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June 2005

ChartWatchers

A MATERIAL BOTTOM ?

by Chip Anderson

The Materials sector was all the rage in 2004, but fell on hard times in 2005. After a run from 23.59 to 31.99 (35%), the Materials SPDR (XLB) declined below 27 with a sharp decline. Was this enough to break the uptrend or is this just a sharp correction? The bulk of the evidence points to the latter. Even though the decline was sharp and a classic corrective pattern failed to take shape, other technical signs point to a correction. First, the decline retraced around 62% of the prior advance. This Fibonacci number (percent) is normal for a correction. Second, the decline returned to Read More 

ChartWatchers

EVIDENCE OF DISTRIBUTION

by Chip Anderson

While persistently rising prices are frustrating the bears and encouraging the bulls, there is evidence that distribution is taking place. On the first chart I have circled areas where daily volume has scooped below its 250-EMA line, indicating that there was inadequate sponsorship of the rising trend. In each of the first three cases shallow volume preceded price corrections. The current volume dip, which has lasted about six weeks, has yet to be resolved, but it seems reasonable to expect a correction fairly soon, probably starting soon after we see final expansion of volume Read More 

ChartWatchers

IMPRESSIVE ACTION IN THE S&P 500

by Chip Anderson

The recent S&P 500 price action above the 1190 level is rather impressive, and can be considered a correction in 'time' rather than in price. This suggests new highs; however, those highs aren't expected to be accompanied by new highs in the Nasdaq Composite. As the chart shows, S&P 500 large caps have outperformed the technology sector since January-2004 in a 'sawtooth' pattern. I think the S&P 500 is ready to outperform once again…and those hedge funds that want to increase beta via technology will left to their own devices given they are chasing performance. Further, this Read More 

ChartWatchers

NEW BOOKS ADDED TO OUR BOOKSTORE -

by Chip Anderson

Unexpected Returns by Ed Easterling     A great book amplifying the merits of absolute return investing vs. relative return investing so often touted by Wall Street. New Trading Systems and Methods by Perry Kaufman This is the latest and biggest in this technical analysis classic.  A must for indicator, systems, and detail-loving analysts. We add new books all the time. Click here frequently to see the latest additions. Read More 

ChartWatchers

HEALTHCARE ETF HITS 52-WEEK HIGH ...

by Chip Anderson

While a lot of attention has been paid to rising energy and basic material stocks this week, not much has been written about healthcare. It's time to correct that. Chart 1 shows the Health Care Sector SPDR (XLV) closing the week at a new 52-week high. [The only two other sector SPDRS to hit new highs were energy and utilities]. The relative strength ratio shows that healthcare started to do better than the S&P 500 near the end of last year. Although the relative strength line has been slipping of late, its trend is still higher. How much higher can be seen more plainly Chart 2 which Read More 

ChartWatchers

Hello Fellow ChartWatchers!

by Chip Anderson

Seven straight days of gains has moved the Dow back above the 10,600 level - something that looks even more impressive given Friday's significant volume increase. Next week should see a test of 10,600 as the index tries to consolidate its gains. Watch closely to see if 10,600 has turned into support or not. If it has, the market should be able to move towards the next resistance level (10,800) relatively quickly. Let's see what our other commentators think Read More 

ChartWatchers

ABOUT THE RYDEX EQUAL WEIGHT S&P 500 INDEX (RSP)

by Chip Anderson

As its name implies, the Rydex Equal Weight S&P 500 Index (RSP) treats all component equal, regardless of market capitalization. This means that ExxonMobile (XOM). with market cap of $369 billion, counts the same as Teco Energy TE), which has a market cap of just $3.64 billion. This makes the index a good representation of the average Joe (Joe Stock that is). RSP remains in a long-term uptrend and has yet to break down. The going is getting tougher, but momentum is still up overall on the weekly chart. First, the index broke resistance at 145 with a surge in Nov-04. This resistance Read More 

ChartWatchers

ENERGY SECTOR CASH FLOW IS TEPID

by Chip Anderson

Decision Point tracks actual cash flowing into and out of Rydex mutual funds, and, while cash flow normally runs parallel to price, divergences can often appear ahead of price reversals. For example, let's look at Rydex Energy and Rydex Energy Service Funds. During the last four weeks of the price correction that began at the March top you will notice how cash flow went relatively flat, indicating that the bulls were holding their ground and that accumulation was taking place. However, since the two-week rally that began at the May price low, cash flow has been rather tepid, and was Read More 

ChartWatchers

BOND REVERSAL MEAN MOVE FOR INTEREST RATES?

by Chip Anderson

Rarely do they ring a 'bell' at the bottom, but Friday’s reversal higher in bond yields argues strongly for a sustained move higher in interest rates. Quite simply, Friday's employment report was clearly on the 'weak side'; with the 10-year note yield trading lower and then reversing and trading sharply higher. This 'key reversal' to the upside is likely a 'watershed event' in which bond yields will march higher over the short and intermediate-term time horizons. This pattern is one that we nearly trade with 'blind faith upon', and we did so on Friday by becoming short. If one Read More 

ChartWatchers

SHARPCHARTS 2 NEWS

by Chip Anderson

- We took a big step forwards last week behind-the-scenes with our SharpCharts2 Beta program. Because SharpCharts2 is much more powerful, we've been working hard on making sure that our computer systems can support the additional load we will see once SharpCharts2 is officially released. Part of that process involved installing lots of additional servers which use the Linux operating system. We completed that work this week and are now able to move ahead again with plans for our 7th and final Beta release. Watch for more announcements about that soon Read More 

ChartWatchers

OIL ISN'T DEAD YET

by Chip Anderson

A lot of recent optimism on the stock market and the economy has been predicated on the view that the historic rise in oil prices has probably ended. A lot of economists have also declared the major bull market in commodities over. Both of those predictions may prove to have been premature. Over the last two weeks, the price of crude oil has bounce off its 200-day moving average and then risen to the highest level in more than a month. After a pullback yesterday, it's trading back over $54 today. The chart below reflects the recent improvement in the price of crude and suggests a Read More 

ChartWatchers

Hello Fellow ChartWatchers!

by Chip Anderson

This week saw the markets move "violently sideways" as large up-days were immediately followed by similarly large down-days. Essentially, the Dow is continuing to lurch around inside of its 10,400 to 10,600 trading range. Check out how much time the Dow has spent in or around that range since the beginning of the year: The good news? The rising 200-day Moving Average may push the Down up above 10,600 soon. The bad news? Recent declining volume argues against any upside breakouts soon Now let's see what our other commentators think   Read More