Highlight this morning is weakness in the U.S. Dollar

Submitted By Don Vialoux

Technical action by S&P 500 stocks was quietly bullish yesterday. Three S&P 500 stocks broke resistance and none broke support.

S&P 500 stocks breaking resistance

Stock Symbol Previous New

Trend Trend

Eastman Chemical EMN Neutral Up

Murphy Oil MUR Down Neutral

Precision Castparts PCP Up Up

Inter-day Comments for Monday July 2^nd

9:20 AM EDT: Highlight this morning is weakness in the U.S. Dollar and corresponding strength in the price of Gold. Gold is up another $5.40 to $656.30 U.S. per ounce. Technically, gold recently bounced from its 200 day moving average. MACD, RSI and Stochastics are oversold in the short term and trying to recover. Short term resistance at $665.80 U.S. likely will be tested shortly. The AMEX Gold Bug Index has developed a two month trading range between $317.70 and 344.07. MACD and RSI are starting to recover from a short term oversold level. A test of the top of its trading range likely will be tested shortly.

Chart courtesy of StockCharts.com www.stockcharts.com

Impact of U.S. Dollar weakness on second quarter earnings for S&P 500 companies

Weakness in the U.S. Dollar will have a significant positive impact on second quarter earnings for S&P 500 companies when currency translation is taken into account. In addition, sales and earnings from operations outside of the U.S. are growing faster that domestic operations and will add to second quarter results The U.S. Dollar closed sharply lower at 81.92 on Friday, the last trade date for the quarter. On a year-over-year basis from the end of June 2006 to the end of June 2007, the U.S. Dollar fell 3.8%. On a year-over-year basis from the average in the second quarter of 2006 to the average in the second quarter of 2007, the Dollar fell 5.2%.

Chart courtesy of StockCharts.com www.stockcharts.com

Moreover, the U.S. Dollar continues to weaken relative to other major world currencies. Yesterday, the British Pound broke to a 26 year high partially in anticipation of at least a 25 basis point increase in the Bank of England’s overnight rate (equivalent to the Fed Fund rate in the U.S.).

Chart courtesy of StockCharts.com www.stockcharts.com

Which sectors are most impacted by a change in the value of the U.S. Dollar relative to other major world currencies? Ned Davis Research recently released a study that provides an insight. The report shows the percent of foreign pretax income at the end of 2006 realized by S&P 500 companies by sector. Results of the study were as follows:

S&P 500 sector Percent of Foreign Pretax Income

Health Care 69

Energy 60

Information Technology 49

Material 45

Industrials 41

Consumer Staples 38

Consumer Discretionary 32

Telecommunication Services 11

Utilities (1)

S&P 500 48

The top three sectors are the most likely candidates to report earnings surprises when second quarter results are released. Notable is the Health Care sector that is dominated by Biotech and Pharmaceutical companies with international operations. Biotech and Pharmaceutical companies have a period of seasonal strength starting in mid summer and continuing until early in the New Year. Chances of a seasonal trade in Biotech and Pharmaceutical ETFs are higher than average this year.

ETF Update

Last week, Claymore announced two more Exchange Traded Funds in the U.S.

Claymore/Clear Global Exchanges, Brokers and Asset Managers Index ETF. Symbol on the AMEX is EXB.
Claymore/Clear Global Vaccine Index ETF. Symbol on the AMEX is JNR.

MER on both funds is 0.65%. Claymore now has launched 25 ETFs on U.S. exchanges. More information is available at www.claymore.com

Adrienne Toghraie’s “Trader’s Coach” Column

Minefields In Trading

By Adrienne Toghraie, Trader’s Coach

www.TradingOnTarget.com

As I was sitting in my kitchen eating raspberries, I thought about a story a client told me about when he was in Vietnam. For days he was walking and fighting through the jungle with dysentery and with the fear that with each step he might uncover a minefield. Learning to sleep standing with his eyes open each day felt like a living hell. Through his foggy eyes one day he saw in the distance a lone raspberry. For that one moment he could forget about all the horrors around and inside of him and focus on a simple pleasure that at the time was the most important moment of his life. I imagined how important that raspberry was to him stopping a moment to savor just one instead of indiscriminately popping them in my mouth. When this same soldier who was called P.G. came to me for consulting, he told me how he now sits in front of a screen focusing on the loses that could come from trading rather than looking for opportunities.

The Story Behind The Trade

Here are some themes that I have uncovered when working with traders:

· If I lose I will not be able to trade any more – (fear of loss)

· Everyone will be right about trading being an addiction – (fear of not having ability)

· I will have to get a real job – (fear of losing out on the dream)

· If I win too much, I will have to assume more responsibility – (fear of keeping up expectations)

· I don’t want to be wrong – (fear of being wrong)

If the story behind the trade is filled with emotions that keep you from trading or limit your opportunities, you’re trading as if you are walking through a minefield. Pay attention to your story to discover your own particular minefield story.

Focusing On Raspberries

· What specifically has to happen for there to be an opportunity for a trade?

· By your criteria – how many opportunities should you see in a day?

· What is the risk to reward ratio on this kind of opportunity?

· If you are not taking these opportunities, what is the story behind not taking them?

· What story would be more in line with making money?

· Write down that story and repeat it every time you see an opportunity.

Example: “I just found a delicious raspberry.” (P.G.’s new story)

While it was important for P.G. to focus on recognizing minefields when he was in the jungles of Vietnam, he now can focus on opportunities. Are you looking at the minefields or at the opportunities?