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2/05/07
Archived Letters
Note: Event Calendar has been
moved to bottom of page
I.
General Market Overview
The major stock market indices staged an
impressive rally last week fueled by encouraging rhetoric from the Federal
Reserve and mild inflationary readings. The financial media is once again
firmly in the camp that the U.S. economy is headed for a “soft landing”. Can
the economic news get any better? Has the “wall of worry” suffered the same
fate as the wall in Berlin? Is the market currently priced to perfection? It
is our opinion that the Federal Reserve must continue a “high wire” balancing
act. While they must remain vigilant on the inflation front, the Federal
Reserve can not let a tired consumer experience continued home equity
deflation. It was reported last week that the U.S. consumer savings rate is now
a negative 1.0%. A reading such as this has not been seen since the depression
era of the 1920’s. I would not want to be in Fed Chairman Bernanke’s shoes.
These concerns being noted, the general market trend of the major indices
remains to the upside until proven otherwise.
The Homebuilding group (XHB-39.70) which we
identified two weeks ago in this column as a potential short squeeze set up, now
appears to be in the over bought stage. Long positions should dramatically
tighten protective sell-stops at current price levels.
The large cap Pharmaceutical area is beginning
to show signs of a pause. The weekly charts of Pfizer, Merck, Wyeth and Johnson
& Johnson are indicating near term weakness. We have decided to exit our long
position in Johnson & Johnson purchased on 1/10/07 at 66.20 (JNJ-66.07). The
long position in JNJ was sold on 1/31/07 at a price of 66.98 for a gain of 1.1%.
We continue to like the technical price action
in the Brokerage and Managed Healthcare sectors. Readers should take note that
several managed healthcare companies report earnings this week. We will have
our eyes focused on the shares of Humana (HUM-57.32). The chart appears poised
for a significant move.
The Brokerage group shares that are preferred at
this time are those of Goldman Sachs (GS-213.43) and Morgan Stanley (MS-84.04).
Take note that the VIX-10.08 (CBOE Volatility
Index) decreased from a reading of 11.13 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-64.28. 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-42.02 and MEE-23.86 are showing
indications of strength after enduring substantial price corrections. Coal
producer Arch Coal (ACI-31.20) reported poor earnings coupled with weak forward
guidance, yet the shares advanced approximately 6% on the week. WATCH STOCKS
THAT RISE ON BAD NEWS !!!
The weekly technical patterns of Natural Gas
companies continue to be positive. At this time we believe one can buy any
price weakness in the shares of El Paso (EP-15.60) and Chesapeake Energy
(CHK-29.46).
The Oil Service sector (OIH-138.20) has
rebounded to essentially unchanged after enduring a ten percent decline in the
first two weeks of 2007. The shares of Halliburton (HAL-29.75) are appearing on
our radar as a low risk long at these levels. We have instituted a long
position in HAL on 1/31/07 at a price of 29.54. Our protective sell stop is
27.90.
IV.
Dow 30 Analysis
Our Weekly Trend Indicator (WTI) measures in at
-4, a small increase from the previous week reading of -6. The Dow Jones
Industrial average advanced for the week to 12,653.49, +166.47. The weekly
support level for the DIA-126.53 (Dow Industrial Diamonds) has been raised to
124.77. A weekly close below 124.77 will raise warning flags for the
DIA. The five strongest chart patterns in the Dow 30 are the following; AA,
GM, HD, JPM and T. The weakest chart patterns in the Dow-30 are as follows,
AIG, AXP, GE, and MMM.
Readers should take note that Dow Industrial
component Disney (DIS) is due to report quarterly earnings this week.
Dow 30 stocks with positive weekly signals:
AA, BA, CAT, GM, HD, HON, INTC,
JPM, PG, T, UTX, VZ, XOM
Dow 30 stocks with negative weekly signals:
AIG, AXP, C, DD, DIS, GE, HPQ, IBM, JNJ, KO, MCD, MMM, MO, MRK,
MSFT, PFE, WMT
·
Underline names have changed
from previous week*
V.
OPEN POSITIONS
Long
HAL@29.54 purchased 1/31/07 (sell
stop 27.90)
VI.
