September 05, 2004A "NEW AND IMPROVED" RYDEX RATIO By Chip Anderson
Carl Swenlin
The Rydex Asset Ratio has been around for eight or ten years, and it is a favorite among sentiment indicators because it is based, not upon opinion polls, but upon where people are actually putting their money. It is calculated by dividing total assets in bear index and money market funds by the total assets in bull index and sector funds.
Recently Decision Point introduced the Rydex Cash Flow Ratio. It uses the same basic formula, but, instead of total assets, it uses Cumulative Cash Flow (CCFL) totals for the same funds. To determine CCFL we calculate daily net cash flow, which is the actual cash entering and leaving each fund in the Rydex group of funds. This is done by calculating the amount that total assets in a fund should have changed based upon the percentage change of the net asset value (NAV) per share, assuming that no cash was added to or taken out of the fund. We then subtract this amount from the actual amount of total assets in the fund, and the result is the daily net cash flow. We keep a cumulative total of the daily net cash flow. Total asset value tells us how much money is in the fund. Cumulative Cash Flow tells us how much cash was actually moved in or out of the fund.
We think that the Rydex Cash Flow Ratio is a dramatic improvement over the Rydex Asset Ratio, because it uses an estimate of the amount of money that has been committed to bull and bear funds, making it a more accurate reflection of the actual underlying psychological forces that are affecting market participants.
On the chart below we can see that the Cash Flow Ratio shows more rational and consistent levels of support and resistance. And we can see that the Cash Flow Ratio is able to maintain a fairly well-defined trading range for extended periods.
It is really striking how the Cash Flow Ratio has clearly detected the true state of sentiment during 2002 through 2004. For example, we can see a sharp rise in bullish sentiment coming off the March 2003 price lows. Then by May 2003 we can see sentiment peak and begin to turn bearish. I remember because I was there. People didn't believe that a bull market had begun. They became progressively more bearish in June and July, and, when the market had a small shakeout in August 2003, the Cash Flow Ratio was as bearish as it had been in March 2003. While that may not seem reasonable based upon price movement, I think it is an accurate expression of how sentiment "felt" at the time.
Also, note how the Ratio trading range shifts downward at the beginning of 2003. This was caused by a large chunk of money moving into bear funds as the market headed down into it's final low before the bull market launched. Bearishness reached a feverish pitch at that time and it permanently altered the trading range. This could happen again in either direction if sentiment is strong enough.
Finally, we can see that the recent levels of bearishness at the August 2004 price lows are the same as they were in March and August 2003. In my opinion, this is strong evidence that a medium-term price low was reached at that point.
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
September 05, 2004SEMIS NOT THE LEADERS THEY ONCE WERE By Chip Anderson
Richard Rhodes
The recent carnage in the Semiconductor Index (SOX) moved to the forefront on Friday with INTC’s poor guidance moving forward. Thus, we must look at the SOX within the context of its relationship with the S&P 500 (SPX), and for this we use the ratio of the two Quite simply, we could very well see s a short-term bottom in the ratio in the days or weeks ahead – but it certainly isn’t within a historical context “the bottom” we would feel comfortable buying into on a longer-term basis. Our momentum indicators are now oversold, but it has paid to wait until a “positive divergence’ forms prior to becoming aggressively long this sector…which will require many months.
Bottom Line: We don’t expect the semiconductors to be “the leaders: on rallies as they once were.
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
September 05, 2004NEW DATA FEED IS IN! By Chip Anderson
Site News
OUR NEW DATA FEED IS IN! - Well, there were some bumps in the road, but we've managed to get our new ThomsonONE data feed installed and working last week. To those of you that were patient with us while we fixed the problems, we say "Thanks!" Your understanding and clear problem reports were very helpful.
Because of the problems that occurred, we have added one free week of service to every StockCharts.com member that logged in to their charting account last week. Everyone who qualifies for this offer should have already had this additional time added to their account.
Finally, let me reiterate something that many people missed about this data feed change. We were forced to make this change due to circumstances beyond our control. Our old data feed company was bought-out by Thomson Financial several years ago. This year, Thomson decided to discontinue their support for that old feed and migrate us to their own "premier" feed called ThomsonONE. The people at Thomson have worked very hard to help us with this transition. Most of the problems that occurred happened due to things that no one could have foreseen. We truly expect that this new data feed will prove to be far superior to the old one as time goes on.
Again, a company like ours almost never changes data feeds. It has taken a huge amount of time and effort on our part to pull it off and it has delayed the roll out of the various site improvements that we want to make. Fortunately, the odds that we'll have to do this again are almost nil. We apologize for the recent problems but rest assured that with this transition behind us, StockCharts.com will only improve in the future.
