ChartWatchers

Hello Fellow ChartWatchers!

Happy Holidays and Merry Christmas to you and yours from your good friends at StockCharts!

I have several important announcements I'm dying to tell you about but first a quick reminder that John, Arthur, Greg, Carl, Richard and Tom are all have articles later in this newsletter that provide perspective on this frustrating market. You can read those articles first if you want and then come back here later. Go ahead, I'll wait...

Are you back? Terrific! Here are several key things that will be happening at StockCharts in December and January:

• Our Holiday Sale is Now On! Subscribe/renew now for 1 year and get 2 free months of service! How can you tell if you should renew now and take advantage of this deal? Simple - just check to see if your account expires before June 1st, 2014. If it does, you should renew now. Period. End of story. Don't delay - the sale ends soon.

• Vancouver BC is our Next SCU Destination! Canadians who live west of Ontario should definitely consider coming to our SCU Seminars in Vancouver on January 17th & 18th. You'll learn how to get the most out of StockCharts and you'll earn 5 Canadian Continuing Education credits for each seminar you attend!

• ChartCon Speakers Announced! Next August 8th & 9th we're going to be holding our annual ChartCon conference for StockCharts users here in Seattle. Today I'm thrilled to announce the amazing line up of speakers we're going to have:
  John Murphy - Chief Technical Analyst, StockCharts.com
  Alexander Elder - Author of Teach Me to Trade and Come Into My Trading Room 
  Martin Pring - Author of Technical Analysis Explained
  Richard Arms - Inventor of the Arms Index and Equivolume/Candlevolume charts
  Arthur Hill - Senior Technical Analyst, StockCharts.com
  Chip Anderson - President, StockCharts.com
  Greg Schnell - Senior Technical Analyst, StockCharts.com
  Gatis Roze - Author, The Traders Journal and Tensile Trading
  Tom Bowley - Head Technical Analyst, InvestEd Central
  ...and more!
  With a line-up like that, this is a not-to-be-missed event! Reserve August 8th and 9th on your calendar for ChartCon 2014 in Seattle. We'll send out more details (including pricing and registration links) very soon.

• More Candlestick Coloring Choices! Next week, will be updating the SharpCharts bar coloring capabilities. Soon, you will be able to customize the color of up candles and down candles so that they can be something other than black and red. In addition, you will optionally be able to have both up AND down candlesticks have a solid fill. Watch for an announce and blog post with details early this week.

• Greg Schnell has officially joined the StockCharts team. As I mentioned in my blog, this means Greg will be posting more content on our site and working on new forms of content like videos and webinars.

• More High-Profile Authors Joining StockCharts soon. We will be announcing the addition of several important, established market commentators to the StockCharts line-up very soon. I'd love to spill the beans right now, but you can expect several exciting announcements of new, well known contributors between now and the end of the year. Keep an eye on the "What's New" area of the homepage.

• More SharpCharts Charting Features and Datasets. We have just completed a deal to add a very large collection of charting features and market indicators to our website. Again, unfortunately, right now I can't tell you all the details, but this will add a huge amount of additional content and capability to the website. Look for this announcement sometime in January.

• John Murphy's First eBook. We are negotiating for the rights to re-publish some of John's books on our website and hope to have the first one available soon.

We are also still hard at work adding features suggested by our users - things like more ChartPacks, adjustment markers, more SCTRs, more datasets, better scanning, more educational videos, more ChartSchool articles, etc. etc. etc. Phew!

Finally, long-time members know this but I'm going to say this anyway just to be clear: No, we will not be raising prices when all this new stuff is added to the site. One of the hallmarks of StockCharts is that new capabilities are constantly being added to the website making your existing membership more and more valuable over time!

Take care everyone!
- Chip

Friday's announcement that U.S. payrolls rose by 203,000 during November with the unemployment rate falling to 7% (the lowest level in five years) topped a week of encouraging economic news. Stocks rose strongly on that report, which suggests that good news is finally being recognized as good news. Recently, it seemed like every sign of economic strength raised concerns that it increased the odds for earlier Fed "tapering" of its monthly bond purchases which would push bond yields higher. Bond yields did jump initially on Friday before ending unchanged on the day. It should be remembered, however, that bond yield had already gained twelve basis points during the week. The fact that bond yields weakened yesterday afternoon no doubt encouraged stock bulls. There seems little doubt that bond yields will climb higher next year. The good news, however, is that they'll be climbing for the right reasons -- stronger economic growth with little or no inflation. Friday's rally appears to have ended the recent pullback. Chart 1 shows the Dow Industrials climbing 198 points (1.26%), and did so well above chart support drawn along its September peak. The only thing missing was higher volume. Chart 2 shows the S&P 500 climbing 20 points (1.12%). The SPX bounced off initial chart support at its mid-November intra-day low at 1777. Its 14-day RSI line (above chart) bounced off 50 which is good. Its daily MACD lines improved on the day, but remain negative. They will need to turn positive to confirm resumption of the uptrend. As I suggested earlier in the week, the market usually ends the month of December on a strong note (the Santa Claus rally). Odds of that happening this year now look a lot better.

