Initial Jobless Claims Bode Well for Tomorrow's Employment Report

- Initial Jobless Claims for last week fell to 312K versus estimates of 315K and 313K the prior week.
- Continuing Claims fell to 2581K versus estimates of 2578K and 2599K the prior week.

BOTTOM LINE: The four-week moving-average of initial claims fell to 316,750, the lowest since February, from 319,000 the prior week, Bloomberg reported. The monthly average of initial claims hasn’t been this low since the economy created 300,000 workers in February. Claims have averaged 325,000 a week this year, down 18,000 year-over-year. The insured employment rate, which tracks the US jobless rate, was unchanged at 2%. I expect the Non-farm Payrolls to exceed the 180,000 estimates tomorrow.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Apple Computer is starting its iTunes online music download store in Japan from today, tapping into the company’s biggest market in Asia.
- China’s Baidu.com, a search engine that models itself on Google, is seeking to raise as much as $101 million in a US IPO today after raising the offer by 30% to meet investor demand.

London-based Times:
- Tupperware Corp. is in advanced talks to buy Sara Lee’s direct selling unit for $700 million.

China Daily:
- Chinese oil refiners increased their crude oil stockpile last year to enough to cover a month’s processing, reducing the need for imports in 2005.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on SBUX, ARO, BAC and AMGN.
- Reiterated Underperform on EDS.

Night Trading
Asian Indices are -.50 to unch. on average.
S&P 500 indicated -.03%.
NASDAQ 100 indicated -.06%.

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Earnings of Note
Company/EPS Estimate
AT/.85
AMLN/-.31
CMX/.46
CHK/.46
CSC/.55
G/.46
GSF/.27
GT/.22
HET/.93
PDLI/.05
PIXR/.10
SLE/.31
UVN/.25
WMB/.20

Upcoming Splits
None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to rise to 315K versus 310K the prior week.
- Continuing Claims are estimated to fall to 2578K versus 2603K prior.

BOTTOM LINE: Asian indices are mostly lower on losses in automaker shares in the region. I expect US equities to open modestly lower and to rally later in the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish Mixed as Oil Reverses Lower

Indices
S&P 500 1,245.04 +.07%
DJIA 10,697.59 +.13%
NASDAQ 2,216.81 -.06%
Russell 2000 683.38 -.75%
DJ Wilshire 5000 12,439.49 -.02%
S&P Barra Growth 597.54 +.04%
S&P Barra Value 643.05 +.11%
Morgan Stanley Consumer 592.44 +.04%
Morgan Stanley Cyclical 763.14 -.25%
Morgan Stanley Technology 509.08 +.34%
Transports 3,802.95 -.37%
Utilities 405.27 +.71%
Put/Call .89 -5.32%
NYSE Arms .94 +1.28%
Volatility(VIX) 11.83 +.68%
ISE Sentiment 272.00 +61.90%
US Dollar 87.99 -.87%
CRB 315.32 -.71%

Futures Spot Prices
Crude Oil 60.95 -1.52%
Unleaded Gasoline 177.05 -.62%
Natural Gas 8.38 +.02%
Heating Oil 168.90 -2.09%
Gold 442.20 -.11
Base Metals 128.33 +.16%
Copper 167.05 -.06%
10-year US Treasury Yield 4.29% -.96%

Leading Sectors
Gold & Silver +4.02%
HMOs +1.31%
Broadcasting +.84%

Lagging Sectors
Homebuilders -1.14%
Steel -1.33%
Airlines -1.45%

Evening Review
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In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on CVS and CSCO.
- Reiterated Underperform on MKL.

Afternoon/Evening Headlines
Bloomberg:
- China is likely to let the yuan gain 5% against the dollar by 2007, not enough to slow its economy or end US criticism that the nation has an unfair trade advantage, according to a Bloomberg survey.
- Toyota Motor may generate as much as 25% of it US sales from gasoline-electric hybrid vehicles by 2010.
- Delta Air Lines shares dropped to their lowest in at least 43 years, continuing a slide that has sent the stock down 42% since mid-July amid concerns that the company is closer to filing for bankruptcy.
- A NYSE membership sold for a record $3 million today, surpassing the mark set in August 1999 during heights of the stock market bubble.
- Crude oil is falling for a second day in NY after the US Energy Dept. said inventories rose for the first time in five weeks amid a jump in imports.
- Sprint won approval from US regulators for its proposed $36 billion takeover of Nextel Communications without having to sell any assets.

