"Take what the defense gives you – don't force it." –                                   Famous football saying, anonymous

 The financial markets continue to look like those great Pittsburgh Steeler defenses of the 1970's, not allowing much of anything except allowing investors to play defense with well-diversified portfolios.  As the 1960's song by Martha Reeves and The Vandellas said, "…no where to run, no where to hide."  With one important exception (we'll get to it later).

 Our screens of various asset classes – domestic and international stocks, various bond sectors, numerous mutual funds and alternative investment vehicles – yields very little in the way of newly attractive or undervalued sectors.  Most everything is fairly valued.  This is a result of so much money and so much information helping to move vast pools of money very quickly, thus eliminating any pricing discrepancies that might provide good investment opportunities.  You have probably heard about the 8,000 hedge funds, many chasing the same investment  targets.  Add in mutual funds, private buyout firms, pension funds and international investors, and you have an idea about what we are talking about when trillions of dollars slosh around the financial markets looking for especially cheap securities.  With everyone flush with cash and armed with instantaneous electronic information, it's a stalemate.  Think of The Three Stooges -- Larry, Moe, and Curly -- all trying to squeeze through a doorway at the same time!

 The upward drift of the stock market the last few weeks has moved prices into the S&P 500  target range we have been visualizing since last October.  The move to S&P 1,310 does not mean the target was too low and we can't go a bit higher, since price forecasts always allow for a bit of upside or downside without rendering the forecast invalid.  However, we are now cautious on the stock market since the range we forecasted last year has been reached.  Though past performance is not a guarantee of future results, we would also note that the   seasonal weakness we have seen in past April/May time periods might have a perfect setup once again:  a stock market that has potentially moved too far too fast; bond yields rising  because of stronger economic growth and additional Fed rate hikes; increased bullishness from investors after the market rose during their bearish phase; and technical resistance. For this reason, we remain cautious on the stock market for the next few months and for 2006.  We think the chances of the typical off-year election market downdraft are quite possible, though a larger  decline might not occur until the Fall.  Near-term, we continue to look at S&P 1,310 as strong resistance with a decline likely in the Second Quarter.

 Diversified portfolios should consider using weakness to buy attractive sectors.  For those of you looking for affirmation that something very bullish is developing, we would want to see the market move above S&P 1,310 and then come back down and correct with 1,310 holding.  Then, a continued and sustained rise above S&P 1,310.   In other words, S&P 1,310 would go from a resistance line to a support line.

 Natural gas prices have collapsed almost 60% from their December highs, though it has not yet been reflected in home heating prices.  Oil has not come down anywhere near as much because natural gas is primarily a local product which reflects the warm winter and large supply glut, whereas oil is an international commodity which reflects tighter supply-demand constraints as well as a 'terror premium' and OPEC oil country dynamics (Iraq, Venezuela, Iran, Nigeria).  Should the energy sector stocks start to reflect lower prices or break down in the Spring, we may urge exposure through blue-chip energy stocks or diversified commodity/energy mutual funds depending on your needs.  If such a situation develops, we will focus our newsletter       efforts at that time.

 We mentioned earlier that there is one place to run and hide.  In the 1980's, they used to say "cash ain’t trash" – and with today's rising interest rates, cash may once again have become an OK place to park funds.  We are referring to money market funds, T-bills, and short-term bank CD's.  Understand what we are saying:  we are not advocating large allocations to these investment vehicles for long-term portfolio positioning.  Compared to yields in the early part of the decade, they are still well below those levels.  But with the Federal Funds rate at 4.50% and new Fed Chairman Ben Bernanke implying that rates will go to at least 5.00% (maybe higher), short-term investments are seeing their yields go up, too.  Two years ago, the Fed Funds rate was 1% and many money market funds were yielding close to 0% after expenses and fees.  Today, most money market funds are yielding close to or over 4% and short-term treasuries, which more closely track the Fed Funds rate, might yield close to 5% in a few months if the Fed hikes rates a few more times.  These investments might be a good place to 'hide out' while waiting for other asset sectors to come down in price or come down to a level that you are comfortable with.     Remember, past performance is no guarantee of future results.

 Our favorite sectors in the past – value and small cap equities, high-yield bonds, TIPs, emerging market stocks and bonds – have all done very nicely in the last few years.  Spreads on high-yield bonds and emerging markets debt are somewhat tight compared to historical levels; you are not getting paid much to assume extra risk.  We still like these sectors, but are not overweighing spread product at the current time.  We note that Iceland recently was unable to sell bonds in the capital markets; this is probably the first time you are hearing about this. We note it bcause in 1997 the Asian currency crisis began in July when the Thai bhat collapsed, but nobody paid attention.  Other markets followed downward in October.  It's too early to say if the Icelandic bond market is an isolated event or the proverbial canary in the coalmine, this year's Thailand.  But with equity markets, bond prices, and spread product all at elevated levels, it's time to tell the offense to get off the playing field and put in your best defense.

—Frank M. Bifulco, CFA *

    April  2006

 We’re Back…

 With this issue of Update, we resume our quarterly publication of financial planning news and information.  In this and future issues, look for special market commentary and analysis by me and    by Frank Bifulco, CFA, whom many of you have met here already. We will also be sending out bi-quarterly emails between issues of “Update” with additional market input to everyone on our newsletter e-mail list.

 To subscribe to these emails, please contact our office and speak with Dawn to  have your e-mail  address placed on the list if you wish to receive the market updates by  e-mail.  If you prefer, you can e-mail Dawn at Dawn.McKelvey@natplan.com to indicate your interest.

 We send out printed newsletters by U. S. Mail approximately twice a year as well.  If you access our website www.oraziofinancial.com , the“Commentary” page will always include our latest market commentary if you would prefer to access it in this manner.  If you have any questions or suggestions regarding our website, please contact Connie in our office  at Connie.Bruno@natplan.com  

 I must thank all of you for your support and your patience during the last year. The overwhelming   expressions of caring and love that I and our entire staff received, during Louise’s illness and since her passing, have truly touched us and helped us stay focused on our future, and yours. She clearly touched many lives through her work and her friendships. You’ve touched ours. Your consideration, understanding and thoughtfulness will never be forgotten.

Also, I want to say how truly proud and appreciative I am of my remarkable staff. In spite of personal loss that several of them experienced during the past year, in addition to sharing in the loss of Louise, they never wavered in their support of me and my family. And, most important, they remained committed to serving all of you during this most difficult time. They are extremely professional, but also show great compassion and understanding.

 Orazio Financial Services will continue, as always, to provide you with the best advice and service because you are truly part of our family.  Thank you from all of us!  -- PAUL ORAZIO