george lindsay and the art of technical analysis: trading systems of...

GeorgeLindsayandtheArtofTechnicalAnalysis

TradingSystemsofaMarketMaster

EdCarlson

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PearsonEducation—JapanPearsonEducationMalaysia,Pte.Ltd.LibraryofCongressCataloging-in-PublicationDataCarlson,Ed,1959-GeorgeLindsayandtheartoftechnicalanalysis:tradingsystemsofamarketmaster/EdCarlson.p.cm.Includesbibliographical

referencesandindex.ISBN978-0-13-269906-8(hbk.:alk.paper)1.Lindsay,George,1906-1987.2.Technicalanalysis(Investmentanalysis)I.Title.HG4529.C36762012332.63'2042—dc232011017617

Contents

IntroductionPartI.Biographyand“TheOtherHistory”Chapter1.Biography

Chapter2.TheOtherHistory

PartII.ThreePeaksandaDomedHouse

Chapter3.ThePhenomenon

Chapter4.ThreePeaks

Chapter5.ADomedHouse

Chapter6.TheTri-DayMethod

PartIII.TheLindsayTimingModelChapter7.Overviewofthe

LindsayTimingModel

Chapter8.KeyDates

Chapter9.TheLow-Low-HighCount

Chapter10.CombiningtheCounts

PartIV.TheCountsChapter11.Long-Term

CyclesandIntervals

Chapter12.BasicMovements

Chapter13.CountsfromtheMiddleSection

Chapter14.CaseStudy:The1960s

GlossaryIndex

Thisbookisdedicatedtomywife,Keika,forherpatienceandsupportduringthewritingofthisbook.

Andtoouryoungson,EdwardKazuya,whosebigsmileandglowingoptimismbrightenedeventhedarkestdaysandwhowasalwaystheretoenthusiasticallyapplaudevenmymost

meageraccomplishments.

Acknowledgments

TheAuthorwouldliketoacknowledgeandthankthefollowingpeoplefortheirhelpinprovidingtheinformationnecessarytomakethisbookareality.Theirhelprangedfrompersonalrecollectionstoprovidingactualresearchandcorrespondencefrom

Lindsay.Theyarepresentedinalphabeticalorder.StephanieCassidy(Archivist,ArtStudentsLeagueofNew

York)PhilCovato

ArchCrawford

PeterEliades

CarlFutia

YaleHirschKarenE.King(Curator,

NationalPublicBroadcastingArchives)

LarryPesavento

GeorgeSchade

LarryWilliams

JonathanWoodVeryspecialthanksareowed

tothefollowingpeople:JohnBollinger,whosharedatreasure-troveofoldLindsaynewslettersandcorrespondence.Thiswouldhavebeenaverydifferentbookwithoutthosematerials.ReaderswhohavebeenexposedtoLindsay’swritingsonlyviatheInvestorsIntelligencecollectionwillfindtheirworldsexpandedsignificantlythankstoJohn’s

safeguardingofthesematerials.JaniceTeisch,widowofStuartTeisch,Lindsay’spartner.Janicesharedherinsider’sviewoftheLindsayorganization.Shealsohadasuitcasefullofpastreports,photos,andsoon,whichmadeadefiniteimpactonthisbook.Lastly,averywarmthankyouisowedtothefamilyof

GeorgeLindsay.Theirsupportandencouragementforthisbookwassecondtonone.Theirintimateknowledgeofaman,whommanydescribedasaloner,providedinsightswhichcouldhavecomefromnowhereelse.MythanksgotoVickieLindsayGilbert,DonGilbert,TamaraMitchell,and,mostnotably,JamesLindsay,whosehoursofwork,e-mails,andphonecallscould

neverreceivetheirduepraise.Helpwasalsoobtainedfromthefollowingorganizations:TheCMEGroupInvestorsIntelligence

ToobtainacollectionofGeorgeLindsayarticles,pleasecontactInvestorsIntelligence30ChurchStNewRochelle,NY10801

914-632-0422www.investorsintelligence.comAllpricechartswerecreatedinMetaStock,Equis.com.

AbouttheAuthor

EdCarlson,CMT,isanindependenttraderandconsultantbasedinSeattle,Washington.HehoststheMTAPodcastSeries:ConversationsandmanagesthewebsiteSeattleTechnicalAdvisors.com.Edspent20

yearsasastockbroker;heisacharteredmarkettechnicianandholdsanM.B.A.fromWichitaStateUniversity.

Introduction

“Ithasbeenproventimeandtimeagainthattrueandlastingsuccessliesinthedisseminationofknowledge,ratherthaninitsconcealment.”1—R.N.Elliott,founderofElliottWaveanalysis

WhowasGeorgeLindsayandwhydidIundertaketowritethisbook?Ifyou’veneverheardofGeorgeLindsay,you’vealreadyansweredthesecondpartofthequestion.Lindsaywasconsidereda“stockguru”inthe1960sand1970s.HismarketopinionsoftenappearedintheNewYorkTimesnexttootherprognosticatorswhosenamesaremorecommonlyknown

today,butveryfewpeopletodayareacquaintedwithLindsay.Evenamongtechnicalanalystswhodoknowthename,veryfewarefamiliarwithhiswork.Lindsay’sideasareindangerofbecominglosttohistory.Heneverwroteabookonhismarketmethods,onlynewsletters.Hedidwriteonebook(TheOtherHistory,examinedinChapter2)butit

pertainedtopoliticsandhistory,notthemarkets.Thisbookistheresultofreviewinganuntoldnumberofhispastnewslettersandcobblingtogetherthepartialdescriptionsofhisdifferentmodelsintocoherent,step-by-stepexplanations.It’snowonderthatveryfewmarketparticipantshavechosentousehismethods.ReadingLindsay’s

newslettersislikedrinkingfromafirehose.Hisstyleofwritingisverydifficulttoread.Thereadernevergetsamomentto“catchhisbreath”astheideasjustkeepjumpingoffthepage.Thepresentationformatofhisnewslettersisdifficultaswell.Modernreadershavebecomeaccustomedtotheformattingofwordprocessors—bullets,labeling,chartsplacednearthenarrative,andsoon.AsI

readLindsay’snewsletters,Iimaginedhimsittingatatypewriter,typingtotherightsideofthepage,reachingupwithhislefthandtoshiftthecarriagebacktostartanewline,andblastingthroughyetanotherline,theideaspouringforthwithverylittlethoughtgiventoanyonetryingtoassimilatethemassofinformationbeingthrownatthem.

WeliveinaworldthatwouldsendthebestandbrightestofagenerationofftofightanddiefortheinvisiblehandofAdamSmith,butaskthosesamepeopleabouttechnicalanalysisandtheycallitvoodoo.Thosewhohaveacceptedandpracticetechnicalanalysistendtogatherintotheirowncampsoflike-minedanalysis.Lindsaywasanunintentionaliconoclast.Hisapproach,

whileoftenincorrectlydescribedascycles,wasanoriginalapproachdifferentfromanythingpreviouslyknown.LikeLindsay’smother,whospentthemajorityofheractingcareeroff-Broadway,Lindsay’sideasweredecidedly“off-WallStreet.”Moderntechniciansoftenseemtobespendingmoreandmoreoftheirtimeexaminingthemicro—30-minutecharts,5-

minutecharts,tickcharts—anapproachwhich,whentakentotheextreme,ismyopicandcanborderonnihilism.Lindsaytookabroad,perhapshealthier,viewofthemarket—butonethatshouldn’tbeconfusedwithanythingapproximatingthebuy-and-holdapproach.Whileothersmayfocusonthetrees,Lindsaywasbusymappingtheforest.

Ithasbeensaidthatinordertounderstandthephilosophy,onemustunderstandthephilosopherandhistimes.NeverwasthistruerthanintryingtounderstandtheworkofGeorgeLindsay.Lindsayhasbeenamysteryfigure.Priortothisbook,verylittlehasbeenknownaboutthemanhimself.WhowasLindsay?Geniusorhigh-schooldropout;artistorsophisticatedWallStreet

professional;heterosexual,homosexual,orasexual;aright-wingpoliticalconservativeoranonconformistdreamerandfuturist?TheanswerstothesequestionscomefromanunderstandingofLindsay’sbackgroundandhencethebiographyinChapter1.Lindsay’sexperienceasanartistcanbeseenthroughouthisworkinthemarkets.

CharlieParker,thegreat,early-twentieth-centuryjazzsaxophonist,oncesaid,“You’vegottolearnyourinstrument.Then,youpractice,practice,practice.Andthen,whenyoufinallygetupthereonthebandstand,forgetallthatandjustwail.”That’sprobablygoodadvicewhenusingthemodelsLindsaycreated.Likemusic,hismodelswerefullofrulesandspecificcountsbutthe

magiclayintheexceptionstothoserules.Itisbylearningandpracticingtheguidelineslaidoutinthisbookthatonecanhopetoachievethatproverbial“feelforthemarket”and“justwail.”

EdCarlsonMarch2,2011

Endnote1RobertPrechter,R.N.Elliott’sMasterworks,1980/1994/2005.

PartI.Biographyand“TheOther

History”Chapter1:BiographyChapter2:TheOther

History

Chapter1.Biography

“IcanunderstandyourfeelingsaboutNewYork,butIdon’tthinkIwouldbecontentanywhereelse.Iamsingleandunconventionalandcanbreatheonlyinabigcity.”—GeorgeLindsay

FamilyHistoryGeorgeLindsayappearstobethefourthgenerationoftheLindsayfamilyborninVirginia.George’spaternalgrandfather,AlbertLoftusLindsay,wasanofficerintheConfederatearmyduringtheAmericanCivilWar.InApril1862,AlbertwasmadechiefofGeneralJohnBankheadMagruder’ssignalcorps.Albert’sinterestincodesand

“secretmessages”wouldonedaymanifestitselfinGeorge’spassionfortechnicalanalysis.GeorgeLindsay’smother,NellieVictoriaMeyerLindsay(b.1876;d.1954)wasanactressinmusicalcomedies,onandoffBroadway,andusedthestagenameNellieVictoria.Aphoto,dated1903,ofNellieVictoriacanbefoundinthe

Macauley’sTheatrecollectionintheUniversityofLouisvillearchives.AnotherphotoofNellieVictoriacanbefoundintheUniversityofWashingtonLibraries,SpecialCollectionsDivision.NellieLindsaypassedawayonDecember8,1954.George’sfather,GeorgeSr.(b.1863;d.1921),studiedengineeringandgraduatedin1882fromVirginiaTech.He

wasChiefJournalClerkoftheVirginialegislatureforseveraldecades.HewasappointedCommissionerofValuationsforNorfolk,Virginia,onMarch27,1900,andservedasthefirstheadoftheIRSinNorfolk,apositionhehelduntilhisdeathin1921.GeorgeLindsaywasbornNovember11,1906,inPortsmouth,Virginia,

followedbyhisbrother,FrankLoftusLindsay,in1910.Thefamilyhomeat229MountVernonAvenueinPortsmouthremainstheretoday.Atage14,afterthepassingofhisfather,GeorgewassenttothePenningtonSchoolinNewJersey,aboardingschool60milesawayfromhisremainingfamily,whomovedtoNewYorktobewithNellie’ssister.

AninterestinengineeringrandeepintheLindsayfamily.Hismother’sartistictalentswereinheritedbyGeorgeaswell.InheritingthesetwoverydifferentattributesnotonlymadefortheperfectbackgroundtoLindsay’slaterinterestintechnicalanalysisbutsurelycontributedtohisuniqueapproach.

Artist

Bythefallof1927,at21yearsofage(seeFigure1.1),GeorgewasenrolledintheArtStudentsLeagueofNewYork.TheschoolboastsanimpressivelistofalumniincludingGeorgiaO’Keeffe,JacksonPollock,andRoyLichtenstein.

Figure1.1.Georgeat21yearsofage.(Source:

Lindsayfamily)

Lindsaybecameinvolved

withoneoftheheavyweightsintheadvertisingbusinessatthattime,JamesYates.FamilymembersrecountthatGeorgewasinvolvedwitharedesignoftheCamelcigarettepackinthe1930s.Heevenhadhisbrother,Frank,drawtheparallellinesonthepyramids.Itiswell-documentedthatJamesYates,whileartdirectoratWilliamEsty,handledtheCamelCigaretteaccount,soa

connectionbetweenthetwomenisclear.YateseventuallybecameArtDirectorforTheSaturdayEveningPost.By1933,GeorgewasworkingasacommercialartistforMacy’sDepartmentStores.DespitetheconsensusviewofthosewhoknewhimlaterinlifethatGeorgewasahomosexual,itisknownthathedidproposemarriagetoawomanin1931.George

neveropeneduptoanyoneastowhatwentwrongintherelationshiporwhysheturnedhimdown.Lateinherlife,Nelliewouldtellothersthatinthe1930sGeorgewouldstayinhisroombyhimselfandplaytheVictrola,laugh,and“haveagrandtimeallalone.”Asotherswouldrecountinthefuture,Georgewasnotatalkativeman.Yet,despitethese“quirks,”Georgewaspersonableand

alwaysavailabletoanswerquestionsabouthiswork.

ChicagoNooneknowsforcertainwhenLindsaydevelopedhisinterestinthemarketsorhisuniqueideasandapproach.ButonJune1,1939,Georgepaid$1,475foraseatontheChicagoBoardofTrade(seeFigure1.2),soitcanbeassumedthathehadbeen

intentlyworkingonsomeofhisideasbythenandwaslookingforawaytotestthem.Ayearlater,afterGermanyinvadedParisonJune14,1940,tradingattheCBOTcametoavirtualstandstill.AswillbeshowninChapter2,“TheOtherHistory,”GeorgehadanimmenseknowledgeofhistoryandcouldprobablyseethattheimmediatefutureattheCBOTwasbleak.That

wouldexplainwhy,onJune12,1940,hehadalreadysoldhisseatontheexchange.Hewaspaid$1,300forit.

Figure1.2.GeorgeinfrontoftheChicagoBoardofTradein1939.(Source:

Lindsayfamily)

LosAngelesAmonthearlier,FrankhadmovedtoLosAngelesinsearchofwork.Itwouldn’thavetakenmuchtopersuadeanunemployedGeorgeandNellietoleavethecoldNewYorkwintersandmovetowarmandsunnyLosAngeles.The1944voterrollsshowGeorgeandNelliebothregisteredasRepublicansandlivinginanapartment

buildinginHollywood.GeorgecontinuedtolivewithNellieuntilherdeath.GeorgewrotethathestudiedaircraftengineeringattheUniversityofSouthernCaliforniaattheoutbreakofWWIIandthenworkedasanengineerforMcDonnellDouglasduringtheperiod1942–45.Hecouldn’thavebeenatUSCforlongbecausehewasstillinChicagoin

mid-1940andbeganhisemploymentatDouglasAircraftin1942.GeorgewaspartofamassivehiringboomatDouglasAircraft.WorldWarIImeantgoodtimesforDouglas.Butthecompanysufferedattheendofhostilities.TheDouglasAircraftCo.wasforcedtocutitsworkforceby100,000peopleattheendofthewar.Nodoubt,anartist

withlittleinthewayofanengineeringbackgroundwasamongthosetobeletgo.ThereisnorecordofGeorgebeingemployedafterhistimeatDouglasAircraft.ItisthoughtthatbythistimeGeorgecouldn’thandlethepressureandfrustrationinvolvedinworkingwithothers.Hewrotehispamphlet“AnAidtoThinking”in1950and

foundedhisadvisoryservicein1951.Bythe1950s,GeorgewasitchingtogetbacktoNewYorkbutwasneededtostayinCaliforniatotakecareofNellie,whohaddevelopedbreastcancer.ItisthoughtthatGeorgepreferredthecoldclimateofNewYorktothebalmybreezesofSouthernCalifornia.Itiswell-knownthatinlateryearsinNewYork,Georgewouldkeepawindowopenduring

thewinter.Accordingtofamilymembers,thetimesurroundingNellie’sdeathandtheroleGeorgeplayedasherprimarycaregiverwasGeorge’s“shininghour.”AfterNellie’sdeath,GeorgeleftLosAngelestoreturntoNewYorkin1955.

TheAnalystQuitealegendhasgrownuparoundGeorgeLindsay.Yale

Hirsch,intheStockTrader’sAlmanac,wrote,“GeorgeLindsayisoneofthefewpeopleintheworldwhofrommemorycanreproduceachartofstockmarketpricesforeveryoneofthelast150years.”Lindsay(seeFigure1.3)wasa“unique”individual.Hewasoftencalledeccentric,aloner,peculiar,seeminglybizarre,brilliant,andatypical“GreenwichVillage

Bohemian.”Andyethehasbeendescribedjustasmanytimesassharing,modest,open,kindandgenerous,notmaterialistic,havingadesiretohelpothers,averysharingperson,andwillingtoadmittobeingincorrect—twosetsofpersonalitytraitsthataredifficulttoreconcile.

Figure1.3.Georgecirca1960s.(Source:Lindsay

family)

Hislastresidence,720GreenwichStreetinGreenwichVillage,wasa

studioapartmentthathadaseparatebathroom(thewatercontinuallydrippingfromthebathroomtap)andasmallkitchenwithswingingdoors,thoughherarelycookedforhimself.Hesleptonaconvertiblesofainthemainroomanddidmostofhisworkonacardtablethere.Hehadonesmallbookcase.Aposteronhiswall,ofanakedVenusinaclamshell,hehadfoundonthesidewalkin

someone’strash.Lindsaydidn’tevenownatelevision.Theceilinginhisapartmentwasveryhighandtherewasabigwindowthathewouldkeepopeneveninthewinter.Lindsaywasnocturnalsoheworkednights.Hehadastrangelivingpatternwhichincludedbreakfastat3:00a.m.Henevergotaroundtobuyingdressshirts,andhisentiresupplycamefromhis

sister-in-law,Mary,andniece,Vickie,inCalifornia.Despitethislackofinterestinclothingandhisimmediatesurroundings,Lindsaywasknowntobeaveryvainindividual.Hehadatleasttwoface-liftsduringhislife.Unfortunately,thelastface-liftlefthimabitstrangeinappearanceasitpusheduphiseyebrowssohelookedperpetuallysurprisedorasifhiseyebrowsmighthave

beenburnedoff.Healsoworeatoupee.Atonetimeheownedthree:onetolookasthoughhehadjusthadahaircut,onetolookasthoughheneededahaircut,andonetoappearasa“normal”length.

PoliticalViewsInFebruaryof1970,RalphNaderannouncedtheformationofCampaignGM.

Thecampaign’sgoalsincludedconvincingGM’slargeinstitutionalshareholderstoforceGMto“makealargercommitmenttosolvingsuchproblemsasairpollution,highwaysafety,andjobopportunitiesforminorities.”1

FourdaysafterthedefeatofCampaignGM’sproposalatthe1971shareholders’meeting,Lindsayfeltthe

needtowritethefollowinginhisMay28thnewsletter:“ThecentralideaofRalphNader’sorganizationisthatvariousgroupsshouldberepresentedinmanagement—forexample,consumers,ethnicminorities,dealers,workers,etc.Thisgoesunderthegeneralheadingof‘consumerism’today,butitisstraightoutoffascism.Notthefascismthatweremember

fromHitler,buttheoriginaldoctrineasintroducedbyMussoliniin1922.AndGeneralMotorscontinuesunderassaultonthegroundsthatitistoobig.This,ofcourse,isanessentiallysocialisticidea.”2

FromthissmallinsightintoLindsay’sthinking,andhisCaliforniavoterregistrationasaRepublican,itcanbeinferredthathispoliticswere

decidedlyright-wing,conservative.ThemodernreaderwillfindLindsay’spoliticstobeyetanotherincongruouspersonalitytraitofhisastheconsensusopinionofLindsayduringhisNewYorkyearswasthathewasahomosexual.Lindsayisdescribedbyhisfellowanalystsatthattimeasflamboyant,flaming,anonstoptalker,delightful,andexhilarating.Lindsaymust

havecutquiteafigurewithhisbrightredwig,blackpatentleatherboots,bluedouble-breastedblazer,andastripedshirtsentbyCaliforniarelatives.InalettertofellowtechnicianJamesAlphier(October18,1971),Lindsaywrote,“Iamsingleandunconventionalandcanbreatheonlyinabigcity.”3

AdvisoryService

LindsayfoundedhisadvisoryservicewhilestillinCaliforniain1951,anditlasteduntil1975.HewroteaweeklyinvestmentletterhecalledGeorgeLindsay’sOpinion.InFebruary1972,at65yearsofage,Lindsaywenttoamonthlyformat.Lindsaymaintainedhisadvisoryserviceuntil1975andafterthatwrotefourlettersayearaspartofJohnBrown’sTheAdvisor,whichwaspublished

inHouston,Texas.In1979,hebecameaconsultantwithErnst&Company,whichtookovertheproductionofthenewsletter,stillbasedonLindsay’sanalyses.Hestoppedpublishingthenewsletterin1984.Lindsaydidnottradeforhisownaccount.Hislovewastheresearchhewasdoing,andby1969hisprimaryresearchdidnotconcernthemarkets.Rather,hehaddiscovered

“intervals”inhistoryandwascertainhehaddiscoveredawaytopredicthistoricalevents.In1971,hepresentedhisideasatthefirstinternationalconferenceoftheWorldFutureSocietyinWashington,D.C.HealsomadeseveralpresentationsonhisdiscoverytoaNewYorkorganizationhebelongedtocalledS.I.R.E.,theSocietyforInvestigationofRecurringEvents.Hisideasare

presentedindetailinthenextchapter.

StuartTeischStuartTeischisanamethatappearedonthebylineofLindsay’snewsletternexttoLindsay’sownname.TeischwastheotherhalfoftheLindsayorganizationandhada17-yearassociationwithLindsay.StuartTeischwasbornApril29,1929.Anative

NewYorker,hestudiedpodiatryatLongIslandUniversityandwasapracticingpodiatristbythetimehediscoveredtechnicalanalysis.TechnicalanalysissoonbecameTeisch’spassion,andhegaveuphismedicalpracticetofullyimmersehimselfinthemarkets.Teisch’sfamilywereevenpartoftheorganization:Hismotheractedasthecompany’s

bookkeeper,andhisfatherandTeisch’swife,Janice,bothhelpedwiththeday-to-dayoperationsofthebusiness.WhenLindsayretiredinthe1970s,StuartandJanicemovedtoArizona,wherehestartedaphoneadvisoryserviceandnewsletter.Inhislateryears,TeischworkedforCharlesSchwab.StuartTeischpassedawayonMarch

30,1998,inScottsdale,Arizona.

TrackRecordBy1980,Lindsay’sadmirerswerelegionandhisdetractorswerefew.Theraceforfirstamongequals,intheeyesofthepublic,however,allowsforonlyonechampion.Atthattime,thecupwenttoJoeGranville,theKansasCitytechnicianfamousforhisOn

BalanceVolumeindicator.Granvillewasknownasagreatshowmanwhowouldemergefromacoffinataninvestmentconference,orappeartowalkacrosswater(ataswimmingpool)whenmeetingclients.WhileacomparisontoGranvillewashardlythekindofthingLindsaywouldhaveappreciated,hemusthaveknownhehadreacheda

rarifiedlevelintheeyesofthepublicwhentheanalystJamesAlphierpublishedareportin1981titled“GranvilleinPerspective.”InithesummarizedGranville’srecord.Hethencomparedittotherecordsofthefewmarketanalystswhoweretruemarketgurusbecauseoftheirlongrecordsofsuccessfulpredictions.ListedamongthoseguruswasLindsay.

Alphierwasn’ttheonlyonetotakenoteofLindsay.YaleHirsch,publisheroftheStockTrader’sAlmanac,hadtakenaninterestinLindsay,aswell.In1968,theAlmanacbeganpublishingLindsay’sannualforecastandcontinueddoingsoforoveradecade.Inthe1968StockTrader’sAlmanac,YaleHirschwrote:“ManyannualforecastsarepublishedeachJanuarybyleadingWallStreetanalysts.

OneunusualforecasterwhohasattemptedtheimpossibleduringthepasttenyearsisGeorgeLindsay,editorofGeorgeLindsay’sOpinion.Eachyearhepredictsthecourseofthestockmarketforawholeyear,onamonth-to-monthbasis,pinpointingralliesanddeclinesandestimatingthepricerangeoftheDowJonesindustrialaverage.”TheStockTrader’sAlmanaccalledLindsay’s

1969forecast“thefinestlong-termforecastwehaveeverseen.”In1987,JohnBrown,whohadmergedtheLindsayletterintohisown,publishedaletterfromLindsaydatedJuly1,1987.LindsaydiedshortlythereafterbutnotbeforecommunicatinghisfeelingstoBrownthat“itnowseemslikelythatthelasthighwillcomesometimeinAugust

1987.”OnAugust25th,theDowstartedwhatappearedtobeanormalcorrectionbutonethatmorphedintooneofthebiggestWallStreetcrashesinhistoryasitfellover40%duringthenext39tradingdaystoanintradaylowonOctober20,1987.

WallStreetWeekwithLouisRukeyserLindsayappearedtwiceon

LouisRukeyser’stelevisionprogramWallStreetWeek—onceonOctober11,1981,andagainonMay8,1983.WallStreetWeekwasproducedbyMarylandPublicTelevisionandwasthefirstnationallysyndicatedtelevisionshowtofocusonWallStreet.Theshowranfor32yearsbeforeRukeyserleftin2002.Aninsidejokeamongfamily

memberswasthatbecauseGeorgedidn’tlikecoatsandties,theonlydressshirthehadavailabletowearontheprogrambythattimehadaholeintheleftshoulder.Duringhislastappearanceontheprogram,onlookerscommentedthatLindsaystruggledtogettothestageandhadtobehelped.Yearslater,duringanepisodefeaturingsnippetsofpast

guestsandhighlightingeachguest’sforecastingability,Rukeysersaid,“InOctober1981,eightmonthsbeforehistory’sgreatestbullmarketbegan,Iinterviewedaseeminglybizarreguest,whoturnedouttobeanuncannilyaccurateforecaster.”DuringhisfirstappearanceontheprograminOctoberof1981,RukeyserhadaskedLindsay,“Whendowegetoutofthisbearmarketandintothatbull

market?”Lindsayreplied,“Theendofthebearmarket—theearliestIcancountitisaboutAugust26,1982.Ithink750to770ismoreliketherangeofthefinallow.”TheintradaylowofthebearmarketoccurredonAugust9,1982,andtheclosinglow,threedayslater,wasat776.92.

Lindsay’sobituaryintheNewYorkTimesstatesthathediedofaheartattackonAugust6,1987.George’smarkerisatOakHillMemorialParkinSanJose,California,wherehisashesareinterred.

ConclusionNoone’slifecanbesummedupinjustafewwords.Theobjectiveofthischapterisnot

onlytodocumentLindsay’sunusualabilitytotimethemarketbutalsotoprovidesomeunderstandingofthepersonalhistorythatproducedthatability.Whendrawingapicture,onedifferencebetweentheartistandnonartististhewayinwhichtheylookattheblankpagebeforethem.Thenonartistoftenbeginsbydrawinganobject,indetail,inoneareaofthepageand

thenmovingontoanotherdetailedobjectinadifferentarea.Anartist,ontheotherhand,willthinkintermsoftheentirepageandusebroad,sweepingmotionsunafraid,almostuninterested,inthedetailsofthefiguresuntilthebroadsketchiscompleted.ThisapproachisvividlyclearinLindsay’sapproachtothemarketsandisverydifferentfrommostapproachestotechnicalanalysistoday.

Endnotes1Science,May29,1970,Vol.168no.3935,pp.1077–1078.

2Unlessotherwiseindicated,allquotesinthischapteraretakenfromGeorgeLindsay’sself-publishednewsletter,GeorgeLindsay’sOpinion,duringtheyears1959–72.

3GeorgeLindsay,lettertoJamesAlphier,October18,1971.

Chapter2.TheOtherHistory

“Everythingintheuniversemovesinarhythm.Nothinghappensatrandom.Theunderlyingfactorsare,intheirturn,subjecttothesamerhythmsasthefinalproduct.Thewholeisnot

thesumoftheparts,butboththewholeandpartslaborundersimilarinfluences.”1—GeorgeLindsay

ItiswidelyknownthatLindsay’sgreatestpassionwasthesubjectmatterinhisbook,TheOtherHistory,whichhecalled“technicalhistory.”Lindsaycoinedtheterm(anallusiontotechnical

analysis)todescribethemethodsexplainedinthisbook.TheOtherHistorywasLindsay’sonlybook.Itisnotknownwhetherheattemptedtogothroughnormalpublishingchannels,butintheendheself-publishedthebookthroughVantagePublishing,a“subsidy”publisher.Inotherwords,hepaidtohaveitpublished.

Forawriterwhosesubjectmatterwasdifficultandwritingstyledense,Lindsay’sbook,TheOtherHistory,mustbe,unfortunately,themostimpenetrableexampleofhiswriting.Jampackedwithminutedetailsandobscurereferences,thebookleavesthereadertodetermineforhimselfwhetherLindsaywasgraspingatstrawstobuildhiscasefor“technicalhistory”orwhetherhewas

actuallyontosomething.“Herodotusdied2400yearsago,buthisinfluenceisstillpervasive.Everyhistoricalworksincehisdayhas,withrareexceptions,adheredtothemodelhesetup.Ithasbeenastraightnarrativeofeventsinchronologicalorder;totheextentthattheauthortriedtoexplainthematall,hereliedonacceptednotionsofcauseandeffect.”

