Using our proprietary point-and-figure-based charting system, I review a couple thousand charts per week in an attempt to identify interesting buy or sale candidates. I am never satisfied with sector or industry-level narratives because underneath the surface, there is always more than one narrative going on within a sector.
Currently, I identify four dominant trends in the US information technology sector:
- Major Trend Downside Reversal
- Major Trend Upside Reversal
- Upside Breakout
- Long-term Uptrends
Before I tackle the first, let me briefly explain our charting system. The charts below show a derivative of a basic point-and-figure-methodology, except instead of the traditional boxes based on points, we make each box a constant 2.5%, and retain the three-box reversal technique. Since each box is a 2.5% absolute move, each reversal is a 7.5% (2.5% x 3). For those new to this charting discipline, the unique aspect of point-and-figure charts is that time is not the x-axis. Instead, the x-axis measures “risk” in the sense that it measures reversals from an uptrend or downtrend.
Starting with the Major Trend Downside Reversal, this formation has two characteristics: 1) the stock broke the 45-degree uptrend line, and 2) the stock is below the current 45-degree downtrend line. Some examples follow, and just so it is clear, these are not attractive candidates.