equityletter.com 8/17/09
Note: Event Calendar is located at bottom of page
I. General Commentary
The major market averages under our coverage that we currently rate with a positive weekly technical indications are the SPDR- S&P 500 (SPY-100.79), IShares Russell 2000 Index Fund (IWM-56.41), NASDAQ Composite (COMP-1985.52), Powershares QQQQ Trust (QQQQ-39.63), Diamonds Trust (DIA-93.41) and the I-share 7-10 year Treasury bond (IEF-90.50) We currently have a negative view on the U.S. $ Index (UUP-23.45). Take note that the IEF is a positive change 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), Homebuilding (XHB), Retailers (RTH), Pharmaceutical (PPH), Semiconductors (SMH), Agriculture (MOO), Coal (KOL), Oil Service (OIH), Real Estate (IYR), Transportation (IYT), and Steel (SLX). Use price weakness to increase long exposure or to initiate long trades.
Sectors that we believe to be currently vulnerable to a downside correction are the Large Integrated Oil companies (XOI), Natural Gas (UNG), Crude Oil (USO), and Gold (GLD). Take note that the XOI, UNG, USO, and the GLD are all negative changes of opinion from the previous letter.
Sector analysis below will provide information as to where to best allocate funds at this time.
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II. Sector Analysis
The IEF-90.50 (I-share 7-10 year Treasury bond) advanced 2.17% for the week as the yield on the 10- year treasury decreased from 3.85% to 3.56%. For comparative reference the yield on the 10-year Treasury began the 2009 trading year at 2.24%. The IEF has closed above our weekly closing price resistance level and therefore is signaling a weekly change of trend from negative to positive. The weekly closing price support level in order to maintain our fresh “buy” signal shall be set at 88.60. Any weekly closing price below 88.60 will negate our fresh “buy” signal for the IEF. A change of trend has been triggered; time to switch gears and use price weakness to increase long exposure and or to initiate long trades.
A. Financials
The Financial Select Sector Index (XLF-14.24) finished the trading week with a 0.77% decline. The XLF is now positive by 13.73% to date for the 2009 trading year. The XLF is entering week twenty-three of a weekly “buy” signal. Our weekly price support for the XLF shall remain at the 13.16 level. Any weekly closing price below 13.16 will negate our current “buy” signal for the XLF. XLF components that remain in “buy the dip” mode include Goldman Sachs (GS-162.73), Bank of America (BAC-17.39), Bank of New York (BK-28.57), MetLife (MET-36.40), J.P. Morgan (JPM-42.45), Wells Fargo (WFC-27.73), Citigroup (C- 4.04), U.S. Bancorp (USB-22.49), American Express (AXP-31.72), and Morgan Stanley (MS-29.79). The only top ten XLF component that remains on our “sell” list is
B. Builders
The Homebuilder exchange traded fund (XHB-14.87) declined 4.25% for the week. The 2009 year-to-date performance of the XHB currently stands at a positive 24.12%. The XHB is entering week five of a “buy” signal. Our weekly closing price support level in order to maintain our current “buy” signal for XHB shall remain at 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-12.10), Pulte Homes (PHM-12.49), Toll Brothers (TOL-22.59), KB Homes (KBH-17.08), Ryland Group (RYL-22.34), and Lennar (LEN-13.41). 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-24.55) declined 0.20% for the week. The SMH performance for 2009 to date stands at a positive 39.40%. The SMH is entering week five 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. Weekly “buy” signals remain prevalent in SMH components
D. Retailers
The Retail sector (RTH-84.58) finished the trading week with a 0.11% advance. The 2009 performance of the RTH currently stands at a positive 12.56%. The RTH is entering the fifth week of a “buy” signal. Our weekly closing price support level for the RTH shall be raised to 83.12. Any weekly closing price below 83.12 will negate our current “buy” signal for the RTH. Fresh weekly “sell” signals have been generated in RTH components BestBuy (BBY-36.44) and Target (TGT-42.03). RTH components that continue to enjoy favorable weekly status include Home Depot (HD-27.14), Walgreen’s (WAG-31.62), WalMart (WMT-51.79), Sears Holding’s (SHLD-77.10) and Kohl’s (KSS-51.73). There is no change of opinion from the previous week but take notice of the fresh weakness displayed by BBY and TGT. Take note that quarterly earnings reports are due in the coming week from HD, TGT, and SHLD. 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-47.66) finished the week with a 2.54% decline. The current 2009 trading year return for the SLX is a positive 62.27%. The SLX is entering the fiftth week of a “buy” signal. Our weekly closing price support level for the SLX shall remain at 47.21. Any weekly closing price below 47.21 will negate our current “buy” signal for the SLX. Fresh weekly “sell” signals have been generated in Steel Dynamics (STLD- 16.63) and Arcelor Mittal (MT-35.49). Weekly “buy” signals remain in place for SLX components
