I’m asked frequently what sectors I focus on and what determines the calls I make. I don’t generally offer a ‘good answer’ to these types of questions.  To be honest, I’m an ‘equal opportunity’ trader…I look for strength/weakness and follow the flow of money based on technical analysis, regardless of segment.  In other words, the world of markets is my oyster!  Each year, however…I like to examine the entire landscape and choose areas that may do better than others, to get fresh and start the year off with some positive vibes.  This can be very unscientific but also very thoughtful.  I look at a myriad of ideas with various reasons to determine my list.  Based on this judgment, I could be completely wrong…and I would dismiss these selections entirely with the presence of an external event.  Besides the sectors that I think will prove strongest, I will also give you a ‘rare’ estimate of indices, bonds, and other measures.  That being said, here goes:

Top Sectors for 2007

Homebuilders….I won’t go into a long dissertation here, but suffice to say that lower interest rates will benefit this group the most.  Why?  Costs are built into a higher rate scenario, and since they borrow at short rates for supplies, the lower cost will help the bottomline.  Housing crash?  Bubble?  Overbuilding?  We’ve heard it ad-nauseum for months now…yet these stocks are still afloat.  Inventory is down, and while the days of triple digit gains in this group are probably gone, we should see this group be the outperformer of 2007.  Take your pick, but my favorites are Ryland, KB Home, Pulte Homes, Toll Brothers, DR Horton and Beazer.  One more thing…why do I like it so much?  BECAUSE EVERYONE HATES IT!

Tobacco….Names like Altria, Carolina Group and US Tobacco are my favorites.  Price increases are going to stick, as they always do.  Strong institutional participation continues in these mega cap stocks, and with the likelihood of reduced liability exposure…that should help this group soar in ‘07.

Casinos…..This group is under mass consolidation by private equity.  Three major deals have been announced this year and more are likely.  This only increases the value of those that remain public.  Cash flow giants, these behemoths are going to benefit from gaming overseas (mostly china) and the expansion into newer states domestically.  Our favorites here include Las Vegas Sands and Wynn Resorts, with IGT and Bally Tech as secondary plays.

Assorted Technology….This area is tricky as the niche groups are the ones with the most leverage.  2006 was marked by the return to tech stocks, and even though many of the best names are faltering late in the year…it should be another banner year for the group in 2007.  Money flows to the best and brightest in tech these days, so look no further than Google to gain further participation.  I also favor some downtrodden stocks such as Symantec, Adobe, XM Satellite, Intel, Lenovo (chinese name), THQ, along with Sony, Apple, and Cisco.

Exchanges….I love this group as a longer term play.  While it’s taken so many years to unlock the value, these guys are virtual monopolies with a clear mandate to print money whenever they wish.  They continue to feed off the buying frenzy public and are making inroads to new income streams.  Consolidation is a likely scenario, too…as unlocking value continues.  We’ve seen this with CME/BOT merger and NYSE/EURONEXT.  Our best names here include Nymex, Nyse Group, ICE and ISE.

Select Banks and Brokers….The refinancing boom continues under a low rate scenario, so I’m favoring Countrywide and Washington Mutual.  Along with housing this group will benefit most from a drop in treasuries.  Like the exchanges, brokers are in a sweetspot in terms of profits.  They have a license to print money whenever they want, and most of these names have done well this year.  The outperformance should continue in 2007.  The group is technically strong and has been since August.  We favor Goldman Sachs, Lehman, Bear Stearns and Merrill Lynch.

Areas to avoid….I would tend to avoid retail early in the year, but this may be a good play in late summer.  Also energy, metals and commodities….as worldwide demand slows down.

Where are we headed in 2007:

My fearless (but rare) predictions:

Dow            14,000

Nasdaq        2,875

SP 500        1,600

ten yr bond    3.97%, with two possibly three Fed rate cuts

Oil                $55

Gold            $675

VIX               12.20

Of course, these aren’t ’straight line’ predictions, rather where we’re likely to end up.  We’re almost assured of some big swings and as said earlier…external events are a wildcard.  That being said, these are only my best guesses on Dec 26, 2006…and subject to change at a moment’s notice!