a point and figure introduction

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Point & Figure Analysis

The analysis in this presentation is known as a technical analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions. Please be aware that Dorsey Wright research can and will differ from the research provided by Wells Fargo Advisors own technical analysts.

Wells Fargo Advisors, LLC is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company. CAR 0209-2697

J Duncan Black, M.B.A.Senior Vice President - InvestmentsPIM Portfolio ManagerWells Fargo Advisors900 Elm StreetManchester, NH 03101603-644-0646

Securities and Insurance Products:Not Insured by FDIC or any Federal Government Agency

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Point & Figure Analysis

A Disciplined Approach to Buying and Selling Stocks, ETF’s, and

Mutual Funds

The Company fundamentals looks great. All the analysts love it. So why is the stock going down?

© Point & Figure Coaching and Research GmbH

Fundamental Analysis vs. Technical Analysis

1. What to Buy2. Company

Management3. Earnings Quality4. Price/Earnings Ratio5. Product Acceptance

1. When to Buy2. Trend Analysis3. Relative Strength4. Momentum5. When to Sell

What is Fundamental Analysis?

What is Technical Analysis?

© Dorsey, Wright & Associates 2009

Supply and Demand

We all understand the basic forces of supply and demand.

The same forces that affect prices in the supermarket also affect prices in the stock market.

Stocks, sectors, and asset classes move in and out of favor just like produce in the supermarket. © Dorsey, Wright & Associates 2009


ORIGINAL POINT & FIGURE CHARTORIGINAL POINT & FIGURE CHART

Point & Figure BasicsX’s = Price is rising

O’s = Price is falling

Alternate columns of X’s and O’s

Minimum of 3 X’s or O’s in a column

Time = First action in month use number. (1 for January, etc.)

Use daily high & low for charting price action.


Chart Source: www.dorseywright.com

Stock (XYZ)


Did the fundamental analysts learn from the 2000-2002

Technology Bubble?

The following is a quote from the February 9th New York Times article,

“Why Analysts Keep Telling Investors to Buy”

“At the top of the market, they urged investors to buy or hold

onto stocks about 95 percent of the time. When stocks stumbled, they stayed

optimistic. Even in November, when credit froze, the economy

stalled and financial markets tumbled to their lowest levels in a decade, analysts as a group

rarely said sell. “ Chart Source: www.dorseywright.com

http://topics.nytimes.com/your-money/investments/stocks-and-bonds/index.html?inline=nyt-classifier

Causes of Price Movement

Market and sector forces together typically cause 80% of the price movement in a stock. That means the company fundamentals usually account for less than 20% of a stock’s price movement. This is the reason a company’s stock price sometimes seems to move independently of the fundamentals!

Source: “The Latent Statistical Structure of Securities Price Changes” Benjamin F. King© Dorsey, Wright & Associates 2009

Typical Resource Allocation

Most people, however, spend 80% of their time on stock evaluation and only 20% on sector and market evaluation.

In other words, they ignore where the greatest amount of risk lies – the market and sector forces.

Source: “The Latent Statistical Structure of Securities Price Changes” Benjamin F. King


The Five-Step Game PlanStep 1: Market AnalysisStep 2: Sector AnalysisStep 3: Fundamental AnalysisStep 4: Technical ResearchStep 5: Risk management and

Follow-up



Step 1: Market

Analysis

The Buy-and-Hold Myth Buy the “Market” in 1929…

It took 25 years to get back to even.

Buy it in 1973…

It took 7.6 years to get back to even.

Note: Past performance is no guarantee of future success.



Source: http://www.nytimes.com/interactive/2009/01/06/business/20090106-comeback-graphic.html


Leg #1: Equity Exposure and Managing the Trade

Leg #2 & #3: Two of the Following Domestic Equities International Equities Commodities Foreign Currencies Fixed Income Cash

3 Legged Stool Approach to “How Offensive or Defensive Should I

Be?”

Leg #1: Measuring Supply & Demand

Double Top

One column of X‘s exceeds a previous column of X‘s.

Double Bottom

One column of O‘s exceeds a previous column of O‘s.

39 O

38 O

37 O

36 O

35 O X

34 O X X

33 O X O X

32 O X O X

31 O O

30

39

38 X X

37 X O X O

36 X O X O

35 X O O

34 X O

33 X

32 X

31 X

30 X© Dorsey, Wright & Associates 2009

Leg #1: NYSE Bullish Percent


• X’s = Offense – Wealth Accumulation

• O’s = Defense – Wealth Preservation

• Two Lines of Demarcation: 30% and 70%

• Measures Risk in the Market

• Does not have to move in tandem with the S&P 500 or the Dow Jones.


Leg #2 & 3: Compare One Asset Class to

Another


US Stocks CashFixed

Income

Int’l StocksForeign

Currencies

Commodities

The Way Investors Invest --

Who Do You Believe is Going to Be a Better Football Team Next Year?

The Way Investors Invest --

Who Do You Believe is Going to Be a Better Football Team Next Year?

• All major sports have a ranking system. The Point & Figure Relative Strength tool is the ranking system we use.

• Daily Calculation:

Cash X 100 = Relative Strength

US Stocks Reading

• This reading is plotted on a Point & Figure chart which then tells us whether we want to be in cash or US stocks

Relative Strength Calculation

Relative Strength Calculation

Cash or Stocks?


Relative Strength: A Ranking System

• X’s = Cash – Wealth Preservation

• O’s = Stocks – Wealth Accumulation

Cash: 2001-2002

Cash: 2008-Present


Cash or Commodities?


Relative Strength: A Ranking System

• X’s = Cash – Wealth Preservation

• O’s = Commodities – Wealth Accumulation

Date Range ColumnCash - Money Market

Continuous Commodity

Index

7/15/98 - 10/15/02 X - Cash 18.41% 10.11%

10/15/02 - 8/15/08 O - Commod. 16.87% 115.71%

8/15/08 - 1/31/09 X - Cash 0.23% -26.97%


Leg #2 & 3: Asset Class Evaluation


XX

Equity

Commodities

Fixed Income

Int’l

Cash

Reaching Your Destination

Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future. Dorsey, Wright & Associates developed the indicators described in this presentation. They have been prepared without regard to any particular investor’s investment objectives, financial situation and needs. Accordingly, investors should not act on any recommendation (expressed or implied) or information in this presentation without obtaining specific advice from their financial advisors and should not rely on information herein as the primary basis for their investment decisions

Any statements nonfactual in nature constitute only current opinions and interpretations of their indicators, which are subject to change without notice. There may be instances when fundamental, technical and quantitative opinions may not be in concert. This and/or the accompanying information was prepared by or obtained from sources that Wachovia Securities believed to be reliable but does not guarantee its accuracy. Any opinions expressed or implied herein are not necessarily the same as those of the Wachovia Securities research department. Any market prices are only indications of market values and are subject to change. The material has been prepared or is distributed solely for information purposes and is not solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Data and opinions are current as of May 19, 2009. Additional information is available on request.


Copyright © 2009 Copyright © 2009 Dorsey, Wright & Associates, Inc.Dorsey, Wright & Associates, Inc.

Keep in mind that there is no assurance that this or any strategy will ultimately be successful or profitable.


a point and figure introduction

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