Gann Global Financial

I believe the markets have given us decisive confirmation of our projection that we would experience major corrections in a bull market in the Stock Market. I want to go over some very critical technical points that need to be made with regard to these markets. One of the things that we’ve said in leading up to the opportunities is that we’ve had to get short the stock market. The S&P 500 and crude oil have been at the highs that were established on June 11th in both markets. The fact that all of these markets (Crude oil, the Goldman Sachs index or overall commodities, and in the S&P 500) have been at these highs is beyond coincidence. That is what happens when we have major boom and bust cycles as we’ve experienced in the market.

We would fully expect that based upon the 1920 precedent, 1932, the Great Depression precedent, 1948 precedent, 1974, and 1980 precedents that there would be a very close association between what’s taking place in the stock market and what’s taking place in overall commodities. We’ve not been disappointed by what’s taken place in the markets. They are moving in tandem, even to the point that they have exactly the same highs in place. As we’ve seen, the crude oil drop to new recent lows, the Goldman Sachs dropped to new recent lows, and the S&P 500 closed on Thursday just 900 points from the recent low.

The break of the low will give us confirmation. We’ve seen this shift, not just in commodity trading and expectations and commodities, but this shift in the stock market and expectations. This is as we would expect during this portion of the economy. One of the things as far as the psychology of the markets, as we had had all of this bullish talk at the top of this rally in both commodities and in the stock market, which was very problematic. I’m going to go into that briefly in this update.

Currently for subscribers, we entered short positions on the electronic session on Wednesday going into Thursday at 917.20. The S&P 500 closed at approximately 893. We have buy stops in place for current subscribers. The risk-reward for this trade is 8:1.

Expectations in Entering S&P 500 Trade

This is what we expected going in. This was the day that we had recommended the trade. This should be the market’s last stand if we’re to move lower. If we are right in our forecast and successful in the trade, the risk-reward stands at 8:1. That was written as of July 2nd.

Also, on 150% long December crude oil put options, we entered those with the market trading at approximately 71.00. We closed into new lows on Thursday. The electronic session carried prices into the mid-65 level, so we are approximately eight dollars off the highs in a heartbeat, in less than a week.

In looking at the S&P 500, the pattern has been quite remarkable. The rally which we experienced off the final low on March 6th exceeded the January 6th bear market rally high. That was our last rally before the final decline into the culmination low on March 6th.

In this rally we experienced a one, two, three minor breakout above that January 6th bear market rally high, followed by a failure to the downside. A ton of buy stops would have been hit on the rally above that January high. It was a defining high on the chart, and technicians placed their buy stops above previous highs so we can be assured a significant number and significant contingent of shorts would have been stopped out and also would have resulted in many people entering long positions on the “breakout.”

On June 30th, this was our comment with regards to, then this minor rally which we experienced which also was a one, two, three above these minor highs. We said “We ran stops above the minor retracement high of 2480 without follow-through,” again, running stops in the market. Meanwhile, in light of today’s reversal, our exit point has become more decisive. In other words, in light of this third failure we entered short positions right here at 917.20, and they pulled the carpet out from underneath this market. It’s going to be very interesting to see what Monday’s trade brings since we’re within a stone’s throw of the low for the move at 884.30.

The comment that we made for subscribers was “The rule of three has now played out twice in the S&P 500, and this market should be in a weak position.”

Stock Market Forecast Using At Cash Prices

In looking at the cash chart here of the S&P 500, what we have is the June 11th high, as I mentioned, at 956.23. These were the corrections which took place in the aftermath of the greatest first legs up in history going back to 1886. Ours is the second greatest legs up in history behind the first leg up from the 1932 lows, the Great Depression low, which was followed by a correction.

That correction in 1932 is represented by this green projection line. What we have and what you can see here is that if we are going to experience a correction in an overall bull market, which is what I believe that we’re in, then the market should hit at least the 830 level based upon the 1938 precedent.

What we’re showing on our short positions, since we have just a 1200 point risk on these shorts, is that if we hit the 830 level, which is a minimum objective, then we would have approximately a 7-8:1 risk-reward on this trade. We would make eight times what we’re risking. That type of a multiple is ideal.

What I wanted to point out, and what we pointed out to subscribers is that while it’s true that in 1932 the correction was much more complex than occurred in these other six precedents, and I’m showing in this chart the S&P 500 from 1932, the first leg up rally high September 7th to the February 27th low, this decline from here to here is what is represented by this projection line in our market.

What you can see here is that initially after this high, this market experienced a very severe decline between September 7th and October 10th. From there the market experienced some sideways trade, then finally the bottom of that trading range was broken and the market moved lower into what was a final capitulation low, a higher low in the overall bull market, a secondary higher bottom.

That, by the way, led to 120% advance to the upside – a secondary higher bottom – but you can see this decline was very painful coming on the heels of the bottom of the Great Depression. The stock market and the economy were still very problematic. We have to understand that our bear market at 58% was the second greatest behind the Great Depression. Our first leg up off the lows was the second greatest behind this first leg up, so it is very possible that our overall decline is going to be a complex and difficult affair for us.

The initial decline relative to the 1932 market is this blue line here. What we have is that this decline from September 10th to October 10th, if we were to unfold in similar fashion, then our market would have the kind of weakness that would carry us down to this level. Now, obviously the market has not confirmed that we are in that same kind of a weak position, but what we’ve conveyed to subscribers is that this market is running behind time. There’s no question that, if indeed we’re in the midst of a correction, gravity can take hold of this market and we need to play catch-up with these other markets.

