equityletter.com 8/10/09

Thank you in advance for all comments and criticisms.....regards, the equityletter.com team

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 8/10/09

 

 

     Note:  Event Calendar is located at bottom of page

      

I.                  General Commentary

 

Wall Street continued to remain in a forgiving mood as the major market averages tacked on another estimated 2.50% this past trading week.  The key U.S. market averages now reside at the highest levels for the 2009 trading year with the S&P 500 up approximately 12.14%, the NASDAQ Composite ahead by 26.82%, the small-cap Russell 2000 better by almost 16.00% and the Dow Jones Industrial average now positive by 6.77%.  Financial issues, which led on the way down in the great market crash of 2008, are leading the way higher these days as market participants continue to accept “less bad” news as fuel to drive equity prices higher.  This past week witnessed dramatic upside move in financial issues that were once giving up for dead.  Of particular notice is the activity of American International group (AIG-27.14).  The now Government controlled entity whose pathetic risk management cost taxpayers billions of dollars saw their shares advance sharply this past week.  The shares of AIG surged 106.54% in what we perceive to be an historical “short squeeze.  After a 25 for 1 reverse stock split it seems that the shares of AIG have become impossible to borrow.  Anyone “short” the shares has been sent scrambling to cover.  This is clearly an upside manipulation, but the Securities and Exchange Commission has more pressing issues to deal with at this time. 

 

The unemployment report released Friday came in at a better than estimated loss of 247K jobs.  The consensus estimate was for the economy to lose 325K jobs.   The Unemployment rate decreased from 9.6% to 9.4%.  These numbers clearly reflect that corporate America has relented from a frenetic pace of slashing employees to improve their bottom line.  We remain of the opinion that actual job creation is but a pipe dream at this point in time. 

Our overall technical feeling about the markets at this time is one of “don’t fight the tape”.  While the fundamentals remain very questionable the technicals of the stock market say that the advance is still intact. The sharp recovery advance has caught many a money manager underweighted and therefore behind the performance curve.  Performance begets performance.  A dramatic increase in trading volume may signal an upside capitulation by said behind the curve money managers.  This will not be a welcome sight to us.  I’ve always been fond of the saying “It is what it is until it isn’t”.

 

   The major market averages under our coverage that we currently rate with a positive weekly technical indications are the SPDR- S&P 500 (SPY-101.20), IShares Russell 2000 Index Fund (IWM-57.09), NASDAQ Composite (COMP-2000.25), Powershares QQQQ Trust (QQQQ-39.88), Diamonds Trust (DIA-93.79).  We currently have negative views on the I-share 7-10 year Treasury bond (IEF-88.58) and U.S. $ Index (UUP-23.48).  There are no changes of opinion from the prior week.

 

Sectors within our coverage universe that remain in favor according to our weekly oriented technical analysis include Financials (XLF), Managed Healthcare, Internet Related (HHH), Gold (GLD), Homebuilding (XHB), Retailers (RTH), Natural Gas (UNG), Large Integrated Oil companies (XOI), Pharmaceutical (PPH), Semiconductors (SMH), Agriculture (MOO), Coal (KOL), Oil Service (OIH), Real Estate (IYR), Transportation (IYT), Steel (SLX), and Crude Oil (USO).  There are no changes of opinion from the prior week. Use price weakness to increase long exposure or to initiate long trades.

 

 Sectors that we believe to be vulnerable to a downside correction are currently non-existent when viewing our weekly based technical signals.  This being stated, the fact that this past week witnessed incredible upside short squeezes in previously left for dead financial names like AIG, FNM, FRE, and RDN, gives reason for caution.  They (whomever they are) always come for the garbage names toward the end of a rally.  There are no new negative changes of opinion this week.

 

Sector analysis below will provide information as to where to best allocate funds at this time. 

 

Please frequent http://www.equityletter.com/ and http://stkinfo.com/.

 

II.               Sector Analysis

                                             

The IEF-88.58 (I-share 7-10 year Treasury bond) declined 2.84% for the week as the yield on the 10- year treasury increased from 3.50% to 3.85%.  For comparative reference the yield on the 10-year Treasury began the 2009 trading year at 2.24%.  The IEF is entering the fourth week of a “sell” signal.  The weekly closing price resistance in order to maintain our current “sell” signal shall be lowered to 90.40.  Any weekly closing price above 90.40 will negate our current “sell” signal for the IEF.  The IEF is now very near an important weekly price support level, the 88.00 level.  Any weekly closing price below 88.00 will indicate further weakness potentially down to the 82.00 – 84.00 area of next price support.  Although the Fed has indicated that they anticipate interest rates remaining low for the foreseeable future, the bond markets seem to have a different interpretation.  There is no change to current opinion, use price strength approaching above mentioned price resistance to reduce long exposure and or to initiate short trades.

