Managing controllable Risks: Inflation, Entry points in Biotech and Media.

FACTORS TRIGGRING MARKET DIRECTIONS:

Last summer markets anticipated a rate cut by the Federal reserve. At that time, the equity markets were oversold and 10 yr yield peaked on June 28, 2006 (5.75%). Of course, SPX rallied and began a strong uptrend on the back half of 2006. Today, markets are stretched and the 10 year yield stands at 4.76%.

It is becoming evident that previous interest rate assumptions are incorrect. It was a consensus view to anticipate rate cuts for the first half in of 2007. Clearly, that is not the case and there is a growing confusion in the interpretation of Fed’s message. Now that the equity markets are extended this macro uncertainty can highly contribute towards further fear. Inflation expectation is one key macro uncertainly which can ignite a downside panic. The possibility of a Fed rate hike is not out of the equation. As that fact becomes accepted by consensus that can have a troubling downside surprise.

Bottom-line: Inflation is a concern despite the calming language of the Federal Reserve. Consensus is underestimating inflation fears. The tone of the federal reserve illustrates the disconnect between expectations and reality.

Levels: SPX approaching resistance at 1461. I would use the 50 day mva as first support at 1426. Downside pressure on overbought momentum and its far removed from 200 day mva. Overall, looking for one more downside view.

Currency factor – recently there is a strong correlation between US Equity markets and Japanese currency behavior. In May 2006 – the market peaked driven by liquidity factors including rising rates in Japan. The peak caused sharp declines in the broad markets. Especially in the following areas: emerging markets, commodity and housing related.

Credit Risk: The self/defeating financial concerns:

Plenty of focus on econ data and upcoming earnings. Finally, the street is recognizing that the real estate concerns have not fully materialized. Again, lenders such as FED, CFC and BKUNA are few names that are at fundamental risk while currently offer a timely entry point.

Broad markets are overbought in the near-term, and financials appear to be the most vulnerable area. I rather trim profits or enter into ‘fresh’ shorts. (Especially in Financials). Brokers (XBD), Banks (BKX) and Insurance (KIX) indexes are overbought and remain fundamentally vulnerable. For several weeks, REITS appear extended as well. Maybe 1-2 quarters early but richly priced. Again, I sense one more downside to shakeout pessimists. This further illustrates credit risk which also seen in growing private equity and other sheer optimism of current environment.

Biotech: Attactive theme. Check out BBH index as a group indicator. AMGN- damage at the start of the year caused on an overall drag to the index. At the same time, the group underperformed since October.

Long Ideas: ABI, TECH, DNA and AMGN.

Media Review: Again continue to like the group as stated many times before. Last week focus on CMCSA- worked out triggered by positive news. Recent breakouts by TWX, DTV, VCLK and MCCC suggest early signs of strength and technical breakouts.

Long Ideas: CBS, IPG and CMCSA.

CBS: Facing near-term resistance around $32 but attractive on additional pullbacks. I am a buyer closer to the $28 range.

IPG: Multi-year trading range between $10-16 ranges. Poised for a recovery after the 4 year cycle of underperformance. Certainly, a value bet. A long-term chart illustrates the attractiveness – and looks beyond the 3% + gain on Friday’s close.

CMCSA: A longer –term play as demonstrated by recent strength. There is risk of overcrowded growth buyers but rewarding at current conditions.

Macro, Markets, Growth vs Value and Ideas.

General Comments:

In the near-term, US equities appear extended. Plenty of ideas, macro and cycle shifts reviewed. Crude finally slowing down with calming headline risks. Econ data unclear as markets looking ahead to econ / earnings. Any weakness ahead can create buying opportunities. Also, Growth vs. Value relationship showcases a rotation into Growth stocks.

(+) LONGS: S, MOT, IDCC, CMCSA, NTGR, CSCO, ABI, DNA, TECH, and PEIX.

Sector/Groups: Tech and Biotech.

