equityletter.com 10/26/09
Note: Event Calendar is located at bottom of page
I. General Commentary
Has the time arrived for Federal Reserve Chairman Ben Bernanke to pull the trigger and actually raise interest rates? Poor “Helicopter” Ben must be having some very restless nights of sleep when considering what to do next for there are several reactionary issues to be pondered. Some have recently argued that Mr. Bernanke and his cohorts at the Federal Reserve have kept interest rates at abnormally low “crisis” levels while the economy has been resuscitated and emerged from said “crisis” levels. Others argue that the recovery has been tepid at best and raising interest rates at this time would risk extinguishing the brief glimmer of upside momentum that the
The major market averages under our coverage that we currently rate with positive weekly technical indications are the SPDR- S&P 500 (SPY-108.08),Diamonds Trust (DIA-99.83), NASDAQ Composite (COMP-2154.47), Powershares QQQQ Trust (QQQQ-43.13). We currently have a negative views on the IShares Russell 2000 Index Fund (IWM-60.06),
Sectors within our coverage universe that remain in favor according to our weekly oriented technical analysis include Retailers (RTH), Agriculture (MOO), Pharmaceuticals (PPH), Gold (GLD), Coal (KOL), Natural Gas (UNG), Oil Service (OIH), Large Integrated Oil (XOI), and Crude Oil (USO). Use price weakness to increase long exposure or to initiate long trades.
Sectors that we currently rate as neutral include the Steel (SLX) and Internet Related (HHH).
Sectors that we believe to be currently vulnerable to downside pricing pressure are the Managed Healthcare, Transportation (IYT), Financials (XLF), Homebuilding (XHB), Semiconductors (SMH), Real Estate (IYR). *The XLF and IYT are downside changes of opinion from the prior 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-91.21 (I-share 7-10 year Treasury bond) declined 0.63% for the week as the yield on the 10- year treasury increased from 3.41% to 3.47%. For comparative reference the yield on the 10-year Treasury began the 2009 trading year at 2.24%. The IEF is entering week three of a “sell” signal. The weekly closing price resistance level in order to maintain our current “sell” signal shall remain at 92.36. Any weekly closing price above 92.36 will negate our current “sell” signal for the IEF. Supply/demand will be a major influence in the coming week as there are several treasury auctions of varying maturities to the tune of approximately $175.0 billion. The 91.00 price support level continues to be very important as any downside penetration will violate weekly line-trend support. The next price support level after 91.00 is the 88.50 area. Week three of a “sell” signal, use price strength to reduce long exposure or to initiate short trades.
A. Financials
The Financial Select Sector Index (XLF-15.10) finished the trading week with a 0.79% decline. The XLF is now positive by 20.60% to date for the 2009 trading year. Our weekly closing price resistance shall remain at 15.25. Any weekly closing price above 15.25 will negate our current “sell” signal for the XLF. We have two fresh ” sell” signals this week, Goldman Sachs (GS-180.36) and Citigroup (C- 4.46) and one “buy” signal, Bank of
B. Builders
The Homebuilder exchange traded fund (XHB-15.03) declined 2.84% for the week. The 2009 year-to-date performance of the XHB currently stands at a positive 25.45%. The XHB is entering week five of a “sell” signal. Our weekly closing price resistance level in order to maintain our current “sell” signal for XHB shall remain at 15.49. Any weekly closing price above the 15.49 resistance level will negate our current “sell” signal in the XHB. Weekly “buy” signals exist for XHB components D R Horton (DHI-12.42) and Ryland Group (RYL-20.99). Weekly “sell” signals remain in place for XHB components Pulte Homes (PHM-10.08), Toll Brothers (TOL-19.17), KB Homes (KBH-15.80), and Lennar (LEN-14.13). We shall reiterate that this sector remains at the mercy of the potential extension of the expiring first-time home buyer tax credit government program. Any failure for Congress to extend this subsidy would send this sector in to a tail-spin. 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-25.26) declined 1.56% for the week. The SMH performance for 2009 to date stands at a positive 43.44%. The SMH is entering week four of a “sell” signal. Our weekly price resistance level in order to maintain said “sell” signal shall remain at 26.11. Any weekly closing price above 26.11 will negate our current “sell” signal for the SMH. A fresh weekly “buy” signal has been triggered in Novellus (NVLS-22.50). Fresh weekly “sell” signals have been generated for SMH components Micron Technology (MU-7.45) and Intel (INTC-19.78). Analog Devices (ADI-27.12), Applied Materials (AMAT-12.95), SanDisk (SNDK-22.12) and
D. Retailers
The Retail sector (RTH-92.51) finished the trading week with a 0.23% decline. The 2009 performance of the RTH currently stands at a positive 23.11%. The RTH is entering the third week of a “buy” signal. Our weekly closing price support level for the RTH in order to maintain the current “buy” signal shall remain at 90.32. Any weekly closing price below 90.32 will negate our current “buy” signal for the RTH. A fresh weekly “sell” signal has been generated in the shares of Target (TGT-49.03). Weekly “buy” signals remain in place for RTH components WalMart (WMT-50.44), Sears Holding’s (SHLD-72.78), BestBuy (BBY-39.17), Kohl’s (KSS-59.19) and Walgreen’s (WAG-39.05). Home Depot (HD-26.27) has been and shall remain on our “sell” list at this time. The RTH remains in “buy” mode but we are very concerned about the risk/ reward of being long from current elevated price levels. We are now very close in proximity to longer term, weekly trend line price resistance which appears around the 94.00 area for the RTH. At the very least long positions should be protectively hedged against decline as it is our fear that this amazing, fairy-tale rally may not have a happy ending.
