Stocks continued Thursday’s rally as investors reacted to news about the second quarter GDP number with the Nasdaq the exception.

The Dow closed up 16.93 to finish the week at 9,171.39; the Nasdaq finished down at 1,978.50, losing 5.80 points after showing gains for most of the day; and the S&P 500 close up 0.72 points to finish at 987.47.

Stocks in the Russell 2000 closed down 0.09 points to end at 557.71. 
 

Leading small-cap gainers include VirnetX Holding (AMEX:VHC) up 112%; Anadys Pharmaceuticals (Nasdaq:ANDS) up 44%; Inovio Biomedical (AMEX:INO) up 38%; and Integra Bank (Nasdaq:IBNK) up 34%.

Small-cap decliners were lead by notebook computer parts maker Synaptics (Nasdaq:SYNA) down 33% on news that the firm had disclosed fiscal 2010 growth will be slower than expected. Analysts immediately downgraded the stock driving prices down immediately at the open.

Other small-cap decliners include iStar Financial (NYSE:SFI) down 19%; Ariad Pharmaceuticals (Nasdaq:ARIA) down 18%; and YRC Worldwide (Nasdaq:YRCW) down 17%.

*****Today was the big one. Say what you want about yesterday’s rally, the reaction to this morning’s 2Q GDP number should be expected to influence trading going forward.  

Now, I’m going to let TradeMaster Jason Cimpl’s morning commentary to his traders provide the in-depth analysis to the GDP number:  

Second quarter annualized rate GDP was reported at -1.0%, compared to the consensus of -1.5%.  

First quarter GDP was revised lower to a 6.4% decline from the previous reading of a decline of 5.5%. Personal consumption fell 1.2% (the consensus had been 0.5%). 
This market might be crazy enough to ignore the downward revision from the previous quarter, but how can they possibly brush off that personal consumption reading? 
Personal consumption is the largest portion of GDP. This number should have investors concerned. 

Volume numbers today will be a big tell if the street really likes the GDP figures. At the end of the day, GDP is a lagging indicator, so don’t expect that today is the game changer. 

Thanks, Jason. 

He’s got his Friday video online where he’ll do a quick recap of the market for the week and more importantly, provide guidance on market direction and action for the coming week. Click here to watch Jason’s video analysis.

*****Deutsche Bank (NYSE:DB) CEO Josef Ackerman says "The crisis is not over." He told Bloomberg that "[b]ad loans are the next wave. Banks that have fared relatively well so far will also be affected by this." 

As evidence, problem loans at Deutsche Bank rose 44% on the last quarter. Deutsche Banks has raised its loss reserves to $1.4 billion and also reduced its balance sheet and risk-taking.  

*****I continue to view oil as a critical leading indicator for global economic recovery. So long as oil prices remain strong, investors are clearly ignoring current demand statistics and focusing instead on future demand and slack production growth.  
For instance, Europe’s third largest oil company, Total SA (NYSE:TOT) reported that production fell 7.3% in its 2nd quarter. That puts Total’s production back to year 2000 levels.  

The reason is obvious: demand is down, and Total, like most oil companies, is cutting back on investment in new production because prices are down.  

Despite a slight rise in production, Chevron (NYSE:CVX) reported a 51% drop in revenues. It would seem likely that the revenue shortfall will affect Chevron’s investments in new production, too.

The big question, though, is if investors will shift their focus to current demand numbers. At some point, declining profitability and continuing economic weakness should bring oil prices down.

*****It’s pretty clear now that trends like weak GDP, weak demand for oil, rising unemployment we’ve seen emerging from the financial crisis and recovery will be with us for a long time.

Clearly, these conditions will have a profound effect on your investments in the months and years ahead.

And because many of these conditions are a direct result of government bailouts, I’m calling the condition Managed America.

We’re hosting a video conference to look forward to investing strategies for the remainder of 2009 and beyond, and to explore my concept of Managed America and how you can still make profitable investments. The U.S. economy has changed and investors need to understand the changes in order to make the best investments.

The Managed America video conference will air on August 10, 2009 at 6:00 P.M. You can register for this important event when you click HERE.

Best Regards,

Ian Wyatt
Editor
Daily Profit

Stocks rallied today suggesting that investors sloughed off fears of a correction or at least pushed out the day of reckoning. The Dow closed up 83.51 to 9,154.23 after a major drop down during the last hour of trading. The Nasdaq closed up 16.54 to end the day at 1,984.30 and the S&P 500 closed up 11.60 to finish at 986.75 after and early session high of 996.68 had traders believing that 1,000 might be broken.

