THE JERRY FAVORS ANALYSIS

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12 Issues Per Year

Vol. 16 Issue 4 April 16, 2001

Jerry L. Favors, Editor

THE GANN YEARLY CHART

In our last issue we stated that the only thing which could alter our bullish position on
the market this year would be a decline below 9571 intraday in the Dow. That was
because a decline below that level would turn our Gann Yearly Chart down for the first
time since the 1982 lows. The Yearly Chart is the strongest of all the Gann Charts we
follow, and it does not give signals very often. If you are in a Bear Market, and the Dow
rises above the intraday high of the prior year, the Yearly Chart will turn up, confirming
that you are in a Bull Market. If you are in a Bull Market and the Dow falls below the
intraday low of a prior year, the Yearly Chart will turn down, confirming that you are
now in a true Bear Market. Since the Dow's beginning 105 years ago, the Yearly Chart
has turned up during every Bull Market, and has turned down during every Bear Market.
There have been no exceptions!
Now we want you to keep in mind that most Bull Markets in stocks have lasted
around two years, and the longer-term Bull Markets have lasted three-to-four years. Prior
to the 1982 Bear Market low, the longest Bull Market on the Yearly Chart was from 1921
to 1929. By this we mean the Yearly Chart turned up in 1921, and it never turned down
until after the 9/3/29 Bull-Market top. That Bull Market lasted eight years and one
month; the longest in history to that point. Throughout the 1921-to-1929 Bull Market,
there were numerous severe declines, but not once in that eight year time frame did the
Dow fall below the low of the prior year. Every decline, no matter how sharp, was
nothing more than a brief correction. Chart 1 shows the Yearly Chart turned down on
l0/09/30, confirming that the Bull Market from 1921 to 1929 was over. The Bear Market
continued for another 22 months, and ultimately saw the Dow fall almost 90% from the
1929 Bull-Market high to the July 1932 Bear Market low.
After the 1932 Bear-Market low the Yearly Chart turned up in 1933, signaling a new
Bull Market was underway. The Bull Market continued upwards to the March 1937 Bull
Market top, lasting almost five years (which is historically a long time frame for any Bull
Market). The Yearly Chart turned down after the 1937 high on 10/11/37. Note on Chart
2 that even though there were strong rallies after the downturn in the Yearly Chart, the
Dow continued lower for another five months, to the 3/31/38 low of 97. From there a
very strong rally followed, which took the Dow dramatically higher, to the 158 high of
11/10/38. Note that throughout the rally from 3/38/38 to 11/10/38, the Yearly Chart did
not turn up, that is the Dow failed to rally above the high of the prior year. Despite an
extremely strong rally of almost 63% intraday from the 11/10/38 low, the Yearly Chart

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Chart 1

Chart 2

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failed to signal that the Bear market was over. The Dow ultimately continued even lower
to the 4/28/42 Bear Market low. Note that after the Yearly Chart turned down on
10/11/37 the Dow continued lower for another 54 months.
Chart 3 shows the Bear Market which began from the December 2,1968 Bull
Market high. Note that the Yearly Chart turned down on 7/25/69, and despite every rally
during this time frame, the Dow ultimately continued down into the 5/26/70 Bear Market
low.

Chart 3

Chart 4

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 Chart 4 shows the Bear Market from 1973 to 1974. Note the Yearly Chart turned
down on 5/21/73, and despite the strong rallies which followed, the Dow continued down
to even lower lows until the 12/9/74 Bear Market low. The Dow continued lower for 19
months after the Yearly Chart turned down.

Chart 5

After the 9/22/76 Bull Market high the Yearly Chart turned down on 8/26/77. Despite
all rally attempts, the Dow ultimately continued down for almost seven months before the
final near Market low of 3/01/78.

