equityletter.com 02/08/10
Note: Event Calendar is located at bottom of page
I. General Commentary
It is hard to imagine that the state of the global economy is such that the U.S. Dollar has become the favored currency for those seeking shelter. The first debt crisis cockroach appeared in
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 are not present at this time. *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), Managed Care sector, Oil Service (OIH), Agriculture (MOO), Coal (KOL), Steel (SLX), Pharmaceuticals (PPH), Real Estate (IYR), Semiconductors (SMH), and Crude Oil (USO).
* Take note that the Managed Care sector is a downgrade 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), Transportation (IYT), Integrated Oil (XOI), Natural Gas (UNG), and Retailers (RTH). *Take note that the XOI and IYT are 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-90.84 (I-share 7-10 year Treasury bond) advanced 0.49% for the week as the yield on the 10- year treasury decreased from 3.61% to 3.55%. For comparative reference the yield on the 10-year Treasury began the 2010 trading year at 3.84%. The IEF is entering week four of a “buy” signal. The weekly closing price support level in order to maintain our current “buy” signal shall remain at 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 remains questionable at best.
A. Financials
The Financial Select Sector Index (XLF-13.94) finished the trading week 1.69% decline. The 2010 trading year return of the XLF is a negative 3.19%. The XLF is entering week three of a “sell” signal. Our weekly closing price resistance level in order to maintain our current “sell” signal shall remain at 14.57. Any weekly closing price above 14.57 will negate our current “sell” signal for the XLF. A fresh “sell” signal has been generated in Bank of
B. Builders
The Homebuilder exchange traded fund (XHB-15.02) declined 0.60% for the week. The 2010 year-to-date performance of the XHB currently rests at a negative 0.59%. The XHB is entering week eight 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-12.67) and Ryland Group (RYL-22.17). Weekly “sell” signals remain prevalent for XHB components Toll Brothers (TOL-18.65), Pulte Homes (PHM-10.88), Lennar (LEN-14.71), and KB Home (KBH-14.92). Take note that XHB component PHM is scheduled to report earnings in the coming week. Week eight of a “buy” signal; internal component weakness remains a concern. We shall remain neutral at this time.
B. Semiconductor
The Semiconductor group (SMH-25.11) advanced 1.60% for the week. The current SMH performance for the 2010 trading year is a negative 10.06%. The SMH is entering week four of a “sell” signal. Our weekly price resistance level in order to maintain our current “sell” signal shall remain at 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-19.47), Analog Devices (ADI-26.90),
D. Retailers
The Retail sector (RTH-90.56) finished the trading week with a 1.64% decline. The current 2010 return of the RTH stands at a negative 3.50%. The RTH is entering week eight of a “sell” signal. Our weekly closing price resistance level for the RTH in order to maintain the current “sell” signal shall remain at 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 Target (TGT-49.30). Weekly “sell” signals continue to remain in place for RTH components Walgreen’s (WAG-33.31), Sears Holding’s (SHLD-91.32), Home Depot (HD-27.98), Kohl’s (KSS-49.32), WalMart (WMT-53.45) and BestBuy (BBY-35.82). Week eight 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-54.37) finished the week with a 0.26% decline. The current 2010 trading year return for the SLX measures in at a negative 11.62%. The SLX is in the third week of a “sell” signal. Our weekly closing price resistance level for the SLX shall be lowered to 59.00. Any weekly closing price above 59.00 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-64.46) decreased by 1.57% last week. The PPH 2010 trading year return stands at a negative 2.33%. The PPH is entering week three of a “sell” signal. Our weekly price resistance level in order to maintain the current weekly “sell” signal shall remain at 67.34. Any weekly closing price above 67.34 will negate our current “sell” signal for the PPH. PPH components Merck (MRK-36.73), Pfizer (PFE-17.96), Johnson & Johnson (JNJ-62.64), Abbott Lab’s (ABT-53.97), Eli Lilly (LLY-34.52) and GlaxoSmithKline (GSK-38.06) all continue to remain on our “sell” list at this time. Week three of correction mode, we shall maintain our neutral stance at this time.
