Stocks Finish Slightly Lower on Healthy Consolidation of Recent Strong Gains

Indices
S&P 500 1,480.93 -.23%
DJIA 12,919.40 -.33%
NASDAQ 2,523.67 -.11%
Russell 2000 827.55 -.16%
Wilshire 5000 14,935.82 -.17%
Russell 1000 Growth 584.12 -.09%
Russell 1000 Value 853.76 -.29%
Morgan Stanley Consumer 733.50 -.07%
Morgan Stanley Cyclical 997.78 -.07%
Morgan Stanley Technology 582.10 -.15%
Transports 5,161.76 -.85%
Utilities 523.90 +.64%
MSCI Emerging Markets 122.68 +.03%

Sentiment/Internals
Total Put/Call .91 +21.3%
NYSE Arms 1.13 +29.92%
Volatility(VIX) 13.04 +8.04%
ISE Sentiment 133.0 +6.40%

Futures Spot Prices
Crude Oil 65.70 +2.51%
Reformulated Gasoline 219.95 +2.91%
Natural Gas 7.57 +2.51%
Heating Oil 189.10 +3.19%
Gold 692.70 -.45%
Base Metals 271.87 -.73%
Copper 365.60 +.97%

Economy
10-year US Treasury Yield 4.64% -3 basis points
US Dollar 81.74 +.12%
CRB Index 314.47 +.78%

Leading Sectors
Coal +4.02%
Biotech +1.64%
REITs +1.26%

Lagging Sectors
Drugs -1.26%
Airlines -1.94%
Homebuilders -1.99%

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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Cephalon Inc.(CEPH), Henry Schein(HSIC) and Steel Dynamics(STLD) are candidates to join the Nasdaq-100 Index, replacing Medimmune(MEDI), according to Gabriela Baez, head of index and portfolio research at Lehman(LEH).
- Crude oil surged, approaching $66/bbl. in NY, as investment funds speculated that shipments from Nigeria may be disrupted as complaints about the country’s presidential election spawn more violence.
- Altera Corp.(ALTR), the world’s second biggest maker of programmable semiconductors, said first-quarter profit rose 28% on sales of new products for consumer electronics. The shares rose 2% after-hours.
- Express Scripts(ESRX), the third biggest US manager of drug benefits, said quarterly profit increased 28% as the company filled more prescriptions with cheaper generic copies. The shares surged 4.5% after-hours.
- Amgen(AMGN) said first-quarter profit rose 15% on sales of drugs to treat anemia in dialysis and cancer patients. The shares rose 1% after-hours.
- Texas Instruments(TXN), the world’s largest maker of mobile-phone chips, reported a 12% drop in first quarter profit, the first decline in more than two years, as phone shipments slowed. The shares soared 8% after-hours.

BOTTOM LINE: The Portfolio finished higher today on gains in my Computer longs, Medical longs and I-Banking longs. 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 mildly lower, sector performance was mixed and volume was above average. Measures of investor anxiety were above average into the close. Today's overall market action was neutral. Underlying market action remained very constructive today despite the jump in oil and comments from (GM). The Goldman Sachs Agricultural Commodity Sub-Index looks like it is rolling over again to me. As well, corn is falling 2.3% today and is testing recent lows. The AMEX Biotech Index (BTK) is building on its all-time closing high set last week. Mid-caps rose again today and continue to display significant relative strength. The VIX rose 8% today despite minor losses in the major averages. I expect more choppiness throughout the week.

