Bottom Line: Natural Gas futures are trading at $5.99 per million Btu tonight, down 2.2%. This is a technical breakdown through the trading range that has been in place since April. I expect Oil futures to follow in the near future.
Sunday, July 11, 2004
Chart of the Week
Natural Gas Futures(12 Months)
Bottom Line: Natural Gas futures are trading at $5.99 per million Btu tonight, down 2.2%. This is a technical breakdown through the trading range that has been in place since April. I expect Oil futures to follow in the near future.
Bottom Line: Natural Gas futures are trading at $5.99 per million Btu tonight, down 2.2%. This is a technical breakdown through the trading range that has been in place since April. I expect Oil futures to follow in the near future.
Weekly Outlook
There are a few important economic reports and a number of significant corporate earnings reports scheduled for release this week. Economic reports this week include the Trade Balance, Monthly Budget Statement, Advance Retail Sales, Import Price Index, Producer Price Index, Initial Jobless Claims, Business Inventories, Empire Manufacturing, Industrial Production, Capacity Utilization, Philadelphia Fed., Consumer Price Index and U. of Michigan Consumer Confidence. Retail sales, Producer Price Index, Industrial Production, Philly Fed, Consumer Price Index and Consumer Confidence all have market-moving potential.
Novellus Systems(NVLS), Cintas Corp.(CTAS), ADTRAN(ADTN), Gannett Co.(GCI), Johnson and Johnson(JNJ), Merrill Lynch(MER), Intel Corp.(INTC), Juniper Networks(JNPR), Bank of America(BAC), Genzyme Corp.(GENZ), Harley-Davidson(HDI), Advanced Micro Devices(AMD), Apple Computer(AAPL), QLogic Corp.(QLGC), SanDisk Corp.(SNDK), Citigroup(C), Nokia(NOK), Southwest Air(LUV), UnitedHealth Group(UNH), International Business Machines(IBM) and PMC-Sierra(PMCS) are some of the more important companies that release quarterly earnings this week. There are also a few other events that have market-moving potential. SEMICON West, Applied Materials' Analyst Meeting, CIBC's Annual Consumer Growth Conference, Oracle's Analyst Meeting and Dell's Annual Meeting of Shareholders could also impact trading this week.
Bottom Line: I expect U.S. stocks to fall modestly this week on continuing concerns over technology sector earnings, slowing economic growth, politics and terrorism. The severity of some of the technology sector earnings' shortfalls likely means some conservative forward guidance when reporting begins in earnest over the next 2 weeks. As well, the market sustained technical damage last week that will need time to repair. Finally, Put/Call, Arms, VIX and AAII % Bulls readings are all showing too much investor complacency. Thus, I expect U.S. stocks to work towards the lower-end of the recent trading range over the coming weeks. As the election approaches, stocks will likely move back towards their highs set in March. I expect U.S. equities to break-out of the trading range to the up-side sometime in late October or early November and reach their highs for the year in December. My short-term trading indicators are giving sell signals and the Portfolio is market neutral(Longs-Shorts=0) heading into the week.
Novellus Systems(NVLS), Cintas Corp.(CTAS), ADTRAN(ADTN), Gannett Co.(GCI), Johnson and Johnson(JNJ), Merrill Lynch(MER), Intel Corp.(INTC), Juniper Networks(JNPR), Bank of America(BAC), Genzyme Corp.(GENZ), Harley-Davidson(HDI), Advanced Micro Devices(AMD), Apple Computer(AAPL), QLogic Corp.(QLGC), SanDisk Corp.(SNDK), Citigroup(C), Nokia(NOK), Southwest Air(LUV), UnitedHealth Group(UNH), International Business Machines(IBM) and PMC-Sierra(PMCS) are some of the more important companies that release quarterly earnings this week. There are also a few other events that have market-moving potential. SEMICON West, Applied Materials' Analyst Meeting, CIBC's Annual Consumer Growth Conference, Oracle's Analyst Meeting and Dell's Annual Meeting of Shareholders could also impact trading this week.
Bottom Line: I expect U.S. stocks to fall modestly this week on continuing concerns over technology sector earnings, slowing economic growth, politics and terrorism. The severity of some of the technology sector earnings' shortfalls likely means some conservative forward guidance when reporting begins in earnest over the next 2 weeks. As well, the market sustained technical damage last week that will need time to repair. Finally, Put/Call, Arms, VIX and AAII % Bulls readings are all showing too much investor complacency. Thus, I expect U.S. stocks to work towards the lower-end of the recent trading range over the coming weeks. As the election approaches, stocks will likely move back towards their highs set in March. I expect U.S. equities to break-out of the trading range to the up-side sometime in late October or early November and reach their highs for the year in December. My short-term trading indicators are giving sell signals and the Portfolio is market neutral(Longs-Shorts=0) heading into the week.
Market Week in Review
S&P 500 1,112.81 -1.43%
U.S. indices finished lower last week as disappointing tech sector earnings, political worries, terrorism concerns and rising oil prices provided the negative catalysts. Stocks fell modestly on Tuesday after Veritas Software(VRTS) announced a substantial earnings shortfall and energy prices rose over the holiday-lengthened weekend. As well, investor concerns regarding the possibility of anti-business political rhetoric, increasing taxes and more regulations pressured shares from the open. Stocks saw further declines mid-week after it was reported that the FBI warned guards at the Canadian and Mexican borders last month that al-Qaeda agents may try to cross into the U.S. to launch terrorist attacks to disrupt the upcoming U.S. election. Moreover, weaker-than-expected reports from Yahoo!(YHOO), Beazer Homes(BZH) and Seibel Systems(SEBL) further prompted selling. The week ended on a more positive note after strong earnings reports from General Electric(GE) and SAP AG(SAP) resulted in bargain hunting.
There were several notable movers last week. Shares of Veritas Software(VRTS) plunged 30.3% after saying second-quarter sales and profit missed forecasts. JDA Software(JDAS) declined 14.5% after missing second-quarter estimates. Netease.com(NTES) fell 14.1% after warning of a second-quarter revenue shortfall due to competition in text messaging in China. Yahoo!(YHOO) dropped 11.3% after second-quarter earnings failed to meet optimistic expectations. Siebel Systems(SEBL) decreased 18.0% after second-quarter profits and sales failed to meet estimates. Checkfree(CKFR) gained 8.5% after saying it signed a five-year contract extension to provide electronic billing and payment services for Wachovia(WB). Beazer Homes(BZH) fell 7.5% after saying that orders for new homes in the third-quarter lagged estimates. BMC Software(BMC) dropped 16.7% after saying sales rose less than forecast as large customers in the U.S. delayed purchases. Finally, Tuesday Morning(TUES) rocketed 16.4% after reporting better-than-expected second-quarter results.
Bottom Line: Last week saw significant declines in the technology sector as a number of companies reported disappointing results. As discussed in the Economic Week in Review, it is apparent that some areas of technology, specifically software, are still ailing from the overcapacity generated by the mania of the late 90's. Too many companies are going after the same markets, thus any slight down-tick in demand results in outsized earnings shortfalls. Only an increase in demand or consolidation, in the form of takeovers or bankruptcies, will cure this problem. I continue to believe that oil has formed an intermediate-term top and will began to drop to the low-mid 30's at any time. Outside of technology, the earnings pre-announcement season has been pretty good. However, terrorism worries and anti-business political rhetoric will only increase until after the election. Overall, last week was a bad week for the bulls.
U.S. indices finished lower last week as disappointing tech sector earnings, political worries, terrorism concerns and rising oil prices provided the negative catalysts. Stocks fell modestly on Tuesday after Veritas Software(VRTS) announced a substantial earnings shortfall and energy prices rose over the holiday-lengthened weekend. As well, investor concerns regarding the possibility of anti-business political rhetoric, increasing taxes and more regulations pressured shares from the open. Stocks saw further declines mid-week after it was reported that the FBI warned guards at the Canadian and Mexican borders last month that al-Qaeda agents may try to cross into the U.S. to launch terrorist attacks to disrupt the upcoming U.S. election. Moreover, weaker-than-expected reports from Yahoo!(YHOO), Beazer Homes(BZH) and Seibel Systems(SEBL) further prompted selling. The week ended on a more positive note after strong earnings reports from General Electric(GE) and SAP AG(SAP) resulted in bargain hunting.
