BETWEEN THE HEDGES

Thursday, May 01, 2008

Bear Radar

Posted by Gary .....at 12:50 PM

Style Underperformer:

Mid-cap Growth +.41%

Sector Underperformers:

Gold (-3.79%), Coal (-3.73%) and Oil Service (-3.21%)

Stocks Falling on Unusual Volume:

MCRS, FSLR, OMTR, NTG, UDRL, ARD, PVA, MTL, PCU, FCX, SU, HES, SFLY, RDEN, HOLX, PDGI, JDSU, FARO, IRBT, GTLS, INSP, FEED, SNN, HOS, WLK and LVS

Stocks With Unusual Put Option Activity:

1) HOLX 2) BARE 3) COH 4) HES 5) VSEA

Personal Income Decelerates, Spending Rises, Inflation Muted, Jobless Claims Rise, Manufacturing Stable, Construction Falls Again

Posted by Gary .....at 12:46 PM

- Personal Income for March rose .3% versus estimates of a .4% gain and a .5% increase in February.

- Personal Spending for March rose .4% versus estimates of a .2% gain and a .1% rise in February.

- The PCE Core for March rose .2% versus estimates of a .1% gain and a .1% increase in February.

- Initial Jobless Claims for this week rose to 380K versus estimates of 365K and 345K the prior week.

- Continuing Claims rose to 3019K versus estimates of 2950K and 2945K prior.

- ISM Manufacturing for April came in at 48.6 versus estimates of 48.0 and a reading of 48.6 in March.

- Construction Spending for March fell 1.1% versus estimates of a .7% decline and an upwardly revised .4% increase in February.

BOTTOM LINE: US consumer spending rose more than forecast in March, Bloomberg reported. As well, the Fed’s preferred inflation gauge, the PCE core, rose 2.1% year-over-year in March versus the 20-year average of a 2.4% rise and down from 2.5% in February of last year. I expect personal income and spending to improve over the coming months as the job market strengthens, energy/food prices fall, stocks rise, extreme housing fears subside, depressed sentiment improves, credit market turmoil ends and interest rates remain relatively low.

The number of Americans filing first time jobless claims rose from a two-month low this week, Bloomberg reported. The four-week moving average of jobless claims fell to 363,750 versus 370,250 the prior week. The unemployment rate among those eligible for benefits ticked up to 2.3% versus 2.2% the prior week. This is still well below the long-term average of 2.9%. Forty-five states and territories reported a decrease in new claims, while only eight had an increase. The current four-week average of jobless claims of 363,750 is still well below the 410,000+ normally associated with economic contraction. During the last recession, from March 2001 through November 2001, initial jobless claims averaged 415,600 a week. During the contraction from July 1990 to March 1991, first-time claims average 434,000 a week. I expect jobless claims to trend lower from current levels over the coming months.

Manufacturing in the US in April continued to stabilize, Bloomberg reported. The ISM figure was higher than economists had forecast as exports continue to boom at record levels. The ISM Manufacturing Index is still nowhere near levels that normally indicate broad economic contraction. I expect manufacturing to improve further over the coming months as companies gain confidence in the economy, exports continue to boom, consumer spending improves and energy prices fall.

Spending on US construction projects fell more than forecast in March reflecting the largest one-month drop in homebuilding on record, Bloomberg reported. Residential construction fell in the first quarter by the most since 1981. The US economy grew at a .6% annual pace in the first quarter despite homebuilding falling at an annual rate of 27%, which subtracted 1.23 percentage points from economic growth during the quarter. Housing has been subtracting from GDP since the first quarter of 2006. Non-residential construction, including public projects, rose 1.3% in March and is up 12% from year ago levels. New home construction will continue to remain muted over the intermediate-term as builders work down inventories.

Bull Radar

Posted by Gary .....at 12:09 PM

Style Outperformer:

Small-cap Value (+1.65%)

Sector Outperformers:

Airlines (+5.1%), Semis (+4.1%) and Banks (+3.4%)

Stocks Rising on Unusual Volume:

AMKR, CNQR, SYMC, BBD, IOC, TTES, DVR, BAK, VLCM, ULBI, RNOW, PSYS, LOOP, TTEK, SEPR, UFPT, LHCG, NEWP, GMCR, TTMI, MWIV, SSYS, SOHU, ULTI, PWRD, IGV, GTI, ASF, DVR, TBL and TRN

Stocks With Unusual Call Option Activity:

1) DNR 2) HOLX 3) CMCSA 4) SYMC 5) HLF

Links of Interest

Posted by Gary .....at 9:13 AM

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Thursday Watch

Posted by Gary .....at 12:00 AM

Late-Night Headlines
Bloomberg:
- Treasury Secretary Henry Paulson said the credit crisis probably is more than half over and retained his forecast for the US economy to keep growing.
- Orange juice, the worst-performing commodity this year, dropped another 3.9% as the dollar gained against the euro and rain was expected to help the harvest in Brazil, the biggest citrus grower. Orange juice futures are now down 17% so far this year.
- American Airlines(AMR) and British Airways Plc are in talks to broaden their Oneworld alliance to add Continental Airlines(CAL) and seek antitrust immunity to set prices and schedules.
- Former Fed officials William Poole and Susan Bies said today it wouldn’t be wise for policy makers to cut the benchmark US interest rate below the current 2 percent.
- The man accused of running the Emperors Club VIP, a prostitution ring at the center of a probe tied to the resignation of NY Governor Eliot Spitzer, is nearing a deal to plead guilty.
- High-yield bonds in the US and Europe are headed for the biggest monthly rally since April 2003.

