Itz Weekend Review...Goldman Sachs Rocks Wall Street

Itz reiterated on Wednesday's blog post link that market indicators were very stretched and a selloff was imminent. However, no one could of seen the news that hit Friday. That said, one should be hedged...this markets come a long way from S&P500's 666 low. Itz has posted several charts showing that sentiment is at extreme overbought levels. Itz has also suggested selling covered calls, buying puts (volatility is very cheap), or using Proshares inverse etf's such as SCO or DUG to hedge the Itz Pix portfolio.

Friday ended the first week of earnings, it was also options expiration,everything was going fine with only a deluge of earnings reports and some macroeconomic figures awaiting them in the coming week. That is, until, the market was rocked by news that the Securities and Exchange Commission charged Goldman Sachs(GS) with fraud link, putting Goldman's Q1 earnings release and subsequent conference call next Tuesday in more focus. Citigroup is an Itz Pix holding with a cost basis of $3.85.
The GS news was the long awaited catalyst, investors were looking for a reason to take profits. Itz has been projecting a 5% to 10% pullback in the S&P500.

Though the financial products at play were complicated, the alleged scheme laid out by SEC enforcement chief Robert Khuzami on Friday was simple. The SEC alleged Goldman failed to disclose to investors a hedge fund's bet against a synthetic collateralized debt obligation that tracked a portfolio of subprime mortgage-backed securities, despite the hedge fund's role in picking the very bonds in the portfolio. This is debatable, since Goldman really isn't bound to disclose that information.
Goldman called the charges "completely unfounded in law and fact," saying it will "vigorously contest them." Still, the dramatic selloff Friday has some wondering whether this marks an end to the bull market or whether Friday's pullback was just a mild breather. So legality and politics aside the news should spill into Monday as it hits the Asian markets.
We've been in greatly overbought conditions, a 5% or even 10% pullback would be welcome here, hopefully it will be a pause that refreshes as opposed to changes the trend and marks the top.

Google Profit Rise- Fails To Impress

Google reported a profit but failed to impress, stock is selling off in after-hours trading.
Friday's trading should be fun... news from Google & Bank of America , GE report and on top of that it's option expiration. Tighten your seat belts everyone!

NEAR TERM CAUTIOUS!

Encouraging forecasts from JPMorgan Chase & Co. and Intel Corp. raised expectations that the economy is in recovery mode. JPMorgan beat exptations as mentioned by Itz yesterday and the stock has broken over resistance heading to $53. >>READ

Itz Stocks Chartz suggested JPM back in November 2009 & reiterated a BUY earlier this year. >>READ

Google reports tomorrow, the chart has put in a "Cup & Handle" formation, Itz is again looking for Google to beat and follow Intel higher.

There's no doubt things are turning around and that this is a BULL market...BUT... it is overbought in the near term. That's not to say it cannot continue to trend higher, markets love to fool you and will out last those who short; until they capitulate. Talk now is that the retail investor who has been on the sidelines is going to give the market's the next 'boost' higher. One should get cautious whenever that talk starts hitting the financial news. Looking at some overbought/oversold indicators, such as the Put/Call Equity Only Ratio...it's now at 6 year lows. The NYSE New Highs is almost at 600 a multi year high, the Volatility Index ($VIX) is at levels not seen since the market topped out in 2008. The S&P500 although having broken over the psychological 1200 level is only several points from the '08/'09 61.8% Fibonacci Retracement level as indicated in the chart below.
So what does all these boil down to?
Itz believes that over the next  two weeks as earnings come out and as the FOMC meets on the 28th, the market will trend higher. But expects at least a 5% to 10% pullback in May. It would actually be a 'healthy' event and bring in more buyers. Stocks are not over valued, rather they are trading below the normal 16 p/e and Itz see the markets going higer by year end. However, near term one should be cautious and as stated in several posts this month, remain 'hedged' by either selling covered calls, purchasing puts or using hedging ETF's such as SCO or DUG on the energy positions.

TECH & FINANCIAL SECTORS (RIMM & JPM)

Intel Corp. said Tuesday its net income in the first quarter nearly quadrupled over last year and reflected an overall bump in spending on technology by companies. Up in after-hours trading, the news should rally technology Wednesday. One such tech company that was up nicely on Tuesday, Research in Motion (RIMM) has rallied since Itz suggested on April 5th to 'Buy-the-Fade'. >>LINK

JPM reports Wednesday, earnings estimate for the quarter call for $0.64 per share. Itz maintains a target of $53 as mentioned back in March >>READ

Bottom line technology & financial sectors need to deliver to extend this rally higher.

