Stocks Close Modestly Higher on Afternoon Rebound

Indices
S&P 500 1,206.58 +.22%
DJIA 10,566.37 +.18%
NASDAQ 2,074.92 +.28
Russell 2000 637.19 +.44%
DJ Wilshire 5000 11,962.12 +.23%
S&P Barra Growth 579.50 +.17%
S&P Barra Value 622.75 +.27%
Morgan Stanley Consumer 583.32 -.12%
Morgan Stanley Cyclical 732.17 +.63%
Morgan Stanley Technology 478.97 +.25%
Transports 3,527.22 +.46%
Utilities 373.94 -.43%
Put/Call .83 +1.22%
NYSE Arms .88 -5.23%
Volatility(VIX) 11.46 -2.80%
ISE Sentiment 213.00 +15.14%
US Dollar 88.65 -.73%
CRB 306.98 +.66%

Futures Spot Prices
Crude Oil 55.31 -.47%
Unleaded Gasoline 155.65 -.38%
Natural Gas 7.40 -.55%
Heating Oil 162.00 -.07%
Gold 430.90 unch.
Base Metals 124.10 +.75%
Copper 154.90 unch.
10-year US Treasury Yield 4.09% -.19%

Leading Sectors
Steel +3.37%
Gold & Silver +1.58%
Homebuilders +1.37%

Lagging Sectors
Restaurants -.50%
Airlines -1.07%
Oil Tankers -1.20%

Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play

Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on TAP.

Afternoon/Evening Headlines
Bloomberg:
- A panel headed by former US Senator George Mitchell and former House Speaker Newt Gingrich faulted the UN today for failing to combat genocide and safeguard human rights and urged wide changes in the body.
- The US Senate approved an amendment to the $13 billion energy bill that would require oil companies to mix 8 billion gallons of ethanol a year into the nation’s gasoline supply by 2012 to reduce reliance on foreign oil.
- General Motors’ program to offer an employee discount to all US buyers is increasing the volume of shoppers by as much as 30% at dealerships in markets with historically low GM sales, an analyst said.
- The US dollar fell against the euro for the first day in six after government reports showed inflation decelerating.

CNBC:
- Citadel Holdings and Merrill Lynch are expected to buy 10% each in the Philadelphia Stock Exchange.

BOTTOM LINE: The Portfolio finished slightly higher on gains in my Retail, Homebuilding longs and Oil Tanker shorts. I exited a few shorts and added to my GOOG long in the afternoon, thus leaving the Portfolio 75% net long. The tone of the market was modestly positive today as the advance/decline finished slightly higher, sector performance was mixed and volume was very light. Measures of investor anxiety were mostly lower into the close. Overall, today’s market action was modestly positive considering the major indices and breadth closed at session highs. The bears had their chance to get a grip on the market in the morning and failed to do so. Comments from the Fed's Beige Book and a pullback in oil/long-term rates spurred the afternoon rally. I now expect the Dow and S&P to break out to the upside of their trading ranges of the last couple of weeks. This should occur within the next few days.

Stocks Modestly Lower Mid-day on Rising Energy Prices

Indices
S&P 500 1,202.65 -.10%
DJIA 10,536.76 -.10%
NASDAQ 2,063.75 -.24%
Russell 2000 634.35 -.01%
DJ Wilshire 5000 11,926.27 -.06%
S&P Barra Growth 577.75 -.13%
S&P Barra Value 621.15 +.02%
Morgan Stanley Consumer 581.94 -.37%
Morgan Stanley Cyclical 729.12 +.21%
Morgan Stanley Technology 476.57 -.26%
Transports 3,526.83 +.45%
Utilities 372.86 -.71%
Put/Call .79 -3.66%
NYSE Arms 1.0 +7.32%
Volatility(VIX) 11.94 +2.49%
ISE Sentiment 182.00 +54.24%
US Dollar 89.16 +.24%
CRB 305.01 +.24%

Futures Spot Prices
Crude Oil 56.55 +2.82%
Unleaded Gasoline 158.20 +2.67%
Natural Gas 7.48 +3.49%
Heating Oil 164.10 +.15%
Gold 431.30 +.47%
Base Metals 124.10 +.75%
Copper 155.20 +1.67%
10-year US Treasury Yield 4.12% +.38%

Leading Sectors
Steel +1.80%
Gold & Silver +1.20%
Energy +.92%

Lagging Sectors
Broadcasting -.86%
Disk Drives -1.02%
Airlines -1.30%

BOTTOM LINE: The Portfolio is unchanged mid-day as gains in my Oil Tanker shorts and Homebuilding longs are offsetting losses in my Base Metal Shorts and Internet longs. I exited a number of tech longs this morning and added a QQQQ short, thus leaving the Portfolio 50% net long. The tone of the market is modestly negative as the advance/decline line is lower, sector performance is mixed and volume is average. Measures of investor anxiety are mostly lower. Today’s overall market action is modestly negative, considering positive economic reports and the rise in energy prices. The Baltic Dry Index is now down 56.4% since its December 6, 2004 high. It has fallen 44.0% in just the last eight weeks. This leading indicator continues to forecast slowing economic growth. This was one of the first indicators to turn higher in late 2002, before substantial economic growth began in the first half of 2003. I expect US stocks to trade mixed into the close as high energy prices offset better inflation readings.

