Monday Watch

Weekend Headlines
Bloomberg:
- US stocks climbed for a sixth week, the longest stretch of gains since 2004, after easing inflation and takeovers spurred buying.
- Oil demand growth in China, the world’s second-largest energy consumer, may be less than forecast, the IEA said after revising its data for February. The IEA also revised downward overall global demand by .07 percent to 85.7 million barrels a day.
- President Bush appealed for bipartisanship as he urged Congress to act soon to overhaul the nation’s immigration laws.
- Mylan Labs(MYL) said it signed an agreement to buy Merck KGaA’s generic-drug unit for $6.7 billion by paying cash.
- Dow Chemical(DOW) agreed to partner with Saudi Aramco, the largest state-owned oil company, to build a chemicals complex in Saudi Arabia that will use low-cost raw materials from adjacent oil and natural gas plants.
- Carlyle Group LP, the buyout firm run by David Rubenstein, plans to raise $1 billion with its first public offering of an investment fund.
- Charles Schwab(SCHW), found and CEO of the biggest discount brokerage, said his small rivals E*Trade Financial(ET) and TD Ameritrade(AMTD) would benefit by merging into a single company.
- Fed Chairman Bernanke’s inflation concerns have prompted speculators to make a record bet against $88.8 billion of two-year Treasuries. That’s the amount of futures contracts on notes traders have sold short at the Chicago Board of Trade, the most since the Commodity Futures and Trading Commission(CFTC) began keeping track of the data in 1993.
- China’s money supply growth exceeded the government target for a third month and lending accelerated, adding pressure on the central bank to raise interest rates.
- European economic growth probably slowed in the first quarter after rising interest rates and a sales-tax increase in Germany discouraged consumer spending, a survey of economist shows.
- Overseas investment will flood emerging markets with $469 billion this year, according to the Institute of International Finance in Washington. That will bring the total since 2005 to almost $1.3 trillion, twice as much as in the prior three years. While fueling growth, all that cash is bringing side effects that threaten to turn booms into busts.

Wall Street Journal:
- Proposed changes for company financial statements by accounting-rule makers may do away with the net income figure, or the profit after all expenses and taxes paid.
- Cerberus Capital Management LP, a private-equity firm, appears to be the winning bidder for the Chrysler Group and an announcement may come tomorrow.
- IAC/InterActiveCorp(IAC) plans to introduce a new service May 14 on Sprint Nextel Corp.(S) mobile phones to combine products like its Citysearch with global positioning system technology. The Ask Mobile GPS service, which will cost about $9 a month, will offer features such as the ability to look up a user’s location on a map and send that to friends.

Barron’s:
- Goldman Sachs Group(GS) won the No. 1 spot in Barron’s 500 annual corporate performance survey based on the investment bank’s culture of “hard work, business acumen and teamwork” that has allowed it to survive market crises and management transitions.

NY Times:
- Former President Bill Clinton has assumed the role of chief political strategist to his wife and Democratic presidential candidate Senator Hillary Rodham Clinton.
- The Supreme Council for the Islamic Revolution in Iraq, a Shiite Muslim party, said it will remove the word “revolution” form its name and distance itself from Iran.

San Francisco Chronicle:
- House prices in California’s Silicon Valley is the biggest concern among executives and employees in the region, Carl Guardino, chief executive of the Silicon Valley Leadership Group said. The median prices for homes in Palo Alto, California, is about $1.6 million, compared with about $180,000 in Round Rock, Texas. Computer maker Hewlett-Packard(HPQ) is based in Palo Alto, while Dell Inc.(DELL) is in Round Rock, highlighting the challenges for Silicon Valley companies to attract employees, he said.

MIT Review:
- The Secret of Apple Design. The inside story of why Apple’s(AAPL) industrial-design machine has been so successful.

Rocky Mountain News:
- Qwest Communications(Q) will seek to accelerate negotiations with local municipalities in Colorado over cable-TV franchisees.

