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August 2008

ChartWatchers

THE DOLLAR GOES GREEN AND MAX PAIN REVISITED

by Chip Anderson

The dollar has bottomed and is beginning to trend higher for the first time in several years. Dropping crude oil prices are pushing gas prices lower at the pump and the dollar is strengthening. That's a combo that should make most consumers feel wealthier in time. Europe's economic woes as well as weakness in other parts of the world is putting pressure on foreign currencies. With the Federal Reserve here in the U.S. on hold - at least for now - the dollar is strengthening on a relative basis to its foreign counterparts. What's good for the greenback is not-so-good for commodities. The Read More 

ChartWatchers

ASCENDING WEDGE IMPLIES CORRECTION IMMINENT

by Chip Anderson

The rally that began off the July lows has not demonstrated the kind of strength we normally expect from the deeply oversold conditions that were present at its beginning. Instead, the meager price advance has served only relieve oversold compression and advance internal indicators to moderately overbought levels. In the process, as the chart shows, the price pattern has morphed into an ascending wedge formation, a bearish formation that usually breaks to the downside. Since we are in a bear market (the primary trend is down), odds of the negative outcome are increased. Read More 

ChartWatchers

GOLD FUTURES - GOOD TIME TO BE A BUYER?

by Chip Anderson

The past month in the commodity markets has been a treacherous as we have seen it in recent years; and not one commodity has been spared. That said, our focus is upon gold futures given they have dropped from a high of $1,033.90 to their current level of $792.10, which is hard upon what we believe is major trend support at the sharply rising 20-month moving average. Quite simply, since, the 2001 breakout above this level - prices have returned to the 20-month on several occasions, and in each and every case this has been the proper time to be a buyer. Thus the question becomes whether Read More 

ChartWatchers

TWO SECTOR LEADERS ARE STAPLES AND HEALTHCARE

by Chip Anderson

Until proven otherwise, the two strongest market sectors are still consumer staples and healthcare. And both are defensive categories. Chart 1 shows the Consumer Staples Select (SPDR) trading at a new eight month high after breaking through its spring high. It's nearing a test of its record high formed last December. Its relative strength ratio (below chart) has been rising since last summer when the market started to peak. Chart 2 shows the Health Care SPDR (XLV) bottoming at the end of June. The XLV has exceeded its spring high and its 200-day moving average. Its relative strength line Read More 

ChartWatchers

"WEATHERING" THE MARKET

by Chip Anderson

When was the last time you saw a 100% accurate weather forecast for your area? Chances are that at least some of the weather predictions your local weather person tells you won't come to pass. In many cases, most of the predictions are wrong. So why do we keep listening to weather forecasts? Weather forecasts are useful because they help us prepare for what is likely. If the forecast calls for rain, we bring our umbrellas with us when we go out. If sunshine is predicted, we bring our sunglasses. We know that we might not need these things, but more than likely we will and we like to be Read More 

ChartWatchers

EARLY BULLISH SIGNS EMERGING?

by Chip Anderson

Spotting tops and bottoms is perhaps the best reason for utilizing technical and sentiment indicators in your investing and trading arsenal. The first signs of a bottom forming can be subtle and I'm beginning to see a few. Consumer discretionary stocks, which have been relative laggards during the market weakness, are showing slight signs of relative strength and on a longer-term weekly chart have printed a long-term positive divergence. Take a look at Chart 1: Given the steep increase in crude oil prices over the first half of 2008, it's surprising that consumer discretionary Read More 

ChartWatchers

IWM AND QQQQ HIT RESISTANCE

by Chip Anderson

The Russell 2000 ETF (IWM) and Nasdaq 100 ETF (QQQQ) were stifled at resistance this week and the bulls are getting a test. After surging above 69, IWM met resistance at broken support and the 62% retracement mark. QQQQ met resistance at 46 in early July and this level held throughout the month. QQQQ shows relative weakness because the July breakout attempts failed. Both ETFs need to break resistance if the broad market rally is to continue. Short-term momentum remains bullish for now. StochRSI is a nifty indicator that applies the Stochastic Oscillator to RSI. Yes, it is an indicator of Read More 

ChartWatchers

RALLY LACKS CONVICTION

by Chip Anderson

The rally that began nearly three weeks ago, out of the jaws of a potential crash, has become rather unimpressive in the last two weeks. As I said in my last article, the rally seemed to be contrived from the beginning, and support for the rally has faded rather than grown, as we normally see in bull market rallies. At this point (about an hour before the close on Friday), the technical chops seem to be lacking for the rally for the market to power upward to the primary declining tops line (in the area of 1375). One of the things that is lacking is volume. As you can see on the chart Read More 

ChartWatchers

QUESTIONS FOR THE FUTURE

by Chip Anderson

This past July-2008 was a very important month for the capital markets; crude oil peaked and traded lower by -11%. This is rather substantial to be sure, and one would be reasonable to believe that the demand/supply equation coupled with a daily technical oversold condition would push crude prices back higher. Perhaps it shall in the short-term, but we fear any and all rallies are going to be sold and sold rather aggressively to push prices towards $100/barrel by the November election. The reason as to the "why and how" it does so is left to the benefit of time. We on the other Read More 

ChartWatchers

ECONOMISTS ARE LATE AS USUAL

by Chip Anderson

In a recent Market Message, I discussed how the stock market is a leading indicator of the economy and why it isn't a good idea to use economic forecasting to trade the stock market. Historically, the market turns down at least six months before the economy. Chart 1 shows the NYSE Advance-Decline Line peaking last June. That suggested a possible recession by December of last year. Chart 2 shows the S&P 500 peaking last October. That puts the odds for a recession somewhere around April of this year. This week's economic reports showed that second quarter growth was below economic Read More 

ChartWatchers

USING KELTNER CHANNELS

by Chip Anderson

Hello Fellow ChartWatchers! Let's start the month of August off right with a good, old-fashioned education article about the modern version of a good, old-fashioned chart overlay, Keltner Channels! Here we go Keltner Channels are a set of three lines that are overlaid on top of the price bars of a chart. As with other channel overlays, the outer two lines define a region that generally "contains" the price action and helps you determine if the prices are "too high" or "too low" relative to a specified moving average. Here is an example: In the chart above, the Read More