Market Review –September 2, 2008

Weekly Results :

S&P 500 1,282.83 -.72%
NASDAQ 2,367.52 -1.95%
Russell 2000 739.50 +.26%

MSCI Emerging Markets 40.08 +.18%

As the summer season nears an end, global markets are at a critical junction. Despite various trend reversals, there is a lack of investor conviction and new trends are undefined. Of course, investors are demanding yields, banks are seeking a rescue, and analysts are scrambling to reassess risk. These issues have resurfaced in the past year given the conclusion of a bull cycle from 2003-2007. Now, this turning point has entered a readjusting period where trends are not easy to spot. In terms of making money just shorting Financials and going long Crude is not as profitable as before. Interestingly, taking the other side of the bet (short oil/long financials) is equally challenging. Perhaps this is a reflection of the psychological deadlock in investors minds.

Clearly, choppy price patterns makes it difficult to distinguish long versus short term ideas. Importantly, geopolitical and regulatory factors can weigh heavily in establishing new trends. For those looking for actionable ideas, it makes more sense on a stock specific basis. Potential trend reversal in commodities and currencies can heighten overall anxiety and uncertainty. Of course, there is no lack of major headlines ranging from elections, hurricane coverage and global conflicts.

In addition, strategists are adjusting to these changing market dynamics. In the past few weeks, US Dollar has increased noticeably. This strength is casting doubts on profits for large US companies. Similarly Gold has fallen sharply where long-term bulls see opportunity to enter at recent lows. Inflation is a global phenomenon as economic outlook remains net negative. Indexes in emerging markets remind us that buyers are not that interested, despite significant declines from an October 2007 peak. Finally credit markets seem far away from stabilizing. The depth of fundamental weakness in Financial services persists.

"The main question is how these figures reconcile with the fact that the FDIC has only $53 billion of funds, and has already used 15% of that to bail IndyMac. Conservative estimates place the number of troubled US banks at about 700 banks, which is 7 times greater than the number in the FDIC's 'watch list'" --Ashraf Laidi -CMC Markets NA Aug 28, 2008.

Portfolio Management :

As the S&P 500 attempts to stay above 1250, many await a sustainable recovery. On March 17^th participants did get a bounce, but it resulted in a false bottom. Perhaps early optimism among the hopeful based on undervalued and relatively attractive US stocks. Now, in a trendless environment most ideas do requires patience. Therefore, when placing bets today one is setting up for a pending recovery. Within the S&P 500 index, 64% of stocks are above their 50 day moving average. (according to BeSpoke Investments). In other words, internals are improving especially after mid-summer lows.

This early fall presents an opportunity to arrange portfolios for the rest of the year. Healthcare is displaying relative strength fueled by innovation in Biotech and dealmaking in Pharmacuticals. IBB (Nasdaq Biotech Index) has strongly outperformed broad markets especially this summer. Investors seeking positive momentum look to rotate into this space especially given weakness in energy related areas. From a cycle view, the following groups offer attractive stock specific selections.. Media, Networking, Communication and Telecom.

Technology Long:

· (AXE) Anixter International [$73.81] – Positive momentum continues given recent technical breakout. Poised for near-term pullbacks and offer attractive entry point near $68-70 range. Company growing through buying of competitors. Solid fundamentals in the wire/cable industry. Can benefit greatly from a shift away from commodity themes.

· SWKS (Skyworks), PLT (Plantronics) and PLCM (Polycom Inc)

Healthcare Longs:

· JNJ (Johnson & Johnson), ABI (Applied Bio System), GENZ (Genzyme) and TECH (Techne)

Consumer Discretionary and Media Longs:

· WMT (Wal-mart) and SBUX (Starbucks),

Financial Shorts:

· AIB (Allied Irish Bank), STD (Banco Santander SA), and FED (First Federal).

Energy/Commodity Shorts:

·TS (Tenaris SA): STLD (Steel Dynamics), SID (Companhia Siderurgica Nacional ADR) and GGB (Gerdau S.A)

KEY MACRO LEVELS:

Crude [$115.60] Holding above $110 which serves as next key support level. Similarly, the 200 day moving average stands at 110.66. At these levels, buyers seeking a recovery are looking for an entry point. Meanwhile, $100 remains a key level.

Gold [$829.30] Oversold in the near-term from annual lows of $786, yet remains below key trading range from $860-880. Intermediate-term trend points down given peak established during March 17^th peak.

US 10 Year Yield [3.78%] Sideways trading pattern with yields trading between 3.80-4.20%. Again, attempting to break out of a multi-month trading range.

DXY US Dollar [77.92] Increasing signs of a strong recovery. July 15^th lows set a possible turning point as the index is nearly up 8%. Follow through of this recovery can create a signifigant shift in Macro behavior.

EEM MSCI Emerging Markets [40.05] ETF is down over 25% in the past 4 months. Currently, holding near 40 after setting annual lows of 38.73 on August 19^th.

Dear Readers:

The positions and strategies discussed on MarketTakers are offered for entertainment purposes only and are in no way intended to serve as personal investing advice. Readers should not make any investment decision without first conducting their own thorough due diligence. Readers should assume the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any way, considered liable for the future investment performance of any securities or strategies discussed.