Thursday, May 12, 2005

Stocks Finish Near Lows on Plunging Commodity Shares

S&P 500 1,159.36 -1.0%
DJIA 10,189.48 -1.08%
NASDAQ 1,963.88 -.39%
Russell 2000 586.89 -1.46%
DJ Wilshire 5000 11,415.62 -1.04%
S&P Barra Growth 561.35 -.87%
S&P Barra Value 693.63 -1.14%
Morgan Stanley Consumer 578.06 -.63%
Morgan Stanley Cyclical 692.31 -2.27%
Morgan Stanley Technology 448.40 +.06%
Transports 3,440.50 -2.65%
Utilities 362.85 -1.04%
Put/Call 1.03 +3.0%
NYSE Arms 1.61 +102.75%
Volatility(VIX) 16.12 +11.56%
ISE Sentiment 116.00 -23.68%
US Dollar 85.65 +.90%
CRB 396.02 -1.64%

Futures Spot Prices
Crude Oil 48.68 +.29%
Unleaded Gasoline 143.31 +.08%
Natural Gas 6.52 +.22%
Heating Oil 138.11 +.11%
Gold 422.50 +.07%
Base Metals 122.25 -.85%
Copper 138.10 +.36%
10-year US Treasury Yield 4.16 -.80%

Leading Sectors
Semis +.29%
Internet +.23%
Nanotechnology +.11%

Lagging Sectors
Energy -4.33%
Oil Service -4.54%
Steel -5.54%

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
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on XRX and FDC.

Business Week:
- The shares of Industrial Distribution Group are worth buying because the stock is cheap compared to rival industrial distributors.
- Shares of XM Satellite Radio Holdings have dropped 25% this year and Lee Schultheis of Alternative Investment Partners expects it to rebound.

Afternoon/Evening Headlines
- Dell Inc. said first-quarter profit rose 28%, as discounts and printer giveaways drove PC sales.
- Commodity prices plunged the most in seven weeks, led by declines in copper and oil, on concern that demand growth in China is slowing and that a rally in the dollar is boosting the cost of raw materials for importers.
- Crude oil in NY traded near a three-month low amid rising US inventories and as the dollar surged against the euro and yen, making the fuel more expensive for European and Japanese buyers.

Financial Times:
- Liberty Media may be interested in buying part of IAC/InteractiveCorp after a proposed spinoff.

BOTTOM LINE: The Portfolio finished unchanged today as gains in my Energy-related and Base Metal shorts offset losses in my Gaming and Homebuilding longs. I exited a few longs as they hit stop losses and added to my oil tanker shorts, thus leaving the Portfolio 75% net long. The tone of the market deteriorated into the afternoon as the advance/decline finished near its session lows, most sectors fell and volume was average. Measures of investor anxiety were higher into the close. Overall, today’s market action was negative considering the declines in commodity prices and strong retail sales. Soaring commodity prices had been the main focus of inflation fears. I continue to believe measures of inflation will decelerate through year-end to below average rates. Commodity-related shares had been market leaders. The market is currently in the process of transitioning to new leadership, which should emerge over the coming weeks. In the hedge fund community, the long commodities/short dollar/short bonds trades are resulting in immense pain which could lead to further dislocations for some large funds. I still believe longer-term investors should use any further weakness related to hedge fund blow-up worries to add to favorite long positions. As I stated previously, declining commodity prices are the main key to my positive thesis for the second half of the year.

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