Wednesday, February 14, 2007

DJIA Hits Another All-Time High on Constructive Fed Comments, Falling Energy Prices, Declining Long-Term Rates

Indices
S&P 500 1,455.30 +.76%
DJIA 12,741.86 +.69%
NASDAQ 2,488.38 +1.16%
Russell 2000 813.99 +.18%
Wilshire 5000 14,659.09 +.70%
Russell 1000 Growth 573.20 +.94%
Russell 1000 Value 840.02 +.59%
Morgan Stanley Consumer 712.93 +.57%
Morgan Stanley Cyclical 959.92 +1.19%
Morgan Stanley Technology 583.59 +1.77%
Transports 5,117.27 +2.10%
Utilities 477.07 +.41%
MSCI Emerging Markets 116.67 +1.85%

Sentiment/Internals
Total Put/Call .97 +1.04%
NYSE Arms .67 +11.09%
Volatility(VIX) 10.23 -1.06%
ISE Sentiment 111.0 -17.78%

Futures Spot Prices
Crude Oil 57.99 -1.81%
Reformulated Gasoline 162.0 +.68%
Natural Gas 7.24 -1.62%
Heating Oil 164.0 -3.14%
Gold 673.80 +.79%
Base Metals 227.69 +2.16%
Copper 257.75 -.27%

Economy
10-year US Treasury Yield 4.73% -7 basis points
US Dollar 84.18 -.60%
CRB Index 301.92 -.84%

Leading Sectors
Semis +2.14%
I-Banks +1.99%
Networking +1.90%

Lagging Sectors
Energy +.20%
Oil Service -.07%
REITs -.64%

Evening Review
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In Play

Afternoon Recommendations
- None of note:

Afternoon/Evening Headlines
Bloomberg:
- Federal Reserve Chairman Ben Bernanke enabled the stock market to continue its steepest advance since September, as the DJIA hit another all-time high, with congressional testimony that brightened the outlook for inflation.
- Crude oil fell more than $1/bbl. as forecasts for milder weather and a small-than-expected drawdown in distillate supplies cut speculation by investment funds.
- Baidu.com(BIDU), owner of China’s most-used Internet search engine, said fourth-quarter profit rose 500% after it sold more online advertising.
- US treasuries rose, pushing yields on benchmark 10-year notes down the most since September, after Fed Chairman Bernanke said “inflation pressures are beginning to diminish.”
- Cotton prices in NY fell to the lowest in more than two months on speculation demand from China, the biggest consumer, will slide.
- Archer Daniels Midland(AMD), the world’s biggest grain processor, said it will offer $1 billion in convertible senior notes due in 2014 and use $400 of the proceeds to buy back stock.
- Ethanol will consume more than 30% of the US corn crop annually over the next decade.

BOTTOM LINE: The Portfolio finished higher today on gains in my Semi longs, Internet longs, Medical longs and Telecom longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished higher, almost every sector gained and volume was about average. Measures of investor anxiety were mixed into the close. Today's overall market action was bullish as the major averages are finishing with solid gains on above-average volume. However, small-caps lagged throughout the day, leading to only modestly positive breadth. I expect breadth to expand over the coming days. Tech outperformed throughout the day, while energy underperformed. REITs also remained under pressure. I have heard that a number of very large funds placed substantial hedges on over the last 10 days in anticipation of a more substantial I-banking sub-prime blow-up. As this fails to materialize, I suspect the unwinding of these hedges will lead to further upside for stocks.

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