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1/29/07
I. General Market Overview
It seems that this current earnings reporting season has placed the stock market in a nasty, choppy mood. Over the past two weeks the markets have displayed a unique ability to punish what can be characterized as “crowded rooms”. We shall define “crowded rooms” as areas of the stock market which have become over bought or over sold due to a multitude of short term bets (options, hedgefunds) placed prior to a company reporting earnings. Examples of “crowded rooms” would be the recent corrective price action in stocks of companies that have seen significant price appreciation in advance of an earnings report. One need only look at the chart patterns of AAPL and IBM to understand what we are trying to convey. Both AAPL and IBM had significant short term declines despite solid earnings reports. “Crowded rooms” are also appearing on the short side of the market. A tepid, at best, earnings report from Texas Instruments (TXN) was greeted by an estimated ten percent increase in the price of the stock. It appears that too many “players” had bet on the short side. Other recent examples would include the upward price movement in Caterpillar (CAT) and the homebuilding stocks. Where might this week’s “crowded room” reside ? The shares of Google (GOOG-495.84) and Procter Gamble (PG-64.86) are displaying the characteristics of being crowded on the long side. Pay close attention to the price action in these issues this week.
Our technical work this weekend has produced a 3 to 1 ratio of negative weekly signals to ones of a positive nature. It is apparent that the equity market is finally beginning to take notice of the recent nine week slide in the bond market. This week we have an FOMC (Federal Open Market Committee) meeting. It is our opinion that this “data dependant” Federal Reserve will say very little to clarify the current uncertainty as to the future direction of interest rates. Uncertainty is never kind to the markets.
The Homebuilding group (XHB-36.73) upward price momentum stalled just one day after a Goldman Sachs upgrade (Sell to Neutral) of the sector. Just last week this column mentioned the unusual strength of the Homebuilders despite rising interest rates and several negative earnings forecasts from companies within the group. Price action of this nature certainly makes one suspicious as to the nature of the Goldman Sachs upgrade of the sector.
The Pharmaceutical area is beginning to show signs of a pause. Abbott Labs (ABT-52.55) 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-66.07). We were disappointed by the post earnings report price action in the shares of JNJ last week. Our protective sell stop has been raised to 65.79.
We continue to like the technical pattern of the Internet Index (HHH-54.52). Traders should take note that GOOG reports earnings this week. This event will certainly increase the price volatility of the HHH. If long the HHH, we would place a protective sell stop at the 52.29 level.
Take note that the VIX-11.13 (CBOE Volatility Index) increased from a reading of 10.40 the previous week. This reading continues to hover at a historically low level reflecting investor complacency.
II. GOLD
GLD (streetTracks gold index) – We continue to remain on the sidelines in the GLD-64.10. It has been our view that the GLD has been stuck in a trading range. The GLD is now testing the upper end of a ten dollar trading range (55.00-65.00). Any weekly close above the 65.00 price level will signify higher prices. A failure at 65.00 will indicate a pullback to the 60.00 level. We shall be watching closely.
III. Energy
We continue to prefer the Natural Gas and Coal areas of the Energy complex. Coal companies BTU-40.35 and MEE-24.00 are showing indications of strength after enduring substantial price corrections. Coal producer Arch Coal (ACI-29.31) is due to report quarterly earnings this week. The weekly technical patterns of Natural Gas companies El Paso (EP-15.33), Chesapeake Energy (CHK-29.00) continue to look attractive. The Oil Service sector remains at best, a mixed, blurry picture. The chart patterns of Schlumberger (SLB-62.65) and ENSCO (ESV-49.38) appear the most constructive.
IV. Dow 30 Analysis
Our Weekly Trend Indicator (WTI) measures in at -6, a decrease from the previous week reading of +6. The Dow Jones Industrial average declined for the week to 12,487.02, - 78.51. The weekly support level for the DIA-124.77 (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; AA, GM, MO, PG, and T. The weakest chart patterns in the Dow-30 are as follows, AIG, GE, and KO. Readers should take note that seven Dow Industrial components report quarterly earnings this week, BA, MMM, MO, MRK, PG, VZ, and XOM.
