ICE - Short Idea

Click on chart

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

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

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

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

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

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

Macro Picture:

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

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

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


Actionable -

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

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

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



Tech/ Semi's --

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

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

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

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

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

Mid Feb Update

Macro Outlook:

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

Skepticisms does not hurt:

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

Here is one view on challenging the positive GDP data:

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

Other simple takeaways:

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

Dangerous Terms:

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

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

Point to consider:

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

ACTIONABLE THEMES:

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

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

Sub prime weakness, Key macro levels and Bargain Hunting

Sub prime weakness, Key macro levels and Bargain Hunting

Friday’s close displayed some market weakness and begged the question of a potential correction. Although, plenty of bullish signs with increasing Private Equity deals, A new Hedge fund IPO, and solid earnings from CSCO. Sub-prime related themes tumbled as the truth unfolded.

A Long awaited event and a negative view stated many times on this blog.
In attempt to profit in those theme: AHM and FED – are short ideas that we suggest adding to or consider adding for those introduced to the weakness earlier this week. There is further downside in this space given the optimism of “soft landing” and the lofty expectations among bullish investors. A theme of high interest and continue to see the mispricing and expecting further downside.

Similarly, noticing the homebuilder index (HGX) facing resistance around the 245 range. Following the summer recovery, I am looking for a pause. Mainly, a downward pressure awaits with rising concerns of sub-prime lending and further panic in housing related areas. The group was weak relative to other places in the market for the better part of 2006 and favor to short on any strength.

In terms of searching for quality ideas, primarily focused in Technology names and ways to manage those ideas on pending corrections. I view the broad market slowdown to buy attractive names especially in TMT. Therefore, the search for quality ideas is in full pursuit. The communication, media and other select technology themes is an area of growing interest. Earlier this week, I posted the five ideas to consider with attractive risk/reward. (SWY, LLY, CRA, GMST and TLAB). Despite overbought market corrections, we are seeking quality ideas with relatively attractive downside for the expected reward.

The CSCO theme – an industry leader in a favorite group. It might take a while to get back in, but one should slowly add to long positions. The first leg of an upside move stated in August 2006 where the stock bounced from $17 to $28. Despite the 65%+ move there is further upside ahead. Broad markets appear extended and pausing since early December 2007. Not surprising to see a pause Slowing market after a strong back half of 2006. NASDAQ 100 led the rally versus S&P 500 and might give up few gains in pending correction. The task ahead is to search for bargains and planning ahead.

Looking to add to ADM at current levels. A stock that has been of interest since Q3 2006. Large cap agriculture play that can offer correction shelter and but importantly provide solid annual capital returns.

Despite the cliché of playing ‘alternative energy’ it is worth the risk. Also, ESLR is becoming of interest in addition to other alternative energy plays. In chemical related field DOW and DD – ideas mentioned before and are of interest.

Macro Outlook: US 10year Yield – Facing resistance around 4.80% -- Positive start strong recovery in the first month. Crude – continues to stabilize around $60, any further upside move in my opinion is not worth chasing from an investment perspective. And finally, DXY – facing resistance at 85.50.

Macro edge - expecting a tame recovery in crude prices following recent peak this past summer. Looking beyond the trading upside move back to the $60 level - I view this action as a "dead cat" bounce. Furthermore, the near-term indicators suggest an extended market with a less compelling sustainability story.In addition, the supply argument is priced-in at least in the intermediate-term. Slowing growth in China also weakens the expected demand in commodity prices. At the same time the important takeaway is asking where the previous bullish crude arguments stand today.

Bottom-line - expect further correction before a stronger recovery in crude prices.This macro relief should direct attention to less neglected groups in the marketplace. An additional factor for an increasing interest in TMT -side of the business. Also, important to note the keys in stock selection especially in favored groups. On a regional basis, few European companies are worth a look for upside and growth opportunity. Therefore, in maximizing returns will look into these themes for ideas.

Mkt Update and 5 quality Ideas

Continue to favor technology names : such as TLAB, SONS and NT.

Previous mentioned idea NT – showing signs of strength. Continue to add on this name on any pullbacks.

Crude faces resistance at 60; similarly OSX (oil services) struggling to surpass the 200 level. Overall, looking to short on any strength. Taking a negative view for the first half. Premise based on the oversupply in the marketplace and market has not fully accepted those facts. Finally, many chasing the oversold bounce but I expect one more washout.

5 Money takers Ideas.

SWY:(Market Cap: 15.94 b) A consumer staples play specifically in the food and drug retailer industry. Like the unique exposure into organic food. Street Analysts are not overly bullish in their ratings (5 buys 5 holds and 2 sells).

