Stocks Higher into Final Hour on Plunge in Oil, Less Economic Pessimism, Reveral Higher in Financials

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Alternative Energy longs, Medical longs, Biotech longs and Software longs. I added to my (WMS) and (NUAN) longs and took some profits in another long today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is mildly higher, most sectors are rising and volume is above average. Investor anxiety is above average. Today’s overall market action is bullish. The VIX is falling 4.6% and remains above average at 21.18. The ISE Sentiment Index is below average at 115.0 and the total put/call is above average at 1.06. Finally, the NYSE Arms has been running around average most of the day and is currently .85. The Euro Financial Sector Credit Default Swap Index is rising 4.5% today to 80.0 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. The North American Investment Grade Credit Default Swap Index is rising 4.4% today to 113.48. The TED spread is rising 2.2% today to .91 basis points. On the positive side, the (XLF) has trimmed losses meaningfully as it attempts to push into positive territory. Transport, tech and medical tech shares are very strong today with many posting 3%+ gains. Growth shares are substantially outperforming value stocks again today. Over the last five days, small-cap growth stocks are 3.4% higher, while large-cap value shares are .4% lower. I continue to believe that growth stocks will outperform value for several more years. The AAII % Bulls rose to 32.3% and the % Bears fell to 45.7%. Overall investor pessimism remains intense. A convincing break below $130/bbl. in oil would likely lead to a more broad-based and powerful rally. Right now, the overwhelming majority of investors think any sharp decline in oil will be met with a sharp rise the very next day. A break below $118/bbl. would likely spur a significant rally in the broad US stock market. Nikkei futures indicate an +155 open in Japan and DAX futures indicate an +43 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, lower energy prices, less economic pessimism and short-covering.

Today's Headlines

Bloomberg:
- China, the world’s second-biggest oil consumer, will raise the prices of gasoline and diesel by 17-18%, starting tomorrow, the National Development and Reform Commission said. The nation will also raise jet fuel prices by 25%. China will also raise electricity prices. The country must cut energy use by at least 5% for every unit of gross domestic product annually for the next three years, said Yang Tiesheng, director of the commission’s energy efficiency division, said. “It is an extremely difficult target to meet, but I’m optimistic that the government will achieve it by making the utmost effort,” he said. The country cut energy use by 2.62% for every 10,000 yuan of GDP in the first quarter compared with a year earlier. The government aims to cut energy use by 20% for each unit of GDP in 2010 from 2005 levels. The government is also considering so-called environmental tax, a new levy on auto fuels and changes to existing taxes on natural-resource use.
- Chinese oil demand growth will be reduced by about a third following the government’s decision to raise fuel prices, according to Merrill Lynch(MER). “We’re going to get some demand destruction,” the analyst said. China will likely have to increase prices further as fuel costs in the country remain significantly below international levels, he added.
- Former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin, arrested this morning at their homes in New Jersey and Manhattan, were indicted for mail fraud and conspiracy in the first prosecution stemming from a federal investigation of last year’s mortgage market collapse.
- Citadel Investment Group, Tudor Investment Corp. and at least 20 rival hedge funds are taking advantage of job cuts and pay reductions on Wall Street to recruit top performers and expand into new businesses.
- Crude oil is plunging almost $5/bbl. on concerns over falling global demand, rising supplies and a firmer US dollar.
- Blackstone Group LP(BX) agreed to buy Apria Healthcare Group(AHG) for about $920 million after the stock was beaten down by concern that cutbacks in US government health-insurance programs will crimp profits.
- Republican presidential candidate John McCain will push to almost double the number of nuclear reactors in the US as part of a broad plan to address the nation’s energy woes.
- BB&T Corp.(BBT) said it expects “some increases in the cash dividend during 2008.”
- China’s stocks plunged, resuming a decline that’s wiped out $1.2 trillion of market value, on renewed concerns the government will concentrate on measures to curb consumer prices rather than bolster equities.

NY Times:
- Obama Campaign Guards Canadidate’s Image, Media Access. The strategy, which at times appears to go against Obama’s pledge to be transparent, comes as the media try to increase access to the candidate.

CNBC.com:
- Power Poll: Should the Government Open Offshore Oil Drilling? 81% Yes. 16% No.

Cambridge Energy Research:
- “Peak Demand” – US Gasoline Demand Likely Peaked in 2007. Gasoline demand in the US may have reached its peak, as rising prices lead consumers to make long-term decisions that will weaken demand in the years to come, according to a new analysis by Cambridge Energy Research Associates.

