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April 2006

ChartWatchers

DOW OVERSOLD AND AT SUPPORT

by Chip Anderson

The decline in the Dow Industrials over the last few weeks looks like a bull flag. This downward sloping flag is a potentially bullish pattern that requires confirmation with an upside breakout. Notice that the Dow formed a similar falling flag in late February and early March. The breakout at 11100 in early March confirmed this flag and led to a new reaction high. For the current flag, a break above 11250 would confirm the pattern and signal a continuation higher. The upside target would be the upper channel trendline or to the 11500-11600 area.In addition to the flag, the Dow is trading Read More 

ChartWatchers

ENERGY ADVANCE NOT SUPPORTED BY CASH FLOW

by Chip Anderson

One way we can gauge sentiment regarding a particular market or sector index is by watching asset levels and/or cumulative net cash flow in and out of the related Rydex mutual fund. In general, cash flows should rise and fall along with prices. When divergences occur, price movement should be questioned. For example, a large price move accompanied by a small increase in cash flow indicates there is probably not broad support behind the price move and that the rally could fail. Or, a sharp decline that does not result in proportional cash outflows probably indicates too much optimism and Read More 

ChartWatchers

INTEREST RATES MATTER AT THE MARGIN

by Chip Anderson

Last week the 10-year note and 30-year bond rose decidedly above the psychologically important 5.0% level. This is first time since June-2002 that the 10-year has traded above this level. If we have learned anything in our 24 years of trading – it is that interest rates matter at the margin. Moreover, the technical prospects are very good for the 10-year to rise to 5.3% and the 30-year to 5.5%. Soon, we should begin to see a slowing of the economy and a equity market correction of at least -10%.Thus, we like to look at the Lehman 20+ year bond fund/S&P 500 “Spyders” Ratio (TLT: SPY) Read More 

ChartWatchers

SHARPCHARTS2 ALMOST COMPLETED

by Chip Anderson

SHARPCHARTS2 PROGRESS REPORT - SharpCharts2 took another huge step forward last week when all of our "Basic" subscribers were automatically converted to the new system. At this point, the only group left to be fully converted to the new charts is our Extra (and "ExtraRT") members. We expect to perform that conversion around the beginning of May. SHARPCHARTS2 DOCUMENTATION DUE NEXT WEEK - We've been hard at work on the revamped version of our SharpCharts documentation and hope to release the updated information next week. Until then, be sure to periodically review the information on the Read More 

ChartWatchers

TEN-YEAR YIELDS EXCEEDS 5%

by Chip Anderson

Last week the yield on the 10-Year T-note broke through its 2004 peak at 4.90% to reach the highest level in four years. Today the TNX has moved through the psychological level of 5%. That doesn't come as much of a surprise considering that the trend for bond yields is now higher. I suggested last week that the next upside target for the TNX was the early 2002 peak at 5.45%. While I remain convinced that bond yields have embarked on a new uptrend, there's still another technical hurdle that they have to overcome to prove that the long-term downtrend in long-term rates has finally ended Read More 

ChartWatchers

Hello Fellow ChartWatchers!

by Chip Anderson

MAKING MONEY WITH SHARPCHARTS2 This week - tax week (ugh!) - I wanted to show you three examples of the kind of analysis that you can only do with SharpCharts2. These examples illustrate important technical analysis techniques that just weren't possible with our older charts. Hopefully, these examples will inspire all our ChartWatchers to dive into SharpCharts2 with both feet and take the time to learn what a truly powerful charting system it is. Exploring Bollinger's %B Indicator In his latest book, John Bollinger presented several new indicators that felt would help Read More 

ChartWatchers

DARK CLOUDS REVISITED

by Chip Anderson

In my previous column, I featured the Information Technology SPDR (XLK) with a pair of Dark Cloud Cover reversal patterns. Greg Morris, who wrote Candlestick Charting Explained, informed me that the Dark Cloud Cover pattern is one of the few that uses the previous days high as part of its criteria. I was erroneously using the previous days close. The Dark Cloud Cover forms when the open is above the previous days HIGH and the close is below the mid point of the body of the previous day. In early January, the XLK open was above the previous days close Read More 

ChartWatchers

MARKET TREND IS STILL UP, BUT...

by Chip Anderson

The overall trend of the market is still up, but there are very few new opportunities surfacing. Taking a look at our primary mechanical timing models below, we can see that nearly all of the broad market and sector indexes are on profitable buy signals, but most of the signals are relatively old and do not offer ideal conditions to put new money to work. Another problem is that, while the signals are showing a profit, in many cases (like the S&P 500) the profit is rather narrow for the age of the signal, and much of it would be lost if the trend were to Read More 

ChartWatchers

LARGE CAPS VS. SMALL CAPS

by Chip Anderson

Today we look at large cap vs. small cap stock via the S&P 500/Russell 2000 Ratio. Since 1999, the ratio has gone nowhere other than down; which means this is the 8th year of decline. More generally, the ratio runs in 7 year cycles, so given we are in the 8th year, perhaps the time to consider readjusting ones portfolio is a wise decision. In fact, we believe the winds of change are forthcoming; it may not be today's business or next weeks, but we cannot ignore the developing bullish falling wedge. This, coupled with the oversold 20-week stochastic suggest a trend change; with Read More 

ChartWatchers

SHARPCHARTS2 FOR BASIC MEMBERS STARTS THIS WEEK!

by Chip Anderson

BASIC MEMBERS, SHARPCHARTS2 CONVERSION LATER THIS WEEK! - If you are a member of our "Basic" charting service, get ready. We plan on converting our Basic members to our SharpCharts2 charts during the coming week. ALL OF YOUR SAVED CHARTS WILL BE AUTOMATICALLY CONVERTED FOR YOU. You don't need to do anything except sit back and enjoy the increased charting power that SharpCharts2 provides. As always, if you have any problems or concerns, just use our Feedback form to send us a message. Extra members please sit tight. As soon as the Basic conversion is completed, we will begin Read More 

ChartWatchers

SMALL CAPS AND AD LINE ARE STILL RISING

by Chip Anderson

Rising interest rates can help the stock market over the short- to intermediate-term because it implies economic strength. It also causes some money to rotate out of falling bond prices and into stocks. Although rising bond yields usually cause problems for the market eventually, we have to watch the market indexes and certain technical indicators to spot when that's happening. One of those is the NYSE Advance-Decline line as shown in Chart 1. As of right now, the AD line is still rising. Historically, the AD line has peaked either before the market or coincident with it. The fact that Read More 

ChartWatchers

Hello Fellow ChartWatchers!

by Chip Anderson

NADAQ BREAKSOUT - P&F CHART SHOWS IT BEST Last week the Nasdaq composite broke through the 2340 resistance level and has moved into territory not seen since the "bubble popped" back in early 2001. The mid-term significance of this development can best be seen on the following P&F chart: Notice how the right-most column of rising X's has moved higher than the column of X's that appeared at the start of 2006? That "Double Top" breakout is what all of the fuss is about. By moving above the 2350 mark briefly on Thursday, the Nasdaq caused the uppermost X to appear Read More