equityletter.com 10/05/09
10/05/09
Note: Event Calendar is located at bottom of page
I. General Commentary
Did the end of the third quarter mark the climax of the impressive rebound that the equity markets have experienced since the panic low price levels reached in early March of this year? Will the fourth quarter bring a race for the exit door for those fortunate enough to have boldly committed capital during the first quarter swoon? Only price and time will provide a definitive answer to these two very important questions. In our previous letter we expressed our concern regarding the technical deterioration in certain stocks within key market sectors. Based upon our weekly oriented technical work detailed in the sub-sections below the equity markets now face a formidable challenge in regards to maintaining upside price momentum. The U.S. Dollar is beginning to show signs of potential upside as bearishness over the greenback apparently has become a very crowded trade. While most government officials painstakingly insist that a stronger dollar is in the best interest of this country, this may not necessarily be the case for the equity markets. The steady, roughly six-month decline of the U.S. Dollar has been inversely correlated to the remarkable six-month rebound in equity prices. Watch the price action of the Dollar because in our mind it is the most important factor in determining the future direction for equity prices.
As detailed in the subsections below, the markets have suffered some technical damage over the past two weeks. While at this point in time not irreparable, this damage has caused us to revise our current opinion regarding various market sectors. Do we believe that one should sell with both hands at current market prices? The answer to that question is, no. In short we believe that the “buy the dip” mentality that has proven so lucrative over the past six months should, for the time being, give way to a reduction of long exposure or more simply put, a “sell the rally” theme.
The major market averages under our coverage that we currently rate with positive weekly technical indications are the U.S. $ Index (UUP-22.90) and the I-share 7-10 year Treasury bond (IEF-92.77). The UUP is a positive change of opinion from the prior letter. We currently have a negative views on the SPDR- S&P 500 (SPY-102.49), IShares Russell 2000 Index Fund (IWM-58.00), Diamonds Trust (DIA-94.86), NASDAQ Composite (COMP-2048.11), Powershares QQQQ Trust (QQQQ-40.88). Take note that the SPY, IWM, QQQQ, DIA, and COMP are all negative changes of opinion from our prior letter.
Sectors within our coverage universe that remain in favor according to our weekly oriented technical analysis include Coal (KOL) and Natural Gas (UNG). Use price weakness to increase long exposure or to initiate long trades.
Sectors that we believe to be currently vulnerable to downside pricing pressure are the Pharmaceuticals (PPH), Managed Healthcare, Retailers (RTH), Gold (GLD), Transportation (IYT) Crude Oil (USO), Homebuilding (XHB), Semiconductors (SMH), Agriculture (MOO), Oil Service (OIH), Real Estate (IYR), Internet Related (HHH), Financials (XLF), and Steel (SLX). *Take note that XLF, IYR, MOO, XOI, OIH, SMH, HHH, and SLX are all negative opinion changes from the previous letter.*
Sector analysis below will provide information as to where to best allocate funds at this time.
For access to Equity Letter individual trading positions and ideas contact Richard Reilly at rreilly123-2@comcast.net
Please frequent http://www.equityletter.com/
Current Technical Analysis Coverage Universe
ETF’s & Indices: SPY, IWM, UUP, IEF, QQQQ, DIA, COMPQ, XLF, IYR, XHB, XOI, OIH, UNG, USO, PPH, IYT, SMH, MOO, HHH, RTH, SLX, GLD
DOW JONES INDUSTRIAL AVERAGE & 30 COMPONENTS
Financial (XLF): JPM, BAC, WFC, C, USB, GS, MS, AXP, CME, MET, BK
Homebuilders (XHB): DHI, PHM, LEN, TOL, RYL, KBH
Semiconductors (SMH): INTC, TXN, AMAT, MU, SNDK, NVLS, ADI
Retailers (RTH): WMT, HD, TGT, WAG, SHLD, BBY, KSS
Steel (SLX): X, NUE, MT, STLD
Pharmaceuticals (PPH): PFE, MRK, JNJ, GSK, ABT, LLY
Oil (XOI): XOM, CVX, COP, BP, SU, PXP
Oil Service (OIH): SLB, HAL, BI, RIG, ESV, SII
Natural Gas (UNG): EP, APA, CHK, APC, XTO
Coal (KOL): ACI, BTU, MEE, CNX
Transportation (IYT): FDX, UPS, CHRW, BNI, CSX, NSC
Managed Care: UNH, WLP, HUM, AET
Gold: GLD, NEM, AU
Agriculture (MOO): MOS, MON, POT, DE
High Beta: AAPL, GOOG, RIMM, MA, FSLR
II. Sector Analysis
The IEF-92.77 (I-share 7-10 year Treasury bond) advanced 0.92% for the week as the yield on the 10- year treasury decreased from 3.32% to 3.22%. For comparative reference the yield on the 10-year Treasury began the 2009 trading year at 2.24%. The IEF is entering week eight of a “buy” signal. The weekly closing price support level in order to maintain our current “buy” signal shall be raised to 91.99. Any weekly closing price below 91.99 will negate our current “buy” signal for the IEF. Has the flight to safety trade returned? Equity market weakness spawned buying in the bond market as the IEF traded to the highest price level in over seventeen weeks. The true test of strength will come this week as scheduled treasury auctions will be a good measure of demand at current reduced yield price levels. We shall maintain our bullish stance until our price level is violated on a weekly closing price basis.
