Tuesday, January 25, 2005

Tuesday Watch

Late-Night News
Asian indices are mixed as strength in commodity-related shares is being offset by weakness in tech stocks in the region. Bill Gates will donate $750 million to help children in developing countries receive access to life-saving vaccines and immunizations, the London-based Times said. China's economy expanded 9.5% last year, Xinhua News Agency reported. SEC Chairman Donaldson may today signal that the US will ease listing rules for international companies who want to avoid the costs involved in meeting corporate governance rules, the Financial Times said. The European Union is preparing to lift its 15-year-old arms embargo against China and replace it with a code of conduct that regulates all weapons sales, the AP reported, citing UK Foreign Secretary Jack Straw. Equipping 6,800 US commercial airplanes with antimissile defense systems would cost $11 billion, plus $2.1 billion a year in operating expenses, the NY Times reported. Hedge funds are beginning to play a more assertive role in shaping mergers and acquisitions, especially in Europe, the Wall Street Journal reported.

Late Recommendations
Goldman Sachs reiterated Outperform on MO, TPX, MDT, X, AMGN and Underperform on CR.

Night Trading
Asian Indices are -.75%. to +.25% on average.
S&P 500 indicated +.14%.
NASDAQ 100 indicated +.13%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Analyst Actions
Macro Calls
CNBC Guest Schedule

Earnings of Note
Company/Estimate
ADTN/.17
AKS/.66
ABC/.63
AV/.18
BLS/.41
EAT/.45
BNI/.78
CTX/1.88
COH/.68
CA/.19
GLW/.12
EMC/.12
ERTS/1.18
FLEX/.19
INSP/.40
JNJ/.64
MER/1.11
MRK/.50
SLB/.56
TXN/.26

Splits
None of note.

Economic Data
Consumer Confidence for January estimated to fall to 101.0 versus 102.3 in December.
Existing Home Sales for December estimated to decline to 6.8M versus 6.94M in November.

BOTTOM LINE: I expect US equities to open mixed-to-higher in the morning on a bounce after today's sell-off. However, stocks will likely weaken again later in the day on continuing worries over slowing global growth, violence in Iraq and earnings. The Portfolio is market neutral heading into tomorrow.

Monday, January 24, 2005

Monday Close

S&P 500 1,163.75 -.35%
NASDAQ 2,008.70 -1.26%


Leading Sectors
Energy +.82%
Utilities +.80%
Oil Service +.71%

Lagging Sectors
Biotech -2.09%
Internet -2.21%
Airlines -4.49%

Other
Crude Oil 48.88 +.14%
Natural Gas 6.52 +.76%
Gold 427.40 +.07%
Base Metals 120.95 -.08%
U.S. Dollar 83.24 -.02%
10-Yr. T-note Yield 4.12% -.42%.
VIX 14.65 +2.02%
Put/Call .73 -12.05%
NYSE Arms 1.27 -23.95%
ISE Sentiment 149.00 -4.49%

After-hours Movers
NFLX +15.17% after beating 4Q estimates and raising 1Q outlook.
SLAB +21.01% after beating 4Q estimates and raising 1Q guidance.
PLMO -10.79% after saying CEO Bradley will resign.
JDAS +12.95% after substantially beating 4Q estimates.
CAI -4.98% after meeting 2Q estimates, but lowering 3Q/4Q outlook.
FILE -11.67% after missing 4Q estimates.

Recommendations
Goldman Sachs reiterated Outperform on DDR, RE, SBC, BLS, MERQ and STN.

After-hours News
U.S. stocks finished lower today, led by technology and small-cap shares. After the close, as many as half of New York City’s workers in the 1990’s were foreign-born, with Latin America replacing Europe as the dominant source, according to a study issued today. Lehman Brothers Holdings’ talks to buy London-based hedge fund GLG Partners LP have been delayed by tax issues and an investigation into alleged insider trading, the Financial Times reported. The assets of the largest 1,000 US pension funds rose 10.6% in the 12 months ended Sept. 300, the second consecutive year of double-digit gains, as US and foreign stocks bolstered fund performance, Pensions & Investments reported. Delphi Corp. Chairman and CEO Battenberg said high inventories and increasing costs of pensions and health care are weighing on the auto parts industry, CNBC reported. Citigroup traders may face a criminal investigation by German prosecutors that they manipulated the government bond futures market in that country, the Financial Times reported. The production value of Taiwan’s semiconductor industry is expected to grow 14.8% this year, outpacing the predicted 1.2% global growth, the Commercial Times reported. China’s advertising market grew 32% to $18.9 billion in 2004, the Asian Wall Street Journal reported. US Senate Republican leaders said they’ll debate legislation limiting rewards for class-action lawsuits before acting on the creation of private Social Security accounts, Bloomberg reported. Krispy Kreme Doughnuts will pay new CEO Cooper $760/hour, Bloomberg said. US antitrust enforcers are reviewing plans by Gannett Co., the largest US newspaper publisher, to buy the publisher of weekly newspapers near three cities where Gannett publishes dailies, Bloomberg reported. ATI Technologies will place new order for mobile phone chips with Taiwan Semiconductor Manufacturing, the Commercial Times reported.

