BETWEEN THE HEDGES

Tuesday, May 09, 2006

Wednesday Watch

Posted by Gary .....at 11:51 PM

Late-Night Headlines
Bloomberg:
- Microsoft Corp.(MSFT) said it will sell 10 million Xbox 360s before Sony Corp.(SNE) releases its PlayStation 3 in November.
- The Bush administration may stop short of branding China a currency manipulator, while criticizing the country’s export-driven economic policy in a report to Congress today.

Financial Times:
- China has abandoned plans to measure its economic output by taking into account its impact on the environment.

Xinhua News Agency:
- Ctrip.com(CTRP), China’s largest online travel service, has signed an agreement with Google Inc.(GOOG) to upgrade the travel service’s search capability for hotels.

China Securities Journal:
- China’s consumer prices are likely to rise at a slower pace in the second quarter on lower food prices.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 indicated -.08%.
NASDAQ 100 indicated -.29%.

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Earnings of Note
Company/EPS Estimate
- (AIG)/1.36
- (RMK)/.29
- (FD)/.02
- (FWLT)/.37
- (IPG)/-.30
- (LM)/1.25
- (NKTR)/-.39
- (NWS/A)/.20
- (RRI)/-.33
- (STE)/.41

Upcoming Splits
- None of note

Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude drawdown of 575,000 barrels. Gasoline supplies are expected to rise 1,000,000 barrels. Distillate inventories are estimated to fall 300,000 barrels. Finally, refinery utilization is estimated to rise .75%.

2:00 pm EST
- The monthly budget surplus for April is estimated to rise to $115.0B versus $57.7B in March.

2:15 pm EST
- The FOMC is expected to raise the benchmark Fed Funds rate 25 basis points to 5.0%.

BOTTOM LINE: Asian indices are mostly lower, weighed down by exporting stocks in the region. I expect US equities to open mixed and to trade modestly lower into the afternoon. The Portfolio is 75% net long heading into the day.

Stocks Finish Mostly Lower on Weakness in Tech and Healthcare Shares

Posted by Gary .....at 5:18 PM

Indices
S&P 500 1,325.14 +.04%
DJIA 11,639.77 +.48%
NASDAQ 2,338.25 -.29%
Russell 2000 780.72 -.11%
Wilshire 5000 13,421.90 +.01%
S&P Barra Growth 612.30 -.08%
S&P Barra Value 711.15 +.15%
Morgan Stanley Consumer 618.35 +.22%
Morgan Stanley Cyclical 888.23 +.22%
Morgan Stanley Technology 545.02 -.78%
Transports 4,998.95 +.83%
Utilities 405.90 -.49%
Put/Call .83 -9.78%
NYSE Arms .87 -4.78%
Volatility(VIX) 11.99 -.08%
ISE Sentiment 208.00 +.97%
US Dollar 84.83 -.47%
CRB 354.93 +1.31%

Futures Spot Prices
Crude Oil 70.55 -.20%
Unleaded Gasoline 204.50 -.08%
Natural Gas 6.55 -.46%
Heating Oil 199.51 +2.08%
Gold 702.40 +.13%
Base Metals 236.45 +2.59%
Copper 360.70 +.31%
10-year US Treasury Yield 5.12% +.29%

Leading Sectors
Gold & Silver +4.38%
Airlines +1.43%
Oil Service +.78%

Lagging Sectors
Semis -1.02%
HMOs -1.13%
Hospital -2.0%

Evening Review
Detailed Market Summary
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In Play

Afternoon Recommendations
Banc of America:
- Rated (VTIV) Buy, target $37.

UBS:
- Upgraded (USB) to Buy, target $37.

Afternoon/Evening Headlines
Bloomberg:
- The US will give $10 million in medical supplies to the Palestinian people as Palestinian Authority President Abbas cautions that outside aid is needed to prevent the collapse of his administration.
- General Motors(GM) shares rose to their highest price this year after the automaker revised quarterly results to its first profit since 2004 and CEO Wagoner said talks to avoid a strike at Dephi Corp., its biggest supplier, are progressing.
- The UK, France and Germany might make a new offer to help Iran develop a peaceful nuclear program as a way to convince Iranian leaders to halt uranium enrichment, US Secretary of State Condoleezza Rice said at the UN.
- Republicans readied more than $80 billion in tax cuts for votes in both chambers of Congress, including extending low rates on dividends and most capital gains and preventing the alternative minimum tax from affecting 16 million households this year.

AP:
- New Jersey lawmakers will consider a bill that would legalize medical marijuana for people with certain medical conditions.

