Stocks Slightly Lower into Final Hour on Profit-Taking

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Biotech longs and Financial longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is neutral as the advance/decline line is about even, sector performance is mixed and volume is about average. Investor anxiety is very high. Today’s overall market action is mildly bullish. The VIX is rising 6.37% and is high at 24.47. The ISE Sentiment Index is about average at 152.0 and the total put/call is slightly below average at .77. Finally, the NYSE Arms has been running above average most of the day, hitting 1.44 at its intraday peak, and is currently 1.03. The Euro Financial Sector Credit Default Swap Index is dropping another 2.75% today to 77.66 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 falling 4.57% to 115.80 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 2.67% to 32 basis points. The TED spread is now down 434 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is down 5.03 at 41.31 basis points. The Libor-OIS spread is rising .46% to 30 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 1 basis point to 1.89%, which is down 75 basis points since July 7th. The 3-month T-Bill is yielding .18%, which is unch. today. Homebuilding, Financial, Insurance, Construction, Disk Drive and Oil Tanker shares are all posting meaningful gains today. The MS Cyclical Index is rising another 1.3%. The Euro Financial Sector Credit Default Swap Index is continuing its recent plunge, falling to the lowest level since August 13^th, 2008, which remains a large positive. Moreover, the North Amer. Investment Grade CDS Index is falling today to the lowest level since June 18^th, 2008. While it is a slight negative that the market didn’t respond more positively to the new home sales report, the major averages are short-term technically extended. As well, the bears have been unable to gain any downside traction despite relative weakness in some Nasdaq leaders. Subdued US stock sentiment, the recent surge in Nasdaq short interest, plunging credit market angst, improving economic data, high levels of investor performance anxiety, elevated levels of sideline cash, diminishing odds for draconian healthcare reform/cap-and-trade measures and range-bound energy prices/long-term rates should help US stocks to consolidate recent gains in a healthy fashion, setting the stage for another surge higher. Nikkei futures indicate an +57 open in Japan and DAX futures indicate an +11 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, investment manager performance anxiety, diminishing government healthcare reform worries, less economic fear and earnings optimism.

Today's Headlines

Bloomberg:

- Purchases of new homes in the U.S. climbed 11 percent in June, the biggest gain in eight years, underscoring evidence that the deepest housing slump since the Great Depression is starting to stabilize. Sales increased to a 384,000 annual pace, higher than every forecast in a Bloomberg News survey and the most since November, figures from the Commerce Department showed today in Washington. The number of houses on the market dropped to the lowest level in more than a decade. Deutsche Bank Securities Inc. and Goldman Sachs Group Inc. economists said today’s figures signal an end to the slide in home construction and sales. While that means the drag on economic growth will turn to a stimulus in the second half of the year, property values are likely to continue falling and rising unemployment will temper the recovery, analysts said. The median price of a new home decreased 12 percent to $206,200 from $234,300 in June 2008. Builders had 281,000 houses on the market last month, down 4.1 percent from May and the fewest since February 1998. The number of unsold properties fell a record 36 percent from June 2008. It would take 8.8 months to sell all homes at the current sales pace, the lowest level since October 2007.

- Surging Profit Estimates Signal 26% Rally for S&P 500.

- The cost to protect against defaults on U.S. corporate bonds using a benchmark credit-default swaps index dropped to the lowest in more than a year. Credit swaps on the Markit CDX North America Investment- Grade Index Series 12, which is used to speculate on the creditworthiness of 125 companies in the U.S. and Canada or to protect against losses on their debt, fell 4.5 basis points to a mid-price of 114.5 basis points as of 7:51 a.m. in New York, according to Barclays Capital. A decrease in the index typically signals improvement in investor confidence. The index is at the lowest since June 18, 2008, when a previous series was trading at about 113 basis points, according to CMA DataVision.

- Lumber rose the maximum permitted by the Chicago Mercantile Exchange for the second time in three sessions. Lumber futures for September delivery rose the CME’s daily limit of $10, or 5.3%, to $198 per 1,000 board feet at 9:47 am in Chicago.

