Market Outlook: June 2, 2008

Weekly Results:

S&P 500 +.43%
NASDAQ +2.36%
Russell 2000 +2.08%
MSCI Emerging Markets -.10%

Macro Review:

As May draws to an end, higher Crude and lingering Credit Crisis are at the focus of investors, pundits and observers. Perhaps, most are anxious for the emergence of new themes and directional changes. In some cases, these trends are becoming a socio-political issues just as much as portfolio management. This illustrates the power of multi-year cycles, where momentum and psychology play larger roles. Outside of the big picture, early signs of trend reversals resurface occasionally. Interestingly, the past three months have showcased a rise in yields, weakness in Gold, stabilization in US dollar and sideways pattern in equity markets.

For those optimistic about the equity markets generally watch the behavior in Financials. Banks' stocks generally lead to overall market direction. In the short-term, the implementation of the Federal Reserve lending facilities have contributed to some stabilization. Optimists argue, that credit markets are witnessing improvement. For example, XLF (AMEX Financial Index) has traded in a range since the start of year. BKX (Bank Index) has held above $75 range four times in 2008. Once again, buyers are being tested as the index revisits levels near annual lows. Nonetheless, weakening fundamentals require additional time for a sustainable recovery.

Key Levels:

Crude (127.32) : Recent pullbacks from intra-day highs of 133.70. Momentum is extended in the near-term as 50 day moving average stands at $116.64.

Gold ( 885.75): Attempting to stabilize between $850- 900. After reaching all-time highs in March, the commodity is in a 3+ month decline.

DXY US Dollar (72.87): Signs of bottoming between $72-73. Holding above March 17^th lows and seeking an upside catalyst.

US 10 Year Yields (4.05%): Yields breaking above key 4% level. Currently trading above 200 day moving average.

S&P 500 (1400.38): Closed at 1400 with next resistance level at 1425. (200 day moving average). Volume in recent weeks is steady as index remains in a sideways pattern.

Portfolio Strategy:

A potential pause in commodities, presents rotational opportunities into innovative based themes. Although, it is too early to call tops in Crude, a shift into select neglected areas provides favorable odds. In other words, performance chasing at elevated levels has its costs on overall portfolio performance.

"A sell-off in oil could spell big losses for the pension funds, municipal funds, college funds, unions and other groups that jumped out of equities-market plays and into the indexes, but have little experience or flexibility to deal with fundamental changes in commodities." (Reuters: 5-30-2008).

On the other hand, Technology, Media and Communication are attractive on a relative basis. Upside catalysts for cycle shift include, decline in Gold prices, rise in US Dollar and less market volatility. Importantly, select ideas in Large Cap Technology are more appropriate for 6-12 months.

Stock Specific Ideas:

Technology: CSCO (Cisco), LSI (LSI Corp), NICE (Nice Systems), ORCL (Oracle), and FLEX (Flextronics)

Media/Telco: AMT (Amer Tower) and DTV (Direct TV)

Healthcare: GENZ (Genzyme), JNJ (Johnson & Johnson), and EYE (Advanced Medical Optics)