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NET NEW HIGHS WEAKEN BUT REMAIN POSITIVE AND BULLISH OVERALL

Even though the S&P 1500 Index ($EIS) is trading near its spring highs and within a few percent of a 52-week high, Net New Highs have shown less strength since early July and divergences have formed. Keep in mind that less strength is not the same as weakness. New highs are still outpacing new lows, just at a lesser rate. The chart below shows US Net New Highs ($USHL) in the indicator window, the cumulative Net New Highs line in the main window and the S&P 1500 Index. $USHL equals NYSE and Nasdaq new highs less NYSE and Nasdaq new lows. Think of it as new highs and new lows for the market overall. The S&P 1500 Index combines the S&P 500, S&P MidCap 400 and S&P SmallCap 600 into one large index.

120831ushl
Click this image for a live chart.

Net New Highs remain bullish overall, but a bearish divergence is brewing and this should be watched closely. Notice how US Net New Highs peaked near +600 in early July and then formed lower highs. Even though the index is up significantly since early July, Net New Highs have not expanded past +400 since early July. This indicates that participation in the advance is narrowing. Nevertheless, the bulls still have an edge as long as new highs outpace new lows. The cumulative Net New Highs line continues to rise and remains above its 10-day EMA. A break below this moving average would reflect an increase in new lows and turn the indicator bearish.

Have a great Labor Day weekend!
--Arthur Hill CMT

Our New PRO Service Includes Powerful User-Defined Indexes

Hello Fellow ChartWatchers!

Last weekend's ChartCon conference in Seattle was amazing.  Myself and the other newsletter authors met so many terrific people during the event and the feedback that we are getting from the attendees is extremely positive.  Thanks again to everyone that attended!

We made several big announcements at ChartCon, but the biggest had to be the announcement of our new PRO service.  PRO is a new service for members that want to break through the limitations of our Extra and ExtraRT services.  15-second refresh rate too slow for you?  PRO refreshes every 5-seconds.  1500-pixel charts too small?  PRO goes up to 2500-pixels.  Five user-defined alerts not enough?  PRO users can have 50.  Click here for a complete list of PRO's features and how they compare to our other services.

(Just so you know, PRO is not intended for everyone. If Basic or Extra works well for you then please don't feel compelled to upgrade. Only upgrade to PRO if you really need one or more of PRO's features.)

While PRO has a lot of features to talk about, right now I want to focus in on what I think it its most powerful feature: User-Defined Indexes.

A User-Defined Index is a dataset that you create and maintain.  You enter the data - either by hand or via an spreadsheet upload - and then you can chart it and analyze it using our SharpCharts tool.

So, what can you do with a User-Defined Index?  Here's a partial list of ideas:

  • Create and chart your own Bullish Percent Index
  • Create and chart any other sentiment information you can think of (# of CNBC commercials per day anyone?)
  • Upload and chart economic data from the St. Louis Federal Reserve
  • Upload and chart any of the datasets from websites like Wikiposit.org
  • Calculate your own technical indicator using Excel formulas and chart the results
  • Eliminate "bad" datapoints from our regular data and chart your corrected version
  • and much, much, much, much more...

Are you starting to get excited?  Before we get too much farther however, I do need to mention that there are some limitations for User-Defined Indexes:

  • Right now, only PRO users can create and use them.  That may change in a year or so after we've made sure that our systems can handle their performance impact. 

    UPDATE: PRO, ExtraRT and Extra members can now create various kinds of User-Defined Indexes.
  • Initially, PRO users can only use one single User-Defined index.  (They can re-use it as often as they want however.)  We plan on allowing PRO users to create several additional indexes at some point in the next couple of months. 

    UPDATE: PRO Users can create up to 30 User-Defined Indexes.  ExtraRT and Extra members can only create one.
  • PRO users can access their data via the special @MYINDEX ticker symbol.  In the future, we will allow PRO users to specify their own ticker symbol and description for their indexes. 

