Two 45° Angles From The Same Bottom
As we have previously explained, the 45° angle moves up at the rate of 1¢ per month and moves down at the rate of 1¢ per month. Refer to example on chart #8.
You will note that the low on this chart is shown as 52 and the price moves up to a high of 63. A 45° angle is drawn up from the bottom, and after the price reaches top and starts to work down, it breaks the 45° angle getting under it at a price of 59. You will note that I have drawn another 45° angle down from the bottom at 52. At the point where the price breaks under the 45° angle moving up from 52 to the 45° angle moving down from 52, the distance in points is 16. Therefore, the angles have widened until the price could decline 16¢, if it went straight down, before it reached the 45° angle moving down from the bottom.
Note that I have shown on the chart that the price continues down until it reaches 40, where it rests on the 45° angle from the bottom at 52. This would indicate the strongest support point and at least a temporary rally, especially as the price is down 23-points from the top. Later, you will find under "Resistance Levels” that 22½¢ to 24¢ is a strong support point.
This shows that when an option gets into a very weak position by dropping under important angles moving down from bottoms, after having broken strong angles moving up from bottoms, it can decline to very low levels. These extreme fluctuations and declines have happened in the past and will happen again in the future. This proves the squaring out of time on the down side or the balancing up of Price and time.
Angles Or Moving Trend Lines From Top To The Next Top
(Refer to example on Form #9.)
You will see that we have started the bottom at 60. The option advances 6 months to 74, to a point marked "T" and makes top, reacts for 3 months to 64 breaking the 45° angle but resting on the angle of 2x1 from the bottom, then starts advancing and finally crosses again the 45° angle from 60, getting into a stronger position, having regained this angle. In order to determine where it might meet resistance, as it is in new high territory, we draw a 45° angle from the top at 74. The price advances to 90 on the 22nd month from the bottom, striking the 45° angle from the first top at 74, on the 16th month from the first top. Being 16-points up above the first top, the time equals the advance in the price above the first top. The 45° angle shows that this is a strong resistance point and a place to go short with stop 1 to 3-points above the 45°. A decline starts and in the third month the price again breaks under the 45° angle from the bottom (at 60) at a very high level. In other words, it is 24¢ up from the bottom and is now in a much weaker position because it is so far from the base of support, and indicates a decline again to the angle of 2x1 (marked in green).
Don't overlook this rule: After an option has advanced to a new high level, then declines to the old top at 74, this may be a support point unless it breaks 3¢ under it. If it does, and also breaks the angle of 2 x 1, it will be in a weaker position and the next point to watch for support and a rally would be the next bottom at 64.
Angles From Bottom Of First Sharp Decline
When an option that has been advancing for some time makes top and holds for several days, several weeks or several months, then turns the trend down and has a sharp, severe decline, there is always a rally after this first decline. It usually makes a lower top on this secondary rally and then starts to work lower again. The bottom of the first decline is a very important point from which to draw angles, especially the 45° angle, moving down, as I have done on the chart marked "Form #10."
This chart shows the price rallying up to around 75, where the 45° angle coming up from the last bottom crosses the angle of 2x1 coming down from the top. Then the decline started and at 66 the price broke back under the angle of 45° from the top, which put it in a very weak position. It declined to the angle of 45° coming down from the bottom of the first sharp decline. This would be the squaring out of time from the bottom and would be a place to buy for a rally. An option will often decline and drop a little below this angle from the bottom. Then, if it holds for several days or weeks under this angle, or on it, it is a place to buy for a rally.
On a monthly chart, always carry this angle down from the bottom of the first sharp decline, as it often becomes very important later on in a campaign.
After an option has been advancing for some time and then has a sharp break lasting 2 to 3-days, 2 to 3-weeks or 2 to 3 months, then rallies and afterward breaks under the lows of this first sharp break, indicates that the main trend has turned down and that it is going lower.
Apply the same rule when any Grain has been declining for a long time and then makes a sharp, quick recovery for 2 to 3-days, 2 to 3-weeks or 2 to 3 months, then reacts and crosses this first rally point that it made, an indication of higher prices.
Last Swing In A Bull Or Bear Market
It is important to draw angles from the price the markets starts up, and makes its last run, in a bull market. Refer to Chart #11.
In this example note point marked "last bottom." In the last section of the bull market, a fast advance follows to a price of 84. We have drawn the angle of 2x1 (a gain of 2¢ per day, week or month) and the 45° angle from this bottom. When the angle of 2x1 was broken, it indicated the trend had turned down. The market declined and rested on the 45° angle, then rallied and made a second lower top, then broke the 45° angle, declined sharply and rested on the 45° angle drawn from the top at 84, which indicated that time and price had squared out or were equal. This would be a buying level with a STOP-LOSS order 2¢ to 3¢ under this angle for a rally back to the angle of 2x1 from the top, as shown on the chart.
In a very active, fast-moving market, the price may stay above the angle of 4x1 or the angle of 8x1 from the "last bottom," but on the daily or weekly chart, after this first acute angle is broken, it indicates that the trend has turned down.
Always remember that after a prolonged advance, when the main trend turns down, it is safer to wait for rallies and sell short than to buy against the trend.
All of these rules are reversed at the end of a bear market or sharp decline. It is important to note when the market starts down from the last top or rally, and makes its last run to bottom. Draw the angles from this last top and watch when the market reaches these important angles and crosses them.
After an option has been advancing for a long time, in the last run when there is a lot of momentum, it may cross-angles from previous tops or bottoms, then fall back under them, which is an indication of weakness. When an option has a sharp decline and is making bottom, it will drop under important angles and then recover quickly, getting above them, which shows that it is getting into a strong position and changing trend.
Angles From Higher Bottoms And Lower Tops
What rule should be followed when Grain makes higher bottoms and lower tops?
As prices advance and make higher bottoms on the monthly, weekly or daily chart, you should always draw angles from higher bottoms. Then, in the last section of a bull market, if these important angles are broken from the last bottom, you know that the trend has turned down.
Apply this same rule as a market declines. Draw the angles from each lower top and watch the angles until the price again crosses the 45° angle from a second, third or fourth lower top. The second lower top or second higher bottom is always very important from which to draw angles and to measure time from as well.