Stocks Slightly Lower into Final Hour on Healthy Consolidation of Recent Strong Gains

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Medical longs and I-Banking longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is mildly lower, sector performance is mixed and volume is above-average. Back in February I pointed out that the Vietnam Index was in the midst of an unsustainable meteoric rise. The Index peaked on March 12 and has since plunged 20.3%. While other Asian emerging markets continued to rally last night, the Vietnam Index fell another 3.9%. While this market is relatively small, it may indicate a negative shift in psychology regarding the mania for Asian emerging market stocks. The Vietnam Index is still 23.8% higher year-to-date and almost 300% higher over the last two years. The only place I see more investor complacency than commodities is in emerging markets and the two go hand-in-hand. If one mania ends, the other will soon follow, in my opinion. I still expect the mania for emerging market stocks to begin reversing course this year and eventually result in a significant increase in the demand for U.S. stocks at a time of very low supply. The UBS/Gallup Index of Investor Optimism fell to 74 in April vs. 78 in March. This is the lowest reading since September 2006, despite recent stock gains. I continue to sense that very few investors believe any meaningful market upside is possible from current levels. I continue to disagree. I expect US stocks to trade mixed into the close as higher energy prices and profit-taking offset buyout speculation and earnings optimism.

Today's Headlines

Bloomberg:
- Financial services minister Ed Balls called for regulators of the world’s major financial markets to adopt the British practice of running semi-annual checks of the hedge fund industry.
- Sugar plunged to a 21-month low in NY and the lowest price since November 2005 in London after China, the world’s second-largest consumer, said it may reduce imports.
- Corn is falling another 2.7% in Chicago as warmer, drier weather in the Midwest firmed up muddy fields as farmers accelerated planting what the US government said will be the most acres since 1944.
- Carl Icahn agreed to sell the Stratosphere, three other Nevada casinos and 17 acres on the Las Vegas Strip to Goldman Sachs Group’s(GS) real estate funds for $1.3 billion.
- Crude oil is rising above $65/bbl. in NY as speculators raise bets that shipments from Nigeria may be disrupted as complaints about the country’s presidential election spawn more violence.
- AstraZeneca Plc(AZN), struggling to develop new medicines, agreed to buy US biotech company MedImmune(MEDI) for $15.2 billion in cash to gain flu vaccines and an antiviral treatment for babies.

Wall Street Journal:
- US farmers have funded a dam in Kenya that brings water and crops, helping combat a decrease in international aid to Africa and underscoring the impact small projects can have.
- US and UK hedge funds are selling stock in their funds to the public, but weak performance of some of the shares is creating doubt about this relatively new source of funding.

NY Times:
- New York Governor Eliot Spitzer plans to introduce legislation to legalize gay marriages in the state.
- Sales of video games for personal computers are on the rise as companies such as Microsoft Corp.(MSFT) try to use the games to highlight other technology and services.

AP:
- Time Warner Cable(TWX) will allow its broadband customers to become public wireless hotspots through technology offered by Fon, a Wi-Fi startup.

San Francisco Chronicle:
- San Francisco Mayor Gavin Newsom won’t allow any of the city’s employees to assist federal authorities in illegal immigration raids.

Chronicle of Higher Education:
- US colleges and universities will be encouraged to use debit cards to distribute money to students under a new proposal to streamline the flow of federal student aid.

Sueddeutsche Zeitung:
- The German government expects the economy to grow by 2.3% this year and 2.4% in 2008.

Vedomosti:
- Schlumberger(SLB) shareholders elected a Russian citizen to the company’s board, a first for a major Western company.

China Business News:
- Symantec Corp.(SYMC) and China’s Huawei Technologies may form a computer storage and network security venture.