Despite a strong run in 2006, stock remains attractive. Use pullbacks and trading pauses as buying opportunity. Stock underperformed the broad markets from 2000-2005. Last year SWY picked up momentum as part of a recovery story. Major resistance at $50 - which serves as an upside target. Downside risk closer to $30-32 ranges.

LLY: (Market Cap: 61.83 b) Here is an opportunity to take a stock specific stance with an attractive risk/reward. Most names share a similar long-term chart pattern. LLY stands out because of the attractive risk/reward. $52 risk, and upside $60+. Long-term momentum is positive and timely. Accumulate closer to $52 range. Previous momentum bottoms have strongly correlated with an upside move in price. Given the sector bias in healthcare and pending pharma recovery. This might be a worthwhile system.

CRA: ( Market Cap 1.24 b) Small Cap biotech play. Recovery continues around $16 range. An attractive upside given the stocks is far removed from all-time highs of $276 in 2000. Price strength reflects Improving fundamentals. Setting up for a longer-term recovery. In the past 6 months analysts turned positive with upgrades. Long-term data suggest an attractive reward from deeply oversold levels. Although, recent rally around $16 appears stretched, given the attractiveness of healthcare themes looking to add on pullbacks. CRA stands out as an investment with a 6-9 month target.

GMST: (Market Cap 1.76 b) A media theme. Bottoming from a long-term perspective. Far removed from key support of $20 whiles stock is stabilizing. Recently, stock demonstrated strength by breaking out above $3.40 range this fall. Recently volume building positively on the upside.

Looking for further recovery and growth in the media sector. Also, recent takeout rumors floating including NWS (Newscorp).Regardless, the technical profile showcases a bottoming process and the cycle points to a favorable months ahead. Evident turnaround story taking place,

growing confidence building among investors and a strong argument for being undervalued in its sum-of-the-parts.

TLAB: (Market Cap 4.81 b) Communication Equipment Theme. The bullish argument rests on growth on carrier bandwidth. Currently holding above level $10. Analyst are mixed on the name but mainly neutral/bearish. Looking for improvement in sentiment but importantly downside tested and displayed resilience in the past 3 monthes. There is a takeover rumor as well. Unnecessary pessimism among investors especially in recent quarters. Setting up for a higher reward.

Econ, Healthcare and CRA

Market View:

Plenty of economic data and earnings swamped the street this past week. Overall results were positive. The economy state can be generalized as “good” and that view is shared with many. Mainly, the highlight of optimism showcased a visit from the President at the New York stock combined with strong GDP #. Strength in the economy is not new news but interpretation of reaction is what makes news.

Impact on equity markets: US 10 year yield attempting to hold near-term support of 4.80%. Noticeably, supply should remain the same on the next auction. Therefore, downside pressure awaits but I will continue to hold the view of a recovering 10 year yield for the first quarter. Declines in the near-term are possible but overall trend should depend on fed action/tone during the next meeting. Once again, rates in my view are the key macro factor serving as a catalyst for pending a corrections. Regardless, a quick price monitor does not hurt especially in financials and consumer related space.

Crude: Back to the 60 level, facing heavy resistance. Looking for further strength as opportunity to short especially in the first half of 2007. That is another macro theme of interest that points to short-term trades as opportunity to sell.

Basic Econ takeaway.

Job Market Still Healthy, Wages Outpacing Inflation, Factory Orders Surge, Consumer Confidence Hits 2-year High

Sounds good on the surface.

Overall, positive sentiment and a higher trending market beg the question: Are markets too expensive? First month completed with an uptrend continuation. Turbulance remains steady, violotolty and complacey appreas the same and no major change in sentiment.

A strong recovery by homebuilders and few retailers has me asking on the duration and sustainability. On the mortgage lending side we are seeing decay in NEW (previously mentioned and stock of concern) and NFI have offered a great shorting opportunity.

The New York Times reported last week that “about 2.2 million borrowers that took out sub-prime loans from 1998 to 2006 are likely to lose their homes”. That translates into about 10 million people! But that, of course, is just the beginning of the bloodbath. The real fun begins when the whole, ugly ball-o-corruption starts to unwind and we get an insider's-view of a system that is rotten to the marrow. The housing industry is saturated with fraud; the banks, the mortgage lenders, the Fed and the homeowners themselves have all played a major role in this sordid confidence game.

