Stocks Finish Lower on Late Day Sell-Off

Indices
S&P 500 1,256.58 -.44%
DJIA 11,098.35 -.24%
NASDAQ 2,158.76 -.65%
Russell 2000 711.29 -.55%
Wilshire 5000 12,654.50 -.43%
S&P Barra Growth 582.46 -.44%
S&P Barra Value 672.28 -.43%
Morgan Stanley Consumer 601.13 -.25%
Morgan Stanley Cyclical 824.31 +.05%
Morgan Stanley Technology 497.76 -.73%
Transports 4,615.43 -.75%
Utilities 393.86 -1.42%
Put/Call 1.07 -11.57%
NYSE Arms 1.06 -33.49%
Volatility(VIX) 18.26 +3.05%
ISE Sentiment 188.00 -8.29%
US Dollar 84.40 +.07%
CRB 352.37 +2.37%

Futures Spot Prices
Crude Oil 71.46 -.42%
Unleaded Gasoline 208.80 -.95%
Natural Gas 6.28 +.37%
Heating Oil 199.25 -.32%
Gold 668.60 -.76%
Base Metals 243.44 +8.19%
Copper 382.25 -1.62%
10-year US Treasury Yield 5.03% -.16%

Leading Sectors
Gold & Silver +1.69%
Steel +1.37%
Oil Service +.71%

Lagging Sectors
Airlines -1.59%
Semis -1.62%
Computer Hardware -2.13%

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Afternoon Recommendations
RBC Capital Markets:
- Rated (CSTR) Outperform, target $30.
- Rated (FLOW) Outperform, target $16.

Afternoon/Evening Headlines
Bloomberg:
- The Senate Intelligence Committee today approved General Michael Hayden’s nomination to head the US CIA.
- Gold demand fell 16% in the first quarter as prices at 25-year highs deterred purchases by jewelers, the biggest buyers, the producer-funded World Gold Council said.

Boston Globe:
- Massachusetts single-family home sales in April fell to their lowest point in more than 10 years while prices remained steady.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Internet longs, Retail longs and Networking longs. I added to my (EEM), (IWM) and (QQQQ) shorts in the final hour, thus leaving the Portfolio 50% net long. The tone of the market was negative today as the advance/decline line finished lower, most sectors fell and volume was above average. Measures of investor anxiety were mixed into the close. Overall, today's market performance was bearish. Considering recent losses and elevated anxiety readings, today's reversal has to be very disappointing to the bulls. While commodities had a very good day today, the commodity stocks reversed most of their gains into the close. However, the real weakness remained in tech as semis continue to trade very poorly. Today's action makes it less likely that a durable bottom is in place in the major averages. I will closely monitor the market’s reaction to tomorrow’s housing data before further shifting market exposure.

Stocks Slightly Higher Into Final Hour on Bargain Hunting

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Internet longs, Networking longs and Retail longs. I covered some of my (IWM) and (QQQQ) shorts and then added them back today, thus leaving the Portfolio 75% net long. The tone of the market is slightly positive as the advance/decline line is modestly higher, sector performance is mixed and volume is above average. Bloomberg just reported that China raised jet fuel, diesel and gasoline prices more than 10%. This will result in a further deceleration in demand for oil. I expect US stocks to trade mixed into the close from current levels as higher energy prices and economic worries offset short-covering and bargain hunting.

Today's Headlines

Bloomberg:
- Toll Brothers(TOL), the largest builder of luxury homes, said fiscal second-quarter earnings rose 2.8%, the least in three years, and trimmed its 2006 forecast as higher mortgage rates discouraged potential buyers.
- Google(GOOG) is branching out into video to attract larger clients.
- Crude oil rose above $72/bbl. in NY on speculation that hurricane season will disrupt production again this year.

Wall Street Journal:
- European governments are looking at ways of curbing hedge funds’ power, encouraged by corporate executives who dislike the way the funds can use small stakes in companies to push for changes.
- India’s Sonia Gandhi and her rising political influence have prompted concern among investors over the future direction of the country’s economic expansion.
- Mobile Top Level Domain, a company founded by several companies including Microsoft(MSFT), Google(GOOG), Vodafone Group(VOD) and Nokia(NOK) has created an Internet domain name to make wireless Web access easier.

NY Times:
- More than 5,000 nongovernmental organizations have registered in Iraq since 2003, including human rights, medical and literary groups.
- US Senator Hillary Clinton and former President Bill Clinton appear rarely in public together, a move affected by her possible presidential ambitions.

Daily Telegraph:
- UK soldiers may remain in Iraq for a further four years after Prime Minister Tony Blair yesterday agreed with his Iraqi counterpart Nuri al-Maliki on a phased handover of control to civilian authorities.

El Economista:
- Telefonica SA and T-Mobile USA signed an agreement to share their networks of wireless Internet access points.

Handelsblatt:
- Walt Disney(DIS) is in talks with T-Online Intl. AG, Germany’s largest Internet-access provider, to start Internet TV channels in Germany.

Arab News:
- Saudi Arabia’s summer wedding season is expected to see 50% less ceremonies this year after the country’s stock market crash affected 25% of the kingdom’s citizens, citing wedding organizers and investors.

Financial Times Deutschland:
- More CEOs around the world resigned in 2005 than ever before, citing a report published by Booz Allen Hamilton.

National Post:
- Canada’s Conservative Party government would win a majority of seats in the House of Commons if an election were held today, according to a poll.

Economic Releases

- None of note

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- Hedge fund manager David Tepper of Appaloosa Management LP, had almost 75% of his fund’s $1.3 billion in assets in Microsoft(MSFT), Oracle(ORCL) and Cisco Systems(CSCO) at the end of March.
- NYC won its highest-ever credit rating on $34.2 billion in bonds after S&P said a surge in Wall Street profits and runaway real estate prices boosted revenue in the most populous US city.
- Daniel Ellsberg, who leaked secret Vietnam War documents, said the NY Times’ decision to publish classified information on domestic surveillance was “necessary” for democracy.
- Bank of Japan Governor Toshihiko Fukui suggested the yen’s strength is likely to be temporary.
- The US dollar strengthened against the yen on speculation sliding share prices and raw materials will spur flows into less risky assets such as US Treasuries.
- Indian stocks may extend their three-day, 14% plunge as some overseas investors judge local shares expensive given the outlook for earnings.

Financial Times:
- News Corp.’s(NWS/A) MySpace.com social networking Web site is seeking to link up with a large Internet search engine.

China Daily:
- Dell’s(DELL) sales of personal computers in China rose 29% in the three months starting Feb. 1, 2006, citing Dell Asia Pacific President Steve Felice.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -1.0% to -.50% on average.
S&P 500 indicated +.21%.
NASDAQ 100 indicated +.24%.

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Earnings of Note
Company/EPS Estimate
- (BGP)/-.24
- (CBRL)/.50
- (CSC)/1.13
- (MDT)/.62
- (PVH)/.73
- (TECD)/.32
- (TOL)/1.03

Upcoming Splits
- (JCOM) 2-for-1
- (NHY) 5-for-1
- (UN) 3-for-1
- (UL)

Economic Releases
10:00 am EST
- Richmond Fed Index for May is estimated to fall to 14 versus a reading of 18 in April.

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