ChartWatchers

Array of New Highs Reflects Broad Market Strength

Not every index and not every sector recorded a new high this week, but several key indexes recorded new highs and the majority of sectors hit new highs. This shows broad market strength that validates the long-term uptrend in stocks. The only negative is that stocks are short-term overbought after big moves. This negative, however, is actually a positive because it takes strong buying pressure to become overbought. On a closing basis, the Dow Industrials, the S&P 500, the Nasdaq 100 and the Dow Transports recorded new 52-week highs this week. The S&P Small-Cap 600 and the S&P MidCap 400 remain below their 52-week highs, but both indices surged over 10% with very strong moves. At this point, the majority of the major indices hit new highs and this is long-term bullish.  

The offensive sectors also performed well with the Finance SPDR (XLF), Technology SPDR (XLK) and Industrials SPDR (XLI) hitting 52-week highs on a closing basis. The Consumer Discretionary SPDR (XLY), which is the fourth offensive sector, is less than 2% below its 52-week high. Also note that the HealthCare SPDR (XLV), Consumer Staples SPDR (XLP) and Utilities SPDR (XLU) hit new highs this week. That means six of the nine sectors hit 52-week highs this week. The majority of sectors are clearly in long-term uptrends and this also supports a long-term uptrend for stocks in general. 

Good trading and good weekend!
Arthur Hill CMT

GOLD: Support Fails

We have been watching gold for a possible triple bottom, a base for the next strong rally. Earlier this month gold bounced off an important support line, offering hope to gold bulls that the third bottom in the series would be successful. However, the price of gold has slipped badly in the last two weeks, and on Friday the triple bottom support line failed to hold.

The weekly chart shows the big picture. While the triple bottom looked tempting, the consolidation of the last year was a negative continuation pattern, meaning that it would most likely resolve downward as the decline from the 2011 top resumed. The declining tops marking the top of the formation was also a negative sign. Finally, the persistent discount* on shares of Central Gold Trust (GTU) displayed on the bottom panel showed that sentiment on gold never got out of the basement.

The main factor in gold's problems is the strength shown by the U.S. dollar since midyear. While it consolidated gains in the first half of October, it jumped to new highs on Friday.

Conclusion: While we anticipated that gold's decline might end with a triple bottom, that possibility seems remote with Friday's breakdown. The breakdown will not be decisive until price drops to about 1145, but it now seems unlikely that gold will begin a new bull market any time soon.

* GTU is a closed-end fund that owns gold. Unlike open-end funds, GTU shares can trade at a premium or discount to net asset value. The amount of premium/discount gives us a good indication of sentiment regarding gold.

Answering Our Top Two Questions

Hello Fellow ChartWatchers!

Friday's rally changed last week's Dow candlestick from a big filled candle into more of a big Hammer (although not a perfect one).  After Friday's rally, the Dow finished the week down 1% as did the S&P 500 Large Caps.  The big winner for the week was the Russell 2000 which was up over 2.75%(!).  For more on this and the longer-term meaning of these moves, check out what John, Art, Greg, Carl and Tom have to say below.

I'm going to spend some time today answering the two most common questions people ask us during our very successful weekly webinars.

Answering Our Top Two Questions

Q1: How do I put two different ticker symbols on the same chart?

A1: Members can add up to 5 additional ticker symbols to a single SharpChart by using the "Price" indicator.  (Non-member can add up to three.)  Like its name implies, the "Price" indicator displays the price data for whatever ticker symbol you give it.  You add the Price indicator using the dropdowns in the "Indicators" area underneath your chart.  These are the same dropdowns that contain other technical indicators like MACD and RSI.  Just open up one of the free dropdowns and select "Price".  Next, change the Parameter box so that instead of "$SPX", it contains the ticker symbol that you want to chart.  Finally press the "Update" button to see the new version of your chart.  Here's an example:


(Click on the chart to see its settings.)

Pitfalls:
There are a couple of things to be aware of when using the Price indicator:

  • In addition to the "Price" Indicator that I'm talking about in this article, there is also a "Price (same scale)" Overlay.  Make sure you don't confuse the two.  In general, you'll want to use the "Price" Indicator for plotting additional stocks or unrelated indexes.  The only time you'd use the "Price (same scale)" overlay is when you are plotting several related market indexes that have the same range of values (our Bullish Percent indexes for example).
  • You can also choose to overlay one symbol on top of the chart's main price bars by adding a "Price" indicator with the "Position" dropdown set to "Behind Price."  However, if you do that, it is important to remember that the two symbols are plotted on different vertical scales.  That means that crossing signals are not valid on those kind of charts - but trend divergence signals are.

 

Q2: What are SCTRs and how can I use them?

A2: SCTRs (pronounced "Scooters") are short for "StockCharts Technical Rank."  They are a relative strength ranking based on technical analysis techniques recommended by John Murphy.  (For the precise formula, click here to read our ChartSchool article on SCTRs.)  Whenever the markets are open, we are constantly re-ranking all the stocks we track and assigning them a number between 0 and 100 based on their relative technical strength.

