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9/06/06
I. The Big Picture
We continue to feel that the Defensive sectors (Bonds, Utilities and Real Estate Investment Trusts-REITS) will be vulnerable to profit taking. We anticipate that the money taken out of these safe-haven investments will move in to more aggressive areas of the marketplace. The areas that have begun to show strength are Technology , Finance, Capital Goods, and Healthcare. We continue to like selective Retailers (KSS-Kohls, and WMT- Wal Mart) on any weakness. Recent strength in the IWM (Russell 2000- exchange traded fund ) seems to be confirming our view that a more aggressive investment approach is prudent at this time. The technical picture of the stock market is one of an economy headed for the proverbial “soft landing”.
II. Gold
Recently we have been of the opinion that gold had put in a short-term top. A weekly close above 62.90 on the GLD (Gold-exchange traded fund) would negate this weakness and cause us to change our view. Watch closely !!
III. Energy
Last weeks near miss by hurricane Ernesto and calmer tones out of Iran unleashed a swift 10% correction in the price of crude oil. XOM-Exxon Mobil appears to have put in a short term top. Our work continues to signal that the natural gas sector seems to be the place to be at this time. Stocks we like in this arena are EP-El Paso, CHK-Chesapeake, and XTO- Cross Timbers. Also select Oil Service issues have begun to lift. Note: last week we liked RIG and ESV, both which performed very well against the headwind of crude oil declining.
IV .Chart of the Week
In our last letter we recommended a short sale of WAG-Walgreens. A short position was established at a price of 48.90. Our buy stop was elected at 49.52. We lost a little over 1% on the trade. The price action in the stock violated our game plan so we exited the trade. THIS IS CALLED TRADING DISCIPLINE. Have a game plan and stick to it.
This week we urge you to look at STLD (Steel Dynamics). Last week the company raised it’s earnings guidance above Wall Street analyst’s estimates. We would purchase the stock on any weakness around the 52 area. A protective sell-stop will be placed at 49.90. Our upside target is 64 which provides us a 6 to 1 risk /reward potential. This is a VERY VOLATILE stock so be prepared for some crazy price action. One must maintain price discipline at all times .Once again, have a game plan and STICK to it.
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* The following information has been provided for informational purposes only and should not be used or construed as an offer to sell, a solicitation, or an offer to buy, or a recommendation for any security. EquityLetter does not guarantee that the information supplied is accurate, complete, or timely, or make any warranties with regard to the results obtained from its use. |
