2003 Stock Market Forecast

January 2, 2003

The analytical methods of the late George Lindsay often offer unique insights into the probable course of the stock market averages in the U.S. The advent of this new year offers a particularly interesting juncture at which I believe they have something very important to say.

Anyone with an interest in learning about George Lindsay's stock market methods would do well to obtain a copy of a booklet entitled "Selected Articles by the late George Lindsay". It is available for a modest price from Investor???s Intelligence in New Rochelle, NY (Tel: 914 632 0422 ) (usinfo@investorsintelligence.com).

The methods used in the analysis below are those which Lindsay referred to as his long time intervals of 15 and 12 years and the method of basic advances and declines. Both of these are described in his article "Counts from the Middle Section" in the booklet cited above. Additional details on these methods can also be found in the article "Interpreting the Stock Market Day-by Day" in the same booklet.

I shall not have much to say about Lindsay's other two, long term forcasting techniques: the three peaks and domed house formation and the method of counts from the middle section. At the current time neither one has much to say about the current market situation, but both can be very valuable in the appropriate context.

THE 20 YEAR CYCLE

In my last conversation with Lindsay back in 1981 he told me that his forecasts were based 95% on his methods for counting time. Lindsay regarded the 20 year cycle in stock prices a very important one.

In August of 1982 the US stock market established an important low and the great stock market boom of the next 18 years began. Counting forward 20 years we arrive at August 2002, suggesting that a major low was due then. The year 1983 was a generally bullish year for stocks and so the 20 year cycle suggests that 2003 will be bullish also.

In June and October 1962 the Dow established important lows from which a 3 -year bull market began. Thus the 40 year cycle suggest a low in 2002 and a bullish year in 2003.

Finally, the Dow ended a 5 year bear market in April 1942 and then began a 4 year bull market. Counting forward 60 years one would expect a low in 2002 with a new bull market beginning from that low.

LINDSAY'S LONG TIME PERIODS

The cornerstone of Lindsay's long term forecasts were his long time periods of 15 and 12 years.

Lindsay had observed that counting forward an average of 12 years and 6 months from important bull market tops often comes very close in time to a bear market low or to an important secondary low close to the level of the bear market low.

Lindsay also observed that couning forward an average of 15 years and 6 months from a bear market low often comes very close in time to a bull market top or to a secondary top at nearly the same price level as the bull market top.

Lindsay placed special emphasis on those situations in which one can start counting a 12 year period from the end of a 15 year period "that worked" and vice versa. In other words, he believed that there was a 28 year period from high to high and low to low.

There was a very important bear market low in October 1974 (S&P 500) and December 1974 (Dow). Couning forward 15 years and 6 months we arrive at March-May 1990. A bull market top occurred in July, 1990 and was followed by a brief bear market that dropped the averages 20% and heralded the 1990-1991 recession. Counting forward 12 years and 6 months from the July 1990 we arrive at January 2003 as a time for a bear market low. Counting forward 28 years from the 1974 low we arrive at the Ocober-December 2002 period as the ideal time for such a low.

Linday's long time periods clearly forecast a bear market low late in 2002 or early in 2003.

Do these long periods tell us anything about the timing of the next bull market top? Counting forward 15 years and 6 months from the October 1990 low we arrive at April 2006 as at projected bull market top. On the other hand, from the bull market top in September 1976 we can count forward 28 years and find September 2004 as a date for the next bull market top. The former projection agrees better with the 20 year cycle and planetary periods discussed above. The latter projection agrees better with the mechanical 4 year cycle projection. However, the best way to resolve a conflict such as this is to check these projections against the implications of Lindsay's method of basic advances and declines.

BASIC ADVANCES AND DECLINES

Lindsay observed that there was a remarkable consistency in the time, measured in calenday days, that it took bull and bear trends in the averages to move from high to low or low to high. His theory of these so-called basic advances and declines is explained in the articles cited above.

The 2000-2002 bear market was unusual in that it consisted of two basic declines, back to back. The typical basic decline lasts anywhere from 8 to 15 months (Lindsay classifies them into three types: subnormal - about 8 months, normal- about 11 months, and long about 14 months). Lindsay's rule was that once a basic decline ended a basic advance had to begin. In a situation like the 2000-2002 bear market, the market will make a lower low during the course of the basic advance which begins after the bear market's first basic decline has ended.

The first basic decline of the 2000- 2002 bear market began on September 1, 2000 and ended on September 21, 2001, lasting 385 days. Lindsay would have begun this decline from the lower top in September 2000 instead of the bull market top in January or March of that year because the market's action for the first 8 months of 2000 was an extended sideways period ending at what Lindsay calls a "right shoulder". The right shoulder is the preferred starting point for counting a basic decline.

The 385 day length of the first basic decline classifies it as a "long" basic decline. A basic advance started on September 21, 2001. Since the basic advance which ended the 1998-2000 bull market was of subnormal length in Lindsay's classification, the subsequent basic advance should be expected to be long (about 26 months) or extended (about 32 months). In this case a 26 month basic advance would end in November 2003, coincident with minor synodic cycles cited above. This suggests that the late 2003 turing point will be an intermediate term high point.

At this point we can entertain an interesting hypothesis. According to Lindsay, the stock market can usually be found in some stage of a 3 peaks and a domed house formation about 60% of the time. We speculate that the first stage of the upcoming bull market will take the form of the three peaks. If the first peak occurred on December 2, 2002, the third peak can be expected about 9-10 months later, in this case September-October 2003. From the third peak an intermediate term (10-15%) decline can be expected and from the subsequent low another strong advance (the domed house) to new highs for the bull market should develop.

Let us return to the analysis of basic declines and advances. After the first basic decline of the bear market ended on Sepember 21, 2001, the market rallied for about 6 months. A second basic decline began on March 19, 2002. The shortest possible basic decline should last no less than 231 days according to Lindsay and consequently the low in October 2002 cannot be the low of the basic decline. In this situation Lindsay would probably be looking for the basic decline to end at a secondary low, a low above the October low. Moreover, since the long time periods all point to a low late in 2002 or early in 2003 Lindsay would probably expect this basic decline to last either 294, 326 or 342 days. A 294 day basic decline would end on January 7, a 326 day decline on February 7 and a 342 day decline on February 25.

From the end of this basic decline a new basic advance should start. Again, the last basic advance ended the 1998-2000 bull market was subnormal in length. Therefore the basic advance which is likely to begin from the upcoming low should last somewhere between 26 and 32 months. This projects a bull market top sometime during 2005.

SUMMARY

The 20 year cycle and Lindsay's 12 and 15 year periods all suggest that a bear market low occurred in 2002 and that a bull market top is due possibly as early as late 2004 but more likely sometime in 2005.

The drop from the market's December 2002 top will probably end at a low above the October 2002 low and terminate the basic decline which began from the March 18, 2002 top. Counting forward a long basic advance of 26 to 32 months from the upcoming secondary low also projects a bull market top for 2005. Finally, we suspect that the first stage of this bull market will take the form of Lindsay"s three peaks and a domed house" formation.

Carl Futia

Copyright- 2003