StockCharts Blogs - ChartWatchers

MUNIS TUMBLE

We've been showing the upward trend in bond yields since the Fed's latest QE2 package was announced last week. We've also shown the drop in bond prices, especially Treasury bonds and notes. The bond category that's been hit the hardest has been tax-exempt municipal bonds. The first two charts show just how bad they've been hit. Chart 1 shows the S&P National Municipal Bond ETF (MUB) tumbling to a new 2010 low over the last month. It has also broken its 200-day moving average for the first time in two years. Mutual fund bond investors haven't escaped the price plunge. Chart 2 shows the Fidelity Municipal Income Fund (FHIGX) breaking its 200-day line as well (other muni bond funds look pretty much the same). The only bright spot lies in the deeply oversold conditions of both funds. That suggests that the muni bond market may be due for a bounce. But there's a bigger message (and warning) involved in the two charts. A lot of investors have poured money into the fixed income market over the last year in a search for yield (at the expense of stocks). Part of the preference for fixed income has also been a desire for safety. While it's true that bonds are generally safer than stocks, it is possible to lose money in bonds. When bond yields rise, prices fall. If you have money in a bond mutual fund, it will lose money when long-term rates are rising (as they're doing now). Yes, you'll get a higher yield. But the benefits of a higher yield will be more than offset by falling prices. Your mutual fund statement is based on price, not yield. The sharp drop in the Fidelity muni bond fund in Chart 2 shows that bond funds aren't always safe.

DETERMINING "RISK-ON/RISK-OFF" TRADE

Happy Thanksgiving!

We view the ratio between stocks and bonds as a barometer for the "risk-on" or "risk-off" trade. Therefore, the recent upward movement in the ratio has our attention, and so too should it have our readers as it on the precipice of breaking out into a full-fledged "risk-on" bull market in stocks vs. bonds as the 170-week moving average looks to be violated to the upside given 40-week stochastic is turning higher in bullish fashion. This simply means that stocks shall gain at the expense of bonds, and more importantly - given the bond market has harbored the "risk-off" crowd, they will be forced into becoming buyers of stocks as they shall not want to see capital losses associated with falling bond prices/rising yields.

This is what the Fed Chairman wants; and he said so very eloquently in his November 3rd Washington Post Op-Ed piece. Those who bet against the Fed's unlimited balance sheet do so at their own peril.

COMPLACENCY ONCE AGAIN MARKS TOP

The top in April was laced with warning signs, from record complacency to negative divergences on daily and weekly MACDs to underperforming financials to overbought oscillators to oversold bonds.  In particular, the negative divergence on the MACD on the weekly charts suggested the weakness was likely to last.  Recently, complacency once again became an issue.  As expected, the market reversed lower.  Check out the chart below:
 


In my long-term analysis of the market and the history of market tops, high complacency is definitely a contributing factor.  The extent of any subsequent weakness, however, generally lies within the number of corroborating technical signals that are bearish.  As mentioned above, the weekly divergences in April were abysmal and clearly negative, suggesting many weeks or months of market turmoil.  I anticipated the summer to be sideways to outright bearish given those divergences.  However, once the divergences on the MACD "reset" back to the centerline, the market was able to regain its earlier bullish momentum, which is exactly what we saw in September and October.
 
So what impact might the recent complacency and overbought conditions have on the market as we move forward?  Well, that's the subject of our Chart of the Day for Monday, November 22, 2010.  At the time of this article, I am literally returning from the Las Vegas traders expo and, as a result, the Chart of the Day will be updated as soon as I'm grounded back on the East Coast.  CLICK HERE for more information.
 
Happy trading!

THE VALUE OF A STOCKCHARTS MEMBERSHIP CONTINUES TO INCREASE

Hello Fellow ChartWatchers!

We are now halfway through our current plan for adding more value to every StockCharts.com subscriber's membership.  Two weeks ago, we doubled the amount of chart storage that Extra members get and we drastically increased the "freshness" of our Scan Engine results.  This week, we've increased the number of charts Basic members can store from 100 to 500 and we've given then access to many of the same features that Extra members have - i.e., multiple list views, storage for annotated charts, etc.

(At this point there are only 3 differences between Extra and Basic - Extra members get multiple ChartLists, Extra members get full scan results, and ExtraRT members get official real-time data instead of BATS data.)

