Archived Letters

                                    4/30/07

     Note:  Event Calendar has been moved to bottom of page

I.                  General Market Overview

The U.S. stock market indices continued to defy gravity last week.  Time and time again this “Teflon” market continues to disregard negative news.  Last week it was the sluggish GDP report which pegged first quarter growth at a miserly 1.3%.  The result of this report was continued pressure on an already weak U.S. dollar.  Is a weak dollar now in the best interest of the U.S.?

  The markets are rejoicing over earnings reports that are beating drastically reduced analyst’s expectations.  The financial media’s daily ritual is to report that companies are consistently beating estimates.  The media conveniently fails to convey the fact that these very estimates have been trending lower.  It is quite apparent that the earnings expectations bar was set far too low.

Could it be that the combination of leveraged buyout activity by private equity and increased company share buybacks has effectively reduced equity supply enough to warrant this market action? Or could it be that our Federal Reserve is quite content with equity market inflation to offset the housing market deflation?  This is a very tight rope to walk.

The major averages now sit approximately ten percent above their mid-March panic lows.

Our weekly sector analysis is now showing that the three previous weakest sectors (Internet, Homebuilding, Retailers) are displaying short term signs of strength.  It could be that we are nearing the stage where a rising tide lifts all boats.  If this is the case, we are not far from a short term top in the market.  For now, technical trends continue to point northward, but any long positions should maintain a tight sell stop discipline.

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, builders, internet, retailers and transportation.

Readers should take note that the steel sector is beginning to show some technical vulnerability.  After enjoying spectacular upside moves, shares of U.S. Steel(X) and Nucor(NUE) are beginning to show a chink in their technical armor.  Yes, even perma-bears can have a sense of humor.

 The managed Healthcare sector is currently the weakest group.  Shares of WellPoint (WLP) and United Healthcare appear vulnerable to further price weakness.

Take note that the VIX-12.45 (CBOE Volatility Index) rose ever so slightly from a reading of 12.07 the previous week.     This is the second consecutive week that the VIX has held steady notwithstanding the market advance.  It may very well be the case that the recent stability of the VIX is a direct reflection of the current “wall of worry” that the stock market is ascending.  The key indicator could come when the VIX actually falls to the 10.00 area.  This will then reflect investor acceptance of the rally, which in turn should weaken the foundation of the “wall of worry”.  Watch for this decline in the VIX for it should correlate well with a short term top in the market.

II.               GOLD

GLD (streetTracks gold index) – The GLD-(67.56) declined $1.14 or 1.6% for the week.  We took advantage of the price weakness on 04/26/07 to enter a long position in the GLD at a price of 67.01. Our protective sell stop shall be placed at 64.90.  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

Strong upside momentum continues in the energy sectors (Oil, Oil Service, Coal and Natural Gas).  The trade continues to be to buy high, and sell higher.

IV.            Dow 30 Analysis

Our Weekly Trend Indicator (WTI) measures in at +22, a small decrease from the previous week reading of +24.  The Dow Jones Industrial average advanced 1.22% for the week to 13119.56 +157.58.  A strong earnings report from Microsoft and the announcement of a $15 billion dollar buyback from IBM helped to keep the bullish momentum intact.  The Dow has now increased roughly ten percent from the lows reached on 03/14/07.  The average is currently up 5.4% for all of 2007. 

The weekly technical picture, while appearing to be in the over bought stage, continues to rest in the bullish camp.  This being stated, we do not like this risk/reward of entering long positions at these price levels.

Readers should take note that three Dow components are due to report quarterly earnings this week. The list includes: GM, PG, and T.

