Market Thoughts : December 10, 2007

Weekly Results:

S&P 500 +1.59% NASDAQ +1.70% Russell +2.31% MSCI and Emerging Markets +3.87%

Policy intervention and pending rate cuts by the Federal Reserve contributed to a positive week. Recent discussions of "bailouts" generated optimism. Headline news (noise) on 'mortgage relief' forced bears to exit in the already depleted financial sector. Sadly, the plan can generate near-term uproar but sustainability remains doubtful.

Following the Thanksgiving weekend, the S&P 500 is up 7.2% and 6.1% for 2007. Seasonally, odds are favorable for an upside move especially following a period of high pessimism. Also, a sharp decline in volatility (VIX Index) points to oversold conditions and less downside turbulence. Macro indicators are showing signs of early trend reversal. For example, US dollar is up more than 2% since November 26. At the same time, Crude is down 11% from yearly highs. Although, short sighted, current dynamics set the stage for a broad market rally.

This market requires one to differentiate short and long-term ideas. In other words, it is important not to confuse trading vs. investing. With 15 trading days left in the year, some areas are worth a look for a technical rally. On the other hand, long-term bargain hunters can seek "value" especially in groups poised for cycle leadership. Finally, for those looking to profit on declines, patience can be more rewarding well into 2008.

Near-term: (3-6 weeks):

Oversold consumer themes such as, Banks, Lenders, Retail and homebuilders, led a sharp rally in the past few days. As expected, there are higher beta themes and yearly underperformers are poised for a year-end rally. For example homebuilders increased 10% for the week. It is not surprising to see a trading bounce given sluggish performance in the past 2+ month.

Intermediate-Term: (6-9 months):

In looking ahead, attractive ideas should emerge from Technology and Healthcare. A rotation out of commodity themes can rotate to innovation based companies. Large Cap companies are relatively "cash-rich" and can benefit in a slowing economy. For example, AAPL (Aapple) carries a $15.4 billion cash position which is ahead of Microsoft. That bodes well for future innovation within the sector. Of course, pending price declines can offer better entry points.

Also, consumer staples present exposure in defensive themes mainly in food related areas. For example, Wal Mart (WMT) and Costco (COST) are up over 15% since mid November. Expect this momentum to carry over for upcoming quarters ahead.

Stock Specific Ideas:

Media:

DTV (Direct TV): At a buy point near $24. Fundamentals are solid as company continues to increase its market share.

Healthcare:

BLUD (Immucor): Consolidating near $30. Appealing entry point following recent declines. Also, a leader in automated instruments for blood typing.

Technology:

BRCM (Broadcom): Attempting to bottom between $26-28 range. External factors are keeping buyers on the sideline. Overall fundamental strength remains intact.

SWKS (Skyworks): Relative strength is favorable. Increase in gross margins, and promising outlook in communication area, sets the stage for a buying opportunity. Accumulate on any pullbacks.

GLW (Corning): Stock price is oversold from a long-term perspective. Sales growth looks promising in the company's display and communication segments.

Staples:

CQB (Chiquita Brands): Uptrend intact. Accumulate on pullbacks closer to $18. Favorable tariff results in Europe can trigger additional buying. In addition, basic fundamentals are net positive.

ADM (Archer Daniels): Low p/e ratio suggests attractive valuation. Technical pattern is positive given recent breakout above $38. Finally, attractive cycle for agricultural related themes.

Market Update: December 3, 2007

Resurgence of optimism as broad markets finished higher.

Weekly Results:

S&P 500 +2.81%, NASDAQ +2.48%, Russell 2000 +1.69% and MSCI Emerging Markets +4.55%.

In terms of psychological levels, Crude decreased below $90 and the US 10 Year Treasury Yields broke below 4%. Of course, longer-term trends are in tact for the most part. At the same time, volatility retraced as it closed down 10% for the week. Importantly, participants are paying much attention to upcoming rate cuts by the Federal Reserve. Speculations are creating a bullish bias, following a surge in investor anxiety.

After heavy selling in equity markets, most indexes are poised for a near-term recovery. Especially, groups and stocks that underperformed year-to-date, should witness upcoming relief. That said, weakness in Financials, housing and consumer related themes is not alleviated from further fundamental risks. In other words, it's vital not to confuse trading with investing.

As for the next four weeks, some historians argue that a bad November leads to a profitable December. In the last 30 years, December has been the best performing month 24 times. On that note, higher beta themes offer buying opportunities. Otherwise, given the macro uncertainty, a stock by stock selection can be more favorable approach.

MACRO LEVELS:

Crude: Early signs of topping after peaking at $98 on November 23. Next key support level near $84 as long anticipated declines begin to materialize

Natural Gas: Up 39% since August 27 lows- showcasing a defined uptrend. Short-term pause with key support at $7.

Gold: Expect prices to fall in the near-term. That said, long-term uptrend is intact.

