Wednesday Watch

Late-Night Headlines
Bloomberg:
- Mark Mobius, who oversees about $30 billion in emerging-market equities at Templeton Asset Management says Chinese shares will decline further.
- Shares in Nikko Cordial Corp., Japan’s third-largest brokerage, plunged 15% after the Nikkei English News reported the Tokyo Stock Exchange is preparing to de-list the stock.
- Japan’s industrial production declined 1.5%, the most in almost three years, in January, signaling growth may slow in the world’s second-largest economy.
- Centro Properties Group, Australia’s second-largest shopping center owner, agreed to buy New Plan Excel Realty Trust(NXL) for $3.7 billion in cash to become the fifth-biggest mall owner in the US.
- Crude oil is falling $1.12/bbl. in NY as speculators pare bets on worries over slower Chinese and US demand.
- Singapore’s stocks are dropping 5.4%, sending the Straits Times Index to its biggest drop in 5 ½ years.
- Toyota Motor’s(TM) plan to build a $1.3 billion assembly plant in Mississippi brings it a step closer to a goal of building more vehicles in North America and cutting down on imports from Japan.
- China, the world’s largest coal producer and consumer, suspended the granting of coal exploration rights to avoid excess production capacity.
- Japan, the world’s largest consumer of oil after the US and China, said crude oil imports fell .6% in January.
- India’s copper production surged 26% to 521,953 tons in the ten months ended Jan. 31, from 414,731 tons a year earlier, the Ministry of Mines said.
- India, the world’s second largest producer of wheat and rice, banned futures trading in the two commodities to curb the fastest inflation in two years.
- Indonesia’s rupiah and the Philippine peso led declines in Asian currencies as fund managers dumped emerging market assets.

Shanghai Securities News:
- China’s stock sell-off yesterday shows that the country’s market is entering a phase of “painful” transformation, Hou Ning wrote. China’s equity investors were speculating on liquidity and sentiments, while often downplaying earnings.

Financial News:
- China needs to prevent its stock market from surging “too rapidly” and should stop funds from flowing into the market “too fast.” Most Chinese listed companies have become “overpriced” over the past year as funds “crazily” speculated on the market to gain profits, said the official newspaper, an affiliate of the People’s Bank of China.

South China Morning Post:
- Three Chinese carmakers including Shanghai Automotive Industry Corp. have started talks with DaimlerChrysler AG to buy its US-based Chrysler unit.

China Securities Journal:
- China’s stock market decline yesterday was a “rational revaluation,” and shares remain overvalued, citing analysts. China’s stocks had their biggest one-day plunge in a decade yesterday on concern that a government crackdown on investments made with borrowed money will end a rally that drove benchmark indexes to records.

Late Buy/Sell Recommendations
Citigroup:
- Various indicators suggest that things should calm down in the future such as the VIX, the ARMS index near record levels, a plunge in bullishness readings, and a rise in put/call ratios. Declines in the major averages of greater than 3% in a day have generated an impressive record of market recovery with a near 80% investment success rate within three months. Adding (KLAC) and (COH) to the Recommended List, increasing our exposure to tech and consumer discretionary.

Night Trading
Asian Indices are -6.0% to -3.0% on average.
S&P 500 indicated +.19%.
NASDAQ 100 indicated -.03%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Conference Calendar
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (BRL)/.74
- (DLTR)/.93
- (DBRN)/.24
- (EV)/.29
- (IPG)/.23
- (IRM)/.17
- (JOYG)/.62
- (LINTA)/.31
- (LIZ)/.96
- (LTD)/1.09
- (MSO)/.25
- (MRX)/.21
- (NRG)/.45
- (PSUN)/.39
- (PETM)/.56
- (S)/.29
- (SPW)/1.18
- (STN)/.45
- (VSE)/.20
- (WPO)/10.48

Upcoming Splits
- (ALB) 2-for-1

Economic Releases
8:30 am EST
- Preliminary 4Q GDP is estimated at 2.3% versus a prior estimate of 3.5% growth.
- Preliminary 4Q Personal Consumption is estimated at 4.2% versus a prior estimate of 4.4%.
- Preliminary 4Q GDP Price Index is estimated to rise 1.5% versus a prior estimate of a 1.5% gain.
- Preliminary 4Q Core PCE is estimated to rise 2.1% versus a prior estimate of a 2.1% gain.

