Friday Watch

Late-Night Headlines
Bloomberg:
- Japan’s two-year notes tumbled, pushing yields to the highest since 2001, after the Yomiuri newspaper said the central bank may shift its five-year deflation-fighting policy as early as next month.
- Oil prices may fall as rising US inventories temper concern about unrest in Nigeria and a possible disruption of Iranian exports, a Bloomberg survey shows.

Wall Street Journal:
- China may allow appreciation of the yuan to accelerate rather than implementing a sudden revaluation, citing foreign-exchange traders including Shanghai-based Kenneth Poon at ABN Amro Holding NV.

Business Week:
- Home Depot(HD) CEO Nardelli is using military-style management to centralize operations at the world’s third-largest retailer.

AP:
- DP World has offered to delay part of a $6.8 billion acquisition that would give it operational control of six US ports.

Chosun Ilbo:
- South Korea’s Kia Motors Corp. may build its US plant in Georgia.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (OXY), (MRVL) and (MYL).
- Reiterated Underperform on (NFS), (MCCC), (WGR) and (CBS).

Business Week:
- GlaxoSmithKline’s(GSK) revenue and earnings, plus its eight medicines in late-stage testing, may make it a better performer than other big drugmakers facing generic competitors.
- Zonagen Inc.(ZONA) may be bought by a larger drugmaker such as Pfizer Inc. or Wyeth, citing Mark Lappe of Efficacy Capital Ltd.
- Research in Motion’s(RIMM) shares may rise as much as 30% within the next year on a potential settlement with NTP Inc., which has a patent-infringement claim against the company’s BlackBerry device, citing Morgan Keegan’s Tavis McCourt.

Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 indicated +.05%.
NASDAQ 100 indicated +.18%.

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Earnings of Note
Company/EPS Estimate
- (AMT)/-.03
- (CZN)/.14
- (HDL)/.93
- (KSE)/.70
- (NOV)/.62
- (PIXR)/.18
- (SNDA)/.27

Upcoming Splits
- (CELG) 2-for-1
- (EXP) 3-for-1

Economic Releases
8:30 am EST
- Durable Goods Orders for January are estimated to fall 2.0% versus a 1.8% increase in December.
- Durables Ex Transportation for January are estimated to rise .5% versus a 1.7% gain in December.

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

Stocks Close Near Session Lows on Profit-taking

Indices
S&P 500 1,287.79 -.38%
DJIA 11,069.22 -.61%
NASDAQ 2,279.32 -.17%
Russell 2000 732.45 -.15%
Wilshire 5000 12,965.80 -.31%
S&P Barra Growth 609.10 -.33%
S&P Barra Value 675.15 -.42%
Morgan Stanley Consumer 605.57 +.03%
Morgan Stanley Cyclical 798.52 -.70%
Morgan Stanley Technology 530.58 -.61%
Transports 4,430.79 -.41%
Utilities 410.39 -.50%
Put/Call .83 +18.57%
NYSE Arms 1.27 +17.55%
Volatility(VIX) 11.87 -.08%
ISE Sentiment 182.00 +30.94%
US Dollar 90.39 -.31%
CRB 324.11 -.59%

Futures Spot Prices
Crude Oil 60.76 +.36%
Unleaded Gasoline 152.00 +.44%
Natural Gas 7.29 -2.21%
Heating Oil 166.50 +.14%
Gold 551.30 +.07%
Base Metals 164.80 -1.59%
Copper 219.60 -.41%
10-year US Treasury Yield 4.55% +.74%

Leading Sectors
Steel +1.81%
Hospitals +.78%
Internet +.39%

Lagging Sectors
Computer Hardware -1.07%
Semis -1.19%
Gold & Silver -3.32%

Evening Review
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GuruFocus.com
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In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Underperform on (CYT).

Afternoon/Evening Headlines
Bloomberg:
- Apple Computer(AAPL) just sold its 1 billionth song.
- Nordstrom(JWN) said fourth-quarter profit rose 36%, exceeding analysts’ estimates, as demand for full-prices cosmetics and accessories drove holiday sales.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, Software longs, Networking longs and Retail longs. I added (IWM) and (QQQQ) shorts in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was slightly negative today as the advance/decline line finished modestly lower, most sectors fell and volume was below average. Measures of investor anxiety were mixed into the close. Overall, today's market action was slightly bearish. However, today's losses were relatively mild considering recent gains.

