S&P Levels. This summary is compiled (usually daily) by Saratoga Prime Services' technical strategist Jay Lefkowicz. If you have any questions about information contained in these reports, contact Lance Baraker by email or phone (212-422-1760). www.saratogaprime.com

The September e-mini S&P had a rough afternoon yesterday, but is currently bouncing after the morning employment numbers. We’re now at 3 consecutive days of testing the 1260.25 support and holding. We’re looking @ 1273 and 1276.25 as reaction bounce levels and marking 1291.75 as a pivot level. Support @ 1260.25, 1255.25, 1241.25, 1237, 1229 and 1218.75. Resistance @ 1268.75, 1276.25 (new), 1286.25, 1291.75 (pivot), 1298, 1302.75, 1309.75 and 1315.25.

Disclaimer: This is not an offer or solicitation with respect to the purchase or sale of any security. Saratoga Capital, LLC does not provide investment advice nor conduct research or analysis on any Funds or companies. The client is responsible for conducting due diligence related to all investment activity.

Credit Market Overview

July 3, 2008

CEC Portfolio Composition

In yesterday’s comment I asked three what to some extent were rhetorical questions concerning the price of Lehman (LEH) and General Motors (GM) as well as one regarding the level of the stock market as a whole in relation to where the oil/Dollar combo seemed to be headed.

It is rare that we get answers to rhetorical questions at all. Even more so when they are market related as what seems logical seldom occurs. With all this considered yesterday was a bit of a banner day. A hat trick in hockey or 3 for 3 at the plate.

LEH shares it seems have rallied the past few days as the firm prepared to award all its employees a mid-year stock bonus. This was intended as a show of strength and was extended to all employees. Additionally, there was a piece on Yahoo Finance yesterday quoting Morgan Stanley analyst Patrick Pinschmidt saying the company is vulnerable "but near-term concerns appear overdone." Patrick went on to say that "We see a forced fire sale at a distressed discount to book value as highly improbable, and thus see little reason for the firm to explore a sale at this juncture," Mr. Pinschmidt said Lehman's book value, or the amount of assets the company would have if it went out of business immediately, could fall 7 percent from a second-quarter level of about $33 per share. He set a price target of $31 per share.

Based on this information and a financial stock that was one of the few that was up as the Dow headed firmly into Bear market territory I chose to cover the short in LEH and take the multiple double digit gains the position had produced since the beginning of June.

The question concerning GM was a horse of a different color. The stock which had closed at $11.50 on Monday put in an intra-day high on Tuesday of $13.26 after less than totally catastrophic sales numbers were released for the June selling period. I had questioned how large rebates and zero percent financing could add to the long term profitability of a company that had lost its two breadwinner products. It seems the market woke up to this fact yesterday as the stock closed at its lowest level in 54 years, $9.98 and concerns for the company’s viability began to be questioned. For those of a technical nature the price action from 6/25/2008 through yesterday is a classic fill the gap and continue pattern.

On the third point; the Dollar, oil and the stock indexes: the final answer will not be known until the ECB announces its rate decision and the accompanying rhetoric can be analyzed. Suffice to say however that with oil closing at another record yesterday and trading higher in the after market as the Dollar and stock indices headed for the basement it appears that the initial part of that question has been answered as well.

As the saying goes, even a stopped clock is right twice a day. Please don’t expect this level of prescience everyday. You will be sorely disappointed.

The weekend starts today at 1pm for the equity markets and just 1 hour later for the bond boys. Enjoy the extra long weekend! God bless America!

Jim Delaney

Credit Market Overview

July 2, 2008

CEC Portfolio Composition

A pre-holiday week shortened by 1½ days seems to be delaying the start of 3^rd quarter trading as although 1.6BN shares changed hands on the NYSE yesterday the intraday swings seemed to indicate that there were not a lot of kids at the playground.

The exacerbated moves in certain names and instruments gave rise to a few questions which I will ask here. First, there is an article in the current issue of Business Week talking about the possibility of a bid for Lehman (LEH) at a “substantial discount from its current price.” Given that the article came out this week it would stand to reason that it was written in the latter half of last week when the stock closed on Friday at $22.25. The stock closed yesterday at $20.96 up 5.81% on the day. So the question is does $1.29 represent a discount that can be considered “substantial”? If not, why were people willing to bid the stock up over 5% on the day. Also, if as they say, something is only worth what someone else is willing to pay for it, then why should the stock trade any higher than whatever the price is after you subtract “substantial” from it regardless of whether that deal goes through or not?

