一个笨蛋的股指交易记录-------地狱级炒手

hefeiddd

April 21, 2007EARTH DAY HIATUSBy Chip Anderson
Tom Bowley
Look for Tom's commentary next time.



Posted at 04:06 PM in Tom Bowley | Permalink


April 21, 2007SMALL CAPS LAGGING LARGE-CAPSBy Chip Anderson
Arthur Hill
The Dow Diamonds (DIA) moved to a new all time high this past week and the S&P 500 ETF (SPY) recorded a multi-year high. En route to these highs, both exceeded their late February highs and large-caps are showing relative strength. In addition, both gapped higher on Monday and held these gaps throughout the week.
On the other side of the market, the Russell 2000 iShares (IWM) is having trouble with resistance from the late February high and small-caps are showing relative weakness. The ETF also pulled back rather sharply on Thursday and actually filled Monday's gap. IWM bounced back on Friday, but remains at resistance and has yet to breakout. The price relative (IWM:SPY) further confirms that IWM is not as strong as SPY. The indicator has been overlaid the IWM chart and it formed a lower high in April.



IWM is close to a breakout and a move above the February high would affirm the breakouts in SPY and DIA. Failure to breakout would show continued weakness and this would cast a shadow on the current rally. At the very least, relative weakness in IWM means we should favor large-caps over small-caps in the coming weeks and months.



Posted at 04:05 PM in Arthur Hill | Permalink


April 21, 2007CYCLE ORIENTATION IS BULLISHBy Chip Anderson
Carl Swenlin
Back in November 2006 I speculated that the 4-Year Cycle trough had arrived in June/July 2006, and that the implication was bullish for stocks – bullish because we normally expect an extended rally out of those cycle lows. At this point, I think that assessment is proving to be correct because there has been a substantial rally, and the recent correction low has failed to challenge the 2006 lows. In other words, the first leg of the current 4-Year Cycle has shown unusual strength, and it is reasonable to assume that there could be a few more good up legs before the bull market finally tops out.
In a shorter-term context, we can also note that the March low also marks the cycle trough for the 9-Month Cycle that began last summer in conjunction with the 4-Year Cycle. I had expected the 9-Month Cycle trough to arrive this month (around April 16), but, since the S&P 500 has already exceeded its February high, I have to accept the March 14 low as being the cycle trough – having arrived one month early. Another feature of that cycle is that the high price point in the cycle (the crest) is located on the extreme right side of the cycle arc. This is a bullish configuration.
Assuming that we are beginning a new 9-Month Cycle, and assuming that the bullish configuration (right-hand cresting) persists, it will be about six months or more before the next important price top arrives. Regarding this estimate, I would pencil it in, rather than using chisel in stone.



A casual examination of the cycle chart will reveal that there really is no typical cycle configuration, and the spacing between troughs can be terribly inconsistent for the 9-Month Cycle and subordinate (shorter) cycles; however, cycle analysis does provide a certain context that can be applied to price movement, which can be useful to the intuitive side of the brain.
Bottom Line: Cycle analysis is an imperfect tool, but current cycle orientation is more clear than usual, and it is bullish for stocks, probably for several months.



Posted at 04:04 PM in Carl Swenlin | Permalink


April 21, 2007STOCK MARKET SEEING "ROTATION"By Chip Anderson
Richard Rhodes
The positive stock market rally is undergoing significant "rotation" within various indices, which in our opinion is quite important from both an investment and trading perspective. First, when we invest or trade, we want to run with the "fastest horses" in order to outperform the markets or one's particular benchmark. Therefore, it behests us to use technical analysis on specific ratio charts to discern where to put our money in order to earn outsized profits. This is relative investing 101. Last week, we will note that the large caps handily outperformed the small caps. This is a trend that has been ongoing for the past year, but one that hasn't really gotten the attention of the hedge funds and hot money. Well, that is about to change, and the media will begin to pick up on this material change and it shall have repurcussions throughout the trading world. If we analyze the ratio chart between the S&P 500 Large Caps (SPY) and the Russell 2000 Small Caps (IWM), we find a "major low" was forged in April-2006, and since then the ratio has held above its low and formed what appears to be a "right shoulder" of a larger "head & shoulders bottoming pattern." This is of course hugely bullish, for it portends months and years of outperformance by the large caps such as Wal-Mart (WMT), Citigroup (C), 3M (MMM) and Pfizer (PFE).



For this bullish pattern to be confirmed, a move above neckline resistance at 1.86 is required; however, we would become more confident a breakout is developing with a breakout above the longer-term 500-day moving average. The 40-day stochastic is showing strength from a higher low, which further increases the probability this bullish pattern will come to fruition. In other words, the ducks are lining up rather nicely.

And finally, we would also note that SPY isn't only poised to outperform IWM; it showing bullish technical patterns against European and Asian regional indices...and perhaps more importantly...the Emerging Markets. Hence, when we are long - we want to be long large caps; when we are short - we want to be short small caps and certain foreign regions or indices. It's just that simple right now.



Posted at 04:03 PM in Richard Rhodes | Permalink


April 21, 2007SITE SLOWNESS, SERVER ROOMBy Chip Anderson
Site News

RECENT SITE SLOWNESS - For details on our recent website slowness, please see Chip's article above. To compensate our users for the problems, we have credited all members 2 additional weeks of service.

SERVER ROOM PROGRESS REPORT - Work continues to progress on our server room upgrade project. The chiller has finally been installed, and we are hoping to start it up for a test run sometime this coming week. If all goes well, we will be able to get all of our servers back in there permanent homes soon!







Posted at 04:02 PM in Site News | Permalink


April 21, 2007ASIA RECOVERSBy Chip Anderson
John Murphy
Thursday's 4.5% drop in Chinese stocks caused nervous selling in other Asian markets. By the time the U.S. market opened, however, Europe had already started to recover and initial U.S. losses were modest. By day's end, the Dow had closed at a new record high. A strong Friday open in Asian markets set the stage for a strong day in global stock markets. Chart 1 is an hourly bar chart of the last ten days. It shows the Pacific Ex-Japan iShares (EPP) gapping down on Thursday (red arrow). The good news is that the EPP then gapped back up on Friday (green arrow). Thursday's isolated price bars (see circle) created an "island" bottom which is a short-term bullish pattern. [An ""island"" bottom occurs when a "down gap" is immediately followed by an "up gap"]. The U.S. market also got a big boost from large industrials like Caterpillar and Honeywell which led the Dow Industrials to a new record high. A big jump in Google pushed the Nasdaq up against its 2007 highs. Commodity markets like gold and oil that pulled back on Thursday (owing to concerns about higher Chinese interest rates) recovered strongly on Friday. Commodity-related stocks – like basic materials, energy, and precious metals – were among Friday's strongest groups. A weaker dollar is continuing to feed the commodity rally.





Posted at 04:01 PM in John Murphy | Permalink


April 21, 2007MORE SPEED LEADS TO HUGE SLOW DOWNSBy Chip Anderson
Chip Anderson
The markets did great this week with the Dow hitting record highs and closing in on 13,000 however almost no one here at StockCharts.com was paying much attention. As most ChartWatchers know, we spent much of the week wrestling with technical glitches. I thought I'd take some time to explain what we've learned about the problems and the steps we are taking to prevent them from happening again. If you are not interested in computers and networks, now might be a good time to skip down to the other articles .
About a year ago we started upgrading all of the equipment here at StockCharts.com from the slower 100 Megabit networking speed to the newer 1 Gigabit speed. (Most home networking equipment works at 100 Megabits although - like us - you can upgrade your stuff to 1 Gigabit relatively inexpensively these days.) Upgrading our network to the faster speed has many benefits to all of our users: our servers send around stock price data faster, the charts we create get sent out faster, we can backup our server data faster, etc. In order to upgrade a network, you have to replace (or upgrade) both the computers and the switches on the network. (A switch is a device that connects all of the wires from all the different computers. Most home networks have a switch built into the router/firewire device that the broadband modem plugs into.)
Now, there is a hidden problem with upgrading the speed of any network - a problem that most of the network equipment people don't tell you about. With few exceptions, there is always a point where your high speed network meets a slower speed device. In our case, our three connections to the Internet work at 45 Megabits and so, at some point, all of our outbound traffic has to slow dramatically in order to get out one of those wires.
The situation is analogous to a sink with a slow drain and a big faucet. The slow drain represents the slow connections to the Internet, The big faucet represents the fast connections to our charting servers, and the water represents all of the bits that make up our charts. The overall goal of the network is to keep the sink from overflowing.
If the water is able to go down the drain as fast as it is coming out of the faucet, everything is fine. The sink remains almost completely empty. Even if there are occasional high-speed bursts of water from the faucet, things are probably fine also. The extra water just stays in the sink until the drain has a chance to "catch up." The sink "buffers" the extra water for the drain.
Problems happen when the amount of water coming out of the faucet exceeds the amount of water going down the drain for a "long time" and the sink becomes completely full. At that point, any additional water that comes out of the faucet will get spilled (i.e., lost).
Coming back to the world of networking, this process of "buffering" (i.e., the sink) happens inside whichever device is connecting the high-speed network to the slower speed network - typically the switch (or the router/modem in most homes).
Now, when we started to upgrade our network to gigabit speed, the first thing we did was go out and buy some very nice, high-speed switches from a very well known network equipment manufacturer. Where a consumer level gigabit switch might cost $50 these days, the ones we got cost several thousand dollars (which is typical for enterprise networking). In return for that money, we supposedly got three things - long-lasting hardware, big sinks, and software that would tell us if the sinks ever overflowed. (See where I'm going with this?)
Ultimately, most of last week's problems were caused by a buffer overflowing inside one of those new switches. That is no surprise to any of us - it was one of the first things we looked for. The bigger problem was that everyone was confused by four facts:

The switch didn't give us any indication that it was having problems.
Everything had been working great up until last Wednesday.
Even at our busiest times, we were only sending out about 70 megabits of data - much less than the 100 megabits that our "drain" allows.
• When data went out through our slower ISP, everything worked fine.
  

Ironically, the answer to the mystery lay in the article that I wrote in the last newsletter - the one where I sort of bragged about how much faster we were able to generate charts these days. By increasing the speed at which we create our charts, we metaphorically increased the speed at which water was bursting into the sink from the faucet. The result was an overwhelmed sink and thus, data loss.
The immediate solution was to slow our network back down to 100 megabits. That smoothed out the flow of data and stopped the data loss at the switch. Obviously that is not the right long-term solution though because we lose all of the other advantages of gigabit networking. The long-term solution is to upgrade our switches to ones with HUGE sinks (i.e., memory buffers) which we will be doing this weekend. Once that work is complete, you can expect our site to be faster than ever.
In case you missed the announcements on the website, we have credited ALL subscribers with an additional two free weeks of service to make up for last week's problems. Thanks for continuing to support StockCharts.com.



Posted at 04:00 PM in Chip Anderson | Permalink


April 08, 2007USING THE PUT CALL RATIOBy Chip Anderson
Tom Bowley
The put call ratio ("PC") is quite simply the total number of put options divided by the total number of call options. These options include both individual equity options and index options. Every day you can monitor the relationship between put options and call options at www.cboe.com. Once in the site, click on "Data", then "Intra Day Volume". Every half hour, the information is updated. This article is not the appropriate forum to discuss options strategies and definitions, but in its most basic form, put option buyers are expecting the market to decline and call option buyers are expecting the market to advance. The PC gives you a quick, concise picture of the relationship between the put buyers (bears) and call buyers (bulls). The beauty of the PC is that it's a contrarian indicator. When the put call ratio spikes above 1.0, it indicates the market is becoming oversold short-term so expect a rally. When the PC drops below 0.6, the market is becoming overbought short-term so expect a decline. I like to use the 5 day and 21 day moving averages of the PC. Any time the 21 day moving average of the PC approaches 1.0, start looking for a bottom in the market. Historical PC data is available at CBOE beginning in 1995. Let's take a look at how this reading of investor sentiment could have been used to identify recent bottoms in the S&P 500 chart.



Notice that both bottoms formed when the PC was at extreme readings. The PC at the recent March lows was the lowest 21 day moving average reading since the data was compiled. That reading is indicative of a long-term bottom, not a long-term top. Major tops are formed when the market is euphoric. The recent extreme pessimism suggests that this bull market still has legs - strong legs. We remain very bullish on equities for the balance of 2007 and into 2008.



Posted at 04:06 PM in Tom Bowley | Permalink


April 08, 2007UP SWING CONTINUESBy Chip Anderson
Arthur Hill
The Nasdaq rally continued into its fourth week with a gap up on Tuesday and move into the late February gap zone. This late February gap started a sharp decline to the March lows and the recovery back above 2460 is quite impressive. Even though volume is not so impressive, the current swing is clearly up and we should at least respect this up swing until it is proven otherwise.
Just what would it take to reverse the current upswing? I am watching three items: Tuesday's gap, the late March lows and RSI. The Nasdaq gapped higher on Tuesday morning, closed strong on Tuesday and continued higher the next two days. This follow through is bullish and the gap is bullish as long as it holds. The index established support around 2400 with three indecisive candlesticks (blue oval). A move below Tuesday's gap and below the late March low would reverse the current upswing. Until these are broken, the bulls have a clear edge and we should expect higher prices.



RSI is trending higher and above 50. RSI turned oversold in early March and moved above 50 over the last few weeks. I drew a trendline extending up from the March low and RSI is also trending higher. Momentum continues to improve and this is also bullish. A break below this trendline and a move below 45 in RSI would reverse the uptrend in momentum. The bulls also have the momentum edge and we should not bet on lower prices until a bearish signal.



Posted at 04:05 PM in Arthur Hill | Permalink


April 08, 2007THRUST/TREND MODEL NEARS BUY SIGNALBy Chip Anderson
Carl Swenlin
Our Thrust/Trend Model (T/TM) is so-named because it treats bottoms and tops differently – tops tend to be rounded trend changes, and bottoms tend to be formed by sharp changes in direction accompanied by internal up thrusts. At price tops, T/TM changes from a buy to neutral (or sell) based upon a downside crossover of the 50-EMA in relation to the 200-EMA, evidence that a change in trend from up to down has occurred. (The T/TM for the S&P 500 is currently in neutral.) At bottoms the model uses a double screen – the PMO (Price Momentum Oscillator) crossing up through its 10-EMA, and the Percent Buy Index (PBI) crossing up through its 32-EMA.
While PMO crossovers alone are useful for short-term work, there are a lot of whipsaws, so we use the additional screen of the PBI crossover to slow the model down, making it more suitable for medium-term work. On the chart below we display all the components of the T/TM. Of particular interest now are the two thrust components – the PMO and PBI. Note that the PMO upside crossover has already occurred (on the day of the giant one-day rally); however, while the PBI still remains below its 32-EMA, it has closed the gap. If the PBI does cross to the upside, the T/TM for the S&P 500 will switch to a buy signal, but my advice would be to not anticipate. Wait for it to happen.



Besides the normal need to maintain model discipline, one of the reasons for caution is that the PBI has still not dropped to the level of previous corrections. It is not absolutely necessary that it do this, but it would be a desirable sign that the correction had run a normal course and that a price bottom would not be suspect. I have drawn ellipses on the PBI in 2005 and 2006 to show the kind of PBI action we might expect.
Another concern is that the PMO looks as if it is trying to turn down below the zero line. If this were to happen, it is extremely negative for the short-term, possibly longer.
Bottom Line: We have had a number of positive events over the last few weeks, and the T/TM is close to generating a buy signal; however, there is reason to believe that the correction still has at least a few more weeks to go.



Posted at 04:04 PM in Carl Swenlin | Permalink


April 08, 2007LOOKING AT CRUDE OILBy Chip Anderson
Richard Rhodes
For the past couple of weeks, the markets have focused in upon crude oil prices and their attendant rise given the Iran hostage situation. The prevailing thought was that "geopolitical premium" was on the order of $4-to-$5 a barrel of the $67/barrel price; and that once the situation was concluded successfully - the premium would be lost rather quickly. Of course the situation was concluded last week, but the price of crude oil didn't "plunge" as expected. In fact, only not been the case as crude oil has lost only -$2.50 off its highs, with the decline quite orderly indeed. We cannot think of a more bullish respone than what was seen; obviously there are other mitigating factors extant in the price of crude oil that haven't allowed it to decline. Therefore, we think the current rally has "legs", with the recent weakness nothing more than a good old bit of profit-taking before an assault on the all-time highs. Technically, we can make the tentative "bullish case" given major support levels have held. Major trendline support has held; and the 200-week moving average has held; and minor trendline resistance was broken above. If the 60-week moving avearge just overhead can be cleared with a bit of authority, then our bullish confidence level will be raised materially.



Conversely, we can make the tentative "bearish case" that perhaps crude oil prices can "fail" at the 60-week moving average has it has done so for the past several days. Certainly this was the case in 2001 case where the flattening 60-week moving average turned prices lower by -33%. If this were to occur, then a 2001-like decline would target major support near $40. We think this is a remote probability, but a probablity nonetheless. Therefore, our current stance is quite simple: we are bullish of crude oil, energy stocks in general, and oil service shares in particular [Transocean (RIG) noted on Friday that demand for services was high and rising and likley to do so far into the future]. However, we understand the "risk" to the bullish trade, and can manage our risk easiliy using tight position stops.



Posted at 04:03 PM in Richard Rhodes | Permalink


April 08, 2007CHILLER INSTALLATION THIS WEEK!By Chip Anderson
Site News

Regular readers know that we've been trying to complete a big upgrade to our server room for almost a year now. It's been extremely frustrating dealing with the various powers-that-be about completing things, but we are on the verge of the last big step in the project - the installation of our outdoor "chiller" - a huge air conditioner that will generate cold water which will be used to keep our server room from getting too hot. We expect for that work to be completed next week. After that, we will start moving our servers from their temporary space back into their spiffy new digs. We'll then be able to continue expanding our server capacity for the foreseeable future!







Posted at 04:02 PM in Site News | Permalink


April 08, 2007EURO HITS TWO-YEAR HIGH AGAINST DOLLARBy Chip Anderson
John Murphy
The U.S. Dollar Index fell during the week and is drawing dangerously close to last December's low (green circle). The foreign currency with the biggest influence on the USD is the Euro. Expectation for continuing economic strength in Europe – and the likelihood for further ECB rate hikes – pushed the Euro (blue line) to a new two-year high against the dollar. The weekly bars in Chart 2 show the Euro (blue line) moving up to challenge its late 2004 peak near 136. A close above that chart barrier would increase the odds for the USD to threaten its corresponding low near 80. That would be a very important test for the U.S. currency.







Posted at 04:01 PM in John Murphy | Permalink


April 08, 2007WHICH CHARTS DO I LOOK AT?By Chip Anderson
Chip Anderson
Hello Fellow ChartWatchers!
This week I thought we'd look at something different - the charts that matter the most to me personally. Now, brace yourself... these charts are not financial charts. Nope. These are the charts that tell us at an instant how well the StockCharts.com website is performing. If there is trouble with the site, these charts frequently help us find and fix the problem. In addition, whenever we add or reconfigure our servers, these charts can tell us if the improvements we expect to see actually occur.

This first chart shows the memory utilization of just one of our 17 charting servers - the computers that actually create the chart images you see. See the even "sawtooth" pattern? That's a good thing. It means that the server is able to keep up with it's charting duties easily. One of the first signs that a server is overloaded is a change is that pattern.

The chart above shows the results of a server stress test. This server was pounded with just over 4,000 chart requests from 40 simulated users in a very short span of time. The little black dots on the chart show the time (in milliseconds) it took for each chart request to be completed. The blue line shows the running average of all those times. In this case, the server was able to create each chart in around 274 milliseconds (on average). Everytime we get new servers or make changes to our system, we rerun these stress tests to make sure our average chart generation time doesn't slip. In fact, since we've started adding our new 4-CPU servers from Sun Microsystems, the average chart generation time has decreased by about 25% - something we are very excited about.
If all of our users were located in our offices, they would get their charts in about the same time it takes the servers to create them - i.e. ~1/3rd of a second. Unfortunately, that isn't the case. There's another factor in site performance that we monitor closely - the speed of the Internet itself. Many people take their Internet connection for granted - we don't. Here's one of the key charts we use to see if everything about our site is working well

This chart was created for us by a company called Keynote Systems. They have computers located all over the world that are programmed to download selected pages from our website and measure how long it takes for those pages to arrive. Each one of the green dots on that chart represents one timing test from one of Keynote's 45 different computers. As you can see, at the time this chart was created, we were able to push complete pages out to those computers in anywhere from 2 to 6 seconds.
Much of the variation in those times have to do with each server's physical distance from our offices - but some of the times are obviously affected by other factors. See the green dots that are near the top of the chart? It turns out that most of those were coming from just one of Keynotes computers - specifically, the server in Pittsburgh, PA on the Savvis.net ISP connection. That means that - at the time this graph was created - some of the people in the Pittsburgh area might have been experiencing slowness because of problems at Savvis.net.
While such problems are not uncommon, they are frustrating to track down because the problems can appear and disappear in a heartbeat. Typically these kind of problems get corrected within 24 hours. If we get reports from our users about slowness that persists for several days, we try to help them report the problem to their ISP because they have the best chance of fixing the problem. Another thing we do is to run more detailed tests from the Keynote server with the problem. In this case, here's what those results look like:

This chart shows the time it took for all of the parts of our homepage to show up in Pittsburgh. In this case, everything worked great. We were actually able to get all of our parts shipped out in around 4.5 seconds. The final 2 seconds were due to the time it took for the banner ad to come down from our advertising partner (something we don't have control over). Since things worked fine this time, we suspect that the problem at Savvis.net has been fixed (or will be soon).
While these charts don't really tell you anything about the market, they help us keep StockCharts.com up and working as quickly as possible. Hopefully you enjoyed this "peek behind the curtain" at some of the charts that we stare at every day.

hefeiddd

April 21, 2007SMALL CAPS LAGGING LARGE-CAPSBy Chip Anderson
Arthur Hill
The Dow Diamonds (DIA) moved to a new all time high this past week and the S&P 500 ETF (SPY) recorded a multi-year high. En route to these highs, both exceeded their late February highs and large-caps are showing relative strength. In addition, both gapped higher on Monday and held these gaps throughout the week.
On the other side of the market, the Russell 2000 iShares (IWM) is having trouble with resistance from the late February high and small-caps are showing relative weakness. The ETF also pulled back rather sharply on Thursday and actually filled Monday's gap. IWM bounced back on Friday, but remains at resistance and has yet to breakout. The price relative (IWM:SPY) further confirms that IWM is not as strong as SPY. The indicator has been overlaid the IWM chart and it formed a lower high in April.



IWM is close to a breakout and a move above the February high would affirm the breakouts in SPY and DIA. Failure to breakout would show continued weakness and this would cast a shadow on the current rally. At the very least, relative weakness in IWM means we should favor large-caps over small-caps in the coming weeks and months.



Posted at 04:05 PM in Arthur Hill | Permalink


April 21, 2007CYCLE ORIENTATION IS BULLISHBy Chip Anderson
Carl Swenlin
Back in November 2006 I speculated that the 4-Year Cycle trough had arrived in June/July 2006, and that the implication was bullish for stocks – bullish because we normally expect an extended rally out of those cycle lows. At this point, I think that assessment is proving to be correct because there has been a substantial rally, and the recent correction low has failed to challenge the 2006 lows. In other words, the first leg of the current 4-Year Cycle has shown unusual strength, and it is reasonable to assume that there could be a few more good up legs before the bull market finally tops out.
In a shorter-term context, we can also note that the March low also marks the cycle trough for the 9-Month Cycle that began last summer in conjunction with the 4-Year Cycle. I had expected the 9-Month Cycle trough to arrive this month (around April 16), but, since the S&P 500 has already exceeded its February high, I have to accept the March 14 low as being the cycle trough – having arrived one month early. Another feature of that cycle is that the high price point in the cycle (the crest) is located on the extreme right side of the cycle arc. This is a bullish configuration.
Assuming that we are beginning a new 9-Month Cycle, and assuming that the bullish configuration (right-hand cresting) persists, it will be about six months or more before the next important price top arrives. Regarding this estimate, I would pencil it in, rather than using chisel in stone.



A casual examination of the cycle chart will reveal that there really is no typical cycle configuration, and the spacing between troughs can be terribly inconsistent for the 9-Month Cycle and subordinate (shorter) cycles; however, cycle analysis does provide a certain context that can be applied to price movement, which can be useful to the intuitive side of the brain.
Bottom Line: Cycle analysis is an imperfect tool, but current cycle orientation is more clear than usual, and it is bullish for stocks, probably for several months.



Posted at 04:04 PM in Carl Swenlin | Permalink


April 21, 2007STOCK MARKET SEEING "ROTATION"By Chip Anderson
Richard Rhodes
The positive stock market rally is undergoing significant "rotation" within various indices, which in our opinion is quite important from both an investment and trading perspective. First, when we invest or trade, we want to run with the "fastest horses" in order to outperform the markets or one's particular benchmark. Therefore, it behests us to use technical analysis on specific ratio charts to discern where to put our money in order to earn outsized profits. This is relative investing 101. Last week, we will note that the large caps handily outperformed the small caps. This is a trend that has been ongoing for the past year, but one that hasn't really gotten the attention of the hedge funds and hot money. Well, that is about to change, and the media will begin to pick up on this material change and it shall have repurcussions throughout the trading world. If we analyze the ratio chart between the S&P 500 Large Caps (SPY) and the Russell 2000 Small Caps (IWM), we find a "major low" was forged in April-2006, and since then the ratio has held above its low and formed what appears to be a "right shoulder" of a larger "head & shoulders bottoming pattern." This is of course hugely bullish, for it portends months and years of outperformance by the large caps such as Wal-Mart (WMT), Citigroup (C), 3M (MMM) and Pfizer (PFE).



For this bullish pattern to be confirmed, a move above neckline resistance at 1.86 is required; however, we would become more confident a breakout is developing with a breakout above the longer-term 500-day moving average. The 40-day stochastic is showing strength from a higher low, which further increases the probability this bullish pattern will come to fruition. In other words, the ducks are lining up rather nicely.

And finally, we would also note that SPY isn't only poised to outperform IWM; it showing bullish technical patterns against European and Asian regional indices...and perhaps more importantly...the Emerging Markets. Hence, when we are long - we want to be long large caps; when we are short - we want to be short small caps and certain foreign regions or indices. It's just that simple right now.



Posted at 04:03 PM in Richard Rhodes | Permalink


April 21, 2007SITE SLOWNESS, SERVER ROOMBy Chip Anderson
Site News

RECENT SITE SLOWNESS - For details on our recent website slowness, please see Chip's article above. To compensate our users for the problems, we have credited all members 2 additional weeks of service.

SERVER ROOM PROGRESS REPORT - Work continues to progress on our server room upgrade project. The chiller has finally been installed, and we are hoping to start it up for a test run sometime this coming week. If all goes well, we will be able to get all of our servers back in there permanent homes soon!







Posted at 04:02 PM in Site News | Permalink


April 21, 2007ASIA RECOVERSBy Chip Anderson
John Murphy
Thursday's 4.5% drop in Chinese stocks caused nervous selling in other Asian markets. By the time the U.S. market opened, however, Europe had already started to recover and initial U.S. losses were modest. By day's end, the Dow had closed at a new record high. A strong Friday open in Asian markets set the stage for a strong day in global stock markets. Chart 1 is an hourly bar chart of the last ten days. It shows the Pacific Ex-Japan iShares (EPP) gapping down on Thursday (red arrow). The good news is that the EPP then gapped back up on Friday (green arrow). Thursday's isolated price bars (see circle) created an "island" bottom which is a short-term bullish pattern. [An ""island"" bottom occurs when a "down gap" is immediately followed by an "up gap"]. The U.S. market also got a big boost from large industrials like Caterpillar and Honeywell which led the Dow Industrials to a new record high. A big jump in Google pushed the Nasdaq up against its 2007 highs. Commodity markets like gold and oil that pulled back on Thursday (owing to concerns about higher Chinese interest rates) recovered strongly on Friday. Commodity-related stocks – like basic materials, energy, and precious metals – were among Friday's strongest groups. A weaker dollar is continuing to feed the commodity rally.





Posted at 04:01 PM in John Murphy | Permalink


April 21, 2007MORE SPEED LEADS TO HUGE SLOW DOWNSBy Chip Anderson
Chip Anderson
The markets did great this week with the Dow hitting record highs and closing in on 13,000 however almost no one here at StockCharts.com was paying much attention. As most ChartWatchers know, we spent much of the week wrestling with technical glitches. I thought I'd take some time to explain what we've learned about the problems and the steps we are taking to prevent them from happening again. If you are not interested in computers and networks, now might be a good time to skip down to the other articles .
About a year ago we started upgrading all of the equipment here at StockCharts.com from the slower 100 Megabit networking speed to the newer 1 Gigabit speed. (Most home networking equipment works at 100 Megabits although - like us - you can upgrade your stuff to 1 Gigabit relatively inexpensively these days.) Upgrading our network to the faster speed has many benefits to all of our users: our servers send around stock price data faster, the charts we create get sent out faster, we can backup our server data faster, etc. In order to upgrade a network, you have to replace (or upgrade) both the computers and the switches on the network. (A switch is a device that connects all of the wires from all the different computers. Most home networks have a switch built into the router/firewire device that the broadband modem plugs into.)
Now, there is a hidden problem with upgrading the speed of any network - a problem that most of the network equipment people don't tell you about. With few exceptions, there is always a point where your high speed network meets a slower speed device. In our case, our three connections to the Internet work at 45 Megabits and so, at some point, all of our outbound traffic has to slow dramatically in order to get out one of those wires.
The situation is analogous to a sink with a slow drain and a big faucet. The slow drain represents the slow connections to the Internet, The big faucet represents the fast connections to our charting servers, and the water represents all of the bits that make up our charts. The overall goal of the network is to keep the sink from overflowing.
If the water is able to go down the drain as fast as it is coming out of the faucet, everything is fine. The sink remains almost completely empty. Even if there are occasional high-speed bursts of water from the faucet, things are probably fine also. The extra water just stays in the sink until the drain has a chance to "catch up." The sink "buffers" the extra water for the drain.
Problems happen when the amount of water coming out of the faucet exceeds the amount of water going down the drain for a "long time" and the sink becomes completely full. At that point, any additional water that comes out of the faucet will get spilled (i.e., lost).
Coming back to the world of networking, this process of "buffering" (i.e., the sink) happens inside whichever device is connecting the high-speed network to the slower speed network - typically the switch (or the router/modem in most homes).
Now, when we started to upgrade our network to gigabit speed, the first thing we did was go out and buy some very nice, high-speed switches from a very well known network equipment manufacturer. Where a consumer level gigabit switch might cost $50 these days, the ones we got cost several thousand dollars (which is typical for enterprise networking). In return for that money, we supposedly got three things - long-lasting hardware, big sinks, and software that would tell us if the sinks ever overflowed. (See where I'm going with this?)
Ultimately, most of last week's problems were caused by a buffer overflowing inside one of those new switches. That is no surprise to any of us - it was one of the first things we looked for. The bigger problem was that everyone was confused by four facts:

The switch didn't give us any indication that it was having problems.
Everything had been working great up until last Wednesday.
Even at our busiest times, we were only sending out about 70 megabits of data - much less than the 100 megabits that our "drain" allows.
• When data went out through our slower ISP, everything worked fine.
  

Ironically, the answer to the mystery lay in the article that I wrote in the last newsletter - the one where I sort of bragged about how much faster we were able to generate charts these days. By increasing the speed at which we create our charts, we metaphorically increased the speed at which water was bursting into the sink from the faucet. The result was an overwhelmed sink and thus, data loss.
The immediate solution was to slow our network back down to 100 megabits. That smoothed out the flow of data and stopped the data loss at the switch. Obviously that is not the right long-term solution though because we lose all of the other advantages of gigabit networking. The long-term solution is to upgrade our switches to ones with HUGE sinks (i.e., memory buffers) which we will be doing this weekend. Once that work is complete, you can expect our site to be faster than ever.
In case you missed the announcements on the website, we have credited ALL subscribers with an additional two free weeks of service to make up for last week's problems. Thanks for continuing to support StockCharts.com.



Posted at 04:00 PM in Chip Anderson | Permalink


April 08, 2007USING THE PUT CALL RATIOBy Chip Anderson
Tom Bowley
The put call ratio ("PC") is quite simply the total number of put options divided by the total number of call options. These options include both individual equity options and index options. Every day you can monitor the relationship between put options and call options at www.cboe.com. Once in the site, click on "Data", then "Intra Day Volume". Every half hour, the information is updated. This article is not the appropriate forum to discuss options strategies and definitions, but in its most basic form, put option buyers are expecting the market to decline and call option buyers are expecting the market to advance. The PC gives you a quick, concise picture of the relationship between the put buyers (bears) and call buyers (bulls). The beauty of the PC is that it's a contrarian indicator. When the put call ratio spikes above 1.0, it indicates the market is becoming oversold short-term so expect a rally. When the PC drops below 0.6, the market is becoming overbought short-term so expect a decline. I like to use the 5 day and 21 day moving averages of the PC. Any time the 21 day moving average of the PC approaches 1.0, start looking for a bottom in the market. Historical PC data is available at CBOE beginning in 1995. Let's take a look at how this reading of investor sentiment could have been used to identify recent bottoms in the S&P 500 chart.



Notice that both bottoms formed when the PC was at extreme readings. The PC at the recent March lows was the lowest 21 day moving average reading since the data was compiled. That reading is indicative of a long-term bottom, not a long-term top. Major tops are formed when the market is euphoric. The recent extreme pessimism suggests that this bull market still has legs - strong legs. We remain very bullish on equities for the balance of 2007 and into 2008.



Posted at 04:06 PM in Tom Bowley | Permalink


April 08, 2007UP SWING CONTINUESBy Chip Anderson
Arthur Hill
The Nasdaq rally continued into its fourth week with a gap up on Tuesday and move into the late February gap zone. This late February gap started a sharp decline to the March lows and the recovery back above 2460 is quite impressive. Even though volume is not so impressive, the current swing is clearly up and we should at least respect this up swing until it is proven otherwise.
Just what would it take to reverse the current upswing? I am watching three items: Tuesday's gap, the late March lows and RSI. The Nasdaq gapped higher on Tuesday morning, closed strong on Tuesday and continued higher the next two days. This follow through is bullish and the gap is bullish as long as it holds. The index established support around 2400 with three indecisive candlesticks (blue oval). A move below Tuesday's gap and below the late March low would reverse the current upswing. Until these are broken, the bulls have a clear edge and we should expect higher prices.



RSI is trending higher and above 50. RSI turned oversold in early March and moved above 50 over the last few weeks. I drew a trendline extending up from the March low and RSI is also trending higher. Momentum continues to improve and this is also bullish. A break below this trendline and a move below 45 in RSI would reverse the uptrend in momentum. The bulls also have the momentum edge and we should not bet on lower prices until a bearish signal.



Posted at 04:05 PM in Arthur Hill | Permalink


April 08, 2007THRUST/TREND MODEL NEARS BUY SIGNALBy Chip Anderson
Carl Swenlin
Our Thrust/Trend Model (T/TM) is so-named because it treats bottoms and tops differently – tops tend to be rounded trend changes, and bottoms tend to be formed by sharp changes in direction accompanied by internal up thrusts. At price tops, T/TM changes from a buy to neutral (or sell) based upon a downside crossover of the 50-EMA in relation to the 200-EMA, evidence that a change in trend from up to down has occurred. (The T/TM for the S&P 500 is currently in neutral.) At bottoms the model uses a double screen – the PMO (Price Momentum Oscillator) crossing up through its 10-EMA, and the Percent Buy Index (PBI) crossing up through its 32-EMA.
While PMO crossovers alone are useful for short-term work, there are a lot of whipsaws, so we use the additional screen of the PBI crossover to slow the model down, making it more suitable for medium-term work. On the chart below we display all the components of the T/TM. Of particular interest now are the two thrust components – the PMO and PBI. Note that the PMO upside crossover has already occurred (on the day of the giant one-day rally); however, while the PBI still remains below its 32-EMA, it has closed the gap. If the PBI does cross to the upside, the T/TM for the S&P 500 will switch to a buy signal, but my advice would be to not anticipate. Wait for it to happen.



Besides the normal need to maintain model discipline, one of the reasons for caution is that the PBI has still not dropped to the level of previous corrections. It is not absolutely necessary that it do this, but it would be a desirable sign that the correction had run a normal course and that a price bottom would not be suspect. I have drawn ellipses on the PBI in 2005 and 2006 to show the kind of PBI action we might expect.
Another concern is that the PMO looks as if it is trying to turn down below the zero line. If this were to happen, it is extremely negative for the short-term, possibly longer.
Bottom Line: We have had a number of positive events over the last few weeks, and the T/TM is close to generating a buy signal; however, there is reason to believe that the correction still has at least a few more weeks to go.



Posted at 04:04 PM in Carl Swenlin | Permalink


April 08, 2007LOOKING AT CRUDE OILBy Chip Anderson
Richard Rhodes
For the past couple of weeks, the markets have focused in upon crude oil prices and their attendant rise given the Iran hostage situation. The prevailing thought was that "geopolitical premium" was on the order of $4-to-$5 a barrel of the $67/barrel price; and that once the situation was concluded successfully - the premium would be lost rather quickly. Of course the situation was concluded last week, but the price of crude oil didn't "plunge" as expected. In fact, only not been the case as crude oil has lost only -$2.50 off its highs, with the decline quite orderly indeed. We cannot think of a more bullish respone than what was seen; obviously there are other mitigating factors extant in the price of crude oil that haven't allowed it to decline. Therefore, we think the current rally has "legs", with the recent weakness nothing more than a good old bit of profit-taking before an assault on the all-time highs. Technically, we can make the tentative "bullish case" given major support levels have held. Major trendline support has held; and the 200-week moving average has held; and minor trendline resistance was broken above. If the 60-week moving avearge just overhead can be cleared with a bit of authority, then our bullish confidence level will be raised materially.



Conversely, we can make the tentative "bearish case" that perhaps crude oil prices can "fail" at the 60-week moving average has it has done so for the past several days. Certainly this was the case in 2001 case where the flattening 60-week moving average turned prices lower by -33%. If this were to occur, then a 2001-like decline would target major support near $40. We think this is a remote probability, but a probablity nonetheless. Therefore, our current stance is quite simple: we are bullish of crude oil, energy stocks in general, and oil service shares in particular [Transocean (RIG) noted on Friday that demand for services was high and rising and likley to do so far into the future]. However, we understand the "risk" to the bullish trade, and can manage our risk easiliy using tight position stops.



Posted at 04:03 PM in Richard Rhodes | Permalink


April 08, 2007CHILLER INSTALLATION THIS WEEK!By Chip Anderson
Site News

Regular readers know that we've been trying to complete a big upgrade to our server room for almost a year now. It's been extremely frustrating dealing with the various powers-that-be about completing things, but we are on the verge of the last big step in the project - the installation of our outdoor "chiller" - a huge air conditioner that will generate cold water which will be used to keep our server room from getting too hot. We expect for that work to be completed next week. After that, we will start moving our servers from their temporary space back into their spiffy new digs. We'll then be able to continue expanding our server capacity for the foreseeable future!







Posted at 04:02 PM in Site News | Permalink


April 08, 2007EURO HITS TWO-YEAR HIGH AGAINST DOLLARBy Chip Anderson
John Murphy
The U.S. Dollar Index fell during the week and is drawing dangerously close to last December's low (green circle). The foreign currency with the biggest influence on the USD is the Euro. Expectation for continuing economic strength in Europe – and the likelihood for further ECB rate hikes – pushed the Euro (blue line) to a new two-year high against the dollar. The weekly bars in Chart 2 show the Euro (blue line) moving up to challenge its late 2004 peak near 136. A close above that chart barrier would increase the odds for the USD to threaten its corresponding low near 80. That would be a very important test for the U.S. currency.







Posted at 04:01 PM in John Murphy | Permalink


April 08, 2007WHICH CHARTS DO I LOOK AT?By Chip Anderson
Chip Anderson
Hello Fellow ChartWatchers!
This week I thought we'd look at something different - the charts that matter the most to me personally. Now, brace yourself... these charts are not financial charts. Nope. These are the charts that tell us at an instant how well the StockCharts.com website is performing. If there is trouble with the site, these charts frequently help us find and fix the problem. In addition, whenever we add or reconfigure our servers, these charts can tell us if the improvements we expect to see actually occur.

This first chart shows the memory utilization of just one of our 17 charting servers - the computers that actually create the chart images you see. See the even "sawtooth" pattern? That's a good thing. It means that the server is able to keep up with it's charting duties easily. One of the first signs that a server is overloaded is a change is that pattern.

