equityletter.com 7/28/08
Note: Event Calendar is located at bottom of page
I. General Market Overview
The major
After perusing the weekly charts we come away with one clear conclusion. It is imperative that the market indices close (on a weekly basis) above the lows of this past week. If this can be achieved there is the potential for an intermediate 5.00% – 8.00% bear market rally. If the lows of the past week do not hold on a weekly closing basis it will be an indication that there is much more work to be done on the downside.
On a somewhat positive note the U.S. Dollar is showing signs of a near term potential rally. Crude Oil is entering the week two of a “sell” signal, a much need relief to consumers. Gold, as measured by the GLD is flashing a weekly “sell” signal as is also the “fear gauge” the VIX. Also acting well are the small-cap issues as measured by the Russell 2000 (IWM) which is year-to-date down an outperforming 5.79%. Despite these positive developments we currently only have favorable weekly readings on two market sectors, Pharmaceuticals (PPH), and Transportation (IYT). Watch very closely in the coming week as it is most important that the Financials hold their ground and do not resume a downward path.
II. Sector Analysis
The IEF-87.22 (I-share 7-10 year Treasury bond) was unchanged for the week as the yield on the 10- year treasury increased ever so slightly from 4.08% to 4.11%. The IEF is entering week two of “sell” mode with our weekly closing price resistance level now being lowered to the 87.78 level. At this time we shall remain of the opinion that the IEF will now vacillate within a trading range. The weekly trading range is defined as 89.00 being the upper end (resistance) and the 85.50 level being the lower end (support).
A. Financials
The Financial Select Sector Index (XLF-20.87) finished the trading week with a 0.97% advance. Year to date the XLF is currently down 28.35%. The XLF short covering rally that was spawned by the manipulative action of the Securities and Exchange Commission (SEC) ran out of steam late in the week. The weekly chart of the XLF needs to see a closing price above the 21.09 level in order to confirm that an intermediate price bottom is in place. We continue to view the 24.00 price level as significant over head price resistance. The 18.68 (weekly closing low) shall act as price support at this time. XLF banking sector components that currently reside in weekly “buy” mode include Bank America (BAC-29.58), Citibank (C-18.85), Wells Fargo (WFC-29.09), J.P. Morgan (JPM-39.52), and State Street Bank (STT-70.57). Although currently in weekly “buy” mode we would stress that it is not prudent to purchase said Banking names at current prices. It is our feeling that we would look to initiate potential long positions upon a retest of recent lows.
The Brokerage sector (IAI-33.04) index advanced a miniscule 0.30% on the week. The year to date performance of the IAI is a negative 37.45%. The IAI is entering week ten of “sell” mode and shall remain so until there is a weekly closing price above 33.10. IAI individual sector components that currently enjoy favorable weekly status include Morgan Stanley (
B. Builders
The Homebuilder exchange traded fund (XHB-16.98) declined 0.64% and is currently negative year-to-date by 10.92%. The XHB is now entering week ten of “sell” mode with the 17.52 price level acting as weekly closing price resistance. We currently have two sector components that reside in weekly “buy” mode, Pulte Homes (PHM-11.31) and Ryland Group (RYL-20.61). Individual XHB sector components that remain in the “sell” category include Centex (CTX-13.52), Lennar (LEN-11.51), and Toll Brothers (TOL-19.42). Readers should resist the temptation to pick a bottom in this sector as a whole but may want to look to buy dips in the positively mentioned names listed above.
C. Semiconductors
The Semiconductor group (SMH-27.51) declined 7.44% for the week. Year to date the SMH is showing a negative return of 15.85%. A week after generating a “buy” signal the SMH has reversed course and plunged back in to weekly “sell” territory by closing under the 27.62 support level. The price action of
D. Retailers
The Retail sector (RTH-87.25) finished the trading week with a 1.53% decline bringing the year-to-date return to a negative 6.50%. The failure of the RTH to close above our weekly resistance point of 90.01has resulted in the RTH entering week twelve in “sell” territory. On a positive note, RTH component Sears Holding’s (SHLD-80.98) has generated a weekly “buy” signal after spending the last eleven weeks on our sell list. The weekly closing price support for SHLD is 73.47. Any weekly closing price below the 73.47 support level will negate the positive signal for SHLD. We see the upside potential for SHLD to the 95.00 resistance area. Positive ongoing weekly signals continue for WalMart (WMT-56.83), Walgreen’s (WAG-33.56), and Home Depot (HD-23.80). RTH sector components that remain with negative weekly signals include Target (TGT-44.57), BestBuy (BBY-38.29), and Kohl’s (KSS-42.68).
E. Steels
The Steel sector (SLX-83.37) finished the week with an 3.79% decline putting the current year to date return at 1.68%. The SLX is now in week seven of a correction phase and is quickly approaching our near term downside target of 80.00. Our weekly pivot point for the SLX is now 90.82. Any weekly closing price above the 90.82 level will signal an end to the near term corrective phase for the SLX. SLX individual components that currently reside in weekly “sell” mode include
F. Pharmaceuticals and Healthcare
The Pharmaceutical group (PPH-69.61) declined 1.05% last week bringing the year to date return to a negative 9.47%. We are now entering week three of “buy” mode for the PPH with the weekly pivot support level remaining at 67.27. Any weekly closing price below the 67.27 price level would reverse our “bullish” stance for the PPH. The near term upside target for the PPH remains the 74.00 area. PPH sector components that currently maintain favorable weekly status include Pfizer (PFE-18.89), Johnson & Johnson (JNJ-69.03), Abbot Lab’s (ABT-57.42), and Eli Lilly (LLY-47.81). A fresh weekly “sell” signal has been generated in Wyeth (WYE-45.45). At the very minimum, we a looking for a price retreat to the 42.00 area for the shares of WYE. The shares of Merck (MRK-32.68) are entering week three of unfavorable status, continue to avoid. Look to buy dips in the positively mentioned names above as this group continues to display positive characteristics in a shaky market atmosphere.
G. Internet
The Internet sector (HHH-50.22) advanced 3.33% last week and is currently negative by 14.81% for all of 2008. We issued a “sell” signal on the HHH seven weeks ago and since that time the HHH has declined by 10.49%. Despite the rally of the past week the HHH remains in weekly “sell” mode by failing to close out the week above our weekly resistance point of 51.16. HHH sector component Amazon.com (AMZN-78.31) has generated a weekly “buy” signal. Watch the 68.00 – 69.00 area as a long entry point for AMZN. We would continue to underweight the shares of YaHoo (YHOO_21.13) and Ebay (EBAY-25.40) as they remain in weekly “sell” mode at this time.
Take note that the VIX (22.91) decreased 4.74% from a reading of 24.05 the prior week. The VIX has generated a fresh weekly “sell” signal indicating a temporary easing of the recent heightened level of fear in the marketplace. The VIX appears poised to retreat to the 16.00 – 18.00 area of major weekly price support.
III. Gold
GLD (streetTracks gold index) – The GLD (91.69) declined 2.63% on the week. The current year to date return for the GLD is 12.19%. After four weeks of favorable status the GLD has generated a weekly “sell” signal. Our new weekly resistance point is 95.86. We would now look to sell any rallies that approach our weekly resistance point as the time has come for a price retreat for the GLD. The first level of price support for the GLD is the 85.00 area. We would advise liquidating long positions in to any price strength as a near term retreat in the price of the GLD has begun.
IV. Energy- (Oil, Oil Service, Nat’l Gas, Coal)
The Large-Cap Integrated Oil space (XOI-1293.31) closed out the trading week with a 2.53% decline. Year to date the XOI is currently showing a negative return by 18.28%. The XOI now rests at the lowest level for the 2008 trading year. We have been negative on the XOI for the past nine weeks. This being stated the XOI is now in a major weekly price support zone (1200.00 – 1300.00). If the XOI begins to approach the lower end of our price support zone we would look to begin to accumulate the shares of the underlying sector components. Although currently remaining in weekly “sell” mode, sector components Exxon Mobil (XOM-81.70), Chevron Texaco (CVX-82.56), British petroleum (BP-61.57), and Conoco Phillips (COP-81.98) have all reached price levels where the risk/reward now favors the reward side of the equation. Take note that quarterly earnings reports are due from XOM, CVX, and BP in the coming week. It is time to accumulate for a near term bounce trade.
The Oil Service Index (OIH-193.34) declined 4.00% this past trading week. The year to date return for the OIH currently stands at 3.33%. It is now week four of “sell” mode for the OIH. We continue to be of the view that the OIH is currently in the midst of a corrective phase and are looking for a further decline down to the 185.00 – 190.00 area of weekly price support. OIH components Schlumberger (SLB-98.96), Halliburton (HAL-46.02), Baker Hughes (BHI-83.03), Transocean (RIG-133.02), Ensco (ESV-69.60), and B.J. Services (BJS-30.49) all reside in week four of correctives phases. Use price rallies to trim long exposure until the passing of this near term corrective phase.
Natural Gas (UNG-42.40) declined another 15.54% this past week reducing the 2008 trading year return to 17.00%. Easy come, easy go, the UNG blew right through our 46.00 area of price support and in three short weeks has declined an astounding 33.00%. This amazing decline is a prime example of why the old days of “long term” investing have come and gone. This sharp decline has left the UNG grossly oversold at this time and subject to a relief rally up toward the 50.00 area. If the decline persists we see near term price support around the 38.00 area.
The Coal Sector (KOL-47.77) advanced by 3.29% this past week after bouncing off the 43.00 price support area. Despite the rally for the week, this high beta sector remains in a downside corrective phase. Our weekly closing price resistance is now the 49.85 level. Any weekly closing price above the 49.85 will indicate a change of trend from negative to positive for the KOL. KOL sector components Arch Coal (ACI-55.64),
V. Dow 30 Analysis
Our Weekly Trend Indicator (WTI) measures in at +10, an increase from the previous week reading of +2. The Dow Jones Industrial average declined 1.09% for the week to 11370.69 and is currently showing a negative return for 2008 by 14.49%.
The S&P 500, as measured by the SPY (125.48), declined 0.40% for the week and is currently 14.91% to the downside year to date. Small caps issues, as measured by the IWM (IShares Russell 2000 Index Fund- 70.68), advanced 2.61% to 70.68, leaving the index an out performing 5.79% to the downside year to date.
The DIA (113.17) could not sustain early week strong momentum and the rally fizzled out on Thursday and Friday ending a six-day positive run. The coming week is critical for the DIA in that the 113.15 price level must be maintained on a closing week basis. If the 113.15 support level is maintained we feel that an intermediate term rally will be confirmed with the potential for appreciation in the DIA up to the 120.00 – 122.00 area of over head price resistance. Any weekly closing price below the 113.15 price level will indicate a resumption of the downtrend with a breech of the 108.00 area highly probable.
Fresh weekly buy signals generated: AIG, GE, KO, MMM, PG
Fresh negative weekly signals generated: AXP
Readers should take note that Dow Jones Industrial components CVX, DIS, GM, VZ, and XOM are scheduled to report quarterly earnings this week.
Dow 30 stocks with positive weekly signals:
AIG, BA, BAC, C, DD, DIS, GE, GM, HD, IBM, INTC, JNJ, JPM, KO, MCD, MMM, PFE, PG, UTX, WMT
Dow 30 stocks with negative weekly signals:
AA, AXP, CAT, CVX, HPQ, MRK, MSFT, T, VZ, XOM
· Underline names have changed from previous week*
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VI. KEY EVENTS IN THE WEEK AHEAD:
Monday, July 28
Economic
Earnings
Before: ACV, ARLP, ANPI, BOH, BWP, CG, CAN, DIN, DCO, GEHL, KFT, MV, MSA, ONB, SPG, SOHU, TSN, VZ, WWY
After: ADLR, AATI, AMGN, ARNA, ATHR, AUTH, BLDP, CF, CHE, CHH, CGNX, CYH, CR, DAC, EDS, EDR, EEP, FADV, FELE, HLIT, HIG, ININ, IVAC, JDAS, KRC, MTW, MIG, MTH, MOS, NAVG, OMI, PRE, PFWD, PCL, PLXT, STR, RAH, RCII, RKT, SCUR, SMI, SLG, SSCC, SFN, SUPG, TXRH, TRID, TZIX, UCTT, UHS, VECO, CHIP, WLT, WBSN, WMGI, ZRAN
Events
BIIB, ARNA at IBC Life Sciences Beyond Antibodies Conf.