My next question regards General Motors (GM). The company released sales figures yesterday that were, by any objective measure, abysmal. An 18% decline in the sales of cars and light trucks in a month (June) that Auto-data Corp. labels as one of the year’s strongest for auto sales. The company was said to boost sales late in the month by offering big rebates and no-interest loans so as not to be overtaken by Toyota. Now I understand the market’s role as a forward looking mechanism but even in that case does the prospect of lower profit margins on the vehicles you are selling and negative profit on the financing aspect of the transaction really bode well for the company offering these incentives? Additionally, does it make more or less sense to do so to stay in front of a Japanese auto manufacturer? Didn’t that war end in 1945?

My last questions come from the oil/U.S. Dollar/U.S. Stock relationship currently being hashed out in these markets. On June 6^th the WTI crude oil contract had a $10+ up day. This closing high, as well as the shadow from the price action of that day remained intact until the 27^th of June when we closed above the $140 mark for the first time. We have not closed below $140 in the days since the 27^th so technicians might tell us that the “breakout” does not appear to be a false one, to date at least. Even if oil moves below the $140 level, let’s say to $138 or so. Does that mean that the pump price of gasoline is going back down to $1.00? Does it mean that the drag on the economy that is high fuel prices causing things like an 18% decline in cars and light trucks becomes an 18% increase? If not then why does the stock market move 10 S&P points every time the price of oil changes by $0.50?

Finally, my last set of questions is also tied to this triangle made up of oil, the Dollar and stocks but this time it’s the first two that generate the questions. The Dollar is tied to the price of oil as that is the currency used to pay for the raw material form of that commodity. It makes sense then that there is a negatively correlated relationship between the two. It seems however that there are times when the weakness of the Dollar is driving the price of oil up and others when the strength in oil is driving the Dollar down. Poor Dollar.

With Claude Trichet’s announcement tomorrow of a ¼ point increase in the ECB rates essentially factored into exchange rates at the moment the world seems to be focused on the language contained in the accompanying statement. The FT reported yesterday that Eurozone inflation rose to its highest level since 1999 in June and at 4% is double the ECB’s target for that measure. The ECB, unlike the Fed here in the U.S. has a single purview, contain inflation. How, in the face of a double of the target rate can Trichet be dovish about inflation?

Its Wednesday, there are 1½ market days left to this week. Maybe that’s enough time to get some answers.

Enjoy the day,

Jim Delaney

S&P Levels. This summary is compiled (usually daily) by Saratoga Prime Services' technical strategist Jay Lefkowicz. If you have any questions about information contained in these reports, contact Lance Baraker by email or phone (212-422-1760). www.saratogaprime.com

The September e-mini S&P is now below the March low of 1268.75 after tagging our first reaction bounce level of 1291.75 yesterday (1292 high). As the mini proceeds lower, we begin to move into territory from 2006 (June 2006 mini low was 1218.75 and Sep 2006 mini low was 1229) and 2005. Support @ 1260.25, 1255.25, 1241.25, 1237 (new), 1229 (new) and 1218.75 (new). Resistance @ 1268.75, 1286.25, 1291.75, 1298, 1302.75, 1309.75, 1315.25, 1327 and 1333.25 (pivot).

Disclaimer: This is not an offer or solicitation with respect to the purchase or sale of any security. Saratoga Capital, LLC does not provide investment advice nor conduct research or analysis on any Funds or companies. The client is responsible for conducting due diligence related to all investment activity.

Credit Market Overview

July 1, 2008

CEC Portfolio Composition

The last day of the 2^nd quarter and 1^st half of 2008 was relatively quiet. It would appear that all of the positioning to be done occurred on Tuesday and Wednesday of last week so that adjustments would be settled by the 30^th. It also seemed as if once that was done the market was free to go where it wanted and decided to drop 38.82 S&P points last Thursday. The question as to whether, at the index level, Friday and yesterday were all about consolidation or marking time will begin to be answered today.

The financials and homebuilders as well as the insurance and REIT names never took a break but continued on the journey described in Dante’s tome. Talk of the revenue generation model that was “securitization” being dead with no clear predecessor is making its way out of the mouths of the talking heads these days. If the axioms are correct and they are axioms for a reason, it could mean that the sectors that led the last rally and ensuing decline is would no longer be expected to lead the market higher from the current malaise. Hence the adage: new bull markets require new leadership.

