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, September 26, 2011

FTSE 100: H&S update

This was the FTSE 100 back in August (12) where I flagged up the potential formation of a large head and shoulders pattern.

And here is the current position. Last week's sell off formed a triple bottom sell signal and activated that target of 4,500 to the downside. But we have now had a 150 point (3 box) reversal and we have a forming column of X's which should (based on recent action) push the index back up towards 5,300 - 5,400. It can be seen that the index found support at 4,950 on two occasions in recent weeks (where the column of 0's reversed in to a new column of X's).

The target of 4,050 is currently not active - we need to see a three box reversal to the downside and a move below 4,950 to bring that in to play.

P&F charts are not time sensitive, in that the y-axis does not plot time like other charts. For example if the index rose continually for a year without reversing, it would form just one column of X's on the chart. But the numbers shown in some of the X and 0 columns denote months of the year, so it is possible to guage the time it has taken this pattern to form. It took about a year for the left shoulder to form, and so far the right shoulder has formed over just six weeks (Aug through Sept).

Incidentally, the 2,500 target to the downside (!) has not been activated but is a valid (inactive) target for now! The 6,150 target to the upside is also still active in my view, as the index has yet to fall below 4,850, the base of that column of X's. Until it does, that remains a valid target.

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