Saturday, May 31, 2008

Market Week in Review

S&P 500 1,400.38 +.43%*

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Click here for the Weekly Wrap by Briefing.com.

*5-Day Change

Friday, May 30, 2008

Weekly Scoreboard*

Indices
S&P 500 1,400.38 +.43%
DJIA 12,638.32 +.10%
NASDAQ 2,522.66 +2.36%
Russell 2000 748.28 +2.08%
Wilshire 5000 14,193.68 +.82%
Russell 1000 Growth 596.63 +1.63%
Russell 1000 Value 752.12 -.52%
Morgan Stanley Consumer 704.58 +1.41%
Morgan Stanley Cyclical 982.14 +.09%
Morgan Stanley Technology 617.63 +3.49%
Transports 5,437.54 +3.66%
Utilities 521.65 -.57%
MSCI Emerging Markets 151.44 -.10%

Sentiment/Internals
NYSE Cumulative A/D Line 59,198 -1.07%
Bloomberg New Highs-Lows Index -117
Bloomberg Crude Oil % Bulls 30.0 -37.5%
CFTC Oil Large Speculative Longs 215,999 -11.3%
Total Put/Call .84 -13.4%
OEX Put/Call 1.22 +93.65%
ISE Sentiment n/a
NYSE Arms 1.07 +5.94%
Volatility(VIX) 17.83 -1.22%
G7 Currency Volatility (VXY) 9.96 -4.96%
Smart Money Flow Index 8,798.33 +.70%
AAII % Bulls 31.36 -32.27%
AAII % Bears 45.76 +33.57%

Futures Spot Prices
Crude Oil 127.57 -2.29%
Reformulated Gasoline 335.48 +1.24%
Natural Gas 11.77 +.03%
Heating Oil 367.80 -7.20%
Gold 890.70 -3.41%
Base Metals 236.22 -3.18%
Copper 360.40 -2.67%
Agriculture 397.75 +.74%

Economy
10-year US Treasury Yield 4.05% +21 basis points
10-year TIPS Spread 2.52% unch.
TED Spread .80 unch.
N. Amer. Investment Grade Credit Default Swap Index 101.21 -6.68%
Emerging Markets Credit Default Swap Index 207.31 -4.79%
Citi US Economic Surprise Index -9.70 +47.3%
Fed Fund Futures 2.0% chance of 25 cut, 98.0% chance of no cut on 6/25
Iraqi 2028 Govt Bonds 74.50 +.53%
4-Wk MA of Jobless Claims 370,500 -.7%
Average 30-year Mortgage Rate 6.08% +10 basis points
Weekly Mortgage Applications 593,300 -4.55%
Weekly Retail Sales +1.8%
Nationwide Gas $3.96/gallon +.05/gallon.
US Cooling Demand Next 7 Days 21.0% above normal
ECRI Weekly Leading Economic Index 132.80 -.15%
US Dollar Index 72.88 +1.36%
Baltic Dry Index 11,347 -2.58%
CRB Index 422.17 -1.54%

Best Performing Style
Small-cap Growth +2.72%

Worst Performing Style
Large-cap Value -.51%

Leading Sectors
Road & Rail +4.84%
Computer Services +4.46%
Computer Hardware +4.0%
Gaming +2.91%
Internet +2.87%

Lagging Sectors
Tobacco -1.81%
Energy -2.21%
Banks -2.34%
Oil Tankers -2.63%
Gold -5.01%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Finish Higher, Boosting by Technology, Commodity, Construction, Defense and HMO Shares

Evening Review
Market Summary
Top 20 Biz Stories

Today’s Movers

Market Performance Summary

WSJ Data Center

Sector Performance

ETF Performance

Style Performance

Commodity Movers

Market Wrap CNBC Video
(bottom right)
S&P 500 Gallery View

Timely Economic Charts

GuruFocus.com

PM Market Call

After-hours Commentary

After-hours Movers

After-hours Real-Time Stock Bid/Ask

After-hours Stock Quote

After-hours Stock Chart

In Play

Stocks Higher into Final Hour on Less Economic Pessimism, Diminishing Credit Market Angst

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Gaming longs, Computer longs and Software longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly bullish as the advance/decline line is slightly higher, most sectors are rising and volume is below average. Investor anxiety is around average. Today’s overall market action is mildly bullish. The VIX is falling 2.2% and remains above average at 17.75. The ISE Sentiment Index is n/a and the total put/call is slightly below average at .85. Finally, the NYSE Arms has been running about average most of the day and is currently .94. Tech stocks are relatively strong again today. The MS Tech Index is now flat for the year. I expect tech stocks to continue to outperform over the intermediate-term. This year’s best performing style, Mid-cap Growth, is rising another .9% today and is now .49% higher for the year. The Citigroup US Economic Surprise Index is rising to -11.0 today, up from -100 in March. As well, the EU Index and Japanese Index are still below the US at -26.70 and -26.50, respectively. The European Financial Sector Credit Default Swap Index is falling another 3.58 basis points today to 63.12 basis points, despite weakness in financial equities. This is down from 78.0 basis points just 4 days ago. As well, the North Amer. High-Yield CDS Index is falling 12.32 basis points to 551.97 basis points, which is down from a high of 786.65 basis points on March 18th. Despite the .6% gain in crude oil today, heating oil is falling another 1.0%. The CRB RIND Index, which is a measure of price movements of 22 sensitive basic commodities that are used in the initial stages of production, has declined 5% over the last two weeks and is close to testing its 200-day moving-average. Nikkei futures indicate a +102 open in Japan and DAX futures indicate a +24 open in Germany tomorrow. I expect US stocks to trade mixed into the close from current levels as less economic pessimism and diminishing credit market angst offset profit-taking and higher energy prices.

