Stocks Finish at Session Highs, Led by Strong Gains in the Tech Sector

Indices
S&P 500 1,265.65 +.87%
DJIA 10,858.62 +1.01%
NASDAQ 2,266.98 +.98%
Russell 2000 721.16 +.55%
S&P Barra Growth 606.23 +.98%
S&P Barra Value 659.48 +.75%
Morgan Stanley Consumer 593.00 +.72%
Morgan Stanley Cyclical 781.84 +.94%
Morgan Stanley Technology 533.67 +1.48%
Transports 4,278.81 +1.16%
Utilities 403.27 -.30%
Put/Call .78 -17.02%
NYSE Arms .76 -46.17%
Volatility(VIX) 12.83 -5.59%
ISE Sentiment 184.00 +20.26%
US Dollar 90.43 +.21%
CRB 336.07 -.11%

Futures Spot Prices
Crude Oil 62.54 -.02%
Unleaded Gasoline 154.75 -.04%
Natural Gas 7.73 unch.
Heating Oil 166.56 unch.
Gold 553.00 -.14%
Base Metals 172.34 -.36%
Copper 227.30 -.07%
10-year US Treasury Yield 4.58% +.44%

Leading Sectors
Networking +3.38%
Wireless +2.23%
Airlines +2.19%

Lagging Sectors
Broadcasting -.46%
Steel -.60%
Coal -1.18%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on (UVN), (BAC), (ENH), (RNR) and (QSFT).
- Reiterated Underperform on (UNH).

Afternoon/Evening Headlines
Bloomberg:
- General Motors(GM) and Ford Motor(F) will join with energy companies to promote the use of ethanol as an alternate to gasoline in Illinois and Missouri.
- News Corp.(NWS/A), the media company run by Rupert Murdoch, said second-quarter profit almost tripled, buoyed by asset sales and higher sales at its cable television networks.
- President Bush said that making his first-term tax cuts permanent is critical to keeping the US competitive, especially the 15% rate on dividends and capital gains set to expire in 2008.
- Whole Foods Market(WFMI) said first-quarter profit rose on gains from new store openings and sales of prepared foods.
- Google(GOOG) hired Amazon.com’s(AMZN) top Internet search executive to join its engineering team as competition intensifies with Microsoft Corp.(MSFT) and Yahoo!(YHOO).
- Crude oil traded near a five-week low in NY after a US government report showed the nation’s gasoline supplies rose for a sixth straight week to an 11-month high.

AP:
- NY Democratic Attorney General Spitzer has subpoenaed at least eight radio station companies in his investigation of whether recording companies bribed radio stations to play songs.

Boston Globe:
- About a dozen Harvard Univ. professors yesterday confronted school President Lawrence Summers, and some demanded he resing.

BOTTOM LINE: The Portfolio finished higher today on gains in my Networking longs, Computer longs and Semi longs. I exited the remainder of my (IWM)/(QQQQ) shorts and added to my existing longs in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, most sectors rose and volume was heavy. Measures of investor anxiety were lower into the close. Overall, today’s market performance was positive. I would like to see better breadth on a follow-through move higher tomorrow. Technology shares outperformed substantially today, doubling gains in the broad market. This is a big positive, especially with commodity stock underperformance.

Stocks Sharply Higher Into the Final Hour, Led by Gains in Technology Shares

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Networking longs, Computer longs and Semi longs. I covered some of my (IWM)/(QQQQ) shorts this morning, thus leaving the Portfolio 75% net long. The tone of the market is slightly positive as the advance/decline line is modestly higher, most sectors are higher and volume is heavy. The rotation into tech from commodity stocks is a big positive. It could lead to more short-term weakness, however longer-term it is necessary for strong broad market performance. I expect US stocks to trade mixed-to-higher into the close from current levels on lower commodity prices, short-covering and buying in the technology sector.

Today's Headlines

Bloomberg:
- Protective Life(PL) agreed to buy JPMorgan Chase’s insurance business for about $1.2 billion in cash.
- AU Optronics(AUO), the world’s third-largest maker of liquid-crystal displays for computers and televisions, posted profit in the fourth quarter that beat estimates after demand for flat-panel televisions soared.
- Al Michaels, play-by-play announcer on ABC’s “Monday Night Football” since 1986, won’t be working on the show when it moves to cable-channel ESPN this year.
- Nortel Networks(NT) may pay more than $2.4 billion in cash and stock to end shareholder lawsuits stemming from the company’s accounting fraud.
- Crude oil is little changed and gasoline is falling to a one-month low after the EIA reported that US motor-fuel stockpiles surged to the highest in 11 months.

