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Technical Analysis : Week 40/09
September 28, 2009
The S&P500 Index closed at 1044 last week. This indicates a loss of 24 points (2.2%) from the previous week’s close.
Last week, the market rallied on Monday and Tuesday as traders and investors were seen buying on dips. Traders and investors were looking for the exclusive 10,000 level on the Dow as they rallied the market before the FOMC Statement was released on Wednesday.
The S&P500 Index touched the 2009 high of 1080 after the release of the FOMC Statement. However, the S&P500 Index did not managed to hold onto that high as the bears came out forcefully to sell into the rally. The S&P500 Index gave up the gain and closed at 1060 on Wednesday.
After the closing bell on Wednesday, Several technicians were quick to point out the ‘Key Reversal Pattern’ that had formed on Wednesday. This indicated a possible correction of 10% to 20% in the market in the following months. A Key Reversal Pattern refers to the day creating a new high but ending down lower than the previous day’s low. The Key Reversal Pattern held true as the market continued its sell-off on Thursday through Friday as they lost 10 and 6 points respectively.
Meanwhile, many traders and investors are still bullish on the market as they pointed out that it is very normal to have a 2% drop in a week. Some of them even pointed out that this current dip would be a good entry point for the stock.
The optimism and confidence in the market and economy seems to still be intact. This is because many people had been making easy money recently from the stocks, forex, commodities and even the housing market.
Looking at weekly candles, the S&P500 Index is suggesting a downside movement if it can break below 1030 in the coming week. This is because an ugly Bearish Harami candlestick pattern had formed.
Looking at the daily candles, the S&P500 Index looks like it might be starting the week with a negative Monday. This is because the daily candles show lower lows and lower highs for the past 3 days. If the 5th candle reversal pattern is going to form on Tuesday, then today will likely be a negative day. A bullish Monday would indicate a pattern failure which implies some upside or more consolidation for the week.
The immediate support levels are S1: 1040, S2: 1010 and S3: 990.
The immediate resistance levels are R1: 1060, R2: 1080 and R3: 1100.
In conclusion, the market this coming week is likely to be bearish if it can break and hold below the 1040 level. The market will be looking at the strength of the dollar to decide which direction to follow. Further strengthening of the Dollar should confirm that the market will become more risk averse in the coming weeks. Volumes had significantly increased recently when the market sold off. So watch out for increasing volumes, which might trigger a greater sell off in the market.
Sector Rotation : Week 40/09
September 28, 2009
This week, Materials (-3.63%) led the sell-off followed by Financials (-2.73%), Industrials (-2.68%), Consumer Discretionary (-2.56%), Energy (-2.1%), Health Care (-1.76%), Utilities (-1.15%), Technology (-1.06%) and Consumer Staples (-0.32%).
Homebuilders are likely to get beaten up in the coming week after the confirmation of lousy earnings from Lennar Corp, KB Home and Toll Brothers. This coming Monday, Hovnanian will be releasing their earnings report. If they also come out worst than expected, then homebuilders are likely to sell off for the next few months.
Defensive Sectors such as Consumer Staple and Utilities are likely to shine in the next few weeks as investors shifted their funds to low beta stocks. Seasonality stocks should benefit too as we are nearing the last quarter of the year.
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In conclusion, the market is likely to be very nervous in the coming week. This will greatly benefit defensive stocks. Also look out for Defense/Aerospace stocks too as the tension in Iran will be in focus in the coming week.
Market Analysis : Week 40/09
September 28, 2009
The market had a rollercoaster ride last week. At the start of the week, many traders and investors were anticipating that the Dow would hit 10,000. Many of them believed that the Dow had to hit the 10,000 level before the market takes a correction of 5% to 10%.
The highlight of the week was Wednesday, Uncle Bernanke almost presented a gift to the Market’s players. The market shot up to a new high initially after the Fed released its Statement and maintained that the Fed Fund Rate remained at 0.25%. However, the market quickly reversed the trend to head lower at the end of the day.
Technicians were quick to point out that a Key Reversal Pattern had formed on Wednesday. A Key Reversal Pattern refers to the day creating a new high but ended up lower than the previous day’s low.
