www. GordonTLong.

com
JUNE 2011
Issue : BETA-JUNE
Vol. : 2011-Pilots
Economic & Technical Analysis for the Active Trader

The
Nature of
Fibonacci Markets

Need to Know TA S&P 500 Understanding Gann

where are we headed? denominated in Gold & Silver part 2 : trading with Gann
Market Sentiment Applied Fibonacci ­ square of 9 ­

2012 S&P Targets VIX / VXO Warnings Market Manipulation

1

Economic & Technical Analysis for the Active Trader

W
Weellccoommee ttoo IIssssuuee 22
Welcome to our 2nd issue of Trigger$. We appreciate your interest in our work and hope that
you find it of some value as you try and make sense of the markets. Please feel free to send us
a note and let us know what you think so far.
In this issue we take a look at Fibonacci. Our Cover Story discusses some possible
relationships to both the markets as well as the universe we live in. In our Traders Mentor
section we demonstrate some practical application of a common fib tool and discuss its ability to
forcast future events.
Our first Featured Article continues on with our Understanding Gann series and focuses on
the Square of 9 . Our second article discusses the possibilities of Market Manilpulation after 4
major banks pull off near 1 00% perfect trading records for the 1 st quarter of 2011 .
Focusing on market sentiment with The All Seeing Eye, we sight numerous different sources to
get an overall sense of the markets mood.
TRIGGER$:Need To Know TA section assesses our current position in the markets and offers
some possible outcomes for the near future. Looking like another wave up still to go.
Increased volitility looming and other factors to be aware of in our Risk: Assessment.
We continue to develop what we are trying to do here - you'll note some aesthetic changes from
last issue. Our layout and various sections have been fairly well sorted out and you can expect
to see the same organization and types of articles in future issues. If you have any suggestions
or ideas on improving what we have started here, please send us your thoughts.
Good Trading
GoldenPhi

TRIGGER$ Publications
For all inquiries, comments and contact please feel free to email us at:
triggers@GordonTLong.com
Main contributor : Gordon T. Long Market Research & Analytics
Publisher & Editor : GoldenPhi
Analytical Summaries: GoldenPhi
See page 36 for a complete list of our contributors.
 2
Contents
Economic & Technical Analysis for the Active Trader

The Nature of The All Seeing Eye

4 Fibonacci Markets 8 On Market & Economic Indicators
Cover Story - Focus on : Market Sentiment -
- Golden Selection - Spirals -
- Fibonacci in the Markets-

17 TRIGGER 23 The Vault

Need To Know Technical Analysis Currencies & Metals
- The Big Picture - - Hard Currency - Forex - US Bonds -
- The Larger Pattern -

RISK Traders Mentor

27 Assessment
- LIBOR-OIS Spread -
36 Technical Analysis &
Trading Strategy Education
- Housing : Rate of Change -
- Divergebce - Bank Liabilities - - Applied Fibonacci -
- X:VIX/VXO Warnings -

Open Forums
39 Letters to the editor
Readers Comments
Discussions

Featured Articles

20 Understanding Gann
Part 2 : Trading with Gann
- Square of 9 -

30 Market Manipulation
3
Techni -
Fundamentalism
Economic & Technical Analysis for the Active Trader

“Techni-Fundamentalism”

TRIGGER$ publications combine both Technical Analysis and Fundamental

Analysis together offering unique (and often correct) perspectives on the Global
Markets. The ‘backbone’ of this research is done by “Gordon T. Long, Market Research
& Analytics” which is subscribed to by Professional Managers, Private Funds, Traders
and Analysts worldwide. Every month “Market Research & Analytics” publishes three
reports totalling more then 380 pages of detailed Technical Analysis and in depth
Fundamentals. If you don’t find our publication detailed enough, we recommend you
consider theirs in addition to this one.
For the rest of us, TRIGGER$ offers a ‘distilled’ version of the 380 pages in a readable
format for use in your daily due diligence. Read and understand what the
professionals are reading without having to be a Professional Analyst or Technician.
Successfully navigating todays’ markets requires information from a broad variety of
sources. Triggers examines it all. From Macro Geo Political to daily events; yearly
cycles to break out points on a minute chart: we look at and analyze as much of the
information as possible, pulling out the relevant and giving you what you need to know
to make the right decisions on a daily basis.
An initial or ‘beginning’ publication occurs every month, both in a printable pdf as well
as online. From there, the online version is updated daily with current events, charts,
news and any relevant information pertaining to trading. The completed version of the
publication isn’t actually done until the last day of updates – which occurs right up
until the publication of the next issue.
As well as the Traditional Methods commonly used, “Market Research & Analytics” has
developed “proprietary analytics” for both Technical and Fundamental Analysis and
has designed a methodology to combine the two whereby the synthesis delivers a truly
unique and forward thinking analysis that gives cutting edge insight.

“Techni-Fundamentalism”

Economic & Technical Analysis for the Active Trader
The
Nature of
Fibonacci Markets
If you have been utilizing technical analysis in
your trading, then you are probably familiar with
the name of Fibonacci or the term "fib" as it is
usually abbreviated. At the very least, most
charting software these days come with a 'fib
retracement' tool.
One of the great "ah-ha!" moments in a traders
education comes when they understand what
Fibonacci is and then see it in the markets for the
first time. Observing this phenomena occur is
nothing short of remarkable.
The Fibonacci sequence itself is fairly straight
forward. 0,1 ,1 ,2,3,5,8,1 3,21 ,34,55,89,1 44... each
subsequent number is the sum of the previous
two.
The most popular origin of the sequence comes
from a man known as 'Leonardo of Pisa', or
Fibonacci, in his book Liber Abaci (1 202). He
proposes a puzzle around the propagation of a
rabbit population. Assuming that: a newly born
pair of rabbits, one male and one female, are put
in a field; rabbits are able to mate at the age of
one month so that at the end of its second month
a female can produce another pair of rabbits;
rabbits never die and a mating pair always
produces one new pair (one male, one female)
every month from the second month on. The
puzzle that Fibonacci posed was: how many pairs
will there be in one year?
The Fib number sequence was the resulting
answer and can be expressed with the formula:
Fn = F(n-1 ) + F(n-2) .
While the rabbit breeding puzzle may be
unrealistic, the Fibonacci numbers (and their
4
Cover
Story
significance) actually do appear in nature. Some
plants will branch so that they always have a
Fibonacci number of growing points. Flowers
often have a fib number of petals, daisies can
have 34, 55 or even as many as 89 petals.
Golden Section
Closely related to the fib series is an interesting
value known as the Golden Section. The value is
derived by taking the ratio of successive terms in
the Fibonacci series. Plotting a graph of these
values you'll see that they seem to be moving to a
general average. This average is called the
golden section, golden ratio or sometimes the
golden mean and is represented by the Greek
letter Phi. Hence you also have the term Golden
Phi.
Golden Section
Golden Ratio
Golden Phi
1 .61 8
chart 1
We find this ratio through out all of nature
including our own physical proportions. This ratio
and its derivatives appear to be the natural ebb
and flow of growth and decay for all things - living
or otherwise.
Spirals
We can arrange a series of squares and
rectangles following the fib sequence, each new
square having a side which is as long as the sum
of the latest two square's sides. These numbers
come up many times in nature, but in the form of a
spiral or a curve. When you chart these numbers
on a graph (or use squares as described above),
you get the Fibonacci Spiral. The swirl of
seashells, ridges of pinecones, curve of animals’
(cont.)
5
Cover
Story Economic & Technical Analysis for the Active Trader
(cover story continued)
nails, centers of sunflowers, even human teeth
curve in the Fibonacci spiral.
pic 1
Successive Fib Squares create a Spiral
Fib Arcs
pic 2
Nautilus sea shell
We could continue to give many more examples
of Fibonacci and the Golden Selection in nature.
We will leave it at these instances so that we may
move forward but recommend the reader take
some time and effort to confirm what we are
saying for themselves. If you were previously
unaware of this concept, some of the
fundamental mathematics that seem to govern
our universe, it warrants further study. Even if
only to understand what is going on so that you
can relate it to the markets. While the thought of
'mathematics' in relation to the universe may
sound daunting, comprehending the basic
fundamentals is no more difficult than the fib
sequence itself - and first hand study will drive the
point home better than any article could.
So then, what does any of this have to do with the
markets?
Fibonacci in the Markets
We previously mentioned that most Technical
Analysis software these days come standard with
some sort of Fibonacci tools. Retracements are
the most common, however others would include:
extensions, arcs, spirals and time zones. You
can even find a couple of TA software packages
that have been built specifically for fib analysis.
Why all the time and effort? Just a 'fad' or the 'tool
of the day'? More marketing gimmicks to sell
more software? Possibly.
However the evidence speaks fairly well for itself.
The amount of correlation and consistency that
exists between fib numbers and the markets goes
well beyond that of mere chance or coincidence.
The Traders Mentor section of this publication
offers some education and techniques on
applying various Fib tools. For this article, we will
continue by showing you some examples of how
Fibonacci is used - hopefully you can see that
there is a relationship to the markets.
The chart below shows us a current view of the
S&P-500. This is the same chart shown in our
Trigger$ Need To Know TA section, only without
the channels present. We can see the blue
Weekly
chart 2
Fibonacci Retracement Levels
(cont.)

