John Mugarian's Dynamic Growth

I have to admit I yawned all day as I watched the market. By the end of the day, the "big boys" were able to push the market averages up 89 points to suck a few more people in before they take profits.

As I scanned the DJIA, I was looking for the stocks that provided the fireworks (in between yawns), and low and behold, there were none. Here is a scan of the DJIA:

COMPONENTS FOR THE DJIA

AA ALCOA INC 31.11 -.24 (0.77%)
AIG AMER INTL GROUP INC 66.27 +.81 (1.24%)
AXP AMER EXPRESS INC 52.62 +.17 (0.32%)
BA BOEING CO 71.62 +3.31 (4.85%)
C CITIGROUP INC 46.33 -.25 (0.54%)
CAT CATERPILLAR INC 69.24 +1.34 (1.97%)
DD DU PONT E I DE NEM 39.49 +.34 (0.87%)
DIS WALT DISNEY-DISNEY C 25.27 -.04 (0.16%)
GE GEN ELECTRIC CO 33.14 -.39 (1.19%)
GM GEN MOTORS 24.50 +.44 (1.83%)
HD HOME DEPOT INC 40.23 -.32 (0.79%)
HON HONEYWELL INTL INC 39.34 +.92 (2.39%)
HPQ HEWLETT PACKARD CO 31.23 +.05 (0.16%)
IBM INTL BUSINESS MACH 81.94 +.64 (0.79%)
INTC INTEL CP 21.55 +.30 (1.39%)
JNJ JOHNSON AND JOHNS DC 57.86 +.32 (0.56%)
JPM JP MORGAN CHASE CO 39.88 +.13 (0.33%)
KO COCA COLA CO THE 41.50 +.12 (0.29%)
MCD MCDONALDS CP 35.67 +.66 (1.89%)
MMM 3M COMPANY 73.19 +.44 (0.60%)
MO ALTRIA GROUP INC 73.50 +1.16 (1.60%)
MRK MERCK CO INC 34.66 +.16 (0.46%)
MSFT MICROSOFT CP 28.04 -.11 (0.39%)
PFE PFIZER INC 26.05 +.37 (1.44%)
PG PROCTER GAMBLE CO 59.82 +.59 (1.00%)
T AT&T INC. 26.55 +.60 (2.31%)
UTX UNITED TECH 58.00 -0.37 (0.63%)
VZ VERIZON COMMUN 31.80 +0.14 (0.44%)
WMT WAL MART STORES 46.14 +.03 (0.07%)
XOM EXXON MOBIL CP 61.95 Down 0.80 (1.27%)

The leader of the pack was obviously Boeing (BA + $3.31). Amazingly enough, the commercial airplane business is growing despite sky high energy prices. In truth, Boeing is also making a fortune from the defense business as 2005 was another record year.

The old adage rings true. When Republicans run the government, buy oil and defense stocks. When Democrats run the government, buy technology stocks, and watch your wallet. Actually we've come to a point where we need to watch our wallets when either party is in control.

Here in the deep south there is a tradition called "frog gigging". “Gigging,” is the hunting of bullfrogs by using a spotlight and then spearing them.

The recent profits by big oil is nothing more than gigging the consumer in the wallet. In 2005, Exxon-Mobil (XOM) posted record profits for the year earning (stealing) $36.1 billion from the consumer, a 43% increase over 2004. This was the largest profit ever recorded by a U.S. company.

It looks as if Senator Arlen Specter is on the war path. Will he win? I don't think so. He is going to run up against David Rockefeller, and Rockefeller owns everybody. There are a few untouchables in the U.S., and David Rockefeller is one of them.

David Rockefeller is the founder of the Trilateral Commission, the driving force behind the movement of globalism in our economy. For those of you who do not believe me, here is a quote from a letter he wrote to the New York Times on August 20th, 1980.

As founder of the Trilateral Commission and its current North American chairman, I am usually singled out as the "cabalist-in-chief".

In my January 31st post, " No Inflation Huh..." I made mention of using the Rydex Commodities Fund (RYMBX) as a way to play the long term bull market in commodities.

