equityletter.com 01/25/10
Note: Event Calendar is located at bottom of page
I. General Commentary
Last week we expressed our concerns regarding the weakness developing in the high beta issues. In particular we pointed out that price weakness in the shares of AAPL and GOOG were potential indications of “aggressive” money leaving the equity market. In my over twenty-five years of gauging the equity markets I can state one certainty. Someone always knows something before the majority of market participants do. Technical analysis is the only method of informing us who are “not in the know” of potential market impacting forthcoming news events that are already known by the select privileged few who are “in the know”. This being stated I believe it would be quite interesting if one had the ability to subpoena the recent trading records of our distinguished politicians in
Last week the equity markets took a tumble after a variety of negative news events. The upset win by Republican Scott Brown in the
The next item of market concern is the re-appointment of current Federal Reserve Chairman Ben Bernanke. Since Mr. Bernanke is the architect of the majority of the emergency measures taken at the height of the credit crisis, it would be in the best interest of this country that he remains in place to oversee the gradual removal of said measures. Overall Mr. Bernanke has done a very good job under extremely difficult circumstances. Political grandstanding should be set aside in the best interest of the country. Is this too much to ask from our nation’s representatives?
The final news item of concern is
As detailed below the trading action of the past week warrants increased attention as initial technical price support levels have been violated. Further declines from current levels could spark a torrent of selling. This being stated the sharp three-day decline has left equities in a very near term oversold state. We see a potential tradeable bounce in the coming week but would use said bounce to reduce long exposure as an intermediate top appears to be in place.
The major market averages under our coverage that we currently rate with positive weekly technical indications are the
Sector ETF’s within our coverage universe that remain in favor according to our weekly oriented technical analysis include the Managed Care sector. *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 Homebuilding (XHB), Gold (GLD), Oil Service (OIH), Agriculture (MOO), Coal (KOL), Steel (SLX), and Pharmaceuticals (PPH), Real Estate (IYR), Financials (XLF), Semiconductors (SMH), Large Integrated Oil (XOI), Transportation (IYT), Crude Oil (USO), and Natural Gas (UNG). * Take note that the XHB, GLD, OIH, MOO, KOL, SLX, and PPH are downgrades to the neutral list from the previous letter.*
Sector ETF’s that we believe to be currently vulnerable to further downside pricing pressure are the Financials (XLF) and 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-90.61 (I-share 7-10 year Treasury bond) advanced 0.62% for the week as the yield on the 10- year treasury decreased from 3.76% to 3.60%. For comparative reference the yield on the 10-year Treasury began the 2010 trading year at 3.84%. The IEF is entering week two of a “buy” signal. The weekly closing price support level in order to maintain our current “buy” signal shall be raised to 89.71. Any weekly closing price below 89.71 will negate our current “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 continues to indicate a near term retreat in the 10-year Treasury yield to the 3.50% area.
A. Financials
The Financial Select Sector Index (XLF-14.18) finished the trading week with a 5.07% decline. The 2010 trading year return of the XLF is a negative 1.53%. The XLF has closed below our weekly closing price support level and has therefore generated a fresh “sell” signal. Our weekly closing price resistance level in order to maintain our fresh “sell” signal shall be set at 15.19. Any weekly closing price above 15.19 will negate our fresh “sell” signal for the XLF. Fresh weekly “sell” signals have been triggered in American Express (AXP-38.59), Bank of
B. Builders
The Homebuilder exchange traded fund (XHB-14.95) declined 4.35% for the week. The 2010 year-to-date performance of the XHB currently rests at a negative 1.27%. The XHB is entering week six of a “buy” signal. Our weekly closing price support level in order to maintain our current “buy” signal for XHB shall readjusted to 14.92. Any weekly closing price below the 14.92 support level will negate our current “buy” signal in the XHB. Fresh weekly “sell” signals have been generated in XHB components Toll Brothers (TOL-18.28), Pulte Homes (PHM-10.22), Lennar (LEN-14.78), and KB Home (KBH-14.35). Weekly “buy” signals remain in place for XHB components D R Horton (DHI-11.20) and Ryland Group (RYL-20.48). Week six of a “buy” signal; internal component weakness gives cause for concern. We shall downgrade the XHB from “buy” to neutral at this time.
