Stocks Finish at Session Highs, Boosted by Financial, Airline, Technology and Retail Shares

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Stocks Soaring into Final Hour on Lower Energy Prices, Stronger US Dollar, Less Economic Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs, Biotech longs, Medical longs, Retail longs and Alternative Energy longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is bullish as the advance/decline line is higher, most sectors are rising and volume is above average. Investor anxiety is above average. Today’s overall market action is very bullish. The VIX is falling 7.9%, but remains above average at 19.2. The ISE Sentiment Index is low at 93.0 and the total put/call is above average at .98. Finally, the NYSE Arms has been running about average most of the day and is currently .78. As I said yesterday, investors’ initial negative reaction to the 25 basis point fed funds rate cut and less-hawkish-than-expected FOMC commentary seemed overdone. Today the US dollar is surging, which is further pressuring commodity prices and boosting the broad stock market. I still think the dollar has seen its lows for at least this year and probably much longer. I heard a trader on CNBC say recently that global oil production was capped at 85 million barrels per day, even though global oil production is currently a new record 87.6 mbpd and has been above 85 mbpd for quite some time. I also heard someone say today that US oil demand has been rising for 30 years, which is also an incorrect statement. These are just two of the many false statements I hear from oil bulls regarding the current state of the fundamentals for the commodity. The TED spread is falling 9 basis points today to 139 basis points, which is the lowest since April 8^th. The US dollar-based Libor rate is falling 7 basis points today to 2.78% and appears to be rolling over again. This rate, which many mortgage rates are tied to, has plunged from 5.73% in September of last year. The 30-day asset backed commercial paper yield is falling 11 basis points today to 2.83% and also appears to be rolling over again. The European Financial Sector Credit Default Swap Index is falling another 3.16 basis points today to 59.10. This is another new low and down from 131.41 on March 21, which is also a big positive. Nikkei futures indicate an +314 open in Japan tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower energy prices, technical buying and less economic pessimism.

Today's Headlines

Bloomberg:
- Kuwait’s $250 billion sovereign wealth fund may boost its stakes in Citigroup Inc.(C) and Merrill Lynch(MER) as it pursues investments in US and European companies battered by subprime-mortgage related losses.
- Commodities fell the most in five weeks as a rally by the US dollar eroded demand for energy, metals, crops and livestock as alternative investments.
- The US dollar rose to the highest in five weeks against the euro on speculation the Fed will stop reducing borrowing costs.
- The cost of protecting European corporate bonds from default fell, according to traders of credit-default swaps. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings dropped 18 basis points to 418 today, according to JPMorgan. The CDX North America Investment Grade Index fell 3 basis points to 92.
- Drake Management LLC, the money-management firm started by former BlackRock Inc. executives, is shutting down its largest hedge fund after losses prompted client withdrawals, according to a letter to investors.
- Top-rated securities backed by subprime or home-equity loans last month returned more than US Treasuries for the first time since December, as Fed efforts to calm credit markets helped entice buyers back.
- ICAP Plans Rival Index to Libor for US Bank Rates.
- Money in funds tracking the two most popular commodity indexes jumped 48% so far this year to $250 billion, showing investors have influenced record energy, food and metals prices, according to Sanford C. Bernstein. The California Public Employees’ Retirement System, the largest US pension fund, said in February it may increase its commodity investments 16-fold as it seeks to benefit from gains in gold, copper, wheat and oil. Oil this week climbed to $119.93/bbl., a record, while wheat and corn jumped to all-time highs in 2008, partly as pension and hedge funds switched away from a slumping dollar and tumbling stock markets. Countries including Haiti and Egypt have been hit by social unrest because of rising food prices that the World Food Programme said may result in a “silent famine” for the poorest in Asia.
- Wheat fell to a five-month low as the US dollar rallied against major currencies, eroding the appeal of US commodities to overseas buyers.
- MBIA Inc.(MBI), the world’s largest bond insurer, has enough capital to retail its AAA rating, CEO Jay Brown told shareholders. The stock is surging 11% on the news.
- Billionaire Sam Zell said institutional investors are beginning to return to the market for mortgage-backed securities that finance commercial real estate deals and new construction.
- Clinton Bests Obama Against McCain in Swing States, Poll Says.
- Nvidia(NVDA) Wins More Than Just Gamers at 12 Times Profit.

Wall Street Journal:
- US Thieves Target Metal Sculpture as Prices Soar.
- Shortage of Laborers Plagues India. Skills Gap Drags Down Economy.
- Asian Hedge Funds Lose Assets In 1Q From Poor Performance.

Detroit Free Press:
- More than two months into the UAW’s strike at American Axle, it appears that the two sides have pulled together a potential framework for a settlement, which likely will include buyouts, buy-downs in exchange for lower wages and the closure of at least two plants.

MarketWatch:
- Chip sales rose 3.8% in the first quarter, boosted by strong consumer demand worldwide, the Semiconductor Industry Association said.

MoneyNews.com:
- Mike Milken: Subprime Mess Overblown. Miken says comparisons of the high-yield, high-risk corporate bonds that he once touted at Drexel Burnham Lambert with the mortgage-backed securities behind the subprime meltdown are simply not fair. Investors who follow that train of though are merely “people who don’t understand markets very well,” Milken says. As for the markets, they have already seen the worst and the economy is on the rebound, the one-time trader predicts.

