ChartWatchers Newsletter Blog Archives

October 2012

Announcing a Significant Expansion to StockCharts University

Hello Fellow ChartWatchers!

Long-time ChartWatchers know that from the very beginning, has been about the synergy of three things: Great online finanical analysis tools, Great educational content, and Great market commentary that brings it all together.  Today, I'm happy to announce a significant expansion to our StockCharts University (SCU) seminar series that will bolster our educational efforts tremendously.

At this point, we've held three seminars with our initial SCU class - "Using Successfully" - and all of them were very positively reviewed by the people that attended.  Our latest event - in New York last week - was our most successful yet.  Based on that success, we have designed a complete set of SCU courses that can help everyone regardless of their experience level.  Here's what it looks like:


The chart above shows how each class builds upon the previous one, increasing both your knowledge of the tools as well as your ability to use technical analysis successfully in your investing.  The 100 level classes give you a core understanding of how to use, the 200 level classes classes focus on increasing your knowledge of technical trading, and the 300 level classes help you master specific, high value skills.

We will be giving these classes on a regular basis at locations throughout the US and Canada.  Currently, we have the 101 class scheduled for Dallas, Orlando, and Calgary.  We expect have additional classes in Los Angeles, Seattle, New York and Toronto later in 2013.

In addition to giving you the training you need to be successful, these classes are a great value because they include 3 months of our Extra service, the latest eBook from Alexander Elder, a DVD of the SCU 100 class ("Foundations of Technical Investing"), a StockCharts flash drive, and more.  You also get to talk directly with the instructor about any issue you are having with the website.

Currently, I'm personally teaching the 101 classes,  Over time the plan is for Greg Schnell - the author of our Canadian Technician blog - to teach the 100 level classes so I can present the 200 level classes.  In addition, through the magic of the Internet, John Murphy makes a "virtual" appearance at these classes whenever possible.

You can learn more about our upcoming seminars - including the very special one Greg Schnell is giving in Calgary - by clicking here.

On a personal note, I'd love to see you at one of these events so we can meet and talk about how you can use to its full potential.  I hope to see you soon.

I'll conclude with a quote from Dave K. after he attended our SCU 101 class in New York last week:

"I've been using Stockcharts for a couple of years and wanted to see its full range of capabilities. The Stockscharts University seminar was perfect for this, and the material was presented in a cogent and interesting way. Back on the desk I immediately began using new functions I learned and I'm sure it will improve my trading decisions. All in all a day very well spent, and highly recommended."

Thanks Dave!  Again, click here for more information on SCU.
- Chip

The Loonie Heads South for the Snowbird Season

Given the current chart for the Canadian Dollar, migrating snowbirds might want to exchange some loonies for some sawbucks very soon.  The Canadian Dollar continues to hit resistance above the $1.02 level.  It had a rough week chart-wise, forming a big red bar on the Elder Impulse System chart.

On the other hand, the US Dollar is strengthening, breaking to the upside compared to the Yen ($XJY), the British Pound ($XBP), the Euro ($XEU), and the Loonie ($CDW).

$CDW 20121019

Commodities have a rough time whenever $USD is strong which is one reason that Gold behaved poorly on Friday.  Even so, mining stocks held up well.  We'll see if that remains true next week.

Good Trading,
Greg Schnell, CMT

Travelers ($TRV) Leads Insurance Group Higher

Insurance stocks are attracting a lot of new money into a reviving financial sector. Chart 1 shows the Dow Jones US Property & Casualty Insurance Index surging to the highest level in five years. Its relative strength line (below chart) is starting to break out to the upside. The main catalyst behind today's buying is coming from Travelers. Chart 2 shows Travelers (TRV) surging to a new record high. New records are also being hit by Ace and Chubb. As good as their performance is, many investors may shy away from buying them because they've already had a strong run. Fortunately, there's another insurance group that's starting to attract new money, but looks a lot cheaper.



Financials and Technology Stocks Diverging

October has been a very strange month thus far.  While most of our sectors are trading close to the flat line for the month, financials and technology are heading in opposite directions.  I can't recall a two week period where the returns of these two influential sectors diverged by 8%, especially where one is performing with solid relative strength while the other completely falls apart.  Take a look at this chart:
XLF 10.20.12

Could these two sectors be any more opposite one another?  These are both "risk on" sectors, so they tend to head in the same direction.  After just a couple weeks of earnings season, it appears as though banks are producing much better quarterly results and are being handsomely rewarded for it.  I love to see relative outperformance by financials in general and banks more specifically.  Having spent a portion of my career auditing banks, I know firsthand that expanding profits in the banking sector ultimately leads to more credit availability.  Credit is a key driver to growth in other sectors and industries.
I'm a student of history.  Normally, when the financial sector performs as well as or better than the S&P 500, equity prices overall rise.  That seems evident to me when looking at the following chart:

