ChartWatchers Newsletter

Financials Have a Strong Week, As Do Economically-Sensitive Materials and Industrials

FINANCIALS HAVE A STRONG WEEK... Financials went from the year's weakest sector to the strongest gainer this past week. Chart 1 shows the Financials Sector SPDR (XLF) climbing to the highest level in three months and challenging its 200-day moving average (red arrow). The dotted line, which is the XLF/SPX relative strength ratio, jumped this week for the first time since February. Banks played a big role in the week's rally, as did brokers and life insurers. The market usually does better when financial stocks are helping.

MATERIALS AND INDUSTRIALS ALSO LEAD... It's also encouraging that economically-sensitive materials and industrials are leading the market higher. Chart 2 shows the Materials Sector SPDR (XLB) closing above its fourth quarter high. Its relative strength line (top of chart) turned up in February. The XLB is being led by stocks tied to industrial commodities like aluminum, copper, and steel. That's a good sign for the global economy. Chart 3 shows the Industrials Sector SPDR (XLI) also closing above its fourth quarter high with a rising relative strength ratio. A 3% gain in transportation stocks contributed to the XLI performance. Consumer discretionary and energy stocks also showed relative strength, while defensive consumer staples and utilities underperformed. Staples were the only group to lose ground during the week. That shows a more optimistic market mood. Also encouraging are stronger gains in smaller stocks.

Earnings Season off and Running

Alcoa reported its numbers after the bell last Monday which served as the kick off for first quarter earnings season. This was followed by a few big banks and then next week we'll get hundreds of more companies reporting their numbers. 

Earnings season is important because when everything else is said and done what matters most is the bottom line. In other words, every trading day we are inundated with mostly useless information and noise but when it comes down to it investors want to know if companies they own stock in are making money or not.

The whole earnings process is fascinating because you never know how the market will respond to numbers. It starts with expectations, what the "Street" is expecting in earnings per share and revenues. Quite often when a company beats both EPS and revenues the stock will go higher and when they miss both EPS and revenues the stock will go lower. But that's not always the case because you never really know fully what the "whisper" numbers are, which could be higher or lower than what the overall market is expecting.

In fact, at EarningsBeats.com we do our best to make sure our members avoid holding stocks into earnings reports because its a crap shoot at best. In other words, there is a 50-50 chance that a stock will go higher or lower after they report their numbers and it can become painful very quickly if you are holding a position that gets clobbered.

For example, you can see in the chart below on H&R Block the response to its last earnings report where they missed expectations. You wouldn't feel so great if you had held that stock into its earnings report.

At EarningsBeats.com we keep track of companies that report earnings and key in on those that beat or miss expectations. From that we create a list, our exclusive "Candidate Tracker," which our members use to spot high reward to risk trading candidates. If you would like to see a sample of what the charts look like just click here.

At your service,

John Hopkins

EarningsBeats

Taking Note of the New ChartNotes Annotation Tool

Hello Fellow ChartWatchers!

After pausing 5 days to catch its breath, the Dow powered higher this week and is close to breaking overhead resistance from the peak set last November.  In addition, the Dow's 50-day Moving Average looks set to move back above its 200-day Moving Average - a bullish signal that is sometime referred to as the "Golden Cross."  Here's the  longer-term weekly chart:

In the larger scheme of things, the Dow has essentially moved sideways - albeit with some huge price swings - since the collapse last August.  This sideways movement is throwing off lots of long-term and intermediate-term trend signals (including the "Golden Cross" mentioned above) since there isn't really an intermediate-term trend right now.  Yes, the short-term trends have been very pronounced - both up and down - but longer-term, a strong case could be made that the Dow is in a sideways channel (aka a "rectangle" pattern) with boundaries at 15,500 and 18,250.  

If that is the case, we are now approaching the top of the channel which means things are very interesting indeed.  Will the Dow bounce off the top and move lower like it did - rather viciously - in August and January?  That's the big concern right now.  Or will it break through and resume the long-term uptrend it was in back in 2014?  Rectangle patterns are considered to be "continuation" patterns after all.

In the short-term, the Dow has to get above 18,000 in order for the bulls to have a case.  It was unable to do that back in November.  Doing so now would be impressive.  Stay tuned!

Taking Note of the New ChartNotes Annotation Tool

Today, I am pleased to officially announce the release of our new HTML5-based annotation tool (which we call "ChartNotes").  In case you are unaware, the technology upon which our older version of ChartNotes is based (a platform called "Flash") is slowly being phased out by the major browser providers due to security and performance concerns.  In its place, a newer platform called "HTML 5" is taking over.  This is a good thing for many reasons including 1.) You don't need to install and maintain a plug-in for HTML5, it's built into the browser, and 2.) It works on more devices include smartphones and tablets.

Our new version of ChartNotes was created from scratch and upon first look it appears to be very different from the old version.  For instance, instead of a line of tools along the top of the chart, the tools now appear on the left side of the chart.  The color-chooser has been completely revamped.  Etc., etc.  But upon closer inspection, you begin to notice that most things are the same, just located in different - easier to find - locations.  Here's a screenshot of the new look for ChartNotes:

It is important to understand that our current goal for this new version is to simply duplicate the capabilities of the previous Flash version.  We are not intentionally adding or removing any functionality, just migrating stuff to HTML5 and the new User-Interface.  In addition, we are trying to do things so that charts created in the new version are still editable in the old version.