Today's Headlines

Bloomberg:
- Yields over benchmark rates on securities backed by credit card and auto loan payments narrowed this month in a sign that demand is returning for debt tied to consumer payments, according to Merrill Lynch(MER).
- Vietnam’s dong weakened, completing a fourth weekly loss, on speculation accelerating inflation and a widening trade deficit will increase the demand for US dollars. “Demand for US dollars is very high at the moment, particularly after the inflation and trade deficit reports,” said Bui Thi Kim Oanh, who manages a Vietnam equity fund.
- Global grain stockpiles will be 1.6 percent higher than previously forecast, led by gains in wheat production, the International Grains Council said.
- Canada’s economy unexpectedly shrank in the first quarter, the first drop in almost five years, dragged down by lower automobile exports, giving the Bank of Canada more reason to cut borrowing costs again next month.
- India’s economic growth held at the weakest pace since 2005 as the highest interest rates in six years discouraged consumer spending and investment.
- The US dollar was headed for a second straight monthly gain against the yen and euro as gains in stocks signaled traders are more optimistic the economy will improve.

NY Times:
- NY Governor Paterson Focuses on Gay, Lesbian Rights.

Washington Post:
- CIA Director Michael Hayden said the terrorist network al-Qaeda is essentially defeated in Iraq and Saudi Arabia and on the run in the rest of the world. Hayden said Osama bin Laden is losing the battle for hearts and minds in the Islamic world and has lost the ability to exploit the Iraq war to win new recruits. “The ability to kill and capture key members of al-Qaeda continues, and keeps them off balance – even in their best safe haven along the Afghanistan-Pakistan border,” Hayden said. Those comments are a marked positive change from a CIA assessment from two years ago.

USA Today:
- Hurricane high-risk areas have lost residents.

Reuters:
- Oil bubble could prove threat to pension funds. Pension funds and other investors who rushed into oil through commodity indexes this year chasing big returns as other assets classes tanked could face steep losses if prices fall from record highs. A sell-off in oil could spell big losses for the pension funds, municipal funds, college funds, unions and other groups that jumped out of equities-market plays and into the indexes, but have little experience or flexibility to deal with fundamental changes in commodities. “A lot of the accounts that have moved into commodities over the last 8-12 months clearly don’t belong in this forum,” said Peter Beutel, president of Cameron Hanover. “It means that when this market turns, these people are going to get hurt badly, and there will be tons of lawsuits because they have no understanding how quickly commodities markets can turn and leave them in the dust,” he explained. Analysts said that while speculators such as hedge funds, which can be long or short markets, are frequently blamed for driving up prices, it may actually be pension and college funds investing money for average citizens that are helping cause fuel and food riots around the globe.

Financial Times:
- On Wall St: Hedge funds take ‘plain vanilla’ approach. With the average hedge fund in the $2,500bn global industry posting negative returns so far this year, investors must start to question just what they are paying for when they hand over their hefty fees to managers.

Daily Telegraph:
- Asian countries begin to burst the oil bubble. One by one, countries across Asia and the Middle East are being forced to abandon price controls on fuel and energy, bring hundreds of millions of consumers face to face with the true market cost of oil. Egypt has raised prices 40%, Indonesia by 33%, Taiwan by 20% and Sri Lanka raised diesel/petrol prices by 25%. India may follow soon. “The situation is alarming. We need to stem the rot,” said India’s energy secretary. While China has so far resisted calls for price freedom, analysts predict a change in tack after the finish of the Beijing Olympics.
- Electric cars: The next big thing.

Dagens Industri:
- Scania AB and Ericsson AB are among Swedish companies meeting the Iraqi government in Stockholm today to discuss investments and business opportunities in the country. Iraq holds great potential, and the country used to be truckmaker Scania’s biggest export market in the early 1980s, citing a Scania spokesman.

Al-Rai:
- Iraq may resume crude oil exports to Jordan at discounted prices, citing Iraqi Vice President Tariq al-Hashemi. Supplies by truck were halted in 2003 after the US-led liberation of Iraq.

Bear Radar

Style Underperformer:

Small-cap Value -.54%

Sector Underperformers:

Airlinesirlind (-1.44%), Banks (-1.0%) and Papers (-.94%)

Stocks Falling on Unusual Volume:

JCG, DB, ARGN, OVTI, MDCI, SIGM, EDU and WY

Stocks With Unusual Put Option Activity:

1) LPX 2) MRVL 3) WYE 4) JCG 5) MHK

Incomes Rise More Than Estimates, Spending as Expected, Core Inflation Decelerates, Chicago PMI Rises Again, Confidence Extraordinarily Depressed

- Personal Income for April rose .2% versus estimates of a .1% gain and an upwardly revised .4% increase in March.

- Personal Spending for April rose .2% versus estimates of a .2% rise and a .4% gain in March.

- The PCE Core for April rose .1% versus estimates of a .1% gain and a .2% rise in March.

- The Chicago Purchasing Manager Index for May rose to 49.1 versus estimates of 48.5 and a reading of 48.3 in April.

- The final reading for the Univ. of Mich. Consumer Confidence reading for May came in at 59.8 versus estimates of 59.5 and a prior estimate of 59.5.

BOTTOM LINE: Personal income for April rose more than economists expected as spending met estimates and a gauge of inflation decelerated, Bloomberg reported. The PCE Core, the Fed’s favorite inflation gauge, rose 2.1% year-over-year, down from 2.5% during February of last year and below the 20-year average of 2.4%. Spending on services, which account for almost 60% of all outlays, increased .1% for the second straight month. The Treasury said last week that it had sent $4.9 billion in tax rebates in the fourth week of the program, bringing the total distributed so far to $45.7 billion. More than $110 billion will eventually be sent. I expect spending and income to accelerate modestly into year-end and inflation to decelerate meaningfully from current levels.

