BETWEEN THE HEDGES

Monday, August 20, 2007

Tuesday Watch

Posted by Gary .....at 9:43 PM

Late-Night Headlines
Bloomberg:
- OPEC members may increase oil supplies without raising its official quotas to ease concern that production isn’t keeping up with demand, according to Deutsche Bank analysts. “We believe that another 300,000 barrels a day or more is likely to lead out in September as key Arab Gulf members inject their own ‘liquidity’ into the oil markets as they undoubtedly have been asked to do by central bankers around the world,” said Adam Sieminski, a Deutsche Bank analyst.
- The yen declined for a third day against the euro and dollar as gains in global stock markets prompted investors to resume buying higher-yielding assets funded by loans in Japan.

Wall Street Journal:
- The SEC filed civil fraud charges against investment adviser Sentinel Management Group, a development that could rewrite the history of last week’s market turmoil. Early last week, Sentinel, a company that manages short-term cash for hedge funds and futures brokers, told clients it was halting redemptions because of the "liquidity crisis" in the credit markets. The news contributed to a 207.61-point fall in the Dow Jones Industrial Average when it became public Tuesday, and added to the sense of fear that gripped credit and stock markets all week long. According to a person familiar with the investigation, the SEC claims Sentinel's woes are a case of fraud disguised as a casualty of the markets.
- Viacom Inc.’s(VIA/B) MTV Networks plans to announce tomorrow that it is forming a joint venture with RealNetworks(RNWK) to sell digital music online.

MarketWatch.com:
- Most economists believe Fed will cut at or before its Sept. 18 meeting.
- Legg Mason fund manager taps mid-sized firms in strong financial shape.

CNNMoney.com:
- These MBA programs blend real-world small-business know-how with top academics.
- Milk prices seen slipping in the fall.
-The chairman of the Senate Banking Committee will confer with the chiefs of the Federal Reserve and Treasury Department on Tuesday in an effort to hatch solutions to ongoing turmoil in the financial and mortgage markets.

Financial Times:
- Asian stocks extended gains on Tuesday as credit concerns eased and a softer yen buoyed Japanese exporters, while a move by China to let residents invest directly in Hong Kong securities gave the Hang Seng Index a boost.
- The movement of crude oil and natural gas prices in the past two weeks has caught the energy market by surprise as hedge funds liquidate their positions en masse and cause a sudden change in the directions the prices, analysts say.
- The safety problems affecting Chinese goods spread from toys to textiles on Monday as New Zealand said it would investigate allegations that imported children’s clothes contained dangerous levels of formaldehyde.
- China’s capital markets on Monday took a significant step towards integration with the rest of the world when Beijing announced it would allow individuals directly to buy securities offshore for the first time.

Reuters:
- Cisco(CSCO) CEO reiterates upbeat view on economy.
- US regulator says watching Countrywide(CFC) versus closely.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (LTR), target $58.
- Target’s(TGT) August sales are off to a solid start, based on results for the first two weeks of August. We believe that sales of seasonal items have been off to a good start as consumers begin their Back-to-School shopping. In addition, we believe that traffic has picked up as a result of the Tax Free Holidays in August. Target continues to expect August comps to increase in the range of 4-6% versus 2.8% last year.
- Reiterated Buy on (LOW), target $41.
- Reiterated Buy on (MRVL), target $21.
- Reiterated Buy on (SPNC), target raised to $19.

Night Trading
Asian Indices are +.75% to +1.5% on average.
S&P 500 futures +.04%.
NASDAQ 100 futures +.03%

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Earnings of Note
Company/EPS Estimate
- (ACS)/.87
- (AEOS)/.36
- (ADI)/.37
- (BJ)/.41
- (DKS)/.76
- (DRYS)/1.37
- (JKHY)/.31
- (MDT)/.61
- (MYGN)/-.19
- (PBY)/.10
- (SKS)/-.16
- (SPLS)/.25
- (TGT)/.80
- (TOL)/.02

Upcoming Splits
- (TXT) 2-for-1

Economic Releases
- None of note

Other Potential Market Movers
- The Fed’s Lacker speaking, EnerCom Oil & Gas Conference and weekly retail sales reports could also impact trading today.

