BETWEEN THE HEDGES

Wednesday, May 17, 2006

Thursday Watch

Posted by Gary .....at 11:03 PM

Late-Night Headlines
Bloomberg:
- The FBI is searching a Michigan property for clues that may relate to the 1975 disappearance of Jimmy Hoffa.
- Burger King Holdings, the second-largest US hamburger chain, raised $425 million in an IPO as the company begins a turnaround.
- China ended a yearlong ban on initial public offerings today, allowing companies to submit applications for share saes to the securities regulator.
- Shares of China Venke Co. and other Chinese property developers plunged after the government said it will step up efforts to cool surging home prices.

Financial Times:
- Tesco Plc, the UK’s largest supermarket owner, plans to open stores in the US next year.
- FIFA, soccer’s world governing body, has returned over 1 million German hotel rooms its block-booked for next month’s World Cup to hotel operators.

Business Standard:
- Harley-Davidson(HDI) may import and sell motorcycles in India.

AP:
- Former US President Clinton will write another book for publisher Alfred A. Knopf. Clinton is rumored to have received an advance of $10 million to $12 million for his memoir, “My Life,” published in 2004.

Late Buy/Sell Recommendations
CSFB:
- Rated (PDCO) Outperform.

Night Trading
Asian Indices are -2.25% to -1.50% on average.
S&P 500 indicated +.33%.
NASDAQ 100 indicated +.26%.

Morning Preview
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Earnings of Note
Company/EPS Estimate
- (ARO)/.15
- (ALKS)/-.04
- (ADSK)/.31
- (BKS)/.13
- (BRCD)/.05
- (PLCE)/.50
- (CLE)/.30
- (DELL)/.33
- (GME)/.05
- (GPS)/.27
- (HIBB)/.35
- (MRVL)/.42
- (JWN)/.45
- (SHLD)/.65

Upcoming Splits
- (CORS) 2-for-1
- (PGR) 4-for-1

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to fall to 319K versus 324K the prior week.
- Continuing Claims are estimated to rise to 2420K versus 2392K prior.

10:00 am EST
- Leading Indicators for April are estimated to rise .1% versus a .1% fall in March.

12:00 pm EST
- The Philly Fed for May is estimated to fall to 12.5 versus a reading of 13.2 in April.

BOTTOM LINE: Asian indices are sharply lower, weighed down by technology and commodity stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing higher. The Portfolio is 75% net long heading into the day.

Stocks Finish Sharply Lower as Investor Angst Spikes Higher

Posted by Gary .....at 4:46 PM

Indices
S&P 500 1,270.32 -1.68%
DJIA 11,205.61 -1.88%
NASDAQ 2,195.80 -1.50%
Russell 2000 725.85 -1.58%
Wilshire 5000 12,816.75 -1.66%
S&P Barra Growth 588.92 -1.49%
S&P Barra Value 679.52 -1.87%
Morgan Stanley Consumer 603.86 -1.22%
Morgan Stanley Cyclical 836.24 -2.44%
Morgan Stanley Technology 505.77 -1.25%
Transports 4,670.97 -2.66%
Utilities 392.62 -1.85%
Put/Call 1.47 +48.48%
NYSE Arms 2.04 +57.02%
Volatility(VIX) 16.21 +21.42%
ISE Sentiment 119.00 -23.72%
US Dollar 84.92 +.89%
CRB 349.38 -1.08%

Futures Spot Prices
Crude Oil 68.70 +.01%
Unleaded Gasoline 197.55 +.02%
Natural Gas 6.11 -.24%
Heating Oil 192.12 -1.55%
Gold 688.00 -.55%
Base Metals 237.86 -1.76%
Copper 362.80 -1.18%
10-year US Treasury Yield 5.14% +1.07%

Leading Sectors
Hospitals +.31%
Computer Hardware +.26%
HMOs -.03%

Lagging Sectors
Energy -2.60%
Gold & Silver -3.37%
Steel -3.61%

Evening Review
Detailed Market Summary
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In Play

Afternoon Recommendations
Morgan Stanley:
- Rated (FDC) Overweight, target $54.
- Rated (ADP) Overweight, target $50.
- Rated (DST) Underweight.

Afternoon/Evening Headlines
Bloomberg:
- Honda Motor will build its sixth North American auto-assembly plant in the US Midwest as part of a $1.46 billion expansion plan.
- The US dollar rallied sharply, posting its biggest gain against the yen in 11 months, after France’s finance minister said he would attempt to keep the euro from strengthening and US consumer prices rose more than estimates.
- Gasoline futures in NY fell to their lowest price in six weeks after a government report showed a third straight week of US inventory gains.