A measure of US business activity accelerated in May. The survey suggests export demand is bringing in new orders and kept manufacturing from slowing as much as prior economic slowdowns. The New Orders component surged to 56.1, the highest since December, versus 53.0 in April. The Order Backlog component jumped to 46.8 from 39.5 the prior month. The Inventories component fell to 42.2 from 51.9 the prior month. The Employment component of the index rose to 41.2 from 35.3 the prior month. The Prices Paid component rose to 87.5 from 82.9 in April. I expect manufacturing to continue to improve through year-end on inventory rebuilding, a falling prices paid component, an end to the American Axle strike, fiscal/monetary stimuli, an end to credit turmoil and strong exports.

Confidence among US consumers fell in May to the lowest level in 28 years, Bloomberg reported. The Expectations component fell to 51.1, the lowest since October 1990. The Present Situation component, which gauges consumer attitudes towards their current financial situation, actually rose to 73.3 from 71.7. I still expect confidence to improve meaningfully through year-end as the job market improves, extreme housing fears subside, energy/food prices fall, election uncertainty ends, inflation decelerates, interest rates remain relatively low, stocks rise, the US dollar strengthens and the effects of fiscal/monetary stimuli take hold.

Bull Radar

Style Outperformer:

Mid-cap Growth (+.83%)

Sector Outperformers:

Alternative Energy (+1.83%), Construction (+1.65%) and Networking (+1.41%)

Stocks Rising on Unusual Volume:

MRVL, GMXR, GDP, FSLR, CLWR, CBEY, HMC, TM, CMC, STP, CLF, UBB, DELL, WIND, DTSI, ENER, JRJC, CTRN, IMCL, JOYG, JASO, VOCS, DAKT, SPWR, VDSI, ATHN, RIGL, NDAQ, HRS, HXL and PVA

Stocks With Unusual Call Option Activity:

1) MAS 2) NT 3) HK 4) CIT 5) DELL

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play

Exchange Volume vs. Average

NYSE Unusual Volume

NASDAQ Unusual Volume

Hot Spots

Option Dragon

NASDAQ 100 Heatmap

DJIA Quick Charts

Chart Toppers

Intraday Chart/Quote

Dow Jones Hedge Fund Indexes

Friday Watch

Late-Night Headlines
Bloomberg:
- Thomas Lee, chief US equity strategist at JPMorgan Chase(JPM), says banks may follow credit swap rally. (video)
- Countrywide Financial Corp.(CFC) rose 8.2% in NY trading after setting June 25 as the date for shareholders to vote on the $4 billion takeover by Bank of America(BAC).
- US asset-backed commercial paper increased $9.6 billion, or 1.3%, to a seasonally adjusted $753.5 billion for the week ended May 28, the Federal Reserve said today in Washington. That’s the biggest gain since the week ended Jan. 16, based on revised numbers from the Fed.
- The financial industry will be reshaped by a “significant pickup” in takeovers when stronger banks emerge as acquirers as soon as the end of this year, according to Merrill Lynch(MER) President Gregory Fleming.
- Crude oil was little changed in NY after falling more than $4 a barrel yesterday, the biggest drop since March, on signs that record prices will prompt US consumers to reduce fuel purchases. “There’s a lot of demand destruction taking place,” said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. Crude oil inventories declined 8.88 million barrels last week. The decline was caused by “temporary delays” in unloading tankers, the energy dept. said.
- Gold tumbled the most in almost six weeks as the US dollar rallied, reducing the appeal of the precious metal as an alternative investment. “With the dollar stabilizing, gold could fall quite a bit,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “There’s a lot of talk about inflation, which works both ways for gold. If the Fed does start tightening, that will strengthen the dollar and could really pop the commodity bubble.” The metal is “$150 to $200 an ounce above what I call fundamental value, a level that I would argue jewelry demand would support the market,” John Reade, an analyst at UBS AG in London, said today. “Fundamentals do not support gold at $900 an ounce.”
- Vietnam’s stocks may extend their longest losing streak in 4 ½ years after a computer glitch caused a three-day halt in the world’s worst performing stock market of 2008. The benchmark VN Index may today add to its 55% plunge this year after the government said prices jumped the most since at least 1992, Morgan Stanley said the nation is heading for a currency crisis similar to Thailand’s baht in 1997, and Fitch Ratings cut Vietnam’s debt outlook. The following is a chronology of events related to the development of the Vietnam stock market:
- Dell Inc.(DELL), the world’s second-largest personal-computer maker, reported a first-quarter profit that exceeded analysts’ estimates, sending the shares 9.9% higher in after-hours trading.
- Marvell Technology Group Ltd.(MRVL), the maker of telecommunications chips for the BlackBerry and Apple Inc.’s(AAPL) iPhone, reported first-quarter profit and sales that beat analysts’ estimates. The stock soared 15.8% in after-hours trading.
- J. Crew Group(JCG) fell 14.9% in after-hours trading after forecasting full-year profit lower than its previous prediction on lower sales of shorts and T-shirts.
- The US dollar headed for a second monthly advance against the yen and euro as rising stocks and declining crude oil brightened the outlook for the US economy, the world’s biggest oil importer.
- Japan’s household spending declined at the fastest pace in 19 months and unemployment rose as higher energy and raw-material costs discouraged companies from hiring. Industrial production fell.
- Federal Reserve Board Vice Chairman Donald Kohn raised the possibility of giving Wall Street securities firms permanent access to loans from the central bank, as long as regulators tighten oversight of the companies.
- UK consumer confidence dropped in May to the lowest level since Margaret Thatcher was ousted from office in 1990, as people became more pessimistic that the economy will slip into a recession, GfK NOP Ltd. said.

MarketWatch.com:
- Investment bank hedges crumble in second quarter. Results from Lehman(LEH), Morgan Stanley(MS), Goldman(GS) will be weak, analysts say.
- Gold newsletters remain too bullish, despite recent weakness in the commodity.

CNBC.com:
- Wall Street Job Cuts Won’t Go as Deep as Feared.

BusinessWeek.com:
- Hot Growth, Against the Odds. Here is BusinessWeek’s list of fastest growing small companies.
- Welcome to the Weekend Web. When they use their mobile phones to go online, Americans flock to different sites than when they surf from their computers. Meet the mobile Web.

