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.
Friday, May 27, 2011
A 'bearish catapult in P&F is basically a triple bottom sell signal followed by a small pull back and then a double bottom sell signal (a triple/double bottom combo!)
If you read the above chart left to right, it can be seen that the price falls, finds support then reverses in to an up column. It then reverses down and finds support at the same level. Then reverses back up and then back down, this time breaking through the previous support. As it breaks support on the third attempt its called a triple bottom sell signal.
In the bearish catapult pattern, this is then followed by a pull back producing a descending top and finally a double bottom sell signal.
And here, on this daily 50x3 H/L P&F on the Dow Jones, we have a bearish catapult pattern! The target given from the top is 11,950 and is active.
While the short term view on the Dow based on this chart is bearish, one must concede that the overall chart remains bullish because the main bullish support line has not been breached and there are also two shorter term minor bullish lines in place (which i've inserted).
I am of the view that daily P&F charts are good for showing potential 'bigger picture' trends and reversals but are no good for trading. From 12,850 the Dow had already fallen 350 points before the first confirmed sell signal was given and the catapult pattern was only confirmed at 12,350, 500 points below the top.
The pattern holds until its broken and they need monitoring as they do not always play out (last September was a case in point - see to the bottom left of the chart how the Dow was 'rolling over' very nicely until QE2's announcement gave rise move that (on this 50x3 chart) equated to a (17x50) 850 point move before the next reversal.
And I guess the most obvious failing is that in order for the blue bullish support line to be broken (and a bearish resistance line to be drawn), the Dow has to fall a further 650 points! But the support line does at least confirm the long term trend.
Thursday, May 26, 2011
The long term bullish support line is still in play on the H/L chart above. The recent move down has taken out the more minor support but until the main trend line breaks, the overall uptrend is said to hold.
Monday, May 23, 2011
Here on the 25x3 H/L chart the index finally broke below 5,875, a level where it has found support on no less than 6 previous occasions. It can also be seen that there now appears to be resistance forming at the 6,000 level (red horizontal line). And the bears are also having a go at the bullish support line. Given the recent price action, the bulls may get the index back in to the recent trading range on a bounce but for now, the support is broken and we have active targets of 5,425 and 5,625.
Friday, May 20, 2011
What we have at the top of the chart appears to be a 'high pole' ie a column of at least 7x's that immediately reverses, retraces 50% and continues lower. The first price target given by that column of 0's from the top is 57 (ie 1x13 boxes x 3), 39 less 96.
Thursday, May 19, 2011
Wednesday, May 18, 2011
Following that move through Jan, the index has reversed and on this 0.5x3 closing point and figure chart, there is currently an active target to the downside in place of 42.
Tuesday, May 17, 2011
The bears have made some inroads in recent days BUT:
* there are two minor bullish support lines to push through,
* there is also an active target of 1,400 still in place
* and it can also be seen that since March there have been two previous occasions where the bears have pushed the market lower, only for the bulls to come back in and push the market higher (although the first one was the Fuskshima sell off/recovery).
Note also that the S&P did pull back from the intra day low to close at 1,329. If it can get back up to 1,335 tomorrow, this column of 0's will reverse in to a new column of X's (as the 3 box (5x3) 15 point revesal will be satisfied).
We are at a bit of an impasse here - the downside target is active but its not compelling.