Jerry Favors (Heinz, I think the last sentence of this indicates some hedging, more-or-less <ggg>)
Oct 22, 1999
In last week's report of October 15 we stated the following: "We
believe the Dow is within just a few days of the next important
bottom. Earlier this week we gave subscribers a downside
projection of 9905 plus or minus 152 points intraday. That
projection calls for a minimum decline down to 10057 to a
maximum of 9753 intraday. We satisfied that minimum target
today. Several of our key momentum indicators have now
reached their most oversold readings since the August 31,1998
closing low. That low marked the exact closing bottom of a 19%
closing decline. The Dow will normally reach a very important
lows when it falls down near or just under the bottom of its
10-Week 7% Exponential Trading Band. The bottom of that
band this week was 9839 intraday. There will be support to any
further decline in that area."
The Dow in fact reached its intraday low of 9884 the very next
trading day, Monday, October 18. The closing low of 10020
occurred exactly on Friday, October 15. The Dow has since
rallied 449.93 points on a closing basis to 10469.93 today,
October 22. So far the Dow has followed our forecast fairly
well.
We believe there is a good chance the bottom seen on October
18 will be a very important one. In our last newsletter, dated
l0/18/99, we discussed an indicator called the Gann Quarterly
Chart. The following discussion is from that issue:
THE GANN QUARTERLY CHART
The strongest of all the Gann Swing Charts we follow is the
Gann Quarterly Chart. When this chart turns up you have
normally begun a new Bull-Market leg with significantly higher
prices to follow. When this chart turns up, it can often continue
pointing upwards, signaling higher prices for months and
sometimes years. It was one of W.D. Gann's rules that after a
long Bull Market, a downturn in the Quarterly Chart was often a
signal that a Bear Market was now underway
The Gann Quarterly Chart will turn up from any bottom when the
Dow rises above the intraday high of the prior quarter. Once the
Quarterly Chart turns up it will continue pointing upwards,
signaling higher prices, until the Dow falls below the low of a
prior quarter. Once the chart turns down it will continue to point
down, signaling lower prices, until the Dow rises above the high
of a prior quarter. We are using calendar quarters here: January
to March is the first quarter, April to June is the second quarter,
July to September is the third quarter and October to December
is the fourth quarter.
To illustrate the power of the Quarterly Chart let's examine the
last three times this chart turned up:
The most recent upturn in the Quarterly Chart occurred on
11/23/98, when the Dow rose above the prior quarter's high of
9412 intraday. The Dow continued upwards, rising another
2017 points intraday to the 11429 high of 8/25/99. That was a
rise of 21% in nine months from the 9412 level which turned the
Quarterly Chart up.
The Quarterly Chart turned up on 2/6/98 when the Dow rose
above the prior quarter's high of 8218 intraday. The Dow
continued up another 1194 points, or 14.52% to the 9412
intraday high of 7/17/98. Note: The rally continued upwards for
another five months with the Quarterly Chart pointing up the
entire time.
The Quarterly Chart turned up on 5/5/97 when the Dow
exceeded 7158 intraday. The Dow continued up another 1182
points, or 16.51% to the 8340 intraday high of 8/7/97.
Note that in each case the upturn in the Quarterly Chart signaled
that significantly higher prices were coming over the next several
months.
Prior to the 1982 bottom, downturns in the Quarterly Chart
normally led to significantly lower prices over the coming months.
However, since the mid-1980's a curious phenomenon began to
follow the Quarterly Chart downturns. In the majority of cases
since the mid-1980's the downturns in this chart occurred within
one to three days of the next major bottom. Let's examine each
of the downturns in the Quarterly Chart for the last 12 years:
The Quarterly Chart turned down in 1987 when the Dow fell
below 2391 intraday on 10/15/87. The Dow reached its 1987
crash low of 1616 intraday 3 days later, on October 20. A new
Bull-Market leg up to new all-time highs began from there.
The Quarterly Chart turned down on 8/17/90. This was one of
the few cases in which the Dow did not reach a bottom within
one to three days of the downturn in the Quarterly Chart. The
Dow continued down into October 1990, falling 22% from its
July 1990 high. We rate this as a failure.
The Quarterly Chart turned down on 10/2/92. The Dow reached
a bottom of 3087 intraday the very next day and then began a
rally of 29% to the 4002 intraday high of 1/31/94.
The Quarterly Chart turned down again on 4/4/94. The Dow
reached a low of 3520 intraday the exact same day. That was
the lowest price the Dow would see for the entire year. The
initial rally saw the Dow rise 12.84% in five months.
The Quarterly Chart next turned down on 7/15/96. The Dow
reached its intraday bottom the very next day and then began a
rally which saw the Dow rise 38% over the next eight months.
The Quarterly Chart turned down again on 4/11/97. The Dow
reached a low of 6315 intraday the very next day and then
began a rally which saw the Dow rise 32% over the next four
months.
The next downturn in the Quarterly Chart occurred on 10/27/97.
The Dow reached its intraday low of 6933 the very next day and
then began a new Bull-Market leg which ultimately saw the Dow
rise 35% over the next nine months.
Finally, the Quarterly Chart turned down on 8/4/98. This was the
second failure over the last 10 years as the Dow continued lower
into October before bottom.
If we examine the above numbers, we find that 75% of the time
the downturn in the Quarterly Chart occurred within one to three
days of a major low. The Quarterly Chart turned down again on
Friday, October 15,1999. The history of the last 12 years
suggests that there is a good chance that we are now within one
to three days of an important bottom.
So far the Dow has again reached a low within one day of the
downturn in the Quarterly Chart. We expect a brief correction
early next week, but from here as long as the Dow holds above
9884 intraday we will remain bullish. |