A viewer had some doubts about the fund and its investment strategies. Here is the response from Rydex:

Subject: Commodities fund comments

Rydex Investments

Now that we a finally getting a pullback in the energy complex, here are some new calculated buy prices for a few select energy stocks.

I received this question concerning Doug Terreson's (Morgan Stanley) buy limits on his stock picks:

Dear John,

Thank you very much for your insights.

ANSWER: Doug does not give buy limits; only price targets. I think the best rule of thumb is to buy when you get a 10% pullback off the 52 week high, and keep in mind that past corrections have taken these shares down 15-20%.

All in all, I would start buying on a 10% pullback, and keep adding to my positions on subsequent declines.

I don't like the actions of these Muslim extremists any more than you do. But, we need to look at the entire Middle East situation with a very critical eye.

Often, it has been said, that there are two sides to every story. When it comes to how we get the news, and what we are lead to believe, there are really three sides to every story; our (U.S.) side, their side (Iran, China, Russia, etc), and the right side.

Since the two sides (U.S & The Others) are posturing themselves for the same thing; oil, I have got to believe there is more to this story than what we are being told. The "right side" is really a matter of who do you believe.

As we continue to wait on a possible 5-10% correction in the market, I wanted to follow up on some comments I made over the past few months.

As far as the market is concerned, I think that the first half of the year will bring some very rewarding trading opportunities. It痴 the last 6 months that worry me.

So, that being said, we will use any pullback of 5% or more to position ourselves on the long side for a tradable rally into the spring.

If we get another pullback in our favorite oil stocks, you will be able to pick up some bargains at or below our buy targets. i am not worried at all about the magnitude of today's selling. It looks like the big boys are trying to scare us away from their favorite game.

Fine. Let them continue. No one can convince us that the longer term demand in oil is going to change. Once again, here are our favorite oil plays.

Here's a question from RC;

What do you think of NG plays? I like CHK, and the insider buying has been tremendous.- RC

I don't find this strange at all, but Wall Street touted natural gas stocks in the late summer and early fall as prices were peaking. Undoubtedly, many investors bought into this hype, hook, line & sinker.

Of course, the fall in natural gas prices is being blamed on a warmer the expected winter. In reality, natural gas prices got way ahead of themselves

We added Conoco (COP) and Exxon (XOM) to the Investor Alert portfolio today when both stocks broke below our buy limits.

We bought COP @ $58.75, and XOM at $59.73. I like to buy a sector that's under pressure the day after a big sell-off. Selling pressure normally peaks around mid-morning.

Today's reversal came after the Energy Department reported that crude oil inventories unexpectedly declined. The silver lining for consumers however was a report that gasoline stockpiles rose.

After the merger with Pixar was announced, and Disney released earnings, Disney (DIS) stock gapped up from a low of $24.96 on February 6th, to a high of $27.04 yesterday.

After the close on Monday, February 8th, Disney beat earnings estimates by .02 cents, and raised guidance for 2006 & 2007.

Also o February 8th, CEO Bob Iger sold 927,300 shares at prices ranging from $25-26.85. This left Mr. Iger with 484,876.

The company's CFO said "that in general, the company expects continued double-digit earnings growth for 2006 for the fourth straight year. He added that Disney expects to buy back $5 billion worth of shares over the next 12 months".

If this is true, and I have no reason to believe it is not, why would Iger dump close to a million shares of DIS stock.

Today's insider report shows that Iger sold another 32,700 shares at prices ranging from $25.52-25.80.

The bottom-line in all of this is projections are one thing, results are another. While Disney has done a good job with their numbers, is Iger and the rest of the Disney clan smelling a recession on the horizon?

If I thought my company's earnings were going to grow over the next few years, I would not be selling a million shares of stock.

After rallying first thing this morning, energy stocks continued to shake shares of stock away from timid investors. Is the ballgame over for the energy sector? Not by a long shot.

I am hearing kook after kook mention how alternative fuels are going to come to the rescue. Heck, even the President is talking about corn husks and wood chips. Yeah, right.

