wall street nuggets

25 basis points!

Fully absorbed over the course of the last few weeks.

Some hope for relief in August…

It looks like the markets are cautiously optimistic that the lagged effects of the Federal Reserve rate hike can be absorbed by the economy.

NEOWARE SYSTEMS INC [NWRE], which provides hardware and software for thin client solutions, was down 42% on Thursday when it warned that fourth quarter revenues would be in the range of $23 million to $24 million, well below previous guidance and the $30.7 million expected by analysts.

ADVANCE AUTO PARTS INC [AAP] down 16.7% when it provided new guidance for the second quarter, which ends July 15, 2006. For the quarter, comparable-store sales are only expected to grow 1% to 2%, compared to previous guidance of 3% to 5%. Earnings are projected to be in the range of $.57 to $.59 per diluted share, compared to previous guidance of $.65 to $.68 per diluted share. The company points to higher energy prices, higher interest rates, and higher required credit card payments reducing discretionary income for lower- and middle-income customers.

RED HAT INC [RHAT] was down 6.4%, despite reporting some reasonable results for the quarter. While the company reported earnings rose to $13.8 million ($.07 per share) on revenue of $84 million, and the revenue was in line with expectations, analysts apparently had been expecting earnings of $.09 per share, apparently not including stock-option expenses and based on a different number of shares outstanding. The improvement in the gross margin from 79% last year to 84% this year is worth noting. The JBoss (middleware provider) acquisition looks like a very, very smart move and we only wish the P/E ratio were lower. In any case, with the confusion in earnings, there appears to be a short-term opportunity.

MICRON TECHNOLOGY INC [MU] was down 5.3% for the day, after reporting quarterly earnings and concerns regarding orders of Micron chips from the wireless industry.

Computer maker and distributor, SYSTEMAX INC. [SYX], continues to be negligent in meeting filing deadlines with the SEC (544 days since the last period on which it has officially reported), but the company apparently settled the legal matters which had been plaguing it last month with no significant damages and late Wednesday it issued a preliminary restated financial result for 2005, indicating earnings of $3.41 million ($0.09 per share) versus $5.1 million ($0.14 per share) in 2004. The stock closed up 36% on Thursday at $7.99 per share on very modest volume of only 167 thousand shares.

TRAFFIC.COM INC [TRFC] was in the passing lane, up 24%, on the announcement of a deal with GPS auto navigation system maker Garmin International Inc. that will make TRAFFIC.COM the exclusive provider of real-time traffic data for the Garmin Mobile™ 20. This is a very step in the right direction, but we think scale here requires more focus on cell phones.

Chip maker, SILICON IMAGE INC [SIMG] closed up 19% at $10.86 following a press release indicating it was raising its guidance for expected revenue growth for the full fiscal year 2006 from 20%-30% to 25%-30%. This was followed by an upgrade by Longbow from “Neutral” to “Buy”.

RSA SECURITY INC [RSAS] up 18.2% on speculation of a takeover by EMC.

ACTIVE POWER INC [ACPW] continues on a tear gaining 14% to close at $3.59 per share.

SUNTERRA CORP [SNRR] was up 13.8% closing at $10.04 per share, as the investigations into accounting irregularities continue, and its CEO remains on an administrative leave of absence. Meanwhile, the hedge fund Chapman Capital which has an 8.4% stake in the time-share vacation company is pushing the company to auction itself off, claiming the company is worth $14 per share.

Printed circuit board manufacturer, MERIX CORP [MERX], was up 12.2% on Thursday after posting very solid quarterly and annual results for the fiscal year ended May 27, 2006. Revenues for the fourth quarter were $100.4 million, up a blistering 95% over 2005, thanks to the acquisition of Merix Asia acquired in September 2005. Net income for the quarter was $0.17 per share, exceeding the consensus estimate of $0.14 per share.

Very impressive Daily Sector Performance Chart with all sectors in positive territory. Mining, Network Technology, Metals, Scientific & Tech Instrumation and Travel all up over 4%. The average gain for the SigmaInverse Universe was 2.94%, with 89% turning in a positive return for the day.

It is widely accepted that diversification in a portfolio is an effective way to reduce risk. This is usually interpreted as meaning that you should avoid holding too many issues in the same industry. (Similarly shorting too many issues in the same industry is very risky.) However, depending on the granularity of your sectors, there are some important refinements to this policy which should also be understood. For example, as a rule Biotech companies and Pharmaceutical companies are highly correlated, so you are considerably more diversified holding a Biotech and a Communications company than you would be holding a Biotech and a Pharmaceutical company. While these patterns are sometimes obvious, at other times they can be somewhat elusive and ephemeral. Analyzing the correlations of sector deviations from the market over the past two months, we have distilled the following rules of thumb that should help to minimize risk, whatever the Fed decides to do tomorrow.

The general approach is to incrementally build a portfolio using the strategy of the second column whenever possible to neutralize the risk posed by a company in the first column.

Ethanol producers are coming out of the woodwork given the assurances from GM and DaimlerChrysler that they would be doubling the production of vehicles that handle the higher Ethanol concentrations, the recent success of VERASUN ENERGY CORP [VSE], which had been originally priced at $23 per share (up 8.5% on Wednesday), higher oil prices (light, sweet crude settling at $72.50 per barrel on Wednesday) and finally disturbing evidence of increased gasoline demand. AVENTINE RENEWABLE ENERGY HOLDINGS INC, another Ethanol producer, priced an IPO on Wednesday in the vicinity of $390 million and HAWKEYE HOLDINGS INC recently filed with the SEC for a $350 million IPO. ANDERSONS INC [ANDE] was up 9.4% for the day, but at least this time the exuberance was not completely unbridled. ARCHER DANIEL MIDLAND [ADM] the leading U.S. producer of Ethanol, was up only 2.1%. PACIFIC ETHANOL [PEIX] and MGP INGREDIENTS [MGPI] were up a modest 1.8% and .14%, respectively.

HB FULLER CO [FUL] sprang a leak on Wednesday dropping 15.6% as it announced second quarter results that were essentially flat from a revenue perspective. Margins improved but were still not impressive. We think the latest news revealed no fundamental weakness in the business and the irrational market reaction only serves to make this company once again a solid long term investment.

NETGEAR INC [NTGR] dropped 11.2% to close at $21 per share following a downgrade by Citigroup from “Buy” to “Hold.” The downgrade knocked the hype out of the stock, and it now looks very attractive, once again.

RAMBUS INC [RMBS] and CNET NETWORKS INC [CNET] dropped 11.2% and 7.2%, respectively, as both are likely to restate past earnings because of the timing of options grants. Proceed with caution.

INFOCUS CORP [INFS] continued to plummet losing another 9.1%. It looks like the majority of the damage has been absorbed. I would wait at least for the second quarter 10-Q to be filed and probably one more before getting into this one.

ACTIVE POWER INC [ACPW] announced that it had signed a CoolAir™ UPS usage plan with Georgia State University for an energy efficient UPS solution for the university’s Network Operations Center. The new technology offers a cleaner, more reliable solution without heat loads incurred by the typical battery-based systems. [ACPW] was up 13.7%, closing at $3.15 per share. The company also announced a major sale of a 1650kVA turnkey power system including UPS to TNT Express ICS last week. Looks like this company is living up to its name.

Alternative Energy (up 3%) was the big winner in today’s Daily Sector Performance Chart. The average gain for the SigmaInverse Universe was .27% with 58% of the universe posting a positive gain for the day.

INFOCUS CORP [INFS] finally caught up on its SEC filings which had been horrendously late until this week, but the company for some reason is having difficulty focusing in on profitability, as it provided new guidance on Tuesday that it expects second quarter revenues will be down from the first quarter’s $112 million, where analysts had been expecting about $122 million. This new projection led to a drop of 16.9% for the share price of [INFS], which closed at $3.10. There was almost no cash burn in the first quarter and there is no significant long term debt on the balance sheet, so the company certainly seems viable. The lower than anticipated sales of the new IN72 consumer model (priced at $999) was part of the explanation for the lowered projections.

