Stocks Soaring into Final Hour on Less Economic Pessimism, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Software longs, Alternative Energy longs, Biotech longs, Medical longs and Computer longs. I added to my (AMSC) long and my (NUAN) long today and took profits in another trading long, thus leaving the Portfolio 100% net long. The overall tone of the market is very bullish as the advance/decline line is substantially higher, almost every sector is rising and volume is above average. Investor anxiety is about average. Today’s overall market action is very bullish. The VIX is falling 7.9% and remains above average at 21.0. The ISE Sentiment Index is a low 110.0 and the total put/call is about average at .94. Finally, the NYSE Arms has been running about average most of the day and is currently .83. I predicted during Friday’s GE-related low-volume market rout that we would get back most of those losses this week. Moreover, this is the first decent volume day in a few weeks, which makes the gains even more impressive. I am seeing many market leading stocks break out on volume, which leads me to conclude this rally has some legs. The US dollar is falling today on a report this morning that European inflation hit a 16-year high. I think the ECB is falling behind the curve in a big way by focusing too much on inflation and will have to ease its stance later this year, which should boost the buck. Vietnam fell another 1.4% last night and is now down -52.3% from its high, while Shanghai fell another 1.7% and is now down -46.3% from its high. It is amazing how the collapse of China’s main stock exchange, which was hyped incessantly last year at the bubble’s peak and which is one of the biggest financial stories of this year, is barely mentioned in the mainstream financial press. Meanwhile, the DJIA is just 10% off its record high, which is a routine correction, and stories of US economic and stock market armageddon are rampant. The bias in the press against reporting anything positive in this country is stunning and symptomatic of the current “US negativity bubble.” However, this bubble is creating the perfect backdrop for a new strong secular US bull run, in my opinion. Nikkei futures indicate an +300 open in Japan and DAX futures indicate an +84 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic pessimism and bargain hunting.

Today's Headlines

Bloomberg:
- Billionaire financier Wilbur Ross Jr. plans to seek about $4 billion from investors including Arab sovereign wealth funds to buy US depositary banks.
- Monsanto Co.(MON) jumped 6%, the highest since its October 2000 IPO after Goldman Sachs(GS) raised their 2008-2009 earnings estimates and lifted their price target to $140. The company also announced a new three-year share repurchase program.
- The Federal Reserve said economic growth has slowed in nine of its 12 districts since February.
- Jack Welch, who handpicked Jeffrey Immelt to succeed him as CEO at General Electric(GE), said his protégé “has a credibility issue” following the company’s surprise first-quarter profit shortfall.
- Confidence in the global economy improved for the first time in five months in April after the US Fed cut interest rates to avert a recession, a survey of Bloomberg users on five continents showed.
- Bush, Democrats Sell Fear Itself on US Economy. The economy is to the Great Depression what an April drizzle is to Hurricane Katrina.
- Banks worldwide are demanding 60% more in collateral from investors such as hedge funds to cut the risk of derivatives trades going bad, the Intl. Swaps and Derivatives Assoc. said.
- The risk of US companies defaulting fell, according to traders of credit default swaps. Contracts on the Markit CDX North America Investment Grade Index of 125 companies in the US and Canada dropped 2 basis points.
- Crude oil and gas rose to records after the EIA reported gasoline supplies dropped on a another plunge in refinery utilization.

Wall Street Journal:
- US airlines – abuzz over the blockbuster merger deal between Delta Air(DAL) and Northwest Air(NWA) – are already focusing on the next potential pairing as the fragmented industry struggles to cope with a harsh operating environment.
- NY Times Co.(NYT) said it expects its flagship newspaper will resort to newsroom layoffs as buyouts offered to trim the paper’s ranks haven’t lured enough volunteers.
- President Bush will propose stopping growth in US greenhouse-gas emissions by 2025 and curb increases in output from power stations within 10-15 years.
- With small-business customers finding it harder to finance high-tech purchases, Microsoft(MSFT) plans to increase the amount it lends them for purchases, by as much as 60%.
- Airline Mergers Make Sense, Anderson, Steenland Say.

NY Times:
- US States Boost Aid to Avoid Home Foreclosures.
- Kenneth G. Langone, a billionaire financier and a founder of Home Depot(HD), is giving another $100 million donation to NY University Medical Center, matching the one that he made anonymously in 1999.

NY Post:
- Bad blood could be stirring between JPMorgan(JPM) CEO Jamie Dimon and Ken Griffin, the Wall Street wunderkind who’s beefing up his buzz-gathering hedge fund.

USA Today:
- Barack Obama often boasts he is “the only candidate who isn’t taking a dime from Washington lobbyists,” yet his fundraising team includes 38 members of law firms that were paid $138 million last year to lobby the federal government, records show.

Newsweek:
- Free Trade Not Behind Job Losses, Samuelson Writes.

