May 31, 2008
Gold’s Relative Performance in Point & Figure
I was telling my friend Mark about how much I love relative performance (or “ratio”) charts, and he mentioned how much he loves point and figure charts, and I said, “you know what, I’ve never seen a point and figure chart of a ratio chart, I’ll make one.” So here’s a point and figure chart of the Gold ETF (GLD) divided by the S&P 500 ETF (SPY). I don’t really know how to interpret P&F charts, but it looks bearish to me since early April. P&F experts, please let me know if I’m reading this wrong!
UPDATE: Here’s the correct, three box reversal chart from the great stockcharts.com site, an improvement over my clumsy effort:
The conclusion remains the same though: the breakdown in April was significant, though the weekly trend is still up.
Related: Chat Transcript: Using Relative Performance Charts [there’s so much gold buried inside this site, it’s astonishing.]
June 1st, 2008 at 12:36 am
P&F — charts of the Jedi/Sith… regarding this specific P&F above: missing bullish & bearish trendlines, which are a key component… also, typical P&F methodology requires 3 “boxes” [with a box size of 1.0] to generate a reversal [new column]; that is, you can never have a column that doesn’t have at least 3 X’s [bullish/up] or O’s [bearish/down]…
of course the primary trend here is that GLD is in an uptrend versus SPY [lower left corner of chart toward upper right corner, path is northward]… and you are correct to say that _the secondary/immediate trend_ turned bearish at the failure of recent “double support”, which here is 64 [not 66] — counting across from the most recent column on the far right, the ninth and fifth columns, both of which are O’s… when price action closed beneath the lowest O [64] of these two columns [9th & 5th], that is when chart turned near-term bearish… so your red support line should have been placed one box lower… to better visualize this, image that the most recent four columns on the right are absent…
compare the above chart to the following two P&F’s [depicting the same GLD/SPY ratio] which use traditional 3-box reversals and display trendlines:
“GLD:SPY” DAILY
http://stockcharts.com/def/servlet/SC.pnf?c=GLD:SPY,P&listNum=
support comes in at the 60-box and key trendline support at 59… often price action will stop right at [one box above] the trendline or one box just below [so as to trigger stops, stop-grabbing, etc — essentially, “bear trap” action]… for near-term trend to change, price action would have to close above the uppermost X of the previous column of X’s, which would here be at 67… a 71 close would be more bullish as well as suggest a retesting of 78…
“GLD:SPY” WEEKLY
http://stockcharts.com/def/servlet/SC.pnf?chart=GLD:SPY,PLTAWANRBO[PA][D][F1!3!!!2!20]&pref=G
support (now “double support”] comes in again at the 60-box, and is very clearly depicted here, with key trendline support again at 59… overall, from this chart it is very clear that GLD is in a primary bullish trend in comparison to SPY…
one last thing: almost exactly at the center of this chart a column of O’s sliced below the prior trendline support [left blue line] and ultimately held/bottomed at 43… the first box under the left blue line designated with a “9″ just indicates the ninth month of the year, and thus Sept, and the A, B, & C ’s are for Oct, Nov, & Dec… so after holding at 43 [triple bottom support], price action then consolidated in the mid & upper 40’s for about a year before resuming the primary trend upon hitting the “stealth” 49-box, labeled “A” (Oct 2007), for having pierced above the extension of the resistance trendline [depicted in red], and 51, upon closing one box above the top of the previous X column [which touches the right tip of the red line]…
so the inference here is that current price action might wind up mimicking this prior price action of consolidation just beneath bullish trend line [again bear trap -esque] before resumption of up-trend… of course always good to keep in mind [hedge / have the bias] that the further/longer the primary trend continues to extend, the more the downside/counter-trend action will come up against increasing upward pressure [as so the more dangerous the bear traps]…
very kind thanks CM… humbly honored,
mark.
June 12th, 2008 at 2:55 am
magnifico! on the updated chart… ratio now at about 0.644… a close at 0.65 would put in a 3-box reversal [new up-column of three X’s]…