What is the Difference between Adjusted and Unadjusted Data? (video)

First, note that StockCharts users can chart adjusted data and unadjusted data. By default, stock and ETF symbols show adjusted data, which means the data have been adjusted for dividends, splits and other events. When a stock goes ex-dividend, the dividend amount is subtracted from the stock price. StockCharts adjusts the data by adding the dividend back into the stock price, which provides users with a picture of the total return (price change plus dividends). On a total return basis, the Utilities SPDR (XLU) is up some 87% over the last five years. Not bad for old boring utility stocks. 

The price chart shows the dividend adjustments because I added "events" as an "overlay". Putting "all" as a parameter will show dividends, stock splits and all financial events affecting the price. This is a great way to see when a dividend is paid or when a stock split. 

So just how much of a role did dividends play in the total return? Chartists can find out by plotting unadjusted data. Simply precede the symbol with an underscore (_XLU). As the chart shows, unadjusted XLU still sports a nice gain as price appreciated some 53% over the last five years. However, because utility stocks have relatively high yields, the dividend is a very important part of the picture. I would guestimate that dividends accounted for around one third of the total return for XLU over the last five years. 

How Can I Measure the Distance between the Close and a Moving Average? (video)

There are two ways to measure the distance between a price point and a moving average. First, chartists can simply use the "percentage change" tool when annotating a chart. This tool can be found right under the "auto support-resistance" tool. Note that you can hover over any icon with a small triangle in the right corner to reveal other icons. Select the percentage change tool, move to the moving average, click and drag the tool to the price point. The example below shows the percentage change tool extending from the 200-day simple moving average and the 50-day exponential moving average. 

Chartists can also use the Percentage Price Oscillator (PPO) to measure the distance from the close or last price and an exponential moving average. Simply set the PPO to (1,50,1). The first "1" represents a 1-period EMA, which is just the close or last price. The "50" represents the 50-day EMA. The other "1" is for the signal line. Setting the signal line at 1 simply hides it. The PPO measures the percentage difference between two exponential moving averages. In this case, we are measuring the distance between the 1-day EMA and the 50-day EMA, which is around 3.1%. 

What are the Best Ways to Display Breadth Data? (video)

Daily breadth data often looks erratic because it flips from positive to negative on a regular basis. Chartists can turn this erratic data into a readable format using three different chart functions. This article will show how to chart breadth data as a histogram, an AD Line and an oscillator.  

The chart above shows just how erratic AD Percent for the S&P 500 looks as a simple line chart (main window). We can still spot the big moves that exceed +80% and -80%, but it is hard to determine what is happening in between these levels. The solution is to plot this indicator has a histogram. The main plot can be changed to Histogram in the Type section under Chart Attributes. Chartists can also add $SPXADP as an indicator and choose Histogram as the Style. The image below shows examples for these settings.   

Chartists can also plot AD Percent as the AD Line or as a 10-day SMA, which acts as an oscillator. To change raw AD Percent into an AD Line, users can set the chart Type to Cumulative in the Chart Attributes section. The example below shows the AD Line in gray and a 1-period simple moving average as black dots, which make it easy to see the day-to-day moves. The indicator window shows AD Percent as a 10-day SMA. Simply add $SPXADP as an indicator, choose Invisible for Style and then add a simple moving average. 

What is a Bearish Signal Reversed on the Point & Figure Chart? (video)

A bearish signal reversed is a bullish P&F signal that suddenly occurs after a series of lower lows and lower highs. First, a P&F downtrend needs to be present on the chart. Note that X-Columns represent rising prices and O-Columns represent falling prices. A downtrend is present when successive X-Columns fail to exceed the high of the prior X-Column and O-Columns form lower lows. The bearish signal reversed signal occurs when the current X-Column surges above the prior X-Column to reverse this downtrend. 

The chart above shows Vulcan Materials (VMC) with a series of lower lows and lower highs since August, which is marked with the red number 8. Actually, the downtrend has been present since April (red 4) because the X-Columns have not formed a higher high since March (red 3). After making another lower low at 55, the bearish signal reversed with a surge above the prior X-Column. Before leaving this chart, notice that the current X-Column is challenging the bearish resistance line. 

Where Can I Find Symbol Information for Indexes, Market Indicators, Economic Indicators and Futures? (video)

In addition to stocks, ETFs and Mutual Funds, StockCharts provides data for hundreds of indexes and market indicators as well as dozens of economic indicators and futures contracts. The index and indicator symbols are prefixed with a Dollar sign or an exclamation point. Examples include $SPX for the S&P 500 or !GT200SPX for the Percentage of $SPX Stocks above their 200-day EMA. Symbols for futures contracts are prefixed with a caret. Examples include ^CLZ14 for December Light Crude and ^GCZ14 for December Gold. Symbols for economic indicators begin with two Dollar signs. Examples include $$CPI for the Consumer Price Index and $$M2 for M2 Money Supply.

