equityletter.com 8/04/08
Note: Event Calendar is located at bottom of page
I. General Market Overview
The major
We cannot let a week pass without a little government criticism. Martha Stewart and Michael Vick, I hope you learned a valuable lesson. As evidenced by the public comments (LIES) of Allan Schwarz of Bear Stearns fame, Erin Callan (former CFO of Lehman Brothers), and now John Thain (Merrill Lynch CEO). In the eyes of the Federal Government it is apparently ok and maybe even fashionable to mislead the investing public. But do not, under any circumstances, lie to the Federal Bureau of Investigations (F.B.I.).
II. Sector Analysis
The IEF-88.08 (I-share 7-10 year Treasury bond) advanced 0.99% for the week as the yield on the 10- year treasury decreased ever so from 4.11% to 3.95%. The IEF has generated a weekly “buy” signal by closing above the 87.78 level. Despite the “buy” signal, at this time we shall remain of the opinion that the IEF will 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-21.63) finished the trading week with a 3.64% advance. Year to date the XLF is currently down 25.33%. The XLF has closed above the key 21.09 price level. The price action of the past week has generated a weekly “buy” signal for the XLF. We would now view the 20.00 level as key weekly price support for the XLF. We would view any price retreat to said area as an entry point for a long trade. We see potential for an intermediate term advance up to the 24.00 – 26.00 area. Any weekly closing price below the 20.00 level will abort our near term bullish stance on the XLF. XLF banking sector components that currently reside in weekly “buy” mode include Bank
The Brokerage sector (IAI-33.68) index advanced 1.94% on the week. The year to date performance of the IAI is a negative 34.16%. After spending ten weeks on our “sell” list the price action of the past week has generated a “buy” signal by closing above 33.10 price level. Any weekly closing price below the 31.39 would abort our current near term bullish stance for the IAI. We see the potential for an intermediate near term advance for the IAI up to the 38.00 – 40.00 area of price resistance. IAI individual sector components that currently enjoy favorable weekly status include Morgan Stanley (
B. Builders
The Homebuilder exchange traded fund (XHB-17.31) advanced 1.94% and is currently negative year-to-date by 10.59%. The XHB is now entering week eleven 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-12.01) and Ryland Group (RYL-20.55). Individual XHB sector components that remain in the “sell” category include Centex (CTX-14.63), Lennar (LEN-11.85), and Toll Brothers (TOL-19.84). 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-27.86) advanced 1.35% for the week. Year to date the SMH is showing a negative return of 14.17%. The SMH is now in week two of “sell” mode. The 26.50 level is the last bastion of weekly price support for the SMH. Any weekly closing price below this key support level will indicate much lower levels for the SMH. Only one name remains in weekly “buy” mode, Intel (INTC-22.35). SMH sector components that currently remain in weekly “sell” mode include Applied Materials (AMAT-17.53), Micron Technology (MU-4.67), SanDisk (SNDK-14.36), Novellus (NVLS-20.36), and Analog Devices (ADI-30.20). It is safe to buy dips in INTC but continue to avoid the negatively mentioned names as the weekly charts point to further declines.
D. Retailers
The Retail sector (RTH-87.55) finished the trading week with a 0.34% advance bringing the year-to-date return to a negative 6.21%. The RTH continues to remain below our weekly resistance point of 90.01 consequently it shall remain in week thirteen of “sell” mode. The 84.00 level is key long term weekly price support for the RTH. Any failure for the RTH to remain above the 84.00 support level on a weekly closing basis will not bode well for the future direction of the RTH. 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. Positive ongoing weekly signals continue for WalMart (WMT-57.75), Walgreen’s (WAG-33.93), Sears Holding’s (SHLD-78.85), and Home Depot (HD-23.90). RTH sector components that remain with negative weekly signals include Target (TGT-44.68), BestBuy (BBY-39.75), and Kohl’s (KSS-42.11). Despite the recent retreat in the price of crude oil elevated energy prices will remain a drag on the spending of the
E. Steels
The Steel sector (SLX-85.75) finished the week with a 2.85% advance putting the current year to date return at a barely positive 0.83%. The SLX is now in week eight of a correction phase and is quickly approaching our near term downside target of 80.00. Our weekly pivot point for the SLX shall remain at 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-68.44) declined 1.67% last week bringing the year to date return to a negative 13.57%. We are now entering week four 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-18.60), Johnson & Johnson (JNJ-68.10), Abbott Lab’s (ABT-56.07), and Eli Lilly (LLY-47.04). We shall proudly note that in our previous Equity Letter we issued a weekly “sell” signal on the shares of Wyeth (WYE-40.24). The shares of WYE declined 11.46% last week. The shares of Merck (MRK-33.26) are entering week four 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 an uncertain market atmosphere.
