Stocks Finish Slightly Lower, Consolidating Yesterday's Gains

Indices
S&P 500 1,391.97 -.25%
DJIA 12,192.45 -.12%
NASDAQ 2,374.64 -.44%
Russell 2000 775.90 -.38%
Wilshire 5000 14,036.83 -.21%
Russell 1000 Growth 549.29 -.25%
Russell 1000 Value 802.23 -.23%
Morgan Stanley Consumer 684.21 -.49%
Morgan Stanley Cyclical 932.20 +.26%
Morgan Stanley Technology 552.54 -.96%
Transports 4,793.22 +.52%
Utilities 474.71 -.01%
MSCI Emerging Markets 108.81 -.34%

Sentiment/Internals
Total Put/Call 1.16 -4.92%
NYSE Arms .99 +207.64%
Volatility(VIX) 15.24 -4.51%
ISE Sentiment 66.0 -30.53%

Futures Spot Prices
Crude Oil 61.85 +1.93%
Reformulated Gasoline 189.65 +2.33%
Natural Gas 7.31 -2.07%
Heating Oil 176.57 +1.05%
Gold 651.0 +.74%
Base Metals 235.46 +.56%
Copper 279.15 +2.87%

Economy
10-year US Treasury Yield 4.49% - 4 basis points
US Dollar 83.74 -.36%
CRB Index 310.67 +1.23%

Leading Sectors
Oil Service +2.01%
Energy +1.46%
Retail +.98%

Lagging Sectors
Airlines -1.27%
Telecom -1.24%
REITs -1.41%

Evening Review
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In Play

Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Fremont General Corp. and New Century Financial Corp. led mortgage-lending stocks higher for a second day, buoyed by a report showing an increase in home-loan refinancing and rising prospects for takeovers.
- US Senator Charles Grassley proposed a legislative amendment that would subject hedge funds to increased oversight and routine inspections, reinstating rules struck down by a federal court last year.
- Brazil can ensure supplies of ethanol to Japan should the Asian country require that gasoline contain 3% of the biofuel, Agriculture Minister Luis Carlos Guedes Pinto said.
- Automakers will use higher-strength steel, aluminum and magnesium to lop 3.5% from the weight of their cars and light trucks by 2015, a materials-forecasting company predicted.
- Microsoft’s(MSFT) top executive in charge of the Internet search program will leave the company, the second defection from the online unit this week as the world’s largest software maker tries to narrow the gap with Google Inc.(GOOG).
- New Zealand’s central bank raised the benchmark interest rate a quarter point to a record to 7.5% and said it can’t rule out another increase.
- Former NY Mayor Rudolph Giuliani leads the Republican presidential candidates and is favored in a match-up against Democratic frontrunner Senator Hillary Clinton, a poll of three swing states found.

BOTTOM LINE: The Portfolio finished about even today as gains in my Retail longs offset losses in my Energy-related shorts. I added back (IWM)/(QQQQ) hedges in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was slightly negative today as the advance/decline line finished modestly lower, sector performance was mostly negative and volume was above-average. Measures of investor anxiety were higher into the close. Today's overall market action was neutral after yesterday's sharp gains. However, the tech sector underperformed throughout the day. Natural gas is 2.2% lower as heating demand is projected at 23% below normal the next seven days. Nikkei futures are indicating a 29 point lower open in Japan. The Fed released its Beige Book earlier this afternoon. Here is a summary via Bloomberg:
- Dallas, New York, St. Louis and Boston noted some slowing.
- Most districts reported modest expansion.
- Housing market remained weak, but some signs of stabilization were noted.
- Price pressures are little changed.
- Pay increases moderate overall.
- Most districts showed labor market expansion.
- Steady growth in retail sales in most districts.
- Manufacturing is steady or expanding.
Surprisingly, the general tone of this report was upbeat. Moreover, it is very surprising and a big positive that manufacturing is "steady or expanding." I am disappointed with today's finish considering the news was better. I wouldn't be surprised to see some pre-jobs report jitters tomorrow.

Stocks Slightly Higher into Final Hour as Sub-prime, Emerging Market Concerns Subside

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs and Semi longs. 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 neutral, sector performance is mixed and volume is above average. Tractor Supply (TSCO) is breaking to a five-month high today. The stock is a play on the benefits related to rising ethanol production, an increase in auto production later this year and improving housing construction next year. Management has been very conservative in its forward guidance. Its valuation is below its historical average. It isn't too late to buy, in my opinion. I remain long the stock. Despite the apocalyptic projections for flash memory and recent market turbulence, SanDisk (SNDK) continues to display relative strength. It is rising .6% today, recouping all its recent losses. I am not long the stock, but its recent strength is very interesting and could bode well for the semi sector.I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and bargain-hunting.

Today's Headlines

Bloomberg:
- Take-Two Interactive Software(TTWO) shareholders formed a group to replace the board and overthrow management of the video-game maker after four quarters of losses. Shares of Take-Two surged 19% after investors including Steven Cohen’s SAC Capital Advisors LLC and David Shaw’s DE Shaw hedge funds announced the plan today in a regulatory filing. 43% of the float is short.
- Fremont General and New Century Financial shares rose as mortgage-lending stocks rebounded for a second day, buoyed by a report showing an increase in home-loan refinancing and rising prospects for takeovers.
- Hedge funds run by Man Group Plc, Winton Capital Management and Transtrend BV were among those battered during last week’s global equity market decline.
- Nat gas futures are falling in NY on forecasts showing much warmer weather is on the horizon.
- Oil is rising $1.10/bbl. after a US government report showed supplies fell more than estimates.
- Coffee prices in NY fell to a four-month low after Brazil, the largest grower, reported exports jumped 14% in February, more than analysts forecast.
- Exxon Mobil(XOM) plans to spend almost $21 billion exploring for oil and expanding refineries this year. The company plans to begin pumping oil or gas from 20 projects in the next three years after seven start-ups in 2006.

