Today's Headlines

Bloomberg:
- US Treasury officials are sounding out investors about the potential impact of naming China as a currency manipulator.
- Merrill Lynch will give up its fund management unit for a 49.8% stake in BlackRock(BLK).
- UK Prime Minister Tony Blair won the first of a series of votes on his Terrorism Bill, making it a crime to glorify or incite terrorism.
- Google(GOOG) and Yahoo!(YHOO) were among technology companies criticized by US lawmakers for agreeing to help Chinese authorities by censoring Internet searches nd handing over private data.
- Crude oil is falling below $59/bbl. in NY for the first time this year after the EIA reported US inventories soared.
- Federal Reserve Chairman Bernanke, in his first report to Congress, said the US economy is in a sustained expansion that may require additional interest rate increases to restrain inflation.

Wall Street Journal:
- United Technologies’(UTX) Pratt & Whitney unit is likely to announce today that it will make spare parts for the top-selling CFM56 jet engine supplied by its rival, General Electric(GE).
- British and American women are drinking more than they did a few years ago, a trend that is worrying health-care officials even as it boosts sales for the alcoholic drinks industry.
- Johnson & Johnson(JNJ) will cut the size of its sales operations for the anemia drug, Procrit, because it has lost business to a competitor.
- Two US labor unions representing construction workers plan to quit the AFL-CIO to set up a separate association and boost membership, citing union officials.
- Nike Inc.(NKE) has created a new line of fitness dance apparel in an effort to boost the company’s brand appeal among women.
- Bristol-Myers Squibb(BMY) plans to license its Reyataz drug for AIDS without charge to generic drugmakers Aspen Pharmacare Holdings of South Africa and Emcure Pharmaceuticals of India.

NY Times:
- General Electric(GE) expects that over the next five years alternate energy products will more than triple to account for more than a quarter of the sales of energy equipment, its largest industrial business.
- Two car dealerships will open next month in Harlem, the first in the neighborhood in more than 40 years, continuing economic expansion in what has long been one of Manhattan’s poorest communities.

AFP:
- Iran is ready to use offensive action to counter any US aggression, citing the Islamic Republic’s Revolutionary Guards.

Daily Telegraph:
- Batman, the superhero who has previously fought the Joker and the Penguin, is to turn his attention to fighting Osama bin Laden in a new graphic novel, citing the writer Frank Miller.

Manufacturing Healthy, Foreign Demand for US Assets Slows from Record Levels, Capacity Utilization Back Near Average Levels, Oil Inventories Soar

- Empire Manufacturing for February rose to 20.3 versus estimates of 18.0 and a reading of 20.1 in January.
- Net Foreign Security Purchases for December fell to $56.6 billion versus estimates of $76.2 billion and $91.6 billion in November.
- Industrial Production for January fell .2% versus estimates of a .2% increase and an upwardly revised .9% gain in December.
- Capacity Utilization for January rose to 80.9% versus estimates of 80.8% and an upwardly revised 81.2% in December.
- The EIA reported crude inventories rose 4,853,000 barrels vs. estimates of a 1,000,000 barrel rise. Gasoline supplies rose 2,115,000 barrels vs. estimates of a 1,600,000 barrel build. Distillate supplies rose 907,000 barrels vs. estimates of a 1,000,000 barrel decline. Refinery utilization rose .28% vs. estimates of unchanged.

BOTTOM LINE: Manufacturing in NY state unexpectedly accelerated in February as sales and orders grew, Bloomberg said. Factories got a boost from a spike in consumer spending as retail sales gained 2.3% in January, the largest gain since May 2004. The prices paid component of the index rose to 52.8 versus 46.6 in December. Manufacturing should continue to add to US economic growth over the intermediate-term.

International investors boosted their holdings of US assets by $56.6 billion in December, Bloomberg reported. Net holdings of Treasury notes, stocks and corporate bonds by international investors slowed from $91.6 billion in November and an all-time record of $105.6 billion in October. The UK, Japan and China all increased their holdings of US Treasuries. However, Caribbean banking centers, which are mainly hedge funds, decreased their Treasury holdings. Foreigners’ holdings of US stocks rose $8.7 billion. I expect international demand for US assets to increase further over the intermediate-term as energy prices fall, inflation measures decelerate, the dollar remains firm and US growth remains relatively healthy.

