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February 2008

ChartWatchers

THE LINE CHART ADVANTAGE

by Chip Anderson

This is a rarity. I am proposing that you use line charts - in one instance. A line chart simply connects one closing price to the next closing price. Intraday activity does not appear and is ignored. How in the world can line charts have an advantage over bar charts or candle charts? Well, there's one instance and I'm going to show you. We discussed a couple of weeks ago how the recent lows in the market were accompanied by extreme bearish sentiment readings that many times mark significant long-term bottoms. So far those lows have held. Since that time, long-term positive divergences Read More 

ChartWatchers

DIA FAILS AT BROKEN SUPPORT

by Chip Anderson

In the 15-December issue of ChartWatchers, I pointed out the possibility of a head-and-shoulders top in the Dow Industrials ETF (DIA). The ETF formed a weekly bearish engulfing pattern that week and this marked the mid December high. Subsequently, DIA moved lower over the next several weeks to confirm this bearish reversal pattern. This pattern remains in play and broken support is now acting as resistance. This is a basic tenet of technical analysis (broken support turns resistance). The ETF bounced back to broken support at the end of January, but this level turned into resistance as Read More 

ChartWatchers

BOTTOM STILL NOT RESOLVED

by Chip Anderson

When the market began to rally this week, it looked as if a successful retest of last month's lows had occurred and that another up leg had begun; however, what looked like the start of a new rising trend, has now morphed into a triangle formation with the price index trying to break through the bottom of the triangle. While the triangle itself is a neutral formation, we are in a bear market, so the odds favor a break down from the triangle and another retest move on the January lows. The next chart, a weekly-based chart of the S&P 500 Index, continues to confirm that we are in a bear Read More 

ChartWatchers

DOW JONES INDUSTRIALS CHANGING

by Chip Anderson

Dow Jones announced last week that they are removing Altria and Honeywell from the index and adding Citibank and Chevron. The change takes effect at the start of trading on Tuesday. MARKET HOLIDAY ON MONDAY - Don't forget that both the US and Canadian markets are closed on Monday. Read More 

ChartWatchers

COMPARING BOND ETFs

by Chip Anderson

The below chart compares the performance of four T-bond ETFs since last July, when money started to flow out of stocks and into bonds. The four ETFs represent different durations in the yield curve. Through the middle of January, the top performer was the 20 + Year Bond Fund (TLT). Next in line was the 7–10 Year Bond Fund (IEF). That was followed by 3–7 Year Bond Fund (IEI), which was followed by the 1–3 Year Fund (SHY). The chart shows that the longer duration bonds did better than the shorter-term ones. That situation, however, may be changing. Over the last month, longer duration bond Read More 

ChartWatchers

DIGGING INTO MARKET BREADTH

by Chip Anderson

StockCharts.com has an extensive collection of Market Breadth indicators. Many of them can be found under the "Breadth Charts" link on the left side of our homepage. However, one of the best places for studying market breadth on our site is - surprisingly - our Predefined Scan Results page. The page is easy to overlook but - fortunately - easy to get to. Just click on the "Stock Scans" link on the left side of our homepage and it will take you to the page I'm talking about. Here is a screenshot: Now, the magic is in studying the ratios between various pairs of Read More 

ChartWatchers

THE MARKET HAS BOTTOMED

by Chip Anderson

want to recap what was discussed in the last ChartWatchers newsletter. We were approaching significant long-term price support on the Dow and the lower trendline on the NASDAQ while pessimism was starting to ramp up. I discussed the possibility of a significant bottom approaching and to watch for the put call ratio to spike near the levels we saw in March and August of 2007. First, let's take a look at the Dow chart. The Dow touched critical support and bounced 1000 points. The 13,000 area is a bit congested and will provide the bears some ammo as they attempt to fight back the bulls. If Read More 

ChartWatchers

IWM NEARS RESISTANCE ZONE

by Chip Anderson

With an oversold bounce over the last two weeks, the Russell 2000 ETF (IWM) is nearing a resistance zone from broken support and the 50-day moving average. Before going further, I should emphasize that the overall trend remains down for two reasons. First, the ETF broke down in January with a decisive move below its 2007 lows. Second, the 50-day moving average is below the 200-day. This oversold could fizzle soon because the ETF is nearing resistance from broken support and RSI is nearing its December highs (red arrows). The November and December lows marked support and these now turn Read More 

ChartWatchers

RESISTANCE THREATENS RALLY

by Chip Anderson

In my January 18 article I asserted that we had entered a bear market based upon long-term sell signals generated by downside moving average crossovers on the daily and weekly charts of the S&P 500. My bottom line summary was as follows: "Probability is very high that the bull market top arrived in October 2007 and that we are now in a bear market that will continue for another year or more, possibly until mid-2010. Until we have evidence to the contrary, remember that bear market rules apply. The next thing to expect is a reaction rally back toward the recently violated neckline Read More 

ChartWatchers

NO ONE IS IMMUNE

by Chip Anderson

We recently noted the US had in our opinion entered into a bear market; hence we believe rallies are to be sold in the coming weeks/months as prices enter into resistance. However, we continue to hear how other world markets such as the European, Asian and Emerging markets will be 'immune' from the US-led slowdown, and thus funds should flow from the US towards more international markets. We think this to be patently wrong, for the time to be long international markets at the expense of US markets has past. With the US Federal Reserve addressing the problem - however futile this may prove Read More 

ChartWatchers

DATAFEED MILESTONES

by Chip Anderson

We hit two milestones with our Datafeed Upgrade project during the past week. First, the upgraded data connections for our older Thomson feed were installed on Friday. The problems we had last summer were because there was too much data to fit through our 3 megabit data connections. We now have 15 megabit data connections in place so that particular problem shouldn't reoccur. Second, because of last year's snafu, we are adding a second data vendor and last week we also started getting test data from our new IDC ComStock datafeed. Now that the IDC hardware is installed and working we Read More 

ChartWatchers

JANUARY BAROMETER PREDICTS BAD YEAR

by Chip Anderson

I haven't heard anyone in the media talking about the January Barometer, which is based on the view that "as January goes, so goes the year". That's probably because they only talk about it when the market has a strong January, which predicts a good year. Unfortunately, this January was a very bad one. The 6% loss in the S&P 500 makes it the sixth worst January on record. According to the Stock Trader's Almanac, "the January Barometer predicts the year's course with a .754 batting average. It goes on to state that "every down January on the S&P since 1950, without exception Read More 

ChartWatchers

GETTING STARTED ALL OVER AGAIN

by Chip Anderson

Hello Fellow ChartWatchers! First off I just want to take a second and say "Welcome" to all of our new members. Since January 1st, almost 1,000 new members have joined StockCharts.com(!). That's almost triple the rate at which we normally get new members and we are very glad that more and more people are using our service. Given all those new members - and all the "old-timers" like myself who may have forgotten some things - I wanted to point out a couple of under-utilized sources of information on StockCharts.com that can really help you get the most out of our site: The Read More