Monday Watch

Weekend Headlines
Bloomberg:
- Russia and Iran reached a preliminary agreement on a joint-venture that would allow Russia to enrich uranium for the Islamic Republic and then send it back to the country, citing Iranian Vice President for Atomic Energy Aqazadeh.
- Wal-Mart Stores(WMT) said February same-store sales rose about 3.2%, within its forecast range.
- Dubai’s DP World will start talks with US government agencies about security at six ports it plans to take over, the company’s CEO said, in a bid to address congressional and state opposition to its $6.8 billion purchase of the harbors’ UK parent.
- Google(GOOG) must aid the government in its quest to prevent Internet pornography from reaching minors, the Justice Dept. said in a court filing.
- The US dollar is rising to an almost two-month high against the euro on speculation US reports this week will continue to show US economic strength.
- Crude oil is falling in NY after an attack on a Saudi Arabian oil plant failed to cut exports and Iran said it may let Russia process its uranium.

Barron’s:
- Apple Computer(AAPL) taking over Walt Disney(DIS) may make sense as Apple would be able to meld its media-delivery products with Disney’s “distressed” content and entertainment business, citing Christopher Whalen, an analyst at Institutional Risk Analysis.

NY Times:
- More than a dozen US schools are enrolling only high-school-age basketball players who are performing poorly in academic subjects, to enable them to compete in college sports.
- Former Enron Corp. Chairman Ken Lay’s wealth has diminished since the collapse of the energy trader to less than $650,000 from more than $400 million, citing personal financial records.
- Toshiba Corp. is gaining on Sony Corp.(SNE) in a race to develop the next generation of DVD players, a rivalry that some compare to Sony’s failed bid decades ago for support of its Betamax video format.

AP:
- John Bolton, US Ambassador to the United Nations, said that the UN “is deeply troubled by bad management, by sex and corruption and by a growing lack of confidence in its ability to carry out missions that are given to them.”

Washington Post:
- Fraudulent e-mails that seem to be from the IRS and seek personal financial information may rise as the April 15 deadline to file tax returns approaches.
- About 1.6 million US teenagers and young adults have misused stimulants intended for people with attention-deficit hyperactivity disorder, citing a study published online in the journal Drug and Alcohol Dependence.
- Leader of Iraq’s Sunni, Shiite and Kurdish factions met yesterday to condemn recent sectarian violence in an effort to prevent the attacks from escalating.

Rocky Mountain News:
- Donald Trump is seeking to build the tallest building in Denver, a 60-story luxury hotel and condo tower.

San Francisco Chronicle:
- California corrections officials allowed contractors hired to run prison drug-abuse treatment programs to spend taxpayer money on plasma televisions, cars and other items.

Financial Times:
- Europe is paying for its miscalculations on how to co-exist with Islam amid a crisis over cartoons depicting the Prophet Muhammad, a leader of France’s Muslim community said.

Sunday Business Post:
- Elan Corp.(ELN) is confident about the outcome of trials into a drug used to treat Alzheimer’s disease, citing Lars Ekman, head of research and development.

Observer:
- BP Plc won Chinese government approval to form a joint venture with Sinopec Group, which could give BP a 25% stake worth $14 billion in the Chinese oil company.

Handelsblatt:
- DaimlerChrysler AG(DCX) is likely to introduce the Smart small car into the US market, citing an interview with CEO Zetsche.

Tagesspiegel am Sonntag:
- Amazon.com(AMZN) expects worldwide sales to grow by as much as 23% this year, citing an interview with Ralf Kleber, Amazon’s German chief.

Xinhua News Agency:
- China faces the threat of a “massive” outbreak of bird flu because of a recent increase in cases among migratory birds, citing Agriculture Minister Du Qingling.

Kyodo News:
- Japan’s Liberal Democratic Party may formulate a plan by June to legalize casinos in Japan to attract more tourists.

Weekend Recommendations
Barron's:
- Had positive comments on (RCNI), (HET), (APOL), (BDOG), (GRMN), (PBH) and (IACI).
- Had negative comments on (CLCT) and (GHL).

Goldman Sachs:
- Reiterated Outperform on (HRZ), (SPLS), (STN), (CAKE), (MSFT) and (CL).
- Reiterated Underperform on (JNY).

Night Trading
Asian indices are +.25% to +.50% on average.
S&P 500 indicated +.17%.
NASDAQ 100 indicated +.21%.

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US AM Market Call
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Global Commentary
Asian Indices
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Top 20 Business Stories
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Daily Stock Events
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Rasmussen Consumer/Investor Daily Indices
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Earnings of Note
Company/Estimate
(CVC)/unch.
(CNO)/.45
(DY)/.08
(HRL)/.48
(LOW)/.80
(MRX)/.26
(NEM)/.36
(UHS)/.48
(WRNC).24

Upcoming Splits
- (CELG) 2-for-1
- (EXP) 3-for-1
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Economic Releases
10:00 am EST
- New Home Sales for January are estimated to rise to 1270K versus 1269K in December.

