Stocks Soaring into Final Hour on Falling Commodity Prices, Short-Covering, Bargain Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs, Medical longs, Biotech longs, Gaming longs and Commodity shorts. I covered all my (QQQQ)/(IWM) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is above average. Investor anxiety is above-average. Today’s overall market action is very bullish. The VIX is falling 8.73% and is above-average at 25.09. The ISE Sentiment Index is unavailable and the total put/call is high at 1.08. Finally, the NYSE Arms has been running about average most of the day and is currently .72. The Euro Financial Sector Credit Default Swap Index is rising 1.3% today to 95.17 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 falling .75% today to 145.5. The TED spread is falling another 4.4% to .94. This is now down 19 basis points in 7 days, which is a big positive. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 6 basis points today to 2.48%, which is also down 15 basis points in two days on the plunge in commodity prices. This is also a significant positive for the broad market. Weekly retail same-store-sales rose 2.6% this week versus a 2.5% gain the prior week. Weekly retail sales have averaged a 2.4% gain the past four weeks, up from a .6% average weekly gain during the month of February. I suspect we will build on today’s gains over the coming weeks as earnings come in better-than-feared and energy prices fall further. The massively-shorted (XLF) is soaring over 5% today to session highs. Nikkei futures indicate an +260 open in Japan and DAX futures indicate an +120 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower energy prices and bargain-hunting.

Today's Headlines

Bloomberg:
- Commodities tumbled for a third day, led by crude oil and corn, on escalating concern that the sagging global economy will erode demand for raw materials.
- The cost to protect US corporate bonds from default fell as oil prices declined a second day. Credit-default swaps on the Markit CDX North America Investment Grade of 125 companies in the US and Canada fell 2.5 basis points to 145.5 basis points, according to Phoenix Partners Group.
- Democratic presidential candidate Barack Obama is trying to claim the political center, following in the footsteps of previous nominees including Republican Ronald Reagan in 1980. Yet the Illinois senator has a higher hurdle than most: a consistently liberal voting record.
- Iran's Mahmoud Ahmadinejad dismissed the possibility of a war with the U.S. and Israel over his country's nuclear work, saying Iran is trying to avoid conflict.
- Federal Reserve Bank of Richmond President Jeffrey Lacker said the central bank should consider raising interest rates to limit inflation as the threat of a steep economic slump begins to fade.
- JPMorgan Chase & Co.(JPM) Chief Executive Officer Jamie Dimon said buyers are returning to some types of mortgage products and the crisis in the capital markets will ease.
- Corn tumbled by the limit allowed on the Chicago Board of Trade for a second straight day as rain and warmer temperatures boosted prospects for grain yields in the U.S. Midwest.
- Apple Inc.(AAPL) will start selling its new iPhone at 8 a.m. across U.S. time zones on July 11 and plans to get customers through the buying process, including activating the handset on AT&T Inc.'s(T) wireless network, within 15 minutes.
- John Templeton, the billionaire U.S. philanthropist who made his fortune as the pioneer of global investing in the postwar boom, has died. He was 95.
- Freddie Mac(FRE) and Fannie Mae(FNM), the largest U.S. mortgage-finance companies, rose in New York Stock Exchange composite trading after slumping yesterday to the lowest in 13 years.

Wall Street Journal:
- The Spanish economy could face recession in the second half, possibly depriving the euro zone of a principal engine for job creation and economic growth.
- DreamWorks Animation SKG Inc.(DWA) has chosen Intel Corp.(INTC) to supply chips and other technology for its big computer-animation operations, a shift that will cost Advanced Micro Devices(AMD) one of its most prestigious customers.
- The Market Is Responding to the Oil Shock.

Bear Radar

Style Underperformer:

Mid-cap Growth -.91%

Sector Underperformers:

Coal irlind (-5.7%), Steel (-3.92%) and Oil Service (-3.13%)

Stocks Falling on Unusual Volume:

PLLL, HOC, CLF, TTES, NUE, CMC, STLD, PBR, PCZ, IDCC, CENX, CTCM, GYMB, JRCC, GMXR, MHGC, TITN, CAVM, FSYS, BPT, EMC, EBF and BAP

Stocks With Unusual Put Option Activity:

1) SPG 2) ARO 3) FWLT 4) GLW 5) TLM

Bull Radar

Style Outperformer:

Small-cap Value (-.15%)

Sector Outperformers:

Airlines (+6.19%), Drugs (+2.30%) and HMOs (+2.19%)

Stocks Rising on Unusual Volume:

PSMT, EBS, FLO, GSK, LLY, STC, XL, TEVA, TRLG, ESPW, WDFC, HELE, CYBX, MRTN, IPAR, LEAP, DMND, RICK, OZRK, ALEX, CELG, ALGT, CLNE, GENZ, IDRA, RBCAA, ANL, HTV, KNM and CSH

Stocks With Unusual Call Option Activity:

1) COG 2) ABT 3) SPG 4) ODP 5) HOLX

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- China's 146 million stock investors, burned by slumping prices, are pulling money out of equities and putting it into deposits. That's not necessarily a good thing for banks
- Australian business confidence fell to the lowest level in seven years in June as cooling domestic demand and spiraling raw-material costs eroded corporate profits.
- New Zealand companies say sales and trading will decline in the third quarter, pushing profit expectations to a 25-year low, as economic growth slumps.

