Chapter 7. Overview of the Lindsay Timing Model

“Most timing studies arrive at a decision to buy or sell through methods which have nothing directly to do with time itself. The procedure described below is timing in the literal sense of the word—merely counting the number of days....On its face, it is for short-term traders. But it can also benefit investors: they will simply use it less frequently.”¹ —George Lindsay

In 1965, George Lindsay published a newsletter titled A Timing Method for Traders. The goal of this method or model is to identify tradable tops in the markets. Part II of this book, “Three Peaks and a Domed House,” mentions that the Timing Model is the “concluding technique” of the 3PDh model. It also says that the Timing Model is a free-standing technique all by itself and is not in need of any other indicators or models. The tops identified by this model are not only the secular or cyclical bull market tops identified by the 3PDh model. The tops anticipated by the Timing Model range from bull market tops to tops followed by corrections of only a few days. Chapter 9, “The Low-Low-High Count,” explains how the relative duration and depth of the expected correction can be anticipated. In honor of Lindsay (and in an attempt to give his model a less awkward epithet), this book refers to this work as “The Lindsay Timing Model.”

Similar to the Three Peaks and a Domed House model, the Lindsay Timing Model can be used by serious traders or passive investors. “The most casual use of the principles can be of some benefit.” And like the 3PDh model, the Lindsay Timing Model will yield additional insight to the user as he or she invests more time into becoming familiar with it and understanding it.

Lindsay wrote that the model can be applied to individual stocks, stock market indexes, and commodity futures. He also wrote in a different newsletter that this model doesn’t work very well in a bull market. Experience has shown that Lindsay’s comment was more the result of modesty than of accuracy. The model can prove quite useful in a bull market, particularly when used to confirm bearish, short-to-intermediate-term signals from other indicators. All his examples focused on the Dow Jones Industrial index, but it has been confirmed that the model works on a wide variety of asset classes. Lindsay claimed to have tested his timing model back to 1861. In this case, he explained that he tested the model prior to the inception of the Dow Industrials by computing a daily average of “seven market leaders” from 1861 to 1885.

Introduction to the Lindsay Timing Model

“Virtually every bull market high on record came at the end of a Top-to-Top count; and the key date, from which the count began, was sharply delineated on the chart.”

The model itself is composed of three basic concepts:

1. The 107-day Top-to-Top interval
2. The Low-to-Low-to-High interval
3. The convergence of these two intervals, which gives us our targeted top or high

The Lindsay Timing Model is unusual in that while the cycle archetype attempts to identify time intervals between lows in price (that is, a 21-day cycle counts 21 days between successive price lows), Lindsay’s approach to this particular interval uses price highs. A count of 107 calendar days from a correctly determined origin should be expected to identify a top in price (see Figure 7.1). The model allows for a ±5-day window on either side of the targeted date. In other words, the 107-day interval may be only a 102-day interval or it may extend to 112 days. Another difference between the 107-day interval and the archetype cycle that most readers will be inclined to think of is that the 107-day interval is not a cycle at all. It is really an interval of time. One should not expect a regularly recurring cycle of 107 days from this model. These “cycles” are more appropriately referred to as “intervals.”

Figure 7.1. The 107-Day Top-to-Top count.

The Top-to-Top count is not from one high to another but from a low within a top (Range Top) to a top (the intraday high of an advance). The problem of semantics becomes increasingly clear.

Once the key date is identified, it is an easy task to count forward 107 days to find the targeted date for the high of the advance. Counting is done with calendar days, not trading days. This becomes an easy task with the plethora of online calendars and date counters available free of charge on the Internet. The targeted date for the high often falls on the same date as the true high of an advance. Lindsay identified the high of an advance using intraday highs and not closing highs. He even went so far as to write, “The high day at the end of the count is determined according to the intraday or hourly prices.” It certainly isn’t necessary to use intraday or hourly prices to implement the Lindsay Trading Model. All examples Lindsay shared in his writing used daily charts.

The true high of the advance is expected to be contained within a 5-day window on either side of the targeted date. Therefore, we should expect to find the true, or intraday, high anywhere from 102 days to 112 days after the key date. Lindsay took the time to write, “It is comparatively infrequent for a Top-to-Top count to last as long as 111 or 112 days.” He also explained that one exception to the preceding should be noted: A 107-day count can also expire at the end of a trading range or congestion on the chart. It need not be within the 5-day window if price has been contained within a trading range since the targeted high.

