Yesterday was indeed a low-volume Holiday trading session, offering absolutely no new information. But then again, there's no law that says that any particular 6 1/2 hour trading period -- that is, one full trading day -- has to be eventful.
Since I get quite a few questions on the intriguing and rare "3 Peaks and a Domed House" pattern that may be unfolding right now, I though I'd turn over the Briefing this morning to Tim Wood, who brought this pattern to our attention. Tim's been tracking this pattern closely, and he's just delivered a thorough update, after having combed the historical record for 12 other such occurrences of this pattern. So here's Tim:
Update 11-10-03, by Tim Wood, Editor,Cycle News and Views
Now for an update on the pattern that we have been watching known as "Three Peaks and a Domed House." So far, this pattern remains intact. I have included a chart of the S&P 500 with these counts (below).
I have continued to pick apart the historical occurrences of this pattern in an effort to develop a better understanding of how the current pattern should unfold. In doing so, I have found a few more details about this pattern that now come to play. First, I want to discuss the formation of point 23. I found that sometimes this point can form very quickly with a short lived but sharp upward thrust. I have found occurrences where it has taken as much as 2 months for this point to form. In one case, the market made 4 sharp advances over a 2 month period before the final high point was seen. In another case it took 2 months to form the top, but during this period the market just worked sideways before finally breaking down into point 24.
So, as you can see the bag is mixed as to the historical formation of point 23 itself. On one hand this might not appear to be of much value. However, in studying the historical formations of point 23 I can say that so far we have not seen anything outside of the historical norm.
In my relentless study of this pattern, I have also come to realize some common market behavior that we can use to guide us with regard to the unfolding of point 24. Cyclically, we should now be moving into the trading cycle low, which is due by November 27, 2003....From a cyclical perspective, our expectation is to see the coming trading cycle low move below the October 24, 2003 half-trading cycle low, which occurred at 9,497.72 (Dow). The reasoning behind this was discussed in the November 1, 2003 update. It could very well be that the move into this trading cycle low will also be the move into point 24 and this is where we can use the behavior of past patterns to develop expectations for the current pattern.
In picking apart 12 historical occurrences of this pattern, I have noticed that the decline into point 24 has moved below point 22 eight times. On one occurrence the move into point 24 was within one point of point 22. There have only been three occurrences where point 24 was made at a level above point 22. So, we can say that based on the historical behavior of this pattern, we have a 75% probability of seeing a decline that will either occur at or below point 22 as we move into point 24. Should the trading cycle low occur above point 22 which was 9,275.06 on the DJIA and 995.97 on the S&P 500 (these are closing basis figures) it will then be time to reevaluate. Such an occurrence could mean that point 23 has not yet been established or we are seeing another occurrence where point 24 came in above point 22 or possibly the pattern has derailed. Should this occur, I will evaluate its meaning at that time.
The next observation is really the most important one. Of these 12 historical patterns, ten of them had advances to point 25 that fell short of the price level seen at point 21. Only two of these patterns saw a rise above point 21. Therefore, we can develop another expectation in that regardless of the level of point 24, we have an 83% probability of seeing point 25 occur below point 21. Point 21 occurred at 9,659.13 on the DJIA and 1,039.58 on the S&P 500. So, what this all means is that after the decline into point 24, which again could be the coming trading cycle low, the rally that follows should ideally not exceed point 21 if the decline into the trading cycle low did indeed mark point 24. A move above this level would suggest that either the decline into the trading cycle low was not point 24 or we are seeing another occurrence where point 21 will be exceeded or point 23 has not yet been established or the pattern has been derailed. We will cross this bridge if we come to it.
The last observation is pretty obvious but it might be worth mentioning. If the rally out of the coming trading cycle low does exceed the recent intra-day highs seen on November 7, 2003, we will have to conclude that either point 23 is not yet in place or this pattern has possibly derailed. This is once again a bridge that we will cross if we come to it.
My purpose of providing you with the behavior of these historical patterns is to give you some expectation as to what should be unfolding if we are indeed on track with this pattern. This background should also allow you to monitor the progress of this pattern as well as the meaning of future price movements over the next few weeks. Should you take this sell signal, you can also use the expectations laid out above as indications to exit your position if these historical norms are not met. I would also place stops just above the November 7, 2003 top.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Filled 1 point to 5% full of negative sentiment.
SHORT-TERM: Moved from a decline phase into neutral.
MID-TERM: Progressed 3 points to 10% on the decline side but with Confidence moving the wrong way to a bullish 2.
LONG-TERM: Remained unchanged at 13% on the decline side but with Confidence moving here too in the wrong direction by a point to a bullish 2.
BOTTOM LINE: In pulling back to initiate what could become an intermediate decline phase the market has moved close to being short-term oversold . It did this on light (holiday) volume and without suffering any really vicious technical damage. We're ripe for a short-term advance phase. If this advance phase is on the lame side (as we expect) then we will be very likely to see subsequent downside continuation. If a coming advance phase has some real juice to it, then we'll reevaluate our somewhat bearish view for mid November.
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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