THE BIG PICTURE: (secular trend review)

http://www.pring.com/articles/return.pdf

• Average bear market last on average 18 months with a price loss of an average 28%.
• A projected 28% loss = SPX at 940.
• S&P has not broke below its 12 month MVA- which should confirm the end of leadership intact.
• Market should play catch up on the downside.

Basically, Pring argues that the multi-decade peak in optimism that occurred in 2000 has not yet been worked off. He writes: "These types of secular market turning points have always been followed by massive bear markets like the one that developed in 1929, or multi-year trading ranges as witnessed in the 1900/ 1921 and 1966/81 periods."

But Pring does add this caveat: "It's important to understand that while the position of the long-term indicators looks extremely ominous from a primary trend point of view, they have not been confirmed with a negative 12-month moving average crossover by the S&P [500]. And until that happened, assume the primary uptrend is intact."

Pring looks monthly closing prices, and right now he calculates the 12-month moving average will be about 1255 at month's end.

Graham was a value investor. He looked for well-run companies with low-priced stocks. Among his selection criteria:

* The company must not be a financial or technology concern. Graham favored more basic industry-type companies. Followers of Buffett, who know of his aversion to technology companies, now see where that aversion originated.

* The company needs annual revenue of at least $340 million. He wanted the predictability of developed companies, not young, developing ones.

* A current ratio (current assets divided by current liabilities) of 2 or more. This is a measure of liquidity. The more liquid a company is, the less likely it is to get into financial trouble.

* For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). This too is a measure of liquidity.

* Companies must increase their earnings per share by at least 30% over a ten-year period, and EPS must not have been negative for any year within the last five years. These are companies that have proved themselves over time.

* The P/E ratio, based on the greater of the current P/E or the P/E using average earnings over the last three fiscal years, must not exceed 15. Stocks with moderate P/Es are more defensive investments by nature.

* The price-to-book ratio multiplied by the P/E cannot be greater than 22. Graham liked tangible assets, and this is a measure of them balanced against the stock price

2nd quarter close

Looking for gold related and brokers offering some trading oppertunities here.

Semi and Biotech might be themes worth revisiting down the road.

Upcomming Fed meeting and quarter end for funds can send mixed messages.

Stock specfic themes are critical given uncertaintiy of market direction and lack of trend.

Interested to see how to postion portfolios for First 2 weeks in July.

Quick Market Summary

More correction to continue with support closer to October lows
Various daily momentum signals that can be misleading to the general theme despite trading opportunity.
Earnings can trigger or shift the general trend but from technical standpoint correction should continue.
Shorting opportunities persist on strength until a significant signs of a recovery.

Spikes and Turnarounds

Very violtile day as seen by the spikes in the VIX - highest reading in this sell off. High around 20. A shift in the market appearing to
Argument remains weather a low vs the low.-- but regardless a rollercoster of a ride on June 8th. A guideness for resitance level: 50 day avg as for most names in the market.
Plenty of trading oppertunites especially in names which have significantly corrected in this cycle. OSX and HUI. Near-term buy cycles beging to
Commodity related themes and other cyclical places. Also other higher beta related themes that can see a bounce include biotech, semis and brokers.
Maintain tight stops, to manage violitily by narrowing timeframe.

Growth areas in future

Areas and groups to explore in next easing cycle:

alternative energy, water purification, genomics, nanotechnology, voice recognition, homeland security, China, emerging markets and pandemic treatments.

Gold vs S&P relative performance chart mirrors closely the US 10 Year trasury yeild performance.

Therefore, higher gold = higher rates = lower spx returns.

Plenty of Noise

A weak open despite the weak econ #'s which were assumed to drive markets higher.

Tough read here since most shorts have declined significantly. And shorting when the odds are not stack with you is rather a ballzy bet.
Semi's have declined about 18% avg. in line with the may corrections. And obsiouly commdity related names.

Here are short ideas from few weeks back outlined with ranges. Again ballzy to step in as a short.


BEN: short in tact between 90-80 range. Asset Manager have had a huge surge in the last 3+ year and near-term have shown weakness....would trade around this short. (recent range $104-90)
TEVA: a short worth adding to on any strength. Strong volume break down ...setting up for intermediate-term weakness. Further correction to continue. (45-37)
WDC: short: 21.43 resistance using support around 18. and Add to short if breakdown below 18. ($24-18 range).
BRCM: A short worth coming back to as it is reaching overdone levels. Add to short on any strength. ($50-36 range correction).
RIMM: $90-70 range offered a great short opportunity. watch closer to $70 for potential bounce but intermediate-term momentum slowing.
not timely here but watch and add.

Resourceful web links

http://www.nytimes.com/packages/khtml/2006/04/02/business/20060402_SECTOR_GRAPHIC.html?adxnnl=1&adxnnlx=1147725071-Slhe5YiMo/fiDD3uxFl4cQ
http://insider.thomsonfn.com/tfn/stocks.asp?imodule=seasonality&ticker=wpp&ttype=A
http://news.morningstar.com/fundReturns/CategoryReturns.html
http://www.adrbny.com/adr_index_landing.jsp
http://biz.yahoo.com/p/fam/fidelity_group.html
http://www.digitimes.com/

June 1, 2006

May is over! Data anticipation awaits. Early bets and tough read here.
Stradegy: will follow up. Pharma, Telco and Energy might be sectors of interest. Revisiting retail in the next 2 quarters.


Retail. Good #'s sector showing some life today

....OSX making a run after sluggish start.....Tech some sort of a recovery at this point to stock specific at this point not much actiobable.
Wondering about the metals/golds if a major buying oppertunity here sensing too much fear but strggling to justify other side of the trade. Not impressed by gold action.

Pharma: showing some life today maybe month start bets. A long-term theme that might be failry valued and oversold enought to take the risk. Biotech is very mixed. but index net is negative. Healthcare underperforamnce being examined.

Resourses:

http://www.nytimes.com/packages/khtml/2006/04/02/business/20060402_SECTOR_GRAPHIC.html?adxnnl=1&adxnnlx=1147725071-Slhe5YiMo/fiDD3uxFl4cQ
http://insider.thomsonfn.com/tfn/stocks.asp?imodule=seasonality&ticker=wpp&ttype=A
http://news.morningstar.com/fundReturns/CategoryReturns.html
http://www.adrbny.com/adr_index_landing.jsp
http://biz.yahoo.com/p/fam/fidelity_group.html
http://www.digitimes.com/

Portfolio Breakdown....

Holiday weekend appraoches while a close the month of may Econ Noise behind us.

I am sure longs are clearly fed up with the action and rather allocate energy in non-market realted activities.

Consider adding to shorts if the S&P breaks below its 200 day mva, setting off a panic. (more points on this attached below) Seeing a lot of oversold stocks once again, -- a usual behaviour following a signifigant sell off.

I continue to notice the stregth of low beta names especially in Meda/Adevertisment and Consumer Staples area.

Some names include OMC,TKLC, NCR , TKLC, INTU, CKR, and WMT --just to name a few.

Now high beta names remain oversold once again but no compllenig reason to rush to short or even accumulate at this point.


Stradegy: Slice the market in half between high and low beta. Trade high beta ; Invest in low beta.

Trade around beta postions with shorter-time frame by identifing quick exit/entry points. Mostly, trading bias on the short-side but avoid building intermidate-term postions in high beta names without fundemental catalyst.

Build long postions in attractive names in low beta areas. From 6-7 low beta groups indetify groups that are working and find the leader in that space.


50% trading, 50 % investing portfolio. short trades and long investments. As beta names become extremly oversold intermidate-term then we can change current stradegy.

Four questions to ask for portfolio postioning:

Long High Beta: 25%
Short High Beta: 25%
Long Low Beta: 50%
Short High Beta: 0%

Long Trade in Tech and Deep Cyclics:

Long Trade in Tech and Deep Cyclics:

Tech:
NVDA : THQI, QSII, PALM- 200 day avg. (late recovery attempt)
Basic Materials.
FCX, at 200, NX-around 38 , GGB, around 200, TXI around 50 day...NUE-showing some life already.

Industrials:

EXP; IVAX around 20 support, ROK, HON, USG-towards 90.

Energy:
MVK, EOG at support of 60, SUN sp. 65, VLO abv 200 day.RDC around 200 day.

Selling pressure continues here....Econ data still awaits but overall tought to go long for a high risk buy.
Looking to short more in tech and commodity related sectors.

Discipline is so vital at this point.

A. Don't be suckered into daily buys. (as exhibited in recent days).
B. Coming back to the shorts on any recovery rally. (not forgetting the int-term/4 year cycle).

At this point long ideas should be low-beta:

Staples : GIS, CPB : attractive names as low beta defensive themes continues to be of high interest.

An if the stock market fails to be an attractive vice, perhaps consider other vices like Tobbaco, On-line gaming and Hotel/Casinos.
Beer Company: SAM- attractive chart, STZ: Beverage/wine spirit, and in Tobboca MO.-- Names to add to watchlist.

