Archived Letters

1/22/07
Archived Letters

I.            Key Events to Watch In the Week Ahead

Monday, January 22

Economic

10:00     Leading Indicators (Dec.): 0.2% cons.

11:00    4-Week T-bill Announce.

             2-Year T-note Announce.

             5-Year T-note Announce.

13:00   3-Month T-bill Auction

            6-Month T-bill Auction

Earnings

Before Open: AOS, ALDN, AXP, BOH, BKHM, ELS, ETN, LXBK, MSPD, PETS, PFB, PHG, PLT, SNBC, STBA, VFGI. WTFC

After Close: CBSS, CBU, CSX, FCTR, FTBK, GY, IBNK, NWK, PKG, RDY, SYBT, TXN, WGOV

Events

Fed’s Yellen speaks on economy

^{Tuesday, January 23}

^Economic

^{7:45     ICSC-UBS Store Sales}

^{8:55     Redbook}

^{10:00   Richmond Fed Manufact. Index (Jan.):-6.0 prior}

^{13:00   4-Week T-bill Auction}

            ^{20- Year TIPS Auction}

^{17:00    ABC Consumer Confidence (1/21):-2.0 prior}

^Earnings

^{Before Open: ADTN, AKS, AMFI, AVY, BAC, BLK, BNI, BUSE, CMCO, DD, DHI, EAT, EMC, ENR, EXAR, EZPW, FRME, HFWA, JEC, JNJ, MDP, NPBC, PNC, PCP, PROV, RYN, REDF, RLRN, SBIB, SMG, STTX, TLAB, UCBI, UTX, VCBI, WB, XRX, YHOO}

^{After Close: ALAB, ALB, AMD, AMB, AV, CGNX, CNI, COH, CPF, CTX, CTXS, CYN, DST, FMSB, HYSL, IDTI, PTV, PVSW, QI, QLGC, RDN, RFMD, RLI, ROCM, SKM, STM, STX, SUNW, SUPX, SUSQ, TMA, UAUA, UMBF, WAL, ZION}

^{Wednesday January 24}

^Economic

^{7:00    MBA Mortgage Applications (1/19): -0.6% prior}

^{10:30  EIA Petroleum Status Report}

^{13:00  2- Year T-note Auction}

^Earnings

^{Before Open: ABC, ABT, AMAG, AME, ASH, ATI, CHKP, COP, CXG, EBAY, EXC, FFIV, GD, GLW, MCD, NVLS, PJC, QCOM, RMBS, SAP, TSM, UIS}

^{After Close: AB, ACF, ACXM, CBT, CNS, FDC, FIC, NFLX, RYL, SYMC}

^{Thursday, January 25}

^Economic

^{8:30     Initial Jobless Claims (1/20): 308k cons.}

             ^{Continuing Claims (1/13): 2488k cons.}

^{10:00    Existing Home Sales (Dec.): 6.26 mln cons.}

             ^{Help Wanted Index: 31.0 cons.}

^{10:30    EIA Petroleum Status Report}

^{11:00    3-Month T-bill Announce.}

             ^{6-Month T-bill Announce.}

^{13:00    5- Year T-note Auction}

^{16:30    Money Supply}

                                                                                                 ^Earnings

^{Before Open: ABI, ACV, ADVNA, AGR, ALK, AHM, BEBE, BTU, BZH, BDX, BJS, BMS, BMY, CAH, CHIC, CPWR, DHR, DJ, DOW, ELX, F, FCS, GWW, IMCL, LEA, LMT, MHP, MSFT, NOK, NUE, OXY, PII, SI, SPWR, STJ, SU, T, TSG, UNP}

^{After Close: AF, AMGP, AMP, EMN, FMD, FRNT, LEG, LSCC, MCK, MEE, SCSC}

^{Friday, January 26}

^Economic

^{8:30    Durable Goods Orders (Dec.): 3.5% cons.}

           ^{Durables Ex. Transportation (Dec.): 0.5%}

^{10:00   New Home Sales (Dec.): 1053k cons.}

^Earnings

^{Before Open: AAI, AIN, ATE, CAT, CDWC, CCUR, CRS, FO, FPL, HAL, HCR, HON}

^{After Close: EEP}

II.               General Market Overview

The major market indices closed the week relatively unchanged despite post earnings report price weakness in IBM, Apple Computer and Intel.  While the earnings reports from the aforementioned companies were not disappointments, the market reaction to these earnings reports was indeed discouraging.  The decline in price of these issues is another example of expectations getting ahead of the marketplace.  The short term price action may be painful, but at this time the longer term bullish trends remain in IBM and Apple Computer.