You can see a stock's SCTR value in a couple of different ways.  Probably the easiest way is by checking the "Full Quote" checkbox for your chart and then clicking "Update."  The SCTR value will appear inside the Full Quote area at the top of your chart.  The other way to add SCTR values to your chart is to add the "SCTR Line" Indicator to your chart.  It is located in the same "Indicators" dropdown that I mentioned above - the ones with the MACD and RSI indicators (in additional to lots of others).

When you add the "SCTR Line" Indicator to your chart, not only do you see the current SCTR value for your chart's main ticker symbol, but you also see how that SCTR value has changed over time.  Has the SCTR been increasing over time?  Decreasing?  Oscillating?  The SCTR Line indicator can show you those answers at a glance.  Here's an example:


(Click on the chart to see its settings.)

For more on SCTRs, be sure to review this article and this video.

OK, hopefully that has helped everyone with those two popular questions.  Be sure to join Greg for our next webinar which will be held next Friday (click here to register early, click here to view last week's episode, and click here to ensure you computer works with the webinar software ahead of time).

Take care,
- Chip

CRB Index is Testing Major Support

Today's message takes a look at commodity prices because they've been the focus of a lot of attention of late. That's because falling commodity prices are deflationary in nature, which is something central bankers are trying to stop. The weekly bars in Chart 1 show the CRB Index of nineteen commodities threatening a support line drawn under its 2012/2013 lows. Crude oil weakness has been a big drag on the commodity index (black bars). Despite a midweek bounce in crude, signs of a major bottom are still lacking. One of the main catalysts behind the commodity drop has been a rising dollar. The Dollar Index has suffered a minor setback over the last two weeks (green bars). But its uptrend is still very much intact. That's not an encouraging sign for commodity markets and the battle against global deflation.

Weakness Confirms Earlier Bearish Signals

Make no mistake about it, volume has exploded and stock prices have fallen and lost key support levels.  That combination is bearish in and of itself.  But the part that really bothers me is that intermarket warning signs have been flashing for months so this high volume market drop confirms that we're likely in for more weakness before the stock market improves.

One warning sign that I began discussing several months ago was the relative weakness in small cap stocks.  The Russell 2000 topped in early March and did not follow the other major indices to fresh new highs over the summer.  Yet on CNBC and elsewhere, all the talk centered around all-time highs on the S&P 500 and how the U.S. economy was gaining strength.  It was certainly true, but rarely did media outlets caution individual investors about where the money was rotating to on a relative basis.  And, as far as I'm concerned, the charts speak much louder than words on CNBC.  If the U.S. economy was truly stronger than in other parts of the world and gaining strength, then why wouldn't the Russell 2000 be leading the action to the upside?  This index is comprised of companies who sell almost exclusively to customers in the U.S.!

The potential for domestic economic slowdown and a possible recession increases when small caps lag on a relative basis.  Check out this chart:

I want to make a few points about this chart.  First note that, for the most part, when the S&P 500 and Russell 2000 rises, the relative strength of small caps ($RUT:$SPX - middle chart) tends to rise as well.  This tells us that the more aggressive small cap index is leading the benchmark S&P 500 to the upside.  That's very good news and generally leads to bull market sustainability because it's signaling that investors remain aggressive.  But check out the relative downtrend in the $RUT:$SPX in 2006 and 2007, just before the stock market top in October 2007.  Money was rotating away from small caps and that was a warning sign.  Fast forward to 2013.  Note that as both the S&P 500 and Russell 2000 were moving higher, the relative performance of small caps was EXCELLENT.  That completely changed in 2014.  Money has been rotating away from the Russell 2000 ahead of the recent stock market downturn.  This was just one of the several warning signs that, in my opinion, has led to the recent market rout.  There was one false signal given, which is highlighted by the two red vertical lines.  During that period in 2008, small caps outperformed which could have been misconstrued as a bullish sign.  The primary reason for this incorrect signal was due to the sudden collapse of financial stocks which carried the S&P 500 down much faster than its small cap counterpart.  Still, it's obvious to me that following the relative performance of these two indices vs. one another provides us valuable clues as to future market direction and the possibility of a major shift in how big money views the stock market.

Let's discuss one more warning sign - the relationship between consumer discretionary, or cyclical, stocks (XLY) and consumer staples stocks (XLP).  When our economy is expected to grow, discretionary stocks outperform their staples counterparts as consumers feel good about spending money on "discretionary" items.  When a slowing economic period approaches, money will begin to rotate to the safer consumer staples stocks as hopefully everyone will continue to buy toothpaste and soap no matter the economic conditions.  Following a simple ratio of XLY:XLP can yield some rather dramatic clues about the likelihood of a sustained market advance.  Take a look at this chart:

It's easy from this chart to see that money was rotating away from discretionary stocks in 2006 and 2007 AHEAD of the 2007-2009 bear market.  In 2013, the ratio between consumer discretionary and staples stocks was awesome as investors continued pouring money into discretionary stocks on a relative basis and the bull market was sustained.  In 2014, that relationship completely reversed course, however, as market participants "prepared" for upcoming market weakness by rotating towards more defensive areas like consumer staples.

On Thursday, October 23rd, I will be hosting a FREE webinar to discuss the above warning signs, in addition to several more.  Also, I'll discuss what I'll be looking for to determine if and when the bull market will resume.  CLICK HERE for more details.  Hope to see you there!

Happy trading!

