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Point & Go Figure




Last night Minyan Leon asked me to look at some stocks that may be developing a "following," meaning stocks which are showing up on the screens of a number of market "followers." The idea is that stock ideas floating among a number of unrelated followers develop a "cause," or reason to move higher.

This is simply a verbal way of describing what a chart "trend" illustrates: accumulation by someone, or some people, which begins to show up in price data as demand begins to exceed supply, recognition of this fact, and consensus then building in a self-reinforcing loop until there is no one left to reinforce the demand and supply takes over.

I like to use the point & figure charts to falsify stock opinions and beliefs. In other words, if I come across an interesting analysis of an industry group or specific stock, I can quickly turn to a point & figure chart to see if there is anything actionable. So let's take a look at some point & figure charts on the stocks Leon mentioned last night.

All charts courtesy Dorsey, Wright & Associates. Inc. (AMZN)

Apple Computer, Inc. (AAPL)

Helmerich & Payne, Inc. (HP)

Crude Oil Continuous (CL/)

What is interesting about the potential shakeout forming in Crude is the fact that on a long-term point & figure chart of Natural Gas, there is also a potential shakeout forming. First, I would not trade Crude or Natural Gas on a long-term point & figure chart, but I believe these long-term charts are very helpful in establishing a secular thesis, and certainly in falsifying one.

The Natural Gas long-term chart shows it could pull back to 8 and remain in a long-term uptrend. This would initiate the shakeout. The long-term price target based on a point & figure count from the breakout above 8 is 12.20 (not advice).

What would happen if the shakeouts in energy began?
Is consensus ready to embrace the perceived trend reversal?
Or is consensus still squarely in the long-term bull camp?
In my opinion, the most bullish technical scenario would be a shakeout pattern followed by the consensus opinion that the energy bull market has concluded.

Natural Gas Continuous (NG/)

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No positions in stocks mentioned.

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