III. Gold
GLD (streetTracks gold index) – The GLD (104.68) declined 1.21% on the week. The GLD current return for the 2010 trading year is a negative 2.45%. The GLD is entering week three of a “sell” signal. Our weekly closing price resistance level in order to maintain our current “sell” signal shall remain at 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 but a late Friday rally enabled the GLD to hold above the weekly trend line support around the 103.00 price level. Any downside penetration of the 103.00 price support level on a weekly closing price basis 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-998.28) closed out the trading week with a 1.82% decline. The current XOI 2010 trading year return is a negative 6.55%. The XOI is entering the third week of unfavorable technical conditions. Our weekly price resistance level in order to maintain our current “sell” signal shall remain at 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-71.18), Conoco-Phillips (COP-47.98), British Petroleum (BP-53.18), Suncor Energy (SU-29.80) and Exxon-Mobil (XOM-64.80). The XOI weekly close below the 1000.00 level is an indication of further weakness to come. We shall downgrade the XOI to “sell” at this time with the first downside target being the 910.00 level.
The Oil Service Index (OIH-116.07) declined 1.54% this past trading week. The 2010 year to date return for the OIH stands at a negative 1.79%. The OIH is in week three of a “sell” signal. Our weekly closing price resistance level in order to maintain our current “sell” signal shall be lowered to 124.71. Any weekly closing price above 124.71 will negate our current “sell” signal for the OIH. Weekly “sell” signals remain present across the board for OIH components Halliburton (HAL-28.29), Schlumberger (SLB-62.06), Baker Hughes (BHI-44.73), Ensco (ESV-38.94) and Transocean (RIG-83.99). It is week three of a “sell” signal; the good news is the OIH was able to find buying support near the previously stated 111.50 price support level. The low last week for the OIH was 112.43. We shall keep our “neutral” rating at this time.
Natural Gas (UNG-10.00) advanced 7.41% this past week. The UNG current 2010 trading year return is a negative 0.79%. The UNG is entering week two of a “sell” signal. Our weekly price resistance level in order to maintain our current “sell” signal shall remain at 10.48. Any weekly closing price above 10.48 will negate our fresh “sell” signal for the UNG. We shall maintain our “sell” rating for the UNG at this time as distribution remains the dominant technical theme.
The Coal Sector (KOL-31.83) declined by 3.11% this past week. The KOL 2010 trading year performance stands at a negative 11.87%. The KOL is entering the third week of a “sell” signal. Our weekly closing price resistance level in order to maintain our current “sell” signal shall be lowered to the 34.87 price level. Any weekly closing price above 34.87 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 -24, a slight increase from the previous week reading of -26. Currently 10.0% of the thirty Dow Jones Industrial components have favorable weekly chart technical indications; this is an increase from 6.0% in the prior week. The Dow Jones Industrial average declined 0.55% for the week to 10012.23. The return for the 2010 trading year stands at a negative 3.99%.
The S&P 500, as measured by the SPY (106.66), declined 0.68% for the week. The current 2010 trading year return for the SPY is a negative 4.29%. Small caps issues, as measured by the IWM (IShares Russell 2000 Index Fund- 59.27), declined 1.40% for the week. The IWM current 2010 trading year return is a negative 5.08%.
The DIA (100.16) closed out the week with a 0.39% decline and is entering week three of a “sell” signal. Our weekly closing price resistance level in order to maintain the current “sell” signal shall remain at 103.06. Any weekly closing price above 103.06 will negate our current “sell” signal for the DIA. It is week three 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 95.00 price support area.
Fresh weekly buy signals generated: CSCO
Fresh negative weekly signals generated:
Readers should take note that Dow Jones Industrial components KO and DIS are scheduled to report quarterly earnings in the coming week.
Dow 30 stocks with positive weekly signals:
BA, CSCO, TRV
Dow 30 stocks with negative weekly signals:
AA, AXP, BAC, CAT, 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 8
Economic
N/A
Earnings
Before: AMRI, AGNC, BWP, CGA, CHDX, CAN, CPIX, CVS, GWR, HAS, HS, LFUS, L, LO, MCY, NDAQ, NVE, SIRO, VTNC
After: ADCT, ANDE, ATML, AXS, BWY, CPT, CRL, CIM, CMP, CRK, CUZ, CUTR, ERTS, ECPG, ESLR, FWRD, HAR, HIG, HIMX, LNCR, LNC, NUAN, OTTR, OMI, PKY, PIKE, PPS, PPDI, PFG, QGEN, RENT, SKH, SWI, SRX, TMRK, TWTC, VECO, VSAT, VMC, WRB, WCN, ZOLT
Events
WAG, HUM, UAM, WLP at UBS Global Healthcare Services Conf.
