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Hello Fellow Chart Watchers! Wednesday's surprisingly strong rally moved the Nasdaq composite back into the resistance zone we talked about in last week's newsletter. This sparked several questions from some loyal readers: "Where's the plunge you mentioned?" "Why was last week's analysis wrong?"  Live Version From a technical perspective, I maintain that the jury is still out on the Nasdaq. I has not crossed above the "line-in-the-sand" (2250) that appeared on last week's chart. In fact, since Wednesday's rally, the index tested the 2200 level three times and fell back to 2175 each time. What's going on is a classic bull/bear struggle just below a major resistance level. These are both nerve racking for investors and fun to watch for true Chart Watchers. Bottom Line: The 2250 resistance zone has yet to be broken and is therefore still the dominant technical consideration in my mind. Finally, another reminder that the goal of this newsletter (as well as the goal of StockCharts.com itself) is to get you to learn more about technical analysis and to help you make better investing decisions on your own. I encourage you to question what I and all of the other "gurus" are telling you using the tools on StockCharts. Ultimately, you are the one that makes or loses money. Be careful out there. Our new User Defined Scans feature continues to excite and amaze me. As our Extra! members are discovering, the ability to create your our scan criteria lets you quickly find some great investing prospects. I thought I'd take a minute and show you how I recently developed a scan that combines the best of both P&F charts and traditional bar charts. I call it the "ATT Gap" scan. From a philosophy perspective, I wanted to combine three different analysis techniques to find potential longer term investments. I wanted to use a time-independent component, a volume component as a filter, and a short-term price "trigger" pattern. Notice how these components do not "overlap" in terms of what they are searching for. P&F signals provide great starting points because they are time independent - a stock can form the pattern over the course of a week or an entire year and the same signal is given. The Ascending Triple Top breakout pattern forms when a stock has moved higher, turned around, moved higher again, turned around again, and finally moved even higher:
Our Predefined Scans area shows all of the stocks that currently have the P&F Ascending Triple Top pattern. Unfortunately, as of last Friday, there were 434 stocks with that pattern in their chart - too many to wade through visually. Fortunately our User Defined Scans tool let's us add more criteria and whittle things down technically. First off, we want stocks that have just given the Ascending Triple Top signal on Friday. So we want stocks where the pattern is "True" today but "False" yesterday. That narrows things nicely - from 434 stocks down to 55. Adding minimum volume and price filters narrows things even further but we still need a short-term "trigger" to finish things. Here's a screenshot of what our scan looks like so far:  Notice the drop-down box below the "Additional Technical Criteria" area? That lets us add the criteria from any of our Predefined Scans to this scan. Adding the "Gap Up" criteria gives us the short-term trigger we are looking for. Our final Scan Criteria looks like this:  Right now, that scan returns one stock - SBSE - and while that stock did have a promising looking breakout on Friday, we should probably "back-test" this scan some to see how well it's previous picks have done. Again, the User Defined Scans screen makes this process simple - just increase the numbers in all of the "Date Offset" boxes and re-run the scan.
Many of these charts look promising to me - EPIQ has been extremely strong since the middle of last year! - so I've saved this scan in my Favorite Scans list as "ATT Gap" and will consult it often. For more example of User Defined scans, check out our new user's manual for that feature. Note: Extra! users can run the ATT Gap scan directly by clicking on this link. If you don't have "Remember Me" checked you must login first.
CONSUMER CYCLICALS. . . One of the signs that the cycle has moved into the "Late Contraction" phase is when Consumer Cyclicals take over market leadership. That group which is dominated by retailing stocks) has already shown market leadership - suggesting that the cycle had progressed to the "Late Contraction" phase.  WHERE ARE WE NOW?. . . According to Sam Stovall (who developed the sector rotation model we use), the three top sectors in the six months following five rate cuts are Consumer Cyclicals, Transportation, and Basic Materials. The transports are looking much stronger of late. The most dramatic improvement, however, has been in the Basic Materials sector. [That category often includes Basic Industries and Industrials as well]. As we've pointed out in prior weeks, that's where the heavy buying has been of late.  Ed. Note - StockCharts.com has a sector rotation diagram on http://stockcharts.com/charts/performance/SPSectors.html. Scroll down to see it. If you like John Murphy's commentary, visit his website to learn how to receive it on a daily basis.
Here are some links that should help you get started:
Questions? Comments? Concerns? Problems? Suggestions? Simply 'r'eply to this email message and I'll see what I can do. Take care, ABOUT YOUR SUBSCRIPTION: You are receiving this mailing because your email address was entered into the subscription form on our web site. To unsubscribe, or to switch between our HTML version and the Plain Text version, use the form on our Subscriber page. If you have any problems, simply 'r'eply to this email and I'll try to fix things by hand. |
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