SPECIAL NOTE TO AOL USERS - A recent policy change at AOL means that if you accidentally mark our "ChartWatchers" notification email messages as "Spam" in your AOL Mailbox, you will automatically be unsubscribed from all of our mailing lists. If you want to continue receiving notification messages from StockCharts.com, make sure to "Delete" those messages rather than marking them as "Spam."
NEW BOOKSTORE BOOKS - We've been busy adding more technical analysis books to our online bookstore. Be sure to check out our New Additions page at least once a week to get the latest scoop on what's new at StockCharts Books!
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Posted by Chip Anderson at 4:02 PM in Site News | Permalink
September 05, 2004TELECOMM HAVE STRONG DAYS By Chip Anderson
John Murphy
Telecom stocks had a good chart day. The AMEX Telecom iShares (IYZ) broke out to a new six-month high today. Its relative strength line has been rising since late June. Two of the biggest reasons for today's strength were SBC and Verizon Communications which are two of the biggest holdings in the ETF. SBC rose to the highest level in seven months. Verizon ended the day at a new 52-week high. Both relative strength lines have been jumping for the last two months.
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
September 05, 2004Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
Thursday's big rally for the Dow Industrials was unexpected and significant. Check out the chart below and see if you can spot the reasons why:
As anticipated, the Dow faltered after hitting its 50-day moving average line. That line was also at the 10,200 resistance level marked by the peak in late July and so the odds of a reversal there were pretty good. Sure enough, the Dow started moving lower on Monday, but rallies on Tuesday and Wednesday re-tested the resistance level and Thursday's big follow-up pushed things well clear. The MACD line moved into positive territory and the Chaikin Money Flow moved back into the green.
The Dow is now testing its 200-day MA and eyeing the next higher resistance area between 10,350 and 10,450. That's where it ran into problems back in June. In order to officially reverse the long-term downtrend that the Dow is in, it needs to move above the high of 10,487 set on June 25th. The next couple of weeks should be very interesting...
In the mean time, check out John Murphy's thoughts on the Telecomm sector, Richard Rhodes' look at Semiconductor stocks, Carl Swenlin's views of the Rydex Ratio and the next installment in my continuing tour of "Murphy's Laws".
LAW #6: FOLLOW THAT AVERAGE Law #6: Follow moving averages. Moving averages provide objective buy and sell signals. They tell you if existing trend is still in motion and help confirm a trend change. Moving averages do not tell you in advance, however, that a trend change is imminent. A combination chart of two moving averages is the most popular way of finding trading signals. Some popular futures combinations are 4- and 9-day moving averages, 9- and 18-day, 5- and 20-day. Signals are given when the shorter average line crosses the longer. Price crossings above and below a 40-day moving average also provide good trading signals. Since moving average chart lines are trend-following indicators, they work best in a trending market. - John Murphy
A couple of weeks ago, we looked at trends and trendlines. We talked about how trendlines are line "non-horizontal" support/resistance levels. Well, think of moving average lines are like "flexible" trendlines. They help you see the trend that's "hidden" amongst all the noisy short-term price fluctuations. Unfortunately, unlike trendlines and resistance levels, there are an unlimited variety of moving averages that you could look at. There's the 50-day MA, the 200-day MA, the 20-day MA, the 9-day MA, etc. Going beyond that, there are Simple Moving Averages (SMAs) and Exponential Moving Averages (EMAs) (and still others beyond those!). How do you choose? The general rule is simple - the longer your time horizon, the longer the MA period you should use. Are you a buy-and-hold investor? Use longer term MAs like the 50-day and 200-day ones that I like to write about. Are you a day trader? Use shorter term MAs like the 4-day and 9-day ones that John mentioned. Note however that while longer-term investors can generally ignore short-term MAs , the reverse is not true. Even day-traders should be aware of where important long-term MA levels are. Resistance from the 200-day MA can impact day traders too. The help see how different MAs work, I often look at something I call an "MA Ribbon Chart". It contains a series of MAs - each with a slightly different period setting: As John mentions in Law #6, MA Crossover signals can be very useful in trending markets. That where you focus on the points where two different MAs intersect. When the shorter MA moves above the longer MA, a "buy" signal is given. When the shorter MA moved below the longer MA, a "sell" signal is given. Here are some examples: As you can see, shorter MAs periods lead to more signals. You'll need to take some initiative here and experiment to see what combination fits your trading goals and style. Fortunately, StockCharts.com makes it very easy to try whatever combinations you want.
