Wednesday, August 29, 2007

Stocks Finish Sharply Higher on Positive Earnings Reports, More Economic Optimism

S&P 500 1,463.76 +2.19%
DJIA 13,289.29 +1.90%
NASDAQ 2,563.16 +2.50%
Russell 2000 787.32 +2.54%
Wilshire 5000 14,693.51 +2.16%
Russell 1000 Growth 587.65 +2.29%
Russell 1000 Value 820.63 +2.05%
Morgan Stanley Consumer 713.12 +1.64%
Morgan Stanley Cyclical 1,017.31 +2.57%
Morgan Stanley Technology 626.77 +2.64%
Transports 4837.42 +2.21%
Utilities 487.87 +2.28%
MSCI Emerging Markets 130.18 +1.65%

Total Put/Call .93 -27.91%
NYSE Arms .28 -92.78%
Volatility(VIX) 23.81 -9.47%
ISE Sentiment 100.00 +8.70%

Futures Spot Prices
Crude Oil 73.57 +2.57%
Reformulated Gasoline 210.15 +4.27%
Natural Gas 5.43 -2.91%
Heating Oil 204.33 +2.35%
Gold 676.20 +.40%
Base Metals 234.85 -.72%
Copper 335.35 +1.24%

10-year US Treasury Yield 4.56% +5 basis points
US Dollar 80.67 -.10%
CRB Index 306.83 +.78%

Leading Sectors
Oil Service +3.75%
Computer Hardware +3.5%
Retail +3.5%

Lagging Sectors
Hospitals +1.16%
Restaurants +1.11%
HMOs +1.05%

Evening Review
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
PM Market Call
After-hours Commentary
After-hours Movers

After-hours Stock Quote
In Play

Afternoon Recommendations
Piper Jaffray:

- Reiterated Outperform on (GOOG), target $660.

Afternoon/Evening Headlines
- Technology shares rallied, helping the US stock market recover from the steepest decline in three weeks and sending the Nasdaq Composite Index to its biggest advance in a year.
- US property and casualty insurers such as Chubb Corp. and Travelers face “minimal” risk of investment losses and no prospect of ratings downgrades this year from the subprime mortgage crisis, Fitch Ratings said.
- Most insurers and reinsurers face ‘negligible’ risk from the US subprime crisis, S&P said.
- Federal Reserve Chairman Ben S. Bernanke said relaxing portfolio limits on Fannie Mae(FNM) and Freddie Mac(FRE) isn’t necessary for the two largest US mortgage finance companies to help stem a surge in foreclosures.
- Global Hyatt Corp. said a group of investors including Goldman Sachs Holdings will buy a minority stake in the hotel operator for $1 billion.
- Google Inc.(GOOG) may introduce software to run mobile phones within the next eight weeks to promote its e-mail and mapping services, an analyst said.
- Ford Motor(F) is “in good shape financially” and has enough liquidity for its restructuring plan, CEO Mulally said.
- German magazine Capital is reporting that talks between Apple(AAPL) and Volkswagen are in an early stage for a so-called “iCar.”

BOTTOM LINE: The Portfolio finished higher today on gains in my Retail longs, Computer longs, Medical longs and Semi longs. I covered some more of my (EEM) short and my remaining (IWM)/(QQQQ) hedges in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was positive today as the advance/decline line finished substantially higher, every sector rose and volume was below average. Measures of investor anxiety were slightly above average into the close. Today's overall market action was bullish. There were notable reversals higher in the financials and homebuilders today. Technology, energy and retail shares were especially strong. With so many shorts and underinvested bulls, it doesn't take much to send the market soaring. I don't think Bernanke's letter to Schumer that was released this afternoon said much that investors didn't already know, but it may have been the last straw for many that had hoped for a late-day swoon. I think the key to today's gains was mainly a result of data that showed consumer spending isn't collapsing. Positive comments from analysts on back-to-school PC sales were significant. As well, (WSM), (BIG) and (DLTR) had positive earnings reports. That doesn't mean consumer spending is at strong levels, but investors had been pricing in a dire back-to-school and holiday selling season. With PC sales healthy, that appears much more unlikely, in my opinion. Also important today, many market-leading stocks posted outsized gains, rising 3%-5%. I was too underexposed to the market when the day began. My style is geared around substantially outperforming the market on the upside and keeping downside risks in check. My hedges are not an attempt to make money on the downside, they are used to cut volatility. Those hedges serve their purpose over the long run. I am having one of my best years relative to the market, and I will continue to quickly cut market risk when my analysis and models dictate such a change is warranted to protect gains into year-end. My top three long positions, which I have frequently disclosed for two years, are Google (GOOG), Apple (AAPL) and Intuitive Surgical (ISRG). Those stocks are up +35.3%, +101.7% and +133.5%, respectively, over the last year. Today's gains here will likely lead to further gains in Asia tonight. The Nikkei futures are indicating an up 360 open in Japan tonight.

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