一个笨蛋的股指交易记录-------地狱级炒手

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March 20, 2004The AD Volume LinesBy Chip Anderson
Arthur Hill
Breadth stats reflect continued preference to be overweight small and mid-caps, while underweight techs and large-caps. As the AD Volume Lines show, the S&P Midcap Index and S&P SmallCap Index remain the strongest. Both indicators for MID and SML remain above their 89-day EMAs, although the AD Volume Line for MID is currently testing the 89-day EMA (black arrow). The AD Volume Line for the Nasdaq 100 declined below its 89-day EMA in early March and remains weak (red arrow). The AD Volume Line for SPX is finding some support near the 89-day EMA and has yet to make a clean break (blue arrow).

Posted at 05:05 PM in Arthur Hill | Permalink


March 20, 2004DETERMINING THE TREND AND CONDITION OF THE MARKETBy Chip Anderson
Carl Swenlin

The trend and condition of the market should dictate the kind of actions we will take, so these are the first things we should evaluate during the process of making investment/trading decisions. This process is necessary for all time frames, but for this article I will focus on the longer-term.
TREND: On a weekly-based chart we can evaluate the longer-term trend of the market using trend lines and moving averages. We can see that the long-term trend line drawn from the 2000 price top has been violated to the up side, and a new up trend is in the making. For a more objective definition of the trend I use the 17-week (fast) and 43-week (slow) exponential moving averages (EMAs). When the fast EMA crosses the slow EMA, it generates a buy or sell signal depending on the direction of the crossover. Currently, the 17-EMA is above the 43-EMA, so a buy signal is in effect and the trend is officially up. The 10-year period on the chart shows how effective the 17/43-EMA relationship is for catching long-term trends.
CONDITION: Next we want to determine the condition of the market within the trend. Specifically, is it overbought or oversold? Again we can use the relationship of the 17/43-EMAs, only this time we look to see how far they are apart. Comparing other periods where corrective action has taken place, we can see that the 17-EMA is well above the 43-EMA and showing the market to be very overbought. Also, the weekly PMO (Price Momentum Oscillator) has had a very long run from its October 2002 low, and it too is very overbought.
Finally, we can see that the market is already reacting to the overbought condition. The rising trend line from the March 2003 price low has been violated, and the PMO has topped and generated a crossover sell signal. These events imply that the current correction will continue for several more weeks; however, in the context of a long-term rising trend it is not likely that we have seen the final top for the bull market, but, of course, that remains to be seen.
ACTIONS: In a rising trend we look for opportunities to buy, but during a correction it is not likely that we will find very many. In fact, with the correction in progress, the more immediate priority will be to appropriately adjust stops on long positions and raise some cash for the time when the correction is finally over and new buying opportunities begin to pop up all over the place.


Posted at 05:04 PM in Carl Swenlin | Permalink


March 20, 2004NOT YOUR "GARDEN VARIETY" CORRECTIONBy Chip Anderson
Richard Rhodes
The past two-month trading period is one at the present time considered a "correction"; however, there are nascent signs it may be something quite a bit larger than just your "garden variety" correction. First, we note that trendline resistance is proving its merit by turning prices lower, which up to this point during March has allowed prices to form an "outside reversal month" lower. Now, whether this collective pattern remains in force and the monthly close near its low will be determined next...but it is negative nonetheless at this point.

Secondly, and a bit more of a "conundrum" if you will - is the current price level relative to the location of the both the 40-month and 50-month moving averages...it is in between.

What to do? Our strategy will be simple - we will respect the correction to 1060; but at that point make a determination as to the strength of the rally off that low. If strong - we become aggressive buyers until otherwise noted; if weak...then we aggressive sellers upon its completion. Outside of this - the ancillary technical evidence suggests the probability of the latter is greater...but we must remain objective.

Posted at 05:03 PM in Richard Rhodes | Permalink


March 20, 2004WHAT'S NEW IN BETA 3By Chip Anderson
Site News

SHARPCHARTS2 BETA 3 - The improvements just keep coming! This week, we've added the Money Flow Index (see Chip's article above), Equivolume charting, support for annotations, the ability to email charts to others, the ability tostore charts in your browser's "bookmark" area, and a special color scheme for people with color deficient vision. Click here to get started and, as always, let us know how we're doing! P&F CHARTS GAIN MORE SHARPCHARTS FEATURES - One of the "hidden gems" of our SharpCharts charting engine has been the "Price-by-volume" overlay that lets you see significant support/resistance levels easily. Now P&F Charts have that same feature! Check it out:

Posted at 05:02 PM in Site News | Permalink


March 20, 2004NASDAQ 100 LEADS MARKET LOWER.By Chip Anderson
John Murphy
NASDAQ 100 LEADS MARKET LOWER... The Nasdaq 100 QQQs were the worst percentage losers on Friday and reflected continuing weakness in the largest technology stocks. The daily chart shows the QQQ ending the week on a down note. The only saving grace was the relatively light volume. With the SOX leading the way down today, it looks like the QQQ will probably test its December low and its 200-day average just above 34. The final chart shows the hourly bars for the past week. Of particular notice was the last hour's volume bar. In the last hour of trading on Friday, the QQQ fell to a three-day low on the heaviest volume for the week. That shows some fairly heavy selling near the close on Friday.

Posted at 05:01 PM in John Murphy | Permalink


March 20, 2004Hello Fellow ChartWatchers!By Chip Anderson
Chip Anderson
The current market pull-back is getting serious. Check out the current Nasdaq chart:

See the long "Price-by-Volume" bar sticking out from the left side of the chart around the 1900 level? That represents the largest support level for the Nasdaq during the course of the past 12 months. If prices were to move below 1875, there's not much near-term historical support left. Staying above 1900 is very important for the index right now.
Our other newsletter contributors have more on the current state of the market below, but first I want to look at the newest indicator we've added to our site - the Money Flow Index.

THE MONEY FLOW INDEX

Since the site first got started, we've provided everyone with one of my favorite indicators, the Chaikin Money Flow (CMF). A variation of the Accumulation/Distribution line, the CMF combines price and volume movements into a single indicator that can be used to verify signals generated by other "price-only" indicators like the RSI and the MACD.
While the CMF continues to serve us well, we've just added its close cousin, the Money Flow Index in the new Beta release of our SharpCharts2 charting engine. The Money Flow Index (MFI) is a bounded oscillator that ranges between zero and 100 with an "overbought" level at 80, an "oversold" level at 20, and a center line at 50. Whereas the CMF uses the position of the close relative to the mid-point of each day's bar, the MFI uses the average of each day's high, low, and closing price to determine if money is "flowing" into or out of the stock.
In many ways, the MFI is less sophisticated than the CMF and that simplicity can result in premature signals. Consider the following chart:

Notice that the MFI topped out on 22-Dec (blue vertical line) whereas the CMF waited until the first week of January before turning lower for good (black vertical line). Of course, this suggests an extremely valuable use for the MFI - as a confirmation indicator for the CMF. Savvy chartwatchers would have noticed the developing divergence between the MFI and the CMF during the final weeks of 2003 and would have become more cautious about their MSFT positions.
As with all of our charting tools, I urge you to start using and experimenting with the MFI and see if it can help your investing track record. Remember that, for now, only our Beta edition of SharpCharts2 has the MFI (and TRIX) indicators. To get started, click here.


Posted at 05:00 PM in Chip Anderson | Permalink


March 06, 2004SECTORS AND EXPANSIONBy Chip Anderson
Arthur Hill
Relative strength or price relative charts provide an idea of which sectors will lead and lag over the next few weeks and months. These are formed by dividing the Sector Index by the Wilshire 5000 or another broad market index. These particular four sectors are positioned according to the place in an economic expansion in which they perform best. Techs and Transports are supposed to perform best during the early expansion phase, while Basic Materials and Energy perform best in the late expansion phase.
Sector performance suggests that we are in the late phase of an economic expansion. Techs are starting to weaken as the price relative broke below its trendline and Transports have totally fallen apart. The two standout performers are Energy and Basic Materials. Relative to the Wilshire 5000, the Energy SPDR (XLE) broke above resistance in December and continues to  forge new highs. The price relative for the Basic Materials SPDR (XLB) fell earlier this year, but bounced in February and remains in an uptrend.

Posted at 05:05 PM in Arthur Hill | Permalink


March 06, 2004LONG-TERM SELL SIGNAL FOR GOLD?By Chip Anderson
Carl Swenlin
When the monthly PMO (Price Momentum Oscillator) reaches a range extreme and changes direction, it is a pretty good indication that the long-term trend is changing. PMO direction changes in the middle of the range can often just be "noise", but, when the PMO has a long, sustained move in one direction and changes direction at an extreme overbought or oversold level, it demands our attention.
Such is the case now. The monthly PMO has been moving up for nearly three years, and it turned down this week. The PMO direction change is not official until the end of March , and, if gold rebounds from this correction, the PMO could still be rising as of the close on March 31. However, the situation is critical. Price has failed to hold above the long-term resistance around 415, but it remains above the the most accelerated rising trend line. If that support fails, chances are that gold will enter a correction lasting at least several months.

Posted at 05:04 PM in Carl Swenlin | Permalink


March 06, 2004THE "CONSUMER" SECTOR RATIOBy Chip Anderson
Richard Rhodes
The stock market environment over the past six weeks has been fraught with a good deal of rotation out of specific indices such as the Dow and Nasdaq and into the S&P 400 midcaps and S&P 600 small caps. And it is precisely this rotation effect that we believe is developing in the weeks and months ahead between the Consumer Discretionary shares (XLY) and Consumer Staples shares (XLP).
In essence, the relationship between these two is a "signal" into investor confidence regarding spending patterns - a high ratio such as at 1.40 or above current levels mind you - indicates a belief stronger spending patterns are going to continue. However, we believe that given debt the incremental stimulus amount is likely to fall in the future means a "reversion" towards the mean will develop. Our target for this is the longer-term 200-week moving average which implies the recent decline off the highs is part and parcel of the first leg lower. Hence, we would be buyers of consumer staples and sellers of consumer discretionary and in some cases becoming outright short of discretionary shares - in particular several retailers.

Posted at 05:03 PM in Richard Rhodes | Permalink


March 06, 2004SC2 BETA 2 NOW READY!By Chip Anderson
Site News
SHARPCHARTS BETA 2 NOW AVAILABLE! - We're continuing the roll-out of our new charting engine - SharpCharts 2 - with the release of the second "Beta" version this week. Here's the scoop on what's new in Beta 2:

CandleVolume Charts - The width of each candle is proportional to the corresponding volume for that day. Select "Candlevolume" from the "Style" dropdown. Moving Average Channels and Price Envelopes - Two new overlays that can help you spot oversold or overbought stocks. TRIX Indicator - We've added the TRIX to your arsenal. More Duration Choices - Quickly create 9 month and 5 years charts. Historic Intraday Charts - Intraday charts now end on whatever day you specify. User Defined Chart Widths - Specify exactly how wide you want your chart. Multiple Date Scales - You'll always see a date scale just below the price bars no matter how many indicator panels you add. Displaced Moving Averages - Add an optional second parameter to SMAs and EMAs that will displace them by that many periods. Here's an example:  


Grid Density - Select exactly how much "gridness" you want on your chart. Additional Chart Styles - Area, Dot, Dashed Line and Histogram styles. Cumulative Charts - Plot AdvDec Lines accurately now.
• Print Version - Click on the link to print just the chart.

(Note that some of these features are only available to members that are logged in to their accounts.)
To get started, visit this link: http://stockcharts.com/h/sc
As always, let us know what you think of our progress. There's still lots of work left for us to do - annotations, favorites, overlays and more. But we're getting there!
NEW SITE TOUR NOW ONLINE - We've revamped and updated our online site tour. Check it out to see all of the great things that StockCharts.com has to offer. Even veteran ChartWatchers may learn something...
P&F REVERAL MARKERS - There's a new option on our Graphical P&F Charts that shows you where the next reversal will take place. See the Charts #10 and #11 in the ChartWatchers Public List area for examples of the great new feature.
MORE SHARPCHARTS 2 SITINGS - Our new charting engine is now the charting force behind our free CandleGlance andGalleryView pages making those charts some of the best available on our website!



Posted at 05:02 PM in Site News | Permalink


March 06, 2004PLUNGING BOND YIELDS BOOST FINANCIAL SHARESBy Chip Anderson
John Murphy
WEAK JOBS REPORT A MIXED BLESSING ... Today's weak job report was a shocker. It's weakness, however, is a mixed blessing. It's a potential negative for the economy since it erodes consumer confidence. At the same time, its negative economic message pushed bond yields sharply lower. Lower interest rates are good for the economy. That's probably why the stock market recovered today led by rate-sensitive stocks. But there's more. Lower interest rates keep the dollar weak. A weak dollar is bullish for commodity markets. That was seen in today's jump in most commodities. In the past, higher commodity prices have produced higher interest rates which helped stall commodity rallies. This time does seem to be different, which suggests that global deflationary pressures may still be at work. The bottom line is that the stock market doesn't have to worry about rising rates anytime soon. That should be a good thing. It should also be a good thing for commodity investments.

Posted at 05:01 PM in John Murphy | Permalink


March 06, 2004Hello Fellow ChartWatchers!By Chip Anderson
Chip Anderson
Last week saw all of the major averages post modest gains with the Russell 2000 (+2.3%) leading the way. The Nasdaq fell on Friday while the other averages rose and that behavior is consistent with a big change that happened last week on the Nasdaq's chart:

Prior to 23-Feb, the Nasdaq's 50-day Moving Average had provided support for the index on numerous occasions going back 12 months. On 23-Feb, the index moved below the average and then, last Tuesday (01-Mar), the index tried but failed to move back above that average. Friday's action provided more evidence that the 50-day moving average is now a resistance level for the Nasdaq for the first time in a year.

CANDLEVOLUME AND THE TRIX

CandleVolume charts are a new addition to StockCharts.com making their debut just this weekend (See the "Web Site News " section below for details). They are constructed just like regular candlestick charts with upper and lower "shadows" as well as filled and hollow "real bodies". Their distinctive characteristic is the width of each candlestick, which varies based on the volume for that particular time period. The higher the volume, the wider the real body of the candlestick. Here's an example chart ripped, as they say, straight from the headlines:

As you can see, the days where volume was extremely high really stand out on a CandleVolume chart!
One thing to be careful about however is to realize that the horizontal (time) axis is no longer linear - i.e. every time period is a different width. That can throw off traditional trendline and chart pattern analysis and, while we do plot indicators and overlays on these charts, they get "stretched and squeezed" also along the horizontal axis.
Another great tool that StockCharts.com is introducing this week is the TRIX indicator. The TRIX is a triply smoothed momentum indicator similar to the Rate-of-Change (ROC) indicator and the MACD. Like the ROC, it takes a single parameter which is the number of periods to use in the calculation. An optional second parameter is used to create a "signal line" MA that overlays the TRIX and can be used for cross-over signals.

