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4/23/07
Note: Event Calendar has been moved to bottom of page
I. General Market Overview
The major U.S. stock market indices continued to push higher last week despite a similar news event that sent the markets into a tailspin only eight weeks ago. The news that first quarter GDP growth in China was greater than anticipated caused a brief pause in the U.S. stock market. But as has been the case over the past month or so, the markets quickly digested a negative news event and resumed the charge to new recovery highs. There are several factors which we believe are contributing to this “bulletproof” market. First being record levels of short interest on the New York stock exchange. It appears that the February market swoon emboldened many a market bear (yours truly included) to increase their downside positions. With the clarity of hindsight, it is quite obvious that the “crowded trade” was on the downside. Also contributing to recent strength were several positive earnings reports from the banking sector that curiously seems immune from mortgage default fever. Another factor to consider is “private equity”. The emergence of these investment powerhouses has created a “leveraged buyout” boom not seen since the junk bond days of Drexel Burnham and Michael Milkin.
The recent market surge has tempered our admittedly bearish stance. We must respect the price action of the markets. At this time the majority of technical trends are pointing northward. We have been stopped out of our short positions but are reluctant to join the “raging bull” camp. It is our opinion that the current upside rewards do not outweigh the significant downside risks associated with entering long positions at current price levels.
The market sectors that we follow that have positive weekly momentum are energy, steel, large cap pharma, railroads, brokers, financials, telecom, semiconductors and transportation. Sectors that currently have negative weekly momentum include the builders, internet, and retailers.
Take note that the VIX-12.07 (CBOE Volatility Index) decreased from a reading of 12.20 the previous week. This is a rather small decrease considering the magnitude of the stock market rally in the previous week. It continues to be our opinion that the extended period of low volatility has come to an end and that investors should be prepared for violent market moves in either direction.
II. GOLD
GLD (streetTracks gold index) – The GLD-(68.70) advanced $0.86 for the week. The yellow metal continues to grind higher as the U.S. dollar remains under pressure. The weekly technical picture points to a retest of the May 2006 highs. This would translate to a short term target of 71.00-72.00 price for the GLD.
III. Energy
Strength in the energy sectors (Oil, Oil Service, Coal and Natural Gas) continued last week even as the price of crude oil declined modestly. After a rough start to the new year, the energy complex as a whole has performed quite admirably. This week we anxiously await the market reaction to several first quarter earnings reports that are due from such energy stalwarts as Exxon Mobil, Chevron Texaco, Valero, Conoco Philips and Haliburton. Could expectations actually be ahead of themselves in this sector? We shall soon see.
IV. Dow 30 Analysis
Our Weekly Trend Indicator (WTI) measures in at +24, an increase from the previous week reading of +18. The Dow Jones Industrial average advanced 2.78% for the week to 12,962.71 +350.71. We were stopped out of our short trade in the DIA-129.57 on 4/16/07 at 127.20 for a loss of 1.6%. It is quite apparent that our bearish bet was the incorrect one, but we have limited our loss by respecting the current price action. While this recent recovery rally has been impressive, we are reluctant to join in at what we believe to be currently overbought price levels.