Investment thesis remains the same and on a weekly basis. Healthcare and Technology along with select consumer remains an area of high interest. While energy (crude) related and financials are least favored. Mortgage related themes continue to be in a downward cycle and seeking opportunity to short. The premise of the thesis relies heavily on sector rotation and a cycle shift that I feel will be reflected in the market place.

Healthcare:

Exploring stock specific names in all groups mainly pharma, med tech and biotech.

CRA: Trading between a range of $10-16 and setting up for a longer-term recovery. Several analyst upgrades recently contributing to further upside move. Long-term data suggest an attractive reward from deeply oversold levels. Stock has lose. Although, recent run up closer to $16 appears extended, I see a structural shift that should benefit the sector. Given the improving fundamentals and attractiveness of healthcare themes, CRA stands out as an attractive investment.

Other names include :BMY, LLY and KG.

These are just few names for a sector recovery bet. The S&P healthcare index has underperformed the market since mid 2003. Despite gains on an absolute basis, the overall sector has been a laggard. Most of the underperformance can be attributed to weak pharmaceuticals especially in Large Cap. There is plenty of litigation risk for the sector but the cycle shift and relative weakness should continue to turn positive.

Macro View and Ideas - Last week Jan 2007

Weekly Thoughts: {MACRO VIEW}

Intriguing times approaching in the marketplace and worth taking closer notes. This week: Econ data approaches as earnings season nearing its end. I am looking at the US10 year yield closely along with investor’s complacency. Plenty of questions on the table:

Is the sentiment too bullish or bearish for equities?

Is there too much liquidity in the market place?

Finally, what is the contrarian, consensus and least liked view in the marketplace in regards to currency, commodity and stocks?

These questions are being asked on the macro level following the start of the year. But the answer lingers post expected and of course least expected events.

SPX: Momentum appears extended from a technical standpoint. Given the strong run up since the summer of 2006 where the market returned as high as 17%. During that rally, 10 year declined from 5.25% highs, down to 4.40% by December 1^st. The month of December began to show signs of 10 year yield recovery and market stabilization which can be viewed as consolidation. At the same 6 month period, Crude plunged significantly into the New Year. Crude is attempting to stable around $50 while yields are trying to recover. Rise in both oil and rates can contribute to a slowdown in the equity markets. Perhaps, a pause or slight correction is on the board. Also, VIX – volatility index also dropped further. It continues to signal market complacency.

Overall Point: Not a timely entry point for most groups in the US markets.

Investment Approach:

Investing offers plenty of literature, wisdom and excitement. It actually drives me to learn more and investigate on investments that are appealing. Most importantly talk is cheap forcing one to back up his/her best idea through capital distribution. I find myself running around, investigating for stock specific calls. Although stock picking contributes towards portfolio growth, It’s the construction of the custom index that’s truly measures wealth.. Focusing on the growth of the overall portfolio is what counts. In answering these questions, I revisit previous ideas and look into timely entry points in select area.

Sector and Stock Ideas:

At this stage, continuing to look into technology, media and telecommunication as a growth area in the broader market. NT: Nortel an interesting long-term chart. Looking for turn in fundamentals and part of the communication, Telco and media theme.

Also revisiting DuPont an idea mentioned before on this blog. Worth revisiting especially as a theme for the next 2-4 years. Monthly chart suggests a cycle shift into chemical companies pending and a good investment.

http://moneytakers.blogspot.com/2006/10/dd-attractive-basing-pattern.html

A short week, but plenty of action.

A short week, but plenty of action.

Interesting first month of 2007, speeding by as the question of sector rotation lingers among many investors.

Primary focus:

At least, the question for Tech, Media and Communication continues to be an area of high interest. In attempt to narrow the focus list, I built a list of names in groups of interest in that area. This week I am focusing on Communication Equipment.

Although an annual game plan, some names already moving others require patience. In recent days, I have continued to monitor the groups behavior.

Communication Equipment:

Have been favoring QCOM, and currently looking for earnings result as a key gauge or stocks behavior. Street too bullish at this point so watch earnings closely and next 3 month of consolidation. Long-term chart and technical’s suggest upside ahead. Fundamentals and investor sentiment is capping growth in the stock.

JDSU – great earning result and run up- looking to add on pullbacks. Positive trend developing, attractive risk/reward and justifiable upside move.

TLAB- discussed before and posted chart as an attractive bet. Revisiting this thought as well.

Here is a list of names in the group that are worth watching. These names are liquid and will track performance, news flow and momentum for the next two quarters.

