Market Outlook – August 4th 2008.

Market Outlook – August 4^th 2008.

Weekly Results:

S&P 500 1,260.31 +.20%
NASDAQ 2,310.96 +.02%
Russell 2000 716.14 +.82%
MSCI Emerging Markets 42.57 +.29%

Taking a step back :

Since mid-July, markets have witnessed a sharp upside move despite an established downtrend. Mixed earnings, unclear economic data and undefined trends continue to confuse investors. In weeks ahead, investors' challenge is to sort out noise and look for developing themes. Meanwhile, some participants are attempting to identify leadership groups for the second half of 2008. On one hand, a bottom appears close based on mean reversion. That being said, fundamentals of credit markets remain weak from various angles. Given this enigma, most await for clues in pending elections and actions by the Federal Reserve.

Macro Relationships:

Yet again, the behavior in Crude prices and Financials sector are topics of high interest for participants. July showcased an early glimpse of reversal patterns in exiting macro trends. After multi-year run of higher oil and lower financials, last month showcased a different story. Crude declined from highs of $147 to $124. At the same time, (XLF) Financial index rose nearly 5%. Importantly, global markets are slowing which partially contributes to declining demand for commodities.

"The LME index tracking the six main metals traded on the bourse dropped 4.8 percent in July, led by declines in copper and aluminum, the most-traded contracts on the exchange. Industrial- metals demand tracks global manufacturing activity." ((Chanyaporn Chanjaroen Bloomberg –Aug 1, 2008).

Steel Producers: (Short)

SID (CIA Siderurgicia), GGB (Gerdau SA) and TS (Tenaris)

Residues of credit crisis:

In the past few days, headlines in Financial publications remind us of the one year anniversary in the credit crisis. Of course, the results of deteriorating fundamentals are reflected in real estate, failing banks and stock market performance. Weakness persists in Financials, as REITS remain vulnerable along with European Banks. Finally, rising inflation in global economies contributes to this ongoing cycle slowdown.

"In the Eurozone, inflation accelerated to the fastest pace in more than 16 years, with the 15-nation number rising to 4.1% in July. Furthermore, economic sentiment declined to its lowest level in five years." (Northern Trust -Paul Kasriel)

European Banks (Short)

STD(Banco Santander SA), AIB (Allied Irish Bank) and DB (Deutsche Bank)

Readjustment Period:

Results of slowing global demand signal to a slowing consumer environment, lower risk appetite and negative investor sentiments. Further selling in commodities related areas presents opportunities for rotation into neglected areas. This current market cycle is a readjustment period, as major asset classes retrace from escalated levels. In this landscape, odds seem favorable for investors to narrowly isolate market exposure. Investment ideas in this "fear driven" period can spark volatility at a rapid pace.

Healthcare/ Technology:

These sectors are mostly mixed as seen during earnings season. So far, making a turnaround bet in these groups has not been easy. In terms of sectors, current cycle suggests that a recovery is favorable on a relative basis. Nonetheless, to enhance exiting risk/reward, more evidence or a turnaround seems necessary.

On the long side, select Biotech is attractive within US markets.

Healthcare Ideas: BLUD (Immucor), GENZ (Genzyme) and JNJ (Johnson & Johnson) and TECH (Techne).

KEY MACRO LEVELS:

Crude [$125.10] Oversold in the near-term. Holding above $120.75 key June lows. 50 day moving average at $133. Longer-term view, suggests a potential peak with further evidence needed for downtrend.

Gold [$912.50] Consolidating between $900-920. There are no signs of positive momentum since peak in March of $1011. Several attempted recoveries in the past few months. Buyers are seeking catalysts to drive accumulate around $900.

US 10 Year Yield [3.93%] after peaking in June 2007 at 5.32%, yields are attempting to recover in 2008. Basically, range bound near 4% yet above annual lows of 3.28%. Overall, poised to trade sideways between 3.80-4%.

DXY – US Dollar [$73.43] Positive bottoming process developing. The currency index has not made new lows since March 17^th.

S&P 500 [1260] : Holding above key support of 1200 which marks annual lows reached on June 15th. The last time index traded below 1200 was in November 2005.

