equityletter.com 01/18/10
Note: Event Calendar is located at bottom of page
I. General Commentary
The second week of the trading year started well but finished poorly. The January option expiration week which featured generally positive earnings reports from J.P.Morgan (JPM-43.68), Alcoa (AA-15.63), and Intel (INTC-20.80), suffered sharp Friday declines which erased any gains incurred earlier in the week. In somewhat disconcerting fashion all three companies mentioned above experienced price declines after issuing positive releases. “Good news” that is met with increased selling is never a positive sign. Also somewhat troubling is the recent weakness in high beta issues, Apple Computer (AAPL-205.93) and Google (GOOG-580.00) in particular. (GOOG is scheduled to report earnings this week) We shall continue to monitor the high-beta issues with increased scrutiny as they may be an indication of “aggressive” money leaving the equity market. These concerns being stated the vast majority of our technical indicators have not yet weakened to the point where we are flashing major “sell” signals. We remain in the bullish camp but are mildly concerned. Stay tuned.
The major market averages under our coverage that we currently rate with positive weekly technical indications are the SPDR- S&P 500 (SPY-113.64), Diamonds Trust (DIA-106.01), U.S. $ Index (UUP-22.77), I-share 7-10 year Treasury bond (IEF-90.05), NASDAQ Composite (COMP-2287.99), IShares Russell 2000 Index Fund (IWM-63.68) and the Powershares QQQQ Trust (QQQQ-45.85). We currently have negative views on major
Sector ETF’s within our coverage universe that remain in favor according to our weekly oriented technical analysis include the Homebuilding (XHB), Gold (GLD), Managed Care, Oil Service (OIH), Agriculture (MOO), Coal (KOL), Steel (SLX), and Pharmaceuticals (PPH). *Take note that there are no upgrades from the 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 Real Estate (IYR), Financials (XLF), Semiconductors (SMH), Large Integrated Oil (XOI), Transportation (IYT), Crude Oil (USO), and Natural Gas (UNG). * Take note that the IYR and SMH are downgrades to the neutral list from the previous letter.*
Sector ETF’s that we believe to be currently vulnerable to downside pricing pressure are the Retailers (RTH). *Take note that there are no new additions to downgrade list 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-90.05 (I-share 7-10 year Treasury bond) advanced 1.23% for the week as the yield on the 10- year treasury decreased from 3.80% to 3.76%. For comparative reference the yield on the 10-year Treasury began the 2010 trading year at 3.84%. The IEF has closed above our weekly price resistance level and is therefore indicating a weekly change of trend from negative to positive. The weekly closing price support level in order to maintain our fresh “buy” signal shall be set at 88.93. Any weekly closing price below 88.93 will negate our fresh “buy” signal for the IEF. The road to a 4.00% ten-year Treasury yield appears to have taken a short term detour. Strength in the IEF is indicating a near term retreat in the 10-year Treasury yield to the 3.50% area.
A. Financials
The Financial Select Sector Index (XLF-14.94) finished the trading week with a 1.84% decline. The 2010 trading year return of the XLF is a positive 3.75%. The XLF is entering week two of a “buy” signal. Our weekly closing price support level in order to maintain our current “buy” signal shall remain at 14.49. Any weekly closing price below 14.49 will negate our current “buy” signal for the XLF. A fresh weekly “buy” signal has been triggered in American Express (AXP-42.39). Fresh weekly “sell” signals have been generated in XLF components Morgan Stanley (MS-30.38) and Goldman Sachs (GS-165.21). Weekly “buy” signals remain current for XLF components J.P. Morgan (JPM-43.68), Wells
B. Builders
The Homebuilder exchange traded fund (XHB-15.63) declined 3.64% for the week. The 2010 year-to-date performance of the XHB currently rests at a positive 3.50%. The XHB is entering week five of a “buy” signal. Our weekly closing price support level in order to maintain our current “buy” signal for XHB shall remain at 14.99. Any weekly closing price below the 14.99 support level will negate our current “buy” signal in the XHB. Weekly “buy” signals remain in place for XHB components Toll Brothers (TOL-19.34), D R Horton (DHI-12.14), Pulte Homes (PHM-11.00), KB Homes (KBH-15.30), Lennar (LEN-15.96) and Ryland Group (RYL-20.82). Week five of a “buy” signal; we would continue to use extended price weakness in the XHB and above positively mentioned names to increase long exposure and or to initiate long trades.
