Monday Close

Indices
S&P 500 1,183.78 -.49%
DJIA 10,565.39 -.60%
NASDAQ 2,007.51 -.01%
Russell 2000 621.57 -.16%
DJ Wilshire 5000 11,678.83 -.42%
S&P Barra Growth 569.88 -.38%
S&P Barra Value 609.58 -.60%
Morgan Stanley Consumer 573.51 -.41%
Morgan Stanley Cyclical 763.95 -.22%
Morgan Stanley Technology 457.73 -.27%
Transports 3,749.47 -.03%
Utilities 358.91 -.08%
Put/Call .77 -39.37%
NYSE Arms .90 +1.97%
Volatility(VIX) 13.61 +3.58%
ISE Sentiment 132.00 +.76%
US Dollar 82.97 +1.12%
CRB 313.49 -1.79%

Futures Spot Prices
Crude Oil 56.62 -.18%
Unleaded Gasoline 159.20 -.23%
Natural Gas 7.32 +.03%
Heating Oil 157.35 unch.
Gold 431.30 -.02%
Base Metals 130.28 -.29%
Copper 148.75 -.10%
10-year US Treasury Yield 4.52% +.36%

Leading Sectors
Computer Service +2.28%
Airlines +1.83%
Broadcasting +.48%

Lagging Sectors
Defense -.97%
Tobacco -1.03%
Insurance -1.79%

After-hours Movers
WYE +3.44% after boosting 1Q forecast and reaffirming 05 outlook.
ERTS -11.92% after lowering 05 guidance.
TTWO -5.84%, ELBO -5.25%, THQI -5.53% and ATVI -5.26% on ERTS news.

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In Play

Afternoon Recommendations
- Goldman Sachs: Reiterated Outperform on MO.
- Wachovia: Rated EMAG Outperform. Rated VVUS Outperform.

After-hours News
US stocks finished lower today on continuing worries over future economic growth. After the close, Quicksilver Inc., a US maker of ski clothing, will say tomorrow it’s buying a controlling stake in French ski equipment maker Skis Rossignol SA, AFP reported. Rubert Murdoch’s News Corp. may gain a license to broadcast directly in India, avoiding the monopoly of local cable operators, the Financial Times reported. Southwest Airlines plans to expand capacity by 10% in 2005 without boosting staff levels, the Financial Times reported. Huawei Technologies is seeking partnerships with Nortel Networks and Lucent Technologies to bolster sales in the US and Europe, China Daily said. The US opposed UN Secretary-General Annan’s call for new guidelines on the use of military force in a report that recommends expansion of the Security Council and dozens of other steps designed to make the world body more effective after recent evidence of massive fraud and sexual abuse, Bloomberg reported. President Bush said Congress must be willing to debate all ideas about how to solve Social Security’s future funding shortfall to come up with a “permanent fix” for the system, Bloomberg said. Goldman Sachs Group agreed to buy Zilkha Renewable Energy, a developer of wind power projects, to expand its electricity-generating business, Bloomberg reported. Gasoline climbed an average of 5.3 cents to $2.109 a gallon for the week ended today, surpassing the previous high of $2.064 reached May 24, Bloomberg said. Time Warner agreed to pay $300 million to settle US SEC allegations its AOL unit overstated ad revenue and subscriber numbers, Bloomberg reported. GM CEO Wagnor, who last week forecast the company’s biggest quarterly loss since 1992, bought $1.5 million of GM shares today, boosting his stake in the company by 25% in what he said was a vote of confidence, Bloomberg reported.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Chinese ADR shorts and Wireless longs. I took profits in a few Tech shorts in the afternoon and added a few new Tech longs, thus leaving the Portfolio 50% net long. One of my new longs is YHOO and I am using a $30.75 stop-loss on this position. The tone of the market improved slightly into the afternoon as the advance/decline line rose from daily lows, most sectors trimmed losses and volume remained light. Small-caps, Techs and Transports outperformed throughout the day and measures of investor anxiety were mixed. Overall, today’s market action was negative, considering recent losses, a firming US dollar, a declining CRB Index and the stabilization of energy prices/ interest rates. The CRB Index has likely topped for the year after its recent “blow-off” style run-up. However, a test of its recent highs may occur over the next couple of months before a more significant decline occurs in this index in the second half of the year.

BOTTOM LINE: The Portfolio is unchanged mid-day as gains in my Steel and Semi longs are offsetting losses in my Wireless longs. I have not traded today, thus leaving the Portfolio’s market exposure 25% net long. The tone of the market is modestly negative as the advance/decline line is lower, most sectors are declining and volume is light. Measures of investor anxiety are mostly lower, which is a negative. Today’s overall market action is negative, considering the major indices’ oversold state and the stabilization of energy prices and interest rates. The decline in the CRB Index and gains in the US dollar are also positives that are being ignored today. I expect US stocks to trade modestly higher into the close on optimism over merger activity, short-covering and bargain-hunting.

