Alarming news from Dubai

WSJ has a few stories regarding the crisis at Dubai World:

• Dubai World seeks debt standstill
  
• Dubai starts to untangle Dubai World fallout
• S&P puts four Dubai banks on credit watch
• Raining on Dubai's day at the beach
• European banks face potential Dubai World losses
• Dubai World standstill news hits regional confidence
• More bad news for Dubai investors
  

Here are some key points taken from these stories:

• Dubai World, a conglomerate spanning real estate and ports, announced a six-month standstill on the group's debt.
• Government-owned Dubai World appears in deep trouble as it struggles to deal with its debts and almost $60 billion of liabilities. Investors are concerned the company may default, sending the cost of insuring Dubai's sovereign debt skyrocketing.
• It now costs $570,000 to insure $10 million of Dubai sovereign debt against default for five-years, up from $440,000 at Wednesday's New York close.
• Moody's Investors Service and Standard & Poor's downgraded the debt of various Dubai government-related entities including DP World following the announcement of Dubai World's restructuring. Moody's downgraded the companies affected to junk.
• The Abu Dhabi-based Central Bank of the United Arab Emirates bought $10 billion of its emergency bonds in February. Majority Abu Dhabi-owned National Bank of Abu Dhabi and Al Hilal Bank bought another $5 bilion of Dubai's debt earlier Wednesday.
• Dubai World's biggest concerns are its troubled real-estate unit Nakheel and it's investment company Istithmar World. Nakheel, which borrowed heavily to build vast property projects including Palm shaped residential islands in the Persian Gulf, has suffered badly from a 50% fall in Dubai real-estate prices since last year.
• Istithmar said in September it had laid off staff and was in talks about restructuring its debt. It has halted investments this year after struggling to eke out a return on deals such as the $942 million purchase of U.S. department store Barneys.
• Dubai World almost $3 billion last year before the full extent of its financial problems emerged, according to its earnings statement for 2008. The document shows that Nakheel had approximately $2.5 billion identified as "loans to a related party" still outstanding at the end of the year.
• Dubai banks Emirates Bank International PJSC, National Bank of Dubai, Mashreqbank PSC and the Dubai Islamic Bank PJSC have all been put on credit watch by Standard & Poor's rating agency.
• The agency has placed its CreditWatch on the the 'A-' long-term rating for the four banks while affirming its 'A-2' short-term ratings on Emirates Bank International, National Bank of Dubai and Mashreqbank.
• In an October report, Standard & Poor's estimated Dubai World could be responsible for as much as 50% of Dubai's total government- and corporate-debt load of some $80 billion to $90 billion.
• In 2007, it joined up with in the $8.5 billion CityCenter project in Las Vegas. An MGM Mirage (MGM) spokesman said Wednesday that Dubai World had already fulfilled all of its commitments to funding the project, totaling some $4.65 billion.
• The same year, Dubai World's investment outfit Istithmar bought high-end retailer Barneys New York for just under $1 billion.
• Dubai World agreed to purchase half of MGM Mirage's CityCenter mixed-use casino project in August 2007 when the real estate market in Las Vegas had reached its peak. At that point CityCenter was only partially complete and the project's assets were valued at $5.4 billion. A little more than two years later, MGM Mirage said it was writing down around $2.34 billion in value for the project, which devalued Dubai World's stake in CityCenter by around $1.17 billion to $2.44 billion.
• Marios Maratheftis, Standard Chartered's Dubai-based regional head of research, is predicting 4% growth for Dubai in 2010, compared to a 1% contraction this year.
• Dubai is reliant on debt markets not only to pay for its ambitious infrastructure projects, but also to service previous borrowing that funded explosive growth in recent years. It and its corporate entities have nearly $50 billion in debt coming due over the next three years, according to Standard & Poor's.
• Developers, many of them state-owned, still owe whopping sums to international contractors. According to a London-based spokesman for the Association for Consultancy and Engineering, a trade group of British builders, Dubai entities owe as much as 200 million pounds to British contractors alone. Still, that's down from 400 million pounds earlier this year.
• Even after hundreds of projects were canceled or postponed this year, new construction is expected to double Dubai's supply of office space by 2011, according to property consultancy Colliers International. In a sample study, the consultancy found office-occupancy rates in recently finished buildings at just 41%. At the end of the third quarter, prices of office and residential space were down by 58% and 43%, respectively, from a year-ago, Colliers estimates.
• Earlier this month, Colliers reported the first pickup in residential property prices since the market started falling late last year. Residential prices-- measured at developments open to foreign purchasers--climbed by 7% in the third quarter. That's still down 47% year-on-year.
• European banks face potential losses on an estimated $40 billion in exposure to Dubai after the city state's largest corporate entity, Dubai World, asked creditors for a six month standstill on debt repayments.
• Bank analysts at NCB Stockbrokers said Standard Chartered PLC is the U.K. bank proportionately most exposed to the United Arab Emirates, with 7% of its loan book in the region. HSBC Holdings PLC has about 2% of its loan book in the region, while Barclays PLC, Royal Royal Bank of Scotland Group PLC and Lloyds Banking Group PLC have less than 1% of their loans in the UAE, according to NCB analysis.
• Credit Suisse analysts said European banks could face a 5% increase in their bad-loan provisions in 2010, or an aggregate hit of about €5 billion ($7.5 billion) after tax, if they lost 50% on their roughly $40 billion exposure to Dubai.
• A report by the Emirates Banks Association said the top eight foreign banks in the United Arab Emirates by lending volume -- HSBC, Standard Chartered, Barclays, Royal Bank of Scotland's ABN Amro, Citigroup Inc., BNP Paribas SA, Lloyds and Crédit Agricole SA's Calyon -- extended about $36 billion in loans last year throughout the federation.
• In the first half, Standard Chartered took $460 million in impairment charges against Middle East loans, 42% of its total group impairment, and up from $80 million in the first half of 2008, highlighting the rapid deterioration in the region's economy. HSBC's impairment charge in the Middle East in the first half was $391 million, up from $41 million in first-half 2008.
• Local and international banks are also licking their wounds from the debt troubles this year of two big family-run Saudi Arabian conglomerates, which owe more than 100 lenders a conservatively estimated $15 billion.

