Stocks Higher into Final Hour on Plunging Oil, Diminshing Financial Sector Fears, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Software longs, Alternative Energy longs, Retail longs, Semi longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is substantially 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 2.87% and is still above-average at 24.38. The ISE Sentiment Index is low at 102.0 and the total put/call is around average at .87. Finally, the NYSE Arms has been running above average most of the day and is currently 1.15. The Euro Financial Sector Credit Default Swap Index is falling 2.56% today to 87.29 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 unch. today to 138.18. The TED spread is falling 3.47% to 138.0. The AAII % Bulls rose to 25.0% this week, while the % Bears rose to 58.14%. This survey continues to register extraordinarily high bearishness, which bodes well for an extension of recent broad market gains. Oil continues to trade as if a significant top is now in place, however I want to see a convincing close below $120 to confirm the downtrend. I still think a bursting of the commodity bubble would mean substantially higher US stock prices over the intermediate-term. The commodity bubble has been the driving force behind the current "US negativity bubble." Google Inc.(GOOG), one of my longs, reports after the close. The set-up on the long side looks pretty good again. eBay(EBAY) and ValueClick(VCLK) just disappointed. Google’s short interest ratio is 1.23, up from .45 in January. As well, its open interest put/call ratio is currently .7, up from .35 in Mid-March. The stock is down 28% from its record high and down 10% since May. Finally, the majority of pundits seem very cautious on the shares ahead of the report. I suspect that we will see an initial knee-jerk sell-off in the stock, followed by a rally from current levels tomorrow. Over the intermediate-term, I still see significant upside and suspect its current forward p/e multiple of 26.4 will expand meaningfully as investors pay up for a true growth company that can execute in today’s sluggish macro environment. Nikkei futures indicate an +278 open in Japan and DAX futures indicate an +80 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, falling energy prices, diminishing credit market angst, less financial sector pessimism and bargain-hunting.

Today's Headlines

Bloomberg:
- The cost of protecting banks from default fell to the lowest in a month on speculation losses and asset writedowns will slow after JPMorgan Chase & Co.(JPM) reported better-than-expected profit. Credit-default swaps on JPMorgan fell 8 basis points to 117 as of 8:23 a.m. in New York, according to CMA Datavision. Contracts on the 25 European banks and insurers in the Markit iTraxx Financial index of senior debt fell 3.5 basis points to 85.5, the lowest since June 20, according to JPMorgan prices.
- Crude oil fell more than $4 a barrel, the third straight daily decline, as natural gas futures tumbled and on signs slower global economic growth is curbing fuel use. Natural gas dropped more than 7 percent after a government report showed that U.S. supplies rose a greater-than-forecast 104 billion cubic feet last week. ``Any sign of a slowdown in China or India will have a major impact on prices. If there are more signs of a BRIC slowdown prices could be headed for $100.''
- Europe's top trade official urged Democratic presidential candidate Barack Obama to abandon ``crowd- pleasing'' rhetoric that casts doubt on the U.S. commitment to unfettered markets.
- JPMorgan Chase & Co.(JPM), the largest U.S. bank by market value, reported second-quarter earnings that exceeded analysts' estimates, helped by higher investment banking fees and revenue from the consumer business.
- United Technologies Corp.(UTX) said second-quarter profit rose 11 percent and full-year profit and sales will exceed its forecasts on demand for Otis elevators and Sikorsky helicopters. The company's shares rose the most in more than five years.
- PPG Industries Inc.(PPG), the world's second-largest paint maker, rose the most in five years in New York trading after second-quarter profit topped analyst estimates because of a European acquisition and price gains.
- Fannie Mae(FNM) and Freddie Mac(FRE) rose for a second day in New York trading and their debt yields over benchmark rates narrowed as improved earnings at other financial firms eased concern that the mortgage companies need a government bailout.

Wall Street Journal:
- US Fears Threat of Cyberspying at Beijing Olympics.
- GM Gives a Lift to Ohio Town’s Fortunes.
- McCain Surrogate Carly Fiorina Meets With Clinton Supporters.

NY Times:
- Boeing(BA), Airbus Build Environmentally-Friendly Planes.

CNBC.com:
- Nokia Oyj(NOK), the world’s biggest maker of mobile phones, turned in a “solid performance” with second-quarter earnings, said CEO Olli-Pekka Kallasvuo. “It was a solid performance overall,” Kallasvuo said. “We met the expectations of the market, even beat them.” The company said it now expects mobile device unit sales to rise 10% or more this year, versus a previous prediction of approximately 10%.

USA Today:
- Only 14% of Americans approve of the job Congress is doing, the lowest rating in 30 years, according to a July 10-13 Gallup Poll.

Fox 5:
- Three major auto manufacturers are promising to reserve 300 new hybrid vehicles each month exclusively for NYC as it replaces its entire fleet of yellow cabs.

Wealth-Bulletin:
- Investors withdrew $14.6bn from US and European equity hedge funds for the year through May, according to research provider Morningstar.