Finally, don't forget to watch the 50 and 200-day MAs. Why? Because lots of other people watch them and thus, they often act like important support and resistance zones.
Next week: Law #7 - Learn the Turns
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
August 21, 2004INFLATION EXPECTATIONS DOWN By Chip Anderson
Arthur Hill
The TIP/TLT price relative serves as a good proxy for inflationary fears or expectations. TIP is the iShares TIPS Bond (TIP), which is based on the US Treasury's inflation indexed bonds. TLT is the iShares 20+ Year Treasury Fund (TLT), which is not hedged against inflation.
Bonds loathe inflation and would decline in the face of increasing inflationary expectations. The TIP/TLT price relative takes this one step further by measuring the performance of inflation-hedged bonds against non-hedged bonds. This price relative rises when inflation expectations rise and falls when inflation expectations decline.
Looking at the TIP/TLT price relative for 2004, there are two distinct moves: an advance from mid March to mid May and a decline from mid May to mid August. The decline is still underway as the upper blue trendline has yet to be challenged and the price relative remains well below the late July high. As long as this downtrend continues, inflation remains at bay and bonds are unlikely to remain strong as inflation is not a concern.
Also, notice that there is a good and inverse correlation between the TIP/TLT price relative and the actual performance of TLT. When inflationary expectations rose from mid March to mid May, TLT declined from 91.48 to 80.51. When inflationary expectations subsided from mid May to mid August, TLT advanced from 80.51 to 87.
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
August 21, 2004A MARKET BOTTOM FOR THE S&P? By Chip Anderson
Carl Swenlin
We can't know the full potential of this rally, but there is abundant evidence that we have a solid bottom, and that we are seeing a rally that has at least the potential to move back to the top of the trading range.
First, there are positive divergences on indicators in every time frame. A positive divergence is where price makes a lower low but indicators make a higher low. The dark red lines on the bottom three panels of the chart highlight the positive divergences. These indicators, by the way, summarize the status of the PMO (Price Momentum Oscillator) for each of the stocks in the S&P 500 Index.
Next, we can see prices breaking above a short-term declining tops line, and there is an important PMO buy signal, generated when the PMO crossed above its 10-EMA.
Finally, Percentage PMOs Rising shows a strong initial impulse with a surge to almost 90%.
It is not impossible for the rally to move prices higher than the March top, but, as with the two previous lows this year, the PMO bottom associated with the recent low was too shallow. It would have been better if it had dropped to around -2.0, creating a fairly solid oversold condition.
Overall, this is a pretty good looking chart, but the top of the trading range could easily be the limit of the rally.
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
August 21, 2004ECONOMIC SLUMP FOR 2005? By Chip Anderson
Richard Rhodes
This past week showed stocks higher; their largest weekly gain in nearly 10 months. And, it did so within the context of sharply higher oil prices. By and large, this has set the tone for stocks to potentially move to new highsor so we are to believe. In fact, there is always that probability; however, we accord it a very small one at that.
That said , we are specifically looking at the bond-stock asset rotation for clues towards the best relative performance. Our and our proxy is the Lehman 20+ yr Bond Fund vs. S&P Spyders (TLT: SPY); and very simply we see that bonds over the past 2 months have outperformed stocks in a large manner. We believe this bottoming formation argues for a continuation of bonds outperforming stocks over the intermediate-term, although the current sharp stock rally indicates a correction in the ratio is taking placeperhaps to the 250-dma at .76. At this point, it would be wise to consider exiting stocks in favor of bondsas stocks are likely to fall further and faster than the current consensus believeswhich argues for a sharply decelerating economy into 2005.
Posted by Chip Anderson at 4:03 PM in Richard Rhodes | Permalink
August 21, 2004DATA FEED MOVE THIS WEEK By Chip Anderson
Site News
STRAP ON YOUR HELMETS! - As we've been telling you, this coming week is our big change over to the ThomsonOne Data Feed. We've tested and simulated and fine-tuned things to death but starting on Monday we'll begin the changeover for real. Let us know if you see any thing out of the ordinary and we'll get right on it. We appreciate your patience during this transition.
NEW CHARTSCHOOL ARTICLES - We've just added two great new articles to our ChartSchool area - one on "Multicollinearity" and another on "Swing Charting". "Multicollinearity" is a $10 word "accidentally using two indicators that are related". It's a problem that you definitely want to avoid and this article will help you do so. "Swing Charting" has been around for years and has recently made a comeback. Read all about it here, then let us know what you think!
