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Saturday, April 21, 2007

Weekly Market Update - what slowdown?

Weekly Market Call

Earnings season got into high gear this week and the market was off to the races. With about 25% of companies reporting, most are beating their forecasts. Though earnings surprises for the most part are not dramatic, it is clear that most companies had a solid quarter.

With the markets looking for good news, a good first week of earnings season was the excuse needed to set some new 52-week highs in the major averages.

This leaves me with one question. The macro-economic news thus far in 2007 has been anything but upbeat. This led analysts to forecast lower growth and then revise their forecasts even lower. We were supposed to be entering a slowdown. Then companies report good earnings. What's going on here? What slowdown?

It seems that most analysts and economists either missed the signs of growth or the economic reports themselves were not accurate. I'm looking forward to someone publishing the answer to this riddle.

ETF Comments

Indexes: I have been saying for a couple of weeks that the S&P 500 and its associated ETF, SPY, had turned the corner and gone from the TradeRadar SELL zone all the way into the BUY zone. It had seemed to me that the other averages were lagging a bit and I was worried that the poor economic news we had been hearing was waiting to knock them back. It seems that the S&P was a leading indicator here. The DOW and its associated ETF, DIA, and the NASDAQ and its associated ETF, QQQQ, set new highs this week. The Russell 2000 is a few cents short of a new high. It appears that the market is ready for another leg up. All the major indexes are already up over 4% on the year.

Housing - the iShares REIT ETF (IYR) didn't do much this week while the rest of the market was going up. IYR is still deeply in the TradeRadar SELL zone. The SPDR Home Builders ETF (XHB), on the other hand, benefited from what in my opinion is misplaced enthusiasm. It blew through resistance at $33 and, spite of the chief executives of the home building companies predicting a lousy year, investors seem to want to call a bottom here. I can't say I agree.

Financials - the SPDR Financial ETF (XLF) had a good run this week but has not nearly gotten back to where it was in mid-February. The large investment banks have gotten plenty of headlines as they announced stellar earnings derived from the current leveraged buyout craze. Smaller banks, however, are being impacted by mortgage problems and interest rates that are eating into profit margins. This group still looks weak and remains in the TradeRadar SELL zone.

TradeRadar Stock Picks

Generex Biotechnology (GNBT) had a bad week in spite of announcing that patents were granted in Canada and Mexico. GNBT lost a nickel and now stands at $1.61, leaving us with a loss of 4.7%. I continue to hold reluctantly.

The NASDAQ 100 was up strongly this past week so the ProShares UltraShort QQQ (QID) got hit again and closed the week down under $50 at $49.95. I have finally thrown in the towel and sold it at the open on Friday at $49.89. We ended up with a 5.3% loss. The poorly received earnings season has not materialized and things are looking fairly positive for the market so I felt it was best to exit this trade before losses mounted any further. Of course, now I'm worried that the markets have reached the top of a trading range...

Cisco Systems (CSCO) was up again and closed the week at $26.99 for a 4.7% gain. Though CSCO didn't particpate fully in the market's rally this week, it is still looking pretty good here.

BigBand Networks (BBND) had another wild week. It zoomed up to over $20 on news it would merely be holding an earnings call in May. It dropped from there to close the week at $18.77, still up a bit from the previous week. Our gain has been increased to a respectable 7.6%.

SanDisk (SNDK) continued its weak performance and fell from last week's $43.35 down to $42.53. Our earlier gain has turned to a 2% loss but it remains solidly in the TradeRadar BUY zone so we will continue to hold.

Millicom International (MICC) tacked on a few more cents and finished the week at $83.88 for a 5.8% gain. It looks like MICC's momentum is slowing. It had a couple of down days this week from which it managed to recover but it is clearly looking a little tired here.

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