 

A.     Financials

 

          The Financial Select Sector Index (XLF-14.35) finished the trading week with a 10.30% advance. The XLF is now positive by 14.61% to date for the 2009 trading year.  The XLF is entering week twenty-two of a weekly “buy” signal.  Our weekly price support for the XLF shall be raised to the 13.16 level.  Any weekly closing price below 13.16 will negate our current “buy” signal for the XLF.  A weekly “buy” signal has been generated in XLF component Wells Fargo (WFC-28.76).  XLF components that remain in “buy the dip” mode include Goldman Sachs (GS-163.65), Bank of America (BAC-16.42), Bank of New York (BK-30.31), MetLife (MET-36.88), J.P. Morgan (JPM-42.36), Citigroup (C- 3.85), U.S. Bancorp (USB-23.25), American Express (AXP-32.69), and Morgan Stanley (MS-31.22).  The only top ten XLF component that remains on our “sell” list is Chicago Mercantile Exchange (CME-285.97).  The XLF had another strong week after American Express (AXP-32.69) revealed that they saw the first improvement in their internal credit metrics in over eighteen months.  The better than expected unemployment numbers released Friday also contributed to an impressive up week.  The scale of the advance is beginning to get a little steep in this once dead and forgotten sector.  The trends remain favorable but the somewhat extended price advance has left the XLF and related components vulnerable to a near term pullback.  The weekly trend remains favorable; continue to use price weakness in favorably mentioned names to accumulate long positions and or to initiate long trades.

    

          B.  Builders

 

 The Homebuilder exchange traded fund (XHB-15.53) advanced 8.68% for the week. The 2009 year-to-date performance of the XHB currently stands at a positive 29.63%.  The XHB is entering week four of a “buy” signal.  Our weekly closing price support level in order to maintain our current “buy” signal for XHB shall be raised to 14.28.  Any weekly closing price below the 14.28 support level will negate our current “buy” signal in the XHB.  XHB components that currently reside in weekly “buy” mode include Centex (CTX-12.23), Pulte Homes (PHM-12.64), Toll Brothers (TOL-21.79), KB Homes (KBH-18.47), Ryland Group (RYL-23.99), and Lennar (LEN-13.43).  The XHB now rests just below what we consider to be a key weekly price resistance level, the 16.00 area.  While we are reluctant to fight the trend and call a top, we must convey that the current risk/reward for the sector now favors the risk side.  Long positions should tighten up protective sell-stops at current price levels to protect profits.  Continue to use price weakness to accumulate long positions and or to initiate long trades.

 

B.     Semiconductor

 

The Semiconductor group (SMH-24.63) declined 1.08% for the week.   The SMH performance for 2009 to date stands at a positive 39.86%.   The SMH is entering week four of “buy” mode.  Our weekly price support level shall remain at the 24.33 level.  Any weekly closing price below 24.33 will negate our current “buy” signal for the SMH.  Fresh weekly “sell” signals have been generated in SMH components Intel (INTC-18.50) and Novellus (NVLS-18.26). Weekly “buy” signals remain prevalent in SMH components Texas Instruments (TXN-24.10), Applied Materials (AMAT-13.52), Micron Technology (MU-6.83), SanDisk (SNDK-17.84), and Analog Devices (ADI-27.05).  Take note that AMAT is scheduled to report quarterly earnings in the coming week.  One should take notice of the “fresh” weakness in INTC and NVLS as this may be an indication that the broad advance enjoyed by the SMH is about to get a little more selective.  Use price weakness in favorably mentioned names to increase long exposure and or to initiate long trades.

