$$ More on Gann

I received a good question today in the comments:

Does the break above Oct. 13 on the S&P change your views on a move down into Wednesday...or are we up to 1200 before a short and sharp reversal...in your opinion.

The reader is referring to the fact that the S&P hit 1185.53 intraday today, about a point above the high of 1184.38 on October 13.  He's wondering if this is a break out.  For the record, here are the highs over the last several days:

Mon 18-Oct-2010  1185.5300 
Fri 15-Oct-2010  1181.2000 

Thu 14-Oct-2010  1178.8900 

Wed 13-Oct-2010  1184.3800 

Is this a breakout?  The answer is:  maybe!  

Let's go back and review the move in the S&P in comparison 

to our expected Gann resistance levels.  

We saw a low of 1010.9 in July 1.  From that level, here are 

the initial anticipated Gann resistance levels:

90 degrees:  1096.6

120 degrees:  1125.2

180 degrees:  1182.4

Let's examine the highs from July 13-16:

Fri 16-Jul-2010  1093.8500 

Thu 15-Jul-2010  1098.6600 

Wed 14-Jul-2010  1099.0800 

Tue 13-Jul-2010  1099.4600

As you can see, 90 degrees proved strong resistance over 

several days.  

From there, the S&P pulled back to 1057 before encountering 

resistance at 120 degrees (1125.2) on the highs from August 2-10:

Tue 10-Aug-2010  1127.1600 

Mon 09-Aug-2010  1129.2400 

Fri 06-Aug-2010  1123.0600 

Thu 05-Aug-2010  1126.5600 

Wed 04-Aug-2010  1128.7500 

Tue 03-Aug-2010  1125.4400 

Mon 02-Aug-2010  1127.3000 

As we know, the S&P was rejected from the 1125/120 degree 

level, and bounced all the way back down to 1039 in late August.

However, it made another assault on 120 degrees during the highs 

of September 13-16:

Thu 16-Sep-2010  1125.4400 

Wed 15-Sep-2010  1126.4600 

Tue 14-Sep-2010  1127.3600 

Mon 13-Sep-2010  1123.8700

This time, the S&P powered through 120 degrees and now is 

wrestling with 180 degrees (1182.4) as shown above.

All of which is a long way of saying that I don't think the S&P 

has broken out of 1182/180 degree resistance yet.  It could.  

Or this resistance could hold and we'll see stocks correct.  

$$ Gann Square of Nine

WD Gann's Square of Nine has always fascinated me. Important support and resistance points often occur at "turns" of 45, 90, 120, 180, 240, 270, 315 and 360 degrees around the Wheel.  

I have built a series of Gann Wheels.  The one I use depends on the price of the security.   My Gann Wheel for securities priced between ~500 and ~1400 shows that 1182.25 is an 180 degree turn from 1013.5. 

The reason I find that interesting is because the S&P bottomed at 1011 on July 1, and the most recent top is 1184 on October 13. In other words, we've hit 180 degree resistance on the Gann Wheel.  We'll see if it holds. 

For reference, 1240.5 is 240 degrees from 1013.5, while 1269.75 is 270 degrees from 1013.5.  If we do end up making a token new high before T13 ends, I expect one of these two targets will prove to be your ultimate price top.

The Gann Wheel can be uncanny.  For example, in January of 2009 we rallied to 944 on the S&P before falling to 667 on March 6, 2009.  663.5 is a 360 degree turn from 944.75 on my Gann Wheel.  

Another example:  Gold peaked at $730 on May 12, 2006 and peaked again at $1034 on March 17, 2008.  On my Gann Wheel, 1032.25 is 360 degrees from 732.25.

$$ Gold's 65 Week Moving Average and Gann

Since 2001, Gold has not spent any serious time under its 65-week moving average except for about 4 months in latter 2008.  Generally, Gold finds support at its 65-week moving average.  Accordingly, a retreat to the 65-week moving average is usually a great time to buy Gold. 

