Following yesterday’s big reversal with heavy volume, it finally looked like this market was ready for a sustained bout of selling.  Typically, that kind of downward momentum leads to further deterioration the next day, or at best a flat day.  But in yet another surprising surge, the bulls continue to put up a fight.  It seems that the market just continues to look for an excuse to push higher.  This time around the excuse to buy seemed to be news of some billionare buying in Citigroup and J&J from the likes of Eddie Lampert and Warren Buffett. 

Technically, the volume behind today’s move indicated decent conviction, but it wasn’t enough to indicate accumulation or completely render yesterday’s move as meaningless.  Based on volume levels over the past couple weeks, the strength of this market continues to weaken.  That doesn’t mean it can’t continue to move up a bit longer (after all, the Dow did make another record high and the S&P did reclaim its upward channel), it just means it will pay to be very cautious up here.  The extreme volatility over the past several trading sessions indicate instability and I’m certainly not going to make aggressive bets on either side until it settles down.

::: Major Indices Performance – The Numbers :::

(Note: volume averages are based on the average over the past 50 days)
Data as of 4:00EST – End of Day May 16th 2007

Today’s move had volume behind it but not enough to signal a day of accumulation.

Nasdaq: UP .88% today with volume 4% ABOVE  average
Nasdaq ETF (QQQQ) UP .98%, volume 34% ABOVE average
Dow: UP 77%, volume 6.5% ABOVE the average
Dow ETF (DIA): UP .75%, volume 59% ABOVE the average
S&P ETF (SPY): UP .68%, volume 6% ABOVE the average
Russell Small Cap ETF (IWM): UP  .56%, volume 61% ABOVE the average

::: SelflInvestors Leading Stocks :::

The Self Investors Leading Stocks Index is comprised of stocks in the Breakout Tracker, which is a database of the fastest growing companies near a breakout or having already broken out of a base.  Leading stocks lagged the performance of the leading indices and volume was considerably heavier in down stocks today.

Summary:

* Advancers led Decliners 265 to 162
* Advancers were up an average of 1.57% today, with volume 2% ABOVE average
* Decliners were down an average of 1.42% with volume 16% ABOVE average
* The total SI Leading Stocks Index was UP .44% today with volume 7% ABOVE the average

::: Where’s the Money Flowing :::

Many investing websites provide leading industries based on price performance alone. However, without accompanying volume levels, this can sometimes be misleading.  The only way that I know of to gauge industry/sector strength WITH volume levels is through the analysis of ETF’s.  A couple years ago this was not possible, but as more traders/investors use ETF’s they become a much better tool for gauging the health of the market and seeing where the money is flowing (or not flowing).  Using the proprietary SelfInvestors Demand Indicator score which measures price and volume movements, I’m able to quickly see which sectors/industries are seeing the greatest inflows of cash.  For a detailed look at how I go about gauging sector/industry strength please see the following post: http://selfinvestors.com/si/industry_tracking/

* Current Leading Sectors/Industries (over last 30 trading days): 
Internet, Networking, Semis, Aerospace/Defense, Biotech
                                               
* Current Lagging Sectors/Industries (over last 30 trading days): 
Internet Infrastructure, Miners, Oil

* Today’s Market Moving Industries/Sectors (UP):
Transports, Internet Infrastructure, Health Care Providers, Telecom, Financial, Health Care

* Today’s Market Moving Industries/Sectors (DOWN):
Gold Miners, Gold, Realty, Commodities

::: Stocks :::

The stocks section will be an area where I highlight one stock selected from a group of stocks moving up with volume well above average and most likely breaking out of a base or consolidation.  Today’s stock is Panamanian airliner Copa Holdings (CPA) – it broke out of a base today to a new all time high with near record volume.

ABOUT:  Copa Holdings, S.A. (Copa Holdings) is a provider of international airline passenger and cargo service. It offers approximately 92 daily scheduled flights among 30 destinations in 20 countries in North, Central and South America and the Caribbean from its Panama City hub. The Company provides passengers with access to flights to more than 120 other destinations through code share arrangements with Continental Airlines, Inc. (Continental), pursuant to which each airline places its name and flight designation code on the other’s flights. On April 22, 2005 the Company acquired AeroRepublica S.A. (AeroRepublica), a Colombian air carrier providing point-to-point service among 12 cities in Colombia and to Panama City. AeroRepublica operated a fleet of seven leased MD-80s and two owned DC-9s. As of December 31, 2005, Copa Holdings fleet consists of 22 Boeing 737-Next Generation aircraft, two Embraer 190 aircraft, 11 MD-80 aircraft and two DC-9 aircraft.

