Between the Hedges Between the Hedges

Portfolio Manager's commentary on investing and trading in the U.S. financial markets

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Saturday, February 04, 2006

Market Week in Review 

S&P 500 1,264.03 -1.53%*

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Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was negative as US stocks posted losses even as economic data was mostly positive, energy prices fell and long-term rates were stable. The advance/decline line fell, most sectors declined and volume was heavy on the week. Measures of investor anxiety were higher. However, the AAII % Bulls rose to 44.7% and is now back to average levels. The average 30-year mortgage rate rose to 6.23% which is still only 102 basis points above all-time lows set in June 2003. The benchmark 10-year T-note yield increased 1 basis point on the week as mostly positive economic data and mixed inflation readings offset worries over Iran and a rising US dollar.

Unleaded Gasoline futures fell again and are now 42% below September highs even as refinery utilization remains below normal as a result of the hurricanes and fears over Iranian production disruptions persist. Natural gas inventories fell as expected this week. However, supplies are now 28.0% above the 5-year average, still approaching an all-time record high for this time of year, even as 17% of daily Gulf of Mexico production remains shut-in. Natural gas prices have plunged over 45% in 7 weeks. Gold was about unchanged on the week as geopolitical concerns and mixed inflation data were offset by a rising US dollar.

I still believe prices for many commodities are being driven by fear and record capital inflows into commodity funds, rather than fundamentals. I continue to expect global energy demand destruction, decelerating economic growth and a significant increase in supplies into 2006 to push oil prices substantially lower from current levels. Elevated prices related to Iran only make this outcome more likely. The latest weekly energy data show US oil demand is already down .8% over the last 4 weeks from the same period last year. The EIA is currently projecting US oil demand growth of 1.6% for all of 2006, which is highly unlikely given last year’s decline.

Small-caps outperformed, falling less than the broad market. The Russell 2000 is still up a very strong 7.7% for the year. In my opinion, US small-caps offer similar return potential to that of most emerging international markets with much less risk going forward. Technology shares underperformed this week as investors were disappointed with the forward earnings guidance by several sector leaders. S&P 500 earnings growth for the fourth quarter is still on pace to rise 13% year-over-year, almost double the long-term average. This would be the 15th consecutive quarter of double-digit profit growth, the best streak since record-keeping began in 1936. Moreover, companies have sufficiently lowered the bar as to allow for better-than-expected 1Q results. As of now, analysts are projecting 9.8% earnings growth for the first quarter, still very good by historic standards.

The ECRI Weekly Leading Index fell slightly from cycle highs and is forecasting continued healthy US economic activity. While volatility will likely increase going forward, I still expect the S&P 500 to return 15% this year, notwithstanding any temporary weakness related to issues with Iran. High single-digit earnings growth, average economic growth of around 3%, an end to Fed rate hikes, low long-term interest rates, lower energy prices, a healthy labor market, a more sustainable housing market, p/e multiple expansion, a stable US dollar, decelerating inflation, increased corporate spending, rising demand for US assets and a lifting of irrational pessimism should provide the catalysts for strong gains this year.


*5-day % Change
Posted by: Gary / 6:00 PM

Friday, February 03, 2006

Weekly Scoreboard* 

Indices
S&P 500 1,264.03 -1.53%
DJIA 10,793.62 -1.04%
NASDAQ 2,262.58 -1.81%
Russell 2000 724.22 -1.09%
S&P Equity Long/Short Index 1,164.53 +1.73%
S&P Barra Growth 611.84 -1.57%
S&P Barra Value 657.78 -1.49%
Morgan Stanley Consumer 589.28 -1.62%
Morgan Stanley Cyclical 779.83 -2.37%
Morgan Stanley Technology 526.48 -3.01%
Transports 4,263.56 -1.07%
Utilities 405.37 -2.57%
S&P 500 Cum A/D Line 7,796 -7.0%
Bloomberg Crude Oil % Bulls 40.0 -31.61%
Put/Call 1.06 +35.90%
NYSE Arms 1.21 +32.97%
Volatility(VIX) 12.96 +8.27%
ISE Sentiment 159.00 -19.70%
AAII % Bulls 44.70 +45.27%
AAII % Bears 33.33 unch.
US Dollar 89.89 +.63%
CRB 345.90 -.31%
ECRI Weekly Leading Index 138.20 -.07%

Futures Spot Prices
Crude Oil 65.37 -3.64%
Unleaded Gasoline 168.17 -7.34%
Natural Gas 8.61 +.38%
Heating Oil 178.16 -3.17%
Gold 571.60 +.07%
Base Metals 175.83 +4.13%
Copper 230.40 +3.41%
10-year US Treasury Yield 4.52% +.22%
Average 30-year Mortgage Rate 6.23% +1.80%

Leading Sectors
Airlines +4.16%
Alternative Energy +3.56%
HMOs +3.19%
Restaurants +2.14%
Networking +1.57%
Telecom +.72%

Lagging Sectors
Utilities -2.57%
Software -2.60%
Tobacco -2.78%
Internet -3.65%
Semis -4.02%

One-Week High-Volume Gainers
One-Week High-Volume Losers

*5-Day % Change
Posted by: Gary / 9:50 PM

Stocks Lower into Final Hour on Fed Rate Hike Worries 

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Semiconductor longs, Medical longs and Internet longs. I took profits in some existing longs and added to my (IWM) and (QQQQ) shorts this afternoon, thus leaving the Portfolio 75% net long. The tone of the market is mildly negative as the advance/decline line is slightly lower, most sectors are declining and volume is heavy. The ECRI Weekly Leading Index fell slightly to 138.20 this week from 138.30 the prior week. This is still near last week's cycle high and up from 132.00 during the last week of May 2005. This gauge of future economic activity is still forecasting healthy U.S. growth. Measures of investor anxiety are mostly lower. I expect US stocks to trade modestly higher into the close from current levels on lower long-term rates and short-covering.
Posted by: Gary / 3:06 PM

Today's Headlines 

Bloomberg:
- The US Senate’s approval of a $70 billion tax-cutting measure opens the way for negotiations with the House on final legislation that may produce a two-year extension of the 15% rate on dividends and capital gains.
- The US dollar is rising to a high for the year against the yen and climbed versus the euro after a government report signaling a stronger US labor market will continue to propel US growth higher than that of other industrialized nations.
- Research In Motion’s chances of avoiding the US shutdown of its BlackBerry wireless e-mail service improved this week after decisions by two government agencies, legal analysts said.
- European news organizations, citing freedom of speech, showed cartoons that sparked outrage among Muslims, as protests spread across the Islamic world.
- The UN nuclear watchdog delayed voting on a resolution to send Iran to the UN Security Council over its atomic program because some countries want the measure to declare the Middle East a nuclear weapons-free zone.

Wall Street Journal:
- The US is likely to avoid a military confrontation with Iran because of concern over a backlash in the region and possible retaliation against the US and Israel.
- The SEC’s new registration requirements allow potential investors to review hedge fund managers’ registration forms, adding that since the rule was passed 934 hedge fund advisers have registered.
- Investors are betting on a wave of steel-industry mergers, whether or not Mittal Steel succeeds with its $23.7 billion hostile bid for Arcelor SA.

NY Times:
- US deaths of car drivers struck by a sport utility vehicle or pickup have dropped sharply after automakers reluctantly agreed in 2003 to adopt design changes.

CNet News.com:
- Google(GOOG), fighting a US Justice Dept. demand for records to help the government defend an anti-pornography law, will take its case to a federal court on March 13.

