Market Observations: September 10, 2007

Market Observations: September 10, 2007

Investors continue to closely monitor economic data and speculate on pending rate cuts.

Sentiment indicators showcase fear and uncertainty in the marketplace. Once again, VIX (volatility index) climbed nearly 5% closing at 26.13. Similarly, participants witnessed a rise in the Put/Call ratio. Finally, NYSE and NASDAQ short interest ratio reached high levels.

In terms of macro outlook, further weakness in the US dollar and US 10 year yield. Last week, both (yields and dollar) reached annual lows and remain deeply oversold. Meanwhile, commodities continue to re-accelerate. Gold is setting up for a strong recovery. Crude is nearing overbought levels but uptrend remains in tact. At the same time, slowing US economy has not fully played out in the global markets. Emerging market indexes are overbought and reaching elevated levels.

Despite overall bearish sentiment, select groups offer upside surprises. In upcoming weeks, investors should increase exposure in Technology, Biotech and Media stocks. At the same time, continue to reduce financial services exposure.

Financials:

Investors should not assume that Federal Reserve intervention creates a risk-free environment especially in the financial sector. Lenders, REITS and Small Cap Banks face further downside pressure. In a period of "risk adjustment", one should expect volatility. At this point, any recovery in the XLF (Amex Financial Index), should offer shorting opportunity.

Short Ideas:

FED (First Federal), DSL (Downey Financial) and CFFN (Capitol Federal).

Biotech:

Biotech stands out as an attractive theme. For example, the BBH (Biotech Holders Trust) is showing relative strength versus the market. The sector is setting up for a strong recovery. From a seasonal point of view, September –October is a favorable period. Also, with declining financial services, demand for healthcare shares should increase.

Long Ideas:

GILD (Gilead Sciences) , HGSI (Human Genome), GENZ (Genzyme) and VRTX (Vertex).

Technology:

Technology upgrades continued last week, as we enter a favorable period. On an absolute basis, many managers should look to deploy capital into the sector. From a relative standpoint, timely long ideas are forming with bottoming patterns and improving fundamentals.

Long Ideas:

MOT (Motorola), SOHU (Shou.com), INFA (Informatica Corp.), AMD (Advance Micro), and SRX (SRA International).

MACRO LEVELS:

Crude: Overbought from an intermediate perspective. Next resistance $78.70 reached on Aug. 1, 2007. (all time highs).

Gold: Breaking out of multi-month range. After trading between $660-680 levels, the commodity is above $700 with positive momentum. Approaching all-time highs of $725, reached on May 12, 2006.

US 10 Yr Yield: Becoming oversold in the near-term after making annual lows.

US Dollar: Broke below key support 80. Following a weak non-farm payroll, global investors appear to lose confidence. Next support level 78.19, all-time lows reached back in September 1992.

S&P 500: Consolidating between 1440-1480 range. Look for pullbacks in the near-term.

FXI (China 25 Index): Remains deeply overbought, after peaking on August 27 ($154.54).

Market Review – September 4, 2007

Market Review – September 4, 2007

An interesting finish to the summer, as Bush and Bernanke provided some words of confidence regarding the financial markets. Clearly, participants and policy makers have recognized the risk facing lenders and banks.

In terms of broad markets, there are plenty of themes to examine which dominate investor behaviors. Themes include: Growing investor pessimism, flight to quality, increase in insider buying, and speculation on rate cuts. At the same time, one should consider purchasing quality ideas on pending weakness.

Financials:

It can be dangerous to underestimate the power of the Federal Reserve For example, since the Fed lowered the discount rate, S&P 500 climbed almost 8% in two weeks. Nevertheless, interventions are designed to create temporally relief. From a fundamental and business cycle perspective, Financials remains vulnerable. Despite, lenders hope for bailouts and value players accumulating REITS, -- downtrend remains in tact.

Growing Fears:

The need for confidence seems appropriate as investors are less optimistic and placing greater focus on "worrisome" topics. Further evidence is visible in various sentiment data. For example, the put/call ratio is relatively elevated (.71) which signals a negative tone. Also, over $500 million put options were purchased on the S&P 500 index. The bears, in this case are expecting a 5-11% decline in September.

Similarly, investors are increasing exposure to risk-averse instruments. Recently, investors took out $1.42 billion out of equity markets. At the same time, money markets funds witnessed a 105% increase in July.

Bottoming Process:

Despite negative sentiments, public companies continue to buy their own stocks, especially in the past two months. That should decreases supply of shares available in the marketplace thus causing stock prices to rise.

Select groups offer buying opportunities, especially in Technology related themes. Nasdaq (QQQQ) continues to outperform the S&P 500, especially since June 2007. Given further risks in Financials and elevated Energy groups, expect further rotation into Technology. Investment banks are seeing growth in revenue from the technology sector specifically in financing and M&A advising. In the past 12 months, wall street firms accumulated close to $2.86 billion in revenues. (Institutional Investor). Again, seven years removed from the "Tech bubble", the risk/reward is attractive at current levels.

MACRO LEVELS:

Crude: Holding above $70. Next resistance is near $75, followed by all-time highs at $78.70. (reached on Aug. 1, 2007).

Gold: Choppy trading between $670-690. Again, poised for further upside move as near-term momentum remains positive.