The Russell 2000 closed at 557.75, up 9.37.

Leading price gainers for small-cap today was Georgia Gulf Corporation (NYSE:GGC) up 119% after announcing it had cut its debt load by half. Other small-cap gainers include Valassis Communications (NYSE:VCI) up 30%; Brunswick Corporation (NYSE:BC) up 27%; and American Superconductor Corporation (Nasdaq:AMSC) up 23%.

Decliners in the small-cap space were lead by Inovio Biomedical Corporation (AMEX:INO) down 53% after announcing today that it had received commitments from institutional investors to purchase $30 million in securities. Other small-cap decliners include Lee Enterprises (NYSE:LEE) down 30%; Alliance Healthcare (NYSE:AIQ) down 30%; and icad (Nasdaq:ICAD) down 20%.

******Stocks have traded in a pretty tight range over the last several sessions. There’s been an appearance of weakness, and some comments from talking heads that a correction is coming, or may have started. It’s sure not looking that way today.

Stocks are big in the early going. The sell-off in China I mentioned the other day has reversed. All the talk of an imminent overheating of China’s economy now sounds like a deliberate attempt to work stocks lower so dips could be bought.

There should be no doubt that games are being played right now. Shenanigans, as I like to call them. But it’s also true that economic recovery is an unknown entity: we don’t know what’s going to happen, how robust the recovery is and what the upside may be. That’s why the shenanigans work.

Just this morning, new jobless claims came in higher than expected. That’s bad news. But stocks are up big. Many of the ongoing conditions of recession are being discounted because it’s widely believed that the economy has bottomed. Some believe the recovery that’s going on right now will show up as a surprise number for the third quarter GDP.

*****So that suggests that today’s poor unemployment number will soon be a stabilizing, or even improving number. Yesterday’s bad durable goods number will be the bottom of the cycle…

Is the market being set-up for a massive disappointment? You bet it is. Will that disappointment materialize? I don’t know.

That leaves me, and other investors, in a difficult spot. So, I’m going to continue to do what I’ve been doing – buy quality stocks in the sectors that make sense, watch them like a hawk and take profits. That approach has worked extremely well in all of my advisory letters.

*****I haven’t mentioned my Recovery Portfolio lately. I’ve added a couple stocks over the last few weeks and just closed a covered call trade on Chesapeake Energy (NYSE:CHK). We made 21% and 25% in four months on a very low risk investment. I’m lining up my next covered call trade, to learn more about Recovery Portfolio, click HERE.

*****SCI Daily readers are the best. Your response to the T-shirt contest I announced yesterday to get the word out on my first book, The Small Cap Investor: Secrets to Winning Big with Small Cap Stocks, was outstanding. And I didn’t even give you all the details!

First of all, I neglected to include the link to the SmallCapInvestor Facebook page. Click this link to check it out.

I also didn’t mention that everyone who submits a T-shirt slogan will get a 30-day, 100% complimentary trial to my SmallCapInvestor PRO advisory service. Or that the winner gets a one-year subscription to ALL of my advisory and trading services ($2,680 value), plus a signed copy of the book and three t-shirts.

And still, you stepped up to help. Thanks again for your overwhelming support.

I will be taking submissions for the T-shirt slogan until August 9, 2009. Submissions can be made at Facebook or via email (tshirt@smallcapinvestor.com). All email submissions will be posted on Facebook and that’s where the voting will take place.

*****It’s pretty clear now that the trends we’ve seen emerging from the financial crisis and recovery will be with us for a long time. I’m talking about high unemployment, higher taxes, a weak dollar, restrictive regulations, and potential inflation, just to name a few.

Clearly, these conditions will have a profound effect on your investments in the months and years ahead.

And because many of these conditions are a direct result of government bailouts, I’m calling the condition Managed America.

We’ve just completed the update to the Predictions 2009 special report (I mentioned it last week, click here if you need a copy). The report does a cursory review of the past few months and the investing strategy that made big gains for Top Stock Insights subscribers.

More importantly however, the report reveals our investing strategies for the remainder of 2009 and beyond, and explores my concept of Managed America and how you can still make profitable investments. The U.S. economy has changed and investors need to understand the changes in order to make the best investments.

To complement the report, I’m hosting a web video conference on Monday, August 10th at 6:00 p.m. to go over the major themes of Managed America and how you’ll make profits from this new economic reality.

