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7/16/07
Note: Event Calendar has been moved to bottom of page
I. General Market Overview
There is an extraordinary event held annually in Pamplona, Spain called the “running of the bulls”. During this event some brave souls (I would term them crazy) attempt to run down a very narrow street with thousand pound angry bulls. The secret is to get close enough to the bulls to ensure an adrenaline rush, but not close enough so that this stampeding beast can inflict serious physical damage upon the contestant. Has globalization imported this annual rite of passage to the U.S. stock market? Last week the stock market bulls ignored the deteriorating housing market and sub-prime situation and stampeded to record high levels. We admit to being gored ever so slightly by our bearishness, but the minor flesh wound shall heal over time. All we can say at this point is that the negative issues that concern us (rising global interest rates, deflating housing market, sup-prime defaults, record gasoline prices, potential looming Democratic Presidency) will matter when the market decides it so. So for now, run with the bulls, but be sure to have a plan of escape, for the horns of the bull are sharp and devastating.
The market sectors that we follow that continue to have positive technical weekly momentum are energy sectors (XOI, OIH), steel (SLX), internet (HHH), semiconductors (SMH). Fresh positive weekly signals have been generated in Transportation (IYT), large-cap Pharma (PPH) and Regional Banks (RKH). 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. Readers should keep a watchful eye on the earnings reports due from the banking sector this week. Banks that have managed to avoid rising credit default issues could be poised for potential short squeeze appreciation.
The sectors that currently have negative technical implications are the builders (XHB), Telecom (TTH), Brokerage (XBD), Natural Gas (XNG), and Retailers (RTH). The Retailers (RTH) continue to show signs of reversing current negativity. Avoid Sears Holdings (SHLD) but watch HomeDepot (HD), which failed to decline after an earnings warning. In the Brokerage arena we would continue to watch the shares of Bear Stearns (BSC) as an indicator to the health of the sup-prime market. Also, Merrill Lynch (MER) is due to report quarterly earnings this week. The shares have underperformed the market for the past seven weeks.
We continue to have an open long position in Walgreen’s (WAG-45.20). We purchased the shares of WAG on 05/24/07 at a price of 44.60. While we are certainly not enamored by the price action in WAG, our protective sell stop shall remain at 43.19. The upside price objective is the 50.00 to 51.00 area.
We mentioned our affinity for EBAY (EBAY-33.95) last week. We initiated a long position on 7-11-07 at a price of 32.70. Our protective sell stop shall be placed at 32.35. Our upside price objective is 42.00.
Take note that the VIX-15.15 (CBOE Volatility Index) increased from a reading of 14.72 the previous week. It is unusual for the VIX to rise in the face of such a market advance. We continue to view any spike in the VIX to the 18.00-20.00 area as a signal to buy. Conversely, a drop to the 10.00-11.00 area would signal near term complacency and indicate to lighten up existing long positions.
II. GOLD
GLD (streetTracks gold index) – The GLD-(66.03) advanced $1.07 or 1.64% for the week. The GLD index is up 4.50% year to date. The GLD is beginning to show some signs of life. We shall look to initiate a long position upon a retest of the 65.00 price level. If executed our protective sell stop will be placed at 64.89. The tight stop reflects our lack of confidence in this trade. Any close above to 66.60 area points to a test of the 68.00 level.
III. Energy
The energy complex (Oil, Oil Service, Natural Gas and Coal), a powerful upside performer year to date, continues to act well, but the leadership has begun to narrow. The pillars of strength in the energy complex are Large-CapOil (XOM, CVX, BP, and COP) and select Oil Service names (SLB, RIG, and ESV). We would currently avoid Oil Service components BHI, HAL, and BJS. We would remain underweighted in Natural Gas (XNG) and Coal stocks at this time.
