Tuesday, October 04, 2005

Top to Top Counts

The markets have been dull the last several days but I think this is a prelude to some dramatic price action over next couple of months. While we are waiting for the curtain to rise I thought I would discuss one of George Lindsay’s favorite short term timing methods, the top-to-top count.

Lindsay discussed this method, along with several others, in his article “A Timing Method for Traders”. A reprint of this can be found in the booklet “Selected Articles by the Late George Lindsay” which is published by Investors Intelligence in New Rochelle, NY 10801, USA.

Among the various short term timing methods Lindsay described in this article the top-to-top count is the one I find the most useful, partly because there are relatively few of them. On the other hand, Lindsay said that every bull market top has been timed by a top-to-top count. This is why I think it particularly useful to discuss this method now for the stock market.

The procedure for projecting the timing of a future top using the top-to-top count is very simple. One first identifies what Lindsay called a “compact” top formation. This is usually a sideways movement lasting 1-3 weeks in a fairly narrow range which is then followed by an obvious decline.

In the daily Dow Industrials chart above this post I have identified two recent compact top formations.

Once such a top formation is identified, one then locates the low day of the most obvious dip within the formation. It is almost always a day before the actual top occurs.

In the chart above I have identified two such days, labeled A and B, in the first top formation and one day, C, in the second.

Lindsay’s theory is that a significant short term top almost always occurs an average of 107 calendar days after the dip within the top formation. This is an average and the span is typically 102 to 112 calendar days.

Points A,B, and C thus project tops for November 12, November 25 and December 25 respectively. I find the last date especially interesting because is coincides with the Three Peaks and a Domed House projection I discussed a short while ago.

I find that top-to-top counts work well in any market, not just for the Dow, and this is the only short term pure timing technique I have found of any value.

No comments: