ChartWatchers

A CORRECTION - OR SOMETHING LARGER?

Chip Anderson

Chip Anderson

President, StockCharts.com

The recent "slowdown" in the major averages has produced "rotational undercurrents" between these averages; the most poignant we observe is the bullish breakout in the ratio of the S&P 500 Spyders (SPY) and the NASDAQ 100 (QQQQ). The reason we focus upon this is that it has implications in terms of traders taking on risk; in a normal bull run, traders tend to put on high-beta technology shares to increase returns above the market. Hence, when we begin to see strength in the ratio - it implies traders are shunning risk, which suggests a potential trend change is in the very near future. Perhaps it is merely a correction; perhaps it is something larger and deeper. History will be the final arbiter.

Technically speaking; the ratio chart has now broken out above it's shorter-term 35-day moving average, which given the 40-day stochastic is exhibiting positive divergences with the ratio...further suggests the ratio is headed higher. The real question is whether the more intermediate-term 130-day halts the rise and turns the ratio lower to new lows. In any case; it is our opinion that tactical short positions can now be considered with a greater probability of success than in recent months.

SPY/QQQQ

Chip Anderson
About the author: is the founder and president of StockCharts.com. He founded the company after working as a Windows developer and corporate consultant at Microsoft from 1987 to 1997. Since 1999, Chip has guided the growth and development of StockCharts.com into a trusted financial enterprise and highly-valued resource in the industry. In this blog, Chip shares his tips and tricks on how to maximize the tools and resources available at StockCharts.com, and provides updates about new features or additions to the site. Learn More