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The Number of Change, Reversal and Panic


Seven is the number most referred to in the Bible, and considered by W.D. Gann to be the number of change, reversal, and panic.

"I ain't superstitious
But a black cat crossed my trail."

-I Ain't Superstitious (Willie Dixon)

One of the derivations of number theory is the Bible, which relates how God created the universe in six days, and rested on the seventh.

Six squared is thirty-six, and a harmonic of the 360-degree circular measure. However, a true square is not four sides, it is a cube of six sides. Hence the measure of 6 x 6 x 6 or 216, is an important count. 216 days is just over seven months.

Seven is the number most referred to in the Bible, and considered by W.D. Gann to be the number of change, reversal, and panic.

For example the crash in 1929 began seven squared, or forty-nine, days from the September high that year. Likewise, the crash in 1987 began approximately forty-nine days from the August 25th high that year. There are many more examples in history of such turns of lesser magnitude. The reason that I bring this up is in order to take a look at the harmonics of 360, i.e.: 30, 60, 90, 120, 180 counts.

For example, the DJIA topped in January 2000. Thirty months later was the waterfall capitulation low in July 2002. Sixty months later is January 2005, which pretty much defined a high for the year. July 2007 is ninety months from January 2000. Additionally, this bull market advance began in March 2003. Seven squared, or forty-nine months forward gives March 2007, where a mini-crash occurred.

Last year's low occurred on June 14th. Ninety days later, or mid-September 2006, marked a bullish outside up week, leaving the S&P poised to pounce above new swing highs only two points away. 180 days later in mid–December 2006 marked the top of an advance from which the index consolidated for just over a month. 270 days later was March 14th, which marked the exact low of the mini-crash. 360 days later was June 15, 2007, which marked a test of the June 1st high. For all intents and purposes, mid-June has been the high for the advance. And, interestingly, marks a ninety-day potential blow-off point from March 14th.

There's an old market adage that the market usually, not always, gives a graceful exit. Is the S&P carving out a test of the 1552 2000 high seven years later?

Traders see what they want to in the market. It's a 'Rorschach' on steroids. Sometimes, it's a 'Horshack' (from the TV show Welcome Back Kotter) on drugs. Has the S&P carved out a Head & Shoulders toppy pattern after a 90-day blow-off? Or has it traced out a potentially bullish inverted Running Head & Shoulders pattern? A Running Head & Shoulders is a continuation pattern built off the 50-day moving average. It looks like we are going to get a resolution to which pattern will dominate in the seventh month of this year – July. It's been a Karate Kid market – one chop up and one chop down. But don't be surprised if there is another head fake before the die is cast.

One thing is clear; an inflection point is fast approaching. With Thursday's action a second real W has been established. As anticipated (see yesterday's column) the S&P tested its 50-day moving average successfully on Thursday morning, and snapped back to its 20-day moving average. A break from here of the three-point trend line on the 50-day moving average should generate a meaningful sell signal. And as you know, from my perch a break of this second W would be akin to the market crossing paths with a black cat. But hey, who's superstitious? I am.

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No positions in stocks mentioned.

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