B. Semiconductor
The Semiconductor group (SMH-25.67) declined 4.68% for the week. The current SMH performance for the 2010 trading year is a negative 8.06%. The SMH is entering week two of a “sell” signal. Our weekly price resistance level in order to maintain our current “sell” signal shall be lowered to 27.58. Any weekly closing price above 27.58 will negate our current “sell” signal for the SMH. A fresh weekly “sell” signal has been triggered in SMH component Intel (INTC-19.91). Weekly “sell” signals continue to exist for Analog Devices (ADI-27.76),
D. Retailers
The Retail sector (RTH-91.42) finished the trading week with a 1.90% decline. The current 2010 return of the RTH stands at a negative 2.58%. The RTH is entering week six of a “sell” signal. Our weekly closing price resistance level for the RTH in order to maintain the current “sell” signal shall be lowered to 94.31. Any weekly closing price above 94.31 will negate our current “sell” signal for the RTH. Weekly “buy” signals continue to remain in place for RTH components Sears Holding’s (SHLD-98.30) and Target (TGT-50.38). Weekly “sell” signals continue to remain in place for RTH components Walgreen’s (WAG-35.99), Home Depot (HD-27.72), Kohl’s (KSS-50.45), WalMart (WMT-52.94) and BestBuy (BBY-37.15). Week six 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-58.90) finished the week with a 9.38% decline. The current 2010 trading year return for the SLX measures in at a negative 4.26%. The SLX has closed below our weekly price support level and therefore generated a fresh “sell” signal. Our weekly closing price resistance level for the SLX shall be set at 66.69. Any weekly closing price above 66.69 will negate our fresh “sell” signal for the SLX. Fresh weekly “sell” signals have been generated in
F. Pharmaceuticals and Healthcare
The Pharmaceutical group (PPH-66.55) decreased by 2.36% last week. The PPH 2010 trading year return stands at a positive 0.83%. The PPH has negated our “buy” signal by closing out the week below our price support level. A fresh weekly “sell” signal has been generated. Our weekly price resistance level in order to maintain the fresh weekly “sell” signal shall be set at 68.85. Any weekly closing price above 68.85 will negate our fresh “sell” signal for the PPH. Fresh weekly “sell” signals have been triggered in PPH components Johnson & Johnson (JNJ-63.20) and Abbott Lab’s (ABT-54.51). Weekly “buy” signals remain in place for PPH components Merck (MRK-38.87) and Pfizer (PFE-18.96). Eli Lilly (LLY-35.52) and GlaxoSmithKline (GSK-40.76) continue to remain on our “sell” list at this time. Take note that quarterly earnings reports are due in the coming week from PPH components JNJ, ABT, and LLY. A change of trend has been signaled for the PPH. At this time we shall downgrade the PPH from “buy” to neutral as less favorable trends indicate a pause in positive momentum.
III. Gold
GLD (streetTracks gold index) – The GLD (107.17) declined 3.33% on the week. The GLD current return for the 2010 trading year is a negative 0.13%. The GLD has closed below our weekly price support level therefore indicating a change of trend from positive to negative. Our weekly closing price resistance level in order to maintain our fresh “sell” signal shall be set at 111.75. Any weekly closing price above 111.75 will negate our fresh “sell” signal for the GLD. Price weakness for the GLD this past week is indicating a return to correction mode. Any downside penetration of the 105.94 price support level will foreshadow further downside to the 100.65 area of strong support. We shall downgrade the GLD from “buy” to neutral as the favorable trend of the past two weeks has been reversed. The optimal entry area for interested buyers appears to be around the 100.65 support area.
IV. Energy- (Oil, Oil Service, Nat’l Gas, Coal)
The Large-Cap Integrated Oil space (XOI-1037.78) closed out the trading week with a 4.95% decline. The current XOI 2010 trading year return is a negative 2.85%. The XOI has closed below our weekly price support level therefore indicating a change of trend from positive to negative. Our weekly price resistance level in order to maintain our fresh “sell” signal shall be set at 1104.50. Any weekly closing price above 1104.50 will negate our fresh “sell” signal for the XOI. Fresh weekly “sell” signals have been generated in XOI components Chevron-Texaco (CVX-74.59), Conoco-Phillips (COP-50.60), British Petroleum (BP-57.87) and Suncor Energy (SU-33.31). A weekly “sell” signal shall remain in place for XOI component Exxon-Mobil (XOM-66.10) at this time. Take note that quarterly earnings reports are due in the coming week from XOI components CVX and COP. We remain concerned regarding weaker pricing for crude oil. If the XOI closes out the coming week below the 1000.00 price support level we will downgrade from neutral to “sell”.
