Stocks Finish Higher, Boosted by Transport, HMO, Biotech, Gaming, Financial and Technology Shares

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Stocks Higher into Final Hour on Falling Commodity Prices, Diminishing Credit Market Angst, Less Economic Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Gaming longs, Internet longs, Biotech longs and Software longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is bullish as the advance/decline line is higher, most sectors are rising and volume is around average. Investor anxiety is around average. Today’s overall market action is bullish. The VIX is falling 6.2% and remains above average at 17.88. The ISE Sentiment Index is below average at 127.0 and the total put/call is slightly below average at .84. Finally, the NYSE Arms has been running above average most of the day and is currently 1.11. The AAII % Bulls plunged this week to 31.4% and the % Bears jumped to 45.8%, which is a large broad market positive. The Citigroup US Economic Surprise Index is rising to -11.0 today, up from -100 in March. As well, the EU Index and Japanese Index are still below the US at -26.70 and -26.50, respectively. The US dollar continues to trade very well. The 10-year yield is rising another 8 basis points today, however the 10-year TIPS spread has declined 10 basis points over the last few days to 2.49%, which indicates the rise in the 10-year yield is more a function of diminishing economic worries rather than an increase in inflation expectations. Oil is plunging today despite the large US crude oil inventory drawdown. This is likely due to the fact that US imports of oil are falling as demand declines. The Baltic Dry Index has fallen 4.5% over the last five days. The Bloomberg Base Metals Spot Index is falling another 1.5% today and is down 15.4% since March 6^th. The S&P Goldman Agriculture Spot Index is falling another 1.7% today, dropping below its 200-day moving average, and has plunged 24.2% since February 27^th. We should begin to see meaningfully lower Prices Paid economic data over the coming months and declining inflation expectations as a result. The European Financial Sector Credit Default Swap Index is falling 3.77 basis points today to 66.96 basis points. This is down from 78.0 basis points just 3 days ago. Nikkei futures indicate a +125 open in Japan and DAX futures indicate a +54 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, falling energy/food prices and diminishing credit market angst.

Today's Headlines

Bloomberg:
- Apple Inc.(AAPL), maker of the iPod digital music player, will offer its iPhone handset in Hong Kong and Macau this year to subscribers of Hutchinson Telecommunications Intl. Ltd.
- The number of Asian hedge fund managers will likely stagnate this year as smaller firms struggle to raise assets, said Pete Douglas, principal of Singapore-based hedge fund consulting firm GFIA Pte.
- Karsten Schroeder, CEO of Amplitude Capital LLP, Sees ‘Substantially Less’ Hedge Fund Inflows. (video)
- Credit-default swaps tied to the bonds of Countrywide’s(CFC) home-loan unit dropped 65 basis points to 230 basis points, according to broker Phoenix Partners Group.
- MasterCard Inc.(MA), the world’s second-biggest credit card network, rose to its highest level in NY trading since going public in May 2006 after increasing its profit-growth target on expanding card use.
- Crude Oil Falls More Than $4 as Higher Prices Curb Fuel Demand.
- Wheat Falls to 9-Month Low as US Starts Harvesting More Grain.
- The US dollar reached a three-month high against the yen as US stocks rose and crude plunged, brightening the outlook for the world’s biggest economy.

Wall Street Journal:
- In the quest to increase Americans’ access to broadband Internet, federal regulators are considering a new plan: get someone to give it away free.
- Blame Congress for High Oil Prices.
- Billionaire investor Carl Icahn has told Yahoo! Inc.(YHOO) he may want the Internet company to make a deal with Google(GOOG) if Microsoft(MSFT) doesn’t pursue a full takeover.

NY Times:
- NY to Back Same-Sex Marriages From Elsewhere.

Newsday.com:
- Honda will meet growing US demand for small cars while maintaining North American jobs by moving production of two bigger models from Canada to Alabama, CEO Takeo Fukui said.

Dow Jones:
- The Commodity Futures Trading Commission(CFTC) says it is investigating the US crude oil market for manipulation.
- Russian oil company OAO Lukoil’s VP Andrey Kuzayev held talks with Iraqi President Jalal Talabani in Bagdahd yesterday on reviving a contract to develop the West Qurna-2 field. The field has an estimated reserve capacity of more than 4 billion barrels of oil.

engadget:
- Apple(AAPL) patents systems to warn of impending dropped calls, track down your keys.

Barron’s:
- Credit Insurance Says Banks Should Rally.

Energy Intelligence:
- Iran plans to cut the amount of crude stored in tankers in the Persian Gulf from next month, citing Hojatollah Ghanimifard, executive director of international affairs at National Iranian Oil Co.

Forbes:
- Google(GOOG) is turning YouTube into its own kind of data gold mine.

Seeking Alpha:
- August ’07 Quant Meltdown: Investors Learned a Lesson, but Did Managers?

The Economic Times:
- Saudi pumps in extra oil, offers to step up supply. “The majority of OPEC producers definitely don’t like this high oil price because it is neither in their interest nor in the interest of the global economy, and it’s especially painful for the developing world,” said Saudi oil minister Ali al-Naimi.

