June 03, 2006DOW CONSOLIDATES ABOVE KEY SUPPORT By Chip Anderson
Arthur Hill
The Dow came down hard in May, but found support at 11050. This support level stems from January resistance and the April low. A key tenet of technical analysis is that broken resistance turns into support. The Dow broke above 11050 in February and this level turned into support in April and May.
Since reaching support, the Dow consolidated over the last two weeks and a pennant type consolidation is forming (gray oval). The sharp decline created an oversold condition and the Dow needed to work off this condition. A two week trading range is just the trick, but the pennant is a bearish continuation pattern. A move below the May low would confirm the pennant and call for a continuation of the May decline. The obvious target is the 200-day moving average around 10850. It is also worth noting that the Dow was the only major index NOT to move back above its 26-May high on Thursday and this shows relative weakness. The S&P 500, Russell 2000 and Nasdaq all surged above their 26-May high on Thursday.
For a bullish resolution to this consolidation, I will be watching resistance at 11300. This resistance level stems from the 50-day moving average, the 26-May high and the October trendline extension. The October trendline provided support until May and now acts as resistance. A break back above 11300 is needed to put the Dow back into the bull mode.
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
June 03, 2006BOTTOM LOOK PRETTY SOLID By Chip Anderson
Carl Swenlin
On Tuesday we saw the market successfully retest last week's lows, then on Thursday there was a climactic rally that broke above last week's highs. This was a lot more positive than many people (including me) were expecting. The most significant short-term event was that the CVI (Climactic Volume Indicator), which is the very nervous purple line on our first chart, hit its highest reading in over a year-and-a-half. This marked what I believe was an initiation climax (as opposed to an exhaustion climax). As the name implies, an initiation climax signals that a new short-term trend has been initiated in the direction of the climax, in this case up. Since the market is now short-term overbought, some backing and filling can take place before the up trend continues, but it is most likely that higher prices will be forthcoming.
What makes the recent bottom look pretty solid is that the other two indicators on the chart, the VTO (Volume Trend Oscillator) and STVO (ST Volume Oscillator), were very oversold at the recent price lows. I have circled other instances where both indicators were similarly and simultaneously oversold, and you can see that rallies of at least short-term duration resulted.
While this rally could challenge the May highs, I don't think it is the beginning of a major bull move because of our second chart below, which shows the percentage of stocks above their 20-, 50-, and 200-EMAs. As you can see, the shorter-term 20- and 50-EMA indicators reached oversold levels similar to other important bottoms in the last two years; however, the 200-EMA indicator was only modestly oversold at the recent price low. The bottom looks pretty solid but only for short-term purposes.
One thing to remember is that rallies out of oversold conditions are not a guaranteed sure thing. When the market turns bearish, oversold conditions are dangerous and can beget even more selling.
Bottom Line: Our primary medium-term timing model for the S&P 500 switched to neutral on May 19, which means that the decline was severe enough to trigger a caution flag. In order to return the model to a bullish stance, a modest amount of work will be required to the up side. The condition of the indicators says that is well within reach; however, I do not think this is the beginning of a major bull move, because the recent bottom was not deeply oversold on our long-term indicators.
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
June 03, 2006THE DAMAGE FROM "THE MAY SWOON" By Chip Anderson
Richard Rhodes
The May Swoon as we are apt to call weakness seen during the month had led to an increase in confusion amongst technical analysts. However, we would argue that is all about "time horizons", and we should confuse short-term movements with long-term time horizons as we are beginning to see. In fact, our short-term indicators and models have traded to their lowest points in months; however our longer-term work has just begun to weaken. Everyone is conditioned to buy the dips, and those that haven’t have paid the price. Hence, we think the market is well seasoned for a larger sell-off from a longer-term perspective.