CLOSED TRADES
JNJ- 1/10/07 Long @ 66.20 / exit 1/31 @ 66.98
gain of 1.1%
VII.
KEY EVENTS IN THE WEEK AHEAD:
Monday, February 5
Economic
10:00 ISM Manufacturing
Survey (Jan): 57.0 cons
11:00 4- Week T-bill Announcement
13:00 3- Month T-bill Auction
6- Month T-bill Auction
Earnings
Before:
AMBD, AGII, AGYS,
APC,
ASX, ATRS, AVGN, BEAV, CCOW, CFFN, CRNT,
CTSH,
GOKD, HERO, HEP, HEW,
HUM,
IKAN, IPS, KLAC, KRC, LPTH, NIS, OSTK,
PBI,
PCH, PKY, PMI, QSII, RBC, RCL, RDCM,RYAAY,
TIN,
TZIX, VOCS
After:
ARXX, AXS, BLG, BLKB, BRS, CUZ, ESE, EW, FCTR, FNF, GRP, IRN, LRY, LVS, MNT,
NAVR, NFG, NUAN, OTTR,
PFG,
PRE, PPDI, PLMD, PPS, RCII, SCA, SOHU, SXE, TNB, UFPI, WMS
Events
Credit Suisse Group Energy Summit
Leerink Swann & Company Diabetes Roundtable Conference
Merrill Lynch 11th India Investor Conference
Environmental Finance Bio energy Europe Conference
Global Pacific & Partners 12th Asia Upstream 2007
5th Annual Bio Partnering North America Conference
SRI India Pharmaceutical Global Summit
SEMI ISS Europe 2007
America's Growth Capital 3rd Annual Information Security Conference
MARHedge 12th Annual European Conference On Alternative Investments
Gartner Wireless & Mobile Summit
AeA Texas Technology Week
RSA Conference 2007
SEMI Vision Summit
Tuesday, February 6
Economic
7:45 ICSC-UBS Store Sales
8:55 Redbook
13:00 4- Week T-bill Auction
3- Year T-note Auction
15:00 Treasury STRIPS
17:00 ABC Consumer Confidence (2/4): -3.0 prior
Earnings
Before:
ABCO, ACEC,
ADP,
ARTG, AUDC, AVNX, AVP, AWRE, BHE, BBBB, BOBJ, BOW, BP, BRKS, CACS, CE, CGEN,
CHD, CNC,
CSCO,
COWN, DANKY, DTC,
DUK,
DWSN, ELON, ELNK,
EMR,
GHDX, HB, HBP,
IACI,
IAS, IIG, ISE, IT, IVAC, JOE, JRC, KBALB, KNM, KPN, KSU, KUB, LFUS, LIOX, LPX,
LTC, MAXY, MEDW, MFLO, MM, MNI, MPP, MYGN, MZT, NIPNY, NOOF,
NOV,
OHI, PDFS, PBH, PEC, PER, PNR, PRCP, PRS, PSD, PV, RAH, RATE, SPAB, SUMT, SWS,
TE,
TM, TWTR,
TYC,
TZOO, UMC, USNA, USS, VFC, VLNC, VSH, WF,
WWY
After:
ACLI, ACTS, ATO, ATW, AZPN, BOOT, CAKE, CBG, CCJ, CELL, CPII, CSC, DIOD, DRCT,
ECOL, EXBD, FEIC, FFG,
FIS,
FMC, GCOM, GLAD, GTY, HMN, IPAS, KFRC, LPNT,
LNC,
MFLX, MPG,
NBR,
NLC, OCPI, PLNR, RENT, RMD, RNR, SGEN, SNCR, SPCHB, TPP, WEDC, WIRE,
XL,
XRAY
Events
Fed's Paulson testifies at 10:00 on budget at
House Way and Means Committee
Fed's Moskow speaks at 1:00 at Chicago Planning
Summit
Fed's Bernanke speaks at 1:30 to Omaha, Nebraska
Chamber of Commerce
Fed's Paulson testifies at 2:45 on '08 budget at
Senate Finance Committee
Fed's Yellen speaks at 3:30 in Los Angeles on
Asian Financial Crisis
Merrill Lynch Global Pharmaceutical, Biotechnology and Medical Device Conference
Credit Suisse Group Energy Summit
Lehman Brothers Industrial Select Conference
JPMorgan Asia Pacific Tech Conference 2007
Merrill Lynch 11th India Investor Conference
