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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%

Evening Review
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In Play

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.

Stocks Slightly Lower into Final Hour Ahead of Fed

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Software longs, Networking longs and Computer longs. 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 lower, most sectors are declining and volume is above-average. A reversal in the homebuilding sector into positive territory seems to be helping boost the broad market near session highs. Tech stocks and cyclicals are now higher on the day. As well, strength can be found in road/rail, restaurants, airlines, engineering/construction and steel. A number of market-leading stocks are gaining upside traction. My intraday gauge of investor angst is above average. The 10-year yield is stable despite stocks' gains from session lows. After touching its 50-day moving-average, corn is gapping 3.5% lower today. I still believe the commodity has put in a long-term top. I expect US stocks to trade mixed-to-higher into the close from current levels on buyout speculation and investment manager performance anxiety after another failed sell-off attempt.

Today's Headlines

Bloomberg:
- The government of Sudan is breaching a UN arms embargo by moving weapons into the western region of Darfur, citing a report by Amnesty International.
- Six New Jersey men were arrested for allegedly plotting a terrorist attack against soldiers at Fort Dix. The men planned to gain entry and use automatic weapons to kill as many soldiers as they could at the base.
- NY Mayor Michel Bloomberg may run for governor against incumbent Eliot Spitzer in 2010.
- Senate aides, looking for new sources of revenue, are studying how Harvard, Yale and Stanford are using offshore hedge funds to avoid tax bills.
- The US House Financial Services Committee will proceed with legislation to aid subprime borrowers if mortgage lenders don’t act to keep people from losing their homes, a subcommittee chairwoman said.
- Shares of Countrywide Financial(CFC) jumped as much as 9.6%, the biggest gain in the S&P 500 Index, on speculation the largest US mortgage lender may be the target of a takeover or leveraged buyout.
- US retailers’ sales probably fell for the first time in four years last month as an earlier Easter and the coldest April in a decade discouraged purchases of lightweight clothing, gifts and garden equipment.
- Hewlett-Packard(HPQ) said second-quarter earnings and sales beat its forecast.
- Corn prices in Chicago are falling 3.5%, heading for the biggest drop in a month, after a government report showed US farmers planted more acres than expected last week.

Wall Street Journal:
- Bank of America(BAC), BNP Paribas SA, Citigroup Inc.(C) and other investment banks are planning to start a system in July that will distribute bond and derivatives prices to clients.
- US cable operator Cox Communications(COX) will disable the fast-forward feature that lets television skip ads, as part of an agreement with ABC and ESPN to offer hit programs and football games on demand.
- Fannie Mae(FNM) and Freddie Mac(FRE) would benefit from an amendment proposed for the legislation creating a regulator to oversee the mortgage companies’ portfolios.
- CBS Corp.’s(CBS) Simon & Schuster book-publishing subsidiary will start an Internet book channel called Bookvideos.tv next month. The channel will be hosted on Google’s(GOOG) YouTube.com and other video-sharing sites.
- People increasingly use search engines to find information over the Internet and about 7% of all inquiries on the Web use a person’s name, citing the search engine Ask.com.

NY Times:
- Chevron Corp.(CVX) will admit it should have known former dictator Saddam Hussein was collecting kickbacks on oil purchased from Iraq through a corrupt United Nations program. The company will pay $25 million to $30 million, the largest penalty for a US company connected to the UN/Iraq oil-for-food scandal.
- A weaker dollar has resulted in Irish investors buying property in NY that is less expensive than real estate in Ireland and the UK.

Chronicle of Higher Education:
- New Orleans colleges and universities expect freshman enrollments to rise after declines following Hurricanes Katrina and Rita in 2005. Tulane University said on Monday that it expects a 56% increase in enrollments this fall. Loyola Univ., Xavier Univ., the Univ. of New Orleans and Dillard University reported anticipated increases from 30% to 100%.

Indianapolis Star:
- Allegations of cheating resulted in disciplinary action against almost half of second-year students at Indiana University’s School of Dentistry.

Financial Times:
- Worldwide mergers and acquisitions topped $2 trillion, driven by cheap debt and light antitrust scrutiny, citing Dealogic. The numbers are 63% higher than in the same period of 2006, when $1.235 trillion worth of deals were announced. Leveraged-buyout firms also have big pools of cash to spend. April was the busiest month in history, with $647 billion in deals announced. The busiest industry was financial services, with $410.6 billion worth of transactions.
- Dow Jones(DJ) investors may be hoping that Rupert Murdoch’s News Corp.(NWS/A) makes a higher bid, because an outside offer may be unlikely.

Nikkei English News:
- Japan will propose halving so-called greenhouse gases by 2050 at next month’s Group of Eight summit in Germany.

Xinhua News Agency:
- China’s crude oil import bill will only rise by 4.8% this year despite the country’s much stronger economic growth.

Kuwait News Agency:- Kuwait Petroleum Corp. doubled the budget for the new al-Zour refinery to $12 billion, citing the company’s managing director.