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HeadlineCharts.blog.com http://headlinecharts.blog.com/ en-US Thu, 24 Jul 2008 04:47:26 +0200 Thu, 24 Jul 2008 04:47:26 +0200 Blog.com http://headlinecharts.blog.com/3378932/ Wednesday Market Momentum Breadth Volume http://headlinecharts.blog.com/3378932/

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged. | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |

IBD continues to see the market as being in a correction. Ken Tower is on the fence. One day he sees a rally, and the next a retest of the lows. For me, I see the selling pressure completely drying up based on the low level of new lows, but very little buying pressure based on the equally low level of new highs. I sold quite a bit of stock today because it looks to me as though the market has rallied a bit too much too fast, and will probably back and fill sideways for a while.

Arthur Hill had a column today showing the RUT index already reaching to just under the 200-day. His point was that perhaps it is time to get a bit cautious about stocks. The chart above shows the XLF has bounced quite and maybe is close to a resistance as well. I think it is time to let prices cool and settle a bit and then see where we stand.

There was a great question today to review the new lows during the prior bear market. Above is the chart of the new lows in 1999 leading to peak in March 2000. Clearly the new lows were saying there was a problem building. Fewer and fewer stocks were pushing the market higher as selling pressure was building to the breaking point. I'll continue this tomorrow.

HeadlineCharts Wed, 23 Jul 2008 21:38:21 +0200 http://headlinecharts.blog.com/3369978/ Tuesday Interest Rates and the US Dollar http://headlinecharts.blog.com/3369978/

Are rates in a sideways range shown in the chart above? Rates have bounced higher since last Tuesday, helping to push down oil and gold and support the US Dollar. It is hard to imagine sharply higher rates while a recession looms, but then again its also hard to imagine such high commodity prices during a recession. We are in a wait-and-see mode. Do we have high-commodity, high-rate, inflationary pressures ahead? Or do we get lower commodity prices, lower-rates, and scary deflationary pressures?

Above is the chart showing inflation and higher rates in our future. Its the same chart, of course, just different annotations. I've been showing this chart for a while thinking rates were headed higher. Now I don't know.

Moving on to a more interesting topic. My favorite indicator, the NYSE new lows, seems to be confirming the recent market strength.

IBD still hasn't changed their view of the market from "correction" to "rally". Ken Tower upgraded the intermediate-term to neutral from sell, but downgraded the near-term to neutral from buy. I think he is afraid of a short-term retest of the lows, but he likes the longer-term prospects for the market as prices and expectations have gone much lower. He wasn't a fan of so many people thinking the second half of the year would favor stocks, but now a lot of that optimism has been washed out so his outlook has improved.

As for me, I'm a buyer of stocks right now, but have my doubts about the market in August and September. Beyond that who knows but odds do seem to favor a traditional post election rally. I'll let the price of oil and the level of NYSE new lows help me figure when to start selling stocks again. Regarding the election, I'm a bitter Clinton supporter who is reluctantly letting go... but I must admit this choice of candidates is one of the best I have ever been faced with.

HeadlineCharts Tue, 22 Jul 2008 21:34:27 +0200 http://headlinecharts.blog.com/3358691/ Monday Sector Strength http://headlinecharts.blog.com/3358691/

Above is Ken Tower's evaluation of sector leadership for short-term gains. He has upgraded Tech and Heal to the leading category while downgrading Mate and Ener. He is upgrading Indy. Pulled up, he says, by the strength in the transports. Looks good to me, although I am avoiding Utilities.

This chart shows why I like healthcare. I particularly like the relative strength breaking out of a sideways base. Plus I like the defensive quality of the group which works better in this environment.

My favorite group at the moment, but it usually isn't considered particularly defensive even though it is part of the healthcare group. So there is some risk here if the market tanks again.

HeadlineCharts Mon, 21 Jul 2008 21:08:23 +0200 http://headlinecharts.blog.com/3341089/ Saturday Bullish Percents & ECRI Recession Watch http://headlinecharts.blog.com/3341089/

There is so much debate about whether the US is in recession. John Murphy had a strong comment this week that watching TV business news is a waste because they don't know what they are talking about. He mentioned that the markets always lead the economy which is a trailing indicator.