    UPDATE: PRO Users can give their indexes any ticker symbol they want (as long as it starts with "@").  ExtraRT and Extra members can only have one index named "@MYINDEX."
  • User-Defined indexes can only store daily, weekly, monthly, quarterly or yearly data.  They cannot store intraday data.
  • Currently, user-defined indexes cannot be shared with others.  We hope to be able to remove that restriction for PRO users in the next couple of months.  For now however, they cannot be emailed, tweeted, bookmarked, or even added to a Public ChartList.  Any data that you add to your user-defined index will only be visible to you. 

    UPDATE: PRO members can choose to make any of their User-Defined Indexes shareable so that they can be seen by others.  They can also keep their indexes private if they do not want other people to see their data.  ExtraRT and Extra members cannot share their index data with others.

OK, enough with all the legal-sounding limitations.  Let's see these things in action!

Charting the Quarterly Rate of Change for the US GDP

The St. Louis Federal Reserve maintains a treasure trove of free economic and financial data on its "FRED" website.  Click here to see for yourself.  Included on that site is the quarterly data for the US GDP going back to 1947.  To download that data, go to the FRED website and click on "Real GDP" in the middle of the page, then click on the "Download Data" link that appears on the left side of the page.  Finally, select "Text, Comma Separated" as the "File Format" and click the "Download Data" button to store the CSV file of that data on your computer's hard disk.

Next, assuming you are a PRO member, you'd go to the Member's homepage and click on the "User Defined Indexes" link at the bottom of the "PRO Control Center" part of the page.  If you already had some data in your index, you'd need to clear it out by clicking the "Delete All Data" link.  (This assumes that you have a copy of your old index data stored on your hard disk.)  Then you'd click the "Upload Spreadsheet Data" button, select the CSV file you just downloaded from FRED, and click "Upload".  Finally, if the upload was successful you can click on the "View Chart" link to see @MYINDEX in all of it's glory!

MYINDEXOne

Hmmm...  That doesn't look too impressive does it?  See if you can spot the problem before reading the next paragraph.

The problem is that this is a daily chart however the GDP data from FRED is quarterly data.  (If you spotted that on your own then good for you!)  Let's change the chart settings to Quarterly (another PRO-only feature by the way) and remove all of the default indicators and overlays since we won't be needing them.  We'll also change the chart's Type to "Area", the color to green, and lower the Opacity a smidge to make things look better.  And voila!

MYINDEXTwo

There's a GDP chart going back to 1980! Terrific! But wait a second. FRED gave us data going all the way back to 1947.  To see all of that data, we need to change the "Bar" setting in the "Range" area of the chart from 5 to 1.  That will allow SharpCharts to squeeze that extra data onto the left side of our chart.  (We also need to turn off log scaling.)  Here's the result:

MYINDEXThree

Wow, a chart going back to 1947 - that's also a new PRO feature.  Basic and Extra charts can only go back to 1980.

So now, let's add the Rate of Change (ROC) indicator to this chart to see the quarter-to-quarter fluxuations in the GDP. We'll choose "Rate of Change (ROC)" from the Indicator dropdown below the chart and we'll use "2" as the parameter so that we get the quarter-to-quarter change.  Finally, we can choose "Behind Price" for the position so that it is overlaid on top of the GDP plot.  Here's the final result:

MYINDEXFour

Pretty cool huh?  (Check out the dates where the ROC line dips below its dashed zero line.)  We could use any other technical indicators or overlays that we want to in order to further analyze this data.  We could annotate it, store it in a ChartList, and even compare it to $INDU, $SPX or any other ticker symbol.  Powerful stuff!

Finally, keep in mind that I can do the same thing with ANY time-series data that I can somehow get into a CSV file - i.e., anything that I can get into Excel.  I don't know about you, but my mind is still boggling over that.

For more on all the new features we've been introducing over the past week, be sure to read the recent articles in the "Chip Anderson" area of our Blogs section.  I'll be posting more examples of things you can do with User-Defined Indexes in that area in the coming days so check back often.

- Chip

P.S. If you are interested in upgrading to PRO (or seeing how much that would cost), click on the "Your Account" link in the upper right corner of any of our webpages.