Dow 30 stocks with positive weekly signals:
AA, CAT, GM, HD, JPM, MMM, MO, MRK, PG, T, UTX, VZ
Dow 30 stocks with negative weekly signals: AIG, AXP, BA, C, DD, DIS, GE, HON, HPQ, IBM, INTC, JNJ, KO, MCD, MSFT, PFE, WMT, XOM
* Underline names have changed from previous week*
V. OPEN POSITIONS
JNJ- 1/10/07 Long @ 66.20 sell stop raised to 65.79
VI. Key Events in the Week Ahead
Monday, January 29
Economic 11:00 4-Week T-bill Announce. 13:00 3-Month T-bill Auction 6-Month T-bill Auction
Earnings
Before Open: ACTU, ATHR, BHLB, CMI, GNSS, GNTX, HTLF, ICUI, KRON, LDIS, MAT, MBHI, MOGA, MOS, NETM, OCENY, ONB, PD, RDWR, SGP, SPIL, SVVS, SYY, TDK, THG, TSN, TSO, USG, VASC, VLI, VZ
After Close: CAJ, CNET, CNW, COOL, CR, CX, FCTR, GYI, IFX, JDAS, NMR, OLN, PCL, RE, RGA, SLG, SPSN, XPRSA, UDR, UNM, VLTR, ZMH
Tuesday, January 30
Economic 7:45 ICSC-UBS Store Sales 8:55 Redbook 10:00 Consumer Confidence (Jan.): 110.0 cons. 13:00 4-Week T-bill Auction 14:30 FOMC meeting begins 17:00 ABC Consumer Confidence (1/28):-3.0 prior
Earnings
Before Open: AEP, ADPT, AMLN, AXE, BDK, BKC, CFC, CL, CME, CP, ETR, FLEX, FSRV, IEX, IFF, ITW, JBLU, K, KEYS, LCC, LXK, MMM, MRK, NWL, PBG, PG, SAF, SII, SNE, SSP, UPS, WFT, WYE, X
After Close: ACE, AFL, ALL, AMCC, BXP, CB, CHRW, COA, CTS, HAFC, JNPR, RBAK, SNDK
Wednesday, January 31
Economic 7:00 MBA Mortgage Applic. (1/26) -8.4% prior 8:30 Employment Cost Index (4Q): 1.0% cons. GDP Annualized (4Q): 3.0% cons. Personal Consumption (4Q): 4.0% cons. GDP Price Index (4q): 1.7% cons. 10:00 Construction Spending m/m (Dec.): 0.0% cons. 10:30 EIA Petroleum Status Report 11:00 3- Year T-note Announce. 10- Year T-note Announce. 14:15 FOMC Announcement: 5.25% cons.
Earnings
Before Open: AL, AGN, ADS, BA, BOT, CEG, CRUS, D, EL, EK, FDRY, FISV, GILD, GOOG, HES, HLT, HMC, JDSU, KFT, LLL, LLY, MO, NYT, PEG, SEPR, SLAB, TWX, XEL
After Close: AH, AVB, CAI, EFX, HPC, PHM, SRX, SBUX, SUN, VMC, VRSN, VSGN, WU
Events:
FOMC meets at 9:00 on Interest Rates/ Economy
Thursday, February 1
Economic 6:00 Monster Employment Index 7:30 Challenger Job-Cut Report y/y (Jan.):-49.3 prior 8:30 Initial Jobless Claims (1/27): 318k cons. Continuing Claims (1/20): 2484k prior Personal Income (Dec.): 0.5% cons. Personal Spending (Dec.): 0.7% cons. PCE Deflator y/y (Dec.): 2.1% cons. PCE Core m/m (Dec.): 0.2% cons. PCE Core y/y (Dec.): 2.2% prior 10:00 ISM Manufacturing Index (Jan.): 51.4 cons. ISM Prices Paid (Jan.): 47 cons. 10:30 EIA Natural Gas Report 11:00 3-Month T-bill Announce. 6-Month T-bill Announce. 12:00 Chain Store Sales 16:00 Total Vehicle Sales (Jan.): 16.6 mln cons. Domestic Vehicle Sales (Jan.): 12.7 mln Cons. 16:30 Money Supply
Earnings
Before Open: AFOP, AGU, ALEX, AMSC, AMZN, APA, ASD, ASN, ATG, BSX, BUD, CELG, CLX, CMCSA, CVS, DB, EGHT, EOG, GR, GTW, HOT, MNST, MRO, MUR, MYL, NSANY, ONNN, PDC, PPL, RACK, RDS, RTN, SNA, TRH, UA, VLO, XOM
After Close: ACCL, ACTL, ADVS, AIN, AMK, ASCA, BHS, CA, ERTS, GNW, INSP, IWOV, MIL
Friday, February 2
Economic 8:30 Non Farm Payrolls (Jan.): 150k cons. Unemployment Rate (Jan.): 4.5% cons. 10:00 U. of Michigan Confidence: 97.8 cons. Factory Orders (Dec.): 1.0% cons.
Earnings
Before Open: ACPW, AXL, ACI, CAM, COT, CVX, GCI, HMY, HPOL, ITT, NYX, OSK, R, RSG, SPG, THQI, WEN
After Close: BAB, ERIC, VOLV
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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. |