So how can I find a list of these symbols? The quickest way is with a search of the symbol catalog. A link to the symbol catalog can be found at the top-right of every webpage. Simply search for $$ to find the economic indicators available or search for ^ to find the futures contracts. 

The index and indicator symbols are a little more complicated because there are so many (literally hundreds). Chartists can search for INDX to see all of these symbols. You can easily refine your search by adding a few required terms. Search for "INDX and Stocks and 200" (without quotation marks) to see all the indicators that use the 200-day moving average. Using "and" means the term is required in the results. 

Users can also learn about our index, market indicator, economic and futures symbols on the symbol documentation page. This page contains over 50 articles explaining the symbol groupings. Here you can learn about the Intellidex Indices, the Morning Star Indices or the S&P Sector/Industry Symbols. 

Which Sentiment Indicators are Available at StockCharts?

With the DecisionPoint merger, StockCharts acquired several sentiment indicators with long histories. Sentiment indicators measure the bullishness or bearishness of a particular group. These indicators are often used as contrarian indicators to identify market extremes. Excessive bullish sentiment is viewed as potentially bearish for the stock market, while excessive bearish sentiment is viewed a potentially bullish. Chartists can plot these indicators separately or plot the difference between bulls and bears. StockCharts provides sentiment data from the American Association of Individual Investors, Investors Intelligence, Wall Street Sentiment and Rydex. The chart below shows some special techniques for charting these indicators. A brief explanation and the symbol pairings for each group can be found below the chart. 

Continue reading "Which Sentiment Indicators are Available at StockCharts?" »

Where did all Those Bullish Engulfing Results Go? (Video)

The stock market pulled off a big intraday reversal on Wednesday and many stocks formed bullish engulfing patterns. There were 304 on the NYSE and 278 on the Nasdaq. Chartists can find these stocks using the Predefined Scans Page, but Wednesdays' results are not immediately visible because the default page will show the most recent scan results. 

StockCharts users can access prior results with the click of the mouse. Simply go to the dropdown menu in the upper right, which is entitled "Select a Different Scan Report". Users can view the last intraday update, the last close or pick a prior date. The bullish engulfing patterns formed on October 8th. 

Why would chartists be interested in old scan results? Believe it or not, it can sometimes help to let these patterns cool down for a couple of days.  Keep in mind that follow-through is required for most candlestick patterns. These bullish engulfing patterns formed on Wednesday and the stock market stalled on Thursday. Chartists can keep an eye on these patterns for follow through in the coming days. Failure to follow through within five days would undermine these patterns.  

How Can I Find the Hidden Annotation Features? (video)

When annotating a SharpChart, there is a row of icons at the top of the ChartNotes workbench. Chartists can hover over the icons that have a small arrow in the right corner to reveal "hidden" icons for more features. The chart below shows the ChartNotes workbench with the standard tool bar at the top. The Trendline icon is in the left corner and there are two other icons underneath it (Parabola and Speed Resistance Lines). Several other icons are also singled out to show the other tools available. For example, the Percent Change Tool can be found under the Auto Support-Resistance Tool. 

The second chart example shows how the tool bar changes once a tool is used. Notice that the Fibonacci Fan Lines, Triangle, Sine Wave and Percent Change Tool are now visible on the tool bar. This is because they were selected and used on the SharpChart. The Elliot Wave tool shows a roman numeral (I) because this style was selected. There is a lot to discover so be sure and look under the icon when you see a small arrow in the right hand corner. 

Is Technical Analysis Relevant if the Fed is Controlling the Stock Market?

Short answer: Yes. First, it is a market of stocks, not a "stock market". It is highly unlikely that the Fed is controlling the business decisions of Delta, Alcoa, Micron, Avon, Whole Foods, Mattel and other companies. Some stocks may be more interest rate sensitive than others, but Fed policy is probably not part of the boardroom debate at most companies. The PerfChart below shows year-to-date performance for ten stocks in the S&P 500. Is the Fed responsible for this performance differential? For the most part, the stock market is made up of individual stocks with company and industry group specific issues that are more important than Fed policy. 

Further more, if the Fed is indeed controlling the market, then it will show up in the price charts and chartists will not miss a thing. This is the beauty of technical analysis. As technicians, we are not concerned with who is buying or selling or why they are buying or selling. We are only concerned with the supply-demand dynamics that drive equity prices. 