A leading provider of governmental outsourcing services, MAXIMUS INC [MMS] was down 21.1%, closing at $23.20, on the announcement that it would be incurring third quarter losses of about $0.55 to $0.60 per share as a result of an amended subcontract with ACCENTURE providing contract services for the Texas Health and Human Services Commission. Over the 5 year contract horizon, projected revenues are now estimated to run about $320 million (14% less than originally anticipated) because of delays.

TAKE TWO INTERACTIVE SOFTWARE INC [TTWO] sank another 15.7% on Tuesday, closing at $10.85 per share, following the announcement that the company had received subpoenas from a New York grand jury investigating what the company knew about secret access codes to hidden sex scenes in “Grand Theft Auto: San Andreas.” This lead to a downgrade by CIBC World Markets (to “Sector Perform” from “Sector Outperform”) and lowered price targets by Citigroup. Similar charges were brought against the company back in January by the Los Angeles city attorney’s office, knocking the stock down to the $15 range. It would appear this is a real tar baby. Take two aspirin and see me if this snake bitten creature ever wakes up again.

REDBACK NETWORKS INC announced Tuesday a deal to supply Kazakhtelecom, the incumbent telecom company in Kazakhstan, with SmartEdge® routers to handle increased broadband adoption in that country. However, this did nothing to stop another day of slippage (down 11.1% Monday and another 7.9% Tuesday) following the downgrade by Canaccord Adams because of lowered expectations for 2^nd half revenues, based on the assumption that BellSouth would be cutting back on purchases in the 2^nd half. Since, BellSouth represents about 14% of the revenue base as of the last quarterly report, the hammering of the last two days, seems to be a significant overreaction. On the other hand, the company needs to strengthen its product line before we get too enthusiastic.

GENERAL MOTORS [GM] had a mixed message on Tuesday. While it confirmed that almost a third of its hourly work force (35,000) had accepted payouts for early retirement or to leave the company, which put the company two years ahead of schedule on job cuts, it also warned that sales for 2006 would probably come in lower than last year because of higher interest rates and gasoline prices. While it is apparently going to avoid the employee discount program of last summer, sticking with value pricing, it confirmed that it would launch a 0-percent financing offer over the upcoming 4^th of July weekend. Comparisons to last year’s sales are going to be particularly dismal due to the extreme discounts used to boost sales and erode profitability last summer. The good news is that profitability should show a dramatic improvement. Despite Tuesday’s drop, [GM] is up almost 38% for the year.

MOVIE GALLERY [MOVI] continues to show extreme volatility possibly on takeover speculation. Despite heavy debt and lack of profitability, speculation on a possible takeover bid (usually BLOCKBUSTER) is frequently mentioned. Since the company is also on the NASDAQ Regulation SHO Threshold Security List, it might also be due to a short squeeze or both. In any case, [MOVI] was up a wopping 13.7% on heavy volume (almost 6 million shares).

UNIVISION COMMUNICATIONS INC [UVN] up 6.2%, accepting a buyout bid by a private group for $12.3 billion. But don’t say adiós quite yet. GRUPO TELEVISA SA probably has another card to play.

The media giant, TRIBUNE Co [TRB] closed up about 5% on a down day as it declared success in its stock buyback plan, despite spirited opposition from the Chandler family. It expects to buy all 45 million tendered shares (about 15% of the total outstanding) at a price of $32.50. (The stock closed at $32.47 on Tuesday.)

The Daily Sector Performance Chart was pretty grim for Tuesday. The only sector in positive territory was Real Estate, which was up .3% even after removing the outlier SUNTERRA [SNRR] which was up about 10%, probably anticipating what will be announced at tomorrow’s conference call.