Behind the scenes the global energy crisis is getting more and more interesting. The International Atomic Energy (IAE) agency voted to report Iran to the United Nations’ Security Council. Russia and China decided to vote with the IAE only if they agreed to wait in submitting the report for a month. Argentina voted against the report.

Oddly, Russia and China can still break away from the IAE report since China currently gets 13.6% of its oil imports from Iran. China also is in the process of importing natural gas from Iran.

It looks as if many of the quality energy stocks have now dip down to attractive buy ranges according to their relative strength. I am normally early in my initial entry prices, but since I advocate dollar cost averaging, building a position is less stressful than buying an entire position with one trade. Here is the definition of the Relative Strength Index or RSI:

"The RSI compares the magnitude of a stock's recent gains to the magnitude of its recent losses and turns that information into a number that ranges from 0 to 100. It takes a single parameter, the number of time periods to use in the calculation- Source StockCharts.com

Many investors use the Relative Strength readings on a stock to judge where to buy and sell a stock. As a basic rule of thumb, when a stock reaches a RS level of 40 or below, investors buy. When a stocks RS reaches 70-80, investors like to sell.

The sharp correction in the energy sector continues as Crude continued to slide lower in fears of a supply glut. Sharp corrections are nothing new in this sector after reviewing the iShares Goldman Sachs Natural Resources Sector (IGE) ETF.

The 3 previous corrections in the GS (IGE) show corrections of -32.1%, -16%, and -15.6% respectively. The current correction in the fund has taken the sector down about 11%.

Naturally, we must pay attention to the technical support levels of what we own, and make sure we do not get whipsawed along the way. Some of the smaller oil services companies have suffered significant technical damage, but the major integrated oils and refiners are still above their support levels.

New Fed Chairman Ben Bernanke has made more sense in one hour than Alan Greenspan did during his entire tenure on the Federal Reserve Board. The thing I like about this guy is he seems to be a straight shooter.

Bernanke made comments on oil prices, and those comments have yet to hit any news wire. He basically said that oil prices will remain high for quite some time, and prices need to remain high in order to achieve the nation痴 goal of being less dependent on foreign oil in the future.

To paraphrase, he basically said what I have been saying all along. My belief is that Americans only learn their lesson when there is pain involved. What incentives would the public have to buy alternative fueled vehicles if energy prices dropped substantially? The answer is, none. But, if you hit the consumer in the pocketbook hard enough, they will eventually cry Uncle.

It is unfortunate that this is the only way people learn, but it痴 the truth.

Doug Terreson at Morgan Stanley has raised his oil prices forecasts for 2006 and 2007:

Maintain Overweight Integrated Oils and R&M:
Integrated Oils appear 15% undervalued based on normalized returns on capital. Independent R&M represents the best value per unit of return in Energy.

Integrated Oil Estimates, Price Targets Higher:
Earnings estimates revised higher across the board, with price targets higher too. Price targets rise for XOM from $76/sh. to $78/sh. and for MRO from $85/sh. to $87/sh.

Shares of Boston Scientific (BSX) are up $1.70 or 7.45% today after several analysts issued positive reports on the company.

Oddly, and with perfect timing, a company director bought 15,000 shares on Monday, February 13th at $21.88, and the CFO bought 200,000 shares yesterday at $22.38-22.48. What great timing.

We all know how honest corporate America is, I'm sure they had no idea these upgrades were about to happen.

We have had a nice snapback rally in some of our energy stocks. I take comfort in owning these companies given the supply and demand issues facing the world. This is not to say that some manipulation will not happen.

If you remember, just prior to Election Day 2004, oil prices miraculously pulled back giving voters a false sense of security and after the election prices mysteriously took off again. At times I feel like I am playing "junior detective", but I have got to believe that the months leading to the 2006 midterm elections will bring about the same shenanigans.

So, what now? I want to ride the oil train a little bit longer, and see if we can play COP, SUN, VLO, and XOM for a nice trade. I want to continue to hold MRO because they would be an attractive candidate for a major oil company. CHK however is a little puzzling. After the massive insider buying by the company's CEO, Aubrey McClendon, Mr. McClendon made public comments that the company was not for sale.

These are very bold comments for a guy that owns almost 19 million shares of stock. Given his appetite for the stock, we will be patient.

