Monday, October 29, 2007

Tuesday Interest Rates & the US Dollar

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 |


The bond market is not any more optimistic this week than last.  Rates ticked even lower across the curve from already depressed levels.  These rates are broadcasting bond investors' belief in a slow economy and lower Fed Funds rates ahead.  These low rates mean the bond market offers little competion to stocks, but such low rates usually indicates a problem which means caution is called for regarding equities. 




The US Dollar continues to tick lower and lower which continues to favor stocks tied to commodities, energy, materials, gold, etc.  That is, unless the world economy starts to slip, and then the bottom could fall out from under these stocks.




Keep watching this index for clues about the direction of the equity market.  The RSI is showing a negative pattern of lower highs, but it hasn't broken down into oversold yet so it holds out hope that the index will recover.  The first step is break above the 40-week.

Posted by HeadlineCharts at 19:30:12 | Permanent Link | Comments (0) |

Monday Sector Strength

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 |

Special thanks to those of you who sent me comments last week on the one year anniversary of headlinecharts.  They were all complimentary and constructive.  If you haven't had a chance to send me your comments, please let me know what you like and would also like to see improved.  One person sent me an excellent market breadth chart that I have been watching, and it would be great to receive more charts from people.

I didn't have a chance to complete several posts last week, but I hope to be back on track this week.





The various indexes of the market rebounded nicely last week despite serious signs of distribution.  It may be that the financials and other weak areas of the market have finished retesting their lows, at least for now.  The spreadsheet above shows most areas of the market again participating to the upside which is a bullish sign.




The mortgage lenders have been a serious drag on the market the past three weeks undermining confidence in the overall uptrend.  The chart above may be showing that this area has reached a hammer bottom.




This chart of the Steel industry shows the other side of the coin.  It is hard to believe the economy is headed to recession or that the market is heading lower with the economically sensitive steels looking like it may be about to break to new highs.  This is a strong looking chart and the combination of bottoming weak areas and breaking out strong areas is a sigh of relief... and good news that the overall market uptrend is resuming.

Posted by HeadlineCharts at 06:17:24 | Permanent Link | Comments (0) |

Saturday, October 27, 2007

Saturday Bullish Percents

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 |

The markets have shown a lot of distress, but the strong stocks have managed to keep the market afloat... and Friday was encouraging.  It has been a rough several weeks in the market and I've been whipsawed.  I raised cash on Tuesday morning, and on Friday morning I started putting some of that cash back to work on stocks breaking out.


The ECRI economic index stabilized several weeks ago at a low level.  This index predicts the economy 4-6 months out, and it continues to indicate a slow, but still growing economy.  The future inflation gauge is predicting low levels of inflation over the period.  I highly recommend a subscription to ECRI.  Recommended blogs are Declan Fallon, VIXandMore, GoldStockProphet, Millionaire Now, Kevin's Market.




Red is a column of O's in a downtrend, blue is a column of X's in an uptrend.  Below 30% is oversold, and above 70% is overbought.  Yellow is a shift down, green is up.    

More bullish percents have shifted lower after a similar negative pattern the prior week.  These shifts are obvious signs to be cautious in the market.  The fact that so many stocks have broken down is a serious signal.  But the good news is that after two or three very tough weeks in the market, most of these bullish percents remain above the important 50% level.  In fact, the weakest area of the market, banks, is now very oversold which may mean that this area may stabilize for a while and therefore have less of a negative impact.  For instance, the positive reaction to Countrywide's earnings on Friday may be a sign that this area has finally reset expectations and retested its lows.  More Later.
Posted by HeadlineCharts at 07:11:24 | Permanent Link | Comments (0) |

Friday, October 26, 2007

Monthly NYSE Short Interest

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 |


NYSE short interest started hitting eye-popping highs in June and July accurately predicting a problem in the equity market well before the eventual dramatic sell off.  Usually high short interest is a bullish sign of investor fear and is favorable towards stocks from a contrarian point of view.  But last summer it pointed to a problem.  The chart above shows that short interest has now shot well past the prior highs of the summer.  I'm not sure what to think, but one thing is for certain, there are definitely a lot of investors nervous about the market.
Posted by HeadlineCharts at 07:13:55 | Permanent Link | Comments (0) |

Tuesday, October 23, 2007

Wednesday Market Momentum Breadth Volume

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 |

October is the one-year anniversary of HeadlineCharts.  Seems like a good time to ask the regular readers of this blog to send an email to the address above to acknowledge what they like and don't like in the blog.  What makes you read it regularly, and what would you like to see that is isn't here, or needs to be improved?




This was a much better day in the market after 6 bad days in a row.  Finally, the bullish percents stopped ticking lower for the two major exchanges.  The NASDAQ bp dipped below the 50% level, and the NYSE bp is now in a column of O's in a downtrend so some important technical damage was done.  So the question now is whether Friday and early Monday were wash outs working off a very overbought market that will allow the uptrend to resume?