Lindsaywrotethatonly20bookshadbeenwrittenoverthepreviouscenturyinthisgenre.HementionsasnotableDupuy’sOriginedestouslescultes,HistorionomiebyStromervonReichenbach,andLesrhythmesdansl’historiebyGastonGeorgel,addingthathisbookisintheschoolofGeorgel.HealsonotesthatverylittlehasbeenwrittenonthesubjectinEnglishotherthanTheLawof

CivilizationandDecaybyBrooksAdamsandTheRuleofPhaseAppliedtoHistorybyHenryAdams.ItissafetoassumethatLindsaydevelopedtheseideashimselfasanoutgrowthofhismarkettimingtechniques.NonumberofexamplescanservetoconvincetheskepticalmindofLindsay’sideas.Butthemindismuchmoreopento“technical

history”afterareviewofLindsay’smarkettimingtechniques,whichalsoincludetheconceptoftimeintervals.Theskepticalareadvisedtorereadthischapterafterfinishingtheremainderofthebook.

TimeIntervalsTheOtherHistory,likeLindsay’sworkinthestockmarket,isconcernedwith

intervalsoftime.Thestartingpointisalwaysanagitation:“Anagitationisaheightenedconsciousnessandincreasedactivityamongalargenumberofpeopleataspecificmomentintime.Itisnormallydirectedtowardacertainend.Anagitationmaybephysicalinnature,inwhichcaseitusuallyinvolvesbloodshed;oritmaybeintellectualoremotional.”Theimportantnumberstobe

acquaintedwithare36,40,and56.Theseareintervalsoftime—36years,40years,and56years.Eachintervalisapointestimate;Lindsayallowsforayearoneithersideofthepointestimate,so36yearsisthenameofanintervalthatactuallyendsanywherefrom35to37yearsafterthestartingpoint,oragitation.Thesameappliesto40and56.Afinalintervalinvolvestheyears64–69.

Whathappensintheinterim,betweenintervaldates,isirrelevantandmaybeignored.Theseintervalsmarktimesofeaseorsuccessaftertheinitialdifficultiesassociatedwiththestartingpointortimeofagitation.“Accordingtothetheory,anycollectiveundertakingfails,orsucceedsimperfectly,unlesstherewasanagitationdirectedtoward

thesameendabout36or40yearspreviously,andunlessthecentralideabehindtheeffortwasclearlydefinedatroughlythesametime.”Thefirstintervaltooccurafteranagitationvaries.Itmaybe36years(35–37years)or40years(39–41years).Asasidenote,thisbookwasbeguninthe41styearafterthepublicationofTheOtherHistory.

Oftenthereisaretrogrademovement.Theretrogrademovementisanattempttoturnbacktheclockwhichrunscountertothemaintrendofdifficulttoeasy.“Italwaysappearsshortlybeforethemomentoffinaltriumph,andconfusestheoutlook.”Theretrogrademovementnormallyappearsshortlybeforetheexpirationof40years.Thenextintervalisthatof56years(55–57years)

andafterthat,thefinalintervalof64–69years.

WarsandUnsuccessfulRevolts“...throughouthistory,themisfortuneatanintervalafteranunsuccessfulrevolthasnormallytakentheformofamilitaryreversal,thedeathofasovereign,theendofadynasty,oracombinationofthese.”

AnagitationofaphysicalnaturethatLindsayspendsafairamountoftimediscussingisthatofunsuccessfulrevolts.Theseintervalsarelookeduponfromtheviewofthesuccessfulsovereign.Repercussionsafterthestandardintervaltendtohurtthepartyinpowerthathadsuppressedtherevolt.Consequently,theintervalsaredescribedaseasy

(suppressionoftherebellion)todifficult(“victory”fortherebels).“Accordingtomytheory,thelosersofunsuccessfulrevoltsgaintheirends,tosomedegreeatleast,afterthelapseofoneormoreofthethreeintervals.”Awell-knownexampleofanunsuccessfulrevoltistheAmericanCivilWar,1861–65.Itisalsoanexampleofmultiplecyclesoverlapping

andexertingtheireffects.Whenviewedasasimplerebellion,theprogressiongoesfromeasytodifficult.“Notonlydoesthepartywhichputsdowntherebellionsuffermisfortuneafterthelapseofaninterval;thelosingsideusuallyachievesatleastpartofitsaims.”OfalltheaimsoftheSouthduringthistime,themostinfamouswastokeep

African-Americansinsubjugation.InMayof1896,35yearsafterthestartoftheCivilWar,theSupremeCourtoftheUnitedStateshandeddownadecisioninthecaseofPlessyvFergusonthatupheldtheconstitutionalityofstatelawsrequiringracialsegregationunderthedoctrineof“separatebutequal.”InSeptemberof1901,40

yearsafterthebeginningoftheCivilWar,PresidentMcKinleywasshotandkilled.McKinleywastheleaderofthesidethathadquelledtherevolt.Lindsaywrotethatindecidingwhethertherewillberecognizableeffectsfromassassinationattempts,wemustexaminewhetherthecountsagreewithintervalsfromotheragitationsandgaugetheimpressionan

attemptedassassinationmakesoncontemporaries.Finally,56yearsafter1861,Germanyannounceditspolicyofunrestrictedsubmarinewarfare(January1917),forcingtheUnitedStatesintoWorldWarI.Again,onemightthinkthatAmerica,beingatamomentofdifficulty,wouldlosethewar.NotonlywasAmericaatajunctureofbothdifficulty

andease,butGermanyfounditselfatajunctureofdifficulty.“Wehaveseenthattwodevelopmentscannormallybedetectedattheintervalsafteranunsuccessfulrevolt.Therebels,ortheirsuccessors,gainaportionofwhattheyhadstruggledfor.Sometimestheyrealizetheoriginalaiminapositivefashion;inothercases,the

besttheycandois,ineffect,wreakvengeanceonthepartythatsuppressedtherevolt.Thefactionwhichquelledthedisturbance,oritslinealsuccessor,suffersamisfortuneinitsturn.Itmaybeparticularizedinaheadofstate,someoneclosetohim,oranindividualtowhomhehasdelegatedpowers.Onotheroccasions,thedisasterisvisitedonthenationasaunit,andithasmostoften

takentheformofamilitarydefeatatthehandsofaforeignpower.Whenmisfortunedoesnotcomeinthisobviousway,itislikelytocomeinthatfieldorendeavoratwhichthewinnersoftheearliercontesthavetriedhardesttosucceed.”Anexcellentexampleofdifferentprogressionsoverlappingcanbeseenin18th-andearly-19th-century

Germany.Aperiodofdifficulttoeasy(fromtheviewpointoftheGermanstates)beganwiththedefeatofPrussia,byNapoleon,in1806attheBattleofJena.The57-yearintervalin1863appearedtomarkaturninfortunesandculminatedintheestablishmentoftheGermanempirein1871,69yearsaftertheBattleofJena.Theyear1871markedthestartofanothercountof64–

69yearsofpositivetime.Countthe69-yearintervalfromtheestablishmentoftheGermanempirein1871andyoucometo1940.HitlerreachedhisapogeewiththedefeatofFranceinJune1940,andhisfortunesbegantowanewhenhelosttheBattleofBritainthatfall.Atthesametime,aprogressionofeasytodifficultwasoccurring.Nationalisticrevoltshadoccurredinboth

BerlinandViennain1848.Bothrevoltswereputdown,startingaperiodofeasytodifficultforGermanauthorities.Then,69yearslaterwastheendofWorldWarI,aperiodofdifficultythatwasoffsetsomewhatbytheperiodofeasethatwastoculminatein1940.

EmotionalAgitations“Theintervalsmaybe

counted,notonlyfromepisodesofviolence,butfromeruptionsofanemotionalnature.”Anemotionalagitationmaybereligious,economic,orpoliticalinnature.“Anemotionalagitationisnormallyajunctureofdifficulty,andtheintervalprogressesfromdifficulttoeasy.”Itishardtodatethegenesisofanemotional

agitationaccurately.Thestartingpointisnotnearlyasclearasbloodshedinarevolutionorotherphysicalagitation.EmotionalagitationshaveanidiosyncrasythatLindsaydescribed:“Whilethedelayedeffectafteraphysicalagitationislargelyconfinedtothecountrywheretheviolenceoccurred,therepercussionsfollowinganemotionaloutburstcanleap

acrossnationalboundaries.”Hefoundthattheserepercussionsweremostlikelytospreadifoneormoreconditionsweremet.Iftheagitationwerebasedinanimportantlocusofculture,suchas15th-centuryFlorence,Italy,theeffectsweremorelikelytospreadacrossborders.Lindsaywrotethattheintensityofanagitation,morethanitscontent,isakeyfactor.

Finally,iftheeventwasradicallydifferentfromtheacceptedorderofthings,itwaslikelytospreadregardlessofborders.Anotheridiosyncrasy:“Asarule,thoughnotinvariably,successforanideaisachievedafterthesecondemotionalagitationofaseriesdirectedtowardthesameend.”ThefoundingoftheChristian

churchcanbethoughttohavedatedfromthecrucifixionofJesusChrist.Lindsaywrote,“TheministryofJesusChristwasanemotionalagitationandthecrucifixionwasapurge.”Lindsaywrote,“Sincethecrucifixionisclassifiedasapurge,theprogressionrunsfromeasytodifficult;bothRomeandtheJewswereduetoundergomisfortune.”This

progressionisfromtheviewpointoftheRomansandJews.UsingA.D.30asthemostprobabledateofthecrucifixion,countingforward36yearstotheyearA.D.66sawtheJewsrevoltagainstRomanrule.VespasianlaidsiegetoJerusaleminA.D.68,andthecityfelltoTitusinAugust–SeptemberofA.D.70atthe40-yearintervalafterthepurge,orcrucifixion.

TheRomanssufferedmisfortunestoo.IfA.D.30wasdefinitelytheyearofthecrucifixion,thentheGreatFireofRome,inA.D.64,wasoneyeartooearlytobeattributedtotheprogressionfromeasytodifficult.ButgiventherelativeuncertaintyofthedateA.D.30,theGreatFireofRomedeservesmention.Thefireburnedforfive-and-a-halfdaysandonly1of14districtsofRome

escapedthefire.Lindsaywrites:“TheonethatcouldhavebeenpredictedwasthedeathofNeroinJune68,andevenmoretypically,theextinctionoftheJulian-Claudianhouse.Therepercussionsinthecaseweremoreextraordinarythanusual,forthreeemperorsswiftlyfollowedNerointhe‘longbutsingleyear,’asTacituscalledit.”

Lindsaywrote,“Countthe55-yearintervalfromthecrucifixioninA.D.30andyoucometo85.AbitterquarrelbrokeoutbetweenEmperorandSenatewhenDomitianhadhimselfappointedcensorforlife.”Theclimaxwasreachedatthe66-yearintervalinSeptemberofA.D.96whenDomitianwasassassinated.Asfortheopposite

progression,fromdifficulttoeasy,Lindsaywrote,“The64–69-yearintervalfromdifficulttoeasyafteranimportantemotionalagitationhasnormallysignaledaperiodofremarkableprestigeorprogress.Sometimesthiscountdenotesthestartofsuchanera.Inthatcase,thegoodfortunelastsanother64–69years,andthismaybestretchedto80or90yearsundercertaincircumstances

—whenforexamplethereissecondagitationtocountfrom.”Tosumup,Lindsayexplainedhisviewsbestwhenhewrote:“Emotionalagitationsarenotthecauseofsubsequentsuccess,butmerelyanoutwardsignoflittleunderstoodforceswhichoperateunderthesurface.”...“Argumentsareneverwonbylogic,meritor

evenperformance:menareincapableofjudgingsuchpointsobjectively.”...“Theintervalsoperatebyinfluencingthemindofamaninsolitudenolessthanbyarousingthecrowdthroughtheoverworkedbogeyof“masspsychology.”

CreativeConcentrations“Thechiefrequirementof

thisphenomenonistheappearanceofanumberofbooksorartwithinabrieftime.Theshorterthespaninwhichtheyarebunched,themorevalidtheconcentrationis.”AnotheragitationistheCreativeConcentration,adatesurroundedbyaconcentrationofgreatworksofart.ACreativeConcentrationcaninclude

books,paintings,controversialplays,andmusicincludingsymphoniesandoperas.CreativeConcentrationsalwaysmovefromeasytodifficult.Anotherfeatureofacreativeconcentrationisthatthemeritofthebooksisrecognizedabroadasathome.Influenceiswhatcounts,notworth.Noteveryagitationisfollowedbyrepercussionsatallthreeintervals.Somecountsare

moreimportantthanothers.Toestimatewhich,correlatetheintervalsofonecountrywiththoseofitsrivals.Wheneaseanddifficultyarescheduledforthesametime(whentwoopposingintervalsexpireatthesametime),itisunknownwhichwilltakeeffectfirst.Expectrapidshiftsinfortune.Remember;disastersaremomentarywhilestretchesofprosperitylastlonger.

LindsaygivestheEnlightenmentasaprimeexampleofaCreativeConcentrationanddatesitto1749basedonanumberofbookswhichappearedaroundthatyear.Fortyyearslater,adifficultywouldbeexpectedforFranceand,indeed,1789wastheyearoftheFrenchRevolution.Einstein’sAnnusMirabilispapers,“aseminalexposition

ofanewprincipleinphysics,”publishedin1905,togetherwithahostofotherGermanwriters,formedaconcentrationthatyear.FortyyearslatermarkedthedefeatofGermanyinWorldWarII.“Thetechnicalhistorianisnotafraidofcouplingideasfromunrelatedcategories.Hedoesnotrejectcontinuityofthought,buttheconnectionneednotbetheobviousone

thatseemsappropriatetothesentientmind.Themeaningfulthoughtisthatwhichhasbeentransformed,andperhapsrechanneled,throughaperiodofsubconsciousrumination.Itbecomesaningrainedattituderatherthanadirectedeffort.”

TheLostManuscripts

ItisknownthatLindsaywasworkingonasecondbookatthetimeofhisdeath.Hehadmentionedtheworktopeople,andapartialmanuscripthasbeendiscoveredbyfamilymembers.ThisbookwastoaddresstimeintervalsofamuchlongerdurationthantheintervalsLindsayidentifiedinhisearlierwork.Lindsaydevelopedwhathe

calledtheM-Patternofhistory(seeFigure2.1).Hewrotethatthemethodwouldnotpredictactualevents,butrather,“Awayhasbeenfoundhowever,toforecasttheconditionswhichmakeacertaintypeofeventprobableatagiventime.”2Inthecaseofwars,hismethodwouldnotpredictthatawarwouldoccur,onlywhichsidewasthelikelywinner.This

assumeseventswithincertainperiods.

Figure2.1.M-Pattern.

“Thereisnosurewayofdecidingthataspecificevent

ofprimeimportancewilltakeplace,suchasawarbetweenthemajorpowers.Ifsuchadevelopmentiscomingatall,however,therecordimpliesthatitwilloccuratoneofthetimeperiodswhicharecalculableinadvance.”3

Whenprojectinginternationalevents,thetimingofonecountrymustbesynchronizedwiththatofanother,andthetwogovernmentsmusthave

unusualrelationswithinthistimeperiod—thatis,relationsthatgobeyondtheroutine.

ConclusionInhisbook,TheOtherHistory,Lindsaychallengestheacceptedviewsof“causeandeffect”andreplacesthemwithhisownobservationsoftimeintervals.Likehismarkettimingtechniques,Lindsay’sapproachto

history,althoughsimilartocycles,isfarmoreunique.ItwouldbeeasytodismisstheideaspresentedinTheOtherHistoryifitwerenotforthesuccessLindsayexperiencedusingthissameapproachinpredictingthestockmarket,anothertaskmanybelievetobeimpossible.ThischapterprovidesonlyatasteofLindsay’sbookforthereader.Intheoriginaltext,Lindsay’sattempttoprovideenough

examplestobeconvincingunfortunatelybecomesoverwhelming.TheOtherHistoryisoutofprintbutcanbefoundinsomelibrarycollections,includingtheM.T.A.Library.

Endnotes1Unlessotherwiseindicated,allquotesinthischapteraretakenfromGeorgeLindsay’sself-publishedbook,TheOtherHistory,1969.

2GeorgeLindsay,“AWaytoPredicttheFuture”(unpublishedmanuscript;date[post-1982]unknown).

3Ibid.

PartII.ThreePeaksandaDomedHouseChapter3:ThePhenomenonChapter4:ThreePeaksChapter5:ADomedHouseChapter6:TheTri-DayMethod

Chapter3.ThePhenomenon

“Therearealsoperiodswhentrendsareshort-livedandsubjecttofrequentreversal.Techniciansassumethatsuchirregularmarketsdonotfollowanyrecognizablepatternfor

longandthatabruptchangesintrendcannotbepredicted.Mystudiesshowthattheseapparentlyhaphazardmovementsnearlyalwaysfollowthesamepattern.Thetwoformationstobeexplainedhavebeenrepeatedoverandoveragainfromtheearliestrecords.Aroughtallyindicatesthatthemarkethasfollowedthematleast

60%ofthetimeforthepast150years.”1—GeorgeLindsay

Afterintroducingtheconceptin1968,GeorgeLindsaypublishedhis“ThreePeaksandaDomedHouse”newsletterin1970.Thisnewsletter,alongwithothers,laterappearedinabooktitledEncyclopediaofStockMarketTechniques,publishedby

InvestorsIntelligence.Thosewhoarealreadyfamiliarwiththismodelwillnoticesomethingmissingfromthisbook:Lindsay’snumberingsystemforthedifferentwaveswithintheformation.ThesystemLindsayusedinhis1970newsletterexplainingthe“ThreePeaksandaDomedHouse”wascumbersomeanddistractedfromastudent’s

understandingofthemodel.EvenLindsaydidn’tholdthesystemheusedinthatnewslettersacrosanctbecauseonlytwoyearslater,inhisMay15,1972,newsletter,hechangedthesystemtoincludefewernumbers.Thisbookhaseliminatedthenumberingsystementirelyandreplaceditwithtermsthatshouldbeintuitivelyobvioustothereaderratherthanforcingthereadertoconstantlycheck

andrecheckwhichnumbersapplytowhichpartsofthemodel.Lindsayhadaverydefiniteopinionastowhichequityindexshouldbeusedwithhismodel.Inhis1969pamphlet,“OneYearLater:AFollow-UpoftheThreePeaksandDomedHouse,”Lindsaywrites,“Averagescomposedofasmallnumberofbluechipshavealwayshad

crisperchartpatternsthanall-inclusiveindexes.Itislargelybecauseunseasonedstocksareinastateofflux:newonesarebeingadded,oldonesaredropped,andthenumberofsharesisconstantlychanging.TheDowJonesstocksaremorestableincomposition.TalkoftheDowJonesAverageasbeingunrepresentativeisbesidethemark.Ifyouwanttoknowthetruelevelof‘the

market,’lookatthebroaderaverages.Ifyouwanttopredictthefuture,gobytheDowortheNewYorkTimesIndustrials.Indeed,sometechniciansgetthemostreliableresultsbyusinganindexofonlytenortwelvesensitiveandinfluentialstocks.TheNYSEIndexofallstocksisnearlyworthlessinforecasting.”Thischapter’sopeningquote

fromLindsaycontainstheboldstatement(Lindsaywaspronetosuchstatements),“Aroughtallyindicatesthatthemarkethasfollowedthematleast60%ofthetimeforthepast150years.”Clearly60%oftheDow’spriceactionforthepast150yearswasnotspentformingthe“ThreePeaksandaDomedHouse”pattern.Lindsay’scontentionwasthatthepatterncouldbefoundat60%ofbullmarket

topsandatthepeaksofralliesinbearmarkets(cyclicalbullmarkets).“ThemajorityofallmajoradvancesendedinapatternwhichresembledtheThreePeaksandaDomedHouse.Somecameclosertotheidealformthanothers.However,afewtopareasdon’tfitintothepatternatall:itwouldbestretchingtheimaginationtoseeitaroundthehighsof1909and1937.”One

hundred-fiftyyearspriortotheyearofpublicationofLindsay’snewsletterwouldhavemeant1820—wellbeforetheDowJonesIndustrialAveragewascreatedin1896(andevenbeforeitsforerunner,theDowJonesAverages,wascreatedandpublishedbyCharlesDowin1884).Lindsaywrote,“TheDow-Jones20-stockaverageisusedbefore1897,theDow-JonesIndustrials

sincethen.”TheDow-Jones20-stockaverageistheDowRailroadindex,which,by1896,contained20railroadstocksandevolvedfromtheoriginalDowJonesAveragesandits11transportation-relatedstocks.InLindsay’s1965newsletter“ATimingMethodforTraders,”Lindsaywrotethatheusedadailyaverageofsevenmarketleadersfrom1861to1885.Thatstillleaves41years

unaccountedfor,buttheexamplesLindsaysharesarenoearlierthan1890.

IdentifyingCharacteristicsLindsaywrotethatthetwopatternswhichbeganJuly26,1893,andJuly26,1910,wereveryclearandprovidedtheinspirationforthe“ThreePeaksandaDomedHouse”formation.Thesetwopatterns

peakedSeptember4,1895,andSeptember30,1912,respectively.Thischapterintroducesthe“ThreePeaksandaDomedHouse”formation(subsequentlyreferredtoas3PDh)anditsmajorcharacteristics.Thesecharacteristicsshouldnotbepassedbytooquicklybythereaderinsearchofmoredepthordetailbecausethesecharacteristics,thoughsimple,areextremely

important.Thepatternisostensiblyamethodforidentifyingtheendofabullmarket.However,3PDhisbroaderinscopethansimplyusingittofindthetopofabullmarket.Onceit’srecognized,onecantradeitonthewayup,too.Identifyingandseparatingtrue3PDhpatternsfromimpostersisessentialtoprofitabletradingofthepatternpriortoits

completion.Lindsaywrote:“Thesepatternslastalongtimesoanyonecanusethemtoadvantageifherecognizesthematanearlystage.”Lindsayalsowrote,“Throughaverycomplicatedprocedure,itispossibletoforecasttheinceptionofsuchamovementbeforeitbegins.”Unfortunately,hedidn’tdescribethat“complicatedprocedure”and,unlesshe

passeditonorally,itappearshetookitwithhimtohisgrave.Fortunately,byidentifyingthekeycharacteristicsofthepattern,oneneedn’tusecomplicatedprocedurestorecognizethepatternlongbeforeitscompletion.Thebeautyofthepatternisinitssimplicity.Figure3.1presentsanidealizedshapeofthe3PDhpricepattern.Onecanclearly

seethethreepeakstowardtheleftsideofthefigurefollowedbyasharp,two-wavesell-off.TheDomedHouseencompasseseverythingafterthetwo-wavesell-off(middletorightsideofFigure3.1),includingthelargesell-offtakingpricesbacktothebottomoftheentire3PDhpattern.Thechiefcharacteristicofthewholechartisthatpricemakesrapidupsideprogress,

butcontinuesforonlyashorttime.Inbetweenthebriefspurts,pricesgothroughlongstretchesofconsolidation,orsidewaysmovements.Thepatternischaracterizedbysharprisesfollowedbylongconsolidations.Whenyou’researchingforthepattern,itistemptingtoacceptadvancesthatclearlybreakdownintoadvancingwavesratherthanthesharpadvancesLindsaydescribed.Don’tbetempted

bytheseadvancing“waves”unlessothersegmentsofthepatternareabsolutely3PDhandtheweightoftheevidenceisundeniable.Wheneverthemarketspendslotsoftimemovingsideways,weshouldlookforotherindicationsofa3PDhpattern.Inthispattern,pricesadvanceonlyabouthalfthetime—theymovesidewaysonasmanydaysastheyadvance.

Figure3.1.Idealizedshape.

Lindsaywrote:“BoththeThreePeaksandtheDomedHousearedistinguishedbytheadvancesanddeclineswhichtravelmanypointsinastraightline.Butthese

movementsdon’tlastlong.Inbetweenthefewexplosivemoves,themarketspendsmuchofthetimebackingandfillinginacomparativelynarrowrange.Thesecharacteristicsusuallymakeiteasytorecognizeaformationshortlyafteritbegins.Oncetheformationisunderway,itusuallylastsalongtime.Thisgivesitpredictivevalue.”

Lindsaydifferentiatedbetweenpatternsthatemergefromadvancesoffabearmarketlow(cappingacyclicalbullmarket)andthosethatculminateasecularbullmarket.“ThemosttypicalThreePeak-DomedHouseformationsstartatabearmarketlow.Whenthishasbeentrue,thehighestpointinthepatternhasneverequaled

thetopofthepreviousmajorbullmarket.”Lindsaydidn’tmeantoimplythatthe3PDhformationsareanymorecommonoffofbearmarketlowsthanbullmarkethighs.Heonlymeantthatformationswhichemergefromadvancesoffbearmarketlowshaveamore“typical”structure(seeChapter4,“ThreePeaks,”andChapter5,“ADomed

House”)thanwhatoneseesinpatternsatbullmarkethighs.Hencethefollowingquotes:“TheThreePeak-DomedHousepatterncanalsobegininthecourseofalongadvance.Whenthishappens,thetopoftheDomedHouseisusuallythebullmarkethigh.”“Thepatternswhichstartinthelatterpartofamajorbull

marketdonotnormallylastaslongasthosethatbeginatabearmarketlowandareoftenlesssymmetrical.”Finally,thecompletedDomedHousesectionofthepatternshouldhaveasquareeffectaboutitandaroundedtop.InFigure3.1,aftertheThreePeaksattheleftsideofthechart,andafterthetwo-wavesell-off,asmallbaseisformed.Thisbaseisthefirst

sectionoftheDomedHouseandisfollowedbyasharprise,whichiscalledtheFirstFloorWall.ThisFirstFloorWallisfollowedbyafive-wavereversalpatternthatservestoconsolidatethesharprise.Thefive-wavereversalisreferredtoastheFirstFloorRoof.Lindsaywrotethatafive-wavereversalextendingthreemonthsormorenearly

alwaysmeansthattheformationisaDomedHouse.TheFirstFloorRoofissubsequentlyfollowedbyanothersharprise,whichisreferredtoastheSecondFloorWall.TheSecondFloorWallisfollowed,andtheentire3PDhformationiscapped,byasmallhead-and-shoulderspatternthatresemblesthecupolaofahouse.Ahorizontalline

drawnthroughtheleftandrightshoulderofthecupolasuggeststheroofofasecondstory.AftertheCupola,adeclinebacktothebeginningofthepatternbegins,whichnormallywillincludeatleastonebounce(afinalrightshoulder)onthewaydown.NotethattheFirstFloorWallisbalancedbythedropfromthefinalrightshoulderandtherisefromtheFirstFloorRoofisoffsetbythedecline

fromthefirstrightshoulderinthecupola.Thisgivesthepatternasquareeffect.Atthesametime,thereisaroundedeffectatthetopduetothehead-and-shoulderspattern.Finally,the3PDhformationcansometimestaketheplacenotjustofasingleadvance,butofabearmarket.Inotherwords,insteadofgoingdown,themarketfluctuates

backandforthandtracesthisfamiliarpattern.Whenittakestheplaceofabearmarket,thetimingisirregular.Seeexamplesof3PDhformationswithirregulartiminginTable3.1.

Table3.1.ThreePeaks/DomedHouse

Eachofthesesegmentsofthe

3PDhwillbeexaminedindetailinthechaptersthatfollow.Beforemovingon,however,twosimpleconceptsthatLindsaywroteaboutarereviewed.

PrincipleofEqualizationAsthereaderwillsoondiscover,whenweexamineactualexamplesofthe3PDhpattern,reallifedoesn’t

alwaysfollowthe“idealized”shape,timeframe,orcounts.Lindsayhelpstheanalystadjustforreal-worlduncertaintiesthroughthePrincipleofEqualization.LindsaymentionsthePrincipleofEqualizationalmostinpassing.Hedefinesitthisway:“Whenoneformationfallsshortofthenormalduration,thenextoneequalizesthetotalelapsedtimebybecominglonger.”

Determiningwhata“normal”timeframeisrequiressomedetectivework.Heisveryclearthatthetimebetweenthethreepeaksis“normally”eightmonths,sowewouldexpecttoadjusttheexpecteddurationoftheDomedHouseiftheThreePeakswerelongerorshorterthaneightmonths.ItwasmentionedpreviouslythatLindsaywrotethatafive-wavereversalextendingthreemonthsor

morenearlyalwaysmeansthattheformationisaDomedHouse.Hedidn’tsaywhetherthereexistsaminimumormaximumtimeperiodforthefive-wavereversal(FirstFloorRoof),soathree-monthestimateisallthereistoworkwith.Adjustingthedurationofthe“count”(todeterminethefinaltopofthebullmarket)isnotassimpleasaddinganextramonthifthedurationoftheThreePeaksis

amonthshort.Fortunately,itisn’tcomplicatedeitherandisexplainedinChapter5.

DomedHouseBeforeThreePeaksTherehavebeeninstanceswhentheDomedHouseformationappearedbeforetheThreePeaksformation.Inthiscase,theSeparatingLine(explainedinChapter4)followstheDomedHouse.

“EverytimeaclearlydefinedDomedHousestartedatabearmarketlow,itwasfollowedinduecoursebytheThreePeaksbeforetherewasanothermajordecline.TherehavebeenonlyafewcaseswhenamajorbullmarkethightooktheformofaDomedHousefollowedbytheThreePeaks.WhentheThreePeaksfollowstheDomedHouse,acompleteretracementmaynotbemade

foralongtimebutit’salwaysmade.”ThisinversionofLindsay’smodelisrelativelyrareandthereaderwouldalmostcertainlynoticeitifitweretohappen.OtherthantheformationthatoccurredinApril1938toJune1940,thefewexamplesgivenbyLindsayofthisreversedpatternwereallinthelastdecadeofthe19thcenturyandfirstdecadeofthe20thcentury.SeeTable3.1for

examples.

Endnote1Unlessotherwiseindicated,allquotesinthischapteraretakenfromGeorgeLindsay’sself-publishednewsletter,GeorgeLindsay’sOpinion,duringtheyears1959–72.