There were several notable movers last week. Shares of Veritas Software(VRTS) plunged 30.3% after saying second-quarter sales and profit missed forecasts. JDA Software(JDAS) declined 14.5% after missing second-quarter estimates. Netease.com(NTES) fell 14.1% after warning of a second-quarter revenue shortfall due to competition in text messaging in China. Yahoo!(YHOO) dropped 11.3% after second-quarter earnings failed to meet optimistic expectations. Siebel Systems(SEBL) decreased 18.0% after second-quarter profits and sales failed to meet estimates. Checkfree(CKFR) gained 8.5% after saying it signed a five-year contract extension to provide electronic billing and payment services for Wachovia(WB). Beazer Homes(BZH) fell 7.5% after saying that orders for new homes in the third-quarter lagged estimates. BMC Software(BMC) dropped 16.7% after saying sales rose less than forecast as large customers in the U.S. delayed purchases. Finally, Tuesday Morning(TUES) rocketed 16.4% after reporting better-than-expected second-quarter results.
Bottom Line: Last week saw significant declines in the technology sector as a number of companies reported disappointing results. As discussed in the Economic Week in Review, it is apparent that some areas of technology, specifically software, are still ailing from the overcapacity generated by the mania of the late 90's. Too many companies are going after the same markets, thus any slight down-tick in demand results in outsized earnings shortfalls. Only an increase in demand or consolidation, in the form of takeovers or bankruptcies, will cure this problem. I continue to believe that oil has formed an intermediate-term top and will began to drop to the low-mid 30's at any time. Outside of technology, the earnings pre-announcement season has been pretty good. However, terrorism worries and anti-business political rhetoric will only increase until after the election. Overall, last week was a bad week for the bulls.
Saturday, July 10, 2004
Economic Week in Review
ECRI Weekly Leading Index 133.80 +1.67%
The U.S. economic expansion is "solid" and inflation is "well-contained," Federal Reserve Bank of Richmond President J. Alfred Broaddus said. "In general the economy seems clearly to be in a much stronger position than it was a year ago or even at the beginning of the year," Broaddus said. Recent slowing in job growth and business investment are not a major concern, he said.
The ISM Non-Manufacturing Index for June came in at 59.9 versus expectations of 63.0 and a reading of 65.2 in May. "We aren't running as fast as in the previous several months, but those were unusually strong and it's only natural to look for this index to cool somewhat," said Michael Moran, chief economist at Daiwa Securities. The index has been above 50, showing expansion, for 15 straight months and Moran said he considers the report's separate indicators of higher orders and employment to be "encouraging." "This is one of those really odd reports -- the headline was terrible but the details were really good," said Joel Naroff, president of Naroff Economic Advisors.
A higher percentage of U.S. companies said profit margins widened last quarter, making businesses "upbeat" about the rest of the year, according to a survey by the National Association for Business Economics(NABE). 41% said they plan to increase hiring in the next six months, up from 34% in April. 61% expect to boost capital spending during the next year, up from 53% in the previous survey released in April. 37% said profit margins widened in the second quarter, the highest percentage since the fourth quarter of 1987. Finally, confidence among chief executives in the economy held near a 20-year high in the second quarter, with more than 70% of corporate leaders surveyed saying conditions are better than six months ago. "It doesn't look like we're at a point where we have to worry about anything that might derail the economic recovery," said Duncan Meldrum, chief economist of Air Products & Chemicals, and president of the economics group that conducted the survey. NABE's survey results "suggest any apparent weakness in the monthly data for retail sales and jobs is probably temporary," Meldrum said. "The underpinnings to the economy -- productivity growth that doesn't hold back hiring, strong capital spending, and healthy demand -- are still there," he said.
