Monday Watch

Weekend Headlines
Bloomberg:
- President Bush today praised the Iraqis for making progress toward the formation of the first permanent unity government since the fall of dictator Saddam Hussein.
- President Bush said the US must reduce its dependence on oil and invest in alternatives, including hydrogen fueled vehicles.
- OPEC should agree at a meeting tomorrow to offer all its idle capacity to the market as soon as possible in an attempt to lower prices, Kuwait’s oil minister said.
- People’s Bank of China Governor Xiaochuan said the opening of the country’s economy to market forces, including changes to the exchange rate, can be accelerated.
- Pakistan invited OAO Gazprom and other Russian companies to explore for oil and natural gas and build pipelines.
- The G-7 said the world economy is in “strong” shape and called on some Asian nations, especially China, to allow their currencies to appreciate.
- President Bush urged Congress to take action on his immigration, energy and economic proposals, as he highlighted his top legislative priorities.

Fortune:
- Net companies are on fire again. Here’s the smart way to invest without getting burned.

NY Times:
- Former President Bill Clinton could earn tens of millions of dollars from his share of the profits of funds run by billionaire investor and friend Ron Burkle’s Yucaipa Cos.
- A Georgia Tech student and another man traveled to Canada to meet Islamic extremists to plan a terrorist attack against US facilities, citing federal court documents unsealed yesterday.
- Saudi Arabia is turning to China as an alternative trading partner to the US and Europe.
- A former Miller beer brewery in Fulton, NY, is being converted into the northeastern US’s first ethanol plant.
- Jawad al-Maliki, the Shiite Muslim politician who was nominated yesterday to be the first permanent prime minister of Iraq, is known for being decisive and direct.
- CIA Director Porter Goss ordered employees to submit to polygraph tests in the past three months as he sought to discover the sources of unauthorized leaks of information.

Washington Post:
- Real estate speculators are exiting the Washington housing market, reducing the demand for homes, particularly condos.

LA Times:
- Southern California Edison began operations at the first large power plant built in the LA area in almost three decades.

Mercury News:
- The number of people without jobs in California’s Silicon Valley declined to 4.8% in March from 5.1% in February. The gains would have been greater except for an unexpected drop in housing construction jobs.

Barron’s:
- Mark Curtis, who manages $12 billion at Citigroup’s(C) Smith Barney unit, topped the list of the 100 best financial advisers compiled by RJ Shook for Barron’s.

Advertising Age:
- Online ad revenue soared 30% in 2005.

AP:
- Exxon Mobil(XOM), Royal Dutch Shell and other oil and gas producers are increading efforts to recruit engineers and geologists from US colleges. Job offers to undergraduate petroleum engineers recently averaged $62,236, up more than 6%.

Financial Times:
- Time Warner’s(TWX) Chinese joint venture CAV Warner has started trials of DVD films priced at $1.50 in a bid to counter sales of pirated DVDs in China.

Mail on Sunday:
- Prince Harry, third in line to the British throne, told UK army commanders he wants to be deployed to a war zone and will quit if they refuse.

South China Morning Post:
- Hong Kong’s new apartment sales fell 40% in the first three months of this year, from the previous quarter, citing the Housing, Planning and Lands Bureau.

Hong Kong Economic Journal:
- China’s Lenovo Group Ltd. plans to delay selling its own brand personal computers in the US until next year.

Nihon Keizai:
- Sumitomo Corp. and Sojitz Corp. will jointly buy a 3% stake in a $6.86 billion liquefied natural gas project in Nigeria. The trading houses aim to take advantage of growing demand for LNG as crude oil prices rise by joining Nigerian National Petroleum, Chevron(CVX) and European energy firms in the project.

Xinhua:
- The US trade deficit with China is lower than is being reported because the figures don’t reflect income earned by US companies overseas as well as royalties, particularly from technology patents, citing a retired Chinese statistics official.

Weekend Recommendations
Barron's:
- Had positive comments on (LOW), (EOG), (DVN), (GDW), (JPM), (AIG), (WPP) and (TYC).
- Had negative comments on (PPD) and (MO).

Night Trading
Asian indices are -1.25% to +.50% on average.
S&P 500 indicated -.17%.
NASDAQ 100 indicated -.12%.