E. Steels
The Steel sector (SLX-56.60) finished the week with a 1.41% decline. The current 2009 trading year return for the SLX is a positive 92.37%. The SLX is entering week three of a “buy” signal. Our weekly closing price support level for the SLX shall be raised to 56.00. Any weekly closing price below 56.00 will negate our current “buy” signal for the SLX. Arcelor Mittal (MT-38.18) remain the sole steel company under our coverage with a weekly “buy” signal. Weekly “sell” signals remain in place for SLX components
F. Pharmaceuticals and Healthcare
The Pharmaceutical group (PPH-62.47) declined 1.44% last week. The current 2009 return for the PPH stands at a positive 6.41%. The PPH is entering week three of a “buy” signal. Our weekly price support level in order to maintain the current weekly “buy” signal shall be reset to 61.99. Any weekly closing price below 61.99 will negate our current weekly “buy” signal for the PPH. The reason for the reset of our price support level is due to the distortion of the chart of the PPH which occurred last week after the removal of Wyeth (WYE) from the index. WYE was removed after the closing of the merger with PFE. Weekly “buy” signals continue to remain in place for Abbott Lab’s (ABT-51.31), Johnson & Johnson (JNJ-60.54), Pfizer (PFE-17.25), GlaxoSmithKline (GSK-40.24), Eli Lilly (LLY-33.96) and Merck (MRK-32.43). The PPH and related underlying components continue to reflect positive technical characteristics, use price weakness to increase long exposure and or to initiate long trades.
III. Gold
GLD (streetTracks gold index) – The GLD (103.49) advanced 0.30% on the week. For the 2009 trading year the GLD currently rests with a positive return of 19.61%. The GLD is entering week three of a “buy” signal. Our weekly closing price support level in order to maintain our current “buy” signal shall remain at 98.36. Any weekly closing price below 98.36 will negate our current “buy” signal for the GLD. The GLD has spent the past two week digesting the upside technical break-out through the 100.00 price level. We see near term price support at the 101.50 area and longer term, more important gap- filling price support at the old resistance level of 100.00. For now the trend remains a bullish one for the yield-less precious metal but a near term pull back test of price support levels is overdue.
IV. Energy- (Oil, Oil Service, Nat’l Gas, Coal)
The Large-Cap Integrated Oil space (XOI-1102.48) closed out the trading week with a 0.21% decline. The XOI is now positive by 12.53% for the 2009 trading year. The XOI is entering week three of a “buy” signal. Our weekly price support in order to maintain our current “buy” signal shall be raised to 1095.00. Any weekly closing price below 1095.00 will negate our current “buy” signal for the XOI. Weekly “buy” signals remain prevalent for XOI components Exxon-Mobil (XOM-73.57), British Petroleum (BP-55.42), Chevron-Texaco (CVX-76.68), Conoco-Phillips (COP-51.97) and Suncor Energy (SU-36.57). A big test for big oil in the coming week as several quarterly earnings reports are due and expectations appear quite high after a sharp three-week rally. XOM, CVX, COP, and BP will all report earnings in the coming week. Any disappointments on the earnings front could trigger a sharp decline from current lofty price levels, brace for some extreme volatility.
