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Technical Analysis : Week 44/09
October 26, 2009
The S&P500 Index closed at 1080 last week. This indicates a drop of 7 points (0.7%) from the previous week’s close.
The market had experienced a roller coaster ride for the week, which ended up slightly negative. 3 out of 5 were trading in the red last week despite the fact that earnings were better-than-expected for most of the reported companies. The S&P500 Index tested the 1100 level twice for the week without successfully closing above this significant level. The market traded sideways for the week in a range of 25 points between 1100 and 1075.
Technically, it seems that the market is uncertain of the near future, as it cannot break through the significant 1100 resistance level and the immediate support level of 1075.
Looking at the chart, the price action in October looks eerily similar to the price action in September. Both of them had encountered a decline on the first two days of the month and the reversal on the third day of the month. Both of them had nine consecutive positive days starting on the reversal day following a negative day on the 10th day. After the pause, both of them experienced a sideways trend for the next 5 days. During the sideway trend, both tested the high of the year twice. If history does repeat itself, the market will be testing 1050 for the rest of the October.
Meanwhile, the street’s optimism and confidence in the market remains strong. However, some of the professionals are looking for a healthy correction of 5% to 10% in the coming week. Many folks are still looking to buy on dips, which worked so well for the past 6 months.
Short-U.S dollar trade is still very popular, as many people believe that the Dollar is heading into the direction of Zimbabwean dollar. Analysts are calling for a 25% downside before any pull back can be considered. However a major short squeeze can be expected in the near term as the short-dollar trade is extremely overcrowded.
Looking at weekly candles, the S&P500 Index is suggesting a downside movement if it can break below the 1075 level. The weekly candle shows an inverted hammer that might translate into further weakness in the coming week.
Looking at daily candles, we have a Bearish Engulfing pattern indicating that the S&P500 Index looks like it might be starting the week on the negative side. It has to break below the 1075 level in order for the bears to come alive again.
The immediate support levels are S1: 1075, S2: 1060 and S3: 1040.
The immediate resistance levels are R1: 1100, R2: 1150 and R3: 1200.
Also note that the NASDAQ is on its Eighth Candle now with one week left to go. Remembering what happened in February 2007 on that fateful “Shanghai Surprise” that ended the last two days of February in an Eighth Monthly Candle Reversal on the Dow and S&P500, I am not going to mess with the possibility of a major reversal on Tech this week.
In conclusion, the market this coming week is likely to be bearish if it breaks below the 1075 level. The GDP numbers will have a major bearing (pun not intended) on the broader market. U.S. Dollar and Oil will also be in focus.
The market will be facing extreme volatility as the street debates whether to take profit or take more risk. Once again it is too early to call the top as the market can stay irrationally long as long as you can stay solvent.
Happy and Safe Hunting Always.
Sector Rotation : Week 44/09
October 26, 2009
A reversal of fortunes in the top spot from last week had brought the market down. Materials (3.01%) had led the decliners followed by Health Care (-2.64%), Industrials (-2.54%), Energy (-2.44%), Utilities (-2.26%), Consumer Staples (-1.7%), Consumer Discretionary (-1.4%), Financials (-1.24%) and Technology (-0.09%).
Transportation might be in big trouble this coming week. Last week, it tumbled more than 5% due to concerns of the industry growth. A quick look at the Dow Jones Transportation Average Index daily chart reveals a double top pattern. The Dow transportation index broke above and closed below the 50 day moving average. Further weakness from Dow transports is likely to put further strain on the 3 main benchmarks.
Airlines were the weakest in the Transportation sector. The airlines industry is likely to suffer in the coming months especially if oil prices remain above the $80 level.
In conclusion, the market will be weak if the Transportation sector accelerates to the downside.
Market Analysis : Week 44/09
October 26, 2009
The market had an extremely volatile roller coaster end to the week. The S&P500 Index failed to establish itself above the level of 1100, which marks the financial crash on 6th of October 2008. During the Black Week of the stock market, the S&P500 Index fell more than 20%.
