equityletter.com 12/07/09
Note: Event Calendar is located at bottom of page
I. General Commentary
As we have stated numerous times in previous letters, “bad news” is “good news” for the equity market. By this statement we mean that continued uninspiring economic news leaves the green light on for the Federal Reserve to maintain the emergency measures of providing liquidity that have been present for the past year and a half or so. Unfriendly economic news has been a constant throughout the incredible approximate 60.0% levitation in the
The major market averages under our coverage that we currently rate with positive weekly technical indications are the SPDR- S&P 500 (SPY-111.01), Diamonds Trust (DIA-103.98), U.S. $ Index (UUP-22.48), NASDAQ Composite (COMP-2194.35), and the Powershares QQQQ Trust (QQQQ-44.12). We currently have a negative view on the IShares Russell 2000 Index Fund (IWM-60.42) and the I-share 7-10 year Treasury bond (IEF-91.04). *Take note that the UUP is an upside opinion change and the IEF is a downside 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), Financials (XLF) , Retailers (RTH), Agriculture (MOO), Real Estate (IYR), Pharmaceuticals (PPH), Semiconductors (SMH), and Internet Related (HHH). *The XLF and IYR 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), Coal (KOL), Large Integrated Oil (XOI), and Managed Healthcare. * The KOL is a downgrade from the previous letter.*
Sectors that we believe to be currently vulnerable to downside pricing pressure are the Oil Service (OIH), Crude Oil (USO), Natural Gas (UNG), and Homebuilding (XHB). *The UNG is a downgrade 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-91.04 (I-share 7-10 year Treasury bond) declined 1.79% for the week as the yield on the 10- year treasury increased from 3.23% to 3.48%. For comparative reference the yield on the 10-year Treasury began the 2009 trading year at 2.24%. The IEF has closed below our weekly price support level therefore generating a fresh “sell” signal. The weekly closing price resistance level in order to maintain our fresh “sell” signal shall be set at 92.79. Any weekly closing price above 92.79 will negate our fresh “sell” signal for the IEF. The IEF failed up at the price resistance area that we noted in our prior letter. With a fresh weekly “sell” signal now having been generated we would now use any price strength approaching our above noted price resistance level to reduce long exposure and or to initiate short trades. We see an initial near term downside test of the 90.00 area for the IEF.
A. Financials
The Financial Select Sector Index (XLF-14.63) finished the trading week with a 2.45% advance. The XLF is now positive by 16.85% to date for the 2009 trading year. After spending the past nine on our weekly “sell” list the XLF has closed above our price resistance level therefore generating a fresh weekly “buy” signal. Our weekly closing price support shall be set at 14.33. Any weekly closing price below 14.33 will negate our fresh “buy” signal for the XLF. Fresh weekly “buy” signals have been generated in XLF components
B. Builders
The Homebuilder exchange traded fund (XHB-14.68) advanced 1.66% for the week. The 2009 year-to-date performance of the XHB currently stands at a positive 22.53%. The XHB is entering week eleven of a “sell” signal. Our weekly closing price resistance level in order to maintain our current “sell” signal for XHB shall remain at 14.75. Any weekly closing price above the 14.75 resistance level will negate our current “sell” signal in the XHB. A weekly “buy” signal remains in place for XHB component Toll Brothers (TOL-18.08). We would look to buy weakness in TOL as it appears as the best looking chart in an overall weak sector. Weekly “sell” signals remain in place for XHB components Pulte Homes (PHM-9.07), D R Horton (DHI-10.10), Ryland Group (RYL-18.54), KB Homes (KBH-13.60), and Lennar (LEN-12.43). The weekly trend remains one of distribution; use any price strength in negatively mentioned names to reduce long exposure and or to initiate short trades.
