Stocks Finish Slightly Higher, Boosted by Airline, Education, Medical and Biotech Shares

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Stocks Higher into Final Hour on Falling Credit Market Angst, Lower Long-Term Rates, Less Economic Fear

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs, Biotech longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is above average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling 2.06% and is very high at 29.42. The ISE Sentiment Index is below average at 123.0 and the total put/call is about average at .83. Finally, the NYSE Arms has been running high most of the day, hitting 1.68 at its intraday peak, and is currently 1.36. The Euro Financial Sector Credit Default Swap Index is falling another 6.33% today to 104.67 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is dropping another 3.65% to 124.49 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is plunging 7.93% to 51 basis points. The TED spread is now down 412 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 10.42% to 43.0 basis points. The Libor-OIS spread is rising .06% to 45 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 4 basis points to 1.99%, which is down 65 basis points since July 7th. The 3-month T-Bill is yielding .13%, which is up 4 basis points today. The Euro Financial Sector Credit Default Swap Index is now at the lowest level since early January, which is a large positive. Given the capital raising news, the (XLF) trades pretty well today and is near session highs. The (XLF) has been consolidating gains over the last three weeks. I suspect another surge up through its 200-day moving average will occur very soon. The NYSE Arms is high again today, despite gains in the major averages, which is also a positive. One of my longs, (ISRG), is breaking above its 200-day moving average on decent volume today for the first time since July 2008. I still see substantial upside in the shares over the intermediate/long-term. Nikkei futures indicate an +76 open in Japan and DAX futures indicate a +16 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, declining credit market angst, investment manager performance anxiety, technical buying, lower long-term rates and less economic fear.

Today's Headlines

Bloomberg:

- The number of Americans signing contracts to buy previously owned homes climbed 6.7 percent in April, more than forecast and the fourth increase in five months, as lower prices attracted buyers. The gain in the index of signed purchase agreements, or pending home resales, was the biggest in more than seven years and followed a 3.2 percent increase in March, the National Association of Realtors said today in Washington. The April reading was up 3.2 percent from the same month a year earlier.

- The cost to protect U.S. corporate debt against default fell to the lowest in almost a year after Morgan Stanley, JPMorgan Chase & Co. and American Express Co. said they’ll raise at least $7.7 billion to repay rescue funds. Credit-default swaps on the CDX North America Investment- Grade Index linked to 125 companies in the U.S. and Canada fell 4 basis points to 124.5, the lowest since June 20, according to CMA DataVision prices at 10 a.m. in New York. Morgan Stanley also dropped to the lowest since June and American Express fell to a 10-month low, CMA prices show. Credit-default swaps on Morgan Stanley dropped 21 basis points to 191, CMA prices show. Contracts on American Express declined 14 to 188 and JPMorgan fell 2.5 to 87. The Markit iTraxx Financial index of 25 European banks and insurers declined 10 basis points to 102 and the subordinated index dropped 15 to 180.

- The rally in the Standard & Poor’s 500 Index above its 200-day moving average is sending a bullish signal after the measure traded below the level for the longest period since the 1930s. The benchmark gauge for American equities added 2.6 percent to 942.87 yesterday, exceeding its mean price of 926.89 over the past 200 days on a closing basis, data compiled by Bloomberg show. The climb halted a 523-day stretch where the S&P 500 trailed the average, the second longest in history. Harris Private Bank and Morgan Asset Management say the advance may indicate the bear market in U.S. equities that began in October 2007 is over, heralding more gains after a three- month, 39 percent increase.

- South Korea deployed a high-speed naval vessel equipped with anti-ship missiles to its sea border with North Korea amid reports the communist nation is preparing to test-launch several mid-range and one ballistic rocket. North Korea is readying as many as three medium-range missile in the Anbyon region, northeast of the capital of Pyongyang, Yonhap News reported today. There are signs the North may also be taking steps to test-fire its second longer-range, ballistic missile since April, U.S. Defense Secretary Robert Gates said yesterday.

- Herb Allison, nominated to run the Treasury’s office overseeing the U.S. financial rescue, owns $1 million to $5 million of stock in Bank of America Corp., one of the biggest federal aid recipients. Allison is also paid about $3,600 a month from a Merrill Lynch & Co. annuity, the firm where he worked for almost three decades, and was later bought by Bank of America.

- Emerging Markets Most Costly Since ’07 on Fund Flood.