USA Today:
- Some US cities are displaying “wanted” posters on billboards in a bid to capture criminals.
Posted by: Gary / 2:19 PM

Unemployment Falls Again, Wages Rise More Than Estimates, Confidence Revised Slightly Lower, Factory Orders Climbing, ISM Non-Manufacturing Healthy 

- The Change in Non-farm Payrolls for January was 193K versus estimates of 250K and an upwardly revised 140K in December.
- The Unemployment Rate for January fell to 4.7% versus estimates of 4.9% and 4.9% in December.
- The Change in Manufacturing Payrolls for January was 7K versus estimates of 7K and a downwardly revised -1K in December.
- Average Hourly Earnings for January rose .4% versus estimates of a .3% increase and a .4% gain in December.
- Final Univ. of Mich. Consumer Confidence for January fell to 91.2 versus estimates of 93.4 and a prior estimate of 93.4.
- Factory Orders for December rose 1.1% versus estimates of a 1.0% gain and an upwardly revised 3.3% increase in November.
- ISM Non-Manufacturing for January fell to 56.8 versus estimates of 60.0 and a reading of 61.0 in December.
BOTTOM LINE: American employers added 193,000 workers in January and the unemployment rate fell to 4.7%, the lowest since July 2001, as the US economy strengthened and builders took advantage of warm weather, Bloomberg said. The economy added a revised 1.98 million jobs last year. Warm weather contributed to the addition of 46,000 new construction jobs versus a gain of 5,000 in December. As well, average hourly earnings have increased .4% or more 8 other time since 2001. At this point, worries over rising unit labor costs are overdone.

Confidence among US consumers remained close to a five-month high in January as job growth boosted incomes and natural gas prices plunged, helping to cushion the effects of home-heating costs, Bloomberg reported. The current conditions component of the index which gauges American’s sentiment about whether or not it’s a good time to buy big-ticket items, such as autos, rose to 110.3 from 109.1 the prior month. Retail sales climbed a very strong 5.1% in January, the Intl. Council of Shopping Centers recently reported. I continue to expect consumer sentiment to make new cycle highs later this year as the job market improves modestly from current levels, energy prices continue to fall, stock prices rise, long-term rates remain historically low, corporate spending improves and inflation decelerates.

US factory orders rose for a third consecutive month in December as demand for new autos rebounded and businesses added equipment and inventories, Bloomberg said. Orders for computers increased 4.4% after rising 11% in November. Orders for capital goods excluding aircraft, a barometer of future corporate spending, rose 4.1% versus a .1% gain in November. The inventory-to-shipments ratio fell to 1.15 months from 1.17 months in November. I continue to believe manufacturing will add to US growth over the intermediate-term on hurricane rebuilding, increased corporate spending and inventory restocking.

Growth in the US services industry eased in January as new orders slowed after a very robust showing the month before, Bloomberg said. The employment component of the index fell to 51.1 from 56.9 in December. The prices paid component of the index remained at 67.2, the same as December. The service sector should remain healthy as consumer spending stays firm, consumer sentiment rises and energy prices fall further.
Posted by: Gary / 12:07 PM

Links of Interest 

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote
Posted by: Gary / 9:30 AM

Friday Watch 

Late-Night Headlines
Bloomberg:
- The US dollar is set for a third winning week against the yen on speculation a government report on US hiring will add to evidence economic strength.
- Rio Tinto Group(RIO) is studying new projects and expansion of mines that may cost as much as $9 billion.
- The US Senate voted to extend the USA Patriot Act until March 10, narrowly averting the expiration of the anti-terrorism law and giving lawmakers more time to negotiate revisions.
- Oil analysts were the least optimistic in five weeks about price gains after the US said it won’t immediately seek UN sanctions to pressure Iran to halt its nuclear program.

Wall Street Journal:
- Billionaire Lakshmi Mittal, whose Mittal Steel Co. has offered to buy Arcelor SA, will consider lending shares in Mittal Steel to hedge funds to facilitate the $23.6 billion hostile takeover bid.

Financial Times:
- Harvard University’s former money manager Jack Meyer raised over $5 billion to start his Convexity Capital Management LP hedge fund.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (LVS), (TYC), (MYL), (ALEX) and (WCC).
- Reiterated Underperform on (DRI), (CTL), (EW), (GTW) and (EOP).

Business Week:
- The shares of Document Security Systems(DMC), a maker of anti-counterfeiting gear, may benefit from rising sales, citing Otis Bradley of Gilford Securities.
- The shares of Renovis Inc.(RNVS), a biotech company that went public in 2004, will probably rise on positive results from clinical trials of the Cerovive stroke drug.

Night Trading
Asian Indices are -% to +% on average.
S&P 500 indicated -%.
NASDAQ 100 indicated -%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
(NLY)/-.91
(AES)/.20
(MYG)/-.13
(MRX)/.26
(MCO)/.46
(R)/.94
(SNDA)/.27
(THQI)/.65
(WFT)/.44
(WEN)/.47
(WY)/.74

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Change in Non-farm Payrolls for January is estimated at 250K versus 108K in December.
- The Unemployment Rate for January is estimated to remain at 4.9% versus 4.9% in December.
- The Change in Manufacturing Payrolls for January is estimated at 7K versus 18K in December.
- Average Hourly Earnings for January are estimated to rise .3% versus a .3% increase in December.

9:45 am EST
- Final Univ. of Mich. Consumer Confidence for January is estimated to fall to 93.1 versus a prior estimate of 93.4.

10:00 am EST
- Factory Orders for December are estimated to rise 1.0% versus a 2.5% gain in November.
- ISM Non-Manufacturing for January is estimated to fall to 60.0 versus a reading of 61.0 in December.

BOTTOM LINE: Asian indices are mostly lower, weighed down by exporters in the region. I expect US equities to open lower and to rally later in the afternoon, fishing modestly higher. The Portfolio is 75% net long heading into the day.
Posted by: Gary / 12:29 AM

Thursday, February 02, 2006

Stocks Close Near Session Lows on Weakness in Energy and Technology Shares 

Indices
S&P 500 1,270.84 -.91%
DJIA 10,851.98 -.93%
NASDAQ 2,281.57 -1.25%
Russell 2000 726.25 -1.25%
S&P Barra Growth 606.07 -.79%
S&P Barra Value 660.62 -1.02%
Morgan Stanley Consumer 592.27 -.56%
Morgan Stanley Cyclical 785.78 -1.20%
Morgan Stanley Technology 532.56 -1.73%
Transports 4,281.19 -.94%
Utilities 408.27 -1.49%
Put/Call .97 +15.48%
NYSE Arms 1.39 +63.39%
Volatility(VIX) 13.23 +7.04%
ISE Sentiment 191.00 -12.79%
US Dollar 89.38 -.15%
CRB 343.14 -.42%

Futures Spot Prices
Crude Oil 64.90 +.34%
Unleaded Gasoline 167.50 +.56%
Natural Gas 8.40 +.73%
Heating Oil 178.20 +.63%
Gold 576.50 -.05%
Base Metals 175.17 +1.64%
Copper 230.70 -.09%
10-year US Treasury Yield 4.55% +.09%

Leading Sectors
Airlines +2.02%
Restaurants +1.42%
Retail +.45%

Lagging Sectors
Computer Hardware -1.74%
Homebuilders -2.05%
Tobacco -2.67%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on (SSP), (RDEN) and (CSCO).