Interesting read ...

• Cycles

Hayman expects hyperinflation ...

• Hedge Fund Bets on Hyperinflation
• Hayman's Latest Market Missive
  

3 Metrics to Consider Before Investing In a House

Mish mentioned the first 3 metrics to consider when investing in a house:

1) How much are home price out of whack with rental prices? (i.e. What does it cost to own vs. rent a similar house? Keep in mind maintenance, property taxes, etc.)
2) How much above the trendline growth in price appreciation are home prices selling? (Was there an unexpected or unwarranted acceleration in prices over a number of years?)
3) How much have home prices appreciated vs. wages

Some Data Regarding Facebook

According to WSJ story, as of Sep 16:

• Total number of users: 300 million
• Number of users added during last 1.5 months: 50 million
• User location split US/International (%): 30/70
• First operating cash flow positive quarter: Q2 (Apr) 2009
• Expected 2009 revenue: $500 million (70% YoY growth)

Shanghai Composite Approaching 61.8% Retracement

USO Below Intermediate Term Trendline.

After repeated attempts to cross $39 mark, USO finally closed below the intermediate term trendline. MACD is also confirming waning momentum. Considering the weakness in the broader market and the strength in US dollar, its not surprising at all. Before opening a short position, it would be better to wait for a rally, which reverses at the trendline, confirming start of the down trend.

Full Disclosure: No position in USO.

Divergence in Shanghai Composite.

Since Aug 19 low, Shanghai Composite has climbed a bit but this rise has not been confirmed by MACD resulting in a divergence. Hence, we need further evidence to be confident of a reversal in current (short term) down trend, or continuation of this trend to become intermediate or long term down trend.