(-) SHORTS: FED, CFC, SPG, BXP, HST, and VNO

Sector/Groups :Financials and Industrials:

Cycle Perspective -Growth vs. Value:

Since 2003, value is outperforming Growth in a bullish enviornment. The following chart illustrates the relationship between S&P Value vs. Growth. Notice: Growth ETF is dominated by technology (20%) and Healthcare(17%) as the leading sectors. Both sectors underperformed and are poised for a recovery. At the same time, value index composition is led by Financials (32%) and Industrials (11%). Interestingly, I continue to favor technology while trimming financials given this junction in the current cycle. Select industrials are showing sings of weakness. This style shift, lines up directly with sector rotation into tech and financials. Bottom-line, if growth stocks show strength, that should benefit select tech and healthcare.

Historical point to consider:

“A CSFB report late last year confirmed this view. The report concluded that on a price-to-cash flow basis growth stocks are cheaper than value stocks for the first time since at least 1977. The entire decline in the S&P 500’s p/e, since the bubble burst in 2000, is attributable to growth stock multiple contraction.”

Econ: #s appear solid and continued bullish interpretation (Non-Farm payroll included). Employment seems in tact and government data suggest inflation remains in check. Overall, the consensus view remains positive, which is reflected in the market behavior. Healthy tone is primary driven by gov’t data and Fed’s reassurance. The issue of rate hike vs cut is unclear – difficult to read. Currently, an edge to the 'rate cut' story, as pending economic concerns loom ahead.

All that said, I am looking for one more downside move in the general markets, which can surprise the market. I think that the housing data is underestimated and setting up for a surprise. Data watching will dominate headlines but I recommend staying focused on stock specific names.

Crude: After reaching a peak level at $66 – driven by Iran headlines which are slowly calming down. Near-term expecting further pullbacks. Reasonable support level at $60. (followed by $58).

US 10 Year Yield: Range bound in the last 7+ months. A tight range between 4.40 and 4.80. – This consolidation awaits fed policy or shift in economic climate.

Gold:remains in a tight range – not trending and actionable. There is a tug of war between buyers/sells as they await for a driving catalyst. Inflation is the assumed catalyst but yet to be resolved.

Investor Sentiment: Overall very neutral…argument for both taking holds and seen in the option markets. Not many extremes including VIX. In this environment, market can await headlines and on technical basis use Q1 highs as resistance level. Regardless, a difficult period to exploit extreme levels. Unless sector or stock specific calls. Also, money flow data

Growing confusion between slowing (Q4) earnings – especially in consumer related sectors vs. strong economy. Something has to give. In addition, the first quarter produced a correction and focus on weak housing. Also, a 4+ year uptrend in market calls for new trend to emerge. Hence, the argument for technology, Telco and media.

Looking Ahead:

Areas to buy on weakness: Again CNTM themes – Communication, Networkers, Telco and Media:

Communications:

IDCC: Attractive entry around 32 level, offers a short-term trading opportunity. (Tier 3- Idea).

Networkers: NTGR and CSCO to name a few – group setting up for an upside move.

Sprint (S): Turning around after a negative view and series of events. Climbing out of oversold levels but I do see further upside potential.

MOT: Continue to like the idea. And accumulate at current levels.

Media: CMCSA – worth a look above $25 where it is holding. Emerging ideas

Areas to sell on strength: Credit related themes –REITS –are vulnerable at current conditions. Short names to consider:

Watch list/Closely Monitoring: Retail recovery after an extended pause. GTRC – gaining some momentum as Q #’s are surprising the street. Also, declining oil can boost few retailers and consumer related space in the near-term.

Add to existing thesis: Alternative Energy: A growth area in energy – should provide additional lift despite crude performance.

Biotech looks attractive at current levels. Biotech powershare etf shows encouraging signs of turning. The group severely underperformed the rest of the market in 2006. It has been a difficult place to make money and poised for a turnaround. ABI – deeply oversold with a support level at $28.

Also, GILD, AMGN worth a look. Recent upgrades in other names in the group should trigger further investor demand. Actionable / early bet here. Other names to consider: DNA- multi-month trading range. TECH – strong volume as price increases. Buyers are stepping in, as ideas are worth a look on pullbacks.

