Market Update – January 14, 2008

Weekly Results: S&P 500 -.75% NASDAQ -2.58% Russell 2000 -2.35% MSCI Emerging Markets +.17%

Broad Market Outlook:

A tense period for investors as discussions of recession, rate cuts and fear dominate headlines. Not to mention, a sluggish stock market performance to start the year. That said, we are approaching extremes in investor sentiment. Fear is clearly visible in these markets. Put/Call ratio is at the higher end of historical range. In terms of investor sentiment, percentage of bears increased by 7%. Conversely, bullish readings declined by 23%. (Source: American Association of Individual Investors). Once again, along with rising volatility the sentiment readings are lopsided in one direction.

As we enter earnings season, stock behavior will be linked to stock specific results from fourth quarter. Recently, analyst downside revisions continue to have a negative impact. In fact, year over year growth expectations have been revised down by 20%. (Birinyi Associates, Inc). This illustrates extreme pessimism, which generally results in cycle lows. The next few weeks will reveal if the actual results are worse than the growing lower expectation.

Financials remain a key topic of interest for both buyers and sellers. Buyers are seeking to purchase at these depressed levels. Meanwhile, sellers are waiting to place additional bets on downside moves. M&A announcements, write-downs and pending earning announcement should produce eventful results. Importantly, speculation on Federal Reserve rate cuts and slowing economy will dictate a recovery in the sector.

Staying on Course:

Sticking to year-end goals, rotation into innovation can create opportunities. In fact, healthcare is leading most groups in staying ahead. For example, XLV (Healthcare Sector ETF) is up 5% versus the S&P 500 -4.6% in 2008. The sector remains favorable on a stock by stock basis.

Stock Specific Ideas:

HEALTHCARE:

GENZ (Genzyme): Strong performance in the past 3+ months. Solid revenue growth and fundamentals have given stock further boost. Add on pullbacks closer to $72-70.

XRAY (Dentsply Intl): Although extended in the near-term, long-term uptrend in tact. Global dental demand should contribute to further upside gains. Trend remains positive $40.

Other ideas include: TECH (Techne), MATK (Martek Bio), BLUD (Immucor) and PPDI (Pharmaceutical Products).

In the meantime, the sell-offs in the NASDAQ (down 8% year to date) is creating more investor panic in technology themes. Once again, picking bottoms is not an easy task. There are bargains out there in the marketplace especially in quality names. Overall, valuations are near levels reached in 2002 bear market lows. Following earning results, odds for entry points should become more favorable.

MACROS:

Crude: Further consolidation between $100-90 ranges. Near-time momentum is extended suggesting pause/downside move.

Gold: Trading at all-time highs. Since late June 2007, the commodity is up nearly 40%.

US 10 Year Yield: Attempting to bottom between 3.75-3.79%. Yields have declined 29.4% since summer 2007.

S&P 500: Trading at key support level near 1400. Watch for August lows of 1370 as a gauge of investor's views.

EEM (Emerging Markets): Above 200 day moving average which suggests an exiting uptrend. In the past 2+ months, upside move is pausing between 144-152.