Market Update -11-26-2007

Market Update -11-26-2007

As we come down the stretch in 2007, investors seem far removed from reaching clarity. In other words, most signals, sentiments and behaviors are becoming more confusing. At least for those attempting to connect the dots and construct a winning portfolio. Perhaps, it is not surprising given a depleted credit market, beaten down US Dollar and elevated commodity prices.

Thematically, these existing trends appear "crowded". At this point, it might not be wise to pile on existing trends. In recent weeks, the most accepted trade is short dollar and long energy. Amazingly, a contrarian bet is not as unpopular as one would think. (Long Dollar/Short Crude) In fact, the short interest for energy are at peak levels. Meanwhile, many technical traders have unsuccessfully attempted to call a bottom on the dollar. Nonetheless, the multi-year trend for the Dollar and Crude remains intact. Evidently, predicting an inevitable trend shift is a monumental task for market participants.

On a similar line of thinking, value investors who accumulated financial, consumer, housing and mortgage related "bargains" are feeling pain. The crisis in the credit markets has not reached the late innings as hoped by many. This is an illustration of additional bad news ahead for financials. Recent minutes from the Federal Reserve showcased more concern for housing. Importantly, the FOMC statement suggested a bias for pending rate cuts. Overall, a slowing economy is a topic that should influence business spending, investor demand and media coverage.

Picking Spots:

Once again, a broad market view is not enough to produce desired returns. Also, betting on macro directions alone does not answer the stock specific questions. That said, plenty of issues to consider and probably best to examine sector by sector.

Healthcare:

BLUD (Immucor): Fundamentals are solid as seen by increase in revenue for 16 straight quarters. Technical pattern also supports an upside move for the maker of blood bank systems.

GENZ (Genzyme): Leadership intact in the biotechnology group as seen by its unique products, solid earnings and positive momentum. Current levels offer opportunity to accumulate especially given recent declines from October highs.

Technology:

For upcoming weeks, few areas offer potential for a year-end rally, especially stocks with higher beta. Also, the sector displayed a net positive Q3 results. Given the challenging period for stock specific calls, it might be favorable to focus on those showcasing relative strength. Finally, a rotation into Large Cap Growth should continue to benefit the sector. Stock specific ideas below:

GLW(Corning): Stock is nearing a key support level at $22. Importantly, company is back to profitably, especially in its core business of glass and ceramic products. Expansion in telecom and cable creates further catalyst for price movement.

SWKS (Skyworks): Appealing entry point near $8. Growth in smart phones positively impacts companies' sales growth.

PAY (Verifone): Use near-term consolidation as buying opportunity. First entry point near $42-44 range.

SYNA (Synaptics): Continues to demonstrate relative strength. Growth in mobile computing and electronic devices creates upside potential. Accumulate on any weakness.

ORCL (Oracle): Remains at a buy point near $20. Earnings and sales are ahead of estimate. Company should create growth by acquisition. Finally, product mix is relatively strong, suggesting a sustainable recovery.

Telecommunication:

VZ: (Verizon): Sitting at key support level $42, as stock attempts to bottom. From a long term perspective, Verizon's low turnover and high margins bodes well. Especially, heading into a period where investors demand shares of "cash rich" companies.

Media:

TWX (Time Warner): Following a sluggish relative performance in the past four years, TWX is setting up for a recovery. Growth opportunity lies in cable and film operations. Deeply oversold and favorable for upside move at $16.

Financials:

Maintain short positions on Lenders and Small Banks. At this point, the sector is set up for a near-term recovery. Nonetheless, niche areas are at cycle highs and face further fundamental risk.

Short Ideas: FED (First Federal), DSL (Downey Financial) and WFSL (Washington Federal).