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, February 2, 2011

Global equities; rational or irrational exuberance?

Now remember - these charts are not for trading! They are 'big picture' charts that go back a few years. There's ample opportunity to trade the 'noise' within these larger box sizes. But they are quite good at providing direction - and I could do with some at this time.

Starting with the Dow Jones (100x3) it can be seen that the index was rolling over very nicely until QE2 was announced in September. That has pushed the index higher. At this time there are no activated price targets to the downside and i'd suggest 13,000 is achievable.

With the S&P 500 (10x3), two of the activated price targets from the trough in 09 have been achieved. Bullish support line is still being respected. A similar pattern to the Dow through summer and since then, you have to marvel at the strength of these recent upward moves. I can't rule out a tilt at the previous all time high unless something causes the US indices to capitulate. No obvious targets to the downside at this time.

Similar story with the FTSE 100 (50x3), which has oil and mining as two of its largest sectors. It will be sensitive to the commodity/China story, which has largely been the driver of its post 2009 ascent. For now, all targets point higher.

No compelling reason to sell the Dax at this point in time (ie no signs of any distribution). We are approaching a previous (dead cat bounce) high from May 2008 but if that is overcome, a rendezvous back at the 2007 high looks on the cards.

There is bullish support on the Nikkei (50x3) but the most recent action has been bearish. There is a double bottom sell signal with an activated price target of 9,800, so needs keeping an eye on. The 11,900 target to the upside remains active but i'd be looking for a fill of the 10,600 box and move higher to make this target more compelling.

Hong Kong and China are closely linked but thier respective markets have not been moving in tandem most recently. The HSI (250x3) is having a bit of a pause at the moment in what looks like a forming triangle - how this pattern resolves itself will determine its next move (ie higher or lower) The 24,250 target was met but where the HSI goes from here could be heavily influenced by how the Chinese markets behave in the next few months. A move (and hold) above 25,000 would be very positive, save some previous overhead resistance at 26,750.

The Shanghai Index (50x3) is slightly 'non descript' at this time. The 3,350 activated price target nearly got hit but since reaching 3,300, the index has rolled over and has become increasingly volatile. Using a 50 point box size, see how the index declined 750 points in H1 2010 then reversed to the upside and clawed all of those points back, before reversing in to the current column of 0's. Because of these swings, there are currently no activated targets to either the upside or downside. On balance i'd say risks are to the downside. The 25x3 chart might provide more of a clue but it is incredibly 'noisy'.

And finally to India. Like a good vindaloo, the BSE Sensex has been a bit 'fiery' of late. Looking back it can be seen that all of those activated price targets to the upside from the 2009 low have been met and the (blue) bullish support line is still in place. But look at all the brutal battles that have taken place between bears and bulls between late 2009 and mid 2010, before the bulls regained control and pushed the index up the recent highs. For the short term at least, the index is painting a bearish picture, with two activated price targets pointing towards the high 16,000's. It will be interesting to see if there is any support where I have drawn the horizontal line - if that gets taken out, it negates any upside price target given by that column of X's with the number 9 at its base.

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