ChartWatchers Newsletter

Tech Sector Breaks Away from the Pack

There is the tech sector, and then there is the rest of the stock market. It is not that bad, but the tech sector is clearly head and shoulders above the other sectors. This is true with the Technology SPDR (XLK) and the EW Technology ETF (RYT). The first SharpChart shows the nine sector SPDRs in performance mode. Since May, XLK is up the most, by far. XLK accounts for around 21% of the S&P 500 and this is clearly helping the broader market. 

Continue reading "Tech Sector Breaks Away from the Pack" »

Finding Trading Opportunities in a Flat Market

The market has been in consolidation mode for over six weeks now. The S&P closed at 2173 on July 20. It closed at 2179 on Friday. During that period of time any pullbacks have been shallow and short-lived with the S&P topping twice at 2193 and getting as low as 2157 on Thursday before roaring back on Friday to close back above all key moving averages. So on the surface, very bullish action; no one is really selling. Yet trying to trade successfully and make money during a flat market like we've experienced the past six weeks is a tricky proposition.

During this period of time I have urged members of EarningsBeats to be cautious and to allocate more of their capital to cash. Why? Because to me the reward to risk favors the bears, in spite of the stubbornness of the bulls. I might change my mind if the S&P clears 2193 because it would represent a new all time high and might spark renewed interest in stocks., But until that happens there's too much risk to the downside if all of the sudden traders decide in unison to unload their positions.

For those individuals who prefer to trade no matter the market conditions, it becomes important to zero in on those stocks that might stand out during a period of consolidation and hold up the best in the event of a sudden downturn. This is why we search for those companies that beat their earnings forecasts and have solid charts, the type of stocks traders will gravitate to if looking for some added safety.

As an example, we issued a trade alert to our members on August 11 on Cienna (CIEN) that beat earnings expectations and held nicely after an initial sell off after they reported their numbers. Our price target was $23.60 which is the exact level it touched on September 1. You can see in the chart below that CIEN held just fine even when the market did pull back, ultimately hitting our price target.

Obviously not every company that beats earnings expectations will outperform the market but it makes sense that traders would be interested in finding stocks that have solid fundamentals. And even better if there is a solid chart formation to back up those solid fundamentals.

As part of our service at EarningsBeats we conduct regular searches to find stocks that meet the specific criteria of beating earnings and have good looking charts. We provide stocks that make the cut to our members via our "Candidate Tracker" which includes annotated remarks so they can decide if they want to trade those stocks. Some end up as trade alerts like CIEN did. In fact, we've just added 100 new stocks to our Candidate Tracker and I am going to conduct a free Webinar this Wednesday, September 7 at 4:30 pm eastern. I will discuss the process of finding stocks that meet our criteria and will be joined by StockCharts.com Senior Technical Analyst Tom Bowley who will comment on some of the trading candidates. If you want to participate in this free Webinar just click here.

It's always easier to make successful trades when the market is on an upward trajectory; it's much trickier when the market is in consolidation mode. So you either need to move to the sidelines to preserve your capital or develop a different trading strategy so you can take advantage of those stocks that have greater upside potential, no matter the market conditions.

At your service,

John Hopkins
EarningsBeats

S&P 600 Hits New Record, Hong Kong IShares Reach Two-Year High

While most of the media focus is on sideways action in large cap stocks, smaller stocks have been rising. The weekly bars in Chart 1 show the S&P 600 Small Cap Index ($SML) ending the week at a new record high. The solid matter is a relative strength ratio of the SML divided by the S&P 500. It shows smaller stocks leading large caps higher since the February bottom. Smallcaps had been market laggards since the middle of 2014. Their relative strength ratio is close to a two-year high. That's a positive sign for them and rest of the market. Small cap leadership is a sign that investors are more optimistic on the economy and willing to assume more risk. The Russell 2000 Small Cap Index ($RUT) has yet to achieve a new high. I've pointed out in the past, however, that the SML has a history of leading the RUT higher.