Let's keep it simple and take a long-term viewpoint; May's trade formed a bearish "key reversal" lower in many of the industrialized as well as emerging market indices (we have shown the S&P 500 as it is likely to outperform during any decline). Thus, if we use this bearish formation as our starting point – the probability of a correction towards the rising major 40-month moving average support at 1145 has increased significantly. This would complete a normal -10% correction, and actually cause no harm to the bull market in stocks. However, if prices break through 1445, then a clear bear market will have begun.
Therefore, from a tactical perspective - market strength such as that seen this week should be sold and/or sold short given the 40-month moving average target...allowing for a slight monthly rise. Our favorite market indices to short: short small and mid cap stocks as well as emerging market ETFs.
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
June 03, 2006SERVER UPGRADES COMPLETED, MORE BANDWIDTH, FUTURE PLANS By Chip Anderson
Site News
SERVER UPGRADE COMPLETED - We hit another major milestone last week when we upgraded our final database server. In addition to the SharpCharts2 roll-out, we've been quietly upgrading our 8 database servers to the newest, fastest hardware from Dell with the newest, fastest software from Microsoft. Last Monday we replaced the last server. What this means to you is fastest response time and more charting data!
MORE BANDWIDTH - This weekend saw another major milestone in the advancement of our website; we added a third super-highspeed Internet connection to ensure that everyone can get to our charts as quickly as possible. Each T-3 connection we have can handle up to 45 Megabits of data, so at this point we can put out up to 135 Megabits of charting goodness. At current growth rates, that should hold us for another couple of weeks. ;-)
FUTURE PLANS - With the SharpCharts2 rollout behind us, you may be wondering what's next for StockCharts. Right now we have several important changes in the pipeline including:
- Smaller chart filesizes - means faster downloads for everyone.
- Improved look-and-feel for Extra! members - similar to the improved Public Chart Lists we rolled out two weeks ago.
- New indicators in the Scan Engine - gotta add all of SharpCharts2's indicators.
- ChartSchool improvements - soon it will work just like our new Support area does.
We're also continue to work on long-term improvements including a streaming version of our charts(!). Unfortunately, we do not know exactly when any of these new features will be available. Rest assured that we are working as hard as we can on them however. As things get closer to being finished, we'll let you know here in this newsletter.
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
June 03, 2006US DOLLAR AT CRUCIAL JUNCTURE By Chip Anderson
John Murphy
The chart below compares the Dollar Index (green line) to the CRB Index (purple line) since last September. The main message to be drawn from the chart is that the two markets have been trending in opposite directions which is their natural tendency. Dollar peaks last November and again in March coincided with CRB upturns. A dollar bounce during the first quarter coincided with a CRB selloff. The recent minor bounce in the dollar may have contributed to the recent slide in commodities. That's why commodity traders need to watch the dollar especially closely at this point. That's because the dollar is at a crucial chart juncture.
Back in March I wrote a column about a possible "head and shoulders" bottom being formed by the Dollar Index. The next chart is an updated look at that possible chart pattern. The horizontal line drawn over the 2005 peaks near 92 is a possible "neckline". The middle trough formed at the start of 2005 is a possible "head", while the early 2004 trough is a possible "left shoulder". If the current selloff is a "right shoulder", it shouldn't fall below the left shoulder. The two green circles show that level to be just above 84. The Dollar Index is testing that support level at the moment. To turn the chart pattern bullish, the USD would have to rally from this level and exceed its neckline at 92. It's a long way from doing that. If it doesn't hold near 84, it could drop all the way back to its early 2005 low near 80. Technical indicators are mixed. The 9-week RSI is in oversold territory under 30. But the weekly MACD lines are still negative. Since I'm a believer in the maxim that it's easier to continue a trend than to reverse one, I think odds favor a dollar move to the downside. That would be even more likely if today's weak jobs data encouraged to Fed to take a pause in June. That would be bullish for gold and other commodity markets. That's why a lot rides on the trend of the dollar. That's also why the final chart is so worrisome. Going back to the mid-1980's, it shows the dollar in a long-term secular decline. It also shows how important the support line is along the 80 level. It held at the start of 2005 and prevented a major breakdown. If the current level of 84 doesn't hold, that long-term support line at 80 will be threatened again.
