WaveStrength RADAR for December 8, 2006

Macro Outlook

I know trouble loves company, but Wal-Mart’s (WMT:NYSE) troubles are becoming legions.

Earlier this year, the colossus of Bentonville announced that it would sever its relationship with its two long-time ad agencies, Omnicom Group Inc.'s GSD&M and Bernstein-Rein Advertising Inc., as of January 2007.

The idea was to replace them with DraftFCB as its advertising agency and Aegis Group's Carat as its media buying agency. However, before DraftFCB could even dig into the massive task of promoting the ever-less popular retail giant, it too was fired. Wal-Mart credits this vacillation to “the result of new information that we have obtained over the past few weeks.”

Meanwhile, several of Wal-Mart Chinese suppliers are being investigated for failing to pay legally required wages or provide health insurance and allow poor working conditions.

Seriously, folks, by the time you are being investigated in China, a country that still allows the next thing to slave labor, you know your troubles are breeding troubles.

Material Profits

Crude up this morning on rumors of production problems… Via Platts.com:

“Global crude futures, in particular ICE Brent, jumped above $63/barrel as the Brent loading program for January showed a 41% fall compared to December, brokers said…

“Trading sources said that the larger program in December was a major factor in the reduction of output in January, while unconfirmed talk [of] production problems persist. ‘We have heard rumors of production problems but it's not proving that easy to find out,’ said a North Sea trader.”

Trading Tactics

The market is beginning to turn weaker this morning, as the Labor Department reported that non-farm payrolls increased by 132,000 in November, signaling that hiring in the U.S. continued at a steady, strong pace in November.

This diminishes the idea that the economy is weakening – which sparks new worries of rate increases. And thus, this all equates into a market that’s trading lower by 33 points. So once again, news of a strong economy is pushing the markets lower… which supports Adam’s double top chart formation… and also supports my thesis for owning protective puts.

Please note that all quoted currencies are in United States dollars, unless specifically stated otherwise.

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