Courage. 5-3-06

Good Evening.

The Bulls could easily fit right in to the main cast of the Wizard of Oz taking the place of the cowardly Lion. They are showing a complete lack of courage with their recent pathetic action and poor follow through. Despite the Bears inability to break this market through momentary breaches of technical support (the NDX is holding on by a hair), the Bulls can't seem to capitalize on bounces off of key levels. We keep sitting here waiting for the Bulls to take the market by the horns (we were going to say something else) but thus far their follow through can only be loathed. There is not an overabundance of Bears to explain the markets inability to ramp simply a lack of courageous Bulls.

The good news is that under the surface the internals are starting to show some promise. The Semiconductor and Biotechnology sectors showed good relative strength throughout the trading day. We believe that it will be these two groups that create the excitement when the momentum players return to the market. In fact, our expectations are for rotation out of the energy complex into Semi's and Biotech over the next several weeks. The only hesitancy that we have over the rotation theme is whether or not money will rotate from the energy complex into the money market as an interim step before completing it's journey into the semi's and biotech's.

After the Bell, JDSU reported an essentially inline report with slightly soft guidance. The networking stocks have been somewhat of a disappointment to us recently as we have been expecting stronger indications of infrastructure build out. We are not ready to declare that we are wrong on this space yet, as we continue to see signs that the fundamentals are improving. However, we acknowledge that more patience will be necessary in this group and should be well worth the investment.

If You Held a Taser to Our Head:
We continue to maintain an aggressive long posture in our portfolio's with large concentrations in Semi's. We have recently added some exposure in the Biotech sector after completely avoiding it for several months. Biotech stocks are "not our bag baby" and that is why we are adding exposure into BBH (ML Biotechnology Holders) as opposed to individual names in this space. The group is likely to attract significant interest in the near future and we did not want to be watching completely from the sidelines.

Hope You Traded Well.

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