B. Semiconductor
The Semiconductor group (SMH-26.93) declined 5.58% for the week. The current SMH performance for the 2010 trading year is a negative 3.54%. The SMH has closed below our weekly support level therefore generating a fresh weekly “sell” signal. Our weekly price resistance level in order to maintain our fresh “sell” signal shall be set at 28.52. Any weekly closing price above 28.52 will negate our fresh “sell” signal for the SMH. Fresh weekly “sell” signals have been triggered in SMH components Analog Devices (ADI-28.96),
D. Retailers
The Retail sector (RTH-93.20) finished the trading week with a 1.23% decline. The current 2010 return of the RTH stands at a negative 0.68%. The RTH is entering week five of a “sell” signal. Our weekly closing price resistance level for the RTH in order to maintain the current “sell” signal shall remain at 95.09. Any weekly closing price above 95.09 will negate our current “sell” signal for the RTH. A fresh weekly “sell” signal has been generated in RTH component Home Depot (HD-28.57). Weekly “buy” signals continue to remain in place for RTH components Sears Holding’s (SHLD-102.37) and Target (TGT-50.17). Weekly “sell” signals continue to remain in place for RTH components Walgreen’s (WAG-36.60), Kohl’s (KSS-51.51), WalMart (WMT-53.68) and BestBuy (BBY-38.93). Week five of a sell signal; continue to use extended price strength in the RTH and above negatively mentioned names to reduce long exposure and or to initiate short trades.
E. Steels
The Steel sector (SLX-65.00) finished the week with a 3.77% decline. The current 2010 trading year return for the SLX measures in at a positive 5.65%. The SLX is entering the fourth week of a “buy” signal. Our weekly closing price support level for the SLX shall be raised to 64.84. Any weekly closing price below 64.84 will negate our current “buy” signal for the SLX. A fresh weekly “sell” signal has been generated in Steel Dynamics (STLD- 18.01). Weekly “buy” signals remain in place for
F. Pharmaceuticals and Healthcare
The Pharmaceutical group (PPH-68.16) increased by 2.31% last week. The PPH 2010 trading year return stands at a positive 3.27%. The PPH is entering week nine of a “buy” signal. Our weekly price support level in order to maintain the current weekly “buy” signal shall be raised to 66.64. Any weekly closing price below 66.64 will negate our current “buy” signal for the PPH. Weekly “buy” signals remain in place for PPH components Merck (MRK-39.47), Johnson & Johnson (JNJ-64.56), Pfizer (PFE-19.49), and Abbott Lab’s (ABT-55.49). Eli Lilly (LLY-35.82) and GlaxoSmithKline (GSK-40.91) shall remain on our “sell” list at this time. The weekly trends remain favorable; use extended price weakness in the PPH and above positively mentioned components to increase exposure and or to initiate long trades.
III. Gold
GLD (streetTracks gold index) – The GLD (110.86) declined 0.46% on the week. The GLD current return for the 2010 trading year is a positive 3.30%. The GLD is entering week two of a “buy” signal. Our weekly closing price support level in order to maintain our current “buy” signal shall remain at 109.26. Any weekly closing price below 109.26 will negate our current “buy” signal for the GLD. The GLD is again indicating the resumption of an upward path but in order to maintain our assumption the 109.26 level must continue to provide bullish price support. Week two of a favorable technical signal; use price weakness to increase exposure and or to initiate long trades.
IV. Energy- (Oil, Oil Service, Nat’l Gas, Coal)
The Large-Cap Integrated Oil space (XOI-1091.80) closed out the trading week with a 2.19% decline. The current XOI 2010 trading year return is a positive 2.21%. The XOI is entering the second week of a “buy” signal. Our weekly price support level in order to maintain our current “buy” signal shall remain at 1068.21. Any weekly closing price below 1068.21 will negate our current “buy” signal for the XOI. Favorable weekly “buy” conditions remain in place for XOI components Chevron-Texaco (CVX-79.23), Conoco-Phillips (COP-53.02), British Petroleum (BP-61.64) and Suncor Energy (SU-35.82). A weekly “sell” signal shall remain in place for XOI component Exxon-Mobil (XOM-69.11) at this time. Last week we moved to a neutral opinion on the XOI as indications of near term price strength became apparent. We shall remain neutral at this time as we fear near term weakness in the price of crude oil may prevent further upside from current price levels.
The Oil Service Index (OIH-130.19) declined 1.98% this past trading week. The 2010 year to date return for the OIH stands at a positive 9.51%. The OIH is entering week five of a “buy” signal. Our weekly closing price support level in order to maintain our current “buy” signal shall be raised to 127.11. Any weekly closing price below 127.11 will negate our current “buy” signal for the OIH. Weekly “buy” signals remain in place for OIH components Halliburton (HAL-34.03), Schlumberger (SLB-70.83), Baker Hughes (BHI-47.28), Ensco (ESV-44.58) and Transocean (RIG-91.85). The coming week will bring increased volatility for the OIH as influential component SLB is scheduled to release quarterly earnings. Any weekly close above the 132.39 price resistance level for the OIH will foretell increased price strength possibly to the 150.00 area. Week five of a buy signal; continue to use extended price weakness in the OIH and above positively mentioned components to increase exposure and or to initiate long trades.
Natural Gas (UNG-10.24) declined 1.63% this past week. The UNG current 2010 trading year return is a positive 1.58%. The UNG is entering week six of a “buy” signal. Our weekly price support level in order to maintain our current “buy” signal shall remain at 9.98. Any weekly closing price below 9.98 will negate our current “buy” signal for the UNG. We shall maintain our neutral stance for the UNG at this time but any weekly closing price above the 10.84 price level will further enhance bullish momentum; for the time being the six-week advance can be categorized as nothing more than an over sold bounce.
