Penny For Your Thoughts – September 27, 2015

By September 27, 2015 Market Analysis No Comments

“I am not aware of any wrongdoing on my part” – Volkswagen CEO Martin Winterkorn on Diesel Dupe.

And some times back Financial Times once quoted about Martin that he is having “an engineer’s eye for detail”. Sure he has eye for details. God knows what else is coming next from Germany, the heart of European economy.

Besides the news about Volkswagen we had speaker of the house John Boehner resigning, Fed Chair Janet Yellen getting dehydrated, Goldman Sachs CEO catching disease, Pope Francis and Chinese President Xi JinPing visiting US and 62-year old drug Daraprim (sold by Turing Pharmaceuticals) price was raised from $13.50 to $5000 overnight, US government may shut down for brief period and we have sovereign debt crisis looming. So what is going on?

And have you heard the news that Caterpillar (CAT) cut 10,000 jobs amid weakening demand from energy and mining companies? Is it a surprise? As we all know CAT has big exposure in China and their business is down the hill over there and it has topped out long time back and declining and declining. Have you seen the performance of CLF? One time favorite of investors. It topped out at 122 and now trading at $2.60. Someone has bought its stocks at $122. How about NUGT? It was trading near $2200 and now at $3.10.

However NIKE (NKE) came out with fantastic results and it gapped up to $125 thus adding 70 points to Dow Jones gains of 113 on Friday, September 25th. On the other hand S&P was down 1 point and Nasdaq composite 48 points. So if we take out NKE effect on Dow Jones (consider it anomaly) then Dow Jones actually went up only 43 points. What if profit taking sets in NKE and who knows it tops out at $125 and starts to sell off then what will happen to Dow Jones? What about if IBM, a Dow component and up on Friday, starts to roll down again and GS which popped up $3 and CAT continues its downward move then we could see Dow Jones coming back down. Home Depot (HD), Dow Component,  is showing early sign of topping pattern.

The point is that all 30 components of Dow Jones need to move in harmony. All of them have to help each other not just one stock which gapped up big and raised the Index.

What about JNJ, MRK, PFE which are part of HealthCare sectors and Dow components continue their pull back next week?

On Friday, September 25th, we saw another wave of selling in Biotech stocks.

IBB – IShares Nasdaq Biotechnology Index which is heavily weighted towards Biotech stocks topped out on July 20th, 2015 at 399 level. Since that day IBB is coming down and recently it is getting clobbered. On July 20th, Nasdaq also topped out. Dow Jones had topped out two months earlier on May 19th, 2015. So Nasdaq is in delay mode.

The top holdings of IBB are given below in percentage terms.

BIIB – Biogen Inc – 8.24%
GILD – Gilead Sciences – 8.16%
REGN – Regeneron Pharmaceuticals – 8.1%
CELG – Celgene Corp – 8.06%
AMGN – Amgen Inc. – 7.91%
ILMN – Illumina Inc. – 3.98%
ALXN – Alexion Pharmaceuticals Inc. – 3.81%
VRTX – Vertex Pharmaceuticals Inc. – 3.64%
MYL – Mylan NV – 3.59%
INCY – Incyte Corp – 3.24%

All of these stocks have been clobbered last week. Thus affecting Nasdaq negatively in big way.

It was Biotechnology stocks which were helping the Nasdaq during last few years and it is now same Biotechnology stocks which is hurting the Nasdaq.

Nasdaq Composite made a low of 4292 on August 24th, 2015 when markets declined severely and then bounced up. It closed at 4686.50 on Friday, September 25th. The heavy resistance above is at 4848 and not to mention about big fat round number of 5000.

Currently the two major supports are at 4520 and 4292. If these supports are broken then Nasdaq Composite could tumble about 900 points from current level of 4686.50 and we could see 3700-3800 level. it is better to do it. But if erectile dysfunction manifests itself so often that it makes your life uncomfortable, buying Viagra at sildenafil will be the right decision at any stage. So will there be continued sell off in HealthCare stocks (IBB Charts telling us ‘Yes’) or could it be AAPL, GOOGL and few others technology stocks which will take the Nasdaq down. All we need is some negative news out of somewhere.

On Friday even Health Insurers and Pharmacy stocks were coming down such as AET, HUM etc.

Health Care Sector Spider ETF – XLV – Top Ten Holdings are shown below in percentage basis.

All of these were down last week.

JNJ – Johnson & Jonhson – 9.77%
PFE – Pfizer – PFE – 7.44%
GILD – Gilead Sciences – 5.79%
MRK – Merck – 5.70%
AGN – Allergan – 4.71%
AMGN – Amgen – 4.33%
UNH – UnitedHealth – 4.16%
ABBV – AbbVie – 4.02%
MDT – Medtronic – 3.88%
BMY – Briston-Myers Squibb – 3.73%

On September 27-28 we have two phenomenon occurring simultaneously and which is rare. These are Super Moon and Blood Moon (lunar eclipse). To understand what these are you can Google.

We have few reference points in S&P. These are

September 21st High = 1980
August 28th High = 1994
September 17th High = 2021

Nasdaq 100 September 14th High = 4451

If S&P breaks the low of 1867 then we have reference point of 1820 (October 2014 low).

If 1820 is broken then 1795 could be the low instead of 1750-1740 which we expect. Markets have deceptive ways and it could deceive us by dropping to 1795 (we expecting 1750), but market puts on the bottom and starts its year-end rally.

On Wednesday, September 30th, ADP will issue its September jobs report.
The important dates to watch are October 1st and October 9th.

Leave a Reply

Your email address will not be published.