Stocks Sharply Lower into Final Hour on Financial Sector Concerns, Global Growth Worries

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Computer longs, Gaming longs and Software longs. I added (QQQQ)/(IWM) hedges and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is about average. Investor anxiety is above-average. Today’s overall market action is very bearish. The VIX is rising 5.8% and is above-average at 24.49. The ISE Sentiment Index is below average at 118.0 and the total put/call is above average at .97. Finally, the NYSE Arms has been running very high most of the day and is currently 1.84. The Euro Financial Sector Credit Default Swap Index is falling 8.0% today to 87.67 basis points, which is a big positive. 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 .52% today to 141.21. The TED spread is rising 3.49% to .97. One of the few positives today is oil's inability to rally, notwithstanding a weaker dollar, an Iranian missile test, recent losses and a large crude inventory drawdown. Nikkei futures indicate an +73 open in Japan and DAX futures indicate a -22 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and bargain-hunting.

Today's Headlines

Bloomberg:
- UBS AG and Credit Suisse Group AG led a decline in the cost of protecting company bonds from default after Federal Reserve Chairman Ben S. Bernanke said the central bank may extend its emergency-loan program into 2009.
- Optimism about U.S. stocks among newsletter writers slid to the lowest level since July 1994 after the Dow Jones Industrial Average fell into a bear market and oil prices reached records, according to Investors Intelligence
- The U.S. Commodity Futures Trading Commission named Stephen Obie acting director of enforcement as the agency faces political pressure to ensure energy and agricultural markets are not being manipulated as prices soar.
- Iran's test-firing of a long-range missile capable of reaching Israel violates United Nations Security Council resolutions and further isolates it from the rest of the world, U.S. officials said.
- Boeing Co.(BA) raised its 20-year forecast for world jetliner deliveries by 2.8 percent, saying air travel is expanding and carriers will need new, more fuel-efficient planes to replace aging jets amid surging oil prices.
- Corn fell for the seventh time in eight sessions, after setting a record last month, as better weather helped plants in the U.S. Midwest recover from the worst flooding in 15 years.
- Fadel Gheit, managing director of oil and gas research at Oppenheimer says oil may fall further as China demand slows. (video)

Wall Street Journal:
- Yahoo Inc.(YHOO) CEO Jerry Yang accused Microsoft(MSFT) of trying to destabilize the Internet company without a real desire to complete a deal, and he responded sharply to recent comments by investor Carl Icahn.
- Newer, Faster, Cheaper iPhone 3G.

NY Times:
- Chrysler, Toyota, Adapt Designs for Fuel Efficiency.
- US Republican and Democratic lawmakers, confronted with growing concern among constituents about oil prices, returned to Capital Hill this week inclined to compromise on energy policy. Lawmakers are envisioning an agreement that would ease restrictions on domestic offshore oil drilling while allowing for renewable fuel incentives and stricter rules for oil speculators, citing Senator Susan Collins, Republican of Maine.
- Obama Donors Aren’t Rushing to Aid Clinton. A prominent donor to Senator Barack Obama recently sent an e-mail plea to other supporters, asking them — for the sake of Democratic unity — to write checks to Senator Hillary Rodham Clinton to help retire her $23 million in campaign debt. Some of the replies are unprintable, given the coarse language, the donor said. A sampling of others included: “Why would I help pay off debts that Hillary amassed simply to keep damaging Senator Obama?”

CNBC.com:
- Lehman Brothers(LEH) has enough capital to rebuild its business, former CEO Peter Cohen said. Lehman has raised capital that’s many multiples of the losses it incurred on mortgage-related assets.

NY Post:
- A blind trust run by Mayor Bloomberg is willing to pay between $4.5 billion and $5 billion to buy Merrill Lynch's 20 percent stake in Bloomberg LP, sources tell The Post.
- NYC Welfare Cases Drop to 45-Year Low.
- NYC Bus Ridership Surge Leaves Many Standing.

Bear Radar

Style Underperformer:

Small-cap Value -1.07%

Sector Underperformers:

Airlines irlind (-2.94%), REITs (-2.68%) and Gaming (-2.60%)

Stocks Falling on Unusual Volume:

FUL, FSS, ITG, CAVM, DRIV and WWW

Stocks With Unusual Put Option Activity:

1) SPLS 2) EXC 3) AEO 4) ABK 5) RMBS

Economic Releases

- None of note

Bull Radar

Style Outperformer:

Mid-cap Growth (+.84%)

Sector Outperformers:

Steel (+4.02%), Biotech (+2.05%) and Drugs (+1.47%)

Stocks Rising on Unusual Volume:

CLF, X, STLD, AGU, SXT, SGP, GSK, KBW, EEFT, SWIR, LOOP, LAZ, ERIC, SKS, QLGC, FSYS, AFAM, MDVN, MELI, RMBS, BUCY, GIII, JRCC, POOL, NUVA, VRSN, ULBI, CTSH, XNPT, NCTY, AAUK, SGMO, SCHN, TITN, CIR, KBW, AHD and SNN

Stocks With Unusual Call Option Activity:

1) BAX 2) ABK 3) ERIC 4) IDTI 5) BBT

Links of Interest

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