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Technical Analysis : Week 18/09
April 27, 2009
The S&P500 Index closed below 866 last week. This represents a fall of 3 points (0.4%) off the previous week’s close. Last week fall marked the end of 6 consecutive weeks up since 2 years ago.
The market took a beating on Monday due to news of impending credit losses that might further implicate the dire state of big financial institutions. The market managed to rally back the losses after Monday for the rest of the week. Last Friday, the market pushed for a higher close for the week but in the end the market decided to close the week flat to the downside.
The market price action still looking positive as the buying sentiment of last hour is still ongoing even though the market is in a very choppy and volatile environment. Fund managers and Institutional managers are slowly buying on every dip of the market in fear of losing out another leg of gains that might happen in a few months.
Looking at weekly candles, the S&P500 Index suggests a pause to the upside for the week. Last week’s candle was a formation of a hammer in a rising trend. A hammer in a rising trend usually signal a sideways trend for a period of time.
Looking at daily candles, the S&P500 Index looks like it will follow the same pattern as the previous week with profit taking on either Monday or Tuesday. The market is likely to test the 875 level with the 825 support level to hold. This means that the market should trade in the range of 825 to 875 level.
The immediate support levels now are S1: 850, S2: 825 and S3: 800.
The immediate resistance levels are R1: 875, R2: 900 and R3: 925.
The Dow Jones Industrial Average has been hovering around the 8000 level since the beginning of April. It has been trading at that level for the past three weeks. This suggests that the S&P500 is likely to follow suit as the market will consolidate for a few weeks and gather its strength to break the immediate resistance level to achieve a gain for the year.
The Dollar Index (DXY) has dropped from 85.6 to 84.7 last week on weekly candles. The dollar index continues to trade in the range of 84 to 86 levels for the past few weeks. It is likely to stabilize at this current level for the next few weeks. Gold has been surging for the last week to break above the 900 levels. This might mean that investors have been looking for an alternative place to park their money other than the equity market. Oil remains above the 50 levels for last week.
In summary, this coming week should experience a mild rally as the market seeks clarity. The market is likely to debate on whether the correction is justifiable. The market will also be watching the flu virus in the country.
Sector Rotation : Week 18/09
April 27, 2009
The market took a pause last week after a consecutive 6 week gain. Last week, Financials led the pack by 10.84% followed by Materials (7.63%), Industrials (7.33%), Energy (5.76%), Consumer Discretionary (5.22%), Technology (4.14%), Utilities (-0.51%), Consumer Staples (-0.74%) and Health Care (-2.06%).
Financials led the market last week after a slight relief from the banking stress test criteria. Materials and Industrials continued to push higher last week due to the slightly better than expected economic data.
Consumer Discretionary and Technology are the only two sectors that are in positive territory for the year. They have made 3% to 4% gains consistently throughout the year. The strength in these two sectors will surely benefit the rest of the sectors and give them a lift in the later part the year.
Health Care might be a surprise leader in the coming week as the U.S. will be in full force in its battle with the swine flu virus.
Overall the sector charts likely to remain the same in the coming week with Health Care looking like a surprise dark horse.
Market Analysis : Week 18/09
April 27, 2009
Last Monday, the market had a brutal day. The S&P500 Index lost a massive 36 points in a day and the Dow Jones Industrial Average lost 289 points. The traders and investors took profit off the table on the first day of the week. This was fueled by the news of more credit losses expected from the banks. Uncertainties in the market also help the bloodshed on Monday. The single day plunge was inevitable as the market was likely to experience some sort of pullback after the massive six week rally.
After the dip on Monday, the market once again gathered its strength and staged a comeback for the rest of the week. The market was led by the strength of the better-than-expected earnings from most of the reported companies. The strength of technology companies such as Microsoft, Yahoo, Google and Apple lifted the market all of last week. The better than expected housing data also help the market to surge higher on Thursday and Friday.
The market’s breath remained relatively strong for the week except on Monday and Wednesday. Investors still continue to buy into the weekend even as the market becomes very choppy going into the peak of earnings season.
Last week, the VIX (a measurement of market risk/fear) surged on Monday and threaten to stay above the 40 levels on Tuesday. However, the VIX Index did not have the strength to stay above the 40’s and it came down to 36.8 by Friday’s closing bell. The VIX index is still at a very high level and it has to come down to the level of 30 and eventually below the level of 25 if the market is to take any rally seriously.
Major Events
The Obama administration officials declared a public health emergency on Sunday after officials confirmed that students at a New York City high school were sickened by the same strain of swine flu that has killed more than a hundred people in Mexico, following similar cases in Texas, California and Kansas.
The auto industry will be in focus again this week as Chrysler is on the brink of bankruptcy.
Economic Data
Economic data will be in the spotlight this week. On Tuesday, the market will be watching for the consumer sentiment report. I expect the consumer sentiment to set the pace for the Tuesday market. On Wednesday, all eyes will be on the Federal Fund Rate and FOMC statement. I expect no change to the policy sentiment and the fed fund rate but will be watching the language of the report for hawkishness. The market is likely to be volatile on Wednesday.