Last week, the street assumed that the market would continue its surge due to all the notable companies and more than 80% of the Dow components posting better than expected earnings reports. On top of that, economic data came out more or less in line or better than market expectations. However, the market decided to sell-off in spite of several notable companies reporting better than expected earnings.
The street paid special attention to the development of Crude Oil Prices last week as it surged over $80. Last year when oil tipped over $80, it caused much pain to the economy which eventually triggered the “Panic Week”. Fundamentally, crude oil should not be in the range of $80 as the unemployment rate in U.S. is 9.8% currently. Even if the economy is in recovery growth, crude oil should only be in the range of $50. Speculators betting that oil prices will go higher were the main contributors to the acceleration in crude oil prices.
The Fed contributed largely to higher asset prices across the market by flooding it with trillions of dollars and the near-to-zero interest rates policy. The U.S. dollar has suffered more than 15% losses so far this year due to fears of hyperinflation. The street had been forced to invest in other markets as a hedge against the devaluation of the dollar. This has resulted in an influx of money into Equities, Oil, Gold, TIPS, Bonds, Housing and other strong currencies around the world.
The inflation of asset prices will create another bubble in the future. Should this asset bubble burst, the street will suffer another severe blow to their saving accounts. Furthermore, pricey oil will put a dent in the recovery of the economy.
The short-U.S. dollar trade had been overly crowded for the past few weeks according to several indicators and data. The overly crowded short-U.S. dollar trade eerily seems like a huge bubble that is likely to burst in the faces of these speculators. This is likely to cause other asset prices to burst too. This domino effect will have a massive impact on the economy which might lead to that double-dip recession scenario that so many have predicted.
Since the fate of the U.S. Dollar is likely to impact all the asset prices, many traders and investors have been closely watching speeches from Fed members and other central bankers around the world. Any hint of tightening the U.S. dollar is likely to cause a dip in asset prices.
The Fed members are likely to keep the easy monetary policy longer than expected as it does have some advantages to the U.S. economy. The advantages are spurring growth in the export industry which should create jobs, reduce the trade gap and reduce budget deficits.
Overall, the street had been focusing on the U.S. dollar for the past few weeks to look for the direction to trade in other asset prices. The street will be watching the speeches of Fed members and other central bankers in the coming weeks.
Major Events
- The number of U.S. bank failures in 2009 climbed to 106 after the FDIC shut down 7 banks in the South and Midwest. The Friday bank failures will cost the FDIC fund more than $297.7 million.
- Capmark Financial Group Inc., one of the nation’s largest commercial lenders will file for bankruptcy in the coming days.
- Bomb blasts in downtown Baghdad near 2 government buildings killed more than 130 people and wounded hundreds, according to media reports on Sunday.
- President Barack Obama declared the H1N1 flu outbreak a national emergency.
- On-going pay cut war in the Wall Street.
Economic data
A glut of economic data will be scheduled for release this week. The most important piece of news will be the GDP data which is scheduled to be released on Thursday. Failure to meet the market’s consensus of around 3.5% growth in the third quarter will bring fear to the equity market. It will be a very nervous market going into Thursday as traders reflect on the U.K. shock last week following their negative growth of 0.4% in their GDP instead of the expected positive growth of 0.2%.
On Tuesday, Consumer Confidence and the Case Shiller Home Index will be in focus. Wednesday brings Durable-goods orders, Core Durable-goods orders, New-home sales and weekly Crude Oil Inventories. On Thursday we have the 3rd quarter GDP result and weekly Unemployment Claims. Lastly on Friday, Personal income, Consumer spending, Consumer sentiment and Chicago PMI will be released.
Earnings
So far, 81% of the reported companies had topped analysts’ earnings forecasts and 62% of S&P500 companies beat analysts’ expectation for sales.
There will be another 149 S&P500 companies releasing their earnings in the coming week. Four Dow Jones Industrial Average components will issue results.
