Through The Glass Darkly

[otraque]

3/27*****************************************8

The Spear Report
Professional Edition for 03/27/2009
Vol. 6 Number 56

Breaking 800

COMPANIES MENTIONED TODAY

Symbol  Company Name           PWR     #Recs   Close$   
 AMD     Not in Consensus       NA      NA      3.56     
 APA     Not in Consensus       NA      NA      68.31    
 APOL    Apollo Group           4.25    2       77.83    
 COP     Conocophillips         4.0     2       40.31    
 CVX     Chevrontexaco          55.75   6       70.17    
 CX      Cemex SA ADR           29.0    4       6.47     
 DELL    Not in Consensus       NA      NA      10.35    
 JNJ     Johnson  Johns         55.25   6       52.90    
 MCD     Mcdonalds Corp         78.0    8       56.06    
 MS      Morgan ST Dean         11.0    2       25.65    
 NFLX    Netflix Inc            41.0    5       41.75    
 STP     Not in Consensus       NA      NA      11.29    
 WFMI    Not in Consensus       NA      NA      18.23    
  
 MODEL PORTFOLIO 
  
 Todays Trades 
 Sym      Action   Limit     Trigger   Stop     Stop Type   Current 
 STP      BUY      NA        NA        NA       Intra       11.29 
 Notes: Chinese solar half position 
  
 Current Holdings 
 Sym      Ent Date   Dir**   Entry    Current  Perf %   Stop     Stop Type 
 RGLD     01/26/09   L       48.86    46.22    -5.4     NA       Intra-day 
 Notes: general gold play 
 DGP      01/26/09   L       19.39    20.52    5.8      NA       Intra-day 
 Notes: Double Gold ETF 
 IAG      01/26/09   L       7.01     8.54     21.8     NA       Intra-day 
 Notes: NA 
 AMD      03/25/09   L       3.21     3.56     10.9     2.65     Intra-day 
 Notes: the other chip maker 
 MS       03/25/09   L       25.75    25.65    -0.4     19.95    Intra-day 
 Notes: anticipating a breakout 
 STX      03/25/09   L       5.85     6.56     12.1     4.25     Intra-day 
 Notes: disc drive maker 
  
 **Direction: L = Long,     SS = Short Sale **

TRADE NOTES

OVERVIEW: The S&P 500 appears to have successfully tested the
800 level and it should now function as a technical floor for a further
advance. We think the Dow can get up to 8250 and possibly above
9000.

OPEN POSITIONS:

Gold was flat on Thursday, as were the miners.

Much to our delight, (AMD) resumed its advance, adding 12%.
STX scooted up 10%, but (MS) stalled.


NEW BUYS/SHORT SALES:

Suntech Power (STP) is our pick for the Chinese solar fest. We will take
only a half position as these stocks were up 40% yesterday (see
discussion below).

WATCH LIST:

We present our Watch List stocks as potential trade ideas for
aggressive traders who wish to do more research on the stocks.

POTENTIAL WATCHLIST SHORTS:

None.

POTENTIAL WATCH LIST LONGS:


Apache (APA), Apollo (APOL), Cemex (CX),
Conocophillips (COP), Chevron (CVX), Dell (DELL),
Johnson & Johnson (JNJ), McDonalds (MCD), Netflix
(NFLX) and Whole Foods Market (WFMI).

COMMENTARY

The S&P 500 added another 2% yesterday, making this the best
monthly advance since 1974. By the way, 1974 was a bad bear
market year. The largest advances tend to occur after the worst
drawdowns.

The Nasdaq did better than the Dow or the S&P yesterday, advancing
3.8%. One reason is that virtually every Chinese solar play was up
40% after China announced that it would support its burgeoning solar
industry with a massive subsidy program. Our pick is Suntech Solar
(STP), which is an established player, but not in Consensus. China
wants to help support the growth of domestic solar demand. There is
a fair amount of solar water heating in China, but very little
electricity production.

Speaking of China, the Shanghai bourse may be outperforming other
countries, but there are deep problems in the Chinese economy that
while different from those in the U.S., are nevertheless systemic.
The U.S. has a liquidity problem, whereas China is floating in cash,
but the excess liquidity in the Chinese financial system is unlikely to
translate into an increase in GDP because most Chinese industries,
especially the capital intensive ones, have overbuilt and suffer from
excess capacity. The Chinese steel industry may be as much as 30%
overbuilt. The country’s burgeoning ship building industry is seeing
such massive cancellations on orders that many shipbuilding firms
are on the brink of bankruptcy. Semiconductor factories are operating at 80% of capacity, which
destroys profits in an industry where margins are razor thin.

So while some observers celebrate the recent surge in Chinese bank
lending, it is unlikely that increasing liquidity in the businesses sector
is an efficient use of capital. China needs to grow domestic consumer
demand, while reducing property values to affordable levels. This is
a process that will take years. We have high hopes for the eventual
turnaround of the country, but the economic challenges are not
insignificant.

The government stimulus program will be needed to stabilize the
economy, but in itself it will not be able to restart high growth. More
than 40% of China's gross domestic product has been tied to capital
spending on factory construction and other fixed-asset investment.
Industrial production, which has risen an average of 16% annually
for five years, but is tracking at less than 4% annualized so far this year.

Last year, China's private sector accounted for half of the country’s
$4.4 trillion GDP, but this portion of the economy will not benefit
from government stimulus spending on infrastructure. We suspect that China will
have to downshift from targeting 10-11% GDP growth to accepting a
more sustainable pace in the 5-7% range and the country’s ability to
meet the stated 8% output growth target for the next few years is
very questionable in our view.

Bottomline: we are not buying China yet.

MARKET CALLS

The S&P 500 inched above the 72-ema resistance (cyan line) on
Thursday. A more convincing close above this level will put the 162
ema (red line) into play as the next target.

This is yesterday’s chart. Charts will be updated over the weekend.

http://www.spearreport.com/update/3.25.09_SPY.gif
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MARKET DIRECTION

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market direction indicators are trend followers, not predictors.

SML- S&P SmallCap600; MDY= S&P MidCap 400 tracking stock;
SPY= S&P 500 tracking stock; QQQQ= Nasdaq 100 tracking stock.

(+) or (-) signifies a change in status today.

Short-term Market Direction:

S&P 500: Up

Intermediate-term Market Direction:

S&P 500: Up

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