Revisiting Biotech Emergence:

Biotech looks attractive at current levels. Biotech powershare etf shows encouraging signs of turning. The group severely underperformed the rest of the market in 2006. It has been a difficult place to make money and poised for a turnaround.

Stock Specific: ABI – deeply oversold with a support level at $28.

Other names to consider: DNA- multi-month trading range behavior – but given the positive group bias worth a shot.

TECH – strong volume as price increases. Buyers stepping in , worth a look on pullbacks.

Sprint (S)

Sprint (S): Turning around after a negative view and series of events. Climbing out of oversold levels but I do see further upside potential.

Strong support at $18.50. Plus positive headlines can get fundamentalist interested in the name:

Sprint (S) announced Monday that it will reduce the price of music purchased through the Sprint Music Store to 99 cents starting in early April; the same as on Apple's (AAPL) iTunes or the Real Music Store.

1st Qtr Review, Reits's weakness ahead, other long ideas

Quick Idea Summary:

Looking for further shorting opportunities in financials as a theme outlined for the first half of 2007. Specifically, focusing in REITs as a vulnerable area in the sector. This is in conjunction with high credit risks with fed speak, housing and extended pricings.

Biotech –emerging and worth looking at few names. Technology mixed but few noteworthy ideas in communication and networking related areas. Alternative energy ideas revealed and few stock specific ideas listed below.

End of 1st Quarter –

Big Picture/Macro Review:

Month-end combined with quarter end brings plenty of noise. Various data points but very difficult to gauge sustainable trends. February saw rising volatility and materialization of weak housing markets. Also, energy stocks held in a showing solid strength, economic data once again displayed mixed signals, and credit risk is becoming a growing concern.

Key factors to watch: Fed’s direction is not quite clear and appears to be monitored on a date-to-date basis. The lack of clarity in Fed’s message can spark the next downside move. The confusion pertains mainly to with inflation, housing and recession. In my view, its not the facts that matter but how Ben tries to manage the growing pessimism in the market place.

CREDIT RISK REVIEW :

REITS:

Again, from a cycle perspective, housing made a strong run from 2002 -2006. Therefore, there is further downside pressure yet to materialize fully. That is the basis in the cycle call for downside moves.

As stated last week, REIT’s are vulnerable in the financial sector. There are several names worth adding to the watch list. SPG, BXP, HST, and VNO.

Check out chart of SPG: --->

HOUSING:

Countrywide Financial Corp. (CFC) - Market Cap 19.84 b – Not timely at current levels, increasing negative sentiment and lack of stability in management. Certainly, not a new material to the marketplace but looking to short in the next few weeks.

Color on Alt-A market:

Alt-A products are almost exclusively adjustable rate, with teaser period of 3 or 5 years. Also a common denominator is the Stated Income feature, where the lender can assess the borrower ability to pay based on the income stated (yes, verbally - the lender takes the note) by the borrower. Stated income loans were originated heavily in 2004 - 2006. This implies that rate adjustment will start occurring this year, and will continue to happen through at least 2010. The bulk of it (70%) will happen in 2007 and 2008.

Commodity related themes should benefit given the uncertainty in Fed’s view. As stated last week, a very impressive run by energy stocks. In addition, Crude price increase is related to Iran’s news and a +5.87% weekly increase. The geopolitical factor is here upon us once again.

Gold remains in a tight range – not trending and actionable. There is a tug of war between buyers/sells as they await for a driving catalyst. Inflation is the assumed catalyst but yet to be resolved.

US 10 Year Yield: Near-term watching for resistance close to 4.70 ranges.


Equity Markets:

Most names are overbought in the near-term. Again, difficult to find timely long ideas for a sustainable period. Last week, I identified technology names to consider. And will revisit a close watch list in that area. Alternative energy names are showing signs of recovery and finally revisiting financial shorts. The macro environment combined with earning season will cause

Pacific Ethanol Inc. (PEIX): Like the group behavior, on near-term pullbacks accumulate. Stock oversold with strong support at $15 level. Looking for a pullback from $17 level near-term. Many view this name as a speculative play but attractive risk/reward and phase one in the recovery stage. Chart attached below.