Afternoon/Evening Headlines
Bloomberg:
- Shares of Thomas Weisel Partners Group(TWPG), the third investment bank to go public in two years, surged as much as 33% in their trading debut.
- Amazon.com(AMZN) said fourth-quarter profit fell 43% as the company increased spending to lure shoppers during the holiday season.
- The Federal Reserve wants Wall Street securities firms to keep closer tabs on hedge funds to ensure that practices in the $1.1 trillion industry aren’t putting the banking system at risk.
- Electronic Arts(ERTS) said third-quarter profit fell 31%, the fifth decline in a row, as shortages of Xbox 360 consoles slowed sales.
BOTTOM LINE: The Portfolio finished lower today on losses in my Semi longs, Medical Information Systems longs, Computer longs and Software longs. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished lower, most sectors fell and volume was heavy. Measures of investor anxiety were higher into the close. Overall, today's market action was bearish as the major averages finished near session lows with negative breadth. Investors chose to focus on the negatives throughout the day. I will wait to see the market's reaction to tomorrow's likely strong jobs report before shifting market exposure further.
Posted by: Gary / 5:26 PM

Stocks Sharply Lower into Final Hour, Notwithstanding Lower Energy Prices and Strong Retail Data 

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Semiconductor longs, Medical Information Systems longs, Computer longs and Software longs. I added (IWM) and (QQQQ) shorts this afternoon, thus leaving the Portfolio 75% net long. The tone of the market is very negative as the advance/decline line is substantially lower, most sectors are declining and volume is heavy. Measures of investor anxiety are higher. The market's inability to mount any sort of rally today is a negative. Strong retail data, lower energy prices, stable interest rates and no escalation in the Iran situation could not spur gains today. I expect US stocks to trade modestly higher into the close from current levels on lower energy prices, bargain hunting and short-covering.
Posted by: Gary / 3:25 PM

Today's Headlines 

Bloomberg:
- Exchange-traded funds are among the fastest-growing investments today, attracting one of every four new dollars going into stock funds last year.
- Matsushita Electric Industrial Co., the world’s biggest plasma television maker, raised its profit forecast 18% after sales of larger, more expensive sets increased fiscal third-quarter net income.
- The US said it won’t seek to impose economic sanctions on Iran if the UN nuclear watchdog sends the Islamic Republic before the Security Council over its atomic plans.
- General Motors(GM) handed out technology contracts to six companies including Electronic Data Systems(EDS), Hewlett-Packard(HPQ) and Cap Gemini SA in the largest award ever offered by a company.
- US retailers including Wal-Mart Stores(WMT) reported strong sales gains in January as gift cards, warm weather and a rebound in consumer confidence bolstered spending.
- The NASD is expanding a probe of the world’s biggest brokerage firms for possible improper sales of hedge funds to individual investors.
- Crude oil is falling after the US said it won’t immediately seek UN sanctions against Iran, easing concern that the world’s fourth-biggest oil producer will retaliate with an export cut. As well, US natural gas supplies are now 28.2% above the 5-year average.

Wall Street Journal:
- Shopping cart races, a symbol of urban anarchy, are becoming more popular in US citites.
- IBM(IBM), Google(GOOG), Oracle(ORCL) and other technology companies are supporting an open-source project designed to promote Ajax, a Web-development technology.
- US power industry executives are backing President Bush’s goal for developing cleaner-coal technologies to use the country’s enormous domestic coal reserves.

AP:
- Wal-Mart Stores(WMT) was sued by three Massachusetts women who claim the company broke state law by not stocking the “morning-after” pill.

NY Times:
- US dependence on oil can be reduced by changing the way cars are made, citing the Rocky Mountain Institute, an energy researcher.
- NYC, the largest US school district, plans to stop serving whole milk, a part of school lunches since 1946, in a bid to reduce risks of obesity, diabetes and other health problems.
- Some US Internet companies are selling tickets to sporting events using futures-like contracts.
- The FCC may tighten rules that have allowed mobile phone companies large discounts when buying government licenses to operate so-called third-generation wireless phone services.
- The US hotel industry will spend a record $5 billion this year on upgrades and renovations, adding improvements such as wireless Internet operations.
- Amazon.com(AMZN) said it has started a new program called Amazon Connect that allows writers to communicate in blogs, or Web logs, on the Seattle-based Internet retailer’s site.
- Alternative fuels have become the latest hot investment craze at venture capital companies.
- Palm Inc.(PALM) investor Mark Nelson, who owns 6.6% of the Treo mobile phone and handheld computer maker, wrote to the board urging them to consider selling the company.

LA Times:
- Sirius Satellite Radio(SIRI) plans to prosecute anyone who attempts to pirate copies of Howard Stern’s radio show or any of its other programming.
- “Survivor” fans will be able to download tonight’s episode of the reality television show from broadcaster CBS Corp.(CBS) for $1.99, a bid to rival Apple Computer’s iTunes service.

San Francisco Chronicle:
- PG&E Corp.(PCG) predicts natural gas bills for heat and hot water will be lower this month than in January.

Capital:
- United Internet AG plans to introduce its own version of the BlackBerry e-mail service in cooperation with Vodafone Group Plc(VOD).

Boersen-Zeitung:
- DaimlerChrysler AG expects a new trend toward diesel sales in the US as the country tries to reduce its dependency on Middle Eastern oil imports, citing CEO Dieter Zetsche.
Posted by: Gary / 1:35 PM

Productivity Disappoints, Labor Costs Rise, Job Market Healthy 

- Preliminary 4Q Non-farm Productivity fell .6% versus estimates of unchanged and a 4.5% increase in 3Q.
- Preliminary 4Q Unit Labor Costs rose 3.5% versus estimates of a 3.5% increase and a .5% decline in 3Q.
- Initial Jobless Claims fell to 273K last week versus estimates of 295K and 284K the prior week.
- Continuing Claims fell to 2509K versus estimates of 2585K and 2573K prior.
BOTTOM LINE: The productivity of US workers during the fourth quarter declined by the most since the third quarter of 2000 and labor costs rose, Bloomberg reported. These disappointing numbers will likely be revised to more positive levels after an expected upward revision to 4Q GDP. Moreover, the average of the last 2 quarters was still pretty good. I continue to believe unit labor costs will remain muted over the intermediate-term.

Initial Jobless Claims unexpectedly declined last week and the number of Americans on unemployment benefit rolls dropped to the lowest level in almost five years, Bloomberg reported. According to a Bloomberg survey of economists, employers added a quarter of a million workers to payrolls last month. The four-week moving average of claims declined to 284,250 from 289,000 the prior week. The unemployment rate among those able to receive benefits, which tracks the US unemployment rate, fell to 1.9% from 2% the prior week. The US economy created 2 million jobs last year. During the last two and a half years, the US has added 4.6 million new jobs, more than the European Union and Japan combined. I continue to believe the labor market will remain healthy over the intermediate-term as corporations increasing spending and consumer spending remains relatively strong.
Posted by: Gary / 11:52 AM

Links of Interest 

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote
Posted by: Gary / 9:26 AM

Thursday Watch 

Late-Night Headlines
Bloomberg:
- The US House voted to extend the USA Patriot Act until March 10, giving lawmakers more time to negotiate revisions in the anti-terrorism law.
- The US House of Representatives approved legislation today cutting the growth of government programs by $39 billion.
- Honda Motor’s(HMC) new Civic small car helped raise Honda’s US sales 21% last month, leading Asian brands to a sixth consecutive month of higher market share.
- US researchers used a common cold virus to create a vaccine that protected mice form the deadly bird flu, an approach that may help pandemic preparations, according to a report published by the medical journal Lancet.
- Pulte Corp.(PHM), the second-largest US homebuilder by stock market value, said fiscal fourth-quarter profit jumped 45% because it sold more houses at higher prices.

Wall Street Journal:
- General Motors(GM) Chairman and CEO Wagoner said he agrees with suggestions made by Tracinda Corp. adviser Jerome York, who wants the automaker to reduce its dividend by half and cut executive salaries among other reorganization efforts.
- Three former top executives of a unit of Warren Buffett’s Berkshire Hathaway(BRK/A) and a former American International Group(AIG) official were indicted by a federal grand jury in Virginia in an accounting probe of the two companies.

Financial Times:
- Sasol Ltd., the world’s biggest producer of motor fuel from coal, will speed up talks to bring its coal-to-liquids technology to the US after President Bush’s call for greater energy independence, citing CEO Pat Davies.
- Merrill Lynch(MER) is “seriously” considering a bid valued at about $6 billion for LG Card Co., South Koreas’ No. 2 credit-card issuer.

AP:
- West Virginia Governor Joe Manchin ordered all state mines closed until officials can conduct safety checks.
- Saudi Arabia and Qatar pledged to give the Palestinian Authority financial aid after Israel delayed the transfer of tax funds following the victory of the Hamas terror group in elections.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (COF), (FORM) and (MUR).
- Reiterated Underperform on (BA), (OMI) and (BUD).