The event is free, but you do need to register for it. Click here for the free registration page now to make sure you’re on the list to attend.

Best Regards,

Ian Wyatt
Editor
SCI Daily

Stocks closed down today in all of the major U.S. indices. The Dow closed down 25.92 points to end at 9,070.80; the Nasdaq ended at 1,967.76, down 7.75 points; and the S&P 500 moved downward 4.48 points to close at 975.44.

The Russell 2000 ended the day at 549.54, down 2.56 points.

Small-cap gainers were lead by American Axle & Manufacturing (NYSE:AXL) up 50% to close at $2.02. Other small-cap share price gainers Elron Electronic Industries (Nasdaq:ELRN) up 45%; McClatchy Company (NYSE:MNI) up 44%; and Conseco (NYSE:CNO) up 36%.

Small-cap decliners were lead by Frontier Financial Corp. (Nasdaq:FTBK) down 21% on announcing Q2 losses of $1.06 per share versus gains of $0.04 a year ago. Joining FTBK in leading decliners today were THQ (Nasdaq:THQI) down 19%; Alvarion (Nasdaq:ALVR) down 17%; and Ariad Pharmaceuticals (Nasdaq:ARIA) down 16%.

*****With the exception of the Nasdaq, the major indices finished yesterday with slight losses. And it looks like an even money bet whether they’ll finish in the red today. We’ve seen an unlikely move over the last two weeks. The S&P 500 has made gains in 9 of the last 11 sessions and moved 11.3% higher. Volume hasn’t been especially strong during this move, but it is summer. Volume is always a bit lighter in the summer.

It seems more and more strategist-types are looking for a pullback or correction for stocks. Yesterday, CNBC’s Jim Cramer said he was expecting some red. Of course, Cramer makes so many calls it’s hard to keep them all straight.

For the record, Cramer says he likes healthcare stocks, technology and financials, believe it or not. He says financials are so universally hated that they will be stronger than average in the event of a pullback. That’s the "no one left to sell" theory.

I’m not so sure. The banks have been given time to earn their way back to health. And it could work. But a lot depends on the housing market. Many banks still carry toxic assets. And their reluctance to sell into Geithner’s PPIP suggests they remain hopeful these assets will regain value. If they don’t, it could be problematic. And then there’s the commercial real estate situation we’ve been discussing.

******Did you know I’m about to publish my first book? The Small Cap Investor: Secrets to Winning Big with Small Cap Stocks will hit the shelves on September 14.

In The Small Cap Investor, I share the proven techniques for uncovering the small cap companies poise for a huge run higher. My biggest success was apparel company True Religion (Nasdaq:TRLG). I recommended that stock to my readers at $1.13 a share. We sold it in 2008 for 2,216% gains. My techniques have also led my SmallCapInvestor PRO advisory service to a 93% win rate this year.

Now, I need your help. As part of the marketing plan for my book, we are holding a T-shirt contest. I want you to be the one who comes with the slogan for The Small Cap Investor: Secrets to Winning Big with Small Cap Stocks T-shirt.

Obviously, "Secrets to Winning Big with Small Cap Stocks" is taken. But slogan’s like "I made a 142% on Gulfport Energy and all I got was this lousy T-shirt" or "Ian Wyatt: The Best Small Investor" are open.

We’ll be holding the voting on the Small Cap Investor page on Facebook starting today and running through August 9th. You can leave your submissions there, or send them to tshirt@smallcapinvestor.com.

The winner will get their very own shirt plus a full-year subscription to SmallCapInvestor PRO. This should be a lot of fun. I hope you’ll participate.

******China is in the news again. Overnight, the Shanghai Composite fell 5%, the biggest drop in eight months. Investors are nervous on reports that the Chinese government may be discussing clamping down on lending due to the potential for imbalances to occur.

Specifically, Bloomberg is reporting that the Chinese government is concerned that asset bubbles may be forming in the stock market and that inflation may be building.

Chinese stocks are reportedly trading at 35 times reported earnings. And that is expensive. But interestingly, the Chinese stocks in the SmallCapInvestor PRO portfolio are trading with Price-to-Earnings ratios between 8 and 11. That’s much cheaper than most Chinese stocks, apparently, and one of the reasons we recommended them.

Of course, valuations won’t keep our stocks from declining if the Chinese stock market takes a hit. But Chinese stocks are recovering today after last night’s sell-off, so that’s a good sign.

