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The biggest threat to the global stock rally is coming from emerging markets. The weekly bars in the chart below show Emerging Market iShares (EEM) falling to the lowest level in nine months. It has also broken a support line extending back to the fourth quarter of 2011. Emerging market bonds and currencies have also fallen sharply. My June 1 message explained that rising U.S. Treasury yields undercut demand for emerging markets by reducing the appeal of higher-yielding foreign assets. I also expressed concern that weakness in global markets might cause some profit-taking in the U.S. So far, U.S. stocks have shown amazing resilience in the face of foreign selling. That may change, however, if foreign markets don't stabilize soon.

- John

 

The US Dollar has declined rather sharply over the past 2-weeks, which given the scope of the decline - has likely pushed it into a bear market. The reasons for this could be myriad; or simply that the Fed will continue upon the bond-buying campaign far longer than the consensus believes. Now, this doesn't mean they will not taper, but perhaps the new Fed Chairman will extend this campaign through 2014...which means that the market is pricing the appointment of Vice Chair Yellen as the Fed Chairwoman.

Regardless, the technical picture is breaking down. The decline has violated the flattening 180-day moving average, which in the past has led on balance to more significant declines. Moreover, the 40-day stochastic has turned lower in negative divergence with prices. This posits a continuation of the current weakness, with major support at 79 the short-term target. Longer-term, one can expect a test of the lows at 73 to materialize soon and perhaps faster than anyone anticipates.

Therefore, sell USD rallies. Our favorite currency to the upside...the Swiss Franc.

Good luck and good trading,
Richard

Volatility plays a role in any market environment, but I always look to key areas of resistance on the VIX to help identify tradable bottoms on the S&P 500.  In my last article on June 1st, I suggested that the 18-19 resistance on the VIX could prove to be key.  Thus far, it has been.  The VIX has hit this resistance level with the S&P 500 also sitting almost squarely on trendline, price and moving average support.  If the S&P 500 were to lose these support levels, we could see the VIX push up to the 22-23 area, a much bigger level in my view.
 
Check out the confluence of support on the S&P 500:
 


 As all of this support comes together on the S&P 500, take another look at the VIX:
 


An area of the market I follow closely to suggest whether a stock market rally (or decline) is sustainable or not is the semiconductor ($SOX) group.  The SOX had issues recently as daily momentum showed signs of slowing.  The MACD clearly printed lower lows while the index itself was moving to fresh highs.  Check this out:
 

 
While this chart may look ominous, I'm featuring a much more bullish SOX chart as my upcoming Chart of the Day.  One critical move there could begin the next leg higher in the S&P 500.  CLICK HERE for more details.

The average rose +82% in just six months in a parabolic move that was doomed from the start. They almost always are. When a parabolic move breaks, as it did in May, the speed of the decline can be catastrophic. The downside expectation is for prices to return to the level of the basing pattern that preceded it. In this case between 8300 to 9100. That is not a prediction, just the level we at which we might expect to start looking for a tradable bottom.

As dramatic as the the above chart is, it is hard to beat the long-term chart below for drama, when we look at the parabolic rise from 1970 to the all-time high in 1989. Over the last decade prices seem to have found a base at around 7000, instead of 5000, where the pre-parabolic base was. For this we can thank the super-human efforts of the government to avoid the inevitable by printing money. After over 20 years of avoidance, their economy has still not recovered, and recovery is nowhere in sight.

Conclusion: Long-term charts put things into perspective, and the recent, exciting six-month rally is shown to be a mere blip in a long, grinding trading range. Also, the possible downside is at least 7000, or maybe 5000.

The S&P 500 got a two day bounce last week and a nice surge on Thursday, but fell back Friday as it met resistance at 1650, which is now the short-term level to beat. Overall, notice that the index formed a falling flag type correction the last four weeks. After a sharp advance from mid April to mid May, the index was overbought and ripe for a rest. The falling flag provided this rest and alleviated oversold conditions with a modest pullback. Notice how broken resistance in the 1600 area turned into support.


Click this image for a live chart

The flag is still falling and has yet to be confirmed as a bullish continuation pattern. A falling flag also took shape in September-October 2012. Instead of breaking out for a continuation higher, the index broke the lower trend line and plunged in November. This decline retraced 61.80% of the prior advance before finding support and reversing. The bears have a short-term edge as long as this flag falls, which means further weakness is possible. The March-April lows and 38.2% retracement mark next support in the 1540-1550 area. An upside breakout at 1650 would take this downside target off the radar and project a move to new highs.

Good golf and good trading!
--Arthur Hill CMT

Hello Fellow ChartWatchers!

GalleryView has been a often overlooked gem here at StockCharts going all the way back to the beginning of the website.  Today we're pleased to announce an important new feature for GalleryView but first, I wanted to go over exactly what GalleryView is and how it can be used.

GalleryView takes any ticker symbol and shows you four, fixed-format charts for that symbol on one page.  The first chart shows you five days of 10-minute candles.  The next chart shows you several months of daily candles followed by a chart with a couple of years of weekly data.  Finally, we have a P&F chart at the bottom of the page.