All of these upgrades have been provided to our members automatically and for no additional fee and so far the reviews have been very positive:

"You have NO idea how happy you have made me. Because I work with industry sectors, the 100 chartlist limit is something that I've continually bumped into." - Leisa Deffenbaugh

"Thanks for the improvements. They are much appreciated and show your continued determination to remain #1. It would have been easy to sit back and just "let it roll" but you didn't do that. I've been with you for nearly 9 years and will continue, no question. The inclusion of Art Hill and John Murphy is an outstanding feature and also much appreciated. Keep it going! I love it!" - R. Rimrodt

So... that's it right?  All the improvements are complete.  Move along.  Time to get back to charting...

Actually, not quite.

We still have a couple more big changes up our sleeves that I wanted to let you know about.  All of these changes will make your StockCharts subscription even more valuable.  Here they are:

1.) Dynamic Chart Sizing!

I've mentioned this briefly before, but next week we plan on rolling out a new option in the "Size" dropdown for our SharpCharts.  The new option is called "Dynamic" and, if you select it, the chart will automatically resize itself to fit your browser window's size.  This is perfect for people that use multiple windows to view multiple charts.

2.) The Great Market Message Merger!

Here's another huge increase in value for all StockCharts.com subscribers.  Starting in December, we're going to automatically bundle in the StockCharts Market Message with all of our charting packages for free(!)  Soon anyone who subscribes to either our Basic, our Extra, or our ExtraRT charting service will automatically get access to the StockCharts Market Message written by John Murphy and Arthur Hill.

(If you already subscribe to the Market Message, we'll automatically extend your subscription to account for the change in pricing.  If you only subscribe to the Market Message, we'll give you access to our charting service for free.)

3.) I See London, I See France!

We've just gotten permission to provide charts of stocks from the two major European stock exchanges - the London Stock Exchange and the Euronext Exchange.  Initially we will be providing these charts to everyone on a delayed basis for free.  In a couple of months, we will start providing real-time versions to people who pay the exchange fees.

4.) Seattle ChartCon 2011 - Learn EVERYTHING About StockCharts.com From the Experts

We're throwing a party and everyone's invited.  Next August, for 3 days, we're going to hold a conference in downtown Seattle that is focused exclusively on helping you get the most out of our website.  Myself, John Murphy and Arthur Hill will give you in depth training on every aspect of every tool that StockCharts.com has.  We're still preparing the "official" agenda but rest assured that this conference will be well worth the time for anyone who's into charting.  Mark your calendar (August 11-13) and stay tuned for more details in the coming weeks.

Wow. That's a lot of stuff.  Which one are you most looking forward too?

- Chip

 

 

EURO STOXX 50 INDEX HOLDS UP IN THE FACE OF ADVERSITY

Despite weakness in the Euro and European debt concerns, we have yet to see significant weakness or a breakdown in the DJ Euro Stoxx 50 ($STOX5E). This index is the Dow Industrials of Europe. There are 50 stocks representing 9 countries and 18 industry groups. French and German stocks dominate the index, while finance-related stocks (14) form the single biggest industry group. It is a good cross-section of “core” Europe. While there are concerns with “peripheral” Europe, these have yet to spread to the Stoxx 50 Index.

Click this image for a live chart

The chart above shows the Stoxx 50 Index remaining in an uptrend overall with a rising wedge taking shape the last six months. A lower high could form as the index never made it to the April high. Major support is based on the October low and lower trendline. A move below these levels would call for a continuation of the April-May decline. The indicator window shows the index relative to the S&P 500. The Stoxx 50 Index was outperforming from May to September, but then started underperforming in mid September. While relative weakness in the Stoxx 50 Index is a potential negative, it has yet to turn into absolute weakness.

SECULAR STATUS

According to our mechanical timing models, as well as my conclusions through visual analysis, we are in a bull market, a cyclical bull market, which refers to the bull/bear cycle that occurs about every four years. A subscriber wanted to know if we were also in a secular bull market, which refers to trends that usually persist over many years, even decades. The next chart shows about 85 years of S&P 500 history, and I have marked it with red lines to highlight where, in my opinion, secular bull and bear markets took place.

The decline from the 1929 top to the 1932 low took less than three years, but the decline was almost 90%, so I think this qualifies as a secular bear. The advance that followed lasted about 30 years, certainly a secular bull. The flat move in the 1960s and 1970s has been declared a secular bear by many. It included a decline of about 50%, but it looks like a consolidation to me.

Then came the secular bull market, which began in 1974 (or 1982, depending on your point of view) and ended in 2000.

