BETWEEN THE HEDGES

Wednesday, July 18, 2007

Thursday Watch

Posted by Gary .....at 6:19 PM

Late-Night Headlines
Bloomberg:
- Freddie Mac(FRE) CEO Richard Syron predicted the sub-prime mortgage crisis may deepen before housing prices improve in about 18 months. The crisis doesn’t threaten “the stability of our financial system” and won’t have “a highly major impact on the economy as a whole,” Syron said.
- A US congressional subcommittee is investigating whether Google’s(GOOG) $3.1 billion purchase of DoubleClick will stifle competition in the online ad market.
- Asian chemical makers may more than double processing of liquefied petroleum gas because it’s cheaper than naphtha, an alternative raw material for plastics, said industry consultant Purvin & Gertz Inc.
- A steam pipe explosion near Manhattan’s Grand Central Terminal during the evening rush hour sent plumes of steam and debris into the air, killing one person and injuring at least a dozen more.
- China may strengthen the yuan by as much as 3.5% in a single day to cool the economy and appease US lawmakers, said Glenn Maguire, chief Asia economist at Societe Generale SA.
- India will maintain a “fairly tight” monetary policy to curb inflation that may be stoked by rising crude oil prices and consumer demand, Finance Minister Palaniappan Chidambaram said.
- China’s economy expanded 11.9% from a year earlier, the statistics bureau said today, up from 11.1% in the first quarter. Inflation climbed to 4.4% in June, breaching the central bank’s annual 3% target for a fourth month.

USA Today:
- AT&T(T) is supporting rules for spectrum auctions proposed by the US Federal Communications Commission, citing Jim Cicconi, senior executive president of public policy.

Late Buy/Sell Recommendations
Morgan Stanley:
- Reiterated Overweight on (IBM), target raised to $125. Clearly IBM(IBM) presents a positive data point on global enterprise spending trends. While IBM’s small and medium business (SMB) growth remained steady from 1Q, the large enterprise segment accelerated by 2-3 points with particular strength in Public and Communications sectors. We’d point to (EMC), (NTAP), (ISLN), (SUNW), (NCR) as vendors with the most enterprise exposure in our group.

Night Trading
Asian Indices are +.25% to +.75% on average.
S&P 500 futures +.12%.
NASDAQ 100 futures +.08%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (AMD)/-.84
- (BAC)/1.20
- (BK)/.61
- (BAX)/.68
- (BRCM)/.27
- (COF)/1.63
- (CAL)/1.85
- (CY)/.14
- (DHR)/.92
- (DJ)/.44
- (FCS)/.14
- (FDC)/.31
- (FSL)/.52
- (GPC)/.76
- (GILD)/.40
- (GOOG)/3.57
- (HOG)/1.13
- (HSY)/.35
- (HON)/.76
- (ITW)/.88
- (IMCL)/.31
- (IRF)/.58
- (IGT)/.39
- (ISRG)/.66
- (MAN)/1.20
- (MEL)/.62
- (MSFT)/.39
- (MHK)/1.57
- (MOT)/.01
- (NUE)/1.15
- (OO)/.31
- (PPG)/1.53
- (SNDK)/.15
- (STX)/.36
- (SHW)/1.44
- (SYK)/.61
- (STI)/1.44
- (AMTD)/1.25
- (UNP)/1.62
- (UNH)/.81

Upcoming Splits
- (IOSP) 2-for-1

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to rise to 311K versus 308K the prior week.
- Continuing Claims are estimated to fall to 2550K versus 2554K prior.

10:00 am EST
- Leading Indicators for June are estimated to fall -.1% versus a .3% increase in May.

12:00 pm EST
- Philly Fed for July is estimated to fall to 13.5 versus a reading of 18.0 in June.

2:00 pm EST
- June 28 FOMC Meeting Minutes.

Other Potential Market Movers
- Fed Chairman Bernanke’s testimony to congress, the Fed’s Moskow speaking, SEMICON West and (SNCR) Analyst Event could also impact trading today.

