OUTLOOK

"Bearish on Oil Stocks"

12/31/2007

We believe the XOI index, an index of oil stocks, is due for a correction.  Within the next 4 weeks, we expect the XOI index to decline to 1535 or less from its closing high of 1577.49 on 12/28/07.

Our system is showing extremes in bullish sentiment and overbought readings in the XOI index.  As contrarians, we believe this a good time to bet against the crowd.  Given our bearish outlook, we have established short positions in oil stocks to profit a decline in the sector.

Mark Yuan, CFA