S&P 500 Hits 6-Year High, Led by Tech Stocks

Indices
S&P 500 1,440.13 +.85%
DJIA 12,621.77 +.70%
NASDAQ 2,466.28 +1.43%
Russell 2000 794.03 +1.10%
Wilshire 5000 14,458.12 +.87%
Russell 1000 Growth 568.0 +.96%
Russell 1000 Value 826.79 +.79%
Morgan Stanley Consumer 711.54 +.26%
Morgan Stanley Cyclical 923.79 +.79%
Morgan Stanley Technology 564.02 +1.29%
Transports 4,821.90 -.11%
Utilities 453.28 +.84%
Put/Call .83 -6.74%
NYSE Arms .75 -19.94%
Volatility(VIX) 9.89 -4.35%
ISE Sentiment 114.0 -16.79%
US Dollar 84.96 +.34%
CRB 296.09 -.19%

Futures Spot Prices
Crude Oil 55.31 +.49%
Reformulated Gasoline 146.09 +.94%
Natural Gas 7.32 -3.59%
Heating Oil 158.05 +.27%
Gold 654.90 +.35%
Base Metals 234.45 +1.71%
Copper 261.0 +.93%
10-year US Treasury Yield 4.81% -.04%

Leading Sectors
Telecom +2.91%
Internet +2.76%
Computer Hardware +2.33%

Lagging Sectors
Defense -.25%
Restaurants -.39%
Airlines -.51%

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Afternoon Recommendations
Merrill Lynch:
- Rated (AIMC) Buy.

Afternoon/Evening Headlines
Bloomberg:
- US stocks rose, driving the S&P 500 to a six-year high, after better-than-expected tech sector earnings.
- EBay Inc.(EBAY) said fourth-quarter profit rose 24%, beating analysts’ estimates as holiday shoppers bought more goods using the company’s PayPal online-payment service. EBAY surged 12% after-hours.
- Netflix(NFLX) said fourth-quarter profit fell less than analysts anticipated as the company added subscribers. The company forecast an increase in first-quarter profit. NFLX rose 8% in after-hours.
- Wall Street firms are trying to figure out how to finance leveraged buyouts of $75 billion or more, twice the size of the largest deal on record, a Citigroup executive said.
- Steelmakers' earnings may decline this year on weaker demand, S&P said.
- Petroleum reserves in Colombia, Latin America's fifth-largest oil exporter, rose as better security made exploration safer, the president of the National Hydrocarbon Agency said.

Wall Street Journal:
- Siemens AG, Europe’s biggest engineering company, is close to purchasing software marker UGS Corp., based in Plano, Texas, for $3.5 billion, including assumed debt.

BOTTOM LINE: The Portfolio finished higher today on gains in my Retail longs, Telecom Longs, Semi longs and Internet longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was very positive today as the advance/decline line finished substantially higher, almost every sector rose and volume was heavy. Measures of investor anxiety were mostly lower into the close. Today's overall market action was very bullish. I suspect many of the near-record shorts and underinvested bulls will add fuel to today's rally over the coming days. I continue to believe performance anxiety will come to the fore much sooner than normal, due to the S&P 500's 16.0% gain last year. The ISE Sentiment Index traded at depressed levels throughout the day and is finishing at 114.0. Hitwise.com is reporting that for the week ending 1/13/07, the share of searches for "iPhone" was greater than the weekly share of searches for "iPod" at any time during 2006. While most critical analysis of the iPhone focuses on its few drawbacks, little attention has been paid to the many negatives of the phones it will be competing with. I am very familiar with these products and continue to believe the iPhone will crush the competition and that Apple's (AAPL) future has never been brighter.

Stocks Higher into Final Hour, Led by Surging Technology Shares

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Semi longs, Telecom longs and Retail longs. I covered my (IWM)/(QQQQ) hedges today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is higher, almost every sector is rising and volume is heavy. This morning CNBC reported that a gas station in Omaha, Nebraska is selling "terror-free" gas. I just heard of this initiative recently. I went to the website and looked at the polling, which I found interesting. Here are some of the findings:

1. 50% said they would drive more than 5 miles to buy fuel that was not originated in the Middle East.
2. 85% believe at least part of the money we spend on gas consumption goes towards the financing of terrorism.
3. 36% said their next vehicle would likely or definitely be hybrid, FFV or biodiesel-powered.

Due to environmental concerns and terrorism worries, I believe that the demand for gas-guzzling vehicles will continue subsiding substantially even if gas prices plunge further, which I expect. I think long-term oil bulls remain amazingly complacent regarding the prospects for alternative energy and conservation given the substantial global demand destruction that is already occurring. I expect US stocks to trade mixed-to-higher into the close from current levels on bargain-hunting, short-covering, stable long-term rates and more economic optimism.