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

Stocks Finish Lower, Despite Late Surge, on Healthy Profit-taking and Lingering Sub-prime Concerns

Posted by Gary .....at 5:39 PM

Indices
S&P 500 1,546.17 -.21%
DJIA 13,918.22 -.38%
NASDAQ 2,699.49 -.47%
Russell 2000 845.91 -.47%
Wilshire 5000 15,575.12 -.22%
Russell 1000 Growth 616.86 -.17%
Russell 1000 Value 877.03 -.24%
Morgan Stanley Consumer 737.20 -.27%
Morgan Stanley Cyclical 1,124.38 -.19%
Morgan Stanley Technology 649.08 -.66%
Transports 5,429.83 +.59%
Utilities 511.44 +.87%
MSCI Emerging Markets 140.09 -.84%

Sentiment/Internals
Total Put/Call 1.12 +20.43%
NYSE Arms .94 -9.21%
Volatility(VIX) 16.0 +2.37%
ISE Sentiment 156.0 -5.45%

Futures Spot Prices
Crude Oil 75.18 +1.57%
Reformulated Gasoline 219.50 +4.49%
Natural Gas 6.52 +3.46%
Heating Oil 209.90 +3.24%
Gold 673.80 +1.19%
Base Metals 256.98 +.62%
Copper 356.30 +.30%

Economy
10-year US Treasury Yield 5.02% -2 basis points
US Dollar 80.43 -.14%
CRB Index 323.60 +1.57%

Leading Sectors
Gold +3.74%
Road & Rail +2.06%
Energy +2.0%

Lagging Sectors
Banks -1.32%
I-Banks -1.68%
Semis -1.78%

Evening Review
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Stock Quote
In Play

Afternoon Recommendations
Bank of America:
- Rated (BHI), (HAL), (SLB), (SII) and (WFT) Buy.

Afternoon/Evening Headlines
Bloomberg:
- Federal Reserve Chairman Ben Bernanke said hedge funds and private-equity firms offer “important benefits” for the US economy, including a way to share risk and increase liquidity in the markets.
- Washington Mutual(WM), the biggest US savings and loan, said second-quarter profit rose 8.2%, beating analysts’ estimates as the retail banking and credit card units grew and losses on mortgage lending narrowed. The stock rose 4% in extended trading.
- International Business Machines(IBM), the world’s biggest computer-services company, reported a 12% gain in second-quarter profit after bolstering sales through software acquisitions. The stock is surging $3/share in after-hours trading to $114.10.
- EBay Inc.(EBAY) said earnings rose for the fourth straight quarter after higher fees increased auction revenue and its PayPal unit added more corporate customers. The stock was mostly unch. in extended trading.
- Juniper Networks(JNPR) reported second-quarter net income of $86.2 million as new products boosted sales. The stock rose $.50/share to $27.25 in after-hours trading.
- Labor Ready(LRW) reported revenue for the second quarter of $351.1 million, an increase of 3.3% from $339.8 million for the second quarter of 2006. The stock is soaring 11.1% in extended trading.

AP:
- Iran confirmed that a second round of talks with the US about Iraq will be held in the “near future,” citing Iranian officials.

BOTTOM LINE: The Portfolio finished slightly lower today on losses in my Semi longs and I-Banking longs. I did not 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, 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 mildly bearish as the major averages and breadth finished lower, but trimmed losses substantially into the close. Many stocks I monitor finished with gains. I suspect today's morning losses had more to do with option expiration than "real" selling. I also suspect many large investors that have been expecting a pullback or correction built short exposure further into morning weakness and are now left trapped again as stocks surged meaningfully into the close, leaving little time to exit morning positions. The brokers rebounded, but not as sharply as I would have expected. However, I suspect stocks will build on today's closing surge tomorrow.

Stocks Lower into the Final Hour on Healthy Profit-taking, Lingering Sub-prime Worries

Posted by Gary .....at 3:49 PM

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Semi longs and I-Banking longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very negative today as the advance/decline line is substantially lower, most sectors are declining and volume is above average. Yesterday afternoon, a fellow RealMoney Silver contributor said that he was considering building his long airline position in a meaningful way. I have to say that I am considering an airline long as well. This group is always despised, and, while not historically good long-term investments, they make excellent trading vehicles at times. I sense one of those times is fast approaching. Oil has moved up to $75 per barrel, stories of horrific waits on runways fill the airwaves, and analysts have recently turned more negative on the group. However, the Airline Index has been trending higher since mid-June, ignoring this news. According to my data, large speculative oil traders have never been this net long crude in history. This was the case last year when I wrote my post "17 Reasons for Energy Prices Peak" on Street Insight, with oil above $70 per barrel and right before it plunged $28 per barrel in less than six months, which sent the broad market and airlines flying. In my opinion, the fundamentals for oil are even worse this year, and its recent spike higher is solely a function of the mania for the commodity by funds trying to make up for recent relatively poor performance. The average commodity fund fell around 7% last year and is just marginally higher year-to-date. While a downside catalyst for oil could occur, I suspect crude will begin another meaningful decline anyway as the peak in hurricane season approaches over the next six weeks. My favorite airlines to consider for a long trade are Delta Air Lines (DAL), AMR Corporation (AMR) and Continental Airlines (CAL). I expect US stocks to trade modestly higher into the close from current levels on short-covering, lower long-term rates and bargain-hunting.

