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October 2006

ChartWatchers

FLIGHT TO SAFETY

by Chip Anderson

Recall in my last article the "axis of normal returns" showing the potential move of the NASDAQ over the next 2-3 years to return to its "normal line". This time I'd like to approach the NASDAQ's potential move from another angle - studying the relationship that has existed between the Dow Jones Industrial Average and the NASDAQ over the past 26 years. We all hear the phrase "flight to safety", but look at the chart below to get a visual picture of what happens when the more "aggressive" NASDAQ leads the market versus what happens when there is a "flight to safety" to the Dow. Point A on Read More 

ChartWatchers

A BULL FLAG FOR THE CONSUMER STAPLES SPDR (XLP)

by Chip Anderson

The Consumer Staples SPDR (XLP) was a top performer from April to September, but went through a period of underperformance over the last 4-5 weeks. The Dow Industrials and S&P 500 kept right on trucking in September and October. The Dow recorded a new all time high above 12000 and the S&P 500 is trading at levels not seen since February 2001. In contrast, XLP is trading below its September high and has not kept pace with the Dow or S&P 500 in recent weeks. Despite this underperformance, the decline over the last few weeks looks like a bull flag (green trendlines). I elected Read More 

ChartWatchers

WINDSOCK VERSUS CRYSTAL BALL

by Chip Anderson

For several months these articles have included a reminder that "Technical analysis is a windsock, not a crystal ball." To clarify, a windsock is used to ascertain the current wind direction and intensity. A crystal ball is used to predict the future. As a practical matter, if we make decisions in response to known market conditions, we are operating in a mode that will allow us to adjust our stance as conditions change. Conversely, if we position ourselves based upon a prediction about the future, we are stuck with defending that prediction until it comes true or sticking with it until Read More 

ChartWatchers

OIL SERVICES TAKING A BEATING

by Chip Anderson

First, much continues to be made of the decline in crude oil prices, and the positive impact of lower energy prices upon the world consumer et al. This much is known; but oil service stocks have been "taken to the proverbial woodshed" and beaten to death, which creates a very interesting and perhaps very profitable opportunity to buy these stocks as crude oil continues to move lower. Our interest stems from the technical perspective of the Oil Service Index vs. Crude Oil Ratio ($OSX:$WTIC). We think it is rather clear on a historical basis, the ratio is trading now too far off its lows Read More 

ChartWatchers

SERVER ROOM EXPANSION

by Chip Anderson

JOHN MURPHY TRAVELLING THIS WEEK - John will be presenting at the IFTA Conference in Switzerland this week and will not be online after Monday. We've arranged for Arthur Hill (you can read he column below) to contribute commentary while John is away. NEW METHOD FOR REQUESTING MISSING STOCKS - We will be rolling out a new web-form for people to use whenever they want us to add a new ticker symbol to our database. This new form will help you help us get new symbols into our database as quickly as possible. Watch for the link to appear soon on our main "Support" page. DAY-LONG Read More 

ChartWatchers

A WEAKENED HOUSING MARKET

by Chip Anderson

CATERPILLAR HURT BY WEAK HOUSING A plunge in Caterpillar on Friday, Oct 20th, unsettled the market. And for good reason. The bad news from the stock was blamed on a weak housing sector. Why that's worth noting is because Wall Street seems to be dismissing the housing meltdown as not very important. I beg to differ. There are subtle signs beneath the surface that weak housing is having a negative impact on parts of the market tied to the economy. Chart 1 attempts to show a positive correlation between Caterpillar (green line) and the PHLX Housing Index (brown line) since the bull Read More 

ChartWatchers

INTERESTING STATISTICS

by Chip Anderson

The Dow Industrials continued to set new highs last week and several interesting sectors led the way - but I'm not going to talk about that. (Our expert columnists have it covered below anyways.) I'm going to share some interested statistics with you about how StockCharts.com is used these days. Recently, we upgraded our statistics reporting tools and we are now getting new insights into how people are using StockCharts.com to make better investing decisions. Here are some of those results: Did you know? We generate, on average, over 3.2 million charts Read More 

