Correction? - Minimum 5%.

Is it getting better....?
Or do you feel the same...? - U2.

The relevance of trading with time and cycle may alone be less accurate than forecast with price; however its relevance increases as forecasted times approach, price patterns and momentum wanes showing signs of reversal.

When taken together, time/price harmonics have accurately predicted significant market turning points.

Numbers don’t mean anything until they turn the market, but numbers, not fundamentals, turn the market. It was not the fundamentals that turned the market in March 2009.

One of W.D. Gann’s major methods for market timing was to use fractions of a circle, specifically into quarters, eighths, and thirds, to count the number of days, weeks, and months between highs and lows.

For example, the circle has 360 degrees, 90 is one-quarter, 45 is one-eighth.

Rounding, one-eighth of 90 is 11, two-eighths is 22, three-eighths is 33, and four-eights is 45.

W.D. Gann was the greatest student and researcher of the market ever but he was very secretive about what he revealed and how he revealed it. He never chose his words without a distinct reason.

For example, one of Gann’s books was called 45 Years in Wall Street. Note that the title was not 45 Years on Wall Street, but in Wall Street.

The book was not about his career on Wall Street but about a cycle on Wall Street.

As well as regular cycles, there are random fluctuations in things too. The random occurrences can camouflage the periodicity of cycles and also generate what appear to be new, smaller cycles… which they may not be. This is one of the problems with market-timing signals.

In addition, many things act as if they are influenced simultaneously by several different rhythmic influences, the composite effect of which is not regular at all.

Cycles may have been present in the figures you have been studying merely by chance. The ups and downs you have noticed, which come at more or less regular intervals, may have just happened to come that way. The regularity, the cycle, is there but in such circumstances it may carry no significance.

Cycles can invert, appear and disappear, and elipticalize.

When forecasting stock market cycles, they can be influenced by random events. The predictive value of cycles provide only specific probabilities when the suggested time period is approached.

Fixed time cycles are apparent in stock market tops and bottoms. But, eventually a cycle may cease to continue. For example, the four-year cycle in the US stock market held true from 1954 to 1982, producing accurate forecasts of eight market bottoms. Had an investor recognized the cycle in 1962 he could have amassed a fortune over the next 20 years. But in 1986, the cycle’s prediction of a low failed to provide a bear market and in 1987 its rising phase failed to prevent the largest crash since 1929.

When the market doesn’t do what is expected it is talking, but ultimately the regression to the mean is vicious.

Long-term cycles, such as the Kondratieff Cycle as well as Elliott Waves, suggested that the big-picture bull market was coming to an end in 2000.

The Kondratieff Cycle is a common, often-quoted cycle of financial and economic behavior that lasts about 54 years. This 54-year cycle is close to the Fibonacci 55 number.

One year is a little less than 55 weeks.

Fifty-five was an important count for W.D. Gann. He called a period of 49 to 55 days the Death Zone. February 8 was the 49th trading day from November 30, the day prior to the December 1 kickoff of this last leg up.

A Synodic Period is the length of time two planets meet in Conjunction, which means revolving 360 degrees to each other. The 360-degree period is divided into fractions known as the Sextile (60 degrees), Square (90 degrees), Trine (120 degrees), Opposition (180 degrees), and back to Conjunction again.

Many of the Synodic planetary cycles conform to the Fibonacci Summation series. Their relationship to natural harmonic vibration is not by chance.

For example Venus revolves around the sun in 61% of one year, or 225 days. Two-hundred-twenty-five was an important number for Gann because 180 + 45 = 225. These two planets possess the unique Fibonacci relationship of the 0.618 Golden Mean.

Every other conjunction of Mars/Jupiter is four-and-one-third years, or 233 weeks, another Fibonacci number. This ties to the four-year cycle mentioned above. While the four-year cycle went out of whack in 1986, there was a significant low in the fall of 1990 and late 1994, which began the parabolic move into 2000. There was a shakeout into 1998 and of course there was the 2002 low. There was a two-month shakeout into June/July of 2006 from 1326 S&P to 1219, which marked the low prior to the advance into the all-time high. Then there was the summer low in 2010. It's interesting that these same numbers from the last cycle 1326 and 1219 are so prominent four years later.

