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6/18/07
Note: Event Calendar has been moved to bottom of page
I. General Market Overview
We will be short and to the point this week. With the aid of a quadruple witching expiration, the major indices rebounded from the prior weeks interest rate induced sell off. Led by a rebound in the Semiconductor group and continued strength in the energy complex, the major indices fell just short of recovering the losses from the prior week. From our point of view the coming week is critical to maintaining the upward momentum. A failure to set new closing highs this week will signal weakness forthcoming.
The market sectors that we follow that continue to have positive technical weekly momentum are energy, steel (SLX), brokers (XBD), telecom (TTH, internet (HHH), retailers (RTH) and semiconductors (SMH-38.20). The Semiconductor signal is a fresh buy signal. We would continue to use price weakness in these sectors as an opportunity to enter long positions accompanied by a strict protective sell stop discipline.
The sectors that currently have negative technical implications are the Large-Cap Pharmaceutical (PPH), regional banks (RKH), builders (XHB), and transportation (IYT). Readers should take note that the regional banks and transportation are new signals of coming weakness. We would use any price strength in these sectors to reduce long exposure.
Our only open position is long Walgreen’s (WAG-44.31). We purchased the shares of WAG on 05/24/07 at a price of 44.60. Our protective sell stop shall remain at 43.19. The upside price objective is in the 50.00 to 51.00 area.
Take note that the VIX-13.94 (CBOE Volatility Index) decreased from a reading of 14.84 the previous week. The VIX remained relatively elevated despite the advance in the major market indices. Could the put buyers be the smart money this time?
II. GOLD
GLD (streetTracks gold index) – The GLD-(64.88) advanced $0.66 or 1.00% for the week. The GLD index is up 2.64% year to date. Any failure by the GLD to hold the 62.50 weekly price support level, will set up at test of the critical 58.00 price support level. For the time being we shall maintain our neutral stance on the GLD.
III. Energy
The energy complex (Oil, Oil Service, Natural Gas and Coal) continued to march upwards. It is amazing how the financial media on a daily basis seizes every opportunity to maintain the fear factor in energy (i.e. Nigerian unrest, Iranian nuclear tension). Is there ever any “good news” regarding oil supply? It certainly makes one wonder. The trade in Oil, Oil Service and Natural Gas equities remains buy high and sell higher.
In past letters we have advocated looking at the Coal sectors as a laggard to the energy complex as a whole. The coal stocks are pulling back to critical price support levels, watch them closely this week.
IV. Dow 30 Analysis
Our Weekly Trend Indicator (WTI) measures in at +4, a decline from the previous week reading of +6. The Dow Jones Industrial average advanced 1.62% for the week to 13640.00 +217.64. The average is currently up 9.46% for all of 2007. It is rather rare and unusual for our WTI to decline while the Dow Jones Industrials advance. This divergence raises our concern as to the sustainability of the current rally. Last week we stated that the DIA-136.19 (Dow Industrial Diamonds ETF) needed to close above the 136.84 price level in order to maintain positive upside weekly momentum. This failed to occur. The 136.84 price level should now be viewed as a significant price resistance area. We shall look to institute a short position on a retest of this price level. Our downside objective is the 128.00-130.00 area. A weekly close above 136.84 will cause us to promptly exit this trade.
Readers should take note that no Dow Jones Industrial components are scheduled to report quarterly earnings this week.
Dow 30 stocks with positive weekly signals:
AA, AIG, BA, C, CAT, DD, GE, GM, HON, HPQ, INTC, MCD, PG, T, UTX, VZ, XOM
Dow 30 stocks with negative weekly signals:
AXP, DIS, HD, IBM, JNJ, JPM, KO, MMM, MO, MRK, MSFT, PFE, WMT
· Underline names have changed from previous week*
V. OPEN POSITIONS
WAG- 5/24/o07 Long@ 44.60 / sell stop43.19
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% GLD-4/26/07 Long@67.01/ exit 5/15/07@ 66.60 Loss of 0.006% DIA-4/3/07 Short@125.18/ exit 4/16/07@127.20 Loss of 1.6% NVLS-4/26/07 Long@32.40/ exit 5/16/07@30.52 Loss of 5.8%
2007 NET RESULTS ASSUMING EQUAL DOLLAR AMOUNT INVESTED IN EACH TRADE: 8 trades, net return of + 0.44%
VII. KEY EVENTS IN THE WEEK AHEAD:
Monday, June 18
Economics
Earnings
Before:
CMED
Events
JPMorgan's
Asia Pacific Real Estate Conference 2007
Tuesday, June 19
Economic
8:30
Housing Starts: 1485k
Earnings
Before:
ATU, BKRS, BBY, CCL, FDS, PRGS
Events
Power 2007
Wednesday, June 20
Economic
10:30 Crude Inventories
Earnings
Before:
AIXD, KMX, CC, CMC, FDX, MS
Events
Deutsche
Bank German Corporate Conference
Economic
8:30
Initial Claims: 310k
Earnings
Before:
AGE, AM, GRB, HRB, SJM, PIR
ValueRich
Small Cap Financial Expo
Friday, June 22
Earnings
Events
Sachs
Associates 2nd Annual European Investor Metals & Mining Forum
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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. |
