Lindsay's Foldback Charts

George Lindsay was among the greatest and most innovative market technicians of the 20th century. His methods exploited symmetries in market behavior which become visible only when studying the time that market swings take to move from high to low and back again. Sadly, Lindsay passed away in the mid-1980's. But we can still use the tools he invented to attempt to predict market trends months and years in advance.

One of his clever discoveries was the "foldback chart". This is a method for prediction which relies on a time symmetry centered at an important low or high. To construct a foldback chart one imagines folding the chart along the vertical line centered at the chosen high or low. The predicted market action is then just the action of the market prior to the fold but run in reverse.

One has to be on the lookout for potential foldbacks. This requires a certain artistic feel for symmetry (N. B. Lindsay himself was a graphic artist before he started studying the stock market in the late 1940's!) Back in March of 2003 I noticed the three lows the market averages made at nearly the same level in July 2002, October 2002 and March 2003. Since I was bullish at the time I guessed that a foldback pattern might be emerging. My initial guess was that the October 2002 low would be the center point. But subsequent action showed that in fact the March 2003 low was the better choice of center point.

The value of foldback predictions is that once a foldback is recognized it tends to continue for quite some time and thus has a lot of predictive value. Take a look at the foldback chart of the weekly S&P shown above.

The important highs and lows that occurred before the March 2003 center point are labeled with the letters A through E. The predicted timing for tops and bottoms after March 2003 are labeled with the same letters doubled. For example, the top of March 2002 is point A on the chart and is 12 months prior to the center line of March 2003. Point AA is then 12 months after the center line, March 2004 and is a predicted top.

Foldbacks typically exhibit strong symmetry in price and in time. Often the time symmetry is better than the price symmetry. Occasionally the price symmetry is better than the time symmetry. In March 2003 I used the expected price symmetry to predict that the market would move up to roughly 1178 (the level of point A).

This foldback chart predicted a top for early January 2005 (point CC) and a low for late February 2005 (point DD). The latter wasn’t too accurate but not to bad for a prediction two years in advance ! The next prediction is for a top at point EE which is in late September 2005. Note that this corresponds to point E which is the early September 2000 top. If instead we use the true bull market top of March 24, 2000 then point EE would be found around March 1, 2006.

In any case, Lindsay’s foldback chart predicts that the next 5 to 10 months will be bullish and send the S&P up above 1300.