The Coal Sector (KOL-38.83) declined by 4.12% this past week. The KOL 2010 trading year performance stands at a positive 7.50%. The KOL is entering week ten of a “buy” signal. Our weekly closing price support level in order to maintain our current “buy” signal shall be raised to the 38.49 price level. Any weekly closing price below 38.49 will negate our current “buy” signal for the KOL. The KOL remains favorable but long entry at current price levels does not appear attractive from a risk/reward standpoint.
V. Dow 30 Analysis
Our Weekly Trend Indicator (WTI) measures in at +8, a decrease from the previous week reading of +12. Currently 63.0% of the thirty Dow Jones Industrial components have favorable weekly chart technical indications; this is a decrease from 70.0% in the prior week. The Dow Jones Industrial average declined 0.08% for the week to 10609.65. The return for the 2010 trading year stands at a positive 1.74%.
The S&P 500, as measured by the SPY (113.64), declined 0.81% for the week. The current 2010 trading year return for the SPY is a positive 1.97%. Small caps issues, as measured by the IWM (IShares Russell 2000 Index Fund- 63.68), declined 1.30% for the week. The IWM current 2010 trading year return is a positive 1.98%.
The DIA (106.01) closed out the week with a 0.08% decline and is entering week ten of a “buy” signal. Our weekly closing price support level in order to maintain the current “buy” signal shall remain at 104.76. Any weekly closing price below 104.76 will negate our current “buy” signal for the DIA. A 1.00% Friday decline served to extinguish the gains achieved earlier in the week. Regardless of the poor late week performance the current DIA trend remains a favorable one. Our indications continue to point northward with an eventual upside test of the 110.00 – 115.00 major price resistance area still in play. If the DIA rises to the above mentioned price resistance zone we would begin to reduce long exposure as we feel that the risk/reward equation will become much less favorable. Any weekly close below 104.76 would negate our short term bullish case.
Fresh weekly buy signals generated: AXP
Fresh negative weekly signals generated: AA, DIS, HD
Readers should take note that Dow Jones Industrial components AXP, BAC, GE, IBM and MCD are scheduled to report quarterly earnings in the coming week.
Dow 30 stocks with positive weekly signals:
AXP, BA, BAC, CAT, CSCO, CVX, DD, GE, HPQ, IBM, INTC, JNJ, JPM, KFT, MMM, MRK, MSFT, PFE, UTX
Dow 30 stocks with negative weekly signals:
AA, DIS, HD, KO, MCD, PG, T, TRV, VZ, WMT, XOM
· Underlined names have changed from previous week*
VI. KEY EVENTS IN THE WEEK AHEAD:
Monday, January 18
Economic
Earnings
Before:
After:
Events
Equity & Bond Markets are closed for Martin Luther King, Jr. Day
Tuesday, January 19
Economic
Earnings
Before: C, FAST, FHN, FRX, IIVI, MMR, EDU, PH, PETS, AMTD
After: ADTN, CREE, CSX, FULT, HBHC, IBM, PNFP, SUPX,WIT
Events
| NAV Analyst Day |
Wednesday, January 20
Economic
Earnings
Before: AIT, ASML, BAC, BK, EAT, COH, COV, HCBK, IGTE, JEF, LAB, MTB, MI, MS, NTRS, PGR, STT, USB, WFC
After: DOX, EBAY, FFIV, KMP, LOGI, NVEC, OHB, PLXS, PLCM, RJF, STX, SWKS, SLM, SBUX, TSS, WGOV, XLNX
Events
PRXI Analyst Meeting
BTE, KOG, EXXI, GTE at IPAA Oil & Gas Investment Symposium
EXR at UBS Self Storage Real Estate
Thursday, January 21
Economic
Earnings
Before: AMFI, APH, AMR, AUO, SCHW, CMA, CAL, CVBF, FCS, FITB, FNFG, GMT, GS, HOMB, IMN, IIIN, ESI, KEY, NITE, LM, LYTS, MDZ, MDP, VIVO, MTG, PNC, BPOP, PPG, PCP, SMTS, LUV, SBIB, TSM, TCB, TDY, UNP, UNH, WNS, XRX, ZOLL
After: AMD, AXP, BXS, EPAY, BNI, COF, CBST, CYS, DGII, EFII, ELX, EZPW, GOOG, HTLD, IBKR, IGT, ISRG, JJSF, MATW, MSCC, NTCT, OCLR, PBCT, SIVB, SYNA, WDC
Events
WGL Analyst Meeting
SGMS Analyst Day
WGL Analyst Meeting
Friday, January 22
Economic
N/A
Earnings
Before: APD, ACO, AVX, BBT, EXC, GE, HOG, HBAN, JCI, KMB, MBFI, MCD, PRSP, SLB, STI, WBS
After:
Events
CCJ at CIBC World Markets Whistler Institutional Investor 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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