Thursday Watch

Late-Night Headlines
Bloomberg:
- The South Korean won and Taiwan dollar may decline this year as traders say prices rallied too far on speculation China, the two economies' biggest export market, will allow its currency to strengthen.

NY Times:
- Kohlberg Kravis Roberts and Goldman Sachs are among US buyout firms on a German Parliament-compiled list of companies believed to have benefited excessively from investing in Germany.

AFP:
- Saudi Arabia is ready to sign key nuclear safeguard agreements.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on IBM, AMLN, NFP and DELL.

Night Trading
Asian Indices are +.50% to +1.25% on average.
S&P 500 indicated -.14%.
NASDAQ 100 indicated -.17%.

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
ATVI/.01
ATK/1.25
BRL/.62
CLX/.77
CVS/.68
CNO/.41
DISH/.39
FLR/.57
G/.43
JNY/.70
MFE/.19
MCK/.73
PIXR/.47
SINA/.22
SGMS/.24
WMB/.22

Splits
None of note

Economic Releases
8:30 EST:
- Preliminary 1Q Non-farm Productivity is estimated to rise 1.8% versus a 2.1% gain in 4Q.
- Preliminary 1Q Unit Labor Costs are estimated to rise 2.0% versus a 1.3% increase in 4Q.
- Initial Jobless Claims are estimated to rise to 323K versus 320K the prior week.
- Continuing Claims are estimated to rise to 2595K versus 2555K prior.

BOTTOM LINE: Asian indices are mostly higher, spurred by gains in Taiwan on speculation of improving relations with China. I expect US equities to open modestly lower on worries over slowing retail sales. Unseasonably wet/mild weather and high energy prices likely dampened sales in April. I will look to buy this sector on weakness over the coming weeks as I believe lower energy prices, low interest rates, lower inflation, higher stock prices, modestly improving real incomes/job prospects, rising sentiment and a good housing market will provide a tailwind for these stocks in the second half of the year. The Portfolio is 100% net long heading into tomorrow.

Stocks Finish Sharply Higher on Increasing Optimism

Indices
S&P 500 1,175.65 +1.25%
DJIA 10,384.64 +1.24%
NASDAQ 1,962.23 +1.51%
Russell 2000 595.26 +1.84%
DJ Wilshire 5000 11,562.16 +1.27%
S&P Barra Growth 567.16 +.97%
S&P Barra Value 604.15 +1.53%
Morgan Stanley Consumer 584.60 +.78%
Morgan Stanley Cyclical 714.08 +1.69%
Morgan Stanley Technology 446.44 +1.63%
Transports 3,519.69 +1.65%
Utilities 369.48 +.11%
Put/Call .95 +13.10%
NYSE Arms .50 +53.37%
Volatility(VIX) 13.85 -4.68%
ISE Sentiment 134.00 +8.06%
US Dollar 83.98 -.63%
CRB 300.97 +.43%

Futures Spot Prices
Crude Oil 50.32 +.38%
Unleaded Gasoline 147.15 +.35%
Natural Gas 6.64 +.23%
Heating Oil 145.65 +.14%
Gold 430.60 +.14%
Base Metals 121.30 -1.14%
Copper 143.25 +.24%
10-year US Treasury Yield 4.18% +.38%

Leading Sectors
Steel +2.11%
Airlines +2.09%
Gold & Silver +1.10%

Lagging Sectors
Oil Tankers -2.14%
Energy -2.33%
Oil Service -2.63%

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 BC, SBUX, WON and DEX.

Afternoon/Evening Headlines
Bloomberg:
- The FBI is probing the US insurance industry to determine whether insurance fraud is “the next big one,” following the savings and loan crisis of the 1980s and the corporate fraud scandals that began in 2001.
- Kirk Kerkorian, who shook up Chrysler with a hostile takeover bid a decade ago, disclosed he is building an 8.8% stake in GM, sending GM shares to their biggest gain in more than 40 years.
- Lazard Ltd. raised $854.6 million in an IPO today.

BOTTOM LINE: The Portfolio finished substantially higher today on gains in my Internet, Gaming and Computer longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was positive as the advance/decline finished at its daily highs, every sector rose and volume was average. Measures of investor anxiety were mostly lower. Overall, today’s market action was very positive considering the bounce in energy prices. The S&P 500 has now broken out of its recent trading range to the upside. Today’s action was likely the result of more investors coming around to the view that we are moving to sustainable less inflationary growth. The positive sentiment change towards GM was also a major factor today.

Stocks Sharply Higher Mid-day on Optimism Over Recent Economic Data

Indices
S&P 500 1,172.74 +.99%
DJIA 10,359.59 +1.0%
NASDAQ 1,956.57 +1.20%
Russell 2000 593.13 +1.48%
DJ Wilshire 5000 11,532.19 +1.01%
S&P Barra Growth 565.46 +.66%
S&P Barra Value 602.87 +1.31%
Morgan Stanley Consumer 583.31 +.55%
Morgan Stanley Cyclical 712.33 +1.44%
Morgan Stanley Technology 445.31 +1.38%
Transports 3,510.00 +1.37%
Utilities 368.19 -.24%
Put/Call 1.05 +25.00%
NYSE Arms .55 -48.84%
Volatility(VIX) 13.94 -4.06%
ISE Sentiment 125.00 +.81%
US Dollar 84.02 -.58%
CRB 300.26 +.19%

