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May 2012

ChartWatchers

FOREIGN HEAD AND SHOULDER TOPS?

by John Murphy

What really worries me about the direction of stocks is the possibility that foreign stock indexes could be tracing out two-year "head and shoulder" tops. That's true of both developed and emerging markets. Chart 1 shows EAFE iShares tracing out a textbook "H&S" top. [A head and shoulders top is identified by three peaks with the middle peak (the "head") higher than the two surrounding "shoulders"]. The fact that the two shoulders are about the same height adds to the symmetry of the pattern. The "neckline" is the trendline drawn under the 2010-2011 lows. A decisive violation of that Read More 

ChartWatchers

TREMENDOUS AMOUNT OF RISK IN $INDU

by Richard Rhodes

An important tops looks to be in place in the Dow Industrials ($INDU) by month's end if the current pattern holds true to form. Quite simply, the $INDU is forming a bearish wedge pattern, of which rising trendline support looks to be violated in the months ahead. This probability is higher given the current bearish key monthly reversal to the downside - if it holds up through month's end, and we have no reason to believe it won't given there are only 8-trading sessions remaining. And, this reversal lower is confirmed by the bearish divergence seen in the 9-month RSI. Read More 

ChartWatchers

MOMENTUM IS CREATING OPPORTUNITIES - ON THE BEARISH SIDE

by Tom Bowley

The long-term negative divergences that printed in February and March provided us clues that we'd at least see some near-term trepidation and possibly something much worse.  Well, the "much worse" has arrived.  There is no technical sign - bullish or bearish - that ever provides us a guarantee so a bit of cautious skepticism can go a long way for a trader.  But things have changed and from a risk perspective it's certainly time to consider changing your investing or trading strategy. When a market trends higher and the MACD gives us the "full speed ahead" sign, I tend to be Read More 

ChartWatchers

BULLISH PERCENT INDEX LED MARKETS LOWER

by Chip Anderson

Hello Fellow ChartWatchers! Did you follow the Facebook mania yesterday?  Even if you didn't have a stake in the stock, it was still fascinating to watch the chart over the course of the day as the underwriters had to step in to prop it up.  I've added a snapshot chart of the first day's action (appropriately enough) to our Facebook page.  Click here to check it out (no, you don't need to be a Facebook member to see it). While the mass media has been focused on Facebook, something much more significant happened on Friday with respect to the Dow Theory Read More 

ChartWatchers

DOW THEORY SELL SIGNAL NOW IN FORCE

by Arthur Hill

With big declines this past week, the Dow Industrials and Dow Transports both broke support levels and forged lower lows. Confirmed lower lows amount to a Dow Theory sell signal. The first chart shows the Dow Industrials forming a double top and breaking double top support with a decline below 12700 this week. Broken resistance marks the first potential support level in the 12200 area, which is not far off. The indicator window shows RSI moving below 30 for the first time since early August. While this does suggest an oversold condition, notice that the Dow traded flat in August-September Read More 

ChartWatchers

CORRECTION LOW MAY BE WEEKS AWAY

by Carl Swenlin

The current correction is creating very oversold conditions on intermediate-term indicators, like the ITBM (breadth) and ITVM (volume). While oversold indicators often signal final price lows for a correction, extremely oversold readings are a sign that the price low for the correction probably won't arrive until weeks after the extreme indicator lows. On the chart below I have annotated two very good examples of this process. The red arrows show where indicator lows occurred, and the green arrows show the correction price lows, which arrived several weeks later after prices bounced out Read More 

ChartWatchers

GIVING ANY INDICATOR A SIGNAL LINE

by Chip Anderson

Hello Fellow ChartWatchers! One of the big benefits of becoming a StockCharts member is the ability to access additional charting options.  Today I want to show you how the "Advanced Options" section of the "Indicators" area allows you to add a "Signal Line" to any technical indicator. A Signal Line is a (typically) short-term moving average of an indicator that can be used to create buy or sell signals.  One of the most well-known signal lines is the one that automatically comes with the MACD indicator: The red line on the chart above is the MACD signal Read More 

ChartWatchers

STOCKS INDEXES WEAKEN ON RISING VOLUME

by John Murphy

It looks like traders and investors took the "sell in May" mantra seriously this week. Stocks fell sharply after Friday morning's weak April jobs report was released. The worst performance came in the Power Shares QQQ Trust which led the rest of the market lower. Chart 1 shows the QQQ tumbling 2.5% on Friday on huge trading volume. That's a bad combination. In addition, the QQQ fell well below its 50-day moving average (blue line) and negated the "island reversal" that formed the previous week (see top circle). That puts the April low in jeopardy. A close below that low would initiate a Read More 

ChartWatchers

TIME TO CHERRY PICK

by Tom Bowley

Everything seemed perfectly aligned for the bulls.  In March, slowing momentum on the bulls' side was a growing concern, but the consolidation that took place in the latter part of March and throughout April relieved that concern, so technically it appeared the bulls might resume control of the action.  Take a look at the negative divergences that had become problematic: The slowing momentum was obvious.  But while the short-term looked dicey, the longer-term remained strong.  Here are those same charts, but on a longer-term weekly basis: Read More 

ChartWatchers

Industrials SPDR Traces Out Head-and-Shoulders Reversal

by Arthur Hill

With a gap down and sharp decline, the Industrials SPDR (XLI) formed a lower high and broke wedge support. But that’s not all. The chart below also shows a potential head-and-shoulders pattern taking shape. After hitting a 52-week high in March, the ETF declined all the way back to the early March low in the 35.50 area. This deep dip showed an increase in selling pressure. Also notice the large gap down in early April. XLI was oversold in early April and bounced back to the 37.5 area. This bounce formed a lower high, which shows diminishing buying pressure because the ETF fell short of Read More 

ChartWatchers

SIX-MONTH SEASONALITY TURNS UNFAVORABLE

by Carl Swenlin

May 1 marked the beginning of a 6-month period of unfavorable seasonality. Research published by Yale Hirsch in the Trader's Almanac shows that the market year is broken into two six-month seasonality periods. From May 1 through October 31 seasonality is unfavorable, and the market most often finishes lower than it was at the beginning of the period. The period from November 1 through April 30 is seasonally favorable, and the market most often finishes the period higher. (See Sy Harding's book, Riding the Bear, for an indepth discussion of this subject.) While the statistical average Read More