ANDW

BRCD

GLW

JDSU

JNPR

MOT

NT

QCOM

TLAB

BRCD

ANDW

ARRS

IDCC

Global Macro Views-

Following the actionable stock and group presentation recently, I want to focus on other global macro views. Just few points affecting crude and interest rates.

Important to note how emerging markets have slowed down recently.


Thailand market collapse recently, Hugo factor in Venezuela leading to a market breakdown and finally lower crude’s impact in many commodity related markets.

Now as for the strong Crude run up and outlook ahead.



Here are my views:


Crude should attempt to stabilize in the first half of 2007 as energy stocks attempt to hold-in. I expect many managers to struggle on accepting an exit level for energy stocks and foresee many claiming to arguments such as "stocks are cheap”.


Evidence of slowing crude is visible by the summer 2006 peak. Clearly the truth behind the supply/demand story is doubted, questioned and seriously being examined by global investors. Again the charts and price showcase this point.


ACTIONABLE CONCLUSION: Not playing the recovery story, awaiting further corrections and may look to get involved following stabilization sometime in Q2.


The US dollar recovery is due for a bounce after being compressed for this past cycle. Slow recovery should continue and reversion from its underperformance versus gold’s . I fully understand that Washington dollar policy plays a big role and a currency call contains too many variables for a timely call. A though call on the dollar but someone has to make it. Anyway, things either go up, down or sideways. 1/3. (Clearly excluding time in this equation).


Similarly, US 10 year yield, should continue its recent recovery along with the dollar.. A run up from 4.40% to 4.77% probably did not receive much attention but “smart money” continues to visualize that upside move. How about the odds of FED raising rates early months of 2007? I am a buyer of that story. (curve ball). Not a consensus bet but makes sense to me.


ACTIONABLE CONCLUSION: Looking for an upside move in the dollar and yields, serving as a surprise fueling the pending correction.

Finally, Crude multi-year strength clearly benefited many US financials companies in the past 3+ years. (Especially brokers).Through my market observation, I continue to see strong correlation between energy and financials. Currently, I am seeing near-term recoveries as opportunity to bet on a downside.


In other words, I favor technology stocks and continue selling financials and energy. Therefore, the ties of "petro dollars" to other aspects of financial markets is viable on the charts and market behavior..


ACTIONABLE CONCLUSION: Long equity ideas from a broad market perspective appear less timely and at risk of pullbacks. Build in trades for short-term actions or low positions on long-term bets.


As for investment strategy: I am sticking with a slow energy and financial markets outlook while looking for a strong rotation into technology. In short, this past summer crude peaked, tech rebounded. A critical shift in the four/five year cycle and tracking these cycles are highly rewarding. Similarly, I like Wal Mart based on a recovering US dollar story- at least as a catalyst. These ideas should materialize later in the second quarter of 2007 and I believe have further sustainability.


Nevertheless, market correction is due in many asset classes and watching Q1 behavior very closely. Also, weakness in crude can lead to global instability and money coming off US bonds. Important to track these petro dollars and its impact on financial instruments. There is a link between “Petro dollars” and US treasuries. These are evident in the macro picture also tying to currencies. Emerging markets feel these points both in debt and equities. Even from US Equity perspective, understanding or acknowledging the macro view can enhance investment abilities.

Themes Revistied -

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

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

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

Healthcare:

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

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

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

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

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

Company Description below:

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

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

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

TLAB street view

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

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

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

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

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

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

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

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

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

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

Stradegy and Thoughts Q1 focus

Market Commentary:

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

My 2007 outline included two points just a week ago:

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

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

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

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

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

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

Communication and Networking: Themes and stocks of Interest:

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

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

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

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

Themes for 2007

Few thoughts the last day of 2006:

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

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

Task #2: Communication related technology:

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

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

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

Task #4: Macro Trades

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

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

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

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

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

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

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

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

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

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

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

SWY - safeway

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

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

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

Fundamental breakdown below:

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

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

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

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

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

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

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

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

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

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

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

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

Spread: 10 year vs. 2 year

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

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

Tops usually occur unexpectedly but always worth seeking early signals.

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

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

2007 thoughts early draft:

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

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

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

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

My intuition / observation.

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

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

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

GTW - Gateway

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

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

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

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

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

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

Step Back : Macro Levels

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

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

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

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

Mkt view - Previous idea review

General Market thoughts:

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

Revisiting ideas which have yet to make a significant move

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

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

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

PALM

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

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

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

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

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

ANR- Alpha Natural

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

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

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

MKT UPDATE DEC 1, 2006

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

From WSJ-

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

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

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

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

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