Tom Bowley
Chief Market Strategist
Invested Central

DIA Forges Island Reversal off Support Zone (video)

The Dow Diamonds (DIA) showed signs of a selling climax last week and forged an island reversal to end the week. First, let's look at the indicators to suggest that we had a selling climax or capitulation of sorts. A selling climax involves a very sharp decline with extremely high volume. Price-wise, DIA fell over 8% from high to low, 10-period RSI moved below 30 and the 10-day Slope indicator hit -1. These indicators confirm that DIA fell sharply in a short period of time. Volume-wise, the Volume Oscillator (5,100,1) surged above 100 and this means the 5-day average of volume was over twice the 100-day average. We can also see DIA volume exceeding the 15 million mark twice last week. In fact, Wednesday's surge to 25 million was the highest volume of the year. 

DIA followed up this selling climax with an island reversal over the last four days. The ETF gapped below 162 on Wednesday, traded below the gap for two days and then gapped above 162 on Friday. These gaps created a two-day price island that trapped shorts with losses. Also notice that this week's lows formed at support from the spring lows. So now what? Short-term, the island reversal is valid as long as the gap holds. After all, a strong reversal should hold. A move below 161.5 would fill the gap and negate this short-term reversal. We could then see a test of the lows in the 158-159 area. Keep in mind that this is a short-term outlook. Volatility remains high and the markets are in risk off mode overall. 

Good trading and good weekend!
Arthur Hill CMT

The Nuclear Option Rolls Over

In this world of crosscurrents and 10% pullbacks, The Nuclear ETF (NLR) was no different. It has made about a 10% pullback off the highs.

But unlike the S&P 500 ($SPX), the NLR made it's highs in March not September. So while this looks the same it feels different. We have broken down through the support level and have competed a rounded top or double top. This is an important chart to watch right now.

Why now? Well, it closed back above the support level from the topping structure. All the weekly indicators are sitting at important levels like the MACD at 0, the Full Sto's right around 80 and the RSI in a bull market trend holds above 40. The CMF rose this week, so that is good news. The volume did not really change on this breakdown, so maybe its an investable low. Should this support level fail to hold, I would be very cautious expecting this sector to rise in the face of falling commodities in general. I am aware of the demand from China for Uranium and the whole picture on the number of new plants. But that's the story and this is the reality. It is threatening lower prices which means we'll have to wait for the story to play out some time in the future.

Good trading,
Greg Schnell, CMT

 

Important Cycle Low Due Soon

Fair warning! If you read this article and get hooked on cycle analysis, you will rue the day. If we look at price charts, we can clearly see that prices move up and down in cycles, but trying to use this tool can be frustrating beyond words. There are certainly others who are better at it than I, but I have kept an eye on cycles throughout the years. In the last few years I have pretty much ignored cycles, because they have more or less disappeared under the mountain of money printed by the Fed, but I noticed that they seem to have reappeared since the February price low. So, while I have been resisting the idea of writing this article, StockCharts has some very cool cycle annotation tools (darn it!), and I just couldn't resist doodling with them.

To begin, let me say that these are my personal views regarding cycles, and others will have different ideas about them. My work with nominal cycles involves the 5-Week, 10-Week, 20-Week, and 40-Week (aka 9-Month) cycles, which seem to move under the market like ocean tides. They are not tied to any fundamental events, in fact such events often disrupt the normal ebb and flow of cycle movement. The shorter cycles are subordinate to the longer cycles, meaning that a shorter cycle is considered to have bottomed at the same time the longer cycle bottoms. Nominal cycles are measured from trough to trough.

What prompted me to write this article was the chart of current market action and its apparent fit into a cycle template. The dominant feature on the chart is the projected 40-Week Cycle trough (and nesting of all subordinate cycles) in early November. We will look at this more closely a little later, but first let me explain a few other things.

From an intermediate-term perspective the 40-Week and 20-Week Cycles are the most important, and they are of almost equal importance. There are, obviously, two 20-Week Cycles within the 40-Week Cycle, and most of the time the first 20-Week Cycle will run longer than the second one. On the chart above we see that a 20-Week trough was due in June, but it didn't manifest itself in price movement until August, about six weeks late. The current 20-Week Cycle will be compressed when the 40-Week Cycle makes a trough, currently projected for November 6. But we are reminded that cycle analysis often works best in hindsight.

The big question at this point is if the projected November 6 trough will arrive on time, because the cycle could arrive early or late by a month or so. This is where the aggravation begins. An argument could be made that it actually arrived early with this week's price lows. I am inclined to think that there will be a technical bounce (already started) out of those lows followed by another decline to retest those lows. This process could take several weeks, putting the retest low right around the first part of November. The retest low could be higher than recent lows, but I would still consider it to represent cycle completion if it arrives near the projected date.

Finally, we look at the price arc and note that the 40-Week Cycle price high is located to the right of center. This is called a "right translation" and it is bullish.

Conclusion: This has been a very brief overview of nominal cycles with a focus on the current 40-Week Cycle. The idea that an important low may be made after the bounce out of this week's lows is by itself sound on a technical basis. Framing it within the cycle template makes it more compelling. The right translation implies that the market may not be finished making new highs. But before we rely too heavily on a projected cycle low that is very close to Halloween, remember that Bela Lugosi would say, "Bevare!"

