Stocks Finish Near Session Highs, Led by Technology, Energy, Retail and Homebuilding Shares

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Stocks at Session Highs into Final Hour on Bargain-Hunting, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Gaming longs, Computer longs, Semi longs, Medical longs and Retail longs. I covered all of my (IWM)/(QQQQ) hedges, some of my (EEM) short and added to my (AMSC) long this morning, thus leaving the Portfolio 100% net long. The overall tone of the market is mildly positive as the advance/decline line is slightly higher, most sectors are rising and volume is about average. Investor anxiety is above average. Today’s overall market action is bullish. The VIX is falling .6% today, but remains high at 28.0. The ISE Sentiment Index is a below average 115.0 and the total put/call is an above-average .96. Growth stocks are substantially outperforming value stocks for the second day in a row, with many positing meaningful gains. As I said last week, after underperforming in January, I suspect a significant rotation back into “growth” stocks and away from “value” stocks is underway again. I still expect growth to outperform value for several more years. Today’s upside market reversal came despite more weakness in the (XLF) and Asian indices, which is a big positive. Moreover, despite financial sector weakness, the TED spread fell to .78 basis points today, the lowest since August of last year. While I am not currently long (MSFT), I suspect that the stock is near an important low, which could help boost the Nasdaq as its substantial drag on the index subsides. Nikkei futures indicate a flat open in Japan and DAX futures indicate a +77 open in Germany. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting and short-covering.

Today's Headlines

Bloomberg:
- Barton Biggs, co-founder of hedge fund Traxis Partners LLC, said he’s “gradually increasing” his holdings of US equities because he doesn’t expect a recession and shares are “very, very cheap.”
- Investments in agricultural-commodity indexes soared to $1.5 billion in the week ended Feb. 5, almost double the previous weekly record, which helped drive up prices for the underlying commodities, UBS AG said.
- Cheap Natural Gas Seen Returning 20% as Oil Meets Slowdown.
- Crude oil is rising to a one-month high on increasing investment fund speculation after Valero Energy(VLO) shut its Delaware refinery because of a “power failure” late yesterday and Venezuela’s President said he may cease selling oil to the US.
- GM(GM) Tops Toyota Abroad Proving Drop to No. 2 Premature.
- Delta Air(DAL) may reach a merger agreement with Northwest Air(NWACQ) that would form the world’s largest carrier.
- Microsoft’s P/E Pushes Technology Valuation Hell.
- Bank of America(BAC) and Chevron Corp.(CVX) will replace Altria Group(MO) and Honeywell Intl.(HON) in the Dow Jones Industrial Average, the first changes in the US stock benchmark since April 2004.
- American International Group(AIG) fell the most in 20 years in NY trading after saying it overstated the value of contracts protecting fixed-income investors against losses. Goldman Sachs said it would be aggressive buyers of the shares on today’s weakness.

Wall Street Journal:
- Circuit City’s(CC) CEO Schoonover Concedes Shake-Up Last Year Disrupted The Electronics Retailer, But He Says It Will Pay Off.
- Cardinal Health(CAH) Could Be Regaining Its Strength.
- Marking a milestone for US law firms, Latham & Watkins LLP said its 2007 gross revenue was just over $2 billion, the highest figure ever reported for a US-based law firm.

NY Times:
- Oil Money Cultivates an Ivy League in Mideast.

Dow Jones:
- European Central Bank council member Michael Bonello said he doesn’t see signs of a “negative impact” on European economic growth from the US slowdown.

Trademork.com:
- Apple(AAPL) Trademark Filing Suggests Game Unit Plan.

SiliconValleyWatcher:
- I’m hearing from a reliable source that Salesforce.com has approached Oracle(ORCL) to gauge if there is any interest in a sale at $75 a share. That would be almost a 50% premium over Friday’s close of $50.87.

Forbes:
- Alternative Fuel Technology Expects to Drive Growth of the Environmental Testing Equipment Market.

USA Today:
- In Mexico, an energized economy raises hopes.
- Countrywide(CFC) plans to help more avoid foreclosure.

AFP:
- Venezuelan President Hugo Chavez said the country could seize dairy plants owned by Nestle SA, the world’s largest food company, and Italian milk producer Parmalat SpA. The government “has got to take a tougher line,” Chavez said. The country is facing an “economic conspiracy,” he said.

Les Echos:
- Gucci Group had “solid” 15-percent growth in the US last year, citing Mark Lee, the luxury label’s CEO.

globeandmail:
- SEI White Paper: Maturing Hedge Fund Industry Must Shift Gears to Grow Institutional Business.

BusinessDay:
- The Group of Seven(G-7) rich states on Saturday approved the sale of gold by the International Monetary Fund from April as part of a broad reform of its budget.

Bear Radar

Style Underperformer:

Small-cap Value (-.30%)

Sector Underperformers:

Insurance (-4.77%), HMOs (-1.88%) and Hospitals (-1.33%)

Stocks Falling on Unusual Volume:

BRO, PNM, AIG, CNC, WBMD, LCAV, CAN and GKK

Bull Radar

Style Outperformer:

Large-cap Growth (+.18%)

Sector Outperformers:

Alternative Energy (+2.0%), Semis (+1.82%) and Homebuilders (+1.4%)

Stocks Rising on Unusual Volume:

EVY, CSL, POSS, CRVL, VRAD, MPWR, CREE, MFLX, MELI, XRTX, MANT, SPWR, ASFI, QDEL, CPSI, CAKE, AKAM, EMKR, SXT, HERO, CCC, MTL, GGB, AFG and REP

Economic Releases

- None of note