An index of optimism among U.S. manufacturers rose to a record high in the second quarter as more reported an increase in orders, a private industry survey found. Manufacturers Alliance/MAPI said its quarterly index measuring the change of business activity over the next three months rose to 80, the highest since the survey began in 1972. Manufacturing accounts for about a seventh of the U.S. economy, boosting job and income growth. The report "indicates that the expansion of manufacturing activity is real and robust," said Donald Norman, the group's economist and survey coordinator. A slowdown in China's economy and expanded production of key commodities may help contribute to lower inflation, the survey also found.
Initial Jobless Claims for last week fell to 310,000 versus estimates of 341,000 and a downwardly revised 349,000 the prior week. Last week's decline of 39,000 was the best showing since 2001, Bloomberg reported. The government said the total was likely skewed too low because fewer auto factories than it predicted shut to retool. Continuing Claims fell to 2872K versus estimates of 2950K and a downwardly revised 2957K prior. "When the dust settles from auto shutdowns, payrolls will increase at 150,000 to 175,000 a month on average," said Michael Englund, chief economist at Action Economics. The U.S. economy has created 1.3 million jobs so far this year, the biggest 6-month gain since before the stock market bubble burst and the economy began to plunge into recession in 2000, Bloomberg reported.
Consumer Credit for May rose to $8.2B versus estimates of $7.5B and $5.3B in April. U.S. consumer borrowing rose for a sixth straight month in May, as personal incomes increased and shoppers bought new cars at the fastest pace since December. Non-mortgage debt rose at an annual rate of 4.9% during the month the report showed. "The trend in borrowing has remained stronger than expected," said Christopher Low, chief economist at FTN Financial.
Wholesale Inventories for May rose 1.2% versus expectations of .5% and a .2% rise in April. More machinery, electrical equipment and imported cars brought the value of stockpiles to $305.5 billion. Supplies at distribution centers, warehouses and terminals in May were enough to last 1.13 months at the current sales pace after April's all-time low of 1.12 months. The U.S. is experiencing "the best economy we've seen in years," said Jeff Immelt, CEO of General Electric, the word's biggest company. The need to build inventories should boost economic growth for the rest of the year, according to Morgan Stanley economist Richard Berner, Bloomberg reported.
The U.S. economy will expand at least 4.5% by year-end, helped by low tax rates and strengthening global demand, said Thomas Hoenig, president of the Federal Reserve Bank of Kansas City. The forecast suggests inflation "will stay below the 2% level in terms of the core consumer price index," Hoenig said. "We do not want to get ahead of the curve -- don't want to raise rates so quickly that we staunch the recovery -- and yet we don't want to get behind the curve." "Is there a defined path? No there isn't, there can't be," because the Fed must respond to new information, he said. He also said he wasn't discouraged by the June jobs report, which showed 112,000 new payroll employees for the month. "It would be a mistake to allow one month to cause a loss of confidence in this recovery." The outlook for the economy "is very positive," he said.
Bottom Line: The ISM Non-manufacturing reading of 59.9, while below recent all-time high levels, was still very high and the details of the report bode well for the near-term outlook of the service sector. With executive confidence at 20-year highs and profit margins expanding at more companies than in 17 years, it appears that the recent dip in hiring was only temporary. Manufacturing continues to improve at the fastest rate on record. As well, increased production of commodities and slowing U.S./Chinese growth from recent torrid levels, bodes well for declining inflation over the intermediate-term. Companies are beginning to rebuild inventories from record-low levels in a show of confidence in future demand. Multiple Fed members proclaimed that the economy will continue to grow at very healthy levels while inflation will remain in check. Overall, last week's data was very encouraging. I continue to believe that the economy is either pausing before another exceptional burst of growth later in the year or down-shifting to a more sustainable and less inflationary rate of growth. Expanding profit margins, increasing consumer/executive confidence and inventories near record low levels supports my view. Unseasonably wet/cooler weather, all-time high American vacationing and very strong home sales are likely resulting in lower-than-expected retail sales in some select areas. As well, continued overcapacity from the late 90's technology bubble results in earnings shortfalls in some companies with any slight downtick in demand as too many companies are still competing for the same dollars. I continue to expect an increase in technology spending later this quarter.