Miami Herald:
- Secretary of State Condoleezza Rice said Thursday the decision to break with past policy and send a top U.S. diplomat to talks with an Iranian envoy shows that the world is united in trying to eliminate threats from Iran's nuclear program. "The point that we're making is the United States is firmly behind this diplomacy, firmly behind and unified with our allies and hopefully the Iranians will take that message," Rice told reporters at the State Department. "It's going to be very clear to them that the international community and P5-plus-1 are completely united."

Bild:
- Allianz AG Chief Financial Officer Paul Achleitner said the possibility of Germany going into a recession “is real and not to be underestimated,” according to an interview. The effect of a recession may be lessened because German companies have positioned themselves well in the past five years, he added.

Financial Times Deutschland:
- Apple Inc.’s(AAPL) new iPhone was sold out in Germany after less than week. Deutsche Telekom AG’s T-Mobile division, which has the exclusive rights for the iPhone in the country, sold 15,000 of the new model on the first day.

The Scotsman:
- Scotland’s economy in clear slowdown. AN ECONOMIC slowdown is "more evident" now in Scotland than it was three months ago, according to the latest business survey by the Scottish Chambers of Commerce (SCC).

Gulf News:
- Dubai arrested 40 cross-dressing tourists in the emirate’s shopping malls as part of a campaign against transvestism, citing police chief Lieutenant General Dahi Khalfan Tamim. All 40 have been referred to public prosecutors and will be deported. Dressing and behaving like the opposite gender is against the UAE’s traditions and social values, he said.

Business Standard:
- India’s inflation accelerated to 11.9% in the week ended July 5^th.

Bear Radar

Style Underperformer:

Mid-cap Growth +.13%

Sector Underperformers:

Coal (-8.05%), Steel (-4.20%) and Energy (-2.09%)irlind

Stocks Falling on Unusual Volume:

PLCM, TCBI, TXT, BK, CWEI, CRK, MTL, NUE, CLF, CMC, RRI, CPL, HES, TTEC, EBAY, VCLK, VIVO, IIIN, LSTR, AREX, CSIQ, SPWR, SCHN, XLNX and IEO

Stocks With Unusual Put Option Activity:

1) BRL 2) CREE 3) EXC 4) ACE 5) EBAY

Housing Starts Rise, Jobless Claims Increase, Philly Fed Improves

- Housing Starts for June rose to 1066K versus estimates of 960K and 977K in May.

- Building Permits for June rose to 1091K versus estimates of 965K and 978K in May.

- Initial Jobless Claims for this week rose to 366K versus estimates of 380K and 348K the prior week.

- Continuing Claims fell to 3122K versus estimates of 3180K and 3203K prior.

- Philly Fed for July fell to -16.3 versus estimates of -15.0 and -17.1 in June.

BOTTOM LINE: US housing starts unexpectedly surged the most in more than two years in June because of a change in NYC’s building code that overshadowed a slide in single-family home construction, Bloomberg said. Excluding a jump in construction of multifamily units in the Northeast, starts would have dropped 4%. Single-family home starts were the slowest in 17 years. Residential construction fell at a 24.6% pace in the first quarter and subtracted 1.1 percentage points from growth. Housing Starts will remain muted over the intermediate as homebuilders pare down inventories.

The number of Americans filing first-time claims for unemployment benefits rose last week, Bloomberg reported. The four-week moving average of claims fell to 376,500 from 381,000 the prior week. During the 2001 recession, which was one of the mildest on record, jobless claims averaged around 415,000. The unemployment rate among those eligible for benefits, which tracks the US This is still well below the long-term average of 2.9%. I expect the job market to continue to improve modestly through year-end. unemployment rate, fell to 2.3% from 2.4% the prior week.

Manufacturing in the Philly region improved slightly in July, Bloomberg reported. The New Orders component rose to -12.1 from -12.4 the prior month. The Prices Paid component rose to 75.6 versus 69.3 prior. The Prices Received component fell to 28.8 versus 29.7 in June. The Outlook component, for the next six months, fell to +18 versus +21.3 in June. I expect the Philly Fed to improve slightly again next month.

Bull Radar

Style Outperformer:

Large-cap Value (+1.19%)

Sector Outperformers:

I-Banks (+1.69%), Banks (+1.55%) and Oil Service (+1.50%)

Stocks Rising on Unusual Volume:

CVBF, CATY, BLK, WB, JPM, JNS, OII, OLN, DKS, KMX, EOC, KOF, RECN, AMED, BBBB, HURN, SUSQ, CVBF, ZION, AFAM, ARTC, GTIV, UBSI, AMTD, WPPGY, GBCI, SHOO, PVTB, OKSB, FMBI, NITE, ASBC, BRL, IYG, CCK, KNL, AF, ADS, APH and WSO

Stocks With Unusual Call Option Activity:

1) BRL 2) CEPH 3) KBE 4) LFC 5) GSS

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