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SIX THINGS ABOUT STOCKCHARTS.COM THAT YOU NEED TO KNOW

Hello Fellow ChartWatchers!

The markets continue to rise impressively with the Dow closing higher for 13 of the last 16 days.  Arthur, John and the rest of the ChartWatchers team discuss that in more detail in just a bit.  I wanted to take some time to talk about six very important things that most people don't know about our website.

1.) You Can Get Notified As Soon As New Articles Are Posted -

Everytime a new article is posted on StockCharts (even this one!), we send out several notifications about via both Twitter and our RSS Feeds.  (Most articles also appear in the "What's New" section of the Home Page.)  If you want to say up-to-date with StockCharts, I strongly encourage you to either join our Twitter feed or you can point your News Reader program to our RSS Feed.

2.) Long Term Members Can Save Money Each Year They Renew -

Last year, we implemented a Loyalty Rewards Program that provides an ever increasing discount for our long-term subscribers.  For each year that you've been a member of StockCharts, we'll reduce your renewal cost by 1%.  The only "trick" here is that you need to remember to enter your loyalty coupon code into the renewal form before you renew.  For whatever reason, many people are not taking advantage of this deal - don't be one of them!  Before you renew, get your coupon code by clicking on the loyalty badge that is next to your name on the Members page.  Click here for more details.

(And please don't ask us to apply your discount after-the-fact.  It's just not possible.  You must enter it into the renewal form before you submit your renewal order.)

3.) Arthur Hill Has Been Improving Our ChartSchool Area -

Arthur has added lots of new articles to ChartSchool recently including ones on the Detrended Price Oscillator, Bollinger's %B, Cycle Line Analysis, the Raff Regression Channel and much more.  Be sure to revisit ChartSchool when you get a chance to learn even more about Technical Analysis.

4.) We've Posted Over 2100 High Quality Blog Articles Over the Past 13 Months -

Some people associate the word "blog" with low-quality, controversial sites that spread rumor and innuendo.  Don't mistake our blogs for those others.  The "Blogs" area at StockCharts.com only contains articles written by the StockCharts staff and a few select guest authors.  The articles are only about technical analysis and getting the most out of our website.  If you aren't reading our Blog articles, you are really missing out on getting the most from our website.  And most of our Blog articles are free!

Here are some great recent articles you may have missed:

What are ZigZag Retracements? from our MailBag blog
Pulte hits retracement resistance from our "Don't Ignore This Chart" blog
Scanning for "Near Crosses" from our "Scanning Stocks" blog
Now You Can Add Sector and Industries to your ChartLists from our "What's New" blog 

Be sure to read our Blogs every day.

5.) The Flash Version of ChartNotes is Almost Complete -

So far the feedback on our new Flash version of our ChartNotes annotation tool has been very positive.  We have added a couple more features like mouse-wheel and printing support and we think it is almost ready to replace the Java version.  For most people, it is faster and has fewer technical issues when they try to run it.  Let us know if there are any more kinks that we need to fix before it is officially released.

6.) Our Milestones Page Show You Our Long-Term History of Continuing Improvements -

Don't forget to visit our Milestones page from time-to-time.  It shows you all of the significant improvements we've made to the site since we started way back in 1999.

- Chip Anderson

DOW THEORY UPTREND IS CONFIRMED

Dow Theory holds that the Dow Transports and Industrials must both hit new highs to confirm an ongoing bull market. The ability of the Dow Industrials to exceed their January high has done just that. That doesn't tell us how far the bull market will run, or for how long. It just confirms that a bull market still exists. The Dow has been a laggard for several months and is one of the last indexes to hit a new high. [The NYSE Composite also hit a new high last week]. A lot of this week's Dow strength can be attributed to upside breakouts in some key components.

DOW LEADERS... The Dow's ability to finally hit a new high is largely based on the strong price of the five stocks shown below. All have rallied to 52-week highs over the last week. In order of relative strength, they include General Electric, DuPont, Cisco, Intel, and Wal Mart. Although Wal Mart has been a laggard for sometime, all five stocks are doing better than the Dow during the first three months of the new year.

