in July
1932). In retrospect, we know this was the case if July
2006 was the start of the 4-year cycle.

The first step now is to identify the completion of the

crest to this new 4-year cycle. If we take a 50%
appreciation of the low of October 2005, we get 15,234.
If we take a 50% appreciation of the low of July 2006,
we get 16,025. Those become minimum price targets.
But remember: when a market is in its last phase of a
bull market cycle, the most bearish characteristics of the

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entire cycle will usually unfold. In this case, it could be
the last 4-year cycle phase of the 72-year cycle, which
had been decidedly bullish. Therefore, this 4-year cycle
might 1) turn into a left translation pattern, 2) fail to
meet its upside price target, 3) distort from its normal
time band, and/or 4) experience its sharpest decline
since 1932. All four of these characteristics happened in
the 4-year cycle that started in July 2006. (Two of them
applied if October 2005 was the correct starting point.)

This particular 4-year cycle topped out on October

11, 2007 at 14,198 in the DJIA. This period coincided
with Jupiter in Sagittarius, forming a 270° square to
Uranus - one of the strongest geocosmic correlations to
a market reversal as demonstrated in Volume 3 of this
series. Also, Saturn formed a conjunction to the South
Node of the Moon (with Venus) during this time. The
first indication that this was the crest of the 4-year cycle
(and even greater) via our moving average theories
occurred when the DJIA fell to the 23-month moving
average. This happened in January 2008. However,
there were not two consecutive closes below this
moving average until May and June 2008. The initial
downside price target would be a minimum 20% of the
14,198 high of October 11, 2007, or 11,358. That was
achieved in June 2008. This was still too early for the
bottom, so it was likely to fall lower. And it did - all the
way to 6470 on March 6, 2009 - when Venus again
turned retrograde. From the high of 14,198, this
represented a loss of 54.4%, the steepest decline since

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the 1930’s. We could therefore now confirm that the
crest of the greater 72-year cycle was also completed in
October 2007. Time-wise, the low of March 6, 2009
was the 41st month following the low of October 2005,
or 32 months following the low of July 2006. The first
case would make it a normal time band for the 4-year
cycle trough. The second case would be a 32-month
interval, which would represent a distortion, known in
this case as a “contraction.” Since distortions are more
common when longer-term cycles unfold, this is
certainly a possibility. There have been two previous
cases of 32-month contractions for the 4-year cycle in
the past (October 1929 - July 1932, and October 1946 -
June 1949). But since 1893 (when these studies
commenced) there have been no cases of 4-year cycles
lasting less than 32 months.

As the cycle bottomed March 6, 2009, the DJIA was

well below the 23-month moving average. If that was
the 4-year bottom, then we would expect to see 1)
prices appreciate at least 50% from that low, and 2) at
least touch the 23-month moving average after the 5th
month. To confirm it as the 4-year cycle trough, the
DJIA would need to close above this moving average
for two consecutive months. From a low of 6470, a 50%
appreciation would give an upside minimum price
target of 9705. That was attained in September 2009.
However, at that time the DJIA had still not recovered
enough to test the 23-month moving average. That
would happen in November 2009. In fact, it closed

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above this average in November and December 2009,
thus confirming March 6, 2009 as the 4-year cycle
trough. As of this writing in early 2011, it has not been
back to test this moving average. When it does, it will
be an initial indication that the 4-year cycle has topped
out. That will then be confirmed on two successive
monthly closes below the 23-month moving average.
For those who like to look ahead, the “normal” time
band for this 4-year cycle trough would be 36-56
months following March 2009, or March 2012 -
November 2013. At that time, we will anticipate a
decline of at least 20% from the crest or at the very
minimum, prices touching the 23-month moving
average.

The 50-Week Cycle and 25-Week Moving Average

When the DJIA is in the last 50-week cycle phase of

a bullish 4-year cycle, one does not have to wait for the
23-month moving average to be broken to confirm the
4-year cycle crest has been completed. It can be
confirmed when the 25-week moving average of the last
50-week cycle phase has been broken. That is, once the
appropriate moving average of the last phase of a cycle
is broken, it also indicates that the crest of the greater
cycle has been completed. Prices will then continue to
trend lower and lower until both the 50-week and 4-
year cycles are completed. The final 4-year cycle
trough, however, will not usually be realized until 1) the
market enters the time band where both the 50-week

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and 4-year cycles overlap, and 2) the DJIA also falls to
(or below) the 23-month moving average. Keep in mind
that the trough of the last phase of a cycle will always
coincide with the trough of the greater cycle itself.

Conversely, after the 4-year cycle trough has been

attained, one of the first stages of confirmation will
come when prices exceed the 25-week moving average.
That is, the appropriate moving average for the first
phase of a new cycle will often be exceeded before the
appropriate moving average for the greater cycle is even
touched. However, that is not always the case.
Sometimes the moving average of the greater cycle is
lower than the moving average of the subcycle. The
more valid confirmation that the 4-year cycle has
bottomed will take place after monthly prices start to
close above both the 23-month and 25-week moving
averages. It is even stronger if the 25-week moving
average was below the 23-month one and has reversed
to rise above the 23-month average, with actual prices
trading above each. That may or may not happen in the
first 50-week cycle phase, but it will eventually happen.
When it does, it means the market is starting a powerful
trend up and those moving averages become support for
the bull trend.

Let us demonstrate this principle by examining the

weekly chart of the DJIA with a 25-week moving
average, the theoretical “ideal” moving average to use
with the 50-week cycle (It is not just theoretically the

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“ideal” to use in my opinion; it actually works very well
for our purposes.). We will do this with an example that
takes into account the later 50-week phases of a 4-year
cycle, the weekly chart of 2005-2009, as shown in
Figure 45.

In a previous chapter (and in Volume 1), our research

studies showed that there are three, four, or five 50-
week cycle phases within the 4-year cycle. Since 1893,
this pattern has failed only once, and that was in the
longest 4-year cycle observed, which extended from
July 1932 through March 1938. There were six 50-week
cycle phases then, as that was the first 4-year cycle
following the 72- and 90-year cycle lows of the Great
Depression. In the majority of cases, there will be four
or five 50-week cycles within the greater 4-year cycle.
Thus, when trying to confirm the end to a four-year
cycle, we want to study closely the third, fourth, and
even fifth 50-week cycle phase for signs of a completed
trough. Our attention, however, will be most acute in
the fourth and fifth phases. In fact, it has been the fourth
phase that appeared most often to end the 4-year cycle,
and we should be most alert to the end of that 50-week
cycle.

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Figure 45: Weekly chart of the DJIA, identifying the 50-week cycle phases within the 4-
year cycle (1-5). Shown here is the 25-week moving average.
In the example above (Figure 45), the 50-week cycles
are identified in a 4-year cycle that began on October
13, 2005. As stated before, it is also possible to start this
4-year cycle with the lows of June or July 2006. Either
one could be used, but for purposes of showing how the
latter phases of the 50-week cycle are usually used to
confirm a 4-year cycle trough, let us assume this 4-year
cycle began in October 2005. This starting point is
depicted as “1” in the chart above. The subsequent 50-
week cycles occurred at 2, 3, 4, and 5. That is, the third
50-week cycle began at 3 and ended at 4. This is where
our analysis begins in the quest to confirm the 4-year
cycle trough, for the earliest we expect a 4-year cycle to
begin is when the third 50-week subcycle within it
comes to an end. The third 50-week subcycle ended at 4
in this example, or with the low of January 22, 2008.

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Now, what else do we know about 4-year cycles from a
timing point of view? We know they generally last 36-
56 months, with the shortest on record being 32 months.
From a starting point of October 2005, we would not
expect a low for at least 32 months (June 2008) and
more than likely at least 36 months (October 2008).
Since the end of the third 50-week subcycle occurred on
January 22, 2008, we know that was too early for the 4-
year cycle. So our attention shifts to the fourth 50-week
subcycle that began at that time.

As we study this 50-week cycle, first of all note that it

was confirmed for January 22, 2008, when the DJIA
closed two consecutive weeks above the 25-week
moving average. That happened the weeks ending April
18 and 25, 2008. This 50-week cycle will now confirm
its crest upon two consecutive closes back below the
25-week moving average. This will be important,
because if it is indeed the last 50-week cycle phase of
the greater 4-year cycle, the steepest decline of the 4-
year cycle will likely be in force.

The 25-week moving average was taken out on two

consecutive weekly closes on June 6 and June 13, 2008.
This confirmed that the 50-week cycle crest was
completed on May 19, 2008 at 13,136. Note that this
high was lower than the previous 50-week cycle crest
(14,198 on October 11, 2007), and if valid, would
represent a left translation 50-week cycle. A more

311
important confirmation that the 50-week cycle had
topped out would occur when the DJIA closed below
the price that started this 50-week cycle, which was
11,634 on January 22, 2008. Hence, once prices take
out the low that starts a cycle, its trend will be bearish
(prices will continue lower and lower) until the end of
the cycle. That happened during the last week of June
2008. This 50-week cycle would now be bearish, with
the lowest price not due until the end of the cycle. And
since this was the fourth 50-week cycle phase of the
greater 4-year cycle, there was good reason to anticipate
that its low would also be the 4-year cycle trough.

The next step now was to identify the likely time band
for this 50-week cycle trough, knowing that it must also
overlap the time band for the 4-year cycle trough. As
reported in Volume 1, 50-week cycles have a 90%
probability of bottoming at the 34-67 week interval.
That translates into about 7.8-15.5 months. In this case,
we would anticipate the low of this cycle to unfold
September 2008-May 2009.

Once the market entered this time band for the fourth
(and possibly last) 50-week cycle phase of the greater
4-year cycle, we watched for several bullish technical
signals and chart patterns to suggest a low was in, as
discussed in the prior chapters. But the confirmation
wouldn’t arise until the DJIA closed above the 25-week
moving average for two consecutive weeks. That is our
primary challenge - to identify a new trend is underway

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- based on the purpose of this chapter. If the weekly
close is above this moving average prior to entering this
time band, we ignore it. It is only after this time band
has been entered that we pay attention to consecutive
weekly closes above it.

Looking at the weekly chart in Figure 45, it will be seen

that the DJIA never closed, or even touched, the 25-
week moving average after breaking below it in early
June 2008. That is, it didn’t rise to the average until
well after the low on March 6, 2009.

It first poked above the 25-week moving average in the

week ending April 17, 2009, six weeks after the low.
However, it didn’t complete two consecutive weekly
closes above it until the week ending May 8. This then,
confirmed the completion of the 50-week cycle low on
March 6, 2009. It was the first signal, via moving
averages, that the 4-year cycle was also completed, for
this was the fourth 50-week cycle phase of the 4-year
cycle. There was now ample reason to think this was
the last 50-week cycle within the 4-year cycle, since it
was the fourth such phase. Therefore it would now be
worth the risk of establishing a long-term long position.

Of course, there was still the possibility of a fifth 50-

week cycle phase to complete the 4-year cycle. But
several chart patterns soon negated that possibility.
From the point of view of moving average studies, the
first thing that negated the possibility of a five-phase 4-

313
year cycle pattern was the consecutive monthly closes
above the 23-month moving average, which occurred in
November and December 2009. By that time, the DJIA
was already more than halfway through the new 50-
week cycle, so it would be a bullish right translation
pattern. In the last phases of longer-term cycles, we are
more likely to see left translation bearish patterns,
especially if the prior phase was left translation and
bearish (which it was, in our case). As it turned out, the
market never fell back below the 25-week moving
average for the rest of 2009, another sign that this was
to be a bullish 50-week cycle, which is a characteristic
of the first phase of a new longer-term cycle, and not
the last phase of an older one.

Primary and Shorter-Term Cycles

Every cycle trough has a time band when it is

normally due. An 18-week primary cycle, for instance,
may be normally due 15-21 weeks after its current cycle
begins. This is the case in many commodity cycles, like
Gold and grains. In the case of the Dow Jones Industrial
Average, the primary cycle is actually 17 weeks, and its
“normal” historical range is 13-21 weeks, established
by studies covering over 70 years (1928-2005) as
reported in Volume 1 of this series. Of course, it can
distort. But we are working with the middle 80%
probabilities, so we will first focus on the 13-21 week
time frame for the primary cycle in the DJIA. But note
that this varies for other stock indices. For example, it is

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15-23 weeks in the S&P and the NASDAQ Composite,
13-19 weeks in the Japanese Nikkei, 15-26 weeks in the
German DAX and the Swiss SMI, and 17-27 weeks in
the Netherlands AEX, to name just a few.

Once the DJIA enters the 13th week, we expect prices to

at least test - and preferably to break below - a moving
average that has been defined as appropriate for the
confirmation of a primary cycle crest. Theoretically,
that would be a moving average that is half the mean
length of the primary cycle. Since the mean primary
cycle for the DJIA is 17 weeks, it means a moving
average of 8.5 weeks, or 42.5 days. In many cases, it is
usually a little less than 42.5 days because of holidays.
Also, we don’t use half-days. Therefore 42 days – or
even 40 days – is a good figure to use for a moving
average to correspond with the primary cycle in the
DJIA.

In fact, the 40-day moving average is very popular

and used by many market analysts, because it works so
well in understanding their concepts of a “market
trend.” If the market is in a longer-term bear trend, then
it will almost always be below this 40-day moving
average at some point in the 13-21 week time band
when the DJIA primary cycle trough is due. But if the
longer-term cycle is bullish, there will be times in
which prices may not fall below here. In these cases, the
40-day (or 42-day) moving average may act as support
to any corrective declines. At a primary cycle trough,

315
prices might only touch this moving average, so it
provides a minimal price target for a decline. In order to
confirm a primary cycle trough, however, it needs to
close below here on at least two consecutive trading
days once the time band for the low is entered. If it
doesn’t, but instead only tests the moving average, then
the primary bottom cannot be confirmed until the
market exits the time band in which the cycle low is due
and starts making new highs. These, then, are the steps
to confirming that a primary cycle trough has been
completed, via the moving average.

After a market has entered a time band when its primary

cycle crest could unfold, we use the moving average of
half its cycle length to confirm that the crest has been
completed. That confirmation comes if and when prices
drop below this average on two consecutive occasions.
As suggested before, the price may never drop below
this average if the longer-term cycle is in a very bullish
phase. Therefore there may never be a confirmation of
the cycle trough in these cases via this rule. The
important point to note is that the market must be in (or
past) the time when a cycle crest is due before a drop
below that moving average becomes significant. Why?
Because as a cycle bottoms, prices may rise and fall
sharply for a few days or weeks, and they may rise
above and fall below that moving average several times.
The market must at least get to the point where it is
most probable for a cycle crest to occur, which means at
least 1/8 into the mean cycle length. In the case of a

316
primary cycle, for instance, we would not consider a
primary cycle crest as having occurred if the market is
not at least 2-5 weeks removed from the start of that
primary cycle. In those first 2-5 weeks, it is not
uncommon for a market to trade above and below a
critical moving average several times. But if it has been
above the 40-day moving average for several days, and
the market is well past the second week, then a drop
below can indicate that the primary cycle crest is
completed.

The same is true in regards to confirming cycle troughs.

In fact, moving averages are even more important here,
because troughs occur at regular intervals of time.
Crests do not. As a market enters the time band for a
primary cycle trough, it is most important if prices close
below the appropriate moving average and better yet, if
it happens on two or more consecutive trading days.
Prices may not fall below this moving average if the
market is very bullish and in the early stages of a
longer-term bull market. But when they do (and they
usually do) then it is a confirming signal that the cycle
trough is unfolding.

The moving average can also be used to confirm that

the primary cycle trough has been completed. This
happens when prices form a low in the time band for a
cycle bottom, and preferably within a price target range
for that bottom, and more ideally at a time when there is
a geocosmic critical reversal date. When all of those

317
factors are in place, a move above this moving average
will confirm that the cycle trough is over, and a new
cycle is underway. To be valid, it should register at least
two consecutive closes above this moving average.
Until that happens, the cycle low is not confirmed, and
there is nothing to say the market will not have another
decline to lower prices as long as the time band for the
cycle low is still in effect. Furthermore, if it closes
above that moving average in the first 1/8 of that new
cycle, it may still fall back below it again without
making a new low. When prices fall back below the
moving average that early in the primary cycle, it does
not confirm that the new cycle has already topped out.
The point is a technical analyst need not pay much
attention to the moving average until the market is
entering the time band for the primary cycle trough.

It is at this point that we want to introduce the 25-day

moving average, because it is one of those “form fitted
averages” that works well for our purposes. In other
words, this is a case where actual practice will often
supersede theoretical considerations. It is especially
useful in confirming a primary cycle trough after prices
have entered the time band for that cycle low and are
under the 25-day moving average. As they then start to
close back above this 25-day moving average, it usually
confirms that the first phase of a new primary cycle is
in force.

The same concept can be applied to a bullish primary

318
cycle once it enters its last major cycle phase (i.e. the
third 5-7 week major cycle within the greater 17-week
primary cycle). That is, if prices are trading above the
25-day moving average, and the market has completed
two 5-7 week major cycle phases, then it will likely fall
below this moving average as the primary cycle trough
unfolds. In any event, that is what we anticipate to
happen when the primary cycle trough comes due, and
we use that as an important indicator in the setup for
attempting to buy the primary cycle trough.

To illustrate these concepts, let us look at a daily

chart of the DJIA that depicts the primary cycle of July
2, 2010 through November 29, 2010, as shown in
Figure 46. This is a typical 3-phase bullish primary
cycle. That is, it contains three major cycle troughs,
identified as MB (major cycle bottom) with the last
being the primary cycle bottom (PB). The greater cycle
type is always used to identify a cycle, thus the last
major cycle low is also a primary cycle low, but it is
referred to as a primary bottom (PB) and not MB. PB
means it also contains the lesser cycles, such as a major
cycle trough or half-primary cycle trough. The chart
also shows a 25-day moving average (solid line) and
40-day moving average (dotted line). As discussed
above, theoretically the 40-day moving average is
appropriate because it is approximately half the length
of a normal primary cycle. But in actual practice, I find
the 25-day moving average to be more useful in the
process of confirming primary cycles in many cases.

319
 As expected, prices fell well below both the 40- and
25-day moving averages at the start of the primary
cycle on July 2, 2010. On July 8, just three trading days
later, the DJIA closed above the 25-day moving
average, the first sign that the primary bottom might be
in. The next day, it closed above the 40-day moving
average, which denoted the same thing. But this was the
second consecutive day above the 25-day average, so it
was more of a confirming signal, although it could still
fall back and forth (below and back above) several
times in the first 2-5 weeks. On Monday, July 12, it
closed a second consecutive day above the 40-day
moving average, thus issuing its confirming signal of a
primary cycle trough. Two weeks after the low, it did
indeed fall back below both moving averages slightly. It
was too early for a primary cycle crest, so this was
nothing to worry about, unless it actually fell below the
start of the primary cycle (It did not.).

The DJIA rallied back above both moving averages

again, as it should, by July 22, on its way to the crest of
the first major cycle. This crest culminated on August 9,
after which it again fell below both moving averages.
This was a signal that the primary cycle crest may have
also been completed on August 9. However, that would
not be confirmed until prices actually took out the low
that started the cycle back on July 2. That never
happened. In fact the two moving averages intersected
on September 3, and the DJIA closed well above both,

320
thus confirming August 27 as either a major or half-
primary cycle trough. It could be either type, because
that low was in the 8th week of the primary cycle. Most
major cycles last 5-7 weeks, but they can expand to 8
weeks. Most half-primary cycles last 7-11 weeks, so
this low could be either type, and it wouldn’t be known
until it was determined that this would be a two or
three-phase primary cycle. It turned out to be a three-
phase type, and hence that low of August 27 would be
labeled a major cycle trough (MB).

Figure 46: Daily chart of the DJIA, showing the primary and major cycles between July
and November 2010, along with the 25-day moving average (solid line) and 40-day
moving average (dotted line).
By the end of September, prices were above both
moving averages, and the 25-day was above the 40-day,
indicating a trend run up was in force. This signaled
that a new bull market was underway, one we would

321
call part of the “Asset Inflation Express” because it was
taking place when both Jupiter and Uranus were in the
very early degrees of Aries, a very speculative
combination from the studies of geocosmic signatures.

Because it was such a strong bullish technical setup,

prices stayed well above both the 25- and 40-day
moving averages through the second major cycle trough
(MB), which took place on October 4. That also began
the third and final major cycle phase.

Now, this is where it gets interesting via the use of

moving averages combined with cycle patterns. It was a
bullish primary cycle because it clearly exhibited a
bullish right translation pattern (pPrices made new
highs after the halfway point.). Thus, once this cycle
completes its crest, the steepest decline of the cycle
would likely unfold. That is, once the crest of the third
major cycle was attained, a sharp 2-5 week decline to
both the major and primary cycles would take place. As
this happened, we would now expect to see prices fall
below the 25-day moving average (but not necessarily
the 40-day). They might only touch the 40-day average,
since it had been such a bullish primary cycle.

The primary cycle crest culminated on November 5.

One week later, on November 12, prices touched the
25-day moving average, the first sign via this study that
the primary cycle may have topped out on November 5.
Two trading days later, on November 16, it closed

322
below the 40-day moving average, a stronger signal that
the top was in. The next day confirmed this with its
second consecutive close below.

Now we look for confirmation that the primary cycle

has bottomed and a new primary cycle has started. On
November 18 and 19, the DJIA closed back above the
40-day moving average. This was a strong signal that
the market bottomed on November 16. But it didn’t
close above the 25-day moving average, which is our
moving average indicator of a primary bottom once we
reach the time band when a primary bottom is due. As
can be seen in Figure 46, prices fell to a lower low on
November 28 (PB-2). It was a couple of trading days
afterwards that prices closed two consecutive days
above both the 25- and 40-day moving averages. That
was a better signal that a new primary cycle had
commenced. It was further supported by the double
looping daily stochastics, in which the second loop was
higher than the first (bullish oscillator divergence).
Subsequently the bull market resumed, carrying the
DJIA to a new 2-year high into February 2011.

Using Multiple Moving Averages for Identifying

Trend Runs

Most traders can be classified as one of two types,

and each base their trading plans on distinctly different
temperaments. The most common type of trader is the
trend trader. These individuals enter a market in the

323
direction of that trend only when it either breaks out
above an important resistance zone or below significant
support zones. They are buyers in bull trends and short
sellers in bear trends based on these breakouts.
Sometimes they are referred to as “breakout” traders.
Their psychology is to attain consistent profits, to
experience a high percentage of winners versus losers.
Before they go long, they want to have a high degree of
confidence that an important low has already been
attained, and the trend is up. Or before they go short,
they want a relatively high probability that an important
crest has been completed, and the trend will now be
down.

The other type of trader is more concerned with risk-

reward opportunities. These individuals are more
focused on trying to pick bottoms and tops nearby to
important support or resistance zones. They will buy
low - near support zones - and risk a small fraction of
what they consider a reasonable profit objective if they
are correct. They will also sell short on highs - near
resistance zones - with a stop-loss just above those
resistance zones. If they are correct without getting
stopped out, they make a very handsome return on their
investment. But by trying to pick bottoms and tops, this
trader is going against the immediate trend, whereas the
trend trader is going with the immediate trend.

The trend trader will likely miss a good portion of the

initial move. However, he will often capture the middle

324
third of a move in the direction of a trend with a high
level of consistency. His percentage of gains versus
losses will be high in comparison to the one who is
more concerned with risk-reward parameters (or bottom
and top pickers).

Thus, one can see the dilemma facing every trader

before a trade. The two questions to ask are 1) what is
the probability of being right on this trade, and 2) is it a
favorable risk versus reward ratio? The trend trader, or
breakout trader, has a higher probability of being right
on the trade, but will likely have to assume more risk in
the event he is wrong. The bottom and top picker is
going to achieve a lower percentage of winners versus
losers, but when he is wrong, his loss is much less
(assuming both use stop-losses after entry based on
recent highs or lows), and when he is right, his gain is
likely to be much greater as a percentage of his
investment. Since the trend trader has a higher
percentage of gains versus losses, it is no wonder that
most books on technical analysis are heavily weighted
to this type of trading.

However, trend trading is not the dominant approach

of these books. The methodology outlined here is
heavily weighted with tools that help one to identify the
times and the prices of potential troughs and crests and
thereby to find a very favorable place (location) to enter
or exit a market for the greatest risk-reward ratios. But
having said that, there are times when one may

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exclusively trade in the direction of the trend, and even
upon breakouts, and those times can be identified by the
use of multiple moving averages. In fact, during these
trend runs, it is possible to make a large fortune by
pyramiding upon a core position. Of course, if wrong,
then one’s large fortune may turn into a smaller fortune
very quickly, or worse.

As suggested before, multiple moving averages can

be used to identify trend runs, especially when used in
combination with cycle studies. For trading purposes,
this can best be illustrated with the primary cycle. We
know, for instance, that the first phase of every cycle is
bullish. We also know that the middle phase will also
be bullish if the longer-term cycles are in their earlier
stages. Thus, we look for signs of a trend run up in the
first two-thirds (or longer) of a bullish primary cycle.
Expressed in another way, a bullish primary cycle will
likely top out after the second (of three) major cycle
phases has been completed. The converse is true with
bearish primary cycles. That is, they will top out in the
first major cycle phase and then turn bearish, not to
bottom until the entire primary cycle ends.

How do we handle this with moving averages? The

basic premise is this: In a trend run up, the price of the
market will be above the moving average that applies to
both the major and primary cycles (have their mean
length). Furthermore, the moving average associated
with the major cycle (the faster moving, or changeable,

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one) will be above the moving average associated with
the primary cycle (the slower moving, or smoother,
one).

In this practice it is best to use moving averages that

are half the length of the primary cycle and a second or
third shorter moving average that is half the length of
the major and/or half-primary cycles. In other words,
the moving average of the primary cycle should be two
or three times the length of the moving average
associated with the major or half-primary cycle. The
proportions are important if the purpose is to establish
the likely trend of the primary cycle, which in turn is
important if one wishes to be on the right side of the
market for large and longer-lasting price moves in most
cases.

Let us apply this rule to the Dow Jones Industrial

Average and see how it works. If the primary cycle has
a mean periodicity of 17 weeks, then the theoretically
correct moving average to use is 42 days (i.e. 8.5 weeks
x 5 days). If the major cycle (one-third of the primary
cycle) has a mean interval of 6 weeks, then the
theoretically correct moving average to use is 15 days
(three weeks, of five days each). But for the purpose of
trend analysis, we want to use moving averages that are
in a direct proportion to one another by either a multiple
of two or three. Therefore, since we chose a 42-day
moving average for the primary cycle, we will use a 14-
day moving average for the major cycle’s appropriate

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major average.

Figure 47: Daily chart of the DJIA following the possible 4-year cycle low at the double
bottom of June 14 and July 18, 2006. The solid line is the 14-day moving average,
pertinent to the 6-week major cycle. The dotted line is a 42-day moving average,
relevant to the 17-week primary cycle. 2, 3, and 4 are primary cycle troughs.

This example begins with the double bottom lows of

June 14 and July 18, 2006. This was cited earlier as two
of the possible starting points for a 4-year cycle trough.
Therefore we expect the early stages of this new cycle
to exhibit a trend run up pattern, especially in the first
primary cycle phase of this new 4-year cycle. One will
notice that during the low of June 14, the DJIA was
below both moving averages, and the shorter one (solid
line, 14-day moving average relevant to major cycle)
was also below the longer one (dotted line, 42-day
moving average relevant to primary cycle). On June 29,
the DJIA rose above both moving averages, which was
a signal that the primary cycle low may have formed

328
June 14 (It did in the theoretical DJIA prices.). But the
14-day moving average couldn’t quite get above the 42-
day average, which is necessary to confirm that a new
trend run up was in force. As one can see, the DJIA
then fell once more to a lower actual low on July 18. By
this time, the 14- and 42-day averages were virtually
together.

On July 24, the DJIA rallied sharply to close above

both of these moving averages again - yet another sign
that the bottom may be in. However, it wasn’t until
August 2 that the 14-day moving average turned above
the 42-day. The DJIA closed at 11,199.90 that day
(above both moving averages), so this was a
confirmation sign that the primary cycle trough had
been completed, and the trend run up was in force. The
idea now would be to adopt bullish strategies until 1)
prices entered the time band for a primary cycle crest,
2) prices would break below the 42-day moving
average, especially on two consecutive closes, or 3) the
14-day moving average turned below the 42-day
average, and prices fell below each. Since we are now
more concerned about trends than trading opportunities,
let’s just see how this measured the trend run up by
looking only at the last two points.

On November 28 and December 1, the DJIA declined

very close to the 42-day moving average, but it never
closed below (it touched it on December 1).
Furthermore, the 14-day moving average never fell

329
below the 42-day average and even though November
28 was a primary cycle trough, it never turned the trend
down. It remained bullish into and following the
primary cycle trough.

In fact, it was not until February 27 of 2007, over six

months after it gave a trend run up signal that the DJIA
closed below the 42-day average. It closed at 12,216
that day. On March 5, the 14-day MA (moving average)
also crossed below the 42-day moving average, thus
confirming the trend run up was over (via this signal). It
closed at 12,050 that day. Whether one exited on the
first or second signal, the gain was 800-1000 points.

Figure 48: Daily chart of the DJIA with the same 14- and 42-day moving averages.

You can see the same trend run up in effect in the next
primary cycle, shown in Figure 48. Once the 14-day

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moving average curled back above the 42-day average,
and prices were above both, another bull run was in
force. It too lasted until the 14-day moving average
moved back below the 42-day one, and prices were
below each (August 9). This was another 900+-point
advance measured by the difference in closing prices at
each of these signals. In both of these examples, the
primary cycles were bullish, and the moving average
rules defined the greater body of the trend run up.
During these periods, trend traders could have remained
long, and risk-reward traders could have bought any
corrective declines back to the 14-day moving average
with a stop-loss on closes below the 42-day average, or
at a time when the 14-day average turned below the 42-
day one. In both cases, these trading strategies would
have been very profitable. This is usually the case when
you have trend runs up like these. In fact, pyramiding
one’s long position on every new high after a 3-day or
greater decline took place during these trend runs up,
would have been extremely profitable. However, one
can also see that when the 14-day turned below the 42-
day average, it wasn’t necessarily a profitable time to be
short. In these examples, traders entering the short side
of the market on the basis of moving average theory
alone would have suffered modest losses. Yet, if there
were to be a big move down, utilizing these principles
of moving averages would likely capture a good part of
that move. One could see this in the bear market of late
2007 through March of 2009, as shown in part in Figure
49.

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Figure 49: The daily DJIA from the primary cycle crest of May 19, 2007 through the 4-
year (or greater) cycle trough of March 6, 2009. This was a bear market, and the odd
numbers (1, 3, and 5) represent points at which prices were below the 14- and 42-day
moving averages, and the 14 was also below the 42-day, thus indicating a trend run
down was in force. The even numbers (2, 4, and 6) indicate the dates when the trend run
down was negated, and a trend run up was in force (but not for long, because this was a
bear market period).

In this example of a bear market, you can see how all

of the points where the bear trend went into effect (all
the odd numbers) yielded handsome profits from a short
sale. When the moving averages turned bullish, there
were losses, but they were minimal. Therefore the
“trend following” method utilizing moving averages
can be useful for identifying long bull or bear trend runs
during which all traders can adopt bullish or bearish
trading strategies until negated.

There are several ways you can trade with the use of

332
multiple moving averages, but primarily you want to
trade in the direction of a trend, once it can be
identified. One way to do this in a bull market is to
initiate the long position as the 14-day moving average
turns above the 42-day one. Then after every decline of
at least three days, you can add on to the long position
whenever it makes a new high for the cycle. This is
known as “pyramiding,” and is the basis by which many
position traders build handsome fortunes. Your stop-
loss is either on a close below the 42-day moving
average, or when the 14-day turns below the 42-day
average, with prices below each. Of course you can take
profit positions along the way, depending upon your
trading style. But basically one remains long and adopts
bullish strategies until the trend changes via these rules.

In the same way, one can make a small fortune by

selling the market in bear runs. That is, once the 14-day
moving average turns below the 42-day average, and
prices are also below both, one can initiate a short
position with a stop-loss based on a close back above
the 42-day average, or when the 14-day average turns
back above the 42-day one, and prices are above both.
Until that happens, one can wait for minimal three-day
rallies, then “pyramid” the short position (i.e. add on to
short positions) every time the market breaks to a new
low in the cycle. Continue doing this until the bearish
trend run down is negated by a close above the 42-day
average or a move above the 42-day average by the 14-
day average with prices above each. Of course when the

333
market is in a time band for the primary cycle trough,
one may (and should) start to take profits too, especially
if clearly defined support levels are being tested and
hold.
Summary

Moving averages are very useful as confirming

indicators of a cycle completion (and the start of a new
cycle). They are also useful as trend indicators
(identifying trend run ups and trend run downs), as well
as identifying minimal price objectives for counter-
trend moves. The following represent key points to
remember in the use of moving averages:

1. Apply a moving average that is half the length of

the cycle being used. This is the theoretical “ideal”
moving average to apply. However there may be other
moving averages that are a better “form fit,” and if you
identify those (like a 25-day one), use them as well (or
instead of) the half-cycle length.

2. This moving average will indicate a minimal price

objective for a reversal into that cycle’s trough or crest.

3. This moving average will represent a confirmation

that the cycle crest has been completed when the market
closes two consecutive time periods below it, or a cycle
trough when it closes two consecutive time periods
back above. To be valid, the market must bottom or top
out in a time band when the particular cycle’s trough or

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crest is possible.

4. If the market closes two consecutive time periods

beyond the moving average, and it is immediately after
a cycle top or trough has formed, it does not mean the
counter-trend move (or reversal) is over. For instance,
assume a primary cycle trough is due, and prices are
below the 40- or 42-day moving average. They then
close back above this average in the next week, but
immediately close back below the average again in that
same week. Does this mean the primary cycle has
already formed? No. It is too early. In those first couple
of weeks, it is not unusual to see prices go back and
forth over the 40- or 42-day moving average. As long as
it doesn’t take out the low, it could still be a new
primary cycle. If it does take out the low, it means that
previous low was not the bottom, but it is still forming.
Once you get past the second week and prices start
closing consecutive days above this moving average,
then the primary cycle trough is confirmed.

5. Multiple moving averages involving half the cycle

length, and others that are half the length of its
subcycles, may be used to identify trend runs. When
prices are above all these moving averages, and the
shorter-term moving average is above the longer-term
one, then a trend run up is in force. One can adopt
bullish strategies and even “pyramid” additional
purchases from the long side until negated, according to
the rules given in this chapter. When prices are below

335
these moving averages, and the shorter-term one(s) is
below the longer-term average, one can adopt bearish
strategies, selling all rallies that remain below the
longer-term moving average. Or one may pyramid
additional short positions during this trend run down,
until negated by a close above the longer-term average,
or a time when the shorter-term average rises above the
longer-term one. These strategies should be used in
combination with an understanding of the phases of
both the greater cycle and its subcycles. That is, the
early phases of cycles are bullish, and the later ones are
mostly bearish.

Once all these principles involving price projections

are understood, it is time to learn the rules for short-
term trading. Consider everything up until this point as
“the greater picture,” the proverbial “forest” that you
are entering. You need the context of the background in
order to be successful. With that, you are now ready to
learn short-term trading methods, which are like the
proverbial “trees within the forest.” It is time to bring
the microcosm into alignment with the macrocosm to
enhance your probabilities of consistent success in the
markets. After all, this is why you purchased this book
and why I wrote it.

336
SUPPORT AND RESISTANCE STUDIES:
SHORT-TERM TRADING TOOLS

337
 FOR THE PROFESSIONAL TRADER

So, you really want to be a trader?

Start here.

But if you really want to become skilled

at trading, study the works of Charles Drummond.

338
339
CHAPTER FOURTEEN

THE FORMULAS FOR SHORT-TERM TRADING

One of the problems with learning a new set of skills is

that it can be costly in the beginning. If you aspire to be
a trader, you simply have to think like a politician. That
is, instead of considering losses as “losses,” you have to
translate those early experiences as “investments.” You
are investing time and money in developing a skill.
There is a cost to learning that skill as a student, and
then there is the cost of developing that skill through
actual trading experience, which is vastly different from
the intellectual challenge of “paper trading.” Learning
these techniques is difficult enough, but nothing
compares to the challenge of actual trading where all
the tools must be coordinated in real time experience all
at once. One error, one omission of an important point,
can be costly.

The journey to become a successful trader is no less

difficult than the journey to “know oneself.” In many
ways, it is equivalent to psychotherapy or learning a
new language. It is a long process, and there will be
many moments when you feel like quitting and going
back to your “old habits” and familiar language. But at
a certain point, this new skill or language becomes a
part of your natural thinking process. You begin to
instantly recognize words, signs, and patterns. When

340
you look at a chart, you see it in terms of the new skills
you have acquired and not as a maze of random lines
without order or meaning.

The reason why this book addresses long-term,

intermediate-term, short-term, and aggressive investors
and traders is that because everyone has a different
temperament. There is no right or wrong when it comes
to trading and investing temperaments, despite the fact
that many investment advisers are highly critical of
traders, and many short-term traders are equally critical
of those who are too conservative in their investment
approach to markets. It all depends upon one’s
psychological makeup, or in popular terms, one’s
“comfort zone” in how active to be involved in the
buying or selling of financial markets.

In this final section of the book, very short-term trading

tools will be introduced that will be invaluable to the
aggressive, short-term trader. I am completely aware
that this is the reason many of you bought this book.
The original source of some of the formulas used in this
section is hard to determine. You pick up an idea from
this teacher, that book, this seminar, that lecture, etc.,
etc. But in most cases, those traders and analysts who
introduced you (me) to these formulas and strategies
were unaware of how they first came into contact with
them. So if I cite the work of someone in this field, it is
not with conviction that they created these formulas or
strategies, for many are “obvious understandings” and

341
cannot be patented, like moving averages - or the
averages of highs, lows, and/or closing prices over any
period of time.

What is important is the application (the use) of the

values generated by these formulas. How does one use
them in a trading plan? How does an analyst use them
to generate trading strategies for the next week, next
day, or even the next hour? That is what separates this
book from the works of others in this field. The
applications of these formulas - their relationship to
market timing principles, and the strategies employed
based on the numbers generated from these calculations
- are to my knowledge unique and original, except
where otherwise mentioned. They are the result of over
30 years of research in financial markets, of which
much has been dedicated to the study of technical,
cyclical, and geocosmic analysis.

With this understanding in mind, let us proceed to learn

some valuable trading tools. Combined with the market
timing methods of Volumes 1 through 4 in this series,
as well as with the technical studies already discussed
in prior pages, you will soon have at your disposal some
very powerful tools for short-term trading. But
remember: you are about to learn a new skill. In fact,
you are about to learn a new language, for after all, the
community of traders is like a whole other world. It will
take time to become proficient at both the new language
and the new skill sets you are about to learn. Thus, like

342
everything else in one’s successful quest of markets, it
takes patience, persistence, and hard work.

The Formulas

Our short-term trading approach will be based on

weekly and daily numbers. It can also employ longer-
term monthly numbers and short-term intraday time
band numbers, like 60- and 30-minute price bars. As
stated in the beginning chapters, it is always advisable
to coordinate multiple time frames, or cycle lengths. In
this case, we will utilize multiple time frames, and
especially the comparison of daily and weekly numbers,
for these are the time frames I find most useful in
combination with our other studies. In fact, it would be
quite dangerous, in my opinion, to use these formulas
solely on their own. They work best when our market
timing studies indicate a change of trend is likely, and
when prices are within the ranges calculated by
previously discussed price target formulas. This section
of the book produces a more specific time and price
range − within the greater time and price frame of our
other studies − in which to enter or exit a trade. I point
this out because I know that once you learn these
formulas and strategies, you will be tempted to use
them immediately and without regard to the bigger
picture. Consider this a warning not to do that, for
almost as certain as night follows day, you will lose
sight of the greater trend and encounter losses by
focusing too much on the details and not enough on the

343
bigger picture. For that reason, readers are encouraged
to always keep in mind the market timing (cycles and
geocosmics) bands for reversals and the price targets for
cycle highs and lows as discussed previously, and then
to apply these shorter-term calculations and strategies to
refine your shorter-term trading plan.

With that in mind, here are the basic formulas we will

be using in these chapters.

Pivot Point (PP):

PP = (H+L+C) ÷ 3, where H is the high, L is the low,

and C is the close of the time frame you are studying
(such as weekly, daily, hourly, etc).

Resistance 1 (R1):

R1= C + (H-L)/2, where H represents the high, L

represents the low, and C represents the close of the
previous time frame being studied.

Resistance 2 (R2):

R2 = (PPx2) – L, where PP represents the pivot point

of the current time frame being studied and L represents
the low of the prior time frame.

Resistance Zone:

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The range of R1 and R2 represents the resistance zone of
the next time frame from which these numbers were
calculated. If using a particular day’s high, low, and
close, then R1 and R2 would yield the resistance zone for
the next day’s trading. There are other formulas for
determining other resistance zones, but these are the
two for short-term trading that we will be using
throughout the remainder of this book.

Support 1 (S1):

S1 = C - (H-L)/2, where C is the close, H is the high,

and L is the low of the previous time frame being
studied (such as weekly, daily, hourly, etc).

Support 2 (S2):

S2 = (PPx2) – H, where PP represents the pivot point of

the time frame being studied and H represents the high
of the previous time frame.

Support Zone:

The range of the S1 and S2 represents the support zone

of the next time frame from which these numbers were
calculated. If using a particular day’s high, low, and
close, then the S1 and S2 would yield the support zone
for the next day’s trading. There are other formulas for
determining other support zones, but these are the two

345
for short-term trading that we will be using throughout
the remainder of this book.

346
CHAPTER FIFTEEN

THE PIVOT POINT (PP)

The Pivot Point Calculation is PP = (H+L+C) ÷ 3

“Pivot Points” are the basis for many (but not all) of the
calculations that short-term traders use to determine
daily or weekly (or any time frame’s) support and
resistance. Short-term traders need to determine support
and resistance in order to construct useful trading
strategies. And as mentioned before, it is best to utilize
multiple time frames for optimal results. Therefore, in
this section of the book we will use these formulas for
determining weekly and daily pivot points and
support/resistance zones.

My first introduction to the pivot point (PP) came

from a speaker at a conference my company (MMA,
Inc.) hosted in New York City in 1981. The speaker did
not invent the formula, nor did he cite the source of
where he learned it. The pivot point formula has been
around for a very long time, and a check on internet
search engines will reveal thousands of references to the
pivot point, but again, I found no original source cited.
Later on (in other seminars and workshops), I
discovered that other technical analysts used this same
calculation as part of their short-term trading
methodology and oftentimes with a different name than
the pivot point. For instance, noted market technician

347
Charles Drummond refers to it as the “1x1 point.” But
“pivot point” is an appropriate name for this indicator,
because various support and resistance areas “pivot”
around it.

The pivot point (or PP) is the average of the high, low,
and close for a given time period. The formula is
simple: H+L+C/3 = PP. That is, add the high, the low,
and the close of the time frame being studied, and
divide it by three. That number is then the pivot point
for the next time period. In fact, this will be the case in
most of the studies introduced in this section of the
book: they apply as pivots, support, or resistance for the
next time period. If, for example, one takes the high,
low, and close of last week’s market trading, and
divides it by three, that yields the pivot point for this
week’s current trading. This is done for daily charts as
well in order to derive the next day’s pivot point. It can
also be done for 60-minute and 30-minute (or any time)
intervals if you are a day trader.

Let us use a real-time example. Figure 50 is a daily

chart of the Dow Jones Industrial Average. The last day
of trading here is shown as March 25, 2011. On the
upper left hand corner of the chart, the open, high, low,
close, and change of the day are identified. We are only
concerned with the high, low, and close. On March 25,
the high was 12,259.80, the low was 12,170.70, and the
close was 12,220.60. To find the pivot point for the next
trading day, March 28, add all three and divide by 3.

348
Or, (12,259.80 + 12,170.70 + 12,220.60) ÷ 3 =
12,217.03. This price (12,217.03) is thus the pivot point
for March 28.

Figure 50: Daily chart of DJIA, ending on March 25, 2011. The open, high, low, close
and change for the day is listed on the upper left hand corner, from which the next
day’s pivot point can be calculated.

Function of the Pivot Point

By itself, the pivot point has limited use for trading

purposes. However, it is necessary to calculate because
from the pivot point, several support and resistance
areas plus trend indicator points may be derived from
which a variety of trading strategies can be employed.
Our particular use of these will be discussed in the
following chapters.

349
By itself, the pivot point of a day’s trading range (high,
low and close) represents the neutral price area of the
next day’s trading of that market. If the close of the day
is above it, or if the opening of the next day to which it
applies is above it, that means the market is more
bullish than bearish for the start of that next day. If the
close is below it, or if the opening of the next day is
below its pivot point, it means the market is more
bearish than bullish for the start of that next day. Of
course, that can change depending upon any events or
economic reports that may be announced prior to the
next day’s opening.

In our example of March 25, the close at 12,220.60 was

slightly above the next day’s pivot point of 12,217.03.
This suggests the market closed slightly bullish, and so
the next trading day (March 28) may have a slightly
bullish bias as it opens. Indeed, on the next day, March
28, 2011, the market opened higher and continued
higher for the first hour of trading. This is common and
to be expected. But it should not be expected that the
market will remain bullish all the next day.

By itself, the pivot point is not a powerful level of

support or resistance. Generally speaking, the next
day’s trading will be below and above this point. In a
preliminary study of the next day’s trading range in
relationship to the pivot point over an 8-year period, I
found that the next day’s trading range would indeed be
both above and below the pivot point in about two-

350
thirds of the cases. The other one-third of the days
found prices entirely above the pivot point (bullish) or
below it (bearish). This can be somewhat useful in those
cases where a trader ended the day on the wrong side of
the market. If he wants to exit the position the next day
at a slightly better position than where the market
closed, there is a two-thirds probability that he can do
so at the pivot point or better.

Of course there are exceptions to this rule, such as

when a market gaps up or down. In those cases, the
market won’t trade on both sides of the pivot point. It
will either trade the entire day above it (gap up) or
below it (gap down). If it fills the gap, then often it will
find support or resistance at the pivot point. If it closes
on the other side of the pivot point, then it is probably
extremely bullish or bearish. For example, if a market
opens with a gap up, but then fills that gap and closes
the day below the pivot point, it is probably
commencing a sharp decline. That’s a bearish signal for
the next day. Conversely, if a market opens with a gap
down, but then closes above the pivot point for that day,
it is probably starting a healthy rally. That’s a bullish
signal for the next day. When this happens, one can
usually put on a trade in the direction of the break of the
pivot point, with a stop-loss above or below the opening
range of that day, or pivot point.

Pivot points may act as support or resistance in lower

time periods. For instance, the daily pivot point may act

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as support or resistance in the 30- or 60-minute charts
of that day. Likewise, a weekly pivot point may serve as
support or resistance in a daily chart. Let’s view an
example of this occurrence on the weekly chart of the
DJIA for the week ending March 4, 2011, in Figure 51,
shown on the next page.

The high of the week ending March 4 was 12,283.10.

The low of that week was 12,018.60, and the close was
12,169.90. Thus the pivot point (PP) for the next week
would be (12,283.10 + 12,018.60 + 12,169.90) ÷ 3, or
12,157.20.

Now let us look at the daily chart for that next week, as
shown in Figure 52, also on the next page. Notice that
the market moved back and forth over this pivot point
on March 7 and 8. But on March 9, the low of the day
was 12,156.60, which was almost exactly on the weekly
pivot point. Once again, this is not usually a powerful
support or resistance level. But the weekly pivot point
can act as support or resistance at times in the lower
time frames (like the daily), especially if it converges
with other support or resistance points pertinent to that
day.

The three main things to remember about pivot points

are:

1. They are used to calculate more powerful support

1.
and resistance areas, as well as Trend Indicator

352
 Points, as will be discussed shortly.
2. 2. A market will trade to the level of the pivot point
calculated for the next time period in
approximately two-thirds of cases.
3. 3. Pivot Points may act as support or resistance in
lower time periods.

Figure 51: A weekly chart of the DJIA (above). Note the high, low, and close for March
4 as listed in the upper right hand part of this chart.

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Figure 52. The daily chart of the DJIA from March 1-11. This shows that on March 9,
the low of the day was almost exactly on the weekly pivot point at 12,157.20, based on
the week’s trading ending March 4.

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CHAPTER SIXTEEN

THE TREND INDICATOR POINT (TIP)

In the chapter on moving averages, the concept of

“trend runs” was introduced. Basically, when prices are
above two moving averages that apply to a cycle and
one of its phases, and the shorter moving average is also
above the longer one, it is known as a “trend run up.”
When prices are below these two moving averages, and
the shorter average is also below the longer average, it
is known as a “trend run down.”

However, this is not the only use of these terms in the

field of technical analysis. In fact, there is an entire
branch of technical analysis that uses these terms
differently. This branch of technical analysis has been
constructed by one of the most rigorous, inventive,
although relatively uncited market analysts of modern
times. His name is Charles Drummond, and his
contribution to this field is known as “Drummond
Market Geometry.”

By way of background, I had the privilege of meeting

Drummond in the mid-1980’s. I learned about his work
through clients and colleagues who had studied with
both Drummond and myself. It was well after I learned
about pivot points and the basic floor trader calculations

355
for support and resistance (that I will discuss shortly).
After hearing about some of Drummond’s impressive
market calls, I decided to purchase his workbook titled
“P and L Labs”1. I believe it cost $2000.00 at the time,
so for me in 1985, it was “an investment” in the
development of my own trading skills.

Over the next few years, I became both a fan and

friend of Charlie. I attended some of his students’
seminars, such as market analyst Patrick Shaughnessy
in Scottsdale, Arizona, where Charlie would also
participate. He also came to one of my seminars on
market timing in the early 1990’s. I admired the wealth
of useful ideas and formulas Drummond put into his
work and the sheer ingenuity of his market geometry
from the “price” point of view. I knew “market timing”
as well as anyone (or so I believed, with the exception
of Walter Bressert, my own mentor into markets), based
on my knowledge of geocosmic and cycle studies. And
I knew several of the floor trader calculations for
support and resistance, around which I developed my
own trading plans in combination with market timing
factors, as you will learn shortly.

I soon realized that no one knew “price geometry”

quite like Drummond. Yet he is seldom cited for his
remarkable contributions to this field of study. You can
go to internet search engines and type in terms like
“bullish triggers,” “bearish triggers,” “bullish and
bearish crossover zones,” and “trend run ups and

356
downs.” These are just some of the many market terms
that Drummond used in his works. And yet you won’t
find him cited for the way he used these terms in market
analysis, which is every bit as valuable as the way
others apply these terms. So it is my hope that this
section of Volume 5 will correct that lack of credit
given to this remarkable technician who has contributed
so much to the field of technical market analysis and
price objective studies.

Drummond applied some of the same floor trader

calculations that I had learned from others as referenced
earlier, and which I will discuss again in the following
chapters. Druumond used a great deal more than the
points I will be discussing. He would take the high, low,
and closing prices of any time frame he found pertinent.
With those prices he created an entire mathematical
system of analysis that pinpointed several key support
and resistance levels. He would use daily, weekly, and
monthly prices. For long-term analysis, he would use
quarterly and yearly prices. For very short-term trading,
he would use intraday time frames like 30- and 60-
minute prices, although he used other intraday time
frames too that are unique to him. In short, he created
an eclectic system of calculating support and resistance
points from which he constructed a variety of specific
trading plans. His market geometry and short-term
trading strategies are very comprehensive – more than
will be discussed here. So if you wish to truly enhance
your trading skills, the study of his courses on market

357
geometry is highly recommended. You can obtain
further information on his works at
www.DrummondGeometry.com.

It is Drummond’s use of the terms “trend run up,”

“trend run down,” and “congestion” that will be
introduced in this chapter. These “trend analysis” terms
are not used in quite the same way as discussed in the
chapter on moving averages. Nonetheless, their use as
short-term trend indicators is extremely valuable to the
aggressive, short-term trader. They are valuable for
position traders too. However this section of the book
will primarily address their usage in short-term trading.

