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August 2004

ChartWatchers

INFLATION EXPECTATIONS DOWN

by Chip Anderson

The TIP/TLT price relative serves as a good proxy for inflationary fears or expectations. TIP is the iShares TIPS Bond (TIP), which is based on the US Treasury's inflation indexed bonds. TLT is the iShares 20+ Year Treasury Fund (TLT), which is not hedged against inflation. Bonds loathe inflation and would decline in the face of increasing inflationary expectations. The TIP/TLT price relative takes this one step further by measuring the performance of inflation-hedged bonds against non-hedged bonds. This price relative rises when inflation expectations rise and falls when inflation Read More 

ChartWatchers

A MARKET BOTTOM FOR THE S&P?

by Chip Anderson

We can't know the full potential of this rally, but there is abundant evidence that we have a solid bottom, and that we are seeing a rally that has at least the potential to move back to the top of the trading range. First, there are positive divergences on indicators in every time frame. A positive divergence is where price makes a lower low but indicators make a higher low. The dark red lines on the bottom three panels of the chart highlight the positive divergences. These indicators, by the way, summarize the status of the PMO (Price Momentum Oscillator) for each of the stocks in the Read More 

ChartWatchers

ECONOMIC SLUMP FOR 2005?

by Chip Anderson

This past week showed stocks higher; their largest weekly gain in nearly 10 months. And, it did so within the context of sharply higher oil prices. By and large, this has set the tone for stocks to potentially move to new highsor so we are to believe. In fact, there is always that probability; however, we accord it a very small one at that. That said , we are specifically looking at the bond-stock asset rotation for clues towards the best relative performance. Our and our proxy is the Lehman 20+ yr Bond Fund vs. S&P Spyders (TLT: SPY); and very simply we see that bonds over the past Read More 

ChartWatchers

DATA FEED MOVE THIS WEEK

by Chip Anderson

STRAP ON YOUR HELMETS! - As we've been telling you, this coming week is our big change over to the ThomsonOne Data Feed. We've tested and simulated and fine-tuned things to death but starting on Monday we'll begin the changeover for real. Let us know if you see any thing out of the ordinary and we'll get right on it. We appreciate your patience during this transition. NEW CHARTSCHOOL ARTICLES - We've just added two great new articles to our ChartSchool area - one on "Multicollinearity" and another on "Swing Charting". "Multicollinearity" is a $10 word "accidentally using Read More 

ChartWatchers

DIVIDEND STOCKS LOOK PROMISING, S&P LONG-TERM OUTLOOK MIXED

by Chip Anderson

GOING FOR DIVIDENDS A falling stock market -- along with falling bond yields -- should make dividend paying stocks more attractive. And that appears to be the case. Chart 1 plots the iShares Dow Jones Select Dividend Index Fund (DVY), which invests in large cap stocks that pay dividends. The Dividend ETF has acted much better than the rest of the market since last April as reflected in its rising relative strength line. Pricewise, the ETF hit a new four-month high earlier in the week. The two groups most heavily represented in the Dividend Fund are banks (38%) and electric utilities Read More 

ChartWatchers

Hello Fellow ChartWatchers!

by Chip Anderson

Since setting a new low of 9783 last Friday, the Dow moved higher during four of the last five days and is now approaching the 10203 peak that it set back at the start of August. This rally - and the successful IPO of Google - has greatly improved the general mood of the markets however resistance from the 50-day MA line - not to mention the rising price of oil - make it is likely that the Dow reverses before moving above that August peak. I'm looking for a retest of the 9783 low in the next couple of weeks. While you wait to see what happens, why not kick back and Read More 

ChartWatchers

THE BIGGER THE VALUE, THE SOFTER THE FALL

by Chip Anderson

The AD Line is a cumulative measure of advances less declines within a given group of stocks. For example, the S&P Large-Growth ETF (IVW) has 335 stocks. If there were are 200 advances and 135 declines, then the difference would be +135 (335 – 200 = +135) and this would be added to the cumulative AD Line. The chart below shows the AD Line for the six different style ETF’s. Despite the decline over the last few weeks, the AD Lines for two styles are holding up a lot better than the other four. Notice that the AD Lines representing large-value and mid-value are holding well above their Read More 

ChartWatchers

THE PRICE OF OIL VERSUS STOCKS

by Chip Anderson

Recently, the price of crude oil has taken the spotlight as having a major influence on the price of stocks. On the one-year chart above we can see that there was no consistent relationship between oil and stocks as long as oil was priced below $35; however, when oil moved above $35 in March, we begin to see a consistent negative correlation between oil and stocks. Long-term resistance for crude oil is around $41-42. When crude oil reached that level at the end of July, stocks attempted another rally, in anticipation that crude oil would turn down again at resistance. Once Read More 

ChartWatchers

DISCRETIONARY VS STAPLES RATIO BEARISH

by Chip Anderson

The weakness over the past several months is stark, which was made "more so" over the past two-day decline in all the major indices due to rising energy prices as well as a "punk" employment report. As a consequence of each of reports (and others) - our presumption is for consumer spending to remain weak in the weeks and months aheadperhaps progressively becoming worse. To understand this somewhat better, we turn to a very broad sector ratio we like to use - Consumer Discretionary (XLY) vs. Consumer Staples or (XLP). It goes without saying that if consumer spending is likely to weaken Read More 

ChartWatchers

DATA FEED PROGRESS REPORT

by Chip Anderson

DATA FEED UPDATE - We're continuing to prepare for our upcoming data feed transition which we mentioned several editions ago. At this point, the new hardware is in place and working well and our testing is almost complete. We are working on getting the final paperwork in place from the various exchanges and expect to switch over to the new "ThomsonOne" feed before the end of August. Our goal and our expectation is that you will not notice any difference between the feeds and we're working hard to make that happen. Still, data feeds can be wily beasts and so we ask your Read More 

ChartWatchers

BOND DROP HELPS GOLD, SECTOR WARNING SIGNALS

by Chip Anderson

DROP IN BOND YIELDS HURTS DOLLAR, HELPS GOLD Bond prices surged on Friday's weak job report. As a result, the yield on the 10-Year Treasury note tumbled to a four-month low and ended below its 200-day moving average (Chart 1). The sharp drop in U.S. rates pushed the dollar into a 2% decline. Chart 2 shows the dollar failing at its March high and ending under its 200-day line as well. The drop in the dollar pushed gold $7.30 higher and back over $400. Gold is also back over its 200-day average. That made gold stocks one of Friday's few winners. [The only other winners were Read More 

ChartWatchers

Hello Fellow ChartWatchers!

by Chip Anderson

The major markets sold off dramatically at the end of the week due, so we are told, to wild speculation in the oil market. The Dow closed at 9815 which is significant because it is less that the 9852 low that it set back in May. This is the "lower low" level that I pointed out in our last edition. Despite all of the teeth gnashing in the financial press, nothing has really changed - yet. The markets are in a downtrend and lower-lows are to be expected. If the current pattern holds, the Dow may bounce some next week, but be prepared for more new lows before its next significant rise Read More