Note: In our DP Alert Daily Report we publish a nominal cycle projection table. Sample below:

 

 

PMO Analysis Identifies Short-Term Extremely Oversold Conditions

The Price Momentum Oscillator (PMO) is a measure of internal strength and momentum. You can read more about the PMO in ChartSchool. Every stock, index, ETF, mutual fund has a PMO value each day. It can be rising or falling, have a crossover BUY signal (or not) generated by the PMO crossing above its 10-EMA, and finally, it can have a value above or below zero. We calculate PMO Analysis charts based on those criteria. Note that you can only generate a PMO Analysis chart for an index or sector ETF because is comprised of a group of stocks. Since we are looking at percentages, we calculate the PMO value for each member of the group and use the values to calculate a percentage.

Looking through the DecisionPoint Market Indicator (DPMI) chart pack, I found these PMO analysis charts and noticed that they are all hitting oversold bottoms in the short term. Note in the first chart I have annotated the time frames for each indicator window. When you look at what is being measured it makes sense. In the short term, we are interested in how many stock members are rising. In the intermediate-term we count how many stocks are on a PMO BUY signal. In the longer term, we determine how many stocks in the group have values above zero. I've annotated on all of the charts areas of support. The red highlights are for readings that are in extremely oversold territory and could resolve upward. The yellow highlight is showing that readings are in oversold territory and have reached an area where many previous bottoms have occurred, but not quite in extremely oversold territory.

Click here for the rest of this article.

- Erin

Nikkei Tries to Hold Breakout

I have been very interested to watch the Japanese Equity Market ($NIKK) to see if it can hold the breakout from the 25 year trend line. First of all, here is a long chart.

Why does this matter? When a long trend line breaks it is usually very important. Lets zoom in on the last year:

If this breakout fails, it usually will be a meaningful plunge down instead. We can see it closed back at the trend line on Friday. If the $NIKK can break out it will be powerful. The fact that the Yen closed near the lows but was an outside day is interesting. If the Yen started to rally against the $USD, we would probably see the $NIKK pull back. Time to watch closely as the volatility is picking up on the $NIKK with a big 400 point down day this week. This trade could be traded through any of the Japanese ETF's and preferably the hedged ETF's so the currency exchange does not wipe out your profit.

Thursday's Webinar -
I had a great time last Thursday during our 4:30pm Webinar.  We had some great questions from the audience.  If you weren't able to make it (and you have the bandwidth), you can click here to see a replay.

Good trading,
Greg Schnell, CMT

Small Cap Head and Shoulders Top?

A debate is going on within the technical community as to whether or not the Russell 2000 Small Cap Index is in danger of completing a "head and shoulders top". A case can certainly made for it, although it would be an unusual one. The daily bars in Chart 1 show Russell 2000 iShares forming two smaller peaks (shoulders) during January and late August. In between those two lower "shoulders" a "double top" was formed between March and early July. While it might not qualify as a textbook "H&S" top, the bearish warning is still valid. At the moment, the Russell 2000 iShares (IWM) are testing a "neckline" drawn under its February/May lows (red line). A downside violation would complete the topping pattern that's been forming for months. The negative volume pattern confirms that bearish warning. The volume bars along the bottom of the chart show heavier trading during selloffs and lighter volume on rallies. This week's downside volume has been particularly heavy. The red line on top of Chart 1 is On Balance Volume (OBV) which is a running cumulative total of upside versus downside volume. It's also in danger of breaking its own support line. [A 1% bounce today kept the IWM above neckline support].

Next Up: Earnings Season

The Fed is winding down its asset purchase program and the historically weak month of September is now behind us.  So what's in store next?  Earnings season.  The stock market sends us signals all the time and given the recent performance of certain sectors and industry groups, we can surmise where to look for positive earnings surprises.  One of the best looking areas of the market technically right now is investment services ($DJUSSB).  Off the early August lows, the DJUSSB rose sharply (approximately 13%) over the next 6-7 weeks.  During this same period, the S&P 500 rose about 5%.  The relative strength in investment services has been trending higher since 2012 as can be seen in the chart below:

The red vertical line also shows how strongly this industry has performed over the past few months leading up to this earnings season.  That tells me we're likely to see some excellent quarterly results from companies within this space.

Railroads ($DJUSRR) have also been a shining star - not just over the past couple months, but throughout 2014.  There are going to be very high expectations for earnings within this transportation group for sure.  Check out the relative outperformance here:

I also placed a red vertical line on this chart that shows the strong relative strength of railroads over the past couple months leading up to Q3 earnings reports.

On Thursday, October 9th, I will be hosting a FREE webinar discussing the best ways to trade gaps resulting from earnings reports, among other topics.  With earnings season just around the corner, this will be quite timely.  For more information, simply CLICK HERE.

Happy trading!

Tom Bowley
Chief Market Strategist/Chief Equities Strategist
Invested Central/EarningsBeats.com

Two Valuable Gems from Arthur and Greg

Hello Fellow ChartWatchers!

It was definitely a roller coaster ride for stocks this week.  The bears were firmly in control on Wednesday but then the Bulls roared back Friday on the strength of the US Employment numbers.  A quick glance at the Market Cap PerfChart shows that Large Caps were the big "winner" last week while Mid-Caps lost twice as much.