LINC, FFIV, PENN, RAX at Deutsche Bank Securities Small and Mid Cap Conf.
FED: $24 bln 3-month and $27 bln 6-month Treasury Bills Auctions
Tuesday, February 9
Economic
Earnings
Before: ACM, AGCO, AGU, AHCI, ALLT, ANR, ACLI, ATRO, BIIB, BJS, CAM, FUN, CE, CNC, CHD, KO, CTSH, CVH, CUB, CYNO, DHT, ENER, IT, GET, IACI, IFF, KVHI, LCAV, MLM, TAP, NOOF, NYX, OSTK, PCH, PHM, RTIX, RBCN, TIN, GTS, VSH, WMG, ZBRA
After: ATAC, AGAM, AFG, ASEI, AHL, BIDU, BOBE, CFN, CERN, EXBD, CXW, DIOD, DNEX, DSCM, EOG, GIL, GCOM, HCSG, HNI, PODD, KFRC, LTRE, LGF, MAXY, NTGR, OPEN, PEET, PSEC, QLTY, RNR, RUE, RUSHA, SB, TCO, TMH, UDR, ULTI, USNA, DIS, WWWW, XL
Events
ODSY, MHS, AET, SUNH at UBS Global Healthcare Services Conf.
RHT, SAP, ADBE, ENTR at Thomas Weisel Technology & Telecom Conf.
FED: $40 bln 3-yr Treasury Notes Auction
| |
Wednesday, February 10
Economic
Earnings
Before: ABD, MT, CAE, CCE, CSC, DF, DISCA, ELN, FORR, ICE, JNY, ID, LNCE, LVLT, LPX, MMC, MXGL, MTOX, NURO, NYT, NWPX, OMC, PFCB, SNI, SIAL, SON, S, TLM, TGH, TDG, WXS, WYN
After: ATVI, ALL, AMKR, ATR, ARRS, BMR, BSX, CBM, STV, SCOR, CPA, CLB, CPII, CRAY, DVA, PROJ, XRAY, EGP, ELON, EDMC, WIRE, EQIX, RE, GLUU, GSIC, HGR, HIW, NSIT, KONA, LPSN, LFT, LOOP, MAS, MDSO, NSR, OSUR, PRE, PVA, PAA, PL, PRU, O, SWIR, TLEO, TMK, WATG
Events
AMTD, BAC, COF, WFC at Credit Suisse Financial Services Conf.
AMSC, FLO, FMC, POWI at Deutsche Bank Securities Small and Mid Cap Conf.
FED: Fed's Tarullo
Thursday, February 11
Economic
Earnings
Before: ASF, AKNS, ALU, ARE, ALXN, ARIA, AN, BWA, CATM, CAAS, CBB, ECL, EMS, ECA, NPO, EXPE, FLIR, GLT, GPI, HEP, HOS, RX, IPCC, IRC, JASO, JRN, KBW, LH, LF, LUFK, MAC, CLI, MAR, MNTA, NOVA, NRG, OZM, OHI, PMTI, PTI, PTEN, PEP, PGN, PLD, QCCO, QUIX, REV, SCG, SKYW, SNN, SF, STRA, ELOS, SYNT, TKLC, TDC, TOT, TRAD, THS, VFC, VIA/B, WWE
After: ACL, AB, AWH, BEC, BJRI, NILE, BWLD, CEC, CEPH, CAKE, CPC, CMG, CHH, CGNX, CSTR, CML, DCT, DFG, EHTH, ENOC, EPIC, FARO, FFG, GDI, BGC, HNSN, HE, XXIA, LVS, MFE, MOH, NRP, PNRA, PTC, PNSN, PRAA, PRO, QDEL, RNWK, RSG, ROVI, SQNM, SNWL, SONO, STMP, SHO, SMMX, SVR, KNOT, USTR, VARI, XNPT, ZGEN
Events
AMP, LNC, MET, NYX at Credit Suisse Financial Services Conf.
FED: $16 bln 30-yr Treasury Bond Auction
Friday, February 12
Economic
Earnings
Before: A, ALE, HCP, IR, MFA, PAS, UPL
After: DUK
Events
AXAS at NAPE Expo 2010
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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