Economic & Technical Analysis for the Active Trader
(cover story continued)
dashed lines representing the various Fibonacci
retracement levels. These were created from the
high of 2007 to the low of 2009 and the blue
diagonal line from our fib tool starting and
stopping at these points is shown. From the low
of '09 we can follow the price/time graph as it
retraces its move back up and reaches the
various fib %. We can clearly see how the 61 .8%
retracement level acted as resistance in the first
part of 201 0 and the following correction moved
down and touched the 38.2% level before moving
back up. This leads to the last high from our
current down move which occurred at the fib
76.4% retrace.
Another item of note from our weekly S&P chart
is the yellow ellipse that is containing the p/t
graph starting from the low of '09. Ellipses are a
part of a Spiral formation.
Fibonacci Arcs
chart 3
The above chart is an example of Fibonacci Arcs.
There are two arcs drawn in - each origin is
marked by the solid grey or blue line. In each
case you can see how they acted as support and
resistance, again demonstrating the Fib and
Golden Selection relationship to the markets.
This graph (and others) are showing us that
movements, either growth or decay, do not just
go willy-nilly anywhere at random. They expand
and contract according to the same rules that
appear to apply to the 'Natural Universe' as well.
The arcs, like the ellipse, are another form of the
spiral. (See Nautilus (pic 2) opposite page).
6
Cover
Story
Fibonacci Fans
chart 4
A Fibonacci Fan is illustrated in the chart above.
Again we can see how the graph appears to be
following along and respecting the fib %.
We'll end with one final example below. If you can
get your hands on a charting platform that
provides a Spiral tool, more dynamics of what is
occurring will be revealed.
chart 5
Fibonacci Spiral
While similar to the Arcs, the spiral shows with
more clarity how the markets are moving. It is
amazing to set an initial spiral from a small wave
and watch the graph re-act on cue as it reaches
the spiral and moves along it as it unfolds. After
you observe a few examples there is little doubt
what is occurring and how the markets are
governed. Not much different than the spiral
galaxy, pinecones or many other examples that
exist in nature.
GoldenPhi END
7
Methodology
Economic & Technical Analysis for the Active Trader

TRIGGER$, in collaberation with "Gordon T. Long - Market Research & Analytics", have thier own
unique approach to Techni-Fundamental Analysis. The material found in TRIGGER$ is the conclusions
of a multi-perspective methodology boiled down to its final essence. This methodology includes the
following analytical approach:
Time Frame Duration Approach Key Tools
short - term less than 90 days Technical Analysis Elliott Wave Principal,
WD Gann, JD Hurst,
Bradley Model, Proprietary
Mandelbrot Fractal Gen.
intermediate 1 2 months Risk Analysis Global-Macro Analysis
Tipping Ponts - Pivots
longer term 1 8 months + Fundamental Analysis Financial Metrics
The Global-Macro Analysis which is so prevalent in our articles and on our Tipping Points site, plays the
critical role of bridging our highly analytic Technical Analysis with our detailed Fundamental Analysis.
We have found that in the short term the markets are driven by emotion and sentiment. In the longer
term, they are driven by financial fundamentals. As Warren Buffett is often quoted as saying: “In the
short term the market is a slot machine but in the long term it is a weighing machine.” We have found
that the transition shows a lagging correlation between changes in the Global Macro, followed by
Corporate Earnings, then followed by the sell side analyst community estimates.
If you are looking for more detail than is provided in TRIGGER$, consider looking at our primary
inspiration: "Gordon T. Long Research & Analytics". We do our best to summarize this information and
deliver it in an easy to read format. This by its very nature doesn't allow us to include all the very
detailed analysis that takes place in order to deliver us its conclusions.
All information and conclusions delivered in TRIGGER$ articles are a product of the methodology
outlined above.
 8

Economic & Technical Analysis for the Active Trader

The All Seeing Eye

On Market & Economic Indicators
Focus on: Market Sentiment
There are many ways of trying to assess the prevailing attitudes of investors in the effort to
accurately anticipate price developments in the markets. This is commonly referred to as
'Market Sentiment'. Here we will look at various Consumer & Investor Confidence analysis to
get a sense of what the current sentiment is and what to expect next...
- Conference Board-
The Consumer Confidence numbers dropped significanlty in May. What stands out is that
against comparable prints taken at financial crises and tragedies of the past, such as the October
1 987 market crash, Desert Storm, LTCM, the dot com collapse, September 11 th, Katrina, and
Lehman - the current numbers are WORSE!

chart 6

(cont.)
9
Economic & Technical Analysis for the Active Trader
( ­Conference Board­ cont.)
chart 7
Concern about future business conditions is the
big worry on consumers' minds this month. The
Conference Board reported that its May consumer
confidence index fell 7.9% from April to 60.8, the
lowest level since November. The latest decline
followed an upwardly-revised 3.4% April increase
and it contrasted with Consensus expectations for
a reading of 66.5. During the last ten years there
has been a 48% correlation between the level of
confidence and the three-month change in real
personal consumption expenditures.
chart 8
The expectations component of confidence fell a
sharp 9.6% from April to the lowest level since
October. Expectations for improved business
conditions and employment in six months
plummeted to the lowest levels since October.
Income expectations fell as well. Consumers
expected the inflation rate in twelve months to be
an increased 6.6%.
Interest rates in twelve months were expected to
be higher by a stable 56.6% of respondents while
just 1 3.7% expected rates to fall. An increased
35.0% of respondents expected stock prices to
rise but that still was down from 37.9% in January.
The present situations component of the
consumer confidence index slipped 2.2% after a
7.2% April increase. Jobs were seen as hard to
get by an improved 43.9% of respondents, though
that remained down from the November high of
48.8%. Business conditions were seen as good by
a roughly stable 1 4.6% of respondents, double the
February 201 0 low.
-Michigan Consumer Confidence-
The University of Michigan Consumer Sentiment
Index plunged from 77.5 in February to 67.5 in
March. Drops of this magnitude are rare. But
when they happen, they send the message: Look
out below!
Since then the index has steadily risen and has
ALMOST retraced to its February level, BUT STILL
demonstrating lower highs and lower lows.
• February 77.5
• March 67.5
• April 69.8
• May 74.3
As you can see from the chart below, this
indicator’s history is impressive …
chart 9
(cont.)
 10

Economic & Technical Analysis for the Active Trader

( ­Michigan Consumer Confidence­ cont.)

