3 peaks & a Domed House on the SP500 ??

Over the past few months, I have focused on how the AUDUSD, itself a good proxy for the risk-on v  risk-off trade. - I have been following what appeared to be a rare formation known as a '3 Peaks and a Domed House' (3PDH). This rare formation was the concept of George Lindsey, a brilliant but little known (until very recently) technical analyst who dies in August 1987.

I first touched on the possibility of this 3PDH pattern developing in May of this year on the AUDUSD, the posting can be seen here http://hometraderuk.blogspot.com/2011/05/aud-highly-speculative-view.html

I have maintained regular updates of this, including a posting over the weekend, which suggested a strong risk  that the AUDUSD may be at of close to a final rebound a long and sharp drop.  (Initial stop over 105).

At the end of the last posting, I highlighted a similar pattern on the SP500. - I have decided to update that, with the analysis boosted by having read a superb new book on George Lindsey and his work, written by Ed Carlson. The book is 'George Lindsay and the Art of Technical Analysis', was named 'Stock Traders Almanac' - 'Best Investment Book of the Year'.

The charts below are quite wordy so I will sum the main points, in line with some of the main supporting factors from Ed Carlson's book:

1) The pattern seems to conform (almost to a perfect pattern), it is rare (almost impossible) to get a perfect representation, but this is a pretty good version, with the main exception possibly explained away by one of Lindsey's principles.

2) The pattern suggests we may be close to a serious steep decline taking us rapidly to around 963 (minimum 1010, quite possibly deeper).  

3) The biggest discrepancy between this pattern and the ideal pattern is the wide-ranging consolidation over the past 2 months. This represents the 'roof of the first-floor' on the pattern and typically occurs during the ascending side of the 'Domed House' pattern, not the descending side. On the other hand the ascending side had a shorter correction in Oct 2010 which should have occurred where this one occurred. ( I hope you follow, because I'm struggling and I'm writing it). - Lindsey explains this with his principle of equalization. - [Though I have to give consideration to the possibility that this is a serious departure, and if it does not resolve favourably soon, it may null and void the pattern.]

4) The AUDUSD, which has a very high visible correlation with US equities over the past few years, does not have this discrepency, it has everything in the right order. (With the exception of an irregular top on the 'Domed-House'.

5) My usual Caveat. - Which I am happy to state since I am physically short of the position in AUDUSD, not merely analyzing this, is that as with all chart patterns and price action, it is a probability call and not written into the future.


The first chart shows the SP500 and the idealised pattern. - With desciptions of the various stages.

Below, I have tried to use the 2 day chart to try and explain the anamoly of the 'First-Floor Wall'.

And for good order sake, here is the AUDUSD chart I mentioned, as per Friday's close.