The chart above shows the results of a server stress test. This server was pounded with just over 4,000 chart requests from 40 simulated users in a very short span of time. The little black dots on the chart show the time (in milliseconds) it took for each chart request to be completed. The blue line shows the running average of all those times. In this case, the server was able to create each chart in around 274 milliseconds (on average). Everytime we get new servers or make changes to our system, we rerun these stress tests to make sure our average chart generation time doesn't slip. In fact, since we've started adding our new 4-CPU servers from Sun Microsystems, the average chart generation time has decreased by about 25% - something we are very excited about.
If all of our users were located in our offices, they would get their charts in about the same time it takes the servers to create them - i.e. ~1/3rd of a second. Unfortunately, that isn't the case. There's another factor in site performance that we monitor closely - the speed of the Internet itself. Many people take their Internet connection for granted - we don't. Here's one of the key charts we use to see if everything about our site is working well

This chart was created for us by a company called Keynote Systems. They have computers located all over the world that are programmed to download selected pages from our website and measure how long it takes for those pages to arrive. Each one of the green dots on that chart represents one timing test from one of Keynote's 45 different computers. As you can see, at the time this chart was created, we were able to push complete pages out to those computers in anywhere from 2 to 6 seconds.
Much of the variation in those times have to do with each server's physical distance from our offices - but some of the times are obviously affected by other factors. See the green dots that are near the top of the chart? It turns out that most of those were coming from just one of Keynotes computers - specifically, the server in Pittsburgh, PA on the Savvis.net ISP connection. That means that - at the time this graph was created - some of the people in the Pittsburgh area might have been experiencing slowness because of problems at Savvis.net.
While such problems are not uncommon, they are frustrating to track down because the problems can appear and disappear in a heartbeat. Typically these kind of problems get corrected within 24 hours. If we get reports from our users about slowness that persists for several days, we try to help them report the problem to their ISP because they have the best chance of fixing the problem. Another thing we do is to run more detailed tests from the Keynote server with the problem. In this case, here's what those results look like:

This chart shows the time it took for all of the parts of our homepage to show up in Pittsburgh. In this case, everything worked great. We were actually able to get all of our parts shipped out in around 4.5 seconds. The final 2 seconds were due to the time it took for the banner ad to come down from our advertising partner (something we don't have control over). Since things worked fine this time, we suspect that the problem at Savvis.net has been fixed (or will be soon).
While these charts don't really tell you anything about the market, they help us keep StockCharts.com up and working as quickly as possible. Hopefully you enjoyed this "peek behind the curtain" at some of the charts that we stare at every day.

hefeiddd

By Chip AndersonArthur Hill
The Dow Diamonds (DIA) moved to a new all time high this past week and the S&P 500 ETF (SPY) recorded a multi-year high. En route to these highs, both exceeded their late February highs and large-caps are showing relative strength. In addition, both gapped higher on Monday and held these gaps throughout the week.
On the other side of the market, the Russell 2000 iShares (IWM) is having trouble with resistance from the late February high and small-caps are showing relative weakness. The ETF also pulled back rather sharply on Thursday and actually filled Monday's gap. IWM bounced back on Friday, but remains at resistance and has yet to breakout. The price relative (IWM:SPY) further confirms that IWM is not as strong as SPY. The indicator has been overlaid the IWM chart and it formed a lower high in April.



IWM is close to a breakout and a move above the February high would affirm the breakouts in SPY and DIA. Failure to breakout would show continued weakness and this would cast a shadow on the current rally. At the very least, relative weakness in IWM means we should favor large-caps over small-caps in the coming weeks and months.



By Chip Anderson


Carl Swenlin
Back in November 2006 I speculated that the 4-Year Cycle trough had arrived in June/July 2006, and that the implication was bullish for stocks – bullish because we normally expect an extended rally out of those cycle lows. At this point, I think that assessment is proving to be correct because there has been a substantial rally, and the recent correction low has failed to challenge the 2006 lows. In other words, the first leg of the current 4-Year Cycle has shown unusual strength, and it is reasonable to assume that there could be a few more good up legs before the bull market finally tops out.
In a shorter-term context, we can also note that the March low also marks the cycle trough for the 9-Month Cycle that began last summer in conjunction with the 4-Year Cycle. I had expected the 9-Month Cycle trough to arrive this month (around April 16), but, since the S&P 500 has already exceeded its February high, I have to accept the March 14 low as being the cycle trough – having arrived one month early. Another feature of that cycle is that the high price point in the cycle (the crest) is located on the extreme right side of the cycle arc. This is a bullish configuration.
Assuming that we are beginning a new 9-Month Cycle, and assuming that the bullish configuration (right-hand cresting) persists, it will be about six months or more before the next important price top arrives. Regarding this estimate, I would pencil it in, rather than using chisel in stone.



A casual examination of the cycle chart will reveal that there really is no typical cycle configuration, and the spacing between troughs can be terribly inconsistent for the 9-Month Cycle and subordinate (shorter) cycles; however, cycle analysis does provide a certain context that can be applied to price movement, which can be useful to the intuitive side of the brain.
Bottom Line: Cycle analysis is an imperfect tool, but current cycle orientation is more clear than usual, and it is bullish for stocks, probably for several months.



Posted at 04:04 PM in Carl Swenlin | Permalink


By Chip AndersonRichard Rhodes
The positive stock market rally is undergoing significant "rotation" within various indices, which in our opinion is quite important from both an investment and trading perspective. First, when we invest or trade, we want to run with the "fastest horses" in order to outperform the markets or one's particular benchmark. Therefore, it behests us to use technical analysis on specific ratio charts to discern where to put our money in order to earn outsized profits. This is relative investing 101. Last week, we will note that the large caps handily outperformed the small caps. This is a trend that has been ongoing for the past year, but one that hasn't really gotten the attention of the hedge funds and hot money. Well, that is about to change, and the media will begin to pick up on this material change and it shall have repurcussions throughout the trading world. If we analyze the ratio chart between the S&P 500 Large Caps (SPY) and the Russell 2000 Small Caps (IWM), we find a "major low" was forged in April-2006, and since then the ratio has held above its low and formed what appears to be a "right shoulder" of a larger "head & shoulders bottoming pattern." This is of course hugely bullish, for it portends months and years of outperformance by the large caps such as Wal-Mart (WMT), Citigroup (C), 3M (MMM) and Pfizer (PFE).



For this bullish pattern to be confirmed, a move above neckline resistance at 1.86 is required; however, we would become more confident a breakout is developing with a breakout above the longer-term 500-day moving average. The 40-day stochastic is showing strength from a higher low, which further increases the probability this bullish pattern will come to fruition. In other words, the ducks are lining up rather nicely.

And finally, we would also note that SPY isn't only poised to outperform IWM; it showing bullish technical patterns against European and Asian regional indices...and perhaps more importantly...the Emerging Markets. Hence, when we are long - we want to be long large caps; when we are short - we want to be short small caps and certain foreign regions or indices. It's just that simple right now.



Posted at 04:03 PM in Richard Rhodes | Permalink


By Chip AndersonSite News

RECENT SITE SLOWNESS - For details on our recent website slowness, please see Chip's article above. To compensate our users for the problems, we have credited all members 2 additional weeks of service.

SERVER ROOM PROGRESS REPORT - Work continues to progress on our server room upgrade project. The chiller has finally been installed, and we are hoping to start it up for a test run sometime this coming week. If all goes well, we will be able to get all of our servers back in there permanent homes soon!







Posted at 04:02 PM in Site News | Permalink


April 21, 2007 By Chip Anderson
John Murphy
Thursday's 4.5% drop in Chinese stocks caused nervous selling in other Asian markets. By the time the U.S. market opened, however, Europe had already started to recover and initial U.S. losses were modest. By day's end, the Dow had closed at a new record high. A strong Friday open in Asian markets set the stage for a strong day in global stock markets. Chart 1 is an hourly bar chart of the last ten days. It shows the Pacific Ex-Japan iShares (EPP) gapping down on Thursday (red arrow). The good news is that the EPP then gapped back up on Friday (green arrow). Thursday's isolated price bars (see circle) created an "island" bottom which is a short-term bullish pattern. [An ""island"" bottom occurs when a "down gap" is immediately followed by an "up gap"]. The U.S. market also got a big boost from large industrials like Caterpillar and Honeywell which led the Dow Industrials to a new record high. A big jump in Google pushed the Nasdaq up against its 2007 highs. Commodity markets like gold and oil that pulled back on Thursday (owing to concerns about higher Chinese interest rates) recovered strongly on Friday. Commodity-related stocks – like basic materials, energy, and precious metals – were among Friday's strongest groups. A weaker dollar is continuing to feed the commodity rally.





Posted at 04:01 PM in John Murphy | Permalink


April 21, 2007 By Chip Anderson
Chip Anderson
The markets did great this week with the Dow hitting record highs and closing in on 13,000 however almost no one here at StockCharts.com was paying much attention. As most ChartWatchers know, we spent much of the week wrestling with technical glitches. I thought I'd take some time to explain what we've learned about the problems and the steps we are taking to prevent them from happening again. If you are not interested in computers and networks, now might be a good time to skip down to the other articles .
About a year ago we started upgrading all of the equipment here at StockCharts.com from the slower 100 Megabit networking speed to the newer 1 Gigabit speed. (Most home networking equipment works at 100 Megabits although - like us - you can upgrade your stuff to 1 Gigabit relatively inexpensively these days.) Upgrading our network to the faster speed has many benefits to all of our users: our servers send around stock price data faster, the charts we create get sent out faster, we can backup our server data faster, etc. In order to upgrade a network, you have to replace (or upgrade) both the computers and the switches on the network. (A switch is a device that connects all of the wires from all the different computers. Most home networks have a switch built into the router/firewire device that the broadband modem plugs into.)
Now, there is a hidden problem with upgrading the speed of any network - a problem that most of the network equipment people don't tell you about. With few exceptions, there is always a point where your high speed network meets a slower speed device. In our case, our three connections to the Internet work at 45 Megabits and so, at some point, all of our outbound traffic has to slow dramatically in order to get out one of those wires.
The situation is analogous to a sink with a slow drain and a big faucet. The slow drain represents the slow connections to the Internet, The big faucet represents the fast connections to our charting servers, and the water represents all of the bits that make up our charts. The overall goal of the network is to keep the sink from overflowing.
If the water is able to go down the drain as fast as it is coming out of the faucet, everything is fine. The sink remains almost completely empty. Even if there are occasional high-speed bursts of water from the faucet, things are probably fine also. The extra water just stays in the sink until the drain has a chance to "catch up." The sink "buffers" the extra water for the drain.
Problems happen when the amount of water coming out of the faucet exceeds the amount of water going down the drain for a "long time" and the sink becomes completely full. At that point, any additional water that comes out of the faucet will get spilled (i.e., lost).
Coming back to the world of networking, this process of "buffering" (i.e., the sink) happens inside whichever device is connecting the high-speed network to the slower speed network - typically the switch (or the router/modem in most homes).
Now, when we started to upgrade our network to gigabit speed, the first thing we did was go out and buy some very nice, high-speed switches from a very well known network equipment manufacturer. Where a consumer level gigabit switch might cost $50 these days, the ones we got cost several thousand dollars (which is typical for enterprise networking). In return for that money, we supposedly got three things - long-lasting hardware, big sinks, and software that would tell us if the sinks ever overflowed. (See where I'm going with this?)
Ultimately, most of last week's problems were caused by a buffer overflowing inside one of those new switches. That is no surprise to any of us - it was one of the first things we looked for. The bigger problem was that everyone was confused by four facts:

The switch didn't give us any indication that it was having problems.
Everything had been working great up until last Wednesday.
Even at our busiest times, we were only sending out about 70 megabits of data - much less than the 100 megabits that our "drain" allows.
• When data went out through our slower ISP, everything worked fine.
  

Ironically, the answer to the mystery lay in the article that I wrote in the last newsletter - the one where I sort of bragged about how much faster we were able to generate charts these days. By increasing the speed at which we create our charts, we metaphorically increased the speed at which water was bursting into the sink from the faucet. The result was an overwhelmed sink and thus, data loss.
The immediate solution was to slow our network back down to 100 megabits. That smoothed out the flow of data and stopped the data loss at the switch. Obviously that is not the right long-term solution though because we lose all of the other advantages of gigabit networking. The long-term solution is to upgrade our switches to ones with HUGE sinks (i.e., memory buffers) which we will be doing this weekend. Once that work is complete, you can expect our site to be faster than ever.
In case you missed the announcements on the website, we have credited ALL subscribers with an additional two free weeks of service to make up for last week's problems. Thanks for continuing to support StockCharts.com.



Posted at 04:00 PM in Chip Anderson | Permalink


April 08, 2007 By Chip Anderson
Tom Bowley
The put call ratio ("PC") is quite simply the total number of put options divided by the total number of call options. These options include both individual equity options and index options. Every day you can monitor the relationship between put options and call options at www.cboe.com. Once in the site, click on "Data", then "Intra Day Volume". Every half hour, the information is updated. This article is not the appropriate forum to discuss options strategies and definitions, but in its most basic form, put option buyers are expecting the market to decline and call option buyers are expecting the market to advance. The PC gives you a quick, concise picture of the relationship between the put buyers (bears) and call buyers (bulls). The beauty of the PC is that it's a contrarian indicator. When the put call ratio spikes above 1.0, it indicates the market is becoming oversold short-term so expect a rally. When the PC drops below 0.6, the market is becoming overbought short-term so expect a decline. I like to use the 5 day and 21 day moving averages of the PC. Any time the 21 day moving average of the PC approaches 1.0, start looking for a bottom in the market. Historical PC data is available at CBOE beginning in 1995. Let's take a look at how this reading of investor sentiment could have been used to identify recent bottoms in the S&P 500 chart.



Notice that both bottoms formed when the PC was at extreme readings. The PC at the recent March lows was the lowest 21 day moving average reading since the data was compiled. That reading is indicative of a long-term bottom, not a long-term top. Major tops are formed when the market is euphoric. The recent extreme pessimism suggests that this bull market still has legs - strong legs. We remain very bullish on equities for the balance of 2007 and into 2008.



Posted at 04:06 PM in Tom Bowley | Permalink


April 08, 2007 By Chip Anderson
Arthur Hill
The Nasdaq rally continued into its fourth week with a gap up on Tuesday and move into the late February gap zone. This late February gap started a sharp decline to the March lows and the recovery back above 2460 is quite impressive. Even though volume is not so impressive, the current swing is clearly up and we should at least respect this up swing until it is proven otherwise.
Just what would it take to reverse the current upswing? I am watching three items: Tuesday's gap, the late March lows and RSI. The Nasdaq gapped higher on Tuesday morning, closed strong on Tuesday and continued higher the next two days. This follow through is bullish and the gap is bullish as long as it holds. The index established support around 2400 with three indecisive candlesticks (blue oval). A move below Tuesday's gap and below the late March low would reverse the current upswing. Until these are broken, the bulls have a clear edge and we should expect higher prices.



RSI is trending higher and above 50. RSI turned oversold in early March and moved above 50 over the last few weeks. I drew a trendline extending up from the March low and RSI is also trending higher. Momentum continues to improve and this is also bullish. A break below this trendline and a move below 45 in RSI would reverse the uptrend in momentum. The bulls also have the momentum edge and we should not bet on lower prices until a bearish signal.



Posted at 04:05 PM in Arthur Hill | Permalink


April 08, 2007 By Chip Anderson
Carl Swenlin
Our Thrust/Trend Model (T/TM) is so-named because it treats bottoms and tops differently – tops tend to be rounded trend changes, and bottoms tend to be formed by sharp changes in direction accompanied by internal up thrusts. At price tops, T/TM changes from a buy to neutral (or sell) based upon a downside crossover of the 50-EMA in relation to the 200-EMA, evidence that a change in trend from up to down has occurred. (The T/TM for the S&P 500 is currently in neutral.) At bottoms the model uses a double screen – the PMO (Price Momentum Oscillator) crossing up through its 10-EMA, and the Percent Buy Index (PBI) crossing up through its 32-EMA.
While PMO crossovers alone are useful for short-term work, there are a lot of whipsaws, so we use the additional screen of the PBI crossover to slow the model down, making it more suitable for medium-term work. On the chart below we display all the components of the T/TM. Of particular interest now are the two thrust components – the PMO and PBI. Note that the PMO upside crossover has already occurred (on the day of the giant one-day rally); however, while the PBI still remains below its 32-EMA, it has closed the gap. If the PBI does cross to the upside, the T/TM for the S&P 500 will switch to a buy signal, but my advice would be to not anticipate. Wait for it to happen.



Besides the normal need to maintain model discipline, one of the reasons for caution is that the PBI has still not dropped to the level of previous corrections. It is not absolutely necessary that it do this, but it would be a desirable sign that the correction had run a normal course and that a price bottom would not be suspect. I have drawn ellipses on the PBI in 2005 and 2006 to show the kind of PBI action we might expect.
Another concern is that the PMO looks as if it is trying to turn down below the zero line. If this were to happen, it is extremely negative for the short-term, possibly longer.
Bottom Line: We have had a number of positive events over the last few weeks, and the T/TM is close to generating a buy signal; however, there is reason to believe that the correction still has at least a few more weeks to go.



Posted at 04:04 PM in Carl Swenlin | Permalink


April 08, 2007 By Chip Anderson
Richard Rhodes
For the past couple of weeks, the markets have focused in upon crude oil prices and their attendant rise given the Iran hostage situation. The prevailing thought was that "geopolitical premium" was on the order of $4-to-$5 a barrel of the $67/barrel price; and that once the situation was concluded successfully - the premium would be lost rather quickly. Of course the situation was concluded last week, but the price of crude oil didn't "plunge" as expected. In fact, only not been the case as crude oil has lost only -$2.50 off its highs, with the decline quite orderly indeed. We cannot think of a more bullish respone than what was seen; obviously there are other mitigating factors extant in the price of crude oil that haven't allowed it to decline. Therefore, we think the current rally has "legs", with the recent weakness nothing more than a good old bit of profit-taking before an assault on the all-time highs. Technically, we can make the tentative "bullish case" given major support levels have held. Major trendline support has held; and the 200-week moving average has held; and minor trendline resistance was broken above. If the 60-week moving avearge just overhead can be cleared with a bit of authority, then our bullish confidence level will be raised materially.



Conversely, we can make the tentative "bearish case" that perhaps crude oil prices can "fail" at the 60-week moving average has it has done so for the past several days. Certainly this was the case in 2001 case where the flattening 60-week moving average turned prices lower by -33%. If this were to occur, then a 2001-like decline would target major support near $40. We think this is a remote probability, but a probablity nonetheless. Therefore, our current stance is quite simple: we are bullish of crude oil, energy stocks in general, and oil service shares in particular [Transocean (RIG) noted on Friday that demand for services was high and rising and likley to do so far into the future]. However, we understand the "risk" to the bullish trade, and can manage our risk easiliy using tight position stops.



Posted at 04:03 PM in Richard Rhodes | Permalink


April 08, 2007 By Chip Anderson
Site News

Regular readers know that we've been trying to complete a big upgrade to our server room for almost a year now. It's been extremely frustrating dealing with the various powers-that-be about completing things, but we are on the verge of the last big step in the project - the installation of our outdoor "chiller" - a huge air conditioner that will generate cold water which will be used to keep our server room from getting too hot. We expect for that work to be completed next week. After that, we will start moving our servers from their temporary space back into their spiffy new digs. We'll then be able to continue expanding our server capacity for the foreseeable future!







Posted at 04:02 PM in Site News | Permalink


April 08, 2007 By Chip Anderson
John Murphy
The U.S. Dollar Index fell during the week and is drawing dangerously close to last December's low (green circle). The foreign currency with the biggest influence on the USD is the Euro. Expectation for continuing economic strength in Europe – and the likelihood for further ECB rate hikes – pushed the Euro (blue line) to a new two-year high against the dollar. The weekly bars in Chart 2 show the Euro (blue line) moving up to challenge its late 2004 peak near 136. A close above that chart barrier would increase the odds for the USD to threaten its corresponding low near 80. That would be a very important test for the U.S. currency.







Posted at 04:01 PM in John Murphy | Permalink


April 08, 2007 By Chip Anderson
Chip Anderson
Hello Fellow ChartWatchers!
This week I thought we'd look at something different - the charts that matter the most to me personally. Now, brace yourself... these charts are not financial charts. Nope. These are the charts that tell us at an instant how well the StockCharts.com website is performing. If there is trouble with the site, these charts frequently help us find and fix the problem. In addition, whenever we add or reconfigure our servers, these charts can tell us if the improvements we expect to see actually occur.

This first chart shows the memory utilization of just one of our 17 charting servers - the computers that actually create the chart images you see. See the even "sawtooth" pattern? That's a good thing. It means that the server is able to keep up with it's charting duties easily. One of the first signs that a server is overloaded is a change is that pattern.

The chart above shows the results of a server stress test. This server was pounded with just over 4,000 chart requests from 40 simulated users in a very short span of time. The little black dots on the chart show the time (in milliseconds) it took for each chart request to be completed. The blue line shows the running average of all those times. In this case, the server was able to create each chart in around 274 milliseconds (on average). Everytime we get new servers or make changes to our system, we rerun these stress tests to make sure our average chart generation time doesn't slip. In fact, since we've started adding our new 4-CPU servers from Sun Microsystems, the average chart generation time has decreased by about 25% - something we are very excited about.
If all of our users were located in our offices, they would get their charts in about the same time it takes the servers to create them - i.e. ~1/3rd of a second. Unfortunately, that isn't the case. There's another factor in site performance that we monitor closely - the speed of the Internet itself. Many people take their Internet connection for granted - we don't. Here's one of the key charts we use to see if everything about our site is working well

This chart was created for us by a company called Keynote Systems. They have computers located all over the world that are programmed to download selected pages from our website and measure how long it takes for those pages to arrive. Each one of the green dots on that chart represents one timing test from one of Keynote's 45 different computers. As you can see, at the time this chart was created, we were able to push complete pages out to those computers in anywhere from 2 to 6 seconds.
Much of the variation in those times have to do with each server's physical distance from our offices - but some of the times are obviously affected by other factors. See the green dots that are near the top of the chart? It turns out that most of those were coming from just one of Keynotes computers - specifically, the server in Pittsburgh, PA on the Savvis.net ISP connection. That means that - at the time this graph was created - some of the people in the Pittsburgh area might have been experiencing slowness because of problems at Savvis.net.
While such problems are not uncommon, they are frustrating to track down because the problems can appear and disappear in a heartbeat. Typically these kind of problems get corrected within 24 hours. If we get reports from our users about slowness that persists for several days, we try to help them report the problem to their ISP because they have the best chance of fixing the problem. Another thing we do is to run more detailed tests from the Keynote server with the problem. In this case, here's what those results look like:

This chart shows the time it took for all of the parts of our homepage to show up in Pittsburgh. In this case, everything worked great. We were actually able to get all of our parts shipped out in around 4.5 seconds. The final 2 seconds were due to the time it took for the banner ad to come down from our advertising partner (something we don't have control over). Since things worked fine this time, we suspect that the problem at Savvis.net has been fixed (or will be soon).
While these charts don't really tell you anything about the market, they help us keep StockCharts.com up and working as quickly as possible. Hopefully you enjoyed this "peek behind the curtain" at some of the charts that we stare at every day.

hefeiddd

By Chip AndersonArthur Hill
The Dow Diamonds (DIA) moved to a new all time high this past week and the S&P 500 ETF (SPY) recorded a multi-year high. En route to these highs, both exceeded their late February highs and large-caps are showing relative strength. In addition, both gapped higher on Monday and held these gaps throughout the week.
On the other side of the market, the Russell 2000 iShares (IWM) is having trouble with resistance from the late February high and small-caps are showing relative weakness. The ETF also pulled back rather sharply on Thursday and actually filled Monday's gap. IWM bounced back on Friday, but remains at resistance and has yet to breakout. The price relative (IWM:SPY) further confirms that IWM is not as strong as SPY. The indicator has been overlaid the IWM chart and it formed a lower high in April.



IWM is close to a breakout and a move above the February high would affirm the breakouts in SPY and DIA. Failure to breakout would show continued weakness and this would cast a shadow on the current rally. At the very least, relative weakness in IWM means we should favor large-caps over small-caps in the coming weeks and months.



By Chip Anderson


Carl Swenlin
Back in November 2006 I speculated that the 4-Year Cycle trough had arrived in June/July 2006, and that the implication was bullish for stocks – bullish because we normally expect an extended rally out of those cycle lows. At this point, I think that assessment is proving to be correct because there has been a substantial rally, and the recent correction low has failed to challenge the 2006 lows. In other words, the first leg of the current 4-Year Cycle has shown unusual strength, and it is reasonable to assume that there could be a few more good up legs before the bull market finally tops out.
In a shorter-term context, we can also note that the March low also marks the cycle trough for the 9-Month Cycle that began last summer in conjunction with the 4-Year Cycle. I had expected the 9-Month Cycle trough to arrive this month (around April 16), but, since the S&P 500 has already exceeded its February high, I have to accept the March 14 low as being the cycle trough – having arrived one month early. Another feature of that cycle is that the high price point in the cycle (the crest) is located on the extreme right side of the cycle arc. This is a bullish configuration.
Assuming that we are beginning a new 9-Month Cycle, and assuming that the bullish configuration (right-hand cresting) persists, it will be about six months or more before the next important price top arrives. Regarding this estimate, I would pencil it in, rather than using chisel in stone.



A casual examination of the cycle chart will reveal that there really is no typical cycle configuration, and the spacing between troughs can be terribly inconsistent for the 9-Month Cycle and subordinate (shorter) cycles; however, cycle analysis does provide a certain context that can be applied to price movement, which can be useful to the intuitive side of the brain.
By Chip Anderson



Richard Rhodes
The positive stock market rally is undergoing significant "rotation" within various indices, which in our opinion is quite important from both an investment and trading perspective. First, when we invest or trade, we want to run with the "fastest horses" in order to outperform the markets or one's particular benchmark. Therefore, it behests us to use technical analysis on specific ratio charts to discern where to put our money in order to earn outsized profits. This is relative investing 101. Last week, we will note that the large caps handily outperformed the small caps. This is a trend that has been ongoing for the past year, but one that hasn't really gotten the attention of the hedge funds and hot money. Well, that is about to change, and the media will begin to pick up on this material change and it shall have repurcussions throughout the trading world. If we analyze the ratio chart between the S&P 500 Large Caps (SPY) and the Russell 2000 Small Caps (IWM), we find a "major low" was forged in April-2006, and since then the ratio has held above its low and formed what appears to be a "right shoulder" of a larger "head & shoulders bottoming pattern." This is of course hugely bullish, for it portends months and years of outperformance by the large caps such as Wal-Mart (WMT), Citigroup (C), 3M (MMM) and Pfizer (PFE).



For this bullish pattern to be confirmed, a move above neckline resistance at 1.86 is required; however, we would become more confident a breakout is developing with a breakout above the longer-term 500-day moving average. The 40-day stochastic is showing strength from a higher low, which further increases the probability this bullish pattern will come to fruition. In other words, the ducks are lining up rather nicely.

And finally, we would also note that SPY isn't only poised to outperform IWM; it showing bullish technical patterns against European and Asian regional indices...and perhaps more importantly...the Emerging Markets. Hence, when we are long - we want to be long large caps; when we are short - we want to be short small caps and certain foreign regions or indices. It's just that simple right now.



By Chip Anderson


Site News

RECENT SITE SLOWNESS - For details on our recent website slowness, please see Chip's article above. To compensate our users for the problems, we have credited all members 2 additional weeks of service.

SERVER ROOM PROGRESS REPORT - Work continues to progress on our server room upgrade project. The chiller has finally been installed, and we are hoping to start it up for a test run sometime this coming week. If all goes well, we will be able to get all of our servers back in there permanent homes soon!







By Chip Anderson


John Murphy
Thursday's 4.5% drop in Chinese stocks caused nervous selling in other Asian markets. By the time the U.S. market opened, however, Europe had already started to recover and initial U.S. losses were modest. By day's end, the Dow had closed at a new record high. A strong Friday open in Asian markets set the stage for a strong day in global stock markets. Chart 1 is an hourly bar chart of the last ten days. It shows the Pacific Ex-Japan iShares (EPP) gapping down on Thursday (red arrow). The good news is that the EPP then gapped back up on Friday (green arrow). Thursday's isolated price bars (see circle) created an "island" bottom which is a short-term bullish pattern. [An ""island"" bottom occurs when a "down gap" is immediately followed by an "up gap"]. The U.S. market also got a big boost from large industrials like Caterpillar and Honeywell which led the Dow Industrials to a new record high. A big jump in Google pushed the Nasdaq up against its 2007 highs. Commodity markets like gold and oil that pulled back on Thursday (owing to concerns about higher Chinese interest rates) recovered strongly on Friday. Commodity-related stocks – like basic materials, energy, and precious metals – were among Friday's strongest groups. A weaker dollar is continuing to feed the commodity rally.





By Chip Anderson


Chip Anderson
The markets did great this week with the Dow hitting record highs and closing in on 13,000 however almost no one here at StockCharts.com was paying much attention. As most ChartWatchers know, we spent much of the week wrestling with technical glitches. I thought I'd take some time to explain what we've learned about the problems
About a year ago we started upgrading all of the equipment here at StockCharts.com from the slower 100 Megabit networking speed to the newer 1 Gigabit speed. (Most home networking equipment works at 100 Megabits although - like us - you can upgrade your stuff to 1 Gigabit relatively inexpensively these days.) Upgrading our network to the faster speed has many benefits to all of our users: our servers send around stock price data faster, the charts we create get sent out faster, we can backup our server data faster, etc. In order to upgrade a network, you have to replace (or upgrade) both the computers and the switches on the network. (A switch is a device that connects all of the wires from all the different computers. Most home networks have a switch built into the router/firewire device that the broadband modem plugs into.)
Now, there is a hidden problem with upgrading the speed of any network - a problem that most of the network equipment people don't tell you about. With few exceptions, there is always a point where your high speed network meets a slower speed device. In our case, our three connections to the Internet work at 45 Megabits and so, at some point, all of our outbound traffic has to slow dramatically in order to get out one of those wires.
The situation is analogous to a sink with a slow drain and a big faucet. The slow drain represents the slow connections to the Internet, The big faucet represents the fast connections to our charting servers, and the water represents all of the bits that make up our charts. The overall goal of the network is to keep the sink from overflowing.
If the water is able to go down the drain as fast as it is coming out of the faucet, everything is fine. The sink remains almost completely empty. Even if there are occasional high-speed bursts of water from the faucet, things are probably fine also. The extra water just stays in the sink until the drain has a chance to "catch up." The sink "buffers" the extra water for the drain.
Problems happen when the amount of water coming out of the faucet exceeds the amount of water going down the drain for a "long time" and the sink becomes completely full. At that point, any additional water that comes out of the faucet will get spilled (i.e., lost).
Coming back to the world of networking, this process of "buffering" (i.e., the sink) happens inside whichever device is connecting the high-speed network to the slower speed network - typically the switch (or the router/modem in most homes).
Now, when we started to upgrade our network to gigabit speed, the first thing we did was go out and buy some very nice, high-speed switches from a very well known network equipment manufacturer. Where a consumer level gigabit switch might cost $50 these days, the ones we got cost several thousand dollars (which is typical for enterprise networking). In return for that money, we supposedly got three things - long-lasting hardware, big sinks, and software that would tell us if the sinks ever overflowed. (See where I'm going with this?)
Ultimately, most of last week's problems were caused by a buffer overflowing inside one of those new switches. That is no surprise to any of us - it was one of the first things we looked for. The bigger problem was that everyone was confused by four facts:

The switch didn't give us any indication that it was having problems.
Everything had been working great up until last Wednesday.
Even at our busiest times, we were only sending out about 70 megabits of data - much less than the 100 megabits that our "drain" allows.
• When data went out through our slower ISP, everything worked fine.
  

Ironically, the answer to the mystery lay in the article that I wrote in the last newsletter - the one where I sort of bragged about how much faster we were able to generate charts these days. By increasing the speed at which we create our charts, we metaphorically increased the speed at which water was bursting into the sink from the faucet. The result was an overwhelmed sink and thus, data loss.
The immediate solution was to slow our network back down to 100 megabits. That smoothed out the flow of data and stopped the data loss at the switch. Obviously that is not the right long-term solution though because we lose all of the other advantages of gigabit networking. The long-term solution is to upgrade our switches to ones with HUGE sinks (i.e., memory buffers) which we will be doing this weekend. Once that work is complete, you can expect our site to be faster than ever.
In case you missed the announcements on the website, we have credited ALL subscribers with an additional two free weeks of service to make up for last week's problems. Thanks for continuing to support StockCharts.com.



By Chip Anderson


Tom Bowley
The put call ratio ("PC") is quite simply the total number of put options divided by the total number of call options. These options include both individual equity options and index options. Every day you can monitor the relationship between put options and call options at www.cboe.com. Once in the site, click on "Data", then "Intra Day Volume". Every half hour, the information is updated. This article is not the appropriate forum to discuss options strategies and definitions, but in its most basic form, put option buyers are expecting the market to decline and call option buyers are expecting the market to advance. The PC gives you a quick, concise picture of the relationship between the put buyers (bears) and call buyers (bulls). The beauty of the PC is that it's a contrarian indicator. When the put call ratio spikes above 1.0, it indicates the market is becoming oversold short-term so expect a rally. When the PC drops below 0.6, the market is becoming overbought short-term so expect a decline. I like to use the 5 day and 21 day moving averages of the PC. Any time the 21 day moving average of the PC approaches 1.0, start looking for a bottom in the market. Historical PC data is available at CBOE beginning in 1995. Let's take a look at how this reading of investor sentiment could have been used to identify recent bottoms in the S&P 500 chart.



Notice that both bottoms formed when the PC was at extreme readings. The PC at the recent March lows was the lowest 21 day moving average reading since the data was compiled. That reading is indicative of a long-term bottom, not a long-term top. Major tops are formed when the market is euphoric. The recent extreme pessimism



By Chip Anderson
Arthur Hill
The Nasdaq rally continued into its fourth week with a gap up on Tuesday and move into the late February gap zone. This late February gap started a sharp decline to the March lows and the recovery back above 2460 is quite impressive. Even though volume is not so impressive, the current swing is clearly up and we should at least respect this up swing until it is proven otherwise.
Just what would it take to reverse the current upswing? I am watching three items: Tuesday's gap, the late March lows and RSI. The Nasdaq gapped higher on Tuesday morning, closed strong on Tuesday and continued higher the next two days. This follow through is bullish and the gap is bullish as long as it holds. The index established support around 2400 with three indecisive candlesticks (blue oval). A move below Tuesday's gap and below the late March low would reverse the current upswing. Until these are broken, the bulls have a clear edge and we should expect higher prices.



RSI is trending higher and above 50. RSI turned oversold in early March and moved above 50 over the last few weeks. I drew a trendline extending up from the March low and RSI is also trending higher. Momentum continues to improve and this is also bullish. A break below this trendline and a move below 45 in RSI would reverse the



By Chip Anderson
Carl Swenlin
Our Thrust/Trend Model (T/TM) is so-named because it treats bottoms and tops differently – tops tend to be rounded trend changes, and bottoms tend to be formed by sharp changes in direction accompanied by internal up thrusts. At price tops, T/TM changes from a buy to neutral (or sell) based upon a downside crossover of the 50-EMA in relation to the 200-EMA, evidence that a change in trend from up to down has occurred. (The T/TM for the S&P 500 is currently in neutral.) At bottoms the model uses a double screen – the PMO (Price Momentum Oscillator) crossing up through its 10-EMA, and the Percent Buy Index (PBI) crossing up through its 32-EMA.
While PMO crossovers alone are useful for short-term work, there are a lot of whipsaws, so we use the additional screen of the PBI crossover to slow the model down, making it more suitable for medium-term work. On the chart below we display all the components of the T/TM. Of particular interest now are the two thrust components – the PMO and PBI. Note that the PMO upside crossover has already occurred (on the day of the giant one-day rally); however, while the PBI still remains below its 32-EMA, it has closed the gap. If the PBI does cross to the upside, the T/TM for the S&P 500 will switch to a buy signal, but my advice would be to not anticipate. Wait for it to happen.



Besides the normal need to maintain model discipline, one of the reasons for caution is that the PBI has still not dropped to the level of previous corrections. It is not absolutely necessary that it do this, but it would be a desirable sign that the correction had run a normal course and that a price bottom would not be suspect. I have drawn ellipses on the PBI in 2005 and 2006 to show the kind of PBI action we might expect.
Another concern is that the PMO looks as if it is trying to turn down below the zero line. If this were to happen, it is extremely negative for the short-term, possibly longer.
Bottom Line: We have had a number of positive events over the last few weeks, and the T/TM is close to generating a buy signal; however, there is reason to believe that the



Richard Rhodes
For the past couple of weeks, the markets have focused in upon crude oil prices and their attendant rise given the Iran hostage situation. The prevailing thought was that "geopolitical premium" was on the order of $4-to-$5 a barrel of the $67/barrel price; and that once the situation was concluded successfully - the premium would be lost rather quickly. Of course the situation was concluded last week, but the price of crude oil didn't "plunge" as expected. In fact, only not been the case as crude oil has lost only -$2.50 off its highs, with the decline quite orderly indeed. We cannot think of a more bullish respone than what was seen; obviously there are other mitigating factors extant in the price of crude oil that haven't allowed it to decline. Therefore, we think the current rally has "legs", with the recent weakness nothing more than a good old bit of profit-taking before an assault on the all-time highs. Technically, we can make the tentative "bullish case" given major support levels have held. Major trendline support has held; and the 200-week moving average has held; and minor trendline resistance was broken above. If the 60-week moving avearge just overhead can be cleared with a bit of authority, then our bullish confidence level will be raised materially.



Conversely, we can make the tentative "bearish case" that perhaps crude oil prices can "fail" at the 60-week moving average has it has done so for the past several days. Certainly this was the case in 2001 case where the flattening 60-week moving average turned prices lower by -33%. If this were to occur, then a 2001-like decline would target major support near $40. We think this is a remote probability, but a probablity nonetheless. Therefore, our current stance is quite simple: we are bullish of crude oil, energy stocks in general, and oil service shares in particular [Transocean (RIG) noted on Friday that demand for services was high and rising and likley to do so far into the future].



John Murphy
The U.S. Dollar Index fell during the week and is drawing dangerously close to last December's low (green circle). The foreign currency with the biggest influence on the USD is the Euro. Expectation for continuing economic strength in Europe – and the likelihood for further ECB rate hikes – pushed the Euro (blue line) to a new two-year high against the dollar. The weekly bars in Chart 2 show the Euro (blue line) moving up to challenge its late 2004 peak near 136. A close above that chart barrier would increase the odds for the USD to threaten its corresponding low near 80. That would be a very important test for the U.S. currency.







By Chip Anderson


Chip Anderson
Hello Fellow ChartWatchers!
This week I thought we'd look at something different - the charts that matter the most to me personally. Now, brace yourself... these charts are not financial charts. Nope. These are the charts that tell us at an instant how well the StockCharts.com website is performing. If there is trouble with the site, these charts frequently help us find and fix the problem. In addition, whenever we add or reconfigure our servers, these charts can tell us if the improvements we expect to see actually occur.

This first chart shows the memory utilization of just one of our 17 charting servers - the computers that actually create the chart images you see. See the even "sawtooth" pattern? That's a good thing. It means that the server is able to keep up with it's charting duties easily. One of the first signs that a server is overloaded is a change is that pattern.

The chart above shows the results of a server stress test. This server was pounded with just over 4,000 chart requests from 40 simulated users in a very short span of time. The little black dots on the chart show the time (in milliseconds) it took for each chart request to be completed. The blue line shows the running average of all those times. In this case, the server was able to create each chart in around 274 milliseconds (on average). Everytime we get new servers or make changes to our system, we rerun these stress tests to make sure our average chart generation time doesn't slip. In fact, since we've started adding our new 4-CPU servers from Sun Microsystems, the average chart generation time has decreased by about 25% - something we are very excited about.
If all of our users were located in our offices, they would get their charts in about the same time it takes the servers to create them - i.e. ~1/3rd of a second. Unfortunately, that isn't the case. There's another factor in site performance that we monitor closely - the speed of the Internet itself. Many people take their Internet connection for granted - we don't. Here's one of the key charts we use to see if everything about our site is working well

This chart was created for us by a company called Keynote Systems. They have computers located all over the world that are programmed to download selected pages from our website and measure how long it takes for those pages to arrive. Each one of the green dots on that chart represents one timing test from one of Keynote's 45 different computers. As you can see, at the time this chart was created, we were able to push complete pages out to those computers in anywhere from 2 to 6 seconds.
Much of the variation in those times have to do with each server's physical distance from our offices - but some of the times are obviously affected by other factors. See the green dots that are near the top of the chart? It turns out that most of those were coming from just one of Keynotes computers - specifically, the server in Pittsburgh, PA on the Savvis.net ISP connection. That means that - at the time this graph was created - some of the people in the Pittsburgh area might have been experiencing slowness because of problems at Savvis.net.
While such problems are not uncommon, they are frustrating to track down because the problems can appear and disappear in a heartbeat. Typically these kind of problems get corrected within 24 hours. If we get reports from our users about slowness that persists for several days, we try to help them report the problem to their ISP because they have the best chance of fixing the problem. Another thing we do is to run more detailed tests from the Keynote server with the problem. In this case, here's what those results look like:

This chart shows the time it took for all of the parts of our homepage to show up in Pittsburgh. In this case, everything worked great. We were actually able to get all of our parts shipped out in around 4.5 seconds. The final 2 seconds were due to the time it took for the banner ad to come down from our advertising partner (something we don't have control over). Since things worked fine this time, we suspect that the problem at Savvis.net has been fixed (or will be soon).
While these charts don't really tell you anything about the market, they help us keep StockCharts.com up and working as quickly as possible. Hopefully you enjoyed this "peek behind the curtain" at some of the charts that we stare at every day.

hefeiddd

May 19, 2007TAKE ME OUT TO THE BALLGAMEBy Chip Anderson
Tom Bowley
Folks, we're merely in the second or third inning of a nine inning game. Let there be no doubt, the bulls are in charge. And they will remain in charge. This current bull rally goes beyond interest rates, earnings, inflation, blah, blah, blah. It's not that those fundamentals aren't important, they are. But we are talking about supply and demand, Economics 101. We are seeing deal after deal after deal. We have been talking for months at Invested Central about the long-term effect of all of these buyouts and private equity deals. First of all, the fact that these deals are occurring at all should give you a clue about valuations - prices are CHEAP. Did you notice the premium Microsoft was willing to pay for aQuantive? How about 77%? We hear very little about initial public offerings (IPOs) and secondary public offerings. Instead, it's about buyouts, private equity deals, and corporate stock repurchase plans . That equals supply reduction. As supply dwindles, prices rise assuming demand is constant. The best news is that demand hasn't even begun to pick up yet. During the bull market run from 1995-1999, the NASDAQ rose more than 5% in a calendar month 22 different times. There were 22 different calendar months that produced gains of more than 5%. So, on average, the NASDAQ had 4 or 5 of these months each year. Interestingly enough that during the NASDAQ's advance since July 2006 there has not been one calendar month of 5% appreciation. Yet I heard last week talk of another "bubble". Let's get real! The psychology of investors is so tainted since the 2000-2003 NASDAQ crash that they cannot see the forest for the trees. I want to reprint a chart that was posted in a previous newsletter to give you the Big Picture view of what's transpiring in the stock market. I call it the "Axis of Normal Returns" (see chart below). Over short and intermediate terms, the market's pricing efficiency struggles, but over the long term generally gets it right. The Axis of Normal Returns provides a look at the Big Picture.



