Stocks Finish at Session Highs

Indices
S&P 500 1,191.08 +.47%
DJIA 10,493.19 +.27%
NASDAQ 2,042.58 +.59%
Russell 2000 610.46 +.42%
DJ Wilshire 5000 11,741.81 +.49%
S&P Barra Growth 576.60 +.48%
S&P Barra Value 609.98 +.45%
Morgan Stanley Consumer 590.71 +.22%
Morgan Stanley Cyclical 719.49 -.11%
Morgan Stanley Technology 474.51 +.52%
Transports 3,621.03 +.44%
Utilities 364.55 +.58%
Put/Call .78 -2.50%
NYSE Arms .76 +.80%
Volatility(VIX) 13.32 -2.27%
ISE Sentiment 178.00 +54.78%
US Dollar 86.14 +.43%
CRB 293.54 -.44%

Futures Spot Prices
Crude Oil 46.90 -.63%
Unleaded Gasoline 143.75 +1.63%
Natural Gas 6.37 -.27%
Heating Oil 139.00 +2.34%
Gold 420.70 -.02%
Base Metals 120.03 -.05%
Copper 136.10 -.15%
10-year US Treasury Yield 4.11% +.52%

Leading Sectors
Oil Service +1.85%
Energy +1.67%
Gaming +1.23%

Lagging Sectors
Gold & Silver -.62%
Steel -1.11%
Oil Tankers -1.60%

Evening Review
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In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on BLS.

Afternoon/Evening Headlines
Bloomberg:
- DuPont said it received a subpoena in a grand jury probe related to an ingredient used to make Teflon non-stick coatings that has been found to cause cancer in animals.
- US regulators voted to require Internet-calling companies such as Vonage Holdings to improve the way they connect customers to emergency services.
- Michael Price, whose mutual funds were among the industry’s best performers during the 1980s and 1990s, bought shares of AIG for the first time and said Morgan Stanley is worth $75/share.
- Crude oil in NY fell to a three-month low on speculation that US inventories will be sufficient to meet peak demand during the summer driving season.

BOTTOM LINE: The Portfolio finished higher today on gains in my Software, Computer, Wireless and Internet longs and Oil Tanker, Base Metal shorts. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market strengthened into the afternoon as the advance/decline finished modestly higher, almost every sector rose and volume was average. Measures of investor anxiety were lower into the close. Overall, today’s market action was positive considering recent gains and weaker economic reports. The fact that the dollar rose today on weaker economic reports suggests further gains for the currency near-term.

Stocks Mixed Mid-day on Lower Volume

Indices
S&P 500 1,186.55 +.08%
DJIA 10,452.25 -.11%
NASDAQ 2,035.56 +.25%
Russell 2000 607.82 -.01%
DJ Wilshire 5000 11,698.11 +.11%
S&P Barra Growth 574.46 +.07%
S&P Barra Value 607.34 +.01%
Morgan Stanley Consumer 588.48 -.16%
Morgan Stanley Cyclical 715.76 -.63%
Morgan Stanley Technology 473.26 +.25%
Transports 3,595.46 -.27%
Utilities 363.12 +.18%
Put/Call .80 unch.
NYSE Arms .90 +18.98%
Volatility(VIX) 13.74 +.81%
ISE Sentiment 194.00 +68.70%
US Dollar 86.09 +.37%
CRB 294.03 -.28%

Futures Spot Prices
Crude Oil 47.25 unch.
Unleaded Gasoline 143.10 +1.17%
Natural Gas 6.34 -.81%
Heating Oil 139.30 +2.56%
Gold 421.10 -.21%
Base Metals 120.03 -.05%
Copper 136.30 -.94%
10-year US Treasury Yield 4.09% +.28%

Leading Sectors
Nanotechnology +1.38%
Gaming -1.03%
Internet +.98%

Lagging Sectors
Drugs -.69%
Oil Tankers -1.48%
Steel -1.94%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Internet, Wireless and Computer 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 higher and volume is average. Measures of investor anxiety are mostly lower. Today’s overall market action is positive, given the weaker economic reports and yesterday’s sharp gains. I expect US stocks to trade modestly higher into the close on short-covering and bargain hunting.

Today's Headlines

Bloomberg:
- Ted Waitt, who started Gateway in an Iowa farmhouse in 1985 and built it into one of the world’s biggest personal-computer makers, is resigning as chairman to pursue other business and charitable activities.
- Morgan Stanley faces potential legal costs of more than $1 billion, the latest setback for Philip Purcell as he fends off calls for his ouster as CEO of the world’s biggest securities firm by market value.
- Wal-Mart Stores and Netflix agreed to promote each other’s online movie businesses.
- John Bolton’s prospects of being confirmed by the Senate as US ambassador to the UN appear strong at this time with at least four Democrats saying they might support him.
- Visteon, the money-losing auto-parts supplier spun off from Ford Motor in 2000, may sell as many as 15 US factories to shed union employees who cost it $60/hour in wages and benefits.
- Manufacturing in the Philadelphia region declined more than forecast in May.
- The US dollar is rising against the euro on speculation the Fed will keep raising rates while the European Central Bank makes no change.

