Market Thoughts: 5-27-2008

Market Thoughts: 5-27-2008 | markettakers.blogspot.com

As the summer months approach, Macro themes continue to dominate investors' interest. Contributing factors include: bullish run in commodities, weak US Dollar, mixed economic data and anticipation of Federal Reserve actions. Interestingly enough macro money managers are among the top performances this year. "These so-called macro hedge funds, which attempt to identify extreme valuations in stock markets, interest rates, foreign exchange rates and commodities, have shown returns of more than 12 percent this year, outperforming the S&P 500 index by about 17 percent." (Financial Times-May 25 2008).This reflects the impact of globalization and strength of multi-year commodity cycle. It also reminds us the difficulty of picking long ideas in the current environment.

Key Macro Levels:

Crude: Intra-day highs of 133.70 a critical level. Index is 39% removed from its 200 day average which suggests a near-term pullback.

Gold: Attempting to stabilize between $900-950. All time highs stand at 1011.25. reached on March 17^th.

US Dollar (DXY): Sideways trading pattern for the last 3+ months. March 21^st lows of 71.28 mark all-time lows.

US 10 Year Treasury: Early indication of stabilization between 3.70-3.90%.

Near-term behavior in US Markets:

At the start of last week, key indexes were extended after a recent market recovery. Technical signals were approaching a 200 day moving average of 1427 for the S&P 500 index. Interestingly, at weeks end the index peaked at 1440 while closing below a psychological level of 1400. For the most part, this wavering market has been desperately seeking a catalyst on either direction. Perhaps, it is covenant to point to higher Crude as a driver behind investor pessimism. Of course, crude movement gets plenty of attention for numerous reasons. However, outside of energy, other groups are not participating. This showcases an ongoing lopsided strength favoring Crude related themes. At the same time, buy conviction for stocks is weak as shown by net outflows and lower volume in the past few weeks.

A decade of bubbles?

Recent peaks include Nasdaq in 2000 and Homebuilders in 2005. In 2007, Financials deteriorated in the summer and Chinese markets sold off in autumn. With almost 1 1/2 years left in the first decade of this millennium, some speculators are placing bets that Crude is the next victim of a cycle peak. As recent actions clearly showcase that calling tops is a very dangerous game. If investors seek to speculate and short oil, it might make more sense to place those trades after a trend break. In other words, when oil peaks it should presumably fall hard. That said, investors waiting for a downside confirmation can gain better odds for profitability. Perhaps, too early to fight the trend and more patience is required.

On that note, history does remind us that market behaviors can be tricky. Especially, when a fundamental disconnect continues to work for an extended period. Here is one macro perspective:

"In the late stages of financial bubbles, it is quite normal for prices to become completely detached from economic fundamentals. House prices in Florida and Spain kept rising even after property developers built far more homes than they could possibly sell. The same thing happened in credit markets: mortgage securities kept rising even while banks created "special purpose vehicles" to acquire vast "inventories" of bonds for which there were no genuine buyers - and dozens of similar examples can be cited from the bubbles in internet stocks and Japan." (Anatole Kaletsky- May 22, 2008 Times Online)

Credit Risk:

If it is dangerous to declare tops in Crude, perhaps it is equally risky to pick bottoms in Financials. Despite the sharp declines in the past 12 months, there are more opportunities for downside opportunity. Deteriorating fundamentals, weak real estate environment and further need for stabilization suggest that the downtrend is intact. The duration of this consolidation is unknown and not worth the risk of making a wager for a turn. On the other hand, select stocks are poised for additional declines.

Delinquencies for Alt-A mortgages rated between 2005 and 2007 are climbing, with total delinquencies rising as high as 17 percent in some cases, more than 6 percentage points higher than previous estimates, the ratings agency said in a report. (Reuters: Thu May 22, 2008).

Short Ideas: FED (First Federal) WFC (Wells Fargo), DSL (Downey Savings).

Consumer/Media:

Short: Select Restaurants remain vulnerable in the near-term given the macro conditions and current sector trend.

DRI (Darden Restaurant): Rising food prices and increasing input cost has a negative impact on company's earnings. Also, recent sell-offs signal to weaker relative strength. Use upside recovery to re-enter short positions.

Long: WMT (Wal Mart), TWC (Time Warner Cable) and DTV (Direct TV)

Technology:

Long: LSI (LSI Corp), ORCL (Oracle), (NICE) Nice Systems and FLEX (Flextronics)

Strategy Summary:

In looking ahead, plenty of catalysts await for trend reversal. Potential peak in commodities, surprising Federal Reserve actions, pending election results, and changes in investor sentiment could alter existing trends. Given all these factors, one can prepare for adjusting market dynamics.

In the short term markets appear poised for further correction. Betting against select financials can be rewarding especially with a decreasing investor confidence. Similarly, Consumer stocks are vulnerable to further weakness in core fundamentals. Behavior in financial stocks usually is a leading indicator to overall market direction. Therefore, traders can looks for signals on pending recoveries. Importantly, in both cases a stock specific approach can produce a better outcome. In a case of market optimism, expect leadership in large cap growth. Especially in groups biased towards innovation and neglected companies with value. For example, Technology and Healthcare as sectors have struggled and sector participation has been limited. Nonetheless, these themes present long-term sustainability.

One major catalyst for a recovery is a rotation out of commodities. Again, too premature to call and difficult to time. At any rate, it might be fruitful to hold Large Cap names with attractive relative strength (ie. Wal Mart). Eventually, stabilization in macro environment can trigger a sharp trading rally.

Dear Readers:

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

Market Update -5-19-2008.

Weekly Results:

S&P 500 1,425.35 +2.67%
DJIA 12,986.80 +1.89%
NASDAQ 2,528.85 +3.41%
MSCI Emerging Markets 154.09 +4.69%


Big picture:

Changing dynamics in Global themes continue to influence international economies, commodity prices, currency valuations and credit risks.

