Stocks Finish Mostly Lower, Weighed Down by Financial, Telecom, Alternative Energy, REIT and Airline Shares

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Stocks Lower into Final Hour on Rising Global Growth Concerns, Financial Sector Worries

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Internet longs, Computer longs and Software longs. I added to my (IWM)/(QQQQ) hedges and added to my (EEM) short this morning, thus leaving the Portfolio 50% net long. The tone of the market is bearish as the advance/decline line is substantially lower, most sectors are declining and volume is below average. Investor anxiety is slightly below average. Today’s overall market action is bearish. The VIX is rising 2.4% and remains above average at 24.1. The ISE Sentiment Index is below average at 106.0 and the total put/call is about average at .91. Finally, the NYSE Arms has been running about average most of the day and is currently .94. It appears to me, based on recent action in global markets, that worries over slowing global growth are intensifying rapidly as a result of the commodities bubble. A number of market-leading stocks are under pressure today. As well, the action in the (XLF) is a large broad market negative. The Bank Index(BKX) is making another new 52-week low today, falling 4.2%. The Euro Financial Sector Credit Default Swap Index is rising another 1.7% today to 79.12 basis points. This is up from a low of 52.66 on May 5^th, but still down from 129.46 basis points on March 20^th. On the positive side, the US dollar trades well, oil was unable to build on Friday’s sharp advance despite unconstructive commentary from OPEC and the TED spread is falling 6.4% to .81 basis points today. One of my longs, (AAPL) is under pressure today on profit-taking after its WWDC announcements. The stock will likely remain under mild pressure near-term before making another strong advance. I doubt it will pay for longer-term investors to sell (AAPL) shares at current levels. Nikkei futures indicate an unch. open in Japan and DAX futures indicate a -15 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on rising global growth worries, financial sector concerns and more shorting.

***Alert***

I am experiencing technical difficulties with posting today. Sorry for the inconvenience.

Bull Radar

Style Outperformer:
Large-cap Value (+.70%)

Sector Outperformers:
Oil Service (+3.44%), Energy (+3.0%) and Restaurants (+2.35%)

Stocks Rising on Unusual Volume:
VQ, ENG, SQM, MOS, CLB, TWTI, SWKS, VRTX, GEOI, ENG, XIDE, BEAV, USNA, GROW, GASS, MEOH, EZPW, NDSN, CPRT, ASMI and HWCC

Stocks With Unusual Call Option Activity:
1) XLNX 2) TIE 3) TIVO 4) LTM 5) CORS

Monday Watch

Weekend Headlines
Bloomberg:
- Trading in derivatives, led by short-term interest-rate futures, climbed 30% to a record $692 trillion in the first quarter, signaling a possible easing of tensions in the money markets, the Bank for International Settlements said.
- Buy Stocks as Investors `Misread' Jobs, JPMorgan Says.
- China told lenders to set aside more money for a fifth time this year to cool inflation that is close to an 11-year high. Banks must put aside a record 17 percent of deposits as reserves starting June 15, which rises to 17.5% from June 25, the People’s Bank of China said. The government is trying to slow inflation from April’s 8.5% pace without triggering a slump in the economy. The trade surplus has pumped $58 billion into the financial system in the first four months and foreign direct investment has injected $35 billion. The extra cash may fuel higher inflation and adds to the risk of asset bubbles.
- BP Plc(BP), ConocoPhillips(COP) and other producers bid a record $1.18 billion to obtain rights to drill for oil and natural gas in Canada’s arctic as record crude prices encourage exploration in remote areas.
- Australia Prime Minister Kevin Rudd urged OPEC to boost oil production. The G-8 meeting “provides an opportunity to apply the blowtorch to the OPEC organization, and it’s time that happened,” Rudd said.
- Persian Gulf shares declined on concern record oil prices will increase inflationary pressure and cut into companies’ profit margins. “The oil price is a double edged sword for the Gulf,” said Talal Altawari, who manages $250 million in Gulf Investment Corp.’s Gulf Premier Fund. “While high prices mean more petrodollars, it also brings more inflation, raising prices of everything from raw materials to labor which affects profit margins.” Inflation in Saudi Arabia accelerated to a record 10.5 percent in April as the cost of food and housing soared. In February, Kuwaiti inflation quickened to 10.1 percent, while in Oman consumer prices rose an annual 11.1 percent. Qatar has the highest inflation rate in the GCC, with consumer prices jumping 14.8 percent in the first quarter from a year earlier.
- Goldman Sachs(GS) Chief Economist Jim O’Neill said Russia’s economic expansion will slow in the decade from 2010 as gains in the oil price decelerate. “Oil prices will definitely not do what they’ve done the past 10 years, and that’s not going to be great news for Russia, O’Neill said. Russia’s growth won’t slow as much if the government bolsters property rights and the rule of law, he said. “People have gone from thinking I’m nuts to thinking I’m pessimistic,” O’Neill said, referring to the probable slowing of Russia’s economic growth.
- South Korea’s crude-steel production capacity is forecast to rise 23% through 2010, the Korea Iron & Steel Association said.

