Tuesday Watch

Late-Night Headlines
Bloomberg:
- Pakistan and the US will boost their cooperation in fighting Taliban and al-Qaeda terrorists on the border between Pakistan and Afghanistan, said Marine General Peter Pace.
- Verizon Communications(VZ) won a bid for more control over its high-speed networks after its US regulator freed it from rules on data services it sells to large businesses.
- The US dollar rose for a second day against the euro after Fed Chairman Bernanke said “the implications for future economic activity are positive rather than negative.”
- Crude oil traded near $60/bbl. amid speculation a report tomorrow will show US supplies last week rose to their highest in seven years.

Guardian:
- Expenditure on Internet advertising in the UK advanced about 73% in 2005 with revenue rising to over $1.93 billion, citing Advertising Association figures.
- BAE Systems Plc, Europe’s biggest weapons maker, may make a $10 billion offer for US defense electronics company L-3 Communications(LLL).

DigiTimes:
- Dell Inc.(DELL) cut orders for flat panel displays used for computer monitors in March by between 15% and 20%, reducing profits for manufacturers in South Korea and China.

Nihon Keizai:
- Toshiba Corp. will start selling the world’s first next-generation DVD player in Japan later this month.

Late Buy/Sell Recommendations
Wachovia:
- Rated (IRF), (CRUS), (SJI) and (ATG) Outperform.

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

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Earnings of Note
Company/EPS Estimate
- (BMET)/.43
- (CMC)/1.00
- (DRI)/.65
- (DG)/.49
- (FDS)/.37
- (GME)/1.07
- (MKC)/.24
- (NKE)/1.10
- (PAYX)/.31
- (PVH)/.37
- (TDS)/.31

Upcoming Splits
- (TV) 4-for-1

Economic Releases
8:30 am EST
- The Producer Price Index for February is estimated to fall .2% versus a .3% gain in January.
- The PPI Ex Food & Energy for February is estimated to rise .1% versus a .4% gain in January.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish Mixed Ahead of Bernanke Speech

Indices
S&P 500 1,305.08 -.17%
DJIA 11,274.53 -.05%
NASDAQ 2,314.11 +.33%
Russell 2000 745.62 -.06%
Wilshire 5000 13,137.07 -.14%
S&P Barra Growth 615.94 -.06%
S&P Barra Value 685.75 -.27%
Morgan Stanley Consumer 616.08 +.19%
Morgan Stanley Cyclical 810.63 -.31%
Morgan Stanley Technology 538.11 +.12%
Transports 4,587.53 +.53%
Utilities 403.43 -1.15%
Put/Call .87 +10.13%
NYSE Arms 1.06 +4.03%
Volatility(VIX) 11.78 -2.81%
ISE Sentiment 149.00 +14.62%
US Dollar 89.12 +.22%
CRB 320.64 -1.59%

Futures Spot Prices
Crude Oil 60.34 -.13%
Unleaded Gasoline 182.90 -.06%
Natural Gas 6.84 +.07%
Heating Oil 174.00 -.10%
Gold 554.60 -.27%
Base Metals 172.52 -.68%
Copper 233.20 -.09%
10-year US Treasury Yield 4.65% -.39%

Leading Sectors
Airlines +3.07%
HMOs +.71%
Internet +.54%

Lagging Sectors
Coal -1.95%
Energy -2.21%
Oil Service -3.12%

Evening Review
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Afternoon Recommendations
Banc of America:
- Started (PAYX), (CXW) and (RHI) with Buy ratings.

Afternoon/Evening Headlines
Bloomberg:
- National Football League Commissioner Paul Tagliabue will retire at the end of July after more than 16 years on the job.
- Elliott Associates LP said it bought a 6.5% stake in Lexar Media(LEXR) and opposes the company’s planned $680 million sale to Micron Technology(MU).
- Crude oil fell over $2/bbl., the most in seven months, as US inventories approach a seven-year high.
- Frank Quattrone, who made $120 million in 2000 as CSFB’s top technology banker, won the right to a new trial today, after a federal appeals court in New York threw out his conviction for obstructing justice.
- Samsung Electronics said semiconductor profit in the current period will fall from the fourth quarter after a glut of chips that go into digital music players drove down prices.
- VeriSign Inc.(VRSN) said it agreed to buy closely held m-Qube for about $250 million to add wireless network management software products.

