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9/17/06 I. Events to Watch In the Week Ahead
This coming week brings a light earnings calendar. The company reports that will draw our interest are the following: Oracle Co. (ORCL-software), Morgan Stanley (MS-brokerage), Federal Express (FDX-transportation), General Mills (GIS-food), and Nike (NKE-shoe apparel).
Oracle is sitting at roughly four and a half year highs, a positive report will be needed to sustain this advance.
Morgan Stanley is in the unenviable position of reporting numbers following the previous week’s positive reactions to earnings reports from Goldman Sachs, Lehman Bros., and Bear Stearns. The XBD (brokerage sector index) was up 7.4% last week. Can Morgan Stanley keep this train rolling?
The economic menu offers up PPI and Core PPI (est. +0.3%) on Tuesday morning, a Fed Policy meeting on Wednesday (rates expected to remain 5.25%) and Leading Economic Indicators (est. -0.2%) on Friday.
It is our view that the Federal Reserve will remain on hold. We also expect the rhetoric to remain similar, (inflation fighting resolve-data dependence).
II. General Market Overview
We continue to be of the opinion that investors use current strength in defensive sectors (BONDS, REIT’s, Utilities) to exit long positions. Banks and Brokerage stocks along with Technology can be bought on extreme weakness. Previously we have liked buying the Retailers. (KSS, WMT) These stocks have advanced considerably in the last two weeks. DO NOT CHASE THEM AT THESE LEVELS.
Utilities, as evidenced by the price action in XLU (Utilities Select Sector Fund), have put in a short term top. We will be looking to institute a short position in the XLU around the 34.00-34.50 area. A protective buy stop will be placed at 35.09. Our downside target is 32.50.
III. GOLD
GLD (streetTracks gold index) declined $3.29 or 5% to 57.40 last week. Our work remains negative, but we would look to begin covering shorts in the 55.00-56.00 area. Our protective buy stop will be lowered to 62.52. Take note that we are advising covering short position’s, we do not advise initiating long positions at this time.
IV. Energy
Energy and all commodity related issues continue to be under selling pressure. In previous letters we have warned of a possible “liquidity” issue in this sector. We advise that one continue to avoid “energy and commodity related issues” until the smoke clears from the recent price carnage. PLEASE RESIST THE TEMPTATION TO PICK A BOTTOM HERE. Look for a high volume selling climax before this decline subsides.
V. Weekly Charts Of Note
General Motors (GM), the weekly chart is troublesome. Exhaustion is the word that best describes my view. Look to exit any long positions and try to short-sell GM around the 32.50-33.00 level. A protective buy stop should be placed at 35.05. Our price target is 26.00-28.00. General Motors has been the best performing stock in the DOW-30. The leadership in the DOW-30 appears to be moving to the Financial area. We are looking for continued price appreciation in GE, AIG, AXP, C, and JPM.
VI. OPEN POSITIONS
JNJ (Johnson & Johnson) - short execution-9/15/06, price 63.95 (buy stop 65.10) Price objective 60.00 level. Closing price as of 9/15/06 is 63.79.
CLOSED POSITIONS
WAG (Walgreens) short execution-8/28/06, price 48.90. Covered 8/31/06 at 49.52, a loss of 1%. |
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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. |