Dow 30 stocks with positive weekly signals:

AA, AIG, AXP, BA, C, CAT, GE, GM, HD, HON, HPQ, IBM, INTC, JNJ, JPM, KO, MCD, MMM, MO, MRK, MSFT, PFE, UTX, VZ, WMT, XOM

Dow 30 stocks with negative weekly signals:              

DD, DIS, PG, T

·        Underline names have changed from previous week*

V.               OPEN POSITIONS

GLD- 04/26/07 Long@ 67.01/ sell stop 64.90

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 30

Economics

             8:30      Personal Income (Mar): 0.5% cons
                   Personal Spending (Mar): 0.5% cons
                   PCE Deflator y/y (Mar): 2.3% prior
                   PCE Core m/m (Mar): 0.1% cons

                          PCE Core y/y (Mar): 2.2% cons
     9:45      NAPM Chicago (Apr): 54.0 cons
   10:00      Construction Spending m/m (Mar): 0.2%

       cons
11:00       4-Week T-bill Announcement
13:00       3-Month T-bill Auction
                6-Month T-bill Auction
15:00      Farm Prices

Earnings

Before: ACV, ACW, ALDN, ALEX, AHM, BEAV, BWP, CNA, CRNT, DVA, FPL, FTD, HERO, HHS, HLT, HNT, HUM, JNC, K, KLIC, LMS, LTR, MMP, NCC, NOVN, NTE, PBI, PMI, PTEC, RBC, ROC, RSH, SYY, TDG, TSN, VZ, VSH, ZBRA

After: ACF, AFG, AHS, ALO, AMCS, AMMD, ATHR, AUDC, BFAM, CHE, CHRD, COG, CTS, CTX, CVA, CVD, EGOV, FEIC, FMC, FRK, GGP, GNW, GMRK, HCP, HPC, INTX, IVAC, KND, MOBE, NARA, ODSY, PAAS, PFG, PPS, RCII, RIMG, SMI, SFN, SMSC, SONO, SWN, SVR, TFX, TXRH, TZIX, UDR, VMC, VRTX, WMGI, XPRT, XRAY

Events

Netsmart Technologies Connections 2007 Conference
Hancock Bank 13th Annual Gulf South Bank Conference
AGA Financial Forum
Credit Suisse Group 15th Annual Offshore Technology Conference Tour
IMN Spring ABS Conference
CHI's Bio-IT World Conference & Expo
CeBIT Australia 2007
Arabian Hotel Investment Conference 2007
South Australian Resources & Energy Investment Conference

Tuesday, May 1

Economic

7:45            ICSC-UBS Store Sales
8:55            Redbook
10:00          Pending Home Sales m/m (Mar): 0.2% cons
                    ISM Manufacturing Index (Apr): 51.0 cons
                    ISM Prices Paid (Apr): 66.0 cons                                                 
13:00          4-Week T-bill Auction
16:00          Motor Vehicle Sales           
17:00          ABC Consumer Confidence (4/29): -7.0 prior

Earnings

Before: ADP, ADM, AHG, ALXN, AMED, APC, ARJ, ARM, ASF, AUXL, AVP, BBW, BNT, CE, CEN, COCO, CRY, EFJI, EMI, EOG, FDP, FCN, FORR, GWR, HBG, HC, HEP, HOLX, HUN, HW, ICON, IPSU, ITWO, IVC, JOE, LANC, LEXG, LIZ, MAG, MAS, MHS, MRO, MYGN, NMX, NNDS, NURO, PEI, PER, PG, PLD, PPCQ, RAIL, RCL, RRD, SAH, SAF, SGK, SINT, SIRI, SMG, SRP, SHOO, TECH, TUES, UA, UTHR, VRX, VNDA, VIAC, VNO, WEC, WYN

After: ACAS, ACS, ALGT, AMKR, AMCC, ANSR, ATML, AVR, AXS, AW, BDN, BEXP, BGC, BWLD, CEC, CEPH, CMG, COGT, CQB, DENN, DIVX, DLLR, DWA, EDR, EQR, EQY, EXP, FOXH, GMR, GPRO, GYI, HLF, HIW, HRS, HSTX,  IVGN, JLL, KCP, KFRC, KRON, LNC, LPSN, MALL, MANT, MENT, MET, MOH, MOVE, NCIT, NWRE, NVT, NVTL, OII, OIS, X, PLT, RNR, PWER, RUTH, SNTS, SOHU, SOLD, SPSS, STAA, TE, THRM, UNTD, UPL, VOCS, WBMD, WPI, WTS, YUM