Some Macroeconomic Data Points about Pakistan

From a recent WSJ article, here are some macroeconomic data points:

• On August 15 central bank reduced benchmark interest rate by 1% to 13%
• The previous reduction by 1% was done in April
• The rates were raised by 5% in 2008 to reign in inflation
• Inflation was 25.3% in August 2008, 19.1% in March 2009, and 11.2% in July 2009
• Economic growth was 2% in the previous fiscal year, and was average of 6% during previous 5 years
  
• Growth is expected to be 3.3% during the current fiscal year
• Fiscal deficit was 5.1% of GDP during last fiscal year, and 7.4% during the year before that
  
• Current-account deficit was $8.6 billion during last fiscal year, and $13.6 billion during the year before that
• Foreign-exchange reserves were $11.846 billion for the week ended August 8

Shanghai Composite near 50% retracement

From the October 2008 bottom, Shanghai Composite has climbed substantially. During this run, excluding the current one, there have been two retracements both close to 61.8%. The current retracement is close to the 50% mark. From MACD at the bottom, we can see that the current retracement is sharpest of the 3 during the past 52 weeks. Whether this retracement stops around 61.8% remains to be seen.

Index ETF and SPDR returns for May 14

Disclaimer: Long position on GLD, short position in SPY and XLF.

SPY, QQQ and IWM

SPY, which closed almost at the bottom of the trend channel yesterday moved back into the channel today. The trend break still not confirm yet.



Both QQQQ and IWM have not only broken their trend lines, but also were unable to hold above the short-term supports just before the close.

Disclaimer: Short position in SPY.

Index ETF and SPDR returns for May 13

Disclaimer: Long position on GLD.

Inverted head and shoulders in GLD.

Going through the daily chart of GLD, it just dawned on me that there is an inverted head and shoulders pattern. Since the price prior to the left shoulder was below the shoulder and it had a huge run up to the shoulder, I am not sure if this could be considered a valid tradable pattern.

Disclaimer: Long position on GLD.

SPY possibly and IWM confirmed broke out of uptrend channel

SPY closed today just at the bottom of the trend channel. After today's 2.52% drop, it might pop tomorrow and the confirmation of broken uptrend might be the day after. It also broke through short-term support around 89.75. Notice the 5 day moving average (yellow curve), which has turned downward. Also notice MACD at the bottom which is showing negative divergence (meaning downward move is accelerating).


IWM confirmed that the uptrend is broken (this was signaled yesterday). Today it broke through short-term support around 48.25. The state of 5 day moving average and MACD is similar to SPY's, mentioned above.

Disclaimer: No position in any of the mentioned securities.

Index ETF and SPDR returns for May 12

XLF has been the worst performer for the second day in a row among sector SPDRs.

Disclaimer: Long position on GLD.

Russell2000 possibly broke the trend channel today

Also note MACD sell signal on daily time frame.

Disclaimer: No position in mentioned security.

Index ETF and SPDR returns for May 11

Today as usual financials and technology sectors swapped positions on the return ranking, where technology being the best performing while financials being the worst. One thing to note was lower volume.

Disclaimer: Long position in GLD and, short position in XLF and SPY.

Weekly Asset Returns (05/08)

Here are the asset returns for the last week (courtesy of WSJ). The numbers show decreasing risk aversion of investors, where crude oil, REITs and emerging market stocks being the best performers and the dollar being the worst.

Here are the returns for the major equity index ETFs and sector SPDRs. Financials are still going strong.

Disclaimer: Long position in GLD and XLE, and short position on SPY.

Sector Relative Strengh

This chart shows the sector relative strength (relative to S&P500) since a market bottom on March 9. The way I have computed the data is as follows: starting with March 9, each day's sector SPDR value is divided by SPY. This value is then divided by the value on March 9 (normalization). The primary purpose is to get an idea of how sector performance compares to each other and to broader market.