US Industrial Production unexpectedly fell in January after a record decline in utility output, while manufacturing strengthened for a fourth month, Bloomberg said. Business spending to upgrade equipment is helping to keep manufacturers’ order book full. Utility production plunged 10.1% in January, the largest decline in US history. Manufacturing, which comprises more than 80% of the index, rose .7% versus a .5% gain in December. Capacity utilization is only now back near average levels of 80.7%. I expect industrial production to remain healthy over the intermediate-term as companies continue to gain confidence in the sustainability of the current expansion and inventories are rebuilt.

The EIA energy inventory data was overall very bearish once again for the entire energy complex. Oil is getting oversold short-term, however I still expect long-term support at $56/bbl. to give way over the coming weeks.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Wednesday Watch

Late-Night Headlines
Bloomberg:
- A proposed $140 billion fund for asbestos exposure victims was killed in the US Senate.
- The Fed’s benchmark interest rate “might have to increase some more,” said Jeffrey Lacker, president of the Fed Bank of Richmond.
- US Treasury Secretary John Snow said Congress shouldn’t raise the capital gains tax, which was lowered in May 2003, and should protect the middle class from the alternative minimum tax.
- Oil traded below $60 for a second day as rising US inventories eased concern about supplies before the peak summer motoring season.

Wall Street Journal:
- The IRS supports a method individuals use to avoid gift taxes by prepaying family members’ tuition bills.

Financial Times:
- Nasdaq Stock Market Inc.(NDAQ) is to introduce a new top tier for companies to list their shares to compete with other stock exchanges.

London-based Times:
- Saudi Arabia plans to double its oil refining capacity over the next five years by investing $20 billion in its facilities, citing Oil Minister Ali al-Naimi.

Independent:
- Online gambling companies’ shares have declined following a potential political move in the US to clampdown on the industry.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on (OXY), (NFP) and (GILD).
- Reiterated Underperform on (VICL) and (WPI).

Night Trading
Asian Indices are -.75% to +.50% on average.
S&P 500 indicated -.13%.
NASDAQ 100 indicated -.09%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
(AMAT)/.16
(AQNT)/.14
(BIIB)/.47
(CECO)/.67
(CMX)/.55
(CEN)/.25
(DTE)/2.00
(EXPE)/.25
(FST)/.56
(GENZ)/.60
(GTRC)/1.14
(HPQ)/.44
(JNY)/.45
(NTAP)/.21
(ODP)/.32
(OSI)/.55
(PFCB)/.33
(PENN)/.43
(PGN)/.52
(SNPS)/.14

Upcoming Splits
- (CLDN) 3-for-2
- (JOSB) 5-for-4

Economic Releases
8:30 am EST
- Empire Manufacturing for February is estimated to fall to 18.0 versus a reading of 20.1 in January.

9:00 am EST
- Net Foreign Security Purchases for December are estimated to fall to $76.2 billion versus $89.1 billion in November.

9:15 am EST
- Industrial Production for January is estimated to rise .2% versus a .6% rise in December.
- Capacity Utilization for January is estimated to rise to 80.8% versus 80.7% in December.

10:00 am EST
- Bernanke Report on Economy & Fed Policy

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude build of 1,000,000 barrels. Gasoline inventories are estimated to rise 1,600,000 barrels, and distillate supplies are expected to decrease by 1,000,000 barrels. Finally, refinery utilization is expected to remain unchanged.

1:00 pm EST
- NAHB Housing Market Index for February is estimated at 57 versus a reading of 57 in January.

