Hello Fellow Chart Watchers!

"Old Economy" stocks came back to life last week causing the Dow to gain more than 2.4% for the week. The energy-heavy Amex Composite posted a 1.7% gain however the "New Economy"-heavy Nasdaq only managed a 0.06% gain. A quick peek at our one-week S&P Sector PerfChart shows just how big last week was for the "oldies" as Industrials (+5.67%), Basic Industry (+5.08%), Energy (+4.17%), and Cyclicals (+2.36%) led the way.

It's another jam-packed issue of CWW this week folks, with Arthur's market comments, our columnist summary and some more exciting site news (any Canadian investors out there?). But first, since "Rotation" seems to be the word this week, I thought I would show you how our interactive PerfCharts can help spot this powerful market dynamic in action:

1.) Click on the "Sector Analysis" link on the left side of our pages in the "Charts" section (or just click here).
2.) When the chart appears, right click anywhere on the chart and choose "Animate" from the pop-up menu.

Voila! You should see a group of dancing vertical bars that show you how each of the S&P sectors have performed over time. Watch carefully to see if you can spot sector strength moving from one side of the chart to the other. It's not easy to see due to general market noise, but it is there. You can right-click again to stop the animation and then drag the slider left and right with your mouse to examine things in detail. BTW, the 65-day period on the slider at the bottom is somewhat arbitrary - try shorter or longer time spans and see how things change. You should also review our Sector Rotation Model just below the PerfChart for more information.

Here are some snapshots and commentary that may help you see what I'm talking about:

In late spring of last year, the Industrial twins and the Energy sector were doing extremely well. Consulting the Rotation Model diagram, this hinted that a market top could be near. The rising Yield Curve and increase in Fed activity supported this interpretation.

It took almost a year, but the Consumer Staples sector finally popped in late spring of this year hinting that a market top had occurred and an economic top was just ahead. The recently inverted Yield Curve suggested a similar conclusion.

Fast forward to today - Financials have been king for the past 65 days suggesting that we well into a market contraction phase. The Yield Curve is even more steeply inverted with short term rates higher than ever.

While this technique is fairly subjective and by no means fool-proof, it forces you to consider the "big picture" - something that studies have shown can account for up to 60% of stock price movements. Be sure to review our Sector Analysis page at least once a month.

OK, on with the show! Arthur Hill's latest market thoughts are below, but first...

1. Complete Canadian Stock Coverage!
   This week we finished adding the price data for all of the stocks on both the Toronto Stock Exchange and the Canadian Venture Exchange (the new name for the Vancouver exchange) - over 3100 stocks in all. To request a Toronto stock, use add ".TO" to the end of the ticker symbol. To request a CDNX stock, add ".V" to the end of the ticker symbol. Don't forget to use a '/' to specify different classes of stock. Enjoy! and let us know if you find our Canadian charts useful.
   
   
2. New Format for Arthur Hill's ChartTour Feature!
   One of our most popular features is getting even better. For several months now, Arthur Hill has tracked the markets in our "Market ChartTour" feature using a collection of unique, annotated charts on separate pages. Based on your feedback, we are changing the format of the "ChartTour" to provide consolidated daily commentary and to provide a weekly summary that is archived, printable, searchable and that can even be loaded into your PDA!
   
   The first edition of Arthur's weekly "Market Summary" is already up on the site and is getting rave reviews. The first email I received this morning called it "An incredibly insightful look into the market." As I was writing that last sentence, someone else wrote in calling it "Nice concise salient analysis!" Published on Friday, this article should be the first thing you read each weekend to prepare you for the coming week.
   
   To compliment the weekly summary, next Monday will mark the debut of Arthur's "Chart Update" - a concise, single-page collection of the most important parts of the old ChartTour updated every morning before the market opens. This should be the first thing you read each morning to prepare you for the rest of the day.
   
   

On StockCharts.com right now:

• Arthur Hill's StockWatch: Biotech ($BTK) forms a lower high...Amgen (AMGN) distribution?...Quantum (DSS) breaks resistance...GE breaks out...Broadcom (BRCM) hits resistance...Pepsi loses fizz.



• John Murphy - Sector Rotation is on John's mind as the Dow tops the Nasdaq again.