A. Financials
The Financial Select Sector Index (XLF-14.29) finished the trading week with a 2.06% decline. The XLF is now positive by 14.13% to date for the 2009 trading year. The XLF has closed below our weekly price support level therefore indicating a weekly change of trend from positive to negative. A fresh weekly “sell” signal has been triggered. Our weekly closing price resistance shall be set at 15.25. Any weekly closing price above 15.25 will negate our fresh “sell” signal for the XLF. Fresh weekly “sell” signals have been generated in XLF components J.P. Morgan (JPM-41.86), Wells Fargo (WFC-26.28), Morgan Stanley (MS-29.46), and Bank of New York (BK-27.60). XLF components that continue to remain in “buy the dip” mode include Goldman Sachs (GS-179.61), Chicago Mercantile Exchange (CME-292.78) and U.S. Bancorp (USB-21.23). Weekly “sell” signals continue to remain in place for XLF components Bank of America (BAC-16.34), Citigroup (C- 4.52), MetLife (MET-35.67) and American Express (AXP-32.49). For what ever reason one may choose to select, a beginning of quarter exodus or renewed credit card default rate fears, a change of weekly trend makes the XLF and negatively mentioned internal components vulnerable to further downside from current price levels. Time to switch gears once again and use extended price strength to reduce long exposure and or to initiate short trades.
B. Builders
The Homebuilder exchange traded fund (XHB-14.26) declined 4.23% for the week. The 2009 year-to-date performance of the XHB currently stands at a positive 19.03%. The XHB is entering week two of a “sell” signal. Our weekly closing price resistance level in order to maintain our current “sell” signal for XHB shall be lowered to 15.49. Any weekly closing price above the 15.49 resistance level will negate our current “sell” signal in the XHB. Weekly “sell” signals remain in place for XHB components D R Horton (DHI-10.53), Pulte Homes (PHM-10.39), Ryland Group (RYL-19.53), Toll Brothers (TOL-18.68), KB Homes (KBH-15.19), and Lennar (LEN-13.03). Another tough week for the builders has left them in a near term oversold state but at this stage there is no reason to attempt to be a hero and pick a bottom. Any downside violation of the 14.00 price support level for the XLF will indicate further weakness down to the 12.50 area. The weekly trend remains one of distribution; use price strength in negatively mentioned names to reduce long exposure and or to initiate short trades.
B. Semiconductor
The Semiconductor group (SMH-24.42) declined 3.82% for the week. The SMH performance for 2009 to date stands at a positive 38.67%. After spending the past eleven weeks on our “buy” list the SMH has closed below our weekly price support level therefore triggering a fresh weekly “sell” signal. Our weekly price resistance level in order to maintain said “sell” signal shall be set at 26.11. Any weekly closing price above 26.11 will negate our fresh “sell” signal for the SMH. Fresh weekly “sell” signals have been generated in SMH components Applied Materials (AMAT-12.68), Micron Technology (MU-7.46), Novellus (NVLS-19.55), and SanDisk (SNDK-20.09). The only SMH component that remains in weekly “buy” mode is Intel (INTC-18.97). Analog Devices (ADI-26.26) and Texas Instruments (TXN-22.49) continue to remain on our “sell” list at this time. A change of weekly trend has been signaled for the SMH. The 24.00 price level is now a critical support level that must hold, any downside violation of the 24.00 price support level for the SMH will bring forth further selling which could send the SMH in to a tailspin down to the 21.00-22.00 area.
D. Retailers
The Retail sector (RTH-86.42) finished the trading week with a 0.31% decline. The 2009 performance of the RTH currently stands at a positive 15.01%. The RTH is entering week two of a “sell” signal. Our weekly closing price resistance level for the RTH in order to maintain said “sell” signal shall be lowered to 89.06. Any weekly closing price above 89.06 will negate our current “sell” signal for the RTH. Our “sell” signal in Walgreen’s (WAG-38.05) issued last week has been negated; WAG is once again in “buy the dip” mode. A fresh weekly “sell” signal has been generated in RTH component Sears Holding’s (SHLD-62.59). RTH components that have been, and shall remain on our weekly “sell” list include WalMart (WMT-49.08), Home Depot (HD-26.03), Target (TGT-46.02) and BestBuy (BBY-36.41). Kohl’s (KSS-54.86) shall continue to enjoy favorable status at this time. It is week two of a “sell” signal; use extended price strength in the RTH and above negatively mentioned components to reduce long exposure and or to initiate short trades.
