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Posts Tagged ‘ES’

Follow-Up: Technical Trouble on the S&P 500 (SPY, GS, JPM, AAPL, CSCO, GOOG, F, GE, CAT, GLD, UUP)

December 8, 2009 1 comment

We have posted discussions about this in the past, most recently on November 25th and also on October 30th, where we looked at the charts and decided that the S&P 500 was possibly in for some trouble.  On November 25 the broad market index closed at 1111.18, and today it closed at 1091.94, for a loss of 1.7%.  Basically, the market has gone nowhere in that time.

What has happened, however, is that the chart has given us some more signs that the market is running into trouble.  Here is a 1 yr daily chart of the SPX, similar to the one we showed in our previous posts, except with some updated lines.

As you can see, we still remain unable to break above that 1120 line (yellow horizontal line), which is the long term 50% Fibonacci retracement line from the 2007 high to this years low.  It is likely that we are seeing heavy resistance at this level as traders anticipate this weakness and front run it to exit positions for the year.

Additionally, this chart shows that we have broken the uptrend that was established since the March lows.  Keen observers will note that this also happened in October, but the break is much more definitive this time especially when combined with that price ceiling. However, we will need to take a look at where we close on the weekly chart because that should be much more indicative of future movements.

For good measure, the same analysis applied to the E-Mini futures (/ES) yields similar results:

The /ES is attempting, and thus far failing to break through its own ceiling which has been established at 1112.  As you can see, the E-Mini futures just broke below the upward trendline that has defined this rally since March.

The root cause of this is, in our opinion, fund managers selling off risky assets to lock in the substantial gains some of them have been able to accumulate during this tumultuous year.  Obviously, this situation is not sustainable, as mutual fund managers often have a mandated maximum cash balance, and hedge fund managers generally do not like to have their end-of-year statements to clients say that they are in cash.  But there is a lot of money available to be taken off to the sidelines, so this situation may continue through the end of the year.  It will be important to watch leadership stocks over the next couple weeks such as Goldman Sachs & Co. (GS), JP Morgan Chase (JPM), Apple (AAPL), Cisco, (CSCO), Google, (GOOG), Ford (F), General Electric (GE), Caterpillar (CAT), etc. and of course gold (GLD) and the US Dollar (UUP). We’ll be making a follow up to this over the weekend.

-Lucid Markets Team

Disclosure: Long GS, CSCO, GOOG, GE, GLD, UUP, JPM and the stock market in general through various other positions.

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Short Term Trouble, Long Term Gift? (SPY, SSO, SDS, SH, /ES)

October 30, 2009 4 comments

Sorry about the lack of recent posts, I’ve been pretty focused on the markets lately.

Last week the bears broke some technical setups where the bulls had a big upper hand. I started to sell positions at that point and increased my selling this week as the charts got uglier. Thursday was absolutely short covering. Looking at the up/down volume and advance/decline ratio’s from Wednesday to Friday, you can see an almost symmetrical reversal that means the market was overwhelmingly short, covered and put the shorts back on. This current short setup has a target of $1023.90 on the /ES (E-Mini S&P500 Futures). Let’s take a look at some charts:

KillZoneLong

You can see here that we bounced off of our long term downtrend line and today we closed below our nearer term support uptrend. I’d like to hope that if we close above it things will be fine but I think that is unrealistic. It’s hard to imagine why the market should be much higher than 1200 considering the long term structural issues that the U.S. is still facing. Even if the dollar continues to fall, we are net importers; so while international corporations may get revenues in stronger currencies, they still have to pay to much for input costs. a weaker dollar would be nice if we were still a manufacturing based economy but we aren’t. Next Chart.

HeadShoulders

You can see on this chart that the most recent surge took place on higher volume. However, the volume faded on the way up and picked up steam on the way down which is not a good sign if you’re a fan of Dow Theory. The good news is we have a long term inverted head and shoulder pattern (I admit I have seen better ones) which could give us support around $970.

SupportShort

I normally wouldn’t have given much weight to the H&S pattern (green line of support) but it also coincides with what should be a strong 50% fib retracement at 985. It is also an area where the shorts will be taking profits at their targets.

I will be in a conservative bear mode (and short through SH or SDS if the market somehow manages to rally back above 1065) until we get down below 990 where I will begin going long again. I will also consider a small long position through SSO around 1018-1020 where there is another decent long set-up.

Get your shopping lists ready everyone!

-MJB

B SHAW @ 28.20

October 16, 2009 1 comment

Today, I bought the Shaw Group (SHAW, formerly SGR) at 28.20.

Shaw got slammed today by a triple team of two downgrades (to Neutral from Buy), a Nuclear Regulatory Commission report about a Westinghouse (of which SHAW owns a 20% stake) reactor saying it needed some more work, and pressure as the market reacted to GE’s and BAC’s unconvincing earnings reports.  This morning, the stock was down almost 10%, and I saw that as a buying opportunity.

Despite the government standing in its way at every step, I feel the time is right for Nuclear. It is the only fuel source that can be effectively used in a large scale, for very few pennies per KWH, and emitting no greenhouse gases.  Europeans, and the French in particular, have been using nuclear for decades, and get a significant amount of their electricity from uranium.  While there are waste disposal issues, they are not insurmountable, and the plants have operated accident free.  While many view Shaw’s minority stake in Westinghouse as a negative, I view it as a positive as it makes Shaw, which is primarily an infrastructure company, well positioned for when the Nuclear Regulatory Commission (NRC) begins issuing permits.

I will admit some luck in the timing of my purchase, as barely an hour after my purchase, Shaw issued a release concerning the NRC’s report on the Westinghouse reactor saying that the issues that were raised are surmountable, and they remain on schedule to have the first reactor installed and turned on by 2016.  This caused their stock to rise by a percent and takes away a lot of the uncertainty that was swirling around.

The stock is priced at about a PE of 14 given analyst estimate of fiscal 2009 EPS of $2.00.  This compares favorably with the PEs of their infrastructure peers like MDR (PE: 20), and nuclear peers like ES (PE: 26).  During the times I have held the stock before, around $28 seems to be the sweet spot for accumulation, and the numbers corroborate that fact as I explained above. I will be holding the stock waiting for a price in the low-to-mid 30s, although should other news materialize I will of course adjust that target.

Shaw will report Q4 and Fiscal 2009 earnings at 5 pm EST on Thursday, October 29th.  Analysts expect FY09 earnings of $2.00 and Q4 of $.47.

Disclosure: Long SHAW, no position in ES or MDR.

-AH