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.

>
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.

Category: Markets

Oil & Weather: A Guest Persepective

Back on the anniversary of the crash, I ran a guest post from Rob Fraim: 1987 Crash Revisited. That was well received; I thought Rob’s latest missive was worth reproducing here:

.
In the midst of the recent big drop in oil – which is likely at least partly due to forced/margin selling – there is an interesting point to be considered.

Writing on the financial website Street Insights, Richard Ritholtz [Editor: no relation -- as far as I know] made the following comments today:

· It’s too early to write off the winter even though the weather has been quite mild in the Northeast and Midwest to date.

· Heating oil inventory is still at a low absolute level, although it is clearly in a building mode over the next weeks.

· The market experienced significant long liquidation yesterday as several large funds locked in their profit for the year; December 1st clearly signaled that year end is not far away.

· Based on information from several private forecasters, I believe that the overall winter temperatures from Dec. 21- Mar. 21 will be average to below normal even, though the November through early December temperatures have been milder.

As to the weather (ok…cue the “Let’s Make Fun of Rob Fraim” theme music here) here is something of interest (or fun if nothing else):

The Old Farmer’s Almanac has a noteworthy record for medium-to-longer range weather forecasts.

Oh, I know you’re laughing at me now. You’d rather pay attention to Skippy the Weatherman on your local Accu-Weather at 6:00 who can’t, for Pete’s sake figure out whether it’s going to rain tomorrow. (And who each year predicts 4 huge snowstorms that never materialize and misses on the blizzard that blindsides you.)

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