Night Trading
Asian Indices are -.25% to +1.0% on average.
S&P 500 indicated -.11%.
NASDAQ 100 indicated -.15%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
(AGN)/.89
(AMZN)/.21
(APCC)/.25
(APA)/2.37
(AVP)/.43
(CERN)/.34
(CLX)/.47
(CMCSA)/.15
(CVS)/.40
(ERTS)/.90
(EOP)/.35
(SSP)/.49
(GR)/.50
(IP)/.07
(ISRG)/.49
(LIN)/.84
(MEDI)/.05
(MYL)/.24
(PNR)/.40
(PTEN)/.73
(RTN)/.60
(RCL)/-.25
(SLE)/.29
(JOE)/.53
(STA)/.94
(SPF)/1.93
(HOT)/.65
(TXU)/.85
(TYC)/.38

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Preliminary 4Q Non-farm Productivity is estimated to rise .5% versus a 4.7% gain in 3Q.
- Preliminary 4Q Unit Labor Costs are estimated to rise 3.5% versus a 1.0% decline in 3Q.
- Initial Jobless Claims are estimated to rise to 295K versus 283K the prior week.
- Continuing Claims are estimated to rise to 2585K versus 2581K prior.

BOTTOM LINE: Asian indices are mostly higher, spurred by gains in exporters in the region after oil fell and the US dollar rose. I expect US equities to open mixed and to rally later in the afternoon, fishing modestly higher. The Portfolio is 100% net long heading into the day.
Posted by: Gary / 12:21 AM

Wednesday, February 01, 2006

Stocks Finish at Session Highs as Energy Prices Reverse and Shorts Cover 

Indices
S&P 500 1,282.46 +.19%
DJIA 10,953.95 +.82%
NASDAQ 2,310.56 +.21%
Russell 2000 735.48 +.31%
S&P Barra Growth 610.92 +.14%
S&P Barra Value 667.45 +.23%
Morgan Stanley Consumer 595.63 +.53%
Morgan Stanley Cyclical 795.32 +.29%
Morgan Stanley Technology 541.96 +.16%
Transports 4,321.70 -1.05%
Utilities 414.46 +.15%
Put/Call .84 +9.09%
NYSE Arms .85 -43.61%
Volatility(VIX) 12.36 -4.56%
ISE Sentiment 221.00 +49.32%
US Dollar 89.50 +.61%
CRB 344.59 -1.17%

Futures Spot Prices
Crude Oil 66.22 -.51%
Unleaded Gasoline 171.00 -1.09%
Natural Gas 8.80 +.88%
Heating Oil 181.10 -.71%
Gold 573.60 -.07%
Base Metals 172.35 +1.46%
Copper 225.00 +.04%
10-year US Treasury Yield 4.55% +.97%

Leading Sectors
HMOs +2.06%
Networking +1.78%
Biotech +1.31%

Lagging Sectors
Airlines -1.49%
Energy -2.17%
Oil Service -3.69%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on (USB) and (MNST).
- Reiterated Underperform on (JBLU) and (BUD).

Afternoon/Evening Headlines
Bloomberg:
- The SEC said almost 800 hedge-fund advisers met today’s deadline to register with the agency under a controversial rule that subjects the industry to stricter regulation and random inspections for the first time.
- Starbucks(SBUX) said first-quarter profit rose 20% on demand for espresso drinks and seasonal offerings. The company also raised its first quarter forecast.
- Research in Motion(RIMM) won a provisional ruling against a patent at the center of a court fight over its BlackBerry e-mail device, as a judge prepares to decide whether to stop most service in the US.
- Crude oil fell more than $1 a barrel in NY and natural gas plunged 12% from session highs after an Energy Department report showed larger-than-expected gains in US oil and gas inventories.

Reuters:
- President Bush said the US will defend Israel against Iran if needed and criticized Iranian President Ahmadinejad for “menacing talk” against Israel.

Mediaweek Magazine:
- Jim Cramer, host of CNBC’s “Mad Money,” will move his one-hour daily radio show to CBS Radio from WOR Radio Network.
BOTTOM LINE: The Portfolio finished higher today on gains in my Networking, Medical Information Systems longs, Biotech longs, Computer longs and Energy-related shorts. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was modestly positive today as the advance/decline line finished slightly higher, most sectors rose and volume was heavy. Measures of investor anxiety were mostly lower into the close. Overall, today was very good for the bulls as the major averages and breadth finished near session highs on heavy volume, notwithstanding considerable headwinds. Energy prices across the board cratered, with natural gas plunging 11.2% from session highs. Even substantial weakness in energy-related market leading stocks couldn't send the major averages lower. This is a huge positive.
Posted by: Gary / 5:11 PM

Stocks Higher into Final Hour on Short-covering and Oil Price Reversal 

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Networking longs, Medical Information Systems longs, Biotech longs, Computer longs and Energy-related shorts. I added (COP) short and added to a few existing longs this afternoon, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is modestly higher, most sectors are higher and volume is heavy. Measures of investor anxiety are mostly lower. Earlier today we had a 40-point decline in market leader Google (GOOG), higher oil prices, higher long-term rates, more rhetoric from Iran and mixed economic data. However, the major averages are higher with slightly positive breadth this afternoon. This market is very resilient, which bodes well for further gains in stocks over the coming weeks. I expect US stocks to trade modestly higher into the close from current levels on lower energy prices and short-covering.
Posted by: Gary / 3:23 PM

Today's Headlines 

Bloomberg:
- General Motors(GM) and Ford Motor(F) led junk bonds to their biggest monthly gain since June on optimism that job cuts, new models and the sale of a GM unit will restore profitability.
- Burger King plans to sell shares to the public for the first time, allowing its private equity owners to cash out three years after buying the company for $1.5 billion.
- United Airlines will exit three years of bankruptcy today with 35 new international routes, a fleet that’s about a fifth smaller, and one-third fewer workers.
- Yale, Columbia, Brown and the Univ. of Penn. Received a record number of applicants for the Class of 2010 because of increased efforts to recruit low-income students with improved financial aid packages.
- US Treasury notes fell after an industry report showed the manufacturing sector may be growing fast enough to spur the Fed to raise interest rates at least one more time.
- General Motors(GM), Ford Motor(F) and DaimlerChrysler AG(DCX) reported unexpected increases in US sales in January, while Japanese rivals Toyota Motor(TM) and Honda Motor(HMC) continued to post gains.
- The US dollar is rising against the euro and reached a high versus the yen for the year as a manufacturing report added to evidence the US economy is growing more rapidly than other industrialized nations.

Wall Street Journal:
- Jobs created by Nissan Motor, Toyota Motor and other Asian and European carmakers in the US South have helped stabilize employment in the industry after the big three cut back in older US industrial strongholds.
- Investors in mutual funds that focus on Japanese stocks withdrew $360.7 million between Jan. 18 and Jan. 25, citing Emerging Portfolio Fund Research.
- Boeing(BA) is likely to win this year only about half of 2005’s 1,002 aircraft orders, but investors shouldn’t necessarily bail out of the stock.
- The SEC wants to require companies to disclose the amount of stock cited as collateral for any loans take by a firm’s directors and its five highest-paid executives.
- US television stations are demanding that affiliated networks include them as partners in online media ventures.
- Angiotech Pharmaceuticals(ANPI) may announce today that it will acquire American Medical Instruments Holdings, a Lake Forest, Illinois-based maker of medical devices, for $785 million.
- Deloitte & Touche is developing an employee-profiling service that companies can use to screen for wrongdoers.
- US auto-safety regulators may propose as early as this summer a rule that would require every new vehicle to have equipment to reduce rollover accidents.

CNBC:
- Morgan Stanley’s(MWD) talks to buy all or part of money manager BlackRock Inc.(BLK) have broken down because the transaction would be too costly.

Washington Post:
- General Motors(GM) CEO Wagoner may announce plans today to invest in a transmission plant in White Marsh, Maryland, so the facility can produce parts for hybrid vehicles.

