Dear Professor Dorsey:
As I move into the latter chapters of the book,
I need to confirm a basic understanding of risk levels.
Is it true that a reversal in a sector from Os to Xs or from
Xs to Os does not necessarily represent a change in the risk level ?
The examples that come to mind are as follows:
1) Sector is bull alert, having moved from 25 to 45 in a column of
Xs, after having been in a column of Os. There is a 3 box reversal to 42, resulting in a new column of Os. By my read, the sector is still in bull alert status.
2) Sector is bull correction, having moved 35 to 45 in Xs, back down to 40 in Os, back up to 52 in Xs (triggering bull confirmed), now down to 45 in Os (triggering bull correction). Now sector moves up to 49 in Xs, but since it has not taken out the 52 level, I assume it is still bull correction.
Last questions for this morning (send me the bill):
When a sector is bull correction, the buying strategy is to hold off on buying (pullback expected). If the sector stays in bull correction status, and a stock which is on a buy signal and otherwise healthy (i.e. RS Sell, RS in Xs) pulls back to support, is this OK to buy ?
Conversely, when the sector is bear correction, the strategy is not
to enter short sales (higher prices expected). If the sector remains in bear correction status, is it OK to short sell a weak stock (i.e. RS Sell, RS in Os) that has moved up to resistance ?
These are hypothetical questions which are asked with my acknowledgement that you have written that P&F is art more than science, so I look not for firm rules, but to properly apply my understanding of the concepts to investment decision making.
And rest assured, I have a full day of household projects and chores that will preclude me from asking any more questions.
Thank you as always Professor Dorsey,
David |
