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Point & Go Figure

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Will she or won't she?

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If you would like a chart reviewed click here. I have added illustrations and text on featured charts where necessary.

All charts courtesy Dorsey, Wright & Associates.

Yesterday we saw unusual action in the market on a point & figure basis where many charts either reversed columns to Xs, or added Xs then closed sharply lower.

In the point & figure methodology charts can only move one direction at a time in a given day; that is to say, a chart cannot record both Xs and Os on the same day, only one or the other. Consequently, days such as Wednesday, strong up moves that reverse charts up or add Xs, set up potential sell signals that may be triggered the following day.

The fact that these charts can only move one direction may seem problematic for timing, but point & figure charts are better used for context than specific timing, so the downside of the "delayed" price recording actually helps us judge the context of the following days' actions.

My interpretation of Wednesday's action is that it is quite bearish. Supply was sufficient to completely erase intra-day demand, and that, in my opinion is both an indication of weak buyers, and coupled with what I believe are potential structural techncial breakdowns, an indication of perhaps a sea-change psychological shift.

Let's look at an example of the setup for potential sell signals yesterday created on many charts.

The NDX added an X by moving as high as 1610 yesterday, but closed at 1585.71, within .71 of what would be a new sell signal. Because the NDX began yesterday in a column of Xs, the methodology insists that in charting the first thing that must be considered is if you can continue in the direction the chart is already moving. If 1610 had not been hit yesterday (the action point for a new X) then the chart would have reversed down (since it would have moved lower by at least three boxes) and would still be close to a new sell signal, its second consecutive. Unless the NDX hits 1615 today, the chart will reversed down to Os, and should it move below 1585 it will break another double bottom.

NASDAQ Non Financial Index (NDX) (5x3 scale)

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No positions in stocks mentioned.

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