In these evolving markets, investors are adjusting to long-term trends while reassessing risk exposure. Growing demand for natural resources and speculation among investors are dominate themes. Clearly, these factors play a part in Crude reaching all-time highs. Multi-year trends appear elevated but calling tops is not as rewarding. As for equities, charts suggest a sideway pattern. An improving market recovery led to a positive week. Again, deciphering other apparent trends has not been easy. Similarly, long ideas are favorable on a stock specific basis. The past three quarters have shown that making directional bets and seeking undervalue assets alone is not enough to generate desired results.

Macro issues are receiving more attention from mainstream observes. This makes sense with upcoming US elections, rising food prices and impacts of globalization. In addition, mixed economic data and anticipation of Federal Reserve policies present more suspense. An optimist views recent rally as a glimpse of hope. In fact, the S&P 500 is above its annual lows reached in mid March. (1256) and slightly above its 200 day moving average (1427). Capital outflow away from Emerging markets and Crude related groups can boost a recovery in US Equities. Volatility is near annual lows but trading volume is not impressive. In addition, the first quarter witnessed a $100 billion outflow from domestic mutual funds. Further conviction and increasing volume are needed as broad markets trade near key technical levels.

Credit Risk:

Housing related themes and small cap banks remain vulnerable. Long-term cycle points to an established downtrend in Financials.

“Credit growth followed the pattern of the economic slowdown. Moreover, the typical Big Five recession was accompanied by a five-year slowdown in credit growth, with a trough three years after the onset of the crisis. US recessions typically tended to have this trough about a year-and-a-half earlier.” (Financial Times 5-14-2008)

On the other hand, investors seek bottoms in deeply oversold banks. Generally, the stock market provides clues for a recovery but at this point a sustainable rally appears pre-mature. At this point, building a bearish argument is not a fresh idea. Of course, many pundits continue to discuss various gloom and doom scenarios in the credit cycle. Nonetheless, financial markets teach us that all plans do not work out as expected. That said, on going upside move in Financials, can provide near-term shorting opportunity. In other words, a sector rebound requires additional time to absorb weakening fundamentals.

Short: FED (First Federal) and DSL (Downey Savings).

Technology:

Large Cap Technology is attractive on a relative basis. “According to a new survey by NPD Group, U.S. consumers will cut spending on home furnishings, clothing, and restaurants before they'll stop buying consumer electronics like videogames.” (Fortune 5-16-2008)

Improving fundamentals and expanding global presents creates a promising outlook. That said, patience is needed as long-term trends begins to materialize.

Long: LSI (LSI Corp), ORCL (Oracle), CREE (Cree Inc) and FLEX: (Flextronics)

Materials:

CCK (Crown Holding Inc): Positive fundamentals in place for the leading manufacturer of beverage and food cans. Stock is making new highs and relative strength is attractive. Use pullbacks as buying opportunity near $26-28 range.

Consumer Staples:

Long: WMT (WalMart) and HSY (Hershey).

Healthcare:

Long: GENZ (Genzyme) and TECH (Techne).

Market Update: 5- 12-2008

Weekly Results:

S&P 500 -1.81%
DJIA -2.39%
NASDAQ -1.27%
MSCI Emerging Markets -1.31%

Last week's action confirmed the multi-year trend of rising Crude and weakening Financials. It was a reminder for investors of the ongoing credit risk and a powerful cycle in the commodity markets. Growing speculation and a lack of trust are prevailing themes for Global investors. Similarly, the S&P 500 continues to trade sideways as investors ponder between a bottoming housing market and unclear economic data. A difficult period to make directional bets for the broad market. Recently, a stock specific approach appears reasonable given the lack of trend. Similarly, many participants are seeking further stability while remaining on the sidelines. In addition, sector rotation alone is not enough to produce desired returns. Consequently, there are plenty of headline materials, but limited ways to produce returns.

Unlike the first quarter, Volatility (VIX) is much lower as it trades slightly below 20. Perhaps, a bullish signal for equity markets on a short-term basis. Nonetheless, damages from the credit crisis are difficult to underestimate. For example, AIG's disappointing earnings confirmed shaky fundamentals. At the same time, Small Cap banks remain vulnerable and REITS are poised for pullbacks. Recent optimism faces a challenge in the weeks ahead at the conclusion of the quarterly earning season. Sentiment indicators turned less pessimistic and shifted from extreme bearishness in the first quarter. Again, recent complacency combined with overbought technicals sets the stage for a downside surprise.

Portfolio Management:

A sharp decline in commodity related themes can fuel cash inflow to innovation based themes. At this point, Crude relegated groups continue to benefit from momentum, speculation and relative strength. On the other hand, Healthcare and Technology offer value especially on pending market corrections. In both cases, identifying the right stock is critical. In technology many analysts remain pessimistic leaving room for upside surprises. "According to Zacks.com data, 56% of the 183 analyst ratings on the NWX [AMEX Networking Index] components are a 'hold' or worse." (Forbes -5-9-2008).

STOCK SPECIFIC IDEAS:

Financials:

Use bounces as opportunity to reenter short positions. FED (First Federal)and DSL (Downey Savings).

Healthcare:

Biotech more favorable than Pharmaceuticals.

TECH (Techne): Relative strength is positive so far in 2008. A 24% increase in Sales from its biotechnology segments presents solid fundamentals.

Other ideas: GENZ (Genzyme) and STJ (St Jude)

Technology:

CSCO (Cisco), LSI (LSI Corp), ORCL (Oracle), CREE (Cree Inc) and FLEX: (Flextronics)

Macro Levels:

Crude: Trading at all-time highs. Friday's intra-day high of $126.05 serves as a key level – at least for the week ahead.

Gold: In the short-term, downtrend in palace following March 17^th peak. Attempting to bottom between $860-880.

US 10 Year Yield: Pausing near 3.80% from a near-term perspective.

Dollar (DXY): 2+ months of stabilization underway. Nonetheless, long-term downtrend is intact.

S&P 500: Facing major resistance at 1400. Near-term momentum is extended. 50 day average (1352) is a key test on further pullbacks.