On Thursday, all sorts of employment data will be released. The employment data will have little impact on the market and it should be slightly better than the expected data. (Non-Farm Payrolls are due next week Friday) On Friday, the market will close off with the manufacturing data with what should be a better than expected result.
Earnings
The next two weeks will be the final peak weeks for the earnings season as there will be 158 S&P500 companies reporting this week, including five components of the Dow Jones Industrial Average.
So far towards the mid season of the earnings, out of 177 reporting companies in the S&P500, 61% beat estimates, 11% matched forecasts and 28% came in below expectations.
This week several big companies are going to announce earnings. These companies include ExxonMobil, Procter & Gamble, MasterCard, Chevron, Starbucks, General Dynamics, Wyeth, Verizon, Qwest, Motorola, Qualcomm and Humana Inc.
Majority of the companies are likely to continue to post better than expected earnings result in this coming week, as the current estimates were priced at very low levels and revised down all through last quarter.
Overall, the market is expected to edge upward with the strength of the technology and consumer discretionary sector. The earnings report should be able to boost the market a little with the aid of better-than-expected results on the economic front.
I would expect a small rally ahead, albeit in a very volatile and choppy market that should form a base to look for a longer term direction. The pandemic might be the catalyst for a sell-off this week. Thus extremely caution will be the watch-word for the week.
Foreword : Week 18/09
April 27, 2009
The bull finally came to a halt after six weeks of bull-dozing the market. The Dow Jones Industrial Average came down 55 points to close at 8076 (0.7%). The S&P500 Index fall 3 points to close at 866 (0.4%) and the Nasdaq Composite was up by 21 points (1.3%).
Technical Analysis : Week 17/09
April 20, 2009
The S&P500 Index closed above 869 last week. This represents a jump of 13 points (1.5%) off the previous week’s close. Last week also marked the 6th consecutive week up since 2 years ago.
The market action was very similar to the previous week. The market took a beating on Tuesday due to profit taking while waiting for the Citigroup and J.P. Morgan earnings reports. After Tuesday’s profit taking, the market gathered its strength and staged a strong rally to gain more than 30 points from Wednesday to Friday.
The market started badly but ended up higher for most of the last week except on Tuesday. This signals a healthy profit taking in the morning session of the trading day and investors coming into the market in the afternoon session to scoop up stocks. Big players like institutions and fund managers always come into the market in the afternoon session. If they are buying into the market even at this level, the market should go higher from current levels.
Looking at weekly candles, the S&P500 Index suggests a positive week ahead. The weekly candle has successfully established higher highs and higher lows for last week. However, the strength of the weekly candle has been getting weaker as the range of the candle was getting smaller. The weekly candle also suggests a possible 7-week positive candle followed by the 8th candle reversal.
Looking at daily candles, the S&P500 Index looks like it will continue its upward trend for the week except on either Monday or Tuesday. The market should consolidate on Monday and/or Tuesday following another week of gains. Once again Investors will be looking at earnings reports to access the market sentiment and the health of the financial sector.
The immediate support levels now are S1: 850, S2: 825 and S3: 800.
The immediate resistance levels are R1: 875, R2: 900 and R3: 925.
The Dollar Index (DXY) has dropped a little from 85.9 to 85.6 last week on weekly candles. The dollar index has been testing the high of 86 levels for the past 3 weeks. The dollar index is likely to stablize at this current level of 86 for the next few weeks. Last week, Gold continued to drop and maintain below the 900 levels. The bond yields increased a little and the VIX continued to drop. Overall the market should be in the positive side at the end of the week.
In summary, this coming week should experience a mild rally as the market has slowly lost its steam and the market is looking for a pullback to come.
Sector Rotation : Week 17/09
April 20, 2009
The market has been steadily rising for the past 6 weeks. Last week all the sectors posted positive gains. The leader of the pack was Industrials (2.78%) followed by Consumer Discretionary (2.74%), Consumer Staple (2.22%), Health Care (1.73%), Energy (1.51%), Technology (1.37%), Materials (1.24%), Financials (0.27%) and Utilities (0.19%).
Surprisingly, Financials did not lead the market last week even as they beat earnings. Consumer Staples, Health Care and Energy started to make their claim last week as they pushed for a higher position. This might signal that the investors are getting worried about the bullish trend and starting their flight into defensive stocks like Consumer Staple and Health Care.
Consumer Discretionary still continues to maintain its top 3 position for the week. This is a good sign for the market as it will continue to spur growth in the housing sector, automobile sector and others. Industrials have been rising to the top for the past few weeks. If it continues to stay in the top 3 positions, the market’s health is likely to be good as this sector has the highest job creation.
Overall, the sector charts should remain the same in the coming week with Technology leading the pack followed by the usual top sector performers.