Wall Street Journal:
- The US Senate Finance Committee is probing whether Fannie Mae(FNM) and Freddie Mac(FRE) might have inappropriately used their charitable foundations and other non-profit entities to dodge campaign-financing laws to lobby Congress.
- Wal-Mart Stores(WMT) plans to revamp some stores to appeal to wealthier customers, citing John Menzer, vice chairman of US stores.
- A US Bankruptcy Court judge ordered an ethics probe into whether lawyer David Boies’ firm should have disclosed partners’ links to companies used by the firm’s client, Adelphia Communications.
- The US is providing drugs to 471,000 AIDS patients in the developing world, marking a big expansion in the country’s aid program.
- Nuance Communications(NUAN), whose speech-recognition software is used by clients including Verizon Wireless(VZ) and Wal-Mart Stores(WMT), agreed to buy Dictaphone(DCTA) for $357 million.
- Democrats in the US Senate plan to use a parliamentary tactic to force Republicans to boost taxes by as much as $30 billion in return for a two-year extension of lower capital-gains and dividend taxes.
- PanAmSat Holding(PA), which is being bought by Intelsat Ltd., will become the first satellite operator to distribute programming it owns in the US.

NY Times:
- Univision Communications(UVN), the no. 5 US television network and the no. 1 US Spanish-language network, may sell itself.

USA Today:
- The Bush administration will announce a new anti-drug initiative that includes urging more US states to set up databases that can track people who get multiple prescriptions of frequently abused medications such as OxyContin.

Tex Report:
- Taiwan’s coal imports fell 35% in January to 3.75 million metric tons from the same month a year ago.

Aviation Week & Space Technology:
- Boeing(BA) will start to build an extended and more fuel-efficient version of its single-aisle 737 aircraft.

Interfax:
- Foreign oil companies in Turkmenistan plan to raise output 30% this year to 3 million tons, citing unidentified officials from the oil and gas ministry.

Economic Releases

- None of note

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- BlueScope Steel Ltd., Australia’s largest steelmaker, said full-year earnings may fall as much as 53% after prices of the alloy declined because of a glut of production from China.

Financial Times:
- The UN, the European Union and the Organization of the Islamic Conference have called for an end to violence after the publication of satirical drawings of the prophet Muhammad, citing a joint statement.
- EBay Inc.(EBAY), Google(GOOG), Yahoo!(YHOO) and Amazon.com(AMZN) will focus on their core businesses rather than compete with each other, citing an interview with EBay CEO Whitman.

London-based Times:
- The threat of terrorism has been the main driver of higher gold prices, citing former US Fed Chairman Alan Greenspan.

International Oil Daily:
- Iraq is planning to export 1.55 million barrels of oil a day in February, an increase of 275,000 barrels a day from January.

Guardian:
- Sweden aims to “break” its dependency on oil to become the world’s first oil-free economy within 15 years.

China Post:
- China will have deployed 1,800 guided missiles by 2010 and it will have created aircraft carrier battle groups by 2015, posing a serious threat to Taiwan.

China Securities Journal:
- Prices of flat steel products including cold-rolled sheets used in cars and appliances will fall this year because of rising supplies, citing a government report.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (BSX), (SPG), (PFE), (CSCO), (CAKE) and (FSH).
- Reiterated Underperform on (TOL), (BMC) and (TCO).

Night Trading
Asian Indices are -1.50% to -.75% on average.
S&P 500 indicated +.06%.
NASDAQ 100 indicated +.12%.

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Earnings of Note
Company/EPS Estimate
(ACL)/.82
(APPB)/.27
(CI)/1.66
(DF)/.53
(DO)/.61
(EDS)/.23
(ENER)/-.18
(FCL)/.34
(IACI)/.46
(NWS/A)/.20
(PEP)/.65
(PRU)/1.22
(RAI)/1.52
(JOE)/.53
(TMK)/1.18
(VFC)/1.14
(WWW)/.36
(XTO)/1.10
(ZBRA)/.39

Upcoming Splits
- None of note

Economic Releases
- None of note

BOTTOM LINE: Asian indices are lower on losses in commodity-related stocks in the region. I expect US equities to open modestly lower and to rally later in the afternoon, fishing modestly higher. The Portfolio is 50% net long heading into the day.