LA Times:
- Regal Entertainment Group(RGC) and National Amusements Inc., the two biggest US theater chains, said they won’t show movies that are offered on Comcast’s(CMCSA) cable TV network at the same time. Several movie studios are interested in letting cable TV networks show movies on their first day for a fee of $30 to $50, Comcast President Burke said.

MarketWatch.com:
- Has Richard Russell finally thrown in the towel on his long-standing bearishness? “To me, a fellow steeped in Dow Theory for over half a century, this was like a clap of thunder...My take on the situation is that the stock market told us that an unprecedented world boom lies ahead,” Russell said.
- Is the best yet to come…from China? Commentary: Huge influx of capital could power US stock boom. The China Banking Regulatory Commission, in an attempt to cool its overheated stock market, has ruled that Chinese banks can now invest as much as 50% of their funds in overseas stock markets. Dennis Slothower, editor of the On the Money newsletter says that this means that “up to $2.3 trillion in China monies…can now move out of China.” To put a sum like that in perspective, consider that the total value of all publicly traded stocks in this country is around $15.1 trillion. If even a modest faction of this money makes its way into US stocks, we could see a “further parabolic advance in equities,” Slothower said.

Zacks.com:
- As things stand now, it’s about an even money bet that the median S&P firm will post double-digit year-over-year earnings growth for the first quarter. That would make it the 19^th straight quarter, extending the longest streak in US history.

AP:
- Zimbabwe won approval to head the UN Commission on Sustainable Development amid protests from the US, European nations and human rights organizations. President Robert Mugabe, 83, who has ruled Zimbabwe since it gained independence from the UK in 1980, has been criticized by the West and domestic opponents for repression, corruption and economic mismanagement that has spurred inflation and acute food shortages in the African nation.
- China catches stock market fever. After watching Chinese stock prices gallop upward for months, Ding Xiurui wanted a piece of the action. The 45-year-old office worker stood in line at a bustling brokerage Friday to open her first trading account. She brought her sister, who opened an account too. They joined millions of other novice investors who are jumping into a market that has soared to dizzying heights, with prices up nearly 50 percent this year.
- Minnesota Governor Pawlenty will sign a bill that makes his state the 20^th in the US to ban smoking in bars, restaurants and other businesses.
- Mullah Dadullah, the Taliban’s top military commander, was killed yesterday in fighting with Afghan and NATO troops.

Financial Times:
- Some of the world’s biggest fund managers are set to expand aggressively into the booming Chinese wealth management market following a rule change that could trigger a massive flow of mainland investments into foreign equity products.
- The Middle East provides clues on the outcome of the meteoric recent rise of the Chinese stock market, warns Tim Harris, JPMorgan Private Bank’s chief investment strategist in Europe, Middle East and Africa.
- US online sale rise 29% to $146.5 billion. Americans bought more clothing and shoes online last year than computers and software in a sign of the growing mainstream acceptance of Internet retailing.
- The extended Bancroft family is split over its support for News Corp.’s(NWS/A) $5 billion offer for Dow Jones(DJ), citing a family member. Some family members are in favor of meeting News Corp. Chairman Rupert Murdoch to discuss the offer.
- SEC steps up action on insider trading. International stock ex­changes and electronic trading are changing the way US regulators detect and punish insider trading, forcing them to speed up their investigations and take court action more quickly.

Sunday Telegraph:
- Clear Channel Communications(CCU) will put its international billboard business up for sale for an estimated $3.2 billion.
- BHP Billiton Ltd., Rio Tinto Ltd., Brazil’s Cia. Vale do Rio Doce and OAO Russian Aluminum mining companies are considering bids for aluminum producer Alcan Inc.(AL) to prevent Alcoa(AA) from acquiring the company.

Sunday Times:
- Reuters Group Plc’s proposed sale to Thomsan Corp. will be approved this week by the Reuters Founders Share Co., clearing one of the final hurdles in Thomson’s $17.4 billion bid for the financial data provider.