The Oil Service Index (OIH-127.02) declined 1.26% this past trading week. The 2009 year to date return for the OIH stands at a positive 72.23%. The OIH is in the third week of a “buy” signal. Our weekly closing price support level in order to maintain said “buy” signal shall be raised to 125.53. Any weekly closing price below 125.53 will negate our current weekly “buy” signal for the OIH. Weekly “buy” signals remain in place for OIH components Halliburton (HAL-30.21), Schlumberger (SLB-65.20), and Baker Hughes (BHI-45.36), Ensco (ESV-50.32) and Transocean (RIG-89.86). The weekly trend remains favorable but near term price rejection is indicating that the bullish ride is about to experience some violent turbulence. The market reaction to only in-line revenues from this past Friday’s earnings report from industry giant Schlumberger (SLB- 65.20 declined 5.00% on Friday) provides a prime example of what occurs when expectations get ahead of themselves. The weekly trends remain bullish but current over-bought conditions leave the OIH and related components vulnerable to sharp downside price corrections.
Natural Gas (UNG-11.29) declined 2.43% this past week. The current 2009 performance of the UNG is a negative 51.27%. The UNG is entering week six of a “buy” signal. Our weekly price support in order to maintain said “buy” signal shall remain 11.01. Any weekly closing price below 11.01 will negate our current “buy” signal for the UNG. The UNG continues to maintain favorable status with our near term upside target the 15.00 area. This being stated we would recommend a protective sell-stop at the 10.95 price level.
The Coal Sector (KOL-32.94) advanced by 1.17% this past week. Year-to-date the KOL is positive by 121.22%. Our weekly closing price support level in order to maintain favorable status shall be raised to the 32.23 price level. Any weekly closing price below 32.23 would trigger a change of opinion from positive to negative for the KOL. The weekly trend remains favorable; monitor our weekly price support level closely in the coming week.
V. Dow 30 Analysis
Our Weekly Trend Indicator (WTI) measures in at +14, a decrease from the previous week reading of +22. 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 0.24% for the week to 9972.18. The current return for the 2009 trading year stands at a positive 13.62%.
The S&P 500, as measured by the SPY (108.08), declined 0.74% for the week. The 2009 trading year return for the SPY is positive by 19.76%. Small caps issues, as measured by the IWM (IShares Russell 2000 Index Fund- 60.06), declined 2.63% for the week. The IWM year to date return is currently a positive 21.97%.
The DIA (99.83) closed out the week with a 0.16% decline and is entering the third week of a “buy” signal. Our weekly closing price support level in order to maintain the current “buy” signal shall be raised to 99.20. Any weekly closing price below 99.20 will negate our current “buy” signal for the DIA. The DIA reached a high of 101.39 last week but succumbed to profit taking and closed out the week nearer to the lows. We have been looking for the DIA to fill a downside gap on the weekly chart from September of 2008 at the 103.09 price level but the price action of last week indicates to us that we may have to wait a while longer for that to occur. With the majority of the DIA components now having reported third quarter earnings the so-called “good news” is out. Most of the earnings reports continue on with a familiar theme, better top line numbers coupled with a disturbing lack of revenue growth. This theme is a direct reflection of corporate serial cost-cutting or in other words, job destruction. While we are not yet ready to declare a “top” for the incredible 2009 equity market rebound we shall emphatically declare that the risk/reward equation most certainly favors the risk side.
Fresh weekly buy signals generated: N/A
Fresh negative weekly signals generated: BA, IBM, INTC, KO
Readers should take note that Dow Jones Industrial components PG and VZ are scheduled to report quarterly earnings in the coming week.