BOTTOM LINE: The Portfolio finished higher today on gains in my Networking longs, Internet longs, Medical longs and Energy-related shorts. I exited my (IWM)/(QQQQ) shorts and another existing short in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was slightly negative today as the advance/decline line finished about even, sector performance was mostly lower and volume was above average. Measures of investor anxiety were mixed into the close. Overall, today's market action appeared to be a healthy consolidation of recent gains. Throughout the day, tech stocks outperformed and Google (GOOG) traded better than it has for quite some time. The CRB Index broke back below its 200-day moving-average. The 10-year yield remained slightly lower, ahead of Bernanke's speech tonight. span>

Stocks Mixed into Final Hour as Strengh in Tech Offsets Weakness in Commodities

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Internet longs, Networking longs and Energy-related shorts. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is modestly negative as the advance/decline line is slightly lower, sector performance is mixed and volume is above average. Overall, today’s market action looks like a healthy consolidation of recent gains. I expect US stocks to trade mixed-to-higher into the close from current levels on lower energy prices, stable long-term rates and short-covering.

Today's Headlines

Bloomberg:
- The crown jewel in Pfizer’s(PFE) research pipeline, a new type of cholesterol drug the company says is key to future growth, may be sold in the US years earlier than doctors and investors expect.
- Commercial construction, one of the last industries to recover from the most recent recession, is poised for the best year since 2001, contributing more to economic growth just as homebuilding starts to ebb.
- Saudi Arabia, seeking to stem a slump in its stock market, will allow foreign residents to buy shares directly from the local exchange for the first time.
- US Treasuries due in 10 years or more are rising on speculation Fed Chairman Bernanke will signal that low long-term yields won’t influence interest-rate policy.
- Crude oil is falling as US inventories approached a seven-year high, easing concern about supply disruptions in Nigeria and Iran.

Wall Street Journal:
- General Motors’(GM) board demanded an inquiry into accounting mistakes that forced the carmaker to postpone filing its annual report and that might delay the planned sale of all or part of GMAC, its financing unit.
- Michaels Stores(MIK), the biggest US arts-and-crafts retailer, may say that it will examine alternatives including sale of the company.
- Citigroup(C) has tackled weakness in its regulatory controls and improved its corporate-governance practices.
- Cray Inc.(CRAY), which makes supercomputers used by scientists and engineers, will announce a new design in an attempt to improve the fortunes of the company.
- Pioneer Telephone Cooperative, an Oklahoma rural phone company, has begun to install technology to connect its Internet-based television service by wireless to home television sets.
- AT&T(T), Time Warner(TWX) and other phone and cable companies that tried to stop cut-rate or free wireless Internet access in cities are now trying to enter the municipal Wi-Fi market.
- “Life-cycle” funds, which alter periodically the mix of stocks and bonds they hold, in line with people’s changing needs as they age, are growing in popularity.

NY Daily News:
- The Newspaper Assoc. of America is starting a $50 million campaign to lure advertising in the face of declining circulation and smaller market shares.

NY Post:
- Ford Motor(F) is being asked by politicians to make a gasoline-electric model of its Crown Victoria sedan, the most popular vehicle for taxis in NYC.

USA Today:
- US military deaths in Iraq fell last month close to their lowest level since the insurgency began two years ago.

NY Times:
- For the first time since 1981, the US Supreme Court will hear a case this week that involves discerning what kind of inventions can be patented.
- Verizon Communications(VZ) wants to buy Vodafone Group’s(VOD) 45% stake in the company’s wireless operations so it can book 100% of the profits.

San Jose Mercury News:
- Microsoft(MSFT) is developing a handheld entertainment device that combines games, music, and video.

Business Standard:
-.One vehicle is sold every 10 minutes on EBay India’s business-to-business Web site.

Dagens Industri:
- Ericsson AB(ERICY) is taking market share and expects to continue doing so, citing CEO Svanberg.

Leading Indicators Forecast Decelerating Growth

- Leading Indicators for February fell .2% versus estimates of a .3% decline and a downwardly revised .5% gain in January.

BOTTOM LINE: An index of US leading indicators fell in February after four months of gains, signaling slower economic growth in the second half of the year. The US economy is projected to grow by a very strong 4.7% this quarter, the fastest pace in two years, boosted by increasing corporate spending and still healthy consumer spending. I continue to expect US growth to peak this quarter and decelerate back to average levels of around 3% through year-end. This should provide a very good backdrop for investing in US stocks.

Links of Interest

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