US 10 Year Yield: Attempting to bottom between 3.80-4.00%. Although deeply oversold policy by the Federal Reserve takes precedence as rate cuts are accepted by consensus.

S&P 500: Index is 6% removed from all-time highs set in early October. 1480-1520 are key levels to watch for the next few weeks.

EEM (Emerging Markets): Consolidating between $144-160.Poised for sideway trading action for upcoming weeks.

Stock Specific:

Utilities:

Appealing sector for those looking to protect annual gains or avoid market fluctuation. Also, several names offer attractive entry points. Ideas includes: EP (El Paso Corp.), AYE (Allegheny Energy) and MIR (Mirant Corp).

Staples:

ADM (Archer Daniels): Stock price is attractive at current levels. Add on pullbacks closer to $35. Growth in global grain demand should benefit ADM. Favorable entry point at current levels.

Media:

DTV (Direct TV): Remains at a buy point. Fundamentals are solid as company continues to create growth. Accumulate above $22.

Healthcare:

GENZ (Genzyme): Positive momentum as stock is approaching all-time highs ($76.90). Overall fundamentals are promising and investor demand should increase.

Technology:

Going into the year-end, the technology sector offers mostly trading ideas. Long-term fundamentals are unclear, despite solid earnings growth in the past year. Perhaps, investor expectations are too high. Nonetheless, there are opportunities in the sector.

Last weeks ideas which are relatively timely: GLW(Corning), SWKS (Skyworks), PAY (Verifone), SYNA (Synaptics) and ORCL (Oracle).

Additional ideas below:

BRCM (Broadcom): Deeply oversold while attempting to bottom near $26.23. In looking ahead, promising outlook in the wireless handset market which can serve as a catalyst for an upside move.

PLT (Plantronics): Sitting at key support at $26. Leadership in core headset business can produce an additional lift.

Market Update -11-26-2007

Market Update -11-26-2007

As we come down the stretch in 2007, investors seem far removed from reaching clarity. In other words, most signals, sentiments and behaviors are becoming more confusing. At least for those attempting to connect the dots and construct a winning portfolio. Perhaps, it is not surprising given a depleted credit market, beaten down US Dollar and elevated commodity prices.

Thematically, these existing trends appear "crowded". At this point, it might not be wise to pile on existing trends. In recent weeks, the most accepted trade is short dollar and long energy. Amazingly, a contrarian bet is not as unpopular as one would think. (Long Dollar/Short Crude) In fact, the short interest for energy are at peak levels. Meanwhile, many technical traders have unsuccessfully attempted to call a bottom on the dollar. Nonetheless, the multi-year trend for the Dollar and Crude remains intact. Evidently, predicting an inevitable trend shift is a monumental task for market participants.

On a similar line of thinking, value investors who accumulated financial, consumer, housing and mortgage related "bargains" are feeling pain. The crisis in the credit markets has not reached the late innings as hoped by many. This is an illustration of additional bad news ahead for financials. Recent minutes from the Federal Reserve showcased more concern for housing. Importantly, the FOMC statement suggested a bias for pending rate cuts. Overall, a slowing economy is a topic that should influence business spending, investor demand and media coverage.

Picking Spots:

Once again, a broad market view is not enough to produce desired returns. Also, betting on macro directions alone does not answer the stock specific questions. That said, plenty of issues to consider and probably best to examine sector by sector.

Healthcare:

BLUD (Immucor): Fundamentals are solid as seen by increase in revenue for 16 straight quarters. Technical pattern also supports an upside move for the maker of blood bank systems.

GENZ (Genzyme): Leadership intact in the biotechnology group as seen by its unique products, solid earnings and positive momentum. Current levels offer opportunity to accumulate especially given recent declines from October highs.

Technology:

For upcoming weeks, few areas offer potential for a year-end rally, especially stocks with higher beta. Also, the sector displayed a net positive Q3 results. Given the challenging period for stock specific calls, it might be favorable to focus on those showcasing relative strength. Finally, a rotation into Large Cap Growth should continue to benefit the sector. Stock specific ideas below:

GLW(Corning): Stock is nearing a key support level at $22. Importantly, company is back to profitably, especially in its core business of glass and ceramic products. Expansion in telecom and cable creates further catalyst for price movement.

SWKS (Skyworks): Appealing entry point near $8. Growth in smart phones positively impacts companies' sales growth.

PAY (Verifone): Use near-term consolidation as buying opportunity. First entry point near $42-44 range.

SYNA (Synaptics): Continues to demonstrate relative strength. Growth in mobile computing and electronic devices creates upside potential. Accumulate on any weakness.

ORCL (Oracle): Remains at a buy point near $20. Earnings and sales are ahead of estimate. Company should create growth by acquisition. Finally, product mix is relatively strong, suggesting a sustainable recovery.

Telecommunication:

VZ: (Verizon): Sitting at key support level $42, as stock attempts to bottom. From a long term perspective, Verizon's low turnover and high margins bodes well. Especially, heading into a period where investors demand shares of "cash rich" companies.