The TRIX is an unbounded oscillator that moves above and below the zero line. By using three layers of exponential smoothing, the TRIX removes many "unimportant" price movements and help you focus on the longer-term trends. By the same token however, the TRIX can lag other indicators significantly. It is most useful for confirming signals generated by more "skittish" indicators like the ROC and RSI.

hefeiddd

April 17, 2004NASDAQ AND OBVBy Chip Anderson
Arthur Hill
On Monday we were focused on the pennant consolidation with support at 2038 and resistance at 2080 (gray oval). While these are typically bullish continuation patterns and an upside breakout was expected, it was prudent to wait for confirmation. Instead of the expected, the break came to the downside and the index has moved into corrective mode. A 50-62% retracement of the prior advance (1896 to 2080) would extend to the 1970-1990 area and broken resistance turns into support around 2000. A move below 1970 would be more than just a normal correction and suggest that a bigger decline may be ahead.

On Balance Volume (OBV) was developed by Joe Granville in the 70’s and is as simple as it gets. Volume is added on up days and subtracted on down days. The concern here is the relatively high volume on down days and the relatively low volume on up days over the last few months. With the decline from late January to late March, OBV moved below its December, September and August lows (red arrow) as selling pressure intensified significantly. The late March/early April bounce is a start, but it would take a move above the early April high to get OBV back on the bullish track.
This was an excerpt from the TDT Report, published every Friday. The remainder includes a primer on measuring relative strength, an application of relative strength to the HealthCare SPDR (XLV), a look at gold/XAU with the US Dollar Index, Elliott Waves applied to the S&P 500 and a Model Portfolio update.


Posted at 04:05 PM in Arthur Hill | Permalink


April 17, 2004RYDEX PRECIOUS METALS FUND NET CASH FLOW SPELLS TROUBLE AGAINBy Chip Anderson
Carl Swenlin

DecisionPoint.com tracks net cumulative cash flow of Rydex mutual funds as a way of estimating sentiment in various sectors. The theory is that money 'ought' to follow prices, more or less. In the last several months this indicator has been rather helpful in identifying problematic price moves by the appearance of price/cash divergences.
On the above chart of Rydex Precious Metals Fund, I have highlighted the first divergence with red circles. Note how there was virtually no cash flow supporting the advance into the January price top. An indication that the advance would fail. Next the blue circles show a blowoff move in February. Lots of money moved into the fund, but prices failed to respond positively enough. Again, an indication that the advance would fail.
Now we see a precipitous drop in prices, highlighted by the green circles; however, note that a proportionate amount of cash has not yet fled the sector. To me this indicates an unrealistic optimism, and my conclusion is that prices will have to drop farther in order to increase bearish sentiment to appropriate levels.


Posted at 04:04 PM in Carl Swenlin | Permalink


April 17, 2004ROTATION FROM TECH TO HEALTHCARE SECTORSBy Chip Anderson
Richard Rhodes
This past week brought in "clear view" the under the surface rotation that has been occurring from the technology sector into the healthcare/pharmaceutical sector - and thus we think it important to look at the Pharmaceutical/Semiconductor RATIO. That said, this "repositioning" is extremely important in our overall equity viewpoint; in the past it has coincided with significant shifts in the overall sentiment of stocks to defensive or negative - as a change in risk aversion develops.
This point is quite clear at the Sept-1998 peak, at the Feb-2000 low, and at the Sept-2002 high - each corresponding with a change in trend for the stock market. Hence, we find it extremely important at this point given it is nearly universally thought that stocks correcting to move higher. If this pattern holds, and it still is not clear - then a topping pattern of proportion is developing...that could last several years if past patterns hold.
The bottom line - if you are long - you want to be cautious and consider defensive issues; and if you are inclined to be short...then technology rallies are to be sold, and to be sold aggressively.

Posted at 04:03 PM in Richard Rhodes | Permalink


April 17, 2004MURPHYMORRIS.COM CLOSINGBy Chip Anderson
Site News
MURPHYMORRIS.COM CLOSING SOON - Sometime in the next couple of days, we expect to complete the transition of John Murphy's tools and commentary from the "Members" tab on the MurphyMorris.com website to the "John Murphy" tab on the StockCharts.com website. For sometime now, the same content has been available on both sites - soon it will only be available on the StockCharts.com website. If you've been using the MurphyMorris.com website to access John's materials, you'll need to update your bookmarks once that transition is complete. Why not do it now?
At the same time, we'll be rolling out a better design for John's materials on the StockCharts.com site. Market Message Members have raved about how much better John's newsletter looks on the StockCharts.com site (here's a sample). Soon, all of John's pages will have that clean, neat look. Stay tuned...



Posted at 04:02 PM in Site News | Permalink


April 17, 2004THE DRG/SOX RATIOBy Chip Anderson
John Murphy
DRG/SOX RATIO IS RISING... Earlier in the year I did an analysis of the DRG/SOX ratio as a way to try to measure the mood of the market. The ratio divides the Drug Index (DRG) by the Semiconductor (SOX) Index. The idea is that when investors are confident they buy chips and sell drugs. That pushes the ratio lower. That's what happened during October of 2002 when the market bottomed (see green circle). The downtrend in the ratio continued until last November when it started bouncing (blue circle). Its been trading sideways since then as the market rally has stalled. When investors turn more cautious, they sell chips and buy the more defensive drugs. That pushes the ratio higher. The DRG/SOX ratio is approaching the top of its six-month range and is close to moving above its 200-day moving average for the first time since last spring. The ratio has already broken its eighteen-month down trendline. An upside breakout in the DRG/SOX ratio would, in my opinion, signal a significant shift to a more defensive market mood. The two main reasons for that are rising energy prices and rising interest rates. That also explains why investors are selling rate sensitive stocks and buying energy. None of these rotations are good for the market as a whole.

Posted at 04:01 PM in John Murphy | Permalink


April 17, 2004Hello Fellow ChartWatchers!By Chip Anderson
Chip Anderson
All-in-all, last week was a down week for the major market averages. While the Dow managed to eek out a tiny gain, the other indices fell with the Nasdaq (-2.79%) leading the way. So far this year, the energy-heavy Amex Composite (+5.64%) and the Russell 2000 (+4.75%) are outpacing the other markets with the Nasdaq off 0.38% and the Dow essentially where it began the year.
"Change" appears to be the theme for this week's edition. John and Richard both look at changes that are underway in the sector picture, Carl has indications that change is coming to the Precious Metals sector, and Arthur looks at changes in the Nasdaq's OBV chart. But first, I hope to "change" your approach to scanning...

SCANNING FOR CHANNELS

In the past, I've written articles on scanning for Divergences, Cross-Overs, and P&F Signals. This week I'd like to demonstrate how one goes about scanning for Channels. A Channel is a pattern where a stock has been moving sideways within a given range for a given period of time. In the example below, DELL has been moving sideways between 30 and 40 for over 6 months.

In order to scan for stocks in a channel, you have to decide up front what the upper and lower bound of your channel will be along with minimum the length of time that a stock has to remain within that range. Let's see if we can find other stocks that have been bouncing within the same 30-40 channel that DELL has been in for at least 6 months. We can use the Standard Scan Interface for this (I recommend always using the Standard Scan Interface whenever possible). The "secret" to creating this kind of scan is to use the "Max. High" and "Min. Low" functions. Each one takes a single parameter which is the number of periods (days or weeks) to look back. Here's what the completed scan looks like:

The key lines are in the "Additional Technical Expressions " section. The first line makes sure that we only look for stocks that have not risen above 40 during the past 6 months (= 6 x 4 = 24 weeks = 24 x 5 = 120 days). The second line checks to see that we only find stocks that have not fallen below 30 during those same 6 months.
I can run this scan and then use the CandleGlance technique described in my article "Visual System Development" to verify that the results returned by the scan are correct. Right now (Saturday, April 17th), the scan is returning 63 stocks including DELL (of course), YUM, and even QQQ!

SCANNING FOR CHANNEL BREAKOUTS AND BREAKDOWNS

It's a simple matter to enhance the scan above so that it finds stocks that have just broken out of a channel. Simply add a 1 period offset to the "Max. High" and "Min. Low" criteria lines and then check to see if "today's" close is above/below the limits of the channel. For example, here's a scan that finds all of the stocks that have just moved above the top of the 30-40 channel we've been using:

Right now, only one stock meets that criteria - SSI. Is SpectraSite breaking out? There are several positive developments on its chart:

As always, successful scanning requires you to carefully review these examples, experiment with them until you are comfortable with how they work and then carefully incorporate them into your analysis work. Since scans can be used (and mis-used) in so many different ways, YOU need to invest time and effort in learning all about them first but I guarantee you that it is time and effort well spent. Hopefully, this article (and the previous ones I linked to) will help you get off on the right foot.


Posted at 04:00 PM in Chip Anderson | Permalink


April 03, 2004$XAU LAGGING GOLD BULLIONBy Chip Anderson
Arthur Hill
The Philadelphia Gold Index, $XAU, is usually a better predictor of gold than gold is of $XAU. The top chart shows $XAU relative to gold or the "price relative". Notice that XAU performs best when the price relative rises ($XAU outperforming gold) and the price relative can be used to confirm or not-confirm strength in $XAU.
$XAU advanced from 73.41 to 112.75 (mid July to early Dec) and outperformed gold over this period. While $XAU went to a new reaction high at 113.41, the price relative formed a lower high for a bearish divergence (red arrow). This was a clear sign that $XAU was underperforming gold and led to the double top.
More recently, gold moved to a new high and $XAU failed to follow suit. $XAU managed to find support at 95 and break above 105, but the index remains well below its January high. $XAU is underperforming gold and this should be a concern to gold/XAU bulls.

Posted at 05:05 PM in Arthur Hill | Permalink


April 03, 2004NEW DECISION POINT INDICATOR: PMMBy Chip Anderson
Carl Swenlin

Does the world really need another indicator? Well, this is one we have been collecting data on for years, but we just recently started charting it because we discovered it presents a good picture of internal market strength or weakness.
Our Price Momentum Model (PMM) is a simple but effective mechanical model that we apply to all the stocks, indexes, and mutual funds we track. The PMM is always on a buy or sell, and it generates new signals when: (1) price moves 10% in the opposite direction of the signal extreme and (2) crosses the 200-EMA. For example, if the model is on a buy signal, a sell signal will be generated when the price index drops 10% from the highest price recorded during the buy signal and crosses down through the 200-EMA. (See http://www.decisionpoint.com/Glossary/PriceMomentumModel.html to learn more about the model.)
Since we track every stock in the Dow, Nasdaq 100, and S&P 500, we can calculate the percentage of the stocks on PMM buy signals. The resulting indicator is similar to the Bullish Percentage Index, which uses point and figure buy signals, but our PMM indicator tends to be a bit less volatile because a PMM signal change is harder to generate.
Currently, the indicator for the Nasdaq 100 (NDX) shows that considerable damage was done to the stocks in the index during the correction, as our indicator dropped below 50%; however, it is bouncing back nicely.
When the Percent PMM Buy index is above its 32-EMA, we generally consider the market environment to be positive because it shows a persistence in stocks being able to generate PMM buy signals. When it is below the 32-EMA, more caution is warranted, although it is possible for a market index to advance with only half its components participating (on PMM buy signals) because most indexes are capitalization weighted.
I think this indicator is most useful in evaluating the validity of major bottoms. If it can't move above its 32-EMA, it says the rally is not broad and is being led by a few large-cap stocks. Note how participation rose to over 90% within the first months of the 2003 bull market advance. This was also the case with the S&P 500, Dow, and the 112 Dow Jones US Sectors (which moved to 99%!).


Posted at 05:04 PM in Carl Swenlin | Permalink


April 03, 2004LOOKING AT THE RUSSELL 300 "GROWTH VS. VALUE" RATIOBy Chip Anderson
Richard Rhodes
In terms of gauging the current substantial rally, we should look at the relative performance of the "growth" and "value" components thereof. In effect, if we are bullish, then we want to be long that which is outperforming. This is fairly simple.
Thus, when we look at the Russell 300 "Growth vs. Value" Ratio - we find the longer-term pattern is a confirmed "bearish wedge" continuation pattern, which augurs for lower lows than that seen during June/July 2002. However, a good short-term level in which to become sellers or buyers happens to be the 60-day moving average. In fact, Friday's sharp rally in the growth stocks has taken prices right back to this now important resistance level. If prices break above it - then one obviously wants to be long growth stocks over the next several weeks. But, if resistance proves its merit...then growth stocks will lag, and one could reasonably become short selected growth shares. In any event - any growth rally will be short-lived given the bearish wedge interpretation...which should translate into lower equity prices overall.

Posted at 05:03 PM in Richard Rhodes | Permalink


April 03, 2004CALENDAR CONTROLLERSBy Chip Anderson
Site News
CALENDAR CONTROLLERS ADDED TO SC3 BETA - We aren't rolling out lots of new features this week like we have in weeks past, however we did manage to add two very neat icons to the "User-Defined" Duration section of the SharpCharts2 Beta page. Clicking on either of the little calendar icons will display a pop-up calendar control that you can use to quickly set the starting or ending date for your chart. The control compliments our existing dropdown boxes and you can use whichever you prefer. Check it out and let us know what you think!


Posted at 05:02 PM in Site News | Permalink


April 03, 2004RISING RATES HURTS BANKS AND HOMEBUILDERSBy Chip Anderson
John Murphy
10-YEAR YIELDS SOAR OVER 4%... While today's surprisingly strong jobs report was good for stocks, it was very bad for bonds. Bond prices fell more than two full points. The 10-year T-note, which rises when prices fall, surged all the way to 4.14%. That certainly seems to confirm the idea that long-term rates are finally starting to move higher. There's good and bad news in that. It's good for economically-sensitive stocks that do well in a stronger economy. It's bad for rate-sensitive stocks that are hurt by rising rates. In time, rising rates can be a bad thing. Over the short-run, however, rising rates are viewed as confirmation that the economy is getting stronger and the job picture is finally improving. This week's sector rotations showed a more optimistic market. The top sectors were technology, materials, and industrials. The weakest were financials, energy, utilities, and consumer staples. That rotation is reversing the more cautious mood of the market during the first quarter when consumer staples and energy were the leaders and technology was the laggard.

Posted at 05:01 PM in John Murphy | Permalink


April 03, 2004Hello Fellow ChartWatchers!By Chip Anderson
Chip Anderson
The markets are rebounding strongly right now and trying to put the declines from February and March behind them. Most of the major averages moved back above their 50-day Moving Average on Friday (not the Dow though...). Smart ChartWatchers will be watching closely this week to see if this rally can continue to gather steam in the face of rising gas prices.

