The 3 Peaks and a Domed House pattern was popularized by George Lindsay, a flamboyant stock market technician from the 1950s and 60s.  Lindsay correctly predicted the 1968 top in the Dow Jones Industrial Average by utilizing this complex pattern that now bears his name.  Jerry Favors of www.jerryfavors.com without question has done more to bring this pattern to the technicians of the world than any other single individual.  I had the pleasure of making the acquaintance of Jerry over the years and came to respect his work as much as any other technical market analyst that I have ever met in my 40 plus years in this business.

Having studied technical analysis for over 5 decades, I have come across striking similarities among various patterns. Among these were Elliott Wave analysis and the Wycoff Method.  3 Peaks and a Domed House pattern has subtle characteristics that make it unique.

First, the price pattern is highly reliable at tops. However, it is less reliable at picking bottoms.  This is not surprising as fear is a greater emotion than greed, and fear driven markets have a tendency to drop farther and stay down longer than a top driven greed market.   The reason for this is that once a greed driven market has topped, fear sets in and the markets begin to rapidly descend confirming the topping pattern. 

Second, there are some interesting WD Gann concepts that appear in the 3 Peaks and the Domed House pattern.  Primarily, the relationship of the timing of the tops and the slope of the wave structure.  Lindsay's work was replete with complex multiple small waves forming the larger 3 Drive pattern.  Broken into smaller components makes it difficult at times, to see the forest for the trees. 

Third, important Fibonacci ratio's when applied to the 3 Peaks and a Domed House pattern makes for a startling revelation.  Instrumental in determining 3 Peaks and a Domed House are the Fibonacci expansion rations of 1.27 and 1.618 as most Fibonacci practitioners know that 1.27 is the square root of 1.618. 

Figure 1 is the 2006 Dow Jones Industrial Average daily chart with the 3 Peaks and a Domed House pattern (my opinion only) as it appears to me as a Pattern Recognition swing trader.  If the reader will take some time to examine this chart he will see that timeframes between peak 1 and peak 2 are nearly similar of time frames between peak 2 and peak 3.  This is text book Gann, time to time equality, which is another way of saying markets repeat themselves many times. Peak 2 was exactly a 1.27 expansion from peak 1, and peak 3 was a 1.27 expansion of peak 2.  A Domed House is a 1.618 expansion of peak 3 completing the 3 Peaks and a Domed House pattern.  

 

Figure 1 - Dow Jones Industrial Average daily chart
(The Chart as courtesy of Ensign software)

What is interesting about this pattern is that it has natural cycle implications due to the fact that the domed house occurs within the spring equinox.  Natural cycle phenomenon including astrology was one of the hallmarks of WD Gann. 

In conclusion, there is a strong probability that the top of the stock market in the Dow Jones Industrial Average occurred in late March 2006 possibly beginning a vicious bear market at a time when the overall bullish enthusiasm for stocks was peaking. 

Caveat Emptor: Buyer Beware

This opinion is predicated on the conclusion that the Dow Jones will not exceed 11,350 before starting a very vicious bear leg to the downside taking the Dow below 10,600 by the fall of 2006.