Hello Fellow ChartWatchers!
Whether you realize it or not, all ChartWatchers are on a journey of self-improvement. We are all trying to become better stock market investors. As users of StockCharts, our journeys have many similar paths and common milestones. See if you recognize the steps that I have described below. As you read through them, ask yourself "Where am I right now on this path and what is my next step?"
Stage I - Discovery & Experimenting with SharpCharts
At some point, you discovered StockCharts.com. It may have been via a friend's recommendation or a search engine or a magazine article, but somehow we all visited the website for the first time. Soon after that, you discovered the SharpCharts workbench page for the first time and you started playing with all of the settings - entering ticker symbols, adding overlays, changing colors, sizes, periods, etc. You continued to experiment with the settings until you got something on the screen that you really liked. Many of us did that without even looking at the instructions - which is fine and a very normal way of getting into technical charting. Despite the scissors-like name, tinkering around with SharpCharts cannot harm you in any way and is greatly encouraged.
Stage II - Learning More via ChartSchool, Support & Search
Eventually, if you did not already know about technical analysis, you probably started to wonder what all the wiggley lines on your SharpCharts meant. Those questions lead you to another important area of our site: ChartSchool. You quickly discovered that ChartSchool is chocked full of articles on all aspects of charting. Hopefully, before getting too overwhelmed, you read the "Overview" articles at the top of the ChartSchool page which gave you a sense of what Technical Analysis is really about.
You probably also started coming up with questions about how our SharpCharts page actually works. Maybe some feature wasn't intuitive or you started seeing results that you didn't understand. Regardless, you then started looking at our "Support" page for assistance. You may have found the official documentation page (or not). You may have read the FAQs. You may have even sent us a question (which hopefully we were able to answer for you). Regardless, your comfort level for using SharpCharts continued to increase.
And then one day you tried out the "Search" box on our homepage and found that it could answer lots of your questions quickly. You started using Search regularly from then on.
Stage III - Reading Blog Articles
Somehow - maybe via the Search box - you also stumbled into our "Blogs" area and starting reading some of the articles there. You soon realized that there were too many articles to read all of them, but "Search" helped you find the ones you needed and they were all very helpful. Maybe "Mailbag" answered a question you'd been meaning to look into or maybe "Don't Ignore This Chart" caused you to try out a new kind of chart. Regardless, you got more interested in learning more about Technical Analysis as a result.
Stage IV - Becoming a Member
At some point you decided that you needed more that what the free tools on StockCharts provided and you became a subscriber. You may have needed intraday data bars, or bigger charts, or the ability to save charts, or access to our Scan Engine, etc. Regardless of the exact reason, you immediately noticed the additional SharpCharts settings and capabilities that members had access to.
Stage V - Reading the Market Message
It might not have been at the top of your list of reasons for subscribing, but soon reading John Murphy's Market Message newsletters becomes an important part of your day. You enjoy the high-level perspective that John and Arthur provide. You also start trying to duplicate some of their charts yourself. And Arthur Hill's videos and daily commentary give you even more ideas for investing and analyzing the market.
Stage VI - Scribbling On & Saving Your Work
Early on you discovered our ChartNotes annotation tool which allows you to add trendlines, comments, etc. to your charts. But now, as a member, you can save your "masterpieces" into your accout for later review - much easier than recreating them from scratch each time. And that if you save an annotated chart, the annotations get updated automatically for you.
You also go back to ChartSchool to learn more about all of the various tools and line studies that ChartNotes provides. There are almost too many to deal with but you thought that Fibonacci Retracements looked promising...
Stage VII - Tossing Out the Kitchen Sink
At some point you get overwhelmed with all of the indicators and options and squiggly lines. "How is this supposed to make things better?" you ask yourself. And then you find John Murphy's essay - The 10 Laws of Technical Trading - which helped you get back on track. John's message for keeping things simple started to make more sense after that.
Stage VIII - Scanning for Dollars
The Advanced Scan Workbench looked very scary when you first saw it. But, on the other hand, you needed something to help you find a manageable number of "interesting" stocks that you might actually want to invest in and the Scan Engine seems to be just the thing for that. The "Predefined Scans" page had lots of interesting possibilities but you needed something more tailored to your situation.