I'm on hiatus this time around. Be sure to check out what John, Arthur, Richard, and Carl have to say below. Catch you next time.

hefeiddd

May 14, 2004VOLATILITY INDICES BREAK 200-DAY SMA’sBy Chip Anderson
Arthur Hill
Although there is more than one way to interpret volatility, the simple fact is that the S&P 100 Volatility Index (VIX) and the Nasdaq 100 (VXN) trend lower when the market trends higher and trend higher when the market trends lower. In other words, these indicators actually trend and move inverse to the underlying indices.
VXN broke below its 200-day SMA in Dec-02 and remained below for over a year. Similarly, VIX broke below its 200-day SMA in Mar-03 and remained below for almost a year (red arrows). These breaks coincided with a strong and sustainable uptrend that lasted from Oct-02 to Jan-04 in NDX and from Mar-03 to Mar-04 in SPX.
A little intuitive reasoning would suggest that upside breakouts in VIX and VXN would be bearish. VIX is leading the way higher with its second break above the 200 day SMA in three months. VXN was turned back at the 200-day SMA in March, but broke above with a gap higher on Tuesday (red arrows).
Contrarians may argue that more fear is actually bullish. However, it is also abundantly clear that the OEX and NDX move inverse to VIX and VXN. As fear increases so does selling pressure and this drive stocks lower. An important trend change appears to be afoot in these volatility indices and this is likely to adversely affect on stocks.

Posted at 04:05 PM in Arthur Hill | Permalink


May 14, 2004LOOKING FOR A BOTTOM IN GOLD STOCKSBy Chip Anderson
Carl Swenlin

At the end of April the XAU monthly Price Momentum Oscillator (PMO) -- not shown here -- topped at very overbought levels, rendering a long-term sell signal. This action confirmed the sell signal top on the weekly PMO a month earlier, shown on the chart above. Both the monthly and weekly PMO can issue long-term signals, but the monthly PMO is much more serious.
Nevertheless, the weekly PMO shows that the longer-term overbought condition has been relieved, and the daily PMO (not shown) is becoming overbought, so we should be looking for a bounce from around the rising trend line support at 75 or 70. I think it will probably be a strong rally, and may even turn the monthly and weekly PMOs back up, but, in my opinion, sentiment is not yet as bad as it ought to be in order for gold stocks to put in a bottom. I base this opinion upon Rydex Precious Metals Fund net cash flow, which still doesn't reflect the degree of capitulation that we ought to see, considering how badly prices have been hit.
Rather than trying to catch a falling knife, I think that waiting for the weekly PMO to bottom (on a weekly closing basis) will provide a margin of safety for those wanting to trade the next rally.
To learn more about Decision Point's PMO click here.


Posted at 04:04 PM in Carl Swenlin | Permalink


May 14, 2004TAKING ADVANTAGE OF WEAKNESS IN BONDSBy Chip Anderson
Richard Rhodes
The recent capital market turmoil across the oceans and through all asset classes be it bonds or stocks or gold, has exacerbated certain risk-reward relationships between these asset classes as the "carry trade" is being unwound. And while these relationships may become even "more skewed" in the weeks and months ahead - we believe the time is approaching whereby asset allocators will begin to favor bonds over US stocks. Increasingly, this relative valuation will come to bear upon investment gains...and must be exploited as the next larger picture trade for the coming year.
That said, our proxy for this relationship is TLT vs. SPY (Lehman 20+ yr. Bond Fund vs. the S&P 500 Index), which allows us to exploit relative gains using equities only. Since March-2003, prices moved lower in a very distinct downtrend - forming a declining wedge pattern that shows each successive low is losing momentum. And while no major levels of resistance have yet been violated - the pattern appears ready to conclude is slide and resume its upward trajectory. Thus, we would become interested in "speculatively" purchasing the ratio upon a move above the .75 to .77 level from its current .74 trough, which may develop in the days or weeks ahead given the negative divergence forming between prices and the stochastic.

Posted at 04:03 PM in Richard Rhodes | Permalink


May 14, 2004BIG SAVINGS FOR MURPHY SUBSCRIBERSBy Chip Anderson
Site News
MURPHY MARKET MESSAGE SUBSCRIBERS SAVE AN ADDITIONAL 10%! - Starting this week, subscribers to John Murphy's Market Message receive an additional 10% off of any and all purchases made in the StockCharts.com bookstore. Depending on what you order, that means that your Murphy Membership could pay for itself! This is not a limited time offer. This discount is available for as long as you are a Market Message subscriber AND you can use this discount on anything in the bookstore - even sale items! To get started, simply log in to your Murphy account by clicking on the "John Murphy" tab at the top of our homepage. Look for more instructions on the right side of the "John Murphy" page.
OVERLAYS ARE ONLINE! - SharpCharts 2 Beta 4 was released last week and it includes support for overlaid charts. For more details, see Chip Anderson's article above.
A.M. VOLUME DISCREPANCIES - As part of our transition to the new data feed that we mentioned last week, we are currently experiencing some volume discrepancies during the first two hours of trading. During those times, the daily volumes reported by our site are lower than the actual volumes reported by other sources. The problem is corrected automatically around 1PM Eastern each day. We are working hard with our data vendor to eliminate this problem but it may be mid-week before a solution can be put into place. We apologize for any inconvenience this may cause.



Posted at 04:02 PM in Site News | Permalink


May 14, 2004SURPRISED BY SURPRISED ECONOMISTSBy Chip Anderson
John Murphy
CPI AND PPI NUMBERS SURPRISE ECONOMISTS... The most frequently seen words in the financial press are "economists were surprised". It seems they're always being surprised by something. This week it was the "surprising" jump in the CPI and PPI inflation numbers. The fact that economists were surprised is a story in itself. It shows what happens when people ignore the clear messages being sent by the financial markets. And when they ignore the obvious. Take commodity prices for example.

The CRB Index has been rising for two years and recently reached the highest level in a decade. Rising commodity prices are a leading indicator of inflation. One of the reasons for that is because companies have to pay for rising raw material prices. In time, they have to start passing those increased costs on to their customers. It's simple economics -- and common sense. An increasing number of companies have announced planned price increases to no one's surprise but economists.
For months, economists have been dissecting rising inflation numbers to exclude surging food and energy costs -- as if they don't count in the inflation picture. Now with gasoline and crude oil prices trading at record highs, they've suddenly started talking about the inflationary impact of rising energy prices and the potential dampening effect that has on the economy and the stock market. Where have they been for the last few months as the market deterioration sent the same message. Long-term rates have jumped to the highest level in almost two years. Here again, economists told us there was no problem there because there was no sign of inflation. This week they suddenly started to take notice. That's why we look at forward-looking markets and not backward-looking economic numbers.
Now, the only one left to convince is the Fed. Trouble is the Fed is populated by economists.


Posted at 04:01 PM in John Murphy | Permalink


May 14, 2004Hello Fellow ChartWatchers!By Chip Anderson
Chip Anderson
At the height of last Wednesday's big decline all of the major averages except one had moved below their 200-day (40-week) moving averages. This was the first time that had happened since the start of 2003 and it is another important technical milestone that occurs as a significant uptrend turns into a significant downtrend. First the 50-day MA is broken, then the 50-day MA starts moving lower, then the 200-day MA is broken, and finally the 200-day MA starts moving lower.
Each of those milestones is important and watched closely by the market. Don't believe it? As soon as the S&P 500 moved below its 200-day MA on Wednesday, the market started rallying. Money managers said to themselves "Things have fallen enough, let's start buying some bargains." Wednesday's afternoon rally (+196 points on the Dow) erased the morning's losses, but the psychological technical "damage" remained. Having broken the 200-day MA once recently, the market may not be in such a buying mood the next time it happens.
Later in this issue, John Murphy, Carl Swenlin, Richard Rhodes and Arthur Hill provide even more reasons for using Technical Analysis, but first...

GETTING AHEAD WITH "BEHIND"

One of the best parts of my job is introducing you to important new features that we've added to StockCharts.com. Last week, we quietly added one of the best new features ever - overlaid charts. Overlaid charting allows you to place the chart from two or more ticker symbols or indicators on top of each other on the same chart. You can find this new feature in the "Beta 4" version of our new SharpCharts 2 charting engine.
To create an overlaid chart, simply select "Behind" from the dropdown located to the left of any of the "slots" in the "Indicators" area below the chart. Before now, you could only select "Above" or "Below" from that dropdown. The addition of "Behind" opens up whole new worlds of charting possibilities. Here are some examples:
Comparing a Stock's Price Movements to an Indicator's Signals:

Here we have the 28-day William's %R overlaid (underlaid?) with the Qs. This chart shows you quite clearly how the indicator has moved into the overbought and oversold areas ahead of significant reversals by the stock in late 2003 as well as in March 2004.
Note: The vertical scale for QQQ is on the right, the vertical scale for William's %R is on the left.
Comparing a Market Index to several Market Breadth Indicators:

Here we see the NYSE Composite Index in blue, the cumulative NYSE Advance-Decline Line in black, the NYSE McClellan Oscillator in red, and the NYSE New Highs-New Lows in green. Notice how, at the start of April, the McClellan Oscillator (red) turned lower before the other indicators did?
Note: Right now, overlaid indicators can only appear in "Line" mode. In order to chart the Advance-Decline line in Cumulative mode, I have to make it the "primary" ticker symbol for the chart. The other lines were added to the chart using the new "Price" indicator and the new "Behind" position setting.
Intermarket Analysis:

Here's a chart that John Murphy followers will love - the four major Intermarket indices overlaid all on one chart. While we still recommend using our interactive PerfChart to perform Intermarket analysis, this chart can also shed light on the topic. For instance, the recent weakness in bond prices really stands out here.

Overlaid charting opens up a whole new world of possibilities for your analysis. Watch out for even more features to appear over the next month or so. In the mean time, please give "Beta 4" a try and use the Feedback link on that page to let us know what you think!

Posted at 04:00 PM in Chip Anderson | Permalink


May 01, 2004NASDAQ FAILING AND INDICATORS CONFIRMINGBy Chip Anderson
Arthur Hill
There are three ingredients to a downtrend: lower high, lower low and trendline break. The final ingredient (trendline break) is open for debate, but the lower low and lower high are not. With this week’s failure to hold the big gains above 2030 (22-Apr) and break below the 1978, the Nasdaq is well on its way to a trend change. The index formed another lower high below 2100 (black arrows) and broke below the trendline extending up from March 2003. Two of the three ingredients for a trend change are in place and a move below the March low (1898) would solidify the reversal.

In addition to the actual price chart, key indicators confirm recent weakness and point to further downside. MACD moved below its signal line and into negative territory. This bearish signal is confirmed by On Balance Volume (OBV), which moved to an 11-month low (red arrows). These indicators are not correlated and this makes confirmation all the more significant. Notice that MACD moved into negative territory in November and December, but this was not confirmed by On Balance Volume (OBV), which held above its prior lows and continued higher (gray arrows).

This was an excerpt from the weekly TDT Report. The remainder is reserved for subscribers and includes a look at sector weightings within the S&P 500, analysis of the top six sectors (SPDRs), identification of the two biggest culprits, analysis of the S&P 500 and the weekly Model Portfolio.

Posted at 04:05 PM in Arthur Hill | Permalink


May 01, 2004S&P 500 NEW HIGHS AND NEW LOWSBy Chip Anderson
Carl Swenlin
Here's a new chart we've just deployed on DecisionPoint.com, showing the 52-week new highs and new lows for just the stocks in the S&P 500 Index. I think this is useful because it shows what is happening with the stocks in the world's most "indexed" index. I have been collecting this data since 2001, but I have never seen it on a chart before. The most surprising aspect to me was that there were not more new lows in 2002 as the market was putting in a bottom, but I assume this is due to the high sponsorship of these stocks.
Currently, the most obvious feature is the sharp contraction of new highs over the last few months, even as the price index has been bumping along near bull market highs. This is a negative divergence and doesn't bode well for the market this late in the bull run. There has been some expansion of new lows, but nothing to compare to the recent 200 new lows on the NYSE (a reflection of what is happening to interest rate sensitive issues on the NYSE that are not common stocks).

Posted at 04:04 PM in Carl Swenlin | Permalink


May 01, 2004CONSOLIDATION OR DISTRIBUTION?By Chip Anderson
Richard Rhodes
Over the course of the past 4-months, price action in all of the indices have been "locked" within wide trading ranges. One question to be be answered is whether this is a "consolidation" to new highs; or a "distribution" to lower lows. If we had to answer this - we would suggest that against the fundamental backdrop of higher interest rates - the financial system has begun "DELEVERAGING" itself from the "carry trade" estimated to be $1.5 trillion. Therefore, we can conclude this trading range is a distribution formation...of which lower prices are developing.

But just as importantly, we must look to "style type" decisions for trading, of which the ratio chart between the SP 500 Large Cap vs. SP 600 Small-Cap is locked within a clear downtrend. However, nascent signs are developing that the outperformance of the SP 600 is coming to a close in the intermediate-term. The ratio is on the verge of breaking above trendline resistance, which would then prompt a move into the 80-week moving average...and quite possibly the previous highs near 4.75. Be prepared.

Posted at 04:03 PM in Richard Rhodes | Permalink


May 01, 2004CHART OVERLAYS COMING THIS WEEKBy Chip Anderson
Site News
MURPHYMORRIS.COM TRANSITION COMPLETE - We have moved all of the MurphyMorris.com content from that website into the "John Murphy" section of StockCharts.com now. Subscribers to the Murphy Market Message should now click on the "John Murphy" tab at the top of our pages to see John's latest market commentary. John's charts look better (see above for two examples) and we've added a calendar of John's upcoming appearances as well. Look for us to add more features and specials to the Murphy area in the coming months.
LOOK FOR CHART OVERLAYS LATER THIS WEEK - We're putting the finishing touches on a major new feature of our new SharpCharts2 charting engine right now - Chart Overlays. This feature allows you to place two charts "on top of each other". For example, you could place a plot of a stock's MACD indicator behind the actual candlesticks of the stock itself so you could directly compare the MACD's signals with the stock's turning points. Or, by using our new "Price" indicator, you can plot one stock's price onto of another stock's chart! Here's an example of that using the Nasdaq and the VIX:

The key to using this new feature will be a new choice in the "Position" dropdown box for each indicator. Right now, you can choose to place an indicator "Above" or "Below" the chart. Soon, you will also be able to place an indicator "Behind" the chart as well!

We expect to have this new capability available later this week when we update the SharpCharts2 Beta page with the "Beta 4" version. Watch the "What's New" section of the web site for the official announcement.

PREPARING FOR A NEW DATAFEED - I wanted to tell you about a behind-the-scenes change that we are about to make that - hopefully - will be invisible to everyone. Our data vendor, Thomson Financial, is replacing our current data feed with their new "top-of-the-line" data feed called "ThomsonOne". ThomsonOne is faster, more reliable, and more comprehensive than the data feed we are currently using and so ultimately, this change will result in much better charts for everyone. Thomson and StockCharts have been working for over a year getting ready for this change and trying to make sure that it occurs smoothly, however experience tells us that no matter how much we prepare, minor glitches may still happen during the transition period. We apologize in advance for any inconvenience this change may cause and promise that we will be working very hard to find and fix any and all issues that arise as quickly as possible. We expect the transition to occur gradually between now and the end of June. I'll keep you updated on our progress in future newsletters.



