Education & Information
Trendlines
Bullish Support Line
The bullish support line is the primary trend line on a point & figure chart while the major trend shows demand in control. The recording of the bullish support line is rather simple. Look for the lowest column of Os on the chart. In the price level immediately below it begin establishing the bullish support line. In the chart below, the lowest column of Os is at $14.50 so the bullish support line starts just below that level, or at $14. As the chart progresses and alternating columns of Xs and Os are recorded, the bullish support line continues to advance on a 45% angle. For example, the first column on the chart below is a column of Os. The bullish support line is at $14 in this column. When the chart records the next column of Xs, the bullish support line would be recorded by moving up one price level and over one column (on a 45% angle) where that column of Xs resides. So the support line would be recorded at $14.50. When the point & figure chart reverses from a column of Xs to a column of Os, the bullish support line would go up to $15, up one price level and over one column to the right. Every time there is a reversal from a column of Os to Xs or Xs to Os the bullish support line is recorded by moving up one price level and over one column to the right.
As long as the chart is able to stay above the bullish support line, the major trend for the stock is considered to by up, or demand is in control of the major trend. When stocks are trending up strongly the price will often rise substantially above the bullish support line. After extended moves, stocks have a tendency to consolidate the strong advance and trade sideways for a while, catching its breath so to speak. This is when the chart enters in to a balance pattern and the bullish support line begins to catch up to the price level where the stock is trading. You can see on the chart below that at one point, the chart is in a column of Xs at $30 while the bullish support line was down much lower at $18.50. Toward the end of the first balance pattern the chart is in a column of Os at $26 while the bullish support line was just below at $22. Then the stock makes another strong advance and rallies substantially above the bullish support line once again until the next balance pattern gives the support line a chance to catch up.
The reason it is called the bullish support line is that it tends to provide support during times of temporary weakness to stocks that are in a major trend of demand being in control. As stocks in the midst of overall advance encounter some supply and break weak sell signals, the bullish support line tends to hold the sell signals. Often times, stocks will bounce off that support line like a rubber ball and begin the next stage of their advance.
Eventually, once the demand fades away and the supply gains some strength, the bullish support line will be broken. At this time, the major trend in the stock is considered to now be down with supply controlling the trading action. In order for the bullish support line to officially be broken on the point & figure chart, it must be by a column of Os dropping beneath the price level that holds the bullish support line in that column. Meeting the support line at the same level is not considered a break of support. It must penetrate below the line by at least one full price level. If the bullish support line is at $40 the chart must decline in a column of Os to $39 before the support line is considered broken. Once the bullish support line is penetrated by a column of Os, a bearish resistance line is begun to be recorded on the P&F chart.
