Stocks Finish Slightly Lower on Healthy Consolidation of Recent Strong Gains

Indices
S&P 500 1,480.93 -.23%
DJIA 12,919.40 -.33%
NASDAQ 2,523.67 -.11%
Russell 2000 827.55 -.16%
Wilshire 5000 14,935.82 -.17%
Russell 1000 Growth 584.12 -.09%
Russell 1000 Value 853.76 -.29%
Morgan Stanley Consumer 733.50 -.07%
Morgan Stanley Cyclical 997.78 -.07%
Morgan Stanley Technology 582.10 -.15%
Transports 5,161.76 -.85%
Utilities 523.90 +.64%
MSCI Emerging Markets 122.68 +.03%

Sentiment/Internals
Total Put/Call .91 +21.3%
NYSE Arms 1.13 +29.92%
Volatility(VIX) 13.04 +8.04%
ISE Sentiment 133.0 +6.40%

Futures Spot Prices
Crude Oil 65.70 +2.51%
Reformulated Gasoline 219.95 +2.91%
Natural Gas 7.57 +2.51%
Heating Oil 189.10 +3.19%
Gold 692.70 -.45%
Base Metals 271.87 -.73%
Copper 365.60 +.97%

Economy
10-year US Treasury Yield 4.64% -3 basis points
US Dollar 81.74 +.12%
CRB Index 314.47 +.78%

Leading Sectors
Coal +4.02%
Biotech +1.64%
REITs +1.26%

Lagging Sectors
Drugs -1.26%
Airlines -1.94%
Homebuilders -1.99%

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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Cephalon Inc.(CEPH), Henry Schein(HSIC) and Steel Dynamics(STLD) are candidates to join the Nasdaq-100 Index, replacing Medimmune(MEDI), according to Gabriela Baez, head of index and portfolio research at Lehman(LEH).
- Crude oil surged, approaching $66/bbl. in NY, as investment funds speculated that shipments from Nigeria may be disrupted as complaints about the country’s presidential election spawn more violence.
- Altera Corp.(ALTR), the world’s second biggest maker of programmable semiconductors, said first-quarter profit rose 28% on sales of new products for consumer electronics. The shares rose 2% after-hours.
- Express Scripts(ESRX), the third biggest US manager of drug benefits, said quarterly profit increased 28% as the company filled more prescriptions with cheaper generic copies. The shares surged 4.5% after-hours.
- Amgen(AMGN) said first-quarter profit rose 15% on sales of drugs to treat anemia in dialysis and cancer patients. The shares rose 1% after-hours.
- Texas Instruments(TXN), the world’s largest maker of mobile-phone chips, reported a 12% drop in first quarter profit, the first decline in more than two years, as phone shipments slowed. The shares soared 8% after-hours.

BOTTOM LINE: The Portfolio finished higher today on gains in my Computer longs, Medical longs and I-Banking longs. I didn’t trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was mildly negative today as the advance/decline line finished mildly lower, sector performance was mixed and volume was above average. Measures of investor anxiety were above average into the close. Today's overall market action was neutral. Underlying market action remained very constructive today despite the jump in oil and comments from (GM). The Goldman Sachs Agricultural Commodity Sub-Index looks like it is rolling over again to me. As well, corn is falling 2.3% today and is testing recent lows. The AMEX Biotech Index (BTK) is building on its all-time closing high set last week. Mid-caps rose again today and continue to display significant relative strength. The VIX rose 8% today despite minor losses in the major averages. I expect more choppiness throughout the week.

Stocks Slightly Lower into Final Hour on Healthy Consolidation of Recent Strong Gains

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Medical longs and I-Banking longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is mildly lower, sector performance is mixed and volume is above-average. Back in February I pointed out that the Vietnam Index was in the midst of an unsustainable meteoric rise. The Index peaked on March 12 and has since plunged 20.3%. While other Asian emerging markets continued to rally last night, the Vietnam Index fell another 3.9%. While this market is relatively small, it may indicate a negative shift in psychology regarding the mania for Asian emerging market stocks. The Vietnam Index is still 23.8% higher year-to-date and almost 300% higher over the last two years. The only place I see more investor complacency than commodities is in emerging markets and the two go hand-in-hand. If one mania ends, the other will soon follow, in my opinion. I still expect the mania for emerging market stocks to begin reversing course this year and eventually result in a significant increase in the demand for U.S. stocks at a time of very low supply. The UBS/Gallup Index of Investor Optimism fell to 74 in April vs. 78 in March. This is the lowest reading since September 2006, despite recent stock gains. I continue to sense that very few investors believe any meaningful market upside is possible from current levels. I continue to disagree. I expect US stocks to trade mixed into the close as higher energy prices and profit-taking offset buyout speculation and earnings optimism.

Today's Headlines

Bloomberg:
- Financial services minister Ed Balls called for regulators of the world’s major financial markets to adopt the British practice of running semi-annual checks of the hedge fund industry.
- Sugar plunged to a 21-month low in NY and the lowest price since November 2005 in London after China, the world’s second-largest consumer, said it may reduce imports.
- Corn is falling another 2.7% in Chicago as warmer, drier weather in the Midwest firmed up muddy fields as farmers accelerated planting what the US government said will be the most acres since 1944.
- Carl Icahn agreed to sell the Stratosphere, three other Nevada casinos and 17 acres on the Las Vegas Strip to Goldman Sachs Group’s(GS) real estate funds for $1.3 billion.
- Crude oil is rising above $65/bbl. in NY as speculators raise bets that shipments from Nigeria may be disrupted as complaints about the country’s presidential election spawn more violence.
- AstraZeneca Plc(AZN), struggling to develop new medicines, agreed to buy US biotech company MedImmune(MEDI) for $15.2 billion in cash to gain flu vaccines and an antiviral treatment for babies.

Wall Street Journal:
- US farmers have funded a dam in Kenya that brings water and crops, helping combat a decrease in international aid to Africa and underscoring the impact small projects can have.
- US and UK hedge funds are selling stock in their funds to the public, but weak performance of some of the shares is creating doubt about this relatively new source of funding.

NY Times:
- New York Governor Eliot Spitzer plans to introduce legislation to legalize gay marriages in the state.
- Sales of video games for personal computers are on the rise as companies such as Microsoft Corp.(MSFT) try to use the games to highlight other technology and services.

AP:
- Time Warner Cable(TWX) will allow its broadband customers to become public wireless hotspots through technology offered by Fon, a Wi-Fi startup.

San Francisco Chronicle:
- San Francisco Mayor Gavin Newsom won’t allow any of the city’s employees to assist federal authorities in illegal immigration raids.

Chronicle of Higher Education:
- US colleges and universities will be encouraged to use debit cards to distribute money to students under a new proposal to streamline the flow of federal student aid.

Sueddeutsche Zeitung:
- The German government expects the economy to grow by 2.3% this year and 2.4% in 2008.

Vedomosti:
- Schlumberger(SLB) shareholders elected a Russian citizen to the company’s board, a first for a major Western company.

China Business News:
- Symantec Corp.(SYMC) and China’s Huawei Technologies may form a computer storage and network security venture.

Economic Releases

- None of note

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