Monday Watch

Weekend Headlines
Bloomberg:
- A federal judge said Google(GOOG) doesn’t have to turn over any search queries to the US, which sought the data to defend a law aimed at blocking children’s access to Internet pornography.
- The US, Japan and Australia have “grave concerns” about Iran’s nuclear program and called for concerted action by the UN Security Council to convince the country to suspend uranium enrichment.
- US 10-year Treasuries had their biggest weekly gain since December as slower-than-expected inflation spurred traders to scale back bets for how high the Fed will raise rates this year.
- President Bush said Iraqi political leaders are “making good progress” toward forming a unity government, and that recent violence in the country has spurred them to set aside their differences.
- Hundreds of thousands of students, workers and other protestors marched through Paris, seeking to force Prime Minister Dominique de Villepin to withdraw proposed new labor contracts, unions said.
- Through a period marked by a boom-bust in many stocks, terrorist attacks on US soil and the war in Iraq, stocks have significantly outperformed the two other main classes of financial assets.

Denver Post:
- Colorado Governor Owens said he will sign a statewide ban on smoking at workplaces that was passed by the legislators yesterday.

LA Times:
- Los Angeles area speculators who profited for the rising price of real estate in the second-largest US city have started to buy property in places such as Las Vegas and Arizona instead.

Crain’s Chicago Business:
- JC Penney(JCP) plans to open more than a dozen free-standing stores in the Chicago area over the next two years, targeting rival Kohl’s Corp.(KSS) in Kohl’s biggest market.

Financial Times:
- US executive pay rises slowed even as companies had record growth in profits, citing findings from the Corporate Library, an independent corporate governance watchdog.

Nihon Keizai:
- Sony Corp.(SNE) plans to triple production capacity for LCDs in Europe this year, aiming to grab a 20% share of the market in the region.

Sing Tao Daily:
- Ingram Micro(IM) plans to pay $260 million for a 60% stake in Digital China Holdings’ distribution business to expand in China.

Weekend Recommendations
Barron's:
- Had positive comments on (UNP), (LUV), (RRI), (AMR), (AAI), (GNW), (FNM) and (CYTC).

Night Trading
Asian indices are +.25% to +1.25% on average.
S&P 500 indicated +.07%.
NASDAQ 100 indicated +.21%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/Estimate
- (IMDC)/.64
- (ORCL)/.18
- (SHFL)/.21
- (WSM)/1.09

Economic Releases
10:00 am EST
- Leading Indicators for February are estimated to fall .3% versus a 1.1% rise in January.

BOTTOM LINE: Asian Indices are higher, boosted by financial shares in the region after some better-than-expected earnings reports. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 75% net long heading into the week.

Weekly Outlook

Click here for The Week Ahead by Reuters.

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

Economic reports for the week include:

Mon. - Leading Indicators
Tues. - Producer Price Index
Wed. - None of note
Thur. - Initial Jobless Claims, Existing Home Sales
Fri. - Durable Goods Orders, New Home Sales

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

Mon. - INAMED Corp.(IMDC), Oracle Corp.(ORCL), Shuffle Master(SHFL), Sonic Corp.(SONC), Williams-Sonoma(WSM)
Tues. - Biomet Inc.(BMET), Commercial Metal(CMC), Darden Restaurants(DRI), Dollar General(DG), Factset Research(FDS), GameStop Corp.(GME), McCormick(MKC), Nike(NKE), Paychex(PAYX), Telephone & Data(TDS)
Wed. - Adobe Systems(ADBE), FedEx Corp.(FDX), Herman Miller(MLHR), Interpublic Group(IPG), Jabil Circuit(JBL), KB Home(KBH), Morgan Stanley(MWD), Worthington Industries(WOR)
Thur. - 3Com Corp.(COMS), Aeropostale(ARO), Apollo Group(APOL), Carnival Corp.(CCL), ConAgra Foods(CAG), Family Dollar(FDO), General Mills(GIS), Palm Inc.(PALM), Scholastic Corp.(SCHL), Solectron(SLR)
Fri. - Bausch & Lomb(BOL)

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

Mon. - JPMorgan Gaming/Lodging/Restaurants Conference, Howard Weil Energy Conference, Piper Jaffray Financial Services Conference
Tue. - Piper Jaffray Financial Services Conference, Howard Weil Energy Conference, JPMorgan Gaming/Lodging/Restaurants Conference, Merrill Lynch Retailing Leaders Conference
Wed. - Citigroup Latin America Conference, JPMorgan Gaming/Lodging/Restaurants Conference, Merrill Lynch Retailing Leaders Conference, Howard Weil Energy Conference
Thur. - Citigroup Latin America Conference, Howard Weil Energy Conference
Fri. - None of note

BOTTOM LINE: I expect US stocks to finish the week modestly higher on decelerating inflation readings, short-covering, stable-to-lower long-term rates and falling energy prices. My trading indicators are now giving mostly bullish signals and the Portfolio is 75% net long heading into the week.

