Trend Check with Tushar Chande

Can this Reslient Market Rally Continue?

This remarkably resilient market is closely following the post-election path I calculated in April.  The rally goes on despite going more than a year without a  5-percent dip, strange headlines, central bank policy changes and the largest (-20%) underweight allocation by top managers since 2008. Is it really that bad?  Can this rally continue?

Chart 1: The current market rally is closely following the average of the historical performance during administrations identified in the chart.  The market has shrugged off headline risk and central bank actions during its ascent.  An separate calculation shows that there is a 78% chance of positive second-half returns.

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Investing Tips from Warren Buffet's 2016 Purchase of Apple

Last week I wrote about buying a pull-back from recent highs. Here I will discuss buying a mega pull-back. In a bid to learn from the best, I studied the Berkshire Hathaway entry setup for Apple.  Naturally, I only looked at the technical set up from the charts, since I have no idea what factors were actually used to enter the position.   Was the purchase a pure value play, or simply buying growth at a reasonable price?  If you are interested, you will find a lot written about the fundamental factors used in Warren Buffet's decisions, but I have found no technical analysis of his entry process.  Of course, if you have seen technical analysis of his entries, I would love to hear from you.

 

Was the Berkshire purchase of Apple a pure value play or an example of buying growth at a reasonable price?

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Has Gold Broken Head and Shoulders Pattern Neckline?

The SPDR Gold Shares ETF (GLD) seems to have broken a head-and-shoulders pattern neckline, and spent several days below that neckline, suggesting that the pattern has been "definitively" broken.  Gold's correlation to bonds has slipped a bit.  The Chande Trend Meter is below 20, implying trend-following models detect a down-trend.  What is the projected downs-side target, and will GLD get there?

 

Chart 1: GLD the Gold Shares SPDR ETF shows a clear head-and-shoulders pattern, pointing to a down-side target in the 109-110 range. Observe that the Chande Trend Meter is below 20, implying a down-trend, and the correlation to bonds has slipped. Will GLD go down all the way to the target? (A live chart is here.)

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Back to Basics: Understand the Duration of Your Bond ETF or Bond Clone

The declines in global bond markets this week points out the need to be aware of your bond ETFs duration, which measures the sensitivity of the bond or ETF to changes in interest rates.  Duration is expressed in years, and the longer the duration, the greater the change in the price of the bond (or bond ETF) for a given change in interest rates.  You may also own bond clones, or ETFs which are closely linked to the bond market, such as an ETF with utilities.  Since such funds have stocks, there is no way to  know their effective duration.  I looked at the universe of Vanguard bond ETFs to illustrate the effect of bond duration, as well as to estimate the effective duration of bond clones.  As central banks work to nudge rates higher, you should be aware of the duration of your bond portfolio. 

Chart 1:  The duration of the Vanguard bond ETFs versus their recent performance, with declines increasing with longer duration. The key to symbols is shown below.

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Jim Cramer's Secret Stock Picking Method (With ScanCode)

I was shocked, yes shocked, when the energetic Mr. Cramer revealed his secret stock selection method on CNBC.  Naturally, this was too good an opportunity not to code it immediately into the StockCharts scan engine.  However, you will run into the usual problems of running a mechanical scan versus Cramer's discretionary entry process. Anyway, here it is.  Now, why was I shocked? Well, more on that later.

 

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78% Chance of Positive Second Half Returns

I looked back on historical S&P 500 returns since 1950 to study H2 performance (return over the second half of the year) given a positive performance over the first half (H1) of the year, and the data are encouraging.  There is a 78% chance of positive second-half (H2) returns in 2017, now that we have positive returns over the first half (H1) of the year (see Chart 1).  Overall US economic activity, as measured by the Chicago Fed National Activity Index is positive, and supportive of higher equity prices (see Chart 2).

Chart 1: Since 1950, when H1 returns were positive, H2 returns were also positive 78% of the time (36/46 occurrences).

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Is the Summer Slowdown Here?

Yesterday's selling has shifted the short-term trends across many key indexes, equal weight ETFs and capital weighted ETFs. Is this the start of the summer slow down?  The S&P 500 closed below its 25-day, half-width bands for the first time since mid-May and the path of least resistance for most of my key sectors has now turned negative on the short-term.

Chart 1: The SPX has closed below the short-term trend-following model bands, using a 25-day moving average. However, the trend is still up because the moving average is above the bands.

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Find the Gap: What Are Jumbo Gaps? Can You Profit From Jumbo Gaps?

Are jumbo gaps an oxymoron like "jumbo shrimp"?  I found some similarity between shrimp sizes and normalized up-side gaps (see Chart 1).   Do such jumbo gaps offer trading opportunities? I tried to quantify just that, and here is what I found. By the way, just as the number of shrimp per pound drops rapidly once the size goes above "Jumbo", similarly the frequency of occurrence of upside gaps (normalized by the 10-day average true range) drops rapidly past some critical "Jumbo" size.  I decided to focus my exploration on such jumbo gaps.

 

Figure 1: The visual is to remind me I am looking for a jumbo shrimp in a gap: a large gap in an otherwise ordinary string of stock prices.

 

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Back to Basics: Changing Your CandleGlance ChartStyle

A user asked me how I added the Chande Trend Meter to my CandleGlance view configuration.  So this blog post goes back to basics and shows step-by-step how easy it is to change the default Candle Glance configuration in StockCharts.  It will make you appreciate how simple yet powerful StockCharts is.

 

First, set up a chart with the indicators of your choice displayed as you wish to see them.  For example, I set up a chart for Apple with the 25-period Aroon indicator in the top window, and the Chande Trend Meter in the bottom panel (see Chart 1).  Naturally, you can add any other indicators to your panels as you wish by selecting them from the different drop-down lists.

Chart 1: Set up a default configuration as you wish to use in your CandleGlance view. (See live chart here.)

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A Deep Dive Into the Industrials Sector

The Industrials Sector via the Industrials Select Sector SPDRs XLI ETF has risen to the top of my Chande Trend Meter rankings, as the mighty Technology Sector (XLK) consolidates.  I will take a deeper look at the the constituents of the XLI and identify some of the strongest stocks in this sector, which accounts for some 10.4% of the S&P 500 index. I will also examine the performance of ETFs focused on industrial sector stocks. Tom Bowley also wrote briefly about Industrials sector's strength earlier this week.

Chart 1: The Industrials sector has charged to the top of my key sector and index rankings using the Chande Trend Meter.  

 

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