Soon after you started trying to create a scan, things were looking bleak - but then you discovered the video tutorials on scanning in our Video Library and soon you had several promising scans up and running. You also got some helpful tips from your friends on the s.c.a.n. board.
Stage IX - Trading & Managing Risk with Technicals
One day, you finally found it - the perfect chart. But you didn't (couldn't?) pull the trigger. You weren't comfortable with the mechanics of trading and you didn't know how to manage your risk with such a trade. (And you agonized as the stock climbed higher and higher!) Then you found Gatis Roze's blog - "The Trader's Journal" - and Alexander Elder's eBook - "To Trade or Not To Trade." Both of those helped you approach trading in a more disciplined way using sound risk management practices. The next time the perfect chart appeared in your scan results, you were ready.
Stage X - Getting Better by Going in Circles
At the start of this journey, you thought it would be simple - just find that one chart with the one indicator that would tell you when to buy and sell accurately without fail. Over time you realized that this was a cyclical process of improvement. You needed to be constantly learning and testing out new ideas. You needed to have patience and gradually incorporate hard-won lessons into your trading routine. Looking for the "magic bullet" gave way to creating repetitive, disciplined processes that paid off again and again but in smaller ways.
The books in the StockCharts Store became very interesting to you. Many of them go deeper into topics than the articles on the website. In addition, you decided to attend an SCU Seminar event - even though you were a very experienced StockCharts user by that time - and boy did that open your eyes to everything you'd overlooked on the website.
Stage XII - Validating Your Knowledge
Ultimately, your trading results validated your improved knowledge of technincal analysis and StockCharts' tools. However, when StockCharts announced a new Certification Exam for members in October of 2013, you were the first to sign up and take it. Becoming a Certified ChartWatcher confirmed your progress so far on your journey.
Does any part of this 12-stage journey that I described above sound familar? Are there any parts of the journey which you haven't worked on yet? Again, the journey never really ends, but you need to make sure that you are investigating all of the nooks and crannies along the way. Each one contains part of the key to becoming a successful technical investor.
- Chip
P.S. Join me in Dallas next month for a full day (or 2!) of hands on training in all of these topics and more. I'd love to see you there.
Stocks went on a tear the last two weeks with all indices and sectors moving higher. In the past week, we saw fresh 52-week highs in the Russell 2000 (small-caps), Nasdaq (techs) and the S&P 500 (broader market). These new highs affirm the long-term uptrends in stocks and we have yet to see any divergences among the major stock indices. Among the sectors, the Technology SPDR, Finance SPDR, Consumer Discretionary SPDR, Energy SPDR and Healthcare SPDR recorded new highs this week. Outside of the Google-led move in technology, I was most impressed with the performance of financials over the last two weeks. The PerfChart below shows XLF with the biggest gain since the S&P 500 bottomed nine days ago.
Click this image for a live chart
In addition to relative strength, XLF also sports a triangle breakout on the price chart. The chart below shows XLF gapping up from the 19.50 area and surging above triangle resistance. This breakout signals a continuation of the bigger uptrend. Notice that this surge occurred with strong volume as three of the last eight days topped 75 million shares. Using classical technical analysis, the triangle breakout targets a move to the 22.25 area. The height of the triangle is added to the breakout point for an upside target. Before getting too bullish, note that the ETF is getting short-term overbought after a ~7 percent surge. This means we could see a little backing and filling in the coming days.
Click this image for a live chart
Good trading and good weekend!
Arthur Hill CMT
Commodity countries have been trying to find a bid for a while.
This week, Toronto closed at 2 year highs, well above resistance.This is the first close above 13000 in 2 years.
The link is here. $TSX
Here is a chart of other major indexes breaking out. Live link for the global breakout.
India has pushed above 4 similar highs this year. Australia broke out in September with Germany and France. Korea moved above in October. Italy and Spain (not shown) have also broken out to the upside. The All World Vanguard fund shown at the bottom has broken out. Two interesting charts are the Hang Seng ($HSI) and Shanghai ($SSEC).
