Stocks Lower into Final Hour on Higher Energy Prices, Financial Sector Worries

BOTTOM LINE: The Portfolio is about even into the final hour as losses in my Alternative Energy longs and Computer longs are being offset by gains in my Software longs, Medical longs and Emerging Market shorts. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is slightly bearish as the advance/decline line is mildly lower, sector performance is mixed and volume is below average. Investor anxiety is above average. Today’s overall market action is neutral. The VIX is falling .5%, but remains above average at 19.4. The ISE Sentiment Index is below average at 123.0 and the total put/call is slightly above average at .96. Finally, the NYSE Arms has been running very high most of the day and is currently 1.51. Considering the rise in oil and financial sector news, today’s action isn’t too bad. The bears seem to be running low on firepower again. I think a reversal lower in oil is all that stands in the bulls way of another meaningful market surge higher. Moreover, the TED spread is falling another 6 basis points today to 100.0 basis points, which is the lowest since February 25^th and down from 204.0 on March 19^th, which is a significant positive. The 30-day asset backed commercial paper yield is down 8 basis points to 2.63%, the lowest since February 2005. The US dollar-based Libor rate is also falling another 3 basis points to 2.68%, down from 2.93% on April 23rd. Nikkei futures indicate a +5 open in Japan and DAX futures indicate a +46 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, and bargain hunting.

Today's Headlines

Bloomberg:
- Lampert, Wood Show Risk of ‘Concentrated’ Hedge Funds.
- The global financial crisis triggered by the collapse of the subprime mortgage market is “clearly” in its final stages, Morgan Stanley CEO John Mack said.
- Copper fell, capping a second straight weekly decline, as inventories monitored by the London Metal Exchange jumped the most in more than two years.
- Oil rose above $126/bbl. in NY to a record as the dollar weakened against the euro and yen, prompting speculators to buy commodities.
- Democratic presidential candidate Barack Obama isn’t likely to pick rival Hillary Clinton as a running mate, according to one of his most prominent supporters.
- Activision Inc.(ATVI), the video-game maker combining with Vivendi SA, rose the most in five months in Nasdaq Stock Market trading after fourth-quarter sales of “Guitar Hero” helped earnings beat analysts’ estimates.
- Priceline.com Inc.(PCLN) rose the most in almost three months after forecasting 2008 profit that was higher than analysts’ estimates.

Wall Street Journal:
- A cache of controversial computer files closely tying Venezuela’s President Hugo Chavez to communist rebels seeking to topple Colombia’s government appear to be authentic.

CNBC.com:
- William Ackman, the hedge-fund manager and founder of Pershing Square Capital Management, told CNBC it will be more difficult to be “short” in 2008. Pershing made all of its profits last year from short-selling, Ackman said. Ackman said he is a big believer in retailer Target Corp.(TGT). Pershing, at just under 10%, is the Minneapolis-based discount chain’s largest shareholder.

SpiegelOnline:
- Brazil plans to become a major oil exporter and wants to join OPEC, the country’s President Luiz Inacio Lula da Silva told German magazine Der Spiegel.

Sun:
- UK voter support for the ruling Labour Party has slumped to 23%, giving the opposition Conservative Party its biggest polling lead since 1968, citing a YouGov Plc poll. Some 49% of voters said they supported Conservatives, with Liberal Democrats posting 17% in support.

Valor Economico:
- Brazilian President Luiz Inacio Lula da Silva told Cabinet ministers that he won’t allow consumer prices to rise faster than the official target.

Bear Radar

Style Underperformer:

Large-cap Value -1.11%

Sector Underperformers:

Coalirlind (-1.93%), Construction (-1.86%) and Steel (-1.56%)

Stocks Falling on Unusual Volume:

CCOI, GEOY, SWC, POWR, ENER, SONC, OFIX, AMSC, HANS, BRKS, FFG, DRQ, MYL, AIG, OME, PAC and ORA, KFS, PDX, JAH, NSR, OMG,

Stocks With Unusual Put Option Activity:

1) MVL 2) NSM 3) HOT 4) MIR 5) WFT

Trade Deficit Shrinks

- The Trade Deficit for March shrank to -$58.2 billion versus estimates of -$61.0 billion and -$61.7 billion in February.

BOTTOM LINE: The US trade deficit shrank more than forecast in March as imports fell by 2.9%, the most in more than six years, Bloomberg reported. The quantity of petroleum purchased by US customers from overseas was the lowest since February 2007. The deficit with China was the lowest in two years. After subtracting the influence of prices, which are the numbers used to compute GDP, the trade deficit shrank to $47.2 billion, the lowest since November 2003. Total exports fell 1.7% from a record to $148.5 billion, led by a decline in sales of commercial aircraft, autos and petroleum products. Demand for American goods from the European Union and South/Central America set records in March. I expect the trade deficit to continue to improve over the intermediate-term.

Bull Radar

Style Outperformer:

Small-cap Value (+.07%)

Sector Outperformers:

Networking (+1.27%), Retail (+.89%) and Disk Drives (+.69%)

Stocks Rising on Unusual Volume:

PNSN, ATVI, QSFT, TRLG, PCLN, GXDX, SRVY, RICK, SGMS, NVDA, PEGA, HRBN, UFPT, VRSN, MGRC, INWK, RAIL, OSIR, LEAP, ROSE, NAT, ARP and PRX

Stocks With Unusual Call Option Activity:

1) ATVI 2) BCSI 3) PCLN 4) BMRN 5) SHPGY

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