equityletter.com 11/23/09

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

---

                                  

 

 11/23/09

 

 

     Note:  Event Calendar is located at bottom of page

      

I.                  General Commentary

 

The equity markets spent the early part of last week forging higher but succumbed to late week profit taking and closed out the week at or around unchanged price levels.  Regardless of the late week retreat we believe that the trends of the major equity market indices continue to remain favorable at this time and would continue to use extended price weakness to increase equity exposure.

 

As we have stated recently we remain a reluctant bull on the U.S. equity market because the Federal Reserve has stated their intention to continue to provide emergency levels of liquidity as needed.  Last week Fed Chairman Bernanke stated that while the economy was showing signs of a moderate growth path, low interest rates and loose monetary policy will continue to be the plan for an “extended period”.  In plain English, this means that the green light will remain in the on position for further asset inflation regardless of questionable fundamentals.  There was another interesting quote from the Fed Chairman.  Bernanke stated that, “the U.S. will not have a real market based financial system until it is safe to let a financial firm fail”.  Apparently the numerous small regional bank failures of the past year or so put them in the category of a real market based financial system but the “too big to fail” institutions like Citigroup, AIG, GE Capital, etc., will continue to exist in never, never land.  Large financial institutions with influential lobbyists in Washington D.C. will continue to enjoy an unfair advantage over small business be they financial or otherwise.  When will the American public finally realize what is going on here?

 

Also of interest last week was the apology from the ultimate inside trader, Goldman Sachs.  Goldman CEO Lloyd Blankfein publicly apologized for the role that Goldman Sachs played in contributing to the financial crisis.  Goldman is so sorry for raping and pillaging the American public that they are prepared to pledge $500 million dollars over the next five years to aid in the development of small businesses.  Blankfein stated that Goldman participated in things that were “clearly wrong” and “had reason to regret” when apologizing to the American public.  Mr. Blankfein, if Goldman’s actions were truly “clearly wrong” and truly “regrettable” how about disgorging all profits related to such activity.   As such something tell us that a $500 million, five year capital contribution does not come close to the billions of illegal profits that Goldman procured during the height of the financial crisis.  This confession should have opened the doors to a Congressional investigation of the activities of Goldman.  The fact of the matter is Goldman has it’s tentacles throughout the U.S. Government preventing such an occurrence.  This is a fact that is “truly regrettable”.

 

   The major market averages under our coverage that we currently rate with positive weekly technical indications are the SPDR- S&P 500 (SPY-109.43), Diamonds Trust (DIA-103.25), NASDAQ Composite (COMP-2146.04), Powershares QQQQ Trust (QQQQ-43.44), and the IShares Russell 2000 Index Fund (IWM-58.59).  We currently have a negative view on the U.S. $ Index (UUP-22.83).  *Take note that the IEF is an upside opinion change from the previous letter.*

 

Sectors within our coverage universe that remain in favor according to our weekly oriented technical analysis include the Gold (GLD), Transportation (IYT), Retailers (RTH), Agriculture (MOO), Pharmaceuticals (PPH), Semiconductors (SMH), Coal (KOL), and Internet Related (HHH).  *The MOO and PPH are upgrades from the prior letter.* Use price weakness to increase long exposure or to initiate long trades.

 

Sectors that we currently rate as neutral include the Steel (SLX), Large Integrated Oil (XOI), and Managed Healthcare.  * There are no additions to the neutral list at this time.*

 

 Sectors that we believe to be currently vulnerable to downside pricing pressure are the Natural Gas (UNG), Oil Service (OIH), Crude Oil (USO), Financials (XLF), Homebuilding (XHB), and Real Estate (IYR). *There are no additions to the negative list from the prior 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/

 

 

 

II.               Sector Analysis

                                             

The IEF-91.84 (I-share 7-10 year Treasury bond) advanced 0.61% for the week as the yield on the 10- year treasury decreased from 3.43% to 3.35%.  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 price resistance level therefore indicating a change of weekly trend from negative to positive.  The weekly closing price resistance level in order to maintain our fresh “buy” signal shall be set at 91.37.  Any weekly closing price below 91.37 will negate our fresh “buy” signal for the IEF.  After six weeks on our “sell” list the IEF is indicating signs of strength.  Any further upside strength through the 92.00 price level will indicate an upside test of the 93.25 price resistance area.  We must stress that any weekly closing price below 91.37 would quickly negate this fresh “buy” signal.