Emerging markets ended the week on a strong note. I keep reading that Chinese stocks have not participated in the EM rally. That may be true in Shanghai, but not in Hong Kong. The green line in Chart 2 shows Hong Kong iShares (EWH) ending the week at the highest level in two years. I recently suggested that a more stable Hong Kong dollar was attracting money (versus mainland stocks that are denominated in Chinese yuan). A more international audience and better liquidity is another factor. So is the fact that Hong Kong stocks yield more than 3.5% which makes them attractive for yield-chasing investors. I believe it's just a matter of time before mainland Chinese stocks start rising as well. The red line plots the CSI 300 China A-Shares ETF (ASHR) which just recently hit an eight-month high. Rising Chinese shares would also be good for emerging markets in general.

ChartCon 2016 Preview

Hello Fellow ChartWatchers!

The markets continue to move sideways causing trend and momentum indicators to gradually lose their usefulness.  The best way to see that is to look at the "2000 DJIA - Daily Analysis" chart on the new "ChartWatchers LIVE ChartList"  (click on the link and then scroll down).  This is a list of charts that I track for the ChartWatchers Live webinar (which happens every other weekend).  I haven't updated the annotations on those charts since my last webinar back on August 13th and, frankly, I haven't needed to.  Sideways consolidation periods can be frustrating, but they usually resolve themselves in the same direction as the original trend - upwards in this case.  Time will tell.

  

ChartCon 2016 Preview

As you hopefully know by now, ChartCon 2016 is right around the corner (Sept. 23rd & 24th) and things are really busy here as we prepare for our biggest conference ever.  At this point we have over 800 people registered for the conference.  That's almost triple the number that attended our previous conference!  And registrations are still coming in - we hope to have over 1000 attendees registered by the time things get started on Friday, September 23rd.

Behind the Scenes
I want to take a moment and give you a quick behind-the-scenes look at all of the preparations that are underway right now so that you will have a better sense of what ChartCon 2016 will be like.  What should attendees expect to see from our first ever on-line conference?

First off, ChartCon will be broadcast via the Livestream video platform, so ChartCon viewers will use a web browser (or app) connected to the special Livestream video page to see the conference.  You can test out the Livestream platform right now to make sure that it works well for you - just click here and select any of the free streams that are currently going on (Ironman World Championship anyone?).  Livestream works really hard to optimize the stream to work with whatever bandwidth you have and so hopefully you will see a good, quality video when you run this test.  If you have any problems, click here for help.

Now, in addition to the video broadcast, ChartCon 2016 will also feature a mobile app created by a service called GuideBook.  The ChartCon Mobile app can be installed on any smartphone or tablet - we will be sending out the link later next week.  Once complete, you'll be able to use the ChartCon Mobile app to see the conference schedule, submit questions, chat with presenters, chat with other attendees, see social media posts, and much more.  We think that the ChartCon Mobile app will really help ChartCon attendees get the most out of the conference.

Finally, we have assembled a top-notch crew of video engineers, designers and technicians who are all working very hard to make the ChartCon broadcast as smooth, useful and informative as possible.  ChartCon 2016 will be very different from the one-persion webinars we have been doing up until now.  We're talking sets, lighting, audio designers, pre-recorded videos, you name it!  I am seriously considering having a credits scroll at the end - that's how many people are involved in helping make this ChartCon great.

"Sounds good Chip, but what about the presentations.  What will I learn from them?"

Great point!  All of this behind-the-scenes stuff is pointless unless we have great presentations to show, right?  So first off, let me describe the general format of each talk and then I'll go over more details about what the conference will look like.

The General Presentation Format
In general, each presentation will last about 60 minutes.  During each presenter's talk, you will see them on the main stage as they lead you through their slides and charts.  At some point, they will probably switch over to the web and do some live demonstrations as well.  While the presenter is presenting, you will be able to send in your questions via the mobile app on your smartphone or via social media (Twitter or Facebook).

