Top of the Bear Market Rally: January 23, 2012
After the prescient forecast of the October 3, 2011 low by Lindsay Time Intervals I found myself wondering how long the bear market rally would endure. Unlike the October low and its paucity of signals, Lindsay’s models are legion in their forecast of a high on January 23, 2012.
Standard Time Spans
Typically, our discipline is to always start looking for a bull market high using a long-term interval. Bull market tops are found with a 15-year interval and bear market bottoms use a 12-year interval. The 12-year interval stretching from 8/25/99 was an integral element in targeting the October 3, 2011 (12years, 1month) closing low. Despite how well the long-term interval worked in October, these monster counts are meant for major inflection points in the market, not the sort of high we’re looking for now; the top of a bear market rally. So I skipped this prototypical step in the process this time and went directly to the Standard Time Spans.
Standard Time Spans are the genius that is Lindsay. Lindsay found that all advances and declines tend to cluster together into groups of similar duration. He called those groups the Standard Time Spans. A schedule of these time spans can be found in my book George Lindsay and the Art of Technical Analysis. The first step is to determine the origin of the time span. Most of us wouldn’t call the July 2009 low a ‘less-than-significant’ low but that is precisely how Lindsay would have labeled it and that is the type of low that points to a ‘less-than-significant’ high; the top of a bear market rally.
We count a basic advance from here but which time span should we use? There are four possibilities: irregular, short, long, and extended. As I write this article during the 2011 Thanksgiving holiday, 874 days have passed since the July low. 874 days is in the “no-man’s land” between a long basic advance (742-830 days) and an extended basic advance (929-968 days). This is our first indication that the advance has further to run and a higher high (higher than October 28, not May 2) remains to be printed. We now know that the post-October advance must continue for at least 929 days, but no longer than 968 days, the duration of an extended basic advance. 929 days is January 23, 2012 (see Figure 1).
Figure 1
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2. Lindsay Timing Model
With the time frame for a top established we turn to Lindsay’s short-term counts to narrow down our forecast. The Lindsay Timing Model is composed of two sub-models: The 107-day top-to-top count and the Low-Low-High interval. Both sub-models give numerous forecasts for tops but we are only concerned with those forecasts which are identical or within a very narrow range (i.e. 2 days).
Figure 2
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The 107-day interval is counted from a Key Date forward 107 calendar days. Counting forward 107 days from the Key Date of October 3, 2011 targets a top on January 19, 2012 (see Figure 2). But, as noted above, the current advance cannot end before January 23 at the earliest. Not a problem. Lindsay allowed for a +5-day window around his 107-day count. We expect to find a market top somewhere from 102 – 112 days from a Key Date. January 23, 2012 is 112 days from October 3, 2011. We now have a 107-day interval which matches the end of our basic movement. While the 107-day count is a necessary component of the Lindsay Timing Model, it is not sufficient. We must be able to confirm the 107-day count with the Low-Low-High interval.
The Low-Low-High interval is very simple; determine the number of (calendar) days between two lows in the market and then count forward (from the second low) an identical number of days to forecast a potential market top. Obviously, we don’t expect to find a market top every time we count between two market lows. We DO, however, expect to find some sort of top every time the forecast matches up with the 107-day count. Lindsay categorized lows into “important lows” and “minor lows”. We need both to confirm the 107-day count. Counting from the important low of May 6, 2010 (the date of the infamous “flash crash”) to the important low of March 16, 2011 is 314 days (see Figure 3). Counting forward another 314 days brings us to January 24, 2012. Off by one-day is not a problem as Lindsay allowed for these important counts to be off by as much as a week. We expect to find only one important count particularly at a ‘less-than-significant’ turning point in the market but this time there are two! And the second count targets the exact date of January 23, 2012. Counting June 15, 2011 to October 4, 2012 (the intraday low of the previous decline) is 111 days. Counting forward 111 days from October 4 brings us to January 23.
Figure 3
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Finding two important intervals so close to our January 23 target is significant but, again, not sufficient without minor counts. Lindsay’s minor counts (counted between minor lows) should bring us to within two days of the true high in the market. With the minor interval counts we effectively narrow down the five-day window (provided by the 107-day count) to two days. The lows of April 15 and September 5, 2011 are 140 days apart. Counting forward another 140 days targets January 23 exactly. There exist 121 days between the minor lows of May 24 and September 22, 2011. This interval targets January 21, the Saturday before January 23. So far I’ve only identified two minor LLH intervals. I’d be very surprised if more didn’t develop between now and January but two should be enough. The Lindsay model, if used in isolation, is telling us to expect some sort of top (short, intermediate, or long-term) near January 23, 2012. Combining it with our work using the basic movements (Standard Time Spans) is making late January very interesting, indeed.
Figure 4
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221-224 day count
Those who are acquainted with Lindsay’s model Three Peaks and a Domed House often mention a count used in that model of 7 months and 10 days. More specifically, Lindsay referred this interval as 221 – 224 days. As interesting as it is that (when counted from the correct location on the formation) the interval can so precisely time the top of bull markets, it becomes absolutely fascinating when Lindsay writes that this interval is found throughout the entire history of the Dow Industrials and not solely within 3PDh formations. If we count from the low of June 15, 2011, we find that January 23 is a perfect 223 days forward (see Figure 5). Used by itself, this interval is a pretty weak sister. But the hair on the back of my neck stands up when it confirms other forecasts.
Figure 5
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Mirror Image or Foldback Model
I saved this model for last as, frankly, it is the model I know least about. In researching my book on Lindsay’s methods I was unable to find any explanation of this particular approach. I did find a note saying he had never written about the Mirror Image model. If he explained it in later newsletter, I never found it. Fortunately, he did discuss the approach with others hence what I know is all second-hand. My understanding is as follows. We can expect a high or low to be formed at a distance in time from a previous high or low which is equal to the distance between that previous high or low and a high or low before even it. Confused? Think of folding a printed chart on that previous, or middle, high or low. You could expect the two, outside inflection points (market high or low) to overlap one another. Must all the inflection points be all highs or all lows? What about low-high-low or high-low-high? What about low-low-high (that should sound familiar) or high-high-low? One thing I have discovered (which you’ve probably already guessed) is that it doesn’t work all the time. It’s a bit like the 221-224 day interval in that regard. It is used as a confirming indicator rather than a stand-alone model. All of Lindsay’s methods are that way. The next time you read someone’s market-forecast based solely on Three Peaks and a Domed House (a common mishap in the blog-o-sphere) you should know that it is to be disregarded. Lindsay’s methods were meant to be part of a total, integrated approach using several of his models. Back to our forecast; counting from the high on August 9, 2010 until the intraday high of the bull market on May 2, 2011 measures 266 days (see figure 6). Counting forward another 266 days brings us to… (drum roll please)… January 23, 2012.
Figure 6
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Conclusion
Lindsay’s methods came within three trading days of targeting the end of what he called a Sideways Movement, or the beginning of a bear market, on July 7, 2010. They were the key to our forecast of the October 3rd bottom on either Friday September 29 or Monday October 3, 2010. Given all the above, we are confident that the high of this bear market rally will fall on January 23, 2012.