Readers should take note that six Dow components are due to report quarterly earnings this week. The list includes: BA, DD, MMM, MSFT, T, and XOM.
Dow 30 stocks with positive weekly signals:
AA, AIG, AXP, BA, C, CAT, GE, GM, HD, HON, HPQ, INTC, JNJ, JPM, KO, MCD, MMM, MO, MRK, MSFT, PFE, PG, T, UTX, VZ, WMT, XOM
Dow 30 stocks with negative weekly signals: DD, DIS, IBM
· Underline names have changed from previous week*
V. OPEN POSITIONS
NONE
VI. CLOSED TRADES
UNH- 2/27/07 Long@51.80 / exit 3/15/07 @ 54.00 gain of 4.2% MO- 3/13/07 Long@ 85.00 / exit 3/14/07 @ 83.85 Loss of 1.3% JNJ- 1/10/07 Long@ 66.20 / exit 1/31/07 @ 66.98 gain of 1.1% HAL-1/31/07 Long@ 29.54 / exit 2/23/07@ 31.70 gain of 7.3%. AXP-2/23/07 Long@57.90 / exit 2/27/07@ 55.90 Loss of 3.45% DIA-4/3/07 Short@125.18/ exit 4/16/07@127.20 Loss of 1.6%
2007 NET RESULTS ASSUMING EQUAL DOLLAR AMOUNT INVESTED IN EACH TRADE: 5 trades, net return of + 6.25%
VII. KEY EVENTS IN THE WEEK AHEAD:
Monday, April 23
Economics
11:00
4-Week T-bill Announcement
Earnings
Before:
ACI, BOH, CNH, GNTX,
HAS,
HSC, KNSY, KMB, LEE,
LLL,
MDU, NVS, PVTB, ROH, SIFY, SNV
Events
Fed's Paulson discusses Social Security,
Medicare Trustees Report at 3:15
Tuesday, April 24
Economic
7:45
ICSC-UBS Store Sales
Earnings
Before:
AKS, AL, ARTG, ARW, ASTE, AUO, AVA, AVY, AXE, BHE,
BJS,
BLDP, BNI, CDWC, CME, CNC,
COH,
CP, CPO, CPS, CSL, DD, DLX, ECL, ELN, ENR, ESV, ETH, FMER, FRX, GAP, HMA, ICLR,
IIVI, IONA, IPS,
JBLU,
JEC, JRN, KCI, KELYA, KRC, LII,
LMT,
LXK,
MHP, MICC, MNI, MTCT, MWRK, NOC, OMC, OMCL,
OXY,
PAS PBG, PCAR, PCZ, PH, PNR, POS,
RJF,
RYN, SEPR, SFI, SLM, STFC, STTX,
T,
TLAB, TRAD, USAP, USG, WAT, WHR,
X
Events
ACB 2007 Bank Sales and
Marketing Conference & Marketplace
Wednesday, April 25
Economic
7:00
MBA Mortgage Applications (4/20): -2.5% prior
Earnings
Before:
AAI, ABC, ABFS, ABK, AMG, APD, APU, ASH, ASPM, ATMI, AVX,
BA,
BDK,
BDX, BHI, BUD, CEG, CFR, CL,
COP,
DBD, DOV, DTLK, ECA, EXC, EXR, EYE, FCX, FRZ, GD, GENZ, GLS GLW, HCR,
HES,
HST, IHP, ISE, KEA, KMT, LCRY, LEA, LIFC, LPX, MCO, MDP, MPX, NCX, NSC, NYB,
OMM, OSTK, PDS,
PEP,
PFCB, PMTC, PNW, PX, R, RAI, RES, RGS, RTN, SEE, SLAB, SMMX, SNWL, SPIL, SSP,
TASR,
TDY, TIN, TROW, UAUA, UIS, UGI, UPS, WDR,
WFT,
WLP, XEL, XTO
Events
Fed's Bernanke gives welcome welcome remarks at
financial literacy event at 10:00
8:30
Initial Jobless Claims (4/21): 330k cons Earnings
Before:
AACC, ABI, AEP,
AET,
AGIX, ALGN, ALK, ALV, AN,
APA,
ARLP, ASVI, AVT, AZN, BC, BDC, BEN, BG, BLC, BLL, BMS,
BMY,
BOW, BW, BWA, BYD,
BZH,
CAH, CBR, CCBL,
CCE,
CCMP, CDI, CEN,
CFC,
CHIC, CHKP,
CMCSA,
CNMD, CNX, COT, CRR, CTV, CVG,
CY,
DADE, DO, DDE, DO,
DOW,
DSPG, EEE, EEEE, EGN, ELNK, ELON, EMCI, EME, ENDP, EPR, ERIC, ESI, ETR, EXAR,
F,
FLWS, FO, FSS, FSTR, GBBK, GGL, GHL, GPI,
GR,
GVHR, HAL, HET, HOT, HUB, HZO, ICON, ICTG, IDC, IKN, IMCL, JAH, JAKK, JNS, KDN,
KEI, KSU, KSWS,
LCC,
LECO, LH, LKQX, LTM, LYTS, LYO, MBI, MEH, MESA, MGLN, MHO, MKSI, MLNM,
MMM,
MNC,
MNST,
MOBI, MPS, NAFC, NCI, NCR, NDE,
NEM,
NFX, NIHD, NJR, NRF, NWN, NWL, NYX, OCR, ODFL,
ODP,
OVRL, PCCC, PCH, PENN, PLUG, PMTI, PNCL, POT, PTRY, QLTI, RESP, RGC, RHD, ROK,
SCG, SFUN, SLGN, SO, SPWR, SSYS, SU, SY, SYPR, TBL, TDW, TEN, TKR, TMO, TOC,
TRA, TSCM,
TSM,
UST, VDSI, VIGN, VLO, VTNC, WAB, WMAR, WST, WRLD,
XMSR,
XOM,
ZOLL
Events
Fed's Mishkin Speaks on globalization at 12:30
at IMF in Washington
Friday, April 27
8:30
GDP Annualized (1Q A): 1.8% cons
Before:
AT, AXL, BKC, BPO, CAM, CLS, CMI, CRDN, CRS, CTMC, CVGI, CVH, CVX, ENDP, FLIR,
GEHL, GAS, GT, IDXX, IR, ITT, KSE, LNCE, LZ, MATR, NNI, NOV, SPG, SSCC, TOMO,
VMSI, WHQ, WMI, ZEUS
Events
RBC Global Canadian Fixed Income
Conference |
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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. |
