December 9, 2006

Hello,

I hope you are doing well.

During the last month, the equity markets have strongly gone up. At this point, the markets are overextended and considered by many experts as a momentum play (they are going up simply because they have recently gone up). We believe the market will need to pause before moving up again, although we should also keep in mind that the period December – April has a very significant seasonally positive impact on the market performance.

Our next InvestWELL Report will be released on January 6, 2007 (following the Labor Report).

We wish to extend a very happy Holiday greetings to our readers and their families.

Derek Polcyn, CFA, FRM, CIM, M.A. (Econ.)
President & CEO

P.S. This is a non-member version of InvestWELL Report. Please sign up for the membership ($39 per month) to receive the full benefits of our membership. 



In This Issue:

Investment Idea
Quiz
Our Results
Market Highlights
Behavioral Finance Indicators
Answer to the Quiz

Investment Idea

Question: What are the characteristics of investment info which could help investors outperform the markets?

Answer: We believe these three characteristics are very important.

1. The info must be significant. The big picture is important but the overlooked details may make a big difference, which could give one an edge over other market participants
2. The info must be valid. We need to seek info from independent agents or find it on our own rather than listen to the PR department with obvious agendas.
3. The info should be exclusive. Once you find something, you need to keep it to yourself. Usually, what everyone else knows is not worth knowing.
   
   

Quiz

Why is it important to seek investment info from independent sources?

A) Independent sources usually have very little bias
B) Because their info may give one an edge over other market participants
C) They are often able to give investors an alternative way of looking at the issue
D) All of the above

Answer to the Quiz at the bottom of the newsletter

Our Results (Cumulative %)

Investment Strategy – MEMBER SECTION

InvestWELL Picks continues to outperform the S&P 500 index by over 500 basis points (Chart 1). We are expecting that the markets will need to pause for a while to consolidate the recent gains.

Chart 1.

Market Highlights

• During the last month, the US equity went on winning streaks (Chart 2 & 3). The market is currently quite overextended and may need to take some time to consolidate gains.

Charts 2 & 3. S&P 500: 5 Years and Last Month

Charts courtesy of StockCharts.com

• During the last month, the Canadian equities went up in tandem with their US counterparts. The prediction that the market would suffer (following the income trust decision by the Minister of Finance) did not materialize.

Charts 4 & 5. TSX Canada: 5 Years and Last Month

Charts courtesy of StockCharts.com

• In November, the US employers added 132K of new jobs while the unemployment rate edged up to 4.5%. There is a wide expectation that the US economy is due to a slowdown which is unlikely to turn into a recession.

• In November, Canada added 22K of new jobs with the unemployment rate at 6.3%. Most of the new jobs were part time, which points to some weakness in the labor market.
  
  
• Europe's trade deficit with China and Japan soared, increasing pressure on Asian government officials to allow their currencies to appreciate. Since last year, the trade deficit with China grew 21 percent, while it went up by 17% with Japan.
  
  
• The US productivity slowed down sharply to 0.2% in 3Q2006 (the economists were expecting 0.6%). The productivity gains are one of the most crucial elements of healthy economic growth.

• The official US leading indicator has been slowing down since January 2006, pointing to a high probability of lukewarm economic growth in the upcoming months.

• U.S. home prices grew at an annual rate of 3.5% in the third quarter, the slowest rate of price appreciation seen in eight years. A year ago, prices were rising at a 13.4% pace.
  

Opportunities and Risks – MEMBER SECTION

Behavioral Finance Indicators (see explanation) – MEMBER SECTION

Charts 6 - 8: Advancing/Declining Line, AAII and Equity Put/Call Ratio




Charts courtesy of StockCharts.com and DecisionPoint.com

Answer to the Quiz

D is correct. All of the above are true statements.

Copyright
The contents of this publication are the property of InvestWELL Financial and may not be summarized, reproduced, or rebroadcast in any fashion without our written permission.

Disclaimer
InvestWELL Financial’s first priority, as a provider of independent and unbiased financial information, is to educate our clients. Not only do we provide practical information about securities, but we also coach our clients to become successful independent investors. As such, InvestWELL Financial does not assume any responsibility whatsoever for the use of any information from the website or related publications. Although all sources of information are vetted and the information is believed to be reliable, it is not provided as investment advice. Past performance is not an indicator of future performance in securities. Each portfolio must be balanced and based on personal circumstances. High-risk investment decisions should be made in consultation with an investment professional.

InvestWELL receives no commission or benefit of any kind from the companies whose securities InvestWELL Financial showcases. We do not necessarily own shares in the showcased securities, but if we do, these shares would only form a very small part of widely-held and publicly distributed companies. There is no intention whatsoever of profiting in a manner where the price-impact of trading or holding of a security might arise. The website and related publications of InvestWELL Financial are intended to only be used for educational purposes.