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September 2007

ChartWatchers

BEARS BURNED BY BERNANKE

by Chip Anderson

It's been a very long time, but we can now unequivocably say that we have an accommodating Fed. The lowering of interest rates was the next piece of our bullish jigsaw that fit perfectly. It's all coming together. The bond market knew it was coming. You just have to follow the technicals. Take a look at the weekly chart of the 10 year treasury yields over the past decade and a half. There is a long-term downtrend in rates that remains intact. The short-term uptrend that began in 2003 came to an end just before the recent Fed announcement. How long will we trend lower? That's a good Read More 

ChartWatchers

BONDS HIT SUPPORT

by Chip Anderson

Buy-on-Rumor and Sell-on-News is a classic Wall Street axiom. In the internet heyday, Yahoo! would surge into its earnings announcement and then correct with a pullback near the actual announcement. The iShares 20+ Year Bond ETF (TLT) surged with the lead up to the Fed meeting on Tuesday and peaked a few days before the announcement. The rumor was the Fed cut and traders bought into this rumor in the second half of August. Traders took profits after the rate cut (news) was priced into the bond market. Despite the rather sharp pullback, the overall trend remain up and TLT finished the week Read More 

ChartWatchers

NEW BUY SIGNAL

by Chip Anderson

Ever since the market hit its correction lows in August I have written three articles, each emphasizing that the odds favored a retest of those lows (see Chart Spotlight on our website). As it turns out, we haven't had any decline that I would classify as a retest, and the market has broken out of a triangle formation on high volume. When the breakout happened, it eliminated any reasonable possibility of a retest, in my opinion. Sometimes the low odds take it. One thing I have been cautioning about is to not get too bearish, because many of our key indicators had remained bullish. Another Read More 

ChartWatchers

RIDING THE S&P SURGE

by Chip Anderson

The "surge" of the past month in the S&P 500 is nothing short of astounding; and given the technicals involved – we believe prices are set to continue moving higher with a projection to 1630 into the October-December time frame. This represents a +6.8% rally from the Friday, September 21 close. Quite simply, when we look at the S&P 500 hourly chart; we find a very picturesque "head & shoulders" bottoming pattern that was confirmed with the breakout above neckline resistance at 1496. Our target is arrived at using the percentage gain +9.1% off the 1371 low to neckline Read More 

ChartWatchers

YOU CAN BUY A FALLING DOLLAR FUND

by Chip Anderson

I first wrote about this inverse dollar fund in April 2006 and again on July 13 of this year. The ProFund Falling US Dollar Fund (FDPIX) is a mutual fund designed to trade in the opposite direction of the US Dollar Index. In other words, the fund rises when the dollar falls (hence its name). As I've suggested in the past, investors can use this fund to profit from a falling dollar. Chart 1 (plotted through 9/9) shows the Falling Dollar Fund trading at a new 12-year high. An alternative to buying a dollar inverse fund is to buy a foreign currency ETF. Chart 2 shows the Currency Shares Euro Read More 

ChartWatchers

THE FED FIXED THINGS - OR DID IT?

by Chip Anderson

The Fed's surprising move last Tuesday did wonders for the major averages and "wrecked" many technical forecasts in the process (oh well). As you can see below, Tuesday's rally moved the Dow well above the 50-day Moving Average (blue) which had been providing some resistance prior to that time. The CMF and MACD lines also strengthened significantly as a result. So everything must be looking up right? Well Check out this chart: This is a MarketCarpet chart (Java required) for all of the stocks that make up the S&P Sector ETFs. Each square represents Read More 

ChartWatchers

PREPARE FOR A WEAKER DOLLAR

by Chip Anderson

The jobs report sent a jolt to the stock market on Friday. We believe it'll be a temporary jolt, but a jolt nonetheless. That data gave the Fed all the ammunition it needs to do what the market has been expecting for weeks - to cut the fed funds rate. The question has now become, will it be 25 or 50 basis points? For the U.S. Dollar Index, it won't matter. The lowering of interest rates here in the U.S. will turn a weak dollar into an even weaker one. Take a look at the monthly chart (Chart 1) of the U.S. Dollar Index over the past 27 years and compare the movement in the dollar to the Read More 

ChartWatchers

FINANCE AND CONSUMER ETFs HAVE DOUBLE TOPS

by Chip Anderson

The Finance SPDR (XLF) and Consumer Discretionary SPDR (XLY) formed large double tops this year, and both broke support in late July to confirm these bearish reversal patterns. Volatile trading ranges followed these support breaks (yellow ovals), but these ranges look like consolidations after a sharp decline. In other words, XLY and XLF became oversold in mid August, and these consolidations worked off these oversold conditions. Friday's sharp decline looks like the start of another move lower, and a move to the next support area is expected. Both sectors are Read More 

ChartWatchers

SCARY RETEST ON THE HORIZON

by Chip Anderson

It is well known that October is the cruelest month on average, but sometimes September beats October to the punch. This may be one of those times. Looking at the chart below we can see that the market has bounced out of the August lows and has formed two short-term tops, the last being higher than the first. Corresponding with those rising tops are two sets of declining tops on the two short-term technical indicators. This is known as a negative divergence, and it is a short-term bearish sign that probably is announcing an impending retest of the August lows. The fact that we Read More 

ChartWatchers

BIOTECH ETF HOLDING ON

by Chip Anderson

Although last week's broader market was under pressure, the long forgotten Biotech HOLDRs (BBH) showed surprising resilience, and, in fact, is on the cusp of a major breakout. If you'll recall, BBH has underperformed badly in the past, even while posting very good earnings. That puts BBH in the categories of "value" and "defensive," code words used to describe a security in which money will flow in a market decline. Thus, we can make a fundamental and technical case to be buyers. From a technical perspective, BBH has a history of rising very sharply, then consolidating prices for a year Read More 

ChartWatchers

VIX STILL IN AN UPTREND

by Chip Anderson

Earlier in the week I heard a TV commentator (masquerading as an analyst) give his interpretation of the CBOE Volatility (VIX) Index. His conclusion of course was bullish. He correctly pointed out that peaks in the VIX usually coincide with market bottoms. He then bullishly concluded that since the VIX peaked in mid-August, the market had bottomed. The problem with that bullish interpretation is that the major trend of the VIX is still up. Recently, I wrote that the VIX would probably find major support near the 20 level before turning back up again. I got the 20 support number from two Read More 

ChartWatchers

MARKET MOVING LOWER - DUH!

by Chip Anderson

"The trend is your friend" or, in this case, the market's enemy. You may have noticed lots of vacillating in the traditional financial press this past week - gloom and doom after the market closes lower, supreme optimism the very next day when the market moves higher. ChartWatchers shouldn't be fooled by the media's need to generate market opinions that sell papers. The market's trend has been clear for weeks and despite what the optimists say, that trend is down. The Dow chart shows it clearly with three lower peaks separated by two lower troughs. Last week's third peak is the "final Read More