POINT & FIGURE EDITION -- USING P&F CHARTS ACROSS TIMEFRAMES -- S&P 500 HAS MAJOR SUPPORT AT 1400 -- S&P 500 BREAKS WEDGE TREND LINE ON SHORT-TERM P&F CHART -- OFFENSIVE SECTORS REMAIN IN UPTRENDS AFTER CLEAR BREAKOUTS
POINT & FIGURE EDITION - USING P&F CHARTS ACROSS TIMEFRAMES... Link for todays video. Todays Market Message will focus on P&F charts. First, we will look at using different timeframes and box sizes to capture different trends. Second, we will show how to use the percentage boxes to compare similar securities. Third, the analysis will show how P&F charts are good for defining the trend, identifying support/resistance and finding chart patterns. On the examples below, the dashed lines marking support, resistance and patterns were made with third party software (MS Paint). You can learn all about P&F charts in our ChartSchool articles.
Chartists can use different timeframes and setting on P&F charts to take a top-down approach to analysis. Using the S&P 500 as an example, chartists could use daily prices and 10-point boxes to define the long-term trend, which is consider the top level. Chartists could increase granularity by using intraday prices and smaller box sizes. Lets look at three different timeframes for the S&P 500. Chart 1 shows the long-term trend using a P&F chart. Notice that the index broke the Bearish Resistance Line with a long X-Column in October (red A). X-Columns rise and O-Column fall. This breakout started a new uptrend on the P&F chart and the 45-degree Bullish Support Line extends up from the October low. This line held during the November and June pullbacks (green arrows). Most recently, the index forged an Ascending Triple Top Breakout this month and moved to new highs. The long-term trend is up with the Bullish Support Line marking first support at 1350.
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Chart 1
S&P 500 HAS MAJOR SUPPORT AT 1400... Chart 2 shows the medium-term outlook using 60-minute price data and 5-point boxes. Even though intraday data is used, this chart extends some nine months and goes back to January. The Bullish Support Line and Bearish Resistance Line can be added or removed using the Chart Overlays underneath the chart. There is little ambiguity on P&F charts. The bulls have the edge when prices are above the Bullish Support Line and the X-Columns are forging higher highs. The bears have the edge when prices are below the Bearish Resistance Line and the O-Columns are forging lower low. Notice that the index forged a Triple Bottom Breakdown in early May and then broke below the Bullish Support Line later that month. This downtrend officially reversed with the Ascending Triple Top Breakout in June and the trend is clearly up with the recent break above the spring high. The two O-Columns in August mark first support at 1400.
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Chart 2
S&P 500 BREAKS WEDGE TREND LINE ON SHORT-TERM P&F CHART... Chartists looking for even more detail can further reduce the timeframe and box size. Chart 3 uses 15-minute prices and 1-point boxes to capture the short-term trend. I removed the automatic 45-degree trend lines because price action is more volatile and less trendy when reducing the timeframe and box size. In addition to the classic P&F signals, such as Double Top Breakout and Triple Bottom Breakdowns, chartists can also look for patterns traditionally found on bar charts. Flags, head-and-shoulders tops, double bottoms and other bar chart patterns will also show up on P&F charts. After the first surge in early September, the index formed a pennant in the 1435 area. $SPX broke pennant resistance with another surge and then formed a falling wedge the last few days. Most recently, $SPX broke wedge resistance to signal another continuation higher. Short-term support is set with the lows of the two O-Columns at 1457.
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Chart 3
OFFENSIVE SECTORS REMAIN IN UPTRENDS AFTER CLEAR BREAKOUTS... Sometimes it is useful to compare different securities using the same P&F settings. This makes it easy to create a favorites list of P&F charts with one setting. Chartists should not use point-based boxes because securities trade at different levels. Even similar securities like the sector SPDRs trade at very different levels. For example, the Energy SPDR (XLE) trades in the mid 70s, while the Finance SPDR (XLF) trades around 16. Chartists cannot use a 1-point box size for both. Instead, chartists should opt for a percentage box size. My favorite medium-term setting uses 60-minute price data and .33% for each box. Once set up, chartists can use these charts to easily define the trend and establish support/resistance levels. This is where P&F charts excel because support and resistance levels are quite clear, as are the ensuing breaks. Chart 4 shows the Technology SPDR (XLK) in a clear uptrend with the late August lows marking key support. Notice that the ETF broke flag resistance with the early September surge. Chart 5 shows the Consumer Discretionary SPDR (XLY) breaking consolidation resistance in mid August and continuing higher in September. The late August low (O-Column) marks support around 45.
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Chart 4
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Chart 5
Chart 6 shows XLF surging in June, consolidating throughout July and breaking out in August. The ETF is overbought after a big surge, but the breakout is clearly bullish. The consolidation around 15 marks first support. Chart 7 shows the Industrials SPDR (XLI) breaking triangle resistance in late July, forming a falling wedge in late August and breaking out in September. Broken resistance and the September low mark support in the 35.82 area.
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Chart 6
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Chart 7
AIRLINE ETF FORGES DOUBLE TOP BREAKOUT ... The Airline ETF (FAA) took off on Wednesday with a Double Top Breakout on the P&F chart. Chart 8 uses 60-minute prices and .33% boxes. A Double Top Breakout occurs when the current X-Column moves above the prior X-Column. It is the most basic bullish signals. The prior X-Column marks a clear resistance level at 30.18, which is getting close. A break above this level would forge a Triple Top Breakout and target a move towards the summer highs (32).
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Chart 8
UNITED CONTINENTAL AND DELTA LEAD WITH BREAKOUTS... United Continental (UAL) and Delta Airlines (DAL) are pacing the group today with breakouts on the P&F charts. Chart 9 shows UAL with a long X-Column and a break above the early September highs. Also notice that the decline over the prior week formed a falling flag of sorts and the stock broke flag resistance. Chart 10 shows DAL with a Double Top Breakout. Also notice that the decline formed a large falling channel and a break above the channel trend line would signal a continuation of the prior surge. You can learn more about P&F charts in our ChartSchool articles.
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Chart 9