AP:
- Egyptian officials today called on Hamas to recognize Israel, renounce violence, and honor past peace deals.

NY Times:
- Persian Gulf countries are joining the US and its allies in criticizing Iran’s nuclear program after years of hesitating to do so.
Posted by: Gary / 2:05 PM

Construction Spending Strong, Home Sales Slowing, Manufacturing Healthy, Prices Paid Stable 

- Construction Spending for December rose 1.0% versus estimates of a .2% increase and an upwardly revised .5% gain in November.
- Pending Home Sales for December fell 3.0% versus estimates of a .5% decline and a 3.0% fall in November.
- ISM Manufacturing for January fell to 54.8 versus estimates of 55.5 and a reading of 55.6 in December.
- ISM Prices Paid for January rose to 65.0 versus estimates of 64.0 and a reading of 63.0 in December.
BOTTOM LINE: US construction spending rose more than forecast in December as homebuilding rebounded and office3 and commercial investment increased, Bloomberg reported. Construction spending rose 8.9% for all of 2005 to an all-time record. Construction Spending should remain healthy as hurricane rebuilding continues and commercial construction rises.

Contracts to buy previously owned US homes declined for a fourth consecutive month in December as high home prices proved too rich for some buyers, Bloomberg reported. The pending re-sales index rose 2.3% in the South and 1.5% in the Northeast. Signing fell 8.1% in the West and 9.3% in the Midwest. I continue to believe home sales are slowing to more healthy and sustainable levels.

US manufacturing expanded in January at about the same pace as a month earlier, propelled by orders for business equipment that will drive the economy, Bloomberg said. The order backlogs component of the index rose to 53.5 from 49.5 in December. As well, the new exporter orders component of the index rose to 58.5 from 54.3 in December. According to Chief Executive magazine, a recent monthly survey showed the most confidence by CEOs in the US economy since the survey was started in 2002. This likely means increased corporate spending and hiring. I continue to believe manufacturing will add to US economic growth over the intermediate-term.
Posted by: Gary / 11:37 AM

Links of Interest 

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote
Posted by: Gary / 9:12 AM

Tuesday, January 31, 2006

Wednesday Watch 

Late-Night Headlines
Bloomberg:
- President Bush, in his State of the Union address, asked Americans to support the war on terrorism abroad and his plans at home for improving health care and breaking an “addiction” to foreign sources of energy.
- Federal appeals courts in California and New York said today a federal law banning “partial birth” abortions is illegal.
- Oil is falling for a second day after Iran said it won’t halt exports because of a dispute over its nuclear program, reducing concerns about possible supply shortages.
- Left-wing antiwar protester Cindy Sheehan, who was invited by Democrats to the Capitol to attend President Bush’s State of the Union address this evening, was arrested after she unfurled an anti-war banner in the gallery.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (ALL), (VLO) and (X).
- Reiterated Underperform on (ISE) and (SIE).

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated -.35%.
NASDAQ 100 indicated -1.05%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
(ADS)/.61
(AEP)/.25
(BUD)/.27
(BA)/.44
(BOBJ)/.31
(CBG)/1.11
(DVN)/2.29
(DUK)/.36
(HCA)/.69
(JDSU).00
(LM)/1.03
(MBI)/1.38
(MGM)/.32
(MNST)/.28
(MUR)/.79
(OI)/.11
(PBI)/.74
(PHM)/1.97
(SBUX)/.20
(SUN)/2.15
(TWX)/.22
(TRB)/.56
(XEL)/.25

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Construction Spending for December is estimated to rise .2% versus a .2% increase in November.
- Pending Home Sales for December are estimated to fall .5% versus a 3.2% decline in November.
- ISM Manufacturing for January is estimated to rise to 55.8 versus a reading of 55.6 in December.
- ISM Prices Paid for January is estimated to rise to 64.0 versus a reading of 63.0 in December.

Afternoon
- Total Vehicle Sales for January are estimated to fall to 16.4M versus 17.2M in December.
- Domestic Vehicle Sales for January are estimated to fall to 13.1M versus 13.5M in December.

BOTTOM LINE: Asian indices are mostly lower, weighed down by telecom and financial shares in the region. I expect US equities to open lower and to rally later in the afternoon, fishing modestly higher. The Portfolio is 100% net long heading into the day.
Posted by: Gary / 11:30 PM

Stocks Finish Modestly Lower after Fed Rate Hike 

Indices
S&P 500 1,280.08 -.40%
DJIA 10,864.86 -.32%
NASDAQ 2,305.82 -.04%
Russell 2000 733.20 +.32%
S&P Barra Growth 610.08 -.44%
S&P Barra Value 665.89 -.35%
Morgan Stanley Consumer 592.50 -.79%
Morgan Stanley Cyclical 793.05 -.73%
Morgan Stanley Technology 541.11 -.60%
Transports 4,367.54 +.30%
Utilities 413.84 +.03%
Put/Call .77 +18.46%
NYSE Arms 1.51 +79.77%
Volatility(VIX) 12.95 +4.52%
ISE Sentiment 148.00 -36.21%
US Dollar 88.92 -.56%
CRB 348.66 -.40%

Futures Spot Prices
Crude Oil 67.68 -.35%
Unleaded Gasoline 179.50 -.56%
Natural Gas 9.34 +.27%
Heating Oil 183.90 -.48%
Gold 573.10 -.42%
Base Metals 169.87 +.15%
Copper 222.20 -.29%
10-year US Treasury Yield 4.51% -.22%

Leading Sectors
Gold & Silver +3.01%
Airlines +1.95%
HMOs +1.92%

Lagging Sectors
Homebuilders -.94%
Insurance -1.0%
Semis -1.44%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on (GOOG), expects tax rate that caused shortfall to go back to 30% for 06, 06/07 EPS estimates and $500 implied value in tact.
- Reiterated Outperform on (STN), (SEPR), (SYMC) and (BXP).
- Reiterated Underperform on (KFT), (MRK) and (PFGC).

Afternoon/Evening Headlines
Bloomberg:
- Federal Reserve policy makers, meeting for the final time under Chairman Alan Greenspan, raised the main US interest rate to 4.5% and suggested the run of increases is still not finished.
- Robert McTeer, the former president of the Federal Reserve Bank of Dallas, told CNBC that Federal Reserve policy makers should “stop right now and hold” to give the economy a chance to catch up with recent rate increases.
- Google(GOOG) posted fourth-quarter net income growth of 82% and revenue growth of 86%, but missed profit estimates due to a higher-than-expected tax rate.
BOTTOM LINE: The Portfolio finished higher today on gains in my Medical Information Systems longs, Retail longs, Internet longs, Biotech longs and Computer longs. I added to my Google(GOOG) long down 70 after-hours and took profits in an existing long, thus leaving the Portfolio 100% net long. The tone of the market was mixed today as the advance/decline line finished neutral, sector performance was mixed and volume was above average. Measures of investor anxiety were higher into the close. Overall, today’s performance was mixed. After recouping all its earlier morning losses, Gilead Sciences (GILD), one of my biotech longs, traded 5.1% higher to an all-time high. Gilead remains my favorite biotech stock.
Posted by: Gary / 5:50 PM

Stocks Modestly Lower into Final Hour after Fed Hikes Rates 25 Basis Points 

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Medical Information Systems longs, Internet longs, Biotech longs and Computer longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, sector performance is mixed and volume is above average. Measures of investor anxiety are higher. The Johnson Redbook same-store sales index rose 3.5% year-over-year last week vs. a 3.3% rise the prior week. This week's gain is up from a 1.5% increase in late April 2005, and it's the 39th week in a row that the index has risen 3% or more. The long-term average is a gain of around 2.5%. Retail sales remain healthy, despite higher oil prices. I continue to believe a healthy labor market, low long-term interest rates, falling energy prices, improving sentiment and rising stock prices will cushion any weakness this year related to a slowing housing market. My two favorite retailers remain Abercrombie & Fitch (ANF) and Best Buy (BBY). I expect US stocks to trade higher into the close from current levels on lower energy prices, positive economic data, more dovish Fed comments and stable long-term rates.
Posted by: Gary / 2:57 PM

Today's Headlines 

Bloomberg:
- Coretta Scott King, the widow of civil rights leader the Reverend Martin Luther King Jr. who took up his fight for racial equality after his assassination, has died at the age of 78.
- Iran won’t halt oil exports because of the dispute over its nuclear program, which may be referred to the UN for sanctions, the country’s oil minister said.
- “Brokeback Mountain” led Academy Award nominations with eight nods, including best picture and best director.

