Wednesday, May 16, 2007

How Much Farther?

During the past few days I have been trying to evaluate the stock market's upside potential from current levels. In my 2007 stock market forecast I estimated a top for May 17 using George Lindsay's theory of basic advances and declines. Over the past months I have used this projection as a guide for interpreting two current examples of Lindsay's famous Three Peaks and a Domed house pattern.
While I love to predict the future my only real committment as a speculator is to stayed glued to the trend as evidenced by the market's pattern of higher lows and highs or lower lows and highs. I never trade my forecast per se unless it is consistent with what I see as the developing trend.
To get a handle on the market's trend and the trend's likely points of reversal I use a few simple statistical devices. I have commented on two of these recently.
The first chart above this post shows the daily count of the number of issues traded on the New York Stock Exchange which advance in price. The blue line is the 20 day moving average of this number. In a recent post I explained that in a bull market tops are most likely to occur during a time span beginning 2 months after the moving average peak and ending 4 months after the peak. In the current situation this method calls for a top for the current upswing sometime between June 16 and August 16.
In a separate post I noted the lengths of previous upswings in the bull market which started from the 2002 lows. Using the Spiders as an index I projected a top for the current upswing at 156.70 (vs. the current level of 151.00).
Along the same lines I should also add that these bull market upswings lasted anywhere from 4 to 8 months. So the top for the upswing which began on March 14, 2007 should be expected in the July 14 to November 14 time frame.
For these reasons I no longer believe that the May 17 date first mentioned in my 2007 stock market forecast will be a significant market top.
An expectation more in line with the statistical consideration just discussed would be for a July top. There is even a 1 in 3 chance that the market will be stronger than even I expect and continue its advance to late October or early November.
The second chart above this post shows a slightly revised version of the basic advances and declines in the Dow. The two alternatives for a top date are July 13 and October 30.
In the third and fourth charts above this post you see my current interpretations of two separate domed house portions of two distinct Three Peaks and a Domed House formation.
The third chart shows the long term formation. Note that I have renumbered the recent action so that the March low is point 20, the end of the five reversals part of the domed house, instead of point 22, a low within the top of the entire formation. I have also pushed the projected top, point 23, to July 13.
The fourth chart shows a minor version of the three peaks and domed house. Note that the rally from point 10, the March low, has been fast and furious so far. In particular, there has been no sign yet of the 5 reversals part of the formation which normally preceeds point 23. For this reason I feel quite comfortable pushing point 23 for this formation to July 13 as well.


Anonymous said...

excellent post, Carl. On your minor chart I would put point 12 where you have 14 and put 14 at the next little low above 12.......

Anonymous said...

Thanks for update ....
Can you specify A TIMEFRAME for the move from point 23 to 10,700?

Tanks in advance


Anonymous said...

I don't think this bull market is going to break anytime soon..

did you guys checked chart for ^vix.. it has not traded below 12.50 in last 2 months. There is a lot of fear. The number of puts on DIA , SPY and QQQQ are tripling and quadrupling. everyone is talking the market and recession by end of this year or next year.. As a contrarian, I think this bull has long legs..

don't bet on downturn anytime soon..

Gary said...

This market will top out when the commercial participants start selling and not before. The COT report is extremely bullish. You can go to my blog for info on the COT report.

Anonymous said...

nice work carl
i found myself saying ok pt 15 is close by as i looked at your chart
and ten i noticed your note that you havent seen the 5 pts
i am in agreement on this . and i realise pt 15 should not be called
inadvance to soon . yet i think were are very close right now today if so then the spx cash can come back to 1474 and dow somewhere back around 400 to 500 points. we'll have to see how the
next week trades . looks like spx
short term coming into resistance
and the mkt as a whole is begining to diverge , so the last leg up
will probably be showing alot of weakness after this initial decline . so maybe it is worse
in gold and silver stocks .
nuff said

Anonymous said...

i am asking yet im not sure you have the answer . is there a
time span reagarding pts 15-20 ?
i see the mid july turn and i have been focused on it all year .
but i am also aware of the possiblities that pt 15 should be close at hand . and given this market right now i have to ask myself how long should the 5 pt reversal last in terms of time .
the mkt usually gives up time or it gives up price and looking at the metals ( gold and silver )
i would think if they dive as your thinking so will the stock mkt initially . the seasonality for gold is bearish into augest .
the market has not really had any time of sideways action from the march low . under the ussumption here that were at pt 15 now
and giving this till monday would be 71 calander days plus minus .
a 50 percent time retracement is not all that much yet given that were looking at may 20 ( sunday )
would allow for sideways into june july .so i have to ask myself if the market might find a way to prove you correct for the turn dates yet not nessarily the way your thinking .also while i do respect all that you have done
this market is begining to look like 1937 .specially with the nasdaq 100 .and that fits your oct top thinking very well .
so i just want to say i think we should all be open minded going forward is all .
i also think we should see some sort of top to top count going forward and so far im not sure of any compact top formations to go with . no doubt though momentum is shifting .
good work and i have thought enough for today .
dow 13000 spx 1474 to me do not seem like that far down if this mkt decides to tur down next week
time though still needs to be considered .

Anonymous said...

Point 23 reached on the DOW?

Too early to tell, but its a possibility and should be clear by close tomorrow.