equityletter.com 12/14/09
Note: Event Calendar is located at bottom of page
I. General Commentary
The major market averages under our coverage that we currently rate with positive weekly technical indications are the SPDR- S&P 500 (SPY-111.11), Diamonds Trust (DIA-104.92), U.S. $ Index (UUP-22.68), NASDAQ Composite (COMP-2190.31), and the Powershares QQQQ Trust (QQQQ-44.13). We currently retain a negative view on the IShares Russell 2000 Index Fund (IWM-60.17) and the I-share 7-10 year Treasury bond (IEF-90.67). *Take note that there are no changes from the previous letter.*
Sector ETF’s within our coverage universe that remain in favor according to our weekly oriented technical analysis include the Transportation (IYT), Financials (XLF) , Retailers (RTH), Agriculture (MOO), Real Estate (IYR), Pharmaceuticals (PPH), and Semiconductors (SMH). *There are no upgrades from prior letter.* Use price weakness to increase long exposure or to initiate long trades.
Sector ETF’s that we currently rate as neutral include the Gold (GLD), Steel (SLX), Coal (KOL), Internet Related (HHH), Natural Gas (UNG), and Managed Healthcare. * The GLD and HHH are downgrades and the UNG is an upgrade from the previous letter.*
Sector ETF’s that we believe to be currently vulnerable to downside pricing pressure are the Large Integrated Oil (XOI), Oil Service (OIH), Crude Oil (USO), and Homebuilding (XHB). *The XOI 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-90.67 (I-share 7-10 year Treasury bond) declined 0.41% for the week as the yield on the 10- year treasury increased from 3.48% to 3.54%. For comparative reference the yield on the 10-year Treasury began the 2009 trading year at 2.24%. The IEF is entering week two of a “sell” signal. The weekly closing price resistance level in order to maintain our current “sell” signal shall be lowered to 91.88. Any weekly closing price above 91.88 will negate our current “sell” signal for the IEF. It is the second week of a “sell” signal with the 90.00 price level acting as a key price support level. Any failure for the IEF to maintain the 90.00 support level will indicate a further downside move to the 88.00 area.
A. Financials
The Financial Select Sector Index (XLF-14.39) finished the trading week with a 1.64% decline. The XLF is now positive by 14.93% to date for the 2009 trading year. The XLF is entering the second week of a “buy” signal. Our weekly closing price support level in order to maintain said “buy” signal shall remain at 14.33. Any weekly closing price below 14.33 will negate our current “buy” signal for the XLF. Weekly “buy” signals currently exist for XLF components
B. Builders
The Homebuilder exchange traded fund (XHB-14.60) declined 0.54% for the week. The 2009 year-to-date performance of the XHB currently stands at a positive 21.86%. The XHB is entering week twelve 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-17.81). We shall remain favorable on TOL but any weekly closing price below 17.80 would warrant a change of opinion. Weekly “sell” signals remain in place for XHB components Pulte Homes (PHM-8.83), D R Horton (DHI-9.86), Ryland Group (RYL-18.10), KB Homes (KBH-13.27), and Lennar (LEN-11.85). The weekly trend remains one of distribution; continue to use any price strength in the XHB and above negatively mentioned names to reduce long exposure and or to initiate short trades.