In order to understand Drummond’s use of these

terms, we have to first understand the “Trend Indicator
Point” (TIP), or “Dot,” as Drummond calls it. I prefer
the term “Trend Indicator Point” because that is its
function. It is the basis for understanding whether the
market is in a short-term trend run up, neutral
(congestion), or trend run down. The Trend Indicator
Point (TIP, or Dot) is a three-day, or three-week (or 3 of
whatever time frame one wishes to use) moving
average, or the average of the high, low, and closing
prices over the previous three time periods. More
specifically, it is the sum of the last three Pivot Points
divided by three. Or, TIP = (PP1 + PP2 + PP3) ÷ 3,
where PP1 represents the pivot point of the first day, and
PP2 and PP3 the pivot points of the second and third

358
days used in the calculation. Like the Pivot Point itself,
the Trend Indicator Point applies to the next time
frame’s trading.

Let us do a sample calculation to show how the TIP (or

Dot) is derived. Let us assume the last 3 days of trading
figures for stock XYZ are as follows, where H
represents the high of that day, L represents the low,
and C represents the close:

Day H L C
1 75.50 71.20 73.75
2 77.00 73.25 76.80
3 79.20 75.50 76.20

Our first step is to calculate the pivot point (PP) for

each day. As discussed before, this is simply the
average of the high, low, and close for each day,
applied to the next day. In other words, today’s high,
plus low, plus close, divided by three, gives us the pivot
point (PP) for the next day’s trading. Or, PP = (H + L +
C) ÷ 3.

Now, let us calculate the Pivot Point for each of the

following days:

Day H L C PP
1 75.50 71.20 73.75
2 77.00 73.25 76.80 73.48

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3 79.20 75.50 76.20 75.68
4 76.97
Notice how the pivot point for day 2 is based on the
daily high, low, and close of day 1. The PP for day 3 is
based on the trading range and close of day 2, and the
PP for day 4 is calculated for the high, low, and close of
day 3. Whatever happens in the current time frame
creates the numbers for the next time frame of the same
duration. In this case, we are using a daily chart.
However, the same calculations can be constructed
from weekly, monthly, and yearly charts, or 60-minute
and 30-minute charts, as well.

Once we have three pivot points, we can calculate the

trend indicator point (TIP) for the time frame pertaining
to that third pivot point. In this case, TIP = (73.48 +
75.68 + 76.97) ÷ 3, or 75.38. The trend indicator point
for the fourth day is 75.38. On our table, it would look
like this:

Day H L C PP TIP
1 75.50 71.20 73.75
2 77.00 73.25 76.80 73.48
3 79.20 75.50 76.20 75.68
4 76.97 75.38

Trend Run Up, Trend Run Down, and Neutral

We discussed trend runs in Chapter 13 on moving

360
averages. As mentioned earlier, when prices are above
two moving averages that apply to a cycle and one of its
phases and the shorter moving average is above the
longer one, it is known as a trend run up. Since the
trend indicator point is based on a 3-bar moving
average, its relationship to prices and trend indictor
points of different time frames can also be used to
identify a market that is in a trend run. For instance, if
the price of a market is above both the daily and weekly
trend indicator point, and the daily is above the weekly,
one could surmise that the market is in a trend run up,
just as discussed in the chapter on moving averages.
Conversely, if prices are below both the daily and
weekly trend indicator points, and the daily is lower
than the weekly, one could conclude the market is in a
trend run down. Drummond, however, offered other
approaches to trend runs using the relationship of prices
to these trend indicator points, or “Dots,” as he referred
to them.

First of all, he advised simply to “follow the Dot.” If it

is rising from one time frame to the next, the market is
moving up. It is bullish. If the Dot (or TIP) starts to
decline, then the market may also be starting to reverse
downwards. If it continues moving down, then the
market trend is bearish. That’s the most simple and
practical way to use the three-day moving average,
known as the “Dot,” or trend indicator point (TIP).

Drummond also discussed another way to view the

361
trend based on the relationship of closing prices to the
Dot. If the market closed three consecutive periods
above the trend indicator point (TIP), Drummond
considered the market as being in a new “trend run up”
for the time period being examined. If it closed three
consecutive periods below the TIP, it was considered a
“trend run down.” At all other times, the market was
considered neutral, or in congestion.

Thus the first step to establishing the short-term trend

status of a market via use of the trend indicator point
(TIP) is to identify the relationship of at least the last
three closing prices to the TIP. To illustrate how this
works, let us return to our prior example and add more
daily prices in order to achieve at least three days of
trend indicator points.

Day H L C PP TIP STATUS

1 75.50 71.20 73.75
2 77.00 73.25 76.80 73.48
3 79.20 75.50 76.20 75.68
4 78.15 76.25 78.00 76.97 75.38
5 79.50 77.95 79.45 77.47 76.70

6 80.50 79.55 80.25 78.97 77.80 UP

7 80.10 78.85

Notice on days 4, 5, and 6 that prices closed above the

362
TIP for that day. In other words, there were three
consecutive daily closes above the TIP. You can also
see that the TIP was rising each day above the prior
day’s level. Therefore this market can be assigned a
“trend run up” status on the daily chart as of the sixth
day of trading. We will designate that status as UP, or
U. As long as prices continue to close above the TIP,
and especially if the TIP is rising each day, this market
is in a trend run up, via these rules. As soon as it closes
below the TIP, it is downgraded to neutral. And should
the market close three consecutive days below the TIP,
it will be downgraded further to a trend run down. In
this case, the value of the TIP may also be declining
over consecutive days, although that is not always the
case. Additionally we should be aware of instances in
which the rate of change in TIP from one period to the
next begins to diminish. This is a warning that the trend
may be about to change. In any event, we will designate
the status of these changes in the column marked
STATUS. In this column, a trend run up status is shown
as U, a trend run down as D, and neutral as N. And
there may be exceptions to this assignment of trend
indicator status that will be introduced shortly, as a
result of my own observations regarding this indicator
since 1985.

Before getting to those exceptions and other possible

ways to rate the trend, let us construct closes that are
now below the TIP. Let us have day 7 close below it.

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Day H L C PP TIP STATUS
1 75.50 71.20 73.75
2 77.00 73.25 76.80 73.48
3 79.20 75.50 76.20 75.68
4 78.15 76.25 78.00 76.97 75.38 U
5 79.50 77.95 79.45 77.47 76.70 U

6 80.50 79.55 80.25 78.97 77.80 U

7 80.00 77.15 78.75 80.10 78.85 N
8 78.63 79.23

In this example, the seventh day closed at 78.75, which

was slightly below the TIP that applied to that day at
78.85. Therefore, after closing above the TIP for three
consecutive days, it then closed below it on the fourth
day. Hence the short-term trend of this market was
downgraded from a trend run up to neutral. Notice that
the TIP itself did not decline from the prior day, so it
was not necessarily the start of a reversal. It may just be
pausing or entering into a short-term congestion.
Nevertheless it will stay in a neutral status until it closes
three consecutive days below the trend indicator point,
at which time it will then be downgraded further to a
trend run down (D). It could also resume its uptrend by
closing three consecutive days above TIP, in which case
it would be upgraded back to a trend run up. In fact, it
may be upgraded to a trend run up if it closes back
above the TIP the very next day, given that TIP itself

364
never turned down.

Let us return to the example and demonstrate how a

trend run down would look.

Day H L C PP TIP STATUS

1 75.50 71.20 73.75
2 77.00 73.25 76.80 73.48
3 79.20 75.50 76.20 75.68
4 78.15 76.25 78.00 76.97 75.38 U
5 79.50 77.95 79.45 77.47 76.70 U

6 80.50 79.55 80.25 78.97 77.80 U

7 80.00 77.15 78.75 80.10 78.85 N
8 79.20 76.50 78.80 78.63 79.23 N
9 78.50 74.95 75.00 78.17 78.96 D
Notice that after day 7 closed below TIP, this
downgraded the market to neutral. Day 8 also closed
below TIP. It remained neutral. Notice also that the TIP
itself has not yet started to decline from the prior day.
We see that on day 9, the market closed below TIP for
the third consecutive day. Thus the status of the short-
term market trend is now downgraded further, to a trend
run down (D). The TIP had also declined from the prior
day, supporting this downgrade in trend. In these 9
days, the market changed from trend run up (day 6) to
neutral (days 7 and 8) to a trend run down (day 9).

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These, then, represent the basic principles or rules of
trend analysis on a short-term basis as introduced by
Charles Drummond.2

COROLLARIES TO BASIC SHORT-TERM

TREND ANALYSIS RULES

Knowing Drummond, it is entirely likely that he has

added corollaries to these basic rules of trend analysis
centered around his “Dot,” or what we call TIP, the
“trend indicator point.” Nevertheless, I present my own
corollaries to his principles that I have evolved after
applying these rules for the past 25 years, knowing that
several of these corollaries may have also been
considered by Drummond in his later works.

“Trend Run Up” Corollaries

1. 1.Non-confirmed trend run up: If the close is

above the TIP for three consecutive days (weeks,
months, or whatever time frame is being
analyzed), it is not necessarily upgraded from
neutral to a trend run up unless the close of the
third day is also an “up” day from the close of the
prior day. That is, if the market closes down from
the previous day, it remains neutral, even though
that close was above the TIP for the third
consecutive day. This is true even if it happens on
the fourth day. That is, the close may be above the
TIP for four consecutive days, but if the close on

366
 the third and fourth days was below the close on
each of those prior days, it still remains neutral.
The trend run up is thus not yet confirmed.
2. 2. Confirmed trend run up on fourth or fifth
day: If the close is then above the prior day’s close
and TIP on the 4th or even 5th day (but not the
third), it is then upgraded from neutral to a trend
run up. That is, if the close was above the TIP for
three consecutive days, but on the third day the
market closed down, it remained neutral. If on the
fourth day the close was up from the prior day and
still above the TIP, it is upgraded to a trend run up.
If the close was above the TIP on the fourth day,
but it was still a down day, it can be upgraded to
trend run up if the close is up on the fifth day and
also above the TIP that day.
3. 3. Trend run up resumed after a one-day
interruption: Once the market is in a trend run up,
it is downgraded to neutral on the first day it closes
back below the TIP. However, if the close of the
next day is back above the TIP and also an up day,
it is upgraded again and the trend run up is
resumed. It does not require three new consecutive
days above the TIP to be upgraded back to a trend
run up.
4. 4. Downgrade to neutral after an interrupted
trend run up: However, if after an interruption of
the trend run up and then the resumption of it
again, the market will revert back to neutral once
more if it closes below the TIP again in the next

367
 two days. That is, in order to maintain its trend run
up status, it must continue to close above the TIP
point for the next two consecutive days (three
consecutive days in all) even after a temporary
interruption where it closed below the TIP for one
day. If the next day (after the interruption) it closes
above TIP, it resumes its trend run up. But if the
following day (or even two days after that) it
closes below the TIP, it is downgraded to neutral
again.
5. 5. On edge, trend run up: Sometimes a market can
be upgraded from neutral even when it hasn’t
closed three consecutive days above the TIP. For
instance, the market might have such a powerfully
strong rally that it closes not just above the TIP,
but also above the high of the cycle so far. It forms
a new cycle high on a powerful up day. However,
it is only the first or second day above the TIP. In
this case, the TIP may be upgraded from neutral to
“on edge, trend run up.” When it exhibits three
closing days above the TIP, and the third day is
also an up day, it can be upgraded further to a
trend run up from an “on edge, trend run up.”
6. 6. Pause in the trend run up: There will be cases
where a market closes right on the TIP. In these
cases, the trend run up that was in effect remains
intact. This is a warning that it may be about to
change. For example, if the market has been in a
trend run up, and then the close of the current day
is exactly on the TIP, it remains in a trend run up.

368
 If on the next day it closes below the TIP, it
reverses from trend run up to neutral. Furthermore
this means that the market has not closed above the
TIP for two consecutive days. If the next day is a
down day and also below the TIP, it will be
downgraded from neutral to trend run down.
7. 7. Overextended, exhaustion: Trend runs up can
last for several days (or weeks, months, whatever
your time frame is). Yet at some point there will be
a close below the TIP, and it will change from
trend run up to neutral and eventually trend run
down. How long do trend run ups last? Later on
we will present a study on the weekly Dow Jones
Industrial Average from June 3, 2002 through May
20, 2011 that attempts to identify how many weeks
a trend run up or down tends to last. From this we
will determine a length of time that we will
consider overextended or exhaustion, from which a
reversal or pause tends to follow.

Now, let us see how these corollaries might work in

actual practice. Let’s take the following example from
our XYZ Corporation, as used before, to show how an
interruption in a trend run up might look, as well as a
pause in that trend run up:

Day H L C PP TIP STATUS

1 75.50 71.20 73.75
2 77.00 73.25 76.80 73.48

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3 79.20 75.50 76.20 75.68
4 78.15 76.25 78.00 76.97 75.38 N
5 79.50 77.95 79.45 77.47 76.70 N

6 80.50 79.55 80.25 78.97 77.80 U

7 80.00 77.15 78.75 80.10 78.85 N
8 81.10 77.60 80.65 78.63 79.23 U
9 82.00 79.45 79.50 79.78 79.50 U*
10 81.15 79.25 80.80 80.33 79.58 U

Notice on day 6 that the close was above the daily

trend indicator point (TIP) for the third consecutive day.
Thus it was in a trend run up as of the close that day.
The next day (day 7) it closed below TIP, and thus it
was downgraded back to a neutral status. On day 8 it
closed back above TIP. It was thus upgraded back to a
trend run up after the one-day interruption when it
closed below and was temporarily downgraded to
neutral. On day 9, it closed exactly on the TIP. It was
still considered a trend run up (U*) because it didn’t
close below TIP. The trend didn’t change here, although
it was a warning that it could change. However the next
day (day 10) the close was well above the TIP. We now
consider that the close has been above (or on) the trend
indicator point for 6 of the past 7 days. It is in a trend
run up that was interrupted back on day 4, but it
resumed its uptrend the very next day. There was also a
pause on day 9 when prices closed right on the TIP. But

370
the trend run up does not change then unless the next
day closes below TIP.

Now let us show how an unconfirmed trend run up

might look for XYZ Corporation, using the same
starting prices for the first five days, but with different
prices afterwards.

Day H L C PP TIP STATUS

1 75.50 71.20 73.75
2 77.00 73.25 76.80 73.48
3 79.20 75.50 76.20 75.68
4 78.15 76.25 78.00 76.97 75.38 N
5 79.50 77.95 79.45 77.47 76.70 N

6 80.50 79.15 79.35 78.97 77.80 N*

7 80.00 77.15 79.10 79.67 78.70 N*

Notice that the close on day 6 was above the TIP for the
third consecutive day, but the close of that day was
lower than the close of day 5. Therefore it was not a
confirmed trend run up (N*). On day 7, the close was
again above the TIP, but again it was a lower close than
the prior day. Therefore, even though prices had closed
above the TIP for four consecutive days, it was still not
a confirmed trend run up because XYZ had not
exhibited a close above the prior day (in this case, not
above the prior two days). It was still in neutral. In

371
cases like this, the market can still go either way. If it
can close up the next day, and above the TIP, it will
then be upgraded to a trend run up.

Let us continue with the above example and show how

an “on-edge trend run up” would look like. Let us
assume that a couple of weeks ago XYZ rallied to
82.00, its highest price so far in this primary cycle. If at
any time XYZ closes above 82.00 before closing three
consecutive days above the TIP, it will be considered an
“on edge, trend run up.” Once it closes the third day
above the TIP - and if that day is a higher close than the
prior day - then it will be upgraded further from an “on
edge, trend run up” to a full trend run up. An example
of how this would look is shown in the continuation of
XYZ, shown in the table below.

Day H L C PP TIP STATUS

1 75.50 71.20 73.75
2 77.00 73.25 76.80 73.48
3 79.20 75.50 76.20 75.68
4 78.15 76.25 78.00 76.97 75.38 N
5 79.50 77.95 79.45 77.47 76.70 N

6 80.50 79.55 80.25 78.97 77.80 U

7 80.00 77.15 79.10 79.67 78.70 U
8 79.40 78.50 78.85 78.63 79.23 N
9 80.00 78.85 79.95 78.92 79.21 N

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10 82.50 80.00 82.45 79.60 79.05 OEU

Note that on day 8 the close was below the TIP after
being above it four of the previous five trading days.
Thus it was downgraded back to neutral. On day 9 it
closed back above the TIP, so it remained neutral. On
day 10, it gapped up and closed sharply higher, at
82.45. It was far above the TIP, and also closed at a
level above the highest price so far in this primary
cycle. It was only the second consecutive day above the
TIP, and because it was a new cycle high and above the
TIP, it would be upgraded from neutral to an “on edge,
trend run up” (OEU). If it closes up the next day (above
the close of day 10), it will be upgraded to a full trend
run up, as that would also represent three consecutive
closes above the TIP.

“Trend Run Down” Corollaries

The same corollaries apply in reverse to trend run

downs. We will repeat them here, except we will make
changes to reflect the trend run down condition.

1. 1.Non-confirmed trend run down: If the close is

below the TIP for three consecutive days (weeks,
months, or whatever time frame is analyzed), it is
not necessarily downgraded from neutral to a trend
run down unless the close of the third day is also
down from the close of the prior day. That is, if the
market closes up from the previous day, it remains

373
 neutral, even though that close was below the TIP
for the third consecutive day. This is true even if it
happens on the fourth day. The close may be
below the TIP for four consecutive days, but if the
close on the third and fourth days are above the
close on each of the prior days, it still remains
neutral. The trend run down is thus not yet
confirmed.
2. 2. Confirmed trend run down on fourth or fifth
day: If the close is then below the prior day’s close
and TIP on the 4th or even 5th day (but not the
third), it is downgraded from neutral to a trend run
down. That is, if the close was below the TIP for
three consecutive days, but on the third day the
market closed up, it remained neutral. If on the
fourth day the close was down from the prior day
and still below the TIP, it is downgraded to a trend
run down. If the close was below the TIP on the
fourth day, but it was still an up day, it can be
downgraded to trend run down if the close is down
on the fifth day and also below the TIP.
3. 3. Trend run down resumed after a one-day
interruption: Once the market is in a trend run
down, it is upgraded to neutral on the first day it
closes back above the TIP. However, if the close
of the next day is back below the TIP and also a
down day, it is downgraded again to trend run
down. The trend run down resumes. It does not
require three new consecutive days below the TIP
to be downgraded back to a trend run down.

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4. Upgrade to neutral after an interrupted trend
4.
run down: However, if after an interruption of the
trend run down, followed by the resumption of it
the next day, the market will be upgraded back to
neutral again if one of the following two days finds
the market closing above the TIP. That is, in order
to maintain its trend run down status, it must
continue to close below the TIP point for the next
two consecutive days (for a total of three
consecutive days) even after a temporary
interruption. If the next day (after the interruption)
it closes below the TIP, it resumes its trend run
down status. If on the following day (or even two
days after that) it closes above the TIP again, it is
upgraded to neutral again.
5. 5. On edge, trend run down: Sometimes a market
can be downgraded from neutral even when it
hasn’t closed three consecutive days below the
TIP. For instance, the market might have such a
powerfully strong decline that it closes not just
below the TIP, but also below the low of the cycle
so far. It forms a new cycle low on a powerful
down day, although it is only the first or second
day below the TIP. In this case, we can downgrade
the TIP from neutral to “on edge, trend run down.”
When it exhibits three closing days below the TIP,
and the third day is also a down day, it can be
downgraded further to a trend run down from an
“on edge, trend run down.” This is a strong sign
that the trend status is changing.

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 6. Pause in the trend run up: There will be cases
6.
where a market closes right on the TIP. In these
cases, the trend run down that was in effect
remains intact. This is a warning that it may be
about to change. For example, if the market has
been in a trend run down, and then the close of the
current day is exactly on the TIP, it remains in a
trend run down. If it closes above the TIP the next
day, it reverses from a trend run down to neutral.
Furthermore this means that the market has not
closed below the TIP for two consecutive days. If
the next day is an up day and also above the TIP, it
will be upgraded from neutral to trend run up.
7. 7. Overextended, exhaustion: Trend runs down
can last several days (or weeks, months, whatever
time frame used). However at some point there
will be a close above the TIP, and it will change
from trend run down to neutral and eventually to a
trend run up. How long do trend run downs last?
Later on we will present a study on the Dow Jones
Industrial Average from June 3, 2002 through May
20, 2011 that identifies how long a trend run up or
down tends to last. From this we will determine a
length of time that we will consider overextended
or exhausted, from which a reversal of the trend
(or more likely just a pause) tends to follow.

Now, let us see how these corollaries might work in

actual practice. Let us take the following example from

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our XYZ Corporation, as started out before, to show
how a non-confirmed trend run down might look,
followed by a confirmed trend run down.

Day H L C PP TIP STATUS

1 75.50 71.20 73.75
2 77.00 73.25 76.80 73.48
3 79.20 75.50 76.20 75.68
4 78.15 76.25 78.00 76.97 75.38
5 79.50 77.95 79.45 77.47 76.70

6 80.50 79.55 80.25 78.97 77.80 U

7 80.00 77.15 78.75 80.10 78.85 N
8 79.50 78.00 78.25 78.63 79.23 N
9 79.00 78.00 78.50 78.58 79.10 N*
10 78.45 77.00 77.10 78.50 78.57 D

On Day 6, XYZ closed above the TIP for the third

consecutive day, and it was an up day, which meant it
was upgraded to a trend run up. That didn’t last. The
next day (day 7) it closed below the TIP, downgrading
its status from trend run up to neutral. Day 8 also closed
below the TIP for the second consecutive day, so it
remained neutral. Day 9 also closed below the TIP, but
it was an up day. Therefore, even though it closed
below the TIP for three consecutive days, it was not
confirmed as a trend run down because the third day
was not a down day from the previous day’s close. Thus

377
it remains neutral (N*). However the next day (day 10)
it closed down from the prior day’s close, and it was
below the TIP point for the fourth consecutive day,
which meant XYZ was now in a confirmed trend run
down.

An example of an interrupted trend down that is then

resumed is shown below. Also shown here is a case
where the interrupted and resumed trend run down is
then upgraded back to neutral.

Day H L C PP TIP STATUS

6 80.50 79.55 80.25 78.97 77.80 U
7 80.00 77.15 78.75 80.10 78.85 N
8 79.50 78.00 78.25 78.63 79.23 N
9 79.00 78.00 78.50 78.58 79.10 N
10 78.45 77.00 77.10 78.50 78.57 D

11 78.00 76.50 77.10 77.52 78.20 D

12 78.50 77.40 78.25 77.20 77.74 N-I
13 78.20 76.90 77.00 78.05 77.59 D
14 77.50 76.50 77.40 77.37 77.54 D
15 78.50 77.25 78.45 77.13 77.52 N

Here N-I means neutral, but it is an interruption of a

trend run up or down. In this case, it interrupts the trend
run down, which then resumes after this one-day
interrupt. This is different than N*, which means the

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close was above below the TIP for three straight days,
yet the third day closed up, so it was not a confirmed
trend run down,

Note that on day 11, XYZ has closed below the TIP for
the 5th consecutive day. It is clearly in a trend run down.
However on day 12, it closed above the TIP, thereby
upgrading its status to neutral. It will remain neutral if
the next day also closes above the TIP for the second
consecutive day. In fact, it could even be upgraded to an
“on edge, trend run up,” if prices closed sharply higher
and above the high of the primary cycle up to this point
(assuming the primary cycle has been underway for a
few weeks). On the other hand, if XYZ closed back
below the TIP, then the trend run down would resume
after the one-day interruption. In this example, the
following happened on day 13: it closed back below the
TIP, and it closed down from the prior day’s close, so
the trend run down was resumed. It continued that way
on day 14, since that day also closed below the TIP. On
day 15, just two days after it resumed its trend run down
status, it closed again above the TIP. The trend run
down thus came to an end, and its status was upgraded
to neutral.

Now let us see what an “on edge, trend run down”

(OED) might look like. In this set up, the market needs
to be neutral for one day, although there are exceptions
where prices can just suddenly collapse to a new cycle
low from a trend run up. Let us assume the primary

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cycle low started on day 1 at 71.20. The following daily
prices for XYZ were:

Day H L C PP TIP STATUS

1 75.50 71.20 73.75
2 77.00 73.25 76.80 73.48
3 79.20 75.50 76.20 75.68
4 78.15 76.25 76.25 76.97 75.38 N
5 76.00 73.50 73.50 76.88 76.51 N

6 73.20 70.70 71.00 74.33 76.06 OED

7 71.70 70.50 71.20 71.63 74.28 N
8 71.00 69.00 69.40 71.13 72.36 D

Notice on day 4 that the market closed above the first

TIP calculated for this example. It was thus neutral. On
day 5 it closed below the TIP again, so the status was
neutral again. On day 6 it closed sharply down below
the TIP for the second consecutive day. It also closed
below the primary cycle low that started the cycle on
day 1 at 71.20. Normally this would be considered
neutral as it was only the second consecutive day down.
This was sharply lower and below the low that started
the cycle, so it is downgraded to an “on edge, trend run
down.” This is shown as OED in the “status column.”
This means the trend is pointing lower and prices are
expected to fall further.

380
 On day 7 it again closed below the TIP, but it the
close was higher than the prior day’s close. Thus, even
though XYZ closed below the TIP for the third
consecutive day, we have to upgrade it back to neutral
because it was an up day. However, the next day (day
8) it closed lower than the prior day and well below the
TIP, so it is fully downgraded to a trend run down
status.

These are all hypothetical examples, designed to

illustrate how these terms are used. Once these concepts
are understood, we have a language by which to convey
what the trend status of the market is at any given point,
depending on the time frame traded. According to
Drummond Market Geometry, this manner of looking at
the market is known as “following the Dot,” or in our
terminology, it is studying the relationship of closing
prices to the TIP (trend indicator point).

TIP Studies

Conducting special studies can show more clearly

how certain principles have worked historically, while
at the same time yield additional insights into the nature
of these concepts. For instance, a study can reveal the
range of time frames a market remains in a trend run up
or down. A study can provide a guideline as to when a
trend run is extremely long and due for a reversal or
pause. Or a study can provide an understanding of the
different paths a market may take after its trend run is

381
interrupted.

In order to find insights into some of these questions, I

did a study of nine years of weekly data on the Dow
Jones Industrial Average. I assigned the trend status of
each week during the time period of this study in order
to determine information about the length of time the
DJIA tended to remain in a trend run on a weekly basis.

Weekly DJIA Studies on TIPs

The weekly study of the DJIA covered the period from

June 3, 2002 through May 20, 2011, or 467 weeks. The
initial purpose was to see how long trend runs up and
trend runs down tend to last on a weekly basis, as per
the Drummond rules. One objective was to determine
how long it took for a trend run to become
overextended or exhausted before it paused or reversed.
I also wanted to see how often a market closed above or
below a weekly trend indicator for three consecutive
weeks, and when the third week was a non-confirmed
trend run, as per the corollaries added. Then I wanted to
see how often a market confirmed, or failed to confirm,
the trend run by the fourth week. And finally I wanted
to see what historically occurred after trend
interruptions. Did trend runs really resume after a one-
week interruption? Or were they apt to stay in neutral
and/or move towards a trend run in the opposite
direction?

382
In the first part of the study, no interrupted cases were
used. If, for instance, a market closed above the weekly
trend indicator for three or more consecutive weeks and
then closed below it, the trend run up was ended. It was
downgraded to neutral. If it then resumed weekly closes
above the TIP the next week, it was not considered a
resumption of the trend run up for this study. It was still
in neutral. The number of weeks closing above the TIP
was reset at 1 week. It would not be considered a new
trend run up until it exhibited three new consecutive
weekly closes back above the weekly TIP, even though
in actual practice we would consider it a resumption of
the trend run up even after the first week closed back
above the TIP following an interruption.

Below are the results of the study.

Non-Confirm Non-Confirm
Week # UP DOWN
3rd Week 3rd Week
3 15 6 6 3
4 6 1 13 0
5 5 0 4 0

6 4 1 3 1
7 2 1 2 0
8 1 0 1 0
9 1 0 2 1

10 4 0
11 3 0
12 1 0
14 1 1
Totals 43 10 31 5

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The first column is titled “Week #” and represents the
number of weeks involved in consecutive closes above
or below the weekly trend indicator point (TIP or Dot).
The second column is titled “UP” and represents the
specific number of times it closed above the TIP those
exact number of weeks. The third column is titled
“Non-Confirm 3rd Week” and indicates the number of
instances in which the third week closed above the TIP,
but at the same time it closed below the close of the
second week. In other words, it was a down week, even
though it closed above the TIP. Therefore it was not a
confirmed trend run up. The fourth column is titled
“DOWN” and represents the number of consecutive
weeks it closed below the TIP. The fifth column is titled
“Non-Confirm 3rd Week” and indicates the number of
instances in which the third week closed below the TIP,
but at the same time it closed above the close of the
second week. In other words, it was an up week, even
though it closed below the TIP. Hence we would
consider the trend status still neutral, or an
“unconfirmed trend run down.”

As the table indicates, there were 43 cases in which the

market closed above the weekly trend indicator point
for at least three consecutive weeks during our study of
467 weeks. Of those, 10 were non-confirmed trend run
ups at the end of the third week (see totals at bottom of
the third column titled “Non-Confirm 3rd Week”). That
is, the weekly close was above the weekly trend

384
indicator point in the third week, but the weekly close
was lower than the prior week’s close. It closed down.
Of those 10 non-confirmation cases, 4 continued higher
the following week. That means in 60% of these cases
studied, a non-confirmed trend run up in the third week
would be followed by weekly closes back below the
weekly TIP. It did not become a weekly trend run up
the following week.

The results were similar for trend run downs. There

were 5 cases of non-confirmed trend run downs at the
end of the third week. That is, the weekly close was
below the weekly trend indicator point in five cases, but
the weekly close was above the prior week’s close each
time. It closed up. Of those five non-confirmed cases, 2
continued higher the following week. That means in
60% of these cases, a non-confirmed trend run down in
the third week would be followed by weekly closes
back above the weekly TIP. It did not become a weekly
trend run down the following week 60% of the time.
This study supports the importance of not necessarily
assuming the market is in a trend run up or down just
because it closed three consecutive weeks above or
below the weekly TIP respectively. If the weekly close
isn’t up or down respectively from the prior week as
well, chances are slightly greater that a new trend run
status will not be confirmed.

With these considerations, the study shows that there

were 43 cases of trend run ups over this 9-year period,

385
of which 37 were confirmed cases (6 remained non-
confirmed after the third week). There were 31
instances of trend run downs during the same time
frame, of which 28 were confirmed cases. In all, there
were 74 cases of trend runs up and down, of which 65
were confirmed. As can be seen in the table, the
majority of these cases lasted 3-7 weeks, and mostly
only 3-5 weeks. That is, 32 of the 43 cases of trend runs
up lasted 3-7 weeks. That is nearly a 75% rate of
occurrence. If we remove the unconfirmed cases, we
find 26 of 37 instances that lasted 3-7 weeks (70%
occurrence). In the trend run down column, we find 28
of 31 cases lasted 3-7 weeks (90% occurrence). If we
remove the unconfirmed cases, we still find 25 out of
28 instances apply at the 3-7 week interval, or 89%
frequency. If we reduce the field to only cases lasting 3-
5 weeks, we find 26 of 43 total cases of trend runs up
(60.5%), of which 20 of 37 were confirmed cases
(54%). And there were 23 of 31 total cases of trend run
downs (74%), of which 20 of 28 were confirmed cases
(71.4%). The majority of trend runs will last only 3-5
weeks.

There is yet another way to view these results too. If we

remove the non-confirmed cases of the third week that
did not make it past the third week as a trend run, then
we have 37 cases of confirmed trend runs up and 28
cases of confirmed trend run downs. Now if we subtract
the cases of confirmed trend run ups that ended the third
week, we find that in the remaining 28 cases the market

386
continued to trade above the TIP in the next weeks
(weeks #4-14). That means there is a 75.67%
probability that a confirmed trend run up by the third
week will not end in the third week. It has a 75%
probability of continuing to close above the weekly TIP
in the next week. The ratios are even higher in the cases
of confirmed trend run downs in the third week. Here
we find 28 such cases of confirmed trend run downs
after three consecutive weeks. And of those, 25
continued to close below the TIP in the following
weeks. This represents a nearly 90% probability that if
the market closes below the TIP for three consecutive
weeks (and the third week is also a down week), the
following week(s) will also find prices closing below
the TIP.

However there were still cases where the market had

consecutive closes above or below the TIP considerably
longer than three weeks. One of the objectives of this
study was to determine how long trend runs last before
they are exhausted and overextended. In the trend run
up column, we see four cases where the weekly close
was above the weekly TIP for 10 consecutive weeks,
three cases where it lasted 11 consecutive weeks, one
case where it continued 12 consecutive weeks, and one
other case where it lasted 14 straight weeks. Therefore
one can deduce from this study that once a trend run up
reaches its 10th consecutive week of closes above the
TIP, it is overextended, exhausted, and vulnerable to a
reversal or a pause at any time, usually by the 12th

387
week. In the trend run down column, there were no
cases in which the weekly close was below the weekly
trend indicator point for more than 9 consecutive
weeks. Once it reaches the ninth week, one should be
prepared for a pause or reversal of the trend from down
to at least neutral.

An interesting phenomenon was observed in the cases

of exhaustion and overextension (not shown in the
table). In many cases where the trend run up entered the
10th week or more of consecutive closes above the TIP,
the following decline was modest. It was perhaps only
3-5% off the crest that coincided with the end of the
trend run up (that week, the week before or after the last
close above the weekly TIP). The decline to neutral
status only lasted 1-2 weeks. It didn’t go into a trend
run down mode. However there were two cases (of the
nine) where the DJIA did in fact turn into a trend run
down. In those cases the decline was more substantial
(800-1500 DJIA points) and lasted 5-6 weeks. In one
case, the DJIA actually traded slightly higher one week
after the week in which the trend run topped out. In the
second case, the DJIA topped out in the week that the
trend run up ended. However, the next week it came
within just two points of that high again (other indices
were higher, for a case of intermarket bearish
divergence).

Thus the end to a long (overextended) trend run up

does not always presage a powerful decline. To the

388
contrary, the market is more likely to enter a period of
congestion for 1-2 weeks and then proceed to even
higher levels. If, however, the following week the
market does make a slightly higher high or exhibits
intermarket bearish divergence to other stock indices,
then the decline can be more powerful and it can last
more than 1-2 weeks. In fact, over the past nine years,
the decline has been sharp and lasted 5-6 weeks.
However, the same was not true in cases of
overextended trend runs down. In the three cases of 8-9
consecutive weekly closes below the TIP, all were
followed by powerful rallies of 600-1500 points. Two
of the cases took 5-6 weeks before they topped out. The
third case resulted in a change of 1500 points, and it
only took two weeks to accomplish (it was during the
financial panic of September-October 2008). What is
perhaps just as interesting is that the low of the trend
run down in those cases did not occur in the week that
the trend run down ended. The actual low was the week
before or the week after. In the one case where the low
occurred the week before the trend run down ended, the
low of the following week was very close to the actual
low of the preceding week.

We also examined the cases of interruptions to the trend

run in an effort to determine how many times it
resumed the same trend run and for how long. If, for
instance, a trend run up was interrupted by a weekly
close below the TIP, and then the next week it closed
back above the TIP, we would consider that a

389
resumption of the trend run up. But what is the history
of such cases actually continuing the trend up for more
than one week?

In our sample of 467 weeks over nine years, the DJIA

exhibited an interruption to the Drummond trend run in
19 cases. That is, only cases were used in which the
DJIA had closed a minimum of 3 consecutive weeks
above the TIP (trend run up) or below (trend run down).
Yet during its trend run, there was one weekly close
that was on the other side of the TIP for one week and
then the following week it closed back above the TIP in
the resumption of a trend run up, or below the TIP in
the resumption of a trend run down. Only cases in
which the interruption lasted just one week were used in
this study.

Trend Runs Up Trend Runs Down

Weeks Cases Above TIP Cases Above TIP Cases Below TIP Cases Below TIP
Before Interrupt After Interrupt Before Interrupt After Interrupt
1 2 2
2 2 0
3 6 7 0 1
4 1 2 3 2
5 0 0 1 0

6 3 0 0 0
7 0 0 0 0
8 0 0 1 0
9 1 0 0 0
10 1 1 0 0

11 1 0 0 0
12 0 0 0 0

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13 0 0 0 0
14 1 0 0 0

Totals 14 14 5 5

In this table, the far left hand column represents the

number of weeks that applied to each category. The
next two columns pertain to trend run up cases. The
first column here (2nd overall) is titled “Cases Above
TIP Before Interrupt.” It identifies the number of cases
in the study in which the market closed above TIP ‘x’
number of consecutive weeks, where ‘x’ refers to the
number of weeks in the far left column. Since we only
examined cases of trend run up or trend run down, this
column showed no cases before the row beginning with
the third (3) week. Trend runs must have a minimum of
three consecutive weeks of closings above or below the
TIP. At 3 weeks, one can see six (6) cases where the
market interrupted the trend run that was in force. The
next column refers to the number of cases in which the
trend run then resumed for ‘x’ number of weeks after
the interrupt. Here you can have as few as just one week
afterwards, which simply means that the close was
above the weekly TIP for just one more week after the
interrupt. In the first row, marked “1” under “Weeks,”
we see two (2) cases where the trend run up resumed
for only one week after an interrupt occurred to the
trend run up.

The next two columns represent the interruptions that

occurred during a trend run down. The first column here

391
(4th column on the table) is titled “Cases Below TIP
Before Interrupt.” Once again there will be no cases
involving only weeks #1 or 2, because it takes three
consecutive weekly closings below TIP to constitute a
trend run down. We note from this table that there were
no cases of interruptions to trend run downs after three
consecutive weekly closings below the TIP. However,
after four consecutive weekly closings below TIP there
were three (3) cases of a trend run down that was
interrupted. The last column to the right refers to the
number of weeks in which the trend run down
continued after the interrupt. Here there are cases
lasting 1 or 2 weeks. In fact, we see two (2) cases where
the trend run down resumed for only one week after the
interrupt.

The results of this study support our corollary that one-

week interrupts do not necessarily derail the trend run
that was in force. Of the 19 cases of an interrupt in a
trend run, only six (6) failed to resume the trend for at
least the following three weeks. Although this study
covered 9 years and 467 weeks, it only produced 19
interrupt examples, which is a very small sample from
which to draw strong conclusions. So far we find that in
68.4% of cases studied in which a one-week
interruption of the weekly trend run occurred, the
market resumed weekly closes in the direction of that
trend again for the following three weeks or more. In
fact, it becomes even more interesting than that. In
these 13 cases of a resumption of the trend run lasting at

392
least three additional weeks, only 1 lasted more than 4
weeks. In other words, if a trend run is resumed after a
weekly interrupt, chances are it will not continue to
exhibit weekly closes above or below the TIP (in the
direction of the trend) for more than 4 additional weeks.
The resumed trend run ends within the next 4 weeks in
92.3% of cases studied. If we include the cases where
the interrupt was followed by only 1 or 2 weeks of trend
resumption, then we observe 18 of these 19 cases ended
by the 4th week, or a 94.7% rate of occurrence. Thus we
conclude that the concept of a one-week interrupt is
important. If this happens, the market is likely to
continue closing back above or below the TIP point, but
only for 3-4 weeks in most cases. It seldom continues
the trend run past the 4th week following an interrupt.

As mentioned, some of these qualifications yielded very

small sample sizes from which to draw any definitive
conclusions. They point to a possible correlation that
needs more study. For the record, this study of 467
weeks contained 199 weeks when the trend status was
neutral (42.6%), 185 weeks when it was in a trend run
up (39.6%), and only 83 weeks of being in a trend run
down (17.8%). Thus one can see that this time band
contained many more bullish weeks than bearish weeks.
In fact, if one looks at the weekly chart from June 3,
2002 through May 20, 2011, it is apparent the DJIA
spent more time in a bullish trend than bearish one.

393
Figure 53: Weekly chart of the Dow Jones Industrial Average from June 3, 2002
through May 20, 2011, with a 25-week moving average. Note that it spent more time in a
bull market (October 10, 2002 through October 11, 2007, and then again since March 6,
2009), than in a bear market (June 3, 2002 through October 10, 2002 and October 11,
2007 through March 6, 2009).

Illustrations of Weekly Trend Runs Down and

Trend Runs Up

Let us now examine an actual case of a weekly trend

run down in the DJIA and see how these principles
worked. We will take the period from August 5, 2002
through November 8, 2002, which covers the 4-year
(and possibly longer) cycle trough of October 10, 2002.
This example will demonstrate how the DJIA exited
from a trend run up into congestion that quickly became
a powerful trend run down. It also demonstrates how it
exited that trend run down to a long-term cycle trough
and entered congestion before commencing a trend run
up. As we consider the technical picture via the
Drummond Market Geometry rules (and our corollaries

394
to them), keep in mind that the bottom of October 10,
2002 was a geocosmic critical reversal period, as per
the rules presented in Volume 3 of this series. On
October 10, the very powerful Venus retrograde
occurred. The next day a powerful Saturn direct
unfolded. And on Monday, October 14, transiting Mars
formed a waxing square to Saturn. Each of these is a
powerful Level 1 geocosmic signature. Each has a 70-
80% correspondence to primary or greater cycles within
9-12 trading days. A powerful trend reversal was thus
due via these studies.

Figure 54: Weekly chart of the DJIA from August 2, 2002 through November 29, 2002.
This chart depicts the trend run down into the 4-year (and maybe greater) cycle low of
October 10, 2002 and the rally that commenced right afterwards. The 25-week is also
displayed on this chart.

The following represents the weekly high, low, close,

PP, TIP, and trend status for this period. Prices are
rounded off to the nearest point. The PP, TIP, and
STATUS of the first three weeks are carried over from

395
the calculations of previous weeks not shown here.

WEEK ENDING H L C PP TIP STATUS

2002/08/02 8762 8204 8313 8035 8390 D
2002/08/09 8796 8031 8745 8426 8232 N
2002/08/16 8854 8353 8778 8524 8329 N
2002/08/23 9077 8753 8873 8662 8537 U
2002/08/30 9017 8558 8663 8901 8696 N

2002/09/06 8659 8217 8427 8746 8710 N

2002/09/13 8727 8248 8313 8434 8694 D
2002/09/20 8482 7922 7986 8429 8536 D
2002/09/27 8012 7666 7701 8130 8331 D

2002/10/04 7964 7461 7528 7793 8117 D

2002/10/11 7901 7197 7850 7651 7858 D
2002/10/18 8331 7745 8322 7650 7699 N
2002/10/25 8558 8228 8444 8133 7811 N

2002/11/01 8542 8198 8518 8410 8064 U

2002/11/08 8800 8499 8537 8419 8321 U

August 2, 2002 ended a trend run down in which prices

had closed below the TIP in 8 of the prior 9 weeks
(there was a one-week interrupt the week ending July 5,
2002). But in the week ending August 2, the close was

396
8313, which was below the TIP. However, the previous
week (not shown), July 26, the close was 8264. That too
was below TIP. Yet the week of August 2 was an up
week, which was a sign that the trend run down might
be ending. This was further reinforced by the fact that
the close was above the TIP of the next week. It would
have been an even stronger signal of an impending
trend change if the close would have also been above
the PP (pivot point) of the next week, but it wasn’t.

Still, the next week of August 9, 2002 was a change of

trend status. The close of that week was 8745, which
was well above the TIP at 8232. Therefore the market
exited its trend run down (D) status and entered
congestion, or a neutral (N) status. It is interesting to
note that the low of this week was 8031, which was
lower than the prior week when the trend run down
ended. That often happens. The actual low of a trend
run down doesn’t always occur in the last week of the
trend run down. Sometimes it occurs in the week
before, and sometimes it occurs in the week after. When
the lowest price of the decline occurs the week after the
trend run down ends and the close of that week is also
above the close of the prior week, it is referred to as a
“key reversal up” signature. This is a common signature
that many technical analysts consider important. Thus
in the week ending August 9, the DJIA changed its
trend status from a trend run down to neutral, and the
close of that week exhibited a “key reversal up”
signature.

397
The next week ending August 16 also closed above the
TIP. It was the second consecutive week up, so the
trend status remained neutral. The following week,
ending August 23 also closed above the TIP, and the
close was above the prior week’s close. Thus the status
was upgraded to a trend run up (U).

The trend run up did not last long. The very next week,
ending August 30, the DJIA closed below the TIP. Thus
its status was downgraded back to neutral. The
following week ending September 6, it again closed
below the TIP, so it remained neutral. One week later,
ending September 13, the DJIA closed below the TIP
for the third consecutive week, and the close was also
below the close of the prior week. Thus the trend was
now downgraded to a trend run down (D). The trend
run down will continue as long as prices continue to
exhibit weekly closes below the TIP.

The week ending October 11, 2002 ended the trend run
down in this example. It was the seventh consecutive
week of closes below the TIP. As stated before, this
week coincided with the 4-year cycle trough on
Thursday, October 10, at 7197. It was an important
geocosmic critical reversal zone. Note that after
Thursday’s low of 7197, the market reversed sharply to
the upside. It closed the week at 7850, near the weekly
high. That close was also 322 points above the close of
the prior week, after taking out the low of the prior

398
week, so it also qualified as another “key reversal up”
technical signal for the week. It was only 8 points
below the TIP at 7858, so it remained in a trend run
down. Not only was it a “key reversal up” week, it also
closed above both the PP (pivot point) and TIP of the
next week. All of these factors (the weekly key reversal
up, the close above the prior week’s close, the close
above the next week’s PP and TIP) combined to
produce a strong argument that the trend was about to
change. It in fact did change.

The next week, ending October 18, was another strong

up week. The DJIA closed at 8322, up nearly 500 points
above the prior week’s close and already more than
1200 points (over 15%) above the low of October 10,
just six trading days earlier. It was the first weekly close
above the weekly TIP in 8 weeks, thus its status was
upgraded from trend run down to neutral. The next
week, ending October 25, continued to close above the
TIP, so the DJIA continued in its neutral status. The
week after that, ending November 1, was yet another
weekly close above TIP, and the close was also above
the close of the prior week, and thus it was upgraded
from neutral to a trend run up. It continued in the trend
run up through the week ending November 29. It closed
above the weekly TIP for seven consecutive weeks
following the week ending October 11.

This was a fairly simple example of how the trend is

determined using these basic principles of Charles

399
Drummond. Now let us look at an example of a trend
run up that contains a non-confirmed trend in the third
week, as well as one interrupt week. For this we will go
to the weeks ending November 24, 2006 through
January 26, 2007.

Figure 55: Weekly prices of the DJIA, the week ending November 24, 2006 through
January 26, 2007. The chart depicts a trend run up that is unconfirmed in the third
week (week ending December 22) and an interrupt to the trend run up that took place
the week ending January 5, 2007.

As one can see, the DJIA was in a bullish trend during

this period. It was mostly higher after the low during
the week ending December 1, and prices continued
higher throughout the period shown in this chart. Yet it
wasn’t an easy period to forecast because there was a
case of both an unconfirmed trend run up in the third
week, as well as an interruption to the trend run up in
the fifth week (week ending January 5).

Let us examine the weekly high, low, close, pivot point,

400
and trend indicator points during this period in the quest
to understand how these principles work in real cases.

WEEK
H L C PP TIP STATUS
ENDING
2006/11/24 12,361 12,259 12,280 12,256 12,126 N
2006/12/01 12,279 12,072 12,194 12,300 12,217 N
2006/12/08 12,361 12,195 12,307 12,182 12,246 N
2006/12/15 12,486 12,252 12,445 12,288 12,256 N
2006/12/22 12,498 12,342 12,343 12,394 12,288 N*
2006/12/29 12,530 12,337 12,463 12,394 12,359 U

2007/01/05 12,580 12,365 12,398 12,443 12,411 N-I

2007/01/12 12,581 12,337 12,556 12,448 12,428 U
2007/01/19 12,614 12,523 12,565 12,491 12,460 U
2007/01/26 12,622 12,431 12,487 12,567 12,502 N

This example begins simply enough with a weekly

close above the TIP for the week ending November 24,
followed by a weekly close below the TIP in the week
ending December 1. The market’s trend status is thus
neutral (N). It then closes above the TIP in the
following three weeks. The third consecutive week that
closed above the TIP occurred in the week ending
December 22, 2006. Normally that would be considered
a trend run up (U). However that week’s close (12,343)
was lower than the close of the prior week ending
December 15, which was 12,445. Therefore it is an

401
unconfirmed trend run up, which means its status
remains neutral. This is designated as N*. If the next
week closes below the TIP, it will remain neutral. But if
the next week closes above TIP and above the prior
week’s close, it will be upgraded to a trend run up.

The next week ending December 29 did in fact close

above the TIP and it was a higher close than the prior
week. Therefore the trend status is upgraded from
neutral (N*) to a trend run up (U). It has now closed
above the TIP for four consecutive weeks. The
following week, January 5, 2007, it closed at 12,398.
This is below the TIP for the first time in 5 weeks, so it
is downgraded from trend run up to neutral. If the next
week’s close is also below the TIP, it will remain
neutral. However if the next week’s close is both above
the TIP and above the prior week’s close, it will resume
its trend run up (U) status.

It did indeed close above the TIP and the prior week’s
close the next week, which ended January 12. Thus it is
upgraded back to a trend run up, and the prior week’s
status is noted as “N-I,” which stands for “Neutral-
Interrupted.” In other words, it was downgraded from a
trend run up to neutral for one week. It was a week in
which the trend run was interrupted. Moreover, since it
then closed back above the TIP the following week, the
trend run up resumed. However that previous week is
considered an interruption (N-I) week to the trend run
up that was in force prior to the week ending January 5.

402
You may remember from a previous discussion on
interrupts, that a resumption of the trend does not
usually last more than the next 4 weeks before returning
to neutral. Yet in that time the market tends to make
new highs for the cycle if it is a trend run up.

The trend run up resumed in the week ending January

12. The following week, January 19, it again closed
above the TIP and again above the close of the prior
week. The next week, ending January 26, it closed
below the TIP and below the close of the previous
week. Thus the resumed trend run up lasted only two
weeks after the interrupt week, which is not unusual,
before returning to neutral. Yet in those two weeks, and
even the week after, the DJIA rose to higher prices in
the cycle. If we count the interrupt week, we will see
that this trend run up saw prices closing above the TIP
in 6 of 7 weeks, and the price continued rising
throughout this entire period.

Daily Studies on TIPs

A study was also conducted on the daily prices of the

DJIA, covering the period November 25, 2002 through
May 20, 2011. In this study, the same criteria was used
as implemented on the weekly research studies. That is,
we recorded the number of consecutive days in which
the daily close was above or below the daily TIP,
starting with three consecutive days, for that was the
minimum number of consecutive daily closes that

403
would qualify as a trend run. Once again, we identified
those cases in which the third week of a consecutive
close above or below the daily trend indicator point was
not confirmed with a daily close that was above or
below the prior day’s close respectively (confirmed
versus unconfirmed trend runs at the end of the third
day). In the first table (shown below) are the results of
these cases, which do not include the interrupt
instances.

Non-Confirm Non-Confirm
Day # UP rd DOWN
3 Week 3rd Week
3 40 19 41 17
4 24 6 33 8
5 23 5 15 3
6 21 1 18 5
7 18 2 9 1

8 10 2 6 1
9 8 1 9 0
10 7 2 1 1
11 2 0 0 0
12 5 1 1 1

13 1 0 1 1
14 0 0 1 1
15 2 1 0 0
16 0 0 0 0
17 1 0 0 0
18 1 0 0 0
19 1 0 1 0
Totals 164 40 136 39

The results of the study on daily prices and trend runs

404
are similar to those obtained in the study of weekly
prices, except the trend runs generally lasted longer in
the daily study. In all, there were a total of 300
instances of trend runs (how convenient to have such a
round number), where the daily close was above or
below the TIP for at least three consecutive days. There
were 164 instances of trend runs up (54.7%) and 136
instances of trend runs down (45.3%). Albeit, 36 of
these cases (12%) were never confirmed trend runs.
This was virtually the same rate of frequency of non-
confirmed trend runs observed in the weekly studies.
That is, at the end of the third consecutive day of closes
above or below the TIP, 36 also did not also close
above or below the prior day’s close respectively, and
then the DJIA failed to do so the next day as well.
Therefore, of the 300 cases of three consecutive daily
closes above or below the TIP, 264 were confirmed
trend runs. We will return to the unconfirmed part of
the study shortly.

