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发表于 2009-3-17 06:48
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March 17, 2007KEY SECTORS SHOW RELATIVE WEAKNESSBy Chip Anderson
Arthur Hill
The sector rotations since 26-Feb reflect a defensive and nervous market. Things started changing on Wall Street with the sharp decline on 27-Feb and the PerfChart below shows sector performance since this decline. The Utility SPDR (XLU), the Industrials SPDR (XLI) and the Consumer Staples SPDR (XLP) are the strongest sectors. Strength in XLP and XLU shows a preference for defensive sectors. The Consumer Discretionary SPDR (XLY) and Finance SPDR (XLF) are the weakest sectors and this is not a good sign.
As its name implies the Consumer Discretionary sector represents companies that are sensitive to economic fluctuation. This includes retail, media, leisure, homebuilding and restaurant stocks. These are the first to get hit when there are signs of weakness in the economy. Relative weakness in this sector points to upcoming weakness in the economy.
Finance is the single biggest sector in the S&P 500 and XLF represents the banks and brokers. We are already aware of the sub-prime lending problems and this continues to hang over the Finance sector. The sub-prime problems are probably not enough to bring down the big banks, but continued uncertainty is keeping buyers on the sidelines. The S&P 500 is going to have a hard time rising as long as these two KEY sectors show relative weakness.
Posted at 04:05 PM in Arthur Hill | Permalink
March 17, 2007ARE WE BEAR YET?By Chip Anderson
Carl Swenlin
One of my colleagues has been harassing me (in a friendly way) for not yet having declared myself a bear. The truth is that top picking is a treacherous business, and I have given it up in favor of letting trend models make my declarations for me. For example, I changed from bullish to neutral (medium-term) on stocks on March 6, and some readers have wondered why I didn't go all the way to bearish instead of just neutral. The reason is that my long-term trend model must be bearish at the time the medium-term mechanical model issues a sell signal in order for me to become medium-term bearish. My long-term trend model also defines, for me, whether the market is in a bull or bear mode over all.
The long-term trend model is driven by the relationship of the 50- and 200-EMAs (exponential moving averages) of the price index. If the 50-EMA is above the 200-EMA, we are in a bull market, and we are in a bear market if the 50-EMA moves below the 200-EMA. In the chart below you can see that this model has performed brilliantly from late-2000 to the present. The downside crossover in October 2000 cleanly declared that a bear market was in progress, and the upside crossover in May 2003 confirmed that a bull market had begun. After that, there were four bull market corrections that caused the 50-EMA to approach the 200-EMA, but a downside crossover never happened, and the bull market, by this measure, remained in force.
Now another correction is in progress, and it has caused the 50-EMA to turn down, but, as you can see, we are a long way from a downside crossover, assuming that no major crash occurs. Until proven otherwise, I think it is safest to assume that the recent decline is a bull market correction. This doesn't mean that we have our guard totally down. Our medium-term model has us out of the market, but the long-term model prevents us from becoming aggressive on the short side.
While the long-term trend model has done well in the last six years, I should emphasize that it is not always this perfect, and it too slow to side step major crashes, like 1929 and 1987. For that we need more sensitive tools, focused in the medium-term. The long-term trend model is best used as a tool to objectively define bull and bear markets, so, for example, if someone asks me, "Is it a bear?", I can look at the chart, see that the 50-EMA is above the 200-EMA, and reply, "Not yet!"
Bottom Line: It is useful to have an objective method to define bull and bear markets, and we use simple crossover signals generated by longer-term moving averages. I do not claim that this is the best method, but it is very effective for our purposes.
Posted at 04:04 PM in Carl Swenlin | Permalink
March 17, 2007REVIEWING THE "YEN-CARRY TRADE"By Chip Anderson
Richard Rhodes
The recent focus of the equity markets is upon the "sub-prime" mortgage problem; and upon the "yen-carry trade". We think both are valid concerns; however, the question of the "yen-carry trade" is more important in our mind than the "sub-prime implosion." Perhaps the sub-prime problem is the "catalyst" to start the correction ball rolling, while the "yen-carry" is the horse that does the heavy-pulling, and the heavy-pulling in this regard is a correction that takes stocks back to more traditional oversold levels.
That said, looking at the Yen-S&P 500 ratio, we find two clear periods in the past decade - one short and one long - where the yen rose against the S&P. And in both cases, when the yen was rising against the S&P 500, the S&P 500 was in an absolute correction. The first period was short, and coincided with the 1998 Russian currency crisis, which took the S&P lower by -22%; whereas the second period was more prolonged and coincided with the technology "bubble". The result was quite a larger bear market with the S&P dropping 50%. Thus there is precedent for a larger decline coincident with a rising ratio.
