equityletter.com 8/11/08
Note: Event Calendar is located at bottom of page
I. General Market Overview
The major
II. Sector Analysis
The IEF-88.38 (I-share 7-10 year Treasury bond) advanced 0.34% for the week as the yield on the 10- year treasury remained unchanged at 3.95%. The IEF is now in week two of a “buy” signal with the 87.20 level now acting as weekly closing price support. 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-21.94) finished the trading week with a 1.43% advance. Year to date the XLF is currently down 24.16%. The XLF is now in week two of a weekly “buy” signal. We shall continue to 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-34.32) index advanced 1.90% on the week. The year to date performance of the IAI is a negative 32.92%. The IAI is now entering week two of a “buy” signal. Any weekly closing price below the 31.39 would abort our current near term bullish stance for the IAI. We continue to 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-18.88) advanced 9.07% and is currently negative year-to-date by 2.43%. The XHB has closed above the 17.52 price resistance level therefore generating a weekly “buy” signal. We shall now view the 16.45 price level as weekly closing price support in order to maintain our weekly “buy” signal. XHB components Centex (CTX-15.61) and Toll Brothers (TOL-21.09) have generated fresh weekly “buy” signals. CTX and TOL now join XHB components Ryland Group (RYL-22.72) and Pulte Homes (PHM-12.96) in weekly “buy” mode. We are not yet able to endorse the shares of Lennar (LEN-12.37) as it currently remains in weekly “sell” mode. The recent price action in the XHB suggests that the time has come for an over sold rally up to the 22.00 area of price resistance. Look to buy dips in the near term with the 16.00 level now acting as key weekly price support.
C. Semiconductors
The Semiconductor group (SMH-29.98) advanced 7.80% for the week. Year to date the SMH is showing a negative return of 7.64%. The price action of the SMH in the past week has generated a weekly “buy” signal. In order to maintain said “buy” signal the SMH must remain above the 27.77 level on a closing weekly basis. If the SMH can get through the resistance hurdle of 30.50 we see the potential for further appreciation up to the 33.50 – 34.00 area. Positive weekly signals have also been generated in SMH components Applied Materials (AMAT-18.79), Micron Technology (MU-5.27), Novellus (NVLS-22.22), and Analog Devices (ADI-32.26). Intel (INTC-24.23) has been in “buy” mode for the past four weeks and shall remain so at this time. Two SMH names that remain as negative outliers include
D. Retailers
The Retail sector (RTH-94.00) finished the trading week with a 7.38% advance bringing the year-to-date return to a positive 0.70%. After twelve weeks of negative activity the price action of the past week has generated a weekly “buy” signal for the RTH. It appears that the recent decline in crude oil is igniting investor interest in the Retail sector. RTH components Target (TGT-48.74), BestBuy (BBY-42.78), and Kohl’s (KSS-46.87) have all generated fresh weekly “buy” signals. Already in weekly “buy” mode and remaining so are WalMart (WMT-57.86), Home Depot (HD-26.37), Walgreen”s (WAG-36.55), and Sears Holding’s (SHLD-89.90). The sharp upside move of the past week has shifted the momentum to the upside for the Retail sector, look for price weakness as an opportunity to initiate long positions as an intermediate term price rally has begun.
E. Steels
The Steel sector (SLX-79.00) finished the week with a 7.87% decline bringing the current year to date return in to negative territory by 7.10%. The SLX is now in week nine of a correction phase and has eclipsed our near term downside target of 80.00. Our weekly pivot point for the SLX is now 85.37. Any weekly closing price above the 85.37 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-71.89) advanced 5.04% last week bringing the year to date return to a negative 9.21%. It is now week five of “buy” mode for the PPH with the weekly pivot support level moving up to 68.38. Any weekly closing price below the 68.38 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-19.84), Johnson & Johnson (JNJ-71.55), Abbott Lab’s (ABT-59.03), and Eli Lilly (LLY-48.51). The shares of Merck (MRK-33.26) and Wyeth (WYE-43.75) currently retain their 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-51.28) advanced 4.57% last week and is currently negative by 13.38% for all of 2008. After spending eight weeks in “sell” mode the price action of the past week has generated a “buy” signal for the HHH. We now see the potential for the HHH to rally up to the 55.00 resistance zone. Any weekly closing price below the 48.77 support level would reverse our near-term bullish stance on the HHH. Amazon.com (AMZN-80.51) remains the best looking chart of the components of the sector. We would use any price retreat to the 70.00 area as an opportunity to initiate a long position in AMZN. Despite the “buy” signal in the HHH we have yet to receive corresponding signals in HHH components Ebay (EBAY-26.36) and YaHoo (YHOO-19.90), therefore continue to underweight or avoid.
