Chapter 10 – Chart Examples

YOU can never have too many examples. This chapter is dedicated to drawing Point and Figure charts from a variety ofmarkets and discussing a number ofpoints. It is not a full analysis of each one. It is, however, a series of real life, rather than idealised, situations. Sometimes you will see something that has not been discussed. It may have been left out because it was not thought to be relevant, or I may have simply missed it, or it was so obvious it required no comment. All charts should be viewed with an open mind and without any

preconceived idea. Labelling has been kept to a minimum so as not to clutter the chart.

To recap, the strategy with Point and Figure charts is:

Look at the chart. Does it look right? If not, adjust the box and/or reversal size. In each chart chosen here, the box and reversal size have been adjusted to try to extract the information required for the analysis.

Draw trend lines to define the bullish and bearish sections of the chart.

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Chapter 1 0 – Chart Examples

Look for patterns, support and resistance levels.

Establish counts and check past ones to see if they have been achieved or not. Look at the current trend. Draw internal and/or subjective trend lines.
Weigh up the evidence obtained from the chart.

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Spot Euro Dollar (60 minute) 0.01 x 1 USDIEURSpot (EURUS)

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Chapter 10 – Chart Examples

Chart 10-2: 0.01 x 1 spot Euro Dollar (60 minute)

The hourly chart of Euro Dollar shows the detail of the last three columns of the previous chart. There was a clear uptrend that was broken at the same time as the fulcrum top was completed. The horizontal count across the row with the most filled in boxes yields a target of 1 .306, which was exceeded. Notice the inverted semi-catapult which formed between 1 .29 and 1 .30. This allows another downside count of 1 .279 to be established across the most filled in row. Notice how equally balanced the pattern is, giving no clues to where the strength is. Once the semi-catapult breaks below the horizontal red support line, a new downtrend line may be drawn.

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Gold PM Fix5X 3

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The 5 x 3 daily chart of gold looks completely different from the 5 x 1 chart on the previous page, even though the box size has been kept the same. It shows more history because 3-box charts compress the data. The low on the left is March 1985. It is a good idea to draw both 1- and 3-box charts, because often you will see something in one that is not apparent in the other.

The first thing to notice is how well the 45° lines define the bull and bear trends. The main 45° uptrend from the May 2001 low was tested immediately by the subsequent columns, but has not been tested since. Notice that the internal 45° uptrend line has also been tested, thereby giving it strength too. The price is following a well-defined channel as well. Notice that the vertical count of 465 from the bottom matches the 465 from the mini-bottom, making 465 an important target area.

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The Definitive Guide to Point and Figure

MIB 30 Index 1% x 3

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Chart 10-7: 1% x 3 MIS 30 Index (daily)

The first thing to do after drawing any Point and Figure chart is to add your trend lines. First, the main 45° trend from the August 1996 bottom, as well as the internal from the October 1998 low. The main uptrend was broken in July 2001 after providing good support prior to the break. That allowed a new 45° downtrend to be drawn from the November 2000 high. Significant resistance encountered in April 2002 allowed an internal 45° downtrend to be drawn as well. The price made a low but failed to break the internal line and was forced down to make a second low. The W pattern that formed is a typical 3-box fulcrum. Notice how the price ran into resistance from the mid-pattern peak. The triple-top that formed carried the price through the main 45° downtrend line, allowing a new 45° uptrend to be drawn. As the new uptrend matures, so additional internal 45° lines may be added, one ofwhich has already provided support, thus elevating its status. The next thing to do is establish a few targets. Horizontal downside count 27970 was achieved, as was breakout vertical count 23152. Second horizontal count 20546 was achieved exactly. As far as upside counts are concerned, notice that the 29397 vertical count from the low has been exceeded, which is bull market action. There is a 42060 horizontal count from the W pattern, which is still to be achieved.

Remember, just because a count is there, does not mean it will be achieved.

