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[TTHQ Staff]

Dallas, TX July 16, 2007, 08:00 EST Dr. Joe Duarte's Market I.Q.

The Internet's Intelligence Digest Intelligence, Market Timing, And Trading Strategy For Traders and Investors Report: U.S. Pakistan Hot On Bin Laden's Trail. Oil & Commodities: $74 And Counting. Stocks: Three In A Row?

What's Hot Today:

The stock market starts the week on fairly solid ground. Yet, the potholes from earnings season are still likely, and Fed Chief Bernanke is on Capitol Hill on Wednesday. Today's Economic Calendar: 8:30a.m. July NY Fed Manufacturing Index. Expected: 17.50. Previous: 25.75. Sources: Wall Street Journal.com, Marketwatch.com. News For Thought China is exporting inflation, according to figures from the U.S. government. According to the Wall Street Journal: 'Prices of imports from China rose 0.3% in June from May, the Bureau of Labor Statistics reported Friday. That was “the third monthly advance in the past four months, a turnaround from the declining trend dating back to when the index was first published in December 2003,” the agency said.' Fed Chief Bernanke is expected to pump up inflation worries when he faces Congress later this week. Reports of higher steel, commodity, and import prices will likely figure highly in his testimony. A weight loss surgeon in Baltimore is using a $150,000 robot fitted with two cameras and a T.V. screen to make rounds on his hospital patients when he can't make rounds personally.

U.S. Pakistan Hot On Bin Laden's Trail

Is Al-Qaeda Leadership In Sight?

Bin Laden and Al-Zawahiri, the top two Al-Qaeda leaders may be close to being caught, says Debka.com. According to the intelligence web site, which on occassion makes rather sensational claims, but just as often is way ahead of everyone else in reporting important news and analysis: "Pakistani forces backed by US special units are closing in on al Qaeda’s No. 2 Ayman Zawahiri and possibly also Osama bin Laden." In what it calls an "exclusive" report, Debka noted: "Our counter-terror sources report exclusively that a frantic effort by al Qaeda and Taliban to head off the pursuit set afoot the bloody battle in Islamabad’s Red Mosque, the attempts to shoot down President Pervez Musharraf’s plane and the suicide attacks on Pakistani military convoys, which cost 68 lives Saturday and Sunday, July 14-15." The report, although unconfirmed, makes some sense, given other news coming out of Pakistan, where a 10-month truce in Northern Waziristan, an area known to house Taliban and Al-Qaeda groups which often use the region as a staging area for attacks on Afghanistan, broke down over the weekend. Violence in the area surged, and the Taliban announced that the deal was dead. According to Debka, U.S. special forces and Pakistani troops were close to Al-Zawahiri just last week as 'Zawahiri sheltered with the local Pashtun tribes in Bannu, a town in the northwest Pakistan tribal federation of North Waziristan. The approach of Pakistani and US intelligence and special forces caused him to switch hiding places and move to Tank or Tang, a town 120 km south of Bannu. On Saturday, two soldiers were injured by a bomb explosion in that town, having just missed their quarry.' Meanwhile, according to Debka, Pakistan's army stormed the Red Mosque last week due to being tipped off about the presence of two key Al-Qaeda leaders inside the Mosque. There have been no reports to confirm this, or any mention of whether the two alleged leaders were killed or captured. Yet, according to Debka, there is a connection between the presence of the two in question, the attack on the Red Mosque, and the new leads on bin Laden's whereabouts, as "They were reported to be preparing a mega-attack in Islamabad and other important Pakistani towns to disrupt the combined Pakistani-US operation to capture their master. At that point, Pakistani intelligence turned up a lead to the whereabouts of Osama bin Laden himself." Debka notes, though, that "Pakistan intelligence, which had hoped to capture the two al Qaeda operatives alive, has not found them. They are still trying to establish if they were among the dead or managed to escape." More interesting is this: "DEBKAfile’s sources disclose that the US Senate’s decision to double the bounty for bin Laden’s capture, killing or information leading to his death or capture to $50 million, was recommended by President George W. Bush after he received an urgent message from Musharraf. The Pakistani president reported his people had picked up the trail of bin Laden’s trail in their pursuit of his deputy, but the tribal chiefs with knowledge of where the elusive al Qaeda leader was hiding were holding out for an exorbitant sum for their collaboration." According to Debka: bin Laden's "former sanctuary of Bannu is situated 150 km as the crow flies from the South Afghan town of Gardiz which is a hub of al Qaeda-Taliban activity. The connection between the two towns is a twisting road of 400 km through Parachinar in Pashtun tribal land. According to DEBKAfile’s counter-terror sources, al Qaeda and Taliban leaders do not travel from place to place by road or vehicle but on horseback by night piloted by local guides." Conclusion For several weeks now, we've been noting that the situation in Pakistan holds a significant place in the war against jidhadism. The Red Mosque affair is now coming into view under a new light, and may be even more important than at first blush. That the hunt for bin Laden is intensifying is interesting in itself, yet the possible connection to the Red Mosque makes it even more worthy of following. To be sure, Debka is not always the best of sources, yet, the fact that no one is denying the Debka report, as far as we can tell, does give it some weight. If bin Laden, and or al-Zawahiri are caught, though, the financial markets are likely to stage a dramatic response, albeit one that may be short lived.

