FTSE 100 H/L charts: all eyes on 6,100

There are (in general terms) two methods for plotting point and figure charts. Boxes can be filled by comparing the closing price with the previous days closing price (my preferred method) or by using the high/low price achieved during the day with the previous high or low. Regardless of method, in their purest form, P&F charts show very clearly the ongoing battle between bulls and bears.

With this latter (H/L) method, you ignore the level at the close and simply ask yourself, 'during the day, did the price achieve a higher/lower level and in doing so fill a box to the upside (or downside)?' If yes, you mark a new X or O, depending on the direction of the price.

These H/L charts can often throw up quite different pictures compared to those based on the closing price/level. Take the FTSE 100 for example:

This is a 'noisy 10x3' high low chart, ie each box represents just 10 points on the index and to reverse each column requires a (10x3) 30 point movement in the opposite direction. This chart is currently showing an intense battle going on between the bulls and the bears, with 6,090 marking the line in the sand. At this level, the bulls have been batted back on three occasions since the turn of the year. There is clear resistance at this level. As a general guide, the greater the resisistance, the more powerful the move to the upside once the resistance is broken (the same applies for breaks of support in down markets) so this 6,090 level is one the bulls will need to take out for the rally to continue.

The slightly less noisy 25x3 chart (25 points per box, 75 points required to reverse a column) is even more revealing. Here, the line in the sand is at 6,075 and it can be seen very clearly that the bulls are pushing on this resistance again, having been batted back on three previous occasions. All thrilling stuff it must be said!

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It's an interesting juncture. While it could be argued that distribution is taking place here, I would suggest that any decisive move higher enabling the bulls to capture the 6,100 box would constitute a hard fought victory for the bulls, setting the scene for a move to higher levels. We will know soon enough!

30yr Treasury Yield

The previous activated target of 4.65% on this (0.05x3) closing P&F was recently met. To the upside, there are two active yield targets now in place, at 5.65% and 5.35%. In price terms, those yields equate to a prices of $87.06 and $91.08 per $100 respectively (current price c$101). The modified duration on this bond is 15.9, ie a c16% decline in price for every 1% move in yield.

Clearly there are no targets to the downside currently in play. If the yield can push through that previous high at 4.85%, it would strengthen the argument for a sharp move higher.

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.

FTSE 100 - on the line

See how the FTSE 100 has held support from the July 2010 low. It did briefly dip below the Nov 2010 resistance level but got some support from the April 2010 peak. I'm not sure its ready to roll over just yet. I'd be looking for a more decisive move below the horizontal line to pursuade me. UK Banks are all due to report FY results in coming weeks. Still a key FTSE sector, along with Pharmas, Oil and Mining.

Gold - short term target 1,270; long term picture still bullish

I was watching David Linton's 'charts of the week' posting today (he was using mainly P&F and cloud charts) and he referred to some 'spectacular' long term price targets given by the P&F chart. I was naturally keen to investigate.

It can be seen that all those activated upside targets from 2009 have been respected, as gold moved up towards 1,400. I have circled in red three occasions where sell signals were given, only for the price to reverse higher and give new targets to the upside.

At present, another sell signal has just been activated, with a target in place of 1,270. So we are at an interesting juncture. The longer term picture remains bullish and if the gold price was to push to a new high (ie filling the 1,430 box), those higher targets will remain firmly in play. The fact that we have what appears to be a double top at 1,420 makes this quite an interesting battleground for bulls and bears. There is clearly a struggle going on in the 1,340 to 1,420 range.

A further review will be required if that 1,270 target is reached then reverses.

NYSE Bullish Percent Index

Getting close to 10 year high. Pls refer to previous post on 27th October for explanation

IBEX: up 5% today

Here is the closing 100x3 P&F chart on the IBEX, following today's mega 519 (5%) rally. Seeing a triangle formation. The move out of the triangle and direction are the things to watch, provided that patten plays out (normally requires 5 columns, which would mean a 3 box reversal to the downside to reverse today's rise to play out). I had something similar with the FTSE a while back which failed, but for the IBEX i'm not envisiging a similar rally tomorrow, although if the bond auction goes well.........