Technically Speaking, March 2012

As the Dow keeps climbing higher (although not yet outside of the external circle of the pentagon from last month’s article), I am pondering the possibilities of a new all-time high, as well as large chart patterns such as a double top or a 5 wave expanding pattern. This naturally stirs the desire to establish large-scale frameworks of effective support and resistance of the major tops and bottoms that extend into the future.

Therefore, I would like to present some of my large-scale parabolic curves and structures along with upcoming dates and prices for possible major reversals: a ‘parabolic perspective’, so to speak. And here’s the kicker:

It all comes from the low of August 1982.

(Concerning parabolic theory and my techniques, I will describe these as we go along. First, I want you to see these curves in action.)

The first chart shows S/R for all major reversals since and including 2000.  The resistance curve (red) provides both tops: 1) the 2000 top is a little underneath (by 160.15 points) and the ensuing plunge takes a while to start. 2) The all-time high in Oct ’07 is almost exactly on the curve (missed by 20.04 points) and disaster immediately follows, hence, this curve is truly the ‘touch of death’. The blue curve 1×3 offers clear support for the bottom area of Oct ’02 to Mar ’03, and a loose but workable floor for the Mar ’09 bottom is given by the 1×4 curve (if it were drawn perfectly as a curve, it would be a little closer to the low). In addition, various S/R is offered throughout the ‘80’s as well, including the bottom of the crash of ’87.

Since the high of Jan 2000 is right at the intersection of the resistance curve and the support curve 1×2, the subsequent intersection with curve 1×3 is the next candidate for a major top of 15,400 in Sep/Oct of this year. Although this seems very impractical, there is a comparable blow-off leading to the all-time high of Oct 2007. Rather unlikely, yet alluring….

But regardless of price hitting this point or not, this intersection functions as a vital reminder of the massive 60 month (5 year) cycle shown by the green arrows (60 in degrees is also a hexagonal angle, but more about that later).

Also worth noting is that the great market crash of 2008 occurred right after the Dow lost the debate with curve 1×3, which then provided impenetrable resistance for August and September of 2008. If price actually did hit the target shown at this very same line, then an enormous crash could be expected, and especially if contact is made with the resistance curve.

Finally, looking longer-term, the 1×4 support curve and the resistance curve continue on as a large enveloping channel of sorts. Perhaps more major reversals are on the way inside this long contracting shape, bouncing to and fro? Leaving this shape would certainly signal an end to this enormous sideways market, and signal another strong trend, up or down.

But enough with analysis for now. Here’s the parabolic theory (an exponential relationship) and my basis for generation (Relative Charting).

A simple parabolic curve occurs when either time (x) is squared to price (y), or price is squared to time. This wording can be a little tricky, so let me clarify that I do not mean ‘squaring’ in the Gann methodology (a highly effective technique), but literally squaring the actual number. It is an exponential function.

Using monthly charts for examples, the equation x squared = y means that we square a time amount to get a price amount. If we go forward 2 months from the low of Aug ’82 to Oct ’82, the matching price point for the curve would be 2 squared ($4 using $1/M) above the low; if 12 months forward, then 12 squared ($144) above, etc. This yields an ascending curve which increases in slope as it goes along, such as the blue support curves.

Conversely, if we use y squared = x, then we square a price amount to get time. Now, an increase of $2 from the low in price yields 4 months forward from the low; if $12 above, then 144 months forward, etc. This gives an ascending curve which decreases in slope as it moves along, such as the red resistance curve.

Question: What else can be used other than a $1/M relationship?

Well, using $1 or point/period (or any other ideal derivation) is literally a parabolic expression of Gann angles. These curves work great (as do the angles), but for the purposes of this article, I am sticking to my Relative Charting approach, which uses specific price data (please refer to my article in last month’s newsletter for details). Through these parabolic curves, price and time are seen as unified through an exponential relationship. And the price/time point that generates the relationship presented here is the low of 769.98, in August 1982, which marked the beginning of a new era of bull market.

Let’s start with the red resistance curve. (You may want to refer to the next chart to visually absorb the formulas.) This is an ascending decreasing curve which squares price to get time. Here, we are squaring each specific unit of price (derived from the low price of 769.98) with 1 unit of time (1 month). The curve’s time/price coordinates (x,y) is as follows:

Time: x = Square Numbers Series in Months = 1M, 4M, 9M….
Price: y = Low Price + (Low Price x1, x2, x3……) = 769.98 + (769.98 x1, x2, x3….) = 1539.96, 2309.94, 3079.92
Parabolic Curve Coordinates (x,y): (1M, 1539.96), (2M, 2309.94), (3M, 3079.92)…..

