Navarro's Broad Market Outlook: A Rally or Range Bound?
With so many reasons to be bearish - budget and trade deficits, fed rate hikes, incipient inflation, war in Iraq, the end of the refi boom, etc. - it's important to keep asking one's self what would it take to become bullish?   Two things really.   The Fed has to back off from its inexorable rate hikes and, much more importantly, oil prices have to go into a sustained decline back well below $40 a barrel.  Otherwise its hard to imagine a robust economy.  Or is it?

Consider that with a now much weaker dollar, hordes of foreigners are scooping up all sorts of America assets.  Hey, they fly in from Asia and Europe on real estate shopping tours and scoop up condos and houses in prime locations - from San Diego to Miami.  Sure, the housing prices look high to us but if the euro or yen is way up on the greenback, this stuff is still a bargain to foreign investors.

So maybe the stock market looks like a bargain too to foreigners, too, which would be one way of getting a bull market going in the midst of domestic fiscal sloth and chaos.  How else to account for a market moving in the opposite direction as the data suggest.
           
Aloyan's Technical Take: Follow the Bouncing Bull
All three indices finished in the green last week, with the YTD worst performer (the Nasdaq) being the best performer of the three.  My sector breadth indicators turned positive, with, 86% of the sectors in the green.  The beaten down Auto sector and Metals & Mining led the broad sector bounce, along with Semiconductors, Internet, and Biotech in the technology arena. 

The weakness came from the Real Estate sector with the sharp “pop” in interest rates for the week.  The dollar was up for the week (closing at 84.62), keeping a close eye on the 84.75 level (2-3 closes over that, and I will look to go long). 

The big action for the week was in the bond market.  Bonds got hit, with interest rates rising on the Ten Yr. to 4.27% on news of a possible re-issuance of the 30 Yr Treasury, and the possibility of a floating Chinese Yuan.

My short-term trend indicators are turning up, but are not a buy signal.  My breadth, momentum, and volume indicators are short-term “neutral.”  My sentiment and economic/fundamental indicators continue to support a defensive position. 

Bottom line:  Favor cash going into this week, any continued bounce should begin to stall by the end of the week.  I view this rally as an opportunity to add to short positions.

Hedging Your Bets With Matt Davio: Kerkorian and Chaos
What a spectacle last week: Kerkorian bids 20% above the market for another 5% of GM.  The very next day S&P downgrades GM and Ford bonds to junk. The intra-day rally in the SPOOs and RUSS futures was ready to break important resistance levels - the round numbers 1170 on the SPOO and 600 on the RUSS -- when out popped the GM downgrade. Surreal times indeed.

Direction is a tough call at this juncture. I tend to think we remain range bound for the S&P between 1138 and 1225 as that has been the range for over a year now. However, I still think we need to go back and test that 1080 before a real next leg up can take place.

By the way, the Jobs numbers came out Friday showing much stronger jobs growth than anyone expected. What's weird is that the jobs stocks like Monster MNST) and Manpower (MAN) sure don't reflect this growth (see chart below). 

One more interesting chart I came across this week shows a pretty clear picture of the “sell in May and go away” phenomenon.  The May-October flatline is hardly encouraging for the bulls.

Peter's Portfolio: CPTC Meltdown
Wow.  After being assured that the company was doing just fine, thank you very much, by the investor relations department, CPTC filed a blitzkrieg Chapter 11 last Thursday, which drove the stock down to 40 cents.  Sure, it rallied back to 90 cents on Friday after a press release explaining that this was just a defensive measure that wouldn't ding creditors or stock holders.  But it is useful to ask just when are the promises of this company going to turn into contracts and hard revenues.  Stay tuned….

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.