Stocks Mixed into Final Hour as Less Economic Pessimism Offsets Rising Energy Prices

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Networking longs, Computer longs and Gaming longs. I added to my (AMSC) long and took profits in a trading long today, thus leaving the Portfolio 100% net long. The tone of the market is mixed as the advance/decline line is about even, sector performance is mixed and volume is below average. Investor anxiety is slightly below average. Today’s overall market action is mildly bullish. The VIX is rising .7% and remains above average at 17.9. The ISE Sentiment Index is above average at 178.0 and the total put/call is below average at .74. Finally, the NYSE Arms has been running around average most of the day and is currently .98. Broad market action is more impressive considering the rise in oil and financial sector news/weakness. The market still trades as though the many bears are again running low on firepower. The rise in the US dollar is a large positive. Large institutions may be beginning to shift assets out of Treasuries and foreign stocks into US equities. Unlike gold, oil is ignoring the rise in the dollar so far, but I suspect a break below 1.53 versus the euro would begin to pressure oil. The TED spread is falling another 3 basis points today to 86 basis points, which is the lowest since February 19^th and down from 204.0 on March 19^th, which is a significant positive. The European Financial Sector Credit Default Swap Index is falling .97 basis points to 63.1 basis points. Nikkei futures indicate a +47 open in Japan and DAX futures indicate a +38 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing credit market angst and less economic pessimism.

Today's Headlines

Bloomberg:
- Google Inc.(GOOG), seeking to diversify beyond four-line text ads, is matching clients’ promotions with the most popular video clips on YouTube. The buzz-targeting program flags clips based on the number of viewers, users’ ratings and how many people tag them as a favorite, Google said. Almost 85 million people in the US watched a total of 4.3 billion videos on YouTube in March, ComScore said yesterday. Lions Gate Entertainment was the first client to use buss targeting to promote the movie “The Forbidden Kingdom,” which was released last month. The ads ran along with the top 500 YouTube videos in the music and entertainment category starting in March.
- Bernanke Says Fed to Boost Loans to Banks as Needed.
- Gold Drops Most in Two Weeks as Stronger US Dollar Curbs Demand.
- Crude oil is rising another $1.50/bbl. in NY, despite the IEA lowering global demand growth assumptions for oil and the Senate passing a bill to stop filling the SPR, as speculators continued to raise bets on the commodity on comments from Iran.
- Corn futures in Chicago fell for a third day as a government report showed planting of the US crop accelerated last week and on speculation drier weather forecast in the next several days will speed up sowing.
- As many as 60 people were killed and 200 injured as eight bombs exploded in the city of Jaipur, the capital of the northern Indian state of Rajasthan.
- Marijuana smokers who spend most of their time stoned are more likely to have higher levels of a protein that may raise risks of heart attack and stroke, scientists said.
- Billionaire investor Carl Icahn is considering mounting a proxy fight to take control of Yahoo! Inc. board seats.

Wall Street Journal:
- A new European Central Bank survey of bank lending in the euro currency zone suggests the global financial-market turmoil that started last summer is now taking a direct toll on corporate Europe.
- Emerging markets along Europe’s fringes are getting deeper into financial hot water as the global economy slows, raising the risk of market turmoil to come. Romania, Turkey, South Africa and Iceland have regularly reacted the most to bouts of risk aversion coursing through global markets.
- The U.S. Senate Tuesday approved an amendment that requires the government to temporarily halt filling the nation's Strategic Petroleum Reserve, according to media reports.

MacRumors.com:
- 3G iPhone with GPS, Video Conferencing, TV?

Forbes.com:
- The IEA has slashed its 2008 oil product demand forecast again in its monthly report, this time by 390,000 barrels per day, and hinted at more cuts in the future. “European consumers are to a certain extent shielded form the rise in oil prices, due to the weak dollar and high tax rates, but higher prices are nonetheless weighing on demand,” said the IEA’s in-house analysts. As well, some countries are investigating the budgetary reality of sustaining subsidies. Although demand from fast growing economies such as China and the Middle East will remain strong in the short-term, that looks unlikely to outweigh such falls from elsewhere. Clear evidence of a seasonal stock build would help, said the IEA. OPEC could kick-start the process by giving at least a clear indication that it will rapidly provide more oil if stocks do not build in the very near future. An even more powerful signal would be to provide more oil now, the IEA said.

AP:
- The US Marine Corps, Army, Navy and Air Force each met or exceeded their monthly recruiting goals in April. The Marine Corps signed 142% of the number it sought, enlisting 2,233 recruits against a goal of 1,577. That puts the corps on course to reach its goal of growing to 202,000 by the end of 2009, more than a year ahead of schedule.

