Three Types of Charts Right Now

JC Parets
March 15, 2019

Tuesday's Mystery Chart received some interesting responses, with some of you stating that the bottom is in, while others said it's still too early to tell.

So let's get into what that chart is and why it's relevant.

The real chart was a weekly candlestick of Punjab National Bank, which tested long-term support near its '09 lows and then reversed higher. By closing back above its 2016 lows, it confirmed a failed breakdown and bullish momentum divergence.

Click on chart to enlarge view.

This means we have no reason to be short anymore, but does that mean we should be long? Is the bottom truly in?

The best trends are those where the evidence from both the weekly and daily charts points in the same direction. Unfortunately PNB and other charts like it don't foot that bill yet, but they are getting there.

We've seen one-offs of this setup before, but now there are many happening at the same time as other stocks are resolving their ranges to the upside and breaking out to new highs. This backdrop makes raises the probability that these bottoms will be "the bottoms", but only time will tell.

That brings us to the second type of chart we're seeing right now. Charts like PVR. Breaking out to new all-time highs, many times out of long bases. These are not things we see in a weak market. We'd be seeing more failed breakouts and stocks hitting new lows, but we're not.

The third type of chart we're seeing is GMR Infrastructure. This is the "hot mess" variety that isn't trending and is not actionable from an intermediate or long-term perspective.

I guess it's common to see these three types of charts in any environment, but it's more the ratio of each to the others that matters. As the days pass we are seeing more and more charts of the 1 and 2 variety and fewer 3s and 4s (stocks hitting new lows).

We were buyers of stocks in Mid-February during our conference call and noted signs of "the bottom" last week, and the evidence continues to build in favor of the bulls.

During our March Conference Call next Monday (03/18), we will discuss more themes in detail and identify the best reward/risk setups we're seeing.

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Thanks for reading and let us know if you have any questions!

Allstarcharts Team

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