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US AM Market Call
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Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
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Earnings of Note
Company/Estimate
- (ACL)/.90
- (AXP)/.69
- (BEAV)/.16
- (BRO)/.36
- (CAT)/1.05
- (CHKP)/./31
- (CB)/1.11
- (RE)/3.06
- (ETH)/.56
- (HAS)/.00
- (KMB)/.92
- (LNCR)/.48
- (NBIX)/-.63
- (PBI)/.63
- (PCL)/.42
- (SLAB)/.32
- (SUNW)/-.06
- (AMTD)/.21
- (WFT)/.51
- (YUM)/.57

Upcoming Splits
- (CW) 2-for-1

Economic Releases
- None of note

BOTTOM LINE: Asian Indices are mostly lower, weighed down by exporting shares in the region. I expect US stocks to open modestly lower and to trade mixed into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the week.

Weekly Outlook

Click here for The Week Ahead by Reuters

There are a few economic reports of note and a number of significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - None of note
Tues. - Consumer Confidence, Existing Home Sales, Richmond Fed Index
Wed. - Durable Goods Orders, New Home Sales, Fed’s Beige Book
Thur. - Initial Jobless Claims
Fri. - Advance 1Q GDP, Advance 1Q GDP Price Index, Advance 1Q Personal Consumption, Employment Cost Index, Final Univ. of Mich. Consumer Confidence, Chicago Purchasing Manager

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. - Alcon Inc.(ACL), American Express(AXP), Caterpillar(CAT), Chubb Corp.(CB), Hasbro(HAS), Kimberly-Clark(KMB), Pitney Bowes(PBI), TD Ameritrade(AMTD), Yum! Brands(YUM)

Tues. - Aflac Inc.(AFL), Amazon.com(AMZN), BJ Services(BJS), Burlington Northern(BNI), CDW Corp.(CDWC), Coach Inc.(COH), Corning Inc.(GLW), Diebold(DBD), ENSCO Intl.(ESV), Forest Labs(FRX), HCA Inc.(HCA), Imclone Systems(IMCL), JetBlue(JBLU), L-3 Communications(LLL), Lexmark Intl.(LXK), Lockheed Martin(LMT), Lucent Technologies(LU), Microchip Tech(MCHP), Northrop Grumman(NOC), Omnicom Group(OMC), Panera Bread(PNRA), Smith Intl.(SII), Stanley Works(SWK), Valero Energy(VLO), Varian Medical(VAR), Vulcan Materials(VMC), Whirlpool(WHR)

Wed. - Affiliated Managers(AMG), Allegheny Technologies(ATI), Amerada Hess(AHC), AmerisourceBergen(ABC), Anheuser-Busch(BUD), Baker Hughes(BHI), Becton Dickinson(BDX), Biogen Idec(BIIB), Boeing(BA), CBS Corp.(CBS/A), Cendant Corp.(CD), Centex Corp.(CTX), Chicago Merc(CME), Colgate-Palmolive(CL), ConocoPhillips(COP), Express Scripts(ESRX), Foundation Coal(FCL), Infospace(INSP), Maxim Integrated(MXIM), Monster Worldwidd(MNST), Norfolk Southern(NSC), Office Depot(ODP), Pulte Homes(PHM), Rowan Cos(RDC), Sohu.com(SOHU), Sprint Nextel(S), Weyerhaeuser(WY), Xilinx(XLNX), Zimmer Holdings(ZMH)

Thur. - Aetna(AET), Altera(ALTR), Apache Corp.(APA), Beazer Homes(BZH), Bebe Stores(BEBE), Black & Decker(BDK), BorgWarner(BWA), Bristol-Myers(BMY), Cardinal Health(CAH), Celgene(CELG), Chiron Corp.(CHIR), Comcast(CMCSA), Cooper Cameron(CAM), Diamond Offshore(DO), Dow Chemical(DOW), Exxon Mobil(XOM), Harrah’s Entertainment(HET), JDS Uniphase(JDSU), Kla-Tencor(KLAC), Liz Claiborne(LIZ), McAfee(MFE), MGM Mirage(MGM), Microsoft(MSFT), Phelps Dodge(PD), Raytheon(RTN), Starwood Hotels(HOT), Wendy’s(WEN), Western Digital(WDC), XM Satellite(XMSR)