- The Commodity Futures Trading Commission today imposed new limits on natural gas swaps on the IntercontinentalExchange Inc.(ICE), tightening the so-called “Enron loophole” that exempted the contract from regulation. “To protect the American public, it is essential that we bring transparency and accountability to the marketplace,” Commission Chairman Gary Gensler said in a statement. “Bringing this natural gas contract under the CFTC’s regulatory authority is a critical step toward ensuring a fair and orderly marketplace.” The loophole allowed traders to sidestep Nymex limits on natural gas positions which are designed to keep one investor from gaining too much control of the market. Nymex limits natural gas traders to 12,000 net futures and 1,000 in the last three trading days before the contract expires. ICE expects to impose similar limits on its swaps, said Kelly Loeffler, an ICE spokeswoman.

- Treasuries fell, pushing the yield on the 10-year note to the highest in over a month, as the U.S. completed the first of this week’s four auctions for a record $115 billion and new homes sales rose the most in eight years.

- Wells Fargo & Co.(WFC), the bank that boosted its U.S. property-related holdings by acquiring rival Wachovia Corp., is adding to those investments with purchases of mortgage-backed bonds, even as Federal Reserve Chairman Ben S. Bernanke warns of another wave of defaults.

- High-speed trading in the U.S. stock market may face its biggest threat after Senator Charles Schumer proposed prohibiting so-called flash orders. Schumer, the third-ranking Senate Democrat, urged the Securities and Exchange Commission to ban the practice in which some equity exchanges hold orders to buy and sell shares for a split second before publishing them on competing platforms. Schumer’s July 24 letter raises the stakes in a debate over whether computer-driven trading by hedge funds and Wall Street firms gives them an unfair advantage over other investors.

- The cost of three-month loans in dollars fell to below 0.50 percent for the first time, according to the British Bankers’ Association.

- Agilent Technologies Inc.(A), the world’s biggest maker of scientific-testing equipment, agreed to buy Varian Inc. for $1.5 billion in cash to add instruments used in the study of atoms and molecules. Varian shareholders will receive $52 a share, about 35 percent more than the closing price on July 24, Agilent said. Both companies’ boards have approved the transaction, Agilent said in a statement today.

- The S&P 500 has broken into new territory and may rally about 9% this year from current levels, according to technical analysts at Bank of America. The S&P 500 has closed above its January 2009 high near 944 and has also stayed above the May 2008 downtrend line of 900, both key signals that the index has potential to reach 1,055 to 1,065 this year, Bank of America’s Mary Ann Bartels and Stephen Suttmeier wrote today.

- Jeremy Grantham, chief investment strategist of Grantham Mayo Van Otterloo & Co., said shares in big U.S. companies are the best values and China’s economy could “come unhinged,” hurting emerging-markets stocks. “The easy winner of the cheapest equity subcategory contest is still high-quality U.S. blue chips,” Grantham, who oversees about $78 billion, wrote in a quarterly letter posted today on the Boston-based firm’s Web site. Edward Chancellor, a member of GMO’s asset-allocation team, “strongly suspects that the Chinese economy is dangerously unbalanced and very likely to come unhinged in the next few quarters, surprising the pants off investors,” Grantham wrote.

Wall Street Journal:

- U.S. President Barack Obama called Monday for deeper U.S. engagement with China, saying both countries can benefit by coordinating their responses to the economic crisis and working together to address climate change.

- Organic farmers and grocery retailers are embracing the idea of lower-cost, private-label products to retain newly budget-conscious consumers. Supervalu Inc., the fourth-largest U.S. food retailer by sales, expanded its Wild Harvest organic brand to 312 items, from 150 last spring. Safeway Inc., the third-largest U.S. food retailer , last fall began selling its organic food brands to other retailers. Private-label organics have "broken some price barriers for shoppers, and everyone is price sensitive these days," said Mike Gilliland, chief executive of Newflower Market Inc., a natural-grocery chain based in Boulder, Colo., with 25 stores.

- EBay Inc.(EBAY) on Monday announced a series of changes to its core marketplaces business that are designed to help large vendors sell new goods in greater volumes. The e-commerce company will tweak its search algorithm to favor new products, allow sellers to include more and bigger photos in their listings for free, and do away with features that sellers have used to dress up their listings, said two people familiar with eBay's plans.

- General Motors Co. Treasurer Walter Borst said Monday the auto maker expects billions in additional Energy Department funding now that the auto maker is "viable." GM has applied for more than $10 billion in Department of Energy funds, according to a spokesman for the company. The spokesman said GM expects to receive most, but not all of that funding if the DOE approves GM's loan request. Such loans would further extend the taxpayer commitment to GM's reorganization. The Treasury Department has already committed at least $50 billion in direct bailout funds to GM, and billions more to its affiliates, such as supplier Delphi Corp. and lender GMAC LLC.