The Oil Service Index (OIH-121.59) declined 6.61% this past trading week. The 2010 year to date return for the OIH stands at a positive 2.89%. The OIH has negated our “buy” signal by closing out the week below our price support level. A change of trend has been signaled from positive to negative. Our weekly closing price resistance level in order to maintain our fresh “sell” signal shall be set at 131.73. Any weekly closing price above 131.73 will negate our fresh “sell” signal for the OIH. Fresh weekly “sell” signals have been generated across the board for OIH components Halliburton (HAL-31.15), Schlumberger (SLB-65.24), Baker Hughes (BHI-44.27), Ensco (ESV-40.98) and Transocean (RIG-85.72). The coming week will bring earnings reports from OIH components HAL and BHI. A change of weekly trend has been signaled. We see initial price support at the 119.40 level for the OIH. If the 119.40 support level fails to provide need relief the next level of price support comes in around the 110.87 level. Across the board selling pressure this past week gives cause for concern; we shall downgrade the OIH from “buy” to neutral at this time.
Natural Gas (UNG-10.35) advanced 1.07% this past week. The UNG current 2010 trading year return is a positive 2.68%. The UNG is entering week seven 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 seven-week advance can only be categorized as nothing more than an over sold bounce.
The Coal Sector (KOL-34.933) declined by 10.04% this past week. The KOL 2010 trading year performance stands at a negative 3.29%. The KOL has closed below our key price support level therefore negating our “buy” signal that lasted ten weeks in duration. Our weekly closing price resistance level in order to maintain our fresh “sell” signal shall be set at the 39.56 price level. Any weekly closing price above 39.56 will negate our fresh “sell” signal for the KOL. A downgrade from “buy” to neutral is our call at this time. Any failure for the KOL to remain above the 33.40 initial price support will indicate further weakness down to the 29.06 area.
V. Dow 30 Analysis
Our Weekly Trend Indicator (WTI) measures in at -24, a sharp decrease from the previous week reading of +8. Currently 10.0% of the thirty Dow Jones Industrial components have favorable weekly chart technical indications; this is a decrease from 63.0% in the prior week. The Dow Jones Industrial average declined 4.12% for the week to 10172.98. The return for the 2010 trading year stands at a negative 2.45%.
The S&P 500, as measured by the SPY (109.21), declined 3.90% for the week. The current 2010 trading year return for the SPY is a negative 2.00%. Small caps issues, as measured by the IWM (IShares Russell 2000 Index Fund- 61.73), declined 3.06% for the week. The IWM current 2010 trading year return is a negative 1.07%.
The DIA (101.63) closed out the week with a 4.13% decline and has negated our ten-week “buy” signal by closing out the week below our key price support level. Our weekly closing price resistance level in order to maintain the fresh “sell” signal shall be set at 107.23. Any weekly closing price above 107.23 will negate our fresh “sell” signal for the DIA. After ten weeks of favorable technical condition a three-day price slide has thrust the DIA in to “sell” mode. We would now use any extended price strength to reduce long exposure and or to initiate short trades. Any downside penetration of the initial 100.98 support level will foretell further downside to the next level of price support, the 94.50 area.
Fresh weekly buy signals generated: N/A
Fresh negative weekly signals generated: AXP, BAC, CAT, CSCO, CVX, DD, GE, HPQ, IBM, INTC, JNJ, JPM, KFT, MMM, MSFT, UTX
Readers should take note that Dow Jones Industrial components BA, CAT, CVX, DD, JNJ, MMM, MSFT, PG, T, TRV, UTX and VZ are scheduled to report quarterly earnings in the coming week.
