June 03, 2006DOW CONSOLIDATES ABOVE KEY SUPPORT By Chip Anderson
Arthur Hill
The Dow came down hard in May, but found support at 11050. This support level stems from January resistance and the April low. A key tenet of technical analysis is that broken resistance turns into support. The Dow broke above 11050 in February and this level turned into support in April and May.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7589970b-piSince reaching support, the Dow consolidated over the last two weeks and a pennant type consolidation is forming (gray oval). The sharp decline created an oversold condition and the Dow needed to work off this condition. A two week trading range is just the trick, but the pennant is a bearish continuation pattern. A move below the May low would confirm the pennant and call for a continuation of the May decline. The obvious target is the 200-day moving average around 10850. It is also worth noting that the Dow was the only major index NOT to move back above its 26-May high on Thursday and this shows relative weakness. The S&P 500, Russell 2000 and Nasdaq all surged above their 26-May high on Thursday.
For a bullish resolution to this consolidation, I will be watching resistance at 11300. This resistance level stems from the 50-day moving average, the 26-May high and the October trendline extension. The October trendline provided support until May and now acts as resistance. A break back above 11300 is needed to put the Dow back into the bull mode.
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
June 03, 2006BOTTOM LOOK PRETTY SOLID By Chip Anderson
Carl Swenlin
On Tuesday we saw the market successfully retest last week's lows, then on Thursday there was a climactic rally that broke above last week's highs. This was a lot more positive than many people (including me) were expecting. The most significant short-term event was that the CVI (Climactic Volume Indicator), which is the very nervous purple line on our first chart, hit its highest reading in over a year-and-a-half. This marked what I believe was an initiation climax (as opposed to an exhaustion climax). As the name implies, an initiation climax signals that a new short-term trend has been initiated in the direction of the climax, in this case up. Since the market is now short-term overbought, some backing and filling can take place before the up trend continues, but it is most likely that higher prices will be forthcoming.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7668970b-piWhat makes the recent bottom look pretty solid is that the other two indicators on the chart, the VTO (Volume Trend Oscillator) and STVO (ST Volume Oscillator), were very oversold at the recent price lows. I have circled other instances where both indicators were similarly and simultaneously oversold, and you can see that rallies of at least short-term duration resulted.
While this rally could challenge the May highs, I don't think it is the beginning of a major bull move because of our second chart below, which shows the percentage of stocks above their 20-, 50-, and 200-EMAs. As you can see, the shorter-term 20- and 50-EMA indicators reached oversold levels similar to other important bottoms in the last two years; however, the 200-EMA indicator was only modestly oversold at the recent price low. The bottom looks pretty solid but only for short-term purposes.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e766d970b-piOne thing to remember is that rallies out of oversold conditions are not a guaranteed sure thing. When the market turns bearish, oversold conditions are dangerous and can beget even more selling.
Bottom Line: Our primary medium-term timing model for the S&P 500 switched to neutral on May 19, which means that the decline was severe enough to trigger a caution flag. In order to return the model to a bullish stance, a modest amount of work will be required to the up side. The condition of the indicators says that is well within reach; however, I do not think this is the beginning of a major bull move, because the recent bottom was not deeply oversold on our long-term indicators.
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
June 03, 2006THE DAMAGE FROM "THE MAY SWOON" By Chip Anderson
Richard Rhodes
The May Swoon as we are apt to call weakness seen during the month had led to an increase in confusion amongst technical analysts. However, we would argue that is all about "time horizons", and we should confuse short-term movements with long-term time horizons as we are beginning to see. In fact, our short-term indicators and models have traded to their lowest points in months; however our longer-term work has just begun to weaken. Everyone is conditioned to buy the dips, and those that haven’t have paid the price. Hence, we think the market is well seasoned for a larger sell-off from a longer-term perspective.
Let's keep it simple and take a long-term viewpoint; May's trade formed a bearish "key reversal" lower in many of the industrialized as well as emerging market indices (we have shown the S&P 500 as it is likely to outperform during any decline). Thus, if we use this bearish formation as our starting point – the probability of a correction towards the rising major 40-month moving average support at 1145 has increased significantly. This would complete a normal -10% correction, and actually cause no harm to the bull market in stocks. However, if prices break through 1445, then a clear bear market will have begun.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e764f970b-pi
Therefore, from a tactical perspective - market strength such as that seen this week should be sold and/or sold short given the 40-month moving average target...allowing for a slight monthly rise. Our favorite market indices to short: short small and mid cap stocks as well as emerging market ETFs.
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
June 03, 2006SERVER UPGRADES COMPLETED, MORE BANDWIDTH, FUTURE PLANS By Chip Anderson
Site News
SERVER UPGRADE COMPLETED - We hit another major milestone last week when we upgraded our final database server. In addition to the SharpCharts2 roll-out, we've been quietly upgrading our 8 database servers to the newest, fastest hardware from Dell with the newest, fastest software from Microsoft. Last Monday we replaced the last server. What this means to you is fastest response time and more charting data!
MORE BANDWIDTH - This weekend saw another major milestone in the advancement of our website; we added a third super-highspeed Internet connection to ensure that everyone can get to our charts as quickly as possible. Each T-3 connection we have can handle up to 45 Megabits of data, so at this point we can put out up to 135 Megabits of charting goodness. At current growth rates, that should hold us for another couple of weeks. ;-)
FUTURE PLANS - With the SharpCharts2 rollout behind us, you may be wondering what's next for StockCharts. Right now we have several important changes in the pipeline including:
[*]Smaller chart filesizes - means faster downloads for everyone.[*]Improved look-and-feel for Extra! members - similar to the improved Public Chart Lists we rolled out two weeks ago.[*]New indicators in the Scan Engine - gotta add all of SharpCharts2's indicators.[*]ChartSchool improvements - soon it will work just like our new Support area does.We're also continue to work on long-term improvements including a streaming version of our charts(!). Unfortunately, we do not know exactly when any of these new features will be available. Rest assured that we are working as hard as we can on them however. As things get closer to being finished, we'll let you know here in this newsletter.
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
June 03, 2006US DOLLAR AT CRUCIAL JUNCTURE By Chip Anderson
John Murphy
The chart below compares the Dollar Index (green line) to the CRB Index (purple line) since last September. The main message to be drawn from the chart is that the two markets have been trending in opposite directions which is their natural tendency. Dollar peaks last November and again in March coincided with CRB upturns. A dollar bounce during the first quarter coincided with a CRB selloff. The recent minor bounce in the dollar may have contributed to the recent slide in commodities. That's why commodity traders need to watch the dollar especially closely at this point. That's because the dollar is at a crucial chart juncture.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e75a4970b-piBack in March I wrote a column about a possible "head and shoulders" bottom being formed by the Dollar Index. The next chart is an updated look at that possible chart pattern. The horizontal line drawn over the 2005 peaks near 92 is a possible "neckline". The middle trough formed at the start of 2005 is a possible "head", while the early 2004 trough is a possible "left shoulder". If the current selloff is a "right shoulder", it shouldn't fall below the left shoulder. The two green circles show that level to be just above 84. The Dollar Index is testing that support level at the moment. To turn the chart pattern bullish, the USD would have to rally from this level and exceed its neckline at 92. It's a long way from doing that. If it doesn't hold near 84, it could drop all the way back to its early 2005 low near 80. Technical indicators are mixed. The 9-week RSI is in oversold territory under 30. But the weekly MACD lines are still negative. Since I'm a believer in the maxim that it's easier to continue a trend than to reverse one, I think odds favor a dollar move to the downside. That would be even more likely if today's weak jobs data encouraged to Fed to take a pause in June. That would be bullish for gold and other commodity markets. That's why a lot rides on the trend of the dollar. That's also why the final chart is so worrisome. Going back to the mid-1980's, it shows the dollar in a long-term secular decline. It also shows how important the support line is along the 80 level. It held at the start of 2005 and prevented a major breakdown. If the current level of 84 doesn't hold, that long-term support line at 80 will be threatened again.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e75a8970b-pihttp://blogs.stockcharts.com/.a/6a0105370026df970c0105371e75ae970b-pi
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
June 03, 2006Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
The results are in! We have the five winners for our "Seeing Clearly with SharpCharts2" contest! Thanks again to everyone that entered. There were over one hundred entries and all of them were very well done. The judges' job was not easy at all.
The five winners (in alphabetic order) were: Aaron Brussat, Michael Ham, Kevin Krueger, Leilani Lazo, and Kevin Pasternack. Each will receive a Dell 24" LCD Monitor as their prize. In a surprise move, the judges also decided to award Craig Ferguson an Honorable Mention award and one free year of StockCharts.com service. Congrats to all of our winners!
You can see the winning charts along with each winners comments about the charts at this link:
http://stockcharts.com/help/doku.php?id=support:contest01winners
(Most of the charts are too wide to include in this newsletter directly.)
We were absolutely amazed by the wide variation in charts that we received. It was great to see that people are really starting to use the new capabilities that SharpCharts2 brings to the table - overlays, colors, indicators of indicators, area fills, grid line options, annotations, custom panel heights, performance indicators, multiple symbols per chart, etc. Hopefully, these examples will inspire more people to get out and really explore the new things that SharpCharts2 can do.
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
May 20, 2006QQQQ BREAKS KEY SUPPORT By Chip Anderson
Arthur Hill
QQQQ established support at 40 with three bounces over the last six months and broke this key support level with a sharp decline over the last two weeks. The break below 40 signals a major victory for the bears and the first downside target is to around 37-38. The August 2004 trendline and October low mark support in this area.
The decline was enough to push the McClellan Summation Index into oversold territory. This version of the McClellan Summation Index is based on the stocks in the Nasdaq 100 and is directly related to QQQQ. This is the fourth dip below –500 in the last two years. However, the indicator has yet to firm and rebound. As long as it remains below –500 and below its 20-day EMA, breadth is deteriorating and this oversold indicator could become even more oversold. As long as its remains oversold, I would look for further weakness towards support around 37-38 for QQQQ.
A lot of damage has been done over the last two weeks and it will take some time for the bulls to regroup. Before calling for a sustainable rebound, I would like to see the McClellan Summation Index move back above –500 and its 20-day EMA.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859137f970c-pi
Posted by Chip Anderson at 4:04 PM in Arthur Hill | Permalink
May 20, 2006OVERSOLD BOUNCE IS DUE, BUT . . . By Chip Anderson
Carl Swenlin
During the last two weeks the market has experienced a much needed (and long anticipated) decline, and now it is due a bounce out of a short-term oversold condition; however, the decline could continue for a few more months.
On our first chart below we can see that the CVI (Climactic Volume Indicator) and the STVO (Short-Term Volume Oscillator) have reached deeply oversold levels and have turned up. This is a pretty good indication that a short rally could be starting.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591247970c-pi
Also, note the rising trend line I have drawn on the chart. For several months it has acted as support as the market worked its way higher. Unfortunately, that line has been decisively penetrated, and it will now function as overhead resistance. My guess is that any rally will not exceed 1300 on the S&P 500.
The next chart shows three of our primary medium-term indicators -- one each for price, breadth, and volume. The ITBM (IT Breadth Momentum) and ITVM (IT Volume Momentum) Oscillators have become modestly oversold, but the PMO (Price Momentum Oscillator) has only just passed through the zero line and is nowhere near the level where other declines have ended. Also, the violation of the short-term rising trend line suggests that the decline will continue at least to the bottom of the medium-term rising trend channel.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859124f970c-pi
The best-case scenario is that the decline will end once the PMO, ITBM, and ITVM turn up from oversold levels, which might only take a few more weeks; however I want to call your attention to the March-August 2004 correction. Note that indicators (and the market) made three oversold bounces before the correction was finally over.
Bottom Line: An oversold bounce can be expected, but there is plenty of room (and need) for a continued decline longer-term. Our primary timing model for the S&P 500 switched from buy to neutral on Friday, so I am inclined to believe we are in for some rough sailing over the next several months.
Posted by Chip Anderson at 4:03 PM in Carl Swenlin | Permalink
May 20, 2006OUR FIRST EVER CONTEST -WIN A 24" LCD MONITOR! By Chip Anderson
Site News
ANNOUNCING OUR FIRST EVER CONTEST! - SharpCharts2 is so powerful, it deserves to have as much screen real estate as possible. Larger computer screens mean larger charts which means better technical analysis. To that end, we are now accepting entries in our...
"Seeing Clearly with SharpCharts2" Contest
There will be five grand prize winners who will each receive a brand new 24-inch LCD Computer Monitor (a US$978.00 value) for FREE!
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e764e970b-pi
Just think of how much better your charts would look if you had more room to display them!
To Enter, simply send us you "best" SharpCharts2 chart with a short explanation of how you use the chart to make better investing decisions. One week from now, we will judge all of the entries and select the 5 best. If your entry is one of the five we pick, you'll soon be charting in the lap of luxury!
Click here for complete contest rules and exact
details on how to enter!
Good luck. We can't wait to see what you come up with!
ATTENTION MCAFEE SOFTWARE USERS! - We've recently discovered that McAfee's Internet Firewall will sometimes (not always) prevent SharpCharts2 charts from downloading. If you use McAfee software on your computer, be sure to add "stockcharts.com" to the list of "Allowed Sites" in your software's "Options" area.
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
May 20, 2006S&P 500 IS ENTITLED TO A BOUNCE By Chip Anderson
John Murphy
Although the longer-range chart picture has weakened (with most weekly indicators on sell signals), the S&P 500 has lost about 5% this week and looks to be in a short-term oversold condition. Its daily chart shows the 9-day RSI line below 30 for the first time this year. In addition, the S&P has reached its 200-day moving average and potential chart support along its first quarter lows. That may be enough to cause a market rebound next week. If one does materialize, the first level of resistance would be at 1280 which would also be a one-third retracement of the recent selloff. That's also the mid-April low that was broken this week. Broken support levels often become new resistance levels. While short-term indicators are oversold, weekly indicators aren't. Since weekly indicators take precedence over daily ones, I would continue to view any short-term rally as another selling opportunity.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685912b8970c-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685912be970c-pi
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
May 20, 2006Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
The markets moved lower last week with some disturbingly large downward movements. As you can see in the chart below, last week's losses put the Nasdaq Composite into negative territory for the year - the first of the major averages to get there.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e762d970b-pi(Did you notice the cool Performance chart that SharpCharts2 can now create? StockCharts member's can click the chart to see exactly how it was constructed.)At this point, the small caps are still leading the other averages as they have all year, but recent strength in the Dow Industrials could change that soon.BETTER, STRONGER, FASTER SHARPCHARTS2 CHARTSWe're continuing to listen to everyone's feedback on SharpCharts2. Thanks again to everyone that has sent in a suggestion for improvement. Rest assured that we are always working on ways to make our site even better. The other day we got a complaint from a user about his charts being hard to read and slow to download. The solution to this particular complaint may surprise you."Reader X" (not his real name ;-)) sent in a message saying that some of his saved charts were taking a long time to download and looked pretty bad once they arrived. Here's one of the charts he was referring to:http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7634970b-piWow. What a mess. But it turns out there's a good, valid reason for the way this chart looks. Without realizing it, the user was asking to fit 2 years worth of 60 minute candlesticks into a chart that was only 620 pixels wide. Let's think about the math involved in that request:[*]There are seven 60-minute candlesticks in a normal trading day.[*]There are ~250 trading days per year.[*]In order to create a complete candlestick, we need a space at least 3 pixels wide (one for the left edge, one for the middle area, and one for the right edge).So the minimum width (in pixels) that we need to create this chart is:
7 times 250 = 1750 (candlesticks per year)
1750 times 2 = 3500 (candlesticks for 2 years)
3500 times 3 = 10,500 (pixels per chart)
So, we'd need an area at least 10,500(!) pixels wide to display all of that information in a clean accurate way. (I don't know about you, but my computer screen is only 1280 pixels wide - not quite big enough!) However remember that "Reader X" told us to fit all of those candlesticks into a space only 620 pixels wide. In other words, we have to fit 3500 candles into a space that can only hold at most (620/3=) 216. Yikes!
So, how do we do that? In this case, we use a combination of two approaches: shrinking the candles and selectively omitting some candles from the chart. First off, we shrink the candles down to 1 pixel wide lines. That causes them to lose their "filled/unfilled" information, but we really don't have a choice. Even then, with 1 pixel wide candlesticks, we still need to fit 3500 candles into a 620 pixel wide chart. At that point, we get more drastic - we only plot every 6th candle (roughly). 2800 data points are thrown out in order to fit things into the 620 pixel space the user specified. With all that missing and scrunched data, it's no wonder things look so messy.
So that explains the poor visual quality of the chart, but what about the slowness?
The more data points that go into creating a chart, the longer it will take for our servers to generate that chart. So how many data points does this chart need? 3500, right? Wrong! This chart actually needs 4300 data points from our database. Can you spot the reason why?
The culprit is that 200-period EMA. In order to plot the EMA correctly on the left side of the chart, we need to pull additional data from our database that doesn't even appear on the chart. The amount of additional data depends on the type of indicators on the chart and their durations.
Now, if this chart contained just a 200-period Simple Moving Average, we'd only need to pull 200 additional data points. Unfortunately, Exponential Moving Averages are calculated in a very different way (which I've written about in previous newsletters). EMAs require much more data than SMAs do - it turns out that to accurately calculate a 200-period EMA, you need at least 800-periods of data. Thus we pull over 4300 data points from our database when creating this chart.
In addition, the "crunched" look of the candlesticks reduce the efficiency of the compression routine that we use to shrink down the chart - thus making the chart's file size larger and, as you probably know, the larger the file size, the longer the download.
SOLUTIONS
There are several things that "Reader X" could do to this chart to improve it.
[*]He could change the range from "2 Years" to "Fill the Chart". "Fill the Chart" will ensure that all of his candlesticks aren't scrunched. It is perfect for people that are mostly interested in the most recent information on the right side of the chart.[*]He could change the duration of the chart from "2 Years" to something shorter. Anything more than about 30 trading days will result in some "scrunched" candles, but anything less than 2 years will be an improvement.[*]He could increase the width of his chart. The more space we have, the less "scrunching" we have to do. Keep in mind however that wider charts mean larger file sizes and thus slower download times.[*]He could change the period from 60-minute bars to daily bars. Then we'd only need to plot 500 candles in the 620 pixels available. There'd still be some scrunching, but not nearly as much. The only "gotcha" with this approach is that he'd also have to reduce the period of his EMA by a factor of seven (since there are seven 60-minute bars in one day). Thus, he'd need to change it from a 200-period EMA to a 28-period EMA.[*]He could change from a "Candlestick" chart to a "Line (thin)" chart. A line chart only needs one pixel per data point and thus can fit more data into the same amount of space without scrunching. In this case there would still be lots of omitted data points, however this suggestion can be combined with some of the above suggestions to improve the final result.[*]Finally, if "Reader X" is using a slow internet connection, he may want to disable the "Line Smoothing" option on the chart to further decrease it's size.When contacted about this chart and its settings, "Reader X" replied "Wow, I didn't even think about that. I never really paid much attention to the settings and things look much better now that I've adjusted things based on your suggestions."
Here's a example of a chart that incorporates many of the above suggestions:
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7639970b-piReader X's original chart was 99K in size. This new chart is only 19K in size. That's more than 80% smaller than the original and actually MORE readable. In addition, the new chart only needed 1300 data points from our database, over 70% fewer data points than before. Now that's what I call a "win-win" situation!
So remember, use discretion when creating your charts. Think about the amount of data involved and the screen real estate required. Hopefully, "Reader X's" lessons will help you improve your charting experience also.
- Chip Anderson
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
May 06, 2006ANOTHER BREAKOUT FOR THE RUSSELL 2000 By Chip Anderson
Arthur Hill
The Russell 2000 has not been the strongest broad index over the last few weeks, but it is still by far the strongest index in 2006 and shows no signs of stopping after another falling flag breakout on Thursday. This is the third such breakout since December and the death of small-caps has been greatly exaggerated. Longer term, the index remains in a rising price channel with lower trendline support at 755 and upper trendline resistance around 820.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e75c6970b-pi
I also use RSI to gauge the strength and direction of the long-term trend. This key momentum indicator moved above 50 in early November and then held above 45 in December, February, March and April. There is clearly lots of support at 45. As long as RSI holds 45 and the index holds the lower channel trendline, the flag breakout is bullish and we should expect further gains.
In addition to using RSI for the long-term trend, it can be used to identify playable pullbacks within the trend. Notice that RSI bounced after each pullback below 50 (gray ovals) and these dips represented excellent opportunities to partake in the bigger uptrend. RSI held above 50 on the most recent pullback (falling flag). The shallowness of the pullback shows underlying strength and I expect further gains.
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
May 06, 2006GOOD AND BAD NEWS ABOUT THE DOLLAR By Chip Anderson
Carl Swenlin
On March 17 our trend model turned from bullish to neutral on the US dollar, and since then the technical picture has continued to deteriorate. Prices have dropped precipitously from near 90 to near 85, and the weekly 17-EMA has crossed down through the 43-EMA, a long-term sell signal. (The weekly moving average crossover is not "official" until the end of the week, so the sell signal could be erased if there is a sharp rally on Friday.) The weekly moving average crossover is a big deal, because, as you can see on the chart below, it doesn't happen very often.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859139a970c-pi
While price action and internals are negative, there is the possibility that a bullish reverse head and shoulders is forming. There is a clear left shoulder and head, and the support line at 85 could facilitate the formation of a right shoulder. If the dollar can rally off the support at 85, we would want it to rally up through the neckline drawn at 93 in order to execute the pattern. There is no guarantee that this will happen, but it is a possibility.
The next chart is a long-term view of the dollar using a monthly chart (each bar equals one month), and it shows another set of positives and negatives. Starting with the negatives, the monthly PMO has topped, and the 6-EMA has crossed down through the 10-EMA. Both are long-term sell signals.
On the positive side, we can see that there is very strong long-term support between 78 and 80. If the reverse head and shoulders pattern fails to execute, it could be that the current decline will lead to a double bottom on the support around 80 in preparation for a strong upside trend reversal.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685913a0970c-pi
Bottom Line: We are currently neutral on the dollar, and the technical condition of the index is negative; however, support zones at 85 and 80 could provide a solid basis for a long-term bottom. Sentiment shows the lowest percentage of bulls since late-2004, so a short-term bounce is likely very soon.
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
May 06, 2006SC2 OFFICIALLY RELEASED By Chip Anderson
Site News
SHARPCHARTS2 OFFICIALLY RELEASED - Late last week we officially released SharpCharts2. This is a huge step forward for StockCharts.com and we couldn't have done it without the help and support of our users. Thanks again to everyone that provided feedback to us during the Beta process. We are still interested in hearing from anyone that has suggestions for improving things - use the "Report Problems" link below the chart to send us your ideas.
Attention New SC2 Users! Be sure to read our SharpCharts2 FAQ page for help with transitioning from SharpCharts1 to SharpCharts2.
NEW LOOK FOR OUR SUPPORT AREA - We also release an updated version of our Support area last week. The new area is cleaner looking and easier to navigate. More importantly, it uses "Wiki" technology similar to that found in sites like "Wikipedia.org". That will allow us to keep our support information up-to-date much more easily than before. Watch for us to update our ChartSchool area with this same technology soon.
HARDWARE IMPROVEMENTS CONTINUE - Something that may not be as apparent is the amount of additional hardware that we've added to the website recently. In the past two weeks, we have brought 10 new servers on-line and upgraded our 4 oldest machine to new hardware. There are now over 50 top-of-the-line servers driving our website. We also placed an order for an additional super-high-speed internet connection that will boost our bandwidth by 33% when it arrives later this spring.
CONTEST ALERT! - We are putting the finishing touches on the rules for a contest that we want to announce in 2 weeks (in the next newsletter). We want to help our users improve their computer equipment by giving away new computers and new computer monitors via an online contest. When the contest starts, we'll be asking for people to send us stories, pictures and examples of how they are using StockCharts.com to make better investing decisions. There will be several categories for awards, from the "best use of SharpCharts2's new features" to fun things like "oldest computer" and "messiest office." Start thinking about the unique things you do with StockCharts and get ready to share them with us in the coming weeks!
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
May 06, 2006WHY JAPAN IS STILL A GLOBAL VALUE By Chip Anderson
John Murphy
The first chart below shows why I believe Japan to be one of the best global values. While most other global markets are at or near record highs, the Nikkei 225 has recovered barely a third of its losses from 1990 to 2003. The Nikkei is still down 55% from its 1990 peak at 39,000. During that same time span, the S&P 500 has risen over 300%. What I also like about Japan is that it's been poorly correlated with other global markets over the last fifteen years. That makes it an excellent global diversification vehicle. This isn't a new view. Those of you who have followed by writing know that I was saying the same thing last summer when the Nikkei was just breaking out of a base at 12K. There is a short-term warning, however, that you should know about. The chart of the Nikkei shows the next upside resistance barrier at its early 2000 peak just over 20K. That's still 18% away from current prices. Chart 2, however, shows that resistance level to be 16.03 in the the Japan iShares (EWJ). Today's trade at 15.39 puts the EWJ within 4% of that resistance barrier. While I remain bullish on Japan, you should know that the EWJ may run into some interim resistance around that 16.00 level.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e75de970b-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e75e5970b-pi
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
May 06, 2006Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
SIGNAL LINES GALORE
One of the huge new features of SharpCharts2 is its ability to plot "indicators of indicators." In other words, SharpCharts2 can chart indicators based on the value of another indicator which, in turn, is based on the value of the chart's main stock, index or fund. In our last newsletter, I included an example of how you could use the Slope indicator to see the changes in the MACD more clearly. This time around I want to show you how the same technique can be used to add signal lines to just about anything.
A signal line is a moving average of an indicator that is typically plotted on top of the indicator so that cross-overs are easy to spot. Many indicators such as the MACD and Stochastics indicators are typically plotted with signal lines already. However there are still a large number of indicators that aren't typically plotted with signal lines. Fortunately, with SharpCharts2, StockCharts.com members can easily add signal lines to any indicator they want.
Earlier this week, subscribers to John Murphy's Market Message got a taste of just how powerful this capability can be when guest columnist Jeanette Young used a 5-period EMA signal line on the 20-period CCI indicator.
"The study on the bottom is one which I use, the Commodity Channel Index with a 5- period exponential moving average on top. The reason that this 5- period exponential moving average is placed on the CCI is to obtain better triggers than would be offered by the CCI alone. Were I to use the CCI alone, I would miss about 75% of the trade. By using the 5- period Exponential Moving average, I have created a trigger for both a buy and a sell." - Jeanette Young
Here's an example of Jeanette's technique in action:
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859133b970c-pi
(Click on the chart to see the parameter settings.)
To create this chart, first log into your account, then plot a daily chart of the Qs with the Blue-Grey color scheme. Hit the "Clear All" button in the "Indicators" section to remove any other indicators, then add the "CCI" Indicator to the chart and click "Update." Click on the green "Advanced Options" triangle to pull-out those choices (sorry, you have to be a member to use the advanced options), then change the "Color" to red. The "Overlay" dropdown is the key to charting indicators of indicators. Select "Exp. Mov. Avg" from the "Overlay" dropdown, then enter "5" in the "Parameters" box.
That's it! Just click "Update" to see the final result. The 5-period EMA (in blue) crossed the red CCI line two days ago giving a sell signal. Note that these are pretty short-term buy/sell signals - you might want to use longer periods if you are a longer-term investor.
Here's another example using one of my favorite indicators, the Chaiken Money Flow. Long-term ChartWatchers know that I like the CMF because it combines price action with volume action to create one indicator. While longer-term CMF lines aren't super-jittery, adding a signal line to the mix can help you be sure you are seeing the indicator's message clearly.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591340970c-pi
(Click on the chart to see the parameter settings.)
In this case, I'm using a 40-day CMF combined with a 10-day EMA signal line. Despite the big declines of the last two weeks, this chart suggests things are looking up in the near term for GOOG as the CMF is just about to cross back above the blue signal line.
Signal line work well with indicators that are not too smooth and not too "angley." Signal lines on smoothed oscillators (like the ultimate oscillator) tend to give very few signals and most of those are late. Signal lines on "angley" indicators (like the Aroon) are unable to react quickly enough to the quick direction changes.
Other than those cases, signal lines work great. I encourage you to experiment with them on your charts and see how they can help you make better investing decisions.
- Chip Anderson
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
April 16, 2006DOW OVERSOLD AND AT SUPPORT By Chip Anderson
Arthur Hill
The decline in the Dow Industrials over the last few weeks looks like a bull flag. This downward sloping flag is a potentially bullish pattern that requires confirmation with an upside breakout. Notice that the Dow formed a similar falling flag in late February and early March. The breakout at 11100 in early March confirmed this flag and led to a new reaction high. For the current flag, a break above 11250 would confirm the pattern and signal a continuation higher. The upside target would be the upper channel trendline or to the 11500-11600 area.
In addition to the flag, the Dow is trading at trendline support and the Ratio-Adjusted McClellan Oscillator is oversold. The Dow firmed over the last two days near support from the October trendline. This trendline has now been touched four times and a break would be quite negative. As long as this trendline holds, the trend since October is clearly up. The McClellan Oscillator dipped below –70 for the third time in five months. The prior oversold dips in December and January led to impressive bounces. The combination of trendline support and an oversold McClellan Oscillator increases the odds of a bounce as we head into earnings season.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7609970b-pi
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
April 16, 2006ENERGY ADVANCE NOT SUPPORTED BY CASH FLOW By Chip Anderson
Carl Swenlin
One way we can gauge sentiment regarding a particular market or sector index is by watching asset levels and/or cumulative net cash flow in and out of the related Rydex mutual fund. In general, cash flows should rise and fall along with prices. When divergences occur, price movement should be questioned. For example, a large price move accompanied by a small increase in cash flow indicates there is probably not broad support behind the price move and that the rally could fail. Or, a sharp decline that does not result in proportional cash outflows probably indicates too much optimism and the likelihood of an additional decline sufficient to cause capitulation.
In the case of Rydex Energy Fund we can observe that, as we would expect, money flowed out of the fund when prices declined from the January top. After the correction was completed, prices once more advanced toward the January high; however, this price advance was not confirmed by money flowing back into the fund. In fact, assets and cash flow have remained flat during the price advance.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685912ad970c-pi
How can the fund's price advance if money is not pushing the move? Remember, the fund's price is actually its NAV, which is the net asset value of the securities owned by the fund. The value of these securities will change as a result of their being traded in the market. The fact that fund asset levels and cash flow do not confirm price changes indicates that volume associated with the move is drying up. In the case of Energy Fund, we can assume that the advance is not likely to be sustained.
At DecisionPoint.com we track assets and cash flow on all 47 Rydex funds. They are invaluable sentiment indicators.
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
April 16, 2006INTEREST RATES MATTER AT THE MARGIN By Chip Anderson
Richard Rhodes
Last week the 10-year note and 30-year bond rose decidedly above the psychologically important 5.0% level. This is first time since June-2002 that the 10-year has traded above this level. If we have learned anything in our 24 years of trading – it is that interest rates matter at the margin. Moreover, the technical prospects are very good for the 10-year to rise to 5.3% and the 30-year to 5.5%. Soon, we should begin to see a slowing of the economy and a equity market correction of at least -10%.
Thus, we like to look at the Lehman 20+ year bond fund/S&P 500 “Spyders” Ratio (TLT: SPY) to glean important information. At the present time, the ratio is oversold and due for a technical bounce in the least; however, in 3 of the past 4 bounces…stocks have corrected rather sharply, but not by -10% of more. But the higher rates go…the greater the risk – especially given the underlying internal deterioration seen during last week’s decline.
Therefore, we are selling stocks short – and moving to a slightly overweight short position in the Paid-to-Play “Long/Short” Portfolio.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591322970c-pi
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
April 16, 2006SHARPCHARTS2 ALMOST COMPLETED By Chip Anderson
Site News
SHARPCHARTS2 PROGRESS REPORT - SharpCharts2 took another huge step forward last week when all of our "Basic" subscribers were automatically converted to the new system. At this point, the only group left to be fully converted to the new charts is our Extra (and "ExtraRT") members. We expect to perform that conversion around the beginning of May.
SHARPCHARTS2 DOCUMENTATION DUE NEXT WEEK - We've been hard at work on the revamped version of our SharpCharts documentation and hope to release the updated information next week. Until then, be sure to periodically review the information on the current "Instructions" page. (Click the link just below the chart.)
IMPORTANT NOTE TO OUR MEMBERS:
Despite our best efforts, some of our Basic members were still unaware that the changeover from SharpCharts1 to SharpCharts2 was coming. We apologize for any problem the changeover has caused. Unfortunately, we are unable to support both SharpCharts1 and SharpCharts2 at the same time and soon SharpCharts1 will no longer be available on our site. We have worked extremely hard to make sure that SharpCharts2 provides all of the functionality that SharpCharts1 has and much more. Because of the additional capabilities of SharpCharts2, some things are done differently;however if you take the time to learn the new system, you will soon discover how the new charts can dramatically help you make even better investing decisions. As always, if you have questions, please let our helpful support staff know so they can assist you.
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
April 16, 2006TEN-YEAR YIELDS EXCEEDS 5% By Chip Anderson
John Murphy
Last week the yield on the 10-Year T-note broke through its 2004 peak at 4.90% to reach the highest level in four years. Today the TNX has moved through the psychological level of 5%. That doesn't come as much of a surprise considering that the trend for bond yields is now higher. I suggested last week that the next upside target for the TNX was the early 2002 peak at 5.45%. While I remain convinced that bond yields have embarked on a new uptrend, there's still another technical hurdle that they have to overcome to prove that the long-term downtrend in long-term rates has finally ended. The monthly bars in Chart 2 show the downtrend in yields from the 1994 peak. I've drawn a down trendline over the 1994 and early 2000 peaks. Needless to say, a move above that resistance line would be the final sign that the era of long long-term rates has finally ended. The most immediate result of rising bond yields is falling bond prices.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e75c8970b-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e75cb970b-pi
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
April 16, 2006Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
MAKING MONEY WITH SHARPCHARTS2
This week - tax week (ugh!) - I wanted to show you three examples of the kind of analysis that you can only do with SharpCharts2. These examples illustrate important technical analysis techniques that just weren't possible with our older charts. Hopefully, these examples will inspire all our ChartWatchers to dive into SharpCharts2 with both feet and take the time to learn what a truly powerful charting system it is.