The market had indeed followed through Wednesday’s late sell off for the rest of the week. Heavy negative volumes were noticed across the board throughout late Wednesday till Friday.
On Monday, the market started badly at the opening bell. The market did not stay low for long as it inched its way higher throughout the day to close slightly higher. The market managed to close higher even though the CB Leading Index came out worst than expected (0.6% v.s. 0.8%).
On Tuesday, the market traded flatly as most of the traders and investors were waiting for the results of the Fed Meeting. The post Fed Meeting had been extremely quiet. The silence had not been helpful for traders betting any direction in the market. Also, the economic data did not give the traders any reason to go Long in this uncertain market. Richmond Manufacturing Index (14 vs 17) and HPI (0.3% vs 0.5%) came out worst than expected.
On Wednesday, the market opens slightly higher at the opening bell. Traders and investors were waiting for the released of the FOMC Statement at the later of the day. Meanwhile, Oil traders were seen heavily selling off Crude oil contracts before the weekly oil inventories data. Once again the oil inventories data proved that the oil traders were spot on. The Crude Oil Inventories came out larger than expected (2.8M vs -1.4M). At 2pm (EST) the market shot up immediately when the FOMC Statement was released. The FOMC Statement came out as expected. However the market did a reversal after it hitting the high for the year. The velocity of the sell off was forceful and in huge volumes as was seen at the last hour of the trading day. Rumors were that Institutions had started to liquidate their positions as there will be more shocking news in the coming weeks.
On Thursday, the selling pressure accelerated after the release of the Existing Home Sales data. Meanwhile, Crude Oil prices continued to shoot down more than 3%. August Existing Home Sales came out worst than expected (5.1M vs 5.36M) even as first time housing credit is still available till the end of November. More bad news came out as the G20 began its 2 day meeting. Then news emerged that the FDIC was broke and were seeking funds from healthy banks.
On Friday, the selling pressure subsided a little even though Core Durable Goods (0% vs 0.9%) and Durable Goods (-2.4% vs 0.3%) came in worst than expected. New Home Sales also came in worst than expected without adjusting the previous month’s data. Nonetheless, the market started to feel jittery as bad news and earnings starting to pour into the market. RIMM gave a lousy guidance for the next quarter which sent their stock price spiraling down more than 15% in 2 days (87.5 to 69).
Nothing concrete had come out of the G20 Meeting. The only surprising news was the Iran secret uranium hideout. This sparked tension between the U.S. and Iran, which is likely to affect the mood of the market. President Obama urged Iran that it must open a newly revealed nuclear enrichment site to international inspectors “within weeks”. Failure to do so might result in further sanctions and President Obama did not rule out the possibility of using the armed forces. President Obama did emphasise that Diplomacy would be the best solution for both parties.
Major Events
- FDIC had closed 1 bank in Atlanta on Friday brings the total number to 95 failures in 2009. Georgian Bank had a deposit of 2 billion. The cost of the failure to FDIC’s deposit-insurance fund is $892 million.
- RIMM issued weaker than expected revenue guidance for the fiscal third quarter ending in November.
- KB Home misses by $0.29, worse than the First Call consensus of ($0.58).
- Tension in Iran over the Secret Nuclear enrichment site.
- G20 will replace the G8 as the main forum to address the world’s economic agenda.
- Oil futures tumble down more than 8% in the week. Biggest weekly losses in two months.
Economic Data
This coming week, the market will be focusing on the Employment data. Besides the Employment data, the market will also be watching the GDP revision, Consumer Confidence and Manufacturing data such as Chicago PMI, ISM, Construction Spending and Factory orders.
So far, the economic data on Housing and Manufacturing has not been pretty Last week. Economic Data surprised to the downside rather than upside. Therefore, get ready to expect the unexpected in the coming month October.
Summary
Signs of weakness in the market are getting more obvious as economic data looks to disappoint the market. There are cracks everywhere in the economy waiting to tear apart, while regulatory bodies are busy patching up and dressing it for the end of the year Christmas party.
