-Executive Summary-

• The markets followed-through to the south today, but found broad support this afternoon.   See below…

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– Markets “At a Glance” –

(Please scroll down to the end of the report to see your favorite benchmarks – Dollar, Oil, Gold … closing prices and daily direction.)

Market	Price (Today’s Close)	Unit of Measure	Today’s Direction
SP-500	1,280.26	Index	DOWN = -1.66 points
DOW-30	11,822.80	Index	Down = -2.49 points
NASDAQ	2,704.29	Index	DOWN = -21.07 points
NASDAQ 100	2,286.08	Index	DOWN  = -17.24 points

– Market Trends –

Trend	SP-500	DJ-30	NASDAQ	NASDAQ 100
Short Term	Down	Down	Down	Down
Intermediate	UP	UP	UP	UP
Long Term	Lateral	Lateral	Lateral	Lateral

*Summary of terms from Trader Vic II-Principles of Professional Speculation (pg. 140-141)
*_________* Represents a change in trend rating.

– Market Perspectives –

For your added perspective, we’ve included these two different views of the broader market –

1. SMC SP-500 ETF Daily Chart (Click to open helpful chart in a separate browser window).

2. SMC SP-500 Weekly Chart (Spanning back through 2007)

– Today’s Highlights –

Earnings continue to pour in from excellent companies in America.  Tonight, Google Inc. (Ticker: GOOG) reported very strong earnings (courtesy of Briefing.com) –

Earnings per share of $8.75 = +0.66 better than consensus estimates

Revenues = +28.6% higher year/year.  Now $6.37 Billion (quarterly)

Most importantly, current acting CEO Eric Schmidt will step aside for co-founder Larry Page to begin functioning in the CEO role, beginning April 4th.

Let’s just look at the numbers –

$8.75/share x 4 = $35/share per year earnings.

Today’s share price = $627/share.

Price / Earnings (P/E) based on the above numbers = 17.91  This is perhaps slightly above the market average.   This means that at $627/share, Google may appear to be an expensive stock, but relative to the overall market and based on their current earnings the stock is priced fairly.  After the close, the stock price bumped up $14/share in the after hours.

Today is Thursday, so last week’s continuing claims data was released by the U.S. Department of Labor.  They reported 404,000 initial claims filed, down from last week’s number and again validating some who are thinking that the labor market is improving.

Existing home sales for December 2010 were reported today and were surprisingly strong.  Here are the details from the National Association of Realtors –

Washington, DC, January 20, 2011

Existing-home sales rose sharply in December, when sales increased for the fifth time in the past six months, according to the National Association of REALTORS®.

Existing-home sales¹, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 12.3 percent to a seasonally adjusted annual rate of 5.28 million in December from an upwardly revised 4.70 million in November, but remain 2.9 percent below the 5.44 million pace in December 2009.

Lawrence Yun, NAR chief economist, said sales are on an uptrend. “December was a good finish to 2010, when sales fluctuate more than normal. The pattern over the past six months is clearly showing a recovery,” he said. “The December pace is near the volume we’re expecting for 2011, so the market is getting much closer to an adequate, sustainable level. The recovery will likely continue as job growth gains momentum and rising rents encourage more renters into ownership while exceptional affordability conditions remain.”

The national median existing-home price² for all housing types was $168,800 in December, which is 1.0 percent below December 2009. Distressed homes³ rose to a 36 percent market share in December from 33 percent in November, and 32 percent in December 2009.

“The modest rise in distressed sales, which typically are discounted 10 to 15 percent relative to traditional homes, dampened the median price in December, but the flat price trend continues,” Yun explained.

Total housing inventory at the end of December fell 4.2 percent to 3.56 million existing homes available for sale, which represents an 8.1-month supply⁴ at the current sales pace, down from a 9.5-month supply in November.

– Story-Stock Investing –

Yesterday we “flattened” everything.  This means that we exited all stock positions and raised 100% cash.  This morning the market opened further lower and the individual stocks that we had owned were also lower in price.

At this point, we don’t expect much more than a modest correction in prices as early investors take some of their money off the table and earnings reports flow in, providing investors an understanding of where growth is taking place.

The Federal Reserve’s desire to lower yields and encourage investment in vehicles besides bonds and cash, while pushing the US dollar lower in value should continue to point investors in the direction of equities.

We read a bit more today about Iran and their nuclear activities.  There is also always North Korea and al-Qaeda also to consider relative to geo-political events that could be triggered at any particular time.  During the cold war years it was Russia and China, yet the market advanced and growth stock investors were rewarded.

Pull-backs in the broader market give us a wonderful opportunity to see how stocks that have excellent growth and earnings handle broad-based selling.

We remain watchful.

Internet bubble stock Ebay Inc. (Ticker: EBAY) reported strong earnings today.  They have worked hard to re-create their business.

American International Group (Ticker: AIG) stock continues to get its lights kicked-in following its announcements over the last week concerning future government dis-involvement and additional share issuance.  If we had chosen to get involved with AIG, we would have used the approx. $54-$56/share level as a stop, which would have prevented heartache.  The fund, Fairholme Capital Management LLC, has made significant purchases in AIG in and around this current share price – but this hasn’t convinced other financial institutions to stick-around yet.  Concerning AIG, we received this email on 1/15 from subscriber-friend “Gary” –

Hi Eric,

Regarding AIG’s recapitalization plan which was completed yesterday,  I am wondering how the 1.655 billion shares of AIG common stock currently owned by the U.S. Treasury (who now owns a 92% stake in AIG) will impact the AIG stock price when large blocks are sold on the open market over the next two years.  If the Treasury sells their entire position equally over the next two years the daily average # of shares sold will be 3.3 million or 53% of the average daily trading volume.  If the Treasury sells the shares for more than $29 they will make a profit.