E. Steels
The Steel sector (SLX-50.30) finished the week with a 3.58% decline. The current 2009 trading year return for the SLX is a positive 71.26%. After spending the past eleven weeks on our “buy” list the SLX has closed below our weekly price support level therefore generating a fresh weekly “sell” signal. Our weekly closing price resistance level for the SLX in order to maintain said “sell” signal shall be set at 53.72. Any weekly closing price above 53.72 will negate our fresh “sell” signal for the SLX. Fresh weekly “sell” signals have been generated in U.S. Steel (X-40.75) and Nucor (NUE-44.36). Weekly “sell” signals remain in place for SLX components Steel Dynamics (STLD- 14.34) and Arcelor Mittal (MT-34.52). Last week we warned of impending weakness in this highly volatile sector. We can only hope that readers took notice of our concerns. If the 48.00 price support level is violated on the downside we could see a very quick decline down to the 39.00 area for the SLX. A weekly change of trend has been signaled for the SLX: time use switch gears and use extended price appreciation to reduce long exposure and or to initiate short trades.
F. Pharmaceuticals and Healthcare
The Pharmaceutical group (PPH-64.44) advanced 0.07% last week. The current 2009 return for the PPH stands at a positive 5.07%. The PPH is entering week five of a “sell” signal. Our weekly price resistance level shall remain at 64.66. Any weekly closing price above 64.66 will negate our current weekly “sell” signal for the PPH. A fresh weekly “sell” signal has been generated in influential PPH component Johnson & Johnson (JNJ-59.73). Weekly “buy” signals remain in place for Abbott Lab’s (ABT-49.84), and GlaxoSmithKline (GSK-38.72). Eli Lilly (LLY-32.51), Merck (MRK-31.65), and Pfizer (PFE-16.15) shall remain on our “sell” list at this time. It is week five of a “sell” signal; continue to use extended price strength in the PPH and above mentioned negative components to reduce long exposure and or to initiate short trades.
III. Gold
GLD (streetTracks gold index) – The GLD (98.37) advanced 1.41% on the week. For the 2009 trading year the GLD currently rests with a positive return of 13.69%. The GLD is entering week two of a “sell” signal. Our weekly closing price resistance level in order to maintain our current “sell” signal shall remain at 99.89. Any weekly closing price above 99.89 will negate our current “sell” signal for the GLD. A faint heartbeat of strength in the U.S. Dollar coupled with renewed deflationary fears may test the will of gold bugs in the coming week. A near term price retreat down to the 93.00-94.00 area remains our near term objective at this time.
IV. Energy- (Oil, Oil Service, Nat’l Gas, Coal)
The Large-Cap Integrated Oil space (XOI-989.96) closed out the trading week with a 2.82% decline. The XOI is now positive by 1.04% for the 2009 trading year. The XOI has closed below our weekly price support level therefore generating a fresh “sell” signal. Our weekly price resistance in order to maintain our fresh weekly “sell” signal shall be set at 1041.00. Any weekly closing price above 1041.00 will negate our fresh “sell” signal for the XOI. Fresh weekly “sell” signals have been triggered in Chevron-Texaco (CVX-68.14) and Suncor Energy (SU-32.66). Weekly “sell” signals remain in place for XOI components Exxon-Mobil (XOM-66.58), British Petroleum (BP-50.73) and Conoco-Phillips (COP-46.80). We have had a neutral stance on this sector for the past couple of weeks due to our concern regarding the divergence of signals between the XOI and internal related components. We now believe that the tide has turned to the downside. The XOI has officially once again failed at the 1050.00 weekly major price resistance level. A price retreat is now in force with the first downside target being around the 910.00 price level. Use extended price appreciation to reduce long exposure and or to initiate short trades.
The Oil Service Index (OIH-111.64) declined 2.71% this past trading week. The 2009 year to date return for the OIH stands at a positive 51.37%. After spending the past eleven weeks on our “buy” list the OIH has violated our weekly price support thereby generating a fresh weekly “sell” signal. Our weekly closing price resistance level shall be set at 119.00. Any weekly closing price above 119.00 will negate our fresh weekly “sell” signal for the OIH. Concurrent fresh weekly “sell” signals have been generated in OIH components Halliburton (HAL-25.74), Schlumberger (SLB-56.83), and Baker Hughes (BHI-40.66). Weekly “buy” signals continue to remain in place for OIH components Ensco (ESV-40.00) and Transocean (RIG-81.90). A change of weekly trend from positive to negative has occurred; use extended price appreciation in the OIH and above negatively mentioned components to reduce long exposure and or to initiate short trades.
Natural Gas (UNG-11.39) declined 4.85% this past week. The current 2009 performance of the UNG is a negative 50.84%. The UNG is entering week three of a “buy” signal. Our weekly price support in order to maintain said “buy” signal shall be raised to 11.01. Any weekly closing price below 11.01 will negate our current “buy” signal for the UNG. A down week for the UNG but the “buy” signal remains intact; use any price weakness approaching the 11.01 price level for proper entry to increase long exposure and or to initiate long trades.
