What makes a market change direction?

March 30, 2015 08:40 AM

To understand the time element of technical analysis one has to understand what makes a market change direction. On the surface we can all go back to Econ 101 and say the supply/demand perspective changed and that is true. But why doesn’t perspective change on Feb. 6 or Nov. 15, to name a couple of random dates?

It’s because Gann figured out that financial markets correspond to the orbit of the earth commencing with the Spring Equinox. He also figured out that markets change at certain times of the year with the highest probability points being the seasonal change point. Of course, this all lines up geometrically. But the real reason it changes and perhaps people aren’t clear on this is the fact that sentiment of the mass crowd psychology also shifts around these dates.

So here we were, we get to the other side of the seasonal point and chaos erupts in Yemen. Crude oil surged and financial markets got fearful, finally. So we can ask the classic question of which came first, the chicken or the egg? Did markets finally become fearful over Yemen because we were on the other side of the time window or did chaos erupt on the turn of the window simply because of the seasonal point and this is when behavior changes?

Whatever the case, I woke up last Monday to the Nasdaq being off the high with a perfect long setup in terms of price and time. For those of you who don’t know, we can take the square root of 2 different pivots and convert the distance from point A to point B to degrees in a circle. The drop to this low in terms of price was a perfect 45dg move and in terms of time very close to 261dg.

On most days in the past year this is the kind of setup that has led to some fairly large intraday moves. But on this day it led to a very lousy bounce and by the end of the day people were already sitting under water. If you were following me on Twitter you know I was talking about what kind of lousy bounce it was. That told me something had strategically changed with these markets. By the next day they tried to bounce it again but people got spooked by the events in Yemen and that was that. Wasn’t it about two months ago our military initially had to clear out of Yemen? I don’t want to make this a discussion about geopolitics but if you take a close look at the map and realize the stakes in that Bab el-Mandeb Strait its amazing nobody woke up to the danger at that time. But they sure did when the clock struck 12 on the Gann business.

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About the Author

Jeff Greenblatt is the author of Breakthrough Strategies For Predicting Any Market, editor of the Fibonacci Forecaster, director of Lucas Wave International, LLC. and a private trader for the past eight years.