Wednesday, May 20, 2015

Lindsay update

During the past few days the Dow has made new bull market highs. I have been tracking the progress of the Dow through what I think may well be an example of George Lindsay's three peaks and a domed house formation. The bottom chart is a schematic of a typical 3PDH.

In my last post on this subject  I identified the February low as point 20 whereas now I am inclined to see it as point 14 as it is now labeled on the Dow chart above. I think the recent sideways action represents the "five reversals" portion of the domed house with point 20 the early May low. This reinterpretation puts point 23, the likely bull market top in this scenario, well ahead of us. Using Lindsay's 7 month 10 day rule and measuring this duration of time from point 14 we get to roughly mid-September as a likely time for point 23.

As I have often said Lindsay's methods have not worked very well during this 6+ year bull market. The driving force behind the advance has been the QE policies of central banks, not any natural rhythm which Lindsay saw in the Dow. I don't know when this will change although certainly a tapering move by the ECB or by the Bank of Japan would have very bearish effects on world markets.

In the mean time I think it is best to watch the 200 day moving average of the Dow (red line). A drop below that moving average will mean that the domed house is complete and the minimum downside expectation would then be for a drop below point 10 on the Dow chart - the October 15, 2014 low point.

1 comment:

Unknown said...

Great charts and analysis. I think we have yet to see point 20, we need the vix to be elevated and we need fear in the market to give the incentive to form the top.