There are two schools of thought when it comes to the importance of identifying and estimating dynamic financial models. One school of thought says that if you don’t go back far enough, then you will miss certain important effects. How can we expect to avoid the impact of currency and bond markets without including 1997-1998 in the estimation interval? The other school of thought would argue that today’s dynamics are unique and reflect a world view that only applies over a very short horizon. According to proponents of this point of view, deep history is likely to be misleading by picking up on sensitivities that no longer apply in the same way they did in the past.

To some extent, the availability of time series data will dictate minimal interval requirements in order to estimate a model with any confidence. For example, if an explanatory time series is only available monthly and our rebalancing frequency is also monthly, it would be reasonable to require at least 4 years of history, and if your prior belief was that the current dynamics only applied for the past 2 years, then there would be a strong argument to just “paper trade” the model for a period of time, until the “ex ante” results justified a hard position.

From a broader perspective, we see a very significant advantage to maintaining at least two horizons in financial modeling. One would involve only very recent data and one would include deep history. The two models can even have the same functional form. It is worthwhile to pay particular attention to situations where the two different horizons suggest very different forecasts. Actual trading strategies need to be adapted to handle situations where the forecasts diverge.

SIX FLAGS [SIX] appears six feet under, after its disastrous conference call Thursday, where CEO Mark Shapiro indicated that not only would the company not be meeting its earnings, revenue and attendance guidance, but that debt issues could lead to the closing of six parks. Some radical changes are needed to resurrect this brand, and it probably requires more carrots than sticks, to pull in the audience it wants rather than higher prices for season passes to screen out the audience it doesn’t want. As an aside, the date of the big drop, 6/23/06 is rather ominous when you multiply the digits in the day of month.

For WESTERN GAS RESOURCES INC [WGR] and KERR McGEE CORP [KMG] stock holders, it was a great day in the oil patch, with a very handsome premium being paid by ANADARKO PETROLEUM [APC] for these two. [WGR] closed at $59.67 up 45.9% and [KMG] closed at $68.61 up 36.4%. [APC] as one might expect took a hit, dropping 7.2% on news of the acquisitions. But we tend to think this was likely a knee-jerk overreaction, and with a P/E ratio of 8, [APC] looks like a great buy.

If you want to engage in some speculative future consolidation in this sector, we would recommend considering DENBURY RESOURCES INC [DNR], MURPHY OIL CORP [MUR], PIONEER NATURAL RESOURCES [PXD], CHESAPEAKE ENERGY [CHK], APACHE CORP [APA], DEVON ENERGY [DVN], XTO ENERGY [XTO], MARATHON OIL [MRO], and FRONTIER OIL [FTO]. These 9 candidates are ranked by their returns on 6/23/2006, which were quite impressive as a whole, ranging from about 2.5% to 8.5%, but more importantly, the order probably reflects the market’s anticipation of a large premium being paid, in order of likelihood. All seven also have reasonably attractive price to earnings ratios and significant (greater than $3 billion) but manageable market capitalizations.

NEUROCRINE [NBIX] was punished yet again for the regulatory delays in the approval of its insomnia drug, Indiplon, closing at $9.85, down an astonishing 28.7% for the day and 87% from its high on March 16th. Pfizer [PFE] finally threw in the towel and opted to exit the co-development deal with [NBIX]. This led to downgrades by both Citigroup and AG Edwards. For some reason, DOV Pharmaceutical [DOVP] escaped without too much damage this time (down only 2.8%) – probably reflecting the fact that it had already taken more than its share of the damage. NEUROCRINE will continue to try to get FDA approval, but without Pfizer support, the prospects do not look good. Given the Citigroup target of $5 per share, we would hold off taking advantage of a possible overreaction until the price stabilizes. Of course, SEPRACOR [SEPR] benefited substantially (up 6.8%) but certainly not enough to serve as a complete hedge as we unfortunately suggested on June 19^th. It does appear that the medicine chest at NEUROCRINE is looking a little bare, but if the price stabilizes in the $5 to $9 range, it would certainly look tempting, since the market appears to have assumed a zero probability for FDA approval of Indiplon at any dosage.