Chart 6

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 After the 4/27/81 Bull-Market high the Yearly Chart turned down on 2/23/82 (Chart
6). Despite the strong rally attempts which followed, the Dow continued lower for another
six months, to the August 1982 Bear Market low.
After the August 1982 Bear-Market low the Yearly Chart turned up on 10/13/82. Since
the 1982 lows the Dow did not once fall below the intraday low of the prior year, all the
way up to the 1/14/00 all-time Bull-Market high. This means that we have been in the
longest Bull Market in history from the 1982 low to the 1/14/00 Bull-Market high.
Now, we do not mean to imply that every downturn in the Yearly Chart has ultimately
led to significantly lower prices. During the shorter Bear Markets of the last century, like
1966, the Yearly Chart turned down within one or two months of the final Bear-Market
low.

THE LONG SEQUENCE

Chart 7

Chart 7 shows the Basic Model of George Lindsay's Long Sequence. Think of the
Long Sequence as a long-term forecast for when important Bull Market tops and Bear
Market lows should come in within a 20-year time frame. The Cycle begins at point A,
which is a major Bear Market low. The Cycle ends at point M, to the far right of the
chart. After the low at Point M, the Cycle begins all over again, with the Bear Market low
at point M also becoming the new point A. Lindsay traced this indicator back nearly 200
years, and we have his actual charts on this Cycle back over the last 200 years.

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 Now to use this Long Sequence in your market forecasting, it is important that you be
familiar with the Lindsay Standard Time Spans. We have discussed the Standard Time
Spans in past issues. For a more in-depth explanation of the Standard Time Spans, the
booklet: The Selected Articles by the Late George Lindsay is highly recommended. It is
available from Investor's Intelligence at (914) 632-0422.
Lindsay discovered that each Bull Market and each Bear Market fell into certain time
spans, and that those time spans kept repeating year after year. Lindsay labeled the Bull
Market moves Basic Advances, and the Bear Markets Basic Declines. The secret to
correctly utilizing this technique is to remember that a Basic Advance does not always
begin at the absolute Bear-Market low, and a Basic Decline does not always begin from
the absolute Bull-Market top. The counts must sometimes be made from "secondary
tops" and "secondary lows." After a Bull-Market top there is first a strong decline, and
then a rally which tests the prior Bull-Market high. The peak of that rally is a secondary
top. After every Bear-Market low there is first a strong rally, and then a decline back
down near the prior Bear-Market low. The low of that decline is a secondary bottom.

Every Basic Advance has fallen into one of the following time frames:

Subnormal - 414 to 684 calendar days

Short - 704 to 739 calendar days
Long - 770 to 820 calendar days
Extended - 930 to 991 calendar days

Every Basic Decline has fallen into one of the following time frames:

Subnormal - 231 to 296 calendar days

Short - 326 to 363 calendar days
Long - 376 to 448 calendar days

After every Basic Advance peaks a Basic Decline begins. After every Basic Decline
ends, a Basic Advance begins. The only way this continuity is broken is when what
Lindsay called a "Sideways Move" occurs. After a Basic Advance top we will
sometimes see a sharp decline and then another rally back up near (and sometimes above)
the prior highs, before the true Basic Decline begins. That pattern is called a Sideways
Move, and the Basic Decline must then be counted from that peak.
As we have said, the Long Sequence tells us approximately when we can expect
important Bull-Market highs and Bear-Market lows, within the 20-year time frame
between point A and point M. Keep in mind that the rallies and declines called for from
the Long Sequence actually refer to Lindsay's Basic Advances and Basic Declines, not
necessarily to the absolute Bull-Market top or Bear-Market bottom.
To use the Long Sequence you first place the year of a major Bear-Market low in
space 1, just under the letter A. In this case the low in space A must be the last major
Bear-Market low, which was the 1982 low We then count forward 1 year in each space
until we reach the low at point M, the end of the Cycle, and the beginning of a new Long
Sequence. If we place 1982 in space l, we find the next top at point B was due in early
1984. The Dow in fact reached a high of 1295 intraday on January 10 of 1984 (Chart 8).
That marked the peak of the first Basic Advance (or Bull Market leg) from the 1982
Bear- Market low. That Basic Advance lasted 516 calendar days, in the