After the presention is complete, there will be a 5-minute break as we move over to the "Interview" stage where the presenter will then answer the questions that were sent in during their talk.  That Q&A segment should last about 20 minutes and then we will be ready for the next presenter.

After they are done presenting, presenters may hang out for a bit online (via the app and social media) to answer even more questions depending on time.

Between presentations, we'll have short breaks so you can get up and stretch, etc.  In addition, attendees have the option of pausing the Livestream broadcast at any time on their computer just like it was a DVR recording.  During the short breaks, we will be showing pre-recorded videos with lots of tips and tricks on how to get the most out of the tools on our website.

Click here to see the official Conference Agenda

A Quick Overview of the Presentations
So the theme of the conference is "Creating Your Own Technical Trading System" and we will spend much of the first day showing off several different ways that anyone can use StockCharts.com to make better trading decisions based on charts and visual analysis.

The conference will kick off with myself and Grayson Roze helping everyone get up-to-speed with Livestream and the ChartCon Mobile App.  After those formalities, I'll talk about what a "Technical Trading System" is, what goes into make one and how you can tell if your system is working well for you.  I'll present my own relatively straightforward system as an example and explain how and why I think it works.

After my talk wraps up, Arthur Hill will present a much more thorough example of a technical trading system with automated rules and backtesting results.  After Arthur, Greg Morris will change things up somewhat by going over common mistakes that make people make when trading using technicals.

Next up will be Erin Heim who will show us yet another technical trading system - her DecisionPoint system that is now built in to StockCharts.com.  And after Erin, Gatis Roze will take the stage and talk to us about his compehensive technical trading system - Tensile Trading - and how he uses it successfully every day.

So, right off the bat, you will see at least 4 different, successful technical trading systems that use StockCharts tools to make buy and sell decisions.  But, more than that, you'll also be able to evaluate each of those systems and determine what parts best fit into your own investing.  Remember, our goal here is to empower you to make your own investing decisions based on your own, customized, investing strategy.

Wraping up the first day will be our first keynote presenter, Martin Pring, with a big announcement about his Special K indicator and how it can be used as part of any technical trading system.  Martin will also be reviewing the current state of the markets from his unique multi-market perspective.

And that's only the first day!  The second day includes talks about RRGs, SCTRs, Wyckoff and Seasonal Trends with another keynote presentation from Sir John Murphy who will talk about Intermarket Analysis and the current technical state of the markets.  The conference wraps up with a panel discussion that will include lots of Q&A from the audience and a final "put-it-all-together" talk from Grayson and myself that will be focused on concrete "next-steps" that you can take to bring the lessons from the conference into your own trading routines.

If you have registered for the conference already, you should have gotten your first "ChartCon Insider" newsletter the other day.  We'll be sending out more of those as the conference gets closer.

(If you haven't registered for ChartCon 2016 yet and want to join us for all the fun on Friday, September 23rd and Saturday, September 24th, simply click here to register for ChartCon 2016.  We'd love to see you there!)

- Chip

P.S. One last thing - we still have 3 open VIP seats available if you'd like to attend ChartCon in person.  If you will be in the Napa area later this month and would like to join us in person, please send me an email message and I'll get you all the details.  This once-in-a-lifetime experience includes seats for the presentations, a reception dinner with the presenters and either 1.) a round of golf with Tom Bowley and Greg Schnell, or 2.) a hot air balloon ride over Napa with Erin and myself!

 

 

 

Intel Leads Semis with a 52-week High

Semiconductors are leading the charge in tech stocks as the Semiconductor SPDR (XSD) extends its gains and notches another 52-week high this week. Note that the ETF is up around 15% the last three months and it is one of the top performing industry group ETFs. The Semiconductor iShares (SOXX) is also trading at a 52-week high. On the price chart, XSD broke out and the breakout zone in the 45-46 area turns first support to watch on a throw back. A throw back occurs when prices breakout and then return to broken resistance, which then becomes support. The indicator window confirms upside leadership as the price relative broke (XSD:SPY ratio) above its 2015 highs. Overall, it is positive to see this cyclical group leading the stock market. 

