Bear Radar

Style Underperformer:

Large-cap Growth +.50%

Sector Underperformers:

Goldirlind (-1.79%), Coal (-1.38%) and Oil Service (-1.24%)

Stocks Falling on Unusual Volume:

KEY, CTL, ANW, EAC, NCMI, CHDX, IVGN, EGLE, DRYS, GOLD, TBSI, TOO, ROC and CPO

Stocks With Unusual Put Option Activity:

1) BJS 2) APOL 3) TXN 4) JRCC 5) WYE

Import Prices Decelerate, Retail Sales Surge, Jobless Claims Rise, Inventories Gain

- The Import Price Index for May rose 2.3% versus estimates of a 2.5% increase and an upwardly revised 2.4% gain in April.

- Advance Retail Sales for May rose 1.0% versus estimates of a .5% gain and an upwardly revised .4% increase in April.

- Retail Sales Less Autos for May rose 1.2% versus estimates of a .7% gain and an upwardly revised 1.0% increase in April.

- Initial Jobless Claims for this week rose to 384K versus estimates of 370K and 359K the prior week.

- Continuing Claims rose to 3139K versus estimates of 3118K and 3081K prior.

- Business Inventories for April rose .5% versus estimates of a .3% gain and a .2% rise in March.

BOTTOM LINE: Prices of goods imported into the US rose less than forecast in May as smaller increases in the costs for autos and other consumer goods from abroad cushioned record energy expenses, Bloomberg said. Prices, excluding fuels, rose .5%, the smallest rise this year. The price of imported petroleum and petroleum products rose 7.8% versus a 5.9% gain the prior month. The cost of imported capital goods rose .3% from a month earlier. Prices of imported automobiles, parts and engines were unch. in May versus a .4% gain the prior month. Costs of imported consumer goods excluding autos rose .2% versus a .7% gain the prior month. I expect import prices to show a more meaningful deceleration beginning next quarter.

Retail sales in the US rose twice as much as forecast in May, and the most since November, as tax-rebate checks spurred Americans to shop at electronics and department stores, Bloomberg reported. Even excluding gasoline sales, retail purchases rose .8% last month. $56 billion, or just over half, of the tax rebates have been distributed thus far. Morgan Stanly economists raised their estimate for 2Q economic growth from a .2% contraction to a .5% gain. Purchases of electronics increased .7% and sales at department stores rose 1.2%, the most since March of last year. Sales at auto dealerships and parts stores increased .3% after dropping 2.1% in April. Excluding autos, gas and building materials, the retail group the govt. uses to calculate GDP, sales rose .8%, versus a 1% increase in April. The bulk of the tax rebates will probably be spent from July through September, giving 3Q growth a boost. I still expect retail sales to accelerate back to average rates in the second half of the year.

The number of Americans filing first-time claims for unemployment benefits last week rose more than forecast, Bloomberg reported. Weekly claims figures in the past two weeks have been more volatile than usual because of difficulties in making seasonal adjustments for the May 26 Memorial Day holiday, a Labor spokesman said. The four-week moving average for initial claims rose to 371,500 versus 369,000 the prior week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, rose to 2.4% from 2.3% the prior week. I still expect jobless claims to trend modestly lower through year-end. The 10-year yield is rising 13 basis points and the US Dollar Index is surging 1.0% on today’s reports. The 10-year TIPS spread, a good gauge of inflation expectations, is stable at 2.51%, which is down from a 52-week high of 2.68% on March 13^th.

Bull Radar

Style Outperformer:

Small-cap Value (+1.53%)

Sector Outperformers:

Retail (+3.29%), Airlines (+3.11%) and I-Banks (+3.09%)

Stocks Rising on Unusual Volume:

IBN, FSLR, HDB, C, BAC, SI, CMED, CYBX, CASY, AUTH, BEAV, QCOM, NUAN, STST, TROW, RECN, CHKE, UBSI, KCAP, MCHP, CEDC, CCOI, ILMN, SQNM, QGEN, ABV, ABI, BUD, SEH, NT and FMX

Stocks With Unusual Call Option Activity:

