JTH

• Afternoon folks
  
  Not everyone likes or understands Point and Figure charts, so for today's blog, I thought I'd introduce a new way to look at prices, and give a shorter-term perspective on the most recent price action off the February bottom. First, I'll introduce Renko charting, which is sort of like a 2nd cousin of Point & Figure charting.
  
  "Invented in Japan, Renko charts ignore time and focus solely on price changes that meet a minimum requirement. In this regard, these charts are quite similar to Point & Figure charts. Instead of X-Columns and O-Columns, Renko charts use price “bricks” that represent a fixed price move. These bricks are sometimes referred to as “blocks” or “boxes.” They move up or down in 45 degree lines with one brick per vertical column. Bricks for upward price movements are hollow while bricks for falling price movements are filled with a solid color. "
  
  For consistency, the charts are setup using 30-minute bricks, each brick is based off a 13-brick Average True Range. In the normal charting world, there are thirteen 30-minute candlesticks in a day, so in essence we are looking at a 30-minute chart with new bricks created off the range of the 13-ATR (which is also the 1-Day ATR.) With the 52-SMA, we have the equivalent of a 4-day SMA. The quadrant lines are drawn as a means to express who is controlling prices, if the price is above 50% then buyers control prices.
  
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  AGG (sorry, this one is a bit long because it's walking us through a trend reversal) The primary wave from which the price action is judged is the AB wave, I chose this wave because it is the first place from which an uptrend is established and the largest wave.

1. Bullish - Wave A-1 is the strongest up-wave, with 15 consecutive bricks and less than a 50% retracement at wave A-1-2
2. Bullish - Wave A-2-3 is the 2nd strongest up-wave, with 11 consecutive bricks and less than a 50% retracement at wave A-3-4
3. WARNING - with 2 higher high/lows at wave A-3-4, there's slight hesitation during wave 4B
4. WARNING - Wave 4B is the weakest up-wave, with 6 consecutive bricks and more than a 50% retracement at wave B-1 (oscillating hesitation)
5. 2nd Warning - Wave B-1-2 established a lower high, but with a higher low the downtrend is not yet established, and still above 50% of the AB wave.
6. 3rd Warning Bearish - 6-Feb price breached wave's B-1-2 low, downtrend is established, sellers control (on this scale) buyers still control the larger AB wave
7. Confirmation - 6-Feb prices have 3 bricks below the 52-SMA (this is just an example, any indicator can be used as long as it fits the perspective timeframe)
8. Potential Reversal - 11-Feb prices closed at 50% of wave AB (the line in the sand between buyers & sellers across this entire scale) On 12-Feb I took an entry into theF-Fund, taking a calculated risk that the short-term downtrend would get overtaken by the longer-term uptrend (it didn't)
9. BEARISH - 17-Feb price closed below 50% of wave AB, sellers control prices across the entire scale, 3 lower highs and 2 lower lows are established.
10. Conclusion - from this point on if you contemplate an entry on this scale, you're taking an entry under 50% of wave AB, under 50% of wave BC, against the downtrend, and against the 52-SMA.
    

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SPX - The primary wave from which the price action is judged is the BC wave, I chose this wave because it is the first place from which an uptrend is established

1. Bearish - with the AB wave, sellers control the scale
2. Potential Reversal - This one is fairly simple, wave B-1 is the anchor it is not a strong wave, but it does establish a higher low at wave B-1-2
3. Confirmation - 2-Feb prices close above the 52-SMA (bearing in mind, at the time this moving average is declining)
4. Bullish - 3-Feb, buyers recapture 50% & 75% of previous AB wave, an uptrend is established at wave B-2-3, with a higher low at B-3-4
   
5. Confirmation - 3-Feb the 52-SMA is now rising
6. WARNING - with 3 higher high/lows at wave B-7-8, there's slight hesitation with wave B-9 matching the previous high
7. Warning cancelled - wave B-9-10 established another higher low, pressing above wave B-7 & 9
8. WARNING - Wave B-11-12 displays oscillating hesitation (price consolidation)
9. Warning cancelled - BREAKOUT, wave B-11-12's consolidation has ended, establishing another higher high

Note: because down-wave AB has been breached, wave BC becomes the primary wave. From this point on if you contemplate an exit on this scale, you're taking an exit above 50% of wave AB, above 50% of wave BC, with the uptrend, and above the 52-SMA. Point being, based off this time scale there is really no reason to exit. This is speaking within the confines of this scale, it does not speak to your personal views, market news, or the fact you may just want to take profits and look for a lower entry.


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W4500
At this point, if you read the previous SPX narrative, then there's no need to provide further analysis. W4500 looks much the same as SPX, but it is bit stronger and more concise, with less oscillating hesitation (price consolidation) Since I don't have intraday volume, I threw on a MACD to give us some perspective on the strength of momentum.


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Transports
Here, we can see that the primary up-wave is not much larger than the previous down-wave. But it is also fairly easy to see the trend is up, with buyers control. Of the 4 Indexes I track, this one is the weakest, but this isn't a concern when all the indexes are trading in the same direction, with each in an uptrend.


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NASDAQ 100
Looks awesome...like a rocket ship


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One of the beautiful things about both Point & Figure and Renko charts is that you can look at a set of charts side-by-side and quickly determine which chart is the strongest and what direction the trend is in. Contrasting the NASDAQ 100, among the other indexes, it is the clear winner.


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While I do have some default Renko charts setup, I don't use them exclusively because they don't evaluate price on a percentage scale, which is something PnF lets me do. Regardless, while not as fancy as candlestick charts, Renko is a great tool to evaluate the trend quickly, while effectively looking for places to exit and enter positions.

Trade it like you stole it…Jason