GUEST COMMENTARY: MURPHY REVIEW - CHIP ANDERSON

JOHN'S ON VACATION THIS WEEK...... John's taking a well deserved break from watching the markets. If everything is going to schedule, he should be enjoying the sights at Yellowstone National Park right about now. In the meantime, I thought we'd take a look back at some of the things he talked about last week and compare John's thoughts with what has actually happened. I encourage people to do this kind of comparison analysis on their own at least once a week in order to become better market technicians.


4 AUG - "S&P LOOKS OVERBOUGHT"... One week ago, August 04, 2005, John wrote "Short-term indicators point to an overbought market", he was pointing out the divergence that had appeared between the S&P 500 chart's RSI(9) line (which was headed lower) and its price trend (headed higher). That day the index closed near its lows and then moved down to the 1225 level the next day. Those two pullbacks were enough to bring the RSI line back around 50 and "fixed" the short-term imbalance that John described.

Chart 1


JOHN'S AUGUST OUTLOOK... In that same article, John also mentioned that the MACD line was weakening - something that has continued until now and thus, I suspect that John's mid-term outlook hasn't changed - "...the market could spend the month of August correcting or consolidating."


04 AUG - HOUSING LEADERSHIP SLIPPING... Later on in that same Thursday article, John talked about weakness in the Housing sector. "The ratio line has broken its 20-day average for the first time in three months. And the MACD lines for the ratio have turned decidedly lower. Again, that's not enough to turn anyone bearish on housing. But it is an early sign that rising rates are starting to chip away at the housing foundation." Below is an updated version of that chart. As you can see, things have continued to erode for the Housing sector.

Chart 2


05 AUG - RETAILERS AND REITS GOING SOUTH... In his August 05, 2005 commentary, John highlighted Nordstrom's and Equity Office Properties as two stocks that were suffering a backlash from the rising bond yields and gas prices. Since John's comments, the stocks have stabilized at their lower levels, and Nordstrom's is no longer out-performing the market like it used to (see how the ratio line above the chart is now horizontal?).

Chart 3

Chart 4


REVIEW, REVIEW, REVIEW... Again, John and I both encourage you to actively participate in technical analysis. Don't just sit there and read what other people write. Review their past work. Question the conclusions. Study the techniques they use, then apply them to your own charts. Try to predict what John will say before he says it - that's not easy to do, but it's a very worthwhile activity! -- Chip Anderson

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