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.
Tuesday, July 27, 2010
FTSE 100 update; The Wicker Man
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.