Bulls are definitely dancing around this week. Buyers are all over the market. To start off, Wachovia was horrific but the market tanked. Following GE's results, this had certainly shattered some investor confidence in the financials. Would financials fall apart? It did not happen. Despite huge writedowns from Merrill Lynch and Citigroup, the crowd was cheering for the fact that there were no more unknowns. Writedowns were the norm for the past nine months or so. They were merely numbers in the eyes of the market right now. In addition, the technology sector did come in at the right time to push the market further up with Intel, IBM and Google all giving good reports. Earnings from Caterpillar and Honeywell were helped by a weak dollar, boosting their international sales.
PPI was way above expectation while CPI was in line. It certainly looks weird to me as rising prices are slowly eating away my bank account balance. LOL. But the main thing for the week is oil is at freaking $117 while most of the commodities are taking a breather with Dollar gaining some strength against the Euro. If you are driving everyday, you are certainly not doing very well and trust me, it will get worse.
How high can oil go?
Believing in whole numbers is one of my trading theories. Look at the boxed price movement of crude oil. Notice how it twice forms a three line strike at $100. The 100 is certainly a very strong resistance number. After breaking the magical $100 mark, it shot to $110 pretty fast and formed another three line strike here. Looking at where we are right now, closed at nearing $117, we are certainly very close to the $120 mark. With crude inventories going the opposite direction of analysts' expectation all the time ( I think they should stop analysing crude inventories, I do not wish to question their expertise but you can go to briefing.com and take a look at past expectations and results. You will feel the same =D ) . Probably, dollar strength for the weeks to come, may pull oil back down slightly. Be very cautious as oil approach the $120 mark, take your profit as we may see it coming back down slightly.
Moving on to the stock market. I was very wrong for the week actually. Merrill Lynch spoiled the week for me and even for the general market direction, I was very off to some extent. I was expecting a market dip after coming off the dark cloud cover but earnings for most companies were outstanding.
Didn't I tell you not to hold your Alcoa shorts. It did go down to as low as $33.76 but it actually rallied back up to the support of $35, holding at $36.26. I did remind you to watch for the bounce. If you managed to cover at around $34, then it's a very smart move of you. Intel prices did not shoot up that much but it was still a neat 5% gain for the week so give me some credit for that. It is holding above $22 and I strongly suggest you to hold on to it for next week. $24 is our target and we will need the help ofYahoo and Microsoft to bring us there. I do think that Yahoo will give in to Microsoft.
Who should you look out for next week then?
Quote: " On the tech front, Texas Instruments reports Monday; Yahoo releases numbers Tuesday; Amazon and Apple are out Wednesday, and Microsoft reports earnings Thursday. Among the big drug companies, Eli Lilly , Novartis and Merck report Monday. Merck's CEO will appear on CNBC. AT&T , McDonald's and DuPont report Tuesday; and Anheuser-Busch , Boeing and UPS report Wednesday. On Thursday, ConocoPhillips and PepsiCo report. Friday has Ericsson and Honda." Source: cnbc.com
Tech, tech and more tech. You have Intel, IBM, Google in your backing and you are going to have Amazon, Apple ( the almighty Ipod ) and possible merger between Yahoo and Microsoft. What more do you ask for?
I like Yahoo very much. What's diversification? We are going to plunge into the strength right now. I strongly recommend you to add Yahoo alongside to your Intel for the following reasons.
Here, coming off a steep rise in prices (as shown by the three white soldier in the red box), Yahoo forms a bullish pennant formation highlighted by two trendlines. In a bullish pennant formation, the stock begins a good sharp rally to the upside and takes a breather along with a drop in trading volume. A breakout of the upper trendline along with increased trading volume are expected to occur soon. Notice that it ended last week with a doji star.
Yahoo still has the $31 bid hanging in front of them. It is now at $28.43. At $31, it is an instant 9% gain. But we know it will not just stay at $31 because, should the merger take place, Yahoo will be in a much stronger position than before. Speculators are going to consider that. Disregard if the merger is going to work out in the long run against Google but looking at short term, Yahoo + Microsoft > Yahoo and we are going to ride on this mentality. The key will then be the earnings next week as it is the bargaining tool for yahoo against microsoft. Google was good because of an increase in paid click advertising. I believe that there will be a spillover effect onto Yahoo. The Internet market is so big and Google can't possibly take everything themselves.
Even if, though unlikely, Yahoo earnings were to be bad, it would only give them ample reasons for the merger to go through. Microsoft will not go below $31 because Yahoo will not accept it even if earnings were to be disappointing. Microsoft will carry on with its hostile takeover and says, "Hey dude, $31 is a very good price for you right now with your current state of business, take it or regret it." Yahoo will have to take it as they have no choice and we get $31 - 9% gains for all of us.
