Short-Term Top
by Carl Swenlin
March 20, 2009 Quite a few years ago I used to write a daily newsletter, but I decided to give it up because it got tiresome trying to invent new ways to say the same thing over and over. More important, having to form an opinion on the market every single day, especially during volatile times as we have been experiencing, can build a of stress. Also, since I am primarily focused on the intermediate-term and long-term time frames, it can be counter productive to put too much effort into short-term analysis. This week was especially challenging due to the Fed's announcement, which caused big rallies in stocks, bonds, and commodities, and a big decline in the dollar. Also, a number of market and sector indexes switched to buy signals. (Standby for more whipsaw.) The question remains as to whether the Fed's announcement will have a lasting effect, or if it will prove to be another flash in the pan. On our first chart we can see that prices moved slightly above important resistance levels, but they have not made a clear breakout. http://www.decisionpoint.com/ChartSpotliteFiles/090320_top-1.png
The next issue is that the market is short-term overbought. The Climactic Volume Indicator (CVI) is extremely overbought, as is the Short-Term Volume Oscillator (STVO), which hit its second highest level ever (the highest was in January). Since we are still in a bear market, chances are very high that the market has hit a short-term top, and that a short-term correction is under way. http://www.decisionpoint.com/ChartSpotliteFiles/090320_top-2.png
On an intermediate-term basis, internal conditions are neutral, as shown by our intermediate-term breadth and volume indicators. This allows for a short correction and the resumption of the up trend; however, bear market conditions demand that we consider that a more negative outcome is possible. http://www.decisionpoint.com/ChartSpotliteFiles/090320_top-4.png
Bottom Line: The surge in prices this week has given bulls some encouragement, but my overall expectations remain bearish.
Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics and strategy if conditions change. **** **** http://www.decisionpoint.com/images/TimerDigestCover.png 2008 TIMER DIGEST RANKINGS FOR DECISION POINT #17 Intermediate-Term Stocks (52-Weeks) (TD Index 111.9 Vs. SPX 61.51)
#4 Bond Timer (*TD Index: 112.32 Vs. Bonds 118.26)
#5 Gold Timer (TD Index: 126.33 Vs. Gold 104.61)
#9 Long-Term Timer (2 Years) Stocks (TD Index: 132.35 Vs. SPX 63.69)
#2 Long-Term Timer (3 Years) Stocks (TD Index: 150.38 Vs. SPX 72.36)
#2 Long-Term Timer (5 Years) Stocks (TD Index: 168.82 Vs. SPX 81.23)
#3 Long-Term Timer (10 Years) Stocks (TD Index: 159.36 Vs. SPX 73.48)
2007 TIMER DIGEST RANKINGS FOR DECISION POINT #40 Intermediate-Term Stocks (52-Weeks) (TD Index 91.9 Vs. SPX 103.28)
#5 Bond Timer (TD Index: 105.85 Bonds 104.39)
#2 (Tied) Long-Term Timer (2 Years) Stocks (TD Index: 117.63 Vs. SPX 117.63)
2006 TIMER DIGEST RANKINGS FOR DECISION POINT #11 Intermediate-Term Stocks (52-Weeks) (TD Index 111.3 Vs. SPX 113.6)
#3 Bond Timer (TD Index: 112.32 Vs. Bonds 97.46)
2000 TIMER DIGEST GOLD TIMER of the YEAR
*All timers are assigned an Index of 100 at the beginning of the year. The amount above or below the starting index indicates the percentage gain or loss for the year. Beginning in 2006 we began using mechanical models -- the Trend Model for Bonds, Gold, and Long-Term Stocks, and the Thrust/Trend Model for Intermediate-Term Stocks. Prior to 2006 we used discretionary signals.
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BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
Bear Market Rally
by Carl Swenlin
March 27, 2009 At the end of last week the market had made impressive progress through a strong zone of resistance, but it had become extremely overbought on a short-term basis. My conclusion was that we should at least get a short-term correction, since we are in a bear market. Instead, short-term indicators backed off while the market continued higher. This is bullish behavior -- the kind of thing you will see time after time in a bull market. That does not mean we are now in a bull market, but it does imply that the current price advance (now about +25%) may not be over. During bear market rallies, the market can persist in positive behavior, so that many people think a new bull market has begun. But eventually, the bear reasserts and the down trend resumes. On the chart we can see that there is a short-term line of resistance just above current price levels. Even if the rally is destined to continue, it is likely that we will experience a short-term pull-back as the market prepares to break through the resistance. http://www.decisionpoint.com/ChartSpotliteFiles/090327_rally-1.png
I don't mention nominal cycles much any more because they can muddy the water, but based upon my cycle count, a 20-Week Cycle low is due in a week or so. A possible scenario is that, after a short correction/retest, a new 20-Week Cycle could launch the second half of the current rally. My upside target would be about 1,000 on the S&P 500. Our mechanical Thrust/Trend Model (T/TM) for the S&P 500 switched to a buy signal on 3/17/2009, and virtually all index and sectors we track have also switched to buy signals. All these new T/TM buy signals are in short-term mode at this time. They were triggered when the Price Momentum Oscillator (PMO) and Percent Buy Index (PBI) crossed up through their moving averages. We are now waiting for the 20-EMA to cross up through the 50-EMA, which will confirm the short-term signal and make whipsaw less likely. http://www.decisionpoint.com/ChartSpotliteFiles/090327_rally-2.png
Bottom Line: The market recovered from a severe breakdown in prices, something I did not think it could do. This is evidence that possibly a new bullish phase has begun, but, in my opinion, it is a bull phase of an ongoing secular bear market. The rally can be played on a short-term basis, with the idea that we are riding a bear, not a bull. . . . . MAIL Hi Carl, I normally don't chime in and I am long at the moment (so take it for what its worth) but I think you need to keep an open mind re a bottom. True we were or are in a bear and the easy analysis is to just keep calling it a bear, but if you think about what a bottom would look like in this environment it would look like exactly what we're seeing. Mostly a bottom would show inordinately high indicator readings to the upside...in this case the second highest readings ever. I personally wouldn't buy until a pullback but that's what you're calling for here...and I agree and we got it with perhaps more to come. Just ask yourself that if you were looking at your indicators what would they register (look like) on a rally off a bottom. I think we're here. (Written 3/20/2009)
ANSWER: You are right that these are the kinds of readings we will get at a bottom; however, in a bear market, there is about an 80% chance that bullish readings will be wrong, so be careful. Our mechanical models will pull us in long before we actually know that a new bull market has begun. For us, it will be a bear market until the 50-EMA crosses up through the 200-EMA. at that time we will start shading our analysis and conclusions with a bullish bias. Carl
Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics and strategy if conditions change. **** **** http://www.decisionpoint.com/images/TimerDigestCover.png 2008 TIMER DIGEST RANKINGS FOR DECISION POINT #17 Intermediate-Term Stocks (52-Weeks) (TD Index 111.9 Vs. SPX 61.51)
#4 Bond Timer (*TD Index: 112.32 Vs. Bonds 118.26)
#5 Gold Timer (TD Index: 126.33 Vs. Gold 104.61)
#9 Long-Term Timer (2 Years) Stocks (TD Index: 132.35 Vs. SPX 63.69)
#2 Long-Term Timer (3 Years) Stocks (TD Index: 150.38 Vs. SPX 72.36)
#2 Long-Term Timer (5 Years) Stocks (TD Index: 168.82 Vs. SPX 81.23)
#3 Long-Term Timer (10 Years) Stocks (TD Index: 159.36 Vs. SPX 73.48)
2007 TIMER DIGEST RANKINGS FOR DECISION POINT #40 Intermediate-Term Stocks (52-Weeks) (TD Index 91.9 Vs. SPX 103.28)
#5 Bond Timer (TD Index: 105.85 Bonds 104.39)
#2 (Tied) Long-Term Timer (2 Years) Stocks (TD Index: 117.63 Vs. SPX 117.63)
2006 TIMER DIGEST RANKINGS FOR DECISION POINT #11 Intermediate-Term Stocks (52-Weeks) (TD Index 111.3 Vs. SPX 113.6)
#3 Bond Timer (TD Index: 112.32 Vs. Bonds 97.46)
2000 TIMER DIGEST GOLD TIMER of the YEAR
*All timers are assigned an Index of 100 at the beginning of the year. The amount above or below the starting index indicates the percentage gain or loss for the year. Beginning in 2006 we began using mechanical models -- the Trend Model for Bonds, Gold, and Long-Term Stocks, and the Thrust/Trend Model for Intermediate-Term Stocks. Prior to 2006 we used discretionary signals.
**** ****
BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
04/01 - The Ord Oracle - Tim Ord
http://www.decisionpoint.com/images/bullet_arrow.gif 04/01 - Crosscurrents - Alan Newman
http://www.decisionpoint.com/images/bullet_arrow.gif 04/01 - SectorVue - David Schultz
http://www.decisionpoint.com/images/bullet_arrow.gif 03/31 - ETF Tracker - Decision Point
http://www.decisionpoint.com/images/bullet_arrow.gif 03/31 - Dow Jones US Sector Tracker - Decision Point
http://www.decisionpoint.com/images/bullet_arrow.gif 03/31 - Dow 30 Tracker - Decision Point
http://www.decisionpoint.com/images/bullet_arrow.gif 03/31 - NDX Tracker - Decision Point
http://www.decisionpoint.com/images/bullet_arrow.gif 03/31 - OEX Tracker - Decision Point
http://www.decisionpoint.com/images/bullet_arrow.gif 03/31 - FIDELITY Select Tracker - Decision Point
http://www.decisionpoint.com/images/bullet_arrow.gif 03/31 - RYDEX Tracker - Decision Point
http://www.decisionpoint.com/images/bullet_arrow.gif 03/30 - The Technical Trader - Harry Boxer
http://www.decisionpoint.com/images/bullet_arrow.gif 03/30 - Market Intelligence Report - Dr. Joe Duarte
http://www.decisionpoint.com/images/bullet_arrow.gif 03/28 - Asbury Research - John Kosar
http://www.decisionpoint.com/images/bullet_arrow.gif 03/28 - The Inger Letter - Gene Inger
http://www.decisionpoint.com/images/bullet_arrow.gif 03/27 - Chart Spotlight - Carl Swenlin
http://www.decisionpoint.com/images/bullet_arrow.gif 03/27 - MPTrader - Mike Paulenoff
http://www.decisionpoint.com/images/bullet_arrow.gif 03/27 - Being Street Smart - Sy Harding
http://www.decisionpoint.com/images/bullet_arrow.gif 03/27 - Earnings Analysis - Decision Point
http://www.decisionpoint.com/images/bullet_arrow.gif 03/25 - Todd Market Forecast - Steve Todd
http://www.decisionpoint.com/images/bullet_arrow.gif 03/21 - Chart Watchers Newsletter - StockCharts.com
http://www.decisionpoint.com/images/bullet_arrow.gif 03/13 - TD Trader - Arthur Hill
http://www.decisionpoint.com/images/bullet_arrow.gif 02/23 - Equity Guardian Group - Mark Young
http://www.decisionpoint.com/images/bullet_arrow.gif 02/06 - Interview - Carl Swenlin and Ike Iossif
Overview and Key Concepts http://www.decisionpoint.com/images/spacer.gif http://www.decisionpoint.com/images/bullet_arrow.gif Introduction: Anyone Can Understand Technical Analysis
http://www.decisionpoint.com/images/bullet_arrow.gif The Essential Analysis Steps: Trend, Condition, Compatible Action
http://www.decisionpoint.com/images/bullet_arrow.gif Using the PMO (Price Momentum Oscillator)
http://www.decisionpoint.com/images/bullet_arrow.gif From Fundamentals to the Reality Disconnect
http://www.decisionpoint.com/images/bullet_arrow.gif An Overview of Stock Market Cycles
http://www.decisionpoint.com/images/bullet_arrow.gif Glossary
http://www.decisionpoint.com/images/spacer.gif Basic Chart Patterns http://www.decisionpoint.com/images/spacer.gif http://www.decisionpoint.com/images/bullet_arrow.gif Rising Trend
http://www.decisionpoint.com/images/bullet_arrow.gif Declining Trend
http://www.decisionpoint.com/images/bullet_arrow.gif Support and Resistance
http://www.decisionpoint.com/images/bullet_arrow.gif Symmetrical Triangle
http://www.decisionpoint.com/images/bullet_arrow.gif Right-Angle Triangle
http://www.decisionpoint.com/images/bullet_arrow.gif Wedges
http://www.decisionpoint.com/images/bullet_arrow.gif Rounded Top
http://www.decisionpoint.com/images/bullet_arrow.gif Double Top
http://www.decisionpoint.com/images/bullet_arrow.gif Head and Shoulders
http://www.decisionpoint.com/images/bullet_arrow.gif Reverse Head and Shoulders
http://www.decisionpoint.com/images/bullet_arrow.gif Long Base
http://www.decisionpoint.com/images/bullet_arrow.gif Accelerated Growth Phase
http://www.decisionpoint.com/images/spacer.gif Market Indicators http://www.decisionpoint.com/images/spacer.gif http://www.decisionpoint.com/images/bullet_arrow.gif 1% EMA of Advance-Declines
http://www.decisionpoint.com/images/bullet_arrow.gif Advance-Decline Line
http://www.decisionpoint.com/images/bullet_arrow.gif Advance-Decline Volume
http://www.decisionpoint.com/images/bullet_arrow.gif Arms Index (TRIN)
http://www.decisionpoint.com/images/bullet_arrow.gif Exponential Moving Averages (EMA)
http://www.decisionpoint.com/images/bullet_arrow.gif ITBM (Intermediate-Term Breadth Momentum) Oscillator
http://www.decisionpoint.com/images/bullet_arrow.gif ITVM (Intermediate-Term Volume Momentum) Oscillator
http://www.decisionpoint.com/images/bullet_arrow.gif McClellan Oscillator
http://www.decisionpoint.com/images/bullet_arrow.gif McClellan Summation Index
http://www.decisionpoint.com/images/bullet_arrow.gif Moving Averages
http://www.decisionpoint.com/images/bullet_arrow.gif New Highs & New Lows
http://www.decisionpoint.com/images/bullet_arrow.gif OBV Indicator Set (CVI/STVO/VTO)
http://www.decisionpoint.com/images/bullet_arrow.gif Participation Index (PI)
http://www.decisionpoint.com/images/bullet_arrow.gif PMO (Price Momentum Oscillator)
http://www.decisionpoint.com/images/bullet_arrow.gif Price Momentum Model
http://www.decisionpoint.com/images/bullet_arrow.gif Put/Call Ratio
http://www.decisionpoint.com/images/bullet_arrow.gif Rydex Ratio
http://www.decisionpoint.com/images/bullet_arrow.gif STO (Swenlin Trading Oscillator)
http://www.decisionpoint.com/images/bullet_arrow.gif Stocks Above Their 20-, 50-, and 200-DMA
http://www.decisionpoint.com/images/bullet_arrow.gif Trend Model
http://www.decisionpoint.com/images/bullet_arrow.gif Thrust/Trend Timing Model
http://www.decisionpoint.com/images/bullet_arrow.gif Unweighted Indexes
http://www.decisionpoint.com/images/bullet_arrow.gif Volatility Index (VIX)
http://www.decisionpoint.com/images/spacer.gif Miscellaneous Articles http://www.decisionpoint.com/images/spacer.gif http://www.decisionpoint.com/images/bullet_arrow.gif Trading Mistakes
http://www.decisionpoint.com/images/bullet_arrow.gif Positive Divergence
http://www.decisionpoint.com/images/bullet_arrow.gif Negative Divergence
http://www.decisionpoint.com/images/bullet_arrow.gif Technical Analysis Vs. News
http://www.decisionpoint.com/images/bullet_arrow.gif Overbought but No Decline
http://www.decisionpoint.com/images/bullet_arrow.gif Breadth Climax
[ 本帖最后由 hefeiddd 于 2009-4-2 15:38 编辑 ]
http://stockcharts.com/images/newsletter_title.gif http://stockcharts.com/images/newsletter_stamp.gif Issue Date: Feb 17, 2008
In This Issue...[*]Chip Anderson: DIGGING INTO MARKET BREADTH[*]John Murphy: COMPARING BOND ETFs[*]StockCharts.com: SITE NEWS[*]Richard Rhodes: ON HIATUS[*]Carl Swenlin: BOTTOM STILL NOT RESOLVED[*]Arthur Hill: DIA FAILS AT BROKEN SUPPORT[*]Thomas J. Bowley: THE LINE CHART ADVANTAGE
Behavior of Prices on Wall Street by Arthur Merril
42% discount - only $39.95
This classic book is the definitive guide to the behavior of stock prices, which will be of value and interest to all serious traders. Click Here
Chip Anderson | ChartWatchers
DIGGING INTO MARKET BREADTHStockCharts.com has an extensive collection of Market Breadth indicators. Many of them can be found under the "Breadth Charts" link on the left side of our homepage. However, one of the best places for studying market breadth on our site is - surprisingly - our Predefined Scan Results page. The page is easy to overlook but - fortunately - easy to get to. Just click on the "Stock Scans" link on the left side of our homepage and it will take you to the page I'm talking about. Here is a screenshot:
http://stockcharts.com/help/data/media/support/newsletters/cww20080216-1.png
Now, the magic is in studying the ratios between various pairs of bullish and bearish scan results. It's up to you to determine which ratio(s) you trust the most - personally, I use these to try and confirm any signals I see on the "major" breadth charts. But one ratio I always keep an eye on is the ratio of Filled Black Candles to Hollow Red Candles (at the bottom of the screenshot above). It's probably the quirkiest ratio invented, but that's why I like it.
For those that didn't see my previous rantings about them, filled black candles and hollow red candles are what I call "Oxymoronic" candles. They arise whenever the market opinion about a stock dramatically reverses course in the course of one day. Usually candles that are colored black are hollow - that indicates that the stock closed higher than it did yesterday (black) and closed higher than its opening price (hollow). Conversely, red candles are typically filled in indicating that the stock moved lower during the day (filled) and closed lower than it did yesterday (red).
The "oxymoronic" candles appear when a stock gaps up (or down) on the open but then moves in the opposite direction during the day. The indicate "buyer's remorse" (or "seller's remorse") about a stock. The market is really confused about the stock's prospects - often it signals a change in the stock's current trend. The ratio of filled black candles to hollow red candles shows just how confused the market is and in which direction. If there are large numbers of filled black candles and few hollow red ones, then there were lots of stocks that gapped up and then fell back - overall that's a bearish signal. Conversely, lots of hollow red candles with few filled black candles indicates a bullish upturn might be on the way.
Other ratios on that page can be informative: Stocks in an New Uptrend / Stocks in a New Downtrend for example. Experiment with them - I bet you will find a useful tool or two.
- Chip Anderson
John Murphy | The Market Message
COMPARING BOND ETFsThe below chart compares the performance of four T-bond ETFs since last July, when money started to flow out of stocks and into bonds. The four ETFs represent different durations in the yield curve. Through the middle of January, the top performer was the 20 + Year Bond Fund (TLT). Next in line was the 7â
Past Issues (Old Format)ChartWatchers archives going back to 2004 are now available in Blog format in the ChartWatchers Blog.
18 January 2009Technical Analysis 101, Bonds, Rally Failure, Euro, and Dollar04 January 2009Stylebuttons, Intermarket trends, 2009 Hedging Strategies14 December 2008ChartStyles, NYSE Breadth analysis16 November 2008NYSE High-Low Line, Dow Battles Support02 November 2008LIBOR, Repeating History19 October 2008Overlaid Charts, Commodities Analysis05 October 2008September Weakness, New Market Landscape21 September 2008Financial Stock, The "Risk Aversion" Chart, The Bottom?06 September 2008Why Fibonacci Lines Work, More S&P 500 Declines Ahead?17 August 2008"Weathering" the market, Ascending Wedge Implications02 August 2008Keltner Channels, Economists Late, IWM and QQQQ19 July 2008Pinning Annotations, Bad News for Bonds, Poor Sentiment06 July 2008Price Increase, Sector Rotation, Universal Login21 June 2008ChartNotes Improvements, S&P Energy Outlook, Financials Not Helping07 June 2008Time Independent Charting, Bearish Forecasts17 May 2008Web Accelerator Dangers, Commodity Countries Hit New Highs04 May 2008Ichimoku Cloud Charts, Oil and Natural Gas charts19 April 2008Kagi and Renko charts, Suspicious gaps, IMW06 April 2008Metal and oil service stocks breaking out16 March 2008Displaced Moving Average Ribbons02 March 2008Yen, Case for the Bear Market17 February 2008Market Breadth, Bond ETFs, the Line Chart advantage03 February 2008Getting started all over again, January barometer20 January 2008A "Bear-y" Bearish Issue! Lots of non-optimism06 January 2008S&P Bullish Percent, Rates, Bonds, Retest Still Underway16 December 2007Price Objectives, Retail Weakness18 November 2007The ETF trap, Don't Give up on the Bulls!04 November 2007Banking stocks, Gold, Net New Highs20 October 2007October "Issues" Issue07 October 2007Fall special and free shipping!, Dow TransportsArchives: 2007 | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 | 2000 | 1999
[ 本帖最后由 hefeiddd 于 2009-4-2 15:44 编辑 ]
March 21, 2009GOLD STOCKS TOP 200-DAY AVERAGE By John Murphy
John Murphy
The Fed's midweek surprise announcement that it was buying Treasury bonds had a fairly predictable ripple effect through the various financial markets. Naturally, Treasury bond prices jumped and yields collapsed. The big drop in bond yields pushed the dollar sharply lower and commodities higher. As Arthur Hill described during the week, gold experienced an impressive upside reversal and may have reverted back to an inverse relationship to the dollar. One of the top stock groups on the week was precious metals. A month ago, I turned cautious on the short-term outlook for precious metals when the Market Vectors Gold Miners ETF (GDX) fell back below its 200-day moving average. Chart 1, however, shows the GDX closing well above that resistance line and on the verge of a new six-month high. That puts precious metal assets back in the fast lane. The main reason for the jump in gold and other commodities is the belief that a weaker dollar resulting from the Fed's printing of so much money will increase inflation pressures. One way to hedge against that possibility is to own some precious metal assets. Another way is to own some TIPS.
http://blogs.stockcharts.com/.a/6a0105370026df970c01156f2e19aa970b-800wi
Posted by John Murphy at 12:43 PM in John Murphy | Permalink
March 21, 2009FOCUSING ENERGY ON COMMODITIES By Richard Rhodes
Richard Rhodes
The FOMC has now become very serious to put an end to the financial crisis. To put it simply, Wednesday's FOMCannouncement that they plan to roll the printing presses in order to buy $200 billion in longer-dated treasury paper is certainly a "positive." This will no doubt create more inflationary tendencies than we care to talk about, for the FOMC will be forced to buy far more in treasury paper than
anyone believe, so let's just call this the FOMC's "initial position." The fact of the matter is that it will be positive towards the commodity markets; and this is where we should focus our energies.
http://blogs.stockcharts.com/.a/6a0105370026df970c01156f2e062b970b-800wi
If one wants to get exposure to commodities other than through a futures contract, one can use the DB Commodities Index ETF (DBC), which includes the energies; the grains and other stuff the index is
made out. Moreover, we find that given this fundamental positive for the commodity markets, we also find that the technicals are syncing up with them as well - meaning the risk-reward dynamic favors being long
DBC now and on pull backs for the foreseeable future.
In particular, we are interested in fact prices moved to new lows and then rallied sufficient to breakout above trendline and 50-day moving avearge resistance levels, and did so not less on a "breakaway gap
higher." In our opinion, this is a powerful combination that should lead to mean reversion to overhead trendline resistance at $27.50, or even perhaps the 250-day moving average currently crossing at $31.00.
Given that DBC is currently trade at $21, we would only risk $2 to $19; thus the risk-reward is clearly skewed towards "reward" at this juncture.
Good luck and good trading,
Richard
Posted by Richard Rhodes at 12:27 PM in Richard Rhodes | Permalink
March 21, 2009LIGHT AT THE END OF THE TUNNEL? By Tom Bowley
Tom Bowley
The market performance the last two weeks was very impressive.Was it simply a sequel to the bounces we saw in October and November?That is certainly a possibility, but we saw a few sparks in this rally.For instance, the volume that exploded in financials must be respected.Perhaps more important, however, was the relative breakout in financials as shown below:
http://blogs.stockcharts.com/.a/6a0105370026df970c01156e34960a970c-800wi
On the surface, the annihilation of financials on Thursday and Friday seemed to potentially crash the party.I'd like to point out, however, that option expiration likely played a significant role there.Let me give you a perfect example - Bank of America (BAC).At Thursday's early morning high, BAC traded at 8.57.There were hundreds of thousands of in-the-money calls ranging from strike prices at $3 all the way up to $8.There were nearly ZERO in-the-money put options.That left BAC quite vulnerable to downside action on Thursday and Friday and that's exactly what we saw - downside action.BAC fell nearly 30% from Thursday morning's high to Friday's close, erasing $MILLIONS in net call premium.
Use this as a lesson.If you're considering buying a stock during options expiration week, check out the underlying option activity.Specifically, look to see how many in-the-money calls vs. in-the-money puts there are before taking a position.More often than not, it will save you or make you money.
It was probably more than coincidental that Citigroup (C) didn't participate in Friday's financial selloff, instead gaining two pennies.Max pain (the price at which in-the-money calls equal in-the-money puts) was situated between $2.50 and $3.00 and there were a TON of in-the-money calls at $2.50 to offset in-the-money puts at higher strike prices.So it closed above the $2.50 level.Coincidence?You be the judge.
In addition to financials beginning to show relative strength, semiconductors also joined the fray.In fact, we've seen semiconductors outperforming the S&P 500 since early December.Check out the chart below:
http://blogs.stockcharts.com/.a/6a0105370026df970c01156e34992a970c-800wi
Financials and technology (especially semiconductors) are two key components in any new bull market emerging.Early signs are pointing to a possible reversal in market strategy.For the last several months, it's been clear that the bear market was raging on.While it's important to note that the end of the bear market has not yet been confirmed, the possibility is definitely growing.
Posted by Tom Bowley at 12:20 PM in Tom Bowley | Permalink
March 21, 2009SPY HITS RESISTANCE By Arthur Hill
Arthur Hill
After a sharp advance the last two weeks, SPY hit a classic resistance zone and pulled back over the last two days. Three items confirm resistance in the low 80s. First, broken support around 80-81 turns into resistance. Second, the falling 50-day moving average marks resistance. Third, the advance retraced 50% of the Jan-Mar decline, which is typical for a retracement.
http://blogs.stockcharts.com/.a/6a0105370026df970c01156e3493b6970c-800wi
In addition to resistance, there were also signs that SPY was overbought. The bottom indicator shows the Commodity Channel Index (CCI) moving above 100 for the third time this year. The first two overbought readings marked the early January peak and the early February peak. Also notice that the 7-day Rate-of-Change surged above 17%. This was the biggest 7-day surge in over six months. While such a sharp advance shows strength, it also reflects overbought conditions.
Overbought conditions can be alleviated with a correction or consolidation. SPY could retrace 38-62% of the prior surge with a pullback or we could see a choppy trading range evolve to consolidate the gains. Either way, it looks like the market is ready for a rest after such impressive gains.
