Stocks Mixed into Final Hour as Technology Share Strength Offsets Emerging Market and Commodity Weakness

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Semi longs, Medical longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mixed as the advance/decline line is about even, most sectors are rising and volume is above average. Measures of investor anxiety are mostly higher. I have been studying the specs for Apple's (AAPL) new iPhone. Cingular is offering the Palm Treo and HTC 8525 for $399. The BlackBerry Pearl and Samsung BlackJack are $199. I am very familiar with all these products. I do not think that Apple's initial price of $499 is too high. In my opinion, the iPhone will decimate the high-end consumer phone competition. Apple's stock was already undervalued before today's releases. The 7% gain is an underreaction, in my opinion. I now view Apple's stock as severely undervalued. Apple remains my second largest long position behind Google(GOOG). I expect stocks to trade modestly higher into the close on short-covering, bargain hunting, more economic optimism and lower energy prices.

Economic Releases

- None of note

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- US investors last year put the least money into domestic stock funds in a rising market since 1989, according to industry statistics. Investors’ reticence to dive into equities implies there’s plenty of cash available to fuel gains, said Jeff Schappe of BB&T Asset Management.
- Crude oil fell for a second day in NY, dropping back below $56/bbl., on skepticism OPEC can maintain prices amid falling heating demand in the US.
- US gasoline at the pump fell 2.8 cents to a nationwide average of $2.31 a gallon the week ended today, the biggest decline in almost 3 months.
- Shares of Sony(SNE) posted their biggest gain in more than five months after the company met its PlayStation 3 shipment target in the US last year.
- China National Petroleum Corp., the country’s largest producer of oil and gas, will increase capital expenditures by 25% this year to $32 billion as it drills domestically and abroad.
- China National Offshore Oil Corp., the nation’s third-largest oil company, plans to partner with PT Sinar Mas Agro Resources & Technology, to invest $5.5 billion in biofuel projects.
- US and European regulators, turning a spotlight on one of Wall Street’s most profitable businesses, are conducting a joint probe into whether banks and securities firms set strict enough limits on loans to hedge funds.
- Kim Eng Tan, analyst at S&P Singapore, said there is a “very strong” chance that his company will reduce its outlook on Thailand’s credit rating.
- Toyota Motor(TM) and Honda Motor(HON), the two biggest Japanese automakers in the US, expect demand for fuel-efficient vehicles to add to their record US share this year.

Wall Street Journal:
- General Electric(GE) is auctioning its plastics unit after the US Dept. of Justice expressed concerns about lack of competition among bidders.
- Cingular Wireless LLC may provide mobile-phone service for a new device from Apple Computer(AAPL). The phone may be introduced as soon as tomorrow.

Economic Times:
- Global funds investing in Indian stocks may need to pay a capital-gains tax of 10% on income from sale of shares within a year of buying.

Late Buy/Sell Recommendations
Citigroup:
- Rated (AT) Buy, target $63.
- Rated (LTR) Buy, target $53.
- Favorite retail stocks for 2007 are (LOW) and (DG).

Night Trading
Asian Indices are -.25% to +1.0% on average.
S&P 500 indicated +.09%.
NASDAQ 100 indicated +.12%.

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Earnings of Note
Company/EPS Estimate
- (AA)/.65
- (VOXX)/.65
- (HELE)/.85
- (RI)/.28
- (VOL)/.62

Upcoming Splits
- None of note

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- None of note

BOTTOM LINE: Asian indices are mostly higher, boosted by technology shares in the region. I expect US equities to open modestly higher and to build on gains into the afternoon. The Portfolio is 100% net long heading into the day.