Posted at 04:02 PM in Site News | Permalink


May 01, 2004A-D LINE TURNS DOWNBy Chip Anderson
John Murphy
LOWEST LEVEL IN MONTHS... It's been awhile since we've talked about the Advance-Decline lines in the various markets. The two charts below show why we're showing them now. The NYSE Advance-Decline line has fallen to the lowest level in four months. This is its weakest showing since the market rally started last March. The Nasdaq AD line looks even worse and has broken its 200-day moving average. That confirms that most of initial technical damage came from the Nasdaq. Trouble is it's now spreading to the rest of the market. All the more reason to be defensive at this point.

Posted at 04:01 PM in John Murphy | Permalink


May 01, 2004Hello Fellow ChartWatchers!By Chip Anderson
Chip Anderson
Rolling over. The short term technical picture shows the markets rolling over right now into a new down leg. The key test will be when the Nasdaq tries to move below 1900 this week. Right now, most technical signals point to much lower prices if that occurs. John Murphy and Arthur Hill have more on the possibilities later on. But first...

SCANNING FOR CHANNELS - TAKE 2

Last issue, I showed you several techniques for creating scans that find stocks that have been moving sideways in a channel between two fixed price levels. But what about stocks that are moving sideways between other price levels? If you're scan is looking for stocks that are stuck between 30 and 40, you won't find stocks that are moving sideways between 80 and 90. Depending on what kind of trading you want to do, that can be a big problem.
The solution is to use percentage-based channels instead of fixed-price channels. A percentage-based channel scans looks for stocks whose maximum high is within a certain percentage (5% for example) of its minimum low for a given period of time. For example, using our Standard Scan interface, you'd create a scan that looks like this:

Notice the "1.05" in the Multiplier field? That's how we indicate that we want to find stocks that have been moving within a 5% channel. If we wanted to use a 2% channel instead, we would enter "1.02" into the Multiplier field.
While that scan will do the job, there's still a problem. It turns out that lots of very low volume stocks get returned by percentage-based channel scans. To eliminate those stocks from the scan, we can add another filter that ensures the Minimum Volume for the same period is greater than zero. Here's the final version of our scan:

THE "WITHIN" PROBLEM

Scan Engines are designed to find charts with a specific set of technical criteria on a specific date. Occasionally, we get a question from someone who is trying to use the scan engine to find stocks with a specific set of technical criteria over a range of dates. We call this the "within" problem since they are looking for something that happened "within" a certain time period. For example, "Show me all the stocks that had a MACD crossover within the past month."

The reason our scan engine doesn't support these "within" scans is because you cannot use them in a real-world trading environment. From a high-level perspective, the purpose of scanning is to develop scans that can help you decide which stocks to buy or sell "soon" - i.e. before the data used in the scan changes significantly. The standard scenario is to run your scans after the market closes in preparation for placing orders early the next day. While some of the results from a "within" scan may still be valid, others results may have become invalid by the time the scan is run and, what's worse, you cannot easily tell which is which.

We strongly recommend refining a "within" scan so that it refers instead to "today". For example, take the scan above and turn it into "Show me all the stocks that had a MACD crossover today." You can then use the "Starting" field (at the top of our scan interface pages) to see the results of the scan on any previous day you choose.

Again, the message here remains the same - when scanning, start simple, follow the examples, and experiment. Learning to use scans effectively is not that hard, but it does take time and effort. The rewards can be substantial however so stick with it and let us know how it goes!

hefeiddd

June 19, 2004EVERYTHING IS RELATIVEBy Chip Anderson
Arthur Hill
The advance since October 2002 is certainly impressive on its own merits, but pales when compared to the prior decline. The advance has not even retraced 38% of this decline and formed a rising price channel. As long as the lower trendline holds, the trend is firmly bullish and further strength is expected (as outlined above).
A failure to hold above 2000 AND a break below the May low at 1865 would be quite negative. At best, it would signal a retracement of the Oct-02 to Jan-04 advance. At worst, it would signal a continuation of the prior decline (5133 to 1108).

Posted at 04:05 PM in Arthur Hill | Permalink


June 19, 2004S&P 600 MID-CAP STOCKS ABOVE 200/50/20-EMABy Chip Anderson
Carl Swenlin

I'm very pleased to announce that we now have a chart showing the S&P 600 Small-Cap stocks above their 200-EMA, 50-EMA, and 20-EMA. But wait! There's more! We also have this chart for the S&P 400 Mid-Cap, S&P 500, Nasdaq, Nasdaq 100, S&P 100, and NYSE Composite.
In my opinion, this is a much better picture of breadth than advance-decline numbers, particularly since decimalization has introduced so much volatility into them. (A change of only a penny can classify a stock as an advance or decline.) The relationship of a stock's price to these three moving averages gives us concrete evidence regarding market strength in the short-, intermediate-, and long-term. By "concrete" I mean that when price is above a moving average, it is bullish. When it is below, it is bearish. When we can see a summary of all the stocks in a given index, we have a pretty good idea of how broadly based the strength or weakness is in that index.
These charts also tell us whether the index is overbought or oversold in the three time frames.
Another interesting feature of this chart is that we can see the negative divergences in the 200-EMA and 50-EMA. You'll notice that intermediate-term internals began to weaken well before the April 2004 top in the S&P 600 Index, but the long-term 200-EMA top came in January of this year. Internal tops can lead the actual price tops by quite a bit because the larger-cap stocks will carry the cap-weighted index, while the smaller-cap stocks are falling into a ditch.
Now the price index has broken a rising trend line, and the internals are quite a bit weaker and show less support for the snapback rally. This is definitely cause for concern.
The charts for the large-cap indexes are showing similar weakness internally, but prices reflect that participation in the bull market is narrowing, with the large-cap stocks carrying those cap-weighted indexes.



Posted at 04:04 PM in Carl Swenlin | Permalink


June 19, 2004FUNDAMENTALLY INTERESTINGBy Chip Anderson
Richard Rhodes
From a fundamental perspective...the past several months shows US interest rates to have risen very sharply as US economic data continues to show strength - from employment to manufacturing to retail sales et al. Moreover, higher energy prices led by gasoline and crude oil have further thrown a "negative light" upon interest rates; which in combination have caused sentiment to become decidedly negative. In fact, the 10-year note futures are now showing their largest short interest in quite some time...perhaps ever.

Consequently, this argues for a "catalyst" or "watershed event" to turn yields lower - and in fact Chairman Greenspan's renomination hearing commentary before the Senate sent bond yields plummeting. To us, this doesn't argue as to a watershed event; however, the "outside reversal week" lower price pattern in which yields formed last week argue for lower yields in the intermediate-term. This very pattern developed at the lows...and now at the highs.

Therefore, we are willing to venture into the long side of the bond market, for if short covering develops before the June 29-30 FOMC meeting as we anticipate...then the proper position is to be long either the bond futures or the Lehman 20+yr. Bond Fund (NYSE: TLT). That said...we are doing exactly...and looking to add more as prices move higher...doing more of what is working for you.



Posted at 04:03 PM in Richard Rhodes | Permalink


June 19, 2004Summer Special EXTENDED - ENDS NEXT WEEK!By Chip Anderson
Site News

I'm very pleased to announce that we now have a chart showing the S&P 600 Small-Cap stocks above their 200-EMA, 50-EMA, and 20-EMA. But wait! There's more! We also have this chart for the S&P 400 Mid-Cap, S&P 500, Nasdaq, Nasdaq 100, S&P 100, and NYSE Composite.
In my opinion, this is a much better picture of breadth than advance-decline numbers, particularly since decimalization has introduced so much volatility into them. (A change of only a penny can classify a stock as an advance or decline.) The relationship of a stock's price to these three moving averages gives us concrete evidence regarding market strength in the short-, intermediate-, and long-term. By "concrete" I mean that when price is above a moving average, it is bullish. When it is below, it is bearish. When we can see a summary of all the stocks in a given index, we have a pretty good idea of how broadly based the strength or weakness is in that index.
These charts also tell us whether the index is overbought or oversold in the three time frames.
Another interesting feature of this chart is that we can see the negative divergences in the 200-EMA and 50-EMA. You'll notice that intermediate-term internals began to weaken well before the April 2004 top in the S&P 600 Index, but the long-term 200-EMA top came in January of this year. Internal tops can lead the actual price tops by quite a bit because the larger-cap stocks will carry the cap-weighted index, while the smaller-cap stocks are falling into a ditch.
Now the price index has broken a rising trend line, and the internals are quite a bit weaker and show less support for the snapback rally. This is definitely cause for concern.
The charts for the large-cap indexes are showing similar weakness internally, but prices reflect that participation in the bull market is narrowing, with the large-cap stocks carrying those cap-weighted indexes.



Posted at 04:02 PM in Site News | Permalink


June 19, 2004FALLING DOLLAR MAY BE HELPING COMMODITIESBy Chip Anderson
John Murphy
During the two years prior to 2004, a falling U.S. dollar pushed commodity prices to the highest level in more than a decade. During the first half of this year, a rebound in the dollar has coincided with a downside correction in commodities. That may be changing. Chart 1 shows the dollar rally stalling near its 200-day moving average during May (see circle) and again during June (see red arrow), and showing signs of rolling over to the downside. On Friday morning, the announcement of a record first half account deficit pushed the dollar even lower. Right on cue, gold prices jumped nearly $7.00 and commodity-related basic material (and cyclical) stocks led Friday's market bounce. That may have to do with expectations that commodity prices are headed higher again. Chart 2 shows the CRB Index starting to find support just above its 200-day moving average. Its daily stochastic lines are in oversold territory under 20. Further weakness in the dollar -- and an upturn in the CRB -- would help commodity-related stocks.

Posted at 04:01 PM in John Murphy | Permalink


June 19, 2004Hello Fellow ChartWatchers!By Chip Anderson
Chip Anderson
Stocks moved sideways last week with most of the major averages finishing within 1% of where they started. The Amex was the big "winner" - up 1.7% - while the Nasdaq lost 0.6% and everyone else finished up somewhere in between. In this week's newsletter, John Murphy looks at the relationship between the US Dollar and Commodities, Carl Swenlin looks at how the mid-caps are doing, Richard Rhodes looks at Interest Rates, and Arthur Hill looks at the Nasdaq's "Big Picture". But first, I'm kicking off a ten part series on John Murphy's 10 Laws of Technical Trading:

LAW #1: MAP THE TRENDS

Murphy's Law #1: Study long-term charts. Begin a chart analysis with monthly and weekly charts spanning several years. A larger scale "map of the market" provides more visibility and a better long-term perspective on a market. Once the long-term has been established, then consult daily and intra-day charts. A short-term market view alone can often be deceptive. Even if you only trade the very short term, you will do better if you're trading in the same direction as the intermediate and longer term trends. - John Murphy
The "Gallery View" tool at StockCharts.com was custom designed to give you the long-, mid-, and short-term view of any ticker symbol in our database. It is the quickest, easiest way to follow John's advice in Law #1. To create a Gallery page for any stock, simply go to our homepage, find the blue box labeled"Easy as 1-2-3", select "Gallery View" from the first dropdown box, enter your ticker symbol in the second box, and click the "Go" button. Here's an example of what you'll see:

Starting at the bottom and moving up, the "Point and Figure" view gives you the long-term story for the stock. While P&F charts may look strange at first, they are probably the best way to analyze a stock's long-term situation. The automatic trendlines can easily show you if the stock is currently trending up or down in the long-term. In the case of IBM above, the red downtrendline that began last February is dominant however, the stock is currently in a rising column of X's after creating a Low Pole reversal pattern on June 8th.
Moving up to the "Weekly View", we see that IBM had trouble getting above 90 in early 2003 and then reversed right at the 100 level in February 2004. Subsequently, it moved below the 40-week moving average and recently hit a low of 85. The stock has been underperforming the S&P 500 since hitting its high in February. There is a positive development on the chart however as the weekly PPO (a cousin of the more popular MACD indicator) has recently moved back above its signal line. The "Weekly View" also gives us a go view of IBM's current volume trend - down.
The "Daily View" gives us a better picture of that recent positive development. There we see that the stock is faltering again just after clearing the resistance level at 90. While the PPO and the Chaikin Money Flow are still moving higher right now, their upward progress is starting to slow.
The "Intraday View" shows us the IBM tested the 90 level near the start of the past three days. On Wednesday and Thursday, the stock recovered and moved higher. On Friday however, the stock's price eroded throughout the day and, significantly, closed below 90 - a sign of technical weakness.
At this point, we have a solid understanding of IBM's technical situation - the context that the stock has been trading in both recently and over the past couple of months and years. That context gives us a much more objective outlook on the stock and how we should trade it (if at all). So remember, never forget John's Law #1. Tools like our Gallery View make it really easy to follow this part of John's advice.


Posted at 04:00 PM in Chip Anderson | Permalink


June 06, 2004ELLIOT COUNT SUGGESTS A FIFTH WAVE HIGHERBy Chip Anderson
Arthur Hill
There are two distinct advances and two declines on the weekly Nasdaq Composite chart with the fifth wave still to come.
The first advance started in October 2002 and ended in December 2002 to form Wave 1. The second advance from 1253 to 2154 is clearly the longest in both duration and price appreciation, which is typical for a Wave 3 move.
The first decline extended from December 2002 to March 2003 and formed Wave 2. The second decline extended from 2154 to 1865 and retraced 23.6-38.2% of the Wave 3. This is a bit shallow, but the pattern looks like a falling flag and quite similar to the Wave 1 decline.
The falling flag is a bullish continuation pattern and a move above the upper trendline and prior high (2080) would signal a continuation higher. A breakout would project further strength to 2209 at a minimum and 2423 at a maximum. This target zone is based on Wave 5 being 38.2-61.8% of Wave 3.

Posted at 04:05 PM in Arthur Hill | Permalink


June 06, 2004A NEW RECORD FOR NYSE MEMBER BUYINGBy Chip Anderson
Carl Swenlin

In the week ended May 15, 2004 NYSE Member Net Buy/Sell numbers hit a new, all-time high of net buying of +741,439,000 shares. There are only two other occasions of net buying that even come close to this -- +540,105,000 shares in the week ended November 14, 2003, and +588,248,000 shares for the week ending March 28, 2003. As you can see by the chart, there is no other week that even comes close to these three huge buying spikes.
You will also note that each of the two prior buying spikes occurred immediately prior to a significant market advance, and, in my opinion, the current buying spike is an extraordinarily bullish event.
NYSE Members are the middlemen who make their money by accumulating stock during declines and selling back it to us at a profit during the next advance. If they have acquired this much inventory, I think we can assume they expect to distribute it at higher prices over the next several weeks.
Can they be wrong? I suppose so, particularly if there is a catastrophic event affecting stocks prices (and highly likely that they have this position fully hedged), but it makes no sense to me that they would load up on stocks to this extent unless they are pretty sure they will be able to turn this inventory at a profit.
As you can see on the chart, most of the time it is hard to make much sense of the net buy sell numbers, but significant amounts of NYSE Member buying or selling should serve as red flags, because it is their business to insure that their positions unwind in their favor.
NOTE: NYSE Member Net Buy/Sell numbers are available from Barron's (print and online), and they are released by the NYSE two weeks in arrears so that we can't know what they are doing in real-time.


