July 22, 2007

Dear TSP Subscriber:

Despite the fact that many were eagerly awaiting the arrival of earnings season, on the whole, so far, the reactions to many of the big reports has been rather disappointing. We kicked the week of wondering if market players would be able to build on the huge moves at the end of the previous week, but a lack of any meaningful catalysts on Monday prompted investors to lock in some gains. Still, optimism was rather high on Tuesday even as investor weighed a “sell-the-news” reaction to Dow components Johnson & Johnson (JNJ) and Coca-Cola (KO) against the fact that the Dow approached and crossed the 14,000 level on an intraday basis.

While the media were busy throwing up high-fives, however, strength in just a handful of very large stocks was covering up some rather weak action in the broader market. The nervousness continued on Wednesday as it started to become apparent that, whether it was due to poor guidance or earnings results that just weren’t impressive enough to sustain the buying pressures, investors just weren’t all that ready to fall over each other to buy mediocre news.

If this wasn’t enough, market players also had to contend with Fed Chairman Ben Bernanke’s semi-annual testimony in front of Congress. Investors were likely looking for some calming words from the Bearded One, but what they got instead were some negative comments on the subprime issue and the length of time it will take for the housing market to stabilize.
 
Although there wasn’t much of a reaction after his prepared remarks hit the wires, sellers picked up their pace late in the morning, sending the indices steadily lower into the afternoon on breadth that showed about three declining stocks for every one that advanced. However, a flurry of buying into the close helped the averages finish well off their lows indicating that there was still hope that the bulls would start to get some reports they could hang their hats on.

Indeed, the very next day, it did look like positive reactions to IBM (IBM), Juniper (JNPR), and SAP (SAP) would be enough to turn the tide as market players were able to build upon the previous day’s strong close. However, disappointing reports on Friday from momentum darling Google (GOOG) and Dow component Caterpillar (CAT) as well as poor reactions to otherwise decent quarterly results from Citigroup (C) and Microsoft (MSFT) quickly put the kibosh on that, and investors spent the final day of the week taking a fair amount of chips off the table.

Still, with three stock declining for every one that advanced, the selling was definitely broad-based, and given how technically extended the major indices as well as several individual stocks had become recently, this sort of shake-out might be the thing that provides decent set-ups as we move forward.

Moreover, despite the poor action this past week, we have yet to suffer any real technical damage. There are still plenty of companies who have yet to deliver their results, and there are a whole slew of reports on the calendar next week that have the potential to shake things up a bit.

The bottom line, then, is that while we continue to stalk out our entry points into the funds, we will continue to move cautiously until the reactions to earnings reports begin to improve.

Our current allocation is as follows: 

Let’s go to the charts.

F-Fund

C-Fund

S-Fund




I-Fund