Forbes.com:
- China’s Inflation Policy Spells Trouble.

ConsumerAffairs.com:
- Did Wall Street Wreck The Economy? Congress, regulators start to connect the dots. While consumers face skyrocketing gasoline prices, the economy is struggling to overcome the wave of foreclosures caused by the subprime meltdown and collapse of the housing market. Could the two economic misfortunes have a common thread? If so, that thread may lead to Wall Street. Rep. John Larson told the NY Times that he may introduce legislation next month that would essentially ban over the counter trading of most energy futures by speculators who, like day traders, are simply buying and selling pieces of paper, not taking delivery of the oil and gas supplies whose prices they are impacting.

Reuters:
- US stocks could be close to an “important bottom” as moves by the Federal Reserve and the government to spur the economy begin to work, the manager of one of Fidelity Investments’ best-known funds said. Harry Lange, who has managed the $40.5 billion Magellan fund since 2005, also said he began buying brokers and commercial banks before the end of March because they had reached “attractive valuations.”


Financial Times:
- India’s government on Thursday gave its strongest hint yet that it was prepared to take the politically sensitive step of raising domestic fuel prices as it grapples with the soaring cost of oil. Palaniappan Chidambaram, the country’s finance minister, warned that the country needed to start moving its heavily subsidized domestic oil prices in line with global market rates to help avert a liquidity crisis at state-run oil companies, which are facing losses this year of $50 billion. “The goal is to eventually move toward market-determined prices,” Mr. Chidambaram said.
- Britain is better off outside the euro.

TimesOnline:
- One of Wall Street’s main regulators on Thursday unveiled measures to limit speculators trading the price of oil across futures markets. The Commodity Futures Trading Commission has reached an agreement with the Financial Services Authority and the ICE Futures market to force traders using their markets to disclose their trading positions. Traders who have substantial exposure to exchange traded oil contracts will have to report their positions every day. In a joint statement, the CFTC said: “The commission is taking important steps to ensure that the US energy futures markets function properly and operate free from manipulation and abuse.”

Daily Mail:
- Stanley Fink, one of the titans of London’s hedge fund industry and architect of one of its biggest successes, Man Group, is to step down from the biggest successes, Man Group, is to step down fr4om the business at the age of 50.

Sydney Morning Herald:
- Some rail passengers are being left behind on platforms and bus commuters are enduring long waits as motorists baulk at the soaring price of petrol and switch to public transportation.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (ALTR), target $25.

Night Trading
Asian Indices are -.25% to +1.0% on average.
S&P 500 futures +.04%.
NASDAQ 100 futures +.25%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories

Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Upgrades/Downgrades
Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (TIF)/.41
- (DRS)/1.20
- (TSL)/.46
- (IART)/.41

Upcoming Splits
- (ATLS) 3-for-2

Economic Releases
8:30 am EST

- Personal Income for April is estimated to rise .1% versus a .3% gain in March.
- Personal Spending for April is estimated to rise .2% versus a .4% gain in March.
- The PCE Core for April is estimated to rise .1% versus a .2% gain in March.

9:45 am EST
- The Chicago Purchasing Manager report for May is estimated to rise to 48.5 versus a reading of 48.3 in April.

10:00 am EST
- Final Univ. of Mich. Consumer Confidence for May is estimated at 59.5 versus a prior estimated to 59.5.

Other Potential Market Movers
- The Fed’s Rosengren speaking, NAPM-Milwaukee, (WY) analyst meeting, Cowen TMT Conference, Sanford C. Bernstein Conference and ASCO 2008 could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by utility and industrial shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Thursday, May 29, 2008

Stocks Finish Higher, Boosted by Transport, HMO, Biotech, Gaming, Financial and Technology Shares

Evening Review
Market Summary
Top 20 Biz Stories

Today’s Movers

Market Performance Summary

WSJ Data Center

Sector Performance

ETF Performance

Style Performance

Commodity Movers

Market Wrap CNBC Video
(bottom right)
S&P 500 Gallery View

Timely Economic Charts

GuruFocus.com

PM Market Call

After-hours Commentary

After-hours Movers

After-hours Real-Time Stock Bid/Ask

After-hours Stock Quote

After-hours Stock Chart

In Play

Stocks Higher into Final Hour on Falling Commodity Prices, Diminishing Credit Market Angst, Less Economic Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Gaming longs, Internet longs, Biotech longs and Software longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is bullish as the advance/decline line is higher, most sectors are rising and volume is around average. Investor anxiety is around average. Today’s overall market action is bullish. The VIX is falling 6.2% and remains above average at 17.88. The ISE Sentiment Index is below average at 127.0 and the total put/call is slightly below average at .84. Finally, the NYSE Arms has been running above average most of the day and is currently 1.11. The AAII % Bulls plunged this week to 31.4% and the % Bears jumped to 45.8%, which is a large broad market positive. The Citigroup US Economic Surprise Index is rising to -11.0 today, up from -100 in March. As well, the EU Index and Japanese Index are still below the US at -26.70 and -26.50, respectively. The US dollar continues to trade very well. The 10-year yield is rising another 8 basis points today, however the 10-year TIPS spread has declined 10 basis points over the last few days to 2.49%, which indicates the rise in the 10-year yield is more a function of diminishing economic worries rather than an increase in inflation expectations. Oil is plunging today despite the large US crude oil inventory drawdown. This is likely due to the fact that US imports of oil are falling as demand declines. The Baltic Dry Index has fallen 4.5% over the last five days. The Bloomberg Base Metals Spot Index is falling another 1.5% today and is down 15.4% since March 6th. The S&P Goldman Agriculture Spot Index is falling another 1.7% today, dropping below its 200-day moving average, and has plunged 24.2% since February 27th. We should begin to see meaningfully lower Prices Paid economic data over the coming months and declining inflation expectations as a result. The European Financial Sector Credit Default Swap Index is falling 3.77 basis points today to 66.96 basis points. This is down from 78.0 basis points just 3 days ago. Nikkei futures indicate a +125 open in Japan and DAX futures indicate a +54 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic pessimism, falling energy/food prices and diminishing credit market angst.