Finanz & Wirtschaft:
- Alcon’s(ACL) profit may double and sales at the eye-care company controlled by Nestle SA should grow up to 10% this year.

Channel NewsAsia:
- Investors are throwing money into China's share markets and the fever is nowhere more apparent than in the speculative trade involving the mountain of the bourses' money-losing companies.

Xinhua News Agency:
- Shanghai residents transferred more than $9.1 billion from savings accounts into stock-trading accounts in the first four months of the year, citing the central bank.

China Daily:
- China may face a labor shortage within three years, resulting in higher wages, citing a report by the Chinese Academy of Social Sciences. China needs to adjust its economic growth model from relying on low labor costs to advancing production methods, the report said.

Weekend Recommendations
Barron's:
- Made positive comments on (STZ), (NLY), (NUE), (AKS), (RS), (STLD) and (CVC).

Citigroup:
- Israeli shares were raised to Overweight from Underweight, citing a growing economy and falling interest rates.
- Reiterated Buy on (MAR), target $62.
- Reiterated Buy on (SNDK), target $52. We remain confident NAND fundamentals can move into under-supply by late-3Q. Upcoming milestones impacting sector psychology include: 1) Motorola’s(MOT) new product launch 2) Bi-monthly contract pricing updates 3) Monthly US retail card/drive/MP3 sell-through date and 4) Apple’s(AAPL) late-June iPhone launch.

Night Trading
Asian indices are +.25% to +1.0% on average.
S&P 500 indicated +.07%.
NASDAQ 100 indicated +.16%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Conference Calendar
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/Estimate
- (A)/.43
- (GBE)/-.07
- (NAT)/.81
- (PETS)/.14
- (SINA)/.18
- (ELOS)/.36

Upcoming Splits
- (NXY) 2-for-1

Economic Releases
- None of note

Other Potential Market Movers
- The Fed’s Fisher speaking, Fed’s Lockhart speaking, UBS Global Financial Services Conference and UBS Alternative Energy Conference could also impact trading Monday.

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

Weekly Outlook

Click here for The Week Ahead by Reuters

Click here for Stocks in Focus for Monday by MarketWatch

There are some economic reports of note and a few significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – None of note

Tues. – Consumer Price Index, Empire Manufacturing, Net Long-term TIC Flows, NAHB Housing Market Index, weekly retail sales

Wed. – Weekly MBA Mortgage Applications, Housing Starts, Building Permits, Industrial Production, Capacity Utilization

Thur. – Initial Jobless Claims, Leading Indicators, Philly Fed

Fri. – Univ. of Mich. Consumer Confidence

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. – Agilent(A), Grubb & Ellis(GBE), PetMed Express(PETS), Sina Corp.(SINA), Syneron Medical(ELOS)

Tues. – Applied Materials(AMAT), Compuware(CPWR), Fossil Inc.(FOSL), Freddie Mac(FRE), Home Depot(HD), Shaw Group(SGR), Telephone & Data(TDS), TJX Cos(TJX), Transaction Systems(TSAI), Wal-Mart Stores(WMT)

Wed. – Cato Corp.(CTR), Ctrip.com(CTRP), Deere & Co.(DE), Dick’s Sporting Goods(DKS), Federated Department Stores(FDO), Hewlett-Packard(HPQ), Jack in the Box(JBX), Mentor Corp.(MNT), O’Charleys(CHUX), PetSmart(PETM), Salesforce.com(CRM), Swift Transportation(SWFT)

Thur. – Advance Auto Parts(AAP), Focus Media Holding(FMCN), Gymboree Corp.(GYMB), Intuit Inc.(INTU), JC Penney(JCP), Kohl’s Corp.(KSS), Longs Drug Stores(LDG), Netease.com(NTES), Nordstrom(JWN), Pacific Sunwear(PSUN), Sonic Solutions(SNIC)

