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April 2004

ChartWatchers

NASDAQ AND OBV

by Chip Anderson

On Monday we were focused on the pennant consolidation with support at 2038 and resistance at 2080 (gray oval). While these are typically bullish continuation patterns and an upside breakout was expected, it was prudent to wait for confirmation. Instead of the expected, the break came to the downside and the index has moved into corrective mode. A 50-62% retracement of the prior advance (1896 to 2080) would extend to the 1970-1990 area and broken resistance turns into support around 2000. A move below 1970 would be more than just a normal correction and suggest that a bigger decline may Read More 

ChartWatchers

RYDEX PRECIOUS METALS FUND NET CASH FLOW SPELLS TROUBLE AGAIN

by Chip Anderson

DecisionPoint.com tracks net cumulative cash flow of Rydex mutual funds as a way of estimating sentiment in various sectors. The theory is that money 'ought' to follow prices, more or less. In the last several months this indicator has been rather helpful in identifying problematic price moves by the appearance of price/cash divergences. On the above chart of Rydex Precious Metals Fund, I have highlighted the first divergence with red circles. Note how there was virtually no cash flow supporting the advance into the January price top. An indication that the advance would Read More 

ChartWatchers

ROTATION FROM TECH TO HEALTHCARE SECTORS

by Chip Anderson

This past week brought in "clear view" the under the surface rotation that has been occurring from the technology sector into the healthcare/pharmaceutical sector - and thus we think it important to look at the Pharmaceutical/Semiconductor RATIO. That said, this "repositioning" is extremely important in our overall equity viewpoint; in the past it has coincided with significant shifts in the overall sentiment of stocks to defensive or negative - as a change in risk aversion develops. This point is quite clear at the Sept-1998 peak, at the Feb-2000 low, and at the Sept-2002 high - each Read More 

ChartWatchers

MURPHYMORRIS.COM CLOSING

by Chip Anderson

MURPHYMORRIS.COM CLOSING SOON - Sometime in the next couple of days, we expect to complete the transition of John Murphy's tools and commentary from the "Members" tab on the MurphyMorris.com website to the "John Murphy" tab on the StockCharts.com website. For sometime now, the same content has been available on both sites - soon it will only be available on the StockCharts.com website. If you've been using the MurphyMorris.com website to access John's materials, you'll need to update your bookmarks once that transition is complete. Why not do it now? At the same time Read More 

ChartWatchers

THE DRG/SOX RATIO

by Chip Anderson

DRG/SOX RATIO IS RISING Earlier in the year I did an analysis of the DRG/SOX ratio as a way to try to measure the mood of the market. The ratio divides the Drug Index (DRG) by the Semiconductor (SOX) Index. The idea is that when investors are confident they buy chips and sell drugs. That pushes the ratio lower. That's what happened during October of 2002 when the market bottomed (see green circle). The downtrend in the ratio continued until last November when it started bouncing (blue circle). Its been trading sideways since then as the market rally has stalled. When investors turn Read More 

ChartWatchers

Hello Fellow ChartWatchers!

by Chip Anderson

All-in-all, last week was a down week for the major market averages. While the Dow managed to eek out a tiny gain, the other indices fell with the Nasdaq (-2.79%) leading the way. So far this year, the energy-heavy Amex Composite (+5.64%) and the Russell 2000 (+4.75%) are outpacing the other markets with the Nasdaq off 0.38% and the Dow essentially where it began the year. "Change" appears to be the theme for this week's edition. John and Richard both look at changes that are underway in the sector picture, Carl has indications that change is coming to the Precious Metals sector, and Read More 

ChartWatchers

$XAU LAGGING GOLD BULLION

by Chip Anderson

The Philadelphia Gold Index, $XAU, is usually a better predictor of gold than gold is of $XAU. The top chart shows $XAU relative to gold or the "price relative". Notice that XAU performs best when the price relative rises ($XAU outperforming gold) and the price relative can be used to confirm or not-confirm strength in $XAU. $XAU advanced from 73.41 to 112.75 (mid July to early Dec) and outperformed gold over this period. While $XAU went to a new reaction high at 113.41, the price relative formed a lower high for a bearish divergence (red arrow). This was a clear sign that $XAU was Read More 

ChartWatchers

NEW DECISION POINT INDICATOR: PMM

by Chip Anderson

Does the world really need another indicator? Well, this is one we have been collecting data on for years, but we just recently started charting it because we discovered it presents a good picture of internal market strength or weakness. Our Price Momentum Model (PMM) is a simple but effective mechanical model that we apply to all the stocks, indexes, and mutual funds we track. The PMM is always on a buy or sell, and it generates new signals when: (1) price moves 10% in the opposite direction of the signal extreme and (2) crosses the 200-EMA. For example, if the model is on a buy Read More 

ChartWatchers

LOOKING AT THE RUSSELL 300 "GROWTH VS. VALUE" RATIO

by Chip Anderson

In terms of gauging the current substantial rally, we should look at the relative performance of the "growth" and "value" components thereof. In effect, if we are bullish, then we want to be long that which is outperforming. This is fairly simple. Thus, when we look at the Russell 300 "Growth vs. Value" Ratio - we find the longer-term pattern is a confirmed "bearish wedge" continuation pattern, which augurs for lower lows than that seen during June/July 2002. However, a good short-term level in which to become sellers or buyers happens to be the 60-day moving average. In fact, Friday's Read More 

ChartWatchers

CALENDAR CONTROLLERS

by Chip Anderson

CALENDAR CONTROLLERS ADDED TO SC3 BETA - We aren't rolling out lots of new features this week like we have in weeks past, however we did manage to add two very neat icons to the "User-Defined" Duration section of the SharpCharts2 Beta page. Clicking on either of the little calendar icons will display a pop-up calendar control that you can use to quickly set the starting or ending date for your chart. The control compliments our existing dropdown boxes and you can use whichever you prefer. Check it out and let us know what you think! Read More 

ChartWatchers

RISING RATES HURTS BANKS AND HOMEBUILDERS

by Chip Anderson

10-YEAR YIELDS SOAR OVER 4% While today's surprisingly strong jobs report was good for stocks, it was very bad for bonds. Bond prices fell more than two full points. The 10-year T-note, which rises when prices fall, surged all the way to 4.14%. That certainly seems to confirm the idea that long-term rates are finally starting to move higher. There's good and bad news in that. It's good for economically-sensitive stocks that do well in a stronger economy. It's bad for rate-sensitive stocks that are hurt by rising rates. In time, rising rates can be a bad thing. Over the short-run Read More 

ChartWatchers

Hello Fellow ChartWatchers!

by Chip Anderson

The markets are rebounding strongly right now and trying to put the declines from February and March behind them. Most of the major averages moved back above their 50-day Moving Average on Friday (not the Dow though). Smart ChartWatchers will be watching closely this week to see if this rally can continue to gather steam in the face of rising gas prices. I'm on hiatus this time around. Be sure to check out what John, Arthur, Richard, and Carl have to say below. Catch you next time. Read More