The Hong Kong Hang Seng is testing the May highs after making a higher low compared to last year. I would expect it to finally break out here. That chart looks more like an uptrend.
The Shanghai is still in a downtrend. The only encouraging thing on the chart is that the lows of 2012 were not taken out this year. Support held. $SSEC does not have far to move to break out and I would be thrilled to see it break the downtrend. Especially for the global commodity demand, that would be exciting.
Charts like England and Japan still have work to do and they are important globally. Brazil and Russia are both interesting. Brazil and Russia have pushed above downward sloping trend lines.
Russia has taken out the May highs, whereas Brazil has not. Having the four Commodity horsemen (Australia, Brazil, Canada and Russia) breaking out would confirm a major breakout.
There is an old saying. "When you are breaking out to new highs, you are not in a downtrend." When the globe is breaking out to new highs, we are probably breaking out into a big new global bull market. One week doesn't make a conclusion, but it can be the beginning of a multi year breakout. That appears to have happened this week on many exchanges. I'll be focused on watching to make sure it holds up. The extremely light volume on the $TSX chart is not a ringing endorsement, but investors are willing to pay higher prices in a quiet market. Canada was closed for Thanksgiving on Monday, so that explains some of the reduction. The price action is still bullish.
Good Trading,
Greg Schnell, CMT
A month ago the market seemed to be setting up for an intermediate-term correction.
On the month-old chart below we can see a bearish rising wedge accompanied by negative divergences in price, breadth, and volume. Our comments at the time: "We expect the SPX to correct down to the rising trend line drawn from the November 2012 price low. The condition of the intermediate-term indicators suggests that that support may not hold this time around."
Referring to the most recent chart below, as it turns out, we were right to the extent that the SPX corrected down to the rising trend line and broke down through it as well; however, the larger scale correction we were expecting did not materialize, and prices rallied again to the top of the rising wedge. We naturally wonder how the rising wedge will eventually resolve.
We note that the three prior price tops were associated with corresponding overbought indicator tops; whereas, currently the indicators are solidly in the neutral zone, leaving plenty of room for them to accommodate rising prices.
The more immediate problem for rally continuation is that short-term indicators are at very overbought levels, so a pause/pullback in that time frame is possible.
Conclusion: The SPX has run into overhead resistance and short-term indicators are overbought. This could initiate another trip to the bottom of the wedge formation. However, intermediate-term indicators, which carry more weight, favor a continued rally, so we remain bullish overall. That outlook would change if prices were to correct enough to cause the intermediate-term indicators to turn down.
I've mentioned it before, but I'll say it again. I LOVE trading stocks (in bull markets) that gap higher on better-than-expected revenues and earnings and very strong volume as it's a sign of great management execution and investor accumulation. That combination is difficult to beat when owning stocks as it's proven to generate not only short-term outperformers, but also long-term winners. I'm more interest in the former though - short-term outperformers. That's what trading is all about - beating the benchmark S&P 500. I'll get back to trading gaps in a moment, but first let's discuss what's going on in the BIG picture.
Last week, the more aggressive NASDAQ and Russell 2000 thumped the S&P 500 and Dow Jones. That NASDAQ gained more than 3% last week, led by a stellar earnings report by Google (GOOG). The Russell 2000's 2.81% was very nice as well, providing this small cap index with its first close above 1100 - EVER. The S&P 500 closed at an all-time high as well. Unless bearish "under the surface" signals begin to emerge, it's difficult (and financially unwise) to bet against a raging bull market. Some of you may be listening to all the negativity on CNBC and other media outlets and wondering how the market can continue to push to all-time highs. STOP listening to the media. They don't care (much) about your financial well-being. They care about RATINGS. Instead of listening to the media, simply listen to the market. It talks to each of us every single day. You just need to understand technical analysis and intermarket relationships to interpret what the market is saying.
