Come the week of Aug. 16 - 23, the world’s largest Index, the S&P 500, will once again plummet. In an all too familiar fashion, it will drag down all other stock markets, superfunds and savings. No government or economic spin can ward off this descent, because nothing else but time governs the fluctuations of markets. Given that economic formulas and models are only pale reflections of the real world, as a forecasting tool, they can be utterly misleading. The way to gain insight into the forces driving the S&P 500 Index, and predict the Aug. 16 turnaround, is by consulting its graph and William Delbert Gann’s Square-of-9 (for why all Internet depictions of this Square are flawed refer to paragraph 7 below).
The graph’s coordinates X and Y, where X represents price and Y time, provide an untainted depiction of market behaviour. In addition to reflecting ‘price changes over time’, the plot of X and Y’s intersection points reflects also the perceptions, and thoughts, of those driving the ups and downs of price. Given that X is a function of Y, and Y is a function of X, and given that X is the volatile of the two, focusing on the forward procession of Y is far less challenging than the fluctuations of X (Figure 1).
There is reason to believe that when billionaire George Soros broke the bank of England by shorting the British pound on Sept. 16, 2002 and the AUD on May 08, 2013, the Y parameter and Gann’s Square-of-9 dictated his trades.
The first on the ‘to do list’ in analysing a graph is to determine the direction of the dominant trend. Figure 2 demonstrates that bearish trends manifest long down-swings with short upward corrections. And, as the market changes direction, its upward swings become longer in comparison to retreats.