Kass: Voodoo Child

This commentary originally appeared on Real Money Pro on Nov. 8 at 9:36 a.m. EST.

In discussing the dual benefits of growth and value investing, Warren Buffett once wrote in his annual letter to Berkshire Hathaway (BRK.A)/(BRK.B) shareholders (which has some bearing on our analysis of the markets): "Bisexuality immediately doubles your chances for a date on Saturday night."Though I have often (facetiously) referred to technical analysis as "voodoo," the same can be said for embracing both fundamentals and technical. Both market approaches have their benefits and can work in tandem.Yesterday's opening missive discussed the fundamental backdrop that has led to my more upbeat market view. Today I will revisit a technical view of the markets -- specifically, George Lindsay's "Three Peaks and a Domed House" technical configuration -- and see how this might fit in with my more optimistic assessment of the fundamentals.At the same time the stock market enters this uncertain, murky period of less monetary and fiscal support in a somewhat broken, or at least wounded, state technically. While I don't rely on technical analysis, I recognize many do. While a lot of the "Fast" gang looks at technical levels in determining market direction, resistance and support, if I go technical I prefer looking at patterns rather than levels. And I highlighted my view that a George Lindsay Three Peaks and a Domed House pattern could be indicating a short term top in the markets in April.... The gang laughed!-- Doug Kass, "Crazy and Fast Times With 'Fast Money'" (June 24, 2011)Technical analyst George Lindsay coined this 23-step "Three Peaks and a Domed House" technical pattern and gained celebrity because it pointed to a market peak in late 1968 (after completion of the steps 21-25), and the largest stock market correction since World War II followed in the years after. (Here are some historic examples of such a technical setup.)Below is a graphic representation of Lindsay's pattern:Back in late spring 2011, I expressed concern that we might be following Lindsay's stages 6 through 9 and that we were ready for a fall, and a market drop did ensue in late summer. Following that August drop (stages 9 and 10), the market stabilized (stages 11 through 14), and I suggested that it could be poised for an upside breakout into stages 15 through 20 (which occurred in October) and that we could now be setting up for a further move higher to stages 21 through 25 and to an important market top in 2012.Below is the S&P 500 superimposed by Lindsay's pattern. As you can see, the fit is almost perfect! I love the voodoo that George Lindsay did so well.Doug Kass writes daily for Real Money Pro, a premium service from TheStreet. For a free trial to Real Money Pro and exclusive access to Mr. Kass's daily trades and market commentary, please click here. >To order reprints of this article, click here: Reprints