US 10 Yr Yield: Near-term oversold around 4.50%. Approaching March lows, watch recovery near 4.44%.

US Dollar: Attempting to stabilize between 80.50 and 81.90. Again, oversold and above its all-time lows of September 1992. (78.19).

S&P 500: Key resistance at 1480. Momentum reaching overbought levels while index holds above 200 day moving average.

FXI (China 25 Index): Overbought, after making all-time highs at 154.54 on August 27. Interestingly, in the last two weeks index appreciated with declining volume. Therefore, sustainability of near-term uptrend is questionable.

STOCK IDEAS:

Technology:

ALTR (Altera): Holding above key support level $23 and oversold in the near-term. The stock is among the top "cash rich" companies in S&P 500. It provides exposure to Semi's and relative strength remains positive.

BRCM (Broadcom): Trading in a narrow range. Accumulate closer to $32 levels.

AMAT (Applied Materials): Strong bounce from key support level $20. Add on pullbacks.

MOT (Motorola): Deeply oversold and far removed from 200 day mva. Look for improving fundamentals to drive share prices higher.

FDRY(Foundry Networks): Although extended in the near-term, look for pullbacks as buying opportunity. Uptrend remains intact.

SOHU (Sohu.com): Attractive entry point above $30. Look for upside move following near-term consolidation.

PAYX (Paychex): Positive trend in tact. Buy point between $42-44 range. Company continues to show optimism by announcing dividends payments and share buybacks.

Telecommunications:

DOX: (Amdocs Ltd): Bottoming near $35 level as stock remains oversold. Offers timely entry point with solid growth potential.

Consumer Staples:

WAG (Wallgreen): Stock continues to trade between$44-46 in the past 4+ months. Currently, presents an attractive entry point given its improving fundamentals, driven by acceleration in sales of generic drugs.

Biotech:

GENZ (Genzyme): Holding above $60, and bottoming. Timely entry point as Biotech attempts to re-accelerate. Also, opportunity to invest ahead of upcoming fall conferences.

Market Review – August 27, 2007

A relatively calm week, as markets finished higher with lower volatility. VIX (Volatility Index) declined to 20 from its August 16th highs of 37.

Despite long-term uncertainties, macro indicators are beginning to stabilize. US 10 year yield is back down to 4.60% levels following a surge above 5.20% in June. Crude is holding above $70, while S&P attempts to bottom around 1460-1480 range.

Overall sentiment remains net bearish among consensus. For example, in the last four months, mutual funds witnessed net outflows of $35 billion (trimtabs.com). This further illustrates flight to cash and other risk-averse instruments.

It is customary to expect lower trading volume and quieter market behavior in the last two weeks of August. Needless to say, there are several opportunities in the marketplace as investors and commentators speculate on pending rate cuts.

Last year, Technology bottomed in July, following a sharp broad market correction. Since that point, the sector has demonstrated leadership. Since last summer lows, ML Tech 100 Index has gained 35% while S&P 500 rose 21% in the same period. Given further risks in Financials and elevated Energy groups, expect further rotation into Technology.

Macro Indicators:

US 10 Year Yield: Oversold near-term. Attempting to bottom with key support at 4.60%.

Crude: Holding above $70. Index is 10% removed from all-time highs $78.70. Expect further consolidations ahead.

Gold: Long- term trend remains positive. Holding above $660, as near-term momentum remains favorable for an upside move.

US Dollar: Retesting December 2004 lows (80.39). Index is 3% removed from all-time lows reached in September 1992. (78.19).

SPX: Recovery continues from oversold levels. Next key resistance levels, 1480 followed by 1500.

FXI (China 25 Index): Re-accelerating and trading near all time high.

Stock Ideas:

Technology:

TLAB (Tellbas): Bottoming and oversold. A timely entry point, and setting up for a sustainable run in the telecom networking group.

ONNN (ON Semiconductor): Improving fundamentals in the analog sector. Accumulate on pullbacks between $11.50-12.

EMC (EMC Corp): Add on any sell-offs. Buy range between $18-20.

SOHU (sohu.com Inc.): Relative strength remains positive. Offers exposure to Chinese internet market.

LNOP (Lanoptics): Despite a 7% increase on Friday, stock remains attractive. Solid fundamentals as company reported a 192% revenue increase. A small cap growth idea in technology, offering an entry point closer to $16 level.

Telecommunication:

VZ (Verizon Communications): 4+ month consolidation between $40-44 is setting up for an attractive near-term entry point.

Media:

CMCSA: (Comcast): Deeply oversold. The stock offers attractive risk/reward at current levels.

DTV (Direct TV): Positive long-term trend. Recovery continues from oversold levels. Add on any weakness.

Consumer Staples:

WFMI: (Whole Foods Market): Intermediate-term trend positive above $40 range. Add on any pullbacks.

Healthcare:

WAT (Waters): Uptrend intact. Timely entry point as fundamentals and momentum remain positive for the medical instrument manufacturer. Accumulate closer to $62-60 range.

Control the controllable – Market Review: August 20, 2007

Control the controllable – Market Review: August 20, 2007

An eventful week, as markets displayed large swings driven by growing uncertainty and looming fears. Also, plenty of data/news releases, highlighted by the action of the Federal Reserve. Nevertheless, the macro and cycle themes remain in tact. Despite oversold equity markets and boost from Bernanke & Co any upside sustainability remains unclear.

