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.

Thursday, September 29, 2011

USA yesterday (and Hong Kong today)

The US indices are not all conforming at this time although they do all have (red) bearish resistance lines. But here is the current 'big picture'

I'm using a 100 point box size on the Dow to strip out a lot of the recent 'noise'. The initial reversal from the August sell off gave a target to the upside of 12,200, which was activated but never achieved. The index got as high as 11,700 then reversed lower. The target of 9,600 was formed by that column of 0's from the high and was activated when the index moved below 11,000 - its still active. The most recent action has been supportative to the bears, in that the index has reversed lower at lower levels and reversed higher at lower levels (ie lower highs, lower lows). See for example how it got to 11,500 before reversing down, then most recently reversed lower at 11,300. The 12,700 target to the upside is not active - we would need to see another three box reversal then for the index to move above 11,400, taking out the previous high. Finally, I have put that target of 6,700 on the chart on the basis that the previous support at 10,700 did not hold during the last sell off (the index filled the 10,600 prior to reversing - remember where you saw it first!!!)

Again, i'm using a larger box size here (ie 10 points to fill each box) to strip out the recent noise. Technically the target of 1,380 to the upside is still active as the index has not moved below its base of 1,120 yet. Note the resistance at 1,220 and as with the Dow, it can be seen that the bears have managed to come back in and reverse the index at lower levels most recently. The 990 target is active, the targets of 1,330 and 920 are not. We'd need to see the index move through 1,200 to active the 1,330 and below 1,110 to bring 920 in to play.

Unlike the Dow, the Russell (10x3) has so far found support from that large sell off in August (at the 645 level). That said, on balance this chart looks more bearish in my view. See the levels of resistance at 730, 710 and 690 - trending lower. The index found support three times at 670 but the persistance of the bears finally paid off and we got a triple bottom sell signal, activating that 550 target which remains in play. To the upside, that 790 target is not active, We would need to see the current column of 0's reverse in to a new up column of X's and for the index to pass through 700. It would then need to take out those resistance levels mentioned above to strengthen the bullish case. It can be done, we'll just have to wait and see.

The Nasdaq (20x3) is slightly harder to call because at a glance, this chart had been looking more bullish. Clear support for the index at 2,340 and the higher 2,440. The target of 2,760 remains active but has not so far been met. The bears have had success more recently, coming back in and pushing the index down from lower highs (we had an initial reversal at 2,640 and then at the lower level of 2,580. But 2,440 support is clearly a line in the sand at present that the bears will have to overcome and in doing so, activate that target to the downside of 2,040.

And as the Western world capitulates, can we look for good portfolio diversification by investing in the Far East, whose economies are surely in a relatively better state of health?

Well, the Hang Seng Index (250x3) is currently suggesting an emphatic 'no' to international diversification. The index did more than double from its 2009 low and got to 24,750 before reversing lower. That level has never been recapture nor surpassed.

The target to the downside given by that initial reversal (18,000) was recently achieved. The blue horizontal lines are all levels of support that have eventually cracked as the bears have regained control. As things currently stand, there are no obvious targets to the upside and the target of 14,000 is active.

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