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Monday Watch

Weekend Headlines
Bloomberg:
- The US dollar posted its broadest weekly rally since August as a jump in US job growth added to expectations that interest rates in the US will rise more than in other major economies such as Japan.
- US coffee consumption is at its highest in six years and “statistically equal” to soda drinks for the first time since 1990, the National Coffee Assoc. said.
- Bank of Japan Governor Toshihiko Fukui said that while his nation’s economy is “right on track,” the central bank hasn’t decided on the timing of interest rate increases.
- The leaders of Iraq’s religious factions today agreed to meet daily ahead of the nation’s first parliamentary session March 16 in an effort to choose a prime minister and create a national unity government.
- Billionaire investor Warren Buffett is losing his midas touch as retirement looms.
- China’s consumer prices rose in February by .9%, the slowest pace in five months, as gains in food prices eased.
- Kia Motors, South Korea’s second-largest automaker, will build a $1.2 billion factory in West Point, Georgia, choosing a site near its parent Hyundai Motor’s US plant to tap growing sales in North America.

Wall Street Journal:
- US homeowners are slowing the rate at which they take out credit against their houses as interest rates rise and the housing market cools, citing data from the Federal Reserve.
- Capital One(COF) is near an agreement to buy North Fork Bancorp.(NFB) for about $14.5 billion in cash and stock.

CNNMoney.com:
- While big drugmakers stumble, their nimbler rivals are delivering products – and profits.

NY Times:
- McClatchy Co. is the bidder most likely to buy Knight Ridder because its $4.8 billion cash and stock bid for the No. 2 US newspaper chain is the highest and the most binding.
- The National People’s Congress of China is debating whether to continue with its efforts to promote more investment and economic growth or to rein in expansion to avoid disenfranchising the poor.
- Producers of specialized television shows whose audiences are too small to justify late-night or cable slots are increasingly broadcasting over the Internet.

Rocky Mountain News:
- Broe Cos. is “very interested” in managing the six US ports that Dubai’s DP World will give up running. Broe’s OmniTRAX subsidiary owns the port at Churchhill, Manitoba.

Sky News:
- Slobodan Milosevic, the former president of Yugoslavia who was facing war crimes charges in The Hague, died in his jail cell.

Financial Times:
- US Homeland Security Secretary Michael Chertoff said an overreaction by Congress on security issues, such as the furor over DP World’s planned takeover of some US port facilities, threatens to damage the US economy.
- Dell Inc.(DELL) needs “to be bolder” in its attempts to reverse slowing revenue growth and sliding profit margins, citing an interview with CEO Rollins.
- Pfizer(PFE), Citigroup(C), Motorola(MOT), Ford Motor(F) and General Motors(GM) are among US companies preparing to end quarterly profit forecasts in favor of more detail on underlying performance.

Financial Mail on Sunday:
- Private equity firms including Apax Partners Worldwide and CVC Capital Partners Ltd. are planning a $173 billion bid for Vodafone Group Plc(VOD).

Business:
- Verizon Communications(VZ) may buy Vodafone Group’s(VOD) stake in its mobile-phone unit for about $40 billion.
- The NYSE(NYX) may bid for the London Stock Exchange after Nasdaq Stock Market Inc. made an unsolicited approach for Europe’s largest stock market.
- GlaxoSmithKline Plc(GLX), the biggest drugmaker in the UK, decided not to proceed with a possible $11 billion bid for Serono SA(SRA), Europe’s largest biotech company.

AFP:
- Saudi Arabia said it will support Hamas as the party seeks to form a Palestinian government, citing Ezzat al-Reshq, a member of the Hamas delegation currently visiting Riyadh.

Gulf News:
- China expects to start free trade talks with the United Arab Emirates this year in an effort to boost exports to the Persian Gulf’s second largest economy, citing a Chinese official.

Middle East Economic Digest:
- United Arab Emirates’ State-owned Abu Dhabi National Oil Co. plans to invite companies to bid for a contract to design facilities to raise production capacity by 25% from its Bab oil field.

Weekend Recommendations
Barron's:
- Had positive comments on (ITG), (BA), (ABXA), (TWX), (CBS), (CVC), (DIS), (MER), (JPM), (PFE), (DJ), (ALL) and (AVP).

