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Thursday Watch

Late-Night Headlines
Bloomberg:
- Britain, China, France, Russia and the US reached tentative agreement today to increase pressure on Iran to halt uranium enrichment by tightening United Nations sanctions, Russian and US diplomats said.
- Palestinian leaders completed negotiations for a national unity government after the leaders of the Hamas and Fatah movements agreed on a candidate for interior minister, Prime Minister Ismael Hania said.
- Khalid Sheikh Mohammed admitted responsibility for planning the Sept.11 attacks and a host of other terrorist activities, according to a transcript of a hearing released by the US Defense Department. The al-Qaeda leader, captured in 2003, admitted responsibility for a long list of other actual or planned operations in addition to the Sept. 11 attacks, according to the transcript. They include the 1993 World Trade Center bombing, an attack on a nightclub in Bali, Indonesia, and planned attacks on buildings in NY, Chicago, California and Washington State.
- Toyota Motor(TM), whose Prius is the world’s best-selling gasoline-electric car, may also offer hybrids able to run on fuel that’s mostly ethanol. A flex-fuel hybrid would expand Toyota’s offerings of models that aren’t powered exclusively by gasoline. Toyota and Honda Motor are the only large automakers in the US that don’t sell vehicles able to run on E85, a fuel that’s 85% ethanol and 15% gasoline. Toyota said in January it would sell a flex-fuel version of its Tundra pickup truck able to run on E85 within 2 years.
- John Richels, president of Devon Energy Corp.(DVN) sees the potential for the company to double its oil reserves.
- Chiquita Brands Intl.(CQB), owner of the namesake banana brand, was charged with doing business with a terrorist group in Colombia, in violation of federal law.
- Hewlett-Packard(HPQ) shareholders rejected a plan that would have given investors more say over who sits on the board, leaving the decision in the hands of CEO Mark Hurd and current directors.
- Prices for luxury homes in London rose last month at the fastest annual rate in 28 years, cementing the British capital’s position as the most expensive city in the world for prime residential real estate.
- China, the world’s biggest producer of steel, boosted production of the alloy 23% in the first two months of the year.

Dow Jones:
- Sharp Corp. said price declines for liquid-crystal display televisions will probably slow this year, citing Hans Kleis, CEO of the company’s European unit.

Financial Times:
- Ensus Plc, a UK biofuels company, has raised $174.3 million from private equity firms Carlyle Group and Riverstone Holdings to build an ethanol plan in north east England, citing CEO Alwyn Hughes.

al-Hayat:
- OPEC will not assign a ceiling for the oil production of Angola, its newest member, when its meets tomorrow. The African nation, which joined OPEC in January, will be given the right to produce at maximum capacity until further notice.

China Business News:
- The People’s Bank of China may force medium-sized and smaller banks to buy “special” central bank bills to help curb loans. In a so-called window guidance meeting this week, the central bank said it will use bill issues and increases in required reserves to restrain bank lending and stem inflation.

Late Buy/Sell Recommendations
Citigroup:
- Farm economics are improving significantly. Farmers are likely to go from breakeven results last year to $190 - $230/acre profits this year. Farm real estate prices have jumped significantly. Today in Iowa, we are seeing farm prices of $5,000 per acre vs. last year’s $3,500 - $4,000 per acre. Five years ago it was $3,000.

Night Trading
Asian Indices are +1.25% to +1.5% on average.
S&P 500 indicated +.16%.
NASDAQ 100 indicated +.34%.

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Earnings of Note
Company/EPS Estimate
- (ARO)/.98
- (BSC)/3.77
- (BONT)/4.59
- (PLCE)/1.78
- (GLBC)/-1.32
- (LGND)/1.69
- (PSUN)/.39
- (ROST)/.66
- (TEK)/.37
- (TRLG)/.22
- (WGO)/.25

Upcoming Splits
- (CBE) 2-for-1
- (JEC) 2-for-1

Economic Releases
8:30 am EST
- The Producer Price Index for February is estimated to rise .5% versus a -.6% decline in January.
- The PPI Ex Food & Energy for February is estimated to rise .2% versus a .2% increase in January.
- Initial Jobless Claims for last week are estimated at 328K versus 328K the prior week.
- Continuing Claims are estimated to rise to 2540K versus 2526K prior.
- Empire Manufacturing for March is estimated to fall to 17.5 versus 24.4 in February.

9:00 am EST
- Net Long-term Tic Flows for January are estimated to rise to $70.0 billion versus $15.6 billion in December.

12:00 pm EST
- Philly Fed for March is estimated to rise to 4.0 versus .6 in February.

BOTTOM LINE: Asian indices are higher, boosted by automaker and technology shares in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 75% net long heading into the day.

Stocks Finish at Session Highs After Large Intraday Reversal

Indices
S&P 500 1,387.17 +.67%
DJIA 12,133.40 +.48%
NASDAQ 2,371.74 +.90%
Russell 2000 775.68 +.85%
Wilshire 5000 13,992.14 +.61%
Russell 1000 Growth 548.33 +.65%
Russell 1000 Value 798.15 +.57%
Morgan Stanley Consumer 684.61 +.25%
Morgan Stanley Cyclical 929.71 +.45%
Morgan Stanley Technology 553.44 +1.09%
Transports 4,716.03 -.22%
Utilities 476.60 +.58%
MSCI Emerging Markets 110.02 -.69%

Sentiment/Internals
Total Put/Call 1.64 +17.14%
NYSE Arms .68 -75.81%
Volatility(VIX) 17.27 -4.74%
ISE Sentiment 100.00 +5.26%

Futures Spot Prices
Crude Oil 58.25 +.55%
Reformulated Gasoline 191.95 -.64%
Natural Gas 7.09 +2.95%
Heating Oil 170.68 +.98%
Gold 645.60 -.59%
Base Metals 239.82 -1.12%
Copper 285.20 +.97%

Economy
10-year US Treasury Yield 4.53% +4 basis points
US Dollar 83.64 -.08%
CRB Index 304.06 -.15%

Leading Sectors
Homebuilders +1.94%
Steel +1.92%
Networking +1.67%

Lagging Sectors
HMOs -.32%
Airlines -.70%
Retail -.89%

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Afternoon Recommendations
AG Edwards:
- Rated (MEDX) and (STEC) Buy.

