Themes Revistied -

Comm Eqpt: TLAB taking a closer look at recovery potential as the street appears mixed but acknowledging

SONS: Noticeable breakout in November, first leg run up above the $5. Strong resistance at $8 – following a 3 year consolidation. (chart attached above).

The group might be under pressure in the near-term but important not to lose focus. Important to note JNPR’s behavior on Friday, and a close watch during earnings.

Healthcare:

A bullish bias for the sector and net-positive in many groups. Pharma offers the long-term oversold opportunity while other areas offer higher growth potential.

Continuing to seek ideas in Med tech. An area to consider in addition to large cap pharama offers the turnaround opportunity.

Currently, DNA although a biotech name it is gearing up as a momentum play. Worth a closer look.

Networkers: CSCO and AV -following the first wave of an upside move, continue to offer an attractive entry point.

AXE: attempting to bottom with strong support at $50. Look for correction for attractive entry points. Pausing but uptrend in tact.

Company Description below:

Anixter is the world's largest distributor of communication products and electrical and electronic wire and cable, and a leading distributor of fasteners and other small parts ("C" class inventory components) to original equipment manufacturers.

Media: Ranging from cable to newspapers. Like NWS leadership and NYT as attempted recovery.

CBS: Recovering from lows and worth noting. Accumulate at current levels $30-31. Following correction this idea is worth adding on pullbacks. Similarly, in Large Cap NWS – offer exposure.

TLAB street view

- Morgan Stanley notes the magnitude of Tellabs revenue miss for 4Q06 (14% below MS estimate), along with similar announcements from ADCT, ADTN, and RBAK, is indicative of the weak wireline spending environment. While the revenue shortfall is partly related to a spending pause ahead of the recently approved BLS/T merger, they expect the challenging wireline capex environment to extend into the first half of 2007, or until technological and business-model issues surrounding telco video deployments show signs of improvement. Accordingly, the firm thinks it's too early to get constructive on TLAB shares despite the reasonable valuation. Maintains Equal Weight.

- Goldman Sachs is the most optimistic of the bunch noting it is important to keep in mind that the weakness is likely temporary in nature and that the outlook for 2007 remains healthy as Tellabs is a play on carrier bandwidth growth. Firm believes this miss will clear the decks and set a new lower bar for the stock, which may set up a positive long term scenario. Goldman continues to believe that the Street's topline estimates for 2007 remain too low. The 4Q miss is primarily due to the negative impact from long awaited merger of AT&T and BellSouth. They believe that the 2007 revenue outlook is likely dependent on new product traction (7100, 8600, and 8800), unlike 2006 where revenue growth was largely driven by strength in transport products. GS is adjusting their 4Q06, FY07, and FY08 estimates to $461mn/$0.11, $2,231mn/$0.64, and $2,412/$0.71 (excluding ESO) to account for the 4Q miss in revenues.

The firm is maintaining their 12-month price target of $11, and expect shares to be range bound in the near-term until confidence builds around the revenue and gross margin outlook. Maintains Neutral.

Notablecalls: While the news is not unexpected the magnitude of the miss will surely put pressure on the common. While both Morgan Keegan and MSCO make solid points regarding wireline capex in H107 and C07 in general, GSCO's comments regarding carrier bandwidth growth strike the core. Bandwidth will continue to grow no matter what. More of a question of when not if.

Think the stock becomes buyable for a bounce around 1.2-1.5 pts lower. Would not touch this one if it opens down any less than 1 pt. The valuation continues to be reasonable with potential buyout lurking in the background.

- Morgan Keegan is downgrading the stock to Mkt Perform from Outperform saying they think many investors anticipated weak results for Tellabs for Q4:06, and they had reduced their estimates below consensus (December 11), but they didn't imagine results could miss by so much.

Firm acknowledges management's assertion that elements of the weakness are temporary and likely tied to the recently closed merger of AT&T and BellSouth; however, they suspect sales and earnings will not recover quickly for 3 reasons.

1) Weak sales stem from carriers' drive to control spending and not just the mergers, and this won't change soon.

2) Wireless capex likely declines materially in 2007, and this market had been a positive driver for the past 2 years.

3) Two out of the three growth areas for Tellabs have poor margin, Fiber to the Premises and optical transport.

Stradegy and Thoughts Q1 focus

Market Commentary:

Despite a short week to start the year, commodity related areas failed at a fast pace. There is no reason to panic given the start of the year, a new month and plenty of ambitions, expectations, desire to trade and other news factors. Even a week ago, few noticed the fading rally in energy and gold. More importantly from a cycle perspective energy was sluggish as crude consolidated most of 2006. Key sign of shift in leadership took place this summer and that trend should not be taken lightly.

My 2007 outline included two points just a week ago:

Somehow rates and commodities are interlinked and will be monitoring on a weekly basis. First, sub prime and housing stocks, might offer a shorting opportunity. Mainly a fed and 10 year yield call. Secondly, select commodity run-up can be tested, inflicting pain on commodity bulls. Therefore, one more correction in commodities awaits, but wiser to focus on unripe places.

I did not waste any time to take profits like GoldCorp Tuesday, as an exit of commodity related run because the sell-off demonstrated more panic than substantial new market material or evidence. Of course the extra day-off might have contributed towards panic trading but importantly the warm weather continues to dominate general news even driving the downside energy move.

Not surprising that the lagging sectors this week focused on energy related areas:

Coal -5.0%
Oil Service -6.4%
Gold & Silver -6.4%

Trading view: Some want to buy these oversold names for a trading recovery, which should offer a bounce. But from an investment standpoint, I am not thrilled on sustainability of a recovery bounce. Interestingly, I like to chase oversold extremes and part of a buying screen. Given the long-term data, it is not appealing for the first quarter if not the first half of 2007. Crude offers a strong support around the $55 level. Also start of the month balancing can bring back prices back to norm, thus its longer term contracts worth watching.