All this squabbling shows up clearly on the broader index charts as well.  Have you checked out the charts in Arthur Hill’s free “Market in a Nutshell” ChartPack recently?

Side Note: A ChartPack is a pre-created collection of SharpCharts and ChartLists that StockCharts Extra members can install with just a couple of clicks.  Last year, our Senior Technical Analyst, Arthur Hill, created a free ChartPack called “Market in a Nutshell.”  It’s a collection of 10 very useful charts that Arthur reviews every day.  If you are member of our Extra (or PRO) service, you can install the ChartPack by clicking on the “Your Account” link in the upper right corner of the page and then scrolling down to the “ChartPacks” area.  For more on installing and using ChartPacks, click here.

OK – sorry about that – here is one of the more interesting charts from Arthur’s collection:


(Click the chart for a live version)

This is a slightly modified version of Arthur's first chart - the S&P 1500 High-Low Line (I just shrunk it a little bit so it fits into the newsletter format).  Back on September 26th, this broad market indicator - one that very few people watch closely - gave a clear bearish signal confirming the red signal given by the non-cummulative version ($SUPHLP) several days earlier.  Since that is based on 1500 important stocks from all different market-cap categories, it is definitely a signal worth watching.

Again, ChartPacks are a great resource for StockCharts members, but if you are like most people, you have to remember to use them after you install them!

Greg Schnell’s Thursday Webinars

The other big news from past two weeks is that we held two very successful webinars with Greg Schnell presenting.  We are continuing to explore the possibly ways that webinars can help our users.  Last Thursday, over 500 people attended Greg’s webinar and the feedback was overwhelmingly positive.  Based on that, we have tentatively scheduled additional webinars by Greg on every Thursday in October.

Each Thursday at 4:30pm Eastern (30 minutes after the markets close), we’ll hold a one hour live session with Greg.  The webinar format allows you to see Greg’s screen and hear his voice as he walks you through his charts.  He’ll cover his currently thoughts on the markets and then demonstrate how to use various features of StockCharts.com.  We also leave time at the end of the session for live Q&A.

If you have the bandwidth, you can click here to review last week’s webinar.

If you are interested in attending this Thursday’s upcoming webinar, first click here and follow the instructions for installing and testing the webinar software.  Make sure you use all the resources on that page to get the webinar software working smoothly otherwise you’ll just be frustrated when the webinar starts.

After you have verified that everything works, you can click here to register for our next webinar.  Greg and I are looking forward to seeing you in the (virtual) audience.

Look for us to expand our use of webinars soon.  As we improve things, we’ll be inviting Arthur Hill, John Murphy, Erin Heim, Tom Bowley, and others to join in the fun.  Stay tuned…

- Chip

SPY Forges 3-Stick Reversal at Key Retracement (video)

The S&P 500 SPDR (SPY) appears to be putting in another higher low that could signal the resumption of the long-term uptrend. First and foremost the long-term trend is up because SPY recorded a 52-week high less than three weeks ago. In addition, the charts shows a clear progression of rising peaks and rising troughs. Under this assumption, declines are viewed as corrections within the long-term uptrend. A reversal of this decline would end the correction and argue for a move to new highs. 

The chart below shows the ETF becoming oversold as CCI moved below -200 for the third time in seven months. Oversold is a condition and this tells us to be on alert for a reversal. In addition, the ETF was near the 61.8% retracement, which is a Fibonacci number that can sometimes mark reversal areas. Thus, the combination of oversold and the Fibonacci retracement were enough to put traders on alert for a reversal. 

The first signs of a reversal are now apparent with the candlesticks over the last three days. The first is a long filled candlestick that shows strong selling pressure. The second is an indecisive candlestick with a spike low near 192. This candlestick also reflects an intraday reversal as SPY dipped to 192.35 during the day and rallied to close at 194.38. The third candlestick completes the reversal with a gap and close above 196. This candlestick sequence is similar to a morning doji star. At this point, it is important that the gap holds. After all, a strong and valid reversal should not look back. A move below 194, therefore, would show weakness and warrant a reassessment. 

Good trading and good weekend!
Arthur Hill CMT

Know Your Browser

Hello Fellow ChartWatchers!

Several indexes including the Dow and the S&P 500 hit new all-time highs on Friday before pulling back slightly before the close.  People who have been waiting for the market to correct are still waiting.  This is a great time to be a technical analyst because T/A removes the burden of "Why?" from your mind.  Most of the "Why?"-based investors pulled out of this market a long time ago and are stuck on the sidelines waiting for their predicted pullback. In contrast, technicians can stay in the market knowing that "Why?" is not nearly as important as the strength and direction of the trend.  Trend conquers all.

KNOW YOUR BROWSER

How well do you know the features of your browser?  Every day, our customer support team gets several questions about our website that are really about the user's web browser.  Your web browser is a CRITICAL tool in your investing toolbox.  It deserves your attention.  I promise that time spent learning about your browser and how it works is TIME WELL SPENT!  Using all of your browser's features effectively will help you with all websites you visit, not just StockCharts.