Today's Headlines

Bloomberg:
- Apple Inc.(AAPL), maker of the iPod digital music player, will offer its iPhone handset in Hong Kong and Macau this year to subscribers of Hutchinson Telecommunications Intl. Ltd.
- The number of Asian hedge fund managers will likely stagnate this year as smaller firms struggle to raise assets, said Pete Douglas, principal of Singapore-based hedge fund consulting firm GFIA Pte.
- Karsten Schroeder, CEO of Amplitude Capital LLP, Sees ‘Substantially Less’ Hedge Fund Inflows. (video)

- Credit-default swaps tied to the bonds of Countrywide’s(CFC) home-loan unit dropped 65 basis points to 230 basis points, according to broker Phoenix Partners Group.
- MasterCard Inc.(MA), the world’s second-biggest credit card network, rose to its highest level in NY trading since going public in May 2006 after increasing its profit-growth target on expanding card use.
- Crude Oil Falls More Than $4 as Higher Prices Curb Fuel Demand.
- Wheat Falls to 9-Month Low as US Starts Harvesting More Grain.
- The US dollar reached a three-month high against the yen as US stocks rose and crude plunged, brightening the outlook for the world’s biggest economy.

Wall Street Journal:
- In the quest to increase Americans’ access to broadband Internet, federal regulators are considering a new plan: get someone to give it away free.

- Blame Congress for High Oil Prices.
- Billionaire investor Carl Icahn has told Yahoo! Inc.(YHOO) he may want the Internet company to make a deal with Google(GOOG) if Microsoft(MSFT) doesn’t pursue a full takeover.

NY Times:
- NY to Back Same-Sex Marriages From Elsewhere.

Newsday.com:
- Honda will meet growing US demand for small cars while maintaining North American jobs by moving production of two bigger models from Canada to Alabama, CEO Takeo Fukui said.

Dow Jones:
- The Commodity Futures Trading Commission(CFTC) says it is investigating the US crude oil market for manipulation.
- Russian oil company OAO Lukoil’s VP Andrey Kuzayev held talks with Iraqi President Jalal Talabani in Bagdahd yesterday on reviving a contract to develop the West Qurna-2 field. The field has an estimated reserve capacity of more than 4 billion barrels of oil.

engadget:
- Apple(AAPL) patents systems to warn of impending dropped calls, track down your keys.

Barron’s:
- Credit Insurance Says Banks Should Rally.

Energy Intelligence:
- Iran plans to cut the amount of crude stored in tankers in the Persian Gulf from next month, citing Hojatollah Ghanimifard, executive director of international affairs at National Iranian Oil Co.

Forbes:
- Google(GOOG) is turning YouTube into its own kind of data gold mine.

Seeking Alpha:
- August ’07 Quant Meltdown: Investors Learned a Lesson, but Did Managers?

The Economic Times:
- Saudi pumps in extra oil, offers to step up supply. “The majority of OPEC producers definitely don’t like this high oil price because it is neither in their interest nor in the interest of the global economy, and it’s especially painful for the developing world,” said Saudi oil minister Ali al-Naimi.

Le Temps:
- UBS Chief Rohner Says Worst of Crisis Is Over.

Interfax:
- Russia’s central bank may raise some or all of its interest rates, citing the bank’s Chairman Sergey Ignatiev. The bank also sees inflation at 10.5% in 2008. Russian consumer prices jumped 7.5% in the year through May 26.

Press Trust of India:
- India may decide on raising fuel prices today.

The National:
- Osama Bin Laden Bounty Rises to $25 Million.

KUNA:
- Kuwaiti crude oil dropped $4.77 to $117.47 a barrel yesterday, citing Kuwait Petroleum Corp.

Emirates Business 24/7:
- United Arab Emirates’ inflation accelerated to 14% last year as fuel, housing and construction costs soared, citing a report from the state-controlled Abu Dhabi Chamber of Commerce. Higher gasoline and diesel fuel prices increased the cost of building in the UAE and are threatening builders’ ability to finance loans taken from banks.

Bear Radar

Style Underperformer:

Mid-cap Growth +.45%

Sector Underperformers:

Goldirlind (-3.3%), Coal (-2.8%) and Oil Service (-1.93%)

Stocks Falling on Unusual Volume:

USO, ARD, CLF, SGMO, SNDA, WIRE, GLNG, ESLR, FSLR, MW and TTM

Stocks With Unusual Put Option Activity:

1) BCE 2) IMB 3) TMA 4) TXN 5) HUN

US Growth Revised Higher, Initial Jobless Claims Stable

- Preliminary 1Q GDP rose .9% versus estimates of a .9% gain and prior estimates of a .6% rise.

- Preliminary 1Q Personal Consumption rose 1.0% versus estimates of a 1.0% gain and prior estimates of a 1.0% rise.

- Preliminary 1Q GDP Price Index rose 2.6% versus estimates of a 2.6% gain and prior estimates of a 2.6% rise.

- Preliminary 1Q Core PCE rose 2.1% versus estimates of 2.2% and a prior estimate of a 2.2% gain.

- Initial Jobless Claims for this week rose to 372K versus estimates of 370K and 368K the prior week.

- Continuing Claims rose to 3104K versus estimates of 3080K and 3068K prior.

