In This Edition...

• Consumer Confidence: The Sky Isn't Falling 
• Sector/Industry Review - Healthcare's Looking Healthy (plus a look ahead) 
• This Week's Updated Watchlist 

The Sky Isn't Falling

By now you've certainly had time to digest this month's consumer confidence reading, and the news/commentary surrounding it. With all "the sky is falling" opinions out of the way in the wake of July's lower confidence levels, we can offer you a little more grounded perspective. 

Yes, it's true that the Conference Board's Consumer Confidence measure fell from 49.3 in June to 46.6 in July. It's also true that this is the second month in a row we've seen consumer optimism take a hit. However (and despite what some of the commentators would lead you to believe), the modest decline from May's reading of 54.8 isn't a reason to panic. 

Let's roll the calendar back to a point we made back in May following the surprise jump in optimism....

"....sentiment can be more fickle and erratic than the market itself. We have little doubt the Conference Board's indicator will retreat at least to some degree in the very near future - the expectations are unreasonable at current levels. And, when confidence does retreat in the future, undoubtedly every perma-bear and grim pundit will come out of the wood work, shake a finger, say "I told you so", and beg you to sell your stocks. Don't listen to them. The consumer confidence number isn't a swing-trading tool, and one month's worth of data (up or down) is meaningless. This is a long-term indicator that's worked phenomenally well for decades..."

The nearby chart of the Consumer Confidence reading and its appearance (literally, the way it 'looks') is our focus. 

If the confidence reading's trend is upward, as measured by a multi-month moving average line, then we're bullish. If the trend says confidence is sinking, then we're bearish. It's as simple as that. Even the absolute level doesn't have any real meaning, as far as market timing is concerned.

As we stated before, we'll keep you up-to-date on this chart and let you know of any significant changes. 
 

Healthcare Sector/Industry Update

Back on June 12th we took a bullish stance on healthcare in general, and adopted a bias in favor of a few select healthcare industries (healthcare equipment, healthcare technology, and healthcare supplies). Needless to say, our bias was also focused on the small caps in those industries.

As it turns out, the bullish healthcare stance has paid off well, but we didn't really need to bother trying to find the hottest healthcare industries... they've all been quite hot.

Since our June 12th call, the Dow Jones Healthcare Index has gained 9.5%, and is the number one sector performer for the period. (Aside from patting ourselves on the back, we mostly want to use the results as evidence that the sector rotation-spotting technique works.)

As for the small cap healthcare industries, biotech won (surprise surprise), but the distributors - not one of the groups we really liked - came in a close second. Equipment and supplies did ok, and as we figured would happen, healthcare facilities trailed. The hospital stocks just didn't leave themselves anywhere to go after major gains in Q2. 

So what's next? Biotech looks a little frothy, and the facilities may be positioned to play catch up now. That's the nature of rotation. Any other momentum is fairly clear from the chart. 

In any case, the healthcare trend is underway, and looks like it's well-paced enough for more of the same for a while. Therefore, it's time to start looking for the next sector starting to heat up. 

It's a little early to make the call just yet based on what we see right now, but telecom - a long time straggler - may finally be ready to roll. It's a group with two distinct sides.... wireless and land lines. The two groups rarely trade in tandem, so a little industry exploring may be merited.

We'll look at that chart in a future newsletter. . 
 

	This Week's Watchlist

As always, the weakest ideas were dropped, a few new ones to watch were added, and the ones to watch were updated.

• U.S. Gold Corp. (UXG) - still going strong, the 20 day line held up as support 
• Aristotle Corp. (ARTL) - still lots of resistance at the 20 day line, but be cautious 
• Herzfeld Caribbean Basin Fund Inc. (CUBA) - dump it, the bulls are getting no traction 
• Solar Power Inc. (SOPW) - let's drop this one too, resistance was broken 
• Oncothyreon Inc. (ONTY) - consolidating at $4.30 
• Affymetrix Inc, (AFFX) - no question any longer, but no opportunity either, drop it 
• New Energy Technologies Inc. (NENE) - hope you took profits, off the watchlist now though 
• VCG Holding Corp. (VCGH) - the downtrend may be anemic, but it's still intact
• Echo Therapeutics, Inc. (ECTE) - the pause after the breakout is a concern, be careful 
• Spark Networks, Inc. (LOV) - resistance at $2.48 is still the key 
• ICO Inc. (ICOC) - broke out above resistance in spades 
• BRT Realty Trust (BRT) - still waffling, but also worth watching 
• Reading International Inc. (RDI) - consolidating around $4.40 
• Javo Beverage Company Inc. (JAVO) - let's drop it, not enough follow-through 
• ERF Wireless, Inc. (ERFW) - still trying to work higher, in start/stop effort 
• Evergreen Solar Inc. (ESLR) - drifting higher, still an interesting bull play 
• FCStone Group, Inc. (FCSX) - resistance at $5.10 could spark a rally if broken 
• Harvest Natural Resources Inc. (HNR) - launched last week and never looked back 
• NPS Pharmaceuticals, Inc. (NPSP) - fell apart last week, let's drop it 
• Aradigm Corp. (ARDM) - still having trouble with resistance at the 20 day line 
• COPsync, Inc. (COYN) - resistance at 20 day line still intact 
• Lifevantage Corporation (LFVN) - the bears are gaining momentum here
• China Solar & Clean Energy (CSOL) - nice high volume breakout could start something
• Kemet Corp. (KEME) - another high volume breakout, could get the ball rolling
• Superlattice Power Co. (SLAT) - still range-bound, but news has inspired buying
• Amicas Inc. (AMCS) - reached new 52-week highs today on strong uptrend
• Superconductor Technologies (SCON) - major gains today, but still well under old highs

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