So, given that, what things should you focus on?  Here are several browser features that everyone needs to understand:

Multiple Browser Windows

Did you know that you can have multiple browser windows open at the same time?  I'm not talking about browser tabs - which can only be seen one at a time -  but additional browser windows that can be resized and positioned side-by-side or overlapped.  Typically, using the "File/New Window" (or pressing Ctril-N) opens up a new window which you can then resize and reposition on your screen.  (Understanding how to resize windows and switch between them is also super important - see your O/S documentation for help with that.)

Saving Bookmarks/Favorites

Browsers have the ability to save the address (the URL) of any web page that you visit in a list of "Bookmarks" (also called "Favorites").  Having an effective, useful list of bookmarks can greatly increase your effective use of the Internet.  In addition, some browsers allow you to group collections of bookmarks in folders and then open all of those bookmarks with a single mouse click.  This can make setting up your screen for investing much easier.  Make sure you understand how to save and use bookmarks and then, if you haven't already, spend some time creating USEFUL collections of bookmarks that make it very easy to get the information you need quickly.

Vertical Space Stealers

Most computer screens are wider than they are tall.  That means that vertical space is at a premium on your screen.  Make sure that all of things that take up vertical space on your screen are useful.  If they aren't, get rid of them!  I'm refering to things like toolbars, bookmark bars, big icons, status bars, etc.  We've seen screenshots from users that have 5 or more(!) toolbars added to their browser windows resulting in huge "deserts" of unusable space on the screen.  Take time to review your browser's plug-ins and disable/remove any of them that you don't use frequently especially the toolbars - just say no!

As an example, most browsers allow you to access your bookmarks via a popup menu.  That means that a bookmark bar - which eats some of your precious vertical pixels - is not really necessary.  Just saying...

Managing Your Browser's Cache

All web pages are really just collections of different files that are downloaded from the Internet each time you visit the page.  In order to increase speed and reduce bandwidth usage, all web browsers wiill store most of those files on your computer hard disk in a place called the Temporary File Cache.  Those cached files are then used later to make things faster when you revisit those pages later.  99% of the time, caching files is a very good thing and really speeds things up.  Unfortunately, from time to time, the file cache can cause problems.  If a file isn't downloaded successfully but the web browser caches it, future visits to the page won't look right or work properly.

To solve that probably, you need to periodically clear your browser's temporary file cache.  This is a standard, common, normal process that all successful Internet users perform on a regular basis.  If you are not clearing your cache regularly, you will have problems eventually.

The steps needed to clear your browser's cache differ significantly from browser to browser.  Click here to visit a website that has instructions for all of the different browsers.  Note that some browsers can be configured to automatically clear their cache everytime the browser is shut down.

Managing Your Browser's Cookies

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If your browser is ignoring cookies from StockCharts.com, our website won't work correctly.  If your browser is deleting our cookies, things that used to work will suddenly stop working.  Many of the "strange" problems that users report to our customer support team can be tracked back to non-standard cookie settings.  We strongly recommend using your browser's default cookie settings.  If you have to change those settings, make sure to add "stockcharts.com" to the list of websites that don't have their cookies modified.

Have a Backup Browser (or two or three)

Firefox, Google Chrome, Safari, and Internet Explorer (and Opera!) - There are lots of great web browsers available these days.  It is worth taking the time to install and test all of these great tools.  Test them out and pick the one that works for you.  Once you've picked your favorite, do not delete the other ones.  Keep them available in case your primary browser stops working for some unknown reason.  Each browser has its own cache and its own collection of cookies.  If your primary browser stops working correctly, run a test with one of your backup browsers.  If the backup browser works, then you know the problem is related to your primary browser's configuration.

Automatic Updates

Hopefully, in this day and age, I don't need to remind you of the importance of keeping your browser (and your Operating System) up-to-date with the latest security patches.  Unfortunately, we still see lots of outdated browsers using our website every day.  Don't be one of those exposed people - configure your browser to update things automatically and then check periodically to make sure that is really happening.

My main message this week is to spend time understanding your web browser.  It is time well-spent that will greatly increase your use and enjoyment of all Internet websites (including ours!).

Take care,
- Chip

Rising Rates Help Insurance Portfolios

Financial stocks are starting to show upside leadership at the same time that bond yields are starting to rise. Banks usually benefit from rising bond yields because they can charge higher rates for their loans. Two other financial groups have actually done better than banks this week. They include investment services (brokers) and life insurance. Let's start with life insurance. The black bars in Chart 1 show Prudential Financial (PRU) surging today to a new record high. It's the strongest stock in that group. The black line shows the stock's relative strength ratio turning up this month to a new three-month high. The green line on top shows the 10-Year T-Note yield also climbing this month. A correlation can be seen between the two lines. Prudential underperformed the market between January and May as bond yields were falling. It has been outperforming during September as yields have started to rise. The same analysis is true of other life insurance leaders like Lincoln National (LNC) and Metlife (MET). There's a good reason why insurers benefit from higher rates. They invest three-quarters of their premiums in Treasury bonds. As a result, they receive lower income payments when bond yields are low. Higher yields allow insurers to reinvest maturing bonds in their portfolio in higher yielding bonds.

