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# A Good Looking Point and Figure Chart

HAVING TROUBLE PRINTING?

We use a lot of point and figure charting in our analysis, and since most readers aren't familiar with this art, lets walk through another example.

Rational Software Point and Figure Chart

Rational Software (NASD:RATL) is a good example, since it has a little bit of everything. We'll start at point 1 where RATL gives a triple bottom sell signal. This stock then dropped 20 boxes, which is known as a "long tail down." When a stock reverse into a column of Xs after dropping at least 20 boxes, it usually offers a good trading opportunity to get long. The key point to watch is that the column of Xs reclaims at least 50% of the previous column of Os, which RATL did by climbing 10 boxes. But that wasn't enough to trigger a buy signal. That happened at point 2, and gave us a bullish price objective of \$26.50 (7*.5*3=10.5, 16+10.5 =26.5). Note the stock was trading under \$20, so the box size is .5. RATL then moved higher, but met resistance at \$25. Two attempts were made to crack this level, but eventually failed when a sell signal issued at point 3. This cancelled the bullish price objective of \$26.50, but RATL got within \$1.50 of the target. The sell signal at point 3 proved to be a shake out, as RATL powered through resistance at \$25. Point 4 now gives us our new buy signal, so we will use this column to calculate the bullish price objective. Since the column is not done rising, we cannot get a final target. We can get a "preliminary" target of \$45.50. The calculation is a bit tricky since the 1 X at 20 is treated as .5. Because of that we must break the calculation into two sections. First, the .5 box size calculation: 1*.5*3=1.5. Second, the 1 box size calculation: 8*1*3=24. Adding those two together, we get 25.5. Add that the lowest point of the column, and you get 25.5+20=45.5. And that's the preliminary bullish price objective that is subject to increase as more Xs are added.

Back to point 4 for a moment? Was the breakout pattern a triple top breakout, or a spread quadruple top? The answer is both; it is actually known as a "combination pattern." Also notice that \$25 was the neckline of a head and shoulders pattern.

So in conclusion, RATL is currently on a buy signal and we will use the current column of Xs to calculate our bullish price objective. The bearish resistance line at \$32 may offer some resistance in the future. With RATL forming an inside day, this stock may find its way onto Premier Markets Watch List, but we'll have to wait and see. I would like to tell you that I found this stock after extensive research, but it actually came from one of our reader's emails. Thanks Paige.

Jeffrey Canavan
Assistant Analyst
www.PremierMarkets.com