Take note that the VIX (20.66) decreased 8.46% from a reading of 22.57 the prior week. The VIX is now in week three of a “sell” signal with the 24.58 level continuing to act as resistance. 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 (84.43) declined 5.74% on the week. The current year to date return for the GLD is now down to a miniscule 2.39%. We are now entering week three of weekly “sell” mode for the GLD with the 90.00 price level now acting a weekly closing price resistance. The GLD now rests at the low end of a 20-week trading range (84.00 – 100.44). Any failure for the GLD to hold the 84.00 area of price support will point to further sharp weakness down to the next level of price support, 76.00 – 78.00. We would advise trimming long exposure in to GLD rallies that approach the 90.00 area of weekly price resistance.
IV. Energy- (Oil, Oil Service, Nat’l Gas, Coal)
The Large-Cap Integrated Oil space (XOI-1292.18) closed out the trading week with a 2.09% decline. Year to date the XOI is currently showing a negative return by 17.15%. The XOI remains in weekly “sell” mode, now entering week twelve of a “sell” signal. We have now been negative on the XOI for the past eleven weeks. Any weekly closing price above the 1327 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-78.72), Chevron Texaco (CVX-84.40), British Petroleum (BP-60.02), and Conoco Phillips (COP-80.91). 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-180.14) declined 7.35% this past trading week. The year to date return for the OIH now stands at a negative 4.07%. It is now week six of “sell” mode for the OIH. The OIH now sits perilously close to the 175.00 area of major weekly price support. Any failure for the OIH to remain above the 175.00 level on a weekly closing basis will indicate further weakness toward the 160.00 area of major weekly price support. OIH components Schlumberger (SLB-92.28), Halliburton (HAL-43.52), Transocean (RIG-127.16), Ensco (ESV-64.01), and B.J. Services (BJS-26.28) all reside in week six of correctives phases. The previous week “buy” signal in OIH component Baker Hughes (BHI-77.20) has been aborted, it joins the rest of the sector in “sell” mode. Although firmly in a corrective phase the OIH is approaching a major price support level (175.00), watch for an oversold bounce from this level.
Natural Gas (UNG-38.79) declined 11.46% this past week, bringing the violent five week decline from the June highs to just under 39.00%. Year-to-date the UNG is currently showing a positive return of 7.00%. According to our work the UNG remains in week five of a corrective phase. We need to see a weekly closing price above the 42.54 level to signify a reversal of weekly trend from negative to positive. Individual natural gas equities El Paso (EP-16.54), Chesapeake Energy (CHK-43.29), XTO Energy (XTO-44.31), and Encana (ECA-66.47), although appearing temptingly oversold, all remain in weekly “sell” mode. We would watch the 37.00 price level of the UNG as a near term price support level. Any failure to hold above said level will point to further downside to the 34.00 area of major long term price support.
The Coal Sector (KOL-42.54) declined 10.65% this past week and is now in week six of a “corrective “phase. The KOL has now entered in to a critical weekly price support zone. The 40.00 – 42.00 must be maintained on a weekly closing basis or this current corrective phase will work lower toward the 37.00 level. Individual coal equities that remain in weekly corrective mode include Arch Coal (ACI-48.72),
V. Dow 30 Analysis
Our Weekly Trend Indicator (WTI) measures in at +8, a increase from the previous week reading of +4. The Dow Jones Industrial average advanced 3.60% for the week to 11734.32 and is currently showing a negative return for 2008 by 11.54%.
The S&P 500, as measured by the SPY (129.37), advanced 2.54% for the week and is currently 11.52% to the downside year to date. Small caps issues, as measured by the IWM (IShares Russell 2000 Index Fund- 73.12), advanced 2.39% to 73.12, leaving the index an out performing 3.69% to the downside year to date.
The DIA (116.95) enjoyed a strong performance this past week and has generated a weekly “buy” signal. We would now view any price retreat to the 112.00 – 113.00 area as an opportunity to initiate long positions for an intermediate term rally up toward the 122.00 -124.00 area of weekly price resistance. Any weekly closing price below the 112.00 support level would reverse our near term bullish stance for the DIA.
Fresh weekly buy signals generated: DD, HPQ, MSFT
Fresh negative weekly signals generated: AIG
Readers should take note that Dow Jones Industrial component WMT is scheduled to report quarterly earnings this week.