The U.S. economic expansion is "solid" and inflation is "well-contained," Federal Reserve Bank of Richmond President J. Alfred Broaddus said. "In general the economy seems clearly to be in a much stronger position than it was a year ago or even at the beginning of the year," Broaddus said. Recent slowing in job growth and business investment are not a major concern, he said.
The ISM Non-Manufacturing Index for June came in at 59.9 versus expectations of 63.0 and a reading of 65.2 in May. "We aren't running as fast as in the previous several months, but those were unusually strong and it's only natural to look for this index to cool somewhat," said Michael Moran, chief economist at Daiwa Securities. The index has been above 50, showing expansion, for 15 straight months and Moran said he considers the report's separate indicators of higher orders and employment to be "encouraging." "This is one of those really odd reports -- the headline was terrible but the details were really good," said Joel Naroff, president of Naroff Economic Advisors.
A higher percentage of U.S. companies said profit margins widened last quarter, making businesses "upbeat" about the rest of the year, according to a survey by the National Association for Business Economics(NABE). 41% said they plan to increase hiring in the next six months, up from 34% in April. 61% expect to boost capital spending during the next year, up from 53% in the previous survey released in April. 37% said profit margins widened in the second quarter, the highest percentage since the fourth quarter of 1987. Finally, confidence among chief executives in the economy held near a 20-year high in the second quarter, with more than 70% of corporate leaders surveyed saying conditions are better than six months ago. "It doesn't look like we're at a point where we have to worry about anything that might derail the economic recovery," said Duncan Meldrum, chief economist of Air Products & Chemicals, and president of the economics group that conducted the survey. NABE's survey results "suggest any apparent weakness in the monthly data for retail sales and jobs is probably temporary," Meldrum said. "The underpinnings to the economy -- productivity growth that doesn't hold back hiring, strong capital spending, and healthy demand -- are still there," he said.
An index of optimism among U.S. manufacturers rose to a record high in the second quarter as more reported an increase in orders, a private industry survey found. Manufacturers Alliance/MAPI said its quarterly index measuring the change of business activity over the next three months rose to 80, the highest since the survey began in 1972. Manufacturing accounts for about a seventh of the U.S. economy, boosting job and income growth. The report "indicates that the expansion of manufacturing activity is real and robust," said Donald Norman, the group's economist and survey coordinator. A slowdown in China's economy and expanded production of key commodities may help contribute to lower inflation, the survey also found.
Initial Jobless Claims for last week fell to 310,000 versus estimates of 341,000 and a downwardly revised 349,000 the prior week. Last week's decline of 39,000 was the best showing since 2001, Bloomberg reported. The government said the total was likely skewed too low because fewer auto factories than it predicted shut to retool. Continuing Claims fell to 2872K versus estimates of 2950K and a downwardly revised 2957K prior. "When the dust settles from auto shutdowns, payrolls will increase at 150,000 to 175,000 a month on average," said Michael Englund, chief economist at Action Economics. The U.S. economy has created 1.3 million jobs so far this year, the biggest 6-month gain since before the stock market bubble burst and the economy began to plunge into recession in 2000, Bloomberg reported.
Consumer Credit for May rose to $8.2B versus estimates of $7.5B and $5.3B in April. U.S. consumer borrowing rose for a sixth straight month in May, as personal incomes increased and shoppers bought new cars at the fastest pace since December. Non-mortgage debt rose at an annual rate of 4.9% during the month the report showed. "The trend in borrowing has remained stronger than expected," said Christopher Low, chief economist at FTN Financial.
Wholesale Inventories for May rose 1.2% versus expectations of .5% and a .2% rise in April. More machinery, electrical equipment and imported cars brought the value of stockpiles to $305.5 billion. Supplies at distribution centers, warehouses and terminals in May were enough to last 1.13 months at the current sales pace after April's all-time low of 1.12 months. The U.S. is experiencing "the best economy we've seen in years," said Jeff Immelt, CEO of General Electric, the word's biggest company. The need to build inventories should boost economic growth for the rest of the year, according to Morgan Stanley economist Richard Berner, Bloomberg reported.
