BETWEEN THE HEDGES

Thursday, April 19, 2007

Friday Watch

Posted by Gary .....at 8:28 PM

Late-Night Headlines
Bloomberg:
- China may raise interest rates twice this year and order banks to set aside more money to slow lending after economic growth accelerated to 11.1% in the first three months of the year, a survey showed.
- President Bush warned of a possible nuclear arms race in the Middle East if the US pulls out of Iraq too quickly and lets Iran, which has an atomic development program, extend its influence.
- Cutting back on salt, a practice known to prevent hypertension, may also stop heart attacks and strokes, a study in the British Medical Journal found.
- China’s construction stocks have become the most expensive in Asia on record spending for roads and bridges, just as the government is taking steps to slow economic growth.
- Merrill Lynch(MER) said its newly acquired First Franklin unit made record numbers of subprime home loans in January and February and added staff, even as a surge in defaults forced rival mortgage lenders into bankruptcy. “We were able to build on our platform, actually hire talented people from competition, as some of our competitors fell away,” Merrill CFO Edwards said. “Our underwriting was up despite efforts to improve underwriting standards of ongoing products and eliminate products we felt were poorly performing.”
- Crude oil may fall further next week on speculation US refiners will increase production of gasoline, suggesting adequate stockpiles to meet demand this summer, according to a Bloomberg survey.
- The US Centers for Disease Control and Prevention expects to have at least 127 million flu vaccinations available this year to help prevent the illness that kills about 36,000 people in the US each season.
- China’s production of non-ferrous metals, including aluminum, copper and zinc, rose in the first three months of this year from the same period a year ago, the National Bureau of Statistics said.

Steelweek:
- Evraz Group SA, Russian’s second-biggest steelmaker, has decided not to bid for Ipsco Inc.(IPS) because a takeover would be too expensive.

Yomiuri:
- The Bank of Japan will lower its estimate for consumer-price inflation for the current fiscal year in a semiannual report on April 27.

Economic Daily News:
- Taiwan Semiconductor Manufacturing(TSM) is considering building a chip factory that may cost about $10 billion.

Late Buy/Sell Recommendations
Citigroup:
- Rated (POZN) Buy, target $28.
- Rated (ZGEN) Sell, target $12.

Business Week:
- Cardiac Science Corp.(CSCX), a maker of automated external defibrillators, is benefiting from demand from areas such as airports, sports arenas and government agencies. The shares could rise 18% in 2007, citing Dalton Chandler of Needham & Co. Jonathan Block of SunTrust Robinson Humphrey says the stock could reach $12 in the next year.

Night Trading
Asian Indices are +.50% to +1.50% on average.
S&P 500 indicated -.03%.
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
- (BXS)/.38
- (CAT)/1.07
- (HON)/.62
- (JCI)/1.06
- (MAN)/.61
- (MCD)/.61
- (SLB)/.90
- (XRX)/.21

Upcoming Splits
- None of note

Economic Releases
- None of note

BOTTOM LINE: Asian indices are higher, boosted by technology and automaker stocks in the region. I expect US equities to open modestly higher and to build on gains into the afternoon. The Portfolio is 100% net long heading into the day.

DJIA Hits Another Record High after Early Morning Weakness

Posted by Gary .....at 5:48 PM

Indices

S&P 500 1,470.73 -.12%

DJIA 12,808.63 +.04%

NASDAQ 2,505.35 -.21%

Russell 2000 819.32 -.61%

Wilshire 5000 14,827.03 -.21%

Russell 1000 Growth 579.78 -.11%

Russell 1000 Value 848.31 -.21%

Morgan Stanley Consumer 728.65 +.34%

Morgan Stanley Cyclical 986.66 +.05%

Morgan Stanley Technology 580.91 -.34%

Transports 5,165.59 +.06%

Utilities 515.56 -.38%

MSCI Emerging Markets 121.27 -1.13%

Sentiment/Internals

Total Put/Call .92 +16.5%

NYSE Arms .84 -.14%

Volatility(VIX) 12.54 +.97%

ISE Sentiment 124.0 -6.06%

Futures Spot Prices

Crude Oil 61.93 -1.90%

Reformulated Gasoline 208.65 +.15%

Natural Gas 7.49 unch.