Dow 30 stocks with positive weekly signals:
AA, AXP, CAT, CSCO, CVX, DD, DIS, GE, HPQ, KFT, JNJ, JPM, MCD, MMM, MRK, MSFT, PFE, PG, TRV, UTX, WMT, XOM
Dow 30 stocks with negative weekly signals:
BA, BAC, HD, IBM, INTC, KO, T, VZ
· Underline names have changed from previous week*
VI. KEY EVENTS IN THE WEEK AHEAD:
Monday, October 26
Economic
Earnings
Before: ACV, AAWW, BOH, BWP, CRNT, CYOU, GLW, BGC, LO, MHP, MNRO, NOV, ONB, PVTB, RSH, ROC, ROP, SOHU, TLAB, VZ, WRI
After: ALB, AFG, ARRS, BIDU, BLDP, COG, CF, CVTI, CR, DTG, DRYS, EPIQ, EXTR, FADV, FLEX, FELE, HGR, HMA, HTLF, HXL, PODD, ININ, IVAC, KRC, MAS, MTXX, MTH, MSPD, OLN, OMI, PRE, PCL, PCH, RGA, RCII, SGMS, SLG, TCO, TGI, VFC, VECO, VRTX, WRB, WCN, WSH, WINN, WMS, ZRAN
Events
AMLN, ANX, HALO, ISIS at BIOCOM Investor Conference
FED:$29 bln 3-month Treasury Bill Auction
$30 bln 6-month Treasury Bill Auction
Tuesday, October 27
Economic
Earnings
Before: CAS, AGCO, AKS, AMFI, AMED, ECOL, AME, AXE, AVY, BEAV, BMS, BHE, BJS, BYD, BP, CAB, CP, CPLA, CRS, CE, CNC, CRDN, CBR, CTV, CUR, CVG, CPO, CYNO, DIN, DXYN, DSPG, ELNK, ECL, ENTG, EVVV, FE, FMER, FPL, BEN, FDP, GKSR, GIGM, GPI, HSII, HSP, ICON, IACI, IMA, JCI, LLL, LCAV, LIFE, NS, ORB, OSIS, PCAR, PCX, PMT, POOL, QLTI, RYN, SCG, SCHN, SBNY, SAH, AMTD, TFX, TNC, TXT, TUES, X, UA, USAP, VLO, VDSI, VSH, VTNC, WDR, WAT, WSO, WIT, WYNN
After: ABAX, ACE, ACTL, ADVS, ATAC, ACL, AMKR, ANAD, APOL, AWI, AJG, BBOX, BXP, BTUI, BPL, BWLD, CLMS, CRI, CAVM, CBI, CENX, CEPH, CHE, CQB, CMP, CSGS, CTS, DFG, DV, DBTK, DWA, DRCO, ETFC, EWBC, EHTH, ERTS, EXAC, FISV, FTI, GMR, GLF, HRS, ILMN, INSU, IDTI, JLL, KONA, LDSH, XPRT, LOCM, MEE, MCK, MRCY, MMSI, MEOH, MOLX, NLC, NATI, NSR, NAL, NSC, NTRI, OTEX, PNRA, PMTC, PRXL, PEET, PLT, PLXT, PPDI, PSYS, RSYS, RNR, RFMD, SSTI, SONO, SRCL, SFSF, SUNH, SDXC, TSS, TRMB, TRMK, ULTI, USNA, VCLK, V, WSII, WTS
Events
| ELX Analyst Meeting |
Wednesday, October 28
Economic
Earnings
Before: AEIS, AMG, ARLP, ARBA, ARW, ASH, ASPM, AUXL, AVA, BDC, BOKF, BWA, CNP, CEVA, CSR, CCE, CVLT, COP, DEP, EPD, EEFT, EVR, FCL, GD, GT, HGRD, HES, IPG, IP, JNY, KDN, ID, LAZ, LCRY, LVLT, MKTX, MWV, MV, NWL, NXY, NYB, OC, PEI, PAS, POZN, PX, PEG, Q, RES, RTIX, SAP, SVVS, SEE, SEPR, SLAB, SPIL, SO, SPNC, SPW, TECH, TPP, MDCO, TRCR, TZOO, UNF, UMC, VPHM, WBC, WLP, WXS, WYN
