November 20, 2009 - StockCharts Blogs - ChartWatchers

TRENDLINES AND 50% RETRACEMENTS REACHED

The following three charts show the three major U.S. stock indexes having reached formidable overhead resistance barriers. Charts 1 and 2 show the Dow Industrials and the S&P 500 having retraced 50% of their bear market declines. More importantly, both indexes are testing major down trendlines drawn over 2007/2008 peaks. Given the fact that the market has rallied 60% in the last eight months without a meaningful correction, that's some cause for concern. Chart 3 shows a slightly different picture for the Nasdaq market, but the message is essentially the same. The Nasdaq Composite has reached important overhead resistance along its early 2008 trough around 2200. That puts all three stocks up against meaningful resistance barriers. Combined with the fact that numerous short-term divergences are starting to appear among market groups, and the recent rotation toward large-cap stocks in the consumer staple and healthcare categories, it looks like investors are starting to lock in or protect some yearend profits. That could lead to choppier market conditions.

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November 20, 2009 - StockCharts Blogs - ChartWatchers

STOCKS STILL OVERVALUED

Stocks have been in the overvalued end of the normal P/E range since the early-1990s, and this condition shows no sign of abating. Below is an excerpt from our daily earnings summary that will offer readers a better perspective. I have outlined the 2009 Q4 results because that is the first quarter not distorted by the huge loss reported in 2008 Q4. While the results of the current quarter are not final, 90% of companies have reported, and I don't think there will be any surprises from the remaining companies sufficient to change the estimated results a substantial amount. As you can see, valuations are projected to be well above the overvalued limit of the range (P/E of 20) through the first two quarters of 2010. If the market continues to rally, the over valuation will persist into the foreseeable future.

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Since price movement over the last two decades seems to have little relationship to P/E ratios, why pay any attention to values? In fact, Decision Point's trend-following models consider price movement and nothing else. Nevertheless, we still want to be aware of the condition of the fundamental foundation of the market, and we believe that investor ignorance in this regard will only lead to more pain. After all, investors have been ignoring valuations for nearly two decades, and the result has been a stock bubble and two major bear markets. Most have not fared well during this period.

At each price top for the last two months I have been expecting a correction to begin, yet price declines have been relatively small and each top is followed by a higher top. Frustrating! I am not trying to identify a shorting opportunity, because shorting is not recommended during a bull market. The only reason that a decent correction is important is that it will provide a lower-risk opportunity to open new long positions.

For two weeks the market has been rolling over into what could be another short-term top. Or it could be the beginning of the long-awaited correction. Negative divergences still abound, but, as I told a subscriber, these conditions are usually not too serious in a bull market. The market is vulnerable, but it is not a time for shorting. We could reasonably expect the rising wedge pattern to break down, but you can see that there is support just below the wedge.

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Bottom Line: Market P/E tells us that there is no fundamental foundation under the market. This information is not useful in timing decisions, but it does tell us that there is more pain ahead in the long-term. In the short-term the market is topping again, and a correction is still possible.

November 20, 2009 - StockCharts Blogs - Don't Ignore This Chart!

Healthcare showing relative strength


The Healthcare SPDR (XLV) broke above its October high two weeks ago and continued above 30 this week. Even though stocks were weak across the board on Thursday, healthcare managed to show relative strength with a smaller loss. Eight of the nine sectors were down in early trading Friday, but healthcare was sporting a small gain and again showing relative strength.

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Click this chart for details.

November 20, 2009 - StockCharts Blogs - MailBag

How can I compare two securities?

There are two ways to compare securities using SharpCharts. The first method is simply to analyze the price plots together, one overlaid on the other. Another security can be overlaid by choosing "price" in the indicator box, entering "$SPX" for parameters and choosing "behind price" for position. Any symbol can be entered here. I chose red for color contrast.

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The chart below shows General Electric (GE) in black and the S&P 500 in red. Both moved higher from July to September, but started to diverge in October and November. Notice that the S&P 500 recorded higher highs in October-November, but GE formed lower highs. GE is not keeping pace with the S&P 500 and shows relative weakness. 

091120zmailge1 Click this chart for details.

The second method involves a ratio chart. Choose "price" in the indicator box and then enter the two symbols you wish to compare for parameters. I want to know the performance of GE relative to the S&P 500 so I enter the symbols as a ratio (GE:$SPX). You can use any two symbols. I elected to show this indicator below, but you can also choose to view is behind the main price plot (GE in this case).