Dear Readers:

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

Market Update - May 5th, 2008

Weekly Results:

S&P 500 +1.14%
DJIA +1.29%
NASDAQ +2.23%
MSCI Emerging Markets +1.87%

Relief optimism:

Rate cuts, less than expected job declines, lower volatility and weakness in commodity prices combined for a positive market. Of course, a relief rally is inevitable. Similarly, The S&P 500 is up 12% since the annual lows reached in Mid March. And the VIX (volatility index) has declined by nearly 50% since topping on March 17^th. On the surface, both indicators (higher stock market/ lower volatility) suggest a confirmation of a bottoming process. On the other hand, broad markets have stayed positive in the past few weeks and are nearing overbought levels.

Macro Relationships:

Last week, market observers focused on the potential peak in Crude and a recovering Dollar. Clearly, this is an inverse relationship reaching extremes in the past few years. In addition, betting on trend reversal turned out to be extremely difficult for speculators. Once again, at this junction the rowing curiosity arises. In revisiting the key themes of Credit, China and Crude, the odds of a correction in Crude seem next in line. In other words, credit risk started to materialize in mid 2007 and Chinese markets sold-off aggressively in Fall 2007. One catalyst for a peak in Oil is a recovering Dollar. For example, here is one view: "Fed needs the $USD to stay as strong as possible while they buy time (time is their enemy) while they feed short-term money to commercial and investment bankers, hoping to stave a major recession/depression while long-term credit market excesses are corrected." (Bill Cara -5-4-2008). Another force for positive Dollar is weakness in Gold. Since March 17^th DXY (Dollar Index) is up over 3%, while Gold is down over 15%. Although a temporary trend, plenty of observers wait for further signals given the implication on global financial markets.

Portfolio Approach:

Trading around the "latest and loudest" events is a difficult way to make money. Meanwhile, long-term investing requires patience and costs time. These are basic investor issues and are reflected in this market. Economic discussions create plenty of headline materials and mixed signals. At this point, investor sentiment after earnings season should provide a better indication. Participants are anxious given the late stages of the Federal Reserves rate cuts and election coming up in the fall. From a cycle perspective, purchasing neglected value and trimming previous winners might be prudent.

Following a period of risk-aversion in the past year, there are opportunities for those seeking risk and value. Policy-makers continue to restore confidence as most investors remain pessimistic. Again, targeting niche ideas is critical as the financial markets attempt to stabilize. The challenge, once again, is to isolate noise and scale into sustainable themes.

Stock Specific Ideas:

Long:

Use weakness as buying opportunity in innovation related themes. Large Cap Technology remains attractive from a cycle perspective. Similarly, select Biotech is appealing on a relative basis.

• Technology: CSCO (Cisco), LSI (LSI Corp), ORCL (Oracle), CREE (Cree Inc) and FLEX: (Flextronics)
• Healthcare: GENZ (Genzyme) and STJ (St Jude)

Short:

Use recent market strength as opportunity to add to short positions.

Financials: FED (First Federal) and DSL (Downey Fin)

Market Update - 4-28-2008

Weekly Results:

S&P 500 +.54% DJIA +.33%,NASDAQ +.83%, Russell 2000 +.11% and MSCI Emerging Markets +.91%

Digesting the past 12 months

The past year has witnessed several extremes in global markets. A historic and a well documented period indeed!

For instance, a peak in Financials, a sharp rise in volatility, and a surge in commodities. Other trends include the decelerating dollar, an unraveling of credit risk, lower interest rates, and a rush to safety and a lack of long-term commitment. Of course, hindsight is 20/20 assuming previous patterns will continue to work has its risks. At this point, trend-followers and those chasing performance can not rest comfortably either. The possibility of a trend shift is difficult to ignore. The very turbulent markets of past months do challenge ones rational thoughts. Given these factors investors can focus on actionable themes, concepts and stocks. In other words, reaching broad market conclusions does not necessarily translate into desired results.

Tactical Approach:

During an election year, there is a growing political focus on the economy. In this upcoming week attention will focus on actions from the Federal Reserve, earnings and monthly economic data. The current picture of oversold markets, hope of optimism and a relief from wave of bad news can create an upside bias. Therefore, managing risks on short positions and time sensitive trades can be rewarding.

In one sense, the on-going bad news has reached extreme levels: housing concerns, economic slowdown and weakness in the credit system. Last week, consumer confidence fell to a 26 year low which entices aggressive investors to step in. March 17^th set the possible lows in the S&P 500 at 1256. On that same day, VIX (Volatility Index) peaked at 35 and Dollar Index (DXY) reached annual lows at 71.28 . These annual levels serve as a key barometer for a trend shift.

On the other hand, this market requires both long/short ideas from a directional basis. Similarly, sector specific bets alone is not enough to capture favorable results. In other words, the fallout of the credit crisis lingers as fundamentals of small cap banks and REITS remain vulnerable. Nonetheless, a relief rally seems plausible given the oversold technicals, calming of volatility and accumulating cash sitting on sidelines. Again, the market performance of last year can taint one's view. It is important not to lose longer term trends in which neglected themes offer value.

Conviction and Volume:

The sustainability of recent recovery and hopes of optimism is going to be tested. Lots of attention on near-term data, but trading volume is rather below average. Perhaps, this explains the "wait and see" attitude of participants and lack of major conviction. New York Stock Exchange program trading accounted for 24% of overall volume last week. That's below a 52 week average of 30.5%, and reflects the declining volume by institutional investors. Therefore, there is plenty to decipher in the weeks ahead.

Stock Specific:

• Technology: CSCO (Cisco), LSI (LSI Corp), ORCL (Oracle), CREE (Cree Inc) and FLEX: (Flextronics)
• Healthcare: Favor Biotech over pharmaceuticals. GILD (Gilead), GENZ (Genzyme) and STJ (St Jude)
• Consumer Staples: WMT (Wal-Mart) and HSY (Hershey Co)
• Chemicals : DD (Dupont)

Macro Levels:

Crude: All-time highs reached on April 25^th at $119.25. Extended in the near-term with next key support at $110.

Gold: After peaking on March 17^th ($1011), the commodity is down nearly 12%.

US 10 Year Yields: Since late January yields have risen sharply. Major resistance closer to 4%. Expect pause in the near-term.

US Dollar (DXY): Attempting to bottom between 71-73 range. Further upside evidence needed for confirmation of an uptrend.

S&P 500: Next major resistance near 1400. Followed by 200 day average at 1436.

Market Outlook: April 21, 2008

Weekly Results:

S&P 500 +4.3%
DJIA +4.3%
NASDAQ +4.9%
MSCI Emerging Markets +2.8%

Trading Behavior:

Confusion is the dominant theme for long-term investors especially in the past few weeks. In these uncertain times, near-term trading and intra-day money management seems to play a bigger role in market behavior. In other words, its been a difficult period to make profitable trades while being a trend-follower. At the same time, understanding short-term swings can enhance entry points and minimize loss potential. Clearly, the charts of broad indexes display an undefined trend. So far in 2008, S&P 500 has traded in a tight range between 1300-1400.

As earnings season is upon us, stock specific news creates pronounced moves and headline materials. Also, bad news is translated to higher than expected outcome. And good news is neglected because of the cycle downturn. Given the credit crisis, assessing risk/reward on a particular trade has forced many to think more on a short term basis. That said, participants overall actions create a neutral result. Therefore, additional catalysts are needed especially at the conclusion of earnings season.

"What we are seeing is that markets are closing near their day's highs or lows more frequently than we would expect by chance. This may reflect a bandwagon effect, in which traders and investors observe market movements during the day and don't want to miss out on them. This would lead them to buy rising markets and sell falling ones, creating late-day strength or weakness". (4-18-2008. Brett Steenbarger : http://traderfeed.blogspot.com/).

Macro Factors:

Risk-aversion is another aspect contributing to short-term trading and trend less markets. Despite trading recoveries, investors are hesitant to take on bigger bets. Bearish sentiment increased by 30 % last week despite a 4.8% increase in Small Cap index. Once again, vulnerable areas in the marketplace are areas related to credit risk and emerging markets. On the other hand, the safer bet is to stay in commodities. Performance chasing is an ongoing phenomenon, as Crude continues to gain upwards. In looking ahead, an increasing herd-like behavior has its consequences. Interestingly since March 17th Gold has declined nearly 11% to $908.75 after making new highs. Although too early to call, the risk/reward at these levels is not as attractive as few years ago. Nonetheless, momentum chasers are bound to dive-in and create a speculative environment.

Innovative Themes:

Recent company reports have generated optimism in Technology. A sector poised for new cycle leadership. S&P Information Technology Index broke out of a recent base between 340-360. Collectively, the index is up nearly 13% after making annual lows in January 2008. This reflects a positive trend in larger cap technology and a transition to innovation based themes. Similarly, the Biotech Index (BTK) is up nearly 15% since March 17th. Of course, stock selection is critical, but stocks showcase an early transition in the upcoming cycle.

Stock Specific Ideas:

Technology:

CREE (Cree Inc): Products in light efficiency bodes well for Cree in the long-term. Innovative products and high consumer demand create a bullish bias. Finally, the technical picture suggests attractive entry point between $28-30.

Healthcare:

GENZ (Genzyme): Positive momentum and relative strength. Add on weakness closer to $72 which is a near-term support. Overall fundamental are promising with next key resistance at annual highs of $82.

Chemicals:

DD (Dupont): Exposure in agriculture and global expansion are leading to favorable results. Despite near-term overbought levels, investors seeking sustainable run can enter on pending declines. From a macro perspective agriculture related areas are in higher demand. In addition, stock price has been neglected in the previous bullish cycle (2003-2007).

Consumer Staples:

WMT (Wal-Mart): Relative strength remains strong versus US markets and Consumer Discretionary. Despite a 36% appreciation since September 2007, there is an additional long-term value. Expansion into international markets creates more growth opportunity. In addition, stock is 27% removed from all-time highs of 1999 which sets the next key major resistance level. Near-time declines can offer buying opportunity.

Market Outlook: 4/14/2008

Weekly Results:

S&P 500 -2.7% NASDAQ -3.4% Russell 2000 -3.6% and MSCI Emerging Markets +.4%

Being an optimist demands lots of patience.

First of all, a significant technical recovery has yet to materialize. Secondly, upside catalysts and volume appear to dwindle. Finally, investors are skeptical when examining Federal Reserve actions and economic data results. This contributes to a lack of strong conviction. Naturally, confidence restoration is the primary objective of policymakers which remains a challenge in this current environment. This contributes toward uncertainty in investor behavior despite a slowing volatility. At the same time, participants are digesting various headline news with fear and ambiguity being the major driving forces. For example, General Electric's disappointing results set a negative tone for upcoming earnings season. Overall, broad markets face downside pressure from a cyclical point. Interestingly, picking skills (or luck) on event driven basis plays a vital role for those investors seeking returns.

On a positive note, the S&P 500 is above annual lows of 1256.98. In addition, sell volume did not reach extreme levels at the end of last week. For bargain hunters, credit worries and risk aversion are lowering share prices in promising areas of the marketplace. In quality areas, excessive discounting presents "value" in selective areas. The multi-month pessimism has set the stage for lower expectations in this earnings season. This week reactions to the condition of Big Cap Financials will be watched closely. Given the accumulating bad news in the sector, a less than expected shortfall can create a temporary recovery. Ultimately, most speculators will place their wagers for near-term opportunities. As for sustainability, the picture is unclear.

ACTIONABLE THEMES:

Key market themes include vulnerable banks, new cycle leaders, cash rich companies and weakening emerging markets.

