Bull Radar

Style Outperformer:
Small-Cap Value (+.78%)

Sector Outperformers:
Semis (+1.58%), Homebuilders (+1.53%) and Construction (+1.26%)

Stocks Rising on Unusual Volume:
IRE, TLEO, ITT, UBS, MFE, AIXG, WTFC, BBV, ING, LAD, ABG, HNP, STO, ABAX, OFIX, AMED, POWI, LHCG, GTIV, IRBT, FUQI, GXDX, VSEA, SIRO, RADS, MGLN, ASML, MSTR, BMRN, FORM, SONO, AFAM, SGY, BEC, SNA, WSH, SWM, DW and LAD

Stocks With Unusual Call Option Activity:
1) UTHR 2) ZMH 3) HUM 4) SYNA 5) CHKP

Links of Interest

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Friday Watch

Late-Night Headlines
Bloomberg:

- A Senate panel seeking evidence of fraud tied to last year’s mortgage crisis has issued subpoenas to financial companies including Goldman Sachs Group Inc.(GS) and JPMorgan Chase & Co.(JPM), said U.S. Senator Tom Coburn, a Republican from Oklahoma.

- A panel of British lawmakers said Gordon Brown’s government should do more to tighten financial oversight, saying regulators should consider a ban on proprietary trading by deposit-taking banks. “It would be intolerable if banks took advantage of the implicit government guarantee for deposits to take risky bets on proprietary trading,” said John McFall, a member of Brown’s Labour Party who leads Treasury Committee. “This has to stop.”

- Japan’s consumer prices fell at a record pace in June, adding to signs that deflation may hamper a rebound from the nation’s worst postwar recession. Prices excluding fresh food declined 1.7 percent from a year earlier after sliding 1.1 percent in May, the statistics bureau said today in Tokyo. The decrease, the sharpest since the survey began in 1971, matched the estimate of economists. Bank of Japan board members say price declines will probably accelerate in coming months, signaling the central bank will maintain its extraordinary policy of keeping interest rates near zero.

- China may cut new loans by half in the last six months of this year on concern a rally in the nation’s stocks has grown too fast, according to former Morgan Stanley chief Asian economist Andy Xie. “The government is worried that this bubble is becoming too big so they’re going to cut credit growth by probably half in the second half,” said Xie, now an independent economist, in a Bloomberg Television interview in Hong Kong today. “I think the property and stock markets will come under pressure probably around October time.” China’s banking regulator said yesterday it plans to tighten rules on work capital loans, seeking to prevent misuse of funds. It’s “undeniable” that a portion of this year’s new lending entered the nation’s stock and property markets, Cheng Siwei, former vice chairman of the standing committee of the National People’s Congress, China’s parliament, said in June. An estimated 1.16 trillion yuan of loans were invested in the stock market in the first five months of this year, China Business News reported on June 29, citing Wei Jianing , a deputy director at the Development and Research Center under the State Council, China’s cabinet.

Wall Street Journal:

- Global ad Omnicom Group Inc. and Publicis Groupe SA reported significant declines in revenue and profit but indicated a bottom may be at hand in the global advertising downturn. "We don't see a recovery, but we feel we've hit the troughs," said John Wren, chief executive of Omnicom. He added that it will take a couple of quarters to cycle through the current downturn, and a couple more before growth comes. "We believe the worst is behind us," said Publicis Chief Executive Maurice Lévy.

- For the past few months, we’ve been watching as energy companies report increasing natural gas production in the U.S. without any visible signs that demand is picking up. This has raised an awkward question: where’s it all going to go? It’s filling up underground storage fast. Apparently, it’s also getting packed into pipelines. In other words, there’s so much natural gas it’s getting crammed in anywhere it can fit. Says Chesapeake Energy(CHK): “The company also expects that rising pipeline and gathering system pressures during the next few months will likely result in involuntary natural gas production curtailments across the industry.” In other words, the system is reaching the point where not much gas can be added to the pipelines, which are backing up as storage fills up.

- Despite public anger and political pressure, U.S. banks have been busy raising a variety of fees charged to customers. "All depositories are trying to raise any little fee, whether on loans, deposits or transaction accounts," said Mike Moebs, founder of Moebs Services Inc., which collects data on fees from nearly every U.S. bank and credit union. "The era of low fees is over."