Posted at 04:04 PM in Carl Swenlin | Permalink


June 06, 2004RISING WEDGE ON RATIO CHART BEARISHBy Chip Anderson
Richard Rhodes
Over the past two week's, sentiment has gone from "highly bearish" to "highly bullish" - a change in circumstances that shows confusion above all, but the fact remains the current rally in the major indices has reached the important 50%-60% retracement levels typical of countertrend rallies. Therefore, there is reason for caution at this junction, and we find other "esoteric" reasons for being so: a change in leadership between "mid-cap" and "small-cap" shares that has accompanied the transition from bearish to bullish to bearish markets. Quite simply, we use the S&P 400 and S&P 600 ETFs - MDY and IJR (exchange traded funds). In bear markets, MDY tends to outperform, in bull markets IJR outperforms.

This brings us to our ratio chart, which is showing distinct signs of a "rising wedge" bottom formation, which would imply the current rally is in the process of "stalling" and will not reach new highs as many anticipate, but rather resume their recent trend towards lower lows. In our opinion, the determining factor is the ration breaking out above their 180-day moving average. Be prepared.

Posted at 04:03 PM in Richard Rhodes | Permalink


June 06, 2004BOOKSTORE CHANGESBy Chip Anderson
Site News
NEW BOOKSTORE DESIGN - We're very pleased with how our bookstore redesign project turned out and we think you will be too. Check out the new look and features of StockChartsBookStore.com and let us know what you think! The best selection and prices for online T/A books and software just got a whole lot better. And speaking of our bookstore...
MURPHY MARKET MESSAGE SUBSCRIBERS SAVE AN ADDITIONAL 10%! - Subscribers to John Murphy's Market Message receive an additional 10% off of any and all purchases made in our online bookstore. Depending on what you order, that means that your Murphy Membership could pay for itself! This is not a limited time offer. This discount is available for as long as you are a Market Message subscriber AND you can use this discount on anything in the bookstore - even sale items! To get started, simply log in to your Murphy account by clicking on the "John Murphy" tab at the top of our homepage. Look for more instructions on the right side of the "John Murphy" page.
MORE GLOSSARY IMPROVEMENTS UNDERWAY - We are halfway through another round of improvements toour Glossary area. Watch for increases in consistency, accuracy, and linkages to appear there over the next couple of weeks. Want to see us add more terms? Just send them along and we'll see what we can do.
A.M. VOLUME DISCREPANCIES UPDATE - The vast majority of the morning volume discrepancies we were experiencing last week have been cleared up now. Let us know if you spot any more so we can send them to our data vendor quickly.



Posted at 04:02 PM in Site News | Permalink


June 06, 2004ENERGY STOCKS MAY BE TOPPINGBy Chip Anderson
John Murphy
One of the principles of intermarket behavior is that commodity-related stocks usually peak before the commodity. That's why the next chart is so interesting. While energy prices hit a record high early this week, the Energy Select Sector SPDR peaked in late April. That created a negative divergence with the rising commodity. The three peaks formed since early March also have the look of a potential "head and shoulders" top. To confirm that bearish pattern, however, the XLE would have to break the "neckline" drawn under the March/May lows. The relative strength line has been dropping for three weeks and is testing the up trendline starting in February. A break of that line would be a negative sign for the energy sector.

Posted at 04:01 PM in John Murphy | Permalink


June 06, 2004Hello Fellow ChartWatchers!By Chip Anderson
Chip Anderson
Last week saw the major markets put in another "lower high" for the current downtrend - the third major one since things started moving lower back in March. This three-point downtrend is easiest to see on the Nasdaq's chart, but it appears on most of the other major charts to one degree or another. Here's a new "behind" chart (discussed in our last newsletter) that shows the three-peak downturn for the majors:

Later in this issue, John Murphy looks at Energy stocks, Carl discusses NYSE Member Buying, Arthur Hill is bullish based on Elliott while his friend Richard Rhodes expects a pull-back.

MORE SHARPCHARTS2 TIPS AND TRICKS

Let's look at a long-term chart of the S&P 500 using some of the new tools that are available to us via the SharpCharts2 Beta workbench. Here's a weekly chart of the index going back to mid-2002:

Above the chart is a standard MACD display showing that the weekly MACD histogram went negative back in March for the first time since late 2002.
"Behind" the price bars (in blue) is the S&P 500 Bullish Percent index ($BPSPX) - a market indicator based on the P&F charts of all of the stocks that make up that index. Notice how it's movements "mimic" the movements on the prices bars up until February, 2004? Since then, it has moved lower while the index has moved sideways. This kind of bearish divergence hints at hidden weakness inside the index that is being masked by strength in a small number of components.
On top of the price bars is a standard Bollinger Band display and, below the chart, is the BBand Width display. Notice that the BBWidth is at its lowest point on the chart right now. That means that the index has been moving "sideways" (relatively speaking) for quite some time now. This is also confirmed by the low ADX reading. Also notice that the red "-DI" line (indicating a downtrend) moved above the green "+DI" line for the first time in a year at the start of May.
All-in-all, a picture of weakness for the S&P 500 and a great example of the kind of composite charts that our new SharpCharts2 workbench can deliver.

hefeiddd

August 21, 2004INFLATION EXPECTATIONS DOWNBy Chip Anderson
Arthur Hill
The TIP/TLT price relative serves as a good proxy for inflationary fears or expectations. TIP is the iShares TIPS Bond (TIP), which is based on the US Treasury's inflation indexed bonds. TLT is the iShares 20+ Year Treasury Fund (TLT), which is not hedged against inflation.
Bonds loathe inflation and would decline in the face of increasing inflationary expectations. The TIP/TLT price relative takes this one step further by measuring the performance of inflation-hedged bonds against non-hedged bonds. This price relative rises when inflation expectations rise and falls when inflation expectations decline.
Looking at the TIP/TLT price relative for 2004, there are two distinct moves: an advance from mid March to mid May and a decline from mid May to mid August. The decline is still underway as the upper blue trendline has yet to be challenged and the price relative remains well below the late July high. As long as this downtrend continues, inflation remains at bay and bonds are unlikely to remain strong as inflation is not a concern.

Also, notice that there is a good and inverse correlation between the TIP/TLT price relative and the actual performance of TLT. When inflationary expectations rose from mid March to mid May, TLT declined from 91.48 to 80.51. When inflationary expectations subsided from mid May to mid August, TLT advanced from 80.51 to 87.

Posted at 04:05 PM in Arthur Hill | Permalink


August 21, 2004A MARKET BOTTOM FOR THE S&P?By Chip Anderson
Carl Swenlin

We can't know the full potential of this rally, but there is abundant evidence that we have a solid bottom, and that we are seeing a rally that has at least the potential to move back to the top of the trading range.
First, there are positive divergences on indicators in every time frame. A positive divergence is where price makes a lower low but indicators make a higher low. The dark red lines on the bottom three panels of the chart highlight the positive divergences. These indicators, by the way, summarize the status of the PMO (Price Momentum Oscillator) for each of the stocks in the S&P 500 Index.
Next, we can see prices breaking above a short-term declining tops line, and there is an important PMO buy signal, generated when the PMO crossed above its 10-EMA.
Finally, Percentage PMOs Rising shows a strong initial impulse with a surge to almost 90%.
It is not impossible for the rally to move prices higher than the March top, but, as with the two previous lows this year, the PMO bottom associated with the recent low was too shallow. It would have been better if it had dropped to around -2.0, creating a fairly solid oversold condition.
Overall, this is a pretty good looking chart, but the top of the trading range could easily be the limit of the rally.






Posted at 04:04 PM in Carl Swenlin | Permalink


August 21, 2004ECONOMIC SLUMP FOR 2005?By Chip Anderson
Richard Rhodes
This past week showed stocks higher; their largest weekly gain in nearly 10 months. And, it did so within the context of sharply higher oil prices. By and large, this has set the tone for stocks to potentially move to new highsor so we are to believe. In fact, there is always that probability; however, we accord it a very small one at that.
That said , we are specifically looking at the bond-stock asset rotation for clues towards the best relative performance. Our and our proxy is the Lehman 20+ yr Bond Fund vs. S&P Spyders (TLT: SPY); and very simply we see that bonds over the past 2 months have outperformed stocks in a large manner. We believe this bottoming formation argues for a continuation of bonds outperforming stocks over the intermediate-term, although the current sharp stock rally indicates a correction in the ratio is taking placeperhaps to the 250-dma at .76. At this point, it would be wise to consider exiting stocks in favor of bondsas stocks are likely to fall further and faster than the current consensus believeswhich argues for a sharply decelerating economy into 2005.

Posted at 04:03 PM in Richard Rhodes | Permalink


August 21, 2004DATA FEED MOVE THIS WEEKBy Chip Anderson
Site News
STRAP ON YOUR HELMETS! - As we've been telling you, this coming week is our big change over to the ThomsonOne Data Feed. We've tested and simulated and fine-tuned things to death but starting on Monday we'll begin the changeover for real. Let us know if you see any thing out of the ordinary and we'll get right on it. We appreciate your patience during this transition.
NEW CHARTSCHOOL ARTICLES - We've just added two great new articles to our ChartSchool area - one on "Multicollinearity" and another on "Swing Charting". "Multicollinearity" is a $10 word "accidentally using two indicators that are related". It's a problem that you definitely want to avoid and this article will help you do so. "Swing Charting" has been around for years and has recently made a comeback. Read all about it here, then let us know what you think!
"TOOLS TOUR" DEBUTS - Over the course of the next couple of weeks, we'll be adding several animated movies showing how you can use various aspects of our site and what you should be seeing on your screen as you do so. The first in these series of movies is our "Tools Tour". Enjoy! (Flash required)



Posted at 04:02 PM in Site News | Permalink


August 21, 2004DIVIDEND STOCKS LOOK PROMISING, S&P LONG-TERM OUTLOOK MIXEDBy Chip Anderson
John Murphy
GOING FOR DIVIDENDS... A falling stock market -- along with falling bond yields -- should make dividend paying stocks more attractive. And that appears to be the case. Chart 1 plots the iShares Dow Jones Select Dividend Index Fund (DVY), which invests in large cap stocks that pay dividends. The Dividend ETF has acted much better than the rest of the market since last April as reflected in its rising relative strength line. Pricewise, the ETF hit a new four-month high earlier in the week. The two groups most heavily represented in the Dividend Fund are banks (38%) and electric utilities (19%). Other holdings include (in order of size) chemicals, tobacco, insurance, fixed line communications, and energy.

S&P MONTHLY BARS OVERBOUGHT BUT STILL IN LONG-TERM UPTREND... The monthly bars in Chart 2 carry good and bad news for the S&P 500. First the bad news. The monthly stochastic lines above the chart are still weakening from overbought territory above 80 (see circle). In addition, the price bars show that the S&P bull trend stopped at its early 2002 peak (see box) -- after recovering half of the 2000-2002 losses. The good news is that the S&P remains above its (dotted) 20-month moving average (see arrow) which qualifies the current price drop as a correction as opposed to a bear market. And, finally, the monthly MACD lines which turned positive at the start of 2003 (see arrow) are still positive.

Posted at 04:01 PM in John Murphy | Permalink


August 21, 2004Hello Fellow ChartWatchers!By Chip Anderson
Chip Anderson
Since setting a new low of 9783 last Friday, the Dow moved higher during four of the last five days and is now approaching the 10203 peak that it set back at the start of August. This rally - and the successful IPO of Google - has greatly improved the general mood of the markets however resistance from the 50-day MA line - not to mention the rising price of oil - make it is likely that the Dow reverses before moving above that August peak. I'm looking for a retest of the 9783 low in the next couple of weeks.

While you wait to see what happens, why not kick back and enjoy this jammed-packed issue of ChartWatchers? After I continue my series on John Murphy's Ten Laws of Technical Trading, John looks at a little known ETF that is breaking out right now, Carl sees several Bullish signals on his S&P 500 chart, Richard sees a declining economy in 2005, and Arthur finds evidence of lower inflation expectations by bond traders.

LAW #5: DRAW THE LINE

Murphy's Law #5: Draw trend lines. Trend lines are one of the simplest and most effective charting tools. All you need is a straight edge and two points on the chart. Up trend lines are drawn along two successive lows. Down trend lines are drawn along two successive peaks. Prices will often pull back to trend lines before resuming their trend. The breaking of trend lines usually signals a change in trend. A valid trend line should be touched at least three times. The longer a trend line has been in effect, and the more times it has been tested, the more important it becomes. - John Murphy
It still amazes me how many people, when they first get into technical analysis, jump straight into indicators and oscillators without first learning the core concepts of support, resistance, and trend. Although I've said it many times before, I'll say it again here: At its core, Technical Analysis is about detecting stock trends in time to take advantage of them financially. Step one in that process is to look at the charts are draw trend lines. This is how smart ChartWatchers "pay their dues" and develop confidence in their projections. Its the basis for chart pattern analysis and it sets the stage for understanding indicators and oscillators. When in doubt, go back and redraw your trend lines. Properly created trendlines are always correct - the question is "Can you see what they are telling you?"
Trend lines aren't magic. They work for the same reason that support and resistance lines work. The majority of the people that are trading a giving stock feel that the intrinsic value of that stock has changed and that change is getting "priced into the stock". Why the value changed isn't important. How the majority came to their conclusion isn't important either. The job of trend line analysis is to detect that a change is underway and what its direction is.
As John indicates, drawing trend lines is all about finding "significant" peaks (AKA highs) and troughs (AKA lows) on a chart and then connecting the dots. It's actually harder than it sounds, but with a little practice, anyone can master it. One of the hardest things to learn is how to spot a real reversal - something that I wrote about last year. Now would be a great time to re-read that article (and bookmark it for later study!).
Another "gotcha" with trend lines is to forget to check the "Scale" setting for the chart you are looking at. Trend lines on logarithmic scale charts are very different from trend lines on arithmetic scale charts. Our ChartSchool article on Trendlines go into much more detail.
Creating your own trend lines at StockCharts.com couldn't be simpler. Just create a SharpChart for the stock that you are interested in and then click on the "Annotate" link located just below the chart. After our Java-based ChartNotes program loads, you can simply click and drag to create as many trendlines as you want. If you are a member of our Extra service, you can even save your annotated charts in your account and then see how your trendlines "hold up" over time.
You should also experiment with the "Zig-Zag" price overlay when learning about trend lines. While it has some significant limitations, it can help you spot significant peaks and troughs automatically. For more info, see this ChartSchool article.
Of course, there are several great books in our bookstore on trends. One of my favorite is "an oldie but a goodie" - William Jiller's "How Charts Can Help You in the Stock Market". Written in 1962, it shows the timelessness of these ideas in a clear, concise format that's MUCH less expensive ($14.45) than the Edwards & Magee book while covering much of the same ground. Of course, John's classic introduction book is similarly priced and similarly useful.
Can't wait for the next installment? Click here to see all of John's Ten Laws of Technical Trading.


