Analysts Have Lowered S&P 500

Submitted By Don Vialoux

Technical Action Yesterday
Technical action by S&P 500 stocks was bearish yesterday. One S&P 500 stock broke resistance and eleven stocks broke support.
S&P 500 stocks breaking resistance

Stock Symbol Previous New

Trend Trend

Autodesk ADSK Up Up

S&P 500 stocks breaking support

Stock Symbol Previous New

Trend Trend

Compass Bancshares CBSS Up Down

Dean Foods DF Up Down

DR Horton DHI Neutral Down

Hasbro HAS Up Down

Home Depot HD Up Neutral

KB Homes KBH Up Neutral

Kohl’s KSS Up Down

Newell Rubbermaid NWL Neutral Down

Regional Financial RF Up Neutral

Sealed Air SEE Neutral Down

Watson Pharma WPI Up Down

Technical action by TSX stocks also was bearish. Two TSX stocks broke resistance and six stocks broke support.

TSX stocks breaking resistance

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Trend Trend

Corus Entertainment CJR.B Up Up

Weston WN Down Neutral

TSX stocks breaking support

Stock Symbol Previous New

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Crystallex KRY Up Neutral

Dynatec DY Up Neutral

Mega Bloks MB Down Down

OPTI Canada OPC Up Neutral

Real Resources RER Up Down

Trican Resources TCW Up Neutral

Interesting Charts

Interest rate jitters rocked North American equity markets yesterday. The yield on 10 year treasuries rose another 0.11% to close at a five year high of 5.25%. Overnight, yield spiked to 5.31%.

Chart courtesy of StockCharts.com www.stockcharts.com

Interest sensitive stocks (banks, utilities, home builders) were notable on the list of stocks breaking support.

Chart courtesy of StockCharts.com www.stockcharts.com

In Canada, energy stocks were notable on the list of stocks breaking support. ‘Tis the season for weakness in the sector!

Chart courtesy of StockCharts.com www.stockcharts.com

Calendar Second Quarter 2007 Consensus Earnings Estimates for the 30 Dow Industrial Average Companies

The latest survey on earnings estimates by the 30 Dow companies has provided a surprise. The previous survey was completed by Tech Talk on May 14^th, just after most companies reported stronger than expected first quarter earnings. Today’s survey was completed now because major U.S. corporations are about to enter their “quiet” period when frequency of corporate comments on earnings prior to release of second quarter reports are diminished. The exceptions are companies that report negative surprises.

The surprise is that analyst estimates on a year-over-year basis were raised. Estimates were increased for nine companies and reduced for four companies. Average (median) increase rose from 8.9% to 9.9%. Estimates were raised despite a decline in consensus estimates for S&P 500 companies to 3.8%. Analysts have lowered S&P 500 earnings estimates due to higher energy and interest costs as well as slowing consumer spending growth. The most significant offset is additional growth from international operations as well as foreign currency translation. To be fair, consensus estimates for S&P 500 companies probably are low by about 3% because corporations continue to play the game of offering “quarterly earnings less a penny” guidance. The same can be said for the 30 Dow Industrial companies. However, that implies an end result for second quarter earnings gains of 9.9% + 3.0% = 12.9%, an estimate that appears too high given the current state of the U.S. economy. Currency translation will have a positive impact on earnings in the second quarter, but significance will be less than the first quarter.

Chart courtesy of StockCharts.com www.stockcharts.com

Following is summary of second quarter consensus estimates as well as changes in estimates during the past month.

Company Quarter Earnings Consensus Percent Change

Last Year This Year Change Since May14

Alcoa 2 $0.90 $0.86 (3.2) $0.01

American Express* 2 0.78 0.86 10.3

Amer. Int’l Group 2 1.45 1.61 11.0 0.03

AT&T 2 0.58 0.67 15.4

Boeing 2 (0.21) 1.14 N/A 0.01

Caterpillar 2 1.52 1.49 (2.0)

Citigroup 2 1.05 1.14 8.6

Coca Cola* 2 0.74 0.81 9.5 (0.01)

Disney 3 0.53 0.55 3.8 0.01

Dupont 2 1.01 1.06 5.0

ExxonMobil 2 1.72 1.74 1.2 0.04

General Electric 2 0.47 0.53 12.8

General Motors 2 2.03 1.21 (40.4) (0.03)

Hewlett Packard 3 0.52 0.65 25.0 0.02

Home Depot 2 0.93 0.82 (11.8) (0.02)

Honeywell 2 0.63 0.75 19.0

IBM 2 1.30 1.47 13.1 0.01

Intel 2 0.15 0.19 26.7

Johnson & Johnson 2 0.98 1.00 2.0

JP Morgan 2 0.92 1.07 16.3

McDonalds 2 0.59 0.66 11.9

Merck 2 0.73 0.71 (2.7) 0.01

MMM 2 1.05 1.16 10.5

Microsoft 4 0.31 0.39 25.8

Altria(Philip Morris) 2 1.41 1.13 (19.9)

Pfizer 2 0.50 0.50 0.0

Procter & Gamble 2 0.55 0.66 20.0

United Technologies 2 1.02 1.15 12.7

Verizon 2 0.64 0.58 (9.6)

Wal-Mart 2 0.72 0.77 8.9 (0.02)

*Median

Sources: www.globeinvestor.com and www.zacks.com

Consensus Third Quarter Earnings Estimates for the 30 Dow Jones Industrial Average Companies

Consensus earnings estimates for the third quarter also rose. Year-over-year estimates increased for 10 companies and declined for two companies. Average (median) increase is 9.9% versus 9.7% on May 14^th. Given the outlook for the U.S. economy into the third quarter, estimates appear too high.

