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.
Wednesday, October 27, 2010
Dorsey notes that market indices hide reality. Moves in a small number of stocks can drive the index higher. The bullish percent index assesses risk in the market, not performance.
It's a compilation of the percentage of (net) stocks on NYSE (1,831 at 26.10.2010) showing their first point and figure buy signal. Calculated weekly, each box represents 2% and the vertical axis runs from 0% to 100%.
If there are 1,831 stocks in the index and say 920 on P&F buy signals, the bullish percent is 50%. It only records the FIRST buy signal, all subsequent buy signals are not counted.
If the index had 100 stocks and over the next week 12 stocks experience a new buy signal and 10 stocks experience a new sell signal, that net 2% increase would fill an X box in a rising column of X's. In other words a 2% net change allows the chart to rise by one box.
Using the same 3 box reversal technique as for normal P&F's to shift columns in the index takes a (3x2%) 6% net buy/sell signal to cause a reversal and vice versa. As a rule of thumb, areas above 70% and below 30% are the extremes. Above 70% is over bought and below 30% is over sold.
The yield on the 30 year bottomed at 3.55% on this chart in Aug/Sep and since then has been creeping up. The initial target of 39.25 (3.925%?) was met and we also have another active target to the upside of 4.225%. I've ignored the column of X's to the right of that target as the column of 0's next to it fell below the base of the X column at 37. The last column of X's which recently reversed in to that column of 3 0's has given an unactivated upside target of 46.25 (ie 4.625%)For that to become active, we need to see the yield move above that red horizontal line, filling the 40 box and remaining above that level. What has this move in yield done to the price?
Tuesday, October 26, 2010
Friday, October 22, 2010
Its interesting to compare this bigger picture with that of the Wilshire and Dow as I did yesterday. Some might argue that 'its all gold' and the of the 107 companies in this index 36 are indeed gold miners but their weighting is small - 17.7%. Diversified metals and mining is the largest weight -39 companies, 59.7% of the index.
Interesting to note that this index did not have an April 2010 high - it didn't have a March 09 low either, having reached its low in the back end of 08. It's recovery high came in Jan, three months before the mainstream equity Indices. It also looked like it was going to roll over perfectly until very recently but has now taken out the Jan high and (for now at least) appears to be well on its way to a rendezvous with its previous peak in May 2008.
Thursday, October 21, 2010
There has been some distribution recently on the 25x3 closing chart above, and we also have an unactivated downside target of 11,950. The current column of X's will need to reverse in to a new column of O's and move below 12,275 for this to become active. The three price objectives to the upside are all active. But remember these targets are for guidance, they do not always get met. Even here, although 325 points away, it has the 'look' of a double top.
Again, here is a bigger picture, 100x3 chart, showing the high of 2007 in the top left corner. The April 2010 high is of course the highest level the market reached from the 2009 bottom, before reversing. There is still an active downside target of 9,500 and an active target to the upside of 13,800. The horizontal red lines could form resistance levels showing previous highs before the market reversed (should also be one at the 13,300 level).
P&F charts are great at showing the daily battle between bulls and bears. Bulls have won the latest battle by a mile, as they did in April. The point is though, when markets get to certain levels, the bears come back in to the fray, as the bulls do when they fall to a certain level.
Back in April, the markets topped out progressively over a four to five week period, ie they distributed through April before the flash crash in May. This (25x3 closing) chart of the Dow shows that the bulls recent charge has been halted (for the time at least) by the bears entering the fray. If we get the sort of distribution pattern we had in April, it could last for 4-5 weeks, which would take us in to November before the battle ends, one way or the other. Could the mid term elections be a determining factor? We'll have to wait and see. But we need to see an impasse between bulls and bears over a couple more weeks. That may give those of a bearish disposition more encouragement that the bulls power is waning.
For the bulls, the markets are clearly showing a bullish bias at this time and that last column of X's has given an unactivated upside target of 11,825. A decisive move higher will bring this target in to play, above 11,150 and certainly above the previous high at 11,200.