Goldman Sachs:
- None of note

Night Trading
Asian indices are +.50% to +1.0% on average.
S&P 500 indicated +.09%.
NASDAQ 100 indicated +.24%.

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Earnings of Note
Company/Estimate
- (ALO)/.27
- (ADRX)/.20
- (CMG)/.11
- (STAR)/.08
- (SONS)/.00
- (MTN)/.94

Upcoming Splits
- (ATLS) 3-for-2
- (MINI) 2-for-1
- (PD) 2-for-1

Economic Releases
- None of note

BOTTOM LINE: Asian Indices are higher, boosted by exporting shares in the region after the US dollar rose and US employment data exceeded estimates. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 50% 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 a few significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - None of note
Tues. - Current Account Deficit, Advance Retail Sales, Business Inventories
Wed. - Import Price Index, Empire Manufacturing, Net Foreign Security Purchases, NAHB Housing Market Index, Fed’s Beige Book
Thur. - Consumer Price Index, Housing Starts, Building Permits, Initial Jobless Claims, Philly Fed
Fri. - Industrial Production, Capacity Utilization, Univ. of Mich. Consumer Confidence

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

Mon. - Chipotle Mexican Grill(CMG), Sonus Networks(SONS), Vail Resorts(MTN)
Tues. - Goldman Sachs(GS), Lexar Media(LEXR), Pride Intl.(PDE), Southern Union(SUG)
Wed. - AES Corp.(AES), Anteon Intl.(ANT), Beverly Enterprises(BEV), Comverse Tech(CMVT), EchoStar Communications(DISH), Gymboree Corp.(GYMB), HOT Topic(HOTT), Lehman Brothers(LEH), Medicis Pharmaceuticals(MRX), Navistar Intl.(NAV), Ross Stores(ROST), Sears Holdings(SHLD), Titanium Metals(TIE)
Thur. - American Intl. Group(AIG), Barnes & Noble(BKS), Bear Stearns(BSC), Borders Group(BGP), Cintas Corp.(CTAS), Dresser-Rand(DRC), Leap Wireless(LEAP), Patterson-UTI(PTEN), Tektronix(TEK), US Cellular(USM)
Fri. - Tekelec(TKLC), Terex Corp.(TEX)

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

Mon. - Deutsche Bank Tech Conference, CSFB Global Services Conference, JP Morgan Internet Conference
Tue. - Deutsche Bank Tech Conference, AG Edwards Energy Conference, Citigroup Small/Mid-cap Conference, JP Morgan Internet Conference, Banc of America Consumer Conference, CSFB Global Services Conference
Wed. - Deutsche Bank Tech Conference, Banc of America Consumer Conference, Citigroup Small/Mid-cap Conference, AG Edwards Energy Conference, CSFB Global Services Conference, Morgan Stanley Global Electricity/Energy Conference
Thur. - Banc of America Consumer Conference, Citigroup Small/Mid-cap Conference
Fri. - None of note

BOTTOM LINE: I expect US stocks to finish the week modestly higher on decelerating inflation readings, short-covering, bargain-hunting, lower long-term rates and falling energy prices. My trading indicators are now giving mostly bearish signals and the Portfolio is 50% net long heading into the week.

Market Week in Review

S&P 500 1,281.58 -.44%*



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was mildly bearish considering the fall in energy prices, mostly positive economic data and a rise in the US dollar. The advance/decline line fell, most sectors declined and volume was above average on the week. Measures of investor anxiety were mixed. The AAII % Bulls rose slightly to 41.21%, but is still below average levels, which is a positive. The average 30-year mortgage rate rose to 6.37% which is 116 basis points above all-time lows set in June 2003. The benchmark 10-year T-note yield rose 7 basis points on the week as most economic data points were positive and worries over perceived inflation increased. The 10-year yield is still 18 basis points lower than it was in 2004 and 202 basis points below levels at the peak of the bubble in 2000. I expect inflation concerns to peak over the next few weeks and decline through year-end as economic growth slows to average levels, unit labor costs remain subdued and commodity prices weaken further.