We anticipate a strengthening economy in the second half of 2007, an accommodating Fed - which we haven't had in several years - and, as a result, expanding multiples. The put call ratio, a contrarian indicator, continues to reflect bearishness or at best guarded optimism. Historically, that has not been a sign of a topping equity market. Rather, it provides the fuel for a further advance. As long as skeptics abound, the market has plenty of upside remaining.



Posted at 04:06 PM in Tom Bowley | Permalink


May 19, 2007DOLLAR TRYING TO TURN UPBy Chip Anderson
Carl Swenlin
The U.S. Dollar is trying to turn up for the fourth time since it topped in 2004, but this bottom looks more promising than the prior three. While the long-term trend is down, this bottom is the third confirmation of the descending wedge formation, a technical configuration which normally resolves to the up side. This wedge is also a long-term formation, so the direction of a breakout has long-term implications.
In the short-term we have a PMO (Price Momentum Oscillator) buy signal, generated when the PMO crosses up through its 10-EMA. Also, the price index has broken above the short-term declining trend line. Medium-term we have a positive divergence as the PMO has been making higher highs corresponding to lower price lows.



On the long-term chart below we can see other positive signs. Most important is the long-term support zone between 78 and 80. There is no guarantee that the support will hold, but we have to view it as being in the plus column. Assuming that the support does hold, the bottom that will result will form a double bottom that spans over two years. Like the wedge formation, this will have very positive long-term implications.



Bottom Line: Let there be no doubt, the trend is down in both the medium- and long-term (our trend model is still bearish on the dollar), and it is too early to assume that a change in trend is taking place; however, there are plenty of reasons to begin nursing some positive expectations.



Posted at 04:04 PM in Carl Swenlin | Permalink


May 19, 2007PLATES STILL SHIFTINGBy Chip Anderson
Richard Rhodes
We recently featured the S&P 500 Large Cap vs. Russell 2000 Small Cap ratio surrogate using the ETFs SPY:IWM; with the implication that the tectonic plates were shifting beneath the markets, with large caps slowly, but surely coming back to favor at the expense. This was simply the thesis based on "looking through" out indicators; however, last week provided clear confirmation that indeed - a major breakout had taken place on the daily as well as the weekly and monthly charts. Obviously, this has major implications for our trading strategy; we are increasingly likely to trade the Pfizer's (PFE) or Cisco's (CSCO) or General Electric's (GE) of the world rather than small stocks.



Analyzing the SPY:IWM daily chart once again and keeping it rather simple; we find prices bottomed in April-2006, with the "right shoulder" of a larger "head & shoulders" bottoming formation breaking out above the major 500-day moving average resistance level, and then above neckline resistance. Moreover, the stochastic pattern is supportive of further gains. This breakout could not be cleaner... nor clearer; hence our confidence level is quite high that rotation in favor of large caps will come from the small cap area. Keeping it simple again; one must trade accordingly.



Posted at 04:03 PM in Richard Rhodes | Permalink


May 19, 2007SPRING SPECIAL ENDINGBy Chip Anderson
Site News

LAST CHANCE FOR OUR SPRING SPECIAL - Our Spring Special ends on the last day of May. Don't miss this change to receive 14 months of service for the price of 12 (or 7 months for the price of 6). Both members and non-members can take advantage of this rare deal. To get started, visit http://stockcharts.com/help/doku.php?id=support:services
THE BIG SERVER MOVE IS ON! - After more than a year of work, our new server room is finally finished! We've started moving our servers back into their new home but the process will take a couple of weeks. The plan is to move as many things as we can without taking the site down and then - late one weekend night - move the rest. We'll post the exact time of the "big move" on the "What's New" page as soon as we know which weekend it will be on.







Posted at 04:02 PM in Site News | Permalink


May 19, 2007DOW IN PERSPECTIVEBy Chip Anderson
Chip Anderson
The Dow Jones Industrials continues to rise week after week setting new records as it goes. I thought it would be good to take a quick look back and see if history can teach us anything about what the Dow does to signal the end of these long up-trends. Here's a weekly chart of the Dow Industrials going back to 1990.

This is a semi-log scale chart (the vertical axis is logarithmically scaled, the horizontal axis is not) and includes my favorite one-size-fits-all indicator, the 20-period Chaiken Money Flow.
The log scaling helps us see that the recent rise, while impressive, is no match for the HUGE rise in the Dow during the mid-nineties. We also see that during the nineties, the Dow's 20-week CMF stayed in the green for several multi-year periods. Both of those observations bode well for the current long-term trend. The Dow has done this kind of thing in the past and might be repeating itself now.
On the downside (there's always a downside, sigh...), the CMF has been in the green for just over 18 months now and that is about as long as it has ever been in the green without some kind of drop. Even during the go-go nineties, the CMF dipped into the red in mid-1996 to break up the longest above-zero stretch on the chart. With history as their guide, alert ChartWatchers will be watching the 20-week CMF for signs of weakness in coming months.
BTW, be sure to read our previous newsletter for details on our Spring Special which is almost over!



Posted at 04:00 PM in Chip Anderson | Permalink


May 05, 2007SEMICONDUCTORS FINALLY MAKE THEIR BREAKBy Chip Anderson
Tom Bowley
We've been watching and following the semiconductors for the past many months, awaiting their attempt to join the stock market's rally. But it hadn't happened....until this past week. We have remained steadfastly bullish over the past couple years and became very bullish when we saw long-term positive divergences form on the MACD on the major indices last July. Lower lows were in place, but the MACD actually put in a higher reading on those lower lows. We could see that selling momentum was dying. In articles over the past several months, we've indicated that we believe the market could be ripe for an advance - the likes we haven't seen seen since 1999 and early 2000. However, we also indicated that we expected the Semiconductors to participate. We felt we needed to see participation from the semiconductors in order for the NASDAQ to lead the major indices higher. Let's take a look at two charts. First, let's look at the Semiconductor Index (SOX). We've seen repeated struggles at 492 until finally we got the breakout we were looking for. Not only did we see the breakout, but we've since retested that breakout area and by the end of last week were looking to breakout again. This is bullish action by the group and we're not looking for any significant resistance until the 530-540 area. If the semiconductors can take out that symmetrical triangle downtrend line shown below, there is solid potential for a very significant rally in this group.





Posted at 04:06 PM in Tom Bowley | Permalink


May 05, 2007THOSE LAGGING SMALL CAPSBy Chip Anderson
Arthur Hill
Even though the Dow is trading at all time highs and the S&P 500 is trading above 1500 for the first time since 2000, the Russell 2000 continues having trouble with resistance around 830. Thinking in terms of Dow Theory, I view this as a non-confirmation. A bull signal is triggered or renewed when both the Dow Industrials AND the Dow Transports move to new highs. Failure by one of these averages results in a non-confirmation and this questions underlying strength.



The Dow and the S&P 500 cleared resistance with relative ease, but the Russell 2000 has been consolidating around 830 the last three weeks. Technically, the Russell 2000 closed above its February high in late April and again in early May. Realistically, the index has yet to forge a convincing breakout and relative weakness in small-caps is casting a shadow on the current rally. The Russell 2000 represents, uh, 2000 stocks and it would be nice to have them on board to confirm strength in large-caps.



Posted at 04:05 PM in Arthur Hill | Permalink


May 05, 2007MARKET IS BULLISH BUT OVERBOUGHTBy Chip Anderson
Carl Swenlin
The weekly chart of the S&P 500 Index below reveal that prices are behaving in a very bullish fashion. The index has broken above the gradually rising trend channel that prevailed from 2004. In March prices pulled back and successfully tested the support provided by the top of the channel. Since then the rally resumed, making new highs and apparently establishing an even steeper rising trend channel.
Because prices have reached the top of the channel, we must consider that the market is overbought, and there are plenty of other indicators that will confirm this; however, there is no technical justification to turn bearish at this time. It is possible for prices to continue to rise just below the top of the channel, or another correction may take place, taking prices back to the bottom of the channel. Worse could happen, but I do not expect it.



Bottom Line: Overbought conditions in bull markets may cause more caution than usual, but higher prices can occur, even as the overbought condition corrects.



Posted at 04:04 PM in Carl Swenlin | Permalink


May 05, 2007NETWORK SPEED, CHILLERBy Chip Anderson
Site News

NOTHING SPECIAL HAPPENING HERE - NOPE - It's certainly not worth your time to completely read Chip's article this week. Nope. I'd just skip it entirely.
NETWORK SPEED BACK TO NORMAL WITH ZERO ERRORS! - We've been slowly and steadily getting the speed of our network back up to Gigabit speed. (We had to slow it down last month in order to avoid some performance bottlenecks that had crept into things - see the last two newsletter for details.) I'm please to say we are back to our Gigabit speed and have been running for six days now with a grand total of zero internal network errors! Even on good days in the past, we always had a small but measurable amount of internal network errors - never again. At this point, even one internally dropped network packet is one too many!
CHILLER CHILLING Our huge new chiller (which will be used to cool our hot, hot servers) was turned on for the first time last week and is now generating 40-degree water in a testing mode. That's the last step in our long-running server room upgrade project. Soon we will be ready to re-locate our servers back into their new home. At this point, it looks like that will happen in two weeks but keep checking the "What's New" area of the Members Home Page for updates.








Posted at 04:02 PM in Site News | Permalink


May 05, 2007XAU INDEX IS TESTING ALL-TIME HIGHBy Chip Anderson
John Murphy
One of the most consistent of all intermarket relationship is the inverse relationship between gold assets and the U.S. Dollar. Nowhere is that more evident than in the chart below. The green line plots the U.S. Dollar Index (which measures the dollar against six foreign currencies. The Euro has the biggest impact in the USD). The orange line is the Gold & Silver (XAU) Index of precious metal stocks. It's clear that they trend in opposite directions. For example, the 1996-2000 dollar rally coincided with a major downturn in the XAU (see arrows). The fall in the dollar at the start of 2001 helped launch a major upturn in gold shares. The most important feature of the chart is that both markets are at key junctures. The green line shows the Dollar Index testing its all-time low along the 80 level. The orange line shows the XAU testing its all-time highs around 150 reached in 1987 and 1996. The fact that the XAU is stalled at long-term resistance may also explain why precious metal stocks have lagged behind the commodity over the last year. That may also explain why the bull market in bullion has been stalled since last spring.





Posted at 04:01 PM in John Murphy | Permalink


May 05, 2007TAKE ADVANTAGE OF US, PLEASE!By Chip Anderson
Chip Anderson
Our Spring Special is running throughout the month of May! Let me repeat that in case you missed it: Our Spring Special is on from now until May 31st! Sorry for the blatant plug, but every time one of these special periods end, we get flooded with message from people who claim that they missed it. The reasons range from the comic to the tragic and we do our best to accommodate everyone but it is waaaaay better if everyone would sign up for the special NOW while it is on, instead of sending us panicky email after it ends.
I will now take questions from the audience:
Q: What the heck is the "Spring Special"? A: From now until the end of May, if you sign up for 12 months of any of our charting services, you will get 2 additional months for free. If you sign up for 6 months of any service, you will get 1 additional month for free. It's that simple. Click here to get started.
Q: I'm already a member. How can I take advantage of this special? A: No problemo. The same deal applies to anyone who extends their existing membership. Extend for 12 months and you'll get 2 free months. Extend for 6 months and you'll get 1 free month.
Q: My membership doesn't expire for a long time. Can I take advantage? A: Sure, if you want. You can "lock in" even more time at these special rates right now. We'll just push out your expiration date.
Q: Does the special apply to service upgrades? A: Nope - however, you can upgrade your service and then use the special rates to extend your new service for 7 or 14 months. BTW, always upgrade BEFORE extending your account! It will save you a significant amount of money.
Q: OMG! I just extended my account two days ago and now you guys are running a special! I can't believe I missed it! A: You probably didn't miss it. We started running the special several days ago. Check your email confirmation to see if you got the special rate. If you missed the special, you can always extend your account again right now to "lock in" more time at the special rates.
Q: I use StockCharts.com all the time. Can I get more than 14 months of service at this special rate? A: Sure. Just place two or more orders and we'll extend your account by the appropriate amount.
Q: Do I need a coupon code to qualify for the Spring Special? A: Nope.
Q: How frequently do you run specials? A: That depends on a variety of business factors. We make no guarantees about when or how often we will run specials. My advice is to take advantage of them when the appear because they might not be back for some time.
Q: Any price changes on the horizon? A: Not at this time however keep in mind that StockCharts.com has never changed its prices. That goes all the way back to January 2002 when we first introduced our full line of subscription services. How many other things do you know of that are the same price now that they were back then?
Q: Got any other specials for us? A: Glad you asked! As a special reward to everyone that has read this far in the newsletter, I have a secret coupon code that you can use in our on-line bookstore for a 25% discount on anything we sell there! Just use the coupon CWMay2007 when completing your bookstore order. This is the biggest discount we've ever offered for our bookstore. Don't let it pass you by - it also expires at the end of the month.

hefeiddd

June 23, 2007FLIGHT TO SAFETY RATIOBy Chip Anderson
Tom Bowley
I discussed many months ago how the rotation from the tech-heavy NASDAQ to the safety of the Dow Jones evolves over time. As earnings disappoint and growth slows, money moves away from the high octane growth stocks to the more conservative components of the Dow. That's what we saw back from 1984 through 1991 and again from 2000 to 2002. But when our economy grows and earnings begin to expand, money flows in the opposite direction - away from the Dow and into the NASDAQ. I believe we remain in this latter environment. Our economy is expected to grow in the second half of 2007 and into 2008 and if inflation remains in check, and I believe it will, this environment sets up beautifully for the higher growth NASDAQ stocks.

In Chart 1, I have reposted a chart from last October's newsletter showing the relationship between the Dow Jones and the NASDAQ since 1980. This "Flight To Safety Ratio" (calculated by dividing the Dow Jones Industrial Average by the NASDAQ) moves higher as money searches for the "safe haven" and moves lower as the NASDAQ leads during higher growth periods. You can see the down channel that has developed since 2003. Over the next 2-3 years, I'm expecting a continued move lower in this Flight To Safety Ratio to a point somewhere in the 4.00-4.25 range, marking a long-term bottom.



Chart 2 below shows a clear view of how the money rotates when the market fears that future earnings growth is in jeopardy. Recall last May through July as oil and other commodity prices surged and fears raged that higher commodity prices would mean higher inflation. The high growth NASDAQ plummeted much faster than the Dow Jones and S&P 500, resulting in a very quick spike in the Flight To Safety Ratio (Point A). Those fears were never realized however and market participants quickly moved money back to the higher growth equities on the NASDAQ by the end of 2006 (Point B). Then just recently, the increasing yield on the 10 year treasury note heightened levels of fear about future economic growth and again the money flowed out of growth and toward the safer Dow components (Point C). I believe our economy will strengthen during the balance of 2007 and into 2008 and we'll see this ratio continuing down in the channel that was illustrat ed in Chart 1.



There remains a lot of pessimism in the market as evidenced by very high historical put call ratio readings and a spiking VIX (volatility index). These two factors historically promote continued bullishness and do not coincide with long-term tops. If equity prices continue higher and economic growth keys the rally, you have to favor the higher PE stocks found on the NASDAQ.



Posted at 04:06 PM in Tom Bowley | Permalink


June 23, 2007S&P MIDCAP ETF TESTS KEY SUPPORTBy Chip Anderson
Arthur Hill
The S&P Midcap ETF (MDY) remains in an uptrend for now, but a lower high and waning upside momentum are cause for concern. The ETF established support around 160-161 with reaction lows in May and June. In addition, the rising 50-day moving average marks support in this area. The ETF formed a lower high six days ago and a break below key support at 160 would forge a lower low. This would be medium-term bearish and call for a retracement of the March-June advance.

According to the Aroon indicators, the upside is loosing momentum and the downside is gaining momentum. The uptrend was strong as long as Aroon Up (green) held above 70, which was from 3-Apr to 14-Jun. Aroon Up moved below 50 for the first time since 2-April and upside momentum is waning. In contrast, Aroon Down (red) moved above 50 for the first time since late March and downside momentum is increasing. Look for a move above 70 in Aroon red to signal an acceleration of downside momentum and confirm a support break at 160.





Posted at 04:05 PM in Arthur Hill | Permalink


June 23, 2007BONDS CONTINUE TO WEAKENBy Chip Anderson
Carl Swenlin
On our first chart, a daily bar chart, we can see that bonds have been weakening for several months, with the most dramatic decline occurring in the last month or so. The question that comes to mind is whether this weakness is a correction in a longer-term up trend or the start of a more serious decline? Since the 50-EMA is below the 200-EMA, we have to assume that bonds have entered a long-term down trend. This situation could change fairly quickly, but for now we need to maintain negative assumptions.



The second chart, a monthly bar chart, helps us put the decline into a very long-term context. Note that bond prices have been within a long-term rising trend channel for over 20 years, and that the recent decline has been stopped (so far) by the long-term rising trend line. This offers some hope that the decline may be over.

On the negative side there is an ascending wedge that has been forming within the rising trend channel. This is a bearish formation, and the technical expectation is for it to resolve to the down side. This month the price index did break down from the wedge, an event that has negative long-term implications.



Bottom Line: My opinion is that bonds are forming a long-term top and are entering a long-term decline. All the signs are negative except that the long-term rising trend remains intact, no small exception that.



Posted at 04:04 PM in Carl Swenlin | Permalink


June 23, 2007LOOKING AT THE SEMICONDUCTOR INDEXBy Chip Anderson
Richard Rhodes
Last week's stock market correction was rather "brutal" to be sure; however, we believe that the balance of evidence suggests at this time it is nothing more than a correction and more likely a consolidation to higher highs. If this is so, then we want to be long those stocks that shall "lead" the market higher. At this juncture, our models and analysis argues that using current weakness in the semiconductor sector to accumulate shares will provide outsized gains in the months ahead.

Looking at the daily chart of the Semiconductor Index ($SOX), we find a rather longer-term, large and clear bullish pennant consolidation has formed. Of course the ultimate resolution should obviously be higher; and if we use the percentage measurement of the Oct-2002 to Jan-2004 rally added to the July-2006 low – then we arrive at rough reading of 1000 or nearly a 100% increase from current levels. We have a very hard time believing this given our skeptical nature, but this is simply a hard and fast technical measurement. In any case, moving average support has held, and a breakout above pennant resistance will likely lead to a "melt-up" of some degree given the large short position outstanding in the semiconductor sector and its relative "unattractiveness" over the past 4-years in which it has underperformed the S&P 500.

Every dog has its day they say; perhaps now it's the Semiconductors turn to bark.





Posted at 04:03 PM in Richard Rhodes | Permalink


June 23, 2007SERVER ROOM MOVE COMPLETED!By Chip Anderson
Site News

It took w-a-y longer than it was supposed to but all of our servers are now fully moved into our new, cooler, more powerful datacenter. The new datacenter will allow us to continue adding newer, more powerful computers that will allow our site to run even faster.
CHART SNAPSHOTS BACK ON-LINE - The "snapshot" feature of our ChartNotes tool is now working again. Extra members, please let us know if you have any problems with your Snapshots list.







Posted at 04:02 PM in Site News | Permalink


June 23, 2007SUBPRIME CONCERNS HURT BANKS AND BROKERSBy Chip Anderson
John Murphy
Growing concerns about the fallout in the subprime mortgage market caused heavy selling in banks and brokers today. Today's selling more than wiped out yesterday's rebound in the financial group. Chart 1 shows the Financials Sector SPDR (XLF) undercutting yesterday's intra-day low. It's now threatening its 200-day moving average. Most of the selling came in brokers and money center banks most directly affected by subprime problems.





Posted at 04:01 PM in John Murphy | Permalink


June 23, 2007SIX SIMPLE STEPS FOR FINDING GREAT STOCKSBy Chip Anderson
Chip Anderson
This week, I thought we'd revisit an article I wrote way back in November of 2001 about the "Six Steps" you can take at StockCharts.com to quickly guage the overall health of the market and find great stock opportunities. While the graphs are all out-dated now, the concepts are still very valid and hopefully helpful. Enjoy! - Chip
We get lots of questions about what the best way to use StockCharts.com is, so this week I thought I'd incorporate one answer to that question into the newsletter. While there is no 100% best way to use all of the resources that StockCharts provides, here's the routine that I follow at least once a day. Its goal is to offset all of the panicky, rush-rush information that the financial media spits out with a calm, top-down approach to market analysis. It incorporates all of the major tools on StockCharts and provides me with my technical "feel" for what's really happening to the markets. Here are my steps:
Step One - Gauge the Performance of the Major Markets
Up, Down, or Sideways? The market has to be moving in one of those three directions, right? So which way is it? Often, the media will mislead you badly when it comes to answering this simple question. As always, it boils down to time frame. Are you looking at the last minute, hour, day, week, month, year or decade? Each timeframe often has a different answer from the next. To deal with this question, I always start with our Major Market PerfChart.

The key to using the tool correctly is to s-t-r-e-t-c-h the slider! Don't just stare at the chart like a zombie! Grab your mouse, grab the left edge of the slider at the bottom of the chart (see where my cursor has turned into a double-arrow in the picture above?), and start stretching! Find the major turning points in the market and stretch or shrink the slider until they are at the left edge of the chart. Only then can you really see how the major averages have done. By boiling everything down to percentages, uptrends and downtrends become clearer as does the other critical thing to look for - divergences. In early 2000, the blue chip averages diverged sharply from the high-tech stocks, signaling trouble ahead. Stretch your slider until you see this divergence clearly. It's the best argument I know of for checking this chart religiously.
After getting the longer term performance picture, press the F1 key. Boom! There's the last week in a nutshell. Now press F2. Bang! There's last month for ya. Finally - you guessed it - F3. Ka-blammo! Year-to-date in one pretty picture. Always start with this chart and don't leave it until you have a firm grasp of how the major averages are doing.
Step Two - Examine the Intermarket Picture
Bond prices, Commodity prices, and the Dollar all affects stock prices. And stock prices affect them. And they all affect each other. John Murphy has written about these intermarket linkages extensively. We maintain a special "Intermarket" PerfChart just for studying these linkages - specifically seeing whether each of these things are moving in tandem or moving apart (diverging). As we explain below the chart, you should look to see if three key things are happening: Are stocks and bonds moving in the same direction? Are commodities and bonds moving in different directions? Is the Dollar moving in a different direction from commodities?
To study each of these relationships, hide the other two lines by clicking on the colored box for that line above the top of the chart. Now start sliding that slider. Look at the direction of the movements, not necessarily the magnitude. If you can make the two likes look like "mirror images" of each other (with the zero line in the middle), then they are moving in an INVERSE relationship. For example, the chart on the left shows the current inverse relationship between commodities and the US Dollar. If you can get both lines above or below the center line, they are currently in a POSITIVE relationship. Study each of the three key intermarket relationships using this technique, then compare your results to the comments below the chart. This information helps you gauge the health of the market's current trend.
Step Three - What's Sector Rotation Saying About the Economy?
Last week, we talked about Sector Rotation and the PerfChart that we use to analyze it. By "reverse engineering" the state of the economy from the strength of the various sectors, you can stay 2-3 months ahead of those big-whig economists and their lagging Government reports. Read last week's newsletter for more details.

Step Four - Study the Yield Curve
January 26th, 2000. That's when the one of the best signals for a looming market top was given. On January 26th, 2000, the Yield Curve inverted. Our Dynamic Yield Curve analysis tool shows this clearly. Never, never, never ignore the Yield curve. It can also be used to confirm the state of the economy from your Sector Rotation analysis. See the bottom of the Sector PerfChart page for details.

On the live version of this chart, don't forget to click around on the S&P part to see where the yield curve was at that point in time.
Step Five - Does Market Breadth provide Confirmation?
OK, by now you should have a good sense of where the markets are and where they may be headed. Now, study the market breadth charts and see if they support your conclusion. Many people like to start their analysis with breadth charts like the Advance-Decline lines, the McClellan Summation charts, and the Bullish Percent Indices. I think that is a mistake. Since the markets are the subject of this whole endeavor, they should be studied directly. Secondary data like breadth and volume should be "held in reserve" to confirm or dispute the analysis of the primary data - i.e. prices.
That said, now is the time. I LOVE THE BULLISH PERCENT INDICES! They are unlike anything else out there in that they summarize the price action of hundreds of charts, boiling them down to a percentage. What could be simpler? You don't even need to understand P&F charting to use these things! Our Bullish Percent CandleGlance page has everything you need. I look at it every evening.
The McClellan charts that we get from the good folks at DecisionPoint.com are the perfect compliment to our BPI charts. I'd never bet against the Summation Index. When it changes direction, the market's current trend is in doubt.
Step Six - Creating the "Hot/Not" List
OK, we've developed a solid understanding of the big picture (the market), now we can drill down with confidence and the Sector Market Carpet is where I go next. Updated throughout each trading day, the carpet shows me at a glance which sectors (and stocks within those sectors) have done well during the past day, the past week, and the past month. It's almost like seeing an X-ray of the S&P Sector PerfChart.
Some things I look for: Within each sector, do the brightly colored square (red or green) cluster towards the upper left corner of the sector (where smaller-cap stocks are) or do they cluster towards the lower right corner (the mega-caps)? Are there any sectors with (for instance) one or two bright-red squares with the remained light green (and thus the sector's overall rating could be misleading). How does the carpet change when I switch it to absolute RSI mode (select RSI from the dropdown, unclick the 'Delta' button - see the instructions page for details)? Next, I switch to RSI Change mode for the current week (click the 'Delta' button and then press F1). Which sectors (look at the number in the upper right corner of each sector's area) had the best improvement in overall RSI? Which stocks in those sectors led the way?
All of this visual carpet information goes into the making of my tentative "Hot/Not" list - stocks that I think are worth additional investigation. When I spot a promising stock that's part of a sector that, based on the previous steps, also looks promising, it goes on this list.
The Real Work Begins At the End
After completing these six steps, I am ready to analyse my Hot/Not list in detail using one or more of the more common TA techniques - P&F signals, chart patterns, support/resistance, Elliot Wave methods, candlestick signals, stock scans, indicator signals, etc. (all covered in our ChartSchool). Many people start their analysis process by using these techniques on individual charts. I think that is also a mistake. By taking the time to develop and confirm a sense of where the markets and sectors are going before looking at individual stocks you will always have the big picture in mind and can add the calm voice-of-reason to your investment decisions.
Again, there are hundreds, even thousands of different ways to look at the markets. This technique is only one of those ways. I offer it in the hopes that you'll take it and use it as a starting point for developing your own analysis routine that builds upon these ideas. Good luck!



Posted at 04:00 PM in Chip Anderson | Permalink


June 09, 2007A GOLDEN OPPORTUNITYBy Chip Anderson
Tom Bowley
The market periodically finds reasons to selloff, even in bull markets. This past week it was all about interest rates. You could see it coming. Interest rates had been rising for the last month. The yield on the 10 year treasury bond increased from 4.61% on May 8th to a high of 5.18% on Friday, June 8th, before settling back at the close to 5.12%. Equity markets get skittish as interest rates rise, and generally for good reason. When rates rise, access to capital begins to dry up, capital expenditures drop and corporate America sees shrinking profits. Think about what's driven the market for the last year or more - private equity deals, merger mania, and corporate share buybacks. As access to capital becomes more difficult, we see less of what's been driving the market higher.

But is this rise in interest rates temporary or permanent? And what's causing it? The answers to those two questions will directly impact equity prices over the next many months and quite possibly 1-3 years. First, you have to realize that bonds trade the same as stocks and their prices move up and down, rarely do they move in just one direction. Keep in mind also that as bond prices rise, yields drop. Conversely, as bond prices drop, yields rise. That's what we've seen over the past thirty days, a deep selloff in bonds and yields on the rise.

Look at the long-term chart of the yield on the 10 year treasury bond. Because bonds trade like stocks, technical traders follow the same basic principles. Long-term trendlines matter. As you can see from Chart 1 below, the yield on the 10 year treasury bounced off of long-term trendline resistance on Friday.



The second chart that we'd like for you to look at is a short term candlestick chart of the yield over the past few months. After a lengthy downtrend in bonds and a corresponding uptrend in yields, we saw the "dreaded" black candle appear at the top of the uptrend - see Chart 2.



If you're looking at the price of the bond, you'll see a red hollow candle appear after a lengthy downtrend. Both are reversal signs. We believe there is a very strong chance yields topped on Friday and began moving lower.

Black candles appearing the way this one did suggests that the heavy selloff in bonds and exhaustive gap down on Friday (and corresponding spike in the yield) is signaling the bottom of ten year bond prices and the top of the yield. The fact that the yield reversal occurred right at long-term resistance gives us more confidence the top has been hit.

We continue to believe that inflation is not a problem in the U.S. When the Fed meets at the end of June, we expect to hear that inflation remains a concern, but that they expect it to moderate throughout the balance of 2007. That news will keep interest rates in check and propel equity prices higher. Of all the scenarios that include higher interest rates, the only one that is terribly troubling is the scenario that shows inflation rising. If interest rates do continue their climb to offset a strengthening economy, we remain steadfastly bullish equity markets. Inflation is the wild card and we are convinced it is a non-event in 2007 and 2008.

Use the recent weakness in the stock market to buy for the longer term. We tend to recognize opportunities after they're over. Take a look now before it's too late.



Posted at 04:06 PM in Tom Bowley | Permalink


June 09, 2007NASDAQ RECOVERSBy Chip Anderson
Arthur Hill
The Nasdaq held support and led the market higher on Friday. Even though Thursday's decline was quite drastic, the Nasdaq never broke support from its May lows and the medium-term uptrend remains. Nasdaq support is just above 2500 and extends back to the January highs. The index established a resistance zone around 2510 and this resistance zone turned into support during May. This is a classis tenet of technical analysis: broken resistance turns into support. While this week's three day plunge was the sharpest decline since late February, the index is still holding support and I would not put on my bear hat until a break below 2500.





Posted at 04:05 PM in Arthur Hill | Permalink


June 09, 2007CORRECTION AT LAST!By Chip Anderson
Carl Swenlin
We have been watching prices trend higher for several weeks, even as internal strength trended lower and warned that price weakness could be ahead. Finally, this week prices broke down in a big way, signaling the start of a correction that could last at least a few weeks.
Our first chart is of the Participation Index (PI). The PI measures short-term price trends and tracks the percentage of stocks pushing the upper or lower edge of a short-term price trend envelope. Specifically we track the participation of each stock in a given index. A trend needs a strong plurality of participation to be maintained. We can see how UP participation, the number of stocks actually driving the up move expands as the market moves higher, then the PT contracts prior to short-term market tops. A similar thing, but in reverse, is beginning to happen now with DOWN participation now as the market begins its correction. Note the strong down spike accompanying Thursday's sell off.



While it is always possible that the correction is complete, it is more likely that it will play out somewhat like the February-March correction which is visible on the chart. In other words, it could take a couple of weeks and several tests of support before the rising trend resumes.
The next chart puts the correction in a long-term context. We can see that prices are dropping down from the top of a rising trend channel, and support will be encountered at around 1430. As long as that support holds, no serious technical damage will have occurred. It is reasonable for us to expect that the current selling is temporary and that the up trend will resume.



Bottom Line: While we are experiencing a short-term correction, I have no reason to believe that the longer-term rising trend is in jeopardy. While corrections are uncomfortable to ride out, they are healthy and necessary, and we should hope this one builds a strong base for the next rally.



Posted at 04:04 PM in Carl Swenlin | Permalink


June 09, 2007MARKET FOCUSING ON 10-YEAR NOTE YIELDBy Chip Anderson
Richard Rhodes
Last week saw stocks sell off rather sharply for several days, of which the catalyst was the sharp rise in bond yields as inflation and too strong growth concerns too center stage. Since bond yields are now the tail wagging the stock market dog – we think it imperative to understand perhaps where bond yields are headed given stocks are now showing a highly inverse correlation with bond yields. If bond yields are headed higher; then ostensibly stock prices are headed lower.
The market's focus is upon the 10-year note yield; it is clear bond yields are in a bull market given the bottom forged in 2003, with a subsequent series of higher lows and higher highs. Also, we must point out that the 120-week moving average tends to illustrate the trend rather well, and further provides support to declines. Our concern, and it should also be our clients concern – is that a technical "head & shoulders bottoming pattern" is forming, of which a breakout above 5.25% would break neckline support and lead to still higher yields... perhaps sharply higher yields towards those extant in early-2000 at 6.75%.
Market participants aren't mentally prepared for this circumstance. Can you think what the world would look like if 10-year notes were at 6.75%? What the stock market would look like? What would have to happen for this to occur? Most – including us have been conditioned on a low interest rate environment after the technology bubble burst, as well as the sub-prime implosion. We and others looked for lower interest rates; not higher interest rates. We were wrong headed; now we must contend with a world with greater risks and lower levels of liquidity... and perhaps sharply lower stock prices after a 5-year bonanza.





Posted at 04:03 PM in Richard Rhodes | Permalink


June 09, 2007NEW SERVER ROOM STATUSBy Chip Anderson
Site News

We've moved about 70% of our servers into our new server room where our new chiller plant keeps the temperature a "toasty" 60F degrees at all times. We are working as hard as we can to ensure that there are as few interruption as possible as we move things around - so far there have been none - but at some point soon we are going to need take the site down to get the final couple of items relocated. Watch the "What's New" area of the website for an announcement on the specific time for the final move.
SNAPSHOTS NOT WORKING - The "Snapshot" feature of our website has been offline for a while now as we wait for one of our server to be repaired by the vendor. Despite paying a pretty penny to have the repair expedited, the vendor is still waiting for a backordered part. Until that part arrives, the snapshot feature of our Extra service will be offline. Please remember that you can always right-click on any chart in your browser and save the chart as a snapshot on your local hard drive.







Posted at 04:02 PM in Site News | Permalink


June 09, 2007TRACKING THE DOW'S INTERNAL HEALTHBy Chip Anderson
Chip Anderson
Things got a little bumpy last week as the Dow had a big "down" day on Thursday. Friday's recovery was reassuring, but was any lasting damage done? One of the best ways to examine the overall "health" of the Dow is to look at the total number of Dow stocks that are above or below their 50-day moving average.
StockCharts.com tracks that information closely via the $DOWA50 and $DOWA50R market indexes. $DOWA50 contains the actual number of stocks that are above their 50-day moving average. It is updated once a day after each market close. Because there are 30 Dow stocks, the value of $DOWA50 ranges from zero to 30. $DOWA50R is a percentage-based version of the same information - i.e., its value ranges from 0% to 100%. Use the "R" version when you want to compare this information to similar indexes for other markets (e.g., $SPXA50R).
Below is a great chart for you to use to examine the "internal health" of the Dow.

The most interesting thing this chart shows is the difference in behavior of the A50 line back in late February versus its behavior during the past week. Back in February, the Dow suffered a similar big decline in value, but in that case, the A50 line dropped significantly and continued to move lower. This past week, the Dow fell and then immediately recovered - so did the A50 line.
Maybe even more telling in this case is the behavior of the A200 line. February's decline resulted in a very visible dip in the A200 line. Last week's decline barely even registered.
Remember that indexes like the Dow can move significantly for a number of different reasons - the A50 and A200 lines can help you determine the importance of those movements.

hefeiddd

July 21, 2007DON'T IGNORE HISTORYBy Chip Anderson
Tom Bowley
We discuss so many different technical scenarios that sometimes we lose sight of what history has taught us. It's time to pause for a bit after a very nice rally in the equity markets and see what history has to say. For purposes of this discussion, all numbers below relate to historical performance on the S&P 500.

At Invested Central, we focus a great deal on historical tendencies and we believe you should too. There is overwhelming evidence that suggests viewing a calendar from time to time can immensely improve your trading or investing results. Let me give you a few historical facts to ponder, many of which you may already be familiar with.

Since 1950, the S&P 500 has advanced more often during the month of December than any other month. The ratio of advancing months to declining months for each calendar month can be seen below:

January: 36 times higher, 21 times lower
February: 31-26
March: 37-20
April: 38-19
May: 32-25
June: 30-27
July: 31-26
August: 31-26
September: 24-32
October: 34-23
November: 39-18
December: 43-14

Perhaps the biggest surprises on this list are April's 3rd place finish behind December and November, and September's dismal showing.

Now let's look at annualized returns from each month:

January: 17.01%
February: -0.24%
March: 11.97%
April: 14.77%
May: 3.12%
June: 3.18%
July: 10.53%
August: 0.50%
September: -7.19%
October: 11.01%
November: 20.93%
December: 20.46%

There are no huge surprises as the November thru January time period are the three best consecutive months to invest while the July thru September time period are the three worst.

We also study the historical trends on the NASDAQ and Russell 2000 to identify tendencies and we've found similar results, although the May and June months are much stronger for both the NASDAQ and Russell 2000, while March and July tend to be much weaker.

If your tendency is to attempt to improve your results via leveraging strategies, consider using the above historical tendencies to time your strategies more effectively.



Posted at 04:06 PM in Tom Bowley | Permalink


July 21, 2007THE MOMENT-OF-TRUTH FOR FINANCEBy Chip Anderson
Arthur Hill
Despite a sharp decline over the last six weeks, the Finance SPDR (XLF) remains in a long-term uptrend on the weekly chart and support is at hand. The Finance SPDR (XLF) met resistance at 38 twice this year and declined to around 36-36.5 in June and July. The lower trendline of a rising price channel and the 40-week moving average mark support here. The 40-week moving average is equivalent to the 200-day moving average (40 x 5 = 200) and the 40-week held in October 2005, July 2006 and March 2007. This key moving average is getting a big test once again and a move below the July low would solidify a break. This would also break the lower trendline of the rising price channel and the long-term implications would be bearish.



As long as XLF trades near long-term support, the decline on the daily chart could be a mere correction and a trend reversal would be quite bullish. The 31-May trendline, 50-day moving average and July highs established resistance at 37. XLF needs to break above this level to reverse the downtrend on the daily chart and resume the uptrend on the weekly chart. However, the medium-term trend is down as long as resistance at 37 holds and traders should be on guard for a break below the July low.





Posted at 04:05 PM in Arthur Hill | Permalink


July 21, 2007GOLD: LONG-TERM PICTURE LOOKING SHAKEYBy Chip Anderson
Carl Swenlin
On Thursday our trend model for gold switched to a buy, which means our medium-term posture is bullish on gold; however, when I looked at a very long-term chart of gold I saw something that gave me a slightly queasy feeling. What I saw was that gold is forming a pattern now that has very similar dynamics to the one that preceded gold's crash in the early 1980s. Note the huge parabolic blowoff top in 1980, followed by a failed rally top, followed by the crash.

While the current pattern is not as exaggerated as the earlier one, the dynamics are the same – a blowoff top, followed by a rally that has so far stalled below the previous top. To be objective, we must acknowledge that the rising trend line is still intact, but the similarity between the two patterns should keep us on edge until the current pattern is resolved.



One of the factors that will have a strong influence on the future price of gold is the strength or weakness of the dollar. On the chart below we can see that the U.S. Dollar Index is challenging major long-term support. If it breaks down through that support it will be great news for gold, but, if the dollar rallies off the support, we should expect to see gold break down through its rising trend line.



Bottom Line: The outlook on gold is positive at the moment, but there are technical and fundamental issues that could result in a nasty downturn for gold. If this happens, I would expect the support at $500 to be challenged. It appears to me that this situation should be resolved in a matter of weeks.


