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Strategies & Market Trends : Point and Figure Charting -- Ignore unavailable to you. Want to Upgrade?

To: Al Serrao who wrote (4388)	7/4/1998 8:58:00 AM
From: Bwe	Read Replies (2) \| Respond to of 34811

Happy 4th, Al. This week, Cliffs Drilling had a RS Sell at $32, much to my dismay. DWA's RS chart shows CDG's RS turning bearish in March, but I stuck with Chartcraft's signal on this one and now CDG has joined the list of oil service stock's with bearish relative strength. I wrote a post on this topic this morning on the Motley Fool CDG thread and I repost it here as I feel it has some interesting observations that should be considered for those interested in the sector: Point & Figure chartists view a stock's relative strength (RS) a bit differently than the RS rankings in Investor's Business Daily. IBD compares a stock's performance against all other stocks in their tables, while p&f RS concerns itself with how a stock fares against the Dow. Cliffs RS has been bullish since 5/96 at $14 and this week, at $32, CDG gave a RS sell signal on it's p&f RS chart. These signals last 2 - 2 1/2 years on average and a sell signal indicates a period of underperformance vs the Dow for some time to come. Oil Service sector stocks have been rolling over by giving RS sell signals since January of this year, and as a matter of fact, there are more stocks with bearish RS than bullish RS in the sector as we now stand. This week, Newpark Resource's RS also turned bearish. There is minor support for Cliffs at $30 and I believe the stock can retrace at least 50% of that long run down from $54. The stock just gave a "long tail down" buy signal after reversing up from a decline of 21 straight boxes down on it's p&f chart. Those reversals up are usually good for at least a trading move up. However, the recent rash of downward eps estimate revisions weigh heavily on the stock and make any kind of chart pattern that shows up, suspect at best. Currently, only 24% of all stocks in the oil service sector have bullish chart patterns. A reversal up to 30% would signal a "Bull Alert" market and would provide an excellent opportunity to buy into strong stocks in the sector. P&F chartists use sector analysis to find groups that are oversold (30% or below), and when they reverse up from those low levels there is great opportunity. Everyone who was thinking of selling has sold and the sector becomes attractive. Conversely, when groups reach overbought levels (above 70% of stocks with p&f buys on their charts in the group) and reverse down, that's the time to start taking profits in stocks of that group that have become fully valued. I'll let the board know when that reversal occurs. The oil service group has only been at this low level twice before in the last 5 years; January '98 (only 14% of the stocks in the group had bullish chart patterns), and December '97 (24%). It's dangerous to step in right now because we can't tell how low the group can eventually move to. However, we can watch for the reversal up. The reversal will tell those that care to listen that demand has taken over these stocks and higher prices can be expected. Much of the risk has already been removed from these stocks and a buy here would not carry the same risk as when the group reversed down from 64% in May. Take care, Bruce