Stocks Finish Lower as Commodity Stock Mania Subsides

Indices
S&P 500 1,254.78 -.81%
DJIA 10,749.76 -.45%
NASDAQ 2,244.96 -.61%
Russell 2000 717.18 -1.47%
S&P Barra Growth 596.39 -.84%
S&P Barra Value 654.57 -.78%
Morgan Stanley Consumer 588.76 +.04%
Morgan Stanley Cyclical 774.58 -1.13%
Morgan Stanley Technology 525.89 -.17%
Transports 4,229.62 -1.42%
Utilities 404.50 -.76%
Put/Call .94 +11.90%
NYSE Arms 1.41 +47.08%
Volatility(VIX) 13.59 +4.22%
ISE Sentiment 153.00 -6.13%
US Dollar 90.22 -.08%
CRB 336.43 -1.99%

Futures Spot Prices
Crude Oil 63.03 -.08%
Unleaded Gasoline 159.20 -.13%
Natural Gas 7.92 +.89%
Heating Oil 168.90 -.17%
Gold 552.20 -.50%
Base Metals 172.96 -2.13%
Copper 227.05 -.33%
10-year US Treasury Yield 4.56% +.49%

Leading Sectors
Semis +.11%
Broadcasting unch.
HMOs -.04%

Lagging Sectors
Steel -4.87%
Oil Service -6.10%
Gold & Silver -7.08%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on (PFGC), (WAG), (X), (OXY) and (CSCO).
- Reiterated Underperform on (BMC).

Afternoon/Evening Headlines
Bloomberg:
- ABC’s Super Bowl broadcast drew the highest national ratings since 2000 as the Pittsburgh Steelers won a record-tying fifth NFL championship.
- President Bush honored Coretta Scott King as “God’s servant,” saying at the funeral for the widow of slain civil rights leader Martin Luther King Jr. that she was an example of strength and dignity who continued her husband’s service in the cause of civil rights.
- Billionaire investor Carl Icahn proposed breaking Time Warner(TWX) into four pieces to increase the value of the world’s largest media company by as much as $45 billion.
- Cisco Systems(CSCO) said second-quarter net income fell on stock-option expenses. The shares rose 4.5% after profit margins beat analyst estimates.
- US public concern over Iran and the threat it poses to US security has risen over the past few month, according to a recent Pew Research Center poll. The poll also found that the public supports wiretapping terror suspects without court approval by a margin of 54% to 43%.
- Crude oil plunged more than $2 a barrel in NY to a four-week low on expectations that an Energy Dept. report tomorrow will show US inventories of oil and gas jumped last week. Gold also declined, falling the most in dollar terms in 13 years.

CNBC:
- The Retail Industry Leaders Association has filed suit over a Maryland law that required retailers to set aside 8% of payroll for worker health-care costs.

BOTTOM LINE: The Portfolio finished slightly lower today as losses in my Medical longs, Internet longs and Retail longs. I did not trade in the final hour, thus leaving the Portfolio 50% net long. The tone of the market was negative today as the advance/decline line finished substantially lower, almost every sector declined and volume was heavy. Measures of investor anxiety were higher into the close. Overall, it was a good day for the bears as the major averages finished lower on good volume and poor breadth. However, considering the 5-6% plunges in most commodity stocks, today's losses in the major averages were relatively mild. Moreover, semis finished slightly higher on the day. The NYSE Arms finished at an above-average 1.46, which is a positive. I plan to remain nimble over the coming days as I perceive a leadership change is in the offing.

Stocks Lower into Final Hour as Commodity Shares Plunge

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Internet longs, Medical longs and Semi longs. I added to my (IWM)/(QQQQ) shorts and trimmed some existing longs this morning, thus leaving the Portfolio 50% net long. The tone of the market is negative as the advance/decline line is substantially lower, almost every sector is lower and volume is heavy. I am hearing some commodity bulls say today's drops are just another buying opportunity and that nothing has changed. I would argue that much has changed over the last year in the supply/demand equation and that perception has been the main thing propping up most commodity prices at extremely inflated levels. Is perception now changing? As I have stated before, I believe decelerating global growth, production near record high levels and a firm dollar will spur much larger declines in the CRB Index than most expect. This may temporarily pressure the broad market. However, falling commodity prices are one of the keys to my expectations for a 15% gain in U.S. stocks this year. I expect US stocks to trade mixed-to-higher into the close from current levels as falling commodity stocks are mostly offset by gains in most other sectors.

