Stocks Finish Slightly Lower on Profit-taking, China Bubble Worries and Higher Long-term Rates

Indices
S&P 500 1,522.28 -.12%
DJIA 13,525.65 -.11%
NASDAQ 2,577.05 -.42%
Russell 2000 836.54 -.40%
Wilshire 5000 15,323.55 -.16%
Russell 1000 Growth 598.65 -.13%
Russell 1000 Value 878.09 -.18%
Morgan Stanley Consumer 745.48 +.11%
Morgan Stanley Cyclical 1,063.06 +.27%
Morgan Stanley Technology 613.81 -.41%
Transports 5,199.73 +.05%
Utilities 527.84 -1.10%
MSCI Emerging Markets 127.22 +.07%

Sentiment/Internals
Total Put/Call .97 -14.91%
NYSE Arms .74 -33.52%
Volatility(VIX) 13.24 +1.38%
ISE Sentiment 140.0 +6.87%

Futures Spot Prices
Crude Oil 65.85 +.52%
Reformulated Gasoline 230.55 -.03%
Natural Gas 7.76 -.55%
Heating Oil 193.34 +1.37%
Gold 662.30 +.35%
Base Metals 262.56 -4.01%
Copper 330.75 +.15%

Economy
10-year US Treasury Yield 4.85% +3 basis points
US Dollar 82.28 -.13%
CRB Index 311.62 +.06%

Leading Sectors
Gold +1.62%
Medical Equipment +.92%
Oil Service +.81%

Lagging Sectors
Restaurants -1.25%
Semis -1.55%
Airlines -1.59%

Evening Review
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Afternoon Recommendations
Bank of America:
- Rated (TYL) Buy, target $15.

Afternoon/Evening Headlines
Bloomberg:
- Former SEC Chairman Arthur Levitt said that private equity buyout are “not a bad trend.”
- The US will seek greater pressure on Iran to abandon its nuclear ambitions than Europeans want, diplomats said after the UN nuclear watchdog agency said existing sanctions aren’t working.
- The SEC approved rules that will make it easier for additional credit-rating companies to gain federal recognition and compete with S&P’s and Moody’s Investors Service.
- Chinese stocks fell in US trading after Former Federal Reserve Chairman Alan Greenspan said he was concerned that equities in China might undergo a “dramatic contraction.”
- Treasury 10-year note yields rose to the highest level since January as traders reduced the odds of an interest rate cut by the Federal Reserve this year on improving US economic prospects.
- Network Appliance(NTAP) forecast sales and profit for the first quarter that fell short of analysts’ estimates, prompting shares to tumble 19% after-hours.
- CA Inc.(CA) posted an unexpected fourth-quarter loss because of a decline in orders. The shares fell 6% in extended trading as forecasts fell short of analysts’ predictions.
- The Gymboree Corp.(GYMB) today reported earnings for the first fiscal quarter ended May 5, 2007, of $20.9 million versus $18.6 million the prior year. The shares surged 7% in after-hours trading.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Semi longs and Medical longs. I added to my (EEM) short and added (IWM)/(QQQQ) hedges in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was mildly negative today as the advance/decline line finished lower, sector performance was mostly negative and volume was above average. Measures of investor anxiety were about average into the close. Today's overall market action was bearish. The 10-year yield is moving modestly higher as investors continue to price out a U.S. recession, in my opinion. Inflation worries have subsided to an extent. Gold continues to trade very poorly considering all of the potential positive catalysts it has had of late. The percent chance of a recession beginning this year has plunged to 13.5% on Intrade.com. Moreover, the 10-year yield is still very low by historical standards. Furthermore, housing will likely prevent any significant moves higher in yield from current levels as mortgage rates rise modestly. I continue to believe it would take a convincing move above 5% on the 10-year yield to impact U.S. stocks in any meaningfully negative way. I still don't expect that to occur and still believe the 10-year yield will average about 4.75% for the year. In the current U.S. negativity bubble, most investors continue to focus on any short-term negatives, while the big picture remains very positive. The iShares FTSE/Xinhua China 25 Index (FXI) finished at session lows, falling 0.8% on Greenspan's China bubble comments. Given how extended China is, these comments might provide the catalyst for at the very least a short-term dip in the Shanghai. As well, April new home sales may very well be weaker than expected, which could also lead to some more weakness here in the morning.