B. Semiconductor
The Semiconductor group (SMH-26.75) declined 1.40% for the week. The SMH performance for 2009 to date stands at a positive 51.90%. The SMH is entering week five of a “buy” signal. Our weekly price support level in order to maintain our current “buy” signal shall remain at 25.10. Any weekly closing price below 25.10 will negate our current “buy” signal for the SMH. Weekly “buy” signals remain in place across the board for SMH components Analog Devices (ADI-30.49), Novellus (NVLS-23.80), Texas Instruments (TXN-25.64), Micron Technology (MU-8.64), SanDisk (SNDK-22.92), Applied Materials (AMAT-13.38) and Intel (INTC-19.90). A slight decline for semiconductor sector for the week but no weekly trend changes have been generated. 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-94.98) finished the trading week with a 1.07% advance. The 2009 performance of the RTH currently stands at a positive 26.38%. The RTH is entering week five of a “buy” signal. Our weekly closing price support level for the RTH in order to maintain the current “buy” signal shall remain at 92.95. Any weekly closing price below 92.95 will negate our current “buy” signal for the RTH. Fresh weekly “buy” signals have been generated in RTH components Kohl’s (KSS-55.60) and Sears Holding’s (SHLD-74.32). Weekly “buy” signals remain prevalent for RTH components WalMart (WMT-54.65), BestBuy (BBY-44.34), and Home Depot (HD-28.49). Weekly “sell” signals remain in place for RTH components Walgreen’s (WAG-38.81) and Target (TGT-46.93). Continue to use price weakness in the RTH and select favorably mentioned components to increase long exposure and or to initiate long trades.
E. Steels
The Steel sector (SLX-60.01) finished the week with a 1.30% advance. The current 2009 trading year return for the SLX is a positive 104.32%. The SLX is entering week seven of a “sell” signal. Our weekly closing price resistance level for the SLX shall remain at 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-66.35) increased by 0.57% last week. The current 2009 return for the PPH stands at a positive 8.18%. The PPH is entering week four of a “buy” signal. Our weekly price support level in order to maintain the current weekly “buy” signal shall remain at 65.10. Any weekly closing price below 65.10 will negate our current “buy” signal for the PPH. A fresh weekly “sell” signal has been generated in PPH component Eli Lilly (LLY-34.97). Weekly “buy” signals remain in place for PPH components Johnson & Johnson (JNJ-64.85), Pfizer (PFE-18.30), Merck (MRK-37.07), Abbott Lab’s (ABT-53.77), and GlaxoSmithKline (GSK-42.24). 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 (109.32) declined 3.90% on the week. For the 2009 trading year the GLD currently rests with a positive return of 26.35%. The GLD closed out last week below our key price support level therefore generating a fresh “sell” signal. Our weekly closing price support level in order to maintain our fresh “sell” signal shall be set at 114.22. Any weekly closing price above 114.22 will negate our fresh “sell” signal for the GLD. While we will retain our longer term bullish stance for the GLD it appears that the time has come for an intermediate downside test of the bullish resolve of the gold bugs. We see weekly trend line price support around the 107.00 area. If the 107.00 level fails to provide price support a downside continuation move to the 100.00 could be in the cards. The sharp upside move of the GLD simply became too vertical and the market appears poised to punish those buyers who entered at elevated prices. An intermediate term correction has been signaled, first price support level is around 107.00, then 100.00. For the time being we shall move from a buy to a neutral in the GLD.
IV. Energy- (Oil, Oil Service, Nat’l Gas, Coal)
The Large-Cap Integrated Oil space (XOI-1048.50) closed out the trading week with a 1.87% decline. The XOI is now positive by 7.02% for the 2009 trading year. The XOI is in the seventh week of a “sell” signal. Our weekly price resistance in order to maintain our current “sell” signal shall be readjusted to 1074.87. Any weekly closing price above 1074.87 will negate our current “sell” signal for the XOI. Fresh weekly “sell” signals have been generated for XOI components Exxon-Mobil (XOM-72.83), British Petroleum (BP-56.45) and Suncor Energy (SU-34.27). Weekly “sell” signals remain in place for XOI components Conoco-Phillips (COP-50.92) and Chevron-Texaco (CVX-77.76). A downside test of the 1000.00 price support level appears to be forthcoming..
The Oil Service Index (OIH-114.28) declined 0.21% this past trading week. The 2009 year to date return for the OIH stands at a positive 54.95%. The OIH is entering week seven of a “sell” signal. Our weekly closing price resistance level in order to maintain our current “sell” signal shall be lowered to 116.24. Any weekly closing price above 116.24 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-28.11), Schlumberger (SLB-61.38), Baker Hughes (BHI-39.30), Ensco (ESV-41.67) and Transocean (RIG-80.27). No changes from the prior week but at this point appearing somewhat oversold and vulnerable to a near term counter-trend bounce; use any extended price strength to reduce long exposure and or to initiate short positions.
