Posted on August 1st, 2008 at 07:50 AM

Did you say eclipse? I hear that question quite a bit.  No, I said elipse, pronounced E-Lips.  What is an elipse?  It is a tool that we use to measure pullbacks.  When markets trend, they pullback in various ways.  We use the elipse to measure where that pullback may end both in TIME and in PRICE.  If you know where something might end AND you can identify a decent risk reward then you are staring in the eyes of an opportunity.  The yellow oval shaped elipse in the chart of the Banking Index ($BKX) below shows that the pullback in the ($BKX) may be exhausted here.  The next target on the ($BKX) is $40.  The target on Citibank (C ) is $10.

The elipse is based on time and price squaring.  W D Gann taught courses on time and price squaring.  I am told that if Gann was still teaching his courses, they would cost $30,000 in today's dollars.  Remember, sometimes these corrections can be a little more complicated.  This is spelled out very succinctly in Duane's post from August 13th of last year. 

The $BKX and many of its components show good risk reward here to the downside.  If you decide to take this trade remember to size your position and manage your risk as you would in any other trade.

Have a plan, follow the rules and focus on process as opposed to outcome.

A trade is a trade is a trade.

Joel Stahl

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