Bank failures at the end of the week have become a norm for the market recently. I have lost count of the consecutive weeks of Bank Failures ever since it started to accelerate in the last few months. Bank failures used to fly under the radar in the market until recently. The heavy losses in bank failures had starting to weigh heavily on the FDIC’s deposit-insurance fund. It seems that FDIC Chairwomen, Sheila Bair had been busy seeking additional funds to hold off more failures in the coming months. News has emerged that the FDIC is broke.
Investors and traders had priced-in high expectations recently as the stock market continued to surge higher. Meanwhile, almost all of the economic data that came out in last week disappointed the market.
The crude oil prices tumbled down more than 8% in the last 3 trading days of the week. The heavy sell-off in the crude oil futures market will put further strain on the already unstable market. The crude oil price continued to slide even though Goldman Sachs’s reiterated that the crude oil prices should be at the range of $85 at the end of the year due to improvements in the economy which will see more demand for the black stuff.
Recently, the decline of the U.S dollar sparked concern all around the world. As I had stated in the previous week’s report, the weakening dollar had fueled the stock market recently. The weakness of the Dollar had been over-cooking the market for the past few months. The weakness of the Dollar had helped the Euro to appreciate against the Dollar in recent weeks. After a few reports suggested that the Euro zone was comfortable with the strength of Euro over the past few weeks, ECB’s Trichet today said that a strong U.S. dollar is important.
In conclusion, the market is likely to feel further strain this coming week. Uncertainty in the market should force some investors to liquidate their positions while they welcome a traditionally frightening October. However, the market painter is likely to come out in the last few days of the September to paint a better picture before October. The market painters are none other than the fund managers as they ‘window dress’ their portfolios toward the end of the quarter. Lastly, expect the unexpected in the coming week.
“The market will always make the majority look like a fools.”
Foreword Week 40/09
September 28, 2009
Last week, the Dow Jones Industrial Average lost 155 points to close at 9665 (1.6%). The S&P500 Index fell 24 points to close at 1044 (2.2%) and the Nasdaq Composite tumbled 41 points to 2091 (2%).
Sep ‘09 - Finance
September 25, 2009
Bane or blessing, hate them or love them, in today’s society, it’s tough to get by without Financial Institutions. And that’s an irony because these institutions can’t get by without our money either.
Financial Institutions have been one of the best money making sectors in the last 13 years but they are also the worst losers in the current situation. To date, more than 90 banks this year alone have gone bust.
Retribution? Possibly. After all, it was the greed of Financial Institutions that got us into this massive mess in the first place. And rather than work to get us out of this mess, they seem to want to make matters worse with even more greed while denying loans to those who really need it.
Hate them or love them, we are not going to deny that these counters are some of the best trading opportunities that can reap a massive return in a shorter time than most other counters on a regular basis.
Technical Analysis : Week 39/09
September 21, 2009
The S&P500 Index closed at 1068 last week. This indicates a gain of 25 points (2.5%) from the previous week’s close.
Last week, the market rallied at the on Monday as investors and traders were betting on a good retail sales report on Tuesday. The market built rally after rally from Monday till Thursday. The U.S. market reacted strongly to the recession being ‘technically’ over. But the market took a break on Friday as bad news came out from China and Hong Kong.
The S&P500 had briefly tested the high of 1075 on Thursday before the market went into profit taking. The market had been rising and growing confidently for the past few weeks as September turned out to be a very bullish month. To date the S&P500 had grown to 7% from the beginning of the month. It is even more impressive given the fact that September is traditionally one of the most bearish months in history.
The optimism and confidence in the market had been growing steadily for the past few weeks. The market seems to be an easy ATM machine for the public, as it seems to be only going up. Many investors who are holding onto their cash had been lured into this market. This is because the investors are forced to invest in the stock market as currency continues to depreciate at an alarming pace.
Looking at weekly candles, the S&P500 Index is suggesting an upside movement if it can break above the 1075 level in the coming week.
Looking at daily candles, the S&P500 Index looks like it might be starting off the week with a negative Monday. This is because the candle shows a ‘Doji’ on Friday, which indicates a pause or potential reversal trend.
The immediate support levels are S1: 1050, S2: 1025 and S3: 1000.
The immediate resistance levels are R1: 1075, R2: 1100 and R3: 1150.
In conclusion, the market this coming week is likely to be bearish if it cannot break and hold above the 1075 level. The market will be looking at the strength of the dollar to decide which direction to follow. Watch out for increasing volumes, which might be selling into this unsustainable market’s rally.