BOTTOM LINE: The Portfolio finished slightly higher today on gains in my software and auto parts shorts. I took profits in a couple of semiconductor shorts and added OIH short in the afternoon, thus leaving the Portfolio market neutral. I am using a stop-loss of $90.25 on this new position. In what has become a very bad habit, the market finished at its lows for the day, volume increased and market internals were very weak. Measures of investor anxiety were mixed on the day which is also a negative. I continue to expect a tradable bottom in the major indices towards the latter part of the week. I also believe crude oil will top this week and begin heading lower next week after the Iraqi elections on worries over increasing supply, a stabilizing US dollar and slower global demand.

Mid-day Report

S&P 500 1,171.95 +.35%
NASDAQ 2,030.13 -.20
%

Leading Sectors
Energy +1.48%
Oil Service +1.46%
Utilities +1.26%

Lagging Sectors
Boxmakers -.84%
Internet -.90%
Airlines -2.83%

Other
Crude Oil 48.60 +.14%
Natural Gas 6.44 +3.21%
Gold 427.20 +.07%
Base Metals 120.95 -.08%
U.S. Dollar 83.32 +.07%
10-Yr. T-note Yield 4.14% unch.
VIX 14.29 -.49%
Put/Call .77 -7.23%
NYSE Arms .98 -41.32%
ISE Sentiment 145.00 -7.05%

Market Movers
RIMM -5.62% after Barron’s reported the company faces increasing competition from cell-phone makers that offer camera capabilities and other functions.
ADSK -13.28% after Banc of America cut it to Sell.
COCO +12.3% after saying the SEC ended an informal inquiry without recommending action.
MERQ +12.81% after boosting 4Q estimates.
INCX +9.03% on Roth Capital upgrade to Buy.
LM +5.03% after beating 3Q estimates substantially.
CPO +4.38% on Deutsche Bank upgrade to Buy.
TZOO -19.65% after missing 4Q estimates.
CCMP -10.22% after Lehman downgrade to Equalweight.
CME -4.02% on continued profit-taking.
DECK -5.0% on continued profit-taking.

Economic Data
None of note.

Recommendations
-Goldman Sachs: Reiterated Outperform on CVD, DTV, SBC, BLS, IPP, SPP. Reiterated Underperform on . Rated WYNN and LVS Outperform.
-Citi SmithBarney: Rated WOLF to Buy, target $26. Rated CONR Buy, target $26. Raised FIC to Buy, target $43. Cut APU to Sell, target $26.
-Banc of America: Lowered ADSK to Sell, target $25. Downgraded OKE to Sell, target $23.
-JP Morgan: Added FNM to Focus List, target $80. Raised EAT to Overweight. Rated LVS Overweight.
-UBS: Downgraded UHS to Reduce, target $35.
-Deutsche Bank: Raised ISIL to Buy, taget $17. Raised CPO to Buy, target $62.
-CIBC: Rated CONR, target $26. Raised MCD to Sector Outperform.
-CSFB: Rated CSCO Outperform, target $22.50.
-Morgan Stanley: Raised ATHR to Overweight, target $15.
-Legg Mason: Raised CTSH to Buy, target $47.
-Merrill Lynch: Rated SIRI Buy, target $7.50. Raised LIZ to Buy.

