Archived Letters

11/2/06

Archived Letters 

I.                  Recent Market Weakness

   Although the week is still young, investors should take heed of the price action that the market has displayed the last three trading days.  For whatever reason one may choose, good earnings priced in, weak economic reports, a pending unemployment report, or fund managers trying to lock in recent gains before impending elections,  we cannot ignore the fact that unless the market can recoup this early week decline, the fourteen- week advance may be in jeopardy. We are not encouraged by the weakness in certain key sectors that have provided the leadership for this rally.  Specifically the price momentum in the Brokerage, Telecom, Retailers and Pharmaceutical sectors are all showing signs of stalling. With two trading days remaining in the week, we will be monitoring what we believe to be critical price support levels. What makes us most concerned at this time, is that we do not see new leadership developing from other sectors that we cover.  This could turn out to be a case of the boy “crying wolf”, but only time will tell.  Worst case scenario traders should at the very least tighten up their sell-stops on current long positions to protect profits generated by the recent two month advance.

II.               GOLD

GLD (streetTracks gold index) – In our 10-1-06 letter we announced our change of opinion regarding Gold. We said to cover all short positions and look to institute a long position around the $58.00 level using the GLD (gold index fund) as our trading vehicle. On

10-04-06 we went long the GLD on the close of trading at $56.37. We have raised our protective sell stop to $59.40.  The intermediate term price objective is $65.00.

III.           Dow 30 Analysis

 Our Weekly Trend Indicator (WTI) coming in to this week stood at +19.  We stated in our previous letter that while strong, this reading had reached an overbought stage.  That is the good news. The bad news is that our Dow 30 Daily Trend Indicator (DTI) has signaled a  reading of -8. This is the first negative reading since last July.  A weekly close of the DIA (120.26)-(Dow Industrial Diamonds) below 119.70 will indicate that a correction is at hand.  If this becomes the case traders should look to become better sellers of rallies rather than buyers of dips.

Dow 30 stocks with positive weekly trends:

AIG, BA, C, DD, DIS, HD, HON, HPQ, IBM, INTC, JNJ, JPM, KO, MCD, MMM, MO, MRK, MSFT, PG, T, UTX, VZ, WMT, XOM

*Of those listed above, the following stocks are currently vulnerable to shifting to negative weekly trends: BA, C, HPQ, INTC, JNJ, JPM, KO, MMM, MRK, T, UTX, VZ, and WMT.

Dow 30 stocks with negative weekly trends:

AA, AXP, CAT, GE, GM, PFE

* Underline names have changed from previous week*

IV.            OPEN POSITIONS

UNH- short execution-10-06-06, price 51.80 (buy stop 50.10) price objective 44. *note buy stop lowered*

GLD- long execution- 10-04-06, price 56.37 (sell stop 59.40) Price objective 65.00 *note sell stop raised*

    CLOSED POSITIONS

XLU (2.7 %)

WAG (1.0%) 

          JNJ (1.7)

         GM (4.2%)

 * 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.