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1984issue C061-7

Stock low clusters as a cycle baseline

A monthly census of isolated individual-stock lows is the quantitative timing baseline. Weekly double bottoms and inverted head-and-shoulders are then scored only as late, fallible labels for whether that baseline has already printed.

  • Isolated lows were counted month by month across 1000 actively traded issues and used as the cycle baseline.
  • Between major bear-market troughs those lows still clustered every one to three years, averaging under two years, with more prints in the fourth quarter than in the first.
  • Double-bottom shapes appeared well before the eventual isolated low, while inverted head-and-shoulders usually finished after a large share of the rebound.
  • About 76 percent of the catalogued lows were irregular or sharp rather than a clean chart formation.
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Current trackHead and shoulders64 readingsDouble top and bottom68 readingsDominant cycle detection119 readings

Count the isolated lows first

A 35-year sample of 1000 actively traded issues was used to count how many individual stocks printed an isolated low in each month. An isolated low was defined as the trough of a sizable decline that was followed by a sizable rise and was not undercut within one year on either side.

The bunching that sets the baseline

Between major bear-market troughs, those isolated lows still clustered at intervals of one to three years, averaging under two years. Summing the monthly counts across 35 years, and reviewing 98 years of industrial-average slumps scored from one to four in depth, showed more isolated lows in the fourth calendar quarter than in the first.

Weekly shapes as fallible labels

More than 3000 weekly bottom formations were judged by eye. Double-bottom shapes were observed to appear well before the eventual isolated low. Inverted head-and-shoulders bottoms were judged limited because the second shoulder usually completed after a large share of the rebound had already occurred. About 76 percent of the catalogued lows were described as irregular or sharp rather than a clean chart formation.

A 1981-1983 weekly case

A 1981-1983 weekly case showed an intermediate January 1981 low, a later double top, a five-month decline, and a sharp rebound in the first week of January 1982. Editorial reading: a later double top can cancel an earlier rebound reading, so the weekly structure is a signal hypothesis rather than proof that the isolated-low clock has struck.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
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19851-4 pp.Next on Head and shouldersFour-phase construction of the head-and-shoulders reversalA head-and-shoulders top is assembled in four phases: a left-shoulder advance and lull, a higher head that falls back below the left-shoulder peak, a weaker right-shoulder rally, and a crossing of the neckline drawn through the two intervening reaction lows.
All readings on this track · 37 readings
  1. 1982Head and shoulders as a three-path completion test
  2. 1984Stock low clusters as a cycle baseline
  3. 1985Four-phase construction of the head-and-shoulders reversal
  4. 1989Volume-confirmed reversal patterns, stops, and measured objectives
  5. 1991The journal as one checklist for taken and skipped trades
  6. 1991Head and shoulders as a direction hypothesis
  7. 1991Candlestick body and shadow construction with three-Buddha peaks
  8. 1992A three-count drill that binds candlesticks, head and shoulders, and entry rules
  9. 1997Constructing bump and run reversal channels
  10. 1998Testing reversal formations in bond futures
  11. 1999Construction first: extra shoulders, the neckline, and the diamond test
  12. 1999Dead-cat bounce, rollover, and failed reversals
  13. 1999Evaluating time gaps in bond reversal patterns
  14. 2000Constructing head and shoulders and double reversal patterns
  15. 2001Constructing broadening and complex bottoms
  16. 2001Constructing a slanted head-and-shoulders when the chart is tilted
  17. 2002Head and shoulders with dominant-cycle timing
  18. 2002Trendline breaks, right shoulders, and trailing stops
  19. 2003Confirmation tests for bearish top patterns
  20. 2003Commodity top hypotheses on a dollar rebound
  21. 2003A head-and-shoulders test during a bear rally
  22. 2004Pattern breakouts need a primary-trend filter
  23. 2004Reading candlestick closes on trendline and neckline tests
  24. 2004Candle diagnosis needs Western targets and stops
  25. 2004Head-and-shoulders neckline construction
  26. 2005A familiar chart condition is a hypothesis, not a completed decision
  27. 2005A 50-day ceiling and a rising-floor stalemate
  28. 2006A complete trading plan from philosophy to checklist
  29. 2006Thin-market head and shoulders with two averages and MACD confirmation
  30. 2010Head and shoulders as a playback-tested setup
  31. 2011Turning a head-and-shoulders outline into a breakout hypothesis
  32. 2011Volume-confirmed head and shoulders on AIG and Citigroup in 2007
  33. 2013Constructing head-and-shoulders milestone points
  34. 2013Head-and-shoulders geometry versus the filter stack
  35. 2013Algorithmic head-and-shoulders construction
  36. 2018International relative strength as a double-top case study
  37. 2019Structure invalidation before comfort-stops
By fieldCycles and spectral analysis77 readingsBy year198412 readings
All 64 readings tagged Head and shoulders
Also on Head and shoulders5 readings
1982Head and shoulders as a three-path completion test1989Volume-confirmed reversal patterns, stops, and measured objectives1990Constructing falsifiable reversal patterns from price structure1998Testing reversal formations in bond futures1999Dead-cat bounce, rollover, and failed reversals