Posted at 04:00 PM in Chip Anderson | Permalink


August 07, 2004THE BIGGER THE VALUE, THE SOFTER THE FALLBy Chip Anderson
Arthur Hill
The AD Line is a cumulative measure of advances less declines within a given group of stocks. For example, the S&P Large-Growth ETF (IVW) has 335 stocks. If there were are 200 advances and 135 declines, then the difference would be +135 (335 – 200 = +135) and this would be added to the cumulative AD Line. The chart below shows the AD Line for the six different style ETF’s.

Despite the decline over the last few weeks, the AD Lines for two styles are holding up a lot better than the other four. Notice that the AD Lines representing large-value and mid-value are holding well above their May lows (green arrows). Conversely, the AD Lines for large-growth and mid-growth moved below their May lows and remain the weakest of the six (red arrows). Small-growth and small-value are holding above their May lows for now, but are quite close to these important support levels and clearly weaker than large-value and mid-value. Even though the overall market may decline, these AD Lines suggest that large-value and mid-value will outperform (advance more or decline less) than the other four styles over the next few weeks and months.

Posted at 04:05 PM in Arthur Hill | Permalink


August 07, 2004THE PRICE OF OIL VERSUS STOCKSBy Chip Anderson
Carl Swenlin

Recently, the price of crude oil has taken the spotlight as having a major influence on the price of stocks. On the one-year chart above we can see that there was no consistent relationship between oil and stocks as long as oil was priced below $35; however, when oil moved above $35 in March, we begin to see a consistent negative correlation between oil and stocks.
Long-term resistance for crude oil is around $41-42. When crude oil reached that level at the end of July, stocks attempted another rally, in anticipation that crude oil would turn down again at resistance. Once crude broke to new all-time highs, the short rally in stocks failed. If crude prices continue to move higher, I think we should be alert for the possibility that there will be another disconnect in prices. Specifically, if the price of crude moves well above $42, short price declines may not translate directly to a rally in stocks because prices will still be too high. This is not to say that stocks can't rally, just that gyrations in the price of oil may not transmit directly to stocks. For the record, I have no opinion regarding the price of oil. As you can see on the long-term chart, it has moved into uncharted territory and is above historical resistance levels. It could be headed for a major blowoff, or it may have moved permanently into the bottom of a new long-term trading range.




Posted at 04:04 PM in Carl Swenlin | Permalink


August 07, 2004DISCRETIONARY VS STAPLES RATIO BEARISHBy Chip Anderson
Richard Rhodes
The weakness over the past several months is stark, which was made "more so" over the past two-day decline in all the major indices due to rising energy prices as well as a "punk" employment report. As a consequence of each of reports (and others) - our presumption is for consumer spending to remain weak in the weeks and months ahead...perhaps progressively becoming worse.

To understand this somewhat better, we turn to a very broad sector ratio we like to use - Consumer Discretionary (XLY) vs. Consumer Staples or (XLP). It goes without saying that if consumer spending is likely to weaken further, then consumer discretionary shares will weaken relative to the more necessary consumer staple shares. In fact, this has been occurring, but at still remains at historically high levels above 1.35. However, the emerging consolidation pattern below trendline resistance and the 40-week moving average argues for a new leg lower to have begun. If this is the case, then a move lower towards the 200-week moving average would be expected.

Hence, once again - it time to sell discretionary shares vs. staple shares, but remember...if a bear market has begun, then all shares are likely to decline...only the defensive staples shares will drop as quickly.

Posted at 04:03 PM in Richard Rhodes | Permalink


August 07, 2004DATA FEED PROGRESS REPORTBy Chip Anderson
Site News
DATA FEED UPDATE - We're continuing to prepare for our upcoming data feed transition which we mentioned several editions ago. At this point, the new hardware is in place and working well and our testing is almost complete. We are working on getting the final paperwork in place from the various exchanges and expect to switch over to the new "ThomsonOne" feed before the end of August. Our goal and our expectation is that you will not notice any difference between the feeds and we're working hard to make that happen. Still, data feeds can be wily beasts and so we ask your understanding if any unforeseen hiccups happen. Rest assured that we'll be working hard behind the scenes to correct things ASAP.
SURVEY SEASON - It's almost that time of year again - time for our end-user survey where you get a chance to tell us how we can do things better. Keep an eye out for a survey in your mailbox (or, heaven forbid, your spam folder) in the next couple of weeks. Can't wait? Feel free to send Chip an email (chipa@stockcharts.com) with any feedback you have (both good and bad). Did you let your membership lapse recently for some reason? Chip would love to hear why.
DON'T FORGET THE BOOKSTORE! - We've added almost 100 new and exciting books on financial analysis to our online bookstore in recent weeks. Be sure to check out our newest offerings by clicking on the "New Additions" link on the left side of the bookstore pages. Or, justclick here.



Posted at 04:02 PM in Site News | Permalink


August 07, 2004BOND DROP HELPS GOLD, SECTOR WARNING SIGNALSBy Chip Anderson
John Murphy
DROP IN BOND YIELDS HURTS DOLLAR, HELPS GOLD... Bond prices surged on Friday's weak job report. As a result, the yield on the 10-Year Treasury note tumbled to a four-month low and ended below its 200-day moving average (Chart 1). The sharp drop in U.S. rates pushed the dollar into a 2% decline. Chart 2 shows the dollar failing at its March high and ending under its 200-day line as well. The drop in the dollar pushed gold $7.30 higher and back over $400. Gold is also back over its 200-day average. That made gold stocks one of Friday's few winners. [The only other winners were rate-sensitive homebuilders and utilities].

EARLY 2004 SECTOR ROTATION WARNINGS... In my Thursday update, I chastised economists for missing the threat from rising oil prices earlier in the year, and made reference to earlier warnings that I had published on the subject. I thought it might be useful to list a few of those earlier messages, which discuss early sector rotation warnings. Two themes you will see repeated over and over is that leadership by energy stocks and underperformance by technology is a bad combination for the market. I've repeated those same warnings in recent messages. Those negative signs were written about as early as January and February. You can access those Market Messages by clicking on "More Archived Updates" in my Market Message section: --January 27: "Loss of Leadership From SOX Index May Be Bad Omen for Nasdaq" --January 29: "Tech Continues to Lead Market Lower -- Market Rotates to Consumer Staples" --February 4: "Loss of Nasdaq Leadership Could be Bad for Market" --February 10: "Rising Oil Is A Threat to Market" --March 10: "Sector Rotations Are Similar to Spring of 2000 -- Why Energy and Consumer Staple Leadership Isn't Good"



Posted at 04:01 PM in John Murphy | Permalink


August 07, 2004Hello Fellow ChartWatchers!By Chip Anderson
Chip Anderson
The major markets sold off dramatically at the end of the week due, so we are told, to wild speculation in the oil market. The Dow closed at 9815 which is significant because it is less that the 9852 low that it set back in May. This is the "lower low" level that I pointed out in our last edition. Despite all of the teeth gnashing in the financial press, nothing has really changed - yet. The markets are in a downtrend and lower-lows are to be expected. If the current pattern holds, the Dow may bounce some next week, but be prepared for more new lows before its next significant rise.
All our analysts are bearish these days (something that contrarians love BTW!). After I go over John Murphy's "4th Law of Technical Trading", John looks at the real reasons behind this week's fall, Richard sees a rough road ahead for consumer spending, Carl looks at the Oil market, and Arthur Hill examines the A-D lines of popular ETFs.

LAW #4: KNOW HOW FAR TO BACKTRACK

Murphy's Law #4: Measure percentage retracements. Market corrections up or down usually retrace a significant portion of the previous trend. You can measure the corrections in an existing trend in simple percentages. A fifty percent retracement of a prior trend is most common. A minimum retracement is usually one-third of the prior trend. The maximum retracement is usually two-thirds. Fibonacci retracements of 38% and 62% are also worth watching. During a pullback in an uptrend, therefore, initial buy points are in the 33-38% retracement area. - John Murphy
The concept of "retracement" is closely related to the concepts of support and resistance that we looked at last week. When there are no obvious support or resistance levels near the current stock price - maybe because the stock is breaking out to new highs for example - you can often use percentage-based retracement levels to "invent" new support or resistance levels.
To create a percentage retracement level, measure the most recent significant move that the stock made - i.e. the distance from the top of the last important "peak" on the chart to the last important "trough" on the chart. Now, mentally consider that distance to be "100%". By multiplying that number by the appropriate percentage, you can determine where these new "invented" support/resistance levels are.
For instance, as John indicates, stocks often reverse at the 50% retracement level. Thus, you'd multiple the distance you measured above by 0.50 (50% - the same as dividing by 2) to determine how far the stock would need to move (from the previous peak or trough) to hit that retracement level.
If that sounds like a bunch of needless math to you, you're right! And you're in luck - StockCharts' ChartNotes annotation tool can do most of the work for you quickly and easily. Start by creating a SharpChart of the stock you are interested in, then click on the "Annotate" link located just below the chart. In a couple of seconds, our Java-based annotation tool (which we call "ChartNotes") should appear with your chart loaded up and ready. It should look something like this:

To study retracements, first click once on the "Fibo Retracement" tool from the top toolbar (marked with a blue square). Next, move your mouse to the previous significant peak or trough (on the GM chart above, let's study the big move in December 2003). Then, click and hold down your mouse button while dragging the pointer to the next significant trough or peak. As you drag, we automatically display the important retracement levels and their values. When you have your mouse in the proper place, simply lift up on the button to finalize things. You should see something like this:

(Note: To duplicate this exactly, you'll need to move your mouse horizontally to the right edge and then use the "Expand Right" tool a couple of times.)

Now, why do retracement levels work at all? What's the "magic" behind them? The magic is the natural human tendency to worry. For example, after a stock has risen for a while, it's natural that some of its stockholders will start to get nervous and start thinking about "locking in" their profits (i.e., selling). The point at which that actually happens is different for each individual shareholder, but statistically, shareholders act on those nervous feelings in three clusters - one around 38%, one around 50% and one around 62%.
In the case of the GM move last December, notice how many of the investors later "locked in their profits" (i.e. "gave up") around the 38.2% and 50% retracement levels of that big move (red arrows).
Retracement analysis lets you and I take advantage of this natural nervousness in others.

hefeiddd

September 18, 2004CYCLICALS OUTPERFOMING STAPLESBy 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.

Taking 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.

Posted at 04:05 PM in Arthur Hill | Permalink


September 18, 2004A LONGER-TERM MARKET VIEWBy 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.

Another 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 at 04:04 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.

Posted at 04:03 PM in Richard Rhodes | Permalink


September 18, 2004BUZZING ABOUT MURPHYBy 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 at 04:02 PM in Site News | Permalink


September 18, 2004ON USING MOVING AVERAGESBy 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. [That's computed by adding up the closes for the last 50 trading days and dividing the total by 50]. 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. [The signals don't always work out that well, but they did in the case of GE]. Let's examine the last two signals more closely and bring the 200-day average into play for GE.

COMBING 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.

Posted at 04:01 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:

My 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 TURNS

Law #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:

First, 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:
This ChartSchool article has more on Oscillators in general.
If you want an excellent book on the subject, check out Chapter 10 of John's own "Technical Analysis of the Financial Markets".
For more on the RSI, check out the book "RSI - The Complete Guide" by John Hayden.
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 at 04:00 PM in Chip Anderson | Permalink


September 05, 2004A "NEW AND IMPROVED" RYDEX RATIOBy Chip Anderson
Carl Swenlin
The Rydex Asset Ratio has been around for eight or ten years, and it is a favorite among sentiment indicators because it is based, not upon opinion polls, but upon where people are actually putting their money. It is calculated by dividing total assets in bear index and money market funds by the total assets in bull index and sector funds.
Recently Decision Point introduced the Rydex Cash Flow Ratio. It uses the same basic formula, but, instead of total assets, it uses Cumulative Cash Flow (CCFL) totals for the same funds. To determine CCFL we calculate daily net cash flow, which is the actual cash entering and leaving each fund in the Rydex group of funds. This is done by calculating the amount that total assets in a fund should have changed based upon the percentage change of the net asset value (NAV) per share, assuming that no cash was added to or taken out of the fund. We then subtract this amount from the actual amount of total assets in the fund, and the result is the daily net cash flow. We keep a cumulative total of the daily net cash flow. Total asset value tells us how much money is in the fund. Cumulative Cash Flow tells us how much cash was actually moved in or out of the fund.
We think that the Rydex Cash Flow Ratio is a dramatic improvement over the Rydex Asset Ratio, because it uses an estimate of the amount of money that has been committed to bull and bear funds, making it a more accurate reflection of the actual underlying psychological forces that are affecting market participants.
On the chart below we can see that the Cash Flow Ratio shows more rational and consistent levels of support and resistance. And we can see that the Cash Flow Ratio is able to maintain a fairly well-defined trading range for extended periods.

It is really striking how the Cash Flow Ratio has clearly detected the true state of sentiment during 2002 through 2004. For example, we can see a sharp rise in bullish sentiment coming off the March 2003 price lows. Then by May 2003 we can see sentiment peak and begin to turn bearish. I remember because I was there. People didn't believe that a bull market had begun. They became progressively more bearish in June and July, and, when the market had a small shakeout in August 2003, the Cash Flow Ratio was as bearish as it had been in March 2003. While that may not seem reasonable based upon price movement, I think it is an accurate expression of how sentiment "felt" at the time.
Also, note how the Ratio trading range shifts downward at the beginning of 2003. This was caused by a large chunk of money moving into bear funds as the market headed down into it's final low before the bull market launched. Bearishness reached a feverish pitch at that time and it permanently altered the trading range. This could happen again in either direction if sentiment is strong enough.
Finally, we can see that the recent levels of bearishness at the August 2004 price lows are the same as they were in March and August 2003. In my opinion, this is strong evidence that a medium-term price low was reached at that point.


Posted at 04:04 PM in Carl Swenlin | Permalink


September 05, 2004SEMIS NOT THE LEADERS THEY ONCE WEREBy Chip Anderson
Richard Rhodes
The recent carnage in the Semiconductor Index (SOX) moved to the forefront on Friday with INTC’s poor guidance moving forward. Thus, we must look at the SOX within the context of its relationship with the S&P 500 (SPX), and for this we use the ratio of the two Quite simply, we could very well see s a short-term bottom in the ratio in the days or weeks ahead – but it certainly isn’t within a historical context “the bottom” we would feel comfortable buying into on a longer-term basis. Our momentum indicators are now oversold, but it has paid to wait until a “positive divergence’ forms prior to becoming aggressively long this sector…which will require many months.
Bottom Line: We don’t expect the semiconductors to be “the leaders: on rallies as they once were.