- Europe’s unemployment rate rose to the highest in almost 10 years in April as the worst global economic slump in more than six decades forced companies to cut jobs and spending. Unemployment in the 16-member euro region increased to 9.2 percent from 8.9 percent in March, the European Union statistics office in Luxembourg said today. That was the highest since September 1999 and exceeded the 9.1 percent rate expected by economists, according to the median of 29 forecasts in a Bloomberg News survey.

- Colorado State University today cut its hurricane forecast for the 2009 Atlantic season to five, from a prediction of six in April.

- Google Inc.’s(GOOG) free mobile-phone operating system will begin running computers next quarter, entering a market dominated by Microsoft Corp.’s(MSFT) Windows and deepening the rivalry between the two companies.

- FBI Director Robert Mueller said the U.S. government’s stimulus package, including TARP funds, has “the potential to be the next wave” of cases the agency investigates. “These funds are inherently vulnerable to bribery, fraud, conflicts of interest and collusion,” Mueller said in a speech today at the Economic Club of New York.

- US stocks may extend their rally if the S&P 500 breaches the 945 level, according to a technical analyst at UniCredit SpA. “A crossing of 945 will attract more mid-term orientated investors into the market,” Volker Bien said. UniCredit’s first medium-term target level for the S&P 500 is 980 should the measure close above 945.

- Citadel Investment Group LLC, the $11 billion hedge-fund firm founded by Ken Griffin, gained 21 percent this year through May in its main funds as convertible bonds and stocks rose, a person familiar with the results said. The Wellington and Kensington funds tumbled 55 percent in 2008. They will have to climb another 84 percent before Chicago- based Citadel can charge clients performance fees once again.

Wall Street Journal:

- The technology sector is bottoming out as companies are seeing a better performance in the second quarter compared with the first quarter, Seshu Madhavapeddy, general manager of Texas Instruments Inc.'s (TXN) mobile Internet devices business unit, said Tuesday.

- Microsoft Corp. (MSFT) on Tuesday announced the date the latest version of the Windows operating system, Windows 7, will be in general commercial availability: Oct. 22. The milestone comes amid intense pressure on the world's largest software maker to reverse its perceived missteps with Windows 7's predecessor, Vista, and as evidence mounts that computer makers are increasingly considering alternatives to its ubiquitous operating system.

CNBC:

- After taking a beating for the past two years, real estate investment trusts are regaining popularity with investors looking for bargains and a way to capitalize on an industry rebound. More commonly known by their acronym, REITs are funds that provide investors with a broad range of investment opportunities while delivering substantial tax breaks to the corporations that set up the vehicles.

NY Times:

- The end result is that G.M. will not become more like successful car companies. It will become less like them. The federal merger will not accelerate the company’s viability. It will impede it. We’ve seen this before, albeit in different context: An overconfident government throws itself into a dysfunctional culture it doesn’t really understand. The result is quagmire. The costs escalate. There is no exit strategy.

- Critics have long complained about the exorbitant fees hedge funds charge their clients. Now, it seems those complaints are finally being heard. A new study from Barclays Capital, expected to be released Tuesday, shows that investors are becoming increasingly vocal about the fees they pay hedge fund managers and they want more than just a reduction in the typical 2 percent management fee and 20 percent performance fee. One idea gaining ground involves the use of a “hurdle rate” – or a specific benchmark a hedge fund manager needs to overcome to get paid an incentive fee at the end of the year. The hurdle would vary for each fund depending on its strategy, but for a simple long-short equity fund, for example, returns would have to exceed the S&P 500 by at least 2 percentage points. Investors are also demanding that less-liquid funds, which lock up their money for three years or more, delay the collection of performance fees until after the lock-up period is over.

- With two carmakers operating in bankruptcy protection, the auto industry is hoping to see some evidence Tuesday that new-vehicle sales could start to pull out of their slump. The Ford Motor Company said it sold more vehicles in the United States in May than in any month since last July and that its market share climbed to the highest level in three years. It sales were down 24 percent from a year ago, one of the smallest declines that any major automaker has reported in months. But Ford said its sales rose 20 percent in May from April — helped by record sales of some of its small cars. Ford said it would increase production in the second and third quarters by 52,000 vehicles, or 6 percent. That is in contrast to significant cutbacks at Chrysler, which has idled all of its United States plants for the last month, and G.M., which is shutting 13 assembly plants for part of the summer to clear out inventories.