IS THE S&P ON SOUND-FOOTING, OR NOT?

The recent S&P rally to new reactionary highs has shown to be on rather slim-footing given that volume patterns are rather tepid. We don't disagree in the least, but the fact of the matter is that the advance/decline figures have been rather "good" of late and showing impressive strength in the face of this volume contraction. We've always been led to believe that volume equals conviction, but the current rally has only convinced in terms of points and percentages...not in volume.

So we must question whether the S&P is on sound-footing or not? Our initial reaction would be "no"; but when we look at the longer-term monthly S&P chart, we can't dismiss the fact that the S&P has broken out above its 50-month exponential moving average by a slim 1% to 2% margin. In the past, the 50-month has been an inflection point that gives confidence as to the next market move - be it higher or lower. The current breakout coupled with the still rising full stochastic means we lean "long" at this point. This is a very difficult statement to make given we've fought the rally as being of the counter-trend variety.

Still, the potential exists for this nascent breakout to fail, and for prices to falter and extend below the 1146 level once again. This would lead to a resumption of the bearish trend. However, if prices extend from current levels - then we won't be surprised to see a test of the 1400 to 1500 highs in the next several years. Yes, we hear the knashing and wailing and we can point to a litany of economic issues that illustrates the markets should move lower; and they very well may do so. But the technical breakout stands for now; not on firm footing - but a footing that must be respected.

THE POWER OF THE REVERSING CANDLE

Candlesticks and candlestick patterns are the foundation to trading in my view.  I use them on every charting timeframe, whether it's a one minute, hourly, daily, weekly or monthly chart.  If you're a daytrader or swing trader, trading without the knowledge of reversing candlesticks is doing yourself a great disservice.  While not every uptrend or downtrend ends with a reversing candlestick, most reversing candlesticks do end a trend if a prior trend is in place.  The reversal may just be a temporary end to the trend, so you have to view these candlesticks in tandem with other technical indicators such as price support/resistance, trendlines, key moving averages, MACD divergences to determine the potential degree of any reversal.  Combining these candlesticks with other technical indicators can be especially rewarding.  Take a look at the following chart of Aspen Insurance Holdings (AHL):

AHL was our Chart of the Day for Tuesday, March 16th.  I've circled the doji which would be an interesting candlestick all by itself.  But when you combine it with a 50 day test, trendline test and price support test, it becomes even more meaningful.  Also trading AHL, which at the time had RSI in the 40s and stochastics in the single digits, was a much better alternative than chasing stocks that had already advanced significantly and were sporting RSIs and stochastics in the 70s and 90s, respectively.  AHL was also a fairly conservative trading prospect.  Note that the 6 month trading range on AHL only spanned 3 points or so.  So while it probably wasn't go to be a huge winner in terms of a percentage gain, neither was it likely to be a big loser.  Given the extremely overbought market conditions last week, AHL represented a decent trading opportunity for the more conservative trader.  A significant benefit to trading off of a reversing candlestick is that it provides you a pre-determined stop level.  In the case of AHL, any move below $27.20 (the low the day the reversing candle printed) would have been a sign to exit.  This is crucial as a trader because now you can clearly identify your risk.  Roughly, there was $.30 per share risk in this trade.  If you wanted to limit your risk to no more than $150, then you know to purchase no more than 500 shares (500 shares X $.30 = $150).

I realize not all traders are conservative, however, and many want to "swing for the fences" on occasion (or maybe more than "on occasion").  I search for those as well.  You can check out two such candidates - KongZhong Corp (KONG) and Ford Motor (F) that were included as Charts of the Day on Thursday and Friday of this past week.  F is included as a more aggressive stock in this example because it was included as a short candidate following Thursday's reversing candlestick.  Note the 3.2% drop in F on Friday.  CLICK HERE to view the videos we produced on our Thursday and Friday Charts of the Day on both KONG and F to gain a better understanding of the power of reversing candles.

By the way, every ETF that tracks the major indices printed reversing candlesticks on Friday.  Given the recent uptrending market, this is something that shouldn't go unnoticed.  The equity only put call ratio (EOPCR) indicator (my favorite sentiment indicator discussed in previous articles - check the archives) that marked the short-term bottom in early February was flashing a sell signal throughout last week as well.  This is certainly indicative of a short-term top.