"TOOLS TOUR" DEBUTS - Over the course of the next couple of weeks, we'll be adding several animated movies showing how you can use various aspects of our site and what you should be seeing on your screen as you do so. The first in these series of movies is our "Tools Tour". Enjoy! (Flash required)
Posted by Chip Anderson at 4:02 PM in Site News | Permalink
August 21, 2004DIVIDEND STOCKS LOOK PROMISING, S&P LONG-TERM OUTLOOK MIXED By Chip Anderson
John Murphy
GOING FOR DIVIDENDS... A falling stock market -- along with falling bond yields -- should make dividend paying stocks more attractive. And that appears to be the case. Chart 1 plots the iShares Dow Jones Select Dividend Index Fund (DVY), which invests in large cap stocks that pay dividends. The Dividend ETF has acted much better than the rest of the market since last April as reflected in its rising relative strength line. Pricewise, the ETF hit a new four-month high earlier in the week. The two groups most heavily represented in the Dividend Fund are banks (38%) and electric utilities (19%). Other holdings include (in order of size) chemicals, tobacco, insurance, fixed line communications, and energy.
S&P MONTHLY BARS OVERBOUGHT BUT STILL IN LONG-TERM UPTREND... The monthly bars in Chart 2 carry good and bad news for the S&P 500. First the bad news. The monthly stochastic lines above the chart are still weakening from overbought territory above 80 (see circle). In addition, the price bars show that the S&P bull trend stopped at its early 2002 peak (see box) -- after recovering half of the 2000-2002 losses. The good news is that the S&P remains above its (dotted) 20-month moving average (see arrow) which qualifies the current price drop as a correction as opposed to a bear market. And, finally, the monthly MACD lines which turned positive at the start of 2003 (see arrow) are still positive.
Posted by Chip Anderson at 4:01 PM in John Murphy | Permalink
August 21, 2004Hello Fellow ChartWatchers! By Chip Anderson
Chip Anderson
Since setting a new low of 9783 last Friday, the Dow moved higher during four of the last five days and is now approaching the 10203 peak that it set back at the start of August. This rally - and the successful IPO of Google - has greatly improved the general mood of the markets however resistance from the 50-day MA line - not to mention the rising price of oil - make it is likely that the Dow reverses before moving above that August peak. I'm looking for a retest of the 9783 low in the next couple of weeks.
While you wait to see what happens, why not kick back and enjoy this jammed-packed issue of ChartWatchers? After I continue my series on John Murphy's Ten Laws of Technical Trading, John looks at a little known ETF that is breaking out right now, Carl sees several Bullish signals on his S&P 500 chart, Richard sees a declining economy in 2005, and Arthur finds evidence of lower inflation expectations by bond traders.
LAW #5: DRAW THE LINE Murphy's Law #5: Draw trend lines. Trend lines are one of the simplest and most effective charting tools. All you need is a straight edge and two points on the chart. Up trend lines are drawn along two successive lows. Down trend lines are drawn along two successive peaks. Prices will often pull back to trend lines before resuming their trend. The breaking of trend lines usually signals a change in trend. A valid trend line should be touched at least three times. The longer a trend line has been in effect, and the more times it has been tested, the more important it becomes. - John Murphy
It still amazes me how many people, when they first get into technical analysis, jump straight into indicators and oscillators without first learning the core concepts of support, resistance, and trend. Although I've said it many times before, I'll say it again here: At its core, Technical Analysis is about detecting stock trends in time to take advantage of them financially. Step one in that process is to look at the charts are draw trend lines. This is how smart ChartWatchers "pay their dues" and develop confidence in their projections. Its the basis for chart pattern analysis and it sets the stage for understanding indicators and oscillators. When in doubt, go back and redraw your trend lines. Properly created trendlines are always correct - the question is "Can you see what they are telling you?"
Trend lines aren't magic. They work for the same reason that support and resistance lines work. The majority of the people that are trading a giving stock feel that the intrinsic value of that stock has changed and that change is getting "priced into the stock". Why the value changed isn't important. How the majority came to their conclusion isn't important either. The job of trend line analysis is to detect that a change is underway and what its direction is.
As John indicates, drawing trend lines is all about finding "significant" peaks (AKA highs) and troughs (AKA lows) on a chart and then connecting the dots. It's actually harder than it sounds, but with a little practice, anyone can master it. One of the hardest things to learn is how to spot a real reversal - something that I wrote about last year. Now would be a great time to re-read that article (and bookmark it for later study!).
Another "gotcha" with trend lines is to forget to check the "Scale" setting for the chart you are looking at. Trend lines on logarithmic scale charts are very different from trend lines on arithmetic scale charts. Our ChartSchool article on Trendlines go into much more detail.
