Another insightful issue of the ChartWachers Newsletter has arrived!
November 17, 2018
Hello Fellow ChartWatchers!
To all of our US readers, Happy (almost) Thanksgiving! The holiday season is fast approaching, and we have some big things in store for you here at StockCharts. I don't want to give anything away too soon, but Cyber Monday is coming... Let's leave it at that for now.
This week, we have some great articles for you AND a new feature announcement! With volatility continuing to dominate the market, this new feature will help you stay on top of the action as the charts keep bouncing around. Full details are included below in our first article.
The more charts, the better. That's my motto, especially this week. I'm happy to announce that our Market Summary and Industry Summary pages have recently received a major upgrade – "Chart View" is here! We've expanded the functionality of these two important pages, making them even more useful resources to help you track and analyze the current markets.
Market Summary Page
On our new-and-improved Market Summary page, you'll now see two tabs at the top – one for the original "Table View" and a new tab for "Chart View." This new view brings larger price charts to the page, allowing for more detailed study of these market indexes and important ETFs and how they're trading.
By default, the first index in each table will be selected and charted. To change the selection, click on each row in the tables to see the chart for that index or ETF. You can also use the grey buttons below each chart to view the selected symbol in other modes, including a full-size SharpChart, P&F chart or Seasonality chart.
Industry Summary Page
Similar to our Market Summary page, the Industry Summary now includes the "Chart View" feature. The important difference here is that the Industry Summary allows you to see multiple data periods – intraday, end-of-day, one month, six months, year-to-date, one year, etc.
When you change the period at the top of the page, you'll notice that both the data in each table and the charts themselves are updated to reflect that new period. Personally, I love how this feature allows you to start with the longer-term one-year view and "zoom in" to what's happening right now on the intraday charts.
MEMBERS: Customize Your "Chart View"
As a StockCharts Member, you can customize the charts you see on both the Market Summary and Industry Summary pages. This is very similar to the customizations you can make on your CandleGlance and GalleryView charts. If you want to change the chart type, period or color scheme, or add some different indicators to your "Chart View" charts, it's quick and easy to do so!
All you need to do is create a new ChartStyle from the SharpCharts Workbench and save it with the name "Market Summary" (for use on the Market Summary page) or "Industry Summary" (for use on the Industry Summary page). The settings and indicators you save for those custom ChartStyles will automatically appear when you visit these pages.
Important Tip: select a width of 460 when you create your custom "Market Summary" or "Industry Summary" ChartStyles. This will optimize the sizing of your custom charts on these pages.
For complete instructions on how to create and save a new ChartStyle, click here. You can also learn more about all of our tool-specific ChartStyles here.
As you can imagine, people often ask, "Why should I subscribe to StockCharts?" It's easy for us to point to the expanded set of features that you gain access to as a member – larger charts, more indicators and overlays, technical scans, custom alerts and much more. For me, though, one of the best reasons to subscribe is that you gain the ability to make a wide array of site customizations and special settings changes.
Setting up your StockCharts experience to better fit your needs, preferences and overall investing workflow not only makes the site more powerful for you, but also more enjoyable. Think of it this way – you could grab some generic pants off the rack and they'd probably fit alright. But wearing a perfectly tailored pair of slacks that have been custom-fitted to your specific measurements? Now that is comfort.
To sign up for a free 1-month trial and explore all of the tools and features that StockCharts Membership includes, click here!
Until next time,
Grayson Roze
Business Manager, StockCharts.com
Author, Trading For Dummies
The Reason Short-Term Rallies are Failing is Because Weekly Charts Look Even More Negative
by John Murphy
Editor's Note: This article was originally published in John Murphy's Market Message on Wednesday, November 14th at 1:39pm ET.
