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The week is not getting off to a good start for European stocks. Portuguese bonds ticked above the “bailout threshold” of 7%. Readers may recall that both Greece and Ireland requested aid once their bonds breached 7%.

 

For its part, Portugal says it doesn’t need to tap into the EU’s emergency fund. But it’s not always about need. Sometimes it’s about appearance. That was the motivation behind the Treasury’s force-feeding of TARP funds to U.S. banks. And if Portugal can get its rates down, and ease fears that its problems will spread to Spain by taking some loans, it will do so.

 

The euro was getting sold this morning, and that’s the best explanation for the weak start for U.S. stocks. But we could also look ahead to 4Q earnings season, which kicks off tonight with Alcoa (NYSE:AA)…

 

*****Reuter’s is reporting that 4Q earnings estimates are little-changed since Spring, even the economy is doing much better. Year over year earnings gains are expected to be 32% on average. Way back in April, the forecasts were calling for 31.5% earnings growth.

 

That’s a set up for some significant earnings beats this earnings season.

 

Analysts are saying that financials and energy are the best places to look for strong earnings. I would add technology to the list.

 

Given the good retail sales we saw over the holidays, I expect technology did well. And the fact that hiring hasn’t improved significantly, it’s reasonable to expect that companies are still turning to technology to keep productivity moving forward.

 

I’m also going to be watching the commercial real estate stocks and REITs. These are among the last of the beaten down sectors. But with continued economic improvement, and lessening risk that these companies are on the verge of failure, these stocks could out in a great year.

 

If you’ve been reading Daily Profit for a while, you know MPG Office Trust (NYSE:MPG), formerly known as Maguire Properties, is among my favorites. You might check out RAIT Financial Trust (NYSE:RAS) and Strategic Hotels & Resorts (NYSE:BEE) as well.

 

*****Natural gas is another area that has potential for a rebound. I know, every year, even every few months, somebody makes the call the natural gas is ready to rebound.

 

But given the relentless supply, natural gas prices are never able to advance.

 

Many traders rely on weather reports to make the case for gas. Colder weather means more use, which means higher prices.

 

Personally, I’d rather look at production levels. Commodities are called “cyclical” because price and production tends to run in cycles. It goes like this…

 

Higher demand leads to higher prices and more production. Then when demand slackens, prices fall. That’s when companies will cut back on production and adjust for lower demand. Eventually, demand picks back up, and the lower production levels lead to higher prices.

 

Natural gas companies have been taking production offline to stop the price slide for a couple years at this point. Production this year is forecast to be essentially flat over last year.

 

At some point, less production and steady/rising demand will affect natural gas prices. 2011 could be the year. Sandridge (NYSE:SD) could have significant upside is natural gas finally turns around.





Posted 01-11-2011 8:32 AM by Ian Wyatt