There was a similar large drop in August 1 990, another in September 2001 , and a third one in October
2008. All three were associated with recessions and turned out to be big sell signals for the stock market.
-American Association of Independent Investors-
Surveys of bullish sentiment from Investors Intelligence (II) and the American Association of Individual
Investors (AAII) at year end showed the ninth highest combined reading since 1 987, and it was the sixth
period ever where the combined reading was above 1 20%.

chart 1 0
But something has been happening since year end. We have had one geo-political event after another in
North Africa and the Middle East, an Earthquake, Tsunami and Nuclear disaster in Japan and
continuously worsening news out of the EU and specifically the PIIGS countries.
This news and uncertainly in markets typically prompts a flight to safety and fear in investors. Markets
don't react positively to uncertainty. We see these factors in the latest AAII numbers.

chart 11
However, the market appears to have shrugged off all this (in the short term) as it reacts to historical
flooding of the financial markets with money through QE II.
(cont.)
11

Economic & Technical Analysis for the Active Trader

( ­American Association of Independent Investors­ cont.)

chart 1 2
Note the rising channel of the Bear/Bull ratio based on a 3 week moving average.
The above graph shows that though there has been a growth in Bear Sentiment versus shrinking Bullish
sentiment during early 2011 , the market should find support soon with general strength in the markets
into early summer.

-Investor Intelligence-

Bullish Percentage as of
02/24: 52.2
03/24: 50.6
04/28: 54.2
05/1 9: 45.6

Has dramatically
broke through 50
chart 1 3
 12

Economic & Technical Analysis for the Active Trader

( ­Investor Intelligence­ cont.)

chart 1 4

There's an increasingly widespread view in the market that investors are becoming complacent and that
all this bullish sentiment is a negative signal for stock prices.

We are clearly seeing undisputed facts that

investors are becoming less bullish as stock
prices rise.
The chart to the right compares the S&P 500 to
the Investors Intelligence weekly survey of advisor
bullish sentiment.
For most of 201 0, the two moved step for step
with each other. When the S&P 500 rose, bullish chart 1 5
sentiment increased, and when the market The big question now is, are investors correctly
declined, advisors turned less bullish. anticipating a correction, or will they be sucked (or
as bears would say suckered) back in at higher
Curiously though, towards the end of 201 0, bullish prices?
sentiment stopped rising even as the S&P 500 Our belief is YES
kept on chugging along. A FINAL RALLY & THE LAST PART OF AN
ENDING DIAGONAL
13

Economic & Technical Analysis for the Active Trader

( ­Investor Intelligence­ cont.)

Difference
as of 02/24 is 52.2 - 1 9.6 = 32.6
as of 03/24 is 50.6 - 22.4 = 28.2
as of 04/28 is 54.2 - 1 9.2 = 35.0
as of 05/1 9 is 45.6 - 1 9.2 = 26.4

chart 1 6

-National Association ofActive Investment Managers (NAAIM)-

The National Association of

Active Investment Managers
(NAAIM) shows that on
average they are 58.93%
invested.
This is down significantly from
the 66.99% average of last
quarter.
The red line shows the close
of the S&P 500 Total Return
Index on the survey date. The
bars depict a two-week
moving average of the NAAIM
managers' responses.
chart 1 7
 14

Economic & Technical Analysis for the Active Trader

-Smart Money / Dumb Money Confidence-

chart 1 8

We have had a protracted period of
Divergence with the Smart Money Index. This
suggests the Smart Money does not believe
this rally is real. They have insufficient
confidence in its underpinnings to put capital
at risk.
The best assessment is that the market is
being driven by Federal Reserve buying,
Momentum Traders and Trading Programs.
This is a chart of an unhealthy and artificial
market.

-Mutual Fund Cash Levels v S&P 500-

There does not appear to be a lot of
reserves left in cash for the funds to place. It
is more likely that the cash % level will
increase in the future - the corresponding
expected effect would be to drive the S&P
down as funds sell stock for cash.
It is showing us currently an extreme level
of optimism that will correct sometime in the
future.

chart 1 9
15

Economic & Technical Analysis for the Active Trader

-Consumer Staples versus S&P 500 Ratio-

On page 9 we said: "The University of Michigan Consumer Sentiment Index plunged from 77.5 in
February to 67.5 in March. Drops of this magnitude are rare. But when they happen, they send
the message."

Before this Consumer Sentiment number was available, a hedge fund manager was indicating
that the chart below is what he's really worried about:

chart 20

"This chart is far more worrisome ­ ratio of consumer staples to the S&P500 (check out the RSI
measuring how oversold/under­bought staples are vs. the broader market at the top)...follow the
little dotted lines downward to the black S&P 500 line...

The question is ­ is this more like the 2000/2007 tops or the temporary pause in 2004?"
 16

Economic & Technical Analysis for the Active Trader

- S&P Year End Price Targets -

The chart below lists the year-end price targets for the S&P by various institutions. The average
of which suggest we have more up to get to before the end of the year. This aligns with our
current thinking and targets as well: we are expecting one more lift from the rise that started in
2009.

chart 21
17

Economic & Technical Analysis for the Active Trader

Need To Know Technical Analysis

The Big Picture

In last months issue we showed you a chart of the Ellipse we have been in since 2009 and the
Rounded Top we are currently going through. That pattern is part of a larger one displayed in
the chart below.
DOW
Monthly
1 Head
Right Shoulder

Left Shoulder
4 2

3
Neckline
chart 22

Note blue dashed line 1 is parallel to black line 3. Black line 3 is the neckline for our head &
shoulders set-up. Grey dashed line labelled 2 is parallel to lines 1 and 3 and is at the 50% point
between the two. Line 4 connects the last two highs and shows us the overall wedge we have
been moving inside of.
Watching for one more fractal wave up to complete the right shoulder of a Head & Shoulders
pattern we have potentially been in since the beginning of the last decade.
We would expect that the 'topping process' will be similar to that in '99/2000 - what we refer to as
a 'rounded' or 'rolling' top. This is a different process than the sell-off we experienced in 2008.
If our analysis holds true, we can expect the next sell-offs in the markets to last several years
and bring our price-time graph back down to line 3 (neckline) sometime in the future. This would
bring the DOW down below 6,0000 - more than a 50% contraction from present levels. If our
Head & Shoulders pattern is correct, then we would also expect that our neckline would be
broken and the markets to decline even further.
 18

Economic & Technical Analysis for the Active Trader

The Big Picture (continued)

The Weekly view of the S&P has S&P
been included (chart right) to give us
Weekly
some perspective in the larger chart
below of the Daily S&P. We can see
the origins of the Green channel set
(last major low) as well as where the
Blue Channels come from.
Highlighted in yellow, we can also
see the Ellipse pattern the price/time
graph has been following. Note how
the Ellipse allows for further moves
up before we 'crest' the top and start
our way back down the other side.
This coincides with our previous
DOW chart that also is allowing for
more movement up. chart 23
Also marked in are the Fib Retracements from the last major sell-off in '07 / '08. The Daily chart
(below) has us zoomed in to look at a little more detail. We have the 200ma and both sets of
channels coming together currently and are looking for support in this area. We would expect to
find some sort of consolidation along the channels and 200ma - however the larger pattern is
suggesting that we will move down to the green highlighted section which aligns with two major
tops and the 61 .8% fib retracement from the '08 sell-off. From here we expect another lift.

