POINT AND FIGURE LIBRARY

The Chart Formations
The Bullish Signal Reversed and the Bearish Signal Reversed

The succession of lower lows and lower highs in the bearish signal is classic bear market action. It suggests an evolving consensus that the stock is overpriced. You expect the force of selling which is producing persistently lower highs to complete a rout of the buyers at some point. But when the bearish signal suddenly reverses, it has all the hallmarks of a bear squeeze. Whatever the reason, A.W. Cohen found this to be one of the most reliable point & figure chart formations. I don’t dissent. It is a reliable formation, although somewhat rare. A properly constituted bearish signal reversed has at least 7 columns.

The buy signal occurs the first time a prior lower high is breached.

The converse formation is the bullish signal reversed. In this case, the market is lulled into a false sense of security by the succession of rising lows and highs which occurs in the bullish signal. When that sequence is interrupted by a breach of the previous lows it can set off liquidation which feeds on itself driving prices substantially lower.

Next: Triangles

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