Stocks Close at Session Highs

Indices
S&P 500 1,178.84 +.64%
DJIA 10,384.34 +.38%
NASDAQ 1,979.67 +.63%
Russell 2000 602.91 +1.07%
DJ Wilshire 5000 11,611.59 +.66%
S&P Barra Growth 568.77 +.50%
S&P Barra Value 605.71 +.78%
Morgan Stanley Consumer 583.33 +.51%
Morgan Stanley Cyclical 715.49 +.30%
Morgan Stanley Technology 450.75 +.55%
Transports 3,559.06 +.72%
Utilities 367.82 +.81%
Put/Call .84 -20.0%
NYSE Arms .63 -33.28%
Volatility(VIX) 13.75 -2.14%
ISE Sentiment 144.0 -11.66%
US Dollar 84.64 +.02%
CRB 300.82 +.12%

Futures Spot Prices
Crude Oil 52.43 +.73%
Unleaded Gasoline 149.30 +.38%
Natural Gas 6.72 +.67%
Heating Oil 144.50 +.14%
Gold 426.90 unch.
Base Metals 123.87 +.85%
Copper 144.65 unch.
10-year US Treasury Yield 4.28% +.56%

Leading Sectors
I-Banks +3.23%
Networking +2.34%
Nanotechnology +2.29%

Lagging Sectors
Tobacco -.15%
Broadcasting -.67%
Papers -.75%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on BAC.
- Reiterated Underperform on CNA.

Afternoon/Evening Headlines
Bloomberg:
- French voters were evenly split on the European Union constitution ahead of the May 29 referendum as support declined, a survey by polling company Ipsos SA showed.
- Crude oil in NY rose more than $1 a barrel on speculation that OPEC may not be able to meet demand during the winter months, when global consumption peaks.
- GM said it will pay its 50-cents-a-share quarterly dividend as scheduled.
- Walt Disney and some of its board members were sued by former directors Roy Disney and Stanley Gold for fraud and misleading shareholders about the company’s search for a CEO to replace Michael Eisner.
- A NYSE member sued to block the exchange’s merger with Archipelago Holdings, contending the deal shortchanges seat owners and that its underwriter, Goldman Sachs Group, has a conflict of interest.

AP:
- Iran confirmed for the first time it had converted 37 tons of raw uranium into a gas, a step in the enrichment cycle.

Market News:
- South Korea’s plan to increase returns on as much as $20 billion won’t include a shift away from US Treasuries and other US assets, citing Finance Minister Han Duck Soo.

Washington Post:
- North Korean official Pak Hyon Jae called a nuclear weapons test “indispensable” to proving the communist country’s military capability.

BOTTOM LINE: The Portfolio finished unchanged today as gains in my Gaming and Homebuilding longs offset losses in my Internet and Airline longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market improved into the afternoon as the advance/decline finished at its daily highs, almost every sector rose and volume was light. Measures of investor anxiety were mostly lower into the close. Overall, today’s market action was positive considering last week’s gains and today’s rise in energy prices. Lower energy prices and positive earnings reports from Cisco and Dell could spur further gains later in the week.

Stocks Quietly Higher Mid-day Ahead of Tomorrow's Cisco Report

Indices
S&P 500 1,177.70 +.54%
DJIA 10,379.98 +.33%
NASDAQ 1,975.73 +.43%
Russell 2000 600.70 +.70%
DJ Wilshire 5000 11,596.45 +.53%
S&P Barra Growth 568.11 +.37%
S&P Barra Value 605.00 +.66%
Morgan Stanley Consumer 583.01 +.46%
Morgan Stanley Cyclical 715.60 +.32%
Morgan Stanley Technology 449.72 +.32%
Transports 3,557.14 +.66%
Utilities 367.25 +.65%
Put/Call .86 -18.10%
NYSE Arms .66 -30.65%
Volatility(VIX) 13.72 -2.35%
ISE Sentiment 151.00 -7.36%
US Dollar 84.67 +.06%
CRB 300.59 +.04%