Heating Oil 180.58 -.04%

Gold 687.0 -.91%

Base Metals 270.69 -1.18%

Copper 359.70 -.73%

Economy

10-year US Treasury Yield 4.66% +1 basis point

US Dollar 81.62 -.15%

CRB Index 310.38 -.76%

Leading Sectors
Road & Rail +1.67%
Drugs +.87%
Semis +.70%

Lagging Sectors
Airlines -2.15%
Oil Tankers -2.50%
Gold -2.79%

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
SunTrust Robinson Humphrey:

- Rated (PNRA) Buy, target $65.

Afternoon/Evening Headlines
Bloomberg:
- Merrill Lynch(MER) led a $1 billion financing deal for a new movie company called Summit Entertainment LLC.
- Advanced Micro Devices(AMD) reported a first-quarter loss of $611 million after it cut prices in a bid to keep market share won from Intel Corp.(INTC). The stock is +.30 to $14.55 in after-hours trading.
- Google(GOOG) said first-quarter profit rose 69% as it increased advertising sales worldwide and took more market share from Yahoo! Inc.(YHOO). The stock is $13 higher to $485 in after-hours trading.
- Intuitive Surgical(ISRG), the industry leader in surgical robotics, reported first quarter revenues surged 48% to $114.2 million, beating analysts’ estimates. The stock rose $4 to $125.50 in after-hours trading.

BOTTOM LINE: The Portfolio finished higher today on gains in my Semi longs, Biotech longs, I-Banking longs and Energy-related shorts. I didn’t trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was mildly negative today as the advance/decline line finished lower, sector performance was mostly negative and volume was above average. Measures of investor anxiety were slightly above average into the close. Today's overall market action was mildly bullish. I say "mildly bullish" due to the fact that there were a number of potential negative catalysts, yet the bears failed to gain any downside traction. Foods, road and rail, insurance, drugs, wireless, telecom, semis, computer hardware and steel all finished higher today. The S&P 500 is 4.3% higher year-to-date and is ahead of where I would have expected at this point in the year. While the bears tried their very best to raise expectations for Google's (GOOG) report tonight, the company delivered once again. Moreover, the stock is the cheapest it has ever been as a publicly traded company by most metrics, which should provide an ample cushion going forward. I plan to add to my core long on any knee-jerk substantial weakness after hours or in the morning, as I would view it as the last chance to get in before a substantial push higher through year-end. I still expect the stock to exceed $600 before the end of the year. The stock is currently +13 from the close, in after-hours trading. The Nikkei is still indicated up 90 on the open tonight in Asia.

DJIA Hitting Another All-Time High Despite Perceived Headwinds

Posted by Gary .....at 3:11 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, I-banking longs, Biotech longs and Energy-related shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is lower, sector performance is mostly negative and volume is above average. Today's performance, however, is very impressive considering the market's near-term overbought state, recent yen strength, emerging market worries and more negative comments from homebuilders. The Nikkei is indicated up 80 on the open tonight. I suspect that many investors put out additional shorts or took profits this morning. The recent healthy consolidation over the last three days, makes another upside surge in the major averages more likely. Gilead Sciences (GILD) is trading near session highs, up 4.4% to another all-time high. I suspect the stock will break above $100 in the second half of the year on what I believe will be a number of upside catalysts. I continue to like the biotech sector, and GILD remains my favorite stock in the group. I remain long the stock. Intuitive Surgical's (ISRG) open interest put/call ratio is 1.18, near its historical high. As well, short interest in the stock is near a historical high at 3.6 million shares, which is about 10% of the float. I expect the company to report good results after the close. As usual, though, the guidance will likely be conservative. I will use any meaningful knee-jerk weakness to add to my long position. The current macro environment is very good for this type of company, in my opinion and I expect it to continue to significantly outperform through year-end. I expect US stocks to trade mixed-to-higher into the close on lower energy prices, bargain-hunting and short-covering.

