[True Trader's Sunday School] Charts that Tell the Truth About the Market

Style AND substance! [Logo]( [True Trader's Sunday School] Charts that Tell the Truth About the Market Dear Reader, Last week, we continued our discussion of "breadth" by introducing the bullish percent index (BPI) chart. We said that this particular "breadth" indicator was second to none when it comes to removing emotion from your trading decisions. I went so far as to tell you… Chris Rowe Founder True Market Insiders "Learning about the Bullish Percent Index changed my life, my confidence, my perception, and especially my bank account." One thing that makes our BPI charts so powerful is the style of chart we normally use to show the data the BPI was designed to display. I'm talking about… The "Point-and Figure" (PnF) Chart Point-and-figure charts are easily recognized by their unique structure – columns of boxes – and by their unique way of presenting data – X's and O's within the columns. A column with X's in it is showing an uptrend – strength. A column with O's in it is showing a downtrend – weakness. To say that a point-and-figure chart is "in X's" is to say that the forces of DEMAND (buyers, aka the bulls) are in control over the short term. To say that a point-and-figure chart is "in O's" is to say that the forces of SUPPLY (sellers, aka the bears) are in control over the short term. Look below at this point-and-figure view of North American Energy Partners (NOA). You can see that the most recent column (the blue arrow at the right), is in X's. That means that the recent short-term trend is up. Buyers/bulls are in control. Now look at this point-and-figure chart of Microsoft (MSFT). You can see that the most recent column (the red arrow at the right), is in O's. That means that the recent short-term trend is down. Sellers/bears are in control. An important side-note: The NOA and MSFT charts you just looked at are price charts shown in point-and-figure style. They are NOT bullish percent index (BPI) charts, or any other kind of breadth charts. I mention that because it's easy to get confused and think that all point-and-figure charts must be BPIs or breadth charts, when in fact those PnF charts could be any chart displaying any data… but displaying it in point-and-figure style. You can see the prices along the left-hand axis of the chart. At the bottom of the chart, circled in purple, you see calendar years – ‘21' means 2021… ‘22' means 2022 etc. That's one of the things that distinguishes a point-and-figure chart from, say, a candlestick chart. With a (we'll say daily) candlestick chart (or daily line chart or daily OHLC chart), each candle or bar represents one day's worth of trading activity. This level of detail is great, but it can be very "noisy." The price can see-saw up and down and make it hard to tell if a pattern is developing. With a point and figure price chart, a given column only fills a new box – an O-box or an X-box – when the price of the stock moves by a certain amount, called the "box size." There is no "daily" movement with a point-and-figure chart. This tends to filter out daily or very short-term movements in the price. And it explains why in the MSFT point-and-figure price chart, above, we see a much smaller number of columns between 2021 (‘21') and 2022 (‘22) than we see after 2023 (‘23). There were simply fewer significant changes (from strong to weak or vice versa) in 2021 than there were in 2023. The stock was less volatile in 2021. Notice I went out of my way earlier to say that the most recent short-term trend was up or down. That's because, on any point-and-figure chart, the COLUMN shows you the short term condition. It shows you whether SUPPLY or DEMAND is in control over the short-term. To determine the longer-term trend, we look to the chart's signal. Any point-and-figure chart, at any moment in time, is either on a Buy signal or a Sell signal – there is no in-between.     A Buy signal means the stock (or sector… or index…) is showing strength over the intermediate to longer term. A Sell signal means the stock (or sector… or index…) is showing weakness over the intermediate to longer term. Said another way (similar to how we said it when we looked at columns), A Buy signal means Demand is in control over the intermediate to longer term. A Sell signal means SUPPLY is in control over the intermediate to longer term. A point-and-figure chart goes on a Buy signal when a new column of X's gets higher than the previous column of X's. Likewise, a point-and-figure chart goes on a Sell signal when a new column of O's gets lower than the previous column of O's. Let's see some examples. Here's a point-and-figure chart of Agilent Technologies (A). The blue arrow points to a recent X-column. Notice the number ‘7'in that column. On a point-and-figure chart, numbers stand for months, so ‘7' means the month of July. In this case, July of 2023. Notice also that the box containing the ‘7' is at the same height or level as the number ‘6' in the previous X-column. At that July moment in time, the chart was considered to be on a Sell signal. Why? Because that X-column – the one shown by the blue arrow – had not gotten higher than the previous X-column. But once it DID get higher, once it had filled one additional X-box… the chart went on a Buy signal where it remains. True, the chart did flip to an O-column later on. That O-column is right next to the X-column shown by the arrow. But that O-column never got lower than the previous O-column. And so the chart remained on a Buy signal. (Remember, a point-and-figure chart is always either on a Buy or Sell signal.) Notice the current O-column, shown by the red arrow at the far right of the chart. Notice that it is as low as the previous O-column. If the chart fills just one more O-box lower, then Agilent will reverse from being on a point-and-figure Buy signal to being on a point-and-figure Sell signal. We'll be justified in considering this stock to be weak over the longer-term. Right now, while the chart is still on a Buy signal, we are only justified in considering it to be weak over the short term. This business about Supply or Demand being in control is not just some fancy way to say "the chart is showing strength" or "the chart is showing weakness." And this business of Buy and Sell signals is also not just a fancy figure of speech. It is VERY important to know when Supply or Demand is in control of a stock, a sector or the market. And it is VERY important to know when a stock or sector or market is on a Buy or Sell signal. Next Sunday we'll dive deeper into the reasons why, when we continue our discussion about breadth. See you then!   [Today We Bust an Income Myth]( [Reverse Your New Taxes from Russia and Saudi Arabia]( [Here’s 2 Ways to Find Great Small Stocks]( [YouTube]( [Facebook]( [Twitter]( [Instagram]( [LinkedIn]( DISCLAIMER ©2023 by True Market Insiders, LLC, Protected by copyright laws of the United States and international treaties. This Newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of: True Market Insiders, 7901 4th St. N STE 6113 St. Petersburg, FL 33702. The information contained herein has been prepared without regard to any particular investor's investment objectives, financial situation, and needs. 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