Posted at 04:04 PM in Carl Swenlin | Permalink


July 21, 2007COMPENSATION AVAILABLE FOR RECENT DATAFEED FAILUREBy Chip Anderson
Site News

Be sure to read the information on this page to learn about our recent datafeed problems, what we did to manage them, what we are doing to prevent them in the future, and how members can receive compensation for the down time they experienced.







Posted at 04:02 PM in Site News | Permalink


July 21, 2007SMALL CAPS FAIL TO SET NEW HIGHSBy Chip Anderson
John Murphy
I suggested Friday that part of the recent weakness in market breadth figures was most likely due to the fact that most of the recent buying has been in large cap stocks, and that small cap indexes had yet to hit new highs. That discrepancy is shown in the chart below. The Russell 2000 Small Cap Index has been unable to clear its early June peak. [The same is true of the S&P 600 Small Cap and the S&P 400 MidCap Indexes]. The relative weakness in small caps is even evident in today's market selling. Small caps fell much harder than large caps. Below, the RUT is in danger of breaking its 50-day average. The RUT/S&P ratio at the bottom of the chart shows small caps lagging behind large caps throughout the latest market upleg. That's where a lot of the breadth deterioration is coming from. A lot of the breadth weakness is also coming from a continuing breakdown in financial shares. That's because the financial sector has the heaviest weighting in the S&P 500. Financials stocks have been lagging behind the rising market for months and are today's weakest sector. So is anything tied to housing.




Posted at 04:01 PM in John Murphy | Permalink


July 21, 2007SCANNING FOR DOLLARSBy Chip Anderson
Chip Anderson
Recently, we've seen a big increase in the number of people sending in questions about our scanning feature. Here's an article that I wrote about creating and running scans waaaaay back in October of 2002. While the example scan's results and charts are out of date, the lessons about creating effective scans are not. Enjoy! - Chip
The job of a ChartWatcher is simple: 1.) Determine the Market's overall trend. 2.) When that trend is up, find promising stocks that have just started to move higher. 3.) Use sensible money management techniques to enter and exit positions in those stocks.
In the past, we've covered many techniques for determining the Market's current trend. Today, I wanted to talk more about the second step - finding stocks that are starting to move higher. We'll start by using our Standard Scan Engine interface to create a simple scan for finding turnaround candidates, then we'll refine that scan by using features from our Extra service.
(If you are new to the process of scanning for stocks, I recommend that you read our introductory ChartSchool article to get a broad overview of the concepts we'll be covering below.)
So, we want to develop a scan that finds stocks that have recently started moving higher. Unfortunately, the phrase "recently started moving higher" is not as well-defined as the Scan Engine needs it to be. How recent? How much higher? Does the move up have to be continuous or can it have some down days in it? How many down days? Etc., etc., etc.
While it's extremely powerful and flexible, our Scan Engine cannot read minds. It is up to us to find a unique set of technical criteria for the kinds of charts we are hunting for. I usually start by visually reviewing the charts of popular stocks like INTC or MSFT looking for a "setup" similar to what I described above. For example, look at the INTC chart below and see if you can find a time where the stock rose nicely after a long decline. How about the nice increase that happened from October to December of last year? That looks pretty good..

Here's where a strong understanding of each technical indicator we offer really pays off. After finding a chart with the "setup" you want, you need to spend time looking at how various indicators behave around that time. Look for crossovers, extreme values, or divergences since those are things that the Scan Engine understands.
As you can see in the INTC chart, I've kept things very straightforward by using two simple moving averages and the RSI indicator. Do you see where the 20-day Simple Moving Average (SMA) crossed above the 50-day simple moving average soon after this uptrend began? Let's create a scan based on that observation and see what it returns.
We can create such a scan very easily using our Standard Scan Interface. Start by selecting the appropriate global filters such as stocks from "Any" group, whose "Avg. Close >$1.00", and "Avg. Volume >40,000". These settings ensure that only market forces are affecting the price of the resulting stocks.
Next, move down to the "Additional Technical Criteria" area and select "SMA Close" from the dropdown on the left, and enter "20" in the parameter box next to it. Now, find the "x" entry in the Comparison operator dropdown box - that's the "Crosses Above" operator. Finally, select "SMA Close" from the next dropdown and enter "50" in the parameter box. Now click "Update Criteria" and you should see the following in the Light Blue Criteria Box in the middle of the page:

If everything looks good, click "Run Scan" and wait for [url=http://stockcharts.com/def/servlet/SC.uscan?r=I.N|G.0|USAD[T.T_EQ_S]![DAS0,20,TV_GT_40000]![DAS0,60,TC_GT_1.00]![DAS0,20,TC_CR_DAS0,50,TC]]the results[/url] to pop up in a new window. When I run that scan this weekend, I'm getting 26 results include Yahoo and Amgen. Unfortunately, upon closer examination, not all of these stocks have charts with the same "setup" as that INTC chart above. Here are six charts from the 26 returned by the scan:

(Visually reviewing scan results in this mini-chart format is very easy for Extra members - simply store the scan results in a favorite list and then pull up the list in "CandleGlance" format.)
Let's start with the best looking chart of the lot - LUX. LUX has widely separated moving averages that swoop in from the upper left corner of the chart, cross below the price bars just after the turnaround happens and then cross each other shortly after that, confirming the new uptrend. Using my unorthodox analogy from two issues ago, LUX is a horse making "the turn for home." EMIS and YHOO are charts with the same "setup" pattern and prove that our scan is finding the stocks we are after.
Unfortunately, the scan is also finding stocks with completely different chart patterns - stocks like CELL which has been moving sideways for sometime and thus has "tangled" moving averages that are crossing and re-crossing way too frequently to be meaningful. Alderwoods Group (AWGI) has a similar problem - note that almost every bar on that chart crosses the 20-day SMA. Because these charts are so different from what we want, we need to improve the "selectivity" of our scan by adding more criteria lines designed to screen out these charts. Again, studying ChartSchool articles, studying lots of charts, and testing lots of scan ideas is the best way to learn about this process however I've included a big hint on the charts above. Do you see it?
LUX, EMIS, and YHOO all have RSI values that are close to 70 while AWGI and CELL have RSI values near 50. Adding the criteria line "RSI(14) > Constant= 65" to the scan above reduces the number of [url=http://stockcharts.com/def/servlet/SC.uscan?r=I.N|G.0|USAD[T.T_EQ_S]![DAS0,20,TV_GT_40000]![DAS0,60,TC_GT_1.00]![DAS0,20,TC_CR_DAS0,50,TC]![DBS0,14_GT_65]]results[/url] from 26 to 12 - including LUX, EMIS, and YHOO but not including our "problem" charts AWGI and CELL.
Which brings us to PRV - a great example of why using several different indicators in a scan can really pay off. On the surface, the PRV chart above has a nice looking moving average crossover very similar to the other ones I discussed however, at only 53, its current RSI value is much lower than it ought to be given such a strong looking crossover on the chart. That indicates that this stock's turnaround may not be as strong or as long-lived as the others.
So, is this scan done? Is it a path to riches in today's market? Back-testing can help you make that decision yourself. When I run this scan "Starting 5 days ago", it returns two results - LPNT and STCO. You can use our PerfChart tool to see how those stock have fared in the ensuing 5 days. (Ed. Note: Umm, STCO doesn't exist anymore, but trust me, the PerfChart looked awesome back in 2002.) While there are many other factors involved, the strong performance of a scan's results is obviously very important.
Iteratively creating a scan and testing its effectiveness using these techniques is what ChartWatching is really all about. I urge you to use the tools that we provide to seek out chart "setups" that you can back-test, paper trade, and ultimately use to improve your portfolio.



Posted at 04:00 PM in Chip Anderson | Permalink


July 07, 2007THE WEAK DOLLAR COULD STRENGTHEN YOUR PORTFOLIOBy Chip Anderson
Tom Bowley
The U.S. Dollar Index is approaching levels not seen since 1992. The reasons are fairly obvious. Global interest rates are on the rise and our own interest rates have been on hold for 8 straight meetings. As foreign interest rates rise, foreign currencies generally strengthen, weakening the US dollar on a relative basis. The Fed could act to raise our rates and strengthen the dollar, but we don't see that occurring - at least not at this time.

Refer to Chart 1 below to see how the recent changes in Fed policy have affected the U.S. Dollar Index. The green arrow reflects the beginning of 13 interest rate increases that spanned two and one half years. The red arrow reflects the beginning of 17 interest rate decreases that spanned two years. The black arrow marks the beginning of a period of status quo, where interest rates have not budged.



In 2002, the U.S. Dollar Index began tumbling, and notice what happened to the Gold and Silver Index as shown in Chart 2. A weaker dollar will result in higher gold and silver prices. If the dollar continues depreciating, be sure to consider upping your exposure to the XAU.



If opportunity knocks, be prepared.



Posted at 04:06 PM in Tom Bowley | Permalink


July 07, 200720-WEEK CYCLE CRESTINGBy Chip Anderson
Carl Swenlin
When performing market analysis it is best to first look at the long-term view of what is happening because it provides us with the relevant context for analysis of shorter-term market action. With this in mind, on the weekly bar chart we can see that the S&P 500 Index is still trending higher inside a rising trend channel. However, at the present time it is moving down after having reached the top of the channel. While this could very well be the last top before a major decline, we are in a bull market and we have to assume any decline will be stopped by the rising trend line.



On the second chart we move in for a closer look, and we can see that prices have been consolidating for more than a month. Will this consolidation resolve as a double or triple top, or is it building a base for another leg upward? After looking at my cycle projections, I can imagine one scenario that we might see.

The March low was a 9-Month Cycle trough. The next subordinate cycle within the 9-Month Cycle is the 20-Week Cycle – there are two of them in a 9-Month Cycle. It appears that the market is now in the process of cresting in preparation for a decline into the next 20-Week Cycle trough, which is projected to arrive at the end of this month.

It is important to understand that you cannot set your watch by cycle projections, and we cannot know precisely what kind of price pattern will emerge, but cycle projections provide an intuitive framework for interpreting market action. For now I think we should be looking for a down thrust that may ultimately prove to be the current 20-Week Cycle trough. It could have happened already, or it may not happen for several weeks, but we are in the "window".



What I think may happen is that a decline in the next few weeks will break down through the support at the bottom of the consolidation range, leading very quickly to the cycle trough. Such a breakdown would likely prove to be a bear trap because of the likelihood of an upside reversal out of that trough as the next 20-Week Cycle begins.
Bottom Line: Please understand that this is just an educated guess, but a guess nonetheless. There are many other ways this could play out, but my main point is to emphasize that the next 20-Week Cycle trough is more likely to be a buying opportunity than the beginning of a serious decline. I'm not suggesting that you try to pick the bottom, just be alert for the possibility and use your standard entry techniques.



Posted at 04:04 PM in Carl Swenlin | Permalink


July 07, 2007NASDAQ/S&P 500 RATIOBy Chip Anderson
Richard Rhodes
In November-2006, we noted that if one previewed the NASDAQ Composite/S&P 500 Ratio, one would find a very well pronounced and bullish consolidation forming. Well, its been 3 ½ years and the consolidation is still forming; however, there are emerging technical signs that a major breakout is forthcoming – one that would see technology stocks move to the forefront of market leadership in a manner not seen since the October-2002 to January-2004 relative rally that took the ratio from 1.42 to 1.88. Moreover, the rally could well become explosive to the upside.
First, we would call attention to the nascent breakout above the 170-week moving average; in the past this has provided a fulcrum point for trend reversals. And perhaps this is the case at present given the breakout above this level is not yet sufficient to warrant an "all clear" siren; but – the 20-week stochastic is just now turning higher from oversold levels consistent with past rallies of at least 0.14. If this circumstance were to occur this time, then we would see the ratio breakout above the bullish consolidation's trendline resistance level and above the April-2006 level of 1.81... putting the ratio at its highest level since late-2003 or early-2004.
Finally, on further confirmation of this nascent breakout, our upside target guide using the October-2002 rally into January-2004 rally would be around 2.07, with the time within 12-18 months. .Thus, it would seem wise to trade this "pairs trade" using a long QQQQ/short SPY position. Or, if one believes the markets is headed higher from current levels or if one must be long for any stylistic reason – then perhaps selected outright long positions in technology are warranted. In any case... the unloved technology sector is poised to gain substantial sponsorship.





Posted at 04:03 PM in Richard Rhodes | Permalink


July 07, 2007DATAFEED PROBLEMS CONTINUEBy Chip Anderson
Site News

In case you've been under a rock, we have been having severe problems with our intraday datafeed during the past two weeks. We've created a detailed page explaining the problem and the current status of the solution. Click here to get the latest information.







Posted at 04:02 PM in Site News | Permalink


July 07, 2007A TOUR OF OUR NEW DATACENTERBy Chip Anderson
Chip Anderson
The Dow is poised to re-test the 13,700 level next week. If it is able to break above that level, it will be a very bullish development indeed. Given that the Dow has faltered just below that level twice in the previous two months, odds are it will fail again this time. Smart ChartWatchers will be watching closely however - our Dow Gallery View charts are a great place to watch the action.
TAKING A LOOK AROUND
For the past 18 months or so, I'm been putting periodic updates in this newsletter about the progress of our new datacenter project. Now that things are complete, I thought I'd show you a couple of pictures of the new facility. The key problems that we were facing in our old datacenter were a lack of cooling and a lack of power. All of the new computers we had added were taking too much power and generating too much heat for our old systems.
To fix the cooling problem, we installed a very large "chiller" unit outside of our offices that chills water and pumps it through a closed loop of pipes into four "In Row Cooling (IRC)" units located next to our server racks. The IRCs are essentially big radiators with fans that suck in the hot air that our servers generate and force it through coils that are full of the chilled water from the outside chiller. They then blow the chilled air out the front so it can re-enter the front of our servers.
Here's a picture of the outside chiller:

And here's a shot of the inside of our datacenter:

The thinner cabinets located in-between each of the larger server racks are the IRCs I was talking about. Notice the large white pipes up above the racks? They deliver cold water from the outside chiller and remove the heated water from the IRCs.
Over on the far right side of the picture are three full racks that contain our new "Uninterruptable Power Supply (UPS)." The new UPS can power all of our servers for over 2 hours in the event of our power failure. That's over twice as long as our old UPS even though it is powering almost twice as many servers!
Speaking of servers, the big silver things at the bottom of the other two racks are our two new Sun Blade 8000 chassis. Each Sun chassis contains ten blade servers and each server contains four 2.8GHz AMD Opteron processors. If you do the math, that means that each chassis provides 112 GHz of computing power and, as of last week, we now have two fully populated chassis for 224 GHz of chart crunching power. These new blades are able to generate charts almost twice as fast as our previous blades but they use lots of power and generate lots of heat. We could never have installed them without the power and cooling improvements to our new datacenter.
(BTW, The Thomson datafeed servers that have been causing us so much trouble recently are located at the top of the rack on the left side of that picture.)
Finally, here's a shot of our "data" rack. The upper half contains the larger Dell 2950 servers that store all of our historical stock data. Lower down are the two IBM BladeCenter chassis that contain the smaller blade servers that used to generate our charts - they are now being converted to run other areas of our site.
There are lots of other parts of our Datacenter that I'd love to show you but I should probably save those for some other day. Hopefully this quick glimpse helps you see how we've been working hard to continually upgrade the equipment that runs our website. These upgrades should allow us to continue providing our charts for years to come.



Posted at 04:00 PM in Chip Anderson | Permalink

hefeiddd

August 25, 2007EXTREME PESSIMISM MARKS BOTTOMBy Chip Anderson
Tom Bowley
We've discussed in the past the tendency of the market to put in long-term bottoms when the bearish sentiment reaches extreme levels. Extreme bearishness is exactly what we saw on Thursday, August 16. Over the past 4 years or so, we've experienced many occasions when the put call ratio has exceeded 1.0. But there have only been a dozen or so times that the "equity only" put call ratio has topped 1.0. Prior to the recent downtrend, when had seen only one previous occasion where that "equity only" put call ratio topped 1.0 on consecutive days. That occurred in mid-August 2004. On the chart below, you can clearly see that the extreme pessimism seen then marked a long-term bottom, one that was never retested.



Many market pundits are suggesting that we're headed towards disaster given the recent credit crunch. Even that nasty "recession" word is being tossed about. We don't believe a word of it. We look at the current market conditions as a major buying opportunity. Our only question is whether the market can sustain its recent rally as we head into the worst calendar month of the year - September. Major market tops normally coincide with excess bullish sentiment. For instance in 2000 when the major indices began its downward spiral, it was routine to see put call ratios down around .40-.50 - very bullish indeed. Everyone was buying calls because it was "easy money." Margin debt used to buy stocks was at outrageous levels and when the selling began, it fed off itself - a domino effect if you will. We are looking at a market at the opposite end of the sentiment spectrum now. Instead of record margin debt to finance stocks, we see record short interest. Instead of bullish call buyers, we have bearish put buyers. The masses in the options world rarely get it right.

When the Fed begins its interest rate cutting campaign - and the only argument in our minds is when, not if - the stock market will snap back like a stretched rubber band. We've only seen the beginning in the last week. We maintain our very bullish stance on the market with a bias towards the large cap NASDAQ 100 index.




Posted at 04:06 PM in Tom Bowley | Permalink


August 25, 2007EXPECTING SHORT-TERM TOPBy Chip Anderson
Carl Swenlin
In my August 17 article, Looking For A Retest, I speculated that we would get a bounce from the extreme price lows hit in mid-August, but that a retest of those lows needed to occur before we could be reasonably certain that the completion of a solid bottom had been accomplished. As it happened, the bounce was initiated before I posted the article. At this point I think the evidence suggests that the reaction rally has just about run its course, and that we should be expecting a price top to mark the beginning of a decline into the retest of recent lows.

The evidence of which I speak can be seen on the chart below (and on many other short-term indicator charts). There are two versions of the Swenlin Trading Oscillator (STO) – one is calculated from advance-decline breadth (STO-B) and the other from volume (STO-V). On the chart I have outlined two corrective phases – the February/March correction, and the current correction, which, in my opinion, is not yet complete.



Note that there were three separate down thrusts in February/March. The first was into the initial price low, which also registered the lowest of the STO readings. The second was the retest of the first price low, which registered a slightly lower price accompanied by higher STO readings. The third move down was a pullback after a breakout. Note that the breakout was accompanied by very high STO readings, indicating an initial impulse for a new rally, and after that third pullback, the price configuration was clearly bullish.

The current correction has a more bearish slant. The price decline has been more violent, and the second down thrust has led to a much lower price low. The market has rallied out of that low, but you can see that the STO has reached overbought territory, and we should be expecting a short-term top leading to a retest of the correction low. There is no guarantee that the support will hold, so it is no time to be trying to pick a bottom.

Bottom Line: Good arguments are being made by both the bulls and the bears, and the possibilities being presented range from the market being up 22% a year from now to the danger of a 2000 point down day on the Dow. Rather than trying to decide which scenario might materialize, I am comforted by that fact that we are currently 100% neutral in the event the bottom falls out, and I am confident that our primary timing model will pull us into the market in time to catch a good part of any significant up move that occurs.




Posted at 04:04 PM in Carl Swenlin | Permalink


August 25, 2007WHERE ARE WE IN THE CYCLE?By Chip Anderson
Richard Rhodes
Given the volatility of the capital markets these past two weeks, we think it instructive to step back and take a longer-term viewpoint of the stock market to discern where we may be in the cycle. In doing so, we find the S&P 500 large caps - the strongest relative US average given its international exposure - trading well above its longer-term trendline as well as its 80-week moving average. In the past, this moving average has provided "fulcrum points" between bearish corrections in a bull market and outright bear markets. In the present case, this moving average was successfully tested seven trading sessions prior at 1378, and closed this week out at 1479... a full 100 points above it. Perhaps this simply indicates that a normal -10% correction within a bull market has occurred, and prices have now resumed their upward trend.



That said, the credit contagion seems to be contained for time being; however, the character of the rally hasn't been "strong enough" for us to believe that a "lift-off bottom" is in place. Thus, we are now in the process of layering on short positions for the seasonal September-November swoon back into the 80-week moving average is forthcoming. And if broken - then we would expect to see a bear market decline of -20% and perhaps even more.

As they say: Timing everything.



Posted at 04:03 PM in Richard Rhodes | Permalink


August 25, 2007DATA FEED UPGRADE UPDATEBy Chip Anderson
Site News

We are continuing to make progress in our efforts to get a second data feed into our offices. A second data feed should help us avoid the kind of problems we had several weeks back. Unfortunately, two things are conspiring to slow our progress: the phone companies and the stock exchanges. Neither of them are making it easy for us to get something in here quickly. We will continue to work hard however despite the obstacles. At this point it looks like it will be several more months before the second feed is operational however. Stay tuned...
ANOTHER ROUND OF SERVER UPGRADES IS UNDERWAY - Have you noticed your charts appearing faster recently? Last week we installed a couple of bigger database servers that are performing significantly faster than the other servers we use. Part of the reason for that is the Quad-Core Intel processors they are using. Another part of it is because they are using 64-bit versions of our software. The geeks out there will know that 64-bit software allows computers to access much more memory than their 32-bit cousins. Our stock databases have grown so large, that the additional memory provided by 64-bit software really makes a difference. Over the next couple of weeks, we will be upgrading all of our database servers to use this faster hardware/software combination so you can expect your charts to appear even faster in the future.
COMBATING CHART ABUSE - We have noticed a recent increase in the number of members that are requesting an abnormally large number of charts from our servers - especially just after the market opens and just before it closes. These members are requesting anywhere from 2-4 charts per second(!) from our servers for an extended period of time. As a web-based charting service, our systems are designed to provide charts for individuals to review and study. Please make sure you are only requesting charts that you are really interested in and plan on looking at for at least several seconds. When we find people requesting more than 1 chart per second for an extended period of time, we notify them of the problem and work with them to reduce their use of our system. In cases where the problem continues, we will take stronger measures. Make sure this doesn't happen to you! Use common sense when using our auto-refreshing charts (open 4 or fewer) and our CandleGlance pages (only refresh once or twice a minute) and you'll avoid any problems. Thanks!







Posted at 04:02 PM in Site News | Permalink


August 25, 2007WHERE'S THE VOLUME?By Chip Anderson
John Murphy
Friday's higher prices continued the market rally that started the previous Thursday. The three charts below show major market ETFs all back above their 200-day moving averages, which removes any immediate threat of a bear market. All have recovered more than half of their July/August decline, The Dow Diamonds and the S&P 500 SPDR are now in position to test their falling 50-day lines. Since a market bounce that could last two to four weeks was expected, this week's bounce doesn't tell us if the worst is over or if there's another downswing to come (that could at least retest the recent lows). One important thing missing from the rally is volume. All three charts show remarkably light trading this past week. In fact, today's trading was the lowest since the days surrounding the July 4 holiday. Chart 3 shows the PowerShares QQQ Trust (QQQQ) closing slightly above its 50-day line today. Unfortuntely, that also came on unusually low volume. Low volume tends to exaggerate price moves and shows little buying enthusiasm. That's especially true on a Friday afternoon in August.









Posted at 04:01 PM in John Murphy | Permalink


August 25, 2007DOW TECHNICALS TURNING POSITIVE, BUT...By Chip Anderson
Chip Anderson
Last week, some significant positive technical developments occurred on our GalleryView chart of the Dow:

After recovering to remain above the 200-day moving the previous week (see the red candle whose shadow dipped all the way to 12,517?), the Dow has rebounded nicely with a nice string of tall white candles. Those candles have managed to turn around the MACD and push the MACD Histogram back into positive territory. In addition, the Chaiken Money Flow (CMF) has also returned to the green side of the ledger.
So is it safe to jump back into the market right now? Well... There is one really big negative on the chart too. Can you spot it? If not, don't worry - John Murphy talks about it in detail below.
The declining market volume that accompanies this rise in prices should give everyone pause. As the Dow closes in on it's 50-day moving average (blue line), expect it to reverse lower unless buying volume increases significantly.



Posted at 04:00 PM in Chip Anderson | Permalink


August 04, 2007BULL/BEAR BATTLE THIS WEEKBy Chip Anderson
Arthur Hill
The S&P 500 ETF (SPY) firmed this week and found some support. The ETF hit support from the 40-week moving average and broken resistance. The 40-week moving average is equivalent to the 200-day moving average and this level is important to the long-term trend. Resistance stems from the February high and SPY broke this level in April. Securities often return to the their breakouts and this marks an important test as well.



A bull-bear battle raged this week as SPY shot up to 149.5 on Tuesday and fell back to 144 intraday on Wednesday. That is about a 3.5% swing high-low swing in two days. The bulls are trying to hold support and the ETF has basically consolidated this week. The boundaries of this consolidation hold the key to the next move. A break above 149.5 would be positive and revive the bulls. Conversely, a break below 144 would signal a continuation lower and decisively break support.





Posted at 04:05 PM in Arthur Hill | Permalink


August 04, 2007MARKET OVERSOLD AND DANGEROUSBy Chip Anderson
Carl Swenlin
A month ago I wrote an article stating that I thought that the 20-Week Cycle was cresting and that we should expect a decline into the cycle trough that would probably break down through the support provided by the bottom of the trading channel, setting up a bear trap. So far so good. As you can see on the chart below, the S&P 500 has broken down through the horizontal channel support, as well as an important rising trend line. The trend line break is not decisive (at least 3%), but this break down has gone farther than I had expected.



In the process of the recent decline the market has become very oversold, as demonstrated by the next two charts. The first is our OBV suite, which includes the CVI (Climactic Volume Indicator), STVO (ST Volume Oscillator), and VTO (Volume Trend Oscillator). All three of these indicators have hit very oversold levels, levels from which rallies normally emerge.



The same is true for the ITBM (IT Breadth Momentum) and ITVM (IT Volume Momentum) Oscillators, which reflect a substantial internal correction, and tell us that we should start looking for a bottom.



As usual I would caution against trying to pick a bottom. For one thing, our primary timing model switched to neutral on July 31, which I think is a good place to be while the market is still displaying weakness. Another thing to consider is that the bears could be right about new bear market just beginning. If this is the case, oversold readings are extremely dangerous and can actually signal the likelihood of even more severe declines. To reiterate, oversold in a bull market means a bottom is near, but in a bear market it means "look out below!"

Bottom Line: The market has become very oversold, and I expect to see a bottom forming over the next several weeks. I am still overall optimistic because of the 20-Week Cycle alignment with the current decline, and because we are still in the beginning of the 4-Year Cycle; however, caution is recommended until our timing model switches back to a buy signal.



Posted at 04:04 PM in Carl Swenlin | Permalink


August 04, 2007A BEAR MARKET IN FULL?By Chip Anderson
Richard Rhodes
Last week was a treacherous week indeed, with stock prices falling universally. That said, one of the "weakest indices" was related to the US small cap arena, and specifically to the Russell 2000 Index ($RUT). In the past, RUT led the market higher, but that changed last year as a bottom was forged against the S&P 500; however, we now see sharp absolute weakness has caused RUT to breakdown below its 85-week exponential moving average. This moving average during the bull market from 2002 has provided an excellent "buying point" – especially given when the 14-week stochastic has fallen below 50. Unfortunately, that isn't the case at present, as Friday's weakness caused prices to break through this important moving average, which to us suggests a "bear market" in small caps is now confirmed, with further downside price action likely in the months ahead.

As a result, a reasonable "first target" is 670, which is another -10% lower from current levels. But in the fullness of time, we would expect the decline to find major support at the 50%-62% retracement of the entire bull market, which on a worst case basis would be -30% from current levels. Moreover, if the decline looks anything like the April-to-October 2002 decline, then we could very well obtain our "worst case scenario" by the end of this year.





Posted at 04:03 PM in Richard Rhodes | Permalink


August 04, 2007MAILBAG IS BACKBy Chip Anderson
Site News

Our MailBag column has been on hiatus since, oh, 2002 or so. Last week we revived it and we hope to turn it into a much larger part of the site. Basically, we are now able to take really good responses from our support database and publish them in the Mailbag area. Be sure to check out our first attempt (it's about ratio charts) and then check back periodically for more articles later. Note that if a member sends in a question and we turn it into a Mailbag column, they will get an additional week of service free!







Posted at 04:02 PM in Site News | Permalink


August 04, 2007JULY PERFORMANCE FIGURES CARRY A MESSAGEBy Chip Anderson
John Murphy


The chart above shows "John's Latest Performance Chart" that reflects the market's stronger and weaker groups during the hightly volatile month of July. All are plotted around the S&P 500 which lost 3.2% during July. [The S&P can also be plotted as a zero line]. The bars to the left of the S&P did better than the general market. The two top gainers were gold and oil service stocks. The AMEX Gold Bugs Index ($HUI) gained 4.5% in the face of a severe market downturn. Oil Service stocks held up well on the back of rising oil prices (although the've started to slip during the first week of August). Semiconductors lost a small -.42%, but held up better than the S&P. The bars to the right show where most of the weakness has been. Brokers, banks, and retailers were among July's weakest groups. [Homebuilders and REITs were even weaker]. I did a story on Thursday about how relative weakness in retailers was tied to housing problems. The beauty of the performance bars is that they can tell us in one picture where investors might be looking to invest (like gold) and what to avoid (financials, retailers, and anything tied to housing). That juxtaposition of the performance bars also carries a negative warning for the stock market.



Posted at 04:01 PM in John Murphy | Permalink


August 04, 2007THE BATTLE OF 13,200By Chip Anderson
Chip Anderson
The troops are mustered. The swords are out. The orders have been posted. The pieces are in place. The die has been cast. (The metaphors are getting lame. ) However you want to say it, the battle line for the Bulls and the Bears has been drawn. Can you spot it on this Dow chart?

13,200.
Going back to early May. That is the major support level for the Dow. It was sorely tested last week and was broken on Friday. Will it bounce back this coming week? With the MACD clearly negative and the Chaikin Money Flow crossing below zero right now, things don't look promising. At the risk of abusing yet another metaphor, in the coming days astute ChartWatchers should be treated to all out war between the Bulls and the Bears.



Posted at 04:00 PM in Chip Anderson | Permalink

hefeiddd

September 22, 2007BEARS BURNED BY BERNANKEBy Chip Anderson
Tom Bowley
It's been a very long time, but we can now unequivocably say that we have an accommodating Fed. The lowering of interest rates was the next piece of our bullish jigsaw that fit perfectly. It's all coming together. The bond market knew it was coming. You just have to follow the technicals. Take a look at the weekly chart of the 10 year treasury yields over the past decade and a half.



There is a long-term downtrend in rates that remains intact. The short-term uptrend that began in 2003 came to an end just before the recent Fed announcement. How long will we trend lower? That's a good question and a tough one. We expect the Fed will lower at least 1-2 more times and then re-evaluate our economic outlook. That would get the fed funds rate back down to the 4.00-4.25 area. From a technical perspective, we believe the yield on the 10 year treasury will ultimately drop to the 3.80-4.00% level. The economy should begin to grow more steadily late in the first half of 2008 and that may require the Fed to consider tightening again sometime in the second half of 2008 or early 2009.

Equities flourish in a growing economy with falling interest rates and little inflation. That is our forecast for the next 12 months and the primary reason we remain extremely optimistic and bullish. We have stated that the recent weakness was a buying opportunity as we expect equities to post very solid gains over the next 1-2 years. Focus on the large multinational growth companies found on the NASDAQ 100 for the balance of 2007, then be ready for a broad-based advance in 2008. Expect semiconductors to lead the rally into year end.



Posted at 04:06 PM in Tom Bowley | Permalink


September 22, 2007BONDS HIT SUPPORTBy Chip Anderson
Arthur Hill
Buy-on-Rumor and Sell-on-News is a classic Wall Street axiom. In the internet heyday, Yahoo! would surge into its earnings announcement and then correct with a pullback near the actual announcement. The iShares 20+ Year Bond ETF (TLT) surged with the lead up to the Fed meeting on Tuesday and peaked a few days before the announcement. The rumor was the Fed cut and traders bought into this rumor in the second half of August. Traders took profits after the rate cut (news) was priced into the bond market.



Despite the rather sharp pullback, the overall trend remain up and TLT finished the week in a support zone. The support zone stems from broken support, the 200-day moving average and the 50-day moving average. In addition, there is also support from the early August consolidation. A harami formed over the last two days with a long black candlestick and a smaller white candlestick (inside day). This shows sudden indecision and also indicates support. The overall trend remains up for TLT and I would expect the ETF to hold this support zone before continuing higher.





Posted at 04:05 PM in Arthur Hill | Permalink


September 22, 2007NEW BUY SIGNALBy Chip Anderson
Carl Swenlin
Ever since the market hit its correction lows in August I have written three articles, each emphasizing that the odds favored a retest of those lows (see Chart Spotlight on our website). As it turns out, we haven't had any decline that I would classify as a retest, and the market has broken out of a triangle formation on high volume. When the breakout happened, it eliminated any reasonable possibility of a retest, in my opinion. Sometimes the low odds take it.

One thing I have been cautioning about is to not get too bearish, because many of our key indicators had remained bullish. Another thing I should mention is that we should never get too invested in a forecast. I have watched as many of my bearish colleagues, after being proven wrong by the market, are still tying to justify their being bearish rather than trying to get aligned with the market. The market will eventually prove them right because, because, because . . . Maybe they will be right sooner than we think, but for now the market looks as if it will be moving higher for a while.

My bullish stance is due to our S&P 500 timing model having switched from neutral to a buy on September 13, three trading days prior to the Fed-induced market breakout. Also, prior to the breakout, about half of the market and sector indexes that we track with our primary timing model were also on buy signals. On the day of the breakout, the other half switched to buy signals.

The chart below shows the two components needed to generate a buy signal – the Percent Buy Index (PBI) crossed above its 32-EMA, AND the PMO (Price Momentum Oscillator) was above its 10-EMA. Note that the PBI is only at 59%, but it is trending up, which is most important.



Bottom Line: The long-awaited retest did not materialize, and. in my opinion, the market has begun another leg upward that should challenge and exceed all-time highs for the S&P 500 Index.



Posted at 04:04 PM in Carl Swenlin | Permalink


September 22, 2007RIDING THE S&P SURGEBy Chip Anderson
Richard Rhodes
The "surge" of the past month in the S&P 500 is nothing short of astounding; and given the technicals involved – we believe prices are set to continue moving higher with a projection to 1630 into the October-December time frame. This represents a +6.8% rally from the Friday, September 21 close.

Quite simply, when we look at the S&P 500 hourly chart; we find a very picturesque "head & shoulders" bottoming pattern that was confirmed with the breakout above neckline resistance at 1496. Our target is arrived at using the percentage gain +9.1% off the 1371 low to neckline resistance at 1496, and then applying the gain to 1496 to arrive at 1632.

The question before all of us is "how do we get there", and what sectors will outperform and which will underperform. This is important as we believe an "important top" will form at 1632 given the current advance/decline line of NYSE "operating companies only" is lagging rather badly on the rally thus far. Typically, the advance/decline line tops out 4-6 months before prices do so; which occurred in June-2007. Hence, our target time frame of October-December 2007.

And finally, we'll also note that the hourly "head & shoulders" bottom 1632 target roughly converges with the weekly "head & shoulders" bottom breakout in 2004 that targets 1650; and speed-line resistance off the September-2001 bottom connecting the January-2004 high and the June-July 2007 highs. Attention is to be paid when various methods of technical analysis converge; and we are doing so.





Posted at 04:03 PM in Richard Rhodes | Permalink


September 22, 2007TICKER CLOUDS ARE GATHERINGBy Chip Anderson
Site News

Later this week, we hope to release another new feature here at StockCharts - "Ticker Clouds!" A Ticker Cloud is a list of the most requested ticker symbols we've seen (calculated over the past 5 minutes). The size of each ticker is determined by its popularity and each ticker can be clicked to see its chart. Ticker Clouds are very similar to "tag clouds" that you may be familiar with from photo sites like "Flickr.com". Again, we hope to have them in place by the end of this week.







Posted at 04:02 PM in Site News | Permalink


September 22, 2007YOU CAN BUY A FALLING DOLLAR FUNDBy Chip Anderson
John Murphy
I first wrote about this inverse dollar fund in April 2006 and again on July 13 of this year. The ProFund Falling US Dollar Fund (FDPIX) is a mutual fund designed to trade in the opposite direction of the US Dollar Index. In other words, the fund rises when the dollar falls (hence its name). As I've suggested in the past, investors can use this fund to profit from a falling dollar. Chart 1 (plotted through 9/9) shows the Falling Dollar Fund trading at a new 12-year high. An alternative to buying a dollar inverse fund is to buy a foreign currency ETF. Chart 2 shows the Currency Shares Euro Trust (FXE) hitting a new high on 9/20 along with the Euro.







Posted at 04:01 PM in John Murphy | Permalink


September 22, 2007THE FED FIXED THINGS - OR DID IT?By Chip Anderson
Chip Anderson
The Fed's surprising move last Tuesday did wonders for the major averages and "wrecked" many technical forecasts in the process (oh well). As you can see below, Tuesday's rally moved the Dow well above the 50-day Moving Average (blue) which had been providing some resistance prior to that time.

The CMF and MACD lines also strengthened significantly as a result. So everything must be looking up right? Well... Check out this chart:

This is a MarketCarpet chart (Java required) for all of the stocks that make up the S&P Sector ETFs. Each square represents a different stock. They are grouped into the 9 major S&P sector categories. The color of each square is determined by the percentage increase (green) or decrease (red) that each stock has had since the Fed made its move on Tuesday. To read this chart, look to see if the overall color of a given sector tends towards green (bullish) or red (bearish).
As you can see, many of the stocks on this charts are tending towards the red - especially in the Consumer Discretionary and Financial sectors. Only the Energy sector is showing lots of green. This indicates that there hasn't been much follow thru since the Fed's move on Tuesday and that the downward pressure that was in place prior to Tuesday may still be having an impact.



Posted at 04:00 PM in Chip Anderson | Permalink


September 07, 2007PREPARE FOR A WEAKER DOLLARBy Chip Anderson
Tom Bowley
The jobs report sent a jolt to the stock market on Friday. We believe it'll be a temporary jolt, but a jolt nonetheless. That data gave the Fed all the ammunition it needs to do what the market has been expecting for weeks - to cut the fed funds rate. The question has now become, will it be 25 or 50 basis points? For the U.S. Dollar Index, it won't matter. The lowering of interest rates here in the U.S. will turn a weak dollar into an even weaker one. Take a look at the monthly chart (Chart 1) of the U.S. Dollar Index over the past 27 years and compare the movement in the dollar to the movement in gold prices (Chart 2) over that same span.


Clearly, there is an inverse relationship between the dollar and gold that has weathered many economic cycles. So here's the question we need to answer. If the Fed is on the verge of beginning an interest rate reduction campaign, will the dollar continue to weaken? We believe it will, which in turn should lead to a continuing bull market in gold, at least in the short-term say over the next 3-6 months. Then we'll re-evaluate.
We have maintained a very bullish theme on equities in general and once we clear the historically bearish month of September, we expect the bullish long-term trend to resume. In an environment of a weak dollar, we especially like the large cap multi-national stocks found on the NASDAQ 100 where earnings can be expected to rise significantly. We continue to favor the technology sector.



Posted at 04:06 PM in Tom Bowley | Permalink


September 07, 2007FINANCE AND CONSUMER ETFs HAVE DOUBLE TOPSBy Chip Anderson
Arthur Hill
The Finance SPDR (XLF) and Consumer Discretionary SPDR (XLY) formed large double tops this year, and both broke support in late July to confirm these bearish reversal patterns. Volatile trading ranges followed these support breaks (yellow ovals), but these ranges look like consolidations after a sharp decline. In other words, XLY and XLF became oversold in mid August, and these consolidations worked off these oversold conditions. Friday's sharp decline looks like the start of another move lower, and a move to the next support area is expected.


Both sectors are important to the overall market. The Finance sector represents banks, brokers and REITs. It is the single biggest sector in the S&P 500. Moreover, banks and brokers are at the heart of the sub-prime problems, and this issue is not going away until the Finance sector rebounds. The Consumer Discretionary sector consists of retailers, restaurants, media companies and automakers. It is the most economically sensitive sector, and a breakdown in XLY bodes ill for the economy overall.



Posted at 04:05 PM in Arthur Hill | Permalink


September 07, 2007SCARY RETEST ON THE HORIZONBy Chip Anderson
Carl Swenlin
It is well known that October is the cruelest month on average, but sometimes September beats October to the punch. This may be one of those times. Looking at the chart below we can see that the market has bounced out of the August lows and has formed two short-term tops, the last being higher than the first. Corresponding with those rising tops are two sets of declining tops on the two short-term technical indicators. This is known as a negative divergence, and it is a short-term bearish sign that probably is announcing an impending retest of the August lows.
The fact that we are looking for this retest in September, a sometimes cruel month, could mean that the retest will be more scary than most people are expecting. I would not rule out a failed retest that sees prices fall past the August lows and plunges us into a bear market. This is not a prediction, just a possible scenario that ought to be considered.

