Apple Daily --- Sept 17, 2000

Last week we talked about the concept of Modal Count and how its value gives insight on the balance of power between the bulls and the bears. The Modal Count measures the number of 5 minute intervals the market has spent trading at the Modal Point at least once throughout the whole day. If the Modal Count is very high, other things being equal, it signifies that the bulls and the bears are engaging in a fierce tug-of-war. Usually when either side is exhausted, the market explodes in the opposite direction.

Figure 1 shows the Prosticks chart of HSBC (0005) with the Modal Count plotted below it. As can be seen, after reaching the high of $116 at A, the stock underwent a correction and fell to as low as 109 within a week or so.

Take a note at the four bars (B-E) circled in the figure. Notice that they were all resisted by the Modal Point of A, showing that selling pressure at A's Modal Point was quite severe, which is normal since A was at a high price level. Notice also that though the highs of bar B and C are above the Modal Point of A, their Active Ranges stay below it, showing that most of the time at B and C, the market traded below A's Modal Point and was resisted by it. For bar D and E, their highs coincides with A's Modal Point, again signifying the presence of strong selling force there.

Now take a closer look at the Modal Points of B-D and their Modal Count. Notice that the Modal Points of B, C, and D all occur at the same price. Besides, the Modal Count of C and D are very high, higher than that of the nearby bars as well as the horizontal 150-day average. This show that the buying and selling forces battled intensively with each other three days (from B to D) in a row, and at the same price. Something is going on. Moreover, since the highs and the Active Ranges of them are bounded by A's Modal Point, it can be deduced that during those three days, the control is on the selling side which slowly exhausted the buying force, and this selling force had originated from A's Modal Point. The selling force belonged to the strong hands while the buying force belonged to weak ones.

Notice that at E, the Modal Count drops significantly and the value stays below the 150-day average. What does this signify? It signifies that after three days of intensive battle, finally one side started to gain control and the other side stareds to be exhausted. That is why the market did not need to trade a long time at the Modal Point, resulting in a small Modal Count value. Which side gained control then? Judging from bar E itself, it seemed that the bears had gained control. The price closed near the low. The Modal Point fell below previous three days' Modal Points. Furthermore, the Active Range also fell below previous three days' Active Ranges.

Consider bar F. Notice that its Modal Point lies on the Modal Platform formed by G and H. Again, this shows that though the bears which had won at E met resistance from the bulls at F's Modal Point. These bulls were those hands which had formerly actively bought at G and H, and thus resurfaced at F at the same price level. The extremely high Modal Count value shows that the bulls and the bears had engaged in a fierce battle with each other. Who won the battle? Well, judging from bar F alone, we couldn't tell since it is a very short bar and thus does not reveal much information. However, since we know that as the market traded with a very high Modal Count value on this critical Modal Platform, price is bound to explode abruptly on either side. We should thus wait on the next day and, long if price rallies and shorts if price tumbles. As can be seen, next day, the market opened at the Modal Point and then immediately tumbled, closing near the low. Obviously, the selling forces had won.

This case serves to illustrate the use of Modal Count. By comparing the Modal Count value with that of the nearby bars and the 150-day average, we can monitor the balance of power between the bulls and the bears. Who wins the battle and they win with ease or with great difficulty. These information, together with the distribution and movements of the Modal Points and Active Ranges, casts insights on the underlying strength of the market and where the strong hands are heading.