Update

Market Commentary

July 12th was interesting in so many ways! Besides it is funny that we should get the biggest rally in the last four years just a day before Friday the 13th, eh?

It would be an understatement to say that the week of July 9th ended in a triumph. As I mentioned in my last post the market continues to remain in an uptrend channel.

The big question is will we see a follow through next week? Does this rally have legs for intermediate and long term? The latter question has already been addressed in previous posts as I continue to believe we are still in a bull market for longer term. But lets look at the short term for a moment here.

The Tripple Whammy - Big Ben, Google and Buying Power

Next week not only has many of the tech titans reporting but also encapsulates Ben Bernanke's semi-annual testimony to Congress. Markets could have unpredictable swings if between the Big Ben and the Google, information comes in at different extremes. To me what makes the markets especially remarkable next week and the week after next is the impact of Volatility index VIX. It is very interesting and peculiar to note that the VIX didn't come down as much as you would expect given the rise of the indices. This to me is a bit concerning. Typically this would mean market is slightly more sensitive as compared to a thicker skinned solidly uptrending market. In other words, Ben's comments and Oil spikes have an enhanced power to sway the markets.

As for the earnings, it is largely expected that the tech titans like Google, eBay are going to report solid earnings. My gut is while that may be true, next week would give the traders a chance to sell on the news over a period of one to two weeks, unless the earnings are out-and-out blow-out and more importantly, the guidance is on an upside more than usual.

To add to the above mix, institutional participation during the rally wasn't that impressive. I am not an expert in terms of culling data in this area but I am lucky to have found quite a reliable source - Rainsford "Rennie" Yang on his website MarketTells , who has expounded upon this fairly articulately. He noted in his most recent post the absence of major buying power that seems to indicate that the buying has largely been speculative. If you combine this theory with the above points made, the bottomline advice would be - be careful in the near term but overall rejoice. As I mentioned before, the intermediate and long term channels remain bullish. Given the outlook, you will notice below I am not adding any new short term trades either long or short. You see on one hand there is no urgency to be highly optimistic and on the other, it may be stupid fighting the tape.

My analysis on the lack of impact of the rising yields on Private Equity so far has hit the mark as M&A continues unabated and unabashed illustrated by various events this week.

Status on Old Picks

Lets see how some of the old picks are doing.

GLD - we made a good call as gold has solidly risen since I recommended in the last post. Short term, gold will suffer some sell off but continue to hold. Intermediate term target of $70 remains in effect

BZH - This stock rose by 4 % which was not a good news since we are net short on this. Doesn't bother me so much because (a) we are already sitting on a gain of 40 % since this position was open so a new trailing stop will take care of the trade, and (b) the rise is temporary according to me. The stock is still in a downward channel and the overall housing market continues to languish. The combination of these two conditions is potent.

ISRG - Continue to hold. Its doing well

TSO - It dropped slightly since my recommendation. I had accurately predicted in my last post that it will languish a bit before the rise. But I went ahead and did the trade as I don't believe in timing my long term trades on very short term signals. The current slump in the stock value is because of speculation that we have enough supply in terms of refining (not the actual oil). This scenario has changed back and forth multiple times since the last few months and hence doesn't hold much credibility in my eyes from a longer term perspective. What is more important from a longer term perspective are the facts that crude oil remains on the rise and at a macro level refineries continue to remain in demand due to their rarity. Hold.

New Recommendations
No new recommendations. Hold on trading given the observations made above. It is quite likely we may miss some gains in the next two weeks given the temptation of some tech trades during the earnings season. But I would err on the side of safety. That said, I am continuing my study of STXS. It keeps looking attractive from a long term perspective and my belief that it is the next ISRG continues to reinforce. I am also looking at VIX options.

If you are very aggressive, you may want to go ahead and do a short term short on some of the tech names who are reporting earnings towards the end of next week. If my theory about selling the news for next week given the trifecta of lack of institutional participation, VIX sensitivity and the recent run up, is correct, you will pocket some nice gains.

We will pick up as some of the dust settles after next week's big events and technical trending. Have a nice weekend.

The Rathi Portfolio Holdings

Open List

• GLD - (Equity trade) buy long (Opened at 65.61 on 7/10/07)
• TSO - (Option trade) buy Jan 2008 Calls $50 strike (Bought at 14.40 on 7/10/07)
• BZH - (Equity trade) sell short (Opened at $41.54 on 2/14/07)
• ISRG - (Option trade) buy Jan 2008 Calls $130 strike (Bought at 9.60 on 3/8/07)
  

Closed List

• CRDN - closed at 79.37 - 40.63% Gain