Wall Street Journal:
- Energy Hedge Funds Missing Oil Boom.
- A key measure of estimating the value of subprime mortgage-backed securities may be overstating potential losses of triple-A securities by more than 60%, according to the Bank of International Settlements, which puts its own estimate of such losses at $73 billion. It most recent quarterly report adds to growing criticism of a key measure of the subprime-mortgage market called the ABX. Some observers also contend that ABX prices have been driven lower largely by bearish traders.

Barron’s:
- Top 100 Women Financial Advisors.

MarketWatch.com:
- In Hong Kong, while a "code black" tropical rainstorm had everyone running for cover in recent days, investors in the IPO market took a bath of their own. Two listing debuts slumped Friday, with the 14% fall in sportswear retailer Pou Sheng International Ltd. enough to prompt another newcomer -- a tanker firm -- to pull the plug on its plans. And now as attention turns to a giant-sized construction IPO -- fast-tracked to prioritize quake rebuilding efforts -- the mood in China's A-share market has also deteriorated. If this issue drains the market of liquidity, it could be a painful aftershock for investors.
- Willis Group Holdings Ltd.(WSH) of London will acquire rival insurance broker Hilb Rogal & Hobbs Co(HRH), of Glendale, Va., . for $1.7 billion in cash and stock in a deal that could lead to more mergers in a sector analysts say is ripe for further consolidation, according to a media report Sunday.

CNBC.com:
- IMF suggests steps to fix Vietnam’s ‘overheating’ economy.

MercuryNews.com:
- Toyota has developed a new fuel cell hybrid, a green car powered by hydrogen and electricity, that can travel more than twice the distance of its predecessor model without filling up, the automaker said today. The improved model's maximum cruising range is 516 miles (830 kilometers) compared with 205 miles (330 kilometers) for Toyota's previous fuel cell model, the maker of the Camry sedan and Lexus luxury cars said in a statement.

Business Week:
- Abu Dhabi Investment Authority, the Gulf emirate’s $875 billion wealth fund, finds the US market attractive and is increasing allocations to alternative investments. The directors of the world’s largest sovereign wealth fund give their first public interviews to BusinessWeek.
- Getting Set for the iPhone App Store. Hundreds of developers are ready to introduce new software to sell through Apple’s(AAPL) new iTunes section.
- Oil Traders Face New Regulations. If the CFTC took the next step of requiring all U.S. crude trades to be subject to CFTC regulation and trading limits, oil prices would drop by 25% "overnight," says Michael Greenberger, a law professor at the Univ. of Maryland and former head of the CFTC’s Div. of Trading & Markets. As institutional investors like pension funds and university endowments have sought a hedge against inflation and alternatives to a shaky stock market, they have entered into swaps agreements with investment banks that allow the banks to trade in futures markets on their behalf. Under the 2000 law, the CFTC exempts these banks from position limits to which other speculators must adhere. As a result, investment in index funds tied to commodities, such as the Goldman Sachs Commodities Index (GSCI), rose from $13 billion in 2002 to $260 billion in 2007. If the CFTC decides to subject investment banks trading swaps to speculative trading limits—currently 3 million barrels of WTI crude oil for front-month trades—oil prices could deflate significantly, say analysts. "If [the CFTC] forces trade limits on these funds, commodity index traders will have to pull out of this market," says Stephen Schork, an energy consultant in Villanova, Pa., and editor of The Schork Report, a daily energy newsletter. "The [commodities] bulls would be in for a world of hurt." Schork says such a correction would send oil prices back to the $80-$100 range. Greenberger says that given the heated political climate, he fears that misguided propositions that would distort the market—like banning speculators from commodities markets entirely—could win support.

Forbes:
- iPhone Rumors Conflict.

CNNMoney.com:
- Why oil prices will tank. Arguments that $4-a-gallon gas(or even higher) is here to stay are dead wrong. Housing’s boom-and-bust cycle tells you why. High flying tech stocks crashed. The roaring housing market crumbled. And oil, rest assured, will follow the same path down.

Reuters:
- OPEC members saw no need on Sunday to pump more oil in response to last week’s double-digit surge in oil prices to over $139 a barrel that top exporter Saudi Arabia described as unjustified. Consuming governments have put pressure on OPEC, supplier of more than a third of the world’s oil, to boost output to ease the effect of high oil prices on their economies. Germany’s government voiced its concern on Sunday about the impact of oil’s rally. “The increase in oil prices is becoming a real threat to the worldwide economy,” Germany’s Economy Minister Michael Glos said. Israel’s deputy prime minister said in remarks published last week that an attack on Iran’s nuclear sites looked “unavoidable,” although a senior Israeli defense official said on Sunday the remarks did not reflect state policy.

