Stocks Lower into Final Hour on Record Energy Prices, Rising Credit Market Angst, More Shorting

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Software longs, Medical longs and Biotech longs. I have not traded today, thus leaving the Portfolio 75% net long. The overall tone of the market is bearish as the advance/decline line is substantially lower, most sectors are declining and volume is below average. Investor anxiety is high. Today’s overall market action is bearish. The VIX is rising 5.2% and remains above average at 23.5. The ISE Sentiment Index is a low 96.0 and the total put/call is a high 1.18. Finally, the NYSE Arms has been running high most of the day and is currently 1.38. The WSJ is reporting that Yahoo!(YHOO) is in talks to carry search ads from Google(GOOG). This would be a huge positive for (GOOG). The stock is now trading only 2 points higher from when the news hit, which I view as a severe under-reaction. The TED spread is rising 8 basis points to 142 basis points. The G-7 currency volatility index is rising 1.7% to a high 11.3. The European Financial Sector Credit Default Swap Index is rising 10% to 86.7. The Shanghai Composite plunged another 5.5% last night and is back near recent lows, down 44.2% from October of last year. Nikkei futures indicate a -36 open in Japan and DAX futures indicate an +14 open in Germany tomorrow. I expect US stocks to trade mixed into the close from current levels as bargain-hunting offsets more shorting, higher energy prices and rising credit market angst.

Today's Headlines

Bloomberg:
- Latin America’s economic expansion may slow this year as the impact of the credit squeeze is drying up financing worldwide and a global surge in food and fuel prices stokes inflation, said Augusto de la Torre, the World Bank’s chief economist for the region.
- Goldman Sachs(GS) reported an increase in harder-to- value assets during the first quarter, exceeding those at Morgan Stanley(MS) and Lehman(LEH).
- Venezuelan bonds fell, pushing yields over US Treasuries to their widest in three days, after the government said it will nationalize Luxembourg-based Ternium SA’s local steel unit.
- Emerging-market bonds yields over US Treasuries widened for the first time in more than a week on concern slowing US economic growth will limit demand for developing nations’ exports.
- The Australian dollar may fall by as much as 10% against the yen in 2008 as economic growth cools and as the central bank has probably ended its series of rate increases for now, according to Suncorp-Metway Ltd.
- Commodities rallied the most in two weeks, with gasoline and corn reaching records on a slumping dollar and historic investment fund speculation.
- Obaidah al-Masri, a senior al-Qaeda official involved in the July 7, 2005, London bombings, is believed to have died of natural causes in the past several months in Pakistan.
- Josef Ackermann, CEO of Deutsche Bank, Says Capital Raising by Banks Shows Confidence. (video)
- NYSE Trading Volume Drops as Investors ‘Wait and See.’
- Mortgage applications in the US rose last week as purchases and refinancing increased.

Wall Street Journal:
- A major Yahoo Inc.(YHOO) shareholder said Microsoft(MSFT) “blundered” last weekend by threatening a hostile takeover at a lower price.
- The OECD is recommending that its member-nations shouldn’t use national security as an excuse for barring sovereign wealth funds from investing.
- Demand Soars for Firms That Fit Out Private Jets.
- Goldman Sachs(GS) now faces a black eye for an ill-fated investment in student-loan company First Marblehead.

NY Times:
- Study Gives High Marks to US Internet.

NY Post:
- Activist hedge fund investor Robert L. Chapman Jr. is notorious for raising trouble with companies. Now, there are questions brewing about whether Chapman’s firm is running into some problems of its own.

Schaeffers Research:
- Examining the heavy bearish sentiment in the financial media. We have never seen such an onslaught of negative magazine cover stories in all our years of tracking the market.

Financial Times:
- Paul Otellini, Intel’s(INTC) CEO, said the company plans to break into the market for mobile-phone chips, where it barely has a foothold at present.

Bear Radar

Style Underperformer:

Small-cap Value -1.54%

Sector Underperformers:

Airlines (-5.1%), Retail (-2.98%), Road & Rail (-2.97%)

Stocks Falling on Unusual Volume:

TSO, FTO, SNP, PTRY, FORM, MIND, AMAG, SVNT, ACLI, LAYN, SGR, NYM, ELX and FMCN

Stocks With Unusual Put Option Activity:

1) CHS 2) DAL 3) BBBY 4) V 5) ELX

Wholesale Inventories Rise More Than Estimates

- Wholesale Inventories for February rose 1.1% versus estimates of a .5% rise and an upwardly revised 1.3% increase in January.

BOTTOM LINE: Inventories at US wholesalers rose more than forecast in February, Bloomberg reported. Sales fell .8%, the most since January 2007. Wholesalers have enough goods on hand to last 1.12 months at the current sales pace. The rise in inventories was led by gains among auto, furniture and metals distributors. Auto inventories should fall in this quarter as manufacturers use existing products while they wait for the five-week old American Axle strike to end. The parts shortage that has resulted form the strike has forced GM to shut or idle 30 plants. GM will also shut a sport-utility vehicle assembly plant next week due to the strike. Stockpiles of non-durable products, such as oil, rose 1.8%. Inventory rebuilding in January and February should help 1Q GDP to an extent, however it will likely still come in mildly negative.

Bull Radar

Style Outperformer:

Large-cap Value (-.12%)

Sector Outperformers:

Oil Service (+1.5%), Energy (+1.47%) and Disk Drives (+.85%)

Stocks Rising on Unusual Volume:

PLLL, PCP, BA, ATW, RRI, RDC, SU, OSIR, PRGO, ERIC, CRXL, NTRI, WBSN, CPKI, ZOLL, SNDK, SYNA, ACGY, PODD, ISCA, CROX, TMB, SQM, WG, MTL and GTI

Stocks With Unusual Call Option Activity:

1) SYNA 2) CC 3) PCP 4) V 5) JAVA

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