Thursday, July 02, 2015

George Lindsay vs. the Central Banks

The Dow has reached a critical juncture in the still-ongoing three peaks and a domed house pattern identified by George Lindsay 60 years ago. I have labeled the Dow chart at the top of this post with the most bearish interpretation I can see. The schematic shows the ideal 3PDH formation with its associated labels.

I think it is perfectly reasonable to interpret the May 19 top in the Dow as point 23, the top of the domed house and the bull market top. The entire sequence from points 15 to point 25 on the Dow chart is a very "flattened" version of the schematic but has all the important elements. In particular, points 21-25 form a nearly perfect "head and shoulders" top.

Another supporting piece of evidence for this interpretation is that point 23 is almost exactly 7 months and 10 days from point 10. Normally this time interval is measured from point 14 but on the Dow chart I don't think point 14 came until the market had risen above its preceding 3 peaks, a very unusual configuration.

If this interpretation is correct then the Dow should start spending time below its 200 day moving average and continue downward at least to a level below point 10, its October 2014 low.

But here is a problem. The world central banks are determined to provide enough liquidity through their QE programs to inflate asset prices sufficiently to keep their respective economies moving forward and to avoid slipping into recession. Even though the Fed has halted its own QE program world-wide increases in liquidity do not respect national boundaries. The capital market is a global one. I happen to think that this liquidity increase is likely to prevent anything like a bear market in the US stock market until these QE policies change.

So where does that leave George Lindsay in his battle against the world central banks? On the losing side, I'm afraid. That said I try not to be dogmatic about markets. In this case am willing to go with the bearish 3PDH interpretation if the Dow starts spending time beneath its 200 day moving average.


mike said...

Carl, As I see it given your comments , it is not only George Lindsay but all of technical analysis that is rendered mute by QE. If you throw Lindsay under the bus so to speak then you do so of all technical analysis including your own work. Lindsay wave analysis is just another form of technical analysis. So I guess you can take a vacation and return when QE ends and resume your work . Cheers Mike

Carl Futia said...

I think it is important to make distinctions among intended time frames as far as analytical methods go.

QE may mitigate the effectiveness of technical methods which try to identify bear markets but methods designed to catch shorter term swings, both up and down, may still be effective.

I am and will remain a big fan of George Lindsay. It is just that the rhythms his methods rely upon are now being partially suppressed by central bank interventions.

Rizzo III said...

I highly appreciate the updates and am a big fan of George Lindsay as well. I believe we are now at point 20 and we are going to see a very fast and big up move into the rest of the summer (potentially 2200-2300). I think we'll see the high around mid September (which is approximately 222 days after point 14 (Febr 1st) ).
Jeremy Grantham which I hold in high regard, is expecting a top around 2250-2350. Martin Armstrong's turn date is October 1st and I think that will be the beginning of the correction towards s&p <1800.
I think we reached the bottom and are now going to see a massive up move (potentially gap and go) just like in October 2014.