COMBINING FUNDAMENTALS AND TECHNICALS TO PRODUCE SUPERIOR RESULTS

First, let me say that it was AWESOME meeting so many of you at Chartcon 2012 in Seattle last week.  It was also great to finally meet several of the co-authors of ChartWatchers.  I've been to a LOT of trading conferences and this one surpassed all of the others on so many levels.  If you weren't able to make it, please mark your calendar for August 2013 in the event that Chip decides to host the ChartCon 2013.  ChartCon 2012 was truly outstanding.

My background is in public accounting and while my first choice is always to believe the technicals, it's difficult to stray from solid fundamentals.  Accordingly, each quarter I search through hundreds of earnings reports and charts to find that rare combination of "out of the park" earnings results and just the right amount of uncontrollable buying interest.  Generally speaking, here's my formula:

Beat on revenues, beat on EPS, raise guidance and print a marubozu candle (or at least a very strong candle) on MASSIVE volume.

Ok, so you might be asking what is a "marubozu" candle?  A bullish marubozu candle shows buying interest the entire trading day.  There are either no tails (shadows) or very small tails on the candle.  It opens with a gap up and the buying interest never slows, trending higher all session long and finishing at or very near its high of the day.  Normally, gaps get filled.  As everyone jumps on board at the opening bell, market makers provide liquidity and complete the other side of the trade.  This explains why so many gaps fill.  Market makers generally make their money one way or the other.  But a marubozu candle in essence paints a picture of unrelenting demand - even after a HUGE gap up.  Even the market makers can't slow demand.

In the last two quarters, I've been able to find a couple stocks where demand swamps supply and I'll highlight them both below:

First, check out Multimedia Games (MGAM):

MGAM 8.18.12

Next, take a look at Mellanox Technologies (MLNX):

MLNX 8.18.12

There are differences in how the two traded shortly after their blowout earnings reports, but ultimately both stocks soared much, much higher.  Identifying these stocks when "game-changing" candles print can make a big difference in your trading success.

Unfortunately, marubozu candles are not particularly common.  But I do still look for gaps to the upside after solid earnings where momentum continues on the long side after the gap higher.  I have one such stock that appears poised to me to move much higher over the next quarter.  For more details, CLICK HERE.

STOCKS ABOVE 200-EMA INDEX SHOWS ERODING SUPPORT

When a stock is above its 200-EMA, it is considered bullish, and in the broadest sense the stock can be considered to be in a long-term rising trend. A good way to determine the amount of support behind a rally is to analyze the percentage of stocks above their 200-EMA. 

Decision Point keeps track of this percentage for the S&P 500 Index, and it indicates that there are fewer stocks pushing the SPX to the current highs than there were at the April highs. Also, we can see that the percentage in April was lower than it was at the 2011 highs.

6a0120a65d6eb8970b0177442c44c4970d-800wi

Taking 2011 by itself, we can see the rapidly erroding percentage at the July 2011 tops just before the sharp decline in July and August.

Of course, we must note that as of this writing both price and the indicator are making new highs since the June bottom, so it is possible for the appearance of weakness to be remedied if the rally continues.

Conclusion: The percentage of stocks above their 200-EMA shows fewer stocks participating in the advance than there were at the 2011 top and the March 2012 top. This is not a healthy condition, and will probably result in a correction fairly soon; however, the market needs to stop going up before it can go down.

We've Released 36 Major Improvements So Far This Month

FEATURES WE'VE ADDED SO FAR THIS MONTH:

The features at the end of the list with stars by their names are the key features of our new PRO service level.

So, by my (somewhat generous) count, that works out to 8+5+5+18 = 36 new features released in the last half-month.  Oh, and did we mention that we also held our annual conference during that same time?  (Click here for conference news and pictures.)

Phew!  We're going on vacation!  (Not really, sigh...)

Large-caps Lead as S&P 100 Records 52-week High

Large-caps continue to lead the market as the S&P 100 ($OEX) recorded a 52-week high this week. Thus far, the S&P 100 is the only major index to reach this milestone. The Nasdaq, Russell 2000, S&P 500 and Dow Industrials remain shy of their spring highs. This means the S&P 100 is leading the market and large-caps are showing relative strength. Even though $OEX may be short-term overbought, this fresh 52-week high confirms that this key index remains in an uptrend.

