Wednesday Watch

Late-Night Headlines
Bloomberg:
- Nippon Steel Corp., the world’s third-largest steelmaker, will probably report a 3.8% drop in second-half profit on higher raw material costs and a decline in exports.

China Daily:
- Plantronics Inc.(PLT), which makes computer and communications headsets, opened its first manufacturing plant in China yesterday.

DigiTimes:
- Quanta Computer will give back to Dell Inc.(DELL) 1.5% of its 2006 revenue from the personal computer maker as a condition of securing 2007 orders from Dell.

Sydney Morning Herald:
- James Packer is part of a group of investors led by Nelson Peltz who have built a 5.4% stake in HJ Heinz(HNZ).

Reuters:
- Cargill Inc., the largest US agriculture company, will close seven meat processing plants on May 1 to allow workers to participate in immigration rallies around the US.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are +.25% to +.75% on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated +.04%.

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Earnings of Note
Company/EPS Estimate
- (AMG)/1.27
- (ATI)/.70
- (AKAM)/.16
- (ABK)/1.82
- (AHC)/4.79
- (AMT)/.00
- (ABC)/.54
- (BUD)/.56
- (AV)/.12
- (BHI)/.79
- (BDX)/.77
- (BIIB)/.46
- (CD)/.14
- (CTX)/3.11
- (CL)/.66
- (COP)/2.35
- (EXC)/.70
- (ESRX)/.70
- (FCL)/.50
- (HAR)/.98
- (INSP)/.05
- (MXIM)/.45
- (MNST)/.27
- (NSC)/.67
- (PEP)/.58
- (PX)/.65
- (PHM)/.96
- (COL)/.63
- (RDC)/.53
- (SOHU)/.15
- (TROW)/.82
- (TIN)/.49
- (TRID)/.16
- (WY)/.84
- (XLNX)/.28
- (ZMH)/.81

Upcoming Splits
- (RSP) 4-for-1
- (TS) 5-for-1

Economic Releases
8:30 am EST
- Durable Goods Orders for March are estimated to rise 1.8% versus a 2.7% gain in February.
- Durables Ex Transportation for March are estimated to rise 1.0% versus a 1.2% decline in February.

10:00 am EST
- New Home Sales for March are estimated to rise to 1110K versus 1080K in February.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude drawdown of 600,000 barrels. Gasoline inventories are estimated to fall 3,000,000 barrels, and distillate supplies are expected to decrease by 1,800,000 barrels.

2:00 pm EST
- Fed’s Beige Book

BOTTOM LINE: Asian indices are higher, boosted by technology stocks in the region. I expect US equities to open modestly higher and to fade into the afternoon, finishing mixed. The Portfolio is 25% net long heading into the day.

Stocks Finish Modestly Lower on Profit-taking and Higher Long-term Rates

Indices
S&P 500 1,301.74 -.49%
DJIA 11,283.25 -.47%
NASDAQ 2,330.30 -.13%
Russell 2000 764.82 -.17%
Wilshire 5000 13,180.07 -.44%
S&P Barra Growth 608.46 -.39%
S&P Barra Value 690.67 -.58%
Morgan Stanley Consumer 602.36 -.25%
Morgan Stanley Cyclical 845.10 -.60%
Morgan Stanley Technology 544.26 -.36%
Transports 4,707.38 -.49%
Utilities 396.81 -1.15%
Put/Call .95 +2.15%
NYSE Arms .95 -24.32%
Volatility(VIX) 11.75 unch.
ISE Sentiment 195.00 -2.99%
US Dollar 87.35 -.11%
CRB 352.93 +.10%

Futures Spot Prices
Crude Oil 72.78 -.14%
Unleaded Gasoline 212.80 -.05%
Natural Gas 7.27 +.21%
Heating Oil 205.81 +1.30%
Gold 634.70 +.08%
Base Metals 222.34 +4.31%
Copper 333.00 +.29%
10-year US Treasury Yield 5.07% +1.89%

Leading Sectors
Networking +1.63%
Disk Drives +1.38%
Airlines +1.11%

Lagging Sectors
HMOs -1.41%
Papers -1.54%
Steel -2.30%

Evening Review
Detailed Market Summary
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In Play

Afternoon Recommendations
Deutsche Bank:
- Downgraded (CTRP) and (SINA) to Hold.

Afternoon/Evening Headlines
Bloomberg:
- Amazon.com(AMZN) said first-quarter profit fell 35% after increasing spending. The shares rose as much as 6.4% after the company raised its sales and profit forecast for the year.
- Corning Inc.(GLW) said sales rose 20% as customers bought more LCD televisions.
- Felipe Calderon, the former energy minister for Mexican President Vicente Fox, took the lead in a presidential poll for the first time, surpassing former Mexico City Mayor Andres Lopez Obrador.

AP:
- An Israeli spy satellite was launched into orbit from Russia today. The satellite is capable of monitoring Iran’s nuclear program. Iran’s President said again yesterday that Israel should be destroyed.