BOTTOM LINE: Asian Indices are higher, boosted by gains in base metal shares in the region. I expect US stocks to open modestly higher and to build on gains into the afternoon. The Portfolio is 100% net long heading into the week.

Weekly Outlook

Click here for The Week Ahead by Reuters

There are a number of important economic reports of note and some significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - New Home Sales
Tues. - Preliminary 4Q GDP, Preliminary 4Q Personal Consumption, Preliminary 4Q GDP Price Index, Chicago Purchasing Manager, Richmond Fed Index, Consumer Confidence, Existing Home Sales
Wed. - Personal Income, Personal Spending, PCE Core, Construction Spending, ISM Manufacturing, ISM Prices Paid, Total Vehicle Sales
Thur. - Initial Jobless Claims
Fri. - Univ. of Mich. Consumer Confidence, ISM Non-Manufacturing

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. - Cablevision Systems(CVC), Conseco Inc.(CNO), Hormel Foods(HRL), Lowe’s(LOW), Newmont Mining(NEM), Universal Health(UHS), Warnaco Group(WRNC)
Tues. - Autodesk(ADSK), BJ’s Wholesale(BJ), Cal Dive(CDIS), Ceradyne(CRDN), CommScope(CTV), Crown Castle(CCI), Deckers Outdoor(DECK), Eaton Vance(EV), Evergreen Solar(ESLR), HJ Heinz(HNZ), O’Reilly Automotive(ORLY), Payless ShoeSource(PSS), Scientific Games(SGMS), Staples(SPLS), Telephone & Data(TDS), Vornado Realty(VNO), Williams Cos(WMB)
Wed. - ADC Telecom(ADCT), American Eagle(AEOS), Autozone(AZ), Chico’s FAS(CHS), Copart(CPRT), Flour Corp.(FLR), Foot Locker(FL), Hovnanian Enterprises(HOV), Iron Mountain(IRM), Kroger(KR), Liz Claiborne(LIZ), McDermott Intl.(MDR), Medco Health(MHS), Omnivision Tech(OVTI), Pacific Sunwear(PSUN), Pall Corp.(PLL), Papa John’s(PZZA), Petsmart(PETM), Rowan Cos(RDC), Saks Inc.(SKS), SPX Corp.(SPW)
Thur. - Checkpoint Systems(CKP), Costco Wholesale(COST), Del Monte Foods(DLM), Novell Inc.(NOVL), Univision Communiciations(UVN)
Fri. - Serono SA(SRA), Tekelec(TKLC), Terex Corp.(TEX)

Other events that have market-moving potential this week include:

Mon. - CIBC Israeli Tech Conference, Citigroup Global Healthcare Conference, Bear Stearns Media Conference, Goldman Sachs Tech Symposium
Tue. - Citigroup Global Healthcare Conference, CSFB Networking Conference, Wachovia Homebuilding Conference, Goldman Tech Symposium, Jeffries Internet Conference, Bear Stearns Media Conference, Merrill Lynch Internet Conference, Merrill Lynch Global Communications Forum
Wed. - Goldman Tech Symposium, CIBC Gaming Conference, CSFB Networking Conference, Citigroup Global Healthcare Conference, Merrill Global Communications Forum, Bear Stearns Media Conference, Jeffries Wireless Broadband Conference, Merrill Lynch Internet Conference, Wachovia Homebuilders Conference
Thur. - CSFB Networking Conference, CSFB Truck Builders Conference, Merrill Lynch Internet Conference, Citigroup Utilities Conference, CIBC Gaming Conference
Fri. - Citigroup Utilities Conference, UBS Defense IT Conference

BOTTOM LINE: I expect US stocks to finish the week modestly higher on mostly positive economic data, good earnings reports, lower energy prices and short-covering. My trading indicators are still giving mixed signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,289.43 unch.*



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was slightly bullish considering the mostly positive economic data, above-expectations CPI, modest rise in long-term rates and increase in energy prices. The advance/decline line was about even, most sectors rose and volume was below average on the week. Measures of investor anxiety were mostly higher. However, the AAII % Bulls rose to 43.21%, but is still only around average levels, which is a positive. The average 30-year mortgage rate fell to 6.26% which is only 105 basis points above all-time lows set in June 2003. The benchmark 10-year T-note yield rose 3 basis points on the week as the CPI rose above estimates and economic data was mostly positive.