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 Thoughts | July 28 2008

Weekly Results:

S&P 500 1,257.76 -.23%
NASDAQ 2,310.53 +1.22%
Russell 2000 710.34 +2.49%
MSCI Emerging Markets 42.46 -1.52%

A confusing period given mixed economic and earning data. Once again, Financials and Energy are at the center stage and at extreme ends of market performance. This trend is a topic of interest for policymakers and investors. Interestingly, politicians are seeking “praises” for actions leading to declines in Crude. Perhaps, this makes sense in an election year. On the other hand, veteran observers point out a cycle correction in commodities. Meanwhile, investors question the legitimacy of recent downtrend in Crude and growing optimism in equity markets.

In the past year, participants have witnessed peaks in themes related to Credit and China. That said, Crude appears next in line to retrace from escalated levels. The big picture suggests a trend shift in the global macro cycle. At this point, observers will attentively watch overall buying interest in Crude, results in earnings of energy companies and pending legislations.“Investors who have built up positions in Energy names throughout oil's run-up this year surely have a sour taste in their mouths this month. Since oil peaked on July 11th, the average S&P 1500 Energy stock is down 9.96%, while the S&P 1500 as a whole is up about 2%.” - July 27, 2008 Bespoke Investment Group.

From portfolio management view, earnings season can create near-term movements in weeks ahead. When assessing portfolios on fundamental basis, its important to keep in mind macro conditions, investor sentiment and geopolitical factors. Focusing on stock specific calls and isolated groups makes sense since a clear area of leadership is undefined. At this junction, the environment requires for one to trade less and consolidate stock holdings. “There were 1304 new lows on the NYSE Tuesday July 15. That number dropped to 51 last Wednesday.” Alpha Investment Management – 7/26/2008. Perhaps, this signals a turnaround but additional catalysts are needed for sustainability.

Technology and Healthcare appear mostly scattered and making sector calls presents less than favorable odds. Biotech continues to demonstrate relative strength. IBB (I­shares Biotech Index) jumped from $76 to $86 in the past five weeks. Conversely, Large Cap Pharmaceutical is not an easy place to pick stocks especially given regulatory risks.

Healthcare Ideas: BLUD (Immucor), GENZ (Genzyme) and ILMN (Illumina Inc), JNJ (Johnson & Johnson) and TECH (Techne).


KEY MACRO LEVELS:

Crude: Declining from all-time highs of $147 to $123. Next critical level between $120, followed by $112-115.

Gold: Failing to reach March highs of $1011. Consolidating back to a trading range between $880-920. Approaching 200 day moving average of $880.

US 10 Year Yield: Attempting to hold above 4%. Annual highs of 4.27% serves as a key resistance level reached on June 13.

DXY – US Dollar: Once again, stabilizing between $72-73. No major evidence of a recovery. Index remains above $72 since mid April.

S&P 500: Recovering from annual lows of 1200. Next key level include 1300 followed by 50 day moving average of 1324.

Weekly Results :

S&P 500 1,260.68 +1.71%
NASDAQ 2,282.78 +1.95%
Russell 2000 693.08 +2.69%
MSCI Emerging Markets 129.33 -.46%


Plenty to digest in an eventful mid-summer week. Numerous events caused reactions but yet some confusion remains.


Market Cycles and Politics as usual:

Heading into last week, broad indexes were deeply oversold as fear gauges escalated to extreme levels. Intervention by policymakers launched a sharp recovery from annual lows. This resulted in a sense of relief and optimism. Two major catalysts included the rescue of Fannie and Freddie, and a new SEC rule for short-selling. Perhaps this reminds observers, that Cycles and Politics play a key role in market psychology. In the past 1+ year Energy and Financials have been the two extremes in this market; currently both are nearing an inflection point. These changing dynamics can determine overall market sentiment, regardless, additional confirmation is needed.

Cycles :

From a cycle view, odds for a trend reversal present an appealing argument. After losing more than half its value since February 2007, the Bank index(BKX) lead the market higher last week. Conversely , Crude dropped more than 10% as it closed below $130 . Clearly, for investors these events trigger questions about sustainability. Now money managers have to consider readjusting portfolios for the second half. In the past few quarters , bottom seekers in Financials have guessed incorrectly and calling tops on Crude has been a costly bet. In the weeks ahead, earnings can dictate the potential of an upside surprise given the existing bearish expectations. Volatility is declining significantly, and Larger cap is at a favorable point of the cycle. That said, it makes sense for investors to expect new areas of leadership and ongoing sector rotation. Technicals are set up for mean reversion at least in the near-term. On the other hand, fundamental improvement is not evident but odds look favorable for an upward bias.

