Three Peaks and the Domed House redux

Friday, December 03, 2004 | 06:40 AM

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:

3_peaks_domed_house_4

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

Djia_3_peaks_s_2

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.

Friday, December 03, 2004 | 06:40 AM | Permalink | Comments (14) | TrackBack (0)
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Let the countdown to point 20 begin.

Posted by: Alzahr | Dec 3, 2004 11:34:18 AM

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