- A proposed tax on generous health-insurance packages presents a challenge to President Barack Obama, who promised during his campaign not to raise taxes on the middle class. A plan under debate in Congress would impose a new tax on insurers or employers who provide so-called gold-plated health-care plans. Many economists say a significant part of the cost would eventually be passed to employees, through higher insurance payments or slower wage growth. That could conflict with Mr. Obama's often-repeated promise not to raise taxes on middle-class families. The challenge for the White House was underscored Wednesday, when John Sweeney, president of labor confederation AFL-CIO, issued a statement citing "real concerns" about the proposed tax, which Mr. Obama has said he is willing to entertain.

- As everyone else’s taxes rise, one favored outfit may not have to pay federal taxes for years: General Motors. In another sweet deal from its benefactors on Pennsylvania Avenue, the government-owned car company is set to profit from billions of dollars in tax breaks not available to other businesses in the same predicament. The new GM will be allowed to claim a tax benefit from some $16 billion of net operating losses carried over from the old company, allowing it to avoid paying taxes on future profits, perhaps for years.

- White House officials and lawmakers were studying late Thursday how to keep alive the government's cash-for-clunkers incentive program because of concerns the program's $1 billion budget may have been exhausted after just one week. Obama administration officials warned congressional leaders Thursday it planned to suspend the program at midnight. But the White House released a statement late Thursday saying that completed deals would be honored and the program is still under review.

- America's retailers are responding to the recession with Christmas in July. A number of retailers and toy makers launched Christmas sales and promotions this month, hoping to boost sagging sales and help cash-strapped consumers stretch out their holiday spending.

- As high frequency trading continues to proliferate, the head of the powerful electronic trading desk at Goldman Sachs Group Inc. (GS) says it may be time to rethink regulation in this new trading landscape. In the wake of a collapsed stock market in 2008 that drastically cut the pocketbooks of all investors and traders, high frequency trading, the use of computers or complex algorithms to trade at lightning speed, is making up roughly half of the daily activity. At the same time, Goldman Sachs has been one of the largest beneficiaries of this new landscape in trading, with its electronic trading desks remaining one of the market's leaders.

- Chances that Congress will vote on a union-organizing bill this year are dimming as lawmakers make health care and appropriations the top priorities. Some Democratic senators have been trying for months to find a way around the bill's most contentious provision, the "card check" rule that would let workers to unionize by simply signing up rather than running a secret-ballot vote. While attempts at a compromise have made headway, less progress has been made on the bill's other divisive element: imposing a government-appointed arbitrator to set contract terms -- including wages and benefits -- if companies and newly formed unions can't agree within 120 days of bargaining. The legislation, known as Employee Free Choice Act, also would increase penalties on employers that violate labor laws during organizing periods.

MarketWatch.com:
- There is no way Google(GOOG) will not be the primary beneficiary of the Microsoft-Yahoo search deal. With a market share for search at almost 79%, you can be sure it will go up, not down, after the pact unveiled this week takes effect.

CNBC.com:
- A hot July for stocks has set the stage for a rally that should run right into August. "The market is overbought, but it's a good overbought," said Andrew Burkly, technical analyst at Brown Brothers Harriman. The Dow is up 8.4 percent for the month, and is on track, at this level, to close out its best monthly performance since October, 2002 and the best July since 1989. The S&P 500 is up 7.3 percent, its best July since 1997. The five-month rally that started in March is setting records of its own. The S&P is up 34 percent, its biggest five-month streak since 1938. The Nasdaq, up 8.1 percent in July, has gained 44 percent for its best five months since the tech rally of 2000. Most of the time, July is good for stocks. Since 1896, the Dow has been up 61 percent of the time with an average gain of 4.5 percent. And when July is a positive month for stocks, most of the time August is also higher. For the Dow, August was higher 64 percent of the time following a positive July, but the gains were more tempered, averaging just 1.6 percent.