I think the marketplace is accustomed to getting a sharp rally and energy being a portfolio saver. But after a 3+ year run, I am not convinced that old groups can offer same upside results using general tactics. Therefore, play the trades with cautious and think ahead.

Communication and Networking: Themes and stocks of Interest:

Telecommunication themes like S (sprint) positive here, street has a bearish outlook, relative strength turn pending. Accumulate closer to $18.50, might be ahead, and use near-term consolidation to enter long ideas.

TLAB (Telllab), following a sharp summer decline, an attractive group but negative outlook. Looking for a surprise upside move while using the $10 as an exit level. Potential upside move closer to 12+. Worth a shot given a positive theme outlook.

NTGR: Also worth a look with positive trend remains in tact.

In healthcare: Those interested in growth can build on BLUD strength. For those seeking value check out PPCO – bottoming above $16. Other medical products include: PSSI and VAR.

Themes for 2007

Few thoughts the last day of 2006:

Themes pay off than trades. I am seeking topics in areas of healthcare and telecommunication. Those areas have shown early sings of recovery.

Task #1 finding a positive healthcare theme, with less volatility and more sustainability. In other words, more equipment based than biotech. Medtech can offer that sustainability theme but other emerging areas as well. Of course large cap pharma is another space which is relatively known and highly discussed on the street.

Task #2: Communication related technology:

It is a global theme many can understand but applying ideas to the right group/stock is not simple. Looking internationally for attractive momentum, growth potential. Fired up to convert on the theme.

Task #3 - Similarly, media themes specifically US based. Also, other areas of upside potential. Media can range from, internet to tv or even both. Regardless, I continue to like this theme and will continue to follow up.

Looking for names with core business advantage and upside move. Even conglomerates appear attractive despite a positive performance in 2006. In this case two steps await 1. Differentiating the leading group and 2. Finding areas of high investor demand. - These steps can maximize gains.

Task #4: Macro Trades

Pending corrections are difficult and at times not worth betting on timeframe.
Two appealing trades are worth noting for the appropriate time.

Somehow rates and commodities are interlinked and will be monitoring on a weekly basis. First, sub prime and housing stocks, might offer a shorting opportunity. Mainly a fed and 10 year yield cal. Second, select commodity run up can be tested, inflicting pain on commodity bulls. Therefore, one more correction in commodities waits, but wiser to focus on unripe places.

All that said, looking to short housing and oil on next correction. Following a multi-year run these names are at risk and would play them at signs of first correction. Select housing shorts might have longer downside duration.

Finally, something new. Would like to find a "cool" theme ahead of the street. Let's just call it desert. And once found it will be posted.

Start of 2007 looking for select behaviors but letting the market react before implementing any game plan.

For example, HGX (Homebuilder Index) 240 remains a key resistance level. With rate and consumer concern that would be a key indicator. This observation is to creating a shorting opportunity of sub prime lending related names or a recovery in the 10 year yield. Perhaps, making this correlation is not too sharp but at least it’s a view. Previous charts of us 10 year illustrate that point of a recovery odds becoming attractive. At least, on the near-term charts.

Finally, a theme in tech and media will continue to offer some rewarding stock picks.

Technology and Media themes are attractive and TIVO, DTV along with GTW. But new names like SVVS and other Telco groups are worth noting.

Similarly, in Healthcare the early Q4 recovery should have some follow through even outside of biotech.

Commodity related – not the same juice but plenty to trade.

Happy New Year! Let’s do it again with Health for a fruitful year.

SWY - safeway

SWY: An attractive investment in a growing market. I like the organic market growth and long-term chart showcasing as it breaks out from multi-year consolidation. Although, value players entered this name earlier, an upward momentum should favor stock performance. Overhead resistance is 62.68, which is December 2000 highs.

"core grocery business remains the primary earnings story for the company" -

Combining a solid business model with positive investment demand, worth adding to this name on any pullbacks.

Fundamental breakdown below:

WE ARE RAISING OUR RATING ON Safeway shares to Overweight from Equal-weight due to our increased confidence in the growth outlook for Safeway.

Safeway is a food and drug retailer operating primarily in the Western U.S. and Canada. The company is the third-largest food retailer in the U.S.

At Tuesday's Safeway analyst meeting, the company unveiled details on its new nongrocery growth subsidiary, the Blackhawk Network, which is currently focused on marketing third-party gift cards in both Safeway stores and in other retailers.

Following the disclosure of prospects for $100 million in operating profits in 2007 (14 cents per share) from Blackhawk, and the potential for rapid scale-up of this new business, skepticism surrounding Safeway's double-digit growth targets should start to fade, and we expect increased enthusiasm for the growth and valuation prospects for this new business.

Gift cards are just the first of seven potential products Blackhawk could introduce in coming years. The business model brings together gift-card issuers (retailers, restaurants, phone cards, credit-card companies) and high-traffic retailers (grocery stores, drug stores, etc.). Blackhawk has accumulated 185 gift-card partners (85% exclusive), and has built a network of 63,000 retail storefronts which have agreed to carry the gift-card displays. The retailer collects the gift card's face value from the consumer; Blackhawk and the retailer split a small percent of the card's face value, and the remainder goes to the retailer issuing the gift card.

After first experimenting with gift cards in 2002, Safeway estimates that Blackhawk Network will sell $1.6 billion in cards in 2006 (which we estimate could net Safeway a hidden $50 million or seven cents per share for the year). As the number of card issuers and participating retail outlets continues to build, we estimate that card sales could grow to $10 billion to $11 billion by 2009, pushing operating income to over $300 million for Safeway, or 45 cents per share.