Posted at 04:03 PM in Richard Rhodes | Permalink


September 05, 2004NEW DATA FEED IS IN!By Chip Anderson
Site News

OUR NEW DATA FEED IS IN! - Well, there were some bumps in the road, but we've managed to get our new ThomsonONE data feed installed and working last week. To those of you that were patient with us while we fixed the problems, we say "Thanks!" Your understanding and clear problem reports were very helpful. Because of the problems that occurred, we have added one free week of service to every StockCharts.com member that logged in to their charting account last week. Everyone who qualifies for this offer should have already had this additional time added to their account. Finally, let me reiterate something that many people missed about this data feed change. We were forced to make this change due to circumstances beyond our control. Our old data feed company was bought-out by Thomson Financial several years ago. This year, Thomson decided to discontinue their support for that old feed and migrate us to their own "premier" feed called ThomsonONE. The people at Thomson have worked very hard to help us with this transition. Most of the problems that occurred happened due to things that no one could have foreseen. We truly expect that this new data feed will prove to be far superior to the old one as time goes on. Again, a company like ours almost never changes data feeds. It has taken a huge amount of time and effort on our part to pull it off and it has delayed the roll out of the various site improvements that we want to make. Fortunately, the odds that we'll have to do this again are almost nil. We apologize for the recent problems but rest assured that with this transition behind us, StockCharts.com will only improve in the future. SPECIAL NOTE TO AOL USERS - A recent policy change at AOL means that if you accidentally mark our "ChartWatchers" notification email messages as "Spam" in your AOL Mailbox, you will automatically be unsubscribed from all of our mailing lists. If you want to continue receiving notification messages from StockCharts.com, make sure to "Delete" those messages rather than marking them as "Spam." NEW BOOKSTORE BOOKS - We've been busy adding more technical analysis books to our online bookstore. Be sure to check out our New Additions page at least once a week to get the latest scoop on what's new at StockCharts Books!

Posted at 04:02 PM in Site News | Permalink


September 05, 2004TELECOMM HAVE STRONG DAYSBy Chip Anderson
John Murphy
Telecom stocks had a good chart day. The AMEX Telecom iShares (IYZ) broke out to a new six-month high today. Its relative strength line has been rising since late June. Two of the biggest reasons for today's strength were SBC and Verizon Communications which are two of the biggest holdings in the ETF. SBC rose to the highest level in seven months. Verizon ended the day at a new 52-week high. Both relative strength lines have been jumping for the last two months.

Posted at 04:01 PM in John Murphy | Permalink


September 05, 2004Hello Fellow ChartWatchers!By Chip Anderson
Chip Anderson
Thursday's big rally for the Dow Industrials was unexpected and significant. Check out the chart below and see if you can spot the reasons why:

As anticipated, the Dow faltered after hitting its 50-day moving average line. That line was also at the 10,200 resistance level marked by the peak in late July and so the odds of a reversal there were pretty good. Sure enough, the Dow started moving lower on Monday, but rallies on Tuesday and Wednesday re-tested the resistance level and Thursday's big follow-up pushed things well clear. The MACD line moved into positive territory and the Chaikin Money Flow moved back into the green.
The Dow is now testing its 200-day MA and eyeing the next higher resistance area between 10,350 and 10,450. That's where it ran into problems back in June. In order to officially reverse the long-term downtrend that the Dow is in, it needs to move above the high of 10,487 set on June 25th. The next couple of weeks should be very interesting...
In the mean time, check out John Murphy's thoughts on the Telecomm sector, Richard Rhodes' look at Semiconductor stocks, Carl Swenlin's views of the Rydex Ratio and the next installment in my continuing tour of "Murphy's Laws".

LAW #6: FOLLOW THAT AVERAGE

Law #6: Follow moving averages. Moving averages provide objective buy and sell signals. They tell you if existing trend is still in motion and help confirm a trend change. Moving averages do not tell you in advance, however, that a trend change is imminent. A combination chart of two moving averages is the most popular way of finding trading signals. Some popular futures combinations are 4- and 9-day moving averages, 9- and 18-day, 5- and 20-day. Signals are given when the shorter average line crosses the longer. Price crossings above and below a 40-day moving average also provide good trading signals. Since moving average chart lines are trend-following indicators, they work best in a trending market. - John Murphy

A couple of weeks ago, we looked at trends and trendlines. We talked about how trendlines are line "non-horizontal" support/resistance levels. Well, think of moving average lines are like "flexible" trendlines. They help you see the trend that's "hidden" amongst all the noisy short-term price fluctuations.

Unfortunately, unlike trendlines and resistance levels, there are an unlimited variety of moving averages that you could look at. There's the 50-day MA, the 200-day MA, the 20-day MA, the 9-day MA, etc. Going beyond that, there are Simple Moving Averages (SMAs) and Exponential Moving Averages (EMAs) (and still others beyond those!). How do you choose?

The general rule is simple - the longer your time horizon, the longer the MA period you should use.

Are you a buy-and-hold investor? Use longer term MAs like the 50-day and 200-day ones that I like to write about. Are you a day trader? Use shorter term MAs like the 4-day and 9-day ones that John mentioned.

Note however that while longer-term investors can generally ignore short-term MAs , the reverse is not true. Even day-traders should be aware of where important long-term MA levels are. Resistance from the 200-day MA can impact day traders too.

The help see how different MAs work, I often look at something I call an "MA Ribbon Chart". It contains a series of MAs - each with a slightly different period setting:

As John mentions in Law #6, MA Crossover signals can be very useful in trending markets. That where you focus on the points where two different MAs intersect. When the shorter MA moves above the longer MA, a "buy" signal is given. When the shorter MA moved below the longer MA, a "sell" signal is given. Here are some examples:

As you can see, shorter MAs periods lead to more signals. You'll need to take some initiative here and experiment to see what combination fits your trading goals and style. Fortunately, StockCharts.com makes it very easy to try whatever combinations you want.
Finally, don't forget to watch the 50 and 200-day MAs. Why? Because lots of other people watch them and thus, they often act like important support and resistance zones.
Next week: Law #7 - Learn the Turns

hefeiddd

October 16, 2004NASDAQ MONTHLYBy 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.

Posted at 04:05 PM in Arthur Hill | Permalink


October 16, 2004THE SPX/VIX RATIOBy 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.

It 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 at 04:04 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.

Posted at 04:03 PM in Richard Rhodes | Permalink


October 16, 2004THANK YOUS, and BARGAIN BOOKSBy 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 at 04:02 PM in Site News | Permalink


October 16, 2004ROTATION OUT OF ENERGY AND MATERIALSBy 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.

Posted at 04:01 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...

Unfortunately 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 go back to April 2003 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 Average Directional Movement Index (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:

Here'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 Movement Index (DMI)" system. It was first described in his book New Concepts in Technical Trading back in 1978.
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 at 04:00 PM in Chip Anderson | Permalink


October 02, 2004TLT IS LOOKING OVER THE CLIFF AGAINBy 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.

Posted at 04:05 PM in Arthur Hill | Permalink


October 02, 2004THE 9-MONTH CYCLEBy 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.

The 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 at 04:04 PM in Carl Swenlin | Permalink


October 02, 2004RELUCTANTLY BULLISHBy 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.

Posted at 04:03 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 at 04:02 PM in Site News | Permalink


October 02, 20044TH QUARTER RALLY, AND WHY NASDAQ LEADERSHIP IS IMPORTANTBy 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.

WHY 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. [That's the upturn shown in Chart 1]. 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.

Posted at 04:01 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:

.

The 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).

So 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

hefeiddd

November 20, 2004CATCHING A TURN WITH STOCHASTICSBy 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.

Posted at 05:05 PM in Arthur Hill | Permalink


November 20, 2004MEASURING PARTICIPATIONBy 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.

We 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 at 05:04 PM in Carl Swenlin | Permalink


November 20, 2004RECENT RALLY IS SUSPECTBy 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.

Posted at 05:03 PM in Richard Rhodes | Permalink


November 20, 2004FREE HOLIDAY SHIPPING! INVESTORFLIX, A CHANGE FOR QQQBy Chip Anderson
Site News
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.
  

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 at 05:02 PM in Site News | Permalink


November 20, 2004LOOKING FOR S&P 500 SUPPORT LEVELSBy 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.

Posted at 05:01 PM in John Murphy | Permalink


November 20, 2004Hello Fellow ChartWatchers!By Chip Anderson
Chip Anderson

Law #11: KEEP LEARNING

Law #11: Technical analysis is a skill that improves with experience and study. Always be a student and keep learning. - John Murphy
This may be THE most important law of all. The instant you think you've learned everything there is to know about Technical Analysis, the instant something new comes along and proves you wrong. There is always another chart to study, another book to read, another market commentary to consider. With the advent of the Internet, studying Technical Analysis could not be easier. Unfortunately, with so many choices out there, it can be quite overwhelming. Here are some additional places to go to learn more about Technical Analysis:
StockCharts' ChartSchool - Duh! ;-) Just click on the "Chart School" tab at the top of any of our pages and start reading.
StockCharts' Online Bookstore - We are constantly reviewing Technical Analysis books for you and only adding the good ones to our store. We also keep prices as low as possible for our users and always have an exceptional book on sale each month.
Our Public List Area - This is an often overlooked gem. It can help you in two different ways. First off, by reading the analysis of others and then comparing it with your own analysis, you will quickly become a better investor. Even if you completely disagree with what the other person is saying, you will still improve because you will be clarifying in your mind why you disagree with them.
The second major benefit comes when you start writing your own commentary for others. This is the #1 way to improve your charting skills. Don't worry if you are new to charting. Don't worry if you don't think your analysis is "good enough". Try any way. There's really no harm in trying and I honestly believe that publishing a public chart list will motivate anyone to become a better technical analyst.
TAAZ - http://www.equis.com/Education/TAAZ/ - This is the on-line version of a book everyone should have - "Technical Analysis from A to Z". Got a question that isn't answered on StockCharts? If it is about an indicator, chances are TAAZ has the answer.
Stocks And Commodities Magazine - Subscribe to this magazine. Read each issue cover-to-cover at least twice. Never throw out old issues. And buy the archived versions in paper or CD-ROM form. Keep them near your computer at all times. There are articles from issues published back in the mid-1980's that are still completely relevant today. This is another overlooked gem in my opinion.
Online Message Boards - Don't fear these things, use them! There are great message board areas for the discussion of Technical Analysis in both Silicon Investor (here)and InvestorsHub (here). Browse them. Read the archives. Ask questions. Post answers. Get involved. You'll be a better investor for doing it.
(A word of caution however: Never blindly believe anything you see on a message board until you are familiar with the people who are posting there.)
This conclude my series on John Murphy's 10 Laws of Technical Trading. Hopefully, these eleven articles have helped you expand your charting capabilities and helped you see how John's techniques can be applied in many ways. John and I both hope that you will continue to build on these "Laws" and use them to develop your own personal analysis style. Good luck!
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 at 05:00 PM in Chip Anderson | Permalink


November 06, 2004S&P 500 TAKES THE LEADBy 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.

Posted at 05:05 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.

One 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 at 05:04 PM in Carl Swenlin | Permalink


November 06, 2004TOO EARLY FOR THE ALL CLEAR' BELLBy 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.

Posted at 05:03 PM in Richard Rhodes | Permalink


November 06, 2004NEW ARTICLES IN CHARTSCHOOL, NEW BOOKSBy 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 at 05:02 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:

Notice 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:

10,487 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...

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!"

Hopefully 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:

This 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.

hefeiddd

December 18, 2004EARLY VOLUME SURGEBy 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.

Posted at 05:04 PM in Arthur Hill | Permalink


December 18, 2004DOLLAR TRYING TO BOTTOMBy 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.

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.

Posted at 05:03 PM in Carl Swenlin | Permalink


December 18, 2004Long-term Oil vs. GoldBy 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.

Posted at 05:02 PM in Richard Rhodes | Permalink


December 18, 2004RATES SHOULD BE MOVING HIGHERBy 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.

Posted at 05:01 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 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. 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.

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. 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.

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WRAP 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 at 05:00 PM in Chip Anderson | Permalink


December 04, 2004DIVERGENCES WITHIN THE SEMICONDUCTOR GROUPBy 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.

Posted at 05:04 PM in Arthur Hill | Permalink


December 04, 2004WEAK CASH FLOW PRECEEDS PRICE DECLINES IN PRECIOUS METALS STOCKSBy 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.

On 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 at 05:03 PM in Carl Swenlin | Permalink


December 04, 2004CONSUMER DISCRETIONARY VS. STAPLESBy 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.

Posted at 05:02 PM in Richard Rhodes | Permalink


December 04, 2004LONGER-TERM IMPLICATIONS FOR STOCKSBy 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.

Posted at 05:01 PM in John Murphy | Permalink

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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.

Posted at 05:05 PM in Arthur Hill | Permalink


January 22, 2005OEX PUT/CALL RATIO SAYS BOTTOM NEARBy 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.

This 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 at 05:04 PM in Carl Swenlin | Permalink


January 22, 2005JANUARY DECLINE GAINING IMPORTANCEBy 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.

Posted at 05:03 PM in Richard Rhodes | Permalink


January 22, 2005THE BUILD OUT CONTINUESBy 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 at 05:02 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. [On a weekly chart, the 50-day average is converted to a 10-week average]. 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).

Posted at 05:01 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 at 05:00 PM in Chip Anderson | Permalink


January 08, 2005US DOLLARBy 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.

Posted at 05:05 PM in Arthur Hill | Permalink


January 08, 2005SENTIMENT: A SUDDEN ATTITUDE ADJUSTMENTBy 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.

The 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 at 05:04 PM in Carl Swenlin | Permalink


January 08, 2005OUTPERFORMING THE INDICES IN 2005By 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.

Posted at 05:03 PM in Richard Rhodes | Permalink


January 08, 2005BARGAIN BOOKS, INVESTORFLIXBy 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 at 05:02 PM in Site News | Permalink


January 08, 2005S&P GIVES FIRST WEEK WARNINGBy 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. [The weekly and monthly lines are still positive, but weakening]. 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.

Posted at 05:01 PM in John Murphy | Permalink

hefeiddd

February 19, 2005S&P 500 AND ELLIOTT WAVEBy 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.

Posted at 05:05 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.

Posted at 05:04 PM in Carl Swenlin | Permalink


February 19, 2005SHARPCHARTS 2 "BETA 5" DISCUSSION AREABy Chip Anderson
Site News
- We are getting lots of great feedback from our members about the latest Beta version of our SharpCharts2 charting engine. In order to help capture as many opinions as possible, we've just added a new Discussion Area to the site where you can post your opinions for other to see. You can also comment on the opinions / suggestions of others. We'll be watching these discussions evolve and use that input to make SharpCharts2 the best it can be. To access the discussion area, simply click the "Discuss" link underneath any SharpCharts2 chart. Click here to get started!
P&F PRICE OBJECTIVES EXPLANATION UPDATE - We've updated our article that explains how we calculate P&F Price Objectives (POs). After getting some questions from confused users about our previous explanation, we reworked things to help you better understand this important concept.



Posted at 05:02 PM in Site News | Permalink


February 19, 2005THE SCALE HAS TIPPED TOWARDS INFLATIONBy 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).

MATERIALS/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 at 05:01 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.

As 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 at 05:00 PM in Chip Anderson | Permalink


February 05, 2005DIVIDE AND CONQUERBy 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.