The Coal Sector (KOL-29.09) declined by 3.80% this past week. Year-to-date the KOL is positive by 95.36%. Our weekly closing price support level in order to maintain favorable status shall remain at the 28.90 price level. Any weekly closing price below 28.90 would trigger a change of opinion from positive to negative for the KOL. The KOL barely managed to maintain favorable status after a week that featured broad selling pressure for energy stocks in general. Watch the 28.90 price support level intently as a downside violation could trigger a wave of selling for this extremely volatile sector.
V. Dow 30 Analysis
Our Weekly Trend Indicator (WTI) measures in at -8, a decrease from the previous week reading of +8. Currently 36.0% of the thirty Dow Jones Industrial components have favorable weekly chart formations; this is a decrease from 63.0% in the prior week. The Dow Jones Industrial average declined 1.84% for the week to 9487.67. The current return for the 2009 trading year stands at a positive 8.10%.
The S&P 500, as measured by the SPY (102.49), declined 1.88% for the week. The 2009 trading year return for the SPY is positive by 13.57%. Small caps issues, as measured by the IWM (IShares Russell 2000 Index Fund- 58.00), declined 3.06% for the week. The IWM year to date return is currently a positive 17.79%.
The DIA (94.86) closed out the week with a 1.94% decline and has closed below our weekly price support level therefore triggering a fresh “sell” signal. Our weekly closing price resistance level in order to maintain said “sell” signal shall be set at 98.36. Any weekly closing price above 98.36 will negate our fresh “sell” signal for the DIA. In our previous letter we warned of a potential quick slide down for the DIA upon any breach of the 96.00 price support level. We stated that any trade under the 96.00 level would cause a sharp decline down to the 94.20 level. For those who keep score the exact low trade for the DIA on Friday just happened to be 94.20. With a change of weekly trend having been signaled we would now use any upside strength in the DIA approaching the 98.36 price resistance to reduce long exposure and or to initiate short trades. Any failure for the DIA to hold above the 94.00 price support level will trigger additional selling down to the next level of price support, the 90.00 area.
Fresh weekly buy signals generated: TRV
Fresh negative weekly signals generated: CAT, CVX, DD, HPQ, JNJ, JPM, MMM, MSFT, UTX
Readers should take note that Dow Jones Industrial component AA is scheduled to report quarterly earnings in the coming week.
Dow 30 stocks with positive weekly signals:
AA, BA, CSCO, GE, IBM, INTC, KO, MCD, PG, T, TRV
Dow 30 stocks with negative weekly signals:
AXP, BAC, CAT, CVX, DD, DIS, HD, HPQ, KFT, JNJ, JPM, MMM, MRK, MSFT, PFE, UTX, VZ, WMT, XOM
· Underline names have changed from previous week*
VI. KEY EVENTS IN THE WEEK AHEAD:
Monday, October 5
Economic
10:00 ISM Services (Sep.): 50.0 cons.
Earnings
Before: RPM
After: MOS, RBN, TISI
Events
ATV, BBI, CMRG, SCVL at Brean Murray, Carret & Co. Consumer 1x1 Conf.
IMGN, FUQI, MITI at William Blair & Company Emerging Growth Stock Conf.FED: $30 bln 3-month and 6-month Treasury Bill Auctions
Tuesday, October 6
Economic
Earnings
Before: CHTT, GIGM, PBG
After: ANGO, YUM
Events
RHT Analyst MeetingPFWD, FRWD, HRBN, LULU @ William Blair & Company Emerging Growth Stock Conf.MNKD, AVII, ATHN, CADX @ JMP Securities Healthcare Focus Conf.
Wednesday, October 7
Economic
10:30 Crude Inventories: 2.8M prior
14:00 Consumer Credit (Aug.): -9.5B cons.
14:00 Treasury Budget (Sep.): N/A
Earnings
Before: AYI, CMN, COST, FDO, HELE, LNN, MON, WWW
After: AA, RT
Events
ADBE Analyst DayMDR, DNR, PKD, PCX at Harris and Harris Group "Meet the Portfolio" Day
Thursday, October 8
Economic
08:30 Initial Claims: 551K prior
08:30 Continuing Claims: 6090K prior
10:00 Wholesale Inventories (Aug.): -1.0% cons.
