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February 2011

ChartWatchers

EMERGING MARKETS ARE 2011 LAGGARDS

by John Murphy

I'm not a believer in global decoupling. On the contrary, I believe that global stock markets are highly correlated and usually trend in the same direction. That's especially true of the relationship between emerging and developed markets. Chart 1 shows a strong correlation between emerging markets (black line) and the Dow Jones World Index of developed markets (blue line). The main point is that these global markets usually rise and fall together. The chart also shows that emerging markets have risen a lot faster than developed markets since the 2009 bottom. In fact, emerging markets Read More 

ChartWatchers

RICHARD ON HIATUS

by Richard Rhodes

Richard Rhodes is on hiatus this week.  His article will return in the next issue of ChartWatchers. Read More 

ChartWatchers

INSURING A SOLID RETURN

by Tom Bowley

One thing that's been quite apparent to me over the past several months is that money is not leaving the equity market.  When one sector or industry group sells off, the money simply rotates elsewhere.  Then rinse and repeat.  This is truly a trader's dream because there are almost always opportunities to find low risk, high reward plays.  It's as simple as using the StockCharts scan engine to find stocks in patterns that afford us great opportunities. I like to take a top down approach.  I first look at the overall market and the indicators I use to Read More 

ChartWatchers

S&P 500 NEW HIGHS

by Carl Swenlin

The daily number of New Highs and New Lows (NHNL) refers to stocks reaching their highest or lowest price during the most recent 52-week period. Below is a NHNL chart for the stocks that compose the S&P 500 Index, and we can learn a few things from it. First, we can see that the main problem is that new highs are contracting as prices move higher. This is a negative divergence and is also almost certain to be a setup for a price decline. Another feature on this chart is that the new high structure for this bull market is much more massive than at any time during the 2002-2007 bull Read More 

ChartWatchers

AGRICULTURAL COMMODITIES LEAD BROAD COMMODITY RALLY

by Arthur Hill

Except for natural gas, most major commodities and commodity groups are up sharply over the last 6-8 months. Stockcharts.com provides a broad range of Dow Jones-UBS commodity related indices. The PerfChart below shows seven commodity related indices and the 20+ year Bond ETF (TLT). Five represent major commodity groups. The DJ-UBS Commodity Index ($DJAIGT) represents commodities as a whole and the DJ-UBS Petroleum Index represents the oil complex (crude, gasoline, heating oil). So-called “softs” and agriculture are leading the way higher. Softs consist of sugar, coffee and cotton Read More 

ChartWatchers

THE TECHNICAL PROCESS - IT'S ALL ABOUT TRUST

by Chip Anderson

Hello Fellow ChartWatchers! As I travel around the country talking to various investment groups, I always make a point to remind everyone about the what I call "The Technical Process" - the steps that every investor goes through before taking a position in a stock.  Some people get so caught up in the details of this process that they lose track of the "big picture" so I created this diagram to help re-focus people: The goal of any serious investor is to continually develop a set of signals that they trust and then use prudent money-management techniques to limit losses and profit Read More 

ChartWatchers

GOLD STOCKS BOUNCE OFF 200-DAY LINE

by John Murphy

My Tuesday message showed the Market Vectors Gold Miners ETF (GDX) testing long-term support at its 200-day moving average, and suggested watching it closely for signs of an upturn. Today's strong rally in precious metals assets may be the start of that upturn. Chart 1 shows the GDX surging more than 2% today and clearing its 20-day moving average (green line) for the first time this year. In addition, its 14-day RSI line (top of chart) has turned back up. The daily MACD histogram (below chart) has also turned positive (see circle) for the first time in two months. In my view, those signs Read More 

ChartWatchers

EMERGING MARKETS SHOWING WEAKNESS

by Richard Rhodes

While the US markets power towards higher highs – although in a weak manner we might add, we’ve begun to see outflows of funds from the Emerging Markets. Ostensibly, this is due in large part to the Egypt uprising, but there are other issues the emerging markets are facing such rising inflationary pressures and rising food prices. Many believe these circumstances to be transitory; but perhaps they shall be with us longer than anyone anticipates, and the impact upon the emerging market stock markets should not be dismissed so easily. To this end, we find it instructive to look at the Read More 

ChartWatchers

POSITION SIZING AND HIGH REWARD TO RISK SETUPS ARE CRITICAL

by Tom Bowley

Attempting to short this market prior to any significant breakdown is the equivalent of financial suicide.  Taking profits occasionally, moving into cash, and awaiting entry on a new position is fine.  But shorting this uptrend with hopes of a big reversal just makes no sense.  Since January 27th, take a look at the poor economic/geopolitical news that's surfaced: (1) durable goods orders missed by 4 percentage points (mostly due to transports(2) preliminary 4th quarter GDP came up short, 3.2% actual vs. 3.7% estimates(3) personal income came in a tad light(4) Read More 

ChartWatchers

EQUAL-WEIGHT INDEXES STILL LEADING

by Carl Swenlin

(This is an excerpt from Monday's blog for Decision Point subscribers.)  One of the things I constantly flog in this blog is that equal-weight indexes usually perform better than cap-weighted indexes. The reason they perform better is that smaller-cap stocks normally perform better than large-cap stocks, and the smaller-cap stocks carry a heaver weighting in equal-weight indexes, thereby enhancing performance. Here is an excerpt from yesterday's Decision Point Alert Daily Report. In the bottom section we track 27 indexes, 22 of which are pairs of cap-weight/equal-weight indexes Read More 

ChartWatchers

PERCENT OF $SPX STOCKS ABOVE 50-DAY REMAINS BULLISH

by Arthur Hill

The S&P 500 %Above 50-day SMA ($SPXA50R) indicator is a breath gauge that measures the degree of participation. In this instance, the indicator tells us the percentage of S&P 500 stocks that are above their 50-day SMAs. In general, a bullish bias exists when more than 50% are above their 50-day SMAs and a bearish bias otherwise (<50%). Using the 50% line to signal shifts can result in whipsaws so it is often helpful to apply a filter. For example, a bullish threshold could be set just above 50% (55%) and a bearish threshold could be set just below (45%). Even though this filter Read More