Control the controllable – Market Review: August 20, 2007

Control the controllable – Market Review: August 20, 2007

An eventful week, as markets displayed large swings driven by growing uncertainty and looming fears. Also, plenty of data/news releases, highlighted by the action of the Federal Reserve. Nevertheless, the macro and cycle themes remain in tact. Despite oversold equity markets and boost from Bernanke & Co any upside sustainability remains unclear.

Even though, financials appear attractive in the near-term, select areas should experience further credit risks. Overall, artificial boost to the financial markets only prolongs the natural flow of cycles. The Federal Reserves’ decisions demonstrate that liquidity is a priority concern. Clearly, the Fed acknowledges that economic weakness lies ahead. That said, long positions in the financial sectors are susceptible to higher risks and potential downside surprises.

At the same time, equity markets are reaching overly bearish levels after recent sell-offs. This is exhibited by elevated VIX, high Put/Call ratio readings, oversold broad markets and buying among insiders. These factors suggest a near-term recovery. In looking ahead, instability generally breeds opportunity. Therefore, the next few weeks offer buying opportunities in Technology, Media, and Telecommunication and select Healthcare themes. Entry/exit points are going to be difficult on a relative basis given the higher market volatility.

The challenge ahead is beyond seeking trends and sector rotations. It is vital to focus on specific ideas. In "controlling the controllable" stock specific ideas below.

MACRO LEVELS:

Crude: Attempting to bottom above $70 in the near-term. Intermediate-term data suggests further downside/ consolidation ahead.

US 10 year yield: Becoming oversold in the near-term. Stabilizing near the 4.60% levels.

Gold: Sideway action continues. Trading in a narrow range between $670-650.

Japanese Yen: Further signs of bottoming. Currency is up more than 8% since June 22 lows.

S&P 500: Near-term oversold. Attempting to stabilize between 1440-1460 levels. Major resistance level at 1480.

FXI (FTSE/China 25 Index): Attempting to bottom near 120-130 level as it holds above its 200 day moving average.

Consumer Staples:

CQB (Chiquita Brands): Following a sharp sell-off after earnings season, stock is oversold and poised for a recovery. Timely entry points around $12/14 levels.

WFMI (Whole Food Markets): Holding above long-term support of $40. After 1 ½ years of underperformance, stock offers appealing entry points.

Technology:

INTU (Intuit): At a buy point with major support at $28.

BRCM (Broadcom): Further strength developing. Increase exposure.

MOT (Motorola): Bottoming between $14-16 range in anticipation of improving fundamentals.

SNDK (Sandisk): Further signs of strength. Above $50 trend remains positive.

TLAB (Tellabs): At long-term support of $10 with attractive risk/reward.

Healthcare:

JNJ (Johnson & Johnson): Offers a large cap exposure in healthcare. Accumulate between $60-62 levels.

ABI (Applera Biosystems): Following multi-year underperformance, ABI is showing early signs of bottoming. Add on near-term pullbacks.

GENZ (Genzyme): Strong support level at $60. Stock is positioned for a long-term recovery.

BMRN: (BioMarin Pharmaceutical): Uptrend intact since Q2 2005. Add on any weakness.

Media:

CMCSA (Comcast): Near-term oversold. Attractive entry point near $25-26 range.

DTV (DIRECTV Group): After trading sideways in 2007, the stock is bottoming around $22 with improving fundamentals.

GMST (Gemstar): Near-term consolidation as it attempts to bottom. Buying opportunity around $5-50.

Telecommunication

VZ (Verizon Communications): Remains at a buy point between $40-42.