As you can see, XLF has significantly outperformed every other sector and the S&P500 by a wide margin. Then are 2 cluster: one consists of XLB, XLY and XLI, which have outperformed S&P500 to some extent.

XLK is in the middle and has closely tracked S&P500 till recently and is lagging behind now.

The second cluster includes XLE, XLP, XLU and XLV. Out of these the performance of XLE has started showing confirmed improvement.

Disclaimer: Long position in XLE.

Index ETF and SPDR returns for May 7

Today the best performing sector was healthcare while the worst performing was technology. Basic materials and financials were also quite weak.

Disclaimer: Long position in GLD and XLE.

QQQQ trendline possibly broken

QQQQ may have broken below its trendline. The reason I use "may have" is that trendlines are not unique, meaning we can draw them in a variety of ways. They are primarily used as guidelines. Also, MACD is showing slight negative divergence, after a series of progressively weak up moves.

SPY is still within its trend channel. Whether it will also break below the channel remains to be seen. There is possibly short term support around 87. MACD is also showing slight weakening of the trend. Corey Rosenbloom pointed out a bearish pattern in SPY, which is a doji, followed by a hanging man, followed by a bearish engulfing candle.

On a positive note XLV broke above its trading range. This indicates investor rotation out of recently strong sectors like financials, basic materials and technology into more defensive sectors like healthcare.

Disclaimer: No current position in QQQQ, SPY or XLV.

Index ETF and SPDR returns

Compiled here are returns to the index ETFs and sector SPDRs. These include daily returns over the last 5 trading days and also cumulative 5, 15 and 50 day returns. The highlighted cells mark the SPDR showing the highest and lowest return. The primary purpose is to get some insight into the leading and lagging sectors.

Update: I found an error in my script for calculating returns, which has been fixed and the snapshot given above has been updated.

UNG trend line broken at last, GLD also above trend line

After more than 10 months of decline while religiously following the downward trend line, UNG finally managed to break above it today. The 5 DMA has crossed 15 DMA, which has flattened out. The closing price is $0.24 away from 50 DMA.


GLD also broke through the downward trend line but average volume has declined over the past 2 months. Its 5 DMA is above 15 DMA and today's closing price is just above 50 DMA.

Disclaimer: No position in any of mentioned securities.

Some interesting charts.

UNG price seems to be approaching is (downward) trend line, which it has been faithfully following since July 2008. Whether it will be able to break the trend line and hold above it remains to be seen. One recent change is the increase in volume but the 50 DMA is still 10% higher the price.

USO has already broken the down trend it has followed all of April.

XLF has already broken through resistance around 11.25 and has closed above it for the past 2 trading days. It sure can fall back below it but considering current market strength it seems somewhat unlikely for now.

Same is the case with T, MBT and FMCN. TV is just at its resistance (around 17.10).

Disclaimer: Long position in XLF.

Cree, Inc chart

Over the weekend I was scanning some charts and I stumbled upon Cree, whose stock has shown remarkable strength over the last 5 months. In the above chart the 3 moving averages are 5, 15 and 50 day. The 5 DMA has just crossed the 15 DMA and both are above the 50 DMA.

This stock did get affected by the market sell off last year but its 52 week low was on 12/05/2008, way before rest of the market. Since then it has steadily climbed and the close price on Friday was $27.71, very close to the 52 week high of $29. The chart also shows cup with handle formation which is a bullish sign. The MACD is also showing a possible buy signal coming up. Zack's Investment Research mentioned CREE as Bull of Day on May 1.

Disclaimer: No current position in the mentioned security.

Weekly Asset Returns and New SMA Crossovers (05/01)

Given below are the asset class returns for the week, courtesy of Wall Street Journal:

And here are the sector returns for week measured using sector SPDRs:I have updated the stock scanner to looks for 5 and 15 SMA crossover and use 50 day average volume of more than 1million shares as the first filter. Here are the results of the scan over S&P500:

Bullish: AA AMD BTU CMS CL D DTE EXC GIS GNW HIG HNZ HUM ICE MDT MCHP PEG PGN PKI SRE T TE VRSN WFR WIN XOM

Bearish: AIZ AVB CA CCL CTAS DFS EQR GLW HCBK KSS MMC MO MYL PAYX PGR SPLS VMC

Please note that moving average crossovers usually happen on up days and majority of stocks pullback somewhat after that. Timing the buy/sell decision will probably require further analysis (technical and/or fundamental) whether you are looking for short-term trade or a long-term position.