Exploring Bollinger's %B Indicator
In his latest book, John Bollinger presented several new indicators that felt would help chartists interpret Bollinger Bands better. One of those was the "%b" indicator. %b "tells us where we are in relation to the Bollinger Bands and is the key to the development of trading systems via the linking of price and indicator action." (p.60). %b will equal 1.0 when prices are at the upper Bollinger Band. It will equal 0.50 when prices are in the middle of the bands. And it will equal zero when prices are at the lower Bollinger Band. As John Bollinger suggests, %b can be easily used to create simple trading systems - for example "Buy when %b is below 0.1 and sell when %b is above 0.9." The following SharpCharts2 chart can be used to visually evaluate such a system:
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859120e970c-piNotice how the oscillation of the green %b line corresponds to the movement on the price bars within the shaded Bollinger Bands area? The chart also shows how each time prices move above the shaded area, the green line moves above 1.0 on the left vertical scale. Similarly, when prices moved below the lower Bollinger Band, the green line sank below zero.Can you spot the three buying points and two selling points of the simple trading system I mentioned above?
Creating the Chart: Start by plotting prices as brown OHLC bars with a standard Bollinger Band overlay that's plotted with the "Area" style and "gold" color.I used daily bars with "Fill the Chart" duration and a bar setting of 5 with a Gap setting of zero.Volume and Legends are turned off.Next, add a standard %b Indicator to the chart using the "Behind Price" position and a green color. Click here to see the live result.
Note to Free Users: Starting from scratch, you can create a chart that's very similar to this one, only without the Area style and color choices seen above.
Detecting MACD Changes Sooner
Most ChartWatchers are very familiar with the MACD indicator and its partner the MACD signal line. The MACD signal line is commonly used to create simple trading system (buy when it crosses above the MACD line, sell when it crosses below). SharpCharts2 adds another tool to your indicator arsenal that can help you evaluate changes in momentum oscillators like the MACD - the Slope-of-an-Indicator indicator.
Slope is a simple concept: take two points on a graph and divide the change in height (the "rise") by the change in horizontal distance (the "run"). (On StockCharts, we then multiply that result by 10 for clarity.) The slope of a horizontal line is zero. The slope of a vertical line is infinite. The slope of a rising 45-degree line is +10 and the slope of a falling 45-degree line is -10. Typically, for financial data, slope varies between +10 and -10 with occasional spikes outside of that range - that is especially true for the slope of "smoothed" data - MAs, EMAs, and (for our purposes) the MACD Line.
Slope can be used to detect trend changes early on - especially for smoothed datasets. Check out the following SharpCharts2 chart:
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591215970c-piThe lower indicator panel contains a standard MACD plot (colored green) with the Slope of the MACD Line plotted on top as a thicker blue line. (The thin red line is the MACD Signal Line and the green bars are the MACD Histogram). Notice how, in mid-January the Slope of the MACD starts to move lower several days before the MACD crosses it's signal line? The slope started moving lower by 13-Jan whereas the crossover (green and red lines) didn't happen until 17-Jan. In that case, almost 100 Dow points would have been saved by a simple slope-based system. Use the chart above to visually study the following system: Buy when the slope turns up after first moving below -5.0; Sell when the slope moves lower after first moving above +5.0. Do you see the same 4 buying points and 4 selling points that I do?
The price candlesticks are plotted above a 20-day Price Channel zone. When prices hit the top of that zone, the index is setting new monthly highs. Similarly, the bottom of the zone represents the monthly lows. Note how nicely (in this case) the buy and sell signals from our simple MACD Slope system correspond to monthly highs and lows.
Creating the Chart: Start with a "Fill the Chart" Candlestick chart with a Bar width of 5 and a Gap of 1. Add a blue Price Channel overlay with a 20-period setting and an "Area" style. To make the candles more visible, crank down the "Opacity" of the Price Channel overlay to 0.3. Now add the standard MACD indicator in the "Below" position. Using the controls to the right of the MACD indicator, set the color to "green" and the Opacity to "0.5". Finally, choose "Slope" in the the MACD's "Overlay" dropdown and set its parameter to "6". (Six is half of the MACD's first parameter - 12 - and is used to get faster signals.) If you did everything correctly, you'll see something like this chart.
Note to Free Users: Unfortunately you need to subscribe to our site to use the "Indicator-of-an-Indicator" feature from this chart.
Show me the Volume!
CandleVolume charts are perfect for seeing how and when money moves into and out of a stock - especially when combined with our "Volume by Price" overlay. In a CandleVolume chart, the width of each candle is proportional to the volume for that particular day. Fat candles mean high volume days, skinny candles mean low volume days. Check out the following chart:
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859121f970c-piSee how the tall volume bars at the bottom of the chart really stand out? That's a key feature of CandleVolume charts.
The horizontal bars sticking out from the left side of the chart are the "Volume by Price" bars. They are the total volume of all days where the stock's price closed within the vertical height of the bar. For instance, the bottom of the longest bar is at 5.60 and its top is at 5.85. You can see that there were lots of price candles that closed within that price range on this chart (many from late December through 17-Jan). All of the volume for those bars were totaled together to determine the horizontal length of the bar. (Note there is no scale displayed for those bars - just compare them to the other bars on the page.)
Now look at KKD's big move at the start of March. It's even more impressive on a CandleVolume chart isn't it? Lots of big bars in a row like that indicate that there is very strong interest in a stock. Note however that the horizontal bars during that time aren't as impressive. Longer horizontal bars indicator stronger support/resistance levels. If KKD falls back below $8.00, this chart suggests that it won't find lots of support until it is back around the $6.00 level.
Creating the Chart: Start by selecting "CandleVolume" from the "Type" dropdown in the "Chart Settings" area. Make sure the "Range" is "Fill the Chart" and the "Size" is set to 620. Next set the "Volume" dropdown to "Separate". Make sure the "Color Prices" and "Color Volume" checkboxes are checked. Finally, add a "Vol by Price" overlay. The final result should look similar to this chart.
Note to Free Users: Good news! You can create this chart completely from scratch.
The bottom line here is that SharpCharts2 provides all of our members with a tremendous amount of flexibility when it comes to creating charts - way more than our old system ever did. Once you start to use the power of overlays, you will wonder how you ever did without them.
Read the Site News section below for more information about SharpCharts2! P.S. The simplistic trading systems presented here are meant as starting points for your own personal analysis. Never adopt a trading system without first understanding it thoroughly. Always use good money management techniques to manage stock market risk. See the "Trading Strategies" section of our ChartSchool for more information.
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
April 01, 2006DARK CLOUDS REVISITED By Chip Anderson
Arthur Hill
In my previous column, I featured the Information Technology SPDR (XLK) with a pair of Dark Cloud Cover reversal patterns. Greg Morris, who wrote Candlestick Charting Explained, informed me that the Dark Cloud Cover pattern is one of the few that uses the previous days high as part of its criteria. I was erroneously using the previous days close. The Dark Cloud Cover forms when the open is above the previous days HIGH and the close is below the mid point of the body of the previous day.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859128c970c-pi
In early January, the XLK open was above the previous days close, but below the prior high. In mid March, the open was equal to the previous days high. Close, but still no cigar. Using the high for the previous day makes this pattern an even more dramatic reversal. It takes a bigger surge to open above the previous days high and a bigger failure to then close below the mid point of the previous days body. This price action shows that buying pressure continued with a strong open, but the bears took control and forced a relatively weak close.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591293970c-pi
Interest rate sensitive stocks had a rough week and I noticed that Public Storage (PSA) formed a Dark Cloud Cover on Thursday. This stock is part of the REIT group and has enjoyed a nice run up over the last few months. Things could be about to change as the stock declined on above average volume in mid March and then formed a Dark Cloud on above average volume Thursday. A move below 78 would break support from the prior low and confirm the Dark Cloud Cover pattern. My downside target would then be to the support zone around 70.
Posted by Chip Anderson at 5:05 PM in Arthur Hill | Permalink
April 01, 2006MARKET TREND IS STILL UP, BUT... By Chip Anderson
Carl Swenlin
The overall trend of the market is still up, but there are very few new opportunities surfacing. Taking a look at our primary mechanical timing models below, we can see that nearly all of the broad market and sector indexes are on profitable buy signals, but most of the signals are relatively old and do not offer ideal conditions to put new money to work.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591282970c-pi
Another problem is that, while the signals are showing a profit, in many cases (like the S&P 500) the profit is rather narrow for the age of the signal, and much of it would be lost if the trend were to change. (It takes about 3% to 4% to generate a signal change.) Nevertheless, I am pleased with how the models have been performing under the circumstances.
The problems reflected by the timing models is also evident in the following chart of the S&P 500. We can see that the trend has been up since the price low in late October; however, the index has been stalled by the resistance at the top of the shallow rising trend channel, which could continue to impede progress for some time to come. And, even in the context of the rising trend channel, prices are due to correct back to at least the bottom of the channel, and that is not a situation that invites renewed risk taking.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591286970c-pi
While prime opportunities may be few, there are two worth considering. First, the S&P Energy Sector has generated a new buy signal after a short correction. Note that it is bouncing up off the bottom of a rising trend channel.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591289970c-pi
Also Interesting is the Nasdaq 100 Index. It still failed to pass all the screens necessary to generate a new buy signal, but it is very close to doing so. It too is bouncing off the bottom of a rising trend channel.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591291970c-pi
While both charts are promising, they represent the modest opportunities found after a correction in an established rising trend. They are not likely to result in the kind of gains we see from deeply oversold bear market lows.
It is especially interesting that the Nasdaq 100 is looking positive at this time. It could provide the required push to keep the broader market rising for a while longer.
I must emphasize, these are not recommendations, and the timing signals are not infallible.
Posted by Chip Anderson at 5:04 PM in Carl Swenlin | Permalink
April 01, 2006LARGE CAPS VS. SMALL CAPS By Chip Anderson
Richard Rhodes
Today we look at large cap vs. small cap stock via the S&P 500/Russell 2000 Ratio. Since 1999, the ratio has gone nowhere other than down; which means this is the 8th year of decline. More generally, the ratio runs in 7 year cycles, so given we are in the 8th year, perhaps the time to consider readjusting ones portfolio is a wise decision. In fact, we believe the winds of change are forthcoming; it may not be today's business or next weeks, but we cannot ignore the developing bullish falling wedge. This, coupled with the oversold 20-week stochastic suggest a trend change; with confirmation coming with a breakout above both trendline and 100-week moving average resistance.
Therefore, the risk/reward dynamic of being long the ratio is rather good bet; certainly this should be on everyone's trading radar going forward.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859131c970c-pi
Posted by Chip Anderson at 5:03 PM in Richard Rhodes | Permalink
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April 01, 2006SMALL CAPS AND AD LINE ARE STILL RISING By Chip Anderson
John Murphy
Rising interest rates can help the stock market over the short- to intermediate-term because it implies economic strength. It also causes some money to rotate out of falling bond prices and into stocks. Although rising bond yields usually cause problems for the market eventually, we have to watch the market indexes and certain technical indicators to spot when that's happening. One of those is the NYSE Advance-Decline line as shown in Chart 1. As of right now, the AD line is still rising. Historically, the AD line has peaked either before the market or coincident with it. The fact that it's still rising tells us the market's uptrend is still intact. And it will remain intact as long as the NYSE AD line stays over its 50- and 200-day moving averages. Another sign of strength is coming from small cap stocks. Chart 2 shows a ratio of the Russell 2000 Small Cap Index divided by the Russell 1000 Large Cap Index. The ratio has just broken out to a new high. That shows continued leadership in small caps. One of the usual early signs of a market top is underperformance by riskier small caps as money rotates to the relative safety of larger issues. That may happen during the second half of the year -- and I suspect it will -- but it hasn't happened yet. In reality, Charts 1 and 2 are linked. There's a correlation between the direction of small cap stocks and the AD line. That's because there are more small stocks than larger ones. Weakness in small stocks is usually one of the main reasons that the advance-decline line starts to weaken. Right now, small cap strength is helping keep the AD line in an uptrend.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591294970c-pihttp://blogs.stockcharts.com/.a/6a0105370026df970c011168591297970c-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
April 01, 2006Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
NADAQ BREAKSOUT - P&F CHART SHOWS IT BEST
Last week the Nasdaq composite broke through the 2340 resistance level and has moved into territory not seen since the "bubble popped" back in early 2001. The mid-term significance of this development can best be seen on the following P&F chart:http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7690970b-piNotice how the right-most column of rising X's has moved higher than the column of X's that appeared at the start of 2006? That "Double Top" breakout is what all of the fuss is about. By moving above the 2350 mark briefly on Thursday, the Nasdaq caused the uppermost X to appear confirming the double top pattern. As long as the index stays above the 2330 level, the pattern will remain intact.
(For more on P&F charts and P&F patterns, please see our ChartSchool article on the topic. While they might look strange at first, P&F Charts are invaluable for understand the major trends and patterns for an stock or index.)
In addition, notice three other bullish developments on this chart:
1.) The long-term trendline is coming into play now and should provide upward support soon. (P&F trendlines are always at 45-degrees).
2.) The 20-column MA is also starting to provide some support.
3.) The Price-by-Volume histogram shows lots of "up" (black) buying at the 2310 and 2320 levels - a good indication that a strong support area has formed there.
Are there warning signs to go along with this rosy picture? Of course. The Fed continues to raise interest rates. Depending on who you talk to, the yield curve is either flat or inverted. The large-cap indices are showing signs of weakness. Etc.
But it sure feels good to have the Nasdaq back and setting the pace again, even if it is only for a little while.
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
March 18, 2006DARK CLOUDS FOR XLK By Chip Anderson
Arthur Hill
The dark cloud is a bearish candlestick reversal pattern made up of two candlesticks. The first is white and the second black. The open of the second is above the close of the first and the close of the second is below the mid point of the body of the first. The open-close range forms the body of the white candlestick. The thin lines above and below the body are called shadows and these represent the high and low.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e75a0970b-pi
A dark cloud foreshadowed the January peak and this week?s dark cloud should be watched closely for confirmation. In January, the subsequent gap and move below 22 confirmed the dark cloud pattern (gray oval). The current dark cloud formed near the upper trendline of a triangle formation (magenta trendlines). There is stiff resistance around 22.3 and XLK must break through this level to confirm the triangle and project further strength towards the mid 20?s. This would be bullish for the Nasdaq and the S&P 500 as well. Failure and a move below the early March lows would be bearish for XLK and I would then expect a move below the January low.
Posted by Chip Anderson at 5:05 PM in Arthur Hill | Permalink
March 18, 2006MARKET IS ST OVERBOUGHT AND AT RESISTANCE By Chip Anderson
Carl Swenlin
Last week I wrote an article entitled Investors Intelligence Sentiment Helps Bulls in which I pointed out that sentiment had become very bearish, and that the market was more likely to rally than decline. Since then the market has enjoyed a short rally, but sentiment continues to be steadfastly bearish, a persistent positive for the market; however, the market has become short-term overbought and it has run into long-term resistance.
The bottom two panels on the first chart show the breadth and volume versions of the Swenlin Trading Oscillator (STO) -- short-term indicators. As you can see, both indicators have reached the overbought side of their range. This condition needs to be relieved, but this could happen without a price decline -- as you can see in May and July of last year the indicators dropped toward zero while prices continued higher. Could this happen again this time? Let's look at a longer time frame.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e75e4970b-pi
The chart below shows our intermediate-term indicators -- the PMO (Price Momentum Oscillator), as well as the ITBM (IT Breadth Momentum) and ITVM (IT Volume Momentum) Oscillators. They are all in the neutral zone, and have a long way to go before they reach overbought levels, so there is plenty of room internally for prices to move higher. By the same token, there is also plenty of room for them to move lower, but they are not currently acting as if they want to go in that direction.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e75eb970b-pi
Finally, let's look at the price index. We can see that it has been hugging the top of the rising trend channel for nearly four months, and it has just squeaked above the line of resistance. This is not a decisive breakout, but it is another manifestation of the persistent bullishness that prices have been displaying for quite a while.
Bottom Line: Our mechanical timing model has been bullish since November 4, 2005. Short-term indicators are overbought and problematic, but medium-term indicators, as well as sentiment, allow for a continued advance in prices for at least a few more weeks.
Posted by Chip Anderson at 5:04 PM in Carl Swenlin | Permalink
March 18, 2006BROAD MARKETS TAKING "DEFENSE POSITIONS" By Chip Anderson
Richard Rhodes
With the broad market indices such as the Dow Industrials and S&P 500 hitting new multi-year highs, one would reasonably believe that the advance has further to travel and riskier and riskier positions taken. However, when we look underneath the hood, we find rotation taking place towards more traditional ?defensive positions?. This suggests market participants are skittish about the lagged effects of the past 2-year Fed interest rate hiking campaign, and are moving to decrease their beta exposure.
Our case in point relates to the ratio between the Pharmaceutical Index ($DRG) and the Semiconductor Index ($SOX). We find multi-year support has held, and our momentum oscillators are trending higher ? thereby suggesting movement towards higher levels in the months ahead. Therefore, we extrapolate this onto the broader market and hence look for prices to weaken towards a more traditional ?mid-term election year? October/November bottom.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7640970b-pi
Posted by Chip Anderson at 5:03 PM in Richard Rhodes | Permalink
March 18, 2006BOOKSTORE BEST SELLERS By Chip Anderson
Site News
TOP TEN BEST SELLERS- We maintain a list of the top ten best-selling products in our online store. Hint: they are best-sellers for a reason. Take a look.
Posted by Chip Anderson at 5:02 PM in Site News | Permalink
March 18, 2006HEAD AND SHOULDERS DOLLAR BOTTOM? By Chip Anderson
John Murphy
It's possible that the current dollar pullback is part of a large basing pattern of the head and shoulders variety. A case can be made that the Dollar Index formed a left shoulder at the start of 2004 and a head at the start of 2005. The fourth quarter peak near 92 stopped right at the spring 2004 peak. That allows for a neckline to be drawn over those two peaks. That interpretation allows for a drop in the USD to last summer's low near 86 as part of a possible right shoulder. That would be a fifty percent retracement of the 2005 price advance and would be a logical spot for new buying to emerge. Any severe break of last summer's low, however, would call into question the "head and shoulders" interpretation. On the upside, the Dollar Index would have to clear the "neckline" near 92 to confirm a long-term bullish breakout. Neither of those two events appears likely over the short-run. Even if the "head and shoulders" interpretation proves correct further out in time, the short-term picture for the dollar is looking weaker.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591358970c-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
March 18, 2006Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
March 04, 2006HOME DEPOT CONSOLIDATES WITH A MASSIVE TRIANGLE By Chip Anderson
Arthur Hill
HD is no stranger to long consolidations. The stock surged in 2003 and then consolidated for a year (gray box). The advance continued with a surge in 2004 and the stock consolidated over the last 12 months with a large triangle. The gains from 2003 and 2004 are largely holding and the ability to maintain high prices is bullish.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685912c4970c-pi
The next big move, however, is dependant on the direction of the consolidation breakout. A move below 37 would break key support and be most bearish. A move above 44 would break the upper trendline and 2005 high. This would forge a 52-week high and project a move to the mid 50s. I found this target by adding the width of the triangle to the breakout point (44 + 10 = 54). Such a move would be bullish for the stock, the retail group, the Consumer Discretionary sector and the overall market.
Volume and broad market strength favor a break to the upside. First, the broader market is strong right now. The Dow recently broke to a 4 1/2 year highs and the S&P 500 is holding its November breakout. Second, upside volume (black volume bars) in Home Depot has been outpacing downside volume (red volume bars). The Oct-Nov surge featured good volume (gray oval) and upside volume has been higher than downside volume in 2006. Volume often precedes price and this points to an upside breakout.
Posted by Chip Anderson at 5:05 PM in Arthur Hill | Permalink
March 04, 2006RYDEX CASH FLOW IS BEARISH By Chip Anderson
Carl Swenlin
The Rydex Cash Flow Ratio*, which is shown on the first chart below, reflected a fair amount of bullish sentiment and peaked around the end of November. Since then it has been sliding down toward the bearish side of the range in spite of the fact that prices have been moving higher. This is not normal -- prices normally drive the Ratio as money flow adjusts to price movement.
My first conclusion was that over-anxious bears were placing their bets too early and driving prices higher with their short covering; however, a closer examination of the Ratio's components reveals that something quite different, and dangerous, is taking place.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7624970b-pi
The chart below shows the components of the Cash Flow Ratio. Note that, since November, bear plus money market funds cash flow has been flat to slightly rising, demonstrating clearly that the bears have been relatively patient.
On the other hand, cash flow for bull plus sector funds has decreased dramatically. This means that money has been moving out of bullish funds even though prices have moved higher. This is almost always a bad sign.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e762b970b-pi
To summarize, the Rydex Cash Flow Ratio divergence does not reflect premature bearishness, rather it shows that many people (smart money?) are quietly moving toward the exits. This is just one of a long list of divergences that can be observed on our indicator charts, and, even though the trend of the market is still up, increased caution is appropriate.
RYDEX CASH FLOW RATIO: The Rydex Cash Flow Ratio gives an improved view of sentiment extremes by using cumulative cash flow (CCFL) into Rydex mutual funds rather than using the totals of assets in those funds (which we use for the Rydex Asset Ratio). It is calculated by dividing Money Market plus Bear Funds CCFL by Bull Funds plus Sector Funds CCFL. To read more click here.
Posted by Chip Anderson at 5:04 PM in Carl Swenlin | Permalink
March 04, 2006A LOOK AT THE HOUSING INDEX ($HGX) By Chip Anderson
Richard Rhodes
Sometimes the best trade is the most obvious trade; and for us that is the “short housing” trade, or more succinctly…short the homebuilders. Interest rates moved sharply higher this week on the short-end as well as the long-end of the curve, and ht prospects are good for a continuation of this move. Thus, there is a fundamental component to the trade.
As the chart shows, the uptrend was clearly violated, with a “head & shoulders” topping pattern still under development. If $HGX breaks 235 – and we think this is a “good bet” given the 50-week moving average is rolling over with prices headed lower through it – then much lower target projections are ahead. Perhaps a loss on the order of another -25% from current levels; the risk is to a move above 275 or -7%. We like the risk-reward…and are involved in the trade.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859126c970c-pi
Posted by Chip Anderson at 5:03 PM in Richard Rhodes | Permalink
March 04, 2006SHARPCHARTS2 FOR FREE USERS By Chip Anderson
Site News
FREE USERS CONVERTED TO SHARPCHARTS2 - As mentioned above, we retired SharpCharts1 for Free Users last week.Be sure to click on the "Instructions" link for help with common pitfalls that ex-SharpCharts1 users are hitting when first starting to use SharpCharts2.
MORE SHARPCHARTS2 CONVERSIONS COMING SOON - Watch for us to continue to gradually change all of the features on the website over to SharpCharts2 in the coming weeks.Soon, Scan Results and the Market Summary will link to SharpCharts2 for everyone.Next, an alternate SharpCharts2-based version of the Public Chart Lists will appear.Stay tuned...
Posted by Chip Anderson at 5:02 PM in Site News | Permalink
March 04, 2006GLOBAL RATES ARE HEADING HIGHER By Chip Anderson
John Murphy
Yesterday's decision by the ECB to raise rates was pretty much expected. What wasn't expected was the hawkish comments that accompanied that rate increase with hints of more to come. The Japanese have been talking about doing the same and may do so before the month is out. From a global standpoint, I find the impending Japanese move to raise rates more significant. For one thing, Japan is the second biggest economy in the world. Another reason (that I've written about before) is my belief that Japanese deflation has been one of the reasons that long-term bond yields have stayed so low. Yields on the Japanese 10-year bond rose this week to the highest level in eighteen months (1.64%). It was reported this morning in Tokyo that core consumer prices rose 0.5% in February which is the highest since 1998 (when global deflationary problems started). Earlier this year, I wrote about the correlation between with the rise in the Japanese stock market (which hinted at an end to Japanese deflation) and the rise in gold. Both are pointing to higher global inflation and interest rates. Up to now, only the U.S. has been raising short-term rates which may explain why bond yields have stayed down. With the rest of the world starting to raise rates as well, I suspect that bond yields are finally starting to move higher. Chart 6 shows how close they are to doing just that.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685913ba970c-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
March 04, 2006Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
STRUGGLING WITH 11,000
The Dow continues to test the big breakout about 11,000 it had last month.Here's a chart of the recent action on a 15-minute scale which shows how the initial push has waned and how 11,000 is providing major support for the index (and the market) right now.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e76a6970b-pi
MID-CAPS ON A ROLL
This week we added one of the last big features we needed to add to SharpCharts2 - Performance mode.Similar to "Cumulative" mode which we've supported for years, Performance mode changes the main charting area so that a stock's percentage gain over time (since the left edge of the chart) is plotted.Combine Performance mode with SharpCharts2 ability to overlay just about anything on anything and you end up with charts like this:
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e76a8970b-pi
Pretty cool eh?An annotated PerfChart that members can store in their lists for later review!As you can see on this one, Mid-Cap stocks have been the clear winners since the start of 2005.There have been 2 periods where Large-caps have lagged badly (including right now).
SHARPCHARTS2 PROGRESS REPORT
SharpCharts2 is now the Official charting tool for our Free Users.Late last week we retired the SharpCharts1 workbench for those folks and are working hard to help them understand the changes and the new power that SharpCharts2 gives them.If you are one of our multitude of free chart users, you now have:
[*]One additional overlay and one additional indicator per chart[*]The ability to create overlaid charts[*]Candlevolume, EquiVolume, Three-Line Break, and Performance Mode charting[*]Many more technical indicators such as the Force Index[*]New color and line style choices[*]Better printing support[*]More chart size options[*]...and much more!If you are new to SharpCharts2, I urge you to take a moment and read the "Instructions" page before continuing (just click the "Instructions" link below any SharpCharts2 chart).SharpCharts2 can do everything that SharpCharts1 can do and more - BUT - somethings are now done differently and the "Instructions" page explains those differences.
If you are a member of our Basic or Extra services, for now NOTHING HAS CHANGED!You still need to use the SharpCharts1 workbench to manage your stored charts.Over the next couple of weeks, we will continue to slowly integrate SharpCharts2 into our site more and more.Once that is done, we will automatically convert all of your saved charts into SharpCharts2 format and at that point, SharpCharts1 will be a thing of the past.MAKE SURE YOU START USING SHARPCHARTS2 NOW in order to minimize the problems that this upcoming conversion will cause.
GREG'S NEW CANDLESTICK BOOK IS ALMOST HERE
In case you missed the bookstore ad above, we are now taking pre-orders for Greg Morris' updated CandleStick book.This book is a follow-up to Greg's hugely popular "Candlestick Charting Explained" which has been a best seller for years.Greg's updated book has been completely reworked and greatly expanded.It will be an instant "Must Have" book for chartists.Why not go ahead and order your copy now?
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
February 18, 2006DOW THEORY UPDATE By Chip Anderson
Arthur Hill
Two weeks ago, I reported waning upside momentum for the Dow Industrials and Dow Transports. In addition, I noted that a Dow Theory non-confirmation was brewing, but a Dow Theory sell signal had yet to register. The Dow Industrials and Dow Transports would both have to move below their January lows for a Dow Theory sell signal.
Flash forward and both Averages recorded 52-week highs this past week. In fact, the Dow Industrials recorded a 4 1/2 year high and Dow Transports recorded an all time high. The Dow Industrials broke Diamond resistance and pushed above 110000, while the Dow Transports extended its uptrend with a move above 4400.
This is clearly a show of strength, not weakness. Upside momentum may not be as strong as it used to be, but the breakout in the Dow Industrials is bullish until proven otherwise. The move signals a continuation of the January advance and next resistance is around 11,400. Of note, the Dow Industrials was turned back at 11,400 in Apr-00, Sep-00 and May-01. This is a formidable area. The breakout at 10,900 becomes support and this is the first level to watch for signs of failure. A move below 10,900 would be negative and further weakness below the January low would be outright bearish. Should the Dow fail around 11000 and break below 10,900, a potentially bearish broadening formation would come into play (gray trendline extensions). Let’s cross that bridge when and if it gets here.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7713970b-pihttp://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7717970b-pi
Posted by Chip Anderson at 5:05 PM in Arthur Hill | Permalink
February 18, 2006SHORT-TERM OVERBOUGHT By Chip Anderson
Carl Swenlin
In my February 2 article I stated my belief that a medium-term correction is in progress because the PMM Percent Buy Index (PBI) has turned down and crossed down through its 32-EMA. The chart below shows this condition still exists, and I have not changed my mind at this point.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685913ef970c-pi
Some readers pointed out that a similar occurrence in 2003 did not have serious negative effect on prices. I agree, and I should have mentioned this in the article. There is, however, a big difference in the 2003 PBI top and those that occurred afterwards. That 2003 top occurred after a huge upward thrust of the PBI from deeply oversold levels that signaled the beginning of the bull market. The PBI has not been that deeply oversold since.
This week the market has rallied, once again challenging recent highs and straining the credibility of any bearish outlook, but in doing so it has become quite overbought in the short-term, while also approaching overhead resistance.
The overbought condition can be seen on the chart of our OBV Indicator Set* below. The Climactic Volume Indicator (CVI) has reached the top of its normal range, and the ST Volume Oscillator (STVO) is not far behind. These are short-term indicators.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685913f1970c-pi
The internal problem with the rally can be seen on the Volume Trend Oscillator (VTO), which is a medium-term indicator. Note how the rallies in April and October were launched from deeply oversold levels on the VTO, whereas the current rally launched after the VTO had only dropped to neutral levels. The same problem exists on the charts of many other medium-term indicators. While the rally may continue, its pedigree is pretty weak, and indications are that it has run out of steam short-term.
Posted by Chip Anderson at 5:04 PM in Carl Swenlin | Permalink
February 18, 2006LOOKING AT OIL AND GOLD/SILVER INDEXES By Chip Anderson
Richard Rhodes
For the longest time, crude oil and gold prices have dominated the news in terms of bullish commodities. We like to look at the ratio between the Integrated Oil and Gold/Silver Indexes ($XOI:$XAU) for a possible "pairs trade", and every few years we are accorded any opportunity to do so. In fact…that time is now. If we look at the ratio, we find that the 150-week moving average is a very decent "fulcrum point" from which to trade; thus we will be moving into the trade via long positions in the XOI components of Amerada Hess (AHC) and Sunoco (SUN), while moving to a short position in Freeport McMoran (FCX) and Newmont Mining (NEM).
The trade has a well defined stop loss point per a ratio trade to 7.00, where it must trade for two weeks. The target: NEW HIGHS over the next several years.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7687970b-pi
"Paid-to-Play" Portfolio 2006 YTD Performance: +13.2%
S&P 500 2006 YTD Performance: +3.1%
Posted by Chip Anderson at 5:03 PM in Richard Rhodes | Permalink
February 18, 2006SENDING IN SC2 FEEDBACK By Chip Anderson
Site News
SENDING IN GREAT SHARPCHARTS2 FEEDBACK - When evaluating SharpCharts2 and sending us feedback, please keep the following things in mind:
1.) We will not be adding any additional features at this late date.Requests for additional indicators or other kinds of features won't be considered until well after SharpCharts2 has officially launched.
2.) We are most interested in hearing about things that you can do in SharpCharts1 but not SharpCharts2.From a charting perspective, SharpCharts2 should be a super-set of SharpCharts1.For example, if you discovered that SharpCharts2 doesn't allow you to plot the CMF of an intraday ratio chart like SharpCharts1 does, we want to hear about it.
3.) In addition, we are most interested in hearing about problems with using the charting workbench itself - not the other tools on our site like the Scan Engine or ChartNotes.Over time, the other tools on our site will be updated to match SharpCharts2, but not immediately.
4.) If you are having problems, BE SURE TO READ THE INSTRUCTIONS PAGE FIRST.Just click the "Instructions" link below the SharpCharts2 chart.It contains solutions to the most common problems we hear about.
5.) Remember, the Discussion Board is for letting us know what you like and don't like about SharpCharts2.It is not for sending in problem reports.
6.) Always use the "Report Problems" link below the SC2 chart to send in feedback.Make sure to have the "offending" chart on your screen before clicking that link.
7.) Finally, while we appreciate every piece of feedback that we get from our users, we are really busy these days and may not respond to all inquiries as a result.Thanks for being patient with us.
Posted by Chip Anderson at 5:02 PM in Site News | Permalink
February 18, 2006DOW HITS MULTI-YEAR HIGH By Chip Anderson
John Murphy
The Dow was the only one of the major averages to reach a new high this week. That continues its new upside leadership that I wrote about last week. With the Dow now above the 11K level, the next potential upside target is its 2001 high at 11350. One of the big reasons for the Dow's strength was Honeywell. Last week I showed the Dow leader closing above 40 for the first time since mid 2001. It continued that bullish trend this week and appears capable of reaching 50. Another big Dow winner was Hewlett Packard. The chart below shows that Dow leader trading at nearly a five-year high. It's usually a good idea to take what the market gives us. With money starting to flow toward the Dow Industrials, stocks like Honeywell and Hewlett are where a lot of the new market leadership is coming from. Along with biotechs and telecom stocks.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685912e4970c-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
February 18, 2006Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
Stocks made a strong statement last week with the Dow Jones Industrials moving above the 11,000 mark decisively for the first time since June of 2001(!). The Dow flirted with 11,000 in March of last year and briefly broke thru 11,000 at the start of this year, but both times it quickly retreated back below this major resistance level.As the intraday chart below shows, this time the Dow broke thru 11K in the middle of Valentine's Day, fell back below 11K briefly 24 hours later, but has moved steadily upward since then on good volume.While that is promising, seasoned ChartWatchers will be watching for a retest of the 11K level in the coming days - that test will show if the former resistance level has turned into a support level or not.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591372970c-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591374970c-pi
SUPER IMPORTANT ANNOUNCEMENT!