S&P Divergence

Daily

Divergence

chart 24
Divergence Signalled the Last Sell-Off Watching for support on the 200ma and channels.
FinalDivergence
A clear Support tomarked
be found
theinlast
thesell-off.
green highlighted area - expect another lift from this point
19

Economic & Technical Analysis for the Active Trader

The Larger Pattern

In our previous analysis " The Big Picture", we reference a 'larger pattern' indicating a move
down to the Fib 61 .8% retracement (highlighted by the green horizontal bar). The chart below is
a closer look at the S&P Daily and you should recogonize it from the opposite page - it is exactly
the same graph, only zoomed in to get a closer look at the more recent activity.
Do we have the EW pattern of an 'Expanded Flat' occuring?
Daily
23 pts will we have the pullback
start of wave A
from the channels and
200ma also be the 89ma
before we continue down
to C ?
89ma pullback?

89ma
pullbacks
23 pts

© GoldenPhi
chart 25

For those of you familiar with Elliott Wave
patterns, we are seeing what is known as an
'expanded flat' potentially unfolding. In an
expanded flat, each wave is larger (or expanding)
than the previous. Once both waves A and B are
complete, wave C can be predicted with some
accuracy. In our chart above, we have wave B
extending up past the start of wave A by 23 points.
Wave C then should extend 23 points past the low
of wave A. Coincidentally, this target also lines up
with our Fib retracement level of 61 .8%.
We have also drawn on the chart the 50% level
of the bottom blue channel (blue dashed line). We
would expect the meeting of the 61 .8% Fib level
and the 50% level of the blue channel to be the
area of wave C's termination before we head back
up. We are guessing on a short-term pullback
inside of wave C to the 89ma.
If our pattern is correct, it is saying we can
expect more down in to the end of the summer -
end of August, beginning of September - and
then we can expect to be in an upward trend for
the rest of 2011 . As the larger picture has shown
us, this will likely be the last rise, or the first of a
double top expected as we touch the top of, or
'crest', the ellipse we are in. The down side of the
ellipse is looking like what we can expect for
201 2 and beyond...
NOTICE:
For those of you following Gordon T Long
Market Research & Analytics, you'll note that
the count and labelling here is a little different
than what has been originally proposed. GTL
MR&A suggests that we are currently in an
"Megaphone Top". Both ultimately have us
looking for another lift in to the top of the ellipse
formation - it is a matter of labelling and how
much higher before the top is reached.
GoldenPhi END

Economic & Technical Analysis for the Active Trader
Last month, in Part 1 of Understanding Gann we
showed you the 'Wyckoff Interview'. There is
some speculation with regards to Gann’s trading
record as well as his financial status - the
interview speaks for itself and should clarify any
doubts.
The subject of Gann is extremely vast - he wrote
numerous books and courses himself discussing
his methods. However, he was not exactly
straight forward nor forthcoming with many
details about his methodology. Add to this the
manner in which he wrote several of his books -
they are presented as 'allegories'. Since much of
his method is not laid out for the student to follow
and it does require some serious study to
understand, you subsequently have an untold
number of 'experts' giving you their thoughts on
what Gann was trying to teach - each having their
own ideas as to what it all means. Since there
are so many interpretations and so much
information, it can be hard to know what to look
at and what to disregard.
The truth however is that most of them do have it
right, at least partially... or what they have correct
is actually a piece of a larger whole. Regardless,
studying numerous interpretations and
applications of Gann’s methods can be beneficial
in helping to understand his work.
The issue is that there is so much of it, and it
crosses several 'disciplines' of study - all of which
have been reduced down to basic math to apply
to the markets. Learning and understanding (as
20
Feature Article
Gann
Understanding Gann
Part 2 : Trading With Gann
- Square of 9 -
well as believing) where it is all derived from, the
'foundation' or 'origins' material, can take several
years to learn. Some have spent most of their
lifetimes researching Gann and continue to learn
and discover something new.
However it is a great trip. Much like discovering
Fibonacci for the first time, Gann's methods
likewise give you a new appreciation and
understanding of the universe we are living in.
Just as Fib showed you some of the 'mechanics'
behind nature, so too does Gann. While trying to
unravel Gann, the student is exposed to
information that they may not normally pursue,
exposing the mind to new concepts of reality itself
- in our opinion this is half the fun of Gann.
In this article we are not going to focus on the
origins so much as we will try and demonstrate
one of the more common trading methods that is
being called Gann these days. We may delve in to
them (the origins) in future articles, but for now we
recommend the reader explore this for themselves
- you will not be disappointed.
Square of 9
Probably one of the most known applications
associated with Gann would be the Gann Wheel
and Squares. These could be considered one of
the cornerstones of what Gann is all about. At the
same time they hold great significance to
understanding Gann, they also only just scratch
the surface as to what the methodology is all
about. Much like learning the alphabet before
(cont)
21
Feature Article
Gann
Economic & Technical Analysis for the Active Trader
reading, the squares help set the foundation for
further study.
The Square of 9 is also referred to as a square
root calculator. Part of Gann's methodologies
have to do with the idea of "squaring price and
time". When trying to graph using a Gann tool, the
charts should be set to a 1 x1 ratio or your results
will not be true.
The results from your Square of 9 are telling you
the next most likely resistance price levels up and
/ or down from the price measured. This would be
your basic calculator which we will explain how to
create in a moment.
Another item to understand along with the "square
roots calculator" concept is what is referred to as
"squaring the circle". The box containing the
square of nine should also have a circle around it,
so that each corner of the box touches the inside
of the circle. This allows us to divide the square up
in to degrees of 360 0.
chart 26
'Squaring the Circle' with the Square of 9
You will note that there are highlighted areas of
the square, forming a blue cross (called the
Cardinal Cross) as well as along the yellow
diagonals (called the Ordinal Cross). These are
considered the important numbers when looking
for the next moves up or down and divide the
square up in to 45 0 increments. You may have
read before "1 3 is 45 0 from 11 " or something
similar while researching Gann. Squaring the
circle and representing it through degrees of
movement is a concept you need to learn and
understand to apply Gann. We are going to focus
on price at this time, but this is only 1 /2 of what
the square is representing. The degrees are also
associated with time. Look for us to explain this
(time) in future articles.
Square Root Calculator
As mentioned, the Square of 9 is also known as a
square roots calcualtor. The reason for this should
be apparent as we discuss how to construct our
own.
It should be noted that there are a variety of ways
to use the Square of 9 calculator. How you are
going to use it will dictate to some degree how you
are going to create it. Our example of a Square of
9 (left column) starts with a 1 at the centre and
then spirals outward, clockwise, increasing by an
increment of 1 . The centre number can be
something other than 1 and the increment, or step,
can also vary depending on the market.
Continuing to look at our example left, we noted
that the significant numbers occur every 45 0. Lets
look at the diagonal yellow Ordinal that has the
numbers 9, 25, 49 and 81 . We chose this line for
the ease of the example, but all the squares are
calculated in the same manner. The roots of our
numbers are 3, 5, 7 and 9 . Each time we move up
a level, or move around the square a complete
3600, our roots increase by 2. Since we know that
a complete 360 0 rotation is equal to an increase of
2 pts (to the root number), we can now figure out
any and all numbers in relation to any starting
point. If a 360 0 rotation is equal to adding 2 to the
root of a number, then a 1 0 movement would be
equal to 2/360 0 or 0.0056 added or subtracted to
the root number.
Using this information you could now set up your
(cont)