Remodeling Your Portfolio With Home Improvement Stocks

You should know by now that I'm a HUGE fan of the Moving Average Convergence Divergence (MACD) indicator.  Other than the combination of price/volume and the use of candlesticks, it's probably my "go-to" indicator.  As a case study for this weekend, let's take a look at the Dow Jones U.S Home Improvement Retailers Index ($DJUSHI).  Let's take a look at the bigger picture via a weekly chart:

The first thing that catches my eye here is that home improvement stocks began to labor in the second half of 2013.  The long-term negative divergence that appeared is NEVER a guarantee of price weakness ahead, but it's definitely a warning sign that risks of a more significant decline (or an extended period of consolidation) have increased.  Managing risk is a critical component to successful trading.  At the first sign of the negative divergence in July 2013, the DJUSHI was close to the 175 level.   Do you notice that one year later, the DJUSHI remained at 175?  It went nowhere while the S&P 500 gained approximately 25%.  To visualize this a different way, let's take another look at the weekly chart, but this time let's look at the DJUSHI relative to the S&P 500:

The relative underperformance of home improvement stocks was quite dramatic and the MACD provided us that clue AHEAD OF TIME.

Home improvement stocks are on much better ground now technically, but many view the MACD as a lagging indicator when it actually provides us hints about the future through analysis of momentum.  The DJUSHI hit short-term resistance and failed on Friday just above the 200 level so we may see a pause in the group, especially if the overall market weakens in the near-term.  But any pullback to rising 20 week EMA support (from the initial chart above) at 186, which also marks price support and the rising 50 day SMA would likely provide a solid reward to risk entry into this industry group and many of its component stocks.

One month ago, I made an offer to all of you for a FREE video series on the MACD and I had a strong response.  For those of you that missed it, I'm offering it once again.  There's no obligation.  For more details, simply CLICK HERE.

Happy trading!

Tom Bowley
Chief Market Strategist
Invested Central

Bullish Percent Indexes Close The Week Lower As New Highs On The Indexes Are Made

Bullish Percent Indexes ( BPI's) are helpful in telling us the underlying sentiment of a group of stocks. 

Here is the  Bullish Percent Index for the Nasdaq Composite ($BPCOMPQ). The chart is a little busy, but follow along.

The gray area with the pink line is the Nasdaq Composite.It is very close to recent highs. The blue large squiggle line is the main title of the chart so the scale for that is shown on the right side of the chart.

As the market is moving higher, the percentage of stocks on a PnF buy signal ($BPCOMPQ) is waning. I have put two red lines and a shaded area between them on the chart. When the Percentage is above the top line we are in a strong bull. When we oscillate down to the lower area we are still in a strong area to expect support as in 2009 and February 2014. When it falls well below the red zone, it is a weak market. Usually dips into the 50% level are buys. However, when you are at new highs in the market and this level is the best you can get, you are probably near an intermediate term top, rather than a buying opportunity. We dropped almost 2% this week as the market was pushing higher every day. When I look to the left on this chart, if it can not get back above the lower red line, that is a time to be more cautious in the market. An example would be 2005, 2006, 2007. The real concern comes when each push up is less successful. The last time that sort of behaviour happened, the Fed stepped in like in 2012.

On the lower part of the chart is the percentage of stocks above the 200 Day Moving Average ($NAA200R). You can see we are near levels where the market topped before as shown in the blue dotted lines. Those levels show up after the market has been stronger, pulls back and then less stocks rise back above the 200 DMA. I would currently estimate we are similar to the 2007 top and below where the market rolled over in 2010 and 2011 as indicated by the dashed blue lines. The gold area at the bottom is the percentage  of Nasdaq stocks above the 50 DMA. ($NAA50R). It is below 50 currently. So less than half the stocks are above the 50 DMA but we are making higher highs with fewer stocks. The market is getting weak. When this is the level as the markets still climbing into, it usually indicates a larger pullback is coming. So you are not buying the dips at this level (because the market is near the highs not the lows) as you are seeing that these are the levels when the market tops historically.

Here is the same chart for the New York Stock Exchange. We can see the $BPNYA is having trouble getting back above the 65 level. At this point it is important to note. The diminishing peaks going back into 2013 makes this more concerning. I would suggest that if it continues to struggle here, the market will roll over. So even though we had a higher intraday all time high for the Dow and the $SPX, the broader market of stocks on the NYSE are significantly weaker.

We can see the bold pink line on the New York Composite Percentage Of Stocks Above The 200 DMA ($NYA200R). The recent push up against 70% was important. This was a level where the markets failed from in 2011. In 2007, it was closer to 60%.

The percentage of stocks above the 50 DMA ($NYA50R) is only 46% even though the market pushed higher almost every day.

All this adds up to caution and an expectation for a larger pullback. Here are the links to the charts for the $BPSPX and $BPNDX . They are more bullish. These large cap stocks are holding the indexes up. If they start to breakdown, the market will be rolling over.

Good trading,

Greg Schnell, CMT

Possible Double-Bottom On Monsanto

This afternoon while going over the DP Tracker Report for the S&P 500, I checked the new Price Momentum Oscillator (PMO) BUY signals on the SPX-Plus Tracker to see if there were any signals that looked promising. There was one--Monsanto (MON).

First glance at the thumbnail, we see the positive PMO crossover its EMA which generated the PMO BUY signal. What are the other positives about this chart? There is a positive PMO divergence, meaning that while price was making a lower price bottom, the PMO bottoms were rising. A PMO bottom in oversold territory is also favorable.