Finally, the market has entered another sideways trading range, which has lasted about 10 years so far. In that time there have been two bloody cyclical bear markets (down about 50% each) and one cyclical bull that drove prices up about 100%. We are currently in another cyclical bull market, seemingly headed back to the top of the trading range. Some are calling the last 10 years a secular bear market. I am inclined to call it a consolidation, but it certainly has heaped a lot of pain on some investing styles, so I won't argue the point.

Where we go from here is a matter of speculation. It appears to me that prices can continue back up to the top of the trading range, completing the bull market with another gain of about 100%. Perhaps it can continue to rally well above the top of the range in the beginning stages of another secular bull market, or, others have suggested, it may continue sideways for another decade or so, cycling through a series of cyclical bull and bear markets. Last, but not least, there is the possibility that prices will drop below the range and enter a devastating secular decline.

My best guess, and it is just a guess, is that the market will continue sideways for several more years -- the pattern has been set. I don't have a guess as to which way the trading range will eventually resolve, but I don't really need to guess. Our mechanical timing models should keep us aligned with the trend no matter which way it goes.

 

SEMICONDUCTOR HOLDERS CLEAR APRIL HIGH

The ability of any stock index or group to clear its April high is a sure sign of strength. In case you haven't noticed, the Semiconductor Holders are doing just that today. I point that out because, up until a couple of months ago, chip stocks were market laggards. Chart 1, however, shows that's no longer the case. Not only is the SMH clearing its April, high, but the SMH/SPX ratio (below chart) has been rising since early September. A number of individual stocks in the group have hit new 52-week highs including (in order of size) Texas Instruments (TXN), Analog-Devices (ADI), Altera (ALTR), Linear Technology (LLTC), Broadcom (BRCM), KLA-Tencor (KLAC), and Novellus (NVLS). One of the biggest chip stocks (which is often viewed as a group bellwether) is Intel which has been a group laggard. But it too is is starting to look a lot stronger. Chart 2 shows Intel trading at a new three-month high after clearing a six-month down trendline and its 200-day moving average. The strong upturn in semiconductors also carries good news for the broader market since it's a big part of the technology sector. And the market is usually stronger when the technology sector (and the Nasdaq) are leading it higher. Another heavily weighted chip stock, Applied Materials, has also just cleared its 200-day line (Chart 3).

A LONGER-TERM LOOK AT THE NASDAQ COMPOSITE

With the "troika" of the US mid-term elections, FOMC meeting decision on QE-2,  and the US Employment Situation Report having been digested by the markets, we thought it instructive to step back and take a longer-term viewpoint of the NASDAQ Composite. Perhaps by looking at the Composite, we can infer whether or not QE-2 will be successful in terms of raising asset prices in the coming year or years. Certainly the Composite has been a relative laggard since the bubble days of 1998-to-2000, that is until the past year. Thus, it piques our long-term interest, and perhaps more importantly...it will clear and discernible impact our trading strategy.

Turning to the monthly chart, we find the multi-year bullish triangle of which trendline resistance is clearly being given - which would argue for new highs years down the road. Certainly recent dour economic prognostications related to money printing et al should be the type of environment in which this should occur. But the fact of the matter is that support levels are holding, while resistance levels are being violated - the hallmark of a bull market. Moreover, the probability for prices extending their gains is rather good the 35-month moving average support level has time and time again over the course of 4-months held up admirably to assault. We are rather impressed by this; and our readers should be too.

Therefore, as long as the 35-month moving average provides support - then one must consider using sharp corrections upon which to accumulate technology shares. Once it does fail, then we'll be inclined to be aggressively short...but not until then. The final fact of the matter is that QE-2 may have some very real long-term unintended consequences - meaning very sharply higher asset prices or "bubbles" once again. And who doesn't like sharply higher asset prices? So...here's three cheers to the "good ole' days" of the 1998-to-2000 NASDAQ rally!

MARKET GLASS HALF FULL OR HALF EMPTY?

It's been a breathtaking move.  The NASDAQ was trading near the 2100 level at the end of August.  Friday it closed at 2579.  That's more than a 25% move in just over two months.  Of course that followed a 17% decline from April through August.  The bottom line is this:  The NASDAQ is approximately 2% higher than it was at the April high.  The Dow Jones is also roughly 2% higher since April.  The S&P 500 and Russell 2000 are closer to breakeven.
 
