Retail Sales Very Strong

- Advance Retail Sales for January rose 2.3% versus estimates of a .9% increase and a downwardly revised .4% increase in December.
- Retail Sales Less Autos for January rose 2.2% versus estimates of a .8% increase and a .2% rise in December.

BOTTOM LINE: Retailers rang up their biggest sales gains since May 2004 last month, more than doubling economists’ forecasts as energy prices fell and the labor market improved, Bloomberg reported. Unemployment is at a four-year low and recent wage gains have been healthy. Sales at restaurants and drinking establishments gained 3.2%, the best showing since January 2001. Moreover, same-store sales rose a brisk 5.1% in January, the largest year-over-year increase since June, according to the ICSC. The National Retail Federation estimates that $18.5 billion in gift cards were purchased last year, a 6.6% gain over 2004. Economists are now projecting strong US economic growth of 4% for the first quarter of this year. I continue to believe falling energy prices, a healthy job market, low long-term rates, rising stocks prices, improving sentiment and a stable housing market will boost consumer spending throughout most of the year.

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- Fidelity Investments is in talks to build a facility for as many as 5,000 workers in Research Triangle Park in North Carolina.
- Amgen(AMGN) plans to sell $4 billion of convertible notes to fund a $3 billion stock repurchase plan.
- Whirlpool(WHR) agreed to delay the completion of its acquisition of Maytag(MYG) so that the US Justice Dept. can have more time to review the transaction.

Wall Street Journal:
- Starbucks Corp.(SBUX) Chairman Howard Schultz said the coffee chain will continue its aggressive expansion in China.
- India may invest as much as $1 billion to develop oil-sands projects in Canada within the next 12 months, citing an Indian government official.
- Morgan Stanley(MWD) CEO John Mack, who last month ended talks to buy a majority stake of money-manager BlackRock(BLK), may try to buy as many as 12 smaller hedge funds.

DigiTimes:
- Intel Corp.(INTC) plans to reduce prices of some of its newest microprocessors by as much as 50% in April to spur demand.

London-based Time:
- Unilever NV will award an $871.3 million outsourcing contract to Accenture Ltd.(ACN).

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (EBAY), (BSX), (UHCO), (MRVL) and (SYMC).

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated unch.
NASDAQ 100 indicated +.03%.

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Earnings of Note
Company/EPS Estimate
(ANF)/1.78
(CEPH)/.74
(DE)/.83
(EXBD)/.51
(FAF)/1.10
(ITRI)/.48
(JAH)/.52
(LVS)/.27
(MMC)/.31
(MAS)/.50
(STR)/1.11
(SIAL)/.93
(RIG)/.48
(WMI)/.40

Upcoming Splits
- (WGOV) 3-for-1

Economic Releases
8:30 am EST
- Advance Retail Sales for January are estimated to rise .9% versus a .7% increase in December.
- Retail Sales Less Autos for January are estimated to rise .8% versus a .2% gain in December.

10:00 pm EST
- Business Inventories for December are estimated to rise .5% versus a .5% gain in November.

BOTTOM LINE: Asian indices are mostly lower, pressured by exorters in the region. I expect US equities to open modestly lower and to trade higher into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Lower on Lighter Volume, Led Down by Commodity Shares

Indices
S&P 500 1,262.86 -.33%
DJIA 10,892.32 -.24%
NASDAQ 2,239.81 -.98%
Russell 2000 710.53 -.92%
S&P Barra Growth 599.64 -.35%
S&P Barra Value 659.44 -.31%
Morgan Stanley Consumer 592.52 -.17%
Morgan Stanley Cyclical 778.79 -.48%
Morgan Stanley Technology 528.16 -.68%
Transports 4,298.33 -.55%
Utilities 403.97 -.27%
Put/Call 1.01 +48.53%
NYSE Arms 1.0 -11.56%
Volatility(VIX) 13.35 +3.73%
ISE Sentiment 173.00 -7.98%
US Dollar 90.57 +.02%
CRB 327.57 -1.22%

Futures Spot Prices
Crude Oil 61.21 -.07%
Unleaded Gasoline 143.89 +.54%
Natural Gas 7.28 +.48%
Heating Oil 164.04 +.11%
Gold 542.50 +.07%
Base Metals 165.76 -.95%
Copper 222.90 -.22%
10-year US Treasury Yield 4.57% -.13%

Leading Sectors
Disk Drives +.47%
Gaming +.14%
REITs +.13%

Lagging Sectors
Gold & Silver -2.57%
Steel -2.66%
Coal -2.67%

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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on (KRG) and (BLK).
- Reiterated Underperform on (HCC).

