Gann’s Rule of Four Developing in the New York Composite

Stan Harley |

Fig2_MGM.gifWe have an interesting pattern developing on the chart of the New York Composite. And while astute watchers of the NYSE Advance/Decline Line may note that this indicator today went to a new, all time high, the index on which this data is based – the New York Composite – did not.

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On the chart at left I have labeled the touch points on the downsloping 1 X 4 angle as “1-2-3-4.” It’s been a while since I’ve spoken of this pattern, but what appears to be developing was a pattern first observed (to my knowledge) by W.D. Gann. He called this pattern his “Rule of Four.” Simply stated, the Rule applies when we have four consecutive touch points on a trend line or Gann Angle. The fourth touch point is make-or-break. If the market breaks through (in this case, to the upside), we usually see a very sharp rally on the breakout. On the other hand, if the market fails to break through, we should see a sharp reversal to the downside. Decision-time coming early next week….

I also note continuing lethargy in the chart of the XIV ETN (page 2). Higher peaks in the S&P, lower highs in the XIV.  

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Each month, Stan Harley publishes The Harley Market Letter, a newsletter that provides advanced technical analysis of stocks, bonds, and precious metals. This is the latest update to the Harley Market Letter for December. Want to learn more from acclaimed market analyst Stan Harley? Visit his site and subscribe to the full Harley Market Letter.   

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