Vulnerable Banks:

Ongoing credit concerns are negatively affecting smaller cap banks. According to an FDIC report, Loans overdue 90 days or more surged 32.5%. Companies in the sector, face an on-going downtrend. Most importantly, "bottom picking" from these depressed levels also has its dangers. As seen in the past year, smaller cap banks are vulnerable especially in overvalued real estate markets. Stocks in that group are bound to see more declines as fundamentals worsen. Given the oversold conditions of Financials, few larger cap names might participate in trading rallies. Nonetheless, sector resurgence will take some time to settle. Groups in real estate such as REITS are poised to decline. There are visible signs of rising delinquencies especially in the fourth quarter of 2007. This illustrates the established downtrend in Real Estate related groups which is a reflection of the credit crisis.

Short Ideas includes: DSL (Downey Savings) and FED (First Federal).

Emerging Markets:

After solid mult-year run, emerging markets are declining along with US markets. The credit risk is a global phenomenal. Since October investors betting on Chinese markets have seen volatility and sharp sell-offs. The bullish run from the last few years have created "bubble" like results. Now, an adjustment period can generate outflows from emerging markets. Short Idea: PTR (PetroChina).

Cash Rich/ New cycle leaders:

Innovation themes posses some value, but entry points are less risky (less rewarding) once the macro concerns stabilize. NASDAQ is down nearly 20%, following the global markets peak in October 2007. More so, waiting for friendly buy opportunities takes time and difficult to predict. At least for ideas in this theme, additional downside can increase conviction levels among aggressive participants.

• Technology: CSCO (Cisco), ORCL (Oracle), DTV (Direct TV), CREE (Cree Inc) and GLW (Corning).
• FLEX: (Flextronics) : Global presence in contract manufacturing area presents upside potential. Stock price is deeply oversold and attempting to bottom after being down nearly 30% since early November 2007. In the past year, stock has stayed above $9.11 support range on three occasions. Bullish case includes: Low debt, highly neglected stock price, and improvement on fundamental factors.

• Healthcare: Biotech as a group, is demonstrating relative strength. Attractive names include: GILD (Gilead), GENZ (Genzyme) and STJ (St Jude)

Market View – April 7th 2008

Weekly Results:

S&P 500 +4.2%, NASDAQ +4.9%, Russell 2000 +4.5% and MSCI Emerging Markets +4.4%

Market View – April 7^th 2008

Big picture Trends:

As we start the second quarter, there are few reasons for optimism in spite of ongoing credit concerns and weakening economic data. In the past 10-15 days, the prevailing turnaround signals are visible in declining commodities and stabilizing US markets. The "defining moment" of a trend shift potentially took place on March 17^th, as S&P 500 Index set new lows, Crude/Gold peaked and volatility declined. Interestingly enough, that's the same day (3/17/2008) Bear Sterns stock collapsed. Nonetheless, markets have tendencies to look ahead of mainstream discussions. Given that fear indicators reached extreme levels, a "recovery rally" is foreseeable. For example, Friday's disappointing job numbers appear to be "priced in" by the market as broad indexes closed positive for the week. This trend reversal sets the stages for new cycle leadership.

Now, as for existing trends, a recovery in Financials is questionable. Of course, the sector is deeply oversold and that attracts buyers. For the most part smaller cap banks remain vulnerable as fundamentals deteriorate. Therefore, seeking bottoms in interest rate sensitive groups (I.e. Banks, Retail and homebuilders) is tricky. In addition, participants have to clearly distinguish short-term trades versus long-term investments. As for an existing pattern of higher Crude prices, the recent consolidation between $100-110 can dictate the rest of the quarter. Overall, betting against Financials and favoring an upside move in Crude presents more risk than reward.

Emerging Optimism:

Since the summer months, global markets have sold off aggressively and sentiment was extremely negative. In 2008, inside buying has increased from historically depressed levels." Based on Form 4 filings, insider buying has totaled $7.2 billion in first-quarter 2008, which is 3.6 times higher than the $2 billion in first-quarter 2007. Indeed, insider buying in the past three months has been the highest in our records". (Forbes – 4-1-2008).This illustrates that company executives are less pessimistic and confidence is slowly developing. At the same time, valuations in US stocks are compelling relative to global assets. In the recent crisis, global stock markets have traded in a similar downtrend pattern. At this inflection point, there is a strong possibility for US markets to surpass emerging markets following a 5+ year of underperformance.

Money Management:

In this market environment, there are two dangerous behaviors among investors. First "performance chasing" in commodity related areas. Secondly, a "lack of patience" in buying up-and-coming cycle themes.
A concentrated portfolio on a stock by stock basis seems appropriate for the weeks ahead. Here are attractive areas in the US Markets:

• Innovation related groups mainly in Technology and Healthcare
• Large Cap Growth – including Media and Telecom
• Cash rich companies with neglected "value"

Technology remains attractive and is poised to growth 15.35% for the first quarter. (Zacks Investment Research). Again, fruitful results are obtained by picking specific stocks while benefiting from positive sector momentum. Similarly, Biotech is another innovative theme that is appealing. The BBH (Biotech Holders Trust) is up nearly 13% after bottoming in January 2008. Biotech's relative strength is showing signs of improvement. M&A growth should continue to lift the sector.

Actionable Ideas:

Biotech:

GENZ (Genzyme): Outlook for the next 5 years looks hopeful in spite of the 400%+ price acceleration since 2002. Company is growing through Acquisitions Also, positive forces include leadership in therapeutics and well diversified products.

Technology:

CREE (Cree Inc): Leadership in LED lighting revolution sets the stage for a sustainable run. Further declines near $28-26 should offer a buying opportunity.

AMAT (Applied Materials): Recent surge is being noticed by investors. Expansion in the solar panel industry generates growth in the company's fundamentals. As price retreats in the near-term, investors can add around $19/20.

Consumer Staples:

WMT (Wal-Mart): Shares are up nearly 30% since September 2007, reflecting its strength despite a weak environment for equity markets. Pullbacks offer buying opportunity near $52-50. Also, stock should benefit from positive momentum, after being the best performing stock in the Dow Jones for the first quarter of 2008. Promising future ahead as company plans to introduce new products and respond favorably to client demands.