1) NT 2) CMED 3) KEY 4) CMI 5) CC

Links of Interest

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Thursday Watch

Late-Night Headlines
Bloomberg:
- The US dollar rose against the euro on speculation a government report today will show US retail sales climbed in May.
- Commodity prices have a “very weak” correlation with inflation measures, minimizing the appeal of raw materials as a hedge against rising consumer prices, Lehman Brothers said. Investors have poured a total $235 billion into indexes of raw materials, Lehman said.
- InBev NV made an unsolicited offer to buy Anheuser-Busch Cos.(BUD) for $46.3 billion to gain half of the US beer market and overtake SABMiller Plc as the world’s biggest brewer by volume.
- India Rate Rise Means BRICs to Suffer in Price Fight.
- Former Fannie Mae(FNM) Chairman James Johnson said he has quit Senator Barack Obama’s vice presidential search committee after the Wall Street Journal reported he may have received preferential mortgage terms from Countrywide Financial Corp.(CFC).
- General Motors(GM) and Clean Energy(CLNE) announced today Clean Energy will open a hydrogen fueling station in Los Angles with support from GM. The two companies also said they are exploring further opportunities to expand the hydrogen infrastructure.
- China Is Nowhere Close to Victory on Inflation. The 8.1%, one-day slump in China’s key stock index this week shows investors are shifting their gaze away from food prices – which are stabilizing – to other sources of inflation simmering below the surface.
- Foreign direct investment in China rose 37.9% in May from a year earlier, adding to the flood of cash that fuels inflation.
- Merrill Lynch(MER) CEO Thain said no longer able to rule out selling a stake in Bloomberg LP or offering new shares to raise capital after credit-market conditions worsened in the past two months.
- Australia’s economy unexpectedly lost jobs in May, ending a record employment boom and sending the nation’s currency lower on speculation the central bank won’t raise interest rates again.
- The Bank of Korea kept interest rates unchanged at the highest in seven years after oil prices surged to a record and inflation accelerated.

Wall Street Journal:
- Democrat Barack Obama begins his presidential race against Republican John McCain with a lead in the latest Wall Street Journal/NBC News poll, but not so great an edge as might be expected.

NY Times:
- A federal court judge ruled in favor of CSX in the railroad operator’s battle with a pair of activist hedge funds that are seeking to oust five members of its board.

UPI:
- China plans to triple its wind power capacity over the next two years.

Reuters:
- Daimler AG plans to sell a completely electric version of its Smart two-seat minicar within a few years, citing Herbert Kohler, head of Daimler’s engine research.
- Sometime next year, Cuba plans to begin drilling a major oil field off its northern coast that might do what little else has done – bring change to US-Cuba relations.

Financial Times:
- Wall Street securities firms are unlikely to face the borrowing limits imposed on commercial banks even if the US financial system emerges fr4om the credit crisis with a single regulator, a top Treasury official said.
- The European Central Bank moved to damp market expectations of a flurry of interest rate rises in the coming months by signaling on Wednesday that a planned rise in eurozone rates next month was likely to be a one-off.
- Fed’s economic survey offers some cheer.

Daily Telegraph:
- The FBI and New York State Police are leading the search for Samuel Israel III, the founder of the Bayou Group of hedge funds who was sentenced in April and ordered to pay $300 million in restitution to defrauded clients.

Hong Kong Economic Journal:
- UBS AG will be back on the “right track” by the end of this year, citing Chairman Peter Kurer. UBS will be one of the banks to recover the quickest from the credit-market crisis, which has mostly run its course, he said.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (HON), target $70.

Night Trading
Asian Indices are -2.25% to -1.0% on average.
S&P 500 futures +.18%.
NASDAQ 100 futures +.05%.

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Earnings of Note
Company/EPS Estimate
- (PAY)/.26
- (TMA)/-3.38
- (FNSR)/.03

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Import Price Index for May is estimated to rise 2.5% versus a 1.8% gain in April.
- Advance Retail Sales for May are estimated to rise .5% versus a .2% decline in April.
- Retail Sales Less Autos for May are estimated to rise .7% versus a .5% increase in April.
- Initial Jobless Claims for this week are estimated to rise to 370K versus 357K the prior week.
- Continuing Claims are estimated to rise to 3118K versus 3093K prior.

10:00 am EST
- Business Inventories for April are estimated to rise .3% versus a .1% increase in March.

Other Potential Market Movers
- The Fed’s Bernanke speaking, weekly EIA natural gas inventory report, (CAH) MedTech Day, (PPG) Analyst Meeting, (MTD) investor presentation, (SYMC) analyst meeting, Goldman Sachs Healthcare Conference, Needham Biotech/Medical Tech Conference, Thomas Weisel Alternative Energy Conference and Avondale Behavioral Healthcare Conference could also impact trading today.

BOTTOM LINE: Asian indices are sharply 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 50% net long heading into the day.

Stocks Finish at Session Lows, Weighed Down by Transportation, Financial, Gaming, Homebuilding Shares

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