Let us look at the cases of trend runs up. In all, there

were 164 cases in which the DJIA closed at least three
consecutive days above the daily TIP. There were 19
unconfirmed cases in this category, which means 1)
they did not close above the prior day’s close on the
third day, and 2) they did not close above the TIP on the
next day (fourth day). They never confirmed the trend
run up. In the final tally, there were 145 confirmed
cases of trend runs up in this study.

405
There were 40 cases in which the DJIA closed up only
three consecutive days before reversing back to neutral.
Of these 40 cases, only 21 also closed above the prior
day’s close, which qualified them as confirmed trend
runs up. That means approximately half the cases of
trend runs up that lasted only three days were
confirmed. If we look only at confirmed cases of trend
runs up, we will notice the vast majority (107 of 145)
ended their trend run up by the seventh consecutive day
of closes above the TIP (73.8% frequency). There were
30 cases (20.7%) in which the consecutive string of
daily closes above the TIP lasted 8-12 days. There were
only 6 cases in which the DJIA closed above the daily
TIP more than 12 consecutive days (4% frequency of
occurrences at the 13-19 day interval). Thus we can
conclude that a trend run up on the daily time frame
tends to reach its exhaustion point after 12 consecutive
daily closes above the TIP. There were no cases in
which the daily DJIA closed above the daily TIP for
more than 19 consecutive trading days. It only
happened once during the 17, 18, and 19-consecutive
day intervals.

It is also interesting to note the number of cases in

which the trend run up was interrupted when it lasted a
long time (not shown in the table). Of the 20 cases in
which the market closed above the TIP for at least ten
consecutive days, 14 exhibited an interrupt. The trend
run up then resumed in these 14 cases (70% frequency)
as the following day(s) witnessed closes back above the

406
daily TIP. Half of these resumptions (7) lasted at least
5-7 days. Four lasted only one day, and three of those
cases occurred in the 10-consecutive-days-up category.

Now let us look at the cases where the market

exhibited a non-confirmed trend run up at the end of the
third consecutive day. That column in the table shows
this phenomenon occurred 40 times in this study (see
“totals” at the bottom of the third column). That means
that in about half the cases where a market closed above
the daily TIP on the third day - but it wasn’t a close up
from the prior day’s close - it did not enter a trend run
up by closing above it the next day. In the other half of
the cases, it did. Even if it did close above the daily TIP
and the prior day’s close on the 4th day, chances were
still great that it would not do so beyond the 5th day. As
one can see from the table, there were 19 instances
when the trend run up was not confirmed on the third
day, and it ended right there. There were 6 instances
where it did close above the TIP on the 4th day, but then
the trend run up was halted. There were 5 additional
instances where a non-confirmed trend run up occurred
on the third day, and then the market continued to close
above the daily TIP for five consecutive days before the
trend run ended. That means that in 30 of these 40 cases
(75%), an unconfirmed trend run up on the third
consecutive day led to an end of the trend run up by the
fifth consecutive day. An unconfirmed trend run up is
signal that the market’s advance is likely to end by the
5th day.

407
 Now let us examine the 136 cases of daily trend run
downs. Here we find 17 instances where the market
closed below the daily TIP for three consecutive days,
but the third day closed higher than the prior day’s
close, which were thus unconfirmed trend runs down.
Once again, this yields approximately a 12% rate of
frequency (actually 12.5%), which is similar to daily
trend runs up and even weekly trend runs of both types.
Thus we see 119 cases of confirmed trend runs down in
this study.

There were 41 cases in which the DJIA closed down

only three consecutive days before reversing back up to
neutral. Of these 41 cases, 24 also closed above the
prior day’s close. This qualifies them as confirmed
trend run downs. That means 58.5% of the cases of
trend runs down that lasted only three days were
confirmed. If we look only at confirmed cases of trend
runs down, we will notice the vast majority (90 of 119)
ended their trend run down after the sixth consecutive
day of closes below the TIP (75.6% frequency). If we
expanded that to seven consecutive days, as we did in
the study on trend runs up, we find 99 cases ended their
trend run by then, or 83.2%. There were 15 cases
(12.6%) in which the consecutive string of daily closes
above the TIP lasted 8-9 days.

There were only 5 cases in which the DJIA closed

above the daily TIP more than 9 consecutive days (4%

408
frequency of occurrences, at the 10-19 day interval).
Four of those cases were at least 12 consecutive weeks.
In fact, there was only one case where a trend run down
witnessed more than 14 consecutive closing days below
the TIP. Thus we can conclude that a trend run down on
the daily time frame tends to reach its exhaustion point
after 9 consecutive daily closes below the TIP. There
were no cases in which the daily DJIA closed above or
below the daily TIP for more than 19 consecutive
trading days. In fact it only happened once that the
DJIA closed below the TIP more than 14 consecutive
days, and that was the one occurrence at the 19-
consecutive day mark.

Unlike the trend run up cases, there were very few

instances of interrupts to the trend run down when it
reached the exhaustion stage after 9 days. Of the 14
cases in which the market closed below the TIP for at
least 9 consecutive days, only 6 ended with an interrupt.
The trend run down then resumed in these 6 cases
(42.8% frequency), as the following day(s) witnessed
closes back below the daily TIP. Five of these six
resumptions lasted only 1-2 days. The other instance
lasted 5 additional days in a trend run down. Thus it
appears that when an interruption occurs in an
overextended trend run down, the trend will not resume,
as it often does in the case of interrupted trend runs up.
And if it does resume its downward trend, it does not
last more than 1-2 additional days.

409
 Now let us look at the cases where the market
exhibited a non-confirmed trend run down at the end of
the third consecutive day. The last column in the table
shows that this occurred 39 times in this study (see
“totals” at the bottom of the last column). This means
that in 43.5% of the cases where a market closed below
the daily TIP on the third day, but it wasn’t a close
down from the prior day’s close, it did not enter a trend
run down by closing below it the next day. In the other
56.5% of the cases, it did. However, even if it did close
below the daily TIP and the prior day’s close on the 4th
day, chances were still very great that it would not do so
beyond the 6th day. As one can see from the table, there
were 17 instances when the trend run down was not
confirmed on the third day, and it ended right there.
There were eight instances where it did close below the
TIP on the 4th day, but then the trend run down was
halted. There were three instances where a non-
confirmed trend run down occurred on the third day,
and then the market still continued to close below the
daily TIP for five consecutive days before the trend run
ended. Finally, there were five instances where a non-
confirmed trend run down occurred on the third day.
The market still continued to close below the daily TIP
for six consecutive days before the trend run down
ended. That means that in 33 of these 39 cases (84.6%)
an unconfirmed trend run up on the third consecutive
day led to an end of the trend run up by the sixth
consecutive day. An unconfirmed trend run down is a
signal that the market’s decline is likely to end by the

410
6th day.

Using Multiple Time Frames

You may be asking yourself at this point: “What is the

purpose of these studies on trend runs? How are they to
help me become a more skilled short-term trader?” It
goes back to two basic principles discussed earlier. The
first is, “The trend is your friend.” You make the
highest percentage of successful trades when you trade
in the direction of the trend. However determining the
trend is no easy matter, for as discussed before, the
trend depends upon which time frame, or cycle, is being
examined. The second principle is to trade in a time
frame, or cycle, that is moving (or about to move) in the
direction of the trend of the greater time frame or cycle.
It is even more effective when you use a shorter time
frame, or cycle, to help you pinpoint a corrective low or
high that anticipates the reversal in the direction of the
greater time frames or cycles. For short-term traders,
this is known as taking a favorable “risk-reward”
position. And as explained in Volume 4 of this series,
titled “Solar-Lunar Correlations to Short-Term Trading
Reversals,” the goal of every short-term aggressive
trader is to attain maximum profit potential with
minimal market exposure.

Yet the concepts discussed in this section of the book

work well for any type of trading. It may not work so
well for the long-term buy and hold investor. Yet

411
whether one wishes to trade every day (short-term
aggressive), every week (short-term), or every couple of
weeks (short-term position), or even every month or
two (position trader), the principles of Drummond
Market Geometry combined with technical analysis
studies outlined in this book, plus the market timing
studies presented in Volumes 1-4, will prove to be both
reliable and powerful tools for today’s modern trader.

In terms of cycles, we have demonstrated over and

over again that the start of every cycle is bullish. That
is, the first phase of every cycle will be bullish. Its trend
is more up than down. And in the rare event that this
first phase takes out the low that began the cycle, it will
still turn out that the highest price (the biggest rally)
most frequently (almost always) occurred in that first
phase of the cycle. Thus it is very valuable to recognize
1) when a cycle trough or crest is due, and 2) when the
Drummond trend indicator studies are exhibiting a trend
run up or down in that time band. For example, if the
market is in a time band for a primary cycle trough and
the price has been declining into this time band, it is
most likely that prices are closing below the daily and
weekly TIP. However, as the cycle bottoms, the price
will begin to close above the daily TIP first. Soon the
market will exhibit a trend run up status with three
consecutive daily closes above the TIP with the third
day (or next) also closing above the close of the prior
day. It will thus confirm - via the rules of Drummond
Market Geometry - a new trend run up is underway

412
following a new low for the cycle that was within the
time band when the cycle trough was due. This will be
one of the early signs that the trend is reversing to the
upside, and a smart rally is commencing to the crest of
at least the first phase of this new cycle.

The weekly close will do the same, although perhaps

a week or so later. The longer time periods will almost
always lag behind the shorter time periods in producing
a new trend run. And that brings us back to the
importance of tying in multiple time frames, a concept
that is important to us as cycles’ analysts, and also
reflects the work of Charles Drummond for technical
market analysts.

Basically, for our trading purposes in this section of the

book, there are three main steps to follow:

1. Determine the weekly trend.

1.
2. 2. Trade the daily in the direction of the weekly
trend. In other words, if the weekly is in a trend
run up, then wait for the daily to 1) exit a trend run
down and enter congestion or 2) commence a trend
run up. If the weekly is in a trend run down, then
wait for the daily to 1) exit a trend run up and enter
congestion or 2) commence a trend run down.
3. 3. Use intraday time frames, such as the 60-, 30-,
15-, and/or 5-minute bars (high, low, and close) to
pick the bottom of a corrective decline in a trend
run up (buy point) or the top of a corrective rally in

413
 a trend run down (sell point).

Let us look at an example of how the concept of

tying in multiple time frames involving the weekly and
daily trend indicator points works with the knowledge
of cycle studies. For this illustration, let us examine the
weekly and daily charts of the DJIA for the last
confirmed primary cycle trough prior to the writing of
this section of the book. That would be the primary
cycle trough of March 16, 2011, which just occurred
after the tragic earthquake-tsunami that struck the
northeast coast of Japan on March 11 and on the day
that Uranus - planet of earthquakes - moved from Pisces
into Aries. You can see the weekly and daily chart of
the DJIA for this period on the next page.

In reviewing these charts, note that the primary cycle

began with the low of 10,929 on November 29, 2010.
According to our knowledge of cycles, we would
expect the next primary cycle trough to occur 13-21
weeks later, or February 28 to April 29, 2011. We
would expect the DJIA to be declining rather sharply
into this low with weekly closes below the TIP and
probably in a weekly trend run down. We would
certainly expect the daily closes to be in a trend run
down during the week, or just before that low was
completed. We would expect the daily and then the
weekly prices to exit the trend run down with closes
above the TIP shortly after the low was completed.

414
Now let us see what happened.

Figure 56: Weekly chart of DJIA from November 1, 2010 to May 13, 2011. PT
represents primary cycle top, or crest, and PB represents primary cycle bottom or
trough. Also shown here is the 25-week moving average.

Figure 57: Daily chart of the DJIA during the same period as the weekly chart above.
MB and MT refer to the major cycle bottom and major cycle crest within the primary

415
cycle. Also shown here are 15-day and 40-day moving averages.

Let us begin by examining the weekly high, low, close,

pivot points (PP), and trend indictor points (TIP)
following the primary cycle crest of 12,391 on February
18, 2011. That crest occurred in the 11th week of the
primary cycle. In bull markets, we look for declines
from the primary cycle crest to the primary cycle trough
to last 2-5 weeks. Sometimes they last longer. However,
the majority of cases will find the decline lasting 2-5
weeks. We already know that the 13-21 week primary
bottom is due February 28 to April 29, 2011. If
February 18 was the primary cycle crest, then the
primary bottom would likely be completed in 2-5
weeks, or February 28 - March 25. This overlap to the
original calculation helps narrow that time frame. The
use of geocosmics would also alert us to a potential
reversal on Monday, February 21, +/- 3 trading days,
and March 18 - 21 (a weekend), +/- 3 trading days, as
per the instructions given in Volume 3 of this series.
For now, we will apply the Drummond rules for trend
analysis to get an indication when the new primary
cycle would be underway in this time band of February
28 - March 25.

Below we provide the weekly numbers for this analysis.

Numbers are rounded off to the nearest whole number,
and therefore the PP or TIP may appear to be off by 1
point.

416
WEEK H L C PP TIP STATUS
ENDING
2011/02/18 12,391 12,193 12,391 12,217 12,033 U
2011/02/25 12,389 11,983 12,130 12,325 12,181 N
2011/03/04 12,283 12,018 12,170 12,168 12,237 N
2011/03/11 12,258 11,936 12,044 12,157 12,217 D
2011/03/18 12,042 11,556 11,850 12,089 12,135 D

2011/03/25 12,260 11,860 12,220 11,806 12,014 N

2011/04/01 12,420 12,173 12,376 12,113 11,999 N
2011/04/08 12,451 12,321 12,380 12,323 12,081 U
2011/04/15 12,444 12,164 12,342 12,384 12,273 U
2011/04/22 12,506 12,093 12,506 12,317 12,341 U

2011/04/29 12,833 12,446 12,810 12,369 12,456 U

2011/05/06 12,876 12,521 12,639 12,696 12,460 U
2011/05/13 12,781 12,537 12,596 12,678 12,581 U
2011/05/20 12,643 12,379 12,512 12,638 12,671 N

The weekly analysis begins with the week ending

February 18. On that day, Friday, February 18, the
DJIA completed its primary cycle crest at 12,391. It
was the 11th week of the primary cycle, and it was a
geocosmic critical reversal zone, and prices were
making a new high for this cycle. We would therefore
be on alert to the possibility that a primary cycle crest
could be unfolding. The next week (week ending

417
February 25) found the weekly high on Tuesday,
February 22 (Monday was a holiday) at 12,389, only
two points lower than the prior day (and prior week)
high. This alone was a reason to be alert that a primary
top (PT) might be forming, for often primary cycle
crests occur when the current week’s high is slightly
above or slightly below the high of the prior week.
Additionally, a check of other world stock indices
would reveal that many made a higher high on February
21. Thus there was a case of intermarket bearish
divergence on a weekly basis, where one index made a
new cycle high, but others did not, and then all closed
in the lower half of the weekly range. More importantly
for purposes of this section of the book, the weekly
close was below the weekly trend indicator point (TIP)
for the first time in 13 weeks. It thus exited out of its
trend run up status (U) and was downgraded to neutral
(N).

If the next week’s close was above the TIP at 12,237, it

would be upgraded back to a trend run up. The week
ending February 25 would be considered an “interrupt
week” and the trend run up would then resume.
According to our historical studies on the weekly DJIA,
we would then anticipate that the resumption of the
trend run up would end within the next 4 weeks, but at
prices higher than 12,391.

Prices did not close above the TIP in the week ending
March 4. They closed at 12,170, below the TIP of

418
12,237. Even though this close was up 40 points from
the prior week, the fact is that it closed below the TIP
for the second consecutive week, and thus the market
remained in a neutral (N) status.

The market was now poised to exit the neutral status

and commence a new trend run down. All it had to do
was 1) close again below the TIP (12,217) for the third
consecutive week and 2) have a weekly close lower
than that of the prior week (12,170). If both of these
conditions did not occur, then it would remain in a
neutral status. In this case, the market closed at 12,044
on March 11. It was below the weekly TIP and the prior
week’s close. It was thus downgraded to a trend run
down.

The week ending March 11 completed the 14th week of

the primary cycle. It was now in its time band for a 13-
21 week primary cycle trough. It was also the third
week following the crest of February 18. The low of the
week ending March 11 was 11,936, which was the
lowest price since the crest. Therefore the market had
been in decline for 2-5 weeks, and thus the two
minimum time requirements criteria for a primary cycle
trough were being met. What we wanted to see at this
point was a close back above the weekly TIP. That
would upgrade the weekly trend status from trend run
down to neutral. That would be the first sign via the
weekly studies that a primary bottom may have been
completed.

419
 The next week, which ended March 18, witnessed a
new low at 11,556 and a weekly close at 11,850. This
was still below the weekly TIP, which was 12,135, for
the 4th consecutive week. The weekly status still
remained in a trend run down (D). However, the
following week ending March 25 produced a weekly
close above the TIP. The TIP was 12,014 and the
weekly close was 12,220. The weekly trend was thus
upgraded to neutral, the first weekly sign that the
market was exiting its trend run down status and in a
time band in which a primary cycle trough was due.
The low as of that point was 11,556 on March 16. It
was the 15th week of the 13-21 week primary cycle time
band, and it was 4 weeks following the primary cycle
crest. The market timing conditions were right for a
primary bottom. This would be confirmed if the
following two weeks also closed above the weekly TIP,
with the third week also an up week for the close of the
prior week. Those conditions were indeed met by the
third week, which was the week ending April 8.
According the rules of the Drummond Market
Geometry method of trend analysis, combined with the
principles of cycle studies, this was now a new
confirmed primary cycle, and the market was thus
bullish.

However, one need not wait three weeks for the weekly
chart to enter a trend run up in order to start employing
bullish strategies, especially if we are looking for the

420
most favorable risk-reward ratios prior to entry. Initial
indications of a trend reversal would show up even
earlier on the daily calculations. So let us examine the
price activity of the daily DJIA leading into - and out of
- the primary cycle trough of March 16.

DAY
H L C PP TIP STATUS
ENDING
2011/03/10 12,211 11,974 11,984 12,209 12,173 N
2011/03/11 12,087 11,936 12,044 12,057 12,150 N

2011/03/14 12,042 11,897 11,993 12,023 12,096 D

2011/03/15 11,989 11,696 11,855 11,977 12,019 D
2011/03/16 11,857 11,556 11,613 11,846 11,949 D
2011/03/17 11,800 11,615 11,774 11,675 11,833 D
2011/03/18 11,927 11,777 11,850 11,730 11,751 N

2011/03/21 12,078 11,860 12,036 11,852 11,752 N

2011/03/22 12,051 12,003 12,018 11,992 11,858 N*
2011/03/23 12,116 11,973 12,086 12,024 11,956 U
2011/03/24 12,191 12,088 12,170 12,058 12,025 U
2011/03/25 12,260 12.171 12,220 12.150 12,072 U

We start the daily analysis as the market began closing

below the daily TIP on March 10. It had been in
congestion (neutral readings, with closing prices
vacillating back and forth above and below the daily

421
TIP) since March 3. On Monday, March 14, the DJIA
closed below the daily TIP for the third consecutive
day, and the close was down from the prior day’s close.
Thus its trend status was downgraded from neutral to a
trend run down. Keep in mind that the weekly was
already in a trend run down status, so the daily is just
confirming the weekly, which suggested that prices
were falling even lower into the primary cycle trough
that was due at any time that week or the next, as it was
already the fourth week of declining prices since the
primary cycle crest of February 18.

The trend run down on the daily chart continued

through the close of March 17. That was the 6th
consecutive day in which the DJIA closed below the
daily TIP. The lowest price had occurred the day
before, March 16, at 11,556. On Friday, March 18, the
close was finally above the daily TIP, which upgraded
the daily trend from trend run down to a neutral status.
This was the first sign, via the daily chart, that the
bottom might be in. That possibility would be
strengthened if 1) the next two days also exhibited
closes above the daily TIP, with the third day an up day,
and 2) if the following week’s close would also be
above the weekly TIP, thus upgrading its status from a
weekly trend run down to neutral. The progression of
upgrades on both the daily and weekly trend numbers
would be a strong sign that the primary bottom was
completed on March 16.

422
As can be observed on the table of daily prices, the
DJIA did in fact close above the daily TIP over the next
two days. However that third day of daily closes above
the TIP - March 22 - was not a confirmed trend run up
because it was a lower close than the day before. Thus it
remained neutral, but with an asterisk (N*). What do we
know about the historical correlation of unconfirmed
trend runs up on the third day? We know that nearly
50% of the time the market will not confirm a new
trend run up. So we do not want to become bullish just
yet.

The next day, March 23, the DJIA closed at 12,086.

This was above the TIP for that day at 11,956, and it
was 68 points higher than the close of the prior day.
Now the daily trend would be upgraded from neutral to
a trend run up. However, the weekly was still down, so
caution was still warranted. On Thursday March 24, it
closed above the TIP for the fifth consecutive day, and
Friday, March 25, it did the same. More importantly,
Friday’s (March 25) close of 12,220 was above the
weekly TIP at 12,014 for the first time in 5 weeks. The
weekly trend status was upgraded from trend run down
to neutral, and the daily trend status was already in a
trend run up from March 23. The energy of the market
can be seen as shifting from bearish to neutral on the
weekly and from neutral to trend run up on the daily,
and this positive shift occurred following a low in a
time band when a primary cycle trough was due. One
could now approach the next week with a greater

423
confidence that the low was in and start looking for a
point to buy with a stop-loss on a close under the
11,556 low of March 16. Position traders could buy the
close of March 25 with a stop-loss below 11,556. Short-
term aggressive traders would need to look for better
risk-reward possibilities in the days that followed. The
point is that all traders could start to adopt more bullish
strategies at this point, for the trend status was being
upgraded on both the weekly and daily time frames.

The next chapter will introduce further tools that will

enhance the short-term trader’s ability to find favorable
locations for market entry and exit, once the trading
strategy becomes clear via the shift in trend analysis.

SUMMARY

The following represent the key points to remember

about trend analysis utilizing the core principles of
Drummond Market Geometry in combination with
market timing indicators (or even other technical tools).

1. 1.A market’s trend status is neutral until there are

three consecutive closes above or below the trend
indicator point (TIP), which Drummond refers to
as the “Dot.”

1. 2.Once a market closes three consecutive times

above the TIP, it is upgraded to a trend run up.

424
 However, if the third close is not also higher than
the close of the previous period’s close, the trend
run up is not confirmed. It remains neutral. It will
be a confirmed trend run up when the following
period’s close is higher than the prior bar’s close,
assuming the price still closes above the TIP.

1. 3.Once a market closes three consecutive times

below the TIP, it is downgraded to a trend run
down. However, if the third close is not also lower
than the previous period’s close, the trend run
down is not confirmed. It remains neutral. It will
be a confirmed trend run down when the following
period’s close is lower than the prior bar’s close,
assuming the price still closes below the TIP.

1. Most weekly trend runs up and trend runs down

4.
end after the 7th consecutive week of closes above
or below the weekly TIP.

1. 5.Most daily trend runs up end by the 10th

consecutive day of closing above the daily TIP.
Most daily trend runs down end by the 9th
consecutive day of closes below the daily TIP.

1. 6. Weekly trend runs up become exhausted after 11

425
 consecutive weeks of closing above the weekly
TIP. There were only two cases (out of 43) of
trend runs up in which the DJIA closed above the
weekly TIP for more than 11 consecutive weeks,
according to studies done on the weekly DJIA as
reported in this chapter. It is considered exhausted
even after 10 weeks.

1. Weekly trend runs down become exhausted after

7.
9 consecutive weeks of closing below the weekly
TIP. There were no cases (out of 31) of trend runs
down in which the DJIA closed below the weekly
TIP for more than 9 consecutive weeks.

1. 8.Daily trend runs up become exhausted after 12

consecutive days of closing above the daily TIP.
There were only six cases (out of 164) of trend
runs up in which the DJIA closed above the daily
TIP for more than 12 consecutive days.

1. 9.Daily trend runs down become exhausted after 9

consecutive days of closing below the daily TIP.
There were only five cases (out of 136) of trend
runs down in which the DJIA closed below the
daily TIP for more than 9 consecutive days.

426
1. 10. A weekly trend run up or down may be
interrupted for one week and then resume its prior
trend. When that happens, the resumed trend run
up or down tends to end within the next 4 weeks.
In only one case (out of 19) did the resumption of
the trend last more than 4 weeks after the interrupt
week.

1. A daily trend run up may be interrupted for one

11.
day and then resume its trend run up status by
closing above the daily TIP the next day. When
that happens, the resumed trend run up tends to
end within the next 7 days, with most ending after
just one day. In only 8 cases (out of 56) did the
resumption of the trend run up last more than 7
days after the interrupt day. In 19 cases it lasted
only one day.

1. 12.A daily trend run down may be interrupted for

one day and then resume its trend run down status
by closing below the daily TIP the next day. When
that happens, the resumed daily trend run down
tends to end within the next 3 days. In only 2 cases
(out of 21) did the resumption of the trend run
down last more than 3 days after the interrupt day.
It never lasted more than 6 days in this study.

1. 13. A market may be upgraded to an “on edge trend

427
 run up” even before it exhibits three consecutive
closes above the TIP. That happens when the close
is so sharply higher that it is above the prior high
of the cycle, even though it may only be the first or
second time frame in a neutral status. It is fully
upgraded to a trend run up if the next bar is a
higher close than the prior bar.

1. 14.A market may be downgraded to an “on edge

trend run down” even before it exhibits three
consecutive closes below the TIP. That happens
when the close is so sharply lower that it is below
the prior low of the cycle, even though it may only
be the first or second time frame in a neutral status.
It is fully downgraded to a trend run down if the
next bar is a lower close than the prior bar.

1. 15.It is best to trade with multiple time frames and

in the direction of the trend status for the higher
two frames. For best risk-reward ratios, the lower
(shorter) time frame can be used to enter the
market shortly after the bottom or top of a counter-
trend move is suggested. For example, one can
trade the daily chart in the direction of the weekly
trend status or the direction of a change in the
weekly trend status. One can use a lower time
frame, such as the 30- or 60-minute bars, to
pinpoint a corrective retracement against that trend

428
 to identify a time and price at which to enter the
market after the trend has begun. This process will
be discussed shortly.

References:

1. 1. P&L Labs: Introductory Manual, Point and Line Charting, Charles Drummond,
1981, Toronto, Ontario, Canada.
2. 2. Classic Drummond Market Geometry lessons, Ted Hearne and Charles Drummon,
www.drummondgeometry.com.

429
430
CHAPTER SEVENTEEN

SUPPORT AND RESISTANCE FOR SHORT-TERM

TRADING

Now it gets interesting.

It also gets a little dangerous because there is the

temptation to forget all the other calculations and
methods of market analysis presented in this book to
determine price targets for cyclical highs and lows.
Nevertheless, keep one thing in mind: the calculations
presented in this chapter for support and resistance
levels are most valuable when they overlap with the
price targets from formulas given in prior chapters.
They are even more valuable when calculated for time
bands in which our market timing signals indicate a
market reversal is most likely, and when they fall
within the price targets established for a cyclical trough
or crest as identified in earlier chapters.

The prior chapter on Trend Indicator Points (TIPs) was

important because it established the basis for one’s
trading strategy at any given time. When the trend is up,
we know we want to buy on corrective declines. When
the trend is down, we want to sell on corrective rallies.
Corrective declines and rallies are known as
retracements to the basic trend. Yet just as cycles have

431
time bands in which a trough or crest is due to occur, so
also do price retracements have a range in which a
corrective decline can bottom or a corrective rally can
peak. Just as we use geocosmic studies and solar-lunar
phases to help narrow a time band when a cycle trough
or crest is more likely to occur, so also do we use other
calculations and studies to help narrow down the price
range that will define support or resistance to a
retracement. In some cases, we use these
mathematically calculated support and resistance zones
to identify when the retracement is over, or when it is
safer to enter the market with a higher probability of
being on the right side of the resumed (or new) trend.

As short-term aggressive traders, our challenge is to

identify when and where a short-term market move is
likely to bottom or peak. And although this is contrary
to what most market analysts would recommend, our
goal is to pick bottoms and tops as close as possible to
the actual time and price in which they occur. One who
chooses to enter the market at those projected lows or
highs is known as a “bottom picker” or “top picker.”
Often those terms are used in a derogatory way by the
market community, implying the notion that traders
who do this are doomed to lose over time. But this is
not always the case, and when it is, it is more a result of
the trader’s lack of discipline than it is to a fallacy in the
concept. Being able to forecast lows and highs
extremely close to their exact time and price provides a
means to keep the risk-reward parameter at a most

432
favorable ratio, which is essential to short-term
aggressive traders. The biggest problem with being a
bottom or top picker isn’t that one suffers losses, for the
losses with this type of trading are very modest
compared to any other trading approach. The bigger
problem is that there will be far more losses - small
losses, but losses nonetheless - than from a trading
approach that waits until a new trend is more firmly
established before entering a new position. The problem
is ultimately more psychological than financial, for a
number of even small losses can affect one’s confidence
in trading. As much as anything else, one needs to have
confidence when trading in order to be successful. You
simply cannot succeed at trading if you are constantly
filled with doubt before putting on trades. On the other
hand, success at trading may be very fleeting if one is
overconfident to the extent that if he believes so
strongly in the position taken, he cannot adapt when the
market goes against that position, thereby turning what
should have been a small loss into a large loss.

Thus we begin this final section on support and

resistance. For short-term traders, this is quite possibly
the most important chapter of the book, whether you are
a bottom-top picker or someone who prefers to first see
evidence that the market is holding (or breaking)
support and resistance. The first step is to revisit the
formulas for support and resistance, and then explain
how they are used to pick bottoms and tops, as well as
to identify signals that bottoms and tops have been

433
completed, at least on a short-term basis. This process
will thus address the needs of both types of traders:
those who prefer to pick the bottoms and tops of market
moves and those who prefer to see the lows and highs
established before entering a position in the direction of
the reversal, i.e. new trend or resumed trend.

Formulas

There are many formulas for calculating a support or

resistance level for any time frame. If one explores the
internet search engines for support and resistance
formulas, hundreds of web sites will come up, and they
will provide dozens of different formulas,
interpretations, and uses. The one thing they will not do
is to cite the originator of these formulas, other than to
sometimes say they are “Floor Trader Formulas” for
support and resistance. From this I can only conclude
that most of these formulas have been around a very
long time. But how one uses the numbers derived from
these calculations is more important. What signals do
they generate that leads one to become a buyer or seller
of a particular stock or commodity? This is what
separates one system, one analyst, from another.

In Chapter 14, the following formulas for support and

resistance were given that will be used from this point
forward. But as mentioned before, there are literally
dozens of other support and resistance formulas that
traders use. Charles Drummond proposed several other

434
support-resistance calculations, around which he built
numerous trading plans. But for our needs, we use two
formulas for determining short-term support and two
for short-term resistance. Drummond also uses one of
these formulas (in addition to his several other
formulas), which we will note herein. Once we
understand support and resistance on the daily and
weekly time frame, we can incorporate these numbers -
along with the TIP - to determine strategies and trading
plans for buying and selling. We can determine the
price at which to enter or exit the market when a
tradable top or bottom is forming or has just formed.
For this we will also need a listing of terms we apply to
these “set ups” based on support and resistance.

Support 1 (S1)

S1 = C - (H-L)/2, where C is the close, H is the high,

and L is the low of the time frame being studied (such
as weekly, daily, hourly, etc.). Sometimes this is
referred to as the “Predicted Low” of the time frame
being used.

Support 2 (S2)

S2 = (PPx2) - H, where PP represents the pivot point

and H represents the high of the time frame being
studied. This is one of the classical “floor traders”
formulas for determining daily, weekly, or whatever

435
time frame of support one is calculating. Charles
Drummond refers to this as the “1x1 up” point.

Support Zone

The range of the S1 and S2 represents the support zone

of the next time frame from which these numbers were
calculated. If using a particular day’s high, low, and
close, then the S1 and S2 would yield the support zone
for the next day’s trading. There are other formulas for
determining other support zones, but these are the two
for short-term trading that we will be using throughout
the remainder of this book.

Resistance 1 (R1)

R1= (H-L)/2 + C, where H represents the high, L

represents the low, and C represents the close of the
time frame being studied (such as weekly, daily, hourly,
etc.). Sometimes this is referred to as the “Predicted
High” of the time frame being used.

Resistance 2 (R2)
R2 = (PPx2) - L, where PP represents the pivot point
and L represents the low of the time frame being
studied. This is one of the classical “floor traders”
formulas for determining daily, weekly, or whatever
time frame of resistance one is calculating. Charles
Drummond refers to this as the “1x1 down” point.

436
Resistance Zone
The range of R1 and R2 represents the resistance zone of
the next time frame from which these numbers were
calculated. If using a particular day’s high, low, and
close, then R1 and R2 would yield the resistance zone for
the next day’s trading. There are other formulas for
determining other resistance zones, but these are the
two for short-term trading that we will be using
throughout the remainder of this book.

Simple Examples of Calculating Support/Resistance

Zones

Let’s do some simple calculations to show how the

support or resistance zones of a day are derived. Let’s
assume we have the last 3 days of trading figures for
stock XYZ as follows, where H represents the high of
that day, L represents the low of that day, and C
represents the close:

Day H L C
1 75.50 71.20 73.75
2 77.00 73.25 76.80
3 79.20 75.50 76.20

Our first step is to calculate the Pivot Point. As

discussed before, this is simply the average of the high,
low, and close for each day, applied to the next day. In

437
other words, today’s high, plus low, plus close, divided
by three, gives us the pivot point (PP) for the next day’s
trading, or, PP = (H + L + C) ÷ 3.

Now, let’s calculate the Pivot Point for each of the

following days:

Day H L C PP
1 75.50 71.20 73.75
2 77.00 73.25 76.80 73.48
3 79.20 75.50 76.20 75.68
4 76.97

Notice how the pivot point for day 2 is based on the

daily high, low, and close of day 1. The PP for day 3 is
based on the trading range and close of day 2, and the
PP for day 4 is calculated for the high, low, and close of
day 3. Whatever happens in the current time frame
creates the numbers for the next time frame of the same
duration. In this case, we are using a daily chart. But the
same calculations can be constructed for weekly,
monthly, quarterly, and yearly charts, or for 60-minute
and 30-minute charts as well.
Once we have the pivot point, we can calculate the
support and resistance zones for the next day’s trading.
On our table, the support zone for day #2 would be the
range between S1 and S2. The range for the next day’s
resistance would be determined by R1 and R2. It would
look like this:

438
Day H L C PP S1 S2 R1 R2
1 75.50 71.20 73.75
2 77.00 73.25 76.80 73.48 71.60 71.46 75.90 75.76
3 79.20 75.50 76.20 75.68
4 76.97

S1, or predicted low, would be the high of the prior day

minus the low, divided by 2. That amount is then
subtracted from the close of the previous day (day 1). In
this case, it would be (75.50 - 71.20) ÷ 2 = 2.15, or
73.75 - 2.15 = 71.60. This is the S1, or the first support
point, for day 2.

S2 would be (PP x 2) - the high of the prior day, or

(73.48 x 2) - 75.50 = 71.46. This is the second support
point, or S2, on day 2.

The range for support on day 2 is thus the combination

of S1 and S2, or 71.46-71.60. We will refer to this as the
daily support range.

R1, or predicted high, would be calculated as the high

minus the low of day one, divided by 2, and then added
to the close of day 1. In this case, that would be (75.50-
71.20) ÷ 2 = 2.15. And then, 73.75 + 2.15 = 75.90. This
is the first resistance (R1) point for day #2.

439
 R2 would be (PP x 2) - the low of the prior day, or
(73.48 x 2) - 71.20 = 75.76. This is the second
resistance point (R2) for day 2.

The range for resistance on day 2 is thus 75.76-75.90.

We will refer to this as the daily resistance range.

Day traders will often find that intraday prices

bounce off of these two ranges. In other words, when
prices fall to the daily support zone, the market will
frequently stall and then commence a rally. When it
reaches the daily resistance zone, it will often stall and
then commence a decline. In many cases, these support
and resistance zones will mark the low or high of the
day’s trading to which they apply. Sometimes both
ranges will define the day’s trading range, which makes
it an ideal day for day trading.

Now let’s calculate the support and resistances zones

for days 3 and 4. Try to do it on your own, and then
check it against the figures below.

Day H L C PP S1 S2 R1 R2
1 75.50 71.20 73.75
2 77.00 73.25 76.80 73.48 71.60 71.46 75.90 75.76
3 79.20 75.50 76.20 75.68 74.92 74.36 78.67 78.11
4 76.97 74.35 74.74 78.05 78.44

In day 2, the low of the day (73.25) was well above the

440
daily support zone (71.46-71.60). The high (77.00) and
close (76.80) were above the daily resistance zone
(75.76-75.90). This is a classic “bullish” day. The
market ended the day “bullish” because it closed above
daily resistance.

Day 3 found the market once again trading above daily

resistance (78.11-78.67). The high was 79.20. The low
(75.50) was also above daily support (74.36-74.92). But
the close (76.20) was below daily resistance (78.11-
78.67). When the market trades above daily resistance
but then closes back below, it is known as a “bearish
trigger.” It is not bearish because it did not close below
daily support. But it is not bullish, because it didn’t
close above daily resistance. It took out resistance,
which at the time was bullish. But then it closed back
below it, which meant resistance failed. Remember:
when resistance is broken, it becomes support. When
support breaks, it becomes bearish. However, in this
case, daily resistance broke, but daily support did not.
Yet because resistance broke during the day, it became
support on a smaller intraday time frame. The fact that
it closed below this daily resistance level, after trading
above it intraday, means there is a bearish quality to the
close. But the decline into the close was not bearish
enough to break the daily support zone. It was not a
“bearish close” day. It is thus referred to as a “bearish
trigger” day.

We will define these types of market behavior shortly,

441
for every day the high, low, and close - relative to daily
support and resistance - creates a type of trading label
for that day. And that either supports our trading plan or
causes us to alter it. Another important rule to always
keep in mind about trading is this: when the market
isn’t doing what it is supposed to do (by these studies
and their signals), then it is probably doing the opposite.
So if you are wrong, don’t be wrong for long, or it will
hurt.

Before introducing the terms that describe market

action and the strategies they produce, there is one
minor point to make. The distance in the range of daily
(or weekly, or whatever time frame) support and
resistance should be the same. If their distance is not the
same, check your calculations. In the example before,
the support range was 71.46 to 71.60. The distance in
this range is 71.60 - 71.46 = .14. The range in the daily
resistance should be the same. For that day, the
resistance zone was 75.76 to 75.90. The difference is
once again 75.90 - 75.76, or .14. In day 3, the distance
in the range of support and resistance was the same as
well. Daily support was 74.36 to 74.92, which was a
range of .56. Daily resistance was 78.11 to 78.67. The
difference was once again .56. This should always be
the case if your calculations are correct. In fact the
range between S1 and R1 should be the same as the
range between S2 and R2 as well as the range between
the high and low of the prior day (to which these
calculations apply). This is market geometry.

442
Terms Used To Describe Market Activity

In order to understand how these calculations are

used effectively for short-term trading with both market
timing principles as well as other technical studies
presented in this book, it is necessary to understand the
terminology used for this type of analysis. Some of
these terms were first introduced (to me) by Charles
Drummond, and others I originated. Some of the
applications are similar to those used in parts of the
Drummond Market Geometry methodology. Others are
applications that I constructed. Once again, I chose the
terms, calculations, and applications used in this book
because they have been found to work very effectively
with the market timing studies introduced in the first
four volumes. But if the reader wishes to further his/her
understanding of more advanced trading plans based on
a multitude of other support and resistance calculations
without the market timing indicators as presented
herein, please refer to the “30 Lesson Course on Classic
Drummond Geometry” by Charles Drummond.1

For the sake of convenience, these terms will be used

to describe daily market activity. However the reader
should understand that they can also be applied to
weekly and monthly charts, as well as to intraday
charts, such as 30- and 60-minute charts.

1. 1. Neutral: A market is neutral when the trading

443
 range of the day (low and high) does not exceed
daily support and resistance. The entire range of
the day was between support and resistance. It is a
purely neutral close if the day’s high was below
daily support and the low was above daily
resistance. If the high was into resistance, or the
low was into support, but the close was between
the two, it is still a neutral day, but with a bullish
(if support held) or bearish (if resistance held) bias.

1. 2.Bullish: A market is bullish if it closes above

daily resistance. This is a signal to look for after a
cycle low is completed, as an indication that a
reversal or new upward trend is beginning. It
frequently occurs during trend runs up, but the first
one to occur after a trend run down is an especially
important signal of a change.

1. 3.Bearish: A market is bearish if it closes below

daily support. This is a signal to look for after a
cycle crest is completed, as an indication that a
reversal or new trend down is beginning. It is
common during trend runs down, but the first one
to occur after a trend run up is especially
important.

1. 4. Very bullish: A market is very bullish if it trades

444
 into or below daily support, but then closes above
daily resistance. This is also known as an “outside
day,” or week, or whatever time frame is being
used. But it is the bullish type of an outside day
because it closes above resistance. Not all “outside
days” close above resistance or below support.

1. 5. Very bearish: A market is very bearish if it

trades into or above daily resistance, but then
closes below daily support. This is also known as
an “outside day,” or week, or whatever time frame
is being used. But it is the bearish type of an
outside day because it closes below support. Not
all “outside days” close above resistance or below
support.

1. 6.Mostly bullish: A market is mostly bullish when

it closes in daily resistance.

1. Mostly bearish: A market is mostly bearish

7.
when it closes in the daily support.

1. 8.Bullish trigger: When a market trades below

both daily support and resistance, but then closes
back above the daily support zone, this is known as
a “bullish trigger.” As the name implies, the

445
 market may be setting up for a rally off the low of
that day, which now becomes another important
support zone, at least on a closing basis. A bullish
trigger is more powerful when it also closes above
the daily pivot point (PP). It is more powerful if it
also closes above the daily TIP (trend indicator
point). This is a signal to look for as - or soon after
- a cycle low is completed, assuming the lowest
price of the cycle occurred that day. Or this may
happen on a secondary low that shortly follows the
actual low of the cycle and it is still a bullish
development.

1. 9. Bearish trigger: When a market trades above

both daily support and resistance, but then closes
back below the daily resistance zone, this is known
as a “bearish trigger.” As the name implies, the
market may be setting up for a move down off the
high of that day, which now becomes another
important resistance zone, at least on a closing
basis. A bearish trigger is more powerful when it
also closes below the daily pivot point (PP). It is
more powerful if it also closes below the daily TIP
(trend indicator point). This is a signal to look for
as - or soon after - a cycle crest is completed,
assuming the highest price of the cycle occurred
that day. Or this may happen on a secondary high
that shortly follows the actual high of the cycle and
it is still a bearish development.

446
1. 10. Bullish bias: This occurs when the market
trades into - but not below - daily support and then
closes above that support zone. Support held,
which is a bullish sign. For this to be the case, the
market should not touch daily resistance, but only
support. It is a stronger signal if the close is also
above the daily pivot point (PP). This is another
signal to look for as - or soon after - a cycle low is
completed, assuming the lowest price of the cycle
occurred that day. Or this may happen on a
secondary low that shortly follows the actual low
of the cycle and it is still a bullish development.

1. 11.Bearish bias: This occurs when the market

trades into - but not above - daily resistance and
then closes below that resistance zone. Resistance
held, which is a bearish sign. For this to be the
case, the market should not touch daily support,
but only resistance. It is a stronger signal if the
close is also below the daily pivot point (PP). This
is another signal to look for as - or soon after - a
cycle crest is completed, assuming the highest
price of the cycle occurred that day. Or this may
happen on a secondary high that shortly follows
the actual high of the cycle and it is still a bearish
development.

447
1. 12.Mixed: The market is considered “mixed” when
it trades below daily support and above daily
resistance, but closes back between the two. The
market is neither bullish nor bearish, but volatile.
This is also called an “outside day,” although it is
not clearly bullish or bearish because it did not
close into or above daily resistance (very bullish)
or into or below daily support (very bearish). It
may be slightly more bullish if the close was above
the daily pivot point (PP). It may be slightly more
bearish if the close was below the daily pivot point
(PP).

1. 13.Bullish sequence: When the market closes on a

“bullish trigger” or “bullish bias,” and the next day
it closes “bullish” (the close is above daily
resistance), it is referred to as a “bullish sequence.”
Going from a bullish trigger or bullish bias to an
outright bullish close is a sign the trend is up or
turning up. The low of the prior move should now
serve as strong support to the new bullish trend
that this indicator signals. A close into or below
daily support (bearish or mostly bearish close)
would negate this bullish sequence signal.

1. Bearish sequence: When the market closes on a

14.
“bearish trigger” or “bearish bias,” and the next
day it closes “bearish” (the close is below daily

448
 support), it is referred to as a “bearish sequence.”
Going from a bearish trigger or bearish bias to an
outright bearish close is a sign the trend is down or
turning down. The high of the prior move should
now serve as strong resistance to the new bearish
trend that this indicator signals. A close into or
above daily resistance (bullish or mostly bullish
close) would negate this bearish sequence signal.

1. 15.Bullish Crossover Zone: A condition in which

daily support is above the prior day’s resistance.
For our purposes, this specifically occurs when the
highest price of the daily support zone is above the
lowest price of the previous day’s resistance zone.
That “range” between the current day’s support
and the previous day’s resistance becomes very
strong support in the days ahead. It will usually
hold on the first attempt into it, and often it will
hold on future attempts as well. There will be
times where the market trades below this bullish
crossover zone (support), but then closes back
above. That works in much the same way as a
bullish trigger. There are times when the market
will close within the bullish crossover zone. This
means the market is vulnerable to breaking down,
especially if that close was near the low of the day.
Therefore the market is bullish until prices close
below its nearest bullish crossover zone. There is
no time limit as to how long this support remains

449
 valid. It remains in effect until the market closes
below it. And until it is broken, other bullish
crossover zones may occur. The nearest one is
always the most important. When there are several
bullish crossover zones in effect, the market
becomes extremely bearish when two or more are
taken out on a single day’s close. In these cases, it
is not unusual for the market to find support at the
third or fourth lower bullish crossover zone, if they
exist.

1. Bearish Crossover Zone: A condition in which

16.
daily resistance is below the prior day’s support.
For our purposes, this specifically occurs when the
lowest price of the daily resistance zone is below
the highest price of the previous day’s support
zone. That “range” between the current day’s
resistance and the previous day’s support becomes
very strong resistance in the days ahead. It will
usually hold on the first attempt into it, and often it
will hold on future attempts as well. There will be
times where the market trades above this bearish
crossover zone (resistance), but then closes back
below. That works in much the same way as a
bearish trigger. There are times when the market
will close within the bearish crossover zone. This
means the market is vulnerable to an upward
breakout, especially if that close was near the high
of the day. Consequently the market is bearish

450
 until prices close above its nearest bearish
crossover zone. There is no time limit as to how
long this resistance remains valid. It remains in
effect until the market closes above it. And until it
is broken, other bearish crossover zones may
occur. The nearest one is always the most
important. When there are several bearish
crossover zones in effect, the market becomes
extremely bullish when two or more are taken out
on a single day’s close. In these cases, it is not
unusual for the market to find resistance at the
third or fourth higher bearish crossover zone, if
they exist.

It should be pointed out that many of these terms are

used in Drummond Market Geometry.2 Charles
Drummond introduced several of these terms in his
works, such as bullish and bearish triggers, and also
bullish and bearish crossover zones. There are some
subtle differences with our use of these signals in this
section of the book, however, that are due to the fact
that we are using different support and resistance zones.
Of the two support and resistance points that we
calculate for every time period - and thus use for our
application of bullish and bearish triggers as well as
bullish and bearish crossover zones - Drummond
Market Geometry uses but one of each: S2 and R2,
which he refers to as the “1x1 up” and “1x1 down”
respectively. In addition, Drummond uses many other

451
support and resistance zones from which he devised
several trading plans that are not covered in this book,
but which can also be used effectively with the methods
of analysis described in this five-volume series.

The idea for the use of these signals is very simple.

When the market is in a time band for a cycle trough,
you look for one (or several) of these bullish indicators
to take place. When the market is in a time band for a
cycle crest, you look for one (or several) of these
bearish indicators to take place. Of course you need to
use these signals in combination with geocosmic signals
and the various technical studies and price objective
calculations too, for optimal setups. It is very seldom
that all signals point in the same direction. After all,
most technical signals are lagging - or at best,
coincident - indicators. But with the use of these
support and resistance signals, combined with our
market timing studies, one’s skill at identifying lows or
highs in the market before or as they happen is
increased significantly.

Hypothetical Examples

Now let’s create examples to illustrate how these

signals are generated. We will show how these signals
are generated without the concern of any other market
timing or technical factors. Once we understand how
they unfold, we will then begin to integrate other
studies to enhance our ability to spot lows and highs as

452
they occur or very shortly afterwards. For this example,
we will add the TIP. You will then begin to see how it
works in combination with the signals unfolding from
the daily support and resistance calculation, as well as
the relationship of closing prices to these numbers.

Day H L C PP S1 S2 R1 R TIP
1 75.50 71.20 73.75
2 77.00 73.25 76.80 73.48 71.60 71.46 75.90 75.76
3 79.20 75.50 76.20 75.68 74.92 74.36 78.67 78.11
4 78.00 74.20 74.25 76.97 74.35 74.74 78.05 78.44 75.38
5 75.75 73.10 74.60 75.48 72.35 72.96 76.15 76.76 76.04
6 75.40 73.25 74.00 74.48 73.27 73.21 75.92 75.86 75.64
7 74.22 72.92 73.04 75.07 75.19 74.73

Previously we determined that day 2 closed “bullish”

and day 3 closed with a “bearish trigger” (the high of
the day was above daily resistance, but then it closed
back below). Day 4 then closed below daily support,
which is a “bearish” signal. Not only that, but it
followed a “bearish trigger” day, which meant a
“bearish sequence” was now in effect. The market will
be bearish until it closes above resistance, or until the
daily TIP is upgraded to a trend run up, whichever
comes first. The first daily TIP of this example showed
up on day 4. It was 75.38. The close was below it, but it
won’t have a trend status until there are three
consecutive closings above or below this point. This
was only the first day of closing below it, so the TIP
was considered in a neutral status. Do not confuse the
TIP’s neutral status with a neutral close based on the

453
daily high and low being between support and
resistance. The former relates to trend, and the latter
simply to the labeling of the day’s activity or the close
relative to the support and resistance zones of that
particular day.

Nevertheless, the market closed “bearish” on day 5 and

also exhibited a “bearish sequence.” This was an alert
that the market would likely head lower, at least until it
could close back above daily resistance or the TIP for
three consecutive days. Either of those events would
negate the bearish sequence.

On day 5, the high of the day was below daily

resistance and the low was above daily support. It
traded between each. Therefore this was a “neutral”
day. However, it did not negate the bearish sequence of
the prior day because it did not close above daily
resistance. It did close below the TIP at 76.04, but this
was only the second consecutive day of closing below
this point. Therefore the TIP too remains neutral. If the
next day finds prices closing down on the day and still
below TIP, it will be downgraded to a trend run down
status.

The next day, day 6, XYZ had its daily low in daily
support. Daily support held. It closed back between
daily support and resistance. And it never touched
resistance, so the close was “neutral but with a bullish
bias.” This was a positive sign. However, it was not a

454
very strong positive sign because the close was below
the pivot point (PP). Additionally it also closed below
the daily TIP for the third consecutive day and was
down from the close of the prior day. Hence the trend
indicator point (TIP) was downgraded to a trend run
down.

But traders must be alert now to a possible reversal

occurring because support held. If the next day XYZ
can close above the daily TIP, its status will be
upgraded from “trend run down” to “neutral.” If it
closes above resistance, a daily “bullish” signal will be
generated. In fact, it would be a “bullish sequence,”
having moved from a “neutral with a bullish bias” close
to a “bullish” close. This would be a much stronger buy
signal than the prior day’s “neutral with a bullish bias”
close. On the other hand, failure to close above the TIP
and daily resistance would mean the TIP will remain in
a trend run down, and the daily bearish sequence
generated two days earlier would remain intact. Prices
would be expected to continue lower.

Let’s assume the market reversed now and started a

new bullish move. On Day 7, let’s have the market
close above both the daily TIP and daily resistance, as
shown below.