While the new details on the Blackhawk network captured a lot of attention, Safeway's core grocery business remains the primary earnings story for the company. Safeway's grocery operations have enjoyed a solid run of 3%-4% identical-store-sales growth excluding fuel and modest operating margin gains (46 basis points through the third quarter). We expect Lifestyle store remodels, improvements in previously weak markets (Chicago, Texas), shrink reduction, labor cost savings and other cost cutting to continue to fuel near-term growth.

We believe Lifestyle remodels are the primary fuel behind Safeway's growth in identical-store-sales growth. While the stores make up 35% of the store base through the third quarter, they contributed 78% of the company's comp growth. Chief Financial Officer Robert Edwards outlined remaining remodel activity: The company expects to have 760 Lifestyle stores by the end of 2006 (43% of total) and 1,660 by the end of 2009 (94% of the system).

As remodeling activity winds down in 2010, we estimate that free cash flow could rise to $1.0 billion to $1.2 billion from current levels of $400 million to $600 million.

With the pathway to growth now clearer, we are increasing our price target to $40 from $28. As we still view the core grocery business as a moderate grower facing pressure from Wal-Mart Stores and other alternative-format food retailers, we believe investors will be hesitant to chase Safeway to a true growth multiple (20-25 times price-to-earnings).

However, earnings growth alone should drive Safeway shares higher. We are raising our 2007 earnings-per-share estimate from $1.86 to $1.95. With the infusion of earnings from the new Blackhawk business, we are increasing our long-term EPS growth rate from 8% to 13% to 15%.

As skepticism fades on Safeway's double-digit-growth goals, we see potential for valuation to inch up from the current 17 times year forward P/E to 18 times. Rolling 18 times forward to our new higher 2008 EPS estimate of $2.23 (increased from $2.01), this implies Safeway could reach $40 per share over the next 12 months.

Spread: 10 year vs. 2 year

Spread between the 10 year vs. 2 year US treasury yield. Relationship demonstrates where short term yields are higher than long term yields.

Last extreme was in March 2000….which of course saw a correction from the Tech led rally. Now this relationship stood out as a gauge for a pending market correction. I am speculating that we are nearing correction levels into Q1 2007 – and looking to short housing related themes and cycle winners in the past 6 years. Specfically, examining overvalued rate-sensitive themes. Not a simple sector call but even more rewarding on a stock specific basis.

Tops usually occur unexpectedly but always worth seeking early signals.

If bullish sentiment begins to grow following a solid start in Q1 2007, I plan to trim longs, and select shorts to consider. We are nearing that point and looking for shorts in Rate sensitive themes. (Excluding diversified large cap banks).

Again, most previous ideas support this thesis and layout the idea selection process.

2007 thoughts early draft:

In laying out my game plan for 2007, plenty of issues to consider, ideas to revisit, mistakes to learn from and finally being thankful.

Markets are what you make them but always have the last word. Virtually, it’s a place to test thoughts, bias or just a bet.

Regardless, I find it appealing for many reasons but that’s a happy hour discussion and not necessarily a bog material.

If each trader/investor had to pick 5 stocks for 2007 – what would they base it on? Where do managers press the bets or add the heaviest weight to the idea generation part of the game. Trading makes brokers rich and might make you lose your sanity. Therefore my goal in 2007 is to stick with ideas but spend time managing the trade. Okay 12 months seems long but can break it into two. Despite, Bill Miller ending his streak this year (baring a miracle) I will come back to the basics of value investing.

My intuition / observation.

Following July’s market recovery, most areas in the market have been bid up and remain a growth story. Paying up for growth might have its merits but

Looking ahead there are plenty of material to move markets. I like the media, technology and telecommunication sectors as an area of investment.

Healthcare selectively can produce returns given a solid and sustainable story. And stock specific Safeway (SWY) – stand out as other candidates to become growth and talked about stories.

GTW - Gateway

GTW: Generally not a good idea to chase stocks under $5. At the same time a true seeker of turnaround stories.

Perhaps speculation but this overdone, beaten up, but yet liquid name offers something on the table.

Defined exit persist around $1.5 – but an attractive chart given a positive tech sector outlook.

A high beta name, with potential surprise move. Early signs of management changes pending as the market reacted to newsflow.

Ahead of analyst estimates – attractive technicals- insider buying – and a long bias in tech.

Worth a high risk shot here especially after a 6 year downtrend. Cycle turn can benefit the name.

Step Back : Macro Levels

US10 Year yield : Attempting to bottom w/ support level at 4.40 ; previous yearly lows stood at 4.28 in January. Looking to see if rising rate has impact on consumer related stocks.

DXY: Recent bottom on Dec 1 as well, at 82.36/ with momentum attempting to bottom.

Crude: Holding the lows of Nov 16, at $56.15 - and $60 remains key support level. Although, near-term pullbacks might persist, weekly remains oversold.

S&P Energy and Gold Bugs Index - suggest a bottoming weekly profile. At the same time, daily appears stretched from recent run.

Mkt view - Previous idea review

General Market thoughts:

At this point of the year, US stocks have made a strong run since the summer lows. Recent months have seen managers chase performance while others are ready to close the books. It is worth monitoring rising market volatility, as a gauge for turbulence with a downside bias. And the US 10 year yield pending recovery seems like an appealing bet. Weak dollar continues to dominate the press. Gold holding in and crude attempting to bottom above $60 level. All that said, plenty of ideas to revisit – especially the ones that have not worked. Entry points are going to be difficult to measure but need to develop and get fixated on a game plan.

Revisiting ideas which have yet to make a significant move

DTV: Remains an attractive stock in the media theme another watch list candidate. Clearly, media headline of a. being sued by TWX and b. Merger talks c. Liberty media.

Noise building recently, but a very positive long-term view. Just pointing out that near-term newsflow, should not get in the way of a long-term bet.