9:45 am EST
- The Chicago Purchasing Manager for February is estimated to rise to 50.0 versus a reading of 48.8 in January.

10:00 am EST
- New Home Sales for January are estimated to fall to 1080K versus 1120K in December.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil build of 2,000,000 barrels versus a 3,694,000 barrel increase the prior week. Gasoline supplies are expected to fall by -1,500,000 barrels versus a -3,041,000 barrel decline the prior week. Distillate inventories are expected to fall by -2,600,000 barrels versus a -5,037,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise by .23% versus a -1.42% fall the prior week.

BOTTOM LINE: Asian indices are sharply lower, weighed down by commodity and technology shares in the region. I expect US equities to open lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

Stocks Finish Sharply Lower on Emerging Market and Economic Worries

Indices
S&P 500 1,399.04 -3.47%
DJIA 12,216.24 -3.29%
NASDAQ 2,487.07 -3.86%
Russell 2000 792.67 -3.77%
Wilshire 5000 14,189.97 -3.10%
Russell 1000 Growth 553.39 -3.42%
Russell 1000 Value 806.90 -3.41%
Morgan Stanley Consumer 689.50 -2.82%
Morgan Stanley Cyclical 934.38 -3.86%
Morgan Stanley Technology 562.03 -3.94%
Transports 4,863.76 -3.43%
Utilities 479.48 -2.88%
MSCI Emerging Markets 112.0 -4.67%

Sentiment/Internals
Total Put/Call 1.69 +65.69%
NYSE Arms 14.22 +1,432%
Volatility(VIX) 18.31 +64.22%
ISE Sentiment 111.0 +15.63%

Futures Spot Prices
Crude Oil 60.34 -1.69%
Reformulated Gasoline 179.30 +.86%
Natural Gas 7.43 -3.53%
Heating Oil 175.20 -.24%
Gold 664.30 -3.70%
Base Metals 242.76 +1.00%
Copper 275.50 -4.01%

Economy
10-year US Treasury Yield 4.51% -11 basis points
US Dollar 83.49 -.52%
CRB Index 313.26 -.58%

Leading Sectors
Defense -2.45%
Drugs -2.47%
Homebuilders -2.73%

Lagging Sectors
Alternative Energy -5.80%
Steel -6.85%
Gold & Silver -6.96%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
AG Edwards:
- Rated (BKC) Buy.

Afternoon/Evening Headlines
Bloomberg:
- The price of gold plunged 4% today despite its status as an investment safe haven.
- Great Atlantic & Pacific Tea, the owner of A&P and Food Emporium supermarket chains, is in talks to acquire Pathmark Stores(PTMK) for $652.5 million.
- Asian stocks may slide for a second day after a plunge in Chinese shares sparked a global sell-off. New Zealand NZX 50 Index, Asia’s first market to open, tumbled the most in more than four years. The Nikkei 225 futures are trading down 4.25%.
- Dow Jones(DJ) said its Dow Jones Industrial Average failed to keep up with stock trades for part of the day, making it appear as though the market plunged suddenly once computer problems were fixed about an hour before the close.
- Emerging-market bonds and currencies fell as a tumble in Chinese stocks curbed investor demand for riskier assets.
- Federated Dept. Stores(FD) reported higher fourth-quarter profit as customers shopped at Macy’s stores, and Target Corp.’s(TGT) net income rose on sales of consumer electronics and groceries.
- Treasuries posted the biggest gains since June 2005 as a rout in global stocks and bonds bolstered demand for the safest debt.
- Latin stocks fell the most since Sept. 11, 2001, as a plunge in Chinese shares prompted foreign investors to shed emerging market equities.
- Copper dropped 4% today as speculators cut long bets on concerns that demand from the US and China will slow further.