Sector Rotation : Week 39/09
September 21, 2009
This week, Financials (2.85%) led the market followed by Materials (2.66%), Consumer Discretionary (2.32%), Energy (2.19%), Industrials (1.54%), Utilities (1.09%), Consumer Staples (0.51%) and Health Care (-0.93%).
Homebuilders are likely to get a small boost in the coming week if the housing data manages to come out above expectations. A pullback is also highly possible as the 8k incentive to purchase houses will expire at the end of November this year.
The Commodity sector will be taking a back seat in the coming week. The dollar is expected to rebound from its lows, as there are rumors that the Fed might unwind some of the QE programs and even increase the fed fund rate by a quarter point in the near future. Potash cut its yearly guidance and this did not bode will with the sector.
Market Analysis : Week 39/09
September 21, 2009
The market had a big party last week when Fed Chairman Bernanke announced that the recession was ‘technically’ over. The market also celebrated every piece of economic news even when some of them came out slightly worse than expected.
The August retail sales was full of surprises and sent the market searching for higher ground. The strong growth of the August retail sales data suggests that consumers are still willing to spend money. This also pointed out that the government stimulus packages are working. However the strong rebound in the retail sales figure might not last as the stimulus packages fade off towards the end of the year.
The U.S. dollar declined by the same percentage to the surge in the equity market for the past few months. This is because the low lending interest rate in the U.S. makes it very attractive as the new ‘carry trade’. The surge in the market has also encouraged both investors and traders to take more risk to invest in higher beta currencies such as AUD, EUR and NZD.
The devaluation of the U.S. currency might not last long as it is still the reserve currency in the world. Fear is key factor that drives the dollar downwards. There is no doubt that the U.S. dollar should be weak because of the massive debts they are holding. But a weaker dollar will be bad for exporting countries such as China, Japan, etc.
On Monday, the market busted out of its starting block without so much as a glimpse back. With no other significant news on Monday for the traders to bid up the market, it seemed to know that the retail sales were likely to be better than expected,
On Tuesday, the market opened lower at the opening bell because of profit taking from the traders, even though the manufacturing and retail sales data came out better than expected. This kind of market behavior is known as ‘Buy the Rumors, Sell the News’. The market only started to pick itself up again when Fed Chairman Bernanke announced that the Recession is likely to be ‘technically’ over. The market closed slightly higher at the end of the day.
On Wednesday, the commodity sector was in the spot-light because of the larger than expected draw-down of Crude oil inventories. Furthermore, the better than expected results from the Industrial Production, CPI and Current Account have suggested that the economy is slowly getting its grip back. As there was no bad news on Wednesday, the market continued its push to higher ground.
On Thursday, the market open higher as economic data such as Building Permits, Unemployment Claims, Housing Starts and the Philly Fed Manufacturing Index continued to come in better than expected. However, a closer look into the details of each economic data revealed that the result was rather mixed. The market ended slightly lower at the closing bell.
On Friday, the market went sideways on Quadruple Witching fear as there was no economic news being scheduled for released. The earnings released from FedEx came out worst than expected, but FedEx manage to prevent a fall as they re-stated that this year’s forecast will be strong.
Major Events
- FDIC had closed 2 banks in Kentucky and Indiana on Friday brings the total number to 94 failures in 2009. The 2 banks are from Irwin Union Bank subsidiaries.
- Fertilizer giant Potash cuts profit forecast.
- Oracle and FedEx earnings came out worst than expected.
- Recession is over, said Bernanke.
- Tire tariffs threaten China chicken trade. This might lead into an ugly trade war between the 2 countries.
Economic Data
This coming week, the market will be focusing on the Housing and Manufacturing data. The market will also be watching out for the FOMC Statement, Federal Funds Rate and G20 Meeting.
The Fed Fund Rate is likely to remain the same. However, the market will be looking for any sign of unwinding on the QE programs. The market will also be looking for signals from the FOMC Statement, which are expected to point towards an early increase of the Fed Fund Rate.
