I use a variety of methodologies in my work. Charts are absolutely one of the essential tools I use. However, the way I apply of technical analysis may be different than the work of pure technicians out there. I use charts primarily to tell me, in order of importance, 3 things:
– Is the stock/sector/index/market in an up trend or a down trend?
– Where is the nearest resistance or support level?
– Are there any reliable patterns suggesting an imminent reversal (or continuation) pattern?
You’ll note pattern recognition was last. I have found pattern recognition is a complex art, prone to human errors in interpretation. I use it, but sparingly so. The information imparted by trend and resistance/support analysis is very quick and reliable when compared with pattern analysis. (Perhaps that just means Im a lousy technician).
Regardless, there are occasions when the patterns are ominously clear. One such instance has arisen that warrants my sharing it with you: George Lindsays Three Peaks and the Domed House (TP&tDH). The parallels between the present market’s progression and Lindsays ideal formation are startling.
If youve been reading this site for a while, you know that I track Contrary Indicators closely; that I have been (mostly) Bullish for the past six months, but increasingly uncomfortable with that posture; that we advocated a rotation out of tech early October; that I am far less sanguine about the economic recovery than most of my peers; that last Wednesday (10/15), I interpreted the VIX as signalling an imminent correction which appears to be in full swing now.
Against that backdrop, I was somewhat stunned when someone showed Ned Davis Research‘s interpretation of Three Peaks and the Domed House. (See chart below). NDR is a highly respected independent research house; Davis himself has had many terrific calls over the past few years. (He also has the cleanest stock market data in existence).
I have no idea what the track record of 3 Peaks and a Domed House is (though Lindsay has a stellar reputation); I saw how parallel the charts appeared, noted that hardly anyone else (other than Ned Davis) was talking about them, and posted this.
Source: Ned Davis Research
It is only with great trepidation that I show Lindsay’s Idealized pattern. It is scary. Ive also seen parallel presentations of the same form in the period leading up to March 2000 (we know how that turned out). I have no experience with either the application or interpretation of TP&tDH. I present here to provoke your thought processes a bit. I have also included several reference links on the pattern and on Lindsay himself (below).
If you care to do additional research on this pattern, here’s a few links to start you off:
Reference to George Lindsay :
Essential Technical Analysis
(click the link Search inside this book; Go to the search box and type “George Lindsay”)
http://www.amazon.com/exec/obidos/ASIN/047115279X/thebigpictu09 20/103-3937756-4643047
Reference to Three Peaks and the Domed House:
Sand Spring Advisors
Three Peaks and the Domed House – Revisited, January 14, 2000
http://www.sandspring.com/articles/tp.html
Bonds & Gold
http://www.nqoos.com/3peaks_Lindsay.htm
SPX Daily
http://www.nqoos.com/3peaks_Discovery.htm
DJIA (Crosscurrents)
(go 2/3rds of the way down or search for the word “Domed”)
http://www.cross-currents.net/archives/oct01.htm
lindsay’s three peaks and a domed house looks like a 4th wave triangle and a 5 wave impulse in elliott wave analysis. a triangle for the 4th wave is usually the last correction in an advance and the 5 waves up from the 4th wave low is, then, a peak of the advance. the value line seems to have completed 5 waves from the october low.
what after point 28, what is the supported level. is it the bottom of point 14 or what. also what after the completion of the model, the trend should go up or not.i attached the recent graph of saudi stock exchange market for your comment.
please check saudi