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
June 03, 2006Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
The results are in! We have the five winners for our "Seeing Clearly with SharpCharts2" contest! Thanks again to everyone that entered. There were over one hundred entries and all of them were very well done. The judges' job was not easy at all.
The five winners (in alphabetic order) were: Aaron Brussat, Michael Ham, Kevin Krueger, Leilani Lazo, and Kevin Pasternack. Each will receive a Dell 24" LCD Monitor as their prize. In a surprise move, the judges also decided to award Craig Ferguson an Honorable Mention award and one free year of StockCharts.com service. Congrats to all of our winners!
You can see the winning charts along with each winners comments about the charts at this link:
http://stockcharts.com/help/doku.php?id=support:contest01winners
(Most of the charts are too wide to include in this newsletter directly.)
We were absolutely amazed by the wide variation in charts that we received. It was great to see that people are really starting to use the new capabilities that SharpCharts2 brings to the table - overlays, colors, indicators of indicators, area fills, grid line options, annotations, custom panel heights, performance indicators, multiple symbols per chart, etc. Hopefully, these examples will inspire more people to get out and really explore the new things that SharpCharts2 can do.
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
May 20, 2006QQQQ BREAKS KEY SUPPORT By Chip Anderson
Arthur Hill
QQQQ established support at 40 with three bounces over the last six months and broke this key support level with a sharp decline over the last two weeks. The break below 40 signals a major victory for the bears and the first downside target is to around 37-38. The August 2004 trendline and October low mark support in this area.
The decline was enough to push the McClellan Summation Index into oversold territory. This version of the McClellan Summation Index is based on the stocks in the Nasdaq 100 and is directly related to QQQQ. This is the fourth dip below –500 in the last two years. However, the indicator has yet to firm and rebound. As long as it remains below –500 and below its 20-day EMA, breadth is deteriorating and this oversold indicator could become even more oversold. As long as its remains oversold, I would look for further weakness towards support around 37-38 for QQQQ.
A lot of damage has been done over the last two weeks and it will take some time for the bulls to regroup. Before calling for a sustainable rebound, I would like to see the McClellan Summation Index move back above –500 and its 20-day EMA.
Posted by Chip Anderson at 4:04 PM in Arthur Hill | Permalink
May 20, 2006OVERSOLD BOUNCE IS DUE, BUT . . . By Chip Anderson
Carl Swenlin
During the last two weeks the market has experienced a much needed (and long anticipated) decline, and now it is due a bounce out of a short-term oversold condition; however, the decline could continue for a few more months.
On our first chart below we can see that the CVI (Climactic Volume Indicator) and the STVO (Short-Term Volume Oscillator) have reached deeply oversold levels and have turned up. This is a pretty good indication that a short rally could be starting.
Also, note the rising trend line I have drawn on the chart. For several months it has acted as support as the market worked its way higher. Unfortunately, that line has been decisively penetrated, and it will now function as overhead resistance. My guess is that any rally will not exceed 1300 on the S&P 500.
The next chart shows three of our primary medium-term indicators -- one each for price, breadth, and volume. The ITBM (IT Breadth Momentum) and ITVM (IT Volume Momentum) Oscillators have become modestly oversold, but the PMO (Price Momentum Oscillator) has only just passed through the zero line and is nowhere near the level where other declines have ended. Also, the violation of the short-term rising trend line suggests that the decline will continue at least to the bottom of the medium-term rising trend channel.
The best-case scenario is that the decline will end once the PMO, ITBM, and ITVM turn up from oversold levels, which might only take a few more weeks; however I want to call your attention to the March-August 2004 correction. Note that indicators (and the market) made three oversold bounces before the correction was finally over.
