ChartWatchers

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

Interactive websites like StockCharts need to store data on your computer in order to work their magic.  They do that by storing that data in items called "Cookies."  In general, cookies are harmless because each cookie can only be read by the website that created them.  (Websites that are "universal" such as Google may be able to theoretically abuse cookies - but they have many other ways of doing similar things.)  Your web browser has several settings that allow you to control what your browser does with these cookies.  (Cookies can also be controled by your computer's security software as well.)  Make sure that you understand your cookie settings.

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

 

All Three Dow Averages Are Rising Together

My Wednesday message showed the Dow Industrials and Transports testing their summer highs. The bars on top of Chart 7 show that the Dow Transports have hit new highs (led by rails and truckers). The Dow Industrials, however, are still testing their July peak. The Industrials need to hit a new high to confirm the upside breakout in the Transports. Odds for an upside breakout appear pretty good however. It's usually a good sign for the industrials when the more economically-sensitive transports are leading it higher. The bars below Chart 8 show the Dow Utilities ending the week at a two-month high. That means that all three Dow Averages are rising together, which is normally a good sign.

Trading Gaps

Identifying a tradable gap can be quite profitable, but also frustrating at times.  Awful news hits the wires and a stock gaps lower.  The immediate question becomes "Should I sell at the open?"  Well, conventional wisdom may suggest that you sell and your emotions may suggest it as well, but just keep in mind that when supply is strong on the sell side, market makers are on the other side, gladly buying all the shares you want to unload.  And market makers rarely lose money.  So what does that tell you?  It should tell you that the highest probability after a gap lower is a recovery to "fill the gap".

Let's take Check Point Software Technologies (CHKP) as an example after they disappointed with their quarterly earnings report in April 2014.  Here's how the stock looked the day that traders received the news:

Note first that CHKP opened very close to key price support.  Many times, stocks will do just that - gravitate at the open to either key price support or key price resistance.  In this case, CHKP found support at the open.  It sold off hard intraday on very heavy volume as emotions ran high among sellers.  By the end of the day, however, CHKP had recovered back to price support.

What happened next is so typical in the stock market and is referred to as the "gap fill".  Most gaps do fill.  Sometimes that gap fill will be almost immediate, while other times it can take a few days to even a few months.  Check out the chart on CHKP two weeks later:

Personally, I try to "guesstimate" where a stock might open or close prior to big announcements like earnings.  I'm not a fan of trading into earnings because it can be so volatile, but for those that do like this volatility, consider the recent action in DSW, Inc. (DSW).  On August 25th, one day prior to its earnings announcement, I sent out this chart:

I simply pointed out the key area of price support and price resistance that I was watching.  If the earnings news veered too far from what was expected (EPS of $.30), I felt there was a decent chance we'd see one of the levels identified with black circles tested.  Sure enough, the earnings news was better than expected and check out where DWS opened the next day:

These "EB Earnings Previews" are a FREE service that you can register for simply by providing your e-mail address.  I'll be unveiling my next EB Earnings Preview on Monday morning.  For more information, CLICK HERE.

Happy trading!

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

$NATGAS - Will It Be Different This Time?

Natural Gas ($NATGAS) is the heartbeat of Western Canada's economy and a huge part of the US Energy supply. Earlier in the spring, I felt $NATGAS might just be the biggest momentum trade of the year. After having a parabolic spike and a pullback, natural gas is sending off chart signals that duplicate the price action before the last downslide. Can it reverse the trend?

First of all, the RSI is near the bottom of the range where we would expect it to bounce from. It needs to get back above 50. The two red lines on the chart from from 2005 and 2012 have the same slope. They both finished in parabolic style. What concerns me is the 2005 line saw the price of $NATGAS fall in 1/2 from the trend line break. It went from $8 down to $4.63. Analyzing the green lines, they all have very similar slopes. So here we sit at the green line and we are not bouncing off it the way we would like to see it bounce which is sharply!

The Volume is starting to wane as you can see on the 50 Day Moving Average of Volume. The MACD moving below zero is not good. The Full Stochastics indicator is near the 20 zone. Looking left on that indicator, it usually stays down for a long period of time. The exception would be the 2004 spike down. At this point, the chart looks pretty negative. Lets zoom in on the last five years.

We can see the RSI is trying to stay above the green line to remain in bullish mode. The price action is particularly twinning in my assessment. By zooming in on the chart, we can see there was also a red line with the same slope back in 2011. It was just much shorter. The yellow boxes highlight the similar price action since breaking the red line, complete with the oscillations around the green trend line levels. We closed the week back below the trend line, so this is particularly worrisome. Horizontal support looks to be down at $3.25 or 15% below here. The two blue lines laying on the price plot but at the very bottom are indicative of the time span between the previous trend line touch and the trend line break down. They match almost exactly. We can see in 2011, we rallied into an October high and then failed big time.

