How does the market look like for the next 30 days?

Helped by an emergency Fed rate cut of 75 bps, interim solace of bank and regulatory support for bond insurers & good news on an imminent fiscal package, markets rebounded albeit with high volatility in the week of Jan 21. Financials, Home builders and Retail did well on the equity front - a reminder to the shorts that many of these names are under valued at this point, but probably not indicating a bottom, especially in Retail.

How does the next 30 days look like? Neutral-to-Negative I would say. Do not expect much from the State of the Union address on Jan 28 - the market would probably pick any thing announced with a huge chunk of salt. Dont bet too much on the FOMC meeting on Jan 30th too. Its unlikely that the Fed would agree with the traders (who are betting with 100% probability) and give another 50 bps cut - a measured 25 bps cut seems most likely.

This would mean no immediate boosts to take the Dow beyond 12,500. It would probably trade in a 11,700-12,500 range with significant volatility.

Sector-wise strategy:

• Bullish on Financials, though there would be some profit-taking after last week's gains. Mid-year '08 and Jan '09 call options for many Financial names still look interesting: C June call (25) at 3.40, GS July call (190) at 22.2, MBI Aug call (12.5) at 6.2, ETFC July call (4) at 0.95 all look interesting if you beleive we can avoid a recession (like i do)
• Stay away from Retail/Consumer - its is too early yet for the retail party to kick back. Stay out from SKS, M and others which saw significant gains last week.
• Accumulate healthcare, pharma, non-cyclicals: PFE, AMGN, DNA, GENZ, KO, MO

On the whole, expect a market with a lack of direction, trading with high volatility. Try accumulating Financials and non-cyclicals on low days. This would help if you agree we are slated for a 2-4 quarter slowdown and then a bounce back.