120817oex1
120817oex2
Click this image for a live chart.

The PerfChart shows the three month percentage change for six major indices: the S&P 100, S&P 500, S&P MidCap 400, S&P SmallCap 600, Nasdaq and Dow Industrials.  $OEX shows the biggest gain over this timeframe (+9.35%), but the Nasdaq is not far behind with a 9.34% gain. Techs and large-caps are clearly the leaders. $MID, which represents mid-caps, shows the smallest gain, which means it is underperforming. $INDU is also underperforming with the second smallest gain.

Good trading,
Arthur Hill CMT

IT'S THE BIGGEST WEEK FOR NEW FEATURES IN STOCKCHARTS' HISTORY!

Hello Fellow ChartWatchers!

Today I'm happy to announce that we've started rolling out several important new features for our SharpCharts charting tool.  These new features include more choices for bar periods and an improved version of our interactive "Inspector" tool.

I'm even more pleased to announce that this is just the beginning of the big announcements for this upcoming week.  Of course, at the end of the week we are holding our annual "ChartCon" conference here in Seattle.  In addition to being a great event for everyone that attends, ChartCon provides us with a unique opportunity to annouce and demonstrate new features to a live audience of great StockCharts users.

So in preparation for ChartCon, we've been working hard to complete a long list of significant improvements to the website.

The first couple of changes happened last week when we released several new and updated color schemes for SharpCharts including our newest scheme called "Solar."

Next, we added a 2 year option to our subscription plans.  These non-refundable 2-year plans drop the "per-month" cost of our service even lower by including 3(!) additional months for free.  So if you use our 2-year plan for our ExtraRT service, you'll save $213.55 over the month-by-month cost.  Basic members can save $103.70 via the 2-year option.

Yesterday, we added three new time period choices to SharpCharts for our members.  In addition to the nine period choices thay are used to, members can now create charts with 2-minute, 3-minute, and 2-hour bars. Here's an example of a 2-hour Solar chart for Facebook going back to its IPO:

Fb

(Click the chart for a live version.)

On Monday, we plan on officially releasing a new blog called "The Best of s.c.a.n." which will contain edited "Question and Answer" articles from the "StockCharts Answer Network," our user-to-user help forum.  We've combed through all of the great information on s.c.a.n. and we have selected some of the best, most informative articles that everyone should read as entries in this new blog.  Again, watch for its official debut on Monday.

Now, who would like some new indicators?  Well, we have 8 powerful new indicators headed your way.  They should arrive by Tuesday and will be available free of charge to everyone.  They are:

  • Coppock Curve
  • Ease of Movement (EMV)
  • Know Sure Thing (KST)
  • Mass Index
  • Negative Volume Index (NVI)
  • True Strength Index (TSI)
  • Ulcer Index
  • Vortex Indicator

It will take us some time to get the ChartSchool articles for these indicators created.  In the mean time, you can learn more about them in Wikipedia.  Again, look for them to appear on Tuesday.

What's up for the rest of the week?  How about parabolas and rotating, translucent shapes in our ChartNotes tool?  How about having the workbench colors match the colors on your chart?  How about technical alerts?  How about the ability to create your very own index?  And how about a whole new service level that shatters all of the limitations of our current system?

All I can say right now is "Stay tuned!"  This will be - by far - the BIGGEST week ever for StockCharts.com in terms of new announcements.

- Chip

P.S. If you live in the Seattle area and want to become a better chartist, there are still some seats available for ChartCon 2012 because of some last-minute cancellations.  So, despite what it says on the website, we can still get you in if you want to sign up.  ChartCon will be this Friday and Saturday in downtown Seattle.  Click here for more info.