As far as profits go, there is no industry in the world making the profits that the energy sector has. XOM just had the largest profits of any company in U.S. history. By all accounts, Exxon's $36.13 billion in profits was bigger than the economies of 125 countries around the globe.

I have watched Boston Scientific (BSX) for quite some time. Today, I am adding BSX to the IA portfolio with a buy limit of $25.

The BSX insiders have an excellent track record, and their timing on purchases and sells are usually accurate. After my February 16, 2006 post, 釘ig Move in BSX", insiders at BSX have continued to accumulate shares even at current levels. This is the reason I wanted to add BSX to the portfolio now.

To make room for BSX, I am selling United Healthcare (UNH). UNH has rewarded us handsomely since we bought it pre-split in November 2004. After the 2-1 split, our adjusted cost basis is $41, giving us a 17.60 point gain for a return of 43%.

In addition, I am not happy with the price action in Oracle (ORCL). We are also selling ORCL from the IA portfolio.

The Wall Street spin machine never rests. While some investors believe everything they’re told from the "Wall Street Gang”, investors would be much better off if they just accepted the fact that the stock market is designed to enrich corporate executives, and the people they provide investment banking fees, the investment banks.

If you want to get some real insight on how the system works, try and find an out of print book by Richard Ney called "The Wall Street Gang" or "The Wall Street Jungle".

This morning the spin doctors are still trying to tell us there is no inflation. The infamous core inflation numbers rose .2%, but of course this excludes food and energy prices. Consumer prices on the other hand rose 7% as energy, food and housing prices increased.

We have been doing some remodeling on our home, and the contractor said that suppliers and sub-contractors are adding a fuel charge to their billing. Even if energy prices do decline, do you think for one moment that these people will drop their prices? No way!

So, as far as the inflation data is concerned, it is just another manipulated lie.

The data is in. Let痴 break down the January 2006 jobs report from the Bureau of Labor Statistics. I think you'll find that these jobs are great for people who want to continue living the Wal-Mart lifestyle.

194,000 jobs were created in January. Of those jobs:

1) 46,000 were construction jobs. Ok, these jobs were probably created to repair the hurricane damage along the Gulf Coast. If our area is any indicator, we have had a large number of Mexican's laborers hired to repair damaged roofs and homes.

2) 136,000 were Domestic Services jobs. Credit agencies: 21,000 (to manage and monitor consumer debt), Administrative and waste services: 17,600, Healthcare and social assistance 37,500, Waiters, waitresses and bartenders 31,000, Wholesalers 15,100.

3) Manufacturing jobs: 7,000. Since millions of manufacturing jobs have been shipped overseas, this figure is basically a non-event.

Yes, yesterday the financial media reported that inflation was “benign”? Today, without breaking stride the AP is reporting that stocks are mixed on inflation concerns.

Here's the article from the AP on Yahoo.

This type of news kind of makes you feel like a squirrel in the middle of traffic, doesn't it?

We do not need for anyone to tell us that inflation is not a problem. We know better.

BCA Research is a highly reguarded research firm. Here's their latest take on the refiners.

In my February 22, 2006 post ( Here we go Again!), I mentioned the name Richard Ney, author of 3 books on the inside dealings of Wall Street. Mr. Ney died in 2004 (Wall Street is probably relieved), and his books are out of print and very difficult to find in the secondary market.

Ney's book, The Wall Street Jungle came out in the early 1970's, and was on the New York Times best seller list for 11 months. Oddly, after being on the best seller list for that length of time, the New York Times would not review it.

Ney figured out how the Wall Street game is played, and he quickly became an ememy of the Wall Street establishment. Since you may have some difficulty finding some of his books, I have provide you with a few links to read about this insightful author.