BOTTOM LINE: The Portfolio finished higher today on gains in my Medical, Semiconductor and Retail longs. I did not trade in the afternoon, thus leaving the Portfolio 100% net long. The tone of the market was modestly negative today as the advance/decline line finished lower, sector performance was mixed and volume was about average. Measures of investor anxiety were mixed into the close. Overall, today’s market action was neutral. Over the last two weeks, oil tanker rates from the Persian Gulf to the U.S. have dropped 13%. They are now down 70% from November 2004 highs. This is with OPEC pumping near 30-year high levels. I do not believe it is too late to short these stocks. I remain overweight short this group.

Stocks Modestly Lower Mid-day, Consolidating Recent Gains

Indices
S&P 500 1,243.53 -.05%
DJIA 10,674.42 -.10%
NASDAQ 2,216.93 -.09%
Russell 2000 684.78 -.54%
DJ Wilshire 5000 12,425.52 -.13%
S&P Barra Growth 596.41 -.15%
S&P Barra Value 642.11 -.04%
Morgan Stanley Consumer 590.98 -.20%
Morgan Stanley Cyclical 762.23 -.37%
Morgan Stanley Technology 507.54 +.04%
Transports 3,793.47 -.62%
Utilities 406.01 +.89%
Put/Call .80 -14.89%
NYSE Arms .91 -2.18%
Volatility(VIX) 11.83 +.68%
ISE Sentiment 258.00 +53.57%
US Dollar 88.00 -.86%
CRB 316.52 -.33%

Futures Spot Prices
Crude Oil 61.60 -.47%
Unleaded Gasoline 179.15 +.56%
Natural Gas 8.34 -.39%
Heating Oil 170.50 -1.17%
Gold 442.70 +1.14%
Base Metals 128.33 +.16%
Copper 167.15 +.54%
10-year US Treasury Yield 4.29% -.92%

Leading Sectors
Gold & Silver +4.41%
Utilities +1.28%
HMOs +1.07%

Lagging Sectors
Steel -1.02%
Homebuilders -1.09%
Airlines -1.24%

BOTTOM LINE: The Portfolio is higher mid-day on gains in my Medical, Retail and Semiconductor 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 modestly lower, sector performance is mixed and volume is about average. Measures of investor anxiety are mixed. Today’s overall market action is neutral considering recent gains. The chairman of the board of Barnes & Noble (BKS) has been adding shares even as the stock is close to an all-time high. He recently purchased 12,500 shares at an average price of $40.88. This is the 10th purchase by an insider since the beginning of July. Goldman recently downgraded BKS to Underperform. I do not have a position in this stock. I expect US stocks to trade modestly higher from current levels into the close on short-covering and lower energy prices.

Today's Headlines

Bloomberg:
- Time Warner agreed to pay $2.4 billion to end shareholder lawsuits that claimed its America Online unit overstated revenue.
- The US Treasury Dept. revived the 30-year bond today after a four-year hiatus and said it will sell $44 billion in other notes this quarter to fund the government, the smallest sale in more than two years.
- The euro gained to $1.23 for the first time in almost two months as European services industries grew at a faster pace and the currency rose to a technical level that spurred a further advance.
- Crude oil is falling as speculators pare long positions after a government report showed further increases in US crude supplies.

Wall Street Journal:
- The Mozilla Foundation, a not-for-profit organization that started the free Firefox Web browser, is putting most of its software products into Mozilla, a for-profit subsidiary.
- GM ended an advertising boycott of the LA Times, started because of what the world’s biggest automaker said were factual errors and misrepresentations.
- A backlash against the US Supreme Court ruling that governments can seize property to promote economic development may threaten some projects that depended on the use of eminent domain to acquire land.
- ESL Investments, Tudor Investment Corp. and SAC Capital Advisors are among about 100 hedge funds making their home in Greenwich, Connecticut.
- The FCC could change regulations on telephone companies’ Internet services as early as tomorrow.
- General Atlantic LLC, a US buyout firm, offered $240 million for 20% of the NY Merc.
- The yield advantage for holding US Treasuries over European debt widened close to a five-year high.

NY Times:
- US cable companies are seeking smaller corporate clients that big phone operators tend to neglect by positioning themselves as a better option to the regional Bell providers.
- US hedge fund managers are donating millions of dollars to NY’s philanthropic organizations.

Washington Post:
- America Coming Together, a group funded by billionaire hedge fund manager George Soros that spent tens of millions of dollars trying to unseat President Bush last year, is disbanding.

Reuters:
- China may introduce yuan forwards trading and dollar market makers under a series of changes in foreign-exchange management planned for the next two weeks.