Market Thoughts : December 10, 2007

Weekly Results:

S&P 500 +1.59% NASDAQ +1.70% Russell +2.31% MSCI and Emerging Markets +3.87%

Policy intervention and pending rate cuts by the Federal Reserve contributed to a positive week. Recent discussions of "bailouts" generated optimism. Headline news (noise) on 'mortgage relief' forced bears to exit in the already depleted financial sector. Sadly, the plan can generate near-term uproar but sustainability remains doubtful.

Following the Thanksgiving weekend, the S&P 500 is up 7.2% and 6.1% for 2007. Seasonally, odds are favorable for an upside move especially following a period of high pessimism. Also, a sharp decline in volatility (VIX Index) points to oversold conditions and less downside turbulence. Macro indicators are showing signs of early trend reversal. For example, US dollar is up more than 2% since November 26. At the same time, Crude is down 11% from yearly highs. Although, short sighted, current dynamics set the stage for a broad market rally.

This market requires one to differentiate short and long-term ideas. In other words, it is important not to confuse trading vs. investing. With 15 trading days left in the year, some areas are worth a look for a technical rally. On the other hand, long-term bargain hunters can seek "value" especially in groups poised for cycle leadership. Finally, for those looking to profit on declines, patience can be more rewarding well into 2008.

Near-term: (3-6 weeks):

Oversold consumer themes such as, Banks, Lenders, Retail and homebuilders, led a sharp rally in the past few days. As expected, there are higher beta themes and yearly underperformers are poised for a year-end rally. For example homebuilders increased 10% for the week. It is not surprising to see a trading bounce given sluggish performance in the past 2+ month.

Intermediate-Term: (6-9 months):

In looking ahead, attractive ideas should emerge from Technology and Healthcare. A rotation out of commodity themes can rotate to innovation based companies. Large Cap companies are relatively "cash-rich" and can benefit in a slowing economy. For example, AAPL (Aapple) carries a $15.4 billion cash position which is ahead of Microsoft. That bodes well for future innovation within the sector. Of course, pending price declines can offer better entry points.

Also, consumer staples present exposure in defensive themes mainly in food related areas. For example, Wal Mart (WMT) and Costco (COST) are up over 15% since mid November. Expect this momentum to carry over for upcoming quarters ahead.

Stock Specific Ideas:

Media:

DTV (Direct TV): At a buy point near $24. Fundamentals are solid as company continues to increase its market share.

Healthcare:

BLUD (Immucor): Consolidating near $30. Appealing entry point following recent declines. Also, a leader in automated instruments for blood typing.

Technology:

BRCM (Broadcom): Attempting to bottom between $26-28 range. External factors are keeping buyers on the sideline. Overall fundamental strength remains intact.

SWKS (Skyworks): Relative strength is favorable. Increase in gross margins, and promising outlook in communication area, sets the stage for a buying opportunity. Accumulate on any pullbacks.

GLW (Corning): Stock price is oversold from a long-term perspective. Sales growth looks promising in the company's display and communication segments.

Staples:

CQB (Chiquita Brands): Uptrend intact. Accumulate on pullbacks closer to $18. Favorable tariff results in Europe can trigger additional buying. In addition, basic fundamentals are net positive.

ADM (Archer Daniels): Low p/e ratio suggests attractive valuation. Technical pattern is positive given recent breakout above $38. Finally, attractive cycle for agricultural related themes.