Day H L C PP S1 S2 R1 R2 TIP
1 75.50 71.20 73.75
2 77.00 73.25 76.80 73.48 71.60 71.46 75.90 75.76
3 79.20 75.50 76.20 75.68 74.92 74.36 78.67 78.11

455
4 78.00 74.20 74.25 76.97 74.35 74.74 78.05 78.44 75.38
5 75.75 73.10 74.60 75.48 72.35 72.96 76.15 76.76 76.04
6 75.40 73.25 74.00 74.48 73.27 73.21 75.92 75.86 75.64
7 76.00 74.20 75.90 74.22 72.92 73.04 75.07 75.19 74.73

8 77.50 75.50 76.80 75.37 75.00 74.74 76.80 76.55 74.69

9 78.00 75.50 76.50 76.60 75.80 75.70 77.80 77.70 75.40
10 77.80 74.80 74.90 76.67 75.25 75.34 77.75 77.84 76.21

You will remember that day 6 closed “neutral, but

with a bullish bias.” The seventh day found XYZ
closing above daily resistance. This is “bullish,” and
since it followed a “neutral but with bullish bias” day, it
became a new “bullish sequence.” The close was also
above the TIP, which meant its status was upgraded
from trend run down to neutral. The upward change in
the status of both of these studies was a bullish sign.
The market would now be expected to trade higher. A
close below daily support or the daily TIP would
instead negate the bullish sequence of XYZ and
coincide with the market entering a more bearish
outlook.

Day 8, however, continued the bullish sequence. The

market traded above daily resistance and then closed
back into it. This was a “mostly bullish” close. If it had
closed below daily resistance, it would have been a
“bearish trigger.” But it closed “mostly bullish,” and it
was also above the TIP for the second consecutive day,
which meant that indicator remained neutral.

Day 9 witnessed the market trading above daily

456
resistance, but also below daily support. This is known
as an “outside day.” The close was back between the
daily support and resistance, which meant the close of
the day was “mixed.” The market was becoming
volatile. It closed above the TIP for the third
consecutive day, but it was a down day, which meant
the TIP remained neutral. It was not a confirmed trend
run up. These were signals that the market could be
reversing to the downside again, although the bullish
sequence was not yet negated.

On day 10, the high was into daily resistance. It

stopped there. It then closed back below daily support,
which was “very bearish.” It also closed below the TIP
for the first time in 4 days, which meant it never
became a trend run up. It remained neutral with this
close. But one can see that the momentum of the market
was turning down as the bullish sequence was negated
on this day.

Our final discussion in this hypothetical example will

focus on bullish and bearish crossover zones: how they
are formed and how they serve as additional powerful
support and resistance areas. One point to understand is
that a market is usually very bullish immediately after a
bullish crossover zone has formed. Often this will take
place on a “gap up” day in which the market closes in
the upper half of the day’s range. Or it can be just a “big
range” day where prices stay above support but then
close near the highs of the daily range - a considerably

457
larger range than the prior day. In other words, the day
exhibits an explosive rally and closes sharply higher.
Likewise, a market is usually very bearish immediately
after a bearish crossover zone has formed. Often this
will take place on a “gap down” day in which the
market closes in the lower half of the day’s range. Or it
can be just a “big range” day where prices stay below
resistance but then close near the lows of the daily
range - a considerably larger range than the prior day.
In other words, the day exhibits a serious selloff and
closes sharply lower. Although my experience is that
these crossover zones hold on the first challenge about
80-90% of the time. I have also seen cases where the
market has flipped-flopped from a bullish crossover
zone one day to a bearish crossover zone the next, or
vice-versa. This is a very rare occurrence that indicates
a particularly volatile market, but one must go in the
direction of the most recent crossover zone. That is, if
the last crossover zone was a bullish one, then the
strategy for the next day(s) must be bullish. If the last
crossover zone was bearish, then the strategy for the
next day(s) must be bearish. But there will be some rare
times when this strategy may quickly be invalidated.

Now let us see how a bullish and bearish crossover

zone might look. Let us resume the daily activity of
XYZ stock following the tenth day discussed before.
This time we are going to change the setup a little bit to
list the TIP after PP and we are going to start at Day 6.
The reason for doing this is so that we may more easily

458
see when the TIP converges with daily support or
resistance, a condition that is important and will be
discussed shortly.

Day H L C PP TIP S1 S2 R1 R2
6 75.40 73.25 74.00 74.48 75.64 73.27 73.21 75.92 75.86
7 76.00 74.20 75.90 74.22 74.73 72.92 73.04 75.07 75.19
8 77.50 75.50 76.80 75.37 74.69 75.00 74.74 76.80 76.55
9 78.00 75.50 76.50 76.60 75.40 75.80 75.70 77.80 77.70
10 77.80 74.80 74.90 76.67 76.21 75.25 75.34 77.75 77.84

11 74.50 71.00 71.00 75.83 76.36 73.40 73.86 76.40 76.86

12 72.50 69.50 70.90 72.17 74.89 69.25 69.84 72.75 73.34
13 73.35 71.15 72.50 70.97 72.99 69.40 69.44 72.40 72.44
14 75.80 73.00 75.70 72.33 71.82 71.40 71.31 73.60 73.51
15 76.00 73.60 74.50 74.83 72.71 74.30 73.86 77.10 76.67

16 75.90 74.30 75.80 74.70 73.95 73.30 73.40 75.70 75.80

17 75.33 74.95 75.00 74.75 76.60 76.36

Starting with day 10, the market closed very bearish.

The high of the day was into daily resistance, but the
close was below daily support. XYZ closed below the
daily TIP for the first time in 4 days, so it remained
neutral since the prior day - the third consecutive close
above TIP - was down from the prior day’s close. Day 9
was not a confirmed trend run up. Thus XYZ’s trend
indicator point remained neutral, but the close was very
bearish, so our outlook would be more bearish than
bullish heading into day 11.

Sure enough, day 11 closed bearish. It was a “gap

down” day, and the close was below daily support. It

459
was below the daily TIP as well for the second
consecutive day, which would normally mean its status
remained neutral. However in this case, the close was
below the low that started the cycle on day 1, so its
status was downgraded to an “on edge, trend run
down.” If the next day’s close would be down, the TIP
status would be downgraded to a full trend run down. If
the close would be up from the previous day, its status
would likewise be upgraded to neutral, for it would not
yet be a confirmed trend run down even if it closed
below the daily TIP. It must also close down from the
prior day after three consecutive closes below TIP to be
downgraded to a trend run down.

But there was something more important to notice after

the close of day 11. The resistance zone generated for
day 12 was below the support zone of day 11. This
created a bearish crossover zone for day 12. The
support zone of day 11 was 73.40-73.86. The resistance
zone for day 12 was 72.35-73.34. One can see that this
resistance zone was entirely below the support zone of
the prior day. It doesn’t have to always be entirely
below to create a bearish crossover zone, but in this
case it was. Thus a new bearish crossover was now in
effect between the lowest resistance price on day 12 and
the highest support price on day 11, or 72.75-73.86. On
the table, these prices are marked with a border around
the highest support level of day 11 and lowest
resistance level of day 12. This represents the range to
the crossover zone. This new bearish crossover zone

460
now becomes very strong resistance into the future,
until prices close back above it.

Day 12 then closed down from the prior day, and of

course it was also below the TIP for the third
consecutive day, so the TIP was now downgraded to a
trend run down. However the low of day 12 (69.50) was
held by daily support (69.25-69.84). It didn’t close
below daily support, which would have been a bearish
close. It didn’t close into daily support, which would
have been a “mostly bearish” close. It closed back
between daily support and resistance, which meant it
closed “neutral but with a bullish bias.” This was an
alert that the move down might be ending already, for
support was starting to build. One of the signs that a
trend run down may be ending arises when the prices
start to hold support. Another is when it starts to take
out resistance.

The next day (13) found prices rallying to a high of

73.35. Note that this was into the bearish crossover
zone that formed after day 11. This was the first
challenge to that bearish crossover zone, and it held the
rally, as it should on the first attempt. Although the
market closed up on the day, it continued to close below
the daily TIP for the fourth consecutive day. It was
already in a trend run down from the prior day, so it
continued with this status on day 13. But there was a
new concern here. The close of day 13 was above daily
resistance, which meant it closed bullish. The prior day

461
closed “neutral but with a bullish bias,” and this day
closed bullish. This created a “bullish sequence” and a
further alert that the trend of XYZ was shifting from
bearish to bullish. All it would take now is a close
above the resistance of the bearish crossover zone to
propel this market upwards. Note that on the next day
(14) the resistance zone of 73.51-73.60 overlapped with
the bearish crossover zone (72.75-73.86). When such an
overlap occurs, it represents powerful resistance. If
XYZ could close above these areas of resistance, it
would be considered very bullish. One’s trading
strategy would immediately become bullish, looking for
opportunities to trade from the long side.

On day 14, XYZ did exactly that. It exploded up to

close at 75.70, well above both daily resistance and the
recent bearish crossover zone. The bearish crossover
zone was thus negated as the market turned bullish here.
Note also that activity of day 14 created a new bullish
crossover zone for day 15, as shown by the borders
around the prices that make up the new bullish
crossover zone. The support zone for day 15 (73.86-
74.30) was above the resistance zone of day 14 (73.51-
73.60). The new bullish crossover zone is defined as the
range between low the end of the resistance on day 14
and the high end of support on day 15, or 73.51-74.30.
The close of day 14 was also above the daily TIP for the
first time in 5 days. Therefore its status was upgraded
from trend run down to neutral.

462
XYZ then traded down below daily support (73.86-
74.30) on day 15, but into the new bullish crossover
zone (73.51-74.30). The low of the day was 73.60. The
bullish crossover zone held on the first challenge, as it
normally does. Since the low of the day was below
daily support and the close was back above, day 15
produced a “bullish trigger.” The TIP status remained
neutral, however, because the close was above it for
only the second consecutive day. If it closed above the
TIP the next day, and the close would be up on the day,
it would be upgraded to a trend run up.

Day 16 did close up, and it was above the TIP for the
third consecutive day. The trend status of TIP was thus
upgraded to a trend run up. The stock traded slightly
above daily resistance (75.70-75.80) but then closed
back into it at 75.80, which meant it closed “mostly
bullish.”

Before we close this example, let’s look at day 17.

There is something different here that would be
instructive to discuss. The daily TIP is at 74.95. Daily
support is 74.75-75.00. The daily TIP is within the
range of daily support. This increases the strength of the
daily support zone, especially when the market is in a
trend run up. In cases like this, the market will usually
be up the next day. Support usually holds, and is not
even touched in most cases when the TIP and daily
support overlap. In those instances where the market
breaks below this support area, it is usually followed by

463
a further decline. The market plummets. Thus heading
into day 17, one would adopt bullish strategies and
trade from the long side unless (or until) prices start to
break below support. In that case, one would switch to
bearish intraday strategies unless it closed the day back
above.

This then concludes our hypothetical examples of

how markets generate daily buy and sell (bullish and
bearish) signals from the daily support and resistance
zones. The primary purpose of this exercise was to
familiarize you with the language and concepts used in
our approach to short-term trading and the quest to
identify cycle lows and highs as soon as possible in
order to maximize the most favorable risk-reward ratios
for initiating new trades.

Our next and final steps involve how to integrate

these short-term trading signals with the other tools
discussed in this book and the prior four volumes. That
is, once the time band in which a market has a high
probability of reversing (via market timing studies, such
as cycles and geocosmics) has been determined, and
once the price targets for a trough or crest have been
met while simultaneously technical studies show an
overbought or oversold condition, then we apply the
short-term studies related to Drummond Market
Geometry as introduced here:
1) to pick the high or low of the move
2) to show evidence that support or resistance is

464
holding or breaking
3) to confirm that a reversal is in fact commencing.

These steps will provide the means for getting into

the market at, or near the low or high of a move. And
when each of these studies lines up properly, that is as
good as it gets.
References:

1. 1. Charles Drummond and Ted Hearne, “30 Lesson Course on Classic Drummond
Geometry,” https://www.drummondgeometry.com/learning_center; email:
[email protected], phone 1-800-552-2317.
2. 2. Ibid.

465
CHAPTER 18

AS GOOD AS IT GETS:
POSITION TRADING

“In his semi-annual monetary policy testimony to the

Senate Banking Committee, Fed chairman Ben
Bernanke assured that the central bank would remain
flexible in light of the ‘unusually uncertain’ economic
outlook.” – Wall Street Journal, July 22, 2010.

We now come to the end of this 14-year effort to

show how market timing studies can be integrated with
cyclical and technical studies to produce a powerful
market analysis tool for forecasting and trading stock
markets - or for any financial market in the world.
Through these five books, the necessary tools to
succeed in this task have been introduced. Now, let us
complete this journey by creating a step-by-step process
for both position and short-term traders that identifies
favorable trading opportunities as close as possible to
cycle lows and highs in any market. We will conclude
this book by creating trading plans based on these
methods in order to attain maximum profit potential
with minimal market exposure, which is, of course, the
ultimate goal of all short-term traders.

Timing is Almost Everything

466
Our methodology for position and short-term trading
begins with market timing studies. By determining a
time frame in which a market has a high probability of
reversing, one can closely observe how the market
behaves going into that time period and apply an
appropriate trading strategy. If a cycle low is due, one
can readily observe if prices are declining into a pre-
calculated downside price objective range for this time
band. One can also observe if certain technical studies
are becoming oversold and exhibiting patterns such as
bullish oscillator divergence. One can judge if certain
chart patterns are in effect, such as intermarket bullish
divergence. And last but not least, one can watch the
progression of daily and weekly trend indicator points
(TIPs), support and resistance zones, and see how the
market closes relative to these critical price points.

In the trading methodology outlined in these books, the

analysis starts by defining a time band in which a cycle
trough or crest is due. For this we use market timing
studies because they are the leading indicators that alert
traders as to WHEN a tradable top or bottom is due.
Once we know WHEN a market is most likely to
reverse, we can then start to determine at WHAT
PRICE to buy or sell. In this regard, the process
logically begins with a market timing approach. For us,
that means the application of cycles and geocosmic
studies. Some readers may use additional market timing
approaches, such as Gann studies or even some form of

467
Fibonacci studies applied to time periodicities.

Simply using market timing studies doesn’t end the

process of determining when and where to enter a
market. Market timing is not everything. It is only the
first step, the starting point for this methodology of
market analysis and trading. Market timing may be
almost everything. But there is more to do if one wishes
to increase accuracy in timing important lows and
highs, and thereby increase the probability of being on
the right side of a trade. When used in combination with
technical analysis and price objective studies, market
timing does become “everything” to this effort, with the
understanding that we cannot predict UFO’s
(Unforeseen Fundamental Occurrences) or the effect
upon markets when UFO’s hit the news. We can only
forecast prices and create trading plans based upon
factors that are within our control, such as the price of a
market on a day or in a week that has already occurred,
which then sets up a series of numbers - prices - for
future support and resistance zones, or for price
objective targets. If market timing is a leading indicator
to which we accord great weight, then it is to be
understood that chart patterns, technical studies, and
trend analysis studies represent the coincident and
lagging (or confirming) indicators that we also consider
important.

To our grouping of market timing studies, we may

also add price objective studies as yet another leading

468
indicator. Like market timing studies, these calculations
anticipate the price ranges that financial markets are
most likely to attain in the future. And once there, we
prepare to take action, just as we would do when a
market enters a time band for cycle trough or crest. In
fact, it works best to take action when both market
timing and price objective studies simultaneously
indicate the potential for a reversal simultaneously.

Using Multiple Cycles: Start With the Next Larger

Cycle

Short-term trading is enhanced by knowledge of

cycles if for no other reason than that the structure of a
cycle can provide guidance as to when a market is in its
bullish or bearish phase. Knowing what phase a market
is in determines what type of trading strategy to
employ: bullish, bearish, or congestion.

We begin our analysis by identifying a primary cycle

and its subcycles, or phases. But utilizing the principle
of multiple cycles, we must first start this process by
also identifying which phase of the greater cycle (i.e.
50-week cycle) that a given primary cycle is in. For
here too, we need to know whether a particular primary
cycle is in the first phase within a new 50-week cycle
(bullish), the second, or the last (more bearish).

Thus these first steps are actually more for position

traders than short-term traders. Yet even short-term

469
traders must be cognizant of where in the greater cycle
a market is at any given time. Otherwise it is like being
a traveler driving to a faraway location for the first time
without a road map or GPS system. You may have a
“sense” of where you are going - in this direction or that
- but if you don’t have a map (or GPS system), you
cannot have knowledge of which path to take when you
come to a fork in the road. It won’t do to follow the
instructions of Yogi Berra, who said, “When you come
to a fork in the road, take it.” Standing at a crossroad,
the map or the GPS system can instruct you on the path
that is most likely to get you to your destination by the
most direct route possible and with the least amount of
obstacles along the way.

And so it is with short-term trading. You may have

an “intuitive sense” of where the market is going, but it
is best if that “sense” is supported by other non-
subjective factors. You are going to have several
experiences where the market seems indecisive. You
will ask yourself many times: “Will it turn here and go
down, or will it just pause and then resume up?” If you
know where the market is in the greater cycle, you
know when the probability is highest that the
underlying trend is up or down. If you are not sure, it is
better to choose in the direction of that underlying
trend, according to the next longest cycle. And cycles
are very useful in determining which trend is in effect.
Remember: the first phase of any cycle is almost always
bullish, and the last phase is usually bearish or exhibits

470
the sharpest decline within an otherwise bullish cycle.

Since our trading plans revolve around the primary

cycle and its phases, we begin by utilizing cycle studies
to determine which phase of the greater 50-week cycle
a given primary cycle is in. We will illustrate these
market timing principles by examining an actual case
involving the U.S. stock market, specifically the Dow
Jones Industrial Average, during an extraordinary
period in which a multitude of long-term planetary
(geocosmic) signatures occurred in a short span of time.
This example will demonstrate how the use of technical
and price objective studies could have helped navigate
one through a difficult period of time, one that Ben
Bernanke, Federal Reserve Board Chair, called
“unusually uncertain.” Indeed it was, for that is the
nature of time bands that contain a slew of
contradictory long-term geocosmic cycles all unfolding
at once.

The astrological midpoint of one of the most

powerful configurations of a lifetime - known as the
“Cardinal Climax” - was just beginning to unfold in
mid-2010. This rare planetary phenomenon involved
Saturn, Uranus, and Pluto, all in the early degrees of
cardinal signs (Aries, Libra, and Capricorn), making a
very close T-square to one another. This celestial
pattern hasn’t happened since 1930-1931. The current
“Climax” was at its closest proximity around August 1,
2010. Jupiter and Mars also entered cardinal signs

471
around that time, with Mars conjunct Saturn, and
Jupiter conjunct Uranus, and both sets of planets in
opposition to one another and also in T-square to Pluto
in early Capricorn. This astrological configuration was
similar to the alignment of June 1, 1931. It was
therefore expected to coincide with a time of
extraordinary economic and financial market activity
and uncertainty. And indeed this was the case in many
financial markets. But how would our studies identify
the movements that were to unfold in stock indices?

Let us apply the methods outlined in these books to

the primary cycle that began with the low of July 2,
2010 in the Dow Jones Industrial Average. I chose this
period because it was an exceptionally difficult one for
anyone to trade, and not because it would demonstrate a
perfect illustration of how the principles outlined in
these volumes work. I intentionally chose a period in
which the trader would come up against the reality of
many conflicting signals at once. And yet the example
would demonstrate how cycles combined with technical
studies and chart patterns would have enabled him to
recognize when the “unusual uncertainty” of the period
would give way to a more “normal” trading
environment. Thus his risk would be limited and his
potential for profit increased by eventually getting on
the right side of the correct underlying trend. In
retrospect, the cycles’ labeling and trend assumption,
via the market timing methods outlined here, was
initially incorrect. But ultimately the market data

472
corrected this incorrect assumption via these analytical
methods, kept losses limited, and then led to huge profit
opportunities.

Figure 58: Weekly chart of the Dow Jones Industrial Average from March 2007
through November 2010. 1, 2, and 3 or 3A are the 50-week cycle lows. 2 was also a 4-
year or greater cycle. The moving average is a 25-week simple average.

The first step in this case was to determine which

phase of the 50-week cycle the DJIA was beginning on
July 2, 2010. Here is what one would have known at the
time:

1. The 4-year (and greater) stock market cycle

1.
bottomed on March 6, 2009, identified as “2” in
Figure 58 of the weekly chart of the DJIA.
2. 2. The first 50-week cycle of the new 4-year cycle
was expected to be bullish, as are all first phases of

473
 any cycle.
3. 3. The 50-week cycle has a 90% historical rate of
frequency of unfolding at the 34-67 week interval.
Following the 4-year cycle trough of March 6,
2009, the first 50-week cycle phase would thus be
due October 26, 2009-June 18, 2010.
4. 4. The 50-week cycle low would likely coincide
with the end of the 2nd or 3rd primary cycle phase
of this greater cycle.
5. 5. The 50-week cycle low would very likely see
prices drop to or below the 25-week moving
average.
6. 6. On February 5, 2010, the DJIA fell to 9835
(point 3 in Figure 58). That was below the 25-
week moving average for the first time since early
May 2009. It was also the 48th week of the 50-
week cycle, and the third primary cycle of this 50-
week cycle. It was thus “on time” via cycle
studies, it fulfilled the minimum price criteria
(below the 25-week moving average), and it was
structurally correct (third primary cycle phase) for
a 50-week cycle trough.
7. 7. Following that assumed 50-week cycle trough of
February 5, 2010, the DJIA commenced another
big rally. This was to be expected since it was
thought to be the first primary cycle phase of a
new 50-week cycle - the second 50-week cycle
within the even greater 4-year cycle. On April 26,
2010, the 12th week of the new primary cycle,
prices topped out at 11,258. It was the highest

474
 price since October 2008. Everything was
behaving exactly as it should in the first primary
cycle phase of a new 50-week cycle. It was up for
more than 8 weeks, it was forming a ‘right
translation” primary cycle, and it was already
making new highs, even above the crest of the
former 50-week and primary cycles.
8. 8. But on May 25, 2010, the DJIA broke below the
9835 low of February 5, 2010. It fell to 9774
intraday, but closed well above there at 10,043.
This was also a geocosmic three-star critical
reversal zone, it was in the time band for a primary
cycle trough (16th week), and it was in the price
range for a double bottom to the low of February
5. It was also still in the 90% time band for a 50-
week cycle trough (64th week), even if it was
forming a rare “4-phase” pattern, i.e., this would
be the 4th primary cycle within the 50-week cycle.
9. 9. The rally did not last. After two strong rallies, it
started to fall lower and lower until the final
bottom at 9614 on July 2, 2010. That was the 21st
week of the primary cycle which began on
February 5. However, it was 69 weeks following
the start of the 50-week cycle if measured from
March 6, 2009.

These were the conditions that were in effect in early

July 2010, a time which the chairman of the Federal
Reserve Board branded “unusually uncertain.” Indeed

475
that would prove to be true. As cycle’s analysts, we
could look at this in one of two ways:

1. This was the end to the first primary cycle phase

1.
of a new 50-week cycle, and it was going to be a
bearish 50-week cycle because the DJIA already
took out the low that started the cycle on February
5, 2010, i.e., once the start of a cycle is taken out,
it will be bearish until the cycle ends for the lowest
price in a bear market cycle is always at its end.
The second primary cycle phase of this 50-week
cycle would now begin, and it would be bearish
since the 50-week cycle had just turned bearish.
The rally would most likely only last 2-5 weeks,
with a possibility of lasting as long as 8 weeks, but
no longer than Tuesday of the 9th week (the “8-
week” bullish rule). The high would not exceed the
previous high of 11,258, and the low would fall
below the 9614 level of July 2. This cycle analysis
has a 90% probability based on the history of the
50-week cycle bottoming at the 34-67 week
interval, or,
2. 2. The low of July 2 was a distorted 50-week cycle,
expanding to 69 weeks, and it was actually part of
a longer-term cycle trough - one that was greater
than the 50-week cycle (the first 15.5-month phase
of the greater 4-year cycle). Thus this would be the
first primary cycle phase of a longer-term cycle
and also an expanded 50-week cycle. This outlook
had a probability of less than 10%, based on the

476
 historical rate of frequency of the 50-week cycle
within a 34-67 week range. The low of July 2 was
69 weeks, which was outside of the normal range.

Since our strategies are based on historical

probabilities, the logical judgment was the first option -
at least until data proved that it was incorrect. As it
would turn out, the second option – the “less than 10%
probability” - would be operative. The 90% probability
was incorrect. At that time, however, this would not be
known, which is why I this example was chosen. How
would we handle such a case when our assumption of
the longer-term cycle labeling was incorrect, and thus
our bearish expectation of the primary cycle pattern
would be wrong?

In retrospect, we can now see that July 2, 2010 was

indeed a longer-term cycle trough. It was the end of the
first phase (of three) within the greater 4-year cycle.
With 4-year cycles, you never know if they will sub-
divide into a classical three-phase pattern of
approximately 15.5-month subcycles or two half cycles
of approximately 23 months, or both. The two-phase
pattern is more common in the 4-year cycle, as reported
in the studies of Volume 1. But in early July 2010, the
pattern of the stock market implied that the 50-week
cycle was now bearish, and this new primary cycle - the
second within the greater 50-week cycle - was most
likely to be bearish. Still we would expect the first

477
phase of this new primary cycle to be bullish, as are
first phases of nearly all cycles. But after the
completion of its first major or half-primary cycle
trough (phase) we would expect a rally, followed by the
market turning bearish and eventually taking out the
low that started this primary cycle at 9614 on July 2.

Thus our analysis of this primary cycle begins with a

bearish bias until proven otherwise.

Identifying the Time Bands for Market Reversals

within the Primary Cycle

Let us start this section with a review of the primary

cycle in stock markets. In the United States, the primary
cycle varies slightly between indexes. For instance, as
reported in Volume 1, the primary cycle in the Dow
Jones Industrial Average has a historical range that
varied from 13-26 weeks in 92% of instances studied
between 1928 and 2006. If that range was reduced to
13-24 weeks, then primary cycles were observed in
84% of cases studied. At the 13-21 week interval, the
primary cycle trough was observed in 73% of cases
examined. If we use the 92% interval of 13-26 weeks, a
mean primary cycle of 19.5 weeks would be derived,
with an orb of 6.5 weeks. If we use the 84% grouping,
the mean primary cycle lasted 18.5 weeks, with an orb
of 5.5 weeks. And if we chose to use a primary cycle
with a range of 13-21 weeks, the mean periodicity
would be 17 weeks, +/- 4 weeks orb. Throughout these

478
five volumes, we have used the later period for the
primary cycle in the DJIA. That is, we based our
analysis on the idea that a “normal” primary cycle
interval lasts 17 weeks, +/- 4 weeks, or 13-21 weeks.
Anything beyond that range is considered a distortion.
However, our studies of the S&P and NASDAQ 100
futures’ contracts suggest both have a 19-week cycle,
+/- 4 weeks, with a “normal” range of 15-23 weeks.
One can thus see there is a slight difference from one
index to another.

But this is not the case in other stock markets of the

world. Indeed, some are comparatively shorter, such as
in Japan, while others are comparatively longer, such as
in Europe. In the Japanese Nikkei stock index for
instance, the studies in Volume 1 demonstrated that the
“normal” primary cycle lasts 16 weeks, +/- 3 weeks.
The range for the vast majority of primary cycles in the
Nikkei has been 13-19 weeks. However there have been
a few cases of expansion where the cycle lasted 20-23
weeks and even a couple that lasted longer (one lasted
28 weeks). There have been instances when it
contracted to as short as 11 weeks.

In Europe, preliminary studies (not reported yet)

indicate primary cycles lasting 15-26 weeks in the
German DAX and Swiss SMI, to a slightly longer
primary cycle of 17-27 weeks in the Netherlands AEX
index. If valid, these studies imply that the primary
cycle in Japan’s Nikkei index is shorter than that of the

479
USA stock indices, while Europe’s leading indices have
longer periodicities for their primary cycles.

Our studies in this final chapter will use examples

from the Dow Jones Industrial Average (DJIA). We
will focus on their cycles to illustrate how these timing
principles work. These same principles may be applied
to Japanese and European markets (or any financial
market). However the time length of each cycle and
subcycle (or phase) has to be extended or contracted
proportionately when applied to European or Japanese
stock indices or any financial market that has a mean
primary cycle outside of 17 weeks.

For this section of the book, we begin with the

premise (based on historical studies) that the DJIA
exhibits a “normal” 17-week primary cycle with a range
of 13-21 weeks, consisting of three major cycle phases
lasting about 5-7 weeks each, or two half-primary
cycles lasting 7-11 weeks each, or a combination of
each. These cycle lengths can contract or expand
slightly, depending on the patterns that form in each
one. For example, in a three-phase primary cycle
pattern that lasts more than 21 weeks, at least one of the
5-7 week major cycles will have to expand to 8 weeks.

Timing the Phases and Other Possible Turning

Points in a Primary Cycle

1. 1. Locate the time band for a primary cycle

480
 trough. Count 13-21 weeks following a primary
cycle trough and highlight the time band when the
next primary cycle trough is due in the DJIA (or
13-19 weeks later to highlight the time band when
the next primary cycle trough is due in the Nikkei,
or 15-26 weeks later for the German DAX or
Swiss SMI index, or 17-27 weeks later for the
Netherlands AEX index).
2. 2. Calculate the upside price targets for the crest
of this new primary cycle. The first calculation
will be a simple 38-62% retracement of the recent
move down from the prior primary cycle crest. The
second would be an MCP (Mid-Cycle Pause) price
target if this primary cycle trough was higher than
the prior one. If it wasn’t - that is, if this current
primary cycle low is below the prior one - then
there is a greater probability the 38-62%
retracement area is all the first 2-5 week rally will
attain. If it is higher, then there may be other
upside targets that can be calculated based on other
methods listed in Chapter 6 of this book.
3. 3. Identify the time band for the first major cycle
trough. Measure out 5-7 weeks from the start of
the primary cycle to identify the time band when
the first major cycle trough is due to unfold in a
classical three-phase primary cycle pattern, or even
a “combination” pattern. One of these two patterns
occurs in about 80% of all instances. Thus the
probability of a major cycle trough occurring is
about 80% and it will usually be at the first 5-7

481
 week interval. This major cycle trough time band
would mark the end of the first phase of the new
primary cycle, which in most cases will be a
bullish phase. It is rare to find the first major cycle
trough taking out the low that started the primary
cycle. Once a market falls below the low that
started a cycle, it is bearish. But even in bear
markets that it not very likely to happen in the first
major cycle phase of a primary cycle. The first
phase of all cycles tends to be more bullish than
bearish, which means its low does not take out the
low that started the cycle. Hence our strategy in
this phase is always bullish. It only changes when
the price falls below the start of the primary cycle.
In the Japanese Nikkei index, one would mark out
4-6 weeks after the primary cycle low, to
determine when the first major cycle trough of this
primary cycle is due. In the S&P and NASDAQ,
the normal major cycle lasts 5-8 weeks. In the
German DAX and Swiss SMI, it is 5-9 weeks, and
in the AEX, it is 6-9 weeks.
4. 4. Identify time bands for first half-primary
cycle trough. Also measure out 7-11 weeks from
the start of the primary cycle. Then mark the time
band in which the first half-primary cycle trough is
due to unfold in a classical two-phase primary
cycle pattern or even a “combination” pattern.
These two patterns have a 60% historical rate of
occurrence. It is the same range in the Japanese
Nikkei, S&P, and NASDAQ indices. It is slightly

482
 longer in the European indices.
5. 5. Identify geocosmic critical reversal dates in
first half-primary cycle. Now, with the use of an
ephemeris or a geocosmic (astrological) computer
program, look to identify groupings of geocosmic
signatures unfolding during the first half of the
primary cycle - known as a “cluster.” Determine
the midpoint of each of those clusters (if there is
more than one). The steps for this were provided in
Volume 3, but it is very simple: the point midway
between the first and last signature of a cluster is
the geocosmic “critical reversal date.” Allow a 3-
trading day orb to this reversal date. Mark this time
frame on your charts. See if these critical reversal
dates overlap with the time bands when both the
first 5-7 week and 7-11 week major or half-
primary cycle troughs are due. It is possible there
is more than one grouping that intersects the time
bands for a major or half-primary cycle trough.
Understand that it is possible that these critical
reversal periods could also coincide with the crest
of a major or half-primary cycle, especially if they
occur in the first 5 weeks of the new primary
cycle. They may also coincide with trading cycle
troughs or crests from which the market reverses at
least 2.5%, and usually at least 4% of the lowest
price in this cycle.
6. 6. Identify specific solar-lunar reversal dates
within the first phase of the primary cycle. If the
market forms an isolated low in these short-term

483
 time periods, they present favorable opportunities
to go long too. These dates can be calculated from
the studies given in Volume 4 of the “The Ultimate
Book on Stock Market Timing: Solar-Lunar
Correlations to Short-Term Trading Reversals.”
This study is not so important for position traders.
However, they can be very valuable for very short-
term aggressive traders, once they understand the
phasing of the primary cycle and the appropriate
trading strategy to employ. Until the major cycle
crest is achieved, the appropriate strategy in the
first phase of the primary cycle is to be bullish and
buy the dips.

These are the first steps towards identifying the time

of the culmination of the first phases within a new
primary cycle and the points to buy since the first phase
is usually bullish. This is how one starts by analyzing
markets and preparing a trading plan. When is the
market most likely to make its first major and/or half-
primary cycle crest, and when is it most likely to make
its first major and/or half-primary cycle trough? Until
the first major or first half-primary cycle crest is
completed, one can buy all corrective declines or
trading cycle troughs (there are two or three trading
cycles within a major cycle).

Against this background of cycles, we then plot the

geocosmic signatures that indicate the possibility of a

484
turning point. In reality, we don’t really know yet
whether the market will form a trough or crest at these
geocosmic critical reversal dates. However, we do
know that if the market is declining into these
geocosmic points that overlap with a time band for a
major or half-primary cycle trough (or even a trading
cycle trough), the chances are great that it will identify
the timing of that cycle low correctly. The same is true
if prices are rising into these periods, and the cycle
structure suggests it could be a major or half-primary
cycle crest.

Figure 59: Daily chart of the DJIA from April 2010 through December 2010. Included
are the 14- and 42-day moving averages. The 14-day is the solid line; the 42-day is the
dotted line. The final cycle labeling is provided in this chart, along with the price and
date of those cycles or important isolated lows or highs. However, at the time, the
labeling of the first major cycle (8/27) was different.

We begin our example with a market timing analysis

of the primary cycle trough of July 2, 2010 in the Dow
Jones Industrial Average, as shown in the chart of
Figure 59. We will apply only cycle and geocosmic
studies for this period, in an effort to show how they

485
help identify potential primary cycle troughs. Also, note
that this particular primary cycle trough (July 2) was a
classic example of intermarket bullish divergence to
other indices. For example, it occurred on May 21 in the
Australian All Ordinaries and May 25 in the German
DAX, Netherlands AEX, and Hong Kong’s Hang Seng.
It took place on June 9 in the Japanese Nikkei and July
5-6 in the Swiss SMI and USA’s S&P indices.

The previous primary cycle (not shown here) had

occurred on February 5, 2010 at 9835 in the DJIA.
Once February 5 was confirmed as the primary bottom,
the first step would be to identify a time band 13-21
weeks later when the next primary cycle trough would
be due. That equated to the period of May 3 through
July 2, 2010.

Below is a list of the major geocosmic clusters between

May 3 and July 2 in which the normal primary cycle
trough would be due.

486
The first column lists the dates of geocosmic signatures
taking place May 2-July 2, 2010, the time band that was
calculated for a normal 13-21 week primary cycle
trough. The second column gives the geocosmic
signature in effect for each date. (Note: if you are

487
unfamiliar with planetary glyphs, please refer to the
“Geocosmic Abbreviations and Symbols” given in the
preliminary pages of this book). Next to the geocosmic
symbols are the degrees of separation involved in
square aspects (90° and 270°) and trine aspects (120°
and 240°). The next column is entitled “Value” and
represents the C/S value of each signature according to
the studies reported in Volume 3. The values can range
from 0-10. The greater the value, the more consistent
(C) and powerful its strength (S) has been in
relationship to the cycle types it has coincided with
historically. The final column is entitled “Level.” This
pertains to the three groupings of geocosmic signatures
in terms of their correlation to primary or greater cycles.
A Level 1 signature, for example, means it has a high
C/S rating (9.40 or higher) and/or it has a high historical
correlation (i.e. above 67%) to primary cycles nearby.
A “1-2” means it has a C/S value less than 9.40, but its
correlation to primary cycles historically is still at least
67%.

As you can see, we have segregated these signatures

into five groups. The first group just contains two
signatures: the Sun/Mars waning square of May 4 and
Mercury turning direct on May 11. Both are Level 3
signatures, which are rather weak and not expected to
coincide with a primary cycle trough, although we note
the huge down day on May 6 when the DJIA sold off
over 1000 points in about 25 minutes, but then
recovered 800 of those points by the close. This was a

488
very freakish day and perhaps it coincides with some of
the rather “strange market behavior” that sometimes
happens under a Mercury retrograde. It is a time when
communication systems can break down, as was the
case at this time. A large but wrong sell order was given
to the market and it triggered many stops in the process
of selling off before the market found support.

The other four geocosmic groupings are based on the

fact that there were no more than 5 calendar days before
any two consecutive signatures. Usually six calendar
days is allowable between any two consecutive
signatures that make up a geocosmic cluster. But when
such a series of signatures extends over a month, the
rule is to try and identify tighter clusters in which the
distance is reduced to no more than 5 or even 4 days (or
less, if applicable) between any two consecutive
signatures within that cluster. Thus we find the
following geocosmic clusters in effect during this
period and their midpoints, or critical reversal dates, +/-
3 trading days:

Cluster Critical Reversal Date

1. May 17-
(May 20, Thursday)
23
2. May 30- (June 3-4, Thursday,
June 8 Friday)
3. June 14- (June 19-20, Saturday,
25 Sunday)

489
 4. July 5-13 (July 9, Friday)

In determining a critical reversal date that is apt to be

most valid, it is important to remember that it is most
effective if a Level 1 signature is within 4 calendar days
of the reversal date as well. Thus a critical reversal date
that does not have a Level 1 signature nearby may not
coincide with the critical reversal date as shown by the
midpoint of a cluster. It may need to be adjusted to
occur closer to a Level 1 signature, if there is one in the
cluster. This corollary is important in this case, for the
primary cycle trough of the DJIA occurred on July 2,
just one trading day before the only Level 1 signature in
the cluster of July 5-13. In fact, July 5 was a holiday.
July 2 was on a Friday, and the last trading day before
the Level 1 signature of Uranus retrograde took place.
Uranus retrograde is a powerful Level 1 signature with
a C/S value of 9.52. It has a huge 77% historical
correlation to primary or greater cycles within 11
trading days.

It is significant to note that the dates of the primary

cycle in other world stock indices also showed up here.
The May 20 critical reversal date was within the
allowable orb of three trading days to the May 25
primary cycle trough in the DAX, AEX, and Hang Seng
indices. It was only one day prior to the primary cycle
trough in the Australian All Ordinaries index. The June
4-5 critical reversal date was just three trading days
prior to the primary cycle trough in the Japanese Nikkei

490
and only two days prior to an important bottom in many
other indices (June 8), such as the DJIA. Note that June
8 was the exact date of the Jupiter-Uranus conjunction,
the strongest of all Level 1signatures taking place in
this cluster. It was no wonder that it coincided to
primary cycle troughs in some markets. It was even
more pronounced in the Euro currency market, where it
coincided with a 4-year cycle trough one day earlier, on
June 7.

The next critical reversal date was during the

weekend of June 18-21. June 21 was the end of the first
leg up of this new primary cycle in many markets. It
also marked an important trading crest in the DJIA,
from which this index reversed and fell sharply to its
primary cycle trough on July 2. June 21 was an
effective turning point in other markets too. Gold, for
instance, formed a primary cycle crest exactly on that
day.

As pointed out before, the primary cycle trough low

on July 2 in the DJIA was not accompanied by many
other leading stock indices, and hence it became a case
of intermarket bullish divergence. This is an important
technical indicator that frequently takes place at
primary cycle troughs. That is, one stock index makes a
new low but it is not accompanied by others, which
bottom earlier or later. July 2 was also the last trading
day before the powerful Level 1 signature of Uranus
turning retrograde.

491
If one views the chart of Figure 59, it will be noted that
the faster 14-day moving average never moved above
the longer 42-day moving average until after the bottom
of July 2. In fact it wasn’t until July 22 that the price of
the DJIA was above both the 14- and 42-day moving
averages, and the 14-day was above the 42-day, thus
confirming a new bullish trend. At that point (July 22),
one was able to confirm July 2 as a primary cycle
trough. Yet it would not be confirmed as a bullish
primary cycle until September. We were still working
on the assumption that the primary cycle would be
bearish, based on the idea that this was the second
primary cycle within a 50-week cycle, and prices had
already taken out the low that began this cycle on
February 2. It was well after the middle of this primary
cycle before one would know that this would be a
bullish “right translation” primary cycle. It was not until
then that we would have to re-label both the primary
and longer-term cycles. In retrospect, this would also
confirm July 2 as both the 50-week cycle trough and the
end of the first phase (13-20 months) of the 4-year cycle
that began on March 6, 2009. It was therefore likely that
this 4-year cycle would be either a classical three-phase
pattern (three sub-cycles of 15.5-months, +/- 3 months)
or a combination pattern, consisting also of an 18-27
month half cycle to the 4-year cycle.

So let us now begin the analysis and trading strategies

that would be applied to this new primary cycle that

492
began on July 2, 2010, following our first steps outlined
earlier.

1. 1.Locate the time band for the next primary

cycle trough.

We do that by counting forward 13-21 weeks after July

2 for a normal primary cycle trough. In doing so, we are
aware that such primary cycles occur with a 73%
frequency in this time frame, but 84% of the time it will
expand up to expanded 24 weeks, and there is a 92%
frequency if the primary cycle is expanded to 26 weeks.
Nevertheless, the time band in which a normal 13-21
week primary cycle would be due is September 27-
November 26. There is a possibility it could expand to
December 31, but we always start with the idea that it
will be a “normal” primary cycle and not an expanded
(or “distorted”) one.

1. Calculate the upside price targets for the crest

2.
of this new primary cycle.

The last primary cycle was bearish, so the first price

target would be a 38.2-61.8% retracement of the prior
move down from primary cycle crest (April 26) to
primary cycle trough (July 2). Or, it could be stated that
it would be a 50% retracement, +/- 11.8%. The
calculation is simple either way and yields the same

493
result. Add the price of the previous primary cycle crest
of April 26 (11,258) to the low of the July 2 primary
cycle trough (9614) and divide the total by 2, or,
(11,258 + 9614) ÷ 2 = 10,436. The orb is 11.8% of the
difference between 11,258 and 9614, or 194. Thus the
price target for the rally to the crest of the new primary
cycle would be 10,436 +/- 194. The price range would
be 10,242-10,630. If this primary cycle was to be
bearish, that would most likely be achieved at the first
2-5 week interval.

Although our bias was that this would be a bearish

primary cycle, we also knew there was a 10%
possibility it could be the start of a new longer-term
cycle - the second phase of the 4-year cycle. If that was
the case, then the rally could be more substantial. Even
though the 50-week cycle indicated just a 10%
probability of being bullish, we had to consider that it
was possible, that this primary cycle could be the first
phase (15.5-month subcycle) to the 4-year cycle.
Therefore we should also calculate higher upside
targets, such as the MCP (Mid-Cycle Pause) price
objective for the crest of a bullish 50-week cycle, which
would be the same MCP price projection as the crest for
the second phase of the 4-year cycle.

For the MCP price of the new 50-week cycle crest, we

add the high for the crest of the just completed 50-week
cycle (11,258 on April 26, 2010) to the low of the just
completed 50-week cycle (9614 on July 2). We then

494
subtract the low of the prior 50-week cycle (6470 on
March 6, 2009) from this, or (11,258 + 9614) – 6470 =
14,402. This would be the MCP price target for the
crest of the new 50-week cycle and second phase of the
4-year cycle. It would have a range of 11.8% of the
difference between the projected high (14,402) and the
low of 6470 that started the cycle. In this case that
would be (14,402-6470) x .118 = 936. The range for the
MCP calculation of the crest of the new 50-week cycle,
if bullish, would thus be 13,466-15,338. Other price
targets would be calculated along the way.

We also knew that the crest of the previous primary

(and 50-week) cycle could act as resistance. Normally a
variance of 2% is allowed from a previous high to serve
as the range for a double top. In this case, the previous
crest was 11,258 on April 26. Giving that a range of 2%
yields a double top resistance zone of 225 points, or
11,033-11,483.

Thus we have three price targets to the upside to watch

for in this primary cycle: 10,242-10,630, 11,033-
11,483, and 13,466-15,338. There may be others, but
we start with these three price targets for the primary
crest. In fact, more price targets will unfold as each
phase of this new primary cycle is completed.
Additionally there may be upside measuring gap price
targets, breakouts of bullish inverse head and shoulder
patterns, and a host of other upside targets that may
unfold from various chart patterns along the way, as

495
described in the earlier chapters of this book.

1. 3.Identify the time band for the first major cycle

trough.

Count out 5-7 weeks following the start of the primary

cycle on July 2, 2010. This gives a time band of August
2 through August 20, 2010.

1. 4.Identify the time band for first half-primary

cycle trough.

Count out 7-11 weeks following the beginning of the

primary cycle on July 2, 2011. This yields a time band
of August 16-September 17, 2010.

1. 5.Identify geocosmic critical reversal dates in

the first half-primary cycle.

Below is the list of the major geocosmic signatures in

effect July 2-September 17, 2010. They are separated
out in groups comprising a geocosmic cluster.

496
497
Figure 60: Daily chart of the Dow Jones Industrial Average during the height of the
Cardinal Climax.
The two most important time bands defining a
geocosmic cluster are July 23-August 9 and August
16-26. The first one overlaps with the time band for a 5-
7 week major cycle trough (August 2-20), which means
that if a major cycle trough occurs, it would most likely
unfold August 2-9, for that is the overlap period. The
second cluster overlaps with the time band for the 7-11
week half-primary cycle trough due August 16 -
September 17. The overlap here is August 16-26. The
geocosmic critical reversal dates pertaining to these two
clusters are July 31-August 1 (Saturday and Sunday),
+/- 3 trading days and August 21 (a Saturday), +/- 3
trading days. When a critical reversal date occurs on a
weekend, we assign that Friday and Monday as the
reversal dates. In this case, the reversal dates would be
July 30 - August 2 and August 20-23. However, keep
in mind that reversals can occur 1) if there are even
tighter clusters than the 5 or 6 consecutive-day interval

498
between any two signatures, and 2) the most effective
reversals occur when a critical reversal date is also
nearby to a Level 1 signature.

Let us take a closer look at what happened during these

periods when a major and/or half-primary cycle trough
was due, as shown on the daily chart in Figure 60 on the
top of this page.

The first critical reversal date was July 30-August 2,

a Friday through Monday. You will note that July 31-
August 1 was the actual midpoint of the July 23 -
August 9 cluster. On August 2, the first trading day
following this midpoint, the DJIA jumped to 10,692.
This was very close to its eventual major cycle crest at
10,720 recorded five trading days later, on August 9.
However, this was another case of intermarket bearish
divergence to other indices. The nearby S&P futures
contract, for example, topped out on August 5, just
three trading days later. Furthermore, all the stock
indices were basically in a topping pattern August 2-9,
with the final high in stock indices being posted August
5-9. It is interesting to note that Gold and Silver made
primary cycle troughs on July 28, just two trading days
before. It reinforces the idea that 1) critical reversal
dates potentially affect all financial markets and 2)
some may make new two-week or greater highs and
others may make two-week or greater lows. Crude Oil,
for instance, made its primary cycle crest on August 4,
along with stock indices, but precious metals made

499
primary cycle troughs.

Now back to the timing of the stock market. The

entire period of August 2-9 can be considered a topping
formation of the crest that actually fell on August 9 in
the DJIA. This date itself stands out by virtue of the fact
that there was a very tight cluster of signatures on
August 7, 8, and 9, including two Level 1 signatures on
August 7 and 9. Financial markets that were still rising
or falling would be vulnerable to a reversal on the
midpoint of this very tight cluster of three signatures in
which no more than one calendar day separates any two
consecutive ones. The midpoint of this very tight cluster
equates to August 8, +/- 3 trading days.

6. Identify specific solar-lunar reversal dates within

the first phase of the primary cycle.

A review of the solar-lunar cycles for that period

would reveal that the Sun and Moon were both in Leo
on August 9-10. From studies reported in Volume 4 on
“Solar-Lunar Correlations to Short-Term Trading
Reversals,” the weighted value of that combination is a
very strong 159.4. The only other very strong solar-
lunar cycle during this month was the Sun in Leo with
the Moon in Aquarius, July 28-30, which had a
weighted value of 146.5. Any weighted value above
120 has the potential of a reversal from an isolated high
or low of that day(s). That coincided with the trading
cycle low of July 30 at 10,507. In the case of the Sun-

500
Moon in Leo on August 9, the DJIA formed an isolated
high and as can be seen from the chart in Figure 60, it
was to be labeled a half-primary cycle crest at the time.
Ultimately it would be re-labeled as a major cycle crest
(see Figure 59). It was the 6th week of the primary
cycle, so it was late in the time band for a major cycle
crest, which is ideally due 2-5 weeks into the new
primary cycle. This was a sign the primary cycle might
skip its normal 5-7 week interval for a major cycle
trough and instead move directly to a 7-11 week half-
primary cycle trough. So in this case, the geocosmic
critical reversal date that was in effect during the time
band for a major cycle trough turned out instead to be a
half-primary (or major) cycle crest. Geocosmics don’t
care whether it is a crest or trough, but only that it is
one or the other from which a reversal follows. But it is
best when geocosmic critical reversal dates coincide
with the expected cycle type that is due, which is
usually the case. But this primary cycle was no
“normal” cycle type. It was destined to distort in many
ways due to the confluence of so many long-term
planetary cycles that were in force July 26 - August 21.

The next geocosmic critical reversal date applied to the

normal time frame for a 7-11 half-primary cycle trough.
The midpoint of the August 16-26 geocosmic cluster
fell on August 21, a weekend. Thus we assign the
critical reversal date to Friday and Monday, August 20-
23. As one can see on the charts in Figures 59 and 60,
the DJIA was falling into that period as would be

501
expected. By Tuesday, August 24, it broke below
10,000, its lowest level since the start of the primary
cycle on July 2. At this point it was already the 8th week
of the primary cycle, so a price target could be
calculated for this expected half-primary cycle trough.
The primary cycle could still be bullish if the decline
was 45-85% of the move up from the July 2 primary
cycle trough at 9614 to the half-primary cycle crest on
August 9 at 10,720. That swing up was 1106 points. A
retracement of 45-85% would mean a decline of 498-
940 points was likely for the half-primary cycle trough
in this case. But keep in mind that our bias was still that
this primary cycle would be bearish. It could fall below
9614, the start of the primary cycle. Subtracting this
from the crest would yield a price target of 9780-10,222
for that low. It turns out the DJIA bottomed in this
range, at 9936-9941 between August 25 and August 31,
with the actual low at 9936 on August 27. Once again it
was slightly outside the orb of 3 trading days we prefer
to see (it was four days after August 23) for an actual
reversal to the geocosmic critical reversal date. But the
low of August 25 was just one point higher and only
two days after the August 20-23 geocosmic critical
reversal date. It was close enough, especially
considering that it never closed below the low of
August 25. And the fact that the decline did not take out
the low that started the primary cycle kept the 10%
probability alive that this could still be a bullish primary
(and longer-term) cycle.

502
This concludes our section on market timing for this
example, which is the first step to undertake in a trading
plan based on the start of a new primary cycle.

The Second Step: Calculating Additional Price

Targets Along the Way

In the first step of developing the trading plan for the

primary cycle, we identified the price targets for the
first major, half-primary, and/or primary cycle crests.
We performed three calculations, which we can do once
we know that a primary cycle trough has been
completed. These three initial calculations are:

1. 38.2-61.8% retracement of the move down from

1.
the former primary cycle crest to the primary cycle
trough that begins the new primary cycle.
2. 2. A 2% range of the former primary cycle crest,
which would equate to the range of a double top
formation.
3. 3. An MCP upside price target if the new primary
cycle is at a higher level than the prior primary
cycle trough. The rules for this calculation are
given in Chapter 5.