SUNTERRA CORP [SNRR], one of the world’s largest vacation ownership companies, has announced that it placed Nicholas J. Benson, the company’s President and CEO on paid administrative leave, pending the results of an investigation by the Audit and Compliance Committee of its Board of Directors into allegations (including accounting improprieties) made by a former employee. The company’s CFO, Steven E. West, resigned effective 6/22/2006. Given the uncertainties associated with the ongoing investigation, the stock dropped 17.3% on Friday.

The distribution of returns was skewed positively on Friday, with an average gain of .22% in the SigmaInverse Universe and approximately 47% of the stocks posting positive returns for the day. As you’ve probably guessed, the Oil & Gas Production sector was the big winner, with an average gain of 3.8% for the 134 stocks that currently define that sector. The Mining sector also posted a pretty impressive 2.7% average gain. Weak performances were turned in by Entertainment, Real Estate and Tobacco.

PAINCARE HOLDINGS INC [PRZ] gets very little analyst attention (one “Strong Buy”) with expected earnings of $0.03 per share. Little surprise then, when it announced earnings of $0.17 per fully diluted common share, compared with a loss of $0.63 for the first quarter of 2005, that the stock exploded for a gain of 17.9%. This is a good example of an exception to the rule that late filings are usually associated with unpleasant news. In this case, it does appear that the company is getting its act together in keeping up to date with its filing deadlines, having filed a 10-K for 2005 just 3 weeks ago.

CONCORDE CAREER COLLEGES INC [CCDC] has accepted a buyout offer from Liberty Partners at $19.80 per share, and the stock closed up 30.5% at $19.28 with a volume at just over 1 million shares, which is about 100 times its typical daily volume. Given its outlier behavior, we decided to remove it from the Educational Sector in the Daily Sector Performance Chart (below) for June 22nd.

INTAC INTERNATIONAL INC [INTN] closed at $6.60, up 32%. The Hong Kong based company distributes wireless handsets primarily in Hong Kong with a focus in providing telecommunications training and wireless handset distribution to wholesalers in China. While we have it classified as belonging to the Communication sector, it certainly overlaps the Education sector as well.

NOVELL INC [NOVL] shares were up 9.2% on the news of new leadership at the slumping software developer. Both the CEO and CFO were replaced, which apparently was widely applauded by the investors. Hopefully the new leadership will help the company discover its own true identity as it continues to morph.

HOLOGIC INC [HOLX] received good news from the U.S. Centers for Medicare and Medicaid Services, which proposed changes in payments for digital mammographies that were much better than expected. Drastic cuts had been expected. The company is based in Bedford, Mass. (the hometown of SigmaInverse as well! Go Bucs!). The stock closed at $48.75 per share, up 18.1% over Wednesday’s close.

BED BATH & BEYOND INC [BBBY] apparently slipped in the tub and was downgraded by Bear Stearns from “Outperform” to “Peer Perform.” The stock fell 6% on volume that was about 5 times normal.

QUALCOMM INC [QCOM] dropped 6.4% on the news that Nokia was stopping production of CDMA phones, blaming the high cost of licensing charged by Qualcomm, which is the sole supplier of chips used by CDMA phones. The price advantage of the GSM phones is especially apparent in the emerging markets where most of the growth is to be found.

MEDIMMUNE INC [MEDI] dropped 6.8% on Thursday with the news that it had priced a total of $1 billion in convertible senior notes. MEDIMMUNE is incredibly dependent on just one drug (Synagis) which accounted for approximately 94% of product sales in the first quarter of 2006. It appears that the proceeds from the sale of the convertible notes could be used for acquisitions in an industry that is probably very much in need of some consolidation and that would help to make the company less dependent on just a single product.

RITE AID CORP [RAD], the third largest drugstore chain in the U.S., posted first quarter earnings that fell short of analysts’ expectations. For the quarter ended June 3^rd, the company reported earnings of a paltry $0.01 per share, but analysts had expected $0.03 per share. [RAD] dropped 7.7% on Thursday with very high volume of 22.2 million shares (about 4 times normal volume).