Wall Street Journal:
- Disney plans to re-launch “The Muppet Show” 1970s television favorite in a bid to create a following for classics such as Mickey Mouse.
- US Fed officials expressed increased concern over the rise in domestic housing prices as a result of speculative buying.
- Time Warner’s cable services are testing a program where EBay users will be able to monitor their Internet auctions over the television.
- Global computer software piracy fell slightly last year.
- Time Warner’s America Online plans a new version of its Netscape Web browser with security and safety features.
- Southwest Airlines’ hedging program, which locked in lower fuel costs while oil prices soared, produced profits while other carriers languished in the red, but the benefits may diminish from now on.
- US banking regulators are considering new guidelines for mortgage lenders, because they are concerned about home buyers taking on bigger loans.

NY Times:
- About 4,000 overweight Americans seek treatment each year in Durham, North Carolina, which is sometimes billed as the “Diet Capital of the World.”
- L-3 Communications is negotiating to buy military contractor Titan Corp. for about $1.8 billion.

AP:
- California scientists have created a mapping system to provide real-time information about the likelihood of earthquakes in the state.

Reuters:
- Blockbuster is advertising a monthly fee of $17.99 for its unlimited DVD rental service.

Job Market Still Healthy, Leading Indicators Fall Modestly

- Initial Jobless Claims for last week fell to 321K versus estimates of 330K and 341K the prior week.
- Continuing Claims rose to 2601K versus estimates of 2583K and 2596K prior.
- Leading Indicators for April fell .2% versus estimates of a .2% decline and a .6% fall in March.

BOTTOM LINE: New claims have averaged about 325,000 in the first four months of the year, down from 350,000 a year ago. The four-week moving-average of claims increased to 329,750 from 324,250 the prior week. The four-week moving-average of continuing claims dropped to 2.58M, a four-year low. The insured unemployment rate, which tends to move with the US unemployment rate, held at a four-year low of 2.0%.

The Leading Economic Indicators Index fell for a fourth straight month in April as high gas prices weighed on consumer sentiment. March’s number was revised down to a .6% decline, the largest decrease since September 20001. Strong job growth, healthy retail sales, booming home sales, low interest rates and a smaller trade deficit should keep growth from slowing too much. As well, declining energy prices this month should help boost confidence among consumers and corporations going forward.

Links of Interest

Market Snapshot
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Market Internals
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IBD New America
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Option Dragon
Real-time Intraday Chart/Quote

Thursday Watch

Late-Night Headlines
Bloomberg:
- US Airways Group and America West Holdings may announce a merger agreement this week.
- The US House of Representatives voted to replace the color-coded warning system used to alert the public to terrorist threats with a program that offers specific information about risks and suggested actions.
- Motorola may buy back as much as $4 billion, or about 10% of its shares, the company's first stock repurchase.
- Crude oil fell to the lowest in three months in NY after an Energy Department report showed US stockpiles rose four times faster than analysts expected.
- Investment in China's factories, roads and other fixed assets rose at a faster pace in April, adding to concerns that Premier Wen Jiabao will tighten lending curbs to cool expansion in Asia's second-largest economy.
- Hong Kong's decision to limit gains in its currency suggests China is moving closer to letting the yuan strengthen, said strategists.
- Goldman Sachs' Henry Paulson and Merrill Lynch's Kevan Watts urged China to cut state ownership of its companies and strengthen domestic brokers, to halt a stock market slide and develop the capital markets.

Wall Street Journal:
- L-3 Communications Holdings is in talks to buy defense contractor Titan Corp. in a possible effort to grow its Defense Department computer services business
- JP Morgan, the largest US credit-card issuer is to distribute million of new cards that can be waved or held in front of a special reader, in what is called a "contact-less" purchase.

NY Times:
- Iran is willing to suspend its nuclear development program while talks proceed with the European Union, although no incentives will induce the country to abandon its plans to enrich fuel.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on CVD, KSS and AAP.

Night Trading
Asian Indices are +1.0% to +2.0% on average.
S&P 500 indicated -.01%.
NASDAQ 100 indicated +.07%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
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Before the Bell CNBC Video(bottom right)
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Earnings of Note
Company/EPS Estimate
ARO/.15
ANN/.24
ADSK/.28
CBRL/.55
PLCE/.34
GPS/.30
MRVL/.25

Splits
MGM 2-for-1
MCO 2-for-1

Economic Releases
8:30 EST
- Initial Jobless Claims for last week are estimated to fall to 330K versus 340K the prior week.
- Continuing Claims are estimated to fall to 2583K versus 2598K prior.

10:00 EST
- Leading Indicators for April are estimated to fall .2% versus a .4% decline in March.

12:00 EST
- Philadelphia Fed. for May is estimated to fall to 17.3 versus a reading of 25.3 in April.

BOTTOM LINE: Asian indices are sharply higher on optimism over falling energy prices and decelerating US inflation. I expect US equities to open mixed. However, stocks may rise later in the day on declining energy prices, short-covering and more optimism. The Portfolio is 100% net long heading into the day.