DISCLAIMER裕HIS IS FOR INFORMATIONAL PURPOSES ONLY AND IS IN NO WAY A SOLICITATION OR AN OFFER TO SELL SECURITIES. I AM A REGISTERED INVESTMENT ADVISOR, BUT ONLY PROVIDE SOLICITED ADVICE TO CLIENTS OF OUR FIRM IN STATES WHERE WE ARE REGISTERED OR WHERE AN EXEMPTION OR EXCLUSION FROM SUCH REGISTRATION EXISTS. NOTHING ON THIS WEBSITE SHOULD BE INTERPRETED TO STATE OR IMPLY THAT PAST RESULTS ARE ANY INDICATION OF FUTURE PERFORMANCE. CAREFULLY ASSESS YOUR OWN RISK TOLERANCE AND GOALS BEFORE INVESTING.

"Run Forrest Run!" Of course this is the famous phrase from the movie Forrest Gump. Well, our Forrest Gump insiders are heading for the exits, and in a big way.

Here are the buy/sell totals for the past 5 trading days:

2-17-06 B69 S254
2-21-06 B83 S273
2-22-06 B72 S259
2-23-06 B64 S209
Today B66 S262

By now, you probably understand the drill. Wall Street tells you to buy, while the insiders are selling.

Bruce Bittles was our Chief Market Strategist at JC Bradford, and I really admire his work. Bruce calls as he see's them, and will not tell you that you need to be in the market when he is anticipating a train wreck.

The concensus market opinions continue to call for higher high's before the cyclical bull market ends, but I don't care. I do not like playing a game of chicken with the market. I would rather be a live chicken, and buy a 3 or 4 month cd at 4.4%, than wait for the market to hand me a speculative 4% over the next few months.

Anyway, here is the link to Bittles comments.

Unfortunately, most Americans take to heart everything they read or hear in the press. We need to understand that the long arm of Wall Street has a tremendous amount of influence on what we know, and what we don't know.

For example, in March of 2000, many investors woke up to a shellacking in the equity markets that eventually cost investors billions of dollars. Who pulled the plug? It wasn't the mutual funds or pension funds, by the time the damage was done, many of those institutions were down 40-50% as well.

As I watch the smear campaign on Iran and Venezuela unfold, I have to look at the facts with a critical eye, and ask why? Mind you, my first instinct is not any different than anyone else. I do not want terrorists to have nuclear weapons, and I do not want a dictator in Venezuela.

If I have learned anything about investing, its to always question the source of the information that I am receiving. Thank goodness, I learned this from the Wall Street brokerage firms I worked for since they had a policy that forced brokers to relay the opinions of their analysts to their clients.

The one business in our country that an individual or another nation cannot mess with is the oil business. The oil cartel in the U.S. controls, and wants to control the worlds trading of this precious natural resource. To say that the executive branch of our government is an oil administration is a huge understatement.

I have been talking about the real estate bubble for quite sometime. The economy is like a giant ship, and ships do not turn on a dime. Any shift in the economy comes gradually, and the key to successful investing is patience, and at times having the ability to sit still.

Unfortunately, most investors feel like they always need to be doing something. In case you missed it, here is a recent article on Yahoo about the glut of unsold homes on the market.

In our area (along the Gulf Coast), the condo market is at a virtual standstill, and in town, a realtor recently said that there are 5,000 homes for sale on the MLS.

The lesson to be learned is obviously, sell greed and buy despair.

One of the advantages of being a newsletter writer is the alliances and relationships you build with other financial experts. The rumors of an Israeli bombing run over Tehran are heating up. Some believe that this could occur as early as the end of March. Here is one of several articles on the net.

Here is an article that was written by UPI International.

The concensus of most experts is the floor on the price of oil is in the low $50/bbl area.

Some pretty bright financial guys are speculating that the recent weakness in oil stocks actually masks what really going on. The speculation is this; traders are selling oil stocks while at the same time building positions in call options in anticipation of a spike up in oil prices should troubles breakout in the Middle East.

Well, well, it looks as if the cat is out of the bag. This morning the GDP numbers were revised upward, consumers are beginning to feel the pinch, and the economy is slowing.

The real danger is clear; cost-push inflation is a result of supply shocks such as high energy and commodity prices. An economy can slow, but as long as cost-push inflation is a factor, interest rates will continue to climb.

Its important for investors to know the difference between demand-pull and cost push inflation. The Federal Reserve is going to react negatively toward one versus the other, and the implications for the stock market are very different.