POINT & FIGURE CHARTS ADD PRECISION AND SIMPLICITY TO TREND SIGNALS -- A P&F LOOK AT STOCKS, BONDS, COMMODITIES, AND CURRENCIES
STOCK INDEXES IN P&F UPTRENDS... One of the things I like best about poing & figure charts is their simplicity. Their strongest feature is that buy and sell signals are easier to spot than on bar or candlestick charts. A p&f chart shows alternating columns of X's and O's. The X columns represent rising prices and the O columns falling prices. A buy signal takes place when the latest X column exceeds a previous X column. A sell signal occurs when the last O column falls below a previous O column. Trendlines are drawn at 45 degree angles from previous tops and bottoms. A buy signal is stronger if prices are trading above the red resistance line; conversely, a sell signal is stronger if prices are trading below their blue support line. The sensitivity of the p&f chart can be altered to make it more responsive to short-term trends (a smaller box size) or for longer-range trend signals (larger box size). With all of the recent focus on moving averages and other bar chart indicators, I thought it might be a good time to review current p&f trends in the four major asset classes (stocks, bonds, commodiites, and currencies). I"ve adjusted box sizes to measure recent short- to intermediate- term trend signals. The first four charts show all major stock indexes in p&f uptrends at the moment. The Dow and NYSE Index are also trading well above their red resistance lines which makes their uptrrend stronger (Charts 1 and 2). The S&P 500 has just cleared its red resistance line, but needs to reach 1135 to clear its June high (Chart 3). Chart 4 shows the Nasdaq Composite testing its red resistance line and still trading well below its June high at 2340. Prices in all four stock indexes would have to fall below a previous O column to reverse recent buy signals.
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Chart 1
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Chart 2
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Chart 3
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Chart 4
BOND UPTRENDS STILL INTACT ... The four bond ETFs shown next are all in p&f uptrends as well, but have been so for much longer. Chart 5 shows the 20+Year Treasury Bond Fund (TLT) having bounced twice off support at 98. A drop to 97.5 is needed to issue a new sell signal. Chart 6 shows the Investment Grade Corporate Bond Fund (LQD) in a much stronger uptrend, while Charts 6 and 7 show the High Yield Corporate Bond Fund (HYG) and the TIPS fund (TIP) in uptrends as well. There again, prices have to fall below a previous O column to reverse those uptrends.
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Chart 5
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Chart 6
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Chart 7
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Chart 8
COMMODITY UPTRENDS... Most commodity ETFs are in p&f uptrends as well. The strongest is the PowerShares Agricultural Fund (DBA) shown in Chart 9. Today's added gain (green box) is due to a sharp jump in the price of wheat. Chart 10 shows the Industrial Metals Fund (DBB) in a p&f uptrend as well. Both have risen above their red resistance lines which signals greater strength. Unfortunately, both triggered p&f buy signals at much lower levels and look a bit over-extended at the moment. Chart 11 shows a more recent buy signal at 25 in the Energy (DBE) which has also just cleared its red resistance line. Chart 12, however, shows the Gold Trust (GLD) still in a p&f downtrend and needing a breakout to 117.75 to issue a short-term buy signal. GLD is trading well below its red resistance line which also weakens its current p&f trend.
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Chart 9
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Chart 10
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Chart 11
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Chart 12
US DOLLAR STILL IN DOWNTREND -- CANADIAN DOLLAR LOOKS STRONG... Chart 13 shows the Dollar Index Bullish Fund (UUP) still in a p&f downtrend that started during June. There's no sign of that trend reversing. Chart 14, however, shows the Euro having reversed into a O column. Even so, there's no p&f sell signal visible at the moment. Chart 15 shows the Japanese Yen still in an uptrend. The most interesting currency chart belongs to the Canadian Dollar. Chart 16 shows the CDW having triggered a "triple top" buy signal at 97.50 during August (red letter 8) and having cleared its red resistance line. It's in the process of testing its June high however. The CDW needs to reach 98.75 to continue its p&f uptrernd. [NOTE: Although point & figure charts are based on "intra-day" high and low prices, I prefer to see prices actually "close" at their buy and sell points. That helps eliminate some short-term whipsaws]. I'm not suggesting by showing just point & figure charts today that you shouldn't also watch bar (or candelstick) charts. They all reflect current price trends, but do so in different ways. When used in conjunction with other types of charts and technical indicators, point & figure buy and sell signals add valuable precision to those signals and an added degree of simplicity. That's why I like them and use them. If you're not using point & figure charts, you should give them a try.
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Chart 13
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Chart 14
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Chart 15
