Stocks Finish Slightly Lower on Profit-taking Ahead of FOMC Meeting

Indices
S&P 500 1,507.72 -.12%
DJIA 13,309.77 -.03%
NASDAQ 2,571.75 +.03%
Russell 2000 830.90 -.12%
Wilshire 5000 15,172.86 -.12%
Russell 1000 Growth 594.76 -.09%
Russell 1000 Value 867.20 -.12%
Morgan Stanley Consumer 741.52 -.14%
Morgan Stanley Cyclical 1,049.23 +.32%
Morgan Stanley Technology 608.17 +.37%
Transports 5,217.93 +1.02%
Utilities 528.16 -.50%
MSCI Emerging Markets 124.50 -.57%

Sentiment/Internals
Total Put/Call .99 +43.48%
NYSE Arms 1.04 +25.66%
Volatility(VIX) 13.21 +.46%
ISE Sentiment 121.0 -27.11%

Futures Spot Prices
Crude Oil 62.20 +1.19%
Reformulated Gasoline 220.40 +.66%
Natural Gas 7.64 -1.75%
Heating Oil 183.05 +1.50%
Gold 687.0 -.49%
Base Metals 282.29 +.22%
Copper 372.0 +.12%

Economy
10-year US Treasury Yield 4.63% unch.
US Dollar 81.94 +.31%
CRB Index 308.90 -.01%

Leading Sectors
Steel +.93%
Networking +.83%
Homebuilders +.77%

Lagging Sectors
Alternative Energy -.72%
Papers -.82%
Gold -.89%

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Afternoon Recommendations
UBS:
- Reiterated Buy on (AAPL).

AG Edwards:
- Upgraded (HPQ) to Buy.

Afternoon/Evening Headlines
Bloomberg:
- Jana Partners LLC, an investment firm with more than $7.5 billion under management, said Alcoa Inc.(AA) should explore options, including a sale of the company, and drop its bid to acquire Alcan(AL).
- Corn yields on marginal land could increase 10% within five years as genetic modifications help meet global food and fuel needs, according to Monsanto(MON).
- AK Steel(AKS) CEO James Wainscott said the company isn’t “actively seeking a buyer,” following a report that Arcelor Mittal wants to acquire the company.
- Cisco Systems(CSCO) said third-quarter profit climbed 34% because of surging demand from small clients in the US and customers in emerging markets. The shares are falling 5.5% in after-hours trading.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Computer longs, Networking longs and Software longs. I didn’t trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was negative today as the advance/decline line finished lower, most sectors declined and volume was above-average. Measures of investor anxiety were above-average into the close. Today's overall market action was slightly bearish. I would classify today's action as another healthy consolidation day. A number of market-leading stocks I follow were higher and losses elsewhere were very mild considering recent gains. Technology, many cyclicals and homebuilders were areas of strength throughout most of the day. The NYSE cumulative advance/decline line hit another record high yesterday. The 10-year yield was stable throughout the day ahead of tomorrow's Fed announcement. I suspect the FOMC's policy statement will be just ever so slightly more dovish, while stressing that growth should improve in the second half of the year. There will once again be something for the hawks and doves, but overall I expect the market to interpret the statement as slightly more dovish.

Stocks Slightly Lower into Final Hour Ahead of Fed

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Software longs, Networking longs and Computer longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is above-average. A reversal in the homebuilding sector into positive territory seems to be helping boost the broad market near session highs. Tech stocks and cyclicals are now higher on the day. As well, strength can be found in road/rail, restaurants, airlines, engineering/construction and steel. A number of market-leading stocks are gaining upside traction. My intraday gauge of investor angst is above average. The 10-year yield is stable despite stocks' gains from session lows. After touching its 50-day moving-average, corn is gapping 3.5% lower today. I still believe the commodity has put in a long-term top. I expect US stocks to trade mixed-to-higher into the close from current levels on buyout speculation and investment manager performance anxiety after another failed sell-off attempt.

Today's Headlines

Bloomberg:
- The government of Sudan is breaching a UN arms embargo by moving weapons into the western region of Darfur, citing a report by Amnesty International.
- Six New Jersey men were arrested for allegedly plotting a terrorist attack against soldiers at Fort Dix. The men planned to gain entry and use automatic weapons to kill as many soldiers as they could at the base.
- NY Mayor Michel Bloomberg may run for governor against incumbent Eliot Spitzer in 2010.
- Senate aides, looking for new sources of revenue, are studying how Harvard, Yale and Stanford are using offshore hedge funds to avoid tax bills.
- The US House Financial Services Committee will proceed with legislation to aid subprime borrowers if mortgage lenders don’t act to keep people from losing their homes, a subcommittee chairwoman said.
- Shares of Countrywide Financial(CFC) jumped as much as 9.6%, the biggest gain in the S&P 500 Index, on speculation the largest US mortgage lender may be the target of a takeover or leveraged buyout.
- US retailers’ sales probably fell for the first time in four years last month as an earlier Easter and the coldest April in a decade discouraged purchases of lightweight clothing, gifts and garden equipment.
- Hewlett-Packard(HPQ) said second-quarter earnings and sales beat its forecast.
- Corn prices in Chicago are falling 3.5%, heading for the biggest drop in a month, after a government report showed US farmers planted more acres than expected last week.