Politics:

Interestingly, the long awaited trend shift (from higher oil/ lower stock market) is catching the attention of lawmakers, the Federal Reserve and regulators. In an election year, a weak stock market and weakening economy can increase the need for action. The same way speculators are blamed for bidding oil prices higher, now short-sellers of Financials appear to be the next targets. Of course, policymakers and traders think differently and have different objectives. That being said, investors cannot ignore the impact of an election season and pending policies.


Portfolio Management :

Pending decline in commodities can attract capital into innovative areas. Results of changing dynamics, present entry points in themes that have underperformed in the past few years. Those areas include, Technology , Healthcare, Large Cap Growth, media and telecom. Given mixed earning data, a stock specific approach can be more rewarding at this point. As for emerging markets and commodities, further weakness can offer shorting opportunity. Finally, the fundamentals of non-large cap banks remain susceptible despite bail out efforts.



MACRO LEVELS:

Crude[128.88]: After making new highs in the past 3 weeks, index failed to reach record highs of $147.27. Braking below $130, has set off a near-term downtrend.

US 10 Year Yield [4.08%]: Trading above 3.80% for over four months. Attempting to stabilize near 4% level. Next key upside level is at annual highs near 4.27% last month.

US Dollar – DXY [72.18]: Showcasing signs of bottoming since March lows. No major confirmation of a turnaround and remains in a tight trading range.

Gold [959.75]: Uptrend intact. Recent rally from May lows are approaching all-time highs of $1011. Poised for near-term correction as it is 16% removed from its 200 day moving average.

S&P 500 [1260.68]: Bounced sharply from annual lows of 1200. Oversold in the near-term. Next key level is 1300 followed by 50 day moving average of 1337.

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 Thoughts | 7/14/2008

Weekly Results:

S&P 500 1,239.49 -1.85%
NASDAQ 2,239.08 -.28%
Russell 2000 674.95 +1.38%
MSCI Emerging Markets 129.92 +.32%

An eventful week highlighted by an on-going credit crisis. It is evident that weakness in Financials and deteriorating fundamentals in housing are among the key drivers of a market downtrend. Charts do remind us, that Financials peaked in February 2007. Since that period, the Bank index (BKX) is down 55%. Recently, there are growing speculations and looming rumors of takeovers . The net effect has yet to change the macro relationship of higher oil/low stock market. Perhaps there is room for further fear as VIX (Volatility Index) is 36% from annual peaks reached in January. History has shown that markets tend to overreact at the extreme ends of cycles. Therefore, a sharp downside move can create opportunities for buyers. That said, an interesting week ahead with earnings, option expatriation, Federal Reserve testimony and policymakers deliberations.

A colorful second quarter after a poor broad market performance in the first half of 2008. Year to date, S&P 500 is down 15% . Unsurprisingly, inflow into money markets has increased. According to Invesco Co Inst, Money market funds have risen by 24.3% annualized. Clearly, this is a reiteration of declining sentiment, growing fear and less risk tolerance. Nonetheless, there are catalysts for optimism, including the fall elections. Odds makers do realize that technicals indicators are oversold. Similarly, short-sellers recognize that taking some profits at these levels might make sense. Both can create an upward bias especially with policymaker intervention.

Many observers point out that we are reaching an inflection point. In recent days, there is an early indication of a disconnect between Crude prices and Energy stocks. In other words, the commodity continues to make new highs while energy shares underperform. This relationship might be short-lived or possibly indicate a change in current dynamics.

In case of a trend shift, Technology and Healthcare set the stage for a market "recovery" . Now with earnings season upon us, stock specific news should drive majority of market behavior. Those seeking value will pay close attention to groups related to Media, Technology, Communication and Biotech. Perhaps, leaders of a new cycle reside in sectors that are oversold from long-term perspective. For those willing to tolerate risk, there are opportunities to position into innovative themes.

STOCK SPECIFIC:

Long:

Technology :

· SWKS (Skyworks), PLCM (Polycom), and LSI (LSI Corp)

Media/Telco:

· AMT (Amer Tower) and DTV (Direct TV)

Healthcare:
Biotech: On a realtive basis, group remains strong especially since the end of 2007.

· TECH (Techne), CBST (Cubist Pharma) and GENZ (Genzyme)

Global weakness / European Banks:
Combined with emerging markets peak, recent worries of global inflation can inversely affect European Financials and Basic Materials.