BOTTOM LINE: The US economy grew more than previously estimated in the first quarter as Americans shunned imports and exports climbed to another record, Bloomberg reported. Jeffrey Frankel, an economist at Harvard Univ. who is a member of the panel that dates US economic cycles, said in a Bloomberg Radio interview, “I wouldn’t rule out going into recession” later in the year. This statement implies that he doesn’t currently view the slowdown as a recession, in my opinion. The trade deficit shrank to an annual pace of $480.2 billion, the smallest since 3Q 2002. Trade’s contribution to growth jumped to .8 percentage point, which is four times more than previously estimated. The revisions also showed bigger gains in incomes than previously estimated. Personal Income increased at a 5.1% annual pace during 4Q versus a prior estimate of a 4.2% gain. For 1Q Personal Income growth was revised up to 4.7% from a prior estimate of 4.4%. The gain in growth last quarter would have been even greater if not for a decline in estimates for inventories. Companies cut inventories at a $14.4 billion annual rate versus an initial estimate of a $1.8 billion gain. Inventories added only .2 percentage point to growth, less than the previously estimated contribution of .8 percentage point. A measure of total sales, which excludes inventories, was revised to a gain of .7% at an annual pace rather than a .2% drop that was previously estimated. I expect 2Q GDP to easily exceed economists’ estimates of a .1% gain and growth to accelerate modestly into year-end on fiscal/monetary stimuli, lower commodity prices, decelerating inflation, an end to the American Axle strike, a firmer US dollar, inventory rebuilding, an end to the credit market turmoil, strong exports, diminishing housing fears and an improving job market.

The number of Americans filing first-time claims for unemployment benefits rose slightly last week, Bloomberg said. The four-week average of initial claims fell to 370,500 from 373,000 the prior week. Weekly claims have averaged 358,150 so far this year. During the mild recession of 2001, initial jobless claims averaged 415,600 a week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, held steady at a historically low 2.3%. I expect jobless claims to trend modestly lower through year-end.

Bull Radar

Style Outperformer:

Small-Cap Value (+.67%)

Sector Outperformers:

Biotech (+2.12%), Road&Rail (+1.67%) and I-Banks (+1.60%)

Stocks Rising on Unusual Volume:

MA, PNSN, LEH, BMA, C, WNR, SHI, RAIL, TRN, HP, WFT, RDEN, SVNT, ULBI, JOYG, DBRN, COCO, SOHU, SPSX, EXPE, MATK, DRYS, AMSC, CPRT, ANSS, CBEY, ALXN, OMRI, ISYS, GCO, KCE, JAS and BIG

Stocks With Unusual Call Option Activity:

1) GSS 2) JOYG 3) BBY 4) SOV 5) JCG

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Wednesday, May 28, 2008

Thursday Watch

Late-Night Headlines
Bloomberg:
- The cost of protecting Japanese and Australian bonds against default fell for the second day, according to traders of credit-default swaps. The Markit iTraxx Japan index fell 2 basis points to 84 in Tokyo. Australia’s benchmark of credit quality declined 4.5 basis points to 98, Citigroup prices show.
- Hillary Clinton stepped up her lobbying of Democratic Party superdelegates today as her campaign aides and supporters signaled they won’t compromise in the dispute over counting the Florida and Michigan primaries.
- The chief executive officers of UAL Corp.’s(UAUA) United Airlines and US Airways Group(LCC) will meet tomorrow to discuss a possible merger as rising fuel prices add to pressure for a tie-up.
- Corn fell to the lowest price in more than a week after the US government announced plans to allow livestock grazing on protected land, reducing demand for grain in animal feed.
- The US dollar traded near a two-week high against the yen before a government report today that analysts say will show the economy expanded at a faster pace last quarter than initially estimated.
- Japan’s stocks gained the most in four weeks after orders for durable goods in the US unexpectedly rose last month, reducing concern an economic slowdown will subdue consumer spending in Japan’s biggest export market.
- Shareholders of Taser Intl.(TASR) sued Goldman Sachs(GS), a Merrill Lynch(MER) unit and six other firms, claiming stock-price manipulation through illegal short selling.

- Global demand for rented commercial space declined in the first quarter for the first time in four years as higher borrowing costs prevented some companies from expanding, according to a report by the Royal Institution of Chartered Surveyors. Investors are spending less on office buildings, shopping malls and other commercial properties in emerging markets because of concern about the potential returns, RICS said.
- Inverness Medial Innovations(IMA), a medical test company, is talking with several private equity sponsors about a $1.8 billion joint venture involving three health-management businesses Inverness has acquired.

Wall Street Journal:
- China Hospitals Struggle As Homeless Want to Stay.
- Lies, Damned Lies and ‘Hedge Funds’ When asked at today’s All Things Digital conference about rumors that he would take Expedia(EXPE) private, IAC/Interactive Chairman Barry Diller knocked them down and then hit the ball out of the park: “I am so suspect of current markets and the hedge funds and momentum selling/buying. I think there is a plot behind everything.” The widespread trend now is that when there is no edge, no new information, that doesn’t stop people. They seem to feel free to just make it up and try to convince other to believe it. So how about we go back to that old-fashioned notion of honor and expect everyone to police themselves – and maybe even behave as if they deserved to be trusted with millions of dollars?

MarketWatch.com:
- Short Sellers Targeting Solar & Alternative Energy (AKNS, ASTI, CSIQ, CPS, ESLR, FTEK, OTTR, SPWR).
- Top-performing newsletters oppose Microsoft-Yahoo deal. Here’s why.

CNBC.com:
- The unprecedented run-up in oil prices may finally have reached a peak as the US dollar stabilizes, Saudi Arabia boosts production and demand slows, analysts say.
- Cisco Systems(CSCO) CEO Chambers said Wednesday the company is “extremely comfortable” with its long-term growth target and expects the economy to start recovering toward the end of the year.

BusinessWeek.com:
- Verenium Corp. said Wednesday it is starting up a research ethanol plant that runs on agricultural waste and wood products instead of corn. The company aims to begin construction in the middle of next year on a 30 million-gallon-per year cellulosic ethanol plant.