Summary
The enormous amount of ‘Stimulus Money’ has fueled the stock markets of the world. This stimulus money has so far failed as there are no signs of improvement in the labor market. The Continuous Claim had been rising for the past few weeks. More than 15% are unofficially unemployed in the States if we take into consideration part-timers and freelancers.
The market continues to shrug off the ever-glowing fundamental risk lying in the economy. The streets continue to bid the market higher in search for the next fool to sell it to. As long as the market continues to surge higher, there will be more retail investors being sucked into this black hole while the insiders sell their shares.
Some of the traders and investors attributed the strengthening of the market to the weakening of the Dollar. This is truth but the reverse theory is likely to work too. Recently, the IMF was reported to have sold 1/8 of their Gold holding to the markets. This should cause Gold prices to take some beating in the coming week. The Dollar, if this happens, should benefit from this move.
Homebuilders had come into the spotlight recently as the JP Morgan analysts lifted its views on the homebuilder sector to Positive from Negative. The analysts also upgraded Toll Brothers and KB Home to Overweight from Neutral. The irony is that Toll Brothers’ CEO has been selling large amounts of stocks recently even before the upgrade.
Last Friday, China tumbled down more than 3% as the government pointed that the asset market had overrun itself. In Hong Kong, the housing market had risen to a level not seen in recent months. This prompted the banks to tighten up lending and the government to fight against the heated housing market.
In conclusion, the market is likely to cool off this coming week. However the market might want to push itself to the limits to hit the critical level of 10,000 for the Dow. The higher the market pushes in the coming week, the higher the possibility that the market will take a steep correction in the coming months. The market has been long overdue for a correction of at least 10%. Lastly, as the IMF slowly sells their Gold positions at multi year high prices, the dollar will likely strengthen in a short period of time.
The law of gravity - what went up must come down eventually.
Foreword Week 39/09
September 21, 2009
Last week, the Dow Jones Industrial Average gained 215 points to close at 9820 (2.2%) followed by the S&P500 Index climbed 25 points to close at 1068 (2.5%) and the Nasdaq Composite rose 51 points to close at 2132 (2.5%).
Technical Analysis : Week 38/09
September 14, 2009
The S&P500 Index closed at 1042 last week. This indicates a gain of 26 points (2.6%) from the previous week’s close.
Last week, the market rallied on the opening day on Tuesday as it played catch up with the rest of the world’s markets. The market built a rally after a rally from Tuesday till Thursday. The U.S. market reacted strongly to good news from the Chinese’s market as well. But the market took a break on Friday even when consumer sentiment came in better-than-expected.
The S&P500 almost tested the high of 1050 briefly on Friday before the market went into profit taking. The market had been rising and growing confidently for the past few weeks before that. Even in a historically bearish month, September could not seem to dampen the mood and enthusiasm of investors and traders. In fact, the combination of the surging prices in the market and the declining volumes of the market did not worry Wall Street.
Some of the traders and investors even cited that the market can go even higher as long as the government kept on stimulating the economy with easy credit. This is the optimism and growing confidence that pushes the market higher every week.
The volumes traded in the market remained sluggish and low throughout the week. Some of the investors and traders suggested that the low-volume environment might persist longer as the stock market gets overpriced again.
The recent surge in the demand of the bond market pointed to doubts in the stock market. This is because the demand of the bond market usually sparks a sell off or lack of demand in the stock market. These sparked off debates in the market recently as there were people who believed that the bond market was telling the truth with regard to the state of the current economic situation.
Looking at weekly candles, the S&P500 Index is suggesting an upside movement if it can break above the 1050 level in the coming week.
Looking at daily candles, the S&P500 Index looks like it might be starting off the week with a negative Monday. This is because the candle shows a ‘Doji’ on Friday, which indicates a pause or a potential reversal trend.
The immediate support levels are S1: 1025, S2: 1000 and S3: 980.
The immediate resistance levels are R1: 1050, R2: 1100 and R3: 1150.
In conclusion, the market this coming week is likely to be bearish if it cannot break and hold above the 1050 level. The market will be looking at the strength of the dollar to decide which direction to follow. Crude oil prices will also be one of the major factors that will affect the stock market’s direction in the coming week. Watch out for increasing volumes, which might be selling into this unsustainable market’s rally.