In case you weren't aware, you can access GalleryView in any of several ways:

• Click on the "Free Charts" tab and then enter a ticker symbol into the GalleryView box that appears in the middle of the page.
• Select "GalleryView" from the "Create a chart" dropdown in the gray bar at the top of any of our web pages, then enter a symbol and click "Go"
• Click on the GalleryView icon at the bottom of the SharpCharts Workbench.
• Choose to view one of your saved ChartLists in GalleryView mode.
• Click on the GalleryView icon next to any ticker symbol on the Scan Results page after running a scan.
• Select "GalleryView" from any of the dropdowns on the Homepage in the "Top Ten" or "SCTRs" lists, then click on a ticker symbol in the corresponding list.
• Click here
• (There are probably a couple more ways I've fogotten about too...)

The design of the GalleryView charts was a collaboration between myself and John Murphy many years ago.  The goal was to have a series of charts that would instantly give someone a complete technical overview for a given stock using the indicates and multi-period approach that John preaches in his books - the short-term picture, the daily view, the longer-term picture and a P&F view.  Personally, I think that the default GalleryView charts do an outstanding job of meeting that goal.

Unfortunately, despite the myriad of ways to access it, GalleryView isn't heavily used and many of the people that do use it invariably ask us one question: "How can I change the settings in GalleryView to something else?"

Well, now we finally have an answer for that question.  We now allow members to customize their GalleryView charts with any settings/indicators/overlays that they want!  It is done via three specially named ChartStyles: "GalleryIntraday", "GalleryDaily" and "GalleryWeekly".

In other words, to change the way that the Daily chart on the GalleryView page looks, follow these steps:

1. Login to your account and go to the SharpCharts Workbench and create a chart using daily bars that looks exactly like you want your Daily GalleryView charts to look like.  The symbol that you use doesn't matter, just make sure the other settings are all like you want and the chart looks correct.
2. Click on the "+" icon located to the left of the chart so that you can save your chart settings as a ChartStyle.
3. Enter the name "GalleryDaily" in the "ChartStyle Description" box that appears and then click the "Add New" button to save the style into your account.

That's it!  Now visit any of our GalleryView pages and you should see your new settings/indicators in the Daily chart slot.  You can also repeat those steps for "GalleryIntraday" and "GalleryWeekly" to change those charts.  Please note the following restrictions:

• The Intraday chart will still only show 10-minute bars.  Similarly, the Daily chart only shows Daily bars and the Weekly chart only shows weekly bars.
• The P&F chart cannot be customized unfortunately.
• The width of the charts will remain fixed at the current width of 800 pixels.

Beyond that, anything goes!  Here are some tips for creating effect Gallery styles:

• Use the "Fill the Chart" range option to prevent the bars on the chart from getting scrunched.
• Consider using different color schemes for each Gallery style to remind you that they contain different bar periods.
• Don't add too many indicators to the Gallery charts otherwise the page will get very long.

In conjunction with this announcement, we have also increased the number of ChartStyles that members can have in their account from 30 to 35.  In addition, we have increased the number of StyleButtons that members can create from 9 to 12.

So what might this mean for people that like to study lots of charts in different timeframes?  Well, it means that you can now study lists of ticker symbols in GalleryView instead of 10-per-page view and still see your own custom indicators and overlays.  Depending on how you do your analysis, it could become your preferred way of reviewing your charts.

Enjoy!
- Chip

P.S. Watch for an announcment in my blog about customizing CandleGlance charts soon. 

Hello Fellow ChartWatchers!

It happened in mid-April and it happend again on the last day of May.  The ominous sounding "Hindenburg Omen" signal has been given.  Here's the chart:

StockCharts members can click here for a live version of this chart.

Here's the definition from our ChartSchool Glossary page:

"Hindenburg Omen: Created by James Miekka, the Hindenburg Omen warns of potential weakness in the stock market. There are three criteria to activate the omen. First, NYSE new highs and new lows must both be more than 2.8% of advances plus declines. Second, the NY Composite is above the level it was 50 days ago. Third, the number of new highs cannot be more than double the number of new lows. The activation period is good for 30 days. Once active, a sell signal is triggered when the McClellan Oscillator moves below zero and negated when the McClellan Oscillator moves back above zero."

So Friday's big drop triggered the Omen signal by causing $NYLOW:$NYTOT (the ratio of NYSE Lows to NYSE Total Stocks) to spike up above 2.8% (the red area graph above).

Given that this is the second time in two months that this signal has occured, ChartWatchers would be well advised to look for additional signs of technical weakness in this market.  The rest of this newsletter, unfortunately, has several.

Take care everyone,
- Chip

P.S. I'm really looking forward to seeing everyone next week at the SCU Seminar in Seattle.  This will be the first time we present the SCU 102 course that focuses on how to customize your account's settings and ChartLists.  There are still a few seats available if you have time to join us.