 

A.     Financials

 

          The Financial Select Sector Index (XLF-14.60) finished the trading week with a 0.41% decline. The XLF is now positive by 16.61% to date for the 2009 trading year.  The XLF is entering week eight of a “sell” signal.  Our weekly closing price resistance shall remain at 15.14.  Any weekly closing price above 15.14 will negate our current “sell” signal for the XLF.  The “buy” signals issued last week for Goldman Sachs (GS-170.03), and Morgan Stanley (MS-32.10) have been rejected, both are now back in “sell” mode.   American Express (AXP-40.93) and Bank of America (BAC-16.09) are the only major internal components of the XLF that remain on our “buy” list at this time.   Weekly “sell” signals continue to remain in place for XLF components Citigroup (C- 4.20), J.P. Morgan (JPM-42.52), Wells Fargo (WFC-27.92), Chicago Mercantile Exchange (CME-323.02), U.S. Bancorp (USB-23.29) and MetLife (MET-33.90).  The prior week price action in GS and MS proved to be a head fake as both have quickly reversed back in to “sell” mode.  This type of price action is unsettling and does not bode well for the sector as a whole.  The XLF and select related components remain in correction mode, use any extended upside strength approaching above mentioned price resistance to reduce long exposure and or to initiate short trades.

    

          B.  Builders

 

 The Homebuilder exchange traded fund (XHB-14.58) declined 2.08% for the week. The 2009 year-to-date performance of the XHB currently stands at a positive 21.70%.  The XHB is entering week nine of a “sell” signal.  Our weekly closing price resistance level in order to maintain our current “sell” signal for XHB shall be remain at 14.89.  Any weekly closing price above the 14.89 resistance level will negate our current “sell” signal in the XHB.  A weekly “buy” signal remains in place for XHB component Toll Brothers (TOL-20.02).  We would look to buy weakness in TOL as it appears to be a sector outlier.  Weekly “sell” signals remain in place for XHB components Pulte Homes (PHM-9.46), D R Horton (DHI-10.37), Ryland Group (RYL-19.02), KB Homes (KBH-14.12), and Lennar (LEN-13.67).   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-25.08) declined 2.37% for the week.   The SMH performance for 2009 to date stands at a positive 42.41%.   The SMH is entering week two of a “buy” signal.  Our weekly price support level in order to maintain our current “buy” signal shall remain at 24.73.  Any weekly closing price below 24.73 will negate our current “buy” signal for the SMH.  A weekly “sell” signal has been generated in SanDisk (SNDK-20.26).  Weekly “buy” signals remain in place for SMH components Analog Devices (ADI-27.48), Novellus (NVLS-20.97), Texas Instruments (TXN-24.74), Micron Technology (MU-7.27) and Intel (INTC-19.23).  Applied Materials (AMAT-12.28) shall continue to remain on our “sell” list at this time. Take note that a quarterly earnings report is due in the coming week from SMH component ADI.  A mid-week sector downgrade by a Bank America/Merrill analyst shook the foundation of the bulls but was not enough to violate our weekly price support level, therefore our SMH “buy” signal remains intact.  Use extended price weakness in the SMH and above mentioned “favorable” names to increase long exposure and or to initiate long trades.

 

D.   Retailers 

 

          The Retail sector (RTH-93.94) finished the trading week with a 0.56% decline.  The 2009 performance of the RTH currently stands at a positive 25.00%.  The RTH is entering week two of a “buy” signal.  Our weekly closing price support level for the RTH in order to maintain the current “buy” signal shall remain at 92.75.  Any weekly closing price below 92.75 will negate our current “buy” signal for the RTH.  Weekly “buy” signals remain prevalent for RTH components WalMart (WMT-54.28), Sears Holding’s (SHLD-72.14), BestBuy (BBY-43.30), and Home Depot (HD-27.18).  Weekly “sell” signals remain in place for RTH components Kohl’s (KSS-53.96), Walgreen’s (WAG-38.97), and Target (TGT-47.46).  The RTH has maintained favorable status despite divergent internal component signals.  This is due in fact to the recent strong showing in the shares of retail giant WalMart (WMT).  Continue to use price weakness in the RTH and select favorably mentioned component to increase long exposure and or to initiate long trades.

 

E.    Steels

 

The Steel sector (SLX-58.17) finished the week with a 2.27% advance.  The current 2009 trading year return for the SLX is a positive 98.05%.  The SLX is entering week four of a “sell” signal.  Our weekly closing price resistance level for the SLX shall remain at 58.20.  Any weekly closing price above 58.20 will negate our current “sell” signal for the SLX.  A fresh weekly “buy” signal has been generated in Nucor (NUE-41.13).  Weekly “buy” signals remain in place for U.S. Steel (X-41.32), Arcelor Mittal (MT-37.88), and Steel Dynamics (STLD- 16.13).  At this time we shall maintain our neutral stance for the steel sector as internal component strength continues to contradict our “sell” signal for the SLX.