Economic & Technical Analysis for the Active Trader
own Square Roots calculator using a simple excel
spreadsheet.
The Cardinal and Ordinal numbers however are
our primary interests as we know they are
important via Gann's instruction.
As these numbers occur every 45 0, we can create
a simple table giving us these values in relation to
any starting point. The table below shows us this
along with the calculations to demonstrate what
we have discussed.
Starting value = 1 300
Root of 1 300 = 36 (aprox.)
Increments of 45 0, add 0.25 (to root)
0 0 = (36)2 = 1 300
45 0 = (36.25)2 = 1 31 4.06
90 0 = (36.50)2 = 1 332.25
1 35 0 = (36.75)2 = 1 350.56
1 80 0 = (37)2 = 1 369
225 0 = (37.25)2 = 1 387.56
270 0 = (37.5)2 = 1 406.25
31 5 0 = (37.75)2 = 1 425.06
360 0 = (38)2 = 1 444
These would be the significant levels found on the
Crosses every 45 0. If you wanted to know the
levels below our starting value, then you would
subtract the 0.25 increment instead of adding it.
This could be considered one of the basics of
Gann. What is missing is also the time element to
match up the prices with. When both time and
price are squared the technique becomes even
better at forecasting likely outcomes. As it stands
it is just giving us the next levels most likely to be
reached, or potentially important support and
resistance areas.
An obvious trade strategy could be to buy at one
price and exit on or near a significant Gann value.
Our example above has 1 300 as the start - a
target of 1 31 4 would then be the trade you would
22
Feature Article
Gann
be looking for. This is not an endorsement to
trade, just an obvious example for a
methodology.
The table we created could be designed to
be a Square of 9. Some use this along with
significant high/lows or obvious turning points
as the center number to start. Others have
modified for intra-day trading and claim that
using the number 1 and not 2 for the
calculation of a full 360 0 works better. Once
you become more familiar with the process
and what is occurring, then you can start
experimenting on your own. It is said that
each market, stock, index - all have their own
special 'tweaks' that set the squares up for
each specific market.
You now have the means to start your Gann
education in earnest. As we have stated
several times, this is just the very basics of
what Gann has to offer. If you continue your
pursuit, you will find that much is still waiting
for you to discover. The Gann angles we
have discussed along with their degrees
become predictable as the price chart you
are familiar with turns in to a 3 Dimensional
map of the future.
For those of you who are really keen we
suggest you do some reading and study on
the basics of what is known as Sacred
Geometry. Consider that: (1 ) Gann published
"Tunnelling Through the Air" which is an
allegory of what is going on, and; (2) "Air" is
represented in Sacred Geometry by a
Octahedron (made up of 8 triangles). Can
you find any triangles in your charts? (See
our chart 24 on page 1 9).
Octahedron
8 sided figure made of
triangles
pic 3
GoldenPhi END
23

Economic & Technical Analysis for the Active Trader

The Vault
Currencies & Metals

If you haven't already, we recommend you read Market Research & Analytics recent article:
"Debt Saturation & Money Illusion". It illustrates the fact that it is critical to consider the market
denominated in real terms. As such we need to look at the market priced in hard assets.
Additionally, we need to consider the direction of the US dollar as well as interest rate differentials
which directly affect the movement of the US dollar.

-Hard Currency-
The S&P 500 when denominated in Gold shows that the market is actually down from its
nominal low in October 2008.

chart 27

On a weekly basis the S&P 500:Gold ratio maintains a close correlation with its 40 week moving
average.
 24

Economic & Technical Analysis for the Active Trader

(­Hard Currency­ cont.)

The S&P 500:Silver ratio demonstrates a much different profile since August 201 0 when
Chairman Bernanke signaled Quantitative Easing II was in the works. The plunge has been
dramatic with the parabolic move in Silver.
Silver as both a precious metal and industrial product has a much different demand / supply
profile.

chart 28

On a weekly basis the S&P 500:Silver ratio usually holds a close relation to its 40 week moving
average. We can see that it has come away from this and now appears as if it is trying to correct
back to it.

chart 29
25

Economic & Technical Analysis for the Active Trader

-FOREX-
The US dollar has decisively broken through support levels.
The dollar however is still above its long term neckline within a major head and shoulders
topping formation pattern. When the neckline is broken we can expect the US dollar to plummet
to below 40.
US DOLLAR INDEX

chart 30

We would expect to see near term support to soon be found and a temporary rally to occur in
the US dollar.
A dollar rally will likely push down precious metals in a corrective / consolidation. The S&P
500 will also likely fall.
 26

Economic & Technical Analysis for the Active Trader

US 10 YEAR TREASURY BOND

chart 31

A critical driver of the US dollar index is US interest rate differentials. The difference between the
rate on the US 1 0 year treasury and other sovereign treasuries is a critical element in determining
the direction of the US dollar.
Presently, all indications are that though near term rates have weakened to below 3.00%, interest
rates for the US treasury are headed higher. Higher rates IF they create a differential and are not
simply reflected in other global sovereign rates will affect the dollar.
The differential in sovereign bonds yield is determined by a number of factors, but risk of default,
government fiscal policy and central bank monetary policy are critical drivers. Presently, all these
factors are considered poor in the US relative to other sovereign nations. The downgrading of the
US AAA US treasury to "Negative Watch' recently is indicative of this.
CONCLUSION
As we mentioned last month were are presently experiencing Margin Debt falling off significantly.
This is highly unusual and a strong precursor of "risk off' beginning to creep into the market. This
'Risk Off' is underpinning the 'rounded top' we expect before the market resumes its secular bear
market which it began in real terms in December 1 999.
27

Economic & Technical Analysis for the Active Trader

RISK
Assessment

LIBOR-OIS Spread
When the LIBOR-OIS Spread is
increasing, it tells us that banks
believe the other banks they are
lending to have a higher risk of
defaulting on the loans, so they are
charging a higher interest rate to
offset this risk.
It also tells us that the credit
markets are not functioning as
smoothly as they could be—which is
sign of potential economic
contraction.
Though the levels are not alarming
the TREND IS A MYSTERY as chart 32
illustrated to the right.

