Wednesday Dec 06, 2006

More good news for stocks

Taipan Group's Dynamic Market Alert

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More good news for stocks

by J. Christoph Amberger

Positive economic numbers point to a continuation of the current boom.... no matter what the nattering nabobs of professional bearishness may tell you. Yesterday, the growth rate report for the U.S. service industries in November indicated that the third leg of American economic strength is continuing to perform strongly.

The Institute for Supply Management’s index of non-manufacturing businesses (which represent about 90% of the U.S. economy) rose to 58.9 last month, from 57.1 in October. It should be pointed out that this index also includes the construction sector, implying that any temporary weakness of this particular economic segment is more than counterbalanced by the strength of other parts of the service industry.

Wage growth in the third quarter, however, was less than forecast, alleviating a potential source of inflation. Labor cost rose by a 2.3% annual pace, with unit labor costs projected to rise at a 3.2% pace. The 12-month increase in labor costs through September was 2.9%, much lower than the 5.3% clip that the government first estimated.

(These numbers suggest that inflation, too, will remain under control.)

Productivity grew by 0.2% for the third quarter (a reflection of rising labor cost), following second-quarter productivity growth of 1.2%.

These numbers indicate one thing: The U.S. economic boom is rather firmly entrenched and will deliver strong economic growth as well as decent returns on blue-chip stocks well into the first quarter of 2007.

Death Cross Trading

by Ian L. Cooper

In late November, shares of AIG were grossly overbought.  This is one of the technical indicators that we’re watching very closely. When we get word of an extremely overbought W%R read (a component of our brand-new Death Cross Trader System), we typically know that the underlying stock is due for a major correction.

AIG had just put in a bearish engulfing candlestick of the previous day’s hammer formation (another bearish sign of a coming reversal).  And while AIG had used its upper Bollinger Band as support, it crashed through that support line on news of a Department of Justice and SEC investigations. 

Days later, AIG dropped from more than $72 to about $69.50.

However, AIG looks to have bottomed out at its current price of $70.  Again, technically, we have another doji reversal signal… this time at the bottom of the trend (a doji at the bottom of trend can be used as a bullish reversal signal). 

Fundamentally speaking, the company (once entangled in investigations that rocked the core of the insurance industry and whose accounting probes led to the departure of Hank Greenberg last year) has become quite the turnaround story. The company has posted two good quarters of better-than-expected numbers (Q2 and Q3 2006). Q3 net income more than doubled to $4.22 billion, or $1.61 a share. 

And with the regulatory mishaps behind the company, investors can comfortably return to the stock without much concern that risk will outweigh reward. Business fundamentals have improved. And, the lack of severe hurricanes this past season also means that revenue should benefit from any pre-season rate augmentation.  Plus, the company can now return to focusing on improving its foreign life operation, which is expected to shake troubles (including disappointing sales growth) and remain a main catalyst for AIG’s overall profit growth.

Even better, according to Barron’s, the belief is that “AIG is positioning itself to deliver double-digit earnings growth in foreign life in 2007 and 2008 as it merges its Edison and Star life companies in Japan and focuses on shifting its product mix to higher margin, less interest-rate-sensitive products across Southeast Asia.”

Learn more.

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Earnings Announcements for December 7, 2006

Atwood Oceanics, Carreker Corporation, Cascade Corporation, Diamond Foods Inc, Esterline Technologies, IDT Corporation, Jacuzzi Brands Inc, Methode Electronics, Pathmark Stores Inc, and Zila Inc are releasing earnings.

Unlock Dates for December 2006

12/11/06 – Verasun Energy Corporation is unlocking 18.25 million
shares.

12/11/06 – Verigy is unlocking 8.5 million shares.

12/12/06 – Volcano Corporation is unlocking 6.8 million shares.

12/25/06 – J. Crew Group Inc is unlocking 18.8 million shares.

12/25/06 – Replidyne is unlocking 4.5 million shares.

12/26/06 – Aventine Renewable Energy is unlocking 9.058 million shares.

Upgrades and Downgrades

Pall Corporation upgraded by Longbow from Sell to Neutral.

PetroQuest upgraded by AG Edwards from Hold to Buy.

Barnes & Noble upgraded by Credit Suisse from Underperform to Outperform.

Southern Company downgraded by AG Edwards from Buy to Hold.

American Eagle downgraded by Matrix Research from Buy to Hold.

Blockbuster downgraded by Citigroup from Buy to Hold.

Brought to you by Taipan Financial News
http://www.taipanfinancialnews.com

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Quote of the Day

“The movie piracy comes from being a big business in Asia. You can buy new movies on any street corner, just like that, for pennies. And you can get the knockoffs of American toys ... A lot gets lost in translation though. I saw the Tickle Me Elmo called ‘Touch Me on Red Parts to Make me Happy’ doll.”

- Colin Ferguson, Dec. 3, 2006