StockCharts Blogs - ChartWatchers

STOCKCHARTS ADVANCED SCAN LIBRARY NOW OPEN

Hello Fellow ChartWatchers,

Today I'm please to announce the grand opening of our Advanced Scan Library.  We've collected some of the best scans available and posted them in this new ChartSchool area for everyone to see.  We have a big collections of Sample Scans that will teach you how to use our Advanced Scanning tools.  A difference section contains all of our Predefined Scan criteria on one page for you to review.  We also have a collection of Published Scans that have appeared in other publications.  Finally, we have some User-Contributed Scans that our members have sent in over the years.

All of the scans are in Advanced Scan Workbench format, ready to be copied and pasted into the Advanced Scan Workbench by members of our Extra service.  Hopefully they will be helpful to you - especially if you are trying to learn more about creating your own scans.

Here's an example from the Published Scans section to give you a better sense of what the Scan Library contains:

(Click on that example to see the live scan criteria in the library which you can then cut and paste into the Advanced Scan workbench.)

The great news is that the Scan Library will continue to expand and evolve over time - especially the Published Scans section and the User-Contributed Scans section.  Do you have a non-trivial scan you'd like to see us add to the Library?  Send it to scanning@stockcharts.com and we'll consider it for inclusion.

- Chip

DIGGING DEEPER INTO ELDER'S IMPULSE SYSTEM

Hello Fellow ChartWatchers!

Early last year, we added Dr. Alexander Elder's Impulse System to our SharpCharts charting package and it has proven to be quite popular.  This is the system that colors the price bars red, green or blue depending on two criteria that Elder feels are very important:

1.) Is the 13-day exponential moving average moving higher or lower?

2.) Is the MACD Histogram moving higher or lower?

If both of those conditions are true, the corresponding price bar is colored green (indicating bullishness).  If both of those conditions are false, the corresponding price bar is colored red (indicating bearishness).  If the signals are mixed, the price bar is colored blue (indicating uncertainty).

Here's an example of an Elder Impulse System chart:

(Click the chart to see a live version)

As you can see, prices for FAST have generally moved higher after the first green bar appears (at least for a couple of days) and lower after the first red bar appears (again, at least for a couple of days).  The bullish moves that started on October 18th and December 18th are particularly impressive.

(How did I find FAST as a good bullish example?  Easy - its SCTR number was over 99!)

Some people have asked if we could change the Elder Impulse System's parameters or provide more insight into what is happening when the bars are blue.  If we change the system's parameters, then it would no longer be the Elder Impulse System.  That said, it is possible to create your own system with your own parameter by using the two indicators that I've included at the bottom of the chart above.

The first indicator shows the slope of the 13-day EMA.  It was created by plotting a MACD with parameters of 13,0 (faint red line) and adding the Slope overlay (black line) on top of it.  If the black line is above zero, the 13-day EMA is rising.  If the line is below zero, that EMA is falling.

The second indicator shows the slope of the 12,26,9 MACD Histogram.  If the black line is above zero, the histogram is rising.  If it is below zero, the histogram is falling.

Notice how when both indicator lines are above zero, the corresponding price bars are colored green by the Elder system.  Similarly, when both lines are below zero, the corresponding price bars are colored red.  That confirms that these indicators are working for the standard Elder Impulse System parameters.

OK, now that you've seen how the indicators on that chart correspond to the colors on Elder's Impulse system, you can - if you are a StockCharts member - change the parameters of those indicators to create your own custom version.  The colors of the bars won't change - instead you can visually determine when both indicator lines are up and when both are down.

Alternately, you can use the chart above to see what is happening when the Elder bars are blue.  That may help you anticipate whether the bars will next turn green or red.

The Elder Impulse System is described more in our ChartSchool area.  It was originally described in the book Come Into My Trading Room.  All of Dr. Elder's terrific books on trading can be seen here.

- Chip

Note: The original version of this article incorrectly stated that the first criteria compared prices to the 13-day EMA.  Instead, the slope of the 13-day EMA is used. 

SECTOR ROTATION REVIEW 2011

Hello Fellow ChartWatchers!

Happy 2012!  During his ChartCon 2011 presentation on Intermarket Analysis, John Murphy presented a great chart showing the state of Sam Stovall's Sector Rotation model as of July 2011.  Let's take an interactive look at how things have changed since that time.

First off, a quick review:  Stovall's model says that the stock market tries to anticipate the business cycle which results in certain sectors outperforming the market at different points of that cycle.  By reversing that process, we can determine where we are in the two cycles by seeing which sectors are out performing the rest of the market.  Here's the diagram that shows those cycles and sectors:

So the order - moving from Market Top to Market Bottom and back to Market Top again - is:

• Energy
• Staples
• Healthcare
• Utilities
• Finance
• Cyclicals (aka Consumer Discretionary)
• Technology
• Industrials
• Basic Materials

If you want to know where the market is going next, you need to study the relative performance of those sectors while keeping that order in mind.

Fortunately StockCharts.com has a great tool for doing just that, our S&P Sector PerfChart.  You can find a link to that tool in the middle of our home page just below the list of "Consistently Popular" ticker symbols.  Since this is going to be an interactive look at sector rotation, you might as well take a moment, open a new browser window, find that link now, and click on it.  (Printing out this article might also be helpful.)

So... what point are we currently at in the sector rotation model?

Here is what you should see when our S&P Sector PerfChart first appears:

It's a bit messy at the moment - we'll clean it up in a second - but this is showing you the percentage performance of the nine S&P Sector ETFs over the past 200 days RELATIVE TO the S&P 500 Large Cap Index.  The S&P 500 index is both hidden (see the white box beside its name in the upper left corner?) and the "baseline" for the chart - meaning that the performance of the S&P 500 has been subtracted from the performance of the other lines.  (The fact that its name is surrounded by gray indicates that the S&P 500 is the baseline.)

So, for example, this chart says that over the past 200 days the Utilities ETF (orange line) has outperformed the S&P 500 by roughly 17.5% while the Financials ETF (brown line) has underperformed $SPX by about 14%.

So, how can we relate this chart to Stovall's sector rotation model?  With one simple click.  Take your mouse and click on the "Histogram Mode" button in the lower left corner of the chart.  It's the button that looks like this:    You should then see this chart:

Notice that the bars on this chart are in the same order as the sectors in the Sector Rotation model.  In fact, in a perfect world, these bars would form a cycle wave similar to what we show on Sector Rotation picture above.  That rarely happens but this picture is still very useful.  What is it telling us?

It is telling us that the three key RECESSIONARY sectors - i.e. Consumer Staples, Healthcare, and Utilties - have outperformed the other sectors significantly over the past 200 days.  Those sectors are clearly shown on this chart to be doing better that the rest.  Based on this chart, we could conclude that the economy is still mired in a recession and the stock market can be expected to head lower as a result.

But there's a "catch" to Sector Rotation analysis.  Did you spot it yet?  Why use 200 days?  Does simply looking at the performance of S&P 500 stocks between March 24, 2011 and now give us a complete picture of things?  Of course not.

The timeframe that you choose to look at is critical when doing Sector Rotation analysis.  There are three general approaches for selecting a good timeframe:

• Choose a standard interval like 200 days.  100-days and 45-days are also commonly used as are 12-months and 6-months.
• Choose an interval with "significant" calendar-based start and end dates such as Year-to-Date, a fiscal quarter, or January 1st to June 30th.
• Choose an interval that spans "significant" changes in the market.  We'll use this approach in just a moment.

As you might remember, three days before John gave his ChartCon talk in August of 2011, the stock market had a significant drop and the market started behaving differently.  You can see that on your Sector PerfChart by following these steps:

1. Click on the "Line Mode" button in the lower left corner of the chart to show us the lines again.
2. Click on the gray "S&P 500" button in the upper left corner of the chart to show us the absolute performance lines rather than the performance relative to $SPX.

You should now be looking at this chart:

Notice how the sector lines appear to diverge differently after the August 10th drop?  That's a signal to us that something may have changed and we should look at the period from then until now to see if anything did change.

If you are following along at home, click the words "S&P 500" in the upper left corner of the chart to re-enable baseline mode with $SPX as the baseline.