Stocks Mixed into Final Hour as Falling Energy Prices offset Rising Long-term Rates

BOTTOM LINE: The Portfolio is substantially higher into the final hour on gains in my Internet longs, Software longs, Networking longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is modestly higher, sector performance is mixed and volume is below average. The AAII % Bulls rose to 43.21% this week from 40.18% the prior week. This reading is now around average levels. The AAII % Bears fell to 28.40% this week from 35.71% the prior week. This reading is now also around average levels. I expect bullish sentiment to rise again next week. These numbers are still not near levels associated with short-term tops. Since the average stock is already up about 6.2% for the year, these numbers bode well for a continuation of recent strength. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and lower energy prices.

Today's Headlines

Bloomberg:
- The median net worth of Americans rose to an all-time record of $93,100 in 2004.
- Hewlett-Packard(HPQ) entered the retail photo-printing market with kiosks it says will produce better prints than those from Eastman Kodak.
- Research In Motion’s(RIMM) BlackBerry scored lower than Palm’s(PALM) Treo in a survey of customer satisfaction.
- Fed Vice Chairman Ferguson’s resignation may help new Fed chief Ben Bernanke win support at the central bank for a numerical inflation goal.
- Texas Pacific Group, the buyout firm that owns stakes in Burger King and China’s Lenovo Group, formed a venture to invest in securities of troubled companies.
- 71% of Americans expect Democratic Senator Hillary Clinton of New York to run for president in 2008 and lose, a poll by the Marist College Institute for Public Opinion found.
- Iraqi Foreign Minister Zebari said insurgents are trying “everything” to foment civil war as reprisal attacks followed yesterday’s bombing of the Golden Mosque in Samarra, sacred to Shiite Muslims.
- US Treasuries declined after an unexpected drop in the number of claims for jobless benefits added to evidence the economy is strengthening.
- Wal-Mart Stores(WMT) will reduce the time part-time employees must wait to get health insurance and provide coverage to their children.
- Wal-Mart(WMT) said today it will expand coverage for workers and build more than 50 health clinics in its stores.
- Crude oil is falling more than $1/bbl. in NY on speculation that US fuel supplies are sufficient to meet demand.

Wall Street Journal:
- Officials in President Bush’s administration obtained special security pledges from Dubai Ports World before approving its bid to take over a company which owns some US ports.
- IBM(IBM), Texas Instruments(TXN), Exxon Mobil(XOM) and other US companies are boosting their donations to career-oriented summer camp for US youth in order to create an active worker pool for future retirement.
- The NYSE wants by the end of this year to create a joint venture with the National Association of Securities Dealers to regulate brokerages.
- Nintendo’s Brain Age videogame with word and math problems is intended for older people who never played videogames.
- Fannie Mae’s(FNM) former finance chief J. Timothy Howard is held largely responsible for the company’s accounting policies and problems by a report to be released today.
- More individual investors are putting their money in stocks as the market improves and short-term interest rate increases weaken returns from real estate and bonds. Trades by individual investors at discount brokerage firms increased 30% to 40% in January from December.

NYPost:
- Mario Gabelli’s Gamco Investors may set up a hedge fund that abides by Islamic law to attract Middle Eastern investors.

CNET News.com:
- IBM(IBM) will unveil software called “Octopiler” to help developers write code for products like video games.

AP:
- Lenovo Group Ltd., the world’s third-biggest PC maker, plans to start selling own-brand computers outside its home market of China.
- The US government demanded assurances of cooperation with future investigations from the Dubai company that is acquiring six US ports before approving the takeover.
- America’s Second Harvest, a nonprofit organization representing 80% of US food banks, shelters and soup kitchens, said its members served 25 million people in 2005, an increase of 9% from 2001.

Job Market Still Healthy

- Initial Jobless Claims for last week fell to 278K versus 300K the prior week.
- Continuing Claims rose to 2495K versus a downwardly revised 2454K prior.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment benefits unexpectedly fell last week, a further sign the labor market is gaining strength, Bloomberg said. The four-week moving-average of claims fell to 281,750 from 283,250 the prior week. Moreover, the four-week moving-average of continuing claims fell to the lowest in five years. I continue to believe the labor market will remain healthy over the intermediate-term without generating significant unit labor cost increases.

Links of Interest

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