Welcome to EV's point and figures. This blog is dedicated to the use of point and figure charts in technical analysis.

Although P&F first appeared in charts in the 1930's, it is an often overlooked techique for analysing stocks and charts. A poor relation compared to line and bar charts and their range of momentum indicators. Yet few charts provide a clearer picture of the daily battle between bulls and bears for market control.

Like most methods, it should not be used in isolation. It should form part of an analysts 'tool box' and be used with other techniques to help form an overall view.

The charts that appear on this blog and any accompanying comments are purely for information purposes only - my own personal take on where the prices may be heading. They do not constitute investment advice.

Thursday, July 29, 2010

Run to the Hills (holiday time!)

I'm going here........

....To see them (awesome!!)
Then on to here.....

And finally here....

I actually find taking time away from the markets is great for giving fresh perspective. Sometimes you can get too close and too directionally biased. Better to go away, forget about it all for a week or so, then come back and see what the charts tell you. Later!

Wednesday, July 28, 2010

Hang Seng Update; Can I play with Madness?

Hot off the press this morning and too quick for Stockcharts, the Hang Seng closed overnight at 21,091, so (on the 250x3 closing chart) we should see the 21,000 box get filled (which I have highlighted in green). That gives an upside price target of 24,250, based on the previous column of X's which reversed down at 20,720.

The 'shape' of the chart still suggests the HSI is rolling over and Christian (Perfectstockalert) said today he considers the HSI an easy short, so we'll see. Those active downside targets are still valid and (while i've not drawn it in) the index is approaching some short term minor resistance at 21,250.

CAC 40 update: Murder in the Rue Morgue

A bit like the Dax, there has been a tussle going on between bulls and bears in this green zone, between the 3,350 and 3,700 level. On the 25x3 closing chart, it can be seen that the market twice found recent support at 3,350. Since then the bulls have pushed the market higher, but have been rebuffed by the bears on four occasions. The previous column of X's that reversed in to the column of six 0's gave an upside target of 4,175, which is now active. Note the current column of X's filled the 3,650 box, higher than the previous column of X's and giving a double top buy signal.

The less noisy 50x3 closing chart shows a slightly different picture. Here we have an as yet unactivated upside target of 4,100, although I note that this up column of X's was followed by a reversal of seven 0's (175 points) that took the index down below the base of that x column. For this target to become active, we need to see the current column of X's go higher and fill the 3,750 box. Note the red bearish resistance line. This battle should be resolved imminently!

Tuesday, July 27, 2010

S&P 500: update; Two minutes to midnight

On the SPX 5x3 closing chart the recent rally has pushed the index back above 1,100 and above the high created by the previous column of X's (1,095). The has given a double top buy signal and activated an upside price target of 1,235. Note the long term (blue) bullish support line remains intact.

Short term the SPX is now at a level where it has previously met resistance (at 1,115 - incidentally, the 200 day weighted moving average on the daily bar chart is at 1,117.13). If the market can push through this resistance, it could prompt a thrust higher similar to that seen back in March/April and give rise to some sort of double top formation around the 1,215. Just a thought.

To the downside, there remains in play an activated target of 935.

The 10x3 shows the resistance at the 1,115 level. There are two minor bearish resistance lines above that the index is going to have to content with shortly. To the downside, the target of 870 is still active.

Dow Jones Update.: Be quick or be dead

A slightly worrying development for bears. On the 50x3 closing chart we see that the Dow Jones has captureed all of the losses seen towards the end of June and early July. We had a column of thirteen X's that reverved in to a column of five 0's and gave an unactivated upside price target of 11,650. This has now been activated by the current column of X's - the filling of the 10,400 box created a double top buy signal. The minor bearish resistance line has been punctured and note that the previous resistance level of 10,450 has also been taken out.

The slow stochastic (89) is getting towards eye watering levels and volume may be low, but this chart is suggesting further upside.

A bit like the 50x3 FTSE P&F, the less noisy 100x3 closing chart gives a slightly different picture. We already have an activated upside target of 13,100 in place and also an active downside price objective of 8,100. The recent filling of the 10,500 box does give a double top buy signal, as the current column of X's has moved above the previous column of X's at 10,400. I'm just slightly wary that this column (of five X's) was completely taken out by the next reversal column of seven 0's. It makes for a weaker signal in my opinion.

Keep an eye on the short term (red) bearish resistance line. Still holding and could be tested around 10,600. We could potentially see the market reverse, find support and set up a move higher. If the current column of X's reverses now (300 point move required) you would have an unactivated upside target of 12,100. A reversal back up and a new column of X's rising above 10,600 would bring this in to play. For now, the current column of X's is the one to focus on.

FTSE 100 update; The Wicker Man

As we begin the count-down to this Friday's Iron Maiden concert at the O2 Dublin, i'm giving each post a Maiden song! Up the Irons!

The recent recovery in the FTSE 100 has provided some new bullish price targets to the upside. I should stress at this point that the slow stochastic on the FTSE is at an astronomical 94, so one would expect some sort of pull back in the next few days/weeks. But lets see what these P&F charts are telling us.

