Stocks Finish Only Slightly Lower on Another Afternoon Rebound

Indices
S&P 500 1,449.37 -.13%
DJIA 12,632.26 -.12%
NASDAQ 2,504.52 -.42%
Russell 2000 823.69 -.36%
Wilshire 5000 14,644.24 -.16%
Russell 1000 Growth 573.00 -.30%
Russell 1000 Value 835.38 -.03%
Morgan Stanley Consumer 709.49 +.04%
Morgan Stanley Cyclical 971.90 +.12%
Morgan Stanley Technology 585.07 -.63%
Transports 5,036.72 -2.37%
Utilities 493.71 +2.63%
MSCI Emerging Markets 117.43 -.46%

Sentiment/Internals
Total Put/Call 1.02 -28.17%
NYSE Arms .92 -29.62%
Volatility(VIX) 11.15 +5.39%
ISE Sentiment 96.0 -4.95%

Futures Spot Prices
Crude Oil 61.49 +.57%
Reformulated Gasoline 178.0 +.96%
Natural Gas 7.54 -2.68%
Heating Oil 175.55 +.29%
Gold 690.50 +.55%
Base Metals 245.22 +1.58%
Copper 286.80 +.60%

Economy
10-year US Treasury Yield 4.62% -5 basis points
US Dollar 83.94 -.13%
CRB Index 315.10 +.15%

Leading Sectors
Utilities +2.63%
Papers +2.06%
Homebuilders +1.48%

Lagging Sectors
Oil Tankers -1.03%
Airlines -1.20%
I-Banks -1.64%

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Afternoon Recommendations
Piper Jaffray:
- Rated (BLDR) and (HWCC) Outperform.

Afternoon/Evening Headlines
Bloomberg:
- Nordstrom(JWN) said fourth-quarter profit rose by 22%, less than analysts estimated, on increased sales of women’s clothing. The stock fell 3.2% after-hours.
- The Bush administration wants Congress to give it the authority to speed up the process for issuing power-consumption standards for items ranging from refrigerators to traffic lights, Energy Secretary Bodman said.
- Natural gas declined 2.3% today in New York on speculation that demand for the furnace fuel will ebb as winter’s chill eases and spring approaches with inventories at very high levels.
- Brocade Communications(BRCD), the world’s largest maker of switches for data-storage networks, said first-quarter profit more than tripled on increased demand for storage systems. The stock surged 6% after-hours.

CNBC:
- Sandy Weil, former Chairman and CEO of Citigroup(C), said the US sub-prime mortgage market is not big enough to hurt the overall economy.

AP:
- Iraqi Prime Minister Nuri al-Maliki said today his Cabinet endorsed a draft version of a long-awaited oil law and the measure will now be sent to parliament for approval.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Retail longs and Energy-related shorts. I did not trade this afternoon, thus leaving the Portfolio 100% net long. The tone of the market was mildly negative as the advance/decline line finished modestly lower, sector performance was mixed and volume was below average. Measures of investor anxiety were mostly higher into the close. Today's overall market action was just mildly bearish. REITs recouped about half of their morning losses, however the I-Banks finished near session lows. The fact that oil only rose .25 today despite many scary Iran headlines and snow storms is interesting. Apple (AAPL) just said it is delaying its Apple TV launch until mid-March. This stock is only a bit lower on the report. A number of "growth stocks" I follow rose today despite the mild losses in the major averages. The underlying tone of the overall market remains very constructive despite the many calls for a correction. As of mid-February, NYSE short interest stood at 9,600,000,000 shares. This is only 1.5% below the all-time high of 9,744,698,000 shares set in October of last year, despite the 20.1% gain in the S&P 500 since June 13. Moreover, since June of last year when the bull market began to pick up steam, short interest has actually risen by 5.6% or 512,690,000 shares. Finally, the S&P 500 has soared 96.6% since the October 2002 bottom, yet NYSE short interest has actually jumped 17.0% since then. It is also interesting to note that the second-largest overall short position on the NYSE as of mid-February was the iShares Russell 2000 Index Fund (IWM) at 158,547,715 shares, up from 130,408,917 shares in mid-January. Short-selling has been rising in the IWM this year notwithstanding the fact that it is one of the best-performing major averages, already gaining 5.1% year-to-date. I continue to believe the many bears remain stunningly complacent and that a meaningful short-covering rally will occur at some point later this year.

Stocks Lower into Final Hour on Lingering Sub-Prime, Iran Concerns

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Retail longs and Energy-related shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is modestly lower, most sectors are declining and volume is below average. My intraday gauge of investor angst is now elevated for the fourth consecutive day considering the mixed performance in the major averages. If this week's economic data somehow come in around or above estimates, I wouldn't be surprised to see some upside fireworks in the averages. I think most investors believe economic data will come in below consensus estimates. The 10-year yield is near session lows, falling another 5 basis points. I expect US stocks to trade mixed-to-higher into the close from current levels as lower long-term rates, stable energy prices and buyout speculation offsets lingering sub-prime and Iran concerns.