Keeping up with the Fed and fundamental issues is a gargantuan task fraught with innuendo and complexity. Not only does one have to get these issues correct, but one also has to correctly predict the market's reaction to these issues. That puts two variables at work. Who knows when buy backs will stop or earnings will slow? Even if we get earnings correct, who knows what PE the market will assign to those earnings? Who knows when the Fed will actually tighten? And buy how much and how fast? Bernanke started the taper talk in May 2013 when the S&P 500 was around 1650. Taper talk was reiterated in June and November, and tapering finally began in December 2013. The index dipped in June, but this did not derail the bull market and the S&P 500 hit 2000 in September. It is not the news that matters. Instead, it is the market's reaction to the news. 

What really drives the stock market as a whole? It could be earnings, share buy backs, the Fed, momentum or a combination of factors. My best guess would be a combination. Note that total 2013 earnings for the companies in the S&P 500 hit $107, which was a record. The index finished 2013 at 1848, which was also a record. It seems logical that the index would finish at a record when earnings are at a record. It is also worth noting that companies bought back over $400 billion worth of stock in 2013. This also helped the stock market move higher because there was less supply. Throw in an accommodative Fed, some price momentum and the most hated bull market in years and we had a pretty good backdrop for an uptrend in the S&P 500. 

Truth be told, we cannot know it all and technical analysis helps investors cut to the chase. Technical analysis is a great tool because price does in fact know it all. The basic assumption behind technical analysis is that all known information is reflected in the price. All buyers and sellers have come together and agreed on a price that has an actual print. This makes price the most important of all indicators. Price does indeed fluctuate along with supply and demand, but trends and patterns do take shape over time. 

Technical analysis can help investors in at least three areas: stock selection, risk control and broad market timing. 

  • Stock selection: technical analysis gives investors the tools to find stocks in uptrends and focus on stocks that show relative strength. 
  • Risk control: technical analysis gives investors timing tools that help with entry points, risk-reward assessment and exit points. 
  • Broad market timing: simple trend following strategies would have kept investors out of the last two bear markets and prevented large drawdowns. 

As the example above shows, a simple strategy using 12-month price channels would have kept investors out of the 2001-2002 bear market and out of the 2008-2009 bear market. The strategy turns bullish on a monthly close above the upper line and bearish on a close below the lower line. Preservation of capital is perhaps the single most important aspect of portfolio management. As the very least, technical analysis gives investors the tools to preserve their capital by avoiding large drawdowns.   

Even investors using fundamental analysis can benefit from technical analysis. A 2013 research paper showed that portfolio managers using technical analysis had an edge over portfolio managers that did not employ technical analysis. Below is the abstract and link: 

Based on a study of more than 10,000 actively managed equity and balanced funds, including about one-third of which employ technical analysis, the authors compared the investment performance of funds that use technical analysis versus those that do not using five metrics. They found that funds using technical analysis provided a meaningful advantage to their investors (link). 

John Bollinger CMT CFA promotes the school of rational analysis, which combines fundamental analysis and technical analysis. Also note that the Chartered Financial Analyst (CFA) exam includes a section on....gasp....technical analysis. This section asserts that markets and stocks move in trends, and shifts in supply and demand alter these trends. 

The market clearly has a message and that message is communicated through price action. Technical analysis teaches us how to interpret that message so we can become well-rounded traders and investors. May the trend be with you!

-Arthur Hill CMT and Cool-Aid Drinker

Where Can I get an Overview of Sector Breadth Indicators? (video)

Chartists can find sector breadth charts in the CandleGlance Groups on the Free Charts page. The CandleGlance Groups can be found at the top of the middle column. Click the Sector Breadth Indexes link and you will shown 27 breadth charts covering the 9 sector SPDRs. These include the AD Line, AD Volume Line and High-Low Line. The examples below just show the AD Lines and AD Volume Lines. 

The screen shot above shows these indicators for the Energy SPDR (XLE) and the Consumer Staples SPDR (XLP). Right away we can see which sector is strong and which is weak. The AD Line, AD Volume Line and High-Low Line for the Consumer Staples SPDR hit new highs this week and remain in strong uptrends. The AD Line and AD Volume Line for the Energy SPDR (XLE) peaked in late August and moved sharply lower in September. The High-Low Line turned down last week. 

These charts can also be used to identify breadth breakouts and relative strength. The screen shot above shows the AD Line for the Industrials SPDR (XLI) breaking out with a surge above the early September highs. The Finance SPDR (XLF) is one of the strongest sectors. Notice that the AD Line broke to new highs this week and the AD Volume Line broke to new highs last week. 

Other StockCharts Blogs

About The Author

Subscribe to this blog