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Sterling Weekly for the Week of June 7th, 2010
Is the Market Signalling a Double Dip?

Since the previous edition of the Sterling Weekly, the Dow Jones Industrial Average lost 803.67 points or approximately 7.6%, to finish at 9,816.49 It has been 3 weeks since the previous edition of the Sterling Weekly, and the market has continued to be under pressure. In the May 17th edition of the Sterling Weekly, I discussed my thoughts about the Dow Jones Industrial Average entering a retracement phase and my expectations that the Dow would pullback to somewhere between 9,625.37 and 8,099.71. I continue to expect this downward move to end somewhere in that range, however we might see a slight rally at somepoint before the downward movement runs its course.

In looking at the various indices I track, including the major market indices and the various sector indices, all of them are showing a significant pullback from their highs set earlier this year. I have always been a firm believer in a couple of key things relating to the market. The 1st being that politics is the single biggest influence on the market; and the 2nd being that the Dow Jones Industrial Average is the best indicator of where the economy will be in 6-12 months.

So, the question becomes what is the market currently telling us? As much as I hate to say it, I think the market is forecasting a decline in the US economy, most likely resulting in a double dip recession in 2011. My concern is that this second recession will be much more severe due to the recent polical activity and as a result we could see unemployment in the 12-14% range. If that is the case, then I would not be surprised to see the Dow Jones Industrial Average trading around the 7,000 level. Wish I had better thoughts on things, but that is what I see.

Unfortunately this also leads me to see higher budget deficits and the very real possibility of higher inflation and interest rates. Finally I see a deflation in the commodities market due to a contraction of liquidity in 2011. Ouch! I am not sure I feel comfortable making any short sale recommendations today; but that may change if we get the bounce I expect at some point in the future.

Sterling Calendars for the Week of June 7th, 2010.
Economic Calendar

Date

Est. Time Release

For

Consensus Prior
06/07 3:00pm Consumer Credit Apr. ($2.0) $2.0B
06/09 10:00am Wholesale Inventories Apr. 0.5% 0.4%
06/09 10:30am Crude Inventories 06/05 N/A (1.90M)
06/09 2:00pm Fed's Beige Book Jun    
06/10 8:30am Initial Claims 06/05 450K 453K
06/10 8:30am Continuing Claims 06/29 4,600K 4,666K
06/10 8:30am Trade Balance Apr. ($41.2B) ($40.4B)
06/10 2:00pm Treasury Budget May $154.0B $189.6B
06/11 8:30am Retail Sales May 0.3% 0.4%
06/11 8:30am Retail Sales ex. Auto May 0.1% 0.4%
06/11 9:55am Michigan Sentiment Jun 74.8 73.6
06/11 10:00am Business Inventories Apr. 0.5% 0.4%
  Misc. Calendar
Date: Comments:
06/07 Pep Boys 'PBY' announces earnings after the close. Est. $0.23
06/08 Dollar General 'DG' announces earnings before the open. Est. $0.34
06/09 Vail Resorts 'MTN' announces earnings before the open. Est. $1.83
06/09 Men's Wearhouse 'MW' announces earnings after the close. Est. $0.14
06/10 Del Monte 'DLM' announces earnings before the open. Est. $0.22
06/10 National Semiconductor 'NSM' announces earnings after the close. Est. $0.28
  The full earnings calendar for this week can be found (here)

Prime Update:

The Prime Stock Newsletter is our daily newsletter that contains commentary on the overall market, and our single best trading idea for the day! (Both Long & Short Sale Recommendations) We select this stock through a combination of technical (charting) and fundamental (financial) analysis. The Prime Stock Newsletter provides select expanded quotation information, corporate description, select recent company news, our technical analysis of the shares and our expectations, and our options recommendation for the company.

Our most recent Performance Report is now available available (here). We are proud to report 18 of our last 20 recommendation resulted in profitable trades for an average profit of $0.70/share. This is an 90% success rate.

Archived copies of our Performance Reports can be found (here).

Highlights from Recent (20) Editions of the Prime Stock Newsletter
Recommendation Date Entry Point Recent Close or Exit Price Profit* Note
Petroleo Brasil 'PBR' short May 19 $35.56 $33.08 $2.48 Covered on the 20th
Baker Hughes 'BHI' short June 1 $37.45 $35.85 $1.60 Covered on the 1st
DirecTV Group 'DTV' June 3 $38.38 $39.87 $1.49 Sold on the 3rd.

* Our June 2nd, short sale recommendation of Arcelor Mittal 'MT' @ $28.85 per share, closed @ $26.64 per share on June 7th for a 5 day gain of $2.21 per share.

* Our May 20th short sale recommendation of Halliburton 'HAL' @ $27.12 per share, closed @ $22.80 per share on June 7th for a gain of $4.32 per share.

* The per share PROFIT is a theoretical calculation based upon the opening price the day the recommendation is published and the intra day high (or low for short sales) on the exit day. The exit day is determined based upon the application of our "Rules for Trading", the implementation of "stops" within our stated policy, and may not reflect the complete or full movement of the underlying recommendation.

 

Disclaimer: The Sterling Investments series of newsletters is produced by Sterling Investment Services, Inc. All information used in the production has been obtained from sources believed to be reliable and accurate. Sterling Investment Services does not warrant or assume any liability for inaccuracy of the information used to produce our publications. To receive further information on these services please visit our web page at: www.sterlinginvestments.com If you would like to contact us our fax # is (404)-816-8830 Email address is: enelson@sterlinginvestments.com Sterling Investment Services may hold positions in the securities recommended or may be providing consulting services to the companies mentioned within this report.
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