Chapter4.ThreePeaks

“Thechiefcharacteristicofthismovement,asofthewholechart,isthattheaveragemakesrapidupsideprogress,butkeepsgoingforonlyashorttime.Inbetweenbriefspurts,theaverage

goesthroughlongstretchesofconsolidation,orsidewaysmovements.”1—GeorgeLindsay

ItisveryeasytofindtheThreePeaksformationonachartgiventheSeparatingDeclinethatfollows.OnceyouunderstandtheThreePeaksformation,youwillbeginseeingiteverywhere.

“Itisnotundulytechnical.Allyouhavetodoisfixacoupleofshapesinyourmindandthenlookatthechartswithfresheyes.”Atthatpoint,thechallengewillbetomakecertainthattheThreePeakspatternyouhaveidentifiedfulfillstherequirements,orcharacteristics,ofthe3PDhformation.ThischapterintroducesthereadertoactualexamplesoftheThreePeaks

formationandpreparesthereaderforcertainirregularitiesthathaveappearedinthepast.

CharacteristicsandIrregularitiesOnecanclearlyseethethreepeakstowardtheleftsideofFigure4.1followedbyasharp,three-wavesell-off.TheThreePeakspatternusuallystartswithabase(not

shown),butLindsaymadeclearthatthebaseisnotimportantinidentifyingtheformation.Fromthebottomofthebase,theaveragerisessharplytotheFirstPeak.Lindsaywrotethat,typically,thetopofthepeakhasaratherflattenedshape.

Figure4.1.ThreePeaks.

“Thetopsofallthreepeaksareusuallyinthesamegeneralpricerange.Whiletherecanbeconsiderablevariationintheexactlevels,thesymmetryofthewholeformationisusuallyapparent.”The“same

generalpricerange”isarelativestatementanddependsonthetimeframeyouareexamining.Whenlookingonlyata3PDhformation,theThreePeaksmaynotappeartobeinthe“samegeneralpricerange.”Butwhenthereaderexaminesnotjustthe3PDhpatternbutalsotheentireadvancethatprecededthepattern,thephrase“samegeneralpricerange”takeson

adifferentmeaning.Aftereachpeakiscompleted,pricesreactmorethanyouwouldexpectaftersuchashortadvance.Normally,theretracementsafterpeaksoneandtwoareofequaldepth.Lindsay’sfirstexampleofa3PDhformationstartsatthebearmarketlowinOctober1946(seeFigure4.2).NotethattheperiodbetweenPeaksOne(February8,1947)and

Three(October10,1947)isthestandardeightmonths.Inthisexample,PeakTwoisabovebothPeakOneandPeakThree.

Figure4.2.ThreePeaks(1946–48).Chartcreatedby

MetaStock®.

AnirregularityintheThreePeaksformationin1947isthedeclinefromPeakOne.ThereactionafterPeakOnedeclinedmuchmoredeeplythanthedeclineafterPeak

Two.ThisirregularityiscausedbythefractalnatureofPeakOne.Thisparticularphenomenonisexaminedlaterinthischapter.Figure4.3isanexampleLindsaysharedofthe3PDhformationatabullmarkethigh.Inthiscase,itwastheFebruary1966bullmarkethigh.NotethattheadvanceintoPeakThreeonMay14,1965,wasprecededbya

shortconsolidationduringmostofFebruaryandMarchjustastheadvanceintoPeakOnewasprecededbyashortconsolidationfromlateSeptembertoearlyNovember.“Wheneverthemarketspendssomuchtimemovingsideways,welookforindicationsofaThreePeaks-DomedHousepattern.”LindsaymadenoteofthefactthatthetimebetweenPeakOneandPeakThreeinthis

casewassixmonths—theminimumduration.“Inamajorformation,thetypicaldurationfromthetopoftheFirstPeaktothehighoftheThirdisabouteightmonths.Ithasneverbeenlessthansixnormorethanten,andusuallyhasvariedbetweensevenandeight.”HealsonotedthatthetimeperiodbetweenthestartoftheconsolidationinlateSeptember(priortoPeak

One)andPeakThreewaseightmonths—thenormalduration.Hedoesn’texplainthis;hesimplymakesnoteofit.Butitisoneofmanyexamplesofhowcountscandifferandtheanalystmustshowflexibility,evensomeimagination,whenworkingwiththisgeometricformation.Oneparticularexampleofflexibility:IfthetimebetweenPeakOneandPeakThreeisshort(lessthan

sixmonths),looktoseewhetherPeakThreehasthe“flattenedshape”(roundedtop)discussedpreviously.Ifatradingrangeformsafterthehighestday(thepeak)ofthisroundedtopatPeakThree,andthereisapointattheendofthetradingrangewherepricefallsoffsuddenly,thenmeasuringfromPeakOnetothatpointusuallycausesthetimespanbetweenPeaksOneandThreetomeetthe

minimumrequiredtime—sixmonths.VariationincountsisdealtwithmoreinChapter3,“ThePhenomenon.”

MetaStock®.

FractalsSometimesa3PDhformationwilloccurwithinasinglepeakofalarger(“major”)formation.Lindsayreferred

toa3PDhpatterninsideofasinglePeakasa“minor”formation.Modernreaderswillknowthismanifestationasafractal.Figure4.4breaksoutthefractalstructurethatcreatedPeakOneofthe1946–483PDhformation.ThehorizontallinehelpsdelineatethefactthattheSeparatingDeclineafterthefractal’sThirdPeakextendedbeloweitherofthereactionsfromPeaksOneorTwoasis

requiredforthe3PDhformation.SeparatingDeclinesarecoveredinthenextsection.Onecanjustmakeoutthehead-and-shoulderstopthatformstheCupola,butafive-wavereversalthatcreatesaFirstFloorRoofisdefinitelymissing.AftertheCupola,theindexreturnstothebeginning(bottom)oftheformationasisexpectedofany3PDhpattern.

MetaStock®.

“AnyoneoftheThreePeaks(inamajorformation)candoubleastheDomedHouseofaminorformation.Asarule,itismorelikelytobetheThirdPeak,ratherthanthe

firstone,asinthiscase.”Recognizingpossiblefractalsiscrucialtotradingthe3PDhmodel.ArelativelyseveredeclinehasalwaysfollowedaThreePeak/DomedHousepatternevenwhenthepatterniscontainedwithinanotherpattern.AseveredeclineisexpectedafterPeakThreeofa3PDhpatternaswell.Ifthe3PDhpatternisafractal,arelativelyseveredeclinecan

beexpectedheretoo.A3PDhpatterninsideofoneofthepeaksisawarningthatabigdeclinemaybecomingbecauseitwillneedtoundercutoneofthepreviousreactionsfromapeak.Bybeingawareoffractals,onecanavoidbigdeclinesorevenprofitfromthem.

SeparatingDeclineAftertheThirdPeak,arather

severedowntrendbegins.ItiscalledtheSeparatingDeclinebecauseitseparatestheThreePeaksfromtheDomedHouseformationthatfollows(seeFigure4.5).TheSeparatingDeclineisathree-wavedeclineusuallycomposedofatleasttwodecliningwaves.ThebottomoftheseconddecliningwaveisalwaysatalowerlevelthanatleastoneofthereactionsfromPeaksOneorTwo,andoftenitis

lowerthanboth.Unlessatleastoneofthetworeactionlowsisbreached,theformationunderconsiderationdoesnotqualifyasaSeparatingDeclineand,byextension,thepreviousformationissimplythreerandompeaksandnotaThreePeakspattern.OneshouldhavenotroubleidentifyingtheSeparatingDeclinesinFigures4.2and4.3.Theyarethedeclinesthatimmediately

followtheThirdPeakineachchart.NotethatinFigure4.2,theSeparatingDeclineonlybreachesthereactionlowfollowingPeakTwoandnotPeakOne(duetothefractalcausinganabnormallydeepdeclineafterPeakOne),whereastheSeparatingDeclineinFigure4.3breachesbothreactionlowsfollowingbothPeaksOneandTwo.

Figure4.5.SeparatingDecline.

ImportantNote:Towardtheendofanadvancethathasproceededforayearorlongerwithasubnormalrateofgain,theconventionthatthe

SeparatingDeclinemustdipunderthelowofaprevioussell-offisnotrequired.ThisexceptionisexploredinChapter6,“TheTri-DayMethod.”

ConclusionTheSeparatingDeclinedroppingbelowareactionfromapreviouspeakmakesitappearasiftheadvanceisgettingtired.Onecan

imaginetradersandinvestorsexitingthemarketinexpectationofanextendeddecline.Perhapsitcanbeinterpretedasabearishhead-and-shoulderstop.Themarketparticipantwhoisawareofthe3PDhmodelisunlikelytobefooledbyafailedhead-and-shoulderstop.Evenacasualmarketparticipantacquaintedwiththe3PDhmodelwillnotonlyrecognizeafractalwithina

peakbeingformedandsuspectthata3PDhisunderconstruction,butalsobepreparedtoavoid,orprofitfrom,thecomingdownturnwithinthepeakbeingobserved,understandthatatimeiscomingtoreenterthetrade,continuetrackingtheformationofapossibleThreePeakspattern,againavoid(orprofitfrom)theapproachingSeparatingDecline,and,finally,bementallyprepared

toreenterthetradeforwhatispossiblythebiggestmoveofthebullmarket.Allthiswhileothertradersandinvestorshavebecomewornoutfromwhattheyperceiveasunprecedentedvolatility.Chapter5,“ADomedHouse,”examinestheDomedHousepatternanditsindividualbuildingblocks.

Endnote

1Unlessotherwiseindicated,allquotesinthischapteraretakenfromGeorgeLindsay’sself-publishednewsletter,GeorgeLindsay’sOpinion,duringtheyears1959–72.

Chapter5.ADomedHouse

“ThemosttypicalThreePeak-DomedHouseformationsstartatabearmarketlow.Whenthishasbeentrue,thehighestpointinthepatternhasneverequaledthetopofthepreviousmajorbull

market.NotalloftheminorbullmarketsofthepasthavetakentheshapeoftheThreePeaksandDomedHouse,butmostofthemhave.”1—GeorgeLindsay

AftertheSeparatingDecline,theDomedHouseformationbegins(seeFigure5.1).LiketheThreePeakspattern,theDomedHousepatternis

“distinguishedbyadvancesanddeclineswhichtravelmanypointsinastraightline.Butthemovementsneverlastverylong.Inbetweenthefewexplosivemoves,themarketspendsmuchofthetimebackingandfillinginacomparativelynarrowrange.”Bykeepingthissimplerequirementofbothpatternsinmindatalltimes,theanalystwillavoidthemistakeofseeing3PDh

formationseverywhereandthelossesassociatedwithfalseattributionofthepattern.ThischapterbreaksdowntheDomedHouseformationintoitscomponentparts,identifiesanddiscussesthecharacteristicsofeachcomponentpart,andlaysoutthecountsandcountingmethodsnecessarytoidentifyandconfirmtheformation.

Figure5.1.DomedHouse.

BasesTheDomedHousebeginswithsomekindofbase.Itisimportanttodistinguishwhetherthebaseisirregularorsymmetrical.Tobea

satisfactorybase,whetherirregularorsymmetrical,thereshouldbeareboundfromthelowoftheSeparatingDeclineandthentwosecondarydipsafterthereboundfromthelow.Lindsaymakesitclearthatonedipdoesn’tsuffice;theremustbetwodips.Determiningthenumberofdips,however,issomewhatarbitrary,asonecanseeintheexamplesthatfollow.

Determiningthenatureofthebase(irregularorsymmetrical)wascriticaltoLindsaybecausethelabelingofthebasewilldeterminetheorigindateofthecount.AlsocriticaltoLindsaywasthedeterminationofwhetherthebasewaslongerorshorterthan“normal.”Unfortunately,Lindsayneverrevealedwhattimeperiodheconsideredtobenormal.Itdoesappear,fromtheexampleshegave,

thatabaselastingonemonthisshorterthan“normal”andabaselastingapproximatelytwomonthsistobeconsidered“normal.”Thecount(221–224calendardays)isusedtoestimatethefinaldayofthebullmarket—usuallytowithinthreedays.Counting221–224daysforwardfromthedeterminedpointoforiginwilldirectonetoeithertheexactdateofabullmarkettoporaneasily

recognizedanddefinedpointnearthebullmarkettop.Theuncannyabilityofthemodeltopinpointtheendofabullmarkettowithinsuchasmalltimeframeiswhatmakesthe3PDhmodelsoamazingandLindsay’sgeniussoobvious.LindsayneveractuallydefinesaSymmetricalBase,optinginsteadtoidentifybasesinhischartsassymmetricorirregular.The

baseintheidealizedchartexample(seeFigure5.2)isanexampleofaSymmetricalBase.WhenaSymmetricalBaseispresent,webeginourcountfromthebottomoftheseconddipfollowingtheSeparatingDecline,asshowninFigure5.2.

Figure5.2.Base—Symmetrical.

Ifthesecondarysell-off(thefinalsell-offinthebase)istooshallow(anascendingbase)tocallthebasesymmetrical,wecannotcountfromit.Thespanmustbecountedfromthelowofthe

base,thatis,thebottomofSeparatingDecline.Evenifanascendingbaseissymmetrical,thecountmustoriginatebeforethesecondarysell-off.Figure5.3,whichshowstheDomedHousein1938,containsanexampleofaSymmetricalBaseasidentifiedbyLindsay.Notehowthebaseisdescendingbutcontainedwithintwo

parallellines,givingitasymmetricpresence.

Figure5.3.SymmetricalBase.Chartcreatedby

MetaStock®.

CountsThetypicaldurationfromtheendofabase(bottomoftheFirstFloorWall)tothepeakofaDomedHouseis221–224calendardays(sevenmonthspluseighttotencalendardays,or32weeks).Notethatcountsaremadeusingcalendardays,nottradingdays.WhileexceptionscanbefoundtoallofLindsay’s“rules,”itishis

rulesconcerningthecountsthatseemtohavethemostexceptionsandtobethemostarbitrary.ForeveryruleLindsaylisted,anexceptioncanbefoundsuchthatonehastowonderhowLindsaydecidedwhichexamplewastobecomehis“rule”!Therulesthatfollowshouldbethoughtofmoreasrulesofthumb,heuristics,atbest.Lindsayevenlistsseveralexamplesthatcalledmarket

topsinthe20thcentury,noneofwhichmethisrequirementsforcounts.TheyareincludedinChapter3,“ThePhenomenon,”inTable3.1.“MovementsofveryirregulardurationhaveoccurredinthecourseofThreePeak-DomedHousepatterns.Wethengobytheshapeofthechart,andnotbythenumberofdays.”PartIIIofthisbookdescribestheLindsayTimingModel,

whichLindsayholdsoutasawaytomakesenseofalltheseemingcontradictionsthatfollow.Bypassingthefollowingheuristicswouldbeamistakeforthereader,however,asonemustnotonlybeacquaintedwiththem,butbeactivelylookingforeachofthesepossibilitiesinordertoascertainwhichcountiscorrectlyconfirmedbytheLindsayTimingModel.AsLindsaywrote,

“Themarketisneverexactlythesametwice.Tohaveachanceofapplyinganytheorysatisfactorily,astudentmustbefamiliarwithallpastexamplesofeachformation,sothatthevariationsineachrecurrencewillnotconfusehim.”

DomedHouseLongerThanNormalLindsaygaveonlyone

exampleofalonger-than-normalDomedHouse(seeFigure5.4).ThiswasaformationinwhichtheCupolaformedinDecember1968.FromthebottomofthebasetothetopoftheCupola,255dayspassed.Hegivestwoexplanationsforitsextendedperiod.

Figure5.4.LongDomedHouse.Chartcreatedby

MetaStock®.

1ADescendingBaseInsteadofaNormalAscendingBaseLindsay’sfirstexplanationforaDomedHousethatwas

longerthanthenormal221–224calendardayswasthatthebasewasofthedescendingvariety.ThereaderwillnoticethatthebaseinFigure5.3wasalsoadescendingbasebuttheDomedHousewasshorterthannormal,andcertainlyshorterthantheDomedHouseinFigure5.4.Lindsaydoesn’taddressthatapparentcontradiction,butwewillnotethattheformationin

Figure5.3wasareversedpattern,aDomedHousefollowedbyThreePeaks.

2TheBaseWasShorterThanNormalLindsaywrotethatthebasebeingshorterthannormalexplainedthelonger-than-normalDomedHousebasedonthe“principleofequalization.”Thebasemeasured37days.“Undertheprincipleofequalization,

thismeantthatthenextmovewouldprobablybelongerthannormal.”Itisworthhighlightingthatacountof227daysfromthebottomoftheFirstFloorWallpreciselytargetstheabsolutebottomoftheleftshoulderoftheCupola.Itisalsoofinterestthatacountof221daysforward,fromthetopoftheFirstFloorRoof(thebeginningofthefive-wave

reversal),targetsadate(December10th)intheheartofthetoppingformation(lookingforthe“centerofgravity”inatopformationisafavoritetechniqueofLindsay’s,andthisapproachisdealtwith,indepth,inPartIII,“TheLindsayTimingModel”).Theprecedingcountsareexamplesofaneasilyrecognizedanddefinedpointnearthebullmarkettop.

DomedHouseShorterThanNormalLindsayalsoaddressedthesituationofaDomedHousebeingshorterthannormal.Helistedtwoirregularitiesthatthereadershouldbeawareof.

1MissingFirstFloorRoofIfaDomedHouseisshorterthannormal,thecountwill

usuallyendatthepeakofeitherofthetworightshouldersfollowingtheabsolutetop.In1947,thebasewassymmetrical(seeFigure5.5)yetthecountextendedtotherightshoulderin1948.Lindsaynotesthatananalystshouldhavesuspectedashorter-than-normalDomedHouse,priortoitscompletion,becausewhereafive-wavereversalwasexpected,pricesimplyslid

offforsevendays.Lindsay,however,failedtoexplainhowananalystcouldknowwhereorwhenafive-wavereversalshouldbeexpected!ThetimerequiredtobuildtheFirstFloorWallvariesconsiderablybetweenformations.Inhindsight,theabsenceofaFirstFloorRoof(five-wavereversal)toldusthattheDomedHousewouldbeshorterthannormal.“Thefailureofthe5reversalsto

appearimpliedthatthiswouldbeanunusuallyshort-liveddomedhouse.”

Figure5.5.ShortDomedHouse.Chartcreatedby

MetaStock®.

2PatternsatSecularBullMarketTopsThischapter’sopeningquotefromLindsay,“ThemosttypicalThreePeak-DomedHouseformationsstartata

bearmarketlow,”doesnotmeantoimplythatmost3PDhformationsstartatbearmarketlows.Rather,theintentwastobringattentiontothefactthat3PDhpatternsthatbeginatbearmarketlowsnormallyadheretoLindsay’srulesmorefaithfully.Contrastthosepatternswiththepatternsthatappearattheendofsecularbullmarkets.“Thepatternswhichstartinthelatterpartofamajorbull

marketdonotnormallylastaslongasthosethatbeginatabearmarketlow,andtheyareoftenlesssymmetrical.”SinceaDomedHouseatthetopofabullmarketseldomlastsaslongastheformationthatbeginsatabearmarketlow,wecountthespantothepeakoftheDomefromthebottomoftheSeparatingDeclineorfromanevenearlierlowsuchasthebottom

ofthesell-offfromtheSecondPeakandsometimeseventheFirstPeaksell-off.Again,thepreceding“rules”aremore“rules-of-thumb”thanhard-and-fastrules.TheLindsayTimingModelexplainedinPartIV,“TheCounts,”givestheanalysttheconfirminginformationandconfidenceneededtosortoutanddeterminewhichofthepossiblecountsisthecorrect

one.“Variationsofthissortmustalwaysbeexpected.Theyarehardtopredict,butatechnicianfamiliarwiththeunderlyingprinciplesshouldhavenotroublerecognizingthemwhentheyoccur.”

FirstFloorWallOncethebasefollowingtheSeparatingDeclineiscompletedbytheseconddip,ortestofthebottom,priceis

thenexpectedtoshootupinafast,short-livedadvance.ThisiscalledtheFirstFloorWalloftheDomedHouse(seeFigure5.6).TheadvancefromthebottomtothetopoftheFirstFloorWallshouldbeextremelypowerful—almoststraightup.AwallthatappearstobebrokenintotwoadvancingwavesbyaninterveningwavemaycontainnoroofandberushingtoitscompletionattheCupola.

ThisimpliesthattheDomedHousewillbeshorterthannormal.Again,Lindsaydidnotsharehowtodeterminewhethertheroofismissingpriortocompletionofthepattern.Whileamissingroofmaybeknownwithcertaintyonlyinhindsight,thechancethataroofmaybemissingisanimportantpossibilityofwhichtobeaware.

Figure5.6.FirstFloorWall.

FirstFloorRoofThisFirstFloorWallisfollowedbyafive-wavereversalpatternthatservestoconsolidatethesharprise.Thefive-wavereversalisreferredtoastheFirstFloor

Roof(seeFigure5.7).Lindsaywrotethatafive-wavereversalextendingthreemonthsormorenearlyalwaysmeansthattheformationisaDomedHouse.Tohelpidentifythefivereversals,lookforaperiodinwhichtheaveragemakesnonetprogressoverasignificantperiodoftime.TheFirstFloorRoofissimilartoatriangleinthatitusuallyhasfivereversals.

Afterthefifthreversaliscompleted,themainuptrendisresumed.

Figure5.7.FirstFloorRoof.

CharacteristicsTheFirstFloorRoofisnotas

straightforwardastheFirstFloorWall.ThereaderwillfindithelpfultobeawareofboththecharacteristicsoftheRoofaswellastheanomaliesthathavebeenknowntooccur.RoofRallies

Lindsaywrote,“Usually,bothoftherallieswithinatriangleareofaboutthesameamplitude.”Thischaracteristiccanbeabig

helpinidentifyingtheFirstFloorRoofofa3PDhformation,particularlywhentheFirstFloorRoofisnotoftheshapeexpected.Oncetheroofisidentified,therestofthesuspectedformationiseasilyconfirmedorinvalidated.Figure5.8breaksouttheFirstFloorRooffromthe1968topformation.Notethatthefirstdeclineisafalsestart(tobediscussedlater).OncethehighoftheFirst

FloorWalliscomplete,however,wave1oftheroofbeginsitsdeclineinearnest.Waves2and4areofequallengthindistancecovered(price,nottime).Anotherinterestingaspectofthisparticularroofisthedeepdropmadeduringwave5.Atthetime,adeclineofthismagnitudewouldhavebeenfairlydisconcertingtotheanalyst.Buttheknowledgethat(theassumed)waves2

and4wereequalshouldhavegivenhimorherconfidencetostaywiththeinferredpattern.Otherthanthewave-5plunge,the1968FirstFloorRoofstaystruetotheidealizedformationinitshorizontalcharacter.

Figure5.8.RoofRallies.ChartcreatedbyMetaStock®.

DespitethehorizontalroofdepictedinFigure5.8andLindsay’sidealizedchart,itappearsthatanequalnumberofroofstendtodeclineasin

Figure5.3.Havingnotedthis,theanalyststillneedstobealertforvariations.

AnomaliesThefollowingtwoanomalies,whilenotcommon,haveoccurredenoughtimesthatthereaderwillfinditadvantageoustobepreparedtoseethemagaininthefuture.MissingRoof

Itisextremelyrare,butsometimesitdoeshappenthattheroofiscomposedofasimplepullback,orshortreaction,ratherthanthefivereversalswewouldnormallyexpect.Asdiscussedpreviously,ifthishappens,themissingroofimpliesthattheDomedHousewillbeunusuallyshort-lived.Anexampleofthisphenomenoncanbeseen

inthe1948formationinFigure5.5.FalseStarts

SometimeswhatisperceivedasthetopoftheFirstFloorWallisnotcorrect.Oftentimesweseealittledipafterthestrongadvanceofthewallanditistemptingtocountthatasthefirstreversaloftheroof.“Thisisapeculiaritywhichcomesupinmanytrianglesandsimilar

chartpatterns,bothintheaverageandindividualstocks.Ifthefirstsell-offinatradingrangeisshallowerthanthenexttwo,itmaynotcountastheFirstReversalatall,eventhoughitlinesupwiththemsymmetricallyonthechart.”Figures5.3and5.4bothshowfalsestartstotheensuingtriangles.Thisirregularityshouldnotprovideanythingmorethananannoyancetotheanalyst.

Beingawareofthepossibilityofthispeccadillowillhelptoavoidunnecessaryfrustration.

SecondFloorWallTheFirstFloorRoofissubsequentlyfollowedbyanothersharprise,referredtoastheSecondFloorWall(seeFigure5.9).TheSecondFloorWall,liketheFirstFloorWall,ischaracterizedbyanabruptspurtupward.

Lindsayalsosaidtowatchforhighvolumeduringthe“construction”ofthewallbecausethattooisacharacteristicofthewall.

Figure5.9.SecondFloorWall.

TheCupolaandtheDeclineOncetheadvancefromtheFirstFloorRoof(theSecondFloorWall)iscomplete,theaveragepullsbackslightly.Pricecanthenbeexpectedtomakearuntoyetanothernewhigh.“Normally,theaveragegainslessonthelastlegofamajoradvance(despitecontinuedhigh

volume)thanonmostofthepreviouslegs.Ifthisisnottrue,themarketisnotmakingatop.”Inotherwords,theadvanceslowsdownasitgetsolder.Thenewhighisnotheldandtheaveragequicklypullsbackagain,retracingtheentiregain.Oncethenewandfinalhighhasbeenpassedandpricesstarttodrop,theyusuallydonotdropveryfarbeforetheystarttorallyagainandformaclearcutright

shoulderortherightsideofthesecond-storyrooftop(seeFigure5.10).AhorizontallinedrawnthroughtheleftandrightshoulderoftheCupolasuggeststheroofofasecondstory.Thesemovementssuggestacupolaorasmalldomeonthetopofabuilding,hencetheformationiscalledaDomedHouse.Theentire3PDhformationiscappedbyasmallhead-and-shoulders

patternthatresemblesthecupolaofahouse.

Figure5.10.Cupola.

Anabruptdeclinethenfollowsthatrightshoulder.Thislargerdeclinefromthe

rightshoulderoftheCupolaprecedesanothershortrecovery.Thetopofthissecondrecoveryoftenendsatalevel,relativetotheFirstStoryRoof,whichsuggeststhatitistherightsideoftheFirstStoryRoof.Thisadvancecanalsobeinterpretedastherightshoulderofadifferent,largerhead-and-shouldersformation.Inthishead-and-shouldersformation,the

triangle-shapedFirstFloorRooffunctionsastheleftshoulder.“NotethattheFirstFloorWallisbalancedbythedropfromthefinalrightshoulder,andtherisefromtheFirstFloorRoofisoffsetbythedeclinefromthefirstrightshoulderintheCupola.Thisgivesthepatternasquareeffect.Atthesametimethereisaroundedeffectatthetopduetothehead-and-shoulderspattern.”

Afterthissecond,lower-rightshoulderiscompleted,theaveragedropsbacktotheultimatelowofthebasewheretheDomedHousebegan.“ButtherehasneverbeenanexceptiontotherulethattheentiregaininaDomedHousehaseventuallybeencancelled.”Theknowledgethattheentiregainoftheprevious(approximately)two-plusyearswillbewipedoutis

whatmakesfamiliaritywiththe3PDhformationsoempoweringandpotentiallyprofitable.EvenifatradermissesthetopoftheCupola,heorshestillhasplentyoftimetoprofitfromshortingthemarket,giventhesizeofthemoveahead.Thesizeofthatmoveiseasilyascertainedbymeasuringtheremainingdistancetothebottomofthe3PDhformation.

ConclusionInanewsletterdatedSeptember4,1968,LindsaysharedsometipsforrecognizingaDomedHousethatthereadershouldfindhelpful:“Here’showtheadvanceofJanuary1967couldhavebeenrecognizedasaDomedHouse.Alltechnicalmeasurementsofthemarketwereterrificallystrong;theadvance-decline

line,odd-lotindexes,volumeandmomentumstudies,etc.Theywereentirelytoofavorableforthemovetobejustarallyinabearmarket.Onthecontrary,theysuggestedamajorbullmarkethadbegun.Yetafterrisingonlythreeweeks,theDow-JonesIndustrialsstalled.Inagenuinebullmarketandaftersuchapowerfulstart,theaveragewouldhavekeptgoing.It

wouldn’thavehesitatedaslongasitdidbeforeandafter[thetopoftheFirstFloorWall].Itwasacombinationofabullishtechnicalpositionandasidewaysmovementwhichbeganprematurelyandlastedundulylong.TheonlywayofreconcilingthecontradictionswastoassumethataDomedHousewasunderway.”InhisAugust16,1972,newsletter,Lindsaywrotethatthemostimportant

long-termintervallastsabout15yearsorsomewhatlonger.“ItisneededtounderstandtheDomedHousefully.”The15-yearintervaliscoveredinPartIV.GeorgeLindsayismostwellknownforhisThreePeaksandaDomedHousemodel,nodoubtduetoitsdescriptive,ifawkward,name.Whilemanytechnicalanalystsarefamiliarwiththe

nameofthemodel,veryfewhaveanyexperienceusingit.Evenasuperficialfamiliaritywiththemodelshouldbeofgreatbenefittothemostpassiveinvestor.Whilethearrayofpossiblecountsmayseemconfusingatfirst,Lindsaysharedseveralexamples(seeTable3.1)inwhichonlythebasicformofthemodelwaspresentatseveralmarkettopsandthecountsthathehadestablished

weremissing.The3PDhmodelisoneofthosefewmethodsthatwillyieldresultstothebeginnerandcontinueyieldingasmoreeffortisexpendedonthepartofthestudent.PartIIIexaminestheLindsayTimingModel,whichisbothitsown,free-standingmodelaswellastheconcludingtechniquefordeterminingthecorrectcountforthe3PDhmodel.