Bottom Line: An oversold bounce can be expected, but there is plenty of room (and need) for a continued decline longer-term. Our primary timing model for the S&P 500 switched from buy to neutral on Friday, so I am inclined to believe we are in for some rough sailing over the next several months.
Posted by Chip Anderson at 4:03 PM in Carl Swenlin | Permalink
May 20, 2006OUR FIRST EVER CONTEST -WIN A 24" LCD MONITOR! By Chip Anderson
Site News
ANNOUNCING OUR FIRST EVER CONTEST! - SharpCharts2 is so powerful, it deserves to have as much screen real estate as possible. Larger computer screens mean larger charts which means better technical analysis. To that end, we are now accepting entries in our...
"Seeing Clearly with SharpCharts2" Contest
There will be five grand prize winners who will each receive a brand new 24-inch LCD Computer Monitor (a US$978.00 value) for FREE!
Just think of how much better your charts would look if you had more room to display them!
To Enter, simply send us you "best" SharpCharts2 chart with a short explanation of how you use the chart to make better investing decisions. One week from now, we will judge all of the entries and select the 5 best. If your entry is one of the five we pick, you'll soon be charting in the lap of luxury!
Good luck. We can't wait to see what you come up with!
ATTENTION MCAFEE SOFTWARE USERS! - We've recently discovered that McAfee's Internet Firewall will sometimes (not always) prevent SharpCharts2 charts from downloading. If you use McAfee software on your computer, be sure to add "stockcharts.com" to the list of "Allowed Sites" in your software's "Options" area.
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
May 20, 2006S&P 500 IS ENTITLED TO A BOUNCE By Chip Anderson
John Murphy
Although the longer-range chart picture has weakened (with most weekly indicators on sell signals), the S&P 500 has lost about 5% this week and looks to be in a short-term oversold condition. Its daily chart shows the 9-day RSI line below 30 for the first time this year. In addition, the S&P has reached its 200-day moving average and potential chart support along its first quarter lows. That may be enough to cause a market rebound next week. If one does materialize, the first level of resistance would be at 1280 which would also be a one-third retracement of the recent selloff. That's also the mid-April low that was broken this week. Broken support levels often become new resistance levels. While short-term indicators are oversold, weekly indicators aren't. Since weekly indicators take precedence over daily ones, I would continue to view any short-term rally as another selling opportunity.
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
May 20, 2006Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
The markets moved lower last week with some disturbingly large downward movements. As you can see in the chart below, last week's losses put the Nasdaq Composite into negative territory for the year - the first of the major averages to get there.
(Did you notice the cool Performance chart that SharpCharts2 can now create? StockCharts member's can click the chart to see exactly how it was constructed.) At this point, the small caps are still leading the other averages as they have all year, but recent strength in the Dow Industrials could change that soon. BETTER, STRONGER, FASTER SHARPCHARTS2 CHARTS We're continuing to listen to everyone's feedback on SharpCharts2. Thanks again to everyone that has sent in a suggestion for improvement. Rest assured that we are always working on ways to make our site even better. The other day we got a complaint from a user about his charts being hard to read and slow to download. The solution to this particular complaint may surprise you. "Reader X" (not his real name ;-)) sent in a message saying that some of his saved charts were taking a long time to download and looked pretty bad once they arrived. Here's one of the charts he was referring to: Wow. What a mess. But it turns out there's a good, valid reason for the way this chart looks. Without realizing it, the user was asking to fit 2 years worth of 60 minute candlesticks into a chart that was only 620 pixels wide. Let's think about the math involved in that request: - There are seven 60-minute candlesticks in a normal trading day.
- There are ~250 trading days per year.
- In order to create a complete candlestick, we need a space at least 3 pixels wide (one for the left edge, one for the middle area, and one for the right edge).