Media:

TWX (Time Warner): Following a sluggish relative performance in the past four years, TWX is setting up for a recovery. Growth opportunity lies in cable and film operations. Deeply oversold and favorable for upside move at $16.

Financials:

Maintain short positions on Lenders and Small Banks. At this point, the sector is set up for a near-term recovery. Nonetheless, niche areas are at cycle highs and face further fundamental risk.

Short Ideas: FED (First Federal), DSL (Downey Financial) and WFSL (Washington Federal).

Weekly Update: November 19, 2007

Weekly Results: S&P 500 +.34% DJIA +1.03% NASDAQ +.35% and MSCI Emerging Markets -1.38%

Despite negative sentiment, major indexes finished slightly positive for the week.

Participants are waiting for further clarity on economic outlook and recent sell-offs.

Broad Markets:

It is important not to confuse talks of "recession" with stock market collapse. In fact, the majority of money managers stay focused on implementing their investment strategies rather than react to market sentiment (Investment Advisor 9-2007). On that note, broad markets are shaping up for a year-end recovery. Recent declines offer bargains for those seeking attractive valuations. Historically, we are approaching a favorable season for equity markets, especially in the third year of a presidential cycle. That said, the next few weeks should determine the conviction level of buyers.

At the same time, these are periods of uncertainty following a bullish run in the past 4+ years. S&P 500 index is almost 8% removed from all-time highs set on October 11, 2007. Currently, the index is at short-term buy point between 1440-1420 ranges. If further declines below theses levels, expect further discussions on a potential cycle peak.

Credit Concerns:

Credit risk continues to linger, especially from a fundamental point of view. Select Lenders and Small Cap Banks remain vulnerable. On technical basis, financials are becoming oversold as optimist step in. Nevertheless, a sharp turnaround in the sector can produce trading profits but not sustainable investment ideas. Not to mention, that some companies are facing severe financial crisis which have yet to be disclosed. Finally, policy-makers intervention can be a threat for those holding short positions.

Macro Review:

In the past few months, commodities rose significantly at a faster pace while the Dollar decelerated into all-time lows. Clearly, this is a reflection of a multi-year cycle, where investors continue to shift from paper assets to hard assets. At this point, Crude ($98), and Gold ($840) are key resistance levels. Also, watch for a recovery for the DXY (Dollar) at recent lows $74.98. Bottom-line: These relationships continue to dominate investor behavior and are reaching vital inflection points.

STOCK SPECIFIC:

Communications:

T (AT&T): Wireless revenues remain solid as company continues to generate earning growth. Stock presents attractive entry points near $39.

Technology:

SWKS (Skyworks Solutions): Uptrend intact in the past 12 months. Overall fundamentals are solid, as profit margins continue to improve. Expect consolidations and accumulate between $8-9 range.

ORCL (Oracle): Deeply oversold as stock is holding above support at $20. Despite investor anxiety on slowing IT spending, relative strength is intact.

PAYX (Paychex): Following a 4+ month of price decline, stock is nearing at a buy point at $38.

PLT (Plantronics): Appealing entry point near $26 range. Product demand expected to receive positive response in Europe and a play on office wireless growth.

HTCH (Hutchinson Tech): Long-term technical outlook is rather tempting for buyers. Last week, company confirmed its solid earnings and promising outlook create a buying opportunity as trend continues to emerge.

Healthcare:

JNJ (Johnson & Johnson): Illustrating further signs of sustainable upside move. Accumulate on pullbacks near $66.

CVTX (CV Therapeutics): Bottoming at current levels near $9. Companies top product showcasing positive sales outlook.

Consumer Staples:

ADM (Archer Daniels): Investor demand for agricultural commodities should bode well for the stock. Accumulate on pullbacks with $35 as a key support level.

Market Review: 11-12-2007

Weekly Results:

S&P 500 -3.6%, NASDAQ -6.41%, DJIA -4.01% and MSCI Emerging Markets -3.28%

Last week, sellers took full charge driving indexes lower while increasing "fear" in the marketplace. S&P 500 marked its all-time highs on October 11. Since that period, the index has given up its gains and now is back to August levels. Of course, market indexes were overbought following a strong upside move from summer lows.

Despite anxious reactions and growing uncertainty there are opportunities for long-term investors. A stock specific approach can create buying opportunities on pullbacks. A broad market decline spooked investors primarily by negative news in the Financial Services. At this point, talks of "credit crisis" and a bullish uptrend are poised for short term pauses.

Sentiment:

Fear is taking hold. Clearly, the bearish sentiment rose at a significant pace. For example, AAII Bearish Index rose by 41% during the heavy week of sell-offs. Also, Volatility climbed by 23% as the VIX (CBOE Volatility Index) reached 28.50.

Clearly, there are downside catalysts such as slowing economy, weak consumer spending and yet, the further unraveling of financial services. Not to mention, escalating macro concerns froma weaker Dollar to uncontrollable geopolitical events. All these factors contribute for headline materials but don't necessarily resolve the challenges for those seeking profitable investments.

