Tuesday, February 20, 2007

Stocks Higher into Final Hour, Led by Small-Caps, as Energy Prices Fall

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Telecom longs, Retail longs, Biotech longs, Computer longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is higher and volume is heavy. Reuters is reporting that Advanced Micro Devices' (AMD) CEO is saying that the market is underestimating the positive impact from Microsoft's (MSFT) Vista and that the new operating system will drive "a lot of technology upgrades." Moreover, Bill Gates is saying that "reception for Vista has been incredibly good." This morning, CSFB said buyout funds have the potential to purchase companies with a market value of $2 trillion this year. As well, according to a recent survey by Private Equity Intelligence, private equity funds may raise $500 billion this year, a 16% increase over last year's record amount. This potential demand for equities comes at a time when the total value of U.S. shares contracted last year by the most in 22 years. Let's also not forget that the percentage of U.S. mutual fund assets in domestic stocks is the lowest since at least 1984, when record-keeping began. This is another huge potential source of demand for U.S. equities. I continue to believe a low supply of U.S. stock and increasing demand will make for a lethally bullish combination this year. I expect US stocks to trade modestly higher into the close from current levels on declining energy prices, bargain hunting and short-covering.

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