There is also a video version of the this analysis available at TDTrader.com - Click Here.
Posted by Arthur Hill at 12:13 PM in Arthur Hill | Permalink
March 21, 2009NEW LOOK, NEW FEATURES, NEW NAME FOR OUR MARKET MESSAGE SERVICEBy Chip Anderson
Site News
Today we're unveiling several design changes to the "John Murphy" area of our website.These changes include:
[*]A new, cleaner design that echos the look of our free commentary areas - i.e. out blogs (i.e., this page!)[*]Email notifications that let subscribers see the title of each post along with the author's name without having to visit the website.[*]A new name - "StockCharts' Market Message with John Murphy" that reflects our approach of supplementing John's commentary with content from Arthur Hill and others.[*]A new video version of the Market Message that will debut soon.John and I free that these changes will help Market Message subscribers get even more value for their money by increasing the amount of content that's available.We hope you agree.
As always please let me know if you have suggestions for more improvements.
UPDATE:Some nice feedback on the new look has already come in -
Just a quick comment to welcome Arthur as an official commentator, with the redesign of the webpage.I love John and Arthur both and their different styles give a well rounded look at the markets.
Nice! I can read the comments and see the chart at the same time. Much improved.
Posted by Chip Anderson at 9:15 AM in Site News | Permalink
March 21, 2009TECHNICAL ANALYSIS 101 - PART 4 By Chip Anderson
Chip Anderson
This is the fourth part of a series of articles about Technical Analysis from a new course we're developing. If you are new to charting, these articles will give you the "big picture" behind the charts on our site. if you are an "old hand", these articles will help ensure you haven't "strayed too far" from the basics. Enjoy!
(Click here to see the beginning of this series.)
Line ChartsLine charts are created by plotting a line between the closing prices for each period set on the chart.On a daily chart, a line is plotted between the daily closing prices.Line charts are useful to help visualize the direction of prices.The extent of rallies and reactions in trends can also be quickly deduced.
http://blogs.stockcharts.com/.a/6a0105370026df970c01156f2d4aac970b-800wi
A five month price SharpChart of Apple, Inc. (AAPL) is plotted above in a line format.Higher highs and lows are annotated with green dashes and lower highs and lows with red dashes.Between March and mid-May 2008, the direction of prices is readily apparent with higher highs and lows.After mid-May 2008, prices began to make lower highs and lows.
A line chart is plotted by default when only end-of-day (closing) prices are available for a symbol.Examples of such symbols include all mutual funds and some market indices.However, weekly and monthly price bars can be charted for ticker symbols with only end-of-day (EOD) quotes.
OHLC ChartsOpen-High-Low-Close (OHLC) bar charts provide volatility information that line charts lack.The attributes of an OHLC bar are shown below.The chartist can evaluate volatility by the height of the bars and the conviction of the buyers and sellers by the price range between the open and close marks.
http://blogs.stockcharts.com/.a/6a0105370026df970c01156f2d4c0d970b-800wi
For the left price bar, the CLOSE mark is above the OPEN mark indicating price ended higher for the day, known as an up day.This price bar is considered bullish.Bullish sentiment is present when greed for gain exceeds fear of loss and prices move higher.
With the price bar on the right, the OPEN is higher than the CLOSE indicating price ended lower for the day, known as a down day. This is a bearish price bar.Bearish sentiment is present when fear of loss is greater than greed for gain and prices move lower.
http://blogs.stockcharts.com/.a/6a0105370026df970c01156e3407f7970c-800wi
The SharpChart of AAPL above illustrates the OHLC format.
Notice how intraday price swings pass through the red and green reference marks made at the closing price levels on the previous Line chart.This illustrates why line charts are useful for visualizing price direction.
OHLC Bar Colorshttp://blogs.stockcharts.com/.a/6a0105370026df970c01156f2d4d43970b-800wi
When the ‘Color Prices’ option is selected on the Chart Attributes workbench, the price bars will be colored black or red, depending on how a price bar’s closing price relates to the previous day’s closing price.If the closing price is higher than the previous day’s closing price, the price bar will be black.If the closing price is lower than the previous day’s, the price bar will be red.With this convention, it is possible to have a black price bar with the close being lower than the open.
http://blogs.stockcharts.com/.a/6a0105370026df970c01156f2d4edb970b-800wi
Colored OHLC price bars are shown in the AAPL SharpChart above.As discussed earlier, the color of the price bar is only based on the previous day’s closing price, not the current day’s opening price.‘Up day’ and ‘down day’ price bars are usually black and red respectively, but that is not always the case as shown in the chart above.
Next time, we'll get into the specifics of Candlestick charts.
Posted by Chip Anderson at 9:06 AM in Chip Anderson | Permalink
March 20, 2009SHORT-TERM TOP By Carl Swenlin
Carl Swenlin
Quite a few years ago I used to write a daily newsletter, but I decided to give it up because it got tiresome trying to invent new ways to say the same thing over and over. More important, having to form an opinion on the market every single day, especially during volatile times as we have been experiencing, can build a of stress. Also, since I am primarily focused on the intermediate-term and long-term time frames, it can be counter productive to put too much effort into short-term analysis.
This week was especially challenging due to the Fed's announcement, which caused big rallies in stocks, bonds, and commodities, and a big decline in the dollar. Also, a number of market and sector indexes switched to buy signals. (Standby for more whipsaw.) The question remains as to whether the Fed's announcement will have a lasting effect, or if it will prove to be another flash in the pan.
On our first chart we can see that prices moved slightly above important resistance levels, but they have not made a clear breakout.
http://blogs.stockcharts.com/.a/6a0105370026df970c01127983b03f28a4-800wi
The next issue is that the market is short-term overbought. The Climactic Volume Indicator (CVI) is extremely overbought, as is the Short-Term Volume Oscillator (STVO), which hit its second highest level ever (the highest was in January). Since we are still in a bear market, chances are very high that the market has hit a short-term top, and that a short-term correction is under way.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111690f593b970c-800wi
On an intermediate-term basis, internal conditions are neutral, as shown by our intermediate-term breadth and volume indicators. This allows for a short correction and the resumption of the up trend; however, bear market conditions demand that we consider that a more negative outcome is possible.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111690f5992970c-800wi
Bottom Line: The surge in prices this week has given bulls some encouragement, but my overall expectations remain bearish.
Posted by Carl Swenlin at 1:29 PM in Carl Swenlin | Permalink
March 07, 2009SITE NEWS FOR MARCH 7, 2009 By Chip Anderson
Site News
NEW "WHAT'S NEW" AREA - We've reworked the "What's New" area on the "Members" page so that it now shows you all of the latest posts from our various blogs.I know that some of you just look at your charts and never read the "What's New" area but please do yourself a favor and click the "Members" tab every now and then to look for interesting articles and announcements there.
BLOGGING FOR THESTREET.COM - Our new blog "Don't Ignore This Chart!" is pretty popular.So popular in fact that it has been picked up by TheStreet,com's new website, StockPickr.com!If you haven't checked it out, click here to see a collection of articles on charts with "interesting" technical developments.
MORE STEP-BY-STEP TUTORIALS - We're continuing to add more tutorials to our Step-by-Step area.Or first two were about how to create charts with multiple stocks on them - either overlaid or side-by-side.Since then, we've been cranking out tutorials that can help you make sure your computer is configured correctly.Look for more charting-oriented tutorials soon.
Posted by Chip Anderson at 10:14 PM in Site News | Permalink
March 07, 2009LOOKING TOWARDS SECTOR ROTATION By Richard Rhodes
Richard Rhodes
This year has seen the S&P decline by -24.3%; with the building crescendo of "fear" likely to provide for a bottom that can be traded sooner rather than later. We're looking towards sector rotation to play a large part in our trading strategy; and we're quite interested in the fundamentals as well as the technicals regarding a "long Industrials/short Healthcare (XLI:XLV)" pairs position. Quite simply, the Industrials have underperformed the S&P by -10.2% YTD, while Healthcare has outperformed by +7.5% YTD - this notes the obvious safety factor inherent in the Healthcare sector given its "less volatile" nature. However, the Obama Administration's tackling of the US healthcare system has sent XLV prices lower in the past two weeks. Moreover, there will likely be pressure upon XLV for the foreseeable future as Healthcare "safety" becomes a source of funds for those stocks - such as the Industrials - that have been beaten down. This is the fundamental argument.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168cab738970c-800wi
Technically speaking, the XLI:XLV ratio has fallen rather precipitously in the past year from above 1.20 to a new low at 0.70; but it is precisely this "plunge" that has put the distance below the 130-week exponential moving average at historic proportions, with the 30-week stochastic falling below the oversold 20-level. We are mean reversionists at heart; and given this distance and the prior instances of the 30-week stochastic turning higher - then we are very interested in putting on this trade as the risk-reward is in our favor. Now, it hasn't turned higher yet; but once a catalyst appears...we'll be doing so.
Good luck and good trading,
Richard
Posted by Richard Rhodes at 6:55 PM in Richard Rhodes | Permalink
March 07, 2009DOW THEORY STILL IN DOWNTREND By John Murphy
John Murphy
At the start of the 20th century, Charles Dow invented the Dow Theory. It was a simple idea. He created two stock indexes -- one for industrial stocks and one for the transports (which were exclusively rails). His reasoning was that both indexes should rise together in a healthy economy. While industrial companies made the goods, the rails transported those goods to market. One couldn't function without the other. Although he was applying that idea to the economy, his Dow Theory became a basic part of traditional technical analysis. When both indexes are rising together, a bull market exists. When they fall together, a bear market is present. Charts 1 and 2 compare the Dow Industrials and Dow Transports over the last three years. Both are in major downtrends which is bad for stocks and the economy. Although the transports turned down first in the second half of 2007, they retested their old highs in the spring of 2008 before finally peaking. The transports fell sharply during the second half of 2008 and are now trading at the lowest level since 2003 (the industrials have already broken that low). Since most attention is given to industrial stocks, I'd like to examine some driving forces behind the transportation plunge.
http://blogs.stockcharts.com/.a/6a0105370026df970c0112793fabf628a4-800wi
http://blogs.stockcharts.com/.a/6a0105370026df970c011168cab4ad970c-800wi
March 07, 2009BREAKDOWN! By Carl Swenlin
Carl Swenlin
At the end of last week the S&P 500 had declined to and had settled on the support created by the November lows. It was poised to either rally and lock in a double bottom, or break down. On Monday prices broke down through support, and by Thursday's close it could be said that the breakdown was "decisive". When a breakdown is classified as decisive (greater than 3%), it means that chances are very high that the market will not be able to gather enough strength to rally back above the recently violated support. Reaction rallies back toward the support are possible, but not guaranteed.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168cab016970c-800wi
The monthly-based chart below provides a better perspective of the seriousness of the breakdown, and we can also see the location of future support levels. The next support is at 600, at the low of the medium-term correction in 1996. I do not consider this an important support level. The first important support I see is the line drawn across the 1994 consolidation lows -- around 450 on the S&P 500.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168cab089970c-800wi
The market is now very oversold in the medium-term and long-term, but in a secular bear market this is not a cause for rejoicing. Bear markets can crash out of oversold conditions. Bottom Line: The S&P 500 has decisively violated important support, and the most likely consequence is that prices will continue to decline, with 600 on the S&P being the most obvious level for us to see a bounce of any significance. While we could see a bounce before then, I think we should be more concerned that the decline will accelerate into a crash. There are still investors who have endured the decline from the bull market top and who were hoping that the 2002 bear market lows would mark the end of the current bear market. Now that long-term support has been clearly broken, another round of panic selling could be just around the corner.
Posted by Carl Swenlin at 6:29 PM in Carl Swenlin | Permalink
March 07, 2009WHERE'S THE FEAR? By Tom Bowley
Tom Bowley
Significant market bottoms generally share many key characteristics.I like to see a spike in volume to get that last wave of selling in place.During this "panicked" phase, it's also important to see pessimism rise to a relative level where we can be fairly confident that a rally can last more than an hour or two.Obviously, oversold momentum oscillators like stochastics and RSI are in play at a bottom.My favorite momentum oscillator - the MACD - can provide clues as to the duration of any potential rally.
On the Dow Jones chart below, notice that the MACD is pointing straight down on the daily chart.It's unusual to see a long-term bottom form when momentum is so negative.So at this point, if the pessimism ramps up to a point where a bottom forms, I'd only be looking for a short-term rally to follow.In order to see a more sustainable rally ensue, I need to see this momentum slow and begin to reverse.That's where long-term positive divergences come into play.The market showed much more stability after the November lows and the positive divergence formed on the daily chart.Check out the Dow Jones chart below:
http://blogs.stockcharts.com/.a/6a0105370026df970c0112793fa01b28a4-800wi
While I acknowledge that market bottoms can be carved out without extreme pessimism, this type of pessimism usually does form during emotional markets.I would certainly be much more confident about trading a rebound in the market if the pessimism reaches an extreme level first.On the S&P 500 chart below, I've highlighted recent market bottoms, the 5 day moving average of the equity only put call ratio at that time, and the subsequent gains realized off of the panic bottom.It's important to note that the average equity only put call ratio reading since the CBOE began providing the data in 2003 is .67.The average since September 1, 2008 is .79, much higher due to the increased fear overall.From these numbers, you can see that any move of the 5 day moving average above .90 should be respected.Here's the chart:
http://blogs.stockcharts.com/.a/6a0105370026df970c011168caa708970c-800wi
For free educational videos of the put call ratio and how to successfully incorporate them in your trading strategy, go to www.investedcentral.com/putcall.html.
Happy trading!
Posted by Tom Bowley at 5:53 PM in Tom Bowley | Permalink
March 06, 2009TECHNICAL ANALYSIS 101 - PART 3 By Chip Anderson
Chip Anderson
This is the third part of a series of articles about Technical Analysis from a new course we're developing. If you are new to charting, these articles will give you the "big picture" behind the charts on our site. if you are an "old hand", these articles will help ensure you haven't "strayed too far" from the basics. Enjoy!
(Click here to see the beginning of this series.)
Chart ConstructionCharts are created from data - Price data and Index data.After discussing the various types of data used, we’ll look at how charts are constructed.
Price DataExchanges record the price and number of shares for each stock transaction.These individual transactions are called tick data. Tick data is compiled over different periods of time to construct price bar data.Price bars show the beginning, highest, lowest and ending prices for a chosen time period.Individual price bar time periods can range from one minute to one year.Daily, weekly and 60-minute price bars are other common examples.
Price bars less than a day long are known as intraday price bars. Intraday price bars range from one minute to one hour and are typically used in technical analysis by day traders who hold positions for a matter of minutes or hours.
A daily price bar is constructed of all the transactions during a full day of trading.Daily price bars are most often used in technical analysis by investors who hold positions from days to years.
The number of shares traded in each transaction is called volume.Volume is recorded as tick data just like price.Volume tick data is added together to construct volume bars and are then charted with their corresponding price bars for technical analysis.
Index DataData for hundreds of indices, published by financial service companies and the major exchanges, are provided to StockCharts.com through third party data providers.Indices are not tradable financial instruments.Indices represent domestic and foreign market averages, industries, commodities, currencies, bonds and many other price, volume and breadth measurements of market activity.Examples of market indices include the Dow Jones Industrial Average ($INDU), NYSE Healthcare Index ($NYP) and the New Zealand Dollar ($NZD).The financial service companies are responsible for the accuracy of the indices they publish.
Breadth indices measure how many issues move within a particular market index.Breadth indices give analysts insight into investor sentiment.Examples of breadth indices include NASDAQ Advance-Decline Issues ($NAAD), NYSE Advance-Decline Volume ($NYUD) and AMEX Issues Unchanged ($AMADU).
Price ChartA price chart is a graph which shows how price and volume changes with time.Price charts on StockCharts.com are called SharpCharts.(Time-independent charting methods like Point & Figure charting will be discussed in detail later.)
http://blogs.stockcharts.com/.a/6a0105370026df970c011168c731b1970c-800wi
The diagram above illustrates the layout of a typical SharpChart.Price data, volume data and technical indicators are displayed on a SharpChart.A technical indicator is a mathematical expression of price and/or volume which can provide insight into future price movements.We will talk more about technical indicators later.
Price data and overlays are plotted in the Price Plot Area.Overlays are technical indicators that are normally expressed in terms of price.Non-price values of overlays are displayed on the left axis as shown above.
Technical indicators that cannot be expressed in terms of price are normally plotted in the Indicator Panels.Although only a single Indicator Panel is shown above, SharpCharts can be created with multiple Indicator Panels displayed above and below the Price Plot Area.Additional date/time axes can be added between the Indicator Panels if needed.The legend for both the Price Plot Area and Indicator Panel contain the information used to create the SharpChart.
Next time, we'll get into the specifics of Line charts, OHLC Bar charts, and Candlestick charts.
Posted by Chip Anderson at 1:17 PM in Chip Anderson | Permalink
February 21, 2009BE PREPARED By Richard Rhodes
Richard Rhodes
In our last commentary, we noted that the S&P Energy ETF (XLE) was in the process of forming a bearish consolidation that argues for sharply lower prices. And since then, prices have consolidated further, but
are now poised to breakdown below trendline support and the October-2008 lows. However, this sector remains a favorite of both fundamental and momentum traders as perceived safety plays. However,
we would argue that while they may be so now; they will not be in the future, and in fact - if the market does indeed rally at some point soon - they shall not lead the rally.
http://blogs.stockcharts.com/.a/6a0105370026df970c0112790286b128a4-800wi
In support of this thesis, we look at the S&P Energy ETF vs the S&P Consumer Discretionary ETF (XLE:XLY). Arguably, in this horrid economy, one would think that you would have to be out of your
collective trading mind to buy anything related to the discretionary stocks. But, the ratio chart shows that XLE has under-performed XLY since June-2008, and we are more interested know in the fact a bearish
consolidation has formed, which would imply the trend that began in June-2008 is about to reassert itself in the weeks ahead. Moreover, we see the very same pattern when we look at XLE vs the S&P 500 Spyder (SPY). This leads us to conclude that XLE is not where one wants to hold long positions; either in bull or bear moves, for it is poised to under-perform rather dramatically - perhaps by as much as 25%
difference if our back of envelope technical measurement target a 1.8 ratio. What one was considered "safety", will soon become a source of funds for more "risky" assets. Be forewarned; be prepared.
Posted by Richard Rhodes at 4:44 PM in Richard Rhodes | Permalink
February 21, 2009MASTERING OUR BLOGS By Chip Anderson
Site News
In case you missed it, we are now publishing a ton of new content about charting and technical analysis on our seven(!) different blogs.One of the great things about blogs is that you can "subscribe" to a blog and then get notified as soon as anything new is posted.Each one of our blogs has a "Subscribe" button up top and I encourage you to click on them and set up a subscription in order to stay up-to-date with the latest info from us.
If you are new to using blog subscriptions (also called "RSS Feeds"), then just click on the "View Feed XML" link that appears after you hit subscribe.That should take you to a page that lets you subscribe to the feed using your web browser.For more information about Feeds, I urge you to review the information on this page and watch the video at the bottom (it's very entertaining!).
Finally, if you are like me, you want to everything that's happening at StockCharts all the time.If that's the case, then instead of looking at each one of our blogs individually, you can look at the "Master StockCharts Blog" which contains copies of all the recent articles from all of the other seven blogs in one place.You can also chose to subscribe to the master blog instead of subscribing to all seven of the other blogs.
Posted by Chip Anderson at 3:41 PM in Site News | Permalink
February 21, 2009JUICING UP YOUR RETURNS By Tom Bowley
Tom Bowley
I receive a lot of questions regarding the "ultra" shares and "ultrashort" shares and how to effectively trade them.In particular, there are always questions asking why those "juiced" ETF returns don't correspond to the indices they're supposed to track over time.Let me give you an example.Take a look at the two charts below.The first is a five month chart of the Dow Jones U.S. Financial Index ($DJUSFN), while the second reflects the ProShares UltraShort Financial (SKF) during that same timeframe.The SKF is designed to inversely track the $DJUSFN at a 200% clip.In order to benefit from weakness in financials, you could purchase the SKF and profit to the tune of 200% the decline in the index.Just keep in mind that a ride on Space Mountain at DisneyWorld will seem like a stroll in the park compared to an investment in the SKF, however.:-)
On the line charts (line charts show only closing prices) below, take a look at where the SKF closed on February 20th vs. January 20th vs. November 20th.It was lower each time.But how can that be if the $DJUSFN is lower each time?If the index is putting in lower lows, shouldn't the ultrashort SKF be putting in higher highs?The answer is no - check this out:
http://blogs.stockcharts.com/.a/6a0105370026df970c011279018a2b28a4-800wi
http://blogs.stockcharts.com/.a/6a0105370026df970c0111688ce8a1970c-800wi
On November 20th, the $DJUSFN closed at 167.95 and the SKF closed at 262.45.On February 20th, the $DJUSFN closed at 143.56 while the SKF closed at 188.25.So over the last three months, the $DJUSFN fell 14.52%.Since the SKF is designed to inversely double the returns of the $DJUSFN, one would reasonably expect to see the SKF closing roughly 29% higher than it did in November.Instead, the SKF has FALLEN from 262.45 to 188.25, or 28.27%.It should have GAINED 29%, but instead it DECLINED 28%.What gives?Well, so long as the index moves in one direction or the other, juiced ETFs do a fine job of following at a 200% clip - generally speaking.However, after several days of ups and downs in the index, the juiced ETFs lose their value and cannot fulfill that 200% promise.For a fairly simple explanation, go to our website at www.investedcentral.com and click on "Trading the Juiced ETFs".It's roughly a 15 minute demonstration showing why the juiced ETFs cannot keep pace over time.If you like to trade juiced ETFs, it will be well worth the time.
Here's the bottom line.Avoid the temptation to trade the juiced ETFs based on its technicals.I've come to realize that the technicals associated with those ETFs are irrelevant.Instead, determine your entry and exit points based solely on the technicals of the underlying index that the ETF is designed to track.From that index, determine your target and apply those measurements to the juiced ETF.
Happy trading!
Posted by Tom Bowley at 7:56 AM in Tom Bowley | Permalink
March 07, 2009BREAKDOWN! By Carl Swenlin
Carl Swenlin
At the end of last week the S&P 500 had declined to and had settled on the support created by the November lows. It was poised to either rally and lock in a double bottom, or break down. On Monday prices broke down through support, and by Thursday's close it could be said that the breakdown was "decisive". When a breakdown is classified as decisive (greater than 3%), it means that chances are very high that the market will not be able to gather enough strength to rally back above the recently violated support. Reaction rallies back toward the support are possible, but not guaranteed.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168cab016970c-800wi
The monthly-based chart below provides a better perspective of the seriousness of the breakdown, and we can also see the location of future support levels. The next support is at 600, at the low of the medium-term correction in 1996. I do not consider this an important support level. The first important support I see is the line drawn across the 1994 consolidation lows -- around 450 on the S&P 500.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168cab089970c-800wi
The market is now very oversold in the medium-term and long-term, but in a secular bear market this is not a cause for rejoicing. Bear markets can crash out of oversold conditions. Bottom Line: The S&P 500 has decisively violated important support, and the most likely consequence is that prices will continue to decline, with 600 on the S&P being the most obvious level for us to see a bounce of any significance. While we could see a bounce before then, I think we should be more concerned that the decline will accelerate into a crash. There are still investors who have endured the decline from the bull market top and who were hoping that the 2002 bear market lows would mark the end of the current bear market. Now that long-term support has been clearly broken, another round of panic selling could be just around the corner.
Posted by Carl Swenlin at 6:29 PM in Carl Swenlin | Permalink
March 07, 2009WHERE'S THE FEAR? By Tom Bowley
Tom Bowley
Significant market bottoms generally share many key characteristics.I like to see a spike in volume to get that last wave of selling in place.During this "panicked" phase, it's also important to see pessimism rise to a relative level where we can be fairly confident that a rally can last more than an hour or two.Obviously, oversold momentum oscillators like stochastics and RSI are in play at a bottom.My favorite momentum oscillator - the MACD - can provide clues as to the duration of any potential rally.
On the Dow Jones chart below, notice that the MACD is pointing straight down on the daily chart.It's unusual to see a long-term bottom form when momentum is so negative.So at this point, if the pessimism ramps up to a point where a bottom forms, I'd only be looking for a short-term rally to follow.In order to see a more sustainable rally ensue, I need to see this momentum slow and begin to reverse.That's where long-term positive divergences come into play.The market showed much more stability after the November lows and the positive divergence formed on the daily chart.Check out the Dow Jones chart below:
http://blogs.stockcharts.com/.a/6a0105370026df970c0112793fa01b28a4-800wi
While I acknowledge that market bottoms can be carved out without extreme pessimism, this type of pessimism usually does form during emotional markets.I would certainly be much more confident about trading a rebound in the market if the pessimism reaches an extreme level first.On the S&P 500 chart below, I've highlighted recent market bottoms, the 5 day moving average of the equity only put call ratio at that time, and the subsequent gains realized off of the panic bottom.It's important to note that the average equity only put call ratio reading since the CBOE began providing the data in 2003 is .67.The average since September 1, 2008 is .79, much higher due to the increased fear overall.From these numbers, you can see that any move of the 5 day moving average above .90 should be respected.Here's the chart:
http://blogs.stockcharts.com/.a/6a0105370026df970c011168caa708970c-800wi
For free educational videos of the put call ratio and how to successfully incorporate them in your trading strategy, go to www.investedcentral.com/putcall.html.
Happy trading!
Posted by Tom Bowley at 5:53 PM in Tom Bowley | Permalink
March 06, 2009TECHNICAL ANALYSIS 101 - PART 3 By Chip Anderson
Chip Anderson
This is the third part of a series of articles about Technical Analysis from a new course we're developing. If you are new to charting, these articles will give you the "big picture" behind the charts on our site. if you are an "old hand", these articles will help ensure you haven't "strayed too far" from the basics. Enjoy!
(Click here to see the beginning of this series.)
Chart ConstructionCharts are created from data - Price data and Index data.After discussing the various types of data used, we’ll look at how charts are constructed.
Price DataExchanges record the price and number of shares for each stock transaction.These individual transactions are called tick data. Tick data is compiled over different periods of time to construct price bar data.Price bars show the beginning, highest, lowest and ending prices for a chosen time period.Individual price bar time periods can range from one minute to one year.Daily, weekly and 60-minute price bars are other common examples.
Price bars less than a day long are known as intraday price bars. Intraday price bars range from one minute to one hour and are typically used in technical analysis by day traders who hold positions for a matter of minutes or hours.
A daily price bar is constructed of all the transactions during a full day of trading.Daily price bars are most often used in technical analysis by investors who hold positions from days to years.
The number of shares traded in each transaction is called volume.Volume is recorded as tick data just like price.Volume tick data is added together to construct volume bars and are then charted with their corresponding price bars for technical analysis.
Index DataData for hundreds of indices, published by financial service companies and the major exchanges, are provided to StockCharts.com through third party data providers.Indices are not tradable financial instruments.Indices represent domestic and foreign market averages, industries, commodities, currencies, bonds and many other price, volume and breadth measurements of market activity.Examples of market indices include the Dow Jones Industrial Average ($INDU), NYSE Healthcare Index ($NYP) and the New Zealand Dollar ($NZD).The financial service companies are responsible for the accuracy of the indices they publish.