SHORT IDEAS:

European Banks remain vulnerable and investors have reasonable fundamental concerns.

· STD (Banco Santander SA), AIB (Allied Irish Bank) and DB (Deutsche Bank).

Similarly, as global demand slowdown, global companies such as steel producers remain vulnerable.

· Brazil: SID (CIA Siderurgicia) and GGB (Gerdau SA)

· Argentina: TS (Tenaris SA)

Market Observations | July 7, 2008

Weekly Results:

S&P 500 -1.58%
NASDAQ -3.27%
Russell 2000 -4.67%
MSCI Emerging Markets -4.18%

As we start the second half of 2008, optimists and bottom pickers are struggling to find many signs of a turnaround. Also, investors who profited from growth in emerging markets are reexamining their bullish views. Overall, attention is shifting to concerns in global inflations as policymakers look to take action. Meanwhile, the months ahead offer election results and pending rate hikes by the Federal Reserve. Perhaps, US investors await a further catalyst for change in recent trends.

Despite the holiday shortened week, the S&P 500 barley closed above its annual lows (1251). On the other hand, Crude is at record highs while investor sentiment is overly pessimistic.

On February 19^th Crude broke above $100 – a key psychological level. Since that period, the S&P 500 has fallen nearly 7%. The rise in Crude prices is a result of positive momentum which remains a powerful force especially in the past two quarters. Popular reasoning for rising oil includes: supply/demand factors, booming global growth and increasing speculation. Nonetheless, the key takeaway is a positive cycle which has intensified by increasing bias in investor psychologically. That said, there is a growing trend among politicians to blame speculators. On that note, The Economist offers a different perspective:

"neither index funds nor other speculators ever buy any physical oil. Instead, they buy futures and options which they settle with a cash payment when they fall due. In essence, these are bets on which way the oil price will move. Since the real currency of such contracts is cash, rather than barrels of crude, there is no limit to the number of bets that can be made. And since no oil is ever held back from the market, these bets do not affect the price of oil any more than bets on a football match affect the result." ("Don't Blame the Speculators"- Jul 3rd 2008 -Economist)

Last week, the European Central Bank raised interest rates. This signals early indications that inflation is impacting global economies. Similarly, steel producers declined last week. Perhaps, these are early stages of visible weakness in emerging market companies related to commodities. In addition, credit weakness results in tighter lending which severely impacts fundamentals of banks.

Regarding European Banks:

"Goldman Sachs believes regulatory pressures and a sharp turn in the European credit cycle are the two main causes for concern for bank investors. As a result, it estimates European banks would need to raise EUR60 billion-EUR90 billion. Banks would have to consider the upper end of its estimate if the turn in the credit cycle triggers loses in line with those seen in the early 1990s." (DowJones Newswire—7/04/2008)

Portfolio Management:

Ongoing global concerns can present opportunity for betting against European banks and steel producers across various countries. In terms of timing, recent sell-offs can produce a near-term recovery. As the start of this quarter, managers might have an increased appetite for risk.

European Banks (Short)

STD(Banco Santander SA), AIB (Allied Irish Bank) and DB (Deutsche Bank)

Steel Producers: (Short)

SID (CIA Siderurgicia), GGB (Gerdau SA) and TS (Tenaris)

On the long side, few Technology and Healthcare ideas are worth a closer look. A rotation out of emerging markets benefits US markets.

Technology: (Long)

SWKS (Skyworks), AMAT (Applied Materials) and ORCL (Oracle)

OVTI (Omnivision): Attractive technicals with bottom pattern near $11. Improving fundamentals for the company in the camera phone market.

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.

Weekly Results:

S&P 500 -3.0%
NASDAQ -3.76%
Russell 2000 -3.80%
MSCI Emerging Markets -2.69 %

Market Thoughts | 6/30/2008

Near-term:

The next few days present irregular trading patterns given the quarter-end, Russell Index rebalancing and oversold broad markets. One can expect money managers to protect profits and redeploy cash into new strategies. These activities are mostly related to market mechanics rather than a gauge for conviction levels. In addition, this is a holiday shortened week that features a much anticipated monthly economic data.

Big Picture:

Higher oil and lower stock markets are reflected in prices and are fully acknowledged by mainstream coverage. It's evident that policymakers and foreign leaders are closely watching these globally inter-linked markets. Powerful macro trends are affecting major asset classes. Commodities are near or at all-time highs; credit risk continues to deteriorate and recovery in US dollar is unclear. Once again, investors are seeking catalysts for trend-reversals. In recent weeks, concerns of inflation and a potential slowdown in Emerging markets are topics of interest.