Wall Street Journal:
- Huntsman Corp.(HUN), the fourth largest US chemical maker, is in talks to be acquired by an unidentified buyer.
- American Electric Power(AEP) will build a $3 billion electricity line from West Virginia to New Jersey, the first big venture to use a new US law that promotes the building of projects needed to alleviate a congested power grid.
- Liberty Media(L) and EchoStar Communications(DIS) are investing in a company with a product that lets people watch television on their computers while away from home.
- Shares of Diebold(DBD) have dropped 30% in 12 months, a period that’s seen the departure of the CEO, the finance chief and the COO, but investors who stick with the company could reap rewards.
- General Motors(GM), Anheuser-Busch(AB) and Nintendo are developing ways to attach ads to video files downloaded from the Internet.

NY Times:
- Many US states have passed laws that inch toward regulation of the drug industry.
- The number of US and other foreign troops in Iraq probably will drop to below 100,000 by the end of the year and a majority could be out in two years.

USA Today:
- Indian tribes, which can make unlimited political contributions, get that status through treaties negotiated with the US in the 1700s.
- FEMA may provide displaced New Orleans residents free apartments for as long as 18 months while they recover from last year’s hurricane.

NY Post:
- Pier 1 Imports may be looking for a successor to Chairman and CEO Girouard, and has hired an executive search firm to seek candidates.
- NY’s Metropolitan Transportation Authority plans to run a six-month program to test “smart cards” on the 4, 5 and 6 subway lines in Manhattan to speed up passenger entry.

Atlanta Business Chronicle:
- Coca-Cola has been looking into ways, over the past two years, to offer hot coffee, espresso and tea quickly in individual servings, citing patent and trademark applications.

Nihon Keizai:
- Sanyo Electric and Volkswagen AG will jointly develop rechargeable batteries for gasoline-electric hybrid vehicles.

Arab News:
- Saudi Arabia urged western countries to respect the decision of the Palestinian people to elect Hamas, classified by many as a terrorist organization.

Tehran Times:
- Iran plans to invest $14 billion to expand its refining capacity by more than 50%.

Reuters:
- Google(GOOG) denied a report in today’s NY Post that the company is in talks with Napster(NAPS) to form an alliance that may lead to Google acquiring the Internet music service.
Posted by: Gary / 1:48 PM

Inflation Measures Decelerate, Consumer Confidence Rises, Chicago Manufacturing Decelerates 

- The 4Q Employment Cost Index rose .8% versus estimates of a .9% increase and a .8% gain in 3Q.
- Consumer Confidence rose to 106.3 in January versus estimates of 105.0 and a reading of 103.8 in December.
- The Chicago Purchasing Manager Index for January fell to 58.5 versus estimates of 59.9 and a reading of 60.8 in December.
BOTTOM LINE: US labor costs rose less than expected in the fourth quarter, suggesting tame inflation, Bloomberg reported. Employment costs rose 3.1% for all of 2005, slowing for a second straight year. Unit labor costs account for two-thirds of inflation. Core US consumer prices gained 2.2% last year, right at the average of the last decade. I continue to believe employment costs will remain relatively low over the intermediate-term, thus helping to keep inflation in check.

US consumer confidence rose more than expected in January to the highest since June 2002 as employers accelerated hiring, Bloomberg reported. Employers added 2 million new jobs in 2005, the second best number since before the stock market bubble burst in 1999. The component of the index measuring optimism about consumer’s present situation surged to 128.4, the highest since 2001, versus 120.7 the prior month. The percentage of consumers that saw jobs as plentiful rose to 26.9%, the highest since September 2001. I expect consumer confidence readings to make new cycle highs later this year as stocks rise further, the job market remains healthy, housing stabilizes at relatively high levels, long-term interest rates remain low, inflation decelerates and energy prices fall.

Chicago-area manufacturing expanded at a slower pace this month as automakers cut capacity to reduce costs and restore profits, Bloomberg said. The prices paid component of the index fell to 75.3 from 81.1 the prior month. The new orders component of the index fell to 63.7 versus 65.7 in December. I continue to believe manufacturing nationwide will add to economic growth this quarter as inventories are rebuilt, confidence improves and hurricane rebuilding takes hold.
Posted by: Gary / 10:47 AM

Links of Interest 

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote
Posted by: Gary / 9:29 AM

Tuesday Watch 

Late-Night Headlines
Bloomberg:
- International donors are meeting in London today to agree to a five-year plan to develop Afghanistan’s security, government and rule of law, cementing its moves toward democracy since the Taliban regime was ousted in 2001.
- Billionaire investor Carl Icahn recruited former Viacom(VIA) CEO Frank Biondi to lead a fight for control of Time Warner(TWX).
- Merck(MRK) won a lawsuit over its Vioxx painkiller, after a state judge in New Jersey said a Texas man failed to prove the drug caused his stomach pain and internal bleeding.
- The US, European Union, United Nations and Russia put Hamas on notice that once it forms a new Palestinian government there will be financial consequences unless the Islamic movement abandons violence, accepts Israel’s existence and abides by existing peace agreements.
- US Supreme Court nominee Samuel A. Alito Jr. moved closer to confirmation as the Senate agreed to end four days of debate on his selection to replace retiring Justice Sandra Day O’Connor.
- Russia and China agreed to back the referral of Iran’s nuclear program to the UN Security Council at a Feb.2 meeting of the International Atomic Energy Agency, joining the US, UK, France and Germany.
- Google(GOOG) expects “high growth” in Brazil as more people in Latin America’s largest economy gain access to computers, the company’s co-founder Sergey Brin said.

Financial Times:
- OAO Lukoil, Russia’s largest oil company, will restart talks with Iraq’s government to develop oil fields in the country, citing Lukoil Vice President Leonid Fedun.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (EBAY), (BXP), (X), (XOM), (HEP) and (MYL).
- Reiterated Underperform on (GBL) and (UHS).

Night Trading
Asian Indices are unch. to +1.0% on average.
S&P 500 indicated +.03%.
NASDAQ 100 indicated +.06%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
(MDRX)/.09
(ALL)/1.52
(MO)/1.17
(ADM)/.42
(ASD)/.46
(AX)/.24
(AH)/1.00
(ATYT)/.04
(CME)/2.10
(CHIR)/.51
(CB)/2.14
(CIN)/.69
(CEG)/1.00
(CAM)/.45
(CFC)/1.05
(DBD)/.64
(ETR)/.54
(FLEX)/.19
(GOOG)/1.76
(HLT)/.19
(ITW)/1.39
(JBLU)/-.14
(K)/.46
(KRI)/1.22
(LLL)/1.21
(MRK).62
(MSTR)/1.34
(NAV)/3.06
(PD)/3.96
(SYMC)/.25
(VLO)/1.94
(VMC)/.82
(WYE)/.60

Upcoming Splits
(FIF) 3-for-2

Economic Releases
8:30 am EST
- 4Q Employment Cost Index is estimated to rise .9% versus a .8% gain in 3Q.

10:00 am EST
- Consumer Confidence for January is estimated to rise to 105.0 versus a reading of 103.6 in December.
- Chicago Purchasing Manager for January is estimated to fall to 59.8 versus a reading of 60.8 in December.

2:15 pm EST
- The Fed is expected to raise the benchmark interest rate by 25 basis points to 4.5%.