Wall Street Journal:
- China Scrambles to Meet Deadlines for Olympics. Transit, Construction Fall Behind Schedule As Pollution Persists.
- Virginia Democratic Sen. Jim Webb took himself out of consideration as a vice-presidential candidate amid growing speculation that he was on Sen. Barack Obama's shortlist of possible running mates.

MarketWatch.com:
- Unfortunately for the gold market, contrarians would not be surprised to see more of the same. That's because sentiment among gold timers remains too frothy to support a significant rally.
- Massive housing legislation moved one step closer to passage Monday night, as senators voted to limit debate on the package.

BusinessWeek.com:
- Germany Plans 30 More Wind Farms.
- The Coming of the Car-Bot. In the near future, autonomous driving will lead to safer roads and great fuel-efficiency.
- Regulation Looms for Prediction Markets. The CFTC is likely to become involved in regulating event futures – and it just may boost these markets.

Global Pensions:
- Quantitative managers have admitted they are likely to become less transparent, following lessons learnt from the credit crisis. As a result of the difficulties, around 40% of the quant world had exited, which left it feeling more comfortable about the future.

IBD:
- Genzyme(GENZ) Taps Rare Disorders To Grow Profit.

CNNMoney.com:
- Oil speculation: Why we don’t have answers. There’s a lot we don’t know about how the oil futures markets now work. Congress should find out.

USA Today.com:
- Interactive TV ads are clicking with viewers.
- More cars sing with digital radio.
- GPS devices become a vital tool for business travelers.

Flight International:
- China gets strict on airline fleet expansion. Concerns about overcapacity and market volatility have led China’s National Development Reform Commission to become more stringent when deciding whether to let airlines increase their fleet size.

Reuters:
- Washington Post picks ex-WSJ boss for editor.
- Ambac(ABK) says has enough funds to meet obligations.
- JPMorgan(JPM) 75% done with tough Bear integration.
- Bigger may be better as smaller hedge funds give up.

Financial Times:
- The biggest hedge funds are on a hiring binge, taking advantage of cutbacks at investment banks to recruit star traders, senior executives and whole teams to help them expand.
- Microsoft(MSFT) set the stage for a full-blown battle to overthrow Yahoo's(YHOO) board of directors on Monday when it declared it was interested in reopening talks to buy all or part of the internet company - but only if a new board was appointed first.

TimesOnline:
- There are new signals today that Britain is on the brink of recession, with confirmation that the bulk of the economy is sliding rapidly into a severe downturn.

Expansion:
- The European Central Bank has no bias on the future path of interest rates, executive member Gertrude Tumpel-Gugerell said. She said the whole governing council backs President Jean-Claude Trichet in that position and takes the view that last week’s interest-rate increase will help to deliver price stability in the medium term. Tumpel-Gugerell also said that all countries must fight inflation and interest rates in China are low.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (HCC), lowered estimates, lowered target to $29.
- Reiterated Buy on (GME), target $66.
- Upgraded (MMC) to Buy, raised target to $33.

Night Trading
Asian Indices are -2.75% to +.50% on average.
S&P 500 futures -.62%.
NASDAQ 100 futures -.61%.

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Earnings of Note
Company/EPS Estimate
- (HELE)/.30
- (PBG)/.75
- (AA)/.66
- (ZZ)/.04
- (GBX)/.46

Upcoming Splits
- (PCU) 3-for-1
- (ATW) 2-for-1

Economic Releases
10:00 am EST
- Pending Home Sales for May are estimated to fall 3.0% versus a 6.0% increase in April.
- Wholesale Inventories for May are estimated to rise .7% versus a 1.3% gain in April.

3:00 pm EST:
- Consumer Credit for May is estimated to rise $7.5 billion versus an $8.9 billion gain in April.

Other Potential Market Movers
- The weekly retail sales report, (DLM) analyst day, (HANS) business update, (AZZ) shareholders meeting, (ATVI) special meeting, (SEL) shareholders meeting, (CCUR) special meeting, Oppenheimer Consumer Growth Conference and CE Unterberg Towbin Growth Conference could also impact trading today.

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