Posted at 05:05 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.

Posted at 05:04 PM in Carl Swenlin | Permalink


February 05, 2005MARKET RALLY IMPRESSIVE, POSES NEW QUESTIONSBy 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.

Posted at 05:03 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 at 05:02 PM in Site News | Permalink


February 05, 2005DOW AND S&P BREAK BARRIERS, MARKET IN FIFTH WAVEBy 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. [Both also closed back over their 50-day moving averages]. 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.

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. [The fifth wave of the cyclical bull market started in August. The fifth wave of that fifth wave started this month]. 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 at 05:01 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 at 05:00 PM in Chip Anderson | Permalink


February 03, 2005GOLD STOCKS STILL TESTING LONG-TERM SUPPORT - TAKING WHAT THE MARKET GIVES USBy 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.

Chart 1


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.

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.

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. [P&F charts are older than bar charts]. Each form of charting offers some benefits. Why not take advantage of both?


Posted at 05:01 PM in John Murphy | Permalink

hefeiddd

March 19, 2005AIRLINES UNDER PRESSUREBy 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.

Posted at 05:05 PM in Arthur Hill | Permalink


March 19, 2005LOOKING FOR A CRB TOPBy 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.

Posted at 05:04 PM in Carl Swenlin | Permalink


March 19, 2005SHORTING THE SOXBy 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) [chart 2] 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).

Posted at 05:03 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 at 05:02 PM in Site News | Permalink


March 19, 2005DON'T MIND THE BIG VOLUMEBy 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.

Posted at 05:01 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:

Chart 1



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 at 05:00 PM in Chip Anderson | Permalink


March 05, 2005NASDAQ VERSUS NEW YORKBy 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.

Posted at 05:05 PM in Arthur Hill | Permalink


March 05, 2005DVY: DIVIDEND-PAYING ETFBy 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%.

Posted at 05:04 PM in Carl Swenlin | Permalink


March 05, 2005LONG TERM WEDGE PATTERN LOOMINGBy 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.

Posted at 05:03 PM in Richard Rhodes | Permalink


March 05, 2005SHARPCHARTS 2 ROAD MAPBy 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 at 05:02 PM in Site News | Permalink


March 05, 2005ELLIOTT WAVE UPDATEBy 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.

Posted at 05:01 PM in John Murphy | Permalink

hefeiddd

April 16, 2005DOWNSIDE TARGET FOR THE NASDAQBy Chip Anderson
Arthur Hill

The 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.

Turning 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.

Posted at 04:05 PM in Arthur Hill | Permalink


April 16, 2005S&P 600 SMALL-CAP NEW HIGHS and NEW LOWSBy 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.

Posted at 04:04 PM in Carl Swenlin | Permalink


April 16, 2005"MINI-CRASH" FOR THE NASDAQBy 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.

Posted at 04:03 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 at 04:02 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.

Posted at 04:01 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 at 04:00 PM in Chip Anderson | Permalink


April 02, 2005SEMIS NEED HELPBy 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.

SMH 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.

Posted at 05:05 PM in Arthur Hill | Permalink


April 02, 2005CASH FLOW SENTIMENT GAGEBy 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.

Posted at 05:04 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 at 05:02 PM in Site News | Permalink


April 02, 2005BAD NEWS FOR ECONOMICS, DOW THREATENING LOWBy 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.

DOW 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 at 05:01 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.)

Hopefully, 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...

hefeiddd

May 21, 2005NASDAQ OVERBOUGHT, BUT NOT BEARISHBy 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.

Posted at 04:05 PM in Arthur Hill | Permalink


May 21, 2005INITIATION CLIMAX?By Chip Anderson
Carl Swenlin

One 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 at 04:04 PM in Carl Swenlin | Permalink


May 21, 2005RECENT DECLINE IN XOI CORRECTIVEBy 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.

Posted at 04:03 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 at 04:02 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 .

Posted at 04:01 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:

With 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 at 04:00 PM in Chip Anderson | Permalink


May 07, 2005THE LEADERS AND THE LAGGARDSBy 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.

Posted at 04:05 PM in Arthur Hill | Permalink


May 07, 2005VOLATILITY STILL HISTORICALLY LOWBy Chip Anderson
Carl Swenlin

The 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 at 04:04 PM in Carl Swenlin | Permalink


May 07, 2005A SIMPLE ROADMAPBy 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.

Posted at 04:03 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 at 04:02 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.

Posted at 04:01 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:

This 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...

hefeiddd

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.

Posted at 04:05 PM in Arthur Hill | Permalink


June 18, 2005EVIDENCE OF DISTRIBUTIONBy 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.

Posted at 04:04 PM in Carl Swenlin | Permalink


June 18, 2005IMPRESSIVE ACTION IN THE S&P 500By 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.

Posted at 04:03 PM in Richard Rhodes | Permalink


June 18, 2005NEW BOOKS ADDED TO OUR BOOKSTORE -By Chip Anderson
Site News


Unexpected Returns by Ed Easterling     
A great book amplifying the merits of absolute return investing vs. relative return investing so often touted by Wall Street.

New Trading Systems and Methods by Perry Kaufman
This is the latest and biggest in this technical analysis classic.  A must for indicator, systems, and detail-loving analysts.

We add new books all the time. Click here frequently to see the latest additions.

Posted at 04:02 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 only two other sector SPDRS to hit new highs were energy and utilities]. 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.

Posted at 04:01 PM in John Murphy | Permalink


June 18, 2005Hello Fellow ChartWatchers!By Chip Anderson
Chip Anderson

Seven 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 at 04:00 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.

Posted at 04:05 PM in Arthur Hill | Permalink


June 04, 2005ENERGY SECTOR CASH FLOW IS TEPIDBy Chip Anderson
Carl Swenlin

Decision 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 at 04:04 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.

Posted at 04:03 PM in Richard Rhodes | Permalink


June 04, 2005SHARPCHARTS 2 NEWSBy 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 at 04:02 PM in Site News | Permalink


June 04, 2005OIL ISN'T DEAD YETBy 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.

Posted at 04:01 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:

The 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

hefeiddd

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.

Posted at 04:05 PM in Arthur Hill | Permalink


July 17, 2005OEX PUT/CALL RATIO SAYS BOTTOM NEARBy 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.

This 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 at 04:04 PM in Carl Swenlin | Permalink


July 17, 2005JANUARY DECLINE GAINING IMPORTANCEBy 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.

Posted at 04:03 PM in Richard Rhodes | Permalink


July 17, 2005DON'T MISS OUT ON THESE BOOKSTORE SPECIALS:By Chip Anderson
Site News

• MetaStock 9.1 - latest release now available - Click Here
• Chart Pattern Recognition (CPR) - software for use with MetaStock - Click Here
• Chart Pattern Recognition/MetaStock 9.1 combination  - special price (30% off) when you purchase MetaStock and CPR together - Click Here
• Bargain Books - we are always adding super-discounted books to our store - at least 45% off - Click Here

Posted at 04:02 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.

Posted at 04:01 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).

With 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 at 04:00 PM in Chip Anderson | Permalink


July 03, 2005ENERGY AND STOCKS MOVING STEP FOR STEPBy 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.

Posted at 04:05 PM in Arthur Hill | Permalink


July 03, 2005SMALL-CAP PARTICIPATION NARROWINGBy 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.

Posted at 04:04 PM in Carl Swenlin | Permalink


July 03, 2005MS CYCLICAL INDEX IN MIDST OF CORRECTIONBy 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.

Posted at 04:03 PM in Richard Rhodes | Permalink


July 03, 2005NEW ADDITION TO BOOKSTOREBy Chip Anderson
Site News
ANOTHER NEW BOOK IN OUR BOOKSTORE -
Investing in a Secular Bear Market by Michael Alexander
This is the sequel to his 2000 book, Stock Cycles, which forecast the start of this secular bear market.


Posted at 04:02 PM in Site News | Permalink


July 03, 2005WINNERS AND LOSERS OF 2005, FIRST HALF RESULTS ...By Chip Anderson
John Murphy
The bars in the following chart show the best and worst group performers for the first half of the year. To no one's surprise, energy was the top sector -- while the fuel-sensitive transports were the weakest. Utilities took second place thanks to falling bond yields. Another defensive group -- healthcare -- did relatively well. Midcaps did better than small and large caps. Dividend paying stocks also held up ok (as did large cap value stocks). Among the first half's weakest groups were basic materials (which include cyclical stocks), consumer discretionary , and the technology-dominated Nasdaq . The relative strength bars paint a picture of a defensive market that's being hurt by rising energy prices. If the second half of the year is going to be any better, the first half laggards are going to have to do better. And it's hard to imagine a strong market as long as energy remains in a leadership position.

It wasn't a good first half, but it wasn't terrible either. All the major stock indexes ended in the red but not by much. The S&P 500 lost -1.7%, the Dow -4.7%, and the Nasdaq -5.4%. Bonds gained more than 5% to outpace stocks. The dollar gained 10% while commodities gained a respectable 5%. The rising dollar made U.S. assets preferable to foreign assets during the first six months of the year. Of course, it's easy to spot winners in hindsight. And there's no guarantee that the first half trends will continue. One important lesson from the first half results, however, is that there are always winning groups -- even in a weak market. Our job in the next six months will be to pick second half winners and avoid losers -- no matter which direction the market takes.



Posted at 04:01 PM in John Murphy | Permalink

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August 20, 2005RYDEX CASH FLOW RATIO FAVORS BULLSBy Chip Anderson
Carl Swenlin

There 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 at 04:04 PM in Carl Swenlin | Permalink


August 20, 2005HOUSING INDEX ($HGX) COMING INTO CLEAR FOCUSBy Chip Anderson
Richard Rhodes
The current broader market decline has brought the Housing Index ($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.

Posted at 04:03 PM in Richard Rhodes | Permalink


August 20, 2005JOHN MURPHY'S BACK FROM VACATIONBy 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 at 04:02 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).

Posted at 04:01 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 at 04:00 PM in Chip Anderson | Permalink


August 06, 2005BREADTH REMAINS STRONGBy 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.

Posted at 04:05 PM in Arthur Hill | Permalink


August 06, 2005GOLDOLLAR INDEX SHOWS GOLD'S STRENGTHBy 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.

Posted at 04:04 PM in Carl Swenlin | Permalink


August 06, 2005RICHARD IS ON HIATUS THIS WEEKBy Chip Anderson
Richard Rhodes


Posted at 04:03 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 at 04:02 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.

Posted at 04:01 PM in John Murphy | Permalink

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September 24, 2005FEAR CREEPS INBy 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.

Posted at 04:05 PM in Arthur Hill | Permalink


September 24, 2005NEW HIGHS AND NEW LOWS SIGNAL CAUTIONBy 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.

Posted at 04:04 PM in Carl Swenlin | Permalink


September 24, 2005SHORT POSITIONS IN LONG-END BONDBy 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.

In 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 at 04:03 PM in Richard Rhodes | Permalink


September 24, 2005HELP FOR HURRICANE VICTIMSBy 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 at 04:02 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.

Posted at 04:01 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 at 04:00 PM in Chip Anderson | Permalink


September 10, 2005TRANSPORTS LAG INDUSTRIALSBy 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.

In 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.

The 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 at 04:05 PM in Arthur Hill | Permalink


September 10, 2005GOLD STOCKS APPROACHING RESISTANCE, POSSIBLE BREAKOUTBy 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.

Posted at 04:04 PM in Carl Swenlin | Permalink


September 10, 2005EFFECTS OF KATRINABy 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.

Posted at 04:03 PM in Richard Rhodes | Permalink


September 10, 2005NEW BOOK FROM STOCKCHARTS' OWN GREG MORRIS!By Chip Anderson
Site News
- Now is your chance to pre-order Greg Morris' new book, "The Complete Guide to Market Breath Indicators". This completely new book is a compilation of all the major (and most of the minor) market breadth indicators that are in use today. Be the first on your block to own this new classic. Click here for more info. IT'S A GAS, GAS, GAS! - We were able to add a new dataset to our system last week - Gasoline. The symbol is $GASO and, like all of our other commodity-based indices, it is an End-of-Day index that represents the fictional "continuous" contract for unleaded gasoline as traded on the NYMEX. While you can't do anything about the high price of gasoline, now you can see how that price corresponds to the movements of any other stock or index in our system. Enjoy!


Posted at 04:02 PM in Site News | Permalink


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. [It's now challenging its 2000 peak]. 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.

Posted at 04:01 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?

Last 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.

hefeiddd

October 16, 2005RSI AND THE NASDAQBy 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.

Posted at 04:05 PM in Arthur Hill | Permalink


October 16, 2005MARKET IS OVERSOLD AND DANGEROUSBy 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.

Posted at 04:04 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.

2005 Performance
ETF Portfolio: +9.1%
"Paid-to-Play" Portfolio: +19.2%


Posted at 04:03 PM in Richard Rhodes | Permalink


October 16, 2005FREE TIME FOR HURRICANE VICTIMS AND YOUBy 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 at 04:02 PM in Site News | Permalink


October 16, 2005WHY BEAR FUNDS ARE TRADING VEHICLESBy 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.

Posted at 04:01 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:

I 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 at 04:00 PM in Chip Anderson | Permalink


October 02, 2005BEARISH PATTERNS FOR THE RUSSELL 2000 ETFBy 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.

- Arthur Hill

Posted at 04:05 PM in Arthur Hill | Permalink


October 02, 2005GOLD APPROACHING RESISTANCEBy 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.

- Carl Swenlin

Posted at 04:04 PM in Carl Swenlin | Permalink


October 02, 2005"TRIANGLE CONSOLIDATION" FOR THE NASDAQBy 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.

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 at 04:03 PM in Richard Rhodes | Permalink


October 02, 2005HURRICANE RELIEFBy 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 at 04:02 PM in Site News | Permalink


October 02, 2005MARKET ENDS SEPTEMBER ON A STRONG NOTEBy 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. [The S&P and the Nasdaq also stayed over their 200-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.

hefeiddd

November 20, 2005NASDAQ CUP-WITH-HANDLE BREAKOUTBy 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.

Posted at 05:05 PM in Arthur Hill | Permalink


November 20, 2005MARKET BECOMING OVERBOUGHT IN ALL TIME FRAMESBy 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.

As 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 at 05:04 PM in Carl Swenlin | Permalink


November 20, 2005FREE SHIPPING IN BOOKSTOREBy 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 at 05:02 PM in Site News | Permalink


November 20, 2005NASDAQ HITS FOUR-YEAR HIGHBy 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.

Posted at 05:01 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:

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 at 05:00 PM in Chip Anderson | Permalink


November 06, 2005MIND THE GAPSBy 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.

Posted at 05:05 PM in Arthur Hill | Permalink


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.

Posted at 05:03 PM in Richard Rhodes | Permalink


November 06, 2005HURRICANE DONATIONS, CHARTSCHOOL UPDATEBy 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 at 05:02 PM in Site News | Permalink


November 06, 2005S&P TREND IMPROVES -- SOX REGAINS 200-DAY LINEBy 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.

Posted at 05:01 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...