Wake Up Call - Jan 12

Good Morning. This is your wake up call for Friday January 12, 2007. The time is 9:20 AM EST, and Dow, S&P and NASDAQ futures are indicating a lower open as a warning from tech giant AMD outweighs the impact of strong December retail sales data.

Asia:
Hang Seng Index +1.18%; Shanghai/Shenzhen 300 -2.59%; NIKKEI 225 +1.3%; BSE SENSEX 30 +3.12%; Ho Chi Minh +3.32%; SET +1.27%

U.K. & Europe:
DJ STOXX 50 Index -0.04%; FTSE 100 -0.28%; CAC 40 -0.27%; DAX -0.14%; Russian RTS Index -0.27%; ASE General 0.81%


KEY HEADLINE NEWS

• Last quarter, we suggested investors begin looking at early cyclical technology stocks, including semiconductor and semi-equipment names, as the two industries tend to lead market recovery. We suggested ignoring valuation, as we believe the time to buy these stocks is when earnings are weak, but before cyclical demand picks up. We warned that an important threat to the shares was near-term earnings, and we even advised investors to consider waiting until after the third quarter earnings reports to buy in. At the same time, we advised investors to reconsider their holdings ahead of the fourth quarter EPS reports. Today, AMD, down 1.6% in pre-market, is showing you why. AMD warned that their profit margins had weakened and that EPS in Q4 would not meet expectations. Two things to note: first, yes you should be reconsidering your holdings before this earnings season, and considering lightening up on your cyclical tech stocks. However, not for long... I suggest buying on earnings weakness, if you detect a technical bottom. Take a closer look at AMD's report. Margins were down due to price competition. Volume on unit sales was strong, we believe on a combination of the coming new business cycle and an upgrade cycle spurred by the introduction of Microsoft's new operating system. New order trends will tell you which technology stocks are in the best competitive position, and take note for your buy list.
• We suggest you tread softly around Apple (AAPL), as we smell a rat. If Steve Jobs were not considered such a great pioneer for the American technology industry, the media would be ostracizing him on a daily basis. Ignorance is not an excuse for crime, and thus, Jobs' defense that he did not realize accounting complications, do not exonerate him from wrong doing in our view. Also, I highly doubt that Jobs, a very intelligent man, did not understand the economic benefits of his alleged suggestions concerning his options grants. I believe the disbelief around Jobs' potential guilt today is evidence of how hard AAPL shares could fall if regulators take action against him and he is lost to Apple. I would sell these shares right now.
• We believe OPEC is inclined to not act on production, but media Thursday suggested they might. For sure, if prices continue on this slide, or do not recover in the weeks ahead, OPEC will likely act, in our view. However, comments from OPEC concerning the current two-thirds compliance level to its already agreed upon production cuts, implies their focus will be on getting those reductions implemented. Also, OPEC is rumored to be considering asking non-OPEC producers to cut production. I just cannot imagine Russia doing so, though they may provide some lip service.
• December retail sales were reported at 8:30 a.m. EST, and they rose more than expected, climbing 0.9%, versus a 0.7% consensus expectation, according to a recent Bloomberg News survey. This is a clear indication of economic health in the U.S., providing the Fed some evidence that consumers remain capable despite housing weakness. We believe this, combined with recent economic data and the oil slide, leaves the Fed less inclined to reduce interest rates. However, the thing to note here is, maybe the economy just does not need a rate cut to grow at a healthy pace. That's not a bad thing... We believe equity markets could begin losing focus on the Fed and start considering the economy's independent growth capabilities.
• The U.S. Embassy in Athens, Greece, was hit by a missile this morning. Early reports indicate suspicion that a left-wing group was at fault. Greek officials implied a foreign source may be involved, saying it was an effort to disrupt the country's foreign relations with its allies. We would not suspect a foreign source unless the damage was extensive and possibly if other attacks were to occur today in global locations. We believe it was more likely a couple of guys who had a rocket-fired grenade in the garage, drinking a bottle of ouzo, and angry about President Bush's plan to escalate the Iraq campaign, and the resulting upheaval within Greece's part of the world. Since before the Athens Olympics, we believe Greece has been misportrayed by western media. Knowing Greeks very well, I can say that they are a great open-minded people, willing to debate every topic and explore every avenue, but they are civilized even when they disagree. After all, they fathered civilization. Americans are more than safe in Greece, from Greeks, and America is considered an important ally, but ouzo is only for the wise.

We urge you to read our section within the sidebar, entitled "Headline News", for further important information for traders and investors.

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