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

Stocks Finish Mildly Higher on Healthy Consolidation of Friday's Gains

Posted by Gary .....at 5:24 PM

Indices
S&P 500 1,445.55 -.03%
DJIA 13,121.35 +.32%
NASDAQ 2,508.59 +.14%
Russell 2000 787.45 +.18%
Wilshire 5000 14,510.86 +.08%
Russell 1000 Growth 575.30 +.20%
Russell 1000 Value 815.69 -.09%
Morgan Stanley Consumer 707.47 unch.
Morgan Stanley Cyclical 1,003.52 +1.40%
Morgan Stanley Technology 610.84 -.03%
Transports 4,855.47 +1.83%
Utilities 488.12 +.15%
MSCI Emerging Markets 122.26 +1.23%

Sentiment/Internals
Total Put/Call .92 -24.59%
NYSE Arms 1.30 +85.57%
Volatility(VIX) 26.33 -12.20%
ISE Sentiment 116.0 -10.08%

Futures Spot Prices
Crude Oil 71.0 -1.38%
Reformulated Gasoline 193.37 -5.2%
Natural Gas 6.03 -13.97%
Heating Oil 198.17 -1.76%
Gold 667.70 +.13%
Base Metals 230.46 +2.88%
Copper 318.0 +1.03%

Economy
10-year US Treasury Yield 4.63% -5 basis points
US Dollar 81.38 -.06%
CRB Index 301.99 -1.36%

Leading Sectors
Road & Rail +3.34%
Defense +1.90%
REITs +1.62%

Lagging Sectors
Insurance -.83%
I-Banks -.97%
Banks -1.44%

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In Play

Afternoon Recommendations
Needham:
- Rated (APKT) Buy, target $19.

Afternoon/Evening Headlines
Bloomberg:
- Countrywide Financial Corp.(CFC) bonds are trading at distressed levels, reflecting investor fear and not the mortgage lender’s financial performance, according to a Citigroup analyst.
- The risk of owning corporate bonds, led by Countrywide Financial Corp.(CFC) and Radian Group(RDN), fell for a third day on optimism central banks will fend off a credit crunch, according to traders of credit-default swaps.
- Crude oil fell almost $1/bbl. after forecasts showed Hurricane Dean would probably miss the largest USGulf of Mexico. oil-production regions of the
- Target Corp.(TGT) said sales at store open at least a year may rise as much as 6% in August, within its forecast range.

BOTTOM LINE: The Portfolio finished higher today on gains in my Retail longs, Semi longs and Medical longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was slightly positive today as the advance/decline line finished mildly higher, most sectors rose and volume was below average. Measures of investor anxiety were above-average into the close. Today's overall market action was modestly bullish. Financials and homebuilders were really the only two areas of weakness today, however, they only gave back a small portion of Thursday/Friday gains. The CRB Index fell again today and is back to where it was in March 2005. Natural gas plunged 14.4% and gasoline dropped 5.2%. I continue to believe inflation fears have peaked for this cycle and gauges will continue to show substantial deceleration over the intermediate term. Many growth stock leaders posted exceptional gains, rising 3%-5% today relative to the broad market. Just take a look at Research In Motion (RIMM), Baidu (BIDU), Crocs (CROX) and Garmin (GRMN), for example. This trend is still in its infancy, in my opinion, as global growth slows to more average rates and inflation subsides further. The Associated Press is reporting that the chief of Samsung's investor relations team said that the demand for DRAM and NAND chips is really strong and that the company can raise contract prices. He expects the price of memory chips to go through the roof and the operating profit in the companies' memory chip business to double or triple from the prior quarter. This is another positive for the sector. The Philadelphia Stock Exchange Semiconductor Sector Index is 5.4% higher year-to-date. I expect the group to continue to outperform the broad market through year-end. Broadcom (BRCM), SanDisk (SNDK) and Varian Semiconductor Equipment Associates (VSEA) are three of my favorites. The NYSE Arms ran at high levels most of the day, and volume was light. This indicates to me a healthy consolidation of recent gains, and it shouldn't take much buying to push the averages higher.