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Oil And Commodity Summary: Oil And Gas Mixed Overnight Crude oil prices are comfortably above $74 as the new week starts, while natural gas prices slipped, yet remained above $6.50 in overnight trading. That's where we are in this market now, watching tick by tick and penny by penny, paying attention to support and resistance levels. Supplies are adequate for the short term, but by razor thin margins, given the increased rate of demand in the market. There are two key aspects of prices, though. One is the terror premium, and the other is the potential for rising demand in the face of refinery bottlenecks. Neither of those situations seems to be within any kind of short term resolution, which is likely to keep prices on firm footing, despite occassional dips, and even intermediate term pullbacks. We still think that a major buying opportunity may not be too far off in natural gas. We remain positive on crude. See our energy section for details. Energy stocks have been making a steady string of new highs and remain a viable portion of a diversified portfolio. See our energy section for detials. Being very careful in the energy sector at the current time remains the best strategy, given the potential for daily price swings. $75 is the key short term resistance level for crude, while $6.50 is the key support for natural gas. Our energy section has been updated and still has a core of open positions. Gold is still range bound, but making some steady progress lately. Chart Courtesy of StockCharts.com Chart Courtesy of StockCharts.com Chart Courtesy of StockCharts.com

Technical Summary: Breadth Still Lags Rally If you're looking to splie hairs in this market, look the NYSE advance decline line, as it has still to make a new high with the latest round up records on the indexes. Otherwise, it's a decent advance, in which hindsight may show us that it was a sector rotation, with money coming out of health care and financial stocks and moving into technology and energy. For now, what's important is to be in what's working, which seems to be technology and energy, where the momentum has been driving prices steadily higher. The most important thing for investors to do during volatile periods is to be diligent about portfolio monitoring, culling losers, and keeping what's working. Just as important is to stick with strength, avoid weakness, and to follow trading rules. We still like what we see in the semiconductor area, which has broken out, as measured by the Nasdaq and several key sector indexes. The S & P 500, also made new highs last week along with the Nasdaq and the Dow Industrials. Watch out for earnings related potholes, though. A successful trading program requires several things, patience, attention to detail, risk management, and a sustainable trend. A sustainable trend, up or down, allows for the steady adjustment of risk, meaning that sell stops, or buy stops if you're selling short, can be adjusted over time, giving the opportunity to reach a profit. Volatile markets increase the chances of being stopped out prematurely, thus, making it difficult to make money. In these types of markets, there is a need to be patient. And patience usually gives traders the feeling that they are missing opportunities to make money. When that happens, inexperience leads to over trading, which tends to increase the opportunity of losing money. In other words, as it has been for the past several weeks, the best strategy is to stick with what's working, and give this market time to work out its own kinks, without taking too much of our money away. Think of alternatives to stocks, such as bonds and the dollar, which are still offering a unique trading opportunity, shorting bonds, and being long the dollar. Otherwise, be patient. From a longer term stand point, based on historical trends, this should be a positive year for stocks, given the fact that it's the third year of the Presidential Cycle, which calls for rallies in the third and fourth years of a presidency. Our long term forecast remains upbeat, unless the major indexes fall convincingly below their 200 day moving averages. What