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, October 21, 2010

Dow distribution? SPX about to?

Inagine the trauma suffered by people who jumped on the equity bandwagon in April, drawn in by the markets relentless push higher, wanting a piece of the action, then watching in horror as the markets rolled over and tanked big time! I wonder what their mindset is now that markets have got back up to those levels? Cut losses perhaps? Quit at breakeven maybe?

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.

The SPX is still playing catch up but again we have seen some sellers come back in, perhaps people who bought in April, have seen their paper losses narrow and are now cutting losses and heading for the sidelines. That said, for now at least all the active targets remain to the upside - a decisive move above 1,185/1,187 will stamp the bulls authority on this market.
In summary, if the markets are going to move lower, I would be looking for something to happen in November rather than now. It would be nice to see some more distribution with the bulls and bears scrapping in a tightish market range over the next two to three weeks.

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