Stocks Surging into Final Hour on Lower Energy Prices, Less Pessimism, Rate Cut Speculation

Posted by Gary .....at 3:00 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Medical longs, Semi longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is slightly higher, most sectors are rising and volume is below average. My intraday gauge of investor angst is still above average. Lowe's (LOW) reported better-than-expected second-quarter results but cut forward guidance. The fact that the stock is jumping 6.6%, the most in five years, despite the guidance cut may provide evidence of improved investor psychology that Jim Cramer. Road and rail shares are today's top performing group after Warren Buffett added 1.4 million shares to his position in Burlington Northern Santa Fe (BNI), which may also say something about his view on the economy. Financials and homebuilders are weaker but still aren't giving back much of last week's sharp gains from the lows. Bloomberg is reporting that Google's (GOOG) share of U.S. Internet searches rose to 55.2% in July vs. 46.2% a year earlier. Yahoo!'s (YHOO) share fell to 23.5% from 29.8%. I see no signs that Yahoo! will be able to reverse this trend of market-share loss to Google. I still view Google's stock as cheap relative to the market, and especially its competition. The company should grow at a relatively high rate for much longer than most investors expect. As well, multiple expansion is likely as investors reward those market-leading companies that can grow earnings at a relatively high rate even if global growth slows to more average rates from booming levels. Google remains my longest equity long position. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less pessimism, rate cut speculation, lower energy prices, overseas gains and bargain hunting.

Today's Headlines

Posted by Gary .....at 2:57 PM

Bloomberg:
- Yahoo!’s share of Internet searches fell to 23.5% in July, while Google Inc.(GOOG) extended its lead of the market with more than half of US queries, a researcher said.
- Natural Gas in NY is plunging 13%, the most in four years, on forecasts Hurricane Dean will probably miss the oil and gas production regions of the Gulf of Mexico.
- Gasoline futures in NY are falling more than 4%, the most in two weeks.
- Lowe’s Cos.(LOW), the second-largest US home-improvement retailer, reported profit that rose more than analyst estimated after it took sales from Home Depot. The shares surged the most in four years.
- Yields on US Treasury bills are falling the most since 1983 on demand for liquid safe securities.
- The US government should put pressure on Syria to stop letting terrorists pass through Damascus on their way to Iraq, Connecticut Senator Joseph Lieberman said.
- Atticus Capital LLC, the activist hedge fund run by Timothy Barakett, increased its stake in credit card company MasterCard Inc.(MA) to 9% from about 4.7%, according to a regulatory filing.
- US Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson will meet with Senate Banking Committee Chairman Christopher Dodd tomorrow to discuss responses to “ongoing turmoil” in the markets.
- Lehman Brothers(LEH) raised its recommendation on global financial stocks to “overweight” from “neutral,” citing their underperformance and speculation the Fed will cut rates.
- Hedge funds and other investors that can bet on falling stocks are boosting the number of so-called short positions with ETFs. Investors in the US by the end of June had increased their short positions to 1.4 billion ETF shares, or about 19% of the total number of shares issued, from 929 million shares at the start of the year, Morgan Stanley analyst Debbie Fuhr said. They have probably raised them again since then, she said.
- Steel shipments in the US fell 8.4% in June as customers reduced inventories before placing new orders and a housing slowdown cut demand for the metal used in construction and appliances, an industry group said.

Wall Street Journal:
- FairTax.org, a US movement for tax reform, is gaining momentum among Republicans and hopes to influence party-leadership nominations and agendas.

NY Times:
- Skilled professionals are finding demand for their services is increasing worldwide even as many countries have grown more reluctant to take in unskilled labor.

Chronicle of Higher Education:
- US business schools reported a rise in the number of applications to their graduate programs for the second year running, citing the Graduate Management Admission Council.

Barron’s:
- Warren Buffett’s Berkshire Hathaway(BRK/A) may find Countrywide Financial(CFC) an attractive acquisition target liquidity problems sent the largest US mortgage lender’s shares down 23% last week.

AFP:
- French Finance Minister Christine Lagarde said the worst of the market declines stemming from the US subprime mortgage rout has passed, citing her comments on BFM radio.

Inquirer:
- Memory Chip prices to skyrocket says chief.

Leading Indicators Rise

Posted by Gary .....at 11:47 AM

- Leading Indicators for July rose .4% versus estimates of a .4% gain and a -.3% decline in June.

BOTTOM LINE: The index of leading US economic indicators rebounded in July, propelled by gains in consumer confidence and stock prices, Bloomberg reported. 6 of the 10 indicators in today’s report helped to boost the gauge. Money supply adjusted for inflation, which has the largest weighting in the index, added .8 percentage points. As well, Jobless Claims below the 313,000 average for 2006, together with an unemployment rate at a historically low level, provides evidence of a resilient job market and is helping to add to the index. I still expect US economic growth to average around 2.5% the final two quarters of the year as the trade deficit shrinks, companies rebuild depleted inventories and inflation subsides further.