DJIA Surges to Another Record on More Economic Optimism

Indices
S&P 500 1,514.14 +.86%
DJIA 13,487.53 +.77%
NASDAQ 2,547.42 +.88%
Russell 2000 820.20 +.74%
Wilshire 5000 15,203.13 +.78%
Russell 1000 Growth 594.20 +.82%
Russell 1000 Value 873.53 +.83%
Morgan Stanley Consumer 743.88 +.82%
Morgan Stanley Cyclical 1,058.40 +.22%
Morgan Stanley Technology 607.93 +1.13%
Transports 5,215.25 +1.74%
Utilities 533.54 +.69%
MSCI Emerging Markets 126.12 +1.01%

Sentiment/Internals
Total Put/Call 1.02 +10.87%
NYSE Arms .66 -21.97%
Volatility(VIX) 13.50 -3.64%
ISE Sentiment 104.0 -14.75%

Futures Spot Prices
Crude Oil 62.50 -1.06%
Reformulated Gasoline 233.62 +1.50%
Natural Gas 7.95 +1.04%
Heating Oil 186.70 -1.23%
Gold 663.10 -1.69%
Base Metals 274.45 -.57%
Copper 342.50 -3.18%

Economy
10-year US Treasury Yield 4.71% +1 basis point
US Dollar 82.20 +.54%
CRB Index 310.12 -.12%

Leading Sectors
Airlines +2.40%
Homebuilders +1.50%
Internet +1.43%

Lagging Sectors
Coal -1.01%
REITs -1.03%
Gold -1.11%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Bank of America:
- Rated (VCLK) Buy, target $35.

Afternoon/Evening Headlines
Bloomberg:
- Democratic presidential candidate John Edwards held more than $1 million in funds run by his former employer, NY-based Fortress Investment Group LLC, last year, according to a regulatory filing. Edwards also earned a salary of $479,512 as a senior adviser to the firm. The former US senator, who has criticized the practices of subprime mortgage lenders as predatory, said he didn’t realize that Fortress has extensive holdings in subprime portfolios.
- Copper in NY tumbled 3.3%, the most in three months, on speculation that demand may slow in China, the world’s largest consumer of the metal.
- NYSE Euronext(NYX) may buy a US futures market to compete better with rivals, two Wall Street analyst said today.
- Hewlett-Packard(HPQ), the world’s biggest personal-computer maker, said second-quarter profit fell 6.5% from a year earlier. The company forecast sales of more than $100 billion this year, a first for a technology company. The shares are .35 higher in after-hours trading.
- GM(GM) may sell its medium-duty truck business as it focuses on making a profit from building cars and light trucks.
- US Treasury bills surged, pushing the three-month security’s yield to a one-year low, amid expectations for reduced sales. Growth in US tax revenue has exceeded forecasts, reducing the Treasury’s need to borrow.
- The Senate rejected a proposal to withdraw troops from Iraq next year in a symbolic vote intended to gauge support for restriction on war funding before negotiations on the issue begins with the House. The Senate voted 67-29 against the amendment offered by Wisconsin Democrat Russell Feingold that would have required President Bush to begin a troop withdrawal within 120 days and cut off funding for operations after March 31, 2008.

Wall Street Journal:
- DaimlerChrysler AG(DCX) CEO Zetsche said automobile industry consolidation will probably continue.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, Biotech longs, I-Banking and Retail longs. I covered some more of my (EEM) short and the remainder of my (IWM)/(QQQQ) hedges in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, most sectors rose and volume was above average. Measures of investor anxiety were slightly above average into the close. Today's overall market action was bullish as the major averages finished near session highs. Given the way today's action started, I am very surprised by the sharp reversal and I am sure it resulted in more traders jumping off the bull train. Tech shares outperformed today. The MS Tech Index is already back near even with the S&P 500 for the year, rising 7%. I expect tech to substantially outperform in the second half of the year. My intraday gauge of investor angst is finished slightly above average levels, despite today's gains, which is a positive. I suspect we will build on today's strength tomorrow.

Stocks Surging into Final Hour on More Economic Optimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my I-Baking longs, Internet longs and Biotech longs. I covered some of my (EEM) short and (IWM)/(QQQQ) hedges today, thus leaving the Portfolio 75% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, most sectors are gaining and volume is above average. Google is surging to session highs on news that its new algorithm will add books, local images, news and video to basic search results. The fact that this stock trades at a discount relative to its internet peers is crazy to me. I don't believe most investors understand how dominate this company is in its fast-growing space. I think it will continue to grow at relatively high levels for much longer than most expect. I still think the stock is a steal anywhere near current levels. I remain long. Every Apple (AAPL) bull I know has taken profits recently, and most bears I know are short the stock. Considering that Apple hit an all-time high recently and had a relatively muted adverse reaction to today's false iPhone delay report, I suspect another new high for the stock is in the offing over the next few weeks. I remain long Apple, as well. Oil is falling -$.64/bbl., however gas futures are at session highs after Valero (VLO) announced it was shutting its Houston refinery due to "steam system and boiler problems." I wonder if Valero has considered ceasing all refining operations and just buying gas futures as a new business model? I continue to believe the nationwide rash of refinery "outages" is prompting further global demand destruction and raises the odds of substantial energy price declines this fall. As well, the U.S. dollar is surging 0.55% today, which is pressuring most commodities. I suspect the US dollar has bottomed for the year. I expect US stocks to trade modestly higher into the close from current levels into the close on short-covering, more economic optimism and lower energy prices.