FUNDAMENTALS: After losing money in 2000, Copa Holdings has since reeled off 6 straight years of very impressive earnings growth – 37% in ’01, followed by growth in the following years of 135%, 41%, 21% and 60% last year.  In ’07, the company is expected to increase earnings by another 34% so the future contiues to look bright.  Net margins are very good and well ahead of the industry average at around 16%, while return on equity (ROE) is an oustanding 43% and rising,  If there is a negative, it’s the amount of debt the company carries which is considerably higher than other airliners (however, it has been decreasing over the years).

TECHNICAL:  CPA broke out of a cup with handle base today with near record volume to a new all time high.  That’s the good news.  The bad news is that sell volume in the left side of the base is very heavy.  Given the incredible run the stock had last year when it tripled in price, it’s not too suprising to see that kind of sell volume in the left side, but it does lend a little doubt to the success of this breakout.  What I did is leave the breakout alone and am looking for a light volume pull back to the 64 – 65 range, essentially make the stock prove to me it can hold this breakout before initiating a position.  Despite last year’s run, I believe there is still some room to run in this stock given the fact this is just a second stage base.  It won’t triple again, but don’t be suprised to see it move another 20 – 40% over the next year.

SELFINVESTORS RATING: With a total score of 50/60 (27/30 for fundamentals, 23/30 for technical), Copa Holdings (CPA) is an excellent breakout stock opportunity.

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Full Disclosure/Disclaimer: The stock of the day is by no means a buy recommendation.  Please do your own research and make a personal decision based on your own tolerance for risk.  I currently do not own a position in Copa Holding (CPA)

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

Without solid earnings reports and daily M&A activity to temper the less then desirable flow of economic data, the bulls were, for the first time in several weeks, unable to stem the flow of selling pressure late in the day.  The tone was bearish early as April same store sales came in much lower than expected.  Sales were expected to be weak due to unusually cold weather and higher oil prices, but not at the lowest levels since this data began being tracked.  Add to that higher import prices and a widening trade deficit and it’s no wonder that traders scrambled to lock in profits in this overbought, over hyped market. 

From a technical standpoint, we certainly saw a change of character today.  Over the past several weeks, early (sometimes fairly intense selling) was rendered meaningless by the end of the day as buyers came in on every dip.  It almost felt like you could throw technical analysis out the window.  However, that kind of action can’t be sustained and the selling that should have taken place much sooner kicked in today after several consecutive days of waning buy volume.  The market was ready for selling, it just needed a catalyst.  Looking at support and volume levels, it wasn’t an ugly day but the selling was enough to indicate that further deterioration is highly likely.  Both the Nasdaq and S&P took out their short term upward trend lines (the Nasdaq with heavy volume).  Next levels of support to keep an eye on are Dow 13,000, S&P 1460 and Nasdaq 2500 – 2525.

You see the Nasdaq broke its short term trend line with heavy volume.  The next area of support is around previous highs around 2525 but given the downward momentum of today’s move, it’s likely to break through that level as well.  A drop to around 2500 is probably more likely.

The chart of the Dow illustrates how overbought it was and how far it has to go just to get to the first level of support at the short term trend line – another 200 point or so.  I think it’s a given that it will at least test this level although notice the sell volume wasn’t particularly intense today.  In my opinion, another day like today would provide a great point to get into a few long positions (i’ve been largely in cash in the last couple weeks)

The S&P broke a trend line of its own today, but volume levels didn’t indicate that institutions were dumping stocks.  That doesn’t mean we’re not headed lower though.  With the market closing near the lows of the day and short term support taken out, we probably have another 20 – 30 point to go in the S&P before I’ll get excited on the long side again.

::: Major Indices Performance – The Numbers :::

(Note: volume averages are based on the average over the past 50 days)
Data as of 4:00EST – End of Day May 10th 2007

Distribution across all indices today.

Nasdaq: DOWN 1.65% today with volume 8% ABOVE  average
Nasdaq ETF (QQQQ) DOWN 1.37%, volume 52% ABOVE average
Dow: DOWN 1.11%, volume 2% BELOW the average
Dow ETF (DIA): DOWN .80%, volume 36% ABOVE the average
S&P ETF (SPY): DOWN 1.05%, volume 33% ABOVE the average
Russell Small Cap ETF (IWM): DOWN  1.31%, volume 51% ABOVE the average

::: SelflInvestors Leading Stocks :::

The Self Investors Leading Stocks Index is comprised of stocks in the Breakout Tracker, which is a database of the fastest growing companies near a breakout or having already broken out of a base.  Leading stocks got hit fairly hard today but the selling volume wasn’t particularly intense.

