DJIA Hits Another All-Time High, S&P 500 at 6-year High on More Positive Economic Data, Falling Energy Prices

Indices
S&P 500 1,450.02 +.14%
DJIA 12,666.87 unch.
NASDAQ 2,490.50 +.77%
Russell 2000 816.20 +.71%
Wilshire 5000 14,622.55 +.23%
Russell 1000 Growth 572.40 +.32%
Russell 1000 Value 835.96 +.06%
Morgan Stanley Consumer 708.49 -.26%
Morgan Stanley Cyclical 946.13 +.12%
Morgan Stanley Technology 576.80 +1.50%
Transports 4,979.84 +.32%
Utilities 469.80 +.03%
MSCI Emerging Markets 116.30 +.03%

Sentiment/Internals
Total Put/Call .86 +1.18%
NYSE Arms 1.22 -3.50%
Volatility(VIX) 10.32 -3.10%
ISE Sentiment 113.0 -19.86%

Futures Spot Prices
Crude Oil 57.84 -1.80%
Reformulated Gasoline 154.50 -1.75%
Natural Gas 7.73 +1.55%
Heating Oil 167.05 -1.21%
Gold 656.40 -.35%
Base Metals 216.82 -1.55%
Copper 245.95 -1.48%

Economy
10-year US Treasury Yield 4.74% -2 basis points
US Dollar 84.75 -.02%
CRB Index 298.87 -.73%

Leading Sectors
Networking +2.14%
REITs +1.99%
Semis +1.59%

Lagging Sectors
Gold & Silver -.51%
Oil Service -.73%
Energy -.74%

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Afternoon Recommendations
Piper Jaffray:
- Upgraded (IFIN) to Outperform.

Afternoon/Evening Headlines
Bloomberg:
- US technology stocks rallied, pushing the S&P 500 to another six-year high and the Nasdaq to its eighth gain in nine days, after Cisco Systems forecast sales that beat estimates.
- Gasoline futures fell after a government report showed that inventories of the motor fuel rose to their highest in almost eight years. Crude oil also fell more than $2/bbl. from session highs.
- Brazil and the US, the world’s biggest ethanol producers and consumers, plan to help an as-yet unselected Central America country produce ethanol as they seek to bolster the international market for the fuel.
- Corn futures fell to a three-week low in Chicago on speculation that demand for US supplies will slow after a rally in prices last year and the arrival of new crops being harvested in South America.
- Varian Medical(VAR) will replace Equity Office Properties(EOP) in the S&P 500, S&P said.
- Walt Disney(DIS) said first-quarter profit more than doubled on asset sales and income from last year’s two biggest-selling DVD releases, “Pirates of the Caribbean” and “Cars.” The stock rose .50 in after-hours trading.
- Electronic Data Systems(EDS) said fourth-quarter profit almost doubled after it generated more revenue from government orders and reduced costs. The stock rose 4.5% after-hours.
- EMC Corp.(EMC) said it will offer 10% of its VMware business unit in an IPO. The stock soared 7.7% after-hours.
- A newly completed map of the horse genome will give scientists a better understanding of human genetics, researchers said.
- Hedge fund SAC Capital Partners is reportedly stepping up its private equity practice by hiring former Ripplewood Holdings managing director Peter Berger.
- Merrill Lynch(MER) introduced an index that mimics a hedge-fund trading strategy that exploits imperfect forecasts of US stock volatility.

BOTTOM LINE: The Portfolio finished higher today on gains in my Semi longs, Telecom longs, Biotech longs, Computer longs, Retail longs and Commodity shorts. 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 higher, most sectors rose and volume was heavy. Measures of investor anxiety were mixed into the close. Today's overall market action was modestly bullish. The tech sector outperformed, rising 1.5%. Many "growth" stocks surged 3%-4%. The Naz is already 3.0% higher year to date. Oil is down $1.17/bbl., at session lows. The dollar was stable and the 10-year yield fell another 2 basis points despite stock gains. The NYSE Arms rose to above-average levels throughout the day, while the ISE Sentiment Index plunged 20% to a low 113.0. I suspect stocks will build on today's gains by the weekend.

Stocks Mostly Higher into Final Hour on More Positive Economic Data, Falling Energy Prices, Lower Long-term Rates