On the 'noisier' 25x3 closing chart, the long term bullish support line is still intact. Most recently, the long pole down (as shown in the column of 0's with the number 7 in it) reversed in to a column of X's which clawed back all the ground taken by the bears, It only reversed at the 5,250 level. This reversal (in to the column of four 0's) gave an unactivated upside target of 6,100. This became active by the current up column of X's, when the 5,275 box was filled (giving a double top buy signal).

I posited on a previous update that we might see a double top in the FTSE 100 around the 5,800. The chart is currently suggesting further upside. Note however that we have some upcoming resistance around the 5,425-5,475 level, as well as the slow stock. If this column reverses at its current level, it would give an unactivated upside target of 5,725 (25x3x3+5,150).

See that there is short term bullish support at 5,175. If the FTSE can hold this level on any reversal, it would lend support to a continuation of a move higher. To the downside, we still have an activated target of 4,000 but i'd be concerned about the validity of this target if the index moves above 5,425.

The less noisy 50x3 closing chart shows something slightly different. The 6,400 price target given by StockCharts is slightly spurious in my opinion. The chart seems to be following a similar pattern to that seen in January. A gradual trend upwards, that reverses in to a column of 0's that takes the index below the level of the previous column of X's (red circles). This move beneath the X column makes me slightly relucatant to use the X column as a basis for predicting an upside target. Far better to have a series of higher X columns accompanied by 0 columns that do not go below the previous column of X's.

Taking all of this in to consideration, I do not see any active upside targets that I would want to use. I'm guessing Stockcharts have arrived at 6,400 using the current column of 10 X's. If it were to reverse today (requires a 150 point move in the FTSE to fill 3 boxes to create a new down column of 0's) there would be an unactivated upside target of (10x50x3+4,850) 6,350. But this would only become active when the market turns bullish again, reverses and the next column of X's fills the 5,400 box. Until then, this is all conjecture! We do still have an activated downside target of 4,050 but i'd see this as fading if the market rises above 5,400 and fills the 5,400 box.

Monday, July 26, 2010

FTSE 100; Summer 2010 vs Summer 2007

Here we are in the summer of 2007....

I wonder if we are about to see some sort of double top scenario in the FTSE 100 similar to that seen in the summer of 2007. If this is an inverse head and shoulders on the current chart (see below), we have a target of c 5,800, very close to the high seen in March/April 2010. The current slow stochastic is sky high having moved up from the recent oversold level and see that in the current rally the market has managed to close above its weighted 200 day moving average. It did this in 2007, formed the double top then moved back down, helped by a collapsing Northern Rock and a general log jam in the global financial system.
This has been an impressive thrust but has it exhausted the bulls or is there more left to go? Worth keeping an eye on and I guess we'll find out soon enough!

Friday, July 23, 2010

FTSE 100 hits 200 day weighted MVA

This happened a short time ago, around the time the UK's preliminary Q2 GDP came out. 1.1% QQ, 1.6% YY (above consensus forecasts). Market hit the (daily) 200 day weighted moving average at 5,323,98 (note weighted, not simple or exponential)

Dow Jones update

Yesterday the Dow Jones closed up 201 points. This gave rise to a three box reversal on the 50x3 closing chart, as 150 points fills three boxes of 50 and a further 50 points created a new up column of four X's. This has brought the index up to the level where the previous up column of X's reversed, around the 10,300-350 level . The long term (blue) bullish support line remains in tact, as does the shorter term bullish support line.

The 50x3 looks a little cluttered at the moment. There is an activated downside target of 8,900 (not 8,950 as shown, apologies), which was given by that column of 15 0's from the top of the chart. This was activated when the next column of 0's passed beneath the previous level at 10,400, filling the 10,350 box and giving a double bottom sell signal.

The 100x3 closing chart, as it name suggests, requires moves of 100 points to fill one box and therefore contains less 'noise' than the 50x3. Here we have an activated upside target of 13,000, which activated when the column of X's containing the month numbers 3 and 4 filled the 10,800 box, creating a double top buy signal.

More recently however, the shorter term bullish support has been punctured and we have two shorter term bearish resistance lines. The primary trend remains higher, as evidenced by the thicker blue line.

To the downside, we have an activated target of 8,100, with no time frame to achieve. Keep an open mind but the current shape of the chart currently suggests more risk to the downside at the time. As the Q2 earnings season peters out (and bear in mind this is all past results) what catalysts will drive this market higher?

Thursday, July 22, 2010

Apple; double bottom sell signal

No one can deny that Apple has generated superb returns for investors in recent years but maybe now we might be due a short term pull back. See the shorter term bullish support has been broken and the current column of down 0's has given a double bottom sell signal, having fallen below the previous column of eight 0's and filled the box at $246. This gives an activated price target of $201.

But note also that Apple's recent chart has a fairly consistent pattern. Twice before we have seen high poles, followed by consolidation, then a sharp move higher. This time the tussle between bulls and bears has lasted slightly longer, so bears may just win this particular battle.