These price objectives, and the time bands for the

major and half-primary cycle troughs, should be placed
on your charts for reference during the entire primary
cycle. When these price ranges are attained and when

503
these time bands for reversals and/or cycle completions
are entered, the trader prepares to take action.

However, as the primary cycle unfolds, there will be

other highs and lows formed along the way known as
trading cycles. From these trading cycle troughs and
crests, additional price objectives can be calculated for
both crests and troughs of the major cycle type and
greater. Additionally the market might exhibit certain
chart formations, such as head and shoulder patterns or
measuring gaps (up and down) that yield more price
targets. When these price targets overlap with the price
objectives calculated in the first step, they become very
important as support and resistance zones from which
cycles are completed.

Thus, once a primary cycle is underway, we look for

three factors that might provide additional price targets
for the cycle crests and troughs within this primary
cycle:

1. Trading cycle troughs and crests. These occur

1.
every 2-4 weeks, and in many financial circles
they are referred to as “swing” highs and lows.
They can be very valuable in calculating new and
accurate price targets for major cycle troughs or
crests (or greater), either via MCP or normal price
retracement calculations.
2. 2. Head and shoulders formations (bearish) or
inverse head and shoulders formations (bullish).

504
 When these patterns form, there will be a neckline
that represents support below the market or
resistance above the market. When the neckline is
broken, it yields a new downside or upside price
target, per the instructions given in Chapter 8.
3. 3. Measuring gaps. A gap up can yield a new
upside price objective, whereas a gap down can
yield new downside price objectives. If these
overlap with previously calculated price targets,
they become very important. It is important to note
that the DJIA seldom has a gap up or gap down
day.

Returning to our example in Figure 59 and 60, we

can see a couple of these factors would have applied to
the first phase of this new primary cycle.
1. 1. Trading cycle troughs and crests.

On July 13, the first trading cycle crest of the new

primary cycle was completed at 10,407. One week later,
on July 20, the first trading cycle trough was completed
at 10,007. This was a perfectly normal “first trading
cycle” within a new primary cycle. That is, it was
bullish in form and price structure. The crest of 10,407
was right in the middle of a 38.2-61.8% retracement of
the primary cycle swing down from 11,258 (April 26)
to 9614 (July 2), as calculated in our first steps. That
corrective price retracement target was 10,436 +/- 194.

505
The fact that it was achieved so early in the primary
cycle (second week) suggested two possibilities: 1) if
the primary cycle is to be bearish, this might be the
primary cycle crest already, or 2) this primary cycle will
be more bullish than would be the case in a bear market
retracement.

It could be anticipated that the following decline would

be a corrective retracement because it was only the first
trading cycle in a new primary cycle, and the early
stages are (almost) always bullish. Indeed, the decline
that followed was well within the normal 38.2-61.8%
retracement zone. That price target was (10,407 + 9614)
÷ 2, or 10,010 +/- 94. The actual low was 10,007 on
July 20. This was a perfect example in terms of our time
and price studies. The trading cycle was three weeks
into the primary cycle (its normal range is 2-4 weeks).
A normal price corrective decline would have been
10,010 +/- 94, and the actual low was 10,007. That was
“as good as it gets” for the start of a new primary cycle
and would represent the first “buy point” in the bullish
trading strategy that was in effect at this time.

With the completion of a 3-week trading cycle

trough, it was now possible to calculate an MCP price
objective for the crest of this first major cycle phase.
Since the first trading cycle lasted 3 weeks, we could
assume there would be two trading cycle phases within
this first 5-7 week major cycle. If the first thrust up was
793 points (10,407 high on July 13, less the 9614 low of

506
the primary bottom on July 2), then the next rally would
be expected to be about the same amount. The MCP
(Mid-Cycle Pause) price objective for the crest of the
second trading cycle (which would also be the crest of
the entire first major cycle) would thus be calculated as
follows: (10,407 + 10,007) – 9614 = 10,800 +/- 140.
The orb was determined by the following formula:
(10,800 – 9614) x .118 = 140. Thus the MCP price
target range for the crest of the first major cycle was
10,660-10,940. That range was entered on August 2, the
critical reversal date, when prices rallied to 10,692.
They remained in that range until the major cycle crest
was finally completed on August 9 at 10,720. If you
sold short on August 2 with a stop-loss above this range
as the bearish trading strategy in effect at this time
would dictate (i.e. end of first major cycle phase), you
did quite well. You weren’t stopped out, and shortly
afterwards the decline proved to be rewarding.

Now that we had the first major cycle crest with

which to work, the price target for the first 5-7 week
major cycle trough could be calculated. Time-wise, we
knew it would be due the next week, for the crest of
August 9 occurred in the 6th week, and normally the
major cycle trough unfolds in the 5-7 week time period.
Since it was only the first major cycle phase of the new
primary cycle, it would not be expected to take out the
9614 low that started the primary cycle on July 2. In
fact, it would most likely be just a normal corrective
decline of the swing up from the July 2 bottom to the

507
major cycle crest of August 9, because it was apparent
the whole major cycle would be a bullish “right
translation” pattern. That is, the high was already past
the midway point of 5-7 weeks. It happened in the 6th
week. The calculation for this major cycle trough was
thus a simple (10,720 + 9614) ÷ 2, or 10,167. The orb
of allowance to this price target was (10,720 – 9614) x
.118, or 131. The price range for the major cycle trough
due the next week would thus be 10,036-10,298. If the
DJIA fell to this price level, it would represent a “buy,”
the third tradable point in this new primary cycle. The
market complied nicely by falling to 10,209 one week
later, on August 16, which was in the middle of this
price target for another excellent trade. The trader
would exit shorts taken on August 2 and go long with a
stop-loss below this major cycle trough. So far, the first
phase of this primary cycle performed exactly in
textbook-perfect fashion from the viewpoint of cycle
studies and price objective calculations. But this last
trade - going long the week of August 16 - would
require great caution, for we were still under the
assumption that this would be a bearish primary cycle.
Thus the next rally would not likely make a new cycle
high. And if it did, it would likely not exceed the crest
of the major cycle (August 9) by more than 2%. It could
be a double top, although it should not continue up to an
MCP price target above that 2% double top range.

We now come to the first fork in the road where a

decision has to be made. Would this be a “classical

508
three-phase” primary cycle pattern, consisting of three
5-7 week major cycle troughs or would it become a
“combination” pattern consisting also of two 7-11 week
half-primary cycle phases? In the first case, the market
could be a little more bullish. It could challenge the
10,720 high of August 9, even in a bearish primary
cycle. And if it went higher, it would become a bullish
primary cycle, thereby negating our bearish bias based
on the phasing of the 50-week cycle. In that case, an
MCP price target for the crest of the next major cycle
could be calculated as 11,315 +/- 201. But our bias was
that the primary cycle would be bearish, which would
mean the crest of the next major cycle would not attain
an upside MCP price objective. More than likely it
would form a double top to the first major cycle crest of
10,720, i.e., within 2% of that mark - or even less. It
might rally only 38.2-61.8% of the move down from the
major cycle crest (10,720) to the major cycle trough
(10,209). Adding those two prices together and dividing
by 2 would yield a corrective rally only back to 10,464
+/- 60. However, such a weak recovery might imply
that the market would be forming a half-primary cycle
trough, especially if it happened quickly. If we were
bearish (and we should have been based on the 50-week
cycle phasing), this is what we should have expected -
and indeed, that is what actually happened.

One day after the August 16 major cycle trough, the

DJIA rallied to 10,480 and stopped. It was already in
the 38.2-61.8% corrective price retracement range of

509
the prior swing down. One could cover longs and/or go
short here with a stop-loss on a close above the major
cycle crest of 10,720. That would be the correct action
in a bearish strategy, as was now the case. Three days
later, on August 20, the DJIA broke below the 10,209
major cycle trough of August 16.

Now we would have to consider the possibility that

the market would form a 7-11 week half-primary cycle
trough. Previously we had calculated its price target as
9780-10,222 (45-85% retracement of the swing up from
9614 on July 2 to 10,720 on August 9). And here we
could also perform an MCP calculation to the downside
based on the swing down from August 9 (10,720) to
August 16 (10,209). The difference of 511 points can be
subtracted from the rally to 10,480 on August 16 to get
the price target for this current decline to a half-primary
cycle trough. Thus, (10,480 + 10,209) – 10,720 = 9969
would be the new downside price objective. The orb
would be (10,720 – 9969) x .118 = 89. The price range
for the half-primary cycle trough would be 9880-
10,058. Note that this overlaps the previous calculation
for a half-primary cycle trough at 9780-10,220. It is
thus important support. We also know that this half-
primary cycle low would most likely occur within three
trading days of August 20-23. On August 24 the DJIA
fell into this range. The next day it fell lower, to 9937,
and two days later it finally bottomed at 9936, just one
point lower, for the half-primary cycle trough in the 8th
week of the primary cycle. This was yet another

510
excellent example of time and price coming together
with geocosmics to produce an accurate cycle
completion. One could take profits on shorts now and if
aggressive, could even go long with a stop-loss on a
close below this low or the range calculated for the half-
primary cycle trough.

1. 2. Head and shoulders formations.

As the new primary cycle got underway, it would be

important to note if any head and shoulders, or inverse
head and shoulders patterns, were forming. If so,
additional price targets could be calculated from the
breakout above or below the necklines of these
formations (see Chapter 8). There was indeed a bearish
head and shoulders formation that developed in this
primary cycle, as shown on the chart below, connecting
the lows of July 20 (1) and August 16 (2). This
trendline (neckline) was broken the following week,
and after a failed one-day attempt to get back above it,
prices broke lower, thus displaying the importance of
consecutive closes above it to negate the pattern. Had it
closed two consecutive days back above this neckline, it
would have been a bullish sign.

511
Figure 61: Daily chart of the DJIA in the summer 2010, depicting a head and shoulders
formation. The left shoulder is marked LS, the head is H, and the right shoulder is RS,
The neckline connects the two lows at 1 and 2. When prices broke below 1-2, it created a
downside price target. This price target was not achieved before prices rallied back
above 1-2, thus negating that price target. This chart also shows a gap down on August
12 (see circle, titled “gap down”), which created a downside measuring gap price target.

In this case, the neckline connecting the lows of July

20 and August 16 (1-2 in the graph of Figure 61) came
in about 10,156 on the day of the head (or high), which
was August 9. Therefore a downside price objective
could be calculated once prices closed below this
neckline. The calculation would be (10,156 x 2) –
10,720, or 9592 +/- 133. This did not overlap any prior
price target range, and so it was not surprising that the
decline did not fall that far. The head and shoulders
downside price target was thus negated when prices
started to close back above the extension of this
neckline on September 3. It is instructive to point out
that once prices broke back above the neckline, it then

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became support over the next few days. It fell back to
the extension of this neckline for the entire next week,
thus providing multiple opportunities for traders to buy
there.

1. 3. Measuring gaps.

When a new primary cycle gets underway, there will

often be cases of “gaps up,” where the market trades
entirely above the prior day’s trading range. After a
cycle crest is completed, there will sometimes be “gaps
down,” where the market trades entirely below the prior
day’s range. In each case, a measuring gap price target
is created, according to the instructions given in
Chapter 9.

In the summer of 2010 there was a gap down from

August 11 to August 12. The low on August 11 was
10,367. The high on August 12 was below this, at
10,362. This can be seen in Figure 61 where the price
bars are circled. This created a downside measuring gap
price target. To determine that price target for a low,
take the difference between the preceding crest, which
was 10,720 on August 9 and the low of the day before
the gap down, which was 10,367. In this case, that
difference was 10,720 – 10,367, or 353 points. Now
subtract this from the high of August 12, which was
10,362, or 10,362 – 353 = 10,009. The orb for this price
target is (10,720 – 10,009) x .118, or 84, and the range

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is then 9925-10,093. This measuring gap price target
did overlap with two prior price targets that were also in
effect at 9880-10,058, thus making the ideal price target
for the half-primary cycle trough at 9925-10,058. This
downside measuring gap price target was negated when
prices rallied to fill this gp down on August 17, well
before the final low was realized at 9936. Nonetheless,
it turned out to be a correct price target.

The Third Step: Coincident and

Lagging/Confirmation Indicators

When major, half-primary, and full primary cycle

troughs and crests are due, there are a host of technical
indicators that will let one know when a cycle is close
to completion. These are known as coincident
indicators. Then there are other technical signals,
known as lagging indicators, which confirm the
culmination of that cycle low or high. Even though
these indicators imply it is already too late to buy or sell
the exact trough or crest, they are important because
they provide the correct trading strategy to employ in
order to maximize profit potential. They can indicate if
a trend run up or down is in force and thereby dictate
whether one should be focused mainly on buying the
corrective declines or selling the corrective rallies. This
is very important to the longer-term goal of trading
profitably. Thus, even though the cycle has been
completed, there will be many points within the new
trend where one can enter the market in the direction of

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the trend run. Before we can discuss these shorter term
buy and sell points, we need technical indications that
imply that 1) the cycle is being completed and 2) a new
trend run is due to commence. For this we employ the
following technical signals:

1. 1. Stochastic patterns.

Please review Chapter 11. At primary cycle

troughs, the 15-day slow stochastics are
usually below 20% (oversold) and the weekly
below 25%. Ideally there is also a double
looping pattern where K is at first below the
D line, then rises above it, but then falls back
below it again before rising up once more to
start a strong rally. This is verified when the
second loop finds K below D and below 20%
(sometimes even 25% if the first loop was
below 29%), but then crossing back above D
and widening its distance above D. The
opposite pattern is usually exhibited in the
case of primary cycle crests. That is, both the
K and D lines are above 80%, with K above
D, which represents an overbought condition.
Then a bearish looping pattern often forms
where K falls below D temporarily and then
rises back above it. When K falls below D
again and below 80% (even better if below
71%), with K widening its distance below D,

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the stochastics indicate a primary crest has
been completed. In the case of weekly
stochastics, a move above 75% is sufficient
for an overbought condition leading into these
patterns.

During the subcycles within the primary

cycle, these overbought and oversold
conditions may not materialize, such as
during a major cycle trough or crest. In these
cases, the daily stochastics may only retrace
to a neutral 42-58%.

2. Bearish and bullish oscillator

divergence.

The ideal stochastic pattern for a primary

cycle trough or crest occurs when there is
divergence to price as the cycle culminates.
For example, if a primary cycle trough is
forming, it is best to see a double looping
pattern below 20% (25% on weekly is
sufficient), but one in which the low
stochastic reading of the second loop is at a
higher level than the first, while the price is
lower. This is known as bullish oscillator
divergence. Conversely on a primary cycle
crest, it is ideal when there is a bearish
looping pattern above 80% (75% on weekly is
sufficient), but also one in which the second

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 loop is at a lower stochastic value than the
first, while the price is now higher. A higher
price with a lower stochastic reading than at a
previous crest is known as bearish oscillator
divergence. This is a powerful sell signal if it
happens when a primary cycle crest is due
and within the time band of a geocosmic
critical reversal date.

3. Intermarket bullish and bearish divergence.

This occurs when a market makes a new cycle high or

low, but other markets in the same category (or region
of the world, in the case of stock indices) do not. It is
especially important when this happens during the time
band for a primary cycle trough or crest, as well as
when a geocosmic critical reversal date period is in
effect at the time one of those markets is making a
primary cycle high or low.

4. Trendlines.

These are important confirming indicators that a cycle

high or low has been completed. The idea here is to
connect the lows or highs of the same cycle type. When
prices break below an upward trendline or above a
downward one, it is a confirmation that the lowest cycle
type on the trendline has been completed, and the next
highest cycle is in the process of unfolding. Also
important are cases where there are at least three points

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on the trendline. A three-point (or greater) trendline
offers powerful support or resistance to the market.
When it breaks, it usually means a powerful contra-
trend move is in progress.
5. Moving averages.

These are important in projecting minimum price

moves for cycles, based on a moving average that is
half the length of the cycle being studied. For instance,
a 6-week major cycle is comprised of 30 trading days (6
weeks, with 5 trading days each, equals 30 trading
days). When the major cycle low is due in a bullish
primary cycle, the price will usually decline to at least
the 15-day (half the cycle’s length) moving average. In
actual practice, we use a 14-day moving average for the
DJIA since its primary cycle is 17 weeks, and not 18.
Usually the price will fall below this average as the
major cycle trough forms. Conversely, even in bearish
primary cycles, the price will move up to at least the 14
or 15-day moving average as the major cycle crest
unfolds.

Moving averages are also important because they define

the more conventional trend runs. If one uses moving
averages that are half the cycle length for the primary
and major cycles, and the shorter one representing the
major cycle is above the longer one represented by the
primary cycle, and the price is above each, the market is
in a trend run up. Conversely, if the moving average for

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the major cycle is below the moving average relevant to
the primary cycle, and the price is below each, the
market is in a trend run down. In trend runs up, one
adopts bullish trading strategies and buys all corrective
declines. In trend runs down, one adopts bearish trading
strategies and sells all corrective rallies.

Let us now return to the weekly and daily charts of

the summer of 2010 and see how these indicators could
have helped one identify key turning points in the first
phase of the new primary cycle that started July 2,
2010. Let us start by examining the weekly chart of that
time, as shown in Figure 62.

Figure 62: Weekly chart of the DJIA, 2009-2011. 1 represents start of 4-year cycle. 2
represents the “normal” 50-week cycle trough, yet it expanded to 2A to coincide with
the first phase (15.5-month) of the greater 4-year cycle. The 15-bar stochastics (bottom
of the chart) show a double looping pattern at x-y, with y lower in price but slightly
higher in the 15-week stochastic level, for a case of bullish oscillator divergence. The
trendline connecting the 50-week cycle lows at 1-2 turned out to be incorrect, as 2 was
not the 50-week cycle low. But this would not be known until prices made a new high.
The real 50-week cycle trendline is shown as 1-2A. Also shown here is a 25-week moving

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average.

1. 1. Stochastic patterns, looping formations,

oscillator divergence.

On the low of July 2, 2010, the 15-week stochastic

pattern showed a classic bottoming pattern for a
primary and longer-term cycle low. The actual
stochastic low occurred on the week of June 4, when K
dropped to 19.36% and was below D at 30.89%. This is
shown as ‘x’ on the chart in Figure 62. It was below
25%, so it was oversold. Both the price and stochastics
rose the next three weeks. But then the DJIA suddenly
reversed and fell to a new low on July 2 - lower than the
low nearby to June 4. However, the weekly stochastics
did not make a new low (at least not %K). On the week
beginning July 9, K was back below D, bottoming at
21.76%, while D was at 26.87%, shown as ‘y’ in Figure
62. D was not as low as it was during the week of June
4. Thus it was a case of a double looping formation (K
was below D, then rose above D, then fell back below
D again). It also exhibited bullish oscillator divergence
(D was higher at ‘y’ than at ‘x,’ when the price was
lower). Two weeks later, K was back above D, and both
were above 25%, with K widening its distance above D,
for a confirmation that a new primary or greater cycle
was underway.

On the daily chart, these stochastic patterns did not

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show up at the primary bottom of July 2. The
stochastics were at deeply oversold levels (K was down
to 7.29% and below D at 19.86%), as shown in the daily
chart below (Figure 63), from which powerful rallies
can begin. They did not exhibit either of the other two
major patterns (bullish looping pattern, bullish
oscillator divergence) that we like to see at important
lows.

Figure 63: Daily chart of the DJIA in the summer of 2010, depicting the 15-day slow
stochastics and two downward trendlines at A-B and A-C. The stochastics show a
bearish looping pattern at the C, the half-primary cycle crest (at the time), and as well
as bearish oscillator divergence. A double looping bullish pattern shows up at x and y,
where y is the half-primary cycle trough (at the time… later it would be changed to a
major cycle trough due to the primary cycle pattern that formed).

The daily chart, however, shows a case of bearish

oscillator divergence with a bearish looping stochastic
formation at the high on August 9. The actual stochastic
high occurred on July 27 (‘w’ on the chart in Figure
63). K then fell below D, but never got below 71%. It

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then rose back above D to form a bearish looping
pattern above 80%. On August 9, two weeks after the
highest stochastic reading of this move, the DJIA
completed its half-primary cycle crest. The stochastics
were slightly lower for a case of bearish oscillator
divergence, shown as ‘C” on the chart. This was
confirmed when the stochastics then fell below 71%,
with K widening its distance below D, a confirmation
that a cycle crest had been completed. Based on our
bearish bias of the 50-week cycle, there was reason to
believe that the high at C could also be the primary
cycle crest. This was a strong signal to be short.

The move down continued into the half-primary

cycle trough of August 27, which was near the next
reversal period as indicated by the stochastics. The
DJIA reached an oversold stochastic level on the low of
August 16, marked as ‘x’ on the chart in Figure 63. You
may remember we first thought that this might be the 5-
7 week major cycle trough (it was the 7th week of the
primary cycle, and it was in the price target range of a
corrective decline for a major cycle trough). The 15-day
slow stochastics showed K at 12.61% and below D at
29.17%. The following rally started a bullish looping
pattern as K rose back above D. But it didn’t last. Both
the price and the stochastics fell again to new lows, as
K bottomed at 7.62% on August 24, below D at
12.65%. The actual price low was August 25 and 27.
By September 1, K was well above D again and
widening its distance above D and above 20%, for a

522
confirmation of the cycle low on August 27. There was
not a clear case of bullish oscillator divergence, as the
second loop was slightly lower than the first. Yet the
stochastics did form a bullish looping pattern with both
below 20%, which was in the oversold territory from
which strong rallies can commence.

Therefore, we see three examples of stochastics

assisting in the determination of important cycle
completions. The weekly stochastics accurately
coincided closely to the primary cycle trough of July 2,
and the daily stochastics accurately identified the half-
primary cycle crest of August 9 and the half-primary
cycle trough of August 27 within just a couple of days,
which was close enough to enter into profitable trades
as the DJIA reversed sharply in each case.

1. 2. Intermarket bullish and bearish divergence.

This signal is most effective when there is at least

one week separating an important cycle trough or crest
between two related markets. In this case we are
discussing the Dow Jones Industrial Average, which is
an American stock index. Therefore it is best when it is
compared to the S&P or NASDAQ Composite indices,
or their nearby futures contract.

Examples of intermarket bullish divergence at the

primary cycle low of July 2 have already been

523
discussed. As a review, the DJIA and NASDAQ
Composite made their primary cycle lows on July 2 and
July 1 respectively. This is only one day apart, and
during the same week, so it is not really a case of
intermarket bullish divergence between the two.
However, the nearby S&P futures bottomed on July 6,
one week later, and so this was a case of intermarket
bullish divergence, where one index made a new cycle
low (S&P on July 6), in a different week than other
indices in this region. It was also nearby to a Level 1
geocosmic signature (July 5), and was thus a signal that
a primary cycle trough could be forming.

The same combinations of indices were involved in

an intermarket bearish divergence signal at the half-
primary cycle crest of August 9 in the NASDAQ
Composite and DJIA. The nearby S&P futures did not
top out that week. This index completed its half-
primary cycle crest one week earlier, on August 5,
which was within the three-day orb to the critical
reversal date of August 9. One could therefore sell short
at this time with a stop-loss above the previous week’s
high in the S&P futures, or at a time that all three made
new cycle highs, which never happened during this
period.

The same divergence in the same three indices also

happened on the half-primary cycle trough of Friday,
August 27 in the case of the DJIA and NASDAQ
Composite. However, the nearby S&P futures did not

524
complete its half-primary cycle trough until Tuesday,
August 31, in the following week. Thus once again
position and short-term traders had a signal to enter the
market, this time from the long side. Since it was still
uncertain that this primary cycle would be bullish, it
was probably a trade more for the short-term trader. The
stop-loss on a new long position could be based on a
time when all three indices made new cycle lows. That
never happened during this period after the intermarket
bullish divergence signal was generated on August 31.
The market would now commence its rally to the crest
of the next phase of this primary cycle.

Just as the stochastic studies yielded three tradable

instances for entering the market in the first half-
primary cycle phase of this primary cycle, so too did the
intermarket bullish and bearish divergence indicator at
virtually the same places. And each of these signals
occurred when a cycle trough or crest was due, nearby
to a geocosmic critical reversal date. Therefore these
were two very important ‘coincident” indicators,
signaling a reversal in the U.S. stock market at a very
“unusually uncertain” time in the American economy.
Still, we had no compelling reason to think this primary
cycle would become bullish yet, other than perhaps the
fact that the half-primary cycle trough did not take out
the low that started the primary cycle. That needed to
happen to fully confirm a bearish primary cycle.

1. 3. Trendline Studies

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 In Figure 62, one can see a trendline connecting the
lows of March 6, 2009 and February 5, 2010. At the
time, this was viewed as the 50-week cycle trendline,
because March 6 was a 50-week cycle trough (and even
the greater 4-year cycle trough), and February 5, 2010
was believed to be a 50-week cycle trough, since it
occurred in the 48th week of the cycle and it was also
the end of the third primary cycle phase of the greater
50-week cycle (usually there are only 2 or 3 primary
cycles within the 50-week cycle). That upward trendline
(1-2 on the chart) was broken in the first week of May
2010, which suggested that not only had the 50-week
cycle topped out, but the next longer one as well, which
would be either the 15.5-month (first third) phase of the
4-year cycle or possibly the 23-month half-cycle phase
to the 4-year cycle. Only a close above the 11,258 high
of April 26 (the prior 50-week cycle crest assumed at
this point) would negate that labeling. Thus one’s bias
would be bearish, for the trendline supporting the
assumed 50-week cycle was broken.

Prices did indeed fall to new lows. On May 25 they

took out the lows of February 5. The 50-week cycle was
now bearish according to these studies (90% probability
based on the history of the 50-week cycle), or a bigger
cycle low was forming (10% probability based on the
50-week cycle history), as turned out to be the case. By
July 2, the market had fallen to a new low of 9614.

526
 In retrospect, we now know July 2 was the 15.5-
month cycle trough, and a case of the 50-week cycle
expanding to 69 weeks, which has a historical
frequency of actually occurring less than 10%.
Nevertheless, it was in the time band for that first phase
low of the 4-year cycle, which occurs at the 13-20
month interval, and July 2 was the 16th month (the
second and third phases are more like 15.5-month mean
cycles, while the first is more often a slightly longer
16.5-month subcycle). One could now draw a trendline
connecting the low of the 4-year cycle trough of March
6, 2009 to the low representing the trough of its first
phase on July 2, 2010 (line 1-2A on the graph in Figure
62). This would now be the 15.5-month cycle trendline.
A break below that would be a signal that the crest of
the next highest cycle was completed, which would be
the 4-year cycle crest. The confirmation of that analysis,
however, would only come about when prices took out
the low at 2A. You will notice at the half-primary cycle
trough of August 27, prices dropped back to this
upward trendline, thus making it a powerful “3-point”
trendline. A weekly close below there could signal a
major trend change in the longer-term cycle.

The daily chart exhibited some useful downward

trendlines that helped in one’s shorter-term analysis of
the situation. From the primary (and possible 50-week)
cycle crest of April 26, 2010, a downward trendline
could be constructed that connected several highs prior
to the low of July 2. This is shown as A-B in the graph

527
of Figure 63, with the most important highs being April
26 and June 21. But it also captured the highs just after
April 26, so it was at least a “3-point trendline,” which
meant it was strong. You can see that the price of the
DJIA closed above A-B for three straight days
beginning July 13th. This strongly suggested that the
primary cycle trough was in as of July 2.

Even though the DJIA dropped back below this

trendline shortly afterwards for four days, it eventually
climbed back above on its way to the half-primary cycle
crest of August 9. A new trendline could now be
constructed, connecting the previous primary cycle
crest of April 26 to the new half-primary cycle crest of
August 9. If indeed this primary cycle was going to be
bearish, this new trendline would act as important
resistance, for a close above it would mean that not only
had the half-primary cycle bottomed, but probably the
next higher cycle had bottomed too (which would be
the primary cycle). It would suggest that this market
was no longer bearish, but instead was turning bullish.
As you can see from the chart in Figure 63, the DJIA
did break above this trendline A-C during September
13-15, the first point at which our bearish bias for the
50-week cycle became suspect.

These examples show clearly how trendlines serve as

useful guides to understanding the underlying trend of a
market. They do not coincide with cycle lows or tops,
but rather they act as lagging or confirming indicators

528
to the stronger underlying trend. They help one to adopt
the correct trading strategy (bullish or bearish), as they
assist in determining the completion of a recent and
important cycle.

1. 4. Moving averages.

The last technical indicator that we will examine in

this section of our analysis of the summer of 2010 is the
moving average, or multiple moving averages.

In the weekly chart, we use a 25-week moving

average to identify the status of the 50-week cycle. You
will see from the weekly chart shown in Figure 62 that
the 25-week moving average was taken out in the first
week of May 2009. This confirms March 6, 2009 as at
least a 50-week cycle trough. It stayed above this
important average all the way until the week ending
February 5. It broke below this average as the assumed
50-week cycle bottomed on February 5 at 9835. Two
weeks later it was back above this average, suggesting
that the 50-week cycle trough had been completed, for
it was in the 48th week, which meant it was “on time.”

The DJIA remained above this 25-week moving

average until the first week of May, when it broke not
only below this average, but also the upward 50-week
cycle trendline. This was a signal that an important crest
had just formed (11,258 on April 26, 2010). If it was the

529
50-week cycle crest, then the market would be bearish
for several more weeks. If it was to be a decline to the
first phase of a 3-phase four-year cycle, it might only be
down a few weeks. As it turned out, the market did fall
to a new multi-month low on July 2, 2010 at 9614. But
just 5 weeks later (the week ending August 9), it closed
back above the 25-week moving average, giving
support to the idea that perhaps July 2 was a longer-
term cycle trough.

These hopes were temporarily dashed as the DJIA

fell back below this average the very next week, lending
support again to the idea that this would be a bearish
50-week cycle that started back on February 5, 2010.
However, in the week starting September 17, the DJIA
closed back above the 25-week moving average for the
second consecutive week, strongly suggesting that the
50-week cycle had bottomed July 2, 2010, and not
February 5, 2010, as per our bias. Our bearish longer-
term bias about the 50-week cycle needed to change in
mid-September, according to these “confirming”
signals, or lagging indicators (trendlines and moving
averages). It was now clear that the “Asset Inflation
Express” of Jupiter and Uranus having entered Aries in
May and June was now firmly underway and could last
into mid-2011 or even longer.

We can also glean insight from examining the 14-

and 42-day moving averages in the daily chart during
this period. The 14-day would guide us through the 5-7

530
week major cycle phases, while the 42-day would strike
boundaries defining the greater primary cycle.
Following the primary cycle crests of April 26, the
DJIA dropped below the 42-day moving average on
May 5, one day before the historical 1000-point
intraday 25-minute drop in the DJIA on May 6 (it
recovered 800 of those points by the close). This break
of the 42-day moving average signaled that the primary
cycle crest was completed. You can see how the next
rally was stopped at its test of this average on May 13,
after which the DJIA turned lower again. That average
served as resistance, which is not so unusual.

On June 21, the DJIA broke above the 42-day

moving average, a sign that the primary cycle might
have been completed on June 8 at 9757. But it couldn’t
close above this average, and therefore the bottom
could not yet be confirmed. Prices did in fact fall to new
lows on July 2 without ever closing above this average
first. You can see that prior to June 21, the DJIA did
close above the 14-day moving average, suggesting that
the lows of May 25 and/or June 8 was a major cycle
trough, but not necessarily the primary cycle trough. All
during this time (late April through early July), the 14-
day moving average remained below the 42-day
moving average, which indicated the market was in a
trend run down.

Finally on July 12 the DJIA closed above the 42-day

moving average. It had a second daily close above this

531
average the next day (July 13), as an important trendline
down was also broken. These were two very strong
signals that the primary cycle trough had been
completed on July 2. But given that our bias was
bearish for the greater 50-week cycle, how long would
it be before the primary cycle topped out? In bear
markets the crest of the primary cycle tends to unfold
before Tuesday of the 9th week and usually only 2-5
weeks into the new cycle. July 12-13 was already the
second week. This cycle could top out at any time if the
pattern was to be bearish.

By July 16 the DJIA was closing back below the 42-

day moving average, but not the 14-day one. In fact it
never closed below the 14-day average before resuming
its march up to the half-primary cycle crest of August 9.
It is important to note that prices were above both the
14- and 42-day moving averages, and the 14-day
crossed above the 42-day one on July 22. The market
was now in a confirmed trend run up. But how long
would it last?

On August 11, two trading days after the half-

primary cycle crest of August 9, prices broke below the
14-day moving average. This confirmed that the high of
August 9 was at least a major cycle crest. For the next
three days it traded to and slightly below the 42-day
average, but never closed below it. The DJIA then
rallied slightly into August 17-18 but could not close
back above the 14-day average. It then fell sharply into

532
the half-primary cycle low of August 27, closing well
below both the 14- and 42-day moving averages, with
the 14-day also moving back below the 42-day one.
This was a signal supporting the historical probabilities
that the 50-week cycle was bearish, and soon this
primary cycle would fall to a new low.

However it was not to be. Up until this point, the

market timing and technical indicators were working
very well, as they normally do. But something radically
changed after the low of August 27. A UFO - an
Unexpected Fundamental Occurrence - had exploded
onto the world with the Federal Reserve Board’s
surprising decision to implement QE2 just a couple of
weeks earlier and thereby guide long-term interest rates
lower. This is exactly the type of decision that was
necessary for the launch of the “Asset Inflation
Express.” On September 1, the market was up 254
points and closed well above the 14-day moving
average, indicating that the half-primary cycle trough of
August 27 was completed. On September 3 it was up
another 127 points, and closed above the 42-day
moving average. It was the first moving average signal
that maybe this primary cycle would be bullish.
However it hadn’t yet closed above the downward
trendline, so the signals were now mixed.

The uncertainty gave way on September 20, just a

few days after the close above the downward trendline.
This was when the 14-day moving average moved back

533
above the 42-day average, and the price of the DJIA
was above each. Thus the market was back into a trend
run up. September 20 was important for another reason
too: the DJIA closed up 145 points at 10,753, taking out
the first half-primary cycle crest of 10,720 back on
August 16. This would now become a bullish “right
translation” primary cycle. The evidence was now
mounting that the 50-week cycle was not pointed down
and bearish from February 5, but instead it was pointed
up and bullish from its expansion to July 2, 2010.
Position traders could now forfeit the bearish strategies
and adopt new bullish strategies as long as 1) prices
remained above the 25-week moving average, and 2)
certainly as long as prices remained above the 42-day
moving average with the 14-day also above the 42-day
one. In fact, the first case would remain in force through
the first week of June 2011, nearly 9 months. The
second condition (the 14-day average above the 42-day
average) would remain operative until March 2011.
Thus, even though one may have gotten whipsawed in
early September 2010, the rewards that followed more
than made up for this via the coincident and confirming
indicators just described.

We will come back to the later stages of this primary

cycle shortly. For now, it is time to show how the short-
term trading indicators would be used not only in the
bullish first phase of any primary cycle, but in any
phase.

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535
CHAPTER NINETEEN

AS GOOD AS IT GETS:
SHORT-TERM AND AGGRESSIVE TRADING

The stage is now set for zooming in and making a trade.

The time band for the start of the primary cycle has
been identified. Once confirmed, the time bands for the
first major and/or half-primary cycle trough have also
been determined. Geocosmic critical reversal dates and
Solar-Lunar reversal dates within this first phase of the
new primary cycle have been identified. Price targets of
support and/or resistance have been established or will
be established as trading cycles unfold. Technical
studies will be used to identify trading cycle lows, as
well as other support areas in which to buy during this
first phase of the primary cycle. Other technical studies
and chart patterns will be used to determine when a
particular move up or down has been completed.

Now it is time to apply the short-term trading tools of

Chapters 14-17, which include the Drummond Market
Geometry methods, to pinpoint optimal times of entry
and exit. For this we use the weekly and daily trend
indicator points (TIP, or DOT), as well as daily and
weekly “floor trades” support and resistance zones. For
this, we employ the following steps in the first phase of
the primary cycle.

536
1. 1. Start with the Weekly TIP. Please review
Chapter 16. Usually a market is in a weekly trend
run down when a primary cycle trough is
unfolding. The actual low most often occurs the
week before, the week of, or the week after a trend
run down has ended. When the market is upgraded
from a weekly trend run down to neutral via the
Drummond Market Geometry methodology,
during (or shortly after) the time band when the
primary cycle trough is due, it is a signal that the
trend is changing. However, it takes three
consecutive weekly closes above the TIP, with the
third week (or after) also closing above the prior
week’s close to confirm. Still, when looking for a
primary cycle trough, the first step is to see a
change in the trend status (TIP) via these studies.

1. 2. Look for bullish signals related to weekly

support and resistance zones. Please review
Chapter 17. As the primary cycle trough unfolds,
look for the weekly close to exhibit a bullish
trigger, bullish bias, or outright bullish close. That
is, if the weekly low is into or below the weekly
support zone, but the close is above weekly
support, this is a signal that a new primary cycle
may be starting. Additionally, if the weekly close
is above weekly resistance or a bearish crossover
zone, that too is a signal that the primary cycle

537
 trough may be ending, especially if the market is in
the time band for a primary cycle and even more
so if a geocosmic critical reversal time band is in
effect. The market needs to follow through with a
further rally ending the next week to confirm. That
is, a bullish trigger or bullish bias close on the
weekly chart, followed by a close above the next
week’s resistance, is a bullish sequence and a
confirming signal that a new primary cycle is
underway, especially if the low occurred during
the normal time band when it was due. Expanded
time bands for primary cycles are also acceptable,
and they are perhaps even a stronger time in which
to buy when they happen.

The weekly TIP and support-resistance

studies are more important for position
traders. For short-term traders, we need to
examine the daily TIPS and support-
resistance zones. For very aggressive short-
term traders, we could also utilize hourly or
30-minute signals. Aggressive short-term
traders could also use intraday technical
signals like stochastics or other oscillators,
moving averages, trendlines, and even
volume studies to help pinpoint the precise
bottom.

1. 3. Look for buying signals generated by the daily

538
 TIP. The daily chart and the short-term signals
generated therein are most important for the short-
term trader. They can be used to probe the long
side when a primary cycle trough is due. Not only
that, but they may also be used to pinpoint buying
opportunities all through the first phase of the new
primary cycle, at least until the first major cycle
crest is confirmed. In this application, we look for
signs that any daily trend run down is being
upgraded to neutral. Or if prices have closed three
consecutive days below the TIP, but the third day
is up and therefore not a confirmed trend run
down, this can be a signal that a low is being
completed as well, especially if the next day also
fails to close down. Daily trend runs down tend to
reach an exhaustion point after 9 consecutive days
of closing below the TIP. Daily trend runs up tend
to reach an exhaustion point after 12 consecutive
days of closing above the TIP. If a trend run down
is interrupted for one day, the resumed trend run
down tends to end within the next three days.
Trend runs up, on the other hand, may be
interrupted for one day, but then the resumed trend
run up tends to last no more than 7 days, with most
ending just one day after resumption.

1. Look for buying signals generated by the close

4.
relative to the daily support and resistance
zones. Of all the methods to enhance short-term

539
 trading, this is probably the most important. When
a primary cycle trough is due, and especially after
it is confirmed and the market is in its first phase
(bullish), one can probe the long side on any
bullish signal, such as:

• a bullish trigger (intraday price drops below the

daily support zone but then closes back above)
• a bullish bias (low of the day goes into support
and it holds)
• a bullish close (close above daily resistance).

Very aggressive traders can buy daily support, or any

decline into a bullish crossover zone, with stop-losses
on a close below here. The idea in the first phase of a
new primary cycle is to see support zones start to hold,
and/or resistance zones start to break. These are signals
to get long with stop-losses below recent lows, weekly
(or even daily) support, or a nearby bullish crossover
zone.

Now let us see how these signals would have worked

as the primary cycle low of July 2, 2010 unfolded and
all during the first phase of the new primary cycle that
followed. Even if the primary cycle is to be bearish, we
still take the approach that the first phase (2-5 weeks,
maybe even 8) will be bullish. The bearish signals
would not be expected to unfold until after the first

540
phase in a bearish primary cycle and not until the last
phase in a bullish primary cycle. So in the first phase,
our approach is mostly bullish, even if we believe the
primary cycle itself will ultimately end up bearish.

1. 1.Start with the weekly trend indicator point

(TIP, or Dot)

At the primary cycle crest of 11,258 on April 26,

2010, the weekly TIP had topped out the prior week.
The DJIA had closed above the weekly TIP for ten
consecutive weeks, so it was exhausted. The studies
provided in Chapter 16 showed that weekly trend runs
up are considered exhausted after ten weeks and would
be due for a pause - if not a complete reversal - at any
time after that. On the week ending April 30, the
weekly close was below the weekly TIP for the first
time in 11 weeks. It proceeded to close below the
weekly tip for the next six weeks. It ended its trend run
down in the week ending June 11. We will pick up the
weekly numbers as they applied to the end of this trend
run down to illustrate how to use this weekly indicator.
Below are the weekly high, low, and closing prices,
along with the weekly PP and TIP for reference, as the
DJIA completed its primary cycle trough on July 2,
2010.

WEEK
H L C PP TIP STATUS
ENDING

541
June 4,
10315 9890 9931 10058 10326 D
2010
June 11 10216 9757 10172 10071 10135 N
June 18 10483 10186 10451 10048 10059 N
June 25 10594 10081 10144 10373 10164 N
July 2 10201 9614 9686 10273 10231 N

July 9 10201 9660 10198 9834 10160 N

July 16 10407 10079 10098 10019 10042 N
July 23 10442 10007 10424 10195 10016 U
July 30 10585 10347 10466 10291 10168 U
Aug 6 10703 10468 10653 10466 10317 U

Aug 13 10720 10268 10303 10608 10455 N

Aug 20 10480 10147 10213 10430 10501 N
Aug 27 10304 9936 10150 10280 10440 D
Sept 3 10451 9942 10448 10130 10280 N
Sept 10 10476 10332 10462 10280 10230 N

The weekly trend indicator will be the slowest signal

to be generated of the four steps used in this part of the
trading plan. At the low of July 2, the weekly TIP was
in a neutral status. The prior week had closed below the
weekly TIP, so this was the second consecutive week of
closes below the weekly TIP. The DJIA was poised to
be downgraded to a trend run down if the week ending

542
July 9 simply closed lower than the close of the prior
week, which was 9686. But it didn’t. In fact the close
was 512 points higher than the prior week’s close, and
it closed above the weekly TIP at 10,160 for the first
time in three weeks. It could still become a trend run
down, after this one week interrupt, if the week ending
July 16 would close below the new weekly TIP at
10,042. But it didn’t. It closed at 10,098, above the
weekly TIP for the second consecutive week. Now it
was poised to be upgraded to a trend run up if it would
close above the prior week’s close (10,098). It did that.
It closed at 10,424 on Friday, July 23. Now it was
upgraded to a trend run up. Via this method, the
primary cycle trough was finally confirmed for July 2 at
9614. The confirmation came three weeks later. The
weekly TIP studies now gave the green light to adopt
bullish strategies until the next weekly close below this
indicator.

The weekly TIP remained in a trend run up until the

week ending August 13. By that time, the DJIA had
closed above the weekly TIP for 5 consecutive weeks. It
was finally downgraded from a trend run up to neutral
on the week ending August 20. That was just following
the week in which the half-primary cycle crest occurred
at 10,720 on Monday, August 9. The market proceeded
to fall to a half-primary cycle trough of 9936 on August
27. At the close of Friday, August 27, the DJIA
exhibited three consecutive closes below the weekly
TIP and the third week was a down week from the prior

543
week. It was now downgraded further to a trend run
down (D). But that turned out to be the low as the very
next week (September 3) it was upgraded back to
neutral. The TIP that week was 10,280 and the close of
the week was higher, at 10,448. This ended the first
phase of the primary cycle that commenced July 2.

In retrospect, the weekly TIP was a 3-week laggard

in identifying the primary cycle trough of July 2. It was
one week late in identifying the half-primary cycle crest
of August 13 and one week late in identifying the half-
primary cycle trough of August 27. Although this signal
will work fine for position traders looking to participate
in long trend runs, it wasn’t close enough for shorter-
term traders to capture any short-term profits. The buy
signal on July 22 resulted in a small loss when it turned
to a sell signal (neutral actually) on August 13. The sell
signal didn’t arise until the week ending August 27,
which just happened to be the low. By the next week
this signal was also negated when the weekly close was
back above the TIP, resulting in another small loss. But
then the buy signal would emerge when the market’s
weekly TIP status was upgraded to a trend run up on
September 17 (not shown), which lasted several weeks
and resulted in very large profits (to be discussed
shortly).

And so this signal is actually more conducive for

longer-term position trading than short-term trading. As
one can see, the weekly TIP is more of a trend

544
following system. It doesn’t usually get one into the
market as an important cycle low or high is forming. It
gets one in a little later, and oftentimes a trader will get
whipsawed for usually small losses by trading solely on
the basis of this signal. It is however very effective in
capturing the long trend runs when they occur, which
means longer-term profits.

1. 2.Look for bullish signals related to weekly

support and resistance zones.

Once again we are dealing with weekly indicators, so

the buy and sell signals generated here will lag behind
those of the daily studies. Nevertheless, they are useful
for short-term traders as well once a trend run is
underway.

Below is a listing of weekly support and resistance

zones for the same period used in the TIP studies. We
will now demonstrate just how the weekly support and
resistance zones confirmed the primary cycle trough of
July 2 and as a result led to trading opportunities from
the long side within the first phase of the new primary
cycle. We provide these calculations in a table format
instead of applying them right onto the charts because
many readers will not have the software programs to do
that. Hence they are depicted in table format here for
easier reference and application by all readers.

545
Week H L C PP TIP S1 S2 R1 R2

Jun 4 10315 9890 9931 10058 10325-D 9891 9852 10381 10342
Jun 11 10216 9757 10172 10071 10135-N 9718 9826 10143 10252
Jun 18 10483 10186 10450 10048 10059-N 9943 9881 10401 10339
Jun 25 10594 10081 10143 10373 10164-N 10302 10263 10560 10599
Jul 2 10201 9614 9686 10273 10231-OD 9887 9951 10400 10465

Jul 9 10201 9660 10198 9834 10160-N 9392 9466 9980 10054
Jul 16 10407 10079 10098 10019 10042-N 9927 9838 10468 10374
Jul 23 10442 10007 10424 10195 10016-U 9932 9982 10262 10310
Jul 30 10585 10347 10466 10291 10168-U 10207 10141 10575 10641
Aug 6 10703 10468 10653 10466 10317-U 10347 10348 10584 10585

Aug 13 10720 10268 10303 10608 10455-N 10536 10513 10770 10748
Aug 20 10484 10147 10213 10430 10501-N 10077 10141 10528 10592
Aug 27 10304 9936 10150 10280 10440-D 10047 10080 10380 10413
Sep 3 10451 9942 10448 10130 10280-N 9966 9956 10334 10325
Sep 10 10476 10332 10463 10280 10230-N 10193 10109 10618 10702

The trend status is indicated under the TIP column,

whereby D stands for trend run down, U represents
trend run up, N means neutral, and OD means “on edge,
trend run down.” This pertains to the trend indicator
studies discussed in Chapter 16. We will also refer to
the closing price relative to support and resistance as
either bullish, bearish, or neutral closes as discussed in
Chapter 17. Our task here is to identify buy signals in
the time band for a primary cycle trough, and once it is
in, further buy signals for the entire first phase of the
new primary cycle. Keep in mind this was an
“unusually uncertain” time, when many false signals
would be generated before the trend up was finally

546
established by most of the methods outlined in this
book.

We start this analysis of weekly support and

resistance with the week ending June 4. Notice that the
trend indicator point is in a trend run down. As stated
before, this was the sixth consecutive week of closes
below the TIP, or Dot. However, it is the 17th week of
the primary cycle, a geocosmic critical reversal period
(June 4, +/- 3 trading days) with three Level 1
signatures present between May 30 and June 8. From
the table above, we notice that the weekly low of 9890
was into weekly support (9852-9891). Support held,
and that is one of the signals to look for when a primary
cycle trough is due. And so even though the TIP was in
a trend run down, the weekly close was neutral, with a
bullish bias. This is a signal for short-term traders to
probe the long side. You would place a stop-loss on a
weekly close below the support zone of the next week
(9718-9826) or the low of the week ending June 4
(9890), depending on your risk allowance.

547
Figure 64: Daily chart of the DJIA, June 1-September 24, 2010. The dates listed here
are on Mondays, like June 7, 14, 21, etc.

The following week ending June 11 (beginning June

7), the DJIA once again dropped to weekly support. The
low was 9757 on June 8, the day of the Jupiter-Uranus
conjunction, one of the most powerful geocosmic
signatures of a reversal. Even though the market fell
below the low of the prior week, there were several
bullish signals again. First, weekly support held, but so
did weekly resistance. The high of the week was 10,216
on Friday June 11. Weekly resistance was 10,143-
10,252. Consequently this was an excellent week for
trading as prices went right into weekly support and
weekly resistance and both held. However the close was
between the two, which meant it closed neutral. The
balance of weight was more to the upside because the
close was above both next week’s TIP and pivot point

548
(PP). The close above the current weekly TIP meant the
trend status was upgraded from a trend run down to
neutral. This is a positive (bullish) sign and yet another
reason to be long. And now the stop-loss can be raised
to a close below the low of June 8 (9757) or next
week’s support (9881-9943), depending on one’s risk
tolerance.

As we approach the next week ending June 18, we

must calculate a price target for a corrective rally, based
on the possibility that June 8 may have been the
primary cycle trough. If so, a 38.2-61.8% corrective
retracement would take prices to this first resistance
zone, which would be 10,507 +/- 177. If this was the
start to a new primary cycle, and the market was
bearish, then the crest would be due 2-5 weeks after
June 8, or June 21-July 16. During this time band we
note that a geocosmic critical reversal date is in effect
the weekend of June 18-21, +/- 3 trading days. We can
assume that if it is a crest, it would be June 21-24, for
the second week would not start until June 21.

The DJIA indeed rallied sharply the next week,

which ended June 18 (it began June 14 as shown on the
chart in Figure 64). The high of the week was on
Friday, June 18, at 10,483, already into the price
objective range of a possible primary cycle crest, but a
week too early. Perhaps it would be a trading cycle
crest from which prices then drop 4% or more, or make
a 38.2-61.8% corrective decline of the move up so far.

549
The DJIA closed at 10,450 that next week, which was
above weekly resistance. This was a bullish weekly
close, following the bullish bias closes of the prior two
weeks. That was a “bullish sequence” pattern, which
normally means a new primary cycle is underway. The
close was also above the weekly TIP for the second
consecutive week. It was on the verge of being
upgraded again, to a trend run up, if the next week
closed up from the prior week. Notice that on June 18,
the DJIA still hadn’t closed above the 42-day moving
average, which from our moving average studies would
be necessary to confirm a new trend run up. It was
close, and a close up this week would probably do it. It
was possible that the Drummond Market Geometry
studies would be upgraded to a trend run up, and the
moving average study would issue a confirmation of a
new primary cycle, if the week ending June 25 was just
higher than the close of the week ending June 18.

It didn’t happen. What did happen was that the DJIA

rallied to a new multi-week high on the June 21 critical
reversal date, at 10,594. That was into our price
objective zone calculated for a primary cycle crest in a
bearish primary cycle. Time and price studies were
converging on a critical reversal date. Since the high of
that date was 10,594, above the 42-day moving average,
but the close was well below it at 10,442, it would be
wise for position traders to take some profits.
Aggressive short-term traders, on the other hand, could
take profits on all longs and even sell short, but we

550
would need to consult the daily numbers before doing
that since weekly studies are not the source for
aggressive short-term trading. The weekly numbers are
best used for position trading.

The market began selling off after the 10,594 high of

June 21. That high of the week was into weekly
resistance, which held. By the end of the week, the
market closed at 10,143, below weekly support. This
was a very bearish weekly close. The close below
weekly support was bearish, but because the high was
into or above weekly resistance first, it became a very
bearish close. This would be a sign to exit all longs and
even go short, for the market failed to be upgraded to a
trend run up when it had the chance, and instead it
closed neutral on the TIP indicator and very bearish
based on the weekly support and resistance numbers. It
was more bearish than bullish headed into the next
week. If one did go short, the stop-loss would be placed
above the 10,594 high of June 21, or on a close above
weekly resistance of the next week (10,400-10,465),
depending on one’s risk tolerance.

