Three Peaks and the Domed House redux

Way back in October 2003, we looked at master technical analyst George Lindsay’s repetitive chart pattern, Three Peaks and the Domed House. That version showed a fairly prescient call by Ned Davis, before the January ’04 top.

That was then, this is now. Its time to revisit the pattern, this time via Jeff Hirsch of
Stock Traders Almanac. Let’s see if there is yet another potential call possible. Here’s the basic model of TP&DH, with numbered points included:

 

chart courtesy of Stock Traders Almanac

Barclay T. Leib describes the pattern:

Lindsay characterized the
“three peaks” process as one of rapid advances in brief spurts between
which the market goes through long stretches of consolidation. The tops
are typically somewhat “rounded or flat,” and the tops usually occur
within a similar price range perhaps with a slight upward bias.
According to Lindsay, the entire “three peaks” process typically lasted
eight months.

After the third peak (at
point 7), a rather severe downtrend begins. It is called the
“Separating Decline” because it separates the “Three Peaks” from the
formation that follows. This decline usually encompasses at least two
selling waves, labeled from point 7 to point 8, and point 9 to point
10. The decline eventually achieved at point 10 is always at a lower
level than either point 4 or point 6, and usually lower than both.
Unless at least one of these lows is broken, one cannot label this
formation as a “Separating Decline.”

Now lets look at a recent Dow Industrial chart, courtesy of Stock Traders Almanac, to see how it corresponds:

click for larger chart

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chart courtesy of Stock Traders Almanac

The Almanac plots the first 17 of the 28 points of the 3 peaks/domed house as of 11/16/04. (I added the 16 and 17, to cover the period up to December 1, 2004).

If the pattern holds true, we should see a monster move into 2005, peaking sometime in Q2, which then eventually heads back down towards lower levels by 2006.

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Incidentally, one of the best 3 Peaks and a Domed House call out there was the January 14, 2000 call (Three Peaks and the Domed House – Revisited) made by Barclay T. Leib of Sand Spring Advisors.

What's been said:

Discussions found on the web:
  1. Alzahr commented on Dec 3

    Let the countdown to point 20 begin.

  2. steamhed commented on Dec 3

    This is amazing. I’m going to have fun gambling between points 22 and 24.

  3. memer commented on Dec 3

    As the house contrarian, I’m going to have to release the standard contrarian reply: sorry, i just don’t see it.

    I’m perhaps focussing too myopically, to micro-ly, but I don’t see anything that indicates this puppy’ll bust thru 10.9 anytime in the next 30 to 60 days (the fog of markets is too thick for me to see out to 6mths). But that’s the fun of making predictions, innit?

  4. Brian commented on Feb 2

    Has anyone given another look at this pattern. Amazing how it seems to be coming to fruition. Potential big downside through Feb and March?

  5. Jerry commented on Mar 26

    Folks,

    The Three Peaks & Domed House is for real! If you overlay it with other analytical tools, you can confirm it!

    For instance, the markets have been in a trading range since January 05. This is textbook: Uptrend, followed by trading range, followed by change in direction, or downtrend.

    Also, the moving averages are converging, with the 50-Day falling fast.

    The seasonality is also there: We typically start the lousy Summer season around here.

    Shorting RUT with 200% leverage and happy,

    Jerry

  6. Brandon Starr commented on Apr 9

    I’ve been following this pattern too for a while. If you’re reading this rather old commentary, you probably did a search on the name of the pattern.

    Well, it’s now early April and the pattern is STILL holding. We’re now about to go up the last part of the “dome” on the house. That should last a few weeks and a few hundred DOW points. Then, it’s look out, below!

    I’m not a technician, actually, but this pattern is so darn complicated, and the fact that the DJIA has been following it, fascinates me. If it goes all the way, and actually completes this obscure and rococo pattern, I think it’ll say something about how human psychology works.

    Interestingly, the whole thing is skewed with a slightly downward slope. The downtrend between 3 and 14 is clear. My hunch would be that it’s not a good sign for the market when the trendline is broken to the downside.

    Assuming, of course, that the pattern holds.

    Right now I’m in DIA calls, to ride the market up on this last dome. As I say, I’m no technician, so I had to see some other things going on. Basically, they’re 1) earnings season and 2) traders taking oil down short-term. Add a probable calm in the bond markets since we don’t have a Fed meeting in April and the conditions do seem right for an April rise in the DJIA.

    Assuming the pattern holds, I’ll be in some sort of puts pretty soon. I doubt they’ll have to be DIAs, though if I choose those this pattern will help me pick my place for an exit.

  7. Barry Ritholtz commented on May 24

    My problem with the pattern as of late April, is that I expect point 23 (domed housed) to be significantly higher than the 3 peaks.

    Thats not clearly occuring . . .

  8. 张家界 commented on Jun 19

    Very good Thank author this article is quite good!

  9. collies_99 commented on Feb 2

    We are at the cusp of another formation for the dow.

    The peak is in (11,047.8)and we are now on the right side of a diamond pattern which should culminate in a break-down to the down-side in about 3 weeks.

    good luck all.

  10. FALCONMOON commented on Jun 23

    HOW ABOUT THIS CHART IS IT THE SAME PATTER?

    [url=http://www.4zz.net/up][img]http://www.4zz.net/up/uploads/5fa59ebb79.gif[/img][/url]

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