Earnings
Before: ISCA, MAR, PEP, PGR, TSCM
After: INFY, NUHC
Events
GROW at Jefferson Companies New Orleans Investment ConferenceFED: Bernanke Speaks on Fed Balance Sheet
Friday, October 9
Economic
08:30 Trade Balance (Aug.): -$32.9B
Earnings
Before:
After:
Events
FED: KohnBond Markets Close Early for Columbus Day Holiday (14:00)
Note: Event Calendar is located at bottom of page
I. General Commentary
Did the end of the third quarter mark the climax of the impressive rebound that the equity markets have experienced since the panic low price levels reached in early March of this year? Will the fourth quarter bring a race for the exit door for those fortunate enough to have boldly committed capital during the first quarter swoon? Only price and time will provide a definitive answer to these two very important questions. In our previous letter we expressed our concern regarding the technical deterioration in certain stocks within key market sectors. Based upon our weekly oriented technical work detailed in the sub-sections below the equity markets now face a formidable challenge in regards to maintaining upside price momentum. The U.S. Dollar is beginning to show signs of potential upside as bearishness over the greenback apparently has become a very crowded trade. While most government officials painstakingly insist that a stronger dollar is in the best interest of this country, this may not necessarily be the case for the equity markets. The steady, roughly six-month decline of the U.S. Dollar has been inversely correlated to the remarkable six-month rebound in equity prices. Watch the price action of the Dollar because in our mind it is the most important factor in determining the future direction for equity prices.
As detailed in the subsections below, the markets have suffered some technical damage over the past two weeks. While at this point in time not irreparable, this damage has caused us to revise our current opinion regarding various market sectors. Do we believe that one should sell with both hands at current market prices? The answer to that question is, no. In short we believe that the “buy the dip” mentality that has proven so lucrative over the past six months should, for the time being, give way to a reduction of long exposure or more simply put, a “sell the rally” theme.
The major market averages under our coverage that we currently rate with positive weekly technical indications are the U.S. $ Index (UUP-22.90) and the I-share 7-10 year Treasury bond (IEF-92.77). The UUP is a positive change of opinion from the prior letter. We currently have a negative views on the SPDR- S&P 500 (SPY-102.49), IShares Russell 2000 Index Fund (IWM-58.00), Diamonds Trust (DIA-94.86), NASDAQ Composite (COMP-2048.11), Powershares QQQQ Trust (QQQQ-40.88). Take note that the SPY, IWM, QQQQ, DIA, and COMP are all negative changes of opinion from our prior letter.
Sectors within our coverage universe that remain in favor according to our weekly oriented technical analysis include Coal (KOL) and Natural Gas (UNG). Use price weakness to increase long exposure or to initiate long trades.
Sectors that we believe to be currently vulnerable to downside pricing pressure are the Pharmaceuticals (PPH), Managed Healthcare, Retailers (RTH), Gold (GLD), Transportation (IYT) Crude Oil (USO), Homebuilding (XHB), Semiconductors (SMH), Agriculture (MOO), Oil Service (OIH), Real Estate (IYR), Internet Related (HHH), Financials (XLF), and Steel (SLX). *Take note that XLF, IYR, MOO, XOI, OIH, SMH, HHH, and SLX are all negative opinion changes from the previous letter.*
Sector analysis below will provide information as to where to best allocate funds at this time.
For access to Equity Letter individual trading positions and ideas contact Richard Reilly at rreilly123-2@comcast.net
Please frequent http://www.equityletter.com/
Current Technical Analysis Coverage Universe
ETF’s & Indices: SPY, IWM, UUP, IEF, QQQQ, DIA, COMPQ, XLF, IYR, XHB, XOI, OIH, UNG, USO, PPH, IYT, SMH, MOO, HHH, RTH, SLX, GLD
DOW JONES INDUSTRIAL AVERAGE & 30 COMPONENTS
Financial (XLF): JPM, BAC, WFC, C, USB, GS, MS, AXP, CME, MET, BK
Homebuilders (XHB): DHI, PHM, LEN, TOL, RYL, KBH
Semiconductors (SMH): INTC, TXN, AMAT, MU, SNDK, NVLS, ADI
Retailers (RTH): WMT, HD, TGT, WAG, SHLD, BBY, KSS
Steel (SLX): X, NUE, MT, STLD
Pharmaceuticals (PPH): PFE, MRK, JNJ, GSK, ABT, LLY
Oil (XOI): XOM, CVX, COP, BP, SU, PXP
Oil Service (OIH): SLB, HAL, BI, RIG, ESV, SII
Natural Gas (UNG): EP, APA, CHK, APC, XTO
Coal (KOL): ACI, BTU, MEE, CNX
Transportation (IYT): FDX, UPS, CHRW, BNI, CSX, NSC
Managed Care: UNH, WLP, HUM, AET
Gold: GLD, NEM, AU
Agriculture (MOO): MOS, MON, POT, DE
High Beta: AAPL, GOOG, RIMM, MA, FSLR
II. Sector Analysis
The IEF-92.77 (I-share 7-10 year Treasury bond) advanced 0.92% for the week as the yield on the 10- year treasury decreased from 3.32% to 3.22%. For comparative reference the yield on the 10-year Treasury began the 2009 trading year at 2.24%. The IEF is entering week eight of a “buy” signal. The weekly closing price support level in order to maintain our current “buy” signal shall be raised to 91.99. Any weekly closing price below 91.99 will negate our current “buy” signal for the IEF. Has the flight to safety trade returned? Equity market weakness spawned buying in the bond market as the IEF traded to the highest price level in over seventeen weeks. The true test of strength will come this week as scheduled treasury auctions will be a good measure of demand at current reduced yield price levels. We shall maintain our bullish stance until our price level is violated on a weekly closing price basis.
