Stocks Slightly Higher into Final Hour on Falling Food/Energy Prices, Technical Buying, Short-Covering, Earnings Optimism

Broad Market Tone:

• Advance/Decline Line: About Even
  
• Sector Performance: Mixed
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 15.92 -1.91%
  
• ISE Sentiment Index 104.0 -16.13%
  
• Total Put/Call .97 unch.
  
• NYSE Arms 1.26 +30.23%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 88.74 -1.15%
  
• European Financial Sector CDS Index 98.0 +1.88%
  
• Western Europe Sovereign Debt CDS Index 180.50 +.65%
  
• Emerging Market CDS Index 203.93 -.04%
  
• 2-Year Swap Spread 19.0 unch.
  
• TED Spread 22.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .04% +1 bp
  
• Yield Curve 264.0 +2 bps
  
• China Import Iron Ore Spot $175.30/Metric Tonne -.34%
  
• Citi US Economic Surprise Index -49.0 -5.1 points
  
• 10-Year TIPS Spread 2.31% -4 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +5 open in Japan
• DAX Futures: Indicating +23 open in Germany

Portfolio:

• Higher: On gains in my Retail and Tech sector longs
  
• Disclosed Trades: None
  
• Market Exposure: 100% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 maintains recent gains despite eurozone debt worries, emerging markets inflation fears, rising Mideast unrest and global growth concerns. On the positive side, Road & Rail, Airline, Tobacco, Restaurant, Telecom and Software shares are especially strong, rising more than +.50%. Cyclicals are outperforming, with the Transports surging +1.08% back near their multi-year high. Oil is falling -1.14%, the UBS-Bloomberg Ag Spot Index is down -1.1% and Lumber is gaining +2.63%. The US Muni CDS Index is falling -2.61% to 119.79 bps and the Saudi sovereign cds is falling -4.6% to 107.24 bps. The AAII % Bulls fell to 26.7 this week, while the % Bears rose to 41.3, which is a big positive. On the negative side, Coal, Steel and Semi shares are under pressure, falling more than -1.0%. The US price for a gallon of gas is falling -.02/gallon today to $3.91/gallon. It is up .77/gallon in 92 days. The Italy sovereign cds is gaining +2.11%, the UK sovereign cds is rising +2.07% to 57.67 bps, the Belgium sovereign cds is rising +2.67% to 140.64 bps, the Japan sovereign cds is rising +2.44% to 83.92 bps and the US sovereign cds is rising +3.1% to 47.18 bps. Brazil's Bovespa is falling another -.78% today and is down -9.96% ytd. Food and energy price declines today are noteworthy given the bounce in the euro. US stocks remain extraordinarily resilient to developing headwinds. The tone of the equity market remains positive, however volume is still lackluster. I continue to believe US stocks can build on recent gains in the near-term after a brief pause. I expect US stocks to trade mixed-to-higher into the close from current levels on technical buying, short-covering, bargain-hunting, buyout speculation, falling food/energy prices and earnings optimism.

Today's Headlines

Bloomberg:

• LinkedIn(LNKD) Surges in First Day of Trading. LinkedIn Corp., the largest professional-networking website, more than doubled in the first day of trading after its initial public offering. The stock surged as much as $77.70 to $122.70 and traded at $108.70 at 12:25 p.m. on the New York Stock Exchange under the symbol LNKD. LinkedIn sold 7.84 million shares at $45 each, the Mountain View, California company said in a statement yesterday. At $100 a share, LinkedIn is worth about $9.45 billion, or 25 times 2011 revenue, assuming first-quarter sales are matched over the next three quarters. Facebook, the world’s largest social-networking site, would be valued at about $100 billion using the same multiple.
• Jobless Claims in U.S. Fall More Than Forecast to 409,000, Reversing Surge. Fewer Americans than forecast filed applications for unemployment benefits last week, making it more likely that the surge in April was caused by temporary events rather than a deterioration in the labor market. Jobless claims declined by 29,000 to 409,000 in the week ended May 14, Labor Department figures showed today in Washington. The median estimate of economists in a Bloomberg News survey called for a drop to 420,000. The four- week moving average, a less volatile measure than the weekly figures, rose to 439,000 last week from 437,750. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3 percent.
  
