Hybrid-Lindsay Model Points To A Short-Term Low

By: Ed Carlson | Tue, Oct 8, 2013
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In late August I wrote of an experimental approach I have been using to time short term highs and lows based on the work of George Lindsay. I wrote that my Hybrid-Lindsay model forecast a low on Wednesday, 8/28/13. The closing low came on Tuesday and the intra-day low was on Wednesday. No one was more surprised than me!

Two weeks later I wrote that the Hybrid-Lindsay model was calling for a top on 9/11/13. Whoops! The high of the post 8/28/13 rally didn't materialize until 9/18/13. You can read the commentary yourself to see why I chose 9/11/13 but the short answer is that rather than using point C (the day the Dow breaks down from a minor top formation) on 10/26/13, I should have used the alternative, point E (the high of the flattened top) on 10/19/09 (see insert). As seen in Figure 1, 10/19/09 counts 715 days to the low of the basic cycle on 10/4/11. Exactly 715 days later the market printed its most recent high on 9/18/13. My orthodox Lindsay analysis has identified this date as the high of the 2009 bull market and is fully explained in the September Lindsay Report. You can request a free copy through the Seattle Technical Advisors.com website.

Figure 1

Dow Analysis
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With that top firmly in the rear-view mirror we can turn our attention to the next short-term low. This time, forecasting the low of last week's decline gets a little trickier. Lows are counted from a turning point at the high of the final basic cycle in the previous long cycle. I believe that the end of the terminal decline of the last long-cycle was on 3/6/09. That would make the high on 10/11/07 the high of the final basic cycle during that long cycle. 10/11/07 is 2,185 days prior to last Friday. Looking for a Middle Section approximately equidistant prior to 10/11/07 takes our search to October 2001. "Lo and behold!" as the preacher used to say, there is a flattened top then. While a forecast from the high of the highest top (10/26/01) has already passed (9/25/13), using another high in the top was common for Lindsay. There are two obvious choices; 10/11/01 and 10/17/01.

To shoot to the chase, 10/11/01 forecasts a low on 10/10/13 and 10/17/01 forecasts a low on 10/4/13 (last Friday). Last Friday was clearly not a low so does that mean the current decline will last until this Thursday, 10/10/13? My hybrid approach can be off by a day or two but is composed of more than just Middle Section counts. The Hybrid-Lindsay model attempts to constrict the margin of error in Middle Section forecasts by using, what Lindsay would have called, intervals of equidistance; similar to cycles but without the requirement of extending from low to low. I have identified a 66-day interval pointing to a low on Monday (one trading day past the Middle Section forecast) and the next interval forecast isn't until 10/14/13. 10/7/13 is the best point-forecast for a temporary low but allow for a margin of error of 1-2 days.

Figure 2

Dow Forecast highs and lows
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Ed Carlson

Author: Ed Carlson

Ed Carlson
Seattle Technical Advisors.com

Ed Carlson

Ed Carlson, author of George Lindsay and the Art of Technical Analysis, and his new book, George Lindsay's An Aid to Timing is an independent trader, consultant, and Chartered Market Technician (CMT) based in Seattle. Carlson manages the website Seattle Technical Advisors.com, where he publishes daily and weekly commentary. He spent twenty years as a stockbroker and holds an M.B.A. from Wichita State University.

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