Stocks Surging into Final Hour on Diminishing Bond Insurer Angst, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Software longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is about average. Investor anxiety is slightly above average, despite gains in the major averages. Today’s overall market action is bullish. The VIX is falling 2.5% today, but remains relatively high at 23.5. The ISE Sentiment Index is a below average 111.0 and the total put/call is a slightly above-average .95 today. Finally, the NYSE Arms has been running above-average all day and is currently 1.05. (ILMN) is hitting a new record high today. The stock is extended short-term, but I still see substantial upside in the shares over the intermediate-term and would use any meaningful pullback to add to my long position. NYSE short interest surged 4.8% during the first two weeks of February, according to the exchange, to a new record high of 14,370,000,000 shares. NYSE short interest is moving in a parabolic fashion as the "US negativity bubble" continues to inflate, rising a mind-boggling 80% over just the last year. NYSE short interest is now more extended from its four-month moving-average than at any other time since record keeping began 17 years ago. This is a huge positive for the longer-term outlook for US stocks, in my opinion. (ABK) and (MBI) are rising 16% and 22%, respectively, on today’s S&P news. I am actually surprised the (XLF) isn’t up more on the report, however it is trading at session highs. The S&P 500 is currently breaking out to the upside of the wedge that so many technical traders have been focusing on of late. This should give this rally some legs. Nikkei futures indicate an +65 open in Japan and DAX futures indicate an +48 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short covering, diminishing bond insurer angst and bargain hunting.

Today's Headlines

Bloomberg:
- Axa Investment Managers, part of Europe’s second-largest insurer, is setting up a $1 billion fund for trading in March to buy collateralized debt obligations at reduced prices because of the credit crisis. The Paris-based insurer joins GSO Capital Partners, the hedge fund being bought by Blackstone Group, and Citadel Investment Group in forming funds to buy debt infected by subprime mortgages.
- The risk of defaults by Asia-Pacific companies and governments fell on optimism Ambac Financial(ABK) may avoid a credit downgrade. The Markit iTraxx Japan index declined 8 basis points to 101.
- Gold is falling the most in almost two weeks after the US said it would back “limited” sales of bullion reserves by the International Monetary Fund, the third-largest holder of the precious metal.
- Shares of the 691 US companies with non-investment grade bond ratings have climbed 5.3% in the past month, which could foreshadow an economic recovery.
- Visa Inc. may raise as much as $17 billion in what would be the biggest US IPO as the largest credit-card network tries to replicate the success of MasterCard(MA).
- US banks and securities firms have “manageable” exposure to financial guarantors, although some proposals to restructure the companies could have negative effects, Fitch Ratings said. Citigroup(C), Merrill Lynch(MER) and UBS AG, which already have negative rating outlooks from Fitch, could face additional pressure on their credit ratings because of exposure to financial guarantors.
- Former Federal Reserve Chairman Alan Greenspan criticized Democratic presidential candidate Barack Obama for taking “anti-competitive” policy positions.
- GTx Inc.(GTXI) said its experimental drug reduced side effects of prostate-cancer therapy in a trial. The company rose the most ever in NY trading.

Wall Street Journal:
- Harbinger Capital Partners and Firebrand Partners, the private-equity firms that nominated four candidates to the board of NY Times(NYT), raised their stake in the publisher. The group, which holds a stake of more than 15% in the NY Times, is trying to force the company to sell parts of its business and to invest more in its online activities.
- The London Metal Exchange’s steel-futures program may give producers, suppliers and consumers a way to hedge costs as steel prices get more unpredictable. A test program starts today and contracts for the Mediterranean and for the Far East will officially start April 28.

NY Times:
- Walt Disney’s(DIS) ABC television network and Cox Communications(COX) are starting an on-demand video service to let viewers watch shows anytime they want, a move to fight the popularity of digital video recorders.
- Adobe Systems(ADBE), the biggest maker of graphic design software, will release a program today allowing people to use applications interchangeably on the Internet or offline at their personal computers.
- Akoo Builds Remote-Control Cell-Phone Message System.

Morningstar:
- The use of hydrogen fuel in road transport is a realistic alternative to fossil fuels and could cut oil consumption by 40% by 2050, a European report said.

Bear Radar

Style Underperformer:

Large-cap Value -.06%

Sector Underperformers:

Banks (-1.62%), Airlines (-1.53%) and I-Banks (-1.19%)

Stocks Falling on Unusual Volume:

SYNT and ERTS

Existing Home Sales Fall Less Than Estimates

- Existing Home Sales for January fell to 4.89M versus estimates of 4.8M and an upwardly revised 4.91M in December.

BOTTOM LINE: Sales of existing homes in the US fell less than estimates, Bloomberg reported. At the current sales pace, supplies rose to 10.3 months’ worth versus 9.7 in December. The median sales price fell to $201,100. Resales fell 3.6% in the Northeast, 2.1% in the West and .5% in the South. Sales rose 3.4% in the Midwest. Some indicators indicate demand for homes may be near a bottom. Confidence among homebuilders rose for a second straight month in February and companies said there were more potential buyers looking at properties, the National Assoc. of Homebuilders said on Feb. 19. As well, the latest Univ. of Mich. consumer confidence index showed a record number of Americans said lower home prices made home buying conditions favorable. I still expect home sales to surprise on the upside this spring on pent-up demand, lower prices and lower mortgage rates.

Bull Radar

Style Outperformer:

Mid-cap Growth (+1.16%)

Sector Outperformers:

Biotech (+2.95%), Disk Drives (+2.19%) and Energy (+1.69%)

Stocks Rising on Unusual Volume:

GTXI, LNG, TESO, DNA, SWN, FSS, OLN, NG, CSGP, CBEY, AA, TTWO, PWRD, ZBRA, FEED, VSEC, IPCS, MINI, OFIX, CMED, ARII, MASI, QDEL, CHNR, TRMA, VIVO, NDSN, COIN, CSGP, GYI, MC, AYR and BCO

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