Feedback from the SharpCharts2 Beta program has been so positive that we are starting the process of converting everything on the site from using SharpCharts1 to using SharpCharts2 instead.In the coming days and weeks, you will see a gradual change in which version of SharpCharts appears as you navigate through StockCharts.com.For example, we recently added links so that you can easily get from the SharpCharts1 workbench to the SharpCharts2 workbench and back again.Soon, many of the links that take you to SharpCharts1 will automatically change so that they take you to SharpCharts2 instead (the "1-2-3" box on our homepage for example).Soon after that we will roll out a SharpCharts2 version of our Public Chart List area.And soon after that Free users will only be able to use the SharpCharts2 workbench.
After each change, we will be watching for feedback from our users on how things are going.If all of the previous changes go well, we will then take the final step and convert all of the Basic and Extra members fully over to SharpCharts2 and lift all of the current restrictions on where and how SharpCharts2 charts can be saved.
When that day comes - probably around the end of March if all goes well - SHARPCHARTS1 WILL NO LONGER EXIST!That is why it is sooooooooo important that everyone take a serious look at SharpCharts2 and tell us if there is anything that they can do in SharpCharts1 but not in SharpCharts2.NOW IS THE TIME TO TELL US ABOUT THOSE KIND OF PROBLEMS.Unfortunately, all of our users do not read this newsletter and will probably swamp our customer support team when the cutover happens.We need those of you that do read the newsletter to send us your feedback NOW, before the big crunch occurs.
Thanks again for helping us make SharpCharts2 the most powerful charting tool on the web!
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
February 05, 2006DOW THEORY NON-CONFIRMATION By Chip Anderson
Arthur Hill
The Dow is meeting staunch resistance around 11000, a level that turned the Average back in December and January. February is getting off to the same start with a big black candlestick on Thursday and 11500 remains the level to beat. In addition to a failure at resistance, MACD has a large negative divergence working and is poised to dip into negative territory for the second time this year. Things are looking bleak for the Dow.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591279970c-piWe also have a non-confirmation with the Dow Transports in January. The Dow Transports moved to a new reaction high in late January, but the Dow Industrials failed to exceed its early January high and formed a lower high. Despite strength in BA and UTX, the Dow Industrials is not as strong as the Dow Transports. This is a Dow Theory non-confirmation and a move below the January lows (both Averages) would provide a Dow Theory sell signal. Also notice that RSI formed a large negative divergence over the last few months and upside momentum is waning for the Dow Transports.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859127d970c-pi
Posted by Chip Anderson at 5:05 PM in Arthur Hill | Permalink
February 05, 2006CORRECTION PHASE BEGINNING By Chip Anderson
Carl Swenlin
With the market having formed numerous tantalizing tops since the end of November, perhaps the title of this article should say that a correction phase is finally beginning. And, considering all those previous false starts, why am I so sure that this time is the real thing? Well, I'm pretty sure that a medium-term correction is in progress because the PMM Percent Buy Index (PBI) has turned down and crossed down through its 32-EMA. The PMM (Price Momentum Model) PBI is an important indicator that reveals the degree of bullish participation and whether that participation is getting stronger or weaker.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e75af970b-pi
On the chart I have marked the current PBI top as well as three prior significant tops, which were also followed by 32-EMA downside crossovers. All three tops initiated a correction lasting from three to six months. There is no guarantee that the same thing will happen this time, but the similarity between the tops gives me a high degree of confidence in my conclusion.
The next chart shows our IT Breadth and Volume Momentum Oscillators (ITBM and ITVM), and you can see how the market's internal strength peaked about two months ago, and these indicators gave a similar early warning for the other three corrections.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e75b4970b-pi
The ITBM and ITVM show that the current market condition is neutral (the indicators are near the zero line), but it is likely that they will be spending a few months working below the zero line as the market begins to correct in earnest.
There is no way to tell if the correction will be sideways or sharply down, but we are due for a cyclical bear market, and the 4-Year Cycle is pointing toward a major price low in October, so odds are in favor of a significant price decline.
Posted by Chip Anderson at 5:04 PM in Carl Swenlin | Permalink
February 05, 2006DECLINE IN HOUSING MARKET CONTINUES By Chip Anderson
Richard Rhodes
The decline in the housing market is becoming more and more real; however, the housing index has yet to fully reflect the risk of the potential for still slower housing growth numbers. In some cases such as Ryland's (RYL), new home sales were recently below 2004 levels. Thus, when we look at the Housing Index ($HGX), we find prices are now poised to correct their recent gains and still more. We foresee the index dropping from it's current 262 level all the way back to 200.
We are short the homebuilders, and we want to become shorter.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7660970b-pi
Posted by Chip Anderson at 5:03 PM in Richard Rhodes | Permalink
February 05, 2006SHARPCHARTS2 BETA 7 "SHIPS" By Chip Anderson
Site News
NOTHING MUCH GOING ON - Yep, StockCharts.com is pretty quiet this week...Just Kidding!SharpCharts2 Beta 7 is out.Check out the article at the top of this newsletter for more details.
Posted by Chip Anderson at 5:02 PM in Site News | Permalink
« Previous | Next »
February 05, 2006S&P 500 BREAKS ITS 50-DAY LINE By Chip Anderson
John Murphy
The chart below shows the S&P 500 closing the week below its 50-day moving average. That suggests a further drop toward 1245. The daily MACD histogram bars also paint a short-term negative picture. They stayed below the zero line and failed to confirm the previous week's price bounce before weakening even further this week. That only affects the short-term trend. It's the weekly trend that I'm more concerned about.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591233970c-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
February 05, 2006Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
Have you tried SharpCharts2 yet?The reception for our new "Beta 7" version of SharpCharts2 has been incredible!More people have created more great looking SharpCharts2 charts in the past 3 days than ever before.And many of you have sent us lots of wonderful feedback about what they liked and didn't like about the changes we have made.And that in turn has allowed us to make SharpCharts2 even better - it's truely a win-win situation.
In case you missed our mid-week mailing, the "Beta 7" version of SharpCharts2 will be our last unofficial release of SharpCharts2.It create charts that are far superior to our current SharpCharts and allows more charting flexibility than anything else out there on the web.Overlays, extra bars, three line break charts, multiple ticker symbols, annotations, additional indicators, more color choices and much more are available via SharpCharts2.All of our users owe it to themselves to check it out soon!
The Beta 7 version of SharpCharts2 also allows our Basic and Extra members to get a preview of what life will be like when SharpCharts2 is fully integrated into StockCharts.com.During the Beta, members can view any of their saved charts from inside the SharpCharts2 workbench.This lets you see what your saved charts will look like under SharpCharts2.The conversion process is automatic - simply select your charts from the dropdowns just like you do with SharpCharts1.
In addition, Extra members can now save new SharpCharts2 charts into a special list that has been automatically added to their account.The list is called "SharpCharts2 BETA" and can only contain SharpCharts2 charts.During the Beta period, this is the only list that new SharpCharts2 charts can be stored in - that will change however once SharpCharts2 is officially released.
Finally, Basic and Extra members can also create and store ChartSettings for SharpCharts2 in their account.This lets you quickly switch back and forth between several different styles of charts for the same ticker symbol.Keep in mind that the ChartSettings for SharpCharts2 are completely seperate from any store settings you may have for SharpCharts1.
Here are some more tips and tricks for using SharpCharts2 that we've collected from our users during the first 3 days of the Beta period:
1.) The Big Yellow Box Doesn't Go Away?
Click on the "Hide Box" link in the upper right corner of the box to hide it. If you have cookies enabled for our website, that box will stay hidden.
2.) I Can't Find the Advanced Pull-Outs Anymore?
The features provided by the Advanced Options pull-outs (color, opacity, etc.) are reserved for our paying members' use and are no longer available to free users.If you are a member and you don't see those features, please make sure you are logged in to our site correctly.
3.) I Can Only Add Three Indicators/Overlays to a Chart?
Again, free users are restricted to having only 3 indicators and/or overlays per chart.If you have saved a Beta 6 chart with more than 3 indicators on it, you will no longer see the addition indicators in Beta 7.If you are a member, make sure that you are logged in.
4.) Really Strange Things are Happening like Buttons Not Working When Clicked?
As we update our software, you need to make sure that your browser isn't using a cached version of the older code.Clear out your browser's temporary file cache whenever you see unexpected behavior.Instructions for doing that are on this page: http://stockcharts.com/FAQ-Config.html#Cache
5.) The Annotation Tool Doesn't Work?
Make sure that your computer passed our Java Troubleshooter tests: http://stockcharts.com/support/javaSupport/javaOne.html
6.) How Do I Import Old Charts into SC2?
Actually, you don't.During this Beta period, you can use the Beta 7 workbench to view your old saved charts, but you cannot use it to modify them.Extra members can save _copies_ of their old charts into the new "SharpCharts2 BETA" list if they want to make modifications by first pulling up the old chart in the Beta 7 workbench and then clicking the "Add New" link.
7.) Why Haven't You Responded to my Message?
We're swamped right now working hard to improve SharpCharts2 for everyone.Please excuse us if we do not get back to you immediately.In addition, please understand that we are not going to be adding new features to SharpCharts2 until well after it is officially released.
So what are you waiting for?Log in to your account and start using Beta 7 today!
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
January 21, 2006DOW LEADS THE WAY LOWER By Chip Anderson
Arthur Hill
Wall Street took a pounding on Friday and the Dow took the biggest technical beating of all the major indices. The Nasdaq, S&P 500 and Russell 2000 all remain above their 3-Jan lows, but the Dow broke below its 3-Jan low. This shows relative weakness and bodes ill for the Dow.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e754b970b-pi
The Dow Diamonds (DIA), which is the ETF that corresponds to the Dow Jones Industrial Average, broke falling flag resistance with a move above 109 the first week of the year. This signaled a continuation of the November advance, but that signal has been reversed in a major way.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7553970b-pi
After a ~3% move the first two weeks of January, the Dow Diamonds (DIA) became overbought and ripe for a pullback. The breakout was still valid, but the stock needed to digest gains and work out the overbought condition with a correction or consolidation. Broken resistance at 109 turns into support and there was support at 108 from the October trendline. A strong stock should be able to hold its breakout and trendline (gray box). With Friday’s sharp decline the Dow Diamonds (DIA) not only failed to hold its breakout, but also broke support from the January low. This is not the stuff bulls are made of and the Dow is in for a rough ride.
Posted by Chip Anderson at 5:04 PM in Arthur Hill | Permalink
January 21, 2006UNDERMINING GOLD By Chip Anderson
Carl Swenlin
While mining gold has become very profitable, there are many signs that future prices are being undermined. For example, our first chart shows total assets and cash flow for Rydex Precious Metals Fund. While assets have risen along with price, cash flow (the bottom panel on the chart) reflects that money has actually been flowing out of precious metal stocks. This means that the rally has very thin support.
SIDEBAR: We are seeing similar divergences across a wide range of Rydex index and sector funds.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e756e970b-pi
Our next chart of the gold ETF shows that a similar technical divergence is affecting the price of gold as well. Note how the December and January OBV (on-balance volume) peaks were about equal and failed to confirm recent highs. Also, OBV during the last two weeks' rally has been virtually flat -- again failing to confirm the price advance, and implying that distribution is taking place.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e757d970b-pi
Finally, sentiment for gold is becoming very bullish, as demonstrated by our last chart which shows the premium/discount being paid for Central Fund of Canada (CEF), a closed-end fund that owns gold and silver. Closed-end funds trade like stocks and can trade at a premium or discount to the actual net asset value (NAV) of the fund's assets. Currently, in their rush to own gold, investors are willing to pay nearly 10% more than the fund's assets are actually worth.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7582970b-pi
Conclusion: Both gold and gold stocks are overbought and showing signs of internal weakness. Bullish sentiment is becoming excessive. All this evidence implies that a correction us due. It could be a short-term event lasting a few weeks, or it may stretch out over several months, and the amount of the correction could be quite jarring; however, I have no reason to conclude that the bull market in gold is over. It is time to guard stops and be patient until the technical problems have cleared, and another buying opportunity presents itself.
Posted by Chip Anderson at 5:03 PM in Carl Swenlin | Permalink
January 21, 2006SHARPCHARTS2 BETA 7 ARRIVES FEB. 1st! By Chip Anderson
Site News
SHARPCHARTS2 BETA 7 DUE OUT ON FEBRUARY 1st!We continue to work feverishly here at StockCharts getting the final "Beta" version of our new SharpCharts2 charting tool ready for its February 1st debut.Here are just some of the changes that we think will dazzle you:
[*]No more waiting for the screen to refresh whenever you add or remove an indicator or overlay[*]Clearer lines and more color options[*]Indicators based on prices or based on other indicators[*]Reordering Indicators and Overlays with a single click[*]Store charts and settings in your account[*]Access saved settings instantly via StyleButtons next to the chart[*]...and much, much more.Stay tuned!The best charts on the web will take a major step forward on February 1st!
Posted by Chip Anderson at 5:02 PM in Site News | Permalink
January 21, 2006VIX TURNS UP -- S&P TURNS DOWN By Chip Anderson
John Murphy
A week ago Thursday I wrote a message entitled: "Low Volatility (VIX) Index May Increase Market Risk in 2006 -- S&P 500 Pulls Back From Overbought Condition" (January 12, 2006). The next two charts are updates of the ones shown at that time. I was concerned that a rising VIX from the lowest level in a decade could start to put downside pressure on an overbought market. So far that has been the case. Chart 1 shows the VIX breaking through its December highs to register an intermediate upside breakout. It's no coincidence that the jump in the VIX accompanied heavy stock selling. Chart 2 shows the short-term damage done to the S&P 500 SPDRs. Although the SPY closed right on its 50-day average, the daily MACD lines turned negative after failing to confirm the recent price move to new highs. Heavy downside volume is also negative. The last time the SPY saw such heavy trading was around its October lows. Heavy selling after a price decline often signals a bottom. Heavy selling after a price rise usually signals a top. This looks more like a top than a bottom. The blue arrow on the RSI line shows the "negative divergence" that I wrote about on January 12. After expressing concern about that divergence, I suggested that "this looks like a good time for short-term traders (or those looking for an excuse to take some January profit) to do so". Today's downside action suggests that it's time to do some more selling.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859122f970c-pihttp://blogs.stockcharts.com/.a/6a0105370026df970c011168591235970c-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
January 21, 2006Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
Jitters have crept back into the stock market with last Friday's big drop in the major averages.In addition to breaking the Dow's low from the start of the year, Friday's selloff ended with the first close below the 50-day moving average since the end of October.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7619970b-pi
Note also that the RSI is now lower than it has been since late October as well and that the MACD is probably going back below zero soon.Finally, notice that Friday's volume was the highest the Dow has seen in quite some time.If prices don't immediately rebound Monday morning, look for the next support level to be around the 200-day moving average which is currently moving sideways near 10,550.
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
January 07, 2006RETAIL HOLDRS HAVE YET TO RECOVER By Chip Anderson
Arthur Hill
Despite a strong start in the S&P 500 this year, the Retail HOLDRS (RTH) remains under pressure and is lagging the overall market. This is not a good sign for the industry group or the Consumer Discretionary sector, which is heavily weighted towards retail stocks. In addition, retail sales drive 2/3 of GDP and weakness in this group is not a good sign for the economy.
The Retail HOLDRS (RTH) is trading near broken resistance, but shows no signs of strength and weak relative strength argues for continued underperformance. On the price chart, the Retail HOLDRS (RTH) broke resistance (95) in November with an advance to 100. Weakness in December and January drove the stock back to broken resistance at 95 and this area now acts as support (green rectangle).
RTH made two attempts to firm this week, but more is needed to revive the bulls in this key group. With a black candlestick on Thursday and smaller white candlestick on Friday, a harami formed at support (gray oval). These are bullish candlestick reversals that require confirmation. I would look for a move above 97 for initial confirmation and this would target a resistance test around 100. A break above 100 would be most bullish for the group, the Consumer Discretionary sector and the broader market.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685912f0970c-pi
Posted by Chip Anderson at 5:05 PM in Arthur Hill | Permalink
January 07, 20062006 ASSESSMENT By Chip Anderson
Carl Swenlin
I am often asked to make an annual forecast, and I frequently oblige, but this year I'd like to take a different approach. Rather than making a "forecast," let's make an assessment of some significant factors that will be affecting market progress in 2006.
First is the 4-Year Cycle. On the S&P 500 chart below I have drawn vertical lines through the actual 4-Year Cycle troughs, as well as a few places where price troughs should have occurred but didn't. For the most part we can say that significant price lows occur every four years about 85% of the time.
Take note that the log scale causes recent price movement to be greatly under emphasized, and significant declines/lows in 1987, 1990, 1994, and 1998 appear as mere blips.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859138a970c-pi
The next 4-Year Cycle price low is due in October of this year. Subordinate cycles suggest that the low may arrive a few months on either side of that projection, and there is no guarantee that the decline will play out in a straight line. For now we should be looking for some above average difficulty between now and the end of the year.
Fundamentals also present problems for the market. The next chart shows the index of S&P 500 earnings and a presentation of the P/E ratio based upon prior peak earnings, a methodology developed by John Hussman (hussman.com). As you can see, over the long term earnings have trended higher in relation to a trend line that rises at an average of about 6% a year, and the current earnings peak is very close to that trend line. This has been the situation for the last two years, and could account for the market's slow progress during that time.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859138d970c-pi
Currently, the P/E has remains at a level where, except for the bubble years of 1998-2002, the market at best had trouble making forward progress, and at worst experienced major declines. This will be a significant drag on the market until the P/E can correct back toward the area of 15, which represents fair value. A correction to undervalue (10) could also happen, but that is a rare occurrence and not necessary to set up favorable conditions.
CONCLUSION: Normal cyclical expectations and high valuations present significant obstacles for the market this year, and the bull/bear cycle suggests that a significant decline will occur between now and the end of the year. That said, I should point out that Decision Point's timing models for the broad market remain on buy signals, and the trend is up. The odds favor a decline this year, but the top isn't in place yet.
Posted by Chip Anderson at 5:04 PM in Carl Swenlin | Permalink
January 07, 2006FALSE BREAKOUTS AHEAD? By Chip Anderson
Richard Rhodes
The first 4-days of US trading has shown nothing but gains; and we believe that this “euphoria” is providing an upcoming opportunity to be come short the technology sector as a whole. Allow us to explain:
Using the weekly NASDAQ Composite chart, the rally off the low has clearly traded within a well-defined bearish rising wedge pattern. In fact, it has gone further into the apex that we would have thought, which last week saw prices breakout very modestly above trendline resistance. Common technical convention notes that the further along the apex – the higher risk of “false breakouts”; we think this is just such a circumstance. Therefore, we will soon opt to begin accumulating short positions in selected technology shares such as F5 Networks (FFIV)…perhaps next week; if not…then soon.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e76cf970b-pi
Posted by Chip Anderson at 5:03 PM in Richard Rhodes | Permalink
January 07, 2006CONCENTRATING ON STRENGTH By Chip Anderson
John Murphy
The market is starting the new year with a bang. Virtually all of the major market averages have risen to new 52-week highs. Some of that new optimism is the result of the Fed minutes released earlier in the week hinting that it might be close to ending its rate-hiking. I've expressed skepticism about the staying power of the early 2006 strength. But only time will tell if that skepticism is warranted. I've also suggested that January is traditionally the best month of the year to take some money out of the market is one is so inclined to do so. An alternative to taking money out of the market is rotating it to those market groups that are leading the market higher. It should come as no surprise that some of those early leaders are commodity-related stocks (especially gold) and foreign stocks. I've been writing about that trend for several months. I suggested earlier in the week that those same Fed minutes that sparked this week's market rally also weakened the dollar. If anything, the falling dollar has accelerated the move into commodity-related stocks and foreign markets this week. Hopefully, our readers are already aboard those moves. Energy stocks are also among early 2006 leaders as oil has climbed back over $64. Oil service stocks are the clear leaders there. Chart 1 shows the Oil Service Holders (OIH) hitting a new record on Friday. The recent pullback stopped just above its 50-day average and chart support along its late September high. That's a textbook example of what an uptrend should do. Its relative strength line is also in new high ground. Chart 2 shows the Energy Sector SPDR (XLE) nearing a challenge of its September high. It too is starting to outperform the S&P 500 again. While that may help boost the S&P over the short run, continued energy leadership is usually bad for the S&P further out in time. Early 2006 leadership is also coming from chip and internet stocks.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859123c970c-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591240970c-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
January 07, 2006Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
Wow!Six years into the new millennium already - and into StockCharts.com's seventh year of existence!Last year was our strongest year ever as we continued to expand our site and our subscribership.This year looks even brighter with the upcoming release of SharpCharts2 and our long-awaited streaming chart tool.
Speaking of which, the final Beta release of SharpCharts2 - Beta 7 - will be out on February 1st.With greatly expanded control over overlays and colors, as well as the ability for members to store charts into their accounts, SharpCharts 2 Beta 7 will be another major milestone in our quest to provide the very best charts on the Internet.
Meanwhile, the markets have remained busy, in part because of the current state of the Yield Curve.Depending on who you talk to, the Yield Curve is either inverted or very close to it.In lieu of those developments, we recently updated our Dynamic Yield Curve tool to include several additional bond yield datasets.Here's a snapshot of the new version which shows the additional data and the flat/inverted state of affairs:
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685912eb970c-pi
The black line is the current yield curve.The blue-green "trails" behind it show what it has looked like during the previous 50 trading days.Notice that the middle of the yield curve is very flat (possibly dipping slightly)?That is the possible inversion that people are talking about.
Why is that so important?Check out the red line at the top of the chart.That is what the yield curve looked like back in early 2000 - the last time the yield curve inverted. Notice that the yield curve inverted just before the market peaked (see the red vertical line on the S&P chart?). So, is the yield curve now signaling another market downturn?That's what everyone is concerned about.
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
December 10, 2005NEWMONT (NEM) FORMS THE MOTHER OF ALL CONSOLIDATIONS By Chip Anderson
Arthur Hill
Since NEM first broke above 35, gold has advanced from below 400 to above 500. However, NEM remains stuck in a long-term trading range. Did NEM secretly hedge production? Probably not, but the stock is not keeping up with gold, which broke above its 2003 and 2004 highs.
NEM is current challenging resistance and a close above 51 would be long term bullish. The pattern looks like a sharp advance and (20-50) and long flag (35-50). A break above 51 would signal a continuation of the prior advance and project a move to around 65 (50 - 20 = 30, 35 + 30 = 65). We could also consider the trading range as a large rectangle formation and a breakout would project a move to around 65 (50 - 35 = 15, 50 + 15 = 65). Either way, a new all time closing higher for NEM would be long term bullish for both the stock and gold.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685917e4970c-pi
Posted by Chip Anderson at 5:05 PM in Arthur Hill | Permalink
December 10, 2005GOLD HITS $500 AND RESISTANCE By Chip Anderson
Carl Swenlin
On December 1 New York spot gold closed at $502.30, slightly exceeding a target long awaited by gold bugs, but $500 is also a level we technicians have for a long time identified as a long-term resistance level. Could it be that the cyclical bull market in gold has come to an end?
Strictly speaking, we can't say for sure that the secular bear market in gold is actually over yet. As you can see by the chart, gold has more or less maintained a trading range since 1983, whereby it worked off the excesses of the prior bull market that took prices to $850. So far it has not decisively broken out of that trading range, therefore, we cannot conclude that the long-term consolidation is over.
Nevertheless, I believe that the bear market low was made in 1999, and that the rally from the 2001 retest low is the beginning of a secular bull market; however, it is still likely to take some time before gold can move significantly higher and put the trading range behind.
The rising trend channel I have drawn on the chart reinforces the overhead resistance and offers some perspective regarding the ebb and flow of prices. While the bull market is likely to continue, it is also likely that prices will soon pull back and consolidate. This process could take up to a year or more with correction lows around $450. I also think we could see prices as high as $530 before the correction starts.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a8c970b-pi
Posted by Chip Anderson at 5:04 PM in Carl Swenlin | Permalink
December 10, 2005TOPS AHEAD FOR DEC/JAN? By Chip Anderson
Richard Rhodes
The December to mid-January time frame has produced a number of rather large and tradable tops throughout history; and it is our belief the probability favors just such a top developing given the current overbought momentum readings. That said, we also note that the declining Dow Industrials-Nasdaq Composite Ratio is forming a bullish declining wedge; this is important from the standpoint of “intra-group rotation”, for generally this ratio tends to rise as the broader market declines. Hence, the risk-reward dynamic suggests we want to be relative bullish of the more prosaic industrial shares, while being short of technology in a hedged portfolio. Aggressive traders can simply “rotate” into an overweight short position via technology shares.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591819970c-pi
Posted by Chip Anderson at 5:03 PM in Richard Rhodes | Permalink
December 10, 2005HOLIDAY SPECIAL, NEW CHARTSCHOOL, MORE... By Chip Anderson
Site News
ANNOUNCING OUR HOLIDAY SUBSCRIPTION SPECIAL! - From now until December 31st, take advantage of our holiday special on our longer-term memberships.If you purchase any 6 month membership, you will receive 1 free additional month.Purchase a 12 month membership, you will receive 2 free months!Take advantage of this opportunity to renew your membership before the deal runs out!And remember to talk to your accountant - the purchase MAY be tax deductible!
COME SEE THE NEW AND IMPROVED CHART SCHOOL! - We've just relaunched a new and improved version of our ChartSchool area with revamped navigation pages and consolidated articles.Remember how all of our long articles were in multiple parts?Not any more.One article, one web page.They are easier to read and easier to print now.Just click on the "ChartSchool" tab at the top of any of our web pages to get started.
SCHEDULED SITE MAINTENANCE TONIGHT - As part of the changes we are implementing in response to last months service interruption, StockCharts.com will be offline tonight (Saturday, Dec. 10th) from 10pm to 12am (US Pacific time) for system maintenance.Past statistics have shown us that very few people are actively using the site at that time and so hopefully this will not inconvenience too many people.
FREE BOOKSTORE SHIPPING FOR THE HOLIDAYS - Just a reminder that StockCharts.com is offering free shipping on all bookstore orders for addresses in the USA.When you place your order you will need to select "Holiday Special" for your shipping method.If you select it and do not have a USA zip code it will only delay your order.Happy Holidays!Start Shopping
Posted by Chip Anderson at 5:02 PM in Site News | Permalink
December 10, 2005GOLD STOCKS BREAK OUT By Chip Anderson
John Murphy
Gold bullion climbed over $5.00 today to end at $519 which is the highest level in twenty-four years. Gold has now exceeded its 1983 peak at $514. Despite my concerns about a possible pullback around the $500 area, bullion shows no signs of slowing down. That may be partially due to the bullish action in gold stocks. Although the XAU Index had recently achieved a major bullish breakout, Newmont Mining (the biggest stock in the XAU) hadn't yet done so. Neither had the AMEX Gold Bugs Index (HUI). The next two charts show, however, that both have now joined the XAU in new high ground. The weekly bars in the first chart show Newmont closing over 50 for the first time in two years. The second chart shows the HUI breaking through its late 2003 highs to achieve a bullish breakout as well. The HUI/SPX ratio in Chart 7 has just broken a two-year down trendline. That's tells me that gold stock leadership is going to continue as is the bull market in bullion.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685917d9970c-pi
">http://blogs.stockcharts.com/.a/6a0105370026df970c0111685917e0970c-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
December 10, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
Happy Holidays everyone!And welcome to the holiday edition of ChartWatchers.This special edition replaces our normal December issues and it contains several exciting announcements about the markets and StockCharts.com.Be sure to check out the Site News section for more on StockCharts including news about our holiday subscription special.
As always our columnists have been watching the markets very closely - especially the gold market.John Murphy starts things off with a look at gold's recent breakout while Richard Rhodes is monitoring the Dow/Nasdaq ratio.Carl Swenlin has his eyes on spot gold prices and finally Arthur Hill sees an opportunity on the Newmont Mining chart.
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
November 20, 2005NASDAQ CUP-WITH-HANDLE BREAKOUT By Chip Anderson
Arthur Hill
The Nasdaq’s breakout at 2200 confirms a bullish cup-with-handle pattern and targets a move to around 2500. Until there is evidence to the contrary, this is the dominant chart pattern and further gains should be expected.
William O’Neil of Investor’s Business Daily (IBD) developed the cup-with-handle pattern. It is a bullish continuation pattern that marks a corrective period followed by a minor pullback and a breakout. Looking at the Nasdaq chart, I think the characteristics of a bullish cup-with-handle are present. First, there was a sharp advance from 1750 to 2192. This established the uptrend. Second, there was a decline to 1889 and then another move to resistance around 2200. This correction formed the cup and established rim resistance. Third, the index pulled back to 2025, formed a higher low and then surged above resistance at 2200 over the last few weeks. This mild correction formed the handle and the breakout confirmed the pattern. The depth of the cup is added to the breakout for an upside projection. This breakout is bullish and should be treated as such until proven otherwise.
What would it take to prove this breakout otherwise? The breakout should hold and a move back below 2200 would be negative. However, I would not give up on the pattern on the first sign of weakness. It would take a failure at resistance AND a break below the handle low at 2025 to fully reverse the current uptrend and turn bearish.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685917f6970c-pi
Posted by Chip Anderson at 5:05 PM in Arthur Hill | Permalink
November 20, 2005MARKET BECOMING OVERBOUGHT IN ALL TIME FRAMES By Chip Anderson
Carl Swenlin
When a stock is above a moving average it is considered bullish, and the stock can be considered to be in a rising trend for that time frame. A good way to determine the market's overall condition (overbought/oversold) across a range of time frames is to analyze the percentage of stocks above their 20-, 50-, and 200-day moving averages. The following chart shows the condition of the stocks in the S&P 500 Index.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859178c970c-piAs you can see the market is becoming overbought in all time frames. Each of the three indicators is not only approaching the top of its trading range, but they are very close to the declining tops lines I have drawn, which demonstrates how participation is fading even as the S&P 500 moves to progressively higher tops. If the indicators can press higher to about the 90% level, it would be a longer-term positive; however, if the declining tops lines prevail, it is likely that overhead resistance on the price index will force another correction.
I am seeing this kind of picture through a wide range of internal indicators, and investor sentiment is becoming extremely bullish, so I expect that there will soon be another correction of sufficient depth and duration to clear the overbought condition and dampen confidence. As you can see from other corrections in the last few years, this can be accomplished fairly quickly and painlessly.
Posted by Chip Anderson at 5:04 PM in Carl Swenlin | Permalink
November 20, 2005FREE SHIPPING IN BOOKSTORE By Chip Anderson
Site News
FREE BOOKSTORE SHIPPING FOR THE HOLIDAYS - StockCharts.com is proud to offer free shipping on all bookstore orders for addresses in the USA.When you place your order you will need to select "Holiday Special" for your shipping method.If you select it and do not have a USA zip code it will only delay your order.Happy Holidays!Start Shopping
Posted by Chip Anderson at 5:02 PM in Site News | Permalink
November 20, 2005NASDAQ HITS FOUR-YEAR HIGH By Chip Anderson
John Murphy
The chart below shows the Nasdaq Composite having hit a new four-year high this week. It's now trading at the highest level since the spring of 2001. There's another shelf of potential resistance to watch at 2328 (see circle), but the action has been impressive. That also continues the trend of higher lows and higher lows that started in the fourth quarter of 2002. Some of our readers have asked, however, about a price pattern that's been forming since the start of 2004 that's marked off by the two converging trendlines shown on the chart.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685916a5970c-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
November 20, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
This week the markets have started pushing into bullish territory.John, Carl and Arthur all dig into these new events in more detail, but first let's have a look at the S&P 500 Index:
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e79ce970b-pi
The blue arrow shows where the latest close, just below 1250, has broken the upper line on the 52-week (260 day) price channel - which is just a fancy way of showing that it set a new 52-week high.In fact, you have to go all the way back to June 15, 2001 to find the S&P 500 at this same level.Is this the big breakout we've been waiting for?Or is this just a temporary, soon-to-be-corrected oversold market condition?Even though it is a short week for the US markets, some important signals should appear - stay tuned!
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
November 06, 2005MIND THE GAPS By Chip Anderson
Arthur Hill
The Information Technology SPDR (XLK) broke support in early October, bottomed in mid October and surged over the last few weeks. This surge featured two gaps last week and these hold the key to recent strength. The stock gapped up on Monday and again on Thursday (gray oval). Gaps show power and both of these gaps should be considered bullish unless they are filled.
The stock is nearing resistance from the August trendline and early October high. A move above the early October high would break the August trendline and forge a higher high. This would be enough to turn the medium-term trend bullish and expect new highs over the coming months. Yes, the fabled yearend rally would be upon us.