AG Edwards:
- Rated (RCRC) Buy, target $48.

Afternoon/Evening Headlines
Bloomberg:
- US banks and homebuilders carried stocks to their second gain this week after Lehman Brothers(LEH) said bad home loans won’t curtail earnings.
- Lehman Brothers(LEH), the second-biggest US underwriter of mortgage-backed bonds, said risks posed by rising home-loan delinquencies are “well contained” and will have little effect on the firm’s earnings.
- Mexico’s President Felipe Calderon won a pledge from President Bush to push for a US immigration bill after a meeting that Calderon said may signal a new stage in the two countries’ relations.
- The US Senate began debate on legislation that calls for US troops to withdraw from Iraq.
- Hedge funds must ensure independent oversight of their investment valuations to prevent managers inflating the returns that determine their pay, regulators said, opening a new line of scrutiny on the funds.
- The Carlyle Group announced the private equity firm, along with a group of investors, is to invest $240 million in Companhia Nacional de Acucar e Alcool. CNAA is a joint venture between sugar and ethanol producer Santa Elisa and Global Foods Holdings.
- Quadrangle Group LLC, a private-equity firm focused on communications and media investments, is eyeing acquisitions of phone and cable-operating companies, co-founder Steven Rattner said.

Reuters:
- The IMF predicts global growth will slow to 4.9% this year from 5.3% last year, citing draft forecasts due for publication next month.

Nikkei English News:
- Japan is expected to report Friday that the nation’s index of coincident economic indicators fell in January to 45%, the first drop in 10 months below 50%. A reading above 50% indicates economic expansion, while a figure below 50 indicates contraction.

BOTTOM LINE: The Portfolio finished higher today on gains in my Computer longs, Internet longs, Semi longs, Biotech longs and Telecom longs. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was positive today as the advance/decline line finished higher, almost every sector rose and volume was above average. Measures of investor anxiety were elevated once again into the close. Today's overall market action was very bullish as the major averages reversed early losses sharply on heavy volume. Many market leading stocks finished near session highs. Tech stocks did especially well today. Even at the lows, many tech leaders were just barely down and some were even higher. The fact that the Broker/Dealer Index finished 1.34% higher, near session highs is also a big positive. Oil is only $0.23 higher despite the reversal in stocks. Some believe that when refiners come back online it will result in more demand for oil and thus, higher prices. I see the opposite as gasoline has been propping up oil and U.S. oil inventories are still at multiyear highs. As more gasoline is produced and inventories surge, I expect even more downward pressure on oil. Nikkei futures are indicating a flat open in Japan. I would like to see emerging markets stabilize tonight before shifting market exposure further.

Stocks Higher into Final Hour on Heavy Volume Reversal

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Telecom longs, Biotech longs and Semi longs. I added to my (IWM)/(QQQQ) hedges and covered them today, thus leaving the Portfolio 75% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is heavy. Remember last year during the significant June/July market bottom we were told by the permabears that we had begun another bear market or resumed the secular downtrend that they believed still existed. During that period, the chief concern was the conflict between Hezbollah and Israel. Take a look at this chart from Google Trends of the blow-off top in the use of the word Hezbollah. The peak came on July 17, one day before the U.S. stock market bottomed on July 18 and began ripping higher for months. Currently, subprime mortgages are investors' chief concern. Now look at the chart of the word "subprime." Maybe this time will be different, but if the word "subpime" were a stock, I would begin shorting it very soon. The CBOE total put/call is currently 1.75. It hit 1.88 earlier today, which is a very elevated level. To put that in perspective, it only exceeded this level once during the entire 2000-2003 market meltdown, which was one of the worst in U.S. history. I sense, once again, that investors have priced in the worst-case scenario rather than the most likely scenerio for U.S. stocks. This has been a hallmark characteristic of the current “negativity bubble.” I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, less concern over the I-Banking sector and short-covering.

Current Account Deficit Shrinks, Import Price Index Rises Less Than Estimates

- The 4Q Current Account Deficit shrank to -$195.8 billion versus estimates of -$203.5 billion and -$229.4 billion in 3Q.
- The Import Price Index for February rose .2% versus estimates of a .8% increase and a -.9% decline in January.

BOTTOM LINE: The US current account deficit narrowed to $195.8 billion last quarter as lower oil prices trimmed imports, Bloomberg reported. The current-account deficit is now 5.8% of GDP versus 6.9% in the third quarter. I continue to believe the current account deficit will only improve modestly as US growth improves later in the year relative to other developed economies and commodities continue to decline.

Prices of goods imported into the US rose less than forecast in February, restrained by declines in costs of clothing and capital goods that may help keep inflation under control, Bloomberg reported. Excluding petroleum, the costs of goods shipped to the US fell .1% for a second month. Prices of goods from China fell .2% in February. Prices of US products shipped to other countries rose .7%. It is surprising that import prices barely rose in February, considering the jump in most commodity prices during the month. Import prices should remain very weak over the intermediate-term. I continue to believe inflation fears have peaked for this cycle as unit labor costs remain subdued, global growth slows and commodity prices continue to fall.

Links of Interest

Market Snapshot
Detailed Market Summary
Quick Summary
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Intraday Chart/Quote