Is he right? It certainly has been the case in the past. The ECRI is unequivocally calling for a recession, but the numbers and stats just never seem to reach into recession territory, not yet at least. So far the coincident and lagging stats remain in the weak growth range, not recession. In fact, the top chart could be interpreted to show leading stats showing slight strength and maybe pulling the coincident higher.

Bottom line, growth is currently very weak, and could easily dip into recession, but hasn't quite happened yet. What does that mean for investing? You have to decide for yourself, but my plan is to stick with shorter-term investment horizons... too early to invest long-term. I'm sticking with top quality, small and medium growth stocks with strong balance sheets and in the strong industries... and I'm ready to stop out on weakness. There will be a time for value investing, but this isn't it.

Several of the major bullish percents crossed up from under the 30-level... this is the traditional buy signal to look for with bullish percents. But I'm very disappointed there wasn't a buy signal from the NYSE bullish percent. This is probably the most important bullish percent indicator for the broad market. Its a caution sign that we might be expecting too much too soon from this short-term bottom we finally got this past week. As for sectors, I like Tech and Healthcare the best, but I'm being selective. I'm disappointed though that neither bullish percent turned higher this week.

More later if there is time.

HeadlineCharts Sat, 19 Jul 2008 13:24:10 +0200 http://headlinecharts.blog.com/3339333/ Friday Market Sentiment http://headlinecharts.blog.com/3339333/

These are really excellent sentiment readings from the newsletter writers. This is very bullish for stocks from a contrarian point of view.

The 60-day put/call ratio is not cooperating. This indicator served me really well during the bull market, but it failed me miserably during the selloff late last year. Right now, it sits exactly opposite of where it should be if you want to go long the market.

Congrats to Bill Luby at VixandMore for coming up with an excellent new indicator. And just when you thought every conceivable indicator had been developed. This worked well during this downturn. Right when the indicator hit the peak, the market rallied. Nice.

HeadlineCharts Fri, 18 Jul 2008 21:41:20 +0200 http://headlinecharts.blog.com/3336687/ Thursday Commodities and Currencies http://headlinecharts.blog.com/3336687/

Just to clarify, Ken Tower doesn't think we just re-entered a bull market. He thinks this is a short-term buying opportunity in a larger downtrend.

Looks like today we got what we were looking for. To confirm the new short-term uptrend, we needed to see NYSE new lows drop to around the 50-level. I figured that could only happen if oil dropped down below the moving average which is also near the gap up level from June. So far so good.

Long rates seem to be headed higher, and I believe that means the US Dollar is also headed higher. Maybe not to the same degree, but in general. As you know, a higher US Dollar is not good for commodity prices and the declining price of oil may be anticipating some strength in the currency. It isn't exactly a convincing move in the dollar, but let's watch and see what happens.

I may be old school, but something is wrong when the shares don't lead the commodity higher. This chart has been signaling for some time that the price of oil was going to peak out... I just didn't think it would take so long. We have probably seen a peak for oil for now. It'll be time to get interested again when the shares start to firm up and move higher.

I like to invest in gold, but I haven't been lately. I figured commodities were going to correct lower, and the US Dollar move higher. Not like its a new secular trend, just the next move over the coming months. I'll probably get interested in gold and gold shares, just like oil, when the shares start to lead higher. And also when gold gets near the 65-week moving average which has been support since around 2002... and also, the weakest seasonal period for gold is the summer, so maybe we are due for a big pullback in price as a buying opportunity? Or am I just dreaming. I think this spike in gold was in response to the latest financial crisis, and now the price should recede as the crisis dissipates.

HeadlineCharts Thu, 17 Jul 2008 22:04:48 +0200 http://headlinecharts.blog.com/3333766/ Wednesday Market Momentum Breadth Volume http://headlinecharts.blog.com/3333766/

Long rates surged today on news of inflation. The chart suggested this move which I showed yesterday. And gold shares sold off yesterday hinting at a sell off in gold, which also happened today.