The current advance looks like a sharp rising price channel and "rising" is the key word. The lower trendline sets the bullish tone and support from this trendline coincides with Monday’s gap. Should the stock fail to break resistance, watch for a move below 20.6 to fill the second gap and signal trouble. Further weakness below the first gap (20.2) would also break the rising channel trendline and reverse the current uptrend. Such a move would target further weakness below the October low.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7928970b-pi
Posted by Chip Anderson at 5:05 PM in Arthur Hill | Permalink
« Previous | Next »
November 06, 2005LOWER PRICES AHEAD FOR NASDAQ? By Chip Anderson
Richard Rhodes
On a longer-term monthly basis, the Nasdaq Composite is very clearly forming a rather bearish "wedge" pattern. Resistance between 2080 and 2220 is quite strong, and rallies back into this zone are becoming weaker and weaker. Ultimately – and we think rather soon, this pattern will lead to lower prices…and perhaps sharply lower prices. Certainly the probability will have increased, and will initially be confirmed once prices decline through wedge support at 2098, and then through of the 25-month moving average at 2032. Then, and only then can we say with any confidence a ravaging bear market is upon us…and it is far closer than one would think.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685915e1970c-pi
Posted by Chip Anderson at 5:03 PM in Richard Rhodes | Permalink
November 06, 2005HURRICANE DONATIONS, CHARTSCHOOL UPDATE By Chip Anderson
Site News
OUR PROBLEMS ARE PUNY IN COMPARISON - While our weekend power problems were unusual, we realize that they were nothing compared to the problems faced by residents of the gulf coast in the aftermath of Hurricanes Katrina and Rita. For the past two months, StockCharts.com has pledged $5 of every subscription or renewal order to the American Red Cross and its hurricane relief efforts. Last week, we delivered a check for $42,275 to the Red Cross to cover that pledge. In addition, we have automatically extended the subscriptions of all members who were unable to use StockCharts.com due to those hurricanes.
CHARTSCHOOL UPDATE COMING SOON - Last week's problems also put the brakes on another project that's almost complete - our ChartSchool update! We've been working hard on a revised version of our ChartSchool with updated information that easier to read, easier to navigate, easier to print, and - well - just plain better. Look for it to appear on our site in the next week or so.
Posted by Chip Anderson at 5:02 PM in Site News | Permalink
November 06, 2005S&P TREND IMPROVES -- SOX REGAINS 200-DAY LINE By Chip Anderson
John Murphy
The weekly bars in Chart 1 show the improvement in the S&P 500 this past week. Not only did it close back over its (red) 40-week average, but it closed above its (blue) 10-week average as well. Even more impressive was the heavy upside volume. That strong action moved the market out of its danger zone. Having survived the dangerous month of October, the market has now entered a seasonally strong period between now and yearend. The weekly histogram bars are still negative (below the zero line). However, they have risen for two consecutive weeks (meaning the MACD lines are starting to converge). While that doesn't constitute a "major" buy signal, it does suggest the covering of short positions (or lightening up on bear funds). With oil still on the defensive, fourth quarter market leadership is coming from financials, retailers, the transports, and technology. Most of the recent technology leadership came from Internet stocks which closed at a new recovery high (Chart 2), while semiconductors have been one of the market's weakest groups. This week, however, the SOX Index climbed back over its 200-day moving average (Chart 3). It's a good sign when even the weakest groups start to show some improvement.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685916b8970c-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685916ba970c-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685916be970c-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
November 06, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
While last week was a really good week for the markets - Dow up 3%, Nasdaq up over 5% - it was a really lousy week for StockCharts.com.As most of you know, the site had problems creating charts on Thursday and again on Friday and then we were also down much of the day on Sunday.
Soon after the market opened on Thursday, we suddenly stopped getting data from both of our data feed servers.It was an extremely unusual and unexpected situation.Why would two separate computers suddenly stop communicating at the same time?Another frustrating part of the puzzle was that as soon as we took the web site offline, the problem went away.It would only happen when real people were using the website to create real charts while the real market was open.
Most of Thursday was spent trying the "standard" approaches to finding and fixing such a problem. Unfortunately,this problem was resistant to those techniques and on Friday, when the market opened again, the problem resurfaced.Friday was spent trying more and more "drastic" measures and eventually, around 3PM Eastern, one of those techniques worked.The site was up for the final hour of trading on Friday and, knock on wood, it appears to be back to its old normal self again as I write this on Monday morning.
"No good deed goes unpunished" as the saying goes and this was no exception.Just as we started to recover from our marathon troubleshooting sessions, something else unusual happened.On Sunday morning, for the first time in our six and a half year history, we had a long power outage in our data center.Now, you are probably familiar with the heavy UPS battery devices that you can buy to protect your computer in case of a power failure.We have something similar here - except that our UPS can keep our 40+ servers running for about 3 hours (yes, it is REALLY heavy too!).Unfortunately, this power outage lasted much longer than that and it knocked us off the air.Once the power came back on, we were able to get the site up and running within an hour, but it wasn't until Monday morning that everything was fully functional again.
Again, we really do understand how frustrating and difficult it is for our users when our site isn't working correctly.We have worked very hard to get things back up quickly while keeping people as informed as possible about this situations.Going forward, we will be conducting a "post-mortem" review of our procedures to find ways to minimize the chances of these kind of problems occurring again in the future.We will be looking into things such as secondary data vendors, large scale power generators, scheduled maintenance periods and more.In addition, we have already added one week of free service to all active members' accounts as our way of saying "Thanks for hanging in there with us."Finally, we sincerely apologize for whatever inconvenience these outages have caused.
Oh, and all of the above "stuff" also explains why this newsletter is coming out later than usual.And we apologize for that also.
OK, so back to the markets and the market commentary...
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
October 16, 2005RSI AND THE NASDAQ By Chip Anderson
Arthur Hill
This week 14-day RSI for the Nasdaq became oversold (below 30) for the first time since April (gray oval). Even though securities can become oversold and remain oversold, the odds of a bounce increase with oversold conditions. The question is not whether there will be a bounce or not, but rather how far will the bounce extend and when will the bounce end.
Previous extremes in RSI occurred in pairs with an intermittent move to around 50. Notice that there were two oversold dips in March and April (green circles). The last overbought reading also featured two moves before the Nasdaq peaked in July (blue circles). The first overbought (oversold) reading serves as a warning to prepare for a pullback (bounce).
RSI usually finds resistance at 50 on an oversold bounce and support around 50 on an overbought pullback (black boxes). It is these moves to around 50 that provide a second chance to partake in the ongoing trend. To partake in this downtrend, I would wait for a bounce back to 50 in RSI and possibly 2100 in the Nasdaq, which marks broken support.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859171f970c-pi
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
October 16, 2005MARKET IS OVERSOLD AND DANGEROUS By Chip Anderson
Carl Swenlin
The Price Momentum Oscillator (PMO) is an expression of internal strength for a given price index. In the chart above we summarize three important PMO characteristics for the individual stocks in the S&P 500 -- the percentage of PMOs rising (very short-term), the percentage of PMOs on crossover buy signals (short-term), and the percentage of PMOs above the zero line (medium-term). The chart tells us that the S&P 500 is technically oversold in all three time frames. (To read more about the PMO click here).
We normally think of oversold conditions as signalling the next buying opportunity, and as you can see, oversold conditions such as this normally lead to some kind of rally once a price low is in place. Normally, but not always. During a bear market, oversold conditions can result in even more selling.
I don't know if that will happen this time -- I can't say with certainty that a bear market has begun -- however, there are good reasons for extra caution. Most obvious on the chart is the breakdown from the ascending wedge pattern, which is bearish. And spanning a much longer time frame is the declining tops pattern on the PMO, which diverges from the rising tops of the bull market.
Looking beyond the chart, we know that bull markets do not go on forever, and this one is three years old. Based upon my cycle work, the 4-Year cycle is due to crest, leading to a bear market decline that should last until about this time next year. Also, we have sell signals on all but two the 17 major market and sector indexes tracked by our primary timing model. The exceptions are Energy and Utilities, but they are under pressure as well.
Bottom Line: A bounce is likely, but I do not believe it will lead to new price highs. Rather, it will work off the oversold condition and set things up for a continuation of the decline. Worst case is that there will be no bounce, just more selling, and the market will become even more oversold. In either case, it is a dangerous time to be making bullish assumptions.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591677970c-pi
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
October 16, 2005WEAKNESS AHEAD FOR THE S&P500? By Chip Anderson
Richard Rhodes
Today, the simple technical picture is breaking down in our opinion. If we look back to 1994, we find the 80-week moving average has been an excellent swing trading tool as it holds the data as near perfect as can be expected. Our concern focuses upon the current decline from the normal 50%-60% retracement level back to the 80-week moving average. Normally, we would be buyers of its test for a move to higher highs, but given the 20-week stochastic isn't below 50 - thereby confirming at least modest technical neutrality - this indicates that prices have still lower to work. Therefore, a breakdown below the 80-week moving average would signal the countertrend rally off the 2002 lows is complete, and an overweight and aggressive short campaign to "short the rallies" should be undertaken. We don't make these claims likely, but the probability suggests further S&P 500 weakness ahead.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685917c5970c-pi
2005 Performance
ETF Portfolio: +9.1%
"Paid-to-Play" Portfolio: +19.2%
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
October 16, 2005FREE TIME FOR HURRICANE VICTIMS AND YOU By Chip Anderson
Site News
MORE HELP FOR HURRICANE VICTIMS - In addition to dontating over $20,000 to hurricane relief efforts so far, StockCharts.com is also automatically adding 3 free months of service to members that live in areas severely affected by Hurricane Katrina and Hurricane Rita.If your ability to access the Internet was cut off by those storms and your expiration date hasn't already been increased, please let us know.
FREE TIME FOR REFERRING A FRIEND TO STOCKCHARTS.COM - Just a quick reminder that you can earn free time simply by referring a friend to StockCharts.com.If your friend subscribes and enters your email address on our Terms of Service page, you will receive one month of service free!
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
October 16, 2005WHY BEAR FUNDS ARE TRADING VEHICLES By Chip Anderson
John Murphy
My Wednesday message on bear funds wrote that they should be used as trading vehicles and not as a long-term investment. One of our readers asked why. That's because the market has a history of rising more often that it falls. To hold a bear fund in a rising market ensures unnecessary market losses. Since the start of 2003, for example, the bear fund would have lost 28% while the S&P 500 gained 34%. In other words, a bear fund would have been a bad holding over the last three years. The picture is even worse the further back we look. The chart below compares the S&P 500 monthly bars to the Rydex Ursa bear fund (red line) for the last ten years. The bear fund is designed to move in the opposite direction of the S&P 500. The bear fund fell from 1995 to 2000 as the market rose. After rallying from 2000 to 2002, it fell again from 2002 to 2005. That means that the bear fund fell for seven out of the last ten years and three out of the last five. It would have done a little better than the S&P 500 since 2000. But it would have lost a lot in the three years since 2002 and a lot more over the entire ten-year period. That's why it shouldn't be used as a long-term investment. A bear fund can and should be used, however, when the market looks like it may be turning down -- as it is now. In my view, that makes bear funds trading vehicles and not long-term investments.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7add970b-pi
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
October 16, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
The markets are getting very interesting these days!Last week saw some big declines that were mostly erased by Friday's rally.
If you're looking for bearish signals, look no further than our Dow Jones Industrials Index P&F chart:
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a70970b-piI draw your attention to the volume bars at the bottom of the chart.Note that the last three red volume bars are much higher than the last three black volume bars.That means that the market has been more active during the last three significant downtrends than it has during the intervening uptrends - a sure sign of growing market pessimism.In addition, the simple P&F price objective - based on the double-bottom breakdown signal from last week - is now at 9750.While I doubt that prices will get that low anytime soon, there's a good chance the major support level at 10,000 will be retested soon.
Our other authors are decidely bearish also.John looks at Bear funds, Carl calls this market "dangerous", Arthur thinks the Nasdaq's RSI is oversold, and Richard calls the S&P 500 "weak".Read on for all the details.
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
October 02, 2005BEARISH PATTERNS FOR THE RUSSELL 2000 ETF By Chip Anderson
Arthur Hill
The Russell 2000 ETF (IWM) has two potentially bearish patterns working that would be confirmed with a support break at 64 (645 for the Russell 2000). Confirmation is the key with both patterns. In fact, confirmation is the key to most patterns. Until confirmation, these are only potentially bearish patterns and a trend reversal has yet to take place.
The descending triangle usually marks a continuation of a downtrend, but can also mark a top. The lower high (red arrow) shows that buyers do not have as much power as before and upside momentum is waning. However, the equal lows represent support and show that the sellers have yet to take full control (green arrows). A support break would signal a new thrust of selling pressure and confirm the bearish pattern. The downside projection would be to around 60 and broken resistance from the April-May highs confirms this level.
The second potentially bearish pattern involves three fan lines. These extend up from the April low and the stock already broke the first two. IWM has consolidated since breaking the second fan line and a move below the third would confirm this bearish setup. Notice that the third fan line and descending triangle lows confirm support around 64 and it is clear that a break below this level would be most bearish.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7930970b-pi
- Arthur Hill
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
October 02, 2005GOLD APPROACHING RESISTANCE By Chip Anderson
Carl Swenlin
This chart of gold has some interesting technical features. First, there is the parabolic rise to $850 in 1980, which culminated in the inevitable blowoff and collapse.
After a parabolic collapse, prices most often return to the original base, which in the case of gold is somewhere below $100 and not visible on the chart; however, another outcome is that prices can enter a high-level consolidation, which is a trading range at a level far above the previous base, and this is what has happened with gold. In this case, the trading range is between roughly $300 ($250 at the extreme) and $500, and it serves the purpose of digesting the excesses of the parabolic, and preparing for the next long-term move, which I assume will be up.
The reason I assume that the next long-term trend will be up is because the double bottom in 1999 and 2001 marks the end of a 22-year bear market in gold, and a new bull market is in force. The problem is that the bull market is now nearly five years old, and we can clearly see overhead resistance in the area of $500, created by the intersection of the top of the rising trend channel and the top of the long-term trading range.
The normal technical outcome from a high-level consolidation is an upside breakout. We don't know if the current rising trend will be able to effect such a breakout, but sufficient time has passed that it would not be overly optimistic to have this expectation; however, remember, we are looking at a monthly chart (each bar is one month), and it could be another year or more before a breakout is made and confirmed.
For example, there were corrections within the rising trend channel in 2004 and 2005 that took several months to complete, so it is reasonable to expect that another lengthy correction will take place once the resistance around $500 is encountered.
Finally, let's look at the Price Momentum Oscillator (PMO). The PMO peak in 1980 is abnormally high and cannot be used as a benchmark for anything except another parabolic rise. The PMO's current level is typical for the trading range, but it is pretty high. This level could be exceeded if the rising trend continues and accelerates, but, if gold's current rate of climb is maintained, the PMO can remain flat, and, therefore, not much help in warning of a trend change.
Bottom Line: My long-term view for gold is positive, but I expect that, when it encounters the resistance at the $500 level, there will be a correction of sufficient length and depth ($450?) to consolidate the gains of the last five years and to move the PMO back toward the zero line.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591749970c-pi- Carl Swenlin
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
October 02, 2005"TRIANGLE CONSOLIDATION" FOR THE NASDAQ By Chip Anderson
Richard Rhodes
Taking a long-term gander at the Nasdaq Composite, I think is very clear that the time is running out for prices to rise much further than they have at present. The reason is that prices are winding their way through the "triangle consolidation"; which means two scenarios exist – a bearish and bullish one to be exact. The bearish probability is highest in my mind with prices breaking down through trendline support and then the 25-month moving average currently at 2009 – thereby ‘confirming' a bear market has begun; or the lower probability breakout above major resistance at 2185-2200 – this would signal a new and larger leg higher is underway.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591708970c-pi
Given our stance is clear, it is so only because our longer-term models show the current rally's 'strength' has moderated significantly to where selling pressure is rising a sharp rate than in previous months. However, our shorter-term models are turning higher - which against the backdrop of our longer-term high probability scenario suggests a rally in the next several weeks that will be a 'final and material test' of the highs will occur and then fail with lower prices back towards 1200-1500 anticipated.
But the real cruxes of the situation will which themes to be involved in.
Performance
ETF Portfolio: +7.0%
"Paid-to-Play" Portfolio: +14.3%
- Richard Rhodes
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
October 02, 2005HURRICANE RELIEF By Chip Anderson
Site News
HURRICANE RELIEF FROM STOCKCHARTS - Thanks to the support of our subscribers, StockCharts.com is donating over $20,000.00 to the Red Cross for its hurricane relief efforts for the month of September. We have also pledged a similar amount for the month of October - $5.00 for every subscription or renewal that we receive this month. Again, for those of you that wish to donate directly, you can do so at the Red Cross website.
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
October 02, 2005MARKET ENDS SEPTEMBER ON A STRONG NOTE By Chip Anderson
John Murphy
MARKET AVERAGES CLOSE BACK OVER 50-DAY LINES... The market had a lot thrown at it this month. A spike in energy prices, plunging consumer confidence, and rising long-term interest rates. It also had the month of September to deal with which has traditionally been the worst month of the year. While the market bent a bit during the month, it refused to break. And then ended the month on the upside. The first three charts show essentially the same pictures. The three major market indexes held support at their late-August lows and closed the week back over their 50-day averages. . That action prevented a chart breakdown and has kept the market in a trading range. This week's bounce also kept weekly and monthly indicators in positive territory. Part of Friday's market gains were probably the result of falling energy prices. Some other positive signs were new signs of strength in small caps, the Nasdaq, semiconductors, and the transports. Chart 3 plots a ratio of the Nasdaq 100 divided by the S&P 500 . The ratio peaked in early August when loss of Nasdaq leadership started to weigh on the entire market. The good news is that the ratio started to bounce again this week (see arrow). The market usually does better when the Nasdaq shows upside leadership. A lot of the Nasdaq leadership came from the semiconductors.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e79d3970b-pihttp://blogs.stockcharts.com/.a/6a0105370026df970c0105371e79d5970b-pihttp://blogs.stockcharts.com/.a/6a0105370026df970c0105371e79d8970b-pi- John Murphy
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
October 02, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
This week, John reviews the market's recent performance in light of all the economic changes we've been seeing, Richard breaks out a new triangle pattern, Carl takes an in-depth look at gold, and Arthur Hill looks at the Russell 2000. Here we go...
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
September 24, 2005FEAR CREEPS IN By Chip Anderson
Arthur Hill
Fear is creeping into the market as the S&P 500 Volatility Index ($VIX) forms a higher low. And you thought the VIX was dead! Well, actually, it is pretty dead as volatility slows to a crawl. The VIX has been spot-on when it comes to calling market risk (volatility). The S&P 500 recorded a four year high in early August and the VIX recorded a 10 year low. The S&P 500 has gone nowhere since December 2004 and the VIX declined from 15% to 10%. This simply confirms the dullness of the current market environment.
As the red carets show, it is lower low after lower low for the last few years. The VIX remains within a falling price channel and clear downtrend. However, the indicator formed a higher low in September (green caret) and is poised to break its August high. A mini-breakout would show an increase in volatility, which is also known as risk and fear. With increased fear comes more uncertainty and uncertainty breeds contempt. This will result in flat stock prices at best and lower stock prices at worst. Should the VIX break above upper channel trendline and April high, a new uptrend in volatility (risk) will begin and this will translate into lower stock prices.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591774970c-pi
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
September 24, 2005NEW HIGHS AND NEW LOWS SIGNAL CAUTION By Chip Anderson
Carl Swenlin
Since the beginning of July, 52-week new highs have been contracting with each new NYSE Composite price high, demonstrating that fewer and fewer stocks are participating in the rally. Contracting new highs by themselves are not always problematic, and can merely be a sign of an approaching correction in an ongoing bull market; however, when they are accompanied by expanding 52-week new lows, a darker picture begins to emerge.
You will note that spikes in the number of new lows usually occur at the end of corrections, giving notice that the correction is near an end. Unfortunately, the recent spike in new lows has occurred just as the NYSE Composite Index has pulled back from an all-time high, and this is an indication that, not only is upside participation fading, but the tide may be shifting to the downside as well.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685916b6970c-pi
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
September 24, 2005SHORT POSITIONS IN LONG-END BOND By Chip Anderson
Richard Rhodes
With both Hurricane Katrina and Rita now in the history books, local, state and federal government to issue more debt will need to issue debt for reconstruction efforts and so forth. This bearish fundamental coupled with the yield curve not inverting any longer suggest the risk-reward of short positions in the long-end bond is quite good.
From a technical perspective, we want to keep it simple. We note that TLT as it is forming a bearish "double top" and further resides right upon its bull market trendline. We expect lower prices to be confirmed on a breakdown through $91.25 level, with a swift and material decline towards our target at $86.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591803970c-piIn our letter we are currently short, and will look to add to the trade in the weeks ahead. 2005 Performance:
ETF Portfolio - +8.6%
Paid-to-Play Portfolio - +15.3%
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
September 24, 2005HELP FOR HURRICANE VICTIMS By Chip Anderson
Site News
- If you are a victim of either of the gulf coast hurricanes and have been unable to access your StockCharts.com account since the storms hit, please let us know and we will credit your account for the time you have been away from the Internet. In addition, for every new subscription or renewal we receive during the months of September and October, StockCharts.com will donate $5 to Hurricane Relief efforts! We urge you to contribute directly as well. BOOKSTORE - We have added a number of new books to our store.Take a Look
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
September 24, 2005OIL MAY BE FORMING SHORT-TERM TOP ... By Chip Anderson
John Murphy
Today's selloff in oil of more than two dollars may be completing a right shoulder in a short-term head and shoulders top in the key commodity. The September bounce has fallen well short of the late-August peak (the head) and is about equal to the early August peak (left shoulder). It's now challenging its 50-day average and may be headed for a test of the neckline near 62.50. A close beneath that support line would turn the short-term trend down. That would weaken energy stocks even further. I'm not suggesting that the long-term bull market in energy is over. I am suggesting that it's come too far and is need of some correcting. I also believe that the price spikes from the two recent hurricanes have probably been overdone. What better time to take some energy money off the table when TV stations are talking about nothing else. One TV station showed a chart of the XLE yesterday and said it was a good thing to buy when oil prices are rising. That's the "kiss of death" in any rally.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685917a3970c-pi
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
September 24, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
Forces of nature have conspired to prevent the stock market from rising significantly since our last visit, however the markets have showed suprising strength considering the impact on the US economy that these storms are having. The storms are also on the minds of our regular columnists. John Murphy reviews their impact on oil prices, Richard Rhodes looks at the debt implications, Carl Swenlin looks at market beadth indicators, and Arthur Hill sees new life in the $VIX. Let's get to it...
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
September 10, 2005TRANSPORTS LAG INDUSTRIALS By Chip Anderson
Arthur Hill
Dow Theory stipulates that the Dow Industrials and Dow Transports should confirm each other to validate weakness or strength. Most recently, both Averages recorded new reaction highs in late July (green arrows) and this provided a Dow Theory confirmation of strength. Both Averages corrected in August, but only one surged in September.
The Dow Transports formed a falling flag correction in August. The only problem, for the bulls at least, was the inability of the Average to break the fall, exceed resistance at 3706 and signal a continuation higher. The flag just kept on falling and the Average gapped down on Friday.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685917c3970c-piIn contrast to the Dow Transports, the Dow Industrials firmed around 10400 with a couple of bullish candlestick reversal patterns and surged above 10600 with a big move over the last four days. Wednesday’s long white candlestick is enough to confirm the prior bullish engulfing (30-31 Aug) and turn the Dow Industrials short-term bullish.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685917ca970c-piThe Dow Industrials surged and the Dow Transports sank – something is wrong with this picture. This amounts to a non-confirmation of strength in the Dow Industrials. The Dow Transports need to break resistance at 3706 to get the Dow Theory bull back on track. Without confirmation from this economically sensitive group, the breakout in the Dow Industrials is prone to failure.
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
September 10, 2005GOLD STOCKS APPROACHING RESISTANCE, POSSIBLE BREAKOUT By Chip Anderson
Carl Swenlin
The May low for the Philadelphia Gold and Silver Index (XAU) provided us with the second data point necessary to establish the bottom of a trading range that is about two years old. The XAU is now approaching the top of the range, and we can expect that the current advance will stall when that overhead resistance is reached.
Trading ranges are also called continuation patterns. This is because they are formed when the trend of a price index pauses to consolidate before the trend continues. Since the XAU trend was rising before the consolidation began, we should expect the trend of the XAU to continue upward once the current trading range runs its course. Our expectations regarding the trading range are also supported by the internals. The PMO (Price Momentum Oscillator) is rising and above its 10-EMA, and it has plenty of room to run before an overbought condition is reached, so the next test of resistance could ultimately result in an upside breakout. A final note, the bottom panel of the chart shows the relative strength of the XAU to the price of gold. If gold and gold stocks always had the same percentage of change, the price relative line would be flat; but this is clearly not the case. When the line rises, it means that the XAU is stronger than gold (and vice versa). As you can see, the XAU normally moves in the same direction as gold, but at a faster rate of speed.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7ad8970b-pi
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
September 10, 2005EFFECTS OF KATRINA By Chip Anderson
Richard Rhodes
With the passing of Hurricane Katrina, we want to hone our focus in upon the TLT:SPY ratio relationship. This is simply due to the enormous amount of local, state and federal debt issuance that will materialize due to the substantial nature cost of clean-up and reconstruction efforts of the Gulf Coast area. Also, there are concerns about the inflationary prospects for many building materials. So from a fundamental point-of-view we want to be a seller of bonds as we believe issuance/inflationary concerns will outweigh all economic weakness concerns.
The TLT:SPY ratio seems to bear this out, with bonds set to continue their downtrend against stocks as a 'midpoint consolidation' is rather clear on the weekly chart. Moreover, if one believes the market is in a "topping pattern" such as we do then if stocks are to decline in any way shape or form then TLT is likely to decline even more sharply. Thus, if one wants to be short with any type of confidence, we suggest being short TLT.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685915df970c-pi
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
« Previous | Next »
September 10, 2005FRIDAY BLOOMBERG INTERVIEW ... By Chip Anderson
John Murphy
Some of you may have watched my 7:10 am interview on Bloomberg TV Friday. I discussed the upside breakout in the healthcare sector that I wrote about earlier in the week. For those of you who missed it, however, I'd like to show the same charts that we used on the air to make my point more clearly about the activity within the healthcare group itself. The chart below shows the Health Care Select SPDR (XLV) closing above its early 2004 peak this week to achieve a bullish breakout. . The rising relative strength line since the end of 2004 shows that healthcare has been a market leader year (along with energy and utilities). The point I made this morning was that the XLV provided a vehicle for buying the entire healthcare sector. But there were two other ETFs that also provide exposure to the healthcare group in biotechs and drugs.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685917b6970c-pi
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
September 10, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
At the end of August, a very promising thing happened on the Dow Jones Industrials chart. Did you see it?
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685916e5970c-piLast Thursday the index reversed around the 10,350 level. That confirmed the intermediate term uptrend (blue line) that goes back to the 10,000 low from last April. During this uptrend there have been two cycles between the three troughs - those peaks are clearly shown on the Chaikin Money Flow graph (blue arrows). If this pattern continues, expect to see the market rise until the CMF turns lower in a couple of weeks. But watch this chart closely folks! This week's test of 10,700 is key.
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
August 20, 2005RYDEX CASH FLOW RATIO FAVORS BULLS By Chip Anderson
Carl Swenlin
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a5d970b-piThere is growing evidence that a bull market top is finally in place, but not all the evidence supports that scenario. For example, the Rydex Cash Flow Ratio shows that bearish sentiment is again approaching record levels, indicating that another run at new price highs could be in the cards.
Decision Point's Rydex Cash Flow Ratio differs from the Asset Ratio in that it is based upon a cumulative total of daily net cash flow for each of the Rydex mutual funds, not raw asset levels. The Cash Flow Ratio is calculated by dividing the total bear fund cash flow plus money market cash by the total bull and sector fund cash flow. As you can see on the chart, the Ratio (first panel below the S&P 500 graph) has been in a trading range for nearly three years, and the bottom of that range has been a reliable measure of bearish excess sufficient to signal important price bottoms. Once again the Ratio is approaching the bottom of the range, and bearish cash flow (bottom panel on the chart) is near record high levels. Moreover, this sharp increase in bearish sentiment has occurred with only a minor price decline -- people have gotten too bearish too fast. All this should send up warning flags to the short sellers. Having said that, let me point out that it is entirely possible for prices to head lower and for bearish cash flow to punch through the resistance to new highs, causing the Ratio to break through the bottom of its range. Also, the failure of bullish cash flow to follow prices to new highs presents a serious negative divergence, indicating that participation has faded significantly. Nevertheless, the most obvious thing I see on the chart is that sentiment has gotten bearish too quickly, and that is not good news for the bears.
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
August 20, 2005HOUSING INDEX ($HGX) COMING INTO CLEAR FOCUS By Chip Anderson
Richard Rhodes
The current broader market decline has brought the Housing Index ($HGX) into clear focus; magazine after newspaper after TV show are talking about whether housing is overvalued and ready for a decline. We will save our thoughts for this for another time, but we do have some technical thoughts on $HGX.
We find the chart trending from the lower left to the upper right and what is defined as a "bull market"; but we are finding opportunities to be short with greater confidence if in fact several 'key levels' are violated. First, we expect the 18-week exponential moving average at 527 to be violated rather handily given all corrections of any magnitude have in fact broken below this key level prior to rebounding. The question then becomes whether the bull market trendline is violated; if so then obviously the bull market from the lower left to the upper right will have 'changed' to bearish. And finally, if the 50-week simple moving average is violated...then this would confirm the downtrend has become engrained indeed.
This is our roadmap; we covered our short housing stocks on Friday and now look to sell rallies given an oversold countertrend rally is warranted. We feel this trade may develop into one of the large for the remainder of this year and into 2006.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685915f6970c-pi
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
August 20, 2005JOHN MURPHY'S BACK FROM VACATION By Chip Anderson
Site News
- After a week off, John's back at his perch, watching the markets like a hawk and reporting the technical developments to his subscribers. John reports that his trip to Yellowstone National Park and the Grand Tetons was spectacular and very relaxing although he did confess to sneaking a glance at the markets "once or twice" while there. Welcome back, John! ANOTHER STOCKCHARTER'S JOURNEY - Another member of the StockCharts.com family is a guy named Pete Behmer. Pete recently took some time off from work to pursue his long-time dream of hiking the Pacific Crest Trail from Mexico to Canada. Even though he was recently forced to abandon his trek, he was able to create an absolutely amazing journal of his adventure at http://www.pct2005.com. Some of the pictures that Pete took along his hike are absolutely amazing! Pete's doing much better now and hopes to resume his work here at StockCharts soon. Welcome back, Pete!
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
August 20, 2005NYSE BULLISH PERCENT INDEX IS OVERBOUGHT ... By Chip Anderson
John Murphy
One of the ways to determine if the stock market is in a long-term overbought or oversold area is to chart the NYSE Bullish Percent Index which is shown in the chart below. The BPNYA measures the percent of stocks that are on point & figure buy signals. The two key numbers on the chart are 30 and 70. Readings under 30 show the market in a major oversold condition. Readings over 70 show a major overbought condition. The chart shows that the index traded over 70 three times since the start of 2004. A more dangerous signal is given when the line drops back under 70. That's a sign that the overbought market is starting to weaken. I point this out because the BPNYA has just fallen back below 70 (see red arrow).
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859172b970c-pi
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
August 20, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
The Dow continues to oscillate around 10,600 without much direction right now - sometimes getting near 10,700 - other times falling as low as 10,500. Now that the two major moving averages (50-day and 200-day) have essentially "merged" near the 10,550 mark, they should provide some additional technical support and may help get things moving again. John, Richard, and Carl have some additional thoughts below however.
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
August 06, 2005BREADTH REMAINS STRONG By Chip Anderson
Arthur Hill
Bullish and bearish divergences in the AD Line often precede significant bottoms and tops. Even though reversals are certainly possible when the AD Line is keeping pace, they are the exception rather than the rule. (Note: The Advance Decline Line is a cumulative measure of advancing issues less declining issues).
As the chart above shows, a large bullish divergence preceded the August low as the NYSE Composite formed an equal low and the AD Line formed a sharply higher low. In addition, a smaller bullish divergence formed in April and May. This foreshadowed the May low and led to a strong advance over the last few months.
The AD Line has been keeping pace with the index since May and shows no signs of divergence (weakness). Both the NYSE Composite and the AD Line recorded new highs this week. Strength in the AD Line reflects broad participation. The bull market may seem old and tired, but there is no evidence of weakness or lack of participation in the AD Line.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e79eb970b-pi
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
August 06, 2005GOLDOLLAR INDEX SHOWS GOLD'S STRENGTH By Chip Anderson
Carl Swenlin
Generally speaking, gold and the dollar have an inverse relationship -- a rising dollar causes the price of gold to decline and vice versa; however, supply and demand pressures also influence the price of gold, but it is often difficult to see them. For this we use the GolDollar Index.
The GolDollar Index was invented buy Tom McClellan (www.mcoscillator.com), and is calculated by multiplying the price of gold by the U.S. Dollar Index. (We divide the result by 10 to keep the numbers from getting too big.) Its purpose is to cancel the effects of currency fluctuations on the price of gold. By comparing it with the spot gold index we can determine if there is inherent strength/weakness in the price of gold.
The first panel on our chart shows that the GolDollar Index has been rallying since the beginning of the year and has exceeded its 2004 high. This means that the demand for gold has been strong enough to overcome the negative effects of the dollar's strength. This is also evident from the fact that, rather than declining, gold has been consolidating in a triangle formation, even though the dollar has been rallying.
Now the dollar has begun a correction (see bottom panel of chart), so it is likely that gold will be breaking out of the triangle and challenging the 2004 high around 450. Assuming that (1) gold's intrinsic strength persists, and (2) the dollar continues to correct to its support around 85, gold could rally above the 450 level by 10 or 20 dollars.
