equityletter.com 02/10/10
Note: Event Calendar is located at bottom of page
I. General Commentary
The first month of the 2010 trading year ended on a sour note as the major
Another troubling trend is the selling of “good news”. Last week strong earnings reports from Apple Computer and Microsoft were greeted with sellers rather than euphoric buyers. This trend has been present since the beginning of the earnings reporting season. The market appears to have already priced in a strong quarter that benefited from inventory restocking and is now looking ahead at the same familiar problems. Unemployment remains elevated with no significant job creation in sight, banks remain reluctant to extend credit due to more stringent standards. (Consumer Credit Statistics are due out in the coming week and will continue to show contraction) The U.S. Dollar continues to appreciate as skeletons from the global closet become more apparent. (
As we have stated in the past, beware of “good news” becoming “bad news” for the equity markets. “Good”
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), and Crude Oil (USO).
* Take note that there are no additions 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), Natural Gas (UNG), and Retailers (RTH). *Take note that the UNG is a new addition 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-90.70 (I-share 7-10 year Treasury bond) advanced 0.10% for the week as the yield on the 10- year treasury increased from 3.60% to 3.61%. For comparative reference the yield on the 10-year Treasury began the 2010 trading year at 3.84%. The IEF is entering week three of a “buy” signal. The weekly closing price support level in order to maintain our current “buy” signal shall be raised to 90.09. Any weekly closing price below 90.09 will negate our current “buy” signal for the IEF. The IEF continues to benefit from equity market weakness. This being stated we see strong near term price resistance at the 91.00 area. The weekly trend remains favorable but the risk/reward of entering long trades at current price levels is questionable at best.
A. Financials
The Financial Select Sector Index (XLF-14.18) finished the trading week unchanged. The 2010 trading year return of the XLF is a negative 1.53%. The XLF is entering week two of a “sell” signal. Our weekly closing price resistance level in order to maintain our current “sell” signal shall be lowered to 14.57. Any weekly closing price above 14.57 will negate our current “sell” signal for the XLF. Weekly “buy” signals remain current for XLF components Wells
B. Builders
The Homebuilder exchange traded fund (XHB-15.11) advanced 1.07% for the week. The 2010 year-to-date performance of the XHB currently rests at unchanged. The XHB is entering week seven of a “buy” signal. Our weekly closing price support level in order to maintain our current “buy” signal for XHB shall remain at 14.92. Any weekly closing price below the 14.92 support level will negate our current “buy” signal in the XHB. Weekly “buy” signals remain in place for XHB components D R Horton (DHI-11.79) and Ryland Group (RYL-22.26). Weekly “sell” signals remain prevalent for XHB components Toll Brothers (TOL-18.47), Pulte Homes (PHM-10.52), Lennar (LEN-15.36), and KB Home (KBH-15.28). Take note that XHB component DHI is scheduled to report earnings in the coming week. Week seven of a “buy” signal; internal component weakness gives cause for concern. We shall remain neutral at this time.
