Monday, December 07, 2015

stock market update and some Lindsay comments

The three day August panic now seems like just a bad memory. The US stock market averages have returned to their February-July 2015 trading range. All three of my main trend indicators (top three charts) are above their 200 day moving averages although not by much.

The only negative on the horizon is the perception that the European Central Bank is not doing its part to avoid deflation in the EU. The fourth chart down from the top shows the Euro Stoxx 600 index. After breaking substantially below its 200 day moving average in August, just like the US averages did  this index is still visibly below its 2015 high and has rallied only as far as its 200 day average. Any substantial drop from here would have bearish implications going forward for European stocks. This in turn would have a bearish effect on the US market.

For the time being however I am going to stick with my bull market continuation scenario in the US market. I still think world central banks are committed to their QE policies and in such an environment it is hard to see how a sustained bear market could develop. For on any sign of weakness the central banks would increase their asset buying programs to avoid a repeat of the 2008-09 panic. This would send stock prices back up again. 

In a previous post I offered a George Lindsay interpretation of this year's price movements and explained why it can be argued that the bull market in the US will continue into 2017 and bring the averages well above current levels. Here I would like to point out the appearance of a near-classic example of Lindsay's Three Peaks and a Domed House formation which also has bullish implications going forward.

On the top chart of the Dow I have marked the turning points of the current major example of the 3PDH. It is major because the three peaks are separated by 7 months instead of occurring  within a span of less than 6 months. This formation has a clearly identifiable point 10 and moreover, a clearly defined Lindsay "base" consisting of points 12 and 14. The domed house portion of the formation begins at point 10 and its peak (see bottom schematic) at point 23 typically occurs about 7 months after point 14. So in the case at hand a top of the domed house is scheduled for May of 2016. 

It is characteristic of a 3PDH formation that movements up and down are brief and that during most of the formation the market trades sideways. This is certainly the case with this example so far and strengthens the argument that this is a genuine 3PDH.

The forecast offered by this example of a 3PDH is that the Dow will continue is climb higher for at least 6 more months although the advance will be punctuated by relatively long, aggravating sideways periods of trading. Once the Domed house is complete the prognosis calls for a drop to or below the August 15 low.

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