DJIA at Record High into Final Hour, Boosted by Financials, Homebuilders and Semis

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, I-banking longs and Internet longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is mildly lower, sector performance is mixed and volume is above average. While the bears would have you believe that today's action is negative, I see a number of sectors (seven) with meaningful gains ranging from 1.4% to 5.5%, notwithstanding the market's near-term overbought state. Also, the Value Line Geometric Index is up a very strong 6.5% year-to-date, and the environment remains excellent for stockpickers. Google (GOOG) has surged 5 points over the last 2 hours on volume. So far, I haven't seen any new news to account for the move. I have always wondered why the knee-jerk reaction is always to sell Google every time its chief competition stumbles. Google is still my largest long position. This also bodes well for tech. The tech sector is now flat on the day. While tech has some near-term issues, I expect the sector to ignite in the second-half of the year. This is likely one of the reasons for the muted reaction to recent "poor" earnings reports. I expect US stocks to trade mixed-to-higher into the close on rising earnings optimism, lower long-term rates and short-covering.

Today's Headlines

Bloomberg:
- The US Supreme Court upheld a law that makes it a crime to perform “partial birth” abortions, allowing the first nationwide ban on the procedure.
- Freddie Mac(FRE), the second-largest source of money for US home loans, is offering to buy as much as $20 billion of mortgages in an effort to maintain the financing available for subprime borrowers.
- A National Collegiate Athletic Association committee approved a ban on coaches using text messaging to contract potential recruits.
- President Bush threatened Sudan with greater economic and diplomatic sanctions unless President Umar al-Bashir’s government fulfills its commitments under agreements aimed at ending the bloodshed in Darfur.
- College officials in the US are considering measures including better surveillance cameras and passes to improve security following the shooting at Virginia Tech that left 33 people dead.
- Iraq could double its crude oil output to 4 million barrels a day in as little as five years with enough security to allow for basic oilfield work, according to consulting firm IHS Inc.
- VersSun Energy(VSE), the second-largest US ethanol producer, plans to build an ethanol refinery in Reynolds, Indiana.
- Russia plans to build the world’s longest tunnel, a transport and pipeline link under the Bering Strait to Alaska, as part of a $65 billion project to supply the US with oil, natural gas and electricity from Siberia.
- As part of a borrowers’ assistance program designed to help WaMu homeowners with subprime mortgage loans stabilize their finances and avoid foreclosure, Washington Mutual(WM) today announced a commitment to refinance up to $2 billion in subprime loans at discounted interest rates.
- Bank of America(BAC) CEO Lewis said the problems in the US subprime market won’t spill into the prime market.
- CSX Corp.(CSX), the third largest US railroad, said UK hedge fund TCI Fund Management LLP holds a “significant” stake in the company and filed to buy more than $500 million of its stock. The shares surged 6.7% to a record.

Wall Street Journal:
- The US government is seeking to help American companies gain business in Asia helping reduce carbon-dioxide emissions. General Electric(GE), DuPont co. and others are attending a trade mission starting today in Chennai, India selling solar power, more-efficient building material and alternative-energy sources.
- Countrywide Financial Corp.(CFC), CIT Group(CIT) and iStar Financial(SFI) might be among financial-service companies being considered for takeovers following the $25 billion purchase of SLM Corp.(SLM) by a group led by JC Flowers.
- The US Congress and President Bush have moved closer to a compromise over immigration legislation that may give priority to border security.
- IAC/InteractiveCorp(IAC) plans to start a Web site for African-Americans and other ethnic minorities.

NY Times:
- Bain Capital LLC and Thomas H. Lee Partners LP raised their bid for Clear Channel Communications(CCU) by more than $1.5 billion to about $27.6 billion.

CNBC:
- MedImmune Inc.(MEDI), maker of FluMist flu vaccine, may announce it has accepted a buyout offer as early as April 23.

NY Post:
- Ellington Management Group LLC plans to buy Fremont General Corp.’s(FMT) real estate business and $2.9 billion of subprime loans.