Mid-day News
U.S. stocks are mixed mid-day as gains in energy-related stocks are being offset by weakness in the technology sector. Walt Disney Co. still needs to address problems at the company’s ABC television network before it can successfully confront rivals including Fox television, the Wall Street Journal said. Mexico and the country’s powerful drug lords are heading for a major confrontation, the Wall Street Journal reported. EchoStar Communications won’t make major gains on its rival DirectTV Group by acquiring Cablevision Systems’ satellite unit for $200 million, the Wall Street Journal reported. General Motors, Motorola and Campbell Soup are among the companies increasing their spending on “event marketing” at the Super Bowl, the Wall Street Journal reported. US watchdogs are paying closer attention to hedge funds, which were for years lightly regulated on the assumption that the wealthy they catered to could handle the risk, the Wall Street Journal reported. Take-Two Interactive Software reached a game-software licensing accord with the union representing Major League Baseball players, the Wall Street Journal reported. Research In Motion’s bid to overturn a US patent-infringement ruling against it received support from EarthLink, the NY Times reported. The US Air Force and Navy may have to turn away thousands of potential recruits, even as the Army and Marine Corps are having difficulty meeting their annual recruiting goals, USA Today reported. Iran’s nuclear program is close to a “point of no return,” where the Islamic state won’t need any outside help in enriching uranium to build an atomic weapon, Israel’s spy agency chief said, the Jerusalem Post reported. The California Institute for Regenerative Medicine, the new stem-cell research facility, will consider putting its headquarters in either San Francisco or San Diego, the San Francisco Chronicle reported. Fidelity Investments is losing customers in Canada and struggling to compete with domestic banks that have made the nation’s investment market among the fastest-growing anywhere, Bloomberg said. Police can use drug-sniffing dogs to check vehicles stopped for traffic offenses, even without reason to suspect the presence of illegal narcotics, the US Supreme Court ruled. ImClone Systems agreed to pay $75 million to settle a class-action shareholder lawsuit from 2002 accusing the company of making false or misleading statements about prospects for its Erbitux colon-cancer drug, Bloomberg reported. Microsoft said it won’t appeal a European court antitrust decision that requires it to immediately begin licensing protocols to rivals and selling a stripped-down version of its Windows operating system, Bloomberg said. Monsanto agreed to buy Seminis for $1 billion in cash from Fox Paine & Co. and minority investors to gain the largest maker of vegetable and fruit seeds, Bloomberg reported. American Express said profit rose 17% last quarter as rising consumer confidence boosted card use, Bloomberg reported.

Bottom Line: The Portfolio is unchanged mid-day as gains in my auto parts and software shorts are offsetting losses in my commodity-related shorts. I have not traded today and the Portfolio is still market neutral. The tone of the market is weaker today, notwithstanding the mixed performance by the major indices. The advance/decline line is poor and volume is decent. As well, most measures of investor anxiety are falling. On the positive side, bonds are holding recent gains and crude oil finding stiff resistance at $49-$49.50/bbl. I expect US stocks to trade mixed-to-weaker into the close.

Monday Watch

Weekend News
Bank of China and China Construction Bank abandoned plans to sell shares on the NYSE because of the exchange's strict corporate governance rules, the Economic Observer reported. China may spend more than $1.2 billion to boost the country's stock markets, the Economic Observer reported. General Maritime, the second-largest US-based oil-tanker owner, would be interested in a merger with Frontline Ltd., the world's biggest oil-tanker company, only if it paid "heavily" in cash, the Financial Times reported. The US and UK are evaluating ways to withdraw from Iraq as early as possible following the Jan. 30 elections, the Guardian reported. President Bush will propose spending $3.2 billion next year to fight AIDS worldwide, the Washington Post reported. Hossein Eslambolchi, AT&T's Chief Technology Officer, is seeking to lower the long-distance carrier's costs by reducing the number of computer systems needed, the NY Times reported. The Bureau of Land Management has determined that oil drilling in the northeastern corner of Alaska's National Petroleum Reserve can go forward with "minimal impact" on the environment, the AP reported. DirectTV Group said in a regulatory filing that the SEC was looking at how it accounted for several transactions made last year, Reuters reported. China's central bank may raise the percentage of deposits banks must set aside as reserves to take money out of circulation to cool economic growth, China Business newspaper reported. The Nasdaq Stock Market and the Chicago Stock Exchange have joined the bidding for Reuters Group's Instinet Group, the Sunday Telegraph reported. Clinics offering full body scans to detect diseases had a rush of demand, then saw business drop off rapidly, the NY Times reported. The Bush administration is likely to double the bounty for al-Qaeda leader Osama bin Laden to $50 million by the end of February, Time magazine reported. Procter & Gamble is considering creating a national hotel-cleaning business, the Denver Post said. Napster, the online music service, may begin offering movies and video games to attract new customers, the Financial Times said. Wal-Mart Stores said January sales are rising within its forecast for a gain of as much as 4% as shoppers purchased food more than general merchandise, Bloomberg said. US regulators are raising national-security concerns over IBM's pending $1.25 billion sales of its personal-computer business to China's Lenovo Group, Bloomberg reported. Crude oil futures in NY are rising for a second day after a snowstorm in the US Northeast and forecasts of more bad weather to come boosted heating-fuel demand, Bloomberg said. Palestinian President Abbas said an accord with Palestinian groups on ending attacks against Israelis will be reached "very soon," Haaretz reported. Shares of Creative Technology had their biggest decline in three years after the company, whose products compete with Apple Computer's iPod, said it will concentrate more on boosting sales than profitability, Bloomberg said.