Next we want to move the starting date of the chart from "24 March 2011" to "10 August 2011".  You can change the date with your mouse however it is much more precise to change dates using your keyboard.  Here's how:

1. Click your mouse once anywhere in the middle of the chart (this is a precaution to make sure that your keyboard is "connected" to the PerfChart tool).
2. Press and hold down the SHIFT key on your keyboard.
3. Press the RIGHT ARROW key on your keyboard once.  You should see the starting date of the chart (upper left) change to "25 March 2011" and the duration slider (lower right) change to "199 days"
4. Now, with the SHIFT key still held down, press and hold the RIGHT ARROW key until the start date says "10 August 2011".  Again, this is a slower but more accurate way to change the date.

Your chart should now look similar to this:

Now, let's "zoom in" on just the recession-oriented sectors.  Click on the small, colored boxes at the top of the chart to turn off the lines for Consmr Discr, Technology, Industrials, Materials, Energy and Financials.  You should end up with something like this:

So this shows us the while Staples, Healthcare and Utilities are still in positive territory, they have not been as strong during this time period as they were over the 200-day period.  That might be good news for the market as these sectors need to weaken before another bull market can begin.  We need to dig deeper however before we can make that conclusion.

Now, let's add each one of the other sector lines back onto the chart one at a time and see if any other stories emerge.  Click on the small box for the Financials SPDR.  The brown line for the Financials should reappear:

The Financials are still underperforming.  An optimist might point to the uptrend in December, but that still has a ways to go in order to prove itself.  Now click on the small brown box again to turn off the Financials line, then click on the small box for "Consumr Discr SPDR" (aka the Cyclicals):

Now this is more promising.  The Cyclicals have to strengthen in order for any market bottom to be taken seriously and what the blue line on this chart is saying is that things are s-l-o-w-l-y getting better in terms of consumer spending.  The progress is fragile however and not strongly convincing.

Now turn off the blue Consumer Descretionary line and turn on the green Technology line.  You'll see that Tech stocks are all over the place and, on average, have moved sideways over the past 100 days.

Turn on the pink Industrials line and you'll see that it is a bit of a conundrum.  It's been relatively strong over the past 100 days which goes against what our Sector Rotation model says should be happening.  Industrial stocks should not be consistantly strong until a recovery is well under way.  It is not that unusual for these kind of things happen however when doing Sector Analysis.  You - a human being - need to consider all of the evidence and decide "Is there something other than sector forces that could be causing this 'rogue' sector behavior?"

The light blue line for Basic Materials is very weak - which is what our model expects.  The black Energy line has been very volatile during this period - something that's not unexpected since the market is rotating away from that sector.

All of this information points to an economy that is trying to recover but hasn't really gotten started yet. These lines and the relationships between these sectors needs to be watched closely over the next couple of months to see if more signs of recovery appear or to see if things regress.

Recently, several people wrote in and said that they were not renewing their StockCharts subscriptions because "the market is not worth watching right now."  I couldn't disagree more strongly.  NOW is the time to be watching the market like a hawk because if things do pick up, your first signal will come from technical charts like these.

Take care,
- Chip

P.S. To hear John's 2011 ChartCon presentation for yourself - along with a ton of other great presentations - pick up a copy of the ChartCon 2011 DVDs from our online store.

ANNOUNCING CHARTCON 2012! THE SECOND ANNUAL STOCKCHARTS USER'S CONFERENCE

Hello Fellow ChartWatchers!

This past August, something special happened in Seattle.  Over 350 charting enthusiasts gathered for the first ever ChartCon conference.  They listened as John Murphy, Arthur Hill and myself discussed technical analysis in depth, demonstrated their own analysis techniques and explained how to use the core features of StockCharts.com.  (They also had a ton a fun in the evenings!).  Click here to see what the attendees thought of their conference experience.

I am now thrilled to officially announce that we will be holding the second annual ChartCon conference next August in Seattle!

ChartCon 2012 will build on the lessons of ChartCon 2011.  There will be great presentations by John Murphy, Arthur Hill and myself but we will also be joined by the rest of our ChartWatchers contributors - Carl Swenlin, Richard Rhodes and Tom Bowley!  Each presentor will focus on the topic "How I analyze the markets using StockCharts" and they will all include lots of demos.

In addition to great presentations, we'll have some great evening events including a gala dinner at the Boeing Museum of Flight.  One of the wonderful things about ChartCon 2011 was the interactions between attendees and we want to make sure that happens again in 2012.

For more information, including dates, pricing, a detailed agenda, and our spouses-attend-free policy, please click here.  You'll also find a link there where your can register for the conference.

Don't delay - ChartCon 2011 sold out in less than one month.

Speaking on behalf for the presentors, we'd love to meet you in Seattle next August and help you get the most out of StockCharts.  I guarantee that you'll learn several new ways to use technical analysis and StockCharts to make better investing decisions.

See you then!
- Chip

AVERAGE TRUE RANGE COMPARISON SHOWS STOCKCHARTS IS ABOVE AVERAGE

Hello Fellow ChartWatchers!

First off I wanted to make sure you knew that our Holiday Special is now underway!  Long time members will tell you that if you are a StockCharts fan, the best time to join or renew is during our Holiday Sale Special.  If you renew right now for 12 months, we'll give you 2 additional months for free.  If your account expires within the next 6 months, now is definitely the time to renew.  If you have been thinking about becoming a StockCharts member, now is the time to join.

Members: To renew, login and then click the "Your Account" link at the top of the page.

New Subscribers: Click here and select your service level to get started.

Do not let this opportunity pass you by.  This sale only lasts through December 19th!

Also, we've inserted a longer article by John Murphy into this newsletter because John has some important, timely observations for everyone right now.  Feel free to forward this email to your friends using the link at the top of this email message.

 

AVERAGE TRUE RANGE COMPARISON

The other day, someone wrote in and asked why our ChartSchool formula for Average True Range (ATR) was different from what they saw on other websites.  Curious, we looked into the issue and were very surprised to discover that several other websites were describing ATR incorrectly.

ATR was created by J. Welles Wilder - the creator of the RSI indicator, the ADX indicator, the Parabolic SAR indicator, and several others.  He first described it in his amazing book "New Concepts in Technical Trading Systems."

The first part of the equation involved computing something called the "True Range."  Everyone gets that part correct.  (You can see the details for yourself here.)  It's the second part - the "Average" part - that many other websites are getting wrong.

On page 23 of Wilder's book it says:

"The equation for the AVERAGE TRUE RANGE is as follows:

ATR(latest) = ( 6 x ATR(previous) + Today's True Range ) / 7

To get the ATR initially, add the true range, as defined, for the past seven days and divide by seven. The answer from this will be used as the ATR(p) in the equation for the next day."

On page 26, Wilder reiterates the steps:

"2. ATR -- AVERAGE TRUE RANGE

A. Initially obtained by adding the true ranges for seven days and dividing by seven. 
B. The latest ATR is obtained by multiplying the previous ATR by six, adding today's true range and then dividing the total by seven."

Those discussions are in the context of creating a 7-day ATR. To create the more typical 14-day ATR, you would use 13 instead of 6 and 14 instead of 7 in the above formula. That's the same as the information we present in our ChartSchool article and it's what we use in our programs.

Unfortunately, other website just take the 14-period Simple Moving Average of the True Range values and call that average the ATR.  That is a huge mistake on their part caused - we guess - by laziness.

To see why, lets look at the current ATR value of the Dow Jones Industrial Average using our website and a popular competitor's site:

So we show that the Dow's ATR(14) should be 221.762 whereas our competition shows it at 206.98.  That's a HUGE difference!  Why is that?

The answer is obvious if you look at the following Excel spreadsheet that calculates ATR using both Welles Wilder's way of averaging things and the simple moving average method.  Here's a screenshot of the bottom of that speadsheet:

And there you go - If you use the Wilder averaging method you get 221.76 which is what our chart shows.  If you don't do your homework and assume that "Average" means "Simple Moving Average", you get 206.98 just like our competitor does.

