Bowen Lockwood Report on the S&P 500 August 20th 2010

Last month, we have seen the S&P 500 rally from the anticipated support with a 1x1 angle from the 2009 low. On the chart below, you can see the red 1x1 angles and their powers. These angles are not trend lines; they are geometric angles that represent price and time cycles in the market, a discovery of W.D Gann. Also, you can see that the 1x1 angle that formed the March 2009 low picked the June 2010 low exactly. Notice that the 1x1 angle running up from the January high picked the April high exactly.

The dominant cycle for this market is the 10-year cycle. The chart below is a monthly chart and shows the 10-year cycle running out from the 2002 Low. As a general rule, the larger the time frame the larger the turn. The horizontal lines in this square represent price resistance and the vertical lines represent time resistance. This cycle has had excellent symmetry in both price and time.

Do not worry about the complexities of this square.  You can see that many of the important highs and lows in the last seven years have occurred on the horizontal and vertical lines. I have highlighted some of the more important ones, the most recent of which is the April high 7.5 years after the 2002 low. At the April high, the position of this market within this square was very weak, intersecting with a horizontal line, a vertical line and a geometric angle. Gann refers to the number 7 many times in his materials calling it ‘the fatal’ number. There was also further symmetry around this high in time and price on the daily and weekly charts, and the market proved its validity when it fell away with such strength. We know that a bear market can last for 5 years, consisting roughly of two years down, one year up, and another two years down. So far, this market is on track with this roadmap and would be seen making a final bottom in 2012. Our 10-year cycle will also show a final low in 2012. With the symmetry in time and price around the April high, there is no reason to believe that this is not the high of the year and that the next leg of the bear market has begun.

From the April high, we saw a rapid move down to where the market bottomed on the 1st of July. As the market rallied back up, we were looking for a lower high that would be below the April high. When we balance the cycles, the highest probability for a top below the April high is the very important seasonal date of August 6-9th and then of August 20-23rd. So far, the market has topped exactly on the 9th and fallen away. We are now approaching the 23rd which could set up as a lower high.

If the market does not follow this pattern, we have time cycles coming out in late August/early September and then around the 22nd of September. If the market was to push up into late September, I would expect this to be the final high.
Looking back over history, we know that whenever the market has a leg down such as the one from 2007 into 2009, the market will nearly always come back and retest the low. In this case, the March 2009 low. So, our first target would be a retest of the March 2009 which could bottom slightly above or slightly below it. That would be a time to assess the cycles and see if we are on track to reach a final low in 2012. 
Understanding ‘time’ as well as ‘price’ in the market gives us a major advantage. Someone once said, “By understanding the past, we can predict the future.”  The cycles are telling us that the April High will hold and there could be a lot more downside to come.

Best Regards

Bowen Lockwood
P.S. If you are interested in learning how to analyse the markets using Gann`s studies, 
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The writer of this article is not a licensed financial advisor and no part of this document is to be construed as a recommendation to buy or sell any investment. There is always a risk of loss when trading any financial product. All the ideas, methodologies and technical approaches presented in this article are for traders’ educational purposes only and do not constitute investment advice.