Weekend Recommendations
Bulls and Bears had guests that were positive on CAG, PXD, CTRX, BHP, BRL, VZ and mixed on GM, VAR, EBAY, KR, SWY. Forbes on Fox had guests that were positive on ATML, EXTR, EEM, XLE and mixed on CYH, AH. Cashin' In had guests that were positive on VIA, BCO, UHCO, NSC, PTR and mixed on NSL, AMZN. Barron's had positive comments on CVCO, C, STA, GIS, AZR, USM, TNB, COO, FSCI, TVL, V, DIS, TWX, L, UCOMA. Goldman Sachs reiterated Outperform on KRB, GE, EBAY, ADP, UTX and AWA. Goldman reiterated Underperform on HBAN, HRB.

Night Trading
Asian Indices are mostly lower, -1.0%. to +.75% on average.
S&P 500 indicated +.11%.
NASDAQ 100 indicated +.17%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell Video(bottom right)
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Analyst Actions
Macro Calls
CNBC Guest Schedule

Earnings of Note
Company/Estimate
ALTR/.13
AXP/.70
AUDC/.05
CNF/.74
CAI/.67
ETN/1.13
KMB/.90
LXK/1.14
NVR/20.72
SLAB/.20
TZOO/.13

Splits
NCR 2-for-1
JOYG 3-for-2

Economic Data
None of note.

BOTTOM LINE: I expect U.S. stocks to open mixed in the morning and weaken later in the day on rising energy prices and apprehension ahead of the Iraqi elections. The Portfolio is market neutral heading into the week.

Sunday, January 23, 2005

Weekly Outlook

There are some important economic reports and a number of significant corporate earnings reports scheduled for release this week. Economic reports include (Tues.)-Consumer Confidence, Existing Home Sales (Thur.)-Durable Goods Orders, Initial Jobless Claims (Fri.)-Advance 4Q GDP, Personal Consumption. Existing Home Sales, GDP and Personal Consumption all have market-moving potential.

Mon.- Altera(ALTR), American Express(AXP), Lexmark International(LXK) Tues.- Bellsouth(BLS), Coach Inc.(COH), Computer Associates(CA), Corning Inc.(GLW), Electronic Arts(ERTS), EMC Corp.(EMC), Flextronics(FLEX), Johnson & Johnson(JNJ), Merck & Co.(MRK), Merrill Lynch(MER), Schlumberger(SLB), Texas Instruments(TXN) Wed.- Altria(MO), E*Trade(ET), Eastman Kodak(EK), General Dynamics(GD), SBC Communications(SBC), Starbucks(SBUX) Thur.- Amgen(AMGN), Beazer Homes(BZH), Du Pont(DD), Broadcom(BRCM), Caterpillar(CAT), Guidant(GDT), Lockheed Martin(LMT), Microsoft(MSFT), Novellus Systems(NVLS), Phelps Dodge(PD), UPS(UPS), Verizon Communications(VZ) Fri. - ChevronTexaco(CVX), Proter & Gamble(PG), Halliburton(HAL), McDonald's(MCD) are some of the more important companies that release quarterly earnings this week. There are also a few other events that have market-moving potential. The Fed's Guynn speaking(Mon.), Piper Jaffray Health Care Conference(Tues.-Thur.), Fed's Hoenig speaking(Tues.) and Citi SmithBarney Financial Services Conference(Wed.-Thur.) could also impact trading this week.

Bottom Line: I expect US stocks to finish the week modestly lower on worries over terrorism associated with the Iraqi election, high energy prices and slowing global growth. US equities should put in a tradable bottom this week as measures of investor anxiety rise and the major indices reach very oversold technical levels short-term. I plan to remain nimble and look to add market exposure into any further deterioration. My short-term trading indicators are still giving Sell signals and the Portfolio is market neutral heading into the week.