Fri. - Bausch&Lomb(BOL), Chevron(CVX), Constellation Energy(CEG), Cummins(CMI), Estee Lauder(EL), Flextronics(FLEX), Overstock.com(OSTK)

Other events that have market-moving potential this week include:

Mon. - AG Edwards Media & Entertainment Conference, UBS Global Pharma Conference
Tue. - UBS Global Pharma Conference, AG Edwards Media & Entertainment Conference
Wed. - None of note
Thur. - None of note
Fri. - None of note

BOTTOM LINE: I expect US stocks to finish the week modestly lower as better-than-expected earnings reports and lower long-term rates are more than offset by weaker housing data and high energy prices. My trading indicators are giving bullish signals and the Portfolio is 50% net long heading into the week.

Market Week in Review

S&P 500 1,311.28 +1.72%*

BOTTOM LINE: Overall, last week's market performance was bullish. The advance/decline line rose, most sectors rose and volume was above average on the week. Measures of investor anxiety were mostly higher. The AAII % Bulls fell to 33.73% and is now below average levels, which is a big positive considering the major averages are approaching 6-year highs. The average 30-year mortgage rate rose to 6.53% which is 132 basis points above all-time lows set in June 2003. I continue to believe housing is slowing to more healthy sustainable levels. This will also likely result in the slowing of consumer spending back to around average rates. The benchmark 10-year T-note yield fell 5 basis points on the week, even as commodity prices rose, as traders began to anticipate slower economic growth. I expect inflation concerns to begin declining again later this quarter as economic growth slows to average levels, unit labor costs remain subdued and the mania for commodities reverses course.

Unleaded Gasoline futures rose again this week, but are still 23.0% below September 2005 highs even as refinery utilization remains below normal as a result of the hurricanes last year, 22.3% of Gulf of Mexico oil production remains shut-in and fears over Iranian/Nigerian production disruptions persist. The switch from MTBE-based gasoline to ethanol-based fuel is the main reason behind the recent spike in gas prices. Please click here to read a brief report from the Energy Information Administration on the subject.

Demand for gasoline is decelerating and the recent rise related to the switch should further dampen demand over the coming months, sending gas prices back to reasonable levels. Natural gas inventories rose around expectations this week. However, supplies are now 62.6% above the 5-year average, an all-time record high for this time of year, even as 13.3% of daily Gulf of Mexico production remains shut-in. Natural gas prices have plunged 49.0% since December 2005 highs. U.S. oil inventories are now at 8-year highs. I continue to believe oil is priced at extremely elevated levels on fear and record speculation, not fundamentals. As the fear premium in oil dissipates back to more reasonable levels and supplies continue to rise as economic growth slows, crude should head meaningfully lower over the intermediate-term.

Gold rose for the week as the US dollar declined and the mania for all commodities intensified. The US dollar fell as speculation increased that the US economy will slow, thus resulting in a Fed “pause.”

Commodity and financial stocks outperformed for the week as the prices for some commodities went parabolic, earnings exceeded expectations and long-term rates fell. S&P 500 earnings growth for the 1st quarter is up about 15.0% year-over-year so far, more than double the long-term average and substantially above expectations of 8-9% growth just a few weeks ago. This is the 16th consecutive quarter of double-digit profit growth, the best streak since record-keeping began in 1936. The forward p/e on the S&P 500 has contracted relentlessly during this time period and now stands at a very reasonable 15.5.

The average US stock, as measured by the Value Line Geometric Index(VGY), is up a very strong 9.7% so far this year. Moreover, the Russell 2000 Index is up 15.0% year-to-date. I still believe US economic growth peaked for the year during the first quarter and will decelerate back to around average levels through year-end. I expect stocks to continue trading mixed-to-lower over the next few weeks. Subsequently, a reversal lower in long-term rates and/or energy prices should provide the catalyst for another push higher by the major averages. The ECRI Weekly Leading Index fell slightly this week and is still forecasting healthy, but decelerating, US economic activity.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,311.28 +1.72%
DJIA 11,347.45 +1.88%
NASDAQ 2,342.86 +.72%
Russell 2000 772.12 +2.80%
Wilshire 5000 13,276.56 +1.88%
S&P Equity Long/Short Index 1,171.54 -.09%
S&P Barra Growth 612.41 +1.24%
S&P Barra Value 696.32 +2.20%
Morgan Stanley Consumer 604.31 +.94%
Morgan Stanley Cyclical 852.18 +2.86%
Morgan Stanley Technology 548.54 -.31%
Transports 4,706.05 +1.30%
Utilities 398.36 +4.15%
S&P 500 Cum A/D Line 8,242 +4.0%
Bloomberg Crude Oil % Bulls 55.0 +68.24%
Put/Call .91 +8.33%
NYSE Arms 1.08 +54.29%
Volatility(VIX) 11.59 -6.38%
ISE Sentiment 142.00 +35.24%
AAII % Bulls 33.73 -25.64%
AAII % Bears 40.83 +46.66%
US Dollar 88.05 -1.72%
CRB 358.59 +4.75%
ECRI Weekly Leading Index 137.10 -.22%

