Market Outlook: 6-11-2007

Market Outlook:

• US 10 yr yield rising a key macro focus as it continues to make headlines. A strong run since mid March as it reached high of 5.24%. At this point yields appear extended in the near-term and looking for stabilization around the 5% level. For equity players, this is a great macro excuse to sell as rising rates suggest heavier competition for stocks.

• Similarly, Canadian dollar continues to surge equally as stated last week. This theme stems from the strength in commodity based currencies. Along with rising global rates as seen in New Zealand last week.

• Crude: Overall key trading range remains between $62-66. In the near term, expect a pullback and further sideway/down action this summer. Again, outside of geopolitical concerns we should see stabilization closer to $60.

• Yen deeply oversold and signs of further recovery which can have an impact on equity markets. Given the inverse relationship between declining Yen and Rising S&P 500, any upside movement in the Yen can cause shrinking liquidity. This inverse relationship remains intact as it began in the1990's and resumed in 2003. At this junction of the global cycle, we are poised for shifts in macro trends. The Bank of Japan is expected to meet soon and at this point an oversold Yen is attractive bet for a recovery along with the dollar which continues to bottom.

• Gold: Slightly broke near-term support at 660. Next key level at 640. Intermediate-term range forming between 680-640, with major psychological level at 600.

• Taking about cycles… As emerging markets become extended, look for rotational flow into developed markets. US and European stocks are attractive especially after underperforming in the past few years. Favorite themes are telecom and communication technology as a counter balance to commodity related themes. Also, healthcare names offer some bargains as the group attempts to bottom. Be selective in stock selection in pharma group especially with the additional litigation risk.

• Weakness in Financials. REITS: further signs of weakness along with the broad market correction. RWR: Wilshire Reits index: stalling since mid February and struggling to recover. Least favorite REITS include, SPG, BXP, HST and VNO. From a cycle perspective, the group is setting up for sharper corrections. Use strength as opportunity to build short positions. RWR short exit levels: 90 and 92. Side note: Wisdom Tree launched two ETF’s composed of global REITS. This indicates to me that we are nearing some sort of a top at pricey levels.

• Financials: XLF- Peaked on May 31 from overbought conditions. Similar to peak in February around 38. Generally, weakness in financials serves as a leading indicator for the broad markets. Expect further downside in the month ahead. Relative strength weakness in financials vs. S&P 500. A continuation of a weak trend since early this year.

• Utilities, similar to REITS, feeling the impact of rising yields. XLU: peaked on May 25, as it continues to retrace. Trim on any strength in the near-term.

Looking Ahead:Early view of Semiconductors: Group has underperformed the market in most of 2006 and early part of 2007. AMD attractive with exit at $13.50. SNDK: 3+ month of sideway action now poised for recovery.

Communication: Similar to AMD’s oversold chart, XXIA offers some buying opportunity above $8. NTGR: Add on any weakness uptrend remains intact.

MOT: Continues to trade around oversold levels. Interesting take --CIBC believes investors should focus on product portfolio and margin progress, yet not look for a game-changing model.

Networkers: PXQ - Dynamic Networking Portfolio – Strength continues as etf makes new highs. Although it appears extended, there are few names of interest when sell-off’s persists.

ATHR: Accumulate closer to $25-27 range. SONS: Add closer to $7. FFIV: trend remains positive.

Media: CMCSA - Accumulate closer to $26/25 range on pullbacks. MCCC - elevated in the near-term, add on pullbacks. BLC- Looking for it to stabilize $22-20 range.