The U.S. economy will expand at least 4.5% by year-end, helped by low tax rates and strengthening global demand, said Thomas Hoenig, president of the Federal Reserve Bank of Kansas City. The forecast suggests inflation "will stay below the 2% level in terms of the core consumer price index," Hoenig said. "We do not want to get ahead of the curve -- don't want to raise rates so quickly that we staunch the recovery -- and yet we don't want to get behind the curve." "Is there a defined path? No there isn't, there can't be," because the Fed must respond to new information, he said. He also said he wasn't discouraged by the June jobs report, which showed 112,000 new payroll employees for the month. "It would be a mistake to allow one month to cause a loss of confidence in this recovery." The outlook for the economy "is very positive," he said.
Bottom Line: The ISM Non-manufacturing reading of 59.9, while below recent all-time high levels, was still very high and the details of the report bode well for the near-term outlook of the service sector. With executive confidence at 20-year highs and profit margins expanding at more companies than in 17 years, it appears that the recent dip in hiring was only temporary. Manufacturing continues to improve at the fastest rate on record. As well, increased production of commodities and slowing U.S./Chinese growth from recent torrid levels, bodes well for declining inflation over the intermediate-term. Companies are beginning to rebuild inventories from record-low levels in a show of confidence in future demand. Multiple Fed members proclaimed that the economy will continue to grow at very healthy levels while inflation will remain in check. Overall, last week's data was very encouraging. I continue to believe that the economy is either pausing before another exceptional burst of growth later in the year or down-shifting to a more sustainable and less inflationary rate of growth. Expanding profit margins, increasing consumer/executive confidence and inventories near record low levels supports my view. Unseasonably wet/cooler weather, all-time high American vacationing and very strong home sales are likely resulting in lower-than-expected retail sales in some select areas. As well, continued overcapacity from the late 90's technology bubble results in earnings shortfalls in some companies with any slight downtick in demand as too many companies are still competing for the same dollars. I continue to expect an increase in technology spending later this quarter.
Friday, July 09, 2004
Weekly Scoreboard*
Indices
S&P 500 1,112.81 -1.43%
Dow 10,213.22 -1.17%
NASDAQ 1946.33 -3.43%
Russell 2000 563.73 -3.21%
S&P Equity Long/Short Index 972.67 -.70%
Put/Call .74 -8.64%
NYSE Arms 1.02 -63.7%
Volatility(VIX) 15.78 +3.82%
AAII % Bulls 55.10 -3.28%
US Dollar 87.42 -1.66%
CRB 272.69 +1.30%
Futures Spot Prices
Gold 407.90 +2.87%
Crude Oil 39.96 +3.39%
Unleaded Gasoline 132.15 +7.97%
Natural Gas 6.14 -1.11%
Base Metals 113.33 +3.08%
10-year US Treasury Yield 4.46% unch.
Average 30-year Mortgage Rate 6.01% -3.22%
Leading Sectors
Commodity +1.56%
Energy +1.18%
Oil Service +.83%
Lagging Sectors
Computer Boxmakers -7.11%
Software -7.60%
Airlines -8.36%
*% Gain or loss for the week
S&P 500 1,112.81 -1.43%
Dow 10,213.22 -1.17%
NASDAQ 1946.33 -3.43%
Russell 2000 563.73 -3.21%
S&P Equity Long/Short Index 972.67 -.70%
Put/Call .74 -8.64%
NYSE Arms 1.02 -63.7%
Volatility(VIX) 15.78 +3.82%
AAII % Bulls 55.10 -3.28%
US Dollar 87.42 -1.66%
CRB 272.69 +1.30%
Futures Spot Prices
Gold 407.90 +2.87%
Crude Oil 39.96 +3.39%
Unleaded Gasoline 132.15 +7.97%
Natural Gas 6.14 -1.11%
Base Metals 113.33 +3.08%
10-year US Treasury Yield 4.46% unch.