Environmental Finance Bioenergy Europe Conference
Global Pacific & Partners 12th Asia Upstream 2007
IPAA Small Cap Oil & Gas Investment Symposia
Informed Investors Telecommunications On-line Forum
5th Annual Bio Partnering North America Conference
SRI India Pharmaceutical Global Summit
2007 Florida Venture Capital Conference
SEMI ISS Europe 2007
Credit Suisse Smaller Companies Conference
MARHedge 12th Annual European Conference On Alternative Investments
Gartner Wireless & Mobile Summit
AeA Texas Technology Week
NACC Hellenic/Norwegian-American Joint Shipping Conference
RSA Conference 2007
SEMI Vision Summit
Wednesday, February 7
Economic
7:00 MBA Mortgage Applications (2/2): 3.2% prior
8:30 Non Farm Productivity (4Q P): 1.8% cons
Unit Labor Costs (4Q P): 2.4% cons
10:30 EIA Petroleum Status Report
11:00 10- Year T-note Announcement
15:00 Consumer Credit (Dec): $6.0 bln cons
Earnings
Before:
ABD, ABY, AEIS, AHG, AKAM, ALKS, ALVR,
AN,
APOL,
ARXT, ASPM, ASPV, ATMI, AUO, BCE, BHP, CACH,
CI,
CINF,
CKSW, CLAY,
DF,
DTLK,
DTV,
DVN,
ENWV, EQIX,
EQR,
GNA, GGB, HNI, ICE, IDEV, INFS, INNO, KB, LAZ, LOOP, LQDT, LZ,
MCO,
MDCI,
MEDI,
MKTX, MPX, MX, NJR, NRGP, NRGY, NUS,
NWS,
OHB, ORCT, OSIS, OYOG, PHON, POWL, PXD, RES, RL, ROL, SCSS, SEO, SKYW,
SLE,
SNWL, SON, SRCL, TKR, THI, TWTC, VCI, VNDA, WEC, WFBC,
WHR
After:
ACL, AEA, AFFX, AINV, AIZ, AMX, AMKR, APKT, ASTSF, BGC, BRW, CENT, CTLM, CYTC,
DEL,
DIS,
EDS,
EICU, UHAL, ENH, ESS, GDI, HHGP, HTGC, ICO, IIJI, IOSP, ISLN, JH, JKHY, KNL,
LMNX, MANH, MOGN,
MXIM,
NLS, PACR, PL,
PRU,
PWER, RTEC, RVBD, SHO, SINA, TCO,
TMK,
TRMP, TSYS, TTEC, ULTI, UTI, UVV, WHG, WLT, WSPI, WSH, WXS, YDNT
Events
Fed's Plosser speaks at
8:15 on Economic Outlook in Philadelphia
Fed's Paulson defends
Bush's financial plan at 10:00 at House Budget Panel
Merrill Lynch Global Pharmaceutical,
Biotechnology and Medical Device Conference
Credit Suisse Group Energy Summit
Credit Suisse Group Financial Services Forum
Friedland Capital Life Sciences Conference
Credit Suisse 2007 Disruptive Technology Conference
Lehman Brothers Industrial Select Conference
RBC Dain Rauscher 2007 Northwest Investor Conference
JPMorgan Asia Pacific Tech Conference 2007
Merrill Lynch 11th India Investor Conference
IPAA Small Cap Oil & Gas Investment Symposia
SRI India Pharmaceutical Global Summit
2007 Florida Venture Capital Conference
MARHedge 12th Annual European Conference On Alternative Investments
Gartner Wireless & Mobile Summit
Gabelli & Company 17th Annual Pump Valve & Motor Conference
FT Ukranian Financial & Corporate Growth Summit
AeA Texas Technology Week
RSA Conference 2007
WBI 23rd Investor's Choice Venture Capital Conference
EEI Strategic Issues Roundtable
ACG Capital Connection 2007
