Today's close

DOW JONES:

Watchlist: WRB

Because the market risk is very high, I am concentrating on low-beta shares (low correlation with the market). Among these, I found very interesting William R. Berkley (WRB).

W. R. Berkley Corporation (W. R. Berkley) is an insurance holding company. The Company operates in five segments of the property casualty insurance business: specialty, regional, alternative markets, reinsurance and international. The specialty segment underwrites complex and third-party liability risks, principally within excess and surplus lines, and includes specialty lines of insurance. The regional segment provides commercial property casualty insurance. The Company's alternative markets operations specialize in insuring, reinsuring and administering self-insurance programs and other alternative risk transfer mechanisms. Its reinsurance operations consist of seven operating units, which specialize in underwriting property casualty reinsurance on both a treaty and a facultative basis on behalf of Berkley Insurance Company. The international segment has operations in Australia, South America, the United Kingdom and Continental Europe.

Beta: 0.9
Dividend yield: $0.24 - 1.1% (very low)
Average volume (10 days): 1.9 m.

WRB reported 1st quarter 2009 earnings of $0.25 per share on April 27, 2009. This missed the $0.37 consensus expectations of the 13 analysts following the company.
The next earnings announcement from WRB is expected the week of July 27, 2009. $0.62 is expected by analysts.

Valuation Ratios:
Price/Earnings (TTM) 54.41x
Price/Sales (TTM) 0.8x
Price/Book (MRQ) 1.12x
Price/Cash Flow (TTM) 24.2x

WRB's debt to total capital ratio, at 29.22%, is in-line with the Insurance (Prop. & Casualty) industry's norm despite its increase over the last year.

This is basic information. You can look in many web pages to analyze the rest of the fundamentals.

Form 10-Q
Quarterly Report:

http://ir.wrberkley.com/secfiling.cfm?filingID=950123-09-8373

Daily Chart:




Weekly Chart:

Long Term WRB arithmetic chart and Fibonacci proportions:

Short Term Logarithmic chart and Fibonacci proportions:


NEWS: Negative for WRB.

http://seekingalpha.com/article/146950-state-budget-gaps-and-investment-implications

Stock Market Impact of the state budget gaps:

Banks have enough trouble without defaults on muni bonds on top, but that is a possibility to keep on the radar screen.

P&C insurance companies are perhaps more at risk. According to Morningstar, 40% of P&C insurance company assets are in muni bonds, and for Travelers (TRV), Chubb (CB), WR Berkely (WRB) and Mercury General (MCY), the holdings are 50% or more. Expectation of significant muni payment deferrals (sounds better than default) would have adverse stock price impact on P&C insurance companies.

SDS: playing the short side

In line with the previous post, SDS (the ultrashort S & P 500 ETF) could be a good option to play the short side. If you want something less volatile, use the SH ETF.
We do not have a buy confirmed, but it is recommended to include it in your watch-list, because it looks like it will reverse the trend, in line with the global markets.

But remember, this ETFs, are not for the long term. They tend to zero in the long term.

Weekly Chart:



Daily chart:



SDS / SPY ratio:

Dow Jones / S & P 500

Well, the month had finished and it is a good moment to try to see what can we expect for the next month, without making futurology. In the S & P 500, we can consider 880 and 780 as the key levels. Here, the 23.6% and 61.8% fibonacci retracements are the supports in case the head and shoulder patterns is confirmed. Meanwhile, is a good strategy Wait & See, until the market defines the course. If we look at some indicators (see the charts below, specially the weekly chart of the S & P500), we could consider that the market had already define the trend (look the ADX).

In addition, if we relates this charts with the charts of the VIX, the conclusion is that the direction for the next month should be downward. An spike in the VIX is very likely from this levels. But.... be careful, because the majority of the blogs and financial sites that I am visiting see the Head and Shoulder pattern (pattern formed during may and June). When everybody see the same pattern, the market likes to do the opposite.



Look at the RSI. It was moving between 50 and 90 during all the rebound (from March until June 15). Now, it is moving below 50. This indicates a change in the trend. Also, pay attention to the Bollinger Bands. The central band had been broken.

S & P 500:

The 61.8% Fibonacci retracement is at 778. The key support is 880.

Dow Jones Industrial:

A look at the VIX

This is the VIX in a 3 days frequency chart, 3 years long. It is holding in the long term dinamic support, and look at the divergence in the RSI. It's scary, isn't it?



Now lets take a look to the VIX / SPY ratio. Look at the ADX in april 2007, and look at it now. Looks like it is ready to take off? Interesting divergences in the CCI.