Stocks Finish at Session Highs ahead of Fed Announcement

Indices
S&P 500 1,246.00 +.55%
DJIA 10,973.56 +.45%
NASDAQ 2,111.84 +.55%
Russell 2000 688.04 +.16%
Wilshire 5000 12,518.20 +.47%
S&P Barra Growth 576.40 +.49%
S&P Barra Value 667.92 +.60%
Morgan Stanley Consumer 599.92 +.10%
Morgan Stanley Cyclical 802.08 +.41%
Morgan Stanley Technology 481.19 +.58%
Transports 4,730.60 +.56%
Utilities 408.63 +.51%
Put/Call .83 -15.31%
NYSE Arms .75 -50.36%
Volatility(VIX) 15.79 -3.72%
ISE Sentiment 140.00 -2.78%
US Dollar 86.67 +.23%
CRB 338.19 +.33%

Futures Spot Prices
Crude Oil 72.34 +.21%
Unleaded Gasoline 220.59 +.34%
Natural Gas 5.88 -3.60%
Heating Oil 194.60 +.44%
Gold 581.20 +.03%
Base Metals 205.08 +1.37%
Copper 315.05 -1.15%
10-year US Treasury Yield 5.24% +.83%

Leading Sectors
Energy +1.82%
Gaming +1.62%
Steel +1.44%

Lagging Sectors
Alternative Energy -.94%
Airlines -.99%
Restaurants -1.15%

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Afternoon Recommendations
CSFB:
- Rated (FRX) and (BRL) Outperform.

Afternoon/Evening Headlines
Bloomberg:
- A tsunami alert system for nations bordering the Indian Ocean is up and running, 18 months after deadly waves triggered by an earthquake slammed into 12 nations across the region and killed an estimated 220,000 people.
- BP Plc(BP) manipulated the price of propane used to heat homes and businesses in the northeastern US in February 2004 and tried to do the same in April 2003, the Commodity Futures Trading Commission said.
- Walt Disney(DIS) named former Procter & Gamble CEO John E. Pepper as its non-executive chairman, succeeding former US Senator George Mitchell.
- Henry Paulson, confirmed today by the US Senate to become Treasury Secretary, said faster global economic growth will help reduce lopsided global trade and investment flows.

AP:
- Sunni insurgents offered to stop attacks on US-led military forces in Iraq if the Iraqi government and President Bush set a two-year deadline for withdrawing all foreign troops.

Financial Times Deutschland:
- Advanced Micro Devices(AMD) aims to win Dell Inc.(DELL) as a customer for its personal computer chips after agreeing to equip Dell servers, citing AMD strategist Margaret Lewis.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Internet longs, Retail longs and Biotech longs. I covered some of my (EEM), (IWM) and (QQQQ) shorts earlier in the day, thus leaving the Portfolio 75% net long. The tone of the market was modestly positive today as the advance/decline line finished slightly higher, sector performance was mixed and volume was below average. Measures of investor anxiety were lower into the close. Overall, today's market performance was mildly bullish. A number of market leading stocks posted outsized gains. As well, bears were unable to capitalize on yesterday's weakness. The 4-basis-point rise in the 10-year yield likely capped an otherwise more vigorous rally. I suspect long-term rates may fall on tomorrow's Fed rate hike. Natural gas is trading at new cycle lows, falling another 4%. I continue to expect stocks to finish the last two days strongly.

Today's Headlines

Bloomberg:
- Senate Majority Leader Bill Frist said he expects an “overwhelming majority” of senators to vote tomorrow for Henry Paulson to be the next US Treasury secretary.
- DaimlerChrysler AG plans to sell the two-seat Smart mini-car in the US, betting a fuel-efficient vehicle that fits on a pool table will help end eight years of losses at is Smart division.
- Russian President Putin told his security services to find and kill those responsible for the deaths of four Russian diplomats in Iraq.
- Pessimism about US stocks rose to the highest level since October 2002 last week, according to Investors Intelligence, a very bullish development.
- The US government needs to step in and regulate the $1.2 trillion hedge-fund industry or states will “join forces” and oversee the private investment pools, the attorney general of Connecticut told senators.
- US Dept. of Energy Secretary Samuel Bodman announced today that the DOE has approved two loan requests totaling 750,000 barrels of crude oil from the Strategic Petroleum Reserve to two Louisiana refineries.

