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II Insight 


7 May 2009, Edited by Tarquin Coe

Global leaders in Technical Analysis since 1947

    
Welcome to the May edition of II Insight.
 
The equity markets continue to rally relentlessly and we are consulting our proprietary indicators, as ever, with keen interest.  Being one of the longest running Technical Analysis houses in the world, our indicators have lived through many bear and bull market cycles.  Itís at times like these that our tools can prove so valuable, and coupled to our analyst experience (our US office of three analysts has just over 100 years of Technical Analysis experience), we are confident that we can read the market better than any other service.
 
This month we consider one of our indicators, the short-term composite, an essential tool to any investment strategy. We look back at the effects of the H1N1 outbreak on commodity and currency markets. We start by looking at the state of play in one of the simplest but most important tenets of technical analysis, volume.
 
Tarquin Coe, Senior Analyst
    
Chart of the month - Volume breaks out
 
Volume is backing the rising US indices and breaking higher, providing vital support to the rally. April has seen a pennant breakout by the NYSE on-balance-volume (by breadth) chart, an indicator that plots the cumulative total of NYSE volume; added when breadth is positive (more advancers than decliners) and deducted when breadth is negative (more decliners than advancers). Pennants are bullish continuation patterns and the break implies that participation is gathering steam and further equity gains are likely through the summer.
 
This indicator is one of many that are analyzed daily in the US Hotline.
   
    
The Coe Report
 
Many of you will be familiar with the Coe Report, launched earlier this year. For those who arenít, its an intraday report that goes out three times a week. The report tracks and makes forecasts on the major index direction, along with trading ideas and a model long/short portfolio. The table below shows the performance on all closed trades and so far 87% of trades have turned a profit. Yes all closed trades are longs but with the market rising, it would have been foolish to fight it.
 
For non-subscribers interested in the current Portfolio, drop an email to analysis@investorsintelligence.com and we will be happy to provide recent samples. The current portfolio may surprise you given our bullish view since March-6.
 

Date Opened

Date Closed

Stock

Code

Type

Open Price

Close Price

% P&L

4 Mar 2009

30 Mar 2009

Chesapeake Energy Corp

CHK

Long

14.62

17.50

+19.70%

9 Mar 2009

30 Mar 2009

Corning Inc

GLW

Long

10.135

12.70

+25.31%

11 Mar 2009

16 Mar 2009

American Express Co

AXP

Long

11.74

13.91

+18.48%

13 Mar 2009

30 Mar 2009

Ford Motor Co

F

Long

2.2209

2.50

+12.57%

18 Mar 2009

20 Apr 2009

SunTrust Banks Inc

STI

Long

13.64

14.60

+7.04%

18 Mar 2009

26 Mar 2009

Southern Co

SO

Long

29.49

30.00

+1.73%

20 Mar 2009

23 Mar 2009

Sprint Nextel Corp

S

Long

3.609

3.62

+0.30%

25 Mar 2009

30 Mar 2009

Symantec Corp

SYMC

Long

14.83

14.89

+0.40%

27 Mar 2009

8 Apr 2009

Kimberly-Clark Corp

KMB

Long

47.54

47.80

+0.55%

1 Apr 2009

13 Apr 2009

Goldman Sachs Group Inc

GS

Long

109.72

128.90

+17.48%

1 Apr 2009

7 Apr 2009

Electronic Arts Inc

ERTS

Long

18.35

19.12

+4.20%

3 Apr 2009

20 Apr 2009

NYSE Euronext

NYX

Long

20.24

20.84

+2.96%

6 Apr 2009

16 Apr 2009

Gilead Sciences Inc

GILD

Long

47.60

44.675

-6.14%

8 Apr 2009

17 Apr 2009

Caterpillar Inc

CAT

Long

29.35

31.47

+7.22%

13 Apr 2009

21 Apr 2009

Chevron Corp

CVX

Long

68.01

64.0125

-5.88%

15 Apr 2009

20 Apr 2009

Apache Corp

APA

Long

65.98

67.00

+1.55%

17 Apr 2009

5 May 2009

FirstEnergy Corp

FE

Long

40.31

41.35

+2.58%

20 Apr 2009

23 Apr 2009

Southern Co

SO

Long

29.94

29.38

-1.87%

22 Apr 2009

24 Apr 2009

POWERSHARES QQQ

QQQQ

Long

33.20

33.65

+1.36%

22 Apr 2009

28 Apr 2009

Corning Inc

GLW

Long

14.85

15.10

+1.68%

24 Apr 2009

6 May 2009

Regions Financial Corp

RF

Long

5.90

6.18

+4.75%

27 Apr 2009

1 May 2009

Marriott International Inc

MAR

Long

21.36

22.64

+5.99%

29 Apr 2009

1 May 2009

Kellogg Co

K

Long

39.75

43.41

+9.21%

    
    
Commodities
 
The H1N1 fluís origins to pigs caused an already weak Pork Bellies (PB2) chart to weaken further.

The chart is now testing a rising long-term trendline. Breaking this could cause a decline down to the 2005 low, or even as far as the 1999 low at 31.9.
 
Alternatively, should the uptrend hold and reassert, then now would be a perfect entry opportunity.
 
Technicals point to the second scenario - uptrend reassertion. Momentum is oversold, with 14-day RSI starting to turn up from oversold.
 
We analyze all major commodities daily in the Daily Commodity Hotline, emailed direct to your inbox.    
Currencies
 
The Mexican Peso (MXN) weakened with the news of the H1N1 outbreak in Mexico City.
 
 
The dollar against the Peso, rallied from the 200-day exponential moving average and smashed through a seven week downtrend. At the start of May the spread encountered resistance at the 50-day EMA.
 
The MACD is turning up from oversold but this could encounter resistance at zero.
 
Direction for the month ahead is expected to be sideways, with trading bouncing between the confines of the 200-day and 50-day EMA.
 
We analyze a range of currency spreads in the FX Hotline, emailed direct to your inbox.
Strategy using the II website
 
Last month our worked through strategy example picked out Meridian Biosciences (VIVO) as a buy at $17.84. Following the pick, the stock experienced a sharp drop on the 16th, a move that took the stock below our stop. The drop was down to poor results and associated analyst comments. One such analyst comment is amusing in the light of recent events.
 
"It appears that the weaker flu season had a significant impact on the business in the quarter and, with significant inventory still the in the channel, could affect future periods as well."  Willian Blair & Co analyst Brian Weinstein wrote in a note to clients.
 

 
Suffice to say, the stock has since sharply reversed. The main lesson that can be taken for this is that small cap health stocks are notoriously volatile and should be traded with extreme caution.
 
 
Using Short-term-composite indicator to aid investment decision
 
 
At Investors Intelligence we have a proprietary indicator called the Short-term Composite Indicator, an un-weighted average of 29, mostly in-house, indicators. The barometer is typically leading, by up to a week, and it last provided a buy signal on the 4th of March as it reversed up from zero on the P&F chart. Similar signals were provided at the October and November lows.
 
 
The chart here appeared in the ETF Review, on March-13 and provides good examples of the buy and sell signals generated by the indicator.
 
 
 

Consulting this indicator each week is a useful tool to any investment strategy. On the 4th of May it hit 89.7, its highest level in 2.5 years and our current thoughts of this reading may surprise you.
We analyze and publish the Short-term Composite Indicator daily in the US Hotline.

    

    
    
    
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