At this point, the HTML5 version of ChartNotes is still being worked on.  It is not 100% complete.  There are still bugs that we are finding and fixing.  It is in what programmers call "Beta Mode."  That means we think that most of it works, but we need more people using it in order to find and fix the more difficult problems.  That's where you come in!

To try out the new ChartNotes, simply pull up a chart on our SharpCharts workbench page and find the "Annotate HTML5 (Beta)" link located below the chart.  Click on that link instead of the "Annotated (Flash)" link you are used to using.

Here are some key things to remember when using the new version:

  • The drawing tools now appear on the left of the chart in several different menus.  All of the tools should be easier to find now.
  • When an item is selected, you can change its properties (color, etc) using buttons above the chart.
  • The rest of the SharpCharts page should be greyed out and unavailable while using ChartNotes.
  • When you change something on your chart, the "Save" icon on the left will turn red.  Click it to save your changes into your account.
  • Click the "Circled X" in the upper right corner of the chart to exit ChartNotes
  • Unfortunately, the "XOR" fill mode for shapes is unavailable in HTML5 and has therefore been discontinued.

If you find any problems, please tell us about them using the form on this page:
http://stockcharts.com/support/techsupport.html

Remember that we are actively fixing problems and improving the HTML5 version of ChartNotes.  If something doesn't work one day, it might start working the next day as our programmers continually make improvements.

We realize that change is often disconcerting.  One of the hallmarks of StockCharts.com is that we try to evolve our website slowly over time so people can get used to new things without having a jarring experience.  This new version of ChartNotes is a little jarring at first.  Hopefully you'll see enough similarities however to give it a chance and soon it should feel as natural to use as our older version.

Take care everyone,
- Chip

 

Small-caps and Financials Perk Up, but Still Lag Overall

It was a pretty good week for the stock market with the Russell 2000 iShares (IWM) and the Finance SPDR (XLF) showing upside leadership for a change. IWM gained 3.21% for the week and led the major index ETFs higher. XLF gained 4.60% and was the second strongest sector (behind XLE). Even though IWM and XLF do not share any components, there is a link because financials account for around 25% of the Russell 2000. Those looking for a more direct connection should note that the SmallCap Financials ETF (PSCF) gained 4.33% last week. 

Continue reading "Small-caps and Financials Perk Up, but Still Lag Overall" »

April Is A Good Prescription For Pharmaceuticals

The seasonality tool here at StockCharts.com provides an easy way to review historical results for indices, sectors, industry groups and individual stocks.  I looked at financials and healthcare industry groups as these two sectors have performed the worst over the past three months.  Perhaps seasonal strength can provide a "cure" for pharmaceuticals ($DJUSPR), which have clearly been under the weather.  Here's the historical view of pharmas, broken down by average calendar month returns over the past 17 years:

Continue reading "April Is A Good Prescription For Pharmaceuticals" »

Another Earnings Season Ready to Kick Off

The first quarter has come and gone and now we are about to embark upon another earnings season that will officially kick off when Alcoa reports its numbers after the bell on Monday, April 11. Alcoa rarely sets the tone for earnings season but when they do report it's a signal that thousands of companies will be sharing their financial results over the span of a few week's time.

Almost anyone you ask will tell you that earnings expectations have been lowered for the first quarter and this is one of the reasons the market has had trouble gaining traction. But along with lowered expectations comes possibilities that some companies will defy the odds and post better than expected numbers. We could also see the opposite; missing expectations. In both cases it presents opportunities to profit either on the long or short side, especially if you show patience.

As an example and shown below, Applied Materials reported its numbers in late February and gapped up when it beat both earnings and revenue expectations. Unless you were holding the stock into its earnings reports you would have missed the nice spike higher. It remained strong for two weeks then finally it pulled back in early March, easily holding above all key technical levels, and allowing those who were patient to get involved in the stock. Since then it has continued to move higher as it tries to challenge the highs from a year ago.

We see this time and again when we scan for those stocks that beat/miss expectations; a gap higher/lower followed by positive/negative action for a few weeks time. Then  an opportunity to get involved once things have settled down.

I am going to conduct a FREE webinar on Wednesday, April 6 at 4:30 PM eastern. During this webinar I will be discussing our process of identifying companies that beat or miss earnings expectations and showing some examples of how they performed once their numbers were released. If you wish to join me just click here to register.

- John

ChartCon 2016 is Coming to a Computer Near You!

Hello Fellow ChartWatchers!

The markets continue to power higher with the S&P 500, Nasdaq and Wilshire 5000 all joining the Dow Jones Industrials in the "Above the 200-Day Moving Average" club.  The Dow is now challenging its big overhead resistance area around 17,750.  Last November, it faltered just below 18,000.  Will history repeat itself?  Check out last Saturday's webinar for more details on where things might be headed (and please join me for next Saturday's webinar too!).