(BTW, our chart shows the 200-day EMA at 11695.15 whereas the competition has it at 11703.14.  Here a link to an article explaining why our number is correct in that case as well.)

The bottom line here is that StockCharts.com is 100% dedicated to accurate calculations and we take the time to go to the authoritative source for our formulas.  Not everyone does that and, if they can't get ATR correct, what else do they have wrong?

Happy Holidays!

- Chip

 

ANNOUNCING THE 2012 STOCKCHARTS UNIVERSITY SEMINAR SERIES

Hello Fellow ChartWatchers!

We have a jammed-packed edition of ChartWatchers for you this week.  With the holiday season approaching fast (too fast if you ask me!) we're announcing several great Store specials that I urge you to look into to.  Click here for more details (or just skip down to the "Site News" section of this email).

STOCKCHARTS UNIVERSITY SEMINAR SERIES

In addition, I am thrilled to announce the next step in the evolution of StockCharts University, the SCU Seminar Series.  In 2012, we're going to hold three one-day SCU seminars - one in Los Angeles, one in Seattle and one in the New York area.  Things will kick off with the Los Angeles seminar on March 24th, 2012 at the Marina del Rey Marriott.

A StockCharts University seminar is a one-day training session focused exclusively on helping you use the tools on StockCharts.com more effectively.  We'll start with the basics and then dive into how each tool was designed to be used and why it was designed that way.  We'll then go over how experts like John Murphy use those tools every day to gain a complete understanding of what the market is doing.  

I'm going to teach these first three seminars and I'm really looking forward to meeting the participants.  We'll start at 8:30 and go all the way until 5pm.  I won't leave until I'm sure everyone has all of their questions answered.  Class size will be limited to around 50 to ensure everyone learns what they need to.

The seminars will cost $199 per person.  All of that money will go to offset the costs of holding the events.  We're not doing this to make a profit - we want you to be better investors.  That said, there are two things we're doing to help increase the value of these seminars to attendees:

1. People that register early will receive a significant discount - only $179
2. All attendees will receive 3 free months of our Extra service - a $75 value!

Continental breakfask and a great lunch is included.  So that drops the "cost" of the seminar to around $80 - not bad considering what you'll learn!

We held a "beta" version of this seminar recently and the response was overwhelmingly positive.

For more details, please click this link.

Right now, we're accepting early bird registrations for the Los Angeles event.  We're still finalizing the venues for the Seattle and New York events and will announce open registration for those events by the end of December.

Finally, we're asking everyone who can't make it to one of those events to VOTE for where they'd like us to hold event #4.  There's a link to the voting page on the main SCU page.

I really hope you can make it to one of these events - either next year or in the coming years.  I'd love to meet you and personally show you how all of the tools on StockCharts can make you a better investor.

- Chip

P.S. In case you're wondering, these seminars will NOT replace ChartCon.  Watch for a big ChartCon announcement coming in December.

STOCKCHARTS JOINS FORCES WITH S.R.C. FOR GREAT HISTORICAL CHARTS

I am extremely happy to announce that StockCharts.com is now working with the good folks at Security Research Company (S.R.C.) to bring you high-quality historical financial charts based on their huge database of financial information.  In case you are not familiar with SRC's work, they've been publishing their amazing charts since they started back in 1933(!) primarily in printed form and more recently in online format.  You can learn more about SRC by clicking this link.

The first result of our new association with SRC is an amazing new wall chart that is only available to StockCharts.com users like you.  Called the "New Century" chart, this huge printed chart lets you trace the history of the stock market back to 1906 via the Dow, the S&P 500, the NYSE and later the NASAQ.  It includes recessions, presidents, major historical events, and the gross domestic product of the US for comparison purposes.  Here's a thumbnail:

Did I mention this thing is big?  24" tall by 36" wide makes is perfect for framing and displaying anywhere.

Now, this poster normally goes for $89.00.  However, because this is the start of a new relationship between SRC and StockCharts.com, we got permission to offer it at an amazing discount for THIS WEEKEND ONLY!  If you order this chart before Tuesday, it will only cost you $29.95 plus $4.95 shipping.  Click here to order your copy today.

(I'm sorry I sound like a car salesman here but I really love big historical charts and this really is an amazing deal that I hope everyone takes advantage of.)

Anyway, regardless of if you get this wall chart or not, everyone can look forward to more great collaborations between SRC and StockCharts.com in the weeks and months to come.  Some of the things we are working on will be truly stunning.  I can't wait to show them to you.  Stay tuned...

- Chip

 

OUR STORY SO FAR...

Hello Fellow ChartWatchers!

"Distance not only gives nostalgia, but perspective, and maybe objectivity." - Robert Mogan

Perspective.  Do you have it?  Have you lost it?  How do you gain it back?

One of the best ways to gain perspective on the stock market is to use long-term market indicators.  One of the best long-term market indicators I know of is the Bullish Percent Index ($BPNYA).

The Bullish Percent Index is the percentage of tradeable NYSE-listed stocks that currently have a "bullish" signal on the right edge of their Point and Figure chart.  Click here for the gory details.

$BPNYA is a great indicator for quickly determining the overall "health" of the market.  If it is moving higher, life is good.  If it is moving down, hang on to your hats.

So where is the Bullish Percent Index now relative to where it has been in the past?  Here's a monthly chart of $BPNYA going back to 1987.  This chart is one of the best I've ever seen at telling "The Story of the Stock Market So Far..."

(Membes can click the chart to see a live monthly version.  Non-members will see a daily version.)

This chart shows that the important levels for $BPNYA historically have been 25%, 50% and 75%.  The index tends to stay between 25% and 50% (slow economic times) OR it tends to stay between 50% and 75% (good times).  The current 41.52 rating shows some improvement over September's reading of 23.15 however there is a long ways to go.  The indicator has also whipsawed above and below the 50% line many times in the past.  As you can see from recent action in 2004 and 2009, a move above 75 is what is really needed in order to have confidence things won't immediately fall back below 50.

Every day we publish Bullish Percent numbers for the NYSE as well as 22(!) other stock categoies every day on our Market Summary End-Of-Day page.  They are located at the bottom and all begin with "$BP".  Make sure to add them to your market analysis arsenal.

- Chip

THE THREE MOST COMMON SUPPORT QUESTIONS AT STOCKCHARTS

Hello Fellow ChartWatchers!

Simpler is usually better and that is definitely true when you are looking for a chart to put the month of September into perspective.  Voila!

Members can click the chart to see a live version.

The Dow finished September over 6% lower than the previous month.  That's the 5th straight month $INDU has moved down - and it did so on above average volume.  MACD momentum is still headed down having just crossed its signal line.  Don't get fooled by all the over-analysis going on these days in the main stream financial press, the technical picture is simply not that good right now.

OUR THREE MOST COMMON SUPPORT QUESTIONS

1.) Why am I seeing filled red and filled black candlesticks on your charts?

Usually with our default candlestick settings, filled candles will be colored red.  Filled black candles appear when the a stock gaps up overnight (opening mich higher than yesterday's close) but then falls during the day but still manages to close higher than it did yesterday.  In that case, the stock moved higher when comparing the close to yesterday's close HOWEVER it moved lower when comparing the close to the open.  The candle is filled because the close is lower than the open, but it is colored black because the close is higher than yesterday's close.  The chart above shows several examples.

By the way, the opposite situation leads to hollow red candlesticks - but we don't get many questions about them because they are not as noticeable.  There are at least 8 on the chart above.

These "contradictory candles" often happen when the market is unsure about the stock in question and can indicate an upcoming change in direction.  Recent market indecision has made them plentiful on the chart above.

2.) Why is your historic data different from the data on some other website?

We adjust our historic data to eliminate the artificial, misleading effects of splits, dividends and distributions on our charts.  For more information, check out this video explanation I gave at our recent ChartCon conference in Seattle.

3.) How can I overlay things on your charts?

To overlay things, you need to use the "Position" dropdown that's associated with each indicator on our charts.  Normally, "Position" is set to either "Above" or "Below" which means that the indicator will appear either above or below the price bars in its own separate area.  Notice however that there are two additional settings for "Position" - "Behind Price" and "Behind Ind."