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Chart 8

Subnormal time frame. A Basic Decline (Bear-Market leg) began from there. That Basic
Decline was due to bottom at point C, in late 1984 to early 1985. The absolute low for
this decline occurred at 1078 intraday on 7/24/84. However, if you count the time from
the high to the 7/25/84 low you will find it only lasted 197 calendar days; too short to fit
into any of the Standard Time Frames for a Basic Decline. Therefore, there is no way a
Basic Decline could have ended on 7/25/84. This means we must look for a Basic
Decline low later in the year, whether or not the Dow reached new Bear-Market lows. It
is only after the Basic Decline ends that the true upside explosion in the Dow begins. The
actual Basic Decline bottom was on 12/10/84, which was 335 calendar days from the
1/10/84 high. This meant the Basic Decline from the January 1984 fell into the Short
Basic Decline time frame. December 10,1984 marked the point C low in the long
Sequence due near late 1984, and the next Basic Advance began from there.
The next top forecasted by the Long Sequence was due in 1987, at point D. After the
12/10/84 Basic Decline low, a new Basic Advance (or Bull Market leg) began. This Basic
Advance continued up to the August 1987 top, which was followed by the crash of 1987.
That rally from the 1984 lows to the 1987 top was an Extended Basic Advance, lasting
988 calendar days. Whenever a Basic Advance reaches the Extended time span the next
Basic Decline must be counted not from the absolute Bull Market high, but from the
secondary high that follows the prior Bull Market top. We discussed these secondary
highs earlier. After the 8/25/87 top the secondary rally peaked on 10/02/87. The next
Basic Decline began from there. Now the absolute price low of this Basic Decline
occurred on 10/20/87. However that decline occurred just 18 calendar days after the
10/02/87 high, far too short to be a completed Basic Decline. This meant that more time
was required before a Basic Decline low, whether or not the Dow fell to new lows. The
Long Sequence called for the next Basic Decline to bottom by late 1988 or early 1989, at
point E. The actual Basic Decline low occurred on 1l/16/88, in line with the Long

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Sequence forecast for point E.
The Long Sequence then called for a Basic Advance which should peak in late 1990,
at point F. The actual point F high occurred on 7/17/90. A Basic Decline began from
there. The Dow fell 22% from the 7/17/90 intraday high to a low of 2344 intraday on
10/11/90. However, here too, the decline was too short to be a completed Basic Decline,
so we knew more time would have to pass before the Basic Decline low due at point G,
whether or not the Dow fell below the 10/11/90 lows. The actual Basic Decline bottom
occurred on 8/19//91, in line with the Long Sequence forecast. That Basic Decline lasted
398 calendar days, into the Long Basic Decline time span.

Chart 9

The Long Sequence next called for a Basic Advance which should peak at point H, in
early 1994 (chart 9). The actual top of the Basic Advance was 8/26/93, lasting 738
calendar days, making it a Short Basic Advance. From there a Sideways Move began. In
a Sideways Move you will first see a decline from the highs, and then a rally back up
near or above the prior high. The actual Basic Decline begins from the peak of that
Sideways Move. A similar pattern occurred at the February 9,1966 high. The Basic
Advance peaked on May 14,1965 at 944 intraday. The Dow then fell 11% intraday, to a
low of 832 on 6/29/65. The Dow then rallied to a new high of 1001 intraday on February
9,1966. The actual Basic Decline began from there and lasted 240 calendar days, into the
Subnormal Basic Decline time span. Note the Sideways Move peak of 1/31/94 occurred
in the exact time frame that the Long Sequence called for a point H top.
The Long Sequence next called for a Point I low by late 1994 to early 1995. The