Some of the most powerful,informative gauges of sentiment towards the market are the Bullish Percent Indexes.
If you are not familiar with them, you can read about them here by clicking on this link. Bullish Percent Indexes

Recently, some of the Bullish Percent Indexes reached extremes that have not been reached before.
The chart below shows the Major Indexes BP readings. Click here for a link. $BPSPX 
These charts are daily to see if there are any pinnacle readings, rather than weekly closes. The $SPX set a new record being above 90%.
The $SPX has never been higher. More than 450 stocks out of the 500 were on Point and Figure buy signals recently.
The NYSE composite is extremely bullish but it has been at or above this level every year for the last 5 years.
The Nasdaq Composite is surging back up to relative extreme levels above 70.
While we are all aware that commodities are out of favor, the Canadian Stock Exchange is hovering around 60%. The $TSX never enjoyed the big pushes in 2012 or 2013.

Looking at some of the individual sectors, The Consumer staples hit a record 100%. This has never been achieved before.
Consumer discretionary appears to be surging to levels not seen since 2010.
Health Care is at rare heights, but it has been up here 3 of the last 4 years.
Utilities are at levels not seen since before the financial crisis. They have recently rolled over off the highs as Staples have.
However, Financials are at 10 year highs and Industrials have only been at these levels once before.
To see the live chart, click here. $BP Sectors

So that is the definition of bullish. As long as the market holds above the 50 level, we are in a big bull market.
Each one of these daggers down or spikes up give technicians trading opportunities.

I have one more sector to show you. The gold miners index. $BPGDM.
StockCharts created a Bullish Percent Index for the miners in 2008. Notice the difference on this chart.
We are stuck in the bottom right corner of the chart.

So one of the ways to help spot a reversal in a sector is the Bullish Percent charts.
If this chart can get some upward momentum it might be time to trade some gold stocks.
Currently it is still depressed. On Friday, $GOLD was down $24 but the miners did not give up much of the gains from Thursday's push up.
A change in sentiment towards the gold mining stocks will show up on this chart. Patient technicians will be rewarded by staying tuned in.

To conclude, this bull market momentum has never been higher. If you are a contrarian, that will make you worry.
 If you are a trend follower, you'll notice both the $NYA and $COMPQ bullish percent indexes got substantially weaker before the final 2000 and 2007 tops.
Good Trading,
Greg Schnell, CMT

The main story of the past week has been the upside breakout in U.S. Treasury bond yields to the highest level in thirteen months, and the corresponding drop in bond prices. The jump in bond yields during the month of May contributed to heavy selling of dividend paying stocks -- mainly telecom, utilities, and REITS. The ripple effects of the jump in U.S. bond yields extends to foreign markets as well-- emerging markets in particular. Chart 1 shows Emerging Market iShares (EEM) dropping sharply during May (-3.8%). The biggest emerging market losers during 2013 have been countries tied to commodities. Since the start of 2013, Brazil and Russia (which export commodities) lost -9% and -15% respectively. China (the world's biggest importer of commodities) lost -10%. [The EEM has lost -7% during 2013, while EAFE iShares (developed markets) and the S&P 500 rise 5% and 15% respectively]. During those five months, commodity prices fell -4% while the U.S. Dollar Index gained 4%. The rising dollar has been a side-effect of expectations for higher U.S. rates. While the rest of the world is still easing (or just starting to), expectations are building that the U.S. is tapering its quantitative easing program. The stronger dollar has also had a direct negative effect on emerging market currencies, and an indirect negative impact on emerging market bonds.

That's the bad news.  The good news is that momentum issues are more of a short-term nature than a long-term one.  Still, as traders, we need to respect them just the same.
 
First, let's take a look at the benchmark S&P 500 index on a weekly basis (think BIG picture):

The MACD couldn't be much stronger.  As S&P 500 prices have risen to new heights, so too has the weekly MACD.  That suggests that the longer-term rally hasn't ended, so keep this in mind during any short-term periods that are more bearish and frustrating.  The short-term may prove to be troublesome.  While the long-term weekly MACD looks great, that's not the case on the daily MACD.  Check out the S&P 500's daily chart and take a look at the hit the MACD has taken lately:

Last week saw a big spike in the Volatility Index ($VIX).  Determining where the VIX will top is a big piece of the puzzle in determining where the S&P 500 will bottom.  Take a look at this chart of the VIX and note how recent tops have marked short-term bottoms in the S&P 500:

I would look for a top in the VIX in the 18-19 area.  If selling really escalates and fear spikes, perhaps we'll see a test of the downtrend line closer to 21.  Over the past year, nearly every short-term bottom in the S&P 500 has occurred with a VIX somewhere in the 18-21 range.  The late December 2012 period was an anomaly as fiscal cliff talks spooked investors.  Once the VIX tops, though, I do expect another rally in equities based on a number of factors, but certainly that strong weekly MACD won't hurt.
 
I've recorded a video lesson on the MACD and would be happy to share it with anyone interested.  CLICK HERE for details.

- Tom