RECENT NEWS AND PICKS

SPY Challenges 2011 Resistance with Big Week

With a string of positive economic reports lifting stocks this week, the S&P 500 ETF (SPY) closed higher for the fifth consecutive week. Friday was a big reporting day with Factory Orders showing strength, IWM Services indicating expansion and the employment rate coming down. These positive reports should not come as a surprise because stocks, which are a leading indicator, are up sharply since early October. The chart below shows SPY challenging its 2011 highs around 135, a level that marked resistance from April to July. SPY failed at this level last summer and declined rather sharply in late July and early August. Flash forward to 2012 and SPY is once again at resistance and overbought after a sharp advance the last four months. The ETF is up over 25% from its early October low and up over 15% from its late November low. At the risk of over speculating, resistance and these overbought conditions could give way to a corrective period in the coming weeks. Should a sideways consolidation develop between 125 and 135, an inverse head-and-shoulders patterns evolve. Notice that the June lows marks potential support for the right shoulder around 125.


Click this image for a live chart.

Finance Shows Green in the Market Cap Market Carpet

As the Sector Market Carpet shows, the finance sector has the biggest average gain (2.4%) thus far on Friday. Technology is second with the average stock gaining 1.9% on the day. Notice that the boxes are different sizes because of market cap mode. Stocks with the highest market caps have the biggest boxes. Click the icon in the far left corner to toggle between market cap and normal mode.

Click this iamge for a live chart.

How Can I Compare Performance using Intraday Charts?

Performance charts can be created with SharpCharts using "Performance" as the chart type and "Price Performance" as an indicator. For the first steps, enter a symbol, select the periods and then choose "Performance" under chart attributes/type. In the example below, I entered SPY and it will show in the main window. Second, go to "Chart Attributes" and choose the intraday period of choice, the date "Range" and the "Type". In this example, I choose a 30 minute line chart that shows the year-to-date performance, which is the percentage change since December 31st.


Click this image for a live chart.

The remaining securities can be entered as indicators by choosing "Price Performance" and positioning them "Behind Price", which is behind the SPY plot. I changed the "Style" to solid and the "Color" to differentiate the lines for each plot. Notice that the Gold SPDR (GLD) is the top performer year-to-date. Stocks are also doing well as SPY is up over 5% year-to-date. The rest of the intermarket ETFs are down for the year. 

Nordstrom Shows Relative Weakness as Bollinger Bands Narrow

The stock market rallied in January, but Nordstrom (JWN) traded flat and shows relative weakness. Even though the stock has yet to break down, volatility is narrowing as the Bollinger Bands contract. Notice that Bollinger Band width is at its lowest in over six months. Watch the range for the next direction clue.

Click this image for a live chart.

CAT Powers the Dow Higher

According to the Wall Street Journal, "Caterpillar's 20% stock surge this month contributed nearly 34% of the Dow Jones Industrial Average's 415-point advance." As a price weighted "average" the highest priced issues in the Dow carry the most weight. This is also true for the Dow Transports and Dow Utilities.

Click this chart for a live image.

Public ChartLists v2.0 Update

Last month I wrote about our plans for the new version of our Public ChartLists area.  In that article I said we were shooting to release the new system around February 1st.  Well...  Turns out I was still giddy from the eggnog when I wrote that.  It's going to be a little while longer.

The good news is that we have made some great progress towards our goal.  I wanted to share a couple of screenshots of what things will look like once all the dust settles.

Remember, we have several goals we are trying to achieve with this new version including:

With those ideas in mind, here's a screenshot of the new "scoreboard" page - the page that shows all the different Public ChartLists that people can choose from:

Let me point out some features that this screenshot hints at:

Here's a sample screenshot of what a ChartList with many of the perks could look like:

Again, parts of this are still evolving and there are several options that aren't shown, but here are some of the general things to notice:

If you are a reader of Public ChartLists, I hope these screenshots have you excited about the improved ability to find high-quality, interesting chart commentary to read.

If you are a Public ChartList author, hopefully you are excited about the ability to improve your list, earn rewards, and over time to essentially create your own financial commentary website using our live charts.  (Just imagine "http://stockcharts.com/list/your-name-here".)

We're hard at work right now making this stuff a reality.  I'll go out on another limb and say that it will be ready by March 1st.  I might be wrong again but hey, it will keep the programmers motivated...

- Chip

Candlestick Tails

Well, here we are. Testing the top of the markets again.

The intraday price action today was very interesting. The Dow made its high around 10:15 in the morning. It drifted sideways for a few hours, then fell out of bed. All the indexes peaked in a different hour of the day it seemed.

