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June 2008

ChartWatchers

FINANCIALS LENDING NO SUPPORT

by Chip Anderson

On May 19th, I discussed what appeared to be a topping market. Since that time, the Dow has lost 8.82%. The S&P 500 has lost 7.51%. The NASDAQ has lost 4.86%. The SOX has lost 9.24%. The XLF (an ETF that tracks financials) has lost 16.67%. The bank index has lost 22.32%. The XLY (an ETF that tracks consumer discretionary stocks) has lost 10.65%. These are ONE MONTH returns, folks. The number that really jumps out though is the 22% loss in the bank index in one month. While the major indices appear to be heading to test March lows, the bank index has already blown right through those Read More 

ChartWatchers

A LITTLE DANDRUFF FOR IWM

by Chip Anderson

Despite a big decline in the S&P 500 ETF (SPY) over the last five weeks, the Russell 2000 ETF (IWM) has been holding up pretty well. However, a bearish reversal pattern and weakening momentum suggest that IWM will ultimately follow its big brother lower. On the price chart, IWM formed a small head-and-shoulders pattern over the last six weeks. Neckline support resides just below 72 and a break below the June low would confirm this pattern. Once confirmed, the initial downside projection would be to around 68. The height of the pattern (roughly, 76 - 72) is subtracted from the Read More 

ChartWatchers

IT'S STILL A BEAR & THE OIL BUBBLE

by Chip Anderson

Discussions about the price of oil are in the news every day, but my observation is that, for the most part, these discussions serve only to confuse the public more. Most popular are the conspiracy theories, blaming the high prices on shadowy behind-the-scenes manipulators. These theories have one purpose, which is to keep the public stirred up and in the dark. (Remember how mushrooms are grown.) Most people don't understand the futures market at all. I am by no means an expert, but I have gleaned enough information recently that I think I can enlighten some of my readers. Futures Read More 

ChartWatchers

FOCUSING ON S&P ENERGY/FINANCIALS

by Chip Anderson

As the world stock markets have embarked on what arguably is another "leg lower"; we are left to wonder aloud what the relative rotation beneath the surface of this decline will look like in terms of tactical allocation. Our focus has been upon the S&P Energy / S&P Financials Ratio (XLE: XLF) as of late, for there is quite a bit of pent-up leverage extant in this chart as the world's hedge and mutual funds are very clearly very long energy and clearly very short financials. At some point, the leverage of reversing this position by being short energy and being long financials will Read More 

ChartWatchers

FED'S IN A BOX, AND BEAR FUNDS ARE RISING

by Chip Anderson

THE FED'S IN A BOX I've written recently about the Fed turning its attention away from the economy and back to inflation. Unfortunately, this week's market downturn is going to make its job a lot harder. The Fed apparently concluded that its easing program since last September would be enough to stabilize the stock market and the economy. This week's stock drubbing calls that analysis into question. How can the Fed raise rates to fight inflation with stocks tumbling? It can't. That should keep the dollar from rallying much further and could give a boost to gold. Money moving out of Read More 

ChartWatchers

CHARTNOTES IMPROVEMENTS

by Chip Anderson

This weekend we've updated our ChartNotes chart annotation tool. On the surface everything looks the same, but for frequent ChartNotes users that are willing to remember a couple of new keyboard/mouse combinations, things should be much better. We've also thrown in some extra Fibonacci Lines for good measure. Additional Fibonacci Levels First, let's look at how to get those additional Fibonacci Lines onto a chart. Normally, ChartNotes will add lines at the 5 most common Fibonacci levels: 0%, 38.2%, 50%, 61,8% and 100%. The new version of ChartNotes allows you to add two addition Fibo Read More 

ChartWatchers

RESISTANCE HOLDING, BAD NEWS FOR BULLS

by Chip Anderson

Let's focus first on one of the strongest indices, the NASDAQ. Technology stocks have been performing quite well and there's been a challenge for the tech-heavy NASDAQ to pierce price resistance at 2541. Thursday's close of 2549 was enticing, but volume was just moderate and the Friday jobs report was in the on-deck circle. I wasn't buying into it, actually removing a QLD play Thursday afternoon rather than play stock market roulette on Friday morning. It's always better to preserve capital, lock in profits and be safe rather than sorry, especially when mired in an intermediate-term Read More 

ChartWatchers

SMACK DOWN AT RESISTANCE

by Chip Anderson

Even though techs and small-caps have been showing relative strength the last several weeks, the Nasdaq and the Russell 2000 are running into stiff resistance of their own. Their charts show similar setups that point to a medium-term peak. First, let's look at the reasons for resistance. Both indices declined sharply from October to March and then rallied from mid March to early June. These rallies retraced 50-62% of the October-March declines and carried both indices back to their 200-day moving averages. In addition, broken support around 2550 turns into resistance for the Nasdaq. The Read More 

ChartWatchers

THREE MARKET VIEWS

by Chip Anderson

There are three market indexes that capture the most attention: The Dow Jones Industrial Average (DJIA), the S&P 500 Index (SPX), and the Nasdaq 100 Index (NDX). Together they represent about 80% of the total U.S. market capitalization. While they are normally more or less in sync with one another, this is not always the case, and now is one of those times where they don't look a lot alike. Currently, the DJIA is the weakest of the two. It is on a long-term sell signal (the 50-EMA is below the 200-EMA), as well as an intermediate-term sell signal generated by our primary timing Read More 

ChartWatchers

LOOKING TOWARDS THE HORIZON

by Chip Anderson

When markets become as volatile as they have in the past week; it is best to stand back and take a look at the longer-term time horizon. We like to use the S&P 500 as our proxy; and as week look at the monthly chart - we find the S&P having broken down through several critical long-term support levels. This suggests the probability has increased substantially that a bear market has indeed begun - with further significant damage to be wrought in the months ahead. Quite simply, the 1980-2002 bull market trendline was violated; the importance of which can't be underestimated. The Read More 

ChartWatchers

BEARISH FORCES RETAKE THE MARKET

by Chip Anderson

There have been two consistent themes that myself and Arthur Hill have been stressing in recent Market Messages. One has been that the rally from mid-March is a bear market rally. The other has been that the rally has probably ended. That dual reality was brought into sharper focus on Friday when a combination of intermarket forces sealed the fate of bullish hopes. A huge jump in the unemployment number, a big drop in the U.S. Dollar, and a record surge in oil prices sunk the stock market in a big way. Charts 1 and 2 show the Dow Industrials and the S&P 500 hitting two-month lows on Read More 

ChartWatchers

TIME INDEPENDENT CHARTS REDUCE EMOTIONAL INVESTING

by Chip Anderson

StockCharts now has four different "time independent" forms of charting. I thought I'd take some time this week to introduce you to all four. A "Time Independent" chart is a chart that doesn't have a consistent horizontal axis. On a typical price chart - a standard Bar Chart for example - each time period on the chart occupies one vertical column of space, even if the stock doesn't trade during that time period. So, one week of time occupies the same amount of horizontal space regardless of the ticker symbol you are charting. On a "Time Independent" chart, each time period may or MAY NOT Read More