Where Are The Bears? (And Why That’s Not Necessarily A Good Thing)

Stocks were higher Wednesday as investors looked past higher oil prices.
The EIA reported that crude
oil inventories fell 1.8 million barrels. Gasoline inventories fell 900K  
Distillate stocks rose 2.5 million.

Investor’s Intelligence reports that the bears are getting scarce.
Current reading: Bulls: 52.7%, Bears 29.3%. This is the lowest percentage of
bears since December
and indicates complacency in the market.

Hedge fund Citadel and Merrill Lynch have each acquired a 10%
interest in the Philadelphia Stock Exchange (PHLX).  Each firm also
has an option to buy 10% more. The firms could route option trades to the PHLX.
Citadel is a major options trader. Between them, the two firms will own 20% of
the PHLX.

OPEC will increase production by 500K barrels per day in what some see
as mainly a symbolic gesture.  The new quota–which begins on July 1–is 28
million bpd. Oil is at
a 7-week high and over $56. OPEC produces 40% of the world’s crude. The cartel
anticipates an additional 1.5 million barrel per day demand in Q4. Saudi
Minister Al-Naimi said OPEC is well supplied and the limited refining capacity
is causing a bottleneck and resulting higher prices. OPEC President Al-Sabah
said “There is enough supply in the market. We are confident we can reach the
fourth quarter with enough supply.”

The CPI for May fell -0.1%, slightly less than expected and the first
dip in ten months. Core was 0.1%, also slightly less than expected 
Business Inventories rose +0.3%, less than expected.  Empire
Manufacturing
was 11.6.  Industrial production rose +0.4  
Capacity utilization was 79.3%. 

The Fed’s Beige Book indicated price pressure at the retail level were
moderate for all districts and expansion was solid and well sustained. Labor
markets improved in most districts and the service sector was solid. Some
districts reported a slight softening in new home sales. Most districts said
high gas prices hurt retail somewhat. Tourism was strong, especially in New
York.

Bear Stearns
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reported 2.56 vs a 2.37 estimate; revenues were
$1.9.

Illinois Tool Works
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said Q2 will be between 1.22 -1.26 vs
1.35 Street estimate. The company also lowered its 2005 outlook.

International Flavors and Fragrances
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said earnings will take
a  $0.06 – $0.07/share due to contaminated paprika.

Tommy Hilfiger
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lowered guidance and said it will delay the
release of its Q4 and full year results.

Industrial production in China rose in May. China Shenhua Energy–the
world’s biggest IPO–made a weak debut in China after being priced near the
low of the range. Also in China, Daimler-Chrysler
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received a
license to manufacture Mercedes-Benz cars at a joint venture factory in Beijing.
Cadillacs and BMWs have also been manufactured in China recently.

The Mortgage Bankers Association reports that mortgage applications
rose 17.4% last week. Purchased rose 10.4%; refinances rose 25.6%.

Strong sectors were:  Gold
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$HUI.X |
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+1.44%    Homebuilders
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$HGX.X |
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+1.36%     Oil  
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+0.90%

      

Weak sectors were:   Airlines
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$XAL.X |
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-1.08%    Healthcare Providers
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-0.33%
   Biotech

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-1.45% 

Dow +18.72 10,566.29
Nasdaq +5.88 2074.92
S&P 500 +2.66 1206.57

The dollar was -0.61 at
88.69

Crude Oil was +0.48 at
56.45

Gold was +1.20 at 427.80

ce=”Arial” size=”2″ face=”Arial”>Volume was 1.23 billion on the NYSE and
1.67 billion on the Nasdaq.

Market breadth was positive.

NYSE Issues
Advancing 1876 Up Vol 975
Declining 1396 Down Vol 614
1.34 1.58
Nasdaq
Advancing 1568 Up Vol 892
Declining 1465 Down Vol 625
1.07 1.43

Stocks in the News

Eli Lilly
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LLY |
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and Alkermes
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said that a Phase
II study showed that people who used inhaled insulin had blood sugar levels
similar to those who used injectable insulin. Further, 80% of patients preferred
the inhaled system over the injection system.

Lazard
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reported 0.31 vs a 0.24 estimate; revenues were shy
of Street estimates.

Viacom will split into two companies in an effort to unlock shareholder
value. One company will be called Viacom and will include Paramount, the cable
networks and the home video unit. The other–to be called CBS and led by Les
Moonves–will be comprised of the CBS and UPN networks. The spinoff is expected
to be completed in Q1 2006.

Phillips Electronics said “Economic indicators around the world point
to reduced growth rates.”

Symantec
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was upgraded at Prudential to overweight from
neutral weight.

Chiron
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is cutting its flu vaccine output to 18-26 million
doses from the previous 25-30 million doses. The company guided lower.

Firearms Training Systems
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was awarded a $4 million
contract with the U.S. Army National Guard.

Atari
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beat by a penny but was light on revenues.

Kohl’s
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was downgraded at Robert Baird.

Morgan Stanley said that iPod
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AAPL |
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inventory concerns are overblown.

Brice Wightman