Also, do you have an idea of what impact the exercise of warrants to be distributed Jan 19 will have on the stock price?  The warrants allow existing shareholders to purchase 200 shares of stock for every 375 shares owned.  The warrants will allow existing shareholders to purchase shares at $45 over the next ten years.

I wanted to get your thoughts on this.  Do you have any thoughts on these events and the impact on AIG going forward?

Here was our answer on 1/15 –

Gary –

… A lot depends on the real EARNINGS of the remaining AIG enterprise and its growth going further.  The easiest answer at this time is to say that the stock price will reflect expectations of earnings and if there was an increasing agreement that earnings are sufficient to warrant a higher share price (allowing for increased shares), we would begin to see a surge in share price appreciation above the $62/share level.  Uncertainty of this outcome will result in institutional ownership re-evaluating their ownership and they will become net sellers of stock until the stock becomes over-sold enough to warrant re-investment and reward for the uncertainty.  Friday’s selling of the stock may be a sign of concern over increased uncertainty.

It’s the same problem that GM has.  AIG may however be in a better situation IF they have strong cash flow from existing enterprise and not a shrinking market share problem and NO dependence on reaching the market with something like the Chevy Volt.

AIG and GM suffer from a LEADERSHIP problem.  Notice that in both cases it is difficult for us to identify a STEVE JOBS type of personality present at the helm.  Benmosche at AIG may be a great one … I just don’t know yet.

With AIG our HOPE would be that the remaining cash flow and earnings from the existing enterprise, now emerging from protection and removed from their over-leveraged division that destroyed the company, is overwhelmingly more powerful than the existing stock price is saying.

Yours – Eric

Please remember – at the Stock Market Companion we do not and cannot give individual investment advice. According to the State of Washington RCW 21.20.005 the Stock Market Companion is not a Registered Financial Advisor and we do not render any advice on the basis of the specific investment situation of a particular individual. This information is for a wide readership and is not intended for any particular individual,  and under no circumstances should our Market Update or Watchlist be considered an investment recommendation or plan for any specific individual.  By accessing this material, you agree that the Stock Market Companion will not be held liable for any actions taken by a subscriber or other parties.  Please seek the counsel of a broker or other licensed investment professional for accurate pricing and concerning the suitability of all investments that you may be considering. Disclosure : You understand that the Stock Market Companion holds positions in the above mentioned securities. Based on market related or personal events these positions may change without notice.

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Please remember – at the Stock Market Companion we do not and cannot give individual investment advice. According to the State of Washington RCW 21.20.005 the Stock Market Companion is not a Registered Financial Advisor and we do not render any advice on the basis of the specific investment situation of a particular individual. This information is for a wide readership and is not intended for any particular individual,  and under no circumstances should our SMC Intraday Update, SMC 15MinuteStocks Market Update or Watchlist be considered an investment recommendation or plan for any specific individual.  By accessing this material, you agree that the Stock Market Companion will not be held liable for any actions taken by a subscriber or other parties.  Please seek the counsel of a broker or other licensed investment professional for accurate pricing and concerning the suitability of all investments that you may be considering. Disclosure : Please understand that the Stock Market Companion may hold positions in the above mentioned securities.  Based on market related or personal events these positions may change without notice.

– Stock Market Companion – Current Holdings –

Nr.	Co.	Ticker	Action	Entry Date	Current Gain (Loss)
1	Zagg Inc	ZAGG	SOLD Yesterday	1/6/2011	+5.7% (Final)
2	Ford Motor Co.	F	SOLD Yesterday	1/5/2011	+4.1% (Final)
3	Apple Inc.	AAPL	SOLD Yesterday	1/3/2011	+3.4% (Final)
4	Cisco Systems Inc.	CSCO	SOLD Yesterday	12/13/2010	+4.7% (Final)

– Stock Market Companion – Performance –

Please click on this chart to see the Stock Market Companion 15MinuteStocks stock performance versus the SP-500.  It will open in a separate browser window.
* Gains (losses) do not include brokerage fees.   Our returns are very strong … BUT …  WE have to remind everyone just like all other financial sites in America – Past Performance is No Guarantee of Future Returns.  Unlike others however, our objective is to teach you to be able to make these types of strong returns On Your Own.

All of the investments – stocks, entries, and exits are listed on our Stock Market Companion Watchlist at the bottom of the spreadsheet, in the section labelled Former Holdings.

– Benchmarks “At a Glance” –

US Dollar	1.3466 USD = 1 Euro	USD / EUR	Dollar = Flat
Gold	$1,346.50	Ounce	Gold =  DOWN
Oil	$89.36	Barrel (West Texas Crude)	Oil = Down
30 Yr. Fixed Mortgage	4.79%	Percent	Down a bit more.
10 Yr. Bond Yield	3.45	Percent	UP a bit
1 Yr. CD	1.36	Percent	Flat

Data Source : Financial Visualizations Inc.

Signing-Off for Today,

Your -Stock Market Companion

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The Stock Market Companion (SMC) Market Update and Watchlist are published documents to subscribers that show how we (SMC) are viewing the markets and what we are watching, investing in or selling today.  This information is for a wide readership and is not intended for any particular individual,  and under no circumstances should this Market Update or Watchlist be considered an investment recommendation or plan for any specific individual.  By accessing this material, you agree that the Stock Market Companion will not be held liable for any actions taken by a subscriber or other parties.  You understand that the Stock Market Companion holds positions in the above mentioned securities.  Based on market related or personal events these positions may change without notice.

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