Creating your own trend lines at StockCharts.com couldn't be simpler. Just create a SharpChart for the stock that you are interested in and then click on the "Annotate" link located just below the chart. After our Java-based ChartNotes program loads, you can simply click and drag to create as many trendlines as you want. If you are a member of our Extra service, you can even save your annotated charts in your account and then see how your trendlines "hold up" over time.
You should also experiment with the "Zig-Zag" price overlay when learning about trend lines. While it has some significant limitations, it can help you spot significant peaks and troughs automatically. For more info, see this ChartSchool article.
Of course, there are several great books in our bookstore on trends. One of my favorite is "an oldie but a goodie" - William Jiller's "How Charts Can Help You in the Stock Market". Written in 1962, it shows the timelessness of these ideas in a clear, concise format that's MUCH less expensive ($14.45) than the Edwards & Magee book while covering much of the same ground. Of course, John's classic introduction book is similarly priced and similarly useful.
Can't wait for the next installment? Click here to see all of John's Ten Laws of Technical Trading.
Posted by Chip Anderson at 4:00 PM in Chip Anderson | Permalink
August 07, 2004THE BIGGER THE VALUE, THE SOFTER THE FALL By Chip Anderson
Arthur Hill
The AD Line is a cumulative measure of advances less declines within a given group of stocks. For example, the S&P Large-Growth ETF (IVW) has 335 stocks. If there were are 200 advances and 135 declines, then the difference would be +135 (335 – 200 = +135) and this would be added to the cumulative AD Line. The chart below shows the AD Line for the six different style ETF’s.
Despite the decline over the last few weeks, the AD Lines for two styles are holding up a lot better than the other four. Notice that the AD Lines representing large-value and mid-value are holding well above their May lows (green arrows). Conversely, the AD Lines for large-growth and mid-growth moved below their May lows and remain the weakest of the six (red arrows). Small-growth and small-value are holding above their May lows for now, but are quite close to these important support levels and clearly weaker than large-value and mid-value. Even though the overall market may decline, these AD Lines suggest that large-value and mid-value will outperform (advance more or decline less) than the other four styles over the next few weeks and months.
Posted by Chip Anderson at 4:05 PM in Arthur Hill | Permalink
August 07, 2004THE PRICE OF OIL VERSUS STOCKS By Chip Anderson
Carl Swenlin
Recently, the price of crude oil has taken the spotlight as having a major influence on the price of stocks. On the one-year chart above we can see that there was no consistent relationship between oil and stocks as long as oil was priced below $35; however, when oil moved above $35 in March, we begin to see a consistent negative correlation between oil and stocks.
Long-term resistance for crude oil is around $41-42. When crude oil reached that level at the end of July, stocks attempted another rally, in anticipation that crude oil would turn down again at resistance. Once crude broke to new all-time highs, the short rally in stocks failed. If crude prices continue to move higher, I think we should be alert for the possibility that there will be another disconnect in prices. Specifically, if the price of crude moves well above $42, short price declines may not translate directly to a rally in stocks because prices will still be too high. This is not to say that stocks can't rally, just that gyrations in the price of oil may not transmit directly to stocks. For the record, I have no opinion regarding the price of oil. As you can see on the long-term chart, it has moved into uncharted territory and is above historical resistance levels. It could be headed for a major blowoff, or it may have moved permanently into the bottom of a new long-term trading range.
Posted by Chip Anderson at 4:04 PM in Carl Swenlin | Permalink
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***Financials Lag*** Once again, I will highlight three key financial ETFs as they stall at resistance. He who hesitates is lost. Well, the financial ETFs are hesitating near resistance. The Financials SPDR (XLF) stalled the six days with resistance just above 10. This stall started with a big dark cloud cover pattern last Thursday. The Regional Bank HOLDRS (RKH) surged above last week's high on Monday, but stalled with inside days on Tuesday, Wednesday and Thursday. The long white candlestick and three inside days form an extended harami. The Broker Dealer iShares (IAI) also surged above last week's high with a long white candlestick on Monday and then stalled the last three days. I still think the odds favor a correction or consolidation as all three remain overbought and at resistance. 
***A Record Three Weeks*** According to my data, the current three week rally is the largest in over 40 years for the S&P 500. The next biggest surge was August 1982, when the index surged almost 13% in three weeks. This surge kicked off a bull market that lasted until the 1987 crash. The chart below shows the current surge relative to the 2002 surges. The S&P 500 bottomed in July 2002 and surged 22% in 4-5 weeks (green arrows). After this momentous surge, the index embarked on a 38 week trading range and tested the July low twice. Bottoming is a process, just like healing. As in July 2002, stocks became too oversold in early March 2009. The current rally alleviated these oversold conditions and the healing process has begun. The March low may hold for some time to come, but we are very likely to see a significant pullback that will allow a second chance to partake with lower risk. 
