Navarro's Broad Market Outlook
There's a really good article in this weeks Barron's called “Leave Them Low” which explains which interest rates should stay low.  The key drivers are: (1) A lack of consumption in Asian countries commensurate with their export prowess, which leads to a HUGE savings surplus that gets recycled in international markets and keeps rates low, and (2) A huge buildup of petrodollars in the Middle East and Russia which, unlike in other eras, is not being wasted on war and an arms buildup.   Toss into the mix rapid Chinese productivity gains which create huge deflationary pressures and, at least according to Zhao, there's no reason for interest rates to go up.   Of course, the downside in this “equilibrium” is that the U.S. will continue to effectively trade its assets for imported goods and down the round this will take its tool on the long term growth path.

Just some food for thought as we continue to work our way through the morass….

Aloyan's Technical Take: “The Market Has No Clothes!”
The markets bounced this week, with all three major indices finishing in the green.  The Dow closed up 57 points (.55%) at 10461, the S&P 500 was up 8 points (.71%) at 1181, and the Nasdaq was up 15 points (.73%) at 1999.  Resistance is around: 10471, 10600, 10867, and 10984 for the “Dow,” 1192, 1200 area, 1210, 1218, and 1229 for the S&P 500, and 2000 level, 2020, 2072, and 2100 area for the Nasdaq Composite.  Support is at: 10387, and 10241 for the “Dow,” 1181, 1166, and 1142 for the S&P 500, 1978, 1950 area, and 1926 for the Nasdaq Composite.  

My sector breadth indicator was positive, with 65% of the sectors in the green.  The Drug sector led the strength, while the Internet sector led the weakness.  The dollar was relatively flat on the week, as it struggles to produce closes over the 85 area on the Dollar Index.  If it does produce 2-3 closes over 85, this could move the Dollar Index up 2+% very quickly.  Bond yields moved up last week, with the 10Yr Treasury Yield closing at 4.49%. 

My trend indicators remain down for the S&P, “Dow”, and the Nasdaq.  My breadth, momentum, and volume indicators remain “bearish.”  My sentiment and economic/fundamental indicators continue to support a defensive position.

Hedging Your Bets With Matt Davio
Take #1: It appears we now have oil and housing topping at almost concurrent moments. Very interesting indeed.   Housing Daytraders (Flippers) are showing up in my local (small Oregon town) market  along with all the national “hot markets”. This sure reminds me of a time not so long ago in US equity markets. 

Remember when the music stopped playing in March of 2000, and liquidity dried up and prices evaporated?  The same thing I do believe will happen in the housing market. Just when the will the music (and hammers) stop, that is the billion dollar question.

In this regard, Uncle Al, everyone's Fed pal, has been the prime mover of the housing boom with his ultra-easy money policy in the wake of the 2001 recession and 9/11 shock.  Now, we are very late in the Housing/Real Estate party, and I would contend the drunks are running wild.   My mother always said, “nothing good ever happens after midnite”, and she is right as usual.  I think with the housing party, we are around 2 am already.

Take #2: Volatility is decreasing to near 9-year lows again! Tough for the fast money to make money under those conditions - so where will it go? 

I've got my eye on the CBOE Nasdaq Market Volatility Index (VXN) which has just moved below the “death valley” level of 17. By “death valley” for the VXN, I mean that moves below 17 over the past four months have coincided with the termination of rallies in the underlying Nasdaq 100 Index (NDX).

Despite finishing in the green, the market grinded all week and really the bounce we saw was pathetic and I think we will still see a big whoosh by summertime.  Let's get the earnings party started next week and shake the volatility tree.

Peter's Portfolio: Goodbye to My Beloved WMB
After watching my beloved WMB go through a triple top and fail to break $20 three different times and with oil prices softening, I've cashed in my WMB 2006 calls with a nice gain - but less than I had hoped for.  Plan to reload with 2007 calls at 20 bucks at some point as I believe this is a $25  to $30 stock.  The risk to reward is unfavorable now.

I've been reading Barron's Technology Week section for over a year, and it is usually a totally worthless exercise.  Finally, however, one of the columnists made some sense in suggesting Kodak might be an interesting speculation at this point.  The trigger would be Dell switching from Lexmark to Kodak for a lot of its printing needs.  I'll be watching it.

My ARDI position is in the red but still like it.  ZILA is inscrutably well off its high despite what should be a very bullish outlook.

David's Pick: Cash.

Peter Navarro is a business professor at the University of California-Irvine (www.peternavarro.com).  David W. Aloyan is a managing member of Platinum Capital Management, and can be contacted for investment services at platinum@peternavarro.com.   Matt Davio is a managing partner at the hedge fund, Infinium Partners, and be contacted for hedge fund services at infinium@peternavarro.com.

DISCLAIMER: This newsletter is written for educational purposes only.  By no means do any of its contents recommend, advocate or urge the buying, selling, or holding of any financial instrument whatsoever.  Trading and investing involves high levels of risk.  The authors express personal opinions and will not assume any responsibility whatsoever for the actions of the reader.  The authors may or may not have positions in the financial instruments discussed in this newsletter.  Future results can be dramatically different from the opinions expressed herein.  Past performance does not guarantee future performance.