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Nikkei 225 Index 1 00 x 3

Chapter 1 0 – Chart Examples

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Chart 1 0-8: 1 00 x 3 Nikkei 225 Index (daily)

Once again, trend lines should be drawn first to divide up the chart into bullish and bearish trends. All trend lines are at 45° because it is a 3-box chart. Notice how the 45° internal downtrend provided resistance on the way down. When this happens, it makes the internal line more important. Counts are the next thing to establish. There is 12400 count from the top, which was exceeded, confirming the bear trend. In fact, after the 12200 count, which was also exceeded, there were no other significant down counts until the 6500 from the mini-top which touched the internal downtrend line. Then a thrust off the bottom breaks the internal 45° downtrend line, forming a small bearish pattern reversed and allowing a new upside count of 14300 to be established. A mini-bottom then allows another upside count of 14100 to be established. Note the counts clustering around the 14200 area. The character ofthe chart is changing. It is trending sideways towards the main downtrend line, showing accumulation after the severe downtrend. The main downtrend breaks, allowing a new uptrend to be drawn. The chart is now in an uptrend and the 6500 count looks less likely. When the price breaks above the blue horizontal resistance line, the 6500 count is cancelled and can be removed from the chart. The 14200 target becomes more likely. Its achievement or non-achievement will tell you a lot about the state of the new uptrend.

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The Definitive Guide to Point and Figure

Hang Seng Index 100 x 3

Chart 1 0-9: 1 00 x 3 Hang Seng Index (daily)

Observe how effective the 45° trend lines are in defining both the main trend as well as the internal support and resistance. A number of vertical counts have been placed on the chart so you can see where they should be taken. Remember, the achievement or non-achievement adds to your assessment of the bullishness or bearishness of the chart. For example, during the downtrend, the upside target of 13500 was not achieved, confirming the bear trend at the time.

Notice the last downside count of 7400 has been cancelled and the 13000 upside count has been exceeded, confirming bull market action. Mini-tops and bottoms that bounce off 45° trend lines are ideal places to establish counts during a trend. There are horizontal counts available as well. You should try establishing these yourself.

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OJ Euro Stoxx 50 1% X 3

Chapter 1 0 – Chart Examples

Chart 10-10: 1% x 3 DJ Euro Stoxx 50 (daily)

This is a 1% x 3 daily log scale chart. Notice how well the 45° lines have defined previous trends, lending weight to them being able to define future trends as well. The break of the red horizontal support line at the top allowed a horizontal downside count of 2212 to be established. It means that the size of the top is such that it can justify a target which is over 2000 points away! This simple fact on its own should make you take notice. Once the main 45° uptrend breaks as well, the target becomes a distinct possibility. Notice how other horizontal counts established during the downtrend were achieved. Once the main bearish resistance line is breached and the index moves to a bull trend, notice the two vertical upside counts taken from two completely different columns, yielding the same 3 1 96 target. Notice the large fulcrum bottom with the catapult point at the blue horizontal line allowing a horizontal count (not shown) to be taken across that pattern. There are three valid support lines for the current uptrend. One has already been tested and held. Notice that a bearish pattern reversed has formed at the same time.

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The Definitive Guide to Point and Figure

Infineon Technologies AG 2% x 3

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Chart 1 0-1 1 : 2% x 3 Infineon Technologies AG (daily): data courtesy of Bloomberg

Notice the W bottom fulcrum pattern, which generates two upside counts of 12.1 and 13.9, both of which were achieved. Once the main 45° bearish resistance line is broken, a new bullish support line may be drawn. However, the trend did not last and was broken, placing the share in a new downtrend. New downside counts of 8 and 6.7 may be established from the new top. The fact that 8 was achieved confirms the current bearish status. The achievement of the 1 7 . 1 upside counts is looking less likely and will be cancelled if the price falls below the red horizontal line from the base of the count.

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IBM 1% X 3

Chapter 1 0 – Chart Examples

Chart 1 0-12: 1 % x 3 IBM Corporation (daily)

This is a log scale 1 % x 3 chart of IBM showing the strong rise from the October 2002 low. The first upthrust allows an upside vertical count of 1 0 1 .2 to be established and the main 45° uptrend to be drawn. A number of internal 45° lines may also be drawn as the trend progresses. Another upside count of 103.2 can be established from the mini-bottom, reinforcing the 1 0 1 .2 target. Notice the price reaches the target within a box, before turning down.