Looking ahead:

Given an increase in selling pressure, some value is being heavily discounted. Especially, in areas not related to Energy, China, and Emerging markets. For example, neglected groups in the US such as Communication, Networkers, Telco and Media can provide bargains for those willing to jump in early. Similarly, from a sector basis, Healthcare can offer sustainable opportunity for a 1-2 year range.

Credit Risks:

Credit crisis continues to linger and more downside/bad news is not out of the question. The weakness in Financials has materialized this year as participants agree that this cycle is topping. Some lenders and banks are bound to face fundamental pressure. Intervention by policymakers along with short-term bounces are not out of the question. Nonetheless, expect stabilization in investor sentiment and fundamentals especially at this point of the business cycle.

MACRO LEVELS:

Crude: Extended in the near-term with resistance at $98.10. The commodity is up more than 40% since August 22 lows.

Gold: Few points away from all-time highs reached in 1980. Gold is far removed from its 200 day moving average. (21%), which suggests sharp short-term declines.

US 10 Year Yield: Approaching key support level at 4.20%. Attempting to bottom after a 20% decline from June highs. Similarly, Yields declined sharply in the second half of 2006 and bottomed in the fourth quarter. Let's see if a similar pattern develops at current levels.

US Dollar (DXY): Yet again all-time lows reached on Friday. Downtrend intact with no signs of bottoming.

Natural Gas: Pausing after a strong run from $5.50 to $8.66. Long-term data suggests a favorable upside potential.

STOCK SPECIFIC IDEAS:

Consumer Staples:

ADM (Archer Daniels): Strength developing from recent lows. Companies strength in corn and soybean processing should offer promising returns. Accumulate near $38-36 range.

Healthcare:

CVTX (CV Therapeutics): Sales growth combined with cost cutting sets the stage for positive moves. Growing product mix can elevate revenues for next year. Strong buy point near $9 level.

Media:

DTV (Direct TV): Leadership intact. Add on any near-term pullbacks. Notably, growth in Latin America along with expanding cost structure can create further growth.

Technology:

HTCH (Hutchinson Tech): Positive fundamentals given recent margin improvements and expectations of a profitable quarter. (Q4). Trend remains positive above $25.

BRCM (Broadcom): Deeply oversold and approaching key support levels at $30. Attractive entry point given its promising fundamentals. Although stock recently disappointed, important to note that revenue is growing and core business remains solid.

FFIV (F5 Networks): Buy point near $32-34. Global growth intact as reflected in recent earnings and appealing product cycle heading into 2008.

Market Review - 11/05/2007

There are numerous headline concerns ranging from high commodity prices to slowing economy and pessimism fueled by credit concerns. Similarly, there is a growing fear in the marketplace. Plenty of pundits continue to address worrisome issues. At one point this week, the ratio of analyst downgrade to upgrade stood at 3:1. Put/Call ratio increased as well, signaling an increase in negative sentiment.

Weakness in Financials, once again remains a dominant theme among participants. Following tremendous strength in the past few years, the current environment is least favorable from a business cycle perspective. Clearly, the sector underperformed and fundamentals are deteriorating. Although additional bad news lingers, stocks are becoming deeply oversold in the near-term.

Federal Reserve rate cuts sparked only a short-lived market reaction. Interestingly, the rate cut announcement received a tame response. Let's not forget, the $41 billion temporary reserve added to the US banking system last Thursday. Yet another example of Federal Reserves attempt to create liquidity with hopes of stabilizing credit risks.

Finally, most institutions closed their books on the year and sold their losing positions for tax purposes. Perhaps, this contributed to additional selling pressure resulting in a negative finish for the broader markets. (S&P -1.67%, Dow Jones -1.53% and Russell 2000 -2.87%).

Investment Strategy:

For those seeking to protect or grow wealth in the stock market, a systematic approach is much needed. At least one way to examine ideas is to review actionable global themes. Another approach is to make stock specific bets despite an eventful macro backdrop. Ideally, a balance of both can produce fruitful returns. In addition, investor psychology, seasonality and momentum are vital as well. The challenge is to construct a winning portfolio given the growing variables in the marketplace. On that note, here is a chart of sector allocation and stock specific ideas examined below.

Long: Technology (35%) and Healthcare (25%). Short: Financials (15%) and Energy (15%).

Technology:

Sector continues to work while displaying market leadership. Large Cap Growth Technology is an area of interest. Fundamentals remain strong for companies such as Microsoft, Cisco, Oracle and Intel. This sets a positive tone attracting investors towards the sector. These specific companies present further upside potential especially for longer-term investors. Of course, Google, Research In Motion and Apple have been the big winners, but at this point expect participation from other areas.

For broad sector exposure, consider the following funds:

QQQQ (Nasdaq 100 Trust Shares), IGM (Goldman Sachs Technology Index), XLK (S&P Technology),and MTK (Morgan Stanley Technology Index).

