Stocks Finish Slightly Higher as Long-term Rates Fall

Indices
S&P 500 1,448.0 +.07%
DJIA 12,666.31 +.04%
NASDAQ 2,471.49 +.04%
Russell 2000 810.03 +.41%
Wilshire 5000 14,589.26 +.13%
Russell 1000 Growth 570.57 +.08%
Russell 1000 Value 835.45 +.14%
Morgan Stanley Consumer 710.36 +.13%
Morgan Stanley Cyclical 944.97 +.20%
Morgan Stanley Technology 568.28 -.09%
Transports 4,963.84 +.02%
Utilities 469.64 +.77%
MSCI Emerging Markets 116.27 +.92%

Sentiment/Internals
Total Put/Call .85 +3.66%
NYSE Arms 1.27 +50.95%
Volatility(VIX) 10.65 +.95%
ISE Sentiment 141.0 -3.42%

Futures Spot Prices
Crude Oil 59.12 +.65%
Reformulated Gasoline 157.60 +1.03%
Natural Gas 7.72 +1.03%
Heating Oil 169.50 +1.16%
Gold 658.20 +.32%
Base Metals 220.23 -.60%
Copper 249.25 +3.15%

Economy
10-year US Treasury Yield 4.77% -4 basis points
US Dollar 84.77 -.35%
CRB Index 301.07 -.04%

Leading Sectors
Airlines +1.47%
REITs +1.35%
Alternative Energy +.95%

Lagging Sectors
Semis -.54%
Gaming -.77%
Computer Hardware -.90%

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Afternoon Recommendations
None of note:

Afternoon/Evening Headlines
Bloomberg:
- The ability of statins to raise so-called good cholesterol, even just a little bit, can help strip plaque out of heart arteries, a study says.
- Cisco Systems(CSCO), the world’s biggest maker of computer-networking equipment, said second-quarter profit rose 40% as customers upgraded their communications systems for video. The stock is rising 4.5% after-hours.
- Apple Inc.(AAPL) CEO Jobs asked the four largest music companies to license songs for distribution on iTunes without copy protection software.
- The Ocean Course in Kiawah Island, South Carolina, is the most difficult US golf course, according to a study by Golf Digest magazine.
- US Treasuries rose for a third straight day after demand for the government’s quarterly auction of three-year notes outpaced dealer expectations.

Arizona Republic:
- US Airways Group, rejected in a $9.75 billion takeover bid for Delta Air, isn’t seeking another merger target, citing CEO Parker.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Internet longs, Medical longs and Retail longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was slightly positive today as the advance/decline line finished modestly higher, most sectors rose and volume was above average. Measures of investor anxiety were higher into the close. Today's overall market action was modestly bullish as the major averages and breadth recouped morning losses to finish around even. Instead of two steps forward and one 1 step back, the indices are moving one step forward and consolidating. This just allows for more “market top” calls, profit-taking and short re-loading without doing any real technical damage. Oil is trading toppy again, despite potential upside catalysts. As well, the 10-year yield looks poised to go lower. Cisco’s(CSCO) positive earnings’ report after the close should boost tech stocks tomorrow.

Stocks Slightly Higher into Final Hour on Lower Long-term Rates, Buyout Activity

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Internet longs, Retail longs and Medical longs. 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 slightly higher, sector performance is mostly positive and volume is above average. HedgeFund.net reported on Monday that emerging market hedge fund assets have risen from $40 billion at the end of 2003 to $175 billion at the end of 2006 or a 337% increase. Emerging market hedge funds "have been springing up like the proverbial mushroom in the rain" and "countries from Romania to Vietnam became the focus of huge sums of hedge fund inflows in 2006," according to the report. The column concludes that the "fundamentals and the potential of these markets seem to outweigh any fear of volatility" and that even though "smart money has been in this space for a while," it "does not imply it is time to exit." Considering the general public's shunning of U.S. stocks and overwhelming affinity for emerging market equities, I would argue that this is just more evidence of the extreme complacency engulfing emerging market investors. I expect US stocks to trade modestly higher into the close from current levels on lower long-term rates, short-covering and stable energy prices.

Today's Headlines

Bloomberg:
- Blackstone Group LP raised its cash offer for Equity Office Properties Trust(EOP) to $39 billion to thwart rival bidder Vornado Realty Trust(VNO) a day before shareholders vote on what would be the largest-ever leveraged buyout.
- Silver Lake Partners plans to raise as much as $10 billion for the biggest technology buyout fund after a record year of private-equity acquisitions.
- MGIC Investment Corp.(MGIC), the largest US mortgage insurer, agreed to buy Radian Group(RDN) for $4.9 billion in stock, following its biggest competitor into the bond insurance market.
- Mills Corp.(MLS) said it will begin talks with Simon Property Group and Farallon Capital Management LLC to consider their $1.56 billion bid for the company.
- The Chicago Merc(CME) can move forward with plans to offer the first exchange-traded credit derivative contacts, after the CFTC gave approval.
- Eastman Kodak(EK) for the first time plans to sell printers that use lower-cost ink cartridges to compete with Hewlett-Packard(HPQ).
- Investors should reduce holdings of telecom stocks in the emerging markets of Europe, the Middle East and Africa because gains in the past six months have left them expensive, Goldman Sachs(GS) said.

Wall Street Journal:
- DaimlerChrysler AG aims to revive Chrysler’s fortunes by integrating the unit with the luxury Mercedes-Benz brand, gambling that the latter’s exclusive image won’t be damaged.
- US utilities increased spending for electricity power lines to reduce choke points, improve reliability, and increase possibilities for using renewable energy.
- Compliance officers are in demand at US financial institutions as money is laundered by wrongdoers in increasingly sophisticated ways and regulators slap large fines
NY Times:
- Veterinarians who work on large food animals such as cows are in such short supply that the American Veterinary Medical Association predicts 4 in every 100 food-animal vet jobs will go unfilled by 2016.
- The SEC is examining whether employees at major financial institutions are tipping off preferred clients such as hedge funds to inside information about imminent large stock trades.
- Saudi Arabia is taking a more visible role in Middle East affairs to thwart Iran’s push to become a regional superpower, citing diplomats, analysts and officials throughout the Middle East.
- Wal-Mart Stores(WMT) is linking with six major Hollywood studios to sell digital movies and television shows on its Web site.

La Repubblica:
- Italian Industry Minister Pierluigi Bersani plans to introduce a series of measures to promote energy efficiency.

Frankfurter Allgemeine Zeitung:
- Alstom SA may purchase alternative energy companies this year, citing Philippe Joubert, president of the company’s Alstom Power unit.

Economic Releases

- None of note

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