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July 2004

ChartWatchers

SOFTWARE HOLDRS HEADED LOWER

by Chip Anderson

With the peak at 45.78 in January 2004, the Semiconductor HOLDRS (SMH) came relatively close to its high at 50.19. However, the Software HOLDRS (SWH) peaked at 40.20 and fell well short of its 2002 high at 50.91. SWH only retraced 62% of its prior decline and formed a classic rising wedge (magenta trendlines). Not only did SWH underpeform SMH, but the retracement and the pattern are also typical for bear market rallies. This suggest that the current decline is impulsive and SWH is headed lower. At the very least, the current outlook is decidedly bearish and the stock appears headed for a Read More 

ChartWatchers

ADVANCE-DECLINE LINE FOLLIES

by Chip Anderson

I have written on this subject before, but I was inspired by a recent article by Larry McMillan (optionstrategist.com) to visit if again. Recently the NYSE A-D Line hit new all-time highs, and this is being cited as strong evidence that the market is headed higher. Unfortunately, this is a case of bullish analysts shopping for indicators that support their case, and ignoring indicators that don't. Here's why. The NYSE Advance-Decline Line is a cumulative total of each day's advancing issues minus declining issues. It is one of the oldest, simplest, most widely watched, and Read More 

ChartWatchers

TECHNOLOGY MALAISE WARRENTED

by Chip Anderson

The current technology "malaise" has run for all intents and purposes for the past six months; however, the recent earnings and guidance "misses" have put it on the front burner as expectations for difficult 2H 2004 comparisons have come one quarter early. The question is whether this is warranted from both a fundamental and/or technical perspective - we believe the answer is yes. However, rather than go into the fundamental challenges; we will simply focus upon price actionwhich on a longer-term basis is just beginning to deteriorate. To explain, the 200-week moving average has Read More 

ChartWatchers

GET INVOLVED!

by Chip Anderson

GET INVOLVED! - Did you know there was a great place on the Internet to meet other StockCharts.com users and share your knowledge? Join InvestorsHub.com (it's free) and visit to StockCharts.com forum there. Post your questions, share your insights, and read how other members have maximized the value of their memberships. Click here to join the action! Read More 

ChartWatchers

LONGER-TERM VIEW OF THE S&P 500

by Chip Anderson

The monthly S&P 500 bars show why it's important to keep an eye on percentage retracement levels -- as well as chart levels. I've shown this chart before, but it's worth showing again. The 2003 S&P rally not only stalled at its early 2002 peak (near 1177) but after having retrace exactly 50% of its 2000-2002 bear market decline. Assuming the S&P breaks its 2004 low, it's logical to assume that it could retrace anywhere from 38% to 50% of its 2003 advance. Based on the retracement lines shown in the previous chart, that would call for a possible decline to the 1025-975 region Read More 

ChartWatchers

Hello Fellow ChartWatchers!

by Chip Anderson

I'm always amazed when the "respectable" financial press gets themselves into a lather about the Dow crossing 10,000. From some of the headlines, you'd think that Friday's close at 9962 was completely unexpected and very significant. "Dow tumbles to below 10,000", "Investor angst drops Dow", and "Dow loses fizz to close below 10,000". Of course, then a villain must be found and soon afterwards, one was: "Markets fall on Microsoft, Amazon reports". Astute ChartWatchers - like you! - should not be surprised at all by this news. Astute ChartWatchers know that the Dow has been in a Read More 

ChartWatchers

THE SEMICONDUCTOR CATALYST

by Chip Anderson

While if is often difficult, if not impossible, to predict the fundamental catalyst, the approaching technical catalyst is clear for the Semiconductor HOLDRS (SMH). Key support and resistance are readily identifiable as well as two important patterns. With the group holding great sway over the market, the impending breakout is likely to have far reaching consequences. The potential bullish setup looks like a falling price channel. SMH more than doubled from Feb-03 to Jan-04. The subsequent decline retraced 38-50% and formed a falling price channel. A move above 39 would break the upper Read More 

ChartWatchers

EQUAL-WEIGHTING CONTINUES TO BEAT CAP-WEIGHTING

by Chip Anderson

The S&P Equal-Weight Index (SPEWI) was developed by Rydex Fund Group in collaboration with Standard & Poor's. It is composed of the 500 stocks in the S&P 500 Index (SPX), but each stock In the SPEWI carries an equal weighting (rebalanced quarterly) versus the cap-weighting of the SPX. (The cap-weighting of the SPX results in the 50 stocks with the highest market capitalization carrying about 70% of the entire SPX weighting.) The SPEWI trades as an ETF (Exchange Traded Fund) named Rydex S&P Equal Weight ETF with the symbol RSP. Note, it is not a mutual fund in Read More 

ChartWatchers

MONTHLY MACD POSITIVE BUT WEAKENING

by Chip Anderson

This is a good time to stand back and try to put things into a longer-term perspective. First of all, let's see why the 2004 rally has been stalled. The monthly bars in Chart 1 show that the S&P 500 ran into major chart resistance at its early 2002 peak. The horizontal blue lines also show that the S&P had retraced 50% of its 2000-2002 bear market. The monthly stochastic lines also show an overbought condition over 80. That was a logical spot for the cyclical bull market to stall. And stall it has -- for the entire first half of 2004. The monthly MACD lines have been converging Read More 

ChartWatchers

Hello Fellow ChartWatchers!

by Chip Anderson

We've passed the halfway mark for 2004 and the markets don't have much to show for it. As you can see in the PerfChart below, the market continues to move sideways in a broad range that's rarely over 5% above or below where it started the year. The Amex is the "big winner" so far - and has shown some nice relative strength during the past couple of days - but this is mostly a picture of a market that is moving sideways. Are we just "marking time" until the end of the summer doldrums? Time will tell, but at this point, it's a market for short term traders. We've got great Read More