Today's Headlines

Bloomberg:
- Crude oil is falling $.70/bbl. in NY after the Energy Department reported gasoline supplies rose more than estimates even as refinery utilization increased less than estimates.
- Valero Energy(VLO), the largest US oil refiner, halted fuel production at its Houston refinery due to “steam system and boiler problems.” The Houston complex is capable of processing 130,000 barrels of oil a day. Unusually low refinery utilization as a result of a rash of nationwide “outages” has been the driving force behind the recent surge in gas prices.
- Amazon.com(AMZN) will offer music downloads later this year and said it will make songs from more than 12,000 record labels available without copyright-protection software.
- Gold in NY is falling $12/oz. to the lowest in seven weeks after the US dollar index surged .56%. Silver is falling to a two month low.
- Copper is falling 3.3%, the most in three months, on speculation that demand may slow in China, the world’s biggest consumer of the metal.

Wall Street Journal:
- Elad Group, which owns NYC’s Plaza Hotel, will today announce a $5 billion plan to develop a casino, hotel, convention center and shopping project on the Las Vegas Strip.

Washington Post:
- Latino groups, representing the nation’s largest minority, have virtual veto power in Congress’s debate on immigration reform. The League of United Latin American Citizens, the Mexican American Legal Defense and Educational Fund, and the National Immigration Forum are among a network of organizations conferring in nightly conference calls and strategy sessions on immigration bills before Congress.

Reuters:
- Coffee consumption and production is gaining in China, a traditionally tea-drinking country, citing farmers and traders.
- Alcan Inc.(AL), subject of a $27.3 billion unsolicited takeover bid from rival Alcoa Inc.(AA), is set to hire UBS AG as part of its defense team with Morgan Stanley.

Computer Reseller News:
- Dell Inc.(DELL) CEO Michael Dell said the second-largest maker of personal computers will began selling PCs in retail stores in the US and overseas over the next several quarters.

Financial Times:
- The AFL-CIO is urging the SEC to stop the proposed IPO by Blackstone Group LP leveraged buyout fund.

London-based Times:
- Pakistani President Pervez Musharraf’s days in power are numbered as protests against his rule reach every “nook and cranny” of the country, former Prime Minister Nawaz Sharif said.

Globe and Mail:
- BMW AG’s plan to transfer some production of its X3 sport-utility vehicle to its own plant in South Carolina from a Magna International(MGA) factory in Austria could cost the Canadian auto parts maker up to $1.82 billion.

Housing Starts Rise, Building Permits Fall, Industrial Production Surges

- Housing Starts for April rose to 1528K versus estimates of 1480K and 1491K in March.
- Building Permits for April fell to 1429K versus estimates of 1520K and 1569K in March.
- Industrial Production for April rose .7% versus estimates of a .3% gain and a -.3% decline in March.
- Capacity Utilization for April rose to 81.6% versus estimates of 81.5% and 81.2% in March.

BOTTOM LINE: Housing starts in the US unexpectedly rose last month, while building permits fell more than estimates, Bloomberg reported. Housing starts soared 31% in the Northeast and rose 7.8% in the West. Starts fell 14% in the Midwest and .1% in the South. The number of homes under construction fell .5%. The number of housing units authorized, but not yet started, decreased 6.1%. I continue to believe home sales are stabilizing at relatively high levels, while new home construction remains muted throughout the year as builders work down inventories.

Industrial Production in the US rose more than forecast last month as cold weather boosted electricity demand and manufacturers stepped up output after whittling down excess inventories, Bloomberg said. Autos and high-tech goods led the gains in factory output. Utility production rose 3.5%. Nationwide, April was the coldest in a decade, which boosted output. I continue to believe companies are increasing production to build depleted inventories as demand remains healthy.

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

Wednesday Watch

Late-Night Headlines
Bloomberg:
- ESL Investments Inc., the hedge fund started by Edward Lampert, disclosed it has built an $800 million stake in Citigroup Inc.(C), the largest US bank.
- BHP Billiton(BHP) and rival Australian mining and energy companies are planning a record $36.2 billion of new projects, 24% higher than the amount reported in October by the Canberra-based Australian Bureau of Agricultural and Resource Economics.
- The Fed’s Hoenig, speaking tonight in Denver, said the US economy will strengthen going forward and that inflation will recede further. Hoenig also said the current 5.25% target rate is “modestly firm.”
- Steel-product output in China, supplier of one-third of global steel, rose 21% in April compared with a year earlier.
- Copper futures fell for a fifth day in Shanghai after Chinese imports grew faster than expected, raising concern that the world’s biggest consumer of the metal may be oversupplied.
- Twenty-nine percent of Americans approve of the way the Democrat-controlled Congress is doing its job, down 4 percentage points from last month. Approval of President Bush’s job performance is holding steady at 33%, according to a Gallup poll released today.
- The yen may fall to a record low versus the euro for a second day as signs of weaker economic growth suggest the Bank of Japan is unlikely to raise interest rates anytime soon.
- Dell Inc.(DELL) said NY State Attorney General Andrew Cuomo plans to file a lawsuit over its customer practices.
- Australian wage growth unexpectedly slowed in the first quarter, suggesting the central bank won’t need to raise interest rates this year.
- South Korea’s department store sales fell for the first time in three months in April, suggesting rising gas prices and a slowing housing market may be chipping away at consumer spending.
- New Century Financial Corp.(NEWC), the largest subprime lender in bankruptcy, received another offer for its loan-servicing unit that tops the initial $133.3 million bid by Carrington Capital Management LLC, a lawyer said.

Wall Street Journal:
- Alan Greenspan, former chairman of the US Federal Reserve, will advise Allianz SE’s Pacific Investment Management. Pimco, based in Newport Beach, California, will be Greenspan’s first client since he left his government job in January 2006. The move means Greenspan, 81, will end his self-imposed ban on discussing Fed policy on interest rate changes.

Financial Times:
- Amvescap Plc may move its main listing from London to New York after US investors increased their combined holdings in the firm to nearly 50%.
- DNO ASA, a Norwegian oil company that explores in the North Sea and Middle East, plans to start selling crude oil pumped in Iraq, citing CEO Eide. Gross production capacity may reach 20,000 to 30,000 barrels a day in the second half of the year.
- Fidelity Investments, the world’s biggest mutual-fund company, slashed its stake in PetroChina Co.(PTR) after being pressured to sell shares of companies doing business in Sudan, according to a regulatory filing today.
- BP Plc’s(BP) refinery in Toledo, Ohio, is expected to be back in full operation by Friday, about four weeks after the company closed a catalytic cracking unit at the plant. The Toledo refinery has been in operation since 1919 and has the capacity to process about 160,000 barrels of crude oil a day.

China Securities Journal:
- Foreigners investing in China’s stock markets through the so-called QFII program cut their holdings of domestic shares by .48 percent in the first five months of 2007, citing the head of CLSA Ltd.’s China research unit. As valuations for domestic stocks keep climbing, foreign investors may switch to the Hong Kong stock market, according to Liu Wei.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (DISH), target raised to $59.00.

Night Trading
Asian Indices are unch. to +.25% on average.
S&P 500 indicated -.04%.
NASDAQ 100 indicated -.19%.

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/EPS Estimate
- (CTRP)/.23
- (DE)/2.42
- (DKS)/.37
- (FD)/.19
- (HPQ)/.68
- (JBXX)/.70
- (MNT)/.34
- (PETM)/.33
- (CRM)/.08

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Housing Starts for April are estimated to fall to 1480K versus 1518K in March.
- Building Permits for April are estimated to fall to 1520K versus 1564K prior.

9:15 am EST
- Industrial Production for April is estimated to rise .3% versus a -.2% decline in March.
- Capacity Utilization for April is estimated to rise to 81.5% versus 81.4% in March.

10:30 am EST
- Bloomberg consensus estimates call for a weekly gasoline build of 1,000,000 barrels versus a 372,000 barrel increase the prior week. Crude oil supplies are estimated to remain the same versus a 5,511,000 barrel increase the prior week. Distillate inventories are expected to rise by 1,250,000 barrels versus a 1,630,000 barrel increase the prior week. Finally, Refinery Utilization is estimated to rise .75% versus a .78% gain the prior week.

Other Potential Market Movers
- The Fed’s Plosser speaking, Fed’s Kohn speaking, Fed’s Fisher speaking, weekly MBA Mortgage Applications report, (GENZ) analyst/investor day, Goldman Sachs Basic Materials Conference, Bank of America Smid Cap Conference, CSFB Semi & Supply-Chain Summit, UBS Global Financial Services Conference, Deutsche Bank Tech Conference, Oppenheimer Semiconductor Conference and Morgan Stanley Communications Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by energy stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.