Friday, July 15, 2011

Three Peak & A Domed House Theory VS. SPX.

This is a very complicated chart pattern discovered by George Lindsay. They appear over a long time and difficult to interpret. Thomas Bulkowski is of the opinion that “It might be easier to treat the pattern as two separate ones, a triple top and rounded top or head-and-shoulders top, and trade them as individual patterns.
Bulkowski also gave some counts as follows:
Point 3 to point 23 in the Dow Industrials:
Oct 22, 1915 to Nov 21, 1916
June 5, 1919 to Nov 3, 1919
Sept 11, 1922 to Mar 20, 1923
Feb 5, 1929 to Sep 3, 1929
Nov 17, 1945 to May 29, 1946                          
Sep 13, 1951 to Jan 5, 1953
Apr 6, 1956 to Jul 12, 1957
Aug 3, 1959 to Dec 13, 1961

Carl Futia has done some work on this pattern and his chart is as shown below:

I am not a TA fan but a longer term pattern like this one filters lots of noise and gives a bigger picture. When we combine it with the market manipulations, it seems to make sense. I was also going through the COT report and the COT report indicates that we are going to see some bullishness in the market from coming week.

This does not mean that we as a nation are not doomed and everything is fine and dandy, but stock markets are not forward looking or indicative of the economy in the short term. More so, today, it is run by momentum chasing yield hungry lemmings. It would make perfect sense for the markets to go up from here when there is so much uncertainty and bad news and the markets will go up on very thin volume. This will be a part of forming the top.

I therefore tend to agree with Carl and depending on what happens in the market today, will slowly dip my toe in the water from early next week. Today is the Option Expiration day and hence we can expect irrational movements but I expect it to go lower to create some panic.