The chart above shows there was some improvement in the new highs /new lows to back up the rise in stock prices.  The NASDAQ net was still more for the new lows than new highs, but it still marks a major improvement over yesterday's net and stopped 7 days in a row of net declines.  In a strong market, even when the uptrend is correcting the net new highs should still be reasonably healthy, just as volume should decline during the correction.



Some people have offered a good suggestion to include the advance /declines in the breadth analysis.  Including the AD is a good suggestion because it offered valuable signals in both August and last week.  The AD improved nicely today for both the NYSE and NASDAQ which confirms some of the snap shown in the BP and HL charts.

Today was a good day in the market, and I don't know about you but I'm feeling better.  But before getting carried away we should put all the pieces together. 

Last Friday we noted that the newsletter sentiment was so bullish that the sentiment reading was outright bearish.

Saturday showed many of the major bullish percents shifting to downtrends, and there were more shifts to downtrends on Monday.

On Monday morning we noted that a number of the major indexes shifted back below the 40-week moving averages indicating that the weak indexes were negatively diverging from the strong indexes.

Monday night we noted that the bond market yield curve had shifted dramatically lower in one week indicating that bond investors were seeing a significant problem.

The final kicker was that the new lows were way above where they should be in an uptrend showing considerable levels of  stock distribution taking place in the market.

In my opinion, these signals indicated that it was time to start raising cash.  We'll need more than one day to be convinced to start putting money to work again, but today was a good start.
Posted by HeadlineCharts at 20:17:50 | Permanent Link | Comments (0) |

Monday, October 22, 2007

Tuesday Interest Rates & the US Dollar

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 |

October is the one-year anniversary of HeadlineCharts.  Seems like a good time to ask the regular readers of this blog to send an email to the address above to acknowledge what they like and don't like in the blog.  What makes you read it regularly, and what would you like to see that is isn't here, or needs to be improved?




Before we get to interest rates, check out this chart above of the new highs /new lows.  This is my go-to indicator to determine the health of the market, and the big pick up in new lows is showing serious underlying distress at the moment.  The bullish percents are confirming to the downside with a number of new shifts to downtrends.  Tomorrow, I'll be raising more cash.




The bond market is broadcasting its concern about the state of things.  These rates are all very close to their mid-August lows when the market distress was at its highest.  A shift lower of this extent in one week is not good. 



Every duration has dropped significantly below the 40-week moving average.  These rates are indicating that there is a problem.

Posted by HeadlineCharts at 20:17:59 | Permanent Link | Comments (1) |

Sunday, October 21, 2007

Monday Sector Strength

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 |

October is the one-year anniversary of HeadlineCharts.  Seems like a good time to ask the regular readers of this blog to send an email to the address above to acknowledge what they like and don't like in the blog.  What makes you read it regularly, and what would you like to see that is isn't here, or needs to be improved?




Above is the spreadsheet I keep to track the major indexes in order to quickly see which areas are outperforming, and if there are any laggards diverging from the group.  Last week, this snapshot of the market showed every index above the 40-week... things are different now.  At worst, the market is back in an intermediate downtrend after only two months or so of gains.  At best this is a serious challenge to the intermediate trend, and calls for a high degree of caution.  I prefer the second which calls for caution instead of serious selling or shorting.  Of course, the market on Monday will indicate a lot, and if it gets bad, I will raise some cash.

The indexes most likely to show weakness were the weakest.  There really aren't any surprises.  Small and mid caps, Japan, real estate, financials and discretionary stocks are all correcting again and below the 40-week average, and these were all the weakest areas of the market back in July and August. 



Above is a look at a daily chart of the intermarket.  Bond prices are rising in a flight to safety and the expectation of weak US economic growth.  Commodities are rising in response to global emerging markets demand, and a falling US Dollar.  And US equities failed at resistance after briefly hitting highs above the prior pivot peak in July.

Of course, what we really care about are equities, and figuring out whether this dip is a buying opportunity or the signal to get out to preserve capital and profits.  We'll need more information to make that call.  Based on the chart above, one sign that this is buying opportunity will be if bonds slow the advance higher and fail at the prior high near 115.  For US equities, it's if the SPX can hold above the 200-day, which is the line in the sand.  A break below the 200-day, and its time to stop out and be in cash.
Posted by HeadlineCharts at 17:11:54 | Permanent Link | Comments (0) |

Saturday, October 20, 2007

Saturday Bullish Percents

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 |

This was a brutal week in the equity markets.  But, we all knew equities had moved up too high too fast in the wake of lower Fed Funds and a favorable jobs report.  So the indexes were ready for a severe correction and they really handed it to us.  All week the new highs /new lows were warning of serious underlying weakness.  On Wednesday T-Bill rates plunged and that was another very important early warning.  And all week gold and oil were hitting new highs as if they were intentionally trying to push equities off the edge of a cliff.  In other words, there were plenty of signals, it is just hard to pay attention to these signals when you don't want to see them.  In my case, I was discussing these warning signals in this blog, but not paying enough attention to them in my own trading accounts. 

The ECRI economic cycle index ticked lower this week from a low level.  It indicates weak growth 4-6 months ahead, but not a recession.  The ECRI future inflation gauge continues to predict low levels of inflation.  I highly recommend a subscription to ECRI.




