The P&F 1% chart that you showed isn't particularly bearish. QQQQ has a double top, followed by a double-bottom breakdown (which is bad, but not devastating). But the chart remains above the Bullish support line. In DWA-speak this could convert to a "shakeout" formation, which implies that the smart money encouraged some weak hands to fold.
You might want to read "Point and Figure Charting" by Aby, or Burke's classic "Three-Point Reversal Method of Point & Figure".
As to which chart is more accurate, I maintain that charts not based on percentage are distorted, and the wilder the price swings the greater the distortion. Whether the distortion is enough to be misleading is another question. But even with % P&F charts you can get some very different meanings to a chart depending on the % box size that you use. What's more, my own P&F program shows slightly different reversal prices and column sizes than Atin's code at StockCharts, even when using the same percentage values, so I think that there is room for interpretation of the rules for boxsize and reversal conditions/prices. Or it could just be that I have a colony of bugs in my code :-).
I typically use 1-1.5% boxsize for composite measurements (QQQQ, SPX, etc), while 1.5-2.0% seems appropriate for more volatile individual issues. But for extremely stable securities ($USD, for example) I'll even go below 1% to get a good picture.
Let's take any more detailed p&f discussion to PM's, or bring it over to the Galapagos Islands thread, where there are a number of P&F experts. |