Supposed, Yahoo post good earnings due to the spillover effect from Google, $31 will prove to be cheap, and Yahoo can yield a better price. They will still merge because they can't fight Google alone and will eventually lose the web world to Google. Microsoft will have to give in because they want to fight it out with Google. So, the merger will still take place at a possible higher price than $31. I reckon it at $34-35 as Yahoo has been making those highs few months back.
If you dislike the Yahoo story, get Apple. You can see Ipods everywhere. You can understand the business. You will see that it is the current trend right now. Apple is in a market of its own and no one can come close to it. Iphones and MacAir are similar to Ipods and will enjoy the spillover effect from Ipod. Steve Jobs is an awesome guy, I really respect him for his business vision. The tech sector is where you should put your money in right now and Yahoo will be your best trade of the week.
Looking elsewhere, you have DuPont which will be posting nice profits because of commodities rise. I will not talk much about it because I do not think that the price will move up much. You have Bank of America Corp., another big financial company. Well, the week is pretty awesome for financials, and you need to be very brave to short BAC. However, I am not very positive about any financials at the moment. They are still weak in fact. So, I am sitting on the sideline with any financials.
Let's view the major indices. The key thing for the week is Dow broke the resistance of 12770, closing at 12849. I believe the next resistance will be around 13000 the neckline of the Head and Shoulders formation. Please refer to the first post "Dow's Outlook". However, I found out something interesting with S&P500.
While Dow has broken its Feb high, S&P has not. The resistance is around 1395; I draw it higher on purpose so that you can still see the proper graph. So is S&P a better indicator than Dow? It's up to you to decide. But since S&P has not broken the resistance, we have to be caution. I am still negative about the market. Financials are still weak on a whole; this week rally is purely short covering in my own opinion. If S&P does break through, we should be seeing a nice rally to 1450 and maybe, just maybe, we have reached a bottom. I do not deny the probabilty of a real dark cloud cover forming at 1400.
Singapore Market
In addition to this week post, I have decided to talk about some stocks in the Singapore market, mainly STI stocks. For earnings, we have Keppel Corp. and Capitaland on thursday and friday respectively. Both companies will be posting good results in my opinion. I can't find any fault with government related stocks to be honest. LOL. However, you may wish to ride on the oil rally and go for Keppel Corp, one of the most fundamentally sound company in Singapore and it is related to oil.
However, the stock that I wish to highlight for the week is UOB. Based on what I see with S&P, I don't think that we are off to a nice bull run just yet. I certainly do not buy the financial story. Short sellers should be stepping in again.
Hey, we are seeing a dragonfly doji after some weeks of rally. You can actually see a total of four white soldiers. This doji also combines with the white soldier to form a bearish harami cross. If S&P were to be weak, it has to be the financials and translating that to Singapore case, UOB may follow suit as profit taking may start the pull back. I have a price target of $19 for UOB only if financials are beginning to appear weak next week.I am actually not very confident with Uob to some extent because despite financials being weak, wall street is showing a lot of buying strength. So I have decided to pick on another stock - Cosco Corp. The very reason why I like Cosco is because it is oil related, similar to Keppel Corp and Sembawang marine.
Stocks move together and in groups. Jesse Livermore emphasizes this greatly and has benefited from it. We know oil has a great rally for the week, as a result, oil related stocks are mostly up. Keppel is up 12.3%, Sembawang marine is up 17%, SPC up 11.3% while Cosco nimbles up 6%. Of course, there is a reason for Cosco to be subdued - China. China stocks have plummetted really fast everyday. With the recent reserve rate hike implemented, Shanghai shares took another tumble downwards, thus affecting China shares in Singapore market.
Compare the morning star formation that we see few weeks ago with the current formation we are seeing now. They look pretty similar. Furthermore, the two stars that we see forming at about $2.90 level form a tweezer bottom, indicating that this may be the support for Cosco. However this is a real short term play, $3 is certainly not a long term support for Cosco if you plan to hold it through this current market. It is for the week. We are looking at $3.3 for Cosco so that it catches up with its peer. China is still very weak at the moment. You do not want to get caught by Shanghai's selling if there is one.
Hope you have a nice week ahead. Feel free to post your thoughts. May edit some stuffs if required.
The price pattern reminds you that every movement of importance is but a repetition of similar price movements, that just as soon as you can familiarize yourself with the actions of the past, you will be able to anticipate and act correctly and profitably upon forthcoming movements.
Jesse Livermore
1 comment:
Gloom and doom is big business.
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