Friday, October 15, 2010
Wednesday, October 13, 2010
Tuesday, October 12, 2010
The chart above shows the number of new stocks reaching a new 52 week high relative to the number falling to a new 52 week low.
Monday, October 11, 2010
Normally rising bottoms and rising tops is pretty bullish, but notice the black circle. We had this last year, then the market got to 22,750 and looked like it was going to roll over beautifully through H1 2010, only to confound the bears and move higher.
We are now back at that 22,750 level of previous resistance. A move to 23,250 (filling the 23,000 box) would (on balance) look pretty supportative of those activated upside targets. But can it punch through this resistance?
I would not normally go with 25 points on the Dow, as it's quite noisy in the context of an index worth 11,000 points. Ordinarily, a 50 point box size being the norm but the 25 pointer does work quite well here give a clear indication as to just how much power the bulls have had in the last 5 weeks.
It can be seen that from the support at 10,000, we had a strong reversal upwards, 16 boxes with a total value of (16x25) 1,200 points. We then had a 3 box (75 point) reversal, at which point the previous column of X's gave an unactivated upside target of 11,225 (ie 25x16x3 = 1200 plus 10,025). When the column of 0's reversed and the next column of X's passed through 10,450, that target became active.
Interestingly, this column of X's also ran to 16 boxes, or 1,200. We then had another three point reversal, and another unactivated upside target of 11,500. That became active when the column of 7 X's passed through 10,775.
And when that column of 7 X's reversed, we had an unactivated target of 11,200, which was activated by the current column of X's, passing through 10,875.
The points to conclude from this are the target given by the first column of X's from the base at 10,000 (ie 11.225) is getting very close. The column of 7 X's gives a similar target of 11,200. It all points to a double top rendezvous at the April high of 11,200, which is of course only 1.8% higher than where we are now. We will know very soon whether this short term bull has legs!
And one final point from Joe Granville, who was the father (!) of on balance volume. He says in his 'market letter' today of the Dow (quote):
''I'm most concerned with the Dow racing toward a widely non-confirmed double top with new stock highs sharply below the April 674 number (EV:that's the number of new highs in the broader market). This is bearish proof that most stocks are not following the Dow. ..We see the Dow knocking on the door of an approaching Double top with a far weaker current background'' (EV: than in April).
Friday, October 8, 2010
The (Investment) banks that got bailed by the Fed not so long ago have been the party poopers of this latest market rally and is that a possible warning sign? Would they rather be somewhere else? Guess we'll soon find out.
Let's start with Goldman (2.5x3 close). Still caught in its triangle formation, can't break out up or down. It will resolve soon. Unactivated upside target of $200 required a close above $155, filling the $157.5 box. To the downside, there is an unactivated target of $102.5, requiring the price to fall below $135 to activate. All eyes on Q3 earnings and outlook i'd suggest!!
Bank of America, currently looking like a bit of a wreck to me. Granted, the rally off the bottom in 09 has been impressive but this has been steroids assisted and the chart appears to be rolling over with the bears back in control for now. If you 'flipped' this chart, you might be thinking 'double top' So i'm thinking a potential double bottom back down towards that target of $4, which is now active (remember where you first heard it!!)
CitiGroup, still looks like a dead man walking. Keen observers will also see one of the most obvious flaws of daily closing P&F charts. The conventional price targeting would give Citi a downside target of $0 based on that last column of 14 0's down!! For a stock at this level you'd really need to look at hourly charts, with a box size of an eighth or quarter perhaps.
And finally it's interesting to note that JPM, has probably been the one out of all four to have donned its party rags, joined in the recent fun and not pooped as much as the others. Currently stuck in a $5 range between $36 and $41 (the support at $36 twice is clear for all to see) but that $5 to the upside from $36 did provide a tidy gain of 13%. So this $36 level is clearly important and needs to be taken out to get that downside target of $25 active.