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July 2005

ChartWatchers

WHO STARTED THIS MESS ANYWAY?

by Chip Anderson

January and 2005 have not been good for the bulls. After a strong finish in 2004, stocks were hit with strong selling pressure to begin the year and have yet to recover. A look into November and December reveals early weakness in two key groups. More importantly, traders can turn to these two key groups for signs of a bullish revival. So who done it? Look no further than Retail and Semiconductors. The retail group makes up a big part of the Consumer Discretionary sector and influences the S&P 500. In addition, estimates are that retail spending drives 2/3 of GDP and exerts a large Read More 

ChartWatchers

OEX PUT/CALL RATIO SAYS BOTTOM NEAR

by Chip Anderson

The Equity and OEX Put/Call Ratios generally signal overbought and oversold conditions that help identify price tops and bottoms; however, sometimes the OEX Put/Call Ratio will invert relative to the Equity Put/Call Ratio. At these times the inversion signals the opposite of what we would normally expect. Here's how I think this works. The Equity P/C Ratio represents the activity of speculators (the little guys) who become more and more committed to price direction until it reverses on them, therefore the Equity P/C Ratio becomes oversold at price bottoms and overbought at price tops Read More 

ChartWatchers

JANUARY DECLINE GAINING IMPORTANCE

by Chip Anderson

The January decline to date is gaining in importance; if prices remain at current to lower levels through the next six trading sessions – then a bearish 'key reversal month' will form. This would signal 'exhaustion' of the uptrend, with any and all rallies considered selling opportunities. The last such monthly formation signal was January-2002with the decline of nearly 50% materializing from January's high at 2098 to October's low at 1108. Now, we don't necessarily believe the decline is going to be this dramatic at this time, but we simply want to illustrate that a substantial Read More 

ChartWatchers

DOW STARTING TO CATCH UP...

by Chip Anderson

A few weeks back I wrote about the close linkage between the Dow Transports and Industrials. At the time, both were threatening their spring lows. Now both are testing their June highs (see first chart). A Dow close through that barrier (combined with a similar upside breakout in the Transports) would constitute an intermediate term Dow Theory buy signal. Two of the biggest contributors to the Dow's recent strength are General Motors and IBM. The second chart shows GM trading at a new five-month high after climbing above its 200-day moving average earlier in the week. Although IBM is Read More 

ChartWatchers

Hello Fellow ChartWatchers!

by Chip Anderson

  The market battled back impressively over the past week and a half and is re-testing the 10,600 resistance level that gave it so much trouble in mid-June (and May and late March). With the CMF poised to move into positive territory, the PPO already positive, and the 50-day MA about to move above the 200-day MA, the technical signals look pretty good right now, but here's where Technical Analysis becomes more of an art than a science. Notice that on Friday, the Dow failed to climb above the high that it set on Thursday. Also note that Friday's volume was slightly below average Read More 

ChartWatchers

ENERGY AND STOCKS MOVING STEP FOR STEP

by Chip Anderson

The Rydex Equal Weight S&P 500 Index (RSP) moved to a new all time high last week. Strangely enough, the Energy SPDR (XLE) moved to a new all time high two weeks ago. It is clear that Energy stocks have the best of both worlds: rising demand and rising prices. When will it end? If you consider the stock market a leading indicator, then the economy must be in pretty good shape and demand for oil is robust. Should the stock market fall sharply, it would suggest an economic slow down and this would affect the demand for oil. It stands to reason that the Energy sector will remain strong Read More 

ChartWatchers

SMALL-CAP PARTICIPATION NARROWING

by Chip Anderson

A good measure of market participation -- the number of stocks participating in upside price moves -- is the percentage of stocks above their 200-day moving average. DecisionPoint.com tracks this number on the major market indexes, and in this instance we are looking at this indicator for the S&P 600 Small-Cap Index. Note how the indicator has been making lower highs for the last 18 months, even as the price index has made new all-time highs. This negative divergence is not necessarily fatal, but it does reflect how the price index is being supported by fewer and fewer stocks Read More 

ChartWatchers

MS CYCLICAL INDEX IN MIDST OF CORRECTION

by Chip Anderson

The MS Cyclical Index ($CYC) is quite interest rate sensitive; and thus prone to large corrections witness the past 7 year history of which there are two very distinct 30% corrections. Hence, given short-term rates are rising, we believe that the index is in the midst of another such correction that over the next year will carry the index lower by over 20%. A top has formed, and thus rallies should be sold or sold shortwhile dips should not be bought. Read More 

ChartWatchers

NEW ADDITION TO BOOKSTORE

by Chip Anderson

ANOTHER NEW BOOK IN OUR BOOKSTORE -Investing in a Secular Bear Market by Michael Alexander This is the sequel to his 2000 book, Stock Cycles, which forecast the start of this secular bear market. Read More 

ChartWatchers

WINNERS AND LOSERS OF 2005, FIRST HALF RESULTS ...

by Chip Anderson

The bars in the following chart show the best and worst group performers for the first half of the year. To no one's surprise, energy was the top sector -- while the fuel-sensitive transports were the weakest. Utilities took second place thanks to falling bond yields. Another defensive group -- healthcare -- did relatively well. Midcaps did better than small and large caps. Dividend paying stocks also held up ok (as did large cap value stocks). Among the first half's weakest groups were basic materials (which include cyclical stocks), consumer discretionary , and the technology-dominated Read More 

ChartWatchers

Hello Fellow ChartWatchers!

by Chip Anderson

The market erased the gains that we highlighted in our previous newsletter in one day as the 10,600 level on the Dow proved once again that it is an important level for the market. This week's big news of course was the Fed's rate hike. How will it affect the charts? Let's see what our commentators think Read More