Wednesday, January 03, 2007

Stocks Finish Slightly Higher as Commodities Drop

Indices
S&P 500 1,416.60 -.12%
DJIA 12,474.52 +.09%
NASDAQ 2,423.16 +.33%
Russell 2000 787.42 -.03%
Wilshire 5000 n/a
S&P Barra Growth 651.23 -.20%
S&P Barra Value 763.93 -.04%
Morgan Stanley Consumer 696.91 +.20%
Morgan Stanley Cyclical 895.36 +.21%
Morgan Stanley Technology 568.79 +.10%
Transports 4,650.66 +1.98%
Utilities 457.68 +.20%
Put/Call .85 -3.41%
NYSE Arms 1.20 -23.31%
Volatility(VIX) 12.04 +4.15%
ISE Sentiment 124.0 -24.85%
US Dollar 83.96 +.83%
CRB 298.49 -2.80%

Futures Spot Prices
Crude Oil 58.14 -4.77%
Reformulated Gasoline 154.50 -4.41%
Natural Gas 6.15 -2.22%
Heating Oil 158.33 -3.94%
Gold 629.50 -1.33%
Base Metals 222.26 -4.83%
Copper 266.0 -7.35%
10-year US Treasury Yield 4.66% -.47%

Leading Sectors
Airlines +3.88%
I-Banks +1.46%
Networking +1.44%

Lagging Sectors
Gold & Silver -3.73%
Energy -3.78%
Oil Service -4.36%

Evening Review
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After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Crude oil in NY plunged the most in 20 months as mild US weather curbed record speculation by investment funds.
- Blockbuster Inc.(BBI) reached its goal of 2 million paying subscribers for its online service by the end of 2006. The shares touched a 14-month high.
- Manhattan apartment prices rose another 3.2% in the fourth quarter from a year earlier.
- The UN is investigating a report that its peacekeeping troops in Sudan raped and sexually abused children as young as 12.
- About 750,000 US port workers must get criminal background checks and carry federal identification cards for access to secure areas, the Homeland Security Dept. said.
- General Motors(GM) and Ford Motors’(F) December US sales each fell 13% as consumers bought fewer gas guzzling pick-up trucks and sport-utility vehicles. Toyota Motors’ rose 12%.
- The S&P 500 will exceed 1,600 this year because profits will grow more than 10%, said Byron Wien, chief market strategist of Pequot Capital Management.
- The US Dollar rose the most since July against the euro and reached a two-month high versus the yen after a report showed manufacturing in the US expanded in December.
- Copper prices in NY plunged 7.7% to a seven-month low as record speculation by investment funds continues to subside as inventories rise.

BOTTOM LINE: The Portfolio finished slightly lower today as losses in my Medical longs, Biotech longs and Semi longs more than offset gains in my Internet longs and Commodity shorts. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was slightly positive today as the advance/decline line finished slightly higher, most sectors rose and volume was heavy. Measures of investor anxiety were mostly higher into the close. Today's overall market action was slightly bearish. Last year, oil rose $2.05/bbl. on the first trading day of the year and $7.40/bbl. through the first three weeks of trading as commodity funds, flush with new capital, drove futures prices higher. I suspect, given the average commodity hedge fund fell around double-digits last year as the CRB Index dropped 7.4%, that many energy-related funds saw outflows at year-end. Today, oil fell $2.84/bbl. I continue to believe the many U.S. stock market bears and many bulls raised cash in December in anticipation of a pullback this month. Considering the overwhelming majority of funds failed to meet the S&P 500's 15.8% return last year, I suspect most managers have a very low threshold of pain this year for falling substantially behind their benchmark once again. There is still massive bull firepower available on the sidelines as short interest remains near record highs, the herd remains bearish on U.S. stocks, money market funds are flush with cash and buyout firms remain active. U.S. stocks remain cheap and p/e multiple expansion should accelerate this year. I still expect US stocks, with the exception of commodity-related shares, to post strong January gains notwithstanding today’s intraday volatility.

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