WORLD STOCK INDEX PEAKED IN 2011

One of my previous messages showed a rotation out of small cap stocks into mega-caps in the middle of 2011 which continues to this day. That suggests that investors have been growing increasingly defensive over the last year.  The chart below provides graphic evidence that global stocks may have actually peaked last year as well. It shows the Vanguard Total World Index (VT) since 2009. [The VT includes stocks from all over the world in both developed and emerging markets. It has a surprisingly large weight to North America (51%). Europe accounts for 22%, emerging markets 13%, and the Pacific region 12%. The chart shows a major uptrend line being broken last summer (red circle). The VT has since formed a pattern of lower peaks (red trendline). Although the U.S. stock market has held up better than other global stocks, it too is influenced by global trends. This chart isn't encouraging.

20120802007-sc

152 TOP 10 BLUE CHIP INDEX SHOWS UNHEALTHY MARKET

Decision Point publishes a daily Tracker report of our 152 Blue Chip list. This list is composed of the stocks in the S&P 100 Index, the Dow 65, and some large-cap Nasdaq stocks. We also track the Top 10 stocks in ths list, ranked by relative strength measured by Decision Point's proprietary PMO (Price Momentum Oscillator).

I have observed this list over a long period of time, and my impression has been that the top stocks do exceptionally well during a bull market, and extremely poorly in a bear market; however, I wanted to develop a more objective way to measuring the performance of these top stocks.

To do this I constructed a "Blue Chip Top 10 Index". This is done by calculating the daily change of the Index as being the daily average percent change of the securities in the Blue Chip Top 10 list. Stocks are tracked from the day after they enter the Top 10 list through the day they drop off the list.

The Top 10 Index is equally weighted, so theoretically one could only replicate the performance of the list with real money by reallocating an equal amount to each stock each day (and somehow avoid transaction fees in the process). More to the point, the Top 10 list are a good place to look for securities that will out-perform the market, but it will be impossible for you to duplicate the Index. You could also lose a ton of money if you are long these top ranked securities during an extended market decline.

The primary purpose of the 152 Top 10 Index (BC Top 10) is to how see well these top ranked large-cap stocks are doing in relation to the broader market. Specifically, in a bull market or extended rally we expect the Index to out-perform the broad market. This is because, when stocks reach the top of the list, they tend to stay on top due to persistent upward momentum. This is a healthy condition. In an unhealthy market, stocks tend to rotate through the Top 10 rather quickly, and the performance of the index poor in relation to the broad market.

Comparing three-year charts of the SPX and BC Top 10 Indexes we can see that the Top 10 have been underperforming for the entire time. Since the June low the BC Top 10 has advance only 5.9% versus 9.5% for the SPX. And while the SPX has been trending up for the period shown, the BC Top 10 has been trending down since the February 2011 top.

6a0120a65d6eb8970b017743e2ec2c970d-800wi

Conclusion: In spite of upward movement of the SPX, the Blue Chip Top 10 Index tells us that the leadership of the market has been rotating too rapidly, which suggests confusion and weakness. By the time a stock reaches the Top 10, it loses momentum and drops right back out again. This is evidence that for a long time the internal condition of the market has been turbulent and confusing, in spite of generally rising market prices.

AGGRESSIVE INDICES AND SECTORS FLASHING A WARNING?

Any time the S&P 500 moves to fresh new highs, I try to determine the likelihood that the move is a sustainable one.  Traders need to be in the right mindset to carry prices further.  They need to be aggressive in terms of where they place their trading dollars.  If sector leadership comes from financials, technology, industrials and consumer discretionary, it's a sign that it's a risk-on environment, which generally is quite bullish.  But as we saw in May 2011, it's never a good sign to break out with defensive areas of the market leading the way.  In my opinion, market participants are not "committed" if they're only willing to invest in defensive groups.
 
The Russell 2000 is one of the more aggressive areas of equities to invest in.  Take a look at how this group is lagging on an absolute and relative basis:

RUT vs. SPX 8.4.12

From a longer-term perspective, you can see the S&P 500 broke out in the first quarter of 2012 above the 2011 highs, but note the Russell 2000 never made that same breakout.  Therefore, the bottom chart shows the relative performance of the Russell 2000 to be abysmal.  On a shorter-term basis, the S&P 500 and Russell 2000 are going in nearly opposite directions with the S&P 500 climbing and the Russell 2000 weakening.  What gives?
 
