“He (i.e Mr Gann) came to me when United States Steel was selling around 50 and said, ‘This Steel will run up to 58 but it will not sell at 59. From there it should break 16¾ points’. We sold it short around 58 3/8 with a stop at 59. The highest it went was 58¾. From there it declined to 41¼; -17½ points” (Ticker article).
1) Gann identified the start of the uptrend in U.S. Steel as a price of 21 7/8 cents on October 23 1907.
2) Gann identified the predominant astrological influences driving this uptrend.
3) Gann identified the long-term rate of vibration of this uptrend, which was 0.0950 cents per day (or 1 cent per 10.5 days).
4) Gann forecast that the predominant astrological influences driving this uptrend would remain in force until October 1909 and hence in November 1908 he was only forecasting a short-term correction. More specifically, Gann made his forecast “When United States Steel was selling around 50″, which was in early November 1908. Gann then forecast that due to short-term negative astrological influences a correction would start on November 14 1908 (i.e. within two weeks).
5) Based on the starting point of the uptrend (point 1 above) and the long-term rate of vibration (point 3 above) and the starting date of the correction (point 4 above), Gann was able to forecast that “Steel will run up to 58 but it will not sell at 59”. In fact the price of U.S. Steel peaked at 58¾ on November 14 1908.
6) Gann then forecast that the short-term negative astrological influences that he had identified would remain in force until February 23 1909.
7) Gann then had to forecast what the rate of vibration would fall to on February 23 1909 (i.e which Gann angle would provide support before the long-term uptrend was resumed). Importantly, in making this forecast Gann sub-divided the rate of vibration. More specifically, and as the price chart of U.S. Steel shows, Gann forecast that the price of U.S. Steel would fall to the bottom of its current vibratory band and then finally fall three quarters of the band below.
Thus Gann firstly forecast that the short-term correction would last until February 23 1909 and secondly that
the rate of vibration of U.S. Steel would fall on that day from its long-term rate of 0.0950 cents per day to (1/1.5) X (1.25/2) X 0.0950 = 0.0396 cents per day. This is in fact exactly what happened. More specifically, on February 23 1909 U.S. Steel made a low price of 41¼ cents (which based on the starting point of 21 7/8 cents on October 23 1907 equates to a rate of vibration of 0.0396 cents per day). From that point the long-term uptrend of U.S. Steel was resumed.
An important point from this example is that Gann did not merely use his so-called Gann angles as a crude measure of the rate of vibration of stocks and commodities. More specifically, he did not use them simply to measure the doubling and halving of the rate of vibration. Rather, he also discovered and employed sub-shells within a principal energy level.
This is analogous to modern quantum theory. Therefore we have discovered another important principle of Gann’s Law Of Vibration; namely the rate of vibration of stocks and commodities, as measured by so-called Gann angles, conforms to a
series of principal energy levels and sub-shells. As we have seen, an important implication (and practical application) of this is that rates of vibration, as measured by these principal energy levels and subshells, constitute support and resistance levels. This therefore clarifies the statement made by Gann: “By knowing the exact vibration of each individual stock I am able to determine at what point each will receive support and at what point the greatest
resistance is to be met” (Ticker interview).
Moreover, this principle in turn sheds light upon a somewhat obscure concept that Gann briefly introduced in both his stock market course and his commodities’ course, namely the concept of lost motion: “As there is lost motion in every kind of machinery, so there is lost motion in the stock market due to momentum, which drives a stock slightly above or below a resistance level. The average lost motion is 1 7/8 points. When a stock is very active and advances or declines fast on heavy volume, it will often go from 1 to 1 7/8 points above a halfway point or other strong resistance level and not go 3 points. The same rule applies on a decline. It will often pass an important resistance point by 1 7/8 points but not go 3 full points beyond it. That is why I advise using a stop-loss order 3 points above a top or 3 points below a bottom” (W. D. Gann Stock Market Course, chapter 10).
In summary therefore, from examining examples of the practical application of Gann’s Law Of Vibration, we have identified three further principles of the Law Of Vibration:
13) The rate of vibration of stocks and commodities conforms to a series of principal energy levels and sub-shells. More specifically, the principal energy levels equate to a doubling and halving of the rate of vibration and the sub-shells equate to a fourfold division of a principal energy level.