NY Times:

- The top 1 percent of taxpayers paid 40.42 percent of total federal income taxes in 2007, according to the most recent data from the Internal Revenue Service. This represents the second year in a row that the richest 1 percent paid more in federal income taxes than the bottom 95 percent.

- The dozens of insurance companies that make up the American International Group show signs of considerable weakness even after their corporate parent got the biggest bailout in history, a review of state regulatory filings shows. Over time, the weaknesses could mean trouble for A.I.G.’s policyholders, and they raise difficult questions for regulators, who normally step in when an insurer gets into trouble. State commissioners are supposed to keep insurers from writing new policies if there is any doubt that they can cover their claims. But in A.I.G.’s case, regulators are eager for the insurers to keep writing new business, because they see it as the best hope of paying back taxpayers. In the months since A.I.G. received its $182 billion rescue from the Treasury and the Federal Reserve, state insurance regulators have said repeatedly that its core insurance operations were sound — that the financial disaster was caused primarily by a small unit that dealt in exotic derivatives. But state regulatory filings offer a different picture. They show that A.I.G.’s individual insurance companies have been doing an unusual volume of business with each other for many years — investing in each other’s stocks; borrowing from each other’s investment portfolios; and guaranteeing each other’s insurance policies, even when they have lacked the means to make good. Insurance examiners working for the states have occasionally flagged these activities, to little effect. More ominously, many of A.I.G.’s insurance companies have reduced their own exposure by sending their risks to other companies, often under the same A.I.G. umbrella.

Business Week:
- When Representative Virginia Foxx (R-N.C.) promoted proposed Republican health-care legislation July 28 by proclaiming it was "pro-life because it will not put seniors in a position of being put to death by their government," it stoked a small but passionate fire already burning over a seemingly obscure provision of a House health-care proposal that, proponents say, would help seniors make educated end-of-life plans but, to some, is an opening wedge into something more sinister. The provision in question is found on page 425 of the 1,000-plus-page H.R. 3200 bill currently being hashed out in Congress. It pertains to "advance care planning" for elderly or terminally ill Americans and calls for "an explanation by the practitioner of the continuum of end-of-life services and supports available, including palliative care and hospice," and allows Medicare to pay for such consultations every five years.

Politico:

- President Barack Obama’s highly anticipated “beer summit” with Harvard Professor Henry Louis Gates Jr. and Cambridge police Sgt. Jim Crowley came together Thursday night – with Obama declaring it a “positive lesson” on the nature of race in America and the two men saying they want to look forward, not back. A shaky, silent two minute video of the meeting was all the public got to see, but afterwards, Obama and the two men – who unexpectedly found themselves at the center of a racially-charged national controversy – declared the meeting worthwhile. Crowley even told reporters later that he and Gates had agreed to meet again – this time, not over a beer. He called the day “an effort not just to move the city of Cambridge or two individuals past this event, but the whole country beyond this and toward some meaningful discussion in the future.” After the event, Crowley characterized the discussion as “two gentlemen who agreed to disagree on a particular issue. We didn’t spend too much time dwelling on the past. We spent a lot of time discussing the future.” Asked if any apologies were exchanged or offered, Crowley said, “No.”

- A slew of recent polls showing President Barack Obama’s job approval ratings at essentially normal levels and a partisan divide reasserting itself suggest that the political landscape was not as dramatically transformed last November as Democrats had hoped. The question now is whether those numbers will impede the president’s ability to achieve the transformative goals he set out for himself, particularly in the area of health care, where members of Congress crucial to his success may feel they have to respond to shifting public opinion. After months of showing sky-high job approval ratings, polls from major newspapers and from the Pew and Gallup organizations this week gave Obama the lowest numbers of his presidency. He is less popular than either George W. Bush or George H.W. Bush at this point in their presidencies, though more popular than Bill Clinton was after seven months in office.

Hedge Fund Law Blog:

- SEC Approves New Exam for “Limited Representative” Investment Bankers.

AP:

- House Democrats have declined to subpoena available records that might reveal whether other members of Congress got discounted VIP mortgages from subprime lender Countrywide Financial Corp. similar to the sweetheart deals given Democratic Sens. Chris Dodd and Kent Conrad.