Biotech: As a group seeing signs of turning. An early observation and worth betting on the long side.

Applera Corp. Applied Biosystems Group ABI: Deeply oversold plenty of value. Attractive entry point. (Chart attached below)




“On the valuation side, the company's forward EBITDA multiple is at 9x, well below its historical average and that of the comp group (11.4x). Additionally, the company has a forward operating cash flow yield of 7.6%, well above the previous 2 years and significantly above the comp group average of 2-3% (with a free cash flow yield of 6.3%). Given the strength in fundamental valuation vs. current trading levels, the firm thinks that now is an opportune time to add shares of ABI.”

Sprint (S): Turning around after a negative view and series of events. Climbing out of oversold levels but I do see further upside potential.

Hutchinson Technology Inc. (HTCH): Attractive levels, with growing insider buying. Part of an oversold tech theme. Momentum is currently oversold and above $20 trend remains positive.



Re-visiting write-up on MOT:
Motorola Inc. (MOT) – Despite weak numbers and poor performance stock is worth a look at these levels. First, analysts were expecting bad numbers and weak sales. Of course, below expectation is the headline observation Stock is down from $26 -17 range, with bad news factored in and with surfacing rumors on PALM buy out. Therefore, add to the watch list name for an attractive entry point. Sticking to the discipline, outside of the headline risk look for stabilization at current levels.

Weekly Review – Sector outlook, Tactics and actionable Ideas.

Weekly Review – Sector outlook, Tactics and actionable Ideas.

Clearly, this past week fed’s comment paint the headlines and explain the upside moves. Especially strength in emerging markets which stood out (MSCI Emerging Markets 116.62 +5.14%). Coinciding with strength in emerging markets, commodities were the top performing leaders during the week. Notably, commodity related steel and energy showed strength. (more energy below).

Investors beating to the same beat:

Put/Call ratio coming down along with volatility (VIX) – this suggests that we are back to compliancy. Therefore my goal this week is to think ahead and avoid “compliancy” risk.

Not seeking value in Housing:

Quick Note:

Fed view on housing: “Recent indicators have been mixed and the adjustment in the housing sector is ongoing.”

Important to note that the Federal Reserve has recognized recent signs of weakness in housing. Although, let us not forget homebuilder Index peaked in 2005 therefore sub prime is the follow up to weakness in the financial sector.

Next vulnerable area in financials looks like REIT’s and keeping a close watch. In Financials looking to rotate into banks. For example, shorting ICE a rewarding call from weeks ago. Few short covering in lending space resulted in upside move but rather sell that news. Again, in the near-term looking for little upside move but looking to stay neutral or short stock specific names.

Energy stocks showing strength after a rough open to the year. Notably, in the last three months energy has led the broader market. In the near-term, looking for consolidation. Technical’s setting up positively, and maintain my neutral view in the overall sector but undeniable strength emerging.

Crude: Following an 8+ month correction from summer 2006 highs, tight range in the $58-62 range. News flows this week critical to move prices as key resistance at $62.

MOT – Despite weak numbers and poor performance stock is worth a look at these levels. First, analysts were expecting bad numbers and weak sales. Of course, below expectation is the headline observation Stock is down from $26 -17 range, with bad news factored in and with surfacing rumors on PALM buy out. Therefore, add to the watch list name for an attractive entry point. Sticking to the discipline, outside of the headline risk look for stabilization at current levels.

Tech Favorites to watch: HTCH, ELX, BRCD,NTGR, and FFIV.

Media: looking for pullbacks in the near-term w/ PBS ETF stretched. Similarly, food related stocks are overdone as well. That tells me that defensive themes are overplayed here and chasing beta in the right sector might be rewarding. (ex. Broad market risk).

Stock specific story: SSCC: The homebuilders and housing related stocks are not my favorite place to seek value plays. But I do like lagging names in home furnishing. There are few attractive consumer ideas which are not streched. Also, analyst ratings are too negative in this name with positive growth potential.