Portfolio Management:

It is not an easy period for Asset managers, especially as the S&P 500 is down nearly 20% since October 2007 highs. On the positive side, broad markets appear oversold. That's after recent sell-offs which have nearly wiped out gains from March lows.

Risk tolerance and investment sentiment can determine the outcome of a potential rally. Further analyst downgrades, breach of technical levels and global inflation worries confirm the ongoing downturn. Nonetheless, mean reversion can be fast and furious when reaching extreme levels.

Financials remain vulnerable and require more patience for a recovery. Select areas in Real Estate and European banks offer shorting opportunities. Similarly, steel producers in Latin America are reaching extreme levels. Companies can face pressure if demand is lower than expected. Finally, US based Innovative and Large Cap area present attractive entry points.

Key Levels:

S&P 500 : [1278.38] At the low range of annual trading range between 1300-1400. Currently, index is a few points away from March 17^th lows of 1256.98. Momentum suggests a minor recovery and psychological level is near 1250.

Crude: [140.21] Record week with intra-day highs of $142.60. June established a new trading range between $130-140.

Gold [919.50] Strength developing in the past 2 weeks. Growing buy interest among investors below $860. Annual highs stand at $1011 reached March 17^th.

DXY –US Dollar [72.36] Interestingly, the currency has declined since reaching a peak on June 13^th. Perhaps, a reflection of unclear Fed Policy concerning interest rate hikes.

US 10 Year Yield: [3.96%] Struggling to stay above 4%, after a surge in yields this second quarter.

Market Observation| June 23, 2008

Weekly Results:

S&P 500 -3.10%
DJIA -3.77%
NASDAQ -1.97%
MSCI Emerging Markets -1.33%

As we are set to close out the second quarter, there is a growing anticipation that markets are reaching an inflection point. Last Friday marked quadruple witching. A day when contracts for index futures, index options, stock options and stock futures expired. Generally, this quarterly occurrence results in abnormal and turbulent trading. Clearly, this contributed to rising volatility- a reflection of ongoing anxiety among participants.

It has been a difficult year for money managers, given sideways market behavior, risk-aversion, credit worries and heightened skepticism. "According to numbers released by Hedge Fund Research (HFR) on Thursday, 170 funds liquidated during the first three months of the year compared with 138 funds that closed down during the same period in 2007." (Reuters – 6/19/2008). Again, a challenging period to produce desired investment results.

The strength in commodities and weakness in Financials continue to resurface yet again. Basically, this relationship has captured the majority of investors' focus. This narrowing stock participation in global markets presents complacency and lack of conviction. Simply, there is a lot of money chasing few ideas. Momentum is a key factor, where holders of energy keep adding to winners. Similarly, those betting against financials profit from betting on downfall of Financials. That said, the tide can turn at a faster than expected pace but the dynamics are not clear. In the weeks ahead, these macro dynamics suggest pullbacks in emerging markets and further weakness in Europe. That said, US markets offer relative attractiveness in select areas.

In approaching month end, global inflation is playing a big role. These impacts are discussed in headlines and addressed by Central Bankers. European banks remain vulnerable with declines in investor sentiment and unraveling of credit crisis. For example, "the median CPI for the 71 countries is 5.83% (YoY) compared to the most recent CPI of 4.2% in the US." (Bespoke Investments 6-22-2008) Worries in Financials are increasing as seen by declines in stock prices. Interestingly, increasing investor demand for risk aversion has lead to a launch of new financial products. The recent launch of CDR Counterparty Risk index enables investor to hedge credit risks of banks/brokers via. This is an example where Innovative products are gaining popularity. On the other hand this showcases that skepticism continues to persist.

European Banks: Short ideas based on weakening fundamentals.

· STD (Banco Santander SA), AIB (Allied Irish Bank) and DB (Deutsche Bank).

Steel Producers: In a slowing global environment these names can present short opportunities.

· Brazil: SID (CIA Siderurgicia) and GGB (Gerdau SA)

· Argentina: TS (Tenaris SA)

Macro Levels:

S&P 500 [1317.93]: Near-term downtrend is established. Approaching key support level of 1300. Broke below annual range between 1350-1400.