F. Pharmaceuticals and Healthcare
The Pharmaceutical group (PPH-62.77) advanced 0.52% last week. The current 2009 return for the PPH stands at a positive 2.34%. The PPH is entering the fifth 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. A fresh weekly “sell” signal has been generated in PPH component Eli Lilly (LLY-32.88). Weekly “buy” signals remain in place for GlaxoSmithKline (GSK-38.50), Merck (MRK-30.98), and Pfizer (PFE-15.77). Our current “sell” list of PPH components includes Johnson & Johnson (JNJ-60.08) and Abbott Lab’s (ABT-44.36). 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 (93.00) declined 0.80% on the week. For the 2009 trading year the GLD currently rests with a positive return of 7.48%. The GLD has closed below our weekly closing price support therefore generating a fresh “sell” signal. Our weekly closing price resistance in order to maintain said “sell” signal shall be set at 94.05. Any weekly closing price above 94.05 will negate our fresh “sell” signal for the GLD. Last week we were concerned that the GLD price advance appeared to have stalled as it approached the 96.00 resistance area. Our concern has been confirmed as a weekly change of trend has been signaled. At minimum we see a near term price retreat which will test the 90.00 price support area. A change of trend has been signaled; time to use price strength to reduce long exposure and or to initiate short trades.
IV. Energy- (Oil, Oil Service, Nat’l Gas, Coal)
The Large-Cap Integrated Oil space (XOI-952.46) closed out the trading week with a 0.56% decline. The XOI is now negative by 2.77% for the 2009 trading year. The XOI has closed below our weekly closing price support level therefore indicating a change of trend to the downside. Our weekly closing price resistance shall be set at 963.89. Any weekly closing price above 963.89 will negate our fresh “sell” signal for the XOI. Fresh weekly “sell” signals have been generated in XOI components Exxon-Mobil (XOM-68.21), Chevron-Texaco (CVX-68.63) and Suncor Energy (SU-32.51). Weekly “buy” signals remain in place for XOI components British Petroleum (BP-50.43) and Conoco-Phillips (COP-43.77). Once again the XOI has failed in an attempt to test the major price resistance zone of 1050.00. A change of trend has been signaled; use price strength in negatively mentioned names to reduce long exposure and or to initiate short trades.
The Oil Service Index (OIH-103.69) advanced 0.72% this past trading week. The 2009 year to date return for the OIH stands at a positive 40.59%. The OIH is entering week five of a “buy” signal. Our weekly closing price support level shall be raised to 101.41. Any weekly closing price below 101.41 will negate our current weekly “buy” signal for the OIH. A fresh weekly “sell” signal has been generated in OIH component Ensco (ESV-37.48). OIH currently in “sell” mode and remaining so are Schlumberger (SLB-53.38), Baker Hughes (BHI-36.97), and Transocean (RIG-75.56). Weekly “buy” signals remain in place in OIH components Halliburton (HAL-23.50) and B.J. Services (BJS-14.73). The OIH has yet to generate a “sell” signal but internal component deterioration give cause for concern at current price levels. While we continue to remain reluctant to issue an outright “short” call at this time we feel that it is definitely time to protect long positions from a potential near term price correction.
Natural Gas (UNG-12.49) declined 4.89% this past week. The current 2009 performance of the UNG is a negative 46.09%. After spending four weeks on our “buy” list the UNG has violated our weekly closing price support therefore generated a weekly “sell” signal. Our weekly price resistance level shall be set at 13.37. Any weekly closing price above 13.37 will negate our fresh “sell” signal for the UNG. A serial 2009 trading year underperformer, the UNG is once again indicating lower prices to come. It is time to switch gears once again; use price strength to reduce long exposure and or to initiate short positions.
