Monday, July 26, 2010

Banks Tested, Earnings Seasons, and China Airlines

China Southern Airlines
China Southern Airlines Sale Promo


Flying high with China Southern. Long term I'm bullish on this company. Short term I'm short selling it, and hopefully buy in at lower prices.

The Market This Week

Corporate earnings reports will be in the spotlight this week, and the European banks stress test is over. I see the market inching higher this week, but now grinding into a concrete wall of resistance at 1113 to 1154 on the S&P500. If there is a continued uptrend past 1154, possibly the uptrend can continue, but I will be watching closely for low-risk high-reward short sell trade setups at these levels, and am already this week with a short sell on China Southern Airlines Ticker ZNH

The European bank stress tests are done now, and trader’s investors will be looking at the new earnings reports coming out this week, and the weekly economic data reports that could put pressure on those positive earnings reports. On average this quarter S&P 500 profits are up about 40% from their estimates. I caution not to put a lot of weight on the increase from estimates as earnings estimates are very subjective analyst to analyst as they are adjusted up and down in different market conditions that put more skew into a company’s forward earnings than good information to make a low-risk high-reward forward bet on in my experience.

This week’s earnings reports of note are Aflac, Boeing, BP, Dupont, Exxon Mobil, and Visa. Even with the positive earnings reports so far, I’m suspicious of a resumption of an uptrend to any great degree with the earnings reports battling with the stream of economic data that could easily disappoint the market in the coming week. During my stock scans this week, I mostly saw low-risk high-reward sell setups than buys. Still, I see the market grinding higher this week, with the end of the week or next week more definitive on if it wants to continue higher or reverse back to the downside.

Gross Domestic Product

GDP forecasts range from the Fed at 3.5% to 2% by Goldman Sachs, and 1% by others. Unemployment is terrible and should continue to stay that way for the time being even though the positive employment spin doctors are doing their best to be upbeat, at least until the congress elections coming up. Maybe the new politicians have got a solution for the USA labor market woes, but I would bet against it right now.

My Stock Pick This Week

Is a sell short on China Southern Airlines. With China is slow down mode for them, but still huge growth for the rest of the world, I see possible continued pressure on the China economy. I think the big pressure on China stocks right now is because they depegged their Yuan from the US Dollar now. The Yuan should rise significantly in the long-term putting pressure on China stock price growth for time being. Of course, select China companies will keep growing strong and outperforming the market so watch them like a hawk for buy in opportunities.

China A Shares - Hong Kong H Shares Premium Differential

One significant thing about the China and Hong Kong markets is that there has been some talk recently about the decreasing premium in the prices of mainland China listed stocks compared to the Hong Kong listed shares of the same companies. The markets have been surprised that after years of China's "A shares" costing significantly more than the "H shares", actually more than twice as costly in the beginning of 2008, now suddenly stocks trading in Shanghai are cheaper in some cases and now most of the prices are now virtually even. This is not to say that China A shares are a solid buy just yet, as they could swing to the negative as much as they did to the positive in 2008 compared to the Hong Kong H shares. Pay attention to that correlation, as it speaks volumes about what the social mood is there, and risk appetite in the Asia region.

Sell Short China Southern Airlines – Ticker ZNH

Sell Entry: 24.58 to 22.74

Stop-Loss: 8% from your entry price

Take Profit Areas: 20.05 to 19.71, 19.21 to 18.86, 16.50 to 16.19

China Southern Airlines Company Profile

China Southern Airlines Company Limited operates an airline in China. The company principally engaged in the provision passenger, cargo, and mail airline services. It also provides logistics services; air catering services; pilot training services; property management services; aircraft and engine repair and maintenance services; flight simulation services; and airport ground services, as well as sells duty free goods in the flight. As of December 31, 2009, the company had a fleet of 378 aircrafts; and a network reaching 905 destinations connecting 169 countries and regions, and cities worldwide. It has operations the People's Republic of China, Hong Kong, Macau, Taiwan, and internationally. The company was founded in 1995 and is headquartered in Guangzhou, the People’s Republic of China. China Southern Airlines Company Limited operates as a subsidiary of China Southern Air Holding Company.

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China Southern Airlines Stock Chart