Understanding The Properties Of Ezones
Analysis of the past one hundred years of market moves reveals that all important turning points/pivotal days share definitive, common qualities. The qualities may be present in as few as one day out of several hundred consecutive days, or in days separated by several weeks.Ermanometry has identified these unique qualities and developed a methodology to determine when such days will occur in the future. These projected pivotal days are termed Ezones (Ermanometry Zones).Although all pivotal days share common qualities, not every day that exhibits these qualities will be a pivotal day and have an impact upon the market. Therefore it is necessary to have a set of guidelines and rules to determine strategy when the market is approaching potential pivotal days. The following analogy is helpful:
Imagine that you are travelling north on an interstate highway, and the median is blocked by a concrete wall. You can turn around, change direction, only when you reach an interchange. The interchange represents an opportunity to change direction. You may or may not use the opportunity to change direction. If you do not change direction upon reaching the interchange you must continue north until you reach the next interchange. Once again, the interchange merely represents an opportunity to turn, and you may pass many interchanges without changing direction.
Projected, future Ezones are similar to the interchanges, insofar as the market can turn ONLY WHEN IT HAS REACHED AN EZONE, but merely reaching an Ezone does not mean that the market must turn. If the market is trending up, the final top (for the move being analyzed) can occur only at an Ezone. If the market reaches an Ezone and does not turn down, IT MUST CONTINUE UP UNTIL THE NEXT Ezone is reached.
There are many different degrees of Ezones, just as in wave and trend analysis there are macro, major, intermediate, and minor waves, with an almost infinite number of gradations in between. A major uptrend can end only when it reaches a major Ezone. However, there may be many up and down swings of less than major degree which occur while the major trend continues up. All of these pivots occur when the market reaches differing degrees of Ezones.
THE IMMEDIATE TREND MUST REACH NEW INTRADAY EXTREMES DURING THE TIME OF THE EZONE. FAILING TO REACH INTRADAY EXTREMES DURING THE EZONE INDICATES THAT THE EZONE IS A NON-EVENT AND MUST BE IGNORED. THE IMMEDIATE TREND IS ANY TREND OF AT LEAST THREE TRADING DAYS DURATION.
If the market is trending up and turns down after making a new intraday extreme high tick during the time period of the Ezone, the extreme price becomes a surrogate for the Ezone. Therefore, if an Ezone had been projected for January 2nd, and the market turns down on January 2nd, after reaching a new intraday high price, for example 10,000, the price level of 10,000 is a surrogate for the Ezone. Since January 2nd of any given year occurs only on one day, a logical question would be: How can the market pass, or break through the Ezone of January 2nd, if it is now February? The answer is that if the market makes another new high, exceeding 10,000, after the Ezone has turned the market trend down, then the market is considered to have "passed the interchange" and must now continue up until it reaches the next Ezone.
The Components of an Ezone
An Ezone's unique qualities enable Ermanometry to project where in future time an Ezone is located. In addition to these qualities concerning the Ezone's existence, an Ezone has specific, potential effects upon the immediate trend to the market. These effects are termed "components" of the Ezone and the analyst must have a complete understanding of them in order to correctly formulate trading strategy when the immediate trend is due to enter an Ezone.
The Magnet Component
A valid Ezone acts as a magnet which pulls the immediate trend to a new extreme intraday high/low price.
As noted previously in this section, if the immediate trend fails to reach new extremes, the Ezone is invalidated and not directly involved in immediate strategic decisions. However, an invalidated Ezone is indirectly involved because it indicates that the immediate trend must continue at least until the next Ezone.
It is very unusual for a major Ezone to be invalidated by the absence of new extreme prices. When an Ezone of lesser degree is invalidated it is usually due to a confluence of several factors, which are unrelated to market timing. A combination of at least three extraneous factors is normally required. If the trend has reached a widely followed mathematically derived retracement or price objective target, completed an authentic chart pattern, and spot news occurs, the trend may be temporarily skewed.
For example: The market is trending down, it is currently day 25 of the trend, and the next Ezone of sufficient degree to equal the degree of the trend is located at day 28. Three or more of the extraneous factors described above occur on day 26, and the market turns upward, after making new lows. DAY 26 IS NOT AN EZONE, AND HEREFORE IT IS ONLY A TEMPORARY BOTTOM.The market rallies for two days and turns down again. Although the market "topped" on day 28, the Ezone, the minor uptrend did not continue for the required minimum of three days, and therefore the Ezone is not considered to have stopped the uptrend. The strategic conclusion is that the Ezone was a non event and the market trend will continue down until the next Ezone of sufficient degree to turn the market.
The Barrier Component
Years of historical study complemented by years of real time observation of market movements form the basis for Ermanometry's perception of Ezones as both material and palpable. An Ezone's impact upon the market indicates that the market is capable of "feeling" and reacting to its existence. Markets movement themselves are intangible and it is within this realm that Ezones exist as very tangible, substantive objects.
