Apple Daily --- 27 Aug, 2000

Prosticks charting applies to all kinds of stocks, bonds, and currencies for all markets. Today, let look at how Prosticks charting can be applied to analyzing US stocks.

Figure I shows the Prosticks chart of the Nasdaq Composite Index. As can be seen, after making the high at around 4200 in mid-July, price underwent a correction. The correction stopped at A, which coincided with the Modal Point of B. Why the correction stops at A ? Well, notice that at B, there is large gap. According to technical analysis theory, a correction usually fills the gap before the prior uptrend resumes. Obviously, at A, after filling the gap, buying orders flushed into the market pushing price upwards. These buying orders were originated at the Modal Point of B which is the bar forming the gap.

Take a look more closely at A. Notice that A gaps down significantly from the previous bar but subsequently rises strongly upwards, closing at the high. In candlesticks theory, this is a very bullish piercing pattern? This pattern usually signifies a market bottom. Thus, at A, when we saw (1) a piercing pattern (2) a gap being filled, and (3) the low coincides with the Modal Point of the gap formation bar B, we should have been able to deduce that the market bottomed out at A.

From A, price rebounded to C and then another another minor correction occurs. This time, the minor correction stops at D which has the same price as the Modal Point of A. Obviously, the buying orders originated at A resurfaced at D at similar levels. As said before, these buying orders actually could be backtracked back to the Modal Point of B.

Having said that, should we buy after the market closed at D? Remember the proverb which goes trend is your friend? Even though we speculate that there are buying orders supporting the market at A and D, not until an uptrend is confirmed, we should not be in a hurry to rush into the market.

Trendlines are an effective tool to gauge the trend of the market. When price breaks a resistance trendline, an uptrend occurs. When price falls below a support trendline, a downtrend results.

Thus, while we think that the market bottoms out at D, we should draw a resistance trendline and go long only when price indeed rallies above it.

As shown in the figure, L2 is the resistance trendline using the traditional approach of connecting two nearby high points together. On the other hand, L1 is the resistance trendline which connects the Modal Points, instead of the high points together. As can be seen, the Modal Point trendline L1 has an earlier entry point than the traditional trendline L2.

Figure 2 shows the Prosticks chart of Dow Jones Industrial Average. Similar Prosticks concepts which we have been discussing can be applied to it.

First, notice that the market bottom at A coincides with the Modal Point of B. Why B is important? It is because it is the nearby major market bottom. Thus, a lot of buying orders had resided at its Modal Point which resurfaced when price retest it at similar level at A. Similarly, notice that the low point C lies on the Modal Platform formed by the Modal Points of D and E.

Two trendlines are shown. The first L1 is formed by connecting the high points of F and G together. The other one, L2, is formed by connecting the Modal Points together instead. As can be seen, once again, the trendline formed by Modal Points is better than the traditional one since it has an earlier entry point.