the StockCharts​.com Newsletter

December 6, 2009
  Chip Anderson | John Murphy | Arthur Hill | Carl Swenlin | Tom Bowley  
by Chip Anderson | ChartWatchers

Hello Fellow ChartWatchers!

This week, I'm taking time off from our on-going "Technical Analysis 101" series, to enlist your help.  We are in the process of compiling a list of "Tips" for using and we need you to review the tips that we've come up with so far.  When this list is complete, we'll make it available to everyone on the website.

Here's our current collection.  How many of these did you not know about?

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See any that are confusing?  Any typos?  Know of any good tips that we left out?  Let me know in the comment area of the ChartWatchers blog.

Happy Holidays!
- Chip

P.S. Don't forget about our Holiday Special going on right now.  It's going to end later this month so don't delay!

by John Murphy | The Market Message

Sometimes good news produces a bad effect. That's especially true when dealing with financial markets. Today's unemployment report dropped to 10% and payrolls fell by an unusually small amount. That good news was given a positive reception by most markets. By day's end, however, commodities and stocks were on the defensive. The good news caused a big jump in the 10-Year T-note Yield (Chart 1) as bond prices fell sharply. The jump in bond yields (and a more positive view on the U.S. economy) pushed the dollar higher. Chart 2 shows the Power Shares Dollar Bullish ETF (UUP) surging 1.5% on the heaviest volume in two months. The UUP is now challenging its 50-day moving average. Chart 3 shows the Euro (which trends in the opposite direction of the UUP) falling below its 50-day moving average for the first time in several months. The rising dollar caused profit-taking in commodities, and gold in particular.




by Arthur Hill | Art's Charts
The finance sector continues to underperform the overall market. While the S&P 500 and Dow are consolidating near 52-week highs, the Financials SPDR (XLF) remains well below its October high and shows relative weakness. The bottom indicator contains the price relative, which is the XLF:$SPX ratio. XLF is outperforming when the ratio rises and underperforming when the ratio falls. Notice that the ratio peaked in October and declined to its lowest levels since late July. XLF is clearly underperforming the S&P 500.

091204xlf Click this chart for details.

On the price chart, XLF formed a triangle consolidation over the last eight weeks. Prior to this triangle, the ETF advanced from July to October. While this triangle can be considered a consolidation within an uptrend, the next signal is dependent on the triangle resolution. A break above 15 would be bullish, while a break below 14.2 would be bearish. The market is likely to follow in the direction of this triangle break.
by Carl Swenlin |

On Thanksgiving Day Dubai announced that it would be delaying loan payments by six months. This resulted in a global selloff, in which the U.S. markets participated on the following day. There was virtually no follow through selling this week. Looking at the S&P 500 chart below, you can see that the Dubai selloff is practically invisible within the context of the trading range of the last several weeks.

In fact, the market is consolidating during a time when I had expected it to be declining into the 20-Week Cycle low. Because of this I have had to reconsider my cycle assessment: It appears that the 20-Week Cycle low occurred on November 1, about three weeks ahead of schedule. Early or late arrival is a frequent occurrence, but not something we can know until after the fact. All we can do is adjust accordingly. At this point, I think a new 20-Week Cycle began on November 1. The next major cycle-related correction low is projected for April 10, 2010 when the 9-Month Cycle is due to bottom.


Let's look at the chart again. What I see is a flag pole (the rally from the November low) and flag (the recent three-week consolidation). The technical expectation from this formation is an upside breakout with an initial target of about 1180. We are in a bull market with the market behaving extremely well, so I have high confidence in this outlook. If prices drop below the bottom of the flag, breakout expectations would be negated.

Next is a monthly chart of the S&P 500, and it contains some very bullish evidence. The monthly PMO (Price Momentum Oscillator) is rising off a very oversold reading (lowest since 1932), and it has crossed up through its 10-month moving average. There are only four other deeply oversold PMO bottoms since 1929, and all were associated with new bull markets. Four data points in 90 years is a thoroughly inadequate statistical base from which to draw conclusions, but, understanding how the PMO works, I think the bull market is likely to continue for at least a year and could easily challenge previous all-time highs. Be advised, however, the positive long-term picture does not eliminate the possibility of substantial corrections along the way, but a smoothly rising monthly PMO presents a solidly positive long-term technical picture.

Bottom Line: Technically, the market is showing solid strength, but the bull market is running strictly on speculation and emotion, and there is virtually no fundamental support under the market. The Dubai event is a good example of the kind of thing that has the potential to start an avalanche of selling. There are probably hundreds of them waiting in the bushes. Taken one at a time, they may only cause a momentary ripple. If too many pop out at one time, it could end in disaster.

by Tom Bowley | InvestEd Central

When I see a relationship in the market that tends to hold true over time, it always peaks my interest when the market varies from that "norm".  That seems to be the case right now with oil services stocks.  Generally speaking, when oil prices rise, money flows to oil services stocks relative to the S&P 500.  Likewise, when oil prices are on the decline, I expect to see oil services stocks struggle.  Take a look at the following chart to see the relationship that exists between the direction of oil prices and the relative performance of oil services stocks:

Oil Services vs. S&P 500 12.5.09
Notice how oil services stocks have fallen quite a bit on a relative basis in the last two months?  Crude oil has ticked a little lower, but not enough to cause oil services to drop so much.  I believe this skewed relationship will resolve itself in time by oil services stocks outperforming.  Time will tell.

Some wonder why oil prices aren't following gold prices higher.  After all, the dollar continues to weaken and gold is benefiting, why isn't oil?  Personally, I believe there are other influences at work in taking gold higher.  Gold is a hedge against a weak dollar, inflation and deflation.  Right now, we have folks in all three camps.  It seems that everyone wants to own gold and we can't fight the tape.  Let's get back to oil and the dollar for a moment.  Oil has benefited from a weak dollar.  Oil has roughly doubled during 2009.  That increase is partly due to an improving economic picture, but the weaker dollar has contributed as well.  My view is the dollar will remain under pressure for the foreseeable future and that will only aid crude oil and oil services stocks.

The market overall continues to gyrate back and forth.  The major indices have edged mostly higher over the past couple months, but rotation has been the name of the game.  No one sector - other than gold and perhaps healthcare - has been able to maintain a consistent uptrend since the May/June highs.  That has left us with a mostly trendless market where timing is critical, both at the sector and individual stock level.

Everyone must remain patient in a market like the one we've been in for last few months.  I like to focus exclusively on low risk, high reward trade candidates while in this type of market environment.  Trade fewer shares and be willing to accept smaller profits.  Otherwise, profits evaporate as sectors rotate.  Another requirement to profitable trading in this environment is to keep stops in place.  Small losses don't hurt much, but big losses are hard to recover when the market is essentially trendless.

Feel free to check out my Chart of the Day at Invested Central.  I scan for stocks that fit the description above and provide annotated charts and a brief analysis every day as educational reinforcement.  CLICK HERE to check it out.

Happy trading!