REALNETWORKS INC [RNWK] fell 10.2%, closing at $9.72, with a downgrade from Goldman Sachs, citing stiff competition in the industry.

Not a good day for most sectors and no really strong sectors.

Effective 6/16/2006, Michael A. Sicuro resigned from the position of Executive VP, CFO, Secretary and Treasurer of Progressive Gaming International Corp. [PGIC] for personal reasons and to pursue other interests. This according to an 8-K filed 6/21/2006.

MORGAN STANLEY [MS] led the charge in Wednesday’s rally after reporting very strong results for the second quarter ended May 31, 2006, up 111% from the same period last year, on net revenues (total revenues less interest expense) of $8.9 billion, which was 48% more than the 2005 net revenues for the second quarter. These results were much better than consensus estimates and the stock closed up 4.3%.

FEDEX CORP [FDX] also announced an outstanding quarterl, and, because of the nature of their businesses, companies like [MS] and [FDX] often serve as a barometer for the market as a whole. So the aura from these two helped to propel the entire market higher with the Dow Jones Industrials gaining 100 points on the day. In the entire SigmaInverse Universe, about 80% of the stocks were up for the day and all the sectors turned in positive gains for the day in the Daily Sector Performance Chart (below).

SOMAXON PHARMACEUTICALS [SOMX] up 10.2% on the announcement that it would be reporting on successful Phase 2 clinical trials for its new Silenor™ (aka doxepin hydrochloride) used in the treatment of insomnia with elderly adults. The presentation is scheduled for June 22^nd, at the SLEEP 2006 Annual Meeting of the Associated Sleep Societies. Sounds like a real yawner.

FSI INTERNATIONAL INC [FSII] was up 9.4% as it exceeded analysts’ expectations for third quarter revenues and provided guidance that it would beat expectations for the fourth quarter as well.

FINISAR CORP [FNSR] was up 7.9% in heavy trading. Got to love the volatility in this one! But be careful.

J2 GLOBAL COMMUNICATIONS INC [JCOM] was up 7.7% on no specific news we could locate. There was a favorable article in Forbes last week, but the P/E ratio at 28 seems a bit high.

NYSE GROUP [NYX] was up 7.4%, undoubtedly thanks mostly to the halo effect from [MS] and [FDX] rather than any specific exchange news or speculation on future acquisitions.

LIFETIME BRANDS [LCUT] was sliced and diced (shedding 14%) after announcing it would be offering $50 million in convertible senior notes, with the proceeds being used to repay indebtedness, and also announcing that it expected a second quarter 2006 loss in the range of $.11 to $.16 per share. Analysts had been expecting a loss of $.02 per share. Wednesday’s announcement provided guidance on the full year earnings that was in line with expectations.

RUBY TUESDAY [RI] noted a general softening in the casual dining restaurant industry toward the end of May and this softening was reflected in rather unimpressive same-restaurant sales and visitors (up 2.9% and down .5%, respectively, for the fourth quarter at company-owned restaurants). By comparison, same-restaurant sales and visitors were up 7.1% and 4%, respectively, at Ruby Tuesday franchises. Since there is a 70-30 split between company-owned and franchise restaurants, the lower company-owned results are particularly disappointing. Even more disappointing is the fact that there was one more week in this years 4^th quarter relative to last year (14 versus 13) and one would have expected 8% growth on that basis alone. Part of the problem appears to be some lapses in TV advertising and we see no excuse for lack of execution in that area.

JETBLUE AIRWAYS CORP [JBLU] closed at $12.23, up 6.1%, following the announcement that Morgan Stanley had initiated coverage with an overweight recommendation. Morgan also initiated coverage of AMR CORP [AMR] and CONTINENTAL AIRLINES [CAL] with equal-weight ratings, as well as SOUTHWEST AIRLINES [LUV] with an underweight recommendation.

