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November 2004

ChartWatchers

CATCHING A TURN WITH STOCHASTICS

by Chip Anderson

For an idea of how a FUTURE trend reversal might look, traders may wish to focus on the August low and think inverted. The July-August downtrend was defined by a falling price channel and a Stochastic Oscillator below 20. Notice that the Stochastic Oscillator moved above 20 for a few days and then fell back (~ 1-Aug). This first attempt failed as both the indicator and index continued lower. The second Stochastic Oscillator break above 20 was accompanied by an index break above the upper trendline. In addition, the Stochastic Oscillator moved above its prior high. This signal stuck and Read More 

ChartWatchers

MEASURING PARTICIPATION

by Chip Anderson

The market has finally broken out of the 2004 trading range, but many people are worried that the move could be a bull trap. One way to judge the authenticity of a move is to see how many stocks and/or sectors are participating in it. To do this we can look at the Percentage of PMM Buy Signals. Decision Point's Price Momentum Model (PMM) generates longer-term buy and sell signals based strictly on price movement. (To learn more about the PMM click here ). We apply this model to all the stocks in a market index, then summarize the percentage of buy signals into an indicator. Read More 

ChartWatchers

RECENT RALLY IS SUSPECT

by Chip Anderson

The recent rally to new highs in the S&P 500 large cap, S&P 400 mid-cap and S&P 600 small -cap is suspect. While higher prices may be offing in the near-term, we believe this rally could be terminal in nature given several divergences are evident. One of these divergences is the Nasdaq Composite/MS Cyclical Ratio ($COMPQ/$CYC); generally $COMPQ underperforms during a market rally as was evident from March 2003. However, $COMPQ has broken out against $CYC by moving above trendline resistance; this clearlyrings a bell' indicating the underlying tectonic plates are shifting; with Read More 

ChartWatchers

LOOKING FOR S&P 500 SUPPORT LEVELS

by Chip Anderson

The daily chart for the S&P 500 for the last year pretty much tells the tale. The trend is still up. But its 14-day RSI line is in overbought territory for the first time since last January. Its daily MACD lines are also up against their early 2004 high. That being the case, and given today's negative intermarket trends, a pullback isn't too surprising. The key point is how much of a pullback do we need to start getting a little worried. One way to judge that is to look at where the previous peaks are. Working from the left side of the chart, that would put potential support points at Read More 

ChartWatchers

Hello Fellow ChartWatchers!

by Chip Anderson

  Law #11: KEEP LEARNING Law #11: Technical analysis is a skill that improves with experience and study. Always be a student and keep learning. - John Murphy This may be THE most important law of all. The instant you think you've learned everything there is to know about Technical Analysis, the instant something new comes along and proves you wrong. There is always another chart to study, another book to read, another market commentary to consider. With the advent of the Internet, studying Technical Analysis could not be easier. Unfortunately, with so many choices out there, it Read More 

ChartWatchers

S&P 500 TAKES THE LEAD

by Chip Anderson

For once, the S&P 500 is stronger than the Nasdaq 100 as the index has already broken above its 2004 high (1163). The overall pattern looks like an Elliott 5-Wave advance and the 2004 decline formed Wave 4. In addition, this decline looks like a falling flag that overstayed its welcome with the August low at 1060. Regardless of the length of pattern, the breakout above the upper trendline and 2004 high signals a continuation of the Mar-Jan advance. Should the rising price channel remain intact, a move towards the upper trendline can be expected (1350-1400). This seems a bit extreme Read More 

ChartWatchers

RELATIVE TO 52-WEEK HIGH/LOW (Rel to 52)

by Chip Anderson

While it is widely reported when a stock is hitting a new 52-week high or low, I've always been curious as to where stocks are in relation to their 52-week range the rest of the time. To determine this I developed the "Rel to 52" scale. We simply assign a value between zero (at the 52-week low) to 100 (at the 52-week high). A stock in the middle of its 52-week range would get a Rel to 52 value of 50. This value is reported in one of the columns in our downloadable spreadsheets. Decision Point also tracks the "Rel to 52" for each stock in certain market indexes, then we average them. The Read More 

ChartWatchers

TOO EARLY FOR THE ALL CLEAR' BELL

by Chip Anderson

Two weeks prior, a major bullish key reversal' higher developed in the S&P 500 Index; this led to Friday's new relative high. Given this, proper sector' positions are required to take full advantage of racing with the strongest'. In the past this meant buying high-beta technology shares; but over the past month the cyclicals have outperformed technology. This is a potentially negative signal; the March breakout above the February high, and the August breakdown below the May low each failed. This breakout/breakdown was very obvious to all players just as Friday's breakout; thus it is Read More 

ChartWatchers

NEW ARTICLES IN CHARTSCHOOL, NEW BOOKS

by Chip Anderson

IS THERE A GAP IN YOUR ANALYSIS? - A new article has been added to ChartSchool that covers the four main gaps and what they mean.  Click Here to view the article.  Give us feedback on what you think of this article about gaps.  Other articles that have been added recently are Multicollinearity and Swing Trading. NEW ADDITIONS TO BOOKSTORE - We have added a number of new books and a software product to our BookStore.  You can see all the new additions here. Here are just a few new to the list: Read More 

ChartWatchers

Hello Fellow ChartWatchers!

by Chip Anderson

Nothing helps the markets like a lack of uncertainty. With the election resolved quickly, a big relief rally got underway on Wall Street with the Materials, Energy and Consumer Staples sectors posting the biggest gains. Let's go to the charts: Notice on the daily Dow chart above that Friday saw the index test its next mid-term resistance level - the 10,390 high set back in early September. Assuming that it continues higher next week, what are the Dow's next resistance levels? The answer appears clearly on our weekly Dow chart below: 10,487 from mid-June Read More