Stocks Finish at Session Lows, Weighed Down by Financial, Homebuilding, Technology, Airline, Gaming Shares

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In Play

Stocks Sharply Lower into Final Hour on Surge in Commodity Prices, Global Growth Concerns

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Alternative Energy longs, Computer longs and Gaming longs. I added to my (IWM/QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 50% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost every sector is falling and volume is above average. Investor anxiety is high. Today’s overall market action is very bearish. The VIX is rising 11.7% and remains above average at 23.60. The ISE Sentiment Index is low at 99.0 and the total put/call is high at 1.11. Finally, the NYSE Arms has been running very high most of the day and is currently 2.02. The Euro Financial Sector Credit Default Swap Index is rising 8.03% today to 93.93 basis points. 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. However, the North American Investment Grade Credit Default Swap Index is falling 4.2% today to 125.42, which is a positive. The TED spread is rising 6.3% to 1.08. Given record short interest, recent steep stock declines, high investor angst, quarter-end on Monday and the market’s technically oversold state, I suspect a very sharp rally will materialize sometime soon. However, the average Friday has seen the S&P 500 decline -.6% on avg. so far this year and emerging markets are likely to be weak tonight. Thus, a meaningful rally won’t likely materialize until late tomorrow or Monday. Nikkei futures indicate a -270 open in Japan and DAX futures indicate an +15 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering and bargain-hunting.

Bear Radar

Style Underperformer:

Small-cap Value -2.47%

Sector Underperformers:

Gaming irlind (-4.50%), Semis (-4.49%) and Airlines (-3.75%)

Stocks Falling on Unusual Volume:

SDA, FSS, TWTC, EQIX, BCS, XRTX, EHTH, RIMM, ULTA, APOG, STAR, OSK, URI, NKE, AM, TEX, LEA, BEZ, MIC and CCH

Stocks With Unusual Put Option Activity:

1) DDUP 2) MTH 3) RYL 4) DHR 5) DNDN

Bull Radar

Style Outperformer:

Large-cap Growth -1.52%

Sector Outperformers:

Coalirlind (+1.14%), Drugs (-.40%) and Hospitals (-.74%)

Stocks Rising on Unusual Volume:

KGC, PAAS, JRCC, ANR, TS, PHTN, CRMT, CEDC, FFIN, BBBY, GROW, ROYL, CWCO, PTRY, PRXL, GEOI, CHTT, VLCCF, UGI and WOR

Stocks With Unusual Call Option Activity:

1) ALL 2) VNDA 3) NKE 4) SYY 5) ORCL

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Oracle Corp.(ORCL) posted a 27% increase in fourth-quarter profit and overtook IBM as the second-largest software maker.
- Nike Inc.(NKE) fell as much as 6% in late NY trading after the world’s largest athletic-shoe maker spent more to market new sneakers than analysts estimated.
- Research In Motion(RIMM), the maker of the BlackBerry e-mail phone, missed analysts’ profit estimates for the first time in five quarters and gave a disappointing forecast amid higher spending to take on Apple’s(AAPL) new iPhone.
- Bed Bath & Beyond(BBBY), the largest US home-furnishings retailer, climbed 8.3% in trading following the close of US markets after reporting profit that fell less than analyst estimated because of higher sales.
- The House voted to boost taxes for executives of investment funds and many other kinds of partnerships to generate revenue to match money lost by preventing a $61.5 billion tax increase for 25 million American households this year. The House voted 233-189 to send the bill to the Senate, where Republicans object to a provision that would more than double tax rates for certain partners of buyout, real estate, hedge fund, venture capital, and oil and gas firms.
- Fischer Francis Trees & Watts plans to buy more US commercial mortgage-backed securities relative to government bonds in coming months, Tokyo-based fund manager Naruki Nakamura said in an interview.
- India’s central bank will likely add to its biggest interest-rate increase since 2000 as inflation quickens at the fastest pace in 13 years, Merrill Lynch(MER) forecast, citing record-high swap levels. Two-year swap rates surged 1.3 percentage points in the week through yesterday to a record 9.85%.

Wall Street Journal:
- Anheuser-Busch Cos.(BUD) is prepared to reject InBev NV’s $46.3 billion takeover offer, possibly this week, paving the way for a possible higher bid for the maker of Budweiser.

NY Times:
- New York’s High Court Sides With Grasso. The court affirmed a ruling that dropped claims against the former chairman of the NYSE.

LA Times:
- You can fill’er up with hydrogen. A West LA station becomes the first in California to be able to dispense the fuel in addition to gasoline.

CNNMoney.com:
- McCain’s economic gurus. From ex-Senators to CEOs, McCain has tapped a wide range of advisers to bring him up to speed on the economy.

Portfolio.com:
- Senate Ethics Committee may not conclude its probe into VIP mortgages for months. A key issue: What constitutes a “gift”?

Reuters:
- More mergers seen in US defense space.
- Google(GOOG) names Bell Canada exec as its new CFO.

Financial Times:
- Barack Obama has again called on Tesco, the UK supermarket group, to let unions represent workers at its new US chain. The move comes as the Democratic candidate seeks to reinforce he labor support ahead of November’s presidential election.
- The world’s biggest maker of consumer goods, Procter & Gamble(PG) has urged Barack Obama and John McCain to ease up on the gloomy economic rhetoric.

Daily Telegraph:
- Plans for a massive expansion of a wind energy program in the UK are to be unveiled by the government. They will include the building of 7,000 wind turbines both in the countryside and around the coast.

Late Buy/Sell Recommendations
Citigroup:
- Rated (ALTH) Buy, target $11.
- Reiterated Buy on (SLGP), raised target to $32.
- Reiterated Buy on (WW), target $64.

Morgan Stanley:
- Reiterated Overweight on (MON), target $170.

RBC:
- Rated (BRCM) Outperform, target $36.

Night Trading
Asian Indices are +.25% to +.75% on average.
S&P 500 futures -.20%.
NASDAQ 100 futures -.35%.

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Earnings of Note
Company/EPS Estimate
- (MKC)/.39
- (LEN)/-.68
- (WOR)/.45
- (CAG)/.36
- (DFS)/.37
- (PALM)/.18
- (CBK)/.26
- (MU)/-.30
- (ACN)/.69
- (PAYX)/.38

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Final 1Q GDP is estimated at 1.0% versus a .9% prior estimate.
- Final 1Q Personal Consumption is estimated at 1.0% versus a 1.0% prior estimate.
- Final 1Q GDP Price Index is estimated at 2.6% versus a 2.6% prior estimate.
- Final Core PCE is estimated to at 2.1% versus a 2.1% prior estimate.
- Initial Jobless Claims for this week are estimated to fall to 375K versus 381K the prior week.
- Continuing Claims are estimated to rise to 3105K versus 3060K prior.

10:00 am EST
- Existing Home Sales for May are estimated to rise to 4.95M versus 4.89M in April.

Other Potential Market Movers
- The weekly EIA natural gas inventory report, (GT) investor meeting, (XLNX) analyst meeting, (BRCD) technology day, (AUXL) analyst call, Jeffries Healthcare Conference, Wachovia Nantucket Equity Conference and UBS Global Insurance Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by financial and technology shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.