I have posted this chart to show how the indexes compare to their previous highs of 2011.

You can see some are approaching their previous highs, but some are still a ways away. Let's focus in on the price action in the last month to demonstrate how the market changes character as it approaches previous highs.

Dan Gramza does some interesting work on Candle analysis. He is always focused on the size of the tail and the price relative to the previous candles. Especially to a long candle. So when the price moves above a tall candle, the Candle has 3 different levels of support. The top is the first level of support,  the centre of the candle is very important, and lastly is the bottom of the candle.  Using these candles as reference candles is very enlightening. I would refer you to Dan's free videos at dangramza.com

OK... how does that fit in to our discussion now.

So lets define these candles.

The size of the middle part of the candle is important.

The Big Candles become reference candles.

The 'tails' below are buying pressure.

The 'wicks' on the top of the candles are selling pressure.

The Green line is the new level to push above.

The red line is the lowest level of support. In an up market, the lower level usually forms a support layer and the stock usually continues higher (obviously) if it can hold.

Each new large candle becomes the reference candle. This is really short term work.

In the above example which is a 1 month view of the SPX you can see how the price has climbed relative to the reference candles. Until now there has been very little selling pressure.

The pullback after last weeks large candle from Fed day was testing the bottom of the candle. Today we got a big push up, but the market settled back to end the day creating a large wick on top. Having these large wicks is not great. Now, can we push past them? That is exactly what the market is trying to figure out.

You can see the reference level of 1307 was important. The market is holding above 1307. However, the market has traded sideways for 10 days. It rallied today on no news, but it was unable to make new highs.This was also the first week we had a close below a reference candle. We actually had 2 closes below.

I have written often about how the market rallies into earnings and then we seem to get a pullback.

The chart at the top of this blog shows how we are testing the May 2011 highs. Seeing the selling wicks start to show up as we approach the previous highs is not that surprising. What makes it more important is that tomorrow is really the last major day of earnings. Friday has about 10 companies where Thursday has about 50. The majority of the SP500 will have reported by then.

Lastly you can see in the top chart that the $TSX has really been underperforming the other stock indexes in the US. You will also notice (not on this chart)that in up markets the Canadian $ performs well. So it is a difficult choice. When the market is rising the USD gets weaker and when the market is pulling back the USD has gotten stronger. It is exactly the opposite of what we as Canadians would like to see for investing in US stocks.

We'll continue to watch the flow. One of The Canadian Technician blogs this week talks about days where we hit a significant number of new highs with volume immediately after earnings. That usually marks a top. Well, that happened today. Chart the $NYHL and the $HYHGH. With the MACD making a noticeable push over 40 to near 45, it also looks like confirmation. We just don't know till tomorrow.  Was today just a test and we continue on higher tomorrow, or was today a day we spent all day trying to make new highs and we couldn't. Has the market tested the recent high and failed? That is what makes picking tops difficult. Till more data arrives....

Good Trading,

Greg Schnell, CMT

LA HAS SOLD OUT - REGISTRATION FOR SEATTLE SCU SEMINAR NOW OPEN

REGISTRATION FOR OUR SEATTLE SCU SEMINAR IN JUNE IS NOW OPEN  - Our next one-day training seminar will be held in Seattle on June 16th. These SCU Seminars show you everything you need to know about using StockCharts.com effectively. If you are in the Seattle area this June,  click here for more info .  Our LA seminar has sold out so don't delay.

EARLY REGISTRATION FOR CHARTCON 2012 EXTENDED UNTIL SATURDAY

EARLY REGISTRATION FOR CHARTCON 2012 EXTENDED UNTIL SATURDAY  - This year's Seattle conference is proving to be very popular and so we've extended the deadline for early registration until this weekend.  Do not delay! Register now before ChartCon 2012 sells out! Over 300 people have already registered.  Hear how John Murphy, Carl Swenlin, Tom Bowley and others analyse and profit from the stock market using StockCharts.com.   CLICK HERE for more information. 

Finding Market Tops

The Never ending question of timing the market is a technicians dream. Knowing when you have hit a high, knowing when you have hit a low. Or knowing your on the wrong side of the trade because the Fed just stepped in. Last week the Fed melted the banks and inflated the Gold bulls. Meanwhile the ECB is inflating the banks. So Technical analysis works well, but a major fed announcement just a week before a scheduled fed meetings, or announcing changes in policy while New York is on lunch keeps reminding us that a new piece of data can change expectations.