 

F.    Pharmaceuticals and Healthcare

 

          The Pharmaceutical group (PPH-64.99) increased by 3.89% last week. The current 2009 return for the PPH stands at a positive 5.96%.  The PPH has closed above our price resistance level therefore generating a fresh “buy” signal.  Our weekly price support level in order to maintain the fresh weekly “buy” signal shall be set at 63.18.  Any weekly closing price below 63.18 will negate our fresh “buy” signal for the PPH.  Weekly “buy” signals remain in place across the board for PPH components Johnson & Johnson (JNJ-62.31), Pfizer (PFE-18.36), and Merck (MRK-36.46), Abbott Lab’s (ABT-53.64), GlaxoSmithKline (GSK-41.53), and Eli Lilly (LLY-36.59).  It is full steam ahead for the PPH and related internal components as they appear to be the primary beneficiary of the approaching healthcare reform.

 

III.           Gold

 

GLD (streetTracks gold index) – The GLD (112.94) advanced 2.92% on the week.  For the 2009 trading year the GLD currently rests with a positive return of 30.53%.  The GLD is entering week seven of a “buy” signal.  Our weekly closing price support level in order to maintain our current “buy” signal shall be raised to 107.70.  Any weekly closing price below 107.70 will negate our current “buy” signal for the GLD.  Once again slightly overdone to the upside but this train remains northbound one, use any extended price retreats approaching above mentioned support level to increase long exposure or initiate long trades.

 

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

 

The Large-Cap Integrated Oil space (XOI-1073.09) closed out the trading week with a 1.11% decline.  The XOI is now positive by 9.53% for the 2009 trading year.  The XOI is in the fourth week of a “sell” signal.  Our weekly price resistance in order to maintain our current “sell” signal shall remain at 1094.43.  Any weekly closing price above 1094.43 will negate our current “sell” signal for the XOI.  A fresh weekly “buy” signal has been generated for Exxon-Mobil (XOM-74.38).  A fresh weekly “sell” signal has been generated in Chevron-Texaco (CVX-76.67).  Weekly “buy” signals remain prevalent for XOI components, British Petroleum (BP-57.83) and Suncor Energy (SU-35.59).  A weekly “sell” signal remains in place for XOI component Conoco-Phillips (COP-52.08).  It appears that the time has come for the widely held, underperformer XOM to make a bullish upside move. At this point in time we would overweight XOM versus underweighting CVX.

 

The Oil Service Index (OIH-117.10) declined 4.25% this past trading week.  The 2009 year to date return for the OIH stands at a positive 58.77%.  The OIH is entering week four of a “sell” signal.  Our weekly closing price resistance level in order to maintain our current “sell” signal shall remain at 122.97.  Any weekly closing price above 122.97 will negate our current weekly “sell” signal for the OIH.  Weekly “sell” signals continue to remain in place across the board for OIH components Halliburton (HAL-29.88), Schlumberger (SLB-63.34), Baker Hughes (BHI-40.49), Ensco (ESV-44.34) and Transocean (RIG-83.81).  No changes from the prior week; use any extended price strength to reduce long exposure and or to initiate short positions.

 

Natural Gas (UNG-8.99) declined 0.77% this past week.  The current 2009 performance of the UNG is a negative 61.19%.  The UNG is entering week four of a “sell” signal.  Our weekly price resistance in order to maintain our current “sell” signal shall be lowered to 9.48.  Any weekly closing price above 9.48 will negate our current “sell” signal for the UNG.  The UNG is testing the lows of the 2009 trading year of 8.94.  This sets up a potential double bottom or a complete downside washout.  Use extended price appreciation approaching our above mentioned price resistance level to reduce long exposure and or to initiate short trades.

 

The Coal Sector (KOL-34.57) advanced by 1.17% this past week.  Year-to-date the KOL is positive by 132.16%.  The KOL is entering week two of a “buy” signal.  Our weekly closing price support level in order to maintain our current “buy” signal shall be raised to the 33.99 price level.  Any weekly closing price below 33.99 will negate our current “buy” signal for the KOL.  The KOL appears a little extended to the upside but the “buy the dip” trade remains in force.