B. Semiconductor
The Semiconductor group (SMH-24.76) declined 3.45% for the week. The current SMH performance for the 2010 trading year is a negative 11.32%. The SMH is entering week three of a “sell” signal. Our weekly price resistance level in order to maintain our current “sell” signal shall be lowered to 26.28. Any weekly closing price above 26.28 will negate our current “sell” signal for the SMH. Weekly “sell” signals continue to exist for Intel (INTC-19.40), Analog Devices (ADI-26.96),
D. Retailers
The Retail sector (RTH-92.07) finished the trading week with a 0.71% advance. The current 2010 return of the RTH stands at a negative 1.89%. The RTH is entering week seven 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 93.45. Any weekly closing price above 93.45 will negate our current “sell” signal for the RTH. A fresh weekly “sell” signal has been triggered in Sears Holding’s (SHLD-93.28). A weekly “buy” signal continues to remain in place for RTH component and Target (TGT-51.27). Weekly “sell” signals continue to remain in place for RTH components Walgreen’s (WAG-36.05), Home Depot (HD-28.01), Kohl’s (KSS-50.37), WalMart (WMT-53.43) and BestBuy (BBY-36.65). Week seven 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-54.51) finished the week with a 7.45% decline. The current 2010 trading year return for the SLX measures in at a negative 11.39%. The SLX is in the second week of a “sell” signal. Our weekly closing price resistance level for the SLX shall be lowered to 60.66. Any weekly closing price above 60.66 will negate our current “sell” signal for the SLX. Weekly “sell” signals remain in place for SLX components
F. Pharmaceuticals and Healthcare
The Pharmaceutical group (PPH-65.61) decreased by 1.41% last week. The PPH 2010 trading year return stands at a negative 0.59%. The PPH is entering week two of a “sell” signal. Our weekly price resistance level in order to maintain the current weekly “sell” signal shall be lowered to 67.34. Any weekly closing price above 67.34 will negate our current “sell” signal for the PPH. Fresh weekly “sell” signals have been triggered in PPH components Merck (MRK-38.18) and Pfizer (PFE-18.66). Johnson & Johnson (JNJ-62.86), Abbott Lab’s (ABT-52.94), Eli Lilly (LLY-35.20) and GlaxoSmithKline (GSK-39.01) all continue to remain on our “sell” list at this time. Take note that a quarterly earnings report is due in the coming week from PPH component PFE. Week two of correction mode, we shall maintain our neutral stance at this time.
III. Gold
GLD (streetTracks gold index) – The GLD (105.96) declined 1.13% on the week. The GLD current return for the 2010 trading year is a negative 1.26%. The GLD is entering week two of a “sell” signal. Our weekly closing price resistance level in order to maintain our current “sell” signal shall be lowered to 108.80. Any weekly closing price above 108.80 will negate our current “sell” signal for the GLD. Continued price weakness for the GLD this past week is indicating a downside test of the weekly trend line price support around the 103.00 area. Any downside penetration of the 103.00 price support level will foreshadow further downside to the 96.00 area of strong support. We shall maintain our neutral stance for the GLD at this time as the longer term bull trend remains intact despite the current corrective near term phase.
IV. Energy- (Oil, Oil Service, Nat’l Gas, Coal)
The Large-Cap Integrated Oil space (XOI-1016.78) closed out the trading week with a 2.02% decline. The current XOI 2010 trading year return is a negative 4.81%. The XOI is entering the second week of unfavorable technical conditions. Our weekly price resistance level in order to maintain our current “sell” signal shall be lowered to 1056.72. Any weekly closing price above 1056.72 will negate our current “sell” signal for the XOI. At this time weekly “sell” signals shall remain in place for XOI components Chevron-Texaco (CVX-72.12), Conoco-Phillips (COP-48.00), British Petroleum (BP-56.12), Suncor Energy (SU-31.65) and Exxon-Mobil (XOM-64.43). Take note that quarterly earnings reports are due in the coming week from XOI components BP, SU, and XOM. 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-117.88) declined 3.03% this past trading week. The 2010 year to date return for the OIH stands at a negative 0.89%. The OIH is in week two of a “sell” signal. Our weekly closing price resistance level in order to maintain our current “sell” signal shall be lowered to 130.00. Any weekly closing price above 130.00 will negate our current “sell” signal for the OIH. Weekly “sell” signals remain present across the board for OIH components Halliburton (HAL-29.21), Schlumberger (SLB-63.46), Baker Hughes (BHI-45.28), Ensco (ESV-39.03) and Transocean (RIG-84.74). A change of weekly trend has been signaled. A second week of selling pressure has left the OIH very near a critical price support level, 111.50. Any weekly closing price below 111.50 will indicate further weakness to come. We shall keep our “neutral” rating at this time.
Natural Gas (UNG-9.31) declined 10.05% this past week. The UNG current 2010 trading year return is a negative 7.64%. The UNG 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 10.48. Any weekly closing price above 10.48 will negate our fresh “sell” signal for the UNG. We shall downgrade the UNG from neutral to sell at this time as it appears that new low prices are forthcoming.