Dow 30 stocks with positive weekly signals:
BA, MRK, PFE
Dow 30 stocks with negative weekly signals:
AA, AXP, BAC, CAT, CSCO, CVX, DD, DIS, GE, HD, HPQ, IBM, INTC, JNJ, JPM, KFT, KO, MCD, MMM, MSFT, PG, T, TRV, UTX, VZ, WMT, XOM
· Underlined names have changed from previous week*
VI. KEY EVENTS IN THE WEEK AHEAD:
Monday, January 25
Economic
Earnings
Before: AKS, BOH, CNH, ETN, HAL, ERIC, PVTB, DGX, SEE
After: ALB, ALGT, AMGN, AAPL, ATHR, CLDN, CR, ELS, GGG, HTLF, JEC, JDAS, KRC, MTXX,MSPD, NARA, OLN, PKG, PRXL, PLXT, RLRN, RLI, SLG, TXN, VMW, VLTR, ZION, ZRAN
Events
MHS, GXDX, PSYS, BIOS at Jefferies Global Healthcare Services Conf
FED: $23 bln 3-month and $25 bln 6-month Treasury Bill Auctions
Tuesday, January 26
Economic
Earnings
Before: AOS, ABC, AME, ASH, BHI, CRS, CVG, CBE, GLW, DAL, DD, EMC, ENR, FMER, FPL, GKSR, JNJ, KCI, MHP, MTG, NVS, NUE, BTU, RYN, RF, SHW, STE, TLAB, TRV, TUES, X, VZ, WAT, WFT, WTNY, GWW
After: ALTR, BBOX, BXP, BKI, CLMS, ELY, CNI, CNS, CSGS, DV, GILD, HTCH, INFN, IDTI, KEYN, MRTN, MCK, MRCY, MTH, MOLX, NATI, NAL, PTV, PMTC, PLT, QLGC, RFMD, RKT, SANM, TSFG, STLD, STM, SYK, SXL, TPX, TWPG, TRMK, WMS, YHOO
Events
| NXG at TD Mining Conf. FED: $44 bln 2-yr Treasury Note Auction |
Wednesday, January 27
Economic
Earnings
Before: ABT, AMG, AAI, ATI, ARLP, APU, BLK, BA, CAT, GIB, COP, CFR, DSPG, EXP, FCFS, GD, HSY, HES, ITW, LCRY, MNI, MWV, MOG/A, NWPX, NYB, OSIS, PTEC, PJC, PX, RGS, ROK, RES, SAP, SEIC, SII, SO, STJ, SWK, TEL, UAUA, UGI, UTX, USAP, USG, VLO, WLP, WTFC
After: ALGN, ACF, AMLN, AF, BYI, BMC, CBT, CTXS, CLD, COHU, CVD, CCI, CTS, DRE, ETFC, EWBC, ESIO, RDEN, ETH, FLEX, FTNT, GMCR, HBI, HRS, HXL, HOKU, IBKC, ISIL, KEX, KNX, LRCX, LSTR, LOGM, LSI, MLNX, MEOH, MUR, NFLX, NE, NSC, OMER, OHB, OI, PSSI, QCOM, RYL, SHOR, JAVA, SRDX, SYMC, TER, TTEK, TCBI, TLGD, TSCO, VAR, VIRL, WERN
Event
PRXL, LCAV, ATHN, PFWD at Jefferies Global Healthcare Services Conf.
FED: FOMC Policy Statement
$42 bln 5-yr Treasury Note Auction
Thursday, January 28
Economic
Earnings
Before: FLWS, MMM, ACXM, ALK, MO, AMFI, AEP, ACAT, ABFS, AZN, T, AUO, AVT, BLL, BAX, BDX, BMS, BMY, BC, CCMP, CP, CAH, CSH, CELG, CEVA, CHTT, CHKP, CRUS, CXG, CL, CLP, CMCO, CNX, CY, DHR, DLX, D, EK, LLY, EQT, EL, FCF, F, BEN, GNTX, GR, HSC, HHS, HP, HUB/B, ISCA, IVZ, JNS, JBHT, JBLU, KSU, KMT, KNSY, KSP, FSTR, LLL, LB, LANC, LIFE, LMT, MKC, MJN, MEG, MPW, MNRO, MOT, LABL, NOK, NVR, OXY, ODFL, ORI, OXPS, OSK, OSTK, PII, POT, PG, QUIX, RTN, COL, RCL, SBNY, SNE, SY, TROW, TSM, TDY, TXT, TWC, TRCR, TYC, UMPQ, UA, LCC, USAK, WDR, WCC, WRLD, XEL, ZMH, ZOLL
After: PAR , ABAX, ADPT, ARG, AMZN, ANEN, AMCC, ARBA, ASIA, AVID, AVCT, BKH, EPAY, BCR, CA, CALD, CAVM, CPHD, CHRT, CHRD, CB, CYN, COBZ, COHR, COLM, CPSI, CPWR, CYBS, CYMI, CYT, DRIV, DLLR, DNB, EMN, EXAR, FII, FFIN, FORM, GNW, GHL, HUBG, INFA, ININ, ICO, JNPR, KLAC, LCRD, LSCC, LEG, MXIM, MCRL, MSFT, MIPS, NTY, OCLR, OMCL, OPLK, OFG, PKI, PMCS, PLCM, QSII, QTM, RMBS, RHI, SNDK, SCSC,SBCF, SMTL, SWI, SXE, SPWRA, SNV, TLEO, TSRA, VSEA, VPRT, ZNT
Events
CBRX Analyst and Investor Day
CHDN, MNTG, FLL at Bank of
FED: $32 bln 7-yr Treasury Note Auction
Friday, January 29
Economic
N08:30 GDP- Adv. (Q4): 4.6% cons.
Earnings
Before: ACI, ALV, AVY, CVX, DOV, FO, GHM, HON, HRZ, IDXX, MAT,
After: EEP
Events
DMND Analyst Meeting
FED: Fed's Kohn
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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