"Behind Price" means that the indicator will appear in the price panel area as an overlay.  "Behind Ind." means that the indicator will appear in the same panel that previous indicator is using.

I urge you to experiement with those two settings - they are the keys to creating some really powerful charts.

- Chip

THE "WHAT-WHAT" CHARTS AND HOW TO USE THEM

Hello Fellow ChartWatchers!

With headlines like "Rally in Trouble?", "Start of Correction?" and "VIX Stalls" you'd think that our technical analysts were trying to tell you something...

Regardless of what John, Arthur, Carl and the rest of the gang is hinting at, things could not be more bullish here at StockCharts with regards to a great crop of new features that that can help you get even more value for your online charting dollar.

Things like our new Market Summary page layout and our ChartCon DVD pre-sale are covered later on in the "Site News" section of this newsletter.  So I wanted to take a second and talk about the Heikin-Ashi support we added last week.

The "what-what" support?

Heikin-Ashi charts look very similar to regular candlestick charts, but there are several significant differences.  Heikin-Ashi candles filters out some noise in an effort to better indicate the prevailing trend. In Japanese, Heikin means "average" and "ashi" means "pace." Taken together, Heikin-Ashi represents the average-pace of prices.

Heikin-Ashi Candlesticks are not used like normal candlesticks. Dozens of bullish or bearish reversal patterns consisting of 1-3 candlesticks are not to be found. Instead, these candlesticks can be used to identify trending periods, potential reversal points and classic technical analysis patterns.

Let's compare a normal Candlestick chart with its Heikin-Ashi equivalent:

(The Heikin-Ashi chart is on the bottom.  Click charts for live versions.)

Notice that the Heikin-Ashi chart doesn't contain the gaps that the regular candle chart has.  Also notice that lower shadows are generally missing from the rising candles and upper shadows are missing from the falling candles.  All of these characteristics stem from how Heikin-Ashi candles are constructed.  For the gory details, please see our ChartSchool article.

The key takeaway is that Heikin-Ashi candles reduce raw volatility in favor of indicating the overall trend more clearly.

Just another tool to add to your charting arsenal.

Enjoy,
- Chip

P.S. People have asked if we can scan for Heikin-Ashi chart patterns.  The Scan Engine doesn't currently support Heikin-Ashi charts because, fundamentally, Heikin-Ashi charts use different data than the OHLC values that the Scan Engine is designed to work with. Unfortunately, that isn't going to happen any time soon.

GEMS FROM S.C.A.N. - HOW OTHER USERS CAN HELP YOU USE STOCKCHARTS BETTER

Hello Fellow ChartWatchers!

Last month, we announced the opening of a new User-to-User help website called "s.c.a.n." - the StockCharts Answer Network.  Hopefully, you've had a chance to check it out - if not, I strongly encourage you to do so.

s.c.a.n. has been a huge success so far.  Almost 150 different questions have been asked and over 360 different answers have been given - as you can see, the s.c.a.n. community is ANXIOUS to help!

Remember, anyone can browse s.c.a.n. for free just by visiting the s.c.a.n. website.  Here's just a sample of some of the great things you can find over there right now:

• Six great ways to import a list of ticker symbols into StockCharts from some other website.
• How to discover the indicator settings for ANY SharpChart, even if they aren't displayed on the chart.
• Several great local Technical Analysis user groups.
• Why and how to set Stops accurately in your trading.
• Which web browsers people use with StockCharts and why.
• How to shade the area between the Bollinger Bands with a translucent color.
• How to chart the percentage a stock is above or below a moving average.
• ...and much, much more.

s.c.a.n. is free, useful, rewarding and full of great advice from other StockCharts users.  You owe it to yourself to take some time over the holiday weekend and look at all of the content there.  Hopefully you will also decide to join in by asking the s.c.a.n. community a StockCharts question that has been bugging you forever!

Happy Labor Day!    (US markets closed on Monday.)

- Chip

JOIN THE STOCKCHARTS ANSWER NETWORK (s.c.a.n.) TODAY!

Hello Fellow ChartWatchers!

Last week, we hosted over 300 enthusiastic StockCharts.com members here in Seattle for ChartCon 2011.  John, Arthur and myself cannot say enough about the great people we met.  Thanks again to everyone that participated.  Here's a link to more reviews and photos of the event.

One of the key goals of ChartCon was to build a sense of community amoung the participants. That began happening almost immediately during the first day and continued throughout the conference.  As part of that process, we announced a new resource for all StockCharts users that will allow them to ask each other for assistance - the StockCharts Answer Network (s.c.a.n.) at http://scan.stockcharts.com.

If you have a question that you'd like to ask other StockCharts users, s.c.a.n. is the way to do it.  It rewards people that ask relevant questions.  It rewards people that provide great answers.  And it does so in a way that ensures it will be a great resource for all StockCharts users for years to come.

To ask a question on s.c.a.n., just click the "Ask a Question" button.  You'll need to create an account on the s.c.a.n. server (those accounts are separate from StockCharts' accounts) as part of the process but don't worry, s.c.a.n. is completely free to use and has the same rock-solid privacy policy that StockCharts.com does.

It is in your best interest to take a little bit of time and make sure your question is well explained and is something that the StockCharts user community can actually help with.  Questions like "How can I...?"  and "Is there some way to...?" are usually answered very quickly.  Questions like "Why...?" and "What should I buy?" will probably fall flat.

It's also important to remember that billing issues, feature requests and bug reports are best sent directly to the StockCharts Support team since other end users can't really help with those issues.

My initial hope is that s.c.a.n. becomes a great source of answers for all StockCharts users - and not yet another site filled with irrelevant, spammy, off-topic questions.  However, we don't control what happens to s.c.a.n. - you do!  Let me say that again:

S.C.A.N. WILL BECOME WHATEVER YOU LET IT BECOME!

You - not us - are the curators of s.c.a.n.  You have to power to reward great questions and great answers.  You have to power to discourage spam, vagueness, misleading information, and irrelevantness. But in order to help, you must participate.  You must ask great questions.  You must provide great answers.  And you must vote for greatness.

So, help us help you by joining s.c.a.n. today!

- Chip

P.S. Be sure to read and understand the s.c.a.n. FAQ before posting or answering questions.  Also, be sure to search to see if your question has already been asked. 

 

CHARTSTYLES ARE A POWERFUL, UNDERUSED FEATURE OF STOCKCHARTS

Hello Fellow ChartWatchers!

ChartStyles are basically "templates" of charts. They contain everything about the chart except the ticker symbol. Members of our Basic and Extra services can save multiple ChartStyles into their accounts for quick access later. Consider the following example:

Let's say that you have been reading the newspaper and a story on Amazon (ticker symbol: AMZN) catches your eye. You'd like to do some research on AMZN's price movements - what's the best way to start?

Step One is to just go to StockCharts.com, enter AMZN in the Quick Chart box and click "Go!". That will give you a SharpChart of AMZN in your "Default" ChartStyle for your account. If you've never changed your Default style, you'll see a daily candlestock chart with RSI and MACD indicators.

While your Default chart is helpful, you'll want to do more in-depth research. Let's say that you also want to see the long-term view, the short-term view, a trending-or-oscillating study, and maybe a Renko study.

While you can change the settings below the chart to create each of these things, that gets tedious after awhile. There has to be a better way, right? That "better way" are ChartStyles. By taking the time to create and save each one of those different studies into your account as a ChartStyle, you can then pull up those settings instantly with just one or two clicks.

For example, here are the steps to create and save a "trending-or-oscillating study" as a ChartStyle:

Step 1 - Create a Chart with the Settings you Want

In this case, I added the Aroon Oscillator and Wilder's ADX studies to a standard candlestick chart. Both indicators can help you determine if a stock is "trending" or "trading" (i.e. oscillating sideways) which is very useful in determining which buy/sell signals to use. (See our ChartSchool articles on those indicators for more info.)

Step 2 - Make Sure your Settings are "General Purpose"

Before saving a ChartStyle you want to take a moment and review your settings to ensure that they will work with other ticker symbols at other times. Specifically, you want to avoid using "Start/End" Range settings that have specific dates in them - those dates may not be valid when you use this ChartStyle several months from now. You also want to avoid using Price indicators that include the chart's main ticker symbol - those settings won't make sense when you apply this style to a different ticker.