Cutting the Deficit: Easy Math, Dicey Politics

CNBC's Steve Liesman has the details about the secret plan to reduce the deficit. Link Cut costs and raise taxes, to be expected...bottom line everything has to come together for it to work. High expectation in which many do not believe will happen. Best hedge is precious metals...however the commodities have been taking a hit this week as Itz highlighted in Friday's post. Oil is under $83, looking more likely to test the lower end of it's rising channel around $78 maybe $75. AA reported last night and missed, Intel reports tonight and should beat and help tech. The big one is JPM. Itz has pointed out before that the financials need to lead this rally. The market is now going to have to trade on fundamentals and earnings not price action. The $VIX is at lows, but as highlighted in past blog posts can stay or even go lower from here, basically its saying that buying puts is cheap. Itz still sees a 5% to 10% pullback for equities. Gold/silver as well as oil will correct also. That's the near term...longerterm commodities should do well as U.S. as well as global debt remains a problem. As suggested in previous blog posts, hedge via covered calls, also use Proshares SCO & DUG to hedge energy positions.

Itz Weekend Review/ On Your Marks...Set... Go! Earnings Season

Alcoa gets things going with Q1 earnings reporting cycle on Monday but all eyes will be on Intel, JP Morgan, Google and Bank America starting on Tuesday with Intel. On Wednesday JP Morgan Chase (JPM) an Itz Pix portfolio holding is expected to report 65-cents per share compared to 40-cents a year earlier...anything higher and the banks will be scrutinized even more, the naking sector is already under fire for higher taxes and fees on big banks.  Citigroup reports on the 19th and Lincoln on April 28th.

Greece was in the news again and concerns over their debt problems roiled markets. But Bloomberg reported on Saturday that Germany is prepared to give Greece loans at below-market interest rates, dropping its opposition to subsidies as European finance ministers meet to discuss the terms of a lifeline for the debt-stricken nation, a European government official said. >>Read Story
On the other side of the globe Secretary Timothy F. Geithner’s unscheduled visit to Beijing last week fanned speculation that China may be ready to ditch a currency policy adopted to counter the global crisis. Will the yuan assume its appreciation? >> Read Story
So, this weeks starts earnings, Friday is options expiration and the following week should just about have all 500 companies reporting. To wrap things up the FOMC meets at the end of April (27th & 28th), should they change any language in their statement...expect profit taking to start. This market continues to remain overbought- having runup nearly 15% in 8 weeks. Elliot Wave President, Robert Prechter was recently on CNBC, he made some valid observations. >> Link to video Now...Itz is not going bearish here, just that the market is overbought and expect a pullback soon.




Another noteworthy video.... from CNBC- Doug Dachille, First Principles Capital Mgmt, CEO on Fannie & Freddie.



In this chart the Equity Only Put-Call Ratio ($CPCE) 50-ema is currently levels not seen since Jan 2004 & July 2005. However, the $SPXA50R & $SPXA200R , percentage of $SPX stocks trading over their 50 & 200 moving averages then were much lower then current levels >>2003/2004 Chart Link The 200-ema didn't hit 0.60 until the spring of 2006, albeit the indicator was still relativley new. Chart Link
However the $VIX was trending lower and the 10-year $TNX was just under 4% then and trending towards 5%.  Of course back then we didn't have our government 'unprecedented' debt & spending and 10% unemployment either...however, just making an observation that caution is warranted after this recent rally.

Gold & Oil Update

Is oil rolling over? Itz has been targeting $90 per barrel, but today on CNBC Gulf Oil CEO Petrowski, pointed out that he is concerned that gallons transaction is down, sighting that the consumer is stressed and that this economy is running out of steam. Itz has pointed out over the last several blog reports that gold was breaking out of an Inverse Head & Shoulders pattern. Even today the GLD broke resistance (see chart) It looks very likely that traders are getting concerned and maybe hedging as oil nears $90, Dow 11,000 & the S&P 500 1200. Rotation is out of oil into precious metals, could a break higher in the equity indexes spur another leg up? Depends...which side of the trade will you be on?
So what to do? Itz has been recommending selling out of the money covered calls, suggesting May expirations. Another suggestion is buying the Proshares inverse oil ETF 'DUG' around $11. Below are a few charts and the gold/oil ratios using the $GOLD:$WTIC as well as the GLD:USO. Bottomline stay long gold & silver hedge oil positions.