Hence we must be concerned given the ratio is starting to show nascent signs of wanting to rally once again. The initial "spike higher", coupled with the oversold 40-week stochastic certainly concerns us. Moreover, the yen is right upon its 80-week trading moving average, of which a break above it would be the first time it has closed above it since 2005. Obviously, this would usher in higher yen prices. So, we think the ratio rally continues, and we clearly believe stocks will falter.
And in ending, this begs the question as to just how "deep" a correction are we looking at. If we simply look at the weekly and monthly S&P charts, we find major weekly support crosses at 1330...or its 80-week moving average. Monthly support however, is at the 40-month moving average, which crosses at 1230. Therefore, we think it would be rather reasonable for a test of this zone to occur; of which the total decline off the high would be roughly -9% and -16% respectively. Normal corrections on the order of -10% are common; hence we are willing to split the zone difference leaving our target at roughly S&P 1280. Obviously, this means are are selling rallies.
Posted at 04:03 PM in Richard Rhodes | Permalink
March 17, 2007DAYLIGHT SAVINGS TIME TROUBLESBy Chip Anderson
Site News
In preparing for the change in start time for US Daylight Savings Time, we had to complete four different tasks ahead of Monday's open: 1.) Automatically patch our Linux and Windows 2003 servers, 2.) Manually patch all of our Java virtual machines, 3.) Review our code for any assumptions about DST, and 4.) Manually patch our Windows 2000 servers (because Microsoft refused to provide an automatic patch). We took care of #1, #2 and #3 well ahead of time. #4 was a serious pain - Microsoft's instructions for manually updating Windows 2000 were long and confusing - but we also completed that task ahead of the Monday AM deadline... or so we thought.
Due to the complexity involved, we were unable to thoroughly simulate the effects that the DST change would have on our systems prior to the time change. Unfortunately - you guessed it - not everything was ready. Our changes to the Windows 2000 servers didn't "stick" for some reason and we found a low-level time library inside some of our systems that needed to be updated. Once identified, these problems were quickly fixed but the damage was done.
Again, we apologize for the outage that occurred on Monday and we have credited all of our subscribers with two additional days of service as a result. As long-term members know, whenever a disruption like this happens, we try to take concrete steps to prevent it from happening again. While another DST change is unlikely, we ARE using this episode to accelerate our move away from Microsoft server platforms. This weekend we have converted all 28 of our Windows 2000 servers to Ubuntu Linux. We expect to migrate all of our other servers to Linux by the end of the year. We believe that this step will prevent similar issues from occurring in the future.
Posted at 04:02 PM in Site News | Permalink
March 17, 2007FINANCIALS HOLD THE KEY TO THE MARKETBy Chip Anderson
John Murphy
It's no secret that one of the main problems pulling the market down over the last month has been the fallout from subprime mortages. It's also no surprise to read that financial stocks (mainly banks and brokers) have been the weakest part of the market over the last couple of weeks. That's a concern because financial stocks are historically viewed as market leaders. They had been leading the market higher over the last two years. Not anymore. The line on top of Chart 1 is a ratio of the Financials Select SPDR (XLF) divided by the S&P 500. That ratio peaked in October of last year, and failed to confirm this year's move to new high ground (red arrow). Even worse, the ratio has fallen to the lowest level since last May. The group itself is now in the process of testing some long-term support lines. One is the 200-day moving average. That support line line hasn't been decisively broken for eighteen months (red circles). Chart 2 shows the XLF also testing a four-year uptrend line (drawn on a log scale). Chart 10 holds some other warnings. One is the unusually heavy downside volume over the last month. Another is the fact that the 14-month RSI is turning down from major overbought territory over 70 (down arrow). The financial sector is undergoing a major test of its long-term uptrend. That's a big test for the rest of the market as well.
Posted at 04:01 PM in John Murphy | Permalink
March 17, 2007MARKET'S FIRST RECOVERY ATTEMPT FAILSBy Chip Anderson
Chip Anderson
Hello Fellow Chartwatchers!
Last week's recovery rally was crushed by Tuesday's big decline and while the Dow quickly rose back above 12,000, the technical damage was done. The chart below shows the important technical developments for the Dow in recent days. See if you can spot the key signals.
For me, the key signals include:
The PPO is at its lowest level in months.
The CMF remains in negative territory and appears headed lower.
The 200-day Moving Average has reappeared on the chart (the thin red line on the lower right corner of the price plot area).
Volume has been significantly higher since the big drop at the end of February.- Support at 12,000 remains strong (so far) - but that's about the only bullish technical signal right now.