Crude[135.36]: Momentum is overbought just enough to attract short-sellers. Forming a new two week range between $138-132.

US 10 Year Yield [4.20%]: A recovery back to December 2007 levels. Expect consolidation between 4-4.20% after a strong run.

Gold [907.50] : Glimpse of recovery after 3+ month decline.

DXY US Dollar [73.03]: Mostly in a sideways pattern in the past 4+ month.

Market Outlook | June 16th 2008

Weekly Results:

S&P 500 -.05%
NASDAQ -.81%
Russell 2000 -.92%
MSCI Emerging Markets -4.17%

Macro Dynamics:

It was last summer when investments regarding China, Credit and Crude appeared extended or at least began to cool off. Obviously, anticipating a peak in oil proved to be wrong. Meanwhile, credit risk materialized and China topped few months later in October 2007. In the same period, investors resorted to risk-aversion while volatility increased, uncertainty expanded. In a similar way, last week witnessed sharp sell-offs in Emerging markets and in groups related to credit. Perhaps it is a friendly reminder of weakening fundamentals in global markets.

Growing concerns over Global markets is strongly tied to rising inflation following a multi-year bullish run. In looking ahead, decisions by policymakers on interest rates will be closely watched as investors speculate the market impact of rising rates. Somehow, the S&P 500 has managed to stay above March lows of 1256. Nonetheless, indexes lack clear direction. This sideways behavior partially reflects the dichotomy between betting on a turnaround versus adding to winning themes. In other words, the cost of being long and wrong is rising while the risk of owning elevated commodity groups has its consequences.

Certainly, there are numerous reasons for directionless markets as most sectors have yet to stabilize. First quarter 2008, resulted in all 10 S&P sectors finishing in negative territory. Also, risk-aversion among participants is forcing most to shorten their holding periods. Once again, a reflection of lack of conviction and rising volatility. Given these dynamics, markets are awaiting for further catalysts.

Macro Levels:

Crude: [$134.86]: Short-term range developing between $132-138. All time highs reached on June 6^th at $138.80. Meanwhile, major support around $126.

Gold: [$866]: The commodity remains in a 3+ month decline and approaching its 200 day moving average of $849.

DXY -US Dollar [74.14]: Slowly showing signs of a recovery since March lows. Nearly 4% removed from annual highs.

US 10 Year Yield: [4.25%]: Making new highs last week with Intra-day highs of 4.27%.

S&P 500 [1360]: Steady trading pattern between the 1350-1400 range. Seeking catalysts for defined move as near-term momentum suggests a slight bounce.

Financials:

A reflection on the credit crisis:

"Capital cushions eroded as assets were sold into distressed markets. The force of this dynamic was exacerbated by the poor quality of assets—particularly mortgage-related assets—that had been spread across the system. This helps explain how a relatively small quantity of risky assets was able to undermine the confidence of investors and other market participants across a much broader range of assets and markets." (June 9, 2008. Speech by President & CEO New York Federal Reserve).

The bursting of the credit bubble continues to generate headlines in Global Financials. Meanwhile, domestically further deterioration. The BKX (Bank Index) reached new lows and is down over 25% since May 1^st 2008. Some participants view the recent downside move reaching toward a mid/late stages of credit crisis. Although the risk/reward is not as extreme as last summer there are rotational opportunities.

In Europe, select regions are more vulnerable than others. In the early part of the decade, Spain and Ireland greatly benefited from rise in housing. An integral part of their economies growth came from favorable years of real estate cycle. Now, in a period of consolidation, these markets are more susceptible. That said, in the near-term European Banks might provide further downside move especially with US Financials become deeply oversold.

"Ireland, the US, the UK, Spain and Ireland face recessions of up to two years because inflation will prevent interest-rate cuts, Howard Davies, a former deputy governor of the Bank of England, has warned." (Independent I.E – June 14, 2008).

• Short Ideas in Europe: STD (Banco Santander SA), AIB (Allied Irish Bank) and DB (Deutsche Bank).

US Technology & Healthcare – Innovative Groups

Macro trends bode well for US Technology especially with a bias toward larger cap and growth stocks. Given the current environment, there is a compelling reason to seek a turnaround bet in US markets. After several years of market leadership China and India are clearly slowing. Year to data, the Chinese's stock market is down 45% and India is down 23%. In addition, rising global inflation and risk-aversion should contribute to upside catalyst in Technology names.

