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
The NYSE Bullish Percent Index
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.