Technology Ideas:

SWKS (Skyworks): Improving margins and emerging strength bode well for this wireless chip maker. Buy point near $8.50-9 levels.

FFIV (F5 Networks): Appealing entry point above $34. Company should benefit from increasing demand for its advanced products as we approach an upgrade cycle in technology.

FDRY (Foundry Networks): After consolidating for 6+ years, company is benefiting from an increasing need for greater bandwidth. As a leader in its market, FDRY presents a sustainable growth. Look for near-term pullbacks as opportunity to buy.

Healthcare:

On a relative basis, several opportunities for those seeking a turn around in Pharmaceutical companies. For example, PPH (Pharmaceutical Holders Trust) is up 21% after bottoming in the summer of 2006. Also, on a stock specific basis, select names in Biotech and Medical Technology are favorable.

Healthcare Ideas:

SSRX (3SBIO Inc): A leading Chinese biotech company that remains profitable and a leader in its group. Given the 20% industry growth, 3SBIO presents attractive entry point despite near-term volatility.

ECLP (Eclipsys Corp): Attractive earnings and revenue growth for this healthcare software provider. Stabling around $25 and positive momentum remains intact.

CVTX (CV Therapeutics): Multi-month consolidation around $9-10 range. Promising product mix should contribute for an upside move from current levels.

Consumer Staples:

CQB (Chiquita Brands): Bottoming between $16-18 range. Timely entry point given managements revamped plans.

Market Observations - 10-29-2007

Weekly Results:

S&P +2.1%, NASDAQ +2.9%, Dow Jones +2.1 % Russell 2000 +2.8%, and MSCI Emerging Markets +4.95%.

Investment tactics:

Large cap growth remains a favorable area in US markets. Primarily, driven by Technology and Healthcare. At the same time, most 'value' related stocks are mostly in the struggling financial services. Participants are seeking new growth areas, as appetites shift away from commodity based and emerging markets themes. In the upcoming months, expect higher investor demand for quality and 'debt-free' companies.

In looking ahead, stock specific selection is critical at times of uncertainty. Theme based investment is relatively difficult given the various data points from earnings season and speculation on economic outlook. Nevertheless, long-term cycle favors a rotation into Technology, select Healthcare and "cash rich" companies.

Sentiment:

Overall there is general fear in the marketplace and signs of selling pressure. Relatively less fear than the previous week as put/call ratio declined to .81 and VIX (Volatility index) fell 14%. Meanwhile, percentage of bears, according to AAII rose by 35%. Mixed data indeed, but mostly bearish.

Credit Risks:

Financial companies unraveled additional weakness on their underlying balance sheets. Most news seems priced-in although fundamental weakness is difficult to ignore. That said, year-to-date shorting Financials has been profitable. At this point, an oversold bounce appears inevitable for most groups in the sector. Pending interest rate cuts can fuel a temporary recovery but sustainability remains doubtful.

Macro Takeaway:

In short, hard assets maintain their upside move as paper assets decline.

This showcases the multi-year trend of higher crude prices and lower US dollar. And in recent weeks, this trend has widened. An inverse relationship, that plays a significant role in global markets. Any directional shift should create volatility, since consensus strongly agrees with current behaviors. Although, betting against rising crude/lower dollar has not paid-off throughout the year, the odds of a reversal are yet favorable.

In terms of paper assets, Dollar recovery has not materialized. Expect early signs of bottoming as we approach year-end. A catalyst for a recovering Dollar includes actions from the European Central Banks. Primarily, a slowing economy in Europe can lower interest rates in the region. Eventually, this benefits the US Dollar on a relative basis as the Euro declines. Rather early but worth watching.

Macro Levels:

Crude: Next key resistance level is $92. That's the intra-day high from Friday. Momentum is extended from a near and long term view. Support levels include $85, then $80 (near 50 day moving average).

Chakib Khelil, Algerian energy minister, said: "The high prices are not coming from a lack of production." Venezuela echoed those comments. Financial Times 10-26-2007.

Gold: Stretched in the short-term. Next resistance is $850, all-time highs reached in 1980.

US 10 Year Yield: Attempting to bottom at 4.40%. Current trading range is in-line, with 4 + year moving average.

S&P 500: Holding above 1500 level, as index attempting to stabilize. Few points removed from all-time highs set on October 11 (1576). Expect consolidation between 1500-1540.

FXI (China 25 Index): October 17^th highs, ($218) is a key level for the index. Upside momentum is weakening. Index attempts to stabilize and retrace towards "rational" levels.

EEM (MSCI Emerging Markets Fund): Since August lows, index has spiked above 45%. Long-term data appears extended as optimism continues.

Stock Specific:

Healthcare:

MATK (Martek Bio): Bottoming with upside promises. Increasing revenue and launch of new products (includes a product to lower cholesterol) should continue the upside momentum. Technically, charts suggest an attractive entry point between $28-30 range.