From a cycle viewpoint, neglected themes are poised for a recovery. Innovation themes remain attractive on a relative basis and are appealing yet again. At the same time, frustrated investors know too well that these groups require patience. Nonetheless, the challenge is identifying specific companies and identifying timely entry points.

Long Ideas:

• Technology :
• SWKS (Skyworks), PLCM (Polycom), AMAT (Applied Materials) and LSI (LSI Corp)
• Media/Telco:
• AMT (Amer Tower) and DTV (Direct TV)
• Healthcare:
• TECH (Techne), CBST (Cubist Pharma) and EYE (Advanced Medical Optics)

Vulnerable Emerging Markets:

Slowing global shipment in commodities can have an inverse affect on fundamentals of steel producers. The Baltic Dry Index which measures cost of shipping commodities is showing early sings of weakness. Also, bullish run in emerging markets has resulted in speculation. This has led to over-optimism in growth estimates for years ahead. For aggressive investors, few opportunities in betting on a downturn of steel producers in Latin America.

Steel Producers:

• Brazil: SID (CIA Siderurgicia) and GGB (Gerdau SA)
• Argentina: (Tenaris SA)

Market Review – June 9, 2008

Market Review – June 9, 2008

Weekly Results:

S&P 500 -2.84%
NASDAQ -1.91%
Russell 2000 -1.06%
MSCI Emerging Markets -3.02%

Macro Reactions:

Just a week ago, Crude traded below $130, US 10 Year yield closed above 4%, S&P 500 finished above 1400 and VIX (volatility index) held-in below 20. Nonetheless, these five key indicators reversed their near-term direction and resumed back to their multi-year trends. Reoccurring big picture topics include weakening economy, sideway markets, historic rise in Crude and lower Financials. A furious back and fourth action which showcases that, turnarounds are sharp, information is abundant and yet macro themes are intact. Clearly, these are not new trends in the marketplace, but rather a reiteration of ongoing cycle.

Looking ahead, deciphering numerous headline noises and maintaining a long-term focus are primary concerns for investors in the upcoming weeks. The current environment should test various strategies and conviction levels. In addition, the summer months present other catalysts such as the upcoming elections, Federal Reserve decisions and developing geopolitical events.

Certainly, it is difficult to ignore the price action of Crude prices especially last Friday. At this point, "peak oil" theory appears as popular as those arguing "supply shortage". Either way, these discussions do not distort the ongoing bullish run. At the same time, Financials offer shorting opportunities as global fundamentals continue to deteriorate. On the other hand, innovation based US themes are worth a closer look. In the past 6 months, it's evident that making a sector and directional bets has been difficult. Importantly, fighting existing trends does not pay out as much as looking ahead.

Key Macro Levels:

Crude: [$138.80]: Closed at all-time highs. Intra-day highs stood at $138.80 which is nearly a 4% upside move from previous peak.

Gold: [$890.50): Signs of stabilization between $850-900. Interestingly, 50 day and 15 day moving averages stand at $898.

DXY US Dollar [72.39]: Since March, index is attempting to bottom. Currently, far removed from 200 day moving average and trend reversal remains questionable.

US 10 Year Yield: [3.90%] : Consolidating after a 90 day upside move. Trading in a narrow range between 3.80-4%.

S&P 500 : [1360.68]: Nearly 6% removed from annual highs reached on May 19^th (1440).

Weakening Financials:

The downtrend in US Financials is clearly defined and highly publicized. In fact, the most frequentlyshorted name in the NYSE last month included the California lender FED (First Federal). Others Financials Top 10 heavily shorted stock list includes DSL (Downey Savings) and GHL (Green Hill & Co). This reflects how investors have recognized the impact of the credit crisis in US banks. Perhaps, optimists can argue that negative sentiment has reached extreme levels. NYSE Short interest continues to reach new highs :"At current levels, short interest represents 4.3% of all shares outstanding and has now risen by more than 40% from its levels in October when the S&P 500 peaked." – (Bespoke Investment Group).Nonetheless, a sustainable trend reversal in Financials requires additional time. Before last week, BKX (Bank Index) held above $75 range four times in 2008. Recent breakdown demonstrates a technical weakness and compounding impact in the psychology of investors. In addition, underestimated weakness in commercial real estate can have an inverse impact on REITS.

