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Gann’s Annual Forecasts: Part l By Chuck Carpino

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This article will review some of the predictions of W.D. Gann that were made in his Annual Forecasts. The Forecasts for 1919 to 1922 can be found in his The Truth of the Tape. His 1929 Forecast is from the 1930 Wall Street Stock Selector. Gann’s prediction method was unique because he attempted to provide his subscribers with specific trend forecasts, extreme high or low points, and bull or bear cycle swings. The fact that Gann did this for over four decades, could provide written testimonials, and audited brokerage statements of his profits is a tribute to his forecasting genius. As I review some of his forecasts, you should always keep in mind that they were prepared a year in advance.

In his Forecasts, Gann prepared a Stock Curve as well as a Railroad Curve when it was necessary. The Stock Curve was made up of 20 industrial stocks of his day and I suspect it deviated off its projected path more than the Railroad Curve. The reason is because there are so many industrial groups in the 20 stocks that news events of a major breakthrough in one or two industries would send those stocks up while the general trend should be falling, and it altered the curve. The same reasoning would apply as to why his grain and cotton forecasts seem much more accurate than his stock forecasts on a month to month basis. In making up his stock forecast, he considered his Curve for Interest Rates and the various commodities he tracked. This was probably to obtain some guide as to the inflationary pressures of his time. He then came up with an interpretation of their interaction, along with his numerous other methods, he built an annual forecast as to the general trend and strongest up or down months as he saw them.

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Probably his most famous prediction was that of the 1929 bull market top which he accurately forecasted in late 1928. He correctly forecasted the bull move into the summer of 1929 and figured late March would mark the low in stocks. Actually, the base for the bull market stretched until May 27th before really commencing an upward move. However, March 26th was an important low just as he said it would be. You would have made money buying your stocks here. He correctly called for a distribution top during the summer months of July and August.

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He said for September, One of the sharpest declines of the year is indicated. A Black Friday is forecasted and a panicky decline in stocks with only small rallies. Extreme high for the month around September 2nd to 3rd and a low around September 27th to 28th from which a fair sixed rally and a trading market running into the early part of November. After that, the big bear campaign will again get under way and stocks will continue to work lower, reaching extreme low for the year around Dec. 23rd to 24th.’ Let’s compare this prediction with the actual results. The exact date of the top in the industrials occurred on September 3rd at 386 and a vicious decline commenced. He did provide his clients with important advice – get out by late August.

A nice entry point for shorts was also given as September 3rd. Unfortunately, if you has tried to short in early August, as he thought the highs would occur here, you would have suffered losses in the sharp August advance of 1929 (like August 1987). One of the most important aspects of his curve is that it will actually give you reversal dates as either a top or bottom. This is a big advantage over having a reversal date and waiting for prices to indicate the current trend before you can initiate a trade in the opposite direction. Most of the time the indicated highs or lows work out, but alas, no system is perfect and neither was Gann’ s curve for the fall of 1929 correct on all points.

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A small bottom occurred on October 4th, not September 27th – 28th (this could be hazardous if prices are in a big decline, which they were) and mounted only a minor rally to October 11th before continuing their descent to 195 on Nov. 13, 1929. The final low was made here, not December 23rd. Take a closer look at what did occur on December 23rd. From a high point on December 23rd, making a higher low at a price level not to be seen again for another seven months. As you can see, his date for a low came in nicely, but it was a higher low. I have found it very difficult in prediction to determine if a second low is a final one, a double low, or a higher low. It seems you have to let prices dictate that to you.

Here’s another one of his forecasts where he was very specific. In December 1920, he issued his 1921 Forecast in which he said, “The bull campaign top for the Spring culminates between April 28th to May 3rd. The month of May indicates serious declines.” He had June as being dull and inactive. In actuality, the yearly top was at 80.03 on May 5th, with May 2nd – May 5th almost at the same price levels. By the end of May, prices had declined in a steady fashion to 73.44 and made a final low at 64.90 on June 20th. This was a Forecast which correctly got you out of your long and short positions at the right time for a long monthly decline. What is most interesting about his work is that without price information, he was predicting the trend and identifying the dates of tops or lows, and doing it a year in advance. He wasn’t always right, but when you look at his high accuracy ratio, you begin to understand what he meant by “Once you know the cause of market movements, you can predict the effect, long before Wall Street is aware of either.”

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