Unfortunately, such a move will likely prove to be a gold bull trap. The weight of the technical evidence indicates that the dollar has begin a long-term rising trend, which is long-term bearish for gold. But for now, the dollar is showing short-term weakness, and gold has intrinsic strength -- a combination that should make gold bugs very happy . . . for a while.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685916d6970c-pi
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
August 06, 2005RICHARD IS ON HIATUS THIS WEEK By Chip Anderson
Richard Rhodes
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
August 06, 2005JOHN MURPHY ON VACATION THIS WEEK - By Chip Anderson
Site News
John is taking a well-deserved break this week. Watch for updates from other respected StockCharts commentators during John's absence. SHARPCHARTS 2 BETA 7 PROGRESS REPORT - While it might seem we have not been making advances on this new service, behind the scene, we have greatly enhanced our hardware ensuring any performance issues are taken care of before we launch this terrific new charting engine.Standby for Beta 7 (hopefully the last beta version) to be released soon.And thanks for your patience - it will be worth it.
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
August 06, 2005S&P CONTINUES TO WEAKEN, MACD TURNS DOWN ... By Chip Anderson
John Murphy
The market's short-term picture continues to weaken. Yesterday I wrote about the MACD lines for the S&P 500 being on the verge of turning negative. They did that today for the S&P and several other major market averages. That signals the start of a short- to intermediate-term correction. For the S&P 500 SPDRs (Chart 1), the first significant test of support will come around the 122 level. Two peaks were formed around that level (March and June) prior to July's upside breakout. On pullbacks, an index is supposed to find support along old breakout points. Another potential support level is the rising 50-day moving average. The market's overbought condition, combined with the fact that August is usually a weak month, is enough to raise the market's risk level for the balance of the summer. Chart 2 shows the Dow Diamonds falling back below their June high at 105 on rising volume. That's another caution flag.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e799a970b-pihttp://blogs.stockcharts.com/.a/6a0105370026df970c0105371e799d970b-pi
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
July 17, 2005WHO STARTED THIS MESS ANYWAY? By Chip Anderson
Arthur Hill
January and 2005 have not been good for the bulls. After a strong finish in 2004, stocks were hit with strong selling pressure to begin the year and have yet to recover. A look into November and December reveals early weakness in two key groups. More importantly, traders can turn to these two key groups for signs of a bullish revival.
So who done it? Look no further than Retail and Semiconductors. The retail group makes up a big part of the Consumer Discretionary sector and influences the S&P 500. In addition, estimates are that retail spending drives 2/3 of GDP and exerts a large influence on the economy. Semiconductors represent a key tech group that influences the Nasdaq, which in turn affects the S&P 500.
Both stocks were keeping pace until mid November and then started underperforming in December. While the S&P 500 and Nasdaq finished 2004 near their highs for the year, the Retail HOLDRS (RTH) and the Semiconductor HOLDRS (SMH) failed to exceed their November highs (red arrows) and began underperforming.
SMH went on to break the blue trendline and key support at 32 for a bearish signal, while RTH formed a triangle over the last two months. Both need to move above their 3-January highs to put the bulls back in charge. The pattern for SMH looks like a falling price channel (magenta trendlines), but the channel is still falling and it would take a move above key resistance at 33.77 to forge a significant breakout. For RTH, a move above 100.25 would signal a continuation higher. As long as these early January highs hold for both, the broader market is likely to remain under pressure.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a96970b-pihttp://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a9d970b-pi
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
July 17, 2005OEX PUT/CALL RATIO SAYS BOTTOM NEAR By Chip Anderson
Carl Swenlin
The Equity and OEX Put/Call Ratios generally signal overbought and oversold conditions that help identify price tops and bottoms; however, sometimes the OEX Put/Call Ratio will invert relative to the Equity Put/Call Ratio. At these times the inversion signals the opposite of what we would normally expect.
Here's how I think this works. The Equity P/C Ratio represents the activity of speculators (the little guys) who become more and more committed to price direction until it reverses on them, therefore the Equity P/C Ratio becomes oversold at price bottoms and overbought at price tops. The OEX P/C Ratio reflects hedging activity by big money. These guys tend to lighten up as the price trend becomes more extreme, preparing for the inevitable reversal, so the OEX P/C Ratio can become overbought at bottoms and oversold at tops -- the opposite of what happens to the Equity P/C Ratio.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e793a970b-piThis is not always the case, but I have put red dotted lines on the chart to point out where these inversions have signaled price bottoms. Note that there is one very prominent inversion occurring now. Because the Equity P/C Ratio is oversold and prices have been declining, I think there is an excellent chance that the OEX P/C inversion is telling us that a price low is imminent.
My observation is that these signals can have short-term or intermediate-term implications, but there is no way to tell in advance.
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
July 17, 2005JANUARY DECLINE GAINING IMPORTANCE By Chip Anderson
Richard Rhodes
The January decline to date is gaining in importance; if prices remain at current to lower levels through the next six trading sessions – then a bearish 'key reversal month' will form. This would signal 'exhaustion' of the uptrend, with any and all rallies considered selling opportunities. The last such monthly formation signal was January-2002...with the decline of nearly 50% materializing from January's high at 2098 to October's low at 1108. Now, we don't necessarily believe the decline is going to be this dramatic at this time, but we simply want to illustrate that a substantial decline is a higher probability event...even more so if the 25-week moving average currently at 1834 level is violated.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e79e0970b-pi
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
July 17, 2005DON'T MISS OUT ON THESE BOOKSTORE SPECIALS: By Chip Anderson
Site News
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Posted by Chip Anderson at 4:02 PM in Site News | Permalink
July 17, 2005DOW STARTING TO CATCH UP... By Chip Anderson
John Murphy
A few weeks back I wrote about the close linkage between the Dow Transports and Industrials. At the time, both were threatening their spring lows. Now both are testing their June highs (see first chart). A Dow close through that barrier (combined with a similar upside breakout in the Transports) would constitute an intermediate term Dow Theory buy signal. Two of the biggest contributors to the Dow's recent strength are General Motors and IBM. The second chart shows GM trading at a new five-month high after climbing above its 200-day moving average earlier in the week. Although IBM is still well below its 200-day line, it's climbed to a new three-month high this week (see the last chart). It looks like money is starting to nibble at some previously-neglected blue chips.
http://stockcharts.com/commentary/archives/images/cww20050716m-1.pnghttp://stockcharts.com/commentary/archives/images/cww20050716m-2.pnghttp://stockcharts.com/commentary/archives/images/cww20050716m-3.png
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
July 17, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
The market battled back impressively over the past week and a half and is re-testing the 10,600 resistance level that gave it so much trouble in mid-June (and May and late March).
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591695970c-piWith the CMF poised to move into positive territory, the PPO already positive, and the 50-day MA about to move above the 200-day MA, the technical signals look pretty good right now, but here's where Technical Analysis becomes more of an art than a science. Notice that on Friday, the Dow failed to climb above the high that it set on Thursday. Also note that Friday's volume was slightly below average. Experienced chart watchers know that those can be early warning signs that the current rally is fading, especially if those signs appear near an important resistance level. Because of that, my gut says that its time for a pull-back. Watch the markets closely on Monday to see if my gut or the technical indicators are correct!
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
July 03, 2005ENERGY AND STOCKS MOVING STEP FOR STEP By Chip Anderson
Arthur Hill
The Rydex Equal Weight S&P 500 Index (RSP) moved to a new all time high last week. Strangely enough, the Energy SPDR (XLE) moved to a new all time high two weeks ago. It is clear that Energy stocks have the best of both worlds: rising demand and rising prices. When will it end?
If you consider the stock market a leading indicator, then the economy must be in pretty good shape and demand for oil is robust. Should the stock market fall sharply, it would suggest an economic slow down and this would affect the demand for oil. It stands to reason that the Energy sector will remain strong as long as the broader market holds up.
The correlation between XLE and RSP has been quite strong since August. RSP advanced from August to December and XLE advanced from August to November. The Energy SPDR (XLE) had an extra leg up in January-February and then both corrected in March and April. RSP bottomed at the end of April and XLE soon followed with a bottom in May. It stands to reason that Energy will remain strong as long as the broader market (economy) holds up.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591668970c-pihttp://blogs.stockcharts.com/.a/6a0105370026df970c01116859166d970c-pi
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
July 03, 2005SMALL-CAP PARTICIPATION NARROWING By Chip Anderson
Carl Swenlin
A good measure of market participation -- the number of stocks participating in upside price moves -- is the percentage of stocks above their 200-day moving average. DecisionPoint.com tracks this number on the major market indexes, and in this instance we are looking at this indicator for the S&P 600 Small-Cap Index.
Note how the indicator has been making lower highs for the last 18 months, even as the price index has made new all-time highs. This negative divergence is not necessarily fatal, but it does reflect how the price index is being supported by fewer and fewer stocks. The price index can move higher because it is capitalization-weighted. This allows the larger-cap stocks in the index to carry it higher, while increasing numbers of smaller-cap stocks begin to fade. This is not healthy, and it is another piece of evidence that indicates that the cyclical bull market is probably near an end.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591765970c-pi
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
July 03, 2005MS CYCLICAL INDEX IN MIDST OF CORRECTION By Chip Anderson
Richard Rhodes
The MS Cyclical Index ($CYC) is quite interest rate sensitive; and thus prone to large corrections witness the past 7 year history of which there are two very distinct 30% corrections. Hence, given short-term rates are rising, we believe that the index is in the midst of another such correction that over the next year will carry the index lower by over 20%. A top has formed, and thus rallies should be sold or sold shortwhile dips should not be bought.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591740970c-pi
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
« Previous | Next »
June 18, 2005A MATERIAL BOTTOM ? By Chip Anderson
Arthur Hill
The Materials sector was all the rage in 2004, but fell on hard times in 2005. After a run from 23.59 to 31.99 (35%), the Materials SPDR (XLB) declined below 27 with a sharp decline. Was this enough to break the uptrend or is this just a sharp correction? The bulk of the evidence points to the latter.
Even though the decline was sharp and a classic corrective pattern failed to take shape, other technical signs point to a correction. First, the decline retraced around 62% of the prior advance. This Fibonacci number (percent) is normal for a correction. Second, the decline returned to broken resistance. Notice that the resistance zone around 26-27.5 turned into a support zone. This is also typical for a correction as there is often a throwback to broken resistance after the breakout. Third, the lower channel trendline confirms support around 27-28. I drew the upper trendline first and then based the lower trendline (parallel) on this upper trendline. The stock pierced the lower trendline, but quickly recovered and managed to stabilize over the last few weeks.
Stability is one thing, but a reversal is another. The stock formed a long black candlestick in May and then recovered the very next week (gray oval). A piercing pattern formed and this is a bullish candlestick reversal pattern. Confirmation is required though and I would look for a move above 30 to complete a reversal and expect a move higher.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7ac9970b-pi
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
June 18, 2005EVIDENCE OF DISTRIBUTION By Chip Anderson
Carl Swenlin
While persistently rising prices are frustrating the bears and encouraging the bulls, there is evidence that distribution is taking place.
On the first chart I have circled areas where daily volume has scooped below its 250-EMA line, indicating that there was inadequate sponsorship of the rising trend. In each of the first three cases shallow volume preceded price corrections. The current volume dip, which has lasted about six weeks, has yet to be resolved, but it seems reasonable to expect a correction fairly soon, probably starting soon after we see final expansion of volume.
The second chart shows a five-week period of NYSE Member Net Selling, which is a fairly unusual because these insiders are normally accumulating shares into declines (shares that will be sold during the next advance). The NYSE delays reporting of these numbers by two weeks, so there is a big question mark as to what Members have been doing during the last three weeks; however, the large amount of net selling raises a red flag, especially when viewed in the context of the shallow volume problems discussed above.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685915f4970c-pihttp://blogs.stockcharts.com/.a/6a0105370026df970c0111685915fa970c-pi
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
June 18, 2005IMPRESSIVE ACTION IN THE S&P 500 By Chip Anderson
Richard Rhodes
The recent S&P 500 price action above the 1190 level is rather impressive, and can be considered a correction in 'time' rather than in price. This suggests new highs; however, those highs aren't expected to be accompanied by new highs in the Nasdaq Composite.
As the chart shows, S&P 500 large caps have outperformed the technology sector since January-2004 in a 'sawtooth' pattern. I think the S&P 500 is ready to outperform once again…and those hedge funds that want to increase beta via technology will left to their own devices given they are chasing performance. Further, this is suggestive of an overall 'market top' in the weeks/months ahead rather than a continuation pattern. Thus we would be sellers of rallies at the appropriate time.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685917d1970c-pi
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
June 18, 2005NEW BOOKS ADDED TO OUR BOOKSTORE - By Chip Anderson
Site News
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Posted by Chip Anderson at 4:02 PM in Site News | Permalink
June 18, 2005HEALTHCARE ETF HITS 52-WEEK HIGH ... By Chip Anderson
John Murphy
While a lot of attention has been paid to rising energy and basic material stocks this week, not much has been written about healthcare. It's time to correct that. Chart 1 shows the Health Care Sector SPDR (XLV) closing the week at a new 52-week high. . The relative strength ratio shows that healthcare started to do better than the S&P 500 near the end of last year. Although the relative strength line has been slipping of late, its trend is still higher. How much higher can be seen more plainly Chart 2 which shows that the healthcare relative strength ratio has broken a down trendline starting in the spring of 2003. That makes some sense. Healthcare is considered to be a defensive sector and would be expected to underperform during a cyclical bull market. Its stronger performance during 2005 is another sign that investors have been favoring more defensive stock sectors. Earlier in the year I listed healthcare as one of my favorite picks for the year. I haven't changed my mind. Chart 2 also shows that the XLV is challenging its 2004 peak. A lot of today's buying came from biotechs.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685916fe970c-pihttp://blogs.stockcharts.com/.a/6a0105370026df970c011168591700970c-pi
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
June 18, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685916af970c-piSeven straight days of gains has moved the Dow back above the 10,600 level - something that looks even more impressive given Friday's significant volume increase. Next week should see a test of 10,600 as the index tries to consolidate its gains. Watch closely to see if 10,600 has turned into support or not. If it has, the market should be able to move towards the next resistance level (10,800) relatively quickly.Let's see what our other commentators think...
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
June 04, 2005ABOUT THE RYDEX EQUAL WEIGHT S&P 500 INDEX (RSP) By Chip Anderson
Arthur Hill
As its name implies, the Rydex Equal Weight S&P 500 Index (RSP) treats all component equal, regardless of market capitalization. This means that ExxonMobile (XOM). with market cap of $369 billion, counts the same as Teco Energy TE), which has a market cap of just $3.64 billion. This makes the index a good representation of the average Joe (Joe Stock that is).
RSP remains in a long-term uptrend and has yet to break down. The going is getting tougher, but momentum is still up overall on the weekly chart. First, the index broke resistance at 145 with a surge in Nov-04. This resistance level hounded the index most of 2004. Second, resistance turned into support with a successful test in Apr-05. Third, the trendline extending up from Aug-03 also confirmed this support level and the index remains near its all time highs.
Even though the index has not made much head way over the past year, there is a clear upward bias on chart. Support at 145 holds the key. As long as this level holds, pundits can expect a trading range at worst and a move towards the upper trendline (170) at best. A move below 145 would turn the big trend down and be bearish for the broader market.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859167c970c-pi
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
June 04, 2005ENERGY SECTOR CASH FLOW IS TEPID By Chip Anderson
Carl Swenlin
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859174b970c-piDecision Point tracks actual cash flowing into and out of Rydex mutual funds, and, while cash flow normally runs parallel to price, divergences can often appear ahead of price reversals. For example, let's look at Rydex Energy and Rydex Energy Service Funds.
During the last four weeks of the price correction that began at the March top you will notice how cash flow went relatively flat, indicating that the bulls were holding their ground and that accumulation was taking place. However, since the two-week rally that began at the May price low, cash flow has been rather tepid, and was even flat during the first week of the rally. It is probable that energy stocks have completed a medium-term correction and are poised to move higher, but the lack of sponsorship and overhead resistance warn that we could see a partial retracement of recent gains, particularly in the Energy Service sector. Cash flow divergences provide valuable clues that can help us prepare for price action others are not expecting, but they don't always result in the kind of price move they imply. Always wait for prices to make the expected break before acting. My observation is that these cash flow divergences only have short-term implications. Also, it is important to remember that the Rydex sector funds only account for a small slice of the total market in a given sector, and this small picture may not be representative of the big picture.
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
June 04, 2005BOND REVERSAL MEAN MOVE FOR INTEREST RATES? By Chip Anderson
Richard Rhodes
Rarely do they ring a 'bell' at the bottom, but Friday’s reversal higher in bond yields argues strongly for a sustained move higher in interest rates. Quite simply, Friday's employment report was clearly on the 'weak side'; with the 10-year note yield trading lower and then reversing and trading sharply higher. This 'key reversal' to the upside is likely a 'watershed event' in which bond yields will march higher over the short and intermediate-term time horizons. This pattern is one that we nearly trade with 'blind faith upon', and we did so on Friday by becoming short.
If one chooses to trade this pattern; one can short the 10-yr. or 30-yr. futures contract – or – short the Lehman 20-yr+ bond fund (TLT), but shares appear difficult to borrow at some brokerages – or – buy TLT put options. We don’t recommend options for those who haven’t had experience with them; and those that do must understand the risks.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591799970c-pi
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
June 04, 2005SHARPCHARTS 2 NEWS By Chip Anderson
Site News
- We took a big step forwards last week behind-the-scenes with our SharpCharts2 Beta program. Because SharpCharts2 is much more powerful, we've been working hard on making sure that our computer systems can support the additional load we will see once SharpCharts2 is officially released. Part of that process involved installing lots of additional servers which use the Linux operating system. We completed that work this week and are now able to move ahead again with plans for our 7th and final Beta release. Watch for more announcements about that soon...
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
June 04, 2005OIL ISN'T DEAD YET By Chip Anderson
John Murphy
... A lot of recent optimism on the stock market and the economy has been predicated on the view that the historic rise in oil prices has probably ended. A lot of economists have also declared the major bull market in commodities over. Both of those predictions may prove to have been premature. Over the last two weeks, the price of crude oil has bounce off its 200-day moving average and then risen to the highest level in more than a month. After a pullback yesterday, it's trading back over $54 today. The chart below reflects the recent improvement in the price of crude and suggests a possible retest of its early April high. That explains the recent move back into energy stocks. It may also explain why the recent market rally is running into some profit-taking. Crude isn't the only commodity that's turned up recently. The CRB Index of commodities is rising again after bouncing off major support levels.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591758970c-pi
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
June 04, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
This week saw the markets move "violently sideways" as large up-days were immediately followed by similarly large down-days. Essentially, the Dow is continuing to lurch around inside of its 10,400 to 10,600 trading range. Check out how much time the Dow has spent in or around that range since the beginning of the year:
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a56970b-piThe good news? The rising 200-day Moving Average may push the Down up above 10,600 soon.
The bad news? Recent declining volume argues against any upside breakouts soon...
Now let's see what our other commentators think...
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
May 21, 2005NASDAQ OVERBOUGHT, BUT NOT BEARISH By Chip Anderson
Arthur Hill
The current rally is the strongest of the year and is unlikely to disappear over night. This strength is confirmed by price movement as well as two momentum indicators. First, the 15-day Rate-of-Change surged to levels not seen since early September and mid November. Second, 15-day RSI moved to its highest level of the year. Third, the Stochastic Oscillator moved to its highest level since mid November. All three are testament to the power behind the recent move.
Even though the Stochastic Oscillator has become overbought, the 2004 rally suggests further upside before all is said and done. Notice how the Stochastic Oscillator became overbought in September, October, November and December (four separate times). The Nasdaq became overbought and pretty much remained overbought as it kept rising. Moreover, the Stochastic Oscillator remained above 50 the entire time. As long as this indicator remains above 50, I would consider the trend firmly bullish and expect higher prices.
RSI also shows further room for gains. This indicator becomes overbought when it crosses above 70. It lagged the Stochastic Oscillator in 2004 and did not become overbought until November. Notice how RSI held the green trendline the entire rally and the red trendline the entire decline. I would look for a new trendline to emerge in the next few weeks and this will define the current uptrend.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a1a970b-pi
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
May 21, 2005INITIATION CLIMAX? By Chip Anderson
Carl Swenlin
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685917f9970c-piOne of Decision Point's proprietary indicators is the Participation Index (PI). It measures extreme (climactic) activity within a short-term price envelope. When a large number of stocks are participating in a particular price move (up or down), we recognize that such high levels of participation are unsustainable and refer to it as a "climax".
There are two kinds of climaxes -- an initiation climax, which marks the beginning of a longer-term price move and an exhaustion climax, which marks the end of a price move. Both kinds of climax can be followed by some consolidation activity before the trend changes or continues.
On the chart I have marked three upside climaxes. With 20-20 hindsight we can easily conclude that the first two are exhaustion climaxes, but I have designated the last one, the highest PI reading in a year, as an initiation climax, although the jury is not in on that one yet. My reasons are that price has broken out above the declining tops line that has been in effect since January, and during May UP Participation has expanded significantly while DOWN Participation has contracted sharply.
While my annotations point out upside climaxes, there is a classic downside initiation climax on the second trading day of January. It is followed by two weeks of consolidation, then the down leg is completed with an exhaustion climax on January 24. The final selling climax for the four-month down trend doesn't occur until April 17.
Climactic indicator readings identify points at which the market is overbought or oversold, but they don't always mean that the trend is about to change directions. Currently, the market needs to correct its overbought condition, but it does not appear to be vulnerable to a reversal of trend.
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
May 21, 2005RECENT DECLINE IN XOI CORRECTIVE By Chip Anderson
Richard Rhodes
Quite simply, the recent decline in the AMEX Oil Index (XOI) appears corrective in nature; and thus one would want to be long these shares at this time as the risk-reward parameters are now favorable.
If past is prelude, and although it is not perfecta simple rhyme will do; the current correction is testing the sharply rising 110-day moving average, which when coupled with the lower 40-day stochastic level has provided excellent buying points over the past several years. If this test is successful as we expect; then a test of the highs is forthcoming. Therefore, we are long shares such as Exxon (XOM) and Chevron (CVX); but looking to add more and add oil service shares as well.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859180d970c-pi
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
May 21, 2005SPRING SPECIAL ENDS NEXT WEEK! By Chip Anderson
Site News
- Our Spring Membership/Renewal Special has been very warmly received. Long-time StockCharts.com members can tell you - we only hold one big special each year and that special is happening right now! For a limited time we are offering one additional month for FREE with our half-year and full-year subscriptions or renewals. If you sign up for 6 months, we'll give you a seventh month for free. If you sign up for 12 months, we'll give you two additional months for free (14 months altogether). Since announcing this sale last week, we've had lots of members and non-members take advantage of these great deals - Don't miss out! If you are already a member, you can still take advantage of this offer! Just renew your account to lock in this deal. But act fast, this offer ends next week.
Click here to get started!
POWER PROBLEMS AVERTED! - So last Thursday there was a big power failure at our headquarters - the first one we've had in over six years of operation. Fortunately, our on-site power backup system kicked in automatically and we stayed on-line. Unfortunately, the power outage dragged on - and on - and on. It made for quite a nerve wracking afternoon. And then, just as our onsite power backup system was about to run out of juice, the power returned and we avoided having to interrupt service! So a very big "THANKS!" goes out to all of the power personnel that helped restore our power just in the nick of time!
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
May 21, 2005NASDAQ LEADS MARKET HIGHER... By Chip Anderson
John Murphy
In my view, the most significant improvement has taken place in the technology-dominated Nasdaq market. The Nasdaq Composite Index broke through its 200-day average on Tuesday and has broken its 2005 down trendline. Its relative strength line has turned up relative to the S&P 500 . That's usually a positive sign for both. Nasdaq leadership is essential in any market upturn. That's what we're getting right now. One of the missing ingredients in recent market bounces has been higher volume . Yesterday's market upturn, however, saw all the major averages exceed their normal daily volume. That's a sign that institutions are starting to buy back into the market with more enthusiasm. The Nasdaq now appears headed toward its February/March peaks near 2100 .
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591752970c-pi
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
May 21, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
It took a couple of big days to get the Dow back above the 10,400 level but last week's reaction rally has managed to do the trick and allowed the Dow to finish at 10,471. But will it last? The technical signs aren't convincing:
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7ab4970b-piWith Friday's weak close, declining volume and the 50-day moving average moving below the 200-day moving average, things are primed for a quick re-test of the 10,400 level. On the positive side, the MACD and Chaikin Money Flow indicators are still rising. It should make for a very interesting week coming up.
Let's see what our other commentators think...
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
May 07, 2005THE LEADERS AND THE LAGGARDS By Chip Anderson
Arthur Hill
The S&P 500 can do it, but the Nasdaq and the Small-caps can't do it. Or at least not just yet. Led by Finance, the S&P 500 broke above its late April high and resistance at 1165. However, the Nasdaq and S&P SmallCap Index stalled at corresponding resistance levels. This amounts to a non-confirmation. The generals (large-caps) are charging ahead, but the troops (small-caps and technology) are getting cold feet. It is hard to be fully bullish with these indices lagging.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685916ce970c-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685916d2970c-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685916d8970c-pi
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
May 07, 2005VOLATILITY STILL HISTORICALLY LOW By Chip Anderson
Carl Swenlin
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a7d970b-piThe CBOE Volatility Index (VIX) is a measure of the implied volatility of SPX index options. (According to the CBOE web site, "volatility is a measure of the fluctuation in the market price of the underlying security.") As a practical matter, the VIX measures the amount of fear that options writers have about the future volatility of the market, and, as with any sentiment gage, it is based upon current market action.
While the VIX is most commonly used for short-term analysis, it is also useful to interpret it in a longer-term historical context. I have done this before, but an interview with Larry McMillan in the May 2005 issue of Active Trader magazine prompted me to revisit the topic. One of he arguments being used to support a bearish case for the market is that the VIX readings have been very low, but as you can see, this is not always the case. While low VIX readings may reflect complacency, they do not necessarily mean that the market is going to decline. For example, an extended period of low volatility preceded the 1995-2000 bull market up leg. John Bollinger has made the point that low volatility usually precedes a period of high volatility, much like the calm before a storm, but it does not predict if the coming period of high volatility will be associated with price advance or price decline. Conversely, while we can clearly see that there are high spikes on the VIX at the bottom of market corrections, higher VIX readings are also possible during market advances. The bottom line is that you should look at historical charts to verify bullish or bearish assertions based upon a particular indicator. There may be an extended market decline in our immediate future, but the currently low VIX reading does not provide any proof to the argument.
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
May 07, 2005A SIMPLE ROADMAP By Chip Anderson
Richard Rhodes
From a structural and fundamental point-of-view, things are bearish right now; however, the technical and sentiment action surrounding recent price gains is quite constructive; thus a larger rally appears underway. We are bullish but only insofar as the 65-week moving average of the S&P 500 holds at the 1145 level on a closing basis. If the 1164 level is broached, then this will be the first sign a larger breakdown is underway, and hence will put us into an initial short position; with a break of 1145 consider an 'all out bear market' calling for an overweight short position.
This is our simple roadmap stay long until our 'pivot points' are hit, and then act with impunity. For once the 65-week moving average is violatedthen the decline should be swift and heart wrenching.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685916a9970c-pi
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
May 07, 2005DON'T MISS OUT ON OUR SPRING SPECIAL! By Chip Anderson
Site News
- Long-time StockCharts.com members can tell you - we only hold one big special each year and that special is happening right now! For a limited time we are offering one additional month for FREE with our half-year and full-year subscriptions or renewals. If you sign up for 6 months, we'll give you a seventh month for free. If you sign up for 12 months, we'll give you two additional months for free (14 months altogether). Since announcing this sale last week, we've had lots of members and non-members take advantage of these great deals - Don't miss out! If you are already a member, you can still take advantage of this offer! Just renew your account to lock in this deal. But act fast, this offer will end soon.
Click here to get started!
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
May 07, 2005A LOOK AT THE NYSE COMPOSITE INDEX ... By Chip Anderson
John Murphy
Every time I write about a certain stock market index, I'm asked why I don't write about some of the others. I generally try to spread my coverage around to all the major stock indexes, but can't cover them all at once. I also try to find the one that's giving the truest read on the overall market. Yesterday, for example, I used the S&P 500 for an in-depth market view and came up with a mixed picture. If I had chosen the Nasdaq, I would have a gotten more negative reading. If I had chosen the NYSE Composite Index , I would have come up with a slightly more positive read. Chart 1 shows part of the reason why. The NYSE is the only one of the major market indexes that stayed over its 200-day moving average in late April. Considering that most of those indexes are now back above their 200-day lines, I'd have to say that the NYSE may have given the most reliable reading. I decided to focus on the NYSE today and to re-introduce some point & figure charts. I'm going to revisit the Bullish Percent Indexes on the major market averages which also utilize point and figure charts.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a62970b-pi
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
May 07, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
After its big drop in mid-April, the Dow has rallied back to a classic resistance level now: 10400. Just look at the chart:
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685917ea970c-piThis is one of those "support-becomes-resistance" levels that has had a big impact on the market in the past (blue arrows) and will probably continue to influence the market's thinking for some time to come.
But enough about that, let's see what our other commentators are thinking these days...
.
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
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April 16, 2005DOWNSIDE TARGET FOR THE NASDAQ By Chip Anderson
Arthur Hill
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591655970c-piThe current pattern at work in the Nasdaq looks quite similar to prior patterns for the S&P 500 and Dow Transports. Both of these indices had extended advances, failed to hold a breakout to new highs, broke trendline support and then continued to support from the prior low (1163 and 3454). In fact, the S&P 500 and the Dow Transports continued lower on Friday and broke below their prior lows. The patterns looks like large double tops and the support breaks are quite bearish.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591659970c-piTurning to the Nasdaq, we can see that a similar scenario projects a move to around 1750. This would also make for a large double top and a break below 1750 would further the bearish argument.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859165b970c-pi
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
April 16, 2005S&P 600 SMALL-CAP NEW HIGHS and NEW LOWS By Chip Anderson
Carl Swenlin
At DecisionPoint.com we have recently added a chart of S&P 600 Small-Cap 52-week new highs and new lows (NHNL). (We also have NHNL charts of the S&P 500, S&P 400 Mid-Cap, NYSE, and Nasdaq). This allows us to examine and determine the condition of each sector.
As with other indicators, we look for divergences between the indicator and prices. New lows are particularly good for identifying long-term bottoms. Note the sharp contraction of new lows in March 2003 compared to October 2002 associated with price lows that were about the same. This positive divergence was a good sign that the bear market decline was ending.
From March 2003 new highs began to expand until they peaked in September 2003. From there they began to contract and continued to do so for almost a year. So why didn't this negative divergence signal a major price top? Primarily because in a bull market negative divergences are very unreliable.
One way we can determine if a contraction of new highs is probably meaningless is by observing what is going on with new lows. Note how between September 2003 and August 2004 there was virtually no expansion of new lows until the end of the period when the bull market correction climaxed.
Next we can see how new highs peaked in December 2004, and they have been contracting ever since. This time we can see that the angle of contraction is much steeper than the previous one, and, more important, there is a visible and persistent expansion of new lows. The negative divergence of new highs along with the expansion of new lows is one sign that the bull market may be over.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591809970c-pi
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
April 16, 2005"MINI-CRASH" FOR THE NASDAQ By Chip Anderson
Richard Rhodes
From Tuesday's close last week; the Nasdaq Composite ($COMPQ) has declined in mini-crash' fashion: down -4.8%. The question is whether there are further declines ahead or whether a sustainable rally will develop back towards the highs or even new highs. An instructive chart to this end is the monthly chart; which shows a major bearish consolidation after the 2000-2002 declines. In fact, trendline support was recently violated, with the next to last support' to be tested being the major 25-month moving average the other being the 2004 low.
Friday's trade broke below this moving average by 5 points; any further deterioration would certainly not suggest higher future prices. We very well may see this level hold given short-term oversold conditions, a countertrend rally develops and then a later date moving average failure. Or, this level holds and prices turn higher on a multi-month crusade. All are plausible outcomes, although we accord a higher probability to the first two.
Thus, a fulcrum point is at hand, which increases whipsaw risk but it will also solidify our questions about the next larger move in either direction. In our opinion, one simply should use rallies to put on short positions in the proper technology sectors/industries.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a37970b-pi
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
April 16, 2005JUST LIKE "NETFLIX" By Chip Anderson
Site News
- Since we added InvestorFlix to our site last year, we've heard nothing but good things from the people that have signed up for it. Basically, they'll send you whatever investor training videos you need for a modest monthly fee - just like "NetFlix". It's a great service - check it out! SHARPCHARTS2 PROGRESS REPORT - "SharpCharts2 is progressing." How's that for a report? Not very helpful huh? Well, it's about the best we can say right now. We are making good progress but sometimes these things take time. We appreciate everyone's patience. We are working on adding support for Custom Settings and Favorite Chart Lists right now. Once those features are in, we'll send out "Beta 7", the final Beta version before release. Stay tuned...
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
April 16, 2005HOW FAR DOWN? By Chip Anderson
John Murphy
After this week's breakdown, there can be little doubt that the cyclical bull market that started in October 2002 has ended. The question now is how far down can the market drop. The daily bars in the chart below show the S&P 500 SPDR breaking its January low and closing beneath its 200-day moving average. Downside volume was very heavy. There's a support level at 108.60 at its late October low. But I think the S&P (and the other major stock averages) are headed all the way back to its August low. That's based partially on standard chart analysis, and partially on Elliott Wave Theory. The chart shows that the rally off the August low took place in five waves. The breaking of the bottom of wave 4 (the January low) confirmed that the rally ended. But there's another Wave 4 to consider.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a78970b-pi
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
April 16, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
With the markets down for the past three days, the Internet is all abuzz with predictions and prognostications about what's going to happen next. As you try to sort it all out, remember that charts don't lie. Charts don't have an agenda. And charts might be your only friend right now. OK, OK, charts AND our crack team of market commentators. Read on to see what John, Richard, Carl and Arthur have to say about last week's big happenings...