 

D.   Retailers 

 

          The Retail sector (RTH-84.63) finished the trading week with a 2.22% advance.  The 2009 performance of the RTH currently stands at a positive 12.62%.  The RTH is entering the fourth week of a “buy” signal.  Our weekly closing price support level for the RTH shall be raised to 81.89.  Any weekly closing price below 81.89 will negate our current “buy” signal for the RTH.  RTH components that continue to enjoy favorable weekly status include Home Depot (HD-27.26), Target (TGT-42.93), BestBuy (BBY-39.75), Walgreen’s (WAG-30.72), WalMart (WMT-49.29), Sears Holding’s (SHLD-77.80) and Kohl’s (KSS-53.51).  The RTH closed the week above the 84.00 resistance level therefore indicating further strength forthcoming potentially up to the 90.00 area.  A decreasing rate of joblessness lit a fire under the sector and sent the shorts running to cover.  Take note that quarterly earnings reports are due in the coming week from WMT and KSS.  Although somewhat extended to the upside, the trend remains favorable; use price weakness in the RTH and positively mentioned components to increase long exposure and or to initiate long trades.

 

E.    Steels

 

The Steel sector (SLX-48.90) finished the week with a 6.35% advance.  The current 2009 trading year return for the SLX is a positive 66.49%.  The SLX is entering the fourth week of a “buy” signal.  Our weekly closing price support level for the SLX shall be raised to 47.21.  Any weekly closing price below 47.21 will negate our current “buy” signal for the SLX.  Weekly “buy” signals remain in place for SLX components U.S. Steel (X-44.94), Steel Dynamics (STLD- 17.51), Arcelor Mittal (MT-37.38), and Nucor (NUE-49.13).  The SLX and related underlying components continue to forge higher as investors foresee improved demand from a perceived global recovery.  Continue to use price weakness to increase long exposure and or to initiate long trades.

 

F.    Pharmaceuticals and Healthcare

 

          The Pharmaceutical group (PPH-62.53) declined 0.14% last week. The current 2009 return for the PPH stands at a positive 1.95%.  The PPH is entering the fourth week of a “buy” signal.  Our weekly price support level shall remain at 62.40.  Any weekly closing price below 62.40 will negate our current weekly “buy” signal for the PPH.  Fresh weekly “sell” signals have been generated in PPH components Johnson & Johnson (JNJ-59.90) and Abbott Lab’s (ABT-43.84).  Weekly “buy” signals remain in place for Eli Lilly (LLY-34.89), GlaxoSmithKline (GSK-38.83), Merck (MRK-30.10), and Pfizer (PFE-15.96).  Although the weekly trend remains a favorable one, the charts point to a potential near term exhaustion of the recent advance.  It is time to tighten up the protective sell-stops to protect profits of long positions.

 

III.           Gold

 

GLD (streetTracks gold index) – The GLD (93.75) advanced 0.43% on the week.  For the 2009 trading year the GLD currently rests with a positive return of 8.35%.  The GLD is entering week four of a “buy” signal.  Our weekly closing price support in order to maintain said “buy” signal shall be raised to 93.60.  Any weekly closing price below 93.60 will negate our current “buy” signal for the GLD.  The GLD price advance appears to have stalled as it approached the 96.00 resistance area (last weeks high was 95.25). The weekly trend remains favorable but be cognizant that the chart formation is one of potential near term trend exhaustion. 

 

 

IV.            Energy- (Oil, Oil Service, Nat’l Gas, Coal)

 

The Large-Cap Integrated Oil space (XOI-957.81) closed out the trading week with a 0.35% decline.  The XOI is now negative by 2.23% for the 2009 trading year.  The XOI is entering week four of a “buy” signal.  Our weekly closing price support shall be raised to 954.57.  Any weekly closing price below 954.57 will negate our current “buy” signal for the XOI.  Weekly “buy” signals remain in place for XOI components Exxon-Mobil (XOM-69.47), Chevron-Texaco (CVX-69.50), British Petroleum (BP-51.11), Suncor Energy (SU-33.48), and Conoco-Phillips (COP-44.07).  The XOI trend remains favorable but the price is nearer to a significant price resistance zone at 1050.00 leaving it currently more vulnerable to a downside correction.  The ten-month price range of the XOI is defined as 1050.00 on the upside and 770.00 on the downside.  The weekly trend remains favorable but we believe that it is time to protect long positions against a near term price correction.

 

The Oil Service Index (OIH-102.95) declined 0.53% this past trading week.  The 2009 year to date return for the OIH stands at a positive 39.59%.  The OIH is entering week four of a “buy” signal.  Our weekly closing price support level shall remain at 99.48.  Any weekly closing price below 99.48 will negate our current weekly “buy” signal for the OIH.  Fresh weekly “sell” signals have been generated in OIH components Schlumberger (SLB-53.25), Baker Hughes (BHI-37.37), Transocean (RIG-75.06).  Weekly “buy” signals remain in place in OIH components Halliburton (HAL-22.11), Ensco (ESV-38.41) and B.J. Services (BJS-14.23).  The fresh weekly sell signals in influential OIH components SLB, BHI, and RIG, gives us cause for concern.  While we are reluctant to issue an outright “short” call at this time we feel that it is time to protect long positions from a potential near term price correction.