Looking at the zoomed in version of the indicators gives us some hope with the selling momentum weakening as the indicators are flat after moving down hard.

It would appear to be a very important time for $NATGAS related stocks. If this up trend starts now, that would be a big relief. If the $NATGAS market continues to trade weak and sloppy, it is not a good place to stubbornly hold $NATGAS related positions. One extremely bullish interpretation lies on the far left of the second chart in September 2009. After a small oscillation in September, the price of $NATGAS more than doubled from $2.72 to $5.81. It doesn't feel as bullish if you saw Chart 1 which shows the price falling like a pressure gauge after a major leak.

Good trading,

Greg Schnell, CMT

 

Key Breadth Indicators Affirm Long-term Uptrend

The S&P 1500 AD Line ($SUPADP) and the S&P 1500 AD Volume Line ($SUPUDP) hit new highs to confirm the overall uptrend. This is significant for two reasons. First, a bearish divergence is not possible. A bearish divergence forms when the indicators fail to confirm a new high and turn lower. Second, new highs signal broad internal strength within the S&P 1500. Keep in mind that the S&P 1500 consists of the S&P Small-Cap 600, S&P MidCap 400 and S&P 500. This makes the S&P 1500 a very broad and balanced index that represents the "stock market". Even though the S&P Small-Cap 600 is lagging, the S&P MidCap 400 and S&P 500 are pulling enough weight to keep these indicators strong. In short, the breadth cup is half full, not half empty. 

The first chart shows the AD Line forming a higher low in early August and edging above its early July high on Monday. This new high confirms the new high in the S&P 1500 and breadth shows broad internal strength. In other words, majority of stocks are participating in this advance. 

The second chart shows the AD Volume Line also hitting a new high to affirm the long-term uptrend. In fact, notice that this uptrend is steeper and the indicator hit a new high well before the AD Line. The AD Volume Line is like a money flow indicator because it is a cumulative measure of net advancing volume (advancing volume less declining volume). Also note that large-caps have higher volume than small and mid caps, and this makes the AD Volume Line a large-cap indicator.   

Good trading and good weekend!
Arthur Hill CMT

Gold Sentiment Hits Bearish Extremes

Central Gold Trust (GTU) is a closed-end mutual fund, which means that it trades like a stock on the NYSE. The fund owns only gold -- the metal, not stocks. Closed-end funds trade based upon the bid and ask, without regard to their net asset value (NAV). Because of this, they can trade at a price that is at a "premium" or "discount" to their NAV. By tracking the premium or discount we can get an idea of bullish or bearish sentiment regarding gold.

Currently and for over a year, GTU has been selling at a substantial discount, so we could say that sentiment is sufficiently bearish for a rally to begin. We need and want to see in preparation for a gold rally  is the discount rate move lower and then buyers start paying a premium (green bars).

With most sentiment indicators, when the market is extremely bearish, that's when we see a rally. In the case of GTU and Gold, we can see that bearish sentiment can hang on for months. Note also in 2009 when the premiums got ridiculously high (over 25%), it was not the harbinger of a correction in the price of gold, it actually was an initiation to higher prices. 

A closer look at this chart and we can identify numerous areas of overhead resistance that gold will need to break through on a rally. On the other side, there is one significant area of support drawn along the 2013 lows. The weekly PMO just had a negative crossover below the zero line which is extremely bearish. 

We also track the premium/discount for the Central Fund of Canada, however, they hold silver, some cash and other net assets in their portfolio. It does follow quite closely to GTU's premium/discounts. The symbol is !CEFPREM and can easily be added to the bottom of your chart using the same settings I used in the above chart for GTU. 

Happy Charting!
Erin

 

Europe is Helping Drive the Treasury Yields Lower

The yield on the 10-Year Treasury Note fell to 2.34% this week which is the lowest level in fourteen months. Heavy buying of Treasury bonds in an apparent flight to safety was a big reason for the yield plunge. A bigger reason may have signs of economic weakness overseas, mainly in Europe and Japan. Japan's economy had a very bad second quarter, which kept pressure on its central bank to keep monetary policy very loose. Japan's 10-Year yield is the lowest in the developed world at .50%. Bad economic news also came from Europe's three biggest economies. France GDP growth is stagnant, while Germany's contracted. Italy slipped back into a recession. Weak inflation news also increased pressure on the ECB to take more aggressive approach to monetary policy, which would include quantitative easing. Expectations of that pushed the eurozone bond yields to record lows. The German bond yield slipped below 1% for the first time in history. With eurozone yields plunging, that puts downward pressure on U.S. Treasury yields. Compared to Europe and Japan, U.S. Treasury yields are a relative bargain. It does seem strange to see global funds pouring into the safety of bonds at the same time that the stock market is trying to recover from its recent correction. Something doesn't seem right here. It's usually not a positive sign when Treasury prices are rising faster than stocks. The second chart shows a ratio of the T-Bond 20+year iShares (TLT) divided by the S&P 500 trading near a six month high. That doesn't seem like a vote of confidence in the market or the economy.

