Market Review – August 27, 2007

A relatively calm week, as markets finished higher with lower volatility. VIX (Volatility Index) declined to 20 from its August 16th highs of 37.

Despite long-term uncertainties, macro indicators are beginning to stabilize. US 10 year yield is back down to 4.60% levels following a surge above 5.20% in June. Crude is holding above $70, while S&P attempts to bottom around 1460-1480 range.

Overall sentiment remains net bearish among consensus. For example, in the last four months, mutual funds witnessed net outflows of $35 billion (trimtabs.com). This further illustrates flight to cash and other risk-averse instruments.

It is customary to expect lower trading volume and quieter market behavior in the last two weeks of August. Needless to say, there are several opportunities in the marketplace as investors and commentators speculate on pending rate cuts.

Last year, Technology bottomed in July, following a sharp broad market correction. Since that point, the sector has demonstrated leadership. Since last summer lows, ML Tech 100 Index has gained 35% while S&P 500 rose 21% in the same period. Given further risks in Financials and elevated Energy groups, expect further rotation into Technology.

Macro Indicators:

US 10 Year Yield: Oversold near-term. Attempting to bottom with key support at 4.60%.

Crude: Holding above $70. Index is 10% removed from all-time highs $78.70. Expect further consolidations ahead.

Gold: Long- term trend remains positive. Holding above $660, as near-term momentum remains favorable for an upside move.

US Dollar: Retesting December 2004 lows (80.39). Index is 3% removed from all-time lows reached in September 1992. (78.19).

SPX: Recovery continues from oversold levels. Next key resistance levels, 1480 followed by 1500.

FXI (China 25 Index): Re-accelerating and trading near all time high.

Stock Ideas:

Technology:

TLAB (Tellbas): Bottoming and oversold. A timely entry point, and setting up for a sustainable run in the telecom networking group.

ONNN (ON Semiconductor): Improving fundamentals in the analog sector. Accumulate on pullbacks between $11.50-12.

EMC (EMC Corp): Add on any sell-offs. Buy range between $18-20.

SOHU (sohu.com Inc.): Relative strength remains positive. Offers exposure to Chinese internet market.

LNOP (Lanoptics): Despite a 7% increase on Friday, stock remains attractive. Solid fundamentals as company reported a 192% revenue increase. A small cap growth idea in technology, offering an entry point closer to $16 level.

Telecommunication:

VZ (Verizon Communications): 4+ month consolidation between $40-44 is setting up for an attractive near-term entry point.

Media:

CMCSA: (Comcast): Deeply oversold. The stock offers attractive risk/reward at current levels.

DTV (Direct TV): Positive long-term trend. Recovery continues from oversold levels. Add on any weakness.

Consumer Staples:

WFMI: (Whole Foods Market): Intermediate-term trend positive above $40 range. Add on any pullbacks.

Healthcare:

WAT (Waters): Uptrend intact. Timely entry point as fundamentals and momentum remain positive for the medical instrument manufacturer. Accumulate closer to $62-60 range.