CDS spreads throughout the sectors mentioned continue, for the most part, to widen. There are some names that go sideways for a day or two before moving higher at rates that make up for the days spent in limbo. Other names appear to prefer a slower but continuous plod upwards. Given that once a position is on the books in the CEC Portfolio it takes a confirmed change in direction of CDS spread movement or a reversal in the trend of the stock to remove that position it does not appear that any of the shorts in the four sectors mentioned will be covered anytime soon.

Interestingly, the continued news of write downs and capital raising seems to be creating less stir these days as the erasure of Bear Stearns and more recent failed attempt to do the same to Lehman have annealed investors to the situation as long as they know good ‘ol Uncle Sam is around to play lifeguard at the swim club known as Wall St.

The price of Crude, the story Mr. Trichet spins tomorrow when he announces whether or not he’s raised the ECB rate by ¼ of 1 percent and the June unemployment figures due out on Thursday should be more than enough for the markets to focus on in this holiday shortened week.

Answers will be revealed as the story unfolds.

Enjoy the day.

Jim Delaney

S&P Levels. This summary is compiled (usually daily) by Saratoga Prime Services' technical strategist Jay Lefkowicz. If you have any questions about information contained in these reports, contact Lance Baraker by email or phone (212-422-1760). www.saratogaprime.com

The September e-mini S&P is lifting a bit off the 8:30 data, but remains below the 1286.25 level after testing the 1291.25 level overnight. On a reaction bounce, 2 levels to watch are 1298 and 1302.75, the 38% and 50% retracements of yesterday’s slide. On the downside, extreme selling could take the market to 1241.50. Support @ 1268.75, 1260.25, 1255.25 (new) and 1241.50 (new). Resistance @ 1286.25, 1291.25, 1302.75 (new), 1309.75, 1315.25, 1327 and 1333.25 (pivot). As a contrast to action in equities, I am posting a monthly chart of crude oil, enjoy. (Source: TradeStation)

Disclaimer: This is not an offer or solicitation with respect to the purchase or sale of any security. Saratoga Capital, LLC does not provide investment advice nor conduct research or analysis on any Funds or companies. The client is responsible for conducting due diligence related to all investment activity.

June 27, 2008

CEC Portfolio Composition

“The Fed will cut rates before they raise them.” Art Cashen, Director of NYSE floor operations for UBS and regular guest on CNBC began his morning segment with those words yesterday. Art often jokes that he works much of his market strategy out on a cocktail napkin but throughout 2008 his thoughts and prognostications have proved to be words to be believed.

The CEC Portfolio remained short through the run up on Tuesday and Wednesday of this week. No new short positions were initiated on Wednesday as the widening of spreads in some names was not being confirmed by lower stock prices. On the risk management side, existing shorts were held as higher prices were not confirmed by narrowing spreads. That changed yesterday and a number of long positions were cut while new shorts were initiated.

While some might question the efficacy of adding short positions when the market is approaching the lows seen in March it must be noted that “micro to macro” manner in which the CEC Strategy adds and subtracts positions continues to make itself evident regardless of where the market is or in which direction it is moving.

The financials, and homebuilders have been the headliners in the race to the basement but other groups that initially showed strength have begun to roll over. Here are the names for the curious: BA, BWA, DOV, ABT, AKS, ARM, ARW, BLL, CNP, DHR, GLW, HPQ, IRM, JAVA, JWN, K, KSS, LEN, LVS, NKE, NXY, ORCL, RRD, UPS, VZ, WEC, PEG, and RPM.

A few weeks ago Dr. Bernanke was jawboning a tough inflation stance and the result was a November Fed Funds futures contract that seemed convinced of a 2.50% rate. Bill Gross was on CNBC shortly after the Fed announcement on Wednesday saying that the December contract, also priced for a 2.50% FF rate, was a buy as he expects FF to be right where they are now in December. Art Cashen thinks the Fed cuts before it raises the FF rate. A week or so ago I mentioned Louise Yamada’s segment on CNBC where she projected a 10,000 level on the DJIA based on the rotation of a head and shoulders pattern.

There are those who say that when everyone is going one way in the markets the best way to go is the other. That adage has been tested and proved true enough that it can’t be discounted. I would also say that Bill Gross, Art Cashen and Louise Yamada aren’t everybody but they are some pretty special “somebody’s” and given there expertise, experience and track records what they say should probably not be discounted too, too much.

