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1/15/07
Archived Letters
I. Key Events to Watch In the Week Ahead
Monday, January 15
Markets Closed
Tuesday, January 16
Economic
8:30 Empire State Manufacturing Index (Jan.):19.6 cons.
9:00 Bank of Canada Announcement
13:00 4-Week T-bill Announcement
4-Week T-bill Auction
3-Month T-bill Auction
6-Month T-bill Auction
Earnings
Before Open: AMTD, CBH, EDU, FCX, FRX, LPL, MI, MNRO, OMN, PVTB, USB, WFC
After Close: FPFC, FUL, FULT, INTC, LCBM, LLTC, OZRK, RNST, TRMK, TSS
Wednesday January 17
Economic
7:00 MBA Purchase Applications (1/12): 16.6% prior
7:45 ICSC-UBS Store Sales
8:30 Producer Price Index (Dec.): +0.5% cons.
PPI Ex. Food & Energy (Dec.): +0.1% cons.
8:55 Redbook
9:15 Industrial Production (Dec.): 0.1% cons.
Capacity Utilization (Dec.): 81.7% cons.
13:00 NAHB Housing Market Index (Jan.): 33.0 cons.
14:00 Beige Book
Earnings
Before Open: AMR, ASML, CIT, CNB, CRRC, ERIC, JPM, LEN, LUV, MEL, NTRS, PH, STEI,
STT, WCBO, WIT
After Close: AAPL, BK, CLC, DOX, FHN, FINB, GKK, IBKC, KMI, KMP, KMR, LOGI, LRCX,
SNV, SOV, VLY, WM
Events
Fed’s Yellen speaks at 2:50 about the Economy
Fed’s Mishkin speaks at 1:00 on Housing Prices
Fed’s Poole speaks at 7:45 on Gov’t Sponsored Enterprises
Thursday, January 18
Economic
8:30 Consumer Price Index (Dec.): 0.5% cons.
CPI Ex. Food & Energy (Dec.): 0.2%
Housing Starts (Dec.): 1560k cons.
Building Permits (Dec.): 1510k cons.
10:00 Leading Indicators (Dec.): 0.1% cons.
10:30 EIA Petroleum Status Report
12:00 Philadelphia Fed (Jan.): 2.5 cons.
16:30 Money Supply Earnings
Before Open: AIT, BBT, CAL, CHZ, CMA, FFCH, FITB, HBAN, HOG, IGT, IIIN, JEF, MER,
MOD, NITE, NVS, PBKS, SLM, SMTS, TESS, UNH, USAP, WABC, WBS
After Close: BXS, CAMD, CMTY, COF, CRBC, CREE, CREL, DGII, FNB, HRZB, INDB, MOLX,
MOT, UB, XLNX
Events
Fed’s Pianalto speaks at 8:00 on Economy
Fed’s Bernanke testifies at 10:00 before Senate Budget Commit.
Fed’s Bies speaks at 7:15 on Economic Outlook
Friday, January 19
Economic
10:00 U. of Michigan Confidence (Jan): 92.4 cons.
10:30 EIA Nat’l Gas Report
Earnings
Before Open: ACO, C, JNC, KEY, RF, SAY, SLB, STI, WL
Events
Fed’s Lacker speaks at 8:00 on Economic Outlook
Fed’s Rosenblum speaks at 12:30 on Economic Outlook
Fed’s Hoenig speaks at1:15 on Economy
II. General Market Overview
The major market indices managed to recoup the losses sustained in the first
trading week of the year despite continued weakness in the energy complex (Oil,
Oil Service, Natural Gas) and the headwind of interest rates that are creeping
higher. The technical message that the market is sending is one of continued
rotation. There is obvious rotation out of Energy and in to the Retailers,
Brokers and Technology sectors.
Last week we mentioned that we were neutral on the Brokerage and Semiconductor
groups. Our weekly technical work is now signaling that the time has come to
change our opinion. We now believe it is time to become a buyer of any extreme
weakness in these two sectors. Individual names in the Brokerage arena that we
prefer are Goldman Sachs (GS), Morgan Stanley and Merrill Lynch (MER). The
companies that are followed in the Semiconductor space that we would buy on
weakness are Intel (INTC), Applied Materials (AMAT), SanDisk (SNDK) and Analog
Devices (ADI). We would continue to avoid names in the space that appear poised
to under perform the group. These companies are Texas Instruments (TXN) and
Novellus Systems (NVLS).
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-50.45) and Johnson & Johnson (JNJ-66.64). We have
instituted a long position in JNJ at 66.20. Our work is telling us that Wyeth
(WYE-50.61) could under perform in the near term. Managed Healthcare, in
particular United Health (UNH-52.55), WellPoint (WLP-78.49) and WellCare Group
(WCG-74.56) continue to act well. The shares of Humana (HUM-54.50) continue to
under perform the sector. (Note: UNH reports earnings this week)
The Internet space is another sector that we believe can be purchased on
weakness. The HHH-55.09 (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-505.00), Ebay (EBAY-30.00) and Yahoo
(YHOO-29.45). We would continue to avoid Amazon.com (38.20) at this time, as we
believe it to be the current negative outlier of the sector.
Take note that the VIX-10.15 (CBOE Volatility Index) collapsed from a reading of
12.14 the previous week. The market emotion of fear has abruptly been replaced
by one of greed.
III. GOLD
GLD (streetTracks gold index) – We continue to remain on the sidelines in the
GLD-62.17. It is our current view that the GLD will continue to be range bound.
We shall remain neutral on the GLD until we see signs of a definitive new trend
developing.
IV. Energy
Feast or famine, fast and furious, these are adjectives that best describe the
trading action in the energy sectors. The price of crude oil has declined
approximately 16% in the first two weeks of 2007. While the sub-sectors (Oil,
Oil Service, Natural Gas, Coal) of energy appear to be in a short term oversold
condition, we are reluctant to pick a bottom at this time. Our best advice would
be to begin to scale in to long positions upon another ten percent decline
accompanied by increased trading volume. It is always very difficult and can be
quite painful to pick market bottoms.
V. Dow 30 Analysis
Our Weekly Trend Indicator (WTI) measures in at +2, an increase from the
previous week reading of -2. The Dow Jones Industrial average completely
recouped the losses from the previous week. It is quite apparent that the lack
of energy exposure (Exxon Mobil only energy stock in Dow Thirty) is clearly
benefiting this index. Our weekly support level for the DIA-125.60 (Dow
Industrial Diamonds) will remain at 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; DIS, HON, HPQ, IBM, and MO. The five weakest stocks in the Dow-30 are
as follows, CAT, MMM, GM, KO and UTX.
Dow 30 stocks with positive weekly signals:
AA, DD, DIS, HD, HON, HPQ, IBM, INTC, JNJ, MCD, MMM, MO, MSFT, PG, VZ, WMT
Dow 30 stocks with negative weekly signals: AIG, AXP, BA, C, CAT, GE, GM, JPM,
KO, MRK, PFE, T, UTX, XOM
* Underline names have changed from previous week*
VI. OPEN POSITIONS
JNJ- 1/10/07 Long @ 66.20 sell stop 64.60
* 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.
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