Unleaded Gasoline futures fell for the week and have collapsed 41.8% from September highs even as refinery utilization remains below normal as a result of the hurricanes last year, 23.2% of Gulf of Mexico oil production remains shut-in and fears over Iranian/Nigerian production disruptions persist. Natural gas inventories fell less than expected this week. Supplies are now 54.3% above the 5-year average, near an all-time record high for this time of year, even as 14.0% of daily Gulf of Mexico production remains shut-in. Natural gas prices have plunged 57.9% in 12 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 continue to expect deteriorating fundamentals for oil to trump fear over the intermediate-term, thus sending prices substantially lower. Gold fell for the week as the US dollar rose and energy prices fell. The US dollar gained on continued economic strength relative to other developed nations and rising expectations for more Fed rate hikes.

The CRB Index closed the week convincingly below its 200-day moving average for the first time in almost 5 years. A weekly close below 310 would place the uptrend in commodities that began in 2001 in jeopardy. I expect this to occur over the coming weeks. Weakness in commodity prices led to substantial underperformance by most commodity stocks this week. Technology stocks underperformed, as well, as fears over rising long-term rates sent most high growth stocks lower. The average stock, as measured by the Value Line Geometric Index(VGY), is still up a strong 4.8% so far this year. A 19% rise in this index in less than a year has resulted in the current period of consolidation. While it appears this action could continue a bit longer, I do not expect much more downside in the major averages from current levels. I expect technology, biotechnology, medical, retail, restaurant, gaming, telecom, airline and select financial stocks to provide the leadership for the next push higher in the major averages. The ECRI Weekly Leading Index fell again slightly and is still forecasting healthy, but decelerating, US economic activity.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,281.58 -.44%
DJIA 11,076.34 +.50%
NASDAQ 2,262.04 -1.76%
Russell 2000 726.34 -1.64%
Wilshire 5000 12,887.10 -.74%
S&P Equity Long/Short Index 1,148.61 -1.16%
S&P Barra Growth 605.92 -.47%
S&P Barra Value 672.16 -.41%
Morgan Stanley Consumer 609.71 +.92%
Morgan Stanley Cyclical 783.77 -.85%
Morgan Stanley Technology 528.45 -2.38%
Transports 4,456.04 -1.18%
Utilities 399.93 -2.90%
S&P 500 Cum A/D Line 8,116 -2.0%
Bloomberg Crude Oil % Bulls 29.5% -15.71%
Put/Call .87 +1.16%
NYSE Arms .75 -13.79%
Volatility(VIX) 11.85 -.92%
ISE Sentiment 156.00 -7.69%
AAII % Bulls 41.21 +.66%
AAII % Bears 30.77 +5.63%
US Dollar 90.85 +1.41%
CRB 319.42 -3.60%
ECRI Weekly Leading Index 136.90 -.22%

Futures Spot Prices
Crude Oil 59.96 -5.72%
Unleaded Gasoline 168.81 -2.87%
Natural Gas 6.65 -2.55%
Heating Oil 168.46 -7.13%
Gold 542.50 -2.57%
Base Metals 164.67 -3.20%
Copper 220.75 +.57%
10-year US Treasury Yield 4.75% +1.5%
Average 30-year Mortgage Rate 6.37% +2.08%

Leading Sectors
REITs +2.96%
Telecom +2.01%
Papers +1.67%
Drugs +1.37%
Gaming +1.33%

Lagging Sectors
Energy -5.02%
Oil Service -6.04%
Alternative Energy -6.27%
Semis -6.59%
Gold & Silver -7.55%

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

*5-Day % Change

Stocks Modestly Higher into Final Hour as Commodity Shares Rebound

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Internet longs, Computer longs, Semi longs and Commodity shorts. I added to my (IWM) and (QQQQ) shorts, thus leaving the Portfolio 50% net long. The tone of the market is positive as the advance/decline line is higher, sector performance is positive and volume is about average. The fact that the tech sector was unable to rally today is a negative. I would like to see this important sector participate before becoming more confident that a tradable bottom is in place for the broad market. I expect US stocks to trade mixed into the close from current levels as weakness in the tech sector offsets bargain hunting and short-covering.