The weekly bars in Chart 2 show the last upleg of the S&P 500 uptrend that began in early 2016. And it shows that uptrend weakening. It shows the October price drop falling below its 40-week moving average (red line) by the widest margin in more than two years, and a rising trendline drawn under its 2016-2018 lows. This week's attempt to regain those two previous support lines is failing. The two weekly indicators in Chart 2 also paint a negative picture that suggests that the nearly three-year uptrend is in danger. The 14-week RSI line (top box) has fallen below 50 by the widest margin since early 2016. In addition, its third quarter peak fell well short of its early 2018 peak which formed a major negative divergence (purple arrow). Its weekly MACD lines (lower box) show a similar negative divergence (red arrow), and have since fallen below their spring low to the weakest level in more than two years. That's not a minor setback to the market's last upleg. It's a big one. That largely explains why short-term rally attempts aren't getting very far. Weak longer range signals on weekly charts are simply over-riding any short term rally attempts. Monthly chart readings aren't encouraging either.
The Momentum Factor iShares (MTUM) and the Minimum Volatility iShares (USMV) represent opposing sides of the market. High flying stocks can be found in the momentum ETF, while the more boring issues dominate the minimum volatility ETF.
Using these two ETFs, chartists can quickly take the temperature of the stock market and adjust their strategy. The market is running hot and then risk appetite is strong when momentum stocks outperform (risk on). Conversely, the market is running cold and the risk appetite is weak when low volatility stocks outperform momentum stocks (risk off).
The chart below shows MTUM in the top window and USMV in the second window. There are around 124 stocks in MTUM with the technology sector accounting for 41.3% of the ETF. Also note that the top ten stocks account for 43.6%, which makes this a top-heavy ETF.
In contrast to MTUM, there are over 200 stocks in UMSV with technology accounting for 20%. However, healthcare (15.5%) and consumer staples (11.5%) are also well represented. In addition, the top ten stocks account for around 14.5% of USMV and the components are more evenly distributed.
USMV is outperforming USMV on the price charts. MTUM fell much harder than USMV in October. MTUM fell to its April lows, while USMV held above its June low. The November bounce in USMV was also stronger because the ETF exceeded its mid October high. MTUM did not exceed its mid October high.
Preference for Minimum Volatility is also reflected in the USMV:MTUM ratio in the lower window. This ratio broke out in October and hit a new high on Friday. This means the Minimum Volatility ETF is outperforming the Momentum ETF.
On Trend on Youtube
Available to everyone, On Trend with Arthur Hill airs Tuesdays at 10:30AM ET on StockCharts TV and repeats throughout the week at the same time. Each show is then archived on our Youtube channel.
You Really CAN Make Money in a Rough Market Environment
by John Hopkins
The quarter beginning 10-1-18 has been challenging for a lot of traders. The NASDAQ has lost almost 10% while the S&P has lost 6%, both well off the quarter's low. Volatility has reigned with the VIX at elevated levels for most of the quarter. It has been challenging for us at EarningsBeats as well, though you might not know it from our results even though, of the 29 trade alerts we issued to our members since October 1, 18 stocks came off with losses. But on a risk adjusted basis - assuming an equal amount of money invested in all 29 stocks - so far we've seen a net gain of over 2.5%, which easily outperformed both the NASDAQ and S&P. How was this possible? It was possible because the average loss on those stocks that stopped out was 3.1% while the average gain on the winners was almost 7.6%.
I'm pointing this out to show that, in spite of having more losers than winners, it is still possible to outperform the market if you get involved in the "right stocks" and stay disciplined by keeping your losses manageable and taking profits when they come your way. By "right stocks" I mean companies that beat earnings expectations, because these are the stocks traders gravitate to. As an example of what I'm talking about, take a look at the chart below on GOGO, where we issued a trade alert on 11-12-18 with an entry price of $5.95, a price target of $7 and a stop of any close below $5.75. What happened? The stock made a 12% move in one day. But we issued a profit alert when the stock was up 9% - just too good to pass up in one day, even though it was below our target price. Then, just a few days later, the company announced a secondary offering and got absolutely slammed, losing almost 24% this past Friday.
