Weekly Outlook

Click here for The Week Ahead by Reuters.

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

Economic reports for the week include:

Mon. - Leading Indicators
Tues. - Producer Price Index
Wed. - None of note
Thur. - Initial Jobless Claims, Existing Home Sales
Fri. - Durable Goods Orders, New Home Sales

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

Mon. - INAMED Corp.(IMDC), Oracle Corp.(ORCL), Shuffle Master(SHFL), Sonic Corp.(SONC), Williams-Sonoma(WSM)
Tues. - Biomet Inc.(BMET), Commercial Metal(CMC), Darden Restaurants(DRI), Dollar General(DG), Factset Research(FDS), GameStop Corp.(GME), McCormick(MKC), Nike(NKE), Paychex(PAYX), Telephone & Data(TDS)
Wed. - Adobe Systems(ADBE), FedEx Corp.(FDX), Herman Miller(MLHR), Interpublic Group(IPG), Jabil Circuit(JBL), KB Home(KBH), Morgan Stanley(MWD), Worthington Industries(WOR)
Thur. - 3Com Corp.(COMS), Aeropostale(ARO), Apollo Group(APOL), Carnival Corp.(CCL), ConAgra Foods(CAG), Family Dollar(FDO), General Mills(GIS), Palm Inc.(PALM), Scholastic Corp.(SCHL), Solectron(SLR)
Fri. - Bausch & Lomb(BOL)

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

Mon. - JPMorgan Gaming/Lodging/Restaurants Conference, Howard Weil Energy Conference, Piper Jaffray Financial Services Conference
Tue. - Piper Jaffray Financial Services Conference, Howard Weil Energy Conference, JPMorgan Gaming/Lodging/Restaurants Conference, Merrill Lynch Retailing Leaders Conference
Wed. - Citigroup Latin America Conference, JPMorgan Gaming/Lodging/Restaurants Conference, Merrill Lynch Retailing Leaders Conference, Howard Weil Energy Conference
Thur. - Citigroup Latin America Conference, Howard Weil Energy Conference
Fri. - None of note

BOTTOM LINE: I expect US stocks to finish the week modestly higher on decelerating inflation readings, short-covering, stable-to-lower long-term rates and falling energy prices. My trading indicators are now giving mostly bullish signals and the Portfolio is 75% net long heading into the week.

Chart of Interest

Market Week in Review

S&P 500 1,307.25 +2.0%*



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was very bullish. The advance/decline line rose, almost every sector gained and volume was above average on the week. Measures of investor anxiety were mostly higher, which is a big positive considering recent gains. The AAII % Bulls rose to 46.55%, but is still only around average levels. The average 30-year mortgage rate fell to 6.34% which is 113 basis points above all-time lows set in June 2003. The benchmark 10-year T-note yield fell 9 basis points on the week as measures of inflation showed meaningful deceleration. I continue to expect inflation concerns to decline through year-end as economic growth slows to average levels, unit labor costs remain subdued and commodity prices weaken further.

Unleaded Gasoline futures rebounded for the week, but are still 36.4% below September highs even as refinery utilization remains below normal as a result of the hurricanes last year, 23.2% of Gulf of Mexico oil production remains shut-in and fears over Iranian/Nigerian production disruptions persist. Natural gas inventories fell less than expected again this week. Supplies are now 60.1% above the 5-year average, near an all-time record high for this time of year, even as 14.0% of daily Gulf of Mexico production remains shut-in. Natural gas prices have plunged 55.1% in 13 weeks.

OPEC said this week that global oil demand will average 84.5 million barrels/day for the remainder of the year. The most recent data from Energy Intelligence shows global oil supplies at 85.6 millions barrels/day. Since Dec. 2003, global oil supplies have risen 13.1% while demand has risen 5.0%. U.S. oil inventories are now close to 7-year highs. I continue to believe oil is priced above $60/bbl. on fear, not fundamentals. Demand for oil can and will fall, even with healthy economic growth, as we saw in the U.S. last year. As the fear premium in oil dissipates back to more reasonable levels, crude should continue heading meaningfully lower over the intermediate-term.

Gold rose for the week as a decline in the US dollar, mostly positive economic data and higher energy prices offset decelerating inflation readings. The US dollar fell as speculation increased that the Fed will pause sooner than anticipated as a result of lower inflation readings.