One of the best at market momentum is Tom McLellan. I recently visited mcoscillator.com .. This is the home of McLellan Oscillators.

I was ultra impressed with Tom's ability to find tops and bottoms in the market. I think you will be as well. Check out these results.

I googled Tom DeMark and he was awarded a timing award in London last year for the same type of work.

Ed Carlson's Investment Book of 2011- George Lindsay and the art of Technical Analysis is also focused on finding the major turning points in the market.

This is the holy grail of a technicians work and also defines one of the major difference in technical vs. fundamental analysts. So can we find any rhythm to this?

Well, Stockcharts offers some great tools to help us. I have found a few that work great. The biggest problem is they don't work 100% of the time.

Of course you have the breadth link we have on the home page of stockcharts.com

Just click on the Breadth Chart ^ link.

Also you have the BP Indexes. I find you need to see a group of them breaking down at the same time. I like to watch the RSI fall out of overbought (below 70) on all the major indexes like the Nasdaq 100- NDX, SPX,Financials, Energy, Industrials.

Now if you use a group of these, I find it can help.

However, I like to use other indicators as well. I like to put things like the MACD on the chart of the $NYMO. You can see the red / green vertical lines on the MACD histogram do a reasonable job.

It is still not accurate enough. I currently use a combination of 19 charts that I track. The results of the group are pretty good but I still get false signals. Here are my signals since the October lows.

So my system currently works ok when the changes are harsh and quick, but it doesn't work as well when we get extended slow meltups as an example. So I have more work to do. The Bottom line is my signal says stay out of the market currently. Interestingly, the systems that count distribution days are nowhere near their limits.

So I might need to incorporate that in my system to help in these extended markets. My system is recorded at the end of the day. So the Fed announcement of November 28th was not something I was aware of before. But it did give a turn signal on the Monday. However the October 4th low, the October 27th top gave me great signals and warned me to expect a turn any day. The Recent Fed day also surged just enough to flip the system on Wednesday. By Thursday night it was back to a sell signal.

Anyway, I think it is encouraging to find a method that helps you get defensive near tops and get bullish when everyone seems afraid of the market. Will it be right every time? Never. But as you can tell, Tom McLellan and Tom DeMark have developed systems that work really well. As a technician, I challenge you to build your own methodologies. The most important part is to keep you from going long when the market is ready to flip negative. It can also help you exit your short position in a timely fashion.

Think about using triggers like the put call ratio ($CPCE), $NYAD, $NYMO, $VIX and build out from there. Keep expanding your toolbox to help you. My phone rang the day the Fed announced on Wednesday and the caller wanted to get fully invested. In the meantime, my system was recording a posture of more lows ahead. It might help you stay less emotional in your trading.

Let me know if this commentary helped you at all, or if you have other indicators that tell you when to change posture on a swing trading basis.

Good Trading,

Greg Schnell, CMT

Electronic Arts Bounces off Support with Bullish Engulfing

Electronic Art (ERTS) declined to the August low in mid January and then firmed the last two weeks. A bullish engulfing formed on Friday as the stock opened weak and closed strong. ERTS follow up on this pattern with a breakout on above average volume. The trend since November remains down and the November trendline marks the next hurdle.


Click this chart for a live image

StockCharts' Uptime Report for 2011 - Four Nines!

The results are in and StockCharts.com was faster and much more stable in 2011 .  Did you notice?  No?  That's good!

In 2009, Pingdom reported that we were available 99.77% of the time (a total of 18 hours and 25 minutes of downtime).   In 2010, Pingdom reported that we were up 99.94% of the time (a total of 5 hours and 9 minutes down).  And in 2011, Pingdom reported we were up 99.99% of the time (0 hours and 50 minutes down).  That means we're up to four nines !  And you have to like that trend!

By the way, how does that compare to other popular web services?  Check out this post from the guys behind the "Basecamp" service.  They are crowing about "only" being down 16 minutes since mid-December.  They point out that other popular services have been down anywhere from 6 minutes to 6 hours during that same period.  StockCharts.com has been down zero minutes during that same time - even with a major snowstorm in the Seattle area at the start of January.

Some of the credit for the improvement in our uptimes has to go our decision to switch data vendors from ThomsonReuters to Interactive Data.  The Interactive Data feed has been MUCH more stable and reliable making it that much easier for the rest of the website to remain up and running.

In addition to being up most of the time last year, we continued our trend of getting faster.  The average response time for our SharpCharts workbench page decreased from 518ms in 2010 to 448ms in 2011 - a 13.5% decrease in the time it takes to get you your charts.