As suggested by the very bearish weekly close of

June 25, the market fell hard the following week. The
high was only 10,201, far below the prior week’s high
of 10,594. The low was attained on Friday, July 2, at
9614, which was well below weekly support. This
meant the market closed the week bearish for the
second consecutive time. It also closed below the

551
weekly TIP for the second time, but it was also a new
cycle low. This downgraded its status from neutral to an
“on edge, trend run down.” A close down the next week
would make it a full trend run down, whereas a close up
would upgrade it back to neutral.

The next week’s trading started on Tuesday, July 6

due to the Independence Day holiday. On Monday’s
trading holiday, July 5, a powerful Uranus retrograde
took place, an important Level 1 geocosmic signature
that would begin a cluster extending from July 5
through July 13. However, this was the only Level 1
signature within that cluster, which meant that if it were
to be valid, the reversal would likely happen closer to
July 5 than to the actual midpoint of the cluster, which
was July 9.

There were other things to note about this new low of

July 2. If it was an older primary cycle, it was the 21st
week. Therefore this could be the completion of a
primary cycle trough, based on cycle timing studies.
However, it was lower than the prior lows of June 8 and
February 5, which meant the 50-week cycle was turning
bearish, assuming this was not an expanded 50-week
cycle beyond 67 weeks. July 2 was the 69th week, so the
probability was high that a primary cycle trough could
be forming here, but it wasn’t also a 50-week bottom.
The other option that looked very possible was that this
was only the 3rd week of a newer primary cycle off the
low of June 8. After all, the high was June 21, the

552
second week, and if indeed the 50-week cycle was
bearish, the primary cycle could become a severe left
translation pattern. In this outlook, the market could be
down the next 10-18 weeks. The MCP downside price
target for the next primary cycle trough in this case
would be 9093 +/- 256. The calculation would be (9757
+ 10,594) – 11,258. That is, the sum of the current
primary bottom of June 8, plus the primary cycle crest
of June 21, minus the prior primary cycle crest of
11,258 recorded on April 26. Either way, the most
likely scenarios were for a bearish primary cycle. The
only difference was whether the primary cycle started
June 8, in which case it would continue falling for
several weeks, or it was forming right now - July 2-6 -
from which a 2-5 week rally would commence.

The next week would provide clues to that dilemma.

If the market was bearish, it would likely close lower
the next week starting July 6. If it was the start of a new
primary cycle, then it would have to close up this week.
But even that wouldn’t confirm a new primary cycle. It
would just mean it was possible to be a new primary
cycle.

The week of July 9 did close up. In fact it closed at

10,198, which was up 512 points (over 5%) from the
prior week’s close. It was also above weekly resistance,
which was 9980-10,054. Resistance was breaking,
which is a positive sign of a new primary cycle,
especially following a critical reversal zone with a

553
strong Level 1 signature (Uranus retrograde). The close
was also above the weekly trend indicator point, which
was on the verge of being downgraded to a trend run
down. Instead it was upgraded from “on edge, trend run
down” to neutral. Just as important, the DJIA closed
above the 14-day moving average, confirming that the
low of July 2 was at least a major cycle trough. It was
probably the primary cycle trough as well, since it was
so late in the primary cycle, assuming this was an older
primary cycle.

The high of the week ending July 9 was 10,201 and

the close was 10,198. Suddenly the market was
beginning to look bullish, but the 42-day moving
average was right there at 10,199. It couldn’t quite close
above it, thus withholding yet another bullish signal that
the primary bottom was in. Nevertheless, the bullish
weekly close (above resistance) was a sign to cover all
shorts and even go long with a stop-loss on a close
below the 9614 level of July 2, or the next week’s
support, depending on one’s risk allowance.

1. Look for buying signals generated by the close

3.
relative to the daily support and resistance
zones and daily TIP

Although there was no confirmation at the week

ending July 9 that the primary cycle had been
completed as of July 2, several bullish signs were

554
starting to emerge. Let us now introduce the daily
numbers for the TIP, support, and resistance and see
how they would work well together in revealing an
even more opportune time to start buying this market,
especially if one is a short-term, aggressive-type of
trader - which this section of the book is designed to
address. In the tables below, we will also include the
weekly PP, TIP, support and resistance zones, all
highlighted in bold, above the start of each week. We
also provide the daily bar chart for this period in Figure
65.

Figure 65: Daily chart of DJIA, pertaining to the time of the primary cycle trough on
July 2 and related to the daily support, resistance and trend indicator point numbers
below.

Day H L C PP TIP S1 S2 R1 R2

10273 10231 9887 9951 10400 10465

Jun 28 10202 10101 10138 10142 10214-D 10083 10082 10205 10204

555
Jun 29 10136 9812 9870 10147 10164-D 10088 10093 10188 10193
Jun 30 9909 9753 9773 9939 10076-D 9708 9743 10032 10067
Jul 1 9795 9622 9732 9812 9966-D 9696 9715 9851 9870
Jul 2 9771 9614 9686 9716 9822-D 9645 9637 9811 9810

9834 10169 9392 9466 9980 10054

Jul 6 9851 9689 9743 9690 9739-N 9608 9610 9764 9767
Jul 7 10026 9736 10018 9761 9723-N 9647 9671 9839 9863
Jul 8 10140 10019 10139 9927 9793-U 9827 9873 10163 10117
Jul 9 10201 10118 10198 10099 9929-U 10078 10058 10180 10199

The weekly PP, TIP, support, and resistance numbers

appear in bold on the line above June 28. They provide
support and resistance for the entire week and should be
used in combination with the daily numbers (i.e. tying
multiple time frames). The numbers in boxes represent
cases of bullish or bearish crossover zones.

The daily numbers begin on Monday, June 28. The

close of that day was 10,138, which was below the daily
trend indicator point (TIP) for the 5th consecutive day,
which meant its status remained in a trend run down
(D). We expect this to be the case when the market is
falling into a primary cycle trough, although there are
exceptions to this rule. In fact you will note that it
stayed in a trend run down all week, right into Friday,
July 2. The TIP never gave a signal that a low might be
forming this week. On Monday, June 28, the high and
low of the day were between support and resistance,
which was neutral. On June 29, the close was below
daily support, which is bearish. It was also below
weekly support, which only added to the idea that prices

556
were still trending down into the primary cycle trough.
On June 30, the range was again between support and
resistance, which was neutral. On July 1, the first
bullish trigger signal materialized. The low of the day
(9622) was below daily support (9696-9715), and the
close at 9732 was back above. Since this was only two
trading days before the Level 1 geocosmic signature of
July 5, and it might be the end of the 21st week of an
older primary cycle, this could signal the start of a
bottoming process, especially if Friday, July 2, held
above support and/or broke above daily resistance. On
July 2, however, yet another bullish trigger emerged, as
the low of the day (9614) fell below daily support
(9637-9645), but then closed back above (9686). These
were signs that the market was trying to recover. It
broke below daily support but it couldn’t close below it.
Remember that when support breaks, it becomes
resistance, so this was a case where resistance intraday
was actually breaking, although prices were not yet
breaking above daily resistance. Aggressive short-term
traders could have started buying in these daily support
zones, or on the close, with a stop-loss on a close below
the next day’s support zone (9608-9610). Once again, if
prices can close above daily resistance, then this would
create a bullish sequence, which is one type of signal
one likes to see following the completion of a primary
cycle trough.

It almost happened the first trading day of the next

week, July 6. The DJIA did trade above daily resistance

557
(9764-9767), but then closed back below at 9743. The
intraday trade above daily resistance, followed by a
close back below daily resistance, created a bearish
trigger. However, after nine consecutive closes below
the daily TIP, the DJIA finally closed above it (9739).
And so the trend status on the daily numbers was
upgraded from a trend run down to neutral. An
aggressive trader could still remain long from the prior
day with a stop-loss below daily support, because if
prices now closed below daily support, it would also
become a bearish sequence (bearish trigger followed by
a bearish close). As can be seen from the table (and the
chart in Figure 65), that didn’t happen. On Wednesday,
July 7, the DJIA closed at 10,018, up 275 points, and
well above daily resistance and the daily TIP. This was
the first truly bullish close on the daily numbers during
this period. More importantly, it now formed a bullish
crossover zone at 9839-9873. That is, the resistance
zone of July 7 was now lower than the support zone
created for July 8. The market was now bullish until it
closed back below here. Additionally, this bullish
crossover zone offered strong support to any declines in
the new primary cycle. If not long previously, one could
now go long and place a stop-loss either below the low
of the move on July 2 (9614) or on a close below the
new bullish crossover zone (9839). This bullish
crossover zone is in the boxes under R1 of July 7 (the
lowest end of resistance) and S2 of July 8 (the highest
end of support).

558
 On July 8, the DJIA closed up 119 points. This was
above weekly resistance and also above the daily TIP
for the third consecutive day, thus upgrading its status
from neutral to trend run up. The close was into daily
resistance, which is “mostly bullish.” The close was
also above the 14-day moving average (see Figure 65),
yet another sign that this could be a new primary cycle.
The next day (Friday, July 9), it again closed into daily
resistance (mostly bullish) and was above the daily TIP
for the fourth consecutive day, which meant the trend
run up was intact as the week ended. The weekly close
was also above weekly resistance, which meant the
weekly chart finally closed bullish as well. These were
all excellent signs for the aggressive short-term trader to
remain long, for most of the signals indicated July 2
was an important trough. As it would turn out, that was
the primary cycle trough, so the stock market was now
in the bullish phase of a new primary cycle for at least
2-5 weeks. July 12 would be the beginning of the
second week. Both position and aggressive traders
could now be long, looking for higher prices as this first
phase - the bullish phase - of the primary cycle was in
force. One’s strategy was now bullish and all corrective
declines could be bought until signs emerged that the
major cycle crest was being achieved. It was still
possible, of course, that the major cycle crest would
also be the primary cycle crest, for the expectation was
that this primary cycle would be bearish, as it was
believed the 50-week cycle was pointing down.

559
 Before proceeding with the analysis of daily and
weekly support-resistance and TIP signals, let us pause
and consider what one should be looking for the next
week starting July 12. We stated that this was probably
a new primary cycle, based on the market behavior of
the prior week. It had gone from breaking below daily
and weekly support prior to Uranus turning retrograde
on July 5, to breaking above daily and weekly
resistance in the days following this signature, which
itself was in the 21st week of a 13-21 week normal
primary cycle time band. A new bullish crossover zone
had formed. The market had closed above the 14-day
moving average on July 8, a confirmation signal that
July 2 was at least a major cycle trough, but because it
was so late in the primary cycle, it could also be a sign
that the primary cycle trough had been completed. It
was pressing up against the 42-day moving average,
where a close above would be another sign that the
primary bottom was in as of July 2. Even if the primary
cycle was to be bearish, the “normal” upside price
target would be at least 10,436 +/- 193 (and maybe
higher), and the high of the prior week was only 10,201.
The cycle was only one week old as of July 9, so there
was time for it to go higher, and there was room for
prices to go higher. If the market reached the price
target zone this coming week (July 12-16) and started
issuing signs of resistance holding and readiness to pull
back, traders would want to cover at least some
positions. Aggressive short-term traders would even
consider selling short, especially if there was a

560
geocosmic critical reversal date in effect, as the DJIA
was making new highs for this new cycle. A look at the
ephemeris would reveal that a Level 2 geocosmic
signature was in effect July 13. It was the only
geocosmic signature in effect that week, and it was not
a Level 1 type. The last Level 1 unfolded on July 5,
which was getting out of the 4-trading day orb of
influence by July 12, so the probabilities were not high
that a primary cycle crest would be forming this week.
Let us now look at the weekly and daily numbers for
July 12 through July 23.

Day H L C PP TIP S1 S2 R1 R2

10019 10042 9927 9834 10468 10374

Jul 12 10220 10146 10216 10172 10066-U 10156 10143 10239 10227
Jul 13 10408 10217 10363 10194 10155-U 10179 10168 10253 10242
Jul 14 10400 10303 10366 10329 10232-U 10267 10251 10458 10441
Jul 15 10379 10240 10359 10356 10293-U 10318 10313 10415 10412
Jul 16 10356 10079 10098 10326 10337-N 10289 10273 10429 10412

10195 10016 9932 9982 10262 10310

Jul 19 10187 10073 10154 10178 10287-N 9959 9996 10236 10276
Jul 20 10236 10008 10230 10138 10214-N 10097 10089 10211 10203
Jul 21 10265 10065 10120 10158 10158-N 10015 10080 10344 10308
Jul 22 10363 10121 10322 10150 10149-N 10020 10035 10220 10235
Jul 23 10442 10287 10424 10269 10192-N* 10201 10175 10443 10416

On July 12, the DJIA closed at 10,216, above the 42-

day moving average, a confirmation signal that a new
primary cycle trough was underway. The close was
above the daily TIP for the 5th consecutive day, which

561
meant it remained in a trend run up. The low was into
daily support, which held, and the close was back
between support and resistance, which was a neutral
close but with a bullish bias. There was no need to
change the long positions yet, as support was still
holding on declines.

On July 13, the market was up 147 points, with an

intraday high at 10,408. The close was still above the
daily TIP, so the market remained in a trend run up. The
close was above daily resistance, so it was a bullish
close. Since this followed a bullish bias close in a
bullish sequence, it was a further indication that a new
primary cycle was underway. However, warning signs
emerged on this day. The high was into weekly
resistance and the close fell back below it. Resistance at
the weekly level was holding the rally. Additionally the
high of the day was now into the price objective zone
for a primary cycle crest of a corrective bear market
rally. That range was 10,436 +/- 194. This high was
also happening on the day of a Level 2 geocosmic
signature (Venus trine Pluto). It was not likely that a
primary cycle crest was forming yet, for this signature
alone is not strong enough to be overly concerned about
that. However, it could be a trading cycle crest from
which prices might drop back 38.2-61.8% of the swing
up off of the July 2 primary bottom. Therefore it would
be prudent to calculate a normal corrective decline and
have a plan to buy if prices dropped back to that level
and held for a trading cycle trough. That corrective

562
decline price range would be (10,407 + 9614) ÷ 2. This
would show a support zone of 10,010 +/- 94.

The next day, July 14, the DJIA traded between daily
support and resistance, which was neutral. The close
was still above the daily TIP, which meant the trend run
up status remained unchanged. There was still no need
to exit the long position, as both support and resistance
were still holding

On July 15, the DJIA broke below support intraday,

down to 10,240. It then closed back above daily support
for a bullish trigger. The close was still above the daily
TIP for the 8th consecutive day, so it remained in a trend
run up. One would note that daily support was starting
to break and resistance was holding. It was a concern,
but not enough to exit the long position yet. On July 16
the market did close below both daily support and the
daily trend indicator point. The close was bearish and
the daily TIP was now downgraded to neutral.
Additionally a bearish crossover formed between the
lower end of Monday’s resistance zone (10,236) and the
higher end of Friday’s support zone (10,289). This
would act as formidable resistance, and one would be
advised to exit all longs now. Aggressive traders might
even sell short with a stop-loss on a close above this
new bearish crossover zone.

This was the end of the week, so an analysis of the

weekly numbers would be important. The close was

563
above the weekly trend indicator point for the second
consecutive week, so the TIP remained neutral. Yet the
weekly high was held by weekly resistance, and the
close was back between weekly support and resistance,
which was a neutral close with a bearish bias. It was
beginning to look like a reversal might be in process.
However, the low of Friday was just beginning to fall
into the price range calculated for a corrective decline
to a trading cycle trough. The daily and weekly
numbers were flashing caution and even a signal to exit
from the long side. However, the cycle studies and price
objective calculations were suggesting that a trading
cycle trough was forming. Hence another buying
opportunity was developing if that price target range for
a trading cycle trough would hold. Here was a ‘fork in
the road.” When confronted with a fork in the road
(mixed signals), it is wise to choose in the direction of
the underlying trend. The fact that this was still the first
phase of a new primary cycle dictated that one should
be looking for new signals to buy.

The next week began neutral. The high and low of

Monday, July 19, were between daily support and
resistance. The close was below the daily TIP for the 2nd
consecutive day, which left it in neutral. A close down
the next day would downgrade it to trend run down.
Still, the market was in the upper end of the corrective
decline price target zone, and it was still the first phase
of a primary cycle. There was reason to believe that a
bottom was close at hand and another rally to the major

564
cycle crest - or a re-test to the 10,407 high of the prior
week - could still unfold. Short-term traders could still
look for a signal to get long.

On July 20, that buy signal came. The intraday low

was 10,007, very close to an exact 50% corrective
decline of the prior move up (the price target was
10,010 +/- 94). That low was below daily support, but
the close at 10,230 was above daily resistance, which
was not just bullish, but a very bullish close. The high
of the day was 10,236, which was into the bearish
crossover zone of 10,230-10,289. It held as it should on
the first challenge. The close was also back above the
daily trend indicator point for the first time in 3 days. Its
status remained neutral, but it didn’t turn into a trend
run down, which could have been the case had it closed
lower. One could now enter the market again from the
long side with a stop-loss below the 10,007 low of July
20. It was possible that the trading cycle trough had just
been completed, and the next leg up to the major (or
even primary) cycle crest was underway. An MCP price
objective could be calculated above the market for this
crest. It was (10,407 + 10,007) – 9614, or 10,800 +/-
140. We would now record this upside price target
range and watch for signs to sell if the DJIA got there
and stalled, especially if the high formed nearby to a
geocosmic critical reversal date.

The next day tested one’s resolve to stay with this

new bullish strategy as prices dropped below daily

565
support during the day. The low was 10,065 and daily
support was 10,079-10,115. However the close was
back above at 10,120 for a bullish trigger. At the same
time, it closed back below the daily TIP for the third
time in 4 days, and the close was below the daily pivot
point (PP), so it wasn’t looking as promising as it had
the day before. Aggressive traders may have elected to
exit here, yet position traders would stay with it since
the 10,007 of the prior day’s very bullish close was
holding. And for that they were rewarded because July
22 was a big up day. The market closed at 10,322, up
202 points from the prior day and well above daily
resistance, which was bullish. It also closed above the
bearish crossover zone of 10,236-10,289.

The week ended on July 23 with the DJIA up another

102 points, closing at 10,424, and into daily resistance,
which was a mostly bullish close. It also closed above
the weekly TIP for the third consecutive week, which
meant its status was upgraded from neutral to trend run
up. It also closed above the daily TIP for the 2nd
consecutive day, which was neutral. Nevertheless it
would be upgraded even higher - to an “on edge, trend
run up” - because the close formed a new high for this
primary cycle. Perhaps more importantly, the 14-day
moving average had closed above the 42-day average
for the second consecutive day, and the daily close was
above both on each day, for a trend run up via that
technical study. All of these studies suddenly looked
very bullish, and the DJIA seemed destined to reach

566
10,800 +/- 140 for a major and even primary cycle
crest. Therefore the forthcoming week would be very
important: would this be a bullish or bearish primary
cycle? There was still no convincing evidence to
suggest that it wouldn’t be bearish, with a primary cycle
crest due at any time as the DJIA started the fourth
week of this rather new primary cycle, and primary
cycle crests were usually due by the fifth week in bear
markets.

Figure 66: Daily chart of the DJIA, June 28-August 9, 2010, following the primary cycle
trough of July 2, 2010.

Day H L C PP TIP S1 S2 R1 R2

10291 10168 10207 10141 10641 10575

Jul 26 10527 10414 10525 10387 10268-U 10347 10331 10502 10486
Jul 27 10578 10495 10538 10189 10381-U 10469 10451 10581 10563
Jul 28 10548 10463 10498 10537 10471-U 10495 10496 10579 10580
Jul 29 10585 10387 10467 10503 10510-N 10455 10458 10540 10543
Jul 30 10507 10347 10466 10480 10506-N 10566 10572 10368 10375

567
 10466 10317 10347 10347 10584 10585

Aug 2 10692 10468 10674 10440 10474-OU 10386 10373 10545 10532
Aug 3 10677 10601 10636 10611 10510-OU 10562 10551 10786 10754
Aug 4 10703 10627 10680 10638 10563-U 10598 10599 10674 10675
Aug 5 10680 10613 10675 10670 10640-U 10642 10637 10718 10713
Aug 6 10668 10515 10653 10656 10654-N 10641 10632 10708 10699

The next week started out strong, with the DJIA up

another 100 points on Monday, July 26. The close was
above daily resistance, which was bullish. It was above
the daily TIP for the third consecutive day, so that was
also upgraded to a trend run up status. On Tuesday, July
27, resistance held, which was a cautionary sign. The
high was 10,578, right into daily resistance of 10,563-
10,581. However the close was back between support-
resistance, which was a neutral close, but with a bearish
bias. Still, it was above the daily TIP for the fourth
consecutive day, so the trend run up was still in force.

On July 28, the DJIA fell to 10,463 - below daily

support - but it closed at 10,498, back above it for a
bullish trigger. This close was above the daily TIP for
the 5th consecutive day, so it was still in a trend run up.
On July 29, the high of the day was above daily
resistance, and the low of the day was below daily
support, but the close was back between the two, which
is “mixed.” Yet the close was back below the daily TIP
for the first time in 6 days, so its status was downgraded
to neutral. This was a concern because a powerful
geocosmic cluster was now in effect, lasting from July
23 through August 9. The midpoint was July 31 -

568
August 1, which was a weekend. So the critical reversal
date was July 30-August 2, +/- 3 trading days. The
DJIA was entering this time frame. It was making new
highs for the primary cycle at 10,585 on Thursday, July
29, and its daily trend status had just been downgraded
from trend run up to neutral. Yet prices were still above
the 14-day moving average, and that was above the 42-
day average, so the moving average studies were still in
a trend run up.

On Friday, July 30, the DJIA traded as low as 10,347,

below the daily support zone of 10,368-10,375, but it
closed back above at 10,466 for a bullish trigger signal.
Furthermore the weekly close was above the weekly
trend indicator point for the fourth consecutive week, so
it remained in a trend run up. A glance at the chart in
Figure 66 will show that the low of that day was held by
the 14-day moving average. It challenged it, but it held.
It was still not a sell signal, although aggressive short-
term traders might have exited longs the day before
when the TIP status was downgraded. The daily close
was below TIP again for the 2nd consecutive day, so it
was not upgraded back to a trend run up, even though
the weekly TIP remained in a trend run up. The bearish
concern was that the high of the cycle occurred July 29,
just one trading day before the July 30-August 2 critical
reversal date. However the market was not yet into our
MCP price target zone for the major cycle crest. As it
started the next week, August 2, the DJIA was poised to
go in either direction. All traders would now be looking

569
for stronger signs of a top to sell into as a critical
reversal zone was in effect, and it was the fifth week of
a primary cycle (when primary cycle crests are due in
bear markets). Additionally, the daily stochastics were
overbought and starting to exhibit a bearish looping
formation, plus prices were testing the 14-day moving
average. A break below there could be damaging.

Monday, August 2, was yet another powerful up day.

The close (10,674) was above both daily and weekly
resistance, and a new bullish crossover zone formed at
10,532-10,562. The high of this day was 10,692, which
was in the price target zone for the MCP of the major
cycle crest. Was this it? After all, it was a critical
reversal date. The leading market timing indicators said
to be alert for a sell signal to be generated at any time,
but the daily/weekly numbers were giving bullish
signals. A close below this new bullish crossover zone
would have to take place to give a sell signal now. In
the meantime, the close was back above the daily trend
indicator point for the first time in 3 days, which is
neutral. However it would actually be an on-edge trend
run up because it was a new high for this primary cycle.

The next day, August 3, was neutral as prices traded

between the daily support and resistance zones. The
close was above the daily TIP for the second day, but it
was a down day, so it was downgraded to neutral from
an on edge, trend run up. August 4 would thus be very
important, for a close up would be an upgrade to a trend

570
run up and a close down would certainly solidify it as
neutral. It closed up, and so the daily TIP was indeed
upgraded to a trend run up. The close was also above
daily resistance, which was bullish. The high of the day
was 10,703, well within the 10,800 +/- 140 price range
for a major cycle crest (and perhaps primary). It was
still within three trading days of the geocosmic critical
reversal date of July 30-August 2.

On Thursday, August 5, the DJIA fell below daily

support, but closed back above, for a bullish trigger.
The close was also above the daily trend indicator point
for the 4th consecutive day, so it remained in a trend run
up. However there was a concern now because daily
support started breaking during the day. A close below
daily support on Friday, August 6, would create a
bearish sequence. That didn’t happen. The DJIA did
trade below daily support again, but once more, it
closed back above for yet another bullish trigger. And
the close was above weekly resistance, which meant
that weekly prices closed bullish. The weekly close was
also above its TIP for the fifth consecutive week, which
meant it remained in a trend run up. However the close
was below the daily TIP for the first time in 5 days, so
its status was downgraded from trend run up to neutral.
Since the high of the week was 10,703 on Wednesday,
August 4, and that high was in the geocosmic critical
reversal zone, and it was the fifth week of a primary
cycle that was assumed to be in the bearish phase of the
50-week cycle, it was time to exit from all longs.

571
Aggressive traders could even look to sell short with a
stop-loss on a close above 10,703 (the high of August
4), or daily or even the next week’s resistance.

The next week began strong with a rally to 10,720, a

new high for this cycle as it began its sixth week of the
primary cycle. That high was into daily resistance
(10,709-10,730), but it closed back below at 10,698.
And so the close was neutral, with a bearish bias. If
aggressive traders hadn’t sold short the prior week, they
could now.

Figure 67: Daily chart of the DJIA from July 26-August 30, 2010. Notice the crest of
August 9, and then the decline which broke below the 14- and 42-day moving averages
into the end of the month. Notice also the bearish looping pattern of stochastics into
August 9 and the bullish oscillator pattern at the low of August 27.

Day H L C PP TIP S1 S2 R1 R2

10608 10455 10536 10514 10770 10748

Aug 9 10720 10649 10699 10617 10646-U 10570 10556 10730 10709
Aug 10 10701 10557 10644 10689 10652-N 10663 10659 10734 10729
Aug 11 10632 10367 10379 10632 10644-N 10570 10563 10719 10713

572
Aug 12 10361 10288 10320 10459 10593-D 10246 10286 10511 10551
Aug 13 10355 10285 10303 10316 10468-D 10273 10272 10366 10364

10430 10501 10077 10141 10528 10592

Aug 16 10333 10209 10302 10314 10363-D 10268 10274 10338 10343
Aug 17 10480 10297 10405 10281 10304-N 10240 10230 10364 10353
Aug 18 10472 10330 10415 10394 10330-N 10314 10308 10497 10491
Aug 19 10411 10216 10271 10406 10360-N 10344 10339 10486 10482
Aug 20 10271 10147 10213 10299 10366-N 10173 10188 10368 10383

On August 10, the DJIA closed below daily support,

which was bearish. It also closed below the daily TIP
after being above it five of the prior six days. It had a
one-day interruption to the trend run up on Friday,
August 6. Typical of most interrupted trend runs, the
resumption of the trend run up ended within the next 7
trading days, and most of the time just one day later, as
was the case here. If short-term traders were not short
yet, based on the geocosmic signatures and cycle
phasing, they could go short now on the change of TIP
status and the fact that the market closed bearish. The
stop-loss could be placed above the high of the move so
far (10,720), daily resistance (10,719), or weekly
resistance (10,770), depending on one’s risk allowance.
Notice that the DJIA was testing the 14-day moving
average. A break below would confirm August 9 as a
major cycle crest and possibly the primary cycle crest
since it was the sixth week, and the assumption is still
that this was a bearish 50-week cycle. So the top was
due before Tuesday of the ninth week. Ideally the
primary cycle crest in a bear market is due 2-5 weeks

573
after the primary cycle trough. But that primary trough
occurred on a Friday, July 2, and this crest was attained
on the first trading day of the sixth week. It was very
close to the ideal range for a crest - and still before
Tuesday of the 9th week - after which a new high would
confirm the primary cycle would be bullish.

The DJIA then plummeted, as expected. On

Wednesday, August 11, it closed at 10,379, down 265
points from the prior day. It closed well below the 14-
day moving average, confirming a crest of importance
had been realized two days earlier. It closed below daily
support, which meant it was a bearish close again on the
daily. It closed below the daily TIP for the second
consecutive day, which was still neutral, but on the
verge of being downgraded to a trend run down if the
following day closed down. It closed below weekly
support. And perhaps most importantly, it formed a
bearish crossover zone as shown by the boxes under S1
on August 11 and R1 the following day, August 12. In
other words, the support level for August 11 was above
the resistance level for August 12, which created a
bearish crossover zone at 10,511-10,570. That served as
powerful resistance to any rallies. Stop-losses on short
positions could be moved down to a close above this
new bearish crossover zone.

That day, August 12, was another down day, which

confirmed the downgrade of the TIP status from neutral
to trend run down. The range of the day however was

574
between support and resistance, which meant it was a
neutral close. The next day was Friday, August 13, and
once again the DJIA traded between daily support and
resistance, which is neutral. However, its close below
the daily TIP for the fourth consecutive day kept its
status at trend run down. The weekly close at 10,330
was below weekly support, which was bearish. Not only
that, but it formed a weekly bearish crossover zone, as
one of the resistance zones for the next week (R1) at
10,528 was below one of the support zones (S1) for the
current week at 10,536. Therefore the bearish crossover
zones were in force on the daily at 10,511-10,570 and
the weekly at 10,538-10,536. This development
strongly supported the view that the DJIA had topped
out and the primary cycle was turning bearish at last.

The one concern right now was that the market was
entering the 7th week of the primary cycle, and a 5-7
week major cycle trough was due. Since it was only the
first major cycle phase of the new primary cycle, there
was a strong possibility that the decline could find
support this week at a normal corrective decline price
target. The price range for a major cycle trough would
be a 38.2-61.8% retracement of the entire move up from
the primary cycle trough at 9614 on July 2 to the major
cycle crest of 10,720 on August 9. This retracement
zone would be 10,167 +/- 131, or 10,036-10,298. Note
that this was further buttressed by weekly support,
which was 10,077-10,141. There were also a number of
geocosmic signatures in effect August 16-26. The

575
midpoint would be August 21, a Saturday. The
geocosmic critical reversal date was August 20-23, +/-
3 trading days. Would the major cycle trough occur this
week, or would prices just continue down into a 7-11
week half-primary cycle? And if it did occur, would the
rally to the crest of the next major cycle be higher than
10,720, the crest of the first major cycle? These were
the questions to be answered as the week of August 16
began.

On Monday, August 16, the DJIA fell to an intraday

low of 10,209, well below daily support and into the
price target zone of a normal corrective retracement for
a major cycle trough. But the close was 10,302, back
above the daily support zone of 10,268-10,338, which
meant it closed on a bullish trigger. This could be the
major cycle trough as it fulfilled the minimum criteria
of a normal corrective decline, was below the 14-day
moving average, and closed with a bullish trigger. The
DJIA also traded below the 42-day moving average, but
then closed back above it, which was a sign that a
bottom could be forming here. The close was still below
the daily TIP for the 5th consecutive day, so it remained
in a trend run down. This would be enough for
aggressive traders to go long, but not for short-term
position traders. Aggressive traders who covered shorts
and went long here would have to place their stop-loss
on a close below the low of Monday (10,209) or below
weekly support (10,077), depending on risk allowance.
If Monday was the first major cycle trough, and the

576
primary cycle was bearish due to the bearish 50-week
cycle, then a corrective rally would show resistance at
10,465 +/- 61. Position traders expecting the market to
be bearish would have a stop-loss on a close above that
range, or the prior week’s high at 10,720 since the crest
of the second major cycle phase can be a re-test of the
crest of the first major cycle.

The next day, August 17, the DJIA closed at 10,405,

above daily resistance, which was bullish. It also closed
above the daily TIP for the first time in six days, which
upgraded its status from trend run down to neutral. The
high of the day was 10,480, which was now in the price
objective zone for a major cycle crest in a bearish
primary cycle. Yet there was no sign that this move up
was over yet. Prices were also still below the 14-day
moving average. It would have to close above that to
confirm Monday’s low was a major cycle trough.

On August 18, the DJIA traded between daily support

and resistance, which was neutral. It closed above the
daily TIP for the second consecutive day, which meant
its status also remained neutral. On Thursday, August
19, the DJIA plummeted again, down 144 points to
close at 10,271, well below daily support, which was
bearish again. The close was also below the 42-day
moving average, a sign that the primary cycle was
turning bearish. The close was below daily TIP for the
first time in 3 days, and so it was not upgraded. It
remained neutral.

577
The DJIA was down again on Friday, August 20, to
10,147 intraday, thereby taking out the 10,209 low of
Monday, August 16. This was now the middle of the
geocosmic critical reversal time band (August 20-23,
+/- 3 trading days), and it was a new low. That low was
below daily support, and the close was back above it,
which created a bullish trigger. It was still possible the
major cycle trough was forming at this time, for it was
the last day of the 7th week, a geocosmic critical
reversal date was in effect, and the new low was still
within the price range for the major cycle trough. An
aggressive short-term trader would see this as a signal
to get long. However, position traders would either still
be short, or waiting for the next rally to sell short, as the
bias was still that this would become a bearish primary
cycle. Yet the idea that this was an “unusually
uncertain” time was very much apparent on August 20 -
not just from the point of view of fundamental
economists like Fed Chair Ben Bernanke, but also for
those who study financial markets from a technical or
cyclical point of view. Cycle and geocosmic studies
suggested it was time to look for a short-term buying
opportunity, but longer-term it looked more bearish.
The daily technical picture was flashing bullish triggers,
but the weekly charts still had a powerful weekly and
daily bearish crossover zone above the market, adding
pressure downward on any rallies that might begin, and
the DJIA was closing below the 42-day moving
average, signaling that the primary cycle was turning

578
bearish. These mixed signals would get even more
conflicting the next week, before clearing up and
leading to more normal market behavior and
exceptional profit opportunities for all types of traders.

Figure 68: Daily chart of the DJIA, August 6-September 10, 2010.

Day H L C PP TIP S1 S2 R1 R2

10280 10440 10047 10080 10380 10413

Aug 23 10304 10170 10174 10210 10305-D 10151 10150 10275 10274
Aug 24 10173 9991 10040 10216 10242-D 10107 10128 10241 10250
Aug 25 10097 9937 10060 10068 10165-D 9949 9963 10131 10145
Aug 26 10104 9968 9985 10031 10103-D 9980 9966 10140 10125
Aug 27 10159 9936 10150 10019 10040-N 9917 9934 10054 10071

10130 10280 9966 9956 10334 10324

Aug 30 10150 10007 10009 10082 10044-D 10039 10005 10262 10228
Aug 31 10073 9941 10014 10056 10052-D 9938 9961 10081 10104
Sept 1 10279 10016 10269 10010 10050-N 9949 9946 10080 10078
Sept 2 10320 10254 10320 10187 10084-N 10138 10099 10401 10357
Sept 3 10451 10322 10448 10298 10165-U 10287 10276 10353 10342

Ultimately one realizes that there is no market signal or

579
analysis that is 100% accurate in its ability to forecast
every major move in any financial market. There are
usually some indicators in contradiction to others, and
the analyst must discern which to give the greater
weight to. It varies from case to case. As the reader has
witnessed so far in the first part of this primary cycle,
the methods employed herein are about ‘as good as it
gets.’ Every trading and major cycle trough and crest
was captured perfectly after the primary cycle of July 2,
until we reached the latter half of August. And then the
market timing signals that had been given the greatest
weight began to give way to patterns within the primary
cycle that confirmed the longer-term cycle analysis was
bullish, and not bearish, as had been assumed since
after the DJIA broke below the lows of February 5,
2010. Let us now review the market activity that
followed August 20.

On Monday, August 23, the DJIA closed below the

daily TIP for the 3rd consecutive day, and it was a down
day, which meant its status was downgraded to a trend
run down. The high of the day was above daily
resistance and the close was back below, which meant it
was also a bearish trigger.

The following day the DJIA was down 134 points. It

closed below the daily TIP for the fourth consecutive
day. It also closed below the weekly TIP. The close was
furthermore below daily support, which was bearish.
Since this followed a bearish trigger day, it meant that

580
the market was now in a bearish sequence. Time-wise,
however, this was the 8th week of the 13-21 week
primary cycle. A 5-7 week major cycle trough was
never confirmed as the DJIA never traded back to the
13-day moving average, and now it was taking out the
low of August 16, which had originally appeared to be a
major cycle trough in the 7th week. It now looked like
the DJIA was forming a 7-11 week half-primary cycle
trough, and a “normal” price target for that low was
already calculated as 9780-10,222 (45-85% retracement
of the move up from July 2 at 9614 to August 9 at
10,720). Furthermore, August 20-23, +/- 3 trading days,
was an important geocosmic critical reversal period.
The DJIA was in the time band and the price objective
range for a half-primary cycle trough as these technical
signatures were all bearish. Aggressive traders would
now be vigilant for a buying opportunity to emerge.

On Wednesday, August 25, the DJIA fell to a new

multi-week low of 9937. This was below daily support
(9949-9963), but the close was 10,060, back above
support, for a bullish trigger. The close was still below
the daily TIP for the 5th consecutive day, but the bullish
trigger within the critical reversal zone would be
enough for aggressive short-term traders to get long,
with a stop-close below the 9937 low of that day. One
would also note that the daily stochastics were deeply
oversold and were in the process of making a bullish
double looping formation below 20%. Since our longer-
term view of the market was bearish, and this was now

581
getting into the middle of the primary cycle, position
traders would not be going long. They would wait for a
corrective rally to the crest of the next half-primary
cycle, due 1-3 weeks after the half-primary cycle
trough, and then look to sell short.

On Thursday, August 26, the DJIA fell into daily

support (9966-9980) with a low of 9968. Support held,
and the market then closed back between support and
resistance, which was neutral, but with a bullish bias. It
was looking promising, as support held, but the close
was still below the daily TIP for the 6th consecutive day.
It was still in a trend run down.

On Friday, August 27, the DJIA fell to 9936, one point

below its low of August 25 (9937). Then it rallied
smartly to close the week at 10,150, which was above
daily resistance. This was not only bullish, but created a
bullish sequence. The close was also above the daily
TIP for the first time in 7 days, which upgraded its
status to a neutral. These were very positive signs,
which were furthermore supported by the weekly
numbers, which closed on a bullish trigger. Aggressive
short-term traders who went long on August 25 never
got stopped out. Those who did not go long then would
have more signals to get long now, with a stop-loss on a
close below the new low at 9936. Position traders
would be waiting for the rally and a sign to sell short,
based on the idea that this was the second primary cycle
in a bearish 50-week cycle. If so, then the market would

582
fall hard after the corrective rally to the crest of the
second half-primary cycle.

At this point, the analyst could construct price target

zones for the crest of the second half-primary cycle,
based on the idea (valid at that time) that the double
bottom lows of August 25 and 27 were indeed half-
primary cycle troughs. A “normal” 38.2-61.8%
corrective rally would yield a price target of 10,328 +/-
93. A 45-85% retracement (more typical of half-
primary cycle corrections) would be 10,288-10,602.
Time-wise, the rally would likely last only 1-3 weeks if
the primary cycle was to be bearish, as expected, based
on the 50-week cycle being bearish.

On Monday, August 30, the DJIA closed at 10,009,

down 141 points. The close was in to daily support,
which was “mostly bearish.” The close was back below
the daily TIP for the seventh time in 8 days, which
meant the trend run down was resumed after the one
day interrupt. At this point, one might have asked:
“What do we know about markets after a one-day
interrupt in a trend run down?” As stated in Chapter 16,
“A daily trend run down may be interrupted for one day
and then resume its trend run down status… When that
happens, the resumed trend run down tends to end
within the next 3 days. In only 2 cases (out of 21) did
the resumption of the trend run down last more than 3
days after an interrupt day.” Therefore, this new trend
run down was due to end by Wednesday, September 1,

583
three trading days after the interrupt of August 27.

On Tuesday, August 31, the DJIA dropped to a low of

9941 intraday, virtually a triple bottom to the 9937 and
9936 lows of August 25 and 27. But the test held. That
low was into the daily support zone of 9938-9961 and
held. The close was back above, which meant the close
was neutral but with a bullish bias. The close was below
the daily TIP again, for the eighth time in 9 days, which
was also the second consecutive day after the interrupt
on August 27.

The next day, September 1, the DJIA exploded up 255

points, thus rewarding those who went long the prior
week with a stop-loss on a close below those lows. The
close was 10,269, well above daily resistance, which
was not only bullish, but following the prior day’s
bullish bias, it created a bullish sequence, strongly
suggesting the half-primary cycle trough did unfold the
prior week at 9936. This was confirmed by the close
above the 14-day moving average as well. The huge
rally also created a new bullish crossover zone at
10,078-10,138. Stop-losses could be moved up to a
close below this new crossover zone. The market would
now be bullish unless it closed back below. The close
was also above the daily TIP after the two-day interrupt,
which is normal. It was upgraded to neutral. Aggressive
traders who were long would now begin to look for this
rally to top out at 10,328 +/- 93 or 10,288-10,602 at any
time. Ideally the later price range would be the target to

584
look for in this run. That top was normally due 1-3
weeks after the half-primary cycle trough if this market
was bearish, and this was the first week.

The DJIA entered this ideal price zone the next day,
September 2. The high of that day was 10,320. The high
and low of the day was between daily support and
resistance, which is neutral. The close was above the
daily TIP for the 2nd consecutive day, which is neutral
as well. What was most important was the daily
stochastics. They came off their double looping pattern,
and K moved well above D and above 25%, widening
its distance above D, which was a confirmation signal
that this was a new half-primary cycle. The low of the
first half-primary cycle was completed as of August 27.

The week ended on Friday, September 3, with the DJIA

up another 128 points. The close at 10,448 was above
both daily and weekly resistance, which was bullish.
The close was above the daily TIP for the third
consecutive day, so its status was upgraded from neutral
to a new trend run up. The close was above the weekly
TIP for the first time in 4 weeks, so its status was also
upgraded from trend run down to neutral. The close was
also above the 42-day moving average, which would be
a concern to bears because that would suggest that the
lows of August 25-31 may have been a half-primary
cycle trough in a bullish primary cycle. This was the
first new signal to suggest that the market may not be
bearish. Everything had suddenly shifted from bearish

585
at the close of the prior week to bullish at the close of
September 3. And once again these market timing and
technical studies caught the low very nicely.

Figure 69: Daily chart of the DJIA, August 23 - September 24, 2010.

The high of September 3 was 10,451. It was still in the

time band and price range of a normal half-primary
cycle crest in a bearish primary cycle. This was also the
start of another time band containing several geocosmic
signatures that correlate with market reversals, lasting
September 4 through October 8. The midpoint would be
September 21, +/- 3 trading days. Although this is
important, let us continue the exercise of seeking signs
of a half-primary cycle crest in the 1-3 week period
following the low of August 27.

Day H L C PP TIP S1 S2 R1 R2

10280 10230 10193 10109 10702 10619

Sept 7 10446 10332 10340 10407 10297-U 10383 10362 10512 10492

586
Sept 8 10426 10335 10387 10373 10359-U 10283 10300 10398 10415
Sept 9 10476 10386 10415 10383 10387-U 10341 10339 10432 10430
Sept 10 10471 10403 10463 10426 10394-U 10370 10375 10460 10465

10423 10278 10390 10370 10535 10515

Sept 13 10567 10458 10544 10446 10418 10427 10419 10498 10490
Sept 14 10588 10499 10526 10523 10465 10489 10479 10598 10588
Sept 15 10587 10480 10572 10538 10502 10482 10488 10570 10576
Sept 16 10603 10522 10595 10547 10536 10519 10506 10626 10613
Sept 17 10650 10567 10608 10573 10553 10554 10543 10635 10625

10572 10425 10512 10494 10703 10685

Sept 20 10774 10608 10753 10608 10576 10566 10567 10649 10650
Sept 21 10833 10717 10761 10712 10613 10670 10649 10815 10836
Sept 22 10808 10708 10736 10770 10697 10703 10708 10818 10823
Sept 23 10762 10641 10662 10751 10744 10686 10693 10786 10793
Sept 24 10865 10664 10860 10688 10736 10602 10615 10723 10736

Monday was the Labor Day holiday and markets were

closed. On Tuesday, September 7, the DJIA closed
below daily support, which was bearish. The close was
also below the 42-day moving average. Support was
breaking and the market was in the time band for a half-
primary cycle crest after having already achieved the
price target for that crest. It was a signal for short-term
aggressive traders to cover longs and reverse to the
short side, with a stop-loss on a close above the 10,451
crest of September 3. Note however, that the daily TIP
was still in a trend run up.

On Wednesday, September 8, prices rallied to a high of

10,426, which was above daily resistance, but the close
was 10,387, back below resistance, which was a bearish

587
trigger. The close was still above the daily TIP for the
5th consecutive day, so it remained in a trend run up.
There was no trend change by this signal yet.
Furthermore, the close was back above the 42-day
moving average, a sign that perhaps the rally to the
half-primary cycle crest was still unfolding.

On September 9, the DJIA rallied to 10,476, taking out

the 10,451 high of September 3. This confirmed the
half-primary cycle crest was still unfolding, yet still in
the price target zone of 10,288-10,602. The high of the
day was again above daily resistance (10,430-10,432),
but the close at 10,415 was back below it. Since the
close was below the high of September 3 (10,451),
aggressive traders may have still remained short. The
close was above the daily TIP for the 6th consecutive
day, which meant it remained in a trend run up. The
short side of the market was not very secure yet. To
become secure, it needed three things: 1) a close below
daily support, 2) a downgrade in the TIP status, and 3) a
close back below the 42-day moving average.

That was not to happen. On Friday, September 10, the

DJIA closed at 10,463, up again and above the 10,451
high of September 3. The close was above the daily TIP
for the 7th consecutive day, so its status remained in a
trend run up. The close was into daily resistance, which
was mostly bullish. The close was also above the
weekly TIP for the 2nd consecutive week, so it remained
in neutral. A look at the chart in Figure 69 will show

588
that prices were still above the 14-day moving average,
which was still below the 42-day average, and the
market was now about to begin its third week past the
low of August 27. If indeed the 50-week cycle was
bearish, then this rally was due to end by the end of the
next week and ideally at a price below 10,602. Any
move above the 10,720 high of August 9 would mean
this was a right translation primary cycle and a signal
that the 50-week cycle labeling was wrong. The trading
strategy was still to sell short during this time band until
prices rallied above these areas and thereby disproved
the assumption that the longer-term cycle was bearish.
The week beginning September 13 would therefore be
very critical to this cycle labeling.

On Monday, September 13, the DJIA was sharply

higher, closing at 10,544, its highest level since the low
of August 27, but still in the normal price range for a
half-primary cycle crest in a bearish primary cycle. The
close was above daily resistance, which was bullish,
and it was also above the daily TIP for the 8th
consecutive day, maintaining its status as a trend run
up.

The next day, September 14, the DJIA traded up into

daily resistance of 10,588-10598, but closed back
between support and resistance, which was neutral, but
with a bearish bias. The close was also above the daily
TIP for the 9th consecutive day, which remained in a
trend run up. Yet resistance was starting to hold again,

589
and prices were still in the normal price range for a
half-primary cycle crest, so aggressive traders could
probe the short side again with a stop-loss on a close
above the 10,588 high of that day. Position traders
would still need stronger signals before going short.

On September 15, the DJIA fell below daily support at

10,482-10488. The low was 10,480. But then it turned
around and closed at 10,572, above daily resistance,
which negated the sell signal of the prior day as this
was a very bullish close. For the 10th consecutive day,
the close was above the daily TIP. It was now entering a
point where the trend run up was in the realm of
exhaustion. Anytime the close is above the TIP for 10
or more consecutive days, it is ready to start closing
back below it. It doesn’t necessarily mean the ultimate
high will be completed yet, but at least the market is
readying for a pause and perhaps a modest pullback.
Since we were looking for a half-primary cycle crest
this week and prices hadn’t yet exceeded 10,602 or
even 10,720, it was still possible that a top was forming,
and traders would still be looking to sell short.

The next day, September 16, the DJIA rallied to just

one point above our price target of 10,288-10,602. The
high was 10,603. This was important because it was
also 3 trading days before the September 21 critical
reversal date. The market was now in the allowable orb
of the critical reversal date time band. Yet the range of
September 16 was between daily support and resistance,

590
which was neutral. The close was 10,595, above the
daily TIP for the 11th consecutive day. It was well into
the overbought (or exhaustion) zone now.

On Friday, September 17, the DJIA soared to 10,650

intraday and closed at 10,608, slightly above the ideal
price target zone for a half-primary cycle crest, but still
not above the 10,720 high of the first half-primary cycle
on August 9. That high was above daily resistance
(10,625-10,635), but the close was back below it, for a
bearish trigger. The close was above the daily TIP for
the 12th consecutive day, which was still a trend run up,
but reaching the point of exhaustion. The close was
above both the weekly TIP and weekly resistance,
which meant its status was upgraded to trend run up and
bullish.

This was the situation traders faced heading into the

week of September 20. It was a three-star critical
reversal zone (September 21 +/- 3 trading days). It was
the end of the third week following the half-primary
cycle trough, and in a bearish primary cycle, the crest of
this half-primary cycle was now due. The powerful
Jupiter-Uranus conjunction occurred September 18 - a
Level 1 geocosmic signature with one of the highest
correlation of all geocosmic signatures to primary cycle
completions. (In this case, it would be a crest if it were
to correlate with a primary type of cycle). Yet at the
same time, all the technical studies were bullish, except
the fact that the 10,720 high of the first half-cycle was

591
still above the market. One other thing was important to
note here as well. As the week ended on September 17,
the 14-day moving average was rising and just about
even with the 42-day moving average. If it went above,
and prices remained above both, this would be a trend
run up signal from the moving average studies.

Based on the market timing studies and the fact that the
daily closed on a bearish trigger, aggressive short-term
traders could sell short with a stop-loss either above
10,650 (Friday’s high) or 10,720 (the crest of the first
half-primary cycle). However the next day, September
20, that position would be stopped out as prices closed
at 10,753, well above daily resistance, weekly
resistance, and the first half-primary cycle crest. This
changed everything. It was now apparent that this
would be a bullish primary cycle, for the DJIA was
making a new high in the second half of the primary
cycle (right translation) and in the 12th week of the
primary cycle (past Tuesday of the 9th week, putting
into play the “8-week bullish rule”). The 50-week cycle
would now have to be labeled as an expanded 69-week
cycle that bottomed on July 2, 2010, along with the first
of three phases of the 4-year cycle. In retrospect, this
primary cycle would be the first phase of the new 50-
week cycle, and hence it was bullish - as is usually the
case in the first primary cycle phase of a new 50-week
cycle. The 10% probability was now confirmed: July 2
was the end of an expanded 50-week cycle that began
March 6, 2009.

592
As we look back on that time of “unusual uncertainty,”
we can see that our studies still did very well from a
short-term trading point of view. Aggressive traders
suffered some minor losses right at the end. Prior to
that, position traders and short-term traders did very
well trading from the long side through the first six
weeks, and from the short side for the next couple of
weeks. Aggressive short-term traders also did well,
even going long during the half-primary cycle trough
period. It was after that in which the losses from
probing the short side occurred.

Before we leave this example and proceed to the next

section of the book (with a couple more examples of
trading under more “normal” circumstances), let us take
a final look at this primary cycle, for there were to be
even more distortions to the normal primary cycle
structure. Up until now, we had labeled the low of
August 27 as an 8-week half-primary cycle. Therefore
the week beginning September 20 would start the 4th
week of the second 7-11 week half-primary cycle. A top
was therefore due at any time, and September 21 was a
three-star critical reversal date, and the DJIA was rising
into it. We could now calculate an MCP upside price
objective target for this primary cycle crest based on the
prior half-primary cycle. By adding the high of the first
half-primary cycle crest (10,720) to the low of the half-
primary cycle trough (9936), and then subtracting from
this sum the low that started the primary cycle on July 2

593
(9614). This gives us a price target of 11,042 +/- 169. It
was also possible that this price could halt within 2% of
the 10,720 high of August 9 for a double top. That
would give an upside resistance up to 10,934 (just add
2% to the 10,720 prior high).