CVS: Revisiting this defensive ideas which recently blew up. But showing recovery around the $30 level. Given a positive outlook in healthcare – this fits the prescription drug and consumer staples theme. In addition, offers large cap exposure from extreme levels.

PALM

- Clearly, the marketplace has acknowledged PALM’s weakness accepting RIMM as the front runner in the group.

- RIMM extended at these levels, with high investor expectations – early sings this weak that

- Very positive analyst ratings across the board on the street for RIMM – becoming overdone.

- Slowly, building position in PALM – as a rotational play from oversold conditions.

GG: Looking to exit/trim around the 28 level. Full exit below 26.

ANR- Alpha Natural

Among small cap Basic Materials, ANR – Alpha Natural Recourses is worth a look. ANR provides equity to coal via equity markets. Also, can serve as an alternative play for BTU – the more liquid name in the space.

Manage downside risk with an exit at $15 and be ware of its close ties to commodity related themes.

Stock is attractive at current levels as near-term consolidation continues.

MKT UPDATE DEC 1, 2006

TIE/ GG strong run up yesterday- will take it given a positive metal/gold call but appears rather exuberant? Not sure but felt like a month-end run up. Perhaps a myth but a note worth contemplating.Continuing on the basic materials themes - there are small cap names that stood out: ANR, IPSU, ROCK and CENX.

From WSJ-

- China’s companies are importing more scrap copper as a cheaper source of the metal for cathode production as prices rise. China’s copper-cathode output in the first nine months this year reached 2.2 million metric tons, of which 27% was made from scrap. In the same period in 2005, 16% came from scrap. Refineries and makers of semi-fabricated cable and wire are also using more scrap. China’s imports of copper concentrate have plunged 46% over the last 12 months.

Sector/Themes: Tech calls have been sluggish and seeking direction on the financial shorts.

TK : AMD facing subpoena from department of justice and can have a negative impact.

Other tech ideas can correct but given month-start most sell off should not be a surprise.

HRB - reported weakness regarding its mortgage business which might be a catalyst for a downside move for sub prime lender. Specifically, looking for a downside move in FED.

FED - "lets try again" Short Idea

Actionable short -idea: FED: Exit level 66.95 using recent highs. A key resistance level recently around 65-66 range...looking for a decline closer to 60 followed by long-term support at 50.

Market Thoughts and Themes

Market Outlook :
Broad Market Behavior:
Early signs of market decline as the S&P ended a 94 consecutive day without a 1% decline on Monday. Falling dollar continues to causing concern along with rising oil. Plenty of print and electronic media connecting both factors as the quick summary to market decline. In addition, VIX showed signs of spiking which can be a risk for a complacent market recovery. Important to note, that fear in the market can boost further downside momentum. Panic might settle in following recent run up which has lifted various groups.
Perspective to keep in mind, first day back from holiday weekend, month-end approaching and year-end sell-off.

Commodity Observations:
Throughout Q3, was looking for crude to hold a key support of $58 and now the basing continues around $60 level. Stabilizing at current levels and holding above $56 suggesting recovery strength remains intact. USO – watch near-term support of 50.20 to see a settling process following a 32% decline from summer highs. Although not a big bull here would not add to short position.
Gold looks attractive from an intermediate-term stand point and continue to favor gold stocks. GG – adding to position on any weakness. Support on Gold remains around 600 as momentum continues to bottom. This favors further upside move. In addition, headline noise about the declining dollar, gold appears positive and at less risk of a sharp correction.
Worth looking for additional timely ideas in that space..../ osx/ hui/ and other metal related themes.
Financial Weakness:
The inverse play to gold strength appears to be declining financials. Signs of weakness remain among the banks with BKX falling below key resistance level of 114. Near-term support of 112 being challenged as index fell below 50 / 15 day mva. A weak broad market can be influenced by weakness in financial but too early to claim a top on recent correction.
Actionable short -idea: FED: Exit level 66.95 using recent highs. A key resistance level recently around 65-66 range...looking for a decline closer to 60 followed by long-term support at 50.
Connecting dots between consumer and financials names notably RLX/BKX Indexes - A theme related to spending / lending / Approaching ideas from a sector inter-relationship view stemming from overall US consumer .... Net/Net: Banks/Retailers are extended and might be at higher risk on any market correction. Targeting these themes as potential short candidates.
Investment ideas
Continue to like technology, telecommunication and media as longer-term working themes from an investment prespective. Numerous names are subject to a price decline. Plenty of ideas mentioned in the past month.
Media stocks - newspapers overdone but offer timely entry points .
Healthcare: Plenty of names in small cap that remain attractive. And Large Cap pharama, not loved today but a better bet looking ahead.

Back to Biz:

GLW: Street argument for stock appreciation includes : “ Corning’s first quarter demand could benefit from a number of factors, including strong Chinese demand, higher LCD TV unit demand per household, larger average screen sizes and LCD TV price declines driven more by retail margin concessions, as well as PC demand.”

ESRX-an oversold name –poised for recovery.
MNST attractive basing set-up and strong support around $36 level. Despite recent run-up, add on anyweakness. to MNST. It offers a global play on labor growth especially in emerging markets. Regulation noise pending on the stock but investor better pay attention.
Takeout/ buyouts: Remain a key trend clearly as stated by Barron’s and other in the market place.
Last week, when at least $52 billion of mergers were announced, options trading failed to reveal any of them, extending a losing streak that has dealers reacting to news rather than anticipating events.
Key implication on sector/stock analysis, in conjunction with a recent strong run up and year-end fully approaching. Most notably, the takeover game is played in both cash and option markets. Plenty of rumors in the marketplace driving price direction add to an existing laundry list of variables.

Bottom-line: know your stock story and the key players in that space.