Whether you're an active daytrader, professional trader, portfolio manager or simply someone looking for a bit of supplemental income, candlesticks should be an integral part of your screening technique.

Happy trading!

A TIP ON TIPS

TIPS are bonds that provide inflation protection. While Erin covered this subject in yesterday's blog, I wanted to cover it with a little more depth and from a somewhat different perspective. Our default "first look" charts are usually set for one year, but I personally like to step back to a three-year chart to help put recent price action in a longer-term context.

I think the most prominent feature on the chart is the crash in October 2008. Before that you can see the strong advance, coinciding with people's belief that prices on everything would rise forever. Prices leveled in 2008 as the inflation belief began to be undermined. The crash in TIPS occurred when both real estate and stocks were crashing and fear of deflation took hold. TIPS began to advance again out of the depths of the crash.

Since the November 2009 top, TIPS have moved sideways into a triangle formation. This is also called a continuation pattern, meaning that prices are technically expected to continue higher once the consolidation phase has completed. Prices have been turned back from overhead resistance for a third time, and I think this could be the final pullback before an upside breakout occurs. Supporting this opinion is the fact that (1) the 50-EMA is above the 200-EMA (bull market for TIPS), (2) we have a PMO crossover buy signal in relatively oversold territory, and (3) the 20-EMA is close to crossing up through the 50-EMA, which will generate a Trend Model buy signal.

North American Currencies show strength in 2010

The Perfchart below shows the performance trends for 10 currency ETFs in 2010. The North American and commodity currencies are strong, while the European currencies are weak. First, notice that the DB Dollar Bullish ETF (UUP), Mexican Peso ETF (FXM) and the Canadian Dollar ETF (FXC) are up. Strength in all three North American currencies bodes well for a recovery throughout the continent. In particular, Mexico and Canada benefit from a recovery in their big neighbor. The Peso is the strongest of the 10 currency ETFs this year (ole!). The Canadian Dollar and Australian Dollar ETF (FXA) represent two of the so-called “commodity currencies” because both countries are rich in natural resources. In contrast to the North American and the Commodity Currencies, the Euro ETF (FXE), British Pound ETF (FXB) and Swiss Franc ETF (FCF) are weak this year. The Euro and Pound each have their own set of problems, but these are compounded by their proximity to each other. These are the currency trends so far in 2010 and they show no signs of changing.


Click this image for a live PerfChart.

DETAILED INDUSTRIES AND SECTORS NOW ON STOCKCHARTS

Hello Fellow ChartWatchers!

We've been working hard the past couple of weeks to get better Sector and Industry classifications for the stocks in our database and today that work is finally starting to surface on the web site.

One of the big problems with Sector and Industry classifications is that there is no universally accepted standard for what constitutes a sector, what constitutes an industry and which stocks belong in which category.  The other big problem was that, until recently, the only source for that information was high-priced research firms that usually frowned on our request to make their classifications publicly available on our website.

Recently however Google has started publishing categorizations that they have derived from their search engine logic.  The Google classifications are very similar to the "typical" categories that most people are used to and the Google classifications have the additional advantage of not having the typical restrictions on republication.

So we are now - finally(!) - able to offer a broad set of Sector and Industry classifications for many of the stocks that we track.  We are now providing that information for over 5,000 different US stocks.  There are a couple of ways that information can be used:

• If you select the "Full Quote" option for any SharpChart, you will now see the Sector and Industry classification for that chart in the upper left corner of the Full Quote area:
  
  
   
• Extra members can also use our Advanced Scan Workbench to add Sector and/or Industry categories to their scans via the "Sectors and Industries" dropdown:
  
  
   
  
• User-defined Scan Results now include the Sector and Industry of each stock that is returned by the scan.
  (Note for Extra Users: Our old "SPGICS" sector and industry codes groups were out of date and could not be updated, so we are replacing them. If you have been using them in your saved scans, we'll automatically updated them so that they use our new Sector/Industry codes instead.)
  