Today's Big Announcement:
                                ChartCon 2016 is Coming in September and it will be "Virtual"

Today, I am thrilled to announce that we will be holding another ChartCon this year and that, unlike previous ChartCons, you don't need to spend lots of time and money to attend since we will be broadcasting this one over the Internet straight to your computer!

While the previous ChartCons have been wonderful events, attendence has been limited due to the cost of travel and the time commitment needed to fly to the conference.  Ever since the last ChartCon in 2014, we have been working on finding ways to allow more people to participate and now, thanks to improvements in event streaming technologies, we are now able to hold a virtual conference that is every bit as good as our previous ones (at a much lower cost to you too!).

Because this is ChartCon, you'll be able to see live presentations from all of our regular commentators including John Murphy, Martin Pring, Arthur Hill, Tom Bowley, Greg Schell, Erin Heim, Bruce Fraser, Gatis Roze, Greg Morris, Grayson Roze and myself.  And because this is ChartCon, you'll be able to interact with the presenters (albeit via your computer) during exclusive live Q&A sessions immediately after their presentations.

The theme of this year's event is "Putting It All Together: Creating Technical Trading Systems that Work for You"

Many of the presentations will be focused on different ways to use charts and technical analysis to find stocks with great potential, purchase them at the right price, manage your open positions, and sell them when the time is right.  My goal is to have everyone who attends ChartCon 2016, come away inspired to incorporate technical analysis into every aspect of their investing.  Check out some of the presentations we are currently working on for you:

  • Arthur Hill:  "Creating and Running a Momentum Strategy"
  • Gatis Roze: "25 Years, 25 Essential Lessons for Achieving Stock Market Mastery"
  • Greg Morris: "Questionable Practices and Why Technical Analysis Works"
  • Greg Schnell: "Why SCTRs May Be the Last Indicator You Ever Need"
  • Tom Bowley: "Learning from the Past: How History Impacts Investing"
  • Grayson Roze: "How Cognitive Biases are Sabotaging Your Investing Every Day"
  • Erin Heim: "Using DecisionPoint's Timing Signals to Improve your Portfolio"
  • Chip Anderson: "How to Hold a Really Interesting Two-Day Conference via the Internet"
  • and much, much more.

OK, OK - you caught me - I'm still coming up with a title for my talk as are the remaining presenters, but rest assured they will all be awesome.  Grayson and I will also serve as your Masters of Ceremony.

The planning for this event has been underway for quite some time.  It is actually very similar to the planning that goes into a live television show.  We will have live presentations, screencasts, interactive interviews, behind-the-scenes segments, "commercials", roving reporters, web polls, Twitter feeds, chat rooms and anything else we can come up with to keep things interesting, educational and interactive.

Here are the key things you need to know:

  • Dates: Friday, September 23th and Saturday, September 24th
  • Cost: $199.95 per person - no travel, no hotel, no restaurants, no additional fees whatsoever!
  • Technology Needed:  Any Internet connected computer with a web browser.  If you can watch YouTube videos, you'll be able to watch the ChartCon live stream.  A limited version of the live conference will also be available via mobile devices.
  • Presenters: See the list above
  • What's Included:  Access to the live broadcast and conference website.  Access to conference recordings and documents.  A ChartCon "achievement" for your StockCharts account.  Exclusive access to live presenter Q&A sessions and much, much more.

Here are some frequently asked questions about ChartCon 2016:

  • Q: Can I just order a video recording of the conference?
    A: The video recording of the conference will be available for sale 6 months after the conference.  (Conference attendees will get the recordings much sooner.)
  • Q: What is the refund policy?
    A: Full refunds are available up until the day of the conference.
  • Q: Is there a limit to the number of people who can attend?
    A: Yes! Please don't wait until the last second to sign up - we may be out of room!
  • Q: Are there any special pricing for "early birds"?
    A: No.  We've priced this conference very low from the outset.
  • Q: Can I attend ChartCon 2016 in person?
    A: In general, no.  We are considering making a very small number of seats available for purchase via auction.  Please let me know if you are interested.

We would really love to see you in September at ChartCon 2016.  If you are interested in participating, please click on the link below and send us your email address.  Next week, we will send you specific details for registering.

Send me information on registering for ChartCon 2016

See you there! (well... sort of)
- Chip

Dow and S&P 500 Near Fourth Quarter Highs

The chart below shows the Dow Industrials moving closer to a test of its fourth quarter highs near 18000. Given the steepness of the recent rally, it might run into some resistance there. But its trend is still higher. The second chart shows the S&P 500 moving closer to a resistance line drawn over its May/November highs. It may meet some resistance there as well. But it's trend is also higher. Earlier in the week, I showed the NYSE Advance-Decline line testing its 2015 high. I also suggested that a major drop in stock prices was highly unlikely with market breadth figures in such a strong position. That doesn't rule out a market pullback from overhead resistance. But any pullback should be viewed as part of a larger uptrend. Moving average support for the large cap indexes is likely near their 200-day averages.

- John