Today's Headlines

Posted by Gary .....at 1:49 PM

Bloomberg:
- Crude oil is falling $1.76/bbl., to session lows of $61.38/bbl., after Enbridge Inc., which supplies Canadian oil to the US, resumed shipments through a pipeline that was shut and worries over a China economic “hard landing” increased.
- MetroPCS Communications(PCS) surged as much as 35% in their first day of trading after the wireless-service provider raised $1.15 billion in the biggest US IPO this year.
- The EIA reported nat gas supplies fell 2.8% last week, however they are still 22.1% above the five-year average.
- Advanced Micro Devices(AMD) gained as much as 5.5% on speculation a private equity company will invest in the second-largest maker of personal-computer processors.
- Union Pacific(UNP), the biggest US railroad, said first-quarter profit rose 24% as shipping tied to the growing ethanol industry surged.
- Shares of HJ Heinz(HNZ) rose as much as 3.9% after a report said the company hired bankers to study taking the company private, making acquisitions or selling assets.
- Hedge funds globally attracted $60 billion in new money in the first quarter, almost half what they raised all of last year, as institutions shrugged off the industry’s subpar investment gains.
- Amgen Inc.(AMGN) said chemotherapy patients taking its anemia drug Aranesp had no greater risk of dying, sending shares of the company up as much as 7.3%.

Wall Street Journal:
- Bernard Dan, CEO of CBOT Holdings(BOT), parent of the Chicago Board of Trade, said price is not the only consideration in deciding which of the two bids for the CBOT to support.
- Mumbai’s economic growth and urban sprawl is putting increased pressure on the rail system that serves the metropolis of 18 million people.
- Cargill Inc., the largest US agricultural company, plans to boost production of renewable chemicals made from plants that can be used to make plastics, foam and lubricants.
- Fortress Investment Group LLC and other large hedge funds are making it difficult for smaller funds to attract the money flowing into the business.
- Tudor Investment Corp., the hedge-fund firm run by Paul Tudor Jones, has become the first hedge fund to set up a political-action committee.

NY Times:
- Companies such as Dell Inc.(DELL) and SAP AG(SAP) have begun outsourcing work to Eastern Europe. While India’s and China’s take of the $386 billion outsourcing market far exceeds Eastern Europe’s $2 billion stake, the latter region is steadily gaining clients, citing Robert Brown, an outsourcing analyst at Gartner Dataquest.

USA Today:
- More Americans are considering ways to conserve energy, such as traveling on public transportation and buying energy-efficient products. More than two-thirds of the people surveyed said they’d use only energy-efficient fluorescent light bulbs and 62% may buy a hybrid car, notwithstanding potentially greater cost.
- 78% of Americans polled in a survey said they believe illegal immigrants living in the US should be allowed to pursue citizenship.

AP:
- Leaders in the music industry met yesterday to discuss the use of sexiest and racist language in rap lyrics after the controversy surrounding radio host Don Imus, who was fired for inappropriate remarks.

NY Daily News:
- NY Mayor Michael Bloomberg will propose a tax on driving in parts of the city, citing John Liu, the chairman of the city council’s transportation committee.

Financial Times:
- The US dollar may be undervalued, or at least close to fair value, now that it’s reached low levels against European currencies.

Reuters:
- Angola may export a record 1.62 million barrels of crude oil a day in June, 50,000 barrels more than expected sales in May. The southern African country may increase production to an average of 2 million barrels a day next year.

El Moudjahid:
- India’s Oil & Natural Gas Corp. and Indian Oil Corp. will this week tell Algerian officials they want to drill for energy in the North African state.

Etemaad:
- Iran aims to expel 100,000 illegal Afghan immigrants form Tehran province by the end of March 2008, citing an immigration official.

Job Market Still Healthy, Leading Indicators Rise Slightly

Posted by Gary .....at 11:54 AM

- Initial Jobless Claims for last week fell to 339K versus estimates of 320K and 343K the prior week.
- Continuing Claims rose to 2531K versus estimates of 2510K and 2525K prior.
- Leading Indicators for March rose .1% versus estimates of a .1% gain and a -.6% decline in February.

BOTTOM LINE: The number of US workers filing applications for jobless benefits fell less than forecast last week, Bloomberg reported. The four-week moving-average of jobless claims rose to 328,750 from 323,500 the prior week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, held steady at a low 1.9%. The Fed’s Plosser recently said he expects income growth and low unemployment to propel spending this year. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.
A measure of the US economy’s future course rose in March for the first time in three months, as the labor market expanded and factories received more orders, Bloomberg reported. I continue to believe US economic growth came in substantially below trend in 1Q on significant inventory de-stocking. I still expect US growth to begin bouncing back to more average levels this quarter.