Economic Releases

- None of note

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Monday Watch

Weekend Headlines
Bloomberg:
- US Treasury Secretary Henry Paulson called on China to help him douse attempts in the US Congress to erect trade barriers by adopting “tangible” changes to its economic policy.
- Manhattan apartment rents rose an average 10.4% in 2006 as the vacancy rate stayed below 1% for the entire year, according to a report by broker Citi Habitats NY.
- A Texas judge overseeing 1,300 Vioxx lawsuits against Merck & Co.(MRK) threw out the claim that the company failed to properly warn users about the painkiller’s health risks, a ruling that will delay the litigation.
- US 10-year Treasuries gained the most since early March as traders raised bets the Federal Reserve may cut interest rates this year amid easing inflation pressures.
- German Finance Minister Peer Steinbrueck said the US policy of providing guidelines to hedge funds is “not enough” as he sought European support for them to be subjected to a code of conduct.
- Cancer may strike as many as 7 million people a year in Asia by 2020, straining health systems in countries that can least afford it, said Richard Horton, editor of the British medical journal Lancet. Aging populations, tobacco use and increasing rates of obesity are fueling the incidence of deadly tumors in Asian patients.
- The yen fell for a second day against the dollar and euro as gains in Asian stocks gave traders more confidence to buy higher-yielding assets financed with money borrowed in Japan.
- Nicolas Sarkozy, the French governing party’s presidential nominee, and Socialist Segolene Royal advanced to the runoff from yesterday’s first round, opening a two-week campaign sprint with appeals to the middle ground whose votes will likely determine the winner.
- Venezuelan President Hugo Chavez threatened to take over private hospitals that charge more than government-set prices as he seeks to reduce Latin America’s highest inflation rate.
- Morgan Stanley(MS) appointed Chief Economist Stephen Roach, who last week said China must step up efforts to cool its economy, as Asia chairman.

Wall Street Journal:
- Barclays Plc is near an agreement to buy ABN Amro Holding NV for more than $80 billion.
- ABN Amro Holding NV has agreed to sell its LaSalle Bank in Chicago to Bank of America(BAC).

Barron’s:
- Mark Curtis, who manages $18 billion at Citigroup’s Smith Barney unit, topped the list of the 100 best financial advisers compiled by RJ Shook for Barron’s for the second year in a row.

NY Times:
- A US federal law should have prevented the sale of guns to Seung-Hui Cho, the Virginia Tech student who killed 32 people and himself on April 16, citing legal experts. The law prohibits those who have legally been declared a “mental defective” or involuntarily committed to a mental health facility from buying firearms.
- Mullah Muhammad Nazir, a Taliban leader fighting in Pakistan’s tribal regions, said he would protect Osama bin Laden in his region if the al-Qaeda leader sought help.
- The Russian News Service, which was recently bought by businesses that back President Vladimir Putin, now requires that half of all reports involving the country be “positive.” The service, which was the country’s largest independent radio news network, also isn’t allowed to mention opposition leaders on air and must portray the US as an enemy, citing journalists who work for Russian News Service.

LA Times:
- California employers added 18,500 jobs in March with the biggest gain reported in the hospitality and leisure industry, citing the state Employment Development Department.

Portfolio.com:
- Overseas investors look at the Shanghai Stock Exchange as a way to gauge the health of the Chinese economy. They really shouldn’t.

Forbes:
- The world has a way of worrying right now. Subprime! Iran! High oil! Ben Bernanke’s inflation babble! Profligate consumers! Soft landing! The yen carry! These are small, petty, garden-variety suicidal excuses to miss the reality that this is a uniquely spectacular time.

Washington Post:
- The fight against terrorism is a global “war” against radical Islamist fanatics, and those who try to minimize the danger are “deeply mistaken,” Homeland Security Secretary Michael Chertoff wrote.

Fortune:
- Something historic transpired in 2006: A massive swath of the established economy – also known as the Fortune 500 – collectively generated unprecedented earnings. Last year post-tax profit margins hit 7.9%. That’s 27% higher than the 6.2% posted in 2000, then lauded as exceptional.

AP:
- Democratic Presidential Candidate Hillary Clinton said she would maker her husband former President Bill Clinton an ambassador to the world if she is elected president.

San Jose Mercury News:
- Steve Jobs, Apple Inc.’s chief executive officer, is unlikely to face criminal charges for the alleged backdating of stock options because little or no evidence exists to show he was involved. A review of SEC filings and interviews with unidentified lawyers familiar with a 2001 stock-options grant to Jobs found no evidence he sought the backdating or covered it up afterward.

Financial Times:
- Google Inc.(GOOG) will do whatever is necessary to quell concerns about erosion of online privacy following its purchase of DoubleClick Inc., citing an interview with Google’s CEO Schmidt.