G. Internet
The Internet sector (HHH-49.04) declined 2.35% last week and is currently negative by 17.16% for all of 2008. We issued a “sell” signal on the HHH eight weeks ago and since that time the HHH has declined by 12.84%. 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-75.75) is the only component that currently maintains 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-19.80) and Ebay (EBAY-24.58) as they remain in weekly “sell” mode at this time.
Take note that the VIX (22.57) decreased 1.48% from a reading of 22.91 the prior week. The VIX is now in week two of a “sell” signal with the 24.58 level now acting as resistance. The VIX briefly traded down to the 18.00 area of major weekly price support last week. We would view any weekly closing price under the 18.00 level as an extremely bullish indication. On the flip side any weekly closing price above the 24.58 resistance level will indicate a resumption of market turbulence.
III. Gold
GLD (streetTracks gold index) – The GLD (89.57) declined 2.31% on the week. The current year to date return for the GLD is 8.62%. We are now entering week two of weekly “sell” mode for the GLD with the 92.00 price level now acting a weekly closing price resistance. Any breech to the downside of the prior week low of 88.00 will indicate a further weakness to the lower end of a nineteen week trading range, the 84.00 level. We would advise trimming long exposure in to GLD rallies that approach the 92.00 area of weekly price resistance.
IV. Energy- (Oil, Oil Service, Nat’l Gas, Coal)
The Large-Cap Integrated Oil space (XOI-1319.80) closed out the trading week with a 2.05% advance. Year to date the XOI is currently showing a negative return by 15.38%. Despite the marginal advance of the past week the XOI remains in weekly “sell” mode. We have now been negative on the XOI for the past ten weeks. Any weekly closing price above the 1364 level would signal a reversal of weekly trend from negative to positive for the XOI. Major XOI components that continue to remain in negative weekly mode include Exxon Mobil (XOM-79.72), Chevron Texaco (CVX-84.31), British Petroleum (BP-61.20), and Conoco Phillips (COP-81.15). The trend remains to the downside for the XOI but traders should watch the 1200.00 – 1250.00 major price support area as a possible long entry point.
The Oil Service Index (OIH-194.44) advanced 0.67% this past trading week. The year to date return for the OIH currently stands at 2.87%. It is now week five of “sell” mode for the OIH. Our opinion remains the same; the OIH is currently in the midst of a corrective phase and is approaching the 185.00 – 190.00 area of weekly price support. Any failure to hold above the 185.00 weekly support level will indicate further downside to the next level of weekly price support, 175.00. OIH components Schlumberger (SLB-100.20), Halliburton (HAL-45.73), Transocean (RIG-137.61), Ensco (ESV-70.23), and B.J. Services (BJS-29.22) all reside in week five of correctives phases. The shares of OIH component Baker Hughes (BHI-83.85) have bucked the trend and generated a weekly “buy” signal. BHI must maintain the 80.49 price level on a weekly closing basis in order to maintain bullish status. Readers should take note the OIH component RIG is due to report quarterly earnings in the coming week. Use price rallies to trim long exposure until the passing of this near term corrective phase.
Natural Gas (UNG-43.81) advanced 3.33% this past week, the first weekly advance after 33% three week “waterfall” decline. Year-to-date the UNG is currently showing a positive return of 21.00%. The UNG is a perfect example of what occurs when the momentum stalls. Momentum players take no prisoners when the positive trend stalls; they just sell at the market. According to our work the UNG remains in week four of a corrective phase. We need to see a weekly closing price above the 44.11 level to signify a reversal of trend from negative to positive. Individual natural gas equities El Paso (EP-17.83), Chesapeake Energy (CHK-49.22), XTO Energy (XTO-47.29), and Encana (ECA-72.43), although appearing temptingly oversold, all remain in weekly “sell” mode. Resist the temptation to “pick a bottom” in this sector and let the corrective phase play itself out. Take note the EP is due to report quarterly earnings in the coming week.
The Coal Sector (KOL-47.61) declined a minimal 0.33% this past week and is now in week five of a “corrective “phase. We continue to view the 42.00 – 43.00 area as strong price support for the KOL. Individual coal equities that remain in weekly corrective mode include Arch Coal (ACI-54.21),
V. Dow 30 Analysis
Our Weekly Trend Indicator (WTI) measures in at +4, a decrease from the previous week reading of +10. The Dow Jones Industrial average declined 0.39% for the week to 11326.32 and is currently showing a negative return for 2008 by 14.28%.
The S&P 500, as measured by the SPY (126.16), advanced 0.54% for the week and is currently 13.71% to the downside year to date. Small caps issues, as measured by the IWM (IShares Russell 2000 Index Fund- 71.41), advanced 1.03% to 71.41, leaving the index an out performing 5.94% to the downside year to date.
The DIA (113.12) ended a volatile week little changed and closed three cents below our key 113.15 level. The price action of the past week is somewhat confusing and leaves us perplexed as to future direction at this time. Our best guess is that a trading range is developing. The range shall be defined as 116.00 on the upside with the 110.00 level acting as the lower end. At this time we shall remain with a negative bias until the DIA can establish a weekly closing price above the 114.20 price level.
Fresh weekly buy signals generated:
Fresh negative weekly signals generated: DD, GM, IBM
Readers should take note that Dow Jones Industrial components AIG and PG are scheduled to report quarterly earnings this week.
Dow 30 stocks with positive weekly signals:
AIG, BA, BAC, C, DIS, GE, HD, INTC, JNJ, JPM, KO, MCD, MMM, PFE, PG, UTX, WMT
Dow 30 stocks with negative weekly signals:
AA, AXP, CAT, CVX, DD, GM, HPQ, IBM, MRK, MSFT, T, VZ, XOM
· Underline names have changed from previous week*
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VI. KEY EVENTS IN THE WEEK AHEAD:
Monday, August 4
Economic
Earnings
Before: EYE, ALY, CMED, CHD, CTB, DISH, ETM, FNM, RAIL, GWR, HUM, HYC, ICE, MDU, MCU, MSTR, NTE, GAS, OWW, ORBK, SBAC, SIX, STEC, TM
After: ACTS, ACTU, ADLR, AIMC, ASEI, ASCA, APC, ARRY, ATHN, AXS, RATE, BAS, BLKB, BPHX, BDE, CLDN, CSR, CVLT, CRK, CUTR, DVA, ERES, GSX, HCKT, HGIC, HVT, HE, HCP, HMA, HL, HIMX, HLTH, IBI, KNXA, LF, LQDT, MKL, MASI, MWY, ODSY, ASGN, OEH, OTTR, PKY, PBI, PPS, PFG, PSB, QGEN, RACK, RTEC, SAFT, SLXP, SNTS, SMTL, SM, SUPG, SYKE, SVR, THRM, TNS, THS, TMWD, UDR, VVUS, WWWW, WBMD, WGL
Events
FORM, MLNX, WBSN, LLNW, LOGN at Pacific Crest Securities Technology Leadership Forum
IMCL, ARRY, IMMU, ABT, PFE, BIIB, SGEN, DNA at IBC Life Sciences Drug Discovery & Development of Innovative Therapeutics Conf.
PARD, PLX, PANC, CYPB at Oppenheimer & Co. Small and Mid Cap Clinical and Regulatory Conf.
WE, AA, AEP, AYE, RRI, TAC at Marcus Evans Management for Power Plants Conf.
Tuesday, August 5
Economic
Earnings
Before: ACW, ADES, ALD, AHCI, AMSC, AMCS, APAC, ADM, AACC, ATRC, BBG, BLT, EAT, CSE, FUN, CEDC, CHTR, CKP, XEC, CZN, CMS, COV, COWN, DNR, DXYN, DTG, DHI, DUK, EMS, EMR, EPL, NPO, EXPD, GET, GLBC, GLBL, WOLF, GBE, GTXI, HNR, HNT, HPY, HSIC, HEW, HURN, ICON, IFLO, IIVI, IDEV, IRC, IPGP, JRCC, LEAP, TVL, LIOX, MMP, MVL, MTRX, MXGL, MEDX, MGM, TAP, NNDS, NURO, NSR, NGPC, NI, NTMD, NMTI, GLT, PKD, PCAP, PDX, PPCO, PXD, PG, RRI, RDC, SCR, SKH, JOE, STXS, SHOO, THC, TLCV, TDG, GTS, UNT, VNDA, VSAT, VNO, WTI, WEN, WST, WLK, WY, GB, WWE
During: SNHY
After: ABCO, MDRX, ACAS, AMKR, ARNA, ATN, ATO, BIDZ, BMRN, BIO, NILE, SAM, CELL, CBM, CBOU, CBL, CBF, CTLM, CRL, CHDN, CSCO, CNL, CCRT, CSC, CCRN, DEIX, DXCM, DRRX, ENTR, XCO, EXEL, FCH, FOE, FIS, FST, GHDX, GGC, GLUU, GOLF, HRS, HCN, HLEX, HLS, HLF, HME, INSP, INAP, IO, JCOM, JBX, KCP, LNDC, LTRE, LOCM, LOOK, MCHX, MMLP, MRX, MOLX, MSCS, MFLX, N, NWS/A, OKE, OKS, ONXX, OPWV, OPNT, OSUR, ORA, PACR, PZZA, PCLN, PL, QSFT, RENT, RMD, RUTH, SONE, SMSI, SNCI, BID, SGY, SHO, SNCR, TEAM, TX, TIE, UPL, UNTD, USU, VTR, VOLC, VMC, WFMI, WMS, ZGEN
Events
AMGN, VRTX, CRXX at IBC Life Sciences Drug Discovery & Development of Innovative Therapeutics Conf.
CELG, CLDA, BIOS, PCOP, EYE, SUPG at BMO Capital Markets Focus on Healthcare Conf.
EXAR, CRNT, ENTR, FNDT, MENT, NAVI at RBC Capital Markets 2008 Technology, Media & Communications Conf.
MU 2008
TLEO, VSEA, CTXS, EQIX, NZ, IDTI at Pacific Crest Securities Technology Leadership Forum
Fed Policy Announcement
| |
Wednesday August 6
Economic
Earnings
Before: TDSC, AGU, AKNS, AMRI, LNT, ALTI, ABK, WTR, ABTL, AVT, BCE, BX, BRS, CALP, LSE, CNP, CINF, CWEI, CLHB, CGX, DF, DVN, DSCO, RRD, EP, EE, ENZN, XJT, FWLT, FRE, FTO, FCN, GEL, GNA, HSII, HLCS, HGG, HOC, HSP, HPT, ICFI, IHR, KNDL, KLIC, LAMR, LCRY, LINC, LOJN, LL, MFB, MMC, MDH, MGAM, MYL, NDAQ, NEWS, NICE, OZM, ONNN, OPTR, PTI, PQ, PCG, PNK, PXP, PLA, PLUG, RL, PWR, KGS, KWK, Q, RSTI, SNH, SPIL, SBGI, SIRO, SKYW, SE, TRK, S, SMA, TTES, TKLC, TICC, TWX, TWC, RIG, RMIX, WRES, WPI, WPTE, XRIT, YGE
During:
After: JOBS, AAP, AIRN, ALNY, ALJ, AIG, ARII, ACF, AMSF, AHS, ANEN, ANDE, AHT, CAR, BBBB, BZP, CPE, CECO, CBEY, STV, RIO, COGO, CNO, CPII, CUB, DCGN, HILL, DCP, EGLE, DIET, BAGL, EMKR, EAC, EVC, EXLS, FVE,, FLML, FNET, FBN, GGB, GERN, GIVN, GDP, GXP, HIL, HRC, TEG, INET, INXI, JRT, LRN, LPSN, LMIA, MGA, MXWL, MSSR, MEAS, MRN, MR, NCMI, NFS, NHP, NKTR, NTLS, OPXT, PEIX, PRXL, PVA, PVR, PAA, PLNR, PRSC, RJET, RUBO, WINS, SALM, SVNT, SCI, SINA, STAN, BEE, SUNH, SUN, TK, TS, TRLG, TXCO, UTI, URS, UTSI, VRAZ, CHIP, VRSN, WCAA
Events
AXP Semi Annual Financial Community Analyst Meeting
AZN, ARCH, SGMO, BMY, AVID, SNTA at IBC Life Sciences Drug Discovery & Development of Innovative Therapeutics Conf.
MOT, SDXC, EQIX, JNPR, QLGC, TWER at RBC Capital Markets 2008 Technology, Media & Communications Conf.
PGNX, USPH, ATRC, MHS, SLXP, BSMD at BMO Capital Markets Focus on Healthcare Conf.
TXT Analyst Call
Thursday, August 7
Economic
Earnings
Before: FLWS, ABH, ACMR, AIXD, ACM, AER, AES, AGYS, ARE, ATK, ANSS, AHR, ARD, ARCC, STST, ARIA, ARQL, ARTE, ALC, ATPG, BKUNA, BRL, BCRX, BBI, BORL, BRNC, CNQ, CAH, CATM, CRZO, CPHL, CDL, CCU, CCO, CHCI, ED, CNSL, CEP, CXW, CMLS, CYCC, DK, DPTR, DTPI, DTV, DRQ, DYN, EPB, EMAG, EBS, ENG, FRP, FIG, GEO, GOK, GILT, GCA, GPX, GTN, GPOR, HEES, HDIX, ITWO, ICTG, IDA, IMAX, IDCC, VTIV, IONA, ISIS, JMP, KALU, KBALB, KG, KOP, LXP, LCUT, LINE, LIZ, MAC, MIC, MLM, MMS, MCGC, MDTH, MCCC, MDCI, MPW, MED, TMR, MESA, PCS, MF, MEND, MINI, NGS, NRF, NOVN, CHUX, OMG, OHI, OFIX, VITA, PTIE, PEI, PRFT, HK, PNCL, PMI, POL, POR, PBH, PDE, PGN, QCCO, ROLL, FRZ, RIGL, RMG, RIV, SBH, SLE, SGK, SRE, SIRI, SNN, SUG, SBSA, SEP, SPH, SUP, SWSI, SURW, SFY, SXCI, TECH, THI, TWGP, TRMP, USPH, URBN, USM, VTAL, VG, WRC, WMG, WNR, WON, WMB, WPZ, WATG
During: ASFI, DIOD, EPEX, NCT, RAME
After: NDN, APKT, ANW, ACS, AIRM, ALKS, AMCP, AGNC, ARP, ANSV, AGII, AGO, ATW, BLTI, EPAY, BRKS, BLG, CPKI, CHINA, CENT, CHLN, CLWR, COGT, CCIX, COSI, CROX, DAR, DCT, DECK, PROJ, DNDN, DWRI, DNEX, DIVX, DM, DTSI, ELX, ENOC, ESE, FVRL, FMD, ROCK, GUID, HANS, HLYS, HTZ, HYTM, IFON, IUSA, IPAS, ISTA, JSDA, JUPM, KFN, LMNX, MVSN, MNKD, ME, MIDD, MIVA, MOVE, NABI, NFG, NLST, NGAS, NPSP, OCNW, OPTV, PRX, PLLL, PARL, PDLI, PSPT, PCR, PMC, POWR, PGIC, PRO, PSA, QLTY, RAE, RSCR, SD, SAPE, SOMX, SPC, SRSL, SNS, SPSX, SYMM, KNOT, NCTY, TMA, TRMS, UNCA, UEIC, YSI, VITL, WES, WEDC, INT, ZIPR
Events
ABI, HLCS, ILMN, QGEN, CALP at Leerink Swann & Company Emerging Products and Applications in Life Science Tools Roundtable Conf.
CELG, TRBN, IPXL, AFFY, SLXP at Bank of
DSPG, MDCA, PAR, SVVS, SYKE, CNQR at RBC Capital Markets 2008 Technology, Media & Communications Conf.
EXEL, INSM, GENZ, ARQL, INFI at IBC Life Sciences Drug Discovery & Development of Innovative Therapeutics Conf.
LOCM at
Friday, August 8
Economic
Earnings
Before: AYR, AIT, BECN, CAPA, CNK, CDE, CCOI, XTEX, XTXI, CRYP, CYPB, DMRC, UFS, EIX, FGXI, HALO, IAG, LPNT, MBI, NOOF, NAT, NVAX, OFI, RBA, SMBL, TTI, TRGL, WCRX, WR, WIN
After: ACLS, LNG, XOMA
Events
QCOR, ANDS, EXEL, LH, IDIX, SPPI at Bank of
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