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Thursday, January 23, 2014

Did the Dow top?

A very long time ago George Lindsay documented a now famous topping pattern called three peaks and a domed house.  Here is the idealized pattern that he published.

Here is a look at the Dow daily chart.

One could argue that the three peaks part of the pattern is a bit sloppy.  The time between the three peaks and the domed house is longer then normal also.  That is likely because of QE and hurricane Sandy.  However, the domed house part is textbook.  It looks like we might have made point 23 (the top) back in Dec.  The Dow has not made a new high for the year yet.  Lindsay says that price always returns to point 10.  That would be a pretty significant decline.  What is interesting is that I did a search on the internet for articles on this pattern.  There were quite a few articles back in late 2012 and early 2013.  Many people recognized the three peaks part of the pattern.  However, I could not find a single article written this year on how the domed house part of the pattern may have completed. I guess everybody stopped looking when the market kept going up.  A lot of times obvious patterns are widely recognized and don't play out as expected.  Obvious patterns that are not widely recognized often do play out.  There is very little talk of this pattern today, but it looks pretty obvious.  I guess we will see what happens.  Stay tuned.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.