BOTTOM LINE: The Portfolio finished slightly lower today as losses in my Retail longs and Medical longs more than offset gains in my Internet longs, Semi longs, Energy-related shorts and Base metal shorts. I added back (IWM) and (QQQQ) shorts in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was very negative today as the advance/decline line finished substantially lower, almost every sector fell and volume was heavy. Measures of investor anxiety were higher into the close. Overall, today's market performance was bearish. Today's action is the type I would expect to see near an intermediate-term bottom in the major averages. If the 10-year yield begins heading lower over the coming weeks, as I expect, recent action should prove to be an excellent buying opportunity. I will closely monitor the bond market's reaction to tomorrow's economic data before further shifting market exposure.

Stocks Sharply Lower as Investors Flee Most Economically Sensitive Shares

Posted by Gary .....at 3:24 PM

BOTTOM LINE: The Portfolio is slightly lower into the final hour as losses in my Retail longs and Medical longs are being mostly offset by gains in my Internet longs, Semi longs, Energy-related shorts and Base metal shorts. I covered my (QQQQ) and (IWM) shorts and added to my (GOOG), (TLT) and (BRCM) longs today, thus leaving the Portfolio 100% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost every sector is declining and volume is heavy. The Morgan Stanley Cyclical Index (CYC) is down 2.3% today, underperforming the broad market. I continue to believe that a rotation out of the most economically sensitive stocks and a spike in investor anxiety will pave the way for a durable bottom in the major averages. The developing implosion in commodities is not forecasting a recession, but is a function of an end to the mania and slowing growth. This bodes very well for the broad market over the intermediate-term. I expect US stocks to trade higher into the close from current levels on short-covering, lower commodity prices and bargain hunting.

Today's Headlines

Posted by Gary .....at 2:41 PM

Bloomberg:
- Moody’s Investors Service(MCO) plans to raise credit ratings on most of the $1.2 trillion of loans it monitors, potentially saving US borrowers as much as $4.6 billion a year in interest.
- The Cannes Film Festival opens this evening with the world premiere of “The Da Vinci Code”. Critics were disappointed after last night’s advance screening.
- Bill Miller, the fund manager who has beaten the S&P 500 for a record 15 consecutive years, said Eastman Kodak(EK) shares may almost double by the end of 2008 as the company switches to digital imaging technology.
- California’s credit rating, once teetering near junk status before Governor Schwarzenegger took office, was raised today by S&P to its highest level since 2001, ending its three-year stigma of having the lowest debt rating of all US states.
- Crude oil is falling to a one-month low after an Energy Dept. report showed that US gasoline supplies rose as demand barely rose and imports arrived at near record rates.
- US Treasuries are falling after a government report showed consumer prices in April climbed more than economists forecast.

Wall Street Journal:
- Most US companies with operations in China say the country’s policing of intellectual property rights has not improved or has gotten worse, citing a survey by the American Chamber of Commerce in China.
- Merck(MRK) is awaiting the results of a FDA committee meeting on its cervical-cancer vaccine to determine whether it has a blockbuster on its hands.
- Senate Democrats plan to present initiatives to cut gasoline consumption that focus on alternative energy sources.
- Pacific Ethanol(PEIX) insiders have sold more than $100 million in company stock recently, even as the share price has tripled in the last six months.

NY Times:
- Milberg Weiss Bershad & Schulman LLP, which has won billions of dollars in shareholder lawsuits, could be charged as early as tomorrow or May 25 in a federal investigation into paying plaintiffs.

Washington Post:
- The CEOs of the three big US automakers are due to meet tomorrow with congressional leaders to discuss energy issues.

Business Recorders:
- Oil & Gas Development, Pakistan’s biggest explorer of fuels, found deposits at two separate wells.

NY Post:
- UBS AG(UBS), Europe’s largest bank, has won the bidding to buy Dutch bank ABN Amro Holding’s futures and commodities trading unit.
- Cendant’s(CD) travel unit, owner of the Web sites Orbitz and CheapTickets.com, has received bids from Bain Capital LLC, Texas Pacific Group and Apollo Management.

Reuters:
- Johnson & Johnson(JNJ) said Medicare will pay for some patients under age 60 to have the company’s artificial spinal disk implanted.

Financial Times Deutschland:
- Hewlett-Packard(HPQ) will hire “hundreds” of salespeople in the second half of 2006 to boost its business with major customers.

Consumer Prices Rise on Higher Energy Costs

Posted by Gary .....at 12:07 PM

- The Consumer Price Index for April rose .6% versus estimates of a .5% increase and a .4% gain in March.
- The CPI Ex Food & Energy for April rose .3% versus estimates of a .2% gain and a .3% increase in March.

BOTTOM LINE: Prices paid by US consumers rose more than forecast in April, rekindling inflation concerns that may invite more interest-rate increases form the Fed, Bloomberg said. Consumer prices rose 3.5% year-over-year versus a 3.4% year-over-year increase the prior month. Core prices rose 2.3% from year-ago levels. Fuel costs have risen 17.8% over the last 12 months. I expect inflation fears are topping for the year right about now. Slower economic growth, subdued unit labor costs and falling commodity prices should quell inflation jitters over the coming months.