Ken Tower upgraded XLV Tuesday morning, and upgraded XLK today before the open. I agree, but I like XLV better based on the weekly relative strength indicator, and the fact that health care is a defensive group which applies better to the current sector rotation model.

The market certainly seems to be saying it has reached a short-term, or maybe an intermediate-term bottom. But before deploying all cash, and certainly before going into margin, I'll be waiting for the new lows to cooperate by drifting down around the 50-level.

And oil needs to drop below the gap which coincides with the 50-day, approximately. Since oil dropped right down to the 50-day and found support, I wouldn't be surprised to see it hang around above this level for a day or two, and we might see the market consolidate today's gains until USO drops again.

After the close today, our new best friend, Ken Tower, issued a buy signal, yeah! I should rename this the Ken Tower Blog. Occasionally, I do some of my own analysis, although you'd never know it lately based on the obsession with Ken's market comments. But he knows this market so well, why not scrutinize what he says and follow his lead?

Here is a summary of his comments. He remains neutral on the long and intermediate-term, but is upgrading the short-term to "buy". Today's advance was not the convincing 4% turnaround he was looking for, and the buying was mostly short covering in the financials instead of new money flowing into stocks... but "there is no denying it was a positive day", so with a bit of hesitation he is switching his near term outlook to buy.

Not all the credit should go to Ken Tower for reading this market correctly. Robert McHugh also knows what he is talking about. He is the fellow who pointed out a few weeks back the confirmed Hindenburg Omens which definitely worked out well... for the shorts. And he has previously pointed out that spikes below the lower Bollinger have led to rallies. I'd say the first target is the midpoint near 1339, and then the prior pivot top near 1420.

HeadlineCharts Wed, 16 Jul 2008 21:42:08 +0200 http://headlinecharts.blog.com/3331096/ Tuesday Interest Rates and the US Dollar http://headlinecharts.blog.com/3331096/

Ken Tower said after the market that he is still thinking the market is close to bottoming out. But he is afraid that the last one or two days before the downtrend ends could be down big days. So he added to his hedge today just in case. Just thought you'd like to know. As for me, I'm not shorting here with the market so oversold.

I think the short-term trend for rates could start to move higher again soon. A number of people have noted that with all the stress in the market you'd normally expect rates to go way down as investors moved into Treasuries. Very short-term rates have gone down for sure, but the longer duration stalled a few days ago just when the financial crisis was peaking. Is it a sign of complacency or is it a reaction to commodity inflation and another sign that the 25-year downtrend in rates is over?

And if rates are moving up, will the US Dollar follow rates higher as well? Oil finally sold off big time today and it probably was in anticipation of the slower economy, but also higher rates and a higher US Dollar? Gold shares sold off as well, probably anticipating lower gold prices. Of course, it was only one day in the market.

HeadlineCharts Tue, 15 Jul 2008 22:40:22 +0200 http://headlinecharts.blog.com/3327695/ Monday Sector Strength http://headlinecharts.blog.com/3327695/

I have nothing much to say about this market that I haven't already said, so let's just focus on what Ken Tower has to say.

I'm not really sure what a 'down' signal is, but I think Ken Tower was trying to say that he thought the market internals were weakening again but it wasn't a signal to short the market like a 'sell' signal. He sure was right about last Tuesday's fake out big bear market rally where finanicals were up over 6% on the same day energy was way down. He said then that a new uptrend won't start with money just shuffling around from one sector to another. His downside target now is 1200 on the S&P.

He also said this morning that the Freddie-Fannie situation is the type of financial shock he was looking for to mark the end of this short-term downtend, and now he is waiting for the market 'to prove itself'. He added that during bear markets, big upside numbers the in pre-market futures are of 'little meaning'... he said this before the open. So now he is looking for a big one day advance of 4% or greater, or two big up days in a row.

This blog is turning into the Ken Tower report. I'm not stalker I swear. Today Tower upgraded health care to 'neutral' and downgraded the industrials to 'downside' (again with the 'down'). His favorite areas remain XLE, XLB, XLU, which he labels 'upside'. He says that although in the short-term materials and energy have broken down, their long term trends are intact.