***Major-index ETFs*** ***Medium-term Trend*** Despite another surge, there is not much change in the medium-term analysis. Over the last 13 days, SPY is up 22%, QQQQ is up 22% and IWM is up 29%. IWM also led the way higher during the Nov-Dec surge. The advance over the last three weeks is impressive – no doubt. However, IWM and SPY are still overbought and within resistance zones. The 62% retracement line (blue) cuts right through the middle of the last consolidation (late Jan- early Feb). QQQQ surged into its resistance zone from the January-February highs. I under estimated the strength of this rally, but I am still not going to chase the market when the major-index ETFs are overbought and at resistance. 
***Short-term Trend*** The recovery started late Wednesday and continued on Thursday. QQQQ, SPY and IWM held Monday's gap and surged to new highs for the move. Technically, the short-term trend is up as the major-index ETFs forge higher highs and higher lows. Thursday's gap turns into the first support level to watch for signs of weakness. Even though I run the risk of being a stopped clock (correct twice a day), I will remain short-term bearish because of overbought conditions and resistance on the daily charts. The risk is that end-of-quarter window dressing further fuels the rally. However, I still think the odds favor a pull over the next 1-3 weeks. 
***Inter-Market Charts*** ***Dollar*** The Dollar continued to shrug off the frivolous global currency debate and edged higher on Thursday. There is not much change in the technical picture. The US Dollar Bullish ETF (UUP) found support near the 62% retracement mark and moved higher the last five days. Even though the advance looks like a potentially bearish rising flag, the bulls have the short-term edge as long as it rises. Support remains at 25 and a break below this level would signal a continuation lower. As long as the flag rises, I expect a move towards broken support around 25.9-26. The Euro ETF (FXE) became overbought after the surge above 137 and met resistance at the 62% retracement mark. In contrast to the Dollar, FXE sports a potentially bullish falling flag with resistance at 136.6. A break above this level would be bullish. However, as long as the flag falls, the bears have the edge and I expect a move towards broken resistance around 129-130. 
***Gold*** If the Dollar bounces back to broken support, then gold could come under pressure in the coming days. The Gold SPDR (GLD) surged last week, but never followed through on this big move off support. After this surge, GLD pulled back to the Oct-Nov trendline and firmed over the last three days. On this daily chart, a break below 90 would be most negative and I would then expect a decline into the low 80s. On the 30-minute chart, the bounce over the last three days looks like a rising wedge, which is potentially bearish. GLD broke the lower trendline yesterday and further weakness below 91.5 would argue for a continuation of the prior decline. This would be the early signal to expect a more important support break at 90. 
***Oil*** There is still no change in the United States Oil Fund ETF (USO). The ETF remains in a short-term uptrend and medium-term downtrend. The advance over the last few weeks looks like a rising flag, which is potentially bearish. USO became short-term overbought as RSI(2) moved above 90 on Monday. In addition, USO is trading near resistance from the upper trendline of the rising flag. Looks like time for a pullback. On the 30-minute chart, USO has been edging higher the last four days. First support is set at 31 for top pickers. 
***Treasuries*** The Treasury market is perking up. The 20+ Year T-Bond ETF (TLT) opened weak and closed strong for the second day running. Overall, the ETF remains within a trading range. However, TLT is trying to firm above last week's low and continue last week's surge. A move above this week's high would show some promise. I am also showing the 7-10 Year T-Note ETF (IEF), which actually looks bullish. Notice that IEF broke resistance with a big surge last week and the decline over the last six days looks like a falling flag. A break above flag resistance would signal a continuation higher. Of note, the Fed is continuing with its plan to purchase $300 billion of Treasuries. On Wednesday, the Fed purchased $7.5 billion worth of Treasuries. Buying resumes today. This gives new meaning to the term: don't fight the Fed. The Fed wants interest rates lower and Treasury prices higher. Moreover, it now has skin in the game. While there are long-term supply concerns, purchases from Fed mean Treasuries are likely to hold support levels. 
Good day and good trading -Arthur Hill 
Symmetrical triangles can be characterized as areas of indecision. A market pauses and future direction is questioned. Typically, the forces of supply and demand at that moment are considered nearly equal. Attempts to push higher are quickly met by selling, while dips are seen as bargains. Each new lower top and higher bottom becomes more shallow than the last, taking on the shape of a sideways triangle. (It's interesting to note that there is a tendency for volume to diminish during this period.) Eventually, this indecision is met with resolve and usually explodes out of this formation (often on heavy volume.) Research has shown that symmetrical triangles overwhelmingly resolve themselves in the direction of the trend. With this in mind, symmetrical triangles in my opinion, are great patterns to use and should be traded as continuation patterns. 
