Weekly Outlook

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

Economic reports for the week include:

Mon. - Empire Manufacturing, Net Foreign Security Purchases, NAHB Housing Market Index
Tues. - Producer Price Index, Housing Starts, Building Permits, March 28 FOMC Minutes
Wed. - Consumer Price Index
Thur. - Initial Jobless Claims, Leading Indicators, Philly Fed
Fri. - None of note

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

Mon. - Brown & Brown(BRO), Citigroup(C), Eaton Corp.(ETN), Genuine Parts(GPC), JB Hunt(JBHT), Knight Ridder(KRI), Marshall & Ilsle(MI), SunTrust Banks(STI), Wachovia Corp.(WB)

Tues. - Adtran(ADTN), Allstate(ALL), Amgen Corp.(AMGN), AmSouth Bancorp(ASO), Boston Scientific(BSX), CR Bard(BCR), DR Horton(DHI), Everest Re(RE), Fifth Third(FITB), Freeport-McMoRan(FCX), Gilead Sciences(GILD), IBM(IBM), Johnson & Johnson(JNJ), Keycorp(KEY), Linear Tech(LLTC), Mattel(MAT), Merrill Lynch(MER), Motorola(MOT), Peabody Energy(BTU), Seagate Technology(STX), State Street(STT), Texas Instruments(TXN), UnitedHealth(UNH), Washington Mutual(WM), Wells Fargo(WFC), Yahoo!(YHOO)

Wed. - Abbott Labs(ABT), AMR Corp.(AMR), Apple Computer(AAPL), Comerica(CMA), CDW Corp.(CDWC), CIT Group(CIT), Coca-Cola(KO), Comerica(CMA), CSX Corp.(CSX), E*Trade(ET), eBay(EBAY), General Dynamics(GD), Intel Corp.(INTC), JPMorgan(JPM), Juniper Networks(JNPR), Kinder Morgan(KMI), Novellus Systems(NVLS), Pfizer Inc.(PFE), Qualcomm(QCOM), St Jude Medical(STJ), United Technologies(UTX)

Thur. - Altria Group(MO), Bank of America(BAC), Baxter Intl.(BAX), BellSouth(BLS), Broadcom Corp.(BRCM), Cerner Corp.(CERN), Eli Lilly(LLY), EMC Corp.(EMC), First Data(FDC), General Motors(GM), Google(GOOG), Hershey Co.(HSY), Linens ‘n Things(LIN), Merck(MRK), Newmont Mining(NEM), Outback Steakhouse(OSI), Ryland Group(RYL), Southwest Air(LUV), Sprint Nextel(S), United Parcel(UPS)

Fri. - 3M Co.(MMM), Ford Motor(F), Fortune Brands(FO), Genzyme(GENZ), Guidant Corp.(GDT), Halliburton(HAL), Ingersoll-Rand(IR), Maytag(MYG), McDonald’s(MCD), Royal Caribbean(RCL), Schlumberger(SLB), Wyeth(WYE)

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

Mon. - World Health Care Congress
Tue. - World Health Care Congress
Wed. - World Health Care Congress, Morgan Stanley Retail Conference
Thur. - Morgan Stanley Retail Conference
Fri. - Morgan Stanley Retail Conference

BOTTOM LINE: I expect US stocks to finish the week mixed as better-than-expected earnings reports offset conservative forward earnings guidance, higher long-term rates and mixed economic data. My trading indicators are giving mostly bullish signals and the Portfolio is 50% net long heading into the week.

Market Week in Review

S&P 500 1,289.12 -1.52%*

BOTTOM LINE: Overall, last week's market performance was mildly bearish. The advance/decline line fell, almost every sector fell and volume was about average on the week. Measures of investor anxiety were mostly higher. The AAII % Bulls fell to 45.36% and is still only around average levels, which is a positive considering this year’s gains. The average 30-year mortgage rate rose to 6.49% which is 128 basis points above all-time lows set in June 2003.

I continue to believe housing is slowing to more healthy sustainable levels. This will also likely result in the slowing of consumer spending back to around average levels. The benchmark 10-year T-note yield rose 7 basis points on the week even as the Import Price Index fell. I expect inflation concerns to begin declining again later this quarter as economic growth slows to average levels, unit labor costs remain subdued and commodity prices weaken from current levels.

Unleaded Gasoline futures rose again this week, but are still 27.6% below September 2005 highs even as refinery utilization remains below normal as a result of the hurricanes last year, 22.7% of Gulf of Mexico oil production remains shut-in and fears over Iranian/Nigerian production disruptions persist. Natural gas inventories rose less than expected this week. However, supplies are now 63.4% above the 5-year average, near an all-time record high for this time of year, even as 13.6% of daily Gulf of Mexico production remains shut-in. Natural gas prices have plunged 54.5% since December 2005 highs.

OPEC said recently 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 8-year highs. I continue to believe oil is priced above $60/bbl. on fear and record speculation, 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 and supplies continue to rise, crude should head meaningfully lower over the intermediate-term.

Gold rose modestly for the week as higher energy prices and mostly positive economic data more than offset the unexpected decline in the Import Price Index. The US dollar rose as speculation increased that the Fed will continuing hiking rates as a result of rising commodity prices and a strong US economy.