Of course we had no way of knowing a secondary offering was pending but it didn't matter. We took advantage of a pullback after strong earnings and then stayed disciplined and grabbed a nice profit, not needing to get every penny out of the trade.
All of our trade alerts come from our Candidate Tracker (aka our Strong Earnings Chart List) - i.e., companies that beat top and bottom line expectations and could become high reward to risk trading candidates. In fact this list will be the subject of a webinar that I will be conducting this Monday, November 19, and I will be joined by StockCharts.com Senior Technical Analyst Tom Bowley where we will identify the top 10 stocks on our Chart List and specific trading strategies. I will also discuss how we have consistently been able to outperform the market through "extreme patience and discipline." And as a bonus to StockCharts.com members you will get access to the 200 stocks on our ChartList! If you would like to join us for this highly education webinar just click here.
This is a salute to Ben Johnson, the departing editor of Morningstar’s ETF Investor publication. Over the years, I’ve come to look forward to his pithy observations about the ETF marketplace. To use his own words in describing his replacement, Alex Bryan, he wrote “He’s bright, articulate and capable of distilling concepts that are lofty and sometimes near unintelligible into insights that are readily consumable.” Those are words which are spot-on in describing Ben Johnson himself. In other words, I’ve made money based on his insights — thank you very much!
In waiving us goodbye, he leaves by sharing a handful of lessons that individual investors would be well-served to abide by. Here are his essential takeaways, followed by a few comments of my own.
Lesson #1:
“Investing is an inherently personal affair. We’re each running our own race.”
My many sermons on this topic are well documented. Yes indeed, each investor must understand his or her own different circumstances and skill set. Chapter 3 in our book, Tensile Trading, is precisely about this topic. For example, another one of my often-repeated proclamations is to “know your investing timeframe.” Long-term investors will not do themselves any favors by talking to day traders.
Lesson #2:
“Every penny you can save on fees is one that will continue to compound along the course between you and your finish line.”
Another favorite sermon of mine! As John Bogle says, “the investing arena is the only place where you get what you don’t pay for.” For example, you can buy an S&P 500 ETF from Vanguard (VOO) with a cost of 0.04% or a dozen other ETFs that hold exactly the same S&P 500 portfolio for much higher expenses. Pay attention! This is not rocket science. I like ETF.com for this research.
Similarly, in the mutual fund arena, you can buy American Funds Growth Fund (AGTHX) in 17 difference fee configurations. Some with front-end loads of 5.75%, some with deferred loads of 1.00%, some with expense ratios of 1.48%, others with 12b-1 fees as high as 1.00% a year. Pay attention — or you can buy the same fund (ticker RGAGX) with an expense ratio of 0.33% and NONE of these other fees. Folks, all 17 ticker symbols invest in exactly the same stocks. It’s free money compounding in your pocket as long as you do a little homework and pick the right ticker. I’ll show you exactly how to do this on December 5th when I join Tom and Erin on the MarketWatchers LIVE show.
Lesson #3:
“Preaching the benefits of good behavior is one thing. Practicing what you preach is another.”
The most certain way to lose your investing equilibrium is to ignore the “investor self” part of the money management equation. Yes — once more you should refer to Chapter 3 in our book. Beginner investors often refuse to accept the reality that they themselves will determine 80% of their profits. The Investor Self is indeed that important.
Lesson #4:
“Tuning out the noise has likely yielded meaningful benefits for my personal portfolio — preventing me from doing silly things.”
I interpret this to mean that you should believe the charts — they don’t lie. Tune out the talking heads on television. Tune out the newsletter writers who don’t invest their own money. Tune out the disinformation media machine that’s trying to get you to do the wrong thing at the wrong time for the wrong reasons. Focus on what the charts are telling you, not the why.
