Stocks Surging into Final Hour Again After Constructive Fed Comments

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Retail longs, I-Banking longs and Semi longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly positive as the advance/decline line is mildly higher, most sectors are rising and volume is heavy. Weekly mortgage applications rose 3.6%, the third consecutive weekly gain. As well, purchase applications rose again; they were up 2.6%, and up 17% from October lows. The upcoming April retail same-store-sales and advance retail sales data will likely come in below even lowered estimates. The coldest April in a decade and the Easter calendar shift played a huge part in the likely weak data. However, I wonder if this is already priced into stocks given how much short interest has risen in the retail sector and how many analysts have made cautious comments of late regarding the prospects for April sales. Yesterday, Morgan Stanley described a "perfect storm" for softline retail during April. However, their note also said their proprietary retail sales leading indicator is predicting an acceleration to 6%, excluding autos and gas, in July from 4.2% in February. I agree with these expectations. So far this year, despite numerous perceived headwinds, the Morgan Stanley Retail Index (MVRX) is 8.1% higher vs. a 7.3% gain for the S&P 500. I expect US stocks to trade mixed-to-higher into the close from current levels on buyout speculation, short-covering, lower oil prices and investment manager performance anxiety after another failed sell-off attempt.

Today's Headlines

Today’s Headlines
Bloomberg:
- Oil is falling -$.71/bbl. after inventories surged to the highest since June of last year and approached 8-year highs. Moreover, gasoline supplies rose more than estimate despite lower-than-expected refinery utilization.
- The Fed kept the benchmark US interest rate at 5.25% and said inflation remains the “predominant” risk for the economy. The FOMC also said it expects economic growth to rise at a moderate rate and inflation to decelerate.
- News Corp.’s $5 billion bid for Dow Jones(DJ) has a 40% chance of success and its failure would send the shares plunging to below their pre-offer price, according to UBS.
- IBM(IBM) shares climbed to the highest level in five years after Goldman, Sachs(GS) suggested buying the stock because of rising earnings at the world’s largest computer-services provider.
- Amaranth Advisors LLC, the hedge fund that collapsed in September under $6.6 billion of energy-trading losses, will pay $717,000 to settle an unrelated case by the SEC. The firm improperly used shares acquired during public offerings in 2004 and 2005 to cover short positions, or bets that the shares would drop, the SEC said today.
- Eric Rosenfeld, co-founder of Long-term Capital Management, and two of his former colleagues are starting a hedge fund that uses computers to pick investments.

Wall Street Journal:
- Alltel Corp.(AT), a wireless telephone company, is holding talks with three groups of leveraged-buyout firms who are considering a possible acquisition.
- Chinese investors may soon start investing in real estate abroad, if restrictions on private investment in overseas real estate are lifted later this year.
- EBay Inc.(EBAY) is in talks to acquire StumbleUpon, an Internet company that helps people find Web sites that interest them.
- Delta Air(DAL) plans to overhaul and develop its facilities in NY and LA.
- United Steelworkers, the union representing workers in the US steel industry, is blocking takeovers, demanding board seats, and taking sides in bidding wars to enhance its negotiating power.
- Plans by Citigroup Inc.(C), to spend $50 billion in alternative energy sources are getting a lukewarm response from environmentalist advocates that say the company could also do other things.
- Hewlett-Packard(HPQ) and Eastman Kokak(EK) are among the printer-makers that recently introduced lower-priced ink cartridges to compete with the rapid market expansion of cartridge-refilling firms.
- Tetra Technologies(TTI) and other companies are working around the clock to bolster oil gas rigs in the Gulf of Mexico against the next storm.
- A US official accused Venezuela of allowing its airports and ports to be used by drug traffickers shipping cocaine to Europe.

NY Times:
- Mowaffak al-Rubaie, the national security adviser to Iraq’s prime minister Nuri Kamil al-Maliki, made his case to American legislators that pulling out troops from his country would be a disaster. He met several Democrats on Tuesday who have been calling for imminent US military withdrawals from Iraq, including Representative John P. Murtha and Senator Carl Levin. The meetings didn’t seem to shift the lawmakers’ positions.

Financial Times:
- Marathon Oil(MRO), the fourth largest US oil and gas company, has been warned by federal regulators that its refining unit could face legal action alleging manipulation of futures trading contracts. The action claims that a unit of the Houston-based Marathon tried to manipulate the price of West Texas Intermediate crude oil.
- Thomson Corp.’s offer to buy Reuters Group Plc for $17.5 billion may not be concluded quickly and the Canadian company’s share price may suffer during the process.

Haaretz:
- Israel has a good chance of being accepted into the OECD next week.

Handelsblatt:
- The German government plans to force hedge funds to disclose more information.

Economic Releases

- None of note

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- McDonald’s Corp.(MCD), which sold its first hamburger 52 years ago, says it now sells more chicken than Kentucky Fried Chicken.
- The queue of ships waiting to load coal at Newcastle, Australia, the world’s largest coal-export harbor, may fall 50% by June, according to the Hunter Valley Coal Chain Logistics Team.

Reuters:
- International Business Machines(IBM) agreed to sell and support Red Hat’s(RHAT) Linux software on large corporate computers.

