W.D. Gann used the term “the law of action and reaction” in describing
the geometry of how market movements unfold.

In the early 1900s this was a common phrase used in many disciplines. It is
also where the term “price reaction” originated when applied to Wall Street.

Perhaps you have heard it said, “the bigger the bull market, the bigger
the bear market”.

This is a true statement when looked at on the basis of probabilities and is the
result of this law (the law of action and reaction)  being in force in the markets.
But Gann was able to prove out from history many other market truths based
upon this law.

Since we (Gann Global) have a historic database to confirm his findings, an
application of this law is one of our competitive advantages in realizing rewards
in the markets.

As an example, in this new video I show you how the law of action and reaction has,
and continues to play out in the stock market.

The 2nd greatest bear market in U.S. financial history into the March 2009 bottom has
given way to one of the highest velocity bull markets on record.  This is no mystery when
you look at what occurred during the bull markets after 7 of the 8 greatest bear markets
in history.

Based upon the projections in this video, you will see how far these other bull markets
advanced and how much more room we may still have to the upside.

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

Here’s what I say with regard to what has taken place this last week-and-a-half. In eight trading days, the market has retraced 50% of the decline off the January 5th high.

Due to the abbreviated length of the leg down off the January high and the price point at which this market reversed to the upside breaking to the 665.70, I view the forecast of the near term direction of this market as being problematic.

In other words, I’m having trouble in fitting this situation into the historic precedent of the Great Depression. Additional trade will provide clarity so at this point I have to take a neutral approach in the stock market.

Obviously, there is going to continue to be tremendous volatility but we did expect the ideal that the market would push down to the 600 level. Ideally, into the second week of April, and the market did not accommodate that so now after a 29% decline in a relatively short period of time, we’ve seen the market spike up very significantly.

It’s going to be very interesting to see how this plays out. Additional trade will provide clarity, which is to say that we will get insight into what is taking place in this market, so right now, I would have to say, in terms of a trading type situation, I’m definitely neutral and watching very closely with regard to long-term ramifications that this has for overall forecast as to the length of this bear market.

Then we looked at the soybeans, very representative of the agricultural sector since basically all the agricultural markets are playing to the same beat, whether the cotton market, the corn market, wheat market, soybean market, or bean oil. They’re moving, in a sense, as a group because basically what’s happened is that this economic dislocation is having the same impact on commodities as a group.

It’s very unusual that commodities are not trading within their own cycles and have some independence, but right now the commodities are really joined at the hip due to the magnitude of what’s taking place.

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

But silver and gold are interesting. As you’re probably aware, gold has been amazingly resilient in the face of the deflation which is taking place across the financial landscape whether it’s in real estate, whether it’s in commodity prices and tangible commodities, natural resource stocks, or in the stock market. There’s just a huge amount of wealth that’s been lost, and yet gold has been holding its own.

It is acting as it has historically, somewhat like a crisis hedge. Silver, I’ve said, typically acts like an industrial metal. It does have a crisis component to it, there’s no doubt, certainly in the psychology of people. But we have felt that this rally in the silver, which started off the October 28th low, would be a bear market rally that would then give way to another leg to the downside in the silver market.

We have been looking at this market to see if it would conform to historic norms as far as bear market rallies are concerned. We have to have probabilities in our favor and not guesswork. What we have in this bar (maroon colored) here, we expected if silver was to hit a bear market rally high, it would do so in this maroon area as of January 26th. Well, our high is January 26th, so we’ve pushed it right to the limit with regard to what would be a normal bear market rally.

I say normal because 71% of the time bear market rallies in the silver are less than 2 months, 28 days, which would put us right at this January 26 ending point. That’s not to say that silver can’t continue higher and put in the bear market rally high and then go down. It can do that, but that would be an aberration. It wouldn’t be hitting the averages. I hope you get this, because we’re looking at the market hitting into probabilities most of the time when doing something. We’re moving beyond where we have a target zone and probabilities being in favor of the silver. Once the probabilities start declining, which is what’s happening in the silver market, we don’t want to put our hard-earned money at risk in something unless we really have the probabilities playing in our favor. We don’t have that, and we’re pushing beyond that time window in the silver, so I want to make you aware of that.

Also, by virtue of that, could there be something happening in silver in our overall bearish forecast? Could that be incorrect? I don’t believe that’s the case, but when we start seeing a market not conforming to historic norms, and as it continues to unfold and move counter to what the ideal would be, and then we start to say, “Okay, we can’t do anything with this market. Maybe we’re wrong in our forecast. Maybe we do have a final low.” I say this because we are often in a place where the market doesn’t conform to what we want. We never do anything as far as a trade action, so there’s nothing wrong with being “wrong” in the market. That’s especially true if you don’t lose any money.

We’ve not had a sell pattern shape up in the silver market for getting short. We’re moving beyond our target zone as far as forecasting is concerned. It has to be a marriage of those two. A trading pattern for going short, we have six trade signals that allow us to either enter longs or enter shorts and exit.

So silver is very interesting for us. This is to say that we were looking for an opportunity to go short, we were looking for the probabilities to work in our favor, and as of today the silver market is a neutral-type situation for us, pending additional trade.

Hopefully that gives you some insight that we are not looking to make a rate of return on a market and always be trading in a market. We are very much what we call “guerilla fighters.” We’re looking for our opportunities to move into a market when the probabilities are right, and we have our own advantage for that based upon history and history being our guide.