Group Review:

Powershares Clean Energy ETF looks attractive at current levels given its consolidation. Specific names to consider. BLDP- shares a similar pattern with $5.50 support and attempting to stabilize at current levels. A risky bet given negative earnings and showcased by analysts’ estimates with one buy rating. Similarly, strength in the sector among some names like ZOLT and AMSC developing high-tech ways to upgrade the nation's strained power grid.. Momentum name in the group ELON – looks very strong less timely. EMKR- looking for upside catalyst, CPST- deeply oversold FCEL- 5.84 support.

Macro and Sector Review -

Technical/Macro Review:

After completing a 1/3 correction from recent highs markets are trying to find a bottom. Upon completing the first phase of the correction; the support levels for the S&P are at 1373 followed by 1363. NDX – is closer to 200 day mva, with an oversold momentum and recent lows of 1710. That places us back to Q3 lows.

Sentiment: Also, put/call ratio retraced from highs of 1.70 – suggesting that overly bearish/fear indicators have corrected. In other words, this should build optimism for trading longs in the near-term. Although, a dramatic downside move can shrug many shorts, there is additional downside left in the marketplace.

Therefore, the bulls are warming up to “buy the dips”. Sector selection for a recovery bounce is key. In select areas some sectors are due for further correction. In my opinion, as previously stated Financials and Energy need further down/sideway trading action. Near-term indicators are pointing to oversold levels, and that presents a buying window.

Rate-Sensitive themes: Financial weakness continues on the surface and REITS are vulnerable since from a long-term perspective, stocks appear extended.
Drivers of similar themes are caused by various headlines. Continue adding to shorts in select names: FED, BKUNA and ICE. Despite, oversold levels, I am looking for one more downside opportunity.

Crude: Friday’s close on Oil showed the strength of overhead around the $60 level. There is a downside pressure from a cycle perspective and further stabilization ahead. This reflects in the behavior of energy stocks, which should struggle to provide market leadership. Beyond OPEC’s news, chart suggests a trading range behavior with $55 next support.

Further signs of strength in technology. Stocks in CSCO’s group are attractive and worth a look for bargains. CSCO acquiring Webex sign of growth and works well for other competitors in related areas. Again focus in this sector is on stock picking, identifying timely entry points. Waiting for one more downside move in the broad market to accumulate.

Additional Wisom:

How are we able to make money by following trends year in and year out? I think it’s because markets react to news, but ultimately major change takes place over time. Trends develop because there’s an accumulating consensus on future prices...So price adjustments take time as they fluctuate and a new consensus is formed in the face of changing market conditions and new facts. For some changes this consensus is easy to reach, but there are other events that take time to formulate a market view. It’s those events that take time that form the basis of our profits.
John W. Henry

Patience on existing themes:

Patience on existing themes:

Rate sensitive themes remain at further downside risk particularly in the market correction. In addition, market psychology is picking up in regards to currency/liquidity. These growing fears persist after solid global stock performance in the past four years. Stock market declines is long anticipated and I am looking for further downside in the near-term while seeking discounted buy ideas. At this junction of the cycle, markets should see emergence of new themes.

Clearly, the sub-prime news is becoming accepted among media and general business observers.. (NEW- New Century). That said there are few short ideas on the table as discussed in previous weeks. And the bet is lower rather than a turnaround bargain attempt. Trimming exposure in those areas can protect portfolio performance.

Especially, not news for some who jumped on shorts early a year + ago.

Actionable Ideas:

Seeking shorts in housing, rate-sensitive, and REITS.

BKUNA – Bank United: Part of the real-estate short, with defined trading range. $26 resistance (exit level). Add closer to those levels. In addition, trim on strength on FED and ICE – (part of trading shorts).

In addressing, weakness in rate-sensitive area – In the next few days there is an opportunist task of finding additional shorts in REITS.

Liquidity is the engine.

Rising Yen/Carry trade: Issue has layers of matters and the general takeaway focuses on adjusting to days of rising yen. Therefore, transition periods cause concern for some and difficulty in adjustment for others. Regardless, the perception of “fear” can have a negative outlook and behavior on global markets. This is a major trigger of liquidity in the marketplace and a gauge which can generate additional noise. As for trend and macro impact – continue to sort out myth vs impact in the next few weeks.