• Existing-Home Sales in U.S. Unexpectedly Fall. Sales of existing U.S. homes unexpectedly declined, manufacturing in the Philadelphia region slowed and consumer confidence dropped, pointing to an economy that is struggling to regain momentum following the surge in energy costs. Purchases of existing homes decreased 0.8 percent to a 5.05 million annual pace in April, the National Association of Realtors said today in Washington. The Federal Reserve Bank of Philadelphia’s general economic index fell in May to the weakest reading in seven months, and the Bloomberg Consumer Comfort Index slumped to a nine-month low, other reports showed.
• Global Company Earnings to Grow Faster-Than-Estimated 18%, Citigroup Says. Global per-share earnings will rise 18 percent this year, faster than an earlier forecast, amid stronger revenue growth and sustained margins, according to Citigroup Inc. Earnings per share, or EPS, are estimated to increase 11 percent in 2012 and 9 percent in 2013, analysts led by Robert Buckland, Citigroup’s chief global strategist, wrote in a report yesterday. The brokerage had predicted in September earnings- per-share growth of 12 percent this year. The MSCI All Country World Index may end the year at 380, higher than an earlier forecast of 360, the analysts said. The MSCI index rose 0.2 percent to 344.60 as of 12:02 p.m. in Singapore. The index has jumped 21 percent in the past 12 months and is valued at 12.6 times estimated profits, compared with the average of 13.8 times over the last four years. “Companies are generating faster revenue growth than we originally expected,” Buckland said in the report. “In addition, cautious cost management means that current margins are at least sustainable for now.”
• Obama Speaks as Arab World Questions Whether It Should Listen. When President Barack Obama outlines his vision of U.S. policy in the Middle East today, his challenge will be to get people in the region to care. The excitement generated by Obama’s call two years ago for a “new beginning” in U.S.-Arab relations evaporated as people waited for changes that haven’t come, said Robert Danin of the Council on Foreign Relations and others who study the region. As protests have swept the Arab world, toppling some leaders and challenging others, U.S. influence has been diminished by a response seen as cautious and inconsistent, Danin and other analysts said. And the U.S. has suffered some public diplomatic setbacks in dealing with Bahrain, Yemen, Syria, and the Israelis and Palestinians. “It’s not clear what the United States says right now matters to the people of the Middle East,” Danin said.
• Libyan Rebel Official Says Death Toll After Revolt Reaches at Least 15,000. At least 15,000 people have been killed in Libya and NATO should step up attacks against Muammar Qaddafi’s forces besieging cities in the western mountain range, said Abdel Hafiz Ghoga, vice president of the rebels’ National Transitional Council.

Wall Street Journal:

• Obama Endorses 1967 Borders for Israel. President Barack Obama called for Israelis and Palestinians to seek a two-state solution based on the 1967 borders in a speech that laid out a new vision for the Middle East, saying the U.S. is facing a historic opportunity to adapt to the rapid changes in a region.
• IMF Succession Battle Mounts. The battle for the top job at the International Monetary Fund kicked into high gear Thursday, with Europeans staking their claim for the post and Asian and emerging nations arguing now is their time to lead the international institution.

MarketWatch:

• 5 Money Moves One China Basher is Making Now. “China has a credit bubble that makes ours look like nothing,” said Bernstein, CEO of Richard Bernstein Advisors and former chief investment strategist and head of Merrill Lynch’s Investment Strategy Group. “Gold,” he added, “is not in a bubble but it is about as close as you can get.”

CNBC.com:

• Oil Falls Despite 'Above Average' Hurricane Forecast. NOAA is predicting there will be 12 to 18 named storms, and six to 10 hurricanes. Three to six of those will be major hurricanes — Category 3, 4 or 5 — with winds of 111 miles per hour or more. The Atlantic hurricane season typically lasts from June 1 to November 30.NOAA is predicting this season we’ll see one less storm than last year.
• Despite Drop, Oil Prices Hit Economy: IEA. The International Energy Agency (IEA) Governing Board, warned on Thursday that rising oil prices are still affecting the global economic recovery, despite recent drops in the price, and urged oil producing countries to take action to lower the price of oil.
• Amazon(AMZN) Says e-Books Now Outselling Paper Books. Amazon.com said Thursday that it now sells more digital e-books than paper books and that its recently introduced lower-priced Kindle e-reader is outselling other versions of the device.
• Many With New College Degree Find The Job Market Humbling.
  

Business Insider:

• Here Are The Next Big Tech IPOs Investors Will Go Nuts For.
• Henry Blodget: RIM's(RIMM) Toast.
• 15 Amazing Facts About Apple's(AAPL) Retail Business.
• The Stunning Explanation for the French Media's Shameful Defense of Strauss-Kahn.
  

Zero Hedge:

• Step Aside US: Pakistan's New "Best Friend" China, To Provide Karachi With 50 New JF-17 Fighter Jets On Expedited Basis.
• Treasury Prepares to Plunder Another $45 Billion From Retirement Funds As It Issues $110 Billion More Debt Next Week.
• The Second Egyptian Revolution Has Been Scheduled for May 27.
  