Futures Spot Prices
Crude Oil 50.15 +1.31%
Unleaded Gasoline 146.70 +.52%
Natural Gas 6.61 +1.61%
Heating Oil 145.10 +1.04%
Gold 430.00 unch.
Base Metals 121.30 -1.14%
Copper 144.35 -.79%
10-year US Treasury Yield 4.18% +.43%

Leading Sectors
Steel +4.45%
I-Banks +3.36%
Insurance +2.87%

Lagging Sectors
Software +.49%
Alternative Energy +.49%
Computer Services +.30%

BOTTOM LINE: The Portfolio is substantially higher mid-day on gains in my Internet, Computer and Gaming longs. I added a few longs from various sectors this morning and covered a short, thus leaving the Portfolio 100% net long. One of my new longs is EBAY and I am using a $31.75 stop-loss on this position. The tone of the market is positive as the advance/decline line is higher, almost every sector is advancing and volume is decent. Measures of investor anxiety are mostly lower. Today’s overall market action is positive as stocks are maintaining gains even with the reversal in oil prices this morning. The S&P 500 and DJIA are breaking out of their recent trading ranges on decent volume and breadth. The fact that long-term interest rates are barely higher today even with the stock rally, better-than expected ISM report and speculation over a return of the 30-year long-bond is a big positive. Copper prices are falling again today as technicals for the metal continue to weaken. I expect US stocks to trade higher into the close on a moderating in energy prices, short-covering, bargain-hunting and more optimism over the US economy.

Today's Headlines

Bloomberg:
- US Treasury note yields are no longer the “conundrum” Fed Chairman Greenspan said they were in February, given signs of slowing global economic growth, according to Paul McCulley, a managing director at PIMCO.
- Abu al-Faraj, a Libyan national and one of the most senior leaders in the global al-Qaeda terrorist network, has been captured in northern Pakistan.
- The European Central Bank kept interest rates at a six-decade low as the outlook for economic growth in the 12 nations sharing the euro deteriorates.
- Investor Kirk Kerkorian offered to buy as many as 28 million shares of GM for $31 each.
- The US Treasury said it is considering whether to resume selling 30-year bonds, a security it eliminated four years ago.

Wall Street Journal:
- Coca-Cola, Unilever Plc and McDonald’s are phasing out hydrofluorocarbons, a chemical cooler that is believed to contribute to global warming.
- Sanofi-Pasteur, the biggest US supplier of flu vaccines, and Chiron already have sold almost all their available stockpiles of flu vaccines six months before the flu season normally starts.
- Symantec has obtained a broad patent for virus-scanning technology that may help defend against competition from rivals including Microsoft.
- American Tower may announce today an agreement to acquire SpectraSite for about $3 billion in stock, to become the US’s largest communications tower operation.
- Japanese wig maker Aderans is trying to clone hair cells resistant to a particular hormone that causes hair loss.

NY Times:
- US airlines added 134 non-stop routes in the past year as larger carriers such as Delta Air compete with so-called low fare airlines such as Southwest for customers.
- Microsoft plans to expand its headquarters in Redmond, Washington, by 2.2 million square feet as it begins constructing two office buildings this year.
- Wal-Mart is under pressure from community groups and lawmakers to raise wages.

Chicago Tribune:
- Nike Inc. will stop selling shoes to Sears Holding in a decision that it said was part of the normal process of reviewing accounts.
- Baxter Intl. will increase spending on research and development this year at a rate faster than sales growth.

USA Today:
- The US federal government plans to start collecting full names and birth dates of domestic air travelers this summer to screen passengers for possible ties to terrorism.

Energy Inventories Soaring and Another Strong Consumer Report

- ISM Non-Manufacturing for April fell to 61.7 versus estimates of 61.0 and a reading of 63.1 in March.
- Summary of Weekly Petroleum Data for the Week Ending April 29, 2005.
- Crude inventories rose 2.6M barrels versus estimates of a 1.25M rise. Distillate fuel inventories fell 300K barrels versus estimates of a 575K rise. Gasoline inventories rose 2.2M barrels versus estimates of a 875K rise.

Bottom Line: The ISM Non-Manufacturing is holding just under the 62.4 average for all of last year. This is an exceptionally strong level, considering services account for 85% of the US economy. This is still near the all-time high that was set last year in April at 66.9. However, components within the index show a continuation of the recent deceleration is likely. Measures for new orders, order backlogs, inventories and employment were modestly weaker. Once again, another measure of inflation showed deceleration. The prices paid component of this index fell to 61.9 from 65.6 the prior month.

Home Sales are booming. Auto sales yesterday were the strongest in long time, especially considering the lack of incentives compared to prior months. Now, a report shows the largest part of the US economy, the service sector, is still very healthy. I continue to believe that US growth is slowing to more healthy sustainable levels. The case for a US hard landing is growing harder by the day.

OPEC’s daily production last month rose an average of 280,000 barrels from the prior month. This is the highest level that OPEC has pumped since October 1979. US supplies for crude are now near 6-year highs. With global demand falling, the US dollar firmer and supply at very high levels, I continue to believe we have seen the highs in oil prices for this cycle. As I have stated before, the contango that currently characterizes the oil futures market will result in a steeper decline than most expect once perceptions change. I expect crude to reach around $35-$40/bbl. sometime during the second half of the year and that it will average around $30-$35/bbl. during 2006. If I am correct, most energy-related companies will show very little earnings growth next year. Momentum and growth investors that have recently turned to commodity stocks will be very disappointed under this scenario.