Wednesday, August 15, 2012

Lindsay update

Here is a daily bar chart showing the past 16 months of activity in the Dow industrials. Below the bar chart is a schematic depiction of George Lindsay's three peaks and a domed house formation. There are two distinct examples of this formation developing in the Dow.

The big example began at the February 2011 top, the first of three peaks, and in my view it has not yet been completed. This example of three peaks and a domed house is labeled with blue numbers which highlight highs and lows corresponding to those in the schematic below the bar chart. At the moment I think the market is headed up to a top which will eventually be labeled as point 21. The June 4 low is point 20.

There is a smaller example of the three peaks and a domed house visible on this chart which I have labeled with red letters. Point 3 of this smaller formation is also point 19 of the bigger formation although I did not label it explicitly to avoid cluttering the chart. The important implication of this smaller formation is that its domed house would bring the market above the highest of its three peaks. This is one important consideration which supported my view that the bigger formation had not yet seen its point 23, a view from which I haven't yet wavered.

A rough and ready rule for timing  point 23 in a big formation like the one labeled by blue numbers is that it should occur about 7 months and 10 days after point 14. In this example that projection called for point 23 in late July but the market was not yet at new highs then. When that time projection fails the next alternative is to count 7 months and 10 days from point 15 which in this chart is where the green 3 appears in the smaller formation. Point 15 occurred in late February and thus projects point 23 for early October. Right now that seems to fit pretty well with my interpretation of the technical position of the market which I still see as quite strong. If I am right about this point 23 should develop pretty close to or even a bit above the 2007 top at 14,279 intraday.

Once point 23 is in place I think a drop below the June 4 low near 12,000 will develop. This is the minimum expectation based on the minor formation labeled by the red letters. Normally the completion of the blue formation would call for a drop to below the October 2011 low. But the development of a minor 3PDH starting from point 19 in the blue formation suggests that the October 2011 low, point 10 of the bigger formation, will not be broken on the drop from point 23.

Lindsay's 12 year period from high to low calls for a low around 12 years and a few months after any important top. The peak of the internet bubble in 2000 produced a top in the Dow in January 2000. The June 4, 2012 low was 12 years 5 months after the 2000 top but I do not think this was the 12 year period low unless these two 3PDH formations are not really what they seem to be. A low in November- December would be at the outer limits of a typical 12 year period from high to low. On the other hand the September 2000 secondary high in the Dow could be used to time a low in early 2013 via the 12 year period.


Graph1159 said...

Hi Carl,
This is a very thorough analysis; great work!. I'm confused about one thing though. You said that point 19 was in February, but on your chart point 19 appears to be in May.

I personally am still intermediate-to long term bearish, but I realize that very reasonable bullish perspectives exist and would turn bullish myself if the market rallies through the April highs.

Have a good day,

Carl Futia said...

Thanks, I was thinking one thing but wrote another. The correction now appears in the post

Joshua said...

Wouldn't be surprised to see point 27 put in on 8-21. The fact that 5-1 was exactly 222 days (As Lindsey suggests) from the low 10-4 is extremely interesting. Lindsey describes this as a way to predict the top of the bull market and I found it startling that we didn't make a new high in the DJIA so until the high is taken out I do believe we topped out for 27.