New York Times:

• In Message, Bin Laden Praised Arab Revolt. In a message to Muslims made public 16 days after his death, Osama bin Laden praised the pro-democracy uprisings that had swept the Arab world.

Real Clear Markets:

• It's Getting Ugly in "Democratic" Egypt.

Reuters:

• Glencore's Record IPO Makes Muted Debut.
• U.S. Commercial Paper Market Grows in Latest Week.
  

Financial Times Deutschland:

• The European Central Bank may no longer accept Greek sovereign debt as collateral if loan maturities are extended, citing European officials.

Handelsblatt:

• German Chancellor Angela Merkel supports French Finance Minister Christine Lagarde as the new head of the IMF, citing people close to the government coalition.

Bear Radar

Style Underperformer:

• Large-Cap Value (+.05%)

Sector Underperformers:

• 1) Coal -1.74% 2) Semis -1.15% 3) Disk Drives -.71%

Stocks Falling on Unusual Volume:

• TSL, NETL, SSYS, GPRO, ONXX, KLAC, CHBT, ENZN, WSM, AVEO, TDW, AAP, BIG and BKE
  

Stocks With Unusual Put Option Activity:

• 1) YRCW 2) SPG 3) AMSC 4) CX 5) MEE
  

Stocks With Most Negative News Mentions:

• 1) STP 2) ATK 3) CTRN 4) TDW 5) GA
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume
  

Bull Radar

Style Outperformer:

• Large-Cap Growth (+.01%)

Sector Outperformers:

• 1) Airlines +.77% 2) Road & Rail +.67% 3) Restaurants +.58%

Stocks Rising on Unusual Volume:

• TOT, PHG, SI, CHU, IPGP, ETE, ELOS, PETM, JACK, DLTR, PETD, MAKO, BSFT, MERC, NTES, SFSF, VOLC, ZEUS, USTR, NDSN, IPSU, RAVN, SINA, TZOO, LCAPA, SXCI, TTC, BSFT, TMO, CEDC, FLO and PHG
  

Stocks With Unusual Call Option Activity:

• 1) TTWO 2) XHB 3) CBOE 4) CHRW 5) CMA
  

Stocks With Most Positive News Mentions:

• 1) AFL 2) TIF 3) SCHN 4) KEY 5) PFCB

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume
  

Thursday Watch

Evening Headlines

Bloomberg:

• Japan's Economy Shrinks More Than Forecast. Japan’s economy shrank more than estimated in the first quarter after the March 11 earthquake and tsunami disrupted production and prompted consumers to cut back spending, sending the nation to its third recession in a decade. Gross domestic product shrank an annualized 3.7 percent in the three months through March, following a revised 3 percent drop in the previous quarter, the Cabinet Office said today in Tokyo. The median forecast of 23 economists surveyed by Bloomberg News was for a 1.9 percent drop.
• Lagarde May Stake Claims as First Female IMF Chief. France may have to rely on Christine Lagarde’s track record as a euro crisis fighter if she’s to become the International Monetary Fund’s first female chief after the downfall of her compatriot Dominique Strauss-Kahn. Lagarde, 55, has the negotiating skills and an understanding of Europe’s sovereign debt crisis needed for the post, say analysts including Charles Grant at the Centre for European Reform. IMF shareholders will assess if those qualities are enough to allow France to keep the job for itself after securing four out of the 10 managing directors since 1946.
• Corn, Soybeans, Wheat Futures Soar as U.S. Planting Delays Threaten Yields. Corn futures rose the most in six weeks, wheat had the biggest gain in two months, and soybean and rice prices surged as adverse weather from North Dakota to Louisiana to Europe threatened to erode crop production. In the U.S., corn planting was 63 percent complete as of May 15, down from the 75 percent average in the past five years, as soggy fields hindered fieldwork, mostly east of the Mississippi River and in northern states, government data show. Spring-wheat, soybean and rice sowing also were behind the pace of recent years. The Ohio Valley and North Dakota will see more rain this week, AccuWeather Inc. said. Corn futures for July delivery climbed 29.5 cents, or 4.1 percent, to settle at $7.4975 a bushel at 1:15 p.m. on the Chicago Board of Trade. Earlier, the price rose by the exchange limit of 30 cents. The grain has more than doubled in the past year on tightening global supplies and increasing demand from ethanol producers and livestock farmers. Wheat futures for July delivery surged 53 cents, or 6.9 percent, to $8.17 a bushel in Chicago, the biggest jump since March 17. The price has climbed 75 percent in the past year as drought slashed crops in Russia and threatened production in the U.S. Great Plains. Wheat futures in Minneapolis rose 6.4 percent, and prices in Paris gained 4.6 percent. Soybean futures for July delivery rose 38.5 cents, or 2.9 percent, to $13.795 a bushel on the CBOT, the biggest gain this month. The oilseed has climbed 47 percent in the past 12 months.
• Baidu(BIDU) Accused of Aiding Chinese Censorship. Baidu Inc., the owner of China’s most popular search engine, was sued by eight Chinese residents of New York who say the company helps the Chinese government censor political expression in violation of the U.S. Constitution. The plaintiffs’ “writings, publications and coverage of pro-democracy events has been censored and banned from any search performed on the Baidu.com Inc. search engine,” they said in a complaint filed today in Manhattan federal court. China “openly and routinely uses censorship of political speech and information on the Internet to silence criticism of the government in China and the ruling Chinese Communist Party,” the plaintiffs allege in their complaint. The plaintiffs are also charging that Baidu and China violated New York State civil rights laws. They are demanding $16 million in damages from Baidu and the Chinese government, which is also a defendant. “China will be required to answer the complaint or there will be a default judgment against them,” Stephen Preziosi, the New York-based lawyer representing the plaintiffs, said in a telephone interview.
• Longtop Short-Sellers Show Mistrust Undermines China IPO Market. The blog post accusing Longtop Financial Technologies Ltd. (LFT) of fraud appeared April 26. The Hong Kong-based maker of financial software, whose 2007 initial public offering was underwritten by Goldman Sachs Group Inc. (GS) and Deutsche Bank AG (DBK) and which had 11 analyst “buy” ratings, was no match for investor skepticism. Shares slumped 31 percent in a two-day rout that left them at the lowest since March 2009. Yesterday, a day after Nasdaq trading was suspended, the company announced it wouldn’t file financial statements on May 23 as previously planned. It didn’t set a new date.
• IMF Chief Strauss-Kahn Seeks Court Review of Bail Denial.
  
• Glencore IPO to Raise $10 Billion as BlackRock(BLK), Aabar Defy Commodity Rout. Glencore International Plc will start trading in London today after selling $10 billion of stock in an initial public offering that coincided with the worst rout in commodities in two years.

Wall Street Journal:

• States May Turn to Munis to Repay Unemployment Loans. Some states already beset with budget woes may turn to the municipal-bond market in coming months to help them fix yet another problem: shoring up their underfunded unemployment-benefits programs.
• Jewish Donors Warn Obama on Israel. Jewish donors and fund-raisers are warning the Obama re-election campaign that the president is at risk of losing financial support because of concerns about his handling of Israel. Some Jewish donors say President Barack Obama has pushed Israeli leaders too hard to halt construction of housing settlements in disputed territory, a longstanding element of U.S. policy. Some also worry that Mr. Obama is putting more pressure on the Israelis than the Palestinians to enter peace negotiations, and that the president has allowed relations with Israeli Prime Minister Benjamin Netanyahu to fray. One top Democratic fund-raiser, Miami developer Michael Adler, said he urged Obama campaign manager Jim Messina to be "extremely proactive" in countering the perception in the Jewish community that Mr. Obama is too critical of Israel.
• Oystermen Scrape Bottom. Mississippi Flooding Threatens Louisiana Industry Reeling From 2010 Oil Spill.
• Republican Plan to Speed Up Oil Drilling Is Defeated in Senate. For the second time in as many days, the U.S. Senate defeated an energy plan that attempted to combat skyrocketing gasoline prices as Democrats and Republicans continue their fight over energy policy.

MarketWatch:

• Obama to Offer Debt Relief in Mideast Speech. President Barack Obama will offer debt relief and other aid to Egypt in a major speech about the Middle East on Thursday, senior U.S. officials said. Obama will outline a plan to bolster economic development in Egypt — as well as the region in general — in the wake of the political uprisings that swept through the area earlier this year. Obama will offer debt relief of about $1 billion over two to three years to Egypt, as well as U.S. government loan guarantees worth an extra $1 billion to finance infrastructure and create jobs, senior Obama administration officials told reporters Wednesday.

Business Insider:

• Why Egypt Is Descending Into Sectarian Strife and Lawlessness.

Zero Hedge:

• Client #10 Emerges: Spitzer Madam Says She Provided Prostitutes For DSK In 2006.

IBD:

• Buffalo Wild Wings(BWLD) Flies As Chicken Price Crashes.