Posted at 04:00 PM in Chip Anderson | Permalink
March 04, 2007ENERGY - A BULLISH VIEWBy Chip Anderson
Tom Bowley
We have been in the bearish camp on energy and over the past several months and for now remain on the bearish side. But anytime you take a position on the bullish or bearish side, you need to realize patterns that could change your view. The price of oil broke a five year uptrend in 2006 that has us very cautious on the energy sector in 2007. There are circumstances and patterns that could develop to change our bearish view. Oil prices have been bouncing, from lows just under $50 per barrel to our recent highs back over $62 per barrel. Will the sudden uptrend continue or will the rally fade? No one knows the answer for sure, although there is a formidable bullish pattern that is potentially forming - the bullish inverse head and shoulder continuation pattern. Take a look at the following chart:
Off of a significant uptrend, we saw oil pull back in the fourth quarter of 2006 touching $57-$58 per barrel (inverse left shoulder). After a quick reaction bounce to $64 (first point of neckline) approaching the 50 day SMA, oil found a new low near $50 per barrel (inverse head). Now we're watching oil climb again, perhaps to test that $64 area (second point of neckline). Could we then witness one more pullback under $60 to form a potential inverse right shoulder before ultimately breaking out above $64? If that pattern develops, the breakout would measure to $78 or so, testing the highs from last summer. We realize we're getting a bit ahead of ourselves and we do not anticipate oil completing this bullish pattern. However, as a trader, you need to be able to recognize the possible bullish and bearish patterns that develop not only to maximize gains from opportunities, but more importantly, to minimize losses from mistakes. Let's watch the action unfold in the coming days and weeks and be prepared to react accordingly.
Posted at 05:06 PM in Tom Bowley | Permalink
March 04, 2007CORRECTION AHEAD FOR S&P 500?By Chip Anderson
Arthur Hill
The current breakdown in the S&P 500 looks quite similar to the May-June 2006 breakdown. Let's look at the May-June 2006 break down first. The S&P 500 surged from mid October to mid December (2005) and then began a slower zigzag higher until early May (2006). Despite slowing momentum, the trend was in good shape as long as the index kept forging higher highs and higher lows. The break down started with a sharp decline and break below the April low in mid May. There was a brief reaction rally back above 1280 and then another move lower to forge the mid June low. The total decline retraced 62% of the Oct-May advance.
On the current S&P 500 chart, the index advanced sharply from mid July to late November and then began a slower zigzag higher from December to February. Despite slowing upside momentum, this advance was in good shape as long as the index kept forging higher highs and higher lows. With a gap down and sharp decline this week, the index broke below the February and January lows. This breaks the string of higher lows and argues for a trend reversal. At the very least, we should expect a correction. Should the index follow the May-June script, a 62% retracement of the Jul-Feb advance would target a correction to around 1314.
Posted at 05:05 PM in Arthur Hill | Permalink
March 04, 2007UPDATED CRASH ANALYSISBy Chip Anderson
Carl Swenlin
In light of this week's sharp decline (mini-crash?), the most obvious subject for discussion in this week's article is to question whether or not we are on the verge of another major crash. In my 12/8/2006 article, Crash Talk Is Premature, I stated:
". . . my analysis of the price structure and internal indicators leads me to the conclusion that there is not a crash anywhere in sight. This does not preclude a crash triggered by an external event of which we can have no advance knowledge, but the visible deterioration that typically precedes a crash does not currently exist."
"To illustrate, we can look at charts (below) of the two most famous crashes of the last 80 years – the Crash of 1929 and the Crash of 1987. There are two chart configurations that preceded these two major crashes. First, was the price action – a major price top, followed by a lower top, followed by a break below the price low between the two tops. This kind of event doesn't always lead to a major crash, but it is always a sign of danger, and can be part of a market correction."
"The second element is internal deterioration visible in a breadth indicator. In the case of the two charts below we can see that, when the second price top formed, the ITBM Oscillator also topped, and it topped below the zero line as a result of an extended period of deterioration. Below zero indicator tops are another danger sign that should not be ignored."
Now let's take a look at a current chart of the ITBM/ITVM Oscillators. We can see that prior to the mini-crash, the indicators were overbought and showing a negative divergence; however, we can also see numerous instances where negative divergences and overbought conditions did not lead immediate, serious declines. In other words, there was nothing on this chart that would hint at a crash. The most logical actions prior to the decline would have been to hold current longs and wait for better (oversold) conditions before opening new longs.
The important point to be made here is that we currently do not have the kind of setup that preceded the 1929 and 1987 Crashes; and, while the recent decline was rather precipitous, the market has only declined about 4% from its recent highs. Having said that, it is unlikely that the correction is over, and continued negative action could indeed lead to a technical setup similar to the ones that formed prior to the Big Crashes.
One big positive that the market has going for it is the major support that can be seen on the next chart. The recent rally pushed the S&P 500 above the top of its long-term rising trend channel. Where the top of the channel used to be resistance, it is now support, and the remainder of the correction could be played out above the support line.
