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Strategies & Market Trends : Point and Figure Charting

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To: Ms. X who wrote (2701)	4/30/1998 5:46:00 PM
From: Ms. X	Read Replies (2) of 34810

To all: Market commentary from Tom Dorsey. I'm going to post this today which will be a repeat for those of you who have a subscription to DWA. As I mentioned in and earlier post, he has upgraded the individual subscription to include a daily market commentary and stock strategy/selection. For those of you who subscribe to DWA you will find this on the main page (not the homepage) under "From the Analyst". For those of you who are not subscribers yet, get on the ball, you are missing good stuff! From now on, I'll let Tom post these exclusively on the DWA site. dorseywright.com THE NEW DAWN With today's rally one might think it was the new dawn but things aren't always what they seem. Keep in mind that new highs in the Dow Jones don't carry the weight they use to. Too much emphasis can be placed on a few stocks in the group. Consider the effect if IBM was up 20 points in a day. That would translate into 80 points on the Dow Jones. What happened today was most stocks in the Dow Jones were up a couple of points but that move did nothing to the charts of these stocks. Take Johnson and Johnson for instance. The stock is on a sell signal and could actually move up 6 points and still not do anything to affect the sell signal. What the reversal in these chart pattern does is simply set up the potential for the second consecutive sell signal if this rally doesn't carry through. It is more important to see how the net new buy signals and the net new sell signals are fairing in their battle. Three or four Dow Jones stocks can easily carry us up to a new high but with much fewer players on the field which is what seems to be happening now. The good thing about the Bullish Percent Indexes is each stock has only one vote. IBM could be bought out at $2000 a share and it would not affect the Bullish Percent at all. The stock is already on a buy signal and has used up its one vote. The NYSE Bullish Percent has not reversed down as yet and as we mentioned yesterday, and this one is our main coach. The reversal down in the Optionable Stock Bullish Percent is typically a good warning signal of an impending change in the main coach, the NYSE Bullish Percent Index. Remember why these indexes were designed. In the mid 1940's a man named Earnest Staby determined that at market tops ,all charts including Point & Figure, look the most bullish, and at market bottoms those same charts look the most bearish. He wanted to develop a soulless barometer that would change to negative at tops and positive at bottoms. A true contrary indicator. This is why it is hard to think less aggressively as the market continues to make new highs but it is just what one must do in order to go against the crowd. The bullish percent indexes take the guess work out of it. It at least gives you something to hang on to when you desperately want to go with the crowd and the Nightly Business Report. If the Optionable Stock Bullish Percent reverses up without the NYSE Bullish Percent reversing down then we will become more positive on the market within the confines of a high reading on these indexes and a very skewed sector distribution. We don't predict here, we simply operate as the caboose of the train. -Tom Dorsey

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