Continue reading "Intel Leads Semis with a 52-week High" »

What Can We Expect From September (Besides ChartCon)

 

First, I'd like to invite everyone to join us via the internet for ChartCon 2016.  It's only three weeks away and everyone here is growing very excited for this one-of-a-kind event.  There will be tons of technically-oriented presentations from leading technical experts.  You don't want to miss this!  Be sure to register soon as ChartCon is rapidly approaching.  There's an information page discussing the speakers, agenda, theme, etc.  CHECK IT OUT HERE!!!

Continue reading "What Can We Expect From September (Besides ChartCon)" »

Where is Everybody? Low Volume Continues to Plague the Markets

Hello Fellow ChartWatchers!

Where is everybody?  Things look pretty darn good on the weekly index charts:

  • Stocks are at or near new all-time highs.
  • The Tech sector is showing signs of life.
  • Energy stocks are roaring up the SCTR rankings
  • The "New Highs-New Lows Line" is moving higher (and still has room to grow)
  • Lots of well-known stocks are in well-established uptrends
  • Etc., etc., etc.

So why is weekly volume so, so, so... anemic?  New Highs are usually greeted with volume spikes.  Last week it was like all the stock traders have been kidnapped!  So what's it gonna take for people to get interested in stocks again?  Well...  Maybe all it takes is to get out of August.  To see why I say that, let's use our Seasonality Tool with volume data and dig deeper into this mystery.

Our Seasonality Tool shows you - for each month of the year - how a given ticker symbol's values have changed during that month for the previous "n" years (where "n" is a number you control via an interactive slider under the chart).  So, for example, if a stock does well every November (probably in preparation for Christmas buying), the November bar on the Seasonality tool would be taller than the other months.

There's an old investing adage that you've probably heard before: "Sell in May and then go away."  (Presumably until September/October.)  The idea is to avoid the months where stocks typically move lower and focus on the period of time (October thru April) when stocks often do well.  The adage raises two questions:

  1. Do stocks really underperform during the spring and summer months?
  2. Do investors really avoid the stock market during those months?

Our Seasonality tool can help answer both of those questions easily.  First, let's look at the month-by-month performance of the S&P 500 Large-Cap Index ($SPX):

This charts says that during the 20 years from 1996 to 2015, 75% of the time the S&P 500 closed the month of April (for example) higher than it started with an average gain of 2.1% (the number at the bottom of April's histogram bar).

So, clearly, the months of April, October, November and December are historically great months for the S&P.  During those months the market rises 70+ percent of the time.  And the average amounts for those rises is also nice: 2.1%, 2.1%, 1.7% and 1.3%.

But when it comes to the summer months, this chart paints a mixed picture.  Clearly, July is the weakest month rising only 45% of the time.  But notice that July still averages a 0.3% gain.  So does May.  The other months are not great and, yes, August is by far the worst month of the year for stocks averaging a 1.2% loss historically even though it manages to rise more than half the time.

OK, so stocks can be considered to be weaker during the summer months.  Now, let's focus on the second question: Do investors really avoid the stock market during those months?  Here's the month-by-month seasonality chart for the NYSE Total Volume ($NYTV) index:

Hmmm... This chart shows that volume on the last day of the month is (on average) 10.5% less than it was on the first day of the month for both July and August and that volume decreases during those two months 75% and 65% of the time.  Only November has a bigger drop (13.7%) - probably due to the holiday week at the end of that month.

So my conclusion is that investors typically do "stay away" in August regardless of what the market is doing.  I guess it is something that is programmed into their DNA.  The good news is that - as technicians - we are able to take advantage of this situation.  We are able to recognize a rally regardless of when or why it is happening and use strong technical signals (coupled with strong risk management skills) to take advantage of these opportunities.

Bottom Line: Now is NOT the time to be ignoring the market, even if everyone else is.  While I'd love to see strong volume back up these new highs, they are still new highs nonetheless and that's a wonderful thing.

- Chip