Disclaimer: No position in any of the mentioned securities.

Bullish and Bearish SMA cross overs (04/29)

Given below is the result of my stock scanner, which I usually run at night. Please note that the scanner uses simple moving average cross over, which is a trend following strategy. This strategy may result in losses in a trendless market:

Bullish: ASA CNP DF EW ITRI BLT CSA HLS HGSI IPCM IDIX IART KRG LNCE PQ RVI SGK SJI TDG ULBI WAL TBT

Bearish: INTU KEY WMT KCLI NNI TLB THRX UNCA

Disclaimer: No position in any of the mentioned securities

XLF near resistance and SPX doji.

I wanted to point out that XLF is very close to its recent resistance level of about 11.30 (touched twice over the past 2 weeks). Recent market action suggests caution.

Also there seems to be a doji/hangman on the weekly SPX chart.

Healthcare and IT

Why is the US healthcare system so outdated? I have been wondering about this for a while and this week's Economist has brought some answers. Here I am listing few important points from the special report:

• America spends some 16% of its GDP on health care, the largest share of any big country
• Recent studies suggest that fewer than one-fifth of the doctors’ offices in America offer EHRs
• India’s Apollo hospital chain has for years been using an advanced EHRs system, built locally,..., Apollo Health Street, a successful offshoot, sells HIT software and services to American hospitals, Apollo’s founder, wants to build an open-source “health superhighway” in India
• A Thai company, Bumrungrad makes innovative use of HIT, the company built its hospital-management system from scratch, Microsoft acquired this company
  
• According to RAND Corporation, in a 2005 report, if 90% of hospitals and doctors in America were to adopt HIT over 15 years, the health system could save some $77 billion a year from efficiency gains, if health-and-safety benefits are taken into account, the gains could double, saving about 6% of the $2.6 trillion that will be spent on health care in America this year
• A study published in the Archives of Internal Medicine in January compared a group of hospitals in Texas that has adopted advanced HIT systems with a group that has not. It found that the first group suffered 15% fewer deaths and 16% fewer complications, as well as enjoying lower costs
• In March Kaiser Permanente published evidence in Health Affairs showing that its digital efforts have cut visits per patient by an average of 26%, thanks to more e-mail and telephone consultations
• The fiscal-stimulus package passed earlier this year by Congress includes nearly $20 billion to create a national health-information network, including incentives for hospitals and doctors to adopt EHRs
• Challenge # 1: Top-down design of projects, which ignore concerns from doctors, hospitals and patients
  
• Challenge # 2: Ruthless bargaining with HIT vendors squeezing them out
  
• Challenge # 3: Resistance from doctors and nurses, who are not provided enough incentive to put in the effort needed to learn the new systems
• Challenge # 4: Privacy, but the technical tools to safeguard it, such as encryption software, have improved so much that this should no longer be a problem, a law passed in America last year stops insurers or employers from using genetic information as a basis for discrimination
• HIT reform phase # 1: Health-information exchanges to make sure that systems work together
• HIT reform phase # 2: May run concurrently with the first—will be the adoption of EHRs
• HIT reform phase # 3: Analysis of patient data to improve medical practice and drugs research
• One concern is that big software vendors or health providers with expensive legacy systems may try to slow things down so that they can milk their existing businesses
• A recent investigation of the NHS by the Health Service Journal found that many paper-based records are lost or misplaced. It calculated that perhaps 1.2m British patients are being treated each year by doctors without proper notes to hand

Here are more links to the special report:
Medicine goes digital
HIT or miss
Flying Blind
Getting personal
A doctor in your pocket
Fantastic voyage
Health 2.0
Sources

Fundamental shift in US gasoline consumption

A WSJ story says that according to a growing number of oil industry players, the era of increasing gasoline consumption in US is probably over.