CC: worth a look

CC:

Holiday Season upon us again.... Plenty of excitement in the gaming and electronic industry. Not my favorite area to follow but an attractive extreme always catches my attention. Here is CC, looking oversold and even down 2% following my am observation. But, chart is attractive and many have plenty of fundamental data points.

While stocks remains beaten up at these levels worth taking a shot. Looking at an exit for near-term traders at $23.40 upside potential closer to $26.

I do acknowledge reading the following : Circuit City has been holding meetings with the Street recently in which it is warning that average selling prices for flat-panel televisions are falling faster than the company had expected.

Despite those facts or presumed facts – I like the risk/reward. Closer to risk at current levels than reward – for those that see my point.

Nature of trade: Low conviction relative to gold’s/ metals, semi’s and other tech.

Next quest: Sustainable Media company.

- Turkey - Week - 2006

Actionable Long Ideas: DD, QCOM, PALM, AV, MRVL, AMD; and recently GLW, FLSH and SNDK.

Outlook: From a Long-term standpoint, wise to seek bargains in late 1990’s theme of technology, telecom and media. (TMT) Although, a strong run since July’s low, there are investment opportunities. A rotation out of energy and into TMT – is a call I am watching for in 2007. Macro picture is unclear with steady complacency, relatively low volatility and clear message from the FED. Important to stay humble in recent run and potential continuing run

Key Themes:

• Favoring tech versus other groups in the market SOX VS OSX.
• Specific areas in Tech: Semi’s and Disk Drives .Continue to favor SNDK and FLSH as top names in that group.
• Healthcare timely investment to consider especially in small cap. Despite post election noise, a worthwhile early one should explore .
• Shorts to consider due to high p/s – and extended charts Focusing on financials as 2007 short candidates: CFFN: S&L name w/ P/S, Also follow up on mortgage shorts for names like ACF and CNO. Earlier in the year, continued to address the fundamental call of sub-prime lenders as overvalued themes.
• Media long-term bets and investments to consider given cycle opportunities emerging in the sector.

Recap of stock calls.

Posted JBLU long - $9 based on inverse oil play and turned out to be a profitable call. Although, I sold early with a $10-12 target, market momentum continues to pick up steam.

GG: at $21 level on oversold commodity related theme worked as well. Plenty of vilotility but got ahead of the game here.

CVS: Around $30 remains a value bet but no major stock moment but use opportunities to add. Overreaction on headline news w/ solid foundation and critical support levels.

My weekend Read’s :

http://www.aaii.com/commentary/articles/200608_stockstrategies.cfm

According to O’Shaughnessy, his new Small-Cap Growth and Value screen focuses on “cheap stocks on the mend.” The first criterion is an inflation-adjusted market capitalization between $200 million and $2 billion. O’Shaughnessy uses an average annual inflation rate of 3%, meaning that going forward he would increase the market capitalization criterion by 3% each year.

The additional criteria are:

• Price-to-sales ratio less than 1.5;
• Earnings higher than the previous year;
• Above-average three- and six-month price appreciation.

SNDK

SNDK: Remains attractive with the rest of names in the diskdirves group. Other name also inculdes FLSH.

Key support level with exit level at $45
A potential upside move closer to $55 ...

Worth noteing is the stregth of DDX: Amex Disk Drive Index remains above 50/200 day mva. with solid performance.

From SeekingAlpha.com
http://ce.seekingalpha.com/article/19748

The explosive growth in the use of digital cameras and MP3 players combined with the demise of the floppy drive has been a boom for companies that make flash cards and Universal Serial Bus [USB] drives. Milpitas, California based SanDisk (SNDK) makes flash memory cards for digital cameras, MP3 players, the Cruzer line of USB drives and gaming cards for use in Sony's PlayStation Portable [PSP].

So what attracted me to this well known company that I felt was overvalued just a few months ago? While the stock has retreated from a high of almost $80 in January to the current $48.10, the company has released an exciting new line of MP3 players, acquired a key competitor and is well positioned to benefit from the launch of Microsoft's new operating system Windows Vista in 2007.

GLW: Corning

GLW: Appealing pattern of near-term consolidation following a significant sell off since may highs and failure in recent attempted recovery.

Oversold conditions offer an attractive risk/reward with defined exit levels.

Similar behavior is exhibited in other technology names like AMD and SNDK.

Clearly, three tech names are in different groups and fundamentals suggest stock specific stories to justify recent declines. Regardless, I view these names as quality, high-beta tech names that are neglected by the street.

Market appears satisfied with current levels but thinking ahead suggests that current levels should offer a recovery bounce within trading range. And a pending profit taking in big winners like CSCO and ORCL can lead to rotation into non-extended names. Rather long bottoming tech names than short leadership at today's level.
Given an upward sector bias in technology combined with current extreme mispricing - like this bet!

Commodity related names on the watch list VLO, PEIX and CCJ.

Mkt Thoughts: Post Election 2006

Mkt Thoughts:

I continue to favour commodity related stocks as gold remains an attractive bet at current levels. Many Technology names are worth a look especially in dissecting the better relative values in the market place.

Despite, extended charts of broad indices, the general market does not fully describe the emerging themes across various sectors.

Looking to make bets in ADM and PEIX – as a neglected corn themes. A macro structure in place but recently neglected value following May’s decline.

Concerned about market compliancy at these levels given the positive and uniform upside moves in most areas in the marketplace. OSX watched closely here as commodity related names take a pause.

Financials: Banks have retraced from overbought levels and would trim on shorts with a wait- and –see approach. Brokers continue to work and suggest an early short but a tough lesson learned before and a great rule not to call tops in the marketplace.

Consumer: Stock-specific for the most part….weakness in homebuilders remains a concern but not a fresh ideas and Media is a group of high interest.

Healthcare: Pharmacuticals responding to post-election speculation but a downside move can offer for early recovery and watching for overreaction of sellers.

