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October 2005

ChartWatchers

RSI AND THE NASDAQ

by Chip Anderson

This week 14-day RSI for the Nasdaq became oversold (below 30) for the first time since April (gray oval). Even though securities can become oversold and remain oversold, the odds of a bounce increase with oversold conditions. The question is not whether there will be a bounce or not, but rather how far will the bounce extend and when will the bounce end. Previous extremes in RSI occurred in pairs with an intermittent move to around 50. Notice that there were two oversold dips in March and April (green circles). The last overbought reading also featured two moves before the Nasdaq peaked Read More 

ChartWatchers

MARKET IS OVERSOLD AND DANGEROUS

by Chip Anderson

The Price Momentum Oscillator (PMO) is an expression of internal strength for a given price index. In the chart above we summarize three important PMO characteristics for the individual stocks in the S&P 500 -- the percentage of PMOs rising (very short-term), the percentage of PMOs on crossover buy signals (short-term), and the percentage of PMOs above the zero line (medium-term). The chart tells us that the S&P 500 is technically oversold in all three time frames. (To read more about the PMO click here). We normally think of oversold conditions as signalling the next Read More 

ChartWatchers

WEAKNESS AHEAD FOR THE S&P500?

by Chip Anderson

Today, the simple technical picture is breaking down in our opinion. If we look back to 1994, we find the 80-week moving average has been an excellent swing trading tool as it holds the data as near perfect as can be expected. Our concern focuses upon the current decline from the normal 50%-60% retracement level back to the 80-week moving average. Normally, we would be buyers of its test for a move to higher highs, but given the 20-week stochastic isn't below 50 - thereby confirming at least modest technical neutrality - this indicates that prices have still lower to work Read More 

ChartWatchers

WHY BEAR FUNDS ARE TRADING VEHICLES

by Chip Anderson

My Wednesday message on bear funds wrote that they should be used as trading vehicles and not as a long-term investment. One of our readers asked why. That's because the market has a history of rising more often that it falls. To hold a bear fund in a rising market ensures unnecessary market losses. Since the start of 2003, for example, the bear fund would have lost 28% while the S&P 500 gained 34%. In other words, a bear fund would have been a bad holding over the last three years. The picture is even worse the further back we look. The chart below compares the S&P 500 monthly Read More 

ChartWatchers

Hello Fellow ChartWatchers!

by Chip Anderson

The markets are getting very interesting these days!  Last week saw some big declines that were mostly erased by Friday's rally. If you're looking for bearish signals, look no further than our Dow Jones Industrials Index P&F chart: I draw your attention to the volume bars at the bottom of the chart.  Note that the last three red volume bars are much higher than the last three black volume bars.  That means that the market has been more active during the last three significant downtrends than it has during the intervening uptrends - a sure sign of Read More 

ChartWatchers

BEARISH PATTERNS FOR THE RUSSELL 2000 ETF

by Chip Anderson

The Russell 2000 ETF (IWM) has two potentially bearish patterns working that would be confirmed with a support break at 64 (645 for the Russell 2000). Confirmation is the key with both patterns. In fact, confirmation is the key to most patterns. Until confirmation, these are only potentially bearish patterns and a trend reversal has yet to take place. The descending triangle usually marks a continuation of a downtrend, but can also mark a top. The lower high (red arrow) shows that buyers do not have as much power as before and upside momentum is waning. However, the equal lows represent Read More 

ChartWatchers

GOLD APPROACHING RESISTANCE

by Chip Anderson

This chart of gold has some interesting technical features. First, there is the parabolic rise to $850 in 1980, which culminated in the inevitable blowoff and collapse. After a parabolic collapse, prices most often return to the original base, which in the case of gold is somewhere below $100 and not visible on the chart; however, another outcome is that prices can enter a high-level consolidation, which is a trading range at a level far above the previous base, and this is what has happened with gold. In this case, the trading range is between roughly $300 ($250 at the extreme) and Read More 

ChartWatchers

"TRIANGLE CONSOLIDATION" FOR THE NASDAQ

by Chip Anderson

Taking a long-term gander at the Nasdaq Composite, I think is very clear that the time is running out for prices to rise much further than they have at present. The reason is that prices are winding their way through the "triangle consolidation"; which means two scenarios exist – a bearish and bullish one to be exact. The bearish probability is highest in my mind with prices breaking down through trendline support and then the 25-month moving average currently at 2009 – thereby ‘confirming' a bear market has begun; or the lower probability breakout above major resistance at 2185-2200 – Read More 

ChartWatchers

HURRICANE RELIEF

by Chip Anderson

HURRICANE RELIEF FROM STOCKCHARTS - Thanks to the support of our subscribers, StockCharts.com is donating over $20,000.00 to the Red Cross for its hurricane relief efforts for the month of September. We have also pledged a similar amount for the month of October - $5.00 for every subscription or renewal that we receive this month. Again, for those of you that wish to donate directly, you can do so at the Red Cross website. Read More 

ChartWatchers

MARKET ENDS SEPTEMBER ON A STRONG NOTE

by Chip Anderson

MARKET AVERAGES CLOSE BACK OVER 50-DAY LINES The market had a lot thrown at it this month. A spike in energy prices, plunging consumer confidence, and rising long-term interest rates. It also had the month of September to deal with which has traditionally been the worst month of the year. While the market bent a bit during the month, it refused to break. And then ended the month on the upside. The first three charts show essentially the same pictures. The three major market indexes held support at their late-August lows and closed the week back over their 50-day averages. [The S&P Read More 

ChartWatchers

Hello Fellow ChartWatchers!

by Chip Anderson

This week, John reviews the market's recent performance in light of all the economic changes we've been seeing, Richard breaks out a new triangle pattern, Carl takes an in-depth look at gold, and Arthur Hill looks at the Russell 2000. Here we go Read More