China Daily:

- China may become a major target of trade protectionism, especially from the US and India, this year, citing Zhou Xiaoyan, deputy director of the China Bureau of Fair Trade for Imports and Exports. The US is “abusing” trade protectionism as a tool to help its own industries amid an economic slowdown and the loss is “huge” huge for Chinese companies, citing Zhou.

Shanghai Securities News:

- China’s new loans in July may be less than 500 billion yuan.

China Business News:

- China has ordered the nation’s small and medium-sized banks to raise their capital adequacy ratios to 12% from 10%, citing a bank official.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (EXPE), target $25.

BMOCapital:

- Rated (PLCM) Outperform, target $28.

Night Trading
Asian Indices are +1.0% to +1.5% on average.

Asia Ex-Japan Inv Grade CDS Index unch.
S&P 500 futures +.19%.
NASDAQ 100 futures +.16%.

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Conference Calendar

Who’s Speaking?
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Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (AGN)/.67

- (AEP).61

- (AN)/.24

- (CVX)/.95

- (CEG)/.76

- (D)/.64

- (HMSY)/.24

- (ITT)/.80

- (MDC)/-.58

- (TOT)/1.00

- (UTHR)/.55

- (WY)/-.71

Economic Releases

8:30 am EST

- 2Q Advance GDP is estimated to fall 1.5% versus a 5.5% decline in 1Q.

- 2Q Advance Personal Consumption is estimated to fall .5% versus a 1.4% increase in 1Q.

- 2Q Advance GDP Price Index is estimated to rise 1.0% versus a 2.8% gain in 1Q.

- 2Q Advance Core PCE is estimated to rise 2.3% versus a 1.6% gain in 1Q.

- 2Q Advance Employment Cost Index is estimated to rise .3% versus a .3% increase in 1Q.

9:45 am EST

- Chicago Purchasing Manager for July is estimated to rise to 43.0 versus a reading of 39.9 in June.

Upcoming Splits
- None of note

Other Potential Market Movers
- The NAPM-Milwaukee, (PLCE) shareholders meeting and the (ANR) stockholders meeting could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by commodity and technolog shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Stocks Finish Higher, Boosted by Gaming, REIT, Bank, Steel and Alt Energy Shares

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In Play

Stocks Jumping into Final Hour on Less Economic Pessimism, Falling Long-Term Rates, Short-Covering, More Earnings Optimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Biotech longs, Defense longs, Technology longs and Financial longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is above average. Investor anxiety is very high. Today’s overall market action is very bullish. The VIX is falling 1.99% and is very high at 25.10. The ISE Sentiment Index is below average at 106.0 and the total put/call is below average at .71. Finally, the NYSE Arms has been running extraordinarily high most of the day, hitting 2.5 at its intraday peak, and is currently 1.85. The Euro Financial Sector Credit Default Swap Index is plunging another 12.58% today to 71.90 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 3.55% to 111.88 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling .75% to 31 basis points. The TED spread is now down 435 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 2.07% to 36.94 basis points. The Libor-OIS spread is rising .76% to 28 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 5 basis points to 1.89%, which is down 75 basis points since July 7th. The 3-month T-Bill is yielding .18%, which is unch. today. The MS Cyclical Index is soaring 4.3% today. Gaming, REIT, Bank, Steel and Alt Energy shares are all jumping 3.5%+. (IYR) is seeing heavy retail put activity, despite recent gains, which bodes well for further advances in the key real estate ETF. As well, it is noteworthy that the NYSE Arms has been extraordinarily high today, given broad market gains, which is also a positive. The euro financial sector credit default swap index is continuing its recent collapse, falling today to its lowest level since June 18^th, 2008. Despite more economic optimism and huge bond supply, the 10-year yield is falling 3 basis points today, which is a large positive. The AAII % Bulls jumped to 47.67% this week, while the % Bears fell to 31.40%. Even if tomorrow’s 2 GDP report disappoints investors(which I don’t expect), I suspect any equity weakness will be relatively mild and short-lived in nature as investors are more focused on this quarter’s data. Nikkei futures indicate an +275 open in Japan and DAX futures indicate an +9 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, less economic fear, lower long-term rates and more earnings optimism.