CPHD Analyst & Investor Day 2008
FRE, NTRS, IDC, AQR at SIFMA Managing Operational Risk in Today's Environment Conf.
Fed: Mishkin.
Tuesday, July 29
Economic
Earnings
Before: CAS, AG, AAI, ALU, ALXN, ANR, AMED, ARM, AVX, BEAV, BMS, BLT, BP, GIB, COH, CL, CLR, COWN, CTCM, CYNO, ELNK, EME, ENTG, ETR, FSRV, FDP, GM, GVHR, GTI, GPI, GLF, HSC, HW, HERO, HEP, IAR, IMA, JAH, KDN, LDR, LCAV, LEA, LXRX, LPX, MSO, MAS, MC, MCGC, MHP, MWRK, NOV, NCR, NSTC, NOC, NRG, PTC, MALL, PER, PPC, POZN, PVTB, QLTI, RBC, RTI, SAP, SEPR, SINT, SAH, SNE, SPNC, TLM, TFX, TNC, TPP, TEVA, X, UA, VLO, VSH, WDR, WMI, WRLD
After: ACE, ACTL, ADVS, ATAC, ALGN, AMMD, AJG, AUDC, BBSI, BBOX, BRE, BEXP, BPL, BWLD, CALD, CSCD, CBG, CBI, CTX, CEDC, CEPH, CTV, OFC, CVA, CTS, DENN, XRAY, DBTK, DWA, DRC, EGLT, EFII, ERTS, EQ, EAC, ENH, ENTU, EOG, EQY, EXR, FARO, FEIC, FISV, FMC, BGC, GNW, GMKT, GCFB, HBI, HGR, HS, HIW, HTCH, IDTI, JLL, KEYN, KFRC, KONA, LDSH, LRCX, LFL, LFG, XPRT, LNC, LNET, MXWL, MET, MOSY, NLC, NATI, NCIT, NAL, ORCC, OSG, PRAA, QTM, RSYS, RNR, RFMD, SVVS, SIMO, SSTI, SNWL, SPSS, STAR, SUMT, SDXC, TTMI, ULTI, URI, VIA/B, VIMC, VNUS, WTS, XL
Events
BEC 2008 AACC Investor Meeting
CVBF, FCBC, PFS, SRCE, UBSH, BMTC at Keefe, Bruyette & Woods, Inc. Community Bank Investor Conf.
GCO Analyst Event at WSA
IRIS Financial Analyst Reception
TRBN IBC Life Sciences Beyond Antibodies Conf.
| |
Wednesday July 30
Economic
Earnings
Before: AGN, ALO, ALVR, AMT, APU, AHG, MT, AWI, ABG, AVA, AVP, BXC, CAM, CYCL, CETV, CXG, CMCSA, CGX, GLW, CORS, CXR, CMI, ELON, EFJI, ENR, EEFT, GRMN, IT, HES, HPT, HUN, IPSU, IACI, IPG, JNY, KEM, KIM, ID, LAZ, LFUS, LOJN, MKTX, MDP, MERX, MNC, MCO, MPS, MNTG, NJR, NBL, ODP, OC, PTI, PAG, PNW, RHD, RHB, RAI, ROC, RBCN, SEE, SNH, SI, SLAB, SO, SPW, STE, TIN, THQI, TBL, TKR, TWP, TRX, TEL, UGI, UMC, VPHM, VC, WBC, WXS
During:
After: ACXM, AKAM, AYE, AW, AEL, NLY, AMCC, ARRS, ARTC, ASYT, ATML, AVB, AXTI, BARE, BMR, BZP, BDN, BTUI, BVN, CAP, ELY, CDR, CIR, CLF, CSA, COHR, CNQR, CVD, DRIV, DW, DTE, DXPE, ECLP, EQR, ESRX, DAVE, FRT, FSLR, FLS, FORM, GGP, GNK, GMR, GGB, GERN, HLX, HRH, HOLX, HMN, HHGP, HGSI, ITRI, LVS, LHCG, LOOP, MANT, MKL, MERC, MRCY, MIPS, MRT, MUR, NBIX, NEWP, EGOV, NHWK, NTLS, OIIM, OII, OI, PDFS, PGTI, PPO, PRU, PSYS, RADN, RCRC, O, RJET, RNOW, SCRX, SSW, SQNM, SFLY, SMSI, SPTN, STAA, SPF, SBUX, STNR, SPN, SWN, SYMC, SMMX, TTES, TWLL, TTEK, TWPG, TSS, TRN, UNM, VIRL, V, DIS, WLL, WSH
Events
PMBC, FTBK, LKFN, OFG, CACB, CLFC at Keefe, Bruyette & Woods, Inc. Community Bank Investor Conf.