Even though, financials appear attractive in the near-term, select areas should experience further credit risks. Overall, artificial boost to the financial markets only prolongs the natural flow of cycles. The Federal Reserves’ decisions demonstrate that liquidity is a priority concern. Clearly, the Fed acknowledges that economic weakness lies ahead. That said, long positions in the financial sectors are susceptible to higher risks and potential downside surprises.

At the same time, equity markets are reaching overly bearish levels after recent sell-offs. This is exhibited by elevated VIX, high Put/Call ratio readings, oversold broad markets and buying among insiders. These factors suggest a near-term recovery. In looking ahead, instability generally breeds opportunity. Therefore, the next few weeks offer buying opportunities in Technology, Media, and Telecommunication and select Healthcare themes. Entry/exit points are going to be difficult on a relative basis given the higher market volatility.

The challenge ahead is beyond seeking trends and sector rotations. It is vital to focus on specific ideas. In "controlling the controllable" stock specific ideas below.

MACRO LEVELS:

Crude: Attempting to bottom above $70 in the near-term. Intermediate-term data suggests further downside/ consolidation ahead.

US 10 year yield: Becoming oversold in the near-term. Stabilizing near the 4.60% levels.

Gold: Sideway action continues. Trading in a narrow range between $670-650.

Japanese Yen: Further signs of bottoming. Currency is up more than 8% since June 22 lows.

S&P 500: Near-term oversold. Attempting to stabilize between 1440-1460 levels. Major resistance level at 1480.

FXI (FTSE/China 25 Index): Attempting to bottom near 120-130 level as it holds above its 200 day moving average.

Consumer Staples:

CQB (Chiquita Brands): Following a sharp sell-off after earnings season, stock is oversold and poised for a recovery. Timely entry points around $12/14 levels.

WFMI (Whole Food Markets): Holding above long-term support of $40. After 1 ½ years of underperformance, stock offers appealing entry points.

Technology:

INTU (Intuit): At a buy point with major support at $28.

BRCM (Broadcom): Further strength developing. Increase exposure.

MOT (Motorola): Bottoming between $14-16 range in anticipation of improving fundamentals.

SNDK (Sandisk): Further signs of strength. Above $50 trend remains positive.

TLAB (Tellabs): At long-term support of $10 with attractive risk/reward.

Healthcare:

JNJ (Johnson & Johnson): Offers a large cap exposure in healthcare. Accumulate between $60-62 levels.

ABI (Applera Biosystems): Following multi-year underperformance, ABI is showing early signs of bottoming. Add on near-term pullbacks.

GENZ (Genzyme): Strong support level at $60. Stock is positioned for a long-term recovery.

BMRN: (BioMarin Pharmaceutical): Uptrend intact since Q2 2005. Add on any weakness.

Media:

CMCSA (Comcast): Near-term oversold. Attractive entry point near $25-26 range.

DTV (DIRECTV Group): After trading sideways in 2007, the stock is bottoming around $22 with improving fundamentals.

GMST (Gemstar): Near-term consolidation as it attempts to bottom. Buying opportunity around $5-50.

Telecommunication

VZ (Verizon Communications): Remains at a buy point between $40-42.

Market Themes – August 13, 2007

Market Themes – August 13, 2007

The last few weeks showcased that multi-year movements are nearing a trend shift. In the past 4+ years, investors have witnessed, a rise in Crude prices, low borrowing costs, low volatility and surge in global equity markets.

The last few weeks displayed the following:

Higher volatility

Credit risk unfolding

Crude retracing from overbought levels

Equity markets pausing

That said, the reshuffling process continues across various markets. Recent behaviors examined below:

Higher Volatility:

Another turbulent week, as the VIX (CBOE Volatility Index) continued to climb near 30. Index reached its highest level since 2003. Part of the volatility is caused by global headlines and actions triggered by Global Central Banks. Investors reacted to numerous data releases which in general, lead to mixed messages and confusion. Taking a step back, the 4+ year uptrends are being challenged. Therefore, it is natural to see higher volatility given an inflection point in the market cycle. Also, short-term trading faces higher risk tolerance as investors seek a comforting trend.

Credit risk unfolding:

In terms of credit risk, many themes reached oversold levels in the near-term. Although, financial themes such as Lenders, REITS, Homebuilders and Banks are attempting to recover in the near-term, sustainability is not clear. In other words, credit risk has not fully played out from a fundamental and cycle viewpoint. Of course, insider buying and corporate stock buy-backs can propel financials to slowly recover. From a long term view, current recoveries can be viewed as temporary relief.

Crude pulling back:

Since an August 1^st peak, Crude has declined over 10% and was down 5% for the week. At this junction, (outside of geopolitical events) long term charts are overbought and suggest further downside moves ahead. Downside pressures include: slowing demand and “priced-in” hurricane season. Finally, expect fund managers to unload long positions especially at current levels.