 

 

V.               Dow 30 Analysis

 

Our Weekly Trend Indicator (WTI) measures in at +18, an increase from the previous week reading of +14.  Currently 80.0% of the thirty Dow Jones Industrial components have favorable weekly chart formations; this is an increase from 73.0% in the prior week.  The Dow Jones Industrial average advanced 0.46% for the week to 10318.16.  The current return for the 2009 trading year stands at a positive 17.56%. 

 

The S&P 500, as measured by the SPY (109.43), declined 0.17% for the week.  The 2009 trading year return for the SPY is positive by 21.26%.   Small caps issues, as measured by the IWM (IShares Russell 2000 Index Fund- 58.59), declined 0.24% for the week.  The IWM year to date return is currently a positive 18.98%.

 

          The DIA (103.25) closed out the week with a 0.66% advance and is entering week two of a “buy” signal.  Our weekly closing price support level in order to maintain the current “buy” signal shall be raised to 102.72.  Any weekly closing price below 102.72 will negate our current “buy” signal for the DIA.  The DIA stalled at the weekly trend line price resistance area of 104.50 as the high trade last week was 104.64.  Our thoughts remain unchanged from our previous letter; we see a weekly trend line trading range developing with the upper end resistance area around 104.50 and the lower end price support area at 96.50.  We would look to trade this range until either parameter is violated.

           

Fresh weekly buy signals generated: KFT, VZ, XOM

 

Fresh negative weekly signals generated: CVX

 

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

 

Dow 30 stocks with positive weekly signals:

 

 AXP, BA, CAT, DD, DIS, GE, HD, HPQ, IBM, INTC, JNJ, KO, KFT, MCD, MRK, MSFT, PFE, PG, T, TRV, UTX, VZ, WMT, XOM

                 

Dow 30 stocks with negative weekly signals:  

      

           AA, BAC, CSCO, CVX, JPM, MMM

·        Underline names have changed from previous week*

                             

 

 

VI.    KEY EVENTS IN THE WEEK AHEAD:

Monday, November 23

Economic

10:00 Existing Home Sales (Oct.): 5.70M cons.

Earnings

Before: JOBS, BJS, CPB, LDK, TECD, TSN, VAL

After: ADI, ATW, CTRN, DY, HPQ, NUAN, VIMC

Events

UL Investor Seminar
FED:$44 bln 2-yr Treasury Note Auction
        $30 bln 3 month and $31 bln 6 month Treasury Bill Auctions

 

Tuesday, November 24

Economic

08:30 GDP-Prelim. (Q3): 2.9% cons.

08:30 GDP Deflator Prelim. (Q3): 0.8% cons.

09:00 Case Schiller 20 City Index (Sep.): -9.05% cons.

09:00 Consumer Confidence (Nov.): 47.5 cons.

10:00 FHFA Home Price Index (Sep.): 0.1% cons.

Earnings

Before: AHCI, AEO, AMWD, BKS, BRCD, BWS, CBRL, DAKT, DLTR, DHT, DSW, EV, FRED, GCO, GIGM, HI, HNZ, HRL, MDT, WMG, ZLC

After: BCSI, JRJC, CWTR, JCG, NZ, SNS, TIVO

Events

JEC Analyst Event FED:$42 bln 5-yr Treasury Note Auction         FOMC Minutes released from Nov 3-4 FOMC Meeting

Wednesday, November 25

Economic

08:30 Personal Income (Oct.): 0.2% cons.

08:30 Personal Spending (Oct.): 0.5% cons.

08:30 PCE Prices (Oct.): 0.1% 0.1% cons.

08:30 PCE Prices – Core (Oct.): 0.1% cons.

08:30 Initial Claims: 500K cons.

08:30 Continuing Claims: 5560K cons.

08:30 Durable Orders (Oct.): 0.5% cons.

08:30 Durable Orders Ex. Transport (Oct.): 0.7% cons.

09:55 Michigan Sentiment – Rev. (Nov.): 67.0 cons.

10:00 New Home Sales (Oct.): 405K cons.

10:30 Crude Inventories: -0.887K prior

Earnings

Before: CONN, DE, TIF, VIP

After: APWR

Events

PBR Analyst Meeting
FED: Bond Markets close early for Thanksgiving Holiday (14:00)

 

Thursday, November 26

Economic

08:30

Earnings

Before:

After: NCTY

Events

Equity & Bond Markets closed for Thanksgiving Holiday

 

Friday, November 27

Economic

Earnings

Before: FRO, SFL

After:

Events

Equity Markets close early for Thanksgiving Holiday(13:00)
Bond Markets close early for Thanksgiving Holiday (14:00)

 

 

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