Monday, March 29, 2004

Mid-day Update

S&P 500 1,123.22 +1.37%
NASDAQ 1,995.49 +1.81%

Leading Sectors
Biotech +3.28%
Wireless +2.72%
Networking +2.49%

Lagging Sectors
Utilities +.33%
Homebuilders +.22%
Oil Service -.41%

Crude Oil 35.32 -1.15%
Natural Gas 5.38 -.19%
Gold 421.20 -.47%
Base Metals 112.26 +.13%
U.S. Dollar 88.64 -.28%
10-Yr. Long-Bond Yield 3.90% +1.84%
VIX 16.35 -5.65%
Put/Call .64 -16.88%
NYSE Arms .32 -63.64%

Market Movers
HLYW +27.6% after saying a management-led group would take it private in an $840M cash deal.
TLRK + 44.2% after announcing AMGN will acquire it for $1.3B in stock.
MCH +25.1% after announcing LYO will acquire it for $1B in stock.
HPQ +4.2% after positive Barron's article.
AWIN +29.8% after announcing MTOH will acquire it for $281.3M in cash and stock. MTOH -8.3%.
GVHR +10.2% after acquiring Epix HR outsourcing portfolio and raising estimates.
NFLX +10.2% after opening new shipping center, saying it expects 5M more members and $1B in revenue by 06 and upgrade to Buy at Roth Capital, target $36.
FMC +10.2% after significantly boosting 1Q forecast.
LWAY -8.1% after reporting disappointing earnings report.

Economic Data
None of note.

Goldman Sachs reiterated Outperform on ATYT ahead of earnings release. GS reiterated Outperform on RCL and AMGN. GS says March same-store sales for retailers will be broadly strong, serving as catalyst for further stock gains due to EPS upside. Citi Smith Barney said to Buy TCB on any earnings related weakness(sees potential $2 downside) after it reports. Citi expects a positive earnings surprise from JPM and trimmed MER estimates $.03 for a one-time insurance adjustment and expects MER to begin expensing options, which would require restatement of prior results. Citi lowering DISH to Hold, target $38, prefers DTV. Citi maintains bullish stance on life insurance stocks, favorites are PRU, PFG, AMH, LNC, UNM and AFC. MXO cut to Underperform at JP Morgan. Qualcomm raised to Outperform at Schwab Soundview, target $75. C raised to Overweight at Prudential. PTEN raised to Buy at Merrill Lynch. STAK rated Buy at Merrill. KO and PEP raised to Outperform at Bear Stearns. has positive article on MHS, CMX and ESRX, saying they will benefit from prescription drug benefit. State Street's Global Resource Fund says coal is the best place to be in energy, favorite is CNX, reported TSC has a positive article on railroad stocks, favorites are NSC and BNI. TSC also positive on CLB.

Mid-day News
U.S. stocks are rising sharply mid-day on multiple takeover announcements, falling energy prices and positive comments from WalMart. Citi Smith Barney said small-medium business demand for software remains solid as customers are using the tax code benefit of accelerated depreciation as a reason to buy. Sarbanes Oxley/other regulatory requirements have emerged as new demand drivers, and value-added-resellers are hiring. Citi is also looking for an above-consensus 200,000 rise in non-farm payrolls and a drop in the unemployment rate to 5.5%. WalMart said March same-store sales are coming in at the high-end of estimates. Federal Forge filed for Chapter 11 bankruptcy after GM refused to pay more for the supplier's steel components, Automotive News reported. The chief of al-Qaeda's intelligence operations was killed in last week's Pakistani raid, Agence France-Presse said. Qualcomm(QCOM) plans to hire 1,000 workers and increase its research budget to develop chips that will induce U.S. consumers to buy a handset as often as every year, Bloomberg reported.

BOTTOM LINE: The Portfolio is having a very good day today as its 125% net long exposure is paying dividends on today's rally. I will likely rotate out of a few of my significant winners on the long-side and into stocks that are just beginning to break-out technically. I may also trim my homebuilding exposure as I am beginning to believe the risk to Friday's jobs report is a blow-out number on the upside which would send interest rates higher. I am shifting my jobs report expectations to an "at-consensus" number to a slightly "above-consensus" number. This should evoke a positive response from the equity market. A jobs report that is significantly below expectations or significantly above expectations will likely result in a sell-off.

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