Wednesday Watch

Late-Night Headlines
Bloomberg:
- Laszlo Birinyi, president of investment research and management firm Birinyi Assoc., said he purchased equities in the past few weeks, including shares of Google Inc.(GOOG) and Apple Inc.(AAPL).
- China’s stocks may drop another 21% after a five-month rout slashed Shanghai’s benchmark index from its October record, Citigroup Inc. said. China’s government will probably resist calls for measures to bolster the equity market because valuations have yet to reach “distress levels,” Citigroup’s head of China research Lan Xue said. The Shanghai A-Share Stock Price Index may drop as low as 3,000 and rise to a maximum 4,4000, Lan said, without specifying a time period. Yesterday’s close of 3,790.69 was 41% below the record on Oct. 16. China’s stock market is the second-worst performer in the Asia-Pacific region this year amid concern the government’s measures to tame 11-year-high inflation will slow earnings growth. Growth in operating profit of listed companies may be insufficient this year to make up losses on equity investments, which accounted for about a third of corporate earnings in 2007.
- United Parcel Service(UPS), the world’s largest package-delivery company, reduced its first-quarter earnings estimates. The shares fell 4.2% in after-hours trading.
- Australian consumer confidence fell in April to the lowest since 1993, reinforcing the central bank’s view that the highest interest rates in 12 years will slow the $1 trillion economy.

Wall Street Journal:
- President Bush to Expand Homeowner Help. The Bush administration appears set to support a significant expansion of its assistance for struggling homeowners in a bid to forestall even more aggressive action being contemplated by Democrats in Congress.
- The Fed is considering contingency plans for expanding its lending power in the event its recent steps to unfreeze credit markets fail.
- JPMorgan(JPM), which has emerged as the go-to bank for the financial industry, got spurned by Washington Mutual(WM) just weeks after receiving an urgent call for help from the struggling competitor.

MarketWatch.com:
- Honeywell lands $23 billion jet engine contract. Company to build 1,200 engines for Brazilian business-jet maker Embraer.

IBD:
- A New Year For Ex-Highflier VMware(VMW).

CNNMoney.com:
- Survey: 6% of US teens own iPhones.
- Online sales to rise 17%, survey says. Annual study by Internet analysis firm says consumers are still spending on clothes, computers and cars online, despite slowing economy.

USA Today.com:
- Small US firms make big global sales. In a powerful trend that is reshaping the economic landscape, a rising wave of US small businesses and start-ups are going cross-border and selling hundreds of billions of dollars in goods and services to Asia, Canada, Latin America, Europe and Africa.

Reuters:
- China is planning to buy a more than 9% stake in miner BHP Billiton Ltd.(BHP) in a bid to interfere in BHP’s proposed acquisition of rival Rio Tinto Ltd.(RTP).
- Wall Street bankers and traders, fearing possible layoffs, may strike out on their own and try to launch new hedge funds in the coming weeks, a top industry official said.

Financial Times:
- Citigroup(C) is nearing a deal to sell $12 billion in leveraged loans at a discount to a group of leading private equity firms, marking another step in new chief executive Vikram Pandit’s efforts to shrink the beleaguered bank’s balance sheet. Although details of the deal were still being worked out, people familiar with the matter said Apollo Management, the Blackstone Group and TPG would buy the loan portfolio at a discount that could come in at about 90 cents on the dollar.
- The period of aggressive monetary easing by the Fed that began on January 22 – and saw interest rates cut by 200 basis points in the space of two months –might be over, bank minutes released on Tuesday suggest. The records, from the March 18 policy meeting, raise the possibility that the US central bank will switch gears, moving to smaller cuts as it ponders how low it wants to take rates.
- Wouldn’t you like to run your apps in Google’s(GOOG) data centers?

TimesOnline:
- Boeing(BA) is expected to announce today that its 787 Dreamliner has been delayed by 18 months, a setback that will cost the company billions of dollars in compensation to airlines.

Daily Telegraph:
- The IMF’s World Economic Outlook will slash its growth forecasts today for the UK and will predict the weakest two years of growth for Britain since the last recession in the early 1990s. The IMF expects UK economic growth of 1.6% for this year and 2009. The IMF has cut its forecast by .7% since the last report six months ago.

Straits Times:
- Prices of luxury condominiums in Singapore have fallen by as much as 30% this year, citing housing records.

Late Buy/Sell Recommendations
Citigroup:.
- Reiterated Buy on (IGT), target $52.
- Reiterated Buy on (SMTC), target $19.

Night Trading
Asian Indices are -1.25% to +.25% on average.
S&P 500 futures -.18%.
NASDAQ 100 futures -.04%.

Morning Preview
US AM Market Call
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Today in IBD
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Earnings of Note
Company/EPS Estimate
- (ISCA)/.72
- (SGR)/.54
- (CBK)/-.08
- (BBBY)/.65
- (PGR)/.29
- (CC)/-.07

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Wholesale Inventories for February are estimated to rise .5% versus a 1.0% increase in January.

