Stocks Finish Higher, Boosted by Restaurant, Retail, Homebuilding, Technology, Steel Shares

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Stocks Higher into Final Hour on Lower Energy Prices, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Software longs, Internet longs, Computer longs and Gaming longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is about average. Investor anxiety is slightly below average. Today’s overall market action is mildly bullish. The VIX is falling 6.3% and remains above average at 21.03. The ISE Sentiment Index is above average at 176.0 and the total put/call is below average at 1.02. Finally, the NYSE Arms has been running below average most of the day and is currently .84. The Euro Financial Sector Credit Default Swap Index is plunging 16.2% today to 76.0 basis points. This is a large positive. This index is still up from a low of 52.66 on May 5^th, but down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is rising 2.78% today to 129.38. The TED spread is rising 3.0% to 1.00. The fact that oil is falling over $2/bbl. today despite mixed inventory data and a falling US dollar is a positive. I expect (RIMM) to exceed estimates after the close and give conservative guidance, which could pressure the shares given how much they have risen of late. I expect any related weakness in (AAPL) shares to be mild and temporary in nature. Nikkei futures indicate an +236 open in Japan and DAX futures indicate an +48 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on lower energy prices, short-covering and bargain-hunting.

Today's Headlines

Bloomberg:
- The cost to protect US corporate bonds from default fell for the first time in six days amid speculation the Fed may signal today it’s in no hurry to raise interest rates.
- Crude oil is falling $3/bbl. after a US government report showed that inventories rose for the first time in six weeks. Gasoline demand has averaged 9.28 million barrels a day over the last four weeks, down by 2.1% form the same period last year. Demand for distillate fuel averaged 4.06 million barrels, down 1.1% from year ago levels. “Prices shrugged off weakening demand but it has probably gotten to a point where it can be ignored no longer,” said Tim Evans, an energy analyst for Citi Futures Perspective. The United Arab Emirates, OPEC's third-biggest oil producer, is ready to boost supplies to the market if needed, Oil Minister Mohamed al-Hamli said today.
- Lead, the worst performer on the London Metal Exchange this year, fell for a third consecutive day on speculation the restart of the Magellan mine in Australia will add to bulging stockpiles.
- The Federal Reserve left its benchmark interest rate at 2%, ending the mo0st aggressive series of rate cuts in two decades.

Wall Street Journal:
- Hedge-Fund Honcho Paulson and the Slings & Arrows of a Canadian Judge. Justice Romaine didn’t buy Paulson’s testimony, calling him a “not credible” witness and implying that he was essentially trying to greenmail the company. His valuation methodology was “unpersuasive in someone of his credentials and level of financial sophistication.” His selective judgment of risk in an oil-sands company was “self-serving.” And as a minority shareholder, Paulson’s “limited and skewed interpretation” of Total’s intention to buy the whole company was “self-serving and patently erroneous.”

NY Times:
- In Overhaul, Disney.com Seeks a Path to More Fun.
- From the Department of Damned-With-Faint-Praise, a group going by the regal-sounding name of the Presidential Memorial Commission of San Francisco is planning to ask voters here to change the name of a prize-winning water treatment plant on the shoreline to the George W. Bush Sewage Plant.

CNBC.com:
- European Governing Council member Christian Noyer said there is "no second wave" in the financial crisis, arguing that additional losses announced by banks are "the mechanical result of market developments." "We are in a normal cycle of risk provision, without the danger this time of contamination of other areas of bank credit," he said in an interview to appear in Wednesday afternoon's edition of Le Monde.

IEA:
- Oil prices will fall to $70 a barrel by 2015 as new production begins in countries such as Azerbaijan, Canada, Brazil and Kazakhstan, the US Energy Dept. said.

LA Times:
- Chrysler LLC will make Internet access an option in its 2009 models, the first car manufacturer to do so.

Frankfurter Allgemeine Zeitung:
- Intel Corp.(INTC) said the market for low-cost notebook PCs was “red hot,” creating demand for its Atom chip, citing Chief Technology Officer Justin Rattner. Demand for the Atom chip was “enormous,” he said. Intel will focus more on consumer electronics as buyers of set-top boxes and televisions want their gadgets to be Internet-enabled. The company aims to produce chips using 32 nanometer technology by 2009.

Bear Radar

Style Underperformer:

Mid-cap Growth +.25%

Sector Underperformers:

Coalirlind (-4.34%), Oil Service (-1.68%) and Energy (-1.41%)

Stocks Falling on Unusual Volume:

BA, ARJ, APOG, ROYL, SONC, JRCC, CLNE, APOL, GMXR, STAR, BEAV, AM, ROK and MON

Stocks With Unusual Put Option Activity:

1) MAR 2) LEN 3) PM 4) DRI 5) RMBS

Durable Goods Orders Meet Estimates, New Home Sales Fall Slightly

- Durable Goods Orders for May were unch. versus estimates of unch. and a downwardly revised 1.0% decline in April.

- Durables Ex Transports for May fell .9% versus estimates of a 1.0% decline and a downwardly revised 1.9% gain in April.

- New Home Sales for May fell to 512K versus estimates of 512K and 525K in April.

BOTTOM LINE: Orders for US durable goods were unchanged in May as companies trimmed investment plans, Bloomberg reported. Metals, machinery and automobiles were among the goods that saw a drop in demand last month. Those declines were offset by increases in computers, appliances, commercial aircraft and defense equipment. Bookings for non-defense capital goods excluding aircraft, a gauge of future business investment, fell .8%. However, shipments of those goods, a number used to calculate GDP, rose .6% following a .9% gain in April that was larger than prior estimates.

Sales of new US homes fell 2.5% in May, Bloomberg reported. The median sales price last month fell 5.7% from May 2007 to $231,000. The supply of homes at the current sales rate rose to 10.9 months’ worth from 10.7 months in April. The number of houses completed and waiting to be sold fell to 182,000. New home purchases rose 5.1% in the Midwest and .4% in the South. Sales fell 12% in the West and 7.9% in the Northeast. “It feels to us as though we’re pretty much on the bottom, but that doesn’t make you feel too good,” Robert Toll, CEO of Toll Brothers, said. “We have noticed some good times coming back in some markets, but in other markets, there’s no sign of recovery,” he said. The 10-year yield is surging 9 basis points and the US Dollar Index is rising .1% on today’s reports. I still expect the Fed to leave rates unch. at today’s meeting and to use more hawkish language in the ensuing policy statement. The stock market’s initial reaction will likely be modestly negative, before resuming today’s rally before week’s end. Fed fund futures currently imply a 59% chance of a 25 basis point rate hike by the September meeting and a 29% chance for a 50 basis point hike by then. I continue to believe home sales have bottomed and will trend modestly higher from current levels over the intermediate-term.

Bull Radar

Style Outperformer:

Small-cap Value (+2.41%)

Sector Outperformers:

Airlines (+5.13%), Retail (+4.83%) and Banks (+4.07%)

Stocks Rising on Unusual Volume:

ZION, FITB, SLAB, PSEM, BCS, NOK, UBS, VMED, NVTL, CGV, HIRE, LMNX, SCOR, AVAV, WINN, HIBB, SHLM, MDCO, RCRC, DCOM, PENN, PRGS, AMCN, NPBC, NICE, RECN, SF, LUX, JBL, MTA, KRE and DRI

Stocks With Unusual Call Option Activity:

1) JCP 2) WMB 3) WDC 4) ANF 5) ZION