Breadth indices measure how many issues move within a particular market index.Breadth indices give analysts insight into investor sentiment.Examples of breadth indices include NASDAQ Advance-Decline Issues ($NAAD), NYSE Advance-Decline Volume ($NYUD) and AMEX Issues Unchanged ($AMADU).
Price ChartA price chart is a graph which shows how price and volume changes with time.Price charts on StockCharts.com are called SharpCharts.(Time-independent charting methods like Point & Figure charting will be discussed in detail later.)
http://blogs.stockcharts.com/.a/6a0105370026df970c011168c731b1970c-800wi
The diagram above illustrates the layout of a typical SharpChart.Price data, volume data and technical indicators are displayed on a SharpChart.A technical indicator is a mathematical expression of price and/or volume which can provide insight into future price movements.We will talk more about technical indicators later.
Price data and overlays are plotted in the Price Plot Area.Overlays are technical indicators that are normally expressed in terms of price.Non-price values of overlays are displayed on the left axis as shown above.
Technical indicators that cannot be expressed in terms of price are normally plotted in the Indicator Panels.Although only a single Indicator Panel is shown above, SharpCharts can be created with multiple Indicator Panels displayed above and below the Price Plot Area.Additional date/time axes can be added between the Indicator Panels if needed.The legend for both the Price Plot Area and Indicator Panel contain the information used to create the SharpChart.
we'll get into the specifics of Line charts, OHLC Bar charts, and Candlestick charts.
Posted by Chip Anderson at 1:17 PM in Chip Anderson | Permalink
February 21, 2009BE PREPARED By Richard Rhodes
Richard Rhodes
In our last commentary, we noted that the S&P Energy ETF (XLE) was in the process of forming a bearish consolidation that argues for sharply lower prices. And since then, prices have consolidated further, but
are now poised to breakdown below trendline support and the October-2008 lows. However, this sector remains a favorite of both fundamental and momentum traders as perceived safety plays. However,
we would argue that while they may be so now; they will not be in the future, and in fact - if the market does indeed rally at some point soon - they shall not lead the rally.
http://blogs.stockcharts.com/.a/6a0105370026df970c0112790286b128a4-800wi
In support of this thesis, we look at the S&P Energy ETF vs the S&P Consumer Discretionary ETF (XLE:XLY). Arguably, in this horrid economy, one would think that you would have to be out of your
collective trading mind to buy anything related to the discretionary stocks. But, the ratio chart shows that XLE has under-performed XLY since June-2008, and we are more interested know in the fact a bearish
consolidation has formed, which would imply the trend that began in June-2008 is about to reassert itself in the weeks ahead. Moreover, we see the very same pattern when we look at XLE vs the S&P 500 Spyder (SPY). This leads us to conclude that XLE is not where one wants to hold long positions; either in bull or bear moves, for it is poised to under-perform rather dramatically - perhaps by as much as 25%
difference if our back of envelope technical measurement target a 1.8 ratio. What one was considered "safety", will soon become a source of funds for more "risky" assets. Be forewarned; be prepared.
Posted by Richard Rhodes at 4:44 PM in Richard Rhodes | Permalink
February 21, 2009MASTERING OUR BLOGS By Chip Anderson
Site News
In case you missed it, we are now publishing a ton of new content about charting and technical analysis on our seven(!) different blogs.One of the great things about blogs is that you can "subscribe" to a blog and then get notified as soon as anything new is posted.Each one of our blogs has a "Subscribe" button up top and I encourage you to click on them and set up a subscription in order to stay up-to-date with the latest info from us.
If you are new to using blog subscriptions (also calledof subscribing to all seven of the other blogs.
Posted by Chip Anderson at 3:41 PM in Site News | Permalink
February 21, 2009JUICING UP YOUR RETURNS By Tom Bowley
Tom Bowley
I receive a lot of questions regarding the "ultra" shares and "ultrashort" shares and how to effectively trade them.In particular, there are always questions asking why those "juiced" ETF returns don't correspond to the indices they're supposed to track over time.Let me give you an example.Take a look at the two charts below.The first is a five month chart of the Dow Jones U.S. Financial Index ($DJUSFN), while the second reflects the ProShares UltraShort Financial (SKF) during that same timeframe.The SKF is designed to inversely track the $DJUSFN at a 200% clip.In order to benefit from weakness in financials, you could purchase the SKF and profit to the tune of 200% the decline in the index.Just keep in mind that a ride on Space Mountain at DisneyWorld will seem like a stroll in the park compared to an investment in the SKF, however.:-)
On the line charts (line charts show only closing prices) below, take a look at where the SKF closed on February 20th vs. January 20th vs. November 20th.It was lower each time.But how can that be if the $DJUSFN is lower each time?If the index is putting in lower lows, shouldn't the ultrashort SKF be putting in higher highs?The answer is no - check this out:
http://blogs.stockcharts.com/.a/6a0105370026df970c011279018a2b28a4-800wi
http://blogs.stockcharts.com/.a/6a0105370026df970c0111688ce8a1970c-800wi
On November 20th, the $DJUSFN closed at 167.95 and the SKF closed at 262.45.On February 20th, the $DJUSFN closed at 143.56 while the SKF closed at 188.25.So over the last three months, the $DJUSFN fell 14.52%.Since the SKF is designed to inversely double the returns of the $DJUSFN, one would reasonably expect to see the SKF closing roughly 29% higher than it did in November.Instead, the SKF has FALLEN from 262.45 to 188.25, or 28.27%.It should have GAINED 29%, but instead it DECLINED 28%.What gives?Well, so long as the index moves in one direction or the other, juiced ETFs do a fine job of following at a 200% clip - generally speaking.However, after several days of ups and downs in the index, the juiced ETFs lose their value and cannot fulfill that 200% promise.For a fairly simple explanation, go to our website at www.investedcentral.com and click on "Trading the Juiced ETFs".It's roughly a 15 minute demonstration showing why the juiced ETFs cannot keep pace over time.If you like to trade juiced ETFs, it will be well worth the time.
Here's the bottom line.Avoid the temptation to trade the juiced ETFs based on its technicals.I've come to realize that the technicals associated with those ETFs are irrelevant.Instead, determine your entry and exit points based solely on the technicals of the underlying index that the ETF is designed to track.From that index, determine your target and apply those measurements to the juiced ETF.
Happy trading!
Posted by Tom Bowley at 7:56 AM in Tom Bowley | Permalink
February 21, 2009TECHS TAKE A PUNCH By Arthur Hill
Arthur Hill
Two weeks ago I featured the Nasdaq 100 ETF (QQQQ) with a triangle breakout, strong OBV and relative strength. The ETF surged to resistance from the early January high, but ultimately failed to break above this key level. With a sharp decline over the last eight trading days, the trading bias has quickly shifted back to the bears. The failure at resistance, gap down, trendline break and MACD crossover are all bearish until proven otherwise. At the very least, QQQQ needs to fill Tuesday's gap to merit a reassessment.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111688ce55e970c-800wi
http://blogs.stockcharts.com/.a/6a0105370026df970c0111688ce57b970c-800wi
The second chart shows the Nasdaq with similar characteristics. There are, however, two notable differences. While QQQQ reached its early January high and broke the triangle trendline, the Nasdaq fell short of this high and did not break the triangle trendline. The Nasdaq is a much broader index than
the Nasdaq 100 (QQQQ) and shows relative weakness. With a gap down, trendline break and MACD crossover, the bulk of the evidence is currently bearish for the Nasdaq as well. Before getting too bearish, notice that trading has been extremely choppy since October. Both the Nasdaq and QQQQ have traded on either side of their October lows the last four months. While the bias is currently bearish, the seas remain treacherous for both bulls and bears.
There is also a video version of the this analysis available at TDTrader.com - Click Here.
Posted by Arthur Hill at 7:51 AM in Arthur Hill | Permalink
February 20, 2009A LOT OF MARKETS ARE AT CRITICAL CHART JUNCTURES... By John Murphy
John Murphy
GOLD TOUCHES $1000 FOR FIRST TIME IN A YEAR... A number of financial markets are testing important chart points. Let's start with gold. Bullion touched $1,000 today for the first time since last March. Chart 1 shows the streetTracks Gold Trust (GLD) very close to touching its March 2008 high at 100. On a short-term basis, however, the price of gold looks overbought. Some profit-taking from this level wouldn't be surprising. If that's true, some counter-trend moves may be seen in some other markets. The dollar may have also started one.
http://blogs.stockcharts.com/.a/6a0105370026df970c01127900014f28a4-800wi
DOLLARS DIPS AS EURO BOUNCES ... The U.S. Dollar has been rising along with gold since December. Chart 2, however, shows the Power Shares DB US Dollar Index Fund (UUP) dropping today from chart resistance near its November high. Chart 3 shows the Euro bouncing off chart support along its November low. That suggests that some "short-term" market dynamics might be changing. A weaker dollar might contribute to some profit-taking in gold and buying in some oversold commodities. A bouncing Euro might suggest that the recent selloff in stocks is overdone as well. I've shown before that stocks have been trading in tandem with the Euro since midyear and opposite the dollar.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111688b6e9a970c-800wi
http://blogs.stockcharts.com/.a/6a0105370026df970c0111688b6edf970c-800wi
Posted by John Murphy at 3:42 PM in John Murphy | Permalink
February 20, 2009RETEST By Carl Swenlin
Carl Swenlin
The long-awaited retest of the November lows has finally arrived. The S&P 500 is still slightly above that support, but the Dow has penetrated it. Even though every rally since November has been greeted with intense hope of a new advance that would end the bear market, the market gradually rolled over into a declining trend after the January top.
The November bottom was also a 9-Month Cycle bottom. In a bull market we would expect the market to rally for several months. The fact that the rally failed so quickly, is a very bearish sign.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111688b4c93970c-800wi
The longer-term view shows that the 2002 bear market lows are also being tested again, so the market is at a very critical point. Many people who are still holding equities (at a 50% loss) are counting on being bailed out by a big rally. If prices fall significantly below long-term support, we are likely to see another selling stampede.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111688b4d4b970c-800wi
The long-term condition of the market is deeply oversold, as demonstrated by the Percent of Stocks Above Their 200-EMA. This indicator has never been at these low levels for such an extended period of time. Normally, a rally is in the cards as soon as these levels are reached, but the market is flat on its back, and it is hard to say when it will recover. It is important not to get too anxious to get back in. We are in a bear market, and negative outcomes are much more likely than positive ones.
Also, remember that oversold conditions in a bear market are extremely dangerous. If the current support zone fails, a market crash could quickly follow.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111688b4df7970c-800wi
The medium-term condition of the market is neutral. Note that the ITBM and ITVM charts below are mid-range and falling. This is not a level from which we would expect a powerful rally to be launched.
http://blogs.stockcharts.com/.a/6a0105370026df970c011278ffe41c28a4-800wi
Bottom Line: The market is in the midst of a retest of very important support. Since we are in a bear market, I expect that the support will fail.
Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics and strategy if conditions change.
Posted by Carl Swenlin at 3:17 PM in Carl Swenlin | Permalink
February 20, 2009TECHNICAL ANALYSIS 101 - PART 2 By Chip Anderson
Chip Anderson
This is the second part of a series of articles about Technical Analysis from a new course we're developing. If you are new to charting, these articles will give you the "big picture" behind the charts on our site. if you are an "old hand", these articles will help ensure you haven't "strayed too far" from the basics. Enjoy!
(Click here to see the first part of this series.)
The Value of Technical AnalysisThe reason technical analysis has value is that directional price moves are often sustained for a period of time allowing analysts to detect and profit from the change in price. Even though a technical analyst has many math-based tools to analyze price and volume movement, the process is ultimately an art in the study of human behavior.
Just as the meteorologist can never guarantee a weather forecast, a technical analyst can never be perfectly certain of future price movements since human behavior is involved.
Figuring out the what and when…
All investors are faced with three basic questions with their investments. What to invest in, when to buy and when to sell. Technical analysis provides a framework for investors to methodically select equities and pick times to buy and sell. Emotion, the investor’s nemesis, is greatly reduced in these decisions since the investor can develop a list of ‘what and when’ rules to follow. Rather than ‘buying and hoping for the best’, technical analysts always know how much risk they are taking and know when to ‘get out while the getting is good’.
Only price and volume only…
Only historical price and volume data is used for technical analysis. The underlying premise of technical analysis is that all known information such as what a company does, its financial results, analyst’s ratings, management performance, politics, news, etc. are reflected in the historical price and volume data. This is a powerful concept since it is impossible to gage how these factors may influence future price separately.
It is important to understand technical analysis can only be used to determine the likely direction of future prices. It cannot anticipate news events or how investors will respond to them.
The Goal of Technical Analysishttp://blogs.stockcharts.com/.a/6a0105370026df970c0111684fc865970c-800wi
The graph above is a historical price chart for the company Analog Devices, Inc., ticker symbol ADI. The line represents the price of ADI over a period of a year. The price chart illustrates how prices can move up, down or sideways for months at a time. Technical analysis uses methodologies to help indicate when prices are beginning to change direction. The goal of a technical analyst is to buy an equity when the price chart indicates prices are beginning to move up and then sell when the price chart indicates prices are beginning to move sideways or down.
Why Technical Analysis WorksTechnical analysis works because price and volume often reveal the collective psychology (the “fear/greed balance”) of a market’s participants. Technical charts can reveal changes in the fear/greed balance soon after those changes occur and that provides opportunities for profitable trades. Technical analysts work to identify charts where the fear/greed balance has recently changed in a predictable manner. They then place trades to try and profit from that change. Once they have bought a stock, technical analysts monitor price and volume for sell signals. Done correctly, trades based on technical analysis carry a higher than average chance of success but disciplined money management techniques must still be used to guard against unforeseen price movements.
Misuse of Technical AnalysisWhile the basics of technical analysis are easy to learn, applying them correctly and successfully isn’t easy. Because of this many people have lost money using technical analysis techniques and then concluded that chart analysis has no value. In addition, unfortunately, many unsuspecting investors have purchased technical “systems” that promise outlandish returns for little effort. By the time the buyer figures out that the system doesn’t work, their money is long gone.
Technical analysis is just like any other money making occupation – it takes time and energy and it involves risk. Anybody who says otherwise shouldn’t be trusted. Here are ways technical analysis has been misused in the past:
The Holy Grail mentality…
One of the most common misconceptions about technical analysis is that a trading system (a set of buy and sell rules) can be devised that provides consistent profits with little to no risk.
There are several reasons that a ‘perfect system’ cannot be sustained. Firstly, the market is made up of people with free will and guided by fear and greed. A perfect system requires prices to consistently move in predictable patterns. This will never be possible when people are involved. Secondly, many financial institutions monitor the market for patterns of systematic trading. Once detected, the financial institution can take advantage of the system (investing with or against it) which eventually compromises and defeats the ‘perfect system’. And finally, what motivation could someone have to share a ‘perfect system’ at any price? Such a system would be invaluable to one person but worthless (for the second reason) if too many people or even one institution discovered it.
Just tell me what to buy…
Investment charlatans and gurus have always been offering advice how to profit in the market. These are the people who take financial advantage of new and uninformed investors by promising quick and profitable investment success. Claims of ultra-high rates of return or knowledge of future events for substantial fees are the best ways to identify such schemers.
Although a real guru is a spiritual guide or teacher, the title ‘Market Guru’ is gladly accepted by advisors who have developed notoriety with fortuitous calls of major market changes or unusual approaches to investing. Today’s TV media and Internet enthrone new market gurus on a regular basis. There are precious few true market gurus like Warren Buffet who have proven their market savvy over decades. Most market gurus can only provide profitable guidance as long as the market is favoring their investment philosophy. As the market changes, new market gurus will emerge as their philosophies’ agree with the new market dynamics.
Technical Analysis lets me control the market…
While few people consciously believe that they can control a stock’s price directly, subconsciously, chart analysis can give new investors a false sense of control which will cause them to lose objectivity. “My stock just broke below my trendline today, but it will come back tomorrow since that is a really good trendline!”
The opposite response is just as damaging – “My stock broke my trendline! T/A is worthless!” Both responses are driven by emotion, something that technical analysis strives to eliminate.
Next time, we'll take a critical look at the assumptions that Technical Analysis makes about the markets.
Posted by Chip Anderson at 3:00 PM in Chip Anderson | Permalink
February 15, 2009Next ChartWatchers Will Be Published Next Weekend By Chip Anderson
Site News
Just a reminder, ChartWatchers is published on the first and third full weekends of each month.Our next issue will be published on the weekend of Feb. 21st., with articles appearing in this blog starting on Feb. 20th.
BTW, the US and Canadian Markets are closed on Monday, Feb. 16th due to the President's Day holiday in the US and the Family Day holiday in Canada.
Posted by Chip Anderson at 8:02 AM in Site News | Permalink
February 07, 2009NEW BLOGS, NEW CHARTWATCHERS, NEW BOOK FROM JOHN MURPHY! By Chip Anderson
Chip Anderson
Hello Fellow ChartWatchers!
This week is the start of big changes here at StockCharts.com.We are moving much of our free content over into a new set of Blogs.("Blogs" are Web Logs - collections of articles on a particular topic.)Things like, well, this newsletter are actually perfect for the Blog format.And so, this is the first blog-based version of ChartWatchers!
What does that mean?If you only read ChartWatchers as email in your mailbox, it doesn't mean much.But if you look at ChartWatchers on the web, it means that you can now read many of the articles BEFORE they are sent out in email.As soon as each author sends us their article, we'll add it to the ChartWatchers Blog area where you can read it immediately.If you subscribe to that blog with a "Feed Notification tool", you'll get notified as soon as new articles are ready.No more waiting until all the articles are complete!
(Again, don't panic.If you like reading ChartWatchers as an email message, you don't need to do a thing.It will still show up in your email box like it always has.)
Now, we didn't stop with just making ChartWatchers into a blog.We added a slew of additional blogs that should help you get more value out of StockCharts.com.Some of these currently contain some old content - we're in the process of migrating all the old ChartWatchers for example - and some of these are brand new!Here's a run down:
StockCharts.com - Chip Anderson
A behind-the-scenes look at StockCharts.com from the president's perspective.
StockCharts.com - Don't Ignore This Chart!
A new feature from us.A daily look at charts with interesting technical developments.
StockCharts.com - ChartWatchers
The new home for our free newsletter.Look for articles to appear here first before they are sent out as complete emails.
StockCharts.com - Mailbag
Our "Letters to the Editor" blog.Real questions from real users with real answers from the people that better darn well know... us!
StockCharts.com - Scanning Stocks
Tips, tricks and example stock scans that can help you get the most out of the StockCharts.com Scan Engine.
StockCharts.com - Status
Reports about server availability. Every day we'll post a summary of our service performance including how much downtime we had (if any).
StockCharts.com - Step by Step
Our tutorial blog with lots of easy to follow instructions for doing common tasks.Charting, scanning, changing settings - even fixing common browser problems; all will be explained with lots of pictures to guide you through.
StockCharts.com - What's New
Latest announcements about new content and features on StockCharts.com.
I strongly encourage everyone to check out all these blogs on a regular basis and subscribe to them if you can.We'll be updating them often.Just click on the "Blogs" link on the left side of any of the pages on our website.
BIG NEWS: John Murphy has released "The Visual Investor, 2nd Edition"!John's original version of "The Visual Investor" influenced me heavily.It was extremely easy to read and it has helped hundreds of thousands of people understand how to use financial charts to make investing decisions.Now John has completely revised "The Visual Investor" to bring it into the age of the Internet.New charts, new chapters, new examples - but with the same old easy-to-read logic that has helped a generation of chartists get started.
I CANNOT RECOMMEND THIS BOOK HIGHLY ENOUGH!
...which is why we have it on sale in our bookstore right now.Get you copy now.
Posted by Chip Anderson at 4:35 PM in Chip Anderson | Permalink
February 07, 2009MACD LINES SHOW SOME PROMISE By John Murphy
John Murphy
A reader complained this week that we failed to point out the "negative divergence" in the daily MACD lines during January prior to the latest downturn. The reason I didn't point it out was because none existed. In fact, it may be the other way around. At the moment, the daily MACD lines look more positive than negative. Chart 1 overlays the MACD lines (and MACD histogram) over daily bars for the S&P 500. The chart shows that the MACD lines bottomed during October and gave a positive divergence during November (rising trendline) before rallying into the start of January. No negative divergence was given at the early January top. Although the S&P fell to the lowest level in two months during January, the MACD lines remained well above their earlier lows. The lines have now turned positive again (see circle). To me, that looks like positive divergence and hints at more market strength. The market is rallying today with the biggest gains coming from financial stocks (and banks in particular). The S&P is up more than 2% and is nearing a test of last week's intra-day high at 877. A close through that initial chart barrier would strengthen the market's "short-term" trend and keep the three-month trading range intact. There's even more good news.
http://blogs.stockcharts.com/.a/6a0105370026df970c01053716bd10970b-800wi
Posted by John Murphy at 4:34 PM in John Murphy | Permalink
February 07, 2009OBV AND RELATIVE STRENGTH DRIVE QQQQ By Arthur Hill
Arthur Hill
The Nasdaq 100 ETF (QQQQ) is breaking out of its trading range. The chart below shows QQQQ stuck in a trading since 10-Oct. Focusing on the blue dotted line marking the mid October lows, we can see that QQQQ traded above and below this line numerous times the last four months. In essence, QQQQ went nowhere from 10-Oct until early February. A triangle formed from early November as the trading range narrowed over the last two months.
QQQQ could be finding direction now. With an advance over the last five days, QQQQ broke the triangle trendline and is closing in on resistance from the early January high (red line). A breakout here would be quite positive and argue for a counter-trend rally. The big trend remains down, but bear market rallies are perfectly normal. QQQQ could possibly make it to the falling 200-day moving average.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116858faf6970c-800wi
Relative strength and On Balance Volume (OBV) confirm the triangle breakout. The first indicator shows QQQQ relative to SPY. This relative strength comparative rises when QQQQ outperforms SPY and falls when QQQQ underperforms. QQQQ has been outperforming since the second week of January because that is when the relative strength comparative broke resistance. On Balance Volume (OBV) is a cumulative indicator that adds volume on up days and subtracts volume on down days. Granville theorized that volume leads prices. If this is the case, then OBV suggests that QQQQ will break its January high soon. Notice that OBV broke its December and January highs this week.
Click here for a video presentation of this information.
Posted by Arthur Hill at 4:30 PM in Arthur Hill | Permalink
February 21, 2009TECHS TAKE A PUNCH By Arthur Hill
Arthur Hill
Two weeks ago I featured the Nasdaq 100 ETF (QQQQ) with a triangle breakout, strong OBV and relative strength. The ETF surged to resistance from the early January high, but ultimately failed to break above this key level. With a sharp decline over the last eight trading days, the trading bias has quickly shifted back to the bears. The failure at resistance, gap down, trendline break and MACD crossover are all bearish until proven otherwise. At the very least, QQQQ needs to fill Tuesday's gap to merit a reassessment.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111688ce55e970c-800wi
http://blogs.stockcharts.com/.a/6a0105370026df970c0111688ce57b970c-800wi
The second chart shows the Nasdaq with similar characteristics. There are, however, two notable differences. While QQQQ reached its early January high and broke the triangle trendline, the Nasdaq fell short of this high and did not break the triangle trendline. The Nasdaq is a much broader index than
the Nasdaq 100 (QQQQ) and shows relative weakness. With a gap down, trendline break and MACD crossover, the bulk of the evidence is currently bearish for the Nasdaq as well. Before getting too bearish, notice that trading has been extremely choppy since October. Both the Nasdaq and QQQQ have traded on either side of their October lows the last four months. While the bias is currently bearish, the seas remain treacherous for both bulls and bears.
There is also a video version of the this analysis available at TDTrader.com - Click Here.
Posted by Arthur Hill at 7:51 AM in Arthur Hill | Permalink
February 20, 2009A LOT OF MARKETS ARE AT CRITICAL CHART JUNCTURES... By John Murphy
John Murphy
GOLD TOUCHES $1000 FOR FIRST TIME IN A YEAR... A number of financial markets are testing important chart points. Let's start with gold. Bullion touched $1,000 today for the first time since last March. Chart 1 shows the streetTracks Gold Trust (GLD) very close to touching its March 2008 high at 100. On a short-term basis, however, the price of gold looks overbought. Some profit-taking from this level wouldn't be surprising. If that's true, some counter-trend moves may be seen in some other markets. The dollar may have also started one.
http://blogs.stockcharts.com/.a/6a0105370026df970c01127900014f28a4-800wi
DOLLARS DIPS AS EURO BOUNCES ... The U.S. Dollar has been rising along with gold since December. Chart 2, however, shows the Power Shares DB US Dollar Index Fund (UUP) dropping today from chart resistance near its November high. Chart 3 shows the Euro bouncing off chart support along its November low. That suggests that some "short-term" market dynamics might be changing. A weaker dollar might contribute to some profit-taking in gold and buying in some oversold commodities. A bouncing Euro might suggest that the recent selloff in stocks is overdone as well. I've shown before that stocks have been trading in tandem with the Euro since midyear and opposite the dollar.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111688b6e9a970c-800wi
http://blogs.stockcharts.com/.a/6a0105370026df970c0111688b6edf970c-800wi
Posted by John Murphy at 3:42 PM in John Murphy | Permalink
February 20, 2009RETEST By Carl Swenlin
Carl Swenlin
The long-awaited retest of the November lows has finally arrived. The S&P 500 is still slightly above that support, but the Dow has penetrated it. Even though every rally since November has been greeted with intense hope of a new advance that would end the bear market, the market gradually rolled over into a declining trend after the January top.
The November bottom was also a 9-Month Cycle bottom. In a bull market we would expect the market to rally for several months. The fact that the rally failed so quickly, is a very bearish sign.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111688b4c93970c-800wi
The longer-term view shows that the 2002 bear market lows are also being tested again, so the market is at a very critical point. Many people who are still holding equities (at a 50% loss) are counting on being bailed out by a big rally. If prices fall significantly below long-term support, we are likely to see another selling stampede.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111688b4d4b970c-800wi
The long-term condition of the market is deeply oversold, as demonstrated by the Percent of Stocks Above Their 200-EMA. This indicator has never been at these low levels for such an extended period of time. Normally, a rally is in the cards as soon as these levels are reached, but the market is flat on its back, and it is hard to say when it will recover. It is important not to get too anxious to get back in. We are in a bear market, and negative outcomes are much more likely than positive ones.
Also, remember that oversold conditions in a bear market are extremely dangerous. If the current support zone fails, a market crash could quickly follow.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111688b4df7970c-800wi
The medium-term condition of the market is neutral. Note that the ITBM and ITVM charts below are mid-range and falling. This is not a level from which we would expect a powerful rally to be launched.
http://blogs.stockcharts.com/.a/6a0105370026df970c011278ffe41c28a4-800wi
Bottom Line: The market is in the midst of a retest of very important support. Since we are in a bear market, I expect that the support will fail.
Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics and strategy if conditions change.
Posted by Carl Swenlin at 3:17 PM in Carl Swenlin | Permalink
The Value of Technical AnalysisThe reason technical analysis has value is that directional price moves are often sustained for a period of time allowing analysts to detect and profit from the change in price. Even though a technical analyst has many math-based tools to analyze price and volume movement, the process is ultimately an art in the study of human behavior.
Just as the meteorologist can never guarantee a weather forecast, a technical analyst can never be perfectly certain of future price movements since human behavior is involved.
Figuring out the what and when…
All investors are faced with three basic questions with their investments. What to invest in, when to buy and when to sell. Technical analysis provides a framework for investors to methodically select equities and pick times to buy and sell. Emotion, the investor’s nemesis, is greatly reduced in these decisions since the investor can develop a list of ‘what and when’ rules to follow. Rather than ‘buying and hoping for the best’, technical analysts always know how much risk they are taking and know when to ‘get out while the getting is good’.
Only price and volume only…
Only historical price and volume data is used for technical analysis. The underlying premise of technical analysis is that all known information such as what a company does, its financial results, analyst’s ratings, management performance, politics, news, etc. are reflected in the historical price and volume data. This is a powerful concept since it is impossible to gage how these factors may influence future price separately.
It is important to understand technical analysis can only be used to determine the likely direction of future prices. It cannot anticipate news events or how investors will respond to them.
The Goal of Technical Analysishttp://blogs.stockcharts.com/.a/6a0105370026df970c0111684fc865970c-800wi
The graph above is a historical price chart for the company Analog Devices, Inc., ticker symbol ADI. The line represents the price of ADI over a period of a year. The price chart illustrates how prices can move up, down or sideways for months at a time. Technical analysis uses methodologies to help indicate when prices are beginning to change direction. The goal of a technical analyst is to buy an equity when the price chart indicates prices are beginning to move up and then sell when the price chart indicates prices are beginning to move sideways or down.
Why Technical Analysis WorksTechnical analysis works because price and volume often reveal the collective psychology (the “fear/greed balance”) of a market’s participants. Technical charts can reveal changes in the fear/greed balance soon after those changes occur and that provides opportunities for profitable trades. Technical analysts work to identify charts where the fear/greed balance has recently changed in a predictable manner. They then place trades to try and profit from that change. Once they have bought a stock, technical analysts monitor price and volume for sell signals. Done correctly, trades based on technical analysis carry a higher than average chance of success but disciplined money management techniques must still be used to guard against unforeseen price movements.
Misuse of Technical AnalysisWhile the basics of technical analysis are easy to learn, applying them correctly and successfully isn’t easy. Because of this many people have lost money using technical analysis techniques and then concluded that chart analysis has no value. In addition, unfortunately, many unsuspecting investors have purchased technical “systems” that promise outlandish returns for little effort. By the time the buyer figures out that the system doesn’t work, their money is long gone.
Technical analysis is just like any other money making occupation – it takes time and energy and it involves risk. Anybody who says otherwise shouldn’t be trusted. Here are ways technical analysis has been misused in the past:
The Holy Grail mentality…
One of the most common misconceptions about technical analysis is that a trading system (a set of buy and sell rules) can be devised that provides consistent profits with little to no risk.
There are several reasons that a ‘perfect system’ cannot be sustained. Firstly, the market is made up of people with free will and guided by fear and greed. A perfect system requires prices to consistently move in predictable patterns. This will never be possible when people are involved. Secondly, many financial institutions monitor the market for patterns of systematic trading. Once detected, the financial institution can take advantage of the system (investing with or against it) which eventually compromises and defeats the ‘perfect system’. And finally, what motivation could someone have to share a ‘perfect system’ at any price? Such a system would be invaluable to one person but worthless (for the second reason) if too many people or even one institution discovered it.
Just tell me what to buy…
Investment charlatans and gurus have always been offering advice how to profit in the market. These are the people who take financial advantage of new and uninformed investors by promising quick and profitable investment success. Claims of ultra-high rates of return or knowledge of future events for substantial fees are the best ways to identify such schemers.
Although a real guru is a spiritual guide or teacher, the title ‘Market Guru’ is gladly accepted by advisors who have developed notoriety with fortuitous calls of major market changes or unusual approaches to investing. Today’s TV media and Internet enthrone new market gurus on a regular basis. There are precious few true market gurus like Warren Buffet who have proven their market savvy over decades. Most market gurus can only provide profitable guidance as long as the market is favoring their investment philosophy. As the market changes, new market gurus will emerge as their philosophies’ agree with the new market dynamics.
Technical Analysis lets me control the market…
While few people consciously believe that they can control a stock’s price directly, subconsciously, chart analysis can give new investors a false sense of control which will cause them to lose objectivity. “My stock just broke below my trendline today, but it will come back tomorrow since that is a really good trendline!”
The opposite response is just as damaging – “My stock broke my trendline! T/A is worthless!” Both responses are driven by emotion, something that technical analysis strives to eliminate.
February 07, 2009MACD LINES SHOW SOME PROMISE By John Murphy
John Murphy
A reader complained this week that we failed to point out the "negative divergence" in the daily MACD lines during January prior to the latest downturn. The reason I didn't point it out was because none existed. In fact, it may be the other way around. At the moment, the daily MACD lines look more positive than negative. Chart 1 overlays the MACD lines (and MACD histogram) over daily bars for the S&P 500. The chart shows that the MACD lines bottomed during October and gave a positive divergence during November (rising trendline) before rallying into the start of January. No negative divergence was given at the early January top. Although the S&P fell to the lowest level in two months during January, the MACD lines remained well above their earlier lows. The lines have now turned positive again (see circle). To me, that looks like positive divergence and hints at more market strength. The market is rallying today with the biggest gains coming from financial stocks (and banks in particular). The S&P is up more than 2% and is nearing a test of last week's intra-day high at 877. A close through that initial chart barrier would strengthen the market's "short-term" trend and keep the three-month trading range intact. There's even more good news.
http://blogs.stockcharts.com/.a/6a0105370026df970c01053716bd10970b-800wi
Posted by John Murphy at 4:34 PM in John Murphy | Permalink
February 07, 2009OBV AND RELATIVE STRENGTH DRIVE QQQQ By Arthur Hill
Arthur Hill
The Nasdaq 100 ETF (QQQQ) is breaking out of its trading range. The chart below shows QQQQ stuck in a trading since 10-Oct. Focusing on the blue dotted line marking the mid October lows, we can see that QQQQ traded above and below this line numerous times the last four months. In essence, QQQQ went nowhere from 10-Oct until early February. A triangle formed from early November as the trading range narrowed over the last two months.
QQQQ could be finding direction now. With an advance over the last five days, QQQQ broke the triangle trendline and is closing in on resistance from the early January high (red line). A breakout here would be quite positive and argue for a counter-trend rally. The big trend remains down, but bear market rallies are perfectly normal. QQQQ could possibly make it to the falling 200-day moving average.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116858faf6970c-800wi
Relative strength and On Balance Volume (OBV) confirm the triangle breakout. The first indicator shows QQQQ relative to SPY. This relative strength comparative rises when QQQQ outperforms SPY and falls when QQQQ underperforms. QQQQ has been outperforming since the second week of January because that is when the relative strength comparative broke resistance. On Balance Volume (OBV) is a cumulative indicator that adds volume on up days and subtracts volume on down days. Granville theorized that volume leads prices. If this is the case, then OBV suggests that QQQQ will break its January high soon. Notice that OBV broke its December and January highs this week.
for a video presentation of this information.
Posted by Arthur Hill at 4:30 PM in Arthur Hill | Permalink
February 07, 2009JANUARY FORECASTS A DOWN YEAR By Carl Swenlin
Carl Swenlin
Research published by Yale Hirsch in the "Trader's Almanac" shows that market performance during the month of January often predicts market performance for the entire year. The January "barometer" has been particularly prescient in odd years (the first year of a new Congress), with only two misses in 69 years (as of 12/31/2008). While the January barometer has a good record of prediction, I still put it in the "for what its worth" column, because I can't think of any sound reason why it should work, and in many years it seems that a correct forecast is simply serendipity.
http://blogs.stockcharts.com/.a/6a0105370026df970c01053714d465970b-800wi
As usual we think you should view charts of actual market movement before making decisions based on reported average performance. For example, in 1987 the January Barometer forecast an up year. Well, it was an up year, but what a wild ride! On our website we have an extensive series of these charts going back to 1920. It is worth studying the charts so that you have an educated opinion of how this forecast device really works.
http://blogs.stockcharts.com/.a/6a0105370026df970c01053714d4d2970b-800wi
Bottom Line: The January barometer predicts that 2009 will be a down year. Regardless of what the barometer says, I think it is wishful thinking to believe that 2009 will be a winner. Consumers, which are 70% of our economy, are scared to death for their jobs. Until unemployment stops rising I think investor risk aversion will remain high.
Posted by Carl Swenlin at 2:21 PM in Carl Swenlin | Permalink
February 07, 2009FOCUSING ON THE ENERGY SECTOR By Richard Rhodes
Richard Rhodes
Our focus today is upon the Energy Sector (XLE) and its relative valuation to the S&P 500 Spyders (SPY). Given the current bear market, we've found recently that market participants are once again willing
to return aggressively to what they know worked rather well in the last bull market - buying energy stocks as the dwindling world energy supply story continues to get quite a bit of play. We think this is
wrong-headed, for Energy is a "late cycle mover" rather than an "early cycle mover" out of recessions. Perhaps it is different this time; but we think not. Hence, we believe it wise to consider lightening up
aggressive overweight energy positions, and in some cases...we would advocate selling short the exploration & production group. We aren't as bearish on the oil service group, but that is a story for another day.
Technically speaking, the ratio has declined from its high of .70 to an initial low at .49, and from that point to today...a bearish sideways consolidation has formed upwards into the 200-day moving average. Perhaps just as important, this moving average is itself rolling over in bearish fashion. Reasonably thinking, we would expect it then to prove its merit as resistance, and for another leg lower to
develop to below the recent low at .49...into the 2005-to-2007 consolidation range. For those Elliotticians out there, this would be a simple A-B-C correction; which would give us two peaks upon which to
draw a declining trendline - a line in the sand upon which when broken above, would then signal the development of the next relative energy bull market. Until then, there is quite a bit of risk holding energy
shares.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168511b4a970c-800wi
Posted by Richard Rhodes at 8:55 AM in Richard Rhodes | Permalink
February 07, 2009BERMUDA TRIANGLE - WALL STREET STYLE By Tom Bowley
Tom Bowley
We've seen this all before.The sure-fire short setups get waxed as trendline support holds.Then the bulls grow confident as the market soars only to get turned back by trendline resistance.The cycle continues to repeat itself until we get resolution.If you time your entries perfectly, the triangle formations can be powerful trading patterns, but patience and extreme discipline is required.
Right now, the market is faced with exactly that triangle mentality.The triangle keeps squeezing with each high moving lower and every low moving higher.At some point, something must give.That time is quickly approaching.The breaking of the triangle pattern doesn't necessarily dictate whether the bear market ends.In fact, I would argue it doesn't matter at all.It does matter whether the bulls can turn the recent upside action into something longer lasting, however.
Let's take a look at the unfolding triangles, first on the S&P 500:
http://blogs.stockcharts.com/.a/6a0105370026df970c01053716bf9f970b-800wi
Next, the NASDAQ:
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685117b3970c-800wi
There is one difference on the buying this time - it's the volume that's accompanying the move higher.Any time we can get the price movement and volume confirmation, it's much more bullish.We haven't broken resistance though.Until we do, the volume is not as meaningful.Whether we see enough bullishness to crack through triangle resistance is a story for next week.
The odds of reaching that first Fibonacci retracement (38.2%) area increases greatly if the major indices can break their current triangle patterns with heavy volume.That's what I'll be looking for as next week unfolds.Also, financials helped to spark the turnaround on Thursday morning and the rally has continued in that space since.If and when that rally ends, it will likely signal the end to the overall market rally as well.
Happy trading!
Posted by Tom Bowley at 8:49 AM in Tom Bowley | Permalink
January 18, 2009OTHER BOND CATEGORIES ARE BOUNCING By Chip Anderson
John Murphy
I recently wrote about how investment grade corporate bonds were starting to gain some ground on Treasury bonds. Today, I'm adding two other bond categories to that list. The flat line in Chart 1 is the 20+Year Treasury Bond iShares (TLT) which has been the strongest part of the yield curve over the past few months. That's been partly due to a flight to safety and deflationary concerns. The three other lines in Chart 1 are relative strength ratios versus the TLT. All three bond ETFs have been gaining ground on Treasury Bonds since mid-December. The strongest has been the LQD (blue line) which I wrote about in the earlier article. The next strongest is National Muni Bond Fund (PZA) which is the green line. The next in line is the High Yield Corporate Bond Fund (HYG). Charts 2 through 4 show what those bond ETFs look like. The LQD in Chart 2 is trading well above its 200-day line. The Muni Bond ETF (Chart 3) is testing that resistance line and its early November peak. Chart 4 shows the High Yield Corporate Bond ETF trading at a three-month high and nearing its 200-day line. For those who think that the recent surge in Treasury bond prices is overdone (I certainly do), these other bond ETFs offer some alternatives.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116847aca2970c-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c01116847aca7970c-pi http://blogs.stockcharts.com/.a/6a0105370026df970c01116847acaa970c-pi http://blogs.stockcharts.com/.a/6a0105370026df970c01116847acac970c-pi
Posted by Chip Anderson at 4:12 AM in John Murphy | Permalink
January 17, 2009IS THE DOLLAR TOPPING? By Chip Anderson
Tom Bowley
An interesting result of the government bailout of the financials and automakers, along with the huge economic stimulus package will be the long-term impact on the U.S. dollar. Can the dollar maintain its relative value as interest rates fall and deficits mount? Let's take a look at a few charts regarding the dollar and how we can profit if the dollar does plunge. First, let's take a look at the long-term picture of the dollar:
http://blogs.stockcharts.com/.a/6a0105370026df970c0105370d69f2970b-pi
As you can see, the long-term trend in the dollar is down. Unless the dollar can pierce through the 92-93 area, the intermediate-term trend is down as well. Only the near-term chart shows any positive action on the dollar. And that rally is suspect technically as shown below:
http://blogs.stockcharts.com/.a/6a0105370026df970c0105370d69f8970b-pi
A bearish head and shoulders pattern formed from October through December and broke down below the neckline with force. Should the dollar fail to navigate the near-term resistance (retest of neckline) and the longer-term trend resumes to the downside, gold is likely to be a primary beneficiary. Gold is one commodity whose long-term uptrend remains intact because of the long-term downtrend in the dollar. Take a glimpse at the long-term chart on gold:
http://blogs.stockcharts.com/.a/6a0105370026df970c0105370d69fa970b-pi
The dollar and gold have an inverse relationship that's quite evident when you compare the two charts. During periods of dollar strength, gold weakens. However, dollar weakness leads to gold strength. So the question remains: What happens to the dollar as a result of the massive government bailout and the economic stimulus package? Answer that question correctly and you profit. It's as simple as that.
Happy trading!
Posted by Chip Anderson at 8:25 PM in Tom Bowley | Permalink
January 17, 2009RALLY FAILURE By Chip Anderson
Carl Swenlin
In my January 2 article I pointed out that the stock market was overbought by bear market standards, but that the rally had plenty of internal room for prices to expand upward if bullish forces were to persist. There was a brief rally and a small breakout, but then the rally failed, breaking down from an ascending wedge formation. I wasn't really expecting a bullish resolution, but one must keep an open mind when appropriate conditions appear.
On the chart below you can see the short-term declining tops line through which the breakout occurred. Instead of a buying opportunity, it was a bull trap. At this point we must assume that the November low will be tested. Note also that the PMO has crossed down through its 10-EMA, generating a sell signal.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105370d6a04970b-pi
The weekly chart below gives a better perspective, I think. It shows how aggressive the current down move is compared to the price activity that precedes it. Also, the PMO has topped below its moving average, a bearish sign. Prices are once again approaching the long-term support drawn from the 2002 lows. A successful retest could set up a double bottom from which another intermediate-term rally could launch, but in a bear market we shouldn't bet on that outcome.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105370d6a07970b-pi
For many months I have been emphasizing that our analysis should be biased toward bearish outcomes because we are operating in the longer-term context of a bear market. The tide is going out and it is foolish to try to swim against it. In a much broader context, we are in the midst of a global debt collapse that is only in the beginning stages. I find it impossible to imagine economic circumstances in the immediate future that would be even remotely favorable to stocks.
Bottom Line: In a bull market overbought conditions most often result in small corrections, consolidations, or deceleration of the up trend. In a bear market overbought conditions are usually a sign that a price top is at hand. Because the most recent overbought event has resulted in a price top, I think we can safely assume that the bear has not retreated.
Posted by Chip Anderson at 8:20 PM in Carl Swenlin | Permalink
January 17, 2009EURO FINDS SUPPORT AS DOLLAR HITS RESISTANCE By Chip Anderson
Arthur Hill
With a bounce on Friday, the Euro Trust ETF (FXE) found support from a confluence of indicators and chart features. First, broken resistance turns into support in 130-132 area. Second, there is support in this area from the 50-day moving average. Third, the decline over the last few weeks retraced around 62% of the prior advance. The ETF was also oversold after a rather sharp decline from 145 to 130. This combination of conditions and chart features made FXE ripe for a bounce.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116847ac8c970c-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c01116847ac8e970c-pi
With the Euro bouncing, the US Dollar Index Bullish ETF (UUP) came under pressure on Friday. Notice that these two charts are mirror images of each other. After a surge over the last few weeks, UUP met resistance near broken support and the 50-day moving average. The advance in UUP looks like a rising flag, which is potentially bearish. For now, the flag is clearly rising as the trend has yet to actually reverse. A move below the early January low would break flag support and call for a continuation of the December decline.
There is also a video version of the this analysis available at TDTrader.com - Click Here.
Posted by Chip Anderson at 8:16 PM in Arthur Hill | Permalink
January 04, 2009WHAT LIES AHEAD? By Chip Anderson
Tom Bowley
In order to gain a decent perspective as to where we might go in 2009, it's always helpful to take a look at the past to see how we got here. 2008 was a horrible year for the major stock market indices. The Dow Jones, S&P 500, NASDAQ and Russell 2000 lost 33.84%, 38.49%, 40.54% and 34.80%, respectively for the year. It didn't matter where you put your money - nearly every stock index here in the U.S. as well as abroad suffered major financial and technical damage. It's not irreparable damage, but building a solid foundation for a future advance will be a key in 2009. Holding price support at the lows in the fourth quarter is paramount to building that solid foundation.
Clearly, the stock market suffered its worst annual loss in several decades. After all the selling and panic, especially towards the latter part of 2008, the Dow Jones finished 2008 23.66% below where it began this decade. The last time the Dow Jones lost ground during a decade was the 1930's, when it lost 39.64% over that ten year span. The Dow Jones would need to advance 31.00% to avoid having a losing decade. While anything is possible, that seems a tall order especially considering that the Dow Jones had already advanced 15.77% from the November 21st low through year end. Friday, January 2nd did get us off to a great start, albeit on light volume.
The U.S. stock market remains in a bear market. Despite the surge off of the November 21st lows, we must respect the longer-term bear market message. That doesn't mean we can't continue to advance near-term. In fact, I would be surprised if we didn't rally further during January. Historically, January is the best month for the NASDAQ and is one of the best months for the Dow Jones, S&P 500 and Russell 2000. Technically, if we look at possible Fibonacci retracements of the recent downtrend, we can attempt to pick a price point where the current rally may fizzle. Let's look first at the NASDAQ:
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685909dd970c-pi
Here's the way the S&P 500 shapes up:
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685909e2970c-pi
I do believe the market has moved from a very emotional, panic-stricken state to a more stable one. That's not to say we won't see periods of heightened volatility, but the initial shock that was felt in 2008 is behind us and so too is the enormous swings in prices from day to day. That should allow for a period of consolidation where momentum oscillators like stochastics and RSI can be used to more effectively time trades. Pay close attention to these indicators when they flash overbought and oversold conditions, however, because most likely trend changes will be sudden and perhaps without explanation. From the next chart of the VIX, you can see how the emotional roller coaster in the 3rd and 4th quarters of 2008 is finally calming down. Everyone can at least breathe a sigh of relief from that development.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685909e5970c-pi
I hope everyone had a very nice holiday season and here's to a healthier and happier 2009!
Happy trading!
Join Tom and the Invested Central team atInvested Central provides daily market guidance, intraday stock alerts, annotated stock setups, LIVE member chat sessions, and much, much more.
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http://blogs.stockcharts.com/.a/6a0105370026df970c0111685909e9970c-pi
Posted by Chip Anderson at 5:05 PM in Tom Bowley | Permalink
January 04, 2009QQQQ BREAKS CONSOLIDATION RESISTANCE By Chip Anderson
Arthur Hill
QQQQ broke consolidation resistance with a big surge on the first trading day of the year. After surging in late November and early December with two gaps, QQQQ stalled for most of December with a flat trading range. The consolidation pattern looks like a flag and the upside breakout calls for continuation of the Nov-Dec surge. For an upside target zone, the October-November highs mark the next resistance area around 34-36.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685909d5970c-pi
As expected, QQQQ volume levels have been low throughout the holiday season. In fact, QQQQ volume has been uninspiring throughout most of December. Volume was even below average on Friday's big move. While low volume advances are suspect, price action is first and foremost. The consolidation breakout should be considered bullish until proven otherwise. Volume will likely return in early January and it is important that the consolidation lows hold. A break below these lows on expanding volume would be bearish.
There is also a video version of the this analysis available at TDTrader.com -
Posted by Chip Anderson at 5:04 PM in Arthur Hill | Permalink
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January 04, 2009HOW OVERBOUGHT IS IT? By Chip Anderson
Carl Swenlin
For the last few weeks the stock market has been drifting higher on low volume, and there is no doubt in my mind that the Fed/Treasury has been the invisible hand that has quickly moved in to squelch any selling that started. Under these conditions, I find it difficult to draw any solid conclusions from indicators that have been fed a diet of questionable market activity. Nevertheless, we must work with the information we have and accept it at face value until more normal market action increases our confidence in our conclusions.
Looking at the chart below we can see pretty much all there is to see in the medium-term picture. Breadth and volume indicators are clearly in the overbought side of the trading range. Based upon the range we have seen during the bear market, internals are very overbought, but, relative to the normal indicator ranges, the indicators have a long way to go up if the rally continues.
The PMO (Price Momentum Oscillator) is still below the zero line, but it is recovering from the lowest reading since the 1987 Crash, and, relatively speaking, it too is overbought. However, there is still plenty of room before a continued rally will move the PMO to normal overbought levels.
Looking at the price index, we can see the S&P 500 is coming out of a "V" bottom, and there is plenty of room for it to rally before it hits serious overhead resistance. A rally up to that resisitance would convince most people that the bear market was over, but it wouldn't be. And by then the market would be seriously overbought by any standard.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6d6e970b-pi
In the short-term the market is very overbought, as demonstrated by the CVI (Climactic Volume Indicator) chart below; however, CVI readings this high can also be an initial impulse that initiates a rally.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6d73970b-pi
Bottom Line: By bear market standards the market is overbought and due for a correction, but there is plenty of room for prices and indicators to expand upward. The low volume associated with the rally dampens my enthusiasm for the positive signs that exist, and I wonder if investors are ready to forget the fear that has been generated by the severe beating they have been dealt by the economy and falling markets.
Posted by Chip Anderson at 5:03 PM in Carl Swenlin | Permalink
January 04, 2009PURSUING HEDGING STRATEGIES IN 2009 By Chip Anderson
Richard Rhodes
As the credit crisis continues apace into 2009, we believe the time is rather "ripe" for pursuing various hedging "thematic" strategies to profit from relative valuations across the globe. Quite simply, we believe that the credit crisis will fundamentally impact various global regions in a different manner. Asian countries are likely to prosper more so than Latin American countries as Asia isn't as dependent upon energy or natural resources as is Latin America. Also, Ecuador's tacit default has caused a bit of angst in the region. Therefore, we are putting on a long Asia-Pacific ex-Japan (EPP)/short Latin America (ILF) spread trade.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685909d6970c-pi
Technically speaking, we see EPP has underperformed ILF for about the past 5-years; however, that changed in 2Q-2008 as the EPP/ILF ratio broke out of its bullish declining wedge. This bottoming pattern would suggest a multi-year rally; and one that appears ready to trade higher once again after a brief correction back into the now turning higher 60-week exponential moving average. If we keep it simple, and buy the ratio around 1.0, then we can expect over time to gain upwards of 50% on the trade with a target of 1.50.
We believe this shall be a "core position" for some years into the future, and we would look to add in various increments as we see it prove its merit with higher prices. More importantly, given the enormous government intervention into the capital markets around the world, we can not whether stocks go higher or lower - just that EPP outperforms ILF. There is beauty in this trade indeed.
Good luck and good trading!
Posted by Chip Anderson at 5:02 PM in Richard Rhodes | Permalink
January 04, 2009INTERMARKET TRENDS TURN MORE POSITIVE By Chip Anderson
John Murphy
Chart 1 shows how the interaction between the four main asset classes unfolded during 2008 and how they're entering 2009. The two weakest assets were commodities and stocks. The two strongest were Treasury bonds and the dollar. During the first half of the year, commodities were the strongest asset class while the others lost ground. At midyear, however, a sharp rally in the dollar (green line) caused a massive collapse in commodities (black line) which continued until November. Treasury bonds (red line) rallied sharply on plunging commodities. During most of the second half, bonds and the dollar rallied while stocks (blue line) and commodities fell together. . Starting in November, however, those trends started to reverse. The stock market started to recover as the dollar weakened. As we enter the new year, stocks and commodities are bouncing while the dollar and bonds are pulling back. While those trend reversals are still relatively small, they do suggest that investors are entering the new year in a more optimistic mood.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6d64970b-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
January 04, 2009STYLEBUTTONS GIVE YOU MULTIPLE WAYS TO ANALYZE A STOCK INSTANTLY By Chip Anderson
Chip Anderson
Hello Fellow ChartWatchers!
First off, Happy 2009! Let's hope this year is better than 2008 - one of the all time stinkers in terms of stock market performace. How bad was it? Here ya go:
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6d66970b-pi
Ugh. Well, let's not dwell on it too much. Instead I wanted to talk about another "hidden gem" feature of our website that can help subscribers get the most bang for their charting buck. Last time I talked about ChartStyles - templates of chart settings that you can save into your account. This week I want to show you how you can hook your saved settings up to small, easy to use buttons called StyleButtons that let you access you most important ChartStyles instantly.
First I want to show you how you can create a StyleButton for your Default style. If you've set up your account correctly you should have used the "Save As Default" link to customize the initial appearance of your charts so that they look the way you prefer. By doing that you've created a special ChartStyle called ">>Default<<". Let's assign a StyleButton to ">>Default<<" so that you will always have access to that style with a single mouseclick.
