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5/11/2010 1:35:50 PM Eastern Time

What…Market Worry?
By Charles Payne, CEO & Principal Analyst

I must say that I'm thoroughly impressed with the action in the market today. This is the proverbial wall of worry move, and it's feeding on itself. There isn't any change to questions about Europe but the collapse in talks between Clegg and the Labor Party in the U.K. is great news for a person that likes lower debt and fiscal restraint in government (and that's everyone these days, right?). Of course, there could be an urgency factor to get the market rolling again before the entire show draws to a close. The point is that gold is soaring along with equities, reflecting an atmosphere where there are short-term opportunities and long-term realities.

The fact that the NASDAQ composite is leading the way underscores the notion that there are short-term opportunities. The usual suspects, Apple (AAPL) and Google (GOOG), are leading the way as semis more or less languish. The index is hovering between the 50 and 200-day moving averages but is on the cusp of clearing the former. That would be impressive, but without huge volume not as convincing.

Afternoon Notes from WSS Research Desk

David Urani

Update on Eyjafjallajokul (a.k.a. The Volcano in Iceland)
It caused a big stir when it initially erupted last month, but it's not over yet. The volcano continues to spew ash clouds miles high, interrupting air traffic all the way from Ireland, southward down through Portugal, Western Spain, and even into Morocco. In total, European air traffic yesterday was down approximately 5.5% from what it would have typically been. United Airlines estimated the impact on its April sales was about $35.0 million.

I don't mean to sound like Dr. Doom but the last time this volcano erupted in 1821 it lasted for two years and caused widespread economic difficulties in Europe, particularly in agriculture. In addition, the last three times the volcano erupted, it also triggered its neighboring, more active volcano "Katla" to erupt as well. Admittedly, geologists have no way of predicting how long the eruption will last, or how much more intense it will get. Just something to think about…

Carlos Guillen

Techs Hover in the Green
After dropping from its twelve month high late last week, the Philadelphia Semiconductor Index (SOX) has been recuperating some of the lost ground, and today it is slowly ramping higher, along with the general market.

While most of the lost territory in the SOX has been the result of the European debt crisis, tech stocks have bounced back and appear ready to make a move higher. From a technical perspective, the SOX has bounced off support at 350.0 and has failed to fall below that, indicating a continuing move to the upside.

Earlier today, shares of Apple (AAPL) were positively supported by an upgrade of its price target to $320, giving the stock the potential for a move of 23% in the coming 12-months, given higher expected Mac and iPad sales.

As we had expected, the improving economic backdrop around the world and strong demand for PCs led to a blowout March quarter for many tech companies. Strong demand drove revenues higher, in general much better than many expected. What is very encouraging is that the better than expected revenue was fueled by end-demand and inventory replenishment played a smaller role. In fact, channel inventories remained flat and are still lean.

Moreover, from the perspective of the average economist, the consumer is recuperating very well and, in fact, will be able continue to increase spending on its own, that is, without the assistance of government stimulus efforts. Such is the confidence economists are gaining with respect to the consumer that they have raised their second quarter consumer spending growth rates to 3%, up from 2.5%. The combination of low inflation rates and low interest rates are creating a favorable atmosphere for self sustainable consumer spending growth for the rest of 2010. Even with the European debt crisis, the U.S. consumer will continue to spend, and this certainly bodes well for tech stocks.

Conley Turner

Oil and the Exposure to the News Flow
The robust rally yesterday can be characterized as something of a relief rally, particularly in light of the market weakness experienced over the past few weeks. However, it is typical for there not to be any significant follow through after such an impressive move, and this time is no different.

In fact, market participants are signaling some degree of skepticism about the Greek bailout and are showing no love for the Euro by leaving the beleaguered currency and piling into the dollar. After all, Spain and Portugal are next in line to address their debt issues. This, in turn, is having an impact on the price of crude oil as the dollar index is rising in value versus a basket of other international currencies, including the Euro. Oil and other commodities, for the most part, have an inverse relationship with value of the dollar.