On September 21, the DJIA soared to a new cycle high

of 10,833. This was into daily resistance (10,815-
10,836), and the close was back between daily support
and resistance, which was neutral with a bearish bias.
The close was above the daily TIP for the 14th
consecutive day (that was a very long time ago and way
overdue for a correction or pause). An aggressive short-
term trader could sell short once again with a stop-loss
on a close above the 10,833 high. The market did start a
decline here. The next day, September 22, it fell into
daily support at 10,703-10,708 and held, and then
closed at 10,736, which was neutral but now with a
bullish bias. Support still wasn’t breaking, and the close
was above the daily TIP for a most unusual 15
consecutive days.

On September 23 it finally closed below daily support

for a bearish close. It also closed below the daily TIP
for the first time in 16 trading days, thereby
downgrading its status to neutral. This was now a sell
signal, following the new high for this primary cycle on
the September 21 critical reversal date. Once again, that
sell signal was negated the very next day as the DJIA
turned around and closed at a new cycle high of 10,860,

594
closing above the daily trend indicator point and both
daily and weekly resistance. After the one-day interrupt,
the market resumed its trend run up. But remember:
after a one-day interrupt, the resumption of the trend
run tends to end within the next 4 trading days, and this
one did exactly that. The resumed trend run lasted until
September 29, four trading days later (not shown).

As one reviews the primary cycle of that time (Figure

70), it will be seen that it was necessary to re-label the
phases within it, based on the actual structure that took
place. Instead of an 8-week half-primary cycle trough,
the low of August 27 would be re-labeled as the first of
three major cycle phases that lasted 5-8 weeks and not
the usual 5-7 weeks. The primary cycle would end up
lasting 22 weeks, which meant it was an expansion of
the normal 13-21 week periodicity.

It is also noteworthy to mention that this market

behavior was ultimately consistent with the geocosmic
combination of Jupiter and Uranus moving into Aries, a
combination that would be termed the “Asset Inflation
Express.” This meant that assets like precious metals
and stocks would likely inflate as these two speculative
planets moved into the speculative sign of Aries in late
May, early June 2010. Although each would move
temporarily back into Pisces, they would remain close
to the Aries cusp, forming a conjunction to one another
two more times (September 18, 2010 and January 4,
2011) before returning to Aries until Jupiter left for the

595
next sign of Taurus in the first week of June 2011. Even
after that, Jupiter would return to the cusp (border) of
Aries and Taurus again in late 2011 through early 2012,
close enough for the Asset Inflation Express to possibly
maintain its bullish influence. As one can see from
Figure 70, the DJIA price and moving averages stayed
mostly in a trend run up until the primary cycle topped
out.

Figure 70: Daily chart of the DJIA showing the primary cycle of July 2, 2010 through
November 29, 2010. Note that after September 20, the 14-day moving average (solid
line) did not fall below the 42-day moving average (dotted line), and prices did not close
below either, until the primary cycle crest was completed on November 6.

Now that the primary cycle had turned bullish and the
50-week cycle was re-labeled accordingly, the trading
strategies for both position and short-term traders would
change to bullish. That is, position traders would now
look to buy all primary, half-primary, and major cycle
troughs. The only time bearish strategies might be
employed would be at the primary cycle crest, at least

596
until the third phase of the 50-week cycle. Short-term
traders would look to buy these same cycle lows, as
well as all trading cycle troughs. However, they would
be more willing to sell short on major cycle crests,
especially in the last phase of a primary cycle.
Aggressive traders would trade both sides of the
market, especially after the first phase of each new
primary cycle was completed. Yet in the first phase,
even aggressive traders would employ mostly bullish
strategies. As one would have experienced in the
remainder of the July - November 2010 primary cycle,
following the “breakout” to new highs of the primary
cycle on September 20, bullish trading plans worked
out very well. As this book is being written in the
summer of 2011, position traders who subscribe to the
MMA Cycles daily and weekly reports have remained
long since the end of November 2010. Short-term
traders have been in and out several times, but mostly
from the long side for healthy profits. Aggressive short-
term traders have traded many times from both sides,
coincident with geocosmic critical reversal dates within
time bands for trading cycle troughs or crests, as well as
solar-lunar reversal periods suggesting a 1-4 day
reversal of 4% or more, consistent with the status of
daily stochastics, TIP points, and daily close indicators
related to support and resistance.

597
CHAPTER TWENTY

CONSTRUCTING THE TRADING PLAN

We have now provided the formulas and rules for

trading based on several market timing and technical
indicators. Yet as demonstrated in the previous chapter,
even with all of these tools, no one will ever be 100%
correct in their analysis and profitability for each trade.
It is very important to understand that each of these
studies identifies probabilities, via “rates of frequency”
based on the past, or the history of these markets
correlated to the results of these studies. Our goal is to
identify high probability setups and then to initiate the
trade when a predominance of high probability setups
arise. More importantly, exactly how and when do we
initiate the trade? After all, once a market starts to rise
or fall into a time and price target zone, the psychology
seems to change. It is not easy to bring oneself up to the
task of putting on a trade when the market is going in
the opposite direction, as the trade setup dictates. Thus
all that is left now is to impress upon the trader the
importance of creating a trading plan based on one’s
particular temperament and then the discipline to follow
it. In a very real sense, success in this field is dependent
upon four factors:

1. 1. Knowledge of what works with the greatest

598
 consistency
2. 2. A trading plan based on that knowledge
3. 3. The discipline to execute and stay with the
trading plan until it is obvious that the market is
not going according to plan any longer, and
4. 4. The flexibility to exit and/or adjust the trading
plan when the probabilities shift in the opposite
direction. If it turns out the trading plan isn’t going
according to plan, you don’t want to be wrong for
long!

In this chapter we will outline trading plans for both

the position trader as well as for short-term and even the
aggressive short-term trader. The difference is this: the
position trader looks to establish positions only in the
direction of the primary trend, except perhaps at the
primary cycle trough in a bear market or primary cycle
crest in a bull market. A short-term trader is willing to
go against the primary trend at the culmination of major
and half-primary cycles if he thinks there is a
reasonable possibility of a 4% or greater counter-trend
reversal (retracement), according to the market timing
studies of these books. The aggressive short-term trader
is willing to go against the primary trend at any time if
he thinks there is a reasonable possibility of a 4% or
greater counter-trend reversal (retracement). In many
cases, even a 2.5% reversal is attractive enough to
encourage a trade. Such a possibility might show up due
to the presence of a geocosmic critical reversal date, a

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solar-lunar reversal date, and/or a particular setup via
technical studies.

The Trading Plan Begins with Trend Analysis

The very first question to ask in establishing a trading

plan is whether the primary cycle is likely to be bullish
or bearish. This depends upon which phase of the
longer-term cycles are in force. The general rule
espoused through each of these books is this: the first
phase of every cycle (including a primary cycle) is
bullish. The last phase is either bearish or contains the
steepest decline within a bullish primary cycle.

Now what about the entirety of the primary cycle itself?

Will it likely be a bullish right translation or bearish left
translation cycle? You seldom know for certain.
However, the understanding of “cycles within cycles” is
a great aid to this task. And that brings us to market
timing and understanding the structure of cycles,
especially the primary cycle.

Fundamentally, the trading plan takes into account the

following questions regarding the status of the primary
cycle and considers the following factors:

1. 1.Is the primary cycle likely to be bullish or

bearish? If the primary cycle is the first phase of a
greater 50-week cycle, it will likely be bullish. The
crest will not be due until after Tuesday of the 9th

600
 week. If it is the last phase of a bearish 50-week
cycle, the primary cycle will be bearish. It will
usually top out before Tuesday of the 9th week and
probably 2-5 weeks after the primary cycle trough
that began the cycle.
2. 2. As the primary cycle unfolds, the trading plan
needs to identify which type of cycle is likely to be
unfolding: a three-phase, two-phase, or
combination pattern. In the first few weeks, one
does not know the answer to that question, but
there is an 80% probability that there will be a 5-7
week major cycle phase following the start of the
primary cycle, for that is part of the three-phase
and combination patterns, and each of those has an
approximate 40% rate of occurrence. Thus the
trader starts with the idea that the first phase will
contain a major cycle trough at the 5-7 week
interval. This assumption may be modified after
the 7th week has passed.
3. 3. The correct structure of the primary cycle pattern
becomes known after the 11th week. By that time
one can see if there is a clear 8-11 week half-
primary cycle trough. If not, then one knows this
will be a classic three-phase pattern. If there is a
clearly identifiable half-primary cycle trough, then
one knows this will be either a classical two-phase
or combination pattern.
4. 4. Based on the trend of the primary cycle, and the
understanding of what type of pattern is unfolding
within the primary cycle, one can determine the

601
 current status of the primary cycle at almost any
time. One can then outline the steps to take within
each phase of the bullish or bearish primary cycle.

Let us give a couple examples of how a trading plan

begins for a position trader (this should also include
short-term traders), based upon these two
understandings:

1) Is the market bullish or bearish, and

2) What type of pattern is unfolding within the primary
cycle?

If the primary cycle is expected to be bullish and...

1. It is to be a three-phase pattern. The trading plan

1.
of the position trader (and short-term trader) will
be to buy every corrective decline until well into
the third major cycle phase. That is, he attempts to
buy every major and trading cycle low until at
least two weeks into the third and final major cycle
phase of the primary cycle. The only time his
trading plan will attempt to sell short is when the
market appears to be making a primary cycle crest
(or double top) in that third phase, based upon
other factors to be discussed shortly.
2. 2. It is to be a two-phase pattern. The trading plan
of the position trader (and short-term trader) will
be to buy every corrective decline until well into

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 the second half of the primary cycle phase. That is,
he attempts to buy the half-primary cycle trough
and every trading cycle low until after the DJIA
(or whatever market) makes a new high for the
primary cycle in the second half of that cycle. He
may look for signs to go short after the highest
price is being made in the second half of the
primary cycle, in anticipation of a sharp 2-5 week
decline into the primary cycle trough.
3. 3. It is to be a combination pattern. The trading plan
of the position trader (and short-term trader) will
be to buy every corrective decline until well into
the third major cycle phase. That is, he attempts to
buy every half-primary, major, and trading cycle
low until at least two weeks into the third and final
major cycle phase of the primary cycle. The only
time his trading plan will attempt to sell short is
when the market appears to be making a primary
cycle crest (or double top) in that third phase,
based upon other factors to be discussed shortly. In
that case, he looks for a sharp 2-5 week decline
into the primary cycle trough.

If the primary cycle is expected to be bearish and...

1. It is to be a three-phase pattern. The trading plan

1.
of the position trader (and short-term trader) will
be to sell every corrective rally until well into the
end of the third major cycle phase, which is also

603
 when the primary cycle trough is due. That is, he
attempts to sell every major and trading cycle crest
until the time band for the end of the third and
final major cycle phase of the primary cycle is
entered. The only time his trading plan will
attempt to buy is when the market is completing
the primary cycle trough (or double bottom) in that
third phase, based upon other factors to be
discussed shortly.
2. 2. It is to be a two-phase pattern. The trading plan
of the position trader (and short-term trader) will
be to sell every corrective rally until well into the
second half of the primary cycle phase. That is, he
attempts to sell the first half-primary cycle crest,
the second half-primary cycle crest, and every
trading cycle crest following that second half-
primary crest until after the DJIA (or whatever
market) makes a new low for the primary cycle in
the second half of that cycle. Usually that second
low is 7-11 weeks after the first half-primary cycle
trough, and at least 2-5 weeks following the crest
of the second half-primary cycle. He may look for
signs to go long after the lowest price is being
made in the second half of the primary cycle, and
within a time band when the primary cycle trough
is due, in anticipation of a sharp 2-5 week rally
into the crest of the next primary cycle.
3. 3. It is to be a combination pattern. The trading plan
of the position trader (and short-term trader) will
be to sell every corrective rally until the end of the

604
 third major cycle phase. That is, he attempts to sell
every half-primary, major, and trading cycle crest
until the time band for the third and final major
cycle phase of the primary cycle is due to be
completed. The only time his trading plan will
attempt to buy is when the market appears to be
making its primary cycle trough (or double
bottom) at the end of that third phase, based upon
other factors to be discussed shortly. When that
happens, he looks for a sharp 2-5 week rally into
the next primary cycle crest.

In summary, the first steps to constructing a trading

plan is to anticipate whether the primary cycle is most
likely to be bullish or bearish and then to ascertain
which type of pattern is forming. You do not know
these answers at first. However, you have a strong idea
as to whether the primary cycle will be bullish or
bearish depending on its phasing within the greater
cycles, like the 50-week and 4-year cycles. You do not
know which of the three basic chart patterns will be
exhibited for any given primary cycle. However you do
know the first phase will be bullish and that there is an
80% probability that a 5-7 week major cycle trough will
occur. There should be very few problems encountered
in these first 5-7 weeks of any primary cycle. After that,
it may get unclear until after the 11th week of the
primary cycle has passed. By that time, you should have
an idea as to what type of pattern will be exhibited

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(three-phase, two-phase, or combination pattern), and
from that you will know which type of trading strategy
to employ.

Once we know the probable trend, and as we proceed

through the primary cycle deciphering the pattern, we
can then apply the next steps in constructing an
effective trading plan. It starts with our market timing
studies, for they are the leading indicators. And if the
market is setting up for a high or low into these time
bands, and we know what the trend and the pattern of
the primary cycle is, we will know what type of trading
plan to construct and therefore what action to take.

Market Timing

Where is the market in terms of its primary cycle? What

phase is it in, and is this primary cycle bullish or
bearish? These are the first questions each type of trader
must ask when constructing a monthly, weekly, or daily
trading plan. In reality, a weekly and daily trading plan
is sufficient for traders. Monthlies would be more
useful for investors.

The process of establishing the market’s status in terms

of its cycle is simple. You start from the longer-term
cycles and work down to the trading cycles, always
keeping in mind that the first phase of every cycle is
bullish, and the last phase is either bearish or contains
the steepest declines of the entire cycle if it has been

606
bullish. The following represents the cycle labeling and
phasing each trader is advised to monitor every week.

1. 1. The four-year cycle. What phase of the 4-year

cycle is the market in? When is the 4-year cycle
next due to bottom? Which phase is likely to
contain its crest?
2. 2. The 23-month cycle if the 4-year cycle is to be a
two-phase or a combination pattern (60%
approximate probability), consisting of two 19-27
month phases.
3. 3. The 15.5-month cycle if the 4-year cycle is to be
a three-phase or combination pattern (80%
approximate probability). Which 15.5-month cycle
phase of the 4-year cycle is the market in? When is
this phase due to bottom?
4. 4. The 50-week cycle. There are usually four or five
50-week cycles within a 4-year cycle (77%
historical rate of frequency). Sometimes there are
only three 50-week cycle phases within the 4-year
cycle (about 17% frequency). We will enter each
4-year cycle anticipating four or five 50-week
cycles with a range of 34-67 weeks. Determine
which 50-week cycle phase the 4-year cycle is
currently in. When are its crest and trough due?
5. 5. The 13-21 week primary cycle. There are usually
two or three primary cycle phases within the 50-
week cycle (over 90% historical frequency).
Sometimes there are four primary cycles within the
50-week cycle (less than 10% frequency). We

607
 enter each 50-week cycle anticipating that there
will be two or three primary cycle phases within it.
Determine which primary cycle phase is currently
in force within the 50-week cycle. Based on the
50-week cycle phasing, when is the crest of the
primary cycle due,? When is its trough due?
6. 6. The 8-11 week half primary cycle if the primary
cycle is to be a two-phase or a combination pattern
(60% approximate probability). Sometimes this
cycle will contract to 7 weeks or expand to 12
weeks.
7. 7. The 5-7 week major cycle if the primary cycle is
to be a three-phase or combination pattern (80%
approximate probability). Sometimes these can
contract to 4 weeks or expand to 8 weeks. Which
major cycle phase of the primary is the market in?
What is the appropriate trading strategy for that
major cycle? When is the crest of this major cycle
due? When is its trough due?
8. 8. The 2-4 week trading cycle. Within each major
cycle are usually two or three of these 2-4 week
trading cycles (usually only 2-3 weeks).

Every week these 8 steps in cycle analysis should be

updated so that you know where you are within each
cycle. Knowing where you are will help you to
determine which trading strategy to employ, and that is
essential to constructing a trading plan.

608
Geocosmic Critical Reversal Dates Refine the
Market Timing

A market trend can be interrupted and reversed under

certain geocosmic signatures, and even certain solar-
lunar combinations, as detailed in Volumes 3 and 4. It is
therefore important for traders to identify the following
situations when constructing a trading plan for a given
week or day:

1. 1. Is there a geocosmic critical reversal date in

effect? Outline its time band. This is done by
identifying a cluster containing multiple
geocosmic signatures, taking its midpoint, and
allowing an orb of three trading days either side of
that midpoint date as a potential market reversal
zone.
2. 2. Determine if there are any Level 1 signatures
within 4 trading days of this geocosmic critical
reversal date. If there are, the reversal is apt to be
much sharper than otherwise.
3. 3. Determine if this time band for a geocosmic
critical reversal date overlaps with the time band in
which a cycle crest or trough is due. Identify the
boundaries (dates) of this overlap.
4. 4. Identify any 1-2 day time bands in which a solar-
lunar reversal is due in any given week. Does it
coincide with a time frame for a cycle crest or
trough?
5. 5. If either a geocosmic critical reversal time band

609
 or a solar-lunar reversal time is in effect and
overlaps with the time band for a cycle crest or
trough, the trading plan should specify what action
to take given certain technical setups that arise
with a rally or decline into this reversal zone.

As one can readily see, the primary purpose of

geocosmic and solar-lunar reversal periods is to help
narrow down the time band when a cycle trough or crest
is most likely to take place. Therefore, it is used as a
tool within our understanding of cycle studies and not
usually as a stand-alone indicator, except for more
aggressive traders.

Establish Price Targets

Every month and every week, and even every day, in

the case of short-term traders, price targets should be
calculated for potential crests and troughs. When the
market enters the time band for a reversal, traders need
to determine if any price targets are being realized. If
so, then the trading plan should indicate what action to
take. The following represent some of the price targets
that can indicate the opportunity to take action:

1. 1.Normal “retracements” in a trending market. It

doesn’t matter what type of trader you are. If there
is a trend underlying the primary cycle, all traders
will want to trade 38.2-61.8% corrective

610
 retracements to any primary swing. If the primary
cycle is bullish, then one must calculate 38.2-
61.8% corrective declines to any swing up within
the cycle. If the primary trend is bearish, then one
must calculate 38.2-61.8% corrective rallies to any
swing up within the cycle. There may be several of
these, depending on which phase the primary cycle
is in (the older the cycle, the more such price target
zones will be present below or above the market).
2. 2. Mid-Cycle Pause (MCP) price targets. This is
used for trending markets to establish upside price
targets in bull markets or downside price targets in
bear markets.
3. 3. Other Fibonacci price target zones, as explained
in Chapter 6. These may involve 23.6%
retracements, or 1.236 or 1.382 multiples of
primary swings recently completed. They may also
include taking .618 of a primary swing in the first
two phases of a primary cycle, added to the low of
the second major cycle trough in bullish primary
cycle, or subtracted from the second major cycle
crest in a bear market.
4. 4. Measuring gap price targets. If there is a gap up,
the trading plan should identify the upside price
target of this breakout. Likewise, if there is a gap
down, the trading plan should identify the
downside price target of this downside breakout.
5. 5. Head and shoulders price targets. The neckline
identifies a support zone in a bull market. Your
trading plan does not want to allow a long position

611
 when prices break below the neckline of a head
and shoulders pattern. However, your trading plan
needs to include the calculation for the downside
price target in that event, for it may represent a
point at which to buy if other bullish conditions are
then in place.
6. 6. Inverse head and shoulders price targets. The
neckline identifies a resistance zone in a bear
market. Your trading plan does not want to be in a
short position when prices break above the
neckline of an inverse head and shoulders pattern.
However, your trading plan needs to calculate the
upside price target in that event, for it may
represent a point at which to sell short if other
bearish conditions are then in place.
7. 7. Moving averages may act as support or
resistance. The most important moving averages to
watch for in the DJIA are the 14-day, 42-day, and
25-week ones. If the market is declining into one
of these moving averages when a cycle low is due,
or rallying into one of these when a cycle crest is
due, the trading plan needs to take this into account
when considering what action is to be taken.

These are the first steps to enact in the creation of any

trading plan, based on the methodology presented in
these five volumes. That is, establish when the cycles
are due to culminate, when reversals are most likely
possible within the primary cycle, and the price targets

612
that are in effect for the completion of any phase of the
cycle. When these conditions are being realized, your
trading plan should outline steps for taking action.
These steps can be further refined with the aid of
technical factors (to follow). However, keep in mind
that the additional technical factors to be discussed next
will often be in conflict with the timing and price
objective studies just discussed. They will be lagging -
or at best, coincident - indicators, and if given equal or
greater weight as the parts of the trading plan involving
our timing and price factors, you will miss several
potentially profitable trading opportunities. This is why
these books stress the greater importance on market
timing studies - with price objective studies - above all
other forms of technical analysis.

The Technical Setup for the Trading Plan

Once the optimal time frame and price target for a

market reversal has been identified in the trading plan,
the market must either rally or decline into this time
band. In most cases, that means the market will be
recording either a new two-week high or low and
usually longer than that. If not a new two-week high or
low, then the market should at least re-test the high or
low of the past two weeks (i.e. double top, double
bottom, perhaps with intermarket bearish or bullish
divergence to another related market).

Whether the reversal will be strong or modest will

613
depend to a large extent upon various technical studies
and chart patterns, such as the following:

1. The daily and weekly stochastic pattern. When

1.
the market is rallying into a time band for a cycle
crest and geocosmic reversal period, it is best if the
stochastics are in overbought territory (i.e. above
80%). In cases of severe bearish trends, the
stochastics may only recover to the neutral 42-58%
area. Your trading plan needs to identify such a
scenario if it occurs. It is also important to note if
the stochastics are forming a bearish double
looping pattern above 75% (the higher the better)
or if there is a case of bearish oscillator divergence
emerging. These latter two conditions support the
trading plan of going short.
2. 2. When the market is declining into a time band for
a cycle crest and geocosmic reversal period, it is
best if the stochastics are in oversold territory, i.e.,
above 80%. In cases of strong bullish trends, the
stochastics may only fall to the neutral 42-58%
area. Your trading plan needs to identify if this is
happening. It is also important to note if the
stochastics are forming a bullish double looping
pattern below 25% (the lower, the better) or if
there is a case of bearish oscillator divergence
emerging. These latter two conditions support the
trading plan of going long.
3. 3. When the market is rallying into a time band for
a cycle crest and geocosmic reversal period, note if

614
 a case of intermarket bearish divergence is
unfolding. For instance, is the DJIA, S&P, or
NASDAQ Composite taking out the high of the
past few weeks? but they are not all doing that at
once? If not all are making new highs at this time,
are they closing in the lower third of a day’s range
after the divergence signal has formed? If so, the
trading plan should allow for a short position (at
least for short-term traders, whereas position
traders only do this in bearish primary cycles or at
the end of bullish primary cycles).
4. 4. When the market is declining into a time band for
a cycle trough and geocosmic reversal period, note
if a case of intermarket bullish divergence is
unfolding. For instance, is the DJIA, S&P, or
NASDAQ Composite taking out the low of the
past few weeks, but they are not all doing that at
once? If they are not all making new highs in this
time frame, are they closing in the upper third of a
day’s range after the divergence signal has
formed? If so, that validates the intermarket
divergence signal, and the trading plan should
allow for a long position (at least for short-term
traders, whereas position traders only do this in
bullish primary cycles or in the first phase of a
bearish primary cycle).
5. 5. There are many other technical tools one may use
to complement the market timing studies used in
this methodology. For example, one might use RSI
(relative strength indicators), or a CCI

615
 (Commodity Channel Index), or any other
oscillator in much the same manner as stochastics
are used. That is, they can register overbought or
oversold readings in these critical reversal periods,
or they can exhibit oscillator divergence patterns
as cycle lows or highs form. Other types of
technical tools that can be used to support a change
of trend during this time bands are volume studies,
or candlestick patterns. If you have your favorite
technical tools, this methodology does not require
you to give them up. But use them when the
market enters a time band for reversal, for they
will enhance the probability of getting into the
market at a favorable price and time as described
herein.

Short-Term Trading Signals

Once the market enters the time band for a market

reversal or cycle culmination, and once the minimal
price objective has been attained for the move up or
down, then the trading plan looks to utilize the short-
term trading signals discussed in Chapters 14-19.
Specifically, an effective trading plan will outline
setups to buy based on declines relative to daily and/or
weekly support zones and the closing prices that follow,
or setups to sell based on rallies relative to daily and/or
weekly resistance zones and the closing prices that
follow. Here are some of the factors to consider in your

616
trading plan, once the market enters a time band for a
reversal or cycle culmination, but let us separate these
trading plan rules based on buy versus sell signals.

Buy Signals

1. 1.When the market is declining into a time band for

a cycle low, look to buy on a daily or weekly
bullish bias or bullish trigger. You could also look
to buy daily or weekly support if it appears to be
holding intraday, with a stop-loss on a close below
it.
2. 2. You may buy if prices decline into a bullish
crossover zone, but don’t close below there.
3. 3. You may buy if the daily or weekly trend
indicator point (TIP) is upgraded from trend run
down to neutral.
4. 4. If the market starts to break above daily
resistance following a low in the time band for a
reversal, you may buy on an intraday pullback into
that resistance zone, with a stop-loss on a close
back below it for that day.
5. 5. If the market closes above daily resistance
following a low in the reversal time band, then
look to buy on a pullback the next day to the pivot
point, with a stop-loss below the support zone for
that day, or the low of the move.

Sell Signals

617
 1. 1. When the market is rallying into a time band for
a cycle crest, look to sell on a daily or weekly
bearish bias or bearish trigger. You could also look
to sell daily or weekly resistance if it appears to be
holding intraday, with a stop-loss on a close above
that range.
2. 2. You may sell if prices rally into a bearish
crossover zone, but don’t close above.
3. 3. You may sell if the daily or weekly trend
indicator point (TIP) is downgraded from trend run
up to neutral.
4. 4. If the market starts to break below daily support
following a high in the time band for a reversal,
you may sell on an intraday pullback into that
support zone (which is now resistance), with a
stop-loss on a close back above it for that day.
5. 5. If the market closes below daily support
following a high in the reversal time band, then
look to sell on a modest rally the next day to the
pivot point, with a stop-loss above the resistance
zone for that day, or the high of the move.

Pyramiding

When the 14-day moving average is above the 42-day

average, and prices are above both, the market is in a
trend run up, via moving average studies. Position
traders may adopt bullish “pyramiding” strategies until

618
the market reaches the third week of the third phase of
the primary cycle. This strategy will identify any 2-day
or longer decline (i.e. the lowest price in at least two
days) and then will buy at the point where the market
makes a new cycle high. Keep in mind the market has
been registering new highs for this bullish primary
cycle right along, so it won’t take much to make a new
high. The stop-loss should be placed just below the
most recent primary or major cycle trough, or even
trading cycle trough. Once the market enters the time
band and price objective range for a primary cycle crest,
it is time to take profits or move one’s stop-losses up
substantially, i.e., “trailing stop.”

When the 14-day moving average is below the 42-day

average, and prices are below both, the market is in a
trend run down, via moving average studies. Position
traders may adopt bearish “pyramiding” strategies once
the market passes the first major cycle phase. This
strategy will identify any 2-day or longer rally (i.e. the
highest price in at least two days) and then will sell at
the point the market makes a new cycle low. Keep in
mind that if the primary cycle is indeed bearish, it has
probably been registering new lows for this bearish
primary cycle by the time the second major cycle phase
is well underway. The stop-loss should be placed just
above the most recent primary or major cycle crest, or
even trading cycle crest. Once the market enters the
time band and price objective range for a primary cycle
trough, it is time to take profits or move one’s stop-

619
losses down substantially, i.e., “trailing stop”.

The objective of “pyramiding” is to increase profits by

going in the direction of a strong underlying trend. The
difficulty is in knowing when and where to exit, for
once the trend run is over, a very sharp counter-trend
move usually occurs. The general rule in bull market
trend runs up is, “The higher they go, the harder they
fall.” But this is where market timing studies can be
very valuable. One of course wishes to capture as much
profit as possible from a pyramid strategy. However in
many cases, big fortunes that were made on paper
suddenly become small fortunes and even losses in
one’s trading account. That is why successful trading
plans must also contain stop-loss points.

Stop-Losses

The last part of the trading plan is to establish stop-loss

points at which it is no longer wise to remain with the
position. For many traders, this is a very difficult step,
because very few people like to be taken out of trade,
especially for a loss, even if it is a small loss.
Furthermore, the shorter-term your perspective as a
trader, the more losses you are likely to encounter, and
that can prove to be frustrating. Yet frustration is a
more tolerable emotion to go through than the despair
that comes from remaining on the wrong side of a
losing trade for too long. For this reason, every trading
plan should contain at least a mental stop-loss point - a

620
level in which the trader simply says, “This is not
working as expected, so, let us abandon the position and
start with a new mental slate.”

Once you have entered into a position, your stop-loss

may be based on one of many factors, depending on
your personal risk tolerance. Once again, let us separate
these trading rules for our trading plan based on
whether we have established a long or short position.

Buy Signals, or Getting Long

Our suggested stop-losses on long positions are based

on the lowest level up to the highest level, or the
greatest loss potential to the least loss potential. Always
remember that the lower the potential loss, the more
likely you are to get stopped out. Conversely, the
deeper from the market that you set your stop-loss, the
more likely you are to remain in the position before
being stopped out, but the greater your loss will be if
and when you are stopped out. It is yet another factor
that illuminates every trader’s dilemma: do I reduce my
risk of loss by increasing my probability of being taken
out? Or do I increase my probability of being right over
the long haul, while increasing my potential loss if I am
wrong? Effective stop-losses find the balance point
between these two issues.

1. 1.Position traders will want to initially establish

their original stop-loss below the low of the

621
 primary cycle. Once the low of a primary cycle is
taken out, you know the trend is bearish until it
ends, so you do not want to remain long once that
happens. The stop-loss may be raised upon the
completion of the first major or half-primary cycle
trough in a bullish primary cycle.
2. 2. The next level up for a stop-loss may be on a
close below a primary or three-point upward
trendline. Once that trendline is broken, it usually
signals that the primary cycle crest has been
attained, and the trend will be down until the
primary cycle ends.
3. 3. The next level for a stop-loss on a long position
may be based on a close below the 14- or 42-day
moving average, or even the 25-week average if it
is the start of a new 50-week cycle, whichever is
lower.
4. 4. Next would be on a close below a weekly bullish
crossover zone, weekly TIP, or weekly support,
whichever is lower.
5. 5. Next, the stop-loss can be set on a close just
below a daily bullish crossover zone, daily TIP, or
daily support, whichever is lower.
6. 6. Last but not least, you could move your stop-loss
up, based on an intraday move below any of these
points that is followed by a close back above.

Sell Signals, or Getting Short

622
Our suggested stop-losses on short positions are based
on the highest level above the market to the lowest
level, or the greatest loss potential to the least loss
potential.

1. 1. Position traders will want to initially establish

their original stop-loss above the crest of the
primary cycle (or highest price of the primary
cycle so far, which is usually in the first phase of a
bearish primary cycle or the last phase of a bullish
one). If the primary cycle is a bearish one, the
stop-loss may be lowered upon the completion of
the second major or half-primary cycle crest,
assuming it is lower than the first crest of these
cycles.
2. 2. The next level up for a stop-loss may be on a
close below a primary or three-point downward
trendline. Once that trendline is broken, it usually
signals that the primary cycle trough has been
attained, and the trend will be up until the next
primary cycle tops out.
3. 3. The next level for a stop-loss on a short position
may be on a close above the 14- or 42-day moving
average, or even the 25-week average if it is the
end of an older 50-week cycle, whichever is
higher.
4. 4. Next would be on a close above a weekly bearish
crossover zone, weekly TIP, or weekly resistance,
whichever is higher.
5. 5. Next, the stop-loss can be set on a close just

623
 above a daily bearish crossover zone, daily TIP, or
daily resistance, whichever is higher.
6. 6. Last but not least, you could move your stop-loss
down, based on an intraday move above any of
these points, and followed by a close back below.

These are the considerations taken into account in the

formulation of a trading plan. The actual rules for
buying and selling, i.e., the trading plan, depends upon
what type of trader one is (position or short-term),
whether the primary cycle is expected to be bullish or
bearish, and what phase of the primary cycle the market
is in at any given point. The rules for the position trader
were given in the first section of this chapter titled “The
Trading Plan Begins with Trend Analysis.”

Yet the first step is the same for each type of trader at
the beginning of each primary cycle. That is, whether
one is a position or short-term trader, the trading plan
incorporates a bullish buying strategy at the start of
every primary cycle. This was demonstrated in great
detail in the prior chapter. The first phase is almost
always bullish, and one looks only to buy between the
primary cycle trough and the crest of the first major
cycle phase. Whenever the market makes a 38.2-61.8%
corrective decline in the first phase following the
primary cycle trough, one is looking to buy. One may
also look to buy if the market is making a double
bottom to the primary cycle trough in that first phase, as

624
long as prices do not fall below the start of the primary
cycle in all other related markets. That is, cases of
intermarket bullish divergence are allowable in the first
phase of a primary cycle and may be bought by both
short-term and position traders. However, after this
point, the strategies between position and short-term
traders part ways.

After the first phase is completed, the trading plan may

differ for each type of trader as well.

Position Trader

In bullish primary cycles, position traders will create

bullish trading plans until at least the second week of
the third major cycle phase or well into the second
phase in a two-phase primary cycle pattern. That is, the
trading plan attempts to buy every half-primary, major,
and/or trading cycle low until new cycle highs are
realized in the last phase of the primary cycle. It is
acceptable to look for shorting opportunities if a market
is making a double top at the crest of the third phase of
a primary cycle. Then, and only then, does the trading
plan consider going short in anticipation of a sharp 2-5
week decline into the primary cycle trough, according
to instructions and considerations given earlier in this
chapter.

In bearish primary cycles, the position trader is still

looking for opportunities to buy during the first 2-5

625
weeks of a new primary cycle; that is when the crest of
the primary cycle is due. Once the market is in that time
band for a primary cycle crest (2-5 weeks into a new
primary cycle), the position trader switches from a
bullish to a bearish trading plan. The intent now is to
sell short the crest of that first major cycle, which is
likely the crest of the entire primary cycle. From that
point onwards, he will look to sell every corrective rally
that retraces 38.2-61.8% of any swing down. He will
look to sell every half-primary, major, or trading cycle
crest until the market enters the time band for a primary
cycle trough and after prices have made new lows for
the primary cycle. At that point, and only at that point,
will the trading plan switch to bullish strategies, seeking
to buy the primary cycle trough in anticipation of a
sharp 2-5 week rally to the crest of the new primary
cycle. Then the process repeats.

Short-Term Trader

The short-term trader is primarily focused on buying

any corrective retracements of the primary cycle trend.
However, he will also consider going against the trend
at major or half-primary cycle troughs or crests if it
appears there is a reasonable chance of a 4% or greater
reversal then.

For instance, let us say the market has rallied sharply

for three weeks after a primary bottom. Maybe it has
soared 10% very quickly. But after three weeks, this

626
market is already in a price target for a primary cycle
crest, the daily stochastics are in overbought territory,
i.e., say about 90%, and there is a three-star critical
reversal date in effect. Furthermore, the market cannot
close above weekly resistance, and daily resistance
starts to hold as well during this time band. When so
many signals are present for a correction, the short-term
trader may elect to take profits from the long side and
sell short, looking for a 4% or greater pullback (say
38.2-61.8% retracement) of the whole move up from
the primary cycle low, even if the primary cycle is
expected to be bullish. When going against the primary
trend, the trading plan should be very specific as to
when to sell short, what stop-loss to put in above the
market to keep the risk exposure tolerable, and then the
price target zone, i.e., profit objective, in which to cover
and reverse back to the long side. Obviously, there is
more danger of loss when trading against the trend. But
short-term traders - and especially aggressive short-term
traders - seem to like a little danger. Perhaps it is
because they know that the quickest profits are realized
from being on the right side of a counter-trend move.
The market moves sharply and quickly in these cases,
But this type of activity is not for everyone, for it is
difficult to be right on both the entry and exit position
when going counter-trend in the middle of a primary
cycle.

The short-term trader must be very nimble when going

against the underlying trend, such as shorting in bull

627
market primary cycle. He must adhere to a strict stop-
loss policy in case the market starts running back up, as
well as being very disciplined to cover those shorts and
take a profit - and reverse to the long side - when the
time and price targets for the decline are met. As an
example, the stop-loss should be above the price target
range for the major cycle crest when trying to short a
major cycle crest. Once the market appears to be
falling, that stop-loss should be adjusted to slightly
above the high of the move so far, because once the
market starts to take out the low of a prior day, then any
move to a new cycle high can be construed as a
breakout and a reason to get long again or even start to
pyramid from the long side if one never got short. This
is especially true if prices are above the 14- and 42- day
moving averages, and the 14- is above the 42-day (trend
run up based on moving average studies). But of course
he may not be stopped out. The trade may go quickly in
his favor if all the other conditions described work out
as expected. Once the market starts falling into the price
target of a corrective decline, the short-term trader can
follow all the instructions given for covering those
shorts, and then buying, as outlined in the case of the
position trader.

Aggressive Short-Term Trader

It does not matter which type of primary cycle pattern is

in force here, because aggressive short-term traders will
trade in both directions depending on the market timing

628
indicators in effect, as well as certain technical
conditions that imply a possible 4% reversal. For
example, even if it is a bullish primary cycle, an
aggressive trader may look to sell short at any phase
within a primary cycle if a geocosmic critical reversal
date is in effect, and prices are rising into it. He will be
more inclined to sell short if this rally:

1) enters into a price objective zone for a crest

2) exhibits intermarket bearish divergence to related
markets
3) exhibits a bearish stochastic pattern, or
4) exhibits certain types of bearish signals on a weekly
or daily TIP or in relationship to the weekly or daily
support-resistance zones.

It is best, of course, if several of these signals are

present.

Aggressive short-term traders tend to be in the market

less than 5 days. In many cases, they are day traders not
wishing to take the risk of carrying a position overnight
and coming in the next day to find that the market
opened sharply against their position. For that reason,
the aggressive short-term trader is advised to use
intraday technical studies (like stochastics or other
oscillators) to help pick the low or high of the day from
which to trade. Even so, an awareness of the underlying
primary cycle trend, and the phase of the primary cycle
currently in effect, plus the level of various technical

629
studies on a daily chart, can help position the aggressive
short-term trader in the right direction.

Let us now look at an example of how to construct a

trading plan for buying a primary cycle trough. For this
example, we will go back to the primary cycle that
started on July 2, 2010, the one we covered in great
detail in the last chapter up until the 8-week low on
August 27, 2010. At the time, we labeled that a half-
primary cycle trough. But now we will show why it was
later re-labeled as an 8-week major cycle trough.

Figure 71 is a classical three-phase bullish primary

cycle, even though the first major cycle trough of
August 27 lasted 8 weeks, as did the last major cycle
phase that bottomed November 29. Each was one week
longer than the normal 5-7 week interval between major
cycle troughs. In retrospect, we can see that this was a
22-week expanded primary cycle, which means it was a
distorted primary cycle since the norm is 13-21 weeks.
In this case, 22 weeks means that the primary cycle was
expanded by one week.
How do we know this is the correct labeling for this
primary cycle? It is due to the fact that there was no
criterion met for a primary cycle trough before
November 29. There were no 2-5 week declines. There
were no tests of the 42-day moving average before then.
There was no oversold stochastics or bullish stochastics
patterns before then. And once November 29 was

630
determined to fulfill those criteria for a primary cycle
trough, it was simply a matter of going back and
identifying the pattern type. It couldn’t be a two-phase
pattern with August 27 as a half-primary cycle trough
because the second half bottom on November 29 would
have been 14 weeks later, which was too long.
Assigning the low of October 4 as the second major
cycle phase works well because 1) it was six weeks
after August 27 and therefore in the “normal” time band
for a 5-7 week major cycle trough, and 2) it was the
only time in the 5-7 week interval in which prices
touched the 14-day moving average, which is the
minimum criteria for a major cycle trough. It was also
near the midpoint of two Level One geocosmic
signatures: Venus conjunct Mars on October 3 and
Venus retrograde on October 8.

Figure 71: A three-phase primary cycle in the DJIA beginning July 2, 2010 and lasting

631
through November 29, 2010.

This distorted primary cycle was an excellent example

of the type of market in which a position trader can
apply a “pyramiding” buying strategy, or trading plan.
That is, after the market made a new high for the
primary cycle on September 20, well past Tuesday of
the 9th week, the 14-day moving average moved above
the 42-day moving average, and the price was above
each. This is the type of market environment where one
can buy every new high after the market first declines
for at least two days. This is also considered “breakout
buying” and is usually a profitable trading strategy until
the market enters the last phase of the primary cycle and
starts to exhibit bearish signals. One’s stop-loss can be
placed just below the last isolated low or on a close
below the 14-day moving average, depending on one’s
risk allowance.

The trading plan of the position trader would be to buy

any corrective decline prior to the crest of the third
major cycle phase. Also in this particular case, the
trading plan would be to buy any new high after a 2-day
or greater decline (“pyramiding up”). Once the market
enters its third phase and is making new highs, the
position (and short-term) trader may look for signs to
take profits on all longs, and even to sell short, as a
rather steep 2-5 week decline would be expected into
the primary cycle trough.

632
In this example, we would expect the primary cycle
crest to ideally unfold 2-5 weeks into the third major
cycle phase. As you can see in Figure 71, that indeed
happened. The primary cycle crest was on November 5
as the DJIA reached 11,451, which was four weeks
after the major cycle trough of October 4. This high was
within the range of a 1.382 multiple of the first leg up
from the low of July 2 (9614) to the crest of the first
major cycle at 10,720 on August 9, added to the 9936
low of August 27. Or, (10,720-9614) = 1106, and then
1106 x 1.382 = 1528. If one adds 1528 to the 9936 low
of August 27, the result is 11,464. The high of the
primary cycle was 11,451, which is very close to this
upside price target and within the range for such a top
(11,464 +/- 218).

The sell signal would not have been apparent on the

high of Friday, November 5. It would be more apparent
the next week when the nearby S&P futures made a
new cycle high on November 9, but the DJIA did not,
thus exhibiting a case of intermarket bearish
divergence. There was also a bearish looping stochastic
pattern in both markets at the time. On November 9, the
daily TIP was downgraded from trend run up to neutral,
and the daily close was below daily support (bearish).
By the end of that week, the DJIA would also close
below weekly support and a bullish crossover zone,
strongly suggesting the primary top occurred November
5 in the DJIA and November 9 in the nearby S&P
futures. However, this was a case where there was no

633
compelling support from geocosmic studies to expect a
crest. The only geocosmic signature in effect was
Neptune turning direct on November 5. The more
important geocosmic signatures were coming up after
November 15, and they would fit the time band for a
primary cycle trough. Thus it is doubtful if the position
trader would have gone short as the primary cycle
topped out November 5-9. It is more likely he would
have taken profits, allowed the market to stop him out,
and then waited for a 2-5 week decline into the next
critical reversal zone to buy.

Now let us see how that buy signal would have

unfolded. All types of traders will look for signs to get
long on any primary cycle trough, and this particular
primary cycle provides a good illustration on how to do
that (as do most primary cycles). First of all, we know a
primary cycle trough would be expected to occur 2-5
weeks after the primary cycle crest of November 5. In
other words, it would be due November 15 - December
10. Ideally it would also be 5-7 weeks after the last
major cycle trough, which occurred on October 4. This
would yield a time band of November 9-26. The ideal
overlap for this primary cycle trough would therefore be
November 15-26. We begin our market timing studies
by identifying geocosmic reversal signatures that were
present November 15-26. The following represents the
list of geocosmic signatures that was in effect at the
time.

634
The most heavily populated time band of geocosmic
signatures extended from November 15 through
November 19. So the geocosmic critical reversal date
would be November 17, +/- 3 trading days, which fell
right in the cycle time band for a primary trough that
was projected for November 15-26. All traders,
therefore, would be looking for signs of a primary
bottom November 12 - November 22 (three trading
days each side of November 17). Based on the idea that
the low would unfold 2-5 weeks after the primary cycle
crest, we can narrow this down to the week of
November 15-22.

Let us now go through our list of indicators to watch

during this period in an effort to determine when to buy,
regardless of whether one is a position trader, short-
term trader, or even aggressive shorter trader.

We have just established the time band for this primary

cycle trough, so now we look at price targets. A normal
38.2-61.8% corrective decline of the entire primary

635
cycle would yield a price objective of (11,451 + 9614)
÷ 2 = 10,532.50 +/- 217, or 10,315-10,749. We could
also do the same calculations based on the move up
from the 8-week low of 9936 on August 27, since there
were no impressive corrections after that. This would be
(11,451 + 9936) ÷ 2 = 10,693.50 +/- 179, or 10,514-
10,872. Both of these overlap the low of the previous
major cycle trough on October 4 at 10,711. The overlap
would be 10,514-10,749. This would be our ideal target
for a primary bottom.

However, we know we don’t always get the ideal. The

minimum criteria for this cycle low would be a test or
penetration below the 42-day moving average,
assuming it is above the corrective price range for a
low. Going into the week of November 15, that moving
average was 11,043 and moving up about 10 points per
day. If the DJIA touched that line (or fell below) and
was followed by a change in status on the daily or
weekly TIP, or some other powerful bullish signal, one
could buy with a reasonable stop-loss below the market.
At the same time, we would check to see if there was a
case of intermarket bullish divergence to any market, or
a case of bullish oscillator divergence, or a bullish
looping stochastic pattern below 20%.

So let us see how the weekly and daily numbers looked

going into the weeks of November 15 and November
22, as well as how the chart patterns were developing.
Those numbers are shown in the table on the next page.

636
Entering the week of November 15, the 20th week of the
primary cycle and the 2nd week following the primary
cycle crest, the DJIA was still trading above the 42-day
moving average, and well above our price targets for a
primary bottom. The market had closed above the
weekly TIP for the 11th consecutive week, so it was in a
trend run up. But that weekly close of November 12
was 11,192, which was below a weekly bullish
crossover zone at 11,231-11,249 (not shown in the
table), which was bearish. The market was in the
process of falling to a primary cycle trough, just as we
would have expected. However a primary cycle trough
time band was in effect, and ideally that primary cycle
trough would form this week beginning November 15,
or the following week. Our task was to find a point to
buy, somewhere below 11,043 (the 42-day moving
average) and ideally down to 10,514-10,749 - an
overlap of two price target zones. We would like to see
a case of bullish intermarket divergence to the S&P or
NASDAQ cash or nearby futures contract as this low
forms, or a case of bullish stochastic divergence or a
bullish looping pattern below 20% in the stochastic
oscillator. We would also like to see weekly or daily
support tested or broken, with a close back above that
level, accompanied by a change in the status of the
daily or weekly TIP. The chance of seeing all of these
signals occur was remote, but possible. The probability
of seeing several of these signals unfold was great and
as traders, we have to decide if there are enough of
these “high probability” signals to get long.

637
Figure 72: DJIA daily chart surrounding the primary cycle trough of November 29,
2010.

Day H L C PP TIP S1 S2 R1 R2

11258 11235 11044 11077 11340 11373

Nov 15 11281 11189 11202 11206 11271-D 11127 11129 11267 11209
Nov 16 11194 10979 11023 11224 11237-D 11156 11167 11248 11259
Nov 17 11047 10991 11008 11065 11165-D 10915 10936 11131 11152
Nov 18 11199 11010 11181 11013 11101-N 10982 10985 11033 11036
Nov 19 11206 11119 11203 11130 11070-N 11086 11061 11276 11250

11154 11294 11052 11078 11354 11330

Nov 22 11206 11054 11178 11176 11106-N* 11160 11146 11247 11233
Nov 23 11180 10992 11036 11146 11151-N 11103 11087 11254 11238
Nov 24 11196 11037 11187 11069 11130-N 10942 10959 11130 11147
Nov 26 11183 11067 11092 11140 11118-N 11108 11084 11266 11243

11096 11170 10985 10987 11199 11201

Nov 29 11084 10929 11052 11114 11108-N 11033 11045 11150 11161

638
Nov 30 11062 10943 11006 11021 11092-D 10975 10960 11129 11114
Dec 1 11276 11067 11256 11004 11046-N 10946 10945 11066 11065
Dec 2 11373 11255 11362 11179 11068-N 11121 11083 11390 11352
Dec 3 11389 11319 11382 11330 11170-U 11303 11287 11421 11406

The trading plan for this week, might read like this: “A
primary cycle low is due, ideally November 15-22. Look
for a break below the 42-day day moving average at
11,043. Weekly support is there at 11,044-11,073. If
prices fall below weekly support and then close back
above, get long with a stop-loss below 10,500 or on a
close below weekly support Also look for a day in which
the daily TIP is upgraded from trend run down to
neutral as a signal to go long if prices are below
11,043.”

Heading into November 15, the market had closed

below the daily TIP for 4 consecutive days, so it was in
a trend run down. On Monday, November 15, the
market traded above resistance, but closed back below,
which was a bearish trigger. It closed below the daily
TIP for the 5th consecutive day, so it remained in a trend
run down. The low of the day was 11,189, so it was still
above the 42-day moving average. This was not the day
to buy. It appeared to have further down to go.

On Tuesday, November 16, the DJIA finally broke

below the 42-day moving average, so the minimum
criterion was now being met for a primary cycle trough.
The low of the day was 10,979, and the close was
11,023, which was below daily and weekly support and

639
the daily TIP. The close was bearish and the trend run
down continued. The daily stochastics were falling, but
still not to the oversold 20% mark. Still no buy signal.

The next day was the three-star critical reversal date,

November 17. The market traded between daily support
and resistance, which is neutral. The close was below
the daily TIP for the 7th consecutive day, so still no
convincing buy signal. Yet we are well aware of the
fact that the minimum price criterion has been met and
this is a critical reversal zone, and the low so far has
been 10,979 on Tuesday, November 16.

On Thursday, November 18, the market closed above

daily resistance, which was the first sign that the bottom
may have been in. Resistance was beginning to break.
The close was also above the daily tip, so it was
upgraded from trend run down to neutral. The close was
also back above the 42-day moving average. It was also
back above the weekly support zone, setting up the
possibility of a weekly bullish trigger. A position trader
could now go long with a stop-loss based on a close
below the low of the move so far, which was 10,979, or
even 10,500 if he wanted more room in case the market
still had another sell-off ahead. If one did not buy on the
bullish close, he could also look to buy on a pullback to
the pivot point for the next day (11,130), for there was a
two-thirds probability prices would cross the pivot point
on any given day.

640
The next day was Friday, November 19, the end of the
week. Sure enough, the market dropped back below the
daily pivot point (11,130), where one could buy with a
stop-loss on a close below the low of Tuesday at
10,979. The low of the day was 11,119, which was
above daily support. The high of the day was 11,206,
which was below daily resistance, so the close was
neutral. But the close was above the daily TIP for the
second consecutive day, which is neutral, while at the
same time it was above weekly support, which means
the weekly close was a bullish trigger. Yet the weekly
close was below the weekly TIP for the first time in 12
weeks, which meant it was downgraded to neutral. The
daily stochastics started to turn up from below 20%,
with K crossing back above D. They ended the week
with K at 32.15% and above D at 23.27%. This was
encouraging, but no confirmation that the primary
bottom had been completed. It would have been better
(for the bullish case) if they had formed a bullish
looping pattern or a bullish oscillator divergence. It
would have been more bullish if there had been
intermarket bullish divergence to one of the other
indices at the previous week’s low. But there wasn’t.
Each made new lows on November 16 following their
primary cycle crests of two weeks earlier. What was
needed to support the bullish case was two consecutive
daily closes back above the 14-day moving average. It
was still below that level, which started the week at
11,249. In fact, it was in between the 14- and 42-day
average. It needed to close above both to resume the

641
bullish trend and confirm the primary cycle trough was
in.