Unleaded Gasoline futures bounced for the week, but have collapsed 47% from September highs even as refinery utilization remains below normal as a result of the hurricanes last year, 24% of Gulf of Mexico oil production remains shut-in and fears over Iranian/Nigerian production disruptions persist. Natural gas inventories fell slightly more than expected this week. However, supplies are now 48.0% above the 5-year average, approaching an all-time record high for this time of year, even as 15% of daily Gulf of Mexico production remains shut-in. Natural gas prices have plunged 55% in 10 weeks. Many oil bulls point to the potential for a supply disruption as the main reason oil prices remain extremely elevated while fundamentals for the commodity deteriorate. I would point out that natural gas bulls used the same rationale before the historic supply disruptions related to the hurricanes. This did not prevent a collapse in the price of natural gas. I expect deteriorating fundamentals for oil to trump fear over the intermediate-term, thus sending prices substantially lower. Gold rose modestly on the CPI report and increase in energy prices.

Small-caps continue to outperform as the Russell 2000 has already gained almost 10% for the year. Technology stocks underperformed for the week on worries over slowing growth at Intel(INTC) and Dell(DELL). However, more signs of increased corporate spending on tech were evident in this week’s economic data. S&P 500 earnings growth for the fourth quarter was up about 15.0% year-over-year, more than double the long-term average. This is the 15th consecutive quarter of double-digit profit growth, the best streak since record-keeping began in 1936. Moreover, companies have sufficiently lowered the bar as to allow for better-than-expected 1Q results. As of now, analysts are projecting 9.8% earnings growth for the first quarter, still very good by historic standards. I continue to believe the S&P 500’s forward p/e multiple will expand back to around 19 by year-end, thus helping to push the index about 15% higher for the year. The ECRI Weekly Leading Index rose and is still forecasting healthy, but decelerating, US economic activity. I expect US GDP growth to peak for the year this quarter, rising a brisk 4-4.5%. Growth should moderate to more average levels of around 3% the remainder of the year.

*5-day % Change

Chart of Interest

BOTTOM LINE: The CPI should realign itself with the Core CPI as commodity prices fall from current elevated levels. I expect the secular trend of disinflation to reassert itself over the intermediate-term.

Weekly Scoreboard*

Indices
S&P 500 1,289.43 unch.
DJIA 11,061.85 -.53%
NASDAQ 2,287.04 -.33%
Russell 2000 736.60 +.64%
Wilshire 5000 12,990.60 +.17%
S&P Equity Long/Short Index 1,157.04 +.72%
S&P Barra Growth 609.82 -.21%
S&P Barra Value 676.08 +.22%
Morgan Stanley Consumer 604.78 +.09%
Morgan Stanley Cyclical 792.81 -.98%
Morgan Stanley Technology 532.03 -1.74%
Transports 4,435.59 +.48%
Utilities 411.98 +1.38%
S&P 500 Cum A/D Line 8,526 unch.
Bloomberg Crude Oil % Bulls 32.65 +14.28%
Put/Call .89 +25.35%
NYSE Arms 1.06 +76.66%
Volatility(VIX) 11.46 -.17%
ISE Sentiment 179.00 -10.50%
AAII % Bulls 43.21 +7.54%
AAII % Bears 28.40 -20.47%
US Dollar 90.61 -.01%
CRB 328.90 +1.95%
ECRI Weekly Leading Index 137.40 +.44%

Futures Spot Prices
Crude Oil 62.91 +3.98%
Unleaded Gasoline 155.06 +9.58%
Natural Gas 7.31 -.50%
Heating Oil 172.67 +5.61%
Gold 561.00 +1.06%
Base Metals 166.11 +3.06%
Copper 221.20 +1.42%
10-year US Treasury Yield 4.57 +.66%
Average 30-year Mortgage Rate 6.26 % -.32%

Leading Sectors
Gold & Silver +2.28%
Steel +2.28%
Defense +2.09%
Oil Service +2.06%
I-Banks +1.71%

Lagging Sectors
Telecom -1.32%
Retail -1.35%
Computer Hardware -2.29%
Disk Drives -2.56%
Semis -3.92%

One-Week High-Volume Gainers
One-Week High-Volume Losers

*5-Day % Change

Stocks at Session Highs into Final Hour as Bears Fail Again to Capitalize on Morning Weakness

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Biotech longs, Semi longs and Networking longs. I exited my IWM and QQQQ shorts, thus leaving the Portfolio 100% 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 below average. Natural gas closed floor trading at session lows, down about 5% to $7.05. Recently, oil bulls have been saying to ignore supply/demand fundamentals and focus on potential production disruptions. Natural gas bulls said the same thing before last year's hurricanes. Not only did we get disruptions, they were historic in magnitude. Meanwhile, natural gas supplies are 48% above the five-year average with 16% of production still shut-in. Natural gas has collapsed 55% from highs. Deteriorating oil fundamentals will trump fear over the intermediate-term. I expect US stocks to trade modestly higher into the close from current levels on short-covering.