Wednesday, July 11, 2012
Three Peaks Domed House update
The chart above is a daily bar chart of the Dow going back to September 2010. As you know I think that an example of Lindsay's three peaks and a domed house formation began in the spring of 2011 with the three peaks I have labeled as points 3, 5, and 7. The schematic at the top of this post shows how the typical formation evolves from the three peaks.
My own interpretation of the market's position in this pattern is that the top of the domed house, point 23, still lies ahead of us and will be above the levels of the March-April 2012 tops which are labeled as points 17 and 19. I have two reasons for this interpretation.
First, the typical point 23 develops about 7 months and 10 days after point 14 (although there is a lot of variability around this average duration). This projects point 23 near the end of this month.
Second, if you look closely at the price action which follows the high which I have labeled as point 19 you will see another, classic example of the same three peaks and a domed house formation - but a much smaller/shorter one. Lindsay himself observed some examples of this phenomenon, i.e. a minor 3PDH occurring during the development of points 15-20. It looks like this minor formation is just completing its own point 14 and the implication is that the Dow will move to new highs before the minor formation is complete.
I know that some of you Lindsay fans think that what I have labeled on this chart as points 15, 17, and 19 are in fact points 21, 23, and 25. This implies that the bull market top has already occurred although sometimes point 27 develops above point 23. While I don't agree with this view I have to admit it is a real possibility. So if the Dow should retrace more than half of its rally from point 20 after August 1 I probably will adopt this view myself.
In the meantime I am looking for a rally which should begin soon and carry the Dow above its March-April highs.