Healthcare: continue to favor pharma over most biotech at this point. SGP, BMY--low beta longs to consider.
Media: CCU: an attractive name in consumer cyclics as a defensive theme. (while XMSR is getting pounded, old school media might remain attractive in the near-term).

SOX: is below 2 staderd deviation might arouse some buyers but watch out for sell off in the am. But no need to jump in this buying oppertinity. Same can be said about Mid and Small Cap index.
Brokers: pumbled today as ET, SCHW contines a slide. Deep cyclicals continue the downslide and just worth avoiding as an investment and bet the house money for trades in that area.
Energy: rather avoid the attempted recovery buy. OSX trying to recover late-day with a resistance level at 205 range.


A Great Market prespective : John P. Hussman, Ph.D.


Similarly, market risk tends to be poorly rewarded when market valuations are rich and interest rates are rising. Since 1950, the S&P 500 has achieved total returns averaging just 3.50% annually during periods when the S&P 500 price/peak earnings ratio was above 15 and both 3-month T-bill yields and 10-year Treasury yields were above their levels of 6 months earlier. Again, there are a variety of ways to refine this result, but note that anytime the total return on the S&P 500 is less than risk-free interest rates, a hedged investment position increases overall returns (since hedging instruments are priced to include implied interest).
The "canonical" market peak typically features rich valuations, rising interest rates, often a reasonably extended and "flattish" period where, despite marginal new highs, momentum has gradually faded while internal divergences have widened, and finally, an abrupt reversal in leadership, from a preponderance of new highs over new lows (both generally large in number) to a preponderance of new lows over new highs, with the reversal often occurring over a period of just a week or two.

QUESTIONS BUT NO ANSWER

Lacking answers plenty of Questions:

Rather confused by high volatility (as shown by the VIX index). Commodity markets making plenty of noise as the speculations continues.
No need to consider trading until late afternoon or even post econ data reaction.

1. Additional shorts to add specifically in tech?
2. Defensive theme long ideas in Staples and select Healthcare
3. Deep cyclical play the "recovery trade" vs stay on the sidelines.
4. Play more shorts in non-cyclic areas.
Things to contemplate and watch.
Where would it be worthwhile to play a recovery bounce: [TRADE]
Tech/Brokers vs Deep Cyclicals

Where should one be an aggressive short: [LONGER TERM]
Tech/brokers vs.. Deep Cyclicals.
Revisiting the homebuilder/reits.
Consumer discretionary area.

Where should one find "value" in being long: [QUARTERLY BETS]

Staples and very stock specific healthcare.
Staples: CPB, GIS -- as long candidates. Lower beta plays offering defensive strength.

UGLY MARKET

Important to shorten your time frame and reduce positon sizes.

Brutal market with no room for error given the viloility.
Trying to come back to tech shorts here despite oversold levels.
Commodity related : Gold, Metals trying to show some life.-- but very unclear.
NOISE: Econ data friday, holiday weekend comming up as well as month end. Watch and see.

Some trading thoughts 5-23-2006

Not as timely to add to shorts: (although coming back to weak names is a worthwhile consideration). The last 10 days have produce a significant correction amongst market leaders.
S&P continues trading around 200 day mva, as we are reaching oversold territory in various momentum indicators.
Plenty of names reaching a daily buy. Notably the worst performers in the past two weeks might offer the best trading recover. (lead by deep cyclicals).
Put/Call Ratio: (since 5/12/06) Growing number of puts in the market. So fear continues to developed with growing volatility.
5/12/2006
1.27
5/15/2006
1.23
5/16/2006
1.01
5/17/2006
1.52
5/18/2006
1.22
5/19/2006
1.27
5/22/2006
1.21

Names to trade:
Tech trading long: WFR, NVDA and QCOM. -- Strictly trades at this point. (NVDA/WFR)- intermediate-term short candidates have corrected and can provide an upside beta.
Broker long: GS/SCHW: trading recovery/int-term shorts.
Commodity-related: GG/PD.
Not lose perspective: Intermediate-term weakness is not relived from bearish breakdown despite pending oversold bounce.

Think Trades not big bets....May 18

"Success consists of going from failure to failure without loss of enthusiasm."-- Wisdom for the day!


Not timely to add to shorts here since we are too oversold in the near-term.

Not attractive to make a long bets for the next few monthes unless group or stock specific.

Attractive risk/reward continues to be shorting the broader markets; use strength as an opportunity to short.