Step 3 - Add the New ChartStyle to Your Account

Just below the chart is the "ChartStyle" line - I've outlined it in blue in the picture above. It contains all of the links you need to create and control your ChartStyles. Right now, we are trying to add a new ChartStyle to our account, so we need to click the "Add New" link (the black arrow). When we click that link, a popup area appears below it - that's what I've outlined in red above.

Let's call our new ChartStyle "Trend/Oscillate Study" - simply enter that in the "Name" field and click the "Add" button to create the new ChartStyle. (I'll talk about the "Button" field in my next article.)

Step 4 - Test the New ChartStyle

We can use the "ChartStyles" dropdown to test our new style. It contains all of our saved ChartStyles as well as our ">>Default<<" style and seven predefined styles. To test our new style, first select the "SCC Default" setting from the dropdown. You should see the standard RSI/MACD chart appear. Then select "Trend/Oscillate Study" and our Aroon/ADX chart should reappear. Success!

You can now apply that study to ANY ticker symbol just by selecting that entry from the ChartStyles dropdown. I bet you can think of 10 more studies that you'd like to create. Why wait? Go for it. Every ChartStyle you create makes StockCharts that much more powerful for you. Enjoy!

If you get confused by any of this, click the yellow "Instructions" link for more information.

--Chip

FUTURES SO BRIGHT, YOU GOTTA WEAR SHADES!

Hello Fellow ChartWatchers!

Today I'm pleased to announce another major upgrade to StockCharts.com.  We've just added end-of-day data for US futures contracts as well as end-of-day spot prices to our system.  The data is available for free to everyone.  When you combine that with our recent addition of London, Euronext, and German stock data, you'll discover that over the course of the past two months, we added over 2,500 new, free symbols to our database - the largest expansion we've ever had (and we're still not done...)  Here are more details on each of these two important changes:

THE RETURN OF OHLC DATA FOR OUR COMMODITY INDEXES

Last month when we completed our transition from our old data vendor to our new data parter, Interactive Data, we discovered that the Open, High, and Low values we had been getting for our various end-of-day commodity indexes like $GOLD and $USD didn't match the values we were expecting to see.  Because of those data consistancy issues, we changed those indexes into "Close-only" datasets something that proved to be very unpopular with many of our users.  (Frankly we were very surprised by the amount of negative feedback we received at that time.)

At the time we made the change, I wrote the following in my blog:

"It has always been StockCharts.com's intention to add legitimate, tradable futures data to our website at some point.  It is still our intention to do that. [...] We are continuing to look for possible "middle-ground" solutions which would allow us to provide, for example, delayed spot prices for popular commodities."

Today's good news is that we have been able to acquire the data we need to provide end-of-day, OHLC spot prices for all of our commodity-based indexes.  This means that you are now able to create daily bar and candlestick charts for $GOLD, $SILVER, $COPPER, $NATGAS, $USD, $WTIC and more AND that the data is based on actual futures trading data straight from the futures exchanges.  Check it out:

(Click on the chart to see a live version of these charts.)

Important Note: This change means that we have fundamentally changed the nature of our commodity-based indexes.  They are no longer based on "Continuous Contract" calculations.  They are based on actual trading data.  The historical data on these charts has been replaced with Spot price data and that may have altered previously saved charts - especially those with annotations as well as P&F charts.  We apologize for any issues this change has caused but hopefully everyone will agree that having data based on actual trading is a much better approach.

Speaking of actual trading data...

END-OF-DAY CHARTS FOR FUTURES CONTRACTS

In addition to updating our commodity indexes, we've added end-of-day data for many important Futures contracts to our system.  That means that you can now chart, for example, the daily changes in the August Gold contract or the December contract for the US Dollar or the contract for Light Crude Oil in June of 2012.

Here's a list of the US Futures contracts that we currently support:

^CL - Light Crude Oil
^DX - US Dollar Index
^GC - Gold
^HG - Copper
^HO - Heating Oil
^NG - Natural Gas
^PA - Palladium
^PL - Platinum
^RB - Gasoline
^SI  - Silver

(For those of you who are not familiar with futures, the complete ticker symbol for a futures contract is the prefix - listed above - plus a one letter character that represents the month that the contract expires in plus the last two digits of the year the contract expires in.  For example, the complete symbol for August 2012 Natural Gas is ^NGQ12.)

We will be adding currency contracts and contracts for financial instruments like the S&P eMini over the course of the next couple of weeks.  To get an up-to-date list of the contracts we provide, use of Symbol Search tool and search for "^"  (or just click here).

Again, all of these symbols are based on end-of-day data and are thus free for everyone to use.  These charts should be valuable to casual and longer-term futures traders as well as equities traders that want to keep up with the details of the futures markets.  Enjoy!

- Chip Anderson

 

P.S. I know that the active futures traders out there are now probably wondering "When will StockCharts have intraday and/or real-time futures charts?"  Unfortunately, the answer to that is still unclear.  I can tell you that it's not going to happen in the near future.  There are many technical and legal hurdles that still need to be overcome.  The good news is that these end-of-day charts have laid much of the technical groundwork necessary for us to provide intraday commodities data at some point in the future.  Stay tuned...

 

TA 101 RETURNS (FINALLY!) - PART 17

Many months ago, we began a series of articles that we called "TA 101."  The articles covered the basics of stock charting.  The most recent article in the series was published in January of 2010.  (If you have time on this long holiday weekend, I strongly urge you to read the entire series.  Here's a link to all the articles - just scroll to the bottom to find the first one.)  Well... after much delay, here's the next article in the series!  - Chip

Comparison Charting

Comparison charting allows the analyst to study individual price performance and performance relative to other stocks.  John Murphy, who provides expert market commentary on StockCharts.com, uses comparison charting extensively in his analysis of the market.

Individual Price Performance

(Click the chart to see how it was created with the "Performance" chart type setting.)

The SharpChart above shows how the Performance plotting style can be used to monitor the year-to-date performance of the Dow Jones Industrial Average.  Once this chart is generated, the page can be bookmarked as a favorite in your browser for quick access in the future.

Multiple symbols can be plotted and compared in this manner by using the Price indicator and other ticker symbols as parameters with a Behind Price position setting.  The SharpChart above shows the performance of AA compared with BA and IBM.

Relative Performance Comparison

The SharpChart above illustrates how the performance between IBM and the Dow Jones Industrial Average (DJIA) index can be compared in the Indicator Panel above the Price Plot Area.  The relative performance indicator is displayed by selecting Price as an indicator on the workbench and inserting IBM:$INDU as a parameter.

A positive slope of the indicator line shows that the first symbol in the ratio is outperforming the second symbol.  A negative slope indicates the opposite; the first ticker symbol is underperforming the second ticker symbol.  And a flat line indicates that both symbols have similar performance.

This information can be used in several ways.  In the case of comparing a stock to a market index, the analyst can quickly determine whether or not a stock is outperforming the market.  In the case of comparing two stocks, the analyst can easily determine how the stocks are performing relative to each other.

Next Time: Ratio Charting

IN THEORY...

There are several new indexes at StockCharts.com that everyone should check out.  They are our new "Theory" indexes that contain artificial, idealized versions of four important chart patterns - a sawtooth reversal pattern ($THSAW), a sine wave pattern ($THSINE), a "perfect" Elliott Wave pattern ($THEW), and a good approximation of an "ideal" Head and Shoulders reversal pattern ($THHS).

Here's a comparison of an annotated version of $THEW along with a snapshot of an "ideal" Elliott Wave taken from our friends at ElliottWave International:

As you can see, $THEW is extremely similar to the version of EWI.  The image on the right also demonstrates our recent "Elliott Wave Annotations" tool that is now built into ChartNotes.  The numbers and letters on that chart were added very quickly just using single clicks of the mouse.