Finally, looking for semi’s to recover here and lead a charge in technology. Despite bearish street sentiment risk/reward remains positive.

Semi -

MRVL and AMD: Consolidating at current levels -

Two semi names that offer attractive charts. I see these names on the watchlist since the mispricing is not clearly defined. In additon, market condition might not defend this call. But a tiemly place to add




AMD: looks attractive at current levels...Closer to $20 range ....Looking for an upside move closer to $24.

Investments -

Longer term charts provide valuable perspective on the state of Large Cap Technology. Areas of interest : DELL, IBM, QCOM, and YHOO. Charts of these names demonstrate a consistent behavior of oversold patterns.

Since technology is an emerging sector, even a market correction should not amplify the risk on these names.
Financials: Continuing on a negative bias in the sector, Banks remain area of concern. Examples include : WB, WFC and BK. Other areas in financials don't present definitive messages. Taking an early interest in SLM and MMC as potential longs.

In Basic Materials, DD, DOW, AA, NEM. Oversold and offer attractive timely entry.

These extremes are rather appealing in Technology and Materials.

Continue to favor gold here - very glad the commodity is working along w/ GG - a personal favorite name.
Election noise might cause turbulence but I do like SLM on the long side.

Few ideas to consider:
Banks : PNC - long at attractive levels, Short CMA closer to 200 day, with weak momentumCOF: short failed resistance at 80 short closer to 77.SLM: holding $48 attractive bottoming level.Staples: CBP - attractive entry point for an investable idea TSN: closer to $14 worth a look.Healthcare: CAH at 64. SEPR and IMCL - extreme levels opening up long opportunities.Consumer: DG, FL -long at these levels, HD - part of home related overdone extreme for late year rally.Media: An emerging theme w/ following names appearing to turn: gmst, emms, siri, xmsrTechnology: stx, brcm, altr, adi mxim, mu mrvl, cien, tlab, wdc, and elnk.Short: perIndustrials: swft, yrcw,Bm: aa- of course additional gold on pullbacks.

Homebuilders -

Although not a big fan of mortgage lenders - there is an equity oppertunity in homebuilders.

HGX Homebuilder Index remains attractive based on the bottoming action in the group. Following support level 210 followed by 200.

Analyst on the street remain net/negative on estimates in this group. Certainly, contrarians have placed their bets since July. Moving the index from its lows.


Although, a call that might not be way ahead of the street, current levels still offer attractive upside potential.

Clearly aware that value guys have recognized these oversold condition even in mid- Summer.
Check out the following Analyst ranking on the street:
Buy/hold analyst rating on the street: Still net/negative -allowing for a recovery bounce as a trade.
TOL 5/7
PHM 4/9
HOV 3/6
KBH 3/8

mkt view--

I would also note if a shift in feds message from thr previous meeting than it might have a loud effect - I am sure monday/tuesday- many will shuffle in/out poistions and attempt to decipher beyond fed's action. While equities await for clarity from the 3/5 of companies yet to report earnings.

Based on recent upward move - any confusing or tone change should lead to a favorable oppertunity to short equities and long bond price. (Near-term trade)

What is the current tone that led this revival in markets and defeat on shorts? It is assumed to be soft- landing and low oil and end of geopolotical turbulance. All led to recovery from summer rally and rejected talks of four year cycle.

But steady rides and trends need more substance to justify these overbought levels. A prolonged run from here appeases shorts

QCOM-

Worth a closer look at these levels - attempting to bottom with attractive risk/reward.

QCOM Remains attractive - looking at the following trading ranges.

GG (gold play via equity)

GG: gold is oversold following a commodity decline – GG –several stock specific news drove stock lower

20.35- October 4^th lows remain a key trading support .

Looking for recovery both in Gold and GG – an equity play based on macro extreme. At the same time a high beta play in a overdone negative name.

Since May correction, and following a heavy correction, there is a solid trading opportunity here –with defined exit.

CVS- overdone -

CVS: Overdone on the sell side following a mega news announcement by Wal Mart entry to pharmacy business. Mispricing created here as price declines are too oversold and pending recovery with support around 30 level followed by 28. Look for recovery in a solid Large Cap name – looking for bearish expectation to moderated and recover from extremes.

Also, given the defensive theme of this stock – looking for stability around current trading range.

Valuation seems positive: (good investment entry point)

The trailing p/e is a very reasonable 19.95 (imho), with a forward p/e of 16.57 (as estimated for fye 31-Dec-07). With quick growth estimated, the stock appears to be an excellent value with a PEG (5 yr expected) estimated at 0.62.

PALM- (trade revisited)

PALM: Bouncing off strong support around $14. Apparent buyers when stock trades $12-14 range -- a level that has offered buying opportunity. This is exhibited in the weekly chart coinciding with a bottoming momentum.
Above $14, stock remains attractive given recent correction and heavy sell-off from April highs of $24. Despite broad technology rally and competitors RIMM exceptional upside move - PALM clearly lagged the sector but showing a bottoming signal.
Street appears too bearish on this name. -And there is opportunity from what appears to be over pessimism. 7 buys/ 8 holds/ 2 sells -
Company has : No debt and $4.82 excess cash, and upcoming buyback of $250mil.
Extreme oversold reading in the weekly data presents an attractive opportunity a long position.

Avaya: Worth a look

Although, CSCO –gets the front cover and positive mention on Barrons; I have noticed AV on the positive momentum list.

In the same article the following was mentioned on AV.

Sticking to the discipline: Positive weekly momentum and a breakout from recent range make this name attractive.

Building momentum given the fundamental action on this group. Not fresh or timely idea as a trade here but actionable on pullbacks.

Worth adding to a watch list. postive above $10- use as exit....but for longer-term investors actionable.

All this said , same goes for csco - the leader in the group.