Interest rate sensitive stocks such as Homebuilders, REITs and Utilities underperformed for the week as long-term interest rates rose. The average US stock, as measured by the Value Line Geometric Index(VGY), is still up a strong 7.2% so far this year. Moreover, the Russell 2000 Index is up 11.9% year-to-date. I still believe US economic growth peaked for the year during the first quarter and will decelerate back to around average levels through year-end.

I expect stocks to continue trading mixed-to-lower over the next few weeks. Subsequently, a reversal lower in long-term rates and/or energy prices should provide the catalyst for another push higher by the major averages. The ECRI Weekly Leading Index fell slightly this week and is still forecasting healthy, but decelerating, US economic activity.

*5-day % Change

Chart of Interest

Weekly Scoreboard*

Indices
S&P 500 1,289.12 -1.52%
DJIA 11,137.65 -.70%
NASDAQ 2,326.11 -1.48%
Russell 2000 751.11 -1.97%
Wilshire 5000 13,031.95 -1.58%
S&P Equity Long/Short Index 1,167.29 unch.
S&P Barra Growth 604.91 -1.56%
S&P Barra Value 681.31 -1.48%
Morgan Stanley Consumer 598.66 -1.67%
Morgan Stanley Cyclical 828.46 -.55%
Morgan Stanley Technology 550.23 -1.87%
Transports 4,645.76 -1.76%
Utilities 382.49 -2.70%
S&P 500 Cum A/D Line 7,844.0 -9.0%
Bloomberg Crude Oil % Bulls 45.0 -6.25%
Put/Call .84 +9.09%
NYSE Arms .70 -7.79%
Volatility(VIX) 12.38 +7.77%
ISE Sentiment 102.00 -40.70%
AAII % Bulls 45.36 -4.85%
AAII % Bears 27.84 +19.69%
US Dollar 89.56 +.66%
CRB 342.32 +.87%
ECRI Weekly Leading Index 137.30 -.51%

Futures Spot Prices
Crude Oil 69.52 +2.09%
Unleaded Gasoline 210.80 +5.71%
Natural Gas 7.15 +2.96%
Heating Oil 199.10 +4.93%
Gold 601.90 +.42%
Base Metals 197.30 +5.10%
Copper 281.35 +6.18%
10-year US Treasury Yield 5.05% +1.40%
Average 30-year Mortgage Rate 6.49% +.93%

Leading Sectors
Gaming unch.
Restaurants -.05%
Software -.27%
Banks -.73%
Wireless -.93%

Lagging Sectors
Networking -3.30%
Airlines -3.38%
Homebuilders -3.93%
REITs -4.28%
Oil Tankers -6.44%

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

*5-Day % Change

Stocks Mixed into Final Hour on Light Volume

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Networking longs and Semi longs. I covered some of my (IWM) and (QQQQ) longs today, thus leaving the Portfolio 75% net long. The tone of the market is slightly positive as the advance/decline line is higher, most sectors are rising and volume is light. The AAII percentage of Bulls fell to 45.36% this week from 47.67% the prior week. This reading is now back to average levels. The AAII percentage of Bears rose to 27.84% this week from 23.26% the prior week. This reading is also back to average levels. Considering the average stock, as measured by the Value Line Geometric Index, is 7.4% higher already this year, these numbers still show muted bullishness which bodes well for further gains. I expect bullish sentiment to fall next week. I expect US stocks to trade mixed into the close from current levels as higher long-term rates and oil prices offset positive economic data.

Today's Headlines

Bloomberg:
- American scientists plan to create a human clone using stem cells, a feat that Korean scientists faked. US researchers at Harvard University and in California said they first will create “cloned” human embryos in the lab by combining women donors’ egg cells with DNA provided by other adults. The scientists will then isolate and extract stem cells from the embryos.
- Palm Inc.(PALM), whose Treo phone and e-mail devices have taken market share in the US, is now trying to crack Europe.
- US 10-year Treasury note yields rose to 5% for the first time since June 2002.
- General Electric(GE) said first-quarter profit rose 14%, driven by demand for jet engines, health-care services and financing.

Wall Street Journal:
- Pop star Michael Jackson, acquitted last year on child-molestation charges, may be forced to sell half of his 50% stake in a music publishing catalog that included 251 Beatles songs to Sony Corp.(SNE) as part of a loan refinancing agreement.
- Rules introduced by the SEC last year to stop “naked shorting” haven’t stopped the practice.
- Finish Line(FINL) will debut a new chain tomorrow that it hopes will appeal to affluent women, instead of its customer base of young males.

Daily Deal:
- SanDisk(SNDK) is considering an unsolicited bid for Lexar Media(LEXR).

Washington Post:
- Terrorists are beginning to worry about their online privacy and security.

NY Times:
- Owners of Nascar automobile racing tracks are building more luxury condominiums as the market for trackside housing heats up.
- Medical diagnostics, increasingly using sophisticated genetic and protein tests, is turning into a high-profit business.

NY Post:
- Morgan Stanley(MS) created a team of in-house bond traders to wager the firm’s own money, creating a potential conflict with hedge-fund clients.

Financial Times:
- Alan Greenspan said the US would probably alter parts of Sarbanes-Oxley corporate governance law that are discouraging companies from tapping US markets.