Finally, looking ahead beyond pessimism and weakness in rate-sensitive themes. I comeback to my technology/media/communication groups. It is worth tracking the following powershare etf. Dynamic Networking Portfolio. I am not a big fan of solely owning etf’s for those willing to accept the challenge of stock picking. This group is an area of interest and the etf can offer positive returns by year end. In maximizing returns, will continue to seek opportunities among the names below.

PXQ - Dynamic Networking Portfolio

CTXS Citrix Systems Inc. 5.09% CSCO Cisco Systems Inc. 5.03% TLAB Tellabs Inc. 4.97% MFE McAfee Inc. 4.93% JNPR Juniper Networks Inc. 4.92% QCOM QUALCOMM Inc. 4.91% AV Avaya Inc. 4.87% FFIV F5 Networks Inc. 4.85% BRCD Brocade Communications Systems Inc. 3.32% HLIT Harmonic Inc. 3.31% SFNT SafeNet Inc. 3.03% WBSN Websense Inc. 2.89% WAVE Nextwave Wireless Inc. 2.81% CMTL Comtech Telecommunications Corp. 2.80% ADTN Adtran Inc. 2.76% ELX Emulex Corp. 2.73% TKLC Tekelec 2.70% NTGR NETGEAR Inc. 2.69% ADCT ADC Telecommunications Inc. 2.68% AMCC Applied Micro Circuits Corp. 2.68% QLGC QLogic Corp. 2.68% SCMR Sycamore Networks Inc. 2.66% SLAB Silicon Laboratories Inc. 2.66% DSPG DSP Group Inc. 2.65% SONS Sonus Networks Inc. 2.63% FDRY Foundry Networks Inc. 2.61% COMS 3Com Corp. 2.60% APKT Acme Packet Inc. 2.52% CCBL C-COR Inc. 2.52% ARRS Arris Group Inc. 2.51%

Current unrest accepted. Opportunity for future discovery

The optimist proclaims that we live in the best of all possible worlds; and the pessimist fears this is true.

James Branch Cabell (1879 - 1958), The Silver Stallion, 1926

Last week the following points were addressed.

Semi’s and previously underperforming Technology – Nearing some bottom

Gold: holding above recent trading range

Financial stocks at further risk. Specifically Brokers.

Market waiting for bad news or looking for excuse to sell.

Few of these points materialized especially the broad market theme of looking for excuses to sell. As far as Semi’s are concerned I would begin to distinguish quality names and accumulate “value” names on the way down. Regarding Gold – well not a favorite place and would stay neutral. At the same, time extended momentum names face further downside risk.

Financials continues to see further downside. Although, Let me add that it is hard to find names to short for a sustainable period. Once again this week will highlight two shorts FED and ICE. Please note: ICE details posted this mid-week.

Looking Ahead

Use panic to your advantage – This correction or downside move is going to create buying opportunity. The “Gloom and Doom” story will be in fashion but life goes on.

Panic time buying – I favor tech, non-biotech healthcare and Consumer related themes

Europe and select Asia funds are worth a closer look for a strong second half of 2007.

Charts illustrate the power of facts that are stated in the market.

ICE - Short Idea

Click on chart

ICE - a way to play the financial and energy markets as a short.

Appealing offer on the table despite missing out on today's negative action.

Even thought stock was down big there is further opportunity to short.

Clearly, markets were overbought coming into 2007, therefore yesterdays action is not surprising. Certainly, timing and magnitude is always adventurous.

Earlier this week, I was looking for 'rate related" catalyst for a downside move and the market has found an event driven spark. (China raising rates)

Out of brokers, into semi's ; gold postive /broad market sluggish...

Macro Picture:

There is a growing risk of inflation and many writers, pros and investors are taking note. Recent CPI numbers are showing those signs. Conversely, the bulls in gold are gaining momentum, and the stocks look attractive. HUI broke out of a multi-month trading range.

