The U.S. stock market has been rather perplexing over the past couple months, but I think I see what is going on now. There appears to be a Three Peaks and a Domed House pattern forming.
It looks like we are going through the “separating decline” phase of the pattern now. Regarding the depth of that decline, the only rule is that it must extend below either Point 4 or Point 6. We have met that criteria now; however, there could be more downside to go considering the idealized schematic in the link above.
Once we get the Point 10 low, the “domed house” phase of the pattern begins. For full-scale instances of TPDH (ones where the three peaks span 6-10 months), the rally from Point 14 to the top of the domed house is projected to last approximately 7 months, 10 days.
However, what we have here is a small-scale formation of the pattern, so the domed house should be shorter than that. To preserve proportionality, we could assume that the domed house’s duration would be roughly equal to the time span of the three peaks. That implies a domed house lasting somewhere around 6 weeks, implying a top in late-February or early-March.
From there, the pattern expects a drop back to the Point 10 low.
This pattern makes sense in light of the contrast I am seeing between the current news and the market’s cyclical situation. From a cyclical standpoint, the market should trend higher given the long term patterns I have written about. However, the economic news (both from the U.S. and overseas) isn’t so great and it’s putting a damper on the rally. The TPDH pattern would allow the longer-term uptrend to remain in tact despite continued volatility due to the news.