- John

The Banks (KBE) and (KRE)- Riverside Trade Or Cliffside Trade?

The SPDR Regional Bank Tracking ETF (KRE)  is at a significant tradable decision point. So is the SPDR Bank ETF (KBE). While banks are not associated with the growth part of the market, they usually smell trouble before most of the other industry groups. On a chart, we consider the last bar of information the most important because its tradable. The rest is just history! Good history but it is the shoulda-woulda-coulda part of the chart. Digging in on the two SPDR Bank ETF's is timely this week because its a potential trade.

First the Regional Banking SPDR ETF (KRE) which is composed of 100% regional banks. Starting at the top, since the inception of QE in 2012 the SPURS line has been trending up. This recently changed with lower lows and highs. We can see that we are making new lows on that indicator. The RSI is still in bull mode by staying above 40. A breach of that level would be very concerning.

Moving onto the price chart, the 40 WMA has been support for over two years. We recently tested the 40 WMA in March, fell well below and bounced. We are now back below the 40 WMA indicated by the red arrows and have been for four weeks. We can see a significant topping structure building on the right hand side. Will it complete? I think the MACD might have the answer for us. While the breach of the 40 WMA had some whipsaws, when it was combined with a MACD below zero it was an important signal. All of the breaches were near the end of respective QE efforts by the Fed. As we can see on the zoom panel, the MACD black line moved into negative territory this week. That would appear to confirm the sell signal.

With a brief study on volume, we can see the average volume is declining. While the volume was below average this week, it is more concerning because it was also options expiration week. On the most recent high (the right shoulder of this topping pattern), in the zoom thumbnail you can see the last high had very low volume. The lack on interest then, the light volume on this OE week, multiple sell signals and a price sitting on a support line suggests a protective posture. That is for the regionals, lets look at the SPDR with the diversified Banks and other financial providers. 

The  Banking SPDR ETF (KBE) which is composed of 71% regional banks,29% other is shown below. The charts are very similar. The volume profile is different on the chart as this one pales in comparison in volume. The SPURS trend is making new lows, the RSI is still in bull mode and the topping pattern is almost identical. The volume on the zoom panel is very revealing. At the highs in June, it was also very weak. This weeks volume was slightly higher than the June volume but this was also options expiration. The low volume level for this week was last seen at the right shoulder high, and then its back to August 2012 other than Thanksgiving and Christmas weeks

I think the most critical piece of information resides on the MACD in concert with the 40 WMA. Even the big diversified banks are not able to change the profile of this price and momentum action. Maybe this is the low point as the Hamptons empties out and Manhattan fills back up. But the trend seems the same  on the regional banks as well so I don't think that will come into play here. The biggest change coming is the end of QE unless Janet Yellen's speech in Jackson Hole changes the trend on this chart.

How did this chart look at the 2007 top?

This ETF only started in late 2005. Things look 'photocopy' similar. While it looks like a 'riverside bank' at this point on Charts 1 and 2, there is nothing suggesting it can't be more cliffside either. The tops of 2010, 2011 and 2007 all have the same price action. So far I would suggest the MACD moving below zero with a price below the 40 WMA to be trouble. While the volume was increasing as the 'new' ETF in chart 3 became popular, it had an eerily quiet week after Options Expiration, September 2007. Three weeks later marked a market top. Close monitoring would appear to be in order. We'll figure out if its cliffside later!

Good trading,

Greg Schnell, CMT

 

Things Overheard at ChartCon 2014

Hello Fellow ChartWatchers!

First off, thanks again to everyone that attended ChartCon 2014 last weekend in Seattle.  From my perspective the conference was a huge success with lots of great speakers, great presentations, great discussions, great food, and great weather.  For those of you that weren't able to attend I have some good news - we were able to video tape this year's conference and we are in the process of reviewing and editing that footage right now.  Our goal is to make it available either online or via DVD in the coming months.  Stay tuned!