Futures Spot Prices
Crude Oil 51.00 +.08%
Unleaded Gasoline 146.85 -.51%
Natural Gas 6.63 +.14%
Heating Oil 142.20 -.64%
Gold 426.60 -.07%
Base Metals 123.87 +.85%
Copper 144.60 +.35%
10-year US Treasury Yield 4.27% +.38%

Leading Sectors
I-Banks +3.15%
Networking +1.67%
Oil Service +1.20%

Lagging Sectors
Computer Hardware -.24%
Papers -.44%
Oil Tankers -.87%

BOTTOM LINE: The Portfolio is unchanged mid-day as gains in my Gaming and Homebuilding longs are offsetting losses in my Internet and Airline longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is modestly positive as the advance/decline line is slightly higher, most sectors are rising and volume is light. Measures of investor anxiety are mostly lower. Today’s overall market action is positive considering last week’s gains. I expect US stocks to trade modestly higher into the close on short-covering, bargain-hunting and increased optimism from merger activity.

Today's Headlines

Bloomberg:
- JP Morgan Chase chief China economist Frank Gong, who predicted the government would let its pegged currency appreciate last week, now expects a move before June 30.
- Duke Energy, the largest US utility company, agreed to buy Cinergy Corp. at a 13.4% premium.
- Bloated inventories and high energy prices will cause the recent slowdown in US economic growth to linger into the second quarter as businesses and consumers curb spending, a Bloomberg News survey of economists found.

Wall Street Journal:
- Qwest Communications and its bankers are talking to MCI Inc. shareholders, and say there may be enough support to defeat MCI’s acceptance of an $8.4 billion takeover offer from Verizon Communications in preference to a higher Qwest bid.
- US Airways and America West Holdings have intensified their merger talks, hoping to reach an agreement before America West’s May 17 annual meeting.
- Medem Inc., a not-for-profit company affiliated with the American Medical Association, today plans to start an Internet-based health recording system patients can use to organize medical histories.
- MasterCard International is trying to close Web sites that sell stolen credit card information or trick consumers into divulging confidential information.
- Wilbur Ross, CEO of US leveraged-buyout firm WL Ross & Co., made money over the past three years buying bankrupt steel companies and is now betting on auto-parts makers and coal mining companies.
- The US Justice Department is preparing to sue the National Association of Realtors, on the grounds that its policies will illegally restrict discounting of sale commissions and place online rivals at a disadvantage.

NY Times:
- E*Trade Financial offered to buy rival online brokerage Ameritrade Holding for more than $5.5 billion on May 6.
- Avanir Pharmaceuticals is seeking FDA approval for a new drug to treat the uncontrollable laughing and crying that can be caused by some neurological diseases such as Alzheimer’s.
- Matrix Semiconductor is developing memory chips with vertically stacked circuits that may be a cheaper and denser alternative to flash memory chips made by companies such as Intel Corp.

Detroit News:
- Executives at some of the biggest US auto parts suppliers told the United Auto Workers union to boost the health of the industry by re-opening labor contracts with Ford Motor and GM.

USA Today:
- US cellular phone users are facing new local taxes of as much as $10 on monthly bills as cities and states try to make up for declining revenue from traditional phone taxes.

LA Times:
- Boeing is designing a plane that mostly will be built out of thin layers of carbon fibers instead of aluminum sheets.

Inventories Rise at a Slower Pace

- Wholesale Inventories for March rose .4% versus estimates of a .7% increase and a .6% gain in February.

Bottom Line: The increase in US wholesale inventories was paced by metals, machinery and energy. The ratio of inventories to purchases held at 1.19 months, matching the highest since November 2003. The build in energy inventories during the first quarter may result in less production in coming months as companies sell from existing stockpiles, economists said. Wholesalers account for about 25% of all business inventories.

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