Lesson #5:
“I’ve come to more fully appreciate the power of compounding. The value of saving early and often is a piece of wisdom I’ve begun trying to impart.”
Not long ago, my son and I spoke to the AAII chapter in Portland, Oregon. In his presentation, Grayson claimed that one of the key lessons I taught him was to embrace the power of compounding. At my age, I can attest to the miracle of compounding. Or as Warren Buffet called it — the 9th wonder of the world!
Lesson #6:
“I always tell the students in business school they’d be better off when they got out of business school to have a punch card with 20 punches on it. And every time they made an investment decision they used up one of those punches, because they aren’t going to get 20 great ideas in their lifetime. They’re going to get five, or three, or seven, and you can get rich off five or three or seven. But what you can’t get rich doing is trying to get one every day.”
This is Ben Johnson quoting Warren Buffett. My take on this quote is that it’s probably correct if your definition of “great” is limited to ten-baggers such as Amazon, Apple, Google or Microsoft. But I maintain that there are hundreds of wonderful “good” stocks such as Square, Ross Stores, Ulta Beauty or Amgen that can make your bottomline pretty attractive and make your mother proud!
Bon Voyage, Ben Johnson! Thanks for your lessons!
Mark Your Calendars...
I’ll be presenting on MarketWatchers LIVE – Wednesday, December 5th at 12:00 pm EST.
I’ll be showing you how I use Morningstar to save money, to make money and to make “Best of Breed” choices.
Trade well; trade with discipline!
- Gatis Roze, MBA, CMT
Money Managers Report Lowest Exposure Since Early 2016
by Erin Swenlin
One of the sentiment indicators that I update MarketWatchers LIVE viewers on each Friday is the National Association of Active Investment Managers (NAAIM) exposure reading. A few things you should know about these guys. NAAIM’s membership ranges from small regional firms to large national firms, including hedge fund managers, mutual fund companies and a variety of other firms that provide professional services. Many of them are technicians. They will sometimes be "right" in their exposure in the very short term, but in the intermediate term, price reversals nearly always occur.
First note that NAAIM exposure to the market pulled WAY back, so far back that the reading was the lowest we've seen since early 2016! Sentiment is contrarian, meaning if sentiment is very bearish, that is bullish for the market. This very low reading is bullish for the market in the intermediate term.
However.... note what happened before the bear market of 2007. Low exposure did lead to short-term rallies, but exposure was lower and lower, until the dam broke. Unfortunately we only have data back to 2006 so I don't have another bear market to compare this to. Mainly I just want to caveat the chart above with this longer-term weekly chart below. While low exposure readings lead to short-term rallies, we need to watch the low readings and determine if they are rising or falling. Since the start this October, each of the low readings was followed by a lower reading than the previous.
Conclusion: Typically very low readings like we have today lead to market rallies. While historically low exposure readings are being logged this week, each extreme reading is followed by a lower extreme reading. I would expect a small rally or bounce, but we need to be cautious if these extremely low exposure readings continue lower. It could be a precursor to a bear market, so we aren't out of the woods yet.
Technical Analysis is a windsock, not a crystal ball.
Experimenting with breadth on Relative Rotation Graphs
by Julius de Kempenaer
Various breadth indicators are used to analyze the underlying strength or weakness of a broad market index like the S&P 500 index or NYSE. Over the years a number of different breadth indicators have been developed and/or used in their work by well known technical analysts.
"Market breadth" groups a number of indicators that derive data from the underlying market that they cover. Things like the A/D Line, the advance-decline line where the number of advancing issues are compared to the number of declining issues. Or New Highs versus New Lows. Or Up/Down volume where the total volume of advancing stocks is compared to the total volume of declining stocks. And many more.
Such breadth numbers can be studied in isolation or cumulative or you can calculate moving averages of them etc. etc. market breadth is a serious chapter in Technical Analysis and there are many people who are much better qualified than me to elaborate on it.