Chapter6.TheTri-DayMethod

“ItiscalledtheTri-DayMethodbecauseyouneedtoknowthepriceofthestockaverageonjustthreedaysinordertocomputethelevelofthefinalbottom.Thecalculationcanbemade

shortlyafterthebullmarkethigh.”1—GeorgeLindsay

LindsayexplainedhisTri-DayMethod(seeFigure6.1)inaseriesoffivesupplementstohisnewsletterfromMaytoSeptember1959.InthemhedescribedanewmethodofcalculatingthelevelofbearmarketlowsusingtheThreePeaksanda

DomedHouseformation.

Figure6.1.Tri-DayMethod.

Thename“Tri-DayMethod”comesfromthefactthattoforecastthepricelevelofa

bottom,whatisneededistheleveloftheaverageatjustthreepoints:

•PointF(thetopofPeakThree)•PointG(thebottomoftheSeparatingDecline)•PointN(thetopoftheDomedHouse)

Fromthesethreepoints,twovaluesareneededtogetstarted:

•(F–G):TheextentofthelossfromPeakThreetothebottomoftheSeparatingDecline.•(N–G):TheextentofthegainfromthebottomoftheSeparatingDeclinetothetopoftheDomedHouse.

SwingoverRatioTheratio(N–G)/(F–G)is

calculatedandreferredtoasthe“Swingoverratio”(S.O.).ThisSwingoverratioisusedasamultiplier.WhentheSwingoverislessthan2,theexactSwingoverbecomesthemultiplier.WhentheSwingoveris2orgreater,themultiplierissimply2.Themultipliercannotexceed2exceptinonecircumstance:IfthehighestpointinthewholeThreePeaksformation(itdoesnotmatterwhich

peakishighest)istenmonthsorlongerfromthetopoftheDomedHouse(pointN),then2.2becomestheupperlimitonthemultiplierinsteadofthecustomary2.

CalculationStepsThetargetpriceofthefinalbottomiscalculatedusingsimplemath.Thestepspresentedhereillustratetheprocessofdeterminingthe

targetedbottom:1.DeterminethelengthoftheSeparatingDecline(F–G).

2.DeterminethelengthoftherallyfromthebottomoftheSeparatingDeclinetothetopoftheDomedHouse(N–G).

3.Determinetheratiobetweenstepsoneandtwo(theSwingover,S.O.).

A.Ifitislessthan2,theratioisthemultiplier.B.Ifitisequaltoorgreaterthan2,then2isthemultiplier.C.IfthetimebetweenthehighestpeakandthetopoftheDomedHouseis10monthsorlonger,2.2becomestheupperlimitofthemultiplier.

4.[(N–G)×S.O.]–(F–G)

=thenumberofpointsthatcanbeexpectedtobelostfollowingthetopofthemarketatPointN.

Lindsaywrotethateitherintradayorclosingpricescanbeusedforthesecalculations.The3PDhof1915–16providesanexcellent,clearexampleoftheTri-DayMethod(seeFigure6.2).PeakThree,orPointF,intheDowwasat96.08onMarch

16,1916.TheSeparatingDeclinetookitdownto84.96atPointGonApril22ndforalossof11.12points(F–G).

Figure6.2.Tri-DayMethod.Chartcreatedby

MetaStock®.

DuringtherisefromPointGtoPointNat110.15,theDowgained25.19points.Dividing25.19by11.12resultsinaSwingoverof2.26.Giventhatthehighestpointinthe

ThreePeaksformation(PeakOneonDecember27,1915)wasmorethan10monthsfromPointN,theupperlimitonthemultiplierbecomes2.2.TheSwingoverof2.26islimitedto2.2.Multiply25.19(N–G)by2.2.Theproductis55.42.Subtract11.12(F–G)from55.42andthedifferenceis44.30.ThisisthenumberofpointstheDowwillbe

expectedtolosebetweenpointsNandS.Subtract44.30from110.15(N)andtheremainderis65.85.ThisisthepricetargetoftheTri-DayMethodandshouldbealowofmajorimportance.TheactualbearmarketlowonDecember19,1917,was65.95.

Model3Lindsayallowedforthree

variations,ormodels,ofthe3PDhformation.InModel1,thethreepeaksareaseriesofascendinghighs,withPeakThreeasthehighest.ThisistheThreePeaksexampleinFigure6.1.InModel2,PeakThreeisthelowestpeak.InModel3,thedeclinefromPointD(PeakTwo)toPointEisathree-waveaffairwithanupwardreaction,orwave2,separatingtwodecliningwaves.ThelowatPointE

liesbelowthefirstlowatPointC,fulfillingthe3PDhrequirementofareactiontoalowbelowapreviousreactionlow.Fromthere,pricesadvancetoPointF,whichisthehighestpointoftheentireformation.ThereactiontoPointGholdsabovethelevelofE.ThisistheonlymodelinwhichthereactionfromPointFdoesnotundercutoneoftheprevioustworeactions.WhentheFirstFloorWallis

retracedalmostallthewaybacktothebottomoftheSeparatingDecline,aModel3canbeassumed.InModel3,thedowntrendthatordinarilyrunsfromHtoJbecomestheSeparatingDecline.InthecaseofaModel3ThreePeaksformation,wecountfromthishigherbottomtothetopoftheDomedHousetodeterminetheSwingover(asopposedtocountingfromthe

reactionlow,whichundercutapreviouslow).The3PDhformationof1951–52(seeFigure6.3)providesanexampleofModel3whentheaveragedroppedfrom280.29atFinAugust1952to263.06atGinOctober,alossof17.23points.

Figure6.3.Tri-DayMethod—Model3.Chartcreatedby

MetaStock®.

TheDowthenroseto293.79atNonJanuary5th,againof30.73points.Divide30.73by17.23.Thedividendis1.78.

That’stheSwingover.Sinceitislessthantheupperlimitof2onthemultiplier,theexactSwingoverbecomesthemultiplier.Multiply30.73,thegainfromGtoN,by1.78.Theproductis54.70.Fromthatamount,subtract17.23,thelossfromFtoG.Theremainderis37.47.ThisisthenumberofpointstheDowshouldlosebetweenNandS.

Deduct37.47from293.79,thepriceatN.Theremainderof256.32isthecalculatedTri-DaypriceatS.TheactuallowofSeptember13,1953,was255.49.NotethattheintradaylowatEexceededthelowatCby0.30points.AlsonotethatthecountwasnotfromthislowbutfromahigherlowatG.

Complex

ArrangementUnlikethepreviousexamples,therearetimeswhenamorecomplicatedmethodmustbeused.AComplexArrangementoccurswhenanadditional3PDhisfoundcontainedintheFirstFloorRoof.Thissituationisoftenprecededbypricesrisinggraduallyintheearlystagesofanadvance.From1926tothemiddleof1928,

fromDecember1917toFebruary1919,andfrom1943tomid-1945,thepatternwasthesame.TheDowcreptupsteadily,buttherateofgainwasmuchlessthanisnormalinbullmarkets.SimilartotheModel3scenario,thereactiontoPointGholdsabovethelevelofE.Towardtheendofanadvancethathasproceededforayearorlongerwithasubnormalrateofgain,theconvention

thatoneofthedeclinesmustdipunderthelowofaprevioussell-offisnotrequired.WheneveraDomedHouseiscomplex,theSwingovermultipliermustbecomputedwithreferencetotheThreePeakscontainedwithintheFirstFloorRoof,theformationnearesttothefinaltop.Theentiremovement

betweenthelowinJune1928andthehighof1929isaComplexDomedHouse,aninitialThreePeaksformationfollowedbyasecond3PDhformationcontainedwithintheFirstFloorRoof(seeFigure6.4).TheDowmadeahighof327.08onMay4,1929.Itdroppedto293.42onMay27th.ThiswastheSeparatingDeclineoftheformationintheFirstFloorRoof.Thelosswas33.66

points.

Figure6.4.Tri-DayMethod,Complex

Arrangement.ChartcreatedbyMetaStock®.

TheDowthenroseto381.17onSeptember3rd,againof87.75points.Divide87.75by33.66.Theratiois2.61.That’stheSwingover.Less

than10monthspassedbetweenthehighestpointofthe3PDhformation(May4,1929)andPointNthefollowingSeptember,sotheupperlimitonthemultiplieris2.In1928,theDowwasat220.96atPointFonJune2nd.Itdroppedto201.96onJune18th,alossof19points.ThiswastheSeparatingDeclineoftheThreePeaks

patternthatprecededtheentireDomedHouse.From201.96atGonJune18th,theDowroseto381.17atPointNonSeptember3,1929,againof179.21pointsintheDomedHouse.Multiply179.21by2.Theproductis358.42.From358.42subtract19(thelossintheSeparatingDecline),andtheremainderis339.42.Thisisthenumberof

pointsthattheDowisexpectedtolosebetweenpointsNandS.Deduct339.42from381.17andtheremainderis41.75.ThatistheprojectedTri-DaypriceatpointS.TheactualbearmarketlowonJuly8,1932,was41.22.

Conclusion“Inanygiveninstance,theTri-DayMethodmayprove

moreaccuratewithoneaveragethanwithanother.Itisadvisabletomakeeachcalculationintwoormoreaverages.”NotallThreePeakpatternscanbeusedtocalculatealow.Someofthemmustsimplybeforgotteninthelightoflaterfluctuations.“Markethistoryshowsthataformationcanbediscarded(1)whenitissupplantedby

anotherpatternwhichprecedesorfollowsit,(2)whenitisshortorimperfectlyformed,or(3)whenitoccursataverylowlevel,historically,intheaverage.”Themoreflawsthereareintheshapeandcharacterofthepattern,thelessconfidencethatcanbehadintheforecast.ThepointsF,G,K,L,M,N,andsoonaretobeappliedto

actualmarketfluctuationsonlyinretrospect.Ifsomeonetriestolocatethematthetimetheyoccur,hewillalmostsurelybemistaken.Itmustbeemphasized:ProjectionsofpointScanbemadeonlyaftertheentireformationiscomplete.AssoonasitisdecidedthattheformationisaDomedHouse,itisknownthatthepriceaveragemustreturnto

thebottomoftheThreePeaks,regardlessofwhatthecalculatedpriceis.

Endnote1Unlessotherwiseindicated,allquotesinthischapteraretakenfromGeorgeLindsay’sself-publishednewsletter,GeorgeLindsay’sOpinion,May–September1959.

PartIII.TheLindsayTimingModel

Chapter7:OverviewoftheLindsayTimingModelChapter8:KeyDatesChapter9:TheLow-Low-

HighCountChapter10:CombiningtheCounts

Chapter7.OverviewoftheLindsayTimingModel

“Mosttimingstudiesarriveatadecisiontobuyorsellthroughmethodswhichhavenothingdirectlytodo

withtimeitself.Theproceduredescribedbelowistimingintheliteralsenseoftheword—merelycountingthenumberofdays....Onitsface,itisforshort-termtraders.Butitcanalsobenefitinvestors:theywillsimplyuseitlessfrequently.”1—GeorgeLindsay

In1965,GeorgeLindsaypublishedanewslettertitledATimingMethodforTraders.Thegoalofthismethodormodelistoidentifytradabletopsinthemarkets.PartIIofthisbook,“ThreePeaksandaDomedHouse,”mentionsthattheTimingModelisthe“concludingtechnique”ofthe3PDhmodel.ItalsosaysthattheTimingModelisafree-standingtechniqueallbyitselfandisnotinneedofany

otherindicatorsormodels.Thetopsidentifiedbythismodelarenotonlythesecularorcyclicalbullmarkettopsidentifiedbythe3PDhmodel.ThetopsanticipatedbytheTimingModelrangefrombullmarkettopstotopsfollowedbycorrectionsofonlyafewdays.Chapter9,“TheLow-Low-HighCount,”explainshowtherelativedurationanddepthoftheexpectedcorrectioncanbe

anticipated.InhonorofLindsay(andinanattempttogivehismodelalessawkwardepithet),thisbookreferstothisworkas“TheLindsayTimingModel.”SimilartotheThreePeaksandaDomedHousemodel,theLindsayTimingModelcanbeusedbyserioustradersorpassiveinvestors.“Themostcasualuseoftheprinciplescanbeofsome

benefit.”Andlikethe3PDhmodel,theLindsayTimingModelwillyieldadditionalinsighttotheuserasheorsheinvestsmoretimeintobecomingfamiliarwithitandunderstandingit.Lindsaywrotethatthemodelcanbeappliedtoindividualstocks,stockmarketindexes,andcommodityfutures.Healsowroteinadifferentnewsletterthatthismodel

doesn’tworkverywellinabullmarket.ExperiencehasshownthatLindsay’scommentwasmoretheresultofmodestythanofaccuracy.Themodelcanprovequiteusefulinabullmarket,particularlywhenusedtoconfirmbearish,short-to-intermediate-termsignalsfromotherindicators.AllhisexamplesfocusedontheDowJonesIndustrialindex,butithasbeenconfirmedthatthe

modelworksonawidevarietyofassetclasses.Lindsayclaimedtohavetestedhistimingmodelbackto1861.Inthiscase,heexplainedthathetestedthemodelpriortotheinceptionoftheDowIndustrialsbycomputingadailyaverageof“sevenmarketleaders”from1861to1885.

Introductiontothe

LindsayTimingModel“VirtuallyeverybullmarkethighonrecordcameattheendofaTop-to-Topcount;andthekeydate,fromwhichthecountbegan,wassharplydelineatedonthechart.”Themodelitselfiscomposedofthreebasicconcepts:

1. The107-dayTop-to-Top

interval2. TheLow-to-Low-to-

Highinterval3. Theconvergenceof

thesetwointervals,whichgivesusourtargetedtoporhigh

TheLindsayTimingModelisunusualinthatwhilethecyclearchetypeattemptstoidentifytimeintervalsbetweenlowsinprice(thatis,a21-daycyclecounts21days

betweensuccessivepricelows),Lindsay’sapproachtothisparticularintervalusespricehighs.Acountof107calendardaysfromacorrectlydeterminedoriginshouldbeexpectedtoidentifyatopinprice(seeFigure7.1).Themodelallowsfora±5-daywindowoneithersideofthetargeteddate.Inotherwords,the107-dayintervalmaybeonlya102-dayintervaloritmayextendto

112days.Anotherdifferencebetweenthe107-dayintervalandthearchetypecyclethatmostreaderswillbeinclinedtothinkofisthatthe107-dayintervalisnotacycleatall.Itisreallyanintervaloftime.Oneshouldnotexpectaregularlyrecurringcycleof107daysfromthismodel.These“cycles”aremoreappropriatelyreferredtoas“intervals.”

Figure7.1.The107-DayTop-to-Topcount.

TheTop-to-Topcountisnotfromonehightoanotherbutfromalowwithinatop(RangeTop)toatop(the

intradayhighofanadvance).Theproblemofsemanticsbecomesincreasinglyclear.Oncethekeydateisidentified,itisaneasytasktocountforward107daystofindthetargeteddateforthehighoftheadvance.Countingisdonewithcalendardays,nottradingdays.Thisbecomesaneasytaskwiththeplethoraofonlinecalendarsanddatecountersavailable

freeofchargeontheInternet.Thetargeteddateforthehighoftenfallsonthesamedateasthetruehighofanadvance.Lindsayidentifiedthehighofanadvanceusingintradayhighsandnotclosinghighs.Heevenwentsofarastowrite,“Thehighdayattheendofthecountisdeterminedaccordingtotheintradayorhourlyprices.”Itcertainlyisn’tnecessarytouseintradayorhourlypricestoimplement

theLindsayTradingModel.AllexamplesLindsaysharedinhiswritinguseddailycharts.Thetruehighoftheadvanceisexpectedtobecontainedwithina5-daywindowoneithersideofthetargeteddate.Therefore,weshouldexpecttofindthetrue,orintraday,highanywherefrom102daysto112daysafterthekeydate.Lindsaytookthe

timetowrite,“ItiscomparativelyinfrequentforaTop-to-Topcounttolastaslongas111or112days.”Healsoexplainedthatoneexceptiontotheprecedingshouldbenoted:A107-daycountcanalsoexpireattheendofatradingrangeorcongestiononthechart.Itneednotbewithinthe5-daywindowifpricehasbeencontainedwithinatradingrangesincethetargetedhigh.

Oncethetargetdateofthe107-dayintervalisdetermined,theanalystwillthenattempttofindLow-to-Low-to-High(LLH)intervalsthatconvergewithit.TheidentificationandcreationoftheLLHintervalareexplainedinChapter9.Fornow,oneneedonlyunderstandthatanLLHintervaliscomposedoftwoequaltimeintervals,thefirstofwhichisbetweentwoprice

lows.Thesecondintervalisbetweenthatsecondlowandapossiblepricehigh.AsimpleexampleoftheLLHintervalcouldbealowpinpointedonthefirstdayofthemonthandanotherlowfoundonthefifthdayofthemonth.Thetimeperiodbetweenthesetwolowsiscountedasfourdays.Fourdayswouldthenbeaddedtothesecondlowtoidentifyapotentialhighontheninth

dayofthemonth.Clearly,countingforwardanumberofdaysfoundbetweentwolowsdoesn’talwaysidentifyahighinprice.Whatthemodelistryingtodo,bycombiningtheLLHintervalapproachwiththe107-dayTop-to-Topintervalapproach,istriangulateashorttimeintervalinwhichatradabletopisexpectedtooccur.Onecanthinkoftheconvergenceoftheseintervals,during

somewindowoftime,ascreatingamassthathasitsowngravity.Thegravitydrawsthepriceupwarduntilthatpointintimehaspassed.Oncethatpointintimehaspassed,theconvergencelosesitsgravityandthepricebeginstodrop.Mostmarkettimingmodelsinvolvefocusingoncurrentmarketaction.Thiscommonaspectofmostindicatorscan

causetheanalystortradertofeelpressuredandtosubsequentlymakeadecisionunderduress.OneofthemanyattractionsoftheLindsayTimingModelisthatthefocusoftheanalystisdirectedtopastmarketfluctuations.Thistendstorelievesomeofthepressureofbeingforcedtomakeadecisiontodaybasedontoday’s,orveryrecent,marketaction.Forexample,

inthecaseofthe107-daycount,theanalysthas107daysinwhichtoarriveathisestimate.Thisisaniceidiosyncrasyofthemodel.ModernreaderswillappreciatethefactthatthecountinginLindsay’stimingmodelusescalendardaysratherthantradingdays.Thisenablesthepractitionertouseanyoneofanumberofonline(Internet)datecountersand

calendarstoquicklycountthenumberofdays(“...merelycountingthenumberofdays”)betweenpricelowsinthepastandtofindthedatesoftargetedhighsinthefuture.

TerminologySemanticsquicklybecomesanissuewhenoneisreadingLindsay.Manyoftheostensiblysimpletermshe

usedapplytomorethanjustoneconceptandquicklybecomeconfusing.Forexample,whenLindsayreferstoa“top,”ishereferringtothetargeted,finaltopoftheadvance,orishereferringtothetopfromwhichwemeasuretheoriginpointofthe107-daycount?Isthefinal“top”hereferstoanabsolutehighinpriceoristhistopthetimespanofthe±5-daywindowthat

encompassestheintradayhigh?TheseareallconceptsthataresimpletounderstandbutneedtobedifferentiatedandlabeledinordertounderstandandapplytheLindsayTimingModel.Thisbookattemptstodifferentiatethesesimpleconceptsbyaddingafewtermstotheconventional“Lindsayvocabulary.”ReaderswhoarenotfamiliarwithLindsay’sworkwillnevernoticethese

additions.ThosereaderswhoarealreadyacquaintedwithLindsay’sworkwill,hopefully,notbedistractedbythenewterminology.Indeed,itishopedtheywillfindtheadditionalcategorizationandlabelingofconceptshelpful.

AFewSimpleRemindersEveryonesometimesloses

trackoftheforestwhileconcentratingonthetrees.Whenbeginningone’sstudyoftheLindsayTimingModel,astudentwoulddowelltorememberthisonesimpledollopofcommonsense:Inorderforthemodeltocalla“top,”themarketmustbeadvancing.Ifthemarkethadbeenadvancingpreviously,atargeteddateattheendofatradingrangeisacceptable,too.Butsometimesthe

targeteddateoccursduringamarketdecline.Topsdon’toccurinfallingmarkets!Don’texpecttheTimingModeltodotheimpossible.Afallingmarketisaneasywaytoruleoutthepossibilityofatopandthusisanothertooltobeused.Thatraisesaquestion:Howlongmustamarketbeadvancingbeforeatopcanbecalled?Theanswertothatquestionhasoftenbeen“lessthanaweek.”

Itissuggestedthatonebeginthisprocessusingaspreadsheetratherthanmarkingupapricechart.Whiletheresultofmarking107-dayintervalsonachartcanbelegible,thenumberofannotationsrequiredfortheLLHmodelwillmakeyourpricechartimpossibletoread.EvenLindsaydidn’ttrytofitalltheannotationsrequiredbythemodelontojustonechart.Rather,forhis

examples,heusedtwoseparatecharts(onechartforthe107-dayintervalsandonefortheLLHintervals).Thisapproachstillnecessitatedflippingbackandforthbetweenchartsondifferentpages.Tryingtomatchupdatesontwoseparatepricecharts,whilecertainlynotimpossible,doesn’taddanythingtothelearningexperienceotherthanamarginalleveloffrustration.

Usingaspreadsheettolistallthedatesrequiredofthisapproachismuchcleanerandsimpler.Finally,iftheanalystkeepshiseyespeeled,hewillnoticethatinflectionpointsinthemarketcanoftenbeidentifiedbythe107-dayintervalmeasurednotjustfromtopsbutfrombottomsaswell.Also,LLHcountsthatfailtoidentifyapricehighmaywell

havepinpointedapricelow.Theserealizationsmaynothelpwithimplementingthemodelbutdohelptofurtherthetheory,andourunderstanding,ofintervalsandcycles.

Chapter8.KeyDates

“Thiswholetimingmethoddependsonlocatingthekeydatecorrectlyonthechart.”1—GeorgeLindsay

ThischapterexaminesLindsay’sapproachto

locatingtheoriginofthe107-dayinterval,thedatefromwhichwecountforward107days.Lindsayreferredtotheoriginasthekeydate.Thetargeteddateforthehighoftheadvanceis107daysafterthekeydate.Thetruedatecontainingtheultimate,intradayhighoftheadvanceisassumedtoliewithinatimewindowthatextends5daysoneithersideofthetargetdate.Thus,thetrue

datemaylieanywherefrom102daysto112daysfromthekeydate.Somewhereinthis5-daywindowisthetopoftherecentadvance.IfthistargetdateisnotconfirmedbyLow-to-Low-to-Highintervals,weshouldn’texpecttoomuchofadecline.Yetsomesortofdeclineisoftenwitnessed.TheproblemwithputtingtoomuchemphasisonthetimewindowwithoutconfirmationbyLLH

intervalsisthatwedon’thaveafeelforwhereinthetimewindowitisbesttogotocashortoshortthemarket.Withoutmoreassuranceofatradabledeclineemergingfromanarrowertimeframefromwhichtotimeourtrade,tradingwithnothingmorethana107-dayintervalcanoftenbe“lessthanprofitable.”Atradershouldnotexcludeothertechnicalsignalsasconfirming

indicators,butthatisbeyondthescopeofthisbook.

KeyRange“Mosttopformationsareeasytorecognizeonachartaftertheyhavebeencompletedwhichiswhenweusethem.”Thekeydate(origin)iscontainedwithinaToppingRange,whichweshallrefertoastheKeyRange.Lindsay

usedclosingpricestofindkeydatesandintradayhighstoclassifymarkettops.Lookforthelowestclosingprice(nottheintradaylowprice)whenselectingakeydate.Intheprecedingquote,the“topformation”LindsaywasreferringtowastheKeyRangeandnotthetargetrange107dayslater.Itisprobablyeasiertorecognizeatopformationthantodefineit.TheclosestLindsaycame

todefiningaKeyRangewasasfollows:“Pricesmovebackandforthoverthesamerange.Thefluctuationscanassumeanyoneofanumberofpatterns—itdoesn’tmatterwhich.Whentheaveragedropsunderthelowofthewholerange,atophasbeencompleted.”Lindsayalsowroteinoneexample:“ThefivemarketdaysfromJuly10to16...constituteaminortopformation,sincepricesbroke

sharplyfortwodaysafterwardandviolatedthepreviousminorlowpoint.”ThisbookidentifiesaKeyRangebyfindinganewhighfollowedbyaretracementtoalowthatislowerthanthefinalcorrectionprecedingtheidentifiedtop(seeFigure8.1).

Figure8.1.KeyRange.

Broadlyspeaking,therearetwotypesofKeyRanges:

•CompactTopformations•MajorTopformations

CompactTopsarethemostcommonofthetopformations.MajorTopformationsextendoveramultimonthperiodandarelikelytocontainseveralCompactTopformations.OnceCompactTopsareunderstood,MajorTopformationsareintuitivelyobvious—nothingmorethanabigCompactTop.

CompactTopFormations

“Thelowdayofthemostobviousdipinatopformationisthekeypoint.ThisiswhereeveryTop-to-Topcountbegins.”ThereareninevariationsofthiscommonframeworkoftheKeyRange,asexaminednext.Oncetheparticularvariationisidentified,findingthekeydateisstraightforwardandfairlysimple,thoughitsometimes

requiresabitofartisticlicenseandflexibilityonthepartoftheanalyst.Lindsay’sbackgroundasanartistisapparentbecausemanyofhismethodsrequiretheanalysttointerpretandgeta“feel”forwhatthemarketisdoingasopposedtoinsistingthatthemarketfitintoanypreconceivedformulas.DoubleTop

TheDoubleTopformationis

thebestformationtobeginanexaminationoftopvariationsbecauseitisthesimplest.“Wheneverthereisawell-defineddoubletop,orapproximatedoubletop,thelowdayofthedipbetweenthetwopeaksisnearlyalwaysthecorrectkeydate.”(SeeFigure8.2.)

Figure8.2.DoubleTop.

Thelowdateinatopformationcanbethoughtofasthe“centerofgravity”oftheToppingRange.Thinkinginthesetermsmayhelpthe

studenttogetafeelforwhatLindsaywasattemptingtodoinidentifyingkeydates.ExamplesofcountsfromDoubleTopscanbefoundinTable8.1.

Table8.1.Top-to-TopCountsatBullMarketHighs:DoubleTop

Formations

DoubleBottomTop

“Whenthedipendsatadoublebottom...thefirstlowisnearlyalwaysthecorrectone.”Whentherearetwoormoredipsofapproximatelyequaldepthinatopformation,thekeydate(fromwhichwe

count)islikelytobethefirstofthem.Itisalsolikelytobethedipthatcomesbeforethehighestpointofthewholetopformation.Thesecharacteristicsaregenerally,butnotinvariably,true(seeFigure8.3).

Figure8.3.DoubleBottom.

Head-and-ShouldersTop

GivenLindsay’scommentsonDoubleBottoms(previously),oneshouldn’tbesurprisedbyhisapproachtoHead-and-ShouldersTops:

“WhenthereisaHead-and-ShouldersTop,thekeydateisthelowofthedeclinethatcomesaftertheleftshoulderandbeforethehead.”(SeeFigure8.3.)FindingthekeydateinDoubleBottomsandHead-and-ShouldersTopsisagoodexampleoftheneedtogetafeelforthemarket.Isthekeydatethefirstdiportheseconddip?Luckily,asimple

solutionistocountfrombothdips.ThissimplesolutionissharpenedupusingtheexaminationofLow-Low-HighintervalsinChapter9,“TheLow-Low-HighCount.”FinalDip

AFinalDipisnotaKeyRange.ThelastdipbeforetheendofanadvanceoftenfunctionsasthekeydatewhenthereisnoKeyRangetoguideus.Thisisan

extremelycommonsituation(seeFigure8.4).“Whenatopformationisneitherahead-and-shouldersnoradouble(ortriple)top,pricesusuallyremainclosetothehighestpointonlyaveryshorttime....Insuchcases,thekeydateisnearlyalwaysthelastdiponthewayuptothehigh.Therewasnodipworthyofthenameinthosefivedays.Whenthisistrueofanytoppattern,wegobacktothelast

minordiponthewayuptothehigh.Thedipmaylastonedayorseveral.Thelowdayofthatdipbecomesthekeydate.”

Figure8.4.FinalDip.

InreferringtokeydatescomposedofFinalDips,Lindsaywrote:“Theyweresell-offslastingaboutonedaywhichcameonlytwoorthree

daysbeforethefinalhighoftheadvance.Others—likethoseofDecember1952andMay1959—weredeclineslastingfourorfivedays,whichcamefromonetothreeweeksbeforethefinalhigh.Thus,acertainamountofdiscretionisinvolvedinselectingthelastdiponthewayuptothehigh.”RangeDip

Onekeydatevariationthat

Lindsayalludedto,almostinpassing,butdidn’tattempttocategorizeissimilartotheFinalDip.ItactuallyisaFinalDipif,ratherthandefiningitasthe“lastdiponthewayuptothehigh”tradingday,onethinksofitasthelastdippriortotheKeyRange.“ThefivemarketdaysfromJuly10to16,shownatpoint9,constituteaminortop

formation,sincepricesbrokesharplyfortwodaysafterwardandviolatedthepreviousminorlowpoint.”The“previouslow”Lindsayreferredtoendedupbeingakeydateitself(seeFigure8.5).

Figure8.5.RangeDip.