$SPX 10.20.12

The green shaded areas represent periods of time when the Bank index ($BKX) is outperforming the S&P 500.  Rarely do we see the market decline during such periods.  As you can see from the above chart, the relative strength of banks is moving higher and the outperformance of financials these past two weeks should be thought of as a bullish sign.  That doesn't mean we won't see additional short-term selling, however.  In fact, the upcoming week is the most bearish week of the year historically, dating back to 1950 on the S&P 500.  We don't see lower prices every year, but some of our worst weekly declines have occurred during this week.  My reasoning?  By the time 3rd quarter earnings come out, you can't keep making excuses as the year is running out.  All the dirty laundry comes out for all to see.  We finished last week on a VERY rough note and much of it was due to earnings (or lack thereof).  A huge number of earnings will be released in the week ahead, so unless a major change takes place, we could see more of the same in terms of selling.
History does tend to repeat itself in the stock market and there are several historical rules I live by as a trader.  I'll be discussing them in a webinar on Tuesday, October 23, 2012.  If interested, CLICK HERE for more details.
Thomas J. Bowley
Chief Market Strategist
Invested Central

Lessons from the 1987 Crash

It has been 25 years since the 1987 Crash, and I thought it would be a good time review a few things that probably won't be covered elsewhere in the media. I may have covered these issues in the past, but a refresher can't hurt.

One thing that some analysts like to do is to note the similarity of past price patterns to current price patterns, implying that the current pattern will resolve similarly to the historical example. In 1987 we have an example of how dangerous such assumptions can be.

On the chart below I have circled two price patterns that are remarkably similar. Each has a double top, then a double bottom, then a rally out of the double bottom, which fails, then a pullback to the support level. At that point what follows is radically different. In example #1 prices rally to new, all-time highs. In example #2 prices dive into one of the worst crashes in history. Lesson: Just because history rhymes doesn't mean that the ending will be the same.


Next, one might ask if there were any technical warnings? For the answer, let's look at a chart of our Intermediate-Term Breadth and Volume Momentum Oscillators (ITBM and ITVM). On the price line there is a top in August 1987 that is higher than the previous top in June. Corresponding tops on the ITBM and ITVM show a negative divergence, a bearish indication.

A more serious negative signal occurs at the final top in October before the crash, when the ITBM and ITVM both top below the zero line (see arrows).


To be fair, in hindsight the signs are always obvious, and there is a lot of ambiguity in real time. Nevertheless, negative indicator signs viewed in the context of the final breakdown of price below support just before the crash is pretty strong evidence, and there was adequate warning to take action.

Technology Buyers Beware...

Last's week's early market rally seemingly disavowed all the bad news; which is of course what this market has been doing since the summer. However, we may be premature - but we are certain the market is changing its stripes from focusing upon "benefits" and tail-wind of QE-3; and focusing more upon the poor earnings and revenue reports coming out of corporate America. Quite simply, the European and Chinese slowdowns were bound to have an impact upon US stock prices; it was only a question of "when" within the context of an increase in monetary liquidity. Note the Google (GOOG) debacle this week; note the poorly received Microsoft (MSFT) figures - and one gets the sense that Technology in general has already made its bull market highs and lower lows lie ahead.

Sp tech 10-19-12

To that end, we've provided a monthly chart of the S&P Technology Sector, which is a longer-term outlook of where we have been, and the critical resistance/support levels that are in play. First, note the bearish rising wedge off the 2009 lows, which failed into overhead trendline resistance from an amalgamation of highs and lows. This seems to be rather important, for prices aren't likely to breakout above the highs forged in September. And if that is the case, then we must be worried about rising trendline support off the 2009/2011 lows...and prices are hard upon it. Further weakness will break this important support level, which would put the 33-month moving average in play at 415 as well the 100-month moving average at 359...a full 20%+ below current levels.

Therefore, technology buyers beware...there are lower prices upon which we'll be able to be comfortable buyers...but not here and not now.

Good luck and good trading,

XLY and XLI Set Up Key Support Tests

Weakness in the technology sector has been offset by strength in the finance sector since early September. This is why the S&P 500 is range bound the last five weeks and the Nasdaq is in a downtrend. With these two sectors cancelling each other out, chartists must turn to another sector to break the deadlock. My vote goes to the consumer discretionary sector because it is the most economically sensitive sector. One could also consider the industrials sector because it supplies companies with capital-intensive goods and services needed for their operations. Both sectors are clearly important to the economy and the broader market.