Gizmodo:
- Sony’s(SNE) sci-fi looking 6-foot glass speaker is turning into an actual product: the Sountina NSA-PF1 – designed for larger rooms and halls – will give you a 50Hz to 20kHz frequency response, analog and digital audio inputs, and a blue, amber or purple-lit 3-foot organic glass tweeter for just $10,000.

Reuters:
- Federal Reserve Bank of Dallas President Richard Fisher said he expects the central bank would raise the benchmark US interest rate should the public begin to expect greater gains in consumer prices. “If inflationary developments and, more important, inflation expectations continue to worsen, I would expect a change of course in monetary policy to occur sooner rather than later, even in the face of an anemic” economy, Fisher said.
- During the week leading up to the Memorial Day holiday, the traditional start of vacation season, Americans pumped 5.5% less gas than a year ago. The findings follow last week’s US Dept. of Energy data which showed highway miles driven in March fell 4.3% from a year earlier, the first March decline since the last major oil shock in 1979. Moreover, gasoline demand in Britain fell 7% below year-ago levels in April, with diesel use down almost 2%, according to govt. figures released Wed.


Financial Times:
- Toyota(TM), ruler of the global market for low-emission cars, stuck another green jewel in its crown this month when it announced that it had sold 1 million of its Prius petrol-electric hybrids. But even as it celebrates the milestone, it is facing an upsurge in competition.
- Sarkozy calls for EU immigrant crackdown. Plans for a Europe-wide clampdown on immigration that could see asylum-seekers forced to apply for refugee status in advance and more effective deportation measures, are to be at the heart of France’s European Union presidency.
- Efforts to tackle the risk surrounding privately negotiated credit derivatives will take a step forward on Thursday when 11 of the world’s biggest investment banks announce the creation of the first central clearer for the opaque contracts by September.
- The financial services industry is reaping benefits from the turmoil in the credit markets as corporate treasurers, burned by illiquid investments, increasingly hand over their spare cash to professional money managers.

TimesOnline:
- Apple(AAPL) is poised to announce it will start selling films from four major Hollywood studios for download in the UK as part of its iTunes internet service at prices on a par with DVDs.

Late Buy/Sell Recommendations
Citigroup:

- comScore reported that (GOOG)’s US Web Search Paid Clicks were 568MM in April, up 19.6% Y/Y vs. 2.7% Y/Y growth in March and 1.8% Y/Y growth in Q1. Per comScore, while April searches on GOOG’s US Websites grew about 33% Y/Y, GOOG’s coverage ratio declined in the low-teens Y/Y. However, GOOG’s Click Thru Rate grew in the low-single digits Y/Y – the first month of growth since Sept. 07, as reported by comScore.
- Reiterated Buy on (URBN), target $35.
- Reiterated Buy on (COH), target $44.
- Reiterated Buy on (AXL), target $25.
- Reiterated Buy on (DOX), raised estimates, target $46.

Night Trading
Asian Indices are -.5% to +1.75% on average.
S&P 500 futures -.13%.
NASDAQ 100 futures -.05%.

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Earnings of Note
Company/EPS Estimate
- (COST)/.65
- (BIG)/.36
- (GCO)/.09
- (SHLD)/.18
- (JOYG)/.75
- (DSW)/.23
- (HNZ)/.61
- (NOVL)/.05
- (JCG)/.47
- (SIGM)/.41
- (OVTI)/.32
- (WIND)/.02
- (DELL)/.34
- (MRVL)/.13
- (FRED)/.16

Upcoming Splits
- (ATLS) 3-for-2

Economic Releases
8:30 am EST

- Preliminary 1Q GDP is estimated to rise .9% versus a prior estimate of a .6% gain.
- Preliminary 1Q Personal Consumption is estimated to rise 1.0% versus a prior estimate of a 1.0% gain.
- Preliminary 1Q GDP Price Index is estimated to rise 2.6% versus a prior estimate of a 2.6% increase.
- Preliminary 1Q Core PCE is estimated to rise 2.2% versus a prior estimate of a 2.2% increase.
- Initial Jobless Claims for this week are estimated to rise to 370K versus 365K the prior week.
- Continuing Claims are estimated to rise to 3080K versus 3073K prior.

10:30 am EST
- Bloomberg consensus estimates call for crude oil inventories to remain unch. versus a -5,317,000 barrel decline the prior week. Gasoline supplies are also estimated to remain unch. versus a -755,000 barrel drawdown the prior week. Distillate inventories are expected to rise by 1,000,000 barrels versus a 728,000 barrel build the prior week. Natural gas supplies are estimated to rise by 85 bcf versus an 85 bcf injection the prior week. Finally, Refinery Utilization is expected to rise by .5% versus a 1.3% increase the prior week.

Other Potential Market Movers
- The Fed’s Geithner speaking, Fed’s Bernanke speaking, Fed’s Kohn speaking, (NVLS) Mid-Q Update, (CBT) analyst day, (ELX) analyst day, (MA) investment community meeting, (HAE) analyst meeting, (STZ) analyst meeting, (UA) investor meeting, Help Wanted Index, FBR Investor Conference, Deutsche Bank Energy/Utilities Conference, Sanford C. Bernstein Conference, UBS Global Specialty Pharma Conference, Cowen TMT Conference, Lehman Wireless/Wireline Conference, could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and automaker shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish at Session Highs, Boosted by Gaming, Retail, Homebuilding, Commodity, Construction, Telecom Shares