Economic Times:
- ONGC Videsh Ltd. and a group of other Indian state-run companies have discovered oil and gas in Iran. The Farsi field may have as much as 10 trillion cubic feet of natural gas and 1 billion barrels of oil.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (URBN), target $30.
- Reiterated Buy on (CVS), target $43.
- Reiterated Buy on (HPQ), target $55.

Night Trading
Asian Indices are unch. to +.50% on average.
S&P 500 indicated -.03%.
NASDAQ 100 indicated -.14%.

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Earnings of Note
Company/EPS Estimate
- (AZPN)/.15
- (B)/.40
- (BRL)/.61
- (CGX)/1.03
- (CXR)/.13
- (DTV)/.30
- (EIX)/.65
- (FLS)/.56
- (FWLT)/.73
- (FTO)/.77
- (GMKT)/.12
- (HGSI)/-.42
- (IO)/.03
- (LM)/1.17
- (MGAM)/-.05
- (NWS/A)/.28
- (ONXX)/-.44
- (PEIX)/.02
- (PCP)/1.27
- (SINA)/.18
- (STN)/.59
- (TK)/1.07
- (TXU)/1.13

Upcoming Splits
- (ATR) 2-for-1
- (VOLV) 5-for-1
- (TCK) 2-for-1

Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil build of 875,000 barrels versus a 1,169,000 barrel increase the prior week. Gasoline supplies are estimated to rise by 150,000 barrels versus a -1,115,000 barrel drawdown the prior week. Distillate inventories are expected to rise by 450,000 barrels versus a -198,000 barrel decline the prior week. Finally, refinery utilization is expected to rise by 1.0% versus a .46% increase the prior week.

2:15 pm EST
- The FOMC is expected to keep the benchmark fed funds rate at 5.25%.

Other Potential Market Movers
- The weekly MBA Mortgage Applications report, (TXN) financial analyst meeting, (NT) investor technology day, Robert Baird Growth Stock Conference, Bear Stearns Global Transportation Conference, UBS Global Generic/Specialty Pharma Conference, Goldman Consumer Products Symposium, BIO Intl. Convention, Piper Jaffray Semi/Communications Conference, AG Edwards Lodging/Leisure Symposium and Bank of America Basic/Industrials Conference could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by commodity stocks 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.

Stocks Finish Slightly Lower on Profit-taking Ahead of FOMC Meeting

Indices
S&P 500 1,507.72 -.12%
DJIA 13,309.77 -.03%
NASDAQ 2,571.75 +.03%
Russell 2000 830.90 -.12%
Wilshire 5000 15,172.86 -.12%
Russell 1000 Growth 594.76 -.09%
Russell 1000 Value 867.20 -.12%
Morgan Stanley Consumer 741.52 -.14%
Morgan Stanley Cyclical 1,049.23 +.32%
Morgan Stanley Technology 608.17 +.37%
Transports 5,217.93 +1.02%
Utilities 528.16 -.50%
MSCI Emerging Markets 124.50 -.57%

Sentiment/Internals
Total Put/Call .99 +43.48%
NYSE Arms 1.04 +25.66%
Volatility(VIX) 13.21 +.46%
ISE Sentiment 121.0 -27.11%

Futures Spot Prices
Crude Oil 62.20 +1.19%
Reformulated Gasoline 220.40 +.66%
Natural Gas 7.64 -1.75%
Heating Oil 183.05 +1.50%
Gold 687.0 -.49%
Base Metals 282.29 +.22%
Copper 372.0 +.12%

Economy
10-year US Treasury Yield 4.63% unch.
US Dollar 81.94 +.31%
CRB Index 308.90 -.01%

Leading Sectors
Steel +.93%
Networking +.83%
Homebuilders +.77%

Lagging Sectors
Alternative Energy -.72%
Papers -.82%
Gold -.89%

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Afternoon Recommendations
UBS:
- Reiterated Buy on (AAPL).

AG Edwards:
- Upgraded (HPQ) to Buy.

Afternoon/Evening Headlines
Bloomberg:
- Jana Partners LLC, an investment firm with more than $7.5 billion under management, said Alcoa Inc.(AA) should explore options, including a sale of the company, and drop its bid to acquire Alcan(AL).
- Corn yields on marginal land could increase 10% within five years as genetic modifications help meet global food and fuel needs, according to Monsanto(MON).
- AK Steel(AKS) CEO James Wainscott said the company isn’t “actively seeking a buyer,” following a report that Arcelor Mittal wants to acquire the company.
- Cisco Systems(CSCO) said third-quarter profit climbed 34% because of surging demand from small clients in the US and customers in emerging markets. The shares are falling 5.5% in after-hours trading.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Computer longs, Networking longs and Software longs. I didn’t trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was negative today as the advance/decline line finished lower, most sectors declined and volume was above-average. Measures of investor anxiety were above-average into the close. Today's overall market action was slightly bearish. I would classify today's action as another healthy consolidation day. A number of market-leading stocks I follow were higher and losses elsewhere were very mild considering recent gains. Technology, many cyclicals and homebuilders were areas of strength throughout most of the day. The NYSE cumulative advance/decline line hit another record high yesterday. The 10-year yield was stable throughout the day ahead of tomorrow's Fed announcement. I suspect the FOMC's policy statement will be just ever so slightly more dovish, while stressing that growth should improve in the second half of the year. There will once again be something for the hawks and doves, but overall I expect the market to interpret the statement as slightly more dovish.