Dow 30 stocks with positive weekly signals:
BA, BAC, C, DD, DIS, GE, HD, HPQ, INTC, JNJ, JPM, KO, MCD, MMM, MSFT, PFE, PG, UTX, WMT
Dow 30 stocks with negative weekly signals:
AA, AIG, AXP, CAT, CVX, GM, IBM, MRK, T, VZ, XOM
· Underline names have changed from previous week*
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VI. KEY EVENTS IN THE WEEK AHEAD:
Monday, August 11
Economic
Earnings
Before: KDE, ACMR, ARQL, CNTY, CCO, CODI, CNO, CMLS, EMAG, FTEK, GMET, SRVY, HWCC, HYGS, NRGY, ISPH, IONA, KNOL, LINTA, MESA, NRP, NCT, OMPI, PEIX, PNCL, RDN, RDNT, RTK, STRL, SYY, NGLS, TICC, VRX, VAL, ZOLT
After: ADLR, AMCN, APP, AOB, ASEI, ARRY, BE, BKI, BWY, CUZ, TRAK, EPEX, EVEP, EXM, FLR, FNET, GCA, HMIN, HPT, HYC, HYTM, INWK, NSIT, IPAR, INTX, LDK, MNKD, MDR, MRGE, MBLX, MIVA, NAPS, NNI, NUAN, OMRI, POM, FACE, PGIC, SB, SONS, SNS, TMRK, THRM, TWTC, OVEN
Events
AEZ Analyst Meeting
STSA Analyst Meeting
GSX Investor and Analyst Meeting
BK, SOV, COF at Keefe, Bruyette & Woods, Inc. Large Cap Bank Conf.
CLB, COG, DWSN, RRC, PKD at EnerCom Oil & Gas Conf.
Credit Suisse Group Electrical Equipment and Multi-Industry and Machinery Conf.
CRNT at Credit Suisse Group Tech Communications Conf.
ESIO 2008 Technology Investor Tour
ISCO, SGMO at Cambridge Healthtech Institute Cellutions Summit; Jefferies &
PXLW, MENT, ESIO at American Electronics Association
Tuesday, August 12
Economic
Earnings
Before: ACIW, ALLT, CATM, COMV, CTCT, ESLT, FOSL, GKSR, GIGM, GOL, HI, IART, INXI, ITRN, JASO, MEDX, SENO, TRI, TJX, VSE, WW
After: AEZS, APEI, AMAT, BOBE, BZP, CREE, DNDN, ICXT, PODD, LLNW, MELI, NVDA, SRX, WES
Events
FEIC Investor Meeting
ACM, URS, ES at UBS Engineering & Construction One-on-One Conf.
BEXP, PETD, EQT, CRZO, UPL, NTG at EnerCom Oil & Gas Conf.
CMCO, QDHC, ASTE, GRB, HIL, WST at CJS Securities New Ideas Summer Small-Cap Investor Conf.
Credit Suisse Group Tech Communications Conf.
DIET, PAR, VOLC, ENOC, EGLT, NAVI at CanaccordAdams Annual Global Growth Conf
ENWV, CALL, CALD, CHRD, SIMG at B. Riley & Company Cash-Rich Technology Stock Conf.
ETN at Credit Suisse Group Electrical Equipment and Multi-Industry and Machinery Conf.
FEIC, RSYS, TQNT at American Electronics Association
SIG Investor Day and Store Tour
| |
Wednesday August 13
Economic
Earnings
Before: BVF, BRCD, CSIQ,
After: ANW, ARTC, CAI, GRRF, CLNE, CTRP, GA, IPCM, LDG, MIPS, NTES, NTAP, NOA, PLAB, SPRD, TTGT, CHIP, VM, WNS
Events
BNVI, CYBX, SPWR, TSYS, WGBS, VRTX at CanaccordAdams Annual Global Growth Conf.
FDA, DVAX, CEGE at Cambridge Healthtech Institute Immunotheraptherapeutics & Vaccines Conf.
NAV, GM, ARM, F, GMAC, AXL, GT, GPC, VC at
VQ, WG, CPE, HNR, ATPG, HK at EnerCom Oil & Gas Conf.
Thursday, August 14
Economic
Earnings
Before: AES, FEDD, ABV, ARTE, BKUNA, BGG, CCJ, CHCI, CPA, DMRC, EL, FLO, FTD, FNDT, FUQI, GILT, GSOL, SJM, MGPI, QXM, SGK, ELOS, URBN, WMT
During: ASFI, FSIN
After: A, ADSK, BLG, CHNL, JRJC, CHLN, DV, RDEN, FVRL, FMD, HAR, IFON, IUSA, KSS, KONG, JWN, OPLK, PDLI, RAE, RRGB, RICK, TMA, ZIGO
Events
AUTH, FCEL, WIZD, WMGI, ADS, APOG at CanaccordAdams Annual Global Growth Conf.
COLY, SCLN at Cambridge Healthtech Institute Immunotheraptherapeutics & Vaccines Conf.
STR, PTEN, PXP, NXY, DNE at EnerCom Oil & Gas Conf.
TRW at
Friday, August 15
Economic
Earnings
Before: ANF, JCP, NWY
After:
Events
No events/conferences of note
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