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0912 EST Tuesday February 21 2006

Good Morning: Whilst our views Friday, reflected an overall powerful weekly performance, heralding the testimonial debut of the new Fed Chairman: Friday ended with a bit of a whimper, selling off some into the close in the S&P 500 and in particular the Nasdaq, which may've been dragged down by Dell and Intel, which frankly stand out as looking pretty dreadful, against what still remains an impressive backdrop.

So, the coming week will be important to maintain upward momentum, as a failure to continue higher could nip this rally in the bud. One of the reasons, is the Semi-Conductors SOX's, inability to set new multi-year highs against its previous late 2004 highs, rendering it a laggard and also potentially setting it up for that double top we highlighted a while back and the Nasdaq itself, which is troubling in that it is trading almost counter to the S&P and Dow, ie heading down, while they are heading up. Even the buoyant Networking Index, NWX has only just barely made a new high versus its counterpart, the SOX, and in the process, they and various other indices, including the S&P are virtually all conspiring to set in place, what can only be described as some potentially ominous looking divergences, that have to be recognized for what they are. We warned that Greenspan has left Bernanke a powder-keg and we also alerted some time back, of the danger of the Fed getting too complacent in their unbridled zeal to raise rates ad infinitum, that ultimately could turn out to be a very bad idea and on that, the history books will not reflect kindly upon. While Greenspan may have succeeded in re-loading Bernanke's interest rate gun with 14 Silver bullets that he can use to re-vitalize the economy on demand, it should be remembered, that these bullets can be very slow moving and so with all that is going on in the World, including some developing negatives, in the larger scheme of things, further rate hikes might be fatal.

We have emphasized on various recent occasions, the delicate nature of the current economic outlook, especially when looked at from an historical standpoint, where we really are at the crossroads, that could be the defining moment as to whether we can still continue on to even greater greatness or we succumb to some kind of lesser known lesserness. Even though the current economic structure is such that in some respects, it represents near perfection for a continuation of the trend and stocks could well be as cheap today as they were back in the early Eighties, just throwing caution to the wind and embracing this idea could be unwise, so we have to tread carefully from now on. A breakout to new highs in the SOX would definitely turn us mega-bullish, so we have to watch very carefully how things unfold from here..

About 9 months ago, as India's Bombay BSE was starting to hit new all-time record highs in the low 7,000's, we made 10,000 our next big objective and forecast the likelihood of reaching this level faster than any might have thought, within a year: The BSE just closed at 10,187.


MODAR Breaks its Own Trading Record - Again

Followers of MODAR may have noticed that we have been slowly expanding our coverage of the Nasdaq, Amex and NYSE in preparation of full coverage of all US Equity markets over the next few months and on Friday, with more Nasdaq issues included than ever before and also some 37 individual Futures transactions we ended the day with a new high record in activity of well over 150 actual recommendations.

To give some idea of the kind of accuracy MODAR has and can deliver, we not only recommended shorting Google GOOG at around $464, we nailed the low on GOOG two trading days ago, at $342. It doesn't get much better than that, especially when we upped the ante to four times our normal position size as an expression of confidence in our decision. We also caught a dollar bounce in Microsoft MSFT, with a ten times normal position size (equal to $100,000) and did the same with Rambus RMBS at 10 times again, catching the $2 bounce there. So the plan is, when we feel very strongly about Nasdaq issues we intend to be very aggressive in scaling in positions both long and short.

Trade Well
From the Desk of Savant

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