Enjoy the weekend,

Jim Delaney

S&P Levels. This summary is compiled (usually daily) by Saratoga Prime Services' technical strategist Jay Lefkowicz. If you have any questions about information contained in these reports, contact Lance Baraker by email or phone (212-422-1760). www.saratogaprime.com

The September e-mini S&P made a pit stop above 1333.25 yesterday, before fading into the close. Currently, the mini is testing the 1309.75 level and within striking distance of the head and shoulders target of 1301. Remember, Tuesday’s low was 1305.25. Support @ 1301 (head and shoulders target), 1291.25, 1286.25, 1268.75 and 1260.25. Resistance @ 1309.75, 1315.25, 1327, 1333.25 (pivot), 1342.50, 1355.50 and 1361.50.

Disclaimer: This is not an offer or solicitation with respect to the purchase or sale of any security. Saratoga Capital, LLC does not provide investment advice nor conduct research or analysis on any Funds or companies. The client is responsible for conducting due diligence related to all investment activity.

Credit Market Overview

June 26, 2008

CEC Portfolio Composition

The numbers in the table above are the same for June 24^th and June 25^th and today there is no story behind the headline. The short bias of the CEC Portfolio was tested over the previous two days but through all of the corrective movement in what appears to be a downward trend none of the risk management stops were elected.

What is interesting is that in looking at the CDS spreads for the positions that were approaching levels in the stock price where short covering would occur, in almost every case, there was not only a continued widening of the CDS spreads but the rate of that widening had increased in the last day or two.

The financials, homebuilders and REITs were the groups where most of the corrective movement took place and are still the areas of the market where those remaining in denial of the damage caused by the sub-prime induced credit crisis are looking for redemption.

If the adage that new market cycles only start when there is new leadership is true, then this most recent rally in the credit crisis infected areas shows only that we are not yet through wringing out the last of those affects.

I wrote yesterday about how the Portfolio was positioned around the credit crisis vs. commodities. This is really a FX (foreign exchange) trade with the credit crisis induced weakening of the U.S. economy being the cause of a falling Dollar and strengthening of commodities being the result.

It was interesting to watch the FX markets after the Fed announcement yesterday, as the stock market initially rose on the prospect of continued cheap money (before regaining its senses and realizing the dire straits the economy is still navigating) and oil began clawing back the losses it had incurred earlier in the day the Dollar began sinking and never wavered in its direction. It is lower still this morning.

I wrote some time ago about the Bond Vigilantes of the 80’s and with all of the inflation speak around that term was even brought up in a post announcement interview on CNBC yesterday. As the saying goes “each time is different” and while the Bond Vigilantes might not be back it seems as if their kids might now be voicing their opinions in the foreign exchange markets.

In all of this I think there is much to be taken from the reply Bill Gross, f ounder and Co-Chief Investment Officer of PIMCO, had to Erin Burnett’s question yesterday after the Fed announcement regarding what to invest in. He said that he thought there was a lot of value in the December Fed Funds contract on the CBOT as it was priced for a 2.50% Fed Funds rate at expiration. He followed that initial comment with his prediction that Fed Funds would still be at 2.00% in December.

Make the trade in the Fed Funds contract based on Bill’s comments if you like but more importantly, think of what his comment means for the state of the U.S. economy and value of the U.S. Dollar in the FX markets if he is right. Given his track record it’s probably easier to go with him than against him but that is for you to decide.

Have a good day,

Jim Delaney

The September e-mini S&P closed below its head and shoulders neckline on 6/6 and using standard charting techniques, pointed to a target of 1301. Yesterday’s low of 1305.25 was 33 bps from that target. Yesterday’s reversal found resistance at the 1327 level and we continue to see powerful resistance at the 1333.25 pivot. Again, it is not unreasonable to expect a retest of the lows from March (1268.75) – which would be 12% off the May highs. Support @ 1315.25, 1309.75, 1301 (head and shoulders target), 1291.25, 1286.25, 1268.75 and 1260.25. Resistance @ 1327, 1333.25 (pivot), 1342.50, 1355.50, 1361.50, 1369.75 and 1382.50 (50 day average).

Disclaimer: This is not an offer or solicitation with respect to the purchase or sale of any security. Saratoga Capital, LLC does not provide investment advice nor conduct research or analysis on any Funds or companies. The client is responsible for conducting due diligence related to all investment activity.