Last week we raised our opinion from neutral to buy weakness on the Brokerage and Semiconductor groups. The Brokerage group continues to look technically strong, continue to buy on any extreme weakness.  Goldman Sachs (GS-210.29), Morgan Stanley (MS-81.50) and Merrill Lynch (MER-95.87) are the issues that we prefer.

We were very disappointed in the price action of the Semiconductor group last week.  We must respect the technical patterns here, therefore, just one week after upgrading our view on the Semiconductor group from Neutral to Buy, we are moving back to a neutral stance. Our work is indicating further near term price weakness in INTC, AMAT, SNDK, NVLS and ADI. At this time we would reduce long exposure in this space.

The Homebuilding group (XHB-37.43) refused to decline despite negative news last week from Centex (CTX-53.50) and Pulte Homes (PHM-33.96).  A sector that does not decline on bad news is sending a message.  This sector could be setting up for a potential short squeeze price appreciation.

 The Pharmaceutical area continues to perform admirably. Merck (MRK-45.60) and Pfizer (PFE-27.22) appear poised to work higher.  Abbott Labs (ABT-53.52) is beginning to look extended on the upside, long positions should now tighten up sell stops in Abbott.  We have a long position in Johnson & Johnson purchased on 1/10/07 at 66.20 (JNJ-67.76), take note that JNJ will report earnings on January 23.  Our protective sell stop remains at 64.60.

The Railroad sector is signaling near term price strength.  Companies in the group that we believe can now be purchased on price dips are Burlington Northern (BNI-77.93), CSX (CSX-35.73) and Norfolk Southern (NSC-52.98).

We continue to like the technical pattern of the Internet Index (HHH-53.53). Traders should take note that EBAY reports earnings this week.  This event will certainly increase the price volatility of the HHH.

Take note that the VIX-10.40 (CBOE Volatility Index) increased from a reading of 10.15 the previous week. This reading continues to hover at a historically low level reflecting investor complacency.

III.           GOLD

GLD (streetTracks gold index) – We continue to remain on the sidelines in the GLD-63.00. 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

While this new year has not been kind to investors in the Energy sectors, we are beginning to see indications that the near term sharp price declines have run their course.  In particular, we believe that traders should now begin to accumulate shares in select companies in the Natural Gas and Coal sectors.  In the Natural Gas group we would begin to accumulate El Paso (EP-14.89) and Chesapeake Energy (CHK-28.96).  Coal companies, Arch Coal (ACI-29.08), Peabody Energy (BTU-40.83) and Massey Energy (MEE-23.52) are flashing weekly buy signals.

There are two companies in the Oil Service space that we feel can now be purchased on weakness.  The weekly charts are indicating that Schlumberger (SLB-61.00) and ENSCO International (ESV-49.30) reduced chances of further declines.

V.               Dow 30 Analysis

Our Weekly Trend Indicator (WTI) measures in at +6, an increase from the previous week reading of +2. The Dow Jones Industrial average finished the week little changed at 12,565.53, + 9.45.   Our weekly support level for the DIA-125.55 (Dow Industrial Diamonds) will remain at 123.52.   A weekly close below 123.52 will raise warning flags for the DIA.   The five strongest chart patterns in the Dow 30 are the following; DIS, HD, HON, MCD, and MO.  The weakest chart patterns in the Dow-30 are as follows, CAT, KO and UTX.

Dow 30 stocks with positive weekly signals:

AA, DD, DIS, GM, HD, HON, HPQ, JNJ, JPM, MCD, MMM, MO, MRK, MSFT, PFE, PG, T, WMT

Dow 30 stocks with negative weekly signals:  AIG, AXP, BA, C, CAT, GE, IBM, INTC, KO, UTX, VZ, 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.