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
April 02, 2005SEMIS NEED HELP By Chip Anderson
Arthur Hill
It remains a one horse race among the key Nasdaq industry groups. The Networking iShares (IGN), Software HOLDRS (SWH) and Internet HOLDRS (HHH) are weak and trading near their lows for the year (gray oval). However, the Semiconductor HOLDRS (SMH) are holding up the best and still well above their January low. Strength in semiconductors is certainly positive for the tech sector, but even semis need a little help from their friends.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7988970b-piSMH shows potential, but remains short of a minor or major resistance breakout. The big pattern at work is an inverse head-and-shoulders. These are potentially bullish patterns that require confirmation with a neckline breakout, preferably on high volume. Also notice that SMH is consolidating at the 62% retracement mark (magenta trendlines). A consolidation breakout would be the early bull signal and further strength above 35 would confirm the inverse head-and-shoulders. Moves like these would no doubt help the tech sector, the Nasdaq and the S&P 500.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7991970b-pi
Posted by Chip Anderson at 5:05 PM in Arthur Hill | Permalink
April 02, 2005CASH FLOW SENTIMENT GAGE By Chip Anderson
Carl Swenlin
The Rydex Asset Ratio measures the amount of bullish and bearish sentiment by tracking and comparing the total assets in Rydex bull and bear funds. Decision Point also calculates the Rydex Cash Flow Ratio, an indicator we developed that accounts for the actual cash flowing into and out of the funds by canceling the effect of changing share prices on total assets.
On the chart below we can see that bulls were not nearly committed at the March price top as they were at the December 2004 top. I have drawn a line across the corresponding Ratio tops to illustrate the negative divergence. The two Ratio lows in January and March represent short-term oversold points, but the real benchmark is set by the Ratio lows in August 2003 and August 2004. When this level is reached again, it will probably mark an intermediate-term price low. The Ratio has maintained a pretty steady range for the last two years, but it could shift higher or lower based upon the longer-term trend of prices.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e798f970b-pi
Posted by Chip Anderson at 5:04 PM in Carl Swenlin | Permalink
April 02, 2005WHAT YOU DIDN'T NOTICE LAST WEEK - By Chip Anderson
Site News
Did you know that our primary datafeed circuit went out last week? Betcha' didn't even notice. The reason is that our secondary circuit immediately kicked in and kept everything running smoothly. Prior to last fall's datafeed upgrade, that would not have happened and the site would have been down for several days. That secondary circuit is just one more example of the (mostly hidden) improvements we've been working on to ensure that StockCharts.com continues to serve the best charts on the Internet.
Posted by Chip Anderson at 5:02 PM in Site News | Permalink
April 02, 2005BAD NEWS FOR ECONOMICS, DOW THREATENING LOW By Chip Anderson
John Murphy
THE ECONOMIC NEWS ISN'T GOOD ... It's interesting to see the media put a positive spin on recent economic reports. It was reported this week that fourth GDP growth was lower than expected while prices were higher than expected. That was described as good for the economy. Earlier this morning, the government reported that March non-farm payroll numbers were only half what was expected. That was reported as good because it lessened the chances for higher interest rates. A report of lower consumer confidence was viewed as a non-event. The ISM report showed a weakening in manufacturing activity coinciding with surging raw material prices. That apparently is why companies haven't been hiring. It was reported that although the ISM number fell to 55.2, it was still above 50 which is good. My question is how can a slowing GDP number, slowing manufacturing activity, lower consumer confidence, higher raw material prices, and fewer jobs be good for the economy. The market is telling the truer story. Sector rotations during the first quarter paint a bearish picture for the market. After suffering a bad first quarter, the market fell sharply again today and threatens to get even worse. A number of stock indexes are testing chart support at their 2005 lows. I suspect they'll be broken sooner or later. Since the market is also a leading indicator for the economy, economists might do well to pay more attention to the message the market is sending. Unfortunately, it's not an optimistic one.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591725970c-piDOW THREATENING JANUARY LOW... The daily Dow chart shows the market at a critical juncture. The Dow fell 99 points today and is threatening its January low, its 200-day moving average, and its September peak at 10390. I suspect all will be broken. There's always the possibility of an April bounce. But seasonal factors then turn negative until the autumn. My best guess at this point is that Dow is headed toward its fourth quarter low near 9700. I would continue view any short-term bounces as selling opportunities. Two of the best places to be right now are energy and cash. If you haven't already done so, take a look at some bear market mutual funds. They'll allow you to make money in a falling market.
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
April 02, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
With the Dow getting ready to test its January lows, things are really getting busy here at StockCharts. Our market commentators have all the market angles covered below, so I wanted to take a couple of minutes and update you on our progress with SharpCharts2 - our soon-to-be-released replacement for our current charting tool.
Our Beta release program is winding down now and we have been making great progress incorporating everyone's feedback into the newest version. We are hoping to have the final Beta version out before the end of the month with the final version appearing shortly thereafter.
On of the key pieces of feedback that we received from our last Beta release was that we still weren't there with respect to chart colors. While it is true that colors are as important as, say, calculation accuracy, having attractive, easy-to-view charts is one of our hallmarks so, as promied, we've been putting more energy into improving the use of color in SharpCharts2. That work isn't finished yet, but I did want to get everyone a sneak peek at where we stand right now.
Here are some partial snapshots of our newest color schemes - Blue, Night, SeaGreen, Sand, Monochrome, and BlueGray. (You can see complete versions of these snapshots on this page.)
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685917c6970c-piHopefully, you'll notice the improvements we've made in terms of contrast, definition and clarity with these schemes versus similar schemes in the Beta 6 version. Again, this is just a taste of things to come. We'll have lots more color schemes and color options in the next Beta release. Stay tuned...
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
March 19, 2005AIRLINES UNDER PRESSURE By Chip Anderson
Arthur Hill
With the surge in oil prices over the last three months, the Amex Airline Index (XAL) remains under pressure. After a sharp decline in January, the index consolidated with a symmetrical triangle. The recent break below the lower trendline is certainly negative and further weakness below the February low (45) would signal a continuation of the January decline. Should the index hold support, look for a move above the early March high to signal that airlines are ready to fly again.
In an interesting and telling twist, the chart for XAL looks similar to the Consumer Discretionary SPDR (XLY) chart. Part of the reason these charts are similar is because their businesses are cyclical and dependent on the economic cycle. Both show sharp January declines followed by consolidations. Because consolidations are continuation patterns, a consolidation after a decline is typically bearish and traders should prepare accordingly.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859175d970c-pihttp://blogs.stockcharts.com/.a/6a0105370026df970c011168591760970c-pi
Posted by Chip Anderson at 5:05 PM in Arthur Hill | Permalink
March 19, 2005LOOKING FOR A CRB TOP By Chip Anderson
Carl Swenlin
The title of this article, Looking for a CRB Top , has been my broken record for the last year or so, but it just hasn't happened so far.
I use the monthly price chart and PMO ( Price Momentum Oscillator ) to determine when long-term price reversals may be approaching. Last year it looked like a top was forming as the PMO topped twice and prices stalled in the congestion area between about 260 and 285, but this activity proved to be a consolidation that built compression for the most recent rally. This rally has been virtually straight up. It has broken through the top of the rising trend channel and is close to challenging the 1980 high of 337.60, which is a long-term resistance level. However, evidence of an approaching top is mounting. Sentiment on commodities is very bullish. The PMO is very overbought and approaching the record level of 1980. The recent vertical price advance creates vulnerability for a vertical decline, prior evidence of which you can see on the chart. Finally, the long-term overhead resistance looks like a good place for prices to stall. While my CRB market posture is bullish based upon a shorter-term trend following model, I think the three-year CRB rally has nearly run its course.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e79c3970b-pi
Posted by Chip Anderson at 5:04 PM in Carl Swenlin | Permalink
March 19, 2005SHORTING THE SOX By Chip Anderson
Richard Rhodes
Today we expand a bit with 2 charts; with our contention that selling short the Semiconductor Index ($SOX) and several individual names has a high probability of success in the months ahead.
Looking at the $SOX, it is trading within a not yet complete' decline that began in 2000, of which the recent correction higher is complete given multiple failure' at the 200-week moving average. This absolute negative when coupled with emerging relative underperformance by the $SOX with the Nasdaq 100 ($NDX) indicates shares are headed lower...and for those wanting to add high beta' to their short portfolios may decide this sector warrants and overweight trading position'.
Our favorites are in the semiconductor and semi capital equipment maker industries : Xilinix (XLNX), BroadCom (BRCM), KLA Tencor (KLAC) and Novellus (NVLS).
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a42970b-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a47970b-pi
Posted by Chip Anderson at 5:03 PM in Richard Rhodes | Permalink
March 19, 2005SITE NEWS: By Chip Anderson
Site News
SHARPCHARTS2 BETA 6 - As Chip said above, we are focused on finishing up the work on SharpCharts2 as soon as possible. Check out his comments above for more details.
DECISIONPOINT.COM'S NEW LOOK - OK, OK, so it's not news about StockCharts.com. Still, it is interesting and important news for web chartists. Our partner site, DecisionPoint.com, has a brand new look to it that makes it MUCH easier to navigate and find the right information that you need. DecisionPoint.com has always had the best collection of market indicators on the web. Now it has one of the best looking site out there too. Check it out!
Posted by Chip Anderson at 5:02 PM in Site News | Permalink
March 19, 2005DON'T MIND THE BIG VOLUME By Chip Anderson
John Murphy
Most of the major market averages closed in the red today, but only marginally. After trading down most of the day, the S&P 500 closed with a loss of less than a point. The S&P also held at its late February low at 1184. While the price action was relatively tame, volume was heavy. Don't pay too much attention to that however. Friday was a triple witching day which often produces heavier trading. The S&P also underwent some "rebalancing" in its stock weightings to ensure that only publicly traded shares are counted in a stock's capitalization. That means that some shares will have a bigger weighting and others a smaller. That also contributed to today's heavy volume. I wouldn't read much into it or today's price action. Despite today's late bounce, the market still looks toppy to me for reasons that I've already spelled out in previous messages.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a83970b-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
March 19, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
Things are jumping here at StockCharts. With the upcoming release of the next version of our main charting tool, I've been way too busy to watch the market closely. Fortunately, our crack team of market commentators has been on the case and you can find their bi-weekly dispatches below.
For those of you that have been sending us feedback on SharpCharts2, thanks! We've received over 400 messages from users about the most recent release - most of them very positive. People seem to love the ability to overlay anything on top of any other thing and the ability to have more than one stock on the same chart. If you haven't had a chance to check out SharpCharts2, what are you waiting for? Our current Beta version is open to everyone. Just be sure to read the Release Notes first!
Here's just a sample of the kind of charts that SharpCharts2 can create:
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591661970c-pi
Chart 1
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859166b970c-pi
Chart 2 The first chart shows that Boeing (BA)has actually been outperforming the S&P 500 for some time now which the Technology sector (XLK in the second chart) hasn't been doing as well. (See the difference in the faded-green ROC lines and in the red ratio lines?)The key thing these charts show are new features like:[*]Value Labels on volume bars[*]Control over the color of candles and bars[*]Multiple datasets on one chart[*]Custom overlays for indicators (the 40-week MA on the ratio chart)[*]Custom indicator colors (the green ratio line)[*]Multiple date/time axes[*]Indicators placed behind the main chart (the ROC)[*]Transparent indicators (the ROC)[*]Candlesticks and OHLC bars on the same chart.[*]and Value Labels on overlaid indicators (the ROC)Whew! That's a lot of power in one charting tool! Can you handle it? Keep in mind that since this is still a Beta release, it still has bugs and that's what we are asking for help with. First, read the Release Notes, then, if you still have questions, you can use the "Report Problems" and "Discuss" links below any SC2 chart to tell us about any problems you encounter. Just click here to get started...
Now, on with the market commentary!
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
March 05, 2005NASDAQ VERSUS NEW YORK By Chip Anderson
Arthur Hill
This chart shows the performance of the Nasdaq relative to the NYSE Composite. The market as a whole usually does better when the Nasdaq leads (green trendlines) and worse when the Nasdaq lags (red trendlines). Even though the NYSE Composite is performing well in the face of Nasdaq weakness, it would be doing a whole lot better with the Nasdaq leading – or at least participating.
Nasdaq outperformance peaked in Nov-03 and the price relative has declined steadily for over a year. There was a trendline breakout in November 2004 (blue line), but the price relative failed to move above the prior high and formed a lower high in December. The latest decline forged a new reaction low and it would take a move above .30 for the price relative to turn in favor of the Nasdaq again.
The recent problems within the Nasdaq are threefold. It is a one horse race and three of the top four industry groups remain under pressure. This has been the case since late January as the semiconductors took off, but Networking, Internet and Software continued lower or remained flat. Until one of these three joins the semiconductor group to make it at least a two horse race, the Nasdaq is doomed to underperformance.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685916e3970c-pi
Posted by Chip Anderson at 5:05 PM in Arthur Hill | Permalink
March 05, 2005DVY: DIVIDEND-PAYING ETF By Chip Anderson
Carl Swenlin
Many ETFs (Exchange Traded Funds) pay dividends, but only one is devoted to dividend-paying stocks -- the Dow Jones Select Dividend Index Fund (DVY). As the name implies, this ETF is derived from the Dow Jones Select Dividend Index ($DJDVY), an index constructed and maintained by Dow Jones.
The Index is composed of about 100 stocks and is capitalization-weighted, which means the top one-third of the stocks in the index represent 60% of the weighting. A complete list is available on ishares.com. It is subject to change on a daily basis. DVY has only been trading for about 14 months. Fortunately, Dow Jones has calculated historical data for the derivative index going back to 1992, so we have adjusted the index data so as to provide a theoretical price history for DVY. Now there is enough historical data to estimate how this fund will perform over the long-term. The most impressive thing about the chart below is the relative strength line, which shows that DVY has out-performed the S&P 500 Index every year except 1998 and 1999. These were the years when investors abandoned dividends for the tech stock gold rush. At the 2000 top the S&P 500 was up nearly 300% versus only about 200% for DVY. Since inception to the present DVY has advanced 500% versus 200% for the S&P 500, and the bear market didn't catch up to it until 2002 when DVY had a decline of 27% (versus a 50% bear market decline for the S&P 500). Since the 2002 low DVY has advanced about 75% versus 50% for the S&P 500. When DVY first began trading, I thought it was just another ETF gimmick, but clearly this fund was a good idea. The chart demonstrates that value and growth can be synonymous. The current dividend is about 3%, which makes the stock overvalued if we compare it to the historical yield range of the Dow Industrials (3% to 6%). There is not enough dividend history to accurately estimate what undervalued is, but I'd guess it would be a yield of about 6%.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685917dc970c-pi
Posted by Chip Anderson at 5:04 PM in Carl Swenlin | Permalink
March 05, 2005LONG TERM WEDGE PATTERN LOOMING By Chip Anderson
Richard Rhodes
The recent rally to new yearly highs hasn't materialized in all the major indices. In fact, the Nasdaq Composite has lagged rather badly; thus it is either 'poised to catch up' or it will become the leaders once the cyclical bull market ends. We dont know when that will be; but our fulcrum point for adding to technology short positions will be upon the Composite breaking below its 60-week moving average at 1998...only 72 points below current levels.
That said, the larger bearish wedge pattern is also looming; a breakdown to 1900 would confirm this longer-term pattern. This isn't todays business as many of the traditional bearish signals seen at tops is only just beginning to materialize. However, it pays to have a game plan going forward...and technology short exposure is a good strategy as price declines materialize.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7abe970b-pi
Posted by Chip Anderson at 5:03 PM in Richard Rhodes | Permalink
March 05, 2005SHARPCHARTS 2 ROAD MAP By Chip Anderson
Site News
- We are getting close to the final release of our new charting engine called SharpCharts2. But before we make SharpCharts2 the "official" charting engine on our website, we have to make sure that it is rock solid. To do that, we've been releasing better and better "Beta" versions of it to our users and asking for feedback (which has been great!). At this point, we are looking to release two more Beta versions over the course of the next month: [*]Beta 6 - The goal of Beta 6 is to show everyone what the final User Interface (the buttons and checkboxes and dropdowns) will look like. Up until now, we've been focused mostly on the charts - Beta 6 is focused mostly on making them easy to create. Look for us to release Beta 6 sometime this week.[*]Beta 7 - The goal of Beta 7 is to allow members to save and retrieve charts in their favorites list(s). Look for us to release Beta 7 is two to three weeks (depending on how Beta 6 goes).[*]RC - "Release Candidate" will be the final chance for people to test SharpCharts2 before it goes live on the site replacing SharpCharts1. Look for the "RC" release a couple of weeks after Beta 7 goes out (again, depending on feedback).NEW INDICATORS - When Beta 6 does appear later this week, look for three new indicators to make their appearance: Bollinger's %B, the Elder Force Index, and the Detrended Price Oscillator. Look for articles that will explain how to use these new indicators to appear in our ChartSchool in the near future.
Didn't see your favorite indicator in the list above? Let us know in our Beta Feedback Discussion area.
STOCKCHARTS WINS AGAIN! - Thanks to the support of our loyal users (hey, that's you!), StockCharts.com has once again won the prestigious"Readers Choice" Award from Technical Analysis of Stocks and Commodities magazine. This is the third year in a row we've won the award and we are thrilled. Thanks to everyone who voted for us!
Posted by Chip Anderson at 5:02 PM in Site News | Permalink
March 05, 2005ELLIOTT WAVE UPDATE By Chip Anderson
John Murphy
LOOKING FOR 62% RETRACEMENT AT 1250 ... With the S&P 500 having broken out of its recent trading range, and trading at the highest level in more than three years, it's time to revisit my earlier Elliott wave interpretation and came up with some possible upside price and time targets. Let's start with the monthly bars in Chart 1. As far as the technical indicators are concerned, the monthly MACD lines are still positive. The buy signal given in early 2003 is still intact. The monthly RSI line, however, is in overbought territory. That's of some concern, but doesn't prevent the market from moving higher. The question is how much higher. The horizontal lines measure the percentage retracements of the 2000-2002 bear market. The S&P has already moved above the 50% level. That makes the next upside target the 62% retracement level which sits near 1250 . There are some other technical measurements that confirm a move at least to that higher level.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a8f970b-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
March 05, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
We are super busy preparing the new release of our SharpCharts2 charting engine (see the "Site News" section below for more details). That means I haven't been paying much attention to the market recently. Fortunately, John, Carl, Richard, and Arthur have been, so let's get right to their commentary...
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
February 19, 2005S&P 500 AND ELLIOTT WAVE By Chip Anderson
Arthur Hill
The S&P 500 remains in bull mode and continues to outperform the Nasdaq 100. In Elliott terms, the index has taken on a 5-Wave structure since mid August. Wave 1 extends up to 1142, Wave 2 declined to 1090, Wave 3 advanced to 1218 and Wave 4 fell to 1163. The recent move above the upper trendline of the falling wedge represents the beginning of Wave 5.
As a Wave 5 advance, the upside projection would be to around 1240-1245. Wave 5 is often 62 percent of Wave 3 or equal to Wave 1. The 62% stems from the Fibonacci number .618. As a Fibonacci 62% of Wave 3, the upside target would be to 1242 (1218 – 1090 = 128, 128 x .62 = 79, 1163 + 79 = 1242). Should a repeat of Wave 1 occur, the upside target would be to 1245 (1142 – 1060 = 82, 1163 + 82 = 1245).
Regardless of the targets, Wave 5 should move above the high of Wave 3 (1218). As long as the blue trendline extending up from the late October low holds, the bull trend is firmly in place and further strength should be expected.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591796970c-pi
Posted by Chip Anderson at 5:05 PM in Arthur Hill | Permalink
February 19, 2005APPLE: CAN YOU SAY "PARABOLIC?" TWICE? By Chip Anderson
Carl Swenlin
Investors love the Apple (AAPL) "story" and they are driving he stock's price into a vertical ascent. When a stock arcs into an ever-increasing angle of ascent it is called a parabolic rise. "Investors" get into a feeding frenzy, causing the price rise to become so steep that it is unsustainable. The inevitable outcome of a parabolic is a crash, because investor sentiment will at some point reverse, and people are suddenly trying to get out of the stock as fast as they were previously trying get in.
What is at once amusing and tragic is that, as you can see on the chart, this isn't the first time this has happened to AAPL. Nevertheless, here we go again. One piece of recent news that has propelled the stock is the announcement of a 2:1 split, and coincidentally there was also a 2:1 split in 2000 as well. Those who fail to learn from history . . .
Another driving force behind parabolics is short sellers. Their suicidal attempts to pick a top followed by frenzied short covering creates even more demand to drive the price higher. It is foolhardy to play parabolics in either direction.
I don't know when this parabolic will finally collapse, but it is virtually guaranteed that it will. (Note that the PMO is very overbought, a sign that the end is probably near.) Once that happens, prices can return to their starting point (or close to it). Another less disastrous outcome is that about 50% of the parabolic gains can be lost, then the stock enters a high-level consolidation for several years.
Personally, I think Apple is a good company, I love their products, and in my opinion the company's prospects today are better than they have been in years; however, the current price behavior reflects unrealistic investor expectations.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685916fc970c-pi
Posted by Chip Anderson at 5:04 PM in Carl Swenlin | Permalink
« Previous | Next »
February 19, 2005THE SCALE HAS TIPPED TOWARDS INFLATION By Chip Anderson
John Murphy
At the New York Expo last weekend, Martin Pring made the case that the battle between the forces of deflation and inflation had reached a critical inflection point. In other words, his charts showed that the deflation/inflation scale was about ready to tip in one direction. He arrived at that conclusion by comparing rate-sensitive (deflation) stocks with commodity-related (inflation) stocks. When rate-sensitive stocks are in the lead, deflation is dominant. When commodity-stocks lead, inflation is dominant (or becoming so). Which brings me to our last chart. It's a ratio comparison of basic material stocks to financials. With long-term rates rising this week, and inflation and commodity prices picking up, the week's strongest sectors were basic materials and energy. The weakest sector was financials. The chart below is a ratio of the Materials ETF (XLB) divided by the Financials ETF (XLF).
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685915eb970c-piMATERIALS/FINANCIALS RATIO TURNS UP ... The fact that the ratio has been trading sideways for almost two years shows that deflation/inflation forces have been pretty evenly balanced (as the Fed has been pointing out). This week, however, the XLB/XLF ratio broke out to the highest level in three years. That tells me that the scale has finally tipped in favor of inflation. If inflation is no longer contained (as the Fed has claimed) it may have to abandon its "measured pace" and raise short-term rates faster and longer than it had planned to. Rising inflation expectations could boost long-term rates. All of these trends have important implications for investors. For one thing, it'll be better to be in inflation-sensitive stocks (like basic materials) than deflation-sensitive stocks (like financials). It also hints at higher interest rates -- both short and long. All of which seems to strengthen my negative view on the stock market and my preference for cash, commodity-related stocks, and defensive stock groups in general.
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
February 19, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
2005 is well underway now and some important technical trends are developing on the year-to-date charts.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a4b970b-piAs you can see on this PerfChart, since the start of the year, the energy-heavy AMEX index has outperformed the other benchmarks significantly. The Dow, the NYSE, and the Large-Caps are clustered around the break-even point and the small-caps and tech-heavy Nasdaq have both had significant losses so far.
Will these trends continue? And if so, for how long? These are the questions that our commentators try to get a handle on during the rest of this issue. First, John Murphy
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
February 05, 2005DIVIDE AND CONQUER By Chip Anderson
Arthur Hill
To understand the Nasdaq and Nasdaq 100, it is important to look at the individual parts. These two indices can be broken down into four key industry groups: semiconductors (SMH), networking (IGN), software (SWH) and internet (HHH). While retail, telecom, hardware, biotech and other industry groups certainly play a part, these four are the key drivers and the first place to look for signs of weakness or strength.
The same approach works for the S&P 500. This index can be broken down into six key sectors: Finance (XLF), HealthCare (XLV), Consumer Discretionary (XLY), Information Technology (XLK), Industrials (XLI) and Consumer Staples (XLP). Even though Industrials and Consumer Staples each make up over 10% of the index, I tend to focus on the other four sectors, which make up over 60% of the index when combined.
In particular, the retail group is a major influence on the Consumer Discretionary sector and retail spending drives ~2/3 of GDP. As it name implies, the Consumer Discretionary sector represents cyclical stocks and these are more prone to economic fluctuations than the other sectors. This makes it an important component of the S&P 500. And finally, notice that Energy, Materials and Utilities (combined) account for less than 15% of the index. However, their influence is growing.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859170d970c-pi
Posted by Chip Anderson at 5:05 PM in Arthur Hill | Permalink
February 05, 2005THE DECENNIAL PATTERN (YEARS ENDING IN 5) By Chip Anderson
Carl Swenlin
The Decennial Pattern refers to the fact that years ending in the number five (5) are up years for the stock market. This is not just a statistical tendency. In fact, this has been the case for every year ending in 5 since 1885. Furthermore, the price low for these years has been made in the first quarter of every year except 1965. Many find this evidence quite compelling, however, John Hussman (hussman.com) demonstrates in his 1/24/2005 weekly commentary why the decennial pattern is "statistically unimpressive." Nevertheless, there could be more to this pattern than luck and serendipity. Years ending in 5 are also either the first or third years of a presidential term, and these tend to be up years.
While the Decennial Pattern is a bullish sign for 2005, I wouldn't bet the ranch on it. Every year has it's own character, and it is better to follow the trend and remember that getting heads 100 consecutive times flipping a coin, the odds of getting heads on the next toss are still 50-50.
Below are charts of the last eight years ending in 5 (that's as far back as we have data). Our thanks also to Peter Eliades (stockmarketcycles.com) and Tom McClellan (mcosillator.com) for the research used in this article.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a02970b-pi
Posted by Chip Anderson at 5:04 PM in Carl Swenlin | Permalink
February 05, 2005MARKET RALLY IMPRESSIVE, POSES NEW QUESTIONS By Chip Anderson
Richard Rhodes
Last week's market rally was impressive to be sure. Now, the question whether the decline off the early January highs are in fact intermediate-higher or more short-term in nature. Previously, we postulated the monthly key reversals' in the major indices put them in a position to decline further; however, that isn't clear any longer. In fact, the S&P 500/Nasdaq Composite Ratio is now testing the critical 125-dma trading signal' we use; if prices breakout above it then technology shares are expected to underperform . But, given the 40-day stochastic is overboughtthen the probability favors a turn lower.
CONCLUSION: The probability is increasing that a larger technology leg higher has now begun. Thus, an aggressive long trade would be the semiconductor sector' given their recent strength.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a68970b-pi
Posted by Chip Anderson at 5:03 PM in Richard Rhodes | Permalink
February 05, 2005SHARPCHARTS 2 "BETA 5" NOW AVAILABLE! By Chip Anderson
Site News
A "Beta" release is a preview / testing version of a new piece of software. We've received great feedback from our users about our previous four Beta versions of our new SharpCharts 2 charts. Now it's your turn. Check out the latest Beta version and let us know what you think. The new version features a completely revamped User Interface that now includes the ability to control indicator and overlay colors and styles. You can even ask for indicators of indicators - Bollinger Bands of the RSI for example! Are you ready for some real charting power? Click here to get started!
BARGAIN BOOK BIN - We've got a special collection of great financial books at bargain prices - all at least 45% off! You owe it to yourself to browse through these titles. The book you need may be waiting for you. Take a look!
JUST LIKE "NETFLIX" - Since we added InvestorFlix to our site last year, we've heard nothing but good things from the people that have signed up for it. Basically, they'll send you whatever investor training videos you need for a modest monthly fee - just like "NetFlix". It's a great service - check it out!
Posted by Chip Anderson at 5:02 PM in Site News | Permalink
February 05, 2005DOW AND S&P BREAK BARRIERS, MARKET IN FIFTH WAVE By Chip Anderson
John Murphy
DOW AND S&P 500 CLEAR RESISTANCE BARRIER... The hourly bars for the Dow Diamonds and the S&P 500 SPDR show both having cleared initial resistance at their mid-January highs. . Small cap indexes accomplished that earlier in the week, which hinted that the large cap indexes were heading in the same direction. I also showed the improvement in market breadth figures earlier in the week. That greatly increases the odds that the blue chip averages are headed for a challenge of their old high.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591683970c-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591689970c-pi
IT LOOKS LIKE MARKET IS IN FIFTH WAVE OF FIFTH WAVE ... From a longer-term perspective, very little has changed. I've written several times about the possibility of another upleg which could challenge (and maybe even exceed) the late 2004 peak. My work, however, still suggests that another upleg would probably be the final one in the cyclical bull market that started in October 2002. Or, to put it in Elliott Wave terms, I believe the market has begun the fifth wave of a fifth wave. . I've been asked if there's a calendar date for a possible top. One possibility is March which would be the two-year anniversary of a major bottom. The other would be April. After January, April is the next strongest month in the first half of the year. One of the reasons I recently suggested some profit-taking during January was because that was the tail end of the strongest three month span of the year that normally starts in November. April ends the strongest six-month span that also starts in November. If the market does move to new high ground, my best guess for a top would be April.
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
February 05, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
As you may have noticed, once again we are able to send out the newsletter in HTML format thanks to the good people at ConstantContact.com. We hope you enjoy the convenience of having the entire newsletter in your inbox rather than having to click a link to see it. As always, we want you feedback on changes like this, so feel free to tell us what you think.
The other big change this week is the launch of the "Beta 5" version of our new SharpCharts2 charting engine! With this release, SharpCharts2 is almost complete. You can find a complete list of the new improvements in the "Site News" section below. Be sure to test it out and let us know if you have any problems.
Our columnists have also been busy. John Murphy kicks things off with a look at the market's current Elliott Wave picture. Richard Rhodes is feeling bullish about technology stocks right now. Carl Swenlin shares the historic perspective for years that end in "5". And Arthur Hill looks that the sector picture for the Nasdaq 100.
Here we go...
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
February 03, 2005GOLD STOCKS STILL TESTING LONG-TERM SUPPORT - TAKING WHAT THE MARKET GIVES US By Chip Anderson
John Murphy
GOLD INDEX STILL TESTING TRENDLINE SUPPORT... Back on January 10, I wrote about the Gold & Silver Index (XAU) being in a support zone defined by the rising trendline shown in Chart 1. The trendline starts in April 2003 and is drawn under the April/July 2004 lows (see arrows). The third arrow still shows potential trendline support near 90 in the XAU Index. Chart 2 applies Fibonacci retracement levels to the rally that began last May. It shows that the XAU has retraced close to 62% of that uptrend. That also makes the area around 90 a potential support level. That lower horizontal line also shows potential chart support along the summer highs (see circles) and the September low just above 90 (see arrow). That's the good news. The bad news is that despite being in support, and in an oversold condition, gold stocks haven't shown any bounce at all. In fact, they've been the weakest market group during 2005. Which brings us to another charting technique that I wrote about in mid-January to help pinpoint a buy signal. That's a Point & Figure chart.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e79ac970b-pi
Chart 1
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e79b1970b-pi
Chart 2 GOLD HASN'T GIVEN P&F BUY SIGNAL YET ... This is the same headline that I wrote on January 14 in another discussion of gold stocks. I was referring specifically to the lack of a buy signal given on a point & figure chart of the XAU Index. An updated version of that chart is plotted in Chart 3. Each box is worth one point. The x columns represent rising prices while the o columns represent falling prices. A sell signal was given during December at 98 when an o column fell below a previous o column. Since then, prices have continued to trend lower. In order to give a buy signal, the last x column has to rise above a previous x column. For that to happen on this chart, the XAU would have to rise to 97. It closed today at 92.35. The reason for incorporating P&F signals into your work is that they give more precise buy and sell signals than bar charts and, as a result, inject more discipline into trading decisions. Gold stocks are a good example. Although I happen to think that the XAU has declined to a level where it should start to do better, it's usually safer to wait for the market to prove itself. One way to do that is to wait for it to move back over moving average lines on the bar chart. Another is to wait for a Point & Figure buy signal. Or both.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e79b4970b-pi
Chart 3 BUT OIL STOCKS HAVE ... This is the second part of the headline that I used on January 14. I was trying to show that while gold stocks hadn't given a p&f buy signal, oil stocks had. At the time, the P&F chart of the Energy Select Sector SPDR (XLE) was giving a buy signal at 35.75 as the last x column exceeded a previous x column (Chart 4). Since then, the XLE has risen to a new high. It tacked on another couple of x's today (see green boxes) to close at 38.70. There's another lesson here. And that has to do with taking what the market is giving us. The point in trading is to make money in the market. That's done by buying something that's starting to move up. We can't always be sure in advance what that's going to be. It's one thing to have our analysis suggest that something should be going up. It's another to actually see it going up. That's why we use charts to trigger buy signals. And, while you're waiting for a buy signal in one group, try not to miss a good move in another. Take whatever the market is giving.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e79b8970b-pi
Chart 4 UNDERSTANDING POINT & FIGURE ... I've received a number of messages asking for more information on how to create and read Point & Figure charts. Stockcharts.com provides an excellent explanation which you can find under P&F Charts on the main menu. Once you get to the p&f page, simply click on "Understanding Point & Figure Charts" and you'll find more than enough to get you started. If you want to read even more on the subject, Chapter 11 in my book on Technical Analysis of the Financial Markets is devoted to p&f charting. I highly recommend that you learn more about this form of charting. . Each form of charting offers some benefits. Why not take advantage of both?
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
February 03, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
Today we have a special mid-week edition of ChartWatchers for you. Yesterday, John Murphy published a column and the long term outlook for Gold and the Market as a whole. The column received a very large number of positive comments from his subscribers and we thought we'd share it with everyone.
We are also using this opportunity to clean out our newsletter subscriber list. You are getting this message because someone (hopefully you) entered your email address into our newsletter subscription form at some point in the past. If you no longer wish to receive these free, bi-weekly newsletters from us, simply click on the "SafeUnsubscribe" link at the bottom of this message.