AP:
- The head of al-Qaeda in Somalia, Aden Hashi Ayro, was killed in an air strike. Somali government officials say Ayro trained in Afghanistan before al-Qaeda’s Sept. 11, 2001, attacks on the US.

Financial Times:
- One of Silicon Valley’s leading venture capital firms has more than tripled the amount of money it has set aside for invest in clean technology companies.
- Triple-A prices are out of sync. Why have the prices of triple-A mortgage-linked securities slumped so dramatically this year? Yes, the price of triple-A securities looks nuts from a fundamental credit pint of view; but this reflects the fact that the leverage which has underpinned the structured credit world in recent years has been mad too.

Haaretz.com:
- Israeli Transportation Minister and former defense Minister Shaul Mofaz said Wednesday that Iran could have nuclear bomb technology as early as this year.

Asharq al-Awsat:
- The number of Saudi public projects under execution has fallen to 950 this year valued at 22 billion riyals($5.9 billion), from 3,600 projects, worth 92 billion riyals, last year.

Bear Radar

Style Underperformer:

Mid-cap Growth +.41%

Sector Underperformers:

Gold (-3.79%), Coal (-3.73%) and Oil Service (-3.21%)

Stocks Falling on Unusual Volume:

MCRS, FSLR, OMTR, NTG, UDRL, ARD, PVA, MTL, PCU, FCX, SU, HES, SFLY, RDEN, HOLX, PDGI, JDSU, FARO, IRBT, GTLS, INSP, FEED, SNN, HOS, WLK and LVS

Stocks With Unusual Put Option Activity:

1) HOLX 2) BARE 3) COH 4) HES 5) VSEA

Personal Income Decelerates, Spending Rises, Inflation Muted, Jobless Claims Rise, Manufacturing Stable, Construction Falls Again

- Personal Income for March rose .3% versus estimates of a .4% gain and a .5% increase in February.

- Personal Spending for March rose .4% versus estimates of a .2% gain and a .1% rise in February.

- The PCE Core for March rose .2% versus estimates of a .1% gain and a .1% increase in February.

- Initial Jobless Claims for this week rose to 380K versus estimates of 365K and 345K the prior week.

- Continuing Claims rose to 3019K versus estimates of 2950K and 2945K prior.

- ISM Manufacturing for April came in at 48.6 versus estimates of 48.0 and a reading of 48.6 in March.

- Construction Spending for March fell 1.1% versus estimates of a .7% decline and an upwardly revised .4% increase in February.

BOTTOM LINE: US consumer spending rose more than forecast in March, Bloomberg reported. As well, the Fed’s preferred inflation gauge, the PCE core, rose 2.1% year-over-year in March versus the 20-year average of a 2.4% rise and down from 2.5% in February of last year. I expect personal income and spending to improve over the coming months as the job market strengthens, energy/food prices fall, stocks rise, extreme housing fears subside, depressed sentiment improves, credit market turmoil ends and interest rates remain relatively low.

The number of Americans filing first time jobless claims rose from a two-month low this week, Bloomberg reported. The four-week moving average of jobless claims fell to 363,750 versus 370,250 the prior week. The unemployment rate among those eligible for benefits ticked up to 2.3% versus 2.2% the prior week. This is still well below the long-term average of 2.9%. Forty-five states and territories reported a decrease in new claims, while only eight had an increase. The current four-week average of jobless claims of 363,750 is still well below the 410,000+ normally associated with economic contraction. During the last recession, from March 2001 through November 2001, initial jobless claims averaged 415,600 a week. During the contraction from July 1990 to March 1991, first-time claims average 434,000 a week. I expect jobless claims to trend lower from current levels over the coming months.

Manufacturing in the US in April continued to stabilize, Bloomberg reported. The ISM figure was higher than economists had forecast as exports continue to boom at record levels. The ISM Manufacturing Index is still nowhere near levels that normally indicate broad economic contraction. I expect manufacturing to improve further over the coming months as companies gain confidence in the economy, exports continue to boom, consumer spending improves and energy prices fall.

Spending on US construction projects fell more than forecast in March reflecting the largest one-month drop in homebuilding on record, Bloomberg reported. Residential construction fell in the first quarter by the most since 1981. The US economy grew at a .6% annual pace in the first quarter despite homebuilding falling at an annual rate of 27%, which subtracted 1.23 percentage points from economic growth during the quarter. Housing has been subtracting from GDP since the first quarter of 2006. Non-residential construction, including public projects, rose 1.3% in March and is up 12% from year ago levels. New home construction will continue to remain muted over the intermediate-term as builders work down inventories.

Bull Radar

Style Outperformer:

Small-cap Value (+1.65%)

Sector Outperformers:

Airlines (+5.1%), Semis (+4.1%) and Banks (+3.4%)

Stocks Rising on Unusual Volume:

AMKR, CNQR, SYMC, BBD, IOC, TTES, DVR, BAK, VLCM, ULBI, RNOW, PSYS, LOOP, TTEK, SEPR, UFPT, LHCG, NEWP, GMCR, TTMI, MWIV, SSYS, SOHU, ULTI, PWRD, IGV, GTI, ASF, DVR, TBL and TRN

Stocks With Unusual Call Option Activity:

1) DNR 2) HOLX 3) CMCSA 4) SYMC 5) HLF