Point and Figure Charting: The Essential Application for Forecasting and Tracking Market Prices

398 Pages·2013·63.09 MB·English

by  Thomas J. Dorsey

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P
oint and
F
igure
C
harting
The Essential Application for
Forecasting and Tracking
Market Prices
F e
ourth dition
Thomas J. Dorsey
Cover image: Francesco Sapienza
Cover design: Paul McCarthy
Back cover flap image: Kyle LaFerriere
Copyright © 1995, 2001, 2007, 2013 by Thomas J. Dorsey. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources believed
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The hypothetical returns of strategies discussed use the returns of other indices. The hypothetical returns have been developed and tested by Dorsey,
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ISBN 9781118445709 (Cloth)
ISBN 9781118662342 (ebk)
ISBN 9781118799369 (ebk)
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
Contents
Acknowledgments vii
Part I Learn the Point and Figure MethodoLogy
ChaPter 1 Introduction 3
v
ChaPter 2 Point and Figure Fundamentals 29
ChaPter 3 Chart Patterns 61
ChaPter 4 Foundations of relative strength 105
ChaPter 5 advanced relative strength Concepts 145
ChaPter 6 Primary Market Indicators for Gauging risk 183
ChaPter 7 secondary Market Indicators 223
ChaPter 8 sector rotation tools 247
Part II the Point and Figure MethodoLogy—
a CoMPLete anaLysis tooL
ChaPter 9 Fixed-Income Indicators 275
ChaPter 10 Utilizing the exchange-traded Fund Market 291
ChaPter 11 evaluating the Commodity Market for
opportunities 319
ChaPter 12 trading options Using Point and Figure 349
Part III aPPLy the Point and Figure MethodoLogy to
your investMent ProCess
ChaPter 13 Portfolio Construction and Management 369
About the Web Site 379
Index 381
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Acknowledgments
It’s been 17 years since the first edition of Point and Figure Charting was
printed and 26 years since Watson Wright and I walked down Main Street
in Richmond, Virginia, to our new quarters to launch Dorsey, Wright
& Associates (DWA). Watson and I were together for the better part of
32 years in total, almost as long as I have been married to my wife, Cindy.
Watson and I found a way to make 1 + 1 = 3. Our partnership worked
vii
well for 25 years. In 2011 Watson decided a 32-year career on Wall Street
was enough and he retired. Bravo to you,Watson. May your golf handicap
approach zero!
The first edition of Point and Figure Charting was a labor of love. I knew
it had to be written if for no other reason than to express my gratitude for
having been shown my manifest destiny to help others become great at in-
vesting, and giving me a vision to develop DWA with Watson. The second
I learned this method of investment management I knew I had to pass the
word to any and all investors who are searching for a more secure financial
future. The success of the first edition and the consistency of sales told me
this was the right method for the majority of investors. When John Wiley
asked me to write the second and third editions I knew we would be here for
the long haul. We have developed many new concepts for Point and Figure
analysis over the years similar to the spokes extending from the hub of a
bicycle wheel. My two top analysts, Tammy DeRosier and Susan Morrison,
joined in with me in writing the second and third editions and I roped them
into proofing a few chapters of this book. Tammy and Susan have been with
DWA since the beginning and are like family to me. They have accumulated
25 years each in experience in this method of investment analysis. Tammy is
now my COO and Susan is head of Research, two very important jobs. In
my opinion, they are the best on the planet when it comes to our little slice
of Wall Street. The third-longest employee here, and also like family to me,
is Jay Ball, who heads up all of our technology. This is a massive job as we
have the largest portfolio charting system on the Internet today. Our DWA
Database, which I like to call the Dorsey, Wright Productivity System, has
expanded and evolved over the years to reflect our cutting edge research.
Jay has been the key architect in the web site’s design and development, and
has done a yeoman’s task, sacrificing many nights and weekends to be sure
this system keeps running to service our clients’ needs. Over the years we
have had a great group of analysts join us; Steve Raymond, Paul keeton, Jay
gragnani, Chuck Fuller, Ben Jones, Amy kemp, Sydney Seik, and a group
of interns that are second to none. James Fisher, the newest addition to our
team, does a fantastic job as our VP of Finance. Without nancy, our office
manager, the office does not function.
In 1994, we formed Dorsey, Wright Money Management in Pasadena,
California, under the guidance of Mike Moody and Harold Parker. Andy
Hyer and J. P. lee do a great job in marketing and client services for this
division; and our portfolio managers (John lewis, along with Mike and
Harold) have developed excellent asset management products and services,
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such as our fantastic Technical leaders line-up of eTFs. At this writing we
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T have approximately $2 billion in assets under management—and in my
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e
M mind, the sky’s the limit!
g
D One of our newest, oldest employees is Sara giegerich. She is one in-
e
l credible lady. She first became an intern at DWA during her high school
W
O career. She graduated and went on to the University of Virginia, still
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k working at DWA on all holidays and summers. When she graduated from
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A
UVA she went to the University of georgia School of law and continued
to work here all holidays and summers. It was amazing to me to watch her
develop not only as an analyst, but also an all-around person who knows
everything about the workings of DWA. This was the perfect training
ground for her new position as our corporate attorney. She is not unlike
all analysts at DWA who have worked here through college, but Sara has
the most accumulated time at the job working in many different positions.
I look over at her each day and all I can do is smile. Sara was my driving
force in writing this fourth edition. Her organizational and english skills
pushed me forward to the end. She has proofed every chapter not only as
a project manager, but as an analyst who understands every facet of this
book. Having been around me all these years, she knew exactly how to use