KUNA:
- Kuwait, the fourth-largest oil producer in OPEC, will boost production capacity to 3 million barrels a day within a year from 2.6 million at present, citing Kuwait Oil Company Chairman Sami al-Rushaid.

Fars:
- Iran is reviewing a proposal to reduce its crude oil production, President Mahmoud Ahmadinejad said.

Bear Radar

Style Underperformer:

Large-cap Value -.23%

Sector Underperformers:

Banksirlind (-1.40%), I-Banks (-1.34%) and Hospitals (-.97%)

Stocks Falling on Unusual Volume:

HPQ, PPC, GENC, FOSL, NUAN and AKO/A

Stocks With Unusual Put Option Activity:

1) WNR 2) HPQ 3) FLR 4) CSIQ 5) AMT

Import Prices Decelerate, Retail Sales Ex Autos Rise, Inventories Rise Slightly

- The Import Price Index for April rose 1.8% versus estimates of a 1.6% gain and a 2.9% increase in March.

- Advance Retail Sales for April fell .2% versus estimates of a .2% decline and a .2% increase in March.

- Retail Sales Ex Autos for April rose .5% versus estimates of a .2% gain and an upwardly revised .4% increase in March.

- Business Inventories for March rose .1% versus estimates of a .4% increase and a .5% gain in February.

BOTTOM LINE: Prices of goods imported into the US increased 1.8% in April, led by a jump in fuel costs and metals, Bloomberg said. The cost of imported petroleum and petroleum products increased 4.4% versus a 9.2% gain the prior month. Compared with a year earlier, petroleum prices soared 57.2%. Prices of unfinished metals jumped 7.1% last month. The price of consumer goods rose just .2% in April. As well, the price of goods from China rose .2% for the month. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at 2.41% on the report. This is still down from 2.68% on March 13^th. Despite the production disruptions related to the earthquake in China, the S&P Goldman Agriculture Commodity Spot Index is down for the second day in a row. This index is also down 18.1% from its March 12^th high. I still think inflation fears have peaked for the intermediate-term and that inflation gauges will decelerate through year-end as the dollar strengthens further and commodity prices fall.

Retail sales excluding autos rose .5% in April, more than twice what economists had forecast, Bloomberg reported. Treasuries are falling after this report indicated consumers are holding up well in the face of headwinds and that the Fed has finished lowering interest rates. Restaurant sales rose .9%, the most this year. Excluding autos, building materials and gasoline, the category used to calculate GDP, sales rose .4% in April versus a .4% gain the prior month. Filling station sales fell .4% even as gasoline prices rose as consumers purchased less of the fuel. Spending is projected to jump 2.3% in the third quarter as the bulk of the $117 billion in tax-rebate checks are spent. The government had sent out $27.2 billion in rebates as of May 9^th. Weekly retail sales rose 2.0% this week, up from a 1.6% gain the prior week and up from a .5% increase the week of March 4^th. Weekly retail sales have averaged a 1.8% weekly gain the last five weeks, up from a weekly average gain of 1.1% the prior five weeks and up from a weekly average gain of .6% the five weeks before that. Retail sales should continue to improve through year-end on improving consumer sentiment, rising stock prices, diminishing housing fears, decelerating inflation, lower energy prices, low interest rates and an improving job market.

Inventories are US businesses rose less than forecast in March, Bloomberg reported. The .1% gain in the value of unsold goods at factories, retailers and wholesalers was the smallest since March 2007. Sales rose 1%. Companies had enough goods on hand to last 1.27 months at the current sales pace, down from 1.28 months worth in February. Auto inventories fell .9%. Inventories at general merchandise stores, which include department stores, fell 1.1%. Overall, inventories at retailers fell .5% during the month. I expect business inventories to rise more in April in anticipation of improving demand.

Bull Radar

Style Outperformer:

Small-cap Growth (+.15%)

Sector Outperformers:

Construction (+4.17%), Airlines (+1.80%) and Alternative Energy (+.58%)

Stocks Rising on Unusual Volume:

CSIQ, FLR, FWLT, MHP, FSLR, RTP, MXWL, DELL, BBL, STP, PBR, IBKC, FSYS, DTSI, ARBA, KNXA, GIGM, WRNC, ENER, CSUN, SINA, BOOM, ULTR, UFPT, USNA, CRXL, HELE, KNSY, SOLF, PENN, BSI, VRX, BYI and LIZ

Stocks With Unusual Call Option Activity:

1) HPQ 2) FLR 3) MHP 4) EDS 5) TIF

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