Gann Global Financial

In the stock market, we’re observing very interesting trade.  We are on the sidelines right now, in anticipation of seeing additional trade. Every time you’re on the sidelines watching the markets trade, there’s always more information forthcoming.

* Please comment on the video at the bottom of the page *

There’s a certain point at which the market defines itself, plays into a particular forecast that you have, and then gives you a trade action based upon our trading rules. At this point in time, we’re in a neutral position in terms of any exposure. We’re not long in terms of being investors. We have no positions. We had short positions and we exited them, so we’re on the sidelines.

If this is a bear market rally, it should not be complete; more time would be required. There is the possibility that the advance off the 665.70 March 6th low is a bear market rally, but we’re only eight days into the rally. If it is a bear market rally, then it would have to be more complex; and if so, then we would look at potentially an opportunity to go short.

On the other side of the equation, if this is a first leg up in an overall bull market, the probabilities would favor the current surge being followed by backing and filling prior to trading the long side of the market with measurable risk.

The bottom line: there’s nothing to do but watch and wait at this juncture. If the S&P works out a more complex rally – there would certainly be some backing and filling working out a more complex rally.  At that point we would look to enter short positions.

If the market experiences a retracement and something that would be more significant in terms of approaching the low, that would be typical of a final low.

I’m in a neutral position as far as how I view the stock market right now. Obviously, though, when I’m neutral, the market is going to do something. It could do something quite remarkable. It’s just that it’s not playing into the criteria that I need in order to do something in the market.

In this table (see the video), I show the historic greatest velocity legs down in the Dow Jones and S&P going back to 1886. I’ve updated this table with the decline we experienced off the August 11th to November 21st low, where we declined 44%. That was the first break of the October 2002 low. We declined to 741.02, a 44% decline and second only to the first leg down during the Great Depression in terms of percentage decline.

These are the elite legs down over the last 120 years. Ours ranked at Number 2 in terms of overall percentage decline and Number 6 in terms of the velocity of decline: 44% in three months and ten days.

In the leg down which we experienced between January 6th and our recent low on March 6th, we declined 29%, significantly less than the 44% of the preceding leg. However, we did so in two months and zero days. In terms of rate of decline, we declined, on average, one-half a percent a day. The velocity of this most recent decline, then, was actually greater than the velocity of the decline into the November 21st low, which was a 0.43 percent per day.

In terms of velocity, this leg down that we experienced ranked at Number 4 out of the greatest velocity legs down in history. The 2000 leg was an aberration. Really, the only two legs that exceeded our leg down in terms of velocity were the crash of 1987 and then the first leg down during the Great Depression.

As we make an assessment of this market, I obviously want to be aware of the different factors. I make the note here that our decline into the November low was the second greatest in history; the decline of March 6th was the fourth greatest velocity decline in history.

The Great Depression was the only other time multiple legs down of this magnitude occurred. Therefore, we have two historic legs down in the same bear market; and that’s only occurred during the Great Depression.

Is there going to be another leg down in this bear market or are we going to divorce ourselves from the Great Depression? That’s the key question. In looking at the S&P monthly, one of the comments that I’d made in advance of the break of the November 21st low – which we expected – was that “no-man’s land represents a potential price vacuum. If we decline into this price area again, the market can decline very quickly.”

We did break that November 21st low, which put us into a second decline beneath the 2002 low. We did see some follow through, but in just this last week-and-a-half an immediate violent rally to the upside. In terms of an ideal for our research and looking at the technical condition of a market, this shouldn’t have happened. It’s not that it can’t, and the market resume a downtrend. It’s just that the probabilities were against it.

On that basis, you can see that on Friday we closed at 768.54 in the cash; just about right at the 2002 low. We regained the November 21st low, and even regained the October 2002 low, rallying to just over 800.

It’s not nearly the kind of selling that I anticipated on the second break into a new low. I had felt that we had a very good chance of dropping down to the 600 level as an ideal objective, and then we would see where we went from there. Then we would expect to see a bear market rally.