The DJIA entered the week starting November 22, the

21st week of the primary cycle and the last week in
which a “normal” primary cycle would be due. Both
position and short-term traders would be long given our
trading plan: in the case of position traders, with a stop-
loss below 10,500 or 10,979 on a closing basis
(depending on one’s risk allowance), but in the case of
short-term traders, only below 10,979. Each would
know that a primary cycle low could have occurred
November 16, just one day before the November 17
critical reversal date, or that it was still unfolding. There
was no confirmation yet that the primary bottom had
been completed.

On Monday, November 22, the market fell below daily

support but closed back above it, which was a bullish
trigger. It closed above the daily TIP for the third
consecutive day, but it was a down day, so it was not a
confirmed trend run up. It remained neutral (N*). But it
would be interesting to note that the low of the day was
11,054, which was into weekly support. In other words,
weekly support held, which was a positive sign.

The next day, November 23, the DJIA dropped back

below 11,000, to a low of 10,992, a re-test of the prior
week’s low at 10,979. That was also into daily support,
which held, and was thus a neutral close but with a

642
bullish bias. But there were new concerns now. The
close was below weekly support, and it was below the
42-day moving average. The close was below the daily
TIP for the first time in 4 days, which meant it remained
neutral. The daily stochastics however were falling
again, and K went below D, the start of a bullish
looping formation. What did this suggest? It suggested
that prices could make a new low. And this time there
would be a case of a bullish looping pattern in
stochastics, and maybe even intermarket bullish
divergence to another index, or a case of bullish
oscillator divergence (new low in price, but not a new
low in the stochastics).

Wednesday, November 24, witnessed prices closing

above daily resistance, which was bullish. The close
was back above the daily TIP after being below it the
prior day, so it remained neutral. After Thursday’s
holiday, the market resumed trading on Friday,
November 26. This was not such a good day for the
DJIA, as it closed in daily support, which was mostly
bearish. It was back below the daily TIP, which meant it
was stalled in neutral. However the close was above
weekly support and the low of the week was below that
support zone, which meant the weekly closed on a
bullish trigger. There was still hope for those long
positions established on November 18 or 19, with a
stop-loss on a close below 10,979 or 10,500. Entering
the new week, our position would still be long (both
position and short-term traders), with a stop-loss below

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10,500 or on a close under the low of the move so far
(10,979), or on a weekly close below next week’s
support (10,985-10,987), depending on your risk
allowance. For the short-term trader, it would be on a
close below 10,979 or weekly support.

On Monday, November 29, the DJIA dropped to a new

low, 10,929, taking out the prior low of 10,979 and both
daily and weekly support of 11,033-11,045 and 10.985-
10,987 respectively. Yet it did not close below that
prior low or daily support. It closed at 11,052 for a
bullish trigger. In addition, neither the NASDAQ nor
S&P futures made a new low, and all closed in the
upper third of the day’s range, for an intermarket bullish
divergence signal. Since they made their primary
bottoms on November 16, one day before the
geocosmic three-star critical reversal date, and the DJIA
made a lower low two weeks later, this was an excellent
buy signal. Both position and short-term traders could
remain long (or get long, if not already long), but it
would be wise to lower the stop-loss on a close below
the new low (10,929) or at a point when the S&P and
NASDAQ futures also made a new cycle low and
thereby negated the bullish intermarket divergence
signal.

The next day, November 30, the DJIA once again fell
below daily support (but not the 10,929 low of
Monday), for another bullish trigger. But the close was
below the daily TIP point for the third consecutive day,

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and it was a down day, which meant its status was
downgraded to a trend run down. We now had mixed
signals.

The next day, December 1, would resolve the dilemma.

The market soared higher, up 250 points to close at
11,256, well above daily and weekly resistance, which
was bullish and well above both the weekly and daily
TIP. The daily TIP was thus upgraded right back to
neutral. There were many other bullish signals that
emerged that day. The stochastics turned back up after
forming a bullish double looping and bullish oscillator
pattern, with K rising back above D, both above 25%
and K widening its distance above D. The close was
above both the 14- and 42-day moving averages,
confirming the probability of an expanded 22-week
primary cycle now completed. The 14-day average
never moved enough below the 42-day moving average
to suggest the trend run up via moving averages was
ever really over. That meant we could expect new
highs, and traders could resume a pyramiding buying
strategy very early in the new primary cycle. That is,
every time the market made a new cycle high (above
the 11,452 high of November 5), one could add onto
long positions, especially after a two-day or greater
decline. A very bizarre and distorted primary cycle had
come to an end. The “Asset Inflation Express” was now
back on track and would remain in effect until May
2011. Despite the difficulties encountered in labeling
this primary cycle correctly from July through early

645
September 2010, it eventually gave its bullish signal
and settled into a fabulous bull market in which traders
could make substantial gains following the trading
plans outlined in this chapter. They are based upon the
market timing and technical studies presented in these
five volumes. This primary cycle ended, and the new
one began, in a classical formation of buy signals
generated November 18 through December 1. Both
position and short-term traders would have been long
from the close of November 18 (11,181) or the pivot
point of November 19 (11,130) and were never stopped
out via the stop-loss points that would have been
enacted according to the trading plan outlined in this
chapter. This is how it should be and how it usually is,
when primary cycle troughs form in the stock market. It
is as good as it gets.

Short-Term Aggressive Trading

The one area yet to be covered in detail is that of

aggressive short-term trading. By that, I am referring to
trades that are entered into with the idea of exiting
within 1-5 days afterwards. Often they turn out to be
day trades (in and out the same day).

Like position and short-term traders, the aggressive

trader will use many of the tools provided up until this
point. The major difference will be the importance
placed upon solar-lunar reversal dates and intraday
oscillators like stochastics and various chart patterns

646
that might form during any particular day - especially a
solar-lunar reversal day.

In terms of timing, short-term aggressive traders will

look for a particular setup to unfold when entering a
geocosmic critical reversal zone or solar-lunar reversal
date. To be a valid setup, the market must form an
isolated low or high during these time bands. An
aggressive trader has to anticipate that this will happen
the day before the setup is fully completed. If he waits
until the day the setup is completed, he will have
missed the greater part of the trade and hence lost out
on potential profits.

So let us back up a moment and review the setup as

explained in Volumes 3 and 4 of this Stock Market
Timing series. Once a critical reversal date has been
determined, we look for an isolated high or low to occur
within 7 trading days, i.e. from a time band that starts
three trading days before the critical reversal date
through three trading days afterwards. In the case of
solar-lunar reversal dates, the time band is narrowed to
only 1-3 days (usually two days). That is because each
solar-lunar reversal combination only lasts about 60
hours (2-½ days). That is how long it takes for the
Moon to travel through each zodiac sign. When it
changes signs, so does the solar-lunar combination.

An isolated high is formed when the market takes out

the high of the previous day, and then that high is not

647
taken out the next day. It is the highest price between
two days of lower highs. It is a day whose high is
higher than the day before and the day after. All cycle
crests are isolated highs, but not all isolated highs are
cycle crests - at least not of the type that we have
defined as trading, major, half-primary, and primary
cycle crests. They may be crests of much smaller cycles
that are measured in terms of hours instead of days.

An isolated low is just the opposite. It is a lower price

than the low of the day before and the day after. The
low of the day before is higher than the low of this day,
and the low of the day after is also higher, so it stands
out as an “isolated low” day. All cycles troughs are
isolated lows, but not all isolated lows are cycle troughs
- at least not of the type that we have defined as trading,
major, half-primary, and primary cycle troughs. They
may be troughs of much smaller cycles that are
measured in terms of intraday moves instead of days.

Figure 73 (on the next page) identifies examples of

isolated lows and highs in the German DAX index for
June 2011. Isolated high and low days are not that
uncommon. They are not all that important, except
when they happen during a time band for a cycle
reversal, geocosmic critical reversal zone, or solar-lunar
reversal period.

As one can see from the graph in Figure 73, there were
10 instances of isolated highs and lows in the 20 trading

648
days between June 2 and June 29. They occur rather
often. But they are important as a trading setup when a
solar-lunar reversal date is in effect, especially if they
represent the end of 2.5% or greater move (ideally 4%
or more) from a recent low or high. For that matter,
they are important when a geocosmic critical reversal
zone is in effect too.

Figure 73: Daily Chart of German DAX Index for June 2011, depicting instances of
isolated lows (1-4) and isolated highs (A-F).
The trading plan for the aggressive short-term trader
during a solar-lunar reversal period of 1-3 days is
simple. As soon as the market enters the solar-lunar
reversal day(s), one looks for prices to exceed the
previous day’s high or low. If it takes out the low first,
then the aggressive trader prepares to implement a
trading plan to buy. If it takes out the high of the prior
day, then he prepares to implement a selling (shorting)

649
trading plan. It can do this on the first or second day of
the solar-lunar reversal period, even the third day if
there is a third day in which the Moon remains in that
reversal sign. If the market takes out the low of a prior
day during this solar-reversal zone, it is best if the lows
that are unfolding are at least 2.5% below the most
recent trading cycle crest (which may also be the major,
half-primary, or primary cycle crest). If it takes out the
high of the prior day first during this solar-lunar
reversal zone, then it is best if this high is at least 2.5%
above the most recent trading cycle trough (which may
also be the major, half-primary, or primary cycle
trough). This is the start of the setup. The trading plan
cannot be activated until this first step to an isolated
high or low has developed - it has to take out the prior
day’s low or high in the reversal zone.

The next step is to identify daily or weekly support

points in the case of a potential isolated low, or
daily/weekly resistance points in the case of a potential
isolated high. You may also calculate potential price
objectives for intraday swings based on the formulas
given in this book, such as MCP price targets, but
applied to smaller swings than those that would be used
to calculate a major or greater cycle trough or crest.

The third step is to examine the 60-, 30-, and 5-minute

charts, and note if they are overbought or oversold on
the 15-bar slow stochastics, just as we did with the daily
and weekly charts. In fact, we prefer to see these

650
overbought and oversold levels to be even more
extreme, depending on the lowest time band used. That
is, the hourly and 30-minute chart may be overbought
when above 80%, but it is better if they are over 90%.
The 5-minute chart, however, is more revealing when it
is closer to 100%. The same is true in the case of being
oversold. A 20% or lower reading is required for the
60- and 30-minute stochastics, but a 10% or lower
reading is even better. On a 5-minute chart, the closer
the stochastics are to 0% the better. Additionally, the
aggressive trader will also look for any bullish looping
patterns or cases of bullish oscillator divergence on any
of these intraday charts, as the market drops to a new
intraday low in price. In the case of new intraday highs,
he will look for bearish looping patterns or bearish
oscillator divergence on the 60-, 30-, or even 5-minute
chart when readying to execute the trading plan.

The fourth step is to then set the stop-loss at a favorable

risk-reward point. That is, if we are looking for a 250
point or greater move in the DJIA, the stop-loss should
be set approximately 100 points away from the entry
point. This can be adjusted based on the market falling
or closing below daily support or above resistance,
depending on whether the entry position was a long or
short.

So let us summarize these steps for a short-term

aggressive trader’s trading plan.

651
If Going Long:

1. Once the market enters the solar-lunar reversal

1.
zone (or even a geocosmic critical reversal zone),
look for the market to fall below the prior day’s
low.
2. 2. Identify daily or weekly support zones and
intraday downside price targets based on the
intraday pattern. It is best if these support zones
are at least 2.5% below the high of the most recent
trading cycle crest. However, that is not always
going to be the case - it is just best when it is.
3. 3. Once the market enters one of these downside
support zones, look to see if the 60-minute chart
shows a 15-bar slow stochastic reading that is
oversold or at least back to the neutral 42-58% if it
has been above 90%. Also, observe if there is a
bullish looping pattern or a bullish oscillator
divergence on the 60-minute bar chart, as prices
are dropping into this support zone. If you use
other oscillators that measure oversold or neutral
readings, you may use them in place of stochastics.
If you use other technical tools, like a sudden spike
in volume for the hourly bar, you may use that as a
signal to act as well.
4. 4. Next, check the 30-minute bars for the same
signals. It needs to indicate the market is oversold,
and even better, if it is forming bullish oscillator
patterns (i.e. bullish divergence or a bullish
looping pattern).

652
 5. Next, use the 5-minute chart to observe the same
5.
oscillator signals. Here, it may even be better to
wait until the stochastics come very close to 0%,
then rally, and then come down again a second
time, just to be sure support is holding on the first
re-test. You will often see the kind of bullish
patterns we like to see at the bottom that forms on
the re-test of the first low.
6. 6. You may even use a one-minute chart, or tick
chart, to help guide you into the entry point. If
doing so, then that stochastic reading needs to be at
- or very close to - 0% as the low is forming.
7. 7. Set your stop-loss either 100 points below your
entry (if trading the DJIA), or below one of the
daily or intraday support zones that held on the
move down. You can move that stop-loss up to just
below the low of the move once the 30- and/or 60-
minute bars confirm the low of the move is in for
this solar-lunar reversal zone (or geocosmic critical
reversal date time band).
8. 8. Your trading plan should include a point at which
to take your profit. It should initially be at least
2.5% up from the low of the move, and/or based
on the trading plan rules for selling short (next
section). Usually this will be achieved within the
next 1-5 trading days.

If Going Short:

653
1. 1. Once the market enters a solar-lunar reversal
zone, look for the market to rally above the prior
day’s high.
2. 2. Identify daily or weekly resistance zones and
intraday upside price targets based on the intraday
pattern. It is best if these resistance zones are at
least 2.5% above the high of the most recent
trading cycle trough. However, that is not always
going to be the case - it is just best when it is.
3. 3. Once the market enters one of these resistance
zones, look to see if the 60-minute chart shows a
15-bar slow stochastic reading that is overbought
or at least back to the neutral 42-58% if it had
recently been below 10%. Also observe if there is
any case of a bearish looping pattern or bearish
oscillator divergence on the 60-minute bars as the
price falls into this support zone. If you use other
oscillators that measure overbought or neutral
readings, you may use them in place of stochastics.
If you use other technical tools, like a sudden spike
in volume for the hourly bar, you may use that as a
signal to take action.
4. 4. Next, check the 30-minute bar chart for the same
signals. It needs to indicate the market is
overbought, and even better, forming bearish
oscillator patterns (i.e. bearish divergence or a
bearish looping pattern).
5. 5. Next, use the 5-minute chart to observe the same
oscillator signals. Here, it may even be better to
wait until the stochastics come very close to 100%,

654
 then decline, and then rally to a secondary high,
just to be sure resistance is holding on the first re-
test. You will often see the kind of bearish
technical patterns we like to see as the secondary
crest is forming.
6. 6. You may even use a one-minute chart, or tick
chart, to help guide you into the entry point. If
doing so, then that stochastic reading needs to be at
or very close to 100% as the high is forming.
7. 7. Set your stop-loss either 100 points above your
entry for the short sale (if trading the DJIA) or
above one of the daily resistance zones that held
on the move up. You can move that stop-loss down
to just above the high of the move once the 30-
and/or 60-minute bar chart confirms the high of the
move is in for this solar-lunar reversal zone (or
geocosmic critical reversal date time band).
8. 8. Your trading plan should include a point at which
to take your profit. It should be at least 2.5% down
from the high of the move and/or based on the
trading plan rules for going long (the previous
section). Usually this will be achieved within the
next 1-5 trading days.

Now let us show an example of how these rules

would have worked in a real case. On June 23-24, 2011,
the Sun was in Cancer and the Moon was in Aries. This
has a weighted value of 144.6, which is thus a strong
solar-lunar reversal signature. The DJIA had bottomed

655
the week before, June 15, at 11,862.50. Weekly support
was 11,871-11,876. Daily support was 12,058-12,074.
The low of the previous day (June 22) was 12,105. The
high was 12,208. Whichever broke would set up the
trade for the aggressive short-term trader. Figure 74
shows what the DJIA looked like as of the close June
22.

Figure 74: Daily chart of DJIA going into the solar-lunar reversal date of June 23-24,
2011.

Note that the most recent high was 12,217 on June 21.
A 2.5% decline would take the market down to 11,912.
If the market took out the low of the prior day at
12,105, we would like to see it continue to fall to at
least 11,912 for a more optimal buying set up.

Now let us show what happened via the 60-minute, 30-

minute, and 5-minute bar charts that day. The charts on
the following page are intraday charts from the Charles
Schwab “Street Smart Edge” Trading platform.1 In the
first hour of trading on June 23, the DJIA fell below the

656
low of the prior day. We also note that the 60-minute
stochastics fell below 20% that first hour, which was in
oversold territory. K was at 7.27% and well below D at
35.24%. As you can see from the chart in Figure 75, the
actual low of 10,874.90 was made in the second hour.
Note that this was right into weekly support. It held.
The confirmation that this was the low would not come
until two days later when prices closed above the 15-
hour moving average.

Now let us examine the 30-minute chart (Figure 76,

next page) for that period and see if there were further
signs that would help determine when and where to get
long on June 23. Late the day before, the 15-bar
stochastics showed the K line bottoming at 5.76% and
below the D line at 20.00%. But the actual low of
10,874.90 was not realized until the third 30-minute bar
of the next day, June 23, when the solar-lunar reversal
signal was in effect. At the low, K was at 6.44% -
higher than it was in the last 30-minute bar of the day
before. D had fallen back to 7.90%, but it is K that we
are most interested in for signs of bullish oscillator
divergence. We got it here.

657
Figure 75: An hourly chart of the DJIA from June 13 through July 7, 2011. Shown here
are a 15-bar moving average and a 15-bar slow stochastics. Note the double bottom lows
of June 15 and June 23.

Thus as we entered the first 90 minutes of June 23, we

knew several things were occurring that would lead us
to buy. First, prices were below the low of the former
day, so the setup was beginning. Second, the hourly
stochastics were in oversold territory, which is a
criterion for preparing to buy. Third, the 30-minute
stochastics were exhibiting signs of bullish oscillator
divergence (a new low in prices, but at a rising
stochastic level). And third, prices were falling into
weekly support and holding. This support level was a
double bottom to the low of the prior week, which also
represented support.

658
Figure 76: A 30-minute bar chart of the DJIA from June 21 through June 30, 2011.
Again, this chart displays a 15-bar moving average and a 15-bar slow stochastic. Note
that the low of June 23 occurs in the third 30-minute bar of that day.

Now it was time to study the 5-minute chart for further

guidance on when and if to buy. Aggressive traders
would use this, and perhaps even the 1-minute chart, to
establish an entry point from the long side, with a 100-
point stop-loss or a stop-loss based on a close below
weekly support (11,871). The 5-minute chart of this
period is shown below in Figure 77.

Figure 77: A 5-minute bar chart of the DJIA from June 22 through June 24, depicting
the low at 10:50 AM at 10,874.90 on June 23.

659
Notice that the stochastics bottomed at 10:20 AM as K
fell to nearly zero. It was at 0.34% and below D at
6.76%. Five minutes later the price fell lower, but the
stochastics were beginning to rise. K was at 9.74% and
above D at 6.25%. One could have bought here - the
low was 11,887 - with a stop-loss 100 points lower, as
the 60-, 30-, and 5-minute charts were all flashing signs
of a bottom forming on the solar-lunar reversal date and
close to weekly support. Or, as suggested in our trading
plan, the aggressive short term trader could wait for a
secondary low to form (it usually does) and buy that if
it continues to exhibit bullish signs. That would have
worked out even better, because 25 minutes later the
DJIA did make a new low at 10,874.90 - right in the
weekly support zone. As this secondary but lower low
unfolded, the 5-minute stochastics were already rising.
K was up to 16.14% and above D at 8.87%. We now
had a good buy signal via the “bottom picking”
strategies that these studies are designed to capture. At
2:45 PM, the DJIA tested this low again, falling back to
11,906. But then it started to rally strongly, closing the
day at 12,050, up 175 points from the low of the day at
10:55 AM. In retrospect, the DJIA never looked back at
that low over the next month.

Let us do one more example and then close this section

on aggressive trading plans. Those lows of June 16 and
23 turned out to be a double bottom primary cycle
trough. In addition to June 23 being a solar-lunar

660
reversal zone, it was also just two trading days before
June 27, which was a three-star geocosmic critical
reversal date. Thus the DJIA was also in the time band
for a primary bottom and within a geocosmic critical
reversal date period.

Figure 78: Daily chart of the Dow Jones Industrial Average, June 10 - July 20, depicting
the double bottom primary cycle trough of June 15 and June 23, the major cycle crest of
July 7, and the major cycle trough of July 18.

As one can see from the chart in Figure 78, the DJIA
soared from the lows of June 16 and 23, at 11,862 and
11,874 respectively, to a high of 12,753 three weeks
later on July 7. The DJIA then declined to a 5-week
major cycle trough on July 18 at 12,296. That also
happened to be another solar-lunar reversal date. The
Sun was in Cancer and the Moon was in Pisces, which
had a weighted value of 120.6 according to the studies

661
reported in Volume 4. Any value above 120 (or in
actual practice, above 114) has a higher than average
expectancy for a reversal. Thus the market was falling
into July 18-19 as the solar-lunar reversal signature was
readying. The high of the prior day (Friday, July 15)
was 12,504, the low was 12,406, and the close was
12,479. Which would break first, the high or the low, as
we entered this lunar reversal zone? Whichever broke
would dictate the trading plan for the aggressive trader.

The low broke first. Therefore the trading plan would

be to buy. Now the task would be to determine at what
price to buy. For this we can apply a couple of price
objective calculations to determine support zones and
possible points to buy with a 100-point stop loss. The
first calculation can be a simple 50% correction of the
swing up from the double bottom lows of June 15
(11,862.50) and June 23 (11,874.90), to the major cycle
crest of 12,753.90 of July 7. That would yield a price
target of 12,308.20 +/- 105.18 or 12,314.40 +/- 103.72.
The overlap of these two price ranges would be
12,210.68-12,413.38. This is the most important price
range to consider. The hourly chart in Figure 79 would
show a move down from the high of 12,753.90 on July
7 to a low of 12,446 late in the day on July 12. The next
day it rallied to a secondary high of 12,611. An MCP
downside price target on the hourly chart would give a
price target for the decline down to 12,303.10 +/- 53.20.
This range would be 12,249.90-12,356.30, which
overlapped with the other two price ranges. Therefore

662
this becomes our preferred price range to buy on the
solar-lunar reversal dates of July 18-19, assuming the
DJIA falls into there.

Second, we can simply look at the level of the 25-week

and 42-day moving averages as support. For the week
starting July 18, the 25-week moving average was at
12,297. The 42-day moving average was at 12,292 on
July 18.

Next, we look at weekly and daily support zones or TIP

points that are below 12,406, the low of the prior day.
That would include weekly support at 12,354-12,372
and daily support at 12,422-12,430. There was also a
former bullish crossover zone still in effect at 12,305-
12,332 from June 29-30.

The trading plan would therefore be to buy in the area

12,249.90-12,356.30, if offered, with a stop-loss below
11,862.50 (the start of the primary cycle), or on a close
below 12,210 (price target zone of the most important
correction areas), or a close below the bullish crossover
zone at 12,305, or a weekly close below 12,354 (weekly
support). It all depends upon the trader’s personal risk
tolerance level, for any of these can be justified as a
technical stop-loss point to start with. But you may
prefer a “dollar-risk” stop-loss point. To adjust for that,
we would want to see the 60-, 30-, and 5-minute charts
display a case of oversold oscillators, or better yet,
oversold and with a looping pattern and/or exhibiting a

663
bullish oscillator divergence. Once we see the “optimal”
point to enter, we may elect to set a stop-loss 100 points
below the entry point, or the low of the move just prior
to the actual entry point.

Figure 79: An hourly bar chart, with a 15-bar slow stochastics and a 15-hour moving
average, showing the major cycle trough of July 18.

The 60-minute chart in Figure 79 shows each of these

bullish stochastic conditions present at the low of
12,296 that formed in the third hour of July 18. Not
only was there a bullish looping pattern at the low, but
the stochastics were rising (bullish oscillator
divergence). The low was 12,296.20, which was within
the ideal price target zone.

The half-hourly chart (Figure 80, shown on the next

page) displayed a similar pattern at the low of July 18 at
11:30 - noon. That is, the stochastics were oversold
with K = 2.48% and below D at 9.82%. The low that
formed then was the second loop of a double looping
formation below 20%, and even below 10%, which is
more ideal for a low.

664
Figure 80: A chart of 30-minute bars, with a 15-bar slow stochastics and a 15-hour
moving average, showing the major cycle trough of July 18.
The five-minute chart in Figure 81 (next page) shows
that the low occurred at the 11:50 AM mark on July 18.
The low prior to this occurred at 10:50 AM, an hour
earlier, at 12,309. The K line of the stochastics at that
time was at 0% and below D, which was at 8.09%.
Previously we explained how we like to see the 5-
minute stochastics close to 0% as a low forms, or a
bullish looping formation where the second low is
lower in price, but higher in its stochastic level. That
happened here. At the actual low of 12,296 at 11:55
AM, the 5-minute stochastics were higher, with K up to
8.14% and still below D at 11.09%, but qualifying as a
case of bullish oscillator divergence. Since both the 30-
and 60-minute charts were flashing buy signals, and
since the market was into the ideal price support zone
for a major cycle trough, and since this was a solar-
lunar reversal zone, one could now buy with a stop-loss
of about 100 points below the low of the actual move
(12,296) or your entry point, depending on your risk
tolerance level. Or, if you have a wider risk tolerance
level, you could set the stop-loss below any one of the

665
other stop-loss points given before, but no lower than
11,862. Once the low is confirmed by a move up above
a daily resistance zone, or say the 15-bar moving
average on the 30-minute chart, you could move your
stop-loss up to just below the low of the move. Once it
appreciates at least 2.5% from that low, the aggressive
short-term trader will start looking to take profits. That
means the minimum price objective initially for taking
profits would be 12,603. Ideally this would happen in
the next 1-4 trading days. But even so, it is best to see a
technical selling situation in effect in order to maximize
profits from the position.

As one can see, this trade worked out very well, as the
set up suggested it would. The very next day the DJIA
had rallied to 12,607, already above the minimum price
target of 12,603. The rally topped out at 12,751.40 on
Thursday, July 21, which was already into the next
solar-lunar reversal zone, as the Sun was still in Cancer
and the Moon had advanced into Aries. This
combination had a weighted value of 144.6 for a market
reversal. That was well above the 120-weighted value
necessary for a formal solar-lunar reversal possibility,
and it turns out that Thursday was an isolated high. One
could take profits and short the market then. That short
would have worked out just fine too, as the market then
declined sharply into the following week, as shown in
Figure 82 on the next page.

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Figure 81: A chart of 5-minute bars, with a 15-bar slow stochastics and a 15-hour
moving average, showing the major cycle trough of July 18.

Figure 82: A five-minute chart of the DJIA showing the high that formed on July 21.

You have now seen how these formulas are designed to

work and in a surprising number of cases, this is how
they actually do unfold in real time. For short-term
aggressive traders, this is as good as it gets.

An Additional Note Regarding Stop-Losses

For aggressive traders, it is advisable to move your

stop-loss up to at least break-even once the 15-bar
moving average is exceeded on the 30- or 60-minute
charts. The reason for doing this is because aggressive
traders will be more prone to experience sudden
reversals that take away all their profits - and more -
than position traders will be. Many analysts feel that

667
position traders should also move their stop-losses up to
break even once the position is in profit, but in so
doing, you will experience an abundance of times when
you are taken out of a position for a break-even that
later would turn out to be profitable. My suggestion is
to wait at least until a pre-defined resistance level is
taken out before you move your stop-loss up to break
even. Otherwise your stop-loss will be a “guaranteed
loss”, and no gain, which for a position trader is very
frustrating.
References:

1. 1. “Street Smart Edge,” Charles Schwab & Co., www.schwab.com, San

Francisco, CA, USA.

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CHAPTER TWENTY-ONE

FINIS

After 15 years of writing, researching, and reporting

the results of scores of studies on the correlation of
stock markets to cycles, geocosmic signatures, chart
patterns, trend analysis, and technical analysis studies,
we have finally arrived at the final chapter of the fifth
and final volume of this series titled “The Ultimate
Book on Stock Market Timing.” It has been an
unbelievable journey that has been undertaken with the
intention of being able to identify historical correlations
of high rates of frequency that will stand the test of
time. I confess one motive for creating these volumes
was to serve as reference books for my own needs as a
trader and investor because it was time-consuming to
keep looking up what happened the last time this or that
cycle was due, or this or that geocosmic signature was
present. It was time consuming to keep looking up what
happened the previous times in which certain chart
patterns occurred under certain technical conditions and
how far the resulting price moves took the market. By
writing this series of books, many answers to the above-
mentioned concerns would be quickly available to any
student on stock market timing. And I still consider
myself such a student. The learning never ends because
the questions never cease and the quest is always alive.

And now we come to the final pages of this effort,

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which seems more like an epic because - by choice - it
passionately consumed so much of my life. It is these
final strokes in these last chapters that have tied it all
together so that traders, investors, students, and market
analysts alike will have at their disposal a truly unified
system for approaching financial markets. So to bring
this effort to a satisfying closure, let us demonstrate
how these basic principles have continued to work in
the primary cycles of the DJIA that have unfolded
between November 29, 2010 and the time this last
chapter has been written in late July 2011. It is a perfect
way to end the book, because the primary cycles that
unfolded since the distorted one of July 2 - November
29, 2010 have been almost picture perfect in terms of
cycles, geocosmic studies, price objective studies, and
technical studies.

The Rest of the Story that Never Ends

For this final exercise, we will focus only on the key

elements of the position trader. That is, we will examine
the periods surrounding the primary cycle troughs and
crests that unfolded between November 29, 2010 and
the time this book has been written, with an eye on both
the longer-term cycles that contain these primary cycles
and the subcycles (or phases) within the primary cycle.
This is the manner in which multiple time bands of
cycles are tied together in the effort to identify the most
likely trend of the primary cycle.

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Figure 83: Weekly chart of the DJIA from the 4-year cycle trough of March 2009
through July 2011, depicting the 50-week cycle troughs so far (2A and 3) and the first
phase of the 4-year cycle (2A). Note that 2 would have been a normal 50-week cycle
trough, but it expanded to coincide with the first 15.5-month cycle phase of the 4-year
cycle at 2A. Note the bullish oscillator divergence that occurred at 2A.

To begin this final analysis, we will commence by

examining the weekly chart of the DJIA starting from
the 4-year cycle trough of March 6, 2009, shown in
Figure 83.
In the earlier chapters of this book, it was determined
that the first phase of the 4-year cycle bottomed on July
2, 2010. It was also determined that July 2, 2010 was a
distorted (expanded) 50-week cycle that actually lasted
69 weeks. Distortions like that have a less than 10%
historical frequency. Therefore, connecting the 4-year
cycle low of March 6, 2009 with the trough of the first
phase of the four-year cycle, i.e., 15.5-month cycle of
July 2, 2010, creates a bullish trendline that defines the
bullish trend for the 4-year cycle. This is known as the
15.5-month cycle trendline. Once this trendline is

671
broken, it will suggest that the crest of the next highest
cycle on this trendline is probably over. That would be
the 4-year cycle crest. A confirmation of this labeling
would occur when the 15.5-month cycle low of July 2
(9614) is broken. The break of the trendline would be a
strong bearish signal that this could be happening. In
fact, it would be a very strong indication that this bull
market has ended because it has become a 4-point
trendline as shown on the chart in Figure 83. That
trendline was tested - and held - at the lows of August
27, 2010 and at the primary cycle trough that occurred
in June 2011, shortly before this is being written in July
2011.

The next thing to observe about this weekly chart is the

25-week moving average. From the low of July 2, 2010,
the next 50-week cycle would be due 34-67 weeks later.
Prices would likely break below this 25-week moving
average as the 50-week cycle formed. You can see that
this moving average was broken as the DJIA formed an
important low on June 15, 2011. That happened to be
exactly 50 weeks from July 2, 2010. Now we will wait
to see if it will also turn into another expanded 50-week
cycle to coincide with a 15.5-month cycle (2nd phase of
the 4-year cycle), similar to what occurred at 2 and 2A
in 2010 (in Figure 83). A break below the 25-week
moving average would suggest that this will be the case.
A close below the 4-point trendline would be an even
stronger case. In fact, a break of the trendline would
suggest the 4-year cycle may have topped out and the

672
market has turned bearish. The U.S. stock market could
then turn into a bear market lasting into the next 4-year
cycle trough, which would “normally” be due January
2013, +/- 10 months (36-56 months after March 6,
2009). But as you will see shortly, the low at 3 (in
Figure 83) fits well for a 50-week cycle trough as it was
the third primary cycle phase within the greater 50-
week cycle that started at 2A.

Now, let us analyze the primary cycles that unfolded

since November 29, 2010, which was the first primary
cycle phase of that 50-week cycle that started July 2,
2010.

Figure 84: The primary cycle of the DJIA between November 29, 2010 and March 15,
2011.

In Figure 84, one can see that the second primary cycle
phase of the 50-week cycle lasted from November 29,
2010 through March 16, 2011. The “normal” time band

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for the primary cycle is 13-21 weeks, and this one
lasted 15 weeks, which means it was a normal primary
cycle periodicity. It was also a classical three-phase
pattern, consisting of three major cycles, but the last
one contracted and only lasted three weeks.

As expected, this was a bullish primary cycle. Why

was that expected? Because 1) it was still early in the
15.5-month cycle, and 2) the 14-day moving average
remained above the 42-day moving average as the
primary cycle began, which meant it was still in a trend
run up. In the very first week of the primary cycle,
prices were above both the 14- and 42-day averages,
which simply confirmed that the market was bullish. In
all likelihood, it would not top out until after Tuesday
of the 9th week (the “bullish 8-week rule”) and well into
the second or third phase of this primary cycle. In fact,
that is exactly what happened as this primary cycle
topped out at 12,391 on February 18th, the 11th week of
the primary cycle, and the 5th week of the second major
cycle phase.

Was there a geocosmic critical reversal date or an

important Level 1 geocosmic signature nearby to this
primary cycle crest? The answer is, “Yes.” Below is a
list of geocosmic signatures that were present around
that time.

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As one can see, there was indeed a geocosmic cluster in
effect from February 17 through February 25. The
midpoint was February 21, which was a Monday and a
holiday in the USA. The critical reversal zone would
thus be February 18-22, +/- 3 trading days. The last day
of trading before February 21 was February 18, which
was of course within the allowable time frame for a
geocosmic critical reversal date. Additionally there
were two level 1 signatures in effect during that cluster,
on February 17 and 18 respectively. So time-wise via
geocosmic studies, February 18 fit almost perfectly for
a primary cycle crest. As a point of interest, European
and Asian stock markets were open on Monday,
February 21, and many of them made their cycle highs
exactly on that day. Thus there were cases of
intermarket bearish divergence when some indices
made highs one week, and others made new cycle highs
the following week.

The next step would be to calculate price objectives for

this primary cycle crest. This process would start by
looking at the weekly chart in Figure 83. Note that from
the low of July 2, 2010 at 9614 through the primary
cycle crest of November 5, there were two waves up.

675
This would include the major cycle crest of August 9 at
10,720 and the primary cycle crest of 11,451 on
November 5. If we take the difference between the high
of the second swing up (11,451) and the start of the 50-
week cycle at 9614, we get a result of 1837 points. Now
let us multiply that by .618 to estimate the extent of this
next move up. 1837 x .618 = 1135. If we add this to the
primary cycle low of 10,929 on November 29, we get
one of the price targets for the crest of the new primary
cycle. This would be 10,929 + 1135 = 12,064. The
allowable orb for this price target would be (12,064 -
9614) x .118 = 289. The range for the crest of this
primary cycle, via this calculation, would be 11,775-
12,353.

Next we would calculate the MCP (Mid-Cycle Pause)

price objective from the previous two primary cycle
lows. That is, we would add the 11,451 primary cycle
crest of November 5 to the 10,929 primary cycle trough
of November 29, and from that total we would subtract
the 9614 primary cycle low of July 2. It would look like
this: (11,451 + 10,929) – 9614 = 12,766. The orb of
allowance would then be (12,766 – 9614) x .118 = 372.
The range for the MCP price objective for the primary
cycle crest would thus be 12,393-13,138. There was no
overlap to the first price target of 11,775-12,353. What
is interesting, however, is the space between these two
targets: 12,353-12,393.

Next, we could calculate an MCP for the crest of the

676
second major cycle. The crest of the first major cycle
occurred on January 5 at 11,743. The major cycle
trough was just a couple of days later at 11,574 on
January 10. Adding these two together (11,743 +
11,574 = 23,317), and then subtracting the primary
cycle trough of November 29 at 10,929 from it (23,317
– 10,929) will yield the MCP of the next crest at
12,388. Applying our .118 rule of the difference
between this upside price target and the low from which
the cycle began (12,388 – 10.929) for the orb gives us a
price target of 12,388 +/- 172, or a range of 12,216 –
12,560. This overlapped with the prior price target at
12,393-12,560. But as one can see from the chart, the
actual crest was 12,391, which was very close to the
exact later MCP price target of 12,388 +/- 172. Perhaps
if February 21 had not been a holiday, the DJIA would
have made it up to this overlapping price range just two
points higher. Thus in our final analysis, the time
factors worked extremely well, and one of our price
target zones was fulfilled almost exactly.

At the high, one can see that the 15-day slow

stochastics were overbought. The K line was at 98.23%
and above D at 95.38%. They had formed a bearish
double loop. However it was not until the next trading
day on February 22 that they started to curl back down.
That day the market also closed below the 14-day
moving average, a sign that at least a major cycle crest
had been completed.

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 Two days later, the first leg down was completed at
11,983 on February 24. This would turn out to be a
major cycle trough. The rally that followed did not
make a new cycle high. The crest of the third major
cycle topped out on March 3 at 12,283. We note that the
daily stochastics never reached oversold levels on the
major cycle trough of February 24. Consequently it was
no surprise that on the rally to the major cycle crest of
March 3, the stochastics did not rise beyond the neutral
level of 42-58%. The market then reversed back down,
on its way to the primary cycle trough, where 1)
stochastics would be expected to fall below 20%, and 2)
the DJIA would likely at least touch the 42-day moving
average, and better yet, fall below there. They did that
on March 10.

The next step would be to determine the time band for

the primary cycle trough. The expectation is that it
would occur 13-21 weeks after November 29, 2010, or
February 28 - April 29. We would also expect it to
occur 2-5 weeks after the primary cycle crest of
February 18, or February 28 - March 25. The overlap
would be this later time band, or February 28 - March
25. Ideally it would also overlap with the next 5-7 week
major cycle, following the second major cycle trough of
February 24. This would come out to March 28 - April
15, but this did not overlap the previously determined
ideal time frame. As it turned out, the primary cycle low
was completed on March 16, which was in the original
overlap zone.

678
This was a case where the geocosmic signatures did not
coincide with the primary cycle trough. That happens
about 18% of the time, according to studies conducted
in Volume 3. Between February 28 and March 25, there
were no significant planetary signatures present until
March 21, when the Sun formed a conjunction to
Uranus. This was a very powerful geocosmic signature
with a C/S value of 9.70 and an 83% correspondence to
primary or greater cycles, which is very high. The low
of March 16 was only three trading days prior to this
aspect, so it fulfilled the minimum criteria for a
reversal, although it was not the kind of precise
correspondence we like to see for a primary cycle
trough, which is a midpoint of a geocosmic cluster, +/-
3 trading days. The reason it didn’t happen “on time”
via this study may have been due to the enormity of the
UFO (Unexpected Fundamental Occurrence) event that
took place the weekend before. On Friday, March 11, as
Uranus entered Aries and after the U.S. markets had
closed, a huge earthquake struck northern Japan,
followed by a devastating tsunami and wreckage of a
nuclear power plant that led to deadly radiation leaks.
Stock markets around the world reeled as trading began
the next week. In the study of astrology, Uranus rules
earthquakes and these types of disasters. Uranus
changing signs (a 7-year event) and the Sun conjunct
Uranus on the spring equinox (it was also a full moon)
certainly fit these events which transpired, but it was
not a perfect correlation for the primary cycle trough of

679
March 16. It would have been a better geocosmic
correlation if the bottom had occurred the following
week.

Like the cycle studies, however, the price objective

calculations fared very well at that low. A “normal”
corrective decline of the primary swing up from the
10,929 low that started the primary cycle on November
29 to the 12,391 primary cycle crest of February 18
would yield a price target of 11,660 +/- 173 for the
primary cycle trough. There was a second downside
price target that could be calculated by multiplying
1.618 of the first leg down from the crest at 12,391 to
the major cycle low of 11,983 on February 24. Then we
subtract that amount from the major cycle crest of
12,283 on March 3, to get a price target of 11,623 +/-
91. The range was thus 11,531-11,713, which
overlapped the first price target range for this low given
above. The final low was 11,555 on March 16, which
was indeed in the ideal price range just calculated and
yet another excellent call for these price target studies
as presented in this book.

The stochastics also performed in a classical manner at

the primary cycle trough. That is, they fell below 20%,
and they formed a bullish looping formation with the
second loop slightly higher than the first as the price
made the new low. It was a classic case of bullish
oscillator divergence and a bullish looping pattern. By
March 18 the K line was back above 25% and widening

680
its distance above D, a “confirming signal” that the
bottom was in. By the next trading day, Monday March
21, the DJIA closed above the 14-day moving average,
a stronger signal that at least a major cycle low was
completed. Two days later, March 23, the DJIA closed
above the 42-day average, a powerful signal that the
primary cycle trough was over, and a new primary cycle
was underway. Now we start the process all over again
for this new primary cycle.

March 16 thus began the third primary cycle of the 50-

week cycle that commenced on July 2, 2010. What do
we know about third and probably last phases of cycles
that hitherto have been bullish? We know that one of
three patterns tend to happen, but regardless of which
one it is, the decline from the crest to the trough will
likely last longer and be steeper than the declines to the
lows of the prior two phases. That absolutely happened
here.

But let us start by identifying when this new primary

cycle would be due to bottom. First, we know that a 50-
week cycle trough would be due 34-67 weeks after July
2, 2010, or February 21 - October 14, 2011. The 50th
week would correspond to the week ending June 17,
2011, so the closer to that the better. Second, we know
that a “normal” 13-21 week primary cycle (following
the low of March 16) would be due June 13 - August
12, 2011. This overlapped the ideal time for the 50-
week cycle too. However we also know that the last

681
phase of a cycle may distort more often than the other
phases, so a cycle low as short as 12 weeks or as long as
26 weeks was possible.

Given that this would be the third and possibly final

primary cycle phase of the greater 50-week cycle, we
could not be sure where and when the crest would
occur. However, we had a general idea based on the
historical studies of Jupiter transiting through the signs
of the zodiac, as reported in the Forecast 20101 and
Forecast 20112 books. These studies showed that the
DJIA had a high frequency of forming bull market tops
when Jupiter was positioned between 23 degrees of
Aries and 7 degrees of Taurus, in studies going back to
the 1870’s. Jupiter would be there May 2 through July
22, 2010 and again October 7, 2011 through March 7,
2012. In the latter case, Jupiter would not cover that
whole ground. The retrograde would only take it back
to 0° of Taurus. It would then transit 0 - 7 degrees of
Taurus. The midpoint of this first Jupiter crossing
would be June 4, 2011, and so one’s sights would be set
on the period nearby to June 4 as a possible period for
the primary cycle crest, or at least May 2 through July
22.

From a purely cyclical viewpoint, we would expect the

crest to unfold at the 2-5 week interval of this new
primary cycle in the event it was to become a bearish
pattern. More than likely the crest would be closer to
the center of the primary cycle time band, or around the

682
8th week, which was the week beginning May 9. This
was more likely to be the case than seeing a top unfold
at the 2-5 week interval because Jupiter would not be in
the 23° Aries to 7° Taurus zodiac range until May 2. If
this was to be an extremely bullish primary cycle -
always a possibility in third phases of bullish cycles
where “blow-offs” can unfold - then the crest would not
be due until late in the primary cycle, probably after the
13th week. When such extreme bullish markets take
place in third phases, the sell-off that follows is also
usually extreme. Thus we would watch for any signs of
a crest forming after the second week. We would watch
for those signs of a crest forming once prices tested the
crest of the prior primary cycle, i.e., double top
formation within 2% of the prior primary cycle crest of
12,391. We would also watch for any signs of a crest
once prices entered any price objective zone for a crest,
especially if nearby to a geocosmic critical reversal
date. Our greatest attention would be on rallies that took
place in the second major cycle phase of this new
primary cycle, for we would anticipate the DJIA to at
least test the crest of the first phase then. And that time
frame would follow May 2, our earliest date for a
projected primary cycle crest based on the transit of
Jupiter.

The first major cycle phase was bullish, as expected.

That is, the DJIA rallied to a new multi-year high of
12,451 on April 6. This was three trading days after the
midpoint of a rather large geocosmic cluster extending

683
from March 21 - April 11. The midpoint was Good
Friday, April 1. This high occurred on the following
Wednesday, and three weeks into the new primary
cycle. The DJIA then declined the normal 38.2-61.8%
of the swing up to form its first major cycle trough on
April 18 at 12,094. A “normal” corrective decline for
this major cycle trough would have been (12,451 +
11,555) ÷ 2, or 12,003 +/- 106. That low fell within the
next geocosmic cluster zone of April 18-30, albeit 4
trading days before the midpoint.

Our attention would now be on heightened alert for a

possible primary and 50-week cycle crest as we entered
the second major cycle phase of this primary cycle. This
was reinforced by the fact that Jupiter would soon enter
its time frame that historically correlates with an
important crest after May 2. So now it is time to
calculate upside price targets for this crest. For this we
can make three calculations, as follows:

684
Figure 85: Daily chart of the DJIA illustrating the primary cycle of March 16 through
June 23, 2011 and the first major cycle phase that followed.

1. 1.Take the difference between the last primary

cycle crest (12,391 on February 18, 2011) and the
start of the 50-week cycle, which was 9614 on July
2, 2010. Multiply that by .618 and add it to the
second primary cycle trough of 11,555 of March
16. It looks like this:

(12,391 – 9614) x .618 = 2777

2777 = .618 = 1716
11,555 + 1716 = 13,271
The orb of allowance is (13,271 – 9614) x
.118 = 431
The range for this price objective for a crest is
12,840 – 13,702.

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 1. 2.Calculate a primary MCP based on the last two
primary cycle lows (10,929 of November 29, 2010
and 11,555 of March 16, 2011) and the prior
primary cycle crest of 12,391 on February 18,
2011. It looks like this:

(12,391 + 11,555) – 10,929 = 13,017

The orb of allowance is (13,017 - 10,929) x
.118 = 246
The range for this price objective for a crest is
12,770 - 13,263.

1. 3.Calculate a major cycle MCP crest based on the

last primary cycle low (11,555 of March 16, 2011),
the last major cycle trough (12,094 of April 18,
2011), and the prior primary major crest of 12,451
on April 6, 2011. It looks like this:

(12,451 + 12,094) – 11,555 = 12,990

The orb of allowance is (12,990 – 11,555) x
.118 = 169
The range for this price objective for a crest is
12,820 - 13.189.
The overlap of these three price objective
ranges is 12,840 - 13,159.

As one can see from the chart in Figure 85, the high

686
was right there, at 12,876 on May 2. This was the first
day of the time band for the Jupiter transit that
historically correlates with an important crest. It was the
7th week of the primary cycle. It was within four trading
days (actually only one day) of a Level 1 and Level 2
signature that each took place on Saturday, April 30
(Venus in opposition to Saturn and Mars conjunct
Jupiter). It was also a new moon period (May 3). But it
wasn’t within the ideal three-trading days of a critical
reversal date, which would have been April 22-25. It
was 5 trading days afterwards.

At that high of May 2, the daily stochastics were

overbought and starting to fall. They would not issue a
stronger sell signal until one week later, on the re-test of
the May 2 high that took place May 10 as the DJIA
rallied back to 12,781. After that, they fell below 71%,
suggesting a primary cycle crest may have been
achieved, and a major cycle crest had indeed been
completed.

The DJIA then continued this first leg down to a major

cycle trough at 12,309 on May 25. The concern here
was that this low was more than a normal 38.2-61.8%
corrective decline of the major cycle swing up between
April 18 and May 2, which would have been 12,485 +/-
92. The decline was also below the 42-day moving
average, another sign that the primary cycle had topped
out. Our strategy would now switch to selling the next
corrective rally to the next major cycle crest.

687
How high would this rally go? When would it end? If
the primary and 50-week cycle had topped out as the
price objective studies and technical studies and chart
pattern studies suggested, then this rally to the third
major cycle crest might only be corrective and might
only last 3-8 trading days. So we would be vigilant for
that crest if prices rallied back to 38.2-61.8% of their
decline from the 12,876 high of May 2 to the 12,308
low of May 25. The price target would be (12,876 +
12,308) ÷ 2 = 12,592.50. Applying the range of 38.2-
61.8% would give a price target zone of 12,525.50-
12,659.50. As it was to be a major cycle crest, the DJIA
should at least touch the 14-day moving average. Time-
wise, 3-8 trading days after May 25 would give a time
frame of May 30 -June 6 for this crest (one day later
actually since May 30 was a holiday in the USA).

Geocosmics would now be helpful in determining the

reversal date. There was a critical reversal date on June
1-2, as a Level 1 signature was present each day. On
June 1, the Sun formed a 240° trine to Saturn, which
has a 69% historical correlation to primary or greater
cycles. On June 2, Neptune turned retrograde, which
has an 86% historical correlation to primary or greater
cycles. The midpoint of June 1-2 has an orb of three
trading days. As you can see from the chart shown in
Figure 85, the crest occurred May 31 at 12,574. That
was within our price objective range for this crest, and
it was slightly above both the 14- and 42-day moving

688
averages, which confirmed May 25 as the major cycle
trough. By the end of the next day, June 1, the DJIA
was back below each of these moving averages on its
way down to the primary and possibly 50-week cycle
troughs of June 15 and their double bottom low of June
23.

The activity and trading plans for aggressive traders

surrounding the lows of June 15 and June 23 were
covered at the end of the previous chapter. But as we
conclude the position trader’s analysis of this chapter
and this book, we can see once again that many of the
signals for a primary cycle trough as outlined in this
book and the previous four books were fulfilled. The
second low at 11,875 on June 23, 2011 was especially
significant from the standpoint of geocosmic studies
and solar-lunar reversal dates, as described in the last
chapter. Both lows fit very well according to the
stochastic studies, as bullish oscillator divergence was
in effect after falling below the oversold 20% level.
Now we wait and see if the rally to the crest of the new
primary cycle will make a new high for this 4-year
cycle, a double top, and/or if it will break below the 4-
point trendline and send the DJIA lower to its final
15.5-month cycle trough and eventually its 4-year cycle
trough. (Note: the DJIA made a double top on July 21
and then sold off sharply into early August, breaking
the 4-point trendline, as this is being edited).

Conclusion and Finis

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And here dear reader is where we end this chapter, this
book, and this journey that has lasted 14 years. With the
5 volumes of this series, I trust you will now view
financial markets and trading from a completely
different perspective than when you started. It is my
sincere wish that with these manuals, all financial
markets will now look familiar, with order and
meaning, and you will know where you are at any time
within any market, unlike ever before. But mostly I
would like to wish each one of you great success in
trading and analysis as a result of these studies and
trading plans that have been introduced and an equal
measure of joy and fascination for the cyclical nature of
life that subtly underlies all human activity.

For me, nothing has brought me closer to God than

the undertaking of these studies. I started out with the
idea that I wanted to be in touch with the “soul of the
stock market.” But in the final leg of this journey, I
realized that the soul I got most in touch with was my
own and the understanding of my relationship to the
cosmos. Every one of us makes up the soul of the stock
market and the soul of the collective. But the mystery
for me was in the understanding of the relationship
between the cosmos, the collective, and the stock
market. An excitement of discovery came from this
realization - that it works and continues to work every
day, every week, every month. It doesn’t always work
exactly as I expect, but that only illuminates the limits

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to my own understanding, which has increased
tremendously as a result of this work. It is not the result
of limitations or the non-existence of such macro-micro
relationships. To the contrary, it is because of those
relationships that I will always be a student and a
humble admirer of the mystery of life and the creation
of this universe in which we all exist.

Finis. For now.

References:

1. 1. Merriman, Raymond A., “Forecast 2010,” Seek-It Publications, 2009, W.

Bloomfield, MI, USA.
2. 2. Merriman, Raymond A., “Forecast 2011,” Seek-It Publications, 2010. W.
Bloomfield, MI, USA.

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