To clear up something that confused me at first, although this curve comes from the concept of y squared = x, it is actually x that features squared numbers. It is because we are squaring price (y) to get time (x) that the time units are in a squared relationship.

Now please refer to the second chart. 1) Stacked levels of the low price from the low are vertically climbing on the left. 2) A time cycle of the square number series in months expands to the right, numbered by their roots (for functionality). The curve consecutively connects each price level with its respective time point. For example, the curve unites price level 17 (y) with time point 17 (x), which is 17 squared months or 289M from the Aug ’82 low, therefore: y squared = x, or (17)(17) = 289.

This curve can be thought of as a tapering of a 769.98/month angle (line) by the square number series. The ever-expanding squares pull forward more and more as time passes, causing the curve’s ascent to lessen gradually, and eventually reach the market highs. Therefore, the 2 major market tops are directly and harmonically related to the low of Aug ’82 through its own price and through the square numbers series in months.

And even further, BOTH tops are EXACTLY 13 MONTHS into their respective square time zones!? The Jan ’00 top is 13M after 196M (14sq) at 209M from the low, and the all-time high is 13M after 289M (17sq) at 302M from the low.

Future +13M points for possible reversals are Oct ’13 @ 15,758.10, Jan ’17 @ 16,528.08, and Jun ’20 @ 17,298.06.

And now, it is time for the support curves. These are ascending increasing curves which square time to get price. Please refer to the next chart for another visual guide through the formulas. (Needless to say, these blue curves are drawn by hand, and getting them to be a perfect curve is not easy when there is a lot of room between intersections, and with a deadline to meet!?)

However, there is a twist. Although the same price amount is used for levels (now multiplied by the square number series), we are treating the square root of the low as 1 unit of time to match with price. Here’s why: 1) Using 1 month is impractical; the curve would be almost vertical and therefore useless. 2) If we completely reverse the method and use the amount of the low (as per using 769.98 for price earlier), we would have a 769.98M cycle, also completely useless. (Well, it does round up nicely by 2/100 of a point to 770…. hey, there’s 7&11 again). So, instead, I opt for the next best thing: the  square root of the low as a cycle, which is 27.7485M, rounded up to 27.75M.

Parabolic Curve ‘1’ (1×1)
Time: x = Square Root of Low Price as a Monthly Cycle = Square Root of 769.98 = 27.7485 Rounded to 27.75 = 27.75M Cycle
Price: y = Low Price + (Low Price x Square Number Series) = 769.98 + (769.98 x 1, 4, 9…) = 1539.96, 3849.90, 7699.80…
Parabolic Curve Coordinates (x,y): (+27.75M, 1539.96), (+27.75M, 3849.90), (+27.75M, 7699.80)…

For the additional curves of 1×2, 1×3, 1×4 etc., simply multiply the amount of time by the second number. (I am labeling these curves as if they were Gann angles which usually express price first, then time (y,x). Therefore, curve 1×2 consecutively connects each price level with every SECOND cycle point; the 1×3 curve consecutively connects each price level with every THIRD cycle point etc.

so, there you have it. An inside look at how all these curves were made. And again, all from one point in price! It’s like we just tapped into the genetic code of the market through one number in time…

Moving on, there are two bits of additional analysis that this structure can add, by way of (can you guess, readers from last month?) pentagonal analysis! Yes, let’s ‘cross the streams’. It bothers me a tad that the all-time high has escaped the dynamic and effective support curves, unlike its predecessor in 2000 (acting as a resistance curve at that point). But the next chart offers a solution, with a fringe benefit or two.

Technique: The 1×2 support curve (used here due to its history of S/R) is repeated along a harmonic cycle using a 360 degree fractional (geometric shape) division: In this case, a 72M cycle. (72 degrees is a crucial pentagonal angle, as it perfectly divides a circle by 5, and it is the compliment (adds to 180) of 108 degrees, the actual internal pentagon angle. The additional cycle points are also important numbers, especially 144 (12sq) and 360.)

The first repeated curve from 72M clips the all-time high perfectly (we’re on track), and directs our attention to a potential future top at the next intersection with the resistance curve, on Jan-Feb 2015 around 16,000 (4sq x 1000). This is a proportionate locale for the completion of a 4th wave (D) of a large expanding pattern. The downside (pun sadly intended) is that the next wave E would be utterly disastrous. A simple trend line from the major lows gives the rough area of Sep-Oct 2017 around 5500 as it meets a support curve from 288M (4/5 of 360). This locale is proportionate with the overall scheme as well. Oddly, Oct 2017 is exactly 180M from the 2002 low (180 degrees is ½ of 360), as well as being a member of the previously mentioned massive and effective 60 month (5 year) cycle.