Media:

DTV (Direct TV): Core fundamentals are solid. The stock remains at a buy point as it attempts to breakout of multi-month range ($22-26). Owning these shares can provide exposure for investors looking to profit from recovering media sector.

Dear Readers:

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

Market Update – March 31, 2008

Market Update – March 31, 2008

The results of the credit crisis are dominating investor behavior and corporate outlook. A confusing period for market observers as policy intervention is playing a larger role. Of course, the challenge for policymakers is to restore trust in the overall financial system. Important to note, that “credit” stems from a Latin word credere which means “to entrust”. This primarily explains the growing pessimism of participants and the rush to risk-averse investments. “For households, the demand for absolute safety of Treasuries is so intense that money-market funds like Vanguard have refused additional deposits into their Treasury-only accounts” (John H. Makin AEI). This reflects the desperate rush for yields, on-going skepticism and higher volatility. Although, fear in the marketplace is justifiable, there is a growing possibility for excessive worry which should play itself out in the weeks ahead.

Meanwhile, the S&P 500 is attempting to bottom despite well documented economic slowdown. As we approach quarter-end, there are visible signs of window -dressing among money managers. In addition, investors look ahead to economic data, regulatory decisions and upcoming corporate earnings. Beyond key headline news, global markets are nearing an inflection point. For example, on March 17^th VIX (Volatility Index) peaked at 35.60, Gold stalled at $1011, US 10 Year Yield bottomed at 3.30%, US Dollar (DXY) reached spike lows at $71.28, and S&P marked its annual lows at 1256. Few days earlier on March 13, Crude peaked at $111 along with Commodity (RJ/CRB) Index. Interestingly, this can be a turning point for recovery of “paper assets” and declines in commodities. Certainly, this a long awaited turning point for trend followers, fund mangers and those seeking rotational trades. In one hand, commodities are too speculative and trading at extreme levels. At the same time, a recovery in “paper assets” requires for stabilization of credit risks. Overall, further evidence is needed to confirm a trend shift.

The first quarter witnessed excessive selling and growing fear. In this landscape, it is easy to overlook areas with upside potential. For many weeks, trend following tools, valuations measures and technical indicators have indicated buy points. Nonetheless, most investors have not subscribed to the idea that markets are “cheap”. For that reason, there is great tendency to neglect value due to lack of patience and mainstream worries. For example, performance chasing in commodity related areas produced speculative moves which are rather risky. Similarly, buying Financials because of steep declines has not been rewarding. In taking a step back, the long-term picture is appealing for Technology, Media, Telecom, cash rich and innovative based companies.

From a cycle perspective, higher risks in quality areas can produce promising returns. Recent earnings results in Technology continue to display turbulent results. Nonetheless, Large Cap Technology is attractive despite the difficulty of calling “bottoms”. Decline in earning expectations creates an entry point ahead of analyst optimism. At the same time, the Technology sector contains a range of socks across different industry groups. Therefore, performance and correlation remains spotty when evaluating sector performance. Importantly, idea selection is more vital than ever and is required when sifting through various market noises.

Specific Ideas:

Telecom:

In telecom, sector specific funds present a better strategy given that stock selection is tricky while the stocks trade uniformly. VZ (Verizon) and T (AT&T) are oversold and setting up for a recovery. Also, election speculation can play a major factor in the months ahead. Nonetheless, the sector is favorable. In fact so far in March, Telecommunication Services is the best performing sector (+3.12%) in the S&P 500.

Technology:

ORCL (Oracle): Despite last weeks sharp declines after earnings announcement. The stock is trading near long-term support of $19. As selling settles down, long-term investors can accumulate in the weeks ahead. ORCL is reaching oversold levels and offers favorable fundamentals versus its peers.

GLW (Corning): Early signs of recovery. Stock is attempting to breakout from current trading range ($23-24). Growth remains solid while demand for silicon products is higher than consensus expectations. (According to Matrix Group).

Consumer Staples:

WMT (Wal-Mart): Strength continues as the stock is up nearly 25% since January 14, 2008. In the near-time, declines in shares present buying opportunities. Positive fundamentals in the past 5-10 years and rewarding dividends should create higher investor demand.

Biotech:

GENZ(Genzyme): Fundamentals remain solid. Next resistance level is annual highs of $82.08 reached on January 17^th. Plus, relative strength is positive and profitability appears slightly underestimated among analysts.

Market Thoughts – 3/24/2008

Weekly Results :

S&P 500 +1.1%, NASDAQ -0.2%, Russell 2000 +0.3% and MSCI Emerging Markets -5.2%

Market Thoughts – 3/24/2008

As spring is upon us, there are signs of market optimism, declining commodity prices and pending results from Federal Reserve intervention. Last week was action packed, despite a holiday shortened week. Once again, global markets are reaching key inflection points. Investors look to seek relief from on-going credit risk as other trends attempt to reverse. Interestingly commodities and US dollar displayed signs of mean reversion. After several years of reaching extremes, this trend (higher crude/lower dollar) is facing critical tests. Generally, as a trader it is dangerous to declare "bottoms" and to call "tops". In fact, the past few years, investors have witnessed that going against exiting trends is rather costly. Nonetheless, there are various themes developing which offer attractive entry points to select areas especially in the US equity markets. Perhaps an early signal of a cycle shift into developed markets, recovering dollar and further declines in emerging markets.

From a macro view point, commodities pulled backed from elevated levels. For example, here are results from last week; Crude -6%, Natural Gas -11.5%, Base Material -10.3% and Agriculture -16.1%. Once again, Crude remains too speculative and long term cycle suggest a pause. In addition, the message from the Federal Reserve hinted that commodities are poised to stabilize. Clearly, all these factors sparked a sell-off in an overbought area. In addition, stocks tied to this area are bound to face further pressure. The performances of most emerging markets are strongly tied to commodity prices. In addition, the past 5+ years created a bull market leading to underperformance in US markets. At this junction, the speculative nature of global investors has created a "bubble-like" atmosphere. International Indexes reflect the on-going declines in emerging markets since the fall of 2007. Since October 31, 2007 the EEM (MSCI Emerging Markets Index) is down over 30%. Again, a risk-averse environment and growing uncertainty has contributed to weakness in emerging markets. "Asia, excluding Japan, funds were hit hardest, posting outflows of $1.2 billion for the week" (Economic Times).

