Weekly Review – Sector outlook, Tactics and actionable Ideas.

Weekly Review – Sector outlook, Tactics and actionable Ideas.

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

Investors beating to the same beat:

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

Not seeking value in Housing:

Quick Note:

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

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

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

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

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

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

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

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

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

Group Review:

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

Macro and Sector Review -

Technical/Macro Review:

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

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

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

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

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

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

Additional Wisom:

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

Patience on existing themes:

Patience on existing themes:

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

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

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

Actionable Ideas:

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

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

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

Liquidity is the engine.

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

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

PXQ - Dynamic Networking Portfolio

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

Current unrest accepted. Opportunity for future discovery

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

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

Last week the following points were addressed.

Semi’s and previously underperforming Technology – Nearing some bottom

Gold: holding above recent trading range

Financial stocks at further risk. Specifically Brokers.

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

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

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

Looking Ahead

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

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

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

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

ICE - Short Idea

Click on chart

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

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

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

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

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

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

Macro Picture:

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

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

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


Actionable -

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

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

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



Tech/ Semi's --

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

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

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

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

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

Mid Feb Update

Macro Outlook:

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

Skepticisms does not hurt:

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

Here is one view on challenging the positive GDP data:

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

Other simple takeaways:

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

Dangerous Terms:

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

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

Point to consider:

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

ACTIONABLE THEMES:

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

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

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.