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[RT] Fwd: "Chart Watchers Weekly" (HTML Version) for 05 January 2003

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Subject: [RT] Fwd: "Chart Watchers Weekly" (HTML Version) for 05 January 2003
From: John Cappello <jvc689@xxxxxxx>
Date: Mon, 6 Jan 2003 09:33:39 -0800

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Title: Chart Watchers Weekly - 05 January 2003 One of my favorite services. Hope it interests a few. FYI John Received: from StockCharts.com ([12.144.129.34]) by tom.po.com (8.12.2/8.12.2) with ESMTP id h062AfOH013629 for ; Sun, 5 Jan 2003 21:10:42 -0500 (EST) Received: from StockCharts.com by stockcharts.com with SMTP (MDaemon.PRO.v6.5.0.R) for ; Sun, 05 Jan 2003 17:06:10 -0800 Chart Watchers Weekly - 05 January 2003

Hello Fellow ChartWatchers!

ChartWatchers Happy 2003 everyone! Hopefully your holidays were happy and relaxing. Starting Monday everyone should be back to work and we can see what direction this market really wants to go in. As of 31- December, things were looking very negative technically for the Nasdaq. The chart below shows several technical developments that should have dampened any savvy ChartWatcher's New Year's celebrations: But then a strange thing happened, the Nasdaq kicked off 2003 with a big rally, gaining almost 4% in the first day of trading. Why? The answer (unreported by the financial press of course) can be found in the volume numbers for the past 8 trading days - not surprisingly, they are well below average. Thursday's "impressive" rally came on just 1.2 billion shares, much lower than pre-December volumes that averaged 1.7 billion shares or more. Friday's sideways movement on low volume doesn't instill confidence that a new rally has begun. For more reasons to be cautious, be sure to check out the "ChartWatchers ChartBook" Public Chart List (as well as all of the other great public lists on our site. With the return of more typical volume numbers, Monday and Tuesday should reveal the market's true intentions. Objective ChartWatchers should remain very cautious until stronger evidence of a new rally appears. - Chip

2003 LOOKS BETTER THAN LAST YEAR -- BUT STILL AWAITING MONTHLY BULL SIGNAL

Market Message SOME MONTHLY SIGNALS ARE POSITIVE -- EXCEPT FOR MACD LINES... What better time to review the market's longer range trend than the start of a new year - and after three years of decline. We think the best way to do that is to look at monthly charts -- and their accompanying technical indicators. We're applying four of our favorite technical tools to a monthly S&P 500 chart. The good news comes from our two momentum oscillators -- RSI and stochastics. The 14-month RSI line has been dropping throughout the three-year bear market. However, it's starting to rise again from oversold territory under 30. The 14-month stochastic lines have turned positive from oversold territory under 20 (and show positive divergence). That suggests to us that the downside momentum which characterized the three-year downtrend has abated enough to at least stabilize the market. That leads us to believe that the coming year may not be a great one, but it will probably be better than any of the last three. Our main attention, however, is focused on the monthly MACD lines (under the price chart). The MACD lines are slower to cross than stochastic lines, but their crossings are more reliable -- and longer lasting. The MACD lines turned bearish at the start of 2000 -- and have remained bearish since then. The MACD histogram (which measures the difference between the two MACD lines) is rising -- which is often a prelude to a bullish crossing. However, that bullish crossing hasn't happened yet. We think that's a necessary ingedient in a technical recipe for a major market bottom. The monthly price bars are also stabilizing above their lower Bollinger Band. To reverse the bear trend, however, the S&P price has to exceed the dashed middle line, which represents the 20-month moving average. We suspect that the coming year will probably be more flat -- than down or up. That, however, will still be a better environment than we've seen since 2000. We also believe that environment will lead to better trading opportunities in certain stock sectors and industry groups -- as well as individual stocks. Our job in the coming year will be to find those profitable situations. We also think bonds will underperform stocks this year. BONDS ARE PEAKING... Since 1998, bonds and stocks have been moving in opposite directions. If that trend continues this year (which we suspect it will), any strength in stocks should be accompanied by weakness in bond prices. The bond chart seems to favor that conclusion. This year's rally in bonds has run into a stiff resistance barrier at its 1998 peak -- and has shown signs of weakening. The monthly RSI and stochastic lines are showing negative divergence from overbought territory. The monthly MACD lines are still positive, but are well below the levels hit in 1998. We take that as another sign of negative divergence. Another negative factor for bond prices is the sharp rise in commodity prices. COMMODITY RALLY BAD FOR BONDS... The CRB Commodity Index bottomed late last year and bounced off its previous low hit in early 1999. After rising throughout the year, the CRB Index broke through its year 2000 high during the fourth quarter. That's a signal that commodity prices should continue to climb. Historically, rising commodity prices have coincided with rising interest rates -- and falling bond prices. FROM DEFLATION TO REFLATION -- A WEAKER DOLLAR... Throughout the past year, the main threat to the financial markets came from deflation. We think that threat (which came from Asia) helped explain why lower interest rates didn't help stocks throughout the entire bear market. In a deflation, bond prices rise while stocks fall. With commodity prices now on the rise, the threat from deflation appears diminished. The new word this year will be "reflation". That arises from steps taken by central bankers to fight off deflationary tendencies from falling prices. We suspect part of that strategy has been allowing the dollar to fall. A falling dollar helps push commodity prices higher (especially gold). We expect the dollar to weaken throughout the year. That should keep a floor under commodity prices, but should be bad for bonds. A weaker dollar should also be a depressant on the stock market. While that probably won't push stock prices to new lows, it may be enough to prevent a major stock market advance this year. The final chart shows the Dollar Index breaking a rising support line in effect since 1995. While the monthly stochastics lines look oversold, the monthly MACD lines are firmly bearish. To get John's commentary throughout the week, sign up for John Murphy's Market Message by clicking here. Advertisement How does 260% annualized return sound? Befriend the Trend Trading Systems uses state of the art technical analysis to exploit potentially explosive movements in the markets. The developer of these systems, Dr. Thomas Carr, has been interviewed by the Wall Street Journal and US News and World Report for his expertise in trading psychology. Now he is sharing his calls with a select group of subscribers. His systems are designed especially for part-time and small account traders. Services include a Daily Newsletter, intraday Email Alerts, and Educational Seminars. Free trial available. Click here for more information.