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The chart below shows the relative strength comparative or ratio plot for GE and the S&P 500. Notice that the ratio peaked in late September and declined the last two months. GE started lagging the S&P 500 in late September and continues to lag as long as this ratio moves lower. A break above the November highs is needed for GE to start showing relative strength again.

091120zmailge2 Click this chart for details

November 19, 2009 - StockCharts Blogs - Don't Ignore This Chart!

An island reversal in MDY

With a gap up on Monday and a gap down on Thursday morning, the S&P 400 MidCap ETF (MDY) has an island reversal working on the 30-minute chart. There were no trades around 127.6, which creates a floating island around 128. Even though this gap is negative, MDY landed right at support from last week's low. Further weakness would reverse the short-term uptrend.

091120mdy Click this chart for details.

November 18, 2009 - StockCharts Blogs - Don't Ignore This Chart!

Regions Financial Bounces off 200-day SMA

Regions Financial (RF) is showing signs of life with a high-volume bounce off the 200-day simple moving average and a key retracement. Notice that the Sep-Nov decline retraced a Fibonacci 62% of the Jul-Sep advance. The stock firmed around 4.75 in early November and surged over the last three days. 

091119rf Click this chart for details.

November 17, 2009 - StockCharts Blogs - Don't Ignore This Chart!

DIA enters retracement zone

With the advance above 100, the Dow Diamonds (DIA) entered the 50-62% retracement zone. Such retracements can be measured using the Fibonacci Retracements Tool on Sharpcharts. These zones can mark resistance areas and price action merits a close watch.

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Click this chart for details.

November 16, 2009 - StockCharts Blogs - Don't Ignore This Chart!

Scanning the Aroon oscillator in the market carpet

Friday's mailbag answered questions on the Aroon oscillator, which is a trend identification indicator. Basically, a strong uptrend exists when the oscillator is above +50 and a strong downtrend exists when the oscillator is below -50. Even with the market gains of the last few weeks, I was surprised to see so many negative readings in the Aroon oscillator. The sector averages are negative for finance, energy, consumer discretionary and materials sectors. 

091116carpet Click this chart for details.

November 16, 2009 - StockCharts Blogs - Status

Nov. 16th, 2009 @ 2:00pm - ChartStyles Database Goes Offline Unexpectedly

The database that keeps our ChartStyles data - i.e. all the stored settings for the stored charts that our members use - stopped responding for some reason.  We have restarted that server and things have returned to normal. 

If you are still seeing incorrect charts, please try clearing your browser's temporary file cache and restarting your computer.  If that doesn't work, please check back here for any updates.

We are investigating why that server went offline unexpectedly.  We will post a follow-up message here when we learn more.  Thank you for your patience.

UPDATE: 3:00pm - The ChartStyle database continues to work fine now.  We have changed how it uses its memory in order to avoid this problem in the future.  Again, our apologies for the earlier problem.

November 13, 2009 - StockCharts Blogs - MailBag

What's the difference between the Aroon indicators?

The Aroon Oscillator is simply Aroon(down) subtracted from Aroon(up). It is positive when Aroon(up) is greater than Aroon(down) and negative when Aroon(down) is greater than Aroon(up). The oscillator can be used as a stand alone indicator or in conjunction with Aroon(up) and Aroon(down). As noted in the chart school article, Aroon means "dawn's early light" in Sanskrit. Tushar Chande, a serial indicator developer, created this indicator to determine the direction and strength of the trend. You can find formula details in the chart school article.

A strong uptrend is present when Aroon(up) is above 70. Upside momentum dissipates when Aroon(up) declines below 50. Similarly, the bulls have the edge when the Aroon Oscillator is positive. This bullish edge increase as the oscillator becomes more positive. Oscillator readings above +50 signal a strong uptrend.

A strong downtrend is present when Aroon(down) is above 70. Downside momentum dissipates when Aroon(down) declines below 50. Similarly, the bears have the edge when the Aroon Oscillator is negative. This bearish edge increases as the oscillator becomes more negative. Oscillator readings below -50 signal a strong downtrend.

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 Click this chart for details.