The Coal Sector (KOL-32.85) declined by 5.95% this past week. The KOL 2010 trading year performance stands at a negative 8.86%. The KOL is entering the second week of a “sell” signal. Our weekly closing price resistance level in order to maintain our current “sell” signal shall be lowered to the 36.35 price level. Any weekly closing price above 36.35 will negate our current “sell” signal for the KOL. We shall remain “neutral” at this time and shall monitor the quickly approaching 29.50 support level for possible long entry.
V. Dow 30 Analysis
Our Weekly Trend Indicator (WTI) measures in at -26, a decrease from the previous week reading of -24. Currently 6.0% of the thirty Dow Jones Industrial components have favorable weekly chart technical indications; this is a decrease from 10.0% in the prior week. The Dow Jones Industrial average declined 1.04% for the week to 10067.33. The return for the 2010 trading year stands at a negative 3.46%.
The S&P 500, as measured by the SPY (107.39), declined 1.67% for the week. The current 2010 trading year return for the SPY is a negative 3.63%. Small caps issues, as measured by the IWM (IShares Russell 2000 Index Fund- 60.11), declined 2.62% for the week. The IWM current 2010 trading year return is a negative 3.73%.
The DIA (100.55) closed out the week with a 1.06% decline and is entering week two of a “sell” signal. Our weekly closing price resistance level in order to maintain the current “sell” signal shall be lowered to 103.06. Any weekly closing price above 103.06 will negate our current “sell” signal for the DIA. It is week two of “correction mode” therefore we would continue to use any extended price strength that approaches our above mentioned price resistance level to reduce long exposure and or to initiate short trades. Our first downside target for the DIA remains the 94.30 price support area.
Fresh weekly buy signals generated: TRV
Fresh negative weekly signals generated: MRK, PFE
Readers should take note that Dow Jones Industrial components CSCO, KFT, PFE, and XOM are scheduled to report quarterly earnings in the coming week.
Dow 30 stocks with positive weekly signals:
BA, TRV
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, MRK, MSFT, PFE, PG, T, UTX, VZ, WMT, XOM
· Underlined names have changed from previous week*
VI. KEY EVENTS IN THE WEEK AHEAD:
Monday, February 1
Economic
Earnings
Before: AMG, ACV, CRNT, CYOU, DEP, EPD, XOM, GCI, HAE, HEW, HUM, MDU, MOG/A, NI, ONB, SOHU, SYY
After: ADVS, APC, ARRY, CCK, DST, EXTR, HOLX, ICUI, LOCM, MNKD, NOA, OCLR, PMT, PCL, RGA, RCII, RTEC, SIMO, TUP, UNCA
Events
SD at Credit Suisse Group Energy
FED: Treasury's Geithner Testifies Before Senate on FY11 Budget
$23 bln 3-month and $26 bln 6-month Treasury Bill Auctions
Tuesday, February 2
Economic
Earnings
Before: AMSC, AMB, AXE, ADM, ARTG, ARM, ADP, BEAV, BP, COCO, CPO, CMI, DHX, DOW, DHI, EMR, ETR, EVR, HHS, HSY, NRGY, KFT, LDR, LXK, MAN, MRO, HZO, MPEL, OSTK, PTRY, PCX, PNR, PBG, PRGO, RDWR, RRST, SMG, STEL, STE, SU, TECH, TNB, TDW, TKR, UTI, UPS, WHR, WEC
After: ACE, APKT, ACTU, AFL, AGAM, ADS, AJG, ATO, BRE, CHRW, CTRP, EXM, FISV, SOLR, IVAC, IRF, JKHY, JDSU, JLL, KNXA, LCRD, MANH, MTW, MEE, MMSI, MET, MIL, MYGN, NLC, NETL, NWSA, PXD, QSFT, RSYS, RVBD, SLGN, SSD, TSO, TRMB, UNM, VASC, VRSN, VOCS, WBSN
Events
AEP, FE, NS, MWE at Credit Suisse Group Energy Summit
MS, WFC, COF, HBAN at Morgan Stanley U.S. Financials Conf.