Start by logging into your account and then entering a ticker symbol in the QuickChart box in the upper right corner of the page. I used $COMPQ, the Nasdaq composite:
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6d6c970b-pi
So this is what my current "Default" style looks like. Often, after experimenting with lots of different settings, I want to give up and quickly get back to this view. There are several ways to do that, but by adding a ChartButton I can do it in one click. To add a ChartButton for this default style simply click on the "Edit Properties" link in the "ChartStyle" area below the chart:
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6d76970b-pi
When you click on "Edit Properties", a popup box appears whith some settings. The one we care about is the "Shortcut" dropdown. That dropdown contains a list of numbers. Each number corresponds to a StyleButton position on the left side of the chart. Since we'd like our "Default" StyleButton to always be at the top of the chart we'll set the "Shortcut" dropdown to "1" and then press "Save Changes"
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6d7b970b-pi
After saving that change our workbench page now looks like this:
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6d82970b-pi
Notice the difference? It's subtle but there is now a grey button just to the left of the top of our chart. That is a StyleButton. If you move your mouse over that button you'll see its name (">>Default<<" in this case). Clicking that button will now always bring you back to your Default style.
StyleButtons are most useful when you have several that show you different views of the same stock - for instance a Long-term view and a Short-Term view. To create a new StyleButton first create the ChartStyles that you will use with the "Add New" link then simply assign a "Shortcut" number to any of the styles that you want to make into buttons. When you are done you should see something like this:
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6d85970b-pi
In the example above I've created a "Weekly" style for button #2 and a Monthly style for button #3. My mouse is over button #3 so that you can see its name - as soon as I move my mouse away the name disappears.
As you can see StyleButtons give you one-click access to any kind of chart analysis you can imagine. Maybe you want a Renko style, a 1-minute style, a 10-year style and a Trending/Trading style (from my last article). All of that an more can be saved into your account as ChartStyles and then associated with StyleButtons for instance access.
-- Chip
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
December 14, 2008MARKET RALLIES TO FIND RESISTANCE By Chip Anderson
Tom Bowley
I knew eventually we'd get a rally with legs. The recent long-term positive divergences across our major indices suggested a 50 day SMA test was on the horizon and that's exactly what we saw this past week. Key indices hit resistance and, not surprisingly, backed away on the first attempt. The bears have been in the drivers seat for the last few months. They were not going to be taken down without a fight. The battle was waged and the bears were victorious - for now.
The market has stabilized somewhat and that's a positive. I wouldn't go so far as to say it's stable, just that it's in the process of stabilizing. Thursday afternoon's selloff occurred with the VIX barely budging higher. That's a critical sign that the fear and panic that ruled the market and ruined portfolios is not a major factor currently. Resiliency is a word often associated with the market now. Horrible news is being routinely ignored. The Employment report last Friday was worse than anyone could have predicted. Yet after a quick morning selloff, the major indices rallied. On Thursday evening, the Senate rejected the House's proposal on a $14 billion bailout package and futures were bleak. Asian markets tumbled overnight and given the late day selloff on Thursday, US investors were worried that another steep drop was upon us. But futures improved into the open and the major indices mostly rallied throughout the day, finishing in positive territory and near the highs of the day. It's that old adage, "sell on rumor, buy on news".
I am beginning to rely less on sentiment indicators as the market appears to be moving away from the emotional level of trading that we saw for many weeks. I expect to see more back and forth action once a range is established. That should set up for very profitable trades using momentum oscillators like stochastics and RSI. During the recent downtrend, the daily RSI has remained primarily below 50. If conditions are truly changing, we should see that oscillator begin to move back and forth between the key levels at 30 and 70. In sideways, consolidating markets, the stochastics and RSI oscillators can prove to be the most useful indicators for entry and exit points.
Technicals precede fundamentals. They always have and they always will. If you can follow the price action, you can trade the market. Will the recent bullishness last? Yes, it's quite possible. In fact, I'm watching for the highs on this current leg up to define our trading range over the next several months. While January 2008 was horrific for equities, the December-January timeframe is historically quite bullish. Financials are trying to repair themselves technically, but hurdles remain. As you can see from the chart of the XLF below, it's attempting to ascend past key short-term price and moving average resistance as reflected below:
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6eff970b-pi
A move past key resistance will open the door to higher equity prices overall. Similarly, the SOX is also knocking at resistance's door as shown below in Chart 2:
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6f06970b-pi
These are two influential groups that will most likely need to participate in further strength in equities. Without them, this attempt could be futile.
I want to wish everyone a relaxing holiday season and a happy new year!
Happy trading!
Posted by Chip Anderson at 5:05 PM in Tom Bowley | Permalink
December 14, 2008GOLD BENEFITS FROM WEAK DOLLAR By Chip Anderson
Arthur Hill
After surging from the low 70s to the upper 80s, the U.S. Dollar Index ($USD) experienced its sharpest decline in years. In fact, this week's decline was the sharpest in over 10 years. The bottom indicator window shows the 1-week Rate-of-Change dipping to -3.89% this week. While this may seem like a trend changing event, keep in mind that the Dollar was quite overbought after the prior advance. Some sort of correction is normal and the index could very well retrace 50% of the prior advance.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590cc8970c-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590cd0970c-pi
Weakness in the greenback sparked a rally in gold this week as the streetTRACKS Gold ETF (GLD) gained over 8%. The surge off support looks impressive, but GLD remains in a falling price channel for the year. This pattern, however, could be bullish because it looks like a massive flag. Flags are corrective patterns that form after a big advance. A break above the 40-week moving average and upper trendline would signal a continuation of the prior advance (55-100).
There is also a video version of the this analysis available at TDTrader.com - Click Here.
Posted by Chip Anderson at 5:04 PM in Arthur Hill | Permalink
December 14, 2008TIME RUNNING OUT ON RALLY By Chip Anderson
Carl Swenlin
Last week we looked at a descending wedge pattern on the S&P 500 chart that could have sparked a rally had it resolved to the upside. Prices actually did break upward, but volume was poor, and the up move stalled immediately. Now there is an ascending wedge pattern inside a declining trend channel. The technical expectation is for the wedge to resolve to the downside, but I should emphasize that it would only have short-term implications.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6f9c970b-pi
I am becoming more concerned with the medium-term prospects for the stock market. In late-October the market became extremely oversold by virtually every measure. This was a signal for us to start looking for an important rally. Since then, the oversold readings have been getting worked off as the market has been grinding sideways and lower. As you can see on the chart below, three of our medium-term indicators for price, breadth, and volume have been moving up and are relatively overbought (relative to their recent trading ranges).
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6fa5970b-pi
On the chart of our OBV suite of indicators below, note that the medium-term VTO (bottom panel) is at overbought levels. The short-term CVI and STVO have also peaked in overbought territory.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6fa7970b-pi
Bottom Line: There has been a small rally out of the November lows, but volume has been weak. Deeply oversold readings have so far failed to deliver a rally of the strength and duration we would normally expect, and, with internals now becoming overbought, time is running out. The problem, I suspect, is that the only buyers are nervous short sellers. Once the shorts have covered, new buyers needed to continue the rally fail to materialize because nobody wants to buy this market.
Posted by Chip Anderson at 5:03 PM in Carl Swenlin | Permalink
December 14, 2008WORLD MARKETS, CRUDE OIL, AND S&P ENERGY By Chip Anderson
Richard Rhodes
As we approach the end of the year, we find world stock markets attempting to trade a bit higher, although volatility remains quite high, but off it's worst high levels. However, we believe it shall not be low for very long; hence our propensity is to use this rally attempt to put put back on several short positions. From our trading perspective, we believe the energy sector have quite a bit of downside remaining...even thought the sector has been decimated. Our reasoning: lower crude oil prices on the order of $30-$36/barrel. This range is a bit wider than we have previously stated, and it incorporates last week's Goldman Sachs reversal from $200/barrel to $30/barrel in the next 3-months due to the widening of the "super contango." Our reading of the technicals behind the S&P Energy ETF (XLE) seem to bear this out...no pun intended!
Looking at the XLE weekly chart, we find prices fell off a cliff much like all other sectors - breaking down through its bull market trendline and its 70-week and 200-week moving averages. Obviously this is bearish stuff, with the trend remaining lower. What our interest is in at present is the manner in which prices are consolidating in sideways fashion in conjunction with the inability of the 14-week stochastic to move higher out of oversold territory. This argues rather strongly we think for a resumption of the downtrend in the very near future that should coincide with crude oil prices falling towards our above-stated range. Our target is $33-to$36, which is about -25% off current levels. The question is one of timing.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6ea3970b-pi
Posted by Chip Anderson at 5:02 PM in Richard Rhodes | Permalink
December 14, 2008% NYSE STOCKS ABOVE 200 AVERAGE By Chip Anderson
John Murphy
A reliable measure of the market's strength or weakness can be found in the % of NYSE stocks trading above their 200-day averages. That's because 200-day averages are used to measure a market's long-term trend. . Chart 1 shows the indicator since the start of 2006. The sharp drop during the second half of 2007 was one of the bearish signs that warned of a coming bear market. During bull market corrections, the indicator will often pullback into the 40-50% region. The April 2006 bull market correction bounced from 40%. Drops below 40% signal the start of a bear market which occurred during the second half of 2007. Bear market bounces can rise into the 50-60% region. The April/May bounce rose to 53% before turning back down again. The August bounce failed at 40%. A reading above 60% is normally needed to signal a new bull market. Chart 2 shows the trend during 2008 which is still very low 4%. That means that 96% of NYSE stocks are trading below their 200-day lines. While that historically low reading reflects a deeply oversold market, it doesn't show any sign of turning higher. Remember that the stock market is a market of stocks. The market can't be expected to rise much when the overwhelming majority of its stocks are still in major downtrends.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b7f970c-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b83970c-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
December 14, 2008CHARTSTYLES ARE POWERFUL, UNDERUSED FEATURE OF STOCKCHARTS By Chip Anderson
Chip Anderson
Hello Fellow ChartWatchers!
Happy Holidays and welcome to our December issue of ChartWatchers. We only do one newsletter in December and so you can bet it's a good one. John, Arthur, Carl, Richard and Tom are all focused on the market but I wanted to take time today to make sure that everyone is getting the most out of one of the key features of our website: ChartStyles.
ChartStyles are basically "templates" of charts. They contain everything about the chart except the ticker symbol. Members of our Basic and Extra services can save multiple ChartStyles into their accounts for quick access later. Consider the following example:
Let's say that you have been reading the newspaper and a story on Amazon (ticker symbol: AMZN) catches your eye. You'd like to do some research on AMZN's price movements - what's the best way to start?
Step One is to just go to StockCharts.com, enter AMZN in the Quick Chart box and click "Go!". That will give you a SharpChart of AMZN in your "Default" ChartStyle for your account. If you've never changed your Default style, you'll see a daily candlestock chart with RSI and MACD indicators.
While your Default chart is helpful, you'll want to do more in-depth research. Let's say that you also want to see the long-term view, the short-term view, a trending-or-oscillating study, and maybe a Renko study.
While you can change the settings below the chart to create each of these things, that gets tedious after awhile. There has to be a better way, right? That "better way" are ChartStyles. By taking the time to create and save each one of those different studies into your account as a ChartStyle, you can then pull up those settings instantly with just one or two clicks.
For example, here are the steps to create and save a "trending-or-oscillating study" as a ChartStyle:
Step 1 - Create a Chart with the Settings you Wanthttp://blogs.stockcharts.com/.a/6a0105370026df970c011168590a84970c-pi
In this case, I added the Aroon Oscillator and Wilder's ADX studies to a standard candlestick chart. Both indicators can help you determine if a stock is "trending" or "trading" (i.e. oscillating sideways) which is very useful in determining which buy/sell signals to use. (See our ChartSchool articles on those indicators for more info.)
Step 2 - Make Sure your Settings are "General Purpose"Before saving a ChartStyle you want to take a moment and review your settings to ensure that they will work with other ticker symbols at other times. Specifically, you want to avoid using "Start/End" Range settings that have specific dates in them - those dates may not be valid when you use this ChartStyle several months from now. You also want to avoid using Price indicators that include the chart's main ticker symbol - those settings won't make sense when you apply this style to a different ticker.
Step 3 - Add the New ChartStyle to Your Accounthttp://blogs.stockcharts.com/.a/6a0105370026df970c011168590a91970c-pi
Just below the chart is the "ChartStyle" line - I've outlined it in blue in the picture above. It contains all of the links you need to create and control your ChartStyles. Right now, we are trying to add a new ChartStyle to our account, so we need to click the "Add New" link (the black arrow). When we click that link, a popup area appears below it - that's what I've outlined in red above.
Let's call our new ChartStyle "Trend/Oscillate Study" - simply enter that in the "Name" field and click the "Add" button to create the new ChartStyle. (I'll talk about the "Button" field in my next article.)
Step 4 - Test the New ChartStylehttp://blogs.stockcharts.com/.a/6a0105370026df970c011168590a97970c-pi
We can use the "ChartStyles" dropdown to test our new style. It contains all of our saved ChartStyles as well as our ">>Default<<" style and seven predefined styles. To test our new style, first select the "SCC Default" setting from the dropdown. You should see the standard RSI/MACD chart appear. Then select "Trend/Oscillate Study" and our Aroon/ADX chart should reappear. Success!
You can now apply that study to ANY ticker symbol just by selecting that entry from the ChartStyles dropdown. I bet you can think of 10 more studies that you'd like to create. Why wait? Go for it. Every ChartStyle you create makes StockCharts that much more powerful for you. Enjoy!
If you get confused by any of this, click the yellow "Instructions" link for more information.
Happy Holidays everybody!
-- Chip
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
November 16, 2008LOOK UNDER THE SURFACE By Chip Anderson
Tom Bowley
This has been one ugly bear season. It cannot be compared to anything else seen on the S&P 500 since 1950. Not even close. But I'll say one thing - there's an awful lot of horrible economic news priced into this market right now. I am convinced that the worst is behind us. That doesn't mean we won't continue to see horrendous economic reports. This will be a holiday shopping season that every retailer in America had wished they could have skipped. We will see hundreds and hundreds of thousands of jobs lost in the coming months. As a result, home prices are nowhere near stabilizing yet. And without home prices stabilizing and economic improvement, banks aren't exactly sitting in the catbird seat either.
But the market prices these things in. That's why we've seen the NASDAQ drop 37.1% in the last 10 weeks. The S&P 500 and the Dow Jones aren't far behind, down 32.9% and 27.5%, respectively, during these last 10 weeks. The NASDAQ, from November 4th's close to the intraday low on November 13th, lost over 350 points, or 19.75%, in less than 7 trading days. Most technicians trying to time market bottoms using their trusty, dusty MACD's and OBV's and SUV's (oops, wrong story!), have erred miserably. They haven't worked with the precision most technicians have grown accustomed to. Instead, this wild market ride has been 100% about emotion. Sentiment indicators have worked like a charm. Two weeks ago, I commented that the VIX had just broken beneath its 20 day EMA for the first time in 2 months and that I was looking for a drop to 46. A couple days later, it hit 44 and change before bouncing again. Now the 50 day SMA on the VIX becomes an important level on a closing basis. Also, the put call ratio and the various moving averages that we use to identify "relative" complacency and pessimism have been of utmost importance in spotting key short-term reversals. Literally, on Thursday as we were wrapping up our noon chat and folks were exiting, I took a final look at the latest put call reading that was published at 1pm EST and it provided us with the final clue to start buying. The "equity only" put call ratio - during just one half hour reading - showed over 200,000 equity puts purchased and just 98,000 calls bought. That half hour ratio was over 2 to 1 in favor of puts, something I cannot ever recall seeing on the equity only reading. The market EXPLODED higher from 1pm on Thursday. Check out this 2 day chart on the NASDAQ:
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590a82970c-pi
We recorded the last few minutes of that chat session on our website for anyone wishing to listen to my shock and dismay following that put call reading! Reviewing sentiment indicators like the put call provides opportunities that otherwise would be missed using standard technical indicators and it's why it's such a huge part of our trading arsenal.
The MACD (dare I say!) has turned decidedly bullish on the daily charts. We have a long-term positive divergence in place as shown below:
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590a8d970c-pi
The market appears to be at or rapidly closing in on a tradeable bottom. We believe the risk/reward is such that aggressive traders could look to enter long positions in increments during further weakness. Let's not forget, this Friday is options expiration and MAX PAIN!!!
As always, keep those stops in place!
Happy trading!
Join Tom and the Invested Central team at www.investedcentral.com. Invested Central provides daily market guidance, intraday stock alerts, annotated stock setups, LIVE member chat sessions, and much, much more.
Posted by Chip Anderson at 5:06 PM in Tom Bowley | Permalink
November 16, 2008DOW BATTLES SUPPORT By Chip Anderson
Arthur Hill
The Dow Industrials surged off support for the fourth time in five weeks. Will this bounce produce a breakout or failure? As the candlestick chart below shows, the Dow Industrials is locked in a volatile trading range with support around 8000 and resistance around 9700. The Dow dipped below 8250 least four times and surged above 9250 at least three times. Talk about a yo-yo.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6e94970b-pi
In an effort to weed out some of this volatility, I am also looking at a close-only chart. There are three dips below 8500 and a broadening formation is taking shape. These patterns are normally associated with tops, but we can probably apply some reverse logic with one forming after the Sept-Oct decline. Currently, the Dow is moving from the upper trendline towards the lower trendline, which targets further weakness towards 7800-8000. Thursday's big bounce looks impressive, but it is not quite enough to reverse the two week downswing. Sorry for getting so short-term, but these are big swings we are dealing with. While I was impressed with Thursday's surge, it was just one day and Friday proves that some follow through is needed for confirmation. A close above minor resistance at 9000 would provide such follow though.
The bottom indicator shows On Balance Volume (OBV) moving to new lows this week. Joe Granville theorized that volume leads price. If this is the case, then OBV is pointing to new lows for the Dow. Look for a break above the blue trendline and early November high to reverse the downtrend in OBV.
There is also a video version of the this analysis available at TDTrader.com - Click Here.
Posted by Chip Anderson at 5:05 PM in Arthur Hill | Permalink
November 16, 2008RYDEX RATIOS DIVERGE By Chip Anderson
Carl Swenlin
Decision Point charts a couple of indicators that are useful in determining investor sentiment based on actual deployment of cash into Rydex mutual funds. The Rydex Asset Ratio is calculated by dividing total assets in Bear plus Money Market funds by total assets in Bull funds. The Rydex Cash Flow Ratio is calculated by dividing Cumulative Cash Flow into Bear plus Money Market funds by Cumulative Cash Flow into Bull funds. (A thorough discussion of these ratios can be found in the Glossary section of our website.) When total assets in a given fund increase/decrease, the cause is an advance or decline in the fund's shares; however, there is also a component of the amount of cash moving into and out of the fund. This is why we have the two indicators.
On the Assets Ratio chart below, we can see that the Ratio is deeply oversold, implying that sentiment is very bearish, and that an important price bottom is being formed. This oversold reading is a direct result of the severe market decline depressing bull fund prices and inflating bear fund prices. The next chart shows a completely different picture.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590cae970c-pi
While the Asset Ratio is oversold and bullish, the Cash Flow Ratio below is overbought and bearish. It is telling us that investors are quite bullish, and that a decline should be expected. That the two Ratios have diverged so severely is a very unusual situation, so let's take a closer look at what happened.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590cbc970c-pi
The next chart shows that, when the market began to consolidate, cash flowed out of bear funds and into bull funds. I can think of no other reason except that Rydex investors were anticipating a rally and trying to pick a bottom. This is bearish. I should emphasize, however, that the Ratios reflect the activity of a relatively small percentage of total market participants. Nevertheless, these indicators have a good performance record and are useful tools.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590cc2970c-pi
Bottom Line: The current divergence of the Rydex Ratios leaves us in a predicament as to which we should believe. In my opinion, the Cash Flow Ratio shows what is happening beneath the surface of asset totals, and it should be the first to be believed.
Posted by Chip Anderson at 5:04 PM in Carl Swenlin | Permalink
November 16, 2008BOOKSTORE NEWS: FREE SHIPPING FOR THE HOLIDAYS! By Chip Anderson
Site News
That's right folks! Beginning today (November 16th), we are offering free shipping for all orders in our Online Bookstore. Now is the time to stock up on those books you have been considering, or purchase that holiday gift for friends and family. We have a number of really useful book bundles that would make wonderful gifts for the investor.
No coupon code is needed - simply go to the Bookstore, select the items you wish to purchase, and the "Free Shipping" option will be available in the drop-down in the checkout process. Please note that the free shipping offer is only available for shipments being sent within the US, and for standard USPS shipments only. This offer is valid until Dec. 31st, 2008.
Posted by Chip Anderson at 5:02 PM in Site News | Permalink
November 16, 2008S&P JUMPS 6% AFTER TOUCHING NEW LOW By Chip Anderson
John Murphy
After dropping briefly to the lowest level since March 2003, the S&P 500 achieved an upside reversal day (as did all of the other major indexes) that resulted in a 6% gain. It also did that on the highest volume in weeks. The fact that the S&P touched a new low before rallying is especially impressive (Chart 1). The Nasdaq did the same (Chart 2). The Dow Industrials bounced off psychological support near 8000. The rally was aided by short-term positive divergences in both the daily RSI and MACD lines. Although all market groups participated, the biggest gains were seen in consumer discretionary, financials,REITS, and small caps. Commodity stocks also rallied strongly. Gold and energy stocks gained 12%. The commodity bounce was aided by stronger stocks and a weaker dollar. Many commodity markets were closed during the late stock rally and will probably see more buying tomorrow. Bond prices sold off as stocks rallied.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b74970c-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b77970c-pi
Subscribe to John Murphy's Market Message today!
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
November 16, 2008NYSE HIGH-LOW LINE TELLS THE TALE By Chip Anderson
Chip Anderson
StockCharts.com is all about visually representing what's going on in the markets. Here's a sobering visual representation for you:
Daily NYSE High-Low Line:
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b90970c-pi
Weekly NYSE High-Low Line:
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b99970c-pi
You can view these two charts anytime at http://stockcharts.com/charts/gallery.html?$NYHL
The $NYHL index a market breadth indicator that is calculated at the end of each day by taking the number of stocks making New 52-week Highs on the NYSE and subtracting the number of stocks making New 52-week Lows. Those values are then plotted cumulatively to create the NYSE High-Low Line that you see above.
Because it is a cumulative plot, the actual value of each point on the chart is unimportant. (In fact, they will change if you adjust the starting date of the chart.) What is important is the shape of the line - up is healthy, down is sick.
Get the picture? We're sick. We've been sick awhile. We will probably be sick for a while longer. For long-term ChartWatchers, there's not much point in hopping back into the market until these lines start going up again.
-- Chip
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
November 02, 2008HISTORY REPEATS ITSELF AGAIN AND AGAIN AND AGAIN By Chip Anderson
Tom Bowley
Previously, I've mentioned a favorite indicator of mine - The Bowley Trend. The Bowley Trend is an analysis of stock market history, dating back to 1950 on the S&P 500 and 1971 on the NASDAQ. It identifies discernible bullish and bearish trends that have emerged over time and provides additional clues as to the direction of equity prices. I use The Bowley Trend to corroborate technical signals.
I mentioned in a July article the 2nd worst historical week of the year. We just experienced a major league beating during the absolute worst period. The most interesting aspect of October is that the worst historical period is followed immediately by the best historical period - amazingly, the bearish switch is turned off and the bullish switch is turned on, literally overnight. Consider the following annualized returns since 1971 on the NASDAQ:
October 22: 15 up days, 11 down days, annualized return -64.98%
October 23: 8 up days, 16 down days, annualized return -89.82%
October 24: 11 up days, 16 down days, annualized return -66.26%
October 25: 9 up days, 19 down days, annualized return -66.85%
October 26: 12 up days, 15 down days, annualized return -110.15%
October 27: 11 up days, 15 down days, annualized return -110.28%
Pretty darn bearish, I'd say. Now consider these bullish numbers from a period that immediately follows the above bearish period:
October 28: 17 up days, 8 down days, annualized return +132.02%
October 29: 16 up days, 10 down days, annualized return +68.14%
October 30: 13 up days, 13 down days, annualized return +46.85%
October 31: 17 up days, 9 down days, annualized return +105.77%
November 1: 16 up days, 12 down days, annualized return +62.41%
November 2: 16 up days, 9 down days, annualized return +144.07%
November 3: 16 up days, 10 down days, annualized return +84.13%
November 4: 15 up days, 9 down days, annualized return +54.94%
November 5: 21 up days, 5 down days, annualized return +153.46%
November 6: 15 up days, 11 down days, annualized return +43.91%
Quite a reversal, huh? This historical tendency was a contributing factor for Invested Central turning bullish on Monday, October 27th. The Bowley Trend shorts indices during bearish historical periods, goes long indices during historical bullish periods and remains 100% in cash during neutral periods - neutral periods are defined as periods where there are no discernible trends. During October alone, The Bowley Trend posted an incredible 27.44% return, over 45 percentage points higher than the actual negative return of 17.73%. Perfectly on cue, the major indices reversed course at the close on October 27th. Folks, I don't make this stuff up, I just report the facts. It is periods like these that has enabled The Bowley Trend to nearly triple the "buy and hold" returns of the NASDAQ since 1971. And it's as simple as following a calendar - the dates do not change. It's also why we provide this indicator to our members each day, it's that important.
Technically, the market is recovery mode. We've got a long way to go and the depths of this recession will be great. I've identified near-term support and resistance for the Dow Jones on the following chart:
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590cf5970c-pi
From the above chart, I've identified a key price resistance level on the Dow Jones near 10,400. I believe the current range on the Dow is from 7800-10400 and that's where we'll trade. Should the Dow approach that resistance on lessening volume, be very cautious, and possibly consider shorting if you have a propensity to short. The volatility index, or VIX, is finally taking a breather. Take a look at the two VIX charts below. The first shows where we were in early September and my analysis then vs. where the VIX stands now and what it's signaling.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590cfc970c-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590cff970c-pi
Expect volatility to remain high, but lessening from the ridiculous levels over the past several weeks. Traders will need to remain on their toes, capturing profits when available and keeping appropriate stops in place to avoid big losses.
Happy trading!
Join Tom and the Invested Central team at www.investedcentral.com. Invested Central provides daily market guidance, intraday stock alerts, annotated stock setups, LIVE member chat sessions, and much, much more.
Posted by Chip Anderson at 5:05 PM in Tom Bowley | Permalink
November 02, 2008AIRLINES TAKE OFF By Chip Anderson
Arthur Hill
The Amex Airline Index ($XAL) is leading the market higher with a break above two key moving averages this week. XAL produced one of the sharpest October recoveries with surge from 14 to 25 over the last three weeks. This surge carried the index above the 50-day moving average and 200-day moving average. Both moving averages are still moving lower, but this October surge shows extraordinary strength. Not too many indices are currently trading above their 200-day moving average. For example, the S&P 500 is some 30% below its 200-day moving average.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b2c970c-pi
In addition to these moving average breakouts, XAL shows relative strength versus the S&P 500. First, the S&P 500 broke below its July low, but the Airline Index held above its July low. Second, the S&P 500 tested its mid October low last, but the Airline Index held well above its mid October low. These two higher lows show that the Airline Index is holding up better than the S&P 500. Third, the bottom indicator window shows the Price Relative, which shows the performance of XAL relative to SPX. This indicator formed a higher low in October and broke above its September high this month. A breakout in the price relative confirms relative strength in the Airline Index.