14) These principal energy levels and sub-shells constitute important support and resistance points.
15) When a stock or commodity is very active, momentum will often drive the price very slightly above or below the precise support or resistance point, which is determined by the rate of vibration (in conjunction with astrological influences).
GANN’S ANNUAL FORECASTS
As the above examples from the Ticker interview show, around 1909 Gann was employing his Law Of Vibration to precisely forecast stock and commodity prices up to several months forward. However, starting around 1915 Gann produced and sold annual forecasts of the stock and commodity markets. Although Gann produced these annual forecasts up to his death in 1955, relatively few survive. Nevertheless, from the surviving annual forecasts, it appears that Gann produced them in exactly the same way as he had produced his earlier shorter-term forecasts; namely based on the Law Of Vibration.
One particularly accurate annual forecast was Gann’s 1929 stock market forecast (which Gann reproduced in the appendix of his book “Wall Street Stock Selector” that he wrote in 1930). In summary, Gann’s 1929 annual stock market forecast was completed and distributed on November 23 1928 and included the following elements:
1) A narrative which stated “General Outlook For 1929. This year occurs in a cycle that shows the ending of the bull market and the beginning of a prolonged bear campaign…. The fact that it has run longer and prices have advanced to such abnormal heights means that when the decline sets in it must be in proportion to the advance. The year 1929 will witness some sharp, severe panicky declines in many high-priced stocks”.
2) A projected graph or chart of the Dow Jones Industrial Average which forecast this index would peak on August 7 1929 and then start a major downtrend for the rest of the year.
3) A projected graph or chart of the Dow Jones Railroad Average which forecast this index would peak on August 8 or 9 1929 and then start a major downtrend for the rest of the year. Although it should be noted that the Dow Jones Industrial Average and the Dow Jones Railroad Average both peaked on September 3 1929 (rather than in early August), overall Gann’s annual stock market forecast for 1929 was highly accurate.
Moreover, from a careful examination of Gann’s 1929 stock market forecast it is possible to discern further principles of the Law Of Vibration. These principles are as follows.
16) Although the Law Of Vibration comprises a number of elements, the time factor is the most important. More specifically, throughout his career Gann used the term “time factor” as a substitute or synonym for astrological influences. Therefore astrological influences are the most important element in the Law Of Vibration. “The time given for tops and bottoms is the most important factor for you to know and watch. It makes no difference about the price a stock is selling at. So long as you know when it will reach low or high levels you can buy or sell and make money….Remember you must buy and sell at the right time regardless of prices. No matter how high stocks are, if they are going higher, you should buy. It makes no difference how low they are; if the trend is down and they are going lower, you must sell short and go with the trend” (1929 Annual Stock Market Forecast).
17) In applying the Law Of Vibration to the stock market, it is important not only to assess the astrological influences (i.e. external vibrations) but also the internal vibrations of a stock. For example, assume that during a general stock market uptrend there is a short-term correction (due to negative astrological influences) and most stocks fall in price.
If during that period of time a particular stock merely moves sideways, rather than falls, it indicates that the internal vibrations of that stock are especially strong and therefore it will subsequently perform strongly when the overall uptrend (i.e. positive astrological influence) is resumed.“The Dow Jones 30 Industrial stocks are representative of theactive industrials and most of them will follow the Industrial Curve (i.e. Gann’s forecast) very closely. But some of the individual stocks that are in strong or weak position will vary from this Curve and make tops and bottoms at different times. These special stocks and their position will be covered in the supplements each month” (1929 Annual Stock Market Forecast).
18) Stocks and commodities typically do not switch from an uptrend to a downtrend until their rate of vibration has slowed down. This reduction in the rate of vibration can of course be observed as prices move sideways (or down) over time to lower (and slower) Gann angles. “The ones (i.e. the stocks) that make top in the early part of the year and fail to reach higher levels in July or August will be the ones to lead the decline, because they will have had longer time for distribution. Guard against selling short the late movers until they have had time to complete distribution” (1929 Annual Stock Market Forecast).