Average 30-year Mortgage Rate 6.01% -3.22%
Leading Sectors
Commodity +1.56%
Energy +1.18%
Oil Service +.83%
Lagging Sectors
Computer Boxmakers -7.11%
Software -7.60%
Airlines -8.36%
*% Gain or loss for the week
Mid-day Update
S&P 500 1,111.24 +.19%
NASDAQ 1,941.47 +.32%
Leading Sectors
Disk Drives +2.20%
Software +1.62%
Semis +1.38%
Lagging Sectors
Computer Boxmakers -.41%
Utilities -.53%
Airlines -.76%
Other
Crude Oil 40.00 -.82%
Natural Gas 6.11 -1.13%
Gold 408.00 -.07%
Base Metals 113.17 +.73%
U.S. Dollar 87.51 -.03%
10-Yr. T-note Yield 4.46% -.18%
VIX 15.97 -1.42%
Put/Call .62 -30.34%
NYSE Arms .87 -56.06%
Market Movers
JBHT -8.4% after announcing that it had received from Burlington Northern and Santa Fe a notice of arbitration.
STK +10.3% after lowering 2Q estimates and increasing share buyback.
LI +12.7% after exceeding 3Q estimates.
FWHT +7.5% after announcing it would be added to S&P small-cap 600.
SAP +4.7% after raising 2Q guidance.
UIS -14.7% after cutting 2Q forecast.
CTMI -11.52% after cutting 3Q/4Q forecasts.
ACI -5.7% after cutting 2Q forecast.
Economic Data
Wholesale Inventories for May rose 1.2% versus estimates of a .5% rise and a .2% rise in April.
Recommendations
HOTT, ROST cut to Underweight at JP Morgan. MAXY raised to Overweight at JP Morgan. DRI raised to Buy at UBS. WFMI cut to Reduce at UBS, target $82. STZ raised to Buy at UBS, target $45. VRSN rated Buy at Deutsche Bank, target $24. WBSN rated Buy at Deutsche Bank, target $42. ISSX rated Buy at Deutsche Bank, target $19. SNDK rated Outperform at CSFB, target $35. LEXR rated Outperform at CSFB target $10. XXIA raised to Outperform at Thomas Weisel, target $12. IT rated Outperform at CSFB, target $18. CMC rated Overweight at JP Morgan. Goldman Sachs said Non-life Insurance stocks will surprise on the upside. Goldman reiterated Outperform on VZ, AIG, RE, FD, GE, SII and AGN. Citi SmithBarney reiterated Buy on BCII, target $30. Citi reiterated Buy on CEY, target $44. Citi reiterated Buy on AMGN, target $90.
Mid-day News
U.S. stocks are modestly higher mid-day on better-than-expected earnings reports from General Eelectric and SAP. Rail lines in Boston and New York, the sites of national political conventions, are vulnerable and easily accessible to terrorists for a possible attack, the Washington Times reported. FedEx plans to build a 218,000 square-foot distribution center in Carson, California, the LA Times said. Bear Stearns was removed as a co-manager of Chicago's $500 million bond sale because of the company's links to a state regulatory panel being investigated for steering work to associates, the Bond Buyer newspaper said. Amgen could lose sales of its best-selling Epogen drug if a new Medicare policy that calls for stricter review of reimbursement claims for the drug is adopted, the LA Times reported. Vail Resorts has hired an investment bank to help sell its assets, the Denver Post reported. Jeff Immelt, CEO of General Electric said, "This is the best economy we've seen in years," Bloomberg reported. New outbreaks of bird flu in China, Thailand and Vietnam show that the virus, which can spread to humans, is "still endemic" to the region, the United Nations' Food and Agriculture Organization said. Gilead Sciences said it will reduce the price of its HIV treatment Viread, the company's biggest drug, by 37% in Africa and 15 countries elsewhere that the United Nations classifies as "least developed," Bloomberg reported. Copper futures in New York rose to a one-month high and are headed for their biggest weekly gain since December on signs of improved demand in China, the world's biggest buyer, Bloomberg said.
BOTTOM LINE: The Portfolio is slightly lower today on weakness in my base metal longs and strength in my software and internet shorts. I have not traded today and the Portfolio is still 25% net short. Investor complacency is still too high as evidenced by the plunging Put/Call and Arms readings. The AAII % Bulls is still relatively high and the VIX is relatively low, as well. I expect U.S. stocks to fall modestly into the close on high oil energy prices, terrorism worries and earnings concerns.