The risk of inflation might deal with perceptions just as much as reality. In essence, given the strong market run up since July lows -the market participants are looking for excuses to sell. Clearly rate related theme is key topic to watch as downside catalyst. .

Fed was supposed to cut earlier this year. I continue to take a stance on a higher 10 year yield, higher dollar and gold. A story since the start of the year.


Actionable -

The rate worry glooms louder for the financial stocks. Again, few more casualties in lenders wait. Many of the discussed meltdown is worth a look. Again FED and AHM - are shorts following bounces from recent heavy selling. There might be slight buyers but heavy downside pressure from many angles.

Brokers can offer trading shorts as the rate and overbought condition increase odds for decline.

Example: XBD - broker/dealer index: The peak on Jan 19 at 259 serves as a key resistance level. Therefore, would trim in this space and look for short opportunity.



Tech/ Semi's --

If it all sounds negative - tech sector continues to be an area of interest. For many weeks, I have highlighted the communication/networking groups offering solid pricing for a rewarding upside move. Examples include - ntgr,.sons,nrtl, jdsu, and tlab.

Check out chart of the Goldman Sachs Networking Index Fund (IGN) : For detail stocks that make up the index check out this link:
http://www.ishares.com/fund_info/holdings/holdings.jhtml?period=d&symbol=IGN

Perhaps an optimistic view on many names with attractive risk/reward in the tech sector. Clearly, having a positive tech view does not exclude the semis. A sluggish group in tech just as much as the market. The group traded sideways since July and now breaking out. Stock selection is key as many scramble foe exposure.

Got in early with AMD in Q4- but now AMD is way below 20 (an exit level) and below 15 while attempting to stabilize.

Semi’s are attractive here. Check out chart below of semi etf.

Mid Feb Update

Macro Outlook:

In my opinion, markets appear fully satisfied by positive economic numbers and upbeat on the Federal Reserves message. Recently, it is not surprising to hear increase in GDP growth, solid labor market and finally positive trending markets. Most data suggests that market optimism is already “baked in” the market pricings. These behaviors are demonstrated by the strong recovery in US equities sparked in summer 2006 rally. Since July 18 2006 the S&P 500 is up 19%. This further proves overall market complacency and asks if markets are too pricey.

Skepticisms does not hurt:

If one feels that markets are too content then it is appropriate to ask: What is the catalyst for a negative sentiment? Plenty and that’s the data to seek while being long. Here is

Here is one view on challenging the positive GDP data:

http://bigpicture.typepad.com/comments/2007/02/revisiting_gdp.html

Other simple takeaways:

Earnings reports resulted in a usual stock specific volatility but net positive as a whole. (as headline highlight Dow making all time highs). Macro factors are not heavily addressed as crude attempts to stabilize, dollar and 10 year yield are pausing.

Dangerous Terms:

At the same time, the following phrases are all too common: Deficit, Iraq, globalization and inflation are few terms floating around as concern in the US. Certainly, I did not forget about terrorism which persists daily reporting and bears argument these terms are heavily pointed to.

Personally, I don’t think discussing worries increases ones intelligence or enhances market trading skills. Unfortunately, it is only human nature and we all have our moments. It is important to overcome less-refined reactions but rather accept it as a persisting challenge.

Point to consider:

Regardless, the stock market is a different story in terms of timing and positioning. Those exterior points are important in the media and politics but not necessarily in seeking significant market return. So I will continue by pointing out that impact stock and sector behavior. Eliminate the general noise and proceed with actionable ideas.

ACTIONABLE THEMES:

The bears keep on fighting especially in regards to a cooling housing market. It is my belief that timing housing downfall is not that simple. And reaching a conclusion of shorting all aspects of housing is not a wise idea either. For example, Sub-prime lending collapsed and I am waiting for further declines. Homebuilders recovered after a strong correction but a shaky risk/reward. Finally, REITS are lofty and highly loved but not attractive long and soon due for downside correction.

I prefer to address the stock specific issue first than managing positions and timing. (FED and AHM) – Two shorts offered in previous posts and maintain a negative bias at current levels.