Plenty of trading opportunities as increasing volatility continues.

Due for bounce....

May 16-

After further sell-off led by mostly by leaders in the commodity-related markets, there are near-term long trading oppertunities. A recovery bounce is only appriate here with deep cyclicals: Especially OSX. There are oppertunites from recent sell offs- but would recommend covering shorts early especially around 10:30.

Would lighten up on tech shorts here, especially names hitting closer/below the 50 and 200 day MVA. (From the short list: RIMM, JNPR, JBL, AMD). Would keep on the watchlist for recovery.May 16-

After further sell-off led by mostly by leaders in the commodity-related markets, there are near-term long trading oppertunities. A recovery bounce is only appriate here with deep cyclicals: Especially OSX. There are oppertunites from recent sell offs- but would recommend covering shorts early especially around 10:30.
Would lighten up on tech shorts here, especially names hitting closer/below the 50 and 200 day MVA. (From the short list: RIMM, JNPR, JBL, AMD). Would keep on the watchlist to revisit the shorts.

Additional tech shorts....

XLNX, LXK, BE, MU and FLEX--now these name offer a better entry point for a short in Tech.

Diatribe on Disipline---Short the weak

Short the weak: a theme that keeps on teaching.

Now that the weak are really weak be patiance and short on stregth.-- It is only natural for names beaten up 3 days in a row to recover.

Can't lose sight of these intermidate-term shorts: RIMM, JNPR, JBL, AMD...etc...

Look bottomline: a quote station and up to the minute news it is all a "slot machine"

We want to hit 20-30% gains not the 1.5% - 3.5 % gains.-- so stress on quality ideas. Forget this one day trash...i am just not good enough for that.

example: NVDA short was a theme not a day -trade idea. I messed it up.

So timeframe is the battle here. we get shook out of trades why???

* Hype: created by News and Trading violtility....that game is for belivers of luck and/ or really special timely trades.

Intermidate-term ideas (long/short) may 12

Intermediate-term Long Ideas

PETM: continues to work add on pullbacks using the 24-32 range.- strong volume building.
SPLS: Solid uptrend intact ..add on any pullbacks. Early signs of leaderhip charactersitcs.
AQNT: attempting to hold in but choppy near-term trading action.



Intermidate-term Short Ideas:

BEN: short in tact between 90-80 range. Asset Manager have had a huge surge in the last 3+ year and near-term have shown weakness....would trade around this short. (recent range $104-90)
TEVA: a short worth adding to on any stregth. Strong volume break down ...setting up for intermidate-term weakness. Further correction to continue. (45-37) WDC: short: 21.43 resitance using support around 18. and Add to short if breakdown below 18. ($24-18 range).
BRCM: A short worth comming back to as it is reaching overdone levels. Add to short on any stregth. ($50-36 range correction).
RIMM: $90-70 range offered a great short oppertunity. watch closer to $70 for potenaial bounce but intermidate-term momentum slowing.
not timely here but watch and add.
JNPR: support around the 16 level, 6 month downtrend continues. a range of $24-17. --not timely here but watch and add.
JBL: Recent range of $43-37 range.-- add on any weakness to the investment shorts. ---not timely here but watch and add.
AMD: $42-30 recent range on any streght come back to the short. Add more to short postion if a break below $29.97

Themes and Market Thoughts 5-11-2006

THEMES TO SHORT :Homebuilders (CTX), REITS (KRC) and select Restaurants (DRI).

Recent Observation:

It has been a difficult bet to short leaders as clearly seen recently. For example in the deep cyclical (industrials, Basic Material and Energy) names like TIE -- as it continues to run and tech like NVDA and WFR not as a crazy run like metal related names but still remains extended.


Investing: (Ideas for 2+ Q)

Media: I hate to be such the value guy but just reporting the facts: CMCSA, (CVC) TRB --some names that have shown life and NYT-- as a recovery name. This is a contrarian ben grahm type of investing but again I rather bet against professional and masses. (Simple attractiveness based on 3+ year of underperformance),

Healtcare is a great area to explore: LLY and BMY. Biotech not getting "any love" recently but while large cap pahrama attempts to bottom. BMET- another name to consider and in small cap MRX.

Staples:

SLE-- despite bad earnings held in a value like play maybe not as beneficial for you.

Basic Material: NON HARD METAL LONG IDEAS: WPP, MOS in the paper related area and DOW and DD other underper to consider in a strong cyclical

Agriculture related themes : PEIX, ADM
Industrials:
Educational stocks like APOL in Large Cap and STRA in small cap.