Knight Institutional Corporate Access - Nova Biosource Fuels Inc (NVBF) One on
One Meetings
Thursday, February 8
Economic
7:00 BOE Announcement
7:45 ECB Announcement
8:30 Initial Jobless Claims (2/3): 310k cons
Continuing Claims (1/27): 2490k prior
10:00 Wholesale Inventories (Dec): 0.6% cons
10:30 EIA Natural Gas Report
11:00 3- Month T-bill Announcement
6- Month T-bill Announcement
12:00 Chain Store Sales
13:00 30- Year T-bond auction
16:30 Money Supply
Earnings
Before:
ABN, ACET, ACTI, ADEP, AEC,
AET,
AIV,
ALV, AMRN, BAK, BDC, BEC, BECN, BG, BIVN, BLC, BORL, BRG, BRLC, BT, BUH, BWA,
CHUX, CGT, CNMD, COGO, CRTX, CRVL, CSL, CXW, CVGI, DCP, DJO, DO, DRAX, ECTX,
EDMC, EMS, ENS,
EQ,
ESRX,
FLIR, FUN, GCA, GSK, GTW, HNT, HOFT, IBAS, ICI, ICOC, INFI, IPCC, IVNSY, IX,
LENSD, LII, LNT, LVLT,
MAR,
MDTH, MGAM, MGPI, MLEA, MLM, MLNM, MMS, MNC, MPAC, MPS, MSW, NAPS, NVT, NFX,
OCAS, OIS, OMTR, OTEX, PENN,
PEP,
PHTN, PMTI, PSS, PXSL,
Q,
RAIL, RGC, RGEN, ROCK, ROLL, RVSN, SBH, SFY, SLX, SMA, SMMX, SNMX, SPH, TBL,
TMO,
TOC, TQNT, TRA,
TRB,
TWW, UN, UL, VTNC,
WIN,
WMG,
WMI,
WVCM, WW, XIDE
After:
AATI, ADAT, ADVO, AGO, ANDE,
AOC,
ATARD, ATR, AXCA,
AYE,
BAP, BER,
BMC,
BRCM,
CALL, CBL, CCI, CDIC, CF, CLRK, CORI, CPT, CSTR, CVTX, CW, DRIV, DRRX, ELY, ENER,
EPAX, GB, GHCI, IN, INDM, INPH, INTZ, ITMN, KAR, LPSN, LTRX, MFE, MTD, NEW, NFS,
OO, PNRA, PTIX, SBN, SIMG, SLTC, SNN, SPC, SPRT, SRVY, THRX, TUNE, UNTD, ZONS
Events
Merrill Lynch Global Pharmaceutical, Biotechnology and Medical Device Conference
Credit Suisse Group Energy Summit
Credit Suisse Group Financial Services Forum
Credit Suisse 2007 Disruptive Technology Conference
Lehman Brothers Industrial Select Conference
Merrill Lynch 11th India Investor Conference
IPAA Small Cap Oil & Gas Investment Symposia
Informed Investors Precious Metals & Mining On-line Forum
American Stock Exchange First Annual Healthcare Investor Conference
Gabelli & Company 17th Annual Pump Valve & Motor Conference
BMO Capital Markets 2007 Infrastructure Conference
RSA Conference 2007
WBI 23rd Investor's Choice Venture Capital Conference
EEI Strategic Issues Roundtable
GTCbio 4th Cancer Drug Research and Development
Friday, February 9
Economic
9:00 RBC Cash Index
Earnings
Before:
ABR, AIXD, ALU, APLX, AVNR, BCA, BPO,
CVH,
DBRSY, DRS,
HAS,
LUM, MA, NNI,
PGL,
PT, SCG, SGU, SIRO, WLSC,
WY
After:
CPST, LGF
Events
Fed's Poole speaks at 9:00
to Management Association in St. Louis
Credit Suisse Group Energy Summit
Credit Suisse Group Financial Services Forum
Credit Suisse 2007 Disruptive Technology Conference
Merrill Lynch 11th India Investor Conference
BMO Capital Markets 2007 Infrastructure Conference
RSA Conference 2007
EEI Strategic Issues Roundtable
GTC bio 4th Cancer Drug Research and Development
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