CNBC:

- Corning stock(GLW) softened in early morning trading despite reporting better-than-expected second-quarter earnings on Monday. “It’s too early to declare that the recession is over, but I think clearly we think we’ve hit bottom and hopefully some bright signs in some of our businesses,” said Jim Flaws, chief financial officer at Corning.

New York Post:

- Sun Capital Partners, which just a couple of years ago was among the hottest private-equity groups in the country, has fallen upon hard times of late -- a victim of the recession, bad management decisions and -- according to critics -- outright greed.

NY Times:

- The global technology industry may have passed a turning point, showing a marked recovery in recent weeks after an extraordinarily deep downturn, according to the Organization for Economic Cooperation and Development. Production of semiconductors, computers, mobile phones and other electronic equipment is still considerably below pre-crisis levels but has rebounded strongly from the end of 2008 and early 2009, the organization says in a report set for publication this week. “Even a few weeks ago, we didn’t see the bounce-back in the data,” said Sacha Wunsch-Vincent, an O.E.C.D. economist. “We were still grappling with the size of the downturn. Now, this could be the turning point.”

Lloyd’s List:

- The nominal value of freight-derivatives trading may decline as much as 81% this year, citing estimates from Chris Reilly, chairman of the Forward Freight Agreement Brokers Association, and data from the Baltic Exchange. The freight-derivatives market may be worth between $30 billion and $40 billion in 2009. In 2008, the equivalent of 2.1 billion metric tons of freight was traded. The contracts were worth $155 billion.

- MORE than two-thirds of 150 large Chinese shipping companies intend to freeze or cut salaries this year in an effort to tackle the tough business environment. A joint survey conducted by Shanghai Shipping Exchange and CIC HR Management Consulting showed 55% of respondents said they would freeze wages this year.

Forbes:

- Absent a parallel stringent global regulatory framework, an E.U. decision to adopt stringent restrictions will stimulate migration of the alternative investment fund management sector to Switzerland, where Geneva and Lausanne have the existing legal and professional infrastructure to support such a shift. Furthermore, restrictions on funds operating outside the E.U. could foster tensions with the United States.

Rassmussen:

- Public opposition to the auto bailouts may translating into consumer buying decisions, with 46% of Americans now saying they are more likely to buy a car from Ford(F) because it did not take government money to stay in business. A new Rasmussen Reports national telephone survey finds that 13% say they are less likely to buy a Ford because the company didn’t receive a bailout, and 37% say it has no impact on their car buying. At the same time, nearly one-out-of-five Americans (19%) say someone in their family or a friend has chosen not to buy a car from GM or Chrysler because they took bailout money. Fifty-six percent (56%) say family or friends have not steered clear of GM or Chrysler for this reason, but 26% are not sure.

Politico:

- Americans need meaningful reforms that make health care more affordable and more accessible — particularly for those who currently do not have health insurance. However, President Barack Obama and Democratic leaders in Congress have held fast to a strategy that exploits this general desire and the current economic crisis in order to force a false choice upon the American people: the idea that if a government health care plan fails, then health care reform is dead. This is simply not the case.

- House Speaker Nancy Pelosi is one of the most despised political figures in the country. And, frankly, she doesn’t give a damn. “No, I don’t care,” Pelosi told POLITICO last Thursday, laughing heartily as she walked beneath the Capitol dome and plunged into a crowd of tourists.

New York Magazine:

- Tenacious G. Inside Goldman Sachs(GS), America’s most successful, cynical, envied, despised, and (in its view, anyway) misunderstood engine of capitalism.

PRNewswire:

- SEC, CFTC Asked to Investigate Goldman Sachs’(GS) Special Privileges Ahead of Cap-and-Trade. Today Steve Milloy, publisher of JunkScience.com, released a letter to SEC Chairman Mary Schapiro and CFTC Chairman Gary Gensler asking for an investigation into loopholes in the law which enable Goldman Sachs an unfair securities market advantage and a unique ability to manipulate commodities markets. It is Milloy’s concern that Goldman may similarly exploit any future carbon market created by the cap and trade legislation moving through Congress. The letter may be read here:

Reuters:
- Congress will consider steps to curb speculation in the credit default swaps market and could ban naked swaps, according to a U.S. House of Representatives Committee document obtained by Reuters. The bill would give regulators authority to set position limits on credit default swaps (CDS) dealers. It would also shift oversight of ICE Trust Clearinghouse from the Federal Reserve to the Securities and Exchange Commission, the document said.

