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Friday, August 04, 2006

Soft Data Sparks Today's Markets

Our technical indicators are begging to move towards a bullish bias, which would result in a possible increase in our recommended allocation of cash to equities early next week. This assumes some degree of follow through in today's market, which looks eminent due to this morning’s soft jobs data. We advise that investors seeking to increase their allocations wait until after the Fed meeting on Tuesday just in case the markets are surprised by another rate hike.

Of the 164 Exchange Traded Funds analyzed today, 40 are recommended “buys,” 12 are recommended “sells” and 112 have a “neutral” recommendation. Fifteen ETF’s were upgraded this morning to a recommended “buy” status covering a myriad of markets and sectors. Among the index ETF’s upgraded are the iShares S&P 500 Index (IVV) and the iShares Russell 3000 Value Index (IWW). Joining the list of international ETF’s currently rated as “buys” are the iShares MSCI Hong Kong Index (EWH) and the iShares MSCO Mexico Index (EWW). Finally, Biotech HOLDRs (BBH) was upgraded further indicating the potential bullish trend within the biotech sector.

Of the 84 Fidelity Select Mutual Funds analyzed today, 14 are recommended “buys,” 7 are recommended “sells” and 63 have a “neutral” recommendation. There was very little change within these mutual funds overnight with only the Fidelity Select Pharmaceuticals Fund (FPHAX) moving from “neutral” to “buy” status. I would advise investors to wait until this sector solidifies further before investing in this fund. Several Fidelity Funds already rated as “buys” include the Fidelity Large Cap Value (FSLVX), Fidelity Business Services (FBSOX), Fidelity Mid Cap Value (FSMVX) and the Fidelity American Gold (FSAGX). Fidelity funds, although well-managed and popular, are prone to be slow in responding to short and intermediate term directional changes in the markets. Investors seeking short-term alpha-generating investments would be better served looking to ProFund or Rydex mutual funds along with ETF’s or stocks.

Of the 48 ProFund Mutual Funds analyzed today, 12 are recommended “buys,” 9 are recommended “sells” and 27 have a “neutral” recommendation. Four ProFund Mutual Funds were upgraded to “buys” this morning including the ProFunds Ultra Biotechnology Fund (BIPIX). I currently have the biotechnology sector at a recommended “neutral” status, but I certainly recognize the possibility of this sector strengthening over the next few months. Since this fund is leveraged to correlate to 150% of the Dow Jones U.S. Biotechnology Index, I would advise caution to potential investors until the sector solidifies further. Conversely, the ProFunds Ultra Sector Mobile Telecomm Fund (WCPIX) was downgraded to a “sell” status this morning. Although the Telecommunication sector has been strengthening as of late, the Networking sector has not, and this explains the weakened status of this fund.

Of the 47 Rydex Mutual Funds analyzed today, 10 are recommended “buys,” 8 are recommended “sells” and 29 have a “neutral” recommendation. The Rydex Nova Fund (RYNVX) and Rydex Dynamic S&P 500 (RYTNX) were upgraded to “buys” this morning and provide investors seeking alpha with excellent S&P 500 leveraged investments. Several Rydex sector funds were upgraded to “buy” status this morning including the Rydex Financial Services Fund (RYFIX). Our analysis continues to indicate a strengthening of Financials and Financial Services, and I expect these sectors to continue trending assuming a favorable Fed meeting next week.

In terms of stocks, 77 were upgraded to “buy” status while only 47 shifted to recommended “sell” status. Various upgrades include: Wachovia Corp. (WB); Cabot Microelectronics Corp. (CCMP); Federal Signal Corp. (FSS); ATMI Inc. (ATMI); Cypress Semiconductor Corp. (CY); Penn Virginia Corp. (PVA); SWS Group Inc. (SWS); Campbell Soup Inc. (CPB); Varian Medical Systems Inc. (VAR); and Laureate Education Inc. (LAUR).

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