Here is the good news - the financials broke above key resistance as the Dow Jones US Financial Index ($DJUSFN) finally broke above that 271 level.  Right on cue, financials led on a relative basis last week and pulled the major indices higher with it.  That 271 level now becomes excellent support.  Until the bears can tear down support on the financials at that level, you've got to be long the group.  We saw what happened to semiconductors when resistance was initially cleared.  They exploded and so did the NASDAQ and NASDAQ 100.  Now it's the financials' turn.  We're not sure that the major indices will fly from current levels, but we do expect dollars that rotate out of other sectors to find a home in financials.  That should spell solid outperformance in the near-term, at a minimum.
 
Check out the chart below:

Financials were stuck in a 242-271 trading range.  The breakout measures initially to 300 and we wouldn't be surprised to see the group rise in the short-term to that level.  The new trading range is 271-300.  Based on this range, the current reward to risk is nearly 2 to 1.  We like the odds of being long this group, especially on any pullback near 271.
 
Ok, that's the good news.  The bad news is that folks are actually beginning to believe in this rally.  Complacency can derail a bull run and we're showing early signs of exactly that.  I measure complacency using the relationship between equity calls and equity puts traded.  The psychological state of the retail trader can be seen by this ratio and by the contract volume.  Complacency was highly prevalent in April and was one of several reasons why I believed the market was topping.  Recently, as the market was approaching key resistance levels, I commented to members that the resistance was more likely to be taken out due to the lack of complacency.  In other words, there was little belief by the retail trader that the market could go higher.  That non-committal to call options was at least one reason why the market did break out.  But now the optimism is building.  My focus on the equity only put call ratio (EOPCR) is the subject of Monday's Chart of the Day.  CLICK HERE to view the annotated chart and to listen to the video version.
 
There have been many technicicans who've felt the market was too overbought to continue moving higher over these past few weeks.  The current RSI and stochastics readings on the S&P 500 are at 79 and 99, respectively.  That's EXTREME overbought territory and means the market has to move lower, right?  Not necessarily.  RSI and stochastics serve very useful purposes, but identifying the type of market is the first step in determining how much to rely on RSI and stochastics.  Overbought can remain overbought for long periods of time.  It varies depending on the market.  Our next Online Trader Series event, scheduled for this Thursday at 4:30pm EST, will feature the best ways to utilize RSI and stochastics in your trading strategy.  I'll be happy to show you when you can least rely on these two momentum indicators.  CLICK HERE for more information on this event.
 
Happy trading!

MORE VALUE FOR STOCKCHARTS SUBSCRIBERS

Hello Fellow ChartWatchers!

One of the things we are always trying to do here at StockCharts is "improve."  We are always trying to make the website better - faster, more powerful, more flexible, you name it.  We are also always trying to increase its value.  Today, I'm thrilled to announce two big changes that are happening which will GREATLY increase the value of a StockCharts membership.

(For all you skeptics out there, the price hasn't changed at all.  I'm announcing new features and improvements for the exact same price as before.)

FOR ALL OF THE EXTRA AND EXTRA-RT MEMBERS OUT THERE:

Many of you have been asking for more space to store large numbers of ChartLists.  Evidently, as people find more ways to categorize charts, they have outgrown our old limit of 100 ChartLists per account.  Many people have asked us for more space and now, we're happy to give it to them:

EFFECTIVE IMMEDIATELY, ALL EXTRA AND EXTRA-RT MEMBERS CAN NOW STORE UP TO 200 DIFFERENT CHARTLISTS IN THEIR ACCOUNTS!

Each list still holds up to 500 charts so that is double the space you used to have.  This feature is already enabled and waiting for you to take advantage of it.  Just login to your account and click the "Add a New List" link on the Members page.  We can't wait to see what you do with twice as much space as you had before.  Enjoy!

But wait, there's more!

Check out the "Site News" article below for more information about additional improvements we've made just for Extra members including my favorite - "Near Real-time Scanning!"

BUT WAIT, I'M A "BASIC" SUBSCRIBER.  WHAT ABOUT ME?

We're saving the best for Basic members.  In about a week, we're going to be upgrading our Basic accounts significantly.  Instead of only being able to store 100 non-annotated charts, soon Basic members will be able to store 500 charts AND those charts can be annotated.  In addition, Basic members will have access to all of the different "Views" that Extra members now have - including the MarketCarpet view, the CandleGlance view, and the Summary view.  Basic members will also be getting access ChartStyles, StyleButtons and much more.

In short, a Basic account will soon be identical to an Extra account except that a Basic account will only have a single ChartList.

(Again, these Basic improvements aren't available quite yet.  They will be rolled out in the next week or so.  Watch the "What's New" area for details.)