DD: attractive basing pattern

DD: Since 2000 stock trades in a narrow range between $50-40.

Aattractive consolidation pattern: suggesting a favorable odds for a pending breakout above $50. An upside move above $50 can trigger upside momentum.

Longer-term bet and might carry an opportunity cost of capital. A set up for an attractive reward given an emerging cyclical theme. (Chemicals and other large cap basic materials/industrials).

Near-term entry point: after a run up from $40-44--- not timely but at early stages of recovery. Not a trade but a 3-6 months play with an exit at $40.

fundamentals outlook: lower raw material costs and higher average prices will offset softening demand, and also thinks the stock is modestly undervalued. **JP Morgan comments**

I also like this name because of a value like approach and nice to have those names in the portfolio in an uncertain / less trending market.

Beta short / Long VIX

Chart Explanation:
Blue: Beta index (OSX, SOX, HUI and XBD)

Black: VIX Index:

Takeaway: Since 2003 as volatility declined; beta related themes appreciated.
Further Thoughts:
Equally weighted beta index suggests that oil services, brokers and gold stocks have all contributed to significant upside move. These groups have outperformed other areas in the marketplace. But leadership will be challenged.
We are at key junction as volatility remains oversold and due for recovery. Chart suggest in the upcoming months shorting beta themes might be worthwhile. OSX has shown recent declines tied with Oil weakness in the past few weeks. Brokers have had a sharp run up and benefited greatly in the low interest rate environment. Earnings were positive, but not sure if higher expectations await. Plus various strategies in the marketplace might be too crowded with similar tactics in minimizing risk. Therefore, beta index glory days of outperformance are worth a sharp look. As liquidity is drained out of the marketplace with rising rates from central banks, beta strategies risk or at least the game might change. Any change leads to uncertainty - not to be confused with general risk. Uncertainty caused turbulence which can result in a rising VIX - As commodity related themes reshuffle their outlook and hedge funds restructure their strategies – this can cause a shift in the market place.

Trim / short - Bank holdings - Oct 3, 2006

BKX Index: Showing signs of slowing with peaking momentum at these levels.

Strong run since Oct 2005 -(given new fed announcment)

Use Sep 29 highs as resitance level -of 114.

Vulnerable area in the market place - and usually has served as a good gaudge for broader market direction.

Stock specific area worth a note here as we start october -

Revisiting lenders short…..AHM (American Home Mortgage Investment Corp)

Revisiting lenders short…..AHM (American Home Mortgage Investment Corp)

AP STORY READS LIKES THIS:

The long-expected first sign of cracks in the mortgage loan market may have surfaced this week, as the Mortgage Bankers Association issued their quarterly report on home loan foreclosures.

MBA said Wednesday that loans entering foreclosure during the second quarter rose 29 percent from the first quarter. While analysts have long anticipated an uptick in mortgage defaults, Merrill Lynch analyst Kenneth Bruce said this report may mark the beginning of an era of weaker credit.

Lets make it actionable:

Revisiting the fundamental short on credit lenders as highlighted several times. A short which materialized heavily on HRB’s earnings announcements last month.

NOW….actionable trade with an attractive risk/reward enables us to short AHM.
Assuming that the recent rally in September is not sustainable.

AHM – stock has run up recently from $30-35 range – as October begins, here is a shorting opportunity given the overbought momentum levels. Timely entry point, in a fundamental biased call.

Looking for an attractive risk/reward trade here along with macro declines heading into earnings season. Also, a rising yield can help the case with further econ #’s pending especially this Friday. – Worthwhile, to get ahead of the trade despite attempted recovery.

Other names in that space also worth a consideration but at this point recommending short on AHM – trim candidate for long-term investors. (FED, BKUNA, CFC )

Additional industry perspective:

"This is the first sign of meaningful weakening in the prime mortgage space," Bruce wrote in a note to clients Thursday. "A downturn in credit may be just around the corner."

What does this mean for mortgage lenders? If consumers start defaulting on mortgages, investors who buy mortgages in the secondary market through loan-backed bonds will lose their appetite for risky loans. Mortgage lenders will then either make less profit when they sell their loans through securitizations or be stuck with portfolios of undesirable loans.

MKT THOUGHTS 9-27-2006

Looking at the BKX index - Approaching -May 8th highs - a full recovery from the equity sell-off.
May critical resistance level, given BKX weakness has been an indication for the broader market.
It works key barometer of the market given the dominance of financials in the S&P 500.

Technology :focused on three shorts that offer beta: AMD, NVDA and WFR.- A near-term trade.

Decline in commodities markets has fueled a return back to bonds sparking this near-term rally. A defensive rotation that compiled staples and healthcare to move higher. Nickel for some reason has survived the storm.

Crude Factors

1) Global central bankers are lifting interest rates in unison, and slowly draining global liquidity.

2) Beijing is tightening its grip on the yuan money supply, leading to exaggerated fears of a hard landing for China's economy.

3) Crude oil traders unwound a $15 per barrel Iranian "war premium" after Europe's big-3 signaled a split from the Bush administration's campaign for UN economic sanctions against Iran.

4) Weaker crude oil prices triggered a rout in the gold and silver markets.

Gary Dorsch: http://safehaven.com/article-5916.htm

Crude: Search for Support

Crude: Accumulate closer to 58-60/ in the next two + week.

A sharp decline from 77 to 61 ---clearly catches the attention of both bull and bears. Given a bearish stance on crude, I am glad to see this decline. I must say as a rational investor this downside action is highly surprising.

Near-term recovery pending as stated last week but clearly buyers are stepping away and selling near-term bounces. At this stage, looking for consolidation with worst case scenario of $58.

One has to look at current levels closer to February 2006 and October 2005 levels to get a clearer long-term perspective.

Again crude did go from 20 – 70 and that move is still intact. I wonder if the summer mid-east conflict was a key contributor to a climbing irrational move closer to$77.