ChartWatchers

IS IT TOO LATE TO CATCH THE NASDAQ TRAIN?

by Chip Anderson

After a decent run up in stock prices, one of the questions always heard is "is it too late to buy?" Well, there's never a guaranteed right answer and a lot of analysts would say the bull market is long in the teeth and has run its course. I am not in that camp - far from it. The stock market has a history of volatility where it becomes almost euphoric near long-term market tops and utterly depressed at bottoms. Market prices move higher over time because earnings, over time, grow. But we also know that earnings can swing wildly in both directions, especially on the technology-heavy Read More 

ChartWatchers

RUSSELL 2000 PERKS UP

by Chip Anderson

After lagging QQQQ and SPY throughout September, the Russell 2000 iShares (IWM) got into the action last week with a surge from 71 to 74 (4.2%) on Wednesday and Thursday. The ETF remains well below its May high and is still lagging over the last few months, but this October surge is a good sign for small-caps. On the price chart, IWM broke back above the 200-day moving average in early September and held this moving average three times in the last three weeks (blue arrows). The ability to find support around 71 was followed by a break above the July high and IWM is starting to look like Read More 

ChartWatchers

MARKET HITS OVERHEAD RESISTANCE

by Chip Anderson

The structure that has dominated the price pattern for nearly three years is a rising trend channel, which I have drawn on the S&P 500 chart below. As you can see, the price index has once more encountered the top of that channel, and that resistance will probably prevent any significant price advance until overbought conditions have been allowed to correct. That is not to say that a major price reversal is imminent. It is certainly possible, but it is also possible that prices will dribble along the bottom of the overhead trend line for several months as happened prior to the summer Read More 

ChartWatchers

RALLYING TECH SHARES

by Chip Anderson

The sharp technology share rally has caught many "off-sides" to be sure. Take for example the NASDAQ 100 "Q's" +13.4% rise off their June low; this is quite impressive indeedbut not as impressive as the +19.7% gain in the Semiconductor Index (SMH). Our forecast is for the "Q's" to decline in the weeks and months ahead; thus, we are asking ourselves the question as to whether SMH will continue to perform relatively "better"or "worse". It is a reasonable question, and one we will answer as "worse". In fact, given the past several day SMH trading action - we can now make the Read More 

ChartWatchers

HARDWARE UPGRADES

by Chip Anderson

JOHN MURPHY ON THE RADIO - In case you missed it, John Murphy was on Invested Central's radio broadcast during last Friday's afternoon show. He discussed the current direction of the market and what was driving its current direction. You can listen to the program online right now by clicking this link. (May require a browser plugin - John's segment is about 1/6th of the way into the show) WELCOME TOM BOWLEY! - Speaking of Invested Central, we want to welcome their chief market commentator - Tom Bowley - to the ChartWatcher's line up. Tom's ability to make complex market Read More 

ChartWatchers

DOLLAR SURGES ON STRONG JOB REPORT

by Chip Anderson

The dollar is having one of its strongest days in months. Part of the reason is the drop in the U.S. September unemployment rate and some upward revisions in recent job creation. The report diminished hopes for rate reductions by the Fed in the near future. In addition, Japanese reports of a possible North Korean nuclear test over the weekend also weakened the yen and caused some flight to dollar safety. The bottom line is that the Euro is falling to the lowest level in three months (Chart 1), while the yen touched a new six-month low (Chart 2). Having said that, I'd like to revisit a Read More 

ChartWatchers

WHAT HISTORY TEACHES US

by Chip Anderson

Hello Fellow ChartWatchers! Did you know that this is the most important time of the year for ChartWatchers that are looking to invest for the mid- to long-term? It is. Mention the month October to many investors and you will see them grow pale. "What about the 554 point drop in the Dow back in 1997?" they will ask. "What about the crash of 1987? And the one in 1929?" However, according to the Stock Trader's Almanac, October, the month that is universally loved by Bears and loathed by Bulls, has been the best performing month for the last eight years in a row! And, over the past 15 Read More