Market Review - 6-18-2007

MARKET VIEW: Not surprising to see money flow into commodity based assets given the decline in bond markets. At this point, look for stabilization in the US 10 year yield and recovery in the Dollar. Favor technology themes while staying away from Financials. Semiconductors appear timely here given the oversold conditions and favorable risk/rewarded offered by tech stocks at this point of the equity market cycle. At the same time, there is further risk in financial markets both on lending, credit related and REITS. Primarily, credit and interest rate concerns should reflect in financials stocks. Therefore, continue to add to shorts in REITS and Lenders.

LOOKING AHEAD: Watch for pullbacks in technology as adding opportunity (few ideas listed below). Bearish sentiment is reflected among many equity investors as bullish sentiment dropped from 40.59% to 37.30%. (According to AAII).

SPX : Since February 2007 sharp declines, index has recovered in the past 4+ months and since Mid May early indication of stalling/consolidation. From various angles, the overbought argument is intact but sentiment reflects negative readings. Plus, majority players are expecting recession this year based on econ data at this junction. Net/Net: Despite the noise out there--various opportunity in this market on theme specific trades. In these times, it remains important to breakdown the Macro events into actionable parts.

US 10 yr yield: Near-term becoming overbought. Looking ahead, expect yields to consolidate between 5-5.20% range. In terms of bonds, (TLT and IEF) too early to buy and rather late to short. Therefore, look for further consolidation ahead.

Crude: Geopolitical unrests driving prices closer to $68. Overall, expect consolidations despite doubts associated with global events. Although, the last two summers produced higher oil prices there is a heavy resistance around the $70 range. Therefore, as the dust settles in geopolitical/supply concerns that should open opportunity for further pullbacks. Bottom-line: Consolidation ahead despite recent headlines and upside bias.

US Dollar: Recovery intact since the late April lows. Looking ahead from a cycle perspective “weak dollar” policy nearing late innings. Again, betting on a recovery for months ahead. Noteworthy, to follow recent recovery that is slowly inching higher.

Yen: Yet to see a recovery last week but remains oversold. Next key support level approaching February 2002 lows.

Gold: Further consolidation ahead, range forming between $640-680. Look for further pullbacks before reacceleration. Near-term downtrend in tact since April 20^th highs.

Weakness in Financials: Resurfacing mortgage headlines should offer further shorting opportunity in lenders. Early peak among lenders as evidenced by declines since March 2007. (For example, SOV). Also, Midwest lender CFFN elevated since 2001, showing signs of stalling as earnings came in weaker. S&L’s are vulnerable at this stage, along with FED a California lender. The cycle is reaching a peak, favorable odds for breakdown given the over-leverage credit cycle. Certainly, talk of subprime and foreclosures can drive more money out of this group. Again, revisit shorts as the risk of takeouts are slowing.

RWR: Wilshire Reits index: stalling since mid February and struggling to recover. Least favorite REITS include, SPG, BXP, HST and VNO. Use strength as opportunity to short in the near-term. Also, for those that have an existing long position -- would use next upside move as opportunity to exit.

IDEAS:

• Semiconductors: Last summer tech demonstrated early signs of recovery. Currently, similar patterns taking hold. Semi’s reaccelerating. AMD remains oversold at these levels as INTC breakout in the near-term. From a long-term cycle there are opportunities to add here and participate for an upside move.
• SMH: Showing strength versus technology sector. Poised for a recovery this summer. Also, attractive odds versus the broader market. Next key target, January highs closer to $40.
• SNDK: Accumulate on pullbacks closer to $44-42 range. Positive momentum intact.
• JNPR: Since last summer, a turnaround story. Second phase of recovery continues. Add on pullbacks closer to $22. Attractive longer-term play especially for the second half of the year. Also, an exposure to security software companies and displaying signs of leadership in its group.

MOT – Deeply oversold with growing pessimism. Attractive around the $18 as stock continues to bottom. Far removed from 200 day mva. Current levels offer relatively better entry point. Chart attached ,

Media: GMST – breaking out recently, a favorite name in the media space. Although stretched in the near-term, there is sustainability in this name which suggests adding on any declines.

CMCSA: From long-term view, remains attractive. Entry point: $26/24 range offer a timely buying opportunity. Early stages of media cycle resurgence therefore the long-term reward is attractive relative to near-term pullbacks.

Healthcare: CYH – Continues to trade in a narrow range between $40-36. Looking for breakout, as a defensive play (hospitals).