BETWEEN THE HEDGES

Monday, June 05, 2006

Tuesday Watch

Posted by Gary .....at 11:38 PM

Late-Night Headlines
Bloomberg:
- Brazilian, Mexican and Argentine stocks led a decline in Latin American markets as high oil prices raised concern that world economic growth will slow, cutting demand for the region’s commodities.
- Google(GOOG) will offer users a tool for creating and sharing spreadsheets on the Web, pressing the challenge to Microsoft(MSFT).
- Intel Corp.(INTC) will make a pitch for loyalty from its customers at the biggest gathering of chip buyers in Asia, after slumping to its lowest market share this decade.

Financial Times:
- General Motors(GM) said faster-than-expected voluntary redundancies by staff could enable it to lower prices or increase spending on technology, citing CEO Wagoner.
- SAP AG plans to remain independent and doesn’t expect any US industry players to aim to buy the world’s largest business-management software maker, citing CEO Kagermann.

AP:
- The Somalian capital of Mogadishu was seized by an Islamic military group that may be linked to the al-Qaeda terrorist group.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -1.25% to -.75% on average.
S&P 500 indicated +.09%.
NASDAQ 100 indicated +.14%.

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Earnings of Note
Company/EPS Estimate
- (ABM)/.19
- (COO)/.70
- (DSW)/.35
- (KFY)/.29
- (LZB)/.30
- (MATK)/.16
- (VTS)/.71

Upcoming Splits
- (CRI) 2-for-1
- (RIO) 2-for-1
- (HUBG) 2-for-1

Economic Releases
- None of note

BOTTOM LINE: Asian indices are lower, pressured by commodity and automaker stocks in the region. I expect US equities to open modestly lower and to rise into the afternoon, finishing mixed. The Portfolio is 25% net long heading into the day.

Stocks Finish at Session Lows after Hawkish Fed Comments

Posted by Gary .....at 5:02 PM

Indices
S&P 500 1,265.29 -1.78%
DJIA 11,048.72 -1.77%
NASDAQ 2,169.62 -2.24%
Russell 2000 713.92 -3.19%
Wilshire 5000 12,754.91 -1.89%
S&P Barra Growth 584.56 -1.74%
S&P Barra Value 679.12 -1.82%
Morgan Stanley Consumer 600.97 -1.41%
Morgan Stanley Cyclical 826.75 -2.51%
Morgan Stanley Technology 498.93 -2.19%
Transports 4,619.53 -2.99%
Utilities 411.77 -.99%
Put/Call 1.21 unch.
NYSE Arms 2.75 +112.37%
Volatility(VIX) 16.65 +16.27%
ISE Sentiment 126.00 +15.60%
US Dollar 84.18 +.17%
CRB 348.78 -.36%

Futures Spot Prices
Crude Oil 72.42 -.25%
Unleaded Gasoline 216.00 -.19%
Natural Gas 6.43 -.51%
Heating Oil 203.50 -.38%
Gold 641.20 -1.17%
Base Metals 225.29 -1.26%
Copper 354.50 -1.56%
10-year US Treasury Yield 5.02% +.60%

Leading Sectors
REITs +.38%
Telecom -.93%
Utilities -.99%

Lagging Sectors
Oil Service -3.68%
Homebuilders -3.93%
Steel -5.82%

Evening Review
Detailed Market Summary
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In Play

Afternoon Recommendations
Piper Jaffray:
- Cut (ELN) to Underperform.

Afternoon/Evening Headlines
Bloomberg:
- Futures traders raised bets the Fed will lift its benchmark interest rate to 5.25% this month after Chairman Bernanke said signs of inflation “are unwelcome.” The increase signals traders see a 76% chance of a quarter-point increase from 5% a the next Fed policy meeting June 28-29.

BOTTOM LINE: The Portfolio finished lower today on losses in my Semi longs, Medical longs and Retail longs. I added to my (QQQQ) and (IWM) shorts in the final hour, thus leaving the Portfolio 25% net long. The tone of the market was very negative today as the advance/decline line finished lower, almost every sector fell and volume was below average. Measures of investor anxiety were mostly higher into the close. Overall, today's market performance was bearish. The fact that volume was light today is a negative, in my opinion. As well, the 10-year yield finished modestly higher despite the sell-off in equities. There were a few positives. Oil traded .19 lower, despite production disruption fears, and continues to act very toppy. The U.S. dollar index finished at session highs after Bernanke's unexpectedly hawkish commentary. Finally, the NYSE Arms finished at 2.81, an elevated level, and the VIX spiked 17%. I continue to believe the most economically sensitive companies have further to go on the downside and will underperform over the intermediate-term.

