DJIA Surging to Another All-Time High, Led by the Tech Sector

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Semi longs, Computer longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is mildly lower, sector performance is mixed and volume is above-average. Sentiment in the Northern part of the country continues to dramatically skew overall consumer confidence readings. Once again, the overall decline this month was led by a -10.0% drop in the Northeast Central and -13.4% decline in the New England region. Confidence in the Mid-Atlantic region actually rose 5.1% this month. What is truly amazing is that confidence in the Northeast Central region is now at 59.0, a very depressed level that has only been eclipsed during February and March 2003 when it came in at 58.20 and 58.50, respectively. This also happened to be right around the time of the final test of the major bear market lows during the second week of March 2003. It is also interesting to note that housing is arguably the least problematic in the northern part of the country. I continue to believe the fact that most media outlets and investment funds are based in the northern part of the country is helping to pump air into the current U.S. "negativity bubble."

Here is a breakdown of consumer confidence by region:

• Northeast Central 59.0
• New England 80.10
• Mid-Atlantic 97.0
• Northwest Central 99.40
• Southeast Central 116.40
• South Atlantic 115.50
• Pacific 116.80
• Mountain 135.70
• Southwest Central 124.0

I expect US stocks to trade mixed-to-higher into the close on positive earnings reports, short-covering, lower energy prices and lower long-term rates.

Bloomberg:
- The DJIA is climbing to another all-time high after IBM(IBM) raised its share buyback.
- Gold and silver fell the most this month in NY as a drop in prices for oil and other commodities reduced the appeal of precious metals as a hedge against inflation.
- Crude oil is falling $1.31/bbl. because shipments from Nigeria have been unaffected by an upsurge in violence in the country.
- Apple Inc.(AAPL) won’t be sanctioned by the SEC for backdating stock options, including some to CEO Steve Jobs, because it cooperated with regulatory probes.
- NY Times(NYT) shareholders, led by Morgan Stanley(MS), withheld 42% of their votes from directors to protest the Sulzberger family’s control over the company.
- Home prices in the Hamptons, New York’s beachside playground for the rich and famous, rose in the first quarter at the slowest pace in four years.
- International Business Machines(IBM) added $15 billion to its stock buyback program, the most ever, and raised the quarterly dividend by 33% to boost shareholder returns. The stock is rising the most since 2003 today.

Wall Street Journal:
- Virgin Atlantic Airways Ltd. agreed to acquire as many as 24 of Boeing’s(BA) 787 Dreamliners.

NY Times:
- Several black elected officials in New York are undecided about supporting home sate Senator Hill Rodham Clinton or Illinois Senator Barack Obama, citing interviews.
- China will allow US regulators to enter the country to investigate if contaminated pet food that killed at least 16 cats and dogs originated with Chinese suppliers.
- LanzaTech, a New Zealand-based company, has secured financing to develop a process to create ethanol from carbon monoxide gas, citing the company’s founder.
- Las Vegas is adding to its 151,000 hotel rooms as the weekend occupancy rate reaches 95%.

Seattle Post-Intelligencer:
- Washington state will begin its first comprehensive probe of gas prices in 16 years. The state’s attorney general, governor’s office and Dept. of Community, Trade and Economic Development, will probe the reasons behind the high prices and present their findings in July.

Energy News Today:
- Exxon Mobil Corp.’s(XOM) “maintenance” on a crude refinery unit at its Baytown, Texas, will last until the second week of June. Unusually low refinery utilization at this time of the year has been the main reason for the recent surge in gas prices.

Etemaad:
- Iranian women dressed as “models” in the streets of Tehran risk severe penalties including imprisonment, citing a top judiciary official.

Tehran Times:
- Iran’s budget deficit rose to almost $16 billion in the Iranian year that ended March 20, citing official statistics. The government of President Mahmoud Ahmadinejad has come under criticism from Iran’s parliament over its failure to curb public spending. Inflation officially stands at about 14%.

Confidence Slightly Below Estimates, Existing Home Sales Fall

- Consumer Confidence for April fell to 104.0 versus estimates of 105.0 and an upwardly revised 108.2 in March.

- Existing Home Sales for March fell to 6.12M versus estimates of 6.4M and 6.68M in February.

BOTTOM LINE: Consumer confidence in the US declined to the lowest level since April on rising gas prices and housing worries, Bloomberg reported. The Present Conditions component of the index fell to 131.3 versus 138.5 the prior month. The Expectations component fell to 85.8 from 87.9 the prior month. However, the percentage of people expecting more jobs over the next six months rose to 12.9% from 12.7% the prior month. As well, those planning to purchase an auto rose to 6.0% from 5.4% the prior month. The Fed’s Mishkin said recently that subprime spillovers “appear to have been minimal” and that “most borrowers are not likely to face a serious credit constraint.” As well, historically low unemployment and strong wage growth are helping sustain consumer sentiment and spending. Confidence in the Northeast Central region continues to depress the overall gauge. It fell another 10% to a very depressed 59.0 and is right at the major bear market lows seen in 2003. I continue to expect consumer confidence to head back to cycle highs later this year as gas prices fall, inflation decelerates, the job market remains healthy, housing sales stabilize at relatively high levels, interest rates remain low and stocks rise further.