We'll be sending out our regularly scheduled edition of ChartWatchers again this weekend with articles from all of our regular commentators.
Now here's John...
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
January 22, 2005WHO STARTED THIS MESS ANYWAY? By Chip Anderson
Arthur Hill
January and 2005 have not been good for the bulls. After a strong finish in 2004, stocks were hit with strong selling pressure to begin the year and have yet to recover. A look into November and December reveals early weakness in two key groups. More importantly, traders can turn to these two key groups for signs of a bullish revival.
So who done it? Look no further than Retail and Semiconductors. The retail group makes up a big part of the Consumer Discretionary sector and influences the S&P 500. In addition, estimates are that retail spending drives 2/3 of GDP and exerts a large influence on the economy. Semiconductors represent a key tech group that influences the Nasdaq, which in turn affects the S&P 500.
Both stocks were keeping pace until mid November and then started underperforming in December. While the S&P 500 and Nasdaq finished 2004 near their highs for the year, the Retail HOLDRS (RTH) and the Semiconductor HOLDRS (SMH) failed to exceed their November highs (red arrows) and began underperforming.
SMH went on to break the blue trendline and key support at 32 for a bearish signal, while RTH formed a triangle over the last two months. Both need to move above their 3-January highs to put the bulls back in charge. The pattern for SMH looks like a falling price channel (magenta trendlines), but the channel is still falling and it would take a move above key resistance at 33.77 to forge a significant breakout. For RTH, a move above 100.25 would signal a continuation higher. As long as these early January highs hold for both, the broader market is likely to remain under pressure.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a96970b-pihttp://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7a9d970b-pi
Posted by Chip Anderson at 5:05 PM in Arthur Hill | Permalink
January 22, 2005OEX PUT/CALL RATIO SAYS BOTTOM NEAR By Chip Anderson
Carl Swenlin
The Equity and OEX Put/Call Ratios generally signal overbought and oversold conditions that help identify price tops and bottoms; however, sometimes the OEX Put/Call Ratio will invert relative to the Equity Put/Call Ratio. At these times the inversion signals the opposite of what we would normally expect.
Here's how I think this works. The Equity P/C Ratio represents the activity of speculators (the little guys) who become more and more committed to price direction until it reverses on them, therefore the Equity P/C Ratio becomes oversold at price bottoms and overbought at price tops.
The OEX P/C Ratio reflects hedging activity by big money. These guys tend to lighten up as the price trend becomes more extreme, preparing for the inevitable reversal, so the OEX P/C Ratio can become overbought at bottoms and oversold at tops -- the opposite of what happens to the Equity P/C Ratio.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e793a970b-piThis is not always the case, but I have put red dotted lines on the chart to point out where these inversions have signaled price bottoms. Note that there is one very prominent inversion occurring now. Because the Equity P/C Ratio is oversold and prices have been declining, I think there is an excellent chance that the OEX P/C inversion is telling us that a price low is imminent.
My observation is that these signals can have short-term or intermediate-term implications, but there is no way to tell in advance.
Posted by Chip Anderson at 5:04 PM in Carl Swenlin | Permalink
January 22, 2005JANUARY DECLINE GAINING IMPORTANCE By Chip Anderson
Richard Rhodes
The January decline to date is gaining in importance; if prices remain at current to lower levels through the next six trading sessions then a bearish key reversal month' will form. This would signal exhaustion' of the uptrend, with any and all rallies considered selling opportunities. The last such monthly formation signal was January-2002with the decline of nearly 50% materializing from January's high at 2098 to October's low at 1108. Now, we don't necessarily believe the decline is going to be this dramatic at this time, but we simply want to illustrate that a substantial decline is a higher probability eventeven more so if the 25-week moving average currently at 1834 level is violated.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e79e0970b-pi
Posted by Chip Anderson at 5:03 PM in Richard Rhodes | Permalink
January 22, 2005THE BUILD OUT CONTINUES By Chip Anderson
Site News
THE BUILD OUT CONTINUES - In 2004, StockCharts.com spent over $750,000 on improving our technology infrastructure - things like servers, routers, switches, data, and all the things it takes to get you the best charts on the web as quickly as possible. We're not done yet however. You can expect to see us continue to upgrade and improve all aspects of our web site in 2005 as well. For example, across from my desk right now are boxes with 10 additional high performance servers (over 60 GHz of CPU speed) that we'll be adding to our site over the next couple of weeks.
While many of these improvements happen "behind the scenes", watch for more visible improvements to start appearing soon including the final beta of our SharpCharts 2 charting engine, an improved market summary page, and much more. Stay tuned...
Posted by Chip Anderson at 5:02 PM in Site News | Permalink
January 22, 2005WHY I PREFER THE 50-DAY AVERAGE ... By Chip Anderson
John Murphy
The 20-day average is usually too short for my purposes which is to spot bigger trend changes (although it is the period used in Bollinger Bands). At the same time, the 200-day average is too long. Imagine holding a long position in the market waiting to see if it breaks the 200-day average. The chart below shows that the Nasdaq would have to drop more than 200 points (10%) to give a sell signal. That's too much to give up in my opinion. That's why I rely most heavily on the 50-day average. One of the simple rules that I follow is to require that any sector, industry group, or stock that I'm recommending close over its 50-day average. At the same time, I consider selling anything that closes under its 50-day line. There are some conditions that I look for to confirm a downside break. The market has to "close" beneath the 50-day line and in decisive fashion. Then it has to "stay" under it. Very often a market will attempt to climb back over its 50-day line. If it fails that attempt, that's another bearish sign. I also watch the "Friday" close. That's because a Friday close determines where a market ends on a weekly bar chart. . A Friday close beneath a moving average is more serious than a mid-week violation. That's even more true of the 200-day (or 40-week) moving average. In the chart below, the Nasdaq closed under its 50-day line on Wednesday, January 5 and remained beneath it through the end of the week. It never did close back above it. That's negative action -- and a pretty good reason to have considered doing some selling of longs (or initiating new shorts).
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e7acb970b-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
January 22, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
The market finished last week with three big down days. So far this year, the Nasdaq is down 6.5%. Much of the fall has been driven by Small Cap stocks as the S&P 500 Large Caps is only down 3.6% during the same period. As John Murphy subscribers already know, the Technology sector has been the weakest so far this year while Energy and Consumer Staples have been the strongest.
Speaking of John Murphy, this edition of the newsletter kicks off with a great educational piece on moving averages from John. Richard Rhodes then shows us why January's decline is becoming increasingly important. Carl Swenlin sees reasons for optimism in the OEX Put/Call ratio. And finally Arthur Hill looks to the Retail and Semiconductor sectors for relief.
Let's dive right in...
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
January 08, 2005US DOLLAR By Chip Anderson
Arthur Hill
The Dollar may be giving us something to talk about…. and possibly even worthy of a short-term play. The US Dollar Index has consolidated for 4-5 weeks and formed long white candlesticks twice. These show strong buying pressure and, at the very least, reinforce support just above 80.
Notice that the index reversed course twice before with similar consolidations (gray ovals) and failed once (red oval). A move above 83.5 would be the bullish trigger and open the door to 87-88. Resistance at 83.5 is marked by the highs of the two long white candlesticks. As long 83.50 holds, the bears rule and this may keep from falling.
Even though a breakout would be quite positive, it would still be within the confines of a larger down trend. At this point, the long-term onus is on the bulls to prove the bears otherwise. This would take a trendline break and move above key resistance at 90.51. Therefore, the most we can expect currently is a corrective rally within a larger down trend.
http://blogs.stockcharts.com/.a/6a0105370026df970c01116859172c970c-pi
Posted by Chip Anderson at 5:05 PM in Arthur Hill | Permalink
January 08, 2005SENTIMENT: A SUDDEN ATTITUDE ADJUSTMENT By Chip Anderson
Carl Swenlin
There has been a lot of concern among analysts that sentiment has been too bullish; however, the recent correction has done a lot to alleviate that condition.
The American Association of Individual Investors (AAII) performs an electronic sentiment poll every week. The cutoff is Wednesday and the results are published the next day. This quick turn around gives us an immediate view of investor sentiment before the results are stale and we can compare the results directly to the price action that generated them.
As you can see on the chart below, the recent price decline has effected a rapid attitude adjustment in investors, moving sentiment readings from very bullish to about neutral. Sentiment generally becomes more bullish as prices rise, and more bearish as prices decline, so it is a good thing that sentiment adjusted so quickly -- persistent bullishness in the face of price weakness would be unusual and a reflection of extreme complacency.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685916c2970c-piThe Investors Intelligence advisor poll (not shown) has not yet reflected any response to the price correction, but this is because there is about a two-week delay from the time the advisory newsletters are written and the time the poll results are published, so it is too early to tell if newsletter writer sentiment has been affected.
It is important to remember that sentiment is a short-term indicator. For example, participants in the AAII poll are responding to this statement: "I feel that the direction of the stock market over the next 6 months will be: Up, No Change, or Down." We can see that investors' outlook for the 6-month time frame was significantly altered by a relatively small and short price decline.
Posted by Chip Anderson at 5:04 PM in Carl Swenlin | Permalink
January 08, 2005OUTPERFORMING THE INDICES IN 2005 By Chip Anderson
Richard Rhodes
Last week's stock market correction was significant in our opinion; for the technical patterns suggest the correction will continue in the weeks ahead. But more significant in the fact that if the correction extends sufficiently below certain levelsthen the entire rally cycle off the October-2002 is complete.
First and foremost, last week formed a bearish key reversal' lower that signals exhaustion from within the 50%-to-60% correction zone; this increases the probability of a test of the 1165 level, which is a mere 21 points lower. Thereafter, if extend lower through this level and then trendline support and the 65-week moving average then we must consider the rally phase complete. If this scenario doesn't materializethen obviously higher prices will develop; but given a rising interest rate environmentthis seems a fairly remote probability.
In any case, the most important trading decisions will be made regarding long/short sector rotation; this will be the key to outperforming the indices in 2005.
http://blogs.stockcharts.com/.a/6a0105370026df970c0111685916f2970c-pi
Posted by Chip Anderson at 5:03 PM in Richard Rhodes | Permalink
January 08, 2005BARGAIN BOOKS, INVESTORFLIX By Chip Anderson
Site News
New Bargain Books - We have just added 18 new titles to our Bargain Books section of our online bookstore. Our Bargain Books are ALWAYS at least 45% off retail price. They won't last long. This is an opportunity to pick up that book you have always wanted to get - at a great price.
InvestorFlix - movies of your favorite analysts! Now you can rent seminar presentations, speeches, tutorials, etc. of your favorite analyst. Watch them in the comfort of you own home or office. Watch them at your pace. Have some popcorn.Give it a try!
Posted by Chip Anderson at 5:02 PM in Site News | Permalink
January 08, 2005S&P GIVES FIRST WEEK WARNING By Chip Anderson
John Murphy
The S&P 500 ended the week with a loss of nearly 30 points (-2.4%). According to the historical record since 1950, a down close during the first week of January by the S&P 500 has resulted in a down year 45% of the time. A loss for the entire month of January raises the percentages for a down year to 58%. The good news is the the S&P 500 SPDRs (SPY) are still trading over their 50-day moving average. The bad news is that the Nasdaq market and the Russell 2000 Small Cap Index closed beneath that support line. Those were the two groups that led the market higher during the second half of 2004. They're now leading it lower. Also of concern is the volume pattern during the week. The biggest (red) volume bars took place during the four days while prices were falling. The smallest (green) volume bar took place on Thursday when the market managed a modest bounce. That means there's a lot more downside volume than upside volume. And that's not a good sign for the market. Daily indicators like the MACD lines have turned negative. . If the S&P cracks its 50-day line, the next support shelf sits at 117 (see green arrow). The most significant support level on the chart is the early October peak near 114 (see green circle). Any close beneath that level would, in my opinion, significantly weaken the long-term picture.
http://blogs.stockcharts.com/.a/6a0105370026df970c011168591814970c-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
January 08, 2005Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
Our first issue of 2005 kicks off with a great summary of the recent S&P action by John Murphy. Richard Rhodes then looks at last week's correction. Carl Swenlin examines the recent change in investor sentiment and Arthur Hill wraps things up with a look at the US Dollar. OK, here we go...
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
December 18, 2004EARLY VOLUME SURGE By Chip Anderson
Arthur Hill
It is shaping up to be a banner month for December volume. On this chart, the vertical black line shows the beginning of December, the red line the end of December (D) and the green line the end of January (J). Over the last three years, there was strong volume in early December (usually the first 2-3 days). In 2002 and 2003, volume soon tapered off and December finished with its normal below average volume performance.
Things are different this year, at least for the first 17 calendar days of the month. Nasdaq volume started strong and continues strong with 12 of the last 13 trading days above 2 billion. The 13-day average is 2.314 billion, which is comfortable above the 2-year average of 1.71 billion shares per day. This kind of high volume was last seen in January 2004, which marked a peak in the index. Perhaps the fund managers are making their move a month early. Also notice that the Nasdaq peaked in the middle of January the last two years. 2003 marked a relatively minor peak and 2004 marked a more significant peak.
So what does it mean? Even though volume has been high the last 13 days, the index has basically traded flat. This amounts to spinning your wheels or burning up a lot of fuel without going anywhere and suggests that a period of correction or consolidation lies ahead.
http://stockcharts.com/images/cww20041218a-1.png
Posted by Chip Anderson at 5:04 PM in Arthur Hill | Permalink
December 18, 2004DOLLAR TRYING TO BOTTOM By Chip Anderson
Carl Swenlin
The daily chart of the US Dollar Index shows that the dollar is trying to put in a bottom. The encouraging signs are that the 9-year low earlier this month survived a sharp retest this week, the index has broken above the short-term declining tops line, and there is a PMO crossover buy signal. The problem is that sentiment has moved from extreme bearishness to neutral, which means that quite a few bulls have arrived on the scene. This happened too quickly, in my opinion, and there may be more work to do (and lower lows seen) before the bottoming process is complete.
http://stockcharts.com/commentary/archives/images/cww20041218c-1.gif There is encouragement on the long-term (monthly) chart as well, because there is a strong zone of support between 78 and 80, and the PMO is very overbought. Nevertheless, the PMO is still falling, and it needs to turn up before we can begin to believe the long-term down trend has ended. http://stockcharts.com/commentary/archives/images/cww20041218c-2.gif
Posted by Chip Anderson at 5:03 PM in Carl Swenlin | Permalink
« Previous | Next »
December 18, 2004Long-term Oil vs. Gold By Chip Anderson
Richard Rhodes
Today we take a very long-term look at the relative valuation of integrated oil-related shares in comparison to gold shares ($XOI/$HUI). After the very long rise in gold shares in both absolute and relative terms; we find the present time is opportune to prune back long gold holdings and buy into integrated oil shares at current levels. This certainly isn't a popular decision given many are ‘gold bugs', but the fact of the matter is that this investment allocation merits strong consideration; for given when the Fed raises interest rates….they generally go too far and gold shares do quite poorly.
However, the technical picture is looking up. The ratio simply shows how ‘beat up' oil-related shares are to gold – losing nearly 80% since their 2000 high, but prices formed an absolute low in late-2003 followed by a successful test of the 50-week moving average. This, coupled with momentum turning higher from oversold levels suggests that the recent decline in integrated oil shares is an opportunity to buy oil related shares as a multi-year advance in both absolute as well as relative terms appears underway. If the ratio simply retraces back to its 200-week moving average, we would do very well. But if 50% of its decline is retraced…they we will have done enormously well.
http://stockcharts.com/commentary/archives/images/cww20041218r-1.bmp
Posted by Chip Anderson at 5:02 PM in Richard Rhodes | Permalink
December 18, 2004RATES SHOULD BE MOVING HIGHER By Chip Anderson
John Murphy
This time last year I wrote about my expectation for long-term interest rates to start moving higher during 2004. I got it only half right. They moved higher during the first half, but then fell back during the second half. It looks like bond yields will end the year pretty much where they started. A number of readers have asked why bond yields have stayed so low for so long and for my outlook for next year. Chart 1 shows bond yields turning back down at the start of 2000 and bottoming in mid-2003. The 2000 peak in yields coincided a falling stock market and rising bond prices. The deflation threat that existed at that time caused a major decoupling of bond and stock prices. As a result, bond yields and stocks became positively correlated. Bond yields turned up shortly after stocks during the first half of 2003, right after the start of the Iraq war and a plunge in oil prices. That caused a major rotation out of bonds and back into stocks -- reversing the 2000-2002 bear market trend. Chart 1 shows the yield on the Ten-year Treasury note turning up during the first half of this year and breaking the four-year down trendline (see circle). That wasn't a surprise. What was a surprise was the subsequent decline in yields back to that same trendline (see arrow). Let's take a closer look.
http://stockcharts.com/commentary/archives/images/cww20041218m-1.png
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
December 18, 2004Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
Chip's personal message goes here, talking about what John Murphy, Richard Rhodes, Carl Swenlin and the rest of the gang have to say in this issue. This segment should be limited to a couple sentences... we want to keep people engaged with concise text that is valuable and useful to them. Leads into Chip's column about specific issues...
Chip's Headline Goes HereChip's market commentary goes here. Chip's market commentary goes here. Chip's market commentary goes here. Chip's market commentary goes here. Chip's market commentary goes here. Chip's market commentary goes here. Chip's market commentary goes here and here. Chip's market commentary goes here. Chip's market commentary goes here. Chip's market commentary goes here. Chip's market commentary goes here. Chip's market commentary goes here.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e896f970b-piMore of Chip's market commentary goes here. More of Chip's market commentary goes here. More of Chip's market commentary goes here. More of Chip's market commentary goes here. More of Chip's market commentary goes here. More of Chip's market commentary goes here. More of Chip's market commentary goes here. More of Chip's market commentary goes here and here. More of Chip's market commentary goes here. More of Chip's market commentary goes here. More of Chip's market commentary goes here. More of Chip's market commentary goes here and there. More of Chip's market commentary goes here. More of Chip's market commentary goes here.
SUB-HEADLINE GOES HERE - More informative information goes here. More informative information goes here. More informative information goes here. More informative information goes here.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8975970b-piMore informative information goes here. More informative information goes here. More informative information goes here. More informative information goes here. More informative information goes here. More informative information goes here. More informative information goes here.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e897c970b-piWRAP UP HEADLINE - Here are the final conclusions, call-to-actions and parting shots. Here are the final conclusions, call-to-actions and parting shots. Here are the final conclusions, call-to-actions and parting shots. Here are the final conclusions, call-to-actions and parting shots.
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
December 04, 2004DIVERGENCES WITHIN THE SEMICONDUCTOR GROUP By Chip Anderson
Arthur Hill
While the Nasdaq trades near a 52-week high, the Semiconductor HOLDRS (SMH) remains well below its Jan-04 high and has shown relative weakness over the last few months. There is also a split within the group as Applied Materials challenges resistance and Micron Technology (MU) tests support. Until both get on the same page, the Semiconductor group is likely to remain in a funk and continue underperforming the Nasdaq.
Applied Materials (AMAT) formed a double bottom over the last few months and is testing key resistance around 18. The double bottom represents a base over the last few months with support at 15.5 and resistance at 18. A break above 18 would confirm the pattern and the upside target would be around 20.5. Upside volume has been rather strong lately and this increases the chances of a breakout.
While AMAT is challenging resistance, Micron Technology (MU) is testing support and formed a potential head-and-shoulders over the last few months. This pattern is mostly associated with reversals, but can also signal a continuation. A move below neckline support would signal a continuation lower and project further weakness to around 9. Should MU hold support at 11, look for a break above 13 to ignite the stock and the Semiconductor HOLDRS.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8b2e970b-pihttp://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8b3f970b-pi
Posted by Chip Anderson at 5:04 PM in Arthur Hill | Permalink
December 04, 2004WEAK CASH FLOW PRECEEDS PRICE DECLINES IN PRECIOUS METALS STOCKS By Chip Anderson
Carl Swenlin
When there is weak cash flow into Rydex Precious Metals Fund it is a fairly reliable warning to expect price weakness in the short-term, and sometimes the corrections can be quite severe.
As a general rule we expect cash flow to more or less follow prices -- when prices are going up, cash flow should also be moving up proportionately -- however, when prices rise and cash flow suddenly dries up, it tells us that the sector is losing support. Higher prices are failing to attract more money.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8994970b-piOn the chart we can see four negative divergences between cash flow and price. In the first three instances they resulted in price declines. The current divergence seems to be playing out as expected and a correction in precious metals stocks has begun.
Posted by Chip Anderson at 5:03 PM in Carl Swenlin | Permalink
December 04, 2004CONSUMER DISCRETIONARY VS. STAPLES By Chip Anderson
Richard Rhodes
Today we look at the high relative valuation of Consumer Discretionary vs. Staples stocks. Current levels have not been seen; at the 2000 high in which the bubble burst', the ratio stood near 1.40. We believe that this stretched valuation' argues for one to reassess their portfolios in terms of the shares within them. To move into Staples would imply a defensive move' related to a decline in the overall stock market. While that may not be today's or tomorrow's businessone must be cognizant of the high probability discretionary stocks will not outperform from this point forward.
If we are correct, and we must be buyers' then we must consider the largest holdings in each group. If we must be long: Altria (MO), Anheuser Busch (BUD), Coca-Cola (KO), Colgate Palmolive (CL), Gillette (G), Kimerbly Clark (KMB), Pepsico (PEP), Proctor & Gamble (PG), Wal-Mart (WMT) and Walgreen's (WAG). Conversely, we would be sellers of: Carnival (CCL), Comcast (CMCSA), ebay (EBAY), Home Depot (HD), Lowe's (LOW), McDonald's (MCD), Target (TGT), Time Warner (TWX), Viacom B (VIA.B) and Walt Disney (DIS). It may seem counter intuitiverelative performance is important.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8a30970b-pi
Posted by Chip Anderson at 5:02 PM in Richard Rhodes | Permalink
December 04, 2004LONGER-TERM IMPLICATIONS FOR STOCKS By Chip Anderson
John Murphy
The last paragraph in the September 23 report carried the headline: LONG TERM IMPLICATIONS FOR STOCKS AREN'T GOOD. To repeat what I wrote then, "An October pullback in oil would probably be helpful to the stock market during the fourth quarter. The ability of oil to stay over $40, however, will remain a drag on the stock market and the economy...and will probably limit stock market gains during 2005". So far, the October top in oil (and this week's downturn) has been bullish for stocks and fits into the idea of a fourth quarter rally lasting into the start of next year. The longer-term picture is still in doubt. If this is just an intermediate correction in oil, and if oil starts to rise again next year from $40 (as I suspect it will), the stock market could run into trouble. That's another reason why $40 crude is such an important number. In case you're wondering if oil really has an impact on stocks, take a look at the last two charts. The peak in oil during March 2003 (at the start of the second Iraq war) coincided exactly with a major bottom in the S&P 500 (see first arrow). The second peak in oil this October (see second arrow) helped launch the latest S&P 500 upleg. Right now, the drop in oil is working in the stock market's favor.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8949970b-pihttp://blogs.stockcharts.com/.a/6a0105370026df970c0105371e894b970b-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
December 04, 2004Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
Happy Holidays! Welcome to this special holiday edition of ChartWatchers! This time around John explains why $40 is such an important number of Oil prices, Richard explains why he'd buy Coke but sell McDonalds, Carl has a chart that explains while Precious Metal prices are headed lower, and Arthur Hill looks at AMAT and MU. Here we go...
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
November 20, 2004CATCHING A TURN WITH STOCHASTICS By Chip Anderson
Arthur Hill
For an idea of how a FUTURE trend reversal might look, traders may wish to focus on the August low and think inverted.
The July-August downtrend was defined by a falling price channel and a Stochastic Oscillator below 20. Notice that the Stochastic Oscillator moved above 20 for a few days and then fell back (~ 1-Aug). This first attempt failed as both the indicator and index continued lower. The second Stochastic Oscillator break above 20 was accompanied by an index break above the upper trendline. In addition, the Stochastic Oscillator moved above its prior high. This signal stuck and the rest is history.
Looking at the current situation and applying recent inverted history, the first move below 80 could be a head fake and would likely occur with the index still above the lower trendline. The second move below 80 could be the one that is accompanied by a trendline break and the one that holds.
Why two moves? The advance over the last few weeks was quite strong and needs some time to unwind. Buying pressure is unlikely to dry up over night, just as selling pressure did not dry up after the July bounce. The first dip will entice buyers and this usually causes another run at resistance. It is the second decline that traders should watch. For now, the trend remains firmly bullish and this is just food for though on the future.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8871970b-pi
Posted by Chip Anderson at 5:05 PM in Arthur Hill | Permalink
November 20, 2004MEASURING PARTICIPATION By Chip Anderson
Carl Swenlin
The market has finally broken out of the 2004 trading range, but many people are worried that the move could be a bull trap. One way to judge the authenticity of a move is to see how many stocks and/or sectors are participating in it. To do this we can look at the Percentage of PMM Buy Signals.
Decision Point's Price Momentum Model (PMM) generates longer-term buy and sell signals based strictly on price movement. (To learn more about the PMM click here ). We apply this model to all the stocks in a market index, then summarize the percentage of buy signals into an indicator.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8b31970b-piWe can see on this chart that the Percentage of PMM Buy Signals for stocks in the S&P 500 Index is currently above 80%, which means that participation in this rally is quite broad, and that smaller-cap stocks in the index are participating as well as the large-cap stocks. While a reading above 80% is good in terms of participation, it is also a level that we would consider to be overbought. This may or may not be a problem. In a bull market, conditions can remain overbought for extended periods of time, and prices can continue to move higher in spite of it. The last half of 2003 is a good example of this. There is no practical way to guess how long this rally may last, but you will notice that the indicator was not seriously oversold when the rally began. The first leg of the bull market began when the indicator showed less than 20% PMM Buy Signals, whereas there were slightly less than 50% of PMM Buy Signals at the start of this rally. I interpret this to mean that, because the market was not seriously oversold at the start, this rally is not likely to last as long as the one in 2003.
Posted by Chip Anderson at 5:04 PM in Carl Swenlin | Permalink
November 20, 2004RECENT RALLY IS SUSPECT By Chip Anderson
Richard Rhodes
The recent rally to new highs in the S&P 500 large cap, S&P 400 mid-cap and S&P 600 small -cap is suspect. While higher prices may be offing in the near-term, we believe this rally could be terminal in nature given several divergences are evident. One of these divergences is the Nasdaq Composite/MS Cyclical Ratio ($COMPQ/$CYC); generally $COMPQ underperforms during a market rally as was evident from March 2003. However, $COMPQ has broken out against $CYC by moving above trendline resistance; this clearlyrings a bell' indicating the underlying tectonic plates are shifting; with an absolute trend change is not far off in the distance.
In the short-term, $COMPQ is pulling back in normal fashion to test trendline breakout. But, given the stochastic is oversolda turn higher is expected and for the ratio to resume its intermediate-term trend higher. Thus, if we are to be short into this recent rally we must clearly consider being short the cyclicals rather than technologywhich is counter intuitive technology is the higher-beta group.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8927970b-pi
Posted by Chip Anderson at 5:03 PM in Richard Rhodes | Permalink
November 20, 2004FREE HOLIDAY SHIPPING! INVESTORFLIX, A CHANGE FOR QQQ By Chip Anderson
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HAPPY HOLIDAYS FROM ALL OF US AT STOCKCHARTS.COM!
FREE BOOKSTORE SHIPPING FOR THE HOLIDAYS!!!
From now until December 25th, we are waving all shipping charges for items purchased from our bookstore! Simply select your items, and then select "Holiday Special" as your shipping method on the checkout page. Unfortunately, this special offer only applies to orders shipped to US addresses. Orders will be shipped via Priority Mail and must be placed before December 20, 2004 in order to arrive before Christmas.
NEW BOOKSTORE BUNDLES MEAN BIGGER SAVINGS - We have added two new product bundles to our bookstore. Traders Bundle Save over 30%.
Market Indicators Bundle Save over 40%.
MOVIES AT HOME BY YOUR FAVORITE ANALYSTS - In our bookstore we offer a new service that you will like.InvestorFlix! It is similar to the popular "NetFlix" movie service. You can rent investor training videos for a fraction of the cost of ownership. Take advantage of the introductory offer now.
RSS FEED FOR BOOKSTORE - This is neat! If you want automatic notification whenever a new bookstore special is offered or when we add a new product to the store, this is the way to go. Click on the images below for more information.
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Ps AND Qs - On December 1, 2004, the Nasdaq 100 Index Tracking Stock (QQQ) will move its listing from the Amex to Nasdaq with a new symbol of QQQQ.Yes, 4 of them!Let's hope they don't move again...
Posted by Chip Anderson at 5:02 PM in Site News | Permalink
November 20, 2004LOOKING FOR S&P 500 SUPPORT LEVELS By Chip Anderson
John Murphy
The daily chart for the S&P 500 for the last year pretty much tells the tale. The trend is still up. But its 14-day RSI line is in overbought territory for the first time since last January. Its daily MACD lines are also up against their early 2004 high. That being the case, and given today's negative intermarket trends, a pullback isn't too surprising. The key point is how much of a pullback do we need to start getting a little worried. One way to judge that is to look at where the previous peaks are. Working from the left side of the chart, that would put potential support points at 1163, 1150, and 1146 -- and the October peak at 1140, which may be the most important. That's because a pullback to 1140 would be a 50% retracement of the last upleg starting in late October and a 50% retracement of the entire upmove that started in August. As long as prices stay over that level, I'm not going to get too concerned. If it doesn't, I will. The point & figure boxes in Chart 2 also show that the S&P has suffered a three-box reversal into the down (o) column. That simply confirms that the market is entering a short-term pullback. So far, the p&f boxes don't show any serious trend damage.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e890c970b-pi
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8913970b-pi
Posted by Chip Anderson at 5:01 PM in John Murphy | Permalink
November 06, 2004S&P 500 TAKES THE LEAD By Chip Anderson
Arthur Hill
For once, the S&P 500 is stronger than the Nasdaq 100 as the index has already broken above its 2004 high (1163). The overall pattern looks like an Elliott 5-Wave advance and the 2004 decline formed Wave 4. In addition, this decline looks like a falling flag that overstayed its welcome with the August low at 1060.
Regardless of the length of pattern, the breakout above the upper trendline and 2004 high signals a continuation of the Mar-Jan advance. Should the rising price channel remain intact, a move towards the upper trendline can be expected (1350-1400). This seems a bit extreme and a more reasonable target would be around 1250. A Fibonacci 62% of Wave 3 would project a move to around 1300 (1163 – 789 = 374, 374 x .62 = 232, 1060 + 232 = 1292).
For signs of failure, turn to the late October low at 1090. This low was part of the sharp advance in the last week of October. Should the index fail to hold a breakout above 1150 and move below 1090, the 2004 falling price channel (bears) would be back in force.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8b07970b-pi
Posted by Chip Anderson at 5:05 PM in Arthur Hill | Permalink
November 06, 2004RELATIVE TO 52-WEEK HIGH/LOW (Rel to 52) By Chip Anderson
Carl Swenlin
While it is widely reported when a stock is hitting a new 52-week high or low, I've always been curious as to where stocks are in relation to their 52-week range the rest of the time. To determine this I developed the "Rel to 52" scale. We simply assign a value between zero (at the 52-week low) to 100 (at the 52-week high). A stock in the middle of its 52-week range would get a Rel to 52 value of 50. This value is reported in one of the columns in our downloadable spreadsheets.
Decision Point also tracks the "Rel to 52" for each stock in certain market indexes, then we average them. The results make for an interesting indicator that give us a sense of how all the stocks are faring, not just the small percentage that are hitting the extremes of the one-year range. We have this indicator for the SPX, OEX, NDX, and Dow.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8af2970b-piOne of the things that stands out on this chart is the fact that, even in the depths of the bear market, the average Rel to 52 value was between 35 and 40, indicating that most stocks were not making new lows along with the S&P 500 Index. Conversely, notice how the Rel to 52 near the March 2004 market top was about 87, indicating that most stocks were participating in the rally.
The thing to remember is that the Rel to 52 is affected not only by up or down price movement, but also by the changing width of the 52-week range. For example, you can see how the range expanded in 2003 up to the March 2004 high, at which point the range was 375 points. Since then the bottom of the range has been rising along the higher lows of the 2003 portion of the bull market, and now the range is only 120 points wide. In the event of a longer-term price reversal, new lows would begin expanding rather quickly because the bottom of the range is relatively close. While I have had my spreadsheets set to calculate and collect these data for several years, I had forgotten about it until just recently. There is probably more to learn from this chart as we study it and think about what we see, but it already offers a unique perspective on new highs and new lows.
Posted by Chip Anderson at 5:04 PM in Carl Swenlin | Permalink
November 06, 2004TOO EARLY FOR THE ALL CLEAR' BELL By Chip Anderson
Richard Rhodes
Two weeks prior, a major bullish key reversal' higher developed in the S&P 500 Index; this led to Friday's new relative high. Given this, proper sector' positions are required to take full advantage of racing with the strongest'. In the past this meant buying high-beta technology shares; but over the past month the cyclicals have outperformed technology.
This is a potentially negative signal; the March breakout above the February high, and the August breakdown below the May low each failed. This breakout/breakdown was very obvious to all players just as Friday's breakout; thus it is far too early to sound the all clear' bell.