WHAT'S NEW ON THE WEBSITE

StockCharts.com Real-Time Real Soon Now (Really!): The holidays have slowed our progress, but providing Real-Time charting ASAP is still the number one priority here at StockCharts. The current status is that we are waiting for the various exchanges to approve our plans. We are also installing new servers and equipment to handle any additional demand that we may encounter. We've also finalized the pricing for our real-time service. In order to see real-time (non-delayed) price information on our charts, you'll first need to subscribe (or upgrade) to our Extra service. Real-time charts will not be availabe to Basic members. For non-professional members (i.e. people not associated with the financial industry), real-time charting will cost an additional $9.95/mo in addition to the cost of your Extra membership. We are still working out the cost for professional users. Why the additional charge? The majority of that fee is sent directly to the various exchanges who charge us on a per user per month basis for providing this service. We anticipate rolling out this service before the end of the month. Stay tuned... StockCharts Live! Make plans now to attend one of the upcoming investment conferences listed below to see John Murphy, Chip Anderson, and other members of our staff give presentations on the state of the marktes and on how to get the most out of your StockCharts.com account. Swing by our booth for demonstrations, answers to your questions, and autographed book packages. We'll also be handing out lots of freebies including a special gift for our current members. Here's the schedule: The Orlando Money Show - February 19-22 - Orlando, Florida The Online Trading Expo - February 27-March 2 - New York, New York The Las Vegas Money Show - May 13-15 - Las Vegas, Nevada The Atlantic City Money Show - August 7-9 - Atlantic City, New Jersey Admission to the Exhibit hall for all of these shows is free! For more information on these shows, check out the Money Show's website. Hope to see you there! Changing your Type of Membership: We've received several questions from people trying to renew their subscription at a different level. An example would be a Extra+Murphy member trying to renew as a Murphy-only member. Because we cannot provide partial refunds, we do not allow you to "downgrade" your membership until your are within seven days of your current expiration date. This way, you are sure to get the full value of the membership that you've already paid for. Once you are within your seven-day "renewal window" you are able to make any change to your account that you want to.

