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Sunday, May 6, 2007

Weekly Market Update - bulls prevail (again)

Weekly Market Call

In general, company news and economic news were all pretty positive this week. Plenty more earnings were announced and it now appears as if earnings growth for the first quarter will come in around 8.5%, a revision upward.

On the economic front, we had a flat reading on core personal consumption expenditures for March. This is one of the Fed's favorite measures of inflation. The year-over-year increase dropped to 2.1% which, for a change, is within the Fed's 2007 forecast of 2% to 2.25%. We also had better than expected readings on the ISM surveys for both manufacturing and services and an uptick in March factory orders. More important was the 88,000 increase in April nonfarm payrolls that gives a more direct indication that growth continues and the consumer is safe to keep spending.

Merger activity did its part to keep the markets happy. We had news of Microsoft making a play for Google, News Corp. offering a huge premium for Dow Jones and Cablevision looking to go private.

All in all, it appears things are shaping up to give us the "Goldilocks economy" with inflation not too hot and growth not too cold.

ETF Comments

Indexes: another good week for index ETFs with DIA up over 2% and QQQQ up 1.8%. Small caps continue the recent trend of looking a little tired. IWM, the iShares:Russell 2000 Index ETF was up only 0.5%. SPY managed to do OK, gaining 1.4%

Real Estate: REITs and home builders faltered this week. The iShares Dow Jones US Real Estate ETF (IYR) has basically gone sideways for the last month and this week did nothing to change it. This ETF is basically a proxy for the REIT market. IYR remains deep in the TradeRadar SELL zone. The SPDR Homebuilders ETF (XHB) ran into headwinds this week when a drop of 4.9% in March home sales was announced on Monday. I would not be a buyer here. With XHB failing to convincingly move about its 20 and 50-day moving averages it looks as if the recent rally has run out of steam.

Financials: XLF continued marching upward slowly but steadily this week though they are still a bit below their previous high. XLF is clearly well out of the TradeRadar SELL zone. KBE, the streetTracks KBW Bank index ETF remains mired in bear territory but there is hope on the horizon. It has made multiple runs at a resistance level just under $58.50 without being able to break through until Friday this week when it closed at $58.56. KBE remains deep in the TradeRadar SELL zone but perhaps we are beginning to see a glimmer of a rally beginning.

Energy: I haven't had much to say about oil or energy lately but today I am moved to point out the divergence in two ETFs. First we have the Energy Select Sector SPDR (XLE) which hit another new high this week. Contrast that with United States Oil (USO), a proxy for oil prices, that according to TradeRadar peaked about a month ago. Indeed, oil prices dropped to $62 a barrel this week from $66 the previous week. Why have XLE and USO been so uncorrelated for the last month? Is this another indication the market is getting ahead the fundamentals or is this just reflective of expected higher oil prices in the summer driving season?

TradeRadar Stock Picks

Generex Biotechnology (GNBT) has continued it downward trajectory on absolutely no negative news. It closed this week at $1.54, down eight cents from last weeks $1.62. We now have an 8.9% loss.

Still no particular news on Cisco Systems (CSCO) this week but it keeps moving higher. They finished this week at $27.91, yielding us a gain of 8.2%.

BigBand Networks (BBND) announced its first earnings as a public company this week. Expectations were high and BigBand merely met instead of exceeding. As a result, BBND got a haircut, falling from a high of $21.43 to close the week at $18.85. Oh well, we still have an 8% gain thus far and the company's prospects remain good.

SanDisk (SNDK) showed some resilience the last couple of days of the week. Having delivered its poor earnings report the previous week we are glad to see the stock stabilize. All in all, it is hanging on within its trading range of the last six weeks. At $44.15, we can still take comfort in a 1.8% gain.

Millicom (MICC) spent the week digging out from a more than 3-point loss on Monday. MICC finished the week at $84.66, a few cents above last week's close. We stand at a 6.8% gain.

Finally, we have the ProShares Ultra QQQ ETF (QLD) which managed a bit of a gain this week. I am a little disappointed here. The NASDAQ was up 1.8% on the week but QLD was up only 2.3%. This ETF is supposed to double the performance of the NASDAQ so we should have a seen a gain over 3%. Still, I suppose one shouldn't look a gift horse in the mouth. QLD finished the week at $92.07 yielding a total gain since we initiated the position of 4.7%

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