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Archived Letters

1/8/07
Archived Letters

I. Key Events to Watch In the Week Ahead

Monday, January 8

Economic

11:00 4-week T-bill announcement

10-year TIPS announcement

13:00 3-month T-bill auction

6-month T-bill auction

15:00 Consumer Credit (Nov.) 6 bln. cons.

Earnings

Before Open: LIFC, SCHN

After Close: EMKR, NUHC, SPEC

Events

Fed’s Kohn speaks at 8:00am in Atlanta

^{Tuesday, January 9}

^Economic

^{7:45 ICSC-UBS Store Sales}

^{8:55 Redbook}

^{10:00 IBD/TIPP Economic
Confidence (Jan.) 53.5 prior}

^{13:00 4-week T-bill auction}

^Earnings

^{Before Open: EMMS, GBX, HELE,
LWSN, SVU, VOL}

^{After Close: AA, EXFO, RI, SNX,
WDFC}

^{Wednesday January 10}

^Economic

^{7:00 MBA Purchase Applications
(1/5) 3.6% prior}

^{8:30 Trade Balance (Nov.)
-$59.5 bln. cons.}

^{10:00 Wholesale Inventories
(Nov.): 0.4% cons.}

^{10:30 EIA Petroleum Status Report}

^Earnings

^{Before Open: MBWM, NFLD, VOXX}

^{After Close: ASHW, INFY, RELL,
SAPE}

^{Thursday, January 11}

^Economic

^{7:45 ECB Announcement}

^{8:30 Initial Jobless Claims
(1/6): 325k cons.}

^{10:30 EIA Petroleum Status
Report}

^{11:00 3-month T-bill
Announcement}

^{6-month T-bill
Announcement}

^{14:00 Treasury Budget (Dec.):
$21.7 bln.}

^{16:30 Money Supply}

^Earnings

^{Before Open: CRAI, MTB, MTG, SRR}

^{After Close: CAMP, HIS, NASI}

^Events

^{Fed’s Bies speaks 10:15 in
Washington}

^{Fed’s Geithner speaks 12:45 on
Global Economy}

^{Friday, January 12}

^Economic

^{8:30 Advanced Retail Sales
(Dec.): 0.7% cons.}

^{Retail Sales Less
Autos (Dec.): 0.6% cons.}

^{10:00 Business Inventories
(Nov.): 0.4% cons.}

II. General Market Overview

It appears that the beginning of the new calendar year has awakened the sellers that have been hibernating since last July. One can sight a few different explanations for the turbulent start to 2007. The level of uncertainty as to the future direction of interest rates is certainly increasing. Also, many a stock holder could have postponed their profit-taking until the beginning of 2007 for tax purposes. Finally, considering the fact that energy stocks comprise roughly 10% of the S&P 500 index, the swift ten percent decline in the price of crude oil has been an obvious contributing factor. Whatever reason one chooses to prefer, the technical picture of the stock market is indicating that it is time to switch gears for the near term. We believe it to be prudent at this time to use any market strength to reduce one’s risks in sectors that we believe to be in the midst of near term corrections.

While the universe that our work covers is admittedly limited, of the sectors that we do follow, here is our current opinion. Over the near term we believe investors should use any market strength to continue to reduce exposure in, Energy (Oil Refiners, Oil Service, Natural Gas, Coal), Homebuilders, Telecom, and Steel.

We believe one can safely be a buyer of weakness in the Pharmaceutical area and Internet space. In the Pharmaceutical area we continue to like the technical picture in Abbott Labs (ABT-49.90) and Wyeth (WYE-51.35). The technical picture in Johnson&Johnson (JNJ-66.62) is also telling us that it is time to begin to buy any short term weakness. Managed Healthcare, in particular United Health (UNH-52.55) and WellPoint (WLP-78.49) also appear technically sound.

The Internet space is another sector that we believe can be purchased on weakness. The HHH-54.01 (Internet Holders Trust) is indicating good price support around the 52.00 price level. Individual companies within the group that are flashing buy signals are, Google (GOOG-487.19), Ebay (EBAY-30.78) and Yahoo (YHOO-27.27).

The sectors that we currently view as neutral (marking time) are the Brokers and Semiconductors.

Take note that the VIX-12.14 (CBOE Volatility Index) increased from a reading of 11.56 the previous week. It seems that a little dose of fear is beginning to creep into the market place. A weekly close above the 13.50 level in the VIX may signal severe turbulence forthcoming.

III. GOLD

GLD (streetTracks gold index) – We continue to remain on the sidelines in the GLD-60.17. It is our current view that the GLD is right in the middle of a ten dollar trading range. (55.00-65.00) Therefore we would look to be buyers at the low end and sellers toward the upper end of the range.

IV. Energy

In previous letters we mentioned repeatedly that while technically sound, the energy sector was in an over bought stage and the we were reluctant to chase the stocks at those price levels. In three weeks the energy sector (Oil refiners, Oil Service, Natural Gas, Coal) has gone from over bought to what can now be categorized as neutral. That being stated, another ten percent move down would have to begin to peak our interest in instituting long positions. Until that occurs, we will continue to be a seller on market rallies.

V. Dow 30 Analysis

Our Weekly Trend Indicator (WTI) measures in at -2, a decrease from the previous week reading of +6. The new year has begun with a pause to the upside momentum. Our weekly support level for the DIA-123.72 (Dow Industrial Diamonds) has been raised to 123.52. A weekly close below 123.52 will raise warning flags for the DIA. The five strongest stocks in the Dow 30 are the following; BA, HON, HPQ, IBM, and MO. The five weakest stocks in the Dow-30 are as follows, AA, CAT, MMM, GM, and UTX.

Dow 30 stocks with positive weekly signals:

BA, C, DIS, HD, HON, HPQ, IBM, INTC, JNJ, MCD, MO, MSFT, VZ, WMT

Dow 30 stocks with negative weekly signals: AA, AIG, AXP, CAT, DD, GE, GM, JPM, KO, MMM, MRK, PFE, PG, T, UTX, XOM

* Underline names have changed from previous week*

VI. OPEN POSITIONS

NO OPEN POSITIONS

* 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.