In the example above, Citrix (CTXS) shows Aroon examples of a strong uptrend, a consolidation and the start of a downtrend. First, the Aroon oscillator was between -50 and +50 during the consolidation. Citrix could not establish strong direction as Aroon(up) and Aroon(down) remained close together. Second, a strong uptrend started when Aroon(up) surged above 70 and the Aroon Oscillator moved above +50 (yellow area). Third, Aroon(down) recently surged above 50 and the Aroon Oscillator moved below -50. This move suggest that a downtrend is starting for Citrix. You can also find "Stocks in a new uptrend (Aroon)" signals on the stock scans page.

November 13, 2009 - StockCharts Blogs - Don't Ignore This Chart!

PerfChart for 10 Currency ETFs

Year-to-date, the WT Brazilian Real Fund (BZF) and the CS Australian Dollar Trust (FXA) are by far the top performing currency ETFs. Of these 10 currency ETFs, only the DB Dollar Bullish ETF (UUP) is in negative territory. Even the CS Japanese Yen Trust (FXY) climbed back into positive territory in September.

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Click this chart for details.

November 12, 2009 - StockCharts Blogs - What's New

New "Free Charts" Page is Now Online

We've updated our "Free Charts" page with a completely new version that is more functional and fits with our updated site design.  Please take a moment to become familiar with it - kick the tires, etc. - and then let us know what you think! (Members: Don't be fooled by the name, this new "Free Charts" page is very useful. Check it out.)

November 12, 2009 - StockCharts Blogs - Don't Ignore This Chart!

Nasdaq AD Line Is Lagging

With the surge over the last 1-2 weeks, the NY Composite and the Nasdaq are both trading back near their October highs. However, the Nasdaq AD Line remains well below its October high and shows some relative weakness. The NYSE AD Line is also below its October highs, but still looks strong as it surged back above 12000 last week.

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Click this chart for details.

November 11, 2009 - StockCharts Blogs - What's New

Twitter Feed Added

If you prefer to use Twitter to get notifications about our blog updates, we now have our own Twitter feed ("stockchartscom") that you can follow.

November 11, 2009 - StockCharts Blogs - Don't Ignore This Chart!

A Bull Flag for Cisco

Cisco (CSCO) led the market higher with a big move above 24 last week. While the S&P 500 continued higher the last three days, Cisco stalled with a falling flag taking shape. Bullish flags slope down and form after a sharp advance. A break above 24 would signal a continuation of last week's advance.

091111csco Click this chart for details.

November 10, 2009 - StockCharts Blogs - What's New

Loyalty Badges Added to Members Page

We've added special badges to the members page for people who have subscribed to our service for more than one year.  Right now, those badges are pretty much just decorative - soon however, they will become more valuable.  Stay tuned...

November 10, 2009 - StockCharts Blogs - Don't Ignore This Chart!

Yield curve widens

The difference between the 10-Year Treasury Yield ($TNX) and the 3-month Treasury Yield ($IRX) widened significantly since early October. Short-term rates fell ($IRX), while long-term rates rose ($TNX). As a result, the yield curve is the steepest it's been in months.

091110tnxirx Click this chart for details.

November 09, 2009 - StockCharts Blogs - Don't Ignore This Chart!

You know it's a big day when...

The 10 most active stocks on both the NYSE and Nasdaq are all up, and up big. In the middle of the stockcharts.com home page, you can follow the most actives throughout the day. You can even view a Perfchart to compare performance or see all 10 mini-charts by clicking the candleglance link.

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November 08, 2009 - StockCharts Blogs - What's New

ChartWatchers Newsletter Now Available

The latest edition of our free ChartWatchers newsletter is now available here.  If you would like to receive the newsletter via email, sign up here.

November 07, 2009 - StockCharts Blogs - ChartWatchers

BARRICK AND NEWMONT MINING TURN UP

With gold hitting new record highs each day, gold stocks are starting to play catch-up. Two of the biggest are at or very close to hitting new 52-week highs. Chart 1 shows Barrick Gold closing at a new 52-week high today. The gray line is the ABX/SPX ratio which has been dropping since February and just starting to rally. Chart 2 shows Newmont Mining closing at a new 52-week high as well. Its relative strength ratio (gray line) is turning up as well. What the two RS lines tell us is both big gold stocks are pretty good values relative to the rest of the market and are starting to show upside leadership for the first time in eight months.

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