As I said when I reported last year's results , WE ARE STILL NOT SATISFIED WITH THESE NUMBERS .  Our goal remains 100% uptime and we will continue to work towards that goal.  There will be more bumps ahead along the way.  We appreciate your patience when bumbs happen.  But these numbers show that progress is happening.

Finally, there are two "gotchas" that come with this great news:

1.) Parts of our website are not under our direct control in terms of performance or uptime.  Specifically, the Blogs area and the Support area.  The Blogs area (controlled by a company called TypePad) was down 1 hour and 45 minutes last year (99.98%) and the Support area (controlled by a company called ZenDesk) was down 7 hours and 54 minutes (99.91%).  We are not thrilled with those numbers and may being looking for alternatives if those companies cannot improve their results in 2012.

2.) Unfortunately, posts like this - where I point out how well things have been going - usually result in something going wrong somewhere almost immediately.  Sigh.  "Murphy's Law" is hard to fight.  Hopefully, that won't happen this time.

Here's to an even better 2012.

- Chip

How bonds / currencies affect your stocks

Once again, the USD currency is dominating the market moves today. Slight change in direction in the $USD, and everything followed. The recent pullback in the USD has been aggressive. BUt look at bounce off the fibonacci retracement line. Typically, when things pull back, they pull back to one of the 3 main fib lines. By only pulling back 38% this would mean the USD is probably still in a roaring bull market.

We started with the Dollar Index up a full 1/2 cent today and that put negative pressure on the equities and commodities.

When the US dollar moved today, it immediately affected gold, oil, and copper. That puts downward pressure on equities related to all of those companies that get revenue from commodities which is a large part of the Canadian Index. The commodities are also an important part of the US indexes. It also affects companies that get foreign revenues so it influences how much they get in exchange for the dollar.

Now let's talk bonds.

The Bond Market started to move down in yields a week ago. When the TV talking heads (commentators) say that the bond market and the equity market are telling different stories, what does that mean? Well, usually the currencies, then the bonds, then the equity and then the commodities. Equities hit highs on Wednesday, but the bonds let go earlier in the week. But you can see the bond yields are falling quickly.

But the  five year already hit record lows today. The 10 year is near the lows. The 30 year is plummeting in yields. If you look back at the 3 month, it can move down that distance in 2 days. Basically to zero yields.

Copper needs to hold the 200 day or we are not happy. It pulled back today.

It also sold off in higher volume.

Watch closely, so far the $SPX topped in the range we wrote about in the article titled Looking for Trouble. I mentioned between 1320 and 1345. So far it has peaked at 1333.

Caution is warranted.

Good trading,

Greg Schnell. CMT

Oracle Stalls at Key Retracement

Oracle (ORCL) surged back above 28 this month, but stalled the last few weeks as resistance came into play. First, notice that broken support turns resistance around 28.50. Second, the stock retraced 50-61.80% of the prior decline. A pennant formed the last two weeks and traders should watch these boundaries for the next directional signal.


Click this chart for a live image

Waves...what happened?

Today the blog is puzzled.

Overbought indicators are rolling over... Telling me to get out of Dodge.

Price action....telling me to get out of Dodge. Actual price change, saying things are ok.

Since the 19th, Flat, Flat, Up on a Monday, Down on AAPL Day, Up on Fed day, Down on CAT day, flat to finish the week out.

We did test above the October highs this week, but we closed lower than the weekly closing highs of October. The market topped October 27th after the October 4th breakout. Here we are 3 months later (Jan 27th) and we are back to where we started. The Dow, tested new highs this week from May 2011 and failed. The Nasdaq 100 has made and held new highs. The SPX is stuck at resistance as noted in the blog titled looking for trouble. If the Fed hadn't reported and pushed the $TSX up 240, it would have been a down week. We would have closed below last week. The Fed announced early that they were planning on holding interest rates low into 2014.

Check out that intraday path of the SPX. Guess where the Fed Announcement was.

I guess the Fed felt one year wasn't enough data. The Fed Q and A led the inflation bulls to their lear jets and they all jumped on the golden jet higher. However Bond yields fell which isn't good. Not only did they fall, they fell almost 10 % from Tuesday to Friday. Bond Yields are moving around 10% a week.....so much for stability. Want to trade 3x leveraged ETF's intraday...trade bonds!

Oil didn't change by the time the week closed out. It made new 5 week lows, then rebounded to slightly higher than the midpoint for the week and up from last week.The Energy stocks were treated better.

