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3 Peaks and a Domed House ?
Posted By Barry Ritholtz On October 24, 2003 @ 6:05 pm In Finance | Comments Disabled
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”)
Reference to Three Peaks and the Domed House:
Sand Spring Advisors
Three Peaks and the Domed House – Revisited , January 14, 2000
Bonds & Gold 
SPX Daily 
DJIA (Crosscurrents) 
(go 2/3rds of the way down or search for the word “Domed”)
Article printed from The Big Picture: http://www.ritholtz.com/blog
URL to article: http://www.ritholtz.com/blog/2003/10/3-peaks-and-a-domed-house/
URLs in this post:
 Contrary Indicators: http://bigpicture.typepad.com/comments/2003/09/contrary_indica.html
 Bullish: http://bigpicture.typepad.com/comments/2003/04/crossroads_.html
 past: http://bigpicture.typepad.com/comments/2003/05/bah_humbug_tax_.html
 months: http://bigpicture.typepad.com/comments/2003/07/rally_compariso.html
 increasingly uncomfortable: http://bigpicture.typepad.com/comments/2003/09/potential_buyin.html
 posture: http://bigpicture.typepad.com/comments/2003/08/dog_days.html
 rotation out of tech: http://bigpicture.typepad.com/comments/2003/10/good_quarter_mi.html
 sanguine: http://bigpicture.typepad.com/comments/2003/09/whats_your_time.html
 economic: http://bigpicture.typepad.com/comments/2003/09/shell_shocked_c.html
 recovery: http://bigpicture.typepad.com/comments/2003/10/tax_cuts_stock_.html
 peers: http://bigpicture.typepad.com/comments/2003/09/seasonal_weakne.html
 imminent correction: http://bigpicture.typepad.com/comments/2003/10/vix_foretells_s.html
 Ned Davis Research: http://www.ndr.com/public/container/index.jsp
 Image: http://bigpicture.typepad.com/comments/3_peaks_and_dome.html
 Essential Technical Analysis: http://www.amazon.com/exec/obidos/ASIN/047115279X/thebigpictu09 20/103-3937756-4643047
 Three Peaks and the Domed House – Revisited: 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): http://www.cross-currents.net/archives/oct01.htm
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