Stock Tiger Update

For Monday January 8, 2007  

Close Friday

Dow -82.68 at 12398.01, Nasdaq -19.18 at 2434.25, S&P -8.63 at 1409.71

For the week the Dow was down .5% and S&P .6% but the Nasdaq gained .8%

First off our picks had a great week. We had 17 stocks from the watch list that made the buy point and only one of them closed lower than the buy point and that was by 6 cents. For a 3-day week that is a lot of winners.

We are in the new month so as always your daily votes are appreciated lower right on the words "Vote for It!"

Stocks closed lower on Friday and most media would have one think that it was the thought that the Fed may not cut rates anytime soon. The other "worry" is maybe slowing corporate profits as Motorola MOT cut its guidance.

It may be closer to assume that many are only thinking there may be a correction so would just like to lighten up in case that is true and try to beat the rush to exits. Oil was down more and broke support and that is not great market news. CNBC for years like to try and make one think that oil going lower is good for the market yet anyone looking at a chart will find that the broad market doubled in the last 3 years as oil rallied. So the drop in oil and gold brought much of the rest of the market down as well.

On the plus side though the jobs report was somewhat positive with unemployment unchanged at 4.5% for December and the average hourly earnings increased by $0.08 or 0.5% to $17.04 in December. Goods producing industries lost 11,000 but service providing industries added 178,000 jobs in December for a total increase of 167,000 jobs. This is not what you would expect to see if there was going to be a big economic slowdown.

Chart - RTTNews

It does not take real news to bring stocks lower as there is a lot of profit to protect after such a long rally. When fear of giving back too many gains creeps in then this is self fulfilling. At this time of month however there are substantial funds going into retirement accounts so they can prop up the market to some extent but there is not an endless supply.

Here is oil where on Thursday it closed again on top of the 38% support but with each test support becomes weaker and it broke on Friday. The next level is seen by all of us at the 200-day EMA and 50% retrace at $52.80. This has to be good for the airlines and trucking companies.

If indeed oil prices at $75  had been such a big problem for the world then one would think that at $55 the markets would love it yet actually a strong oil price means strong growth and demand enough so those in need are willing to "pay up". Oil prices are not as much price and demand driven as one may think.

The Dow Jones world stock index has over 3,000 stocks in 18 or more countries and is a good overview of the world markets. The trend line break this week is worth noting as it has been in place since September. It has been showing negative divergent RSI for some time and the RSI is now at 50 so could try a bounce this week. If not then the 50-day EMA is the target.

On the US home front the Dow dropped to the trend line and by 2 points took out the 12400 support we have been watching. You can see some support a bit lower but if that does not hold then the 50-Day EMA beckons at 12,244.

The Dow Utilities made a much larger decline and closed at the trend line shown. I do not think that will hold for long, though a rally may take place first, it seems ok to exit stocks in this sector unless it can with good volume close again above the broken support at about 455.

The Nasdaq did surprisingly well this week. It has been about the weakest of the indexes unable to break above the November high so one would think with tech company MOT cutting guidance that the Nasdaq would decline more then it did. As it tuned out Friday was an inside day (A day in which the total price range of a security is entirely within the previous day's price range) so this leaves open the door for a continuation of the Thursday move. For this to really mean a lot we would need to see the Naz break out of this range up or down.

The NYSE is not a pretty chart but it was able to close at the trend line and not below it. We are not a fan of trend line breaks and this one is not perfect so if it does drop to the 50-day and the shown support and that is all then the rally could resume but it is another caution flag to be aware of.

The number of stocks in the NYSE above their 200-day averages also dropped to the support so we actually are at a bounce point using both charts and soon we will see.

The Russell 2000 is also at a trend line and a pretty steep one at that. It has horizontal support and the 50-day EMA so a break of those would suggest a good short entry at least short term. There has been negative MACD divergence for some time now.

The Nasdaq-S&P 500 ratio chart this week turned back up at support so while there seems to be some negatives showing in the other indexes the Nasdaq has made a surprising move. Perhaps this is only a fluke move up but one worth paying attention to. Stochastics had hit under 20 and turned back up and MACD cross only now seems to have begun.

Looking at only the top 100 stocks in the Nasdaq this Naz 100 - S&P 500 ratio chart now is showing what may be a bull flag at the meeting of the 50 and 200-day EMAs. A break out here would be bullish for large cap tech stocks.

The VIX volatility index is back off it lows as some volatility has returned to the market. Volatility can be good for our breakout picks. Reversals can be more common but in volatile markets the moves can be greater in the short term. This chart does not yet indicate a volatile market return but a less calm one maybe.

The CRB commodities index with its wide basket of commodities dropped to the 50-day EMA from a bear flag that shows here in the weekly chart. This may ultimately drop to the 62% level or lower but it does not look like there is a big rush to enter this type of stock.

GOLD also broke the trend line which then caused a much greater drop to the 200-day EMA shown on this daily chart.

On the weekly chart we show the 65-week moving average now at 585 and a long term support for gold. We expect it to be reached. Gold is in a long term bull market and you can see that this triangle still has some room to work with so there will come a time when re entry will be a good risk reward shorter term also but that is not now.

Another interesting thing is that on the Dow-Gold monthly chart. The Dow has broke out above the trend line suggesting that the Dow stocks will now outperform gold. There has been MACD positive divergence for some time.

The US dollar rallied a bit and broke from the small trend line and here you see the next resistance at just over 85.

Now I want to show this as a palladium stock was a longer term buy a while back. The chart of Palladium metal itself looks good as it broke to the upside out of its triangle above both moving averages so is bullish.

The stock SWC a palladium mining company however has been dropping. We bought this stock at about $11 when it broke above the 200-day EMA and trend line. We showed at the time that it was low risk as our stop would be just under and that we would assume that the 200-day would then be support as it had previously been resistance. The stock rallied about 30% and for sure many took at least partial profits. A week ago the stock bounced of the 50-day EMA and rallied but made a bear flag and broke it this week and on Friday broke the 200-day also. We do not know any fundamental reason for the stock's decline and maybe fundamentally this is now a good buy but we did not buy it for fundamental reasons. We bought with an expectation that the 200-day needed to hold and it did not so under those conditions you should no longer hold the stock. Even if you never sold any shares when it rallied you still have a profit but we wanted to point out that it is a good idea to always remember why you entered a specific trade and not to hold if those conditions are no longer in play. We do not want winners to turn into losers as we have so many profitable trades each week so better to use money on those instead.

Here is the weekly economic calendar from briefing com but due to the holiday it includes this last Friday.

On Thursday and Friday there was quite a lot of buying interest in the biotech sector and it is in a possible bull flag so I thought to check the stocks in this sector in case it becomes "hot". It turns out that there are many good setup in this group so many of today's picks are from this group. If the sector does rally then we are set up very well. If not then we lost nothing but some newsletter space. Remember on biotech plays that they can be very volatile and can gap up or down dramatically on any day when the FDA as an example approves or disapproves any drug or candidate. This means to me that it wise to take more gains on initial moves if you intent to hold longer term.

We already have have GLGC on our watch list and it is at a possible break out right now.

New then to our watch list are the following entries: