Silly Rebalancing Colors The Closing Minutes

I hate these days when the people at Russell decide to rebalance their indexes. I don't know why they have to do it on quarter end. They should just pick a random day during the week, since it doesn't matter to them anyway.

If you look at any of the intraday charts of the really large cap stocks, you will see plunges across the board in the last ten minutes. From PG to XOM, AMGN to MSFT, they all were artificially sold down in the final minutes. Silly.

This also made the volume look much bigger than it really was, so I wouldn't focus too much on today's volume levels.

But the indexes gave back little of yesterday's strong rally, which is a plus. Now we have to see if the market can build on its gains next week.

As for bond yields, the 10-year yield continued to plunge today. Since hitting 5.25% on Wednesday, the 10-year has fallen more than 10 basis points in the last 2 days (5.14%). With all of the bonds along the yield curve now below the fed funds rate, the bond market is giving a strong signal that the Fed has done enough for the time being. Don't overdo it.

Overall, this was a solid week. I think stocks should continue to rally. With oil rising again, energy stocks will likely continue to be at the forefront. But if we can get some more groups to join in, that would help sustain the rally.

long all stocks mentioned

Breakout Stocks

As opposed to a couple of days ago, my high-volume screen is all gainers today. Here is a list of some of the stocks that showed high-volume breakouts, and look good for continued strength:

• IBCA
• CLDN
• ODFL
• RSTI
• WEBX
• MROI
• VIVO
• SWFT
• FORM
• LVS
• VOL
• UCO

I anticipate that if the market stays strong, we will see more stocks breaking out over the next couple of weeks. But this is a nice start as we continue to build our watchlists.

Looking For Leadership

A recent pick of mine on Street Insight is Focus Media (FMCN).

Focus Media is an advertising company headquartered in China. The company provides audiovisual television display ads through a network of 72,000 flat-panel displays throughout China. The displays are placed in elevators, office lobbies, retail chain stores, beauty parlors, karaoke bars, golf country clubs, banks, hotels and airports.

FMCN has strong fundamentals and sports a reasonable valuation. Earnings and revenue growth have been growing at a torrid clip, basically growing at triple-digit rates over the last couple of years. Earnings are expected to grow +150% in 2006 and another +60% next year.

The company has beat earnings estimates in two of the last three quarters, and estimates continue to be revised materially higher. I think it is likely that next year’s estimates of $2.50 will prove conservative.

Even at the current level of estimates, the stock trades at a reasonable valuation. The stock currently trades at 25x forward estimates, which although rich at first glance, is a discount to both its current growth rate as well as its long-term projected growth rate (PEG ~ 0.8).

The technical picture for the stock is fairly positive. After recently breaking down below its 50-day average, the stock has now recaptured this key moving average, and done so in a fairly short period of time. Additionally, the stock was able to absorb a secondary offering during this time (see volume spike on chart below) and still work its way higher.

As such, the stock sports the highest relative strength rating (99) right now. A look at the chart also shows that money flow has turned positive. There is still some work ahead, as the stock needs to get back into the high 60s to avoid leaving a lower high on the chart. But that is how I’m willing to bet.

A recent upgrade by Piper Jaffray (with an $80 price target) said they were raising estimates due to good business momentum and positive ASP trends. They also said that FMCN is the best long-term vehicle to invest in the growth of advertising in China.


Long FMCN

Will End of Quarter Rally Spark New Uptrend?

Morning News of Note:

• EMC: EMC to Acquire RSA Security For About $2.3 Billion EMC Corp. won a bidding war for RSA Security Inc., buying the computer-security company for about $2.3 billion. EMC, once primarily a vendor of data-storage hardware to big corporations, has taken steps to broaden its scope because prices are tumbling for big-business tech gear. (Full Story) WSJ
• AAPL CA: Apple and CA Report Problems In Options Grants Apple Computer Inc. and CA Inc. became the latest companies to report potential problems with their stock-option programs. Apple, Cupertino, Calif., announced yesterday that an internal investigation discovered "irregularities" related to stock options between 1997 and 2001, including a problematic grant to Chief Executive Steve Jobs. The company said the grant to Mr. Jobs was canceled in March 2003 and resulted in "no financial gain." (Full Story) WSJ
• F: Ford Plans Shift in Focus Away From Hybrids Detroit auto companies, which have lagged far behind their Japanese rivals in developing and selling hybrid vehicles, are taking a new direction in a bid to emerge as leaders in their own right on environmental issues. The latest sign of this shift occurred Thursday, when the Ford Motor Company confirmed that it would not meet its widely publicized goal of selling 250,000 hybrid vehicles a year by 2010, a goal set last fall when energy prices spiked after Hurricane Katrina. (Full Story) NY Times
• VZ: Verizon, Battling To Roll Out TV, Sues a County Verizon Communications Inc. filed a federal lawsuit against Montgomery County in Maryland, saying the county government has illegally thwarted its attempts to get permission to roll out its new television services. The suit, filed in U.S. District Court in Maryland yesterday, is another sign of the difficulty the phone company is meeting as it seeks to roll out TV service to better compete with cable companies now offering phone service. (Full Story) WSJ
• RIMM PALM: Movistar offers BlackBerry Connect for PALM's Treo 650 Smartphone in Spain. Telefonica Moviles Espana, Palm, Inc. and Research In Motion announced the availability of BlackBerry Connect software for the Palm Treo 650 smartphone in Spain. With BlackBerry Connect, movistar's enterprise and multinational customers will benefit from a wider range of devices compatible with BlackBerry services from movistar

Market Comments: Yesterday's rally was very strong. The SPX has now rallied all the way back up to its overhead 50-day average. If it can convert this resistance into support, this rally could have some legs.

I think it will take several more strong rally days to convert some of this built up pessimism into optimism. The market will still be watching incoming economic data closely, but a Fed pause is looking more likely. And the 10-year yield is dropping below 5.20% today, below the new fed funds rate (5.25%).

There were a lot of high-volume movers yesterday. Hopefully, you have been building up your watchlist. I think many of the stocks that held up the best during this last correction could break out now and lead future rallies. I will highlight ideas as I see them.
'

long AAPL

Now That's A Rally

For once, I accepted the strong open for the market, and it turned out to be a good thing.

The SPX rose +2.2%, the COMP gained +3.0%, and the RUT spiked +3.8%. That qualifies as a nice rally. And volume levels also rose.

I'm sure IBD will now call this a follow-thru rally, though they will likely lament that it came on Day 12 or something like that. Readers of this site know that I called last Wednesday's rally a follow-thru rally, due to the RUT (small-caps) gaining +1.9% that day.

Since the RUT had been the leading index all year, I think it makes sense to focus on that index (as opposed to the COMP) for clues to renewed strength. As such, today's rally is really just another confirmation rally.

I think many market participants were worried that the Fed might use harsh languange in its statement. But I think the Fed did a good job acknowledging that the economy, and the housing sectors, has started to cool. And also that inflation may not be all that worrisome at this point either.

That sparked an additional wave of buying, and things just continued to build from there. I suspect that the large short contigent in the market were scrambling to cover their short positions. They have been making a lot of money recently, but a couple days like this and they risk giving back those gains and ruining their performance.

The 10-year yield also plunged, falling nearly 5 basis points to 5.20%. But oil rallied, and should be watched to see if it breaks out to new highs also.
'

Checking Out Google Checkout

I have not had time to fully look into Google Checkout, but it sounds cool and something that I would definitely use. I have no problem bailing on Pay Pal, which I don't use all that much anyway. If you have used or looked into Google Checkout, let me know.

The feature will roll out with an initial roster of about 100 merchants, and offer some discounts for early enrollees. According to RBC, unlike some of Google's other product releases, this one seems to have a solid product release strategy and appropriate marketing support.

The analyst also predicts that it could open up a whole new world in terms of targeting capabilities and search. I think it could be good for the company (and stock), and helps it build out a broader portfolio of products that not only generate revenue, but also expand the way the company can capitalize on targeted ads.

long GOOG

Strong Out Of The Gate

Morning News of Note:

• Fund Investing: Heard on the Street... 'Portable Alpha' Investment Strategy: A Better Mousetrap or Overly Risky? The hottest investment strategy on Wall Street sounds more like something someone would take on a trip to the moon than a place to stash retirement funds. It is called portable alpha, and endowments and pension funds are throwing billions at it. (Full Story) WSJ
• GOOG: Google launches "Google Checkout" service. Google (GOOG) has launched its "Google Checkout" service today that claims users will not have to create multiple accounts and passwords, protects users against fraud claiming "Our fraud protection policy covers you against unauthorized purchases made through Google Checkout, and we don't share your purchase history or full credit card number with sellers" and Google claims it will control commercial spam by keeping a users email address confidential and allow users to turn off unwanted emails from stores where Google Checkout is used. The new service can be found here (https://checkout.google.com).
• GS: Goldman Sachs-GS may buy stake in India's commodity exchange-Bloomberg. Citing people close to the matter, Bloomberg is reporting that GS plans to buy a stake in India's National Commodity & Derivatives Exchange Ltd. to gain from a surge in trading in Asia's second-fastest growing major economy. Goldman will buy the stake from ICICI Bank Ltd., India's second-largest lender
• STN: Station Casinos-STN to buyback up to an additional $600M in stock
• VZ VOD: Verizon-VZ to prorate early termination fees for new wireless customers-Dow Jones. Verizon Wireless, a joint venture of Verizon (VZ) and Vodafone Group PLC (VOD) will begin prorating early termination fees on new wireless contracts in the fall, saying flat fees are "tarnishing the entire industry," Dow Jones reported Wednesday. The wireless communications service provider, a joint venture of Verizon Communications Inc. (VZ) and Vodafone Group PLC (VOD), will progressively reduce the fee for cancelling their contract before its term expires, Dow Jones reported

Market Comments: Are you surprised by the early strength? I am. I expected it to be the 'hurry up and wait' type of open; the kind that is suspended in animation until after the FOMC announcement.

I am usually not a fan of strong opens, but in this case I think maybe it could give us some cushion for the post-FOMC volatility. A positive close today would be a big plus.

So far, the action is great. I mentioned the other day that the negative outside reversal would need to be quickly reversed, and that is exactly what is happening today. The SPX has advanced above the high from Tuesday morning, and has also broken above its 20-day average, which has been acting as resistance.

The strength is widespread. Tech is up across the board, and the strongest sectors include energy, brokers and financials. Nice mix. Let's hope the FOMC statement has the right mix of hawkishness and prudence to keep the rally going.

long GOOG, GS

Slim Pickings

Looking for stocks rising on heavy volume? Good luck.

I just looked at the "Nasdaq Stocks On The Move" table in IBD. It shows stocks making moves on high volume relative to the average 50-day volume. Usually there is a whole list of stocks both in the advancing column as well as declining. So guess how many were on the list of up stocks yesterday?

One. Yep, that's it. This is the lowest number I have ever seen. FYI, the stock was Intuit (INTU). I am not sure how meaningful this anecdote is, but it sure reflects on the lack of enthusiasm in the market right now.
'

Stocks Still Jittery Ahead of Fed Meeting

Morning News of Note:

• Short Selling: Suits Focus on Street's Role In 'Naked Shorting' Wall Street's biggest securities firms face a pair of civil-antitrust lawsuits over the role they play in the practice of "naked short selling," which can drive down the price of certain stocks. The lawsuits, brought by two trading customers, charge that the Wall Street firms' "prime" brokerage operations, which cater to hedge funds and other professional traders, often charge fees for borrowing stocks without actually borrowing them. (Full Story) WSJ
• SIRF: With a Cellphone as My Guide Think of it as a divining rod for the information age. If you stand on a street corner in Tokyo today you can point a specialized cellphone at a hotel, a restaurant or a historical monument, and with the press of a button the phone will display information from the Internet describing the object you are looking at. (Full Story) NY Times
• SBUX: Starbucks faces suit over OT A former Starbucks manager has filed a federal lawsuit against the coffee company, alleging supervisors weren't paid overtime and were forced to work through meal breaks. Steve White, who had worked at Starbucks shops in Concord and Walnut Creek, said the company owes him and other managers unpaid wages plus interest and compensation for working "off the clock" and missing meal and rest periods. (Full Story) SF Chronicle
• AAPL: At Apple, Secrecy Complicates Life But Maintains Buzz Apple Computer Inc. generates buzz for its new products by obsessively enforcing a strict secrecy policy. But the policy can sometimes leave partners, big customers and even employees in the dark. Consider Hewlett-Packard Co.'s recent experience. In early 2004, H-P cut a deal to repackage Apple's iPod digital music player and sell it with the H-P label. (Full Story) WSJ
• GS: Goldman Sachs Group Inc. said it received a banking branch license in South Korea, paving a way for the global investment bank to expand into foreign exchange and lending and deposit operations. "We will now be able to provide our corporate and institutional clients in Korea with foreign exchange, interest rate and related products," said J. Michael Evans, chairman of Goldman Sachs Asia. The license, which has been approved by the Financial Supervisory Commission, allows Goldman Sachs to provide the diversified banking business through Goldman Sachs International Bank. Goldman Sachs has been providing mainly investment-banking services to Korean corporations and institutions since the 1970s. - WSJ
• WFC: Wells Fargo-WFC raises dividend, announces 2-for-1 stock split. WFC raised its quarterly divident to 56c from 52c. Both the cash dividend and the stock dividend are payable to stockholders of record at the close of business August 4, 2006. The stock dividend will be distributed August 11, 2006

Market Comments: The market has opened on a positive note, which is what we saw yesterday before that ugly reversal. Let's hope we don't have a repeat performance today.

Tech is the weakest group this morning, as semis are down again and weighing on the overall sector. Banks and brokers are doing well, and then energy complex is mostly positive as well.

My guess is that most people do not expect the market to rally today ahead of the FOMC meeting. Normally, we would be talking about quarter-end window dressing, and pre-holiday (4th of July) seasonality. But the Fed announcement is overshadowing those things for now. Couldn't they have just scheduled their meeting next week? LOL.

long AAPL, GS, SIRF, WFC

The World's Most Expensive Cities

CNNMoney.com came up with a list of the most expensive cities in the world. I was somewhat relieved not to see LA in the Top 10. Actually, only one U.S. city even made the top 10.

Here is the complete article:

NEW YORK (CNNMoney.com) -- The vodka may be cheap, but according to the latest cost-of-living survey from Mercer Consulting, Moscow now ranks as the world's most expensive city, edging out Tokyo, which held the No. 1 spot for four straight years.

Moscow ranked No. 4 last year, but rose through the ranks for a few reasons, according to Mercer senior consultant Rebecca Powers. The currencies of Tokyo, Osaka and London -- the top 3 cities last year -- fell relative to the dollar, while the Russian ruble remained fairly stable. Plus, Powers added, the price of housing for expatriates in Moscow has risen considerably in the past 12 months.

The weakened yen places Tokyo in the No. 3 spot, just behind Seoul, while Osaka fell to No. 6.

London, meanwhile, still makes a pricey showing at No. 5, making it the second most expensive city in Europe behind Moscow. It's followed by Geneva, which ranks No. 7 worldwide.

"For many companies it can now be more expensive to send employees to work in Russia or Korea than places like Japan or Switzerland, which are often perceived to be more costly," Powers said in a statement.

The survey uses New York City, ranked No. 10, as its cost base -- scoring it at 100. Then it compares the prices of more than 200 items, including housing, household goods, food, entertainment and transportation in 144 cities around the globe.

Top 10 most expensive cities:

1. Moscow
2. Seoul
3. Tokyo
4. Hong Kong
5. London
6. Osaka
7. Geneva
8. Copenhagen
9. Zurich
10. Oslo, New York (tied)
Source: Mercer Consulting

Mercer found that Moscow costs 24 percent more than Gotham, while Asuncion, the perennial last-place finisher, costs about 56 percent less than life in the five boroughs.

In the United States, the most expensive cities are New York, Los Angeles (No.29 worldwide), San Francisco (No. 34) and Chicago (No. 38).

In Latin America, Sao Paulo (also ranked No. 34) and Rio de Janeiro have the highest cost of living, while in in Asia, the most expensive cities are Seoul, Tokyo and Hong Kong (No. 4).
Eastern European cities like Budapest (No. 65) and Prague (No. 50) that don't use the euro dropped in the rankings from last year as local currencies fell against the dollar.

Sydney at No. 19 remains the costliest city in Australasia, far ahead of Melbourne (No. 74) and Brisbane (No. 99).

The cheapest cities in the world are Paraguay's Asuncion, Zimbabwe's Harare, Buenos Aires, Manila, Pakistan's Karachi, India's Bangalore and Uruguay's Montevideo.

To give a sense of just what life costs in various cities, Mercer priced out the cost of a two-bedroom unfurnished apartment, a cup of coffee served, a fast food meal and an international paper.

In Moscow, the apartment will run you $3,000, the coffee $5.27, the paper $3.40, and the burger with fries $3.87.

By contrast, Buenos Aires provides a better deal price-wise, to say nothing of warmer temperatures. You can nab the apartment for $999, the coffee for $1.47, the paper for $4.55 and the happy meal for $2.77.
'

Ugly Reversal Day

The market was unable to hold on to its early gains, and selling intensified as the day wore on.

That made for a negative outside reversal day in the major indexes. Additionally, volume levels rose on the session, which also made it a distribution day.

The SPX fell -0.9%, while the COMP and RUT fell -1.6%. The semis (SOXX) got hit hardest, falling -3.7% and making a new low for the year.

The media will blame today's decline on the rising inventory of unsold homes that came out in today's report. But weakness in the housing sector is not really a new data point, just a convenient scapegoat for today's negative price action.

The outside reversals in the COMP and SPX are short-term negatives because they signal that the recent tightening consolidation we were seeing has most likely been resolved to the downside. Only another quick reversal offsetting today's weakness would change this trend.

Last, I think today's price action lessens the risk going into the FOMC meeting. Had the market continued to runup ahead of the meeting, I would have been more worried about a negative reaction.
'

Consumer Confidence Rises

Morning News of Note:

• Drilling: Unlikely Duo Tackles Drilling The House is set to vote this week on a bill to overturn a 25-year ban on oil and gas exploration along much of the nation's coastlines -- the result, in large part, of efforts by a political odd couple. Republican Rep. John Peterson, a former grocer, is a conservative from Pennsylvania, and Democratic Rep. Neil Abercrombie, a former college professor, is a liberal from Hawaii. Together, they have forged an industry-labor coalition around the argument that natural-gas prices are driving companies out of the U.S. and costing workers their jobs. (Full Story) WSJ
• GM: 47,600 Take Offers To Leave GM, Delphi About 47,600 workers accepted buyout offers or early retirement packages from General Motors Corp. and auto parts supplier Delphi Corp., the largest offers of their kind in U.S. corporate history. GM said 35,000 workers from the United Auto Workers and the IUE-CWA union took the offers of $35,000 to $140,000 to leave GM. Separately, Delphi said about 12,600 UAW-represented employees have taken early retirement. Delphi, which was also offering buyouts to workers who were not near retirement age, did not provide figures on how many have taken that option. (Full Story) Washington Post
• PALM RIMM: Rumor: Palm and RIM to merge? Palm's got the gadget lovers, Research in Motion's got the suits. Might this be a match made in heaven? A buzz is starting to build around the possibility that Palm and RIM might announce plans to merge on Thursday, when both companies plan to announce quarterly earnings. We noticed it on Technology Evangelist, although it has popped up in other places. (Full Story) CNET
• GOOG EBAY: Google Gets Ready to Test GBuy, A New Online-Payment Option For years, consumers who didn't want to give Web merchants their credit-card information faced limited options when it came to making purchases online. This week, consumers could get access to another electronic-payment option -- and one that offers a mail-in rebate incentive to boot. Web-search giant Google Inc. is set to introduce a test version of its GBuy online-payment service as early as this week, according to people briefed on the situation. (Full Story) WSJ
• MRVL: Marvell Tech-MRVL purchases Intel's communications and application biz for $600M. Both companies have signed an agreement for Intel (INTC) to sell its communications and application processor business to MRVL for a purchase price of $600M plus the assumption by Marvell of certain liabilities. The transaction is expected to close in approximately four to five months and is subject to regulatory review and other normal closing conditions

Market Comments: The market is struggling to hand on to small gains in the first hour of trading. Bond yields are lower this morning, with the 10-year yield down to 5.20%. Oil is trading a bit higher to $72.25.

Marvell (MRVL) bid for Intel's (INTC) communications unit and said the deal would be dilutive to earnings. That has hit the stock hard, currently off -11%. This is weighing on the overall semi index.

Consumer confidence came in at 105.7 vs. 103.9 consensus. And Existing Home Sales were 6.67 mln vs. 6.61 mln consensus.

We don't want home sales to pick up again too quickly, because the weakness should get the Fed to pause. But we certainly don't want housing to plummet, as the risk could take the whole economy down with it.

Hank Paulson is testifying before Congress this morning. Fwiw, I think he would probably be a great Treasury Secretary.

long GOOG

Pretty Nice Price Action

I think most people thought today would be a lackluster day. But while volume was fairly light, the price action wasn't bad.

The SPX gained +0.5%, as did the COMP, but the RUT (small-caps) rallied +1.2%. Not bad. And all of the major sectors were positive, including energy (+1.1%), homebuilders (+1.8%), semis (+0.7%), and banks (+0.9%).

The pickup in M&A activity should help the market, as the wave of takeovers we are seeing often generates interest in the market as investors try to anticipate who might be next in the bidding war of consolidation.

It is still a toss-up how stocks will react to the FOMC announcement on Thursday, and whether quarter-end on Friday will help keep a bid under stocks.
'

Struggling To Stay Positive

With a little less than two hours to go, stocks are struggling to say in positive territory. It seems that few investors want to make big bets ahead of the FOMC meeting.

But if the market's purpose is to confound the majority of traders, I think a strong rally this week would catch the most people off guard.

Bond yields are slightly higher, witht the 10-year nearing 5.25%, the level at which most anticipate the fed funds rate will end this week. Oil is also trading higher, which is helping put a bid under the energy complex. Volume is modest.

Here are some stock showing up on my high volume screens:

• BAMM - breaking to new highs
• VOL - ditto
• CLDN - briefly hits new highs before reversing
• EZPW - adds to Friday's breakout
• JCOM
• BBW - breaks down further from Friday's plunge
• ZMH - gaps lower on new subpoena
• RBAK - analyst downgrade hits stock hard
• BG - cuts EPS forecast
• VCI - also lowers earnings forecast

net short RBAK

Monday Morning Musings

Morning News of Note:

• INTC AMD: Intel's Power Play: New Server Chip Intel Corp. finally has a chip for server systems to brag about. But prying its rival out of data centers won't be easy. The new version of Intel's Xeon line of chips, to be formally announced at an event in San Francisco today, represents the company's most significant step to close a performance gap that competitor Advanced Micro Devices Inc. opened in April 2003. Intel says the new product, code-named Woodcrest, is more than twice as fast as earlier models and consumes 40% less power. (Full Story) WSJ
• NTAP: NetApp enters SMB market Network Appliance plans to announce Monday it has entered the small-medium business market with a storage product intended to expand its footprint in an area increasingly crowded with rivals. NetApp is launching StoreVault S500 as its new product line for the small-medium business (SMB) market, and has created as a new division around the effort. For NetApp, the move into the SMB market brings the 14-year-old company full circle, analysts say. (Full Story) CNET
• DCX: Autos. Will Chrysler's Move Be Smart?: DaimlerChrysler AG plans to announce next week that it will launch its tiny, two-door Smart car in the U.S. in 2007, a bid to turn around the unprofitable small-car unit, people familiar with the matter said. Making the Smart car business profitable has been an important task for Chief Executive Dieter Zetsche since he took the top post Jan. 1. The unit has been unprofitable every year since its first model in 1998. (Full Story) WSJ
• MSFT: Microsoft Wants Your Office Telephone The founding vision for Microsoft Corp. was a computer on every desk, each one running Microsoft software. The next dream is every office phone. Today Microsoft is set to announce a broad initiative into the business telephone market, including desktop phones and videoconferencing devices designed by Microsoft and sold by partners, with some available as soon as June 2007. (Full Story) WSJ
• Mad Money Summary: Cramer opened his show on Friday suggesting viewers get into J.C. Penney (JCP), First Marblehead (FMD) and Garmin (GRMN), which should all get marked up at the end of the quarter. Cramer also said to look at Palm (PALM) and Research in Motion (RIMM), which are set to report on Thursday after the close. Then Cramer recommended a high-growth stock, Panera (PNRA), a consistent growth stock, General Mills (GIS), and a value stock, Walter Industries (WLT). Cramer then discussed acquisitions after the Anadarko (APC) acquisition of Kerr-McGee (KMG) and Western Gas (WGR). He said he believes Devon Energy (DVN) will be the next big acquisition. He also believes that BP (BP) and Royal Dutch (RDS.A) need to make some acquisitions. In the "Lightning Round," Cramer was bullish on Coherent (COHR), Newell Rubbermaid (NWL), Alliant Techsystems (ATK), Pantry (PTRY), Serologicals (SERO), Baxter (BAX), Rio Tinto (RTP), BHP Billiton (BHP), Foster Wheeler (FWLT), ABB (ABB), Schering-Plough (SGP), Volt Information Sciences (VOL), Basic Energy Services (BAS), Hewlett-Packard (HPQ), Best Buy (BBY) and Circuit City (CC), and was bearish on Sirius Satellite Radio (SIRI), Pactiv (PTV), AT&T (T), Sprint (S), Verizon (VZ), Casey's General Stores (CASY), Adtran (ADTN), Shaw Group (SGR), Merck (MRK), Chicago Bridge & Iron (CBI), Teva Pharmaceutical Industries (TEVA), Dell (DELL) and RadioShack (RSH).

Market Comments: The market had a slightly positive open, and has held a first hour test to remain in positive territory. Bond yields are up a touch (5.23%), and oil is down a touch, which is weighing on the energy sector.

Tech looks pretty strong in early trading, with the SOX on of the standout sectors so far.

Of course, all eyes this week will be on the FOMC accouncement out later in the week. Another 25 basis points is baked in here, but there will be considerable scrutiny on the accompanying language. Many are talking about another 25 basis points at the following meeting, but I think the Fed would do better to pause here.

long INTC

Weekly Sentiment Review

Although the market looks like it is trying to bottom, the indexes posted another week of losses last week. The fact that this market has been increasingly volatile, and has not yet broken out on the upside, has many participants remaining in the bearish camp.

I am now hearing more people say things like the bull market may be over and another bear market underway. Barron's ran a piece this weekend about this very possibility. But I have stated here before that it would be the first time that the market put in a top with bearish sentiment so high.

Let's look at some of the indicators:

• The bull/bear survey in Investor's Intelligence is +0 (35% bulls, 35% bears): it is rare for there to be as many bears as bulls. In fact, it has not happened since October 2002, the peak of the bear market.
• The bull/bear survey in AAII is -7 (34% bulls, 42% bears): this survey has shown more bears than bulls for 6 consecutive weeks, showing a steady build in bearish sentiment
• The Rydex Nova/Ursa ratio has fallen deeper into bearish territory, at 0.07: assets continue to flow into bearish mutual funds; this is the lowest since I have been following the ratio. Does anyone know if it has ever been lower?
• The Public Short ratio hit a new record high at 64%: this confirms the huge levels of short interest out there, dominated by hedge funds
• The put/call ratios are off their recent peaks, but still at the top of the ranges flashing extreme bearish levels: This is another indicator showing how many bearish bets are still on the line

Again, as long as the shorts are making money, they will continue to feel emboldened. Moreover, they have shown the ability to knock the market down and kill most rally attempts. At some point, this strategy will fail and the bulls will regain the offensive.

If and when the short contingent begins to see losses and feel some pain, I think there can be considerable short covering. But first we need to see some strong rallies accompanied by high volume.
'

Weekly Recap

Underlying anxieties continued to haunt stocks this past week, as the market was driven by emotions rather than any change in the fundamentals. One day the market sold off sharply on little news. Another day it shot up with equally little rationale. At least next week there will be some truly important news to which the market can react.

On Monday, the S&P 500 index dropped 11 points. Fed President Guynn made some comments about the core rate of inflation being in an unacceptable range. The comment hurt the stock market, but he didn't say anything new. On Tuesday, the market was flat.

Wednesday, the S&P surged 12 points. The move was largely ascribed to good earnings reports from Morgan Stanley and FedEx. But there were also good earnings reports on Monday when the market sold off. In fact, the move simply reflected some latent demand bursting through after the market stabilized a bit.

Thursday the S&P sold off 7 points. It was largely a reaction to the big gain on Wednesday. Friday the market was flat.

There was very little corporate or economic news over the week. The corporate news was mostly good. Target said June same store sales were running near the upper end of their 3% to 5% forecast. Caterpillar said dealer sales remain strong. CarMax, Circuit City, Apollo Group, Kroger, Darden Restaurants, A.G. Edwards, and Oracle all had good earnings reports. There were a couple of earnings warnings, but the outlook for the second quarter earnings reports that will come in July is upbeat.

There was also little economic news, and it was mixed. May housing starts (surprisingly) rose, but that was after a larger April drop. New claims for unemployment stayed at low levels that suggest June payrolls will advance more than the modest 75,000 gain posted in April. May durable goods new orders were a bit softer than expected, but only because of a drop in the volatile aircraft component. There were no strong conclusions to draw from this array of data other than that a general economic slowdown is occurring.

Last week we said "until the market gets a clearer sense of the outlook for inflation and Fed policy, the prospects for a summer rally seem remote." That is still the case, but at least the market will get some data on these fronts next week.

The Fed policy announcement is due on Thursday. Another rate hike is considered certain, but the market will once again be looking for direction on any future rate hikes. Another statement about policy being dependent on incoming data probably won't help. Then on Friday, the personal consumption data will be released. That includes the core PCE deflator, which is an inflation measure the Fed closely watches. It is not as sensitive to housing costs as is the CPI, so a 0.2%, or even 0.1% is possible. That could help ease the worst of inflation fears.

In any case, the inflation and Fed policy anxieties are not likely to go away soon, as the backup in the 10-year note yield to 5.22% from 5.09% last week attests. The market will be subject to continued volatility. With technology and small cap stocks floundering the most, there is no sense of urgency amongst investors. The second quarter earnings reports staring in mid-May could provide the best opportunity for the focus to shift to some of the more positive fundamentals.

That's A Wrap

So we had another day of benign consolidation. The markets were down slightly, but volume ran lighter for a 2nd straight session. That's how I like it, for volume to expand on the rallies, and the pullbacks to come on lighter volume.

And at least we didn't turn around right away and give back all of the big gains from Wednesday. Regardless, the SPX was down for third straight week. I think that sets us up for a strong week next week, going into quarter-end, regardless of the FOMC meeting.

Mid-caps (MID) outperformed handily today, gaining +0.9%, and small-caps (RUT) also bucked the weakness, rising +0.3%. And don't forget the renewed interest in growth stocks.

The 10-year yield rose again to 5.23%, a new high for the year, but in-line with the 5.25% fed funds rate that the Street is looking for next week.

Check back this weekend for the weekly roundup as well as our weekly sentiment check, which will again show some astounding levels.
'

Growth Stocks Beginning To Perform Better

Today is turning into a solid session, at least so far. Growth stocks are beginning to outperform, which is usually a good sign for a continuation rally. We don't want things to get out of hand on the upside. It would be better for the market to build on its gains slowly, and convert the skeptics slowly, not in one day.

I have commented on how GOOG is doing much better. The stock is now comfortably above its 50-day.

AKAM is breaking out, and RACK is putting in a bullish outside reversal. GRMN is making new highs, and FFIV looks like it is starting a new uptrend. ISRG is close to breaking its recent downtrend as well.

Besides energy stocks, up big due to the mergers, biotechs are up +1.1%, while semis are lagging. I would like to see that group turn around and show some strength. As for asset classes, mid-caps (MID) are leading the way today, +1.2%.

long AKAM, GOOG, RACK

Will The 10-year Yield Weigh On The Market?

Morning News of Note:

• TWX: Time Warner's Malaise Persists Carl Icahn may have given up the fight too soon. Four months after the billionaire investor abandoned his campaign for control of Time Warner Inc., shares of the world's largest media concern are down about 10%, despite the company's increase of a planned stock buyback to $20 billion. Making matters worse, shares of several rival media companies -- News Corp., Comcast Corp. and Walt Disney Co. among them -- have risen by as much as 20% over the same period. (Full Story) WSJ
• SLB CAT GS FDX: What About a Few "Offensive" Stocks? DESPITE GROWING ANXIETY OVER RISING inflation and fears of a sharp economic downturn, not everyone on Wall Street believes that stocks tied to the economy are kaput. Sure, inflation anxiety has rattled stocks. In recent weeks, the broader stock market has faltered amid fears that an inflation-fighting Federal Reserve will keep raising short-term rates, risking a recession in the process. (Full Story) BARRONS
• QCOM: Qualcomm Says Intel Is Stalling Wireless Method Qualcomm Inc. is launching a verbal counterattack on Intel Corp. for tactics in an industry standard-setting effort, escalating a battle over a next-generation wireless technology. The standards board of the Institute of Electrical and Electronics Engineers last week disclosed that it had suspended the activities of a working group that was evaluating a technology proposal favored by Qualcomm. (Full Story) WSJ
• CYN: City National Corp-CYN lowers 2006 EPS growth guidance. CYN now sees 2006 EPS growth of 1%-4%, compared to earlier guidance of 8%-10%
• GOOG: Google testing free streaming premium videos-blog.searchenginewatch.com. According to Peter Chane, group business product manager for Google Video, Google (GOOG) is running a test on about 2,000 premium videos available for free streaming viewing. The videos cannot be saved when viewed. Inserted into the videos are a persistent banner ad and a video ad once that plays when the video is finished streaming
• Mad Money Summary: Cramer opened his show last night recommending Whirlpool (WHR), because the government let Whirlpool merge with Maytag. Although this is bad for consumers, it is good for investors, because Whirlpool now has 75% market share. Cramer then said it was a good time to be in insurance companies, and recommended buying Allstate (ALL), the "best play in the sector." Cramer then discussed Sealy (ZZ), which has been a house of pain since he recommended it. Although he admits he was wrong about it at the time, he says it is now cheap and a great buying opportunity. Cramer then welcomed Trinity Industries (TRN) CEO Tim Wallace to the show, and after talking to him, gave the stock two thumbs up. In the "Lightning Round," Cramer was bullish on Qualcomm (QCOM), General Motors (GM), Alamo Group (ALG), Valero Energy (VLO), Mitsubishi UFJ Financial (MTU), LifeCell (LIFC), VF Corp (VFC), UBS (UBS), Ciena (CIEN), LoopNet (LOOP), McDermott International (MDR), Micron Technology (MU), Continental Airlines (CAL), Southern Copper (PCU), Arena Pharmaceuticals (ARNA), Best Buy (BBY), Altria (MO), Alberto-Culver (ACV) and Biogen Idec (BIIB), and was bearish on Western Refining (WNR), Under Armour (UARM), Coherent (COHR), Hansen Natural (HANS), Electronic Arts (ERTS), Peru Copper (CUP) and Elan (ELN).

Market Comments: The markets opened under a bit of pressure this morning, but the SPX is currently clawing its way back.

There was some excitement in the energy patch as APC acquired both KMG and WGR today. That shows that there is still value in many energy stocks, and if the market isn't going to pay up for them, then we will see other companies step up their M&A activity.

The yield on the 10-year is making new yearly highs again. Normally, I would highlight this as worrisome. But with the fed funds rate likely moving to 5.25% next week, the 10-year yield is still trading slightly below that (5.21%). So the yield curve is still slightly inverted. My year-end prediction for the 10-year still stands at 5.50%.

I still think the market is consolidating nicely, and expect an upside breakout sometime next week. Skepticism is still running high, which only helps increase the probability of this event.

long GOOG, GS, SLB, TWX

The Up-Down Parade

Morning News of Note:

• DELL AMD: Size of AMD's Dell hook-up set to shock THE HALLS OF COMPUTEX have fallen silent, but information gathered around Taipei is that AMD will be a big winner come autumn. We have seen some documents that shed new light onto the whole AMD-Dell deal. (Full Story) Inquirer
• TIE: Titanium Supplier Reaches High Altitude, Thanks to Aerospace Market While a new class of superjumbo jets prepares for takeoff, Titanium Metals (TIE) is already soaring to new heights. Timet, as Titanium Metals is known, has bet on titanium as the aerospace metal of the future. (Full Story) IBD
• CVH XOM RD COP: 3 Oil Firms May Alter Gulf Leases Facing angry lawmakers from both political parties, executives from three major oil companies — Royal Dutch Shell, Chevron and ConocoPhillips — indicated on Wednesday that they might be willing to give up sizable taxpayer subsidies for drilling in the Gulf of Mexico. But one of the most active players in the gulf, the Kerr-McGee Corporation, showed no signs of compromise and told a House hearing that it was entitled to the subsidies — known as royalty relief — even if oil prices remained above $70 a barrel. (Full Story) NY Times
• ADBE GOOG: Adobe-ADBE announces multi-year distribution agreement with GOOG. ADBE announced Wednesday the signing of a multi-year agreement with Google Inc. (Nasdaq:GOOG) to distribute the Google Toolbar with various Adobe products over the life of the deal. As a part of the agreement, Adobe and Google today will launch availability of the Google Toolbar with downloads of Adobe's Macromedia Shockwave Player. The Google Toolbar will now be offered as part of the Shockwave Player installation process for Internet Explorer on Windows. Under the terms of the agreement, the Google Toolbar will also be offered as part of other Adobe product installations in the future
• Mad Money Summary: Cramer opened his show last night evaluating the market's rally. Specifically, he recommended his viewers trade Research in Motion (RIMM), which has a new Blackberry model out. The model is currently offered by Cingular, but will also be offered by Verizon (VZ) this summer. When that happens, it is time to sell RIMM's stock. Then Cramer recommended three medical equipment companies, Viasys Healthcare (VAS), Vital Signs (VITL) and Sirona Dental (SIRO), which he believes are takeover targets. In the "Lightning Round," Cramer was bullish on Helmerich & Payne (HP), Openwave Systems (OPWV), Agilent Technologies (A), Bank of America (BAC), Talisman Energy (TLM), Rite Aid (RAD), Chesapeake Energy (CHK), Qualcomm (QCOM), Microchip Technology (MCHP), Circuit City (CC), Chevron (CVX), Texas Instruments (TXN), Hilton Hotels (HLT), Frontline (FRO), KB Home (KBH) and Trinity (TRN), and was bearish on Eagle Materials (EXP), U.S. Bancorp (USB), Ford Motor (F), Taiwan Semiconductor Manufacturing (TSM), Toll Brothers (TOL), Silicon Image (SIMG), Morgans Hotel (MHGC), Alliance Resource Partners (ARLP) and American Railcar (ARII).

Market Comments: My colleague Doug Kass at Street Insight is fond of saying the market has no memory from day to day. That is certainly true this morning, as the strenght yesterday has faded into weakness so far this morning.

There has certainly been a lot of volatility in the market lately, with big swings in both directions and lots of volume. I tend to think this is characteristic of major turning points in the market. An extreme example would be March 2000, when the market experiences huge volatility at a time when it was in the process of topping. I think the opposite could be taking place right now.

The 10-year yield is up near yearly highs this morning, at 5.19%. This is likely weighing on equities. Also, the dollar is having a very strong session. While this may be bullish longer-term, in the short-run it weighs on commodities, which we know translates into broader weakness. Go figure.

The bears are downplaying yesterday's rally, which is how you should want it if you are bullish. The longer that skepticism remains high, the more the market can work higher without the majority shifting to the bullish side of the ledger.

long GOOG

Was Today The Long Awaited Follow-Through Day?

The market didn't close at its highs, but it still was a very solid day. The SPX rose +1.0%, the COMP gained +1.6%, and the RUT (small-caps) rallied +1.9%. And volume rose on both exchanges.

That qualifies for the follow-through day that I had been looking for. This means the current rally attempt is the first one since May to show any solid follow-through.

The action was also widespread. I saw at least five different industry groups that were up more than 2.0%. And I think it helped that bond yields behaved, remaining flat at 5.15%. (Doesn't the bond market know that the fed funds rate is going to 5.25? Of course it does)

You will likely hear some people complain tomorrow that the volume wasn't higher. Don't worry, let the naysayers hang on to their skepticism. We don't want everyone to jump on the bullish bandwagon at the same time. Better to scale that wall of worry slowly.
'

Standout Stocks

Here are some stocks that are showing up as making high-volume moves:

• MWRK - strong breakout to new highs
• KNOT - ditto
• JCOM
• LIFC - pausing right at old high
• FMCN - breaking back above 50-day
• SIRF - reverses early losses
• LCUT - announces convertible offering
• TEVA - MRK to underprice with Zocor

long SIRF

Sentiment Still Mildly Cautious

Despite today's strong rally, the put/call ratios are not as depressed as I would have guessed.

The CBOE put/call is at 0.91, and the ISE Index equivalent is at 0.85
'

Today Could Be The Day

This rally is shaping up to finish strong. At the risk of being a jinx, today could finally be the follow-thru rally that I have been looking for.

The SPX is running into resistance around last Thursday's highs, while the COMP has already surpassed those levels. The RUT has more work to do, but it is up a solid 2.3% so far today.

Oil is up also, but that doesn't seem to be hurting. Bond yields are flat. And GOOG is above $400. Semis, energy, brokers, and homebuilders are all up 3%+. Nice action.

long GOOG

Here We Go Again

Morning News of Note:

• ERTS: EA to Buy Mythic, Raising Presence In Online Games Electronic Arts Inc. agreed to acquire Mythic Entertainment Inc., a deal that gives the world's largest videogames publisher by sales an expanded presence in the growing market for so-called massively multiplayer online games. EA, which didn't disclose terms of the deal, said it will form a game-development studio in Fairfax, Va., where Mythic is based, called EA Mythic. (Full Story) WSJ
• VOD: Vodafone, Ericsson Get Hung Up In Greece's Phone-Tap Scandal In early March 2005, George Koronias, Vodafone Group PLC's top executive here, contacted the Greek prime minister's office about an urgent security matter. Vodafone's network in Greece had been infiltrated by phone-tapping software targeting an elite group of cellphones: those assigned to many of the country's leaders, including senior police and defense officials, cabinet members and the prime minister himself. (Full Story) WSJ
• NYX: Heard on the Street... Big Board Sees a Bond Bonanza The New York Stock Exchange says its planned merger with Euronext NV will help the Big Board expand its bond-trading business, which has been in steady decline. NYSE Group Inc., the parent of the New York Stock Exchange, has been working for months to get approval from the Securities and Exchange Commission to increase the number of corporate bonds that trade on its electronic system, but that regulatory effort has been going slowly. (Full Story) WSJ
• UVN: Disarray in Auction of Univision The auction of Univision, the nation's largest Spanish-language media company, was sent into disarray last night as a consortium of investors led by the Mexican television giant Grupo Televisa, the group tipped to win the contest, missed the deadline to submit an offer, executives involved in the process said. Televisa let the deadline lapse, the executives said, in part because an investment partner, the Carlyle Group of Washington, dropped out of the consortium at the last minute after an internal dispute over the price that the group was prepared to bid. (Full Story) NY Times
• Mad Money Summary: Cramer opened his show discussing the two makers of passenger jets, Airbus and Boeing (BA), saying that Airbus is "imploding." He said that investing in Boeing isn't the way he would play the other company's woes, however. He suggested buying Triumph Group (TGI), Heico (HEI) and Moog (MOG.A). Cramer then suggested investing in hotels to play the boom in travel. He said the best of breed in hotels is Hilton (HLT), saying it is "too good to pass up." Cramer then recommended buying investment banks Bear Stearns (BSC), Goldman Sachs (GS) and Lehman Brothers (LEH), saying they are all undervalued. Cramer then welcomed the CEO and chairman of Darden Restaurants (DRI) to the show. Cramer said the stock is down right now and recommends picking it up. In the "Lightning Round," Cramer was bullish on TECO Energy (TE), Goldman Sachs, Martek Biosciences (MATK), Southern (SO), Votorantim Celulose e Papel (VCP), Diageo (DEO), Tellabs (TLAB), Scientific Games (SGMS), Progressive (PGR), Pioneer Drilling (PDC), Grey Wolf (GW), Halliburton (HAL) and Amgen (AMGN), and was bearish on Usana Health Sciences (USNA), Gaiam (GAIA), Microsoft (MSFT), Sonus Networks (SONS), Geron (GERN), Northern Trust (NTRS) and Steven Madden (SHOO).

Market Comments: Regular readers know by now that I don't like a market that opens strong. Sure, once in a while it can continue to build into the close, but those days are few and far between. I prefer to see a market that opens weak, and reverses that weakness into a strong close.

So today we have the market pretty much ripping in the first hour of trading. That just sets us up for disappointment, just like yesterday and the countless other times. Let's hope the sellers don't overwhelm buyers again today.

GOOG is breaking above its 50-day, which could help a bit. And MWD reported strong earnings, which is helping the brokers again.

Oil and bond yields are flat so far, which is another positive. Don't ask me why, but lately energy and tech have traded together. So in a preverse way, I am hoping that oil doesn't drop too fast, as that could weigh on the energy stocks and then spill into other groups.

Also, the Investor's Intelligence bull/bear survey came out today and showed there are as many bears as bulls (35.6%). This is the lowest spread between bulls and bears since October 2002!

long GOOG

Another Fizzled Rally Attempt

After bottoming in the first hour of trading, the market then staged a nice rally attempt. You know I prefer a market that rallies later in the day, but I was willing to give this oversold market the benefit of the doubt.

Of course, volume ran below average throughout the day. So when the late-day sellers emerged, I guess it didn't take much in the way of sell orders to knock this thin market down again.

By the close, the SPX had given up all of its earlier 8 point rally. Ditto for the Nasdaq. Small-caps underperformed again, falling -0.5% on the day. Semis were down also, but brokers did finish higher today.

Oil closed flat ($69), and the 10-year was up a touch to 5.15%. Measures of investor anxiety were mixed, with the volatility indexes lower, but the put/call ratios running again at elevated levels.

I am still looking for some follow-thru strength this week, accompanied by a pickup in volume. But I have to admit my conviction is being tested.
'

Turnaround Tuesday?

Morning News of Note:

• MA: MasterCard May Face Probe Despite End of U.K. Inquiry British regulators have dropped a long-running antitrust inquiry into MasterCard International Inc.'s fee structure but are keeping open the possibility that they could launch a new investigation next year. An appeals tribunal yesterday set aside a finding made in November by the Office of Fair Trading in which the regulatory agency determined that MasterCard's fee structure was anticompetitive and should be changed. (Full Story) WSJ
• MCD: Drive-Through Tips for China The restaurant placemats tout "a brand new way of dining. It's fashionable and time-saving" -- and it is one way McDonald's Corp. is trying to explain drive-through eating to Chinese customers. Executives of the restaurant chain plan to announce today a deal with China's largest gas retailer, state-owned Sinopec Group, to build drive-throughs at filling stations across this increasingly car-obsessed country. (Full Story) WSJ
• Drilling in Florida: Chinese oil rigs off Cuba put pressure to allow oil, gas drilling near Florida The presence of Chinese oil rigs along the coast of Cuba and a new attempt in Congress this week to tap the eastern Gulf of Mexico are putting pressure on Florida to allow American companies to drill for oil and natural gas near the state's shores. Drilling advocates unveiled a proposal on Monday that would remove the federal ban on drilling 100 miles beyond the coast and offer states financial incentives to allow it closer. (Full Story) Sun-Sentinel
• AAPL MSFT: Apple, Microsoft Are in Talks With Studios to Download Films Hollywood studios are making progress toward a deal that would bring feature films to Apple Computer Inc.'s iTunes Music Store, people familiar with the matter say. But several hurdles, including pricing, stand in the way. In another sign of the growing ferment over Internet video, some Hollywood studios also have been holding talks with Microsoft Corp. about licensing movies and television shows to the company for use with a Microsoft portable device the company is considering that could rival Apple's video iPod, a person familiar with the situation said (Full Story) WSJ
• Mad Money Summary: Cramer opened his show by breaking one of his investment vows and considering an investment into an airline stock, Continental Airlines (CAL), which he feels has trading potential. He said that UAL's (UAUA) United Airlines is more likely to be taken over, but he still recommends Continental. Then Cramer compared two recent IPOs, MasterCard (MA) and Vonage (VG). Both IPOs were oversubscribed, but MasterCard had a successful opening and Vonage's IPO failed. Cramer gave MasterCard two thumbs up and said investors should buy it, but suggested avoiding Vonage, even after dropping 50%. Cramer also said that he thinks retailer J Crew is going to be hot when it goes public next week. Cramer then reviewed a mistake he made, recommending Urban Outfitters (URBN), which he was formerly bullish on. He said to avoid it, saying even after this "sickening decline" it was not cheap. In the "Lightning Round," Cramer was bullish on Smith Micro Software (SMSI), Halliburton (HAL), Nabors (NBR), Nokia (NOK), Allegheny Technologies (ATI), Companhia Vale do Rio Doce (RIO), Consol Energy (CNX), Grey Wolf (GW) and Disney (DIS), and was bearish on Hercules Offshore (HERO), Tekelec (TKLC), XTO Energy (XTO), Nektar Therapeutics (NKTR), Titanium Metals (TIE) and TXU (TXU).

Market Comments: The market is fairly flat at the open. Oil is trading higher (near $70), which is helping the energy complex. Bond yields are flat at 5.14%.

There is not a lot of economic data hitting the wires this week. So if the Fed govenors can keep their mouths shut for a few days, a tall order, then maybe the market can lift.

There has certainly been a lot of damage done to many stocks, so the healing process won't occur overnight. But I'd still like to see phase one get underway.

The brokers are the strongest group so far, so maybe they can lead today. Semis are weak, but I am hoping for a turnaround there. More steam!

long AAPL

No Rally Into The Close

The markets closed down today, as a potential late-day rally fizzled. It felt like forced selling, like some large funds are trying to meet liquidations.

Breadth was horrible, with decliners swamping advancers, and the Hi/Lo index falling further. About the only silver lining was that volume ran lower than Friday, so it does not qualify as a distribution day.

The selling was exacerbated today by a weak housing report, which worried the market that this sector could experience a hard landing, and take the economy down with it.

The SPX lost -0.9%, while the small-caps underperformed and lost -1.8%. The energy sector fell -3.8% and materials lost -2.1%. With commodity prices falling further, it seems more and more likely that the peak in inflation is behind us.

It seems funny to me that this peak is coinciding with a peak in inflation rhetoric out of the Fed governors. Those guys should just be quite already. I am convinced that they are fighting a battle in a war that has already been won. I hope they look back on all of their public comments and ask themselvs what they were thinking?

Today's action does not negate the possibility of a follow-thru day this week. Market bottoms are not easy, as the market does its best to shake the confidence of the greatest number of investors. But I still feel we are late in this decline.
'

No Love For The Markets

The market is taking it on the chin again today. With roughly 2 hours to go, the SPX is down a little less than 1%, while the mid- and small-caps are down 1.5% - 1.7%. Certainly today's action is disappointing, at least it will be if we close at these levels.

Oil is trading lower ($68.75), and that is weighing on the whole energy complex. Commodity stocks are also trading lower. I am surprised that this type of action in these groups continues to weigh on the overall market. The 10-year yield is up at 5.14%, which isn't helping.

Let's hope for some late day stabilization to keep things from getting too ugly.
'

Monday Morning Musings

Morning News of Note:

• COF: Bet the Bank CREDIT-CARD MERCHANDISER CAPITAL ONE IS BEST known for its humorous TV commercials -- like the one where a boisterous band of Vikings is reduced to driving kiddy trains at a mall and selling hot dogs, to survive in a world that no longer values their skills (which happen to be pillaging and plundering). Capital One Financial (ticker: COF) seems intent on avoiding such a fate. (Full Story) BARRONS
• RIO RTP BHP: Prospecting For Bargains FEARS OF A CRASH IN PRICES OF BASE AND PRECIOUS metals, which have soared over the past year, have caused mining shares to dive. But bulls on the sector believe that long-term demand for many metals will be robust, supply won't be excessive, miners' earnings are likely to stay strong and the industry's consolidation trend will make some companies takeover targets. (Full Story) BARRONS
• BIDU YHOO GOOG SOHU: Baidu has almost 44% of Q1 search engine market share in China-DigiTimes.com: According to China-based consulting company Analysys International, Baidu (BIDU) was the largest search engine portal in China during 1Q06, accounting for 43.9% of the total market value of $37.6M. Yahoo (YHOO) was in second place with 21.1%, Google (GOOG) was in third place with 13.2% and Sohu (SOHU) was in fourth place with 9.2%
• GE: General Electric focusing on "clean coal" technology-FT. General Electric (GE) is planning to increase sales of "clean coal" technology ten-fold, in an effort to curb emissions of environmentally harmful gases. John Krenicki, head of GE’s energy division, said he is aiming for annual sales of coal-gasification systems to rise from less than $500M to between $4B and $5B over the next decade
• Mad Money Summary: Cramer opened his show saying that in order to make money, you have to look ahead and think months ahead. He said he is already looking toward back to school season, and he believes the No. 1 back to school stock will be Aeropostale (ARO). Cramer then recommended buying companies for this coming week, such as Bear Stearns (BSC), Best Buy (BBY), Goldman Sachs (GS), Caterpillar (CAT), Ralcorp (RAH), General Mills (GIS), Pepsi (PEP), Bed, Bath and Beyond (BBBY) and FedEx (FDX). Cramer then suggested two Canadian oil patch plays, Talisman Energy (TLM) and Trinidad Energy Services Income, which trades on the Toronto Stock Exchange under the symbol TDG.UN. In the "Lightning Round," Cramer was bullish on Harris (HRS), Triumph Group (TGI), Merrill Lynch (MER), Staples (SPLS), Network Appliance (NTAP), General Dynamics (GD), Quest Diagnostics (DGX), Old Republic International (ORI), Allegheny Technologies (ATI), Nucor (NUE), Smith & Wesson (SWB), Newcastle Investment (NCT) and Qulacomm (QCOM), and was bearish on Univision Communications (UVN), EMC (EMC), Syngenta (SYT), Mittal Steel (MT), Advanced Micro Devices (AMD), Juniper (JNPR) and Sirius Satellite Radio (SIRI).

Market Comments: I guess all of the hawkish talk out of the Fed is having its intended consequences. There is talk by various strategists that the Fed will now take rates anywhere from 5.50% - 6.0%. I disagree, but if they do, it will be a signal to get much more defensive in our portfolios.

The market is bouncing around in early trading, oscillating above and below Friday's closing levels. Oil and commodities are trading lower, while the 10-year yield is up a bit (5.13%). This North Korea missile test may be weighing on global sentiment. I am more worried about how the market closes, as compared to the open.

GOOG is breaking above its overhead 50-day average, a good sign. If it can close above it, it could be the start of a new run for the stock.

long GE, GOOG

Weekly Sentiment Review

It doesn't surprise me that just as the market looks like it reached a bottom this week, the sentiment indicators are showing extreme levels of bearishness. And I mean extreme.

As sometimes happens, the first signs of heightened levels of bearishness a few weeks ago were just initial warning signs. But as the market melted down further than most expected, bearishness rose to levels that are often seen at market bottoms. When market technicals then also became extreme oversold, the ingredients for a bounce were in place.

Let's look at some of the indicators to illustrate how bearish sentiment is right now:

• The bull/bear spread in the Investor's Intelligence survey fell to +4 (39% bulls/34% bears); this is the lowest level since 2003
• The AAII spread fell to -29 (26% bulls/55% bears); not only is this the 5th consecutive week with more bears than bulls, but there has only been three other times in the last five years that bears have topped 50%. Those were: July 2002, October 2002, and February 2003. Do you remeber those dates?
• Bulls on Market Vane also fell to 55%, their lowest level since 2003
• The Rydex Nova/Ursa ratio hit a new low (0.08) since I have been tracking it; signaling a peak of fund flows into bearish mutual funds
• The Public Short ratio (including hedge funds) has been at a record 61% for three straight weeks; this means there could be lots of short covering on further bounces
• The 10-day put/call ratios are still near record levels (1.11 on CBOE, and 0.90 on ISE)

Those strategists that are saying that the market has topped are mistaken. I don't think the market has ever topped with sentiment this bearish. That's just not how it works. At market tops, everyone is bullish. Then, as the market begins to slide, those same investors are complacent and view it as a buying opportunity. That is how the market continues to slide down a 'slope of hope'. I don't see that now.

We'll take it one step at a time. For now, I am looking for some strong follow-thru action this week. Then we can start discussing how long this bounce can last, and what might be in store for the remainder of the year. But right now, I'm bullish.
'

Weekly Recap

It was a wild ride for the stock market this past week. The focus was on inflation and the Fed.

Early in the week, the market tanked on fears over inflation. Then, on Wednesday when the inflation news did in fact turn out to be worse than expected, the market rallied. The rally continued strongly on Thursday, but faded on Friday. Throughout all this, Fed officials made numerous statements on inflation. Most of them were hawkish.

The action this past week was subject to sharp swings in sentiment. Fear took hold early in the week. Later, once the news hit, and the market didn't drop further, latent demand emerged. Talk that the market had reached a bottom emerged and the focus shifted to a longer-term, more optimistic outlook. For investors, it was a week to ignore the daily chatter and rapid mood swings, and to sit back and assess the longer-term prospects.

The key news, of course, was the May core CPI data on Wednesday. It posted a third straight 0.3% increase. The rate of increase in the core rate the past three months was a worrisome 3.8% and the year-over-year increase in the core rate rose to 2.4%. The trend in the core rate is clearly unacceptable to the Federal Reserve. Fed funds rate futures quickly priced in a near certainty that the Fed would raise rates at the June 29 meeting, and a good chance of a further rate hike after that.

Numerous Fed officials expressed concern about the trend in inflation. However, the market took solace from comments from Fed Chairman Bernanke on Thursday that the Fed expected to control long-term inflationary expectations.

The market apparently had priced in bad news, and once it hit, adopted a more sober assessment of the long-term outlook, helped by Bernanke. The reality is that the Fed will indeed have to raise rates further, but that economic growth will remain decent. That means that earnings growth in the second half of the year will also be decent. The economy is slowing, and that will eventually lead to lower inflation rates. The outlook is worse than it was a few months ago, but it is not bleak. And with the S&P 500 index now trading at under 16 times operating earnings, valuations are good.

The market is thus caught between the fears of the Fed going too far, and the realization that there is still fundamentals demand for stocks. That is leading to a high level of volatility.

The other news this week took backstage. Core PPI was up 0.3% and total PPI 0.2%. May retail sales rose just 0.1%, reflecting a softening in consumer demand. May industrial production dipped 0.1% after two big increases. Several brokers (Lehman Brothers, Goldman Sachs, and Bear Stearns) reported great earnings. Adobe Systems had a mixed earnings report, but Oracle raised estimates for the current quarter.

Oil prices dropped to under $70 a barrel from $72 last week as tensions with Iran eased a bit. The 10-year note yield, however, backed up to 5.09% from 4.98% over inflation worries.
None of this news made much difference as the market sorted out its concerns about inflation and the Fed.

The market may continue to be subject to severe volatility as any bad news on inflation could stoke the worst fears. The fundamentals aren't that bad, however, for the long-term. But until the market gets a cleared sense of the outlook for inflation and Fed policy, the prospects of a significant summer rally seem remote.

-- Briefing.com

Not Such A Bad Day

Overall, today wasn't a bad session. The market pulled back a little bit, which is not surprising given yesterday's huge ramp. Volume rose slightly, but this was skewed early by the options expiration.

The volatility indexes rose, as did the put/call ratios. One negative was the rise in the 10-year bond yield, which finished at 5.12%.

I added a little more long exposure, and will be looking for some strong follow-thru action next week. I think that the combination of oversold conditions and extreme bearish sentiment make the markets ripe for a tradeable bottom. You will be shocked to see where the sentiment indicators stand on my weekend update.

These market corrections tend to run 4-6 weeks. And since the market topped May 5th, we are just about at that point now.

Check back this weekend for the Weekly Recap and Sentiment Check. Have a good one--
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Stock of the Day

I like Crocs (CROX) for a trade here. The stock looks like it has bottomed, and should get a pop.

This stock continually shows up on my screens for having very high short interest. I don't know how many of those shorts may have covered already, but I know if this thing rallies, it will likely cause a surge in short covering.

It is a recent IPO, so it doesn't have much trading history. But I like the risk/reward here.

long CROX

Options Expiration Will Cloud Today's Trading

Morning News of Note:

• Inflation: Poole Says Inflation Over His Comfort Zone; Fed May Need to Act Federal Reserve Bank of St. Louis President William Poole said U.S. inflation is above his comfort zone and that the Fed may need to act should price gains quicken. ``Core inflation is modestly above of what many of us have expressed as our comfort zone,'' Poole told reporters in Seoul today. ``It's certainly my view that if the inflation rate continues to be persistent like that, the Federal Reserve will simply have to pursue'' policies to keep inflation from quickening. (Full Story) Bloomberg
• MSFT: Gates Will Cede Day-to-Day Role At Microsoft Bill Gates -- the Harvard University dropout who created the business framework for modern computing and in the process became the world's richest man -- plans to give up his day-to-day role at Microsoft Corp. to spend more time helping the world's poor. Mr. Gates, 50 years old, said he would remain Microsoft's chairman, but begin a transition that in two years will remove him from overseeing product development at the software giant he co-founded in 1975. (Full Story) WSJ
• AAPL MSFT: MICROSOFT TUNED UP FOR NEXT IPOD BATTLE Microsoft is preparing to wage a high-stakes battle against Apple and its iPod digital music player, a move that could bring to mind the battle between the tech giant's Xbox video game console and Sony's PlayStation, The Post has learned. Microsoft is quietly laying the groundwork to launch its own digital music player and music service that would rival the iPod and the popular iTunes music service, according to multiple sources close to the major record labels. (Full Story) NY Post
• GOOG: Google tests online payment system Analysts have speculated whether Google would enter into direct competition with PayPal, dubbing its potential new service "GBuy" to capture commercial transaction data. Google's system aims to allow quicker purchases by a consumer from a marketer, and a beta version is expected soon, said Google CEO Eric Schmidt. (Full Story) CNET
• Mad Money Summary: Cramer opened his show suggesting Nucor (NUE) and Freeport (FCX) as his favorite values in commodities, due to the companies' histories of paying special dividends. Cnooc (CEO) also pays out special dividends, but is up 13%, so Cramer did not recommend buying it. Cramer then looked for opportunities in poor house stocks. He recommended Ralcorp (RAH), Perrigo (PRGO) and Dollar Tree (DLTR). Cramer then said you should avoid any company that borrows money to buyback stock or announces a convertible debt offering because these stocks drop after these announcements. One such company is Symantec (SYMC). In the "Lightning Round," Cramer was bullish on Jacobs Engineering Group (JEC), AutoZone (AZO), Panera Bread (PNRA), Yum! Brands (YUM), Genzyme (GENZ), Foster Wheeler (FWLT), Four Seasons Hotels (FS), Valero Energy (VLO), Legg Mason (LM), Halliburton (HAL), Anheuser-Busch (BUD), Boeing (BA) and Network Appliance (NTAP), and was bearish on Sonic Automotive (SAH), Cheesecake Factory (CAKE), Millennium Pharmaceuticals (MLNM), Chicago Bridge & Iron (CBI), Intrawest (IDR), Brookfield Asset Management (BAM), Bronco Drilling (BRNC) and Microsoft (MSFT).

Market Comments: The market has opened slightly lower this morning. Volume is already going through the roof, due to the options expiration in several contracts simultaneously. That will likely cloud today's trading. I expect the price action, irrespective of volume, to be fairly benign.

The Michigan Sentiment Index came in better than expected (82.4 vs. 79.0). Also, Boone Pickens was interviewed and predicted that oil would hit $80 by year-end. The current trend in oil is down, but a lot can happend between now and year-end.

Defensive stocks seem to be getting a bid this morning, which means people are still betting on a slowdown for the U.S. economy. Let's hope the Fed sees this and doesn't go too far in raising rates, if they haven't already!

long AAPL, GOOG, MSFT

Thank You, Sir. May I Have Another?

That was a glorious rally. I hear people saying that it was too much, too fast. And that it will not hold. I think it was just due to the fact that there was no one left to sell. Everyone who wanted to sell likely did so by now.

The SPX is currently up 2.25%, while the RUT (small-caps) is +3.7%. And the brokers are up nearly 6% on the day. That's a lot of strength. More than 90% of the volume today was on the upside.

And despite the fact that the volatility indexes got crushed, the put/call ratio and ISE were fairly high today. Go figure.

I like the action, and like to volume. Now, unlike the previous rally attempts, we need to get some follow-thru on this one. So we need to be on the lookout for another strong rally next week that is accompanied by high volume. I think we'll get it.

If you have been adding into weakness, and being patient with the bottoming process, today sure does feel good.
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Does The Rally Have Legs?

A colleague of mine on TheStreet.com did a nice job summing up what has been driving this selloff. The deleveraging of the carry-trade (borrowing at low rates (Japan)) and commodity frenzy has weighed on all asset classes around the globe. These days, it seems all asset classes are more highly correlated, and as such no one escapes unscathed. So it starts in one place (commodities), hits emerging markets, and quickly washes up on our (U.S.) shores as well.

But I come back to the fact that I don't think sentiment has ever been this bearish when the markets are topping. The sentiment indicators are as bearish now as they were at the bottom of the bear market. I just don't think it works that way.

The Investment Advisor surveys (spread between bulls & bears) are at their lowest levels since early 2003. The 10-day CBOE put/call ratio is higher than it has ever been. Ditto for the Rydex Ursa/Nova ratio, which measures assets flowing into the inversely correlated Rydex funds.

Now you could argue about the huge increase in the number of hedge funds as skewing the put/call ratios, but we're still talking about real money on the line. These last two indicators represent real money bets, and if and when those bets starts showing losses, they will provide plenty of angst to investors, and create upside pressure in the markets. When I hear talk of 'the mother of all short-covering rallies', I can clearly envision it.

To go along with the sentiment indicators, the market is also now oversold on some of the longer-term measures (stochastics, etc.). We haven't had that until now, so the markets now have a longer-term oversold condition to help the bottoming process. Of course, price and volume are the primary indicators, so we need to see some positive sessions there (read: accumulation).
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Now That's More Like It

Morning News of Note:

• AUO: AU Optronics Cuts LCD Output In Bid to Stabilize Falling Prices AU Optronics Corp. has cut production of liquid-crystal displays because of bloated inventories, a move that could bring more stability to LCD prices by the third quarter if other companies follow suit, a company executive said. "You have to have discipline every month to adjust inventory," Hui Hsiung, executive vice president of AU Optronics, said in an interview. "If others follow, that will help prices stabilize by the third quarter." (Full Story) WSJ
• GOOG: Google to Launch Government Search Site It's finally happening: The ever-expanding Google Inc. is making its move on the federal government. Today the company plans to announce a new online product aimed at being a one-stop shop for searching federal government Web sites. The launch of Google U.S. Government Search, http://usgov.google.com , targets federal employees who often need to search across several government agencies. (Full Story) Washington Post
• Click Fraud / GOOG YHOO: Web Ads Present New Front in Hacker Wars The rise of "pay-per-click" online advertising, celebrated for turning Google Inc. and Yahoo Inc. into enormous businesses, is proving a boon for cyberthieves. Hackers are using increasingly sophisticated computer programs to automate phony clicks on Internet ads and then hide the click fraud from detection. (Full Story) WSJ
• NTRI: Heard on the Street... Investors Weigh NutriSystem's Stock Run As NutriSystem Inc.'s stock price has ballooned along with its profits, the question is whether the shares are due for a crash diet or just some nips and tucks. The Horsham, Pa., diet-products company has come a long way since Michael J. Hagan and fellow investors bought 59% of its shares for just 62 cents each in December 2002. (Full Story) WSJ
• AAPL: More European countries are pressuring Apple Computer Inc. to open its iTunes Music Store so purchased songs could be played on any portable music player and not just the iPod. Consumer agencies in Norway, Sweden and Denmark last week sent a joint letter to Apple, saying the iPod maker is violating their contract and copyright laws with its product usage restrictions. The agencies could take Apple to court if they're not satisfied with the answer. The agencies could seek injunctions against Apple, banning iTunes from their markets. - NY Post
• Mad Money Summary: Cramer opened his show by telling his viewers its time to sell ethanol stocks, as "the ethanol fad has come to an end." Soon the market will be flooded with ethanol stocks, because of today's IPO of Verasun Energy (VSE) and the upcoming IPOs of other ethanol stocks. Cramer's previous ethanol recommendations include Archer Daniels Midland (ADM), The Andersons (ANDE) and MGP Ingredients (MGPI). Cramer looked into his "Mad Mail" and answered a viewer who asked if it looks like Microsoft (MSFT) has bottomed. Cramer answered that he owns Microsoft for his Action Alerts PLUS charitable trust and he is getting killed, and did not recommend buying it. In the "Lightning Round," Cramer was bullish on Yamana Gold (AUY), Goldman Sachs (GS), Chesapeake Energy (CHK), Yahoo! (YHOO) and Broadcom (BRCM), and was bearish on Harmony Gold Mining (HMY), Hansen Natural (HANS), Tellabs (TLAB), GSI Commerce (GSIC), Energy Conversion Devices (ENER), Conexant Systems (CNXT) and Waste Management (WMI).

Market Comments: The market is bouncing sharply in the first hour of trading. The SPX is pushing on 1% gains, while the RUT (small-caps) is up nearly 2.5%. And the brokers are rallying also. Not bad.

Of course, no one will trust this rally, which makes some sense. Short-sellers have been in charge lately, and won't give up easily. They will likely try to lay on this market at some point today, and crush the spirit of the bulls. Don't think this happens? Trust me...it does.

The 10-year yield has broken back above its 50-day, and is trading at 5.09%. We don't want to see it continue to trend higher. Oil is also up a bit this morning, but still below $70.

The volatility indexes are plummeting so far. It will be interesting to see how other measures of investor anxiety come in today. More on that later.

long AAPL, GOOG

Small Bounce Better Than Nothing

The market got a small bounce today. Actually, it rallied very early on, then dipped back into negative territory and looked like it might close down again, but a late day rally brought it back.

The gains among the major indexes were pretty even. Oil and bond yields were both higher today, which is likely what weighed on the market intraday. The higher CPI sparked a selloff in bonds, which pushed the yield on the 10-year up to 5.05%. Gold fell again today.

Banks and brokerage stocks were noticeably down today, despite the strong earnings reports. I like to see these groups go up along with the market, so this bears watching. If the financials don't participate in any upcoming rally, some might question its duration.

The volatility indexes fell today, as option expirations approaches this Friday. But the put/call ratio was again above 1.0. Talk about sustained put buying. At some point, the unwinding of all of these bearish bets will spur some real upside in the market. But one step at a time.
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