There is also a video version of the this analysis available at TDTrader.com - Click Here.
Posted by Chip Anderson at 5:04 PM in Arthur Hill | Permalink
November 02, 2008CHANGING WITH THE MARKET By Chip Anderson
Carl Swenlin
When the market changes, we must change our tactics, strategies, and analysis techniques to accommodate the new market conditions. This is not a new idea, but it is one that is not very widely recognized, particularly when applied to the long-term. In recent writings I have emphasized that we are in a bear market, and that we must play by bear market rules. Overbought conditions will usually signal a price tops, and oversold conditions can often see prices slip lower to even more oversold conditions. When making these comments, my focus has been on the cyclical bull and bear markets. What I want to address in this article are the secular forces of which we must be aware.
On the chart below I have identified the five secular trends that have occurred in the last 80-plus years. First is the 1929-1932 Bear Market, which, although it was short, saw the market decline 90%. Next was a secular bull market that lasted from 1932 to 1966, which overlaps with the consolidation of the 1960s an 1970s. In the early 1980s another secular bull market began which peaked in 2000 (basis the S&P 500). Finally, we seem to have entered another consolidation phase that could last another 10 to 15 years.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590bd3970c-pi
I began my market studies in the early 1980s, before the big bull market took off, and I learned from the guys who learned all they knew from the market action of the 1960s and 1970s. Applying those rules to the new bull market was confusing, frustrating, and unprofitable. While I didn't participate in those markets, it is easy to imagine the bewilderment of those who, educated in the bull market of the 1920s, took the elevator all the way down to the basement starting in 1929.
The long bull market after the 1932 bottom was missed by most of those traumatized by the crash, but it trained a whole new group of analysts who learned that the market always goes up . . . until everything they knew was proven wrong by a 20-year consolidation. Finally, the battle cry of the 1980s and 1990s bull, "this time it's different," was learned well by those who ultimately ate the 50% decline of 2000-2002.
Unfortunately, it takes time to unlearn the lessons of the heady 1980s and 1990s, and we can still observe people using bogus valuation models that only work in bull markets. We still see people trying to pick bottoms, and we still see people who think that a stock is under valued because it is down 70%. By the time this current secular market phase is over, people will have learned all new rules, that will not apply to the next 20 years.
Whether or not I have correctly identified the current secular market phase as a consolidation remains to be seen, but I am certain that we are no longer operating on the rules of the last secular bull market.
Posted by Chip Anderson at 5:03 PM in Carl Swenlin | Permalink
November 16, 2008RYDEX RATIOS DIVERGE By Chip Anderson
Carl Swenlin
Decision Point charts a couple of indicators that are useful in determining investor sentiment based on actual deployment of cash into Rydex mutual funds. The Rydex Asset Ratio is calculated by dividing total assets in Bear plus Money Market funds by total assets in Bull funds. The Rydex Cash Flow Ratio is calculated by dividing Cumulative Cash Flow into Bear plus Money Market funds by Cumulative Cash Flow into Bull funds. (A thorough discussion of these ratios can be found in the Glossary section of our website.) When total assets in a given fund increase/decrease, the cause is an advance or decline in the fund's shares; however, there is also a component of the amount of cash moving into and out of the fund. This is why we have the two indicators.
On the Assets Ratio chart below, we can see that the Ratio is deeply oversold, implying that sentiment is very bearish, and that an important price bottom is being formed. This oversold reading is a direct result of the severe market decline depressing bull fund prices and inflating bear fund prices. The next chart shows a completely different picture.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590cae970c-pi
While the Asset Ratio is oversold and bullish, the Cash Flow Ratio below is overbought and bearish. It is telling us that investors are quite bullish, and that a decline should be expected. That the two Ratios have diverged so severely is a very unusual situation, so let's take a closer look at what happened.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590cbc970c-pi
The next chart shows that, when the market began to consolidate, cash flowed out of bear funds and into bull funds. I can think of no other reason except that Rydex investors were anticipating a rally and trying to pick a bottom. This is bearish. I should emphasize, however, that the Ratios reflect the activity of a relatively small percentage of total market participants. Nevertheless, these indicators have a good performance record and are useful tools.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590cc2970c-pi
Bottom Line: The current divergence of the Rydex Ratios leaves us in a predicament as to which we should believe. In my opinion, the Cash Flow Ratio shows what is happening beneath the surface of asset totals, and it should be the first to be believed.
Posted by Chip Anderson at 5:04 PM in Carl Swenlin | Permalink
November 16, 2008BOOKSTORE NEWS: FREE SHIPPING FOR THE HOLIDAYS! By Chip Anderson
Site News
That's right folks! Beginning today (Novemberselect the items you wish to purchase, and the "Free Shipping" option will be available in the drop-down in the checkout process. Please note that the free shipping offer is only available for shipments being sent within the US, and for standard USPS shipments only. This offer is valid until Dec. 31st, 2008.
Posted by Chip Anderson at 5:02 PM in Site News | Permalink
November 16, 2008S&P JUMPS 6% AFTER TOUCHING NEW LOW By Chip Anderson
John Murphy
After dropping briefly to the lowest level since March 2003, the S&P 500 achieved an upside reversal day (as did all of the other major indexes) that resulted in a 6% gain. It also did that on the highest volume in weeks. The fact that the S&P touched a new low before rallying is especially impressive (Chart 1). The Nasdaq did the same (Chart 2). The Dow Industrials bounced off psychological support near 8000. The rally was aided by short-term positive divergences in both the daily RSI and MACD lines. Although all market groups participated, the biggest gains were seen in consumer discretionary, financials,REITS, and small caps. Commodity stocks also rallied strongly. Gold and energy stocks gained 12%. The commodity bounce was aided by stronger stocks and a weaker dollar. Many commodity markets were closed during the late stock rally and will probably see more buying tomorrow. Bond prices sold off as stocks rallied.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b74970c-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b77970c-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
November 16, 2008NYSE HIGH-LOW LINE TELLS THE TALE By Chip Anderson
Chip Anderson
StockCharts.com is all about visually representing what's going on in the markets. Here's a sobering visual representation for you:
Daily NYSE High-Low Line:
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b90970c-pi
Weekly NYSE High-Low Line:
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b99970c-pi
You can view these two charts anytime at
The $NYHL index a market breadth indicator that is calculated at the end of each day by taking the number of stocks making New 52-week Highs on the NYSE and subtracting the number of stocks making New 52-week Lows. Those values are then plotted cumulatively to create the NYSE High-Low Line that you see above.
Because it is a cumulative plot, the actual value of each point on the chart is unimportant. (In fact, they will change if you adjust the starting date of the chart.) What is important is the shape of the line - up is healthy, down is sick.
Get the picture? We're sick. We've been sick awhile. We will probably be sick for a while longer. For long-term ChartWatchers, there's not much point in hopping back into the market until these lines start going up again.
-- Chip
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
November 02, 2008HISTORY REPEATS ITSELF AGAIN AND AGAIN AND AGAIN By Chip Anderson
Tom Bowley
Previously, I've mentioned a favorite indicator of mine - The Bowley Trend. The Bowley Trend is an analysis of stock market history, dating back to 1950 on the S&P 500 and 1971 on the NASDAQ. It identifies discernible bullish and bearish trends that have emerged over time and provides additional clues as to the direction of equity prices. I use The Bowley Trend to corroborate technical signals.
I mentioned in a July article the 2nd worst historical week of the year. We just experienced a major league beating during the absolute worst period. The most interesting aspect of October is that the worst historical period is followed immediately by the best historical period - amazingly, the bearish switch is turned off and the bullish switch is turned on, literally overnight. Consider the following annualized returns since 1971 on the NASDAQ:
October 22: 15 up days, 11 down days, annualized return -64.98%
October 23: 8 up days, 16 down days, annualized return -89.82%
October 24: 11 up days, 16 down days, annualized return -66.26%
October 25: 9 up days, 19 down days, annualized return -66.85%
October 26: 12 up days, 15 down days, annualized return -110.15%
October 27: 11 up days, 15 down days, annualized return -110.28%
Pretty darn bearish, I'd say. Now consider these bullish numbers from a period that immediately follows the above bearish period:
October 28: 17 up days, 8 down days, annualized return +132.02%
October 29: 16 up days, 10 down days, annualized return +68.14%
October 30: 13 up days, 13 down days, annualized return +46.85%
October 31: 17 up days, 9 down days, annualized return +105.77%
November 1: 16 up days, 12 down days, annualized return +62.41%
November 2: 16 up days, 9 down days, annualized return +144.07%
November 3: 16 up days, 10 down days, annualized return +84.13%
November 4: 15 up days, 9 down days, annualized return +54.94%
November 5: 21 up days, 5 down days, annualized return +153.46%
November 6: 15 up days, 11 down days, annualized return +43.91%
Quite a reversal, huh? This historical tendency was a contributing factor for Invested Central turning bullish on Monday, October 27th. The Bowley Trend shorts indices during bearish historical periods, goes long indices during historical bullish periods and remains 100% in cash during neutral periods - neutral periods are defined as periods where there are no discernible trends. During October alone, The Bowley Trend posted an incredible 27.44% return, over 45 percentage points higher than the actual negative return of 17.73%. Perfectly on cue, the major indices reversed course at the close on October 27th. Folks, I don't make this stuff up, I just report the facts. It is periods like these that has enabled The Bowley Trend to nearly triple the "buy and hold" returns of the NASDAQ since 1971. And it's as simple as following a calendar - the dates do not change. It's also why we provide this indicator to our members each day, it's that important.
Technically, the market is recovery mode. We've got a long way to go and the depths of this recession will be great. I've identified near-term support and resistance for the Dow Jones on the following chart:
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590cf5970c-pi
From the above chart, I've identified a key price resistance level on the Dow Jones near 10,400. I believe the current range on the Dow is from 7800-10400 and that's where we'll trade. Should the Dow approach that resistance on lessening volume, be very cautious, and possibly consider shorting if you have a propensity to short. The volatility index, or VIX, is finally taking a breather. Take a look at the two VIX charts below. The first shows where we were in early September and my analysis then vs. where the VIX stands now and what it's signaling.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590cfc970c-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590cff970c-pi
Expect volatility to remain high, but lessening from the ridiculous levels over the past several weeks. Traders will need to remain on their toes, capturing profits when available and keeping appropriate stops in place to avoid big losses.
Happy trading!
Join Tom and the Invested Central team at . Invested Central provides daily market guidance, intraday stock alerts, annotated stock setups, LIVE member chat sessions, and much, much more.
Posted by Chip Anderson at 5:05 PM in Tom Bowley | Permalink
November 02, 2008AIRLINES TAKE OFF By Chip Anderson
Arthur Hill
The Amex Airline Index ($XAL) is leading the market higher with a break above two key moving averages this week. XAL produced one of the sharpest October recoveries with surge from 14 to 25 over the last three weeks. This surge carried the index above the 50-day moving average and 200-day moving average. Both moving averages are still moving lower, but this October surge shows extraordinary strength. Not too many indices are currently trading above their 200-day moving average. For example, the S&P 500 is some 30% below its 200-day moving average.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b2c970c-pi
In addition to these moving average breakouts, XAL shows relative strength versus the S&P 500. First, the S&P 500 broke below its July low, but the Airline Index held above its July low. Second, the S&P 500 tested its mid October low last, but the Airline Index held well above its mid October low. These two higher lows show that the Airline Index is holding up better than the S&P 500. Third, the bottom indicator window shows the Price Relative, which shows the performance of XAL relative to SPX. This indicator formed a higher low in October and broke above its September high this month. A breakout in the price relative confirms relative strength in the Airline Index.
There is also a video version of the this analysis available at TDTrader.com -
Posted by Chip Anderson at 5:04 PM in Arthur Hill | Permalink
November 02, 2008CHANGING WITH THE MARKET By Chip Anderson
Carl Swenlin
When the market changes, we must change our tactics, strategies, and analysis techniques to accommodate the new market conditions. This is not a new idea, but it is one that is not very widely recognized, particularly when applied to the long-term. In recent writings I have emphasized that we are in a bear market, and that we must play by bear market rules. Overbought conditions will usually signal a price tops, and oversold conditions can often see prices slip lower to even more oversold conditions. When making these comments, my focus has been on the cyclical bull and bear markets. What I want to address in this article are the secular forces of which we must be aware.
On the chart below I have identified the five secular trends that have occurred in the last 80-plus years. First is the 1929-1932 Bear Market, which, although it was short, saw the market decline 90%. Next was a secular bull market that lasted from 1932 to 1966, which overlaps with the consolidation of the 1960s an 1970s. In the early 1980s another secular bull market began which peaked in 2000 (basis the S&P 500). Finally, we seem to have entered another consolidation phase that could last another 10 to 15 years.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590bd3970c-pi
I began my market studies in the early 1980s, before the big bull market took off, and I learned from the guys who learned all they knew from the market action of the 1960s and 1970s. Applying those rules to the new bull market was confusing, frustrating, and unprofitable. While I didn't participate in those markets, it is easy to imagine the bewilderment of those who, educated in the bull market of the 1920s, took the elevator all the way down to the basement starting in 1929.
The long bull market after the 1932 bottom was missed by most of those traumatized by the crash, but it trained a whole new group of analysts who learned that the market always goes up . . . until everything they knew was proven wrong by a 20-year consolidation. Finally, the battle cry of the 1980s and 1990s bull, "this time it's different," was learned well by those who ultimately ate the 50% decline of 2000-2002.
Unfortunately, it takes time to unlearn the lessons of the heady 1980s and 1990s, and we can still observe people using bogus valuation models that only work in bull markets. We still see people trying to pick bottoms, and we still see people who think that a stock is under valued because it is down 70%. By the time this current secular market phase is over, people will have learned all new rules, that will not apply to the next 20 years.
Whether or not I have correctly identified the current secular market phase as a consolidation remains to be seen, but I am certain that we are no longer operating on the rules of the last secular bull market.
Posted by Chip Anderson at 5:03 PM in Carl Swenlin | Permalink
November 02, 2008WILL OIL SERVICES RETEST RECENT LOWS? By Chip Anderson
Richard Rhodes
The world stock markets remain rather "volatile" as the credit crisis continues to unfold, while this volatility pendulum continues to create some very unique and interesting value propositions we haven't seen in quite some time. Our focus at present is the relative relationship of the Oil Service Index (OSX) to Crude Oil futures; and the fact that this relative ratio is just off its lowest point in over a decade - having fallen from its high above 8.0 in 1998 to its 2008 low near 1.70. The current course of de-levering by the world's hedge funds has pushed this ratio from 4.0 to its recent low near 1.70, with last week's surge higher putting overhead trendline resistance into view in terms of a bullish breakout.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590bf9970c-pi
We find this bullish setup interesting from the perspective that perhaps oil service shares may have forged their bottom given last week's reversal from major weekly/monthly support levels; however, we do expect oil service shares to at least retest their recent lows as our forecast for crude oil futures stands at $39-$40...down another $25-$30 from current levels. We would be remiss if we didn't believe that oil service shares would falter in tandem with the price of crude oil.
Having said this, our favorite choices on a retest are Transocean Offshore (RIG), Schlumberger (SLB), Weatherford Int'l (WFT) and National Oilwell Varco (HOV).
Posted by Chip Anderson at 5:02 PM in Richard Rhodes | Permalink
November 02, 2008LIBOR DROP ENCOURAGES MARKETS By Chip Anderson
John Murphy
One of the recent positive trends is the continuing drop in the three-month London Interbank Overnight Lending Rate (LIBOR). That rate determines what banks charge each other for loans. During the credit freeze that started in mid-September, the LIBOR jumped from 2.8% to 4.8% as stocks fell sharply. Since mid-October, however, the LIBOR has been dropping. It fell another 16 basis points today to 3.03 (see arrow) which is the lowest level in six weeks. That's helping to stabilize global stock markets.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6e98970b-pi
Subscribe to John Murphy's Market Message today!
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
November 02, 2008HISTORY REPEATS ITSELF... AGAIN AND AGAIN By Chip Anderson
Chip Anderson
Hello Fellow ChartWatchers,
As you (hopefully) know already, StockCharts.com also has an online bookstore that is dedicated to providing great investment-oriented books at great prices. (We work hard to keep the prices as low as possible. No, seriously! From a business perspective we just want to break even on our books.) But there is one book in particular that we look forward to selling each year. Year after year it is our biggest seller mostly because it gives out great information that everyone can use to make better investments.
If you haven't guessed already, I'm talking about "The Stock Trader's Almanac" by Jeffrey and Yale Hirsch. If you have seen it before, simply click here to order your 2009 copy - you are already sold on it I'm sure.
If you haven't seen The Stock Trader's Almanac, then you are in for a huge treat. Anyone that likes charting or trading systems or historical trends or easy to follow trading systems will love this book cause it is full of all that stuff. Part daily planner, part historical market compendium - The Stock Trader's Almanac can show you exactly (for example) what the markets have done after each Presidential election going back to Calvin Coolidge. Want to know what day of the week is the best day to buy stocks? The Stock Trader's Almanac can show you and show you the data to back up its conclusion. There are hundreds of other similar market facts throughout.
The Almanac even has its own blog where you can keep up with the latest research from the authors: http://stocktradersblog.blogspot.com/
It's a great resource and we have it at a great price. For the next two weeks, you can get the 2009 edition of the Stock Trader's Almanac from our bookstore for only $25.95US. That's $6 cheaper than what the publisher sells it for. It's even cheaper than what Amazon sells it for(!).
Long-term ChartWatchers know that I only make sales-pitchey type posts like this very rarely and when I do, it's something worth a close look. This is one of those times. Take a second and see for yourself. You won't be disappointed.
-- Chip
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
October 19, 2008IS THIS THE BUFFETT-BOTTOM? By Chip Anderson
Tom Bowley
Warren Buffett said he was buying stocks this past week. Should you? Well, it depends. If you buy stocks on a regular basis as part of a disciplined strategy - say in your 401(k) plan - then keep buying. The idea of buying stocks over the long haul is not only to buy when the market is soaring, but more importantly, to also buy when the market is falling. The key element is your time horizon. If you don't need the money for the next 5-10 years, then you stay invested and keep buying.
Here's the problem. Fewer and fewer of Americans buy and hold. We've seen many of our strongest companies buckle. Most financial companies have been brought to their knees during this financial crisis and the crisis is threatening to take many other sectors with it. American International Group (AIG) was thought to be a darling among Wall Street analysts. We don't need to detail the woes of AIG, just suffice it to say that no company is immune to failure. So if you're of the buy-and-hold mentality, remain diversified.
I am not of the buy-and-hold mentality and never will be. Technical analysis is where it's at. When the first signs of technical weakness appear, beware. Let sectors regain relative strength before committing back into the group. This very simple strategy avoids major carnage and it's the major carnage that wrecks portfolios, not the minor losses from timing a trade incorrectly.
Charts 1 and 2 below highlight, in hindsight, two major sector breakdowns in our market over the last few years. Both are heavily responsible for the technical damage the entire market is suffering right now.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6f9a970b-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6fa3970b-pi
We need housing to begin to show signs of improvement before the major indices are likely to recover.
While I have tremendous respect for Warren Buffett as an investor, he will admittedly tell everyone that he can't time market bottoms. I will wait for more technical signs before becoming aggressive.
Over the course of the last 3-4 weeks, the only trades that Invested Central has considered have been ETFs and they've been few and far between. Options expiration and max pain provided some super opportunities last week as the number of net in-the-money puts was 3 to 4 times the amount we had ever seen before. Coincidentally (sarcasm intended), the market soared on Monday and gapped up on Tuesday and we headed for the exits. We are 100% in cash at the moment and plan to stay that way in the near-term as the gyrations in the market are nauseating.
During markets like this, capital preservation is Job #1 for traders.
Happy trading!
Join Tom and the Invested Central team at www.investedcentral.com. Invested Central provides daily market guidance, intraday stock alerts, annotated stock setups, LIVE member chat sessions, and much, much more.
Posted by Chip Anderson at 4:05 PM in Tom Bowley | Permalink
October 19, 2008DIA RETURNS TO THE GAP By Chip Anderson
Arthur Hill
In a volatile week with huge swings, the Dow Industrials ETF (DIA) returned to Wednesday's gap with another 10% move. The magenta lines on the 30-minute chart show the zigzag indicator, which measures movements that are 10% or more. As you can see, there was an advance greater than 10% on 12-13 October, a decline greater than 10% on 14-16 October and an advance greater than 10% on 16-17 October. Wow, what a week for day traders. There was a day when these swings would look impressive on a weekly chart. Obviously, this is not your father's Dow.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b05970c-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b0b970c-pi
With these big swings, the Dow Industrials ETF (DIA) remains stuck in a volatile range and short of a breakout on the daily chart. I am watching two items to signal a trend changing breakout. First, the pullback on Tuesday-Wednesday established key resistance around 99. Mondays' surge was impressive and Thursday's recovery affirms support, but we have yet to see follow through and a resistance breakout. Second, the Commodity Channel Index (CCI) moved below -100 in early September and momentum remains bearish overall. At the very least, CCI needs to break into positive territory. However, I would like to see a surge above +100 to show some real strength and turn momentum bullish. Be sure to check out the corresponding video for more details.
There is also a video version of the this analysis available at TDTrader.com - Click Here.
Posted by Chip Anderson at 4:04 PM in Arthur Hill | Permalink
October 19, 2008VERY OVERSOLD MARKET By Chip Anderson
Carl Swenlin
To say that the market is very oversold is not exactly breaking news because it has been oversold for at least a few weeks; however, the oversold condition has been steadily getting worse over that time, and we have perhaps reached the limit of how oversold the indicators will get without the market taking some time to clear the condition. Keep in mind that the condition can be cleared if the market merely drifts sideways while indicators drift higher toward neutral territory, but, considering the kind of volatility we have been experiencing, it seems that a rally is more likely.
Let's look at the chart below, which has some major points of interest. First, the PMO (Price Momentum Oscillator) and the Percentage of Stocks Above Their 200-EMA have reached their lowest points since the July 2002, which was the beginning of the end of the 2000-2002 Bear Market. Note that it took nearly nine months for this bottoming process to take place in the form of a triple bottom. Also, current prices have dropped into the support zone provided by that previous bear market bottom.
This all looks like a pretty good setup for at least a bear market rally of some substance. The first thing that has to happen is a rally the lasts more than two days, and we need to see if the bottom will be a "V" spike or a double bottom with at least several weeks between each bottom. The latter would be preferable because, the more work put into the bottom, the longer the rally is likely to last. A "V" bottom would beg for a retest.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590ac9970c-pi
Any rally that begins now should be viewed and played as a short-term event, because we have seen how quickly they have been running out of steam. The first indication that a rally may develop into something longer term will be if the Thrust/Trend Model generates a buy signal. On the chart below I have highlighted the two components of the T/TM that we need to watch -- the PMO (Price Momentum Oscillator) and the Percent Buy Index (PBI). When both these indicators have passed up through their moving averages, a new buy signal will be generated. Even though this is a medium-term signal, it should also be worked as a short-term event, because of the whipsaw we have experienced during this bear market. (The rally last long enough to trigger a buy signal, then fails.)
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590acc970c-pi
Finally, I am compelled to show you a chart of the 9-Month Cycles. My current projection for the next cycle low is October 22. As you can see, it is highly likely that the cycle low is already in as of last week, although we can never be sure except in hindsight. Nevertheless, the cycle chart is one more piece of evidence that we could be getting a sustainable rally at any time.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590ad8970c-pi
Bottom Line: The market is extremely oversold, and we have plenty of evidence that a rally is due. I do not for one minute believe the bear market is over, but it does not seem reasonable that the vertical descent will continue unabated. Reasonable? Perhaps that is not the best word to use in these circumstances. Let's just say that the technicals are screaming for a good sized bounce. Having said that, I will leave you with a reminder that we are playing by bear market rules. Oversold conditions are extremely dangerous and do not always present opportunities on the long side. Be careful!
Posted by Chip Anderson at 4:03 PM in Carl Swenlin | Permalink
« Previous | Next »
November 02, 2008WILL OIL SERVICES RETEST RECENT LOWS? By Chip Anderson
Richard Rhodes
The world stock markets remain rather "volatile" as the credit crisis continues to unfold, while this volatility pendulum continues to create some very unique and interesting value propositions we haven't seen in quite some time. Our focus at present is the relative relationship of the Oil Service Index (OSX) to Crude Oil futures; and the fact that this relative ratio is just off its lowest point in over a decade - having fallen from its high above 8.0 in 1998 to its 2008 low near 1.70. The current course of de-levering by the world's hedge funds has pushed this ratio from 4.0 to its recent low near 1.70, with last week's surge higher putting overhead trendline resistance into view in terms of a bullish breakout.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590bf9970c-pi
We find this bullish setup interesting from the perspective that perhaps oil service shares may have forged their bottom given last week's reversal from major weekly/monthly support levels; however, we do expect oil service shares to at least retest their recent lows as our forecast for crude oil futures stands at $39-$40...down another $25-$30 from current levels. We would be remiss if we didn't believe that oil service shares would falter in tandem with the price of crude oil.
Having said this, our favorite choices on a retest are Transocean Offshore (RIG), Schlumberger (SLB), Weatherford Int'l (WFT) and National Oilwell Varco (HOV).
Posted by Chip Anderson at 5:02 PM in Richard Rhodes | Permalink
November 02, 2008LIBOR DROP ENCOURAGES MARKETS By Chip Anderson
John Murphy
One of the recent positive trends is the continuing drop in the three-month London Interbank Overnight Lending Rate (LIBOR). That rate determines what banks charge each other for loans. During the credit freeze that started in mid-September, the LIBOR jumped from 2.8% to 4.8% as stocks fell sharply. Since mid-October, however, the LIBOR has been dropping. It fell another 16 basis points today to 3.03 (see arrow) which is the lowest level in six weeks. That's helping to stabilize global stock markets.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6e98970b-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
-- Chip
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
October 19, 2008IS THIS THE BUFFETT-BOTTOM? By Chip Anderson
Tom Bowley
Warren Buffett said he was buying stocks this past week. Should you? Well, it depends. If you buy stocks on a regular basis as part of a disciplined strategy - say in your 401(k) plan - then keep buying. The idea of buying stocks over the long haul is not only to buy when the market is soaring, but more importantly, to also buy when the market is falling. The key element is your time horizon. If you don't need the money for the next 5-10 years, then you stay invested and keep buying.
Here's the problem. Fewer and fewer of Americans buy and hold. We've seen many of our strongest companies buckle. Most financial companies have been brought to their knees during this financial crisis and the crisis is threatening to take many other sectors with it. American International Group (AIG) was thought to be a darling among Wall Street analysts. We don't need to detail the woes of AIG, just suffice it to say that no company is immune to failure. So if you're of the buy-and-hold mentality, remain diversified.
I am not of the buy-and-hold mentality and never will be. Technical analysis is where it's at. When the first signs of technical weakness appear, beware. Let sectors regain relative strength before committing back into the group. This very simple strategy avoids major carnage and it's the major carnage that wrecks portfolios, not the minor losses from timing a trade incorrectly.