Among the highlights next week will be results from Visa, General Dynamics, Procter & Gamble, MetLife, Sprint Nextel, ConocoPhillips, Exxon Mobil and Chevron.
Summary
Earnings are likely to be better than expected again in the coming week. This is largely attributed to the low expectation bar from analysts. However, the street had been setting the bar higher and expects more solid growth from the major industry players.
The weakness of the Dollar will be a cause for concern in many of the exporting countries. Recently, Brazil started implementing taxes on the inflow of hot money. Some of the European officials had voiced concerns on the weak dollar. The Short-Dollar trade had been overly crowded that even the financial magazines are calling ‘Doom to the Dollar’.
The weakness of the Transportation sector last week will weigh on the market. Without the strength and leadership of this economic pillar, the market will struggle if a real recovery is to be realized.
In conclusion, the market will be focused on the GDP result this week. Fed movements will be scrutinized by investors and traders. The market will be very edgy and volatile. It will be prudent to reduce risk by taking profit off the table.
Foreword Week 44/09
October 26, 2009
Last week, the market fell after two weeks of gains. The Dow Jones Industrial Average lost 24 points to close at 9972 (-0.2%) followed by the S&P500 Index which tumbled 7 points to close at 1080 (-0.7%) and the Nasdaq Composite closed at 2154 after falling 2 points (-0.1%).
Technical Analysis : Week 43/09
October 19, 2009
The S&P500 Index closed at 1087 last week. This indicates a gain of 16 points (1.5%) from the previous week’s close.
The market had a run of 4 consecutive positive days in this week. The push on Thursday was fueled by the euphoria of getting above the 10,000 mark on the Dow Jones Industrial Average.
Technically, there are no signs of slowing down the bull after such a great run since March and July. The market had managed to close above the 50 Day Moving Average since 15th of July. Apparently, the market always seems to be able to find a buyer to bid up the price from the dip of the 50 MA level.
Looking at the daily chart, the market is going higher amid a slower pace as compared to the early stage of the bullish surge. The S&P500 Index will face a tough job to climb above the 1,200 mark for the end of this year.
Meanwhile, the street’s optimism and confidence in the market continues to push higher after the Dow Jones Industrial Average managed to establish a close above the 10,000 mark.
Many folks are likely to be more comfortable in putting their money in the market now as the fear of a double dip seems to have disappeared recently from the news. Furthermore, the media has been creating a lot of fear with regard to the depreciating value in the purchasing power of the U.S. Dollar.
Many people believe that the Dollar is going to fall further and are trying their best to safeguard their Dollar through investing in Gold, Oil, base metals and even good quality stocks.
Looking at weekly candles, the S&P500 Index is suggesting some upside movement if it can break above 1100 in the coming week. The weekly chart shows a healthy bullish candle that might translate into further gain in the coming week.
Looking at daily candles, the S&P500 Index looks like it might be starting the week slightly towards the positive side. The candle formation, a “hammer” on the rising trend tends to point toward a consolidation over the next few days.
The immediate support levels are S1: 1080, S2: 1060 and S3: 1040.
The immediate resistance levels are R1: 1100, R2: 1150 and R3: 1200.
In conclusion, the market this coming week is likely to be bullish if it can break above the 1100 level. Earnings will play a big part in deciding the fate of the market. The U.S. Dollar will also play another big part towards the growth in the equity market. Overall market sentiment remains bullish but the economic view is still bearish. Thus, the strategy in this market is go with the bullish flow but maintain a clear mind ahead of the economy situation.
It would be wise to not commit more than 50% of your cash to trading now. Buying yourself some insurance in the form of cheap Puts may not be a bad idea should the market decide that it has had enough of this bull-run.
It is October, after all.
Sector Rotation : Week 43/09
October 19, 2009
Once again the Energy (3.64%) took the top spot to lead the market higher for the week followed by Industrials (2.11%), Materials (1.46%), Consumer Discretionary (1.4%), Consumer Staple (1.31%), Health Care (0.76%), Utilities (0.47%), Technology (0.43%) and Financials (-0.91%).
Same story again with the weakness in the Dollar – it continues to spur the growth in the commodities sectors such as Energy and Materials.
Financial and Technology sectors took a beating due to the “buy the rumor, sell the news” trade last week.
In conclusion, the market will continue to surge higher as long as the Dollar remains weak. The sectors that are likely to benefit from the weak Dollar will be Energy, Industrial and Materials.
Market Analysis : Week 43/09
October 19, 2009
The world celebrated the Dow Jones Industrial Average’s close above 10,000 level last Thursday. It took nearly a year to reclaim that important psychological level of 10,000.
The street had begun to question the strength of this market going into the next twelve months. Conservative investors are still showing doubts in the market while there are a growing number of traders and investors who believe that the recovery story is on the roll.
Conservative investors supported their argument by pointing towards the weak unemployment in the country. They also pointed out that the top line earnings still did not meet expectations. Furthermore, they cited that the regional banks are still suffering and small business could not manage to secure credit from these banks.
The other camp of investors and traders think that the recovery is already on the way. They cited that the market tends to lead the economy rather than vice versa. They also pointed to the fact that so far in quarter, companies that have reported their earnings results posted better than expected earnings. Their arguments are backed up by the fact that there are still many sidelined monies that will eventually come into the equity markets due to the weakness in the Dollar.
Looking at last week’s performance, the market had a great week with 4 out of 5 days registering gains. This great performance was fueled by the better than expected earnings results from notable companies such as JP Morgan Chase, Goldman Sachs, Intel Corp and Google Inc.
Easy Monetary policy also lent a helping hand to fuel the stock market growth for the past few weeks to months. Investors and traders will continue to do the re-inflation trade as long as the Fed maintains the easy credit policy.
The economic data was rather mixed last week. Sentiment reports such as the IBD/TIPP Economic Optimism and Michigan Consumer Sentiment shows that the reports came out worse than expected. However, the stronger than expected results from Retail Sales, Weekly Unemployment Claims and Weekly Crude Oil Inventory help to support the market.
Major Events
- California bank becomes 99th to fail in U.S. in 2009
- U.S. Dollar hit 14 months low
- Fed Chairman Bernanke hints that more stimulus package might hit the main street.
Economic Data
Investors and traders have been weighing earning results against the growth of the economy. This week, there are some important economic data that will make an impact on the market.
On Monday, the NAHB is due to post its October housing market index. Tuesday will bring in numbers from the September PPI, housing starts and building permits. On Wednesday we have the Fed Beige Book. Thursday brings weekly jobless claims and September leading indicators. Lastly on Friday, existing home sales data for September will be released.
Earnings
61 S&P 500 companies having reported earnings so far, with 79% topping analysts’ expectations, 11% having matched and only 10% have come in below expectations, according to Thomson Reuters.
So far, the earnings results have come out similar to the last quarter’s earnings with many companies beating lowered expectations.
Next week, another 75 S&P500 companies are due to report earnings along with 11 Dow components.
Among the highlights next week will be results from Apple Inc. due after the close of trading on Monday. Tuesday will bring, among others, Coca-Cola Co., Dupont, Pfizer Inc. and United Technologies Corp. Wednesday sees results from Boeing Co., Freeport McMoran, Morgan Stanley and Wells Fargo. On Thursday, results are expected from 3M Co., AT&T Inc., Credit Suisse Group, Dow Chemical Co., McDonald’s, Merck, and Travelers Cos. Microsoft Corp. are due to release its earnings on Friday.
Summary
Another week of better than expected earnings from the major companies. It has been the headline for the week as Goldman Sachs, JP Morgan Chase, Intel Corp. and Google Inc. smashed earnings records amid the slow economy.
