Stocks Finish Slightly Lower on Weakness in Commodity Shares

Indices
S&P 500 1,307.85 -.41%
DJIA 11,400.28 -.14%
NASDAQ 2,303.97 -.25%
Russell 2000 767.73 +.02%
Wilshire 5000 13,234.29 -.33%
S&P Barra Growth 605.79 -.55%
S&P Barra Value 700.19 -.27%
Morgan Stanley Consumer 609.25 -.25%
Morgan Stanley Cyclical 866.94 +.50%
Morgan Stanley Technology 545.51 +.40%
Transports 4,749.73 +.44%
Utilities 402.07 -.34%
Put/Call .89 +3.49%
NYSE Arms 1.16 +48.19%
Volatility(VIX) 11.99 unch.
ISE Sentiment 218.00 41.56%
US Dollar 85.84 unch.
CRB 352.20 -1.35%

Futures Spot Prices
Crude Oil 72.14 -.19%
Unleaded Gasoline 208.05 -.25%
Natural Gas 6.59 -.18%
Heating Oil 200.25 -.03%
Gold 667.80 -.10%
Base Metals 216.61 -.99%
Copper 328.60 -.57%
10-year US Treasury Yield 5.14% +.66%

Leading Sectors
Disk Drives +2.67%
Airlines +1.59%
Semis +1.24%

Lagging Sectors
Energy -1.50%
Oil Service -2.22%
HMOs -5.40%

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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- NY’s health dept. plans to distribute nicotine patches to residents as part of its campaign against smoking.
- Venezuela, where President Chavez is raising royalties and taxes on international oil companies, need foreign investment to develop its energy resources, Foreign Minister Rodriquez said.
- Starbucks(SBUX) said fiscal second-quarter profit rose 27% on demand for espresso-based drinks and breakfast and lunch items.
- Whole Foods Market(WFMI) said fiscal second-quarter profit rose 27%, lifted by new store openings and sales of prepared foods.
- The US, UK and France gave member governments of the UN Security Council a draft resolution demanding that Iran cease uranium enrichment, and said they would seek sanctions should the government in Tehran fail to comply. China and Russia oppose the measure.
- Oil fell more than $2/bbl. in NY today as inventories surged to more than 8-year highs and demand for gasoline stagnated as prices rose.

Handelsblatt:
- The Minneapolis Federal Reserve Bank expects the US economy to continue to grow between 3% and 4% this year and through 2007, citing bank President Gary Stern.

BOTTOM LINE: The Portfolio finished higher today on gains in my Biotech longs, Semi longs and Energy-related shorts. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was mixed today as the advance/decline line finished about unchanged, sector performance was mixed and volume was above average. Measures of investor anxiety were mostly higher into the close. Overall, today's market performance was neutral. Considering the fall in energy prices and the muted reaction in the bond market to more very positive economic data, today's slight losses were a bit disappointing. The major averages and breadth, however, finished near session highs. Significant losses were mainly confined to commodity-related and HMO stocks. The tech sector outperformed throughout the day. I want to see further positive technical action in techs and more weakness in long-rates before shifting market exposure further.

Stocks Slightly Lower into Close on Late Afternoon Rally

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Semi longs and Energy-related shorts. I covered some of my (IWM) and (QQQQ) shorts and added to my (BRCM) and (RACK) longs today, thus leaving the Portfolio 75% net long. The tone of the market is neutral as the advance/decline line is about even, sector performance is mixed and volume is above average. I expect US stocks to trade higher into the close from current levels on falling energy prices, short-covering and stabilizing long-term rates.

Today's Headlines

Bloomberg:
- US House Republicans introduced a measure that would almost double the amount families can contribute to health savings accounts.
- MasterCard, the credit card company planning to sell this year’s third-biggest IPO, said it increased the size of the deal by as much as 16% to $2.84 billion.

Wall Street Journal:
- Investors who specialize in buying troubled loans are looking at China, as the country is hit by defaults following its boom in real-estate prices faltered.
- Family Dollar Stores(FDO) is using a security program to raise profits at inner-city locations.
- US film studios are losing $6.1 billion in sales annually form global piracy, about 75% more than originally estimated.
- Microsoft(MSFT) has looked at the idea of taking a stake in Yahoo!(YHOO) and the two companies have discussed possible coursed of action during the past year.
- NYSE Group(NYX) is accelerating the introduction of its hybrid electronic-trading system by using the stock of Lucent Technologies(LU) in its pilot program.
- Crude oil is falling more than $2 a barrel in NY after US gasoline inventories rose for the first time in nine weeks and demand for the fuel was flat.