Thursday, July 31
Economic
Earnings
Before: AET, ATG, AMRI, MO, ECOL, AEP, APA, ARJ, ARQL, AIZ, AZN, ADP, AUXL, BKUNA, ABX, BIOS, BWA, BCO, BPO, BRKR, CVC, CCC, CPLA, CRR, CRS, CBZ, CBS, CDI, CTL, GTLS, CBB, CITP, CNX, CEG, COT, CVTI, CRY, CVS, DWSN, DLX, DSX, DSCO, D, DRQ, EK, ELMG, ENB, ENDP, ENZN, EXPE, XOM, FAF, FORR, FPL, FTE, GTIV, GG, GT, GMCR, GHL, HNR, HP, HOS, HYC, ICAD, IFLO, INCY, IFF, IP, ITG, IRM, ISTA, SFI, KSU, K, KSWS, LIZ, LKQX, LZ, MHO, CLI, MGLN, MRO, HZO, MA, MBI, MDC, MEDX, MESA, MEA, MFA, MSTR, MDS, MWY, MOT, LABL, MWIV, NNN, BABY, NNI, NWL, GAS, NTMD, NOVA, NUS, NMX, OMX, ZEUS, OHI, OCR, ORCH, OSCI, PMTI, PTRY, PH, PTEN, PCCC, PDGI, PLUG, PMI, PEG, PWR, RVSN, RAE, FRZ, RRI, REV, RDS/A, RRST, SPP, SHPGY, SBNY, SBNY, SIRI, SPR, SRT, SRI, SSYS, SMA, SYPR, TSM, TE, TEF, TEN, TSO, PNX, TSCM, TWTI, THOR, TRS, TRW, TYC, ULBI, UTHR, VCI, VNDA, WST, WEC, WYN, XEL
During: NCT
After: PAR, ADPT, ARE, ALKS, AIQ, AMX, AFG, ACAP, ASCA, ANSV, AOC, AVR, ACLS, BGFV, BBND, BLDR, BLG, CA, CAB, CPE, CPT, LSE, CAPA, CBOU, CBEY, CTLM, CEM, CHK, CIM, CQB, CHRD, CTSH, CSTR, FIX, SCOR, CNXT, CRAY, CVTX, DCT, DEPO, DLB, DSCM, DNB, BOOM, DRCO, EHTH, EXTR, GPRO, GYI, GFIG, ROCK, GW, GSIG, HNSN, SOLD, IDSY, IMMR, IUSA, IPHS, IN, ITMN, SWIM, IOM, IPCS, JSDA, KLAC, KOSN, LDK, MEE, MAXY, MFE, MNT, MAA, MIL, MPWR, MNST, MORN, NABI, NANO, NAPS, NATL, NLS, NCI, NVT, NR, NMSS, NVTL, ORH, OIS, PDLI, PEET, PHTN, PWAV, RDN, RADS, RMKR, RRR, SLRY, SVNT, SGMS, SMG, SIGI, SNCI, FIRE, SXE, SUPG, SPSX, SPRT, SYMM, SYNA, TLEO, TSRA, THRM, TMA, CLUB, UDRL, USTR, UAM, VCLK, VSE, VRTX, VPRT, VOLC, WWIN, WSPI, WTW, WRI
Events
No events of note
Friday, August 1
Economic
Earnings
Before: ASF, ALE, AEE, AIV, ATRO, BYD, BW, CSAR, CVX, CI, CCU, CCO, CLX, DMRC, EQT, FE, HAE, HTV, HMSY, IR, IWA, KBR, NT, NXG, NYX, OSK, PPL, RAS, SCG, JAVA, TSTY, TDW, TOT, TNP, WHQ
After:
Events
DRYS Shareholders Meeting
YHOO Shareholders Meeting
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