UsingaRangeDipinconjunctionwithaFinalDipcannarrowthetargetrangeandprovideahigherlevelofconfidenceinthetargetdate.Thefinalhighofamove

oftenfallsbetweentargetdatesmeasuredfromthesetwokeydates.CaremuststillbetakentouseLLHintervals,however.LLHintervalsareexplainedinChapter9.BottomtoTopCounts(BTC)

“TheyareofthesamedurationasTop-to-TopCountsandarefrequentlyfoundinlongbullmarkets.Buttheybeginatanysortof

bottom,notjustatthelowpointwithinatopformation.TheyaremuchlesslikelytoresultinabigdeclinethanatrueTop-to-TopCount.”BottomtoTopCounts,orBTC,occurfairlyfrequently.TheyarethesimplestofallkeydatestorecognizebecauseoneneednotbotheridentifyingaKeyRange.Theyarenothingmorecomplicatedthancounting

forward107daysfromabottomtoapossibletop.Lookforthesecountswhenmarketsexhibitanextendedrise.Orrather,startcountingfromrecentbottomsduringanextendedrise.Whenananalyststartsaskinghimself,“WhereIStheKeyRange?”chancesaretheBTCistheappropriatecounttobeconsidering.WhenakeydatedoesnotfallwithinaKeyRange,thenthemarket

declinefollowingthe107-daycountisunlikelytobeanythinggreaterthanofintermediatescope(seeFigure8.6).

Figure8.6.BottomtoTop

SpecialClass

“Whenacountcanbetakenfromtheprimarylowofadecline,thesametypeofcountmayalsobetakenfromasecondarylowwhich

followsshortlyafterwardataslightlyhigherlevel.”CloselyrelatedtotheBottomtoTopCountisacategoryLindsayreferredtoasaSpecialClass.Lindsayexplainedthat107-daycountscouldbetakenfromeitherofthedipsafterthekeydateinFigure8.6.Countingforward107daysfromeitherofthosesubsequentdipstakesonetoa±5-daywindowinwhicha

bounceshouldbeexpectedinthedowntrendfromthehighcountedfromtheprimarylow.ThisissimilartokeydatesinMajorTops(seeFigure8.9).AkeydateinaMajorTopwilltimethestartofabiggerdeclinethatgetsunderwayfromalowerlevel.ThecountfromthesecondkeydateinaMajorTopisnotusedtoidentifyanewhigh.Thisidentified“high”shouldbeexpectedtobeashort-

livedbounceandapointfromwhichtoexpectareneweddecline.PostTopCounts(PTC)

“Thereare,however,instanceswhenthekeydatecomesafterthehighestpoint,eventhoughtherewasapossiblekeydatepriortoit.”ThePTCisdistinguishedbythetruekeydateappearingafterthehighoftheKeyRange(seeFigure8.7).A

PTCisalessfrequentphenomenonthantheothervariationsexaminedpreviously.Itshouldbethoughtofasananomalybutnotforgotten.Thetopin1929(September3rd)was113daysfromthekeydateofMay13,1929.ThekeydateinMayof1929occurredafterthehighoftheKeyRange.The113daysisunusualinthatitwasoutsideofthe102-to-112-daytargetrange,but

thedeclinefollowingthetargetdatewasunusualaswell.ExamplesofPostTopCountscanbefoundinTable8.2.

Figure8.7.PostTopCount.

Table8.2.PostTopCountsatBullMarketHighs

OnewouldbewisetowonderhowitcanbeknownwhichdipinaKeyRangeisappropriatewhenthisexceptionisalwayspossible.TheuseoftheLow-Low-Highintervalholdstheanswertosolvingthisriddle;itisexplainedinChapter9.SinkingKeyRange

TheSinkingKeyRangeconceptmightseemconfusinginachapter

concerningTop-to-Topcounts,butitisnotallthatdifficult.Inanextendeddowntrend,amarketisnotgoingtodevelopaKeyRangethatfitsthestereotype,butitnormallywillseeperiodsofconsolidationduringthedecline.Itisduringtheseconsolidationswecanlookforkeydates(seeFigure8.8).Often,thekeydatewilltaketheformofaPostTopCountasthe

marketwillexperienceasubstantialbounceafteranextensivedecline,pullbackfromthebounceprintingthekeydate,andthenbounceagainbutnotashighastheoriginalbounce.Thisconsolidationisthenfollowedbyareneweddeclineandpricesdroppingtonewlows.Thisbehaviorwouldcauseakeydatetoappearafterthehighoftheconsolidation,andtheensuingcountisreferred

toasaPostTopCount.Inthiscase,thePTCappearsinaSinkingKeyRange.

Figure8.8.SinkingKeyRange.

MajorTopFormations“Thesecondkindoftopformationisthelongdrawnoutone....Eachformationofthistypeusuallyhastwokeydates....Notethatthesekeydatesarefoundfarbelowthehighestlevelofthewholetoppattern.ATop-to-Topcountmustbetakenfrombothofthekeydatesinsuchaformation.Thecountfromthefirstoneissometimes

unimportant,ordoesn’tworkatall....Thecountfromtheseconddate...isusuallyimportantandresultsinadeepdecline.”MajorTopformationstendtoextendoveramultimonthperiodandarelikelytocontainseveralCompactTopformations.AMajorTopcanbeidentifiedusingtheconceptoftheRangeDip(seeFigure8.9).

Figure8.9.MajorTop.

AkeydateinaMajorTopformationwillmostlikelyneedtobefarunderthehighsofsuchalargeKeyRange.Thisisneededinorderto

identifythekeydatejustasinaCompactTop.AkeydateinaMajorTopwilltimethestartofabiggerdeclinethatgetsunderwayfromalowerlevel.Itmaybethatthetargetedtopisthesame,originalbounceintheconsolidationmentionedintheSinkingKeyRangeexamplepreviously.ThecountfromthesecondkeydateinaMajorTopisnotusedtoidentifyanewhigh.

Thisidentified“high”shouldbeexpectedtobeashort-livedbounceandapointfromwhichtoexpectareneweddecline.

ConclusionToppingRangesarecomposedofCompactTopsandMajorTops.Thetwotypesoftopsaredifferentiatedbythelengthoftimeinvolvedintheir

constructionandthefactthatMajorTopsusuallycontainseveralCompactTops.ThischapterhasidentifiedandlabeledtheninetypesofCompactTopsthatLindsaywroteofeitherexplicitlyorimplicitly.IncontrasttoCompactTops,MajorTopsextendoverseveralweeksandcanbeeasilymissediftheanalystisn’tlookingforthem.The

primaryuseofMajorTopsistoidentifyapointwhereanextendeddeclinebelowtheMajorTop,orToppingRange,istoberenewedandcanbeexpectedtoleadtoanevenlargerdeclinethanwhathasalreadybeenwitnessed.

Endnote1Unlessotherwiseindicated,allquotesinthischapteraretakenfromGeorgeLindsay’sself-publishednewsletter,George

Lindsay’sOpinion,duringtheyears1959–72.

Chapter9.TheLow-Low-HighCount

“Low-Low-HighCountsareusuallyaccuratewithinamarginofoneortwodays.Thisistheirpointofsuperiority.Manyseemtoworktotheexact

day,orevenhour.”—GeorgeLindsay

IntheLindsayTimingMethod,theLow-Low-HighCount(referredtoasLLH)isusedtoconfirmthe107-dayTop-to-Topcount.UsingtheLLHintervalcountsharpensupthe107-daycountconsiderablybyeliminatingless-than-ideal107-daycounts.Theconceptisquite

simple.Onebeginsbyfirstdeterminingthenumberofdaysbetweenanytwo“lows,”thencountingforwardthesamenumberofdaystoarriveatahigh(seeFigure9.1).“Theindicatedhighmaybeeitherthelastdayuporthefirstdaydown.”1TheoperativewordinLindsay’squoteis“indicated.”Ahighisnotalwaystheresultofusingthis

procedureinisolation,butevenwhennohighisproducedthemethodisstilluseful.BycombiningtheLLHcountwiththe107-daycount,Lindsaydevelopedasystemthatdoesaremarkablejobofpredictinghighsinprice.Sometimesthechangesintrendpredictedbythemodelaremoreseverethanatothertimes.Lindsaygavesuggestionstohelpdeterminetherelativedegreeofasell-

offananalystshouldexpect,andtheyareincludedattheendofthischapter.

Figure9.1.Low-Low-HighCount.

Like107-daycounts,LLHcountsaremadeusingcalendardays,nottradingdays.Whenoneisusingcalendardays,theindicateddateofahighsometimesfalls

onaSaturday,Sunday,orholiday.Todeterminewhetherthetargetedhighshouldbeexpectedtofalloneitherthedaybeforeorthedayafteracloseddayinthemarket,Lindsaysuggestedcheckingbycountingmarketdays.Fortunately,ithasbeenfoundthatthesimplerprocessofassumingaFridaytargetdateforcountsendingonaSaturdayandaMondaytargetdateforcountsendingona

Sundayworksquitewell.

DeterminingLowsBeforetheanalystcanbegincounting,heorshemustdeterminefromwhichlowsthecountswillbemade.Likekeydatesinthe107-dayTop-to-Topcount,lowsaredeterminedbyclosingprices.“Indecidingwhichdayisthelow,wegobyclosingpriceswithveryfewexceptions.”

OneexceptionLindsaynotedwasforwhathedescribedas“extreme”intradaylows.Hereagain,hefailedtodefineexactlywhatshouldbeconsideredan“extreme”intradaylowanddependedonthereader’sjudgment.Atonepoint,hewrotethatthatitwould“violatecommonsense”tocalloneparticulardaythelowjustbecauseitwastheclosinglowwhenanadjacentdaycontainedan

extremeintradaylow.“Acountcanbetakenbetweenanytwolows,nomatterhowfaraparttheyare,orwhatfluctuationstakeplacebetweenthem.Thus,thereareanenormousnumberofLow-Low-Highcounts.Sinceweareinterestedonlyinworthwhiledowntrends,weuseasmallnumberofthetotalcounts.Theymustthereforebesorted

outsystematicallytoavoidconfusion.”The“system”Lindsayusedtosortthelowswastodifferentiatebetweenwhathecategorizedasimportantlowsandminorlows.“Firstminorlowsmustbedifferentiatedfromimportantlows.”Minorlowsareeasytoidentifyastheyareanylowotherthananimportantlow.Unfortunately,Lindsay

doesn’tdefineimportantlows.Theclosesthecametodefiningimportantlowsandminorlowsiswhenhewrote,“Thedistinctionshouldbeclearfromglancingatthechart.”Forthepurposesofthisbook,weshalldefineanimportantlowinanuptrendasaretracementthatdropslowerthanapreviouslowintheuptrendpriortothemostrecenthigh(similartofindingaKeyRange).Animportant

lowcanalsobethoughtofasachangeintrendfromdowntoup.Asfordowntrends,alltheexamplesofimportantlowspresentedbyLindsayindowntrendsappeartobeformsofthe“extreme”intradaylowsdiscussedpreviously.Healsowrotethata“violenceoffluctuations”cancauseanimportantlow.Aviolentfluctuationwouldbeexpectedtoprintanextreme(intraday)low.In

thisbook,amajorlowinadowntrendisalowthatprecedesanupwardretracementthatclimbshigherthanapreviousupwardretracementfoundinthesamedowntrend.

CountsOncetheimportantlowsandminorlowshavebeenidentifiedonapricechart,countingtheintervals

betweenlowscanbeginandtheresultingcountsanddatesrecordedinalog.Here,Lindsaydistinguishedbetweenimportantcountsandminorcounts.Healsotookcaretoexplainhowlongeachtypeofcountshouldbeexpectedtohaveaneffectonthemarket—thatis,thelongestintervaltheanalystneedstotrackforeachtypeofcount.Therearefourseparatecountstobeaware

of:twoimportantcountsandtwominorcounts.

ImportantCountsAcountfromoneimportantlowthroughanotherimportantlowisratedasanimportantcount.Animportantlowhasamaximumlifeoftwoyears.“Forthatlongafteritisestablished,takecountsbetweenitandeveryother

importantlow.”Thismeansthatanimportantlowcanbeexpectedtohaveaneffectonthemarketforthenextfouryearsbecausecountingforwardtwoyearsfromasecondimportantlow(identifiedtwoyearsafterthefirstimportantlow)wouldcoveratotaloffouryears.Ofcourse,itisonlythosedatesthatarepinpointedbythecounting,andnotthetimebetweenthedates,thatare

importanttobearinmind.Acountfromanimportantlowthroughaminorlowalsoratesasanimportantcountprovidedthattheminorlowisnotmorethanthreemonthslater.Thisthree-monthruleeliminateswhatcouldhavebecomeanoverwhelmingnumberofimportanttominorcountsduringtheprecedingtwoyears.

MinorCountsAcountfromoneminorlowthroughanyotherminorlowisratedasaminorcount.Acountfromaminorlowtoanimportantlowisalsoaminorcount.Thenumberofminorcountsiskeptmanageablebythefactthataminorlowisvalidfornomorethanfourmonths.“Duringthatperiod,

takecountsbetweenitandeveryotherlow,whetherimportantorminor.”“Severalcountsareoftenmadethroughthesamelow.”Acountcanbetakenbetweenanytwolowsnomatterhowfaraparttheyare.Thereadercaneasilyimaginehowthiscouldbecomeaterriblemessandthataspreadsheetisanecessarytool—evenmoresooncethe107-daycountsare

included.One’ssanityissaved,however,bythetimelimitsLindsayplacedonthecounts.

CombiningLLHCountswith107-DayCountsAtthispoint,the107-daycountshavebeendetermined,importantlowsandminorlowsidentified,andthedifferentcountsalltakenand

listedinaspreadsheet.Nowtherecordeddataisexaminedtodetectconvergingdatesanddateswithinthesamecluster.“Atfrequentintervals,comparethelistwiththeexpirationofanyfutureTop-to-Topcountswhichareapparent.RetainallminorcountswhichexpirewithinaboutaweekoneithersideofaTop-to-Topcount.Keepallimportantcountswhichexpirewithinfiveorsix

weeksofaTop-to-Topcount.”Thatlaststatementshouldcausethereadertopause.Itwouldseemtoinvalidatethe±5-daywindowofthe107-daycountifdatesasfarasfivetosixweeksawayaretobe“datesofinterest.”Lindsayappearedtocontradictthisinstructionhimselfwhenhewrote,“Low-Low-Highcountsareusuallyaccuratewithinamarginofoneortwodays—

unlike107-daycycleswiththeir5-daywindow.Thisistheirpointofsuperiority.Inallotherrespects,Low-Low-HighcountsarelessimportantthanTop-to-Topcounts.”IftheLLHcountsaretonarrowourtargetrangefroma5-daywindowtoa2-daywindow(oneithersideofthetargetdate),thenitisconfusinghowanimportantcountfiveorsixweeksawayshouldbeofconcern.The

chieffunctionofanLLHcounttellsuswhethertheTop-to-Topcountwilllast103,107,or111days.ThisconfusionisclearedupinChapter10,“CombiningtheCounts,”inadiscussionoftradingranges.Fornow,itisimportanttobeclearonLindsay’sbasicguidelines.

ExpectedSizeoftheDecline

“ATop-to-Topcountcanbeusedalone.ALow-Low-Highcountcannot.Itsonlyvalueliesinthewayitcombineswithsomeothercount.AnimportantLow-Low-Highcountshouldtheoreticallyresultinabiggerdeclinethanaminorone.ButtheextentofthedeclinedependsonhowcloselytheLow-Low-Highcountagreeswithsomeothercount.”

Togetabigdeclineinthemarket,thefirstrequirementisthattheremustbeaTop-to-Topcount.Thesecondrequirementisthatthe107-dayTop-to-TopcounteithermustapproximatelycoincidewithanimportantLow-Low-HighCount,or,asanalternative,mustexpirewhiletheaverageisinthesametradingrange.Lindsaycallsthistradingrangea“cluster.”Thethirdrequirementto

expectabigdeclineisthataminorcountmustcoincidewithboththemajorcountandthe107-daycount.Lindsayneverexplainedwhata“big”declinemeanttohim.Fromhiswriting,onecanassumethathemeantadeclinethroughwhichaninvestorwouldprefernottostayinvested.Amilddeclinecanbeexpectedwithamixofa

minorcountanda107-daycount.Thismatchupisnotexpectedtoproduceadeclineofinteresttoanyoneotherthanthemostnimbleoftraders.LindsaydidsuggestanexceptiontohisrulerequiringaTop-to-Topcount.Hewrote,“Therearecases,however,whenseveralLow-Low-Highcountscoincide.Theymaythenbeused

withoutconfirmationbyanyotherkindofcount.”ThatstatementisexploredmorefullyinChapter10.

ConclusionThefollowingisaquicksummaryofthischapterandcanserveasaquickreferenceguideinthefutureforthereader:TheLow-Low-HighCountisusedtoconfirmthe107-day

Top-to-Topcount.Importantlowsandminorlowsmustbeidentifiedandlogged.Countsmustbetakenbetweenallimportantlowswithintwoyearsofoneanother.Countsaretakenfromallimportantlowstoallminorlowsnotmorethanthreemonthslater.

Countsaretakenbetweenallminorlowswithinfourmonthsofoneanother.Countsaretakenfromaminorlowtoanyimportantlowsnotmorethanfourmonthslater.AbigdeclinecanbeexpectedonlyifaTop-to-Topcountispresent.

Endnote1Unlessotherwiseindicated,all

quotesinthischapteraretakenfromGeorgeLindsay’sself-publishednewsletter,GeorgeLindsay’sOpinion,duringtheyears1959–72.

Chapter10.CombiningtheCounts

“Togetabigdeclineinthemarket,theremustfirstofallbeaTop-to-Topcount.Second,theTop-to-Topcountmusteitherapproximately

coincidewithanimportantLow-Low-Highcount;or,asanalternative,itmustexpirewhiletheaverageisinthesametradingrange.”1—GeorgeLindsay

Lindsaycreatedfour2categoriesofhowTop-to-TopcountsmightcoincidewithLLHcounts,andtheyarepresentedinthischapterwith

examples.Notallcategoriesshouldbeexpectedtoproducegreaterthanmarginalresults.Somecombinationsaremoreeffectivethanothers.Recognizingthedifferentcategoriesinrealtimewillaidinestimatingthedepthofanexpectedmarketdecline.Inhisoriginalnewsletter,Lindsayusedexamplesfrom1961and1962.Thisbookdrawsfromhisoriginalexamples.Alist

ofalltheTop-to-TopcountsinthisperiodcanbefoundinTable10.1.

Table10.1.PrincipalTop-to-TopCountsBetweenAugust1961andMarch

CoincidentCounts“Whenseveralcountsjibesoperfectlywehavetheidealsetupforasharpdeclineimmediately.”Inthiscase,

Lindsaywasreferringtocountsexpiringwithin24hoursofeachother.ThefirsttaskistolocateaKeyRange(thereareseveralKeyRangesinthetimeframeshowninFigure10.1).TheKeyRangebetweenMay31,1962,andJune6thisanexampleofaSinkingKeyRange(aconsolidationinadecliningmarket).ThiskeydateisanexampleofaPost

TopCount(PTC)becausewehaveidentifiedJune5thasthekeydatebutthehighoftheKeyRangefellbeforehandonMay31st.Countingforward107daysfromthekeydatetargetsSeptember20th.ThistargeteddateistwodaysaftertheintradayorTrueHighonSeptember18th,whichiswellwithinthecount’sfive-daywindow.(AsforthehighofAugust23rd,workable

countshavebeenfoundforthishigh,buttheydon’tcoincidewithin24hours;hence,theyarenot“CoincidentCounts.”)

Figure10.1.CoincidentCounts.Chartcreatedby

MetaStock®.

Thenexttaskinourexampleistoidentifyimportantandminorlows.TheextremeintradaylowonMay29,1962,qualifiesasanimportantlow.Thereexist

severalimportantandminorlowsbetweenMay29thandthetargeteddateofSeptember20th.Theanalystwouldbeexpectedtotakecountsbetweenallofthem.ThedoublebottominlateJulyisagoodremindertonotsuccumbtothetemptationofexcludinganylowsbecausethesecondlowonJuly25thisthelowthatcompletesthepuzzle.Countingfromthedayoftheextremeintraday

low(May29th)totheminorlowinlateJuly(July25th)yieldsacountof57days.Countingforward57daysfromthatminorlowinJulyproducesthedateSeptember20th—theexactdateproducedbythe107-daycountandwithin2daysoftheintradayhighoftheadvance.Thiscountisanimportantcountbecauseitoriginatesatanimportantlow.

AnotherLLHcyclepointstoourtargeteddate.TheovertimportantlowonJune25,1962,counts43daystotheminorlowofAugust7th.Countingforwardanother43daysfromthesecondlowofAugust7thtargetsSeptember19th,only1dayafterthedateoftheTrueHighoftheadvanceand1daybeforethe107-daycounttargetofSeptember20th.ObservethatLindsayusedtheintraday

lowonJune25thinthisexample,buthechosetheclosinglowofAugust7th.InJuly,heusedtheintradaylow,againusinghisexceptionfor“extreme”intradaylows.ComparingLindsay’suseofintradaylowsversusclosinglowsbeginstogivetheanalystafeelforwhatLindsayconsidered“extreme”(sinceheprovidesnodefinition),butoneshouldnotfailto

countthroughalllows.Lindsayincludedafinalexamplethatdoesnotbelonginthiscategory(CoincidentCounts),butthereaderwoulddowelltoexamineitwhilefocusingonthisparticularTop-to-Topcount.ThistimehecountsfromtheimportantlowofJanuary29,1962,andlabelstheclosinglowofMay28th(ratherthantheextremeintradaylowadaylater)as

thesecondlow—acountof119days.Countingforwardanother119dayspointstoSeptember24th.Thisdateisafterthedeclinehasstarted(hence,thisLLHintervalfailstotargeta“high”)butiswithinthe5-daywindowoftheTrueHigh.ThisisanexampleofhowtheseconddateinanLLHcyclemaynotnecessarilybea“high”butcanplayaroleinpinpointingatop.

Clusters“Whenthelastcountofaclusterexpires,pricesbegindroppingatafasterpace—ifanimportantdeclineiscomingatall.”Forthiscategory,Clusters,LindsayusedexamplesfromtheMajorTopformationof1961–62(seeFigure10.2).MajorTopformationstendtoextendoveramultimonth

periodandarelikelytocontainseveralCompactTopformationsasthisonedoes.“Thesecondkindoftopformationisthelongdrawnoutone....Eachformationofthistypeusuallyhastwokeydates....Notethatthesekeydatesarefoundfarbelowthehighestlevelofthewholetoppattern.ObservehowfarthekeydatesofSeptember25,1961,andJanuary29,1962,dipbelowtheformation.

Figure10.2.Clusters.ChartcreatedbyMetaStock®.

WebeginbyfindingKeyRangesandthekeydateswithinthoseKeyRanges.ThemostobviouskeydateoftheMajorTopformationliesinaCompactFormation/Double

TopandfallsonNovember30,1961.Itcounts107daystoMonday,March19,1962.TheTrueHighwasprintedtheprevioustradingday,Friday,March16th.TrueHighsina107-dayTop-to-Topcountaredeterminedbyintradayhighs.Afteridentifyingkeydatesandtargetdates,importantlowsandminorlowsaredetermined(usingclosing

prices).TheminorlowofFebruary26,1962,countsninedaystotheminorlowofMarch7th.CountinganotherninedaysforwardtargetsthesamedateastheTrueHigh,March16th.ThisisnotanexampleofcountscoincidingimperfectlybecauseitisaperfectmatchwiththeTrueHighandonlyatradingdayawayfromthetargeteddate.Aminorcount,however,isnotreliablewithoutan

importantcounttoconfirmit,andthefollowingimportantcountisanexampleofcountscoincidingimperfectly.January29,1962,isanimportantlowthatcounts28daystoFebruary26th.Counting28daysforwardfromFebruary26thtargetsMarch26th.Lindsaycalledthisimperfectconvergenceofa107-daycount,withminorandimportantlows,acluster.

“ButaTop-to-TopcountmusteithercoincidewithsomeimportantLow-Low-Highcount,orelseformaclusterwithone.”Inacluster,thelowsthathavebeenidentifiedneednotfallinasymmetricaltradingrangebutdoneedtoremaininthesamegeneralarea.Aclusterseldomlastslongerthanfiveorsixweeks.Aclusterrequiresanexpiringimportantcount,asdoall

successfultargetranges.LindsaydescribedthepriceactionoftheDowaftertheexpirationoftheTop-to-Topcountasmerely“driftingoff”untilMarch26th,whentheimportantcountexpiredandthefirstsignificantdeclineoccurred.“Whenthelastcountofaclusterexpires,pricesbegindroppingatafasterpace—ifanimportantdeclineiscomingatall.”Pricesshoulddropinearnest

oncethefinalcountinaclusterexpires.Additionally,inthisMajorTop,weseeimportantlowsonbothSeptember25,1961,andJanuary29,1962.Theyshouldbeexpectedtoformanimportantcountandare126daysapart.Countingforwardanother126daysarrivesatJune4,1962.Thistargeteddateiswithin2tradingdaysoftheSinkingKeyRange’s

intradayhighonMay31st.June4,1962,sawaviciousbreakinpricebutnofollow-throughwasseenuntilJune11th.Whywasthat?“PricesneverbreakshortlybeforeaTop-to-Topcountisduetoexpire.”Counting107daysfromthekeydateofFebruary26,1962,pinpointsJune13th,puttingJune11thwithinits±5-daywindow.“PricesalwaysrisejustbeforeaTop-to-Topcountends.”When

severalcountscombine,thischaracteristiccouldcausetherangetobecomeanonsymmetricalcluster.

LLHCountsOnly“Therearecases,however,whenseveralLow-Low-Highcountscoincide.Theymaythenbeusedwithoutconfirmationbyanyotherkindofcount....Abigdeclinewithinashorttimenormally

occursonlyafteraTop-to-Topcountexpires.”LindsaywasquitedefiniteabouthisrulethatfindingonlyoneLLHcountwasworthlessandthatitmustbecombinedwithaTop-to-Topcount.ThechartLindsayusedisnotincludedhereastheconceptisquitesimplebutbearsrepeating:“Abigdeclinewithinashorttimenormallyoccursonlyaftera

Top-to-Topcountexpires.”HisearlierstatementassertsthataconfluenceofLLHcountswithoutaTop-to-Topcountmaybeused,butbothhisexampleandhisstatementmakeitclearthatanyexpecteddeclinewillbeabbreviated.

TradingRanges“Whenseveralimportantcountsfailtocoincide,but

expirewithinafewweeksofoneanother,theresultisusuallyatradingrange.Wheneverthisistrue,thepresumptionisthattheaveragewillfallunderthelowestlevelofthetradingrangeassoonasthelastimportantbearishcountexpires—eventhoughtheexactdayofthebreakmaybedeterminedbyaminorcount.”

Lindsaymadenoteofthisidiosyncrasyatothertimestoo—thetendencyofpricetoholdupuntilthelastminorcounthasexpired.Thischaracteristicappliestoallcategories.Anotheruniversalcharacteristicthathefeltwasworthyofmention:“Whenakeydateoccursinaperiodofdecisivepricefluctuations[1/29/62],wecanhavemore

confidencethattheresultingcountwillproduceadeepdecline.”AkeydateinaMajorTopwilltimethestartofabiggerdeclinethatgetsunderwayfromalowerlevel.ThecountfromthesecondkeydateinaMajorTopisnotusedtoidentifyanewhigh.Thisparticular“high”shouldbeexpectedtobeashort-livedbounceandapointfromwhichtoexpectareneweddecline.InFigure10.2,

counting107daysforwardfromJanuary29,1962(thesecondkeydateinaMajorTop),targetsMay16th—1dayaftertheintradayhighoftheshortconsolidationfoundthere.LindsayalsowrotethatcountsfromthefirstkeydateinaMajorTopareusuallyofnosignificance,butthecountmustbetakenanywaybecausethisisnotalwaysthecase.

Conclusion“IsitpossibletodetermineinadvancewhichoneofthemanyTop-to-Topcountswillresultinamajorbullmarkethigh?Thisproblemhasnotyetbeensolved,buttherearevariouswaysofarrivingatapartialsolution,oneofwhichwillnowbedescribed.”Lindsay’s“partialsolution”wastoexplainthe

CumulativeAdvance-DeclineLineandthenshowexamplesofhisTimingModelgivingsignalsduringdivergencesbetweentheA-DLineandtheDowJonesIndustrialindex.“Accordingtoourtheory,thegreatestprobabilityofamajordeclinewillcomewhenthereisadivergencebetweentheAdvance-DeclineLineandtheDowJonesIndustrials;and,atthesametime,thereisaclearcut,

easilyrecognizableTop-to-TopCount.”Lindsaydidn’tmeantoimplythatthiswastheonlymethodfordeterminingabullmarkettop,justthatitwasamethod,usingatraditionaltechnicalindicator,thathadworkedwellforhim.“Everytechniciandreamsofonesimplemethodwhichwillalwaysbeaninfalliblekeytothetrendofthemarket.No

singlecure-allhasyetbeenfound.Itispossible,however,toachieveahighdegreeofaccuracybycombiningseveralmethods.”

Endnotes1Unlessotherwiseindicated,allquotesinthischapteraretakenfromGeorgeLindsay’sself-publishednewsletter,GeorgeLindsay’sOpinion,duringtheyears1959–72.

2Lindsaylistedfivecategories,notfour,buthisfifthcategory,“The

Top-to-TopCountinBullMarkets,”wassimplyareviewofwhathehadalreadywritten,withmoreexamples.