Wall Street Journal:
- Bank of America(BAC), BNP Paribas SA, Citigroup Inc.(C) and other investment banks are planning to start a system in July that will distribute bond and derivatives prices to clients.
- US cable operator Cox Communications(COX) will disable the fast-forward feature that lets television skip ads, as part of an agreement with ABC and ESPN to offer hit programs and football games on demand.
- Fannie Mae(FNM) and Freddie Mac(FRE) would benefit from an amendment proposed for the legislation creating a regulator to oversee the mortgage companies’ portfolios.
- CBS Corp.’s(CBS) Simon & Schuster book-publishing subsidiary will start an Internet book channel called Bookvideos.tv next month. The channel will be hosted on Google’s(GOOG) YouTube.com and other video-sharing sites.
- People increasingly use search engines to find information over the Internet and about 7% of all inquiries on the Web use a person’s name, citing the search engine Ask.com.

NY Times:
- Chevron Corp.(CVX) will admit it should have known former dictator Saddam Hussein was collecting kickbacks on oil purchased from Iraq through a corrupt United Nations program. The company will pay $25 million to $30 million, the largest penalty for a US company connected to the UN/Iraq oil-for-food scandal.
- A weaker dollar has resulted in Irish investors buying property in NY that is less expensive than real estate in Ireland and the UK.

Chronicle of Higher Education:
- New Orleans colleges and universities expect freshman enrollments to rise after declines following Hurricanes Katrina and Rita in 2005. Tulane University said on Monday that it expects a 56% increase in enrollments this fall. Loyola Univ., Xavier Univ., the Univ. of New Orleans and Dillard University reported anticipated increases from 30% to 100%.

Indianapolis Star:
- Allegations of cheating resulted in disciplinary action against almost half of second-year students at Indiana University’s School of Dentistry.

Financial Times:
- Worldwide mergers and acquisitions topped $2 trillion, driven by cheap debt and light antitrust scrutiny, citing Dealogic. The numbers are 63% higher than in the same period of 2006, when $1.235 trillion worth of deals were announced. Leveraged-buyout firms also have big pools of cash to spend. April was the busiest month in history, with $647 billion in deals announced. The busiest industry was financial services, with $410.6 billion worth of transactions.
- Dow Jones(DJ) investors may be hoping that Rupert Murdoch’s News Corp.(NWS/A) makes a higher bid, because an outside offer may be unlikely.

Nikkei English News:
- Japan will propose halving so-called greenhouse gases by 2050 at next month’s Group of Eight summit in Germany.

Xinhua News Agency:
- China’s crude oil import bill will only rise by 4.8% this year despite the country’s much stronger economic growth.

Kuwait News Agency:- Kuwait Petroleum Corp. doubled the budget for the new al-Zour refinery to $12 billion, citing the company’s managing director.

Wholesaler Sales Rise Most in 18 Months, Inventories Rise Less Than Expected

- Wholesale Inventories for March rose .3% versus estimates of a .4% gain and a downwardly revised .4% increase in February.

BOTTOM LINE: Sales at US wholesalers rose at the fastest pace in 18 months in March, outstripping an increase in inventories and pointing to a pick-up in production, Bloomberg said. The increase reflected rising demand for computer equipment and durable goods. Sales of durable goods at wholesalers jumped 2.1% versus a .8% decline in February. It also implies that companies have successfully trimmed inventories down to manageable levels. Goods on hand represented 1.14 months’ supply at the current sales pace, the lowest this year. This corresponds with the recent ISM Manufacturing report that manufacturing grew at the fastest pace in almost a year. I continue to believe the worst of the inventory de-stocking is over and that inventory rebuilding will begin adding to economic growth this quarter.