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Retail longs, Computer longs, Telecom longs, Biotech longs and Commodity shorts. I added to my (AAPL) long and took profits in another long today, thus leaving the Portfolio 100% net long. The tone of the market is modestly positive as the advance/decline line is higher, sector performance is mostly positive and volume is heavy. I suspect that Apple Inc.(AAPL) has bottomed after its recent correction. I still expect a 50% gain for the year in the stock. Apple is still my second-largest long position, behind Google (GOOG). A number of pundits and analysts have commented recently that investor complacency is high. Only in a "negativity bubble" could current sentiment be construed as complacent, in my opinion. Short interest is near all-time highs, the general public completely shuns U.S. stocks, commodities are loved by all, herd sentiment gauges are mostly showing more bearishness than bullishness, investors seek negatively-spun information regardless of its accuracy and every move higher is seen as a major top or just another short-selling opportunity. All this pessimism with the DJIA at all-time highs and the S&P 500 approaching a triple-digit gain from the major bear market lows. I would argue that the fact that multiples have contracted relentlessly for three consecutive years is evidence that investors are overly focused on potential risks and surprises and not focused on the most likely outcomes. Since 1905, multiples have contracted for four consecutive years only twice. I still expect the herd to finally begin embracing this bull market this year as the S&P 500 breaks out to an all-time high to join the DJIA and Russell 2000. I expect US stocks to trade modestly higher into the close from current levels on lower long-term rates, lower energy prices, more economic optimism and short-covering.

Today's Headlines

Bloomberg:
- Crude oil plunged over $2/bbl. after a government report showing gasoline supplies surged more than estimates curbed historic investment fund speculation.
- New US hedge fund raised less money in 2006 for the second year in a row because of a rout in emerging markets and the collapse of Amaranth Advisors LLC.
- Blackstone Group LP won the biggest leveraged buyout in history as Equity Office Properties Trust shareholders approved the $39 billion takeover of the real estate investment trust built by billionaire Sam Zell.
- Michael Fitzgerald, vp for energy risk management at Fimat USA, said for traders to sell oil at $60/bbl.
- Copper prices fell in NY, resuming a slump that began in May, as an increase in global stockpiles signaled demand is slowing.

Wall Street Journal:
- The US Senate Energy Committee is probing whether futures traders are influencing markets that establish natural-gas prices, citing letters sent by panel chairman Jeff Bingaman.
- A New Jersey jeweler has become the first to sell branded, natural emeralds to guarantee quality in a business where flaws in the stones often are disguised.
- San Francisco’s historic State Armory and Arsenal building has been turned into a pornography production plant, one of the few ways to preserve the building’s architectural integrity without violating zoning laws. The 200,000-square-foot building, listed on the National Register of Historic Places, was bought for $14.5 million by the Internet porn company Kink.com, which last week started shooting bondage films on location.
- Delta Air is likely to move closer to the end of insolvency protection at a US Bankruptcy Court hearing in NY today.

NY Times:
- Rural colleges and universities in the US are trying to build miniature cities to attract students who want the amenities of urban areas.
- General Electric(GE) is moving closer to business in clinical diagnoses as it continues to diversify by adding security, energy services and “green” products, among other areas.

Washington Post:
- General David Petraeus, the recently confirmed head of US forces in Iraq, spent time on Capitol Hill last week trying to convince senators to support President Bush’s plan to increase the number of troops.
- The 2008 US presidential election may become the first billion-dollar presidential campaign.
- A stuffed animal introduced by a family-owned wholesale gift company in Ontario, Canada is thought to be the first to marry a physical toy with a related social-networking virtual world. The Webkinz stuffed animal, created by Ganz, comes with an identification number that gives children access to the Webkinz Web site, where they can use virtual money to buy clothes for their pet’s online persona and invite other pets to come hang out.

Folha de S. Paulo:
- The US government is seeking a partnership with Brazil to increase the market for ethanol and reduce dependence on crude oil, citing Nicholas Burns of the US State Department. The research and development of biofuel such as ethanol may be a pillar for a new and stronger partnership between the US and Brazil, Burns said. A partnership between the US and Brazil on biofuel could be ready in less than 12 months.

MehrNews:
- The Islamic Development Bank, a Saudi Arabia-based lender owned by 56 mainly Muslim nations, agreed to lend $1.3 billion to Iran.

Today's Headlines

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Productivity Surges, Unit Labor Costs Decelerate

- Preliminary 4Q Non-farm Productivity rose 3.0% versus estimates of a 2.0% gain and a -.1% decline in 3Q.
- Preliminary 4Q Unit Labor Costs rose 1.7% versus estimates of a 2.1% gain and an upwardly revised 3.2% increase in 3Q.

BOTTOM LINE: US worker productivity grew at the fastest rate in almost a year last quarter and labor costs rose at a slower pace, suggesting less of an inflation threat. Productivity is now above long-term average levels, while unit labor costs are rising around average rates. Output rose at a 4.2% rate in 4Q versus a 1.9% increase during 3Q. Compensation for each hour worked rose an annual rate of 4.8% in the fourth quarter versus a 3.1% gain in 3Q. Productivity at non-financial corporations, a gauge closely monitored by the Fed, rose at a 5.7% rate in the third quarter versus a 4.3% decline the prior three months. Non-financial productivity has averaged a 4.2% gain over the last 3 quarters, substantially above the 20-year average of 2.4%. I continue to believe the job market will remain healthy without generating substantial unit labor cost increases over the intermediate-term.

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