Wednesday, June 25, 2014

Lindsay update

I thought I would offer a few comments on my current interpretation of the position of the Dow Industrials within what I think are three examples of Lindsay's 3 peaks and a domed house formation.

The top chart is a schematic of  the ideal formation. The three peaks are labeled as points 3,5, and 7 while point 10 is the end of the separating decline. The domed house portion of the formation extends from point 10 to point 23. This last point is typically a bull market top although there are examples in which a slightly higher high occurs at point 27. Once point 23 is in place the 3PDH forecasts a drop below point 10 and quite possibly a drop to the start of the entire formation which typically is some obvious low preceding point 3.

Lindsay insisted that the standard example of a 3PDH should have points 3 and 7 separated by a span of 6-10 months. Any more time than that would invalidate the formation. However Lindsay also said that there were many examples of smaller formations, ones for which points 3 and 7 are separated by less than 6 months and that these minor formations had pretty much the same forecasting significance.

In 2013 the Dow established three peaks (the red points 3, 5, and 7 in the middle chart) which were separated by 4 months, two months shy of the normal 6 month minimum. Point 10 was the October 2013 low and I think point 23 was the December high. There was some additional evidence supporting this identification of point 23. Lindsay's 15 year, 3 month time period from bear market low to bull market high, measured from the August 1998 low in the Dow, predicted a top in December 2013. At the same time Lindsay's basic time spans for bull market advances allowed the up swing from the October 2011 low to be identified as a long, basic advance, one lasting  24-26 months.

The Dow did sell off from its December 31.2013 top but made a low in early February 2014. This low was point 26 of the minor formation. On the way up from the February low the Dow developed not one but two other examples of the 3PDH formation which I have labeled by blue (the "mini" formation) and by green ( the "micro" formation). Both the mini and the micro 3PDH assumed classic shapes and I think both have established their points 23.

There is some other evidence which supports this interpretation. The first is that once a Lindsay basic advance has gone on longer than the typical long basic advance (24-26 months) it will then continue until it becomes an extended basic advance (33-34 months). The top of this extended basic advance is due right about now. The second piece of supporting evidence is Lindsay's 15 year time period from bear market low to bull market high. This averages about 15 years and 3 months in length but there are plenty of examples which extended to nearly 16 years. The clock is running out on this long time period and if it is going to produce an important high is has to be now.

As usual, even though I suspect that an important market turn may have occurred, I won't be convinced until I see both the Dow and the S&P drop through their rising 50 day moving averages. Right now this is 16,641 in the Dow and 1902 in the S&P.

1 comment:

Unknown said...

Hi Carl,
Excellent analysis! I was looking at the charts today and saw the mini TPDH, and I came here comment about it, but you beat me to it!

I remember a long time ago you discussed the 9-year Alphier cycle. I think that 2011 was phase 2 (the mild bear market) and that the interim crash (phase 4) may be imminent. What do you think about this perspective?