There are a few "under the surface" signals that I follow extremely closely. Check out Arthur's article this weekend on the recent relative outperformance of financials. This argues strongly for a continuation of our 4 1/2 year bull market. You want to short this market? Have at it. I won't be tagging along, though. We'll certainly have normal pullbacks from time to time, but I fully expect we'll see further highs during Q4. In addition to Arthur's excellent point about the surging financials, check out these next two charts:
In the case of the SOX chart above, note how well the NASDAQ performs when the relative ratio ($SOX:$COMPQ) is rising. There's a dramatic difference in NASDAQ performance when it's being led by the very aggressive and highly volatile semiconductor industry. During 2011 and 2012, semiconductors performed poorly on a relative basis and that impacted the NASDAQ's results. But note how violently the NASDAQ has moved higher when being led by semiconductors. I believe the two year relative underperformance in the SOX ended in late 2012. Since that time, the SOX has performed quite well on a relative basis. There is a level of relative resistance to watch closely, however. It's at the 0.1375 level (red line on chart). If this MAJOR relative resistance level is cleared, we could continue to see the meteoric rise in the NASDAQ that we've witnessed since October 2012.
The second chart shown is a very simple comparison of consumer discretionary (aggressive) stocks to consumer staples (defensive) stocks. When this ratio rises, it suggests that traders have an appetite for risk. Think "risk on". This type of trader mentality generally results in higher stock market prices, as evidenced by the chart.
So now let's get back to gap trading for a moment. I'm VERY bullish the stock market right now. I've maintained a bullish stance throughout most of this bull market rally and I see not reason to change just yet. This means I am looking at LONG candidates only. I don't short anything in a bull market. What's the point? If you're on the tracks with a train coming right at you, what are your first instincts going to be? I hope they're not to lower your head and run at the train!
Let's try to further simplify this. If you believe the stock market is going higher, would you rather own companies that just blew the doors off Wall Street estimates in terms of revenues and earnings or would you rather own companies that provide excuses for why they fell short? I hope you don't have to think about this question for very long. Below is an example of a financial company that just reported an excellent quarter. I'm sure most of you have heard of Charles Schwab (SCHW). They reported revenues of $1.37 billion in their latest quarter, ahead of $1.34 billion estimates. Their bottom line earnings beat was $.22 per share vs. $.20 per share. In an era of companies constantly disappointing on top line results, Wall Street responded much the way you'd expect - sending prices higher. Take a look:
Ten days ago, I opened a new service that I'm very excited about - EarningsBeats.com - to coincide with the start of earnings season. EarningsBeats.com focuses exclusively on narrowing down the enormous number of stocks available to trade across all of the major indices to a more manageable list - companies that are executing their business plans to perfection. Every company discussed at EarningsBeats.com will have recently reported better-than-expected revenues AND earnings. In my experience, these are the types of companies that you want to consider trading/owning. Next week is the biggest week for earnings reports as 30-35% of S&P 500 companies will be reporting. I'll be sifting through every one of them, searching for the combination of solid earnings beats and strong technical patterns that we want to feature. If you'd like more information on EarningsBeats.com, simply CLICK HERE.
Happy trading!
Tom Bowley
Chief Equities Strategist
Invested Central/EarningsBeats.com
The US Congress came through at the 11th hour once again as many expected they would in opening the government and raising the debt ceiling, but only for a short while really. However, the decision to "kick the can down the road" is causing the US Dollar to experience a great deal of "indigestion." Our premise is that the current US government dysfunction is bearish for the USD from a fundamental point-of-view; and it is also backed up from a technical point-of-view.
Technically speaking, the trend has turned bearish this summer when the USD broke below the 180-day moving average fulcrum point between bull and bear markets, and it has broken trendline support off the 2011 low. Thus, one should be sellers of the USD on rallies. However, the real "fireworks" if you will shall begin once the 78-to-79 zone is breached, for it has provided support to the USD since the beginning of 2012. A break of this zone would target the lows at 73-to-74, and perhaps even lower.
Our choice for shorting the USD is a long Swiss Franc position, for it has broken out of a longer-term "head & shoulders" bottom, and should lead all the currencies higher...including the Japanese yen. This is the price of continued government dysfunction...a loss of faith in the currency.
Good luck and good trading,
Richard