It’s going to be very interesting this week starting on Monday, July 6th, just to see how this market responds. I believe that Friday’s trade was decisive with respect to the fact that we are in the midst of what should be a very sharp, but possibly short-lived correction prior to what will be a second leg up in an overall bull market. That’s buying at the bottom of a correction prior to a resumption of a bull market. I said this before, and if you’ve not heard our stuff before I’m going to say it for the first time; the reality is that in looking at history, the history of markets, we have over 500 years of daily price data going back, cotton going back to 1812.

We’ve looked at bull markets. Our lowest risk point to enter long positions is once a final low is in place and it’s confirmed that the final low is in place, which we have in the stock market right now, the initial first leg up is followed by a secondary correction, and it’s the secondary correction which is a correction in a bull market that sets the stage for what is the lowest risk opportunity.

In the words of W.D. Gann, the legendary teacher and trader, he said:

“Always look for that secondary correction to be a buyer. That’s the lowest risk point at which to enter long positions in a market.”

That’s because bottom-picking is a much more difficult affair than it is once a market confirms a low is in place and buying on weakness. Just so you know, the great promise that we have held out to us from the markets, if our projections continue to play out, it will be that this will be a sharp correction and sets the stage for a continuation of the bull.

No question, at the top is where you get all bullish news. The media was talking about the recovery and that things were getting better, all the news items coming out as bullish, all the news items coming out down here as negative. If we see a severe correction the news is going to get negative again and that is going to be the perfect point in terms of psychology for us to enter long positions, to go opposite the crowd.

Commodity Price Analysis and the Goldman Sachs Index

Now in looking at the Goldman Sachs index, I want to give a couple of observations here. This was as of June 20th, when we were approximately just after the highs here on June 11th, so this is the observation.

What stock market analysts are unaware of by virtue of not having access to a historic commodity price index during other boom and bust cycles is that stock and commodity movements during this portion of the cycle are joined at the hip. This is what makes a potential importance to this June 11th high so intriguing. This is at a time when prognosticators, economists, the media, and the public are talking about the perpetuation of the current advance. Yes, bullish long term, but short term and intermediate term? Not on your life! That was said prior to recent decline into new lows.

On July 3rd, I said “I view the new low on Thursday in the Goldman Sachs as an omen. We are in the midst of a severe correction. If so, I would expect the media to start pounding the drumbeat of bad news. The media always plays on the investing public’s emotions which are fear and hope, causing them to do the wrong thing at the wrong time

“Not that the media’s at fault. The public demands to hear the why of what is going on which forces the media to give an answer that appeals to the public’s appetite and therefore sells advertising.

“My role is to help prevent you from getting caught up in what I view as a ‘tabloid mentality.’”

Learn to Trade Commodities and the Stock Market

One of the first things that we learn as speculators, and to a lesser extent it’s critical as investors, is that bullish news comes out of the highs, bearish news comes out of the lows. The discounting of mechanism of the market is the stock market. It anticipates what’s happening in the future, so news is simply looking in the rearview mirror. It’s already been factored into market price. That’s the situation as it stands right now. This should be a fascinating week to see whether the stock market does break its low for the move.

The crude oil has the bulls on their heels, both of these markets having established June 11 highs. This is very important. The other thing is that I’ve just produced a video that you can go to. If you’ve not seen it yet, it’s discussing the soybean complex; specifically where the soybeans and soybean meal are which also have a June 11th high and there is an imminent shorting opportunity in those markets.

Stock Market Trading – Current Positions

We are short the S&P, we’re short the crude oil, if all plays out according to plan, these are corrections, albeit severe corrections in what should be sell-offs into what would be higher bottoms. Our information will become most valuable as a publisher if these corrections unfold according to plan, because we fully expect the point at which the secondary low is in place to issue all-out buy signals for investment purposes both in commodities and stocks since they’re both going to be doing the same thing.

Also for speculative purposes in anticipation of second legs to the upside which should be very aggressive based upon the law of action and reaction. The fact that we’ve completed the second greatest bear market in history should lead to a very significant reaction with the market experiencing a very sizeable second leg to the upside. That’s the great promise that I hold out to you as a potential subscriber in looking to that potential buying opportunity. That’s what we have our sights on and we are in a position where we do want, as best we can, to encourage those that are intrigued by what we’re doing.

Stock Market and Commodity Market Analysis Using Historical Data

You’re not going to see this information anywhere else, we know that. It’s not available. Nobody does it. There are elements of it, sure, but not to the degree that we do it in terms of looking at history. We have a research engine, a computer software application that we use that compares the DNA of our market to the DNA of history. We are able to glean from history what the madness of crowds have done, what people are capable of in pushing markets to extremes of optimism and extremes of pessimism. It got a short prior to the bust cycle on July 22nd, 2008. We issued an all-out sell signal in commodities at this level right here.

That was in the crude oil, saying “This will be one of the greatest runaway declines in history,” and that is what has unfolded from here. This rally did not take us by surprise, and this turning point, if we’re correct, and the probabilities of that have gone up significantly as of Friday’s break to new lows. That correction is going to set the stage for a higher bottom, and then up we go in a bull market. So with that, I will let you go. Have a good day and profitable trading. May God bless you.