Among the more unusual stock market chart patterns is the “three peaks and a domed house.”
Observed by a technician named George Lindsay, the formation includes 28 inflection points that basically look like three peaks and a domed house.
Not too many people take the pattern too seriously. But some chart watchers believe the pattern holds at least some merit.
John Hussman of Hussman Funds thought it was worth addressing in his lengthy discussion of market topping patterns. Indeed, it very much resembles patterns seen in the mid 1910s, late 1920s, and early 1970s. From Hussman:
As it happens, the sequence described here is not at all new. Instead, it follows a pattern that technical analyst George Lindsay described in 1970 (and notably before even the 1973 instance above), which he called “Three Peaks and a Domed House.” Lindsay observed this pattern repeatedly across historical market cycles, describing about half of the bull market tops in the DJIA.
My sense is that it is enormously ambitious to label 28 separate points in a technical pattern, but the central observations do appear to nicely characterise many historical instances. Lindsay called points 8-10 a “separating decline” that distinguishes the series of consolidating peaks from first vertical portion of the speculative blowoff (the “wall of the first story”). Following a choppy correction, the pattern completes with the “domed house” — which is roughly the analogue of a narrow head-and-shoulders pattern: “after peaking at 25, price tumbles to 26, retraces to 27, before heading lower to 28, completing the pattern.”
Here’s the Dow today via Hussman:
So, should we be freaked out about an impending stock market crash? Based on three peaks and a domed house or some other series of similar market patterns?
It would most certainly be silly to think that 1) a crash will never happen again and 2) you would see a crash coming.