I’ve spent the last several weeks in this space making the case for a market top in equities in late September or early October.
Using the work of George Lindsay (Three Peaks/Domed House, 22year Overlay, Standard Time Spans, etc.), a top to the March 2009 bull market was expected during this time frame. Last week, the October 5, 2012 high in the Dow (Lindsay’s work is always applied to the Dow Industrials index) looked like it would be challenged but on Friday the week’s advance was pretty much all given up in just one day.
IS IT REALLY THE TOP?
The question we all ask from time to time is ‘how can I be confident that the top is in?’ What evidence is there that the market (despite printing a high at the correct forecasted date) will actually continue down and not go back up to see new highs?
Markets may seem like they go straight down but events like we saw 25 years ago on October 19, 1987 are rare. Bear markets can be long, grinding events which wear out both the bulls and the bears. I like to say the biggest rallies occur in bear markets.
DOWNSIDE TARGET
Without a target for a bottom it is hard to have confidence in the forecasted top even if the top did come at the expected time. Fortunately, with Lindsay’s Three Peaks/Domed House model we have a minimum expected forecast for a market sell-off: the lows of October 2011. Using his other methods we can estimate the time the bear market will require.
WHAT TOOLS DO YOU USE?
I would be interested in knowing what tools you use to answer the question posed above. Let us know below.
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