Since the summer months, credit deterioration in Financials was a dominant market force. Clearly, weakness in housing, slowing economy and investor anxiety became apparent to mainstream observers. Regardless of uncertainty and growing volatility, the S&P 500, held above annual lows of 1256 and January lows of 1270.A positive sign that coincides with Federal Reserve policy to create more liquidity. Although the Financial troubles will take time to recover, other areas of the market are poised for an upside move. In other words, a broad market recovery is possible given the oversold technicals. In terms of portfolio management, long-term investors can begin to buy quality ideas for a sustainable upside move. Meanwhile, near-term traders can take aggressive bets on these attractive risk/reward levels.

Long ideas in US Equities:

- Healthcare : GENZ (Genzyme)

- Technology: CSCO (Cisco Systems), ORCL (Oracle), AMAT (Applied Materials) and CREE (Cree Inc.)

- Consumer Staples: HSY (Hershey Co), MO (Altria Group Inc.)

- Media/Telecom: DTV (Direct TV)

March 17, 2008 – Market Review

Weekly Results:

S&P 500 -.4%, NASDAQ unch, Russell 2000 +.4% and MSCI Emerging Markets -2.0%

VIX (Volatility Index) +13.3%, Put/Call Ratio +12.9% and (VXY) Currency Volatility +12.2%

Historic, emotional and intriguing times indeed!

Solvency and liquidity are key factors in the ongoing credit crisis. These concerns play an important role across banks, hedge funds, auction markets, and real estate, eventually impacting US consumers. The desperate need for intervention and capital injection further illustrates the deterioration of Financial Services. Headline news such as Bear Sterns need for capital, illustrate the severity of the crisis. Over the weekend, the Federal Reserve was forced to lower the discount rate to 3.25% and JP Morgan acquired Bear Stearns.

The past 9+ months have been profitable for investors betting against Financials while additional opportunities lie ahead. In other words, Financials are still vulnerable, as the XLF (Amex Financials Index) is 29% removed from all-time lows set in 2002. At the same time, depressed investor confidence continues to disrupt financial systems. In terms of commodities, new psychological milestones as Crude trades above $100 and Gold broke through $1000. These results are a further reflection of a global trend of declining paper assets and surging hard assets. Again, this is a powerful and noticeable inverse relationship that continues to reach new extremes.

A week that witnessed explosive upside move in volatility, sharp sell-offs and breach of key technical levels. The volatility index rose 13% in anticipation of further market turbulence ahead. At the same time, most participants await more actions from the Federal Reserve in the holiday-shortened week. The big picture outlook reminds us that a cycle decline is in fully in place. That said, markets remain in "fear" mode as sentiment data showcases high anxiety levels. This is a period where financial professionals scramble for answers while aggressive traders seek out extraordinary risk/reward levels. Of course, for active investors this downtrend presents select buying opportunities. On a positive note, the S&P 500 is slightly holding above annual lows of 1270. Nonetheless, when panic selling takes place market timing is even more difficult.

Generally, turmoil breeds opportunity especially in areas with less exposure to interest rates and commodities. Previous winners in the last cycle (2003-2007) were driven by themes related to Credit, China and Crude. In addition, weakness in emerging markets can trigger a rotation into undervalued US stocks. Meanwhile, commodities are going up, but are too speculative for efficient risk management. Long-term cycle favors cash rich and innovative companies with solid fundamentals as attractive. Now, traders can view recent interventions as a catalyst for a market rally. At this point, investors can seek early signs of a bottoming process in quality areas especially in Technology and Healthcare. On a stock specific basis, few ideas are worth a look in the weeks ahead.

Stock Specific:

Staples:

HSY (Hershey Co): Attempting to stabilize between $34-38. On a technical basis, stock is making new highs after hitting annual lows of $33. Valuations are appealing as demand for specialty chocolate continue to rise.

MO (Altria Group): Add on weakness as stock approaches major support at $70. Appealing dividends, strength in profit margins and upside potential are positive factors for purchase.

Technology:

AMAT (Applied Materials): Recovering from oversold levels. Fundamentals are promising from solar panel exposure. Accumulate at current levels near $20.

ORCL (Oracle): Holding above key long-term support at $19. Setting up for a recovery as revenue growth and M&A opportunities look attractive.

Dear Readers:

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

March 10, 2008 – Market Review

Markets continue to respond to macro concern as talks of banks de-levering and Federal Reserve intervention are on the radar for most participants. For example, providing liquidity and restoring confidence are areas of key interest among global central banks. Clearly, investor sentiment remains negative as volatility continues to rise and sentiment indicators are too bearish. From a mainstream perspective, market declines are attributed to discussions of economic concerns, rising commodity price pressures and mounting fear in the outlook ahead. In short, mean reversion in credit deterioration and commodity acceleration has not materialized.

Last week economic data failed to provide investors a positive catalyst. Not to mention the lingering effect of housing slowdown. Even oversold technical signals were not enough to spark a recovery in broad markets. Interestingly, the S&P 500 barely closed above its annual lows of 1270.05 reached on January 23, 2008. Perhaps, it is a bullish sign for a near-term recovery. Nonetheless, downtrend remains intact. This is showcased in Financials as the XLF (Amex Financial SPDR) has given up all its gains from 2004-2007. The index is 31% removed from its all-time lows reached in 2002. Therefore, there is room for downside move in the weakest group in this market correction. This reflects the trend shift in the business cycle as markets pause from multi-year bullish run.