Equity markets pausing:

Clearly, few rough summer days ahead, especially for groups in the financial services. Further consolidation ahead as investors look for guidance from the Federal Reserve. As bulls and bears debate the broad market status, the next few weeks offer several opportunities. From a bottom-up approach, Healthcare, Media, Telecommunication and Technology present a buying opportunity: In the weeks ahead, markets are poised to favor risk-averse and low beta themes. Nevertheless, sector themes can be more rewarding given the current macro environment.

Macro Levels:

Crude: Further declines from August 1^st and all-time highs of ($78.70). First stabilization point in the near-term close to $70. Remains far removed from 200 day moving average with next support level closer to $65.

US 10 Year Yield: Settling near 4.80%. Deeply oversold between 4.60-4.80%. Expect near-term recovery.

Gold: Attempting to bottom around $660. Favorable odds for an upside move in the near-term.

S&P 500: Oversold in the short-term. Holding above 1440 - a key near-term level.

FXI (FTSE/China 20 Index): Following recent corrections, index is holding above $130 range.

OSX (Oil Service Index): Attempting to stabilize between 250-260.

BKX (Bank Index): Early signal of recovery between 104 -108. Key support level 101.48 (August 6^th lows).

ACTIONABLE IDEAS:

Healthcare:

JNJ (Johnson & Johnson): Offers a value and low beta idea in healthcare. Accumulate between $60-62 levels.

ABI (Applera Biosystems): Following multi-year underperformance, ABI is showing early signs of bottoming. Strength developing since May 31 lows. Accumulate on near-term pullbacks.

GENZ (Genzyme): Strong support level closer to $59-60 range. Despite negative headlines, stock is positioned for a long-term recovery.

ECLP (Eclipsys Corp): Positive momentum building. Stock presents an exposure to medical information group. Pullbacks near $20/22 level are worth a look.

Technology: Nasdaq has demonstrated relative strength versus the S&P 500 in the past 2+ months. Once again, use pullbacks as buying opportunity in select names.

BRCM (Broadcom) : Strength continues following a bottom on June 29^th. Add to any weakness as long-term picture looks appealing.

TLAB (Tellabs): Near-term oversold, buy point near $10.

PAYX (Paychex): Leadership in tact. Accumulate closer to $40 on any pullbacks.

EBAY (Ebay Inc): Pullbacks near $32-34 range offer buying opportunity.

SNDK (Sandisk): Further signs of strength. Trend remains

Airlines:

CAL (Continental Airlines): Deeply oversold and far removed from its 200 day moving average. Declines in oil prices and improving fundamentals suggest an attractive entry point at these levels.

Media:

GMST (Gemstar): Intermediate-term uptrend in tact. Approaching key support level around $5.50.

Market Thoughts – August 6, 2007

BIG PICTURE:

From a cycle and macro perspective, recent downturns are to be expected. This week, investors reacted to an inevitable period of profit taking/ market consolidation. Signs of fear and panic are visible as seen by rising volatility. This is demonstrated by a 75% + spike in the VIX (CBOE Volatility Index) since July 13^th 2007 as it reached 4 year highs. In times of uncertainty, macro conditions suggest that we are entering a period of risk aversion. Credit risk is the dominant theme that continues to trigger additional sell-offs. In looking ahead, recoveries in credit related themes can create additional shorting opportunity. For example, Lenders, Homebuilders and REITS should continue to show further weakness. Therefore, short-term traders should allocate aggressive capital to short any strength in the next 4-6 weeks. Expect further declines in Financial Services as analysts lower price targets and investors adjust overall expectations.

China and Crude related themes are extended as well and poised for near-term declines. After a strong first half of 2007, both themes are relatively overbought. Early signs of peak as Crude stalled at $78.70, while FXI (China 25 Index) is down 9%+ since July 23^rd. That said, not a timely buying opportunity for those seeking long-term entry points.

In search of Bargains:

On the other hand, sectors with least exposure to credit risk are poised to benefit from sector rotation. Despite looming broad market concerns the primary challenge is to seek bargains. Also, as equity markets remain in correction phase, there are few long opportunities in select areas such as Healthcare, Media, Telecommunication and Technology. Also, attractiveness in Large Cap Growth should benefit technology and healthcare groups in the long-term. Important to note, that stock specific bets are due to face higher risks at turbulent periods. Nevertheless, the rewards at cycle lows are much more worthwhile in picking emerging themes.

Emerging Themes:

Airliners are oversold and poised for recovery as crude retreats from overbought levels. Water related themes can benefit as investors look for alternatives to Crude. For those seeking ideas outside of Far East; Turkey, as an emerging country, presents timely entry points. Stock specific ideas below.

MACRO INDICATORS:

Crude: After reaching all time highs at $78, index declined 4% closing at $75.48. Currently, nearing overbought levels and further consolidation ahead.

US 10 Year Yield: Deeply oversold between 4.60-4.80%. Expect near-term recovery but sustainability remains unclear.

Japanese Yen: Holding in and showing early signs of bottoming on July 17.

Gold: Attempting to bottom around $660. Next resistance level is closer to $690. Favorable odds for upside move in the near-term.

US Dollar: Once again deeply oversold as it nears historic lows (September 1992 $78.19) around $80 level.

S&P 500: Near-term oversold as index closed below 200 day moving average. Currently, 5 % removed from March 14^th lows. Look for stabilization, between the 1440-1400 ranges.