Sales of previously owned homes in the US fell more than forecast in March, Bloomberg reported. Existing home sales had surged the prior month the most since December 2003. This month’s decline in sales was partly weather related. The supply of homes for sale at the current sales pace is now 7.3 months’ worth versus 6.8 months in February. The median price of an existing home remained steady, falling .4% to $217,000. Sales fell 10.9% in the Midwest, 9.1% in the West, 8.2% in the Northeast and 6.2% in the South. I expect existing home sales to bounce back next month, however construction will remain muted as homebuilders reduce inventory.

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- BHP Billiton(BHP), the world’s biggest mining company, said third-quarter copper, iron ore and nickel output rose. Copper output surged 22%, iron ore output gained 8% and nickel production rose 14%.
- Former Apple Inc.(AAPL) CFO Fred Anderson agreed to pay $2.5 million to resolve SEC claims over backdated stock option grants to Apple executives approved by CEO Jobs.
- North Korea is an “enormous” threat to Japan and must be closely watched to see that it fulfills its pledge to shut down its nuclear weapons program, Japanese national security adviser Yuriko Koike said.
- Valero Energy(VLO), the largest US oil refiner, said it’s cutting gasoline output 71% at its St. Charles refinery in Norco, Louisiana, after a “mechanical failure” idled the plant’s fluid catalytic cracking unit. The plant will lose 60,000 barrels a day of gasoline production. The “outage” is expected to last 14 days.
- Australia’s consumer prices rose less than expected in the first quarter, sending the currency tumbling as traders reduced bets the central bank will increase interest rates next week.

Wall Street Journal:
- China is set to become the world’s top greenhouse gasses emitter this year, surpassing the US, citing the International Energy Agency. The IEA, which advises developed countries on energy policy, had previously forecast China to surpass the US by 2010. China’s growing carbon-dioxide emissions are expected to exceed any reductions from Europe, the US and Japan. If left unchecked, its emissions are forecast to double that of all the member countries in the OECD, which includes Europe, the US, Canada, South Korea and Japan.

AP:
- US Representative Dennis Kucinich, an Ohio Democrat running for president, will tomorrow start impeachment proceedings against Vice President Dick Cheney.

Financial Times:
- A majority of companies in the UK, Australia, US, France and Germany reported experiencing leaks of sensitive data during the last 12 months, citing a survey by Datamonitor Plc and McAfee Inc.
- The leading 25 hedge fund managers together earned $15 billion, citing an annual industry survey by Institutional Investor’s Alpha magazine. Three managers – Renaissance Technologies’ James Simons, Citadel Investment Group’s Ken Griffin and ESL Investments’ Eddie Lampert – earned in excess of $1 billion.
- JetBlue Airways Corp.(JBLU) may introduce an in-flight text messaging service to boost revenue, citing CEO David Neeleman.
- Russia’s sustained financial growth over the past seven years, fuelled mostly by credit from foreign markets, is nearing its limits, citing Barclays Capital Chairman Hans-Joerg Rudloff. The Russian market’s current growth is not “sustainable” and the “boom” will come to a “painful end in the near future,” Rudloff said at the Russian Economic Forum in London.

Xinhua News Agency:
- China’s President Hu Jintao and other senior officials called for Web sites to produce “healthy” Internet material to promote social stability. China aims to foster a “healthy online culture” and prevent “decadent” material from being disseminated over the Internet.

Hong Kong Economic Journal:
- China Life Insurance Co. plans to sell a stake of as much s 19.9% to Citigroup(C).

Late Buy/Sell Recommendations
Citigroup:
- Upgraded (SNDK) to Buy, target $52.
- Reiterated Buy on (ESRX), target raised to $110.

CSFB:
- Reiterated Buy on (ESRX), target raised to $106.

Morgan Stanley:
- Reiterated Overweight on (TGT), target $64.

Night Trading
Asian Indices are -.50% to unch. on average.
S&P 500 indicated -.02%.
NASDAQ 100 indicated +.16%.