A. Financials
The Financial Select Sector Index (XLF-14.29) finished the trading week with a 2.06% decline. The XLF is now positive by 14.13% to date for the 2009 trading year. The XLF has closed below our weekly price support level therefore indicating a weekly change of trend from positive to negative. A fresh weekly “sell” signal has been triggered. Our weekly closing price resistance shall be set at 15.25. Any weekly closing price above 15.25 will negate our fresh “sell” signal for the XLF. Fresh weekly “sell” signals have been generated in XLF components J.P. Morgan (JPM-41.86), Wells Fargo (WFC-26.28), Morgan Stanley (MS-29.46), and Bank of New York (BK-27.60). XLF components that continue to remain in “buy the dip” mode include Goldman Sachs (GS-179.61), Chicago Mercantile Exchange (CME-292.78) and U.S. Bancorp (USB-21.23). Weekly “sell” signals continue to remain in place for XLF components Bank of America (BAC-16.34), Citigroup (C- 4.52), MetLife (MET-35.67) and American Express (AXP-32.49). For what ever reason one may choose to select, a beginning of quarter exodus or renewed credit card default rate fears, a change of weekly trend makes the XLF and negatively mentioned internal components vulnerable to further downside from current price levels. Time to switch gears once again and use extended price strength to reduce long exposure and or to initiate short trades.
B. Builders
The Homebuilder exchange traded fund (XHB-14.26) declined 4.23% for the week. The 2009 year-to-date performance of the XHB currently stands at a positive 19.03%. The XHB is entering week two of a “sell” signal. Our weekly closing price resistance level in order to maintain our current “sell” signal for XHB shall be lowered to 15.49. Any weekly closing price above the 15.49 resistance level will negate our current “sell” signal in the XHB. Weekly “sell” signals remain in place for XHB components D R Horton (DHI-10.53), Pulte Homes (PHM-10.39), Ryland Group (RYL-19.53), Toll Brothers (TOL-18.68), KB Homes (KBH-15.19), and Lennar (LEN-13.03). Another tough week for the builders has left them in a near term oversold state but at this stage there is no reason to attempt to be a hero and pick a bottom. Any downside violation of the 14.00 price support level for the XLF will indicate further weakness down to the 12.50 area. The weekly trend remains one of distribution; use price strength in negatively mentioned names to reduce long exposure and or to initiate short trades.
B. Semiconductor
The Semiconductor group (SMH-24.42) declined 3.82% for the week. The SMH performance for 2009 to date stands at a positive 38.67%. After spending the past eleven weeks on our “buy” list the SMH has closed below our weekly price support level therefore triggering a fresh weekly “sell” signal. Our weekly price resistance level in order to maintain said “sell” signal shall be set at 26.11. Any weekly closing price above 26.11 will negate our fresh “sell” signal for the SMH. Fresh weekly “sell” signals have been generated in SMH components Applied Materials (AMAT-12.68), Micron Technology (MU-7.46), Novellus (NVLS-19.55), and SanDisk (SNDK-20.09). The only SMH component that remains in weekly “buy” mode is Intel (INTC-18.97). Analog Devices (ADI-26.26) and Texas Instruments (TXN-22.49) continue to remain on our “sell” list at this time. A change of weekly trend has been signaled for the SMH. The 24.00 price level is now a critical support level that must hold, any downside violation of the 24.00 price support level for the SMH will bring forth further selling which could send the SMH in to a tailspin down to the 21.00-22.00 area.
D. Retailers
The Retail sector (RTH-86.42) finished the trading week with a 0.31% decline. The 2009 performance of the RTH currently stands at a positive 15.01%. The RTH is entering week two of a “sell” signal. Our weekly closing price resistance level for the RTH in order to maintain said “sell” signal shall be lowered to 89.06. Any weekly closing price above 89.06 will negate our current “sell” signal for the RTH. Our “sell” signal in Walgreen’s (WAG-38.05) issued last week has been negated; WAG is once again in “buy the dip” mode. A fresh weekly “sell” signal has been generated in RTH component Sears Holding’s (SHLD-62.59). RTH components that have been, and shall remain on our weekly “sell” list include WalMart (WMT-49.08), Home Depot (HD-26.03), Target (TGT-46.02) and BestBuy (BBY-36.41). Kohl’s (KSS-54.86) shall continue to enjoy favorable status at this time. It is week two of a “sell” signal; use extended price strength in the RTH and above negatively mentioned components to reduce long exposure and or to initiate short trades.