FXI (FTSE/China 20 Index): Overbought from an intermediate-term perspective. Look for further consolidation closer to $120 range.

OSX (Oil Service Index): Extended and 14% removed from 200 day moving avg. ($222).

STOCK SPECIFIC:

Water:

WTR (Aqua America): Stabilizing and timely as it bottoms around $22. An idea offering exposure to investing in water as a commodity. Given its low beta and fundamental strength current conditions signal an appealing risk/ reward. Finally, stock can benefit from capital rotation out of oil names in the near-term.

Telecom:

VZ (Verizon) : On a relative basis, strength remains solid. Poised for further upside moves. Add on pullbacks closer to $40 level.

Healthcare:

MCK (McKesson): Timely entry point between $56-58 levels.

JNJ (Johnson & Johnson): Attempting to bottom, as it approaches key support levels around $59-60.Actionable both from a near and long-term view.

Technology:

SNDK (Sandisk): Accumulate closer to $50 level. Add on pullbacks.

TLAB (Tellabs): Approaching key support levels around $10. Attempting to bottom around 200 day moving average ($10.66).

FDRY (Foundry Networks): Although extended in the near-term, relative strength remains in tact.

LWSN: (Lawson Software): In addition to positive fundamentals as an enterprise vendor, technical set up looks appealing.

Airlines:

CAL (Continental Airlines): Deeply oversold as Crude continues to make new highs. At current levels ($31/30), attractive risk/reward and an inverse play on Crude.

Energy:

PTR: (Petrochina): For those looking to short both Crude and China this might be one way. Recent peak at $160. Consolidating from overbought conditions. Any strength, can offer attractive entry points for shorts.

ETF:

TKF: (Turkish Fund): As the Far East reach elevated levels; Turkey can offer an attractive rotation in emerging markets. Buy zone between $20-18 range.

Market View: July 30, 2007

Market View: July 30, 2007

A long awaited pullback in equity markets unfolded last week with intense market reaction. A correction was inevitable, as investors looked for a macro catalyst to spark a directional shift.

Credit Risk:

Once again, credit related risk triggered sell-offs across the broad market. This should not be a surprising given the following recent events. Homebuilder peaked last year, fundamental weakness in lenders and financials were the worst performing sector in the first half of 2007. At this point, selling might seem overdone in the near-term. Overall, any recovery should offer opportunity to sell/short themes in financial related areas. At the same time, sell-offs across all sectors offers bargains in select places as investors reshuffle existing positions. Therefore, it is worthwhile to track emerging trends as new themes develop.

Big Picture:

Last week S&P 500 dropped 4.9%, along with a 7% decline in the Russell 2000 Index. These results can cloud investor’s minds and enable bears to chalk up the gloom and doom stories. Nevertheless, the flight to quality or the risk-aversion process is in full gear. Looking ahead, macro themes will continue to play a bigger role as the stock market consolidates. Crude and China, key macro indicators are worth tracking in the upcoming weeks. In both cases, a strong performance in the first half of 2007 while being stretched at current levels. Importantly, investors in these themes are looking for a long-term payoff and not necessarily concerned with near-term behaviors. In this case, both are poised for at least minor pullbacks. Especially, at a time where global assets are near elevated levels. Perhaps, the risk of holding these assets are not attractive as they used to be. Simply, we are at an inflection point of the cycle.

Themes and Groups:

A quick reminder, the next few weeks offer buying opportunity in favorite themes. At this point, continue to like select US Technology, Communication and Media. From a style perspective, Large Cap Growth is attractive at the index demonstrates early signs of relative emergence. Healthcare is poised to offer some attractive value, despite the difficulty of idea selection in the sector. On the other hand, any upside moves, can create further shorting opportunity in the weakening financial sector. Also, as stated above, look for near-term declines in Crude and China related groups.

Key Indicators:

Crude: Continues to make new highs. $77.95 is a key resistance level to watch from 2006 peak. Also, momentum is nearing overbought zone.

Gold: Remains in a trading range. Further consolidation ahead, between $480-440. Noteworthy, support level is at the 200 day moving average ($647.63).

Natural Gas: Attempting to recover from sharp declines. Near-term range is between $5.78-6.20. Oversold and should stabilize around $6 levels.

S&P 500: Following a near 6% decline, since July 16 highs, index is becoming oversold in the near-term. Further consolidation ahead with major support at March lows at 1363.98. From a psychological point of view, the March lows can be critical levels to decide between buyers and sellers.

US 10 Year yield: Since mid June, declines have placed yields below 4.80%. Now, deeply oversold around 4.75% and poised for minor recovery in the near-term.

US Dollar: Downtrend remains in tact. Early signs of bottoming on July 24 at $80.04. A very tight range to make any conclusive bets, but phase two of a recovering dollar might be underway. Again, duration might not be sustainable, as for now index is far removed from key moving averages.

Japanese Yen: Once again attempting to bottom. A noticeable 4%+ recovery since June 22. A rising Yen can symbolize an early sign of shrinking global liquidity. Clearly, oversold from a long-term perspective.

Bank Index (BKX): Expect near-term bounces, as index attempts to stabilize around 104/105 range. Outside of trading opportunities, not a timely entry point for long-term players.