Fri. – Activision(ATVI), Alkermes(ALKS), American Eagle Outfitters(AEO), Cleveland-Cliffs(CLF), International Rectifier(IRF), Steinmart(SMRT)

Other events that have market-moving potential this week include:

Mon. - UBS Global Financial Services Conference, UBS Alternative Energy Conference, the Fed’s Fisher speaking, the Fed’s Lockhart speaking

Tue. – UBS Alternative Energy Conference, CSFB Semi&Supply-Chain Summit, Merrill Lynch Global E&C/Infrastructure Conference, Oppenheimer Moving Beyond Voice Conference, UBS Global Financial Services Conference, Deutsche Bank Tech Conference, Morgan Stanley Communications Conference, the Fed’s Lockhart speaking, the Fed’s Bernanke speaking, the Fed’s Minehan speaking, the Fed’s Mishkin speaking, the Fed’s Geithner speaking, the Fed’s Hoenig speaking

Wed. - UBS Global Financial Services Conference, Oppenheimer Semiconductor Tech Conference, Deutsche Bank Tech Conference, Bank of America Smid Cap Conference, Morgan Stanley Communications Conference, Goldman Sachs Basic Materials Conference, CSFB Semi&Supply-Chain Summit, the Fed’s Plosser speaking, the Fed’s Kohn speaking, the Fed’s Fisher speaking

Thur. - CSFB Insurance Forum, Bank of America Smid Cap Conference, Goldman Sachs Basic Materials Conference, Deutsche Bank Tech Conference, former Fed Chairman Greenspan speaking, the Fed’s Moskow speaking, the Fed’s Bernanke speaking

Fri. – None of note

BOTTOM LINE: I expect US stocks to finish the week modestly higher on buyout speculation, constructive Fed comments, better-than-expected earnings reports, lower energy prices, investment manager performance anxiety and short-covering. My trading indicators are still giving bullish signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,505.85 +.01%

Click here for What a Week by TheStreet.com.

Weekly Scoreboard*

Indices
S&P 500 1,505.85 +.01%
DJIA 13,326.22 +.46%
NASDAQ 2,562.22 -.39%
Russell 2000 829.54 -.40%
Wilshire 5000 15,164.43 +.03%
Russell 1000 Growth 593.50 -.16%
Russell 1000 Value 867.33 +.22%
Morgan Stanley Consumer 738.92 -.43%
Morgan Stanley Cyclical 1,052.38 +1.13%
Morgan Stanley Technology 609.70 +.25%
Transports 5,165.92 -.10%
Utilities 526.54 +.06%
MSCI Emerging Markets 124.85 +.02%

Sentiment/Internals
NYSE Cumulative A/D Line 75,890 -.92%
Bloomberg New Highs-Lows Index +175 -67.3%
Bloomberg Crude Oil % Bulls 38.0 +7.7%
CFTC Oil Large Speculative Longs 188,498 -3.4%
Total Put/Call .94 +16.05%
NYSE Arms .62 -36.08%
Volatility(VIX) 12.95 +.31%
ISE Sentiment 122.0 -13.5%
AAII % Bulls 42.86 +50.0%
AAII % Bears 42.86 -21.0%

Futures Spot Prices
Crude Oil 62.46 +1.2%
Reformulated Gasoline 235.50 +6.43%
Natural Gas 7.91 +.11%
Heating Oil 188.50 +3.0%
Gold 672.10 -2.54%
Base Metals 277.35 -1.5%
Copper 360.70 -4.15%

Economy
10-year US Treasury Yield 4.67% +3 basis points
4-Wk MA of Jobless Claims 317,300 -3.5%
Average 30-year Mortgage Rate 6.15% -1 basis point
Weekly Mortgage Applications 680.70 +3.6%
Weekly Retail Sales +.10%
Nationwide Gas $3.04/gallon +.03/gallon
US Heating Demand Next 7 Days 13.0% below normal
ECRI Weekly Leading Economic Index 142.70 +.21%
US Dollar Index 82.11 +.46%
CRB Index 311.13 -.03%