   
• Extra members can also add all of the stocks that are in a Sector or Industry to one of their ChartLists using the "Add Tickers from -- Select --" box at the bottom of "Edit" view:
  
  

We will continue to expand both the number of stocks that we can reliably classify as well as the different ways Sector and Industy information can improve our charts and our scans.  We're looking into adding new MarketCarpets, CandleGlance Groups, Bullish Percent Indexes and more.  Stay tuned!

- Chip

ON HIATUS THIS WEEK

Richard will return for our next issue.

SECTOR ROTATION CONTINUES

Happy Anniversary!  It was one year ago, on March 6, 2009, that the S&P 500 made that unforgettable 666 low, completing an amazing drop from above 1300 in August 2008.  That represented nearly a 50% decline in the market capitalization of 500 of the largest U.S. companies in a little more than 6 months.  We were already down more than 15% in the year before that remarkable decline.  A lot has changed over the past year, specifically the levels at which our major indices are now trading.  The old cliche that "time heals all wounds" most definitely can be applied to the stock market.  And as a self-proclaimed market historian, 2008-2009 was a period of market turmoil that I'll never forget.  There are lessons to be learned from that traumatic period, however.  First and foremost, we can never let our guard down, now even for a moment.  We shouldn't be swayed by the "experts" paraded on CNBC and other media outlets.  Our capital is OUR capital and we must do whatever it takes to preserve and build upon it.  The first step that each of us can take is to continually gain a better understanding of how the market works and the warning (technical) signs that suggest that we enter our "defensive" mode.

So should we be preserving or building capital right now?  Well, that depends on which charts you want to look at.  On most of the one year charts, we're overbought but technically very sound.  But weekly charts are showing long-term negative divergences, which can translate into weeks of consolidation to downside action.  Many of our indices and sectors are at or quickly approaching new 52 week highs.  The Russell 2000 finally blasted through 650 with gusto.  Consumer discretionary stocks have been on fire.  Haven't we been told for many, many months that the U.S. consumer is dead?  Tell that to the folks who are pouring billions of dollars into consumer discretionary stocks.  If you're looking for leadership, look no further than consumer discretionary.  Check out this chart:

The key to trading the stock market right now is understanding the sector rotation that is taking place.  I did a brief analysis of two periods.  The first period was from the March 6, 2009 low to the May 8, 2009 close.  The second period was from the May 8, 2009 close to Friday's close (March 5, 2010).  I did this to see how the various sectors performed on a relative basis to one another and to the S&P 500 as a whole during both periods.  You can review my analysis by CLICKING HERE.  The short answer though is that the initial runup off of the panicked lows were led by all six aggressive sectors while the defensive sectors trailed badly.  Since that May 2009 high, however, the defensive groups have performed much better on a relative basis and only the consumer discretionary and technology groups have outperformed considerably since.  During 2010 thus far, technology has lagged.  If you're bullish, you have to like the prospects of technology on a relative basis here.  The aggressive sectors have been taking turns leading the market higher since May 2009.  We would expect this to continue until major support levels are lost to the downside.  That means attention should be given to technology right now.  We ran a scan of technically sound stocks and have provided an interesting one, Ingram Micro (IM) as our Chart of the Day for Monday, March 8th.  You can check it out our annotated chart by CLICKING HERE.

Happy trading!

WHY I'VE AVOIDED INVERSE ETFS

A number of readers have asked why I haven't said much about inverse (or bear) ETFs. The main reason is that I wasn't convinced that the recent market dip was serious enough to warrant bearish positions. So far, that view has been justified. Chart 1 shows the ProShares Ultra Short QQQs (QID) nearing a test of its January low. It's also back below its 50-day average (blue line). Inverse funds are not meant as long-term holdings. Their use is only justified when the market is in a serious downward correction or a bear trend. Some short-term profits could have been made in the QID from mid-January to mid-February, but only for very nimble traders. For everyone else, it's back where it started the year. The QID is designed to trade in the opposite direction of the Power Shares QQQ Trust (QQQQ). Chart 2 shows that technology-dominated ETF trading a couple of points from its January high and well above its 50-day line. At the moment, the QQQQ is acting a lot better than the QID.