CVTX (CV Therapeutics): Bottoming around $9, following a 3+ month consolidation.

SSRX (3SBIO): Leading Chinese biotech and company continues to increase its market share. Attractive entry point at $16.

Technology:

PAY ( VeriFone Inc): Solid fundamentals with positive momentum. Company continues to expand its leadership in wireless payment services.

MOT (Motorola): Showing strength following a 25% gain in the past three months. Strong base around $18.50/18. As analyst raise targets, shares remain attractive for next few quarters.

ORCL (Oracle): Appealing entry point near $20-22 range. Strong fundamentals with growth in software sales and revenues.

Consumer Staples:

CQB (Chiquita Brands): An agricultural theme that's poised for a turnaround. Buy point between $14-18 range and showing signs of bottoming.

Media:

DTV (Direct TV): Leadership intact in an emerging sector. Breaking out above $26 with appealing fundamentals.

Telecommunications:

VZ: (Verizon): Holding above $44, uptrend momentum in place. Any price declines can create buying opportunity.

Market View – October 22, 2007

Big Picture

The political climate combined with decisions by policy makers continues to heavily impact global markets. For example, recent geopolitical events sparked further upside move in Crude prices. Other policy related issues include: weaker dollar and upcoming actions by the Federal Reserve.

These factors can serve as downside catalyst especially at this junction of a bull market. Similar to July, markets made new highs and now are beginning to decline. Once again, 'credit risk' remains a downside catalyst while negatively impacting the financial services. Last week, companies in Financials continued to unravel fundamental weakness.

As we near key inflection points, fear sharply sets in, especially with cycle winners trading at escalated levels. Many global indexes continue to trade near overbought levels. Chinese markets are reaching "bubble –like" levels, which begs the question of a potential top. Even for aggressive risk takers, finding entry points with rational justification is becoming difficult. At the same time, there are opportunities to enter in "neglected" and undervalued areas.

Sentiment

Plenty of stock specific events especially with earning season. Meanwhile, the broad markets continue to witness rise in volatility. Noticeably, VIX (volatility index) rose by 29% this week as participants took profits in search of safety. Evidently, percentage of bulls dropped by 23% (AAII). Likewise, the put/call ratio reached 1.13 signifying overly pessimistic outlook.

Credit Risks

As seen in the summer months, credit risk is resurfacing and driving financials lower. Lenders and smaller Banks remain vulnerable based on weaker fundamentals and unfavorable business cycle.

Investment Strategy:

Technology: Select groups are favorable from a rotational perspective. Most stocks appear stretched in the near-term. Nevertheless, near-term declines can offer bargains. Given the sectors make up, stock-specific attributes are vital when seeking ideas.

Long Ideas: MOT (Motorola), BRCM (Broadcom), AMD (Advance Micro), and CSC (Computer Sciences).

Healthcare: Pharma is a theme that has underperformed in the past cycle. For value seekers several names present a timely purchase point. For example, PPH (Pharmaceutical Etf) is attempting to bottom at current levels ($78-80).

Long Ideas: CVTX (CV Therapeutics), IMGN (Immunogen Inc.) and WAT (Waters).

Financials:

Although selling appears overdone, use recoveries as shorting opportunity.

Short Ideas: DSL (Downey Financials), FED (First Federal), WFSL (Washington Federal) and AF (Astoria Financial).

Macro Levels:

Crude: Once again, making new highs. $90 remains a key resistance level. For those keeping score, the commodity has soared over 739% since lows in December 1998 ($10 a barrel). At this point, beyond supply/demand, the index is reacting more on speculation and geopolitical factors.

Gold: Reaccelerating with next key resistance at $850. Extended and poised for pullbacks. Next key support levels include: $755 and $730.

US 10 Year Yield: Attempting to bottom at current levels. Slightly below 4.40% a key support level in the past few years.

S&P 500: After peaking at 1555 in July, recently index paused at 1576. Intermediate-term data suggests further downside between 1500-1450 ranges given the overbought conditions.

FXI (China 25 Index): Due for pullbacks especially following a 90%+ gains since August 2007 lows. Index remains far removed from 50 day ($163.15). Overall, watch for sharper declines in the near-term.

EEM (MSCI Emerging Markets Fund): Extended momentum after a 3+ month surge. Watch for pullbacks near $140-144.

Weekly Market Update – October 15, 2007

Similar to days in June, markets are jumping out to new highs on a global scale. It is difficult to find major sellers in this atmosphere. A period in which, Central Banks appear to 'restore' confidence, and a growing risk appetite especially among participants in emerging markets. Perhaps, July briefly reminded us about existing credit risks. While it seems like February was a long time ago, when speculative markets sharply declined. Nevertheless, the uptrend remains intact. At the same time, the risk/reward for new entry points remains rather questionable.

Sentiment:

Volatility is relatively tame since mid August. But last week, VIX rose 4% signifying hints of trend reversal. Upcoming option expiration at weeks-end can create further turbulence in market behavior. Finally, earnings season should provide a gauge on investors expectation and overall sentiment at this junction of the business cycle.