Market Analysis : Week 17/09
April 20, 2009
Last week was just a preview of what is going to happen in this earning season. The earnings from the major banks like Citigroup, Goldman Sachs and J.P. Morgan have come out better than expected. The market price action was almost exactly the same as the previous week. The market took a pause on Monday and tanked on Tuesday after the previous week’s gain. It then resumed its uptrend on Wednesday and Thursday. On Friday the market struggled to get it’s footing on the green and eventually closed higher up for the week.
The market’s breath remains the same as the previous few weeks. It was very positive on the bullish day. The market has closed on a high again. This continuing encouraging sign has already created a debate among the traders and investors as to whether it is a new era of the bull market. This is likely to stir the interests of the massive amount of cash $3.8 trillion sitting in the money-market funds.
Last week, the VIX (a measurement of market risk/fear) continued to drop sharply from 36.53 to 33.94. This signals that the fear level has been dropping drastically which signals bullishness for the equity market.
Economic Data
The economic data will not dominate the market for this coming week. There are little or no data for the market from Monday to Wednesday. The weekly Unemployment Claims and Existing Home Sales will be out on Thursday. The New Home Sales and Core Durable Goods Orders m/m will be released on Friday.
I expect the New Home Sales and Existing Home Sales to be better than expected due to the renewed improved sentiment in the housing market. The Weekly Unemployment Claim and Core Durable Good Orders should come out in line with market expectations.
Earnings
This coming week, the earnings report will be in full swing as more than 90 S&P500 companies will be releasing their earnings report. Six of the Dow Jones Industrial Average Components like Bank of America Corporation, Boeing Company, IBM, Coca-Cola Company, McDonald’s Corporation and 3M Company will also be on tap in this coming week.
Some of the famous names like Apple Inc, Halliburton Company, Ford Company, Qualcomm Inc, Altria Group Inc, Amazon.com Inc, EMC Corporation and Amgen will be releasing their earnings this week too.
These earnings reports are likely to be better than expected for most of the companies, as the current estimates were priced at very low levels.
Overall the market is likely to push even higher for this coming week with the strength of financials and technology sector. The earnings reports should be able to boost the market a little with the aid of the better result in the economic front.
Thus expect another rally ahead, albeit in a very volatile and choppy market that is hinting at a major tank very soon. Indications that the market is now overbought have been becoming more and more obvious in recent sessions. Caution will be the watch-word for the week.
Foreword : Week 17/09
April 20, 2009
The bulls hit the market for six (weeks) last week (old cricket joke!). The sixth consecutive week of gains is the longest winning streak in nearly two years. The Dow Jones Industrial Average rose 48 points to close at 8131 (0.6%). The S&P500 Index gained 13 points to close at 869 (1.5%) and the Nasdaq Composite was up by 21 points to close at 1673 (1.2%).
Apr ‘09 - Agriculture & Food Report
April 20, 2009
Recession Proof – that is what these industries are best known for. Regardless of economic conditions, the demand for their products virtually guarantee growth for such companies and inflation will continue to spur them to greater heights.
With no real index of its own, this sector depends on the DJ US Food Producers Index (DJUSFO) and Consumer Staples SPDR (XLP) ETF for sentiment reads. Other ETFs used for this purpose include (Note that in the two weeks leading up to this report, volumes increased on these ETFs by an average of about 3%):
Technical Analysis : Week 16/09
April 13, 2009
Last week the S&P500 Index closed above 856. This represents a jump of 14 points (1.7%) off the previous week’s close. Last week also marked the 5th consecutive week up since April 2007 for S&P500 Index.
Last Tuesday, the market took a beating due to a bad report from influential financial analyst, Mike Mayo, as he downgraded several big banks citing more write downs for commercial mortgage loans. After the Tuesday loss, the market once again gathered its strength and staged a strong rally to gain more than 30 points on Thursday.
Looking at the weekly candles, the S&P500 Index suggests a positive week ahead. The weekly candles have successfully established higher highs and higher lows for last few weeks. This Bull Run may continue for at least another 2 weeks including this week.
Looking at daily candles, the S&P500 Index looks like it will continue its upward trend for the week except on Monday. The market should consolidate on Monday following a huge gain last week. The investors will also use Monday to access the overall market sentiment and the financial sector’s health.
With the 850 level breach last Thursday, this week should see a test for the 875 levels.
The immediate support levels now are S1: 850, S2: 825 and S3: 800.
The immediate resistance levels are R1: 875, R2: 900 and R3: 925.
The Dollar Index (DXY) had risen from 84.1 to 85.9 last week on weekly candles. However the DXY has just formed a Double Top on daily candles. This indicates that the Dollar Index might fall this week … this is a good signal for the equity market. Last week, Gold maintained below the 900 level and Bond yields fell a little. The most bullish signal last week was the fall of the VIX from the major support level of 37 points. The equity market will be in good shape if this trend continues in this fashion.
In summary, this coming week should have a big rally as Financials will lead the market into broad rally, backed by better-than-expected economic data. The S&P500 Index will be determined to test the February high of 8,280.
Happy Hunting!
Conrad Alvin Lim & Lawrence Chua.