Silver Wheaton (SLW) Covered Call

Silver has outperformed Gold Year-to-Date +7.7% versus +4.8%. Itz has picked silver to outperform for all of 2010. Looking at a silver & Silver Wheaton (SLW) chart today. Itz is suggesting a covered call against those that hold SLW stock. Sell to open a May $18 call currently $0.65 Bid/$0.68 Ask. The current cost basis of $12.05 (from previous call plays) would be lowered to $11.40, SLW was entered back on Sept 2009.
Informative article from thestreet.com today >>link

Byron Wein On Oil & Gold

Itz Stock Chartz bias towards commodities are inline with Blackrock's Byron Wein, CNBC video today in which he discusses gold & oil.

Below is a chart from Itz Pix portfolio looking at the YTD performance of some of the commodity stocks.
Here is the link

In this chart it would suggest selling oil or the USO, it is somewhat similar to the $GOLD:$WTIC chart. If one were to trade this chart, that is buying the USO at the high & selling at the low ratio readings, it would of netted 31 points or a double (100%) in less than 12 months. Where a Buy & Hold about 29% as for the GLD refer to the Inverse H&S chart. So that said it would suggest one weight gold over oil at the current time. Today's move in gold shows that the greece debt issue is not solved.

EIA Weekly Report a build in Crude +2M barrels, Gasoline -2.5M & Distallates +1.1M

Crude Oil Approaching $90

Oil...crude..Buy..going to $100...well just turn on the financial programs and what is the topic of the day? Yep oil! All of a sudden as it approaches $90 per barrel its a buy. Hmmm? Where were they back a  few months ago when it was testing $70?  Back on December 29, 2009 Itz Stocks Chartz pointed to a 4 month lag chart & stated that oil would break out @ $82 and run up towards $95 by April 2010... >>LINK
Followed up in February with a reiteration to remain bullish & suggested buying Suncor Energy @ $29 >>LINK

Just a follow up to the $WTIC/Gold 4-month lagging chart:

Here is a Gold: CrudeOil Ratio chart. Note the 13:1 ratio level, which has signaled a short term sell for crude over the last 10 months. Will that be the case @ $90? Or will support give way and oil trend to $95 or $100? Keep an eye on this in coming days and weeks.

The Suncor Energy (SU) chart hit a pause Tuesday, it should run to $37 on $90 crude. Again as in previous posts, consider selling an out of the money covered call, May strike.

Crude Oil Breakout, Rallies Suncor Energy (SU)

Suncor Energy (SU) has exploded to the upside as oil is in rally mode (crude over $86 currently). Itz target for oil has been $90 + for this spring as highlighted over the last several months. Looking at the SU daily chart, the current intraday price (4/5) is a $35 which is the completion level of an Inverse Head & Shoulder Pattern. The oscillators are approaching oversold levels, Itz estimate is more upside perhaps $37 as oil approaches $90. Bottom line, the yellow flag is up and those that entered on Itz Pix suggested BUY back on Feb. 5th @ $29 should at least raise any stop levels. Others may consider looking at selling a covered call, maybe a May $36 or $37. Perhaps not today, BUT start looking into it over the next week or so and use that premium to buy puts and collar this run up. Just wanted to throw some suggestions out there for you to consider. However with nearly a 21% return in just 8 weeks being cautiously bullish by taking some profits is prudent.

RIMM: Chart, Fundamentals Suggest Bargain---BUY!

Carter Worth was on CNBC's Fast Money giving his 'Chartology' on RIMM. He noted a 'wedge' formation, I agree, but there's also a channel formation. Carter pointed out the 150- day moving average..about $68, Itz believes RIMM could see $66, but the trend is higher. Back in December the gap up should of been faded. This time the gap down should be used to add or buy. The valuations suggest RIMM is 'CHEAP'.

When looking at the market's historical valuation of RIMM, we can demonstrate further reasoning why it is price to deliver above average returns. For example, RIMM has normally traded for a price-to-cash earnings multiple of 15.3x to 43.4x, but the current metric falls below that range at 14.8x. Similarly, with a price-to-sales ratio of 2.61x, the stock looks rather undervalued compared to the historically normal range of 3.43x to 10.44x. Now, to be clear, we would not expect Research in Motion to achieve anywhere near the top end of those historical valuation ranges, but if it were able to meet the bottom end of the ranges, based on current fundamentals, we would expect a price of $86 per share. >>READ MORE

Previous Itz Stock Chartz RIMM post...read