Summary:

* Decliners led Advancers 372 to 50
* Advancers were up an average of 1.46% today, with volume 60% ABOVE average
* Decliners were down an average of 2.29% with volume 8% ABOVE average
* The total SI Leading Stocks Index was DOWN  1.84% today with volume 14% ABOVE the average

::: Where’s the Money Flowing :::

Many investing websites provide leading industries based on price performance alone. However, without accompanying volume levels, this can sometimes be misleading.  The only way that I know of to gauge industry/sector strength WITH volume levels is through the analysis of ETF’s.  A couple years ago this was not possible, but as more traders/investors use ETF’s they become a much better tool for gauging the health of the market and seeing where the money is flowing (or not flowing).  Using the proprietary SelfInvestors Demand Indicator score which measures price and volume movements, I’m able to quickly see which sectors/industries are seeing the greatest inflows of cash.  For a detailed look at how I go about gauging sector/industry strength please see the following post: http://selfinvestors.com/si/industry_tracking/

* Current Leading Sectors/Industries (over last 30 trading days): 
Semiconductors, Internet, Networking, Biotech, Pharma
                                               
* Current Lagging Sectors/Industries (over last 30 trading days): 
Internet Infrastructure, Oil

* Today’s Market Moving Industries/Sectors (UP):
None

* Today’s Market Moving Industries/Sectors (DOWN):
Biotech, Gold Miners, Homebuilders, Internet, Gold

::: Stocks :::

The stocks section will be an area where I highlight one stock selected from a group of stocks moving up with volume well above average and most likely breaking out of a base or consolidation.  Believe it or not, there was one shining star on the long side today – a big breakout in Force Protection (FRPT).  I’ve been discussing it in the live trading room recently and will do a case study on how I traded it for a big profit very soon.

ABOUT:  Force Protection, Inc. designs, manufactures and markets blast and ballistics armored vehicles for sale to military customers. The Company’s specialty vehicles are protected against landmines, hostile fire and improvised explosive devices referred to as roadside bombs. Force Protection, Inc. produces three blast-protected vehicles: the Buffalo series, the Cougar series and the Cheetah series. The Company’s facility, located 10 miles from the Charleston Air Force Base in Ladson, South Carolina, is on a 260-acre campus consisting of three manufacturing buildings with a combined floor area of approximately 452,240 square feet and an additional 90,000 square feet. Force Protection, Inc.’s primary customer is the United States Department of Defense, where it services two principal services, the United States Army and the United States Marine Corps. On December 15, 2006, the Company entered into a joint venture agreement with General Dynamics Land Systems Inc.

FUNDAMENTALS: Force Protection (FRPT) is a company that was bleeding red ink for many years (through 2005), but increasing demand for its V shaped, IED protection, combat vehicles have sent sales skyrocketing.  So much so that the company is maxing out production capabilities and having to partner with the larger General Dynamics in order to meet demand.  By posting their first profitable year, last year was a breakout year for the company.  Earnings per share shot up from a loss of .40/share in ’05 to a profit of .13/share in ’06.  That kind of growth is expected to continue through ’07 with an expected earnings per share of .81.  It’s no wonder the stock has shot up more than 700% in the last year!  Net margins are solid at around 9% and should continue to improve with manufacturing efficiencies and greater pricing power.  Return on equity has shot up as well over the past couple years and stands at around 17%.

TECHNICAL:  FRPT broke out of a base today with heavy volume to a new all time high.  That kind of action is always bullish, but given the tremendous run-up it’s had already and the current state of the overall market, I would be hesitant to initiate a position at these levels.  Put the stock in your watch list and wait for a pullback to the 24 – 25 range.  That would offer a much lower risk entry.

SELFINVESTORS RATING: With a total score of 50/60 (26/30 for fundamentals, 24/30 for technical), Force Protection (FRPT) is a very good breakout candidate.. just a bit too extended at this time.

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Full Disclosure/Disclaimer: The stock of the day is by no means a buy recommendation.  Please do your own research and make a personal decision based on your own tolerance for risk.  I currently do not own a position in Force Protection (FRPT).