Click this image for a live chart.

The first chart shows the Industrials SPDR (XLI) in an uptrend since June. Even though XLI did not take out its spring high, it has yet to break consolidation support. XLI established support with the last two troughs and the June trend line. Look for a break below this level to reverse the uptrend. The indicator window shows the Percent Price Oscillator (PPO) moving lower the last two months, but remaining in positive territory. The trend line breaks act as early warning signals. Note, however, that it takes a centerline cross (zero) to fully reverse momentum.

Click this image for a live chart.

The second chart shows the Consumer Discretionary SPDR (XLY) breaking resistance from the May high and broken resistance turning into support the last few weeks. XLY declined sharply two weeks ago, but ultimately held support and bounced early last week. The ETF declined sharply on Friday to set up another important support test at 46. The indicator window shows the PPO breaking its June trend line and moving lower the last few weeks. Breakdowns in both XLI and XLY would be bearish for the broader market.

Good trading and good charting!
Arthur Hill CMT

New Performance Chart Workbench lets you create, annotate and save SharpChart-based PerfCharts

Hello Fellow ChartWatchers!

We've had interactive, Java-based PerfCharts going back to the very start of the website.  And while those PerfCharts are very useful, they do have some limitations.  For one, members cannot save them into their accounts.  Also, our interactive PerfCharts cannot be annotated with our ChartNotes annotation tool.

Today, I'm pleased to announce a new feature for all users - our new Performance Chart Workbench.  It makes it very easy to create, annotate and save performance charts based on our SharpCharts charting engine.  In addition to being much easier to use, these PerfCharts also have the "baseline" feature that our regular SharpCharts Performance charts do not have.  

One of the key things this new workbench allows is the ability to create, annotate and save a Performance Chart that compares the year-to-date performance of the major markets.  Here's an example:

Click here for a live example of this chart using the new workbench.

(Did you notice the new percent measuring annotation I used on that chart?)

And now our PRO members - who can add up to 10 different tickers to one chart - can now easily duplicate our S&P Sector PerfChart using this new workbench and then annotate and save the result.  Just like so:

PRO members can click here for a live version of this chart.

Notice how that chart uses $SPX as the baseline - i.e., the performance of $SPX is subtracted from the performance of all the ETFs so that the S&P 500 forms the zero line on this chart.

To create your own SharpChart-based PerfChart, simply enter more than one ticker symbol into the "Create a Chart" box at the top of any of our web pages.  Separate your symbols with commas and then press "Go" to see your chart.

- Chip


Two of the top performing assets since the September 13 launch of QE3 have been Treasury Inflation Protected Securites (TIPS) and gold. That makes sense considering that both are used as hedges against inflation. The fact is that both markets have had a strong correlation over the last decade. Chart 1 compares the performance of gold and the Barclays TIPS Bond Fund (TIP) over the last six years. That visual link between the two markets is confirmed by the Correlation Coefficient (below Chart 1) which was well into positive territory between 2007 and 2011. Their correlation weakened during 2012 (down arrow). Chart 2 shows the two markets diverging over the last year. While TIPS continued rising, gold prices fell. Gold's weakness appears to have been the result of a rising dollar (top of chart). The Correlation Coefficient (below Chart 2) turned up during September and has turned positive. Both markets are rallying together again. A lot of that has to do with QE3. The two purple lines show the launch of Operation Twist last October (first line) and QE3 on September 13 (second line). Both markets turned up during August in anticipation of QE3, and were two of the biggest gainers when it was launched. TIPS hit a record high during September, while gold broke a major down trendline. QE3 also weakened the dollar which gave a boost to gold and other commodity markets. Another effect of quantitative easing has been to push Treasury bond holders into higher-yield assets like high yield and investment grade corporate bonds and dividend-paying stocks. Meanwhile, Treasuries have become the weakest part of the fixed income group. That's due to historially low Treasury bond yields and fears of inflation further down the road. That's why investors are buying TIPS and gold.




Quite simply, a bear market has ended, and a bull market has begun in the Natural Gas market. This has been quite some time in the making, for the relationship between natural gas and crude oil has been skewed for a number of years in favor of natural gas. Now, we feel confident in the fact that the trend has changed in favor of natural gas on both an absolute and relative basis versus crude oil as well as the S&P 500.

Perusing the weekly Natural Gas chart, one can easily see that the simple downward sloping trend-line was violated after several touches. This simple, but elegant breakout suggests prices are headed higher over the next several years, with the 155-week moving average at $4.00 being the first target, with the $5.00 to $6.00 zone being the intermediate-term target. And, over time - given the relative valuation versus crude oil - we could very well see the highs challenged.


With that said, "natty" is a very volatile futures contract to trade, but there are various ETFs available to take advantage of this price rise. However, we'll urge some caution, for the "roll" between months tends to be unfavorable. One only remember trading the Natural Gas ETF (UNG) over the past several years to see the "roll" work against you. At some point, and we think that point is soon - it shall work in one's favor.

In any case, getting the "natty" trend right is paramount; with natural gas stocks such as Devon Energy (DVN) being a good proxy. Keep it simple: buy corrections against the main trend...and enjoy the ride.

Good luck and good trading,


To be honest, I'm not a big fan of providing outlooks too far into the future because prices change continually.  As a technician, I realize charts can change daily.  Therefore, I have to be willing to change my thinking on a dime and, if you're managing your own money, you should too.  But I do like to evaluate the likelihood that a trend, either up or down, is sustainable.  With that in mind, let's take a look at gold.  A little over a month ago, I wrote about the "gold rush" being on.  Since that time, gold has risen another $100 per ounce, or roughly 6%.  I remain bullish on gold for the intermediate-term - perhaps 3 to 6 months - but short-term gold now has a few technical issues to deal with.  Take a look:
$GOLD 18 Month Chart 10.6.12

 First, gold is definitely overbought, so a near-term unwinding of both the RSI and stochastic is to be expected.  Second, a fairly significant area of price resistance has been reached.  The reaction highs in November 2011 and February 2012 both failed between $1790 and $1810 an ounce.  We saw three intraday highs last week in the $1790s.  Finally, traders need to deal with slowing momentum.  Take a look at the chart above and check out the lower MACD reading with the higher price action.  That long-term negative divergence does NOT guarantee a pullback in price, but it does indicate the RISK of a pullback has increased.  The fact that this slowing momentum is occurring simultaneously with price resistance makes it difficult to take any further long position in gold until one of two things happens.  I either want to see (1) a 50 day SMA test and a MACD centerline test to "reset" this momentum oscillator, or (2) I want to see the breakout above price resistance.  I'm not going to assume gold will rally right through resistance, especially when technicals are telling me that upside momentum is slowing.
On Monday, October 8th at 4:30pm EST, I will be hosting Invested Central's "State of the Market" online webinar where I'll discuss the fourth quarter prospects of gold and equities in general.  This webinar is reserved for annual members of Invested Central, but we always provide new annual members a 7 day, no-questions-asked Money Back Guarantee.  So if you'd like to attend this event, CLICK HERE for further details.
Happy trading and Happy Thanksgiving Canada!
Thomas J. Bowley
Chief Market Strategist
Invested Central


According to a news clip I just saw, there is a gas station in the Los Angeles area currently selling regular gasoline for $5.58/gallon. Some gas stations are shutting down because the owners don't want to buy gas at these prices for fear that they won't be able to sell it. Prices have been moving higher over the last few months, but the recent increases have fallen like a ton of bricks on consumers.

My immediate response was to check the charts for crude oil and gasoline. We can see from the weekly charts that crude is about midway its five-year range, and has most recently been trending downward.


The chart pattern for gasoline is not suprisingly similar to crude; although gasoline is closer to the top of its five-year range. Nevertheless, it too has been trending down recently. So on a national basis it is not the price of oil or gas that is the culprit behind California's gas crisis.


The problem it seems is that the fragile infrastructure for gasoline production and delivery in California has taken a few hits that have put a crimp in the figurative pipeline. Primarily supplies are drying up because of refinery outages. 

Of all the articles I have read on this subject I have not seen a single chart. My purpose in writing this article was mostly to present the charts to people who may be following this story. A lot of inorrect assumptions and conclusions can be avoided by simply looking at the charts first. And we can clearly see that the price increases for gas in California are not related to a sudden rise in crude prices.

Metals and Mining SPDR Battles Breakout

The Metals & Mining SPDR (XME) is battling to hold its resistance breakout. XME broke resistance with a big surge in early September and broken resistance turns into first support in the 43 area. This is a classic tenet of technical analysis: broken resistance turns support. A spinning top formed at the end of September and the ETF consolidated the next seven trading days. Monday’s high marks short-term resistance and a close above this level would be bullish. This would reinforce support in the 43 area and increase the chances of a continuation higher.

Click this image for a live chart.

Also note that there is a possible inverse head-and-shoulders pattern extending from June to early September. XME broke neckline resistance and the September decline is a throwback to broken resistance. The breakout is being tested with this throwback and a break below last week’s low would be a bearish development. The indicator window shows the price relative trying to form another higher low in early October.  A break below this trendline would signal a return to relative weakness.

Good day and good charting! ~Arthur Hill CMT

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