Style Perspective:

Small Cap Value weakness continues led by financials. Therefore, trim exposure to funds in that area until better entry points. Favor Large Cap Growth given its high exposure to Technology, Media and Healthcare.

IDEAS:

Communications:

VZ (Verizon): Pullbacks closer to $40 range offer attractive entry points.

Healthcare:

JNJ (Johnson & Johnson ): Accumulate between $58-60 ranges. Attractive value from a long-term view.

CBST (Cubist Pharmaceuticals): Although extended in the near-term, this momentum driven name has further upside. After a neutral 2006, stock is poised for further upside recovery.

ABI (Applied Biosystems): Declines can create opportunity to accumulate closer to $30 level.

GENZ (Genzyme): In a tight trading range closer to $60 level. Accumulate on any pullbacks as the stock is poised for a break-out from multi-month consolidation.

MCK (McKesson): Attractive entry points at current levels between $56-54 levels. Strong balance sheet and a leader among pharmaceutical distributors.

Airlines:

CAL (Continental Airlines): Deeply oversold as Crude continues to make new highs. At current levels ($31/30), attractive risk/reward and an inverse play on Crude. Clearly, a higher risk and speculative play but one can capitalize by being ahead of markets.

Energy:

PTR: (Petrochina): For those looking to short both Crude and China this might be one way. Recent peak at $160. Consolidating from overbought conditions. Near-term support around $140. Any strength, can offer attractive entry points for shorts.

Macro, Sectors and Stocks Review 7-23-2007

Macro, Sectors and Stocks Review

Earnings season continue to dominate stock specific performances. At this point, it is rather early and difficult to make broad market conclusions based solely on net earning results. At the same time, macro catalysts can spark directional shifts. For those keeping score, S&P 500 closed negative on the week and 10 year yield broke below 5%. Interestingly, both indicators appreciated and were strongly correlated from March to early July 2007. Recently, 10 year yield declined after peaking at 5.32%. Perhaps, equity markets are poised for profit taking in the near-term.

To add another perspective, both Crude and S&P 500 are at or near all time highs. It is remarkable that’s where we stand at close of Friday. This sets the stage for a turning point driven by various factors. Without further theatrics of “crash” and “depression,” overall market status remains overbought with pending corrections ahead. Once again, lingering macro fears or speculations do not diminish profitable opportunities. Similarly, pending outcomes should not dramatically change overall portfolio strategy and market thesis.

Revisiting key themes: US technology offers selective buying opportunities. Credit risks as further downtrend ahead for financials. Finally, crude related themes are vulnerable at current elevated levels.

• US 10 Year Yield: Broke below 5% after consolidating in a tight range 5.00-5-25%. Next major support level 4.80%.

• Crude: Approaching highs from July 14, 2006 of $77.95. Once again crude made annual highs by reaching $76.27 on Friday (July 20). Now, if history repeats itself we should be nearing peak levels.

• Gold: Recovery intact following a bounce from $640. Approaching April 20^th highs of $691.40. Near-term momentum becoming extended.

• US Dollar: Weakness persists, as the index nears all time lows reached in 1995 at $80.05. Clearly, deeply oversold and the downtrend intact since 2002 peak.

• SPX: Recent peak at 1555 reached on July 16. Overbought, as the index is 6% removed from its 200 day moving average.

Technology as a sector continues to work. Despite a negative broad market performance, four of the top five leading groups this past week resided in the technology sector. (Disk Drives +4.05% , Computer Services +3.6%, Computer hardware +2.76 and Semi’s 2.22%) Morgan Stanley Technology index is up close to 15% on the year. (vs. 8%+ for S&P 500) This is yet another illustration of broad participation across various groups. Also, a favorable outlook in Large Cap Growth presents a positive impact on the sector. In the Russell 1000 Growth index, technology is the top weight and accounts for 22% of overall holdings. A rotation in to Large Cap technology can be a rewarding area in the marketplace especially in the second half of 2007.

Now, the challenge ahead is to distinguish sustainable ideas while increasing positions on working ideas. In any market correction use weakness as opportunity to accumulate.

Continue to favor AMD (Advanced Micro), MOT (Motorola) and TLAB (Tellabs).

Financials: Weakness continues as Lenders, REITS, Brokers and Banks continue to lag behind the rest of the market. At this point, a negative outlook in financials should result in decreasing exposure in Russell 2000 Value index, since financial stocks account for almost 33% of the index. This past week was an illustration of the weakness in Small Cap Value as it underperformed other styles and was down 2.71%.

In the upcoming weeks expect few bargain hunters to seek buying opportunities especially at these oversold levels. It is important to acknowledge that it is not a timely entry point to short homebuilders and REITS. That said, from a long-term prespective the risk/reward and sustainability remain relatively unfavorable.

XBD: (AMEX Broker/Dealer Index): Attempting to stabilize following an 8%+ decline since June 1^st.

BKX: (Bank Index): Downtrend intact since February highs. It appears attractive to buy in the near-term, but expect bounces to be short lived.

KIX: (KBW Insurance Index): Index is down more than 7% since May 2007. Use strength as opportunity to trim.

Finally, two IPO’s in the sector tell the 2007 story pretty well. FIG (Fortress) after peaking on February 9, the stock is down close to 40%. Similarly, BX (Blackstone) is down 32% after peaking on June 22. Although hedge funds and private equity receive plenty of headlines, in this case bears are winning this battle.