CNN:
- An Arab-American civil rights group sent a letter to Barack Obama asking him to personally respond to reports Wednesday that two women were denied the opportunity to stand behind the presumptive Democratic presidential nominee on stage at a campaign event because they were wearing traditional Muslim head scarves. The Obama campaign moved quickly Wednesday to defuse the situation by stating the incidents did not reflect campaign policy. "It is offensive and counter to Obama's commitment to bring Americans together and simply not the kind of campaign we run. We sincerely apologize for this behavior," said spokesman Bill Burton, in a statement sent to reporters Wednesday afternoon.

AFP:
- Saudi Arabia said today it planned to increase oil output by 200,000 barrels per day. Thursday’s release did not specify when the additional production would begin, but it will bring Saudi Arabia’s total crude output to 9.65 million bpd. Saudi Arabia had ramped up output by 300,000 bpd last month following a visit by President Bush.

Folha de S. Paulo:
- Brazilian Presient Luiz Inacio Lula da Silva is considering budget cuts and measures to slow lending growth to help curb inflation.

Gulftimes.com:
- Lured by tax-free jobs and cheap living, foreign workers have long gravitated to wealthy Gulf Arab states to earn a better living, but rising costs are now forcing many to go home.

Bear Radar

Style Underperformer:

Large-cap Value -.92%

Sector Underperformers:

HMOsirlind (-7.70%), Banks (-2.91%) and Coal (-1.61%)

Stocks Falling on Unusual Volume:

BBT, STI, HNT, MOH, BAC, LKQX, CLNE, PENN, SYNA, CVH, HBI, SJM and FSF

Stocks With Unusual Put Option Activity:

1) HBI 2) LRCX 3) MOT 4) HBAN 5) HNT

Initial Jobless Claims Fall Slightly, Philly Fed Below Estimates, Leading Indicators Register Back-to-Back Gains

- Initial Jobless Claims for this week fell to 381K versus estimates of 375K and 386K the prior week.

- Continuing Claims fell to 3060K versus estimates of 3135K and 3136K prior.

- Philly Fed for June fell to -17.1 versus estimates of -10.0 and a reading of -15.6 in May.

- Leading Indicators for May rose .1% versus estimates of unch. and a .1% gain in April.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment benefits fell last week, Bloomberg reported. The four-week moving average of jobless claims rose to 375,250 from 372,000 the prior week. During the very mild recession of 2001, weekly jobless claims averaged 415,000. The unemployment rate among those eligible for benefits, which tracks the US I still expect jobless claims to trend modestly lower over the intermediate-term. unemployment rate, fell to 2.3% from 2.4% the prior week.

A Philadelphia-area report showed manufacturing contracted in June slightly more than the prior month, Bloomberg reported. The New Orders component fell to -12.4 from -3.7 the prior month. The Prices Paid component rose to 69.3 from 53.8 in May. The Prices Received component fell to 29.7 from 31.6 the prior month. The Outlook, for the next 6 months, component fell to 21.3 from 28.2 the prior month. I expect this gauge to improve meaningfully next month on inventory rebuilding and an increase in demand.

The index of leading US economic indicators unexpectedly rose in May for a second straight month, a sign that growth may slow without stalling, Bloomberg said. This was the first back-to-back monthly increase in a year and a half. New orders for consumer goods and bookings for capital equipment each added .01 percentage point to the index. Money supply adjusted for inflation, which has the biggest weighting in the index, subtracted .14 percentage point. Confidence also was a drag, taking away .06 point from the index. I still expect US 2Q GDP growth to exceed economists’ estimates of a .5% gain. Growth should continue to improve modestly in the second half, as well.

Bull Radar

Style Outperformer:

Small-cap Growth (+.35%)

Sector Outperformers:

Road & Rail (+3.0%), Airlines (+2.67%) and Steel (+1.53%)

Stocks Rising on Unusual Volume:

ESLR, SWC, SLAB, SNP, PTR, X, WYE, GSK, PDO, SHI, WB, CWST, GROW, JRCC, HWAY, LNCR, ENER, LSTR, IPSU, AAUK, ENOC, PTRY, FUQI, TWIN, ZEUS, USNA, CRVL, CPRT, APL, HEW, AHG and HNP

Stocks With Unusual Call Option Activity:

1) MPEL 2) LPX 3) PTR 4) HUN 5) UNH

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