This week, Gold's 65-week moving average currently sits at $1080.03 and is rising about $5 per week. In addition, my Gann Square of 9 shows an important inflection point at $1088.50 which can also serve as the basis of support. 

We are currently experiencing a correction in Gold from the peak of $1265 in June.  Gold traded as low as $1159.50 today.  If $1132.25 (another Gann inflection point) does not hold, look for Gold to test its 65-week moving average at or near $1088.50.  Should Gold find support there, I will likely initiate a long position.

$SPX - Gann Inflection Points

The next Gann inflection point on the S&P is 1144.25 +/- 1.5 points.  I derived this from my personal Gann Square of 9 calculator.  Should the S&P experience significant resistance at this level, I will likely initiate a short trade. 

On the Dow, the next Gann inflection point is 10,732.50 +/- 15 points.  For the NASDAQ composite, the next Gann inflection point is 2353 +/- 4.5 points. 

Note, should price break through these inflection points with little resistance, then these inflection points can serve as support levels on any subsequent correction, and can be excellent long entry points if they do provide support.

$$ Gold Rush?

In the summer of 2005, gold began its run from $418 to $725, while the summer of 2007 saw gold start its run from $657 to $1011. We are now in the summer of 2009. Can we learn anything from studying the past two gold runs?

We'll see. Here's some similarities between 2005 and 2007:

1. The 2005 gold bull started July 18. It kicked off with a 10 winning weeks in 12, gaining 13% over those 12 weeks. The 2007 gold bull began on August 20 with 11 winning weeks in 12, gaining 26% over that initial thrust.

2. The 2005 gold bull experienced a 4-week basing period from early October through early November. The 2007 gold bull, which climbed faster earlier, "rested" for 5 weeks during mid-November through mid-December.

3. After these resting periods, both gold bulls went on 4-5 week runs gaining ~14%.

After that, the similarities end. The 2007 gold bull then experienced another 5-week basing period before a final push to $1011, gaining 11% over a final 4-week thrust ending in mid-March 2008.

The 2005 gold bull had a nice 4-week run starting at Christmas gaining 12%, then had a prolonged 8-week resting period from late-January to mid-March 2006 before a spectacular final 7-week push in which gold gained 30% by mid-May 2006. It's no coincidence that the longer basing period resulted in a big finish.

The post-2000 high for gold going into the 2005 run was $454. Gold made a new high for the new millennium during week 9 of the initial 2005 thrust. Going into the 2007 run, the post-2000 high was $725 which gold surpassed during week 5 of the first 12-week leg.

If we have started a new gold bull, it began on July 13, 2009. Thanks to a magnificent rally today, we have now experienced 3 winning weeks in a row ($913 on 7/10 to $937 on 7/17, $951 on 7/24 and $954 on 7/31) where gold has gained a total of 4.5%.

If history holds, gold will continue to rise through early-October with an expected setback week or two mixed in. The initial thrust should find gold topping between $1030 to $1140 and surpassing its all-time high close of $1011 sometime in mid-August to mid-September.

Then there will be a month-long basing period before another 4-5 week run that will take us into January. After another resting period, we'll be ready for the final leg.

Note that if the first 12-week thrust results in relatively small gains (less than 15%), then under the Elliott Wave alternation principal we should expect the final push to be significantly larger. See the 2005 structure (13% first wave, 30% last wave). On the other hand, if the initial push is large (over 25%), then we should expect the final thrust to be relatively smaller. See the 2007 structure (26% first wave, 11% last wave).

As for where gold eventually tops in the Spring of 2010, the inverted Head & Shoulders pattern projects a top of $1379, while $1357 is a 360 degree turn on the Gann Square of 9 from $1011.

It will be interesting to see whether we are in the midst of a new gold bull run, and if so, how it will unfold in comparison to prior bulls.

PS I should note that according to Alf Field, the 2005 and 2007 gold runs were Waves 3 and 5 of Major Wave One which took gold from $256 to $1011. If we are beginning a new up Wave, it will be Wave 1 (or 3) of Major Wave Three, and might well behave differently than did Waves 3 and 5 in Major Wave One.