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Global Outlook

George Lindsay Forecast Applies Only To The Dow

July 30, 2014, Wednesday, 03:18 GMT | 22:18 EST | 06:48 IST | 09:18 SGT
Contributed by eResearch

It is important to be aware that George Lindsay admonished his newsletter subscribers that his methods were to be applied only to the Dow Jones Industrials index and not the broader indices.

He explained this caveat that using the Dow ("or an even narrower index") will avoid the constant turn-over of individual components in those broader indices.

Get Caught Up

Regular readers of this space will remember the column posted two weeks ago, Lindsay Analysis: Bull Market Top in Dow Is Hen (BW: I have included the entire article below) as well as last week's column confirming the bearish forecast by showing the positive divergence in the VIX which is expected a market tops. (BW: This article is also provided in its entirety below).

Big Picture View

While we have no reason to doubt the Lindsay forecast for an end to the bull market in the Dow during the previous week, a quick history lesson may be in order. At the bull market top in 2007 the Dow and S&P both topped on the exact same day (10/11/07), and the NASDAQ saw its high on 10/31/07.

But the bull market which ended in 2000 saw the Dow top on 1/14/00, NASDAQ on 3/10/00, and SPX on 3/24/00.

However, in 2000 (unlike 2007 and 2014), there was no 12-year interval weighing on the market until July 2002.

Bottom Line

Although the weight of the evidence is bearish, the Lindsay forecast only applies to the Dow. Other indices may rally to higher highs in the next few weeks even as the Dow fails to do so.

VIX Seasonal Pattern Starts Now

The CBOE Market Volatility index, or VIX, is a key measure of market expectations of nearterm volatility conveyed by S&P 500 stock index option prices. The VIX moves inversely with equities so that when equities are rising, the VIX is falling and vice versa.

Important (and not so important) highs in equities usually arrive with a positive divergence in the VIX. A positive divergence occurs when the VIX leaves behind a higher low while equities print a higher high. We would normally expect the VIX to print lower lows (per the inverse relationship) as equities rally higher.

The VIX also appears to have a seasonal pattern. While not perfect, the VIX tends to rally during the period between the first of July and the end of October. These VIX observations

Lindsay Analysis: Bull Market Top In Dow Is Here

Over the past several months I have debated from which low of the 2011 Sideways Movement to count the current basic advance; 10/4/11, 11/25/11, or 12/19/11.

[Editor's note: Carlson utilizes the methods of George Lindsday. Learn more about Lindsay analysis in this feature story.]

The first two lows were forecast by Middle Sections telling us that they are significant and should play a role in our forecasts. However, there is no Middle Section forecast to the low on 12/19/11, thus removing it from consideration as the origin of a basic advance.

The Dow is past the point where all possible standard time spans from 10/4/11 have expired.

As for 11/25/11, all possible standard time spans from this low have expired except one; an extended basic advance (929-968 days). It forecasts a high in the time period from June 11 to July 20. July 20 is this Sunday which means if the 2009 bull market top was not already seen on 7/3/14, then it should be expected this week.