Price Time Volume Investing

I am normally an optimist on the economy and on the stock market as a derivative of the economy.  Recessions come and go and the markets move up and down with an upward slope.  The reason for this is that almost everyone is working to make the economy flow and prices rise.  Things go bad and they change the rules to make things good again.  I’ve never seen a situation where the rules were changed to make things worse in the long term.

But in the short and intermediate terms, the market can go anywhere it wants to go. Looking at the Value Line Arithmetic index (VLE) crash low in 1987 to the 2007 high, it appears the true trend of the market may be the 1:2 Gann angle.  From the current price a move of 28% will put us back to the trend. This move is not written in stone. But it is a possibility that everyone must consider. I usually discuss the upside so this week I am looking at a possible downside.

Why would price go down that far? Dylan Ratigan on CNBC had a simple summation yesterday. The US financial system has housing assets on the books at X-trillion dollars. The actual value of the assets is X-trillion minus 10-20%. The world doesn’t want to invest in our system until we mark these assets back to fair value. Because of this, it is becoming very difficult to near impossible for businesses to get the short term loans needed to run the business. This won’t change until the US balance sheet is corrected. It sounds pretty straight forward, no?

The problem is how do we write down those assets without completely disrupting the businesses within the system? Businesses that did nothing wrong but cannot get financing for day to day operations. Are there companies that can function without this short term cash? Sure. But who will they sell to if the other business cannot function?

So what am I watching to determine if the US congress can save the day? I am watching the 2002-2007 range of the VLE. If price breaks the July low and then the high of the first 5 wave cycle from 2005 then I will assume we are moving back to the 1:2 angle on the chart above.

The Gann cycles of time chart shows October 10th as 365 days from the low last year.  October 13th is 90 days from the July low.  October 10th is also the my long term cycle low from my roadmap chart.  I expect October 10-13 will be a significant time to watch the market.

Recap of last week’s posts:

• SPX Crash Scenario
• Jim Cramer and DOW 8378
• Same Bat-Time… Same Bat-Channel
• Transports Signal No Recession… At This Time
• Nasdaq Price Volatility
• US Dollar Retracing Recent Move
• Price Bounces off the 50 Day Moving Average
• Gold Update
• VLE Measures the Market
• Ignoring Volume - Price Only Important Data
• Watch the Smallcaps for Signs of Plan Success
• Reminiscences of a Stock Operator

Post Modified: September 27th, 2008 at 10:43 pm

Tags:   Gann Angle Fan · Gann Emblem · Market Outlook · Value Line Arithmetic Index (VLE)No Comments