What I really want to see is a successful retest and a resumption of the bull market, but, as we all know, "you don't always get what you want." For one thing the bearish outcome discussed above could be the ultimate outcome, but it could break the other way as well. By that I mean that we may not get the retest that would put our minds at ease and prepare us mentally for the next big rally. Instead the market could already be in the beginning of the next big rally.
Bottom Line: The odds favor a retest, and that decline could turn nasty in a hurry. Unless we see more buy signals on the major market indexes, I will be staying out of the market until the retest (or whatever) is complete.
Regardless of my personal opinion, we rely on the 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. Note that we have added the nine Rydex Equal Weight ETF versions of the S&P Spider Sectors. This may seem redundant, but the equal weighted indexes most often do not perform the same as their cap-weighted counterparts, and they provide a way to diversify exposure.

Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics and strategy if conditions change.

Posted at 04:04 PM in Carl Swenlin | Permalink


September 07, 2007BIOTECH ETF HOLDING ONBy Chip Anderson
Richard Rhodes
Although last week's broader market was under pressure, the long forgotten Biotech HOLDRs (BBH) showed surprising resilience, and, in fact, is on the cusp of a major breakout. If you'll recall, BBH has underperformed badly in the past, even while posting very good earnings. That puts BBH in the categories of "value" and "defensive," code words used to describe a security in which money will flow in a market decline. Thus, we can make a fundamental and technical case to be buyers.
From a technical perspective, BBH has a history of rising very sharply, then consolidating prices for a year or two. This current consolidation began in early-2005 – making it nearly 2 ½ years old. Classical technical analysis tells us that the longer the base – the more sustained the move. Thus far, previous support has held at $158, which is just above the rising 200-week moving average. Too, prices are hard upon the 80-week moving average at $171 – a level we think will be handily broken in the days and weeks ahead, given the 14-week Stochastic is turning higher from oversold levels.
Therefore, the technical setup is rather good. It really doesn't get much better than this as they say. Our target on the trade is above $220.



Posted at 04:03 PM in Richard Rhodes | Permalink


September 07, 2007SITE DESIGN UPDATE ON THE WAYBy Chip Anderson
Site News

We've started working on a site redesign that will update the way you get around the website. Right now there are too many parts of the site that are hard to find or inconsistant with other areas of the site. In addition, our site search feature is too hard to use and often doesn't give useful results. It will take us a couple of months to get everything worked out, but you can look forward to a better StockCharts.com experience once we've completed things.






Posted at 04:02 PM in Site News | Permalink


September 07, 2007VIX STILL IN AN UPTRENDBy Chip Anderson
John Murphy
Earlier in the week I heard a TV commentator (masquerading as an analyst) give his interpretation of the CBOE Volatility (VIX) Index. His conclusion of course was bullish. He correctly pointed out that peaks in the VIX usually coincide with market bottoms. He then bullishly concluded that since the VIX peaked in mid-August, the market had bottomed. The problem with that bullish interpretation is that the major trend of the VIX is still up. Recently, I wrote that the VIX would probably find major support near the 20 level before turning back up again. I got the 20 support number from two sources. One was the 50-day moving average. The other was the March peak. Pullbacks in an uptrend should always find support near a previous peak. If the VIX is turning back up (as it seems to be doing), that would signal the end of the market rally and not the start of a new uptrend. Here again, when you hear TV people doing their version of technical analysis, turn off the sound and look at your chart.




Posted at 04:01 PM in John Murphy | Permalink


September 07, 2007MARKET MOVING LOWER - DUH!By Chip Anderson
Chip Anderson
"The trend is your friend" or, in this case, the market's enemy. You may have noticed lots of vacillating in the traditional financial press this past week - gloom and doom after the market closes lower, supreme optimism the very next day when the market moves higher. ChartWatchers shouldn't be fooled by the media's need to generate market opinions that sell papers. The market's trend has been clear for weeks and despite what the optimists say, that trend is down. The Dow chart shows it clearly with three lower peaks separated by two lower troughs. Last week's third peak is the "final nail in the coffin" - confirming the downtrend beyond a shadow of a doubt. Don't fight a clear trend folks. Until a clear up-trend is re-established (see this article for details), the default expectation for stocks should be that they will move lower.

hefeiddd

October 20, 2007AUGUST VS. OCTOBER - OPPOSITE ENDS OF THE SPECTRUMBy Chip Anderson
Tom Bowley
The panic selloff and subsequent recovery in August was nearly a mirror image of what we've seen in October. First, let's start with August. If you recall, we discussed how long-term market bottoms are marked by extreme bearish sentiment. The sentiment we saw in August doesn't get any more bearish. We had put call ratios routinely printing 1.30 to 1.40 and higher. The "equity only" put call ratio printed over 1.0 on 3 consecutive days, the first time that had happened since CBOE has been providing data to the public. For those of you unfamiliar with the put call ratio, it represents the number of put contracts divided by the number of call contracts. A number above 1.0 indicates that more puts are being bought than calls. Since 1995, the average or norm has been .75. The put call ratio serves as a contrarian indicator. The more bearish the put call ratio becomes (ie, the higher the number), the more bullish the implic ations for the stock market. It made perfect sense to us that a significant market bottom was put in place on August 16th after watching the put call ratio soar. The timing of the late afternoon reversal on August 16th and the ensuing gap up on August 17th couldn't have been better for market makers as options expired on August 17th. The reversal saved marker makers a bundle.

Now let's fast forward to October. As we approached options expiration Friday, the market had been straight up for weeks with tons of in-the-money calls. A further look at sentiment early last week revealed a 5 day moving average of the put call ratio that equaled its lowest level since April 2006. The pessimism from August had faded and sentiment was suggesting that the market was ripe for a selloff. Solid earnings reports came in from the likes of INTC, YHOO and GOOG, yet the market couldn't sustain attempted rallies. That was a big red flag and with so much money on the line for market makers due to options expiration, it should not have shocked anyone to see the indices sell off the way they did on Friday. This time a fortune was saved by market makers benefitting by a move in the opposite direction.

Where does this leave us now? Well, for starters, you must realize that next week is historically the worst performing week of the year, bar none. We are believers of historical tendencies and since 1950, the S&P 500 struggles more during the next 7 calendar days than it does during any other period throughout the year. In addition, the market had become way too complacent as we rose week after week after week. Below is a chart of the NASDAQ and key support levels to watch.


While we remain very bullish on the long-term prospects of the market, it could be financial suicide to ignore the short-term signals here. Take it easy, play it safe and look at any upcoming weakness as yet another opportunity to make money on the long side if panic selling kicks in.



Posted at 04:06 PM in Tom Bowley | Permalink


October 20, 2007ANOTHER LEG LOWERBy Chip Anderson
Arthur Hill
The Consumer Discretionary SPDR (XLY) and Finance SPDR (XLF) broke down this week to signal a continuation of downtrends that began in July. In other words, the Aug-Oct rally was just a countertrend advance within a larger downtrend. XLF and XLF moved into bear mode when double tops were confirmed with support breaks in July. Both broke their March lows and forged lower lows. The advance over the last nine weeks retraced around 62% of the Jul-Aug decline and both ETFs met resistance near their 40-week moving averages (red arrows). This week's sharp decline ended this countertrend rally and started another leg down. In addition, a lower high formed and this is what downtrend are all about: lower lows and lower highs. The next support levels are around 30.5 for XLF and 34 for XLY. The Finance sector represents the banks, brokers and REITs. The Consumer Discretionary sector is the most economically sensitive. Needless to say, breakdowns in both bode ill for the market overall.







Posted at 04:05 PM in Arthur Hill | Permalink


October 20, 2007CORRECTION UNDERWAYBy Chip Anderson
Carl Swenlin
Two weeks ago I wrote an article that stated that it was a good time for a pullback. As it turns out the pullback started four trading days later, and it appears now that a full blown correction is in progress. It will probably take at least two or three weeks to complete the correction, and there will probably be something of a bounce before the correction low is found.

Friday's down move was quite violent, but it also provided evidence that the market is getting short-term oversold. The following chart shows the Participation Index (PI), which measures short-term price trends and tracks the percentage of stocks pushing the upper or lower edge of a short-term price trend envelope. As you can see, on Friday the Down PI reached an oversold level similar to the down spike last summer. While this kind of selling climax indicates that a short-term bottom is near, it is most likely an initiation climax, meaning that any bounce will most likely be followed by more selling. (See last summer's correction.)



Other indicators show that the market is just coming off overbought levels, and that more corrective action is needed to work off the excesses of the last rally. The next chart shows price, breadth, and volume oscillators. Note that they are moving down, but at least a few weeks will be needed to get them to oversold levels.


Bottom Line: There may be a few more days of selling, but the market is short-term oversold, and we should expect a bounce in a few days. Since it is October, there is a lot of talk about a market crash. With the usual caveat that "anything can happen," my opinion is that conditions are not typical of what we have seen before major crashes. (See my 12/8/2006 article, Crash Talk is Premature.) That does not mean that selling won't continue for longer than I anticipate based upon the above chart. The 9-Month Cycle projection is for a price top in this time frame, with a cycle low projected for mid-December, so, as usual, I'd caution against trying to pick a bottom.



Posted at 04:04 PM in Carl Swenlin | Permalink


October 20, 2007TECHNOLOGY REIGN COMING TO AN END?By Chip Anderson
Richard Rhodes
Over the past 18-months, the technology sector has outperformed the S&P 500 by a rather handy amount; however, we believe this trend towards technology out-performance is very close to ending. This has major implications in terms of "rotation" to be undertaken by mutual and hedge funds as they are currently very very overweight technology; hence a period of "de-leveraging" themselves may create an opportunity to be short the sector as the "doorway narrows" as everyone attempts to get out at the very same time.

Technically speaking, we use the ratio between the S&P 500 "Spyders" and the NASDAQ 100 "Q's" (SPY:QQQQ). As the chart illustrates, a larger trading range has formed over the past 5-years, with prices now hard upon support at the 2.85 level - which also happens to be right at Fibonacci 38.2% retracement level. This important and critical support level in our opinion shall "hold" and provide for a rally back towards both the short-term 60-day moving average as well as longer-term 250-day moving average... if not higher. Quite simply, prices are oversold when one looks at the 28-day RSI level of 30.91, which is attempting to form a positive divergence with prices.

The most recent experience with an oversold RSI positive divergence occurred in early-2000 - which of course was "the top" of the technology bubble, and right before the onset of a recession. While we don't necessarily believe an exact "redux" is likely - the risk-reward dynamic does indicate that the risk is towards higher ratio prices rather than a continuation towards lower prices. Hence, we 'smell' an opportunity to be short a number of technology names in the days and weeks ahead.





Posted at 04:03 PM in Richard Rhodes | Permalink


October 20, 2007FALL SPECIAL ENDINGBy Chip Anderson
Site News

JOHN MURPHY VIDEO UPDATES NOW ONLINE! - In case you haven't seen it already, John Murphy is now posting video updates as part of the Market Message service. Now John's subscribers can watch him discuss the various twists and turn in the market and learn more about technical analysis from John's clear presentation style. "I hope we can use this new format to better educate our viewers about the tools I use to analyse the market" - John Murphy. If you subscribe to John Murphy's Market Message, just click on this link to see John's latest video.
LAST CHANCE TO TAKE ADVANTAGE OF OUR FALL SPECIAL! - Our Fall special runs from now until the end of October. After that, you will no longer be able to get an additional free month of service. Don't delay! Right now, you can get 7 months for the price of 6, or 14 months for the price of 12. This offer applies to BOTH new members and existing members. Even if your account doesn't expire for several more months, you can take advantage of this special offer by renewing now. Click here to get started.
2008 TRADERS ALMANAC NOW ON SALE - Last year we sold out of these fantastic books - a one-year calendar stuffed with important dates and valuable trading information that's sure to help anyone make better trading decisions. Don't be left out this year. We've increased our allotment to help with demand but chances are we'll still run short. At only $29.95, this book is a steal - Order your copy today!
ATTENTION PUBLIC CHART LIST AUTHORS! Next month we are changing the procedure for Public Chart List voting. There have been way too many people pushing the rules about voting for Public Chart Lists. Look for us to add a "Captcha" to the voting process. A "captcha" is one of those images of squiggly letters and numbers that you have to identify correctly to prove that you are a human. We hope this change will improve the quality of the votes that we get.







Posted at 04:02 PM in Site News | Permalink


October 20, 2007TWO DOW CYCLICALS TUMBLEBy Chip Anderson
John Murphy
The Dow Industrials were hit especially hard on Friday. A lot of that was due to big tumbles in two of its cyclical stocks – Caterpillar and 3M. Chart 3 shows Caterpillar falling 6% (on higher volume) to undercut its 50-day average. CAT appears headed for a retest of its 200-day line. Chart 4 shows 3M tumbling 7% on huge volume. Both relative strength lines are in downtrends. The fact that both stocks are considered be cyclical in nature (or economically-sensitive) suggests that the market is getting more worried about the U.S. economy. That view is supported by the fact that Dow stocks holding up the best were in the defensive consumer staple and healthcare categories.






Posted at 04:01 PM in John Murphy | Permalink


October 20, 2007OCTOBER LIVING UP TO ITS SCARY REPUTATIONBy Chip Anderson
Chip Anderson
One thousand words:

All the sectors are moving lower this month led by the Financials. Click on the chart to explore more.



Posted at 04:00 PM in Chip Anderson | Permalink


October 06, 2007A BREAKOUT FOR THE DOW TRANSPORTSBy Chip Anderson
Arthur Hill
Before looking at the chart for the Dow Transports, let's look at the Dow Theory situation. The Dow Industrials and Dow Transports both hit new highs in July and this marked a Dow Theory confirmation (bullish). Despite this bull market confirmation, both dropped sharply from mid July to mid August. In fact, both broke below their June lows and this development was bearish. The Dow Industrials quickly rectified this support break with a surge to new highs, but the Dow Transports could not get lift off and remained below its August-September highs. The Dow Transports has yet to confirm the new high in the Dow Industrials and this amounts to a Dow Theory non-confirmation.





Turning to the price chart for the Dow Transports, you can see that this key average broke above the August-September highs with a big surge on Friday. This breakout is significant because the Transports were showing relative weakness. The breakout is the first step to challenging the July high and confirming the Dow Industrials. At this point, the trend is up for the Dow Transports and I expect a move towards 5300-5500 as long as key support at 4800 holds.



Posted at 04:05 PM in Arthur Hill | Permalink


October 06, 2007A GOOD TIME FOR A PULLBACKBy Chip Anderson
Carl Swenlin
The market has had a good run since the August lows, but it is challenging all-time highs, and the technical support has been somewhat anemic. With many indicators reaching into overbought territory, and overhead resistance becoming an issue, it looks like a good time for a pullback or consolidation to digest recent gains.

As for technical weakness, the first thing that strikes me is the failure of volume to confirm recent price gains. Note on our first chart that most of the volume bars supporting the recent rally are well below the moving average line.



The next chart shows the failure of new 52-week highs to confirm new price highs, and we can observe an uncomfortable level of expanding new lows that accompanied minor pullbacks during the rally.



Finally, we have the Rel-to-52 chart, one of our more unusual indicators. The Relative to 52-Week Hi/Lo (Rel to 52) chart tracks each stock in a given market index and determines the location of its current price in relation to the 52-week high and 52-week low. We express this relationship using a scale of 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 chart shows the average "Rel-to-52" value for all the stocks in the S&P 500 Index. Not only is there a negative divergence between the indicator and the price index, but the indicator value is only 60. So while the Rel-to-52 value for the S&P 500 is 100 (it is making new 52-week price highs), the indicator value of 60 shows that the number of stocks participating in making the new price highs is unusually low, probably indicating that prices are being supported by larger-cap stocks.



Bottom Line: While the market is making new highs, technical support is fading and a corrective pullback should be expected within the next week or so.



Posted at 04:04 PM in Carl Swenlin | Permalink


October 06, 2007LISTENING TO THE COMMENTATORSBy Chip Anderson
Richard Rhodes
Last week, both the Dow Industrials and the S&P 500 broke out to new highs last week in show of modest strength; but what we find more interesting that this circumstance... is that the foreign markets aren't outperforming the US large caps. One only need understand that TV commentators; Wall Street strategists and the trading public is enamored with foreign market exposure , whether it be developed markets - or even emerging markets. A majority of incremental funds allocated to US mutual funds have gone towards international funds. This love affair with all things "international" is quite likely coming to a close.

We'll simply show the ratio of the S&P 500 large caps (SPY) versus the Morgan Stanley EAFE Index (EFA), which tracks only international stocks. While money has poured into this sector, we find that since April 2006 - the out-performance has been minimal - especially given all the "hoopla." Too, we find the ratio has formed a bullish wedge bottom, with prices trading right below their 60-week exponential moving average. If prices breakout above this level - then this event would serve as confirmation to us that a multi-year period of international underperformance is ahead.

When you hear TV commentators or Wall Street strategists opine that the US is decoupling from international stocks; don't think again - they're right - but they are wrong given the US is very likely to outperform international stocks. This clearly will catch everyone offsides; which typically happens at major trading inflection points. Attention is to be paid.





Posted at 04:03 PM in Richard Rhodes | Permalink


October 06, 2007HEAD IN THE (TICKER) CLOUDSBy Chip Anderson
Site News

Last week we launched our new Ticker Cloud feature. Have you seen it? It's a dynamic list of the most requested stocks we've seen over the past 15 minutes. Wanna see what everyone else is looking at? Get your head in the cloud!







Posted at 04:02 PM in Site News | Permalink


October 06, 2007WEEKLY MACD LINES TURN POSITIVEBy Chip Anderson
John Murphy
Last Friday, I wrote that the weekly MACD lines hadn't turned positive yet for the S&P 500, but were close to doing so. They turned positive this week. I wrote last Friday that "we need to see a positive crossing by the weekly (MACD) lines (or a histogram move over zero) to confirm that the current rally has enough strength to move to new highs". Both events took place this week. The chart below plots the weekly MACD histogram bars on top of the S&P 500. Intermediate buy and sell signals are given when the histogram bars move above and below the zero line. Since this is weekly indicator, its signal are given much later than signals on daily charts (which turned positive during August). But it's an important confirmation that the current rally has some staying power. It's taken seven weeks from the histogram bottom in mid-August to a bullish crossing. That's not unusual. It took eight weeks for that to happen in the summer of 2006. What is unusual this time is that the bullish crossover took place as the market was hitting a new high. Most often, the weekly MACD lines turn up well before a new high. The reason for this late crossing is the unusually deep correction this summer. The histogram bars fell to the lowest level in four years. That's why it took it so long to turn positive. It's a late signal, but an encouraging one.





Posted at 04:01 PM in John Murphy | Permalink


October 06, 2007FALL SPECIAL AND FREE SHIPPING!By Chip Anderson
Chip Anderson
I realize that the long-term ChartWatchers out there already know how important our specials are, but I wanted to take a moment to mention it to our newer members. One thing that has never changed at StockCharts.com is our pricing. We have had the exact same price for our subscriptions since we launched them way back at the start of 2002. How many other things in this world have not increased in price since 2002? I can't think of many things in that category. And, during the month of October, our prices have actually decreased.
Right now, if you order a 6 month subscription, you will get 7 months. If you order a 12 month subscription, you'll get 14 months. The offer runs from now until the end of October. After that, we go back to our standard pricing.
The offer applies to any kind of subscription we offer - Basic, Extra, ExtraRT, John Murphy's Market Message and our Combination subscriptions. The offer applies to new subscribers as well as existing subscribers. If you are already a StockCharts.com member and your subscription will expire within the next 12 months, you should consider renewing NOW instead of waiting - you'll lock in with our special pricing instead of risking renewal at a time when we are not offering this deal.
To renew or to join at our Fall Special rates, click here then click on the "Sign Up Now" button on the left side of the page.
"But wait, that's not all..." - Anonymous TV Salesman
So, we wanted to do something more "special-er" for this year's special. Giving our users free time is great, but what else could we do to help everyone? Our solution is to offer Free Shipping on All Book Store purchases! This is something we almost never offer, and usually we have to restrict this kind of offer to US addresses only. This year, because of the high cost of international shipping, we still have to limit the offer - but this year, for the first time ever, we are offering free shipping to both US and Canadian addresses.
The free shipping offer couldn't come at a better time. There are some really great new books in the store. Here's a link to all of the new books we have. And here's a link to one of my new favorites: Technical Analysis: The Complete Resource for Financial Market Technicians. This is a great book for people just getting into Technical Analysis. It covers many of the newer developments in the field such as the lessons learned from the demise of Enron and the failure of LTFM. It can even be used as a resource for earning your CMT! I highly recommend it.
Any way, sorry for the sales pitch, but these are some truly special deals - the best we'll be able to offer for quite some time. I wanted to be sure everyone was aware of them.

hefeiddd

By Chip AndersonTom Bowley
The panic selloff and subsequent recovery in August was nearly a mirror image of what we've seen in October. First, let's start with August. If you recall, we discussed how long-term market bottoms are marked by extreme bearish sentiment. The sentiment we saw in August doesn't get any more bearish. We had put call ratios routinely printing 1.30 to 1.40 and higher. The "equity only" put call ratio printed over 1.0 on 3 consecutive days, the first time that had happened since CBOE has been providing data to the public. For those of you unfamiliar with the put call ratio, it represents the number of put contracts divided by the number of call contracts. A number above 1.0 indicates that more puts are being bought than calls. Since 1995, the average or norm has been .75. The put call ratio serves as a contrarian indicator. The more bearish the put call ratio becomes (ie, the higher the number), the more bullish the implic ations for the stock market. It made perfect sense to us that a significant market bottom was put in place on August 16th after watching the put call ratio soar. The timing of the late afternoon reversal on August 16th and the ensuing gap up on August 17th couldn't have been better for market makers as options expired on August 17th. The reversal saved marker makers a bundle.

Now let's fast forward to October. As we approached options expiration Friday, the market had been straight up for weeks with tons of in-the-money calls. A further look at sentiment early last week revealed a 5 day moving average of the put call ratio that equaled its lowest level since April 2006. The pessimism from August had faded and sentiment was suggesting that the market was ripe for a selloff. Solid earnings reports came in from the likes of INTC, YHOO and GOOG, yet the market couldn't sustain attempted rallies. That was a big red flag and with so much money on the line for market makers due to options expiration, it should not have shocked anyone to see the indices sell off the way they did on Friday. This time a fortune was saved by market makers benefitting by a move in the opposite direction.

Where does this leave us now? Well, for starters, you must realize that next week is historically the worst performing week of the year, bar none. We are believers of historical tendencies and since 1950, the S&P 500 struggles more during the next 7 calendar days than it does during any other period throughout the year. In addition, the market had become way too complacent as we rose week after week after week. Below is a chart of the NASDAQ and key support levels to watch.


While we remain very bullish on the long-term prospects of the market, it could be financial suicide to ignore the short-term signals here. Take it easy, play it safe and look at any upcoming weakness as yet another opportunity to make money on the long side if panic selling kicks in.






Arthur Hill
The Consumer Discretionary SPDR (XLY) and Finance SPDR (XLF) broke down this week to signal a continuation of downtrends that began in July. In other words, the Aug-Oct rally was just a countertrend advance within a larger downtrend. XLF and XLF moved into bear mode when double tops were confirmed with support breaks in July. Both broke their March lows and forged lower lows. The advance over the last nine weeks retraced around 62% of the Jul-Aug decline and both ETFs met resistance near their 40-week moving averages (red arrows). This week's sharp decline ended this countertrend rally and started another leg down. In addition, a lower high formed and this is what downtrend are all about: lower lows and lower highs. The next support levels are around 30.5 for XLF and 34 for XLY. The Finance sector represents the banks, brokers and REITs. The Consumer Discretionary sector is the most economically sensitive. Needless to say, breakdowns in both bode ill for the market overall.







stated that it was a good time for a pullback. As it turns out the pullback started four trading days later, and it appears now that a full blown correction is in progress. It will probably take at least two or three weeks to complete the correction, and there will probably be something of a bounce before the correction low is found.

Friday's down move was quite violent, but it also provided evidence that the market is getting short-term oversold. The following chart shows the Participation Index (PI), which measures short-term price trends and tracks the percentage of stocks pushing the upper or lower edge of a short-term price trend envelope. As you can see, on Friday the Down PI reached an oversold level similar to the down spike last summer. While this kind of selling climax indicates that a short-term bottom is near, it is most likely an initiation climax, meaning that any bounce will most likely be followed by more selling. (See last summer's correction.)



Other indicators show that the market is just coming off overbought levels, and that more corrective action is needed to work off the excesses of the last rally. The next chart shows price, breadth, and volume oscillators. Note that they are moving down, but at least a few weeks will be needed to get them to oversold levels.


Bottom Line: There may be a few more days of selling, but the market is short-term oversold, and we should expect a bounce in a few days. Since it is October, there is a lot of talk about a market crash. With the usual caveat that "anything can happen," my opinion is that conditions are not typical of what we have seen before major


By Chip Anderson
Richard Rhodes
Over the past 18-months, the technology sector has outperformed the S&P 500 by a rather handy amount; however, we believe this trend towards technology out-performance is very close to ending. This has major implications in terms of "rotation" to be undertaken by mutual and hedge funds as they are currently very very overweight technology; hence a period of "de-leveraging" themselves may create an opportunity to be short the sector as the "doorway narrows" as everyone attempts to get out at the very same time.

Technically speaking, we use the ratio between the S&P 500 "Spyders" and the NASDAQ 100 "Q's" (SPY:QQQQ). As the chart illustrates, a larger trading range has formed over the past 5-years, with prices now hard upon support at the 2.85 level - which also happens to be right at Fibonacci 38.2% retracement level. This important and critical support level in our opinion shall "hold" and provide for a rally back towards both the short-term 60-day moving average as well as longer-term 250-day moving average... if not higher. Quite simply, prices are oversold when one looks at the 28-day RSI level of 30.91, which is attempting to form a positive divergence with prices.

The most recent experience with an oversold RSI positive divergence occurred in early-2000 - which of course was "the top" of the technology bubble, and right before the onset of a recession. While we don't necessarily believe an exact "redux" is likely - the risk-reward dynamic does indicate that the risk is towards higher ratio prices rather than a continuation towards lower prices. Hence, we 'smell' an opportunity to be short a number of technology names in the days and weeks ahead.








By Chip AndersonJohn Murphy
The Dow Industrials were hit especially hard on Friday. A lot of that was due to big tumbles in two of its cyclical stocks – Caterpillar and 3M. Chart 3 shows Caterpillar falling 6% (on higher volume) to undercut its 50-day average. CAT appears headed for a retest of its 200-day line. Chart 4 shows 3M tumbling 7% on huge volume. Both relative strength lines are in downtrends. The fact that both stocks are considered be cyclical in nature (or economically-sensitive) suggests that the market is getting more worried about the U.S. economy. That view is supported by the fact that Dow stocks holding up the best were in the defensive consumer staple and healthcare categories.






By Chip Anderson


Chip Anderson
One thousand words:

All the sectors are moving lower this month led by the Financials. Click on the chart to explore more.






Arthur Hill
Before looking at the chart for the Dow Transports, let's look at the Dow Theory situation. The Dow Industrials and Dow Transports both hit new highs in July and this marked a Dow Theory confirmation (bullish). Despite this bull market confirmation, both dropped sharply from mid July to mid August. In fact, both broke below their June lows and this development was bearish. The Dow Industrials quickly rectified this support break with a surge to new highs, but the Dow Transports could not get lift off and remained below its August-September highs. The Dow Transports has yet to confirm the new high in the Dow Industrials and this amounts to a Dow Theory non-confirmation.





Turning to the price chart for the Dow Transports, you can see that this key average broke above the August-September highs with a big surge on Friday. This breakout is significant because the Transports were showing relative weakness. The breakout is the first step to challenging the July high and confirming the Dow Industrials. At this point, the trend is up for the Dow Transports and I expect a move towards 5300-5500 as long as key support at 4800 holds.



By Chip Anderson


Carl Swenlin
The market has had a good run since the August lows, but it is challenging all-time highs, and the technical support has been somewhat anemic. With many indicators reaching into overbought territory, and overhead resistance becoming an issue, it looks like a good time for a pullback or consolidation to digest recent gains.

As for technical weakness, the first thing that strikes me is the failure of volume to confirm recent price gains. Note on our first chart that most of the volume bars supporting the recent rally are well below the moving average line.



The next chart shows the failure of new 52-week highs to confirm new price highs, and we can observe an uncomfortable level of expanding new lows that accompanied minor pullbacks during the rally.



Finally, we have the Rel-to-52 chart, one of our more unusual indicators. The Relative to 52-Week Hi/Lo (Rel to 52) chart tracks each stock in a given market index and determines the location of its current price in relation to the 52-week high and 52-week low. We express this relationship using a scale of 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 chart shows the average "Rel-to-52" value for all the stocks in the S&P 500 Index. Not only is there a negative divergence between the indicator and the price index, but the indicator value is only 60. So while the Rel-to-52 value for the S&P 500 is 100 (it is making new 52-week price highs), the indicator value of 60 shows that the number of stocks participating in making the new price highs is unusually low, probably indicating that prices are being supported by larger-cap stocks.



Bottom Line: While the market is making new highs, technical support is fading and a corrective pullback should be expected within the next week or so.



By Chip Anderson


Richard Rhodes
Last week, both the Dow Industrials and the S&P 500 broke out to new highs last week in show of modest strength; but what we find more interesting that this circumstance... is that the foreign markets aren't outperforming the US large caps. One only need understand that TV commentators; Wall Street strategists and the trading public is enamored with foreign market exposure , whether it be developed markets - or even emerging markets. A majority of incremental funds allocated to US mutual funds have gone towards international funds. This love affair with all things "international" is quite likely coming to a close.

We'll simply show the ratio of the S&P 500 large caps (SPY) versus the Morgan Stanley EAFE Index (EFA), which tracks only international stocks. While money has poured into this sector, we find that since April 2006 - the out-performance has been minimal - especially given all the "hoopla." Too, we find the ratio has formed a bullish wedge bottom, with prices trading right below their 60-week exponential moving average. If prices breakout above this level - then this event would serve as confirmation to us that a multi-year period of international underperformance is ahead.

When you hear TV commentators or Wall Street strategists opine that the US is decoupling from international stocks; don't think again - they're right - but they are wrong given the US is very likely to outperform international stocks. This clearly will catch everyone offsides; which typically happens at major trading inflection points. Attention is to be paid.








John Murphy
Last Friday, I wrote that the weekly MACD lines hadn't turned positive yet for the S&P 500, but were close to doing so. They turned positive this week. I wrote last Friday that "we need to see a positive crossing by the weekly (MACD) lines (or a histogram move over zero) to confirm that the current rally has enough strength to move to new highs". Both events took place this week. The chart below plots the weekly MACD histogram bars on top of the S&P 500. Intermediate buy and sell signals are given when the histogram bars move above and below the zero line. Since this is weekly indicator, its signal are given much later than signals on daily charts (which turned positive during August). But it's an important confirmation that the current rally has some staying power. It's taken seven weeks from the histogram bottom in mid-August to a bullish crossing. That's not unusual. It took eight weeks for that to happen in the summer of 2006. What is unusual this time is that the bullish crossover took place as the market was hitting a new high. Most often, the weekly MACD lines turn up well before a new high. The reason for this late crossing is the unusually deep correction this summer. The histogram bars fell to the lowest level in four years. That's why it took it so long to turn positive. It's a late signal, but an encouraging one.





By Chip Anderson


Chip Anderson
I realize that the long-term ChartWatchers out there already know how important our specials are, but I wanted to take a moment to mention it to our newer members. One thing that has never changed at StockCharts.com is our pricing. We have had the exact same price for our subscriptions since we launched them way back at the start of 2002. How many other things in this world have not increased in price since 2002? I can't think of many things in that category. And, during the month of October, our prices have actually decreased.

hefeiddd

November 17, 2007DON'T GIVE UP, BULLS!By Chip Anderson
Tom Bowley
There has been clear technical damage on the major indices as a result of concerted selling. The NASDAQ 100, which has led the market higher for most of 2007, has been treated rather rudely over these past few weeks and that's never good. The reason? During periods of economic expansion, the higher growth technology stocks tend to outperform because of their ability to grow earnings more rapidly. The stock market, for the first time in a long time, is sending a message that the economy is much worse off than was originally forecast. The good news is that inflation is dormant per the tame PPI and CPI numbers released last week. A sudden increase in inflation would put the Fed in a box, but since inflation remains contained, the Fed has ammunition to continue lowering rates. That should, in turn, lead to a strengthening economy in 2008.

The bond market is already pricing in the next interest rate cut and as you can see from the chart below on the 10 year treasury bond we appear to be heading to the 3.80-4.00% area. That should keep downward pressure on the dollar and produce continuing gains for the gold sector.





Posted at 05:06 PM in Tom Bowley | Permalink


November 17, 2007IWM FORMS BIG DOUBLE TOPBy Chip Anderson
Arthur Hill
The Russell 2000 ETF (IWM) shows the beginnings of long-term downtrend. In stark contrast to QQQQ, IWM forged a lower low in August and a lower high in October. The inability to move above the summer highs showed relative weakness on the way up. The ETF is already testing support from the 2007 lows and relative weakness continues. The pattern at work looks like a large double top with a ton of support around 74-76. A break below the 2007 lows would confirm the pattern and the downside target would be to the support zone around 64-66.







Posted at 05:05 PM in Arthur Hill | Permalink


November 17, 2007MARKET ENTERING OVERSOLD RANGEBy Chip Anderson
Carl Swenlin
Two weeks ago I stated that market strength was mixed, and that I thought that the correction had several more weeks to go before it was over. Since then further breakdowns of support have occurred, most notably on the Nasdaq 100 Index chart, which experienced a major break of its rising trend line, eliminating the one area of strength that supported a "mixed" assessment for the overall market.

Currently, a correction is in progress that is affecting all major indexes, and my opinion is that it is likely to continue into mid-December. One of the reasons I believe this is that, while the market is approaching oversold levels, it is not as oversold as it needs to be, and more technical work is needed before we can have confidence that a solid bottom has been made.

On the first chart below we can see that the three primary indicators of price, breadth, and volume are well below the zero line, but they have not yet hit the bottom of their normal ranges. Even after they hit bottom, a lot of work is needed to put in a solid bottom. I have put a box around previous bottoming actions. Note how several weeks and more than one indicator bottom is normally required to get the work done.



Also note how the August bottom differs from the others. It is what we call a "V" bottom, and there was no retest to make the bottom more solid. From a technical viewpoint, I believe that is why the rally ultimately failed.

Another reason for my assessment is that the 9-Month Cycle is projected to make a trough around mid-December. As you can see by the cycle chart below, cycle projections are somewhat subjective, and cycle lows don't always appear where we think they should, but current market action and technical factors as described above make me believe we have a good chance of being right about the current cycle projection.



Bottom Line: While the market is becoming oversold, I believe that it will take several weeks before the decline is over and a solid bottom is in place. This belief is supported by what we can observe as historical norms for corrections, and by our 9-Month Cycle projection. Any rally that emerges before the proper amount of work is done is likely to fail.



Posted at 05:04 PM in Carl Swenlin | Permalink


November 17, 2007TECHNICAL ANALYSIS GROUP DIRECTORYBy Chip Anderson
Site News

We at StockCharts.com want to make it easier for people to find information about the various technical analysis resources in their local area. If you run a non-profit T/A user's group and would like us to list it on our website, please send details about your group (name, purpose, meeting place, typical meeting times) to chipa@stockcharts.com. We'll create a page with information on all the groups we learn about soon.
S&P COMSTOCK DATA PROGRESS REPORT - The data circuits for our new S&P Comstock datafeed are starting to be installed! While we still don't know when the work will be finished, we wanted to let you know that things are still progressing.







Posted at 05:02 PM in Site News | Permalink


November 17, 2007BEWARE THE ETF "TRAP"By Chip Anderson
Chip Anderson
Hello Fellow ChartWatchers!
Last month I had the pleasure of sitting in on several local Technical Analaysis User Groups and seeing how they used many different tools to do group stock analysis. It was a very educational experience for me and I strongly recommend that everyone reading this newsletter join your local technical analysis user group. (If there isn't one in your area, why not start one?) Doing technical analysis with other people is probably the best way to improve your investing success - period.
But as I was sitting in the back of one of the classes, I watched them fall into one of the more insidious "traps" in technical analysis these days. See if you can spot it as I tell the tale:
The group was looking at an ETF for one of the more interesting market sectors these days. The person running the meeting pulled up a chart of the ETF on the screen for everyone to see (I was happy it was a StockCharts.com chart!). Someone in the group commented that the chart had a possible "double top" pattern and they were right - it certainly looked like a double-top. Someone else chimed in that the volume bars appeared to confirm that double-top hypothesis (I thought to myself "Yea! They are using volume to confirm chart patterns!") The group leader then suggested that they add some indicators to the chart to see what they showed - so they added a MACD and a Chaiken Money Flow plot to the chart. The MACD looked weak, but the CMF looked bullish. This caused the group to pause and check out a couple of other CMF plots with different parameters. Hmmmmm. Most of the CMF's were bullish. Eventually, the group decided to ignore the CMF data and move on.
Anyone spot the problem yet?
First off, the problem was NOT that the group ignored conflicting information from the CMF plot - it is very common that some indicators will be bullish while other ones are bearish. You need to think about which indicators you trust more and why. In this case, the group discussed it and decided that they trusted the MACD signals and the double-top chart pattern more than the CMF and that was a good decision.
The problem comes from the nature of ETFs. ETF stands for "Exchange Traded Funds" and they are all the rage right now. These are financial vehicles that are designed to track some index very closely and can be traded just like a stock. They are very useful to investors and the number of ETFs has increased dramatically in the past couple of years.
A typical example of an ETF is SPY which tracks the S&P 500 ($SPX). If the S&P 500 index goes up, SPY goes up. If $SPX goes down, SPY goes down. You can buy and sell SPY much easier than you can buy and sell the 500 stocks that make up $SPX and so SPY is a very useful tool in many investors' arsenals.
Have you spotted the trap yet?
Before I reveal the problem, let's look at two charts. Here is a chart of $SPX and one of SPY. See if you can spot the key difference:



Look at the On Balance Volume indicator line. Notice the difference in the direction of those lines? I've added a moving average line to each plot to help you see that the OBV for $SPX is going up while the OBV for SPY is going sideways/down.
Have you spotted the trap yet?
The price plots for $SPX and SPY look extremely similar - just as they should. When $SPX goes up, SPY goes up and vice-versa. But now look at the volume bars. They don't look identical do they? First off, the volume scales are very different - $SPX ranges from 2 Billion to 6 Billion while SPY's volume ranges from 200 Million to 600 Million. But the bigger problem is that the "shape" of the volume bars aren't exactly the same. They are similar - but there are subtle differences in the position and magnitudes of the taller volume bars. Those differences are what caused the OBV plots to be different. But why would the volume plots for $SPX and SPY be different? Could this be the trap? Will Chip ever get to the point!?
ETFs are different from stocks because of this fact: While the price of an ETF closely tracks the underlying index's value, the volume of an ETF only reflects the popularity of the ETF itself - NOT THE SUPPLY OR DEMAND FOR THE THING THE ETF TRACKS.
Consider the following hypothetical example: Let's say that for some reason an amazingly rich Jillionaire decides that they wants to invest in the market - so they buy 1 Billion shares of SPY in a single day. What would SPY's chart look like?
Despite all of this new demand for SPY, SPY's price chart would continue to mimic the value of the S&P 500 index. It would go up and down in the exact same way as before, just like $SPX does. Of course SPY's volume would have a HUGE spike in it, but that volume spike would have no impact on the price of SPY.
Now consider what would have happened if our hypothetical Jillionaire had invested in a real stock instead of an ETF. In addition to a huge spike on the volume chart, there would also be a huge jump in the price of the stock since the price of a stock is directly related to the demand for that stock's shares.
The key point here is that many kinds of technical analysis make an assumption that is not always true for ETFs. Any form of T/A that relies on studying both price and volume - including chart pattern analysis and price/volume indicators like the CMF - assumes that volume and price are directly related. Since there is no direct relationship between price and volume for an ETF, those analysis techniques should be used very carefully when looking at ETFs.
(Note: The volume for popular ETFs like SPY actually do a pretty good job of mimicking the demand for the underlying index, but that is due to indirect factors. As shown in the charts above, sensitive indicators can be thrown off by those differences. In the case of less popular ETFs, the differences are even greater.)
As I sat in the back of the class observing the give and take around their study of the ETF, I thought about speaking up. Unfortunately the class was almost over and I was late to my next appointment. Fortunately for you, I made a note to myself to write about it in the next newsletter.



Posted at 05:00 PM in Chip Anderson | Permalink


November 03, 2007NET NEW HIGHS ARE DRAGGINGBy Chip Anderson
Arthur Hill
Even though the Nasdaq and the NY Composite hit new closing highs earlier this week, Net New Highs did not keep pace and this could become a problem. Net New Highs equals new 52-week highs less new 52-week lows. I apply a 10-day moving average to smooth the data series and look for crosses above or below the zero line for a trend bias. The bias is bearish when the 10-day SMA for Net New Highs is in negative territory and the bias is bullish when the indicator is positive. On the charts below, the indicator is shown in area format and the underlying index is shown as a red line.



The 10-day SMA for Net New Highs on the Nasdaq moved into negative territory last week. This is quite surprising because the Nasdaq hit a closing high at 2859.12 on 31-October. Despite this new high, there were more new lows than new highs and this undermines the current advance. Something is not quite right. There should be more new highs than new lows when the Nasdaq is trading at or near at 52-week high.



