Market Rally Hinges on Rate Cut; Hot Solar IPO – China Sunergy (CSUN)

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 0

With earnings season all but over, the focus has turned to the economy and traders are looking for any indication that the Fed will cut rates which would undoubtedly send this market even higher – in other words a cooling economy, but not too cool and tame inflation readings.  On Thursday, same store retailer readings were much cooler than expected which contributed to the sharp, higher volume drop and breach of support levels. Considering the market closed at the lows of the day, momentum would have you believe that Friday could have been ugly as well.  However, tame PPI data gave traders hope that a weakening economy and tame inflation just might lead to a rate cut and bulls managed to recoup nearly all over Friday’s losses.  The never ending M&A mania helped a bit too :). 

From a technical standpoint, even though the indices closed with minor gains for the week, I still consider it a week of deteriorating technicals.  Waning volume on the buy side culminated in a large volume drop below first level support in the S&P and Nasdaq.  Yes, the fact that there wasn’t any selling follow through on Friday is a positive for bulls, but keep in mind that there was little conviction behind Friday’s move and first levels support lines are still busted.

I think this week will be key and should provide us with clues as to when we can expect some sort of consolidation in this market.  We get CPI on Tuesday and Housing Startes on Wednesday.  Both could be market movers.  I still think it pays to be extremely cautious right now! 

::: Model Portfolio Update :::

It’s been  the same old story with the Model Portfolio.  I continue to sit largely in cash and that has hurt my performance, but I’m not going to chase this market for fear of "being left out".  I’m remaining patient for the right time to get more aggressive and that time isn’t now.  During the week I closed out 4 Quick Strike profit positions (3 ahead of their earnings reports) – AKRX (6%), HGR (-2%) and one core holding in a top semiconductor play – TrioTech (TRT) for a small gain of 1%.  As I almost always do with these unproven small caps, I sold TRT ahead of earnings.  The stock has soared over 30% since.. doh!!  I’m not about to abandon that strategy though.  It has saved my ass several times.  I did however make the rare exception and decide to hold KOG through earnings because of the tremendous buying demand over the past few months as well as the large number of institutions intiating positions (including the legendary Steven Cohen).  When the stock didn’t pop at the open, but dipped below short term support, I decided to lock in my 13% gain.  However, by the end of the day, the stock reversed sharply, keeping the bullish pennant formation intact.  I’m considering re-initiating a position soon. 

Those "ahead of earnings" closed positions were replaced with two new QSP positions and a core position in a stock that has been listed atop the breakout stock watch screens on several occassions over the past year.  Overall, the portfolio dipped this week and for the first time in a long time the YTD  performance (5.5%) has dipped below that of the S&P500 which stands at 6.2%.  The current allocation of the portfolio stands at 34% long, 13% short and 53% cash.

::: Best/Worst Performers :::

– Top 10 Performing Industries For the Week –

1. Aluminum: 14.05%
2. Heavy Construction: 11.40%
3. Nonmetallic Mineral Mining: 5.05%
4. Recreational Goods: 4.60%
5. REIT – Residential: 3.80%
6. Steel & Iron: 3.65%
7. Metal Fabrication:  3.25%
8. Personal Computers: 3.20%
9. Copper: 3.15%
10. Drugs – Generic: 2.75%

– Top 10 Worst Performing Industries For the Week –

1. Food Wholesale: -6.95%
2. Multimedia & Graphics: -4.45%
3. Dairy Products: -3.60%
4. Medical Equipment Wholesale: -3.35%
5. Music & Video Stores: -3.15%
6. Major Airlines: -2.55%
7. Computer Peripherals: -2.55%
8. Sporting Goods Stores: -2.50%
9. Grocery Stores: -2.30%
10. Industrial Equipment Wholesale: -2.20%

– Top 5 Best Performing ETFs For the Week –
1. PowerShares China (PGJ)  5.20%
2. Ishares China (FXI) 4.35%
3. Ishares South Korea (EWY) 3.20%
4. Korea Fund (KF) 2.20%
5. Chile Fund (CH) 2.10%

– Worst 5 Performing ETF’s –

1. Herzfeld Caribbean Basin (CUBA)  -10.25%
2. HLDRS Biotech (BBH) -3.90%
3. Germany Fund (GF) -3.55%
4. Ishares Biotech (IIB) -3.30%
5. Central Fund of Canada (CEF) -2.65%

:::  IPO’s Worth Watching for This Week :::

Yet another China solar IPO this week!

1. China Sunergy (CSUN): leading manufacturer of solar cell products in China as measured by production capacity. Manufactures solar cells from silicon wafers utilizing crystalline silicon solar cell technology to convert sunlight directly into electricity through a process known as the photovoltaic effect. Products are sold to Chinese and overseas module manufacturers and system integrators, who assemble  solar cells into solar modules and solar power systems for use in various markets. Trading set to begin on Friday.

2. Skilled Healthcare Group (SKH): a leading support services provider to the long term care profession. Through their administrative and support services network, they provide direct support to 61 skilled nursing facility and 12 assisted living facility business affiliates. These locations comprise over 8300 licensed beds. They also provide administrative and support services to Hallmark Rehabilitation, Inc. and Hospice Care of the West, LLC.  Trading set to begin on Tuesday.

3. CAI International (CAP): one of the world’s leading intermodal freight container leasing and management companies. Intermodal freight containers are large, standardized steel boxes, which they lease primarily to international steamship companies, and are used to transport cargo by a number of means, including ship, truck and rail. A portion of the container fleet is owned by CAI with the balance being owned by third parties on whose behalf they manage the containers. Business is operated in two segments: container leasing and container fleet management. Through an international network of offices and agents an active after-market program was developed for containers retired from the international shipping fleet.  Trading set to begin on Wednesday.

4. TechTarget (TTGT): publishes online content that "brings together buyers and sellers of corporate IT products". The company publishes 35 Web sites, each of which focuses on a specific IT sector, such as storage, security or networking. TechTarget also hosts events and conferences and publishes a small number of IT-related magazines. The company has more than 1,000 active advertisers, including Microsoft Corp. (Nasdaq: MSFT), EMC Corp. (NYSE: EMC) and IBM Corp. (NYSE: IBM), according to the statement. Trading set to begin on Thursday.

::: Upcoming Economic Reports (5/14/07 – 5/18/07) :::

Monday:        None
Tuesday:       CPI
Wednesday:  Housing Starts, Building Permits, Capacity Utilization, Industrial Production, Crude In.
Thursday:      Initial Claims, Leading Indicators, Philly Fed
Friday:           Mich Sentiment

::: Notable Upcoming Earnings Reports I’ll Be Watching This Week :::

Monday: Canadian Solar (CSIQ), Aircastle Limited (AYR)

Tuesday: MIndray Medical (MR), Companhia Paranaense de Energia (ELP)

Wednesday: Copa Holdings (CPA)                                                     
Thursday: Focus Media (FMCN)

Friday: None

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