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Earnings of Note
Company/EPS Estimate
- (ACE)/1.76
- (AFL)/.79
- (AKS)/.45
- (ACV)/.20
- (AMZN)/.20
- (T)/.61
- (AVY)/.82
- (BJS)/.72
- (EAT)/.48
- (BNI)/1.10
- (CDWC)/.85
- (CAKE)/.25
- (CME)/3.60
- (COH)/.38
- (CYMI)/.66
- (DLX)/.53
- (ESV)/1.51
- (ETH)/.55
- (FRX)/.71
- (HTCH)/.09
- (ILMN)/.08
- (JEC)/.51
- (JBLU)/-.18
- (LXK)/1.02
- (LMT)/1.37
- (MHP)/.30
- (MWRK)/.40
- (NOC)/1.14
- (OXY)/.90
- (OMC)/1.05
- (PNRA)/.46
- (PNR)/.39
- (RDN)/1.40
- (COL)/.79
- (RUTH)/.28
- (SLM)/.75
- (SUNW)/.01
- (TLAB)/.05
- (X)/1.87
- (VFC)/1.12
- (WAT)/.53
- (WEBX)/.39
- (WHR)/1.13

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Consumer Confidence for April is estimated to fall to 105.0 versus a reading of 107.2 in March.
- Existing Home Sales for March are estimated to fall to 6.4M versus 6.69M in February.

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and automaker stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Stocks Finish Slightly Lower on Healthy Consolidation of Recent Strong Gains

Indices
S&P 500 1,480.93 -.23%
DJIA 12,919.40 -.33%
NASDAQ 2,523.67 -.11%
Russell 2000 827.55 -.16%
Wilshire 5000 14,935.82 -.17%
Russell 1000 Growth 584.12 -.09%
Russell 1000 Value 853.76 -.29%
Morgan Stanley Consumer 733.50 -.07%
Morgan Stanley Cyclical 997.78 -.07%
Morgan Stanley Technology 582.10 -.15%
Transports 5,161.76 -.85%
Utilities 523.90 +.64%
MSCI Emerging Markets 122.68 +.03%

Sentiment/Internals
Total Put/Call .91 +21.3%
NYSE Arms 1.13 +29.92%
Volatility(VIX) 13.04 +8.04%
ISE Sentiment 133.0 +6.40%

Futures Spot Prices
Crude Oil 65.70 +2.51%
Reformulated Gasoline 219.95 +2.91%
Natural Gas 7.57 +2.51%
Heating Oil 189.10 +3.19%
Gold 692.70 -.45%
Base Metals 271.87 -.73%
Copper 365.60 +.97%

Economy
10-year US Treasury Yield 4.64% -3 basis points
US Dollar 81.74 +.12%
CRB Index 314.47 +.78%

Leading Sectors
Coal +4.02%
Biotech +1.64%
REITs +1.26%

Lagging Sectors
Drugs -1.26%
Airlines -1.94%
Homebuilders -1.99%

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Afternoon Recommendations
- None of note

Afternoon/Evening Headlines
Bloomberg:
- Cephalon Inc.(CEPH), Henry Schein(HSIC) and Steel Dynamics(STLD) are candidates to join the Nasdaq-100 Index, replacing Medimmune(MEDI), according to Gabriela Baez, head of index and portfolio research at Lehman(LEH).
- Crude oil surged, approaching $66/bbl. in NY, as investment funds speculated that shipments from Nigeria may be disrupted as complaints about the country’s presidential election spawn more violence.
- Altera Corp.(ALTR), the world’s second biggest maker of programmable semiconductors, said first-quarter profit rose 28% on sales of new products for consumer electronics. The shares rose 2% after-hours.
- Express Scripts(ESRX), the third biggest US manager of drug benefits, said quarterly profit increased 28% as the company filled more prescriptions with cheaper generic copies. The shares surged 4.5% after-hours.
- Amgen(AMGN) said first-quarter profit rose 15% on sales of drugs to treat anemia in dialysis and cancer patients. The shares rose 1% after-hours.
- Texas Instruments(TXN), the world’s largest maker of mobile-phone chips, reported a 12% drop in first quarter profit, the first decline in more than two years, as phone shipments slowed. The shares soared 8% after-hours.

BOTTOM LINE: The Portfolio finished higher today on gains in my Computer longs, Medical longs and I-Banking longs. I didn’t trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was mildly negative today as the advance/decline line finished mildly lower, sector performance was mixed and volume was above average. Measures of investor anxiety were above average into the close. Today's overall market action was neutral. Underlying market action remained very constructive today despite the jump in oil and comments from (GM). The Goldman Sachs Agricultural Commodity Sub-Index looks like it is rolling over again to me. As well, corn is falling 2.3% today and is testing recent lows. The AMEX Biotech Index (BTK) is building on its all-time closing high set last week. Mid-caps rose again today and continue to display significant relative strength. The VIX rose 8% today despite minor losses in the major averages. I expect more choppiness throughout the week.