It's important to keep in mind that all of our Theory indexes (i.e., indexes that start with "$TH") are artificial.  They are there to help you study indicator behavior.  They are not tradable.  They do not represent actual indexes or securities of any type.  So what good are they?  Here are just some of the things you can do with them:

1.) Watch how the patterns develop over time

Each day we add a little bit more of the pattern to the right side of the chart.  Remember, the right side is where everyone has to live in order to make money.  So what does a Head and Shoulders pattern look like as it is emerging?  Now you can see with $THHS.

2.) Watch how different indicators behave as the patterns develop

Can a MACD be used to confirm the development of a perfect Ellott Wave pattern?  What does the Aroon indicator look like during a rounding top?  How do Bollinger Bands behave near the right shoulder of a Head and Shoulders pattern?   All of these questions (and many more) can be easily answered with our $TH indexes.

3.) Compare current stock behaviors to the ideal

Overlay $THEW on top of the chart of a real stock to see how it compares to the "ideal" Elliot wave pattern.  Ditto for all of our other $TH charts.

Let me know if you discover something else wonderful you can learn for these things.

- Chip

 

CYCLING ALONG WITH THE PRESIDENTS

Hello Fellow ChartWatchers!

Recently we introduced a new cycle analysis tool in our ChartNotes annotation tool - the Cycle "Sine Wave" tool.  This tool helps you look at various period cycles on your charts.  It can be used on any chart in a wide variety of ways but many people people will probably use it to look for cycles on long term charts.

To use the tool, create a SharpChart and then start our ChartNotes annotation tool by clicking on either of the "Annotate" links below the chart.  Once ChartNotes is running, you can click once on the old "Cycle Lines" button in the top toolbar.  After you click, a second button will appear below your mouse with a Sine Wave icon on it.  Click that button to select our new "Sine Wave" tool.

Once the tool is selected, simply click and drag to create great looking cycle charts.  Here's an example:

(Click to see a live version of this chart.)

This example is designed to explore the fabled 4-year Presidential stock market cycle.  The theory behind this cycle is that presidents implement difficult economic measures soon after taking office and implement economy stimulating measures before the next election to make voters happy.

The chart above is a very quick look at whether or not that phenomenon has played out over the course of the last 15 years.  Again, this quick analysis shows that the start of the 2nd term for both Clinton and Bush played out counter to cycle expectations with the markets rising instead of falling.

I encourage everyone to play with these tools and explore other cycle phenomena. If you find something great, think about sharing it via your Public ChartList.  I can't wait to see what you come up with.

- Chip

SPRING SPECIAL ENDS ON MAY 31st

Hello Fellow ChartWatchers!

This week's newsletter features some great Bullish vs. Bearish discussions including some Elliot wave analysis from John Murphy.  I also wanted to take time to remind everyone that our Spring Special will end shortly.  I really hate when people write in to us after a special ends because they missed it.  Please don't put yourself in that position!  Remember: everyone can take advantage of our special - both members and non-members.  Even if your account doesn't expire for a while, you can still renew NOW to get the extra month of service.

And here's a handy dandy flowchart to help you decide if the Spring Special is right for you:

 
 

Don't miss out!  To subscribe, click here.   To renew, click here.

The special ends on May 31st so don't wait.

- Chip

CELEBRATING 12 YEARS OF CHARTING WITH OUR SPRING SPECIAL!

Hello Fellow ChartWatchers!

Believe it or not, StockCharts.com was founded 12 years ago on May 15th, 1999.  To celebrate, we are running our Spring Special from now until the end of May.  What is our "Spring Special"?  I'm so glad you asked...

From now until the end of May, if you place an order for 6 months of any service, we'll give you a 7th month for free.  If you place a 12 month order, we'll give you 2 additional months for free!

As old-timers know, the best time to subscribe or renew an existing account is now, during one of our specials.  Because our prices are already very affordable, when we run any kind of special, it is something that everyone should take advantage of.

IMPORTANT NOTE: Existing members don't have to wait until their account is about to expire in order to take advantage of this special!  If you renew now, we'll simply add the additional time to your expiration date regardless of when that date is.

Here are some answers to some questions you might have about our Spring Special:

Q: I'm an existing member with less than 12 months to go before my account expires.  What should I do?

A: If you are happy with our service, my strong advice is to renew now for 6 or 12 months and take advantage of the special.  It's the most cost-effective way to ensure that you have access to all of our subscriber features.  For example, by ordering one year of our "Extra" service now, you will save $99.35 (28.4%) over the cost of paying month-to-month.

Q: I'm an existing member with more than a year to go before my account expires.  What should I do?

A: We typically run two specials per year.  While we can't guarantee when our next special will be, we often hold a special around the December holidays.  That means you can choose to either renew now in order to lock in the pricing or wait until December.

Q: I'm not a subscriber yet but I'd like to try out your service and possibly take advantage of your special pricing.  What should I do?

A: Follow these steps to test out our service and then, hopefully, take advantage of our Spring Special:

1.) Immediately sign up for 1 month of our "Extra" service. Our 1 month subscription comes with a 7-day money back guarantee which means that you'll have 7 days to test drive our service and see if it is what you expect.

2.) If you don't like our service, just let us know within the first 7 days.  We'll refund your money completely.

3.) If you like our service, you can then place a renewal order for either 6-months or 12-months of service before the end of May in order to lock in our Spring Special rates.  We'll simply add the additional months on to the end of your original subscription.

Q: I have a coupon code from your Long-Term Subscriber Loyalty Program.  Can I use that coupon along with the Spring Special?

A: Absolutely!  Combining their Loyalty Discount with one of our 12-month Specials is how loyal, long-term members can get the biggest savings.  Just be sure to enter your coupon code into the order form when placing your 12-month renewal order.

Q: I recently renewed and am now frustrated that you are running a special.

A: Don't panic.  There's a good chance that you received our Special deal without realizing it.  Check your confirmation message to see exactly how many months you received.

 

Existing Members: Click here to place a renewal order now.

New Members: Click here to learn more about our different service levels

 

Don't delay.  Our Spring Special will be over before you know it.

- Chip

TOP TEN THINGS YOU PROBABLY DIDN'T KNOW ABOUT STOCKCHARTS.COM

Hello Fellow ChartWatchers!

We get lots of great feedback from our users and I review much of it.  Over the years, certain patterns emerge from the messages we get.  Whenever possible we try to update our website to make things as easy to use as possible, but there are limits to what we can do.  Here's a list (in no particular order) of ten things that our customer support team wants everyone to know:

1.) We aren't for commodity traders - 

Sorry, you'll need to go elsewhere for real-time, intraday commodity charts.  The commodity indexes that we have are End-of-Day only and are intended to give stock traders a sense of what the various commodity markets are doing.

2.) Sorry, but it's probably your browser -

It there is a sitewide problem that lots of people are seeing, we'll post a message about it on the home page and the support page and then we'll post a message about it in our Support Blog.  Our Facebook and Twitter pages will also have information about it.  If you don't see messages like that, then our website is probably working fine and you need to check your browser settings and/or internet connection.  Unfortunately, there are tons of things that can go wrong and prevent people from accessing our website - we only have control over our servers.  The rest of out of our control.  We'd fix it if we could, but sometimes we can't.

3.) Don't forget to use your Loyalty coupon when renewing your account -

If you've been a member for more than a year, you have a loyalty coupon that you can use to save money when you renew BUT you have to enter it when placing your renewal order.  We can't apply your loyalty coupon retroactively.  If you forget, you'll have to wait until the next time you want to renew.

4.) Take advantage of our Specials -

Even if your account doesn't expire for a couple of months, consider placing a renewal order whenever we are running a special.  You don't need to wait until your expire.  We'll just add the additional time on to the end of your current time.  We do not pre-announce our specials but historically they have happened in the spring and around the end of the year.

5.) The Market Message area is now open to ALL members -

Anyone who has an active StockCharts membership can access the Market Message area of the website.  John Murphy and Arthur Hill write articles every day there than can help you make better investing decisions.  Be sure to click the "Market Message" tab at least once every day.

6.) Renewing month-to-month is expensive in the long run -

Our monthly subscriptions are the most affordable ones we offer - in the short term.  If you like our service, consider renewing for 6 or 12 months instead.  You'll save a considerable amount of money over then month-to-month approach.