The ascending triangle is a variation of the symmetrical triangle. Ascending triangles are generally considered bullish and are most reliable when found in an uptrend. The top part of the triangle appears flat, while the bottom part of the triangle has an upward slant. In ascending triangles, the market becomes overbought and prices are turned back. Buying then re-enters the market and prices soon reach their old highs, where they are once again turned back. Buying then resurfaces, although at a higher level than before. Prices eventually break through the old highs and are propelled even higher as new buying comes in. (As in the case of the symmetrical triangle, the breakout is generally accompanied by a marked increase in volume.) 
Ascending triangle in an uptrend. Volume falls off during the formation, picks up and then expands on the breakout and ensuing upmove. ASCENDING TRIANGLE IN AN UPTREND (BULLISH) 
An ascending triangle in an uptrend. After nearly two months of indecision, the market aggressively resolves itself in the direction of the trend. As for volume, other than a few spikes of activity within the pattern, there is a general lessening of participation with a marked increase on the breakout. ASCENDING TRIANGLE IN AN UPTREND (BULLISH) 
An ascending triangle in an uptrend. Diminishing volume during the pattern and a jump in volume on the breakout. ASCENDING TRIANGLE IN AN UPTREND (BULLISH) 
The ascending triangle in this uptrend continued the move higher. Volume wanes a bit during the formation and then picks up on the breakout. The march higher is also accompanied by sustained volume. The information contained here was gathered from sources deemed reliable, however, no claim is made as to its accuracy or content. This does not contain specific recommendations to buy or sell at particular prices or times, nor should any of the examples presented be deemed as such. There is a risk of loss in trading futures and futures options and you should carefully consider your financial position before making any trades. The reference to statistical probabilities does not pertain to profitability, but rather to the direction of the market. The size and the duration of the markets move, as well as entry and exit prices ultimately determines success or failure in a trade and is in no way represented in these statistics. Furthermore, no representation is being made that any of the examples shown resulted in actual trades. This is not, nor is it intended to be, a complete study of chart patterns or technical analysis and should not be deemed as such. 
The descending triangle, also a variation of the symmetrical triangle, is generally considered to be bearish and is usually found in downtrends. Unlike the ascending triangle, this time the bottom part of the triangle appears flat. The top part of the triangle has a downward slant. Prices drop to a point where they are oversold. Tentative buying comes in at the lows, and prices perk up. The higher price however attracts more sellers and prices re-test the old lows. Buyers then once again tentatively re-enter the market. The better prices though, once again attract even more selling. Sellers are now in control and push through the old lows of this pattern, while the previous buyers rush to dump their positions. (And like the symmetrical triangle and the ascending triangle, volume tends to diminish during the formation of the pattern with an increase in volume on its resolve.) 
The wedge formation is also similar to a symmetrical triangle in appearance, in that they have converging trendlines that come together at an apex. However, wedges are distinguished by a noticeable slant, either to the upside or to the downside. (As with triangles, volume should diminish during its formation and increase on its resolve.) A falling wedge is generally considered bullish and is usually found in uptrends. But they can also be found in downtrends as well. The implication however is still generally bullish. This pattern is marked by a series of lower tops and lower bottoms. A rising wedge is generally considered bearish and is usually found in downtrends. They can be found in uptrends too, but would still generally be regarded as bearish. Rising wedges put in a series of higher tops and higher bottoms. 