Today's Headlines

Bloomberg:
- Google(GOOG) today will introduce a new version of its GMail e-mail service that lets Web users see whether their contacts are online and exchange instant messages.
- Two pharmaceutical companies are testing the first promising class of AIDS medicines in almost three years, treatments that may provide a new weapon against the drug-resistant strains of the deadly virus.
- Libya, holder of Africa’s largest oil reserves, is preparing to hire foreign companies to develop more than 300 untapped fields after an increase in energy prices made it an economically viable way of raising output.
- Gold is falling $18, the most in more than a year, after a drop in the cost of oil eased speculation that inflation will accelerate and erode the value of assets.
- Crude oil is falling to a three-week low on expectations that an Energy Dept. report tomorrow will show US inventories of oil and gas jumped last week.

Wall Street Journal:
- AstraZeneca Plc.(AZN), Johnson & Johnson(JNJ), Novartis AG(NVS), Bristol-Myers Squibb(BMY) and other drugmakers are developing a plan to offer discounts of as much as 50% to low-income seniors when Medicare stops paying.
- Lockheed Martin(LMT) is moving into the rapidly developing market for unmanned spacecraft, or drones, that have become an essential weapon in modern warfare.
- Hewlett-Packard(HPQ), Dell Inc.(DELL) and other personal computer makers have joined with Google(GOOG) to offer users software other than from Microsoft(MSFT).
- Cisco Systems(CSCO) bought Scientific-Atlanta(SFA) using debt in a transaction that signals a change in the way many technology companies are financing acquisitions.
- JC Penney(JCP) plans to begin a marketing campaign on March 2 to attract customers to updated brands carried by the chain.
- Texas Instruments(TXN) and Intel Corp.(INTC) are announcing developments in their technology that reduce the power consumption of their microchips, while IBM(IBM) is eking out performance by boosting the frequency of its chips.
- US corporations paid a record $9.6 billion last year to shareholders to settle class-action securities suits.
- Amazon.com(AMZN) said it’s testing an advertising technique that enables Web site owners to get sponsored by a third-party provider.

NY Times:
- US sleeping-pill prescriptions last year totaled 42 million, 60% more than in 2000, citing IMS Health Inc.
- CSL Ltd., an Australian producer of flu vaccine, plans to begin sales in the US, pending approval by the FDA, in time for the 2007-2008 season.

Washington Post:
- John Thorne, a Verizon Communications(VZ) senior vice president, said Google(GOOG) and other companies that benefit from Internet access to homes should pay for that capability.

AP:
- Tennessee lawmakers passed a broad ethics bill that would restrict lobbyists and limit cash political donations at $50.
- One of Iran’s largest newspapers today said it plans to hold a contest for cartoons about the Holocaust to see whether Western nations extend the principle of free speech to the Nazi genocide.

Star-Ledger of Newark:
- A committee of the New Jersey Senate approved a proposal that would allow police to pull over and ticket drivers for using hand-held wireless phones.

El Financiero:
- Mexico’s government spent $705 million to hedge revenue against a drop in oil prices this year, citing Finance Ministry officials it didn’t name.

IRNA:
- Iran cut trade relations with Denmark following the publication of cartoons showing Islam’s prophet Mohammed as a militant.

Economic Releases

- None of note

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- Crude oil is falling a second day in NY on speculation rising US oil inventories will be sufficient to meet demand should shipments from Iran be disrupted.

USA Today:
- Iran is ready to talk directly with the US regarding the resumption of its nuclear plan, citing an interview with Ali Larijani, Iran’s national security adviser.

Commercial Times:
- Acer Inc. forecasts its notebook computer sales will increase as much as 90% in the first quarter from a year earlier to 1.9 million units.

Automotive News:
- GM’s(GM) board agreed to cut the automaker’s $1.1 billion annual dividend by half, citing unnamed people close to the directors.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (AET), (EBAY), (TIN) and (UHCO).
- Reiterated Underperform on (PPS).

Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 indicated +.04%.
NASDAQ 100 indicated +.09%.

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Earnings of Note
Company/EPS Estimate
(ALKS)/-.08
(BRL)/.78
(BMC)/.27
(BSX)/.42
(CELL)/.22
(CD)/.23
(CAKE)/.29
(CSCO)/.25
(KO)/.45
(CSC)/.85
(EMR)/.83
(FEIC)/.02
(FSH)/.93
(FO)/1.20
(LVLT)/-.29
(LNCR)/.53
(MANH)/.22
(MGAM)/.08
(OXY)/.76
(OSTK)/-.05
(RL)/.75
(VSH)/.16
(WWY)/.54

Upcoming Splits
- None of note

Economic Releases
3:00 pm EST
- Consumer Credit for December is estimated to rise to $5.0 billion versus -$.6 billion in November.

BOTTOM LINE: Asian indices are mixed as strength in basic materials stocks is offsetting weakness in pharma companies in the region. I expect US equities to open modestly lower and to rally later in the afternoon, fishing mixed. The Portfolio is 75% net long heading into the day.