7.) Know the limitations of BATS real-time data -

BATS data might lag behind the NYSE/Nasdaq real-time data that our ExtraRT members get for thinly traded stocks.  If you are day trading smaller, low volume stocks, you should probably upgrade to ExtraRT.

8.) Learning to write scans takes practice - 

Lots of practice.  And time.  In the long run, it is totally worth it.  But many people write us looking for the quick fix.  Sorry, we can't learn how to write scans for you.  The good news is that is it isn't hard if you just take some time and practice.

9.) We are a terrible source for historical trade data -

If you are looking to see what price you paid 2 years ago when you bought a particular stock, don't use us.  In order to keep our technical indicators as accurate as possible, we adjust (i.e. change) our historic price data whenever there's a split, dividend or distribution.  The best place to find out what you paid for a particular stock on some date in the past is your broker.

10.) Our Facebook page is great! -

The best way to stay on top of everything that is happening at StockCharts.com is to "Like" our Facebook page and visit it often.  We have over 70,000 subscribers to this newsletter and only 1950 "Likes" - we really want to get that number higher so everyone stays as informed as possible.

- Chip

INTERMARKET PICTURE POINTS TO CHANGE IN MARKET DIRECTIONS

John Murphy has written extensively about Intermarket Analysis - the study of the key relationships between the four major financial markets and how those markets affect each other in the long run.  To study Intermarket relationships we use our Intermarket PerfChart that displays the percent performance of the major index for each of the four markets - $SPX for stocks, $CRB for commodities, $USB for bonds, and $USD for the US Dollar.

According to John's book, the "Normal" relationships between the four financial markets are:

Stocks vs. Bonds: POSITIVE
Stocks vs. Commodities: INVERSE
Stocks vs. US Dollar: POSITIVE
Bonds vs. Commodities: INVERSE
Bonds vs. US Dollar: POSITIVE
Commodities vs. US Dollar: INVERSE

In other words, when the markets are "working correctly", you should see (for example) Stocks and Bonds rising (or falling) together on the PerfChart.  You should also see Commodities moving in the opposite direction as Stocks. etc.

If you see those relationships occurring then the likelihood of the current market trends continuing is pretty good.  It's when those relationships break down that a change in the market's direction becomes more likely.

Flipping the relationships around, we can judge the "health" of the four financial markets by looking at the current relationships:

Stocks and Bonds moving together?   HEALTHY
Stocks and Commodities moving together?  UNHEALTHY
Stocks and US Dollar moving together?  HEALTHY
Bonds and Commodities moving together?  UNHEALTHY
Bonds and US Dollar moving together?  HEALTHY
Commodities and US Dollar moving together?  UNHEALTHY

So where are things currently?  Here's a snapshot of our Intermarket PerfChart:

Click here for a live version of this chart.

So, as we look at the chart, which lines have been moving together over the past couple of months?  To my eye, it looks like the red line (Stocks) and the blue line (Commodities) have been moving in the same general direction for most of the past year.  That is categorized as an UNHEALTHY relationship.

The relationship between the pink line (Bonds) and the green line (US Dollar) is more complex.  Clearly, between the start of the chart and June of 2010, these two lines were moving in the same direction.  Between June and September they moved in opposite (inverse) directions.  From September thru November they both moved lower but then the US Dollar recovered some while Bonds continued to slide.  Since February of this year, Bonds have been creeping higher while the US Dollar has been moving lower again.  So, at the moment, these two are moving in opposite directions and can be categorized as an UNHEALTHY relationship (subject to change however!).

So, is anything on the chart HEALTHY at the moment?  Well, Bonds have been creeping higher which would mean they are in a HEALTHY relationship with Stocks right now however that relationship could change in the next week or two as bonds test their current uptrend.

Where does that leave us?  Basically this analysis indicates that changes in the directions of these markets are needed in order to return things to a healthier technical situation.  Will that change happen tomorrow?  This analysis doesn't say.  Which markets will change direction?  Again, the analysis doesn't say.  Regardless, caution is clearly advised.

- Chip 

HOW ARE THE MARKET SECTOR BPI'S HOLDING UP?

Hello Fellow ChartWatchers!

Talk about your "Wall of Worry"!  These days there are tons of things to worry about.  So are the bulls going to be able to keep climbing?  

Whenever I want to get a solid, high-level view of the overall market I turn to our trusty Bullish Percent Indexes.  Specifically the Bullish Percent Indexes for the nine S&P Market Sectors.

Remember, a Bullish Percent Index (BPI) takes a group of stocks and records the percentage of those stocks that have a "P&F Buy" signal on their Point and Figure charts.  So BPI's are market indicators that range between 0 and 100 and give you a great sense of how bullish or bearish that group of stocks is.

We currently have BPIs for 19 different groups.  Here's the complete list.  Note that our BPI's always have ticker symbols that start with "$BP".

The nine S&P Sector BPI's are created from the members of the nine S&P Sector ETFs.  They provide a broad view of the market as a whole and can help spot sector rotation effects.  In the case of their BPI's, our CandleGlance tool is perfect to seeing how these BPI's are doing:

(Click above to see live versions of these charts.)

In a phrase, things are doing "Not good" if you are a bull.  All but one of the BPI's have recently had their 20-day MA cross under their 50-day MA and most are continuing to move lower.  A strong rally will be needed very soon to prevent most of them from moving below 50 for the first time in quite a while.

- Chip

BEWARE THE "ETF" TRAP

Hello Fellow ChartWatchers!

(This is a repeat of an article I wrote in 2007.  Seems like now is a great time to review its message. - Chip)

Last month I had the pleasure of sitting in on several local Technical Analaysis User Groups and seeing how they used many different tools to do group stock analysis. It was a very educational experience for me and I strongly recommend that everyone reading this newsletter join your local technical analysis user group. (If there isn't one in your area, why not start one?) Doing technical analysis with other people is probably the best way to improve your investing success - period.

But as I was sitting in the back of one of the classes, I watched them fall into one of the more insidious "traps" in technical analysis these days. See if you can spot it as I tell the tale:

The group was looking at an ETF for one of the more interesting market sectors these days. The person running the meeting pulled up a chart of the ETF on the screen for everyone to see (I was happy it was a StockCharts.com chart!). Someone in the group commented that the chart had a possible "double top" pattern and they were right - it certainly looked like a double-top. Someone else chimed in that the volume bars appeared to confirm that double-top hypothesis (I thought to myself "Yea! They are using volume to confirm chart patterns!") The group leader then suggested that they add some indicators to the chart to see what they showed - so they added a MACD and a Chaiken Money Flow plot to the chart. The MACD looked weak, but the CMF looked bullish. This caused the group to pause and check out a couple of other CMF plots with different parameters. Hmmmmm. Most of the CMF's were bullish. Eventually, the group decided to ignore the CMF data and move on.

Anyone spot the problem yet?

First off, the problem was NOT that the group ignored conflicting information from the CMF plot - it is very common that some indicators will be bullish while other ones are bearish. You need to think about which indicators you trust more and why. In this case, the group discussed it and decided that they trusted the MACD signals and the double-top chart pattern more than the CMF and that was a good decision.

The problem comes from the nature of ETFs. ETF stands for "Exchange Traded Funds" and they are all the rage right now. These are financial vehicles that are designed to track some index very closely and can be traded just like a stock. They are very useful to investors and the number of ETFs has increased dramatically in the past couple of years.

A typical example of an ETF is SPY which tracks the S&P 500 ($SPX). If the S&P 500 index goes up, SPY goes up. If $SPX goes down, SPY goes down. You can buy and sell SPY much easier than you can buy and sell the 500 stocks that make up $SPX and so SPY is a very useful tool in many investors' arsenals.

Have you spotted the trap yet?

Before I reveal the problem, let's look at two charts. Here is a chart of $SPX and one of SPY. See if you can spot the key difference:

Look at the On Balance Volume indicator line. Notice the difference in the direction of those lines? I've added a moving average line to each plot to help you see that the OBV for $SPX is going up while the OBV for SPY is going sideways/down.

Have you spotted the trap yet?