Once the target date of the 107-day interval is determined, the analyst will then attempt to find Low-to-Low-to-High (LLH) intervals that converge with it. The identification and creation of the LLH interval are explained in Chapter 9. For now, one need only understand that an LLH interval is composed of two equal time intervals, the first of which is between two price lows. The second interval is between that second low and a possible price high. A simple example of the LLH interval could be a low pinpointed on the first day of the month and another low found on the fifth day of the month. The time period between these two lows is counted as four days. Four days would then be added to the second low to identify a potential high on the ninth day of the month. Clearly, counting forward a number of days found between two lows doesn’t always identify a high in price. What the model is trying to do, by combining the LLH interval approach with the 107-day Top-to-Top interval approach, is triangulate a short time interval in which a tradable top is expected to occur. One can think of the convergence of these intervals, during some window of time, as creating a mass that has its own gravity. The gravity draws the price upward until that point in time has passed. Once that point in time has passed, the convergence loses its gravity and the price begins to drop.

Most market timing models involve focusing on current market action. This common aspect of most indicators can cause the analyst or trader to feel pressured and to subsequently make a decision under duress. One of the many attractions of the Lindsay Timing Model is that the focus of the analyst is directed to past market fluctuations. This tends to relieve some of the pressure of being forced to make a decision today based on today’s, or very recent, market action. For example, in the case of the 107-day count, the analyst has 107 days in which to arrive at his estimate. This is a nice idiosyncrasy of the model.

Modern readers will appreciate the fact that the counting in Lindsay’s timing model uses calendar days rather than trading days. This enables the practitioner to use any one of a number of online (Internet) date counters and calendars to quickly count the number of days (“...merely counting the number of days”) between price lows in the past and to find the dates of targeted highs in the future.

Terminology

Semantics quickly becomes an issue when one is reading Lindsay. Many of the ostensibly simple terms he used apply to more than just one concept and quickly become confusing. For example, when Lindsay refers to a “top,” is he referring to the targeted, final top of the advance, or is he referring to the top from which we measure the origin point of the 107-day count? Is the final “top” he refers to an absolute high in price or is this top the time span of the ±5-day window that encompasses the intraday high? These are all concepts that are simple to understand but need to be differentiated and labeled in order to understand and apply the Lindsay Timing Model. This book attempts to differentiate these simple concepts by adding a few terms to the conventional “Lindsay vocabulary.” Readers who are not familiar with Lindsay’s work will never notice these additions. Those readers who are already acquainted with Lindsay’s work will, hopefully, not be distracted by the new terminology. Indeed, it is hoped they will find the additional categorization and labeling of concepts helpful.

A Few Simple Reminders

Everyone sometimes loses track of the forest while concentrating on the trees. When beginning one’s study of the Lindsay Timing Model, a student would do well to remember this one simple dollop of common sense: In order for the model to call a “top,” the market must be advancing. If the market had been advancing previously, a targeted date at the end of a trading range is acceptable, too. But sometimes the targeted date occurs during a market decline. Tops don’t occur in falling markets! Don’t expect the Timing Model to do the impossible. A falling market is an easy way to rule out the possibility of a top and thus is another tool to be used. That raises a question: How long must a market be advancing before a top can be called? The answer to that question has often been “less than a week.”

It is suggested that one begin this process using a spreadsheet rather than marking up a price chart. While the result of marking 107-day intervals on a chart can be legible, the number of annotations required for the LLH model will make your price chart impossible to read. Even Lindsay didn’t try to fit all the annotations required by the model onto just one chart. Rather, for his examples, he used two separate charts (one chart for the 107-day intervals and one for the LLH intervals). This approach still necessitated flipping back and forth between charts on different pages. Trying to match up dates on two separate price charts, while certainly not impossible, doesn’t add anything to the learning experience other than a marginal level of frustration. Using a spreadsheet to list all the dates required of this approach is much cleaner and simpler.

Finally, if the analyst keeps his eyes peeled, he will notice that inflection points in the market can often be identified by the 107-day interval measured not just from tops but from bottoms as well. Also, LLH counts that fail to identify a price high may well have pinpointed a price low. These realizations may not help with implementing the model but do help to further the theory, and our understanding, of intervals and cycles.

Endnote

¹ Unless otherwise indicated, all quotes in this chapter are taken from George Lindsay’s self-published newsletter, George Lindsay’s Opinion, during the years 1959–72.