Following are consensus estimates for the 30 Dow Jones Industrial Average companies for the third quarter of 2007

Company Quarter Earnings Consensus Percent Change

Last Year This Year Change Since May 14

Alcoa 3 $0.62 0.83 33.9 $0.02

American Express 3 0.78 0.85 9.0 (0.01)

Amer. Int’l Group 3 1.53 1.58 3.3

AT&T 3 0.63 0.70 11.1 0.01

Boeing 3 0.89 1.23 38.2 0.02

Caterpillar 3 1.14 1.38 21.1 (0.02)

Citigroup 3 1.06 1.13 6.6

Coca Cola* 3 0.62 0.68 9.7

Disney 4 0.36 0.40 11.1

Dupont* 3 0.49 0.54 10.2 0.01

Exxon Mobil 3 1.77 1.70 (4.0) 0.04

General Electric 3 0.49 0.55 12.2

General Motors 3 0.93 0.56 (39.8) 0.02

Hewlett Packard 3 0.68 0.77 13.2

Home Depot 3 0.73 0.70 (4.1)

Honeywell 3 0.66 0.80 21.2 0.01

IBM 3 1.45 1.63 12.4 0.02

Intel 3 0.21 0.27 28.6

Johnson & Johnson 3 0.98 1.01 3.1

JP Morgan 3 0.91 1.05 15.4 0.01

McDonalds 3 0.69 0.75 8.7

Merck 3 0.51 0.72 41.2

MMM 3 1.17 1.26 7.7

Microsoft 1 0.35 0.38 8.6

Altria (Philip Morris) 3 1.39 1.14 (18.0)

Pfizer 3 0.54 0.52 (3.7)

Procter & Gamble 3 0.79 0.91 15.2

United Technologies 3 0.99 1.15 16.2

Verizon 3 0.68 0.63 (7.4) 0.11

Wal-Mart 3 0.62 0.68 9.7

* Median

Sources: www.globeinvestor.com and www.zacks.com

Iain Fraser’s Column

Today, for the first time we are going to discuss selling. Nearly all investors, big and small, have a lot of trouble on the sell side. There seems to be an almost universal basic assumption that a quality stock should not be sold at a loss. Our experience has been that it is almost a religion that an investor does not take a loss on a quality stock. But then we come to Nortel; this stock hit a high of $125 about six years ago. When it got down to $99 most investors, if they did anything, were more interested in buying, not selling. When the stock got to $60, and most people had a loss, selling the stock at that time was just about out of the question. We were not in the business when Nortel reached its high, but our basic rule is that if any stock goes below its long term moving average, the technical appraisal becomes negative and our rating also becomes negative.

Chart courtesy of StockCharts.com www.stockcharts.com

There are many stories on the sell side and we are going to tell you about 2 of the most famous ones. It is said that Joseph P. Kennedy (President Kennedy’s father) was getting his shoes shined in the spring and early summer of 1929; the shoe shine boy told Mr. Kennedy that he was putting all his money in stocks. When the shoes were shined Mr. Kennedy paid the shoe shine boy and gave him a generous tip. Mr. Kennedy’s next move was to the nearest pay phone; he put his 5c in; and phoned his broker and told him to sell everything. And of course it was the right thing to do.

The second story is about Winston Churchill; it is said that Churchill had a large sum invested in US stocks at the top of the market in 1929; and he was on margin. As the stocks went down, he would get a notice from his broker that he had to put up more money. It got so bad that Mr. Churchill knew he had to sell his country home (Chartwell). This was his only house. But one day Mr. Churchill got his usual, and dreaded, monthly statement from him American broker; he knew that his debit had increased, but he opened the statement anyway. To his utter amazement there was no debit at all, and Mr. Churchill owed nothing. A wealthy American, who was a friend and admirer of Mr. Churchill, had taken over his sad account.

Our position on the sell side (overvalued stocks) is quite straight forward. All quality stocks, fit into 3 categories; undervalued, average value and overvalued. We believe that the better route is to go into undervalued stocks, and if they get overvalued, to go out of them. In our current Report we have 2 well known, and widely held, Canadian stocks that are now substantially overvalued; and there are more to come.

Editor’s Note: Iain’s services are available at www.fraser-ratings.com . Iain can be contacted at fraserratings@yahoo.ca

Disclosure: Mr. Vialoux does not own securities mentioned in this report.

June13,007

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