Stocks Finish at Session Highs, Boosted by Bank, Biotech, Wireless, Semi, Restaurant Shares

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In Play

Stocks Higher into Final Hour on Reveral Higher in Financial Shares, Less Economic Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Internet longs, Computer longs, Biotech longs and Emerging Market shorts. I took profits in a long and a short today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is slightly lower, sector performance is mixed and volume is heavy. Investor anxiety is above-average. Today’s overall market action is mildly bullish. The VIX is rising .42% and remains above average at 24.05. The ISE Sentiment Index is very low at 85.0 and the total put/call is above average at 1.01. Finally, the NYSE Arms has been running around average most of the day and is currently .86. The Euro Financial Sector Credit Default Swap Index is rising 5.16% today to 95.87 basis points. This index is 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 3.05% today to 140.73, which is also a negative. However, the TED spread is falling 11.30% to .93. The heavily-shorted (XLF) is attempting to trim losses into the final hour again. At the very least, I suspect we have begun a tradable rally. However, a meaningful reversal lower in oil over the coming weeks may make today’s low more significant. Market leading growth stocks are exceptionally strong today. These types of stocks should lead the market through the remainder of the year. One of my longs, (AAPL), is surging 3.8% today. I think this stock has seen its lows for the year and will trade substantially higher by year-end. Nikkei futures indicate a -48 open in Japan and DAX futures indicate an +60 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, better economic data, a reversal in the financial sector and bargain-hunting.

Bear Radar

Style Underperformer:

Small-cap Value -1.39%

Sector Underperformers:

Airlines irlind (-6.22%), Gaming (-5.22%) and Steel (-4.60%)

Stocks Falling on Unusual Volume:

VIP, AKS, MT, RTP, MICC, CLF, UBS, JPM, TMTA, CBRL, MNST, ANSS, SFSF, AAUK, CAVM, ZEUS, FO and TKR

Stocks With Unusual Put Option Activity:

1) HRB 2) NLY 3) PMCS 4) GT 5) LM

Manufacturing Expanding Again, Construction Falls Less Than Estimates, Weekly Retail Sales Best Since Oct. 16, 2007

- ISM Manufacturing for June rose to 50.2 versus estimates of 48.5 and a reading of 49.6 in May.

- ISM Prices Paid for June rose to 91.5 versus estimates of 87.0 and a reading of 87.0 in May.

- Construction spending for May fell .4% versus estimates of a .6% decline and an upwardly revised .1% decline in April.

BOTTOM LINE: Manufacturing in the US unexpectedly expanded in June for the first time in five months, signaling tax rebate checks are helping companies weather the housing slump and rise in commodities, Bloomberg reported. The Export component of the index fell to 58.5 from 59.5 in May. The New Orders component fell to 49.6 from 49.7 the prior month. The Orders Backlog component rose to 47.5 from 46.0 in May. The Inventory component rose to 51.12 from 48.0 in May. The Employment component fell to 43.7 versus 45.5 in May. I expect the ISM Manufacturing Index to come in above 50.0, showing expansion, again this month.

Spending on US construction projects fell less than forecast in May as work on hotels, power plants and public hospitals helped cushion the slowdown in homebuilding, Bloomberg reported. Private residential projects fell 1.6% in May, the 25^th drop in the past 26 months, versus a 1.7% decline in April. Private non-residential construction rose .2%, reaching a record $405.3 billion and a fifth straight month of growth. Public projects also rose to an all-time high, climbing .4% in May. I still expect construction spending to remain muted over the intermediate-term as homebuilders work down inventories and commercial building slows. Weekly retail sales rose 2.5% this week versus 2.4% the prior week. This is the best weekly gain since the week of Oct. 16, 2007 and up from a .5% increase the week of March 4^th. This is a large positive, considering the consumer headwinds. The US Dollar Index is .29% lower and the 10-year yield is falling 3 basis points to 3.94% on today’s reports. The TED spread is dropping 12.2% to .92, which is down 18 basis points in 3 days.

Bull Radar

Style Outperformer:

Small-cap Value (-.17%)

Sector Outperformers:

Restaurants (+.98%), Wireless (+.88%) and Semis (+.71%)

Stocks Rising on Unusual Volume:

MFN, MYGN, RGLD, CELG, AAPL, CAM, BMY, MEG, SMG, AM, SCHN, TNH, GLNG, BCPC, TTES, CRMT, AMSG, IDXX, CTAS, HWCC, ATHR, BFIN, GMXR, OTTR, UTHR, CNQR, FLIR, UMBF, COST and RMD

Stocks With Unusual Call Option Activity:

1) RTN 2) VIA/B 3) XRX 4) SAP 5) TSN

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