B. Semiconductor
The Semiconductor group (SMH-27.13) advanced 6.86% for the week. The SMH performance for 2009 to date stands at a positive 54.06%. The SMH is entering week four of a “buy” signal. Our weekly price support level in order to maintain our current “buy” signal shall be raised to 25.10. Any weekly closing price below 25.10 will negate our current “buy” signal for the SMH. SMH components SanDisk (SNDK-21.94) and Applied Materials (AMAT-13.32) have decided to join the sector upswing as they both have generated weekly “buy” signals. Weekly “buy” signals remain in place for SMH components Analog Devices (ADI-30.60), Novellus (NVLS-23.36),
D. Retailers
The Retail sector (RTH-94.08) finished the trading week with a 0.10% decline. The 2009 performance of the RTH currently stands at a positive 25.18%. The RTH is entering week four of a “buy” signal. Our weekly closing price support level for the RTH in order to maintain the current “buy” signal shall be raised to 92.95. Any weekly closing price below 92.95 will negate our current “buy” signal for the RTH. Weekly “buy” signals remain prevalent for RTH components WalMart (WMT-54.24), BestBuy (BBY-43.79), and Home Depot (HD-28.08). Weekly “sell” signals remain in place for RTH components Kohl’s (KSS-53.70), Sears Holding’s (SHLD-72.71), Walgreen’s (WAG-37.86), and Target (TGT-45.64). Mixed internal component signals continue to exist making individual stock selection an important factor. 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-59.24) finished the week with a 6.32% advance. The current 2009 trading year return for the SLX is a positive 101.70%. The SLX is entering week six of a “sell” signal. Our weekly closing price resistance level for the SLX shall be readjusted to 60.21. Any weekly closing price above 60.21 will negate our current “sell” signal for the SLX. Weekly “buy” signals remain in place for
F. Pharmaceuticals and Healthcare
The Pharmaceutical group (PPH-66.09) increased by 1.05% last week. The current 2009 return for the PPH stands at a positive 7.76%. 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 raised to 65.10. Any weekly closing price below 65.10 will negate our current “buy” signal for the PPH. Weekly “buy” signals remain in place across the board for PPH components Johnson & Johnson (JNJ-64.36), Pfizer (PFE-18.49), and Merck (MRK-36.70), Abbott Lab’s (ABT-53.78), GlaxoSmithKline (GSK-42.75), and Eli Lilly (LLY-37.39). The weekly trends remain favorable; use extended price weakness to increase exposure and or to initiate long trades.
III. Gold
GLD (streetTracks gold index) – The GLD (113.75) declined 1.14% on the week. For the 2009 trading year the GLD currently rests with a positive return of 31.47%. The GLD is entering week nine of a “buy” signal. Our weekly closing price support level in order to maintain our current “buy” signal shall be raised to 113.02. Any weekly closing price below 113.02 will negate our current “buy” signal for the GLD. The surprisingly much better unemployment report issued last Friday prompted a 5.00% one day sell off in the GLD. While the move was eye-catching the fact of the matter is that the GLD still maintains favorable technical status. The sharp downside move will test the resolve of the bullish crowd but has done nothing more at this point in time than relieve an extremely over bought condition. Any weekly close under are key 113.00 price support level will indicate further downside to come. For now we shall maintain our bullish stance on the GLD.
IV. Energy- (Oil, Oil Service, Nat’l Gas, Coal)
The Large-Cap Integrated Oil space (XOI-1068.43) closed out the trading week with a 0.63% decline. The XOI is now positive by 9.05% for the 2009 trading year. The XOI is in the sixth week of a “sell” signal. Our weekly price resistance in order to maintain our current “sell” signal shall be lowered to 1042.03. Any weekly closing price above 1042.03 will negate our current “sell” signal for the XOI. Weekly “buy” signals remain prevalent for XOI components Exxon-Mobil (XOM-74.25), British Petroleum (BP-57.86) and Suncor Energy (SU-35.88). Weekly “sell” signals remain in place for XOI components Conoco-Phillips (COP-50.66) and Chevron-Texaco (CVX-78.07). The XOI remains in consolidation mode, any downside penetration of the key 1050.00 price support level will indicate a swift move down to the 1000.00 area.
The Oil Service Index (OIH-114.55) declined 2.14% this past trading week. The 2009 year to date return for the OIH stands at a positive 55.32%. The OIH is entering week six of a “sell” signal. Our weekly closing price resistance level in order to maintain our current “sell” signal shall be lowered to 121.23. Any weekly closing price above 121.23 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-27.81), Schlumberger (SLB-61.37), Baker Hughes (BHI-39.09), Ensco (ESV-41.95) and Transocean (RIG-83.00). No changes from the prior week; use any extended price strength to reduce long exposure and or to initiate short positions.