Tower doesn't provide charts so I have to put together the indicators and annotations myself, Jez! I like the looks of the relative strength and momentum, but there is some overhead resistance that could make this index go sideways for a while, but maybe that means a big breakout when the pattern resolves?

Ken Tower is a specialist in Point and Figure charting. He doesn't mention it much because most people prefer candlesticks. I thought I would show this chart to mix things up, and it doesn't look that bad to me. Looks like XLI has pulled back close to very long-term support from both the previous bull market high in 2000, and the long-term uptrend line.

HeadlineCharts Mon, 14 Jul 2008 20:56:00 +0200 http://headlinecharts.blog.com/3322445/ Friday Market Sentiment http://headlinecharts.blog.com/3322445/

Alicia K. asked about Ken Tower's comments regarding Friday's market. Tower didn't have much to say but he noted that the selloff could have been a lot worse given the degree of bad news (financials and oil), but he gave no indication that he thinks the selling is over. He also mentioned that he hedged his portfolio again earlier in the week using SDS.

Dogwood sent a note to say that the reason Aluminum is spiking is because the Chinese cut back on production to save energy, and that may be causing a shortage leading to higher prices. Thanks Dogwood! Hmm, I wonder if the same will happen with steel and other industrial materials that use a lot of energy to produce.

I've decided not to show the bullish sentiment surverys for the individuals and the bloggers any longer, but will continue showing the newsletter survey. I think the newsletter survey is much more important than the others, plus it takes a little too much time to put all three together in the graph. Also, aaii now wants users of the data to register with them, and Birinyi seems to have lost some interest in the blogger survey and hasn't added any new bloggers to the group in a long time.

Here's quote from Investor's Intelligence, "To find a more pessimistic reading, you have to go all the way back to early July 1994 when the bulls were below 25%." How is that for market pessimism? With writers this negative towards the market, you have to believe that very soon we are going to find at least a tradeable, short-term bottom in the market. Someone noted during the last selloff though that the move off the lows in bullish sentiment is needed to confirm a new uptrend in prices. I don't know if this is true, but it makes some sense.

Corporate insiders love their own stock these days, and are buying it up instead of selling. With the sentiment surveys, we look at bullish levels as a contrarian indicator. But the level of insider purchases is the opposite. If the insiders are bullish then we should be too... and this 7:1 ratio is close to an extreme of insider bullishness according the Brent.

Look at these put/call ratios. They are near the upper range, but they don't show the kind of spike we want to see in a capitulation sell off. I guess investors are so used to hearing the bad news it isn't having an impact. Or maybe most investors are out of equities or hedged already, and are at the beach waiting for the bad seasonal period for stocks to play out before getting interested again.

If we do get a rally, the first target is the 1300 level, and then the 200-day near the 1400 level. At the moment, 1400 seems like a stretch, but who knows if oil finally sells off.

This is a new indicator to me, but I like the looks of it and have been following it this year. The peaks really look to correspond with the price lows and vice versa. Even this indicator is not at an extreme yet, but at least its getting close.

The survey information mentioned can be obtained for free via the following sites. Investor's Intelligence is from Market Harmonics. Individual Investors is from aaii.com. Birinyi Bloggers is from Ticker Sense.

For a thorough review of market sentiment, I recommend Brent Leonard. For excellent information about the VIX, check out VIX & More and Marty Chenard.

Sentiment analysis is an important component when following the markets, and is considered a “contrary” indicator. Contrary because if too many people are bearish then there aren't enough sellers left, the balance tips to buyers, and the market starts to advance. If too many people are bullish, most funds are already invested, the balance tips to sellers and the market weakens. One way to determine if investors are bearish or bullish is by taking surveys and tracking at what levels these polls indicate investors are at the extremes of bearish or bullish sentiment.

Keep in mind, sentiment analysis is not a science and only provides very general information. Sentiment is not a signal to take action, but provides background about the current state of the markets. For instance, there have been many occasions when bullishness reached high levels well before the market started to weaken.

HeadlineCharts Sat, 12 Jul 2008 18:14:02 +0200