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- Thomson Corp. confirmed that it’s in talks to take over Reuters Group Plc, the world’s largest publicly traded provider of financial data.
- Toyota Motor(TM) sold more care than GM(GM) for the first time in the three months through March, generating what may be record profits. Toyota outspent GM by 50% during the past three years and will open its eighth North American factory in Mississippi in 2010.
- Billionaire investor Carl Icahn failed to win a seat on Motorola’s(MOT) board after a three-month campaign, in a victory for CEO Zander.
- Inotera Memories, Taiwan’s most-profitable memory-chipmaker, said prices will rebound from a 64% slump this year as Microsoft’s(MSFT) Vista operating system drives demand. Inotera joins Korean rivals Samsung Electronics and Hynix Semiconductor in predicting a second-half price recovery because of Microsoft’s new Windows operating system.
- Tyco Intl.(TYC) bondholders said today they rejected the company’s offer to buy back $6.6 billion of debt securities, likely making it more expensive for the maker of ADT security systems to spit into three entities.
- Nucor Corp.(NUE), the second-largest US based steel company, may hold off on making acquisitions because steel assets are overvalued, CEO Dan DiMicco said. Asset prices aren’t reflecting the threat of continued high imports into the US, which helped depress prices in recent months, DiMicco said. “To participate in the acquisition activity just to be one of the boys is a bad business decision,” DiMicco said.
- Alcoa(AA) may face competition for its $26.9 billion bid for rival Alcan(AL) from mining companies including BHP Billiton(BHP) and Rio Tinto Group(RTP), said Credit Suisse Group.
- French President-elect Nicolas Sarkozy was warned by European finance ministers and central bankers that his plan to press the European Central Bank to focus more on bolstering growth would prove futile.
- Fortress Investment Group(FIG), the first US manager of private equity and hedge funds to go public, is starting a new $5 billion buyout fund.

NY Times:
- News Corp.’s(NWS/A) Fox Interactive Media is close to acquiring Photobucket, an Internet service that allows users to store photos and videos, for as much as $300 million. Photobucket has 41 million users, up from 14 million a year ago. Sixty percent of Photobucket’s Web traffic came from users of News Corp.’s MySpace during the week ending last Saturday.

Financial Times:
- Citigroup Inc.(C), the US financial firm once lauded for its adoption of environmental policies, will today say it will give $50 billion to environmental projects over the next decade The US bank will pledge to increase 10-fold, to $10 billion, its spending on reduction of its own greenhouse gas emissions. CEO Prince will call for world-wide regulation on the environment “to bring certainty to the markets and achieve a level playing field.”
- CB Richard Ellis Group(CBG), a real-estate broker, has started a $199 million property hedge fund. The Iceberg Alternative Real Estate fund, a newly formed London-based joint venture between CB Richard Ellis and Reech, a derivatives specialist, will aim for returns of 15 percentage points above cash rates.

London-based Times:
- Dutch shareholder group VEB said it will block the sale of ABN Amro Holding NV’s La Salle Bank to Bank of America(BAC), citing VEB Chairman Peter Paul de Vries.

Xinhua News Agency:
- Beijing handed out $6.50 spitting fines to 56 people during the week-long May holiday as the city tries to stamp out embarrassing behavior ahead of the 2008 Olympic Games.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (CCRN), target $28.

Morgan Stanley:
- Rated (UNP) and (NSC) Overweight.
- Unfavorable weather conditions, the Easter calendar shift, and higher gas prices have combined to create the “perfect storm” for retail softlines in April. However, our retail sales lead indicator predicts potential acceleration into 2H2007. Our updated MSRSLI predicts sales growth ex autos and gas of +6.0% into July, up from +4.2% growth in February.

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 indicated -.08%.
NASDAQ 100 indicated -.13%.

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Earnings of Note
Company/EPS Estimate
- (MDRX)/.12
- (ATW)/1.09
- (BBG)/.21
- (CELL)/.13
- (CRL)/.60
- (CHD)/.63
- (CSCO)/.33
- (CNO)/.34
- (CVS)/.46
- (DIGE)/.22
- (DUK)/.31
- (DYN)/.03
- (EP)/.25
- (ERTS)/.02
- (ENER)/-.07
- (EXPE)/.19
- (GI)/1.22
- (HET)/1.01
- (HSIC)/.48
- (HEW)/.27
- (LAZ)/.59
- (MVSN)/.23
- (MMC)/.50
- (MLM)/.72
- (MVL)/.34
- (PZZA)/.40
- (PFGC)/.18
- (PCLN)/.35
- (REV)/-.07
- (STE)/.40
- (THC)/-.02
- (TYC)/.47
- (VSE)/.11
- (DIS)/.36
- (WMG)/-.11

Upcoming Splits
- (ATR) 2-for-1
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Economic Releases
10:00 am EST
- Wholesale Inventories for March are estimated to rise .4% versus a .5% gain in February.

Other Potential Market Movers
- The (TXN) analyst meeting, weekly retail sales reports, Robert Baird Growth Stock Conference, Bear Stearns Global Transportation Conference, UBS Global Generic/Specialty Pharma Conference, Goldman Consumer Products Symposium, BIO Intl. Convention and Bank of America Basic/Industrials Conference could also impact trading today.

BOTTOM LINE: Asian indices are slightly lower, weighed down by commodity 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.