Things Overheard at ChartCon 2014

Here, in no particular order, are some of the many things I remember overhearing (or saying) at ChartCon 2014:

  • "Hi, I'm Chip.  Welcome to ChartCon!"
  • "Next up is the presentation I've most been looking forward to - with the exception of all the other presentations at the conference."
  • "Hey Chip, the conference so far has been wonderful!"
  • "I've learned so much - it's like drinking from a firehose."
  • "This hotel is much better than the last one."
  • "I thought they said it always rains in Seattle."
  • "I'd like to respectfully disagree with my good friend Martin."
  • "Gatis, that was Mr. Fidelity on the phone.  He has some hired goons outside who would like to have a word with you."
  • "What do you mean the flash drive is hidden inside the lanyard?"
  • "You just answered my question - 'What's the next step?' - when you told us about the new TSAA Certification Exam."
  • "I think I'll sit on a stool out in the middle of the audience.  Would that be OK?"
  • "Chip already stole all of my thunder, but I'll show you RRG charts anyway."
  • "Scanning for a three way crossover is easy!  um....  hmmm....  hang on..."
  • "Wow, why is Tom Bowley's talk so crowded?"
  • "What's a super moon?  Oh wow!"
  • "I'm so glad we were able to squeeze you in for the SCU seminar."
  • "Richard Arms has given us 100 free copies of his new book.  They are in the bookstore area.  Please do not kill each other scrambling for them."
  • "Wow, that live demo actually worked!"
  • "I'd like to respectfully disagree with my good friend John."
  • "This side is definitely my new favorite side of the audience - except for everyone else."
  • "Greg's talk on SCTRs was amazing.  Definitely going to check them out."
  • "Hello, this is Arthur Hill and you are tuned in to a live version of the Market Message coming to you from ChartCon 2014."
  • "Kellie did everything - I'm just taking credit for her hard work."
  • "Chip, I know that I'm supposed to start in 5 minutes, but could you please add just one more slide to my presentation?"
  • "I'm amazed by all the new content you've added, especially the DecisionPoint reports - those look very interesting."
  • "Hey Chip!  When's the next ChartCon?"

Again, according to everyone I talked with, it was a very fun and very informative event.  Thanks again to everyone that came!

- Chip

P.S. One of the attendees posted a more in-depth write up on many of the talks.  Click here to read it.

What to Watch on the Gold Breakout

Gold broke out with a surge in early August, but stalled the last eight days and failed to follow through. Despite lack of follow through, the breakout is holding and has yet to be proven other wise. Let's see what it would take to prove this bullish signal wrong. The chart below shows the Gold SPDR (GLD) breaking out of the big wedge in mid June and holding this breakout with the bounce off 123 in early August. The ETF then broke out of the little wedge and the breakout line turns first support in the 124.5 area. At this point, I think a close below 124 would negate the little wedge breakout and increase the odds of a bigger break down at 123. The red line shows the Chandelier Exit, which acts as a trailing stop-loss. Using this indicator, traders going long on the mid June breakout and using this indicator to set a stop would have been stopped out in mid July. Traders going long on the early August breakout would still be in with a stop-loss just below 124.21, which is the Chandelier Exit value. You can read more about this indicator in our ChartSchool. And finally, ChartCon 2014 was outstanding and it was great to meet many of our members. 
 

Good weekend and good trading!
Arthur Hill CMT

Getting a Quick Daily Market Overview

After Erin's presentation at ChartCon 2014 many attendees responded positively to learning about the DP Daily Update, which is located in the DP Reports Blog (available to StockCharts EXTRA and above subscribers). The purpose of the DP Daily Update is to quickly review the day's action, internal condition, and Trend Model status of the broad market (S&P 500), the nine SPDR Sectors, the U.S. Dollar, Gold, Crude Oil, and Bonds. To ensure that using this daily reference will be quick and painless, we are as brief as possible, and often we let a chart speak for itself. While individuals might specialize in other areas of the market, we think that a continuous monitoring of the areas covered each day in the Update will provide a solid foundation and understanding of the broad market environment that will facilitate analysis in other areas.

A prominent feature of the Update is coverage of internal indicator sets for three time frames, giving us a measure of market condition (overbought or oversold) in each time frame. For this article I will focus on the intermediate-term indicators for price breadth and volume: the PMO (Price Momentum Oscillator), the ITBM (Intermediate-Term Breadth Momentum) indicator, and the ITVM (Intermediate-Term Volume Momentum) indicator. We note that all three have bottomed in the area that has proven to be an oversold level over the last two years. The ITBM and ITVM have crossed up through their EMAs, and the other two appear to be headed in that direction. This action coincides with the price index having bottomed on a prominent rising bottoms line, so the picture in this time frame is positive, and a fair amount of price appreciation can occur before the indicators are once again overbought. There is no guarantee that price will actually move higher, but conditions certainly favor that outcome; however, a review of the short-term and ultra-short-term charts may temper that outlook somewhat.

Summary:  Many people have expressed interest in a daily report that will maintain a continuing focus on the broad market, sectors, and the common areas of interest of gold, oil, the dollar and bonds. The DP Daily Update fills this need for StockCharts EXTRA and higher subscribers. To view a free sample, click here.

- Carl

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