Turning away from the Dow for just a moment, let’s present a Dollar Index Monthly chart that shows this same 360 division and curve repetition technique:

This descending decreasing ½ curve (1×2) (the upside-down version of the ascending decreasing resistance curve) offers some general support (downward resistance?), and a nice bottom at point 9 (81M) at 71.52.

The large consolidation is conforming well to this curve’s repetition at both 60 and 72 months from the high: 72 degrees is pentagonal as previously mentioned, while 60 degrees is hexagonal (the compliment to 120 degrees, the internal hexagonal angle). In addition, splitting these points in half gives 36 and 30 months respectively, and a section from each curve from these ½ points is drawn to help identify respective support: A top at 60 with its bottom at 30, a top at 72 only to not quite reach 36. Perhaps the next move down?

Currently, a new lower high at the intersection of 72 and a 1/3 curve (1×3) spells danger for the dollar. As long as the unusual inverse relationship between the dollar and the Dow continues, this dollar resistance with an impending downtrend supports higher stock prices. Conversely, if the dollar breaks outs from this ceiling, then the Dow’s previously mentioned blow-off target from the first chart is certainly null and void.

And hey, wait a minute (back to the Dow parabolic curves)… if I used the square root of the low of 769.98 (27.75 rounded) for a time cycle, then why am I not using it for price levels too?? Wouldn’t that make sense?

So, last but not least, here’s a look at the Dow’s mountainous terrain through another harmonic parabolic structure, similar to the previous support lines except that 27.7485 is used instead of 769.98 for price levels.

It’s nice to finally visualize and harmonically pair the 2 major bottoms of ’02 and ’09, as well as the 2000 top with current price (H&S anyone?), all the while showing that the all-time high is in a class all its own… And once again, all this from just one price in time!

The first chart shows the end result, with matching colored harmonic fractional divisions of the main curves. The second chart shows the grid and set-up (curves are labeled decimally).

The top is beautifully identified by curve 2, or 2×1, which goes up 2 levels per cycle point (which when using square numbers as a multiple for levels, is going up more than twice the original distance). The bottoms are both at quarters, as opposed to their respective highs at thirds (going away from the all-time high), both at 2/3. Since the all-time high is at neither fractional harmonic, it declares its harmonic independence at a full integer expression of 2.

Due to these specific harmonic relationships, different pictures come to mind, represented in the following two charts:

1. Harmonic ascending channels. Here, current price is clearly in an ascending channel between fractional curves, trying to maintain an ambitious break above the previous high. This seems familiar…. Check price activity around the 2000 top. Same deal. After hitting
   initial resistance (‘R’) at the 2/3 curve, the Dow found support at the ½ curve, then tried again. It failed, and when back below the ½
   curve after topping in January, and it never fully recovered until eventual support at the ¾ curve. This scenario looms over current price if a break of resistance is not achieved. Although there is a lot more room in this channel than its predecessor. This channel also
   suggests a gradual ascent to any major new highs.
2. A slight alteration to the expanding pattern is the Double-top pattern as suggested in the next chart. (If price gave way now, an H&S pattern could be detected, but with a hunchback of sorts, and any measured move below the down-slanted neckline would be below zero). For indeed, if current price movement is harmonic with the 2000 top and not the all-time high as harmonically displayed, then a new all-time high coming anytime soon is not indicated here.( Interesting to note that If you trace price forwards and backwards simultaneously from the all-time high, the movements are mirror-images of each other harmonically, although not quite proportionally.)

Sep 2015 becomes an interesting candidate for support from the major low of Mar ’09 with the 1×1 curve. That would provide the Dow with quite a roundabout journey: from mid-90’s support and then the eventual all-time high both from curve 2, then back down to curve 1 for matched support from the beginning.

In conclusion, it would appear that parabolic curves can indeed tap into the very nature of price, by revealing harmonic structures that not only offer major reversals, but also predictive applications as well. The method presented (there are more…) offers fixed curves that can be calculated to infinity, offering many chances for analysis and forecasting, as well as incorporating techniques from various approaches such as Gann, Relative Charting, trigonometry, and traditional techniques such as trend lines, chart patterns and support and resistance.

And of course, gold is for dessert again. Here’s a parabolic resistance curve from the major low of 253 on August 1999, and then repeated forward AND backward with the notorious 33 degrees from last month’s article (see, 33 wasn’t just derived from the 33 months of the initial vector, was it…?). Tops at D, E, G, I & J. Bottoms at F, H and…hmm, maybe down to curve 4, and its 5 points of contact?

No instructions for this one, since you now have what you need to duplicate it. Back to the drawing board with ‘ya!

But first, a pit-stop to your calculator: if you multiply the low of 253 by this infamous 33, then divide by 5 (pentagon!), then add back to the low of 253 for a resistance level, you get… Goodnight!