The 10-day SMA for Net New Highs on the NYSE dipped into negative territory last week, but recovered and moved back into positive territory this week. The NY Composite recorded a new closing high at 10311.61 on 31-Oct, but the indicator remained well below its early October high and was barely positive. Net new highs are not keeping pace. There are still plenty of new lows and this reflects bearish undercurrents in the NYSE.



Posted at 04:05 PM in Arthur Hill | Permalink


November 03, 2007MIXED MARKETBy Chip Anderson
Carl Swenlin
Two weeks ago I stated that a correction had begun, and that the initial selling had resulted in an initiation climax – a technical condition that indicated that the initial down pressure was probably near exhaustion, but that signaled the beginning of a new down trend. My expectation was that there was going to be a bounce (reaction rally), but that more selling would follow after that rally was finished.

This week the rally ended and the selling resumed. It is still my opinion that the selling will probably continue into mid-December where my 9-Month Cycle projection calls for a price low for the correction. A reasonable price target for that low would be 1375 on the S&P 500 Index, but the market segments are very mixed in terms of strength, and there is not conclusive evidence that the market is just going to fall apart.

In spite of the dramatic price moves of the last several weeks, we can see on the chart below that the S&P 500 Index is only about 5% off its all-time high, and strictly speaking a declining trend has not officially been established – it needs to make a lower low.



While the S&P 500 Index is slipping, the Nasdaq 100 Index remains in a rising trend and fully in the bullish mode. We can see on the chart below that it has recently failed to rise to the top of its rising trend channel, indicating some weakness; however, while a correction is virtually assured, there is no reason to expect this segment of the market to enter a bear market.



There are, however, market sectors that are officially in a bear market – Consumer Discretionary and Financials to be specific – and weakness in these sectors is the reason the S&P 500 is struggling.. The chart below is of Financials, but the Consumer Discretionary chart is very similar. Note that a long-term sell signal was generated when the 50-EMA crossed down through the 200-EMA. This signaled the beginning of a bear market for this sector. Once the bear market background had been established, a medium-term sell signal was generated the next time the 20-EMA crossed down through the 50-EMA.



Bottom Line: Technically, the condition of the market is neither overbought or oversold. This leaves room for movement in either direction; however, I am inclined to think that the correction will continue for several more weeks. While there is strength the NDX and in certain sectors, there are a few sectors that are unusually weak. It is not clear which side of the mix is going to prevail.



Posted at 04:04 PM in Carl Swenlin | Permalink


November 03, 2007GOLD MARKET SOARING HIGHBy Chip Anderson
Richard Rhodes
The bull market in commodity has extended beyond what many had believed it would in such a short period of time; be it crude oil prices or gold prices or even wheat prices - the bull market has surprised in its violence. The question before all traders and investors alike is whether the "risk-reward" of holding on to or adding to such positions is tenable. We don't believe it is in any of the aforementioned cases, but we'll only discus the gold market today, for it clearly has a "larger-than-life" following given it bottomed in earnest in 2001.

Quite simply, the rising gold market, and especially given its sharply rise over the past 6-years - has tended to increase the sponsorship of the metal from the engrained "gold bug base" to that of more main stream traders and investors. This is the manner in which bull markets evolve - they increase bull sentiment to the point where the contrarian point-of-view should be considered. We'll posit that point is "now", and while gold prices may very well have residual short-term upside remaining - it pales in comparison to an intermediate-term decline that could carry prices sharply lower from its current perch around $800/oz to somewhere near $600-$650. This wouldn't destroy or harm the bull market in any way whatsoever; however, it would bring sentiment back to more neutral levels upon which the bull market mete out the late longs and therefore can resume its upward trajectory to much higher levels.

Technically speaking, we find the distance above the 20-month moving average is at overbought levels and into trendline resistance that suggests the attendant "risk" is quite high; while potential "reward" is quite low. We need not understand any more than this from a technical perspective. Those who trade aggressively can "pick their places" in which to become short - for the backstop risk of the recent highs serves to limit losses. However, those preferring to "buy" at this juncture - we would simply say "wait", for there is little in the way of support until much lower levels at $675. For our money, we believe in "reversion to the mean", and ultimately in the next several years we are likely to see the 50-month moving average tested as it always it. The burning question is what level that test materializes? We'll further note this moving average is rising on average at $80/oz per year.

Therefore, while we like gold over the longer-term - we're looking for a sharp correction that will shake many late longs to the core. And once this happens - the gold market will be poised to rise farther and further than anyone now believes possible.





Posted at 04:03 PM in Richard Rhodes | Permalink


November 03, 2007BEAR MARKET IN BANKSBy Chip Anderson
John Murphy
Earlier today I showed the Bank Index on the verge of hitting a new low for the year. By day's end, it had fallen to the lowest level in two years (Chart 1). This puts the BKX on track to challenge its 2005 low. In case you're wondering what that means, the BKX has fallen more than 20% from its early 2007 peak. That qualifies as an official bear market in bank stocks. That 5% daily drop helped make financials the day's weakest group. Consumer discretionary stocks came in second worst. Other large losers were small caps and transports. Those are the same market groups that have been lagging behind the rest of the market since mid-year. Although all sectors lost ground, groups that held up a bit better than the rest of market were healthcare, energy, industrials, utilities, and consumer staples. Bonds also had a strong day.





Posted at 04:01 PM in John Murphy | Permalink


November 03, 2007JUST CHECKING INBy Chip Anderson
Chip Anderson
Hello Fellow ChartWatchers!
I'm pretty busy this weekend and just have time to mention the following things:

• We've just released John Murphy's entire 2006 collection of articles in CD-ROM format. The CD includes a new video intro from John as well as a private search engine that makes searching all of these articles a breeze! Be sure to check it out.
  

• Don't forget to grab a copy of the 2008 Stock Trader's Almanac now so you can plan the start of 2008. John and I both love this thing and recommend it highly.
  

• When the Fed lowered interest rates last week, we set a record for outgoing bandwidth - over 100 megabits! Things held up well though (knock on wood).
  

• We're halting John's Video Updates until we can find a better solution for the "fuzziness" problems that YouTube creates. Look for JohnTV () to return in a couple of weeks. Until then, John will continue to do Audio updates just like before.
  

• We are continuing to upgrade our data infrastructure. The paperwork is all signed and now we are waiting for the teleco companies to install our new private data circuits. Hopefully they'll have that done before the end of the year (sigh).
  

And now, here's John!

hefeiddd

November 17, 2007DON'T GIVE UP, BULLS!By Chip Anderson
Tom Bowley
There has been clear technical damage on the major indices as a result of concerted selling. The NASDAQ 100, which has led the market higher for most of 2007, has been treated rather rudely over these past few weeks and that's never good. The reason? During periods of economic expansion, the higher growth technology stocks tend to outperform because of their ability to grow earnings more rapidly. The stock market, for the first time in a long time, is sending a message that the economy is much worse off than was originally forecast. The good news is that inflation is dormant per the tame PPI and CPI numbers released last week. A sudden increase in inflation would put the Fed in a box, but since inflation remains contained, the Fed has ammunition to continue lowering rates. That should, in turn, lead to a strengthening economy in 2008.

The bond market is already pricing in the next interest rate cut and as you can see from the chart below on the 10 year treasury bond we appear to be heading to the 3.80-4.00% area. That should keep downward pressure on the dollar and produce continuing gains for the gold sector.





Posted at 05:06 PM in Tom Bowley | Permalink


November 17, 2007IWM FORMS BIG DOUBLE TOPBy Chip Anderson
Arthur Hill
The Russell 2000 ETF (IWM) shows the beginnings of long-term downtrend. In stark contrast to QQQQ, IWM forged a lower low in August and a lower high in October. The inability to move above the summer highs showed relative weakness on the way up. The ETF is already testing support from the 2007 lows and relative weakness continues. The pattern at work looks like a large double top with a ton of support around 74-76. A break below the 2007 lows would confirm the pattern and the downside target would be to the support zone around 64-66.







Posted at 05:05 PM in Arthur Hill | Permalink


November 17, 2007MARKET ENTERING OVERSOLD RANGEBy Chip Anderson
Carl Swenlin
Two weeks ago I stated that market strength was mixed, and that I thought that the correction had several more weeks to go before it was over. Since then further breakdowns of support have occurred, most notably on the Nasdaq 100 Index chart, which experienced a major break of its rising trend line, eliminating the one area of strength that supported a "mixed" assessment for the overall market.

Currently, a correction is in progress that is affecting all major indexes, and my opinion is that it is likely to continue into mid-December. One of the reasons I believe this is that, while the market is approaching oversold levels, it is not as oversold as it needs to be, and more technical work is needed before we can have confidence that a solid bottom has been made.

On the first chart below we can see that the three primary indicators of price, breadth, and volume are well below the zero line, but they have not yet hit the bottom of their normal ranges. Even after they hit bottom, a lot of work is needed to put in a solid bottom. I have put a box around previous bottoming actions. Note how several weeks and more than one indicator bottom is normally required to get the work done.



Also note how the August bottom differs from the others. It is what we call a "V" bottom, and there was no retest to make the bottom more solid. From a technical viewpoint, I believe that is why the rally ultimately failed.

Another reason for my assessment is that the 9-Month Cycle is projected to make a trough around mid-December. As you can see by the cycle chart below, cycle projections are somewhat subjective, and cycle lows don't always appear where we think they should, but current market action and technical factors as described above make me believe we have a good chance of being right about the current cycle projection.



Bottom Line: While the market is becoming oversold, I believe that it will take several weeks before the decline is over and a solid bottom is in place. This belief is supported by what we can observe as historical norms for corrections, and by our 9-Month Cycle projection. Any rally that emerges before the proper amount of work is done is likely to fail.



Posted at 05:04 PM in Carl Swenlin | Permalink


November 17, 2007TECHNICAL ANALYSIS GROUP DIRECTORYBy Chip Anderson
Site News

We at StockCharts.com want to make it easier for people to find information about the various technical analysis resources in their local area. If you run a non-profit T/A user's group and would like us to list it on our website, please send details about your group (name, purpose, meeting place, typical meeting times) to chipa@stockcharts.com. We'll create a page with information on all the groups we learn about soon.
S&P COMSTOCK DATA PROGRESS REPORT - The data circuits for our new S&P Comstock datafeed are starting to be installed! While we still don't know when the work will be finished, we wanted to let you know that things are still progressing.







Posted at 05:02 PM in Site News | Permalink


November 17, 2007BEWARE THE ETF "TRAP"By Chip Anderson
Chip Anderson
Hello Fellow ChartWatchers!
Last month I had the pleasure of sitting in on several local Technical Analaysis User Groups and seeing how they used many different tools to do group stock analysis. It was a very educational experience for me and I strongly recommend that everyone reading this newsletter join your local technical analysis user group. (If there isn't one in your area, why not start one?) Doing technical analysis with other people is probably the best way to improve your investing success - period.
But as I was sitting in the back of one of the classes, I watched them fall into one of the more insidious "traps" in technical analysis these days. See if you can spot it as I tell the tale:
The group was looking at an ETF for one of the more interesting market sectors these days. The person running the meeting pulled up a chart of the ETF on the screen for everyone to see (I was happy it was a StockCharts.com chart!). Someone in the group commented that the chart had a possible "double top" pattern and they were right - it certainly looked like a double-top. Someone else chimed in that the volume bars appeared to confirm that double-top hypothesis (I thought to myself "Yea! They are using volume to confirm chart patterns!") The group leader then suggested that they add some indicators to the chart to see what they showed - so they added a MACD and a Chaiken Money Flow plot to the chart. The MACD looked weak, but the CMF looked bullish. This caused the group to pause and check out a couple of other CMF plots with different parameters. Hmmmmm. Most of the CMF's were bullish. Eventually, the group decided to ignore the CMF data and move on.
Anyone spot the problem yet?
First off, the problem was NOT that the group ignored conflicting information from the CMF plot - it is very common that some indicators will be bullish while other ones are bearish. You need to think about which indicators you trust more and why. In this case, the group discussed it and decided that they trusted the MACD signals and the double-top chart pattern more than the CMF and that was a good decision.
The problem comes from the nature of ETFs. ETF stands for "Exchange Traded Funds" and they are all the rage right now. These are financial vehicles that are designed to track some index very closely and can be traded just like a stock. They are very useful to investors and the number of ETFs has increased dramatically in the past couple of years.
A typical example of an ETF is SPY which tracks the S&P 500 ($SPX). If the S&P 500 index goes up, SPY goes up. If $SPX goes down, SPY goes down. You can buy and sell SPY much easier than you can buy and sell the 500 stocks that make up $SPX and so SPY is a very useful tool in many investors' arsenals.
Have you spotted the trap yet?
Before I reveal the problem, let's look at two charts. Here is a chart of $SPX and one of SPY. See if you can spot the key difference:



Look at the On Balance Volume indicator line. Notice the difference in the direction of those lines? I've added a moving average line to each plot to help you see that the OBV for $SPX is going up while the OBV for SPY is going sideways/down.
Have you spotted the trap yet?
The price plots for $SPX and SPY look extremely similar - just as they should. When $SPX goes up, SPY goes up and vice-versa. But now look at the volume bars. They don't look identical do they? First off, the volume scales are very different - $SPX ranges from 2 Billion to 6 Billion while SPY's volume ranges from 200 Million to 600 Million. But the bigger problem is that the "shape" of the volume bars aren't exactly the same. They are similar - but there are subtle differences in the position and magnitudes of the taller volume bars. Those differences are what caused the OBV plots to be different. But why would the volume plots for $SPX and SPY be different? Could this be the trap? Will Chip ever get to the point!?
ETFs are different from stocks because of this fact: While the price of an ETF closely tracks the underlying index's value, the volume of an ETF only reflects the popularity of the ETF itself - NOT THE SUPPLY OR DEMAND FOR THE THING THE ETF TRACKS.
Consider the following hypothetical example: Let's say that for some reason an amazingly rich Jillionaire decides that they wants to invest in the market - so they buy 1 Billion shares of SPY in a single day. What would SPY's chart look like?
Despite all of this new demand for SPY, SPY's price chart would continue to mimic the value of the S&P 500 index. It would go up and down in the exact same way as before, just like $SPX does. Of course SPY's volume would have a HUGE spike in it, but that volume spike would have no impact on the price of SPY.
Now consider what would have happened if our hypothetical Jillionaire had invested in a real stock instead of an ETF. In addition to a huge spike on the volume chart, there would also be a huge jump in the price of the stock since the price of a stock is directly related to the demand for that stock's shares.
The key point here is that many kinds of technical analysis make an assumption that is not always true for ETFs. Any form of T/A that relies on studying both price and volume - including chart pattern analysis and price/volume indicators like the CMF - assumes that volume and price are directly related. Since there is no direct relationship between price and volume for an ETF, those analysis techniques should be used very carefully when looking at ETFs.
(Note: The volume for popular ETFs like SPY actually do a pretty good job of mimicking the demand for the underlying index, but that is due to indirect factors. As shown in the charts above, sensitive indicators can be thrown off by those differences. In the case of less popular ETFs, the differences are even greater.)
As I sat in the back of the class observing the give and take around their study of the ETF, I thought about speaking up. Unfortunately the class was almost over and I was late to my next appointment. Fortunately for you, I made a note to myself to write about it in the next newsletter.



Posted at 05:00 PM in Chip Anderson | Permalink


November 03, 2007NET NEW HIGHS ARE DRAGGINGBy Chip Anderson
Arthur Hill
Even though the Nasdaq and the NY Composite hit new closing highs earlier this week, Net New Highs did not keep pace and this could become a problem. Net New Highs equals new 52-week highs less new 52-week lows. I apply a 10-day moving average to smooth the data series and look for crosses above or below the zero line for a trend bias. The bias is bearish when the 10-day SMA for Net New Highs is in negative territory and the bias is bullish when the indicator is positive. On the charts below, the indicator is shown in area format and the underlying index is shown as a red line.



The 10-day SMA for Net New Highs on the Nasdaq moved into negative territory last week. This is quite surprising because the Nasdaq hit a closing high at 2859.12 on 31-October. Despite this new high, there were more new lows than new highs and this undermines the current advance. Something is not quite right. There should be more new highs than new lows when the Nasdaq is trading at or near at 52-week high.



The 10-day SMA for Net New Highs on the NYSE dipped into negative territory last week, but recovered and moved back into positive territory this week. The NY Composite recorded a new closing high at 10311.61 on 31-Oct, but the indicator remained well below its early October high and was barely positive. Net new highs are not keeping pace. There are still plenty of new lows and this reflects bearish undercurrents in the NYSE.



Posted at 04:05 PM in Arthur Hill | Permalink


November 03, 2007MIXED MARKETBy Chip Anderson
Carl Swenlin
Two weeks ago I stated that a correction had begun, and that the initial selling had resulted in an initiation climax – a technical condition that indicated that the initial down pressure was probably near exhaustion, but that signaled the beginning of a new down trend. My expectation was that there was going to be a bounce (reaction rally), but that more selling would follow after that rally was finished.

This week the rally ended and the selling resumed. It is still my opinion that the selling will probably continue into mid-December where my 9-Month Cycle projection calls for a price low for the correction. A reasonable price target for that low would be 1375 on the S&P 500 Index, but the market segments are very mixed in terms of strength, and there is not conclusive evidence that the market is just going to fall apart.

In spite of the dramatic price moves of the last several weeks, we can see on the chart below that the S&P 500 Index is only about 5% off its all-time high, and strictly speaking a declining trend has not officially been established – it needs to make a lower low.



While the S&P 500 Index is slipping, the Nasdaq 100 Index remains in a rising trend and fully in the bullish mode. We can see on the chart below that it has recently failed to rise to the top of its rising trend channel, indicating some weakness; however, while a correction is virtually assured, there is no reason to expect this segment of the market to enter a bear market.



There are, however, market sectors that are officially in a bear market – Consumer Discretionary and Financials to be specific – and weakness in these sectors is the reason the S&P 500 is struggling.. The chart below is of Financials, but the Consumer Discretionary chart is very similar. Note that a long-term sell signal was generated when the 50-EMA crossed down through the 200-EMA. This signaled the beginning of a bear market for this sector. Once the bear market background had been established, a medium-term sell signal was generated the next time the 20-EMA crossed down through the 50-EMA.



Bottom Line: Technically, the condition of the market is neither overbought or oversold. This leaves room for movement in either direction; however, I am inclined to think that the correction will continue for several more weeks. While there is strength the NDX and in certain sectors, there are a few sectors that are unusually weak. It is not clear which side of the mix is going to prevail.



Posted at 04:04 PM in Carl Swenlin | Permalink


November 03, 2007GOLD MARKET SOARING HIGHBy Chip Anderson
Richard Rhodes
The bull market in commodity has extended beyond what many had believed it would in such a short period of time; be it crude oil prices or gold prices or even wheat prices - the bull market has surprised in its violence. The question before all traders and investors alike is whether the "risk-reward" of holding on to or adding to such positions is tenable. We don't believe it is in any of the aforementioned cases, but we'll only discus the gold market today, for it clearly has a "larger-than-life" following given it bottomed in earnest in 2001.

Quite simply, the rising gold market, and especially given its sharply rise over the past 6-years - has tended to increase the sponsorship of the metal from the engrained "gold bug base" to that of more main stream traders and investors. This is the manner in which bull markets evolve - they increase bull sentiment to the point where the contrarian point-of-view should be considered. We'll posit that point is "now", and while gold prices may very well have residual short-term upside remaining - it pales in comparison to an intermediate-term decline that could carry prices sharply lower from its current perch around $800/oz to somewhere near $600-$650. This wouldn't destroy or harm the bull market in any way whatsoever; however, it would bring sentiment back to more neutral levels upon which the bull market mete out the late longs and therefore can resume its upward trajectory to much higher levels.

Technically speaking, we find the distance above the 20-month moving average is at overbought levels and into trendline resistance that suggests the attendant "risk" is quite high; while potential "reward" is quite low. We need not understand any more than this from a technical perspective. Those who trade aggressively can "pick their places" in which to become short - for the backstop risk of the recent highs serves to limit losses. However, those preferring to "buy" at this juncture - we would simply say "wait", for there is little in the way of support until much lower levels at $675. For our money, we believe in "reversion to the mean", and ultimately in the next several years we are likely to see the 50-month moving average tested as it always it. The burning question is what level that test materializes? We'll further note this moving average is rising on average at $80/oz per year.

Therefore, while we like gold over the longer-term - we're looking for a sharp correction that will shake many late longs to the core. And once this happens - the gold market will be poised to rise farther and further than anyone now believes possible.





Posted at 04:03 PM in Richard Rhodes | Permalink


November 03, 2007BEAR MARKET IN BANKSBy Chip Anderson
John Murphy
Earlier today I showed the Bank Index on the verge of hitting a new low for the year. By day's end, it had fallen to the lowest level in two years (Chart 1). This puts the BKX on track to challenge its 2005 low. In case you're wondering what that means, the BKX has fallen more than 20% from its early 2007 peak. That qualifies as an official bear market in bank stocks. That 5% daily drop helped make financials the day's weakest group. Consumer discretionary stocks came in second worst. Other large losers were small caps and transports. Those are the same market groups that have been lagging behind the rest of the market since mid-year. Although all sectors lost ground, groups that held up a bit better than the rest of market were healthcare, energy, industrials, utilities, and consumer staples. Bonds also had a strong day.





Posted at 04:01 PM in John Murphy | Permalink


November 03, 2007JUST CHECKING INBy Chip Anderson
Chip Anderson
Hello Fellow ChartWatchers!
I'm pretty busy this weekend and just have time to mention the following things:

• We've just released John Murphy's entire 2006 collection of articles in CD-ROM format. The CD includes a new video intro from John as well as a private search engine that makes searching all of these articles a breeze! Be sure to check it out.
  

• Don't forget to grab a copy of the 2008 Stock Trader's Almanac now so you can plan the start of 2008. John and I both love this thing and recommend it highly.
  

• When the Fed lowered interest rates last week, we set a record for outgoing bandwidth - over 100 megabits! Things held up well though (knock on wood).
  

• We're halting John's Video Updates until we can find a better solution for the "fuzziness" problems that YouTube creates. Look for in a couple of weeks. Until then, John will continue to do Audio updates just like before.
  

• We are continuing to upgrade our data infrastructure. The paperwork is all signed and now we are waiting for the teleco companies to install our new private data circuits. Hopefully they'll have that done before the end of the year (sigh).
  

And now, here's John!

hefeiddd

By Chip AndersonTom Bowley
There has been clear technical damage on the major indices as a result of concerted selling. The NASDAQ 100, which has led the market higher for most of 2007, has been treated rather rudely over these past few weeks and that's never good. The reason? During periods of economic expansion, the higher growth technology stocks tend to outperform because of their ability to grow earnings more rapidly. The stock market, for the first time in a long time, is sending a message that the economy is much worse off than was originally forecast. The good news is that inflation is dormant per the tame PPI and CPI numbers released last week. A sudden increase in inflation would put the Fed in a box, but since inflation remains contained, the Fed has ammunition to continue lowering rates. That should, in turn, lead to a strengthening economy in 2008.

The bond market is already pricing in the next interest rate cut and as you can see from the chart below on the 10 year treasury bond we appear to be heading to the 3.80-4.00% area. That should keep downward pressure on the dollar and produce continuing gains for the gold sector.








The Russell 2000 ETF (IWM) shows the beginnings of long-term downtrend. In stark contrast to QQQQ, IWM forged a lower low in August and a lower high in October. The inability to move above the summer highs showed relative weakness on the way up. The ETF is already testing support from the 2007 lows and relative weakness continues. The pattern at work looks like a large double top with a ton of support around 74-76. A break below the 2007 lows would confirm the pattern and the downside target would be to the support zone around 64-66.










Carl Swenlin
Two weeks ago I stated that market strength was mixed, and that I thought that the correction had several more weeks to go before it was over. Since then further breakdowns of support have occurred, most notably on the Nasdaq 100 Index chart, which experienced a major break of its rising trend line, eliminating the one area of strength that supported a "mixed" assessment for the overall market.

Currently, a correction is in progress that is affecting all major indexes, and my opinion is that it is likely to continue into mid-December. One of the reasons I believe this is that, while the market is approaching oversold levels, it is not as oversold as it needs to be, and more technical work is needed before we can have confidence that a solid bottom has been made.

On the first chart below we can see that the three primary indicators of price, breadth, and volume are well below the zero line, but they have not yet hit the bottom of their normal ranges. Even after they hit bottom, a lot of work is needed to put in a solid bottom. I have put a box around previous bottoming actions. Note how several weeks and more than one indicator bottom is normally required to get the work done.



Also note how the August bottom differs from the others. It is what we call a "V" bottom, and there was no retest to make the bottom more solid. From a technical viewpoint, I believe that is why the rally ultimately failed.

Another reason for my assessment is that the 9-Month Cycle is projected to make a trough around mid-December. As you can see by the cycle chart below, cycle projections are somewhat subjective, and cycle lows don't always appear where we think they should, but current market action and technical factors as described above make me believe we have a good chance of being right about the current cycle projection.



Bottom Line: While the market is becoming oversold, I believe that it will take several weeks before the decline is over and a solid bottom is in place. This belief is supported by what we can observe as historical norms for corrections, and by our 9-Month Cycle projection. Any rally that emerges before the proper amount of work is done is



By Chip Anderson
Chip Anderson

Have you spotted the trap yet?
Before I reveal the problem, let's look at two charts. Here is a chart of $SPX and one of SPY. See if you can spot the key difference:



Look at the On Balance Volume indicator line. Notice the difference in the direction of those lines? I've added a moving average line to each plot to help you see that the OBV for $SPX is going up while the OBV for SPY is going sideways/down.
Have you spotted the trap yet?
Despite all of this new demand for SPY, SPY's price chart would continue to mimic the value of the S&P 500 index. It would go up and down in the exact same way as before, just like $SPX does. Of course SPY's volume would have a HUGE spike in it, but that volume spike would have no impact on the price of SPY.
Now consider what would have happened if our hypothetical Jillionaire had invested in a real stock instead of an ETF. In addition to a huge spike on the volume chart, there would also be a huge jump in the price of the stock since the price of a stock is directly related to the demand for that stock's shares.
The key point here is that many kinds of technical analysis make an assumption that is not always true for ETFs. Any form of T/A that relies on studying both price and volume - including chart pattern analysis and price/volume indicators like the CMF - assumes that volume and price are directly related. Since there is no direct relationship between price and volume for an ETF, those analysis techniques should be used very carefully when looking at ETFs.
(Note: The volume for popular ETFs like SPY actually do a pretty good job of mimicking the demand for the underlying index, but that is due to indirect factors. As shown in the charts above, sensitive indicators can be thrown off by those differences. In the case of less popular ETFs, the differences are even greater.)
As I sat in the back of the class observing the give and take around their study of the ETF, I thought about speaking up. Unfortunately the class was almost over and I



By Chip Anderson
Arthur Hill
Even though the Nasdaq and the NY Composite hit new closing highs earlier this week, Net New Highs did not keep pace and this could become a problem. Net New Highs equals new 52-week highs less new 52-week lows. I apply a 10-day moving average to smooth the data series and look for crosses above or below the zero line for a trend bias. The bias is bearish when the 10-day SMA for Net New Highs is in negative territory and the bias is bullish when the indicator is positive. On the charts below, the indicator is shown in area format and the underlying index is shown as a red line.



The 10-day SMA for Net New Highs on the Nasdaq moved into negative territory last week. This is quite surprising because the Nasdaq hit a closing high at 2859.12 on 31-October. Despite this new high, there were more new lows than new highs and this undermines the current advance. Something is not quite right. There should be more new highs than new lows when the Nasdaq is trading at or near at 52-week high.



The 10-day SMA for Net New Highs on the NYSE dipped into negative territory last week, but recovered and moved back into positive territory this week. The NY Composite recorded a new closing high at 10311.61 on 31-Oct, but the indicator remained well below its early October high and was barely positive. Net new highs are not keeping pace. There are still plenty of new lows and this reflects bearish undercurrents in the NYSE.






Carl Swenlin
Two weeks ago I stated that a correction had begun, and that the initial selling had resulted in an initiation climax – a technical condition that indicated that the initial down pressure was probably near exhaustion, but that signaled the beginning of a new down trend. My expectation was that there was going to be a bounce (reaction rally), but that more selling would follow after that rally was finished.

This week the rally ended and the selling resumed. It is still my opinion that the selling will probably continue into mid-December where my 9-Month Cycle projection calls for a price low for the correction. A reasonable price target for that low would be 1375 on the S&P 500 Index, but the market segments are very mixed in terms of strength, and there is not conclusive evidence that the market is just going to fall apart.

In spite of the dramatic price moves of the last several weeks, we can see on the chart below that the S&P 500 Index is only about 5% off its all-time high, and strictly speaking a declining trend has not officially been established – it needs to make a lower low.



While the S&P 500 Index is slipping, the Nasdaq 100 Index remains in a rising trend and fully in the bullish mode. We can see on the chart below that it has recently failed to rise to the top of its rising trend channel, indicating some weakness; however, while a correction is virtually assured, there is no reason to expect this segment of the market to enter a bear market.



There are, however, market sectors that are officially in a bear market – Consumer Discretionary and Financials to be specific – and weakness in these sectors is the reason the S&P 500 is struggling.. The chart below is of Financials, but the Consumer Discretionary chart is very similar. Note that a long-term sell signal was generated when the 50-EMA crossed down through the 200-EMA. This signaled the beginning of a bear market for this sector. Once the bear market background had been established, a medium-term sell signal was generated the next time the 20-EMA crossed down through the 50-EMA.



Bottom Line: Technically, the condition of the market is neither overbought or oversold. This leaves room for movement in either direction; however, I am inclined to think that the correction will continue for several more weeks. While there is strength the NDX and in certain sectors, there are a few sectors that are unusually weak. It is not clear which side of the mix is going to prevail.






Richard Rhodes
The bull market in commodity has extended beyond what many had believed it would in such a short period of time; be it crude oil prices or gold prices or even wheat prices - the bull market has surprised in its violence. The question before all traders and investors alike is whether the "risk-reward" of holding on to or adding to such positions is tenable. We don't believe it is in any of the aforementioned cases, but we'll only discus the gold market today, for it clearly has a "larger-than-life" following given it bottomed in earnest in 2001.

Quite simply, the rising gold market, and especially given its sharply rise over the past 6-years - has tended to increase the sponsorship of the metal from the engrained "gold bug base" to that of more main stream traders and investors. This is the manner in which bull markets evolve - they increase bull sentiment to the point where the contrarian point-of-view should be considered. We'll posit that point is "now", and while gold prices may very well have residual short-term upside remaining - it pales in comparison to an intermediate-term decline that could carry prices sharply lower from its current perch around $800/oz to somewhere near $600-$650. This wouldn't destroy or harm the bull market in any way whatsoever; however, it would bring sentiment back to more neutral levels upon which the bull market mete out the late longs and therefore can resume its upward trajectory to much higher levels.

Technically speaking, we find the distance above the 20-month moving average is at overbought levels and into trendline resistance that suggests the attendant "risk" is quite high; while potential "reward" is quite low. We need not understand any more than this from a technical perspective. Those who trade aggressively can "pick their places" in which to become short - for the backstop risk of the recent highs serves to limit losses. However, those preferring to "buy" at this juncture - we would simply say "wait", for there is little in the way of support until much lower levels at $675. For our money, we believe in "reversion to the mean", and ultimately in the next several years we are likely to see the 50-month moving average tested as it always it. The burning question is what level that test materializes? We'll further note this moving average is rising on average at $80/oz per year.

Therefore, while we like gold over the longer-term - we're looking for a sharp correction that will shake many late longs to the core. And once this happens - the gold market will be poised to rise farther and further than anyone now believes possible.








John Murphy
Earlier today I showed the Bank Index on the verge of hitting a new low for the year. By day's end, it had fallen to the lowest level in two years (Chart 1). This puts the BKX on track to challenge its 2005 low. In case you're wondering what that means, the BKX has fallen more than 20% from its early 2007 peak. That qualifies as an official bear market in bank stocks. That 5% daily drop helped make financials the day's weakest group. Consumer discretionary stocks came in second worst. Other large losers

hefeiddd

December 15, 2007INFLATION'S BACK!By Chip Anderson
Tom Bowley
Three consecutive economic reports have shown that inflation, after lying dormant for several years, has been rekindled. The Fed, surely armed with the economic data we've seen, decided to lower the fed funds and discount rates by another quarter point each. Slowing growth and a pick up in inflation is not what equity indices want or need. Is higher inflation here to stay or is it just temporary? Based on the Fed's action last week, the Fed likely believes this blip is temporary. They've said as much in previous meetings, acknowledging that commodity prices could continue to put upward pressure on inflation. However, they've also noted that they believe a slowing economy would curb demand for oil and other commodities.

We're in the camp that expects inflation to moderate despite the recent upward pressure. Yields on the ten year treasury bond, while increasing lately, are acting in a normal technical fashion. We discussed a few weeks ago the likelihood that the yield would drop to the 3.80-4.00% support area. That's exactly what happened. The recent jump back up on the yield is a routine retest of the breakdown - very normal technical action. Take a look at the chart on the ten year treasury bond yield below.





Posted at 05:06 PM in Tom Bowley | Permalink


December 15, 2007A HEAD-AND-SHOULDERS FOR DIABy Chip Anderson
Arthur Hill
Is that a head-and-shoulders pattern taking shape in the Dow Industrials ETF (DIA)? While it has yet to be confirmed, traders and investors should keep a close eye on this chart in the coming weeks.

The potential head-and-shoulders pattern extends from June to December. The left shoulder formed in July, the head in October and the right shoulder is currently under construction. Notice that DIA opened strong on Monday and finished the week near its lows. In fact, DIA formed a bearish engulfing this week by opening above the prior week's close and closing below the prior week's open. This week's reversal opens the door to a reaction high around 137.5. A peak here and decline back to the support zone would complete the right shoulder. Neckline support rests around 127-129. A break below 127 would confirm this big reversal pattern and project further weakness towards 113.





Posted at 05:05 PM in Arthur Hill | Permalink


December 15, 2007RETEST IN PROGRESSBy Chip Anderson
Carl Swenlin
Two weeks ago I stated that the rally off the November lows signaled that a bottoming process had begun, and that, after the short-term rally topped, we should expect a retest of the November lows. Last week the rally was still in progress, and I told Ike Iossif during our interview that I still expected a retest, but that I also feared that the rally would extend j-u-u-u-s-t far enough to trigger a Thrust/Trend Model buy signal before prices reversed downward. As you can see on the chart below, sure enough, the rally topped on Monday (generating a T/TM buy signal), and prices reversed on Tuesday, initiating what ought to be a retest.

I say "ought" to be a retest because so far, in spite of a lot of volatility, it isn't much of a retest in terms of magnitude. I would like to see prices drop to the area of 1425 – at that point I would consider that sufficient technical work has been done to provide a good base for the next rally. Of course we don't always get what we want from the market.



The next chart gives us a view of three medium-term indicators representing the condition of price, breadth, and volume. As you can see, all three indicators risen from very oversold levels and are in the neutral zone. While it is possible for the indicators to rise from oversold to overbought in a single, uninterrupted move, it is more usual for them to reverse once or twice as prices put in a bottom. If prices continue lower, we will see these indicators turning back down.



Another prominent feature on this chart is the trading range in which prices have been moving for most of this year. This is also called a "continuation pattern" – a consolidation that takes place before prices continue moving in the same direction they were moving before the consolidation began, in this case, up.

On the other hand, others may consider the formation to be a double top, which has bearish implications. While I can see the double top argument, we are still in a long-term bull market, and a new 9-Month Cycle is due to begin, so, at this point in time, I expect a bullish resolution.

Bottom Line: Odds are in favor of the retest moving lower, but my guess is that long-term support will hold, and that the retest will be successful.



Posted at 05:04 PM in Carl Swenlin | Permalink


December 15, 2007TICKER RAIN BETA STARTS NEXT WEEKBy Chip Anderson
Site News

We've developed a nifty little tool called "Ticker Rain" that will show you, in real time, which ticker symbols are being heavily requested by StockCharts.com users at any given moment. Similar to our "Ticker Cloud" page, Ticker Rain will help you see if there are other interesting stocks out there that you should be looking at. When the market is open, small lines will drop from the top of the page and pile up at the bottom of the page in columns. Each column represents a different ticker symbol and each falling line represents a recent chart request. The result is both informative and fascinating to watch. We will post a link to our Ticker Rain tool in the "What's New" section of the website later this week.
COMSTOCK DATA FEED EQUIPMENT BEING INSTALLED THIS WEEK - Remember when we told everyone that it takes a l-o-n-g time to get a second datafeed installed? Well, it takes about "this" long. The new networking equipment showed up last week and we expect the Comstock servers to show up this week. At that point, we'll be able to start converting our software to work with the new feed and then we can begin performance testing. In a perfect world, that stuff will be complete by the end of January. We'll see how long it takes in the world in which we live. Stay tuned...







Posted at 05:02 PM in Site News | Permalink


December 15, 2007RETAIL WEAKNESS IS A BIG PROBLEMBy Chip Anderson
John Murphy
The two charts below demonstrate part of the reason why recent Fed moves haven't had much of a positive impact on the stock market. It has to do with negative fallout on retail spending resulting from the housing meltdown. The bars in Chart 1 plot the S&P 500 Retail Index, which has been one of the year's weakest groups. The RLX is on the verge of falling to a new three-year low. Its relative strength ratio (solid line) has already reached a five-year low. If the weak performance of retail stocks is a leading indicator of retail spending (which I believe it is), and if retail spending is 70% of the U.S. economy, then Chart 2 carries bad news for the U.S. economy and stock market. What's causing the retail breakdown? Chart 2 overlays the same Retail/S&P 500 ratio over a bar chart of the PHLX Housing Index. Notice the close correlation between the two lines. They both peaked in the middle of 2005 and have been falling together since then. In other words, the housing depression is closely tied to the retail breakdown. That suggests that there's a lot more to worry about than just subprime mortgages and liquidity problems. Which may also explain why recent Fed moves aren't helping much.







Posted at 05:01 PM in John Murphy | Permalink


December 15, 2007OBJECTIONABLE PRICE OBJECTIVESBy Chip Anderson
Chip Anderson
Hello Fellow ChartWatchers!
Every week we hear about a couple of message board posts that have appeared on some website somewhere which essentially says "StockCharts.com is saying that this stock will rise (fall) dramatically!" Here's a screenshot from a recent example:

We said that? What? Huh?
First off, let me state for the record that StockCharts.com is not in the business of predicting stock movements. We never have been and we never will be. We provide tools that help anyone make their own predictions using any method that they feel comfortable with. If you ever think that we are recommending the purchase or sale of a particular stock, please think again and then re-read what we said.
OK now that that is out of the way, why the heck are these message board posters making the claims that they do? The first thing to understand is that ninety percent of these claims are made in "investment spam" messages. These messages are trying to trick people into buying (or selling) the stock in question without first doing due diligence. Hopefully I don't need to remind a fellow ChartWatcher like yourself of the need for lots of research prior to making buy/sell decisions.
That said, most of these messages also come with a link to a point and figure chart on our website - [url=http://stockcharts.com/def/servlet/SC.pnf?chart=RMBS,PLTCDANRBO[PA][D][F1!3!!!4!20]]like this one[/url] - and, sure enough, that chart has a line on it that says (for example) "Bullish Price Obj. (Rev.): 38.5".
Here's what the spammers are trying to get you to do. They want you to think about things like this:

Wow, seems like StockCharts.com really is making a prediction about that stock. Seems like the good people at StockCharts think RMBS is about to tank big time. Ya know, John Murphy works with StockCharts.com and he's an expert. I think I better sell my shares!



Now, here's how you should be thinking:

What the heck is a "Price Objective" on a Point and Figure chart and what does it really mean?



Remember, just below every P&F chart is a link called "About Price Objectives". It leads to our ChartSchool article with all the gory details about how we calculated P&F Price Objectives and it contains numerous warnings about how they should be used. I urge everyone to read that page carefully but the bottom line is this: Price Objectives are simplistic and very unreliable. At best, they represent an upper (or lower) bound for the stock's next big movement. At worst, they are ammunition for scam artists.
So why have Price Objectives at all? Price Objectives hark back to the early days of Point and Figure charts when Technical Analysis was still in its infancy. Things like Bollinger Bands, MACDs, and MarketCarpets had not been invented then and Price Objectives were the best people had. Don't get me wrong, when properly understood, Price Objectives can be another useful tool for any chartist. Unfortunately, most people do not take the time to understand them and the scam artists count on that fact when posting their garbage.
Don't be fooled.
P.S. Happy Holidays everyone! Our next newsletter will go out in January.

hefeiddd

January 20, 2008IS IT BEAR SEASON?By Chip Anderson
Tom Bowley
The two most frequently asked questions these days are as follows: (1) Are we in a bear market? (2) Where's the bottom?

