Market Outlook – August 11, 2008

Weekly Results:

S&P 500 1,296.32 +2.86%
NASDAQ 2,414.10 +4.46%
Russell 2000 734.30 +2.53%
MSCI Emerging Markets 41.09 -3.47%

Market Outlook – August 11, 2008

Global markets are at a key junction point. Commodities and Emerging markets continue to decline. Importantly, this process is an on-going corrections in themes related to Credit, China and Crude. In other words, leaders of recent bull cycle are now retracing from overvalued levels. Increasing concerns of global inflation is a key catalyst in this deceleration. On the other hand, the US dollar is demonstrating strength. After several months of sideway behavior the DXY (Dollar Index) is up nearly 6% since July 15^th.

Given this sell-off in "hard assets", investors are seeking other areas of rotation. The challenge ahead is to sort through various data and identify false breakouts from sustainable growth. Now, US markets are becoming attractive on a relative basis. That said, credit weakness continues to persist in small cap banks, commercial real estate and in other credit sensitive groups. According to Invesco, money markets funds rose last week and asset are up 24% year-to-date. Perhaps, investors are sitting on the sidelines waiting for better opportunities.

In this period of readjustment, new relationships are at early stages of forming and other trends are reversing. On relative basis, US stocks appear attractive versus Emerging markets and Europe. This behavior is evident since May 16^th , where the S&P is down 5% versus a 20% decline in EEM (Emerging Markets Fund). That said, a bottom in US stock market is unclear.

Stock Specific Ideas

Consumer Long Ideas:

WMT (Wal-Mart): Showcasing sings of market leadership since Q4 2007. Opportunity to add on weakness given recent sideway pattern between $56-60. Gunmetal outlook bodes well from a long term view.

SBUX (Starbucks) At these levels, stock presents a long-term entry point. Recently, stock jumped from lows of $13.30 to $15.12. Consensus for a negative view is visible as the share prices peaked late 2006. Odds are favorable for a a turnaround for those willing to stay patient. Stock remains far removed from 200 day moving average of $27.90.

Short Global Steel:

TS (Tenaris SA): STLD (Steel Dynamics) and SID (Companhia Siderurgica Nacional ADR)

GGB (Gerdau S.A): Brazilian Steel company which benefits from weak US dollar and high demand. Despite increase in revenue last quarter, stock is extended. From technical perspective stock peaked on June 19^th. Changing dynamics in Macro climate can inversely affect stock prices.

Long Healthcare:

BLUD (Immucor), GENZ (Genzyme), JNJ (Johnson & Johnson) and TECH (Techne).

KEY MACRO LEVELS:

Crude [$115.20]: Closing below $120 and approaching next support near $110. The 200 day moving average is $109.55. Breaking below this point can decelerate further selling. For now, oversold in the near-term with increasing downside pressure.

Gold [$852.50] Attempting to hold above $850. Annual lows of $846.75 are the next key level. After reaching all-time highs on March 17^th ($1011.25) index failed to make new highs on July 15^th ($986.00)

US 10 Yield [3.92%] Stabilizing between 3.80-4%. From an intermediate-term perceptive, momentum appears to slow near 4.20%.

DXY US Dollar [75.84] Breaking out from multi-month range which stood between $72 and $74. Too early to make a long-term call but technical strength developing.

S&P 500 [1296.32] Forming a bottoming range below 1300 and above 1250. 50 day moving average stands at 1297 as index is far removed from 200 day moving average of 1374.