There is a growing demand for cash rich companies with quality balance sheets, especially given weak returns. The current trend of declining yields, rising risk in small cap stocks and speculative commodity prices all contribute towards a favorable environment for "cash rich" stocks. For example, the US 10 year yield is down nearly 30% since September 2007. Meanwhile, Wal Mart (WMT) bottomed in the same period and is up nearly 22%. This emphasizes that cash rich companies with solid fundamentals can create upside potential. In fact, for select large companies there are opportunities despite growing credit worries. "In January 2008 U.S. corporate borrowing was $101 billion, up slightly from the same month a year ago" (Ken Fisher –Forbes).

A long-term cycle perspective suggests that Large Cap is setting up for market leadership. Last year demonstrated early indication of relative strength in big cap themes. This rotation can present a sustainable upside move for 2-3 years. That said, selective approach is critical, this demonstrates attractiveness of companies in developed markets. Especially in themes related to innovation while having fundamental strength. Additional pessimism and investor selling of previous cycle winners can enhance demand for neglected and undervalued themes in US markets.

Stock Specific Ideas:

Healthcare:

GENZ (Genzyme): Consolidating at current levels between $70-75. Add on weakness as leadership remains intact with solid fundamentals.

Stock is appealing as it offers exposure in large cap Biotechnology.

STJ (St.Jude): Reaching a buy point at current levels. As a leader in the medical equipment group stock is cheap on a relative basis. Importantly, long-term technicals suggest adding on weakness.

Technology:

ORCL (Oracle): Relative strength is intact since summer 2006. Approaching major support at $19. Further declines enhance risk/reward for buyers. Company looks to benefit in a favorable M&A environment and upcoming quarter results.

AMAT (Applied Material): Recent expansion in the solar panel industry bodes well for long-term outlook. Stock is up 25% since early January 2008. Expect further upside move as fundamentals continue to improve.

Media:

DTV (Direct TV): Stabilizing at current levels between $22-24. Stock is attractive given increasing subscriber demand, international expansion and positive momentum.

Market Outlook – March 3, 2008

Weekly Results:

S&P 500 -1.66%, NASDAQ -1.38% Russell 2000 686.18 -1.33% and MSCI Emerging Markets +.80%

Market Outlook – March 3, 2008

As we enter the first trading day of March, the macro environment appears like a continuation of second half 2007. Explosive rise in Commodity prices, new lows for US Dollar, and lack of stabilization in US markets. Once again, interest rate sensitive and commodity related groups continue to dominate investor focus. The unraveling of fundamental weakness is even keeping the biggest optimists away from buying at near-term lows. Clearly, the on-going sell-offs are contributing towards higher volatility. Last week, VIX (Volatility Index) increased 10% and VXY (G7 currency volatility) rose 11.52%. Not surprising to see lingering fear as "unexpected risks" is not fully flushed out of Financials. Plus interventions by policymakers of key global markets result in more uncertainty.

As most participants reduce overall risk appetite there are opportunities in neglected themes. In the weeks ahead, Federal Reserve decisions and economic data are key near-term market drivers. Additional downside move (S&P 500 1270 and lower) in stocks can create better odds to purchase. As macro concerns settle down then new trends can emerge creating stock specific bargains. Rotational themes become attractive, as investors realize that performance chasing (i.e. Energy and Emerging Markets) results in less than favorable odds. At this point, just like the summer months, most investors are not convinced of a pending trend shift. It is worth watching the effects of credit concerns into the behavior of Emerging Markets. This can provide clues for an inflection point in global cycles.

Market timing becomes even more challenging in periods of immeasurable risks, unclear trends and irrational behavior. Generally these factors create less interest in equities for passive participants. As seen in the past few weeks there is a herd-like tendency to chase performance. Ideas with long-term sustainability and attractive risk/reward are favorable. In other words, identifying only cheap valuations may not be enough. At the same time, picking only sectors and groups might not create desired returns given the risk in the marketplace. Interestingly, these are times where strength in solid fundamentals can be rewarding. Nonetheless, for aggressive participants the next few weeks can open doors for entry points in Developed Markets, Innovation themes, Large Cap Growth and Cash rich companies. That said, on a stock by stock basis there are select areas worth a closer look.

Stock Specific Ideas:

Food:

HSY (Hershey Co.): Deeply oversold after peaking in 2005. Currently holding above long-term support of $35 and recently showing signs of bottoming at the $33- 37 range. Part of the decline includes its high exposure to US markets. Nearly, 80% of its sales are from US consumers. That said, current expansion to global markets, attractive valuation and new management can create a catalyst for an upside move.

Technology:

CSCO (Cisco): Price declines offer entry points as stock stabilizes around $24. Along with solid fundamentals, expansion through acquisitions create positive long-term outlook.

JNPR (Juniper Networks): Positive relative strength in the past few months. Improving revenue and growing demand of on-line videos bodes well for stock performance. Buy point near $25 and promising long-term outlook.

Chemicals:

DD (DuPont): Attracting buyers near $44, this serves as key support level. Company benefits in growth in agriculture needs, as well as a move towards recyclable packing. Provides an exposure in sales growth from Developed markets.

MACRO LEVELS:

Crude: Overbought in the near-term after reaching all-time highs on February 28, 2008 at $102.70. The commodity is up nearly 50% since lows set on summer of 2007.

Natural Gas: Long-term trend is positive. Strong move in the past 3+ months. Next key level is near $10, reached in the first quarter of 2006.

Gold: Similar to Crude, Gold is up almost up 50% since summer 2007 lows. Despite long-term uptrend, the recent upside move is reaching speculative levels.

US 10 Year Yield: Weakness continues after reaching 3.95% on February 20, 2008. Approaching annual lows at 3.28%.

US Dollar (DXY): Reached all-time lows, yet again, last week at $73.56. Currency index is down nearly 40% after peaking in July 2001.

S&P 500: Multi-week consolidation continues between 1300-1400. Once again, major support resides near annual lows of 1270.

EEM (MSCI Emerging Markets): Attempting to stabilize after peaking in November 2008. Consolidation phase continues as near-term momentum remains extended. Major support level around $128 reached in summer lows.