Let's take them one at a time. A bear market is generally defined as a decline of 20% or more. At the close on Friday, the declines across the major indices from their recent highs are:

Dow Jones: -2181 pts, or -15.27%
S&P 500: -251 pts, or -15.93%
NASDAQ: -521 pts, or -18.21%
NASDAQ 100: -395 pts, or -17.64%
Russell 2000: -183 pts, or -21.38%

The Russell 2000 is already in a bear market and the other indices are closing in on it. We believe it's going to be close as to whether all the indices actually hit that 20% decline. Pessimism has been ramping up in the last 2 or 3 trading days and extreme pessimism marks significant intermediate-term or long-term bottoms nearly every time.

Now let's tackle that second question - how low might we go? First, look at the 10 year weekly chart on the Dow. There was a long-term double top at 11,700 that finally gave way in the second half of 2006, as can be seen below:


On the NASDAQ, we're watching a long-term parallel uptrend channel that's been in place for over 4 years. If that channel is broken, then more downside is entirely possible. Below is a look at that long-term channel:


Perhaps the most important factor in the market right now is the increase in pessimism as reflected by the spike in the VIX at the end of last week and the increase in the put call ratio. In both March and August of last year, bottoms occurred as the 5 day moving average of the put call ratio moved above 1.30. That signaled extreme bearishness in the options world and the market bottomed as the put call ratio is a contrarian indicator. In November 2007 and again in early January, the market was dropping, but fear was not hitting panic levels. That has begun to change and will be a very important indicator to watch as the next week unfolds. In the chart below, you can clearly see the spiking 5 day moving average as significant bottoms were reached in March and August of 2007 (red circles):


From the blue arrow at the right hand side of the chart, you can see that fear is ramping up considerably with last week's selling. Continuation of that trend will increase the odds of a significant bottoming process.

Happy Trading!



Posted at 05:06 PM in Tom Bowley | Permalink


January 20, 2008DOUBLE TOP PARADE CONTINUESBy Chip Anderson
Arthur Hill
The Materials SPDR (XLB) joined the double top club with a sharp decline this past week. The Finance SPDR (XLF) and Consumer Discretionary SPDR (XLY) started the club with double top support breaks in August. The Russell 2000 ETF (IWM) broke double top support in November. And finally, the S&P 500 ETF (SPY) broke double top support this year. These are not small double tops, but rather large reversal patterns that have been confirmed. Moreover, these are important ETFs and lower lows are clearly bearish.



The double top unfolded as XLB met resistance around 43 in October and again in December. The intermittent low formed in November and XLB broke below this low to confirm the pattern. XLB is also trading below its 50-day and 200-day moving averages. Even though the big trend is now down, the ETF is short-term oversold and could bounce. Broken support turns into resistance around 40 and there is also resistance in this area from the two key moving averages. An oversold bounce is possible, but I would expect it to fail around 40. Look back at the XLF and XLY double tops for clues on how this pattern may unfold in the coming weeks and months.



Posted at 05:05 PM in Arthur Hill | Permalink


January 20, 2008BEAR MARKET RULES APPLYBy Chip Anderson
Carl Swenlin
On January 8 the 50-EMA crossed down through the 200-EMA on the S&P 500 daily chart, generating a long-term sell signal and declaring that we are now in a bear market. This was confirmed this week when the weekly 17-EMA crossed down through the 43-EMA. Let me say that these signals are not 100% reliable, but there is a ton of additional supporting evidence, such as the decisive violation of the long-term rising trend line, and the violation of the double top neckline, seen on the chart below.



The next chart presents a long-term view, which makes it more clear how serious the situation is.



An important point is that this long-term sell signal is not so much an action signal as it is an information signal. What this means is that we need to begin interpreting charts and indicators in the context of a bear market template. For example:

- Oversold conditions should be viewed as extremely dangerous. Whereas in bull markets oversold lows usually present buying opportunities, in bear markets they can often resolve into more heavy selling.

- Overbought conditions in a bear market are most likely to signal that a trading top is at hand.

- While bear market rallies present great profit opportunities, long positions should be managed as short-term only.

The questions remain as to how far down prices will go and how long the bear market will last? In the shorter term we have a minimum downside projection from the double top neckline of about 1160 on the S&P 500 Index. That could mark a medium-term low from which a bear market rally could rise. For the longer-term, let's look at the 4-Year Cycle chart below. As you can see, the last cycle low was in mid-2006, so the next projected low is in mid-2010. Assuming that the cycle low and bear market low will be the same, we have a long, bloody road ahead. The most obvious downside target is the support at the 2002 lows, about 750 on the S&P 500.



I think the basis for my conclusions is fairly easy to see and understand, but please keep in mind that these are educated guesses – somewhat better than wild guesses – and they are subject to radical revisions as reality unfolds. If it actually turns out that way, no one will be more surprised than I.
Bottom Line: Probability is very high that the bull market top arrived in October 2007 and that we are now in a bear market that will continue for another year or more, possibly until mid-2010. Until we have evidence to the contrary, remember that bear market rules apply. The next thing to expect is a reaction rally back toward the recently violated neckline support, which is now overhead resistence.



Posted at 05:04 PM in Carl Swenlin | Permalink


January 20, 2008BULL MARKET IS OVERBy Chip Anderson
Richard Rhodes
The bull market is over; the Dow Industrials broke below its major bull market trendline extending from the 1982 bear market lows through the 2002 bear market lows. Obviously, one cannot take this lightly, as last week's negative price action was more of a bear market "exclamation point" intended to say that from this point forward - rallies are to be sold and sold hard. However, it would appear the initial decline is coming to an end quite soon; the 30-month moving average crosses at 12,038 and was successfully tested on Friday. Too, the previous highs all-time highs at 11,500 are just below current levels. The 9-month RSI is approaching levels that in the past have coincided with bull market correction bottoms and bear market bottoms. Thus, the risk-reward profile for the Dow is changing in the short-term from bearish to 'flat' and will ultimately turn to bullish. But, remembering that the trend is lower... rallies will be short-lived.

But that said, one would do well to consider 'guerrilla bear market tactics' when trading from the long side, of which sector rotation will be paramount. Rallies are likely to be short and sharp; but sold hard. The sectors now showing emerging bullish relative strength patterns versus the S&P 500 in our models are the beleaguered Financials and Consumer Discretionary (Housing and Retail). The Basic Materials and Energy sectors are showing emerging negative patterns. These are non-consensus calls at the moment; but given the former held relatively during last week's carnage, while the latter were aggressively - perhaps these will be the emerging theme trades of 2008.





Posted at 05:03 PM in Richard Rhodes | Permalink


January 20, 2008AVOIDING PROBLEMS BEFORE THEY STARTBy Chip Anderson
Site News

Here are three things that everyone should do periodically to ensure that your computer works well when using StockCharts.com. Every day we get messages from lots of people that are having problems with their web browser and usually one of these steps will fix the problem. If you follow these tips at least once a week, you'll have a better browsing experience on StockCharts.com (and most other websites too!).

• CLEAR YOUR BROWSER'S TEMPORARY FILE CACHE PERIODICALLY - Your browser stores copies of all the web pages you visit on your hard disk in something called the "Temporary File Cache." In theory, by storing stuff in the cache, your browser can reduce the time it takes old pages to load. Normally, your browser manages all of things it stores in the cache automatically but sometimes it gets confused. This can cause lots of problems, especially with complex pages like our Charting Workbench. Confused caches can also eat lots of hard drive space. By clearing out your browser's temporary file cache at least once a week, you can keep your browser working efficiently and prevent website problems before they appear. The instructions for clearing your cache can be found here. We've set Firefox to clear our caches every time we shut it down. (BTW, Be careful to NOT erase your Cookies when clearing your cache.)
  

• REBOOT YOUR COMPUTER DAILY - Computers, especially older ones, need to be restarted from time to time in order to keep running efficiently. After several hard days of browsing the net, things like plug-ins and hung programs can start to build up - especially in older versions of Windows. We've heard stories of people leaving their computers on for months at a time, seemingly without problems, until... By rebooting your computer every day you'll ensure that it is running efficiently and stuck programs aren't waiting to ambush you later. We reboot our computers every day.
  

• MAKE SURE YOU HAVE FREE SPACE ON YOUR DISK - Web browsers (and many other computer programs) assume that you have lots of free space on your hard disk. If they encounter a computer with a full hard drive, lots of bad things can happen. They may crash. They may corrupt the temporary file cache. They may run really slowly. They may hang. They may display lots of red X's on the pages you are looking at. They may refuse to run Java applets. Etc. etc. etc. Always make sure you have several 100 Megabytes of free storage on your hard disk before starting a big browsing session. It will save you a ton of grief.
  

Posted at 05:02 PM in Site News | Permalink


January 20, 2008SO MUCH FOR GLOBAL DECOUPLINGBy Chip Anderson
John Murphy
I've expressed reservations before about the recent theory of global decoupling. The reasoning was that foreign markets would remain relatively immune to a major selloff (and possible recession) in the U.S. That view struck me as strange, especially with the close correlation that's existed between global markets over the past decade. Which is why Chart 1 shouldn't come as a surprise to anyone. It shows a sampling of the world's major developed stock markets over the last year. And, not surprisingly, each and every one of them started to fall in November along with the U.S. market. Most haven fallen as far as far as the U.S., but they are falling. The only ones still in the black for the last year are Hong Kong (+26%), Germany (+12%), and Australia (+2%). The biggest yearly losers are France (-7%), Britain (-5%), and Canada (-2%). By comparison, the S&P 500 lost -6.5%.





Posted at 05:01 PM in John Murphy | Permalink


January 20, 2008"BEARISH" PERCENT INDEXESBy Chip Anderson
Chip Anderson
Lots of people are doing the Chicken Little thing these days. Is the concern/panic justified? Are we really entering a new Bear market? Which charts are going to calmly and objectively tell us what is really going on?
Whenever I want to study "the big picture" and see if anything really significant has changed, I usually turn to the "Bullish Percent" charts that we maintain here at StockCharts.com. For those of you that haven't heard of them before, a "Bullish Percent" chart plots the percentage of stocks in a predefined group that currently have a "P&F Buy Signal" on their Point and Figure chart. You can read more about Bullish Percent charts here.
Usually, Bullish Percent Indices oscillate lazily somewhere between 30 and 70. Because they are the result of studying thousands of charts, the BPI's for the Nasdaq Composite and the NYSE usually move pretty slowly and it takes them a little bit of time (at least a week) to reflect a significant change in the market. While they may be too slow for day-traders, that slowness makes them very reliable for the rest of us.
So, with all this talk of a Bear market, what do the BPI's say? Here are the charts:



Well... I think the word "Yikes!" might actually apply here. Both the Nasdaq and NYSE BPIs are now lower than they have been since the start of the Bull Market in 2003. That should give any ChartWatcher pause. Remember, readings below 30 indicate a change in the market and right now these charts have reading at or below 20.
Usually, the BPIs bounce back from super-low readings quickly. If that happens in the coming weeks, don't be fooled. Continue to watch them closely because a second plunge below 30 after a recovery would be confirmation of a Bear Market. Check out this chart of the lead up to the 2001 Bear Market:


After the first BPI-plunge in mid-1998, things recovered and the Nasdaq soared to record heights. But the second BPI-plunge in 2000 confirmed the end of good times for everyone.
Be careful out there.



Posted at 05:00 PM in Chip Anderson | Permalink


January 06, 2008KEEP AN EYE ON BONDSBy Chip Anderson
Tom Bowley
We've been following the bond market closely and for good reason. Earnings and interest rates drive the stock market. We are seeing a lot of signs of an economic slowdown, perhaps even a mild recession. As a result, earnings will not be spectacular and we'll likely continue to see companies lowering guidance. The equity markets are already discounting prices to account for lower profits in first half of 2008. Stocks have taken a huge hit to begin 2008, but divergences are indicating that selling momentum is slowing similar to what we witnessed in the summer of 2006. One of the hardest hit indices last week was the NASDAQ 100. Take a look at Chart 1 below and note that as the NASDAQ 100 has hit new recent lows, the MACD is actually much, much higher than it was at the time of the last low. This is a development worth watching as the same situation developed in the summer of 2006 before a significant advance.&n bsp; That setup can be seen in Chart 2.





Expect the Fed to continue lowering interest rates. We believe the next cut will be 50 basis points and we wouldn't be shocked to see the Fed step up prior to its end of January meeting and introduce this next cut between meetings. The bond market is clamoring for more rate cuts with the odds of a 50 basis point cut increasing. In previous articles, we've discussed the likelihood of falling interest rates as a result of the triangle breakdown on the ten year treasury yield. If that yield falls below 3.80%, there is little support until the yield reaches 3.05%. That would portend an aggressive rate cutting campaign by the Fed, which we believe is in our future. Continued decreases in interest rates will send "safe" money in the bond market back to equities as investors look for higher returns. Lower rates will further weaken the U.S. dollar, providing greater opportunities in gold and other commodities.



Posted at 05:06 PM in Tom Bowley | Permalink


January 06, 2008RATE CUTS NOT HELPINGBy Chip Anderson
Arthur Hill
The Fed started cutting interest rates on August 17th with a surprise 50 basis points cut in the Discount Rate. There have been three more rate cuts since 17-Aug, but the Dow Jones Industrial Average has nothing to show for these cuts. The first two rate cuts fueled the rally from mid August to mid October. However, the last two rate cuts coincided with reaction highs on 2-Nov and 11-Dec (third and fourth cuts). The negative reaction to the last two rate cuts indicates that something is rotten in the kingdom of stocks. With Friday's employment report, the Dow moved below 13000 and finished the week below the 17-Aug close. The Dow is now down after four rate cuts. The bearish argument was further reinforced this week when the 50-day moving average moved below the 200-day for the first time since November 2005. This is also know as a "dead cross".





Posted at 05:05 PM in Arthur Hill | Permalink


January 06, 2008RETEST STILL IN PROGRESSBy Chip Anderson
Carl Swenlin
Currently, the stock market is still in the process of retesting the November lows. This process needs to end now or some serious technical damage will be done, specifically the long-term rising trend line is in danger of being decisively violated. On the chart below you can see the long-term rising trend line is being tested, and a decisive violation would be a decline to about 1375, where coincidentally there is another support line. Unfortunately, that doesn't give me much comfort because that line looks a lot like the neckline of a rounded or double top, and considering that a decline to 1375 will generate long-term moving average sell signals, my guess is that the chances of the neckline holding or surviving a retest would be slim to none.



The next chart gives us a view of the S&P 500 on an equal-weighted basis, and the picture is not pretty. Normally, an equal-weighted index will out-perform it's capitalization-weighted counterpart because the index is boosted by the smaller-cap components. However, in recent months the equal-weighted index has been under-performing the S&P 500 Index to the extent that the 50-EMA has already crossed down through the 200-EMA, a long-term sell signal. What this tells us is that money is focusing on the large-cap stocks the S&P 500 Index is being supported by fewer and fewer stocks.



If you are wondering if the 9-Month Cycle has made a low, so am I. I have tentatively identified the trough as being in mid-December, but, since prices have fallen below the mid-December level, I'll have to rethink that after things have shaken out. This is not a satisfying conclusion, but this is often the way it is – cycle projections are good for a longer-term estimate, but it is hard to nail down the exact trough until after the fact.
Bottom Line: It is not impossible for the market to complete a sucessful retest and for the bull market to continue, but the tecnicals are worse than they have been since the last bear market ended, and it is difficult to be optimistic at this point.



Posted at 05:04 PM in Carl Swenlin | Permalink


January 06, 2008HISTORY REPEATING?By Chip Anderson
Richard Rhodes
The S&P 500 is off to its worst start to begin a new year since 2000; however, this isn't the larger headline to us. If were writing the story, the headline would indicate the probability of a bear market having begun rose significantly last week; but it did not do so given the very poor US employment report. It did so given our demarcation line between "bull and bear markets" – the 80-week moving average – was violated in earnest last week. We don't take this signal lightly; nor should our clients.
As the S&P 500 Weekly chart illustrates, there is a bit of "symmetry" between the 1999-2000 topping pattern and the current topping pattern as each was unable to breakout above the 1550-1577 zone. In the 2000-2002 bear market, prices clearly broke through the 80-week moving average and didn't look back. It wasn't until 2002 that prices were able to regain this moving average, which signaled the start of the cyclical bull market. Of note, prices successfully tested and retested this moving average numerous times prior to last week's breakdown. Hence, its significance can't be understated.
And one final note. In the first paragraph – we stated the "probability" of a bear market now underway has "risen significantly." We won't sound an all out "bear market call" until the 30-month exponential moving average crossing at 1381 is violated... a mere 30 points lower from current levels.





Posted at 05:03 PM in Richard Rhodes | Permalink


January 06, 2008SINGING IN THE (TICKER) RAINBy Chip Anderson
Site News

Just what you wanted right? Actually, this is the "Ticker Rain" that we talked about in the last newsletter. It is finally up on our website at http://stockcharts.com/charts/tickerrain.html. What is "Ticker Rain" you ask? It's a Java program that creates a chart which shows you many of the ticker symbols that are being requested by StockCharts.com users. The ticker symbols "rain" down the chart and stack up into columns. The taller the column, the more popular the ticker symbol. Up to 100 columns build up over time. You can click on any of the columns to see a SharpChart for that ticker symbol. Every 30 seconds, we remove whichever column has been inactive for the longest time and add a new ticker symbol on the right side of the chart. Over time, the more active columns collect on the left side of the chart.
You can use Ticker Rain to see which symbols are hot and whether people are looking at long-term or short-term charts of those symbols. It can help you see if there are any new trends in the market that you should be aware of.
Note: Ticker Rain only shows a small subset of the chart requests that we get. Ticker Rain also works better when the market is open - it can be slow on the weekends and late a night.
You kind of have to see Ticker Rain in action to fully understand it. First, make sure you have Java properly installed on your computer, then click here to start the rain!






Posted at 05:02 PM in Site News | Permalink


January 06, 2008S&P 500 THREATENS 400-DAY MOVING AVERAGEBy Chip Anderson
John Murphy
During the August market drop, I wrote about the importance of the 400-day moving average as a major support line. [That line is gotten by converting the 20-month moving average to a daily line. I'll show why we use that line shortly]. The daily bars in Chart 1 show the August and November price declines bouncing off that long term support line. The chart also shows, however, the S&P 500 closing below that support line today. [That's the first Friday close below that line in five years]. The 400-day line also resembles a "neckline" drawn below the August/November lows. That's another reason why today's breakdown could have bearish implications for the S&P 500 and the market as a whole. A close below the November intra-day low at 1406 would be further confirmation of today's moving average violation. Chart 2 shows why the 400-day line is important.





Posted at 05:01 PM in John Murphy | Permalink


January 06, 2008S&P BULLISH PERCENT GIVES THE BIG PICTUREBy Chip Anderson
Chip Anderson
Hello Fellow ChartWatchers!
Welcome to 2008! The start of a new year is always a good time to look for the big-picture perspective on things and few things say "Big Picture" better than the Bullish Percent Indices. By condensing the technical picture for 500 important stocks down into just one number, the S&P 500's Bullish Percent value ($BPSPX) gives you a great indication of the overall health of the market. Check it out:

Starting in 2004, the BPI settled down into a nice little pattern - rallying after hitting 50% (green arrows) and then reversing soon after passing 75% (red arrows). It repeated this pattern four times as you can see. At the start of 2007 however, something changed - the BPI bounced between 70% and 80% a couple of times, then fell sharply and didn't bounce at 50% for the first time in years (blue arrow). When it finally bounced in September, the BPI was down around 33% (purple up arrow) which was its lowest reading since March 2003. The biggest warning sign came soon afterwards when the BPI was only able to rally back up to 70% before falling again (purple down arrow). That was its lowest "peak" in years and a real sign of weakness. The weakness was confirmed in December when the BPI only rallied back up to 56% - a very troubling sign indeed.
Remember, these numbers represent the charting "health" of the 500 biggest stocks in the market - and the diagnosis isn't looking promising right now.

hefeiddd

February 16, 2008THE LINE CHART ADVANTAGEBy Chip Anderson
Tom Bowley
This is a rarity. I am proposing that you use line charts - in one instance. A line chart simply connects one closing price to the next closing price. Intraday activity does not appear and is ignored. How in the world can line charts have an advantage over bar charts or candle charts? Well, there's one instance and I'm going to show you.

We discussed a couple of weeks ago how the recent lows in the market were accompanied by extreme bearish sentiment readings that many times mark significant long-term bottoms. So far those lows have held. Since that time, long-term positive divergences have appeared providing bulls with evidence that selling momentum has begun to slow. At first glance on a candle chart, it doesn't appear that a long-term positive divergence has printed. Take a look at the NASDAQ candle chart below:



Ahhhh, but wait a second! MACD = Moving Average Convergence Divergence. The MACD represents the difference between two moving averages. We use the standard 12 day and 26 day EMA's (Exponential Moving Average). Moving averages are calculated using closing prices. So if you're looking for a long-term positive divergence on a daily chart, you need to compare the CLOSING prices to one another. That's where the line chart comes in handy because it only connects closing prices. Take a look at that same NASDAQ chart, but this time on a line chart:



The line chart clearly has one advantage. This was an unusual circumstance because of the large gap downs and subsequent rallies that we experienced as the major indices put in their recent lows. We knew there was a reason why line charts were created and this is it!

The long-term positive divergences are yet another technical sign that indicates a bottom may be in place. However, the price/volume combination is our highest ranking technical indicator and it trumps divergences. If the major indices lose their recent lows as support and heavy volume accompanies the selling, that breakdown must be respected. In the meantime, we believe the market is range-bound as it attempts to develop a base from which to rebound longer-term.

Best of luck and happy trading!



Posted at 05:06 PM in Tom Bowley | Permalink


February 16, 2008DIA FAILS AT BROKEN SUPPORTBy Chip Anderson
Arthur Hill
In the 15-December issue of ChartWatchers, I pointed out the possibility of a head-and-shoulders top in the Dow Industrials ETF (DIA). The ETF formed a weekly bearish engulfing pattern that week and this marked the mid December high. Subsequently, DIA moved lower over the next several weeks to confirm this bearish reversal pattern.



This pattern remains in play and broken support is now acting as resistance. This is a basic tenet of technical analysis (broken support turns resistance). The ETF bounced back to broken support at the end of January, but this level turned into resistance as DIA fell back in February. This decline reinforces resistance around 128. More importantly, the head-and-shoulders reversal still dominates the landscape with a downside target around 112.5. The length of the head-and-shoulders is subtracted from the neckline support break for a target.



Posted at 05:05 PM in Arthur Hill | Permalink


February 16, 2008BOTTOM STILL NOT RESOLVEDBy Chip Anderson
Carl Swenlin
When the market began to rally this week, it looked as if a successful retest of last month's lows had occurred and that another up leg had begun; however, what looked like the start of a new rising trend, has now morphed into a triangle formation with the price index trying to break through the bottom of the triangle. While the triangle itself is a neutral formation, we are in a bear market, so the odds favor a break down from the triangle and another retest move on the January lows.

The next chart, a weekly-based chart of the S&P 500 Index, continues to confirm that we are in a bear market. There has been a moving average downside crossover, and the moving averages and PMO (Price Momentum Oscillator) continue to move downward.

The following chart illustrates how oversold conditions in a bear market do not provide the degree of internal compression we normally see in bull markets. Note how the two most recent oversold lows on the price, breadth, and volume indicators failed to produce the kind of price gains that we see from the August 2007 lows. You can also see other examples of bull market reactions to oversold conditions on the chart.

Bottom Line: Whereas the charts had begun to look as though we had a short-term bottom in place, we are now faced with an unresolved triangle pattern in a down trend. Odds favor a downside resolution, but, even if it resolves to the upside, it is doubtful that there will be enough steam behind the rally to overcome bear market drag and penetrate major overhead resistance.
Regardless of my personal opinion, we rely on the 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. Note that we have added the nine Rydex Equal Weight ETF versions of the S&P Spider Sectors. This may seem redundant, but the equal weighted indexes most often do not perform the same as their cap-weighted counterparts, and they provide a way to diversify exposure.





Posted at 05:04 PM in Carl Swenlin | Permalink


February 16, 2008DOW JONES INDUSTRIALS CHANGINGBy Chip Anderson
Site News

Dow Jones announced last week that they are removing Altria and Honeywell from the index and adding Citibank and Chevron. The change takes effect at the start of trading on Tuesday.
MARKET HOLIDAY ON MONDAY - Don't forget that both the US and Canadian markets are closed on Monday.







Posted at 05:02 PM in Site News | Permalink


February 16, 2008COMPARING BOND ETFsBy Chip Anderson
John Murphy
The below chart compares the performance of four T-bond ETFs since last July, when money started to flow out of stocks and into bonds. The four ETFs represent different durations in the yield curve. Through the middle of January, the top performer was the 20 + Year Bond Fund (TLT). Next in line was the 7–10 Year Bond Fund (IEF). That was followed by 3–7 Year Bond Fund (IEI), which was followed by the 1–3 Year Fund (SHY). The chart shows that the longer duration bonds did better than the shorter-term ones. That situation, however, may be changing. Over the last month, longer duration bond ETFs have fallen faster than shorter-duration funds. That could be a reaction to new fears of inflation arising from the aggressive Fed easing and a further steepening of the yield curve. That's because the long bond is the most vulnerable to fears of rising inflation. That also suggests that the long bond may no longer be the best place to be on the yield curve.

The following three charts compare three bond ETFs with different time durations. The first shows that the 20+ Year T Bond Fund (TLT) has broken its 50-day moving average (blue line). Its the weakest of the three ETFs. The next shows the 7–10 Year T-Bond Fund (IEF) still trading above that initial support line. The last of the three shows that the 3–7 Year T Bond Fund (IEF) is holding up even better. That suggests to me that it makes sense to start moving away from the long bond to shorter maturities on the yield curve.



Which brings us to TIPS (Treasury Inflation Protected Securities). TIPS are bonds that have some protection against inflation built into their pricing. That would seem to make them a good alternative in the current environment of falling yields and rising inflation pressures (record high commodities). Chart 8 shows the iShares Lehman TIPS Bond Fund (TIP) over the last year. [TIP was the top performing bond ETF over the past year]. It has slipped a bit during February, but is holding over its 50-day moving average. The ratio below the chart divides the TIP by the 20+Year Bond ETF (TLT). The rising ratio since the start of 2008 shows that the TIP is starting to do better than the TLT. That may mean that bond investors are starting to favor TIPS for more insurance against inflation. That's not a bad idea.





Posted at 05:01 PM in John Murphy | Permalink


February 16, 2008DIGGING INTO MARKET BREADTHBy Chip Anderson
Chip Anderson
StockCharts.com has an extensive collection of Market Breadth indicators. Many of them can be found under the "Breadth Charts" link on the left side of our homepage. However, one of the best places for studying market breadth on our site is - surprisingly - our Predefined Scan Results page. The page is easy to overlook but - fortunately - easy to get to. Just click on the "Stock Scans" link on the left side of our homepage and it will take you to the page I'm talking about. Here is a screenshot:

Now, the magic is in studying the ratios between various pairs of bullish and bearish scan results. It's up to you to determine which ratio(s) you trust the most - personally, I use these to try and confirm any signals I see on the "major" breadth charts. But one ratio I always keep an eye on is the ratio of Filled Black Candles to Hollow Red Candles (at the bottom of the screenshot above). It's probably the quirkiest ratio invented, but that's why I like it.
For those that didn't see my previous rantings about them, filled black candles and hollow red candles are what I call "Oxymoronic" candles. They arise whenever the market opinion about a stock dramatically reverses course in the course of one day. Usually candles that are colored black are hollow - that indicates that the stock closed higher than it did yesterday (black) and closed higher than its opening price (hollow). Conversely, red candles are typically filled in indicating that the stock moved lower during the day (filled) and closed lower than it did yesterday (red).
The "oxymoronic" candles appear when a stock gaps up (or down) on the open but then moves in the opposite direction during the day. The indicate "buyer's remorse" (or "seller's remorse") about a stock. The market is really confused about the stock's prospects - often it signals a change in the stock's current trend. The ratio of filled black candles to hollow red candles shows just how confused the market is and in which direction. If there are large numbers of filled black candles and few hollow red ones, then there were lots of stocks that gapped up and then fell back - overall that's a bearish signal. Conversely, lots of hollow red candles with few filled black candles indicates a bullish upturn might be on the way.
Other ratios on that page can be informative: Stocks in an New Uptrend / Stocks in a New Downtrend for example. Experiment with them - I bet you will find a useful tool or two.



Posted at 05:00 PM in Chip Anderson | Permalink


February 03, 2008THE MARKET HAS BOTTOMEDBy Chip Anderson
Tom Bowley
want to recap what was discussed in the last ChartWatchers newsletter. We were approaching significant long-term price support on the Dow and the lower trendline on the NASDAQ while pessimism was starting to ramp up. I discussed the possibility of a significant bottom approaching and to watch for the put call ratio to spike near the levels we saw in March and August of 2007.

First, let's take a look at the Dow chart.


The Dow touched critical support and bounced 1000 points. The 13,000 area is a bit congested and will provide the bears some ammo as they attempt to fight back the bulls. If the market weakens, the recent lows and that long-term support area near 11,700 become HUGE. So for now, I'm looking for the Dow to be range-bound though I do maintain a slightly bullish bias with respect to the market overall. Economic supply and demand favors the bulls - just ask the shorts in the financial, homebuilding and retailing sectors.

Next, let's look at the NASDAQ uptrend channel that I discussed two weeks ago.


The NASDAQ moved down and briefly broke the trendline support level near 2240. Trendlines are not an exact science, however, so we must give a little room. In this case, the NASDAQ dropped down near 2200, but quickly recovered back into the channel. If you're in the bullish camp, you do not want the NASDAQ to lose 2200 as we move forward. That would result in a long-term trendline break AND violation of price support. We would likely see another 200 point decline to 2000 if that were to happen. I don't believe we'll see it.

Finally, did the pessimism ramp up as measured by the 5 day put call ratio? We've used this tool with tremendous success in helping to spot long-term bottoms. It's one of our key long-term sentiment indicators. Look at the chart below to see how the 5 day moving average of the put call ratio spiked as the market found a bottom. The red circles below indicate the 5 day moving average of the put call ratio in March and August of 2007. The blue circle shows us that the fear did in fact jump at the recent market bottom to suggest the last few sellers made it to the party just as it ended.


Happy Trading!




Posted at 05:06 PM in Tom Bowley | Permalink


February 03, 2008IWM NEARS RESISTANCE ZONEBy Chip Anderson
Arthur Hill
With an oversold bounce over the last two weeks, the Russell 2000 ETF (IWM) is nearing a resistance zone from broken support and the 50-day moving average. Before going further, I should emphasize that the overall trend remains down for two reasons. First, the ETF broke down in January with a decisive move below its 2007 lows. Second, the 50-day moving average is below the 200-day.


This oversold could fizzle soon because the ETF is nearing resistance from broken support and RSI is nearing its December highs (red arrows). The November and December lows marked support and these now turn into resistance. This resistance zone is further confirmed by the falling 50-day moving average. RSI bounced twice in December, but peaked just below 70 each time. The indicator got another oversold bounce this week and is nearing the spot of its prior reversal. The moment of truth is approaching.





Posted at 05:05 PM in Arthur Hill | Permalink


February 03, 2008RESISTANCE THREATENS RALLYBy Chip Anderson
Carl Swenlin
In my January 18 article I asserted that we had entered a bear market based upon long-term sell signals generated by downside moving average crossovers on the daily and weekly charts of the S&P 500. My bottom line summary was as follows: "Probability is very high that the bull market top arrived in October 2007 and that we are now in a bear market that will continue for another year or more, possibly until mid-2010. Until we have evidence to the contrary, remember that bear market rules apply. The next thing to expect is a reaction rally back toward the recently violated neckline support, which is now overhead resistance."

Just a few days later the expected rally began, and the neckline resistance has been penetrated, albeit not decisively. While the market's recent performance has been good for bulls, you can see on the chart below that strong overhead resistance in the form of the long-term rising trend line lies dead ahead.


The next chart shows the S&P 500 on a weekly basis. Note that the weekly PMO (Price Momentum Oscillator) has dropped below the zero line for the first time since the bull market began. Observe also that the recent moving average downside crossover is the first since the last bear market began.


Not only is there a lot of resistance to overcome, our short-term indicators show that the market is becoming overbought. Two of my favorites, the CVI and STVO, are shown on the chart below. Both are well into the overbought side of their range, and we should be expecting a short-term price top very soon. Once that top is in place we should expect the recent lows to be retested. Since we are in a bear market, the retest is likely to fail.


Bottom Line: We are in a bear market, and we should expect that most situations will resolve negatively. The recent rally has pushed into a heavy resistance area, and short-term internals are becoming overbought. It is likely that the market will top soon, and that a retest of the recent lows will commence.



Posted at 05:04 PM in Carl Swenlin | Permalink


February 03, 2008NO ONE IS IMMUNEBy Chip Anderson
Richard Rhodes
We recently noted the US had in our opinion entered into a bear market; hence we believe rallies are to be sold in the coming weeks/months as prices enter into resistance. However, we continue to hear how other world markets such as the European, Asian and Emerging markets will be 'immune' from the US-led slowdown, and thus funds should flow from the US towards more international markets. We think this to be patently wrong, for the time to be long international markets at the expense of US markets has past. With the US Federal Reserve addressing the problem - however futile this may prove or not prove - the international central banks are not addressing the looming crisis. Hence, we will posit that the US is poised to outperform the international markets for months if not years into the future given the 'lead' the Federal Reserve has created via lower interest rates.

Technically speaking, we look at the ratio of the surrogate ETFs for the US and international markets - the S&P 500 Spyders (SPY) and the World ex-US (EFA). It is quite clear the trend has been lower since the world pulled out of recession in 2003, and the clear trade has been to be long International versus a short US position. But the emerging bullish wedge pattern suggests a trend change is in progress. A breakout above the 60-week exponential moving average would solidify this in our minds, and cause to err upon the side of being long US large caps at the expense of International markets.

This isn't the common prevailing wisdom; but given the contrarian nature of the trade... it shall catch everyone wholly off-guard and scrambling to make amends. So, for those overweight International Funds... this should serve as fair warning.





Posted at 05:03 PM in Richard Rhodes | Permalink


February 03, 2008DATAFEED MILESTONESBy Chip Anderson
Site News

We hit two milestones with our Datafeed Upgrade project during the past week. First, the upgraded data connections for our older Thomson feed were installed on Friday. The problems we had last summer were because there was too much data to fit through our 3 megabit data connections. We now have 15 megabit data connections in place so that particular problem shouldn't reoccur. Second, because of last year's snafu, we are adding a second data vendor and last week we also started getting test data from our new IDC ComStock datafeed. Now that the IDC hardware is installed and working we can focus on the next step - reprogramming our systems to use the IDC data in addition to the Thomson data we use now. Look for us to start incorporating IDC ComStock data into our charts in a month or so.







Posted at 05:02 PM in Site News | Permalink


February 03, 2008JANUARY BAROMETER PREDICTS BAD YEARBy Chip Anderson
John Murphy
I haven't heard anyone in the media talking about the January Barometer, which is based on the view that "as January goes, so goes the year". That's probably because they only talk about it when the market has a strong January, which predicts a good year. Unfortunately, this January was a very bad one. The 6% loss in the S&P 500 makes it the sixth worst January on record. According to the Stock Trader's Almanac, "the January Barometer predicts the year's course with a .754 batting average. It goes on to state that "every down January on the S&P since 1950, without exception, preceded a new or extended bear market, or a flat market". In addition to a bearish January Barometer, the market had a bad chart month as well. The monthly bars in Chart 1 show the S&P 500 falling -6.12% since the start of 2008 on the heaviest volume in a decade. The monthly stochastic lines (above chart) have fallen to the lowest level since mid-2003. The monthly MACD histogram has been negative for two consecutive months.





Posted at 05:01 PM in John Murphy | Permalink

hefeiddd

March 15, 2008OIL PRICES, TRANSPORTS AND THE NEXT BUBBLEBy Chip Anderson
Tom Bowley
It makes perfect sense that higher oil prices could derail (no pun intended) transports as the implications are clear. But the truth might surprise you. From Chart 1 below, you'll see that oil prices have been rising dramatically over the past 6 years. The price per oil was below $20 per barrel in 2002. That seems almost unfathomable as we contemplate $110 per barrel oil. That's nearly a six fold increase in the price of oil over a six year period. There's no possibility that transportations could thrive in that environment, correct? I mean, it just doesn't make any logical sense. Or does it? Supply and demand drives oil prices just as it does any other commodity or financial instrument, at least from an economic perspective. As the world economy was strengthening after our 2000-2002 bear market, oil prices naturally rose and they continued rising. Economic growth was sustained for a very long period and oil prices went along for the ride. Transports also benefit during economic expansion. So long as demand is at least partially responsible for higher oil prices, then transports can also thrive simultaneously. Now take another look at the Chart 1:



Crude oil rose dramatically during our economic expansion, but that expansion began to slow at the onset of credit issues relating to subprime loans that surfaced in July 2007. From the Chart 1, you can see that both crude oil and transports far outperformed the S&P 500 during the expansion period. But notice in Chart 2 the inverse relationship that's developed since July 2007:



Crude oil definitely was rising from increased demand during global economic expansion. But it also was benefitting from the weak dollar. Since July the dollar index has tumbled, down another 10% in the last 8 months. It's the spiraling downward dollar that is fueling crude oil's continuing advance. It has been that same weak dollar that has helped to fuel other commodities like gold, silver and copper. I'm not saying it's solely responsible, but the extremely weak showing of the dollar is, at a minimum, aiding the commodity bulls. I believe the one event that could turn the tide on commodities is the lowering of interest rates by the European Central Bank (ECB). World markets are suggesting that the economic weakness felt here in the U.S. is not isolated. To date, the ECB has been adamant that inflation is the primary concern and rates abroad have remained elevated. The interest rates here in the U.S. are heading lower, so until the ECB changes its policy stance, commodity bulls will likely reap the rewards.

At the hint of an ECB rate cut, we'd lock in any and all commodity profits.

Happy trading!



Posted at 04:06 PM in Tom Bowley | Permalink


March 15, 2008THE DOW AND THE JANUARY LOWBy Chip Anderson
Arthur Hill
Technical analysis is a little art and a little science, which makes it subjective and open to interpretation. It is kind of like, gasp, economics. With a test of the January lows and a big surge on Tuesday, some pundits are talking double bottom. The interpretation of this double bottom depends on the charting style.





The two charts show the Dow with OHLC bars and with closing prices only. The bar chart sports a potential double bottom with two lows around 11750. In addition, the March low is actually above the February low. However, the close-only chart shows a clear downtrend with a lower (closing) low in March. The close-only chart looks more bearish than the bar chart. Before getting too excited about the double bottom chatter, I would keep in mind the clear downtrend on the close-only chart.



Posted at 04:05 PM in Arthur Hill | Permalink


March 15, 2008GET A LONG-TERM PERSPECTIVEBy Chip Anderson
Carl Swenlin
One of the reasons that Decision Point has spent so much time and money to create dozens of long-term historical chart series is that we must often compare current price and indicator behavior to prior periods where market action has been similar. For example, we are currently in a bear market, so, if we describe indicators as being oversold enough to hint that THE bottom is nearly in place, we need to look at prior bear markets to verify that assertion.

Currently, many analysts are claiming that deeply oversold long-term indicators are solid evidence that the bear market is nearly over. A good example is the chart of the Percent Buy Index (PBI) below. Clearly the PBI has reached its lowest level in three years, and the PMO (Price Momentum Oscillator) is also deeply oversold. Often a three-year history would be sufficient to make historical comparisons, but in this case it is woefully inadequate.



The next chart shows an eight-year history of the same indicators, encompassing the progress of the last bear market. Note that during that bear market the PBI first reached current levels at about the half-way point in the decline, and it reached the same or lower levels three more times before the bear market was finally over. Also, while the current PMO is very oversold compared to other low readings during the recent bull market, it has only gone half the distance to the lows set in 2001 and 2002.



Bottom Line: Oversold conditions in a bear market can mean that the trouble is far from being over. In fact, when the PBI reached current levels in September 2001, it was 18 months before the new bull market began. It is a virtual certainty that the current bear market will not play out the same way as the last one did, but comparing today's market action to past bear markets gives us a genuine long-term perspective, and allows us to put today's market activity in the proper context. Don't be short-sighted when performing your chart research.

Bear market rules apply! The odds are that support levels will be violated, and, if against those odds the market manages to rally off support, odds are that the rally will fail before it can change the long-term trend.



Posted at 04:04 PM in Carl Swenlin | Permalink


March 15, 2008CHECKING OUT THE HOMEBUILDERSBy Chip Anderson
Richard Rhodes
From a broader market perspective, the S&P 500 continues to weaken after having violated the 1982-2000 bull market was violated two weeks ago at near 1310. This would suggest that further weakness is forthcoming and quite sharp weakness at that. But in any bear market - the rallies are sharper and more poignant, and give rise to the "hope" that a bottom is forged. Last week's "Bear Stearns" implosion is simply part and parcel of the credit unwinding that appears to have quite a bit of distance to go if we take the S&P 500 trendline breakdown into account. We have projections near 945, or a 343 point fall from Friday's close.