Stocks Sharply Lower into Final Hour on Hawkish Fed Commentary and Housing Worries

Posted by Gary .....at 3:38 PM

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Semi longs and Retail longs. I added to my (EEM), (QQQQ) and (IWM) shorts today, thus leaving the Portfolio 50% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost every sector is declining and volume is below average. I suspect falling commodity stocks will lead to another bout of international stock selling tonight, which could lead to further weakness in U.S. stocks tomorrow morning. I expect US stocks to trade mixed into the close from current levels as economic worries offset short-covering.

Today's Headlines

Posted by Gary .....at 3:05 PM

Bloomberg:
- International Paper(IP) agreed to sell its coated and supercalendered papers unit to Apollo Management LP for about $1.4 billion, part of a strategy to trim debt and boost profit.
- American Medical Systems Holdings(AMMD) will acquire Laserscope(LSCP) for $715 million to expand prostate treatments.
- The US Supreme Court will consider whether public school districts can use race as a factor in assigning students to schools, agreeing to hear cases from Louisville, KY, and Seattle that may affect millions of children nationwide.
- Brookfield Properties(BPO) and Blackstone Group agreed to buy Trizec Properties(TRZ) in a transaction valued at $8.9 billion.
- Canada will more closely monitor its residents to make sure they don’t adopt the ideology of foreign terrorists after police arrested 17 people “inspired” by al-Qaeda in a foiled bomb plot this weekend.
- Alan Garcia, after claiming victory as Peru’s next president, vowed to increase trade ties with the US and challenge Venezuelan President Chavez’s efforts to expand his influence in Latin America.
- Fed Chairman Bernanke said recent increases in measures of inflation “are unwelcome” and he will ensure the trend isn’t sustained.

Wall Street Journal:
- Saudi Arabia’s crude-oil output fell to 9.1 million barrels a day in April because of weaker demand, and not because the Middle Eastern nation wants to limit supply, citing oil minister Ali al-Naimi.
- The US’s FAA is close to finalizing rules that will effectively conclude that jetliners with two engines are as safe as those with three or four and should have the same flexibility in flying long-distance routes.
- US hotel companies will probably report record profits this year as travelers dig deep into their pockets.
- PepsiCo(PEP) has installed energy-saving equipment at its Frito-Lay plan in Perry, Georgia, to suck water out of potatoes before they go into the fryer.
- Major US airlines including AMR Corp.’s(AMR) and UAL’s United Airlines are recovering from losses sooner than some analysts expected even with higher fuel costs.

NY Times:
- A growing number of Americans families are hiring private teachers to educate their children at home.
- Former Iraqi dictator Saddam Hussein may have killed as many as 180,000 Shiites during a 1991 rebellion and buried many of them in the country’s deserts. Iraq’s Human Rights Ministry has registered 200 mass graves in the past three years, including one 50 miles south of Baghdad that may contain as many as 15,000 corpses.

USA Today:
- US firefighters plan to use satellites and digital technology to control wildfires more effectively.

Washington Post:
- The death tax should be permanently eliminated because it discourages people form leaving assets to their relatives and burdens families as they deal with the death of a loved one, US Senator Jeff Sessions wrote.

ISM Non-Manufacturing Slows Modestly

Posted by Gary .....at 11:49 AM

BOTTOM LINE: Service industries in the US expanded at a slower pace last month as consumer demand weakened and costs increased, Bloomberg said. The Prices Paid component of the index rose to 77.5, the highest since September, versus 70.5 the prior month. The New Orders component of the index fell to 59.6 from 64.6 the prior month. Finally, the Employment component of the index rose to 58 versus 56.5 in April. I expect this index to decline modestly over the intermediate-term as consumer spending slows to average levels from robust rates. The prices paid component has likely peaked for this cycle and should begin decelerating this month.