FINalternatives:
- Global hedge funds assets reached $2.65 trillion at the beginning of 2008, with over 390 firms in the Billion-Dollar Club.

Daily Telegraph:
- Silvio Berlusconi, who won national elections for prime minister this week, will form an alliance with French President Nicolas Sarkozy against the European Central Bank, which he blames for the euro’s strength. “A very strong euro is hurting Italy’s economy,” Berlusconi said. “I will discuss intervening with the ECB with Sarkozy.” Bernard Connolly, global strategist at Banque AIG, said Spain could join a French-Italian alliance “before too long.”

iHNed.cz:
- Czech T-Mobile may offer Apple’s(AAPL) iPhone by Christmas.

Al-Hayat:
- The value of shares on the Iraqi stock market increased 10.5% to $1.8 billion last year, citing the head of the exchange. The number of shares traded increased to 158 billion in 2007 from 58 billion the year before, citing stock market CEO Taha Ahmed Abdul-Salam.

al-Bayan:
- Persian Gulf states need to invest $375 billion on telecom infrastructure over the next 10 years to maintain competitiveness, citing a telecom study.

Bear Radar

Style Underperformer:

Large-cap Value +1.66%

Sector Underperformers:

HMOs (-.74%), Retail (-.38%) and Drugs (+.28%)

Stocks Falling on Unusual Volume:

MBT, FTE, EWBC, SWY, HCSG and STX

Stocks With Unusual Put Option Activity:

1) MCO 2) RWT 3) NOK 4) NSC 5) MDTL

CPI at Expectations, Housing Starts Drop Again, Industrial Production Surges

- The Consumer Price Index for March rose .3% versus estimates of a .3% gain and unch. in February.

- The CPI Ex Food & Energy for March rose .2% versus estimates of a .2% gain and unch. in February.

- Housing Starts for March fell to 947K versus estimates of 1010K and 1075K prior.

- Building Permits for March fell to 927K versus estimates of 970K and 984K prior.

- Industrial Production for March rose .3% versus estimates of a .1% decline and a downwardly revised .7% decline in February.

- Capacity Utilization for March rose to 80.5% versus estimates of 80.3% and a downwardly revised 80.3% in February.

BOTTOM LINE: US consumer prices met economists’ expectations in March, Bloomberg reported. Core prices rose 2.4% year-over-year in March versus a 2.3% gain in February. Energy prices rose 1.9%, the most since November, versus a .5% decline the prior month. New vehicle costs fell .1% and clothing costs declined 1.3%. Food prices rose .2% versus a .4% rise the prior month. The cost of medical care rose .1% for the month. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 2 basis points to 2.35% and is down from 2.68% one month ago. I continue to believe inflation fears have already peaked for the year and gauges will show a meaningful deceleration before year-end.

Housing starts in the US dropped more than twice as much as forecast in March to a 17-year low, Bloomberg reported. Work began on 947,000 homes at an annual rate, down 11.9% from February and the fewest since March 1991. Residential building has subtracted from economic growth since the first three months of 2006, culminating in a 25% decline in 2007 that was the largest in 28 years. MBA Mortgage Applications rose 2.5% this week and continue to trend higher from February lows. According to BankRate.com, the average 30-year fixed rate mortgage is currently 5.73%, down from 6.12% in early March and down from 6.42% in June of last year, which was the highest since April 2002. In May of 2000, the average 30-year fixed rate mortgage was 8.38%. The Homebuyer Affordability Index is at the best level since April 2003. Yesterday, the NAHB reported that its Future Sales gauge rose to 30, the highest since August of last year and up from a record low of 24 in November of last year. New home construction will remain muted over the intermediate-term as homebuilders continue to work down inventories.

Industrial Production in the US unexpectedly rose the most since November last month, helped by an increase in demand for business equipment, Bloomberg reported. Excluding autos, factory output surged .4% during the month. Autos and parts production dropped 5.4% in March versus a 1.3% decline in February. General Motors(GM) has idled or partially closed 27 of its 71 North American plants due to the American Axle strike. Industrial Production continues trending at levels not normally associated with economic contraction and should improve upon the resolution of the American Axle strike.

Bull Radar

Style Outperformer:

Small-cap Growth (+2.35%)

Sector Outperformers:

Steel (+4.76%), Semis (+4.43%) and Road & Rail (+3.74%)

Stocks Rising on Unusual Volume:

DIOD, VSEA, WFC, MICC, BCS, PT, PZE, SNP, HBAN, FTBK, MOH, POZN, FEED, APWR, FCTR, ASML, LUFK, BOKF, ADTN, GLAD, ATPG, OTEX, PNFP, HOGS, NITE, TTES, GTLS, PWRD, AMCN, SBP, EXM, EDU, RTP, VCI and AGU

Stocks With Unusual Call Option Activity:

1) AKS 2) UTX 3) POZN 4) SIGM 5) SINA

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