The future of oil...

This Bloomberg story and this blog tell the same story of oil.

Trend still intact

This is a 30 day S&P500 chart on 5 minute time frame. The green curve is 5 DMA. I have also included pieces from Google Finance and FINVIZ.com.

As you can see the recent rally is still intact. The market breadth was 76/16, which, though not as strong as 90/10, is still pretty good. You can also see that today the some cyclical sectors rallied, with transportation leading and technology and capital goods just behind it. NASDAQ composite outperformed both S&P and DJIA by a clear margin. Solar stocks (not shown here) just went through the roof on high volume, one quoted reason being Chinese subsidies announcement. Solars have been the laggards of the current rally but a number of them have been forming a cup bottom during this rally (Note to self: never underestimate cup bottom formation). And on the other hand financials didn't show their recent performance. How long this rally can last remains to be seen. Right now, which is around 1 AM PST, S&P futures are pointing to a slightly lower open, but this can change in a heartbeat. Majority of trader, who have held positions during this week will probably close them before leaving for the weekend, so a mild pullback is most likely.

Interesting reversal

This is 10 day $SPX chart on 5 minute timeframe. The green line is 5 DMA.

Today S&P broke both the lower trend line and the 5DMA before reversing course and finishing higher. Since trend lines are more of a guide than a rule written in stone, I would still consider the current trend intact. Notice that the 5DMA did flatten out. What remains to be seen is whether S&P can hold above both the trend line and the 5DMA.

Where is $SPX heading?

This is 60 day $SPX chart on 5 minute time frame. The green curve is 5 day moving average.

I wonder why the anchors on any business news channel keep repeating the index numbers and gains over and over again. I can read that off the screen, thank you, tell me something I don't know.

Anyhow, question is what can we expect from S&P 500 right now. The strength and breadth of today's action makes me think that this rally might last for a few days. After pushing through resistance around 804, the next stop seems to be around 870, where it could run into resistance.

I am watching to following to get a sense of what to expect:

1. Resistance levels
2. 5 day moving average
3. Trend line (the lower trend line after it broke the upper one)

Other indicators to watch are market breadth and volume.

If S&P pushes through 870 level, which is quite possible looking at the bearishness I noticed during the past couple of weeks, then the next stop is around 940. I expect S&P to lose steam somewhere between 870 and 940 and to start trading within this range. The uptrend can end fast if the earnings start coming below expectations.

Companies in EHR business.

One of the initiatives in the budget blueprint announed today is computerization of health records also known as EHR. I did a crude search for companies in EHR business and found h the following:

• Allscripts-Misys Healthcare Solutions (MDRX)
• Athenahealth Inc. (ATHN)
• Cerner Corporation (CERN)
• eClinicalWorks Inc.
• Eclipsys Corp (ECLP)
• Epic Systems Corporation
• GE (GE)
• iMedica Corporation
• McKesson Corporation (MCK)
• Picis, Inc.
• Quality Systems,Inc. (QSII)
• Sage Software, Inc.
• The Trizetto Group, Inc.
• Wellsoft Corporation

The first company that showed up in Google search was Allscripts-Misys, which is listed at the top. The names that follow are taken from the last 10K of MDRX, where they are listed as competitors in EHR segment.

AAPL chart update.

Since the last time I mentioned that AAPL was forming a symmetric triangle, the price has moved downward and crossed the triangle's lower edge making it a short candidate.

USD/CHF possible short approaching

USD/CHF pair close to crossing SMA 50 downward on 60 minute chart.

AAPL forming a symmetric triangle

I guess we are seeing a lot of triangles these days:

UAUA forming ascending triangle

Asset returns for the week ending 01/09/2009

Asset returns for the week ending 01/02/2009