Housing - Rate of Change

Prof. Robert Shiller (one of the
creators of the CS Index) pointed
out that when 6 out of 20 US cities in
the index have hit new lows (even
lower than in early 2009) that the
economy would face “serious
worries” if house prices kept falling
this fast
Why did he say “this fast”? To
understand, you have to look at the
annualized rate of change of the last
3 month. And it is not a pretty
picture.
While the 1 0-city index dropped an
annualized 8.8% in the three-month chart 33
period from July to October 201 0,
 28

Economic & Technical Analysis for the Active Trader

Divergence
One of the things to watch for in the
markets is divergence. Divergence are
one of the best warnings that something
is wrong somewhere. It often tells you
that there are unbalanced forces at play
in the market. These forces will resolve
themselves, but often do this via gradual
reversal in trend or a sudden surprise
shock to the markets.

The ECRI Weekly Leading Index is

presently showing a divergence with the
S&P 500 Index. While the S&P 500 is
setting a higher high, the ECRI on a
longer term weekly basis is setting lower chart 34
highs. This suggests that the stock
market may be pricing in more economic
good news than it should.

Bank Liabilities
The Shadow Banking System as the
prime pusher of toxic debt
instruments collapsed in the 2008
financial crisis and so far it simply
has not re-emerged in some sort of
hybrid fashion. The Federal Reserve
desperately needs this to happen
and this has been another reason for
the Fed's "Extend & Pretend" policy.
To the right is the latest figures from
the Federal Reserve's Flow of Funds
report for Q4 201 0. The report was
startling since Q3 201 0 was even
worse than thought after final chart 35
adjustments were made.
We had aQ4 201 0 decline of $206.4
Billion in Shadow Banking liabilities
with $440 Billion in combined
Shadow and Conventional Banking
System Liabilities.
This almost guarantees that the
Federal Reserve must continue QE.
29

Economic & Technical Analysis for the Active Trader

X-VIX / VXO Warnings

chart 36

chart 37

The Weekly VIX chart above show a wedge with the slopes of the sudden change in volatility
getting steeper but shorter in duration. If they were to be getting shorter but not as steep we could
see this as good news with the system becoming more stable as it decayed. Instead we have
'shock' reactions. This is a bad omen for stability - whether an up market or down market follows.
The daily VIX shows the banding of the 50, 1 00 and 1 00 day VIX moving averages. Tightening
bands are an indication of a pending break in pattern, whether up or down.
We have a 1 00 DMA cross of the 200 DMA which is sign of a potential trend reversal.
 30
Feature Article
Market Manipulation
Economic & Technical Analysis for the Active Trader

Market Manipulation

The first quarter of this year proved to be extraordinary for four major banks as they made
perfect trading records. There is an exception – one of the banks had one day with a loss – the
rest of the days, including the trading days of three other major banks, had a quarter (3 months)
of 1 00% profitable trading.
Statistically, given that we are in a completely random and chaotic market, this should be
impossible. Not just one bank having three months straight of not a single day with a loss
(except noted exception – which is literally just one day), but Four banks simultaneously
accomplishing it.
It is recognized that these banks are not just your ordinary trader. The have virtually unlimited
resources, hire PhD’s and other brilliant minds to work on sophisticated automated trading
algorithms, use the best technology and have extremely large pools of cash from which to draw
from. It would be expected that they would do well, or not be in the business at all. However,
given that we are supposed to have a completely random market, to ‘do well’ would fall in an
80%-90% range. The four banks had approximately 240 trading days combined with one loss –
or a 99.58% positive daily trading record. Or, to express it yet another way: you had one bank
with a 98% daily trading record over three months plus three banks with 1 00% daily trading
records during the same time period.. In a random market, this should be impossible, yet it has
occurred.

JP Morgan
In the 1st quarter of
2011, JP Morgan
averages $112million
profit per trading day.
Over the 3 month
period they have No
loosing days.

chart 38
31
Feature Article
Market Manipulation
Economic & Technical Analysis for the Active Trader

Bank of America

chart 39

What are the odds of trading everyday for a quarter and not having a single losing day?
What are the odds of all four major banks doing it and none of them having a losing day?
JP Morgan and Bank of America are shown here. Citi (not shown) is the 3rd bank with a
100% profitable daily trading record over the same three month time period.

Goldman Sachs

chart 40
It turns out that only Goldman Sachs of the four major banks recorded a single trading
day loss. That single day's loss was even then negligible compared to their average day's
gains.

Economic & Technical Analysis for the Active Trader
So what does this mean? It seems that either
(a) the markets are not completely random
and chaotic as we are told, or, (b) the four
banks somehow managed the market –
through “inside information” or by sheer force.
That the four banks were just ‘lucky’ combined
with their superior resources goes beyond all
realms of rationality. For every 1 0 trading
days, we would expect 1 or 2 of them to be
non-profitable. In our real life example with
four banks and 60 trading days each, we
could expect 24-48 unprofitable days out of
the combined total of 240. There was only 1 .
Option (a) suggests that there is more to the
markets than just the random-walk theory we
have all been taught about. If you are using
any Technical Analysis in your trading then
this possibility is nothing new to you. We
suggest that if the markets were completely
random many TA techniques would not be
present, useful or predictive. That a market
moves to a certain level and support or
resistance can be predicted before hand
based on previous moves, says the markets
can not be random. The definition of random
does not allow for any predictability - soon as
there is any, then it isn't random any more.
In this issue we have a focus on Fibonacci.
We have demonstrated its existence in nature
as well as the markets. Fibonacci levels have
proven to be reliable and consistent across all
markets and timeframes. If they (the markets)
were all completely random, we would not
notice anything. That these techniques work
across all time frames suggests a Fractal
nature to the markets as well - again, not
random.
We could go on at length discussing various
technical analysis techniques, but the bottom
line remains the same for each of them. None
of them would have any value or demonstrate
any predictability if the markets truly were
completely random.
32
Feature Article
Market Manipulation
Having said all this and shown that the
markets are not a complete random walk as
we have been lead to believe, we also know
as traders that just because you may be able
to accurately predict a markets next most
likely move, it does not mean that you can
also automatically trade it properly and be
profitable. TA does not guarantee profits. (But
it sure helps! :-) ).
Option (b) suggests that the banks somehow
'cheated'. Inside information is one
possibility. Forehand knowledge of upcoming
economic announcements doesn't
necessarily guarantee profits. As any
experienced trader will tell you, the market
doesn't always act as anticipated even when
the released numbers are as predicted.
Having information about a specific company
(ie earnings or pending bankruptcy) probably
would give you an advantage ahead of the
herd.
How about actual market manipulation? Is it
possible?
Www.marketmanipulation.com claims " Over
85% of Retail Traders lose in the Markets ­
WHY? Because all markets are Manipulated
by the "Smart Money" ­ Professional
Syndicate Traders who see both sides of
the Market.
Technical Analysis and Fundamental Analysis
are not able to detect the Manipulation, which
is why the success rates in the Retail Trading
Community are so low."
The story is told that after he had been
deported to Italy, Infamous New York City
gangster Lucky Luciano granted an interview
in which he described a visit to the floor of the
New York Stock Exchange. When the
operations of floor specialists had been
explained to him, he said, "A terrible thing
happened. I realized I'd joined the wrong
mob"
33
Feature Article
Market Manipulation
Great Depression Economic & Technical Analysis for the Active Trader
Lucky Luciano
"I realized I'd joined the wrong mob!"
The banks do have market makers and
specialists who have access to both sides of
the market and can see what is coming down
the pipe and adjust accordingly.
They also have vast amounts of capital at their
disposal. By buying and selling at the right
times and playing with volumes they can help
direct the 'prints' on a chart thereby creating
different technical situations - knowing these
patterns will be perceived by others in certain
ways they can create their own opportunities
to take money from the public.
We know that things like cartels exist - these
do so to for the purpose of 'regulating' markets
like Oil. Is regulation not just another word for
manipulation? Ultimately it comes down to
trying to control the market - it follows that
they would try and profit from this.
If we go searching for historical evidence of
market manipulation we can find lots to read.
A Google search gives over 1 .6 million hits to
the reference.
At the end of this article is another one relating
to the Federal Reserve and thier part in
market control. We will leave the evidence as
presented for the reader to conclude for
themself what is going on. Possibly a little of
all that has been mentioned? Regardless, if
the reader is honest with themself, they will
see that there is much more transpiring in the
markets than is presented up front via the
mainstream media or our common educations.
The actual means that are being employed by
the banks in question are anyones guess.
Market Manipulation
How a Group of International Bankers
Engineered the 1929 Crash and the Great
Depression
From Gary Allen’s None Dare Call it
Conspiracy, Chapter 3:
How successful has the Federal Reserve
System been? It depends on your point of
view. Since Woodrow Wilson took his oath of
office, the national debt has risen from $1
billion to $455 billion. The total amount of
interest paid since then to the international
bankers holding that debt is staggering, with
interest having become the third largest item
in the federal budget. Interest on the national
debt is now $22 billion every year, and
climbing steeply as inflation pushes up the
interest rate on government bonds.
Meanwhile, our gold is mortgaged to
European central banks, and our silver has
all been sold. With economic catastrophe
imminent, only a blind disciple of the “...”
could believe that all of this has occurred by
coincidence. (see note E1 )
When the Federal Reserve System was
foisted on an unsuspecting American public,
there were absolute guarantees that there
would be no more boom and bust economic
cycles. The men who, behind the scenes,
were pushing the central bank concept for
the international bankers faithfully promised
that from then on there would be only steady
growth and perpetual prosperity. However,
Congressman Charles A. Lindberg Sr.
accurately proclaimed:
“From now on depressions will be
scientifically created.”
Using a central bank to create alternate
periods of inflation and deflation, and thus
whipsawing the public for vast profits, had
been worked out by the international bankers
to an exact science.