But having said this, we want to hone in on the Homebuilder indexes and the fact that in January of this year - they forged a rather bullish monthly "key reversal" pattern higher from major support levels. While that isn't clear on this Homebuilder ETF (XHB) chart given the short period of time it has been around - if one looks towards the S&P Homebuilding sub-industry - one would find the very same pattern and from major support levels forged in 2002. Thus, given this major technical bullish pattern - and the fact interest rates are likely to continue lower as the credit crisis unfolds - then perhaps traders will find the homebuilders a 'relatively safe' area to hide, for everyone anywhere and everywhere 'knows their fleas'. Certainly in regards to the XHB, we would very well see a sharp rally unfold upwards towards $27.50 to $30.00, which would represent a rough back of the envelope gains of +37% to +50%. The homebuilder stocks are over-subscribed in terms of short positions outstanding - which could provide the fuel necessary to get to these levels regardless of the economic backdrop. Hedge funds look for leverage, and in an era of deleveraging - certainly using the short outstanding positions to goose them higher seems reasonable. On Friday, we were buyers of XHB, Pulte Homes (PHM) and Hovnanian Enterprises (HOV).





Posted at 04:03 PM in Richard Rhodes | Permalink


March 15, 2008ONE STEP FORWARD, TWO BACKBy Chip Anderson
Site News

As we continue to evaluate alternative data feeds, we continue to be surprised by the results we are getting especially when it comes to data accuracy. Last week, we finally started charting intraday data from several different providers in our test lab. That allowed us to visible compare the results and see which vendors could give us the "best" data. We were surprised to find out that our current vendors data was by far the "cleanest" of all the feeds we were looking at. That was surprising because our users alert us to minor intraday spikes on our charts all the time. We've asked the other data vendors to explain why their data is so "spikey" - hopefully, they will be able to find and fix the problem. If not, we'll move forward knowing that we are providing our members with the cleanest data available - even if it isn't always perfect.






Posted at 04:02 PM in Site News | Permalink


March 15, 2008YEN HITS THIRTEEN YEAR HIGHBy Chip Anderson
John Murphy
Last week I showed the Japanese Yen testing major chart resistance its 2000/2004 peaks. Today's 2% gain against the dollar put the yen over 100 for the first time in thirteen years (1995). While that's good for the yen, it's not necessarily good for global stocks which have been falling as the yen has been rising since last summer. Another low-yielding currency had a strong day today. The Swiss Franc gain of 1.5% made it the world's second strongest currency and pushed it to a new record high against the dollar. With the dollar and U.S. rates falling sharply today (along with stocks), gold and bonds had another strong day.





Posted at 04:01 PM in John Murphy | Permalink


March 15, 2008THE DISPLACED MOVING AVERAGE RIBBONBy Chip Anderson
Chip Anderson
Hello Fellow ChartWatchers!
A while back, demonstrated the concept of the Moving Average Ribbon here as a way for seeing the "waves and ripples" for any stock. The concept is simple - just plot lots of Moving Average overlays on the same chart but change the period for each MA by a fixed amount.
Many people really liked that concept and many people still use it in their daily analysis. Here's a different take on that same concept - the Displaced Moving Average Ribbon:

(StockCharts members can click the link above to see exactly how the chart was created.)
Just like the MA Ribbon, the Displaced MA Ribbon plots several Moving Average overlays on the same chart, only this time each MA has the same period BUT the offset for each MA is increased/decreased by a fixed amount. For those who aren't familiar with it, the Moving Average overlay on SharpCharts can take a second, optional parameter which represents the offset (positive or negative) for a moving average. For example, if you specify "50,5" as the parameters for a MA, SharpCharts will plot the 50-day Moving Average line and then shift it to the right by 5 periods. Similarly, "50,-5" shifts the MA line 5 periods to the left.
The Displaced MA Ribbon can help you see when a stock's current trend is "running out of steam" - if all of the lines are marching in step, things a great and the current trend should continue. When the lines start to get "tangled", it's time to re-evaluate things.
In the example above, I choose to use a Simple Moving Average with a 50-day period and displacement offsets of 5 periods. All of those things can be adjusted to suit your situation. You may find that a ribbon based on 20-day EMAs with 10-period offsets works better. That's great! Experimentation leads to familiarity and then to trust - and you need to trust an indicator before you can trade with it.
While I personally prefer the original MA Ribbon, the Displaced MA Ribbon can provide a different perspective on things and can help alert you to trend changes you might otherwise miss.



Posted at 04:00 PM in Chip Anderson | Permalink


March 01, 2008TRANSPORTS FALL FROM RESISTANCEBy Chip Anderson
Arthur Hill
The Transport iShares (IYT) is an ETF designed to match the performance of the Dow Jones Transportation Average. The key industry groups include airlines, railroads, truckers and air freight, all of which are quite sensitive to the overall economy.

After surging in January, the ETF met stiff resistance in February and this week's decline looks like the start of another leg lower. Resistance stems from the 200-day moving average and the reaction highs from late August to mid December. The ETF surged to this zone, stalled and then backed off with a vengeance the last three days.



In addition to a failure at resistance, a key volume indicator shows signs of distribution and increased selling pressure. On Balance Volume (OBV) peaked on 1-Feb and declined the last four weeks. Even while the ETF traded flat, OBV was already moving lower. The long red volume bars show high-volume selling that preceded this breakout.



Posted at 05:05 PM in Arthur Hill | Permalink


March 01, 2008WHIPSAW!By Chip Anderson
Carl Swenlin
All mechanical models have weaknesses, and our Thrust/Trend Model is no exception – it is vulnerable to whipsaw. Whipsaw occurs when the market moves just enough in one direction to trip the signal triggers in the model, then it reverses direction and moves just far enough to trigger a reverse signal. This results in a loss on the previous signal. This has happened a number of times in the last several months.

Our model is designed to capture intermediate-term trends and to ride out the zigzag movements and minor corrections that occur as the market trends up or down; however, when the market is in the process of forming a top or bottom, the associated chop can be sufficient to whipsaw the model a lot. Also, bear market rallies can be quite violent and often exceed normal expectations, so whipsaw is quite common then.

Looking at the chart below, you can clearly see the numerous 20/50-EMA crossovers that have occurred in the last year, something that would not happen if the market were in a solid trend. More important, let's look at what is probably the most recent whipsaw.

The Thrust/Trend Model (T/TM) generates a buy signal any time the PMO (Price Momentum Oscillator) and the PBI (Percent Buy Index) have both crossed up through their moving averages. This is a relatively short-term event, and the signal should be considered short-term until the 20-EMA of price crosses up through the 50-EMA. This action confirms or "locks in" the buy signal, and the PMO and PBI become irrelevant. Next a sell or neutral signal would be generated when the 20-EMA crosses back down through the 50-EMA.

Getting back to the current buy signal, notice that I have marked with green arrows the moving average crossovers that generated it. At this point, it is highly likely that this signal will prove to be a fakeout, because the 20-EMA is a long way from managing an upside crossover of the 50-EMA. The next most likely event will probably be the PMO or PBI crossing down through a moving average, which will generate a sell signal.



It is important to remember that T/TM buy signals, particularly in a bear market, are short-term events, and discretionary decisions are necessary to avoid the losses whipsaw can cause. How do we know we are in a bear market? Again, when the 50-EMA crosses down through the 200-EMA on the daily chart, we assume a bear market is in force. On the next chart, a weekly-based chart of the S&P 500 Index, we use the 17/43-EMA crossover as a bear market signal. Clearly, the total picture on this chart is pretty grim.



Bottom Line: Oversold market conditions and a fair amount of manipulation from the sidelines has not been sufficient to move the market out of the consolidation range of the last several weeks. This should not be a surprise because we are in a bear market, and in a bear market we should expect negative outcomes.



Posted at 05:04 PM in Carl Swenlin | Permalink


March 01, 2008US CLEARLY IN BEAR MARKETBy Chip Anderson
Richard Rhodes
As the credit crisis continues to unfold in rather negative fashion; many believe that the US economy will not enter into a recession, and many believe that if we do enter into a recession - that it is likely to be short-lived and shallow. We'd beg to differ as this will not be a "V" shaped recovery as most hope for, but more of the "U" variety that few fear...more long and drawn out. Demand for credit is high; availability of credit is low.

But our concern aside, the US equity markets have clearly entered into a bear market. Today, one should look at the monthly NASDAQ Composite chart to see that the defining technical indicators for the bull market off the 2002 lows have been violated. To keep it rather simple, for simple is best - rising trendline support of the rising wedge was violated. We all know from Technical Analysis 101 that monthly trendline breakdowns carry more weight. Also, the major trend defining 25-month moving average was violated - which in tandem with the trendline violation - argues strongly for sharply lower prices.

Therefore, rallies are to be sold, which given current prices are only but 161 points below the 25-month moving average - suggests this bear market is about to accelerate. And, we won't see it end until the current complacent 'public' hits the much vaunted "puke point." Where that point is will be debated for a number of months; but perhaps the 50%-62% retracement zone at 1844-2066 will offer at least an initial bottoming target prior to what is likely a sharp short covering rally. For now, all that really matters is that the trend lower; and as such...we are sellers of Technology, Consumer Discretionary and Retail shares.





Posted at 05:03 PM in Richard Rhodes | Permalink


March 01, 2008JON MARKMAN'S NEW BOOK ON SPECIAL!By Chip Anderson
Site News

Jon Markman's first book "Online Investing" came out in 2000 and was a HUGE hit with Internet investors. Now Jon is back with a new offering, The New Day Trader Advantage, and we now have it on special in our bookstore. Jon's clear, easy-to-understand writing style and no-nonsense advice make this book invaluable and the newest member of our "Must Have" book list. Don't be fooled by the title - this book can help all kinds of investors. Order your copy today.







Posted at 05:02 PM in Site News | Permalink


March 01, 2008WHY A RISING YEN ISN'T GOOD FOR STOCKSBy Chip Anderson
John Murphy
I first started writing about the danger posed to global stocks last summer when the yen first started rising. I also wrote that was because a rising yen was part of the unwinding of the so-called "yen carry trade". Over the last few years, global traders had been borrowing yen at almost no interest charge (shorting the yen) and using those funds to buy higher-yielding assets elsewhere including currencies and stocks. For awhile, it almost seemed like the global rally in stocks was predicated on the yen staying down and providing a continuing supply of cheap global liquidity. That all started to change last summer. Chart 1 shows a generally inverse relationship over the last two years between the Dow Jones World Stock Index (blue line) and the yen (black line). Note that every blip in the yen since the start of 2006 coincided with a market pullback. Last summer, however, the yen turned up in a more serious way. The upturn in the yen during July coincided exactly with the start of the topping process in global stock markets. Each subsequent yen upturn (November and December) coincided with another stock peak. That certainly suggests that yen strength is contributing to global stock weakness. That's because traders are now being forced to buy back yen shorts and sell assets elsewhere. Chart 2 shows the impact of the rising yen even more dramatically. That chart compares global stocks (blue line) to the yen (plotted as the black zero line). The blue line is in effect a global stock/yen ratio. It shows that a rising yen has been a bad thing for stocks. And there's no sign of that negative trend ending. At the risk of a bad pun, Chart 2 shows that a stronger yen has stopped "carrying" the bull market in stocks.







Posted at 05:01 PM in John Murphy | Permalink


March 01, 2008BLOOD ON THE CARPETSBy Chip Anderson
Chip Anderson
Hello Fellow ChartWatchers!
Sorry for the ghastly title to this article, but the charts are rather ghastly as the moment and - as the image below shows - the damage is widespread:

That is a snapshot of our S&P Sector Market Carpet right now. Each stock in the carpet is represented by a colored square. The color of the square is determined by the change in the stock's price since February 1st. Dark red indicates a greater than 5% loss; dark green indicates a greater than 5% gain.
As you can see, there's only one sector that survived February - the Energy stocks. Our PerfChart tool brings that fact into even sharper focus:

Keep these two great tools in mind as you follow the upcoming twists and turns in the markets. They should keep you out of trouble.

hefeiddd

By Chip AndersonTom Bowley
It makes perfect sense that higher oil prices could derail (no pun intended) transports as the implications are clear. But the truth might surprise you. From Chart 1 below, you'll see that oil prices have been rising dramatically over the past 6 years. The price per oil was below $20 per barrel in 2002. That seems almost unfathomable as we contemplate $110 per barrel oil. That's nearly a six fold increase in the price of oil over a six year period. There's no possibility that transportations could thrive in that environment, correct? I mean, it just doesn't make any logical sense. Or does it? Supply and demand drives oil prices just as it does any other commodity or financial instrument, at least from an economic perspective. As the world economy was strengthening after our 2000-2002 bear market, oil prices naturally rose and they continued rising. Economic growth was sustained for a very long period and oil prices went along for the ride. Transports also benefit during economic expansion. So long as demand is at least partially responsible for higher oil prices, then transports can also thrive simultaneously. Now take another look at the Chart 1:



Crude oil rose dramatically during our economic expansion, but that expansion began to slow at the onset of credit issues relating to subprime loans that surfaced in July 2007. From the Chart 1, you can see that both crude oil and transports far outperformed the S&P 500 during the expansion period. But notice in Chart 2 the inverse relationship that's developed since July 2007:



Crude oil definitely was rising from increased demand during global economic expansion. But it also was benefitting from the weak dollar. Since July the dollar index has tumbled, down another 10% in the last 8 months. It's the spiraling downward dollar that is fueling crude oil's continuing advance. It has been that same weak dollar that has helped to fuel other commodities like gold, silver and copper. I'm not saying it's solely responsible, but the extremely weak showing of the dollar is, at a minimum, aiding the commodity bulls. I believe the one event that could turn the tide on commodities is the lowering of interest rates by the European Central Bank (ECB). World markets are suggesting that the economic weakness felt here in the U.S. is not isolated. To date, the ECB has been adamant that inflation is the primary concern and rates abroad have remained elevated. The interest rates here in the U.S. are heading lower, so until the ECB changes its policy stance, commodity bulls will likely reap the rewards.

At the hint of an ECB rate cut, we'd lock in any and all commodity profits.





By Chip Anderson
Arthur Hill
Technical analysis is a little art and a little science, which makes it subjective and open to interpretation. It is kind of like, gasp, economics. With a test of the January lows and a big surge on Tuesday, some pundits are talking double bottom. The interpretation of this double bottom depends on the charting style.





The two charts show the Dow with OHLC bars and with closing prices only. The bar chart sports a potential double bottom with two lows around 11750. In addition, the March low is actually above the February low. However, the close-only chart shows a clear downtrend with a lower (closing) low in March. The close-only chart looks more bearish than the bar chart. Before getting too excited about the double bottom chatter, I



By Chip Anderson
Carl Swenlin
One of the reasons that Decision Point has spent so much time and money to create dozens of long-term historical chart series is that we must often compare current price and indicator behavior to prior periods where market action has been similar. For example, we are currently in a bear market, so, if we describe indicators as being oversold enough to hint that THE bottom is nearly in place, we need to look at prior bear markets to verify that assertion.

Currently, many analysts are claiming that deeply oversold long-term indicators are solid evidence that the bear market is nearly over. A good example is the chart of the Percent Buy Index (PBI) below. Clearly the PBI has reached its lowest level in three years, and the PMO (Price Momentum Oscillator) is also deeply oversold. Often a three-year history would be sufficient to make historical comparisons, but in this case it is woefully inadequate.



The next chart shows an eight-year history of the same indicators, encompassing the progress of the last bear market. Note that during that bear market the PBI first reached current levels at about the half-way point in the decline, and it reached the same or lower levels three more times before the bear market was finally over. Also, while the current PMO is very oversold compared to other low readings during the recent bull market, it has only gone half the distance to the lows set in 2001 and 2002.



Bottom Line: Oversold conditions in a bear market can mean that the trouble is far from being over. In fact, when the PBI reached current levels in September 2001, it was 18 months before the new bull market began. It is a virtual certainty that the current bear market will not play out the same way as the last one did, but comparing today's market action to past bear markets gives us a genuine long-term perspective, and allows us to put today's market activity in the proper context. Don't be short-sighted when performing your chart research.





Richard Rhodes
From a broader market perspective, the S&P 500 continues to weaken after having violated the 1982-2000 bull market was violated two weeks ago at near 1310. This would suggest that further weakness is forthcoming and quite sharp weakness at that. But in any bear market - the rallies are sharper and more poignant, and give rise to the "hope" that a bottom is forged. Last week's "Bear Stearns" implosion is simply part and parcel of the credit unwinding that appears to have quite a bit of distance to go if we take the S&P 500 trendline breakdown into account. We have projections near 945, or a 343 point fall from Friday's close.

But having said this, we want to hone in on the Homebuilder indexes and the fact that in January of this year - they forged a rather bullish monthly "key reversal" pattern higher from major support levels. While that isn't clear on this Homebuilder ETF (XHB) chart given the short period of time it has been around - if one looks towards the S&P Homebuilding sub-industry - one would find the very same pattern and from major support levels forged in 2002. Thus, given this major technical bullish pattern - and the fact interest rates are likely to continue lower as the credit crisis unfolds - then perhaps traders will find the homebuilders a 'relatively safe' area to hide, for everyone anywhere and everywhere 'knows their fleas'. Certainly in regards to the XHB, we would very well see a sharp rally unfold upwards towards $27.50 to $30.00, which would represent a rough back of the envelope gains of +37% to +50%. The homebuilder stocks are over-subscribed in terms of short positions outstanding - which could provide the fuel necessary to get to these levels regardless of the economic backdrop. Hedge funds look for leverage, and in an era of deleveraging - certainly using the short outstanding positions to goose them higher seems reasonable. On Friday, we were buyers of XHB, Pulte Homes (PHM) and Hovnanian Enterprises (HOV).





By Chip Anderson


John Murphy
Last week I showed the Japanese Yen testing major chart resistance its 2000/2004 peaks. Today's 2% gain against the dollar put the yen over 100 for the first time in thirteen years (1995). While that's good for the yen, it's not necessarily good for global stocks which have been falling as the yen has been rising since last summer. Another low-yielding currency had a strong day today. The Swiss Franc gain of 1.5% made it the world's second strongest currency and pushed it to a new record high against the dollar. With the dollar and U.S. rates falling sharply today (along with stocks), gold and bonds had another strong day.





By Chip Anderson


Chip Anderson
Hello Fellow ChartWatchers!
A while back, demonstrated the concept of the Moving Average Ribbon here as a way for seeing the "waves and ripples" for any stock. The concept is simple - just plot lots of Moving Average overlays on the same chart but change the period for each MA by a fixed amount.
Many people really liked that concept and many people still use it in their daily analysis. Here's a different take on that same concept - the Displaced Moving Average Ribbon:

(StockCharts members can click the link above to see exactly how the chart was created.)
Just like the MA Ribbon, the Displaced MA Ribbon plots several Moving Average overlays on the same chart, only this time each MA has the same period BUT the offset for each MA is increased/decreased by a fixed amount. For those who aren't familiar with it, the Moving Average overlay on SharpCharts can take a second, optional parameter which represents the offset (positive or negative) for a moving average. For example, if you specify "50,5" as the parameters for a MA, SharpCharts will plot the 50-day Moving Average line and then shift it to the right by 5 periods. Similarly, "50,-5" shifts the MA line 5 periods to the left.
The Displaced MA Ribbon can help you see when a stock's current trend is "running out of steam" - if all of the lines are marching in step, things a great and the current trend should continue. When the lines start to get "tangled", it's time to re-evaluate things.
In the example above, I choose to use a Simple Moving Average with a 50-day period and displacement offsets of 5 periods. All of those things can be adjusted to suit your situation. You may find that a ribbon based on 20-day EMAs with 10-period offsets works better. That's great! Experimentation leads to familiarity and then to trust - and you need to trust an indicator before you can trade with it.
While I personally prefer the original MA Ribbon, the Displaced MA Ribbon can provide a different perspective on things and can help alert you to



Arthur Hill
The Transport iShares (IYT) is an ETF designed to match the performance of the Dow Jones Transportation Average. The key industry groups include airlines, railroads, truckers and air freight, all of which are quite sensitive to the overall economy.

After surging in January, the ETF met stiff resistance in February and this week's decline looks like the start of another leg lower. Resistance stems from the 200-day moving average and the reaction highs from late August to mid December. The ETF surged to this zone, stalled and then backed off with a vengeance the last three days.



In addition to a failure at resistance, a key volume indicator shows signs of distribution and increased selling pressure. On Balance Volume (OBV) peaked on 1-Feb and declined the last four weeks. Even while the ETF traded flat, OBV was already moving lower. The long red volume bars show



By Chip Anderson
Carl Swenlin
All mechanical models have weaknesses, and our Thrust/Trend Model is no exception – it is vulnerable to whipsaw. Whipsaw occurs when the market moves just enough in one direction to trip the signal triggers in the model, then it reverses direction and moves just far enough to trigger a reverse signal. This results in a loss on the previous signal. This has happened a number of times in the last several months.

Our model is designed to capture intermediate-term trends and to ride out the zigzag movements and minor corrections that occur as the market trends up or down; however, when the market is in the process of forming a top or bottom, the associated chop can be sufficient to whipsaw the model a lot. Also, bear market rallies can be quite violent and often exceed normal expectations, so whipsaw is quite common then.

Looking at the chart below, you can clearly see the numerous 20/50-EMA crossovers that have occurred in the last year, something that would not happen if the market were in a solid trend. More important, let's look at what is probably the most recent whipsaw.

The Thrust/Trend Model (T/TM) generates a buy signal any time the PMO (Price Momentum Oscillator) and the PBI (Percent Buy Index) have both crossed up through their moving averages. This is a relatively short-term event, and the signal should be considered short-term until the 20-EMA of price crosses up through the 50-EMA. This action confirms or "locks in" the buy signal, and the PMO and PBI become irrelevant. Next a sell or neutral signal would be generated when the 20-EMA crosses back down through the 50-EMA.

Getting back to the current buy signal, notice that I have marked with green arrows the moving average crossovers that generated it. At this point, it is highly likely that this signal will prove to be a fakeout, because the 20-EMA is a long way from managing an upside crossover of the 50-EMA. The next most likely event will probably be the PMO or PBI crossing down through a moving average, which will generate a sell signal.



It is important to remember that T/TM buy signals, particularly in a bear market, are short-term events, and discretionary decisions are necessary to avoid the losses whipsaw can cause. How do we know we are in a bear market? Again, when the 50-EMA crosses down through the 200-EMA on the daily chart, we assume a bear market is in force. On the next chart, a weekly-based chart of the S&P 500 Index, we use the 17/43-EMA crossover as a bear market signal. Clearly, the total picture on this chart is pretty grim.



Bottom Line: Oversold market conditions and a fair amount of manipulation from the sidelines has not been sufficient to move the market out of the consolidation range of the last several weeks. This should not be a surprise because we are in a bear market, and in a bear market we should expect negative outcomes.



By Chip Anderson


Richard Rhodes
As the credit crisis continues to unfold in rather negative fashion; many believe that the US economy will not enter into a recession, and many believe that if we do enter into a recession - that it is likely to be short-lived and shallow. We'd beg to differ as this will not be a "V" shaped recovery as most hope for, but more of the "U" variety that few fear...more long and drawn out. Demand for credit is high; availability of credit is low.

But our concern aside, the US equity markets have clearly entered into a bear market. Today, one should look at the monthly NASDAQ Composite chart to see that the defining technical indicators for the bull market off the 2002 lows have been violated. To keep it rather simple, for simple is best - rising trendline support of the rising wedge was violated. We all know from Technical Analysis 101 that monthly trendline breakdowns carry more weight. Also, the major trend defining 25-month moving average was violated - which in tandem with the trendline violation - argues strongly for sharply lower prices.

Therefore, rallies are to be sold, which given current prices are only but 161 points below the 25-month moving average - suggests this bear market is about to accelerate. And, we won't see it end until the current complacent 'public' hits the much vaunted "puke point." Where that point is will be debated for a number of months; but perhaps the 50%-62% retracement zone at 1844-2066 will offer at least an initial bottoming target prior to what is likely a sharp short covering rally. For now, all that really matters is that the trend lower; and as such...we are sellers of Technology, Consumer Discretionary and Retail shares.








I first started writing about the danger posed to global stocks last summer when the yen first started rising. I also wrote that was because a rising yen was part of the unwinding of the so-called "yen carry trade". Over the last few years, global traders had been borrowing yen at almost no interest charge (shorting the yen) and using those funds to buy higher-yielding assets elsewhere including currencies and stocks. For awhile, it almost seemed like the global rally in stocks was predicated on the yen staying down and providing a continuing supply of cheap global liquidity. That all started to change last summer. Chart 1 shows a generally inverse relationship over the last two years between the Dow Jones World Stock Index (blue line) and the yen (black line). Note that every blip in the yen since the start of 2006 coincided with a market pullback. Last summer, however, the yen turned up in a more serious way. The upturn in the yen during July coincided exactly with the start of the topping process in global stock markets. Each subsequent yen upturn (November and December) coincided with another stock peak. That certainly suggests that yen strength is contributing to global stock weakness. That's because traders are now being forced to buy back yen shorts and sell assets elsewhere. Chart 2 shows the impact of the rising yen even more dramatically. That chart compares global stocks (blue line) to the yen (plotted as the black zero line). The blue line is in effect a global stock/yen ratio. It shows that a rising yen has been a bad thing for stocks. And there's no sign of that negative trend ending. At the risk of a bad pun, Chart 2 shows that a stronger yen has stopped "carrying" the bull market in stocks.







By Chip Anderson


Chip Anderson
Hello Fellow ChartWatchers!
Sorry for the ghastly title to this article, but the charts are rather ghastly as the moment and - as the image below shows - the damage is widespread:


As you can see, there's only one sector that survived February - the fact into even sharper focus:

Keep these two great tools in mind as you follow the upcoming twists and turns in the markets. They should keep you out of trouble.

hefeiddd

April 19, 2008THE GAME HAS CHANGEDBy Chip Anderson
Tom Bowley
In the February 3rd edition of ChartWatchers, I made a bold prediction that the market had bottomed with the January lows. I did so because of the extreme pessimism in the options world. If you go back to 1995, the year that the Chicago Board Options Exchange began providing investors with historical put call readings, and average the daily put call readings, you'll find that 0.75 is the "norm". That's been the average end of day reading over the past 12-13 years. A .75 reading on the put call ratio means that for every 3 puts bought, 4 calls are bought. 3 divided by 4 = .75. When the ratio moves above 1.0, it indicates that more puts are being bought than calls. Now let's take it one step further - let's looks at the "equity-only" put call ratio. This strips out the index options used as part of more complex trading strategies employed by portfolio and hedge fund managers, and other investment professionals. The "equity only" put call ratio gives us much more of a sense of the individual traders' psyche.

Since October 2003 - the CBOE began breaking out equity options vs. index options at that time - the "equity only" put call ratio has hit or topped 1.0 on just 16 occasions. 3 of those occasions came on consecutive days from August 14-16, 2007. That marked a very significant bottom in the market. Then a month or so ago, it happened again. The retail investor couldn't take the pain any longer and jumped in on the "sure-fire" bet that the market would fall into oblivion. The "equity only" put call ratio spiked to 1.35 on March 17, 2008. That was the highest reading ever recorded at the CBOE since it began providing the "equity only" data. The 5 day moving average of the "equity only" put call ratio hit 1.01 that same day, also the first time we've seen that.

Would you like to take a guess as to which day the Dow Jones, S&P 500, NASDAQ, NDX, Russell 2000, and SOX all mysteriously hit their lows to launch the recent bullishness?

March 17th.

The chart below reflects the 5 times since 2003 that the 5 day moving average of the "equity only" put call ratio has exceeded .90. In every single case, that bearishness by the retail investor marked a very significant bottom.



And in the event you're wondering what happens when the "equity only" put call ratio declines to an extremely bullish level, check out the market's reaction in 2007 when the 5 day moving average of the "equity only" put call ratio hit its two lowest levels:



Clearly, the market has a renewed sense of bullishness as we've entered spring. The season has changed and so has the game. There's a reason the market is so resilient. The economy hasn't magically improved. We've simply run out of sellers.

Happy trading!
Join Tom and the Invested Central team at www.investedcentral.com. Invested Central provides daily market guidance, intraday stock alerts, annotated stock setups, LIVE member chat sessions, and much, much more. Also, listen to Tom throughout the trading week on The Invested Central Financial Hour, a business talk radio show focused on technical analysis of the stock market. The shows can be heard LIVE or archived at www.washingtonbusinessradio.com.





Posted at 04:05 PM in Tom Bowley | Permalink


April 19, 2008IMW VENTURES INTO RESISTANCE ZONEBy Chip Anderson
Arthur Hill
Despite a big advance over the last few weeks, the Russell 2000 ETF (IWM) entered a resistance zone and has become overbought. There are two reasons to expect resistance around 72. First, the three February highs mark resistance in this area. Second, a 50% retracement of the December-January decline would extend to around 72. Corrective rallies normally retrace 38-62% of the prior decline. 50% marks the mid point and a good area to start expecting resistance.

As far as oversold conditions, the Commodity Channel Index (CCI) moved above 100 for the second time this month. IWM remains both overbought AND strong as long as CCI holds above 100. I drew a trendline extending up from the March lows. A move below this trendline would signal trouble and a break into negative territory would be bearish for momentum.
Overall, a rising price channel is taking shape in IWM since mid March. As with the CCI indicator, this advance is in good shape as long as the lower trendline holds. I am marking key support at 68 from the late March and mid April lows. A move below the channel trendline and key support would reverse the uptrend that has been in place since mid March. Until such breaks, the bulls have the edge.


Posted at 04:04 PM in Arthur Hill | Permalink


April 19, 2008SUSPICIOUS GAPSBy Chip Anderson
Carl Swenlin
On Wednesday and Friday of this week the market opened up with large gaps from the previous closing price, and I think this activity is suspicious, possibly contrived. It is, after all, options expiration week, and weird market action can be expected. This week it is likely that the big money wanted to stick it to the bears and put holders, as usual, and they did so quite skillfully.
These large up gaps can be contrived by heavy buying of S&P futures just before the market opens. There is usually a bullish cover story available to use as justification for the initial buying spree. When the market opens, many bears are forced to cover in order to limit losses, so the price advance is supported by real buying. Next, the reluctant bulls are sucked into the move as they begin chasing the market.

While I tend to believe that price action speaks for itself, we are in a bear market, and I expect that volume should confirm such enthusiastic price moves. In these two cases, I don't think it does. As you can see on the chart below, volume is only average, not explosive like price movement. So what we have is a breakout on modest volume, and strong overhead resistance dead ahead in the form of the 200-EMA, the declining tops line, and the long-term rising trend line.

Bottom Line: We are in a bear market, and the 6-month period of negative seasonality begins at the end of this month, so we should expect bearish outcomes. In this case, the rally should fail before it penetrates the 1450 level. Having said that, you will note that all but one of the 27 market and sector indexes are on intermediate-term buy signals. That is because our primary model is designed to enter rallies relatively early. Because the long-term model is still on a sell, we should expect that the intermediate-term signals will fail in a short time. When the PMOs (Price Momentum Oscillators) begin to reverse downward, that would be a good time to consider closing long positions.


Posted at 04:03 PM in Carl Swenlin | Permalink


April 19, 2008STORM ON THE HORIZONBy Chip Anderson
Richard Rhodes
The intermediate-term broader market technical condition is improving; however, we believe that this "improvement" is nothing more than a respite before the larger storm develops. First, let’s note that the Wilshire 5000 has broken its bull market trendline off its 2003-2006 lows, and remains on the defensive below its 70-week moving average. Secondly, a countertrend improvement has developed from the longer-term 200-week moving average, which did indeed provide support back in 2004 in tandem with the 70-week moving average. We would posit - and perhaps it is too early to do so, but we certainly want to keep all options on the table - that the current improvement is nothing more than a "right shoulder" forming of a larger "head & shoulders" topping pattern. Obviously overhead resistance at the 2007 previous low at 14,100 and the 70-week moving average at 14600 must prove its merit with lower prices - and break below neckline support. If this is the case, then we could very well see prices falter sharply as low as 10,000.
Certainly one must be concerned with the credit crisis/contagion to be sure, for it is the "great unwinding" that took years to put in place - and we would be rather naïve to believe that it is to be solved in a matter of 6-8 months. If this bear market is over, then it would be the second shallowest on record - and given the largest debt bubble in history is unwinding - then we remain very skeptical the decline is over. Moreover, unprecedented stresses in the money markets have developed this past week; stresses which the stock market is ignoring at is own peril. This is our roadmap; we short sellers of rallies.



Posted at 04:02 PM in Richard Rhodes | Permalink


April 19, 2008PENDULUM SWINGS BACK TO STOCKSBy Chip Anderson
John Murphy
This week's market action has been characterized by stock buying and bond selling. The change in the relationship between those two markets is shown in the chart below which plots a ratio of the 7-10 Year Treasury Bond Fund (IEF) by the S&P 500 SPDRS (SPY). The falling ratio since October shows that investors have favored bond prices over the last six months. Since mid-March, however, the ratio has turned up. That means that investors are rotating out of bonds and back to stocks. The rise in the ratio isn't enough to signal a major trend change between the two asset classes. But it does show that investors are feeling a bit more optimistic. Rising bond yields gave a boost to the dollar today and caused heavy profit-taking in gold.

Subscribe to John Murphy's Market Message today!





Posted at 04:01 PM in John Murphy | Permalink


April 19, 2008KAGI AND RENKO CHARTS COME TO TOWNBy Chip Anderson
Chip Anderson
StockCharts.com is pleased to announce that we have just added Kagi and Renko charting formats to our site. Go. Check em out.
Hmmm... Why are you still here? Oh, right. Not everyone knows what Kagi and Renko charts are. Well, lemme show you what a Kagi chart looks like first:

Pretty different eh? It's actually more like a P&F chart than a OHLC or Candlestick chart. For one thing, notice that the horizontal time axis isn't uniform. Just like a P&F column of X's, the thicker lines will go up until a reversal occurs. Similarly, thin lines go down until prices move up again significantly. Notice how the Kagi display makes the support/resistance level clearer on the chart above?
Renko is similar only instead of vertical lines going up and down, boxes are filled at a 45-degree angle during each uptrend and downtrend. Here's the same chart in Renko format:

We are still working on creating detailed ChartSchool articles for Kagi and Renko charts. Until those are done, you can refer to these great discussions on Investopedia.com - one for Kagi and one for Renko.
What? You're still still here? Go play with Kagi and Renko like everyone else! Oh, right. I forget to tell you how to create them. It's really easy. Just select Kagi or Renko from the "Type" dropdown in the "Chart Attributes" section of the SharpCharts workbench. You can even add indicators and overlays - although please be very careful about using those until you fully understand what they are telling you (for instance, a 20-period moving average becomes a 20-reversal moving average).
Have fun learning about these new tools - take time to learn about them and slowly incorporate them into your chart analysis if they work for you.



Posted at 04:00 PM in Chip Anderson | Permalink


April 06, 2008DIA BATTLES RESISTANCEBy Chip Anderson
Arthur Hill
Despite some volatile price action the last few months, the Dow Industrials ETF (DIA) remains below a major support break and has yet to win the battle at resistance. DIA formed a rather large head-and-shoulders pattern in 2007 and broke support with a sharp decline in January. This support zone then turned into resistance and the ETF failed to break back above this zone in February.
DIA is making another challenge to resistance with a surge over the last three weeks. The prior surges fizzled around 127.5 and this is the first level to watch. A close above the February highs (127.5) would be positive for DIA. The bottom window shows MACD moving towards its signal line with an upturn over the last few weeks. A signal line crossover would be positive and show improving upside momentum.



Posted at 04:04 PM in Arthur Hill | Permalink


April 06, 2008A LOOK AT (COUGH, COUGH) FUNDAMENTALSBy Chip Anderson
Carl Swenlin
As a technician I rarely look at fundamentals, primarily because they are not directly useful in making trading decisions; however, while fundamentals are not primary timing tools, they can be useful in establishing a broader context within which technical indicators can be interpreted. For example, one of the reports the Decision Point publishes daily is The Overview of Market Fundamentals. The following is an edited excerpt from that report.
First, notice that, in spite of a substantial market decline, the current P/E is 20.7, which is slightly above the overbought limit of the historical range. Notice also that GAAP earnings are projected to drop to 55.15 by the end of 2008 Q2. Compare that to earnings of 84.92 at the end of 2007 Q3. In spite of the fairy tale projections of "operating" earnings, real earnings are crashing.
************ S&P 500 FUNDAMENTALS ************
The real P/E for the S&P 500 is based on "as reported" or GAAP earnings (calculated using Generally Accepted Accounting Principals), and it is the standard for historical earnings comparisons. The normal range for the GAAP P/E ratio is between 10 (undervalued) to 20 (overvalued).
Market cheerleaders invariably use "pro forma" or "operating earnings," which exclude some expenses and are deceptively optimistic. They are useless and should be ignored.
The following are the most recently reported and projected twelve-month trailing (TMT) earnings and price/earnings ratios (P/Es) according to Standard and Poors.

[/td]2007 Q4Est 2008 Q1Est 2008 Q2Est 2008 Q3[/tr]
TMT P/E Ratio (GAAP)	20.7	22.5	24.8	23.6
TMT P/E Ratio (Operating)	16.6	16.9	16.9	16.1
TMT Earnings (GAAP)	66.18	60.95	55.15	57.92
TMT Earnings (Operating)	82.54	81.08	81.17	85.20

Based upon the latest GAAP earnings the following would be the approximate S&P 500 values at the cardinal points of the normal historical value range. They are calculated simply by multiplying the GAAP EPS by 10, 15, and 20:
Undervalued (SPX if P/E = 10): 662 Fair Value (SPX if P/E = 15): 993 Overvalued (SPX if P/E = 20): 1324
The following chart helps put current events into an historical perspective, showing the earnings crash that accompanied the last bear market, as well as the current earings decline. I don't know how anyone could be optimistic about this picture.

Now let's turn to the technical market picture. The chart below shows that the long-term sell signal is still in force; however, a nice looking bottom has formed and could be a solid base for a medium-term rally. As I write this the market is still open on April 4 and the S&P 500 is trying to break out of a three-month trading range. Also, most of our medium-term indicators (not shown) have reached very oversold levels and have formed positive divergences. Finally, we have medium-term buy signals on most of the indexes and sectors we track. Evidence is pretty strong that we are beginning a rally that will challenge important overhead resistance, possibly around the area of 1450 on the S&P 500.

Bottom Line: The earnings picture is abysmal, and there is a solid long-term sell signal in progress. Playing the long side looks promising, but keep a tight reign on long positions because we are in a bear market until proven otherwise. Remember: "Bear market rules apply! The odds are that support levels will be violated, and, if against those odds the market manages to rally off support, odds are that the rally will fail before it can change the long-term trend."
We rely on the 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. Note that we have included the nine Rydex Equal Weight ETF versions of the S&P Spider Sectors. This may seem redundant, but the equal weighted indexes most often do not perform the same as their cap-weighted counterparts, and they provide a way to diversify exposure.



Posted at 04:03 PM in Carl Swenlin | Permalink


April 06, 2008METAL AND OIL SERVICE STOCKS ARE BREAKING OUT TO THE UPSIDEBy Chip Anderson
John Murphy
Throughout the market problems of the first quarter, stocks tied to basic materials have been the top performing sector. That's also been true over the last week. The chart below shows the Materials SPDR (XLB) trading over 43 today for the first time this year. That puts in in striking distance of its fourth quarter highs. The rising relative strength line below the chart shows the group's superior performance since last autumn. Three of the top performing stocks in the XLB are Alcoa, Freeport McMoran Copper & Gold, and U.S Steel.

One of the top performers in the Oil Services Holders is Rowan Companies (RDC). The chart below shows the stock breaking out to the highest level since last July. Its relative strength ratio is doing the same. Beneath it, is a chart of ESV. It shows Ensco Intl already nearing a test of last summer's highs. Its relative strength ratio is in a strong uptrend. The strongest chart of all may belong to Halliburton (HAL). It shows that oil service leader nearing a challenge of its 2006 and 2007 highs in what appears to be a two-year "ascending triangle". (An ascending triangle is defined by two converging trend lines with a flat upper line and rising lower line. It's a bullish pattern.) A number of readers have asked where to start putting new money to work in the stock market. At the moment, two good choices seem to be basic material and energy stocks.



Posted at 04:01 PM in John Murphy | Permalink


April 06, 2008WHEN TRENDLINES COLLIDEBy Chip Anderson
Chip Anderson
Hello Fellow ChartWatchers!
The Real Estate industry is undergoing lots of challenges right now. Let's see how those challenges are affecting the REIT charts. Check out the current chart for the Dow Jones REIT index:

The problem with REITs is clear here - the blue downtrend line that started back in early 2007. It was created when the spike in October faltered around the 315 level.
The other problem is the break in the thin "2yr Support line" (just below 260) that happened back in December. That support level was created in mid 2005 and confirmed in June on 2006. It provided support in August of 2007 after the collapse began, but failed spectacularly last December. Since then, it's been a resistance level for the index - that is, until last week...
The longer term picture focuses on the 220 support level - the "4yr Support" line that I added. That level was created in late 2004 and confirmed in Oct. 2005. Recently, it halted the free fall at the start of 2008 and continues to look pretty strong.
The short-term question is "Will the index be able to break through that blue downtrend line? Or will it bounce lower and retest those two support levels again? ChartWatchers should be paying close attention to these key tests in the next couple of weeks.