PartIV.TheCounts

Chapter11:Long-TermCyclesandIntervalsChapter12:BasicMovementsChapter13:CountsfromtheMiddleSectionChapter14:CaseStudy:The1960s

Chapter11.Long-TermCyclesandIntervals

“Myversionofcyclesisdifferent.Icallthemintervals.Theyarecountedfromalowtoahighorfromahightoa

low.Iprojectamovementtoapointinthefuturewhichexistsonlyintheory,thesameasincycles.ButwhenIcometocalculatethemovementafterthat,Idon’tbeginfromthetheoreticalcrest.Istartcountingfromahighwhichthemarkethasactuallymade.That’sthedifferencebetweencyclesandintervals.”1

—GeorgeLindsay

Lindsay’scountingmethodcanbestbedescribedasafunnelapproach.Hisanalysisstartswithalong-termintervalthatprovidesawiderangeoftimeasatarget.Hethennarroweddownthattargetusingother,shorterintervalsthatprovidedshortertargettimerangeswithinthelargerranges.Duringan

appearanceonLouisRukeyser’stelevisionprogramWallStreetWeekonOctober16,1981,whenLindsaywasasked,“Whendowegetoutofthisbearmarketandintothatbullmarket?”hereplied,“Theendofthebearmarket;theearliestIcancountitisaboutAugust26,1982.”TheintradaylowofthebearmarketoccurredonAugust9,1982.ThemethodsinPart

IV,“TheCounts,”arethosemethodsheusedtomakethatcalculation.

Long-TermCyclesLong-termcycleswereLindsay’sattemptatclassifyingthemarket’smajorlowsthroughouthistory.Figure11.1isLindsay’scharacterizationoftherecurringpatternofeachofthreelongcycleshe

believedthemarketexhibitedbetween1798and1949.Therehavebeenvariationsfromonecycletoanotherbuttheywereminor.Lindsayheldthattheessentialpatternwasremarkablypersistentfor150years.Theshapeofthepatternsmayappeardifferentlyinachartbutthetimingremainsthesame.Itisonlytheshapeofthechartpatternsthatlooksdifferent.

Figure11.1.Longcycle.

TheperiodfromAtoElastsroughlysevenyears.Itisanentityinitself.Itisthefirstsectionofwhathecalledthelongcycle.Notethatthetwo

advancesfromAtoBandfromCtoDareseparatedbyonlyashallowdecline.NextcomesabigdeclinefromDtoE.ThelowatpointEisadividingline.ThesecondsectionofthelongcyclerunsfromEtoM.Thedurationofthesecondsectionisvariable,butismuchlongerthanthefirst.Asarule,the3PDhformationhasoccurredattheendof

eachlongcycle.ItrunsfromKtoM,whichisalwaysalowofthefirstimportance.Thelowfollowinga3PDhpattern,pointM,thenbecomespointAtobeginthenextcycle.Lindsayallowedformultiple(two,andsometimesthree)longcyclestorunsimultaneously.Atanypointintime,thecycleswouldbeatdifferentpointsintheirprogression.

ThefirsttwoadvancesafterpointAarenormallystrongmoves,andoneofthetwohasinvariablybeenextremelystrong.FollowingpointAin1962,thereweretwoverystrongadvances,thefirstendingin1966andthesecondin1968.Accordingtoadifferent,simultaneouscycle,the1962lowwaspointI.AdvancesfollowingpointIareonlymoderatelystrong.Accordingtothisstrain,the

nextadvancefrom1966to1968wastobethe3PDhformation.Noticethatthefirst(B–C),third(F–G),andfourth(H–I)declinesaremildandthesecond(D–E),fifth(J–K),andsixthdeclines(L–M)aresevere.Allofthebearmarketsbetween1949and1966occurredwhenonlyoneoftwosimultaneouscyclespredictedadeepdecline.This

wastruein1957,1960,1962,and1966.Ineachofthesecases,onecycleindicatedaseveredecline,whiletheothershowedamilddeclineatthesametime.Notuntil1969didbothofthediagramsindicateaseveredeclineatthesametime.That’swhythe1969bearmarketwasthemostseveresincebeforeWWII.Lindsaydidn’texpectanotherdeepdeclineinthemarketsuntil1977–78(and

againin1980–81).Itisnotknownhowherespondedtothedeclineof1973–74.2Lindsaydidcorrectlywrite,“Butagreatchangewillcomein1975.Fromthenuntil1981,bothlineswillberelativelyweakmostofthetime.Therewillneverbeanyoneyearasbadas1969[obviouslyincorrect],buttakingthefiveyearperiodasawhole,theoutlookismore

bearishthananythingthemarkethasseensincethe1930’s.”Figure11.2labelstwosimultaneouscyclesrunningfrom1962to1982.

Figure11.2.Longcycle.ChartcreatedbyMetaStock®.

Thelong-termcyclepatternhasoneprimarypurpose:torecognizelong-termintervals.Therearethreelong-termintervalstokeep

trackof.Thefirstlasts8years,anditrunsfromalowtoahigh.The8-yearintervalstartsatpointEandendsatpointJ.RememberthatJmaybelowerthanH.Thatmakesnodifference.Anintervalisnotatrend.Itneednotendatthehighestpointofthewholesequence.The8-yearintervalcanstartatanyotherpointsfromAtoMbutoccursmostfrequentlyfromEtoJ,CtoH,andKtoD.Thelattertwo

countsoccurfrequentlybutarenotasreliableasfromEtoJ.Thesecondlong-termintervallasts15yearsandalsorunsfromalowtoahigh.TheelapsedtimefromAtoJisnormally15years.ThespanfrompointEtopointDinthenextcycleisalsoabout15years,butinthisposition,theintervalcanstretchto16years.Youcanalsocountthe

15-yearintervalfrompointKtopointHinthenextcycle.Thethirdlong-termintervalistheonlyintervalofthethreethatrunsfromahightoalow.Itvariesbetween12years,2monthsand12years,8months.Therearetwohighpointsfromwhichitnormallyworksquitewell.Thatis,itiseasytorecognizeandendsatanimportantlow.Countthe12-yearintervalfrompointD,

anditusuallyendsatpointM(seeMarch1937–June1949).The12-yearintervalalsorunsfrompointJtopointEinthenextcycle.

Long-TermIntervals“Buttheintervalshavebeenexaminedallthewaybacktotheeighteenthcentury.Thefirstoneuncoveredranfrom1798to1813.”An“interval”issimplythe

elapsedtimefromanimportantlowtoanimportanthighorfromahightoalow.Itiscalledanintervalbecauseweignorethefluctuationsinbetween.Itdoesn’tmatterwhatitsoveralltrendwaswhiletheintervalwasinprogress,orhowmanytimesitchanged,orwhetheritendshigherorlowerthanthelevelatwhichitbegan.Thetwomostimportantlong-

termintervalshavealwaysconsistedof15years(fromabottomtoatop)and12years(fromatoptoabottom).Thespansarenotexact.The12-yearintervalhasusuallyvariedbetween12years,2monthsand12years,8months.Thelatitudeofthe15-yearintervalhasbeensomewhatwider:anywherefrom15yearsto15years,11months.Allthingsbeingequal,15years,2monthsto

15years,4monthsmaybeconsideredthenorm.Thisdoesnotmeanthatthetrendofpriceswasupduringa15-yearintervalordownduringa12-yearinterval.Anintervalisconsidereddownifitrunsfromahightoalowandviceversa.Therelativelevelofpricesattheturningpointshasnobearingonthismatter.Forexample,a12-yearintervalstartsatahighandendsatalow,butthe12

yearsmayhaveevolvedoveralongbullmarketandtheensuinglowcouldbehigherthantheoriginalhigh.

15-YearInterval“Themostimportantlong-termintervallastsabout15years,orsomewhatlonger.Itiscountedfromeverybearmarketlow,andoccasionallyfromanintermediatelowwhichstandsoutonthechart

oftheaveragewithmorethantheusualprominence.The15-yearintervalalwaysendsatahighofsomesort.”Westartcounting15-yeartimespansfromanyimportantlow.Thereshouldbeahighattheendofthecount.Thelong-termintervalsdonothelpmuchinfixingtheexacttimereversals.Theirvalueliesinestimatingtheimportance

ofthenextmove.AnimportanthighoccurredonJuly12,1957.Weknowitwasimportantbecauseitappeared15years,2½monthsaftertheepochallowonApril28,1942.Theselongintervalsdonottrytopicktheexact“address”ofahighoralow.Rather,theyattempttoidentifythecorrect“zipcode.”Sixteenyears,3monthswasthelongest15-yearintervalonrecord,and

14years,9monthswastheshortest.“Thereisalatitudeof11monthsormorebetweentheshortest15yearintervalandthelongest.Onemayask“whatgoodisameasurementsoinexactthatitmaybeoffbyasmuchas11months?”Theansweristhatthe15yearintervalisusedtogainperspectiveandnottodetermineexacttiming.To

narrowdownthetimespaninwhichthehighmustfall,wecomparethe15yearintervalwiththeshorter-termcounts.”AspartofhisAnnualForecastfor1972(publishedintheStockTradersAlmanac),Lindsaywrote,“Onelong-termmeasurementcallsforamajortop15years,oralittlemore,afterthebearmarketlowof

October22,1957.Itisawayofcountingwhichhasusuallyprovedreliable,butitisnotexact.SincethisisbeingwritteninJuly1971,sixteenmonthsbeforeElectionDay,themoredetailedtimingmethodsarenotyetavailableforuse.ButoneofthemcanalreadybeappliedanditplacesanimportanthighaboutNovember10,1972,thuscoincidingwiththe15-yearintervalandthe

election.”Itisapparent,fromFigure11.3,thatthehighofthebullmarketcamejustshyof15years,3monthsafterthe1957lowandonly2monthslaterthanLindsay’sforecastbasedona15-yearinterval.Examplesofthe15-yearintervalcanbefoundinTable11.1.

Figure11.3.The15-yearinterval.Chartcreatedby

MetaStock®.

12-YearIntervalThecorrespondingintervalfromanimportanthightoalowis12yearsplusafewmonths.Alowusuallyliessomewherebetween12years,

2monthsand12years,8months.Examinethelong-termintervalfromhightolowthatbeganonDecember13,1961.Accordingtoprecedent,itshouldhaveendednotlaterthan12yearsand8monthsafterward.ThatwouldplaceitinAugust1974.Therehavebeenonlytwooccasionsinthepast100yearswhenitexceededthatduration

materially.Onewasin1970andanotherin1974.Inbothcases,thetimeelapsedwas12years,10months.So,thelowof1974came2monthslaterthanitshouldhave.Anoverrunof2monthsisnotexcessivewhenwearereferringtoaspanof12yearsorso.Important:Ataminimum,a12-yearintervalisfollowedbyarallylastingseven

monthsoralittlemore.Figure11.4isapartialre-creationofachartthatLindsaypresentedinoneofhisnewsletters.ItillustratesboththePrincipleofContinuity(whenanupwardintervalof15yearsends,adownwardintervalof12yearsmustbegin,andviceversa)andhowmultipleintervalsaresimultaneouslyfunctioningandoverlapping.3

SeeTable11.1forasamplingof12-yearintervals.

Figure11.4.Long-termintervals.Chartcreatedby

MetaStock®.

Table11.1.Long-TermIntervals

Table11.1isnotmeanttobeacompleterecordofalllong-termintervalsduringthisperiod.ThistableisacollectionoftimespansfoundthroughoutLindsay’swriting.Sometimespansappeartohavebeenaltered

slightlybyLindsayastimepassed.

8-YearInterval“Ifwecount,notjustfromanordinarybearmarketlow,butfromareallyepochalbottom,therehasalwaysbeenasharpbreakeightyearslater—abreaksodeepandrapidwecansaythatbothanimportanthighandanimportantlowcamewithin

twoorthreemonthsofeachother.Thecrashof1929cameeightyearsafterthe1921low.Eightyearsaftertheall-timelowof1932,themarketreallyplummetedinMay-June1940,whenGermanyinvadedFrance.Thelowof1942markedtheendofafiveyearbearmarket,andstocksplungedinJune-July1950,whentheKoreanWarbrokeout.Thebreakof1957cameeight

yearsafterthemajorlowof1949.Whenwecounteightyearsfromthelowof1962,wecometothespringof1970,andagainthemarkettookanosedive.Thedistinguishingfeatureofallthesedeclineswasnotsimplytheirdepth,butthefactthatanimportanthighandimportantlowappearedonlytwoorthreemonthsapart.”The8-yearintervaldoesn’t

trytopinpointbullmarkethighsnecessarily;rather,itattemptstofindpointsatwhichasizabledropshouldbeexpected.Thetargeteddropmaybeatthetopofabullmarket(1929)oritmaybethelastdropofabearmarket(1970)oranywhereanyinbetween(seeFigure11.5).Therehasalwaysbeenasharpbreakthatlastsonly2to3months,andthenaquickrecoverythat

continuedforsometime,usuallyatleast5months.AllofLindsay’sexampleswerecontainedwithinaperiodof7years,9monthsto8years,2months.Aruleofthumbsaystocount8yearsto8years,2months.Althoughitisnaturaltousethisparticularlong-termintervaltohelpfindmarketsell-offs,oneshouldnotoverlookapointthatLindsaytookcaretoemphasize:“In

everycase,animportanthighandanimportantlowappearedinthespanofonlytwoorthreemonths.”

Figure11.5.The8-yearinterval.Chartcreatedby

MetaStock®.

SomelowshavethecharacteristicsofbothapointAandapointEinthelong-termcycle.Eightyearsafteronepairofthese

simultaneouslows,bothamarkettopandbottominrapidsuccessionarefound,andbothofthemarereversalsofsomeimportance.Forexample,1929cameeightyearsafter1921,andthe1921lowhadsomeofthecharacteristicsofbothapointEandapointA.TherewasadrasticbreakfromSeptember3toNovember13,1929.Astrongadvancebeganimmediatelyandcontinued

forfivemonths.Thus,animportanthigh(September)andanimportantlow(November)bothappearedjustabouteightyearsafterthe1921low.Therearemanyexamplesofthis.Thespringof1970cameeightyearsafterthelowofJune1962,whichhadsomeofthefeaturesofapointAandalsoapointI.Basically,anylowinthelong-termcycle,otherthanalowduringa3PDh

formation,isusuallyfollowedbyahigheightyearslater—providedthatthelowisdecisivelyformedonachart.The12-and15-yearintervalsaremerelyawayofroughlycalculatingthelong-termprobabilitiesofthemarket.Theyarenotexact.Therearetwootherwaysofestimatingfutureturningpointsonthebasisoftimealone.OneisCountsfromtheMiddle

Section,whichiscoveredinChapter13.TheotheriscalledtheBasicMovementsandiscomposedoftheStandardTimeSpans.Theyarecalled“standard”simplybecauseapproximatelythesamenumberofdayshaskeptcroppingup,timeaftertime,throughoutmarkethistory.TheStandardTimeSpansarenotasaccurateasthecountsfromtheMiddleSection(whentheyoccur)butmuch

moresothanlong-termintervals.TheBasicMovementsarecoverednextinChapter12.

ConclusionThefollowingisaquicksummaryofthischapterandcanserveasaquickreferenceguideinthefutureforthereader.

Long-TermIntervals

Itdoesn’tmatterwhattheoveralltrendwaswhiletheintervalwasinprogress,orhowmanytimesitchanged,orwhetheritendshigherorlowerthanthelevelatwhichitbegan.

15-YearIntervalRunsfromalowtoahigh.The15-yearintervalvariesfrom15yearsto15years,11months.

12-YearIntervalRunsfromhightolow.The12-yearintervalhasusuallyvariedbetween12years,2monthsand12years,8months.Ataminimum,a12-yearintervalisfollowedbyarallylastingsevenmonthsoralittlemore.

8-YearIntervalRunsfromalowtoahigh

andattemptstofindpointsatwhichasizabledropshouldbeexpected.Animportanthighandanimportantlowappearinthespanofonlytwoorthreemonthsapart.The8-yearintervalhasvariedbetween7years,9monthsto8years,2months.Thesell-offisfollowedbyaquickrecoverythatcontinuesforsometime,usuallyatleast

fivemonths.

Endnotes1Unlessotherwiseindicated,allquotesinthischapteraretakenfromGeorgeLindsay’sself-publishednewsletter,GeorgeLindsay’sOpinion,duringtheyears1959–72.

2Lindsaywrotethepaperfromwhichthisinformationderivesin1970.HehadexpectedpointsF&Btoarrivein1972,G&Cin1973,H&Din1975,I&Ein1976,J&Fin1977,K&Gin1978,L&Min1980,andM/A&Iin1981.The

authorhasrealignedthedatesusingLindsay’sThreePeaksandaDomedHousemethod.

3LindsaymistakenlylabeledpointS,February11,1926,as15years,4monthsafterthe1911lowwhenitwasactually14years,4months.Unfortunately,wehavenowayofknowingwhetherrecognizingthismistakemighthaveaffectedhisanalysis.HealsolabeledpointMMas15years,2monthsafterthelate1946lowwhenitwasonly15years,andpointCCas12years,4monthsafterthe1950higheventhoughitwas12yearsexactly.

Chapter12.BasicMovements

“Theunderlyingideaisthatstockpricesriseforapproximatelytwoyears,declineforaboutayear,thenriseforanothertwo-yearspananddropfora

year.Andsoonindefinitely.Theadvancesoftwoyears,eachonefollowedbyadeclineofoneyear,comprisewhatIcallthemedium-termcounts.”1—GeorgeLindsay

Along-termintervalprovidesatargetrangeofdatesbutthatrangeisverybroad.“Buttheremustbeatleastone

additionalwayofcountingbeforeanyhighorlowcanbeestablishedasofprimeimportance.”Formoreexacttiming,werelyontheBasicMovements.BasicMovements(basicadvancesandbasicdeclines)arecomposedofvariousmedium-termcounts,alsoreferredtoastheStandardTimeSpans.Medium-termcounts(whose

durationsaregivenindays)andlong-termintervals(of8,12,and15years)aretwoclassesofintervalsthatmustbecombinedinordertomakeaforecast.Whentwocountsagreeclosely,itincreasestheprobabilitiesofaseveredecline.WhentheendofaBasicMovementandtheendofalong-termintervalcoincideintime,thereisadecisiveandoftenviolentmovementinthemarket.

Theprincipaltimespansarecalled“basic”andlastanywherefrom10monthstothreeyears.Thereaderhasalreadybeenexposedtooneparticularbasicadvanceinthe3PDhformation.Fortunately,theremainingbasicadvancesandbasicdeclinesaremuchmorestraightforwardandarecharacterizedbythelengthoftime(countedindays)forwhichtheadvanceordecline

persists.ThedurationoftheBasicMovementsvariesbutthevariationshaveheldwithincertainlimits.Lindsay’sRuleofContinuitystatesthatwhenadowntrendends—eitherabasicdeclineoralong-termintervalfromahightoalow—anuptrendofthesameclassmustbeginimmediately,andviceversa.Wecanalwaysbegincountingthestandardbasic

durationsfromanybasichighorlow.WecanalsocountBasicMovementsfrom“important”highsandlows—thehighsandlowsthatjumpoffthepageatyou.

StandardTimeSpans“Peoplesay,‘Timeshavechanged,’or‘Conditionsaredifferentnow.’StandardTimeSpanshaveremainedthesamefor190years.They

havealwaysbeenmorenearlyuniformthananypossiblearrangementofthepricemovementcouldbe.”StandardTimeSpanshavebeentracedbackto1861indetailandallthewaybackto1798.TheyarecalledStandardbecausethesamedurationshaveoccurredoverandoveragain.Theyarenotidentical,ofcourse—theyvarywithincertainlimits

becausetheyaremodifiedbyshort-termtimespans(i.e.,107-dayinterval,3PDh).Thecountsthatmakeupeachcategoryoftimespans(longbasicadvance,shortbasicdecline,etc.)arenotidentical,buttheytendtoclustertogether.Thenumbersarenotthesamebutvaryonlywithincertainlimits.Throughouthistory,virtuallythesamenumberskeepcroppingup

againandagain.TheBasicMovementsmethodisbasedonthisphenomenonoftimespans.Lindsayidentifiedeightsegmentsoftime,whichhetermedBasicMovements:

BasicAdvances

Anadvanceofabouttwoyearsisfollowedbyadeclineofaboutoneyearorasidewaysmovement.Anewadvanceimmediatelyfollows,andsooninunendingsuccession.Butthemovesarenotallequalinlengthoramplitude.Table12.1showsthevariationsinlength.All3PDhformationsare“basicadvances”butabasicadvanceneednottaketheparticularshapeofa3PDh.

Notethatabasicadvanceisoftenthesamethingasabullmarket,butitmayalsobeonlyonesectionofanunusuallylongbullmarket.

Table12.1.BasicAdvances

Therehavebeenonlythreegenuineadvancesthathavebeensubnormal:thoseof1932–34(577days),1946–48(615days),and1960–61(414days).(ThisobservationofLindsay’sisveryinterestingbecauseittendstoimplythatothersubnormaladvancesthathehadlistedinvariousappendixeswereonlytemporary“workingcounts”usedforeducationalpurposes,asopposedtobeing

hisfinalcount.)Ashortbasicadvanceisabouttwoyearsoralittlelessandtheaveragedurationis683days.Ashortadvancetypicallyvariesbetween630and718days.Mostshortadvancescontinueforabout700days.Thetypicaldurationoflongbasicadvanceisroughlytwoyearsandtwomonthsor775–805daysandhasanaverage

durationof795days.Itvariesbetween715and830days.Extendedbasicadvancesarethelongestcontinuousadvancesthatareuninterruptedbyabearmarket.Extendedadvancesrangefrom929to968daysandhaveanaveragedurationof953days.Noadvancehaseverexceededtheextremeof968days.PriortoDecember1972,

therehadbeeneightextendedadvancessince1877.Itshouldbenotedthatthemaximumsidewaysmovementis348daysor11months.Thehighestpointofasidewaysmovementcancomeatthestart,inthemiddle,orattheend.Thetrendissuspendedduringasidewaysmovement.Examplesofsidewaysmovementscanbefoundin

Table12.3.Remember:Whenabasicadvanceends,anewbasicdeclinemustbeginonthatsameday.

BasicDeclinesThesubnormal(orirregular)basicdeclineusuallyvariesbetween222and250daysandisalwayslessthan300days.Shortbasicdeclineshave

variedbetween317and364daysforanaveragedurationof345days.Thetypicaldurationofashortbasicdeclineis340to355days.Longbasicdeclinesrangefrom376to446calendardays.Thetypicaldurationofalongbasicdeclineis395to425daysor13–14months.Theaveragedurationis408days.Lindsaymadenoteofthe

tendencyofbasicdeclinestoincludetworalliesinsuccessioninroughlythesamepricerange.LindsaydescribedtheralliesduringthebasicdeclinefromJune1931toJuly1932thisway:“TheywerejustthewaythetworalliesinthemiddleofaBasicDeclineshouldlook.”HealsonotedthatthetworalliesintheApril1930—June1931downturndidnotoccurinapproximatelythe

samepricerangeastheytheoreticallyshouldhave.Inthemajorityofcases,thetwoorthreeralliesmakeaseriesofdescendingtops.ThesubnormalBasicMovementappearsregularlyindeclinesandonlyoccasionallyinadvances.Mostoftheadvancesinmarkethistoryhavebeenofjustaboutnormalduration,whilemanydeclineshave

beenirregular.WhileitscountvariesasmuchastheotherStandardTimeSpans,itisinterestinghowoftenthe221-to224-daycountappears.Readerswillrememberthatthisisthesamecountasisfoundinthe3PDhformation.“Theinterval221-224runsallthroughhistory.Itcanextendfromahightoalow,fromalowtoahigh,fromahightoanotherhigh,orfromalow

toalow.”Remember:Assoonasabasiclowoccurs,anewbasicadvancemustcommenceimmediately.WheneveroneBasicMovementisextralongorextrashort,itismuchmorelikelytobeadeclinethananadvance.Thisisanimportantpointtoremember.Therehavebeenmanysubnormaldeclines.Thisiswhysomany

ofthebasicdeclineshaveendedatsecondarylows.Therewasaspecialreasonforeachonethatcouldhavebeencalculatedaheadoftime.ExamplesofbasicdeclinescanbefoundinTable12.2.

Table12.2.BasicDeclines

InTables12.1and12.2,thefiguresrepresentthenumberofcalendardaysinthemarket’smainmovementssince1876.Thetimespans

forbothadvancesanddeclinesaredividedintofourgroups.Thenumbersineachcolumnvaryinlength,butonlywithinfairlynarrowlimits.Alloftheadvancesonrecordseemtohavebeencastfromjustafewmolds.Soonafterabasichighhasbeenestablishedandpricesareonthewaydown,wewatchforsignsofamarketlow.Assoonasaprobable

lowbecomesevident,notethelengthoftimethatstockshavebeendroppingsincethelastbasichigh.IftheelapsedtimeagreescloselywithoneoftheStandardTimeSpans,itisacceptedwithoutquestionasabasiclow.Itdoesn’tmatterwhetherthatpointisattheverylowestlevelofthewholedeclineornot.Thepracticalruletofollowisthis:Whenthemarketisfallingfromahigh,

watchitcloselywhenthedowntrendisbetween340and355days(thetypicaldurationofashortbasicdecline)or395and425days(thetypicaldurationofalongbasicdecline).Ifmarketactionsuggeststhatabottomisbeingformed,acceptthatasprimafacieevidencethatabasiclowisathand.Thesameholdstrueforidentifyingmarkethighs.

OnceaBasicMovement(advanceordecline)persistsforlongerthantheextremeofthatparticularStandardTimeSpan,itshouldbeassumedthatitwillcontinueuntilthenexttimespan.Forexample,ifwhatappearedtobeashortdeclinehaspassedthe364-daymark,itshouldbeassumedthatitwillcontinueuntilatleasttheshortestcountofalongdecline(376days).Oncealongadvance

continueslongerthan830days,itcanbeexpectedtobecomeanextendedadvancethathasaminimumlengthof929days.

ThePrincipleofAlternationThePrincipleofAlternationhelpsanswerthequestionastowhetherweshouldexpectthenextadvanceordeclinetobelongorshort.Since1798,

whenonedeclinewaslong,thenextdeclinewasshortandtheoneafterthatwaslong,andsoforth.Therehavebeenveryfewexceptionstothisprinciple,andthesameholdstrueofadvances.(The1973–74bearmarketwasanexception.)

MatchingBasicMovementstoLong-TermIntervals

BycomparingtheBasicMovementswiththelong-termintervalsintheforeseeablefuture,itcanbedeterminedwhetherthecurrentmovementshouldbesubnormal,short,long,orextended.MatchingBasicMovementstolong-termintervalscanalsohelpustodeterminetheendofthecurrentmovementbydecidingwhenthenext

movementshouldend.Forexample,ifthecurrentmovementisadecline,thenitmustendintimeforthenextbullmarkethigh(15yearsafteralow)toarriveafteraStandardTimeSpan.Thatis,thecurrentdeclinemustendsoonenoughforabasicadvance(usingtheStandardTimeSpans)torunitstypicaldurationandbecompletedinthetargetedtimespanofa15-yearinterval.

SpecialRule:DeclinesFollowingExtendedBasicAdvancesOnenormallystartscountingabasicdeclinefromthebullmarkettop.Inthecaseofadeclinefollowinganextendedadvance,however,aSpecialRuleapplies,arulethathasworkedconsistentlyallthroughhistory:Afteran

extendedadvance(lastingfrom929to968days),thebasicdeclinedoesnotbeginimmediately.Thereisapreliminarysell-off,thenanefforttoregainthehigh.InFigure12.1,thebasicdeclinedoesnotbeginatthebullmarkethigh.NotehowpricesfellofffromJanuarytoAugustin1973,makingseveralsmallrecoveriesonthewaydown.Theaveragethenmadeaconcertedeffort

toregainitsoldhighonthemovefromtheAugustlowtoOctober26th.TheOctoberhighiscommonlycalledthe“RightShoulder.”Asarule,theRightShoulderdoesnotequalthebullmarkethigh,buttherehavebeentwocaseswhenaRightShoulderoccurredatalevelhigherthantheHead.

Figure12.1.SpecialRule.Chartcreatedby

MetaStock®.

FromTable12.2,itisseenthatshortbasicdeclineshavevariedbetween317and364days,foranaverageduration

of345days.ThelowofOctober4,1974,was343daysafterthecountfromOctober26,1973—2dayspriortotheaverageshortdeclineandwellwithinthetypicalrange.Asanalternative,supposewestartedcountingalongbasicdeclinefromOctober26,1973.Longdeclinesrangefrom376to446calendardays.Theaveragedurationis

408days.Countingforward408daysfromOctober26,1973,arrivesatDecember8,1974.TheDowIndustrialsmadetheirlowjust2dayspreviouslyonDecember6th.Howcouldwehaveknownthepeculiaritiesofthe1973–74bearmarketaheadoftime?Thekeytothisenigmalayinthedistancebetweenthebullmarkethigh(theHead)andtheRight

Shoulder.Ifthedistancebetweenthemismorethanfivemonths,thewholedeclinehasoften(butnotalways)beenverylong.SeethefollowingforexamplesofcountsfromaRightShoulder:

SecondaryLows“Iamamazedbecausefewtechniciansrecognizethatthelengthoftimethatmarket

movementslasthasalwaysbeenmuchmorenearlyuniformthanthenumberofpointswhichtheaveragesgainorlose.Perhapsitisbecause,atleastinmyversionofit,Isometimesstartcountingfromsecondaryhighsandlows.Butsuchcountsaremadecomparativelyseldom.”Thetypicallengthofamajorbearmarkethasalwaysbeen

between13and14months.Someareshorterandsometimesitlastslonger,butthesegmentofthedowntrendthatcomesafterthe14-monthlimithasbeenbrief.Nomatterhowlongitlasts,thereisusuallyanobviouslowbetween13and14monthsafterthebullmarkethigh—“notjustanysecondarytoporbottom.Butthesecondaryhighorlow,theonethatfairlyjumpsoutat

youfromabarchart.”Whenthisisthecase,thatlowbecomestheimportantone.Thisneednotbethelowestpointofthewholebearmarket.Itmustsimplybeanobviouslowthatstandsoutonachart.Wemuststartcountingthenextadvancefromthelowthatoccursaroundmonth13or14.Whenabearmarketlastsmorethan14months(in

responsetoalong-termintervalthatdoesnot,andcannot,coincidewiththebasiclow),westillcountfromthelowthatcame13or14monthsaftertheprevioushigh.Thelowatthe13thor14thmonthisthekeyinestablishingthecontinuity.Everytimethe13/14-monthlowhasoccurredpriortotheultimatebottom,thelengthofthefollowinglongbasicadvancehasvariedbetween

775and805days.Inthiscase,thedurationofanyrallyaftermonth13/14isvariable;itcancontinueaslongas5months.Thedurationoftherallyisarelativelyminormatter.Theimportantpartisthis:Oncetheperiodofralliesendsandthemarketagainturnsdown,theactivepartoftheremainingdeclinehasalwaysbeenbrief—notmorethanabout3months.Thedeclineleadingdowntoa

secondarylowhasrarelylastedlongerthan101days.Sometimesthebearmarketwilllastonly8or10monthsandthereisnowell-definedlowatthemonth13/14atall.Inthatcase,wemustusethelowasitoccursandletitgoatthat.Thiswasthecasein1966whenthebearmarketlastedonly8monthsandtherewasneveraclearlydefinedsecondarybottom

afterthat.Whilebasicdeclineshaveoftenendedatasecondarylow,abasicadvancenearlyalwaysendsattheextremetop.Theneedtouseasecondaryhighasthetopofabasicadvancehasoccurredonlyonceinthepast80years.

