Job Market Still Healthy

- Initial Jobless Claims for last week were 299K versus estimates of 320K and 325K the prior week.
- Continuing Claims fell to 2428K versus estimates of 2450K and 2431K prior.

BOTTOM LINE: First-time claims for state unemployment benefits in the US fell more than expected last week, reflecting a firm labor market and distortions to government figures caused by the holidays, Bloomberg said. The four-week moving-average of claims declined to 314,750, the lowest since Nov. 11. The unemployment rate among those eligible for jobless benefits, which tracks the US unemployment rate, remained steady at 1.9%. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Crude oil is falling to $52.94/bbl. in NY after a US government report showed demand plunged to its lowest in more than two years. “There’s really no one who is going to buy this thing. It’s catch a falling knife syndrome,” said Randy Simpson, vp of supply and trading at New West Petroleum Inc. in Sacramento, California. “The market seems very well supplied.” Oil has now plunged 32% from July 14, 2006 highs.
- President Bush announced that he’s sending more than 20,000 additional troops to Iraq, and said the US erred by not deploying more forces when sectarian violence began spiraling out of control last year.
- Cisco Systems(CSCO) sued Apple Inc.(AAPL) for trademark infringement over Apple’s use of the iPhone name. Apple called the lawsuit "silly," according to Dow Jones.
- Obesity surgeries for older Americans soared almost 21-fold to more than 15,000 procedures a year from 1998 to 2004, said a US government report.
- The Tokyo Stock Exchange is close to announcing an agreement with NYSE Group(NYX) that will strengthen ties between the world’s two largest equity markets, said Japan’s Minister for Financial Services.
- The European Central Bank will probably leave its benchmark interest rate unchanged as President Jean-Claude Trichet waits for more evidence of accelerating inflation before raising borrowing costs.
- Cerberus Capital Management LP, the NY-based buyout firm, is considering a bid for Equity Office Properties Trust(EOP) that may top Blackstone Group LP’s $36 billion offer.
- Goldman Sachs JBWere Pty, the Australian affiliate of the world’s most profitable investment bank, cut its price forecast for copper and zinc this half after investment funds sold the metals.
- The US must embrace “bold” energy policies to reduce its reliance on foreign sources of oil, Robert Hormats, vice chairman of Goldman Sachs Intl., told a Senate panel.
- Oil Search Ltd., Papua New Guinea’s biggest oil and gas producer, said it found oil at an exploration well in Egypt.

Financial Times:
- Wal-Mart Stores(WMT), Tesco Plc, Carrefour SA and Metro AG have agreed a set of workplace guidelines aimed at abolishing sweatshop issues, such as child labor and unpaid wages, from their supply chains.

London-based Times:
- Telefonica SA’s O2 Plc unit has held preliminary talks to gain some rights in Europe and the UK to Apple Computer’s iPhone.

Late Buy/Sell Recommendations
Morgan Stanley:
- Reiterated Overweight on (GILD), raised target to $81.

CSFB:
- Reiterated Outperform on (T), raised target to $39.

Night Trading
Asian Indices are -.50% to +.75% on average.
S&P 500 indicated +.11%.
NASDAQ 100 indicated +.10%.

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Earnings of Note
Company/EPS Estimate
- (IHS)/.35
- (MTB)/1.88
- (MTG)/1.53
- (SRR)/.02

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to fall to 320K versus 329K the prior week.
- Continuing Claims are estimated to rise to 2450K versus 2446K prior.

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 rise into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish Near Session Highs as Oil Falls Through Another Key Technical Level and Technology Shares Rise

Indices
S&P 500 1,414.85 +.19%
DJIA 12,442.16 +.21%
NASDAQ 2,459.33 +.63%
Russell 2000 778.87 +.07%
Wilshire 5000 14,186.96 +.24%
Russell 1000 Growth 560.12 +.49%
Russell 1000 Value 807.88 +.03%
Morgan Stanley Consumer 700.24 +.28%
Morgan Stanley Cyclical 894.0 +.33%
Morgan Stanley Technology 580.09 +.62%
Transports 4,641.47 +.19%
Utilities 448.90 +.14%
Put/Call .81 +3.85%
NYSE Arms .75 -52.36%
Volatility(VIX) 11.47 -3.69%
ISE Sentiment 103.0 -35.63%
US Dollar 85.08 +.39%
CRB 289.33 -.06%