USA Today:
- The US military is scheduled later this year to open the largest solar power plant in North America as a way to provide electricity to an Air Force base in the Nevada desert.
- The Defense Department has announced plans to offer more health screening, improve record-keeping and improve a disability claims system for injured soldiers.

AP:
- The World Trade Center Memorial Foundation has raised more than $300 million in private donations, citing NY Mayor Michael Bloomberg.

Washington Post:
- Nissan Motor will introduce its first diesel vehicles in North America in the next few years, citing an interview with CEO Ghosn.
- Saudi Arabia has agreed to cancel 80% of Iraq’s more than $15 billion in debt to the country, citing Iraqi and Saudi officials. However, Russia still has not agreed to forgive debt to the country accumulated under former Iraqi dictator Saddam Hussein.

London Times:
- Frontier Airlines Holdings, a Denver-based carrier, asked US regulators for permission to fly to any country with an open-skies agreement with the US, joining the list of low-fare airlines considering cheap transatlantic flights.

Finanz und Wirtschaft:
- Dow Chemical(DOW) has between $5 billion and $10 billion to spend on acquisitions and share buybacks over the next five years.

Milliyet:
- Iran is seeking talks on its nuclear program with the five permanent members of the United Nations Security Council and German, citing meetings between Iranian Foreign Minister Manouchehr Mottaki and Turkish officials.

Economic Releases

- None of note

Links of Interest

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- Kerry Killinger, CEO of Washington Mutual(WM), said the company “weathered” the subprime storm.
- CNOOC Ltd.(CEO) will nearly double its oil and gas output at Bohai Bay within 3 years.

Wall Street Journal:
- Blackstone Group LP is selling Extended Stay America for $8 billion to Lightstone Group LLC in one of the largest hotel deals.
- Toyota Motor(TM) will expand collaboration with other carmakers and suppliers in areas of advanced technology, citing Senior Managing Director Jim Press. The company would consider cooperative relationships to develop lithium-ion batteries for gasoline-electric hybrid cars and possibly pure electric cars.

Financial Times:
- The European Union will consider introducing legislation making denying or trivializing the Holocaust a criminal offence. Those charged under the legislation could face up to three years in prison.

AFP:
- Officials from religious schools in Pakistan, known as madrassas, said suicide attacks are un-Islamic and rejected the imposition of Sharia law by force. A group of about 2,000 scholars, teachers and administrators issued a declaration at a gathering yesterday in Peshawar. The six-page statement said aggressive acts are illegal, bring madrassas into disrepute and shouldn’t be encouraged.

-Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (SCHW), target $22.
- Downgraded (DRC), (CAM), (FTI), (NOV), (SLB) and (SII) to Hold from Buy.

Night Trading
Asian Indices are unch. to +.50% on average.
S&P 500 indicated -.14%.
NASDAQ 100 indicated -.32%.

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Earnings of Note
Company/EPS Estimate
- (ABT)/.52
- (ADS)/.91
- (ALL)/1.88
- (AOS)/.61
- (BK)/.57
- (CIT)/1.25
- (CTXS)/.34
- (CBH)/.39
- (CYMI)/.66
- (DSL)/1.74
- (ETFC)/.38
- (EBAY)/.30
- (GILD)/.81
- (ITW)/.71
- (ILMN)/.08
- (RX)/.34
- (JPM)/1.02
- (KMI)/1.59
- (KFT)/.41
- (LRW)/.16
- (MOT)/.02
- (NVLS)/.43
- (PNC)/1.32
- (SOV)/.32
- (SYK)/.58
- (TER)/.05
- (TMK)/1.29
- (TRB)/.31
- (UTX)/.81

Upcoming Splits
- (NRP) 2-for-1

Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil build of 650,000 barrels versus 678,000 barrel increase the prior week. Gasoline supplies are expected to fall by -1,900,000 barrels versus a -5,476,000 barrel drawdown the prior week. Distillate inventories are expected to fall by -925,000 barrels versus a 170,000 barrel increase the prior week. Finally, Refinery Utilization is estimated to rise .33% versus a 1.34% gain the prior week.

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

DJIA Close to Another Record on Poistive Earnings and Economic Reports

Indices

S&P 500 1,471.48 +.20%

DJIA 12,773.04 +.41%

NASDAQ 2,516.95 -.05%

Russell 2000 828.96 -.30%

Wilshire 5000 14,858.68 +.13%

Russell 1000 Growth 581.05 +.35%

Russell 1000 Value 847.90 +.05%

Morgan Stanley Consumer 727.38 +.54%

Morgan Stanley Cyclical 986.05 -.19%

Morgan Stanley Technology 583.73 +.20%

Transports 5,082.22 -.43%

Utilities 516.72 +.80%

MSCI Emerging Markets 123.29 -.17%

Sentiment/Internals

Total Put/Call .90 +9.76%

NYSE Arms .93 +45.11%

Volatility(VIX) 12.14 +1.34%

ISE Sentiment 151.0 +46.6%

Futures Spot Prices

Crude Oil 63.14 -.74%

Reformulated Gasoline 205.70 -2.77%

Natural Gas 7.44 -1.09%

Heating Oil 180.50 -2.92%

Gold 691.20 -.49%

Base Metals 268.90 -.90%

Copper 366.55 +3.49%

Economy

10-year US Treasury Yield 4.68% -5 basis points

US Dollar 81.79 -.33%

CRB Index 313.20 -.50%

Leading Sectors
Homebuilders +1.53%
REITs +1.29%
Restaurants +.76%

Lagging Sectors
Steel -1.24%
I-Banking -1.48%
Coal -1.67%

Evening Review
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In Play

Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Better-than-expected economic and earnings reports enabled the DJIA to close within 14 points of a record.
- NY harbor wholesale gasoline fell 3.5%, the biggest drop in more than two months, and its premium to NYMEX futures narrowed, on signs imports may rise in the coming weeks.
- Yahoo!’s(YHOO) profit and sale trailed analysts’ estimates in the first quarter after a new advertising program failed to generate the revenue gain some investors were expecting. The stock fell 6.3% after-hours.
- Intl. Business Machines(IBM) said first-quarter profit increased 8% because of new contracts and software acquisitions. The stock is down slightly after-hours.
- Intel Corp.(INTC) said first quarter-profit rose 19% after it paid less in taxes and stemmed a slide in revenue. The stock is just slightly higher after-hours on the report.
- US Treasuries rose the most in more than a month after a government report showed the pace of inflation rose less than economists expected in March.
- Evergreen Solar(ESLR) announced expansion plans and the signing of an agreement to secure supplies of polysilicon. The stock rose 4.5% after-hours.
- Ethanol in Chicago fell a third straight day as gas and corn futures declined.
- Linear Tech(LLTC) announced revenue for its quarterly period ended April 1 was $255.0 million, a decrease of 9%. The stock soared 9% after-hours.
- Domino’s Pizza(DPZ) announced today that it had completed its recapitalization as planned. The stock rose 9% after-hours.
- Washington Mutual(WM) said first-quarter profit dropped 20%. The stock rose 3% after-hours.
- Seagate Technology(STX) said third-quarter profit fell 23% and gave a forecast for the current period that trailed analysts’ estimates. The stock fell 5% after-hours.

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BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Telecom longs and Computer longs. I didn’t trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was mildly negative today as the advance/decline line finished mildly lower, sector performance was mixed and volume was about average. Measures of investor anxiety were about average into the close. Today's overall market action was neutral. The 10-year yield and oil are at session lows. The gasoline crack spread fell another 8% but remains very elevated. While we have heard about food inflation most of the day, the Goldman Agricultural Commodity Index peaked in February and has declined -9.1% since. Corn fell another 3% today and appears poised to take out its recent low. Housing-related stocks paced today's gainers. I would classify today's overall action as a healthy consolidation of yesterday's gains. I suspect the market will react positively to tonight's earnings, unless they are "bad," which I do not expect.