Lindsay Update (8/29/2022)

According to the 20th-century market technician George Lindsay, almost all stock market activity on the Dow Industrials can be classified as either a Basic Advance, Basic Decline, or Sideways Movement.

A basic advance usually lasts 2 years and 2 months (average is 795 calendar days), but in Linday’s 20th century market analysis, he found advances ranging from 414 days to 968 days.

A basic decline typically lasts 12 months (365 days), but in Lindsay’s analysis, durations ranged from 226 days to 446 days.

Within the time ranges shown above, Lindsay further classified advances and declines (e.g. Short Advance, Long Decline), and he believed that these classifications had relevance to market forecasting, but I do not find this level of detail relevant to the Dow in the modern era. Nevertheless, a more detailed discussion of Basic Movements can be found in Ed Carlson’s 2011 book George Lindsay and the Art of Technical Analysis.

Another type of Basic Movement is “Sideways.” A sideways movement usually lasts for several months. The maximum length that Lindsay found was 11 months. He warned that an 11-month sideways period followed by a basic advance foreshadows a 1929-style crash. Interestingly, there was an even longer sideways period during 2004-05 (14 or 20 months depending on how you count it) followed by an advance into 2007. If one recognized this Lindsay scenario, the 2008 crash would have been predictable.

Basic advances and declines do not always start from the absolute low/high point. For example, after the start of a basic advance, the market can make a modest new low before a sustained uptrend begins. This makes short and intermediate-term forecasting based on basic movements rather difficult.

The chart above shows the Basic Movements from the 2009 low to present on the Dow (DIA ETF). I think that a basic advance began from the December 2018 low and lasted until May 2021. Even though the covid crash occurred in the middle of this advance, I still think the period qualifies as a basic advance for the following reasons:

• There was a very clear basic decline from January 2018 – December 2018, which followed a very clear basic advance from February 2016 – January 2018. I cannot find any other way to count 2016-2021 without having a basic advance that is too long or a decline that is too long.

• During the covid crash in February-March 2020, the Dow spent very little time below the December 2018 low

In May 2021, the Dow became increasingly choppy despite continuing to churn to new highs. I think the increased volatility from this point onward was due to the Dow entering a basic decline. The typical length of a basic decline is around 12 months, so the low in June 2022 came right on schedule.

Thus, I think that a new basic advance is underway now, which will likely last until mid-2024, or at the very latest January 2025.

Also shown on the chart above is the Lindsay Long Cycle that started at the 2009 low. The idealized schematic for the Long Cycle is shown below:

_{Image above from Carlson, Ed. George Lindsay and the Art of Technical Analysis (p. 143). New Jersey, FT Press, 2012.}

In our current situation, Point E came right on schedule in 2016. The Long Cycle now predicts an eight-year interval from 2016 to Point J, which projects the Point J top to occur in 2024. Interestingly, this is when the current basic advance is scheduled to end.

Following the top in 2024, there will likely be a basic decline ending in 2025-26, then a weak advance into 2027-28, then a more severe decline into 2028-29.

Heading to All-Time Highs (8/4/2022)

As of Aug 3, the rally from the June 17 low is larger than any rally along the way down from January’s all-time highs on the Dow and S&P 500. I am very confident now to say that the correction is over and all the major indices are headed to their all-time highs and ultimately far beyond.

From an Elliott Wave perspective, we had a fairly clear five-wave pattern from the March 2020 bottom to the January 2022 top by the time all was said and done. This rally constituted Primary Wave I. The subsequent Primary II correction bottomed out at 38.2% Fibonacci retracement. We have now entered Primary III, and a reasonable target is Fibonacci 1.618x Wave I on a point basis. This gives a target of 59,972, which would be reached in the next 2-3 years.

For the S&P:

The S&P reached a bottom in between 38.2 and 50.0% Fibonacci retracement of the rally from March 2020 – January 2022. This correction constituted a 25% drop from all-time highs, which, historically, is big enough to discount a mild recession. Unless inflation is going to trigger an economic downturn on the magnitude of 1973-75 or 1981-82, we have likely seen the stock market bottom even if there turns out to be a technical recession.

Based on my Elliott Wave count and Fibonacci projections, the S&P has just entered Primary Wave III, and a reasonable target is 1.618x Wave I on a point basis, which gives a target of 7,886 for the next 2-3 years.

For the NASDAQ-100:

The NDX bottomed out between 50.0 and 61.8% Fibonacci retracement of the rally from March 2020 – November 2021. This “correction” was a 34% drop, much larger than what was seen on the Dow or S&P. Most likely, the deeper decline reflects the fact that the NDX consists of many IT-related stocks that experienced a mini bubble during the pandemic, and that bubble burst when we had a broad stock market downtrend coinciding with more people returning to pre-pandemic lifestyles.

As with the other indices, my upside target for the next 2-3 years is 1.618x Wave I, which gives a target of 27,205.

I intend to make a post soon with an update on the market from a Lindsay perspective.