Today's Headlines

Posted by Gary .....at 2:50 PM

Bloomberg:
- Fed Chairman Bernanke predicted American economic growth will pick up slightly next year and inflation will gradually recede.
- Emerging-market bonds fell after Bear Stearns(BSC) told investors in its failed hedge funds they will get little if any money back, reviving concern that losses on US subprime mortgage-backed securities may widen.
- Lehman Brothers(LEH) denied speculation that it may face greater potential losses from subprime mortgages than previously disclosed.
- Rio Tinto Group(RTP), the world’s third-largest mining company, said iron-ore production climbed to a record in the second quarter.
- Airports worldwide handled a record 4.4 billion passengers in 2006, up 4.8% from a year earlier, an industry group said.
- North Korea said it will disclose all of its nuclear programs and disable them within six months, South Korean nuclear negotiator Chun Yung Woo said, after he met his North Korean counterpart Kim Kye Gwan in Beijing.

Wall Street Journal:
- The US newspaper industry is facing a major decline in advertising revenue as classified, national and retail sales all recorded a drop during the first quarter, citing the Newspaper Association of America.
- American Airlines(AMR) will focus its marketing on environment concerns from August, citing an interview with David Cush, senior vp of global sales at the AMR Corp. unit.

NY Times:
- Google Inc.(GOOG) plans to announce today the expansion of a program allowing advertisers to purchase newspaper space through its online system.

Salon:
- Elizabeth Edwards said that her husband, Democratic presidential candidate John Edwards, would be a better advocate for women’s issues than rival Hillary Clinton.

Women’s Wear Daily:
- Kohlberg Kravis Roberts plans to offer $24 billion to acquire Macy’s Inc.(M), the second-largest US department-store chain.

Financial Times:
- Microsoft Corp.(MSFT) will have to introduce some truly innovative products to keep Google Inc.(GOOG) and Apple Inc.(AAPL) from gaining more ground on the Redmond, Washington-based software company.
- Coca-Cola(KO), General Mills(GIS) and nine other leading food makers will today announce new voluntary curbs on marketing to children as the industry seeks to head off US regulation or lawsuits over childhood obesity.

Apple Daily:
- Nvidia Corp.(NVDA) may acquire Via Technologies’ chipset division, citing market speculation.

Inflation Below Long-term Average Rates, Housing Starts Rise, Building Permits Fall

Posted by Gary .....at 11:45 AM

- The Consumer Price Index for June rose .2% versus estimates of a .1% gain and a .7% increase in May.

- The CPI ex Food & Energy for June rose .2% versus estimates of a .2% increase and a .1% gain in May.

- Housing Starts for June rose to 1467K versus estimates of 1450K and a downwardly revised 1434K in May.

- Building Permits for June fell to 1406K versus estimates of 1480K and an upwardly revised 1520K in May.

BOTTOM LINE: Consumer prices in the US rose .2% in June, the smallest gain in five months, as gasoline prices retreated, Bloomberg reported. The CPI year-over-year rose 2.7%, below the 20-year average of 3.1%. Core prices are now rising at a 2.3% pace, versus 3% in the first half of last year. Today’s report showed energy prices fell .5% in June as gasoline fell 1.1%. Clothing prices fell .6% versus a .3% decline the prior month. Auto prices were unch. versus a .2% decline the prior month. Moreover, Bernanke said in his speech today that the PCE core, the Fed’s favorite inflation gauge, will rise between 1.75-2.0% next year, below the 20-year average of 2.5%. I continue to believe inflation fears have peaked for this cycle and that measures of inflation will continue to decelerate through year-end as energy and food prices fall meaningfully from current levels.

US builders unexpectedly started work on more homes in June while permits for future construction fell to the lowest level in a decade, Bloomberg reported. The rise in starts was led by a 9% increase in the West and 2.4% gain in the South. Starts fell 3.7% in the Mid-west and 2.4% in the Northeast. I continue to believe the substantial, but diminishing, drag on the US economy from housing is an overall positive for US stocks. I still think home sales are stabilizing at relatively high levels by historic standards, however home construction will likely remain muted at least through year-end as homebuilders continue to work down inventories.