That said, the Nasdaq Composite vs. MS Cyclicals ($COMPQ :$ CYC) ratio shows that once trends become engrained, they remain trending for 12-14 months. The September low in the ratio broke bullishly above trendline resistance and the 120-day moving average; if this current correction holds, and then breaks out above the 250-day moving averagethen a 10-12 month period of Nasdaq Composite outperformance will be confirmed. If not, the Friday's breakout is likely to be short-lived indeed.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8a9f970b-pi
Posted by Chip Anderson at 5:03 PM in Richard Rhodes | Permalink
November 06, 2004NEW ARTICLES IN CHARTSCHOOL, NEW BOOKS By Chip Anderson
Site News
IS THERE A GAP IN YOUR ANALYSIS? - A new article has been added to ChartSchool that covers the four main gaps and what they mean.Click Here to view the article.Give us feedback on what you think of this article about gaps.Other articles that have been added recently are Multicollinearity and Swing Trading.
NEW ADDITIONS TO BOOKSTORE - We have added a number of new books and a software product to our BookStore.You can see all the new additions here. Here are just a few new to the list:
The Logical Trader by Mark Fisher
Resistance Simplified by Michael Thomsett
Opening Range Breakout by Toby Crabel
Better Stock Trading by Daryl Guppy
Market Trading Tactics by Daryl Guppy
Performance Systems - a MetaStock plug in
Posted by Chip Anderson at 5:02 PM in Site News | Permalink
November 06, 2004Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
Nothing helps the markets like a lack of uncertainty. With the election resolved quickly, a big relief rally got underway on Wall Street with the Materials, Energy and Consumer Staples sectors posting the biggest gains. Let's go to the charts:
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8a65970b-pihttp://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8a6b970b-piNotice on the daily Dow chart above that Friday saw the index test its next mid-term resistance level - the 10,390 high set back in early September. Assuming that it continues higher next week, what are the Dow's next resistance levels? The answer appears clearly on our weekly Dow chart below: http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8a72970b-pi10,487 from mid-June and 10,570 from the beginning of April would be the next goals - but let's not get ahead of ourselves just yet...
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8a7d970b-pi
Back to the sector picture, notice that the strongest performing sectors over the past couple of days - Materials (AKA "Basic Industry"), Energy, and Consumer Staples - are positioned near the middle of our Sector Rotation model. That suggests that the current economic cycle is maturing. Confirmation of this possibility would occur if Consumer Staples and Consumer Services take off in the coming months while Technology and Finance continue to lag.
This week brings us to the next-to-last article in my series on John Murphy's 10 Laws of Technical Analysis.
LAW #10: KNOW THE CONFIRMING SIGNS:Law #10: Include volume and open interest. Volume and open interest are important confirming indicators in futures markets. Volume precedes price. It's important to ensure that heavier volume is taking place in the direction of the prevailing trend. In an uptrend, heavier volume should be seen on up days. Rising open interest confirms that new money is supporting the prevailing trend. Declining open interest is often a warning that the trend is near completion. A solid price uptrend should be accompanied by rising volume and rising open interest. - John Murphy
"Pssst! Hey you! Over here... Have I got a hot stock for you. It's in a hot sounding sector, momentum is moving higher and it's breaking out right now! A savvy investor like yourself shouldn't pass up such a golden opportunity. MDKI - Check it out!"
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8a87970b-piHopefully everyone reading realizes that I was just kidding above - but let's pretend some more. What's wrong with the above chart? Actually - nothing. MDKI is rallying after bouncing off of 3.20 and has just had a bullish MACD cross-over with the MACD in positive territory - all of those are very positive technical developments. The problem is what is not on this chart - Volume! Let's look at a different chart for this same stock:http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8a8f970b-piThis chart has the volume action overlaid in light red/black histogram bars behind the candlesticks. It also include the Percentage Volume Oscillator (PVO) which is essentially the MACD for volume. Suddenly things don't look so rosy for MDKI. Volume has been declining ever since the big spike up on October 8th. The rally over the past 3 days has occurred on ever lighter volume. In addition, the PVO (which indicates "volume momentum") is low and getting lower. This doesn't bode well for the short term.Of course, T/A is all about playing the percentages - there's nothing on this chart that guarantees that MDKI will head lower soon, but without the all important confirmation from Volume, the odds are not good.Side Note: John mentioned "Open Interest" in addition to volume. Open Interest is the number of options or futures contracts that are still unliquidated at the end of a trading day. A rise or fall in open interest shows that money is flowing into or out of a futures contract or option, respectively. In futures markets, rising open interest is considered good for the current trend. Open interest also measures liquidity. Unfortunately, StockCharts.com currently doesn't provide access to Open Interest information yet. Confirmation from volume is the way to go.Note: John's entire 10 Laws of Technical Trading can be found in our "ChartSchool" area under "Trading Strategies". If you missed any of my previous articles on Murphy's Laws, the ChartWatchers Archives page will take you to any of them.
Posted by Chip Anderson at 5:00 PM in Chip Anderson | Permalink
October 16, 2004NASDAQ MONTHLY By Chip Anderson
Arthur Hill
Monthly charts are good for perspective and some projections. First, you can see that both volume and the index steadily advanced from 1991 to 2000. Volume has leveled out over the last 4-5 years, while the index suffered a sharp decline to 1108. The recovery over the last two years carried the index back above 2000 and retraced a mere 25% of the prior decline.
Over the last nine months, the Nasdaq basically consolidated around 2000 and traded over to the lower trendline of the rising price channel. It looked as if this trendline was going to be broken in August, but the index managed to stave off the break and keep the channel alive (not sure about the kicking part).
Two things are clear. First, the last reaction low was at 1253 in Mar-03 (green arrow). The low came about with the breakout above resistance (red
line) in May-03. Second, the decline in 2004 is relatively puny compared to the prior advance (1108 to 2153). In fact, it looks like a mild correction or falling consolidation.
As a falling flag, a break above the June high (2056) would signal a continuation higher and project a move towards the upper trendline and 38% retracement. However, further weakness below the August low would break the trendline extending up from 1108 and call for a continuation of the prior decline (5133 to 1108). Gulp.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e89e7970b-pi
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
October 16, 2004THE SPX/VIX RATIO By Chip Anderson
Carl Swenlin
An indicator that has recently become quite popular is the SPX/VIX Ratio. I have tried to convince two of its proponents that it is a calculation that makes no sense, but to no avail. Nevertheless, I will present my argument here for your assessment.
Ratio calculations are most commonly used to demonstrate relative strength between two price indexes, or to determine the price acceleration/deceleration of a single index. For the relative strength calculation you divide one price index by another. For example the chart tools on both DecisionPoint.com and StockCharts.com web sites have an indicator named "Price Relative", which on the default setting will divide the selected stock price by the SPX. The resulting indicator is an index that rises and falls based upon the relative strength of the stock versus the SPX. For the Rate of Change (ROC) calculation for a single price index we simply divide today's price by the price from a previous date. This results in an indicator that expresses speed and direction of the price index. The SPX/VIX Ratio (which divides the S&P 500 by the CBOE Volatility Index) makes no sense because it divides a price index, with a theoretically infinite range, by a range-bound indicator index . The result of this calculation is an indicator that behaves quite differently when the S&P 500 is below 400, as it was in 1990, compared to when the S&P 500 was over 1500 points, as it was in 2000. You can see what I mean on the chart below.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e887a970b-piIt is hard for me to construct a rationale for this indicator, but I think the current assertions are that the recent ratio spike near 90 is warning that we are near another important top like the 2000 top, which also had a ratio spike near 90. I will not argue about whether or not we are near a major top -- it's possible -- but a single previous data point in a 15-year period doesn't prove the hypothesis. I think the VIX chart taken by itself is more constructive and informative. Note how the upward spikes mark periods of extreme fear brought on by severe market declines. Currently the VIX is near the lower end of its range, indicating that investors are very complacent; however, this behavior is much like it was in the 1990s, a time when the market was advancing. We can see by the historical range of the VIX that, while people are indeed complacent, they are not as complacent as they can get. As for the SPX/VIX Ratio, with all due respect to its proponents, it expresses a relationship that has no meaning. I think this is evident when we view the longer-term chart.
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
October 16, 2004THE 'WINDS ARE A CHANGIN' By Chip Anderson
Richard Rhodes
For all intents and purposes, the cyclical bull market that began in March-2003; and during the entire move to higher prices - S&P 500 Large Cap index performance 'lagged' that of the S&P 600 Small Cap index. However, the 'winds are a changin' as they say; the S&P 500/S&P 600 Ratio is showing signs of bottoming given the bullish declining wedge breakout.
If this is the case as we suspect, then subtle, but material change has taken place that will prompt the major market indices to move lower in a series of lower higher and lower lows...the definition of a downtrend.
Thus, if one is long...then one should define their risk tolerance at these levels; but if one were to be more aggressive...then short positions are warranted on all countertrend rallies.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e89a8970b-pi
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
October 16, 2004THANK YOUS, and BARGAIN BOOKS By Chip Anderson
Site News
THANK YOU - Thanks for the tremendous response to our latest survey.We are excited about not only the high percentage of participation, but also by the quality remarks and suggestions.As you know, your feedback is how we determine what services and features to add to your subscription service.
LAST CHANCE TO VOTE FOR STOCKCHARTS - Balloting for Stocks & Commodities magazine's "Readers Choice Awards" ends soon. Don't forget to vote for your favorite charting web site!
BARGAIN BOOKS - Many investors have taken advantage of our new bookstore section - Bargain Books.The books that are put there will always be discounted at least 45% or more. There is almost certainly a book you have always wanted - check it often as they won't last long.Once they are soldout, they will not be replaced.
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
October 16, 2004ROTATION OUT OF ENERGY AND MATERIALS By Chip Anderson
John Murphy
The biggest market feature of the week was the fact that Energy and Materials were the two weakest sectors. This is a reversal of recent trends. The loss of leadership by those two former leaders contributed to this week's market selling. At such times, money moving out of former leaders usually finds it's way into former laggards. We haven't seen too much of that yet. Utilities (Chart 1) and REITs (Chart 2) continue to hold up very well. That may be the result of low interest rates or, more likely, a pursuit of dividend-paying stocks. That may also explain why value stocks have done better than growth stocks. Two groups that usually attract money in this environment are consumer stocks -- either staples or retailers. Although neither group has created much excitement, there are some stocks in each group that are showing good chart action. Yesterday, I showed McDonalds hitting a new six-month high. Here are a few others.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e89ba970b-pihttp://blogs.stockcharts.com/.a/6a0105370026df970c0105371e89c4970b-pi
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
October 16, 2004Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
Last time we talked (on October 2nd) there was reason for optimism with the Dow. Oh, how times have changed...
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8b01970b-piUnfortunately for the bulls, the promising uptrend that was created by the trough at 9,977 didn't fully materialize. After flirting with the red 200-day MA line around 10,390, the index retreated back below 10,000. Friday's 39 point gain probably won't hold up as the market really needs to test the August low (9783) before it can start another strong rally.The other important development on this chart has to do with the 200-day MA. Can you spot it?The 200-day MA is now moving lower for the first time in quite a while. In fact, you have to to find the last time the Dow's 200-day MA was moving lower. This is a very bearish development and means that everyone's default position on stocks should be bearish.This week's issue is jam-packed with charts and commentary starting with my look at John Murphy's 9th Law of Technical Trading. John follows that with the key reasons for the recent market weakness. Richard Rhodes looks at the Large Cap/Small Cap ratio, Carl looks at the Large Cap/Volatility Ratio, and Arthur Hill (who has a great article is this month's Stocks & Commodities magazine) looks at the long-term Nasdaq chart. You'll want to see why he ends his article with the word "Gulp"...
LAW #9: TREND OR NOT A TREND Law #9: Use ADX. The (ADX) line helps determine whether a market is in a trending or a trading phase. It measures the degree of trend or direction in the market. A rising ADX line suggests the presence of a strong trend. A falling ADX line suggests the presence of a trading market and the absence of a trend. A rising ADX line favors moving averages; a falling ADX favors oscillators. By plotting the direction of the ADX line, the trader is able to determine which trading style and which set of indicators are most suitable for the current market environment.
As we saw with the Dow Jones chart in the last issue, determining when a new trend has started is difficult at best. If only there was a way to see how "strongly" a stock is trending. Well, that's exactly what the ADX line does! Check it out:
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8b0c970b-piHere's a longer-term, weekly Dow chart. The blue vertical lines show where the Red and Green +DI and -DI lines cross inside of the ADX indicator window. Ignoring some lag -which is common with a 14-week indicator like this - you can see that those blue lines divide the chart into a downtrending period, an uptrending period, and a mixed period (from April onwards). The best example of using the black ADX line that John was talking about can be seen during the downtrend period (from April 2002 to May 2003).
Initially, the ADX line is quite low as the new downtrend gets established. By July 2002, it is rising quite quickly meaning that the downtrend is strengthening. This is the time when, according to John, you should favor moving averages for trading signals.
The downtrend bottoms out in early October, just as the ADX hits its peak. The ADX then begins a slow decline that lasts until May 2003. That is the period on the chart during which John says you should favor Oscillators for trading signals.
More Info:
The ADX was developed by Welles Wilder as part of his "Directional
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
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October 02, 2004TLT IS LOOKING OVER THE CLIFF AGAIN By Chip Anderson
Arthur Hill
It’s beginning to look like déjà vu all over again for the iShares Lehman 20+ Year T-Bond Fund (TLT). This bond ETF has been in a steady uptrend 20+ since May as rates have fallen. May just happens to coincide with the Fed’s first interest rate hike. Rates have risen at the short end of the curve (<2 years), but declined at the long end and TLT represents the long end (>10 years).
As noted in last week’s report, TLT looks vulnerable to a pullback, consolidation or even a sudden reversal. This bond ETF traded to the upper trendline of a rising price channel and formed a bearish engulfing this week. Notice that a large bearish engulfing pattern foreshadowed the Jun-03 peak and an island reversal foreshadowed the May-04 reversal.
As the recent past shows, TLT can fall fast and the employment report is due next Friday. The last two declines erased 15% and 12 % in around two months (16-Jun-03 to 14-Aug-03 and 17-Mar-04 to 13-May-04). These are big moves for bonds and it was difficult to get out of the way as a virtual free fall occurred. Weak employment numbers and a softening economy have propped up TLT for the last few months. Recent GDP numbers show a firm economy and a strong employment report would surely send TLT tumbling further.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8867970b-pi
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
October 02, 2004THE 9-MONTH CYCLE By Chip Anderson
Carl Swenlin
We are currently expecting a price low associated with the 9-Month (40-Week) Cycle, but let's first review some cycle basics.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8874970b-piThe vertical lines show the location of all Nominal 9-Month Cycle troughs since 1996. The normal expectation is that the price index will arc from trough to trough, but sometimes other forces override normal cycle pressures, as happened in 1999 and 2000 when the market was transitioning from secular bull to secular bear. Because we are depicting "nominal" cycle projections, all the lines are of equal distance from one another, and they show where the cycle trough is assumed to be located. In other words, we believe that cycle periodicity is consistent, but price movement doesn't always conform to the cycle ideal.
The price crest associated with the current 9-Month Cycle occurred in the first quarter. Early tops are often followed by severe declines; however, the market entered a consolidation pattern instead. It appears that the price low for the cycle occurred in August, and that the current retracement toward that low could be a successful retest which coincides with the cycle trough, which is due now.
Bottom line is that we're looking for an important price low associated with the cycle trough, but that low can arrive a month or more on either side of the projected date. Assuming a successful retest, the cycle structure suggests that a rally out of the cycle trough could result in prices finally making a breakout from the trading range. However, at this writing, we have negative readings on other indicators, and there is considerable downside risk until the retest is complete. While we wait, let us be reminded that the cycle could run long by several weeks, in which case the August lows would be vulnerable.
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
October 02, 2004RELUCTANTLY BULLISH By Chip Anderson
Richard Rhodes
Our comments will be quite short and to the point: In bull markets the more �aggressive' semiconductor sector leads the more �defensive' healthcare sector as market participants favor stocks with higher �betas' in order to increase performance. Over the past several weeks, that is exactly what has started to happen as many hedge fund managers have quite a bit of performance to make up between now and the end of the year.
Looking at the technicals, the Drug/Semis ratio moved back below its 100-week moving average this week (see chart below). Given that development, we must consider last week's trading action to be bullish for equities. While we are uncomfortable with this viewpoint given the major structural issues at hand, the current market environment demands that we listen to the technicals and thus we are closing out selective short positions and putting on selected long positions.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e89ae970b-pi
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
October 02, 2004NEW BOOKSTORE SECTION, SURVEYS, AND NEWSWEEK! By Chip Anderson
Site News
NEW BOOKSTORE SECTION - We just started a BARGAIN BOOKS section in our bookstore.You will find a number of good books on charting and analysis at great discounts.You will always find books that are discounted at least 45% from their retail price.Take a look, there is a good chance you will find something you have been wanting.Be sure to check it often, as once we have sold out of an issue in the Bargain Books, it will not be available again.Also, don't forget to check the NEW ADDITIONS section to see the latest books on charting and analysis. No book will remain in that list more than 60 days. Happy Shopping!
AAII NAMES STOCKCHARTS A "TOP SITE" - StockCharts.com was featured in AAII's 8th Annual Guide to the Top Investment Web Sites this month winning a "Top Site" designation!
NEWSWEEK MAGAZINE AD - Have you seen our ad in the Oct 4th 50+ issue of Newsweek yet? We thought we'd try something a little different; to a different audience.If you saw it, send us a feedback and let us know what you thought!
GENERAL SURVEY HEADS-UP - It is that time of year again.Soon we will be sending out a survey to all subscribers asking for feedback on our services.Why do we do this?This is absolutely the best way to find out where we need to focus our efforts on continuing to provide you with the best charts and analysis tools on the web.We hope you will spend some time and give the survey a thorough and thoughtful response.
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
October 02, 20044TH QUARTER RALLY, AND WHY NASDAQ LEADERSHIP IS IMPORTANT By Chip Anderson
John Murphy
NASDAQ 100 TOPS 200-DAY LINE... One theme I keep repeating is the need for Nasdaq leadership during any fourth quarter rally. I'm happy to report that on the first day of the fourth quarter the Nasdaq 100 led a very impressive market rally that could carry through the rest of the year. Chart 1 carries three bullish pieces of information. First, the Nasdaq 100 Shares (QQQ) broke through their 200-day moving average. Second, the QQQ did so on the strongest volume in a month. Third, it was the strongest percentage gainer of the major market indexes and continues to show new market leadership. The QQQ/S&P 500 ratio line, which bottomed in mid August, hit a new two-month high today. Let me demonstrate why Nasdaq leadership is so important to the rest of the market.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e89fc970b-piWHY NASDAQ LEADERSHIP IS IMPORTANT ... Chart 2 is a ratio of the Nasdaq 100 divided by the S&P 500. When the ratio is rising, the Nasdaq is outperforming the S&P which is good for the market. When the ratio is falling, the Nasdaq is underperforming the S&P which is bad for the market. The Nasdaq/S&P ratio bottomed in October 2002 (green circle) which marked the end of the three year bear market that started in early 2000. The Nasdaq led the S&P higher throughout the entire 2003 market rally. The Nasdaq/S&P ratio peaked at the start of 2004 (red circle) which started a downside market correction that lasted until August. The green arrow to the bottom right shows the ratio bottoming in mid-August. . The main point of the chart is to demonstrate that a rising ratio (Nasdaq rising faster than the S&P 500) is a necessary ingredient if the market is starting another upleg.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e89fe970b-pi
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
October 02, 2004Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
There's some good news on the Dow chart this week. Despite Thursday's Merck-induced dip, the index moved higher on Friday and solidified last Tuesday's reversal at the 9977 level. That reversal was very significant as it was the first step in establishing a new uptrend for the index. Check out the chart below to see what I mean:
.http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8a4f970b-piThe turn at 9977 was much higher than the previous reversal back in August at 9783. While that's a very bullish sign, cautious ChartWatchers might want to wait for confirmation before getting too excited. Classical peak-and-trough analysis says that confirmation will happen when/if the index moves about the previous peak at 10390.Why be cautious right now? Well, we only have to look back to the short-lived uptrend in late July for the answer. July's low of 9913 was higher than the previous low (the 9852 from mid May), but confirmation didn't happen and the index moved even lower by mid-August.Still, with the 50-day MA starting to move higher and the PPO and CMF turning up, things look positive for the short-term.Before I get into this week's look at Murphy's next law, I wanted to remind everyone to check out all of the areas of the newsletter including John Murphy's call for Nasdaq leadership and Carl Swenlin's look at the amazing 9-month cycle effect.
LAW #8: KNOW THE WARNING SIGNS Law #8: Trade MACD. The Moving Average Convergence Divergence (MACD) indicator (developed by Gerald Appel) combines a moving average crossover system with the overbought/oversold elements of an oscillator. A buy signal occurs when the faster line crosses above the slower and both lines are below zero. A sell signal takes place when the faster line crosses below the slower from above the zero line. Weekly signals take precedence over daily signals. An MACD histogram plots the difference between the two lines and gives even earlier warnings of trend changes. It's called a "histogram" because vertical bars are used to show the difference between the two lines on the chart. - John Murphy
Check out this chart of QQQ as you read John's description of Law #8. Above the chart is the standard daily MACD plot that contains the thick MACD line, the thin MACD Signal line and a small version of the MACD Histogram. Behind the QQQ candlesticks is a much larger version of that same daily MACD Histogram. Beneath the chart is the weekly MACD indicator (Just multiply the daily parameters by 5).http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8a57970b-piSo what do you think? Bullish or bearish? According to Law #8 is now a good time to buy the Q's or short them?
Hopefully, you can see that the Q's look pretty bullish right now from this chart. Not only has the daily MACD lines just had a buy signal - which you can see because the Histogram has just moved back into positive territory - but the weekly MACD has also just given a buy signal - its first one in a long time.
Note: I used the Beta version of our new charting tool - SharpCharts2 - to create this chart. Our older charting tool cannot place indicators "behind" the price plot like I did with the histogram above.
More Info:
In addition to our 4-part ChartSchool article on the MACD, we also have Gerald Appel's book "Winning Market Systems" in our bookstore.
Note: John's entire 10 Laws of Technical Trading can be found in our "ChartSchool" area under "Trading Strategies". If you missed any of my previous articles on Murphy's Laws, the ChartWatchers Archives page will take you to any of them
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
September 18, 2004CYCLICALS OUTPERFOMING STAPLES By Chip Anderson
Arthur Hill
There is a most interesting development between the Consumer Discretionary SPDR (XLY) and the Consumer Staple SPDR (XLP). Relative to the S&P 500, Consumer Discretionary stocks (cyclicals) surged (green arrow) over the last few weeks while Consumer Staple stocks declined (red arrow). Weakness in staples and strength in cyclicals bodes well for the market and the economy overall. In addition, the pattern looks like a large falling wedge and it would take a move above the June high to turn bullish on cyclicals again.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8a53970b-piTaking this relationship one step further, we can see that Consumer Discretionary shares have recently started outperforming Consumer Staples shares. This price relative shows the Consumer Discretionary SPDR (XLY) relative to the Consumer Staple SPDR (XLP). Notice that XLY outperformed XLP from Feb-03 to Jan-04 and this coincided with stock market strength. In addition, XLY underperformed from Jan-04 to Aug-04 and this coincided with stock market weakness. Also notice the breakout in Apr-03 and the recent breakout in Sep-04. If this relationship is any guide, outperformance by XLY bodes well for the overall stock market.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8a55970b-pi
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
September 18, 2004A LONGER-TERM MARKET VIEW By Chip Anderson
Carl Swenlin
Daily charts can be used to fine tune entry and exit points, but they should be interpreted within the context of what weekly charts and indicators tell us. For example, some shorter-term indicators show the market to be overbought, but the weekly chart implies that another leg of the bull market is just beginning.
At the beginning of this year the market began a corrective phase that lasted about eight months, climaxing with the shakeout selling into the August lows. As you can see on the chart, bull market correction often conclude when the price index dips below the moving averages. The fact that prices are now back above the moving averages (which are also rising), is a good sign that the correction is over.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e89bc970b-piAnother good sign is that the Price Momentum Oscillator (PMO), which topped in overbought territory in the first quarter, has now bottomed near the zero line. You can see how the PMO remains above the zero line during bull market corrections -- in bull markets the zero line is an oversold level for the weekly PMO.
There is nothing not to like on this chart. A lengthy correction has been successfully concluded and the market environment is very positive. I have no opinion on how long or high the rally will go, but I assume it will last for at least a couple of months. We want to see the PMO continue to rise and cross above its 10-EMA. If the PMO turns down below its 10-EMA, it would be a strong sell signal.
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
September 18, 2004TIME TO SHORT TECH SHARES? By Chip Anderson
Richard Rhodes
The current Nasdaq Composite rally is at an �inflection point� much in the same manner it was during the week of July 14th as prices slid to new yearly lows. The simple indicator we are looking at is the 60-week moving average, which in the past has an enviable record as an inflection point. If prices breakout above this level, then higher prices will develop; however, if the 60-wma acts as resistance as we believe it shall given the declining 200-wma�then a larger decline will be underway. Thus, if one is inclined to be short technology shares�this is certainly the �best risk-adjusted� time in which to do so.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8908970b-pi
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
September 18, 2004BUZZING ABOUT MURPHY By Chip Anderson
Site News
MURPHY SURVEY RESULTS - Last week we conducted a customer satisfaction survey for the Murphy Market Message. As a direct result of that survey, we've added a couple of new features to the "John Murphy" section of our site including a "Comments" box that allows Market Message subscribers to tell John how he's doing. The comments that readers have been sending in have helped John better target his recent articles to his audience. This results have been nothing short of spectacular. See the yellow box above for examples of what readers are now saying about the Murphy Market Message. Thanks to everyone that participated in the survey! DATA FEED STATUS - The performance of our new Thomson data feed has more than met our expectations. Even under the heavy load we experienced last week, there were no performance problems at all. In fact, we've been able to increase the speed of our Scan Engine updates and Market Summary pages significantly as a result.
There are still several data quality issues that we are pursuing with Thomson however. These include problems with market breadth indexes like $TICKQ and $TRIN as well as issues with our commodity indices. Intraday data spikes are also appearing more than we'd like.
Good progress is being made on all of these remaining issues however we will continue to press Thomson for solutions until everything is back to the way it was before the change-over.
SETTING THE RECORD STRAIGHT - Here are several misconceptions that people had in our recent round of surveys:
"Let me pay by check." - We do, just use the form on this page. "Only 3 years of historical data." - We have data going back to 1990 for most stocks. See this FAQ article for details. "No cross-hairs to examine charts with." - Just click on the "Annotate" link below any SharpCharts, then click once on the "Change Info Mode" button. "Never heard back from you." - This is almost always due to poorly configured spam filters. Make sure that yours is letting message from StockCharts.com through. [*]"I was never able to login." - Over 70% of all login issues are due to people failing to type in the "@isp.com" part of their user ID.Hopefully, this will help others avoid similar problems in the future.
HONORABLE MENTION FROM BARRON'S - Check it out!
"StockCharts.com makes its debut this year with an Honorable Mention for technical analysis, replacing ClearStation. We've always liked ClearStation's three-pronged approach to investing and its framework for the sharing of charts, but StockCharts.com more capably covers the nitty-gritty of technical analysis." - Barron's Online 9/13/2004
Wonder what took them so long? Considering that we've won the Reader's Choice award from "Stocks & Commodities" magazine for three straight years...
HEY! WHY AREN'T WE ON THE BALLOT? - Speaking of TASC, the balloting for the 2005 awards is currently open to TASC subscribers. Unfortunately, if you'd like to vote for us, you'll need to enter StockCharts.com as a write-in candidate in the "Subscription Internet Analytical Platforms" and "Technical Analysis Websites" categories. Click here to get started. Note: You don't have to vote in all the categories, only the ones you are familiar with.
We are deeply appreciative of everyone who votes for us in this important industry survey!
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
September 18, 2004ON USING MOVING AVERAGES By Chip Anderson
John Murphy
WHY WE USE MOVING AVERAGES ... You've probably noticed that I rely very heavily on moving average lines. There are some good reasons for that. The main one is that they are one of the simplest ways to spot trend changes. But not all moving averages are equal. The 50-day moving average, for example, is most useful in spotting "intermediate" trend changes which can last anywhere from one to three months. A 20-day moving average is better for spotting "short-term" trend changes which can last for days or weeks. The 200-day average helps determine the direction of the "long-term" trend of a market, which can last for months and even years. Of the three, the 200-day average carries the most weight. For timing purposes, however, the 20- and 50-day lines are more useful. My favorite is the 50-day line. While a crossing of the 20-day line gives an earlier trend signal, the crossing of the 50-day line suggests that the trend has more staying power. This is true for the timing of entry and exit points. Buy signals are given when the price crosses over a moving average line. In that sense, upside moving average crossings are good for buying purposes. Crossings below the moving average lines can be used for selling purposes. They're not perfect, but they are very helpful. Moving averages also provide good discipline. A simple rule to sell a stock that closes under its 50-day moving average can prevent a lot of losses.
USING THE 50-DAY AVERAGE ON GE... The next chart shows why I find the 50-day most useful. Since we're following GE today, let's compare the daily price of GE to its 50-day average for the last year. The blue line is the 50-day average. . Buy signals are given when the price closes over the blue line (see green circles); sell signals are given when the stock closes below the blue line (see red circles). The first two buy signals were given last December and May. In both cases, the stock rose after that. The first sell signal was given during March. The stock fell heavily after that. . Let's examine the last two signals more closely and bring the 200-day average into play for GE.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e88f0970b-piCOMBING MOVING AVERAGE LINES... The next chart examines the last two GE moving average "signals" and also shows why it's important to keep an eye on the 200-day average. GE gapped under its blue 50-day average in early August (see red circle). As it turns out, that wasn't a great signal. Notice, however, that GE stabilized above its (red) 200-day average (see red arrow). That suggested that the "long-term" trend was still up. Within two weeks of issuing a "sell" signal, GE crossed back over its 50-day line to issue a new "buy" signal. That signal is still in effect. Notice that GE never closed back under its 50-day line after issuing a buy signal. That's another test of a moving average signal. Once a market closes above a moving average, that line becomes a support level. If it closes under the moving average, the signal becomes suspect. The blue arrow in late August shows the stock dipping under the blue line "intra-day" before closing higher. Intra-day moves don't count. Only the "closes" matter. This example shows the strength and weakness of moving averages. They may cause occasional "whipsaws", but they help keep us on the right side of the market. That's why we use them and why I call your attention to markets that cross their 50- and 200-day averages. It's a simple way to alert you to potential trend changes. You can then examine the market more closely using other charting tools. For weekly charting, the 10-week average replaces the 50-day, and the 40-week replaces the 200-day.
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e88f4970b-pi
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
September 18, 2004Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
We had some good response to last issues do-it-yourself approach to analyzing the Dow chart so let's try it again. Ready? Study the chart below and decided for yourself if it is bullish or bearish and why:
http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8b51970b-piMy take is that this chart looks pretty bearish right now. The index appears to be struggling with both the 200-day MA and the 10,300 resistance level. It put in a local top at 10,390 on Sept. 8th but quickly fell back below 10,300 and has moved sideways since then. Unfortunately, the Sept. 8th top is still well below the 10,487 top that appeared in June. That means that the index is still in an intermediate term downtrend - see the "Weekly View" on our Dow Jones Gallery Page for a clearer view of this trend.
The MACD momentum indicator has rolled over and is crossing back below its signal line. The price-and-volume-based CMF indicator has just moved back below zero confirming a short-term bearish stance. Finally, the 50-day MA remains far below the 200-day MA something that requires technicians adopt a bearish bias in their analysis.
Are there any bullish signs on the chart? Well, the 50-day MA is starting to turn up and the 200-day MA continues to rise however to majority of the technical signs point lower right now.
So how'd you do? Do you agree or disagree? Even if you don't agree, it is always instructive to compare your chart reading skills with someone else's. Hopefully this has helped.
For more technical opinions, keep reading! You'll find articles by John Murphy, Richard Rhodes, Carl Swenlin, and Arthur Hill in addition to the next installment in my continuing tour of "Murphy's Laws". Enjoy!
LAW #7: LEARN THE TURNSLaw #7: Track oscillators. Oscillators help identify overbought and oversold markets. While moving averages offer confirmation of a market trend change, oscillators often help warn us in advance that a market has rallied or fallen too far and will soon turn. Two of the most popular are the Relative Strength Index (RSI) and Stochastics. They both work on a scale of 0 to 100. With the RSI, readings over 70 are overbought while readings below 30 are oversold. The overbought and oversold values for Stochastics are 80 and 20. Most traders use 14-days or weeks for stochastics and either 9 or 14 days or weeks for RSI. Oscillator divergences often warn of market turns. These tools work best in a trading market range. Weekly signals can be used as filters on daily signals. Daily signals can be used as filters for intra-day charts. - John Murphy
John pretty much covered the key points in his description of Law #7. Here's an example of what he's talking about: http://blogs.stockcharts.com/.a/6a0105370026df970c0105371e8b5e970b-piFirst, notice that the RSI doesn't move from overbought to oversold as "wildly" as the Stochastics oscillator does - you'll rarely find an RSI reading above 90 or below 10 and your often find the RSI indicator near 50. On the other hand, the Stochastics Oscillator "loves" to swing quickly between readings below 10 and readings above 90 and it truly"hates" hanging around 50 - while it often reverses near there, it rarely stays near the center line for long.
Because the Stochastics Oscillator is so jumpy, we offer a "Slow" and a "Fast" version. The fast version is essentially the "raw" version of the oscillator. The slow version is simply the fast oscillator that has been smoothed some by running it through a Moving Average calculation. You can see on the chart above how the two lines are similar, but the "Slow STO" link is smoother.
I've added some annotations to the chart that point out one of the "Divergences" that John mentioned which warn of market turns. You can see where both of the Stochastic Oscillators put in a higher trough when AMZN was putting in a lower one. (The RSI was characteristically non-committal at the time.) Soon afterwards, the stock zoomed up 20+ percent. There's another divergence later on that same chart - see if you can spot it.
More Info:
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink