Q: My comment is about the Price Labels on SharpCharts. In many cases, it seems to be one day late for best buying time. For best selling time, it seems to be mostly correct.

What do you think? Is it possible to mark the best buying time one day earlier so that we can put in buy order at the open next day?

A: First -- Do NOT use Price Labels as trading signals. They are not intended for that purpose.

The Price Labels are based on a calculation that looks "ahead" in time. They are similar to the Zig Zag indicator in that regard. They can also move if prices swing wildly. While it looks like they gave good signals in the past, that is because we "cheat" and look into the future when deciding where to draw them. These are qualities that rule price labels and the Zig Zag out for use in a buy/sell trading system. Please note: Price Labels are not available for use with intraday charts. See our glossary entry on the Zig Zag indicator for more.

Hope this helps!
Chip Anderson

Q: I find the display where both daily and weekly data charts are presented on the same page, such as those available in the CandleGlance Gallery, to be particularly useful. Is there any way to create a display like this with SharpCharts?

A: You can create this page yourself using our new "Favorites" feature. For example, create a "Small" sized daily chart (maybe like this one) and add it to your "Favorites" list using the drop-down menu.

Then create a Medium or Large size weekly chart (maybe like this) and again, add it to your "Favorites" list. Repeat those steps for as many charts as you want (or until you hit the 20-chart limit).

Finally, click on the "Your Favorite Charts!" link on the left side of the page under "Charts". You should then see a page with all of your SharpCharts together. Bonus: if you print this page in Internet Explorer, you'll automatically get one chart per page -- your own chartbook!

Chip Anderson

Q: Yo Arthur, Hewlett-Packard (HPQ) recently paid out a HUGE cash dividend. How, if at all, will this affect the price chart?

A: HPQ -- To adjust or not to adjust, that is the question.

After the close on Friday, June 2, Hewlett Packard (HPQ - formerly HWP) paid out a special cash dividend of $31.18 to shareholders. This dividend represented .3418 of a share of Agilent (A), which was spun off. The dividend payout was reflected in the stock price prior to the open the following Monday. HPQ closed at 142.125 the previous Friday, but after the cash dividend, the price of HP was adjusted to 110.945 before Monday's open.

Normal dividends are rarely this large and seldom have such an effect on the share price. In effect, the share price began the day over 20% lower on Monday. Such dramatic price changes will alter most momentum indicators and moving averages as well as play havoc with traditional pattern analysis.

I follow HPQ fairly close and opted to make a historical data adjustment. As to the validity of making a price alteration, there are varying opinions and I will leave it to reader discretion. Most data and charting services are likely to leave the price as it stands and make a note of the special cash dividend. Personally, I am more concerned with continuous price action and do not like to see HUGE gaps. And, as a user of momentum indicators, I find an adjusted price more to my taste.

In 1995 HPQ traded below 31.18 per share. Therefore it would not be possible to make a historical adjustment by simply subtracting the dividend. Instead, I figured the percentage value of the dividend and devised a multiplier for the historical data. Even though it has probably varied over the years, Agilent has always represented a percentage of Hewlett Packard.

HPQ - Friday June 2 close: 142.125
Cash Dividend: 31.18
Dividend as a Percent of HPQ share: .2193 (21.93%)
Historical Multiplier: 1 - .2193 = .7807 (78.07%)

By multiplying the historical data (pre-payout) by .7807, I am assuming that HPQ was worth about 21.93% less without Agilent (1 - .7807).

The charts of HPQ with a historical price adjustment and without an adjustment illustrate the differences. The red dotted line on both charts shows price action on Friday, before going ex-dividend. When comparing the two charts, the most striking feature is the difference in the two momentum indicators, Percentage Price Oscillator (PPO) and RSI. With the adjusted price, both indicators soared to new reaction highs and into bullish territory. Without the adjustment, both floundered and the RSI was hit especially hard. For the price chart, the adjusted HPQ appears to be overextended above resistance, while the unadjusted version just bounced support.

Which version is best? Much depends on your investment and trading philosophy and style. Given the sharp advance last week, I would think that the price should be closer to resistance than support. Even after the dividend on Monday, the stock gapped up and closed fairly strong. Therefore, I would opt for the price-adjusted version with the stock near resistance.

Cheers,
Arthur Hill