The recent S&P high this week was 1325 and the big April top in 2010 was 1219.

The Synodic period for the Saturn/Uranus combination is 45 years. One-eighth of the 360 degree circle and one-half of 90 is 45.

I bring this up because 45 years ago marked the top of the secular bull market in 1966. That bull market began in June 1949.

The powerful two-year advance from March 2009 may have been a result of the 60-year cycle exerting its influence.

One cycle of 45 years back from 1966 gives 1921, which was the big low prior to the run up into 1929.

If the four-year cycle holds up the next trough should be in 2012. Somewhere prior to then we should see an important peak. Will a two-year advance be followed by a two-year decline?

It is interesting that it was eight years from the 1921 low to the vertical peak in 1929 and that it was eight years from 2000 to the vertical drop into 2008. I can’t help but think that a mirror image foldback of sorts may be playing out with the market, making an important peak three years following the 2009 low, just as it made an important low in 1932, three years following the 1929 peak.

Conclusion: 1320 ties to March 6 and squares the 666 price low for a potential square out. The market has respected this level for two days and is gapping below 1320 on 10th Feb.

The pattern looks reminiscent of the November top, which was a grind up followed by a climatic spike.

Monday we saw a spike on the heels of a grinding move up.

The November correction was between 4% and 5% and 152 points. I think another 4% to 5% correction is going to play out quickly into the anniversary of the March 6/9th 2009 low.

Fifty percent of the range from the November 1173 low to this week's 1325 high is 76 points. A decline to 50% of the last swing projects to 1249. There is some good DNA and symmetry there as this was the projection for the big inverse head-and-shoulders pattern from 2010. Moreover, 1248/1249 represents a 180-degree decline on the Square of 9 Chart.

A study of market history shows that corrections against the main trend are much more uniform while impulse legs in favor of the main trend can have a large degree of variability. Said in another way, it is easier to define and anticipate corrections not in favor of and against the primary trend that it is to judge the extent of the primary trend itself. In my experience, this is one of the most important lessons revealed in the study of stock market history.

Looking at the form of the advance from the September 1 kickoff, there are two legs separated by the November correction. Because of the persistence of the advance, which has seen no more than one 2% move in the last five months (compared to 14 moves of 2% or more in the preceding five-month period), the normal expectation would be to see a similar, uniform near-5% correction be bought with both hands by market participants. At the maximum I would expect the correction to extend to a backtest of the April/November 2010 highs of 1219/1227 respectively.

If the correction overbalances the November decline in time and price then the high was more significant.

If a uniform correction plays out it would give rise to a possible third drive up. Whether such a third drive into the anniversary of the April high if it plays out is a marginal new high or a significantly higher high remains to be seen.

Strategy: It looked like James Brown had left the building following the decline of January 28. However, after a genuine sell signal that players pounce on, there is often times a final squeeze. That may have been the run to 1320.

Fifty percent of the range from the 1275 low on January 28 to this week's 1325 high gives a midpoint of 1300. Any break of 1300, especially on the weekly closing basis (Friday) confirms a correction is underway from where I sit. This 1300 level ties to 1296, which is 6 X 6 X 6 X 6, resonating of the 666 price low. 1296 is in the upper right-hand corner of the Square of 9 Chart and aligns with May 6, the flash crash, so I would not underestimate how quickly a reversion to the mean in the persistency of the advance and a revulsion to sentiment could take place if everyone tried to get out of the door at the same time.

A Dow Theory non-confirmation has been ongoing for three and a half weeks now, which is long in the tooth while the market has been overbought for months -- a situation where the chickens could come home to roost violently and quickly, despite the fact that the market has proven to be a Shrine of Boys Crying Wolf.

It may be time to yell wolf.