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Saturday, February 3, 2007

Weekly Market Update - Mostly More of the Same

Weekly Market Call

Earnings continued this week as they did last week: decent numbers coupled with down-beat outlooks for coming quarters. Over 60% of the S&P 500 have reported by now so we can say we know the tone of this quarter's earnings season: so-so though it looks like aggregate earnings might just barely cross into double digits.

Other events of interest included a rise in oil prices and the Fed Open Market Committee meeting. The closely watched Fed statement was essentially the same as the last one and, as expected, they held rates steady.

Economic news was mixed with fourth quarter GDP being revised upwards to 3.5% and January employment data caming in lower than expected. This last was offset by an upward revision for December. Reported wage gains were modest, thus providing a case for lower inflation.

Economically speaking, it appears that we are on track for a soft landing with growth continuing amid modest inflation. Based on earnings season, however, a contrarion case can be made for slowing growth. The percentage of companies beating expectations is lower than has been typical in recent quarters and, more noteworthy, forecasts for first quarter aggregate earnings are much lower than usual.

The Dow and S&P 500 continued plowing upward this week. The NASDAQ 100 (as tracked by QQQQ), however, appears to be trying to get going but rose only a bit this week (1.7%) on lackluster volume. The TradeRadar SELL signal that I was reluctant to embrace last week has continued to flash and I am considering that two weeks in a row is confirmation that the NAZ will be under pressure and likely to drop over the next few weeks. The star of the week was the Russell 2000 which gained 2.7%

ETF Comments

This week, interestingly, the technology ETF that I track, XLK, has stopped correlating so closely with the NASDAQ 100. Though not a screaming buy, XLK is clearly not flashing a SELL signal in the same way QQQQ is.

XLE, the energy ETF reflects this week's rise in oil and is continuing an up-trend that began around January 16. In a previous post I made the point that it will probably bounce up off its 200-day moving average and so it has. If the cold weather persists, we could see a new high very soon.

The housing market showed some firming this week so XHB, the homebuilders ETF, caught an enthusiastic bid. IYR, the real estate ETF, rose but did not gain quite as much in percentage terms as XHB. This chart has been very interesting for a while now and has quietly moved up 30% since its lows back in July/August/September of last year. This might be a trend to jump on as it now looks as if it won't be going lower from here.

TradeRadar Stock Picks

Not much movement in Generex (GNBT). Tarragon (TARR) moved up in concert with XHB. Its chart very much resembles that of XHB, as a matter of fact. PacifiNet (PACT) moved up a bit though it is off its highs for the week. The new addition to the list is QID, the ProShares UltraShort QQQ, a leveraged ETF that moves inversely to the NASDAQ 100. This was purchased in reaction to the TradeRadar SELL signal on the Q (read the post describing the TradeRadar Pick o' the Month).

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