So the minimum width (in pixels) that we need to create this chart is:
7 times 250 = 1750 (candlesticks per year)
1750 times 2 = 3500 (candlesticks for 2 years)
3500 times 3 = 10,500 (pixels per chart)
So, we'd need an area at least 10,500(!) pixels wide to display all of that information in a clean accurate way. (I don't know about you, but my computer screen is only 1280 pixels wide - not quite big enough!) However remember that "Reader X" told us to fit all of those candlesticks into a space only 620 pixels wide. In other words, we have to fit 3500 candles into a space that can only hold at most (620/3=) 216. Yikes!
So, how do we do that? In this case, we use a combination of two approaches: shrinking the candles and selectively omitting some candles from the chart. First off, we shrink the candles down to 1 pixel wide lines. That causes them to lose their "filled/unfilled" information, but we really don't have a choice. Even then, with 1 pixel wide candlesticks, we still need to fit 3500 candles into a 620 pixel wide chart. At that point, we get more drastic - we only plot every 6th candle (roughly). 2800 data points are thrown out in order to fit things into the 620 pixel space the user specified. With all that missing and scrunched data, it's no wonder things look so messy.
So that explains the poor visual quality of the chart, but what about the slowness?
The more data points that go into creating a chart, the longer it will take for our servers to generate that chart. So how many data points does this chart need? 3500, right? Wrong! This chart actually needs 4300 data points from our database. Can you spot the reason why?
The culprit is that 200-period EMA. In order to plot the EMA correctly on the left side of the chart, we need to pull additional data from our database that doesn't even appear on the chart. The amount of additional data depends on the type of indicators on the chart and their durations.
Now, if this chart contained just a 200-period Simple Moving Average, we'd only need to pull 200 additional data points. Unfortunately, Exponential Moving Averages are calculated in a very different way (which I've written about in previous newsletters). EMAs require much more data than SMAs do - it turns out that to accurately calculate a 200-period EMA, you need at least 800-periods of data. Thus we pull over 4300 data points from our database when creating this chart.
In addition, the "crunched" look of the candlesticks reduce the efficiency of the compression routine that we use to shrink down the chart - thus making the chart's file size larger and, as you probably know, the larger the file size, the longer the download.
SOLUTIONS
There are several things that "Reader X" could do to this chart to improve it.
- He could change the range from "2 Years" to "Fill the Chart". "Fill the Chart" will ensure that all of his candlesticks aren't scrunched. It is perfect for people that are mostly interested in the most recent information on the right side of the chart.
- He could change the duration of the chart from "2 Years" to something shorter. Anything more than about 30 trading days will result in some "scrunched" candles, but anything less than 2 years will be an improvement.
- He could increase the width of his chart. The more space we have, the less "scrunching" we have to do. Keep in mind however that wider charts mean larger file sizes and thus slower download times.
- He could change the period from 60-minute bars to daily bars. Then we'd only need to plot 500 candles in the 620 pixels available. There'd still be some scrunching, but not nearly as much. The only "gotcha" with this approach is that he'd also have to reduce the period of his EMA by a factor of seven (since there are seven 60-minute bars in one day). Thus, he'd need to change it from a 200-period EMA to a 28-period EMA.
- He could change from a "Candlestick" chart to a "Line (thin)" chart. A line chart only needs one pixel per data point and thus can fit more data into the same amount of space without scrunching. In this case there would still be lots of omitted data points, however this suggestion can be combined with some of the above suggestions to improve the final result.
- Finally, if "Reader X" is using a slow internet connection, he may want to disable the "Line Smoothing" option on the chart to further decrease it's size.
When contacted about this chart and its settings, "Reader X" replied "Wow, I didn't even think about that. I never really paid much attention to the settings and things look much better now that I've adjusted things based on your suggestions."
Here's a example of a chart that incorporates many of the above suggestions:
So remember, use discretion when creating your charts. Think about the amount of data involved and the screen real estate required. Hopefully, "Reader X's" lessons will help you improve your charting experience also.
- Chip Anderson
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink |
[复制链接]
楼主