Events

Fed's Bernanke speaks at 11:00 on Free Trade in Butte, Montana

Netsmart Technologies Connections 2007 Conference
Hancock Bank 13th Annual Gulf South Bank Conference
Lehman Brothers Retail Seminar
AGA Financial Forum
Merrill Lynch Tech Gathering Conference
Credit Suisse Group 15th Annual Offshore Technology Conference Tour
CERA North American Gas, North American Power & Global Oil Roundtable
IMN Spring ABS Conference
Intertech Organic Photovoltaics 2007 Conference
Larta 2007 Venture Forum
Taglich Brothers 4th Annual Small Cap Equity Conference
Red Herring Spring Conference
CHI's Bio-IT World Conference & Expo
CeBIT Australia 2007

Wednesday, May 2

Economic 

7:00            MBA Mortgage Applications (4/27): 3.6% prior
7:30            Challenger Job-Cut Report y/y (Apr): -24.6% prior
8:15            ADP Employment Report (Apr): 105k cons
10:00          Factory Orders (Mar): 2.0% cons
10:30          EIA Petroleum Status Report
11:00          3-Year T-note Announcement
                    30-Year T-note announcement

Earnings

Before: AG, AGN, ALVR, ANPI, ATG, , ABX, BEC, BRY, BIIB, BBI, BCO, CBI, CI, CINF, CLX, CTB, CTSH, CZN, DWSN, D, DPZ, DVD, EMCI, ENB, ENZN, FCL, GRMN, HAE, HL, HP, HSII, HWCC, ICE, IFS, IPCC, IRM, JNY, KNDL, MA, MKTX, MWV, NOVA, NRG, NSTC, NUCO, OGE, PDE, POZN, RDC, RDWR, RIG, RVSN, RYI, S, SBGI, SKYW, SPW, SRE, TEVA, TRX, TRW, TTMI, TWX, UMC, VC, VPHM, VTRU, WLSC, WTR

After: ACLS, AEA, AIZ, APKT, ARG, ARII, ASCA, ASGN, APPB, ASPV, ATO, BARE, BBBB, BMRN, CAI, CCI, CNQR, DIOD, DLB, DNEX, DRCO, DTE, ECLP, ESPD, EXPD, FARO, FBN, FIX, FRT, GFIG, GNSS, GW, GXP, HS, HIH, HVT, ISSI, ITRI, JDSU, LMNX, LQDT, KWK, LVS, MIL, MMSI, MTW, MXWL, NABI, MHWK, NHP, NSIT, NTMD, NVEC, OFC, OIIM, OTEX, PDLI, PGTI, POL, PRU, PSPT, PVA, PXT, RNWK, RTSX, SMDI, SMSI, SPN, SRX, SUNH, SUN, SYMC, SYMM, TTEC, TTEK, TRN, TWTC, UNM, URI, VIRL, VRSN, WLT, WXS, ZGEN

Events

Fed's Poole speaks at 9:30 oat Community Development Conference
Fed's Paulson discusses at 11:00 China's Economy, Trade Issues in Washington

 Netsmart Technologies Connections 2007 Conference
Hancock Bank 13th Annual Gulf South Bank Conference
Deutsche Bank 32nd Annual Health Care Conference
Jefferies 3rd Global Clean Technology Conference
Lehman Brothers Retail Seminar
Deutsche Bank's 8th Swiss Equities Conference
Merrill Lynch Tech Gathering Conference
Credit Suisse Group 15th Annual Offshore Technology Conference Tour
InvestorIdeas.com Energy Conference
IMN Spring ABS Conference
Intertech Organic Photovoltaics 2007 Conference
Larta 2007 Venture Forum
Red Herring Spring Conference
CHI's Bio-IT World Conference & Expo
Opal Financial Group Alpha Max 2007 Conference
CeBIT Australia 2007
Footwear News CEO Summit

Thursday, May 3

Economic

       6:00          Monster Employment Index
8:30          Non Farm Productivity (1Q P): 1.2% cons
                  Unit Labor Costs (1Q P): 3.8% cons

                  Initial Jobless Claims (4/28): 317k cons
                  Continuing Claims (4/21): 2594k prior
10:00        ISM Non-Manufacturing Survey (Apr): 53.0 cons
10:30        EIA Natural Gas Report
11:00        3-Month T-bill Announcement
                  6-Month T-bill Announcement
16:30        Money Supply

Earnings

Before: AGU, AFR, ANDW, ANSS, ASVI, BABY, BRKR, CALP, CBS, CELG, CHTR, CLI, CMS, CSE, CTL, CVC, CXW, DF, DNR, DSCO, DSX, ECIL, EDO, EPL, EL, FAF, FE, FLA, FRP, FUN, GIL, GM, GLBL, GTI, GMCR, GTIV, HAIN, HOS, HURN, HYC, IAR, IACI, IFF, INCY, IP, IT, ITG, IWA, KIM, KOP, LINC, LXP, MEDI, MGM, MINI, MMS, MSO, NBL, NBL, NRP, NUS, OMG, OSK, PQ, PDGI, PNX, PPL, PTEN, PXP, PYX, QCCO, RCKY,RDEN, RHB, RRI, RSTI, SAN, SFY, SNN, STRA, SMA, SVM, THOR, THE, TSO, TWTI, VICL, WLK, WNR, WMB, WPL, WWE
 
After: ADBL, AGO, ANDE, AOC, ARBX, ARE, ARP, AVNX, BBND, BEBE, BIO, BLKB, BKHM, BSG, CAB, CAMD, CAPA, CBOU, CEGE, CECO, CEY, CEM, CHK, CSTR, CTIC, CTLM, DMRC, DMX, DNB, EAC, EDS, EHTH, ELY, ERES, EXEL, EVC, FSLR, GMST, GSX, GTW, GSF, GSIG, HILL, HLTH, HRAY, HTGC, IBI, IDSY, IMMR, IMOS, ITMN, IPAS, LF, LOOK, NBIX, NBR, NFS, NTCT, NEXT, NXG, PAA, PACR ,PGIC, PSA, QLGC, RAE, SBUX, SFLY, SGMS, SGTL, SIMG, SM, SNCI, SRSL, SWIM, TWLL, THI, TGI, TX, TRAK, TRMB, TSRA, UEIC, UNCA, USTR, VCLK, VNUS, WCAA, WMS, WRI, WTW

Events

Netsmart Technologies Connections 2007 Conference
Deutsche Bank 32nd Annual Health Care Conference
Deutsche Bank's 8th Swiss Equities Conference
CERA North American Electric Power Roundtable
Red Herring Spring Conference
Opal Financial Group Alpha Max 2007 Conference
SNS Securities Roadshow featuring Accell Group
Footwear News CEO Summit

Friday, May 4

Economic 

8:30      Change in Non-Farm Payrolls (Apr): 100k

             Unemployment Rate (Apr): 4.5% cons
                    Unemployment Rate (Apr): 4.5% cons

             Change in Manufacturing Payrolls (Apr):

                 -12k cons
                    Average Hourly Earnings m/m (Apr):

                 0.3% cons
                    Average Hourly Earnings y/y (Apr): 4.0% prior
                    Average Weekly Hours (Apr): 33.9 cons

      15:00    Treasury STRIPS

Earnings

Before: AIV, ALE, ATK, AU, BRG, CCUR, BXC, CSAR, CMP, EK, GTXI, HPOL, HPY, KBR, LNT, MAC, MCCC, PEG, SPSX, SRT, TWP, WY

After: TS

       Events

Fed's Geithner speaks at 9:45 on Global Economy in   Montreal
Fed's Hoenig speaks at 11:20 at a conference in Sante Fe, New Mexico

Standard & Poors Hybrid Securities Conference
Opal Financial Group Alpha Max 2007 Conference
Footwear News CEO Summit

 * 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.