Natural Gas (UNG-8.64) declined 12.11% this past week. The current 2009 performance of the UNG is a negative 62.71%. The UNG has closed below our weekly price support level therefore negating our “buy” signal issued in our previous letter. Our weekly price resistance in order to maintain our fresh “sell” signal shall be set at 9.39. Any weekly closing price above 9.39 will negate our fresh “sell” signal for the UNG. Once again our attempt to call a bottom for the UNG has proved futile. Use extended price appreciation to reduce long exposure and or to initiate short trades.
The Coal Sector (KOL-34.31) advanced by 1.21% this past week. Year-to-date the KOL is positive by 130.42%. The KOL is entering week four of a “buy” signal. Our weekly closing price support level in order to maintain our current “buy” signal shall remain at the 33.90 price level. Any weekly closing price below 33.90 will negate our current “buy” signal for the KOL. Another poor weekly close for the KOL coupled with weakness in coal equities ACI, MEE, BTU, and CNX gives us cause for caution. We shall downgrade the KOL to neutral from buy.
V. Dow 30 Analysis
Our Weekly Trend Indicator (WTI) measures in at +10, a decrease from the previous week reading of +14. Currently 66.0% of the thirty Dow Jones Industrial components have favorable weekly chart formations; this is a decrease from 73.0% in the prior week. The Dow Jones Industrial average advanced 0.77% for the week to 10388.90. The current return for the 2009 trading year stands at a positive 18.37%.
The S&P 500, as measured by the SPY (111.01), advanced 1.31% for the week. The 2009 trading year return for the SPY is positive by 23.01%. Small caps issues, as measured by the IWM (IShares Russell 2000 Index Fund- 60.42), advanced 4.93% for the week. The IWM year to date return is currently a positive 22.70%.
The DIA (103.99) closed out the week with a 0.78% advance and is entering week four of a “buy” signal. Our weekly closing price support level in order to maintain the current “buy” signal shall remain at 102.72. Any weekly closing price below 102.72 will negate our current “buy” signal for the DIA. It was another week of similar price action with the DIA stalling at the weekly trend line price resistance area of 104.50 – 105.00 area. Our thoughts remain unchanged from our previous letter; we see a weekly trend line trading range developing with the upper end resistance area around 105.00 and the lower end price support area at 96.50. We would look to trade this range until either parameter is violated on a weekly closing basis.
Fresh weekly buy signals generated: CSCO, MMM
Fresh negative weekly signals generated: AXP, DD, MCD
Readers should take note that there are no Dow Jones Industrial components scheduled to report quarterly earnings in the coming week.
Dow 30 stocks with positive weekly signals:
BA, CAT, CSCO, DIS, GE, HD, HPQ, IBM, INTC, JNJ, KO, MRK, MMM, PFE, PG, T, UTX, VZ, WMT, XOM
Dow 30 stocks with negative weekly signals:
AA, AXP, BAC, CVX, DD, JPM, KFT, MCD, MSFT, TRV
· Underline names have changed from previous week*
VI. KEY EVENTS IN THE WEEK AHEAD:
Monday, December 7
Economic
Earnings
Before: BTH, GRB, LAYN
After: CASY, FMCN, PBY
Events
EBAY, PCS, VIA, MHP at UBS Media & Communications Conf.
FED: Fed's Bernanke
$30 bln 3 month and $31 bln 6 month Treasury Bill Auctions
Tuesday, December 8
Economic
Earnings
Before: AZO, BF/B, GIGM, HRB, IPSU, KR, SAFM, TLB, TTC, MTN
After: AVAV, CHP, CKR, CMTL, COO, MW, MIND, NCS, SAI
Events
| CSCO Financial Analyst Conference |
Wednesday, December 9
Economic
Earnings
Before: HITK, JTX, MOV, POWL
After: ALOG, BWY, FCEL, GEF, LULU, OHB, OXM, PLL
Events
BK, USB, BX, COF at Goldman Sachs US Financial Services Conf.
HPQ, INTU, QCOM, YHOO at Barclays Technology Conference
FED: $21 bln 10-yr Treasury Note Auction
Thursday, December 10
Economic
Earnings
Before: CIEN, COST, CUB, DG, GIL, MEI, SFD, TITN, UNFI
After: CRI, CPII, ESL, HRLY, LTRE, NSM
Events
UTX Investor and Analyst Meeting
GE, ROK, CKP, WSO at Bank of
FED: $13 bln 30-yr Treasury Bond Auction
Friday, December 11
Economic
Earnings
Before:
After:
Events
ITW Investor Day
HSC Annual Analyst Conf.
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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