David Silver

Looking Under the Rug
The Senate passed an amendment this afternoon that would give Congress'investigative arm, the Government Accountability Office, a one-time all you can handle look at the Federal Reserve's books.  The period would begin in December of 2007 and go through the peak of the lending to financial institutions through 2008.  In a rare form of both sides of the aisle actually agreeing on something, the amendment was passed with a unanimous vote of 96-0. 

After this morning's announcement that Fannie Mae (FNM) needs another $8.4 billion, the Senate is finally discussing ending the connection with the two conservatorships.  A bill authored by Senator McCain, that could be voted on as early as today, would set a hard end date for the government's control of Fannie and Freddie.  It would also eventually end their government-sponsored charter, roll back the firm's loan limits, require them to pay state and local taxes, and require them to pay back the government for any benefit the firm received from receiving an implicit guarantee (really interested how you would put a number on this).  Doesn't look like the bill will get the votes to pass, but finally someone is talking about the black hole that has become Fannie and Freddie.  The two conservatorships purchase approximately 97% of all home-loans, but even these two companies have been edging into the riskier loans.  As Charles said this morning, any business run for a political gain is doomed to fail.

Long Idea: LULULEMON ATHLETICA INC. (LULU) @ $39.68
Click here to view the trading alerts that followed this recommendation

Trading Parameters
Entry Price	Entry Limit	Stop Loss	Trading Target	Target	Long-term Target	Options
$39.68	see comments	$35.00	N/A	$51	N/A	N/A
Options Trade Parameters
Type	Option Symbol	Entry Price	Strike Price	Expiration Date
Call	LULU100918C00040000	$5.30	$40.00	9/18/2010

BACKGROUND: Lululemon Athletica Inc. engages in the design, manufacture, and distribution of athletic apparel and accessories for women, men, and female youth in Canada, the United States, and Australia. The company's apparel products include fitness pants, shorts, tops, and jackets for healthy lifestyle activities, such as yoga, running, and general fitness. Its fitness-related accessories comprise an array of items, such as bags, socks, underwear, yoga mats, instructional yoga DVDs, and water bottles. The company sells its products through its retail stores; independent franchises; and a network of wholesale accounts that includes yoga studios, health clubs, and fitness centers, as well as directly through e-commerce. As of January 31, 2010, it operated 124 company-owned and franchise stores under the lululemon athletica and ivivva athletica brand names. Lululemon Athletica Inc. was founded in 1998 and is based in Vancouver, Canada.

SKINNY: The company's name all but rolls off your tongue (pronounced "loo-loo lemon"). However, make no mistake this is one retailer that is becoming a serious force in the malls. The company's focus on high quality yoga wares, among other fitness offerings, has made it the de facto destination for workout seeking men and women. In our store tours of Lululemon, we have been impressed by the very knowledgeable staff, inviting store front, calming shopping experience (as opposed to a trip into most specialty apparel retailers, where it feels akin to a night on the club scene), and of course product quality. All of these observations continue to be on full display within the company's financial results, especially during the past two quarters.

The company returned to comparable store sales growth in a big way for the fourth quarter, posting a 29.0% increase. Merchandise margin increased to the highest level we have seen from the company in the past three years, benefiting from advantageous costs in the supply chain, limited product markdowns, and the premium nature of the product. We believe the company stands to grow earnings in excess of the top line growth rate in 2010 and 2011, supported by controlled new store openings, tailwinds surrounding merchandise margin, and favorable sales comparisons. Other positive aspects to the company include (1) highest operating margins among our specialty apparel coverage universe; and (2) strong cash position and no bank debt. Our price target is $51.00, or 35.0x where we believe earnings will conclude in calendar 2011. Currently, the stock trades on a P/E multiple of 27.4x our EPS estimate, but again given the positive aspects of the business we can certainly justify a higher multiple assumption. Risk adverse subscribers are advised to use $35 as a stop loss.

Analyst Coverage
BMO Capital Markets- Initiated MARKET PERFORM	JMP Securities- Initiated MARKET PERFORM	KeyBanc Capital Mkts- Initiated HOLD