Market Observations - 7-16-2007

Continuing upside moves. The following key indicators reached new highs this past week: S&P 500, Crude, FXI china 25 and MSCI emerging markets.

Again, that’s just to name a few. Despite negative headlines and sentiments, equity markets surged higher. Some market commentators are paid to create good stories. The market so far paid those who stayed long equities. (especially energy related). Therefore, never confuse a good story with attractive portfolio returns. This principle was revisited this week when Motorola reported earnings. Despite a negative sentiment, the stock traded net neutral and remains oversold. It is just a part of a big picture theme and restates the attractiveness of US technology stocks. Semiconductors are working along with communication equipment and networkers. Similarly, continue to favor select names in media and telecommunication.

On the other hand, credit risks are not fully flushed out of the marketplace. Certainly, housing related themes declined in the first half. Although, further breakdown ahead in select themes (ie. Lenders and REITS) most ideas are not actionable shorts. Rather revisit credit related shorts when the media sentiment is not overly negative. In addition, strength in crude and uptrend in emerging markets are key macro themes that are awaiting downturn catalyst. Since there is no evidence of trend break, continue to focus on stock specific ideas. As a quick reminder, here are year to date numbers: S&P 500 +9.5%, Nasdaq +12.1% and Russell 2000 +8.6%.

This upcoming week will keep many participants busy given a busy schedule in company’s earnings and economic data releases. Its vital to keep key macro themes in mind when flooded with various information.

• US 10 Year Yield: Consolidating between 5.00-5-25%. Expect more side way behavior in weeks ahead.

• Crude: Approaching highs from July 14, 2006 of $77.95. This past Friday (July 13), crude made annual highs by reaching $74.00. Now, if history repeats itself we should be nearing peak levels. Of course, that would be too easy but waiting for extended levels. Oil related stocks appear more overbought than the commodity as shown by the near-term behavior of the OSX.

• Gold: Setting up for a recovery. Gaining momentum in the near-term following a recovery from $640. Overall, maintain a neutral outlook from an intermediate-term perspective.

• US Dollar: Weakness persists, as the index nears previous lows of 2004 at $80.39. Also, not far removed from 1995 lows of $80.05. Clearly, deeply oversold and downtrend intact since 2002 peak. Look for near-term turnaround as the index is 4% removed from its 200 day moving average.

• SPX: Breaking out from recent range to new highs. Intra-day highs (1555.10) reached above 2000 highs. Psychologically this plays an important role as investors realize that we have climbed back to “topping” levels.

Actionable Ideas:

Financials: Oversold in the near-term (primarily banks) but do not present further sustainability.

C (Citigroup): An idea for those desperately seeking long exposure in the sector. Major support at $52 and positive near-term momentum.

Technology:

Semiconductors: SMH – making annual highs as the relative strength suggests further upside. Primarily, since the group underperformed most of 2006 and favorable outlook from a seasonality perspective.

AMD (Advanced Micro). Further signs of a recovery. Offers a buying opportunity and an attractive long exposure in this 3^rd quarter.

BRCM (Broadcom): Add on any pullbacks, although extended in the near-term, setting up for long-term rewards.

Telecommunications:

CCI (Crown Castle): Setting up for re-acceleration. VZ (Verizon): attractive entry point for Larger Cap investors.

Consumer Staples:

SWY (Safeway): Timely entry point. Fundamentally solid and offering timely entry point.

Healthcare: A though sector so far this year. Biotech poised for near-term recovery. Currently the following stocks are worth a look.

JNJ (Johnson & Johnson): Favored by value players given the attractive fundamentals. Holding above $62 and poised for a strong recovery.

ABI (Applied Biosystems): Timely add here. Use pullbacks as opportunity to add. A maker of life science research equipment and expected increasing sales revenue.

Media:

GMST: (Gemstar) Positive momentum and worth adding on pullbacks. See further sustainability for few quarters. Private or public its an attractive buy. In short, any pullbacks offer buying opportunity.

DTV: (Direct TV): Intermediate-term trend remains positive. Accumulate on any weakness.

Emerging Markets:

Finally, with most emerging markets reaching escalated levels and many investors seeking international ideas. Here is one that’s worth a look.

TKF: Turkish fund. As the Far East is becoming extended, Turkey can offer an attractive rotation in emerging markets.

Turkey's low level of mortgages, personal lending and life insurance sales mean that the country's financial sector should see massive growth over future years.

(Seeking alpha).

Also, the fund is 24% commercial banking and 11% Insurance. Therefore, with high exposure to financials and attractive technical pattern it is a timely emerging market idea. For those seeking stock specific ideas: The top name in the fund TKC (Turkcell Iletisim Hizmetleri A.S. ) is a provider of mobile services and trades in the NYSE.

Market Thoughts 7-9-2007

At this point, markets are awaiting a major catalyst for directional shift. Potential catalysts can be the upcoming earnings seasons combined with credit concerns. There are several big picture topics resurfacing in the marketplace. Regardless, actionable ideas are worth a closer look. To summarize, Energy/Crude related themes remain elevated and need a breather. In the next few weeks ahead, participants are allocating for second half plays. Technology and healthcare themes should offer alternative solutions for those seeking rotational opportunities. Although, financials look oversold, the looming “credit risk” is unfavorable for the sector. Again, lenders and REITS are the least favorite areas in the marketplace. Overall, communication, networkers, telcom and media offer a timely buying opportunity combined with a favorable risk/reward. (Ideas reviewed).