SecondaryLowSequence

Focusingonthedirectionandtimeofthemarket,ratherthanthenumberofpointsgainedorlost,thepatternfollowingeveryoneofthesecondarylowshasbeenverysimilar.Figure12.2isacompositeoftheformationsthathavebeencompletedsofar.

Figure12.2.Secondarylow.

Point1representstheendofastandardbasicdecline,whetherlongorshort.AccordingtoLindsay’sRuleofContinuity,itautomaticallybecomesthelowofanewbasicadvance.Point2isthe

topofthefirstrallyafterit.PointArepresentsthebreaktoanewlow.ThemovefrompointAtopoint3alwaystooktheaveragewellabovethelevelofpoint2.Afterpoint3,therehasalwaysbeenaratherdeepdecline(byintermediatetrendstandards)topoint4.Frompoint5onward,therehasalwaysbeenanextendedperiodofverynarrowfluctuations.Theperiodbothjustbeforepoint

5andjustafterhasalwaysbeenmarkedbyslowandhaltingmovement.Point5goesonlyslightlyabovepoint3,andpoint7alsoexceedspoint5byarelativelynarrowmargin,althoughtherisefrompoint6topoint7hasusuallybeenofintermediatescope.Thebasicadvancehasnormallyrunfrompoint1topoint7,andendsthere.Thebasicadvancehascontinuedpastpoint7onlywhenthere

isadefinitereasonforit.Ithasendedatpoint3onlyunderunusualcircumstances,suchas1943.Thiswasbecausethedeclinefrompoint2topointAlastedanextremelylongtime—overninemonths.

InallofLindsay’sexamples,point10liesafteralongbasicdecline(1year,1–2months)

afteraprevioushighinhissequence.Thosetopsarenotlimitedtopoint9butincludepoints3,5,7,and9.“Iconsidertheactionin1923-1924asthemosttypicalexampleofwhatthe9to10movementshouldbe....”Figure12.3showsstocksdropped414daysor13½months(atypicallongbasicdecline)aftertheNovember3,1919,bullmarkettopto

bottomonDecember21,1920,atpoint1.Stockshadtorallyandtheydid,formorethan4months—longerthantheyusuallydoduringthecourseofasinglebasicdecline.Finally,theysanktoanewlowinAugust1921(pointA),decisivelyunderthelowofDecember1920.Themarkethigh,atpoint7,wasaperfectbasiclongadvanceasitcounted819daysfromthesecondarylow

atpoint1.Thedropfrompoint7topoint10wasanotherlongbasicdeclinecounting420days.Notethatthebasicadvanceof819daysismarginallylongerthanLindsay’sestimateof775–805daysfollowingasecondarylowthatoccursbeforeafinallow.

Figure12.3.Secondarylow.ChartcreatedbyMetaStock®.

SidewaysMovementsOccasionally,anadvanceendsattheappointedtime,butthereisaninterimperiod

beforethenextdeclinesetsin.Thisisaninterveningperiodwhenthetheoreticaltrendisneitherupnordown.Lindsaycalledthemarketactionduringthistheoreticallyneutralperiodasidewaysmovement.Duringthistimeperiod,theoverallresultofpricemovementisapproximatelysideways—regardlessofwhatpricemaydointheinterim.Asidewaysperiodmaybethoughtofas

“apauseintheactionwhilethemarketisregroupingforthenextsustainedtrend.”Asidewaysmovementmaybebetterdescribedas“extratime”thatmustbesandwichedinwhiletheaveragefluctuatesbackandforthwhilewaitingfortherightmomentwhenacontinuoustrendcanbegin.ThisisthechiefwayinwhichthePrincipleofContinuityisinterrupted.

Sidewaysmovementshavealmostalwaysoccurredatatop.Asidewaysmovementstartswithabreak,arathersharponeinnearlyeverycase.Thenthereisarecoverybacktotheapproximateleveloftheoldhigh.Sometimestheaveragefallsshortofthehighandsometimesitexceedsit.Thisisnotimportant.Elevenmonthshasbeenthemaximumdurationofsidewaysmovements.

Therehavebeenshorterones.Itisusuallybesttostartcountingthenextbasicdecline(notthe12-yearinterval)fromthetopofthelastrallyinasidewaysmovement.ExamplesofsidewaysmovementscanbefoundinTable12.3.

Table12.3.SidewaysMovements

Lindsaywrotethat,since1842,therehadbeen40basicadvances.Ofthese,31were

followedbyrecognizablebasicdeclinesand5werefollowedbysidewaysmovements.Therehavealsobeenseveralminorsidewaysmovements.ImportantRule:Thebasicdeclinefollowingasidewaysmovementbeginsattheveryendofthemovement,regardlessofwhetherthatwasthehighestpoint.Butwhenwecounta12-year

intervalfromasidewaysmovement,italwaysbeginsfromthehighestpoint,nomatterwhereitislocated.Itisessentialtoknowwhentherewillbeasidewaysmovement.Thelong-termintervalsarethebestguide.FollowingthebullmarkethighofDecember3,1968,theDowdroppedfor14monthsuntilJanuary30,1970(seeFigure12.4).This

wasthekeypointfromwhichtocounteventhoughtheDowralliedfor2monthsafterthat,untilApril,andthencontinueddeclininguntilarrivingatalowerlowonMay26th.

Figure12.4.Sidewaysmovement.Chartcreatedby

MetaStock®.

ThenextimportanthighwasexpectedsomewherebetweenMarch14thandApril14,1972,775–805daysaftertheJanuary30thsecondarylow.

Asitwas,thehighwas4dayslateonApril18th.Thewayinwhichtheshort-andlong-termsegmentsoftimefittogethersuggestedthattherewastobeasidewaysmovementin1972.Countingthe15-yearintervalforwardfromthelowofOctober22,1957,targetsaperiodbetweenOctober23,1972(15years)andSeptember22,1973(15

years,11months).Ourruleofthumbcount,15years,2months,targetsDecember22,1972,andtheactualhighwasprintedonJanuary11,1973—15years,2months,and20daysafterthe1957low.

MovingUpwardOutofaSidewaysMovement“Onlytwiceinhistory—in1880andin1927—hasa

basicadvancestartedupwardattheendofamajorsidewaysmovement.Onbothoccasions,itwasfollowedbyadrasticbearmarket,eachoneconsistingoftwocompleteBasicDeclines,whichfollowedoneanotherwithonlyabriefrallyinbetween.”Normallythemarketdeclinesafterasidewaysmovement.Onlytwiceinhistoryhasa

newbasicadvancebegunattheendofone.Itwastheformationin1926thatinspiredLindsaywiththeconceptofthe“sidewaysmovement.”ThebreakinFebruaryandMarchofthatyearwasmuchtooshorttoconstituteabasicdecline.Thefirsttimewas1880;themarkethadrisentoabasichighonNovember12,1879,andthenmovedsideways

untilOctober11,1880,whenstockswerestillbelowthe1879top.ThemarketthenmovedupwardfromthesidewaysmovementandthebullmarkethighwasprintedonMay26,1881.ButthebasicadvancedidnotenduntilSeptember14,1882,whenmanymarketleadersmadenewhighs.Thiswas704daysaftertheendofthesidewaysmovement—thetypicaldurationofashort

basicadvance.“Myindexofsevenmarketleadersthendeclineduntil1/21/1884,makingthedowntrendlast494days,thelongestBasicDeclineonrecord.Until1927,thiswastheonlycasewhenaBasicAdvancebeganattheendofaSidewaysMovement.”Bearinmindthatitwasthesidewaysmovementsof1880and1926thathintedatwhat

layahead.Disasterloomswhenabasicadvancestartsattheendofasidewaysmovementthatlasts11months.

ConclusionThefollowingisaquicksummaryofthischapterandcanserveasaquickreferenceguideinthefutureforthereader:TheRuleofContinuitystates

whenadowntrendends—eitherabasicdeclineoralong-terminterval—anuptrendofthesameclassmustbeginimmediately,andviceversa.Basicdeclineshaveatendencytoincludetworalliesinsuccessioninroughlythesamepricerange.Afteranextendedadvance(lastingfrom929to968days),thebasicdeclinedoes

notbeginimmediately.IfthedistancebetweentheHeadandtheRightShoulderismorethanfivemonths,thewholedeclinehasnormallybeenverylong.ThedeclineiscountedfromtheHeadwhentheelapsedtimebetweentheHeadandtheRightShoulderisaboutfivemonthsorless.WhentheelapsedtimefromtheHeadtotheRightShoulderis

morethanfivemonths,theprobabilityisthatweshouldcountthenextbasicdeclinefromtheRightShoulder.Thereisusuallyanobviouslowbetween13and14monthsafterthebullmarkethigh.Everytimethe13/14-monthlowhasoccurredpriortotheultimatebottom,thelengthofthefollowinglongbasicadvancehasvariedbetween

775and805days.OnceaBasicMovement(advanceordecline)persistsforlongerthantheextremeofthatparticularStandardTimeSpan,itshouldbeassumedthatitwillcontinueuntilthenexttimespan.Elevenmonthshasbeenthemaximumdurationofsidewaysmovements.Twelve-yearintervalscountfromhighseveninsideways

movements.Itisusuallybesttostartcountingthenextbasicdeclinefromthelastrallyinasidewaysmovement.Disasterloomswhenabasicadvancestartsattheendofasidewaysmovementthatlasts11months.

Endnote1Unlessotherwiseindicated,allquotesinthischapteraretaken

fromGeorgeLindsay’sself-publishednewsletter,GeorgeLindsay’sOpinion,duringtheyears1959–72.

Chapter13.CountsfromtheMiddleSection

“ThefirstoriginalideaIeverhadonthestockmarketremainsthebest.In1950,Ipublishedacopyrightedpamphlet‘AnAidtoTiming’which

introducedtheconceptofthe‘MiddleSection.’ThepamphletsoldwellandIreceivedsomanylettersthatIwasencouragedtostartamarketletterofmyownthefollowingyearonacapitalof$600.SinceIhaveneverbeenabigadvertiser,itisremarkablethatIhavelastedinthebusinessfor23years.Icouldneverhavedoneitwithoutthis

method.Inalltheyearssincethen,Ihavementionedtheprinciple[oftheMiddleSection]onlyonceinmyadvisoryletter.CountsfromtheMiddleSectionaremyprizewayofcalculatingtimeinthemarket.”1—GeorgeLindsay

Nearlyeverymajoradvanceinthestockmarkethasa

“MiddleSection.”Thismethodhasbeentracedbackto1861.ThemajorityofMiddleSections(AscendingandDeclining)havecontinuedfor20weeksorevenmore.ButtherehavebeenshortMiddleSectionsinthepast,too,especiallywhentheyareusedtoprojectalow.AMiddleSectionisdefinedbytworeactionsthatinterrupttheuptrend.InFigures13.1

and13.2(Lindsayreferredtotheseas“typicalschemes”),thesetwodeclinesaremarkedaspointBtoDandfrompointGtoH.Inbetweenthetworeactionsareseveralsmallerrallies.Theremustbeatleasttwoofthem,andtheremaybemore.

Figure13.1.AscendingMiddleSection.

Figure13.2.DescendingMiddleSection.

OneprimerequirementofaMiddleSectionisthattheoverallpace—therateofgainduringtheadvance—mustslowduringthecourseofthesesmallrallies.Theslopeofthetrendlinemustdecrease

duringaMiddleSectionascomparedtowhatitwasbeforeandafter.DuringaMiddleSectionthemarketmustgainlessgroundthanitdidbetweenpointsAandBandbetweenpointsHandJ.ThewholemovementfromAtoJisa“basicadvance.”PointBisthetopofanimportantadvance.Theaverageusuallyspendsseveraldaysmakingaminor

topformation.PointCisthe“firstreallyweakdayafteratop.”Onthisday,theaverageusuallyfallscleanlyunderthelowoftheminortopformationtoformabottomatpointD.Duringthefollowingadvance,thethreerallies(E,F,andG)needtobeclearlydemarcatedfromoneanother.PointGisthelastrally,pointFisthenext-to-the-lastrally,andpointEisthesecond-to-the-lastrally.Thedecline

frompointGtopointH(inanAscendingMiddleSection)istypicallylongerthanthereactionfollowingpointF.ItcanbecomeaDescendingMiddleSectioninitsownright,providedthatitcontainstworalliesataboutthesamepricelevelonthewaydown.PointHistheendoftheMiddleSection.PointJmayormaynotbethetopofacompletebullmarket.Lindsayneverindicatedifthe

remainingpointsinhis“typicalschemes”heldanysignificance.WhenthesmallrallieswithinaMiddleSectionexceedthehighatpointB,itiscalledan“AscendingMiddleSection,”asshowninFigure13.1.WhenthesmallralliesfallshortofthelevelatpointB,itiscalleda“DescendingMiddleSection,”asshowninFigure13.2.

NotethatinaDescendingMiddleSection,pointFbecomesabottomratherthanatopasintheAscendingMiddleSection.ThismakespointEthenext-to-the-lastrallyinaDescendingMiddleSection,ratherthanthesecond-to-lastrallyasinanAscendingMiddleSection.ThesamebasicadvancemaycontaintwoseparateMiddleSectionsthatareentirely

disconnectedfromeachother.Itdoesn’tmatterwhetheroneisascendingandtheotherisdescending,orwhetherbothareofthesamevariety.TheMiddleSectioncannotbeusedtocomputethehighofthebullmarketinwhichitoccurs.Itmustbeusedtocalculatethetimeofthenextbearmarketloworthehighofthebullmarketafterthat.Thesecountsareusedtotargetlowsandhighsfarinto

thefuture.Thesecountsdon’talwaysworkbut,whentheydowork,theydosowithamazingaccuracy.AllcountsfromMiddleSectionsareequaldistancesintime.Ifthetimespanoriginatesatalow,theresultwillbeahigh.Ifitoriginatesfromahigh,theresultwillbealow.WhencountingfromaMiddleSection,countingfromeitherpointCorpointE

iscorrect,butneverbothinthesameinstance.ThecorrectcounthasoriginatedatpointEinthegreatmajorityofcasessoitalwayspaystostartthere.Whencounting,Lindsaynormallyusedclosingpricesbuthenotedthatclosing,orintradayprices,tendtoworkequallywell.AcountfrompointsCorEinaMiddleSectionmustconcludeontheabsolutehighorlowofabasicadvanceor

decline;thereisnouseofsecondarylows.

CombiningStandardTimeSpanswithCountsfromtheMiddleSection“WheneveranequidistancefromaMiddleSectionhascoincidedwithoneofthetimespanslisted[inTables12.1and12.2]Ihave

automaticallyconsideredthatpointastheendoftheBasicAdvance(orBasicDecline).”TheStandardTimeSpanscanbeusedalone,butitismuchmoreaccuratetocombinethemwiththecountsfromtheMiddleSectionandwiththelong-termintervals.TheStandardTimeSpansaremorereliablethancountsfromtheMiddleSection,butthelatter,ifcomputed

accurately,aremuchmoreexact.Bothshouldbeusedincombination.Thetargetderivedfromacountor“equidistance”frompointCorEinaMiddleSectionisvalidonlyiftheresultfallswithinthetargetedrangeofoneoftheBasicMovements.Sometimes,neitherthecountfrompointCnorthecountfrompointEinthesameMiddleSection

worksatall.Inthatcase,wesimplyhavetorelyonthelessexactbasicadvancesandbasicdeclines.TheStandardTimeSpansareoftenuseful,evenessential,indecidingwhethertocountfrompointCorEinaMiddleSection.

AscendingMiddleSectionsThebreakfrompointBtopointDisalmostalways

deeperthanthebreakthatterminatesatpointA.Whenthatisnotclear,lookforaclearlydefinedpointC.WhenonerallyismuchsmallerthantheothersinanAscendingMiddleSection,itisalmostinvariablythefirstrallyofthethree(rallyE).ThebreakfrompointGtopointHshouldlosemorepointsthanthebreakfollowingpointF.IftheadvancefrompointEtopointFisanextremelylong

one,thenadeclinefrompointGtopointH,whichislongerthanthebreakfollowingpointF,isverylikelytobecomeaDescendingMiddleSectionitselfwhenconsideredinisolation.Figure13.3showsadailychartfrom1951andaMiddleSectionindetail.ItisanAscendingMiddleSectionbecausepointGexceededthelevelatpointB,thetopofthe

previoussustainedadvance.IneveryMiddleSection,therearealwaystwopossiblepointsfromwhichwecounttime.OnesuchpointispointE.InanAscendingMiddleSection,pointEisalwaysthesecond-to-the-lastrally.ThatdaywasApril6,1951.

Figure13.3.MiddleSection,1951.Chartcreatedby

MetaStock®.

CountingfromEtothenextimportantlow,September14,1953,is892days.Referringtothetableofbasicadvances(seeTable12.1),itcanbe

seenthatnomarketadvancehaseverlastedanythinglike892days.Onegroupofadvanceshascontinuedfrom765to830days,whileanotherhaslastedfrom929to968days—butnothinginbetween.Inthiscase,pointCistheotherpossiblemeasuringpointintheMiddleSectionof1951.PointBisthetopofanimportantadvance.The

averageusuallyspendsseveraldaysmakingatopformation.InFigure13.3,pointBwasFebruary13,1951.TheDowheldanarrowrangeforthenextfourdays,creatingaminortopformation.TheaveragehadarelativelylargelossonFebruary19thandfellcleanlyunderthelowoftheminortopformation.ThiswasaperfectexampleofpointC,thefirstreallyweakdayafter

atop.PointCwas938daysbeforethebearmarketlowinSeptember1953.Countingforwardanother938daystargetsMonday,April9,1956,asatopforthebullmarket.TheDowmadeitsintradaybullmarkethighthatMondayanditsclosinghighthepreviousFriday(seeFigure13.4).

Figure13.4.MiddleSection,

1956markettop.ChartcreatedbyMetaStock®.

DescendingMiddleSectionsADescendingMiddleSectionisessentiallyadowntrendina

longbullmarket.Thedowntrendmustbeinterruptedbytwosmallralliesataboutthesamelevelandmustthencontinuestilllower.Whentherearethreerallies,oneofthem(usuallythelast,butitwasthefirstin1937)iseitherbrieforinconsequential.AfterfallinguntilJune10,1965,theDowroseoneday,felloneday,andthenrosefor

threedaystoculminateonJune17th.Twodistinctralliesinthesamepricerange,andtheaveragesubsequentlyfelllower(seeFigure13.5).ThisfulfillstheessentialrequirementsofaDescendingMiddleSection.Asarule,theralliesinaMiddleSectionlastlongerbuttheessentialrequirementisasharpbreakbetweenthetworalliesofaDescendingMiddleSection.

Figure13.5.DescendingMiddleSection,1965.ChartcreatedbyMetaStock®.

CountingfrompointEoftheDescendingMiddleSectiontothetopofthemarketadvanceonFebruary9,1966,is243days.Counting

forwardanother243daystargetsalowonMonday,October10,1966(seeFigure13.6).ThatMondaywastheexactdateoftheintradaylowandthepreviousFridaywastheclosinglowofthe1966bearmarket.

Figure13.6.DescendingMiddleSection,1966marketbottom.ChartcreatedbyMetaStock®.

ConclusionThefollowingisaquicksummaryofthischapterandcanserveasaquickreferenceguideinthefutureforthe

reader:Theoverallpace—ortherateofgainduringtheadvance—mustslowdownduringthecourseoftheMiddleSection.PointEisthesecond-to-the-lastrallyinanAscendingMiddleSectionandthenext-to-the-lastrallyinaDescendingMiddleSection.ThecorrectcounthasoriginatedatpointEinthegreatmajorityofcases,soit

alwayspaystostartthere.Normally,thecountfromeitherpointCorpointEworks—butnotbothofthem.ADescendingMiddleSectioncontainstworalliesataboutthesamelevelpriortothebottom.InanAscendingMiddleSection......whenonerallyismuchsmallerthantheothersinan

AscendingMiddleSection,itisalmostinvariablyE....thebreakfrompointBtopointDisalmostalwaysdeeperthanthebreakthatterminatesatpointA....thebreakfrompointGtopointHshouldlosemorepointsthanthebreakfollowingpointF.

Endnote1Unlessotherwiseindicated,all

quotesinthischapteraretakenfromGeorgeLindsay’sself-publishednewsletter,GeorgeLindsay’sOpinion,duringtheyears1959–72.

Chapter14.CaseStudy:The1960s

“Theexpirationofthe15-yearintervalisthepointwhereallthemovementsevenuptemporarily.Theycomeintoasortofbalance.Eventhoughit

won’tlast,ithelpsustolookbackandfindoutwhathasreallyhappened,anditenablesustobeginanewseriesofforecasts.”1—GeorgeLindsay

IntroductionWhentheendofastandardbasicmoveandtheendofalong-termintervalcoincidein

time,thereisa“decisiveandoftenviolentmovement”inthemarket.Thiscanbeseenatseveralpointsintime,includingthehighsofSeptember1929,March1937,andDecember1968,andthelowsofJuly1932andJune1949.Inthiscasestudy,andfinalchapterofthebook,asingledecadeisexaminedwiththeintentofillustratingtheconceptscoveredinpreviouschapters.

1960–61AdvanceItwouldhavebeenniceifthedecadehadstartedwithsomethingmoretraditional,butinsteaditchosetobeginwithtwoanomalies:asubnormaladvancethatisquiteunusualandatimeperiod(August1959toDecember1961)thatLindsayconsideredanexampleofa3PDhpatterntakingtheplaceofabearmarket.Theanalysis

startswiththelonger-termcountsasitshould.The15-yearintervalfromtheOctober1946lowimpliedthatweshouldhavelookedforahighsometimebetweenDecember1961andFebruary1962.Inhindsight,wecanseethattheNovember1961(intraday)highcounts15years,1monthfromtheOctober1946lowand8years,2monthsfromthe

September1953low.TheDecember1961(closing)high,ofcourse,countsto1monthlater.Butwhenlookingforamedium-termintervalofabouttwoyears,awidediscrepancyisfound.ThecurrentbullmarkethadbegunOctober25,1960.Eveniftheadvanceweretobeoftheminimumduration,610days,thehighwouldn’tcomeuntil

June1962attheearliest.CountingthebasicadvancefromOctober25,1960,totheintradayhighonNovember15,1961,isonly386days—anirregularadvance.ThesameistrueifthecountistakentotheclosinghighonDecember13th.Therehavebeenonlythreegenuineadvancesthathavebeensubnormal:thoseof1932–34,1946–48,and1960–61.To

sumupthematter:MostmarketmovementshavealwaysfollowedtheStandardTimeSpans:short,mean,long,extended.Afewmovementshavenot,andthenthetimingnormsareworthless.Butinthesecases,youhavetheshapeofthemovesonacharttogoby.Whena3PDhappears,actaccordingtoitsshape,notthenumberofdays.

The1961highwasanalmostuniquecase.Findingthetopwasnotproblematic,however,asthetimeperiodfromAugust1959toDecember1961unfoldedasaThreePeaksandaDomedHousepattern(seeFigure14.1).WhenyoulookatthechartoftheperiodfromAugust1959toDecember1961,itishardnottorecognizetheshapeofthe3PDh.Apatternofthiskind

cansimplytaketheplaceofaregularadvance.Inordertotargetthetopofthepatternwiththe221-to224-daycount,inthiscaseitmustbecountedfromthetopoftheFirstFloorRoof.FromMay19,1961,toDecember13,1961,counts208days,13daysshortofthetypicalcount.Whilenotunprecedented,countingfromtheFirstFloorRoofisunusual.

Figure14.1.1960–61advance3PDh.ChartcreatedbyMetaStock®.

A107-dayTop-To-TopcountstartsAugust24,1961,andcounts111daystotheDecember13thtop—wellwithinthe±5-daywindow

surroundingthetargetdate4daysearlier(seeFigure14.2).AminorLow-Low-Highintervalof13daysstretchesfromthelowsofNovember17thtoNovember30thandontothehighofDecember13th.AmajorLow-Low-HighintervalcanbecountedusingthemajorlowofDecember5,1960,andtheminorlowofMay26,1961.Theycount171daystoSunday,November12,1961

—3daysofffromthealternatehighofNovember15,1961(seeFigure14.1).

Figure14.2.1960–61advanceLindsayTimingModel.Chartcreatedby

MetaStock®.

1961–62DeclineThedropfromDecember1961tothemarketlowinJune1962wasonly194days

—tooshorttoconstituteabasicdecline,sowelookforasecondarylowthatoftenfollowssuchabreak(seeFigure14.3).ItcameonOctober23,1962.ItwashigherthantheJunelowandonly10monthsafterthehigh(notthe13–14monthsthatwenormallyexpect),butthatdoesn’tmatter.ThesecondarylowofOctober23,1962,came314daysaftertheDecemberhigh—barely

enoughtimetoqualifyasashortbasicdecline.Sometimesitismoreaccuratetouseintradayfiguresthanclosingprices.TheintradayhighcameonNovember15,1961.Fromthere,thelowinOctobercameanideal342dayslater.So,thedeclineof1961–62isconsideredashavingendedinOctober1962andthenextbasicadvancemustbeginonthesameday.The12-year

intervalcounts12years,4monthsfromthehighofJune1948toOctober1962.

Figure14.3.1961–62decline.Chartcreatedby

MetaStock®.

1962–66AdvanceWhentheDowstarteduponOctober23,1962,itwasknown,fromthePrincipleofAlternation,thattheadvance

wouldbelongbecausethepreviousadvance(October1960–November/December1961)hadbeenashortbasicadvance.Whatwasn’tknownisifitwouldbeextended.Iftheadvancehadbeenmerelylong,itwouldhavelasteduntilDecember1964(2years,2months).Notethe12-yearintervalstartingatthehighofJanuary1953.Itcalledforalow

sometimebetweenMarch(12years,2months)andSeptember(12years,8months)1965.TakingfulladvantageofthetimespanandcountingtoSeptember1965wouldstillmeanadeclineofonlyabout8monthsfromapossiblehighthepreviousDecember.Thatwouldhavebeenbarelylongenoughforasubnormalbasicdecline.

Inthisscenario,anewbasicadvancewouldthenbegininSeptember1965.Lookingahead,theendofthenext15-yearintervalfromSeptember1953targetedamajortoptowardtheendof1968(ruleofthumb:15years,2months).IfabasicadvancebeganinSeptember1965,itwouldneedtorunfor3years,3months.ThattimespanismuchtoolongforabasicadvanceusingtheStandard

TimeSpans.ThemarketcontinuedtoadvancethroughDecember,andbymid-May1965,theadvancefromthelowofOctober1962hadenduredfor934days.Thatisjustaboutthemaximumdurationofanextendedbasicadvance.Noadvancehaseverexceededthelimitof929to968days.Theadvancehadtoendsoon,yet,otherthananinterim

correction,afull-fledgedbearmarketwasnotinthecards.Withthe12-yearlowmentionedpreviously,expectednolaterthanSeptember1st,anydeclinebeginningthepreviousMaycouldthereforelastonlyabout110days.Thatisn’tnearlylongenoughtoconstituteabasicdecline.Anotherproblemisthatanyadvancethatbeginsin

responsetoa12-yearintervalusuallylastssevenmonthsorlonger,andthat’swhathappenedhere.Sevenmonthsistoolongforarallyinabearmarketthat,inthisscenario,wastohavestartedinMay1965.Theonlyotheralternativeisthatthelatterpartof1965willbeasidewaysmovement.The12-yearlowactuallycameattheendofJune1965.

SevenmonthsfromlateJune1965placesthefinalhighatabouttheendofJanuary1966.ThebullmarketendedinFebruary1966,andthatwastheendofthesidewaysmovement(seeFigure14.4).ThehighinFebruary1966washigherthanithadbeeninMay1965whenthesidewaysmovementstarted.Itdoesn’tmatter.Thehighestpointofasidewaysmovementmaycomeatthestart,inthe

middle,orattheend.Thetrendissuspendedduringasidewaysmovement.Itresumesassoonasitends.

Figure14.4.1962–66advance.Chartcreatedby

MetaStock®.