In terms of portfolio management, one can rotate short positions from US banks into vulnerable European Banks. Select areas present additional downside opportunities overseas especially from a risk/reward perspective. Of the $387bn in credit losses that global banks have reported since the start of 2007, $200bn was suffered by European groups and $166bn by US banks, according to data from the Institute of International Finance, a Washington-based banking group." (Financial Times – 6-05-3008).

• European Banks Shorts: AIB (Allied Irish Bank), BCS (Barclays) and DB (Deutsche Bank).

Neglected Innovative Groups:

Despite a nearly 3% decline in broad markets, groups in technology held in and showcased relative leadership for the week. For example, leading groups included Computer Hardware +1.24% and Disk Drives +1.12%. There are plenty of choices for those willing to make a turnaround bet in Technology. Especially as odds for a sector rotation become more favorable. Fundamentals across the sector are poised to recover after stagnant performance for the most part of this decade.

Technology:

SWKS (Skyworks Solutions): Attractive relative strength as Company plans to expand its market share. Growth in wireless communication creates demand for 3G broadband technology. Use pullbacks as buying opportunity near $10 per share. Momentum is positive in the past two quarters.

PLCM (Polycom): Continues to benefit from growth in video conferencing. Stabilizing around $24 with a positive long-term outlook.

Media/Telco: AMT (Amer Tower) and DTV (Direct TV)

Healthcare: CBST (Cubist Pharama), JNJ (Johnson & Johnson), and EYE (Advanced Medical Optics)

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 Outlook: June 2, 2008

Weekly Results:

S&P 500 +.43%
NASDAQ +2.36%
Russell 2000 +2.08%
MSCI Emerging Markets -.10%

Macro Review:

As May draws to an end, higher Crude and lingering Credit Crisis are at the focus of investors, pundits and observers. Perhaps, most are anxious for the emergence of new themes and directional changes. In some cases, these trends are becoming a socio-political issues just as much as portfolio management. This illustrates the power of multi-year cycles, where momentum and psychology play larger roles. Outside of the big picture, early signs of trend reversals resurface occasionally. Interestingly, the past three months have showcased a rise in yields, weakness in Gold, stabilization in US dollar and sideways pattern in equity markets.

For those optimistic about the equity markets generally watch the behavior in Financials. Banks' stocks generally lead to overall market direction. In the short-term, the implementation of the Federal Reserve lending facilities have contributed to some stabilization. Optimists argue, that credit markets are witnessing improvement. For example, XLF (AMEX Financial Index) has traded in a range since the start of year. BKX (Bank Index) has held above $75 range four times in 2008. Once again, buyers are being tested as the index revisits levels near annual lows. Nonetheless, weakening fundamentals require additional time for a sustainable recovery.

Key Levels:

Crude (127.32) : Recent pullbacks from intra-day highs of 133.70. Momentum is extended in the near-term as 50 day moving average stands at $116.64.

Gold ( 885.75): Attempting to stabilize between $850- 900. After reaching all-time highs in March, the commodity is in a 3+ month decline.

DXY US Dollar (72.87): Signs of bottoming between $72-73. Holding above March 17^th lows and seeking an upside catalyst.

US 10 Year Yields (4.05%): Yields breaking above key 4% level. Currently trading above 200 day moving average.

S&P 500 (1400.38): Closed at 1400 with next resistance level at 1425. (200 day moving average). Volume in recent weeks is steady as index remains in a sideways pattern.

Portfolio Strategy:

A potential pause in commodities, presents rotational opportunities into innovative based themes. Although, it is too early to call tops in Crude, a shift into select neglected areas provides favorable odds. In other words, performance chasing at elevated levels has its costs on overall portfolio performance.

"A sell-off in oil could spell big losses for the pension funds, municipal funds, college funds, unions and other groups that jumped out of equities-market plays and into the indexes, but have little experience or flexibility to deal with fundamental changes in commodities." (Reuters: 5-30-2008).

On the other hand, Technology, Media and Communication are attractive on a relative basis. Upside catalysts for cycle shift include, decline in Gold prices, rise in US Dollar and less market volatility. Importantly, select ideas in Large Cap Technology are more appropriate for 6-12 months.

Stock Specific Ideas:

Technology: CSCO (Cisco), LSI (LSI Corp), NICE (Nice Systems), ORCL (Oracle), and FLEX (Flextronics)

Media/Telco: AMT (Amer Tower) and DTV (Direct TV)

Healthcare: GENZ (Genzyme), JNJ (Johnson & Johnson), and EYE (Advanced Medical Optics)

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.