MarketWatch:
- Bankrupt automaker General Motors said Tuesday it reached a tentative deal to sell Hummer, its military-styled vehicle, reportedly to a machine maker based in western China.

- In a move likely to push exchange-traded funds even further into the investing mainstream, Pacific Investment Management Co. on Tuesday launched its first ETF and said it plans to follow up with a half-dozen more.

WebWire:

- J.P. Morgan(JPM) was recently named "Best Overall Hedge Fund Administrator" by HFMWeek magazine in its 2009 Service Provider Awards. The awards recognize hedge fund service providers that outperformed their peer group in 2008/2009, and that demonstrated financial progress, growth and genuine innovation.

Market News International:

- The European Central Bank doesn’t exclude cutting its benchmark interest rate by a further quarter points and may use additional non-standard policy measures, citing “well-informed” sources. Another official said expanding the bank’s use of non-standard policy tools is also a possibility. The ECB has a “genuine willingness to consider all options” and “could easily go further” in response to changing market conditions, the official said.

Atlanta Business Chronicle:

- Georgia officials offered NCR Corp.(NCR) more than $60 million to lure the company to the state, which is double what Ohio offered the company at the last minute Monday night. Atlanta Business Chronicle broke the news Monday evening that NCR (NYSE: NCR) would move its headquarters and roughly 1,300 workers from Dayton to Duluth, Ga. The move is sending reverberations across the Dayton area.

Reuters:
- Access to the popular social networking service Twitter and email service Hotmail was blocked across mainland China late on Tuesday afternoon, two days before the twentieth anniversary of a bloody crackdown on Tiananmen Square. Indignant users filled chatrooms with protest, after access to Twitter was denied shortly after 5:00 pm (0900 GMT) on Tuesday. "The whole Twitter community in China has been exploding with it," said Beijing-based technology commentator Kaiser Kuo. "It's just part of life here. If anything surprises me, it's that it took them so long."

- To find a U.S. region where auto manufacturing is well placed to weather the storm in the American car industry, look south.

Financial Times:
- Many managers hope the end of the hedge fund bubble will help create better times ahead.

- Some time over the next few weeks, the US House of Representatives is likely to vote on what Barack Obama and others have described as an historic bill that would sharply reduce American carbon emissions. The headline looks good. The reality is not so flattering.

JLM Pacific Epoch:

- According to Taiwanese media, the 3G Apple (Nasdaq:APPL) iPhone is expected to reach the mainland market in July, reports Sina quoting cens.com. It's not yet clear which 3G standard the iPhone will support, said the report. China Unicom's (NYSE:CHU, 762.HK, 600050.SH) Shanghai subsidiary confirmed on March 25 that its parent company had reached an agreement with Apple to release the 3G iPhone in China.

Xinhua News Agency:

- China’s crude-oil stockpiles for both emergency and commercial use rose by 1 million metric tons to 38.6 million tons in April from March.

Bernama:
- General Motors Corp.(GMGMQ), the bankrupt US carmaker, is considering opening a plant in Malaysia, citing the head of the manufacturer’s Southeast Asian division.

Bear Radar

Style Underperformer:
Mid-cap Value (+.28%)

Sector Underperformers:
Semis (-3.06%), Coal (-2.05%) and Gaming (-1.99%)

Stocks Falling on Unusual Volume:
BCS, MRVL, WNR, ATHR, HES, SNP, CLDX, ALTR, NTAP, JNPR, KLAC, MTZ, CAH, GNI and CAM

Stocks With Unusual Put Option Activity:
1) CMCSK 2) CX 3) DDUP 4) EP 5) NSC

Bull Radar

Style Outperformer:
Small-cap Growth (+.86%)

Sector Outperformers:
Airlines (+5.63%), Education (+3.04%) and HMOs (+1.70%)

Stocks Rising on Unusual Volume:
UNFI, CVLT, ULTI, SA, BG, PEP, AA, CCE, BMA, PHH, OVTI, DDUP, CISG, HOGS, FUQI, CBEY, QSFT, CMED, GOLD, BLUD, KNXA, APWR, OSIP, SHLD, ISRG, HWCC, NUVA, TBSI, KNDL, NTG, STI, CHU, ROS and AXR

Stocks With Unusual Call Option Activity:
1) DDUP 2) CHKP 3) QLGC 4) BCS 5) BKC