Perhaps, $68 is the key resistance level and $58-60 is an area of interest in the next two weeks.

Net/Net: Next two weeks I would stay away from this trade and find further downside extremes. Then one can step in and accmulate or bail out of a trap.

Commodity vs Stocks: 9-20-2006

Oil has declined over 20 % in the summer. Tech and Consumer related names have recovered signifgantly since the July lows. There has been a rotation into technology.

Tech, consumer and financials dominate the US markets and early signs of rotation out of commodities and into stocks.

Chart demonstrates recent sell of in Oil and Gold - and the recent diveragence. Woth a look:

Black: CRB VS SPX Red: Real Price SPX Blue: Real Price CRB Index

Small Cap : Ideas and methodology

Consolidating patterns: TIBX, USTI, CMTL, VSEA, SONS, BRCD, and MDCO.
Questions to ask.
Are we hoping for breakouts? Are these value traps.
Attractive risk/reward: extremes that can be exploited :

Momentum Extremes: CYMI, ATHR, WGO, RATE, BCEN, CENT, ECLP, KYPH, AMMD.
Questions to ask.
After acknowledging oversold weekly momentum; are these names all worth taking the risk/reward

Leadership Momentum: MW and PSSI

Questions to ask.
What are the risks of sticking with momentum names? Any reason

Early rotation to tech:

Further upside move in the markets clearly shown by advancers expanding from 57,318 to 176,522 in CBOE put/call data. Looking for pullbacks this week in tech/retail related themes.

Coming into September, I was looking for further upside move in the VIX - but volatility has been tame in this upside move.

Clearly, the fed speak day will offer further uncertainty and volatility. A decline in VIX from 14-11 is visible in near-term charts.

CHART: Last week clearly tech rally continues exhibited by acceleration in semis. OSX - sluggish performance continues and this inverse correlation is shown in the above charts.
Rotation into tech out of commodity related names.

Decline in crude: a theme which has worked and due for a near-term recovery.

mkt thoughts - ahead of CPI and FED

Broadly speaking: Weekly momentum remains positive from deeply oversold levels. Near-term pullbacks pending but how much downside does the anticipated downside move offer?

Rotation out of defensive themes Since the May's correction, defensive themes have outperformed XLG - (top 50) outperformed most groups in the market by recovering 9% since July 18th low. ` further on Large Cap out performance like the Dow Jones + 7% YTD.
In the past few weeks further confirmation of beta related rally. Further showcased by weakening relative strength iin utilities and Consumer Staples.

Searching overdone themes:

Recovery in Tech and Consumer - Along with other severely underperforming sub-groups. (like homebuilders, retailers etc).

Approaching upcoming 'daily sell' might be an an opportunity to reiterate working themes
Given the abundance of attractive charts, perhaps focusing on established leaders with strong relative strength can identify quality names. For example in technology...DRIV, ATML, ASML, MU, AKAM, WEBX, ORCL, CTSH, and VARI.

Plenty of Econ data approaching along with Fed decisions. And the start of earning season can all create shifts in Macro/broad market behavior. Making sectors themes even more significant.

TIVO: another media / NFL theme

TIVO: continuing on a media theme. Attractive pattern similar to DTV. $6-8 range for many days but a long worth sticking to with an exit at $6. Wheather playing the options market for a tight range in the near-term the bias of an upside move is attractive. Worthwile going long in this range while accumulating on any pullbacks and let the market figure out the rest.



Fool.com---

Go long, TiVo
The new pro football season kicked off on Thursday night. Earlier in the day, I had written about TiVo's (NASDAQ:TIVO)new service for fantasy football junkies. The DVR pioneer had teamed up with Sportsline.com -- a CBS(NYSE:CBS) online property -- to offer stats and other goodies to participants of its fantasy football leagues.

DTV: Direct TV- building stregth.

DTV:

As the NFL season is officially underway; many recognize Direct TV for the Sunday NFL package. Well, chart has built up with a strong relative performance and worth a look in media space.

Breakdown: Break above a multi-year trading range between $14-18. Difficult to find growth especially in small cap. Volume building positively here and despite strong recent price appreciation, - add to pullbacks.

Cable remains a competition but a theme Wall Street neglected and will play catch up to the buyers from earlier this spring.

Net/Net: attractive risk reward on pullbacks closer to 18. - An investment long with an exit around 16.50 with Major support at 14.

JBLU and Crude: Inverse Trade

JBLU: Black; Crude: Blue.

Crude declined in October-Dec in 2004 and 2005 in the last quarter of the year.

At the same time, JBLU rallies higher. Although, early in the fall trade worth a look and accumulate on weakness with exit at 9. Continue to build on strength towards $12-14 level.

Of course JBLU has company specific risk while crude has began its summer correction.

NVDA: near-term short

NVDA: Short closer to the 22 -23 level given a strong run in the near-term. A tech name that offers high beta

• Momentum weakness : following a strong recovery since the summer lows, watch for recovery stalling
• Above both 200 and 50 day mva.
• Rally on weak volume
  

Volatility- worth a look here in September

VIX and VXN : Following turbulent sell off’s in May both volatility indexes continue to decline. This behavior illustrates low implied volatility, creating bargain opportunities in the option markets. (Note: calendar spread might be a timely strategy- will follow up this week- buy longer duration and high volatility with shorter timeframe).

“The last time the absolute pricing of implied volatility was as low as this was in 1993, but interest rates were much lower then, 3% instead of 5%. Since options have been listed, I don't think there's ever been this kind of opportunity on a relative basis between option pricing and interest rates. The bear market was a long time ago -- four years ago -- and the market hasn't had a 10% decline in over three years, and people have gotten a little lazy and forgotten what it's like to have a downturn” – Barrons article.