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September 2006

ChartWatchers

TRANSPORTS NOT OUT OF THE WOODS YET

by Chip Anderson

The Dow Transportation iShares (IYT) recovered nicely this week, but the ETF is meeting resistance from broken support and a little more work is required for an upside breakout. On the daily chart, IYT formed a double top and confirmed this bearish reversal pattern with a break below the June low. Support is not going quietly though. IYT moved below 75 in mid August, but suddenly firmed and bounced back to broken support. There was another dip to 75 and the stock again bounced back to broken support this week. A key tenet of technical analysis is that broken support turns into resistance Read More 

ChartWatchers

MARKET OVERBOUGHT BUT SENTIMENT STILL FAVORS BULLS

by Chip Anderson

The S&P 500 Index is approaching new 52-week highs, but there is short-term overhead resistance immediately ahead, and our primary medium-term indicators are becoming modestly overbought. Does this spell trouble for the bulls? Probably not. Overbought conditions are not necessarily a problem in a bull market, and there are still way too many bears for an important top. Our first chart shows the S&P 500 Index with our three primary medium-term indicators (oscillators) – one each for price, breadth, and volume. As you can see they are approaching the overbought side of their range Read More 

ChartWatchers

IS THE CORRECTION OVER?

by Chip Anderson

Last week's commodity market decline was the most severe since 1980; which of course begs the question "is the correction over"? We don't believe that to be the case, as follow on selling will materialize taking prices far lower than one can believe. In that vein, we think it wise to take a technical look at gold prices - ostensibly the leader of the bull market in commodities. From a longer-term perspective, we use the monthly chart, and we don't want to get to fancy with it. Right now, the 20-month moving average is rising sharply and crosses at $521; we think this level in combination Read More 

ChartWatchers

WHAT ABOUT THE FOUR-YEAR CYCLE

by Chip Anderson

I've received a number of questions on the status of the four-year cycle. The stock market has shown a very consistent pattern of forming important bottoms every four years – usually during the fourth quarter. The last bottom took place in October 2002, which makes another one due this year. The only problem is that most of those four-year bottoms occurred after a weak year (like 1990 or 1998) or a year in which prices moved sideways (like 1994). That makes this year's action somewhat unusual. My original market outlook had been for a weaker market into October followed by a probable Read More 

ChartWatchers

THE IMPORTANCE OF THE NY A-D LINE

by Chip Anderson

Hello Fellow ChartWatchers! OK, do I really need to write an article explaining this picture? Seriously, there are more than the proverbial thousand words in the chart above. The NY Advance-Decline Line (the red one) is defined as the cumulative total of the daily NYSE advancers minus the daily NYSE decliners. It is one of THE most important market breadth indicators. When it diverges from the NYSE Composite index, it signals market weakness. In late 1998, it signalled problem ahead for the internet bubble. In early 2000, the A-D Line started moving higher again, but the market didn't Read More 

ChartWatchers

RYDEX RATIO IMPLIES PRICES WILL GO HIGHER

by Chip Anderson

After the decline that lasted from the beginning of May to mid-June, a second bottom was made in July, from which the current rally emerged. Both the bottoming process and the rally have been rough and tedious, causing a lot of anxiety among market participants, and resulting in strong, persistent bearish sentiment. This is clearly visible on our first chart of Rydex Cash Flow analysis. The first panel below the S&P 500 chart shows cumulative cash flow (CCFL) for bull plus sector funds. Note how the indicator has been running flat for the duration of the July/August rally, a Read More 

ChartWatchers

GOLDILOCKS AND THE BEARS

by Chip Anderson

While many believe a "goldlilocks" soft-landing is forthcoming for the US economy; we think the probability of this occurring is rather small given the ongoing weakness in the housing market. That said, we are bearish on equities given our overbought indicators, and the fact this rally is becoming narrower with fewer and fewer stocks leading the major indices back towards the highs. Therefore, we would use rallies to layer into short positions. In terms of sectors, we believe the "cyclicals" are poised to decline on both an absolute as well as relative basis. Looking at the feature Read More 

ChartWatchers

NASDAQ NEARS MOMENT OF TRUTH

by Chip Anderson

It's very hard for the stock market to stage a major advance without help from the Nasdaq market. Fortunately, it's been getting some Nasdaq help since mid-July. The chart below shows the Nasdaq Composite gaining nearly 200 points (10%) since mid-July. The actual signal of the upturn came with an upside break of its 50-day moving average (blue circle) in early August. Its rising relative strength ratio (bottom line) turned up at the same time and has been rising. That means that the Nasdaq has been leading the rest of the market higher over the last month. [The Nasdaq gained 6% during Read More 

ChartWatchers

TRENDING UP, DOWN OR SIDEWAYS?

by Chip Anderson

Trend analysis is one of the most important technical analysis skills anyone can have. Knowing if a stock is trending or oscillating can have a big impact on what kind of approach you take to trading it. Stocks that are in a strong uptrend should be bought and held until one or more momentum oscillators show signs of weakness (a moving average cross-over for example). Stocks that are oscillating sideways within a trading range should be studied using oscillating indicators like Stochastics for entry and exit points. So, how do you tell if a stock is trending or oscillating? And how do Read More