Market Forcast

DecisionPoint Every year analysts are asked to make predictions for the year ahead. Many groan in protest that it is a silly exercise, that no one can possibly see the future. Personally, I don't think it is silly at all, provided that you have good tools and that you realize the limitations of those tools. While the market has often thwarted my annual forecasts (and periodic adjustments), I think they have been useful to those who accept them as being a guide, not a firm declaration of fact. I use existing trend lines combined with cycle projections to develop my forecasts. The trend lines define possible limitations of price moves, and the cycle projections help me estimate time frames at which price highs and lows may appear. It is an exercise in using what we know in the present, to forecast a possible future outcome. It is no more unreasonable than using projected population growth patterns in a decision of whether or not to buy a piece of land. Of course, no one can see the future, but we can ask, "What do we know, and what can we conclude from what we know?" The forecast tells us what to look for. If the market behaves contrary to our forecast, no big deal. We change the forecast -- it is not cast in stone. This year I have decided to use the S&P 500 insead of the Dow for our forecasts because the S&P 500 is a broader index and I believe it is more representative of what is happening to stocks in general. At present, we are in a secular bear market as defined by the long- term trend shown on the chart above. Valuations are well above historical norms, and I do not expect them to be favorable for at least another 12 to 18 months. If historical norms prevail, the problem with valuations will not be corrected by significant earnings improvement, but primarily by a price decline to undervalued levels, currently about 300 on the S&P 500. There are two dominant features on the chart above: (1) The long- term declining trend channel defined by lines "A" and "B"; and (2) the head and shoulders neckline drawn across the October 1998 and September 2001 lows. The trend channel shows us the likely range of prices until the channel boundaries are violated, and, because the head and shoulders neck line has been violated, we have a technical downside target of about 350 for the S&P. Finally, the projected locations of the 9-Month Cycle troughs give us a tentative target of about 450 by the end of 2003, and 350 by mid- 2004. (Note: The dotted blue lines are just a rough estimate of the path the market might take.) One other element that influences my outlook is my belief that this bear market is following the model of the 1929-1932 Bear Market (a parabolic collapse), which means that we're more likely to see a continuation of the rather brisk, direct movement toward the ultimate bottom, rather than the meandering years-long sideways consolidation that many are hoping to see. And I see little chance of a new bull market emerging (which I will define as a rising trend lasting a year or more) before downside targets are reached. It will be possible to find upside trading opportunities during the relatively short periods (several weeks) in which the market is moving higher within the declining trend channel. Typically, these opportunities will present themselves at 20-Week and 9-Month Cycle troughs, but for these forecasts I only use the 9-Month Cycle for simplicity. BOTTOM LINE: Important technical and fundamental elements are almost perfectly aligned to support the conclusion that the market is headed much, much lower. In fact, based on what we can see at the moment, I can reach no other conclusion; however, I am capable of changing my mind if the picture changes. As usual we will periodically update this forecast throughout the year, probably dining on some crow in the process. Charts courtesy of DecisionPoint.com -Carl Swenlin Don't forget to visit DecisionPoint's "Top Advisors Corner" for free, periodic updated from some of the best in known names in the stock market advisor business. Click here for the latest postings.

Good performers for December

TD Trader While the S&P 500 declined in December, JB Hunt (JBHT) advanced to around 30 and then consolidated near this important resistance level. Consolidations near resistance usually result in breakouts, but JBHT has yet to follow through with good volume. The stock failed to hold its intraday gains on 2-Jan and the resulting candlestick sports a long upper shadow. The consolidation remains intact and the Bollinger Bands are tightening the noose. A move above 30.11 (2-Jan high) and upper band would be bullish, projecting a move to new highs. On the flip side, a dip below 28.5 and the lower band would be bearish. Such a move would signal a failure at resistance and open the door to a support test at 26, if not a break. Marsh & McLennan (MMC) is another stock showing good relative strength in December as well as tightening Bollinger Bands. The stock held above its 26-Nov low and has consolidated between 45 and 48.5 since 11-Nov, almost two months. This relative strength is more a case of less weakness (than SPX) and the stock has yet to show absolute strength. The 2-Jan jump threatened resistance, but volume was just average and the stock remains within the consolidation. A break above the upper Bollinger Band and consolidation resistance at 48.5 would signal a continuation of the prior advance (34.5 to 50). Conversely, a move below 45 would be bearish. For more of Arthur's insights, check out his web site, TDTrader.com.

Trading Upon "Holiday Induced Signals"?

The Rhodes Report The current market TECHNICAL ENVIRONMENT has become quite treacherous - trading on the NYSE Composite (weekly chart pictured) over the past three (3) months has taken place within a well-defined trading range between 466 and 500. However, last week's holiday trading action formed a sharp "outside reversal week" higher, which in absolute terms is quite bullish and would augur for a continuation of the rally off the October lows. Moreover, the real question is whether to trade upon "holiday induced signals" - we always find this a difficult proposition. But having said this, we are coming to the conclusion that a rally is materializing back towards major resistance at the "neckline" of the larger "head & shoulders" pattern - a gain of nearly 5% from current levels. These types "counter-trend rallies" are quite common within the context of the larger downtrend, and we do not believe the beginnings of a new bull market have emerged. If you want more of Richard's award winning advise, check out his website: TheRhodesReport.com - Highly recommended! Advertisement How do you know that MACD BUY is really a BUY? There's a lot of fancy software out there that can tell you when a MACD BUY or SELL signal has been triggered, but how do you know its a signal you can trust? Simple, you take a look at its last two years of performance and see how well it has done. The only problem is that it takes a lot of time and effort to find the signals that have performed the best. That's why we built Black Box Investing. We do you the work, you make the profit. Click here to get the best MACD BUY signals.

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