Le Temps:
- UBS Chief Rohner Says Worst of Crisis Is Over.

Interfax:
- Russia’s central bank may raise some or all of its interest rates, citing the bank’s Chairman Sergey Ignatiev. The bank also sees inflation at 10.5% in 2008. Russian consumer prices jumped 7.5% in the year through May 26.

Press Trust of India:
- India may decide on raising fuel prices today.

The National:
- Osama Bin Laden Bounty Rises to $25 Million.

KUNA:
- Kuwaiti crude oil dropped $4.77 to $117.47 a barrel yesterday, citing Kuwait Petroleum Corp.

Emirates Business 24/7:
- United Arab Emirates’ inflation accelerated to 14% last year as fuel, housing and construction costs soared, citing a report from the state-controlled Abu Dhabi Chamber of Commerce. Higher gasoline and diesel fuel prices increased the cost of building in the UAE and are threatening builders’ ability to finance loans taken from banks.

Bear Radar

Style Underperformer:

Mid-cap Growth +.45%

Sector Underperformers:

Goldirlind (-3.3%), Coal (-2.8%) and Oil Service (-1.93%)

Stocks Falling on Unusual Volume:

USO, ARD, CLF, SGMO, SNDA, WIRE, GLNG, ESLR, FSLR, MW and TTM

Stocks With Unusual Put Option Activity:

1) BCE 2) IMB 3) TMA 4) TXN 5) HUN

US Growth Revised Higher, Initial Jobless Claims Stable

- Preliminary 1Q GDP rose .9% versus estimates of a .9% gain and prior estimates of a .6% rise.

- Preliminary 1Q Personal Consumption rose 1.0% versus estimates of a 1.0% gain and prior estimates of a 1.0% rise.

- Preliminary 1Q GDP Price Index rose 2.6% versus estimates of a 2.6% gain and prior estimates of a 2.6% rise.

- Preliminary 1Q Core PCE rose 2.1% versus estimates of 2.2% and a prior estimate of a 2.2% gain.

- Initial Jobless Claims for this week rose to 372K versus estimates of 370K and 368K the prior week.

- Continuing Claims rose to 3104K versus estimates of 3080K and 3068K prior.

BOTTOM LINE: The US economy grew more than previously estimated in the first quarter as Americans shunned imports and exports climbed to another record, Bloomberg reported. Jeffrey Frankel, an economist at Harvard Univ. who is a member of the panel that dates US economic cycles, said in a Bloomberg Radio interview, “I wouldn’t rule out going into recession” later in the year. This statement implies that he doesn’t currently view the slowdown as a recession, in my opinion. The trade deficit shrank to an annual pace of $480.2 billion, the smallest since 3Q 2002. Trade’s contribution to growth jumped to .8 percentage point, which is four times more than previously estimated. The revisions also showed bigger gains in incomes than previously estimated. Personal Income increased at a 5.1% annual pace during 4Q versus a prior estimate of a 4.2% gain. For 1Q Personal Income growth was revised up to 4.7% from a prior estimate of 4.4%. The gain in growth last quarter would have been even greater if not for a decline in estimates for inventories. Companies cut inventories at a $14.4 billion annual rate versus an initial estimate of a $1.8 billion gain. Inventories added only .2 percentage point to growth, less than the previously estimated contribution of .8 percentage point. A measure of total sales, which excludes inventories, was revised to a gain of .7% at an annual pace rather than a .2% drop that was previously estimated. I expect 2Q GDP to easily exceed economists’ estimates of a .1% gain and growth to accelerate modestly into year-end on fiscal/monetary stimuli, lower commodity prices, decelerating inflation, an end to the American Axle strike, a firmer US dollar, inventory rebuilding, an end to the credit market turmoil, strong exports, diminishing housing fears and an improving job market.

The number of Americans filing first-time claims for unemployment benefits rose slightly last week, Bloomberg said. The four-week average of initial claims fell to 370,500 from 373,000 the prior week. Weekly claims have averaged 358,150 so far this year. During the mild recession of 2001, initial jobless claims averaged 415,600 a week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, held steady at a historically low 2.3%. I expect jobless claims to trend modestly lower through year-end.

Bull Radar

Style Outperformer:

Small-Cap Value (+.67%)

Sector Outperformers:

Biotech (+2.12%), Road&Rail (+1.67%) and I-Banks (+1.60%)

Stocks Rising on Unusual Volume:

MA, PNSN, LEH, BMA, C, WNR, SHI, RAIL, TRN, HP, WFT, RDEN, SVNT, ULBI, JOYG, DBRN, COCO, SOHU, SPSX, EXPE, MATK, DRYS, AMSC, CPRT, ANSS, CBEY, ALXN, OMRI, ISYS, GCO, KCE, JAS and BIG

Stocks With Unusual Call Option Activity:

1) GSS 2) JOYG 3) BBY 4) SOV 5) JCG