Today's Headlines

Bloomberg:
- Venezuelan President Hugo Chavez’ announcement that he will shut the private station, Radio Caracas Television, violates rules of due process and defies the presumption of innocence, said Marcel Granier, the company’s chairman.
- President Bush equated Iran, which does billions of dollars in trade with European countries, with the terrorist group al-Qaeda. Hezbollah, a militant organization that warred with Israel over the summer, is a terrorist group “second only to al-Qaeda in the American lives it has taken,” Bush said. Hezbollah isn’t listed as a terrorist group by the European Union.
- The NFL and its players’ union agreed to increase weekly drug tests to 10 from seven per team and added an endurance-builder linked to cyclists and skiers to the list of banned substances.
- Corning Inc.(GLW) posted a fourth-quarter profit that beat analysts’ estimates as sales of glass for television sets rose. The shares are soaring 13%, the most in 2 years.
- AT&T shares surged the most in six months after the company’s Cingular Wireless unit added a record 2.4 million mobile-phone subscribers in the fourth quarter.

Wall Street Journal:
- Coca-Cola Co.(KO) will introduce new beverage coolers that it says use less energy as part of a plan to highlight its interest in the environment.

NY Times:
- Former President Jimmy Carter defended his book “Palestine: Peace Not Apartheid” in his first major public speech on criticism the work has received. He told the audience at Brandeis Univ. that he apologized for an “improper and stupid” sentence in the book that suggests Palestinians shouldn’t end suicide bombings against Israelis and other acts of terrorism until Israel withdraws from the territories. The book led 14 members of the Carter Center’s advisory board to resign.

AP:
- The North Carolina State Bar charged prosecutor Mike Nifong with new ethics violations stemming from his pursuit of a rape case against three Duke University lacrosse players. Nifong, district attorney for Durham County, is accused of withholding DNA evidence and making misleading statements to the court.

El Universal:
- Venezuelan President Chavez ousted Food Minister Erika Farias amid growing food shortages and discontent with the state-subsidized Mercal supermarkets.

El Nacional:
- State-owned Petroleos de Venezuela SA, South America’s largest oil company, plans to more than triple gas prices in coming weeks to end subsidies that cost it $1 billion a year.

Economic Releases

- None of note

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- President Bush, in the State of the Union address, urged both political parties to put aside differences and focus on battling terrorism and accomplishing “big things” for the American people.
- The risk premium on high-yield, high-risk corporate bonds fell to the lowest in a decade as a drop in oil prices and surging consumer confidence boosts optimism the US economy will grow fast enough to limit defaults.
- Broadcom Corp.(BRCM) restated financial results to reflect $2.2 billion in costs for misdated stock-option grants, a problem it blamed on former CEO Henry Nicholas.
- Australia’s consumer prices unexpectedly fell for the first time in almost eight years, driving down the nation’s bond yields and currency as investors bet the central bank won’t raise interest rates.

Financial Times:
- Rupert Murdoch’s News Corp.(NWS) joined the Chandler family in its offer to buy Tribune Co.(TRB).

Guardian:
- The UK is not involved in a “war on terror” and “fear-driven” responses to a perceived threat could harm respect for fair trials and provide a temptation to “abandon our values,” citing an interview with Director of Public Prosecutions Ken MacDonald.

BBC:
- Ford Motor(F) has developed a vehicle that runs on non carbon-based alternative fuels, citing Sue Cischke, head of Ford’s safety programs. The car, called the Edge, is a hybrid that can operate on a combination of compressed hydrogen and a battery pack that plugs into a light socket.

Xinhua News Agency:
- China’s government will punish local officials who expand investments “blindly” without saving energy and protecting the environment, citing construction minister Wang Guangtao.

Night Trading
Asian Indices are +.75% to +1.0% on average.
S&P 500 indicated +.13%.
NASDAQ 100 indicated +.34%.

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Earnings of Note
Company/EPS Estimate
- (ABT)/.74
- (AMG)/1.73
- (APD)/.93
- (ATI)/1.61
- (ABC)/.56
- (CBT)/.50
- (CHKP)/.39
- (CPS)/.39
- (COP)/1.95
- (GLW)/.28
- (EBAY).28
- (ETH)/.70
- (FFIV)/.45
- (FDC)/.34
- (GD)/1.14
- (HSY)/.71
- (HTCH)/.10
- (LSI)/.17
- (MCD)/.61
- (NSC)/.96
- (NVLS).55
- (PMTC)/.21
- (QCOM)/.42
- (RMBS).09
- (RYL)/1.84
- (SYMC)/.25
- (TER)/.02
- (TDW)/1.49
- (TRID)/.26
- (VAR)/.36

Upcoming Splits
- None of note

Economic Releases
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil build of 1,300,000 barrels versus a 6,768,000 barrel build the prior week. Gasoline supplies are expected to rise by 1,500,000 barrels versus a 3,491,000 barrel increase the prior week. Distillate inventories are estimated to fall by -250,000 barrels versus a 910,000 barrel increase the prior week. Refinery Utilization is estimated to fall -.40% versus a -3.53% decline the prior week.

BOTTOM LINE: Asian indices are higher, boosted by technology and commodity shares in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 75% net long heading into the day.