The "January effect" refers to the propensity for stocks to outperform in January and for small-caps to outperform large-caps in January. According to this theory, stocks tend to rise more in January than most other months and small-caps tend to rise even more. Chartists looking to test these theories can put our new seasonality tool to work. As mentioned by Chip in ChartWatchers on November 23rd, the new seasonality tool gives StockCharts users the power to measure seasonal tendencies for any symbol. Chartists can even measure "relative" seasonality and compare the performance of one asset against another.

Let's look at seasonal tendencies for the stock market first and then relative tendencies for small-caps. The first chart shows monthly seasonal tendencies for the S&P 500 over the last twenty years. Notice that April and December show the highest tendency to advance (75% and 74%, respectively). Second, notice that the average gain for April is 1.7% and the average gain for December is 1.6%. This study suggests that the "January effect" has moved up a month and December is the month to watch. Also notice that the market tends to rise in April, which is right before the bearish six month cycle begins in May (sell in May and go away).


Click this image for a live version

The second chart shows relative seasonality by comparing the performance of the Russell 2000 (small-caps) to the S&P 100 (large-caps). Notice anything special? December is by far the strongest month for small-caps because the Russell 2000 outperformed the S&P 100 seventy four percent of the time in December. Moreover, December outperformance averaged a whopping +2.4%, which is also the strongest month for outperformance, by far. This study does indeed suggest that the January effect is really in December and the chances are pretty good that small-caps will outperform large-caps this month. In fact, small-caps are already starting their run because the Russell 2000 is up 2.86% the last four weeks and the S&P 100 is up 1.86%.


Click this image for a live version

In the forest of information, sometimes the trends don't jump out easily.
Rolling through my dashboard charts, I noticed the energy group was on a real roll for the last month.

First of all, the big picture in crude oil is at technicians dream time and price. While dreamy may seem strong, look at the chart.
The 5 year pennant for crude oil broke to the upside in July. The decision point at the apex of a pennant is pretty important.
Should the centre line of the apex fail to hold, this would be considered a continuation pattern lower.
The cycle arcs at the bottom have a pretty good track record for lows this time of year and the acceleration out of the time frame.

Below is a zoomed in view (A three year weekly view) of the same chart above. You can see how much the price action was behaving based on technical levels.
The RSI found support at the 40 which is a bull trend place to find support. The CMF money flow went positive this week.
You'll notice the price briefly broke below both trend lines and found support. That is probably more important that it tested below and got aggressively bought.
Here is a link to the weekly chart. $WTIC. Change the time period below to see the 7 year view.

It is common to find price break out of a pattern and then go back and backtest the trend line. When it does, that is usually an excellent entry.
So here we sit below the 10 WMA and 40 WMA. On the daily its quite bearish. With the big picture in mind, I think this positive breakout is valid until proven otherwise.Because of the pennant pattern and the breakout with a big week, it gives technicians lots of good choices for stops.
It was only the last Chartwatchers that I though oil would go back up and test the 40 WMA from the bottom. I also wrote that I thought it would would be a major decision point to get back above the 40 WMA. This week's power thrust is pretty bullish. That article is linked here, Is Crude Oil Ready to Rally.

Oil is testing the 50 DMA and the 200 DMA from the bottom right now. But look at all the other energy components since early November. All moving nicely higher.
The live link is here. $WTIC $BRENT $GASO $HOIL $NATGAS

I personally like $NATGAS here as the stocks seem to be rising in tandem with the commodity.
Natural Gas is really one of those quirky products that does not necessarily correlate to the overall business cycle. It really seems able to carve its own price path regardless of currencies, the large equity indexes like the $SPX, as well as other usually related sectors. In times of turbulence it can be an interesting trend to ride.
The refiners have had a good run recently mostly on the back of lower crude. This push up in $WTIC this week was very big which would normally squeeze refiners. But the gas prices have risen to dampen the margin squeeze for the refiners.

This correlated action might be the first indication that these commodities and the related industry groups could finally break out. I am very interested when I see a big move across the board on all these components.
Last week there were no major Canadian energy stocks in the top 25. This week created some interesting turns. Some are really starting to make nice moves higher, contrary to the previous weeks in oil. In isolation, I felt crude might stall below $100. When I see the last months correlated moves of everything going higher, I am ready to get a lot more bullish in this sector.

