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Hello Fellow Chart Watchers! Last week saw all of the major averages post respectable gains with the Nasdaq up over 4%, the S&P 500 up over 2%, and the NYSE up over 1%. The Dow gained 2.79% last week making it the the first winning week for the Dow since May 11th! See http://stockcharts.com/charts/performance/USMarkets.html for details (Hint: Press F1 to view a one-week period). We've been getting a bunch of questions about our AT&T chart recently. Take a moment and compare our AT&T chart to one found on another popular charting site:   Wow, there's quite a difference there. On our chart, AT&T appears to be breaking out significantly while on the other chart, AT&T had a brief stumble followed by a very quick recovery. So which is right? A quick look at two recent news items will answer that question. The big news for T last week was Comcast's surprise bid for AT&T's broadband unit (detailed here). The bid has sparked a rally in AT&T stock that, so far, has caused the stock to rise almost 25% as traders and speculators try to guess how things will play out. The other important news for T came out on Monday. AT&T spun off its wireless division into a new company with a new stock symbol (AWE). Here's a Yahoo article explaining the spin-off. Note closely the following information: As part of the split off of AT&T wireless, New York-based AT&T said it is converting all AT&T Wireless tracking stock into AT&T Wireless common stock and distributing 1.14 billion shares of AT&T Wireless common stock, currently held by AT&T, to AT&T common stockholders of record on June 22. Essentially, T shareholders will be getting some AWE shares as part of the spin-off and, since you can't get something for nothing, the price of the T shares will be adjusted downwards by 32% to compensate. So we have a 32% downward adjustment in T's stock price followed by a 25% gain due to the Comcast bid. That's exactly what our competitor's chart shows so their chart must be correct, right? WRONG! All of the tenents of Chart Analysis are based on the assumption that the price data only reflects the supply and demand factors for the given stock. Artifical "accounting-oriented" events should not be included. The simplest example of this is a stock split. If a stock splits 2-for-1, all shareholders get twice as many shares and the price is cut in half. On unadjusted charts, the stock price would show a 50% decline in the price, most technical indicators would immediately generate "sell" signals, and someone who was unaware of the split would conclude that the stock's outlook was very bearish. In fact the opposite is usually true - healthy companies typically split their stock. Obviously, something must be done to adjust the data so that it presents a picture that eliminates the misleading effect of the split. In the case of a split, all of the historic stock data is divided in two and the volume numbers are doubled. In the case of AT&T, the historic stock data must be adjusted downward by 32% to account for the AWE distribution. The downward adjustment eliminates the drop in the price and leaves us with a chart that only shows the effects of supply and demand - i.e., the big breakout that we are correctly showing on our chart. Adjusting data for split and distributions is crucial to accurate technical analysis. Unfortunately, it is not easy to do. As mutual fund investors know, different data vendors provide different levels of support for adjusting their data. We here are StockCharts want to provide charts that are always adjusted as soon as possible. Recently, we have made some big improvements in this area but the work continues. And while we aren't yet perfect in this area, as you can see with this AT&T example, we are ahead of many other websites in this area. Our data administrator, Bob Wagner, and the professionals at Thomson Financial are constantly searching for data problems however it is a h-u-g-e job. If you spot a problem with the data in our charts, please use our feedback form to notify us about it. Bob is usually able to get things patched up very quickly. Thanks again for supporting StockCharts.com!
PAPERS HAVE GOOD WEEK... In a strong cyclical group, papers had a very good week. The chart below shows the Paper/Forest Product Index (FPP) hitting a four-week high. The green line below the chart plots a ratio of the FPP against the S&P 500. The green RS line shows that papers are outperforming the S&P 500. Earlier in the week, we showed International Paper (IP) turning up. An even better paper performer was Weyerhaeuser (WY). The second chart shows WY exceeding its June high on expanding volume. The RS line shows WY outperforming the paper index (FPP). The means that WY is a leading stock in a leading group.   USING SECTOR FUNDS... One excellent way to participate in strong market groups is via select mutual funds. For example, the Fidelity Select Paper Fund was one of the week's top gainers. The chart below shows that fund turning up. Its RS line vs. the S&P 500 shows superior performance. One way to participate in a strong transportation sector is via the Fidelity Select Transportation Fund (FSRFX), which is also showing market leadership. The strongest sector fund this week was Fidelity Select Medical Delivery (FSPFX), which hit a new high for the year.    
Here are some links that should help you get started:
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