Gann Global Financial

Here’s what we have in the S&P 500. I want to bring you up to date here a little bit and have a couple of observations that we’ve made before. We are definitely seeing the drama unfold. The question is, is this leg down going to follow the pattern that occurred during the great legs down during the Great Depression?

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We’ve experienced a very sharp decline in terms of velocity, and we’ve had five days where the market has done some backing and filling. That is actually a very healthy thing in that the market was getting a little ahead of itself, so profit taking and backing and filling is a very healthy process. Nothing goes down a straight line even though these are the greatest legs down in history.

These are the greatest legs down in history in the stock market (the red lines and target points on the lower right), and yet you do see that there is backing and filling on the way down, as one would expect. A couple of observations: other than the correction after the first leg decline on the 29th, all five bear market rallies were complete by February 7th.

Here’s our target zone (the red box). This was the last of the bear market rallies to complete (U 1930). You can see that we are well off that February 7th date, so the probabilities are very high, that this is a bear market with extremely high probabilities that the January 5th high is the high for this bear market leg.

The other side of the equation is if this market did continue to go higher and continued higher beyond the February 7th high, then the probabilities would go up that we have an important low in place. That being said, these target zones tell us a great deal about whether the market is conforming to historic norms because as soon as it stops doing that, then we have to say, “Okay, something else is going on here.”

But right now, this market is conforming beautifully to what we would expect for another leg to the downside. Now the other thing is, if the current decline has started another leg down, it is running pretty hot relative to the legs down during the Great Depression. That was what I said at the recent low, but now we’ve had five days of consolidation, so the market is in a healthier position here, healthier in advance of what we would expect to see as a breakdown into new lows below 797 with a break of the 737 low with follow-through to the downside.

At the 797 low, this is what we were telling subscribers. We have a buy pattern. If I was looking to go long, the reversal higher after breaking the 813.50 low by 16.50, which is what we did; we broke this 813.50, dropped down to 797 and ran into a ton of sell stops down there and panic sell orders. But the reversal from there actually issued a buy signal if we were looking to be a buyer, but since we believe we’re in a bear market, in bear markets you don’t take buy signals, and in bull markets you don’t take sell signals. We go with the trend, but we did get a buy signal, and we have to respect that.

A break of 797 would increase the probability we are in the midst of a leg down and an overall bear market. A break of this low would indicate follow-through. This is particularly true in light of the last five days of trade, so if we break this 797 low, we have trade action, trade recommendation for subscribers on what to do in anticipation of follow-through to the downside.

This is the setup in the March S&P. The last was at 839.80 and I believe that we closed a little bit higher today, as I’m coming to you just before the close on Tuesday afternoon.