Stocks Higher into Final Hour on Tech Sector Strength, Short-Covering, Lower Energy Prices

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Semi longs and Computer longs. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The overall tone of the market is mildly bullish as the advance/decline line is about even, sector performance is mostly positive and volume is below average. Investor anxiety is slightly above average. Today’s overall market action is bullish considering recent gains, apprehension over tomorrow’s employment report and the scary rhetoric on CNBC coming from the testimony regarding the JPMorgan/Bear acquisition. The VIX is falling 1.0% and remains above average at 23.2. The ISE Sentiment Index is a low 101.0 and the total put/call is above average at 1.02. Finally, the NYSE Arms has been below average most of the day and is currently .86. The AAII % Bulls fell to 36.7% this week and the % Bears rose to 39.4%. Investor reaction to Research In Motion’s(RIMM) strong earnings report is a broad market positive. Many market-leading stocks are substantially outperforming the major averages today. Corporate insiders continue to exhibit very bullish behavior. The iTraxx Europe Senior Financials Credit Default Swap Index, which includes UBS AG among many other key European financials, is plunging another 10.25 basis points today to 82.75. This is down almost 50% from its high on March 13, which is a major positive. Nikkei futures indicate an +35 open in Japan and DAX futures indicate an +100 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, tech sector strength and lower energy prices.

Today's Headlines

Bloomberg:
- SEC Chairman Christopher Cox, facing congressional scrutiny over his agency’s response to Bear Stearns’ brush with bankruptcy, said the SEC succeeded in protecting consumers.
- Fed Bank President Timothy Geithner said capital markets are still substantially impaired and policy makers and financial industry leaders must act forcefully to stem the crisis.
- The cost of protecting corporate bonds from default declined to the lowest in almost two months after Federal Reserve Chairman Ben S. Bernanke eased investor concern of possible bank failures. Credit-default swaps on the benchmark Markit iTraxx Crossover Index dropped 17 basis points to 507, according to JPMorgan(JPM).
- Democratic congressional leaders spit today over whether Senate legislation designed to reduce housing foreclosures does enough to aid homeowners.
- The resilience of the US economy in the face of a devastated housing sector and a financial crisis is amazing. The severe recession some have predicted is still nowhere in sight. The odds are at least 50-50 that the current period of economic weakness won’t be labeling as even a mild recession.
- The market for short-term debt backed by assets such as car loans, credit card receivables and mortgages rose as investors pumped a record $3.51 trillion into US money-market mutual funds.
- iPhone Frenzy in Russia Fueled by Smugglers, Jeweler.
- Oil Falls on Concern US Supplies Are Rising as Economy Slows.

Wall Street Journal:
- The US Fed put staff members on site at five of the biggest brokerage firms to review their finances. The staffers are at Goldman Sachs(GS), Morgan Stanley(MS), Lehman Brothers(LEH), Merrill Lynch(MER) and Bear Stearns(BSC).
- It may be time to get back into cable stocks.

Financial Times:
- HBOS Plc, Britain’s biggest mortgage lender, estimates that the number of UK home sales may decline as much as 30% this year, citing Finance Director Mike Ellis.

Interfax:
- Russians spent as much as $2.1 billion shopping online last year, citing President-elect Dmitry Medvedev.

Market News Intl.:
- European Central Bank council member Nicholas Garganas said inflation may start to slow in the first half of this year and drop below 2% in 2009, citing an interview.

Nikkei:
- Merrill Lynch(MER) CEO Thain said the securities firm doesn’t need to raise additional capital, citing an interview.

Bear Radar

Style Underperformer:

Small-cap Value +.20%

Sector Underperformers:

Internet (-1.29%), Retail (-.64%) and Restaurants (-.52%)

Stocks Falling on Unusual Volume:

GEOY, WIT, BLKB, PLXS and TSFG

Stocks With Unusual Put Option Activity:

1) MAS 2) RWT 3) SYMC 4) GRMN 5) SINA

Jobless Claims Rise, ISM Non-Manufacturing Strengthens

- Initial Jobless Claims for this week rose to 407K versus estimates of 366K and 369K the prior week.

- Continuing Claims rose to 2937K versus estimates of 2860K and 2840K prior.

- ISM Non-Manufacturing for March rose to 49.6 versus estimates of 48.5 and 49.3 in February.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment benefits unexpectedly increased last week, Bloomberg reported. This week’s report may have been skewed as some state unemployment offices processed a backlog from the prior week, which included the Good Friday holiday. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, rose to 2.2% from 2.1%. The four-week moving average of claims rose to 374,500 from 358,750 the prior week. A strike at auto-parts supplier American Axle is contributing to declining employment at GM plants. The strike has closed or idled 30 plants, affecting almost 50% of GM’s employees. I still expect tomorrow’s jobs report to modestly exceed estimates. Jobless claims should fall next week.

Service industries in the US beat economists’ forecasts in March, easing concern the economy was slowing too much, Bloomberg reported. The ISM non-manufacturing index captures about 90% of the US economy. The Employment component of the index was unch. at 46.9. The Business Activity component rose to 52.2 from 50.8 in February. The New Orders component rose to 50.2 from 49.6 the prior month. The Prices Paid component rose to 70.8 from 67.9 in February. The Inventories component rose to 51.0 from 50.0 prior. This reading does not indicate the US is in recession. I continue to believe that after a slight contraction in 1Q, US growth will bounce back into positive territory this quarter on monetary/fiscal stimuli, booming exports and inventory rebuilding. An end to the American Axle strike and a decline in energy prices could also help boost growth later this quarter.

Bull Radar

Style Outperformer:

Mid-cap Growth (-.24%)

Sector Outperformers:

Wireless (+1.27%), Energy (+1.15%) and Oil Service (+.99%)

Stocks Rising on Unusual Volume:

NIHD, MOS, MMR, AGU, NTT, BZP, AA, RIMM, CSIQ, SOLF, ANGO, PTEC, SCHN, MGLN, CSGP, SNDK, TASR, WRNC, IIVI, KFN, GMK, AYI, SGP, STZ, PXP, AYR and GLP

Stocks With Unusual Call Option Activity:

1) NVLS 2) YGE 3) UNM 4) QLGC 5) AA

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