Monday, June 18, 2007

Stocks Finish Slightly Lower on Low Volume, Healthy Consolidation of Recent Gains

S&P 500 1,531.05 -.12%
DJIA 13,612.98 -.19%
NASDAQ 2,626.60 unch.
Russell 2000 846.28 -.23%
Wilshire 5000 15,424.19 -.13%
Russell 1000 Growth 604.52 -.14%
Russell 1000 Value 877.93 -.15%
Morgan Stanley Consumer 739.36 unch.
Morgan Stanley Cyclical 1,090.02 -.01%
Morgan Stanley Technology 625.83 +.42%
Transports 5,135.75 -.80%
Utilities 502.81 -1.04%
MSCI Emerging Markets 132.36 +.86%

Total Put/Call .91 -9.9%
NYSE Arms 1.11 +22.57%
Volatility(VIX) 13.42 -3.73%
ISE Sentiment 144.0 -16.8%

Futures Spot Prices
Crude Oil 69.0 +1.40%
Reformulated Gasoline 226.20 +.08%
Natural Gas 7.66 -3.23%
Heating Oil 203.10 +1.01%
Gold 659.90 +.18%
Base Metals 259.98 +1.76%
Copper 341.60 -.16%

10-year US Treasury Yield 5.13% -3 basis points
US Dollar 82.72 -.15%
CRB Index 320.90 +.50%

Leading Sectors
Papers +.59%
Computer Services +.51%
Oil Service +.39%

Lagging Sectors
REITs -1.58%
Tobacco -1.75%
Coal -2.76%

Evening Review
Market Performance Summary
Market Gauges
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
After-hours Stock Quote
In Play

Afternoon Recommendations

- Upgraded (BAC) to Buy.

Deutsche Bank:
- Rated (TZIX) Buy, target $24.

- Rated (ATHR) Buy, target $36.
- Rated (ANAD) Buy, target $16.

Afternoon/Evening Headlines
- The prices of lead may fall 29% and copper 17% in 2008 as supplies of the metals increase faster than consumption, Man financial said.
- The average US pump price for regular gasoline fell 6.7 cents to $3.00 a gallon in the week ended today, the government said.
- Valero Energy Corp.(VLO), the largest US refiner, said it shut the fluid catalytic cracking unit at its McKee refinery near Sunray, Texas, for “unplanned maintenance.”
- Yahoo! Inc.(YHOO) CEO Semel, who revived the company after the Internet bust before being surpassed by Google Inc.(GOOG), stepped down. Co-founder Jerry Yang will take his place. Yang said, “Yahoo! will be a vibrant, independent company. Yahoo!(YHOO) also said 2Q net sales will be at the mid-point to the low-end of its forecasted range. Yahoo! shares rose 4.3% on the reports.
- Crude oil in NY approached $70/bbl. for the first time since September on rising investment fund speculation after Nigerian unions planned a strike this week.
- The yen dropped to a record low against the euro and sank to the weakest in more than four years versus the dollar as investors sought higher-yielding assets funded by loans in Japan.
- The California Public Employees’ Retirement System, the largest state pension fund in the US plans to more than double the money it puts or $12 billion in so-called activist funds that push for corporate and management changes.
- The blind trust of NY Senator Hillary Rodham Clinton and former President Bill Clinton invested in such companies as Rupert Murdoch’s News Corp.(NWS/A), Wal-Mart Stores(WMT) and Warren Buffett’s Berkshire Hathaway(BRK/A).
- European Union governments deplored Iran’s pursuit of nuclear enrichment and repeated an offer of economic incentives aimed at persuading the Islamic republic not to seek a weapons program.

- Billionaire Ron Burkle this week may announce an offer for Dow Jones(DJ), citing an unidentified Burkle associate.

BOTTOM LINE: The Portfolio finished higher today on gains in my Internet longs, Computer longs and Retail longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was very positive today as the advance/decline line finished slightly lower, sector performance was slightly negative and volume was below average. Measures of investor anxiety were slightly above average into the close. Today's overall market action was neutral. Today was another great day for stockpickers as beneath the surface, numerous stocks were jumping, especially true growth stocks. As well, tech stocks outperformed again. The much-maligned sector is now 10.7% higher year-to-date vs. an 8.9% return for the S&P 500. I continue to believe cyclical tech will join growth tech's strong performance in the second half, helping to boost the MS Tech Index at least 20% before year-end. The time to buy these stocks is now before sentiment turns more bullish on the group. Bloomberg is reporting today that China's bank regulator has found that eight banks have illegally lent money to companies that used the funds to buy shares in initial public offerings. One of the companies cited for obtaining the illegal loans was China Shipping Company. Moreover, Capital Week reported today that the China Banking Regulatory Commission retracted a June 5 press release on its findings due to concerns that news of the illegal activities would spark a market decline that would result in the borrowers defaulting on their loans. One has to wonder if this is the tip of the iceberg with respect to this type of activity if the Commission is that concerned. To what extent have the corporate balance sheets of all types of companies in China been positively impacted by this type of speculation? I hear some investors state that 50x earnings isn't too much to pay for Chinese companies that are growing at such a rapid rate. However, the major Chinese indices are dominated by commodity and financial shares. To pay 50x earnings for these types of companies with so little transparency is insane, in my opinion. There is no doubt in my mind that China's economy will continue to grow substantially over the long term. However, I continue to believe that the Chinese stock market and economy are due for a substantial contraction and slowdown, respectively, over the intermediate term. The Internet has fulfilled most investors' wildest bullish expectations over the last seven years, however, technology stocks in 2000 were priced to more than anticipate that growth. I think a similar thing is happening right now in China. I still believe that developed markets will substantially outperform emerging markets over the next five years.

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