NASDAQ 1,941.47 +.32%
Leading Sectors
Disk Drives +2.20%
Software +1.62%
Semis +1.38%
Lagging Sectors
Computer Boxmakers -.41%
Utilities -.53%
Airlines -.76%
Other
Crude Oil 40.00 -.82%
Natural Gas 6.11 -1.13%
Gold 408.00 -.07%
Base Metals 113.17 +.73%
U.S. Dollar 87.51 -.03%
10-Yr. T-note Yield 4.46% -.18%
VIX 15.97 -1.42%
Put/Call .62 -30.34%
NYSE Arms .87 -56.06%
Market Movers
JBHT -8.4% after announcing that it had received from Burlington Northern and Santa Fe a notice of arbitration.
STK +10.3% after lowering 2Q estimates and increasing share buyback.
LI +12.7% after exceeding 3Q estimates.
FWHT +7.5% after announcing it would be added to S&P small-cap 600.
SAP +4.7% after raising 2Q guidance.
UIS -14.7% after cutting 2Q forecast.
CTMI -11.52% after cutting 3Q/4Q forecasts.
ACI -5.7% after cutting 2Q forecast.
Economic Data
Wholesale Inventories for May rose 1.2% versus estimates of a .5% rise and a .2% rise in April.
Recommendations
HOTT, ROST cut to Underweight at JP Morgan. MAXY raised to Overweight at JP Morgan. DRI raised to Buy at UBS. WFMI cut to Reduce at UBS, target $82. STZ raised to Buy at UBS, target $45. VRSN rated Buy at Deutsche Bank, target $24. WBSN rated Buy at Deutsche Bank, target $42. ISSX rated Buy at Deutsche Bank, target $19. SNDK rated Outperform at CSFB, target $35. LEXR rated Outperform at CSFB target $10. XXIA raised to Outperform at Thomas Weisel, target $12. IT rated Outperform at CSFB, target $18. CMC rated Overweight at JP Morgan. Goldman Sachs said Non-life Insurance stocks will surprise on the upside. Goldman reiterated Outperform on VZ, AIG, RE, FD, GE, SII and AGN. Citi SmithBarney reiterated Buy on BCII, target $30. Citi reiterated Buy on CEY, target $44. Citi reiterated Buy on AMGN, target $90.
Mid-day News
U.S. stocks are modestly higher mid-day on better-than-expected earnings reports from General Eelectric and SAP. Rail lines in Boston and New York, the sites of national political conventions, are vulnerable and easily accessible to terrorists for a possible attack, the Washington Times reported. FedEx plans to build a 218,000 square-foot distribution center in Carson, California, the LA Times said. Bear Stearns was removed as a co-manager of Chicago's $500 million bond sale because of the company's links to a state regulatory panel being investigated for steering work to associates, the Bond Buyer newspaper said. Amgen could lose sales of its best-selling Epogen drug if a new Medicare policy that calls for stricter review of reimbursement claims for the drug is adopted, the LA Times reported. Vail Resorts has hired an investment bank to help sell its assets, the Denver Post reported. Jeff Immelt, CEO of General Electric said, "This is the best economy we've seen in years," Bloomberg reported. New outbreaks of bird flu in China, Thailand and Vietnam show that the virus, which can spread to humans, is "still endemic" to the region, the United Nations' Food and Agriculture Organization said. Gilead Sciences said it will reduce the price of its HIV treatment Viread, the company's biggest drug, by 37% in Africa and 15 countries elsewhere that the United Nations classifies as "least developed," Bloomberg reported. Copper futures in New York rose to a one-month high and are headed for their biggest weekly gain since December on signs of improved demand in China, the world's biggest buyer, Bloomberg said.
BOTTOM LINE: The Portfolio is slightly lower today on weakness in my base metal longs and strength in my software and internet shorts. I have not traded today and the Portfolio is still 25% net short. Investor complacency is still too high as evidenced by the plunging Put/Call and Arms readings. The AAII % Bulls is still relatively high and the VIX is relatively low, as well. I expect U.S. stocks to fall modestly into the close on high oil energy prices, terrorism worries and earnings concerns.
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