Now, that might sound like a lot improvements, but I'm just getting started.  Look for the announcement of another huge improvement that will give you even more value for the same cost in our next newsletter.  And then, in the first newsletter in December, I'll be announcing StockCharts.com's biggest surprise to date - something that I'm extremely excited about and can't wait to share with everyone.  Stay tuned!

- Chip

MORE EXTRA IMPROVEMENTS, CHIP IN NYC, FASTER SCAN UPDATES, "PUZZLER" CONTESTS

CHIP ANDERSON PRESENTING ON LONG ISLAND THIS WEEK: Chip will be at the Old Bethpage Library in Plainview, NY this coming Thursday starting at 6:30pm.  He'll be giving his popular "Getting the Most from StockCharts.com" presentation.  For more details, click here.  Please stop by if you are in the area.

IMPROVEMENTS TO OUR EXTRA SERVICE:  In addition to the big news that Chip mentioned in his article this week, Extra members are also getting lots of little improvements as well.  The Market Carpets are wider.  The Gallery charts are also wider.  The Edit view has a number of improvements that should make it easier to use.  If you hover your mouse over the page numbers in 10-per-page view, a popup will appear showing you the range of ticker symbols on that page.  There's a new popup calendar for calculation scan date offsets.  And finally we now have links to our instructional videos on the Members homepage.

FASTER SCAN UPDATES:  We've been working on decreasing the Intraday update time for ScanEngines.  We now have it down to less than one minute (about 30 seconds) which means that Extra members who run scans with the "Last Intraday Update" selected should see results that are very close to "real-time" meaning that the oldest data in any given scan should be less than 45 seconds old.  (In the past it was up to 10 minutes old.)

"PUZZLER" CONTEST WINNER:  We held our first "Puzzler" contest last week and it was a big success.  Congrats to David Choy for being randomly selected from the 24 correct answers that we received. The answer to Puzzler #1 was MHP, WAT, MO, and IBM. Our S&P MarketCarpet can show you "Up Days-Down Days" for any recent range of dates. Just select it from the dropdown in the upper left corner of the carpet and then stretch/move the slider at the bottom. We'll have another Puzzler contest for everyone on Monday.

NIKKEI 225 FORGES INVERSE HEAD-AND-SHOULDERS

Although a little late to the party, the Nikkei 225 ($NIKK) is showing signs of life with an inverse head-and-shoulders pattern taking shape. Note that the S&P 500 formed an inverse head-and-shoulders from mid May to mid September and broke resistance in the second half of September. The Nikkei continued to a new low in late August, but forged a higher low in early November to form the right shoulder. The chart below shows the left shoulder forming in July and the head in late August. With the global rally in stocks, the Nikkei surged to neckline resistance with a strong move the last two days. This reversal pattern would be confirmed with a neckline break, but I am marking a resistance zone around 9750 based on the neckline and October high. A break above the October high would complete the pattern. According to classic technical analysis, the distance from the neckline to the August low (head) is added to the breakout for a target. This targets a move to around 10650.


Click this image for a live chart

US DOLLAR INDEX BREAKS LONG-TERM SUPPORT

(This is an excerpt from Friday's blog for Decision Point subscribers.)

As of 7/14/2010 the US Dollar has been on a Trend Model NEUTRAL signal, and it has been in a bear market since the end of September when the 50-EMA crossed down through the 200-EMA. On the daily chart below you can see that the index has been in a declining trend channel since the June top. When it hit the bottom of the channel in October, I thought it might bounce back up to the top of the channel, but QE2 killed that idea.

While the index remains above the bottom of the channel, the decline of the last two days has longer-term implications which are easy to see when we zoom back with a view of the weekly chart. The rising trend line drawn from the 2008 lows has been violated. Before we can say that the breakdown is decisive (unlikely to be reversed) the index would have to drop to about 74, but the fact that the most recent top formed well below the primary declining tops line tells me that the decline is accelerating.

Finally, we zoom farther back using a monthly chart. You can see the line drawn down from the 2002 top (flag pole) with the triangle (pennant) attached to the bottom of it. I think this looks like a giant reverse pennant formation, and the implications are extremely bearish -- a downside projection of about 50 points. To me that sounds crazy, but so does what the Fed is doing.

Bottom Line: Our mechanical Trend Model has us in a neutral stance on the dollar, but the charts are bearish. There is a slight chance that the breakdown from the long-term rising trend line could be reversed, but there is certainly no fundamental reason why this should happen. The Fed is determined to devalue the dollar, and I think, based on the technicals, that they will succeed beyond their wildest dreams.