Clear air turbulence exists in thin air. It can neither be seen by the human eye nor picked up on a radar screen, but it can have a devastating effect upon very tangible, powerful entities, such as jet liners.
Ezones exist in time/space and are very capable of exerting force upon the trend of the market as the market moves through time/space. Ezones were originally designated as "time turbulence" or "time barriers". It is of the utmost importance that the analyst recognize the "concrete" nature of Ezones, even though they exist in, and consist of, time. Time can neither be seen nor touched. Time is a concept. The following three analogies are offered for the purpose of further understanding the barrier component of Ezones.
The Dam Analogy
A flash flood roars down a canyon until it meets a large dam. If the flood breaks through the dam as soon as it reaches it, it can be deduced that the flood, on a relative basis, is stronger and "bigger" than the dam. Since the dam is now broken the flood will accelerate because the water previously backed up by the dam is now free to flow. Still in the canyon, the water will continue in the same direction at least until it meets the next dam of sufficient size to hold the flood.
The flood reaches the dam and is stopped, but after a few days the continued rain generates enough water to break through the dam. Once again the water must continue until the next dam, but the break and ensuing flow past the dam will not be as violent as if the flood had broken through the dam upon initial contact. As more "backing and filling" is required for the flood to break through, and as more time passes before the dam is breached, the violence of the ensuing break decreases.
If the flood is unable to break through the dam, the dam pool will continue to move "up river", which is almost as though the direction of the flood has been reversed indefinitely.
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The Bull/Bear in the Pasture Analogy
A bull is running north in a pasture and meets the pasture fence. The "fence" is a major Ezone, ten feet high, concrete block. The bull sails right over the fence and breaks thru. That tells the analyst that this bull cannot be stopped until he meets a macro Ezone.
The bull is turned back by the fence but after just a few more attempts and retreats, he gets past the fence. Once again he is going to be travelling north until he reaches the next Ezone, but the Ezone required to stop his progress is not as large as in the first example.
The bull makes many attempts to surmount the fence, fails, takes on the appearance of a bear, and heads for a fence on the south side of the pasture.
Any of the above three scenarios may take place at the south fence, which is another Ezone, because whether the market is heading north or south in price, it is moving forward in time, towards additional Ezones of differing degree.
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The Pinball Machine Analogy
Gravitational pull dictates that the river in the dam analogy always flows in the same direction. It was necessary to have the dam pool back up in order to simulate a market reversal or change in direction. The tilt of the pinball machine is similar to the "tilt" of the market, although the pinball has a gravity induced downward bias, and the market has exhibited an upward bias over the very long term. "Very long term" is a general statement and somewhat difficult to quantify. If only nominal prices are considered, the upward bias is quite evident. If constant dollars are used, the DJIA trended downward from 1966 to 1982. Sixteen years is a very long term to some investors, and a very short term to others. There is nothing that unequivocally proves that a downward bias lasting sixteen years, or more, cannot occur again.
The utility of the pinball analogy is that while we may not have witnessed a bull hitting a fence, or a flood breaching a dam, almost everyone has personally either played or watched a pinball machine. Even you younger readers have probably seen pinball machines in old movies. Merely consider that the bumpers are Ezones. When the pinball passes one bumper, it must continue in the same direction at least until it contacts, or passes, the next bumper. A minor flaw in the analogy is that the market cannot go around an Ezone, as the pinball can go around a bumper. However, the instance of an invalid Ezone which has no effect on the market, could be interpreted as if the market feinted and did an end run around the "bumper".
The true beauty of the pinball analogy is that the bumpers vary in size and their ability to send the ball scooting in the opposite direction with different velocities. Also, the momentum of the ball itself, when striking a bumper, plays an important role in determining how far and how long the ball will reverse. All of these features of a pinball machine are directly analogous to Ezones and market movements. Because of the tilt, the final outcome is never in doubt. Those investment professionals who are proponents of a buy and hold investment strategy are hereby granted permission to use the pinball machine analogy when promoting the attributes of their philosophy. They must promise, however, not to blame the author when another extended period of downward bias makes its appearance in the market.
The Interchange Component
The correlation between highway interchanges and Ezones has already been noted. Now that the magnet and barrier components have been discussed, the interchange component may be viewed from a different perspective. An Ezone presents a window of opportunity for the market to change direction, and it may or not take advantage of the opportunity. The interchange analogy is valid during the time period of the Ezone. It is valid after the time period of the Ezone only in that the next Ezone presents another window of opportunity and the opportunity concept is best understood through the use of the interchange component.
A simple and memorable acronym to keep Ezone components in mind: IBM
I = Interchange
B = Barrier
M = Magnet