Financial Times:
- TXU Corp.(TXU), the Texas power producer being acquired fro $45 billion by KKR and Texas Pacific Group, is gauging interest from private equity groups and energy companies in a rival bid.

Vedomosti:
- Polo Ralph Lauren Corp.(RL) will open its first three stores in Moscow this year under a franchise agreement with Russia’s Mercury Group.

BOTTOM LINE: The Portfolio finished lower today on losses in my Retail longs, Computer longs, Biotech longs and Telecom longs. I added to my (EEM) short and added large (IWM)/(QQQQ) hedges today, thus leaving the Portfolio 50% net long. The tone of the market was extraordinarily negative as the advance/decline line finished substantially lower, every sector fell and volume was very heavy. Measures of investor anxiety were very elevated into the close. Today's overall market action was very bearish. Panicky trading was prevalent throughout the day. The VIX soared the most ever in a day, rising 64%. The NYSE Arms hit 15.95 today, the highest since Bloomberg began tracking it in 1998. As well, the CBOE total put/call was elevated throughout the day. My proprietary gauge of investor angst finished at a very elevated level. Today's losses were the most extreme in emerging market and commodity stocks. Chinese commodity stocks were hit the hardest. If in fact the bubble in Shanghai shares is bursting, U.S. stocks will likely see further downside in the near-term. However, longer-term, an end to the emerging market and commodity manias has hugely positive implications for U.S. stocks, specifically growth stocks. While today's losses were substantial, the Value Line Geometric Index, the best gauge of the broad market, is still 2% higher year-to-date, which is still a very good start to the year. Moreover, the average mid-cap stock is still about 3% higher ytd.

Durable Goods Orders Fall, Consumer Confidence Jumps to Cycle Highs, Existing Home Sales Surge

- Durable Goods Orders for January fell -7.8% versus estimates of a -3.0% decline and a 2.8% rise in December.
- Durables Ex Transports for January fell -3.1% versus estimates of a -.2% decline and a 2.6% increase in December.
- Consumer Confidence for February rose to 112.5 versus estimates of 108.5 and 110.2 in January.
- Existing Home Sales for January rose to 6.46M versus estimates of 6.24M and an upwardly revised 6.27M in December.

BOTTOM LINE: Orders placed with US factories for durable goods fell more than forecast in January, Bloomberg reported. Orders for non-defense capital goods excluding aircraft, a proxy for future business investment, fell 6%, the biggest decline since January 2004. I continue to believe manufacturing activity will improve from current levels as companies gain confidence in the sustainability of the current expansion and rebuild depleted inventories.

Confidence among US consumers unexpectedly rose to the highest in more than five years this month, lifted by rising wages and an expanding job market, Bloomberg said. The percentage of people who said jobs are hard to get declined to the lowest since August 2001. The Present Situation component of the index surged to 139.0 from 133.9 the prior month. The Expectations component rose to 94.8 versus 94.4 in December. The percentage of those saying jobs are hard to get fell to 17.5% in January versus 19.7% in December. Wages rose 4% in January, near the strongest in six years. As well, gas prices are down to $2.30/gallon from $3.03/gallon in August of last year. The S&P 500 has risen 18.2% in just over eight months. I expect the Univ. of Mich. Consumer Confidence reading to join this one in making cycle highs before year-end as gas prices fall further, stocks rise more, interest rates remain low, housing stabilizes at relatively high levels, inflation decelerates further and the job market remains healthy.

Sales of previously owned homes in the US rose more than forecast in January to a seven-month high as lower prices and warm weather brought out more buyers, Bloomberg said. The report suggests that housing may be less of a drag on growth this year, according to economists. The Case-Schiller Home Price Index showed the average home has increased in price by .5% over the last 12 months. I continue to believe that housing is in the process of stabilizing at relatively high levels.