Financial Times:
- Apple(AAPL) has bowed to pressure from mobile phone operators and agreed they can subsidize the latest iPhone. The subsidy arrangements should increase Apple’s chances of hitting its target of selling 10 million iPhones during 2008.
- Hedge funds have more than $2.9 trillion under management, according to a survey of valuers of their assets.
- Banks and investment banks whose health is crucial to the global financial system should operate under a unified regulatory framework with “appropriate requirements for capital and liquidity”, according to Timothy Geithner, president of the Federal Reserve Bank of NY.
- Lehman Brothers(LEH) is working on plans to announce early next week that it is raising $5 billion-$6 billion in fresh capital as the bank discloses a large second quarter loss.
- The Brazilian government plans to use revenues from newly discovered oil fields to create a sovereign wealth fund containing as much as $200bn-$300bn in the next three to five years, Guido Mantega, finance minister, has told the Financial Times.
- Asia's reluctance to tackle inflation is surprising, given the obvious dangers to economic stability, the political risks associated with rising prices in countries such as India and the cushion that exists in the form of robust economic growth. Inflation must be fought, even if it means sacrificing ultra-fast economic growth for a limited time and deflating asset bubbles further. Neither the supercharged growth nor the bubbles are indefinitely sustainable anyway.

Daily Telegraph:
- Apple(AAPL) ready to unlock 3G iPhone.

Emirates Business 24/7:
- The Qatar Investment Authority’s assets may swell to $105 billion in 2010 from $65 billion now on the Gulf state’s oil and gas revenue, citing Saudi British Bank research.

Middle East Economic Digest:
- Saudi Aramco will award contracts worth $3 billion within two weeks to develop its 900,000 barrel-a-day Manifa oilfield.

Arabian Business.com:
- Abu Dhabi Investment Authority(ADIA), the world’s largest sovereign wealth fund, which bought into Citigroup, will slash its hedge fund investments and increase holdings in index funds.

Weekend Recommendations
Barron's:
- Made positive comments on (COP), (MIR), (BGC), (VSE), (AVR), (AA), (ADP) and (COG).
- Made negative comments on (AAPL).

Citigroup:
- Reiterated Buy on (TXN), target $39.
- Reiterated Buy on (FORM), boosted target to $30, added to Top Picks Live.
- Reiterated Buy on (SMTC), target $22.
- Reiterated Buy on (EXPE), target $37.

Night Trading
Asian indices are -2.0% to -1.25% on avg.
S&P 500 futures +.21%.
NASDAQ 100 futures +.28%.

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Earnings of Note
Company/Estimate
- (PLL)/.50
- (SHFL)/.50
- (PNY)/.72

Upcoming Splits
- (SF) 3-for-2

Economic Releases
10:00 am EST
- Pending Home Sales for April are estimated to fall .5% versus a 1.0% decline in March.

Other Potential Market Movers
- The (TXN) Mid-quarter update, Merriman Curhan Ford Consumer Conference, Deutsche Bank Media/Telecom Conference and Goldman Sachs Healthcare Conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by technology and automaker shares in the region. I expect US stocks to open mixed and to strengthen into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the week.

Weekly Outlook

Click here for Wall St. Week Ahead by Reuters.

Click here for stocks in focus for Monday by MarketWatch.

There are several economic reports of note and a few significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – Pending Home Sales

Tues. – Weekly retail sales reports, Trade Balance, IBD/TIPP Economic Optimism

Wed. – Weekly MBA Mortgage Applications report, Weekly EIA Energy Inventory report, Fed’s Beige Book, Monthly Budget Statement

Thur. – Import Price Index, Advance Retail Sales, Initial Jobless Claims, Business Inventories

Fri. – Consumer Price Index, Univ. of Mich. Confidence

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. – Pall Corp.(PLL)

Tues. – PEP Boys(PBY)

Wed. – Korn/Ferry(KFY)

Thur. – None of note

Fri. – None of note

Other events that have market-moving potential this week include:

Mon. – (TXN) Mid-quarter update, Merriman Curhan Ford Consumer Conference, Deutsche Bank Media/Telecom Conference, Goldman Sachs Healthcare Conference

Tue. – (FOE) analyst day, Goldman Healthcare Conference, Piper Jaffray Consumer Conference

Wed. – Needham Biotech/Medical Tech Conference, Piper Jaffray Consumer Conference, Goldman Healthcare Conference, Piper Industrial Growth Conference

Thur. – (CAH) MedTech day, (PPG) analyst meeting, (SYMC) analyst meeting, Goldman Healthcare Conference, Needham Biotech/Medical Tech Conference, Thomas Weisel Alternative Energy Conference, Avondale Behavioral Healthcare Conference

Fri. – (N) analyst meeting

BOTTOM LINE: I expect US stocks to finish the week modestly lower on worries over the damaging effects of the commodities bubble, rising credit market angst, increasing global economic pessimism and more record short-selling. My trading indicators are giving mixed signals and the Portfolio is 75% net long heading into the week.