Tuesday, July 20, 2010

Dax Update - pitch battle taking place

The Dax is an interesting index because Germany is one of the supposedly stronger economies in Europe (pre publication of bank stress tests!), it runs a healthy trade surplus and is home to some of Europe's leading companies.

It can be seen from the chart below that there is currently an epic battle being fought between bulls and bears in the 500 point 'green zone' between 5,700 and 6,200, with no clues at present as to who will prevail.

It can be seen that the activated price target of 6,200 (given by the double top buy signal in March) was met. Since then, there has been clear resistance at the 6,250/6,300 levels and support around the 5,700 level. Three times the bulls have been pushed back but each time they have regrouped and pushed the index higher. Note also the long term blue bullish support line is still in tact as is the minor blue support line, but that is under threat. The overall trend remains up.

In terms of resolution to this particular battle, we need to keep an eye on the following levels. There is currently an unactivated downside target of 5,050, given by the down column of eight 0's. In order for that to become activated, we need to see the bears take control and push the index down below 5,800. Filling the 5,800 box will create a double bottom sell signal (where the current colunm of 0's fills one box below the previous column of 0's). But there is also an unactivated upside target of 6,900, given by the most recent column of X's which reversed in to the last column of three 0's. If the market can push above those previous lines of resistance at 6,250/6,300 and fill the 6,350 box, that upside target will be activated. Either way, this should resolve itself in the coming days and weeks.

Goldman reports today

Revered and reviled in equal measures, the mighty Sachs reports its Q2 later today. The blue bullish support line is still in tact but this chart does not look bullish overall. One of the drawbacks with daily closing P&F's is that they provide guidance but are not great for short term trading. By the time the 45 degree bullish support line is threatened around $100, the price would have already halved! To trade more actively, you can use 1minute, 1 hour, 4 hour P&Fs.

All that said, we are looking for directional guidance here and I say lower - recent support at $150 has been broken. The filling of the $145 box gave a double bottom sell signal. The 'shape' of this chart does not currently provide for any upside price objectives. To the downside, we now have an activated price objective of $70, no time horizon. If the results surprise to the upside and we get a 3 box reversal today and a new up column of x's (would require a move of $15 to fill 3 boxes), the next (unactivated) target (from the last column of nine 0's) would be in the order of $45.

Monday, July 19, 2010

Nikkei update

This is one market I never invest in, not for clients, nor PA. Yes there have been some spectacular bounces but how many false dawns too? How many times do you hear Japanese equity fund managers boldly proclaim that 'this will be the year that we see recovery in Japan'?? I first heard it from and old Save and Prosper fund manager back in 1995! Who would want to be a long only Japan equity fund manager??

Anyway, the chart below shows that the recent support at 9,500 has been punctured, as has the blue bullish support line. The market was down 277 points Friday at 9,408 - this is a 100x3 (ie 300 points) chart so we did not get a 3 box reversal and a new column of 0's. The index is now honing in on the longer term support at 9,100, levels where the market has held on two previous occasions. If that box gets filled, we will have a new double bottom sell signal from the previous column of o's and an activated downside price target of 7,200 (as always, no time horizon for this).

This 9,100 level (shown by the larger red circle) looks very important - expect a battle here between bulls and bears. If we see a drop below it and the 9,000 box gets filled, that would be a bearish development, as those two previous support levels would be punctured.

There is also an activated downside target of 5,900 still in play and an upside target of 14,500 (but that will become invalid if the 9,100 box gets filled). I would suggest more risks to the downside at this particular juncture because the bullish support line has been breached and we now have the more recent bearish resistance line, just my opinion but keep an open mind. Japan - its a 'killer'!

Wednesday, July 14, 2010

Flight of the IBEX?

Its been a good month for Spanish sport (Spain in the World Cup, Nadal at Wimbledon, Jiminez in the French golf) and the IBEX has also posted a very strong recovery. On the 100x3 (close) chart, a double top buy signal was recently given at 10,100, with an activated upside target of 12,600!! No time scale and clearly several downside targets in play but that's what the chart is saying. Note however that the index will have to push through the looming red bearish resistance line. Further good news on the economic front, successful rollover of existing debt, successful new debt issuance, GDP recovery in Eurozone etc will be needed to push this higher.... Oh well, at least they are good at sport!

The 25x3 has far too much noise in it for my liking but the recent price action and upside target is the same

Is it the

FTSE 100 update

Like many indices the FTSE 100 was probably due a bounce following the recent selling pressure and the rally has been impressive. See on this 50x3 chart below that the market has filled the 5,250 box, the place where previous resistance was met. The downside price objective of 3,850 is still active, with no obvious upside targets just yet. The current up column of x's will create an unactivated price target once it reverses, so i'll keep an eye on that one.

Thursday, July 8, 2010

SPX: Slow Stochastic suggest more upside

A slight departure from the P&F's which I must update soon. The pattern resonates with 2007 but the slow stochastic suggests this bounce may have a bit further to run. The Proquote charting tools aren't the best. I'm using a log scale here and 50/200 day EMA's. Note the much vaunted death cross hasn't quite happened on this one. Either way, i'd expect resistance up to 1,100, as some of the more recent dip buyers use this rise to cut losses or get out at breakeven.