Today's Headlines

Bloomberg:
- Royal Philips Electronics NV, Europe’s biggest maker of consumer electronics, said “lighter demand” in consumer markets in Europe this quarter is hurting the company’s plans for growth.
- A pause in ratifying the European Union constitution would be “sensible” after the French and Dutch rejections of the treaty, UK Prime Minister Tony Blair said.
- Research In Motion Co-Chief Executive Officer Balsillie said he has back-up technology to keep US BlackBerry devices running should a three-month-old patent settlement with NTP fall apart.
- The US dollar is falling against the euro for the first day in six after a government report showed inflation was declining and hedge funds sold Treasury positions.
- Crude oil is rising to the highest in more than two months after the Energy Dept. reported a larger-than-expected decline in US inventories.

Wall Street Journal:
- A US federal judge in NY ruled that Rocker Partners LP, a hedge fund, can sue former executives and others connected with Lernout & Hauspie Speech Products NV, a Belgian maker of speech-recognition software that collapsed five years ago.
- The US government is seeking to strengthen legislation regulating US mortgage companies, Fannie Mae and Freddie Mac, that it sees as too lenient.
- The US utility industry may see a rash of mergers if congress repeals a 70-year-old law that bars oil companies, banks and other outsiders from owning the energy-producing companies.
- OPEC agreed to raise oil output quotas by 500,000 barrels a day and will make a similar increase again later if needed.

NY Times:
- China’s government may set up a $15 billion fund to bolster the nation’s ailing stock market.
- US officials are pressing companies to offer a generous range of prescription choices as the insurers prepare policies for the new Medicare drug program.

Bond Buyer:
- New provisions in the pending Senate energy bill would allow the issuance of as much as $2 billion in tax-credit bonds to finance renewable-energy and clean-coal generation projects.

LA Times:
- Los Angeles County’s board of supervisors has voted to allow the sale of syringes to illegal drug addicts without a prescription in an effort to reduce the spread of HIV and AIDS.

Globe and Mail:
- China has 1,000 spies in Canada, more than in any other country, citing an interview with a defector.

Inflation Decelerating, Manufacturing Stabilizing, Oil Inventories Down

- The Consumer Price Index for May fell .1% versus estimates of unchanged and a .5% increase in April.
- The CPI Ex Food & Energy for May rose .1% versus estimates of a .2% increase and unchanged in April.
- Business Inventories for April rose .3% versus estimates of a .4% increase and a .5% gain in March.
- Empire Manufacturing for June rose to 11.7 versus estimates of 1.0 and a reading of -11.1 in May.
- Net Foreign Security Purchases for April fell to $47.4B versus estimates of $70.0B and $40.6B in March.
- Industrial Production for May rose .4% versus estimates of a .2% increase and a .3% decline in April.
- Capacity Utilization for May rose to 79.4% versus estimates of 79.3% and 79.1% in April.
- Summary of Weekly Petroleum Data for the Week Ending June 10, 2005.
- The EIA reported crude inventories fell 1.78M barrels versus estimates of a 1.0M barrel decline. Gasoline inventories fell 950K barrels versus estimates of a rise of 675K barrels. Distillate inventories rose 2.43M barrels versus estimates of a gain of 1.5M barrels.

BOTTOM LINE: Cheaper energy costs unexpectedly drove down consumer prices last month, the first decline since July 2004. This should further quell inflation fears. Consumer prices were up 2.8% for the 12 months ended in May, below the 40-year average of 3.0%. The cost of all goods including cars, apparel and food fell .4% last month.

Inventories at US businesses rose .3% in April, the smallest increase this year, as sales surged. The increase in sales pushed the inventory-sales ratio down to 1.3 months, an all-time low.

The Empire Manufacturing Index rose by the largest amount since May 2003. The reading is back to moderate levels from a weak one. The new orders component of the index rose to 8.2 from minus 8.2 a month earlier. The prices paid index fell to 30.6 from 41.6 in May.

International investors accumulated US assets at a slower-than-expected pace in April, amid evidence that hedge funds cut holdings of Treasuries. Japan, the largest foreign holder of US government securities, bought a net 5.7 billion in April.

US industrial production rose .4% in May, more than expected, helped by a rebound in demand for business equipment and consumer goods. Business investment is picking up again after a surge in 2004, when tax incentives siphoned orders from earlier this year. Production of autos and parts increased 1.2% in May after a 2.3% decline in April.

Distillate inventories were the main concern for traders. I wouldn't be surprised to see oil reverse lower later today.

Links of Interest

Market Snapshot
Detailed Market Summary
Market Internals
Economic Commentary
Movers & Shakers
IBD New America
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote