Kreitler Associates LLC
Administrative Support Services
|
Professionally Speaking
|
Weekly Technical Commentary by Art Huprich
Friday Morning 05/09
Following market indices move into the lower end of a “pocket” (this means a few different levels exist) of resistance last Friday, 5/2/08, it took awhile but they have finally started to correct. In light of the fact that the financial sector is one of the most influential sectors in the market, amidst continuing concerns over new disclosure requirements from the SEC that may curb profits, banks, brokers and insurance companies acted terrible yesterday. Clearly, this has a direct effect on the SPX (1397.68) and DJIA (12866.78) and held things in check yesterday. At the close, the SPX gained 5 points, the DJIA was up 52 points and NASDAQ added almost 13 points. On the NYSE volume contracted to 1.21 billion shares. There were 515 net advancing issues.
Three days after discussing the short-term topside breakout by the DJ Utility Average (UTIL/508.88). I humbly watched the index “fail” and breakdown. Next support = 496. I would tighten up stops on this universe and downgrade the group back to “neutral”. While I am discussing humility, the SPDR S&P Homebuilders ETF (XHB/$21.29) is acting poorly. Consequently, the XHB is currently sitting right on an up trend line going back to January. Despite this, since volume picked up to the downside yesterday, I would not buy any stocks in this group. Before I would be willing to establish new positions, I need to see some consistent and strong upside volume readings. Until then, please tighten stops on existing positions and reduce, hedge, or sell those that have broken down.
Conclusion:
Due to overhanging resistance levels (see resistance below and / or 4/29/08, 5/2/08, 5/5/08, or 5/7/08 reports) I continue to suggest that short-term stops get tightened or short-term profits taken. Short-term, I think the DJIA will spend time locked between the resistance level(s) recently mentioned and the support levels that are on the following chart.
However, the odds favor that a violation of either support or resistance, on a closing basis, will dictate the indices next short-term directional move of significance.
Wednesday Morning 05/07
While waiting for the EPS results from CSCO after the close yesterday market participants were attempting to absorb comments from Fed Chairman Bernanke Monday night and the poor EPS reports from FNM and SLE early yesterday morning. This generated some downside pressure early, as the DJIA recorded its intraday low (down 106 points) within the first 20 minutes of trading. Interesting, in classic “watch how the stock reacts to the news versus the news itself, fashion, when FNM quickly stabilized off its opening decline, caught a bid, and turned positive, it was “lights out” for the bears. At the close, the DJIA (13020.83) gained 51 points; NASDAQ added 19 points.
On the NYSE volume expanded to 1.23 billion shares. There were 786 net advancing issues. Both are good readings. There were 111 new 52-week highs. The high-low readings continue to be a thorn in my side. The Oversold – Overbought Oscillator closed at plus 4.2, on the cusp of plus 5.0, which is the first point of being considered overbought.
I have been dead wrong about rotation occurring away from Steel, Metal-Ores, and certain Agriculture stocks. The move was short-term in nature, very short-term, and as the stocks approached and held their 50-DMA (one way up trends are defined is by holding 50-DMA’s), many of the stocks garnered huge bids and up they went again, extending their current up trends. I would place stops under either the “most recent reaction low” (support) or 50-DMA. My suggestion to hedge your short-term Energy positions is also looking real dumb.
Conclusion:
NASDAQ is approaching resistance. In this case, resistance is defined as a “retracement level”, 200-DMA and the prior lows from November and December of 2007. This “pocket” of resistance is between 2508 and 2554. This can be seen in the chart on page two.
What this means is that while the market indices remain confined to short and intermediate-term up trends, the “low hanging fruit” portion (the stressful but easy portion) of this current rally period has been “picked”. The market indices now have some “heavy lifting” in front of them. This isn’t a bad thing and from my perspective, is healthier than a “straight-up” type of move, especially if the stock markets internal readings are constructive.
I didn’t highlight support on the chart because the chart already looks “busy.” Thus, the following levels are considered to be initial support for NASDAQ: 2406, 2361, and 2328 (50-DMA, which will marginally change each day).
Tuesday Morning 05/06
“Manic Monday” actually began Sunday night with the news that the MSFT – YHOO deal was being called off. Considering that YHOO was trading around $19.00 prior to the original $31.00 offer (revised to $33.00) from MSFT and hit $22.97 early yesterday, this looks to me like an exercise of pure ego on the part of YHOO. It is a good example of why I feel that managing upside risk (willing to take profits) is just as important as cutting losses. In any event, the DJIA (12969.54) spent the entire session in the “red,” closing down almost 89 points yesterday. NASDAQ (2464.12) fell almost 13 points. On the NYSE, volume contracted sharply to 1.10 billion shares. While many of my contemporaries continue to “crow” about a dearth of volume (I have my own macro opinion as to why this is the case and why it will remain so), volume patterns are relatively healthy as volume tends to expand when the major averages rally and it tends to contracts when they pull back. There were 474 net declining issues, better than the 89-point loss by the DJIA. If I was going to “crow” about something, besides the fact that the major indices have all rallied to “in and around” resistance levels, it would be that the new 52-week high (50) - low (25) figures are still poor and along with a lagging cumulative A-D line, versus the DJIA, imply a very selective environment. The current environment is one in which a proactive approach to portfolio management will increase the odds of “outperforming.”