Sunday Times:
- Warner Music Group Corp.(WMG) is looking to mount a third bid for EMI Group Plc, which is valued at $3.6 billion.

Financial Mail on Sunday:
- Carphone Warehouse Group Plc, a UK mobile-phone retailer, will expand in the US. The company has completed a successful trial, running nine stores in NY with US retailer Best Buy(BBY).

To Vima:
- European Central Bank governing council member Nicholas Garganas said a strengthening euro may stop the ECB from raising interest rates further.

Der Spiegel:
- German Chancellor Angela Merkel, US President Bush and European Commission President Jose Barroso agreed on a wide-reaching economic partnership, citing a confidential draft of the agreement. The leaders plan to sign the agreement at the EU-US meeting next week. The agreement aims to create common standards for industrial and financial companies.

Interfax:
- ZAO Atomstroyexport, Russia’s state-controlled nuclear power plant builder, has signed an agreement with Iran to finance completion of the Bushehr nuclear power plant, citing Atomstroyexport spokeswoman Iraina Yesipova.

Xinhua News Agency:
- China’s urban fixed-asset investment growth, exceeding the average of 20% in the past 25 years, is “leaning toward the fast side,” a researcher from the nation’s top planning agency said. China must keep strengthening controls over fixed-asset investment, the State Council concluded in a committee meeting to analyze the first quarter’s economic situation.

Securities Times:
- China’s economic growth may slow to 10.5% in the first half as industrial production and export growth may cool, citing Zhang Yutai, deputy director of the State Council Development and Research Center. Economic growth may slow further through the second half of the year as industrial overcapacity increases and a yuan gain slows export growth, Zhang said. China’s premier Wen Jiabao said on April 19 his government will further strengthen controls over fixed-asset investment, curb lending and narrow the trade surplus, after the country posted an 11.1% economic growth rate for the first three months.

Shanghai Securities News:
- China’s interest-rate increases may not curb asset bubbles, citing a note from the Chinese Academy of Social Science.

Tehran Times:
- Iran is importing more gasoline and will have to start rationing the fuel by May 22, citing Mohammad Reza Nematzadeh, managing director of state-owned Iranian Oil Refining and Distributing Co. Iran now imports 45% of its gasoline, from 42% a year erarlier.

Sarmayeh:
- Iran has discovered a new oilfield with proven reserves of 1.6 billion barrels, citing a top energy official.

Weekend Recommendations
Barron's:
- Made positive comments on (WMI) and (JOYG).

Citigroup:
- Downgraded (XTO) and (EOG) to Hold.
- Reiterated Buy on (GLW), target $29.
- Reiterated Buy on (CAT), target raised to $88.
- Semiconductor capacity growth is slowing markedly, which could be very positive for semi pricing and margin trends, especially given report of a trough in industry capacity utilization following an inventory correction, thereby buoying stocks. Upward earnings estimate revisions momentum should also support relative stock price strength and supports our Overweight posture on the industry group.
- Reiterated Buy on (AKAM), target $68. Buy (AKAM) on any earnings-related pullback as demand trends and differentiated market position will propel shares higher.
- Buy mis-priced analog semi leaders. Add to ADI, ISIL, ONNN as leaders with undiscounted rev/margin and buy-back positives but watch SMTC and MXIM.

Night Trading
Asian indices are +.75% to +1.50% on average.
S&P 500 indicated +.05%.
NASDAQ 100 indicated +.08%.

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Earnings of Note
Company/Estimate
- (AMGN)/1.09
- (ACI)/.18
- (BSX)/.13
- (BRO)/.40
- (CB)/1.37
- (EFX)/.53
- (ESRX)/.94
- (GNTX)/.19
- (HAS)/.01
- (JDAS)/.24
- (JNPR)/.19
- (KMB)/1.01
- (LLL)/1.27
- (PCL)/.21
- (SLG)/1.30
- (TXN)/.32

Upcoming Splits
- None of note

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BOTTOM LINE: Asian Indices are higher, boosted by automaker and technology shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the week.