 

Natural Gas (UNG-13.13) advanced 2.04% this past week.  The current 2009 performance of the UNG is a negative 43.33%.  The UNG is entering the fourth week of a “buy” signal.  Our weekly price support level shall be raised to 13.03.  Any weekly closing price below 13.03 will negate our current “buy” signal for the UNG.  Indications now point to a near term bottom being in place for the underperforming UNG; time to use price weakness to increase long exposure and or to initiate long trades.

 

The Coal Sector (KOL-28.84) advanced by 4.61% this past week.  Year-to-date the KOL is positive by 93.68%.  The KOL is entering the fourth week of a “buy” signal.  Our weekly closing price support shall be raised to 27.95.  Any weekly closing price below 27.95 will negate our current “buy” signal for the KOL.  Week four of a “buy” signal, the momentum favors the upside with the 32.00 level in our sights; use price weakness to increase long exposure and or to initiate long trades.

 

 

V.               Dow 30 Analysis

 

Our Weekly Trend Indicator (WTI) measures in at +26, a decrease from the previous week reading of +28.  Currently 86.0% of the thirty Dow Jones Industrial components have favorable weekly chart formations; this is a decrease from 96.0% in the prior week.  The Dow Jones Industrial average advanced 2.16% for the week to 9370.07.  The current return for the 2009 trading year stands at a positive 6.77%. 

 

The S&P 500, as measured by the SPY (101.20), advanced 2.42% for the week.  The 2009 trading year return for the SPY is positive by 12.14%.   Small caps issues, as measured by the IWM (IShares Russell 2000 Index Fund- 57.09), advanced 2.74% for the week.  The IWM year to date return is currently a positive 15.94%.

 

          The DIA (93.79) closed out the week with a 2.31% advance and is entering the fourth week of a “buy” signal.  Our weekly closing price support level shall be raised to 91.97.  Any weekly closing price below 91.97 will negate our current “buy” signal for the DIA.  A four-week bull run has left the DIA at the highest price level of the 2009 trading year.  The 95.00 level appears to be the near term upside target with possible potential to the 100.00 area.  Despite the relatively bullish tone, internal weakness from the likes of INTC, JNJ, and PG, may indicate that a near term pause of bullish momentum may be in the offing.

           

Fresh weekly buy signals generated: NONE

 

Fresh negative weekly signals generated: INTC, JNJ, PG

 

Readers should take note that Dow Jones Industrial component WMT is scheduled to report quarterly earnings in the coming week.

 

Dow 30 stocks with positive weekly signals:

 

 AA, AXP, BA, BAC, CAT, CSCO, CVX, DD, DIS, GE, HD, HPQ, IBM, JPM, KFT, KO, MMM, MRK, MSFT, PFE, T, TRV, UTX, VZ, WMT, XOM

                 

Dow 30 stocks with negative weekly signals:  

      

           INTC, JNJ, MCD, PG

·        Underline names have changed from previous week*

 

                              

For access to Equity Letter individual trading positions and ideas contact Richard Reilly at rreilly123@comcast.net

 

 

VI.    KEY EVENTS IN THE WEEK AHEAD:

 

Monday, August 10

 

Economic

 

Earnings

 

Before: AAON, FEED, ALD, BPZ, BRNC, CRZO, CFSG, CHDX, CODI, CYPB, DISH, DYN, SATS, SSP, FTK, GSI, GTXI, HOC, HWCC, IFLO, NXG, PCAP, PWRD, PCLN, KWK, STRL, SYY, VM

 

After: APP, ALC, ATN, CLNE, CCO, CEP, CUZ, DGI, DTSI, ETP, EVEP, FLR, FRPT, HRP, IPAR, KONG, LGF, MTXX, MDR, MR, NNI, NUAN, PRXL, PRSC, QGEN, QSFT, RAX, SLXP, SNS, SF, TWTC, UNCA, ZOLT

 

Events

 

RRC, CLB, CLR, SWN at EnerCom Incorporated Oil & Gas Conf.

