» The bear case is gaining strength

The bear case is gaining strength

February 27, 2007 on 8:30 am | In Short Term Updates |

SELL EXFO near $6.90

SELL JDSU near $16.20

Recently we have become less optimistic about the short term outlook for the US equity markets. The combination of rising energy prices and the collapse of the sub-prime mortgage lenders could continue to pressure consumer spending. Yesterday, Greenspan’s prediction of a recession rattled the markets. Although some market commentators argue that Greenspan has a less than stellar track record of financial predictions, his words still carry weight, and we think Greenspan’s prediction of a rescission is likely to continue weighing on the minds of investors.

Today the bears will be out in full force. Rising tensions in Iran and Afghanistan, a big drop in the Chinese markets, and a sharp decline in durable goods orders will all add fuel to the fire on a market that was already showing signs of weakness.

Although we still think that both JDS Uniphase and Electro Optical Engineering will have strong upcoming quarters, we are taking profits for the time being. We will consider buying back both of these positions if the markets stabilize and the near term outlook for the market improves, but for now we think it is prudent to take some money off the table and decrease our number of open short term positions.

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[…] We sold shares of Electro Optical Engineering (Nasdaq: EXFO) and JDS Uniphase (Nasdaq: JDSU) a few days ago due to general market volatility. This move proved fortuitous as both of these stocks have dropped since our sell point. We are looking for another entry point for both of these stocks, but for the time being we are staying on the sidelines. Although we think that Ciena’s report shows that demand in the sector is still strong and growing, we are worried that the 10% drop in Ciena could carry over into shares of JDS Uniphase and Electro Optical Engineering in the short term. […]

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