BOTTOM LINE: The Portfolio finished unchanged today as gains in my Internet longs and Medical longs offset losses in my Retail longs and Computer longs. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was slightly negative today as the advance/decline line finished lower, sector performance was mostly negative and volume was about average. Measures of investor anxiety were mostly lower into the close. Overall, today's market performance was slightly bearish. On the positive side, another rise in oil and long-term rates didn't do much damage to equities. Natural gas finished near session lows and looks poised to take another dive lower. Semis rebounded from session lows, notwithstanding Dell’s (DELL) disappointment. Google (GOOG) finished near session highs on good volume. I doubt Google (GOOG) will close below $400 again this year. Google remains my largest long position.

Stocks Mostly Lower into Final Hour ahead of FOMC Meeting

Posted by Gary .....at 3:27 PM

BOTTOM LINE: The Portfolio is about even into the final hour as gains in my Internet longs and Medical longs are offsetting losses in my Retail longs and Computer longs. I added (IWM) and (QQQQ) shorts today, thus leaving the Portfolio 75% net long. The tone of the market is modestly negative as the advance/decline line is lower, sector performance is mostly negative and volume is average. I expect the Fed to raise the benchmark fed funds rate 25 basis points tomorrow to 5.0%. I do not expect it to say it is ready to pause. I do, however, expect members to say they will pause on signs of a slowdown in economic growth from recent robust rates. This may disappoint equity investors. Specifically, the most cyclical stocks that have seen parabolic moves of late on the hopes that the Fed was done may come under pressure. I expect US stocks to trade mixed-to-lower into the close from current levels on higher energy prices and profit-taking ahead of Wednesday’s FOMC meeting.

Today's Headlines

Posted by Gary .....at 2:45 PM

Bloomberg:
- Citigroup(C) plans to almost double staff at its commodities-trading unit worldwide as higher prices increases demand to speculate on these markets.
- Crude oil rose above $70/bbl. even after the EIA reported that demand for oil in China remained flat from year-ago levels.
- Gold jumped to $700 an ounce in NY for the first time since 1980 after a report suggested China should buy gold to diversify its currency reserves.
- Thomas H. Lee Partners LP plans to raise $9 billion for its sixth and biggest buyout fund, 20% more than an initial target set about a year ago.

Wall Street Journal:
- Exxon’s(XOM) first quarter capital spending, to boost oil and gas resources, soared 41% to $4.8 billion.
- Owners of Teflon-coated pots and pans have sued DuPont Co.(DD), claiming the Wilmington, Delaware-based chemical company didn’t divulge the possible dangers of chemicals released when the cookware is heated.
- Alltel Corp.(AT) and Sprint Nextel(S) have reached a 10-year roaming-service deal that may expand coverage and reduce some rates.
- Lehman Brothers(LH) is second only to Citigroup(C) as an adviser on US financial mergers and acquisitions so far this year, citing Thomson Financial.
- Time Warner’s(TWX) Warner Bros. will probably announce that it will sell and rent movies and television shows online using BitTorrent’s so-called peer-to-peer technology.

AP:
- Rhode Island Democrats meeting at their state convention endorsed the re-election bid of US Congressman Patrick Kennedy, who last week said he was entering a drug-rehab program.

NY Times:
- Cuba plans to drill for oil in the portion of the Florida Straits it controls while laws prohibit US companies taking leases in Cuba-controlled waters or from drilling in US coastal zones due to environmental concerns.
- US buyers are slowly getting more control of the real estate market than sellers.
- US airlines are expected to add few planes to their fleets through 2007, citing a report from Bear Stearns.

Ma’ariv:
- M-Systems(FLSH) may announce a technological breakthrough that will allow it to increase by 30% the amount of data stored on a chip without raising costs of its flash memory devices.

El Moudjahid:
- Crude-oil prices may fall as producing countries increase output capacity, Algerian Energy Minister Chakib Khelil said.

Daily Telegraph:
- Vodafone Group Plc rejected an indicative off of $38 billion from Verizon Communications(VZ) for the UK company’s 45% stake in their Verizon Wireless joint venture.

Wholesale Inventories Rise Less Than Estimates as Demand Surges

Posted by Gary .....at 12:39 PM

- Wholesale Inventories for March rose .2% versus estimates of a .5% rise and a .9% gain in February.

BOTTOM LINE: Inventories at US wholesalers increased less than forecast in March as suppliers struggled to keep pace with surging demand, Bloomberg said. Sales surged .7%. Wholesalers had enough supply on hand to last 1.16 months at March’s sales pace versus 1.17 months worth the prior month. I expect inventory rebuilding to help keep US economic growth around average levels this quarter.