Today's Headlines

Bloomberg:
- Morgan Stanley and Apax Partners Worldwide LLP agreed to buy Chicago-based Hub Intl. Ltd. for $1.8 billion in the second buyout of a US insurance brokerage in six weeks.
- Mirant Corp.(MIR) and Dynegy Inc.(DYN) are among power producers that may lure private equity firms after KKR agreed to buy TXU Corp.(TXU) in the biggest-ever leveraged buyout, Stephan Truffer of EIC Partners AG said.
- Temple-Inland(TIN), pressured by billionaire investor Carl Icahn, will spin off its real-estate and financial-serves units and sell timberlands to focus on packaging and building products. The shares jumped 16%.

Wall Street Journal:
- France’s state-run postal service is replacing the bulk of its 48,000-vehicle fleet of mail-delivery vans with electric cars.
- The US strategy to quell sectarian violence in Baghdad and help Iraqi forces set up permanent bases in Sunni and Shiite neighborhoods is starting to take hold, Senator Joe Lieberman wrote. Though time will be needed to see if the strategy proves a success over the longer term, many Congressional opponents of the war aren’t interested in giving it a chance, he wrote. “Cutting off support for further US troop deployment in Iraq, however, would be a “terrible mistake” and would have “devastating consequences,” Lieberman said.
- Governors of California, Arizona, New Mexico, Oregon and Washington today plan to propose a regional strategy to reduce greenhouse-gas emissions.
- US mutual funds that concentrate of growth stocks are ahead of value funds so far this year, citing Morningstar Inc.
- Advanced Micro Devices(AMD), Intel Corp.(INTC), Microsoft Corp.(MSFT), Intl. Business Machines(IBM) and rivals have joined to mitigate the rising cost of energy of server systems and data centers. A technology-industry group, comprised of 11 companies sand known as the Green Grid, plans to disclose its program today.

NY Times:
- Google Inc.(GOOG) plans to distribute content from Dow Jones, Sony BMG Music Entertainment, Conde Nast and other large content media companies to strengthen its position as an advertising platform.
- Hollywood studios are using digital downloading pioneer BitTorrent to help make movies and television shows legally available through the Internet.

NY Daily News:
- Fidelity Investments is planning to expand its program of charging higher management fees for better-performing funds to 19 more mutual funds.

USA Today:
- Lawmakers have continued to take trips funded by outside sources after new congressional travel restrictions were approved aimed at restricting such travel.

CNBC:
- The National Basketball Assoc. will show game highlights on Google’s(GOOG) YouTube Web site in a deal to be announced today.

Financial Times:
- Beer drinkers may find prices rising as a worldwide expansion in growth of corn, soybeans and rapeseed for renewable fuel production is crowding out barley farming.
- The number of hedge funds grew by more than two-thirds last year as the amount of new starters rose and more funds registered information publicly, citing a survey by Pertrac Financial Solutions. The NYC-based firm found more than 13,600 firms in 2006.

Valor Economico:
- Mitsui, Japan’s second-largest trading company, and Petroleo Brazileiro SA plan to invest in at least 3 ethanol mills in Brazil to supply the biofuel to the Asian country.

Nikkei English News:
- Toyota Motor(TM) is building a factory in Mississippi to assemble sport-utility vehicles, a facility that will cost $829 million.

Economic Releases

- None of note

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Monday Watch

Weekend Headlines
Bloomberg:
- Citigroup(C) plans to name American Express’(AXP) Gary Crittenden as CFO as soon as today, ending a monthlong search for Sallie Krawcheck’s successor.
- President Bush said his “market-based principles” have helped improve the nation’s Medicare system, and they can improve access to health insurance as well. Bush called for changes in the nation’s tax code to encourage more Americans to buy health insurance.
- KKR and Texas Pacific Group plan to include TXU Corp.(TXU) CEO C. John Wilder in their buyout of the largest power producer in Texas for as much as $44 billion.
- Caremark RX(CMX) today said it mailed to shareholders supplemental disclosures ordered by a judge, paving the way for a March 16 meeting to allow investors to vote on a merger with CVS Corp.(CVS).
- Secretary of State Condoleezza Rice said Iran’s continued defiance of international demands that it stop uranium enrichment is stirring dissent within the Persian Gulf nation that is adding to diplomatic pressure.
- Hugo Chavez’s spending spree has turned the Venezuelan Bolivar into the world’s worst performing currency. Venezuelans and foreign companies are pulling money out of the country as a 200% increase in government spending over the past two years fuels the highest inflation rate in Latin America. Venezuelans have moved $8 billion out of the country on average every year since Chavez took office in 1999.
- The professionals most familiar with the so-called oil shortage know there’s an estimated 3 trillion barrels under land and sea. That’s why they’re making their biggest bets in drilling rigs where the scarcity is no illusion. The oil left underground in the US alone is enough to replace every barrel pumped from Iran for the next 20 years.
- The Democratic governors of West Virginia and Montana said Congress should establish a price floor for crude oil to assure investment in alternative energy supplies. The governors represent coal producing states and are supporters of technology that uses coal to produce transportation fuel, known as coal-to-liquid.
- Gilead Sciences(GILD) said its experimental HIV treatment in a new class of medication works in combination with other drugs as well as older therapies.
- Lam Research(LRCX), the maker of semiconductor manufacturing equipment, said it plans to buy back as much as $750 million worth of its stock.