Here's a falling wedge in the very beginning of an uptrend. As you can see, volume dissipates during the formation of the wedge pattern and then picks up on the breakout. FALLING WEDGE IN AN UPTREND (BULLISH) 
Falling wedge in an uptrend. After more than a $2.00 rally, the market pauses before continuing higher for an impressive run. Volume dips during this pause and then picks up on the breakout and trek higher. FALLING WEDGE IN A DOWNTREND (BULLISH) 
Falling wedge in a downtrend. This pattern was able to reverse the downtrend nicely. Volume drops off in the wedge and then comes back as the market moves out of the pattern. FALLING WEDGE IN A DOWNTREND (BULLISH) 
Falling wedge in downtrend. Nice reversal. After waning volume in the wedge, there's a good increase on the breakout. In fact, these good volume readings were able to sustain themselves during the move higher. RISING WEDGE IN AN UPTREND (BEARISH) 
The rising wedge put a stop to this uptrend. Volume tails off as the trend struggles. Volume expands as the market falls through the bottom of the wedge and the new downtrend begins. RISING WEDGE IN AN UPTREND (BEARISH) 
This rising wedge stopped corn dead in its tracks! (As you can see, July corn went off the board shortly after the downside breakout, but nevertheless, lost more than 70 cents in just six days - WOW!) As for volume, the story remains the same. Volume falls off in the wedge and jumps on the breakout. RISING WEDGE IN A DOWNTREND (BEARISH) 
This rising wedge seemingly presented an area of indecision. However, within a few weeks the market resolved itself in the direction of the trend (down.) As usual, volume increases on the breakout after diminishing during the pattern. RISING WEDGE IN A DOWNTREND (BEARISH) 
Rising wedge in a downtrend. A short pause followed by renewed downside conviction. And once again, volume dries up in the pattern and increases on the breakout. (Notice how the volume really starts to pick up as the downtrend gains momentum shortly after the break.) 
Flags and pennants can be categorized as continuation patterns. They usually represent only brief pauses in a dynamic market. They are typically seen right after a big, quick move. The market then usually takes off again in the same direction. Research has shown that these patterns are some of the most reliable continuation patterns. Bullish flags are characterized by lower tops and lower bottoms, with the pattern slanting against the trend. But unlike wedges, their trendlines run parallel. Bearish flags are comprised of higher tops and higher bottoms. "Bear" flags also have a tendency to slope against the trend. Their trendlines run parallel as well. Pennants look very much like symmetrical triangles. But pennants are typically smaller in size (volatility) and duration. (Volume generally contracts during the pause with an increase on the breakout.) 
After a sharp rally, this "bull" flag served as a breather before running off again in the same direction. You can see the volume ease up a bit in the beginning of the flag, but then pick up as it nears the top of the formation and blows through it. "BULL" FLAG IN AN UPTREND (BULLISH) 
"Bull" flag in an uptrend. Quick rally, short pause, blast higher. Volume dips in the flag and surges on the breakout. "BEAR" FLAG IN A DOWNTREND (BEARISH) 
"Bear" flag in a downtrend. After a big rout, the flag seemingly presents a chance to re-group before continuing in the same direction (down.) Volume diminishes during the pause and then rapidly expands on the continuation. "BEAR" FLAG IN THE BEGINNING OF A DOWNTREND (BEARISH) 
After a big dump, this "bear" flag sets the stage for another quick and even larger fall. Volume decreases considerably in the flag, but the break to the downside is accompanied by a big increase in activity. "BULL" PENNANT IN AN UPTREND (BULLISH) 
"Bull" pennant in an uptrend. After a month long rally, the market takes a five day breather and continues even higher. Volume dips briefly and then picks up on the breakout. "BULL" PENNANT IN AN UPTREND (BULLISH) 
How's that for a pattern? Remember from the preceding page; 'pennants look very much like symmetrical triangles, but are typically smaller in size (volatility) and duration.' After a near straight up advance, the market takes only three days before resuming the upmove. During those few days, participation drops off a bit, but comes back as the market explodes out of the pennant. (Take a look at all those gaps right before and right after the pennant. Obviously a very strong and convinced market!) "BEAR" PENNANT IN A DOWNTREND (BEARISH) 
"Bear" pennant in a downtrend. This pattern came right after a 'bear' flag breakout. (Can you see it?) This pennant also presents only a brief pause before the market reasserts itself in the direction of the trend (down.) Volume dips in the pattern and jumps as the market breaks out and gaps lower. "BEAR" PENNANT IN THE BEGINNING OF A DOWNTREND (BEARISH) 
"Bear" pennant in the beginning of a downtrend. After a dramatic two day plunge, the market has a short lived consolidation. The rout continues and the market collapses. You can see activity dry up in the pennant. The breakout though, was made on extremely heavy volume. The information contained here was gathered from sources deemed reliable, however, no claim is made as to its accuracy or content. This does not contain specific recommendations to buy or sell at particular prices or times, nor should any of the examples presented be deemed as such. There is a risk of loss in trading futures and futures options and you should carefully consider your financial position before making any trades. The reference to statistical probabilities does not pertain to profitability, but rather to the direction of the market. The size and the duration of the markets move, as well as entry and exit prices ultimately determines success or failure in a trade and is in no way represented in these statistics. Furthermore, no representation is being made that any of the examples shown resulted in actual trades. This is not, nor is it intended to be, a complete study of chart patterns or technical analysis and should not be deemed as such. 