Investment Approach:

Continue to favor technology based themes especially related to communication, media, networking and telecommunication. Increase in Wall St financing should boost sector higher and expect more deals given attractive valuations. That said, stock specific selection is critical since some parts of Technology are not as "cheap".

On a selective basis, Healthcare groups offer attractive entry points. Big Pharmaceutical companies are attempting to increase their pipeline which benefits smaller/specialty based companies. Similar to Technology, expect deals in upcoming quarters.

Meanwhile, the fundamental in Financials are vulnerable. On pending market pullbacks, lenders and REITS are poised to lead downside moves. Also, surprises in Federal Reserve actions and lower than expected numbers can spark more selling across the sector.

Macro Levels:

Crude: Hovering around all-time highs. Two key near-term resistance levels: $84.05 – intraday highs from October 12 and $83.76 reached on September 28. Otherwise, uptrend remains intact.

Gold: Making cycle highs and $100 removed from record highs reached in March 1980 at $850.

US 10 Year Yield: Attempting to bottom. Early indication of a bottom at 4.40%. And yet, far removed from yearly highs of 5.32%.

S&P 500: Once again, registered all-time highs this week. Investors watch for 1555 level as a key support level. (July highs)

FXI (China 25 Index): Fund is up a remarkable 82% since August 16 lows. Plenty of acceleration as momentum players continues to deploy capital, despite overbought conditions. Perhaps, this can explain comments from Alan Greenspan that the Chinese "economy might be overheating".

EEM (MSCI Emerging Markets Fund): Similarly, index is making all-time highs. Not surprising given the funds top holdings are in Chinese equity market. (15% of overall fund).

TECHNOLOGY:

MOT (Motorola): Despite recent run-up, stock offers buying opportunity on pullbacks. First support level near $18 which is near its 200 day moving average.

BRCM (Broadcom): Presents investment opportunity especially with growth potential in digital TV and multi-media. Bottoming long-term technical profile as a breakout above $35, displayed strength among buyers.

TELCOMMUNICATION:

VZ (Verizon): Solid growth potential as positive trend continues. After bottoming in August 2006, stock is setting up for sustainable upside move.

MEDIA:

DTV (Direct TV): Breaking out from multi-month trading range. ($22-26) Attractive entry point for long-term investors. Growth in HD TV, strength in revenue, and upside potential in Latin America sets up a promising outlook.

HEALTHCARE:

CBST (Cubist): Appealing for buyers above $21. Product development in anti-infectious drugs should continue to improve.

MATK (Martek): Improving fundamentals, with positive near-term momentum. Accumulate on pullbacks and a buy idea in the Small Cap space.

Dear Readers:

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

Market Review – October 8, 2007

Market Review – October 8, 2007

The S&P 500 has erased losses from this summer and currently trading near all-time highs. Volatility continues to decline as the bullish uptrend remains in tact. Despite negative news from Financial companies, the US markets closed positive on the week. Perhaps, investors have "priced in" concerns over credit risks. Nevertheless, broad markets are overbought in the near-term.

For the upcoming weeks, look for consolidations, especially as we enter a heavy part of the earnings season. There is plenty of noise ahead as participants speculate on Fed cuts, "recession" and broad market peak.

In terms of managing portfolio, balanced exposure seems appropriate for positioning towards year-end. As commodity related themes retrace from escalated levels, other areas in the market place are worth a look. In looking ahead, most Technology and Healthcare themes are poised to outperform.

Sector allocation chart below.

Technology:

As the sector makes multi-year highs, positive trend remains in tact and pullbacks offer buying opportunities. Investment bankers continue to finance M&A activities in the sector. At the same time, valuations are relatively attractive, favoring upside moves.

BRCM (Broadcom): Demonstrating further strength in the last 3+ months. Holding above key levels and a sustainable idea. Additional bullish include, improving long-term fundamentals along with investments in growth related areas.

FFIV (F5 Networks): Add on pullbacks closer to $40. Also, strength in core business and increasing demand growth favor additional upside move.

NICE (Nice-Systems): Holding above $36. Appealing entry point at these levels.

FDRY (Foundry Networks) Stretched in the near-term but strong relative strength since summer 2006. Use weakness to accumulate.

PAY (VeriFone Inc): Long term uptrend in tact for the electronic payment company. Accumulate closer to $40, given the solid fundamentals and growth potential.

MOT (Motorola): From an intermediate-term view, early indications of a bottom. At this point, consolidation ahead between $18-20 range. Company is poised for a turnaround following a weak 2007. Improving product mix along with pleasing valuations create buying opportunities.

Media:

DTV (Direct TV): Breaking out from multi-month consolidation. Key support at $22. Further expansion in consumer related space presents a bullish outlook.

Healthcare:

CBST (Cubist Pharma): Bouncing from key support level at $21. Early stages of a recovery as stock attempts to breakout of 2+ year trading range between $24-26.