Natural Gas (UNG-9.57) advanced 10.76% this past week. The current 2009 performance of the UNG is a negative 58.69%. The violent price action of the past two weeks for the UNG has whip-sawed our prognostication, down 12.00% one week, up 11.00% the next. The UNG closed above our weekly price resistance level therefore negating our “sell” signal issued in our previous letter. Our weekly price resistance in order to maintain our fresh “buy” signal shall be set at 8.97. Any weekly closing price below 8.97 will negate our fresh “buy” signal for the UNG. Recent violent weekly price action sends us to the sidelines for the UNG, look to trade the two-week trading range, 8.50 price support, 9.83 price resistance.
The Coal Sector (KOL-34.61) advanced by 0.87% this past week. Year-to-date the KOL is positive by 132.43%. The KOL is entering week five 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. Limited price volatility for the KOL coupled with further weakness in coal equities ACI, MEE, BTU, and CNX gives us cause for caution. We shall continue to remain neutral on the KOL at this time.
V. Dow 30 Analysis
Our Weekly Trend Indicator (WTI) measures in at +12, an increase from the previous week reading of +10. Currently 70.0% of the thirty Dow Jones Industrial components have favorable weekly chart formations; this is an increase from 66.0% in the prior week. The Dow Jones Industrial average advanced 0.80% for the week to 10471.50. The current return for the 2009 trading year stands at a positive 19.31%.
The S&P 500, as measured by the SPY (111.11), advanced 0.09% for the week. The 2009 trading year return for the SPY is positive by 23.12%. Small caps issues, as measured by the IWM (IShares Russell 2000 Index Fund- 60.17), declined 0.41% for the week. The IWM year to date return is currently a positive 22.19%.
The DIA (104.92) closed out the week with a 0.90% advance and is entering week five 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 but this time the DIA closed at the upper end of 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: AA
Fresh negative weekly signals generated: XOM
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:
AA, BA, BAC, CAT, CSCO, DIS, GE, HD, HPQ, IBM, INTC, JNJ, KO, MRK, MMM, PFE, PG, T, UTX, VZ, WMT
Dow 30 stocks with negative weekly signals:
AXP, CVX, DD, JPM, KFT, MCD, MSFT, TRV, XOM
· Underline names have changed from previous week*
VI. KEY EVENTS IN THE WEEK AHEAD:
Monday, December 14
Economic
Earnings
Before:
After: SNS, PAY
Events
SYY Investor Day
AGLN, BABY, CPTX, VOLC at Roth Capital Partners Medical Device Conference
FED: $30 bln 3-month and $31 bln 6-month Treasury Bill Auctions
Tuesday, December 15
Economic
Earnings
Before: BBY, FDS, GIGM
After: AIR, ADBE, TTWO
Events
| BRCM Analyst Day |
Wednesday, December 16
Economic
Earnings
Before: JOYG
After: APOG, MLHR, HOV, MATK, NDSN, OHB, PAYX
Events
HANS Analyst Meeting
GAS Analyst Meeting
FED: FOMC Policy Release
Thursday, December 17
Economic
Earnings
Before: ATU, BRLI, DFS, FDX, GIS, MCS, PIR, RAD, SCHL, WGO
After: COMS, CAN, APSG, CRI, DRI, HEI, NKE, ORCL, PALM, ZQK, RIMM, SCS
Events
ONXX Analyst Meeting
AVT Analyst Meeting
BCR Analyst Meeting
Friday, December 18
Economic
Earnings
Before: KMX, CCL, NEOG, STEI
After:
Events
U.S. President Barack Obama attends the U.N. Climate Change 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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