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Saturday, April 28, 2007

Weekly Market Update - can new highs continue?

Weekly Market Call

All the averages continued to power upward this week as earnings reports continued to flood the market. There was good news from Amazon, Apple and Microsoft that energized the tech sector. The energy stocks reported decent earnings with oil, ending the week up over $66 a barrel, still off its highs but turning up. We had a late week rally in industrials in spite of poor economic news as big-caps like Cummins reported good earnings.

The government provided their advance read on first quarter GDP on Friday and it was uninspiring at best. Coming in at a weaker than expected 1.3% the bears are standing up and asking how the market can continue to move up with underlying economic strength deteriorating. Indeed, the market's momentum slowed Friday but the DOW and NASDAQ still managed to post small gains.

The questions at this point are: has the market become disconnected from economic reality (and consequently headed for a decline)? Or is the market acting as a leading indicator (implying the economic picture will start to improve)?

It will take a while before the answers to these questions become clear; however, in the short term, we can expect to see the market's upward momentum begin to slow as the excitement over this earnings season ends and investors go back to worrying about the next earnings season. We are already seeing weakness in the advance-decline line so be be prepared for the averages to ease up a bit.

ETF Comments

Indexes: another fairly impressive week for index ETFs with DIA up over 1% and QQQQ up over 2%. Small caps, however, are looking a little tired. IWM, the iShares:Russell 2000 Index ETF was up only a few cents over the previous week. And SPY only managed to gain 0.6%

Real Estate: REITs and home builders came under pressure. By the time we reached the end of the week, IYR had lost nearly everything it had gained earlier in the week. IYR remains clearly in the TradeRadar SELL zone. As for the homebuilders, investors seem to have thrown caution to the wind in their belief we have seen the bottom in the housing market. XHB had moved up strongly on Thursday and gave most of it back on Friday. Still, XHB remains over 9% above its early April lows.

Financials: XLF was up less than half a percent this week but they are now within a couple of percent of their previous high. XLF has finally poked its nose out of the TradeRadar SELL zone. KBE, the streetTracks KBW Bank index ETF is not nearly so lucky. It has made multiple runs at a resistance level just under $58.50 without being able to break through. KBE remains deep in the SELL zone.

TradeRadar Stock Picks

Generex (GNBT) was up only a penny this week despite announcing a deal to distribute its oral insulin spray in the Middle East. It now stands at $1.62, leaving us with a loss of 4.1%. I grumble and continue to hold.

No particular news on Cisco Systems (CSCO) this week. They finished up a few cents at $27.03, yielding us a gain of 4.8% thus far.

BigBand Networks (BBND) had a good week and closed $20.44. I'm pretty happy here as our gain now stands at 17.1%. Next week they announce earnings. Wonder what will happen then?

SanDisk (SNDK) moved up strongly this week only to falter after announcing very weak 1st quarter earnings and cautious guidance. We still manage to hold a slim 1% gain. HOwever, Goldman Sachs just raised their target to $53 based on expectations that royalty income will offset margin weakness. Dell has also announced they are offering SanDisk flash hardrives as an option in their notepook PCs. Flash prices are expected to firm and inventory levels to drop later in the summer. These factors should be benefical to SNDK. I remain confident SNDK will provide rewards to the patient investor.

Millicom (MICC) added half a buck and, despite falling on Friday, it finished the week at $84.48 for a 5.8% gain. MICC announced blow-out earnings this week but it was widely anticipated so no dramatic moves ensued. That's OK; a nice steady increase in share price is fine with me.

Our latest pick is QLD, the ProShares Ultra QQQ ETF that offers twice the performance of the NASDAQ 100. Once I gave up on QID, the inverse ETF, because the market seemed to be clearly entering another leg up, it seemed only reasonable to put a few dollars in the opposite leveraged ETF and look to ride the wave of bullishness. So on 4/20/07 I bought QLD at the open for $87.94. It closed this week at $91.85 for a 4.4% gain.

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