BOTTOM LINE: Asian indices are higher, led by technology companies and automakers in the region. The Fed will likely raise the benchmark interest rate 25 basis points, remove the word "measured" from the policy statement describing the future pace of rate hikes and make more dovish comments than most expect. I expect US equities to open modestly lower and to rally later in the afternoon, fishing modestly higher. The Portfolio is 100% net long heading into the day.
Posted by: Gary / 12:02 AM

Monday, January 30, 2006

Stocks Close Mixed as Rising Energy Prices Offset Positive Economic Data Ahead of Fed Meeting 

Indices
S&P 500 1,285.20 +.12%
DJIA 10,899.92 -.07%
NASDAQ 2,306.78 +.11%
Russell 2000 730.87 -.18%
S&P Barra Growth 612.77 +.15%
S&P Barra Value 668.26 +.08%
Morgan Stanley Consumer 597.19 -.30%
Morgan Stanley Cyclical 798.87 +.02%
Morgan Stanley Technology 544.38 +.28%
Transports 4,354.49 +1.04%
Utilities 413.71 -.57%
Put/Call .65 -16.67%
NYSE Arms .78 -14.00%
Volatility(VIX) 12.39 +3.51%
ISE Sentiment 238.00 +20.20%
US Dollar 89.43 +.12%
CRB 350.06 +.89%

Futures Spot Prices
Crude Oil 68.54 +.28%
Unleaded Gasoline 177.49 +.01%
Natural Gas 9.38 -.10%
Heating Oil 183.38 +1.49%
Gold 568.10 +.41%
Base Metals 169.61 +.45%
Copper 222.80 -.07%
10-year US Treasury Yield 4.53% +.49%

Leading Sectors
Oil Service +2.93%
Energy +2.30%
Airlines +2.94%

Lagging Sectors
Semis -.71%
Tobacco -.90%
Hospitals -1.53%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Underperform on (SGP).

Afternoon/Evening Headlines
Bloomberg:
- President Bush will nominate Stanford University economist Ed Lazear to be chairman of his Council of Economic Advisers.
- OPEC agreed to keep production near a 26-year high in the second quarter after most members said prices were too high to warrant an output cut, Saudi Arabia’s oil minister said.

San Francisco Chronicle:
- California builders plan to construct tens of thousands of homes on flood-prone delta lands to meet demand for housing from Sacramento to the Bay Area.
BOTTOM LINE: The Portfolio finished higher today on gains in my Medical Information Systems longs, Semi longs and Computer longs. I exited my VLO short and took profits in a few longs in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was slightly negative today as the advance/decline line finished modestly lower, sector performance was mixed and volume was about average. Measures of investor anxiety were mostly lower into the close. Overall, today’s performance was neutral ahead of a number of market-moving catalysts. The Airline Index (XAL) was up almost 3% today, even as oil remains near $70/bbl. The recent correction in the group looks like it has run its course. (AMR) and (SKYW) are my two favorites in this despised group.
Posted by: Gary / 4:43 PM

Stocks Mixed Mid-day Ahead of Fed Meeting 

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Medical Information Systems longs and Computer longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, most sectors are rising and volume is around average. Measures of investor anxiety are mostly lower. The energy sector saw the most insider selling of any group in the S&P 500 last week. Insider sales totaled $144,191,838 while buys totaled $24,776. This is the largest weekly net insider selling for energy this cycle. I expect US stocks to trade mixed into the close from current levels as higher energy prices and apprehension ahead of the Fed meeting offsets positive economic data and stable long-term rates.
Posted by: Gary / 3:13 PM

Today's Headlines 

Bloomberg:
- Google(GOOG) is releasing a custom toolbar for Web browsers as part of efforts to attract more visitors to its sites.
- People should drink less alcohol because it contributes to several types of cancer, according to a review published in the medical journal Lancet Oncology today.
- Saudi Prince Alwaleed bin Talal and Colony Capital LLC agreed to buy Fairmont Hotels & Resorts for $3.24 billion, adding 87 luxury hotels to Colony’s Raffles chain.
- GM(GM) bonds and shares rose as a Citigroup(C) unit joined negotiations to buy a majority stake in the automaker’s auto-loan and mortgage business.

Wall Street Journal:
- Time Warner(TWX) will probably announce today that it’s teaming up with Bertelsmann AG to start an online service that will sell films and television shows in Germany.
- US Congress has boosted foreign aid to help fight diseases to $4 billion, almost triple what the US spent in 2001 in inflation-adjusted terms.
- US publishers say fact-checking books they produce has become too expensive for them to handle, prompting concern that many works, especially non-fiction, may contain inaccurate information.
- EarthLink(ELNK) plans to start offering this week high-speed Internet and online-calling services in partnership with Covad Communications(DVW).
- Warner Music and Skype Technologies SA may today announce an agreement to make ringtones available over Internet phones.
- The Federal Aviation Administration’s head of air traffic control is struggling to cope with high costs and chronic delays.
- The NY Merc’s grip on global energy and metals markets may be weakening, just as the exchange is preparing to sell a minority stake and become a public company.

NY Times:
- News Corp.’s(NWS) Fox network may overtake CBS and ABC to win the highest viewership in the 18-to-49 category this season because of the high ratings of its “American Idol” show.
- Microsoft Corp.(MSFT) is developing a mobile phone that could be connected to a television and a keyboard to function as a computer to be used in the developing world.

NY Post:
- Some Walt Disney Co.(DIS) shareholders may try to oust Chairman George Mitchell.

LA Times:
- California recreational boat sales increased about 8% last year, fueled in part by a real estate market boom.

Sabah:
- Turkey won’t back referring Iran to the UN over its nuclear program, putting the nation at odds with the EU.
Posted by: Gary / 12:59 PM

Personal Incomes Remain Healthy, Spending Accelerates, Inflation Decelerates 

- Personal Income for December rose .4% versus estimates of a .4% increase and a .4% gain in November.
- Personal Spending for December rose .9% versus estimates of a .7% gain and a .5% increase in November.
- PCE Core(M-o-M) for December rose .1% versus estimates of a .2% increase and a .2% gain in November.
BOTTOM LINE: US personal spending increased more than expected in December as incomes grew, suggesting a pickup in demand at the end of 2005 that may help boost first-quarter growth, Bloomberg reported. The PCE Core, the Fed’s favorite inflation gauge, rose a less-than-expected .1%. Inflation-adjusted spending on big-ticket items such as cars and furniture rose 5.0% in December, the largest gain since July. For all of 2005 the PCE Core gained 1.9% versus a 2.3% increase in 2004. Incomes rose 5.4% for all of 2005, almost double most measures of inflation. I continue to expect consumer spending to remain relatively healthy and measures of inflation to decelerate over the intermediate-term.
Posted by: Gary / 10:44 AM

Links of Interest 

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote
Posted by: Gary / 9:25 AM

Sunday, January 29, 2006

Monday Watch 

Weekend Headlines
Bloomberg:
- Wal-Mart(WMT) said January same-store sales rose about 4.7%, the biggest January gain in two years.
- Former President Clinton called on Hamas to renounce violence as it prepares to form a government after winning Palestinian parliamentary elections.
- President Bush called on Congress to hold a confirmation vote on US Supreme Court nominee Samuel A. Alito Jr., and lashed out at Democrats for their handling of the judge’s nomination.
- The NFL said it will show eight regular-season games on its cable-tv channel on Thursday and Saturday nights starting next season.
- Morgan Stanley’s(MWD) international chairman Jonathan Chenevix-Trench downplayed the recent departure of four senior investment bankers, saying the firm is in “great shape.”
- Israel said it will cut off contact with the Palestinian Authority unless Hamas, which won last week’s legislative elections, meets four conditions, including acceptance of prior Israeli-Palestinian peace agreements.
- Saudi Arabia’s oil minister said OPEC shouldn’t cut production when the group meets in two days.
- OPEC should leave oil production unchanged, Algeria’s energy minister said.
- Japan’s industrial production rose for a fifth month in December, the longest expansion since 1999, as robust overseas and domestic demand encourages companies to increase output of electronics and motor vehicles.
- US Secretary of State Condoleezza Rice will press US allies today in London to deprive the incoming Hamas-led Palestinian government of financial support unless it abandons terrorism and accepts the existence of Israel.
- Arcelor SA, the world’s second-largest steelmaker, said its board unanimously rejected a $22.5 billion hostile takeover bid by rival Mittal Steel Co., the largest producer of the metal.