Homebuilding stocks outperformed substantially for the week as long-term interest rates fell, takeover speculation increassed and housing data beat estimates. The average US stock, as measured by the Value Line Geometric Index(VGY), is now up a strong 7.2% so far this year. Moreover, the Russell 2000 Index is up 11.1% year-to-date. The ECRI Weekly Leading Index fell again slightly and is still forecasting healthy, but decelerating, US economic activity.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,307.25 +2.0%
DJIA 11,279.65 +1.84%
NASDAQ 2,306.48 +1.97%
Russell 2000 746.09 +2.72%
Wilshire 5000 13,155.58 +2.08%
S&P Equity Long/Short Index 1,160.26 +.49%
S&P Barra Growth 616.32 +1.72%
S&P Barra Value 687.61 +2.30%
Morgan Stanley Consumer 614.92 +.85%
Morgan Stanley Cyclical 813.12 +3.75%
Morgan Stanley Technology 537.48 +1.71%
Transports 4,563.33 +2.41%
Utilities 408.11 +2.05%
S&P 500 Cum A/D Line 8,840 +13.0%
Bloomberg Crude Oil % Bulls 26.2 -41.8%
Put/Call .79 -9.2%
NYSE Arms 1.02 +33.33%
Volatility(VIX) 12.12 +2.28%
ISE Sentiment 130.0 -17.31%
AAII % Bulls 46.55 +12.96%
AAII % Bears 32.76 +6.47%
US Dollar 88.94 -2.15%
CRB 325.83 +2.0%
ECRI Weekly Leading Index 136.80 -.15%

Futures Spot Prices
Crude Oil 62.82 +1.65%
Unleaded Gasoline 185.10 +10.06%
Natural Gas 7.01 +5.74%
Heating Oil 178.70 +5.71%
Gold 554.50 +1.39%
Base Metals 173.69 +5.48%
Copper 235.50 +4.90%
10-year US Treasury Yield 4.66% -1.89%
Average 30-year Mortgage Rate 6.34% -.47%

Leading Sectors
Homebuilders +7.37%
Oil Service +4.99%
Energy +4.90%
Networking +4.22%
Nanotechnology +4.05%

Lagging Sectors
Tobacco +.11%
Oil Tankers unch.
Broadcasting -.53%
Hospitals -.59%
Semis -1.19%

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

*5-Day % Change

Stocks Modestly Higher into Final Hour on Heavy Volume

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Retail longs and Energy-related shorts. I covered some of my (IWM)/(QQQQ) shorts, thus leaving the Portfolio 75% net long. The tone of the market is slightly positive as the advance/decline line is about even, sector performance is mostly positive and volume is very heavy. Intuitive Surgical (ISRG) is improving technically. Moreover, I continue to believe that analysts have severely underestimated its earnings potential for this year. There are still only two “buys” on the stock and four “holds.” I don't think it is too late for these analysts to upgrade the stock and increase earnings estimates. I expect the stock to make new all-time highs later this year. I am long (ISRG). I expect US stocks to trade modestly higher into the close from current levels on lower energy prices, stable long-term rates and short-covering.

Today's Headlines

Bloomberg:
- Bain Capital LLC is seeking $10 billion for its biggest takeover fund.
- Microsoft CEO Ballmer said the company needs more than new search advertising products to crack Google’s(GOOG) hold on customers.
- SBA Communications(SBAC), an operator of mobile-phone towers in the eastern US, agreed to buy cable pioneer Jerald Kent’s AAT Communications for $1 billion in cash and stock to expand its business nationwide.
- Copper and zinc are rising as a gain in US industrial production signaled more demand from manufacturers.
- The American Red Cross, which for more than a decade has supported a lifetime ban on accepting blood from gay men, now believes those men should be able to donate if they go a year without having gay sex.

Wall Street Journal:
- A US District Court judge has dismissed a lawsuit brought by an Internet publisher that accused Google(GOOG) of copyright infringement and defamation.
- Industrial & Commercial Bank of China plans to announce today a strategic partnership with Goldman Sachs(GS) through which the US securities firm will offer management expertise to the Chinese bank.
- China can’t enforce environmental protection rules because the agency responsible doesn’t have the authority to close factories that pollute.

NY Times:
- The position of CEO is separate form that of chairman or chairwomen at an increasing number of US companies.
- An investment fund owned by George Soros is close to buying the 59-film library of DreamWorks Animation SKG(DWA) for $900 million.
- Verizon Communications(VZ) filed an application to compete with Cablevision Systems(CVC) to provide cable-tv service to residents of Hempstead, the biggest town on NY’s Long Island.

Financial Times:
- Chicago Mercantile Exchange(CME) CEO Donohue ruled out buying a stock exchange as part of the US futures market’s expansion plans.