Navarro’s Broad Market Outlook: Bullish Until
Further Notice

The iron grip of higher oil prices seems now to have been
broken decisively.  Investors have used the occasion to ignore the weak dollar,
a soft job reports, the prospect of more rate hikes, and lowered projections on
holiday sales to party some more in this Xmas season.  I remain short term
bullish and eager to ring the cash register — but also quite ready to cut and
run at the first sign that the egg nog is wearing off on Wall Street.  

Peter’s Picks: A Mixed Bag

Holding: Composite Technology (CPTC.OB) had
another monster week.  Since I first made this call in the 11/7/04 newsletter at
roughly two bucks, the stock has more than doubled, finishing at $4.44 on the
week.  Two pieces of news drove this: A new installation in Kingman, Kansas and
the release of funds from venture capitalists.  The big news now pending is the
China deal, which has been like waiting for Godot.  If this test is passed, the
company should be poised for solid long term growth.  (Unlike a lot of penny
stocks, this company actually makes real stuff.)

Holding: My 2006 NWAC and WMB calls.  These have
turned out to be almost a perfect hedge as Northwest rallied on falling oil
prices while WMB fell. 

Holding: SGI, MVIS, ISO, and EMKR.  EMKR is the
weakest link thus far.

Sold: BFLY on a technical deterioration.  Will
keep it on my watch list and it will move again if Xmas online sales are up.

New: Opened up a position in Loudeye (LOUD) and
then added to it as it moved up during the week.  Momentum traders bailed on
Friday to bring it down a bit but this $1.50 stock added a full buck to its
value for the week.  The company is a key player is the distribution of digital
music and had some nice new deals lately.

Watching: Calpine (CPN) and Xybernaut (XYBR)

Aloyan’s Technical Take: Don’t Shoot the
Messenger!

The market continues on its merry
way, with all three major indices finishing the week in the green.  The Dow
closed up 65 points (.62%) at 10522, the S&P 500 was up 12 points (1.05%) at
1183, and the Nasdaq closed up 31 points (1.51%) at 2102.  All three indices
rallied back towards their short-term highs, albeit on much lower volume. 
Resistance is around:  the 10600 area and  10754 for the “Dow,” the 1188
area for the S&P 500, and the 2112-2120 area for the Nasdaq Composite. 
Support is around:  10471 for the “Dow,” 1170 for the S&P 500, and 2075 for
the Nasdaq Composite.  

My sector breadth remained
positive, with 76% of the sectors in the green.  Most of the Technology sectors
outperformed, while usually strong Energy and Metals & Mining sectors
underperformed.  The Dollar continues its slide, making new lows, but is only
1-4% away from strong support dating back over nine years.  Meanwhile, yields on
the 10-Year Note ended higher on the week closing at 4.27%

My trend indicators remain
positive, but my breadth and momentum indicators are signaling a correction is
imminent.  Overall volume surged last week, but some deterioration is occurring
in my volume indicators.  My sentiment and economic/fundamental indicators
continue to remain mostly bearish. 

Bottom line:  I reiterate
that we have yet to experience a decent correction, and remain very
“overbought.”  Most markets and their underlying sectors are stretched, way over
due for a correction.  There exists an extremely high level of geo-political
risk and lofty valuations. The continued decline of the dollar, coupled recently
with rising rates is a major warning sign–just to mention a few of my reasons
for caution.    

David’s Pick: Favor Cash for Now.

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DISCLAIMER: This newsletter is written for
educational purposes only.  By no means do any of its contents recommend,
advocate or urge the buying, selling, or holding of any financial instrument
whatsoever.  Trading and investing involves high levels of risk.  The authors
express personal opinions and will not assume any responsibility whatsoever for
the actions of the reader.  The authors may or may not have positions in the
financial instruments discussed in this newsletter.  Future results can be
dramatically different from the opinions expressed herein.  Past performance
does not guarantee future performance.