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Friday, February 16, 2007

Weekly Market Update - Bernanke Speaks

Weekly Market Call

Federal Reserve Chairman Bernanke testified before Congress this week and his outlook was not as grim as some the Fed members who had spoken earlier this week. The market took his more benign tone as a cue to rally. The NASDAQ turned in a good performance but, unlike the Dow and the S&P 500, did not make a new high.

Economic results this week were not particularly noteworthy and, in any case, provided a mixed view of where we are going. There is still nothing to dispute the view that earnings growth is slowing. Commodity prices have firmed lately (oil is up just shy of $60 a barrel again) and interest rates are essentially flat with no expectation of a rate cut anytime soon.

The feeling is that the markets have no reason to be rallying but they are anyway. It appears that the advance/decline ratio has been shaky since December which indicates there are pockets of strength and the rest of the market is just muddling along. The NASDAQ, in spite of moving higher again this week has clearly lost momentum. I take that as a lack of confirmation in the overall up-trend.

Bottomline: the Dow and the S&P are continuing their upward trend. The NASDAQ is stuck in a trading range and may be forming a top. The TradeRadar SELL signal on the NASDAQ 100 (QQQQ) appears to be coming undone; however, with the current economic backdrop and the confusion in the SELL signal, I will opt for the contrarian camp and stick with my prediction that the NASDAQ is poised for some poor performance.

ETF Comments

Exhibiting slightly better performance than the QQQQ, XLK, the tech ETF, moved up this week but is short of a new high. With growth in networking, as personified by Cisco and Juniper, the only clear macro trend in technology at this time, it is unclear to me why tech is getting so much attention. The preponderance of poor guidance from companies that recently reported earnings is not building confidence either and I would not be a buyer here.

Interestingly, XLE, the energy ETF, has moved down for the last two weeks in spite of firming oil prices. This could be the result of oil's failure to break above the psychologically important level of $60 a barrel. With the energy sector providing much of the juice in the market averages' up-trend over the last year or two, losing energy as a driver is another factor that speaks to the uncertain future of this rally.

Housing has been all over the place lately. Former Fed Chief Greenspan indicated he thinks the bottom has been reached. It was reported that January new home starts were down 14.3% (down 37.8% from January 2006 levels), a larger-than-expected drop though probably the weather had something to do with it. Two big builders announced new orders have fallen sharply as have mortgage applications. Yet XHB, despite weakening over the last couple of weeks, remains firmly in a gentle up-trend. IYR, spooked by rate jitters last week, seems to be coming back and resuming its upward trend.

Some interesting action has been taking place in the SPDR Biotech ETF, (XBI). Monday it moved up strongly on a day when the rest of the market wasn't doing much of anything. The remainder of the week XBI managed to hold on to Monday's gain and tack on a bit more. After establishing an intermediate term bottom at the beginning of January, XBI has been moving up in a ragged pattern and is now sitting on top of its 50-day moving average. The TradeRadar software is rating this one a potential BUY (as opposed to a strong BUY) and I will be following this ETF more closely to see how it plays out.

TradeRadar Stock Picks

OK, so the call to sell the QQQQ and buy QID, the UltraShort QQQ ETF, has not yet worked out so well and we are down a bit over 3%. As I indicated above, though, I am in the contrarian camp with respect to the NAZ and I am willing to hang in there a bit longer.

PacificNet (PACT) has been doing reasonably well but this week they announced that their CFO had resigned and the stock dropped 10% in one day. Losing a CFO can sometimes be the result of something unsavory going on with the financials or a case of the CFO getting out before he becomes tainted with whatever trouble the company is in. Thus far, there is no indication of trouble and the hiring of an interim CFO was immediatlely announced. An extremely weak SELL signal has been flashed by TradeRadar but, given the improving fundamentals of the company, my take is that we should ride this out. Our gain has been reduced to 11.8%

Tarragon (TARR) had a good week and closed at its highest price for 2007, $12.49. We now have a measurable gain of 7.4%. Generex (GNBT) was down a few cents from last week and in general is exhibiting a weak chart. Nevertheless, we still show a very slight gain in the stock.

1 comment:

HSA said...

Looking at the top holdings of XBI I can't quite get a handle on what exactly happened on Monday, or over the weekend, to make shares of XBI jump on Monday the 12th.

Previously, I took a closer look at the 5 major biotech ETFs on BioHealth, and had XBI as one of the better ETFs in terms of quality holdings.

Most of these big biotechs, DNA, GILD, CEPH had a positive week, but not necessarily Monday.

Could that jump have been in anticipation of the positive news these companies released later in the week?

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