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actual price low for 1994 fell on 4/04/94, which was too short to be a completed Basic
Decline. The actual Basic Decline low at point I occurred on 11/23/94, in line with the
long Sequence forecast. That Basic decline lasted 296 calendar days, a Subnormal Basic
Decline.
The Long Sequence next called for a high in early 1997, at point J. The actual point J
peak occurred on 8/07/97, at 8340 intraday. The Dow fell 16% from this high to a low of
6933 intraday on 10/28/97. Here too, this decline was too short to be a completed Basic
Decline. Even though the Dow rose to new highs on 7/17/98, it was still in the same
Basic Decline which began on 8/07/97. It was for this reason the 7/17/98 high was
followed by a decline of 21% intraday to, the 7379 low of 9/1/98. That low was within
just 6.4% of the 10/28/97 intraday low of 6933. The Basic Decline from 8/7/97 to
9/01/98 lasted 390 calendar days, making it a Long Basic Decline. September 1,1998
marked the point K low from the Long Sequence, which again came in within the Long
Sequence forecast.
The Long Sequence then called for a Basic Advance, which should peak in the year
2000. The Dow in fact rose 4,530 points from the 9/1/98 low, to a Bull Market high of
11909 intraday on 1/14/2000. That day marked the absolute Bull Market high to this
point, and lasted 500 calendar days, making it a Subnormal Basic Advance. Another
Basic Decline began from there. Note the Long Sequence calls for the next bottom in the
year 2001. So far the Basic Decline has lasted 432 calendar days, to the 3/22/0l low of
9047 intraday. That is near the maximum time frame for a Basic Decline.
Now the period from 1982 to the present has been difficult because there have been
no true Bear Markets prior to the 1/14/00 Bull-Market top. Therefore each Basic Decline
has bottomed above the actual price low for the decline. The key is Lindsay's rule that
when the count is unsure, we should look for a low for the Basic Decline in the 13th or
14th month after the prior Basic Advance top.
The question we must now answer is whether we have already seen the point M low
due this year, or does that low still lie ahead of us this fall?
Keep in mind that if we are correct about a point M low in the Long Sequence this
year, you should then place the year 2001 in space 1, under point A, to begin the next
Long Sequence. For instance, if we place the year 2001 at point A, in space 1, the next
Basic Advance would be due to peak at point B, in the year 2003.
It was because of the forecast from the Standard Time Spans that we previously were
looking for a low in the first quarter of this year. This was because the maximum duration
of a Long Basic Decline has been 448 calendar days, meaning a low should have been
seen by 4/6/01 at the latest. It was the downturn in the Yearly Chart on 3/21/01 which
forced us to reconsider our prior bullish posture for this year. The Standard Time Spans
suggests we should have seen a bottom on March 22 of this year, but the downturn in the
Yearly Chart calls that forecast from the Standard Time Spans into question. The only
way the 3/22/01 low in the Dow did not mark an important bottom would be if the action
from the 1/14/00 Bull Market high to the 1/04/01 high was another Sideways Move, and
not the actual start of a Basic Decline. According to Lindsay, the maximum duration of
the Sideways Moves throughout history have been near 11 months. The action from the
1/14/00 all-time high to the 1/04/01 high saw the Dow basically move sideways for 11
months and 10 days. If 1/04/01 marked the end of a Sideways Move, the next Basic
Decline must begin from there. The shortest Basic Declines have lasted between 231 to
294 calendar days. If we count 231 to 294 days from the 1/04/01 high we arrive at a
target range of 8/23/01 to 11/25/01 for a potential low later this year. If the Dow falls to
new intraday lows for the year anytime from here on, this count will be confirmed.

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 THE COUNT FROM THE MIDDLE SECTION

Chart 10

In our years of studying George Lindsay's work we have found no indicator which
has been more amazing in its accuracy than The Count From The Middle Section.
Every true Bull Market contains at least one Middle Section. Chart 10 shows the Basic
Model of a Middle Section. It consists of two intermediate declines, the first from point
B to point D, and the second from point G to point H. In between those two declines
there is a rally from point D to Point G, which shows at least three distinct short-term
highs at points E, F and G. We then count the number of calendar days from Point E to
the next Bull Market high. We then count the same number of days forward from that
Bull Market high to arrive at the most probable time frame for the next Bear Market low.
The alternate point from which the Count can be made is from point C, which Lindsay
defines as "the first weak day" after point B.
Chart 11 shows the Middle section which occurred between 5/09/67 and 3/22/68.
Point E is defined as the last rally but two prior to the Point G top. If we count the time
from 6/13/67 to the Bull Market high on 12/2/68, we arrive at 539 days. If we add 539
days to the 12/2/68 Bull-Market top we arrive at a target of 5/24/70 for the next Bear
Market low. The actual Bear Market low occurred on 5/26/70, within two days of the
Count from the Middle Section forecast.
Over the last 100 years there have been numerous examples of the Count from the
Middle Section accurately forecasting future Bull Market tops and Bear Market bottoms.
You will find a more detailed explanation of this technique in The Selected Articles by
the Late George Lindsay, which we discussed earlier in this issue.
Chart 12 shows the Middle Section which occurred between 5/04/98 and 9/01/98.
Note the similarity between this Middle section and that of between 5/09/67 to 3/22/68.
The Point E top in 1998 occurred on 6/17/98. If we count the time from 6/17/98 to the
1/14/00 Bull Market high we arrive at a target for a low this year near 8/13/01. If we
count from Point C in the Middle Section, on 5/6/98, the Bear Market low would be due
near 9/24/01. Now to correctly utilize the Count From the Middle Section you must