I have been expecting the $USD to break out to the upside. If the $USD breaks down instead, this group could really benefit. It is still interesting timing for the $USD but it does look like it wants to test lower levels from here. So I am watching how crude behaves at the 50 DMA and the 200 DMA. If we do get a breakout to the upside in $WTIC, this will be a very attractive entry on a substantial portion of oil and gas stocks.
Energy stocks with high SCTR rankings can be an excellent filter to find some big ones moving well.

To get to the main SCTR rankings page, click on the link on the right hand side on the FreeCharts tab.

To get a complete list of various SCTR's just use the drop down menu above the list where is says "S&P 500 Large Cap Stocks". You can choose ETF's, the $TSX, mid cap and small cap stocks.The closer they are to the top of the list, the stronger they are. You can sort by column name to help group stocks by sector together as an example. Scroll down past the ETF's to see the list of energy stocks and their SCTR rankings all on one page! I like to scrolling down to find stocks moving up into an SCTR ranking of between 76 and 81. They still have room for institutions to buy their stock. A visual check of the charts helps with the timely entries.

So I'll be keeping an eye on Oil and the $USD. A break either way will be very important for the Santa Claus rally. If you are trading the Natural gas stocks, they may be less inclined to track the $USD as closely. Remember to book the SCU 101 and SCU 102 Classes in Vancouver and Altanta.

Good trading,
Greg Schnell, CMT

There is a good chance that the retest will fail, sending bear market prices to lower levels, but there is also a good chance that a double bottom will form, possibly setting the base for a new bull market in gold. Price is currently pushing into the apex of a falling wedge formation. If it breaks up through the top of the wedge, which is the technical expectation, that would be the first step in forming the bullish double bottom.

The weekly chart presents a better perspective of the potential double bottom, but the weekly PMO is falling and has just generated a crossover sell signal.

Another element is the current sentiment on gold. Central Gold Trust (GTU) is a closed-end mutual fund, which means that it trades like a stock on the NYSE. The fund owns only gold -- the metal, not stocks. Closed-end funds trade based upon the bid and ask, without regard to their net asset value (NAV). Because of this, they can trade at a price that is at a premium or discount to their NAV. By tracking the premium or discount we can get an idea of bullish or bearish sentiment regarding gold.

Currently and for several months, GTU has been selling at a substantial discount, so we would say that sentiment is sufficiently bearish for a rally to begin.

Conclusion: The possibility fo a double bottom in gold is just that -- a possibility. The approaching support presents an opportunity for a trend change, so we will be monitoring the situation closely.

When I map out my trading strategies, I consider fundamentals, especially quarterly earnings reports, but I FOCUS on technical indicators. The study of price action helps to determine future price action, but note that it doesn't guarantee it. The basic premise of trading is to set up the odds as best you can in your favor and manage the risk you take in order to achieve your trading objectives, whatever they might be.

In a recent article, I discussed the market's tendency to move higher from the October 27th close to the January 19th close. Take a look at this visual on the semiconductors ($SOX):



The green highlighted areas shows the performance (roughly) of the SOX during that bullish Oct 27-Jan 19 period each year over the last decade. The end of 2007 into 2008 was clearly a bearish period, not only for semiconductors, but for the stock market in general. Most of these years, however, show significant gains during this bullish historical period.

It prompted me to do a quick study.

A little more than ten years ago on October 27, 2003, the SOX stood at 462.09. After the recent rally, we're now at 515.63. We're up a little more than 10% for the ENTIRE 10+ year period. But check out the performance of the SOX during the bullish period I've identified during each of the last 10 years, plus what it's done thus far in 2013 in the table below:

To me, those historical tendencies are undeniable. Why am I bringing this up? Because the SOX just made a significant technical breakout with 6 weeks left in this bullish timeframe. Check out the SOX breakout late last week:

I've written a white paper on the Four Historical Rules Every Trader Should Know. To claim your copy for FREE, simply CLICK HERE

Happy trading!

Tom Bowley
Chief Market Strategist/Chief Equity Strategist
Invested Central/EarningsBeats.com

In the fundamental economic forum, the balance of economic data has been "positive" as of late with the exception of the housing market. And this data has engendered a belief that the Fed shall begin to
pullback on its bond-buying campaign - which shall simply be US Dollar positive. We don't believe so, for what is now being called the first world "synchronous expansion" since 2007 suggests that the relative nature of trading equities puts the European and Asian markets in a position to "out perform" in the years ahead. Hence, money shall leave the US for riskier markets if the viewpoint holds up.

And to this point, the technical environment for the US Dollar remains "bearish" given the break of trendline support as well as both the 180-day and 420-day moving averages. Of particular concern for US Dollar bulls is that prices failed at this latter juncture just recently, with a number of individual currencies consolidating their recent gains, and now appearing as of yesterday to be "lifting off." Attention is to be paid.

If this shall be bullish of currencies, then the New Zealand Dollar is our choice. But if one is looking towards equities, then we'll look at the Energy and Materials groups.

Good luck and good trading,
Richard