Conclusion
I discussed almost two weeks ago the shifting relative strength relationship between stocks and bonds, favoring the former (stocks) over the later (bonds). By carrying this thought one step further you can see in the following charts that the iShares Lehman 20+ Year Treasury Bond Fund looks very toppy (is this a reflection of a U.S. economy that isn’t currently as weak as many prognosticators think?) and is close to breaking down.
The “neck line”, which will marginally change each day, of a Head and Shoulders topping pattern (price characteristics only) currently exists at $90.91. I think the odds favor that it eventually gets violated. This would set up a potential test of between $87.40 and $85(ish), defined by support and a target price.
Based on an account’s time frame and tolerance for risk, please adjust portfolios accordingly.
Here is a Point & Figure chart of the TLT:
Monday Morning 05/05
The major stock market indices ended a strong week mixed Friday. At the closing bell the DJIA gained almost 48 points; NASDAQ (2476.99) loss was just shy of four points. The DJ Utility Average (UTIL/522.83) skated under the radar screen Friday as I didn’t hear anyone discuss its action over the weekend. On the NYSE volume contracted to 1.26 billion shares. There were 433 net advancing issues, in-line.
Conclusion:
Within the confines of a short to intermediate term up-trend, as defined by “higher troughs and higher rally peaks” and the successful “low-rally-retest” bottoming sequence, the DJIA (13058.20) is currently encountering a “pocket” (this means a few different levels exist) of selling pressure between approximately 12917 and 13214. Until resistance is taken out (I think it eventually will be overcome), I would expect / accept more “pause / pullback” action. Consequently, please raise stops across the board and invest accordingly.
An initial “pocket” of support for the DJIA exists between 12800 and 12656, followed by 12484 (50-DMA, not shown, which will marginally change each day) and 12269.
Chart courtesy of Reuters Plus and Dorsey Wright & Associates.
The report on this page is not a complete description of the securities, markets or developments herein. All expressions of opinion reflect the judgment of the Research Department of Raymond James & Associates, Inc. (RJA) as of the date stated above and are subject to change. Information has been obtained from third-party sources we consider reliable, but we do not guarantee that the facts cited in the foregoing report are accurate or complete. Other department of RJA may have information that is not available to the Research Department about companies mentioned in this report. RJA or its affiliates may execute transactions in the securities mentioned in this report that may not be consistent with the reports conclusions.
|
Public companies mentioned in this report.
|
|
Company Name
|
Ticker
|
Priced as of 05/08/08
|
RJ&A Rating (if Applicable)
|
|
Cisco Systems
|
CSCO
|
$25.70
|
Market Perform
|
|
Fannie Mae
|
FNM
|
$27.63
|
|
|
Microsoft Corp.
|
MSFT
|
$29.27
|
|
|
Sara Lee Corp
|
SLE
|
$13.83
|
|
|
Yahoo
|
YHOO
|
$26.22
|
|
|
|
|
|
|
|
|
The opinions offered in this piece should be considered a part of your overall decision-making process. These comments are published individually on a daily basis. This report contains a compilation of several days' worth of comments and is updated weekly. Unless otherwise noted, prices included are as of the previous day's close. For more information about these reports - to discuss how this outlook may affect your personal situation, to learn how this insight may be incorporated into your investment strategy, and/or to receive individual daily reports - please contact your Raymond James financial advisor .
Important Investor Disclosures
Strong Buy (SB1) - Expected to appreciate and produce a total return of at least 15% and outperform the S&P 500 over the next six months. For higher yielding and more conservative equities, such as REITs and certain MLPs, a total return of at least 15% is expected to be realized over the next 12 months.
Outperform (MO2) - Expected to appreciate and outperform the S&P 500 over the next 12 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, an Outperform rating is used for securities where we are comfortable with the relative safety of the dividend and expect a total return modestly exceeding the dividend yield over the next 12 months.
Market Perform (MP3) - Expected to perform generally in line with the S&P 500 over the next 12 months and is potentially a source of funds for more highly rated securities.
Underperform (MU4) - Expected to underperform the S&P 500 or its sector over the next six to 12 months and should be sold.
Out of approximately 675 rated stocks in the Raymond James coverage universe, 56% have Strong Buy or Outperform ratings (Buy), 38% are rated Market Perform (Hold) and 6% are rated Underperform (Sell). Within those rating categories, 30% of the Strong Buy- or Outperform (Buy) rated companies either currently are or have been Raymond James Investment Banking clients within the past three years; 18% of the Market Perform (Hold) rated companies are or have been clients and 7% of the Underperform (Sell) rated companies are or have been clients.
Suitability ratings are not assigned to stocks rated Underperform (Sell). Projected 12-month price targets are assigned only to stocks rated Strong Buy or Outperform.
Suitability Categories (SR)
Total Return (TR) - Lower risk equities possessing dividend yields above that of the S&P 500 and greater stability of principal.
Growth (G) - Low to average risk equities with sound financials, more consistent earnings growth, possibly a small dividend, and the potential for long-term price appreciation.
Aggressive Growth (AG) - Medium or higher risk equities of companies in fast growing and competitive industries, with less predictable earnings and acceptable, but possibly more leveraged balance sheets.
High Risk (HR) - Companies with less predictable earnings (or losses), rapidly changing market dynamics, financial and competitive issues, higher price volatility (beta), and risk of principal.
Venture Risk (VR) - Companies with a short or unprofitable operating history, limited or less predictable revenues, very high risk associated with success, and a substantial risk of principal.
Analyst Holdings and Compensation: Equity analysts and their staffs at Raymond James are compensated based on a salary and bonus system. Several factors enter into the bonus determination including quality and performance of research product, the analyst's success in rating stocks versus an industry index, and support effectiveness to trading and the retail and institutional sales forces. Other factors may include but are not limited to: overall ratings from internal (other than investment banking) or external parties and the general productivity and revenue generated in covered stocks.
Raymond James Relationships: RJA expects to receive or intends to seek compensation for investment banking services from the subject companies in the next three months.
|
Company Name
|
Disclosure
|
|---|---|
|
Cisco Systems
|
Raymond James & Associates makes a NASDAQ market in shares of CSCO. Raymond James & Associates received non-investment banking securities-related compensation from CSCO within the past 12 months.
|
|
|
Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability categories, is available at www.rjcapitalmarkets.com/SearchForDisclosures_main.asp. Copies of research or Raymond James summary policies relating to research analyst independence can be obtained by contacting any Raymond James & Associates or Raymond James Financial Services office (please see www.raymondjames.com for office locations) or by calling (727) 567-1000, toll free (800) 237-5643 or sending a written request to the Equity Research Library, Raymond James & Associates, Inc., Tower 3, 6th Floor, 880 Carillon Parkway, St. Petersburg, FL 33716.
|
The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part of said person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. In addition, said analyst has not received compensation from any subject company in the last 12 months. |
Investors should consider this report as only a single factor in making their investment decision.
International securities involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets.
Small-cap stocks generally involve greater risks. Dividends are not guaranteed and will fluctuate. Past performance may not be indicative of future results.
Investors should consider the investment objectives, risks, and charges and expenses of mutual funds carefully before investing. The prospectus contains this and other information about mutual funds. The prospectus is available from your financial advisor and should be read carefully before investing.
For clients in the United Kingdom:
For clients of Raymond James & Associates (RJA) and Raymond James Financial International, Ltd. (RJFI): This report is for distribution only to persons who fall within Articles 19 or Article 49(2) of the Financial Services and Markets Act (Financial Promotion) Order 2000 as investment professionals and may not be distributed to, or relied upon, by any other person.
For clients of Raymond James Investment Services, Ltd.: This report is intended only for clients in receipt of Raymond James Investment Services, Ltd.’s Terms of Business or others to whom it may be lawfully submitted.
For purposes of the Financial Services Authority requirements, this research report is classified as objective with respect to conflict of interest management. RJA, Raymond James Financial International, Ltd., and Raymond James Investment Services, Ltd. are authorized and regulated in the U.K. by the Financial Services Authority.
For institutional clients in the European Economic Area (EEA) outside of the United Kingdom:
This document (and any attachments or exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully be submitted.
Additional information is available on request.
Proprietary Rights Notice: By accepting a copy of this report, you acknowledge and agree as follows:
This report is provided to clients of Raymond James & Associates, Inc. (RJA) only for your personal, noncommercial use. Except as expressly authorized by RJA, you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate or commercially exploit the information contained in this report, in printed, electronic or any other form, in any manner, without the prior express written consent of RJA. You also agree not to use the information provided in this report for any unlawful purpose. This is RJA client releasable research
This report and its contents are the property of RJA and are protected by applicable copyright, trade secret or other intellectual property laws (of the United States and other countries). United States law, 17 U.S.C. Sec.501 et seq, provides for civil and criminal penalties for copyright infringement.
Copyright 2008 Raymond James & Associates, Inc. All rights reserved.
195 Church Street
11th Floor
New Haven, CT 06510
Phone: 203-867-4396
Fax: 203-867-4398
Contact Us
Raymond James financial advisors may only conduct business with residents of the states and/or jurisdictions for which they are properly registered. Therefore, a response to a request for information may be delayed. Please note that not all of the investments and services mentioned are available in every state. Investors outside of the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this site. Contact your local Raymond James office for information and availability.
© 2008 Raymond James Financial Services, Inc., member FINRA / SIPC Privacy Notice