Mid-day Scoreboard
S&P 500 1,184.27 -.45%
Dow 10,577.59 -.49%
NASDAQ 2,007.10 unch.
Russell 2000 620.60 -.31%
DJ Wilshire 5000 11,680.49 -.40%
S&P Barra Growth 569.85 -.38%
S&P Barra Value 610.07 -.53%
Morgan Stanley Consumer 574.24 -.29%
Morgan Stanley Cyclical 763.63 -.15%
Morgan Stanley Technology 458.19 -.19%
Transports 3,756.77 +.16%
Utilities 359.29 +.02%
Put/Call .84 -33.86%
NYSE Arms .85 -3.40%
Volatility(VIX) 13.65 +3.88%
ISE Sentiment 128.00 -2.29%
US Dollar 83.01 +1.17%
CRB 312.53 -2.09%

Futures Spot Prices
Crude Oil 56.49 -.41%
Unleaded Gasoline 158.50 +.60%
Natural Gas 7.14 -1.83%
Heating Oil 156.50 -.43%
Gold 430.70 -2.05%
Base Metals 130.28 -.29%
Copper 148.60 -1.39%
10-year US Treasury Yield 4.51% +.09%

Leading Sectors
Computer Service +2.09%
Airlines +1.55%
Broadcasting +.55%

Lagging Sectors
I-Banks -1.03%
Energy -1.06%
Insurance -1.54%

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News of Note
US stocks are lower mid-day on continuing worries that higher interest rates and energy prices will slow economic growth. Taser International’s stock price has been halved, its sales hurt and its marketing and accounting programs subjected to scrutiny because of fears over the safety of stun-guns, the Wall Street Journal said. Yahoo! Inc. has acquired Canada’s Ludicorp Research & Development, developer of the photo-sharing Web site Flickr, the Wall Street Journal said. Jacques Barrot, the European Union’s transportation commissioner, said progress can be made toward an accord under which the US would allow foreign companies to buy stakes of more than 25% in the country’s airlines, La Tribune reported. Iraqi insurgents are attacking less frequently and in smaller numbers on central Baghdad’s Haifa Street in recent months, the NY Times reported. L-3 Communications Holdings is under federal criminal investigation after the company supplied defective parts for emergency pilot search radios, the Wall Street Journal reported. Google Inc., the world’s most-used Internet search engine, is being sued by Agence France Presse for allegedly including copyrighted material on Google’s search site, Reuters reported. UN Secretary General Annan’s proposals to expand the Security Council may help Germany obtain a permanent seat in the committee, which the US is seeking to prevent, Handelsblatt reported. Continental Airlines’ fare boost Friday of $10 on domestic round-trip fares is prompting rivals to push through a third increase within the month, the Wall Street Journal said. Executives at casino companies such as Harrah’s Entertainment, Boyd Gaming and Pinnacle Entertainment are nervous about a Louisiana proposal to raise the state’s gambling tax by half, to 32.5%, the Wall Street Journal reported. SunGuard Data Systems, whose software handles most Nasdaq Stock Market trades, may be acquired for $10 billion by an investment group headed by Silver Lake Partners, the NY Post reported. Advance Publications’ Jersey Journal newspaper is changing to a tabloid from broadsheet format as newspapers seek to find ways offset declining circulation and advertising revenue, the NY Times reported. Sony BMG Music Entertainment and other record labels are beginning to sell CDs in the DualDisc format that includes a DVD on the flip side, the first major new recording format since the CD was introduced more than 20 years ago, the Wall Street Journal reported. Ben Smith and Sheehan Maduraperuma left JP Morgan, where they traded equity derivative with the bank’s capital, to start a hedge fund, Derivatives Week said. General Motors needs new products, labor concessions and federal help containing health costs if Chief Executive Officer Wagnor is to halt the automaker’s decline, say corporate leaders, Bloomberg reported. Medicis Pharmaceutical Corp. agreed to buy cosmetic surgery device maker Inamed for $2.8 billion in stock and cash to add products including facial and breast implants, Bloomberg reported. Infineon Technologies agreed with Rambus to settle all patent claims made by the US company, Bloomberg said. Shares of Schering AG plunged the most in at least 15 years after the colon-cancer pill it was counting on for more than $1 billion in annual sales failed to stop the growth of tumors in a late-stage study, Bloomberg reported. Carnival Corp. said first-quarter profit rose 70% on higher prices and more demand for trips, Bloomberg said.

Morning Recommendations
- Goldman Sachs: Reiterated Outperform on BLS and DNA.
- Smith Barney: Downgraded NTAP to Sell, target $25.50. Reiterated Outperform on CNF, target $60. Added DUK to Recommended List, while removing MAY. JCP reiterated Buy on JCP, target $63. Reiterated Buy on AET, target $86. Reiterated Buy on WMT, target $65. Said to Buy Semi Equipment stocks on pullback, favorites are AMAT, LRCX, WFR and ATMI.
- JP Morgan: Raised BKS to Overweight, target $41, and added it to its Focus List. Raised SYNC to Overweight. Raised NUE to Overweight. Raised STLD to Overweight. Rated HORC Overweight.
- Piper Jaffray: Rated EMAG Outperform, target $19.
- Jeffries: Raised RSAS to Buy, target $18.50.
- Merrill Lynch: Raised GPS to Buy, target $26. Rated VCG to Buy, target $16.50.
- Legg Mason: Rated VCG Buy, target $16.50.
- CIBC: Raised ELOS to Sector Outperform, target $42.
- CSFB: Rated HLF Outperform, target $20.

Mid-day Report

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