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Chart 11

Chart 12

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combine its forecast with the Standard Time Spans. Unless the forecast for a Bear Market
low from the Count from the Middle Section also falls within one of the Standard Time
Spans for a Basic Decline bottom, the count cannot be considered valid. If the Dow were
to reach a bottom near 8/13/01, the Basic Decline will have lasted 229 days. If the low
were to come in near 9/24/01 the Basic Decline will have lasted 271 calendar days.

THE CYCLES

The Cycles call for a high near April 17, plus or minus 1 day, and then a decline into
April 23, plus or minus 1 day. A short-term high is then due near April 25, plus or minus
1 day. From there a short-term low is due near May 3, plus or minus 1 day. A short-term
high is then due near May 16, plus or minus 1 day.

GANN TREND CHANGE DATES

Traders should look for short-term highs or lows near the following Gann Trend
Change Dates:

April 17, plus or minus 1 day

April 23, plus or minus 1 day
May 4, plus or minus 1 day
May 11, plus or minus 1 day
May 16, plus or minus 1 day

THE BRADLEY INDICATOR

The Bradley calls for a short-term high near April 9, plus or minus 2 trading days. So
far the intraday high of 10247 occurred on April 11, but we show no signs as yet that any
sort of high was seen that day. The Bradley next calls for a low near April 27, plus or
minus 2 days. From there the Bradley calls for a high near June 4, plus or minus 2 days.

SUMMARY AND CONCLUSIONS

As we have discussed, there are strong reasons to conclude that an important market
bottom will be seen in the year 2001. The question we must try to answer is whether that
low was already seen on March 22 of this year, or will the final low occur sometime this
fall. If not for the downturn in the Yearly Chart on March 21, we could build an
extremely strong case that we have already seen a Bear Market bottom. However we
cannot just "bury our heads in the sand", refusing to see what we do not want to see.
Charts 1 through 6 should make it clear why we believe we have reason to be concerned.
Downturns in the Yearly Chart have often signaled Bear Markets which have lasted for
years. Normally the magnitude and lengths of these Bear Market is related to the
magnitude and lengths of the Bull Market they are correcting. The Yearly Chart suggests
this Bear Market is correcting the entire Bull Market from 1982 to 2000. The 19.90%
closing decline we have seen in the Dow since its Bull Market high hardly qualifies as
sufficient to correct the excesses of an 18-year Bull Market. The Nasdaq has fallen
almost 70% from its 5132 all-time high to the 1619 low of 4/4/01. This is more in line

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with what we would expect. Perhaps that is the "hook" this time. Perhaps the crash in the
Nasdaq was sufficient to produce a major stock market bottom in this time frame, and
this time really will be different. However we are going to need to see more evidence
than we have seen so far before we reach that conclusion.
We are currently 30% long and 70% in cash. We may want to raise that long position
to 40% long and 60% cash at some point this week, so do monitor the subscriber hotline.

QUESTIONS

We received a record number of questions over the past month which we still intend to
address as time permits. There were a wide range of subjects mentioned, and many
questions will be the subject of future issues. Replies to questions which require a more
timely response will be addressed briefly, and as needed, in the subscriber hotline
updates.

NEXT NEWSLETTER RELEASE DATE

Issue 5 will be released on Monday, May 14, 2001. Mark it on your calendar!

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