Observe the bullish catapult pattern just before the target is achieved. The thrust out of the catapult pattern is very bullish and the 123.5 count looks likely, but notice that the thrust is terminated by a retracement column of Os alongside the breakout column, forming a high pole. The price breaks two internal 45° lines and then forms another bullish catapult. There is a very long breakout column of Xs, which is again retraced by a column of Os. Another high pole is being formed. Some would close any long positions on a 50% retracement ofthe pole, others would wait until the double-bottom sell signal shown by the horizontal blue line. Ideally some congestion is required before the high pole, and the catapult provides that congestion. Buyers taking part in the move out of the catapult are distressed by the retracement in the next column.

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The Definitive Guide to Point and Figure

Compuware Corporation 1 % x 1

Chart 1 0-1 3: 1 % x 1 Compuware Corporation (daily)

Although the drawing of trend lines is important in Point and Figure analysis, sometimes other trend definition techniques work better. The I-box reversal chart of Compuware Corporation uses a 0.02 parabolic to define the trends. Notice how well it does this. Remember that when the parabolic swings below the price, and the dots tum blue, it puts you into ‘buy’ mode and you must look for next buy signal. When the parabolic swings above, and the dots tum red, you must look for sell signals. Without the aid ofthe parabolic, it would have been very difficult to define the trends ofCompuware Corporation.

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Intel Corporation 0.25 x 3

Chapter 1 0 – Chart Examples

Chart 1 0-14: 0.25 x 3 Intel Corporation (daily)

Notice the 45° lines defining the main and internal trends. Counts during the downtrend taken from mini-tops were all exceeded, confirming the bear trend. You will have noticed that there are further downside counts from mini-tops which have not been shown because they were not achieved, thus confirming the end of the downtrend and the October 2002 bottom. The first move off the bottom yields a target of 29.25 . Notice how the price falls back and finds support a number of times on the bullish support line from the October low. The large fulcrum bottom yields a horizontal upside count of 40.25. The upside target of 29.25 is achieved. Observe how the price consolidates at that level before pushing higher. Everything is in place for the achievement of the 40.25 target. The price forms a potential extended triple-top at 33.75 but does not breakout; instead, it falls and breaks the first two internal 45° uptrend lines. It forms a bullish trend reversed pattern (circled) and then breaks the main 45° bullish support line, exceeding the downside target of 23.25 from the top which is bear trend action. Notice how the price tried to recover to the 45° bearish resistance line from the top, but failed to break it. Refer also to the chart of Intel on page 426 to compare trends established with the parabolic SAR.

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The Definitive Guide to Point and Figure

American Express Company 1 .5% x 3

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Chart 1 0-1 5: 1 .5% x 3 ofAmerican Express Company (daily)

Although 45° trend lines are very good at defining trends on 3-box reversal charts, there may be times when subjective trend lines, joining higher lows or lower highs, are better. The log scale chart ofAmerican Express Company shows three subjective trend lines drawn in black, all showing the trend, and hence support and resistance, better than any 45° line would have done. They are, therefore, preferred on this chart. Notice that after the lines were drawn initially, using two touch points, they were tested afterwards increasing their validity. Notice, too, the double-top buy signal that coincides with the break of the downtrend.

There is no reason why you can’t mix 45° trend lines with subjective ones. Look at how the red 45° line from the low has already been tested, increasing its strength and validity.

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24.6 21.2

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Chapter 1 0 – Chart Examples

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Chart 10-16: 0.025 x 1 Three month Sterling Interest Rate Future (June 2005) (60 minute)

This is an hourly chart from June 2004. Notice the clear uptrend channel so typical of I -box reversal charts. Distribution takes place each time the price hits the upper channel and moves sideways across the channel. What occurs after will either be a continuation semi-catapult or an inverted fulcrum. The inverted fulcrum usually occurs as the price drifts sideways out of the channel. Notice how resistance was encountered twice at 95.3 at the blue horizontal resistance line. At this stage it could either be a continuation pattern or a top. Only when the price breaks below the red support line is the inverted fulcrum top confirmed and a downside count of 94.85 can be established. The target has been achieved and the price has rallied up to the downtrend line. As this is a short-term chart, profits should be taken close to targets.

The price is in a downtrend channel. There are no clues on the chart at this stage to tell you whether it will continue lower or whether it will form a bottom. Price action subsequent to this chart will tell you. You need to wait to see whether it forms a fulcrum bottom or a continuation semi-catapult. The black horizontal lines are the key support and resistance levels.

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