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September 2008

ChartWatchers

BUY THIS BOTTOM

by Chip Anderson

Market bottoms come in all shapes and sizes, but most have a few key ingredients. Without exception, critical market bottoms are borne out of excessive fear and panic. On Thursday, the VIX shot past 42. The last time we've seen the VIX that high, we were carving out the bottom of the 2000-2002 bear market (Chart 1). The equity only put call ratio touched 1.18 on Monday, signaling panic amongst retail investors. The 5 day moving average of the equity only put call ratio hit .95, exceeded only by the reading of 1.01 on March 17th - that was the day the market also saw a very significant Read More 

ChartWatchers

VOLUME AND VOLITILITY SURGE

by Chip Anderson

Volume and volatility surges foreshadowed bear market rallies in November, January and March. Both surged again this week and the market took notice with a huge bounce over the last two days. The chart below shows the S&P 500 ETF (SPY) with volume and the S&P 500 Volatility Index ($VIX). The blue arrows show volume surges above 400 million shares, while the red arrows show VIX surges above 30. A volume surge after an extended decline reflects a selling climax or capitulation that exhausts selling pressure. Similarly,a VIX surge above 30 reflects excessive bearishness that can lead Read More 

ChartWatchers

FINALLY A BOTTOM?

by Chip Anderson

In my September 5 article I said that I thought is more likely that we would see a continued decline, rather than a retest of the July lows. This week the market blew out the July lows and was very near to crashing on Thursday. Then prices blasted up out of the lows in a dramatic upside reversal. There was good follow through on Friday, and now we must ponder if a significant bottom has been made. With historic levels of fundamental turmoil in the financial markets, and unbelievable volatility in prices, it is extremely difficult to keep a level head and keep focused on technical basics Read More 

ChartWatchers

VIEWING OUR "RISK AVERSION" CHART

by Chip Anderson

We'll admit last week was one of the more "interesting" trading weeks we have seen in a number of years, and if we must liken it to anything we've seen in our 25-years of trading - it would be the week before and of the 1987 Crash. The question we and many others have is whether last week was "The Low" or just "A Low" in the stock market; and to be perfectly frankwe don't know. But perhaps the most important chart in our trading universe at the present time is the simple "tactical allocation" ETF ratio chart between stocks and bonds - we use the S&P 500 Spyder (SPY) and the Lehman Read More 

ChartWatchers

FINANCIALS SURGE

by Chip Anderson

A massive government rescue plan and a temporary ban on short selling has boosted the Financials Sector SPDR by nearly 12% (Chart 1). It's the day's strongest sector on a day when all sectors are in the black. Brokers (not shown) are up 12% and banks nearly a similar amount. Chart 2 shows the PHLX Bank Index trading over its 200-day moving average for the first time in more than a year. If the financials can hold most of those gains through the end of the day, it will be a big positive for them and the rest of the market. Read More 

ChartWatchers

DOLLAR'S RISE CRUSHING COMMODITIES

by Chip Anderson

The U.S. dollar couldn't move lower forever. It had to turn and when it did, we knew things might get ugly for commodities. Since the July 14th low in the dollar index, we've seen the greenback rise over 10% (see Chart 1). That has sent commodity prices reeling. Crude oil prices per barrel have tumbled nearly 30% (Chart 2). Silver is down approximately 37%. Copper is down close to 25%. Gold has fallen about 19%. Commodity-related stocks have been bludgeoned as institutions have been liquidating stocks that the bears simply couldn't touch just a couple of months ago. Read More 

ChartWatchers

MOMENTUM TURNS BEARISH FOR DIA

by Chip Anderson

Stocks opened weak after Friday's employment report, but the bulls found their footing late morning and rallied for a mixed close. While it may seem positive that stocks firmed after bad news, keep in mind that stocks already priced in a lot of bad news with Thursday's sharp decline. Chart 1 shows the Dow Industrials ETF (DIA) firming just below 112.5 and closing with a small gain on Friday. Despite Friday's firmness, the rising wedge break and support break remain in play. One day of firmness is not enough to undo such a sharp decline. Also notice that CCI (20) moved below -100 to turn Read More 

ChartWatchers

BREAKDOWN POINTS TO LOWER PRICES

by Chip Anderson

On August 15 I wrote an article pointing out that an ascending wedge had formed on the S&P 500 chart. I noted that this is a bearish formation, and that the most likely resolution would be a breakdown from the wedge followed by a price correction. The breakdown did in fact occur two days after I made my comments, but the correction did not immediately follow. Instead prices moved sideways for about two weeks before finally breaking down again on Thursday, belatedly fulfilling the expectation of a correction. Now we must ask if this is the beginning of a deeper correction or if it will Read More 

ChartWatchers

MORE S&P 500 DECLINES AHEAD?

by Chip Anderson

The world's temperature gauge for risk is what we refer to as the "carry-trade" indicatoror the Euro/Yen Spread. When this spread is rising, then the world is said to be putting the carry-trade on and expanding risk profiles; conversely, when the spread is fallingthe carry-trade is being taken off and risk is being shunned. We look at this to take the temperature of the capital markets in terms of risk. Right now, the patient is sick, and risk is being shunned, and the technical prospects for the patient indicate further risk aversion and a continuation of the "de-leveraging Read More 

ChartWatchers

FIBONACCI LINES - HOW MUCH IS "TOO MUCH"?

by Chip Anderson

How high is "too high?" How low is "too low?" Think back to any time that you've owned a stock and think about when you started to get worried about it's performance. At what point did "your gut" start to tell you that you needed to sell? Chances are your gut started talking to you after the stock had moved up (or down) by 38.2%. Wow, that's a really specific number - "38.2." It seems kind of arbitrary also. There's no way that could be correct, right? I mean, without knowing anything about the stock you were trading, or the amount of money involved, or the overall market conditions, or Read More