MATK (Martek Bio): Bottoming at current levels and deeply oversold from a long-term standpoint. Opportunistic entry point especially with growth in sales and expanding margins.

Industrials:

LYV (Live Nation): Holding above key support $20. Add on any pullbacks as company continues to expand in the concert promotion business.

CAL (Continental Airline): Recovering from oversold levels. Also, a decline in Crude prices can lift shares of airline stocks.

Financials:

Despite recent recoveries group is relatively vulnerable. Favor insurance related themes over REITS and Lenders. At this point, sector presents more of a trading rather than investing opportunities. Plus, any near-term Fed cuts should not alleviate weakness at this stage of the business cycle.

MACRO INDICATORS:

Crude: Holding above $80, while pullbacks ahead from elevated levels. Major resistance at $83.76.

Gold: Uptrend in tact. $720 near-term support with pending pullbacks ahead.

Natural Gas: Consolidating between $6-8 range. Upward bias at current levels for months ahead.

US 10 Year Yield: Stabilizing near 4.60% range with major support at 4.40%.

Dollar (DXY): Early signs of trend reversal. Attempting to hold above all time lows $77.66 reached on September 28, 2007.

Emerging Markets (EEM): Due for near-term pullbacks. Key resistance at $157.77.

S&P 500: Overbought in the near-term. Further consolidation between 1540-1500.

Market Thoughts: October 1, 2007

Quarter End:

As the third quarter comes to an end, for the most part macro themes remain intact. A historical quarter where Crude reached all time highs, dollar broke down to all-time lows and further strength in emerging markets. Not to mention, a volatile July/August, aggressive Federal Reserve tactics and deteriorating credit conditions. In short, plenty of action.

Q3 Results: S&P 500 +1.9%, Nasdaq +4% and Dow + 3.8%.

Looking ahead:

In looking ahead, the role of the Federal Reserve is a topic of heavy interest among participants. Despite declining volatility (VIX declined 54% since August 16) in recent weeks, there are uncertainties yet to be resolved. At the same time, commodity prices are overdue for pullbacks and Chinese stock market is extremely overbought. Nevertheless, there are opportunities for near-term traders and value for investors.

As the trading rule goes: Don't call tops or bottoms. Now, that's challenging for those trading Crude, Chinese markets and US dollar. In terms of Crude and China, both themes have worked despite several overbought signals in 2007. Since 2002, the Dollar is in a clear downtrend. Currently, the Dollar Index (DXY) is at new lows and no signs of promising recoveries.

At this point, betting on trend reversal has been a risky approach for quarterly ideas. However, the odds for reversals are increasing as global themes await external catalysts.

MACRO REVIEW:

Crude: Trading 2.6% below all-time highs set on September 28, 2007. Major support at $80 followed by $75. Overbought in the near-term.

Gold: Strength continues with positive momentum. 14% removed from historical highs (850 March 1980).

US 10 Year Yield : Attempting to stabilize between 4.40%-4.60%. Short-term downtrend in place since peaking at 5.32% on June 13, 2007.

DXY (US Dollar Index): Breaking below all-time lows. Since Q1 2006, index has dropped 16% and no major signs of recovery.

S&P 500: Extended in the near-term. Expect further consolidation between 1480-1520.

EEM (MSCI Emerging Markets): Trading near all-time highs. ETF is up 357% since inception in April 2003.

Financials:

Financials continue to underperform as the Fed attempts to slow the downtrend. Yet again, can't fight the Fed, especially following aggressive rate cuts. That said, the current business cycle is less favorable, as fundamentals remain vulnerable. From a group standpoint, favor Insurance over Lenders and REITS.

Earnings Season:

In addition to macro factors, we are approaching earnings season. A period, that should set investors tone for the rest of the year. In the next 4-6 weeks, look for broad market consolidations as focus shifts to stock specific events.

Group/ Stock Review:

Telecom:

DOX (Amdocs ) Attempting to bottom between $34-37 range. Accumulate on weakness.

VZ (Verizon): Attractive entry point as stock continues its strength. Add on pullbacks with major support at $42.

Technology

For those seeking alternative ideas to energy related themes, there are areas in Technology offering attractive entry points.

NSM (National Semi): Holding above key support at $24. Poised for an upside surprise given recent weakness.

SNDK (Sandisk Corp): Continues to consolidate in the past 3 months. Appealing entry point given growing demand for flash cards and company focus on high margin products. Buying opportunity between $50-55.

Healthcare:

ABI (Applied Biosystems): Uptrend intact. Extended in the near-term. Buying opportunity between $31-33 range. Positive fundamentals with new product launch and projected revenue growth.

MATK (Martek Bio): Bottoming at current levels. Improving sales and expanding margins setting up for an upside move.

Staples:

WFMI (Whole Foods Markets): Bottoming since July 27 lows ($36). Following a 2 year downtrend, company is showing early signs of recovery.