If you’re interested in finding out more about the Chinese stocks in the SmallCapInvestor PRO portfolio click here to get a copy of the report.

*****Finally, Top Stock Insights reader took 35% gains yesterday on Chinese medical device maker called Mindray (NYSE:MR). I love the science fiction name, but couldn’t resist taking the gains.

Best Regards,

Ian Wyatt
Editor
SCI Daily

After trading down for most of today’s session stocks edged up toward the close to finish up.

The Dow finished at 9,108.51, up 15.27 points; the Nasdaq was up 1.93 point to close the day at 1,967.89; and the S&P 500 was up 2.92 points to end at 982.18.

The Russell 2000 was up 2.42 points to finish strong at 550.88.

Leading small-cap price gainers was Select Comfort Corp. (Nasdaq:SCSS) up 46% on news that while sales for the second quarter of 2009 were down compared to the same quarter in 2008, operation income was positive net losses were substantially less. The company reported that Q2 operating income was $1 million.

Other leading small-cap gainers include Cerus Corp. (Nasdaq:CERS) up 45%; Jazz Pharmaceuticals (Nasdaq:JAZZ) up 44%; Ariad Pharmaceuticals (Nasdaq:ARIA) up 42%; and Harleysville National Corp. (Nasdaq:HNBC) up 38% on news that it would be acquired by First Niagara (Nasdaq:FNFG) for $237 in an all stock deal. The deal values HNBC at roughly $5.50 per share, representing a 37.5% premium over Friday’s closing price for HNBC.

*****Earnings season has been overwhelmingly positive so far. Only 16% of the S&P 500 companies that have reported so far has missed expectations. 75% have beaten expectations. That’s what happens when earnings estimates are so low that they are virtually impossible not to beat. 

But what’s happening now is very interesting…

Analysts are raising their earnings estimates considerably. Bloomberg reports that forward revisions to estimates now put the forward P/E of the S&P 500 at 13.13. That’s 26% below the 50-year average 16.54.

So are we due for a 26% rally as stocks return to their historical norms?

*****If earnings season finishes with 75% of the S&P 500 exceeding expectations, that would be a record. Since 1933, no more than 72% of the S&P 500 has beaten earnings expectations.

But Bloomberg also reports that just half of the S&P 500 companies that have reported have beaten revenue expectations. That means much of the earnings surprises we’ve seen are a product of cost-cutting and not rising revenues.

To the bears, this suggests there is still risk for stock prices.

*****To the bulls, it’s now clear that pessimism went way too far. Stocks were priced way too low for a disaster that never materialized. More and more strategist-types are coming out and saying things like the economy is stronger than the numbers show and that a V-shaped recovery is underway.

Some economists are even raising their 3rd quarter GDP estimates.

Federal Reserve Chief Ben Bernanke states that the economy will be in stronger footing. And this is an interesting point. Overinvestment in real estate is being written off and prices are falling to levels that make sense for the family budget and the business bottom line. Increased regulation will keep investors’ money safer (we hope). Increased savings will put consumers on stronger footing.

In essence, the U.S. economy will, at some point, start growing from a much lower baseline. And while the stock market may only recover the gains it lost over the last two years, that recovery process would lead to some phenomenal gains from current levels.

*****The question for me is: when? I can’t help but think that analysts may be overshooting on the upside, just as they overshot on the downside. And I’m pretty sure I’m not the only one who feels this way. Consider that existing home sales jumped 11% in June, and yet stocks are in the red so far today.

There can be no doubt that such a jump in home sales is unexpected good news. But stocks are ignoring it. I say that’s because there’s a lot of good news priced in already. 

*****So I may be cautious, but I’m going to do what I have been: buy quality stocks, watch them closely and take profits. That approach has been working great so far this year… 

*****TradeMaster Daily Stock Alerts readers just took another 19% gain on MYR Group (Nasdaq:MYRG). Nice work, Jason. If you missed Jason’s video chart analysis from Friday, you can check it out HERE. 

*****Now let’s have a look at the economic data for the week.

Tomorrow, Tuesday, June 28, we get the Case-Shiller Home Price Index and Consumer Confidence numbers. Wednesday, it’s Durable Goods and Oil Inventories. Jobless Claims are out on Thursday.

Friday is the big one, with the release of Second Quarter GDP. This should be a major market mover.

Best Regards,

Ian Wyatt
Editor
SCI Daily