To Do Now Don't trade just to stay busy or to feel as if you're in the game. Be selective. Follow and review your trading rules. Get a good grip on your own willingness to take risk, and don't push the envelope beyond your comfort level. Keep a lid on emotion, and stick to your trading rules. Consider taking some profits where it makes sense, and consider tightening stops where appropriate. Use our individual sections for guidance. Selectivity remains the key to success. Look for strength, either on a continued basis, or in turn around areas, such as the semiconductors. Visit all our individual sections, both our ETF and individual stock picks daily for new ideas, and changes to open positions. Be very methodical about monitoring portfolios, adhering to trading rules, and ratcheting up sell stops is clearly still here. Second guessing decisions, and hoping that things will turn out o.k. in the long haul, is the recipe for disaster at a time like this in the market. Check all our sections daily. See tech, biotech, Fallen Angels, and timing systems for the latest adjustments. Our ETF trading systems for energy, Spyders, Small Caps, and technology have also been updated. Chart Courtesy of StockCharts.com Chart Courtesy of StockCharts.com

Sentiment Summary: Watching The Euphoria Meter The Put/Call ratio rose on Friday, a sign that more short covering is possible in the near future. We'll take this as bullish for now, as the market seems to be in rally mode. The CBOE Put/Call ratio closed at 0.94. A consistent string of low readings can be a sign of excessive optimism and often signals a top in the markets. Readings below 0.5 are of concern, but not as serious as readings below 0.40. Readings above 1.0 are bullish. The numbers cited here are meant to be evaluated on a closing basis. The CBOE P/C ratio for indexes checked in at 2.00. Numbers above 2.0 as the market sells off, often lead to rallies. Readings below 0.9 suggest too much bullish sentiment, just as readings above 2 are usually required to mark major bottoms. The VIX and VXN had readings of 15.15 and 16.44. A fall near or below 20 on VIX and 30-40 on VXN is considered negative, a fact that is usually confirmed when the volatility indexes begin to rise. Readings above 40 and 50, respectively, are often signs that a bottom may be close to developing. NYSE specialists are sending worrisome signals, as they were again heavy sellers of stock for the week ending 6-29, making it four out of the last five weeks, in which this savvy group of investors has been buying. The only week of some buying in the last four reported was the week of 6-15. This has been a period of generalized weakness and volatility for the market. The combination of high put option buying and negative action from NYSE insiders has in the past been a prelude to trouble for the markets. Market Vane's Bullish Consensus was at 65% on July 13, remaining neutral. The UBS sentiment index fell to 89 in June from 95 in May and is starting to increase its distance from the reading of 103, registered in January.

Market Moves Google Joins Nasdaq Breakout Party Microsoft (Nasdaq: MSFT) is lagging, but Google (Nasdaq: GOOG) made a new high last week. Chart Courtesy of StockCharts.com The battle between the two tech giants continues, and Google is still getting the upper hand. The stock closed above 540 on 7-13, while Microsoft is hugging the low end of its recent trading range and is threatening to break below its 200 day moving average. The key is growth. Google continues to do so, while Microsoft continues to be number 2 in many categories. To be sure, Microsoft has lots of money, makes lots of money, and will continue to print money. Yet, Google is slowly becoming indispensable in many categories, and is still growing. So, like IBM became a big company that made lots of money but didn't grow very fast, Microsoft seems to have entered the elephant realm. When Google's gazelle days are over, investors will also likely desert them as well, and move on to the next big thing. That, however, doesn't seem to be something that's going to happen any time soon.

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