E. Steels
The Steel sector (SLX-50.30) finished the week with a 3.58% decline. The current 2009 trading year return for the SLX is a positive 71.26%. After spending the past eleven weeks on our “buy” list the SLX has closed below our weekly price support level therefore generating a fresh weekly “sell” signal. Our weekly closing price resistance level for the SLX in order to maintain said “sell” signal shall be set at 53.72. Any weekly closing price above 53.72 will negate our fresh “sell” signal for the SLX. Fresh weekly “sell” signals have been generated in U.S. Steel (X-40.75) and Nucor (NUE-44.36). Weekly “sell” signals remain in place for SLX components Steel Dynamics (STLD- 14.34) and Arcelor Mittal (MT-34.52). Last week we warned of impending weakness in this highly volatile sector. We can only hope that readers took notice of our concerns. If the 48.00 price support level is violated on the downside we could see a very quick decline down to the 39.00 area for the SLX. A weekly change of trend has been signaled for the SLX: time use switch gears and use extended price appreciation to reduce long exposure and or to initiate short trades.
F. Pharmaceuticals and Healthcare
The Pharmaceutical group (PPH-64.44) advanced 0.07% last week. The current 2009 return for the PPH stands at a positive 5.07%. The PPH is entering week five of a “sell” signal. Our weekly price resistance level shall remain at 64.66. Any weekly closing price above 64.66 will negate our current weekly “sell” signal for the PPH. A fresh weekly “sell” signal has been generated in influential PPH component Johnson & Johnson (JNJ-59.73). Weekly “buy” signals remain in place for Abbott Lab’s (ABT-49.84), and GlaxoSmithKline (GSK-38.72). Eli Lilly (LLY-32.51), Merck (MRK-31.65), and Pfizer (PFE-16.15) shall remain on our “sell” list at this time. It is week five of a “sell” signal; continue to use extended price strength in the PPH and above mentioned negative components to reduce long exposure and or to initiate short trades.
III. Gold
GLD (streetTracks gold index) – The GLD (98.37) advanced 1.41% on the week. For the 2009 trading year the GLD currently rests with a positive return of 13.69%. The GLD is entering week two of a “sell” signal. Our weekly closing price resistance level in order to maintain our current “sell” signal shall remain at 99.89. Any weekly closing price above 99.89 will negate our current “sell” signal for the GLD. A faint heartbeat of strength in the U.S. Dollar coupled with renewed deflationary fears may test the will of gold bugs in the coming week. A near term price retreat down to the 93.00-94.00 area remains our near term objective at this time.
IV. Energy- (Oil, Oil Service, Nat’l Gas, Coal)
The Large-Cap Integrated Oil space (XOI-989.96) closed out the trading week with a 2.82% decline. The XOI is now positive by 1.04% for the 2009 trading year. The XOI has closed below our weekly price support level therefore generating a fresh “sell” signal. Our weekly price resistance in order to maintain our fresh weekly “sell” signal shall be set at 1041.00. Any weekly closing price above 1041.00 will negate our fresh “sell” signal for the XOI. Fresh weekly “sell” signals have been triggered in Chevron-Texaco (CVX-68.14) and Suncor Energy (SU-32.66). Weekly “sell” signals remain in place for XOI components Exxon-Mobil (XOM-66.58), British Petroleum (BP-50.73) and Conoco-Phillips (COP-46.80). We have had a neutral stance on this sector for the past couple of weeks due to our concern regarding the divergence of signals between the XOI and internal related components. We now believe that the tide has turned to the downside. The XOI has officially once again failed at the 1050.00 weekly major price resistance level. A price retreat is now in force with the first downside target being around the 910.00 price level. Use extended price appreciation to reduce long exposure and or to initiate short trades.
The Oil Service Index (OIH-111.64) declined 2.71% this past trading week. The 2009 year to date return for the OIH stands at a positive 51.37%. After spending the past eleven weeks on our “buy” list the OIH has violated our weekly price support thereby generating a fresh weekly “sell” signal. Our weekly closing price resistance level shall be set at 119.00. Any weekly closing price above 119.00 will negate our fresh weekly “sell” signal for the OIH. Concurrent fresh weekly “sell” signals have been generated in OIH components Halliburton (HAL-25.74), Schlumberger (SLB-56.83), and Baker Hughes (BHI-40.66). Weekly “buy” signals continue to remain in place for OIH components Ensco (ESV-40.00) and Transocean (RIG-81.90). A change of weekly trend from positive to negative has occurred; use extended price appreciation in the OIH and above negatively mentioned components to reduce long exposure and or to initiate short trades.
Natural Gas (UNG-11.39) declined 4.85% this past week. The current 2009 performance of the UNG is a negative 50.84%. The UNG is entering week three of a “buy” signal. Our weekly price support in order to maintain said “buy” signal shall be raised to 11.01. Any weekly closing price below 11.01 will negate our current “buy” signal for the UNG. A down week for the UNG but the “buy” signal remains intact; use any price weakness approaching the 11.01 price level for proper entry to increase long exposure and or to initiate long trades.