The bullish double-bottom formation was the other positive. This looks like a textbook start to a double-bottom formation. The neckline is what will take part in executing the pattern. Should price break above the neckline in a significant way, the expectation would be that price would rise the same amount that it did from the bottoms. In this case it would be about $10 which translates into a minimum upside target of approximately $131.

What are the negatives on this chart? The configuration of the 20/50/200-EMAs is not optimum. When the 20-EMA crossed below the 50-EMA at the end of July, that generated an Intermediate-Term Trend Model Neutral signal. It wasn't a SELL signal because the 50-EMA is above the 200-EMA which implies MON is in a long-term bull market. Good news is that price is above the 20-EMA so it is rising.

Happy Charting!
Erin

 

Using the Raff Regression Channel to Identify Trend Reversals in FDN

Today's article will show how the use the Raff Regression Channel to define the trend and identify reversals using the Internet ETF (FDN). I am particularly interested in FDN because internet stocks represent the appetite for risk. An uptrend in FDN signals a strong appetite for risk and this is positive for the technology sector. A downtrend in FDN signals a weak appetite for risk and this is negative for the technology sector. 

The middle line of the Raff Regression Channel is a linear regression, which is the line of best fit for closing prices. The outer lines are set equidistant from the furthest high or low. The first step to using the Raff Regression Channel is to identify the beginning and ending of a move. An advance begins with the closing low and ends with the highest closing high. A subsequent higher closing price would warrant an upward extension of the channel. A decline begins with the closing high and extends to the lowest closing low. A subsequent lower closing price would warrant a downward extension of channel.

The chart above shows the Raff Regression Channel extending up from the May closing low to the September closing high, which was last week. Should the ETF close above this high in the coming weeks, I would extend the Raff Regression Channel further. I am most interested in the lower line because a close below this line would signal a trend reversal. The channel is rising for the moment and this means FDN is in an uptrend. Hence, the appetite for risk is strong and this is positive for the technology sector. 

Good trading and good weekend!
Arthur Hill CMT

New Industry Certification Gives ChartWatchers More Reasons to Improve

Hello Fellow ChartWatchers!

The rally-that-just-won't-end continues.  The S&P 500 is up over 8% for the year.  It is up over 40% since the start of 2013.  It is up over 58% since the start of 2012.  Etc., etc., etc.

And speaking of rallies, did you know that Large Cap stocks have outperformed Small Caps by over 7.5% since the start of the year?  And that's no fluke - over the past year, Large Caps are up 5.5% more than Small Caps.  In fact, you have to go back to May 2nd, 2013 in order to find a point where Small Caps outperformed both Large and Mid Caps.  Assute ChartWatchers can use our "S&P Market Capitalization" PerfChart to see these relationships.  Here's an example where I've set the baseline to be the S&P 600, meaning that the red and blue bars show how much the Large and Mid Caps have outperformed the Small Caps since the start of the year:

(And, thanks to our new "Linkable Version" feature, you can now click on the PerfChart above to see a live version of the chart with those exact settings!)

New Industry Certification Gives ChartWatchers More Reasons to Improve

One of the great things that happended at ChartCon 2014 last month was the official announcement of the TSAA Certification Exam for Individual Investors.  The Technical Securities Analysts Association (TSAA) is the oldest technical analysis organizations in the United States.  Their mission includes helping others learn and apply effective techniques for identifying and forecasting trends in the market and for effectively controlling investment risk.  Those goals significantly overlap our goals here at StockCharts and so it was only natural that we partner up at some point.

Last February, I met with several members of the TSAA board and discussed with them the possibility of creating an industry-backed certification program for non-professional technicians.  As you may know, the Market Technician Association (MTA) has had a professional certification program for decades (the Certified Market Technician (CMT) program) but there are significant barriers to entry with that program (cost, time, effort, etc.).  In fact, the MTA has had been asked on numerous occasions to create an "CMT-lite" exam for non-professionals, but they have decided to remain focused on their professional program instead.  Given that - and after consulting with the MTA - we decided to work with the TSAA to create this new, non-professional certification program.

"But wait Chip.  I thought StockCharts already had a certification program.  What are you talking about now?"   Yes, that is correct.  We have the "SCU Certified ChartWatchers" program for StockCharts.com members.  That program still exists and provides great benefits to StockCharts users.  The new program however is tool independent, more comprehensive, and backed by an industry organization (the TSAA) with a long track record of supporting and providing high-quality technical analysis education.

Annouced at ChartCon 2014, the TSAA Certification Exam was created by industry experts and is administered by the TSAA.  Its industry-wide recognition will continue to grow over time and its non-professional focus means that anyone with an interest in Technical Analysis can participate.

I strongly encourage everyone reading this article to check out this new certification and take the time to learn the material in their Study Guide.  Even if you don't decide to take the certification exam itself, studying the information in their Study Guide will make you a better investor.

As with our own certification program, having a goal such as this can inspire you to expand your knowledge and doing that should improve your investing results.  And who knows?  After completing the StockCharts certification and then the TSAA certification, you would be perfectly positioned to tackle the MTA's CMT certification too!

Regardless of how far you progress, I wish you all the best on your educational journey towards these certifications.
- Chip

 

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