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TOO EARLY FOR THE ALL CLEAR' BELL

Chip Anderson

Chip Anderson

President, StockCharts.com

Two weeks prior, a major bullish key reversal' higher developed in the S&P 500 Index; this led to Friday's new relative high. Given this, proper sector' positions are required to take full advantage of racing with the strongest'. In the past this meant buying high-beta technology shares; but over the past month the cyclicals have outperformed technology.

This is a potentially negative signal; the March breakout above the February high, and the August breakdown below the May low each failed. This breakout/breakdown was very obvious to all players just as Friday's breakout; thus it is far too early to sound the all clear' bell.

That said, the Nasdaq Composite vs. MS Cyclicals ($COMPQ :$ CYC) ratio shows that once trends become engrained, they remain trending for 12-14 months. The September low in the ratio broke bullishly above trendline resistance and the 120-day moving average; if this current correction holds, and then breaks out above the 250-day moving averagethen a 10-12 month period of Nasdaq Composite outperformance will be confirmed. If not, the Friday's breakout is likely to be short-lived indeed.

Chip Anderson
About the author: is the founder and president of StockCharts.com. He founded the company after working as a Windows developer and corporate consultant at Microsoft from 1987 to 1997. Since 1999, Chip has guided the growth and development of StockCharts.com into a trusted financial enterprise and highly-valued resource in the industry. In this blog, Chip shares his tips and tricks on how to maximize the tools and resources available at StockCharts.com, and provides updates about new features or additions to the site. Learn More