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Wednesday, February 3
Economic
Earnings
Before: ALVR, ASCA, ARW, ATMI, AUDC, BECN, BDK, BCO, CSL, CMCSA, CVLT, DWSN, DBD, ENB, HW, HNT, IP, IVR, ITG, ITT, LAZ, MHO, MMP, MKTX, NOV, NSTC, OIIM, PFE, RL, POWL, RVSN, ROP, R, SVVS, SGP, SLAB, TMO, TWX, TZOO, UMC, WU, WWW
After: AFFX, AKAM, AMP, NLY, AIZ, ATW, AVB, BBBB, CELL, BRS, BRCM, CDNS, CBG, CBL, CENT, CPC, CSCO, CNQR, CVTI, DLB, DBTK, DCP, ENTR, EFX, EQR, FEIC, FNF, FBN, GHDX, HAIN, HSTX, HRC, HMN, IEX, INSP, KIM, MKL, MEAS, WFR, MWW, NBIX, NEWP, NVLS, ONNN, OTEX, OPNT, OHB, PSEM, RBC, REG, RNOW, SGMO, SIGI, SSTI, SPTN, SFN, SPF, STLY, STLD, SYMM, THQI, TGI, TBI, URI, UFPI, VIRL, V, WLT, WGL, WSH, YUM
Events
BK, TD, BMO, MI at Morgan Stanley U.S. Financials Conference
RIG, HAL, APC, WES at Credit Suisse Group Energy Summit
FED: Fed's Warsh
Thursday, February 4
Economic
Earnings
Before: ABMD, AGN, LNT, ATK, AHII, ARJ, STST, AVP, BCE, BDC, BLC, BHE, BCRX, BG, BKC, CRR, CI, CINF, CLX, CME, CNMD, DTPI, DO, UFS, ELNK, ENTG, FLO, HGG, HI, HSP, ITWO, IVC, K, KNL, KLIC, LII, LZ, MA, MTRX, MMS, MDCI, MF, MSTR, MEND, MKSI, MGI, MCO, MPS, MWIV, NCR, NOC, NUS, CHUX, OHI, OMTR, PTIE, PMTI, PENN, PAS, POL, POWI, QUIX, RAI, RSTI, RDS/A, RGLD, RTI, SBH, SLE, SNA, SNE, SE, SPR, HOT, SPH, TEN, TBL, UTEK, WBC, WW
After: ARAY, ACTL, ATVI, AATI, ABCO, ALKS, ASEI, BMI, BEZ, BEBE, BBND, BFRM, BLKB, COGO, CNW, CYS, DNEX, DNB, EW, ESE, ESS, XIDE, FALC, FIS, FMC, HLIT, HA, ILMN, IN, XXIA, LQDT, LMNX, MTD, MCHP, MCRS, MAA, MTX, MPWR, MTSC, MFLX, NFG, N, EGOV, OPWV, OPXT, PCCC, PKI, PMC, PFWD, PTEC, PBI, PWAV, RAH, RMD, SFLY, SIMG, SLH, SRCL, SFSF, SUN, SNCR, TWLL, TSYS, TTMI, VARI, VRTX
Events
SKYW, LUV, ALGT at Raymond James Growth Airline Conference
COP, OXY, VLO ME at Credit Suisse Group Energy
WFR Capital Markets Day
Friday, February 5
Economic
Earnings
Before: AET, AYE, AXL, AIV, BZH, BPO, BRKS, SUR, IPSU, LRN, KELYA, MAG, MDC, MD, NNN, PPL, PBH, SXT, SPG, SEP, TE, TSN, VVI, WY, YRCW
After: BPL
Events
STJ Analyst Meeting
GLW Investor Meeting
FED: Treasury's Geithner at G7 Meeting
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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