Wall Street Journal:
- Dieter Zetsche, DaimlerChrysler’s(DCX) CEO, confirmed that the company is in talks with General Motors(GM) about sharing development costs of sport-utility vehicles.
- A Wal-Mart Stores Inc.(WMT) program to get employees to adopt one product as their favorite for the year and give it special shelf space has helped improve marketing.
- A group of media activists is blocking proposals by the FCC and media companies to ease rules on how many properties media companies can control in a local market.

NY Times:
- Some US companies are trying to develop a method to convert algae into fuel, with one California start-up, LiveFuels Inc., aiming to annually produce 20,000 gallons of fuel per acre of algae. The company is among a large group of alternative energy start-ups seeking backing from venture capitalists. Investments in clean energy by venture capitalists more than doubled to $2.4 billion in 2006.
- Sony Corp.(SNE) plans to introduce today an upgraded online service for its PlayStation game consoles in the US.
- Sirius Satellite Radio(SIRI) and XM Satellite Radio(XMSR) must persuade the FCC that prices wouldn’t increase if the companies merged.

LA Times:
- Sam Zell, the Chicago billionaire and real estate investor, is a “strong contender” to buy Tribune Co.(TRB).

Reuters:
- Former Fed Chairman Greenspan said the decline in US home sales has reached a bottom, citing a speech at a technology conference in NY.

Dow Jones:
- Hiroshi Watanabe, Japan’s vice finance minister for international affairs, said the yen’s weakness before its recent rally didn’t result from the carry trade.

Chronicle of Higher Education:
- Women have earned more science and engineering undergraduate degrees than men since 2000, and the number awarded to women has increased every year since 1966.

InformationWeek:
- A US Federal Aviation Administration official is considering choosing Google Inc.(GOOG) online applications instead of Microsoft Corp.’s Windows Vista operating system.

Financial Times:
- The rate of corporate defaults is unlikely to rise until mid-2008 because companies can refinance their way out of trouble, citing a presentation by Ernst & Young LLP in London. The annual default rate on mezzanine debt, which ranks after senior lenders in a default, was less than 2% in the final quarter last year.

Economic Releases

- None of note

Links of Interest

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- The US and North Korea are on the “right track” for normalizing relations, Assistant Secretary of State Christopher Hill said after completing eight hours of talks with North Korean Vice Foreign Minister Kim Kye Gwan.
- Australia’s central bank today kept its benchmark interest rate unchanged at a six-year high amid signs inflation and the global economy are slowing.
- Rio Tinto Group(ETP), the world’s second-largest miner by market value, signaled to analysts it was in “no rush” to acquire assets, Credit Suisse Group analysts said.
- Australia’s economy grew 1% from the third quarter, when it expanded .3%. Estimates were for a .5% gain.
- The perceived risk of owning low-rated sub-prime mortgage bonds decreased for a fourth straight day. An index of credit-default swaps on 20 securities rated BBB- and created in the second half of 2006 rose about 3% to 71.14 yesterday, according to Markit Group Ltd. The index hit a low of 62.25 five days ago.

Late Buy/Sell Recommendations
Citgroup:
- Reiterated Buy on (EBAY), target $39.
- A number of homebuilders presented at out industrial manufacturing conference. Overall, the builders did in fact indicate that cancellation rates have dropped in recent months, which is an encouraging sign. Hovnanian(HOV), Beazer(BZH) and MDC Holdings(MDC) indicated that they have started to see signs of stabilization in their home prices net of all incentives. Intriguingly, Beazer also indicated that it was attempting to implement modest price increases in several locations and was finding that doing so helped to create a sense of urgency on the part of home buyers. Finally, Meritage Homes(MTH) expects cancellation rates to drop “dramatically” in 1Q07, based on data from the first two months of the year.

Night Trading
Asian Indices are +1.0% to +1.50% on average.
S&P 500 indicated -.10%.
NASDAQ 100 indicated -.06%.

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Earnings of Note
Company/EPS Estimate
- (AEOS)/.66
- (BJ)/.66
- (FLML)/-.38
- (FL)/.68
- (GCO)/1.31
- (HDL)/.64
- (MATK)/.12
- (MW)/.77
- (MIK)/1.10
- (SKS)/.22
- (TLB)/.00
- (TIVO)/-.36

Upcoming Splits
- None of note

Economic Releases
8:15 am EST
- ADP Employment Change for December is estimated at 100,000 versus 126K in January.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil build of 1,800,000 barrels versus a 1,421,000 barrel build the prior week. Gasoline supplies are expected to fall by -1,500,000 barrels versus a -1,940,000 barrel decline the prior week. Distillate inventories are estimated to fall by -2,750,000 barrels versus a -3,787,000 barrel drawdown the prior week. Finally, Refinery Utilization is expected to fall by -.30% versus a .76% increase the prior week.

2:00 pm EST
- The Fed’s Beige Book

3:00 pm EST
- Consumer Credit for January is estimated at $7.0 billion versus $6.0 billion in December.

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