Wall Street Journal:
- Station Casinos(STN) has accepted a revised $5.5 billion offer from a group led by the company’s founding family and Colony Capital LLC.
- The Tribune Co.’s(TRB) board is leaning toward a restructuring plan instead of a sale.

Chicago Tribune:
- Sam Zell, the Chicago billionaire who sold Equity Office Properties Trust(EOP) for $39 billion, may participate in the buyout of Tribune Co.(TRB) through an employee stock option plan.

NY Times:
- Iraqi Shiite Muslim cleric Moqtada al-Sadr appears to be cooperating with the effort to restore order in Baghdad and aiding the Iraqi-US campaign against parts of his Mahdi Army militia. Sadr has signaled which militia members should be arrested and told others to flee.

Washington Post:
- Congressional Democrats, after campaigning against Republican ties to corporate lobbyists in the November elections, have mounted a major fundraising offensive featuring their key committee chairmen. The drive, which helps the Democrats build a reserve of funds as they try to increase narrow majorities in the House and Senate in the 2008 elections, includes a late-March event featuring House Speaker Nancy Pelosi and 10 of the top panel chairmen. The ticket price for the March 21 dinner is $28,500 per couple and is designed to raise funds for the Democratic Congressional Campaign Committee.
- Citgo Petroleum Corp., a unit of Venezuela’s state-owned oil company, is running ads in the US that some critics say promote Venezuelan President Hugo Chavez. Chavez is seizing oil and telecom assets to transform his country into a socialist state.
- Microsoft(MSFT) Chairman Bill Gates said the US must improve its education system and boost immigration of highly skilled workers in order to maintain an edge in innovation.

San Francisco Chronicle:
- San Francisco’s new $144 million federal building has been designed to create a healthy environment for workers while reducing the use of energy and natural resources.

San Jose Mercury News:
- Sun Microsystems(SUNW), Intel Corp.(INTC) and Hewlett-Packard(HPQ) are among large technology companies moving support jobs closer to the US as part of a growing trend known as “nearshoring,” citing business professors and corporate executives.

AP:
- Kurdish authorities have agreed to support a draft law to manage and share Iraq’s vast oil wealth, citing Massoud Barzani, president of the self-governing Kurdish administration in the north.

LA Times:
- Proposed laws to stop airlines from keeping passengers on grounded airplanes indefinitely may result in even longer waits for US travelers, citing industry analysts.

Financial Times:
- DaimlerChrysler AG(DCX) may take a minority stake in General Motors(GM) as payment for its Chrysler division.

London-based Sunday Express:
- Dow Chemical(DOW) may receive a takeover offer worth as much as $54 billion from private equity investors within the next few weeks.

Economic Daily News:
- Texas Instruments(TXN) may jointly develop new chip production technologies with a semiconductor maker in Taiwan, citing the company’s chief technology officer.
- Asustek Computer’s first-quarter sales may more than double from a year earlier to $6 billion because of rising shipments of game consoles and motherboards. Asustek is the world’s largest maker of computer motherboards.

Yonhap News:
- North Korea’s leader Kim Jong Il is preparing a collective leadership to rule the Stalinist country after his death, citing diplomats in Beijing. Kim no longer plans to hand over power directly to his eldest son Kim Jong Nam, who’s not interested in the role.

Weekend Recommendations
Barron's:
- Made positive comments on (UEIC), (WAG), (BAM), (FITB), (SAI), (RJET) and (NT).
- Made negative comments on (APPB).

Citigroup:
- Reiterated Buy on (YHOO), target $35.
- Reiterated Buy on (HUM), target $80.

Night Trading
Asian indices are -.25% to +.50% on average.
S&P 500 indicated +.12%.
NASDAQ 100 indicated +.18%.

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Earnings of Note
Company/Estimate
- (BRCD)/.13
- (FLS)/.74
- (FMCN)/.51
- (GTRC)/1.07
- (MVL)/.10
- (MRVL)/.09
- (MRT)/.29
- (NTES)/.28
- (JWN)/.90
- (URI)/.63
- (WRNC)/.49
- (XMSR)/-.66

Upcoming Splits
- (RYAAY) 2-for-1

Economic Releases
- None of note

BOTTOM LINE: Asian Indices are mostly higher, boosted by metal and technology shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.