Wall Street Journal:
- Intel Corp.(INTC) says it is scrambling to meet early demand for a forthcoming line of low-end microprocessor chips.
- The number of children infected with a deadly virus in eastern China has increased by nearly 700 in the past two days. The virus has killed 20 children since it was discovered last month.

MarketWatch.com:
- Microsoft(MSFT) board fails to reach decision on next step. Options for its Yahoo(YHOO) bid included simply walking away.
- Text of Federal Open Market Committee’s decision.

CNBC.com:
- Recession? What Recession? Before you declare a recession, as many economic pundits have, shouldn’t the economy, well, actually recess a bit – if only for a quarter?

NY Times:
- NY Times/CBS News poll: Among Hillary Clinton supporters in the Democratic primary, just 49% say they would feel satisfied if Mr. Obama wins, while 50% would be dissatisfied. Nearly 25% of Clinton supporters say they would be very dissatisfied.

BusinessWeek.com:
- How Google(GOOG) Fuels Its Idea Factory.
- Medical Advances – Through Your iPhone? Researchers are beginning to understand how mobile phones can cut costs, help solve rural health-care problems, and even reduce medical errors.

Boston Herald:
- Obama official: Pro-Clinton group a ‘Swift Boat wannabe’ Barack Obama’s presidential campaign wants federal regulators to investigate fellow Democrats who are backing Hillary Rodham Clinton’s candidacy., taking intraparty discord to a new level of confrontation.

USA Today.com:
- The Federal Reserve’s action on Wednesday was the latest in an interest-rate-cutting drive over eight months that’s helped lower the yields that many adjustable-rate mortgages are tied to. Thanks to the Fed’s cuts, the rates to which those ARMs have been resetting have sometimes saved homeowners hundreds of dollars a month.

MSNBC.com:
- Farmers say don’t blame ethanol for food prices. Industry spokesman calls linking the two ‘manufactured hysteria.’ Poor weather conditions and a falling dollar should share blame for rising prices, but the ethanol industry said the biggest driver has been increasing fuel costs. Despite a vigorous defense by farmers and ethanol firms, there were signs in both parties and both chambers that Washington’s love affair with ethanol may have just been a fling. Options under consideration include suspending the tariff on imported ethanol, which would allow US firms to import Brazilian ethanol at much lower costs. Brazilian ethanol is made from sugar and costs about a third as much to produce as the corn-based version.

Reuters:
- Game console prices may be cut: Activision CEO
- Google Inc's(GOOG) top priority this year is to make money off its YouTube video-sharing site, Chief Executive Eric Schmidt said in a TV interview that sent Google's shares up 4.7 percent.

Financial Times:
- Fed hints at pause as rates cut to 2%. The suggestion of a pause came by way of the Fed dropping its explicit focus on the “downside risks” to growth. It also dropped a pledge to act “in a timely manner” and highlighted the “substantial easing” of monetary policy that has already taken place.
- The falling dollar has helped Atlanta, GA to emerge as a particularly desirable location in which to hold conferences and training sessions. The city has burst into the Economist Intelligence Unit’s list of top ten global destinations for business travel, occupying 6^th position. Three other US cities make the list. Here is the top ten:

The Scotsman:
- As an economist who has made the study of “happiness” one of his academic interests, David Blanchflower’s warning of the danger of Britain plunging into recession are not likely to produce nationwide joy and delight.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (LEH), target $65.
- Reiterated Buy on (CSCO), target $27.
- Reiterated Buy on (OMTR), target $30.
- Reiterated Buy on (AKAM), target $42.

CSFB:
- Reiterated Outperform on (FSLR), raised target to $330.

Night Trading
Asian Indices are -.50% to unch. on average.
S&P 500 futures +.04%.
NASDAQ 100 futures +.13%.

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Earnings of Note
Company/EPS Estimate
- (NBL)/1.67
- (RDC)/.86
- (PTEN)/.50
- (CVS)/.55
- (WMB)/.51
- (TYC)/.58
- (EXPE)/.22
- (CLX)/.75
- (CMCSA)/.19
- (XOM)/2.13
- (CAH)/1.01
- (ASF).48
- (WYN)/.35
- (NMX)/.82
- (D)/.89
- (TBL)/.18
- (MRO)/.82
- (BKC)/.27
- (CI)/.96
- (EK)/-.04
- (HOLX)/.36
- (FAF)/.14
- (APA)/3.02
- (CEPH)/.98
- (MNST)/.21
- (N)/-.02
- (MET)/1.48
- (JAVA)/.19
- (DRIV)/.48
- (ADP)/.75
- (ACS)/.87
- (CHK)/.93
- (WYNN)/.68
- (DLB)/.42
- (QLGC)/.26
- (GMCR)/.20
- (NNDS)/.58
- (MORN)/.43

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Personal Income for March is estimated to rise .4% versus a .5% gain in February.
- Personal Spending for March is estimated to rise .2% versus a .1% gain in February.
- The PCE Core for March is estimated to rise .1% versus a .1% gain in February.
- Initial Jobless Claims for this week are estimated to rise to 365K versus 342K the prior week.
- Continuing Claims are estimated to rise to 2950K versus 2934K prior.

10:00 am EST
- ISM Manufacturing for April is estimated at 48.0 versus 48.6 in March.
- ISM Prices Paid for April is estimated at 83.5 versus 83.5 in March.
- Construction Spending for March is estimated to fall .7% versus a .3% decline in March.

Afternoon:
- Total Vehicle Sales for April are estimated at 15.0M versus 15.1M in March.

Other Potential Market Movers
- The (ADBE) analyst meeting, weekly EIA natural gas inventory report, Challenger Job Cuts report and Morgan Stanley Global Healthcare Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and financial shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.