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December 2006

ChartWatchers

ARE COMMODITIES BOUNCING BACK, OR JUST BOUNCING?

by Chip Anderson

We've seen commodity prices skyrocket over the past several years and equities that have exposure to commodities have gone along for the ride. Should we be concerned now that those commodities have experienced weakness over the past couple months? Or should we instead be focused on the ensuing rally over the past few weeks? That is a very good question. Commodity prices, in our opinion, are in the process of topping. In May 2006, while the CRB Index was moving to yet another high at 365, a long-term negative divergence on the MACD formed (Chart 1). That led to the subsequent selloff and Read More 

ChartWatchers

XLE AND USO: SOMETHING HAS TO GIVE

by Chip Anderson

The Energy SPDR (XLE) surged over the last two months and is challenging resistance, but the U.S. Oil Fund ETF (USO) remains relatively weak and continues testing support. These two are out of sync and something has to give. As I see it, either XLE will fail at resistance and pull back to trading range support or USO will break resistance and confirm the surge in XLE. The Energy SPDR (XLE) broke above trading range resistance at 60 in late November and this is bullish. The breakout occurred with a long white candlestick and the ETF stalled this past week with a doji. The last two Read More 

ChartWatchers

CRASH TALK IS PREMATURE

by Chip Anderson

I have heard that a number of people have been predicting a crash. I don't know what evidence they are citing, but my analysis of the price structure and internal indicators leads me to the conclusion that there is not a crash anywhere in sight. This does not preclude a crash triggered by an external event of which we can have no advance knowledge, but the visible deterioration that typically precedes a crash does not currently exist. To illustrate, we can look at charts (below) of the two most famous crashes of the last 80 years – the Crash of 1929 and the Crash of 1987. There are two Read More 

ChartWatchers

A CORRECTION - OR SOMETHING LARGER?

by Chip Anderson

The recent "slowdown" in the major averages has produced "rotational undercurrents" between these averages; the most poignant we observe is the bullish breakout in the ratio of the S&P 500 Spyders (SPY) and the NASDAQ 100 (QQQQ). The reason we focus upon this is that it has implications in terms of traders taking on risk; in a normal bull run, traders tend to put on high-beta technology shares to increase returns above the market. Hence, when we begin to see strength in the ratio - it implies traders are shunning risk, which suggests a potential trend change is in the very near Read More 

ChartWatchers

SENTIMENT INDICATORS SHOW A MARKET ENTERING OVERBOUGHT TERRITORY

by Chip Anderson

% NYSE STOCKS ABOVE 200-DAY AVERAGES I've received requests to look at some long-term market sentiment indicators. I've chosen a couple that you can plot by yourself on Stockcharts. One of those is the % of NYSE stocks above their 200-day moving average ($NYA200R). That's the reddish line in Chart 1 (the blue line is the NYSE Composite Index). As with all sentiment indicators, there are two main considerations. One is the level. At the end of a major bear market (like at the start of 2003), readings below 30 often mark major bottoms. During bull market corrections, however, readings Read More 

ChartWatchers

DOW LOOKING "TOPPY"

by Chip Anderson

The Dow Jones Industrial Average had a significant technical development in the middle of last week when it failed to surpass it's previous "peak" for the first time in months. After hitting 12,361 on November 22nd, the index sank to 12,072 a week later. The crucial rebound started on November 29th but stalled at 12,360 on December 5th. The failure to punch through the 12,360 level is technically significant. It signals the end of the very strong uptrend that the market has been in and the possible start of a reversal or, in the best case, a consolidation period. The key Read More