Economic & Technical Analysis for the Active Trader
Having built the Federal Reserve as a tool to
consolidate and control wealth, the
international bankers were now ready to make
a major killing. Between 1 923 and 1 929, the
Federal Reserve expanded (inflated) the
money supply by sixty-two percent. Much of
this new money was used to bid the stock
market up to dizzying heights.
At the same time that enormous amounts of
credit money were being made available, the
mass media began to ballyhoo tales of the
instant riches to be made in the stock market.
According to Ferdinand Lundberg:
“For profits to be made on these funds the
public had to be induced to speculate, and it
was so induced by misleading newspaper
accounts, many of them bought and paid for
by the brokers that operated the pools…”
The House Hearings on Stabilization of the
Purchasing Power of the Dollar disclosed
evidence in 1 928 that the Federal Reserve
Board was working closely with the heads of
European central banks. The Committee
warned that a major crash had been planned
in 1 927. At a secret luncheon of the Federal
Reserve Board and heads of the European
central banks, the committee warned, the
international bankers were tightening the
noose.
Montagu Norman, Governor of the Bank of
England, came to Washington on February 6,
1 929, to confer with Andrew Mellon, Secretary
of the Treasury. On November 11 , 1 927, the
Wall Street Journal described Mr. Norman as
“the currency dictator of Europe.” Professor
Carroll Quigley notes that Norman, a close
confidant of J. P. Morgan, admitted: “I hold the
hegemony of the world.” Immediately after this
mysterious visit, the Federal Reserve Board
reversed its easy-money policy and began
raising the discount rate. The balloon which
had been inflated constantly for nearly seven
years was about to be exploded.
34
Feature Article
Market Manipulation
Great Depression
On October 24 [1 929], the feathers hit the
fan. Writing in “The United States’
Unresolved Monetary and Political
Problems”, William Bryan describes what
happened:
“When everything was ready, the New York
financiers started calling 24 hour broker call
loans. This meant that the stockbrokers and
the customers had to dump their stock on the
market in order to pay the loans. This
naturally collapsed the stock market and
brought a banking collapse all over the
country because the banks not owned by the
oligarchy were heavily involved in broker call
claims at this time, and bank runs soon
exhausted their coin and currency and they
had to close. The Federal Reserve System
would not come to their aid, although they
were instructed under the law to maintain an
elastic currency.”
The investing public, including most stock
brokers and bankers, took a horrendous blow
in the crash, but not the insiders. They were
either out of the market or had sold “short” so
that they made enormous profits as the Dow
Jones plummeted. For those who knew the
score, a comment by Paul Warburg had
provided the warning to sell. That signal
came on March 9, 1 929, when the Financial
Chronical quoted Warburg as giving this
sound advice:
“If orgies of unrestricted speculation are
permitted to spread too far the ultimate
collapse is certain … to bring about a general
depression involving the whole country.”
Sharpies were later able to buy back these
stocks at a ninety percent discount from their
former highs.
To think that the scientifically engineered
Crash of 1 929 was an accident or the result
of stupidity defies all logic. The international
bankers who promoted the inflationary
(cont)
35
Feature Article
Market Manipulation
Great Depression Economic & Technical Analysis for the Active Trader
policies and pushed the propaganda which
pumped up the stock market represented too
many generations of accumulated expertise to
have blundered into “the great depression.”
Congressman Louis McFadden, Chairman of
the House Banking and Currency Committee,
commented:
“It [the depression] was not accidental. It was
a carefully contrived occurrence… The
international bankers sought to bring about a
condition of despair here so that they might
emerge as the rulers of us all.”
Although we have not had another depression
of the magnitude of that which followed 1 929,
we have since suffered regular recessions.
Each of these has followed a period in which
the Federal Reserve tromped down hard on
the money accelerator and then slammed on
the brakes. Since 1 929 the following
recessions have been created by such
manipulation:
1 936-37 : Stock Prices fell fifty percent (50%)
1 948 : Stock prices dropped sixteen percent (1 6%)
1 953 : Stock declined thirteen percent (1 3%)
1 956-57 : The market dipped thirteen percent (1 3%)
1 957 : Late in the year the market plunged nineteen
percent (1 9%)
1 960 : The market was off seventeen percent (1 7%)
1 966 : Stock prices plummeted twenty-five percent
(25%)
1 970 : The market plunged over twenty-five percent
(25%)
Chart 5 (not shown), based on one appearing in
the highly respected financial publication,
Indicator Digest of June 24, 1 969, shows the
effects on the Dow-Jones Industrial Average of
Federal Reserve policies of expanding or
restricting the monetary supply. This is how the
stock market is manipulated and how
depressions or recessions are scientifically
created. If you have inside knowledge as to
which way the Federal Reserve policy is
going to go, you can make a ton of money.
The members of the Federal Reserve Board
are appointed by the President for fourteen
year terms. Since these positions control the
entire economy of the country they are far
more important than cabinet positions, but
who has ever heard of any of them except
possibly Chairman Arthur Burns? These
appointments which should be extensively
debated by the Senate are routinely
approved. But, here, as in Europe, these men
are mere figureheads, put in their positions at
the behest of the international bankers who
finance the Presidential campaigns of both
political parties.
And, Professor Quigley reveals that these
international bankers who owned and
controlled the Banks of England and France
maintained their power even after those
banks were theoretically socialized. The
American system is slightly different, but the
net effect is the same: ever increasing debt
requiring ever-increasing interest payments,
inflation and periodic scientifically created
depressions and recessions.
The end result, if the Insiders have their way,
will be the dream of Montagu Norman of the
Bank of England “that the Hegemony of
World Finance should reign supreme over
everyone, everywhere, as one whole super-
national control mechanism.” (“Montagu
Norman” by John Hargrave, Greystone
Press, N.Y., 1 942.)
http://hidhist.wordpress.com/banksters/how­a­group­
of­international­bankers­engineered­the­1929­crash­
and­the­great­depression/
Editors Note:
E1 . As of the middle of 2011 , the U.S. debt
to the bankers exceeded
$1 4,350,000,000,000 ($1 4.35 trillion), and is
increasing at the rate of $3,900,000,000
($3.9 billion) per DAY. See the current
Treasury report of the national debt.
 36