The Coal Sector (KOL-29.09) declined by 3.80% this past week. Year-to-date the KOL is positive by 95.36%. Our weekly closing price support level in order to maintain favorable status shall remain at the 28.90 price level. Any weekly closing price below 28.90 would trigger a change of opinion from positive to negative for the KOL. The KOL barely managed to maintain favorable status after a week that featured broad selling pressure for energy stocks in general. Watch the 28.90 price support level intently as a downside violation could trigger a wave of selling for this extremely volatile sector.
V. Dow 30 Analysis
Our Weekly Trend Indicator (WTI) measures in at -8, a decrease from the previous week reading of +8. Currently 36.0% of the thirty Dow Jones Industrial components have favorable weekly chart formations; this is a decrease from 63.0% in the prior week. The Dow Jones Industrial average declined 1.84% for the week to 9487.67. The current return for the 2009 trading year stands at a positive 8.10%.
The S&P 500, as measured by the SPY (102.49), declined 1.88% for the week. The 2009 trading year return for the SPY is positive by 13.57%. Small caps issues, as measured by the IWM (IShares Russell 2000 Index Fund- 58.00), declined 3.06% for the week. The IWM year to date return is currently a positive 17.79%.
The DIA (94.86) closed out the week with a 1.94% decline and has closed below our weekly price support level therefore triggering a fresh “sell” signal. Our weekly closing price resistance level in order to maintain said “sell” signal shall be set at 98.36. Any weekly closing price above 98.36 will negate our fresh “sell” signal for the DIA. In our previous letter we warned of a potential quick slide down for the DIA upon any breach of the 96.00 price support level. We stated that any trade under the 96.00 level would cause a sharp decline down to the 94.20 level. For those who keep score the exact low trade for the DIA on Friday just happened to be 94.20. With a change of weekly trend having been signaled we would now use any upside strength in the DIA approaching the 98.36 price resistance to reduce long exposure and or to initiate short trades. Any failure for the DIA to hold above the 94.00 price support level will trigger additional selling down to the next level of price support, the 90.00 area.
Fresh weekly buy signals generated: TRV
Fresh negative weekly signals generated: CAT, CVX, DD, HPQ, JNJ, JPM, MMM, MSFT, UTX
Readers should take note that Dow Jones Industrial component AA is scheduled to report quarterly earnings in the coming week.
Dow 30 stocks with positive weekly signals:
AA, BA, CSCO, GE, IBM, INTC, KO, MCD, PG, T, TRV
Dow 30 stocks with negative weekly signals:
AXP, BAC, CAT, CVX, DD, DIS, HD, HPQ, KFT, JNJ, JPM, MMM, MRK, MSFT, PFE, UTX, VZ, WMT, XOM
· Underline names have changed from previous week*
VI. KEY EVENTS IN THE WEEK AHEAD:
Monday, October 5
Economic
10:00 ISM Services (Sep.): 50.0 cons.
Earnings
Before: RPM
After: MOS, RBN, TISI
Events
ATV, BBI, CMRG, SCVL at Brean Murray, Carret & Co. Consumer 1x1 Conf.
IMGN, FUQI, MITI at William Blair & Company Emerging Growth Stock Conf.FED: $30 bln 3-month and 6-month Treasury Bill Auctions
Tuesday, October 6
Economic
Earnings
Before: CHTT, GIGM, PBG
After: ANGO, YUM
Events
RHT Analyst MeetingPFWD, FRWD, HRBN, LULU @ William Blair & Company Emerging Growth Stock Conf.MNKD, AVII, ATHN, CADX @ JMP Securities Healthcare Focus Conf.
Wednesday, October 7
Economic
10:30 Crude Inventories: 2.8M prior
14:00 Consumer Credit (Aug.): -9.5B cons.
14:00 Treasury Budget (Sep.): N/A
Earnings
Before: AYI, CMN, COST, FDO, HELE, LNN, MON, WWW
After: AA, RT
Events
ADBE Analyst DayMDR, DNR, PKD, PCX at Harris and Harris Group "Meet the Portfolio" Day
Thursday, October 8
Economic
08:30 Initial Claims: 551K prior
08:30 Continuing Claims: 6090K prior
10:00 Wholesale Inventories (Aug.): -1.0% cons.
Earnings
Before: ISCA, MAR, PEP, PGR, TSCM
After: INFY, NUHC
Events
GROW at Jefferson Companies New Orleans Investment ConferenceFED: Bernanke Speaks on Fed Balance Sheet
Friday, October 9
Economic
08:30 Trade Balance (Aug.): -$32.9B
Earnings
Before:
After:
Events
FED: KohnBond Markets Close Early for Columbus Day Holiday (14:00)
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