Weekly Market Update - Momentum Slows

Weekly Market Call

This week the markets appeared to take a breather. It's been a while since we didn't post a sizable weekly gain in every major index. Indeed, the NASDAQ and the Russell 2000 finished slightly lower and the other averages barely managed fractional percentage gains.

Wednesday, the Fed held rates steady, as expected, and their policy statement pretty much had nothing new to say.

Thursday saw a big sell-off, mostly due to poor same-store sales reports from a group of major retailers. This threw confidence in consumer spending into doubt and most averages lost about 1.4% on the day. Adding to the negative tone, a larger than expected trade deficit was reported, driven in large part by rising oil prices.

Friday saw a bounce (as most analysts expected) when the Labor Dept. announced that producer prices eased in April. The core rate was unchanged again, pushing the year over year rate to 1.5% and giving investors hope that inflation will be trending lower. This was, of course, exluding food and energy. Apparently, investors don't eat or buy gas. Monthly retail sales were also announced and, instead of the previous day's pessimistic interpretation, the decline of .2% was looked as a sign of a moderating economy that might encourage the Fed to ease rates sooner rather than later. What a difference a day makes.

In general, the charts of the major averages show a clear slowdown in momentum. As earnings season winds down, investors will be more and more influenced by economic news. This could be the beginning of the slow summer season.

ETF Comments

Indexes: a lackluster week for index ETFs with DIA barely scratching out a gain and QQQQ down slightly. (More about QQQQ when we get to the TradeRadar Stock Picks.) Small caps continue to look weak with IWM, the iShares:Russell 2000 Index ETF, down fractionally and starting to slip into the short-term TradeRadar SELL zone. SPY managed to deliver a small weekly gain by the end of trading on Friday but has dipped below a trendline. Next week will be critical for the averages to see if the market weakens further or shrugs off Thursday's sell-off and resumes its upward march. The week will find DIA looking the strongest and IWM the weakest with the others in between.

Real Estate: REITs gained a little and home builders had a tough week. In spite of the gain, the iShares Dow Jones US Real Estate ETF (IYR) continues to essentially go sideways and remains deep in the TradeRadar SELL zone. The SPDR Homebuilders ETF (XHB) dropped again due to more reports confirming the dismal housing outlook. The trend appears to be down again. It appears the bargain hunters have given up for the time being.

Financials: XLF managed to gain a few cents this week but Thursday's selloff hit the ETF hard. On the long term chart, XLF is clearly well out of the TradeRadar SELL zone. Measuring from the bottom in April to now, though, it is looking like it's ready to drop back into the SELL zone. KBE, the streetTracks KBW Bank index ETF remains mired in bear territory and the fact that it managed to close at $58.56 the previous week did not signal an uptrend. The ETF finished this week down a few cents and looks like it might be rolling over. Needless to say, KBE remains deep in the TradeRadar SELL zone.

Energy: The divergence in two ETFs, XLE and USO, that I pointed out last week is easing somewhat. XLE, the Energy Select Sector SPDR (XLE), made another new closing high. United States Oil (USO), a proxy for oil prices, did advance this week adding about 1%. Over the past three months, however, XLE has gained 12% while USO has fallen 3%. I still don't get it...

TradeRadar Stock Picks

Generex Biotechnology (GNBT) had a terrible week and yet we have continued to hold. This week it dropped further to close at $1.43 for a total 15.4% loss. There has been absolutely no news I can find to account for the weakness and with the breast cancer trials going on in China, I had expected the stock to get a little boost.

The NASDAQ 100 was up slightly this past week but Thursday's meltdown was all I needed to act on my feeling the average was overbought. My experience with the ProShares UltraShort QQQ led me to believe that these Ultra ETFs are more speculative, best held for short periods of time and traded more actively than a stock or normal ETF. So I chose to act and sold the Ultra QQQ (QLD) and purchased the UltraShort QQQ (QID). Over the course of barely three weeks holding QLD we managed a gain of 2.7%. Friday's bounce, however, erased our small gain in QID. We will be looking to next week to confirm our feeling that a short-term decline is in store for the Q.

Cisco Systems (CSCO) reported this week and the news was actually pretty good, featuring a 34% increase in earnings. Unfortunately, the guidance was not sufficiently positive and the stock was punished. CSCO finished this week at $26.63, reducing our gain to 3.3%. See my post explaining why I think the selloff was overdone.

BigBand Networks (BBND) had an awful week dropping from $18.85 to $17.47. Our gain has been reduced to a miserable two cents a share or about 0.1%. As I have said before, the company has good prospects and it's worth holding through what could be a rocky period.

SanDisk (SNDK) continues a modest recovery after the drop that followed its earnings announcement a couple of weeks ago. At $44.87, we are hanging in with a 3.4% gain. There have been several interesting announcements this week of SNDK hooking up with other companies, Microsoft for example, with whom they will be using flash for portable computing environments. Stay tuned, this is a pretty cool idea.

Millicom (MICC) also had a lousy week, primarily do to weakness during Thursday's selloff. MICC finished the week at $82.97, more that a dollar below last week's close. We maintain a 4.6% gain.