ACTUANT CORP [ATU] closed down 17.8% on Tuesday. The company reported earnings of $.86 per share for the quarter ended May 31^st, which were in line with expectations and up from $.66 for the corresponding period last year. Revenues for the quarter were up 17% at $316.7 million, which exceeded analysts’ expectations due to one time favorable tax effects. However, the company provided fourth quarter guidance in the range of 73 to 78 cents per share which was well below expectations of 84 cents per share. The company is about to embark on a restructuring and streamlining effort that will cost approximately 49 to 58 cents per share starting in the fourth quarter of fiscal 2006 and continuing through fiscal 2007. A downgrade by Bear Stearns from “Outperform” to “Peer Perform” must have also contributed to the drop. Looks like a good investment if the horizon is about 5 quarters.

TRIDENT MICROSYSTEMS INC [TRID] was down a hefty 8.7% on Tuesday. The Sunnyvale, California, maker of chips for LCD TV’s took a big hit from a Piper Jaffray analyst who lowered his price target for [TRID] from $29 to $20 in a research note. The stock is now down about 40% from its price of $30.29 on April 25^th and while the P/E ratio remains high, yesterday’s news regarding the deal with China’s Haier seems to bode well for the future, and we see today’s reaction as a buy opportunity.

GROUP 1 AUTOMOTIVE INC [GPI] down 7.2% as both Standard and Poor’s and Moody’s took a dim view of the recent offering of $250 million in convertible senior notes to institutional buyers, and as a result the automobile dealer took a big hit on Tuesay, closing down 7.2%.

PROGRESSIVE GAMING INTERNATIONAL CORP [PGIC] (formerly Mikohn Gaming Corp.), which provides software for the casino industry, was down 6.5% on Tuesday, after filing a regressive first quarter result. The company reported a loss of $.26 per share compared to earnings of $.04 per share for the corresponding quarter last year, with revenues of $16.9 million versus $22.9 million for the first quarter of 2005.

COMMERCIAL METALS CO [CMC] was down 6.4% on Tuesday, after reporting Q3 earnings for the quarter ended May 31, 2006. Earnings for the quarter were $.62 per diluted share on net sales of $2.02 billion, compared with $1.73 billion for the comparable period of 2005. Not too shabby. Unfortunately, expectations were for $.70 per share which may explain some of the decline. The 2 for 1 stock split in the form of a stock dividend on May 22^nd probably also lead to some selling pressure as well. The company has introduced a quarterly cash dividend of 6 cents per share, with the first dividend to be paid July 31^st to those shareholders of record July 7, 2006.

FORD MOTOR CO [F] sputtered down 5% on Tuesday, perhaps reflecting more the outlook for the domestic automobile industry and the market in general, than any particular Ford news. While the Automobile sector was off .84% on average, it was a lot worse for the OEM’s (Ford and GM). GM’s announcement that it would be amending its $5.6 billion credit facility, offering collateral and a more generous interest rate, led to further downgrades of its unsecured debt. News regarding import penetration in the truck market and growing inventories of trucks fueled speculation regarding returns to big incentives. GM was down 2.7% for the day.

RADIANT SYSTEMS INC [RADS] up 11.4%. One large institutional buy of about 800 thousand shares about noon started this stock radiating. There is no apparent news associated with the buy. Volume for the day was about 7 times normal.

AVANIR PHARMACEUTICALS [AVNR] closed at $6.38, up 8.5%, presumably in response to the conference call explaining the 90-day extension to the review period for the Neurodex new drug application.

JDS UNIPHASE CORP [JDSU] was up 5.4% to close at $2.55, with the announcement today of its new IVT-600 product for home network testing.

KROGER CO [KR] posted strong first quarter results with earnings up 4% over first quarter 2005, and the stock was up 5.2% for the day, to close at $20.47.

While there was some initial euphoria over the increase in housing starts, the realization that it was basically noise in what will probably be a secular downtrend for at least the next year slowly set in. Housing permits were down again, and the big question remains, “How low can it go?” Just look at a model that reflects the mortgage rates and demographics and the picture is really ugly.