Copper moved up a little on Wednesday, had a great day Thursday and closed out the week near Thursdays level. So Copper had an up move. FCX put in two ugly candles after the Wednesday boost. Both days opened near the lows, tested higher and closed near the lows. That is not follow through!

So, here we sit. Fed, fat and happy, but stocks couldn't rise on their own. The Greeks are are having My Big Fat Bond Meeting, Portugal set sail for bond forgiveness island, the rest of Europe's bond tension improved. Meanwhile, Japan's total debt achieved quadrillion Yen status. The Hang Seng gapped up after the Fed meeting to sit slightly above the 200 dma; and there it sat for the next 2 days. No change. But at least it closed above the 200 dma.

The markets are really trying to figure out if they can rally from here. So far, Gold can. The Banking index is riding on the 200 dma literally. Check out the US banks at $BKX. While the TSX was 80 points higher, our Canadian Bank stocks left the North side of the 200 dma and plummeted. The Energy stocks had a good week, gapping up on Monday. But they bounced down from the 200 dma. Seems for every positive there is a bear position. Maybe this is sector rotation....live! Out of banks...into Gold.

Well, who knows where to next. I am having some formatting issues trying to write the blog, so hopefully I'll get that worked out soon.

The Superbowl is SO next Week. Like Monday to Sunday! It should be a very important week. Does the market subscribe to inflation acceleration, or do we pull back now that earnings are done?

Have a great weekend. If you would like to subscribe to the blog, Select the blog tab, Click on The Canadian Technician - on the righthand side. Upon arrival, look up in the top corner and you can subscribe.

Lastly, 3 great sessions coming to Calgary. Myron Nowoselski will speak on February 7th regarding Japanese bonds and the subsequent stock market reaction. Then he will compare to the US bonds and the expected market reaction. He is a PM.

March 13th Tom McClellan of McClellan Oscillators will be our keynote speaker at our dinner. He was the #1 SPX timing analyst for the last 3 years, and the #2 timing analyst for Gold in 2011.

March 17th, Ed Carlson will do a one day seminar in Calgary for Setting up George Lindsay systems for your own use. He wrote the Investment Book of 2011.

Remarkable Speakers coming live to the CSTA. Your trading account will appreciate it!

See the www.csta.org website for full details and signup. Non members are welcome.

Regards,

Greg Schnell, CMT

Spot Light Crude Forms Bull Wedge

Spot Light Crude ($WTIC) surged above 100 in the second half of December and then formed a falling wedge in January. A decline in oil is unusual because the Dollar is down over the last few weeks and stocks are up. A move above 102 would break wedge resistance and signal a continuation of the December surge.


Click this chart for a live image

How can I plot the yield curve?

The yield curve is available at StockCharts.com with the Dynamic Yield Curve tool. This nifty Java application not only shows the current yield curve, but it can also be animated to show changes in the yield curve over time. Notice the options just below the yield curve plot. Click "animate" to see the yield curve change over time.


Click this image for a live chart.

The chart on the right shows the S&P 500 over the last eight years. The vertical red bar shows the current position (date). Users can click on the S&P 500 line chart to move the red line (date) and see the yield curve at a specific point in time. Hint: click in the middle of 2006 to see a flat yield curve.

Click this image for a live chart.

Metals, materials, and money

Well Yesterdays FOMC meeting was interesting. The data came out earlier than I was expecting.I was also surprised that the Fed was so focussed on generating inflation and avoiding deflation at all cost it seems. Was this QE3? Don't fight the Fed?

The Metals market took that to heart. So did GOLD.

Here are the commodity sectors. Every one moved above the trendline.Check out the commodities groups themselves. The Metals stock index is the thinner line, compared to the Gold miners  in Gold colour and Copper price in black. They started rallying in December. On Tuesday Night the GDX looked like it was going lower.

Regional Bank SPDR Forms Big Bearish Engulfing

With stocks opening strong and then moving sharply lower, the intraday bearish engulfing scan is filling up quite quickly. Of note, the Regional Bank SPDR (KRE) has a bearish engulfing in play on Thursday afternoon. In fact, notice how the ETF pretty much engulfed the last 11 days of trading and broke below its mid January low.


Click this chart for a live image

Amex Airline Index Forges Quadruple Top Breakout on P&F Chart

The Amex Airline Index ($XAL) lagged the market throughout 2011, but may be poised to lead with a breakout in 2012. The P&F chart below is a classic three box reversal chart with each box representing 50 cents. Notice that the current X-Column broke above the last three to forge a Quadruple Top Breakout with an upside price objective at 47.50. You can read more on P&F patterns and price objectives in our ChartSchool .


Click this chart for a live image