Economic & Technical Analysis for the Active Trader

Traders Mentor
Technical Analysis &
Trading Strategy Education

Applied Fibonacci
See the Cover Story in this issue "The Nature of Fibonacci Markets" for an introduction to
Fibonacci and its relation to the markets.

It is hoped that you are able to see that there
does appear to be some sort of relationship
between Fibonacci and market moves. We
have proposed a theory for its cause... why
the fib % seem to be applicable. It is now up
to the reader to decide to pursue the
information themselves in order to try and
understand why they (the fibs) behave as they
do.
In this article we will discuss a useful
approach to utilizing a common fib tool. We
will demonstrate a practical application in our
current market so that you may then study and
further test Fibonacci theory for yourself.
This article is for education purposes only, to
verify the validity of the theory and
demonstrate its relationship with market
moves. It is in no way a suggestion to trade
based on this theory alone. While very useful,
it should be one of many tools used in your
daily due diligence. We hope you take the
information here and use it as a starting point
for your own research.
Fib Retracements & Extensions (Tool)
Probably the most common fib application to
be found in most charting software is some
variation of the fib retracements / extensions
tool.
Very easy to apply, it is probably one of the
more powerful tools you have at your
disposal.
Using this tool you can accurately predict
support and resistance levels, size of the next
wave and even where corrections will most
likely end up before the trend continues on.
When combined with other methods, such as
Elliott Wave, it adds another dimension to the
forecasts that can take your trading to the
next level.
Lets take a quick look at a method for
predicting the next wave. The following chart
is of the OEX and the 1 st fib %'s are marked
in using the fib tool. You can see that the
market pulled back at the end of the 1 st wave
by 38.2% - touching the 61 .8% line. This line
represents 61 .8% of the Original Wave, or the
original wave less 38.2% (our retracement)

chart 41
37

Economic & Technical Analysis for the Active Trader

We would expect that our next wave up would Should the market continue to contract at the
have a relationship to our 1 st wave by some same rate it has done for up waves 1 and 2,
measure of fib %. then we could expect the 3rd wave up to also
contract at the same rate and be 61 .8% of the
For our next chart, all we have done is moved size of the previous, or 2nd wave, up.
the tool from the start of the 1 st wave to the
start of the next wave up. Changed no settings
or size, literally just slid the whole fib tool
(marking the bottom to the top of the 1 st wave)
over to the start of the next wave up.

chart 43

We have used our current position at the time

of this chart to represent the end of the
consolidation and start of the 3rd wave up.
chart 42 However this has not been confirmed and we
are using the point for demonstration
purposes only. In order to get an accurate
We can clearly see that the 2nd wave up was forcast you must know the correct position
61 .8% of our 1 st wave up. from which the 3rd wave started up - which is
not known at this time.
When we have verified that the consolidation
is in and the next wave up has begun, we can Using this example we have a target of
then make some predictions as to where the around 650 on the OEX for the end, or top of
3rd wave up will end. the 3rd wave up.
The same process is applied. We start over This same method can be used in a variety of
resetting our tool to measure the size of our ways. As mentioned earlier, adding these
2nd wave up. Then move the tool over to the ratios to your EW (Elliott Wave) counts can
start of the 3rd wave up. add a new dimension (and accuracy) to your
analysis. Consider that the waves in EW act
The market appears to be contracting, or the in a similar manner to our example above.
waves are 'shrinking' as opposed to expanding Start measuring them with your fib tools and
or 'growing larger'. We can make this see if you notice anything.
observation because of the fact that our 2nd
wave up was only 61 .8% of the size of our 1 st Look for more Fib applications in future
wave up. issues of TRIGGER$.
GoldenPhi END
 38

Economic & Technical Analysis for the Active Trader

Traders Mentor Up date

IIn last months issue we discussed channel theory and constructed an analysis that gave us
guidelines for months out in to the future. This month we offer an update to this so that you may
see what has transpired and continue to analyze this method for yourself.

chart 44
Channel Theory Analysis.
We showed you the construction of these channel lines in last months issue. These lines could
have all be set up as early as November 201 0. They continue to provide some perspective as
the chart above (from last month) and the updated chart below demonstrate.

chart 45
39

Economic & Technical Analysis for the Active Trader

Open Forums
Letters to the Editor
Readers Comments
Discussions
Looking for readers feedback. Please let us know hat you are thinking.
If you have an article or an analysis you would like to be considered for Trigger$ publications,
please contact us with your ideas.
TRIGGER$ : triggers@gordontlong.com

We would like to acknowledge and thank the following for their contributions to this issue.
FreeStockCharts.Com
Chart 2,3,4, 22,23,24,25,41 ,42,43,44,45
Haver Analytics
Chart 6,7,8
ClusterStock
Chart 11
HaysAdvisory.com
Chart 1 2, 1 4, 1 8
InvestorsIntelligence.com
Chart 1 6,
SentinmenTrader.com
Chart 1 9
StockCharts.com
Chart 20,27,28,29
PFS Group
Chart 34
Zero Hedge
Chart 35
 Economic & Technical Analysis for the Active Trader www.GordonTLong.com

Gordon T. Long has been publically offering his financial and economic writing since 201 0,
following a career internationally in technology, senior management & investment finance. He
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Mr. Long was a senior group executive with IBM and Motorola for over 20 years. Earlier in his
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After a career with Fortune 500 corporations, he became a senior officer of Cambex, a highly
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In 1 995, he founded the LCM Groupe in Paris, France to specialize in the rapidly emerging
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Chaos Theory and Mandelbrot Generators lead in the early 2000's to the development of
advanced Technical Analysis and Market Analytics platforms. The LCM Groupe is a recognized
source for the most advanced technical analysis techniques employed in market trading pattern
recognition.
Mr. Long presently resides in Boston, Massachusetts, continuing the expansion of the LCM
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Gordon T. Long is a graduate Engineer, University of
Waterloo (Canada) in Thermodynamics-Fluid
Mechanics (Aerodynamics). On graduation from an
intensive 5 year specialized Co-operative Engineering
program he pursued graduate business studies at the
prestigious Ivy Business School, University of Western
Ontario (Canada) on a Northern & Central Gas
Corporation Scholarship. He was subsequently
selected to attend advanced one year training with the
IBM Corporation in New York prior to starting his
career with IBM.