Chart of Interest

Market Week in Review

S&P 500 1,307.25 +2.0%*



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was very bullish. The advance/decline line rose, almost every sector gained and volume was above average on the week. Measures of investor anxiety were mostly higher, which is a big positive considering recent gains. The AAII % Bulls rose to 46.55%, but is still only around average levels. The average 30-year mortgage rate fell to 6.34% which is 113 basis points above all-time lows set in June 2003. The benchmark 10-year T-note yield fell 9 basis points on the week as measures of inflation showed meaningful deceleration. I continue to expect inflation concerns to decline through year-end as economic growth slows to average levels, unit labor costs remain subdued and commodity prices weaken further.

Unleaded Gasoline futures rebounded for the week, but are still 36.4% below 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 again this week. Supplies are now 60.1% 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 55.1% in 13 weeks.

OPEC said this week that global oil demand will average 84.5 million barrels/day for the remainder of the year. The most recent data from Energy Intelligence shows global oil supplies at 85.6 millions barrels/day. Since Dec. 2003, global oil supplies have risen 13.1% while demand has risen 5.0%. U.S. oil inventories are now close to 7-year highs. I continue to believe oil is priced above $60/bbl. on fear, not fundamentals. Demand for oil can and will fall, even with healthy economic growth, as we saw in the U.S. last year. As the fear premium in oil dissipates back to more reasonable levels, crude should continue heading meaningfully lower over the intermediate-term.

Gold rose for the week as a decline in the US dollar, mostly positive economic data and higher energy prices offset decelerating inflation readings. The US dollar fell as speculation increased that the Fed will pause sooner than anticipated as a result of lower inflation readings.

Homebuilding stocks outperformed substantially for the week as long-term interest rates fell, takeover speculation increassed and housing data beat estimates. The average US stock, as measured by the Value Line Geometric Index(VGY), is now up a strong 7.2% so far this year. Moreover, the Russell 2000 Index is up 11.1% year-to-date. 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 1,307.25 +2.0%
DJIA 11,279.65 +1.84%
NASDAQ 2,306.48 +1.97%
Russell 2000 746.09 +2.72%
Wilshire 5000 13,155.58 +2.08%
S&P Equity Long/Short Index 1,160.26 +.49%
S&P Barra Growth 616.32 +1.72%
S&P Barra Value 687.61 +2.30%
Morgan Stanley Consumer 614.92 +.85%
Morgan Stanley Cyclical 813.12 +3.75%
Morgan Stanley Technology 537.48 +1.71%
Transports 4,563.33 +2.41%
Utilities 408.11 +2.05%
S&P 500 Cum A/D Line 8,840 +13.0%
Bloomberg Crude Oil % Bulls 26.2 -41.8%
Put/Call .79 -9.2%
NYSE Arms 1.02 +33.33%
Volatility(VIX) 12.12 +2.28%
ISE Sentiment 130.0 -17.31%
AAII % Bulls 46.55 +12.96%
AAII % Bears 32.76 +6.47%
US Dollar 88.94 -2.15%
CRB 325.83 +2.0%
ECRI Weekly Leading Index 136.80 -.15%

Futures Spot Prices
Crude Oil 62.82 +1.65%
Unleaded Gasoline 185.10 +10.06%
Natural Gas 7.01 +5.74%
Heating Oil 178.70 +5.71%
Gold 554.50 +1.39%
Base Metals 173.69 +5.48%
Copper 235.50 +4.90%
10-year US Treasury Yield 4.66% -1.89%
Average 30-year Mortgage Rate 6.34% -.47%

Leading Sectors
Homebuilders +7.37%
Oil Service +4.99%
Energy +4.90%
Networking +4.22%
Nanotechnology +4.05%

Lagging Sectors
Tobacco +.11%
Oil Tankers unch.
Broadcasting -.53%
Hospitals -.59%
Semis -1.19%

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

*5-Day % Change

Stocks Modestly Higher into Final Hour on Heavy Volume

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Retail longs and Energy-related shorts. I covered some of my (IWM)/(QQQQ) shorts, thus leaving the Portfolio 75% net long. The tone of the market is slightly positive as the advance/decline line is about even, sector performance is mostly positive and volume is very heavy. Intuitive Surgical (ISRG) is improving technically. Moreover, I continue to believe that analysts have severely underestimated its earnings potential for this year. There are still only two “buys” on the stock and four “holds.” I don't think it is too late for these analysts to upgrade the stock and increase earnings estimates. I expect the stock to make new all-time highs later this year. I am long (ISRG). I expect US stocks to trade modestly higher into the close from current levels on lower energy prices, stable long-term rates and short-covering.