Momentum Polishes Gold; Mind the Dollar

My model shows the energy sector 7.3% overvalued, but if you are looking to trade a rebound for crude oil, consider Cimarex Energy(XEC Quote). Shares are 13.9% undervalued with fair value at $46.68. The weekly chart profile is positive, with the five-week MMA at $39.65. Cimarex ended last week between my monthly pivots at $40.81 and $39.16, and if that zone holds, I show a potential trade up to my quarterly risky level at $43.25.

Watching for a Weaker Dollar

The euro, now around 1.1712, tested a new 52-week low at 1.1643 on Nov. 15. Weekly support is 1.1559 and monthly support is 1.1332, with the five-week MMA at 1.1860. A weekly close above 1.1860 would signal that we've seen a bottom in the euro. The ECB raised its benchmark rate to 2.25% from 2.00% this week, but this was widely anticipated and is not viewed as presaging of a series of rate hikes.

The dollar traded to a new 52-week high against the Japanese yen last Friday at 121.22, above 120.00 for the first time since August 2003. It's now around 120.45. My monthly and semiannual pivots are 118.77 and 117.37, with weekly resistance at 122.04.

If the dollar changes direction in 2006, conglomerates are likely to benefit from its weakening. I set my screen to find a conglomerate that was rated at least a hold by analysts and was at least 10% undervalued, and the screen came back blank. I reset to 5% undervalued, and five names came up. I will be tracking Fortune Brands(FO Quote), General Electric(GE Quote), Honeywell(HON Quote), 3M(MMM Quote) and PPG Industries(PPG Quote). When some of these names become at least 10% undervalued, I will follow up on them in a column here.