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.

Monday, October 11, 2010

Dow Jones: moment of truth approaching

Here is a 25x3 closing P&F on the Dow. That means each box is worth 25 points on the Dow and to achieve a 3 box reversal (creating a new column of 0's) you need to see a 75 point move down.

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).

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