After: ACXM, AEA, AATI, AFL, AEM, AKAM, AIQ, ACLI, NLY, ASIA, AIZ, AVB, BAS, BMRN, BMR, BLKB, BDN, CBT, CDNS, CWT, CATM, CBG, CDR, CLDN, CTX, CPHD, CERN, CHDN, CIR, CYH, CML, CITP, XRAY, DRE, DNB, EGP, EFII, EM, EQR, RE, ESRX, FALC, DAVE, FARO, FSLR, FLS, FMC, FORM, GNK, GLBC, GVA, GSIC, HBI, HGIC, HLIT, HLX, HIW, HMN, HGSI, INSP, IDCC, IFSIA, ICO, INET, ITRI, XXIA, JAH, KALU, KEG, KEX, LHCG, LNC, LOGM, LOOP, LSI, MANT, MTZ, MDAS, MOH, NBIX, NEWP, OII, ODSY, ORCC, ORLY, OI, PACR, PDLI, PLXS, PSSI, STR, O, RYL, SGMO, SIGI, SHOR, SFLY, SWIR, SFN, STNR, SPN, SYMC, SMMX, TLEO, TTEC, TER, TWPG, TLGD, TMK, CLUB, TRN, TYL, URI, UAM, VARI, WCAA, WLL, XL
Events
YHOO Analyst Meeting
DD, FTI at Incisive Media Law Firm Management Forum
FED:$41 bln 5-yr Treasury Note Auction
Thursday, October 29
Economic
Earnings
Before: ADLR, AET, ARG, ALU, AYE, AGN, AMSC, AMAG, AEP, APA, ACAT, ARTG, ABG, AZN, AN, AVT, AVP, BLL, ABX, BRY, BCRX, BXC, BCO, BPO, BRKR, BC, BW, BBW, BKC, CCC, CRR, CBZ, CDI, GTLS, CINF, CIT, CME, CMS, CL, COCO, COT, CRY, DLR, DDE, DVD, EK, EE, RDEN, EME, ENDP, NPO, EQT, ETH, EXPE, XOM, FAF, FNFG, FTK, FORR, RAIL, GLS, GTIV, GTI, HSC, HS, HEP, ICTG, IDA, ITG, IWA, IRM, KBR, KSU, K, KMT, LB, LANC, LNY, LFUS, LKQX, LZ, MHO, CLI, MEDX, MED, MDP, MDS, MSA, MWW, MCO, MOG/A, MOT, MPS, LABL, MYL, BABY, NCI, NEM, NBL, NWPX, NOVA, NRG, NUS, CHUX, ODP, OMX, ZEUS, PTIE, PMTI, PTEN, PCCC, PCG, PNK, PNW, POR, PPL, PDE, PG, QSII, QUIX, RVSN, RGS, REV, RDS/A, SNI, SNA, FIRE, S, SRT, SRI, SSYS, STRA, SYNT, TSM, TEN, TDW, TBL, TKR, ULBI, UTHR, VCI, VTR, WAB, WBSN, WMB, WPZ, WEC, WRLD, XEL
After: PAR, ARAY, APKT, ACTU, ADPT, AB, AHS, ANEN, ANH, AMCC, ARNA, ATHN, BEZ, BYI, RATE, BARE, BEC, BKH, BMC, BPSG, CAMD, ELY, CALD, CPT, BEAT, CBEY, CEC, CLF, CSA, SCOR, CW, CYS, DAC, DCT, PROJ, DENN, DEPO, DGII, DNEX, DLLR, DRC, DTE, DXPE, BOOM, EEP, ENH, EPIC, ERES, EXAR, EXEL, FBN, GPRO, GNW, GERN, GFIG, GXP, HAR, HTZ, IMMR, IM, IDC, IN, KLAC, LCRD, LAD, MTW, MXIM, MFE, MCGC, MBLX, MET, MTD, MCRS, MSTR, MIPS, MHK, NANO, NNI, NVTL, ORH, OPEN, OPWV, OPLK, OPNT, OHB, OFIX, OTTR, MALL, PCTI, POM, PKI, PMC, PFWD, PRAA, RADS, RNWK, RGC, RJET, RRR, SBAC, SBCF, SSW, SQNM, SIMO, SSD, SPF, SXE, STAR, RGR, SURW, SWN, TWLL, TSYS, TSRA, TSCM, USTR, UHS, VAR, VSEA, VISN, VPRT, VLCM, WR, WMGI, ZIGO
Events
SAFM Investor Day
AVP Analyst Meeting
FED:$31 bln 7-yr Treasury Note Auction
Friday, October 30
Economic
Earnings
Before: ALE, LNT, AEE, AXL, AGP, AOC, AIV, ACI, B, BIOS, CVX, SUR, CMC, CEG, CVH, CMI, D, UFS, DUK, ELMG, EL, IT, GHM, HMSY, IBI, ITT, LNCE, LECO, MGLN, MDC, NI, NYX, PAG, PGN, REG, RUTH, SHPGY, SPG, SNE, TE, THI, UPL, WY, YRCW
After:
Events
JCP October Analyst Meeting
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,
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,
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