Stocks Surging Again into Final Hour on Earnings Optimism and Lower Long-term Rates

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is higher, sector performance is mostly positive and volume is heavy. AMG Data reported the largest total for weekly inflows in at least three years as a result of the massive flows into the (SPY). As well, it's a positive to see inflows into taxable bond funds and the (XLF). Once again, domestic funds ex-ETFs saw outflows, while non-domestic funds saw inflows, which has been the case for most of the last five years. The 10-year yield is falling 7 basis points after yesterday's spike higher, and the dollar is up slightly as the yen weakens. The dollar is very oversold and sentiment is extraordinarily negative regarding the currency, which could lead to a reversal at anytime. Moreover, the 10-year yield was up 33 basis points in nine days. While we could potentially get one more thrust higher in rates, I suspect the majority of the move is done. I still think the drag from credit and housing will mute economic activity to modestly below trend rates over the intermediate term, notwithstanding fed funds rate cuts. The dollar-based three-month Libor rate is falling another basis point today and is down 23 basis points in 10 days. As well, the speculative grade credit default swap index is down 20% over the last five days, which is a big positive. Google (GOOG) is making a new all-time high today and is up 21.3% for the year. I still don't think it is too late to board the Google train, and it remains my largest equity long position. The company will grow at a relatively high rate for much longer than investors expect, and shares remain cheap relative to its Internet peers and the market. Moreover, it is the exact type of stock investors will seek given the current macro backdrop, which should lead to multiple expansion. It is also noteworthy that Masco (MAS) lowered its guidance on a lower housing start forecast, and the stock is surging 2.6%. The Rasmussen daily consumer confidence index continues to rebound. It came in at 110.7 today. This is now above the level seen for the entire month of June, before the credit turmoil began. Scott Moritz, of the TheStreet.com, is reporting that people familiar with Apple (AAPL) are expecting the company to sell 2.35 million iMacs and MacBooks this quarter, which would be 400,000 more units than analysts had expected. I have been writing for quite some time that I believed the "halo effect" was intensifying at a much more rapid rate as a result of the iPhone and that computers would propel Apple's earnings above even the most optimistic estimates. I still think the stock will exceed $180 before year-end, and it remains my second-largest long position behind Google (GOOG). Also noteworthy, Engadget.com is reporting that Apple is readying a new line of slimmer aluminum laptops. The fact that Apple's high-priced products are flying off the shelves is also damaging to the imminent consumer collapse thesis. The iShares FTSE/Xinhua China 25 Index (FXI) has soared 40.4% in just over a month. It is up 110.2% over the last 12 months. I am seeing numerous small-cap low-priced Chinese ADRs rocketing higher recently on little news and abnormal volume. Take a look at China Eastern Airlines (CEA), and it is one of the less speculative examples. This type of extreme speculative activity usually indicates, at the very least, a correction in the group is approaching. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower long-term rates, less economic pessimism and investment manager performance anxiety.

Today's Headlines

Bloomberg:
- US stocks are climbing after earnings reports from Oracle Corp.(ORCL) and Nike Inc.(NKE) topped analysts’ estimates, sending the market toward its biggest weekly gain since March.
- Treasury Secretary Henry Paulson said he’s open to temporarily allowing Fannie Mae(FNM) and Freddie Mac(FRE) to package jumbo mortgages into securities if Congress creates a tougher regulator for government-sponsored enterprises, or GSEs.
- Wilbur L. Ross Jr., who helped pioneer investing in bankrupt companies, offered to pay at least $435 million for the servicing unit of American Home Mortgage Investment Corp.(AHM)
- Texas Instruments(TXN) increased its share buyback plan by $5 billion and raised its dividend for the second time this year to reassure investors after two quarters of declining profit.
- Estee Lauder(EL) shares surged the most since January and option trading increased amid speculation the maker of Clinique cosmetics will be taken over.
- Investor confidence in high-risk, high-yield loans improved for a 10^th day amid signs banks are starting to sell debt mandated before the global credit slump, according to traders of credit-default swaps.
- Crude oil is falling $1.00/bbl. on speculation that prices are overvalued because of slowing demand growth and increased OPEC output.

Wall Street Journal:
- After oxygen, raw silicon is the most abundant element on the planet, but a shortage of a highly purified version of the stuff is shaking up the solar-power industry, giving companies that didn’t exist a decade ago a chance to challenge longtime leaders.

Forbes.com:
- Sam Zell On The Credit Crisis: It’s Not That Bad.

NY Post:
- Prices of single-family residences in NY’s affluent Hamptons neighborhoods on eastern Long Island have been boosted by “monster trophy homes,” citing a Suffolk Research Service survey. Median prices have risen at double-digit rates since the start of the year through August.
- Democratic NY Governor Eliot Spitzer is expected to announce a new policy today that will allow illegal immigrants to obtain driver’s licenses.