Stocks Finish Slightly Higher on Another Decline in Oil and Rising Economic Optimism

Indices
S&P 500 1,412.84 +.22%
DJIA 12,423.49 +.21%
NASDAQ 2,438.20 +.16%
Russell 2000 776.99 +.14%
Wilshire 5000 14,149.91 +.22%
Russell 1000 Growth 556.13 +.28%
Russell 1000 Value 809.42 +.17%
Morgan Stanley Consumer 696.56 +.26%
Morgan Stanley Cyclical 888.93 +.27%
Morgan Stanley Technology 574.72 +.20%
Transports 4,624.18 +.26%
Utilities 447.10 -.12%
Put/Call .87 -1.14%
NYSE Arms 1.04 +6.96%
Volatility(VIX) 12.0 -1.15%
ISE Sentiment 143.0 -4.67%
US Dollar 84.58 -.07%
CRB 290.73 -.13%

Futures Spot Prices
Crude Oil 56.08 -.41%
Reformulated Gasoline 147.20 -1.41%
Natural Gas 6.41 +3.78%
Heating Oil 155.75 -.53%
Gold 610.90 +.66%
Base Metals 218.57 -2.64%
Copper 253.25 -.26%
10-year US Treasury Yield 4.65% +.21%

Leading Sectors
I-Banks +1.44%
Hospitals +1.38%
Gaming +1.03%

Lagging Sectors
Telecom -.38%
Drugs -.71%
Homebuilders -.97%

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Afternoon Recommendations
Citigroup:
- Downgraded (IIT) to Sell.

Afternoon/Evening Headlines
Bloomberg:
- Trading of American depository receipts of CA Nacional Telefonos de Venezuela(VNT) was halted after President Hugo Chavez said he plans to nationalize the company as part of his effort to turn the nation into a socialist state.
- University of Pennsylvania economics professor Rafael Robb was charged with murdering his wife, who was found bludgeoned to death last month.
- Borrowing by US households rose in November by the most in three months as Americans charged more to their credit cards to purchase gifts at the start of the holiday-shopping season.
- Shares of Gap Inc.(GPS) rose the most in more than two years after CNBC reported the company had hired Goldman Sachs(GS) to explore strategic alternatives.
- Tom Hartmann, a commodity broker for Altavest Worldwide Trading says oil could fall to $46/bbl. as OPEC further cuts production.
- Canadian Natural Resources, Canada’s third-largest natural gas producer, expects to spend $510 million to boost output from Alberta’s oil sands.
- OPEC crude oil-production in December dropped .8%, a Bloomberg News survey showed. Notwithstanding this cut, oil fell almost $3/bbl. during the month as record speculation by investment funds continued to subside.

BOTTOM LINE: The Portfolio finished higher today on gains in my Semi longs, Telecom longs, Retail longs and I-banking longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was modestly positive today as the advance/decline line finished about even, sector performance was mostly positive and volume was above average. Measures of investor anxiety were mixed into the close. Today's overall market action was mildly bullish as the major average and breadth finished higher, near session highs, notwithstanding at least three separate reports of potential terrorism-related activity. Oil finished floor-trading slightly lower and is down -8.1% year to date, notwithstanding a number of potential upside catalysts that surfaced today. The 10-year yield was stable throughout the day. I like what I am seeing beneath the surface despite the many bears' attempts to suggest that any pause or slight pullback is the beginning of a major downturn.

Stocks Higher into Final Hour on Another Decline in Oil and More US Economic Optimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Retail longs, I-banking longs and Telecom longs. I covered my (IWM) and (QQQQ) hedges, added to my (EEM) short and added to my (ISRG) and (UA) longs today, thus leaving the Portfolio 100% net long. The tone of the market is modestly positive as the advance/decline line is modestly higher, almost every sector is rising and volume is above average. Overall, I would classify the Fed’s Kohn’s comments today as mildly dovish. Recent economic data has been modestly below "Goldilocks," with below-average growth and inflation. I suspect the U.S. economy will accelerate modestly throughout the year back to around average rates of growth. However, inflation should continue to decelerate meaningfully and remain below average levels through year-end. Oil is now -$.22, to $56.09, falling -$1.49 from session highs, notwithstanding calls from some OPEC members for an emergency meeting and production disruption worries. So far, the major averages are just trending mildly higher on the decline. I suspect over the next couple of weeks, investors will once again view oil's demise as hugely positive for the broad U.S. stock market. I expect US stocks to trade modestly higher into the close from current levels on short-covering, more economic optimism, lower energy prices and bargain-hunting.