The Coal Sector (KOL-29.00) advanced by 0.55% this past week. Year-to-date the KOL is positive by 94.76%. The KOL is entering the fifth week of a “buy” signal. Our weekly closing price support shall remain at 27.95. Any weekly closing price below 27.95 will negate our current “buy” signal for the KOL. Week five 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 +14, a decrease from the previous week reading of +26. Currently 73.0% of the thirty Dow Jones Industrial components have favorable weekly chart formations; this is a decrease from 86.0% in the prior week. The Dow Jones Industrial average declined 0.52% for the week to 9321.40. The current return for the 2009 trading year stands at a positive 6.20%.
The S&P 500, as measured by the SPY (100.79), declined 0.41% for the week. The 2009 trading year return for the SPY is positive by 11.69%. Small caps issues, as measured by the IWM (IShares Russell 2000 Index Fund- 56.41), declined 1.19% for the week. The IWM year to date return is currently a positive 14.56%.
The DIA (93.41) closed out the week with a 0.41% decline and is entering the fifth week of a “buy” signal. Our weekly closing price support level shall remain at 91.97. Any weekly closing price below 91.97 will negate our current “buy” signal for the DIA. The trend for the DIA remains favorable but the 95.00 price resistance level has proven to be a near term hurdle. Further internal deterioration from the below noted likes of CSCO, CVX, KO, and XOM gives us cause for concern that the recent five-week advance may be due for a pause.
Fresh weekly buy signals generated: NONE
Fresh negative weekly signals generated: CSCO, CVX, KO, XOM
Readers should take note that Dow Jones Industrial components HD and HPQ are scheduled to report quarterly earnings in the coming week.
Dow 30 stocks with positive weekly signals:
AA, AXP, BA, BAC, CAT, DD, DIS, GE, HD, HPQ, IBM, JPM, KFT, MMM, MRK, MSFT, PFE, T, TRV, UTX, VZ, WMT
Dow 30 stocks with negative weekly signals:
CSCO, CVX, INTC, JNJ, KO, MCD, PG, XOM
· Underline names have changed from previous week*
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VI. KEY EVENTS IN THE WEEK AHEAD:
Monday, August 17
Economic
Earnings
Before: CIT, GSOL, LOW, PCAP. VAL
After: A,
Events
International Edelweiss and SFG
FED: $30 bln 6-month Treasury Bill Auction; $31 bln 3-month Treasury Bill Auction
Tuesday, August 18
Economic
Earnings
Before: CAH, CCUR, FREE, RAIL, GIGM, HD, LOGM, PRGO, SKS, SOLF, TGT, TJX
After:
Events
| PBR Analyst Meeting PHM Special Meeting of Shareholders ABD, ASTE, CMCO, RDEN at CJS Securities Summer New Ideas Small Cap Investor Conf. WTNY, MBFI, IBKC, WTFC at Howe Barnes Hoefer & Arnett Annual Bank Conf. ACTG, AWR, DMND, QCOM at |
Wednesday, August 19
Economic
Earnings
Before:
After: AFCE, CAI, CTRN, CYBX, GYMB, HAR, HOTT, JDSU, LTD, NTAP, PETM, PVH, SMTC, SINA, SNPS
Events
EAC, ESV, KEG, WTI at Pritchard Capital Partners Mini-Conf.
FTEK at PennWell Corporation COAL-GEN Conf.
USG Visit with WJB Capital Group
Thursday, August 20
Economic
Earnings
Before: FLWS, BKS, BONT, CTR, PLCE, DKS, GME, HNZ, HRL, KNSY, LANC, LYTS, NM, NOVN, PDCO, QUIX, RGS, ROST, SCHS, SHLD, SFL, SSI, GASS, SMRT, STP, TECD, TK, BKE, TTC
After: ARO, BRCD, JRJC, FL, GPS, HIBB, INTU, MENT, NDSN, OTEX, PSUN, PSEM, SB, CRM, SCSC, SKIL, TSCM, VRGY, WTSLA, ZUMZ, ZIGO
Events
VSEA Investor Day
TLEO Analyst Day
Friday, August 21
Economic
Earnings
Before: ANN, SJM, MPR
After:
Events
FED: Fed's Bernanke; Fed's Madigan
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