AnotherwayoftargetingtheFebruary1966topisa3PDhthatextendedfromlate1964tothetoponFebruary9,1966(seeFigure14.4).The

threepeaksareseeninNovember1964,February1965,andMay1965.Peak3evenbreaksdownintoafractalofacomplete3PDhformation.Withthemajor3PDhhavinganonsymmetricalbase,the221-to224-daycountoriginatesatthebottomoftheSeparatingDecline,June28th,andcounts226daystotheFebruaryhigh.

TheFebruary9thhightothebullmarketwasanexact107daysfromthekeydateofOctober25,1965,adippriortoatop.The107-dayintervalcountisconfirmedbyamajorLLHintervalconsistingof101daysfromJuly22,1965,toNovember1,1965.Countingforwardanother101daystargetsFebruary9,1966.AnothermajorLLHintervaloriginatesatthebottomofthereactionfrom

Peak1andcounts227daystothebottomoftheSeparatingDecline.Countingfromtheretothebullmarkethighwas226days.

1966DeclineAfterthemarkettoponFebruary9,1966,theDowfellfor97daystoMay17th.Thiscouldnotbetheultimatebottomofthedeclinefortwoimportantreasons.First,the

declinefromFebruarytoMay,at97days,wasmuchtooshortforanyoftheStandardTimeSpans.Second,thenextbullmarkethighwasnotdueuntilsometimebetweenNovember1968andJanuary1969.Thisestimatecamefromcounting15years,2monthsand15years,4monthsfromtheSeptember1953low.ThecountfromMay1966to

November1968was915days.Thatwouldhaveputtheadvanceintothe“noman’sland”betweenalong(830days)andanextended(929days)basicadvance.Januarywouldhavebeen2yearsand8months,or976days.Extendedadvancescancontinueforasmuchas2yearsand7months.Notethat976daysisbeyondthe968-daylimitand,inaddition,the

marketjusthadanextendedadvancein1962–65.Twosuchadvanceshaveneverfollowedoneanotherinsuccession(PrincipleofAlternation).Ifthedeclinewastocontinue,atsomepointthereshouldbetworalliesinsuccessioninroughlythesamepricerange.Thisdeclinesawthreerallies,ratherthantwo,fromthelowofMay17thtothehighof

July8th(seeFigure14.5).Inmajorbearmarketsofthepast,thetwoorthreerallieshaveoftencontinuedfor15to18weeks.Theserallieslastedonly52days,lessthantwomonths.Whentherearethreerallies,oneofthem(usuallythelast,butitwasthefirstin1937)iseitherbrieforinconsequential.

Figure14.5.1966decline.Chartcreatedby

MetaStock®.

ThedeclinefromFebruary9,1966,toOctober7,1966,wassubnormalasitlastedonly239days.Thebrevityofthethreerallieswasahint,but

notconclusiveevidence,thatthedeclinewouldbeshorterthanusual.Therewasanother,morespecificwaytotimethebasiclowinlate1966,however.Lookingallthewaybackto1965,theDowfellfromMay14thtoJune10th.TheDowthenroseoneday(June11th),felloneday,andthenroseforthreedaystoculminateonJune17th.Twodistinctrallies

inthesamepricerange,andtheaveragesubsequentlyfelllower.ThisfulfillstheessentialrequirementsofaDescendingMiddleSection.Asarule,theralliesinaMiddleSectionlastlonger,buttheessentialrequirementisasharpbreakbetweenthetworalliesofaDescendingMiddleSection.ThisisthesameDescendingMiddleSectionthatwasexaminedinChapter13,“Countsfromthe

MiddleSection,”soitwon’tberepeatedhereexcepttoaddthatthisMiddleSectionalsofunctionsastheSeparatingDeclineinthe3PDhmentionedintheearlierdiscussionofthe1962–66advance(seeFigure14.4).

1966–68AdvanceReturningtothelong-termintervalcountfromthemajorlowonSeptember14,1953,

thiscounttargetsahighinthevicinityofNovember1968,15years,2monthslater.Remember:The15-yearintervalstretchesfrom15yearsto15years,11months.TherehadbeenanotherimportantlowonOctober25,1960.Counting8yearsforwardtargets1968.ThiscountplacesahighbetweenOctoberandDecember1968(8yearsto8years,2

months).Thetwolong-termcountscoincide,andtheveryfactthattheyagreedsocloselyincreasedtheprobabilitiesofaseveredecline(seeFigure14.6).

Figure14.6.1966–68advance:long-term

intervals.ChartcreatedbyMetaStock®.

Totimethetopmoreclosely,refertothemedium-termintervalofabout2yearsandthebearmarketlowofOctober7,1966.Countthe

typicaldurationofalongadvance,775–805days.ThisplacedtheprobabletimeofthetopsomewherebetweenNovember21andDecember21,1968(seeFigure14.7).ThebearmarketlowinOctober1966didnotbeginata12-yearintervalwherenearlyallmajoradvanceshavetakenoff.Theyear1966wasnot12yearsafteranyimportanttop.Thegainfrom1966to1968wastherefore

onlyaminorbullmarketintermsoftheDowIndustrials.

Figure14.7.1966–68advance,basiclong

advance.ChartcreatedbyMetaStock®.

A3PDhpattern(seeFigure14.8)canalsobeseenduringthisperiod.Peak1(May5,1967)andPeak3(January8,1968)areeightmonthsapart.TheFirstFloorWalltakes

placeMarchthroughMay1968andevenhastheinitialfalsepullbackinAprilthatisfairlycommon.TheFirstFloorRoofhasfivereversals.Theonlytrickyitemhereisthatinordertogetacountof221–224daystotimethetop,itmustbecountedfromthatinitialfalsepullbackinApril—whichcounts225days.Giventhatthecountisonly1daymorethanperfect,anditoriginatesatthebottomofa

pullback,thissuggeststhatthetopwouldhavebeencaughtbytheobservant(andpatient)analyst.

Figure14.8.1966–68advance:3PDhpattern.

ChartcreatedbyMetaStock®.

1968–70DeclineAlowcouldhavebeenexpectedinlate1969/early1970.Thatisbecausethe12-

yearintervalfromthehighofJuly12,1957,placedalowsomewherebetweenSeptember1969(12years,2months)andMarch1970(12years,8months).Asitturnedout,thelowarrived12years,10monthslater,inMay1970.SometimeduringthedeclinefromDecember1968,tworalliesinroughlythesamepricerangewouldbeexpectedtoform.Thetwo

ralliesbeganonJuly29thandlasteduntilNovember10th,104daysoralmost15weekslater.Thesecondrallywashigherthanthetopofthefirstrally.Inthemajorityofcases,thetwo(orthree)ralliesmakeaseriesofdescendingtops.ThesubsequentdeclinefromNovember10thtoJanuary30thlasted82daysandwasshorterthanmostmajorbearmarketlegs(seeFigure14.9).

Figure14.9.1968–70decline.Chartcreatedby

MetaStock®.

January30,1970,came423days(1year,2months)afterabullmarkethighinDecember1968,thetypicaldurationofalongbasicdecline.Therefore,14months

afterthetop,January30,1970,becomesabasiclow.Unlike1966,itdidnotcoincidewithabearmarketlow,astheultimatelowcamelaterinMay.Abasiclowthatprecedesthefinalbearmarketlowisveryimportantinthissystem.Anewbasicadvancemustbecountedfromit.ThefluctuationsbetweenBandHin1967–68constitutedanAscendingMiddleSection

(seeFigure14.9).PointEfellonJune13,1967,andcounts539daysuntilthebullmarkethighonDecember3,1968.Counting539daysfromtheDecemberhightargetsMay26,1970—theexactdateofthebearmarketlow.Notethat539daysislongerthanthetypical“long”bearmarket.Theyhaverangedbetween386and448days.Declinesaremorelikelytobeirregularintheirdurations

thanadvances.Notethatinthisexample,thedateLindsaylabeledwiththeletterJisabullmarkettop.PointJisn’talwaysabullmarkethigh.Beforeconcludingthiscasestudy(andthisMiddleSection),examinethemovementsbetweenpointGandHalone.Ordinarily,theywouldbemerelytheseconddeclineinanAscending

MiddleSection.ButwhenthedeclinefromGtoHcontainstworalliesataboutthesamepricelevel,itbecomesaDescendingMiddleSectioninitsownright.ThedeclinefrompointGtoHinFigure14.10didcontainthenecessarytworallies,althoughthedipthatseparatedthemwasnotassharpasitshouldhavebeen.Thisdipwasthereaction

fromDecember7thtoDecember15th.Ideally,pricesshouldhavebrokenundertheintradaylowpostedonDecember1st.Thedemarcationbetweenthetworallieswouldthenhavebecomeunmistakable.Nevertheless,thehighsofDecember7,1967,andJanuary9,1968,mustbeconsideredthetopsoftwoseparaterallies.December7th,thehighofthenext-to-

the-lastrally,becomespointE.WealwayscountfrompointEfirstsinceithasworkedmoreoftenthanpointC.

Figure14.10.DescendingMiddleSection,1967-68.

ChartcreatedbyMetaStock®.

CountingfrompointEonDecember7,1967,wefindthat901calendardayselapseduntilthebearmarketlowonMay26,1970(rememberthatcountsfrom

theMiddleSectionalwayscenteronabsolutehighsandlowsanddonotusesecondarylows).HereisanotherexampleofalwaysneedingtocomparethecountfromtheMiddleSectionwiththeStandardTimeSpans.InTable12.1,wefoundthatlongadvanceshavecontinuedanywherefrom775to830days,andextendedadvanceshavelastedanywherebetween929and968days.

Butnouptrendsince1877haseverendedanywherebetween830and929days.Giventhehistoricalrecord,anadvanceof901dayswasveryunlikely.WeabandonpointEandgobacktopointC,thelessfrequentlyusedmeasuringpoint,toseeifacountfromtherewillfitbetter.TheDowformedasmalltopbetweenSeptember14,1967,and

October9,1967.Thefirstveryweakdayafterthehigh,October10th,becomespointC.Itwas959daysbeforethebearmarketlowofMay26,1970.Counting959daysforwardfromthere,wearriveatJanuary9,1973.Noticethat959daysfallwithintherangeofextendedbasicadvancesasshowninTable12.1.EarlyJanuary1973wasalso15yearsand

about2½monthsafterthebearmarketlowofOctober1957.Thethreewaysofcountingtimecoincidedaswellastheyeverdo.Asitturnedout,thebullmarkethighcameonlytwodayslaterthanthecountfrompointCindicateditshouldhave—thatis,onJanuary11,1973.

ConclusionItishopedthatthiscasestudy

willhelpthereaderassimilatethematerialintheprecedingchapters.Itcanbeseenthat,intherealworld,thecountsarerarelyexactlywhatLindsayhadprescribed,yettheyaresurprisinglyclose,andoftentimestheyareexactlyashehadwritten.AsnotedintheIntroduction,itisimportanttolearntherulesandspecificcountsLindsaylaidoutinhisyearsofwritingnewsletters.Oncethose

guidelinesarefirmlyinmind,youcanusethemasananchorfromwhichtodriftwiththemarket’sebbsandflows.Itiswiththisfootingthatyoucanthendeclarethatyoutrulyhavea“feelforthemarket.”

Endnote1Unlessotherwiseindicated,allquotesinthischapteraretakenfromGeorgeLindsay’sself-publishednewsletter,George

Lindsay’sOpinion,duringtheyears1959–72.

Glossary

107-dayintervalAnintervalof107calendardaysusedtoforecasttheintradayhighofanadvancingmarket.Thekeytousingtheintervaliscorrectlydeterminingitsorigin.

agitationThestarting

pointofaseriesoftimeintervals.Anagitationmaybeanepisodeofviolence,eruptionsofanemotionalnature(religious,economic,orpolitical),oracreativeconcentration(books,paintings,plays,music,etc.).

ascendingbaseAbasethatformsaftertheSeparatingDeclineinaThreePeaksandaDomed

Housepattern.Thisbaseischaracterizedbyaseriesofhigherhighsandhigherlows.

ascendingmiddlesectionTheperiodinabullmarketwhentheadvanceslows(relativetowhatprecededandfollowedthistimeperiod),typicallyfor20weeksormore.Theformationisusedtotargettopsandbottoms.Whenthe

ralliesinthemiddlesectionexceedthetopofthepreviousadvance,itisreferredtoasanAscendingMiddleSectionandcontainsatleastthreerallies.

baseThebase-buildingphaseofaThreePeaksandaDomedHousepatternpriortotheFirstFloorWall.

basicadvancesDifferentcategoriesofmarketadvancesofvaryinglengthbutalllastingapproximatelytwoyears.

basicdeclinesDifferentcategoriesofmarketdeclinesofvaryinglengthbutalllastingapproximatelyoneyear.

basicmovementsEitheradvancesordeclines

composedoftheStandardTimeSpans.

bottomtotopcountApossibleoriginofa107-daycountintheLindsayTimingModel,priortoanextendedrise.

clusterAtradingrangenear,orjustafter,theexpirationofa107-daycount.

coincidentcountsIntheLindsayTimingModelthisisanalignmentofa107-daycountwithvariousLLHcountswithin24hoursofeachother.

compacttopformationThecommonframeworkoftheninevariationsofaKeyRange.

countThenumberofcalendardaysbetweenthe

originandendingofatimeinterval.

cupolaThetopoftheThreePeaksandaDomedHousepatternthatresemblesthecupolaofahouseorhead-and-shoulderstop.

descendingbaseAbasethatformsaftertheSeparatingDeclineinaThreePeaksandaDomed

Housepattern.Thisbaseischaracterizedbyaseriesoflowerhighsandlowerlows.

descendingmiddlesectionEssentially,adowntrendinalongbullmarkettypicallyfor20weeksormore.Theformationisusedtotargettopsandbottoms.Whentheralliesinthemiddlesectionfailtoexceedthetopofthepreviousadvance,itis

referredtoasaDescendingMiddleSectionandnormallycontainsonlytworallies.

doublebottomtopAKeyRangeintheLindsayTimingModelcharacterizedbythreehighsseparatedbytwolows,thefirstofwhichisusuallythekeydate.

doubletopAKeyRange

intheLindsayTimingModelcharacterizedbytwohighsseparatedbyalowthatisoftenthekeydate.

extendedadvanceThelongestBasicAdvance,varyingbetween929and968days.

finaldipAvariationoftheKeyRangeconceptintheLindsayTimingModelinwhichthekeydateisthe

finaldipinpricepriortothehighoftheadvance.

firstfloorroofOften,butnotalways,asidewayspatterncharacterizedbyafive-wavereversalfollowingtheFirstFloorWallinaThreePeaksandaDomedHousepattern.

firstfloorwallAsharprisefollowingthebaseinaThreePeaksandaDomed

Housepattern.

fractalAgeometricshapethatcanbesplitintoparts,eachofwhichisareduced-sizecopyofthewhole.

importantcount1Acountfromoneimportantlowtoanotherimportantlownotmorethantwoyearslater.2Acountfromanimportantlowtoaminorlownotmorethanthreemonths

later.

importantlowDuringanuptrend,alowinaLow-Low-Highintervalthatdropslowerthanapreviouslowintheuptrendprecedingthemostrecenthigh.Animportantlowcanalsobeachangeintrend.Importantlowsindowntrendsprecedeanupwardretracementthatclimbshigherthana

previousupwardcorrectioninthesamedowntrend.

irregularbaseAbasethatformsaftertheSeparatingDeclineinaThreePeaksandaDomedHousepattern.Thisbasecannotbecontainedwithinparallellines.

keydateTheoriginofthe107-daycountusedintheLindsayTimingMethod.

keyrangeThepricerangewithinwhichthekeydateislocated.AKeyRangehasninepossiblevariations.

lindsaytimingmodelAtimingmethodusedtoidentifytheintradaypricehighofamarketadvanceusingboththe107-dayintervalandtheLow-Low-Highinterval.

longadvanceAbasic

advancethatvariesbetween715and830days.

longdeclineAbasicdeclinetypicallylasting13or14months.

long-termintervalsTheelapsedtimefromanimportanthightoanimportantloworviceversa.Thetwolow-to-highintervalsareapproximately8yearsandapproximately

15years.Thehigh-to-lowintervallastsapproximately12years.

low-low-highintervalTwopricelowsseparatedbyanintervaloftimeequaltotheintervaloftimeseparatingthesecondpricelowfromasucceedingpricehigh.

M-patternAseriesofhistoriccycleslasting

almost400yearsfrombeginningtoend.Thepatterndescribestheexpectedtimingofanation’sgoodandbadfortune.

majortopformationAtopformationthatextendsoverseveralmonthsandnormallyincludesseveralCompactTopformations.

medium-term

intervalsCountedindaysandreferredtoastheStandardTimeSpansorBasicMovements.

minorcount1Acountfromoneminorlowtoanotherminorlow.2Acountfromoneminorlowtoanimportantlow.Aminorlowisvalidfornomorethanfourmonths.

minorlowsAlowinthe

Low-Low-Highintervalthatisanylowotherthanan“importantlow.”

posttopcountsA107-daycountintheLindsayTimingModeltakenfromakeydateafterthehighinaKeyRange,ratherthanthemorecommonapproachofakeydatepriortothehighoftheKeyRange.

principleof

alternationTheprincipleholdsthatBasicMovementsofthesameclassanddirectionalternateinlength.Alongadvanceisfollowedbyashortadvance.

principleofequalizationInaThreePeaksandaDomedHousepattern,whenoneformation(theThreePeaksortheDomedHouse)falls

shortofthenormalduration,theotherpatternequalizesthetotalelapsedtimebybecominglongerorshorter.

rangedipSimilartoafinaldipintheLindsayTimingModelexceptthatthefinaldip,ratherthanbeingintheKeyRange,isthefinaldippriortotheKeyRange.

retrogrademovementAnattempttochangethecourseofeventsinhistorythatusuallyoccursbeforetheexpirationofthe40-yearintervalinLindsay’sTechnicalHistoryandservestoconfusetheoutlook.

ruleofcontinuityWhenalong-termormedium-termtrendends,anoppositetrend,ofthesameclass,

mustbeginimmediately.

secondfloorwallAsharprisefollowingtheFirstFloorRoofinaThreePeaksandaDomedHousepattern.

secondarylowAtemporarybottominadeclinethatoccurs13–14monthsafterahighinthemarket.

separatingdeclineThesell-offfollowingthethirdpeakinaThreePeaksandaDomedHousepattern.Thedeclinemustterminateatapointbelowatleastoneofthereactionsfollowingpeaksoneortwo.

shortadvanceAbasicadvanceoflessthantwoyears.

shortdeclineAbasic

declinetypicallyvaryingbetween340and355days.

short-termintervalsThecountsintheThreePeaksandaDomedHouseandLindsayTimingModels.

sidewaysmovementAninterveningperiodwhenthetheoreticaltrendisneitherupnordown.

sinkingkeyrangeAKey

RangeintheLindsayTimingModelthatappearsasaconsolidationinadecliningmarket.

specialclassAkeydateintheLindsayTimingModelsuchasadipsucceedingaBottomtoTopCount.Any107-daycountsoriginatingatsuchanoriginshouldbeexpectedtotargetashort-livedbounceinanalreadyexistingdecline.

standardtimespansThevariousdurationsofmarketmovesthathaverecurredthroughouthistory.

subnormaladvanceAnextremelyshortandrelativelyrarebasicadvance.

subnormaldeclineAnextremelyshortbasicdeclinevaryingbetween222and250days.

swingoverIntheTri-DayMethodaratiofoundbydividingthedistancefromthebottomoftheSeparatingDeclinetothetopoftheDomedHousebythedistancefromPeakThreetothebottomoftheSeparatingDecline.

symmetricalbaseAbasethatformsaftertheSeparatingDeclineinaThreePeaksandaDomed

Housepattern.Thisbasecanbecontainedwithinparallellines.

targetdateThe107thcalendardayafterthekeydateintheLindsayTimingModel.

technicalhistoryThetermLindsayusedtodescribethemethodsinhisbookTheOtherHistory.

threepeaksandadomedhouseAgeometricpatternusedtofindtheendofabullmarket.

top-to-topcountAmethodusingthe107-dayintervaltotargetthetopofamarketadvance.

tri-daymethodAseriesofcalculationstodetermineapricetargetforabottomafterthetopofaThree

PeaksandaDomedHousepattern.

truedateTheactualintradayhighofanadvancenormallycontainedwithina±5-daywindowsurroundingtheTargetDateintheLindsayTimingModel.

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Numbers3PDh(ThreePeaksandaDomedHouse),478-yearintervals,155–15912-yearintervals,152,15915-yearintervals,149–150,158107-daycounts,combining

withLLH(Low-Low-HighCount),124–125107-dayintervals,LindsayTimingModel,100107-DayTop-to-Topcount,951960scasestudy

1960-1961advance,204–2051961-1962decline,2081962-1966advance,

208–2111966decline,213–215

1966-1968advance,215–2161968-1970decline,220–

AAdams,Brooks,24Adams,Henry,24TheAdvisor,16advisoryservice,16agitation,25

CreativeConcentration,31–32

emotional,29–31unsuccessfulrevolts,26–

28“AnAidtoThinking,”12Alphier,James,16,18AmericanCivilWar,26analyst,13–14appearanceofGeorgeLindsay,14artist,9–10AscendingMiddleSection,191,194–196

Bbases

DomedHouseformation,60–61

SymmetricalBase,62longer-than-normal

DomedHouse,66basicadvances,163–166

declinesfollowingextendedbasicadvances,171–174

extendedbasicadvances,164longbasicadvances,164shortbasicadvances,

164basicdeclines,166–170BasicMovements,161

basicadvances,163–166basicdeclines,166–170long-termintervals,171secondarylowsequence,

176,179secondarylows,174–

176sidewaysmovements,

181–183movingupwardout

of,183–185StandardTimeSpans,

162–163bearmarkets,48BottomtoTopCounts(BTC),111Brown,John,16–18BTC(BottomtoTopCounts),111

bullmarkets,48shorter-than-normal

DomedHouse,67

Ccalculationsteps,Tri-DayMethod,81–82CampaignGM,15casestudy:the1960s

1960-1961advance,204–2051961-1962decline,2081962-1966advance,

208–2111966decline,213–2151966-1968advance,

215–2161968-1970decline,220–

224characteristics

identifyinginThreePeaksandaDomedHouse,42–47ofThreePeaks

formations,50–51,54ChicagoBoardofTrade,10

Christianchurch,founding,29Clusters,133–136CoincidentCounts,130–133CompactTopformations,105–106

BTC(BottomtoTopCounts),111Clusters,134DoubleBottomTop

formations,107DoubleTopformations,

FinalDip,109–110Head-and-ShouldersTop

formations,108PTC(PostTopCounts),

113–114RangeDip,110SinkingKeyRange,114SpecialClass,112

ComplexArrangement,Tri-DayMethod,86–89counts

CoincidentCounts,130–133

DomedHouseformation,62–64expiring,130importantcounts,LLH

(Low-Low-HighCount),123LLH(Low-Low-High

Count),122,137medium-termcounts,

161MiddleSection,189,

192StandardTime

Spans,193–194minorcounts,LLH

(Low-Low-HighCount),123

CreativeConcentration,31–32Cupola,DomedHouseformation,75–77cycles,143

long-term,144–148

Ddates,keydates,103

KeyRange,104–105CompactTop

formations,105–114MajorTop

formations,105,115–116deathofGeorgeLindsay,20declines,166–170

DomedHouseformation,75–77expectedsizeofLLH

(Low-Low-HighCount),125–126followingextendedbasic

advances,171–174DescendingMiddleSection,191,196–198difficulttoeasy,26DomedHouseformation,48,59,77

bases,60–61counts,62–64Cupolaandthedecline,

75–77FirstFloorRoof,70

falsestarts,74missingroofs,72

roofrallies,71–72FirstFloorWall,69–70longer-than-normal,64

descendingbases,66shortbases,66

SecondFloorWall,74shorterthannormal,67

DoubleBottomTopformations,107DoubleTopformations,106DouglasAircraft,12

easytodifficult,28Einstein,Albert,32Elliott,R.N.,1emotionalagitations,29–31Enlightenment,CreativeConcentration,32Esty,William,10expiringcounts,130extendedbasicadvances,164

Ffalsestarts,FirstFloorRoof

DomedHouseformation,74

familyhistoryofGeorgeLindsay,7–8FinalDip,109–110FirstFloorRoof,45

falsestarts,74missingroofs,72roofrallies,71–72

missing,shorter-than-normalDomedHouse,67

FirstFloorWall,45DomedHouse

formation,69–70fractals,54–56funnelapproach,143

GGeorgeLindsay’sOpinion,16Georgel,Gaston,24Germany,unsuccessfulrevolts,28Granville,Joe,17–18

HHead-and-ShouldersTopformations,108Hirsch,Yale,13,18Hitler,Adolf,28

Iidentifyingcharacteristics,“ThreePeaksandaDomedHouse,”42–47importantcounts,LLH(Low-Low-HighCount),123

intervals,143long-term,146–149,162

8-yearintervals,155–159

12-yearintervals,152,159

15-yearintervals,149–150,158

BasicMovements,171

irregulartiming,3PDh(“ThreePeaksandaDomedHouse”),46

irregularities,ThreePeaksformation,50–51,54

Kkeydates,103

KeyRange,104–105CompactTop

formations,105–114MajorTop

formations,105,115–116KeyRange,104–105,130

CompactTopformations,105–106

BTC(BottomtoTopCounts),111

DoubleBottomTopformation,107

DoubleTopformation,106

FinalDip,109–110Head-and-Shoulders

Topformation,108PTC(PostTop

Counts),113–114RangeDip,110SinkingKeyRange,

114SpecialClass,112

MajorTopformations,105,115–116

LLindsaySr.,George,8LindsayTimingModel,64,93–94,100

introductionto,95–98Top-to-Topcount,96tops,99

Lindsay,AlbertLoftus,7Lindsay,FrankLoftus,8Lindsay,George,1–3

analyst,13–14artist,9–10deathof,20familyhistory,7–8

Lindsay,NellieVictoriaMeyer,7LLH(Low-Low-HighCount),119–120,137

combiningwith107-daycounts,124–125

counts,122determininglows,121–

122expectedsizeofdecline,

125–126importantcounts,123minorcounts,123

LLH(Low-to-Low-to-High)intervals,103longbasicadvances,164longbasicdeclines,167long-termcycles,144–148long-terminterval

12-yearintervals,152,15915-yearintervals,149–

150,1588-yearintervals,155–

159long-termintervals,146–149,162

BasicMovements,171longer-than-normalDomedHouse,64

descendingbases,66shortbases,66

LosAngeles,12lostmanuscripts,33Low-Low-HighCount(LLH),119–120,137

combiningwith107-daycounts,124–125counts,122determininglows,121–

122expectedsizeofdecline,

125–126importantcounts,123minorcounts,123

Low-to-Low-to-Highintervals,103lows

LLH(Low-Low-HighCount),121–122secondarylowsequence,

176,179secondarylows,174–

MM-Patternofhistory,33MajorTopformations,105,

115–116Clusters,133tradingranges,138

McKinley,President,27medium-termcounts,161MiddleSection,189–191

AscendingMiddleSection,191–196DescendingMiddle

Section,191–198StandardTimeSpans,

193–194MiddleSections,counts,192

minorcounts,LLH(Low-Low-HighCount),123minorformations,54–56missingroofs,FirstFloorRoof(DomedHouseformation),72Model3,Tri-DayMethod,84–86movingupwardoutofsidewaysmovements,183–185

Nader,Ralph,15OnBalanceVolumeindicator,18“OneYearLater:AFollow-UpoftheThreePeaksandDomedHouse,”40TheOtherHistory,23

PParker,Charlie,3patternsatsecularbullmarkettops,shorter-than-normal

DomedHouse,67physicalappearance,14politicalviews,15–16PostTopCounts(PTC),113–114PrincipleofAlternation,170PrincipleofEqualization,47PTC(PostTopCounts),113–114

RRangeDip,110

retrogrademovement,26revolts,unsuccessful,26–28RightShoulder,172roofrallies,FirstFloorRoof(DomedHouseformation),71–72roundedeffectatthetop,46Rukeyser,Louis,19RuleofContinuity,162

SSecondFloorWall,45

secondarylowsequence,176,179secondarylows,174–176SeparatingDecline

ThreePeaksformations,56–57

shortbasicadvances,164shortbasicdeclines,166shorter-than-normalDomedHouse,67sidewaysmovements,164,

181–183movingupwardoutof,

183–185SinkingKeyRange,114SpecialClass,112SpecialRule,declinesfollowingextendedbasicadvances,171–174squareeffect,46StandardTimeSpans,162–163

MiddleSection,193–194

StockTrader’sAlmanac,18subnormal,164subnormalbasicdecline,166–170Swingoverratio,80SymmetricalBase,62

Ttargetdates,LindsayTimingModel,96technicalhistory,23Teisch,Stuart,17

terminology,tops,99“ThreePeaksandaDomedHouse,”39

identifyingcharacteristics,42–47

ThreePeaksformation,49characteristicsand

irregularities,50–51,54minorformations,54–56SeparatingDecline,56–

57timeintervals,25–26

agitation,25

ATimingMethodforTraders,93TimingModel,64,93–94,100

introductionto,95–98Top-to-Topcount,96tops,99

Top-to-Topcount,125LindsayTimingModel,

96Top-to-Topcounts,129ToppingRange.SeeKeyRange

ToppingRanges,117tops,99trackrecord,17,19tradingranges,137–138Tri-DayMethod,79–80

calculationsteps,81–82ComplexArrangement,

86–89Model3,84–86Swingoverratio,80

unsuccessfulrevolts,26–28Victoria,Nellie,8violenceoffluctuations,122vonReichenbach,Stromer,24

W–X–Y–Z`WallStreetWeek,19–20Yates,James,9

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