JNPR, RFMD, YHOO, BRCM at Pacific Crest Securities Technology Leadership Forum

 

Tuesday, August 11

 

Economic

 

08:30 Productivity Prel. (Q2): 5.4% cons.

08:30 Unit Labor Costs (Q2): -2.4% cons.

10:00 Wholesale Inventories (Jun.): -0.9% cons.

 

Earnings

 

Before: BPHX, CAAS, CRTX, DNDN, FOSL, RAIL, FTEK, GIGM, HRBN, NGPC

 

After: AMAT, BOBE, CLDN, CLWR, CREE, LTRE, PAAS, SB, SYMM, VISN, WRC, WES,

 

Events

 

VZ, CSCO, CNQR, MSFT at Oppenheimer & Co. Communications, Technology & Internet Conf. CML, ELX, ATHR, COMS at Canaccord Adams Global Growth Conf. AUTH, COGT, DGLY at Morgan Keegan Security, Safety & Defense Conf. QLGC, EMC, FFIV, TLAB at Morgan Keegan "Summer in the City" Technology Conf. CAT, NAV at Credit Suisse Group E2M2 Conf. PETD, UNT, PTEN, XTO at EnerCom Incorporated Oil & Gas Conf. APD, BEZ at Jefferies & Co. Industrial CEO Summit FED: FOMC Meets

Wednesday, August 12

 

Economic

 

08:30 Trade Balance (Jun.): -$28.5B cons.

10:30 Crude Inventories: +1.67M prior

14:00 Treasury Budget (Jul.): -$180.0B cons.

14:15 FOMC Rate Decision

 

Earnings

 

Before: ALLT, CIT, EJ, ESLT, ETH, HI, ITRN, JASO, LCRY, LIZ, M, MAG, MFB, ORCT, SOL, SLE, YTEC

 

After: AAP, ANW, ADY, BYI, BIDZ, CPII, DAR, HRS, KGC, LDK, MIPS, NTES, SHOR, SINA, SRX, TIE, URS

 

 

Events

 

CKSW `Getting to know ClickSoftware'

PFWD, MFE, NVDA, NETL at Pacific Crest Securities Technology Leadership Forum

CELG, IDRA, REGN, MRNA at CanaccordAdams Global Growth Conf.

ATPG; WG, STR, ME at EnerCom Incorporated Oil & Gas Conf.

COMS, Q, TDC, NETL at Oppenheimer & Co. Communications, Technology & Internet Conf.

SCG at Shields & Company and Berenson & Company East Coast Utilities Seminar

AIMC, DGI at Jefferies & Co. Industrial CEO Summit

FED: FOMC Policy Announcement

 

 

Thursday, August 13

 

 

Economic

 

08:30 Initial Claims: 550K prior

08:30 Export Prices Ex.-Ag. (Jul.): 0.8% prior

08:30 Import Prices Ex.-Oil (Jul.): 0.2% prior

08:30 Retail Sales (Jul.): 0.7% cons.

08:30 Retail Sales Ex.-Auto (Jul.): 0.1% cons.

10:00 Business Inventories (Jun.): -0.9% cons.

 

Earnings

 

Before: APWR, ACMR, ADES, ABV, BGG, CRYP, DPS, EL, GIL, INXI, KSS, NRP, RGLD, ELOS, TK, URBN, WMT, WW

 

After: A, ADSK, BBI, CAI, CHINA, DV, RDEN, FMD, HURN, ICXT, IMMR, MIDD, JWN, RRGB, SVNT, SUMT, TSCM, TRMS

 

Events

 

ATV Annual General Meeting

MDCI Shareholders Meeting

MF Shareholders Meeting

RHT Shareholders Meeting

ERIC North American Investor Relations Forum

QSII Shareholders Meeting

HOLX, ROVI, THOR, TSYS at CanaccordAdams Global Growth Conf.

ACM, FWLT at UBS Engineering & Construction One-on-One Conf.

NYX, BRY, APC, NOG at EnerCom Incorporated Oil & Gas Conf.

 

 

Friday, August 14

 

Economic

 

08:30 CPI (Jul.): 0.0% cons.

08:30 Core CPI (Jul.): 0.1% cons.

09:15 Capacity Utilization (Jul.): 68.4% cons.

09:15 Industrial Production (Jul.): 0.4% cons.

09:55 Michigan Sentiment (Aug.): 69.0 cons.

 

Earnings

 

Before: ANF, JCP

 

After:

 

Events