CNNMoney:

• Federal Workers Lash Out at Benefits Cut. Federal workers have a message for the White House: Keep your hands off my retirement benefits.

NY Times:

• As Citi(C) Revives, Pandit Wins Big Pay Package.

OpenSecrets.org:

• Before Downfall, Convicted Fraud Kingpin Raj Rajaratnam a Frequent Donor to Prominent Democrats. Hedge fund titan Raj Rajaratnam lorded over his industry as one of its most wealthy and well-connected members, frequently holding court with the nation’s political elite as the head of Galleon Group.

USA Today:

• Chevrolet's Electric Volt Depreciates 58% in 3 Years.

Financial Times:

• Levin in 'Real Hope' of Fresh Goldman(GS) Probe. Carl Levin, chairman of the U.S. Senate Permanent Subcommittee on Investigations, said there's "real hope" law enforcement authorities would follow up his panel's report, which accused Goldman Sachs Group Inc.(GS) of misleading clients, citing an interview with Levin.
• Greek Debt Talks Cast Doubt Over Sovereign CDS. In one sense, Greece may be about to get its revenge on the speculators blamed by politicians for exacerbating the country’s debt crisis. If eurozone leaders press ahead with plans to extend Greek bond maturities in a “soft” or voluntary debt restructuring, then traders in credit default swaps could be one of the main casualties.

Telegraph:

• IMF Tells Greece to Stop Dragging Its Heels Over Reform. The International Monetary Fund has told Greece to step up its efforts to sort out its finances in the most stern warning yet from the bailed-out nation's rescuer. The Washington-based lender is worried the country will not meet the deficit-cutting targets agreed as part of its €110bn (£97bn) IMF/EU aid package. "The view that seems to be taking hold is that the government programme is not working," said Poul Thomsen, head of the IMF mission currently in Greece to measure the country's progress towards tax and spending goals. "The programme will not remain on track without a determined re-invigoration of structural reforms in the coming months," he told an Athens conference. "Unless we see this invigoration, I think the programme will run off track."

21st Century Business Herald:

• China should raise deposit rate to eliminate negative real interest rates, citing central bank adviser Li Daokui.
  

Evening Recommendations
Citigroup:

• Reiterated Buy on (DE), target $105.
• Reiterated Buy on (ANF), target $86.

CSFB:

• Reiterated Outperform on (DE), target $111.

Janney Montgomery:

• Rated (ARUN) Buy, target $38.
• Rated (BRCD) Buy, target $8.
• Rated (JNPR) Buy, target $48.
• Rated (EMC) Buy, target $34.
• Rated (RVBD) Buy, target $45.
  

Night Trading

• Asian equity indices are -.25% to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 105.50 -1.5 basis points.
  
• Asia Pacific Sovereign CDS Index 114.50 -1.0 basis point.
  
• S&P 500 futures +.09%.
  
• NASDAQ 100 futures +.15%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (PLCE)/1.05
• (DLTR)/.75
• (TDW)/.51
• (FLO)/.46
• (SSI)/-.01
• (SHLD)/-1.12
• (WSM)/.28
• (BKE)/.73
• (TTC)/1.61
• (GME)/.54
• (ROST)/1.48
• (INTU)/2.28
• (GPS)/.39
• (ZUMZ)/.02
• (ARUN)/.15
• (ADSK)/.37
• (CRM)/.27
• (ARO)/.20
• (FL)/.44
• (RRGB)/.24

Economic Releases
8:30 am EST

• Initial Jobless Claims for last week are estimated to fall to 420K versus 434K the prior week.
• Continuing Claims are estimated to fall to 3728K versus 3756K prior.
  

10:00 am EST

• Existing Home Sales for April are estimated to rise to 5.2M versus 5.1M in March.
• Leading Indicators for April are estimated to rise +.1% versus a +.4% gain in March.
• Philly Fed for May is estimated to rise to 20.0 versus 18.5 in April.
  

Upcoming Splits

• (ALXN) 2-for-1

Other Potential Market Movers

• The Fed's Dudley speaking, Fed's Evans speaking, 1Q Mortgage Delinquencies/Foreclosures, 10-Year TIPS Auction, weekly EIA natural gas inventory report, Bloomberg Economic Expectations Index for May, weekly Bloomberg Consumer Comfort Index, Morgan Stanley Refining Conference, Piper Jaffray Clean Tech Conference, BofA Merrill Transport Conference, (STM) analysts day, (LRG) investor breakfast, (HCN) investor day, (GFIG) investor day, (WY) investor meeting and the (IRBT) analyst day could also impact trading today.
  

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