Other Potential Market Movers
- The Fed’s Bernanke speaking, Fed’s Fisher speaking, weekly MBA Mortgage Applications report, weekly EIA energy inventory data report, (WBSN) analyst meeting, (AWI) analyst meeting, Howard Weil Energy Conference and CSFB Global Real Estate Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker and financial stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Lower, Weighed Down by Homebuilding, Financial and Technology Shares

Evening Review
Market Summary
Top 20 Biz Stories
Today’s Movers
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After-hours Stock Chart
In Play

Stocks Lower into Final Hour on Healthy Profit-taking

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Internet longs, Gaming longs and Computer longs. I have not traded today, thus leaving the Portfolio 75% net long. The overall tone of the market is bearish as the advance/decline line is lower, most sectors are declining and volume is below average. Investor anxiety is above average. Today’s overall market action is mildly bearish. The VIX is rising 1.3% and remains above average at 22.7. The ISE Sentiment Index is a low 105.0 and the total put/call is an above-average 1.12. Finally, the NYSE Arms has been running above average most of the day and is currently 1.14. Weekly retail sales rose 1.1% this week versus 1.1% the prior week and up from .5% the first week of March. There seems to be much angst over the upcoming release of March chain store sales this Thursday. However, I suspect sales will modestly exceed the .9% estimate, which should provide a positive catalyst for the broad market. Nuance Communications(NUAN), one of my longs, announced the acquisition of eScription today, which is boosting the stock 5.4%. This purchase has many strategic benefits and gives the company a competitive advantage in the North American medical transcription market, which offers a very large opportunity. Nikkei futures indicate an +55 open in Japan and DAX futures indicate an +52 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and bargain-hunting.

Today's Headlines

Bloomberg:
- The euro’s gains against the US dollar threaten to slow growth in the single-currency region by crimping exports, according to Milton Ezrati, the senior economist at investment company Lord Abbett. “Following five years of already substantial euro appreciation, this latest surge has added significantly to the price of European products on world markets and so has begun to play serious havoc with eurozone exports,” Ezrati wrote. “The period of tremendous euro strength has probably run its course,” he said.
- Hedge-fund titans James Simons and Stephen Mandel are showing the biggest losses of their careers in the $1.9 trillion industry’s worst start in almost 20 years.
- The British pound fell to a record against the euro after the UK’s biggest mortgage lender said house prices dropped by the most since 1992 last month.
- Emerging-market bonds fell as concern that bank losses will widen prompted investors to shun higher-yielding securities. The extra yield investors demand to own emerging-market bonds over Treasuries widened 4 basis points, the most since March 31, to 2.87 percentage points.
- US brokers and asset managers were raised to “attractive” from “neutral” at Goldman Sachs Group(GS), which said mortgage writedowns may “significantly exceed” actual losses.

Wall Street Journal:
- The Coming Tax Bomb. As the presidential campaign enters its final stages, there will be increased debate over budget priorities and how they will be paid for. Many commentators and political leaders, including Senators Hillary Clinton and Barack Obama, believe that tax increases are needed to restore near-term budget balance and finance longer-term entitlement growth. These claims fail budget arithmetic and economics. Worse, they raise serious questions about the nation’s broad fiscal policies and its commitment to economic growth.
- General Motors(GM), Chrysler LLC and Ford Motor(F) plan to increase exports of US-made vehicles as new labor contracts and a weak dollar make them more competitive globally.

NY Times:
- Grady Memorial Hospital, one of the country’s largest charity hospitals, will receive $200 million from a private foundation with ties to Coca-Cola(KO), hospital officials said. The gift is the largest on record to a single public hospital.

CNBC:
- John Mack: Subprime Crisis Near End. Morgan Stanley(MS) CEO John Mack says we are in the ninth inning of the subprime mortgage crisis. (video)

FoxBusiness.com:
- One Fund Sees Green in First Solar’s(FSLR) Solar Modules.

Financial Times:
- Chinese officials will hold talks with Olympic leaders about the torch relay, amid concern in the International Olympic Committee that protests against the crackdown in Tibet might damage the games.
- Biogen Idec(BIIB): Bankers cautiously convinced that company will fall prey to a takeout this year.

Globeandmail.com:
- Hedge fund Sprott to gamble on IPO. Founder Eric Sprott hopes to raise as much as $1.5 billion with stock sale. A decade-long run of winning bets on resource companies, along with contrarian calls against blue-chip stocks such as banks, means Sprott Asset can go public on the back of a benchmark equity fund that posted a 28% average annual return over 10 years.

Daily Telegraph:
- UK housing bubble is bursting and it’s serious.

Australian:
- Tensions between Australia and China are set to rise as Kevin Rudd arrives in Beijing today amid revelations that China is preparing to buy a multi-billion-dollar stake in BHP Billiton(BHP).

Bear Radar

Style Underperformer:

Large-cap Value -.96%

Sector Underperformers:

Homebuilders (-3.5%), Semis (-3.2%), Banks (-2.2%)

Stocks Falling on Unusual Volume:

NVLS, ONB, POZN, ASML, GRMN, WM and FII

Stocks With Unusual Put Option Activity:

1) ELX 2) URBN 3) AMT 4) PDLI 5) NTRI

Homebuyer Affordability Index Graph

(click on image to enlarge)

BOTTOM LINE: The Homebuyer Affordability Index rose to the best level in five years in February to 135.20. This index has surged 35.7% from its record low, hit in July 2006. The graph above, which goes back to January 1989, also shows that home affordability is now above the long-term average of 124.9. This is a major positive.