Wall Street Journal:
- Citigroup Inc.(C) may bid for General Motors’(GM) finance unit, GMAC.

Washington Post:
- China’s Communist Party introduced economic, educational and medical reform to “help” farmers since their protests have become increasingly violent.
- Some Democrats are using blogs and mass e-mails to denounce members of their own political party for trying to appeal to a broad spectrum of US voters.
- Target Corp.(TGT) operates one of the most advanced crime labs in the US at its headquarters in Minneapolis as part of its efforts to aid local and national law-enforcement agencies.
- The White House may be reluctant to pay for 19 planned NASA shuttle flights and may delay deploying a new generation of manned spacecraft until 2014.

LA Times:
- Sales of new home rose 4.4% in 2005, the highest percentage increase since market researcher DataQuick Information Systems began taking data in 1988.

Seattle Times:
- Microsoft(MSFT) is acquiring Seadragon Software, a Seattle-based company developing technologies that could be used across several of the software giant’s businesses.

Financial Times:
- Microsoft(MSFT) may face new antitrust action from the European Commission which could force it to disclose more information about its Windows operating program.
- The SEC plans to randomly inspect hedge fund managers of businesses it regards as high risk, citing Gene Gohlke, associate director of the SEC’s compliance office.

Independent on Sunday:
- John Lasseter, the creative chief of Pixar Animation Studios(PIXR) told Walt Disney(DIS) that production on “Toy Story 3” will be scrapped.

AFP:
- Ex-Iraqi dictator Saddam Hussein walked out of his trial in Baghdad after his half-brother was thrown out by the judge.
- Kuwaiti Oil Minister al-Sabah urged OPEC to maintain oil supplies close to a 25-year high when it meets Jan. 31.

Focus:
- German authorities uncovered clues that Iran is expanding an arsenal of weapons of mass destruction, increasing concern that the country may have a secret nuclear-weapons program.

Nihon Keizai:
- Hitachi Ltd. may invest $852 million to build a new flat-screen plasma TV panel factory and expand capacity to keep up with rivals.

El Mundo:
- Mexico and the US may be close to an agreement on immigration, Mexican President Vicente Fox said.

Tehran Times:
- Iran will begin drilling for oil and gas in the Caspian Sea by June, citing an Iranian oil official.
- Iran will export 2.6 million barrels of crude oil a day in 2006, citing figures in the latest government budget plan.

Weekend Recommendations
Barron's:
- Had positive comments on (MHP).
- Had negative comments on (PCL) and (AMLN).

Goldman Sachs:
- Reiterated Outperform on (PFE).

Night Trading
Asian indices are +.50% to +1.0% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated +.09%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/Estimate
(AFL)/.63
(CHKP)/.35
(CMI)/3.11
(EK)/.39
(XOM)/1.44
(GILD)/.53
(KFT)/.53
(MAT)/.48
(PCL)/.34
(SGP)/.08
(SEE)/.74
(SII)/.43
(SYY)/.35
(TSN)/.16
(ZMH)/.83

Upcoming Splits
- (MRBK) 3-for-2
- (CTHR) 5-for-4

Economic Releases
8:30 am EST
- Personal Income for December is estimated to rise .4% versus a .3% increase in November.
- Personal Spending for December is estimated to rise .7% versus a .3% increase in November.
- PCE Core(M-o-M) for December is estimated to rise .2% versus a .1% gain in November.

BOTTOM LINE: Asian Indices are higher, led by financial, material and technology shares in the region. I expect US stocks to open mixed and to rise into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.
Posted by: Gary / 11:44 PM

Weekly Outlook 

Click here for The Week Ahead by Reuters

There are a number of economic reports and some significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - Personal Income, Personal Spending, PCE Deflator
Tues. - 4Q Employment Cost Index, Consumer Confidence, Chicago Purchasing Manager, FOMC Rate Decision
Wed. - Construction Spending, Pending Home Sales, ISM Manufacturing, ISM Prices Paid, Total Vehicle Sales
Thur. - Non-farm Productivity, 4Q Unit Labor Costs, Initial Jobless Claims
Fri. - Change in Non-farm Payrolls, Unemployment Rate, Average Hourly Earnings, Univ. of Mich. Confidence, Factory Orders, ISM Non-Manufacturing

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. - Aflac Inc.(AFL), Checkpoint Software(CHKP), Cummins Inc.(CMI), Eastman Kodak(EK), Exxon Mobil(XOM), Gilead Sciences(GILD), Kraft Foods(KFT), Mattel Inc.(MAT), Schering-Plough(SGP), Sysco Corp.(SYY), Tyson Foods(TSN), Zimmer Holdings(ZMH)
Tues. - Allstate(ALL), Altria Group(MO), Archer-Daniels-Midland(ADM), Chicago Merc(CME), Chiron Corp.(CHIR), Chubb Corp.(CB), Constellation Energy(CEG), Cooper Cameron(CAM), Diebold(DBD), Flextronics(FLEX), Google Inc.(GOOG), Hilton Hotels(HLT), Illinois Tool Works(ITW), JetBlue Airlines(JBLU), Kellogg(K), Knight Ridder(KRI), L-3 Communications(LLL), Merck & Co.(MRK), Phelps Dodge(PD), Symantec(SYMC), United States Steel(X), Valero Energy(VLO), Wythe(WYE)
Wed. - Anheuser-Busch(BUD), Boeing(BA), Boston Scientific(BSX), Duke Energy(DUK), HCA Inc.(HCA), JDS Uniphase(JDSU), MBIA Inc.(MBI), MGM Mirage(MGM), Monster Worldwide(MNST), Pitney Bowes(PBI), Pulte Homes(PHM), Starbucks(SBUX), Time Warner(TWX), Tribune(TRB)
Thur. - Allergan(AGN), Amazon.com(AMZN), Avon Products(AVP), Cerner Corp.(CERN), Clorox(CLX), Comcast Corp.(CMCSA), CVS Corp.(CVS), Electronic Arts(ERTS), International Paper(IP), Intuitive Surgical(ISRG), Linens ‘n Things(LIN), Ratheon(RTN), Royal Caribbean(RCL), Sara Lee(SLE), Starwood Hotels(HOT), Tyco International(TYC), Maytag Corp.(MYG), Moody’s(MCO)
Fri. - THQ Inc.(THQI), Wendy’s International(WEN), Weyerhaeuser(WY), Whirlpool(WHR)

Other events that have market-moving potential this week include:

Mon. - CSFB Energy Summit
Tue. - Citigroup Financial Services Conference, CSFB Energy Summit, OPEC Meeting
Wed. - Citigroup Financial Services Conference, Merrill Lynch IT Services & Software Conference, CSFB Energy Summit
Thur. - CSFB Energy Summit, Merrill Lynch IT Services & Software Conference
Fri. - Merrill Lynch IT Services & Software Conference, CSFB Energy Summit

BOTTOM LINE: I expect US stocks to finish the week modestly higher on more dovish Fed comments, diminishing inflation worries, a healthy job market, less irrational pessimism over earnings, more general optimism, lower energy prices, short-covering and “catch-up” buying. My trading indicators are now giving bullish signals and the Portfolio is 100% net long heading into the week.
Posted by: Gary / 6:46 PM

The positions and strategies discussed on Between the Hedges are offered for entertainment purposes and are in no way intended to serve as personal investing advice. Readers should not make any investment decision without first conducting their own thorough due diligence. Readers should assume the editor holds a position in any securities discussed, recommended or panned. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed, nor can this publication be, in any way, considered liable for the future investment performance of any securities or strategies discussed.

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