Bottom Line: We have gone seven months without a medium-term correction, and, while I am surprised at the violence with which it was initiated, I am not surprised that a correction has begun. I personally do not believe that we are setting up for a big crash or a bear market, but I will be guided by future market action. Regardless of my personal opinion, we rely on mechanical trend models to determine our market posture. Below is a recent snapshot of our primary trend-following timing model status for the major indexes and sectors we track.
Posted at 05:04 PM in Carl Swenlin | Permalink
March 04, 2007RECENT DECLINE MORE THAN JUST A CORRECTION?By Chip Anderson
Richard Rhodes
Last week's market decline was quite interesting from a number of perspectives. First, the decline clearly mirrors the movement in Japanese Yen as the "carry-trade" is unwound; if one watches these closely, one will see that stock traders are cleary focused on the yen. We will have more to say on this in the future; but suffice to say, a major reversal higher in the yen has taken place. Secondly, and perhaps more importantly from an economic perspective in the US - is that our simple interest rate model of the ratio between the 5-year note and 10-year note ($FVX:$TNX) has broken important support at its "fulcrum point" of its 60-week moving average. Over the past 10-years, this model has generally kept one long during corrections if it is above its 60-week moving average; but for the first time since September-2001...it has broken below its 60-week moving average after attaining the 1.0 level. What we think the market fears is not "inflation", but slowing growth. And this is exactly what happened during the 2001-2002 broader market decline; and we all know just how "deep" and "gut wrenching" that bear market was. Thus, the odds of this decline being more than just a normal correction have increased given the interest rate model. Those who have followed it have done well. Our strategy at this point is to "short rallies" going forward until "the facts change".
Posted at 05:03 PM in Richard Rhodes | Permalink
March 04, 2007SITE MAINTENANCE NEXT SATURDAYBy Chip Anderson
Site News
The next phase in our Server Room upgrade project is almost here. Next weekend we will be hooking up our new, larger UPS system. During that process, we will have to take the site offline for about an hour. Currently, we plan on doing that Saturday morning starting about 11AM Eastern time. Check the "What's New" area on the website for specific details at the end of the week.
Posted at 05:02 PM in Site News | Permalink
March 04, 2007YEN/EURO IS IN MAJOR SUPPORT AREA AND OVERSOLDBy Chip Anderson
John Murphy
Our main concern here is the relationship between the world's strongest currencies and the Japanese yen. Since 2000, the world's strongest currency has been the Euro (followed by the Swiss Franc, Canadian and Aussie Dollars, and the British Pound. The yen has been the weakest global currency). Chart 1 measures the yen against the Euro (XJY:XEU ratio). The yen has been falling against the Euro (and all other currencies) since 2000. The Yen:Euro ratio, however, has reached a major support level at its 1998 lows and is in oversold territory as measured by the monthly stochastic lines. Purely on technical grounds, this would be a logical time to start reversing the "yen carry trade" that's existed for seven years. In other words, it may be time for the yen to start rising against the world's major currencies (including the Dollar). Chart 2 shows that the yen is bouncing off a nine-year support line (versus the U.S. Dollar). The monthly stochastic lines are turning up from oversold territory. The yen may be done with "carrying" the rest of the world's markets. That's why everyone is very nervous about the bouncing yen.
Posted at 05:01 PM in John Murphy | Permalink
March 04, 2007P&F CHARTS PROVIDE PERSPECTIVEBy Chip Anderson
Chip Anderson
Hello Fellow Chartwatchers!
This week's market gyrations have caused many people to stop and question the market's current position - sometimes quite emotionally. In times like this I like to go back to basics and look at some of the most impartial charts out there - Point and Figure charts. Check out this chart of the S&P 500 index:
Again, P&F charts compress long uptrends and downtrends into vertical columns of rising X's and falling O's. (The red numbers & letters in the boxes indicate which box was filled first during the corresponding month.) By compressing uptrends and downtrends, more time can be represented on the chart and therefore a longer-term perspective can be gained. In this case, this chart goes back to the middle of 2003. Most of the chart shows a clear, healthy uptrend from 2004 through mid 2005 with the 45-degree rule for P&F trendlines clearly visible.
Things get interesting in the last column of X's on the right side of the chart. That column represents an uptrend that started back in July of last year. Things continued to rise without a significant pause through August ("8"), September ("9"), October ("A"), November ("B"), December ("C"), and then into January ("1") and February ("2") of this year. The chart really shows how atypical such a steep, continuous rise in prices was. Something had to give...
Looking at this chart, things may have to fall a little further to get back into the "normal" channel of the long-term uptrend. That's not my emotion talking. That's the verdict from the impartial P&F perspective.
(For more on P&F charts, see our ChartSchool article on the topic.) |
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