Stocks Finish Mostly Lower, Weighed Down by Commodity, Airline, Construction and Gaming Shares

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Stocks Mostly Lower into Final Hour on Global Growth Worries

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Alternative Energy longs, Computer longs and Commodity/Emerging market shorts. I covered some of my (IWM)/(QQQQ) hedges this morning, thus leaving the Portfolio 75% net long. The tone of the market is mildly bearish as the advance/decline line is slightly lower, sector performance is mixed and volume is above average. Investor anxiety is above average. Today’s overall market action is neutral. The VIX is falling .74% and remains above average at 22.97. The ISE Sentiment Index is very low at 84.0 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 .96. The 10-year yield is rising another 10 basis points today. Traders are currently anticipating a 25 basis point Fed rate hike in September. In my opinion, this is unlikely, notwithstanding recent hawkish Fed commentary. The Euro Financial Sector Credit Default Swap Index is rising another 4.1% today to 82.9 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 index is jumping 1.2%, oil has reversed $7/bbl. lower from morning highs and the TED spread is falling 2.3% to .79 basis points today. I think it would take a move in oil back below $120/bbl. to really ignite a broad powerful US stock rally. One of my longs, (ISRG), remains under pressure despite Deutsche Bank saying today that hospitals were recently given the ability to get higher rates for robotic surgery. I plan to add to this long position on any further meaningful decline from current levels. Nikkei futures indicate an +60 open in Japan and DAX futures indicate an +19 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on lower energy prices and short-covering.

Today's Headlines

Bloomberg:
- Senate Republicans thwarted Democratic-supported legislation that would increase windfall-profit taxes on oil companies such as Exxon Mobil(XOM). Democrats fell nine votes short of the 60 needed to proceed to debate. The bill “will undercut US energy security and decrease US energy production, thus exacerbating market tightness and increasing energy prices,” said the White House statement.
- The US dollar rose to a three-month high against the yen and climbed versus the euro after Fed Reserve Chairman Ben S. Bernanke said economic risks have faded, spurring traders to boost wagers interest rates will rise.
- Crude oil fell more than $3/bbl. as the dollar climbed against the euro and yen, curbing the appeal of commodities.
- China’s stocks plunged over 7% to a 14-month low after the central bank told lenders to set aside a record amount of money in reserve to curb credit growth and inflation.

NY Times:
- Verizon(VZ), Sprint(S) and Time Warner Cable have agreed to block access to Internet bulletin boards and Web sites nationwide that disseminate child pornography.

CNBC.com:
- Investors pulled a net $5.9 billion out of US hedge funds in April, marking the industry’s biggest outflow in 6 ½ years as they punished managers for their worst-ever returns at the start of 2008.

NY Sun:
- Eliot Spitzer, in his first big business venture since he was shamed out of office by a prostitution scandal, is shopping around a plan to start a vulture fund what would scoop up distressed real estate assets around the country, revamp them, and flip the properties for a profit.

Dallas Morning News:
- The voice-recognition specialists at Nuance Communications(NUAN), who already have mobile applications that work with BlackBerry smart phones, say they’re working on a program for the iPhone: Voice search.

TechCrunch:
- This morning, Hitwise came out with its search market share numbers for May, 2008. In the U.S., Google was up slightly to 68.3 percent versus 20 percent for Yahoo and 5.9 percent for Microsoft. All the fighting over the fate of Yahoo cannot be helping matters. In the month of May, Google gained 0.39 points from April, while Yahoo was down 0.33 points and Microsoft was down 0.37 points. In the UK, Google’s market share actually slipped as much as it gained in the U.S. (0.39 points), but it is even more dominant there with 87.3 percent market share, according to Hitwise.

AppleInsider:
- Citigroup(C) hikes Apple(AAPL) target to $287, Lehman(LEH) to $234. "We remain aggressive buyers of Apple shares at current levels," said Citigroup analyst Rich Gardner, who raised his price target on the Cupertino-based firm from $248 to $287. "Apple's decision to move from a revenue share model to a traditional subsidy model for the 3G iPhone is a significant positive because Apple receives iPhone-related cash flow sooner."

Business Wire:
- American Superconductor Corp.(AMSC), a leading energy technologies company, today announced that it has received a $450 million order from Beijing-based Sinovel Wind Corp. Limited for core electrical components for 1.5 megawatt(MW) wind turbines. AMSC's wind turbine electrical systems and core electrical components include the company's proprietary PowerModule(TM) power converters. They enable reliable, high-performance wind turbine operation by controlling power flows, regulating voltage, monitoring system performance and controlling the pitch of wind turbine blades to maximize efficiency. The stock is soaring 22% on the news.

Reuters:
- Democratic presidential candidate Barack Obama said on Monday he would impose a windfall profits tax on US oil companies as he sought political gain from Americans’ pain over high gasoline prices. “I’ll make oil companies like Exxon(XOM) pay a tax on their windfall profits, and we’ll use the money to help families pay for their skyrocketing energy costs and other bills,” Obama said.
- Ghana’s initial oil output from its offshore discoveries, due to start up in the first quarter of 2010, will be 120,000 barrels per day, double a previous estimate, the state oil company said.
- The Commodity Futures Trading Commission(CFTC) said on Tuesday it formed an interagency task force to evaluate commodity markets because of the “significant strain” high prices were having on American households.

International Herald Tribune:
- Global demand for oil is likely to be lower than previously estimated as the effect of shrinking government subsidies for fuel in Asia softens demand in the region, the IEA forecast.

Bear Radar

Style Underperformer:

Mid-cap Growth -.81%

Sector Underperformers:

Coalirlind (-4.99%), Gold (-4.4%) and Oil Service (-3.0%)

Stocks Falling on Unusual Volume:

LEH, CCJ, CMGI, SNCR, XIDE, BEAV, SPIR and ABR

Stocks With Unusual Put Option Activity:

1) DHI 2) STI 3) TSRA 4) TOL 5) CCRT

Trade Deficit Widens on Record Energy Prices

- The Trade Deficit for April widened to -$60.9 billion versus a downwardly revised -$56.5 billion in March.

BOTTOM LINE: The US trade deficit widened in April as the surging cost of oil boosted imports to a record, overshadowing the biggest gain in exports in four years, Bloomberg said. Excluding petroleum, the trade deficit was little changed. After eliminating the influence of prices, which are the numbers used to compute GDP, the trade deficit shrank to $46.9 billion, the lowest since August 2003. This should help boost economic growth during the quarter. I still expect the trade deficit to continue trending lower over the intermediate-term.

Bull Radar

Style Outperformer:

Small-cap Value (-.15%)

Sector Outperformers:

Banks (+1.71%), Insurance (+.65%) and Hospitals (+.17%)

Stocks Rising on Unusual Volume:

WB, KO, PEP, FEIC, FCX, AMT, AMSC, AMLN, FSYS, NWSB, SMTS, ECPG, ELOS, DPTR, CWEI, HUGH, QRCP, SWSI, STRL, SEIC, LNCE, SONO, POOL, SYKE, UMBF, URI, GBL, PLL and SM

Stocks With Unusual Call Option Activity:

1) UA 2) ORCL 3) PHM 4) RF 5) AMSC