S&P 500: Closed at 1530, just few points away from 2000 highs of 1552.87. Again, the uptrend is intact while near-term momentum remains overbought.

Dollar (DXY): Recovery has been short-lived, as we are slightly holding above April lows of $81.29. Watch for turn in the coming months.

US 10 year yield: Consolidation between 5 and 5.20%. Look for further sideway action in the next few weeks.

Gold: Attempting to recover with first support at $640. (200 day mva 641.25).

Revisiting Crude and China:

Macro themes with perceived long-term sustainability, but poised for pullbacks especially given the current extended levels. For near-term market participants, betting against these themes can be rewarding along with corrections in the equity market. Taking a step back, reminds us of the bullish trend in emerging markets that began 4+ years ago. Although, the long-term trend remains positive for crude and emerging markets, current entry points don’t offer an attractive risk/reward.

Crude: The bullish argument resurfacing in the media. We are few points away from July 2006 highs of $77.95. Indeed, the strength continues but outside of geopolitical factors crude is nearing overbought levels.

China: FXI: (China 25 Index): Continues to make new highs. In the past two months, index has surged at a faster pace but is nearing a key inflection point. The index is 33% removed from its 200 day moving average; following a 50%+ run in the last four months. All considered we are setting up for a downside surprise for bulls.

IDEAS: Technology, Media and Telecom.

Semiconductors: SOX breaking to new highs. Next key resistance is near January 2006 highs (559.60). BRCM: Bottoming around $29/30 levels, accumulate.

SNDK: Near-term pullbacks between $48-46 range. Overall, positive outlook for second half of 2007.

Networkers: NTGR: 2+ month consolidation setting up for upside move. Accumulate closer to $34.

Communication: Group working and currently favoring JNPR. Also, MOT is oversold and poised for recovery. Also, TLAB from a long-term view offers a buying opportunity.

FNSR: After consolidating between $3-4 ranges in the past year, can work as a speculative value play.

Telco: NIHD strength continues, any sharp corrections should be a buying opportunity.

Media: CBS leadership intact, uptrend remains solid. DTV: Support around $22.50 continues to accumulate.

BLC: recent corrections offer attractive entry point. Finally, CMCSA an attractive long-term play.

Healthcare

A tricky area as Pharma and select Biotech have produced risky returns and unforeseen disappointments. Some areas remain in an uptrend. For example: PTJ Dynamic Healthcare Services Portfolio led by names such as ESRX, MHS and CI .

LLY – Looking for second half recovery. Next major resistance level is closer to $60.

ABI- If above $28 level, trend remains positive.

Market Review - July 2, 2007

Here is a quick reminder. Here are the closing values of key macro indicators at the end of Q2 2006: Crude $73, US 10 Year 5.14%, Gold $613, Nat Gas $6.13, S&P 500 1270 and DXY (dollar index) $85.

Interestingly, key macro indicators have not changed dramatically in the past year. In fact, crude, 10 year yields, gold and natural gas are very close to July 2006 levels. What is different? SPX rose significantly higher as the Dollar declined. Of course, higher stock market with weaker dollar is nothing new. An inverse relationship- which goes back to late 2002, illustrated again so far this past year. Therefore, overall big picture themes are in tact. Although, weakness in financials, especially in REITS and lenders became apparent in part I of 2007. Other key themes include: reacceleration of emerging markets, (specifically China) and increase volume private equity deals. Nevertheless, markets are complacently awaiting a trend shift. Current conditions favor a recovering dollar, correction in China, and continued downtrend in credit related themes.

At this point, the S&P 500 is poised for minor corrections. Momentum showing signs of stalling, as signaled by recent highs of 1540 on June 1, 2007. Perhaps, group selection is wiser than setting targets for the index. In any trend shift, there are opportunities in US technology themes which continue to offer attractive entry points.

MACRO REVIEW:

Crude: Expecting stabilization around $70 level. Once again, geopolitical factors sparking higher price movement. Last summers high of 77.95 a level to watch.

US 10 Year Yield: Consolidation phase around the 5% level.

Dollar: Signs of recovery that began on April 27. Bottoming process favors an upside bias for year-end.

Gold: Attempting to recover with first support at $640.

Natural Gas: Near-term, signs of bottoming closer to $6.50.

Review of key themes:

• Technology Emergence: Continue to favor semiconductors. SMH (semi etf) 6+ month of consolidation. Setting up for a recovery.
• Financial Weakness: As observed in the first half, downtrend should continue in most groups. Following any oversold bounces, further declines ahead especially in areas associated with "credit" risk.
• China extended: At these escalated levels, it is worthwhile trimming. Extremely overbought stocks are in commodity related groups.
• Media/ Telecom: A promising theme showing signs of sustainable uptrend. Accumulate on pullbacks.

As July 4^th approaches, my warmest wishes to all Americans, those sharing American values and soon to be Americans. Specifically, for those dreamers, who work hard and find ways to create capital. Happy 4^th!!!