Charts 1 and 2 below highlight, in hindsight, two major sector breakdowns in our market over the last few years. Both are heavily responsible for the technical damage the entire market is suffering right now.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6f9a970b-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6fa3970b-pi
We need housing to begin to show signs of improvement before the major indices are likely to recover.
While I have tremendous respect for Warren Buffett as an investor, he will admittedly tell everyone that he can't time market bottoms. I will wait for more technical signs before becoming aggressive.
Over the course of the last 3-4 weeks, the only trades that Invested Central has considered have been ETFs and they've been few and far between. Options expiration and max pain provided some super opportunities last week as the number of net in-the-money puts was 3 to 4 times the amount we had ever seen before. Coincidentally (sarcasm intended), the market soared on Monday and gapped up on Tuesday and we headed for the exits. We are 100% in cash at the moment and plan to stay that way in the near-term as the gyrations in the market are nauseating.
During markets like this, capital preservation is Job #1 for traders.
Happy trading!
Join Tom and the Invested Central team at . Invested Central provides daily market guidance, intraday stock alerts, annotated stock setups, LIVE member chat sessions, and much, much more.
Posted by Chip Anderson at 4:05 PM in Tom Bowley | Permalink
October 19, 2008DIA RETURNS TO THE GAP By Chip Anderson
Arthur Hill
In a volatile week with huge swings, the Dow Industrials ETF (DIA) returned to Wednesday's gap with another 10% move. The magenta lines on the 30-minute chart show the zigzag indicator, which measures movements that are 10% or more. As you can see, there was an advance greater than 10% on 12-13 October, a decline greater than 10% on 14-16 October and an advance greater than 10% on 16-17 October. Wow, what a week for day traders. There was a day when these swings would look impressive on a weekly chart. Obviously, this is not your father's Dow.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b05970c-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b0b970c-pi
With these big swings, the Dow Industrials ETF (DIA) remains stuck in a volatile range and short of a breakout on the daily chart. I am watching two items to signal a trend changing breakout. First, the pullback on Tuesday-Wednesday established key resistance around 99. Mondays' surge was impressive and Thursday's recovery affirms support, but we have yet to see follow through and a resistance breakout. Second, the Commodity Channel Index (CCI) moved below -100 in early September and momentum remains bearish overall. At the very least, CCI needs to break into positive territory. However, I would like to see a surge above +100 to show some real strength and turn momentum bullish. Be sure to check out the corresponding video for more details.
There is also a video version of the this analysis available at TDTrader.com -
Posted by Chip Anderson at 4:04 PM in Arthur Hill | Permalink
October 19, 2008VERY OVERSOLD MARKET By Chip Anderson
Carl Swenlin
To say that the market is very oversold is not exactly breaking news because it has been oversold for at least a few weeks; however, the oversold condition has been steadily getting worse over that time, and we have perhaps reached the limit of how oversold the indicators will get without the market taking some time to clear the condition. Keep in mind that the condition can be cleared if the market merely drifts sideways while indicators drift higher toward neutral territory, but, considering the kind of volatility we have been experiencing, it seems that a rally is more likely.
Let's look at the chart below, which has some major points of interest. First, the PMO (Price Momentum Oscillator) and the Percentage of Stocks Above Their 200-EMA have reached their lowest points since the July 2002, which was the beginning of the end of the 2000-2002 Bear Market. Note that it took nearly nine months for this bottoming process to take place in the form of a triple bottom. Also, current prices have dropped into the support zone provided by that previous bear market bottom.
This all looks like a pretty good setup for at least a bear market rally of some substance. The first thing that has to happen is a rally the lasts more than two days, and we need to see if the bottom will be a "V" spike or a double bottom with at least several weeks between each bottom. The latter would be preferable because, the more work put into the bottom, the longer the rally is likely to last. A "V" bottom would beg for a retest.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590ac9970c-pi
Any rally that begins now should be viewed and played as a short-term event, because we have seen how quickly they have been running out of steam. The first indication that a rally may develop into something longer term will be if the Thrust/Trend Model generates a buy signal. On the chart below I have highlighted the two components of the T/TM that we need to watch -- the PMO (Price Momentum Oscillator) and the Percent Buy Index (PBI). When both these indicators have passed up through their moving averages, a new buy signal will be generated. Even though this is a medium-term signal, it should also be worked as a short-term event, because of the whipsaw we have experienced during this bear market. (The rally last long enough to trigger a buy signal, then fails.)
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590acc970c-pi
Finally, I am compelled to show you a chart of the 9-Month Cycles. My current projection for the next cycle low is October 22. As you can see, it is highly likely that the cycle low is already in as of last week, although we can never be sure except in hindsight. Nevertheless, the cycle chart is one more piece of evidence that we could be getting a sustainable rally at any time.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590ad8970c-pi
Bottom Line: The market is extremely oversold, and we have plenty of evidence that a rally is due. I do not for one minute believe the bear market is over, but it does not seem reasonable that the vertical descent will continue unabated. Reasonable? Perhaps that is not the best word to use in these circumstances. Let's just say that the technicals are screaming for a good sized bounce. Having said that, I will leave you with a reminder that we are playing by bear market rules. Oversold conditions are extremely dangerous and do not always present opportunities on the long side. Be careful!
Posted by Chip Anderson at 4:03 PM in Carl Swenlin | Permalink
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October 19, 2008"JUMP OFF POINT" FOR CRUDE OIL? By Chip Anderson
Richard Rhodes
Quite simply, the trend is sharply lower. The massive de-leveraging taking place in the capital markets has not spared crude oil at all; however, this shouldn't be a surprise given the "bell ringing" at the top was none other than a "key reversal month" that has led to mean reversion back into the 50-month moving average. The question is whether this level now crossing at $73.43 can be regained in the days ahead and be used as a "jump off point" to further gains. Unfortunately, we think not. A number of fundamental and technical factors at play will not allow for this to occur, with the probability of an even sharper decline than what we have seen YTD if prices continue to extend lower below this level.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590bab970c-pi
One only need look at the 14-month stochastic that it has just rolled over and exited overbought territory. Hence, it remains quite some distance from levels that in the past have provided for rallies. If the stochastic must move to oversold levels, then it could very well be one year or more before we see a larger and more tradable bottom, this obviously begs the question as to what level crude would obtain before this larger rally could unfold. Our current target is $40,which will come into closer purview if the rising trendline at $60 is violated.
Given this, one would obviously not want to be in the oil stock complex to be sure; with the integrated oil players such as Exxon-Mobil (XOM), Conoco-Phillips (COP). Chevron (CVX) and Marathon Oil (MRO) likely to outperform the Oil Service stocks as they did during the last crude oil downturn. If we are have a favorite, it would be Chevron (CVX) given it sports a 4.10% dividend
Good luck and good trading!
Posted by Chip Anderson at 4:02 PM in Richard Rhodes | Permalink
October 19, 2008COMMODITES ARE LAST ASSET TO PEAK By Chip Anderson
John Murphy
A number of readers have asked if I thought the U.S. was in a recession or heading into one. Others have asked if I thought this recession would be worse than most. Although I'm not an economist, it is possible to make some judgements about the direction of the economy by looking at various financial markets. Two of them are stocks and commodities. On July 18, I wrote an article suggesting that commodities were peaking based on a number of technical indicators. That article also contained a headline that read: "Commodities Peak During Bear Markets". Here is an excerpt from that earlier message: "At the end of an economic expansion, stocks usually peak before commodities. If stocks enter a bear market (and a recession starts), commodities usually enter a downside correction as well. During the stagflation years of the 1970's, serious downturns in stocks caused profit-taking in commodities. The commodity rally resumed after the stock market and the economy turned back up again." Stocks lost half of their value during 1973 and 1974 which led to a recession the second year. Commodities also dropped during that recessionary year. Historical studies show that stocks peak anywhere from six to nine months before the economy. From October 2007, that would put the outer target for an economic peak in July 2008 which is when commodities peaked.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b13970c-pi
Subscribe to John Murphy's Market Message today!
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
October 19, 2008DISPLAYING MORE THAN ONE STOCK ON A CHART By Chip Anderson
Chip Anderson
Hello Fellow ChartWatchers,
Recently we've gotten several questions about how someone can display more than one stock on a single chart. I thought I'd take time this week to go over the steps you can take to do that with our SharpCharts Workbench. Let's get started.
In this example, we'll create a chart of the Dow with the S&P Large Caps, Mid Caps, and Small Caps below it.
Create a chart of your "first" stockhttp://blogs.stockcharts.com/.a/6a0105370026df970c011168590c52970c-pi
There are several ways to create a new SharpChart. The easiest is to just go to our homepage and enter "$INDU" into box for step #2, then press "Go".
Remove any existing Indicators and Overlayshttp://blogs.stockcharts.com/.a/6a0105370026df970c011168590c56970c-pi
To make things easier, let's remove any Indicators and Overlays on your default chart. The quickest way to do that is to click the "Clear All" buttons in the "Overlays" area (#1) and "Indicators" area (#2). Be sure to click the "OK" button to confirm each removal. Finally, click the "Update" button (#3) to display your clean chart.
Add the "second" stock as a "Price" indicatorhttp://blogs.stockcharts.com/.a/6a0105370026df970c011168590c5b970c-pi
So here's the magic: You can use the "Price" indicator to add additional ticker symbols to your chart. Simply select "Price" from one of the empty indicator dropdowns (#1) and then enter the ticker symbol you want to chart in the "Paramaters" box (#2). In our case, we want to use "$spx" (which is, coincidently, what is automatically added). Finally, we want the $SPX plot to appear underneath our current Dow chart, so we need to make sure that the "Position" dropdown is set to "Below" (#3). Finally, as always, let's click the "Update" button (#4) to see what we get.
Checking our progress so farhttp://blogs.stockcharts.com/.a/6a0105370026df970c011168590c62970c-pi
At this point, you should have a chart that looks similar to the one above. (Note: Members that have changed their Default chart settings will probably see some differences in any areas that they changed.) Note that $SPX now appears below the chart of $INDU.
Add the other two ticker symbolshttp://blogs.stockcharts.com/.a/6a0105370026df970c011168590c6c970c-pi
Let's add the other two indices by repeating the process we just learned. Don't forget to change the value in the "Parameters" boxes (#2 and #4) to $MID and $SML. When you're done, click the "Update" button (#5) to see the results.
Checking the resultshttp://blogs.stockcharts.com/.a/6a0105370026df970c011168590c71970c-pi
You should see something very similar to the chart above. This is about as good as a Free User of StockCharts.com can get. StockCharts.com members however have some very powerful additional capabilities that I want to look at next.
Opening the Advanced Options areahttp://blogs.stockcharts.com/.a/6a0105370026df970c011168590c74970c-pi
Members who are logged in should see the green "Advanced Options" triangle located just to the right of the "Indicators" area. (Don't confuse it with the one next to the "Overlays" section.) If the Advanced Options area isn't already on your screen, click that green triangle to make it appear.
Change to an "All Candlestick" charthttp://blogs.stockcharts.com/.a/6a0105370026df970c011168590c78970c-pi
Let's display the other indices as candlesticks instead of line plots. Find the "Style" dropdowns (#1) and change all of them from "- Auto -" to "Candlestick", then click "Update" (#2). You should see 4 candlestick plots on your new chart. Terrific! But wait... The three indices' plots are not as tall as the $INDU plot. Let's fix that.
Increase the height of the Price plotshttp://blogs.stockcharts.com/.a/6a0105370026df970c011168590c80970c-pi
For this example, we want the indices' to be 80% as tall as the Dow chart. The quickest way to do that is to use the "Reset All Heights" dropdown (#1). Select "0.8" from that dropdown, then click the "Set" button. As soon as you do that, all of the "Height" dropdowns (red box) are changed from "- Auto -" to "0.8". You can then click the "Update" button (#2) to see the results.
Checking our progresshttp://blogs.stockcharts.com/.a/6a0105370026df970c011168590c89970c-pi
You should see something similar to the chart above (which has been scrunched down to save screen space). Four candlestick plots of different ticker symbols in one chart - pretty cool! There's still one more thing I want to add however - time scales for the $SPX and $MID plots.
Adding more time scaleshttp://blogs.stockcharts.com/.a/6a0105370026df970c011168590c8f970c-pi
Back down in the "Indicators" area, select "Date/Time Axis" in the empty indicator dropdown. Then do it again so that you have two of them (red box).
Move the time scales into positionhttp://blogs.stockcharts.com/.a/6a0105370026df970c011168590c97970c-pi
Find the "Up" triangle in the "Reorder" column that's next to the first "Date/Time Axis" (Red Box). Click on that triangle twice to move that "Date/Time Axis" line directly under the "Price" indicator for $SPX. Next, find the "Up" triangle for the second "Date/Time Axis" (Blue Box) and click on it once to move it under the "Price" indicator for $MID. Finally, click "Update" to see our finished masterpiece!
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590c9f970c-pi
Click here to see a live version of this chart.
As with all forms of power, this one does come with some limitations. Free users and Basic members can only add up to 3 additional ticker symbols to any chart. Extra members can add up to 6.
Sorry for the length of this article, but I wanted to be absolutely sure that everyone knows how to use this important capability. Hopefully you can take the lessons from this demonstration and improve your charts as a result.
- Chip
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
October 05, 2008SEPTEMBER WEAKNESS SPILLING OVER By Chip Anderson
Tom Bowley
Two weeks ago, I said to buy the bottom. Sometimes, you're just wrong. I was wrong. Technical analysis is to the study of price action to increase the odds of predicting future price action. It's not an exact science, there are no guarantees, and there are times when you just have to tip your hat to the other side. So far, that's been the case. The market fell precipitously this past week, closing at new lows across our major indices. Volume was increasing late in the week, though it wasn't as heavy as we saw a couple weeks earlier. We can argue that it was the fault of Congress for acting too slowly. Others might argue that the bailout bill itself is the problem. From a technical perspective, the reason for the decline doesn't really matter. We're only concerned about what happened technically with the price action. We must always respect the combination of price/volume breakdowns, regardless of what other technicals are indicating. From the following monthly S&P 500 chart, you can see that we are as oversold now as we've been since the bottom of the bear market in 2002. Monthly RSI has moved below 30 and stochastics are approaching single digits, something that never happened in the 2000-2002 bear market.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6f45970b-pi
We knew that September was historically weak and this past September certainly did nothing to disprove that notion. Since 1950 on the S&P 500, September is the only calendar month that has moved lower as opposed to moving higher. It is also the only calendar month that has negative annualized returns over the past 58 years. What many market participants don't realize is that Mondays are - by far - the worst day of the calendar week. Since 1950, the annualized return on Mondays (on the S&P 500) is a negative 16%. While I've done no study, I'd bet that psychological forces have a lot to do with it. But what's interesting is that if you had simply avoided trading on Mondays since the May 19th top (or shorted), your performance would likely have been much, much better. Consider the following: Since May 19th, we've had 17 Mondays, 12 of them the S&P 500 has moved lower. Of the 5 that have moved higher, only 1 (September 8) moved up more than 1%. Of the 12 down Mondays, 9 moved down more than 1% and 6 moved lower by 2% or more. Perhaps most astonishing is that the S&P 500 has lost 327.40 points since the close on May 19th, dropping from 1426.63 to 1099.23. The cumulative point losses on Mondays total 328.27, 100% of the decline. For comedy movie buffs who have seen Office Space, the stock . Invested Central provides daily market guidance, intraday stock alerts, annotated stock setups, LIVE member chat sessions, and much, much more.
Posted by Chip Anderson at 4:05 PM in Tom Bowley | Permalink
October 05, 2008FILTERING THE NOISE By Chip Anderson
Arthur Hill
September was one of the most volatile months in recent memory. Bar charts and candlestick charts are great, but the wild high-low swings can interfere with basic trend analysis. Moving averages provide a good means to smooth this volatility by cutting through the daily noise. For those who want it all, a combination of high-low-close bars and a short moving average may even be appropriate. This combination shows the high-low range, but also focuses on average prices to discern a trend.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b56970c-pi
The accompanying chart shows the S&P 500 ETF (SPY) with bars in gray and a 5-day EMA in blue. Even though September has been exceptionally volatile, the 5-day EMA shows a steady downtrend. In fact, the 5-day EMA does not look any more variable than the prior months. Despite Tuesday's big rebound, this EMA hit a new low to affirm the downtrend that began August.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b5f970c-pi
The second chart shows the 5-day EMA without bars or candlesticks. It is a pretty empty chart, but it sure cuts through the clutter. There are four trendlines that denote the swings over the last six months. The current swing is down and the decline even accelerated this week. SPY may be oversold, but it is clearly in the falling knife category as the 5-day EMA dropped over 5% this week. As this trendline now stands, the 5-day EMA needs to move above 119 to reverse this down swing (break the trendline).
There is also a video version of the this analysis available at TDTrader.com - .
Posted by Chip Anderson at 4:04 PM in Arthur Hill | Permalink
October 05, 2008BUYING OPPORTUNITY? By Chip Anderson
Carl Swenlin
In my September 19 article I said: "Our indicators and price action suggest strongly that we are beginning a rally that should last at least a couple of weeks. I also think that this week's deep low needs to be retested, and I am not convinced that a retest will be successful." As it turned out, there was no rally and the expected retest and failure encompassed one of the worst one-day declines in history.
From top to bottom the S&P 500 Index has dropped nearly 30%, but as usual we can't turn on financial news without hearing somebody assert that this is now the "buying opportunity of a lifetime". I wish it were, but in my opinion it is not. For it to be that great a buying opportunity stocks would have to have extraordinary fundamental value, and that kind of condition has not existed for over 20 years.
Based upon 2008 Q2 GAAP earnings the P/E of the S&P 500 is about 21, which puts it slightly above the normal P/E range of 10 to 20, meaning that stocks are very overvalued (the exact opposite of being a bargain). To demonstrate, the chart below displays the S&P 500 in relation to its normal P/E range going back to 1925. The S&P 500 is the heavy black line, the red line shows where the S&P 500 would be if it had a P/E of 20 (overvalued), the blue line is if the P/E were 15 (fair value), and the green line represents a P/E of 10 (undervalued).
I have applied red arrows to identify the periods where stocks were truly undervalued, sometimes mouth-wateringly so -- truly buying opportunities of a lifetime. As you can see, current prices are very overvalued, and possibly near the selling opportunity of a lifetime. To those who think this is the time to buy, I must ask, based upon what? Clearly, prices can rise even when stocks are overvalued, but current economic fundamentals makes that outcome a long shot.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590bf7970c-pi
As for our market outlook, the next chart puts the decline in perspective. Prices are deeply oversold, as are many of our technical indicators, so it is reasonable to expect a rally to clear this condition; however, we are in a bear market, and I have no reason to believe that the recent lows are the final bear market lows. There is a 9-Month Cycle trough due around October 22, and it is possible that it arrived early at the recent lows. Otherwise, we should probably look for a bounce followed by a retest of the lows in late-October.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590c00970c-pi
My view of the financial crisis is that it is going to last a long time, and that there will be no easy fix, even if we had some really smart people trying to solve the problem, which we do not. Three weeks ago most congress persons had no more awareness of the problems we are facing than the man on the street. How much confidence do you have that the very people who caused the problem are suddenly going to become smart enough to fix it? In my opinion, they are only going to make it worse.
Bottom Line: Stocks are way overvalued and the economic outlook is dismal. The only long exposure that should be considered is on a short-term basis when the inevitable bear market rallies occur.
Posted by Chip Anderson at 4:03 PM in Carl Swenlin | Permalink
October 05, 2008WHERE ARE WE NOW? By Chip Anderson
Richard Rhodes
The bear market reasserted itself last week in a violent manner; trading sharply higher and lower in a matter of hours and days. This isn't your garden variety bear market as this one smells and feels much different given the enormity of the credit crisis. And there is no end in sight to the crisis from a fundamental perspective, which is giving rise to increasing calls that a "crash" is imminent. Perhaps that indeed what lurks around the corner, but crashes are very low probability events as they reside at the "end of the tail" of the probability distribution curve. We would argue we've had a serious of "mini-crashes" if one looks at the homebuilders; the oil and oil service sector; and the commodity miners. The decline in the homebuilders took 2-years to accomplish, while the oil/oil service and commodity miners took all of 3-months.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6fbc970b-pi
The question where does that put us now is a very good one. From a longer-term technical perspective, the S&P monthly chart has broken below its longer-term bull market trendline which would argue for sharply lower prices. However, the 14-month RSI is oversold for only the second time since 1980, with the other time occurring at the October-2002 bottom. This certainly puts the risk-reward towards a countertrend rally in the least. Shorter-term, we find the price distance below the 20-month moving avearge to be on par with that seen at other interim 2000-2002 bear market lows. The 1050-1080 zone is about as low at it gets. Again, this would argue for countertrend rally in the least.
Therefore, the risk-reward favors a tradable rally from current-to-lower levels as quite a bit of negative news has been discounted; the question however, still remains whether the rate of increasingly bearish fundamental news and earnings will overwhelm the technicals. It's all about risk-reward, and it would seem to us barring a low probability crash...we should be considering long positions into this decline.
Posted by Chip Anderson at 4:02 PM in Richard Rhodes | Permalink
October 05, 2008SELLING SHOULD HAVE BEEN DONE MONTHS AGO By Chip Anderson
John Murphy
Over the past couple of weeks, I've suggested taking no new action in the stock market. Part of my reasoning is that we've been recommending a bearish strategy for the past year and see no reason to change that. Selling should have been done earlier in the year when major sell signals were first reported here. My January 3 Market Message reported on the major sell signal given by the monthly MACD lines last December (Chart 1). A number of other technical indicators also give major sell signals at the start of the year that we reported on. None of those sell signals have been reversed and we've made several bearish recommendations since then. I realize that there are opportunities for short-term traders. My main focus, however, remains on intermediate and major trends. Since there's little justication for buying, the main question is whether we should be doing more selling at the moment. Here's why I don't think October is a good time to sell.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590cef970c-pi
Subscribe to John Murphy's Market Message today!
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
October 05, 2008THE NEW LANDSCAPE By Chip Anderson
Chip Anderson
With all the changes happening in the financial world right now it's gotten really hard to keep up with the latest news. This bank is failing. That company is merging with this one. That sector is over exposed to the credit crunch. Etc., etc., etc.
One of the great things about technical analysis is that it works REGARDLESS of market conditions - you just have to remain calm and understand how to use the tools at your disposal.
In this case, as always, a great place to start is our S&P Sector Market Carpet. Here are all the stocks that make up the nine S&P sector ETFs in one easy-to-use display. By using the slider at the bottom, you can quickly see which sectors and stocks have been weathering the current storm the best. It is like a "visual Scan Engine."
Let's look at the long-term view of the current MarketCarpet:
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590cba970c-pi
To create this chart, click on our "Market Carpets" link, then select the "S&P Sectors Carpet". Initially, you'll see a short-term view of things - two days long to be exact. But we are interested in the long-term situation. So the first thing to do is to use the mouse to drag the left edge of the slider at the bottom of the chart all the way over to the left side where "#1" is (see the purple arrow?). That will give us the Price Performance comparison for the past 45 days.
There is still a problem however. The carpet is almost all solid red or solid green. That's because the color scale at the top of the chart only goes from +5% to -5%. Since we are looking at a long term chart, we want to expand that color scale. Simply click where #2 is and the scale will expand to show +20% to -20%. Now there isn't as much solid red and solid green. That's all it takes to set up a long-term MarketCarpet.
There's still a bunch of solid red on the chart. Notice how Energy stocks in particular have been hammered. The stocks in that sector are down 30% on average (see the yellow circle?). Even though there are bigger losers in other sectors, the Energy sector has been hit the hardest over the past 45 days. The Materials sector is down 21.2% and Tech stocks are down 18.2%. Ouch.
But wait - what about all those bad Financial stocks we've been hearing about? The carpet shows that the story with Financial stocks is mixed and very volatile. Mixed in with the big losers like AIG and Wachovia (WB) are huge winners that you never hear about like Huntington Bancshare (HBAN) and Marshall & Isley (MI). Simply click on any of the green squares in the blue circle to see what those charts look like.
And what is the "strongest" sector these days? Not surprisingly, Consumer Staples is down the least - just 1.7% on average. Even though none of those stocks show up as big winners or losers, the lack of huge swathes of red in that sector really stands out.
The MarketCarpet shows you the "landscape" of the market. Don't forget to use it on a regular basis when looking for strong and weak stocks.
-- Chip
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
September 21, 2008BUY THIS BOTTOM By Chip Anderson
Tom Bowley
Market bottoms come in all shapes and sizes, but most have a few key ingredients. Without exception, critical market bottoms are borne out of excessive fear and panic. On Thursday, the VIX shot past 42. The last time we've seen the VIX that high, we were carving out the bottom of the 2000-2002 bear market (Chart 1). The equity only put call ratio touched 1.18 on Monday, signaling panic amongst retail investors. The 5 day moving average of the equity only put call ratio hit .95, exceeded only by the reading of 1.01 on March 17th - that was the day the market also saw a very significant bottom. I like to also measure the 5 day moving average of the total put call ratio and plot that against the 60 day moving avg to determine "relative" pessimism and optimism. As the spread between the two widens to extreme levels, bottoms and tops are formed in the market. The total put call ratio is highlighted in Chart 2.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6ed5970b-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6ed8970b-pi
Why is this bottom different? I believe it's different because it's confirmed by a long-term positive divergence on the S&P 500 weekly chart (Chart 3). Positive and negative divergences on the WEEKLY charts appear infrequently. It's an advance sign that long-term selling momentum is waning (in the case of a positive divergence). A negative divergence implies that the long-term buying momentum is slowing. Chart 3 below provides a few excellent examples.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6edc970b-pi
One group that must lead us out of the mess we've been in is the financials. On Friday, the bank index broke out above critical resistance - toppling both its recent downtrend line and also significant price resistance at 75 (Chart 4). The relative strength of financials has been on the improve for the last few weeks and that bodes well for the longer-term health of the market (Chart 5).
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6edf970b-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6ee1970b-pi
Of course, I cannot end this week's look at the market without a quick snippet about max pain. We just witnessed perhaps the most manipulated market behavior ever this week, and it's totally legal. At a time when financials needed help in the worst way, our government announced a resolution trust-type entity AND banned shorting financials until October 2. While the SEC absolutely should focus attention on naked shorting, I was shocked to see our government take a step away from a free market society by not allowing the shorting of financial shares, even if just for a brief period of time. Not only was it unfair - without any warning - but it violently manipulated the stock market the day before options expiration. Let me provide you a few facts as they existed at 1pm EST on Thursday afternoon. The SPY (ETF tracking the S&P 500) was trading at $113.80. The max pain on the SPY was $127.06. The amount of net in-the-money put premium totaled $1.95 BILLION!!!! After the rally Thursday afternoon and the massive gap up on Friday morning, the SPY opened at 126.70. $1.95 BILLION SAVED! Ring the register!
There were many more examples, but let me give you just one more. Goldman Sachs (GS), which had fallen to $86.85 on Thursday at its low, rallied to open on Friday morning at $142.51. Max pain was near $141.00. MILLIONS SAVED! Ring the register. Imagine the impact this had across all stock, ETF and index options. Rest assured it saved key financial institutions billions and billions of dollars.