Peninsula:
- US companies have invested as much as $70 billion in Qatar, the US ambassador to the country, Chas Untermeyer, said.

Manufacturing Surges, Service Sector Remains Strong

- Factory Orders for March rose 4.2% versus estimates of a 3.7% gain and a .4% rise in February.
- ISM Non-Manufacturing for April rose to 63.0 versus estimates of 59.4 and a reading of 60.5 in March.

BOTTOM LINE: Orders placed with US factories rose 4.2% in March, the most in 10 months, as businesses bought equipment and parts to meet the needs of a surging economy, Bloomberg reported. Excluding transports, orders rose 2.2%, the most since August. The rise was led by a 71% jump in bookings for aircraft. Orders for capital goods excluding aircraft, a proxy for future business investment, gained 3.9% versus a .6% February decline. Inventories for factories rose .7% versus a .4% decline the prior month. The inventory-to-shipments ratio remained at 1.17 months. I continue to expect manufacturing to moderate back to average levels as inventory rebuilding subsides and demand slows.

Service industries in the US grew faster than expected in April, as companies geared up to meet greater demand spurred by a strengthening labor market, Bloomberg said. The new orders component of the index rose to 64.6 from 59.5 in March. The employment component of the index rose to 56.5 from 54.6 the prior month. The prices paid component rose to 70.5 from 60.5 the prior month. A strong job market is helping to propel consumer spending even as energy prices rise. I continue to believe a slowing housing market will send consumer spending back to average rates over the coming months.

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- Kohlberg Kravis Roberts, the world’s biggest buyout firm, raised $5 billion in an IPO of a private equity fund, luring three times more money than originally planned from a wider range of investors.
- Toyota Motor(TM) ranked third in US auto sales for the first time in April, outselling DaimlerChrysler AG and helping Asian companies capture a near-record share of the market.
- Australia’s central bank unexpectedly raised its official interest rate a quarter percentage point to the highest in more than five years.
- The US, UK and France will move as early as tomorrow for adoption of a UN resolution demanding that Iran halt its nuclear program, US Ambassador John Bolton said.
- Bank of China, planning to raise as much as $8 billion in an IPO, may post a $537 million exchange rate loss this year due to a rising yuan, according to UBS AG, one of the sale’s arrangers.
- German Chancellor Angela Merkel will use a visit to the US starting today to stress that her government stands united with President Bush in efforts to halt Iran’s suspected nuclear-weapons program.

Financial Times:
- The Trump Organization plans to build a $600 million tower on Dubai’s Palm, the world’s biggest man-made island.

AFP:
- The five permanent members of the UN Security Council have said Iran’s nuclear program “isn’t compatible” with international community demands.

Korea Economic Daily:
- South Korea is seeking to import 5 million barrels of ethanol a year from Brazil to mix with gasoline.

Late Buy/Sell Recommendations
Raymond James:
- Raised AMED to Strong Buy, target $45.

Night Trading
Asian Indices are unch. to +1.0% on average.
S&P 500 indicated -.03%.
NASDAQ 100 indicated -.01%.

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Earnings of Note
Company/EPS Estimate
- (AGN)/.81
- (AT)/.78
- (BEC)/.38
- (CBT)/.43
- (CECO)/.60
- (CI)/1.89
- (CCU)/.13
- (CLX)/.71
- (ED)/.80
- (DF)/.40
- (DVN)/1.87
- (D)/1.49
- (ERTS)/.09
- (FBN)/.47
- (GRMN)/.67
- (GSF)/.62
- (HEW)/.27
- (JDSU)/.00
- (KZL)/1.14
- (MKL)/6.54
- (MMC)/.52
- (MDR)/.50
- (PTEN)/.85
- (PCG)/.60
- (PCLN)/.19
- (PG)/.61
- (PR)/1.33
- (QLGC)/.18
- (SGMS)/.27
- (SPW)/.29
- (SBUX)/.14
- (SUN)/.91
- (TK)/1.50
- (TEX)/.79
- (TDW)/1.09
- (TWX)/.20
- (WFMI)/.35
- (WYNN)/.10

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Factory Orders for March are estimated to rise 3.7% versus a .2% rise in February.
- ISM Non-Manufacturing for April is estimated to fall to 59.4 versus a reading of 60.5 in March.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude drawdown of 150,000 barrels. Gasoline inventories are estimated to fall 650,000 barrels, and distillate supplies are expected to decrease by 100,000 barrels. Refinery utilization is expected to rise .78%. I expect crude prices to trade lower on this report.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity stocks in the region. I expect US equities to open mixed and to trade modestly higher into the afternoon. The Portfolio is 50% net long heading into the day.