BOTTOM LINE: Asian indices are mostly lower, pressured by commodity producers in the region. I expect US equities to open modestly lower and to trade higher into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Stocks Finish Sharply Higher as Energy Prices Continue to Plunge and Retail Sales Rise More than Estimates

Indices
S&P 500 1,275.53 +1.0%
DJIA 11,028.39 +1.25%
NASDAQ 2,262.17 +1.0%
Russell 2000 719.70 +1.29%
S&P Barra Growth 604.49 +.81%
S&P Barra Value 667.39 +1.21%
Morgan Stanley Consumer 597.95 +.92%
Morgan Stanley Cyclical 796.19 +2.23%
Morgan Stanley Technology 532.37 +.80%
Transports 4,407.78 +2.55%
Utilities 403.19 -.19%
Put/Call .85 -15.84%
NYSE Arms .78 -22.38%
Volatility(VIX) 12.25 -8.24%
ISE Sentiment 117.00 -30.36%
US Dollar 90.51 -.03%
CRB 325.05 -.77%

Futures Spot Prices
Crude Oil 59.42 -.25%
Unleaded Gasoline 138.20 -.21%
Natural Gas 7.09 -.30%
Heating Oil 160.71 -.18%
Gold 550.30 +.26%
Base Metals 168.37 +1.57%
Copper 226.65 unch.
10-year US Treasury Yield 4.60% +.69%

Leading Sectors
Airlines +3.78%
Steel +3.47%
Wireless +2.63%

Lagging Sectors
Alternative Energy -.68%
Energy +1.23%
Oil Service -2.76%

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

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on (SSP).
- Reiterated Underperform on (MMC).

Afternoon/Evening Headlines
Bloomberg:
- Microsoft(MSFT) is aiming to get the next version of its Windows program in stores in time for the holiday shopping season.
- Alcoa(AA), Alcan(AL) and the rest of the aluminum industry will see their already weak credit quality worsen as they boost spending to build new smelters in areas with lower energy costs.
- Legg Mason(LM), Eastman Kodak’s(EK) biggest shareholder, increased its bet on the world’s largest photography company in the fourth quarter as Kodak’s shares approached 25-year lows.
- Bill Ackman, the activist investor who lobbied for spinoffs at two of the nation’s largest fast-food chains, said that his hedge funds have acquired stakes in Hilton Hotels(HLT) and Office Depot(ODP).
- Abercrombie & Fitch(ANF) said fourth-quarter profit jumped 58%, helped by sales of jeans, fleece tops and polo shirts.
- Crude oil fell below $60 a barrel for the first time in 2006 and gasoline futures dropped to the lowest in almost a year as speculation increased that inventories would rise further this week.

AP:
- Afghanistan’s President Hamid Karzai, who visits Pakistan today, will call on Pakistani leaders to find and close bases used by Taliban fighters on Pakistani territory.

BOTTOM LINE: The Portfolio finished higher today on gains in my Semi longs, Retail longs, Computer longs, Biotech longs and Energy-related shorts. I added back (IWM) and (QQQQ) shorts in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was positive today as the advance/decline line finished higher, almost every sector gained and volume was average. Measures of investor anxiety were mostly lower into the close. Overall, today's market action was positive as investors finally acknowledged the very positive implications of the decline in energy prices. As I predicted a couple of weeks ago, it looks like the oil speculators did in fact run out of firepower on Feb.1 when oil was trading near $70/bbl. Oil closed floor trading at session lows today and is now down $1.72 to $59.52 on the day. Around $56/bbl. is a key technical level for the long-term oil bulls. I expect this level to give way convincingly over the coming weeks, which should signal an end to the energy mania.

Stocks Sharply Higher into Final Hour as Energy Prices Plunge and Economic Data Exceeds Estimates

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Computer longs, Networking longs and Energy-related shorts. I exited the remainder of my (IWM) and (QQQQ) shorts this morning, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is gaining and volume is average. The Dow Jones Transportation Average is making another all-time high today. It has risen 120% since 2003 lows. It is also 15% above highs set during the bubble. This has to be a bit disconcerting to the U.S. secular bear crowd. The ISE Sentiment gauge is dropping 29% today down to the lowest level since last October. Considering today's gains and tomorrow's Bernanke speech, this is a positive. I expect US stocks to trade modestly higher into the close from current levels on short-covering, lower commodity prices and bargain hunting.