Financial Times:
- Chinese regulators on Monday ordered banks to ensure unprecedented volumes of new loans are channeled into the real economy and not diverted into equity or real estate markets where officials say fresh asset bubbles are forming. The new policy requires banks to monitor how their loans are spent and comes amid warnings that banks ignored basic lending standards in the first half of this year as they rushed to extend Rmb7,370bn in new loans, more than twice the amount lent in the same period a year earlier. Beijing’s concerns are echoed in other countries across the region, most notably South Korea, where the government says it is taking steps to cool a real estate bubble, and Vietnam, where the government has ordered state banks to cap new lending to head off inflation. The flood of new lending also has implications for the quality of bank loans and the country’s overall growth. “China's economic recovery is being constructed on the back of a savaged banking system,” said Derek Scissors, a research fellow at the Heritage Foundation in Washington. “Tens of billions – and perhaps hundreds of billions – of dollars of loans will not be repaid.” He points out that in recent years total loan growth of around 15 per cent has supported gross domestic product growth of higher than 10 per cent but in the first half of this year total loan growth of around 33 per cent supported GDP expansion of only 7 per cent.“China's economic policies have shifted from being unsustainable over the very long term to being unsustainable for any more than one year,” Mr Scissors said.

Reforma:

- Mexico’s slumping auto production may shave 1.6 percentage points off the economy this year. Mexico may build 60% fewer vehicles this year than in 2008, citing a study by BBVA Bancomer SA, the country’s largest lender. The bank originally expected auto production to fall by no more than 40% in 2009.

DigiTimes:

- Toshiba is expected to ramp up its NAND flash production to over 90% of its capacity in August, according to sources at memory card makers. Despite the increases in output, the chipmaker has told downstream players that its supply to the spot market will be limited, prompting speculation that the Japan supplier is seeing strong demand from Apple, the sources indicated.

TheNational:

- Hotels continued to feel the pressures of the economic downturn last month, according to new data. Weaker demand coupled with more hotel rooms becoming available in Dubai had forced hotels to cut rates heavily to try to attract guests, hitting the emirate particularly hard, analysts said. “Because of the drop in occupancy there has been a bit of a panic on board and there have been massive rate cuts and promotions going on and packages,” said Jalil Mekouar, the executive vice president for MENA at Jones Lang LaSalle Hotels. In Dubai, occupancy levels fell from 75.8 per cent in June last year to 64.6 per cent last month, a 14.8 per cent fall, while average room rates dropped 22.4 per cent from Dh786.85 (US$214.18) to Dh610.44, according to data from STR Global. As a result, revenue per available room (RevPAR), the key industry indicator, was down by more than a third in Dubai, from Dh596.18 to Dh394.05.

Bear Radar

Style Underperformer:
Large-cap Growth (-.89%)

Sector Underperformers:
Education (-2.11%), Software (-1.87%) and Airlines (-1.52%)

Stocks Falling on Unusual Volume:
BCS, SNDA, SOHU, CTV, MYL, CALM, RYAAY, POOL, SPWRA, TBH, AET, RSH and NC

Stocks With Unusual Put Option Activity:
1) MYL 2) ATVI 3) CYOU 4) S 5) TROW

Bull Radar

Style Outperformer:
Small-Cap Value (+.34%)

Sector Outperformers:
Homebuilders (+1.92%), Banks (+1.58%) and I-Banks (+1.31%)

Stocks Rising on Unusual Volume:
PVTB, ONB, SLF, MFC, HIG, LGCY, CLMT, WFC, PLT, CHL, ADVS, PTNR, BBBB, VARI, CISG, BCRX, HITK, CRAI, CFSG, SIVB, SYNA, EBIX, UFPI, FUQI, CSKI, IBKC, FSLR, WPPGY, JJSF, WTFC, TRGT, NTY, EPE, KNM, KNX, TFX, HEP and VCP

Stocks With Unusual Call Option Activity:
1) NWL 2) ZMH 3) CEPH 4) RF 5) RHT

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
Chart Toppers
Real-Time Intraday Quote/Chart
HFR Global Hedge Fund Indices