Links of Interest

Market Snapshot
Detailed Market Summary
Quick Summary
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Intraday Chart/Quote

Tuesday Watch

Late-Night Headlines
Bloomberg:
- Japan’s industrial production probably fell the most in almost three years in January, signaling growth may slow in the world’s second-largest economy.
- China Agri-Industries Holdings Ltd., the nation’s largest rice exporter, will invest $359 million to expand fuel ethanol production capacity 600% over two years as the government promotes cleaner energy sources.
- Honda Motor(HMC) raised production to a record for January as its sold more Civic and Fit compact cars in North America. Toyota Motor(TM) and Honda are increasing their production in the US, as their fuel-efficient compact cars win sales from General Motors(GM).
- China’s stocks fell 5% as some investors judged a key index’s climb to an all-time high was excessive relative to earnings potential. Citic Securities, the nation’s biggest publicly traded brokerage, fell 8%. However, the stock is almost 600% higher over the last 12 months.

Chronicle of Philanthropy:
- Warren Buffett’s $43.5 billion donation to the Bill & Melinda Gates Foundation last year led the largest-ever field of Americans giving $100 million or more to charity.

Economic Daily News:
- Acer Inc. expects personal-computer sales to rise as much as 40% this year from 2006, citing Chairman JT Wang. Low inventory levels at the company’s retail outlets and the introduction of Windows Vista, Microsoft’s(MSFT) new operating system, will help boost sales, the repot said, citing Wang.

South China Morning Post:
- EBay Inc.(EBAY) will invest $105 million for a 33% stake in a Chinese electronic payment venture.

Shanghai Securities News:
- PetroChina Daqing Oilfield Co., a unit of the nation’s largest oil company, discovered as much as 1 billion tons of oil reserves in Hailaer in northern China. The Tamuchage field in Inner Mongolia Autonomous Region may have 800 million tons to 1 billion tons of oil reserves.

Late Buy/Sell Recommendations
Citigroup:
- Upgraded (MCO) to Buy, target $77.
- Reiterated Buy on (WLP), target $99.
- Reiterated Buy on (ERTS), target $64.
- Reiterated Buy on (HON), target $52.

Night Trading
Asian Indices are -1.0% to -.50% on average.
S&P 500 indicated -.06%.
NASDAQ 100 indicated -.07%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Conference Calendar
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (ADSK)/.46
- (AZO)/1.45
- (BBI)/.10
- (CVC)/-.05
- (CBS)/.47
- (DECK)/1.33
- (DWA)/-.44
- (DYN)/-.05
- (EP)/.19
- (FD)/1.55
- (FTO)/.58
- (HANS)/.33
- (HET)/.64
- (HNZ)/.62
- (HGSI)/-.40
- (KCP)/.39
- (OSG)/2.41
- (PZZA)/.46
- (PSA)/.08
- (NX)/.47
- (RSH)/.43
- (RRI)/-.20
- (RDC)/.70
- (RRD)/.65
- (SAFM)/-.11
- (TGT)/1.27
- (THC)/-.04
- (TXU)/1.20
- (VNO)/1.18
- (WPI)/.29
- (WCI)/-1.11
- (WYNN)/.46

Upcoming Splits
- (RYAAY) 2-for-1
- (MWE) 2-for-1ncal

Economic Releases
8:30 am EST
- Durable Goods Orders for January are estimated to fall -3.0% versus a 2.9% gain in December.
- Durables Ex Transportation for January are estimated to fall -.2% versus a 2.7% gain in December.

10:00 am EST
- Consumer Confidence for February is estimated to fall to 108.5 versus 110.3 in January.
- Existing Home Sales for January are estimated to rise to 6.24M versus 6.22M in December.

BOTTOM LINE: Asian indices are lower, weighed down by 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.

Stocks Finish Only Slightly Lower on Another Afternoon Rebound

Indices
S&P 500 1,449.37 -.13%
DJIA 12,632.26 -.12%
NASDAQ 2,504.52 -.42%
Russell 2000 823.69 -.36%
Wilshire 5000 14,644.24 -.16%
Russell 1000 Growth 573.00 -.30%
Russell 1000 Value 835.38 -.03%
Morgan Stanley Consumer 709.49 +.04%
Morgan Stanley Cyclical 971.90 +.12%
Morgan Stanley Technology 585.07 -.63%
Transports 5,036.72 -2.37%
Utilities 493.71 +2.63%
MSCI Emerging Markets 117.43 -.46%

Sentiment/Internals
Total Put/Call 1.02 -28.17%
NYSE Arms .92 -29.62%
Volatility(VIX) 11.15 +5.39%
ISE Sentiment 96.0 -4.95%

Futures Spot Prices
Crude Oil 61.49 +.57%
Reformulated Gasoline 178.0 +.96%
Natural Gas 7.54 -2.68%
Heating Oil 175.55 +.29%
Gold 690.50 +.55%
Base Metals 245.22 +1.58%
Copper 286.80 +.60%

Economy
10-year US Treasury Yield 4.62% -5 basis points
US Dollar 83.94 -.13%
CRB Index 315.10 +.15%

Leading Sectors
Utilities +2.63%
Papers +2.06%
Homebuilders +1.48%

Lagging Sectors
Oil Tankers -1.03%
Airlines -1.20%
I-Banks -1.64%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Piper Jaffray:
- Rated (BLDR) and (HWCC) Outperform.

Afternoon/Evening Headlines
Bloomberg:
- Nordstrom(JWN) said fourth-quarter profit rose by 22%, less than analysts estimated, on increased sales of women’s clothing. The stock fell 3.2% after-hours.
- The Bush administration wants Congress to give it the authority to speed up the process for issuing power-consumption standards for items ranging from refrigerators to traffic lights, Energy Secretary Bodman said.
- Natural gas declined 2.3% today in New York on speculation that demand for the furnace fuel will ebb as winter’s chill eases and spring approaches with inventories at very high levels.
- Brocade Communications(BRCD), the world’s largest maker of switches for data-storage networks, said first-quarter profit more than tripled on increased demand for storage systems. The stock surged 6% after-hours.

CNBC:
- Sandy Weil, former Chairman and CEO of Citigroup(C), said the US sub-prime mortgage market is not big enough to hurt the overall economy.

AP:
- Iraqi Prime Minister Nuri al-Maliki said today his Cabinet endorsed a draft version of a long-awaited oil law and the measure will now be sent to parliament for approval.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Retail longs and Energy-related shorts. I did not trade this afternoon, thus leaving the Portfolio 100% net long. The tone of the market was mildly negative as the advance/decline line finished modestly lower, sector performance was mixed and volume was below average. Measures of investor anxiety were mostly higher into the close. Today's overall market action was just mildly bearish. REITs recouped about half of their morning losses, however the I-Banks finished near session lows. The fact that oil only rose .25 today despite many scary Iran headlines and snow storms is interesting. Apple (AAPL) just said it is delaying its Apple TV launch until mid-March. This stock is only a bit lower on the report. A number of "growth stocks" I follow rose today despite the mild losses in the major averages. The underlying tone of the overall market remains very constructive despite the many calls for a correction. As of mid-February, NYSE short interest stood at 9,600,000,000 shares. This is only 1.5% below the all-time high of 9,744,698,000 shares set in October of last year, despite the 20.1% gain in the S&P 500 since June 13. Moreover, since June of last year when the bull market began to pick up steam, short interest has actually risen by 5.6% or 512,690,000 shares. Finally, the S&P 500 has soared 96.6% since the October 2002 bottom, yet NYSE short interest has actually jumped 17.0% since then. It is also interesting to note that the second-largest overall short position on the NYSE as of mid-February was the iShares Russell 2000 Index Fund (IWM) at 158,547,715 shares, up from 130,408,917 shares in mid-January. Short-selling has been rising in the IWM this year notwithstanding the fact that it is one of the best-performing major averages, already gaining 5.1% year-to-date. I continue to believe the many bears remain stunningly complacent and that a meaningful short-covering rally will occur at some point later this year.