Over the years I have studied various forms of market breadth on and off but never really managed to put it into my workflow as an embedded component. It's one of those things that I look at irregularly when I feel like it. When you just have that feeling that "things are going on" but your normal tools don't show you anything...
Particularly when markets are reaching high grounds as they have been doing recently.
Triggered
This time it was this article by Arthur Hill that made me have another look at breadth again. in this article he uses a breadth indicator that looks at the "percentage of stocks above n-day EMA".
The ticker symbol in the Stockcharts database is !GT200SPX which looks at the number of stocks in the S&P 500 index that are trading above their 200-day exponential moving average. Other versions look at the number of stocks above their 20- and 50-day EMA. These indicators are originally coming from the DecisionPoint database and used by Carl and Erin Swenlin.
Stockcharts has a similar set of breadth indicators starting with $... like $SPXA200 etc.
What really triggered my interest and made me investigate a bit more is when I noticed these numbers were also available for the sectors and not just only for the broader market.
Using breadth on RRG
My thought was: If these numbers are available for all sectors as well as for the S&P 500 and they are all comparable.... then what would happen if I would put them on a Relative Rotation Graph?
I had already played around in the past with the "Bullish percent" indexes per sector against the BP for the S&P 500 on an RRG but put it aside for some reason and went on with other things. After reading Arthur's article I started experimenting again with these data-sets on RRGs and showed some of it in last Thursday's Market Watchers Live.
Here's an example of a Relative Rotation Graph showing the interaction of the number of stocks above their 200 day EMA.
And here's a version that shows the relationships between the various sectors based on Bullish percent data.
It is interesting to see that the positions of the various sectors seem to match, more or less, with the sectors on a regular, price-based, RRG.
As Breadth is assumed to give early warning signals I am going to investigate these RRGs a bit more in one of my upcoming RRG blogs to see if I can find a leading tendency for the breadth indicators over the price based indicators.
For now, I hope I have been able to trigger your curiosity to set up your own RRGs with less obvious data sets and see if you can find a way for them to help you get an edge in your investment process. Or just take a look at these breadth indicators as such and see if it makes sense for you to use them.
My regular blog is the RRG blog If you would like to receive a notification when a new article is published there, simply "Subscribe" with your email address using the form below.
Julius de Kempenaer | RRG Research
RRG, Relative Rotation Graphs, JdK RS-Ratio, and JdK RS-Momentum are registered TradeMarks ®; of RRG Research
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Feedback, comments or questions are welcome at Juliusdk@stockcharts.com. I cannot promise to respond to each and every message but I will certainly read them and where reasonably possible use the feedback and comments or answer questions.
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You can change the indicators and overlays that appear on your GalleryView charts by saving custom ChartStyles from the SharpCharts Workbench for the different views you want to change. Name them "GalleryIntraday", "GalleryDaily" and "GalleryWeekly".
The Momentum Factor iShares (MTUM) and the Minimum Volatility iShares (USMV) represent opposing sides of the market. High flying stocks can be found in the momentum ETF, while the more boring issues dominate the minimum volatility ETF.
Of course we had no way of knowing a secondary offering was pending but it didn't matter. We took advantage of a pullback after strong earnings and then stayed disciplined and grabbed a nice profit, not needing to get every penny out of the trade.
This is a salute to Ben Johnson, the departing editor of Morningstar’s ETF Investor publication. Over the years, I’ve come to look forward to his pithy observations about the ETF marketplace. To use his own words in describing his replacement, Alex Bryan, he wrote “He’s bright, articulate and capable of distilling concepts that are lofty and sometimes near unintelligible into insights that are readily consumable.” Those are words which are spot-on in describing Ben Johnson himself. In other words, I’ve made money based on his insights — thank you very much! 
Various breadth indicators are used to analyze the underlying strength or weakness of a broad market index like the S&P 500 index or NYSE. Over the years a number of different breadth indicators have been developed and/or used in their work by well known technical analysts.