Wall Street Journal:
- US money managers are gaining enthusiasm for large-capitalization stocks and losing interest in small-cap shares.
- Mitsubishi UFJ Financial Group, the world’s biggest lender by assets, is in talks with the US Fed about obtaining “financial holding company” status, a move that would allow the Japanese bank to expand into underwriting, insurance and investment banking in the US.
- A small group of hedge fund managers is heading a campaign to deter Congress and the SEC from tightening regulations over the business.
- HJ Heinz(HNZ) is trying to rebuild relations with McDonald’s 33 years after being cut off for not supplying enough ketchup during a tomato shortage.
- Two Detroit-area auto dealers are offering modified versions of the Hummer H2 and H3 they say can get 25 miles per gallon in highway traffic compared with the usual 19 to 20.
- United Parcel Service(UPS) and the US Postal Service reached an agreement on a deal that will put mail on UPS planes and may improve the post office’s reliability.
- US securities firms face two civil antitrust lawsuits in connection with the part they allegedly play in “naked short-selling.”

USA Today:
- 33% US adults said they are changing their summer vacation plans because of higher gas prices.

AP:
- Dallas Mavericks owner Mark Cuban and Hall of Fame quarterback Dan Marino have joined a bid to buy the NHL’s Pittsburgh Penguins.

NY Times:
- President Bush’s administration will issue new welfare rules today that will prompt states to move more people from welfare to work, representing the biggest policy change since 1996.
- Iraqi Prime Minister Nuri al-Maliki said the country’s new amnesty plan won’t allow pardons for people who attacked US soldiers “out of respect” for their contributions.
- The US Episcopal Church may lose full membership of the Anglican Communion if it doesn’t renounce same-sex unions and gay bishops, citing the Church of England’s Archbishop of Canterbury.
- Three-time heavyweight boxing champ Muhammad Ali plans to introduce a line of reduced-calorie snacks and beverages aimed at curbing youth obesity.

Washington Post:
- Military commanders said they expect to reach their target of training and equipping more than 325,000 members of the new Iraqi security forces by the end of the year.

Daily Telegraph:
- Global mergers and acquisitions activity may reach a record $3,500 billion this year, citing Thomson Financial.

Wall Street Journal Asia:
- China’s cabinet plans a two-day meeting this year to set new policies for the nation’s financial system.

Economic Releases

- None of note

Links of Interest

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- Honda Motor Co. chose Indiana as the home of its sixth North American auto-assembly plant.
- J. Crew Group(JCG), the casual clothing retailer part-owned by Texas Pacific Group, raised $376 million through an IPO today, topping its expected price range and signaling strong demand for new issues.
- Bank of China Ltd. drew $84.6 billion of bids for the nation’s biggest public offering, 52 times the stock on offer, underlining demand for new equity after the lifting of a yearlong ban on share sales.

Financial Times:
- High oil prices and the risk of volatility in commodity markets now rank ahead of fraud and the growth of hedge funds as the main concern for the stability of banks and financial regulators, citing a survey by the Center for the Study of Financial Innovation. Trading in derivatives linked to commodities has been one of the largest areas for growth for investment banks.

Xinhua news:
- Chinese government policies meant to curb excessive expansion in investment and credit must be implemented to ensure the economy maintains “stable, fast growth,” citing the head of the nation’s top planning body.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -1.50% to -.75% on average.
S&P 500 indicated -.04%.
NASDAQ 100 indicated -.16%.

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Earnings of Note
Company/EPS Estimate
- (COMS)/.04
- (ARRO)/.33
- (BMET)/.45
- (CAG)/.29
- (EMMS)/-.05
- (MLHR)/.37
- (MKC)/.30
- (MU)/.10
- (PAYX)/.32
- (RHAT)/.09

Upcoming Splits
- (ANDE) 2-for-1

Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a 1,400,000 barrel crude oil drawdown. Gasoline supplies are expected to rise by 450,000 barrels. Distillate supplies are estimated to rise by 1,450,000 barrels. Finally, refinery utilization is expected to rise 0.30%.

BOTTOM LINE: Asian indices are lower, weighed down by commodity and technology stocks in the region. I expect US equities to open lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

***Alert***

I am unable to post the Tuesday Close due to a scheduling conflict. I will post the Wednesday Watch later this evening.