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In Play

Stocks Slightly Higher into Final Hour on Less Economic Pessimism, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Gaming longs, Alternative Energy longs and Software longs. I added to my (WMS) and (NUAN) longs and took profits in a trading long today, thus leaving the Portfolio 100% net long. The tone of the market is mildly bearish as the advance/decline line is slightly lower, sector performance is mixed and volume is below average. Investor anxiety is slightly above average. Today’s overall market action is neutral. The VIX is rising .8% and remains above average at 19.80. The ISE Sentiment Index is below average at 120.0 and the total put/call is slightly below average at .83. Finally, the NYSE Arms has been running about average most of the day and is currently .90. Mid-cap “growth” stocks are substantially outperforming the broad market today. Considering the rise in oil and decline in bank stocks, today’s broad market stock performance is more impressive. The US dollar is also near session highs versus the euro, which is also a large positive considering oil’s rise. The Citigroup US Economic Surprise Index is rising to -11.4 today, up from -100 in March. As well, the EU Index and Japanese Index are still below the US at -21.0 and -25.60, respectively. Mastercard(MA) just reported that the four-week moving average of retail US gasoline demand fell for the fifteenth week in a row, declining 6.3% from last year’s levels. That is a very serious decline in demand from the world’s largest user. The Bloomberg Base Metals Spot Index is falling below its 200-day moving average today for the first time since last October. One of my longs, (AMSC), is jumping 10% today to a new eight-year high after Kaufman Brothers rated it “Buy.” The stock is getting a bit extended short-term, but I would add to it on any meaningful pullback from current levels. Nikkei futures indicate a +176 open in Japan and DAX futures indicate a +27 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic pessimism and diminishing credit market angst.

Today's Headlines

Bloomberg:
- Hedge Funds Foment Russia Credit Crunch With 16% Puts.
- Amazon.com(AMZN), the world’s largest online retailer, will introduce a paid video-streaming service within the next few weeks.
- US stocks, which began the year with their biggest quarterly drop since 2002, may be poised to rally now that credit markets have returned to normal since mid-March, Bear Stearns said.
- The Markit CDX North America Investment Grade Index of 125 companies in the US and Canada declined 5.5 basis points to 101.5 basis points as of this morning.
- Credit-Default Swaps Enter ‘Mainstream,’ Bank of America Says.
- Dennis Gartman, economist and editor of the Gartman Letter, Says Oil Market ‘Fearful’ Over Trading Rules. (video)
- Copper fell to a two-month low as inventories of the metal climbed and the dollar rallied. Supplies of copper have increased 14% just this month.
- Crude oil rose more than $2 a barrel after Morgan Stanley said that Brent oil from the North Sea could “easily” reach $150 a barrel, thus boosting investment fund speculation in the commodity.
- Treasuries fell, pushing the 10-year note’s yield above 4% for the first time since January, as a measure of durable goods orders unexpectedly rose.

- Expedia(EXPE) Rises on Speculation Diller May Take Company Private.
- Polo Ralph Lauren(RL) rose the most in almost two years in NY trading after reporting an unexpected increase in profit.
- American Eagle Outfitters(AEO) rose the most in four months in NY after forecasting second-quarter profit that exceeds some analysts’ estimates.
- As the Olympics countdown clock in Tiananmen Square ticked down to 73 days yesterday, the pollution reading in Beijing climbed to “hazardous.”

Wall Street Journal:
- SEC Will Scour Bear Trading Data. Bear Stearns(BSC) plans to turn over documents to securities regulators showing that several financial giants, including Goldman Sachs(GS), Citadel Investment Group and Paulson & Co., slashed their exposure to the securities firm in the weeks before its collapse. The SEC is expected to use the data to determine whether any trading activity was improperly coordinated in any way, constituted manipulation or otherwise contributed to Bear Stearns’s collapse. The SEC has delved more deeply into the ties among hedge funds, their clients and their prime brokers with a particular focus on flows of information and potential insider trading.

- Soaring cocoa prices are driving up the cost of chocolate around the world. The chocolate industry points its finger at speculative buying by professional investors, especially hedge funds. Given the small size of the cocoa market – the annual crop is valued at $10 billion, roughly equity to a day’s oil production – hedge funds can move prices with relatively small amounts of cash. For the week ended May 13, financial speculators on the Intercontinental Exchange owned futures contracts over 654,760 metric tons of cocoa. The Swiss maker of Lindt chocolates says speculative investment is distorting the cocoa market. “The increase in cocoa prices has little to do with supply and demand,” CEO Ernst Tanner said.

NY Times:
- Coors Light Expands Advertising on Facebook, MySpace.
- TiVo Will Start Service to Deliver TV Critic’s Picks.

Senate Committee on HSGA:
- Testimony of hedge fund manager Michael Masters, before the Senate Committee on Homeland Security and Governmental Affairs, on the role that speculation has played in recent commodity price movements.

CNNMoney.com:
- Recession? Maybe. Depression? Get Real. Some people think that the economy isn’t in recession and that journalists are just spreading doom and gloom for various self-serving reasons. Take your pick among the following: We’re trying to get Obama in the White House. We’re helping our numerous short-seller friends. Scary headlines generate more reader interest and hence, advertising dollars.

Washington Post:
- Rx for Global Poverty is Growth.

Morningstar:
- US federal lawmakers think they may have found a way to pop what’s possibly an energy market bubble. If they have, proposed regulations targeting speculation limits could prick one of the most dramatic run-ups in crude-oil prices in history. By targeting two loopholes, US legislators from both parties hope to limit the amount of buying by purely financial players such as hedge funds and investment banks – effectively cutting billions of dollars in additional demand in commodity markets – and to bring prices closer to earth.

Forbes:
- Hedge Fund Administrators Report $2.759 Trillion in Hedge Fund Assets in Q1 2008.

AP:
- Democratic Party lawyers says that the rules committee could potentially seat some, not all, of the delegates from Michigan and Florida. Democratic presidential candidate Hillary Clinton wants all delegates seated from Michigan and Florida. One option lawyers outlined could restore all delegates if the Credentials Committee decides to recommend that. If so, a final decision wouldn’t be made until the first day of the party’s convention in August.

BBC:
- UK Prime Minister Gordon Brown and Chancellor of the Exchequer Alistair Darling will meet with oil industry leaders in Scotland to discuss soaring fuel prices. Brown, who is under pressure from protesting truck drivers to lower road and fuel taxes, will ask oil company representatives what help they would need from the government to increase production, such as investment in new infrastructure or oil exploration.