Futures Spot Prices
Crude Oil 75.12 +4.54%
Unleaded Gasoline 223.40 +3.43%
Natural Gas 8.04 +5.61%
Heating Oil 208.57 +3.12%
Gold 638.50 +3.15%
Base Metals 214.36 +8.65%
Copper 313.50 +8.18%
10-year US Treasury Yield 5.0% -1.0%
Average 30-year Mortgage Rate 6.53% +.62%

Leading Sectors
Energy +7.10%
Oil Service +7.08%
Gold & Silver +6.77%
Steel +5.0%
I-Banks +4.0%

Lagging Sectors
Telecom -1.20%
Networking -1.76%
HMOs -1.97%
Disk Drives -2.08%
Airlines -8.5%

One-Week High-Volume Gainers
One-Week High-Volume Losers

*5-Day % Change

Stocks Lower into Final Hour as Energy Prices Rise

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Semi longs, Networking longs and Energy-related shorts. I added to my IWM and QQQQ shorts today, thus leaving the Portfolio 50% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mostly negative and volume is above average. The fact that commodity and cyclical stock price gains are accelerating into likely weaker economic data is raising the odds of a market pullback, rather than further consolidation. I believe those buying these securities are looking at the past, not the future. I expect US stocks to trade mixed-to-lower into the close from current levels on worries over higher energy prices.

Today's Headlines

Bloomberg:
- Crude oil rose to $74.45/bbl. on speculation that shipments from Iran and Nigeria will be disrupted as the US increases output of gasoline for the summer driving season.
- Ameristar Casinos(ASCA) raised its off for Aztar Corp.(AZR) to $1.6 billion, escalating the four-way bidding war for the owner of the Tropicana casinos.

Wall Street Journal:
- Advanced Micro Devices(AMD) is in a position to gain ground on its rival, Intel(INTC), which has dominated the computer microprocessor market for years, with its strategy of treating its hardware customers as partners.
- Shares of KCS Energy(KCS) advanced after media reports that Petrohawk Energy(HAWK) will buy the company in a transaction worth $1.6 billion.
- US mutual-fund investors, in a belated response to the three-year rally in emerging-market stocks, invested $11.7 billion in diversified emerging-market funds between the start of October and the end of February. Caution is called for, citing Kirk Henry who manages the Dreyfus Premier Emerging Markets Fund, as extreme inflows are generally a sign of a market peak.
- Bausch & Lomb(BOL) is a classic example of a distressed “value” stock, which finds itself in the midst of a crisis because some customers who used a contact-lens cleaning solution made by the company caught a rare fungal eye infection.

CNBC:
- JPMorgan Chase(JPM) CEO Dimon wants to buy a “big-named” brokerage or commercial lender once his company is performing better financially.

NY Post:
- John Malone’s Liberty Media(L) is near an agreement with Time Warner(TWX) to acquire Major League Baseball’s Atlanta Braves franchise, in exchange for Time Warner(TWX) shares and a stake in Court TV.

NY Times:
- The FDA said studies haven’t shown medical benefits from marijuana use, contradicting other scientific reports.

USA Today:
- The US Border Patrol may have as many as 12,100 agents in the field by the end of September, or about as many as the FBI, which is the nation’s largest law enforcement agency.

Irish Independent:
- Digicel Ltd., a Caribbean mobile operator owned by Irish businessman Denis O’Brien, plans to move into the US mobile-phone market.

Interfax:
- Russia is opposed to the use of military force to resolve the international community’s nuclear dispute with Iran.