The price plots for $SPX and SPY look extremely similar - just as they should. When $SPX goes up, SPY goes up and vice-versa. But now look at the volume bars. They don't look identical do they? First off, the volume scales are very different - $SPX ranges from 2 Billion to 6 Billion while SPY's volume ranges from 200 Million to 600 Million. But the bigger problem is that the "shape" of the volume bars aren't exactly the same. They are similar - but there are subtle differences in the position and magnitudes of the taller volume bars. Those differences are what caused the OBV plots to be different. But why would the volume plots for $SPX and SPY be different? Could this be the trap? Will Chip ever get to the point!?

ETFs are different from stocks because of this fact: While the price of an ETF closely tracks the underlying index's value, the volume of an ETF only reflects the popularity of the ETF itself - NOT THE SUPPLY OR DEMAND FOR THE THING THE ETF TRACKS.

Consider the following hypothetical example: Let's say that for some reason an amazingly rich Jillionaire decides that they wants to invest in the market - so they buy 1 Billion shares of SPY in a single day. What would SPY's chart look like?

Despite all of this new demand for SPY, SPY's price chart would continue to mimic the value of the S&P 500 index. It would go up and down in the exact same way as before, just like $SPX does. Of course SPY's volume would have a HUGE spike in it, but that volume spike would have no impact on the price of SPY.

Now consider what would have happened if our hypothetical Jillionaire had invested in a real stock instead of an ETF. In addition to a huge spike on the volume chart, there would also be a huge jump in the price of the stock since the price of a stock is directly related to the demand for that stock's shares.

The key point here is that many kinds of technical analysis make an assumption that is not always true for ETFs. Any form of T/A that relies on studying both price and volume - including chart pattern analysis and price/volume indicators like the CMF - assumes that volume and price are directly related. Since there is no direct relationship between price and volume for an ETF, those analysis techniques should be used very carefully when looking at ETFs.

(Note: The volume for popular ETFs like SPY actually do a pretty good job of mimicking the demand for the underlying index, but that is due to indirect factors. As shown in the charts above, sensitive indicators can be thrown off by those differences. In the case of less popular ETFs, the differences are even greater.)

As I sat in the back of the class observing the give and take around their study of the ETF, I thought about speaking up. Unfortunately the class was almost over and I was late to my next appointment. Fortunately for you, I made a note to myself to write about it in the next newsletter.

- Chip

STOCKCHARTS NOW PROVIDES CHARTS FOR LONDON STOCKS

Hello Fellow ChartWatchers!

Today I am very pleased to announce that we have expanded our market coverage to include stocks in the London Stock Exchange!  The exchange identifier for the LSE is ".L" which means that you can see a chart of Lloyd's of London right now by entering the ticker symbol "LLOY.L" on our website.

Here's a quick little FAQ about these changes:

Q: Does this cost me any additional money?
A: No.  Everyone has free access to LSE stocks starting now.

Q: Do I need a StockCharts.com subscription to see charts of LSE stocks?
A: No.  However you do need a subscription to see intraday versions of those charts (which is true for all stocks we chart).

Q: Is the LSE stock data provided in real-time?
A: Not yet.  Right now, all LSE data is provided on a delayed basis.  We are working on adding support for real-time LSE data and expect to have that available as an option in the next couple of weeks.  Access to real-time LSE data will involve an additional fee to cover the exchange costs.

Q: Are LSE stocks included in the Scan Results?
A: Yes.  LSE stocks are now included in our Scan Engine and you can include or exclude them from your scans.  We also now provide an LSE column in our Predefined Scan Results page.

Q: What currency are LSE stocks charted in?
A: All of our charts are charted in whatever currency the stock's exchange uses.  In the case of the LSE, that currency is British Pounds Sterling (GBP).

Q: How do I get a complete list of the LSE stocks that you cover?
A: Members can run this simple scan to see a list of the 741 LSE stocks we now cover.  (At the moment, our Symbol Catalog doesn't include LSE stocks.  We will update the catalog in the next couple of days.)

Q: Are you going to cover other stock exchanges like Euronext, Nifty, Tokyo or Shanghai?
A: Eventually we hope to cover many more exchanges throughout the world however we do not know when that will happen.  Our current plan is to add the Euronext exchange very soon - within the next couple of weeks depending on approvals.  Beyond that, we cannot currently say what will happen.

Q: Are you going to provide predefined MarketCarpets/PerfCharts/Bullish Percent Indexes/etc. for London stocks?
A: Yes, but it will take a while for all of those additions to appear on the site.  Members will be able to create many of those things for themselves immediately however.

Q: I live in North America.  What time does the LSE open and close?
Currently, the LSE opens at 3AM New York time and closes at 11:30AM.

Q: Is the LSE open on this Monday (which is a holiday for US and Canada)?
A: Yes!  It's the perfect chance to try it out for yourself. 

Q: Should I tell all my British friends the good news?
A: Absolutely!

Remember, Monday is a market holiday in the US and Canada.

- Chip

THE TECHNICAL PROCESS - IT'S ALL ABOUT TRUST

Hello Fellow ChartWatchers!

As I travel around the country talking to various investment groups, I always make a point to remind everyone about the what I call "The Technical Process" - the steps that every investor goes through before taking a position in a stock.  Some people get so caught up in the details of this process that they lose track of the "big picture" so I created this diagram to help re-focus people:

The goal of any serious investor is to continually develop a set of signals that they trust and then use prudent money-management techniques to limit losses and profit from gains.

In this context a "signal" is anything that causes you to consider buying a particular stock.  It could be a mention in a newspaper, a technical indicator crossing some value, a broker recommendation, a "hot tip" from a neighbor, etc.  Regardless of the source of the signal, the first thing everyone has to ask themselves is "Do I trust this signal and if so, why?"

Technicians work to develop well-defined, objective, repeatable signals based primarily on price and volume data.  Such "Technical Signals" can then be analyzed, reviewed and evaluated to see if the stocks that they select meet the technician's goals.  The process is not easy.  It requires a fair amount of time and dedication.  It never really ends either since good technicians are always looking to improve their results.  But the process is very worthwhile in the long run and the diagram above should help you stay on track.

Some people skip the "Research, Study, Plan" phase almost entirely while other people never leave it.  Our ChartSchool area is a great place to start and our bookstore contains many more sources of information.  But remember, while learning about technical indicators and trading strategies is very important, there is only so much one can learn by reading.  In order to truly understand how fear and greed drive markets, you need to combine research with participation.

Selecting signals is a combination of science and art.  Again, there are no 100% accurate signals and signals that work for one person may not fit with someone else.  My strong advice is to start simple and build up over time.  When in doubt, start with a simple MACD Crossover signal and build from there.

Our ScanEngine can help you see how many stocks meet your current signal criteria.  The goal is to create a scan that returns a "manageable" number of stocks - anywhere from 2 to 50+ depending on your tolerance for chart analysis.  If your scan returns too many stocks, consider adding price and/or volume constraints to reduce the number of results.  If your scan returns zero results, remove clauses one-at-a-time until a non-zero number of results appear.

Learning to create and run technical scans effectively is crucial to your success as a technical investor.  Unfortunately it can take time to learn the ins and outs of scanning but again, the rewards are well worth the time and effort needed.

Once your scan returns a reasonable number of results, you should then review the chart of each result carefully to see if it is the kind of stock you'd be interested in buying.  If all of the stocks look "wrong" to you, you should probably start the process over again with a different signal.  If most of them look good but a couple are odd-balls, just delete the odd-balls and keep going.  As the lines show, this is an iterative learning process that takes time.

The steps for placing your trade, monitoring it and managing your risk - collectively known as the "mechanics of trading" - are something that other people have covered extensively so I won't go into it in this article except to say that money/risk management is another required skill for technical traders.

The last bubble on the chart says "Evaluate Trade."  Implied in that phrase is that you maintain and review a trading journal.  It could be as simple as a pad of paper and a pencil or as complex as a private database.  Regardless, note down the reasons for entering your trade, the expectations for the trade, the ultimate results and lessons learned.  Use your journal to improve your research as you start the entire technical process again.  Over time, your trust in your signals will increase and your results will improve.

Remember, for successful investors, this process never ends.

- Chip