Futures Spot Prices
Crude Oil 53.58 -3.70%
Reformulated Gasoline 142.40 -3.10%
Natural Gas 6.7 +1.42%
Heating Oil 151.90 -2.41%
Gold 612.20 -.46%
Base Metals 218.40 +1.69%
Copper 266.45 +4.24%
10-year US Treasury Yield 4.68% +.65%

Leading Sectors
Airlines +2.69%
Gaming +2.43%
Semis +1.76%

Lagging Sectors
Gold & Silver -1.16%
Oil Service -1.33%
Energy -1.58%

Evening Review
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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- US holiday retail sale surged 5.1% as consumers hunted for last-minute items and spent their gift cards, ShopperTrak RCT Corp. said. The increase in November and December sales beat the high end of ShopperTrak’s forecast for a gain of as much as 5% despite record warm temperatures that damped clothing demand.
- Shares of XM Satellite Radio(XMSR) and Sirius Satellite Radio(SIRI) jumped after comments by executives fueled speculation about a possible combination.
- Genentech(DNA) said fourth quarter profit soared 75%, helping by surging sales of a new treatment for age-related vision loss and expanded use of the Avastin cancer drug.
- Shares of Las Vegas Sands(LVS) hit a record after Jeffries said the company was granted the rights to build a hotel complex on China’s Hengqin Island.
- Crude oil plunged to a 19-month low, closing below another key technical level, after the EIA showed US fuel inventories surged for a fourth week and record investment fund speculation for the commodity continued to subside.
- Federal Reserve Bank of Dallas President Richard Fisher said that recent inflation figures were encouraging and that he’s “very comfortable” with the current level of interest rates.
- Russia said it would soon resume oil shipments via Belarus to Europe.

Wall Street Journal:
- Northwest Airlines Corp. has been in talks with Delta Air over a potential merger.

San Francisco Chronicle:
- Members of the Yale University Baker’s Dozen singing group were attacked in San Francisco after singing “The Star-Spangled Banner” at a party. Three students from the New Haven, Connecticut, institution were injured, including one who had a broken jaw.

BOTTOM LINE: The Portfolio finished higher today on gains in my Semi longs, I-Banking longs, Computer longs, Internet longs and Energy-related shorts. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was modestly positive today as the advance/decline line finished about even, sector performance was mostly positive and volume was above average. Measures of investor anxiety were mixed into the close. Today's overall market action was bullish. The 10-year yield finished 3 basis points higher, but remains stable. Oil closed floor-trading below the $55/bbl. level and continues to trade very poorly in the face of numerous potential upside catalysts. I still believe the commodity will fall much further than most expect as the record speculation that drove it to insane levels ends and many speculators jump on the downside bandwagon. More positive U.S. economic data, technology stock strength, the stabilization of base metal prices, the refusal of U.S. stocks to break down despite potential catalysts and some stabilization in Latin American stocks (Brazil and Mexico closed at daily highs) should lead to a rally in Asian markets tonight. This should, in turn, propel U.S. equities broadly higher tomorrow.

Stocks Higher into Final Hour on Another Fall in Oil Prices and Technology Sector Strength

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Computer longs, I-banking longs, Internet longs and Energy-related shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is about even, almost every sector is rising and volume is above average. The Saudi Tadawul Index is falling another 223 points today to 7,559, which is 61 points from its December 4, 2006 low. The index has collapsed 60.1% in less than a year. The gut wrenching declines in Middle Eastern bourses remain a big red flag for the many oil bulls. I suspect the smart money in the region that was bailing early last year was laughing at how the hugely flawed "peak oil theory" that they helped perpetuate had become an accepted truism around the globe, fueling the manias for all commodities and emerging markets. Given the steep declines in many commodity and emerging market stocks, the major averages are holding up extraordinarily well. Many market-leading growth stocks are already 5%-10% higher year-to-date. I continue to believe that large investors, both bears and many bulls, have cut back long exposure over the last six weeks in anticipation of the imminent decline they foresee. The longer we base around current levels, the higher the probability of an upside surge, in my opinion. I expect US stocks to trade modestly higher into the close from current levels on short-covering, more economic optimism, lower energy prices and bargain-hunting.