If you haven't had a chance to listen to our max pain presentation, it is archived on our home page and it's FREE. It's well worth the hour or so to learn more about max pain and its impact on short-term market direction. As a bonus, it includes a discussion regarding The Bowley Trend and how you can benefit from historical market trends.
Have a great week and happy trading!
Join Tom and the Invested Central team at www.investedcentral.com. Invested Central provides daily market guidance, intraday stock alerts, annotated stock setups, LIVE member chat sessions, and much, much more.
Posted by Chip Anderson at 4:05 PM in Tom Bowley | Permalink
September 21, 2008VOLUME AND VOLITILITY SURGE By Chip Anderson
Arthur Hill
Volume and volatility surges foreshadowed bear market rallies in November, January and March. Both surged again this week and the market took notice with a huge bounce over the last two days. The chart below shows the S&P 500 ETF (SPY) with volume and the S&P 500 Volatility Index ($VIX). The blue arrows show volume surges above 400 million shares, while the red arrows show VIX surges above 30. A volume surge after an extended decline reflects a selling climax or capitulation that exhausts selling pressure. Similarly,a VIX surge above 30 reflects excessive bearishness that can lead to a rally. Of note, the VIX fell just short of the 30 threshold in July, but SPY volume surpassed the 400 million mark. Even though this pairing is not perfect, it is still helpful in identifying the confluence of excessive bearishness and capitulation. With a surge over the last two days, a bounce is clearly underway. Unfortunately, there is no way to tell how long the bounce will last or how far it will extend. The November and January bounces were short-sharp affairs that lasted just 2 weeks. In contrast, the March advance lasted two months and the July rally lasted a month. One thing is for sure, there is a ton of resistance around 130-132.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590a8b970c-pi
There is also a video version of the this analysis available at TDTrader.com - Click Here.
Posted by Chip Anderson at 4:04 PM in Arthur Hill | Permalink
September 21, 2008FINALLY A BOTTOM? By Chip Anderson
Carl Swenlin
In my September 5 article I said that I thought is more likely that we would see a continued decline, rather than a retest of the July lows. This week the market blew out the July lows and was very near to crashing on Thursday. Then prices blasted up out of the lows in a dramatic upside reversal. There was good follow through on Friday, and now we must ponder if a significant bottom has been made.
With historic levels of fundamental turmoil in the financial markets, and unbelievable volatility in prices, it is extremely difficult to keep a level head and keep focused on technical basics. I am reminded of my flying days and the primary directives for emergency procedures.
[*]Maintain aircraft control (don't panic and crash for no good reason).[*]Analyze the situation, and take corrective action.I have always thought of these rules as being appropriate for handling all of life's problems, and they especially apply to the current problems in the stock market. No matter what your current situation, you can't go back and start over. You are stuck with what you've got, so do your best to work through it.
Getting back to the charts, we can see below that prices are still in a long-term declining trend channel, which currently defines the bear market. The rally is approaching a declining tops line, and it will probably penetrate that resistance and head higher, possibly to test the bear market declining tops line. The most interesting feature is the positive divergence between the PMO and the price index -- while price made a lower low, the PMO made a higher low.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590ad9970c-pi
There are also positive divergences on our primary breadth and volume indicators shown on the next chart. These positive divergences are bullish.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590add970c-pi
Our indicators and price action suggest strongly that we are beginning a rally that should last at least a couple of weeks. I also think that this week's deep low needs to be retested, and I am not convinced that a retest will be successful. My cycle work projects that a 9-Month Cycle low is due at the end of October -- about the time a retest would take place -- and cycle forces could take us to a new price low.
It is worth mentioning that the unprecedented avalanche of failures and bailouts is likely to get worse before it gets better, and we must wonder if a meltdown is over the horizon.
Bottom Line: While we continued to be buffeted by one crisis after another, the best thing we can do is "stay on instruments" (keep our eyes on the charts). At present, the charts say the rally is likely to continue, albeit not at the current rate of climb. At the end of the day, we are still in a bear market, and we should expect that the rally will fail before prices can break out of the major declining trend channel.
Posted by Chip Anderson at 4:03 PM in Carl Swenlin | Permalink
September 21, 2008VIEWING OUR "RISK AVERSION" CHART By Chip Anderson
Richard Rhodes
We'll admit last week was one of the more "interesting" trading weeks we have seen in a number of years, and if we must liken it to anything we've seen in our 25-years of trading - it would be the week before and of the 1987 Crash. The question we and many others have is whether last week was "The Low" or just "A Low" in the stock market; and to be perfectly frank...we don't know. But perhaps the most important chart in our trading universe at the present time is the simple "tactical allocation" ETF ratio chart between stocks and bonds - we use the S&P 500 Spyder (SPY) and the Lehman 20+year Bond Fund (TLT) ratio as our guide. In essence, this is a "risk-aversion" chart.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590bf5970c-pi
Quite simply, as stocks have moved lower, we've seen bond prices move higher/bond yields move lower as institutions/investors/traders have sought out the safety of the bond market at the expense of stocks. This resulted in the SPY/TLT ratio chart moving lower; and it has done so since July-2008 - breaking major support levels along the way. However, last week's unprecedented government intervention related to collapsing credit markets pushed stocks higher and bond prices lower/bond yields higher as market participants "feared" losing more money in the bond market as yields rose, with the only place to put that cash was in money market funds or in stocks - they chose stocks.
Hence, a bullish key reversal has formed off quite low levels, which the 14-week stochastic turning higher from oversold levels. In the past, this has led the ratio higher and coincided with higher stock prices. Whether or not we or you agree with the government intervention - the technicals are showing that last week was at least "a bottom", with the jury still out as to whether it was "the bottom." As we move forward, we'll certainly be able to fill in more of the myriad of technical blanks. Until then, sector and industry tactical long and short rotation will be paramount to outperformance.
Want more of Richard's award-winning advice? Check out his Web site: Rhodes-Capital.com
Posted by Chip Anderson at 4:02 PM in Richard Rhodes | Permalink
September 21, 2008FINANCIALS SURGE By Chip Anderson
John Murphy
A massive government rescue plan and a temporary ban on short selling has boosted the Financials Sector SPDR by nearly 12% (Chart 1). It's the day's strongest sector on a day when all sectors are in the black. Brokers (not shown) are up 12% and banks nearly a similar amount. Chart 2 shows the PHLX Bank Index trading over its 200-day moving average for the first time in more than a year. If the financials can hold most of those gains through the end of the day, it will be a big positive for them and the rest of the market.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6f11970b-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6f15970b-pi
Subscribe to John Murphy's Market Message today!
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
September 06, 2008DOLLAR'S RISE CRUSHING COMMODITIES By Chip Anderson
Tom Bowley
The U.S. dollar couldn't move lower forever. It had to turn and when it did, we knew things might get ugly for commodities. Since the July 14th low in the dollar index, we've seen the greenback rise over 10% (see Chart 1). That has sent commodity prices reeling. Crude oil prices per barrel have tumbled nearly 30% (Chart 2). Silver is down approximately 37%. Copper is down close to 25%. Gold has fallen about 19%. Commodity-related stocks have been bludgeoned as institutions have been liquidating stocks that the bears simply couldn't touch just a couple of months ago.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6e5f970b-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6e63970b-pi
Volatility provides opportunities, especially as options expiration approaches. Take a quick look at the VIX, which broke out of a downtrend early last week.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6e66970b-pi
We will be watching the action very closely as we finish next week and then head into another options expiration week. Analysis of max pain generally serves us well. If you're interested in learning more about max pain and how options expiration can affect the stocks you trade, then go to www.investedcentral.com/maxpain.html for more details about an upcoming LIVE presentation. Best of all, it's FREE!
Happy trading!
Join Tom and the Invested Central team at www.investedcentral.com. Invested Central provides daily market guidance, intraday stock alerts, annotated stock setups, LIVE member chat sessions, and much, much more.
Posted by Chip Anderson at 4:05 PM in Tom Bowley | Permalink
September 06, 2008MOMENTUM TURNS BEARISH FOR DIA By Chip Anderson
Arthur Hill
Stocks opened weak after Friday's employment report, but the bulls found their footing late morning and rallied for a mixed close. While it may seem positive that stocks firmed after bad news, keep in mind that stocks already priced in a lot of bad news with Thursday's sharp decline. Chart 1 shows the Dow Industrials ETF (DIA) firming just below 112.5 and closing with a small gain on Friday. Despite Friday's firmness, the rising wedge break and support break remain in play. One day of firmness is not enough to undo such a sharp decline. Also notice that CCI (20) moved below -100 to turn momentum bearish. In general, a move above +100 reflects bullish momentum that stays in effect until a move below -100. While this is not meant as a stand-alone trading system, I consider the move below -100 to be bearish and it confirms the bearish signals on the price chart. These bearish signals remain in effect until proven otherwise.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590c68970c-pi
There is also a video version of the this analysis available at TDTrader.com - Click Here.
Posted by Chip Anderson at 4:04 PM in Arthur Hill | Permalink
September 06, 2008BREAKDOWN POINTS TO LOWER PRICES By Chip Anderson
Carl Swenlin
On August 15 I wrote an article pointing out that an ascending wedge had formed on the S&P 500 chart. I noted that this is a bearish formation, and that the most likely resolution would be a breakdown from the wedge followed by a price correction. The breakdown did in fact occur two days after I made my comments, but the correction did not immediately follow. Instead prices moved sideways for about two weeks before finally breaking down again on Thursday, belatedly fulfilling the expectation of a correction. Now we must ask if this is the beginning of a deeper correction or if it will merely end as a successful retest of the July lows.
The first evidence to consider is that we are still firmly in a bear market, and the down trend is clearly visible on the chart below. Another worrisome sign is that the PMO (Price Momentum Oscillator) has topped below the zero line, which should always be viewed with apprehension, particularly when it occurs at the end of a rally.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6f91970b-pi
The next chart shows our On-Balance Volume (OBV) Indicator Set. The Climactic Volume Indicator (CVI) measures extreme OBV movement within the context of a short-term OBV envelope for each stock in the index. The Short-Term Volume Oscillator (STVO) is a 5-day moving average of the CVI. The Volume Trend Oscillator (VTO) summarizes rising and falling OBV trends. These charts tell us if the index is overbought or oversold based upon volume in three different time frames. All three are giving us useful information at present.
The CVI recently hit a climactic top just before the price break forced a climactic CVI low. Since this CVI low occurred in conjunction with a price trend change, I assume that it is an initiation climax that will lead prices lower. The STVO supports this conclusion because it is topping in overbought territory. The VTO, is not particularly overbought, but you can see that it is topping at the same level as it did at previous price tops.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6f9f970b-pi
It is also worth mentioning that September is historically one of the worst months of the year, and the market is entering this dangerous period in a very weak condition. A crash is not out of the question, although, that is not a prediction, just a caution to not get too anxious to pick a bottom.
Bottom Line: While positive outcomes can and do happen during bear markets, the odds are strongly against them. Another decline has emerged out of a short, weak rally, and I think that a continued decline is more likely than a simple retest of the July lows.
Posted by Chip Anderson at 4:03 PM in Carl Swenlin | Permalink
September 06, 2008MORE S&P 500 DECLINES AHEAD? By Chip Anderson
Richard Rhodes
The world's temperature gauge for risk is what we refer to as the "carry-trade" indicator...or the Euro/Yen Spread. When this spread is rising, then the world is said to be putting the carry-trade on and expanding risk profiles; conversely, when the spread is falling...the carry-trade is being taken off and risk is being shunned. We look at this to take the temperature of the capital markets in terms of risk. Right now, the patient is sick, and risk is being shunned, and the technical prospects for the patient indicate further risk aversion and a continuation of the "de-leveraging process."
Our statement is backed up by the simple technical fact the weekly Euro/Yen Spread chart has broken below its bull market trendline as well as its bull market 120-week exponential moving average. This would imply the "triple top" will breakdown with a close under 1.52, which would then target previous high support at 1.40 and then even lower.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590b5a970c-pi
Therefore, the trend is lower, and we'll note the recent lows in the spread all coincided with trading lows in the S&P 500. Given this material breakdown in the spread, then we'll have to assume that further S&P 500 declines are ahead of us...perhaps sharply so. Henceforth, we are aggressive sellers of rallies as they materialize, with our downside S&P target still rather wide between 960 and 1090.
Good luck and good trading, Richard
Want more of Richard's award-winning advice? Check out his Web site: Rhodes-Capital.com
Posted by Chip Anderson at 4:02 PM in Richard Rhodes | Permalink
September 06, 2008FIBONACCI LINES - HOW MUCH IS "TOO MUCH"? By Chip Anderson
Chip Anderson
How high is "too high?" How low is "too low?" Think back to any time that you've owned a stock and think about when you started to get worried about it's performance. At what point did "your gut" start to tell you that you needed to sell? Chances are your gut started talking to you after the stock had moved up (or down) by 38.2%.
Wow, that's a really specific number - "38.2." It seems kind of arbitrary also. There's no way that could be correct, right? I mean, without knowing anything about the stock you were trading, or the amount of money involved, or the overall market conditions, or anything else - how can we stand here and tell you that you got nervous right at 38.2%?
The reason is because 38.2 appears to be programmed into the human psyche (as well as many other parts of nature). 38.2 is one of a set of numbers called "Fibonacci Percentages." They are derived from the "Fibonacci Sequence" which is a list of numbers where each number equals the sum of the previous two. i.e.,
1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610 etc.
The branching in trees, arrangement of leaves on a stem, the flowering of artichoke, an uncurling fern and the arrangement of a pine cone - all these things exhibit Fibonacci characteristics . In addition, if you take any large Fibonacci number and divide it by the previous number, you'll get something very close to 1.6180339887 (the larger the number, the closer you'll get). Now, 1.6180... has been known for centuries as "The Golden Ratio" - mostly because we humans tend to prefer things - art, sculptor, architecture, etc. - that have proportions that equal the Golden Ratio.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590c42970c-pi
Which of these picture looks the most "natural" to you? The middle one has Golden Ratio proportions.
Getting back to stock charting, R.N. Elliott made the first well-known connection between price movements and the Golden Ratio. He noted that many reversals occurred around 61.8% or its compliment 38.2% (i.e., 100 - 61.8). Combined with 50% and 100%, they make up the standard set of Fibonacci Percentages.
Regardless of how the numbers were arrived at, chart analysts have observed that prices often will reverse after moving up (or down) by one of those percentages. Basically, those percentages are where something tells many people that it is time to take action - and thus prices reverse. Strange but true. Check it out:
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590c4a970c-pi
The Fibonacci Lines on this chart were created based on the move from Feb. 9th to May 30th - so just focus on the shaded blue area of the chart. Like a weatherman, the lines "forecast" that support for IBM would occur around 118.35 essentially because lots of people would probably feel that IBM had "fallen enough" and would start buying it again. That is precisely what happened at the end of June (red arrows).
Unfortunately many people have gone on to claim that Fibonacci lines (and their variants) have almost "magical powers" to predict price movements. Like most Technicial Analysis tools, we think Fibonacci Lines are useful forecasting tools - but not magical.
You can add Fibonacci Lines to your charts using our ChartNotes annotation tool. To get started, simply click on the "Annotation" link below any SharpCharts.
Chip
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
August 17, 2008THE DOLLAR GOES GREEN AND MAX PAIN REVISITED By Chip Anderson
Tom Bowley
The dollar has bottomed and is beginning to trend higher for the first time in several years. Dropping crude oil prices are pushing gas prices lower at the pump and the dollar is strengthening. That's a combo that should make most consumers feel wealthier in time. Europe's economic woes as well as weakness in other parts of the world is putting pressure on foreign currencies. With the Federal Reserve here in the U.S. on hold - at least for now - the dollar is strengthening on a relative basis to its foreign counterparts. What's good for the greenback is not-so-good for commodities. The commodity run appears to be over. I'd be a seller into strength. The technicals have quickly deteriorated to levels not seen in the last few years. The strength in the dollar will make it difficult for commodities to regain their earlier form. Take a look at Chart 1 below to see how the technicals on the dollar are beginning to change for the better.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e6f81970b-pi
For the first time in over two years, the dollar has moved above the 50 week SMA. While the dollar could encounter some short-term resistance near 78, the long-term resistance area will be in the 80.00-80.50 range. Should the dollar push through that resistance, I believe we'll challenge the 92.50 level possibly by the end of 2009 or early 2010. A stronger dollar will push all commodities lower, but will especially hit gold hard. Until conditions suggest otherwise, you should consider trading the trend at hand.
In the July 19th issue, I discussed the effect of max pain and how the market gravitated higher to lessen the impact of net in-the-money put options. The same thing just occurred for August options expiration, only in reverse. Financials and consumer discretionary stocks had led a sizeable market rally into the beginning of this week. I calculated on Monday evening that the XLF (ETF tracking financials) had $118 million in net in-the-money call option premium. I'm only talking about one ETF here, so you can imagine what the total value of net in-the-money calls were at Monday's close across all index, stock and ETF options. Tuesday's decline in the XLF erased $67 million of this net call premium and Wednesday's 61 cent drop finished off the rest. JP Morgan Chase (JPM) had one of its worst days ever on Tuesday, wiping out millions of in-the-money call premium. Stock prices tend to gravitate towards the area of max pain, which is the price point where in-the-money call premium equals in-the-money put premium. While this gravitational pull doesn't work with every stock or sector at every expiration date, I'd caution any trader from trading stocks during options expiration week without first checking the underlying open interest. A quick glimpse at the open interest and in-the-money call and put options could save your portfolio dearly.
If you're not familiar with the concept of max pain or are interested in seeing how it might help your trading, follow the link below to an audio/video presentation that was done on Tuesday for our members. The presentation was shortened to highlight the discussion of max pain as it pertained to several stocks - mostly commodity stocks. I think you'll find it interesting at the very least. Go to www.investedcentral.com/maxpain.html for more details.
Happy trading!
Join Tom and the Invested Central team at www.investedcentral.com. Invested Central provides daily market guidance, intraday stock alerts, annotated stock setups, LIVE member chat sessions, and much, much more.
Posted by Chip Anderson at 4:05 PM in Tom Bowley | Permalink
August 17, 2008ASCENDING WEDGE IMPLIES CORRECTION IMMINENT By Chip Anderson
Carl Swenlin
The rally that began off the July lows has not demonstrated the kind of strength we normally expect from the deeply oversold conditions that were present at its beginning. Instead, the meager price advance has served only relieve oversold compression and advance internal indicators to moderately overbought levels. In the process, as the chart shows, the price pattern has morphed into an ascending wedge formation, a bearish formation that usually breaks to the downside. Since we are in a bear market (the primary trend is down), odds of the negative outcome are increased.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590bc3970c-pi
The next chart shows our On-Balance Volume (OBV) Indicator Set. The Climactic Volume Indicator (CVI) measures extreme OBV movement within the context of a short-term OBV envelope for each stock in the index. The Short-Term Volume Oscillator (STVO) is a 5-day moving average of the CVI. The Volume Trend Oscillator (VTO) summarizes rising and falling OBV trends. These charts tell us if the index is overbought or oversold based upon volume in three different time frames. All three are giving us useful information at present.
The CVI shows that upside volume climaxes have been quite mediocre, certainly well below the levels that we see when significant rallies are launched. The STVO and VTO show that the oversold conditions that existed at the July low have been cleared, and that the market is beginning to become overbought. With overbought internals and a bearish chart formation, we should be expecting a correction very soon.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590bcb970c-pi
A correction would not necessarily be a bad thing. The July low needs to be retested on a medium-term basis, and a successful retest would set up a broad double bottom, suitable to support a decent rally; however, in my estimation, prices will need to go a lot lower than they were in July before internals will be sufficiently oversold to fuel a healthy advance.
A bullish take on current conditions would emphasize that the subject ascending wedge is a short-term condition, and any downside resolution is likely to be short-term as well, meaning that a very short correction could result in a higher low that keeps the rising trend intact, albeit at a less accelerated angle. There could even be an upside breakout from the formation, but that is a long shot.
Bottom Line: While our trend-following model has us on an intermediate-term buy signal, my opinion is that we should expect a correction which, at the very least, will retest the July lows. Since we are in a bear market, there is also a strong possibility that any correction could be the start of the next leg down.
Posted by Chip Anderson at 4:03 PM in Carl Swenlin | Permalink
August 17, 2008GOLD FUTURES - GOOD TIME TO BE A BUYER? By Chip Anderson
Richard Rhodes
The past month in the commodity markets has been a treacherous as we have seen it in recent years; and not one commodity has been spared. That said, our focus is upon gold futures given they have dropped from a high of $1,033.90 to their current level of $792.10, which is hard upon what we believe is major trend support at the sharply rising 20-month moving average. Quite simply, since, the 2001 breakout above this level - prices have returned to the 20-month on several occasions, and in each and every case this has been the proper time to be a buyer. Thus the question becomes whether this time is different...or not.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590abe970c-pi
Obviously, one could very well make the bullish case as history is on one's side, with the risk as rather well-defined by a -2% breakdown below the 20-month level, which would put the stop at about $772.00. Friday's low trade for gold futures was $777.70, of which prices rallied roughly $15 off their low. Is this the requisite test of support and are higher prices forthcoming? Good questions to be sure; our only concern would be that it is different this time given the length of time prices have spent above the 50-month moving average - generally prices mean revert back to this level. Moreover, the 50%-62% retracement level consistent with bull market corrections stands at $550-$640...which is also where the 50-month crosses. Hence, one has to define one's time horizons.
In ending, we believe a short-term rally is developing to upwards of $850, but that is about as far as it goes. Of course we would reassess once our target was approached, but we would so with thoughts that an intermediate-term leg lower towards the retracement level is highly probable.
Good luck and good trading,
Richard Rhodes
Want more of Richard's award-winning advice? Check out his Web site: Rhodes-Capital.com
Posted by Chip Anderson at 4:02 PM in Richard Rhodes | Permalink
August 17, 2008TWO SECTOR LEADERS ARE STAPLES AND HEALTHCARE By Chip Anderson
John Murphy
Until proven otherwise, the two strongest market sectors are still consumer staples and healthcare. And both are defensive categories. Chart 1 shows the Consumer Staples Select (SPDR) trading at a new eight month high after breaking through its spring high. It's nearing a test of its record high formed last December. Its relative strength ratio (below chart) has been rising since last summer when the market started to peak. Chart 2 shows the Health Care SPDR (XLV) bottoming at the end of June. The XLV has exceeded its spring high and its 200-day moving average. Its relative strength line turned up during May when the last market rally ended. The simplest way to play the two sectors is through these ETFs. If you're a stock picker, there are lots to choose from.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590bbe970c-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590bc6970c-pi
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Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
August 17, 2008"WEATHERING" THE MARKET By Chip Anderson
Chip Anderson
When was the last time you saw a 100% accurate weather forecast for your area? Chances are that at least some of the weather predictions your local weather person tells you won't come to pass. In many cases, most of the predictions are wrong. So why do we keep listening to weather forecasts?
Weather forecasts are useful because they help us prepare for what is likely. If the forecast calls for rain, we bring our umbrellas with us when we go out. If sunshine is predicted, we bring our sunglasses. We know that we might not need these things, but more than likely we will and we like to be prepared.
Technical analysis is very similar to weather forecasting. Good technical analysts know that T/A can prepare you for what is likely to happen but, just like many weather forecasts, things can change in unpredictable ways. Here are some other ways that technical analysis is like weather forecasting:
[*]Weather forecasters measure temperature and air pressure and then use that data to determine more about the factors that cause weather changes - i.e., fronts, high pressure, low pressure, etc. Technical analysts use price and volume to determine more about the factors that cause market changes - i.e. fear and greed, trends, reversals, support, etc.[*]Despite huge quantities of weather data at their disposal, weather forecasters still use their experience and intuition when creating each forecast. Technical analysis also draws heavily from the experience and intuition of the person doing the analysis (you!).[*]Accurate weather forecasting requires local knowledge and experience. A forecaster from Florida that moves to Alaska will need time to become familiar with Alaska's weather patterns. Similarly, technical analysis requires experience and knowledge about the kinds of markets being charted - stocks are different from commodities which are different from mutual funds, large stocks are different from small stocks, etc.[*]In the early days of weather forecasting, charlatans tried to convince people that they could somehow control the weather or that their predictions where always accurate. Unfortunately, even today, you can find people making similar claims about technical analysis.[*]Weather forecasts tend to be most accurate when things aren't changing. If it has been sunny for the past three days and no big weather systems are approaching, chances are it will be sunny again today. Technical analysis also works well when conditions aren't changing dramatically. Both disciplines have more trouble with predicting exactly when big changes will occur.[*]Both weather forecasting and technical analysis work well for the "mid-sized view." While predicting the weather for a large city is possible, predicting things for a city block is very hard. Similarly, second-by-second technical analysis can be extremely tricky; daily and weekly analysis is more reliable. Conversely, predicting weather for the country as a whole (i.e., "It will be sunny in the US today") and predicting the market as a whole (i.e., "This year stocks will go up") are too broad to be useful.It is easy to lose perspective on what technical analysis can and cannot do. Try to remember this comparison with weather forecasting to keep yourself aware of its benefits and limitations.
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
August 02, 2008EARLY BULLISH SIGNS EMERGING? By Chip Anderson
Tom Bowley
Spotting tops and bottoms is perhaps the best reason for utilizing technical and sentiment indicators in your investing and trading arsenal. The first signs of a bottom forming can be subtle and I'm beginning to see a few. Consumer discretionary stocks, which have been relative laggards during the market weakness, are showing slight signs of relative strength and on a longer-term weekly chart have printed a long-term positive divergence. Take a look at Chart 1:
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590d16970c-pi
Given the steep increase in crude oil prices over the first half of 2008, it's surprising that consumer discretionary stocks have held up as well as they have on a relative basis. The Conference Board Consumer Confidence Index increased in July (reported July 29th as of July 22nd) for the first time since December. One month's increase doesn't make a trend, but it certainly bears watching. Consumer confidence is important not only because it reports the consumer's view of current conditions, but it also provides the consumer's view of future expectations. A further deterioration in crude oil prices would likely have a bullish effect on the consumer discretionary sector and by the looks of the crude oil chart below, further deterioration is becoming more likely.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590d1e970c-pi
If crude oil breaks that head & shoulders pattern to the downside, the measurement would be to the $98-$102 area. One of my favorite stocks in the consumer discretionary group from a long-term perspective is Starbucks (SBUX). At Invested Central, we trade stocks, we don't invest for the long-term. However, the technical picture of Starbucks (SBUX) is quite compelling for a longer-term investor. The name brand is obvious and on the heels of a horrible quarter, you can pick it up on the cheap. Take a look at the long-term weekly chart below:
http://blogs.stockcharts.com/.a/6a0105370026df970c011168590d21970c-pi
Until next time...
Happy trading!
Join Tom and the Invested Central team at www.investedcentral.com. Invested Central provides daily market guidance, intraday stock alerts, annotated stock setups, LIVE member chat sessions, and much, much more.
Posted by Chip Anderson at 4:05 PM in Tom Bowley | Permalink
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