Before the stock market begins an upward move certain forces come into play that contribute to its potential price movement. One such force is called accumulation. This occurs at the end of a market decline and is a phase that depicts a fight between supply and demand. Typically a trading range is formed and a breakout above that trading range marks the beginning of the markets move to the upside.
Wouldn’t be nice to have a simple tool that would help you measure the price objective of a stock market advance before it unfolds? To be able to create a plan for your investments and to be able to set a price objective……sounds pretty good! This method will help you reduce the risks of investing and provide you with a game plan. There will be times when you will be wrong but in the stock market if you diversify and follow the trend you will prosper.
The simple tool that I’m talking about are point and figure charts. They look different than any chart that you have every seen. They use x’s and o’s instead of lines or bars and there is no time scale. Point and Figure charts began as a way of recording stock prices or organizing data. The charts depicted a battle between supply and demand. The x’s being price movement to the upside and the o’s to the downside. When there are more buyers than sellers the price of a stock will rise and adversely when there are more sellers than buyers the price will fall. If buying and selling are equal then the price will remain the same. This is simply Econ 101.
Let’s take a look at the point and figure chart for the S & P 500 during the accumulation phase between November 2008 and May of 2009.
The market as measured by the S & P 500 bottomed in November of 2008 at about 750 and began the accumulation phase at that time. It should be noted that in March of 2009 the markets went through a shakeout. The S & P 500 hit 666 and forced any remaining weak holders out of their stock positions.
The area of accumulation can be measured at the 840 level. There are 32 x’s and o’s in the count. The chart is a 3 point reversal chart, meaning that o’s aren’t added after x’s unless 3 boxes to the downside have been recorded. Likewise, x’s aren’t added until 3 boxes to the upside have been recorded. The scale on the right side of the chart indicates that each box is worth 10 points.
There are (32) boxes x (3) reversals x (10) scale = 960 points (projected price movement)
You can measure the move from the low point at 670 and get an objective of 1520 or from the 840 count line and get an objective of 1800.
Let’s take a look at how the markets unfolded in 2013.
From 1405 (180 count) = Price objective 1585 which was reached in April of 2013
From 1510 (105 count) = Price objective 1615 reconfirmation of the above count
From 1545 (165 count) = Price Objective 1710 reached in May 2013
Downside correction then occurred……
New Count from 1610 (150 count) = Price objective 1760
From 1690 (75) =Price objective 1765
So the price objective of 1800 is still in place. The Trend is Still Your Friend.
The move from 666 to today’s price of 1691 is 94% of the way to the 1800 goal. A move below 1675 could announce the start of a correction, a correction that could be very big!
From the point and figure chart above at the 1690 level the count is (21 x 3 x 5) = 315 for a price objective of 1376.
Everyone felt very good about Apple a few months back just as they feel good about the stock market now!
Here is a look at the S & P 500 now.
The S & P 500 looks similar.
What happened to Apple Computer…….
Anything is possible!
The one caveat is the Federal Reserve. Will they continue to feed money into the system? If so all bets are off, you never fight the Fed!