Leading Sectors
Steel +4.0%
Defense +1.84%
Disk Drives +1.55%
Computer Hardware +1.46%
Wireless +1.31%

Lagging Sectors
I-Banks -1.20%
Internet -1.40%
Gold -1.59%
Alternative Energy -1.63%
Drugs -1.86%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Rebounding into Final Hour on Economic Data, Buyout Speculation and Short-Covering

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Semi longs, I-Banking longs and Biotech longs. I covered some of my (QQQQ)/(IWM) hedges this morning, thus leaving the Portfolio 75% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is gaining and volume is below average. The major averages and breadth are pushing back to session highs after the news of a possible terror attack in Germany failed to make a dent in today's rally. I suspect many that were caught off guard by today's sharp morning snapback, including myself, were waiting for midday weakness to surface. That didn’t happen, thus we are seeing more short-covering into the close. The CBOE total put/call is an above average 0.94, and the ISE Sentiment Index is falling to a below average 128.0, despite today's gains. The 10-year yield is at session highs, rising 3 basis points, as I suspect many traders are anticipating better economic data going forward. Retail is the only sector not participating today. I still believe the Fed will remain on hold this year as economic growth accelerates back near average levels in the second half of the year. However, a rate cut is still much more likely than a rate hike. While most emerging markets were just modestly lower last night, Russian shares fell 2.5% and appear to be rolling over as the index breaks back below its 50-day moving-average. I expect US stocks to trade modestly higher into the close from current levels on buyout speculation and short-covering.

Today's Headlines

Bloomberg:
- The Chicago Merc(CME) raised its bid for the Chicago Board of Trade by 16% to $9.2 billion to ward off a higher offer from Intercontinental Exchange(ICE).
- Nvidia Corp.(NVDA) shares rose as much as 8.1% after the world’s second-largest producer of computer-graphics chips reported first-quarter results that topped analysts’ estimates.
- The IPO of Everquest Financial Ltd. would allow funds run by Bear Stearns(BSC) and Stone Tower Capital LLC to transfer risk from subprime mortgage bonds and buyout loans to other investors.
- A decision to sell the Beatles’ recordings online is “virtually settled,” Billboard magazine reported, quoting Paul McCartney.
- Oil futures in NY are rising $.56/bbl. after a report predicted global demand for oil will rise 1.8% this year.

Wall Street Journal:
- The fate of CBOT Holdings(BOT), which is weighing two takeover offers, will point to further deals in the exchange industry.
- Highfields Capital Management LP, the largest institutional shareholder in Wendy’s Intl.(WEN), called on Wendy’s Chairman James Pickett and other directors to find buyers for the company.
- Smartphone users are trying to muffle an annoying mosquito-like buzz that comes out of Research In Motion’s(RIMM) BlackBerry e-mail devices when used near public-address systems and electric appliances.
- A group of United Auto Workers labor union members at a Jeep plant in Toledo, Ohio, hired a financial adviser to help it in its proposal to buy the Chrysler Group from Germany’s DaimlerChrysler AG(DCX).

ABC News:
- A terrorist attack is being planned on US interests in Germany, officials from both countries said, and security is being tightened at potential targets, including adding air marshals to flights.

Washington Post:
- Democratic presidential candidate John Edwards, who has criticized predatory lending practices of sub-prime mortgage lenders, said he didn’t know hedge fund Fortress Investment Group expanded its holdings in sub-prime mortgage portfolios to at least $6.7 billion while Edwards worked at the fund.

AP:
- The US divorce rate has declined to its lowest level since 1970. The national rate per capita is 3.6 divorces per 1,000 people, down from the peak of 5.3 in 1981.

Financial Times:
- Goldman Sachs Group(GS) this week traded the first long-dated derivatives based on US home prices. Goldman speculated that expectations for home prices won’t be lower than they are now in five years by trading a contract based on the S&P/Case-Shiller home price index.