Here is a scan of the point and figure chart I keep by hand for the cash S&P 500. It is a three box reversal chart with each box representing ten S&P points.An important fact about markets is that they rarely make a big move without first trading sideways to an extent that is roughly proportional to the extent of the big move. This is one reason why point and figure charts can be very valuable.
The chart above shows the action in the cash S&P since October 2008. The sideways action since the October 10 low near 840 until the present is already twice as wide as the sideways action at the 2002-03 low. That prior base supported the move to the October 2007 high of 1576. Even the portion of the base which has formed since November itself would support a move to 1600. Any move on high volume above the 950 level would for that reason be very bullish long term.
14 comments:
Carl :
Very interesting. And it does appear to show a inverted head and shoulders pattern as well.
Hi Carl,
Can this basing action work for a move down as well? In other words, maybe we are building a base from which to move lower. Does this ever play out in P&F charts?
Also, do you ever get a base in a P&F chart and have the price action NOT follow thru to the upside?
Carl, thanks for sharing you work. A friend introduced me to your site. I think I like it.
I thought "o"s and "x"s couldn't be in the same column?
I remember the 2003 base had a lot of stocks going to new highs. This base is devoid of that type of growth stock action.
Oh By the way, I'm saying SPX will go to 6000, yes 6000, just because no one would think so, so is going there... jesus...
@2/04/2009 10:01:00 PM
I take it you got wiped out recently? how painful would it be to see the market move higher while you have nothing in it?
Note to my readers, re: 10:01 pm and 10:09 pm.
This moron has been lurking around my blog for months and usually I delete his comments. But this time I thought everyone should see the quality of "thinking" on which his "conclusions" rest.
Sadly, he is quite typical of a vocal group of knuckle dragging, spittle sputtering doomsayers who come out of the woodwork at times like these. They all see only one possible outcome from the current situation. And they will all be wrong, and broke to boot, if they follow their own advice.
My reference to "10:01 pm" was to anonymous, not to Tim.
I see on the chart a triangle which could well break to the upside.
Seems support around 800 is very strong.
Looking at a bar chart, there is Macd divergence for a few months.. sometimes it takes a long time for divergence to result in a move, however, divergence is often indicative of a move.
Thanks for this chart and perspective......
The S&P 500 has been flat over the trailing 4 months and the last time that happened was in 2007 -- a change of direction.
Carl, I'm curious about the "o"s and "x"s being in the same column.
-cj
If you look more closely you will see that the zeroes are all on the same price line, like 800, 900, 1000. Similarly, there are fives on the price lines of 1050, 950, 850, 750. This is just a way of making it easier to read the price scale.
More generally, I prefer to put all "x's" on my point and figure charts instead of "x's and o's" like other people. This is because I also maintain a lot of one box reversal charts which are impossible to read unless you use only "x's".
Carl
One day when you have the time, perhaps you would discuss your use of 'one box reversal chart'.. and relate that to the use of 'three box reversal chart'
I am assuming that the one box chart is more useful for intraday trading.. well, perhaps that is not so...
I will be interested in your views as I have been learning about P&F for a year or so and would be interested in learning from a user..
Thanks again....
dave
As we have are in an downtrend, I would only look for sell signals at this moment.
I am using a Point and Figure indicator for MetaTrader 4, that's easier than drawing by hand :)
Here's the current S&P 500 with the same setup you're using:
http://picasaweb.google.com/aparusel/PointAndFigureCharts#5303730332895838546
Many greetings!
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