• Scott McCormick - With no volume data available, what indicators will be useful for analysing mutual funds? Dr. Scott has a prescription.



• Rex Takasugi - Rex looks for a downtrend in the Euro due to Elliot Wave patterns. The US Dollar? Look for more strength!



• Richard Rhodes - Interest rates and the US equity markets are moving in tandem -- will that continue? The Nasdaq is moving lower. And a revisit to Motorola (MOT).



• P&F Columnist Mitch Harris examines Kodak (EK) and asks, "Is it still one of the dogs of the Dow?". His P&F chart tells him the stock has built quite a base.



• Sam Crowe shows how a new home, and the follow-on buying that goes with it, do a lot to heat up the economy. He also reviews the economic reports coming soon. GREAT ARTICLE!



• Our MailBag - Coloring candlesticks can be confusing! Rex looks at the inverted yield curve. Plus, Arthur recommends some indicators -- it's not just 'one from column A, two from column B.' Read More..

The NYSE Composite ($NYA) continues to steal headlines from the Nasdaq with record highs and outperformance. However, the index cannot maintain above key resistance at 660. Since reaching 660 in Mar-00, the index has made at least 7 attempts to break through. With each attempt there is a surge in momentum and a decline with each failure. This has caused MACD to cross the zero line 8 times in the last few months. With the latest attempt at 660, MACD could be forming a lower high. I would not consider this confirmed though until a lower low forms and/or the index breaks below 640.

In addition to weak momentum, money flows have also weakened on the latest attempt to break resistance. CMF (20) moved above zero with each previous attempt, but the positive readings became smaller and smaller after the May peak. For a cumulative view of CMF, I look at the Accumulation Distribution Line (ADL). The formula behind Chaikin Money Flow comes from the ADL and Marc Chaikin developed both indicators. Whenever new highs are recorded in an index, the ADL should also be making new highs. Failure would result in a negative divergence and have potential bearish implications. Judging by the weakness in CMF, it should come as no surprise that the ADL formed a series of lower highs and lower lows over the last two months. The current high is lower than the June and July highs, while the July low easily surpassed the June low. While it is encouraging that the NYSE Composite remains so close to new highs, the negative assessments of CMF and ADL indicate distribution.

With the NYSE Composite so close to new highs and the Nasdaq 100 well below, I started to look at some comparative ratios. One method of comparing interest in the Nasdaq versus the NYSE is to look at the volume ratio (Nasdaq Volume / NYSE Volume). The other is to simply look at the price relative (Nasdaq 100 / NYSE Composite). I have plotted both on the chart, but will only be discussing the volume ratio. When the volume ratio moves higher, it indicates that more volume is going into the Nasdaq than the NYSE. A lower ratio indicates that more volume is going into the NYSE than Nasdaq.

For most of 1997, 1998 and 1999, the 20-day EMA of the volume ratio moved above and below 1.3. There was a sharp decline in the Aug-98 with the emerging markets crisis, but the ratio snapped back by the end of the year. The real explosion came late in 1999 and early 2000 when the ratio rose above 1.70. In December, January, February and March, there was a huge acceleration of interest in the Nasdaq and relative volume levels reflected this. For the Nasdaq 100 to advance from around 3500 to 4500 it took a massive infusion of volume, and the NYSE Composite suffered as a result. After the sharp decline in April, the volume ratio dropped below 1.6 for the first time since early February. Even on the latest advance, the volume ratio failed to exceed its previous high and broke back below 1.5 on the latest decline. The question I must ask myself is: Can the Nasdaq mount a successful rally without an increase in the volume ratio. I would venture to guess that as long as this ratio remains below 1.6, a sustainable rally could be difficult to come by. Furthermore, a low volume ratio could benefit the NYSE and old guard stocks that have been punished for the past 18 months.

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Here are some links that should help you get started:

• A Quick Tour of the Site



• All About Charting and Technical Analysis



• A Glossary for Common Technical Analysis Terms



• John Murphy's 10 "Laws" of Technical Trading
• Bored? Check out our SharpCharts Voyeur page to see recent masterpieces that other users created on StockCharts.com

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Questions? Comments? Concerns? Problems? Suggestions? Simply 'r'eply to this email message and I'll see what I can do.

Take care,
   Chip

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