More bad news, the bullish percents are solidly confirming the moves lower in the indexes.  One value of point-and-figure bullish percent charting is that it takes a 6% move to change the trend.  This filters out the short-term noise to reveal the larger direction of prices.  It doesn't always work, but is generally a good timing method.  Unfortunately, the shift in these bullish percents says the trend has reversed.  I don't think you see this many bullish percent indexes shift to downtrends if you are just experiencing a short-term pullback, but I don't say that with a lot of certainty.  This is definitely a tough market to call right now with so much emotion and volatility in the market as the mortgage and credit issues pull equities lower, while the Fed and emerging markets try to push it higher. 



Above is a chart I'll be watching in the next few weeks.  Connie Brown, one of my favorite technicians, uses the weekly RSI to help her identify trends.  She says that if the weekly RSI breaks below the 40-level bull support, and then into the oversold range, the chances are good that (1) the uptrend is broken (2) the next rally will fail at resistance (3) and prices will retest the lows.  However, as prices retest, if the RSI maintains above oversold as prices hit new lower lows, it produces a bullish divergence.   This is often an excellent buying opportuity with a relatively safe stop out point. 

So based on this chart, we'll probably see lower lows for the XLF, and it will likely weigh heavily on the broader market.  If the RSI holds above oversold, we will have one clue that the uptrend in prices for the financials will resume ,and this will be a big plus for the broader market.


Posted by HeadlineCharts at 09:56:02 | Permanent Link | Comments (0) |

Thursday, October 18, 2007

Friday Market Sentiment

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 |


Too many bulls among the newsletter writers, but the individuals and bloggers are back to being skeptical towards the market.  The shifts lower are welcome because the sentiment last week was the most bullish froth I've ever seen, but the newsletter writers are more important and their extreme bullishness is a worry.  It's more than a worry, it is a serious negative influence on the market at the moment and is working against stocks from a contrarian point of view.

Below is another view of the II survey, and the current reading of both the bulls and the bears works against stocks.  This is an important signal to be cautious toward the market, but it isn't a perfect technique for assessing the intermediate cycle and has to be considered along with the other market influences.  For instance, the readings were at similar levels late last fall yet the market maintained the uptrend.







While the newsletter writers survey is working against stocks, the 60-day moving average of the put/call ratio is still in a zone where it works in favor of higher stock prices.  The ratio is now moving lower, and in a month or two will probably reach a low level that will mark the inflection point for the intermediate cycle.  So for now, this indicator is favorable for equities.  Below is the longer term view of the same chart which helps give it more perspective. 




The survey information above can be obtained for free via the following sites.  Investor's Intelligence is from Market Harmonics.  Individual Investors is from aaii.com.  Low Risk is from lowrisk.com.  Birinyi Bloggers is from Ticker Sense.  For additional information about market sentiment, I recommend a blog by Brent Leonard.


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.

Posted by HeadlineCharts at 16:26:07 | Permanent Link | Comments (0) |

Wednesday, October 17, 2007

Thursday Commodities & Currencies

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 |


Market Vane is a sentiment survey of commodity futures advisors, and is used by futures traders.  The survey result can be obtained for free via Investmenttools.  The survey has been bullish for a long time, and I had been using it incorrectly as a contrarian indicator.  However, the publisher states that it is better used as an indication of the current short-term trend, with the idea that investments in commodity futures should be in line with the trend.  I think the facts support the view of the publisher because this survey has generally been in sync with the trend in commodity prirces.  So this survey has to be viewed separately from the others which poll investors regarding equities, and are used instead as a contrarian indicator.  Long story short, this survey is bullish for commodities. 





The focus is on energy at the moment.  Oil is at new highs, heating oil is at an old high, gasoline is breaking above short-term resistance and Uranium is back above the 40-week and in an uptrend again.  (Also, today some of the solar-related companies broke out higher in nice chart patterns.)  Strong commodity prices are a plus unless prices move too high too fast, which is what we are seeing at the moment.  Additional caution towards the equity market is advised if energy prices continue to move higher at an accelerated pace.



Maybe we'll get a break and these prices will start to moderate, at least short-term.  Oil is extended above the upper channel and looks like it could pullback to retest the 80-level, and heating oil is at resistance where it might consolidate a bit before breaking out.  Gasoline looks like it wants to challenge the highs of the spring which could hurt retail spending, but that may take a few months.



Natural Gas prices have been strong in October along with other energy commodities, and it is probably only a matter of time before there is a strong break out in price above resistance.  Natural Gas is a good alternative to oil because it is domestically produced so prices aren't pushed higher by a weak dollar, and it is a much cleaner burning alternative to oil while also providing political independence.



Finally, Uranium is joining the party after a huge correction.  It might pause or pullback a bit here, particularly if oil corrects, but I think this commodity ETF and the Uranium-related stocks are probably presenting a good opportunity.
Posted by HeadlineCharts at 20:34:01 | Permanent Link | Comments (0) |
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