The other problem is that defensive groups are leading this rally to the upside on the S&P 500.  The last time we saw this scenario in April/May 2011, it preceded a significant drop in our major indices.  Check out this chart:

SPX vs. Defensive 8.4.12

It's very unusual to see the relative strength of defensive sectors moving in the same direction as the S&P 500.  If you study a chart like this over time, you'll see there is almost always a direct NEGATIVE correlation between the two.  When they're both rising, we MUST take note.  Will this again mark a top?  It's hard to say.  I remain bullish and believe we'll see another leg higher into the end of 2012 or early 2013, but short-term it's dicey with this type of relative leadership, especially since we're in the historically weak August-September period.  Stay on your toes!
 
Listen, even in uncertain markets like the one we're in now, there are trading opportunities.  We just need to make sure we monitor the reward to risk on every trade and keep our stops in place to minimize losses.  One nice reward to risk trade (long-term positive divergence) to consider is featured as our Chart of the Day for Monday, August 6th.  CLICK HERE for more details.
 
Happy trading!

ENJOY S&P 500 RALLY WHILE IT LASTS

For now, the S&P 500 is rallying in a manner that is abrupt to say the least - several days higher, then several days lower, and then repeat. This, coupled with the European fiasco has caused investor/trader sentiment to become rather archly bearish; and therefore the short-term trend appears to be higher towards the all-time highs around the 1500 zone. Certainly the 160-week moving average defines the trend higher as it is rising; but also the 80-week exponential moving average was recent tested and held. Resistance stands at upper wedge resistance and the previous highs at 1500 - and odds are that it shall be tested sometime this fall.

Spx 8-4-12

However, make no mistake about it - the highs shall prove their merit, with the pattern very similar to that of the 1970's. So, enjoy the rally while it lasts - there will be a short entry point sooner rather than later.

Good luck and good trading,
Richard

WHAT IS THE PRICE OF CRUDE TELLING US?

On Thursday August 2, $WTIC crude made an interesting turn.

SharpChartv05.ServletDriver
Currently crude is in a downtrend denoted by the red line.
We have started August creating a downward column of O's. The Red 8 shows the first box in August with a move of at least $3.

You can see that since June (The red 6), we were stuck in a range into July. In July (Red 7) Crude was able to push above $87. It then pulled back, roared to $93 and has since settled back to sit just around the previous support / resistance level built in June.

Upside: If Oil can rally from this level, it would be very bullish. A push through to $93 would break the downtrend line. Looking left, $93 and $94 have been resistance. A push through there would probably allow oil to surge to $102.

Downside: If Oil goes through $86, it is bearish. A break through $84 would be a bigger warning as the price has spent a lot of time there (9 X's and O's) and should have more support. Obviously the 3 O's at $82 are a significant level. We are currently in a downtrend as indicated by the red line. The $76, $77,$78 level is the major floor for this market. The last 3 years, August has been a weak month where oil pulls back and then surges into the September, October months.

Watch crude closely for hints on a major economic trend. The big picture on the chart above is higher highs and higher lows. We are just in the trading range now.

Good Trading,
Greg Schnell, CMT

IWM Bounces off 200-day and Tests Channel Resistance

Stocks turned a negative week into a positive week with a sharp advance on Friday. The S&P 500 ETF, Dow Industrials SPDR and Nasdaq 100 ETF recouped their early week losses and exceeded their July highs. The Russell 2000 ETF (IWM) and S&P MidCap 400 SPDR (MDY), however, recovered a portion of their early week losses and have yet to exceed their mid July highs. In other words, these two remain short of breakouts and have yet to confirm strength in the other three. For now, three of the five are in clear uptrends and the bulls have the edge. I will be watching IWM and MDY to see if they can break resistance and join the rally. Relative weakness in both is casting a shadow on this bull run. The details are on the charts below.

120804iwm
Click this image for a live chart

120804mdy
Click this image for a live chart.

Good trading!
Arthur Hill CMT

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