Stocks Finish Lower, Weighed Down by Bank, Commodity and Insurance Shares

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

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Software longs, Biotech longs, Semi longs, Gaming longs and Commodity shorts. I covered some of my (IWM)/(QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 75% net long. The tone of the market is mixed as the advance/decline line is slightly lower, most sectors are rising and volume is heavy. Investor anxiety is high. Today’s overall market action is mildly bullish. The VIX is falling 4.25% and is still high at 27.33. The ISE Sentiment Index is very low at 78.0 and the total put/call is high at 1.14. Finally, the NYSE Arms has been running below average most of the day and is currently .63. The Euro Financial Sector Credit Default Swap Index is rising 4.74% today to 92.38 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 3.4% today to 140.69. The TED spread is rising 5.23% to 141.0. Growth stocks are outperforming value stocks by a very wide margin again today. Many small/mid-cap growth stocks are especially strong. The market appears to have made a tradable low this morning. Nikkei futures indicate a -20 open in Japan and DAX futures indicate an +100 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, falling energy prices and bargain-hunting.

Today's Headlines

Bloomberg:
- Crude oil tumbled more than $6 a barrel in New York amid concern that a slower U.S. economy will curtail demand for oil and gasoline.
- The U.S. Securities and Exchange Commission will take emergency action today to limit the ability of traders to bet on a decline in the shares of Freddie Mac(FNM), Fannie Mae(FNM) and brokerages, the agency's chairman said.
- Volkswagen AG, Europe's biggest carmaker, plans to build a plant in Chattanooga, Tennessee, resuming manufacturing in the U.S. to help end more than five years of losses in the world's largest automobile market.
- OPEC said it expects demand for its members’ crude will fall next year as the global economy slows. OPEC also cut its 2008 global oil demand forecast for a sixth month on lower demand for transport fuel in the US. The call on OPEC’s crude next year will average 31.2 million barrels a day, a drop of 710,000 barrels a day from the forecast for 2008. “The decline in demand for OPEC crude combined with increasing OPEC capacity should further ease market conditions and likely help moderate prices,” the report said.
- Investors should increase their holdings of agency debt after a Treasury Dept. proposal made the government’s backing of Fannie Mae(FNM) and Freddie Mac(FRE) more explicit, according to RBS Greenwich Capital Markets. “The Sunday announcement out of the Treasury has changed the landscape and narrowed the gap between the ‘implied’ government support long enjoyed by Fannie and Freddie and the ‘full faith & credit’ status of Treasuries,” Hackel wrote.
- Investors should sell commodities stocks because a slowing global economy will cut demand for raw materials such as copper, nickel and corn, according to strategists at Merrill Lynch(MER) and Morgan Stanley(MS). “Given forecasts of slowing global growth and terrible stock market performance from the emerging markets, we believe we may have witnessed the peak in this commodity cycle,” Merrill US sector strategist Brian Belski wrote.
- Corn and soybean futures fell for the second day on speculation that favorable weather in parts of the U.S. Midwest will boost crop prospects.

Wall Street Journal:
- The SEC has sent subpoenas to more than 50 hedge funds as part of its investigation into whether individuals spread false rumors to manipulate shares of two Wall Street firms. The subpoenas, sent as recently as Monday, are seeking trading and communications data related to short-selling and options trading in Bear Stearns or Lehman Brothers(LEH).

NY Times:
- Obama Will Meet Palestinian Leaders in the West Bank.

NY Post:
- Lehman Brothers(LEH) is considering plans to privatize.

SmartMoney:
- This Real Estate Rout May Be Short-Lived.

Financial Times Deutschland:
- The BDI federation of German industry expects German economic growth to slow “rapidly” this year and next. High energy prices will hurt the consumer climate and company investment, according to the report.

Central Television:
- Shenzhen’s home foreclosures increased in the past few months after property prices in the southern Chinese city slumped. Some homeowners stopped paying their existing mortgages after new house prices fell by 36 percent between October and June, preferring instead to buy other apartments at lower prices, CCTV said. A further 20% drop in property prices may trigger foreclosures worth $9.2 billion, about 30% of Shenzhen banks’ total mortgage lending, CCTV said.

Kyodo News:
- An inflow of speculative funds is driving record oil and materials costs, citing a report by Japan’s Ministry of Trade, Economy and Industry. The white paper said that the futures price of corn in Chicago was $6 per bushel as of May this year, only about half of which was explainable by the supply and demand balance.

Iran Daily:
- Iran’s annual trade with China is expected to reach $30 billion in 2008, citing a Chinese Foreign Ministry official. Iran and China’s current annual trade now amounts to about $16 billion.

Bear Radar

Style Underperformer:

Large-cap Value -1.05%

Sector Underperformers:

Coal irlind (-4.86%), Energy (-2.54%) and Oil Service (-2.30%)

Stocks Falling on Unusual Volume:

VPHM, CGV, GNW, ACAS, MBFI, AAUK, PAAS, FTEK, ACGY

Stocks With Unusual Put Option Activity:

1) AN 2) PXP 3) PAYX 4) AES 5) NRG

Bull Radar

Style Outperformer:

Large-cap Growth (-.98%)

Sector Outperformers:

Airlines (+4.26%), Software (+1.98%) and Biotech (+1.16%)

Stocks Rising on Unusual Volume:

VTAL, MMSI, DNA, OSIP, BMY, ABT, BEXP, BK, ISYS, JBHT, CSGS, GENZ, CBSH, AMGN, WINN, FCSX, ADBE, BIIB, CEPH, WRLD, CYBX, ONXX and WMGI

Stocks With Unusual Call Option Activity:

1) BCO 2) ACF 3) AFL 4) ONNN 5) NT

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