CommsDay.com:
- Google(GOOG) plans new undersea “Unity” cable across Pacific.

AP:
- The US $5 banknote has been redesigned for the 21^st century with splashes of purple and gray partly to make the currency more difficult to counterfeit.

Financial Times:
- Mohammad Khatami, the former Iranian president, is considering running in the country’s 2009 presidential election on a platform of détente with the West, citing unnamed allies of Khatami.

Reuters:
- China could become the world’s top wind power market in three to five years but will grow faster if it reforms its subsidy system, executives of major wind turbine maker Vestas said.

Economic Releases

- None of note

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
DJIA Quick Charts
Chart Toppers
Intraday Chart/Quote
Dow Jones Hedge Fund Indexes

Friday Watch

Late-Night Headlines
Bloomberg:
- The cost to protect investment-grade bonds from default fell as dealers started trading a new series of benchmark credit-default swap indexes that replace companies that have dropped below investment grade.
- The yen is falling against the 16 most-active currencies on speculation investors were resuming purchases of higher-yielding assets funded by loans in Japan.
- Microsoft Corp.(MSFT) co-founder Bill Gates is America’s richest individual for the 14^th consecutive year, followed by his friend Warren Buffett, according to Forbes magazine’s 400 Richest Americans list.
- Oracle Corp.(ORCL), the world’s largest software maker, posted a 25% jump in first-quarter profit, beating analysts’ estimates, after sales of new programs rose the most in 10 years.
- Nike Inc.(NKE), the world’s largest athletic-shoe maker, said first-quarter profit rose more than analysts anticipated on higher international sales and a tax gain, causing the shares to rise as much as 4.4%.

Wall Street Journal:
- As Oil Hits High, Mideast Buers Go on a Spree.

NY Times:
- Helped by Generics, Inflation of Drug Costs Slows.
- Viacom Chief’s Remark on Spielberg Stirs a Furor.

CNNMoney.com:
- Congress Is Urged To Limit Response To Mortgage Crisis.
- Bankers marketing the $5 billion loan for First Data Corp.’s(FDC) leveraged buyout have already found more than enough buyers for the deal, people familiar with the situation said Thursday.
- Google(GOOG) at $600 a share? Yes: here’s why.
- How Goldman Sachs defies gravity.

Forbes.com:
- Credit Easing Gives Bond Guarantors Bump.

Financial Times:
- Carlyle agreed on Thursday to sell a 7.5% stake in itself to an arm of Abu Dhabi’s government – the latest US private equity group to bring in a sovereign wealth fund as a big investor.
- A top fundraiser to presidential hopeful Hillary Clinton and other Democratic lawmakers was on Thursday charged with defrauding investors of more than $60 million and violating campaign finance rules.
- The US on Thursday signaled fresh steps to improve liquidity in credit markets and guard against future shocks to the global financial system.

Reuters:
- US mortgage lenders are cutting advertising budgets due to a global credit squeeze, but they are not likely to reduce Internet search marketing anytime soon, executives at search leader Google Inc.(GOOG) said on Thursday.

Guardian:
- Google Inc.(GOOG) is considering entering the UK wireless market after Ofcom, the telecommunications regulator, proposed retrieving more than a third of the 2G mobile phone spectrum used by Vodafone Group Plc and O2 Plc for 22 years to open it for new entrants.

China Daily:
- ZTgame, China’s third-largest online games provider, may sell shares in the US by the end of the year, citing the company’s financial adviser.

Late Buy/Sell Recommendations
Citigroup:
- We attended the Shop.org 2007 Annual Summit in Las Vegas. Attendance was strong, and we had an opportunity to interact with a broad range of suppliers and retailers. Based on the keynote presentations, and discussions with vendors, we found the following key themes & takeaways: 1) E-Commerce Expectations Remain Robust 2) Focus on Basics to Improve Conversion Rates 3) Industry Remains Competitive, More Promotions Expected and 4) No Sign of Consumer Weakness.

Morgan Stanley:
- Reiterated Overweight on (PCLN), target raised to $108.

Business Week:
- Apple Inc.(AAPL) may rise 50% in the next 12 months, citing an analyst. Shares of the maker of iPods and iPhones could reach $211, predicted Eugene Munster of Piper Jaffray.

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 futures -.01%.
NASDAQ 100 futures +.05%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- None of note

Upcoming Splits
- None of note

Economic Releases
- None of note

Other Potential Market Movers
- The Fed’s Warsh speaking, Fed’s Plosser speaking, Fed’s Kohn speaking, Fed’s Mishkin speaking, (SYY) analyst meeting, (AGP) Investor Day, (POOL) Analyst Day and (KMT) Management Meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker and financial stocks 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 Slightly Lower on Healthy Profit-Taking After Recent Gains

Evening Review
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Stock Quote
In Play