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April 2008

ChartWatchers

THE GAME HAS CHANGED

by Chip Anderson

In the February 3rd edition of ChartWatchers, I made a bold prediction that the market had bottomed with the January lows. I did so because of the extreme pessimism in the options world. If you go back to 1995, the year that the Chicago Board Options Exchange began providing investors with historical put call readings, and average the daily put call readings, you'll find that 0.75 is the "norm". That's been the average end of day reading over the past 12-13 years. A .75 reading on the put call ratio means that for every 3 puts bought, 4 calls are bought. 3 divided by 4 = .75. When the Read More 

ChartWatchers

IMW VENTURES INTO RESISTANCE ZONE

by Chip Anderson

Despite a big advance over the last few weeks, the Russell 2000 ETF (IWM) entered a resistance zone and has become overbought. There are two reasons to expect resistance around 72. First, the three February highs mark resistance in this area. Second, a 50% retracement of the December-January decline would extend to around 72. Corrective rallies normally retrace 38-62% of the prior decline. 50% marks the mid point and a good area to start expecting resistance. As far as oversold conditions, the Commodity Channel Index (CCI) moved above 100 for the second time this month. IWM Read More 

ChartWatchers

SUSPICIOUS GAPS

by Chip Anderson

On Wednesday and Friday of this week the market opened up with large gaps from the previous closing price, and I think this activity is suspicious, possibly contrived. It is, after all, options expiration week, and weird market action can be expected. This week it is likely that the big money wanted to stick it to the bears and put holders, as usual, and they did so quite skillfully. These large up gaps can be contrived by heavy buying of S&P futures just before the market opens. There is usually a bullish cover story available to use as justification for the initial buying spree Read More 

ChartWatchers

STORM ON THE HORIZON

by Chip Anderson

The intermediate-term broader market technical condition is improving; however, we believe that this "improvement" is nothing more than a respite before the larger storm develops. First, let’s note that the Wilshire 5000 has broken its bull market trendline off its 2003-2006 lows, and remains on the defensive below its 70-week moving average. Secondly, a countertrend improvement has developed from the longer-term 200-week moving average, which did indeed provide support back in 2004 in tandem with the 70-week moving average. We would posit - and perhaps it is too early to do so, but we Read More 

ChartWatchers

PENDULUM SWINGS BACK TO STOCKS

by Chip Anderson

This week's market action has been characterized by stock buying and bond selling. The change in the relationship between those two markets is shown in the chart below which plots a ratio of the 7-10 Year Treasury Bond Fund (IEF) by the S&P 500 SPDRS (SPY). The falling ratio since October shows that investors have favored bond prices over the last six months. Since mid-March, however, the ratio has turned up. That means that investors are rotating out of bonds and back to stocks. The rise in the ratio isn't enough to signal a major trend change between the two asset classes. But it Read More 

ChartWatchers

KAGI AND RENKO CHARTS COME TO TOWN

by Chip Anderson

StockCharts.com is pleased to announce that we have just added Kagi and Renko charting formats to our site. Go. Check em out. Hmmm Why are you still here? Oh, right. Not everyone knows what Kagi and Renko charts are. Well, lemme show you what a Kagi chart looks like first: Pretty different eh? It's actually more like a P&F chart than a OHLC or Candlestick chart. For one thing, notice that the horizontal time axis isn't uniform. Just like a P&F column of X's, the thicker lines will go up until a reversal occurs. Similarly, thin lines go down until prices move up Read More 

ChartWatchers

DIA BATTLES RESISTANCE

by Chip Anderson

Despite some volatile price action the last few months, the Dow Industrials ETF (DIA) remains below a major support break and has yet to win the battle at resistance. DIA formed a rather large head-and-shoulders pattern in 2007 and broke support with a sharp decline in January. This support zone then turned into resistance and the ETF failed to break back above this zone in February. DIA is making another challenge to resistance with a surge over the last three weeks. The prior surges fizzled around 127.5 and this is the first level to watch. A close above the February highs (127.5) Read More 

ChartWatchers

A LOOK AT (COUGH, COUGH) FUNDAMENTALS

by Chip Anderson

As a technician I rarely look at fundamentals, primarily because they are not directly useful in making trading decisions; however, while fundamentals are not primary timing tools, they can be useful in establishing a broader context within which technical indicators can be interpreted. For example, one of the reports the Decision Point publishes daily is The Overview of Market Fundamentals. The following is an edited excerpt from that report. First, notice that, in spite of a substantial market decline, the current P/E is 20.7, which is slightly above the overbought limit of the Read More 

ChartWatchers

METAL AND OIL SERVICE STOCKS ARE BREAKING OUT TO THE UPSIDE

by Chip Anderson

Throughout the market problems of the first quarter, stocks tied to basic materials have been the top performing sector. That's also been true over the last week. The chart below shows the Materials SPDR (XLB) trading over 43 today for the first time this year. That puts in in striking distance of its fourth quarter highs. The rising relative strength line below the chart shows the group's superior performance since last autumn. Three of the top performing stocks in the XLB are Alcoa, Freeport McMoran Copper & Gold, and U.S Steel. One of the top performers in the Read More 

ChartWatchers

WHEN TRENDLINES COLLIDE

by Chip Anderson

Hello Fellow ChartWatchers! The Real Estate industry is undergoing lots of challenges right now. Let's see how those challenges are affecting the REIT charts. Check out the current chart for the Dow Jones REIT index: The problem with REITs is clear here - the blue downtrend line that started back in early 2007. It was created when the spike in October faltered around the 315 level. The other problem is the break in the thin "2yr Support line" (just below 260) that happened back in December. That support level was created in mid 2005 and confirmed in June on 2006. It provided Read More