Afternoon/Evening Headlines
Bloomberg:
- US economic growth will be robust for several years and inflation will remain tame, fueling an expansion that will keep unemployment low and foreign investment flowing to the world’s largest economy.
- Discover Financial Services will for the first time offer a debit card to banks that previously issued only cards from Visa and Mastercard.
- Zinc fell to a four-week low, leading a decline in base metals such as lead and tin.
- The average US pump price for gas fell for a second week, dropping 5.8 cents to $2.284/gallon.
- Crude oil and heating oil fell to six-week lows on speculation that heating-fuel supplies are sufficient to meet demand after a storm dropped record snowfall on NY. Unleaded gas futures dropped to the lowest level since Nov.
- 3M Co.(MMM) raised its dividend 9.5% and said it plans to buy back as much as $2 billion of its own shares.

Nikkei English News:
- Sanyo Electric and Finland’s Nokia Corp.(NOK) are planning a joint venture in the US, which would be based in San Diego, to make cellular telephones.

BOTTOM LINE: The Portfolio finished lower today on losses in my Internet longs, Computer longs and Medical longs. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished lower, most sectors fell and volume was below average. Measures of investor anxiety were higher into the close. Overall, today's market action was negative. However, it is a positive that the major averages stabilized even as commodity prices headed even lower. As well, volume was below average on today's pullback and the NYSE Arms was elevated throughout the day. Considering it is only February and most stocks are higher for the year, sentiment seems to have turned too bearish.

Stocks Lower into Final Hour, Pressured Again by Losses in Commodity Stocks

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Internet longs, Computer longs and Medical longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, almost every sector is lower and volume is average. I personally think it would be prudent for the Fed to at least 'pause' for a bit here. However, one of their chief concerns has been rising commodity prices. Will Bernanke risk reigniting the commodity market by making dovish comments? With the energy complex on its back, with the exception of oil, he most likely will make more positive comments about the economy, which will likely be perceived as "hawkish." I expect US stocks to trade modestly higher into the close from current levels on short-covering, lower commodity prices and bargain hunting.

Today's Headlines

Bloomberg:
- VeriSign(VRSN) plans to offer a system of pocket-sized security devices that can be used in tandem with passwords when accessing the Internet to reduce identity theft.
- Crude oil is falling again to a six-week low on speculation that heating-fuel supplies are sufficient to meet demand after a storm dropped record snowfall on NY.

Wall Street Journal:
- Microsoft(MSFT) will announce today equipment and offers from cellphone providers to make it easier to receive mobile e-mails, citing Pieter Knook, the senior vp of the company’s mobile-devices division.
- JPMorgan Chase(JPM) agreed to buy the administrative and processing operations of Paloma Partners Management, a Connecticut-based hedge fund.
- Hewlett-Packard(HPQ) will separate its hand-held-equipment business from its notebook-computer operations, as the company seeks to expand on the growth of “smart” phones.
- Investors argue that shares of AMR Corp.(AMR), American Airlines’ parent company, may continue to rise because American is dominant in a very important US industry.
- A Chinese expatriate in the US and other political activists are helping mainland Chinese to circumvent government barriers to accessing certain Internet sites.
- US pornographic Web sites are fighting federal government rules requiring proof of age of performers in sexually explicit photos and videos, regulations the owners say may wipe out their businesses.
- Whirlpool Corp.(WHR) may face a federal antitrust lawsuit over its acquisition of Maytag(MYG), aimed at preventing the two companies from dominating the US home appliance market.
- US teenagers ranked commercials for Anheuser-Busch’s(AB) Bud Light beer the most popular among ads shown during the Super Bowl this year, citing a poll by Adbowl.
- Starwood Hotels(HOT) wants to add products and services to its hotel brands through partnerships with Time Warner(TWX), Sprint Nextel(S), Limited Brands(LTD) and Yahoo!(YHOO).

USA Today:
- Iran’s President Mahmoud Ahmadinejad said his country can endure any penalties the UN might impose next month because of its nuclear program

NY Times:
- Nielsen Media Research has started collecting data on how many people watch television programs recorded on digital video recording devices, to provide broadcasters with better viewer information.

Xinhua News Agency:
- China’s imports of crude oil fell more than 20% in January from a year earlier, citing customs data.

Financial News:
- Old Lane Management, an investment company founded by former Morgan Stanley executives, aims to raise $4 billion for a hedge fund.

custeel.com:
- China’s January exports of finished steel products rose 22% from a year earlier due to higher prices in overseas markets.

AFP:
- Iran will resume industrial-scale uranium enrichment before the next meeting of the UNs’ nuclear watchdog on March 6.