The sentiment on the street has been surging along with the market recently. Many traders and investors seem to be comfortable in putting money into this market as it establishes itself above the psychological mark 10,000. Many of them are putting money into risky assets than holding the ever-depreciating Dollar in the near term. The correlation between the rising equity price and falling Dollar seems so obvious that even main street is shorting the Dollar to buy every other hard asset in the market.
The weakening Dollar so far has helped to boost earnings for the Conglomerates and helped the growth in exporting industries. However, the problem with a weakening Dollar will be a bigger bubble in the asset market and the loss of faith in the currency. The biggest problem of all will be Hyperinflation not too far down the road.
The coming week’s earnings results are likely to be the same as the previous week, showing better than expected grades. The market is likely to maintain its grip above the major psychological levels.
In conclusion, the market should stay higher in the coming week as long as companies post better than expected earnings results. The U.S. Dollar will be the main focus going forward. As long as the Fed maintains a loose monetary policy, the market should push higher. Any hints of dissatisfaction with the weak dollar will make the market very edgy.
Foreword Week 43/09
October 19, 2009
Last week, the Dow Jones Industrial Average managed to break above the 10,000 levels after a year of struggling below 5 digit levels. The Dow Jones Industrial Average gained 131 points to close at 9996 (1.3%) followed by the S&P500 Index which rose 16 points to close at 1087 (1.5%) while the Nasdaq Composite Index gained 17 points to close at 2156 (0.8%).
Technical Analysis : Week 42/09
October 12, 2009
The S&P500 Index closed at 1071 last week. This indicates a gain of 46 points (4.5%) from the previous week’s close.
The market had 5 consecutives positive days in this week. The market had gained it bullish momentum after the major indexes hitting the 50 Moving Average line on last Friday. The market had play out this strategy for the past few months. Investors and traders had been buying from every single dip that the market present itself. Frenzy buying had been spotted at 20 MA and 50 MA levels. As long as there are no major shocking news, the street will likely to benefit from buying at every major support level of the moving average.
The optimism and confidence in the market are growing stronger with every better than expected earnings reports from major industry leader. Further evident of growing optimism can be found in the short interest data, VIX and VXN.
Amid the strong confidence in the market, there are several famous people warning the street on the health of the economy and the overrun in the stock market price. Fed Bullard warns over inflation and cautions unemployment is headed to double digits.
Looking at weekly candles, the S&P500 Index is suggesting a upside movement if it can break above this year high of 1080 in the coming week. The weekly chart shows a bullish ‘marabozu’ candle that indicates a positive ahead. Furthermore, the weekly chart also seems like a continuous pattern of the bullish trend.
Looking at daily candles, the S&P500 Index looks like it might be starting the week with a positive Monday. This is because the market ends up high at the last trading day.
The immediate support levels are S1: 1025, S2: 1000 and S3: 990.
The immediate resistance levels are R1: 1040, R2: 1060 and R3: 1080.
In conclusion, the market this coming week is likely to be bullish if it can break above the 1080 level. Earnings will once again be in the focus. All eyes will be on the big boys such as Bank of America, JP Morgan, Citigroup and Goldman Sachs. Traders had been shorting the Dollar, buying Gold, Oil, Stocks and even Bond. On a caution note, all the investment markets had been overcrowded recently. Any reversal or shocking news will turn the tide that will likely to be fast and furious.
“Market always make the majority look like a fool”
By,
Lawrence Chua
Sector Rotation : Week 42/09
October 12, 2009
This week, Energy sector pick up the leadership followed by Materials (4.62%), Financials (3.39%), Consumer Discretionary (3.19%), Technology (2.94%), Industrials (2.63%), Consumer Staple (2.17%), Health Care (1.94%) and Utilities (1.46%).
Energy and Material sectors lead the market as the weakness in Dollar continue to push up the prices of the commodities.
Financial and Technology sectors will be in focus this week. A slew of better than expected report will likely to push the stock prices in these 2 sectors into a high for the year.
In conclusion, the market will continue to watch for the earnings growth in the coming week to decide if the economy had truly began its recovery process.