IV. Dow 30 Analysis
Our Weekly Trend Indicator (WTI) measures in at +16, an increase from the previous week reading of 0. The Dow Jones Industrial average advanced 2.14% for the week to 13904.49 +291.67. The average is currently up 11.43% for all of 2007. Our recent concerns as to the viability of the rally in the DIA have been proven unfounded. This wounded bear shall crawl back in his cave and heal wounds for the time being.
Take note that Johnson & Johnson (JNJ-63.43) is flashing a weekly buy signal after spending nine weeks in the doldrums. The company is due to report quarterly earnings this week. If the earnings are not disappointing we would look to accumulate the shares of JNJ on price dips.
Readers should take note that Dow Jones Industrial components C, CAT, HON, IBM, INTC, JNJ, JPM, KO, MO, MSFT, PFE and UTX are scheduled to report quarterly earnings this week.
Dow 30 stocks with positive weekly signals:
AA, AXP, BA, CAT, DD, GE, GM, HD, HON, HPQ, IBM, INTC, JNJ, JPM, KO, MMM, MO, PFE, PG, T, UTX, WMT, XOM
Dow 30 stocks with negative weekly signals:
AIG, C, DIS, MCD, MRK, MSFT, VZ
· Underline names have changed from previous week*
V. OPEN POSITIONS
WAG- 5/24/07 Long@ 44.60 / sell stop 43.19 EBAY-7/11/07 Long@ 32.70 / sell stop 32.35
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% DIA-6/20/07 Short@136.50/ exit 7/02/07@135.20 Gain of 1.00%
2007 NET RESULTS ON CLOSED TRADES ASSUMING EQUAL DOLLAR AMOUNT INVESTED IN EACH TRADE: 9 trades, net return of + 1.44%
VII. KEY EVENTS IN THE WEEK AHEAD:
Monday, July 16
Economics
8:30 N.Y. Empire State Index: 17.0 cons
Earnings
Before: ETN, MAT, MERX, GWW,
JBHT
Events
SRI Antibody
World Summit 2007
Tuesday, July 17
Economic
8:30
PPI
Earnings
Before:
ADTN, SCHW, KO, FRX, JEF, JNJ, KEY, MAN, MER, MNRO, NVS, PNFP, PII, RF, STT, USB
Events
A.G. Edwards
E&P Conference
Wednesday, July 18
Economic
8:30
CPI
Earnings
Before:
AOS, ABT, AMFI, APH, ASML, BLK, CIT, CMA, GCI, GLYT, HST, JAKK, JPM, NITE, KLIC,
LUFK, MI, NTBK, NTRS, PFE, PJC, RLI, SIFY, SLGN, SOLF, LUV, STJ, UTX, WFC, AMR
Events
Intertech Future of Ink on Packaging Conference
Economic
8:30
Initial Claims
Earnings
Before:
ALDN, ASD, AME, ARB, AGIX, AVCT, BMI, BAC, BK, BAX, BBT, BHE, BOT, CDWC, CHZ,
CAL, CBE, CORS, COT, CY, DHR, DJ, DSL, ENDP, EXAR, FCS, FITB, FCFS, FCF, FHN, F,
FCX, GPC, HOG, HSY, HNI, HON, HBAN, ITW, IMN, IGT, IONA, JCI, KBW, KVHI, LSTR,
MNI, MMR, MEG, VIVO, MTG, MLAN, MOT, NDAQ, NAFC, NOK, NUE, JNC, NVR, OMCL, OXPS,
PTEC, PNW, PNC, PPG, RDWR, REDF, RS, SWY, SAP, SCHL, POOL, SEPR, SHW, SLM, SPWR,
STI, AMTD, TXT, TLGD, TRAD, UNP, UNH, USM, VFC, VTNC, WSO, WFT, WYE, CRBC, HTLD,
LEG, OO, WCC
Events
Dow Jones Newswires Private Equity Fundraising Summit
Friday, July 20
Earnings
Before:
LEND, ACO, BSX, CAT, CPS, C, GAP, JRC, ERIC, ORB, BTU, PRSP, SAY, SLB, SON, USAK,
WB, WL
Events |
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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. |