BOTTOM LINE: The Portfolio finished slightly lower today as losses in my Internet longs and Biotech longs more than offset gains in my Energy-related shorts, Networking longs and Index shorts. I did not trade in the final hour, thus leaving the Portfolio 25% net long. The tone of the market was negative today as the advance/decline line finished lower, sector performance was mostly negative and volume was heavy. Measures of investor anxiety were mostly higher into the close. Overall, today's market performance was only mildly bearish considering the rise in long-term rates and recent stock gains. The bears were again unable to capitalize on morning weakness. I will wait to see the bond market's reaction to tomorrow's new home sales and durable goods reports before further shifting market exposure.

Stocks Lower into Final Hour as Long-term Rates Rise

BOTTOM LINE: The Portfolio is slightly lower into the final hour as losses in my Internet longs and Biotech longs are more than offsetting gains in my Index shorts, Energy-related shorts and Networking longs. I added to my (IWM), (QQQQ) and (EEM) shorts today, thus leaving the Portfolio 25% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mostly negative and volume is heavy. The Johnson Redbook same-store sales index rose a robust 4.6% year-over-year last week vs. a 4.3% rise the prior week. This is the strongest reading since August 2005. The long-term average is a gain of around 2.5%. Notwithstanding this strong reading, I still believe retail sales growth is peaking for the year right about now. I expect US stocks to trade mixed-to-higher into the close from current levels on lower energy prices and short-covering.

Today's Headlines

Bloomberg:
- President Bush has ordered the Justice Dept. to investigate whether the recent rise in the price of gasoline is the result of illegal manipulation.
- US Treasuries tumbled, with 10-year notes falling the most since July, after gains in consumer confidence and home sales bolstered expectations that the Fed will raise rates at its next two meetings.
- NY gasoline futures are falling for a second day after President Bush said the US may ease fuel regulations to avoid short-term supply disruptions.

Wall Street Journal:
- About 10 Fidelity Investment portfolio manager have reported to the SEC that they have put at least $1 million of their own money into funds they run.
- Cable television companies such as Comcast(CMCSK), Time Warner(TWX) and Cablevision Systems(CVC) are likely to announce excellent first-quarter results.

NY Post:
- EBay’s(EBAY) Skype Technologies signed agreements with four music publishers as the Internet-based phone service prepares to start a Web music store.

NY Times:
- The number of homeless people sleeping on New York’s streets fell 13% in the past year, citing a study by the city’s Department of Homeless Services.

AP:
- The Bush administration plans to temporarily halt deliveries of crude oil to the nation’s strategic reserves to help bring down gasoline prices.

Interfax:
- Chevron Corp.(CVX), BP Plc’s Russian venture and two Russian state companies agreed to build an oil pipeline to bypass Turkey’s congested Bosporus strait, a main route to world markets for Russian crude.

Consumer Confidence Makes Another Cycle High, Existing Home Sales Exceed Expectations

- Consumer Confidence for April rose to 109.6 versus estimates of 106.2 and a reading of 107.5 in March.
- Existing Home Sales for March rose to 6.92M versus estimates of 6.66M and 6.9M in February.

BOTTOM LINE: Consumer Confidence in the US economy unexpectedly jumped to the highest in four years, as an improving labor market helped Americans overcome concerns about high gasoline prices, Bloomberg reported. Wage gains and low unemployment will keep buoying spirits and lift retail sales, economists said. The present situation component of the index rose to 136.2 versus 133.3 in March. The expectations component rose to 91.9 versus 90.3 in March. The percentage of consumers that saw jobs as plentiful rose to 29.1%, the highest since August 2001, versus 28.3% in March. The percentage that said jobs are hard to find fell to 19.6%, the lowest since the 9/11 attacks. The percentage of people planning to by a house over the next six months fell to 2.7%, the lowest since November 2004, versus 4.1% the prior month. According to a recent National Assoc. of Business Economics survey, 44% of companies expect to hire more in the next six months versus 42% in the January survey. I still believe consumer confidence will improve modestly over the intermediate-term as rising stocks, relatively low long-term rates, declining energy prices, a healthy job market and a further lifting of irrational pessimism more than offsets a housing slowdown.

Sales of previously owned homes in the US unexpectedly rose last month at the same time the number of houses on the market increased, signaling that the housing slowdown is likely to be gradual, Bloomberg said. Compared with March of last year, existing home sales fell .7%. The number of unsold homes now represents 5.5 months’ worth at the current sales pace, the highest since 1998. The median price of an existing home rose 7.4% in March from a year ago to $218,000. The median price of a home rose 58% over the last five years as the economy strengthened and interest rates remained low. Sales rose 1.7% in the Northeast and 1.2% in the Midwest. Sales fell .7% in the South and West. I continue to believe housing is slowing to more healthy sustainable levels, which will likely send US economic growth back to average levels from robust rates.

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